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tv   Bloomberg Daybreak Europe  Bloomberg  January 9, 2024 1:00am-2:00am EST

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>> good morning and welcome to daybreak: europe. china's pboc promising a strong
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support for credit growth, hinting at cuts to the reserve requirement ratio. asian stocks gaining on hopes for more easing. the follow continues with boeing 737 max nine. some airlines have discovered loose parts on the plane, another blow to the giant. and samsung plagued by stubbornly weak demand. lundy of macro and corporate stories. we will have a macroeconomic readthrough and we will get a quick check on the markets. samsung, boeing, those are macroeconomic stories. we are talking about the chips bellwether, samsung, talking about weak demand for its gadgets. we have boeing, this heavyweight , and yet you are seeing some regional division. ftse 100 futures higher by about
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the same margin, the volume is coming back to the markets but look at what is happening across the atlantic. that is not in u.s. futures like you traditionally would good -- would. boeing is an american story. it's a heavyweight in the s&p and the dow. it have an effect on the equity market but the bond market matters as well. we are still in the era of monetary policy will re-are trying to figure out if 2024 is owing to be the year of cuts or plagued by geopolitical risks. that's the take from a lot of strategist around the world. when you look at the picture, you are not seeing a ton of movement, interesting since 2024 has been fairly sanguine for the bond market. the 10 year yield, i thought we were past of this. i thought we were seeing an official retreat from the 4% level. the former bond king, the
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founder of pimco, says 10 year treasuries at 4% are overvalued. i would think that is a consensus story but is not driving the bond market. there might be plenty of geopolitical risks. it could be stopping rate cuts from fully taking effect on the surface level. as you see yields come down, you would think the dollar would weaken and that is not the story. dollar strength is the name of the game. even brent crude trading at a $76 handle. we want to see how the asian markets are faring. avril: what we are seeing today is reversal of losses in asia stocks, including on the nikkei, which just closed at 34 year high, a clip the peak in july. the nikkei outperformed in the region, -- climbing is 8.4%, but
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was paring those gains toward the close. this is strain on the japanese currency. the boj saying it's going to reduce its buying of superlong government bonds and this is a reminder it could still take stimulus off the table this year despite tokyo inflation data coming in today showing cpi occurring for a second month. this is a leading indicator of nationwide price trends. we will get that data next week. it's not just the boj we are concerned with. given the data, it suggests it is unlikely to move later this month. we are also keeping a close watch on the pboc and ended -- and indeed, they floated the idea they could use open market operations and the reserve requirement as tools to boost credit. the last time those comments
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were made was july last year. that time it was another two months where we actually saw a rrr cut. that suggests a similar timeline this time around. bloomberg economics sees a rrr cut as early as later this month. us look at the market reaction, we saw the csi 300 yesterday closing at the lowest level since february 2019. today, despite the morning session eking out some gains, it slipped back into negative as the afternoon session progressed. still weak on the offshore currency as well. the chinese yen, that is. this is on the back of continued concerns dogging the chinese economy. property overhang is not really resolved. let's look at some of the stock market movers in the region. it's really the nvidia suppliers, climbing today after
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the chipmaker unveiled new chips and reinvigorating the ai fad. kriti: it's an interesting dynamic in asia right now. on the one hand you have the chips story taking the world by force but on the other hand, the pboc rate cut, perhaps that is the macro story to watch in the region. thank you for the update. we talked about the chip exposure, that's where we are going to go next, samsung one of the other weights in the sector. now posting a sixth straight quarter of declining operating profit, a reflection of ongoing week global demand not just for electronics but the chips that power them. first of all, for our global audience, i should say that 33% of the kospi index is samsung, which is huge.
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talk about these preliminary earnings, what do we need to know about these numbers? >> that's right, the samsung today reported very disappointing preliminary earnings for the fourth quarter, both revenue and operating profit came in less than expected. operating profit in particular was down 35% from a year ago, which was far worse than what analysts had expected. samsung as you mentioned is a bellwether, a major tech giant in a country -- it is the biggest memory chipmaker, most prolific smartphone maker, they make everything from tv's to chips. basically this is a company that is really one of the first major
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tech openings to report quarterly earnings and asia. samsung really matters for the pulse of the tech industry and today's disappointing earnings suggests that it may take more time. kriti: talking about the recovery that may take more time, talk about the semiconductor division specifically, you talk about this being a bellwether, i think a lot of focus about how much supply samsung can do given issues plaguing even the memory market. yoolim: absolutely. it's been a severe downturn for samsung and its peers into the industry as a whole the last few years. what samsung said last quarter in october is they are expecting a recovery taking hold from
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2024. but we haven't really had any indicators yet because the company is expected to announce earnings at the end of this month, when they will actually disclose additional performance and we will have a better idea. analysts tracking this closely have told us it looks like either their foundry chipmaking division that underperformed, a really disappointing performance compared to the other areas. memory chips seem to be recovering as expected. kriti: yoolin lee walking us through the samsung story. this is such a bellwether for the entire world, do you start to look at these chip bellwethers as a macroeconomic indicator? are we seeing a glut in the chip
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sector, doesn't mean the global economy is in trouble? another bellwether is the aerospace sector. boeing, a similar story, except this time in the crosshairs after what feels like yet another blow for a company that has not been able to get back on track for years. u.s. air safety officials investigating the midflight blowout of part of a 730 79 max -- max nine jet. the u.s. said the door plugs were examined. >> our structures team examined the right door plug. the door plug on the left is what expelled the aircraft. they examined the right door plug in is installed position and found no discrepancies. everything was in place. kriti: our asia transport
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reporter is all over this story. a lot of jargon, break it down for us. what does this mean in terms of the safety of the plane? danny: it means they can further rollout areas they don't believe have a prime role to play in this blowout, this alaska airlines max jet. more focus is on the door plug in question. overnight we did hear airlines reporting loose parts in particular they've been finding on inspection but at least the cabin control pressure system they don't believe played a primary role in the accident, at the least. kriti: at the same time you have some of these other -- i should say two of the top five airlines in the u.s., united and alaska, performing maintenance checks on their 737 max 9 jets and have discovered loose parts on their
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planes as well. it's tragic this tragedy was required to discover that. what more have they learned? danny: united did the inspection and they found some anomalies when it came to looking at what they were finding and they reported that two the faa. alaska in the last couple of hours reported their own findings and they also found what they call loose hardware. they haven't said specifically what. but they also found around the door plug in question, which has brought a lot of scrutiny as a result of this accident. this does feel like another blow to boeing when it comes to building their jets. as we've seen the past several months, these issues when it comes to maintenance and quality. of course we need to find out from the investigation, from the ntsb, what was the cause of the accident specifically. that will take time as the chair said earlier in her briefing. kriti: it is certainly a scary
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development and we know boeing and all of its customers have gone through so many iterations of this. you wonder what this means for the aerospace sector when there is really one other major player and that is airbus. there is such a backlog, is there even a fast way to deal with this? our transport reporter in asia, thank you for reporting this morning. i want to stick with this theme. jeffrey's falling pose market after the fourth quarter profit and revenue dropped in what the ceo called a trough year. the first investment bank to report earnings and had some good news. debt and equity underwriting performed better. it helped lift some of the revenue and a possible sign of a return of dealmaking. it's the first glimpse at how wall street biggest banks navigated interest rates. a lot to digest when we talk
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about the massive profit drop. good also round of stories to get your day going on the daybreak terminal. if you are subscriber you will get the roundup we just had plus a little more, specifically around bill gross's take on the treasury market and what is going on in france, a big cabinet shuffle. plenty more ahead, stick with us. this is bloomberg. ♪
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kriti: welcome back to "daybreak: europe." so molly is leader has warned ethiopia will fight against its neighbors plan. they plan to lease a c corridor -- sea corridor. our correspondent has more. the terms of this agreement are fascinating but talk to us about why some malia somalia is so determined to fight this disagreement. >> because international bodies have come out and asked both ethiopia and somaliland to
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respect the integrity of somalia. it has also said it doesn't need permission to sign. it's these two factors that government of somalia and its president are seeing they will do everything in their power to defend their country. he is calling on somalis all over the world to defend their country. kriti: in nigeria, a group has slammed a corruption probe into a billionaire. what is the latest on that investigation? >> what we know these offices were raided. a group and many others including 52 companies have been accused of buying dollars from
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the central bank at the official rate and then converting them at the black market rake and making profits of over 70%. so they are going after them and trying to send a message. it's almost a cautionary tale by the government that they will crackdown on graft. kriti: certainly a lot we will be keeping a close eye on. ondira all over those stories. plenty more ahead, stick with us. this is bloomberg. ♪
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kriti: welcome back to "daybreak: europe." the u.s. secretary of state has said houthi militants must know they will face consequences if they continue to attack u.s.
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ships in the red sea. >> we've got 40 countries coming together to make sure that what they are doing has to stop. have other countries that have made clear that if it continues, there have to be consequences. our strong preference is that the who these -- houthis get the message from countries around the world of this has to stop. kriti: we want to bring in an expert who has been following the story closely. sylvia, this is a clear warning from antony blinken at a time when we know we u.s. vessels have already sunk several houthi boats. is this message new? sylvia: i think the u.s. would describe this as a final warning against the group and i guess the big question now is if the houthis attack another ship or try to hijack it, what will the
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u.s. do that would not spark a wider retaliation? it's a difficult position for the u.s. to be in, it has shown a wants to deter these attacks, it needs to stand its ground in the red sea and make shipping companies and vessels feel protected, but the reaction will be very important. what it wants to avoid his things as collating further and that's the message that blinken has been carrying on his trip around the region to arab countries in the region. he's headed to israel today and he will be meeting with israel's president and prime minister netanyahu and senior officials and he will be talking about the need to prevent things from spreading further. -- further in the region, and what part the countries involved can play and how to deal with the threat to global shipping from iranian backed groups in the region. kriti: expand a little bit when
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it comes to the iranian backed groups. we talked about the support to hamas and the houthi rebels. we know on the ground there was a lot of concern war could escalate again in the broader region after a senior hezbollah commander was killed in lebanon after a warning from iran. what we know about that dynamic? sylvia: the focus in recent weeks has been on the israeli invasion of gaza and its operations against hamas in the enclave but there is also concerns there could be wider violence across israel's border with lebanon. it's been an increase in missiles and strikes from both sides. we had this israeli strike on the hezbollah commander yesterday and we've had crossfire across the border.
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mainly within the general rules of engagement that have happened in the past so things haven't tipped over into something broader yet definitely the rhetoric has escalated. again, it's about both sides needing to stand their ground and make their point but with the concern in the back of everyone's minds of when things could escalate further. there are a lot of questions blinken will be asking the israelis, what is your into game, what do you perceive as the threat from hezbollah? also what regional leaders need to think about what could happen next. there's a lot of sense about how to understand what officials in groups are saying publicly and then how they correlate and how things might go next. kriti: it's interesting we keep using this phrasing of regional escalation and some would argue we are already there.
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you have seen sony countries involved in the fighting but also -- so many countries involved in the fighting but also aid negotiations, whether it is in the red sea or with lebanon and the fallout into jordan and egypt. not to mention the tit for tat in iraq as well. what would it take for the rest of the world to say ok, this is a full out regional war, what boxes do we need to check? sylvia: i think we've discussed different scenarios along with our colleagues at bloomberg economics. right now we are seeing it tipping into a scenario where you have an escalation and things spreading them up at the moment is mainly through proxy groups. we've seen what is happening with hamas. there are the iranian backed militia in iraq. we've seen hezbollah in lebanon, backed by iran. we are seeing violence by proxy
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groups but not a direct confrontation between israel and iran or iran and the u.s.. i guess things that could factor in our if there are significant casualties directly on both sides, and if there is a major attack on important vessels and regional waters, and a lot of the emphasis has been on the red sea and this area of shipping. the more sensitive place is the strait of hormuz, very important for shipping and in the context of regional tensions with global powers and the west. we could see if things escalate more in these important shipping routes for global shipping. kriti: i think this is something investors are concerned about, what it means for the inflationary playbook and global trade. sylvia, thank you for your
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analysis. sylvia was talking about some of the concerns in the shipping space. the most direct place that will show up is in the oil price. you look at the brent crude reaction, you're not seeing that much happening at the moment, only about a $76 handle on the international benchmark but this is the context of shippers around the world saying we will not touch the red sea. costco says they are ending shipments to israel altogether. we will keep you apprised of the market moves and developments in the region right here. stick with us. this is bloomberg. ♪
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kriti: good morning and welcome to "daybreak: europe." let's get to the top stories.
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the pboc prompts strong support for credit growth, hinting at cuts to requirements. patient stocks gaining, hoping for more easing. the fallout continues with boeing 737 max nine after united and alaska airlines say they discovered loose parts. plus, the french prime minister stepping down as emmanuel macron seeks fresh momentum for his agenda ahead of european elections in june, not to mention the paris olympics. a lot of crosscurrents in geopolitics. first, the markets. you are seeing some volume pick up. this will be the first trading week of the year where you see a lot more participation, which i think makes features more interesting. a lot of this is a function of corporate reactions. the samsung story in asia will have a direct readthrough into the tech sector. the boeing story will continue to discourage a little exposure
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to the u.s. benchmark that has such a weight to the country -- the company. euro stock futures higher, slight on -- outperformance in the u.k. by comparison, across the atlantic, not as much reaction. this is the dynamic on the back half of last year as well, the appetite for u.s. futures did not exist. that gets turned around. let's look at the asset story as well, monetary policy still matters i think the 4% level on yield matters. bill gross talking about the fact he thinks it is overvalued at 4% and i think the market consensus would largely agree given the rate cuts priced into the market, but the problem is we are still concerned i the
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inflationary and geopolitical readthrough and it is keeping the 10 year yield at about the 4% level. that to get fixed in the coming months and coming years. euro-dollar at 1.09. dollar strength of the story this morning and it seems to be weighing on brink road -- brent crude. $76. samsung has posted a sixth straight quarter of a declining operating profit, reflecting we could demand for electronics and the chipset power them. i am joined by aggie campbell. we've been talking about this period of weakness for a long time, why is it not healing itself? aggi: these were the preliminary results for samsung this quarter and what was really concerning was that analysts were expecting a drop, and decline, but the significance of the klein -- the
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decline is really noticeable, a 37% drop and it was expected to be a 24% drop. people were anticipating it would be tough for samsung but i don't think they were expecting how tough it would be. this falls into two categories of issues for samsung. one is the weak demand in the consumer smartphone market, but there is a general understanding that that has been recovering since the fall of last year and we've been seeing a bit of an uptick in the market. that might have also been inhibited by the fact that the operating profit in the sector might have been inhibited to the fact they were committing a huge amount of marketing spend over the holiday period. the other big issue is the chip foundry business and that is an area where despite this massive push toward ai chip development, there's also a concern that is costing the company a lot. kriti: if it is costing the
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company a lot, you hear sam some talking about pulling back on cost, the cost efficiency you've seen even from nvidia and other tech peers around the world. is there any good news baked into this report? aggi: there are two parts of the story that are positive looking ahead for samsung. there is an anticipation of recovery in the smartphone market and samsung has been pushing to boost a lot of their smartphone sales. they are announcing a new product in california later this month and they are making a clear play to try to compete with apple even on apple's home turf. that is a critical point. also there is a focus on the chip industry in general and how essentially there has been a lot of effort toward having these high-powered memory chips that
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would be able to power ai, and in both of these cases is really a focus on samsung betting on ai being able to drive the company forward in 2024. whether that be on smartphones that may have ai capabilities or within the chip industry because that is what people are anticipating is going to boost the chip industry in the coming years is really committing to the ai transformation of a lot of technology. kriti: continues to be the buzzword for share prices. the question is execution. aggi will be watching. thank you for your reporting. a different story at nvidia but similar, the stock jumped to a record high yesterday as they unveiled three new desks topographic chips and helped lure customers with ai pc's. they say users can make better use of ai on their personal machines. reuters is reporting that nvidia is also planning to start mass-producing and ai chip
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designed for china and the second quarter to comply u.s. export rules. >> looking forward, ai expenses will be delivered with a hybrid of cloud and pc computation. ai will use the cloud to run the largest laggards models and in gaming, a culmination ai in the cloud and pc will pull you deeper into the story. a new era of pc computing is here and it will transform everything we do. nvidia and our partners are excited for what comes next. kriti: jeff fisher, senior vice president of the nvidia pc business speaking at the consumer electronics show, i believe held in vegas this week. we go to a chinese billionaire, one of the hottest stories on the terminal, who made his fortune from online gaming. he's one of the most if it can't non-american holders -- one of
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the most significant non-american holders of land in the united states, he owns 19,000 acres of oregon timberland. he's the 82nd largest property owner. it's become a sensitive political issue in recent years. we go to france, the french prime minister hasn't resigned to make way for a successor. this as the president seeks to give fresh momentum to his reform agenda ahead of european elections in june, not to mention the paris olympics. why did emmanuel macron ask his prime minister to resign in the first place? caroline: he said that borne had to resign, the drama around migration -- immigration bill last month. since she's been named prime minister, for the last 18 months, she has struggled with the lack of majority in
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parliament and struggled to pass the controversial pension reform and then you had the drama around the immigration bill in december where the reformer was dismissed and it came back. a compromise was found with the support of the far right and marine le pen, something unbearable for macron's moderate camp. elizabeth borne new that 2024 was also a year for new momentum. macron still has 3.5 years remaining in his mandate so he had to kick start the new year with some fresh faces. we don't know yet exactly who he is going to replace borne but a favorite name is the current very young and very popular education minister. he is only 34 years old and he used to hold the budget portfolio.
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he's only been the education minister for six months but he has gained massive popularity already with his education reform. he is talking about and stating the uniform in french schools, which would be revolutionary for france. a lot of these reforms are very popular. the only problem is he could take some of the spotlight away from emmanuel macron. kriti: speaking of that potential replacement, how does that change micron's --macron's reform agenda? caroline: we should know the name of the new prime minister today, and the other new ministers in the next few days. some should remain in place, but
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what could change is the overall popularity of the government, which has been popular since emmanuel macron's reelection in 2022 and could have an impact in the upcoming european elections in june impute -- in june. marine le pen's party is leading, and emmanuel macron's party has less than 20%. it is a big year for france because you will have the paris olympics starting at the end of july. that could also have an impact on the overall popularity of emmanuel macron and his government. as you know, he cannot run again in 2027 so perhaps changing the government now would also be away to block marine le pen from being elected in 2020 seven. -- 2027. kriti: an interesting and
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crucial dynamic and france. caroline, thank you for reporting this morning. istmas shopping period weaker than expected in the u.k. as consumers burdened by higher inflation carefully watching their spending. for more from the british retail consortium, lizzy burden is all over this. what do we know? lizzy: this data shows the u.k. economy is on the brink of recession, which is not the economic backdrop rishi sunak wants in an election year. the idea is that even though inflation is falling, people still have to spend more to get less and they are prioritizing necessities. food, heating, housing costs. after that they are prioritizing experiences. you can see this in the barclaycard credit and debit
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spending data. but christmas is crucial for retailers, november and december a fifth of their sales. disruption through the red sea is not going to help on top of the rise of the national living wage. we get sales from tesco's and marks & spencer this week. we will see if upside is priced in. kriti: i think it will be a crucial litmus test not just to the u.k. economy, but is u.k. on the same page as france or germany? lizzy burden walking us through that after we come off the holiday period, not really a start -- strong start to 2024 for the u.k. franz beckenbauer has died, he
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was 78. he was widely considered one of the best players in the history of soccer. he rose to fame by revolutionizing the role of central defender. ♪
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kriti: welcome back to "daybreak: europe." also making news, openai has publicly addressed a lawsuit from the new york times in a wrongly worded blog post. they say the complaint is not telling the full story about its use of data from the times. the suit filed into super claims openai relied on copyrighted articles to train its cap gdp --
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chat gpt bought. barclays says their headcount fell by $5,000 last year. they say they improved automation capabilities. they say they continue to selectively higher front office roles and key parts of their businesses. novartis has reported to be close to acquiring a company and an important drug. the market value ofbillion couls soon as this week. a potential takeover as big pharma companies continue to step up bio text to improve drug pipelines and diversify their portfolios. we have identified 50 companies from finance to food that warrant a closer look in 2024. their analysis combining contrarian views and upcoming catalyst for change like new leadership, acquisitions and plans for new products and services. for more, i am joined by tim.
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there is a lot to digest here, i want to dive in impute talking about some of these -- dive in . this idea that it feels like there has been so much excitement and acceleration around ai, it feels like this will be the year of execution, would you agree? tim: i would totally. if you go back to i think it was mckinsey that came up with the idea of the hype cycle and quite often things get really crazy and then there is this void as things get implemented. you think about that with 3g, 4g, 5g, ar. ai had some big hype in 2023. we published a notable survey yesterday and what was in it was very clear, there are only little projects that have hit
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the ground. in 2024 and into 2025, we see the likelihood of ai implementation plus a bigger, broader i.t. services wave that picks up in the second half. so companies like accenture and alphabet are smack in that drive. you also have application companies that play into it. think about adobe, really complicated stuff if you get into things like photoshop or premier. or match, tinder into dating apps, using ai to better select photos. intuit also plays with ai, tax prep in the u.s., it can enhance
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that process. it's an interesting year as far some of these companies go. kriti: execution comes with crucial management and leadership skills as well. you mentioned match and tinder, the name that came to mind was bumble and the founder stepping down from the business she built. it begs the question how much of these visions can be executed with the right leadership. what are you monitoring? tim: there are some management changes stories we have on the list and totally different from the world of technology, but union pacific in the u.s., it is a big railroad company. they have a new guy coming on that is leading the charge for the company on what they are calling precision railroad. it is super accurate timing in terms of when you pick up and leave with commercial traffic. you've got bt in the u.k..
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we've had years of disappointment in various ways. there is agitation from the standpoint of shareholders. alison kirby is coming in and we've got pretty good faith she can implement change and start to drive positive revision after years of negative revision. management is quite keen. kriti: we are talking about the vision, how to create more in 2024 after some blockbuster couple of years for corporate america and corporate europe, and we will throw corporate asia in as well. talk about the macroeconomic picture. i feel like some much of the time, especially when it comes to these massive cash piles of these corporations have around the world, the question is, is the cash pile worth that much with higher interest rates? now with rate cuts priced into the market, do we care that much about the macro? tim: i think the answer is yes.
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kriti: i would be surprised if you said no. tim: it looks like we are shaping into a classic tale of two halves. if you look at the move from the standpoint of expectations of the central bank pivoting the last two months along with the reaction that laid through in terms of bond markets and interest rates or stock markets with the massive rally we had primarily due to valuation uplift with lower rates, it sets a real hurdle for us, especially when we went into a period like fourth-quarter earnings. in europe it could be a challenge. worse than what we saw in the third quarter, which was a pretty sorry earnings reporting period, all else equal. the second half of the year, if you start seeing interest rates indeed play through and recovery starting to gain some steam as
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well as looking into next year, which we will do in the second half of the year, the second half could be pretty interesting. we had the set up, starting from a high level in january, we have already given some back. we saw last year there was a selloff going into the end of 2022 that created a first-half lift off. kriti: it's an interesting dynamic and we will watch it carefully. tim, we appreciate your analysis. plenty more ahead, stick with us. this is bloomberg. ♪
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kriti: welcome back to "daybreak: europe." i wanted to put a couple of trust on your radar. we're talking about short-term expectations shown by the fed's consumer expectation survey.
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it says what does inflation look like in about 12 months time based on the things they are hearing? this chart shows the expectation is at its lowest going all the way back to right here in 2021. it tells me the rate cut expectations priced into the market are backed by economic data in the surveys the new york fed is telling you. the question is why is the market not supporting it? when you see this declining narrative you see a 4% level on the 10 year yield good is that misallocation or is the new york fed just early when it comes to showing the kind of data to support that kind of move? let me put another chart on your radar. one of the big conversations right now is about quantitative tightening and windows that taper off? when does the balance sheet runoff not necessarily need to be as significant as right now? this is a chart i like to look at because lori logan at the dallas fed had talked about simply what does that signal look like?
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she pointed to this reverse repo facility and the fact that when this starts to come down more significantly, the usage of it is the signal you need that cutie has to taper off even more. right now the usage is below $700 billion. those other charts i want on your radar. another thing to watch is our coverage from the consumer electronic show this year. it is kicking off in las vegas earlier today -- later today. we will speak with a great lineup of guests from qualcomm, nasdaq, mercedes-benz and more. up next, markets today. this is bloomberg. ♪
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