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

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Speaker 2: This is the Bloomberg Daybreakerate podcast. Good Morning, It's Thursday,

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Speaker 2: the twenty fifth of September in London and Caroline Hepcik

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Speaker 2: coming up today. Is this a spot Nicker moment. HSBC

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Speaker 2: says it's made a world first breakthrough in quantum computing

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Speaker 2: for financial markets. Not a bubble but the new normal.

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Speaker 2: Bank of America says that sky high US stock valuations

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Speaker 2: may be warranted more than in the past. Plus a

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Speaker 2: bitter pill for the UK, the government offers an olive

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Speaker 2: branch after pharmaceutical companies publicly condemned the country. Let's start

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Speaker 2: with the roundup of our top stories. HSBC says that

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Speaker 2: it has made a breakthrough in quantum computing for trading

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Speaker 2: using IBM's processor. The lender says it is the first

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Speaker 2: time real trades have been used at scale to show

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Speaker 2: so the potential benefits of this emerging technology. Bloomberg's Chris

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Speaker 2: Pitt has the details.

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Speaker 3: A Sputnik moment. That's how HSBC's executive in charge of

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Speaker 3: quantum computing described their successful deployment of the technology in

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Speaker 3: financial markets. The London headquartered banks said it had used

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Speaker 3: a Heron quantum processor to deliver a thirty four percent

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Speaker 3: improvement in predicting how likely a bond is to trade

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Speaker 3: at a given price. HSBC's trial marks the first time

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Speaker 3: a bank has used real trades at scale to demonstrate

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Speaker 3: the benefits of quantum computing, which could now lead to

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Speaker 3: a flurry of activity as financial companies step up efforts

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Speaker 3: to harness the technology. In London, Chris Pitt Bloomberg Radio.

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Speaker 2: Intel has approached Apple about an investment in a bid

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Speaker 2: to secure its future. Bloomberg understands the two firms have

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Speaker 2: had early stage talk about working more closely together. Our

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Speaker 2: US Deals reporter Ryan Gould says an agreement could be

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Speaker 2: pivotal for Intel.

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Speaker 4: This obviously comes on the beck of both the US

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Speaker 4: government investing in Intel directly one of its largest shareholders,

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Speaker 4: and also would potentially follow a five billion dollar investment

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Speaker 4: from both in Nvidia and a two billion dollar investment

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Speaker 4: from SoftBank. I guess one way to put this all

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Speaker 4: together is you know Intel is on the.

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Speaker 2: Comeback, Bloomberg's Ryan Gould speaking there, a deal with Apple

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Speaker 2: would represent further validation of the chip maker's turnaround efforts.

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Speaker 2: Although it's unlikely that Apple would switch back to Intel

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Speaker 2: processes in its devices. Shares of Intel rose by six

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Speaker 2: point four percent to thirty one dollars twenty two on

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Speaker 2: Wednesday in New York after Bloomberg reported on the discussions.

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Speaker 2: Strategist at Bank of America are making the case that

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Speaker 2: sky high valuations in the S and P five hundred

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Speaker 2: maybe appropriate. In a note, the lenders head of Equity

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Speaker 2: and Quantitative Strategy has said that the higher quality makeup

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Speaker 2: of the index and the potential for a boom in

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Speaker 2: sales could justify the pricey levels, adding perhaps we should

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Speaker 2: anchor to today's multiples as the new normal. The comments

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Speaker 2: come as the US equity index has taken a breather

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Speaker 2: in the last forty eight hours, following gains of more

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Speaker 2: than thirty percent from aprils low. Amy wu Silverman is

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Speaker 2: the head of Derivatives strategy at RBC.

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Speaker 1: Whenever I'm speaking at a relatively large meeting, so you know,

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Speaker 1: maybe thirty or more investors, everyone's going around that they're

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Speaker 1: talking about their bearish sentiment. And then if I say

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Speaker 1: show of hands, who thinks the market is going to

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Speaker 1: be higher by yr? In like ninety percent of folks

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Speaker 1: raise their hands. So it's a reluctance in the rally

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Speaker 1: for sure, But then again there's this impulse to be

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Speaker 1: very concerned about that right tail and feel like they

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Speaker 1: still have to chase it because as they know that,

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Speaker 1: they cannot be left behind.

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Speaker 2: Amy wou Silverman speaking there as the S and P

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Speaker 2: five hundreds twelve month forward price to earnings ratio hit

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Speaker 2: twenty two point nine this week. Now, that is a

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Speaker 2: level that has been topped only twice this century, the

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Speaker 2: other times the dot com bubble and the twenty twenty

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Speaker 2: pandemic rally. Now, the US has cart tariffs on EU

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Speaker 2: auto imports to fifteen percent. It's retroactive, so back to

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Speaker 2: the first of August. It locks in terms of trade

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Speaker 2: that were struck in a deal almost two months ago.

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Speaker 2: The move will help to ease tensions with Brussels, with

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Speaker 2: shares in European car makers arising on the announcement. New

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Speaker 2: car registrations across Europe also rose by four point seven

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Speaker 2: percent in August, according to the Continents also lobby the ACEA,

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Speaker 2: their latest data out today on tariffs. Most other new

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Speaker 2: U rates take effect from September, while exemptions remain for

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Speaker 2: aircraft pharmaceuticals and certain raw materials. Talks continue on steel

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Speaker 2: and aluminium, where EU exports still face tarifs of up

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Speaker 2: to fifty percent. Meanwhile, the Trump administration launches investigations into

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Speaker 2: imports of robotics, industrial machinery and medical devices, setting the

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Speaker 2: stage for fresh duties. So that's all the news when

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Speaker 2: it comes to the US and the EU on tariffs.

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Speaker 2: Now Here in the UK, the Bank of England governor

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Speaker 2: and a key policy maker publicly disagreed about the rates

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Speaker 2: path ahead, showing the split at the top of UK

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Speaker 2: monetary policy. Andrew Bailey says that there is further to

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Speaker 2: go on interest rate cuts due to the weakening labor market,

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Speaker 2: but then hours later Megan Green proposed skipping a cut

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Speaker 2: in November due to fears around high inflation. The divide

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Speaker 2: shows how macroeconomics is struggling to find easy answers to

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Speaker 2: the trade war. Traders, meanwhile, see little prospect of the

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Speaker 2: Bank of England moving rates in either November or December,

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Speaker 2: and they have only one quarter point reduction fully priced

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Speaker 2: in for twenty twenty six. Last, the Russia plans to

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Speaker 2: run a budget deficit for a fifth year as the

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Speaker 2: cost of its war with Ukraine mounts to the Finance

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Speaker 2: Ministry projects a fiscal gap equivalent to about fifty five

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Speaker 2: billion dollars in twenty twenty six. War spending is climbing

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Speaker 2: while all in gas revenue is falling, pushing Moscow to

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Speaker 2: raise value added tax rates and to borrow more. This

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Speaker 2: comes as President Donald Trump is pointing to those strains,

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Speaker 2: saying the Russian economy is weakening. He says, with EU support,

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Speaker 2: Ukraine is in a position to win back all the

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Speaker 2: territory at lost. Since twenty twenty two, Ukrainian President of

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Speaker 2: Losomierzelinsky has urged allies to take stronger action against Russia.

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Speaker 3: If it takes weapons to do it, if it takes

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Speaker 3: pressure on Russia, then it must be.

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Speaker 4: Done, and it must be done now. Otherwise put In

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Speaker 4: will keep driving the war forward wider and.

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Speaker 2: Deeper Ukraine's wildams Zelenski, speaking there at the UN General Assembly.

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Speaker 2: Trump's shift on the country's chances of victory was hailed

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Speaker 2: by officials in Kiev and Europe, but the President has

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Speaker 2: offered no new US measures to support Ukraine. Privately, officials

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Speaker 2: are more concerned it puts the responsibility onto Europe to

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Speaker 2: act those are our top stories for you this morning.

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Speaker 2: Let's think about the markets then, Stop futures for Europe

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Speaker 2: are down a tenth of one percent. S and P

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Speaker 2: five hundred, and now is that EMAILI futures though, are

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Speaker 2: higher despite the drops that we saw on war Street yesterday.

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Speaker 2: The S and P five hundred down one and a

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Speaker 2: half percent, the Hanksying Tech Index this morning jumping almost

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Speaker 2: two percent, CUSI three hundred index almost one percent higher.

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Speaker 2: TENNY Treasury yields easier basis point to four fourteen. And

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Speaker 2: you also have the dollar this morning on the Bloomberg

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Speaker 2: Dollar Spot Index down by about a tenth of one percent.

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Speaker 2: Of those are the markets right now. In a moment,

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Speaker 2: we're going to bring you more on the news that

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Speaker 2: HSBC says it's used a quantum processor to vastly improve

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Speaker 2: bond trading as a trial result. But let's discuss it,

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Speaker 2: and also why there's a growing standoff between the UK

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Speaker 2: government and global farmer giants over medicine prices. Before we

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Speaker 2: get to that, though, another story caught my eye Disney

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Speaker 2: Jimmy Kimmel the issue of free speech in the United States.

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Speaker 2: So Bloomberg's Beth Cohen has an opinion column out that

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Speaker 2: I just thought was really interesting because it detects a

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Speaker 2: shift in the balance of risks for corporate leaders, which

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Speaker 2: I thought was very fascinating. The only other person with

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Speaker 2: more on the line, maybe than Kimmel returning to the

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Speaker 2: screens this week was Disney's CEO Bob Eiger, Beth Courh

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Speaker 2: writing that he was the one who sidelined Kimmel, then

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Speaker 2: he was the one who brought him back because of

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Speaker 2: a backlash. Eiger had been a strong critic of President

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Speaker 2: Trump and the Trump administration during the president's first term.

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Speaker 2: Then when he returned to office, rather than sort of

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Speaker 2: standing his ground, Eiger cut back on Disney's DEI efforts.

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Speaker 2: But then the backlash about canceling Jimmy Kimmel has Iger

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Speaker 2: really under pressure again. Trump's also threatening to sue ABC.

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Speaker 2: But as Beth Carrot explains, Eiger's decision to reinstate Kimmel

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Speaker 2: is a sign that companies are realizing that perhaps they

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Speaker 2: need to find their redlines and push back against the

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Speaker 2: Trump administration. I thought this was interesting simply for the

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Speaker 2: discussion around trends and what's going on with the Trump administration,

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Speaker 2: how corporate America is thinking about it, I think it

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Speaker 2: also has kind of global ramifications. But I'm going to

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Speaker 2: put a link to Beth Cawrott's opinion piece in our

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Speaker 2: show notes for you can have a think about it.

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Speaker 2: Whatever your view on the subject, I think it was

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Speaker 2: an interesting discussion. Now, HSBC says that it has achieved

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Speaker 2: a break through and deploying quantum computing and financial markets

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Speaker 2: using IBM's Heron quantum processor. Joining me now to discuss this,

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Speaker 2: bilion boxed Tia ad a Bio. Good morning. Look. I

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Speaker 2: to even understand.

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Speaker 3: This story too.

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Speaker 2: I think you have to wrap your mind around what

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Speaker 2: quantum computing actually is. Can you just give us an

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Speaker 2: idea of why people are just so excited about this?

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Speaker 5: Yeah?

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Speaker 6: Well, I mean just a quick breakdown. Quantum computing is

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Speaker 6: essentially computing that harnesses the power of quantum physics, and

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Speaker 6: that's a series of core principles that are only true

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Speaker 6: at a quantum level, so very different to the assumptions

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Speaker 6: that we see in classical physics. And just like the

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Speaker 6: differences between quantum and classical physics, quantum and SUPERCC computers

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Speaker 6: also operate differently, so unlike the computers that we have

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Speaker 6: now at power your laptop, your phone. Quantum computers do

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Speaker 6: their calculations in parallel, and that's key because they don't

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Speaker 6: try and find answers one step at a time. They

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Speaker 6: use quantum bits to simultateaneously solve those problems. So a

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Speaker 6: practical example for you, if you asked a supercomputer, perhaps

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Speaker 6: to solve a maze, it would basically explore every single

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Speaker 6: possibility one of the time, so it would eliminate the

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Speaker 6: ones that don't work before eventually finding the solution. And

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Speaker 6: that's a process which, depending on how big the maze is,

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Speaker 6: could take weeks or even years. But with a quantum computer,

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Speaker 6: it compares and considers all of the possibilities at once,

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Speaker 6: so in theory, it gets to the answer much quicker.

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Speaker 6: And that's why people are so excited about what HSBC

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Speaker 6: says they've done. They've said they've figured out how to

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Speaker 6: apply this to financial services.

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Speaker 2: So what have they actually achieved? And you know, how

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Speaker 2: easy would it be to reproduce this.

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Speaker 6: While they're saying that their test show early indicators that

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Speaker 6: quantum computing can be used to improve trading performance. So

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Speaker 6: it wasn't based on live trading. It was a trial,

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Speaker 6: but in collaboration with IBM, they've shown a thirty four

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Speaker 6: percent improvement in predicting how likely a bond is to

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Speaker 6: trade at a given price point. But this is really

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Speaker 6: significant because it's the first time that any bank has

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Speaker 6: used real trades to demonstrate what quantum computing can do.

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Speaker 6: To date, we've seen it used mostly within the confines

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Speaker 6: of academic research or by specialist tech firms. So this

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Speaker 6: is an important development according to HSBC.

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Speaker 2: Yeah, and so that's why you've got them talking about

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Speaker 2: a sput Nick moment. Why is that phrase important? It

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Speaker 2: basically it unleashed the competition between Russia and the US,

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Speaker 2: you know, to get to space, basically created NASA. So

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Speaker 2: that's why it's kind of maybe seeing a big galvanizing

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Speaker 2: effect in terms of the financial titans. Then who are

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Speaker 2: already putting a lot of money into this area, What

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Speaker 2: are they doing and then what could we see coming

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Speaker 2: next potentially. Yeah.

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Speaker 6: So really, up until this point, it's been tech firms

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Speaker 6: that have been really driving the development in this space,

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Speaker 6: but we are seeing financial services providers begin to invest

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Speaker 6: heavily as well. So the likes of JP Morgan, Goldman,

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Speaker 6: Sachs City Group, they're all exploring the area and I

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Speaker 6: think they're definitely very interested in the potential benefits, and

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Speaker 6: as I mentioned, they're really key not to let competitors

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Speaker 6: get ahead of them. But in terms of the payout

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Speaker 6: actually from this angles, there's some research from McKinsey that

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Speaker 6: says revenue from quantum computing could surge as much as

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Speaker 6: seventy two billion dollars in a decade from about four

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Speaker 6: billion last year, and that's going to be fueled by

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Speaker 6: developments in industries such as chemicals, life sciences, and finance.

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Speaker 6: So there's definitely this idea that, as we see so

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Speaker 6: often in the sector, that if one Wall Street player

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Speaker 6: is able to be successful in deploying the technology, there

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Speaker 6: will be this sort of big snowball effect and others

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Speaker 6: will really strive to keep up. And that's why some

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Speaker 6: experts are saying that when quantum computing is adopted on

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Speaker 6: mass in the financial services sector, it could be explosive.

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Speaker 6: We could see it come all at once, all of

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Speaker 6: a sudden. We've already seen Google saying last year that

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Speaker 6: its latest quantum process as a Winner, has solved a

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Speaker 6: problem in five minutes that the world's most powerful supercomputers

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Speaker 6: couldn't do even if they had been working on it

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Speaker 6: since the universe began to so that's.

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Speaker 3: Quite a big difference.

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Speaker 6: So it seems like we could be well on our

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Speaker 6: way to change in the sector.

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Speaker 2: Yeah, that is so fascinating, isn't it. HSBC very enthusiastic

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Speaker 2: about it, although of course there's still much debate about

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Speaker 2: a quantum computing what it can do. There are also

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Speaker 2: issues a bit like with AI on kind of error rates.

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Speaker 2: But anyway, I think it's a very interesting story to

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Speaker 2: think about and if you want to understand a bit

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Speaker 2: more about this mind blowing technology. I do also highly

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Speaker 2: recommend watching mathematician Hannah Fries Bloomberg documentary series on this.

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Speaker 2: It's called The Future with Hannah Fry, and of course

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Speaker 2: she made an Emmy Award winning episode called the Quantum

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Speaker 2: Arms Race. She actually got to go IBM look at

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Speaker 2: the research facility. So if you want to have a

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Speaker 2: view of what this computer actually looks like, Fry talks

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Speaker 2: about it, she sees it, she explains the technology. So yeah,

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Speaker 2: you can have a look at that documentary. I really

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Speaker 2: recommend it highly. My thanks to Bloomberg's Tea and aabio

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Speaker 2: then for taking us through that. HSBC quantum computing story.

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Speaker 2: Stay with us. More from Bloomberg day bakup coming up

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Speaker 2: after this. In the past month, more than two billion

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Speaker 2: pounds of investment has been paused or scrapped here in

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Speaker 2: the UK. Why Well, it's all to do with pharmaceutical

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Speaker 2: companies who are calling the country the worst in Europe

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Speaker 2: for drug prices. Now, Patrick Valance, the UK's Science Minister,

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Speaker 2: says that the government needs to fix the commercial relationship,

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Speaker 2: even if it means paying more. Are UK politics to border.

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Speaker 2: James Walcott joins me now to discuss how bad have

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Speaker 2: relations between the UK government and the pharmaceutical sector actually become.

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Speaker 5: Now, life science is one of the government's eight growth

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Speaker 5: areas in their industry strategy, So that's where they think

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Speaker 5: they can actually get serious economic growth if they pour money.

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Speaker 5: You wouldn't think that if you would look at some

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Speaker 5: of the comments of pharmaceutical executives in recent weeks. I mean,

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Speaker 5: Eli Lilly, you just mentioned UK is probably the worst

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Speaker 5: in Europe for drug pricing. Navatas's UK boss called Britain

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Speaker 5: largely uninvestible. Merk pulled out a billion in investment just

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Speaker 5: recently the past two weeks. They had already built their

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Speaker 5: office at King's Cross, they will leave it unoccupied. And

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Speaker 5: then as well as that, you have Astor Zeneko, who

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Speaker 5: back in January walked away from four hundred and fifty million.

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Speaker 5: Is worth saying, Caroline, A lot of these announcements came

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Speaker 5: right before the US President state visit, and that is

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Speaker 5: something that plays into this where US tariffs and also

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Speaker 5: NHS drug pricing have become key sticking points.

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Speaker 3: Yeah.

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Speaker 2: And given the political importance, the huge significance of the

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Speaker 2: NHS for voters in Britain, it's amazing that this already

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Speaker 2: seems to be flying somewhat under the radar. I think

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Speaker 2: in the UK, why are the two sides so far apart?

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Speaker 5: Well on your flying under the radar point, this has

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Speaker 5: been a slow burn. Yeah, there are two things. There

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Speaker 5: is the firewood, which is UK drug pricing policy, and

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Speaker 5: there is the spark, which is the US tariff policy. Now,

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Speaker 5: the drug pricing, if you're looking to buy a drug,

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Speaker 5: the UK assesses on what's called a quoi, which is

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Speaker 5: how much it will improve your life for how much

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Speaker 5: of a cost. And here in Britain the NHS broadly

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Speaker 5: goes between about twenty pounds to thirty thousand pounds a

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Speaker 5: year is a good price. The pharmaceutical sector says, no, no, no,

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Speaker 5: that should be close to fifty thousand pounds a year.

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Speaker 5: It's worth saying that Britain's measure has not been adjusted

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Speaker 5: for inflation in twenty five years. So the drug companies say,

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Speaker 5: look broadly, most health organizations around the world spend about

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Speaker 5: fifteen to twenty percent of their sort of income a

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Speaker 5: year on drugs. The NHS it's nine percent, So they go,

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Speaker 5: you're getting a much better deal here than most others.

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Speaker 5: Now that's the fire. There is then the spark. The

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Speaker 5: US has said two things. One is weighing and threatening

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Speaker 5: TA prices on drug imports. Trump has said as much

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Speaker 5: as two hundred and fifty percent. He's floated that would

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Speaker 5: be crippling and for a lot of these pauses in

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Speaker 5: the UK investment it's in tandement outs with the US investments,

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Speaker 5: so many are reorientating the resources of America. The other

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Speaker 5: is there is talk in the US of what's called

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Speaker 5: a most Favored Nation policy, which is where you take

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Speaker 5: the cheapest drug price around the world and apply it

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Speaker 5: to America. And a lot of these drug companies going

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Speaker 5: well that would be Britain. And so unless we get

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Speaker 5: prices higher in the UK, we are at risk of

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Speaker 5: having to put UK prices over onto the US. Take

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Speaker 5: those two together and you give even sort of normally

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Speaker 5: quite mild mannered CEOs the excuse used language that the

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Speaker 5: sort of things I just said to you.

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Speaker 2: Where does this leave then the public voters and also

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Speaker 2: the UK economy.

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Speaker 5: So after the doctors themselves, the NHS spends its second

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Speaker 5: largest part of its budget on drugs themselves, about twenty

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Speaker 5: billion a year, give or take. If you were to

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Speaker 5: see that start rising, and I will say, there is

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Speaker 5: an agreement that's part of the drug pricing called the

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Speaker 5: Voluntary Agreement on Price. It's called VPAG that limits drug

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Speaker 5: prices to going up about two percent a year to

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Speaker 5: limit NHS costs. Some drug makers would see it closer

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Speaker 5: to nineteen percent increases. So you take that twenty billion

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Speaker 5: when they announced this for a voluntary agreement that the

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Speaker 5: government announced it had saved fourteen billion. So at the

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Speaker 5: very least you could see that unwinding. And it comes

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Speaker 5: at a moment when really the government doesn't really have

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Speaker 5: much money to spare. It would much rather be platlunk

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Speaker 5: it's health sector budget into the doctors and into productivity

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Speaker 5: rather than to drugs. However, the standoff has been going

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Speaker 5: on since the summer, when West Street and the Health

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Speaker 5: set you walked away from drug price negotiations. The comments

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Speaker 5: this morning from the Science Minister Patrick Valance suggests the

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Speaker 5: government may be looking to try and resolve that, and

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Speaker 5: he told both the Ft, the BBC and Press that

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Speaker 5: pricing may have to be an issue. So currently it

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Speaker 5: seems like the government are working their way towards increasing

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Speaker 5: drug prices.

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Speaker 7: This is Bloomberg Daybreak Europe, your morning brief on the

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Speaker 7: stories making news from London to Wall Street and beyond.

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Speaker 7: You can also listen live each morning on London DAB Radio,

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Speaker 2: I'm Caroline Hepka.

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Speaker 7: And I'm Stephen Carroll. Join us again tomorrow morning for

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Speaker 7: all the news you need to start your day right

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Speaker 7: here on Bloomberg Daybreak Europe,