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Speaker 1: Good morning.

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Speaker 2: It's Tuesday, the fourth of July in London. This is

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Speaker 2: the Bloomberg Daybreak you at podcast. I'm Caroline Hepkintt and.

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Speaker 3: I'm Stephen Carroll. Coming up today, Morgan Stanley tells Bill

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Speaker 3: Dudley he's wrong about the bond market as the yield

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Speaker 3: curve heads back to the nineteen eighties.

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Speaker 2: The Bank of England's new policy maker says that raids

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Speaker 2: may never come back down.

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Speaker 3: And we hear from the boss of Watchfinder about the

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Speaker 3: growing number of high end fake time pieces that are

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Speaker 3: so convincing even the experts are struggling to tell them

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Speaker 3: apart from the real thing. Let's start though, with air

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Speaker 3: und up of our top stories.

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Speaker 2: Morgan Stanley Stratchus say Bill Dudley has got it wrong

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Speaker 2: on the bond market. The former head of the Frederal

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Speaker 2: Reserve Bank of New York says that he expects ten

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Speaker 2: year US Treasury yields to rise to four and a

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Speaker 2: half percent, with high boring costs wreaking havoc on the economy.

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Speaker 2: But the Wall Street Giants macro strategy team disagree, calling

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Speaker 2: the bond route long in the tooth, arguing that yields

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Speaker 2: will fall back to lower levels. The out comes as

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Speaker 2: a key segment of the US Treasury yield curve approached

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Speaker 2: its most inverted level in decades. Ira Jersey, chief US

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Speaker 2: Interest Rates TRATSUS for Bloomberg Intelligence, says it's all about

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Speaker 2: a growing number of bets on further rate tightening.

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Speaker 4: So it's going to stay inverted more than likely, because

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Speaker 4: remember that long end of the yield curve is taking

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Speaker 4: into account what the market expectations are for the long term.

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Speaker 4: So you know, will inflation come down in twenty twenty five,

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Speaker 4: twenty twenty six. The Federal Reserve will probably cut interest

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Speaker 4: rates once that happens, and so the yield curve will

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Speaker 4: likely stay inverted. Now, I think the question is will

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Speaker 4: it invert a little bit more before it starts to uninvert.

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Speaker 2: Bloomberg Zara Jersey says that he doesn't expect the curve

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Speaker 2: to uninvert until sometime next year. A US yield curve

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Speaker 2: inversion has preceded every recession since the nineteen sixties.

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Speaker 3: Two of All Street's largest lenders are questioning the fed's

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Speaker 3: stressed test projections for their future income. Bank of America

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Speaker 3: and City Group say they're now in discussions with the

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Speaker 3: Central Bank over the calculations. Bloomberg's finance porter Catherine Doherty

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Speaker 3: breaks down the disagreement.

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Speaker 5: Each of them.

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Speaker 6: Differ in how they're saying their projections are opposed or

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Speaker 6: in opposition to the FED. So Bank of America said

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Speaker 6: in its statement that it's talking to the FED to

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Speaker 6: understand differences in its comprehensive income over this nine quarter

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Speaker 6: stress test period, and separately, City said it was looking

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Speaker 6: in to understand differences in its non interest income. So

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Speaker 6: in Baba's case, the fed's projection was a bit rosier.

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Speaker 6: For some of the City's forecasts, it was the opposite,

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Speaker 6: so it was more of a negative figure.

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Speaker 3: Catherine Doherty says the stakes for both banks are high,

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Speaker 3: as the fed's annual stress test results helped to determine

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Speaker 3: investor payouts.

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Speaker 2: Now, the US is preparing to curtail Chinese company's access

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Speaker 2: to cloud computing services from the likes of Amazon and Microsoft.

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Speaker 2: That according to The Wall Street Journal, the report comes

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Speaker 2: as China imposed restrictions on the export of two metals

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Speaker 2: crucial to the production of semiconductor mind chips. From next month,

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Speaker 2: Gallium and germanium, along with their chemical compounds, will be

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Speaker 2: subject to Chinese National Security export controls. Matti Jao, head

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Speaker 2: of Asia Pacific Basic Metals at the Bank of America,

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Speaker 2: says that restrictions will have an impact.

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Speaker 5: It will definitely push up the costs in a big

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Speaker 5: magnitude and Gallian and Germanian are very important mettals for

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Speaker 5: like for example, solar panel and semiconductors as well, So

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Speaker 5: of course if this completely ban, it takes longer time

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Speaker 5: for them to source the materials.

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Speaker 2: Matti Jiao spoke to Bloomberg as China and the US

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Speaker 2: increasingly go head to head in a battle for technological

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Speaker 2: dominance in terms of quantum computing, AI and chip manufacturing.

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Speaker 3: Here in the UK, the Bank of England's newest policymaker,

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Speaker 3: Meghan Green, is warning that interest rates may settle at

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Speaker 3: higher levels permanently. Writing in the Financial Times, she says

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Speaker 3: AI and GREEN investments may boost economic growth and rates.

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Speaker 3: Green also warns against complacency in the fight against inflation,

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Speaker 3: suggesting she could back further interest rate rises when she

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Speaker 3: joins the Monetary Policy Committee in July.

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Speaker 2: Those comments come as major banks have been summoned to

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Speaker 2: meet the UK's financial watchdog over at low savings rates.

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Speaker 2: The Financial conduct althought. She says that it expects chief

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Speaker 2: executives from HSBC, nat West, Lloyd's and Barclay's to answer

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Speaker 2: questions about profiteering claims. Harriet Baldwin chairs the Commons Treasury Committee.

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Speaker 7: Well, we think that they shouldn't be recouping their profitability

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Speaker 7: on the back of their most loyal savers. So where

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Speaker 7: there's a loyalty penalty, you know the regulator will be

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Speaker 7: very concerned and we think that will be hard for

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Speaker 7: the banks to prove that they're treating their customers fairly.

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Speaker 2: Conservative MP Harriet Baldwin's comments come as lenders face accusations

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Speaker 2: of being quick to hike loan raids but slower to

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Speaker 2: pass on higher boring costs to savers.

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Speaker 3: Meanwhile, the governments and talks with insurers about a pledge

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Speaker 3: to invest billions of pounds in startups and infrastructure projects.

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Speaker 3: Bloomberg understands insurers could agree to invest about five percent

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Speaker 3: of the defined contribution parts they manage. The Chancellor Jeremy

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Speaker 3: hunts you to give details of the plant and his

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Speaker 3: Mansion House speech next week. The level of commitment over

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Speaker 3: time could be in the tens of billions of pounds.

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Speaker 3: Short of the fifty billion pound pool proposed by the

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Speaker 3: Lord Mayor of London, Nicholas Lions.

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Speaker 2: And lastly, Instagram's highly anticipated Twitter Rifle is expected to

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Speaker 2: launch on Thursday. Threads will offer text based posts that

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Speaker 2: can be liked, commented on, and shared. People will be

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Speaker 2: able to follow the accounts that they follow on Instagram

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Speaker 2: and keep their same username. The launch comes as Twitter

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Speaker 2: limits the number of posts that users can see and

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Speaker 2: reduces access to its tweet deck desk top That is

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Speaker 2: such a tongue twist, but there we are. Those are

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Speaker 2: our top stories.

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Speaker 8: Can you use it?

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Speaker 3: That's the most important thing. Yes, and will it be

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Speaker 3: integrated with Threads as well? Look another social network to

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Speaker 3: get a handle on. If you want a good briefing

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Speaker 3: on this or by the way, our opinion columnist Davelye

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Speaker 3: has written a great piece on the terminal which we'll

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Speaker 3: tell you a little bit about the other challengers to

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Speaker 3: Twitter that have tried to set up and the varied

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Speaker 3: success they've had, and the question really of capacity. Twitter

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Speaker 3: had these technical difficulties over the weekend where the number

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Speaker 3: of post people could read had to be limited, and

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Speaker 3: the question, I suppose the hope behind the threads app.

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Speaker 3: From Meta's point of view is at least they have

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Speaker 3: the engineering capacity, they have the servers, they know how

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Speaker 3: to deal with billions of users. So at least a

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Speaker 3: rival to Twitter could potentially have the at least technical

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Speaker 3: backup to it that some of those other platforms have

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Speaker 3: failed so far anyway to capture.

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Speaker 2: Yeah, I mean, to my mind, it's just means a plethoro.

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Speaker 2: Social media just another platform that one has to kind

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Speaker 2: of deal with more output, more inputs.

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Speaker 3: Well, we haven't had, you know, early on in the

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Speaker 3: life of social media, of course, there was lots of

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Speaker 3: platforms that rose and died, whereas we actually haven't had

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Speaker 3: much of a change over recent years. So perhaps this

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Speaker 3: will be the next Here we call it a paradigm

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Speaker 3: shift in social media. Do things reach the whole line

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Speaker 3: of paradigm social media anyway, that's another subject for discussion.

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Speaker 3: Another story that I've seen this morning that's worth sticking

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Speaker 3: into our ound credit swite and this is it's wealth

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Speaker 3: staff being told to brush up their CVS and personal

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Speaker 3: development plans ahead of a selection process for career progression.

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Speaker 3: As Credit Suese integrates with UBS, we knew this process

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Speaker 3: was coming and that it was going to potentially be

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Speaker 3: very difficult for those movie over from Credit sweep because

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Speaker 3: the bank is seeking to cut so many staff members.

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Speaker 3: But people being told get ready.

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Speaker 1: Yeah, but it's soon. It's mid July.

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Speaker 2: The appointments for management levels within well the ubs, so

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Speaker 2: credit swite people in ubs. Yes, so it's actually very

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Speaker 2: very soon, very interesting personnel issues that we need to

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Speaker 2: think about. Also, though, let's senn our attention to our

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Speaker 2: top story. So the Morgan Stanley clash with the former

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Speaker 2: New York Fed head Bill Dudley.

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Speaker 1: He's got a very.

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Speaker 2: Bearish case in terms of tenure treasury yields rising to

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Speaker 2: four and a half percent.

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Speaker 3: Let's turn to Bloomberg's Andy vander Wolters with us in

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Speaker 3: studio this morning for more on this. This question, Dan

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Speaker 3: of Bob Dudley and work and Stanley. Does this excite

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Speaker 3: you in terms of is it a clash of the Titans?

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Speaker 2: Yeah?

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Speaker 9: Absolutely, Look, Garfields is cernally big shoes to fill. But

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Speaker 9: I will try a curve. Inversion in the US has reached,

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Speaker 9: you know, extreme levels. We are really seeing the ten

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Speaker 9: year yield a significantly lower than two year yields, something

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Speaker 9: like one hundred and ten basis points. Now, the big

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Speaker 9: question is we will see resteepening at some point, Right,

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Speaker 9: that's bound to occurs, and that it's a natural state

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Speaker 9: for markets. The question is how does that occur. Do

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Speaker 9: we see that the short end of the rates markets

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Speaker 9: collapse with central banks crashing economies and infation coming down

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Speaker 9: as a result, or do we see ten year yields

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Speaker 9: rising because economies remain strong and inflation only falls slowly,

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Speaker 9: so the re steepening is coming. The question is how?

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Speaker 9: And that means everything for markets at the moment in terms.

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Speaker 2: Of the depths the US yield curve inversion. I mean,

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Speaker 2: do we still think that yield curve inversion is the

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Speaker 2: strong signal of recession to come twelve to eighteen months

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Speaker 2: down the line?

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Speaker 9: Well, yeah, that is absolutely the heart of the question, right.

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Speaker 9: I think that I think investors will be asking themselves,

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Speaker 9: as they always do, is this time different for the

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Speaker 9: yield curve?

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Speaker 8: Right?

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Speaker 9: The yield curve has been a really really strong indicator

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Speaker 9: for future economic growth, and that inversions has always you know,

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Speaker 9: been it's a forecast for about eighteen months into the future.

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Speaker 9: This time it may be different. It feels a little

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Speaker 9: bit like the causes are very different. We're coming out

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Speaker 9: of a pandemic. We've had that ultra high inflation, but

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Speaker 9: growth isn't slowing at the place that people were expecting

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Speaker 9: it to, right, We're not seeing the the US recession,

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Speaker 9: We're not seeing the jobs market slow. So the evidence

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Speaker 9: isn't there yet. But you know, the future is a

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Speaker 9: murky place, and the the yield curve may well prove

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Speaker 9: me wrong.

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Speaker 3: Well, how much does the actions of the Federal Reserve

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Speaker 3: that influence where this story goes next?

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Speaker 5: Yeah?

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Speaker 9: I think so. We're seeing these pauses from the RBA today,

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Speaker 9: from the FED, you know, talk at the ECB. The

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Speaker 9: question is what do they come back with. Right, if

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Speaker 9: we see ultra hawkish policy, that's probably a sign that

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Speaker 9: the that that growth is quite strong. Still, I think

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Speaker 9: the fact that we are pausing at the moment is

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Speaker 9: quite a good development for the market. It shows that

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Speaker 9: the central bankers are taking the transmission mechanism and the

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Speaker 9: lags into account. But I think beyond that we probably

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Speaker 9: see more divergence. So, you know, we are seeing places

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Speaker 9: like China almost in deflation and in the UK almost

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Speaker 9: double digit inflation. So we are seeing some divergence in

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Speaker 9: central bank policy going forward.

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Speaker 2: Absolutely, and it's fascinating that there is such a clash

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Speaker 2: within the markets actually in terms of you know, heavyweight

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Speaker 2: players have very different views about what's happening in the

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Speaker 2: bond markets. Eddie, thank you so much for being with us.

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Speaker 2: Poomberg's Eddie van Derveldt there.

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Speaker 3: Turning next to a really interesting conversation, Caroline that you

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Speaker 3: and Tom McKenzie have been having about watches and particularly

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Speaker 3: fake watches.

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Speaker 2: Yeah, so called Frankenstein watches are on the rise.

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Speaker 1: Familiar with Yeah, me neither. But it came up about

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Speaker 1: a month ago.

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Speaker 2: Where the Swiss watchmaker Omega alleged that three former employees

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Speaker 2: were actually involved in this criminal plot that resulted in

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Speaker 2: the sale of a fake speed Master. It wasn't just

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Speaker 2: any old cell, it was an auction and this timepiece

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Speaker 2: actually fetched three million dollars. So it got a lot

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Speaker 2: of people's attention, a lot of focus in the industry

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Speaker 2: around the fact that actually these quality fake watches or

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Speaker 2: hybrid watches that are made with bits of old time

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Speaker 2: pieces and now becoming so good that it's really really

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Speaker 2: hard to tell them apot the real deal. And so

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Speaker 2: we were speaking to Ian van Derval, who is the

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Speaker 2: CEO of Watchfinder and Co. This is an online store

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Speaker 2: mainly that deals in second hand watches, of course, and

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Speaker 2: he was asking buyers and sellers to be really vigilant

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Speaker 2: about this because actually even they are struggling to tell

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Speaker 2: the difference between genuine and counterfeit watches.

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Speaker 1: Have a listen to what he.

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Speaker 2: Had to say. How big an issue is this for

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Speaker 2: the industry.

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Speaker 8: It is, It's always been a problem. I think what

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Speaker 8: we're seeing we have consumers we want to be associated

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Speaker 8: with luxury brands, and sometimes it's a matter of accessibility,

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Speaker 8: the price point and beyond. But what we're seeing in

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Speaker 8: the last years is that the level of sophistication of

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Speaker 8: these fake watches is increasing significantly. So in the olden

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Speaker 8: days and the authentication of watches it's kind of art

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Speaker 8: and science. So there is a checklist that we have,

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Speaker 8: but our watchmakers, when they feel a watch, they have

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Speaker 8: a first impression if real or not. In the olden days,

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Speaker 8: you would say that roughly twenty percent of watches required

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Speaker 8: really further inspection to understand if it was a real

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Speaker 8: or a fake watch. Today it's more eighty twenty. So

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Speaker 8: it's the other way around where we really need to

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Speaker 8: do very forrough testing and inspection to understand if it's

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Speaker 8: a genuine watch or not.

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Speaker 10: Where are these being produced on the continent they produced elsewhere?

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Speaker 10: What presumably this is a function of those record high

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Speaker 10: prices that we saw for luxury hand pieces time pieces

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Speaker 10: during the pandemic, and the stimulus checks that people were

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Speaker 10: putting to play to snap up these watches. That must

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Speaker 10: be a factor. And then again where they being made

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Speaker 10: and to what extent is the industry coming together to

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Speaker 10: kind of fight this.

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Speaker 8: So it's really a global problem because in order to

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Speaker 8: create watches of that quality, you need access to specific tools,

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Speaker 8: and you need real technicians, you need watchmakers to be

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Speaker 8: able to put those together. So it's not necessarily one

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Speaker 8: specific region where it comes from. As an industry. What

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Speaker 8: we're seeing is that so for us, all of the

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Speaker 8: watches that we sell, we own, and before we buy them,

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Speaker 8: all of the watches go through a sixty step process.

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Speaker 8: So it's an inspection of the watch cosmetically, but it's

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Speaker 8: also checking if the watch is not registered on any

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Speaker 8: lost in stole and databases, and then it's authentication steps

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Speaker 8: to match the serial number with the documentation and then

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Speaker 8: step by step every part is inspected, after which we

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Speaker 8: look at the functioning of the watch, and then, depending

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Speaker 8: on what work we find needs to be done, we

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Speaker 8: operate on these watches within our service center, and that

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Speaker 8: is something that is not a standardized process. That is

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Speaker 8: really our process. But as one of the industry leaders,

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Speaker 8: we encourage the industry as a whole to adopt similar practices.

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Speaker 8: So it's not just about fake watches, but it's also

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Speaker 8: very much about lost and stone watches.

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Speaker 1: Okay, that's interesting. What are the brands that are most faked?

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Speaker 8: So Rolex is d most aspirational luxury watch brand and

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Speaker 8: the highest demand, hence it's the most replicated. But you

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Speaker 8: today you see replicas or clone watches, very very high

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Speaker 8: quality watches of virtually all of the big luxury brands.

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Speaker 8: So the whole gamma is represented today.

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Speaker 10: But when it comes to Rolex, is there a percentage?

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Speaker 10: Is it kind of eighty percent of the fakes a

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Speaker 10: Rolex is what your kind of? Is there a number

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Speaker 10: you can put to that? Approximately?

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Speaker 8: Yeah, it's difficult to put a number to it. But

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Speaker 8: if you look at the watch industry as a whole

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Speaker 8: and the proportion that Rolex has within it, then you

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Speaker 8: would say up to fifty percent is probably.

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Speaker 2: Rolex up to fifty Okay, fine, has has it changed

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Speaker 2: a great deal?

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Speaker 1: Then?

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Speaker 2: As we saw the kind of market boom now prices

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Speaker 2: are coming down in terms of the secondary market. Has

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Speaker 2: the level of kind of fake watches that you're finding

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Speaker 2: has that changed in the last two five year compared

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Speaker 2: to five years.

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Speaker 1: Ago, two years ago?

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Speaker 8: Yeah, So it's always been somewhat up and down. And

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Speaker 8: the percentage of fake watches that we get in is

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Speaker 8: anywhere between ten and seven eight percent on a yearly basis.

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Speaker 8: I said, I think the main difference that we're seeing

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Speaker 8: is that the level of sophistication of these watches is changing,

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Speaker 8: but also that certain parts of the watch can be genuine,

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Speaker 8: but then there's fake parts being used in the watch.

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Speaker 10: Is there more that some of the luxury brands themselves

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Speaker 10: could be doing.

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Speaker 8: Yeah, absolutely, And there's a lot of initiatives that brands

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Speaker 8: are doing today, utilizing the blockchain, for example, to register

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Speaker 8: all watches as a unique piece on the blockchain. And

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Speaker 8: there's also a lot of work being done to understand

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Speaker 8: visual markers on a watch that make it very difficult

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Speaker 8: to mimic at a level of quality in a fake watch.

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Speaker 10: And you might do with banknotes for example.

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Speaker 8: Yeah, exactly, yes, and so there are various initiatives in

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Speaker 8: the industry that are being done. As a pre owned player,

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Speaker 8: being part of the Richmond Group, we also get to

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Speaker 8: collaborate directly with the brands and support in that.

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Speaker 2: In admission, Yeah, I mean obviously Richmond you know, Cartier

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Speaker 2: course not own lots of those big brands and names.

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Speaker 2: What do you do then, if a customer sends in

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Speaker 2: a fake watch?

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Speaker 1: What do you do if somebody complain?

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Speaker 2: So I think the watch I bought is fake, I

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Speaker 2: don't know what's well, that's.

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Speaker 8: That's complicated because in many cases we don't assume that

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Speaker 8: there's any wrongdoing from the customer who wants to sell

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Speaker 8: us the watch, so very often it's met with surprise.

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Speaker 8: Depending on the jurisdiction, there's various things that we have

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Speaker 8: to do. So in certain cases we're not allowed to

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Speaker 8: send the watch back. We need to hold on to it.

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Speaker 8: In other cases we can return to watch, but.

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Speaker 1: Different return the watch to the customer.

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Speaker 2: Yeah.

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Speaker 8: Yeah. And the cases where it's us selling a watch

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Speaker 8: that is then fake, that's our reputation that's on the line,

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Speaker 8: and lucky those cases are virtually non existing in the

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Speaker 8: twenty years that we've been we've been around, but typically

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Speaker 8: those are quite tough conversations to have with our clients.

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Speaker 10: Yes, yeah, I bet that's probably a diplomatic wave, so

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Speaker 10: underplaying how challenging that must be. That conversation it taught

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Speaker 10: us about before we let you go about prices of

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Speaker 10: secondhand watches. They've come off quite a lot, particularly at

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Speaker 10: the high end. Do you expect that to continue? Are

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Speaker 10: we nearing a bottom what you're seeing in terms of prices.

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Speaker 8: Yeah, I think, first and foremost, what we've seen this

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Speaker 8: whole speculative wave in the last two or three years,

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Speaker 8: that is not necessarily what is at the heart of

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Speaker 8: preon watches. So preond watches is very much either a

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Speaker 8: gateway into luxury watches at a more friendly price point,

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Speaker 8: or it gives you access to watches that have been

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Speaker 8: discontinued or watches that have a different story to it.

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Speaker 8: Speculation boom peaked really April of last year, and since then,

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Speaker 8: especially the higher segment above ten pounds, have come down

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Speaker 8: thirty forty percent. We now see it stabilizing, although it's

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Speaker 8: still gradually sliding down for us, we as watching and

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Speaker 8: we're not interested in kind of the next crypto run.

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Speaker 8: So for us, it's not about speculation. Stability is good

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Speaker 8: and it's purely to do with our ability to buy

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Speaker 8: watches at the right price point to be able to

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Speaker 8: sell them at the right price point.

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Speaker 2: And I cannot let you go without a mention of

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Speaker 2: a few of your favorites. You must see tens hundreds

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Speaker 2: of the best watches out there for collectors at home.

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Speaker 2: I'm sure listening all your favorites.

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Speaker 8: So I'm lucky that we're part of the Richmond Group

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Speaker 8: and long End Zone is one of the brands, one

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Speaker 8: of the most established maisons that we have, and they

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Speaker 8: released the Odysseus, which is their version of a steel

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Speaker 8: sports watch, and they just released the Chronocraft in Watches

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Speaker 8: and Wonders this year, and that to me is my grill.

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Speaker 8: But I have a lot more work to do before

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Speaker 8: I can entertain that.

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