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Speaker 1: This is Bloomberg Daybreak you up for this Thursday, the

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Speaker 1: twenty fifth of May in London.

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Speaker 2: Coming up today, spelling out concern Fit considers cutting America's

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Speaker 2: triple A rating as a death default looms.

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Speaker 1: Trust Anomics returns to guilt markets UK borring costs SAW,

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Speaker 1: leaving Sunak and Bailey with little room for maneuver.

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Speaker 2: Pause for thought. FED officials lean towards skipping at June

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Speaker 2: rate hike.

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Speaker 3: Tata for now, thecoming mortgage storm and the bank stocks

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Speaker 3: which are now mean stocks. Those are stories we're looking

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Speaker 3: at in today's papers. I'm James Walcock.

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Speaker 1: Fas in Vidia's stock Nirvana shares in the world's most

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Speaker 1: valuable chip maker, Skyrocket on AI process of forecasts.

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Speaker 4: That's all straight ahead on Bloomberg Daybreak Europe. The business

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Speaker 4: news you need to start your day in just one

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Speaker 4: fifteen minute podcast on Apple, Spotify, the Bloomberg Business App

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Speaker 4: and everywhere you get your podcast.

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Speaker 2: Yes, good morning, I'm Stephen Carroll and I'm Caroline Hetger.

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Speaker 1: Here are the stories that we're following today. Fitch says

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Speaker 1: that America's triple A rating is under threat as the

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Speaker 1: political standoff over the debt ceiling inches towards a crisis.

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Speaker 1: The ratings agency says that it may downgrade its assessment

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Speaker 1: of the United States to reflect the political impasse as

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Speaker 1: the so called X date nears. Speaking exclusively to Bloomberg,

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Speaker 1: the former Dallas FED president Robert Kaplan says the move

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Speaker 1: is not surprising.

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Speaker 5: I think what's going on with Fitch speaks to the

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Speaker 5: fact that default should be off the table. But we

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Speaker 5: do need a real discussion because we're going to have

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Speaker 5: problems down the road if we don't get physical discipline.

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Speaker 1: Caplan's comments come as strategists at JP Morgan Chase and

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Speaker 1: Morgan Stanley have warned that an impasse threatens the outlook

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Speaker 1: for equity markets.

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Speaker 2: The increasing market on ease comes as House Speaker Kevin

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Speaker 2: McCarthy sought to offer reassurance over talks to raise the

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Speaker 2: debt ceiling. Here's what he told reporters on Capitol Hill.

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Speaker 6: I am not going to give up. We're not going

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Speaker 6: to default. We're going to solve this problem. I will

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Speaker 6: stay with it until we can get it done. But

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Speaker 6: let's be honest about this. We have to spend less

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Speaker 6: than we spent last year.

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Speaker 2: Despite McCarthy's reassurance, as JP Morgan now says there's a

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Speaker 2: twenty five percent chance the US will run out of

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Speaker 2: money before a deal is done. An analyst south the

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Speaker 2: Bank warned that those odds are worsening.

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Speaker 1: UK bond deals have hit high is not seen since

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Speaker 1: the depths of the Trust a nomics crisis last autumn.

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Speaker 1: Traders are now betting a full percentage point a further

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Speaker 1: interest rate hikes after April's inflation breeding came in hard

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Speaker 1: and expected. Yesterday. Speaking to us here on Daybreak Europe,

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Speaker 1: Jane Foley, head of FX rast year Rabibank, says that

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Speaker 1: it's a major concern for the UK.

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Speaker 7: We had to course the cost to borrow in the

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Speaker 7: gilt curve rising back up to those levels not scene

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Speaker 7: since that Liszt Trust mini budget last year, and I

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Speaker 7: think that raised a lot of negative connotations. I mean,

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Speaker 7: we have this position now where the bag may have

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Speaker 7: to hike even more in order to get in play down.

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Speaker 7: But the question is what is that going to do

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Speaker 7: to the economy. And this is also this side de

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Speaker 7: bit going on. Why is UK inflation so much higher

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Speaker 7: than the Uter Zone? For instance?

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Speaker 1: Jane Foley's comments reflect that while headline cpis by the

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Speaker 1: most in thirty years. The UK still has the highest

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Speaker 1: inflation rate in the G seven. Traders are now betting

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Speaker 1: the Bank of England will have to continue hiking rates

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Speaker 1: longer than the FED and the ECB UK ten year

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Speaker 1: guilt yields are up another three basis points this morning.

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Speaker 2: Germany suffered a recession over the winter, according to fresh

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Speaker 2: data released today. Revised GDP figures show first quarter output

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Speaker 2: shrank by zero point three percent in the in that

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Speaker 2: first quarter that follows a zero point five percent drop

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Speaker 2: between October and December of last year. The contraction was

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Speaker 2: driven by a deepening downturn in Germany's manufacturing sector. The

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Speaker 2: data cast doubt on a rebound many had anticipated for

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Speaker 2: the coming quarters.

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Speaker 1: FED officials are leaning towards pausing interest rates in June,

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Speaker 1: but according to the minutes from there may meeting, the

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Speaker 1: central Bank's policymakers aren't yet ready to call time on

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Speaker 1: hikes altogether. FED Governor Christopher Wallace says that any pause

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Speaker 1: needs to be data dependent.

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Speaker 8: I do not support stopping rate hikes unless we get

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Speaker 8: clear evidence that inflation is moving down towards our two

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Speaker 8: percent objective. But whether we should hike or skip at

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Speaker 8: the JEW meeting will depend on how the data come

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Speaker 8: in over the next three weeks.

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Speaker 1: Wallace hawkish tone comes after fedshedjow in Power said that

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Speaker 1: policy makers could afford to watch the data and the

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Speaker 1: evolving outlook before making a decision. Officials have already raised

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Speaker 1: rates by five percentage points in the past fourteen months

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Speaker 1: as they look to curb inflation.

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Speaker 2: Shares in the US Microprocessing Giant and Vidia have jumped

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Speaker 2: in late trading, soaring buy as much as twenty nine percent.

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Speaker 2: This after booming demand for AI processors increased its sales

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Speaker 2: forecast well beyond Wall Street expectations with more hares Binbrooks

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Speaker 2: Charlie Pallace.

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Speaker 9: In Vidia is the world's most valuable chip maker. It

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Speaker 9: said sales in the three month sending in July will

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Speaker 9: be about eleven billion dollars. That shattered an average analyst

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Speaker 9: estimate of seven point one eight billion dollars. The outlook

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Speaker 9: suggests that in videos benefiting even more from the AI frends,

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Speaker 9: even thought, the company has positioned itself as the top

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Speaker 9: provider of components for training artificial intelligence software, and that

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Speaker 9: has helped it whether a broader slowdown in technology spending

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Speaker 9: in New York. Charlie Pellett, Bloomberg Daybreak.

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Speaker 2: Europe says some of our top stories on the program

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Speaker 2: this morning, Carolyn, we do like to talk about food

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Speaker 2: at this time, and I would like to point the

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Speaker 2: Lakes Station in the broader context of the inflation story

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Speaker 2: in the UK. Of the Bloomberg Breakfast Index.

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Speaker 1: It's not going to be good though.

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Speaker 2: No, of course it's not the Breakfast Index hitting a

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Speaker 2: new high. The price of ingredients to make an English

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Speaker 2: breakfast has risen to nearly thirty six pounds. This is

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Speaker 2: part of the food inflation story you've been talking about.

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Speaker 2: I always have to point out that it's not just

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Speaker 2: one person's English breakfast pounds.

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Speaker 1: It's all basket.

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Speaker 2: The say, actually, I think you need to be cooking

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Speaker 2: for about eight people to be able to use all

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Speaker 2: the ingredients.

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Speaker 1: I am often cooking for ECE and so that is

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Speaker 1: pretty grim.

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Speaker 2: Then eggs the biggest increase in price of the ingredients,

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Speaker 2: so for it doesn't up nearly forty percent year on year.

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Speaker 1: Shocking, And again it's all around the kind of uniqueness

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Speaker 1: of the UK. How much of this is to do

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Speaker 1: with exit barriers and not? I mean that is you know,

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Speaker 1: that the book has some research in and shows that

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Speaker 1: that is the part of the picture at least.

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Speaker 2: And as we heard from Jane Rabbit Jane Fley from

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Speaker 2: Rabbit Bank earlier as well, UK vulnerable to further food

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Speaker 2: price shocks as well, the likes of things like drought

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Speaker 2: in Spain could have a much bigger impact here than

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Speaker 2: necessarily in other parts of the country.

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Speaker 1: You tempted me with a conversation about food, but it

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Speaker 1: actually ended up being really criminal tricks you. Yes, okay, lovely,

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Speaker 1: thank you so much for that. Let's turn our attention

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Speaker 1: then to the wrangling over the debt ceiling in the US.

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Speaker 1: Now it means that credit rating agencies are looking warily

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Speaker 1: at the United States a warning film Fitch as it

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Speaker 1: moved the US to rating watch negative. Let's get more

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Speaker 1: fum bluebags market support a Valuie titel. We've been talking

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Speaker 1: to you all morning about this issue. How important the

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Speaker 1: verdict film Fitch is, Whether there could be more to

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Speaker 1: come from rating agencies, any further developments this morning.

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Speaker 10: Well, I think the fun thing to note is that

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Speaker 10: even if we get a resolution this week, let's say

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Speaker 10: there is still a likelihood of a downgrade. If we

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Speaker 10: look at what happened back in twenty eleven. S and

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Speaker 10: P didn't actually downgrade the US until after the debt

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Speaker 10: ceiling resolution, but just claiming the instability over the Treasury's

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Speaker 10: ability to pay to pay its bills was enough for

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Speaker 10: it to warrant a drop from triple A down to

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Speaker 10: double A plus. So that was what happened in twenty eleven.

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Speaker 10: It could happen again this year.

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Speaker 2: I note the broad definition of use of the word

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Speaker 2: fun their valerie when describing that at what's been the

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Speaker 2: market reaction to this move so far?

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Speaker 10: Look, the most notable thing yesterday was the jitteriness we're

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Speaker 10: seeing happening in the T bill market. Yesterday the June

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Speaker 10: sixth maturity topped seven point two percent, which is just

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Speaker 10: it's just insane when you think about the rest of

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Speaker 10: the curve is trading around where Fed funds is so

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Speaker 10: around five percent, that this kind of premium is being

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Speaker 10: put on these T bills. But you know, the other

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Speaker 10: worrying thing about that was two days ago. It was

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Speaker 10: the June fifteenth TEA bill everyone was worried about. Now

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Speaker 10: it's the June sixth te bill. Let's see if any

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Speaker 10: more political wrangling gets that moved up to the June

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Speaker 10: first T bill. I'm sure that's not what the market

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Speaker 10: wants to see. And there was some notes out from

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Speaker 10: the street. The one that caught my eye was JP

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Speaker 10: Morgan saying there's now a twenty five percent chance and

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Speaker 10: rising that they're going to miss this X date on

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Speaker 10: the first of June.

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Speaker 1: Yeah, So then on the watch for what other ratings

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Speaker 1: agencies say? I suppose Fitch perhaps first.

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Speaker 10: So Fitch was the first one to put them on

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Speaker 10: negative watch s and p has them stable. Moody has

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Speaker 10: their outlook stable as well. But what we do know

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Speaker 10: about ratings agencies is they tend to follow each other.

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Speaker 10: So we could get another ratings agency putting them on

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Speaker 10: a negative watch. I wouldn't necessarily find that surprising. It's,

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Speaker 10: you know, raged the agencies normally are a few weeks

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Speaker 10: behind the curve. If we look at what they did,

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Speaker 10: we're on First Republic. They didn't downgrade First Republic until

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Speaker 10: a few weeks into the crisis. So, but it has

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Speaker 10: a bit more implications when it comes to treasuries because

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Speaker 10: clients are any funds out there holding treasuries as a

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Speaker 10: safe asset. Once it gets downgraded, there are some technicalities

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Speaker 10: to which they maybe have to reweight their portfolio so

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Speaker 10: that the maybe the average rating is still triple A.

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Speaker 10: So it does get into some messy details, but I

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Speaker 10: think I think we're a bit far away from that.

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Speaker 10: I wouldn't necessarily see a big move out of treasuries

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Speaker 10: on a downgrade. It'll probably be very similar to twenty eleven,

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Speaker 10: where the US got downgraded and there was still a

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Speaker 10: phenomenal rally into treasuries just because it's risk off safe paper.

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Speaker 2: Still, what should we be deducing from where the spy

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Speaker 2: Where in those tea bills the spike is happening in

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Speaker 2: terms of yields, it's this the market saying where they

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Speaker 2: feel the potential act state is.

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Speaker 10: Well, it's where money markets are feeling where the potential

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Speaker 10: X date is. Money markets or money market funds don't

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Speaker 10: necessarily have a maturity target or a duration target as

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Speaker 10: we'd call it, so they can really pick and choose

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Speaker 10: what kind of tea bill that they want to put

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Speaker 10: their money in. And as we know, there's a ton

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Speaker 10: of T bills. If you look at what the front

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Speaker 10: end of the curve, I mean, there's one maturing almost

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Speaker 10: every week, So you know, it's really at their discretion

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Speaker 10: which ones they want to hold. And you know, why

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Speaker 10: would they hold one that matures June sixth or June first,

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Speaker 10: when they could, you know, maybe extend out the curve

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Speaker 10: and buy one in July at a lower yield but

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Speaker 10: a safer instrument. So it's more of a reflection of

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Speaker 10: where the money market sees to worry. But it's been

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Speaker 10: very interesting to watch to see this kind of angst

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Speaker 10: building and these yields have been taking higher and higher

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Speaker 10: over the week. You know, that's seven point two yesterday.

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Speaker 10: What a record should we say for this for the

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Speaker 10: stat selling angst? Yeah, we actually heard from a money

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Speaker 10: market manager at Pimco saying that these T bill yields

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Speaker 10: could reach ten percent, which when he said that, we

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Speaker 10: all rolled our eyes thinking that's crazy. But hey, I

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Speaker 10: mean we're at seven. We're not far from it now.

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Speaker 1: Allow, thank you so much for being with us Bimbo's

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Speaker 1: market support of value. So I tell yes on some

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Speaker 1: well some eyebrow raising moves in markets.

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Speaker 2: Up next, Tata for now, the coming more good storm

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Speaker 2: and our bank stocks now, Meme stocks.

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Speaker 9: Now the paper.

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Speaker 4: Review on blue Bird daybreak Europe the news you need

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Speaker 4: to know from today's papers.

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Speaker 1: James joins us this morning for more. Great to have

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Speaker 1: you with us the Financial Times. Firstly, I'm writing about

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Speaker 1: Rishi Sunat meeting a major UK investor. The investor's got

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Speaker 1: some demands.

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Speaker 3: Though exactly so. The chair of Tata's group, Caroline, is

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Speaker 3: coming to the Canet week. That was first reported by

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Speaker 3: the BBC. Now, we don't just follow every sort of

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Speaker 3: chair of companies around the UK, even though we are Bloomberg,

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Speaker 3: but Naturalajan Chandrasakaran is a big deal because Richie Sunak

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Speaker 3: has wanted for a very long time to boost the

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Speaker 3: UK economy, to pivot the economy to sort of more

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Speaker 3: industrial green focus kind of in manufacturing. And there is

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Speaker 3: a big gigafactory making evs up for grabs the big

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Speaker 3: rivals of Spain. Now, like you said that catch the

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Speaker 3: Indian group originally asked for about five hundred million pounds

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Speaker 3: in total financial support for the UK. Now the ft

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Speaker 3: writing that there is an energy substy on the cars

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Speaker 3: for the factory. It's hard to calculate the cost of that,

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Speaker 3: but it is astronomically high in the region that they

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Speaker 3: have asked for and it does tie back to brugs.

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Speaker 3: That I have to say, because the cost for the

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Speaker 3: UK for energy is higher than on mainland Europe. So

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Speaker 3: one of the ways of luring them in and building

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Speaker 3: in sort of this big sort of manufacturing based in

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Speaker 3: the UK may be to create more money. It's worth

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Speaker 3: adding though, as well as that that the House is

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Speaker 3: also trying to extract promises for Tata Steel in port

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Speaker 3: albert which is always on the tail of another three

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Speaker 3: hundred million pounds, So we are looking at a nearly

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Speaker 3: billion pound cost. Now you compare that to say the

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Speaker 3: US Inflation Reduction Act, and you're starting to see that

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Speaker 3: even though Rishi's son at calls this an unfair subsidy

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Speaker 3: race that UK won't be dragged into, he may be

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Speaker 3: being dragged in, whether he likes it or not.

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Speaker 4: Yeah.

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Speaker 9: Absolutely.

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Speaker 1: And also this story has played out over months in

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Speaker 1: terms of you know, the carrot offers a government of

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Speaker 1: you know, more jobs and more building and so on,

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Speaker 1: but you know what the government would be prepared to

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Speaker 1: put into I think this is a real kind of

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Speaker 1: debate about how the government deals with industry. And this

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Speaker 1: is an industry member that that's a built top you

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Speaker 1: know that all kind of initiated in some sense the

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Speaker 1: growth of car building.

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Speaker 2: Indeed, well, James, let's go to the Times next concerned

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Speaker 2: about yesterday's inflation figures and what it means for mortgages.

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Speaker 3: Yes, and they write up comments from the boss of

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Speaker 3: Barkley's Csvenkata Krishnan, who says that two decades ago and

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Speaker 3: for the most until recent history, if you're financing mortgages

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Speaker 3: and average system of the UK, your about twenty percent

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Speaker 3: of your income is going onto that. The wave of

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Speaker 3: refinancing coming now will jump it up to thirty percent

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Speaker 3: of your income. So not just as everything costs more

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Speaker 3: in the shops, you have less money to go onto it.

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Speaker 3: I mean, Neil can and Bloomberg's real estate Supremo says

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Speaker 3: that more than a million homeowners will see their mortgages

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Speaker 3: come up for refinancing this year, and so this is

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Speaker 3: going to feed through the economy from both sides, both

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Speaker 3: goods and mortgages. Kurrently, I did go and do the

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Speaker 3: data you always like when I bring you some numbers

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Speaker 3: to December twenty twenty one, your average five year fixed

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Speaker 3: mortgage two point sixty four percent the cheapest you can

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Speaker 3: get now the cheapest versus the average is four point

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Speaker 3: oh three percent from First Direct, and it is only

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Speaker 3: going to be climbing higher off the back of those

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Speaker 3: inflation figures yesterday.

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Speaker 1: Yeah, gosh, I think the kind of long tail of

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Speaker 1: the cost of living. We called it a crisis, but

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Speaker 1: actually I think it's a longer duration issue potentially. Anyway,

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Speaker 1: the last story is also quite the fascinating. So Wall

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Speaker 1: Street Journal focusing in on retail investors and games stop

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Speaker 1: investors have perhaps found a new target. It's a similar theme.

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Speaker 3: Yes, so there is always gonna be volatility markets. That's

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Speaker 3: in some ways what markets are. It's almost definitional. But

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Speaker 3: what Wall Street Journal has spotted out and done some

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Speaker 3: research into is the incredibly volatile swings in US regional

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Speaker 3: banks are at least in part, being driven at the

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Speaker 3: extreme ends by Reddit investors, the very same group of

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Speaker 3: people who were driving the GameStop phenomenon over a year ago.

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Speaker 3: And they profile Daniel Bettencourt, who's a thirty year old

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Speaker 3: pub owner in California who runs a discord who's been

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Speaker 3: putting in options on PacWest, one of the regional banks

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Speaker 3: struggling there. And when you're seeing these volatile swings of

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Speaker 3: twenty percent or more a week, either both negative and positive.

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Speaker 3: They are talking about how he has this discord thing

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Speaker 3: he came to kill banks is a real quote that

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Speaker 3: he put in there, and a lot of the bank

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Speaker 3: executives are now saying, wait, but GameStop for a video

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Speaker 3: game company, it's okay if they face kind of irrational volatility,

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Speaker 3: whereas we run bricks and more for Commy, I dare

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Speaker 3: say they may have been given a bit of a

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Speaker 3: taste of their own medicine.

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Speaker 2: This is Bloomberg Daybreak Europe, your morning brief on the

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Speaker 2: stories making news from London to Wall Street and beyond.

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Speaker 1: I'm Caroline Hepka and.

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Speaker 2: I'm Stephen Carroll. Join us again tomorrow morning for all

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