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Speaker 1: Good morning. It's Friday, the seventeenth of November here in London.

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Speaker 1: This is the Bloomberg Dbreaty Podcast. I'm Caroline Hepka.

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Speaker 2: And I'm Stephen Carroll. Coming up today, alphabets CEO says

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Speaker 2: China will be at the forefront of AI development.

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Speaker 1: The UK Chancellor Bett's on a pension revamp to unlock

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Speaker 1: investment billions.

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Speaker 2: Plus rates versus yields. We discussed if some traders have

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Speaker 2: got ahead of themselves and believing it's job done on inflation.

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Speaker 1: Let's start with a round up of our top stories.

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Speaker 2: Alphabet's CEO says he expects China to be at the

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Speaker 2: cutting edge of artificial intelligence development. Speaking to Bloomberg's underpitch,

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Speaker 2: I warned at the world's two biggest economies will have

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Speaker 2: to work together on developing the technology.

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Speaker 3: From what I can tell, they're making deep investments in AI.

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Speaker 3: The scale of AI research talent in China is just

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Speaker 3: simply astounding to see. So I think, you know, in

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Speaker 3: some ways this question, China is going to be at

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Speaker 3: the forefront of AI, and you know, I think that's

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Speaker 3: a given. And so the question is how do we

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Speaker 3: work over time, both for other countries to make sure

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Speaker 3: you're making progress in AI and over time, how do

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Speaker 3: we develop the frameworks where countries can coexist peacefully in

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Speaker 3: a world in which AI will be everywhere?

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Speaker 2: Sandra our Picchise comments come after business titans, including Apples,

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Speaker 2: Tim Cook and Black Rocks. Larry Fink attended at dinner

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Speaker 2: with the Chinese president on the sidelines of the APEC

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Speaker 2: summit in California, shooting Ping is keen to attract more

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Speaker 2: overseas investment, and in a speech to business leaders, promised

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Speaker 2: to take more quote heartwarming steps to secure additional foreign capital.

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Speaker 1: The largest US chip making machinery firm is facing a

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Speaker 1: criminal investigation after allegedly violating export restrictions. According to Reuter's,

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Speaker 1: Applied Materials is being probed by the Justice Department over

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Speaker 1: dealings with China's biggest chip maker, Smick SMI c our

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Speaker 1: US semi conductor reporter Ian King says that scrutiny of

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Speaker 1: the sector is growing.

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Speaker 4: The key take WIL is that this is an increasing

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Speaker 4: area of scrutiny. This is something that Washington is very

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Speaker 4: focused on. We're hearing a lot of talk from politicians

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Speaker 4: on both sides about whether these trade restrictions have been

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Speaker 4: successful or not, whether China has effectively slipped by them

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Speaker 4: as we saw with the Huawei report. So this is

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Speaker 4: an increasing area of focus. So if you're a company

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Speaker 4: that is part of this market and depends heavily on

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Speaker 4: this market, then there's no doubt that your actions are

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Speaker 4: going to be under greater scrutiny.

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Speaker 1: Bluebags Ian King, who points out that there is a

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Speaker 1: political debate over the success of trade restrictions. The report

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Speaker 1: overshadowed generally upbeat quarterly results from Applied Materials, which top

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Speaker 1: dalyst estimates with its earnings and full cost here.

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Speaker 2: In the UK, Chancellor Jeremy Hunt will lay out Britain's

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Speaker 2: economic direction next week and the autumn statement as the

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Speaker 2: Conservative Party faces a potential wipeout in next year's election.

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Speaker 2: Bloomberg has larry that the Chancellor is planning a growth

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Speaker 2: boosting Autumn statement with incentives to invest in the UK

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Speaker 2: new and Parts reports.

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Speaker 5: MPs from the Chancellor's Conservative party wants him to loosen

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Speaker 5: the purse strings in an effort to boost this more

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Speaker 5: Pole ratings, but Britain's flatlining economy and persistent inflation mean

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Speaker 5: that Jeremy Hans has limited room for maneuver. Bloomberger has

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Speaker 5: learned that along with savings on welfare, the Chancellor is

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Speaker 5: eyeing growth, boosting tax really for smaller businesses and long

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Speaker 5: suggested cuts to inheritance tax. The city will be watching

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Speaker 5: for an update on plans to finally revamp the pension

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Speaker 5: sector to encourage more investments in the UK. The autumn

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Speaker 5: statement comes on Wednesday in London. I'm you in pots

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Speaker 5: Bloomberg Radio.

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Speaker 1: Now to the US, The Federal Reserves Vice Chair for

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Speaker 1: Supervision says that leveraged hedge fund trading in the treasury

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Speaker 1: market can be risky. Michael Barr has joined a number

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Speaker 1: of US officials expressing concern about the strategy, which can

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Speaker 1: play an important role in capital markets. Speaking at a

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Speaker 1: New York FED conference on the te as, he said

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Speaker 1: that leverage must be managed appropriately.

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Speaker 6: Leverage can also increase risks to both market participants and

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Speaker 6: to treasury market functioning, and must be managed appropriately by

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Speaker 6: both investors and their counterparties, including through collecting margin to

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Speaker 6: manage counterparty risk. Staff at the Federal Reserve and other

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Speaker 6: agencies have done important work to analyze leverage in the

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Speaker 6: treasury market using available data. These studies have found that

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Speaker 6: hedge funds are significant investors in treasury cash derivatives and

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Speaker 6: repo markets, that their highly leveraged positions in treasury markets

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Speaker 6: are facilitated by very low or even zero haircuts on

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Speaker 6: their repo financing.

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Speaker 1: Michael Bahr speaking that his comments and remarks come after

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Speaker 1: hedge funds and their trading strategies have come under fire

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Speaker 1: during the Biden administration.

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Speaker 2: The United States and the European Union are pushing for

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Speaker 2: the UN to operate a peacekeeping force in Gaza after

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Speaker 2: the war. Bloomberg has learned the discussion third at an

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Speaker 2: early stage, but could raise pressure on Israel as civilian

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Speaker 2: casualties mount. US Secretary of State Anthony Blincoln says Israeli

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Speaker 2: military can't stay in Gaza for the long term.

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Speaker 7: We've been very clear that there can't be a reoccupation

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Speaker 7: by Israel of Gaza, just as Gaza can't continue to.

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Speaker 4: Be used as a platform to launch terrorist attack.

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Speaker 2: Lincoln spokesperson out of the United States, stood by Israel's

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Speaker 2: evidence that Hamas were running operations inside some of Gaza's hospitals.

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Speaker 2: Israel's Prime Minister Benjaminettania, who says a command center was

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Speaker 2: hidden under the Shifa hospital raided by troops earlier this week.

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Speaker 1: And now A Sorry about the business of sport. A

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Speaker 1: sport focused private equity group has taken a stake in

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Speaker 1: Aston Martin's F one team, valuing it at a billion pounds.

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Speaker 1: Arctos Partners joins a number of investors betting on the

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Speaker 1: sport as it grows in popularity in the US. Canadian

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Speaker 1: billionaire Launce Stroll owns the team, but told Bloomberg that

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Speaker 1: the sales not about fundraising.

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Speaker 7: Let me make it very clear. The team does not

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Speaker 7: require money. We are profitable and we currently spend to

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Speaker 7: the budget cap. You know from the one there's a

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Speaker 7: certain budget cap limit you can't spend beyond that. We're

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Speaker 7: spending to that budget cap and still being profitable. The

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Speaker 7: reason for the minority sale of shares to Arctos. They're

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Speaker 7: very unique in several ways. One their uspace, which was

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Speaker 7: great interest for us with the growth potential in this marketplace.

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Speaker 1: It is the first time that Stroll has sold shares

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Speaker 1: in the F one team, which his son Lance drives for.

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Speaker 1: He is also the largest shareholder in the associated British

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Speaker 1: luxury car maker Aston Martin Lagonda, Okay. In a moment,

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Speaker 1: we're going to look actually about at the markets and

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Speaker 1: about how moves in the yield curve might affect what

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Speaker 1: global central banks do. Next week, our market's life stytion

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Speaker 1: is Mark Franfield will be joining us in just a moment.

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Speaker 1: That's the big kind of bond market story of the week.

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Speaker 1: But then we've had another one that's caught our rye.

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Speaker 1: I mean, who can resist a story about Taylor Swift?

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Speaker 2: Well, apparently nobody can and sell you know how people

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Speaker 2: writing research notes in banks that mentioned of Taylor Swift

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Speaker 2: have gone through the roof. Now, like is this sort

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Speaker 2: of a lame attempt to jump on a zeitgeist as well?

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Speaker 2: But just to give you some examples of titles of

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Speaker 2: research notes from btig how we got bad blood from Goldman.

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Speaker 2: All you have to do is stay, I mean, quoting

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Speaker 2: liberally lyrics from Taylor Swift seems to be the new fashion.

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Speaker 2: Essentially in investor notes, Steve Sasenic because chief Strash is interactive,

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Speaker 2: Broke is describing Taylor Swift, of course, as an economic force.

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Speaker 2: He says, just ask J. Powell and a true phenomenon.

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Speaker 2: And he said, he wonders off this what beatlemania was like,

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Speaker 2: I don't know if people were quoting the Beatles and

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Speaker 2: research notes at the height ten.

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Speaker 1: Maybe not because people were going well, but look, is

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Speaker 1: it because of her business acumen, her billion dollars the lyrics?

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Speaker 4: Yes?

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Speaker 1: Or is it might also be the age of the

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Speaker 1: strategists who are writing the notes. I don't know, that's

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Speaker 1: it's just my perspective. But no, it's interesting, isn't it

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Speaker 1: that she's become such a force. I mean, musicians are

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Speaker 1: now business people and entrepreneurs.

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Speaker 2: Yeah, well, I mean Taylor Swif's been credited with boosting

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Speaker 2: US GDP by about eight and a half billion dollars

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Speaker 2: in the third quarter because of her tour. There's also

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Speaker 2: some pointing to the fact that in fact, the slowdown

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Speaker 2: inflation and concert tickets which contributing to the overall slow

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Speaker 2: down inflation in the most recent numbers in the US,

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Speaker 2: may also be because her tour ended. So that could

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Speaker 2: actually be part of the continuing story of Taylor names

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Speaker 2: that's coming to Uh, I'm sure is there any.

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Speaker 1: Readers study it in a textbook in your university?

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Speaker 2: Pretty soon?

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Speaker 1: I mentioned, right, that's a bit of a yeah, Taylor mania.

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Speaker 1: Let's also talk about what traders are thinking about though,

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Speaker 1: shall we job done? One view, certainly when traders are

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Speaker 1: betting on the idea that central banks will be forced

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Speaker 1: to cut interest rates next year now.

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Speaker 2: Alphabet's CEO Sundar Pitchai says he expects China to be

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Speaker 2: at the forefront of AI, that it's important for the

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Speaker 2: US to collaborate with China on both regulation and innovation.

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Speaker 2: Pitch Eye and executives from Microsoft, City Group, Tesla and

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Speaker 2: other multinationals have been meeting with the Chinese presidents Jingping

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Speaker 2: and US President Joe Biden at the APEX summit in Sanford,

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Speaker 2: and Cisco Nsander Petcheck has been speaking to Bloomberg's Emily Chang.

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Speaker 2: He says the world's two biggest economies will need to

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Speaker 2: work together on the development of artificial intelligence regulation.

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Speaker 3: It's not going to be easy, but I would start

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Speaker 3: from this premise that AI will proliferate. So this is

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Speaker 3: not the inherent nature of software. AI advances will get

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Speaker 3: out to in all countries, and so it is naturally

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Speaker 3: the kind of technology. I don't think there's any unilateral

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Speaker 3: safety to be had. We all have a shared incentive

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Speaker 3: to solve for safety. You know, you could have AI

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Speaker 3: go wrong in one country, that will impact every other country.

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Speaker 3: So in some ways, it's like climate change in the planet.

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Speaker 3: We all share a planet. I think that's true for AI.

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Speaker 3: So now that you know that that will be true,

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Speaker 3: I think you have to start building the frameworks globally

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Speaker 3: to make progress. I've seen it encouraging progress. When the

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Speaker 3: G seven happened in Hiroshima, I think it was a

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Speaker 3: good start. You've seen more progress the Uki summit last week.

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Speaker 3: The administration here, the White House has been leading the

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Speaker 3: way as well, and I saw good encouraging announcements even yesterday.

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Speaker 3: For us in China to start having a dialogue on AI.

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Speaker 8: Well, that was my next question. Should Chinese regulators be

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Speaker 8: part of this conversation on AI regulation?

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Speaker 3: My sense is there is no way you make progress

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Speaker 3: over the long term without China and the US deeply

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Speaker 3: talking to each other on something like AI. So I

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Speaker 3: think that has got to be an integral part of

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Speaker 3: how you make progress. So I think I'm glad to

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Speaker 3: see it. And you know, we have to lay the foundations.

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Speaker 3: The good thing is we are still in early days

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Speaker 3: of the technology, so laying the foundations now will allow

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Speaker 3: us to work through the tough issues and build a

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Speaker 3: common framework over time.

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Speaker 8: How do you think AI Obviously the US presidential election

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Speaker 8: coming up as well, how do you think AI is

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Speaker 8: going to further test election integrity?

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Speaker 3: I think, you know, over time, it's going to lower

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Speaker 3: the barrier for creating you know, artificial information which may

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Speaker 3: or may not mirror what's happening in the real world, right,

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Speaker 3: and that barrier will come down. So in this cat

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Speaker 3: and mouse game, how do we amp up our defenses

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Speaker 3: against that. We are in early stages, right. You know,

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Speaker 3: we were one of the first companies to announce a

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Speaker 3: watermarkting technology for image generation. It's called Synthid, done by

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Speaker 3: deep Mind, and we are providing API access to it.

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Speaker 3: But all of us need to tackle it. These are

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Speaker 3: areas where regulation will have to play a role, right.

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Speaker 3: I think governments will have to overtime pass regulations about

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Speaker 3: what is okay for you know, some of this synthetic content,

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Speaker 3: and so which is why I think you have to

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Speaker 3: think about it, you know, together, Open.

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Speaker 8: AI CEO Sam Moment has said repeatedly he wants to

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Speaker 8: know more about what's happening with AI in China. What

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Speaker 8: do you know and what do you not know about

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Speaker 8: where China is on AI.

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Speaker 3: From what I can tell, they're making deep investments in AI.

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Speaker 3: The scale of AI research talent in China is just

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Speaker 3: simply astounding to see. So I think, you know, in

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Speaker 3: some ways this question, China is going to be at

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Speaker 3: the forefront of AI, and you know, I think that's

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Speaker 3: a given. And so the question is how do we

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Speaker 3: work over time, both for you know, other countries to

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Speaker 3: make sure you're making progress in AI and over time,

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Speaker 3: how do we develop the frameworks where you know, countries

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Speaker 3: can coexist peacefully in a world in which AI will

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Speaker 3: be you know, everywhere.

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Speaker 8: You know, President Biden actually just said he doesn't see

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Speaker 8: the USD coupling with China, but the world does seem

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Speaker 8: to be on a path to two separate internets. Do

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Speaker 8: we continue in that direction? And what does that mean?

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Speaker 3: It's tough to say. You know, things go through in phases.

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Speaker 3: I think we are definitely in a phase where there

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Speaker 3: are more forces pulling it apart. But you know, inherently

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Speaker 3: these technologies also facilitate easy exchange of information, so I

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Speaker 3: think there are countervailing forces as well. So I think

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Speaker 3: it's tough to predict. I do think information wants to

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Speaker 3: flow freely by nature. So you know, my hope is

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Speaker 3: over time, you know, things to couple back again.

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Speaker 8: Could AI or cloud some of these newer businesses that

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Speaker 8: Google has been building, Could that be a path back

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Speaker 8: into China for Google?

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Speaker 3: Yeah? Today we you know, our presence in China is limited, limited,

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Speaker 3: and we are definitely focused on We deeply partner with

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Speaker 3: governments around the world. In fact, one of the big

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Speaker 3: opportunities we have with cloud and AI is many governments

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Speaker 3: are working and they are thinking about how to incorporate

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Speaker 3: AI to transform their services to their citizens, improve their infrastructure.

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Speaker 3: So to the AA where we really focus on, but

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Speaker 3: not mostly visa EA China.

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Speaker 2: So that was Sundar Picchi, the CEO of Alphabet there

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Speaker 2: speaking to Bloomberg's Emily Chang, talking about the need for

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Speaker 2: a global cooperation on AI safety and the importance of

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Speaker 2: working together on climate change. You can hear the full

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Speaker 2: twenty minute conversation on the Bloomberg Talks podcast, where we

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Speaker 2: will find all of our key interviews in one place.

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Speaker 4: Yeah.

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Speaker 1: Absolutely talks about AI sort of being just a similar

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Speaker 1: challenge to climate change and warming. Yeah, totally interesting. Right,

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Speaker 1: Let's also talk about the bond markets, though today job done.

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Speaker 1: That's one view that traders are betting on the idea

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Speaker 1: that central banks will be forced to cut interest rates

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Speaker 1: next year. Inflation data from the US, UK and Eurozone

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Speaker 1: all indicate inflationary pressures are easing. But that also means

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Speaker 1: that the focus shifts from growing too fast to not

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Speaker 1: growing fast enough and pushing yields across the treasury curve lower.

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Speaker 1: And here's the question. Pal and a number of other

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Speaker 1: rate setters, from the Bank of England to the BOJ

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Speaker 1: have said that the sustained move in long term treasury

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Speaker 1: yields has the same effect as a FED introduced rate

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Speaker 1: hike on the US and the global economy. So does

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Speaker 1: that mean that the reverse is true? If yields keep falling,

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Speaker 1: could that overtime function as a rate cut? And where

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Speaker 1: does that leave central bankers? Johnny Snatter discusses Our Market's

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Speaker 1: life strategist Mark Cranfield. Great to have you on the program, Mark,

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Speaker 1: What are your thoughts then on that idea of whether

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Speaker 1: yields falling means effectively a rate cut.

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Speaker 9: It does to some extent, but it eases the burden,

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Speaker 9: particularly in the corporate sector, because they are obviously big

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Speaker 9: borrowers through their bond issuance in the medium term five year,

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Speaker 9: ten year, sometimes even longer term bonds. So if the

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Speaker 9: yields in that part of the curve have already fallen,

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Speaker 9: that obviously gives them a bit of help in the

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Speaker 9: sense that when they go to refinance, they're not having

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Speaker 9: to pay such higher rates. They won't think of it

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Speaker 9: as being much of a rate cut when you consider

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Speaker 9: that the Feder's already raised rates by five hundred basis

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Speaker 9: points from where they were just a couple of years ago,

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Speaker 9: So it doesn't really get much more interesting for them

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Speaker 9: until we're probably down at something like three percent. But

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Speaker 9: the idea that rates are peaked in terms of where

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Speaker 9: official rates are going is probably going to be a

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Speaker 9: comfort to a lot of people, probably to consumers as well.

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Speaker 9: Whether the rate cuts actually come through as quickly as

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Speaker 9: the market is pricing, that's another question, but certainly it's

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Speaker 9: going to be very hard to reverse the psychology now

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Speaker 9: that people really believe that we've seen the highest yields

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Speaker 9: for this cycle.

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Speaker 2: Well, let's dig into that question. Our market's being overly

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Speaker 2: optimistic about the prospect for rate cuts coming in the

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Speaker 2: coming months.

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Speaker 9: They always overdo it, both on the way up and

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Speaker 9: the way down. We saw several times during this cycle

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Speaker 9: where the market got way ahead of itself on the

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Speaker 9: idea of pricing in interest rate increase is especially in

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Speaker 9: the UK. If you remember, it wasn't so long ago

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Speaker 9: the market was pricing for UK rates a way above

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Speaker 9: six percent. Look where we are now. We've gone completely

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Speaker 9: the other way. Ten years. Yields are approaching four percent

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Speaker 9: in the UK. So we're bound to have markets pricing

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Speaker 9: in way too much on the downside. That's just the

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Speaker 9: way things work. People get over excited, they've got leverage

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Speaker 9: to put to work, and they price in too much

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Speaker 9: both directions for higher and lower interest rates. We're talking

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Speaker 9: about something like one hundred basis points worth of rate

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Speaker 9: cuts in the US next year. Market will probably go

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Speaker 9: to one hundred and fifty basis points of rate cuts

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Speaker 9: before the Fed even signal that they're changing direction. So yes,

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Speaker 9: we can expect that markets will get over excited and

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Speaker 9: they will stay that way for quite a long time.

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Speaker 1: It's immensely difficult then for central bankers to sort of

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Speaker 1: thread this, and we've seen it time and time again.

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Speaker 1: As soon as they stop talking about hikes, then markets

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Speaker 1: start thinking about pricing in cuts. I mean, has the

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Speaker 1: FED on a good job? Is it under pressure in

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Speaker 1: terms of what it says.

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Speaker 9: The communication has improved, I think they still from time

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Speaker 9: to time. I think the market can still see some

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Speaker 9: gaps between the different FED speakers. They're not all on

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Speaker 9: the same page, and that's partly why the market is

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Speaker 9: able to start pricing more quickly. So they could do

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Speaker 9: with being a little bit more conformist and sticking with

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Speaker 9: the same script. But in general they've done a better

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Speaker 9: job than some central banks, and I think you'll probably

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Speaker 9: continue to get pushback from the FED. They've still got

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Speaker 9: one more meeting this year. They will probably insist that

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Speaker 9: the table is still open for a potential great hike.

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Speaker 9: They will say that inflation is not beaten. The market

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Speaker 9: won't believe them, but they will still insist that there

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Speaker 9: is room for another hike if necessary. They will try

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Speaker 9: and delay the process of actually changing interest rates for

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Speaker 9: as long as possible, but it's going to be a

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Speaker 9: hard battle because by now investors are convinced that the

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Speaker 9: data what we're seeing in CPI, the data are seeing

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Speaker 9: in some of the jobs numbers, even in your production

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Speaker 9: is soft enough that the market is convinced that the

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Speaker 9: FED has to lower interest rates at some point next year.

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Speaker 2: You say the Fed has done a good job on

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Speaker 2: communication up until now. Are there central banks not quite

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Speaker 2: meeting that standard?

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Speaker 9: I think we've had as from a trading point of view,

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Speaker 9: I think if you ask the community, they would say

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Speaker 9: that the Reserve Bank of Australia and the Bank of

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Speaker 9: England are two of the central banks from time to

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Speaker 9: time which have led them in a certain direction and

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Speaker 9: then not delivered.

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

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