host: good morning and happy tuesday. this is "bloomberg daybreak: europe." market positioning. global equities ahead of today's all-important u.s. inflation print. the final piece of an economic jinx out before tomorrow's fed decision. surprise cuts. officials step up measures to stabilize the nation's faltering growth. ubs ceo says about of credit suisse employees have left as integration begins in earnest. exuberance in stocks. you will get cpi today and stocks, especially tech, showing no fear at all. let me show you what happened in yesterday's session. apple at an all-time high for the first time since 2022. and tesla has had its 12th

straight day of gains. and oracle after hours, a cloud company and not ai, hitting an all-time high. there was enthusiasm. it is led by tech. and apple, the biggest equity in the u.s. market. that enthusiasm carrying over to today's premarket session. future is in the u.s., europe and asia -- asian stocks up by 1%. tech still leading the gains in the u.s. europe playing catch up with a strong close friend yesterday. across market it is a different picture. a picture where inflation expectations have started to rain and. a survey showing inflation expectations are at a two-year low. consumers feeling the pinch. maybe the pause tomorrow from

the fed is maybe the end of a rate hikes cycle. morgan stanley -- jp morgan has excellent research out in the last few days saying that if stocks were to price where the bond

dani: it may feel like virtually every central bank has a decision this week except for the boe but let me tell you the drama was in the gilt market yesterday. look at this curve. everything dropped. we had further bets that the bank of england would hike rates. all of that happens after boe policymaker catherine man said she is still very concerned about persistent pressures

pushing up inflation in u.k.. joining us now is laureline chatelain. we have another move higher again in this gilt market in yields. the charts are breathtaking if you look at the ramp-up we have had this year. will we see yield levels back where we were? laureline: thank you for having me. indeed the movement has been driving with an expectation of further rate hike from the bank of england. in terms of level it is less impressive then what we had during the crisis which was a panic market in the current environment. it is driven by fundamentals and the bank of england saying they need to go further in terms of rate hikes. it is warranted. when we look at the curve in the u.k. it is hovering between 3.5% and 4%.

that is way above what we have in the u.s. which is close to two percent and above the bank of england's at 2%. dani: if the bank of england needs to keep hiking and we get to a terminal rate of 5.6 percent, what happens to this economy? business lobbies yesterday said we will avoid a recession. can we conquer inflation in the u.k. without a recession? laureline: this is a difficult question. it will depend on the resiliency of the economy. what we have seen so far is some slow down. the customer still seems to be healthy and the housing market is holding not too badly. it will depend how long the rate hikes continue and how long it lasts in the sense that if the be a week goes to 5.6 and then has to cut after it is probably

less painful than if they stay there for the whole of 2024. dani: in the u.s., inflation expectations are improving. there is great research from jp morgan, i know you are fixed income, but the juxtaposition of the two -- jp morgan says in order for stocks to reflect what bonds are doing they have to fall 20%. what pricing is correct? overly gloomy bonds or overly optimistic stocks? laureline: when you speak of bonds, especially the long and hard of the curve you speak of the average yield. the expectation is cutting rates in 2024 and see the longer run rate closer to 2.5. the long end of the yield curve

is pricing more over the longer-term what we expect and on equities it would be more short-term movement in terms of economic growth. dani: or an ai frenzy. there was a new york fed survey yesterday that showed one year forward inflation expectations are at a two-year though. it also shows consumers are starting to feel the pinch. they are worried about their own economic outlook. does this give you confidence that we are heading on the right track for inflation in the u.s.? the fed can pause in this next meeting? laureline: the cpi this afternoon will be key to validate that view. i would say when we look at u.s. inflation, on the swap side. i would say on the bond market

the market is now saying it will try to achieve it. dani: even though the market says it is on track to achieve it, citi has research at looking at longer-term expectations saying they are too high and bond traders are underestimating how rapid inflation will come down. it depends on where you look in terms of what is being priced in. how difficult is it to have conviction in this market? laureline: i agree with you it is a tricky environment. i would say in general -- u.s. [indiscernible] this is still consistent with

our view of the 2% target on the fed. we have other models we can look at and we can speak of risk premium and treasury liquidity has been lacking so that could be distorting the number we see on our screens. but on the market side i would say that the fed is on track. dani: when it comes to this credit market, i have the data with me and i dug this one up from goldman. between january 1 and the end of may, there were 18 debt defaults in the u.s. loan market totaling $21 billion. the volume and the number are greater than the whole of 2021 and 2022 combined. i know there were barely any default in those years but what does that tell you about what this default cycle will look like? laureline: on our side we do

expect the default cycle to deteriorate further. a higher default rate. what we see for now is the pain is on the loan side. that makes sense and away because the pain of the fed rut -- the fed fund rate above 5% is already there. what we see for now is the riskier issue, it is still difficult to access the market and you have to find other ways for example private credit. we are cautious on credit. we think there is more value -- dani: i have a conversation with david hirschman later this afternoon. i have heard many times it is the golden age for private credit. thank you for joining us.

coming up, what is the way forward for european banks? we will get the view of richard and our exclusive interview next. this is bloomberg. ♪

dani: goldman sachs international ceo richard says the bank is seeing some green shoots at signal a pickup in cp owes. -- in ipo's. >> they are starting in a stronger place than they have been for 15 years. when you look at the strength of the balance sheet -- liquidity

is much stronger. and the underlying strength of the balance sheet is strong. whatever lies in front of us, i think we are in a good starting position. >> are you confident what is in the pipeline will be better? richard: i think we are seeing some green shoots. we have a number of ipos in the market. some ipo's done earlier in the year were done but did not trade well after and that is a key measure. we will have to watch that. there has been a lot of secondary selldowns throughout the year. the market has absorbed those well. on the m&a side carpets are looking. we saw a big health care transaction announced this morning. the network is looking and some things are getting done. the big offer is still too wide.

from a pricing point of view we have not gotten there yet. you can see people are looking to do things so there are signs of activity. >> do you worry that you are losing business? richard: we have a lot of confidence in the strength of our m&a franchise and it is built on a hugely experienced team across geographies and industrial sectors. people that have been in the business for a long period of time. and it is an experienced place of business. and connecting the dots. there is that component to it. and the financing component. and being able to bring the full package. it is one thing to know what you want to do but it is another to finance what you want to do. we can help on all fronts.

we feel good about our franchise. it comes down to relationships and being part of an intimate dialogue. from where i sit i see that as strong as ever. francine: are you done with job cuts? richard: we disclosed last week that we are looking at a small number of people, 250. we had a more significant exercise at the beginning of the year. it is in response to our perception that markets were going to slow down and they certainly have an some ongoing weakness across markets. we want to make sure that the firm's right sized. the reason this exercise is targeted is because we are targeting the parts of the business that are slowing down. dani: an important part of that

conversation with bloomberg's francine lacqua is she asked about goldman sachs relationship with odey. alleged decades of sexual abuse of staff. : richard i'm not going to talk about one client. i would say that as a firm and frankly our people, we hold ourselves to extremely high standards and we expect the same from our client base. when new information comes to light in any situation we review it and review it quickly and then take the appropriate action. francine: are you still contemplating what happens next? richard: we are in the process of moving away from their business. dani: goldman sachs international ceo richard

gnodde. following morgan stanley in removing their relationship with odey. looking at some of the currencies. that is not currencies but equities. we are looking at a softer dollar heading into today's cpi. one of the other big movers, away from some of the exuberance and stocks is looking at an offshore yuan weakening to a six-month low. cutting it short term policy rate. does that mean the all-important mlf rate will get cut? and what does th when i was his age, we had to be inside to watch live sports. but with xfinity, we get the fastest mobile service and can stream down the street or around the block. hey, can you be less sister, more car? all right, let's get this over with. switch to xfinity mobile and get the best price

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dani: good morning. this is "bloomberg daybreak: europe." market positioning. tech shares fuel gains by global equities ahead of today's inflation print. it is the final piece of the economic jigsaw ad of tomorrow's fed decision. china unexpectedly lowers a short-term rate. and ubs ceo says 10% of credit suisse employees left in the last month as integration of the banks begins in earnest. elsewhere in the banking world, the berkeley ceo says leadership changes and focusing on new areas of growth have contributed to higher than usual attrition. we have more on the economic outlook in the banking landscape. >> we are losing a few

investment bankers but not that much more than what is normal annual turnover. in the first few months of the second quarter when people are paid their bonuses and there is some musical chairs. we made a management change in our investment bank. we spent a lot of time last year thinking about what we expected the banking landscape to be in the next decade. you are seeing rising interest rates, changing business models and the importance of sectors that are new to the economy and not just technology but also sustainability and mobility and climate tech. and then there are the different players and their rinse in the banking market. private credit funds are becoming bigger. they are slightly this intermediate in what banks are doing. and we began with a very american bank from the lehman

acquisition and we have grown in europe. you bring it all together and you are talking about us thinking about the next generation of leadership for the investment bank. building on our strengths. and when you do that kind of organizational change, sometimes it has impacts. >> is there a strategic shift in the investment bank away from the united states and towards your? your two heads before were based in the united states and now they are in europe. >> one is here and one is in the u.s. it is try to get more attention to your relatively speaking. the u.s. remains critically important to us. u.s. businesses -- that is where we are leading. dani: the berkeley ceo speaking

to bloomberg. barclays is among the banking stocks underperforming. let me give you a view of what european banking stocks have done in terms of their price to forward earnings. despite the fact that we have earnings upgrades from these european banks. limited outperformance as our next guest rights in his research. it means we have a disconnect on valuations. let's get to him. it is chris hallam. what gives for this disconnect? chris: in terms of the disconnect, the chart you showed shows perfectly this. you will see over the last 15 years you have had a bear market in long-term rates as a result of the continued

-- since mid-2022 we know there has been a big reversal. usc limited outperformance of the bank sector relative to the broader equity space. what does that reflect? uncertainty. if we think about all of these things together, we think banks are going to be able to deliver growth year after year. when we compare and contrast that to other sectors in europe that leaves banks has one of the fastest growing sectors in europe but one of the least expensive valuation models. there is a big disconnect. dani: the fear is we are in this moment. you have higher rates from the ecb. what happens if we turn around and start to get cuts or get a

peek? can european financials find their mojo if the macro picture turns against them? chris: that is the number one question. how do we think about the sector at peak rates? can you buy banks as we go through a period of rate cuts. the context is our economists expect policy rates to be elevated for longer than the market expects. if we think about market pricing we are seeing rate cuts priced in for 2024. some of the work we have done in the last few weeks is how banks will navigate from a profitability perspective. there are a few things to break down. within the revenue construct some specificities as to how banks generate means some banks will face less headwinds than others. don't forget there is a lot of

-- the revenue picture may well be ok. if you go further down the p&l you have operating costs. if we start to see lower rates you would assume less pressure in terms of late cycle credit exposure. and the final point to think about is as we start to see rates lower and banks already generating a lot of capital on top of healthy capital buffers we would expect those banks to be able to pay dividends and reduce their share count through share repurchases. dani: you know better than i that the banking sector is not a monolith.

are there any region's where you are particularly worried? i'm thinking about the nordics given how real estate looks at the moment. chris: there are two elements. commercial real estate. look at commercial real estate exposure it is pretty minimum. compare that to some of the u.s. banks where it is closer to 30% for some of the smaller institutions. a different picture in europe. exposure is larger for the nordic banks. at the same time we talked about how you can calculate these numbers and for some of the nordics that means you saw the benefit earlier and the cycle and you will feel the headwinds earlier if rates are cut. region by region we are a little more cautious and we see less upside for the nordic banks. dani: what does it mean now that

the ubs-credit suisse deal has been completed? chris: a few things to consider. this is a big scale business. 5 trillion in assets. it is a wealth management platform. it is an asset management business combining two relatively complementary platforms together. think about what it means for ubs. there will be a time of integration. a lot of opportunity given the scale the business will have. wherever there is longer-term opportunity there tends to be shorter term challenges. sergio was talking about some of the challenges that lay ahead. they have laid out a comprehensive plan. what does that mean for the rest of the sector? the sector is a competitive industry.

wealth management companies embedded in a lot of the banks that we covered. credit suisse was not an easy competitor prior to this. dani: hadan thank you so much for joining us. chris howland, head of european financials research at goldman sachs. china central bank has cut a short term policy rate using monetary stance to help aid economic recovery. the pboc lowered the purchase rate by 10 basis points. it is now 1.9 percent. this comes ahead of the pboc's --. seven of 16 economists expect a reduction in the one year mlf rate. jp morgan has agreed to pay to 90 million dollars to settle a

lawsuit alleging it knowingly benefited from sex trafficking by former client jeffrey epstein. the bank says the agreement in principle would settle a class action filed last year by an unnamed victim. a source says the bank will not admit liability. jp morgan says its association with epstein was a mistake it regrets. u.s. secretary of state antony blinken says the trump administration was slow to counter chinese spying overseas after discovering that beijing had been operating a spy facility in cuba since 2019. he says the past administration was aware beijing was expanding its intelligence efforts and failed to slow it down. the white house has acknowledged chinese facilities in cuba capable of spying on southeastern parts of the u.s. coming up, back to the tech story. we are hearing intel could be an anchor in a chips designer in the u.k.

that is next. this is bloomberg. ♪

three more personal russians agree that sleep impact everything you do or machines are engineered to keep dry sheiks of the world's most breathable working lease-option superior stretch >> it is important that we try to understand the importance of ai and not be scared of innovation. dani: that was the mayor of london speaking to us about opportunities in ai at london tech week. u.k. labor leader keir starmer is also at u.k. tech weekend he will speak exclusively to bloomberg tv today. elsewhere in tech news softbank

backed chip designer is said to be in talks with intel among others. bloomberg quick takes alex webb joins us. how big are we expecting the anchor investor of intel? >> they are looking to raise as much as 10 billion. we are getting a clearer sense of valuation. what is interesting about the intel stake is it is essential to tmc. the way it does that is that it designed the architecture for a lot of chips which lets companies like apple design their own chips. intel is trying to get into that

space, making chips for other companies. it is in the favor of intel that arm remains independent to fuel the business. dani: the other headline yesterday was google is likely to be hit with an antitrust complaint from the eu. do we know what that complaint might look like? >> it may required investment from a part -- it may require a divestment from a part of its business. it pertains to the google network. this is not going on to google network to do a search. it is if you go to a third party website and ads are served there. the google network is only 12% of its business but it is still a $33 billion business.

it focuses on the way, the how and if they share data with other websites. dani: there might be concerns about google and microsoft. the nasdaq climbs another almost 2% yesterday. at a new high. why does gravity not apply to tech right now? >> it is quite a small number of equities driving this. they each have their own individual reasons for success. interest rates have not helped previously. the question is whether -- when we think of nvidia for instance will there be a dose of realism? i think you can attribute them to their individual reasons. dani: i thought it was based on

fundamentals. are you telling me it may not be? >> it may be but a lot of people are looking at waiting to see. at the moment they are not sure what else they can buy. perhaps there will be a moment of realization. dani: if you need some cash and you want to take profits on apple or nvidia this may not be a bad time to do that. >> the adage is buy the rumor and sell the fact. dani: alex, thank you so much. alex webb from our quicktake team. elsewhere in tech google deep mine is a leading u.k. artificial intelligence research lab. the ceo says ai will accelerate scientific medical breakthroughs with the potential to teach --

with the potential to solve illnesses like dementia or cancer. there are potential downsides. >> in the next decade, i think it could be possible that we could build these ai tools to help fast breakthroughs in these areas. that kind of acceleration we would like to call science at digital speed will come to more fields including medicine. >> what is your latest sense? where do you stand on the timeframe around when your competitors may achieve artificial general intelligence? some people call it godlike ai. >> these human level systems

have always been the holy grail since the 1950's. i think we are getting close now. i would say over the next decade i would not be surprised if we started to see some systems with these general capabilities given the pace of acceleration we are seeing now though there is a huge amount of uncertainty. it depends on where further innovations are needed and how quickly they might come. >> about a decade? >> i would not be surprised if it was within the next decade. >> you recently signed a statement alongside other experts saying that mitigating the risks of extension by ai should be a global priority. how salient is the risk? >> i think there are three different types of buckets of risk. number one, bad actors using

these dual-purpose technologies in ways that are bad for society. i think that is true of any transformative technology down through the years and ai is no different. that becomes a question. and access to the technologies needs to be thought about. and uses in terms of deepfakes or disinformation or bias in our systems, that can affect near-term products and applications. that has to be mitigated by new technologies like watermarking to detect deepfakes. and finally, there are longer-term technical ai risks that i think more research is required to understand them better and understand where the systems are going to allow us to figure out the bounds of what the systems can do and how we

can control them and align them to human preferences. once we understand those we can put the guardrails around it. dani: the ceo and cofounder of google deep mind speaking to tom mackenzie at london tech week. coming up, european leaders meet in paris to discuss security guarantees for ukraine. this is bloomberg. ♪

manual dani: emmanuel macron says he hopes ukraine's counteroffensive will be successful and will lead to talks. the french president met with the leaders to discuss coordinating military assistance to kyiv. let's get over to rhea taddeo. the leaders reiterated their

support for ukraine. what about long-term security? >> that is france, germany and poland, strategically important countries for ukraine politically but also geographically. when you look at poland especially, a neighbor country, which has been crucial to the weapon deliveries. there are two takeaways from the dinner yesterday. the french president told reporters he had been on the phone with president zelenskyy. here. to approve -- to confirm that the counteroffensive had started and it could go on for weeks or months. he added that if successful it could provide a path to talks. the other issue is and this is the fundamental question, it has to do with that security framework and the guarantees that could be provided to

ukraine to break a path of aggression from russia. it is a thorny issue. it is also vague. when we talk about guarantees and a security framework it could mean everything. it could mean the israeli model. it could mean bilateral guarantees. or ultimately the full membership to nato for ukraine. this is open to debate. it is a diplomatic flurry kick started yesterday in paris and it will take us to the nato summit in july. ultimately it will be about the consensus about the guarantees that can be provided for ukraine. there are some that believe ukraine merits a real path to nato. dani: and an important one. thank you for helping us stay on

top of it. as we head to the end of the hour, let's look at markets. gmm on your terminal. japan stocks. all the way to the left upper corner, japanese stocks at another high. a multi-decade high. what is leading that? japan trading firms. firms like mitsubishi. good news for warren buffett because this is the sector that he likes. jeffries raising their price targets by more than 40%. good news for those investing in japanese stocks. elsewhere we get reaction from china after that short-term cut. this is bloomberg. ♪ therfor not as good as mine. the queen sleep number c2 smart bed is now only $899 save $200. plus, 48-month financing on all beds. shop now only at sleep number.

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