WEBVTT - Daybreak Weekend: Fed Preview, MS Conference, Tencent Earnings 0:00:00.240 --> 0:00:07.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:10.280 --> 0:00:12.639 This is Bloomberg day Break Weekend, our global look at 0:00:12.640 --> 0:00:14.760 the top stories in the coming week from our day 0:00:14.760 --> 0:00:17.520 Break anchors all around the world. Straight ahead on the program, 0:00:17.520 --> 0:00:20.480 and look ahead to this week's Fedroll Preserve policy meeting. 0:00:20.560 --> 0:00:22.079 I'm Tom Busby in New York. 0:00:22.320 --> 0:00:25.079 I'm callin Hetck in Lolton, where we're asking what is 0:00:25.120 --> 0:00:29.080 the place of Europe's financial services sector in an increasingly 0:00:29.120 --> 0:00:30.040 fragmented world. 0:00:30.360 --> 0:00:33.040 I'm dek Risner looking at what we may hear from 0:00:33.120 --> 0:00:36.040 China's ten Cent when the company reports earnings in the 0:00:36.040 --> 0:00:36.640 week ahead. 0:00:38.360 --> 0:00:42.440 That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg 0:00:42.440 --> 0:00:46.160 eleven to three, Yeero, New York, Bloomberg ninety nine to one, Washington, DC, 0:00:46.640 --> 0:00:50.920 Bloomberg ninety two to nine, Boston, DAB Digital Radio, London, 0:00:51.320 --> 0:00:54.520 Sirias XM one twenty one, and around the world on 0:00:54.600 --> 0:00:57.720 Bloomberg Radio, dot Com and the Bloomberg Business App. 0:01:02.840 --> 0:01:04.640 Good day to you. I'm Tom Busby, and we begin 0:01:04.680 --> 0:01:07.240 today's program with the Federal Reserve wrapping up a two 0:01:07.319 --> 0:01:11.160 day meeting on Wednesday with its latest decision on interest 0:01:11.240 --> 0:01:14.039 rates and for more on what this means and a 0:01:14.200 --> 0:01:17.759 new dot plot. We're joined by Michael McKee, Bloomberg International 0:01:17.800 --> 0:01:21.600 Economics and Policy correspondent. Well, Michael, A lot goes into 0:01:21.600 --> 0:01:26.039 the Fed's decision, inflation, jobs, egg prices, economic growth, A 0:01:26.080 --> 0:01:28.240 lot of moving parts right now, especially coming out of 0:01:28.240 --> 0:01:31.240 the White House. Is there just too much uncertainty for 0:01:31.280 --> 0:01:33.200 the Fed to make any moved this week? 0:01:33.400 --> 0:01:36.960 Exactly, They've all pretty much said Jay Powell said. John 0:01:36.959 --> 0:01:40.080 Williams told me in an interview on Bloomberg, we just 0:01:40.280 --> 0:01:43.280 can't move at this point, but we don't feel there's 0:01:43.280 --> 0:01:46.959 a need to because the economy is still growing well 0:01:47.040 --> 0:01:50.880 and inflation is under control, and so there's no point 0:01:50.960 --> 0:01:52.720 to moving if we don't have to. 0:01:53.120 --> 0:01:57.000 Now, let's talk about inflation, because we have seen still rising, 0:01:57.240 --> 0:01:58.400 but it's certainly moderating. 0:01:58.520 --> 0:01:58.720 Right. 0:01:59.120 --> 0:02:03.560 Well, we got mixed signals from CPI and from the 0:02:03.560 --> 0:02:08.280 PPI this week. CPI was a little stronger than people anticipated, 0:02:08.840 --> 0:02:14.640 and PPI was weaker than people anticipated, especially considering that 0:02:14.760 --> 0:02:19.560 both of them feed elements into the PCE, the Personal 0:02:19.600 --> 0:02:24.800 Consumption Expenditures Index, which is the fed's inflation target data point. 0:02:25.000 --> 0:02:29.400 And so it looks at this point unfortunately the CPI 0:02:29.480 --> 0:02:31.720 is going to overwhelm the PPI and it's going to 0:02:32.160 --> 0:02:35.639 maybe push the PCE higher, which would keep the FED 0:02:35.720 --> 0:02:40.200 on hold anyway, So we don't get that till the 0:02:40.400 --> 0:02:43.520 end of the month. But the Fed will be able 0:02:43.520 --> 0:02:45.320 to do the same math that all the Wall Street 0:02:45.360 --> 0:02:50.680 economists are doing, and they'll have a justification now besides uncertainty. 0:02:50.919 --> 0:02:53.720 Well, the last PCE we saw it did show the 0:02:53.760 --> 0:02:56.040 lowest level in seven months, right, so there was some 0:02:56.080 --> 0:02:56.920 progress made. 0:02:57.200 --> 0:02:59.960 There's been progress made, but it's been very, very slow. 0:03:00.080 --> 0:03:02.040 And now if we get a little bump up and 0:03:02.120 --> 0:03:05.120 it doesn't signal that inflation is going to break out again, 0:03:05.160 --> 0:03:07.720 but it does show that the Fed has more work 0:03:07.720 --> 0:03:08.000 to do. 0:03:08.639 --> 0:03:11.079 Let's talk about one thing I know is a favorite 0:03:11.080 --> 0:03:14.720 subject of yours, because egg prices. 0:03:14.919 --> 0:03:18.400 Well it's not me, it was. It was the President 0:03:18.440 --> 0:03:20.440 who made a big deal out of it during the campaign. 0:03:20.440 --> 0:03:23.959 He's that I was elected to bring down egg prices, 0:03:24.560 --> 0:03:28.520 and I'm sorry, but so far he's failed. In the CPI, 0:03:28.760 --> 0:03:31.880 egg prices were up in February by ten point four percent, 0:03:32.240 --> 0:03:35.200 and in the PPI you're ready for this, they were 0:03:35.320 --> 0:03:39.600 up fifty four percent for producers from the producers. I mean, 0:03:39.600 --> 0:03:41.520 that's what the chickens are charging at this point. So 0:03:43.520 --> 0:03:45.800 the egg crisis is not behind this yet. 0:03:46.160 --> 0:03:49.360 It's not going anywhere just yet until we figure this out, 0:03:49.480 --> 0:03:52.080 all right, So that's inflation. Let's talk about jobs, because 0:03:52.120 --> 0:03:54.640 we've seen of you know, not a spectacular number in 0:03:54.680 --> 0:03:58.760 February solid, but of course that doesn't include tens of thousands, 0:03:59.000 --> 0:04:00.680 tens of thousands of federal. 0:04:00.400 --> 0:04:04.520 Workers, right, and we don't yet have a good handle 0:04:04.600 --> 0:04:08.920 on how many. There are some estimates that maybe they've 0:04:09.200 --> 0:04:14.240 let go about twenty thousand people between the layoffs and 0:04:14.800 --> 0:04:19.880 the buyouts, but there's no good compilation of that. The 0:04:20.000 --> 0:04:24.200 job is claims figures we got last week showed fifteen 0:04:24.279 --> 0:04:27.680 hundred people filing because the federal workers are counted in 0:04:27.720 --> 0:04:32.719 a separate category, and eight thousand on continuing claims. So 0:04:32.800 --> 0:04:35.279 that's nowhere near the numbers. We expect those to go 0:04:35.440 --> 0:04:38.839 up a lot. But then on Friday was the deadline 0:04:39.160 --> 0:04:42.960 for all of the federal agencies under Trump to submit 0:04:43.040 --> 0:04:46.240 plans to cut like half their workforce. So we could 0:04:46.279 --> 0:04:49.279 see tens of thousands of people losing their jobs, but 0:04:49.360 --> 0:04:51.680 we just don't know. So the FED has to kind 0:04:51.680 --> 0:04:56.839 of stand by and see and then see what impact 0:04:57.279 --> 0:04:59.000 that has on the overall economy. 0:04:59.320 --> 0:05:02.080 Well, let's talk then about interest rates and how it 0:05:02.120 --> 0:05:05.919 affects housing, because I mean, rates have steadily declined, not 0:05:06.000 --> 0:05:08.360 by a whole lot, though still about six point seven 0:05:08.360 --> 0:05:11.520 percent on average for anyone buying a home. I mean, 0:05:12.440 --> 0:05:14.920 is there any any green shoots in sight? And we're 0:05:14.920 --> 0:05:17.799 coming into the all important spring housing season right now. 0:05:18.200 --> 0:05:21.760 There may be a stray dandelion here and there, but 0:05:22.360 --> 0:05:27.279 we've seen mortgage applications rise a little bit with the 0:05:27.400 --> 0:05:30.800 drop in rates, but on a percentage basis, it's from 0:05:30.960 --> 0:05:35.760 very low to still quite low. It isn't in terms 0:05:35.800 --> 0:05:38.479 of numbers, a lot of applications, and there's just not 0:05:38.600 --> 0:05:40.960 a lot on the market these days. And there's also 0:05:41.000 --> 0:05:45.640 a shortage of houses on the new home side, so 0:05:46.000 --> 0:05:49.520 prices are still staying high even though we see interest 0:05:49.560 --> 0:05:52.000 rates mortgage rates come down just a little bit. And 0:05:52.040 --> 0:05:56.120 it's a conundrum because we never had this situation before 0:05:56.120 --> 0:05:59.760 where interest rates had gotten so low that people are 0:05:59.760 --> 0:06:02.599 now locked into their houses because they don't want to 0:06:03.000 --> 0:06:06.800 buy up a mortgage that's four percentage points higher. And 0:06:06.839 --> 0:06:09.360 nobody's quite sure how to make this work yet, and 0:06:09.400 --> 0:06:13.040 the hope is that the FED can continue to bring 0:06:13.080 --> 0:06:15.840 down rates and eventually we'll get to a point where 0:06:15.880 --> 0:06:21.200 people want to move badly enough that they'll accept a 0:06:21.279 --> 0:06:24.800 higher interest rate, a higher mortgage rate, and that builders 0:06:24.839 --> 0:06:28.200 will be able to produce more homes. But a lot 0:06:28.240 --> 0:06:30.360 of what's happening with them is on the local level 0:06:30.400 --> 0:06:33.560 and zoning and things like that, So people in the 0:06:33.560 --> 0:06:37.240 housing industry are not very excited about this spring selling season. 0:06:37.240 --> 0:06:40.280 Oh boy, Yeah, Well, the Federal Open Market Committee meeting 0:06:40.320 --> 0:06:43.240 kicks off Tuesday, a decision expected two pm Wall Street 0:06:43.240 --> 0:06:46.440 time on Wednesday. Our thanks to Michael McKee, Bloomberg Into 0:06:46.520 --> 0:06:50.480 National Economics and Policy correspondent. We move next to corporate 0:06:50.480 --> 0:06:53.920 earnings from the logistics and shipping giant FedEx reporting third 0:06:54.000 --> 0:06:56.520 quarter results after the closing bill this Thursday, and for 0:06:56.560 --> 0:06:59.640 more on how a lot of economic uncertainty may have 0:06:59.680 --> 0:07:03.400 impact those results now President Trump's tariffs may impact the 0:07:03.440 --> 0:07:06.680 company in the future. We're joined by Lee Glasgow. He's 0:07:06.720 --> 0:07:11.400 Bloomberg Intelligence Senior Transport, Logistics and Shipping analysts. Well, Lee, 0:07:11.920 --> 0:07:14.240 thank you for joining us. What do you expect to 0:07:14.280 --> 0:07:15.800 see in this earnings report? 0:07:16.240 --> 0:07:18.520 Yeah? Hey, Tom, Well, earnings are going to be up. 0:07:18.840 --> 0:07:21.480 It's really going to be driven by some margin improvement, 0:07:21.840 --> 0:07:26.320 especially in their express business. You know, that's really just 0:07:26.480 --> 0:07:31.760 being fueled by a bunch of restructuring programs and productivity 0:07:31.800 --> 0:07:34.840 programs that they have in place, something they call Drive 0:07:35.120 --> 0:07:39.680 and Network two point zero. You know, what we're going 0:07:39.760 --> 0:07:43.160 to see though, is probably not the full benefit of 0:07:43.200 --> 0:07:46.920 these programs because volume is going to be relatively tepid. 0:07:47.600 --> 0:07:50.400 Could be you know, up one percent, down one percent 0:07:50.400 --> 0:07:54.520 in the quarter, really really don't know. But you know, 0:07:54.640 --> 0:07:58.920 when volumes start increasing with a better backdrop, you really 0:07:59.280 --> 0:08:02.760 show the best it fits from these cost cutting and 0:08:02.880 --> 0:08:08.720 productivity inducing initiatives that they've undergne. You know, FedEx is 0:08:09.000 --> 0:08:12.120 kind of going through somewhat of a transition. You know, 0:08:12.160 --> 0:08:16.720 they've walked away from less or lower margin business like 0:08:16.720 --> 0:08:19.880 from the US postal service. That will create somewhat of 0:08:20.160 --> 0:08:24.680 a tougher headwind starting in April for you know, when 0:08:24.760 --> 0:08:27.080 when comparing year every year volumes. 0:08:27.240 --> 0:08:30.600 Now, that's a reflection of consumers and businesses pulling back. 0:08:31.160 --> 0:08:33.240 If you look at or listen to a bunch of 0:08:33.280 --> 0:08:37.400 the large retailers their earnings call, they've been I guess 0:08:37.440 --> 0:08:41.760 a little more cautious in terms of the appetite for consumers, uh, 0:08:41.920 --> 0:08:45.720 you know, the e commerce while it's still growing. You know, 0:08:45.760 --> 0:08:48.280 if people have less money to spend and they're spending 0:08:48.559 --> 0:08:51.480 more money at the grocery store, you know, they're gonna 0:08:51.520 --> 0:08:54.439 they're gonna be buying less stuff, and therefore FedEx and 0:08:54.600 --> 0:08:57.559 ups are going to be shipping uh less freight to 0:08:57.679 --> 0:09:01.520 people's doors. And also, you know that trend of you know, 0:09:01.600 --> 0:09:04.880 e commerce and what we call B two C traffic 0:09:05.600 --> 0:09:09.600 is a lot less profitable than you know, an envelope 0:09:09.640 --> 0:09:13.640 going from one law firm to another, because that B 0:09:13.679 --> 0:09:17.440 to B traffic tends to have a lot more shipments 0:09:17.440 --> 0:09:19.880 associated with each of them. So, you know, if FedEx 0:09:19.960 --> 0:09:22.280 a driver would go to a law firm and deliver 0:09:22.440 --> 0:09:26.120 twenty packages and then probably pick up another twenty packages. 0:09:26.679 --> 0:09:29.600 Where when they come to our house to deliver you know, 0:09:29.640 --> 0:09:32.440 a shirt that you ordered, they're probably only delivering one 0:09:32.760 --> 0:09:34.760 or you know, if they're lucky, to packages at the 0:09:34.760 --> 0:09:38.480 same time. And those costs per packages are pretty high. 0:09:38.559 --> 0:09:41.520 And that's really why the company has been so actively 0:09:41.559 --> 0:09:44.880 looking to improve its overall productivity to kind of deal 0:09:44.920 --> 0:09:48.040 with the reality of this new normal for them. 0:09:48.559 --> 0:09:50.839 Well, let me ask you, if those costly home deliveries, 0:09:51.280 --> 0:09:54.160 and certainly people are buying more on the internet, who 0:09:54.240 --> 0:09:56.640 is making up that slack? Is it Amazon or are 0:09:56.679 --> 0:09:58.360 there other players in the field. 0:09:58.760 --> 0:10:03.000 Yeah, well, obviously Ison, you know, is doing a lot. 0:10:03.160 --> 0:10:05.760 If you know, there were some stats that there's that 0:10:06.200 --> 0:10:08.560 said that they're the leader deliverer, but you know, they 0:10:08.559 --> 0:10:12.319 are also delivering mostly their own stuff where FedEx and 0:10:12.360 --> 0:10:18.920 GPS are going after the businesses outside of Amazon, and 0:10:19.160 --> 0:10:22.079 that is still a large market that they can go after. 0:10:22.600 --> 0:10:24.920 So you know, they are delivering it, and so is 0:10:24.960 --> 0:10:27.440 the US Postal Service for that matter, So you know, 0:10:27.480 --> 0:10:30.640 you there is competition within the market. You know what 0:10:30.679 --> 0:10:32.920 I would also say, you know, not to pivot to 0:10:32.920 --> 0:10:36.000 too hard on this, but you know they're their freight business, 0:10:36.080 --> 0:10:39.040 which is their lesson truckload business. FedEx Freight is the 0:10:39.120 --> 0:10:43.240 largest lesson truckload carrier in North America. That business is 0:10:43.320 --> 0:10:46.520 under pressure too. The good news is that you know, 0:10:47.000 --> 0:10:51.400 uh tonnage might be down by mid single digits, rates 0:10:51.640 --> 0:10:54.640 will probably continue to increase by mid single digits. That's 0:10:54.679 --> 0:11:00.280 a very consolidated market that has a pretty long history 0:11:00.360 --> 0:11:04.160 of good price discipline, so it won't be too corrosive 0:11:04.240 --> 0:11:08.520 to margins. Maybe you know, too corrosive to margins this time. 0:11:08.760 --> 0:11:10.880 And what I would also say on the pricing front 0:11:11.240 --> 0:11:14.440 is that FedEx their express business, which is their parcel business. 0:11:14.600 --> 0:11:17.599 You know, they've been doing a lot of things to 0:11:18.120 --> 0:11:21.520 improve the pricing on that business as well. 0:11:22.240 --> 0:11:24.280 Well, let me ask you back to that freight business. 0:11:24.480 --> 0:11:26.920 Last time we spoke, they were talking about spinning that 0:11:27.000 --> 0:11:30.240 off into a separately traded company. What's the status on 0:11:30.320 --> 0:11:32.280 that and then how is that or will it help 0:11:32.320 --> 0:11:33.800 the signature parcel business. 0:11:34.160 --> 0:11:35.800 Yeah, a couple of months ago they said it is 0:11:35.880 --> 0:11:39.040 going to be an eighteen month process, so it probably 0:11:39.080 --> 0:11:42.320 won't happen until twenty twenty six. Not quite sure why 0:11:42.480 --> 0:11:44.760 it's going to take that long, but you know, that's 0:11:44.840 --> 0:11:47.760 the outlook that they provided. The management has said that 0:11:47.800 --> 0:11:51.840 they're looking to hire a number of salespeople for that division, 0:11:52.080 --> 0:11:55.040 so it looks like they're kind of getting prepared for 0:11:55.200 --> 0:11:58.600 when that becomes a standalone company. So you know, and 0:11:58.640 --> 0:12:02.160 the reason why they're doing that is probably twofold less 0:12:02.160 --> 0:12:05.640 than truckload carriers tend to have a higher multiple, so 0:12:05.679 --> 0:12:08.400 they're trying to unlock some value there with that asset, 0:12:08.960 --> 0:12:11.439 and then secondly, you know, it'll allow management to really 0:12:11.480 --> 0:12:15.079 focus on their parcel business, which is you know, can 0:12:15.160 --> 0:12:17.520 be a very good business. But like I mentioned earlier, 0:12:17.720 --> 0:12:21.520 it's an industry under transition, and you know, these companies, 0:12:21.720 --> 0:12:24.360 whether it's FedEx or ups are kind of doing a 0:12:24.400 --> 0:12:27.400 lot of things right now, whether it's investing in technologies, 0:12:27.760 --> 0:12:31.959 changing the way they deliver things, or even changing their 0:12:31.960 --> 0:12:35.160 air network will probably you know, help them down the road. 0:12:35.480 --> 0:12:38.120 FedEx Q three earnings out this Thursday are thanks to 0:12:38.200 --> 0:12:43.000 Lead Glasgow Bloomberg Intelligence Senior Transport, Logistics and Shipping analyst, 0:12:43.320 --> 0:12:45.360 And coming up on Bloomberg day Break weekend, we'll look 0:12:45.360 --> 0:12:49.320 at where Europe's financial services sector stands in an increasingly 0:12:49.440 --> 0:13:04.080 fragmented world. I'm Tom Busby and this is Bloomberg. This 0:13:04.200 --> 0:13:06.400 is Bloomberg day Break weekend, our global look ahead at 0:13:06.440 --> 0:13:08.920 the top stories for investors in the coming week. I'm 0:13:08.920 --> 0:13:11.800 Tom Busby in New York. Up later in our program 0:13:11.800 --> 0:13:13.800 a look ahead to a rate decision from the Bank 0:13:13.800 --> 0:13:16.880 of Japan and earnings from a top Chinese tech giant. 0:13:17.120 --> 0:13:19.960 But first, as the European Union prepares to square up 0:13:20.000 --> 0:13:22.960 to President Trump's tariffs, the future of the region's financial 0:13:22.960 --> 0:13:27.160 sector remains uncertain. This week in London, Morgan Stanley hosts 0:13:27.200 --> 0:13:31.360 the European Financials Conference, where international trade and geopolitics are 0:13:31.440 --> 0:13:34.280 likely to feature high on the agenda. Now for more, 0:13:34.679 --> 0:13:37.200 let's go to London and bring in Bloomberg Daybreak Europe 0:13:37.240 --> 0:13:39.080 anchor Caroline hepgar. 0:13:39.280 --> 0:13:43.120 Tom Trump tariff's economic growth and defense spending. There are 0:13:43.160 --> 0:13:46.960 some major issues that bankers must reckon with on tariff's 0:13:47.040 --> 0:13:50.960 European Commissioned President Ersina Vondelaine says the EU is not 0:13:51.120 --> 0:13:53.880 the problem. That message came as she delivered a firm 0:13:53.960 --> 0:13:58.080 response to the Trump Administration's tariffs. EU duties on up 0:13:58.120 --> 0:14:02.000 to twenty six billion eurosworth American goods after the US 0:14:02.040 --> 0:14:06.920 administration imposed twenty five percent tariffs on steel and aluminium imports. 0:14:07.360 --> 0:14:11.200 The EU is also targeting goods from Republican led states, 0:14:11.240 --> 0:14:14.640 according to a senior EU official, but it is also 0:14:14.760 --> 0:14:19.440 leading to downgrades in economic growth for major European economies 0:14:19.440 --> 0:14:23.480 such as France, and there may be further escalations with 0:14:23.640 --> 0:14:26.600 EU metals tariffs that had been put in place during 0:14:26.680 --> 0:14:30.600 Trump's first term and later suspended due to be reintroduced 0:14:30.680 --> 0:14:33.240 in full on the second of April, along with some 0:14:33.480 --> 0:14:37.240 levees that have never previously been in force. So all 0:14:37.280 --> 0:14:42.400 of this situation leaves Europe's economy in flux. Then there 0:14:42.480 --> 0:14:46.120 is the need for greater defense spending amidst renewed efforts 0:14:46.200 --> 0:14:50.120 to secure peace between Russia and Ukraine, and questions about 0:14:50.160 --> 0:14:54.040 how that surge in military spending will be funded on 0:14:54.120 --> 0:14:58.080 the continent. There are also more regular topics on the 0:14:58.120 --> 0:15:01.200 minds of the leaders in European five finance who are 0:15:01.320 --> 0:15:04.800 due to gather here in London for the upcoming Morgan 0:15:04.880 --> 0:15:10.480 Stanley European Financials Conference. Think inflation, interest rates, and deregulation, 0:15:10.680 --> 0:15:16.360 for example, how much will sweeping US rollbacks affect bankers here. 0:15:17.360 --> 0:15:21.560 In the past, this Morgan Stanley event has attracted CEOs, 0:15:21.600 --> 0:15:25.960 including UBS's Sergio Amoti. Remember he used the gathering last 0:15:26.040 --> 0:15:29.800 year to share part of the rationale behind his firm's 0:15:29.920 --> 0:15:34.360 acquisition of rival credit Sweese. So how are the giants 0:15:34.400 --> 0:15:37.880 of the financial sector thinking about the future. It's a 0:15:37.920 --> 0:15:42.240 conversation I've been having with Bloomberg's finance reporter Laura Noonan. 0:15:43.080 --> 0:15:45.160 Yeah, it's pretty much got all the big names. I mean, 0:15:45.160 --> 0:15:47.360 they have a superb lineup every year, and this year 0:15:47.680 --> 0:15:51.040 basically pretty much every important European bank CEO is going 0:15:51.080 --> 0:15:53.120 to be there and is going to be speaking. So 0:15:53.560 --> 0:15:57.440 you've got the likes of like Deutsche Bang CEO, Christian Sewing, Ubsser, 0:15:57.520 --> 0:16:02.840 is Imati Santanderra's Exeter and Beteen Unicredits, Andrea Ortchell, who's 0:16:02.840 --> 0:16:05.360 of course very interesting at the moment be in Pcos. 0:16:05.360 --> 0:16:08.760 Basically everybody is going so we're expecting lots of news 0:16:08.760 --> 0:16:09.160 out of this. 0:16:09.760 --> 0:16:13.240 Yeah, deregulation is surely going to be a big theme 0:16:13.480 --> 0:16:16.360 for the financial industry this year. Do you think it 0:16:16.400 --> 0:16:18.280 will come up doing the discussions? 0:16:19.400 --> 0:16:22.480 Yeah, I think the debate is really gaining pace here 0:16:22.640 --> 0:16:25.720 in Europe now, so I think obviously what's happening in 0:16:25.760 --> 0:16:27.920 the US is causing lots of banks to push quite 0:16:27.920 --> 0:16:30.120 hard on this, and we're definitely seeing early signs at 0:16:30.120 --> 0:16:34.440 the European Commission is listening and Europe at large is listening. 0:16:34.520 --> 0:16:36.840 So we had a story earlier this week or possibly 0:16:36.920 --> 0:16:39.600 late last week about them accelerating a review of the 0:16:39.640 --> 0:16:43.200 competitiveness of European banking, and that's going to now happen 0:16:43.280 --> 0:16:45.440 by the end of next year. They've also said that 0:16:45.440 --> 0:16:48.040 they will remain alert. They're looking at what they can 0:16:48.080 --> 0:16:51.320 do around the latest package of the bank capital rule. 0:16:51.360 --> 0:16:53.480 So I think there's a big push and there is 0:16:53.520 --> 0:16:56.000 some responsiveness. So I think now is probably the moment 0:16:56.280 --> 0:16:59.160 when we're going to see the European banks take the 0:16:59.200 --> 0:17:01.880 early signs indications that the EU is ready to act 0:17:01.920 --> 0:17:04.040 and really try to drive home as much change as 0:17:04.080 --> 0:17:06.240 they can. And certainly what's happening in the US is 0:17:06.280 --> 0:17:08.359 giving them a lot of power. The Europeans are big 0:17:08.359 --> 0:17:11.199 fans at the level playing field, and if the banks 0:17:11.200 --> 0:17:14.920 can argue that banks in the US are getting concessions 0:17:15.000 --> 0:17:17.560 and that they will be disadvantaged on the global stage 0:17:17.600 --> 0:17:20.600 if they don't get the same, then that is going 0:17:20.680 --> 0:17:22.399 to be a persuasive argument. And the one thing I 0:17:22.440 --> 0:17:24.439 will say as well as people often say this is 0:17:24.440 --> 0:17:27.120 only an issue for the big banks who compete internationally, 0:17:27.200 --> 0:17:29.800 but it's not. It's also an issue for the smaller 0:17:29.840 --> 0:17:33.240 banks who are listed, who are competing for investment internationally. 0:17:33.560 --> 0:17:35.800 So they can definitely inmit those arguments and they will. 0:17:36.359 --> 0:17:40.200 Okay, but how has Europe's financial services sector them reacted 0:17:40.280 --> 0:17:43.000 to the tariff news I mean, if there's so much 0:17:43.080 --> 0:17:45.960 of the influence of the US coming to the European 0:17:46.000 --> 0:17:48.280 banking space, what are they thinking about when it comes 0:17:48.320 --> 0:17:49.560 to Trump tariffs. 0:17:50.000 --> 0:17:52.640 I mean, tariffs are bad in that tariffs a bad 0:17:52.680 --> 0:17:55.800 for the overall economy, and banks are if you take aside, 0:17:56.240 --> 0:17:58.760 if you exclude the investment bank portion, which does do 0:17:58.800 --> 0:18:02.159 well on volatility, banks are mostly pure plays on the economy. 0:18:02.440 --> 0:18:04.359 And if you take the view the tariffs at a 0:18:04.400 --> 0:18:07.639 macro level hurt economic growth, then they are going to 0:18:07.640 --> 0:18:10.479 be bad for banks who are dependent on economic growth. 0:18:10.720 --> 0:18:12.880 They are especially bad for banks that do a lot 0:18:12.920 --> 0:18:16.280 across border business in areas that could be affected by tariffs. 0:18:16.280 --> 0:18:19.720 So I think tariffs are a net negative, but they're 0:18:19.760 --> 0:18:21.800 also you know, when you're in banks, you think about 0:18:21.800 --> 0:18:23.639 two things. There's the things that you can control and 0:18:23.640 --> 0:18:25.840 the things there's the things that you can't. And they're 0:18:26.040 --> 0:18:28.359 maybe at the very very senior level. Some of the 0:18:28.720 --> 0:18:31.200 most senior bankers think that if they make big statements 0:18:31.240 --> 0:18:34.280 they can help shape the narrative. But for most bankers 0:18:34.560 --> 0:18:36.720 this is something which is outside of their control and 0:18:36.760 --> 0:18:39.280 they'll just have to try to work around it as 0:18:39.320 --> 0:18:39.920 best they can. 0:18:40.720 --> 0:18:46.720 What about the geopolitics then obviously a big topic for us, 0:18:46.400 --> 0:18:49.200 for people in business in general. But again, do you 0:18:49.240 --> 0:18:52.960 think that's something that is driving trends or driving anythinking 0:18:53.119 --> 0:18:55.439 in the banking and financial services sector. 0:18:56.359 --> 0:18:59.160 So I think banking has become more balganized, and that's 0:18:59.160 --> 0:19:01.880 something we've seen from the two thousand and seven eight 0:19:02.240 --> 0:19:05.000 crisis onwards. Banks are less global than they were, and 0:19:05.000 --> 0:19:07.719 European banks in particular are a lot less global than 0:19:07.720 --> 0:19:09.880 they were, and in a sense that does lead them 0:19:09.920 --> 0:19:12.919 somewhat less exposed to geopolitical trends and they would have 0:19:13.040 --> 0:19:14.680 been two decades ago. 0:19:14.720 --> 0:19:14.800 Now. 0:19:14.880 --> 0:19:17.000 It's not to say it doesn't matter at all, but 0:19:17.080 --> 0:19:20.720 it doesn't matter as much. It will matter more to banks. 0:19:21.040 --> 0:19:22.679 You know, we've already seen some of the banks You've 0:19:22.680 --> 0:19:25.800 had exposures to Eastern Europe and that has been a 0:19:25.880 --> 0:19:28.119 challenging period for them as they've tried to navigate that. 0:19:28.240 --> 0:19:30.720 I think banks, you have, big US businesses will be 0:19:30.760 --> 0:19:35.080 waiting to see how they're positioned on that geopolitical tensions. 0:19:35.080 --> 0:19:37.720 Then that hit the overall macro picture again for banks. 0:19:37.760 --> 0:19:40.000 So much of this does come back to the macro picture, 0:19:40.040 --> 0:19:43.720 and if and if you have geopolitical tensions spiking, say 0:19:43.760 --> 0:19:46.000 oil prices, and if that leads to inflation and that 0:19:46.320 --> 0:19:49.280 takes economy to a certain place, that's the impact that 0:19:49.320 --> 0:19:51.560 they will you know, that will inevitably have an impact 0:19:51.600 --> 0:19:54.200 on lots of these businesses. So yes, they're definitely thinking 0:19:54.320 --> 0:19:57.119 very hard about this. But also the investment banks, the 0:19:57.160 --> 0:19:59.800 trade banks, they will also spy an opportunity here. They 0:19:59.800 --> 0:20:02.239 will say, oh, we can help clients to navigate these 0:20:02.359 --> 0:20:04.679 unprecented times, and they will try to use that to 0:20:04.720 --> 0:20:08.840 win advisory business. So probably a net negative, but with 0:20:09.000 --> 0:20:10.800 some positives built in there too, if that. 0:20:10.720 --> 0:20:15.680 Makes sense, Yes, absolutely. Meanwhile, of course factored into that 0:20:15.760 --> 0:20:19.240 may be lead into that thinking will be the expectation 0:20:19.359 --> 0:20:22.840 of increased defense spending. That's a huge issue for Europe. 0:20:22.880 --> 0:20:25.919 Will helping to meet the funding deficit be on the 0:20:25.960 --> 0:20:29.360 minds of financial services leaders in Europe? 0:20:30.320 --> 0:20:32.480 So I think yeah, absolutely. I mean one of the 0:20:32.520 --> 0:20:34.520 big questions is how much of this will be done 0:20:34.560 --> 0:20:36.880 through public money versus how much have we done through 0:20:37.240 --> 0:20:39.399 the private money? And then to the extent that it 0:20:39.440 --> 0:20:41.920 is not public money, will it be bank lending, will 0:20:41.920 --> 0:20:45.240 it be capital markets? As your listeners will know, the 0:20:45.280 --> 0:20:48.159 Capital Markets Union is very much tied into the strategic 0:20:48.240 --> 0:20:51.520 need to fund raise around these things. At the same time, 0:20:51.600 --> 0:20:53.960 we are seeing a sea change in terms of how 0:20:54.640 --> 0:20:58.080 investors and private equity funds and even banks themselves view 0:20:58.119 --> 0:21:01.200 defense assets. I mean, they have been assets that people 0:21:01.280 --> 0:21:03.639 have not really wanted to get too deep in previously 0:21:03.680 --> 0:21:07.199 because of ESG concerns, concerns that it looks bad. And 0:21:07.280 --> 0:21:11.320 I think we're definitely seeing a change in defense looking 0:21:11.359 --> 0:21:14.000 like something good to put money in versus something bad 0:21:14.040 --> 0:21:16.320 to put money. And I think that's something. And I 0:21:16.359 --> 0:21:18.520 was talking to someone about this yesterday who's in the market, 0:21:18.600 --> 0:21:20.119 and they were saying, you know how they have traditionally 0:21:20.160 --> 0:21:22.399 thought that, you know, they can't be seen to be 0:21:22.440 --> 0:21:24.520 doing this, but now there's quite a lot of money 0:21:24.560 --> 0:21:26.560 to be made here, and I think you will see 0:21:26.600 --> 0:21:29.680 these kind of pragmatic shifts take place. But also because 0:21:29.680 --> 0:21:32.959 there's such a clear public narrative around defense is a 0:21:33.000 --> 0:21:35.600 patriotic thing for Europe. But I think something that we 0:21:35.640 --> 0:21:37.960 are definitely seeing from the US trend is that there's 0:21:38.000 --> 0:21:41.800 more of a Europe first, America first, and having a 0:21:41.840 --> 0:21:44.720 common thing which we are different too. I mean, I'm 0:21:44.720 --> 0:21:46.560 not going to say enemy, but having Europe kind of 0:21:46.560 --> 0:21:50.000 galvanized as one. People are quite hopeful that could be 0:21:50.040 --> 0:21:53.480 positive for European banks, for European policy, for capital markets union, 0:21:53.520 --> 0:21:55.919 because it just makes everyone pull in the same direction. 0:21:56.080 --> 0:21:59.440 Often in Europe we suffer because people are all pulling 0:21:59.440 --> 0:22:01.639