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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is the Bloomberg Day BAQ podcast, available every morning

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Speaker 2: on Apple, Spotify or wherever you listen. It's Thursday, the

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Speaker 2: sixth of March here in London. I'm Caroline Hipki and.

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Speaker 1: I'm Stephen Carroll. Coming up today, Germany's bond route goes

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Speaker 1: global as Japanese yields hit their highest level in a decade.

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Speaker 2: French President Emmanuel Marcon says he is open to using

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Speaker 2: the country's nuclear deterrent to protect European allies.

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Speaker 1: Plus a partial reprieve Trump DeLay's auto tariffs on Canada

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Speaker 1: and Mexico, as the Bank of England governor warns America's

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Speaker 1: trade war won't fix it's trade imbalances.

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Speaker 2: Let's start with a roundup of our top stories.

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Speaker 1: Japan's government bond deals have reached their highest levels in

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Speaker 1: more than a decade as a route and German debt

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Speaker 1: reverberates across the globe. The news also led to a

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Speaker 1: surgeon yields in Australia and New Zealand. Markets are continuing

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Speaker 1: to react to a dramatic shift in Germany's spending plans

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Speaker 1: that saw the country's bonds off for their worst day

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Speaker 1: since the fall of the Berlin Wall in nineteen eighty nine.

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Speaker 1: Bloomberg's Markets Live stretch. As Mark Cranfield says, the impact

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Speaker 1: of those moves should be seen in that context.

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Speaker 3: This is a sea change. This is a watershed moment

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Speaker 3: for Europe, for the euro for everything to do with

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Speaker 3: Mantro policy.

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Speaker 4: It's a very different situation than just a few weeks ago.

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Speaker 1: The moves show how geopolitical volatility over the past few weeks,

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Speaker 1: including fraying US support for Ukraine and evolving tariff threats,

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Speaker 1: has affected financial markets as traders gauge the impact on

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Speaker 1: growth and inflation well.

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Speaker 2: The routing global bond markets comes as the European Central

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Speaker 2: Bank is expected to cut interest rates later today, but

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Speaker 2: markets are already pairing wages on further rate cuts by

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Speaker 2: the ECB. Expectations are building around the scale of boring

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Speaker 2: required to finance spending plans to counter the threat of

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Speaker 2: Russian aggression across the continent. Here's the view of Bob Michael,

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Speaker 2: who is the chief investment Officer and head of Global

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Speaker 2: fixed Income at JP Morgan.

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Speaker 4: I think you're looking at steeper curves in Europe. I

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Speaker 4: think you're going to see a lot of issuance. They've

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Speaker 4: thrown fiscal austerity to the side. They've looked at what's

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Speaker 4: going on in China and the US and they want

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Speaker 4: to join the party and they're going to I still

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Speaker 4: see the ECB bringing rates down towards two percent, but

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Speaker 4: I think with the amount of supply that's potentially coming

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Speaker 4: in Germany, you're going to drift up towards three percent.

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Speaker 2: Bob Michael speaking there as analysts and investors focus on

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Speaker 2: whether the ECB continues to describe policy as restrictive.

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Speaker 1: As markets readjust to the cost of rearming. In Europe,

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Speaker 1: Francis President Emmanuel Macron says he'll start talks on using

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Speaker 1: the country's nuclear capabilities to defend allies on the continent.

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Speaker 1: Macron's decision follows a request from the German Chancellor in waiting,

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Speaker 1: Friedrich Martz, and comes ahead of any emergence and see

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Speaker 1: EU leader's summit to discuss the Ukraine and European security

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Speaker 1: later today. Here's what the French president said in his

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Speaker 1: televised address to the nation.

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Speaker 5: Our nuclear deterrent protects US. It is complete, sovereign and

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Speaker 5: French through and through. Since nineteen sixty four. It has

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Speaker 5: explicitly played a role in preserving peace and security in Europe.

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Speaker 5: But in response to the historic appeal of the future

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Speaker 5: German Chancellor, I have decided to open the strategic debate

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Speaker 5: on the protection afforded by our deterrent to our allies

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Speaker 5: on the European continent. Whatever happens, the decision has always

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Speaker 5: been and will remain in the hands of the President

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Speaker 5: of the Republic, Head of the Armed Forces.

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Speaker 1: French President Emmanuel Macron. There Thursday's EU Summit is expected

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Speaker 1: to endorse a loosening of the fiscal rules to allow

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Speaker 1: for additional defense spending over the next four years. The

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Speaker 1: gathering comes as it was revealed the US has stopped

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Speaker 1: providing Most Intelligent to Ukraine. It's the latest evidence of

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Speaker 1: Washington ratcheting up its pressure campaign on Kiev following the

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Speaker 1: decision to pause military aid to the country.

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Speaker 2: US person Donald Trump is giving carmakers an exemption from

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Speaker 2: new tariffs on Mexico and Canada, but only for one month.

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Speaker 2: Bloomberg has learned that automakers lobbied heavily for the reprieve,

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Speaker 2: calling Commerce Department officials Trump himself and even involving their workers'

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Speaker 2: unions to give them leverage. White House Press Secretary Caroline

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Speaker 2: Levitt announced the change.

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Speaker 6: We spoke with the big three auto dealers. We are

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Speaker 6: going to give a one month exemption on any autos

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Speaker 6: coming through USMCA. Reciprocal tariffs will still go into effect

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Speaker 6: on April seconds, but at the request of the companies

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Speaker 6: associated with USMCA, the President is giving them an exemption

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Speaker 6: for one month, so they are not at an economic disadvantage.

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Speaker 2: Shares in Stilanti's GM and four jumped after Levitt's announcement,

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Speaker 2: but the delay said up another crossroads next month, when

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Speaker 2: Trump is planning a new wave of taris, including on

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Speaker 2: auto imports.

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Speaker 1: Specifically, the risk of a recession is growing as tarif

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Speaker 1: related uncertainty and indicators of economic weakness spread fear across

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Speaker 1: Wall Street. Separate models from JP Morgan and Goldman Sachs

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Speaker 1: both saw the chance of a downturn ten percent higher

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Speaker 1: that at the end of last year. Concerned economists like

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Speaker 1: former Treasury Secretary Larry Summers point to stubborn inflation pressures

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Speaker 1: and the recent slump in consumer and business confidence.

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Speaker 7: If you were thinking about buying a new car or

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Speaker 7: buying a new house. When you wait, and when everybody waits,

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Speaker 7: the economy slows down. And that's why the risk of recession,

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Speaker 7: which everybody thought was extremely unlikely on January twentieth, is

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Speaker 7: now seen by many many people as a real and

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Speaker 7: serious risk of for some time this year. So I

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Speaker 7: think we're doing real damage.

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Speaker 1: Summer as compared to the US President, Colin Tariff say

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Speaker 1: small disturbers to the FED, calling inflation transitory. However, financial

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Speaker 1: markets have struggled to guess the direction of the economy

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Speaker 1: since the pandemic.

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Speaker 2: The governor of the Bank of England says the US

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Speaker 2: trade war is a risk to the global economy. Despite

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Speaker 2: the UK so far escaping any tariffs, Andrew Bailey warned

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Speaker 2: Britain will face consequences. He told lawmakers the change in

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Speaker 2: US policy was a major shift.

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Speaker 3: We have to dig in at those point and say

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Speaker 3: how do we address these issues satisfactorily. We can't ignore them,

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Speaker 3: frankly at that point because otherwise risks to the UK situation,

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Speaker 3: to UK growth, the impact on inflation could be ambiguous,

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Speaker 3: but the risks of the UK economy and the world

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Speaker 3: economy are substantial.

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Speaker 2: Andrew Bailey and the other central bankers testifying said that

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Speaker 2: the uncertainty meant policy would need to remain restrictive. The

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Speaker 2: pound jumped to its highest level in four months on

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Speaker 2: the comments.

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Speaker 1: Those are your top stories on the markets. We're watching

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Speaker 1: the bonds sell off going global after the worst routing

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Speaker 1: German bunts since reunification. The tenure yield in Japan now

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Speaker 1: at one point five one percent, up seven basis points,

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Speaker 1: a big move in context for jgbs. We're looking at

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Speaker 1: German bun futures extending those declines, pointing to another five

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Speaker 1: basis point rising yields at the open. We also see

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Speaker 1: big move in equity markets. Yesterday, the S and P

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Speaker 1: five hundred finished up one point one percent, The NASDAK

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Speaker 1: finished up one point four percent, the Dacks in Germany

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Speaker 1: finishing up by three point four percent, its best day

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Speaker 1: in over two years. The broader Eurostocks fifty index up

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Speaker 1: one point nine percent. The Euro strengthening further today, up

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Speaker 1: another two tenths of one percent, crossing one oh eight

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Speaker 1: against the dollar, the best three day gains for the

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Speaker 1: single currency since twenty fifteen. In Asia, we're looking at

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Speaker 1: the Hang Seng up two point seven percent, the MSCI

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Speaker 1: China Index three point one percent. Are tech shares performing

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Speaker 1: strongly in age at the hang sing Tech indexes up

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Speaker 1: by four point seven percent.

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Speaker 2: So those are the markets. In a moment. Will bring

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Speaker 2: more on how the bond market blowout over Germany's defense

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Speaker 2: spending plans has affected so many markets, and we'll give

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Speaker 2: you some heads up about what may come next, plus

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Speaker 2: what we should expect from today's meeting of EU leaders

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Speaker 2: on Ukraine.

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Speaker 1: Plenty to dig into. There another story that Carter II

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Speaker 1: though briefly just imagine from our opinion columns Stephen Carter

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Speaker 1: writing about beards. This is after the New York Yankees

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Speaker 1: baseball team lifted their ban on players being allowed to

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Speaker 1: have beards. I didn't realize that was still a thing.

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Speaker 2: Yes, it is a thing. So there are lots of

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Speaker 2: different views about why they've done it. Basically, is it

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Speaker 2: to allow these sports people to distinguish themselves better, therefore

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Speaker 2: to market themselves, and you know, to kind of give

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Speaker 2: them more freedom to be individuals. That's one take on it,

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Speaker 2: where there are others.

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Speaker 1: Yeah, I mean, look, I was interested to read into

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Speaker 1: sort of the history of the societal perceptions of beards,

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Speaker 1: which Stephen Carter goes into in this article as well

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Speaker 1: and saying things like you know twenty fifteen, for study

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Speaker 1: found that women were less likely to vote for male

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Speaker 1: candidates who had facial hair. For example. Apparently it's still

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Speaker 1: an issue in hiring is that people are less likely

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Speaker 1: to hire men with beers than men who don't, although

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Speaker 1: there is one research paper highlight in this piece showing

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Speaker 1: that it can help if you have worked a job

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Speaker 1: in sales for whatever reason. I also just wonder as

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Speaker 1: well how different the perceptions are in different parts of

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Speaker 1: the world. I mean, I have never been ahead of

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Speaker 1: a trend on anything, and I've had a beard for ten.

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Speaker 2: Years, so it's good to say I'm allowed to reveal

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Speaker 2: to all radio listeners that you are sports.

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Speaker 1: I mean I was on TV at the time, but

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Speaker 1: there was a debate with my boss at the time

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Speaker 1: when I grew a beer, just to whether or not

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Speaker 1: it was a good idea.

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Speaker 8: It's beastic.

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Speaker 2: Social hair remains controversial, very interesting. Thank you so much

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Speaker 2: to a pretty big opinion columnist, Stephen Carter then for

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Speaker 2: giving us fodder to chat this morning.

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Speaker 1: Let's go back to the top story this morning, the

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Speaker 1: selloff that we saw in German bonds going global we've

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Speaker 1: talked about the jumped in Japanese yields as well. We've

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Speaker 1: got our executive editor for Asia Markets, Paul Dobson with

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Speaker 1: us from More. Well, can you just first of all

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Speaker 1: put the moves that we saw in Germany in context

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Speaker 1: For US, a thirty basis point move in one day,

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Speaker 1: we're looking at a ten year bondshield now almost at

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Speaker 1: two point eight percent. How significant is this and does

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Speaker 1: it look like it could be temporary or lasting?

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Speaker 8: Our Good morning, Stephen, Caroline. Yeah, I mean it is

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Speaker 8: a very significant and large and unusual move that we

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Speaker 8: saw in the bond market. As you said, you know,

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Speaker 8: we haven't seen such a similar size of move in

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Speaker 8: yield terms since the end of the Berlin Wall. But

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Speaker 8: bonds are not supposed to move in a violent way, right,

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Speaker 8: They're supposed to be low volatility investments. People like them

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Speaker 8: because they don't move very far. But the price, for example,

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Speaker 8: of Germany's thirty year bond move more than four percent

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Speaker 8: lower yesterday, which means that if you're sitting on it,

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Speaker 8: your paper loss is looking pretty big and pretty unusual,

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Speaker 8: hurting you quite a lot. And on the flip side

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Speaker 8: of that, you know, the higher interest rates mean that

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Speaker 8: it's going to cost the German government a lot more

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Speaker 8: to borrow. If you think about the adjustments that you've

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Speaker 8: had over your mortgage rate, as the Bank of England

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Speaker 8: or a European central bank was raising interest rates in

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Speaker 8: recent years, then that's the kind of thing, but on

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Speaker 8: a much greater magnitude. So it's going to cost Germany

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Speaker 8: a lot more to raise all of this extra money

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Speaker 8: that it wants because investors are anticipating that massive flood

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Speaker 8: of extra supply into the market. So yeah, very significant,

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Speaker 8: very nasty, one day move, I think. Is it enduring, Yes, absolutely,

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Speaker 8: because we don't We've only got the very basic parameters

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Speaker 8: of what this might look like so far. If you're

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Speaker 8: assuming that it's going to pass in Germany and that

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Speaker 8: it looks like, you know, give or take it it

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Speaker 8: all to be able to go through, it's a paradigmatic shift,

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Speaker 8: it really is, because that lifts a lot of the

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Speaker 8: sort of presumptions that investors had when they took on

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Speaker 8: these bond investments in the first place. So as a result,

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Speaker 8: Germany is going to carry a much higher risk premium

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Speaker 8: than previously. That said, so you look at it, look

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Speaker 8: at from the other perspective, Germany's borrowing costs are still

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Speaker 8: lower than pretty much anywhere else, certainly in Europe, So

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Speaker 8: it is still the safest a set, but all of

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Speaker 8: a sudden, not quite as safe. And it's all to

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Speaker 8: do with those for plied demand dynamics.

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Speaker 2: Yeah, the tenure yields at two seventy nine versus the

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Speaker 2: Japanese yield this morning at one fifty one, but that

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Speaker 2: has also seen a major move. How is it playing

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Speaker 2: out in Asia? Why such a big move also in

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Speaker 2: Japanese yields.

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Speaker 8: Yeah, so Japanese yields have been on an upward trajectory

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Speaker 8: for a while. For so long, you know, decades they

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Speaker 8: were they were very very low so and even negative

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Speaker 8: at some points on the tenure. But we've seen them

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Speaker 8: slowly inching higher over the last eighteen months to two years.

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Speaker 8: And the reason for that is that inflation has finally

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Speaker 8: whipped its way back into the Japanese system, and that

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Speaker 8: means that the Bank of Japan, ever so cautiously intentatively,

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Speaker 8: has started to raise interest rates. So when those Japanese

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Speaker 8: investors are looking across the global markets, now, you know,

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Speaker 8: they have huge amounts of money too to deploy. They

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Speaker 8: like to put a lot of it into Europe. But

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Speaker 8: if all of a sudden, you know, their their investments

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Speaker 8: in Europe are less certain, you know, or they can

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Speaker 8: get a higher yield for those investments in Europe, maybe

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Speaker 8: then relatively speaking, maybe they're going to demand a higher

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Speaker 8: yield premium in order to continue to put that money

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Speaker 8: in their home market as well. So corresponding rise in

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Speaker 8: interest rates there as well, which takes us to you know,

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Speaker 8: the highest levels that we've seen in ever so many years.

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Speaker 8: But that's part of an ongoing trend and it's one

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Speaker 8: of the reasons that the yen has been strengthening over

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Speaker 8: the past few months as well.

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Speaker 1: And just cycling back then to Europe, Poul, we've got

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Speaker 1: the ECB decision today, we're expecting a move in interest

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Speaker 1: rates lower from the ECB. But will Christine Legard faced

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Speaker 1: tough questions about what higher bond yields are going to

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Speaker 1: mean for potential fiscal stress in European countries.

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Speaker 8: I think there'll be an awful lot of questions. It's

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Speaker 8: perfect timing in some ways, terrible timing in others, because

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Speaker 8: there's so much uncertainty out there for the ECB to

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Speaker 8: deal with. People are pretty much convinced that the ECB

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Speaker 8: will cut interest rates today, but they're looking forward to

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Speaker 8: what the outlook from here looks like. Goldman Sachs removed

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Speaker 8: one of the cuts that it had in its forecast

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Speaker 8: for the rest of the year already, Lumur, I think

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Speaker 8: took away too. So, you know, the banks are starting

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Speaker 8: to challenge whether the ECB will have the same amount

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Speaker 8: of room to cut interest rates as it were previously.

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Speaker 8: And the reason for that is if the likes of

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Speaker 8: Germany are all raising a lot more money in the

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Speaker 8: markets that they're going to spend invest put to work,

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Speaker 8: either in defense and in the rest of the economy,

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Speaker 8: then that all things being equals, should lead to higher growth.

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Speaker 8: Und it shouldlead to higher inflation as well, and so

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Speaker 8: that gives the ECB less room, less wiggle room or

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Speaker 8: maybe less incentive to cut interest rates as fast as

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Speaker 8: it might otherwise have done. So I think there's going

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Speaker 8: to be difficult questions on the rate side for Madame

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Speaker 8: Legarde and the crew, and like you said, also on

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Speaker 8: fiscal sustainability. You know, if everybody he does start, you know,

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Speaker 8: spending a lot more breaking the debt cap that Europe

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Speaker 8: has in place in order, you know, to fund the

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Speaker 8: defense that's needed to protect the borders. You know, how

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Speaker 8: does the ECB, Yeah, she said a long time ago.

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Speaker 8: It's not our business to look off to spreads. It's

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Speaker 8: not our business to worry about those kinds of things.

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Speaker 8: But if the funding cost starts to really spiral and

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Speaker 8: get out of hand, then it may be a difficult

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Speaker 8: connundi for the ECB.

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Speaker 2: Paul, thank you for being with us, Sad. It's Bloomberg's

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Speaker 2: executive editor for Asian Markets, Paul Dobson.

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Speaker 1: Well, of course, part of the conversation is political around

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Speaker 1: the defense spending as well, and that's going to be

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Speaker 1: continued at an emergency meeting of EU leaders in Brussels

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Speaker 1: later today. This after France's President Emmanuel Macron said he'll

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Speaker 1: enter into talks on using France's nuclear capabilities to defend

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Speaker 1: European allies. Our EAS director Roslind Mathson is with us

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Speaker 1: for more RUZ. First of all, on what we heard

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Speaker 1: from Emmanuel Macron. Are these significant comments? What sort of

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Speaker 1: message was he trying to send with his address to

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Speaker 1: the nation last night.

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Speaker 9: France is the only country in the EU that does

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Speaker 9: have a nuclear Arsenal. So what France is saying is

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Speaker 9: that perhaps they can look at stepping in in a

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Speaker 9: way to provide that element of deterrence for the continent,

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Speaker 9: and that's something that the incoming German chance, so in

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Speaker 9: fact Friedrich Merz is already raised, is maybe as everyone

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Speaker 9: in the region is asked to step up, that's one

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Speaker 9: way that France can do it. But obviously that's a

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Speaker 9: delicate one for France and certainly for Macron to navigate domestically.

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Speaker 9: But the idea would be again just to provide some

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Speaker 9: kind of regional deterrent in the event that the US

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Speaker 9: no longer wants to do So.

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Speaker 2: Do you think that we're going to get more announcements

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Speaker 2: of additional military spending, perhaps at today's summit, after Germany's

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Speaker 2: announcement of a major ramp up in military spending.

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Speaker 9: We may, although Macron didn't give a lot of details

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Speaker 9: obviously in his speech last night, And what was interesting

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Speaker 9: in a way is that he noted that any increase

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Speaker 9: in defense spending can't be funded by tax increases, and

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Speaker 9: that just shows that for a lot of countries in

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Speaker 9: the region, they don't have a lot of wiggle room.

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Speaker 9: I mean, Germany probably has the biggest amount of fiscal

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Speaker 9: room there, but for other countries too, the options aren't

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Speaker 9: that great. You either load up on debt and they're

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Speaker 9: already loaded up on debt, or you increase taxes, or

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Speaker 9: you cut spending, and there's just a lot of room

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Speaker 9: to cut spending. And already, if you're talking about cutting

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Speaker 9: things you know that people find important in their own

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Speaker 9: daily lives, like education, healthcare, social welfare or so on,

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Speaker 9: you're going to find yourself in difficult straits politically. So

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Speaker 9: that's why it's interesting to see. You know, countries are

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Speaker 9: talking in very general terms right now, we must increase

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Speaker 9: our defense spending, we must do more on defense, but

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Speaker 9: putting actual figures on it can be a bit tricky.

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Speaker 1: I mean, how difficult is it going to be to

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Speaker 1: get the fiscal get out claus activated to be able

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Speaker 1: to kind of allow over their spending. I supposed to

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Speaker 1: do the paperwork that has to come with these ambitions.

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Speaker 9: Well, some of it can be done without needing every

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Speaker 9: country in the EU to support it and vote for it.

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Speaker 9: So some of those issues around maybe issuing loans allowing

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Speaker 9: countries to spend more on their own defense without busting

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Speaker 9: the fiscal rules of the EU and so on. But

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Speaker 9: you know, things like joint financing of debt, joint issuance

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Speaker 9: of debt, which is a really big one, and that's

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Speaker 9: the kind of money that's really needed if they're talking

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Speaker 9: about the kinds of steps up in defense spending that

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Speaker 9: Donald Trump at least would argue Europe needs to do.

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Speaker 9: And that requires everyone in the EU to agree, and

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Speaker 9: that's where it's going to get a lot trickier. So

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Speaker 9: they can do they can, they can come up with

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Speaker 9: some things, and it's clear they're trying to and those

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Speaker 9: are on the magnitude of hundreds of billions of dollars. Obviously, However,

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Speaker 9: you know, the really big stuff requires everyone in the EU,

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Speaker 9: and that's going to be a lot harder.

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Speaker 2: How far do we think that European leaders can actually

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Speaker 2: make up for the sudden pullback in US support for Ukraine?

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Speaker 2: You know, the concern only increasing because of the recent

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Speaker 2: move to freeze some intelligence going to Ukraine and the

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Speaker 2: impact actually on the battlefield.

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Speaker 9: Well, that's right, there's a lot of expectation that the

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Speaker 9: US has pulled back on intel sharing and what does

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Speaker 9: that mean for Ukraine on the ground. And obviously, you know,

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Speaker 9: the Intel network does require the US to be part

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Speaker 9: of it, so even if Europe is still in there,

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Speaker 9: it's going to be partial intel sharing. And obviously on

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Speaker 9: the weapons side the US. Without the US, Europe's quite

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Speaker 9: limited because even though they've been a really big provider

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Speaker 9: of aid to Ukraine and all of that, it's important

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Speaker 9: to remember Europe has been sending a ton of weapons

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Speaker 9: and financial aid to Ukraine, They're running low and they

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Speaker 9: can't make up for the US not sending their own

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Speaker 9: weapons in and so there's a lot of talk that

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Speaker 9: Ukraine may run very long weapons as soon as the summer.

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Speaker 9: As a result, you know, a lot of the stocks

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Speaker 9: in Europe are also pretty low.

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