Israel To React After Iran’s Attack | Morning time: Europe 04/15/2024

Good morning.This is Bloomberg Daybreak Europe, I'm Tom Mackenzie in London.These are the stories that set your agenda.Diplomatic efforts intensify as Israel weighs a response to Iran's dronemissile attack. The UN chief calls for de-escalation toavert a wider conflicts. Global markets show signs of stability,with crude prices easing as oil traders largely shrug off Iran's assault onhopes the conflict is contained for now. Plus, German Chancellor Philip Schulzarrives in China for talks with President Xi Jinping on a mission todial down tensions between Beijing and.

Europe.Let's check in on these markets then on the back of those unprecedented attacksfrom Iran. But this is not a market that for now isshowing significant signs of risk off. Yes, gold is higher, but treasuries aredown. The dollar is a little softer and USfutures and European futures pointing higher.Of course, the context for the US was that last week was the biggest weeklydecline for US stocks since about October on expectations that they willbe higher for longer. On the right's view coming out of the USand stickier inflation are strong but.

Jobs market currently US futurespointing to gains of 4/10 of a percent and on the S&P NASDAQ futures pointinghigh by 4/10 of a cent as well. And European stocks looking to openhigher despite the geopolitical risks up 3/10 of a percent.The footsie 100 those slightly different picture of pointed peninsula by 35points so far this Monday. Let's look at the board across assetthen I touched on gold. I touched on oil and US treasuries.Let's quickly look at the pricing then on some of those key assets.European stocks futures, as I say, pointing to the green.Currently though, when it comes to the.

Oil price, you are lower by 3/10 of apercent on Brent crude at $90, just above $90 a barrel.Spot gold though, high by 5/10 of a percent euro dollar.With the reflection on what is happening with the softer dollar so far in thesession, euro dollar 1 to 6 just up a 10th of a percent and the US ten yearyields currently up three basis points. So better selling pressure in factcoming off treasuries, not the flight to safety that some had assumed over theweekend into US treasuries. 455 On the US benchmark.The other major story of the day as well when it comes to these markets in thecommodities space, is the sanctioning.

Coming through from the US and UK onparts of the Russian metals market, aluminium and aluminium?In focus for us as is nickel, you can see prices higher on the back of thatnews. Those restrictions, those sanctionscoming into place over the weekend and the reaction in the markets this Monday,that and even up 4.4%, nickel gaining 3.7%.The consequences for the LME on a reshaped commodities market on the backof those continued sanctions around Russia.Given this conflict in Ukraine. Let's go over to the Asian session now.Go back to the geopolitics, of course,.

Of Iran and Israel and check in on howthat is all playing into the Asian markets with Vonnie Quinn.Funny, what is standing out to you doing across the session so far?Well, stunning out, Tom, is how different markets are reacting.And in fact, the improvement that we're seeing through the recession.So at one point, the Nikkei 2 to 5 was pretty much pricing in geopoliticalrisk. It was risk off.It was down about 1.8%. The topics as well, this was in theearly part of the Asia session. But as you can see, ending up thesession down less than 1%, not just for.

The Nikkei 2 to 5, which bear in mind isalso dealing with a yen. That's at one 5381 right now.Remember when we hit 152, how it seemed to be panic stations?Well, we're almost two big figures weaker at this point.So we'll be waiting to see some more jawboning, if not more, from the Bank ofJapan over the next several days. But the MSCI Asia Pacific Index alsoonly down and I say only obviously with caveats, down 0.8%.That's because we had an update on China regulatory crackdown on Friday hadenthusiasm built into China stocks today and we saw some upgrading.We're about to see the shekel trade.

It has been strengthening it seems likea long time ago now that that attack occurred, it was only just maybe 36hours. And we are waiting on a response fromIsrael. But the shekel for now trading at 373, alittle bit stronger than it was initially.Let's flip up the boards, because I do want to point to the Middle Easternmarkets. They are closed.They haven't opened for the Monday session yet, but there was a Sundaysession and again, it was quite muted. So the today opened up 1.8% lower,finished the session down 3/10 of 1%.

As you can see, the narrow index in TelAviv was up about a quarter of a percent.The broader index was also higher by about 3/10 of 1%.And then I thought I threw in Bitcoin because there was a lot of kerfuffleabout how Bitcoin completely tanked. It was the only asset that was tradingduring the attack hours. There were lots of reasons for that, ofcourse, but Bitcoin is returning. It's back above 65,000.And then silver. You mentioned gold, but it isinteresting to take a look at silver. It's been tracking gold and it'sobviously doing a lot better today than.

Gold is up 1.3%.Okay, Vonnie Quinn, Thank you very much indeed.On the Asian and Middle East market reaction, of course, to what we've beenseeing unfolding over the weekend. Let's get the latest then on our topstory now and the details that have been unfolding.World leaders have urged restraint after Iran, of course, fired more than 300drones and missiles at Israel on Saturday evening.The attacks, which were intercepted, marked the first time Iran has targetedIsrael directly from its own soil. Prime Minister Benjamin Netanyahu saysIsrael will defend itself.

But the analysis of the state of Israelis strong, the IDF is strong, the public is strong.We appreciate that U.S. standing by Israel's side, as well asthe support of Great Britain, France and many other countries.I have set a clear principle. Whoever strikes us, we will strike him.We will defend ourselves against every threat.And we will do this calmly and with determination.Okay. For the latest, let's bring inBloomberg's Paul Wallace in Dubai. Paul, what do we know is the latest interms of the thinking specifically.

Around Israel's government and thereaction that may come from Israel to, again, this unprecedented attack byIran? I tell him.It seems as if so far Israel is keeping its options on the table and stilldeciding exactly what it's going to do to react to Saturday night's drone andmissile barrage against its territory. And obviously, this was a major andunprecedented attack from on. It didn't cause much damage.There was only one casualty, a ten year old girl and light damage to to anairfield. But nonetheless, this was a huge attackthat required the assistance of not just.

The Israeli Air Force, but the UK, US,French and other air forces in order to to foil it.And the US, the Europeans and Arab states are all trying to urge restrainton the part of Israel. The last thing they want to see is thisconflict in the Middle East escalating and getting more serious than it alreadyis, as we heard there from Prime Minister Benjamin Netanyahu.He's not ruling out anything. He isn't being extremely gung ho insaying that Israel will react aggressively to what happened on onSaturday night. But as I said, that's still possible.Israel may bide its time.

There's no indication that it's going toreact immediately. And this is it could do this over thecoming weeks. I think for the sake of its own public,it has to do something that a lot of Israeli ministers and analysts sayingthat it would be a it would be a very weak showing and a dangerous showing forthe country if it didn't react in some way to Iran.Iran's actions on Saturday, it doesn't that doesn't necessarily mean it has tostrike Iranian soil in a sort of tit for tat response.It could go after Iran's proxies a bit harder than it already is the likes ofHezbollah in Lebanon and groups in.

Syria.And it could target some Iranian assets around the world without doing somethingas high profile as what the Iranian does on Saturday.But I think everyone is now watching Israel, and that is its reaction is thebig question for global financial markets this week.Yeah, absolutely. Bloomberg's Paul Wallace on the latest.Thank you very much, indeed. As you say, Israel weighing up itsoptions then. And Paul's view, at least the analysisthat Israel may not react or at least rush to action, but weighing up itspotential options.

Let's get to the other side of thisstory there, or at least another angle, as, of course, to the key geopoliticalstory of the moment. Tehran saying there will be no furtherattacks as long as Israel doesn't retaliate.The chief of staff of Iran's armed forces says the operation is now over.Ahmadinejad. As an example, Khatami offered us fromour point of view, this operation is over and there's no intention tocontinue the operation. But it's designed this regime takes anyaction against the Islamic Republic, whether on our soil or in placesbelonging to us in Syria or elsewhere.

Our next operation will be much larger.Okay. Let's bring in Bloomberg's Patrick Sykesthen in Istanbul. Patrick, is Iran then bracing for apotential counterattack from Israel? Morning, Tom, I think publicly, andthat's the important caveat. But publicly, no.There may be plenty of organization going on behind the scenes, but I thinkIran is very keen to to present a picture where life is continuing asnormal in Iran. That's, of course, very unlike what wesaw in the past week in Israel with these mobilizations and disruptions tonormal life.

So far, the only disruption we've seenis cancellation of flights yesterday in many of Iran's major airports, butthat's been now lifted. So the message is one of normalization,at least publicly, as I say. At the same time, I think you had thethe threat there from the military official that if Israel does respondaggressively, Iran is sending a message that it will be prepared to attackagain. And it's keen to sort of strike thatbalance and say this is done, but we are prepared to come back here if we'reforced to. And Patrick, of course, it signals tomany that the conflict, the tensions.

Between between Iran and Israel, longrunning as they have been, have come out of the shadows then.What does it mean, though, for the shadow war that had been prior to thisweekend and the tensions between these two sides?That's right. There were some really interestingcomments from Iranian military and government officials yesterday wherethey said, for example, this strike marks a new equation in thatrelationship or it's the end of what they call strategic patience, wherethey've been willing to sort of let Israeli attacks slide and strike backwhen it suits them rather than being.

Rushed into things.The message now is that whenever excuse me, whenever Israel does strike,Iran does strike Iranian strikes, its assets, its interestsbe that in Iran or abroad that Iran will be willing to strike Israel directly.And the way that we saw over the weekend, that's new.That dynamic is new. And I think that makes for a much morefragile dynamic in that shadow war, where with previously incidents thathave been perhaps allowed to let slide or they've been escalated throughthrough revenge much further down the line.Iran is signaling publicly, at least,.

That from now on that won't be the case.The response will be immediate and it will be direct.Okay. So very much a significant turning pointand a significant new chapter, of course, in this tension.Patrick Seitz, thank you very much indeed, has been covering all of thisfor us across the weekend in detail. To the oil component now, and oiltraders have so far shrugged off Iran's unprecedented attack on Israel.With prices easing, in fact, on speculation the conflict will remaincontained. Let's bring in Bloomberg's Anthony DiPaola in Dubai.

Anthony.On some levels, then, fairly counterintuitive.The move that we're seeing in Brent and WTI this morning.Just unpack how the oil markets have reacted to this.Good morning. I mean, we had the slightest ofincreases just at the start of the opening before has come back.And what's that based on is basically the market seeing through kind of whathappened and looking at first of all, the fundamentals are oil supply hasn'tbeen affected. Oil continues to flow and we don't seeany interruption either to shipments.

Through the Strait of Hormuz or to anyproduction there. And looking at what happened over theweekend, the traders are looking at the fact that the Iranians have said that,that they see the retaliation as completed and done.The Israelis seem to be exercising restraint at the moment.And that factor that the G7 countries met discussed it.And yes, while giving back into Israel, didn't really support any moreaggressive retaliation. So everyone really trying to keep a lidon the situation and kind of draw a line under this current situation of ofattacks.

Now, this was was a big escalationbecause we did see that first direct attack between Israel and Iran on theirtheir own assets as opposed to this kind of a proxy war that that that Patrickhad just been talking about. So we'll see if we get a reversion tothat and stepping back kind of from this direct conflict.But really what traders are looking at was was in part some of the risk thathad all been priced into oil going into this weekend.So we saw a run up on Friday and we have seen an increase going beyond $90 abarrel this month. So we have seen some of that priced inalready.

And then traders kind of taking theirfoot off the gas as they see now the prospect that this won't go further.It will be a more limited in terms in terms of the escalation.So we're not seeing the worst case scenario yet.So Anthony, is Anthony, is that where the lens of trade is, is is right now?What is the next thing that the markets and traders within the commodity space,within the old space are watching in the hours and days ahead?Well, just to be clear, the thing that the traders are looking at in terms ofsomething that would be a catalyst to move oil higher is, as I said, anyattack that would affect oil production.

Or oil exports.So we're going to be looking at the Strait of Hormuz.Iran did come out last week and say that they don't plan to close the Strait ofHormuz, but they did take an Israeli linked a freighter inthe Persian Gulf around the Strait last week.So that's a sign that that they can react if they need to.We've also got the continuing Houthi attacks around Yemen.Those haven't yet targeted directly any kind of energy shipments.And that's why oil had remained muted in response to that.So traders will be watching, of course,.

For any escalation and for anyescalation that does impact supplies or exports.But on the on the fundamental side, we've got a healthy market with demandgoing better than people expected, probably at least reaching the samelevels that it did last year. But we've got a good supply situation aswell with lots of new oil coming onto the market from the US, from Guyana,from Brazil, and we have OPEC still cutting.So they've got spare capacity supply that they need to bring into the market.So longer term, traders will be watching just that when disappear, come back intothe market and when do they release.

Those barrels?And that will affect the balance kind of towards the end of the year.So on a on a fundamentals basis, we see OPEC slowly releasing those barrels overthe end of the year. But of course, that geopoliticalquestion is wide open. Tom.Anthony DePalma, fantastic analysis as ever from Bloomberg, of course, on theseoil markets and the reaction to, of course, the conflict between Iran andIsrael. Coming up, more analysis on what next inthe Middle East conflict. Then we're going to talk with thecontrol risks partner for geopolitical.

Risk Surana Pavel Eskew on this story.The details, the analysis coming up after the break.This is back. Welcome back.Let's get more analysis now on the simmering crisis in the Middle East.Let's bring in control risks, partner for geopolitical risk.Before we do that, check in on these markets that we've been discussing withAnthony de Paola over in Dubai, the consequences, the market reaction withinthe oil space to what's happening, of course, this unprecedented attack byIran on Israel over the weekend. And oil prices actually moving lower.The view that a lot has been priced in.

Leading up to this.It was flagged, of course, by the intelligence agencies in the weeks aheadof it. Currently, Brent, at $90 a barrel, down14%, WTI at 8521. Let's get the geopolitical analysis thenwith geopolitical risks. Sorana Pavel Eskew, who joins us now forsome context. Thank you for joining us this morning.Does Israel ultimately heed the advice of its US allies and avoid significantretaliation? Good morning.Yes, that is the big question, I think, today.I think on balance, probably, yes, they.

Will they will buy their time and decidehow to respond in due time rather than necessarilylaunch something in the next few days. What are the options you think Israelwill be looking at right now? So there's several options.The most critical, the most dangerous option, if you want, is that they wouldthey would launch a strike against the Iranian territory itself.And Iran's made clear that that would be a red line again.Again. But also, the U.S.has made clear that they wouldn't support an offensive strike.That would be the worst case scenario.

That we're looking at right now.The other alternative options, which hopefully they're thinking of now, isare either more tit for tat retaliation against the Iranian proxies in theregion, but not against Iran itself. Or maybe in time a more undercover sortof operations around the world as well against Iranian targets, which wouldreally bring it back down to sort of the tempo we had a few weeks back before theattack on the Syrian on the embassy in Syria.And when you talk of Iranian proxies, for some, that would include, of course,Hezbollah over across the Lebanese border, is what is Hezbollah's role inthis?.

Is there a risk that Hezbollahintervenes more aggressively in terms of its attacks on Israel?I mean, Hezbollah has been quite cautious and and communicated as suchover the course of the conflict in Gaza already, that it will it will react withcaution. And it doesn't want to draw Israel intoa war with with Lebanon. But it is to some extent, Hezbollahexists as a as a deterrence for Iran on the borders of Israel, so likely thatthere will be coordination between Iran and Hezbollah on next moves.How significant do you put the risk of Iran closing the Straits of Hormuz ifindeed you do get that as you describe.

It?Worst case scenario in terms of an Israeli attack on Iranian territory.I think I mean there's there's anyone's it's it's control risks or kind of gothrough scenarios. And the most likely scenario would be ifwe have an Israeli attack on Iranian territory, it'll probably be missilesagainst IRGC assets that from where the attacks were staged in in a first phase.In that case, Iran would still have an option of whether it wants to respond ornot. It could choose not to respond directlystill, but if it does responded, likely be again through missiles initiallyrather than.

Then outright blocking the Hormuz, whichis not in its interest either. It will maintain it as a strategicoption and use it as leverage once in a while, as it just has done over theweekend. Okay.Control his partner for geopolitical risk, Serrano, Alaska.Really appreciate your analysis this morning.Of course, unpacking, of course, the context around this Iran Israelconflict. Thank you very much indeed.There's plenty more coming up. This is Bloomberg.

Welcome back.Another big week for US bank earnings with Goldman Sachs, Bank of America andMorgan Stanley. All due to report.Joining me now is Bloomberg's Jenny Serene, who covers all this for usacross the team, of course, in the banking space.We have Jp morgan City, Wells Fargo reporting on Friday.What were the key takeaways? I think the big thing is they all kindof one by one said, you know, this is probably the end of the boom times fornet interest income. So with the Fed poised to cut rateslater this year, while there's a lot of.

Discussion about when and how fast andand how quickly they'll go down, they basically all one by one said, you know,this is looking like the end of the boom times in net interest income.And so we're going to have to start relying on other parts of our business.And so we saw things like bright spots in capital markets, real good equityunderwriting, debt underwriting results from these banks.And so you saw them start to kind of point to these other areas that might beable to kind of bolster results as that net interest income slowly fades away.Okay. So a bit of a transition in terms of theearnings picture and the numbers that.

We're looking at when we're talking inthe numbers, Goldman Sachs, then the preview for today, what are the metricsthat you and the team are going to be scrutinizing?Yeah, I mean, so they're the Wall Street is of the Wall Street banks.So when you think about a rebound in capital markets, a rebound indealmaking, those are things that really benefit of Goldman Sachs.That being said, you had a lot of these big bank CEOs on Friday really warningthat a lot of the industry was undervaluing the risk of geopoliticalthings. And so when you look at what happenedover the weekend in Israel, how does.

That actually end up impacting thedealmaking environment? Does that actually put us back on kindof the wait and see mode for deal making?That's obviously all a huge risk to Goldman.So I think they're going to have to parse that out today.You know, even though we might have seen a little bit of a pick up up to now,does the geopolitical risk end up winning the day and kind of put us backon the back foot here? Yeah, we had that warning as well fromJamie Dimon, of course, the Jp morgan warning on those potential geopoliticalrisks you're talking about.

That's interesting times.You're talking about the fact that some now view a likely cut from the Fedcoming through in September rather than June.Really very interesting transition that we're seeing across the banking space,of course. Jenny, thank you for the context withthat preview as well of Goldman and those earnings coming out later today.Jenny and the team will be across all of that for us.Jenny Shery Ahn, thank you. There's plenty more coming up as we lookat European futures pointing higher by 4/10 percent.US futures.

S&P e-mini is also pointing up by 4/10of a percent after a challenging week last week.And of course the contact centre so far this month, European and US stocks areoff by about one and a half percent, but a slightly brighter picture for theequity space. Despite those geopolitical risks.There's plenty more coming up. We'll keep across that story for you.All the details. Stay with us.This is Bloomberg. Good morning.This is Bloomberg Daybreak Europe Tom Mackenzie in London.These are the stories that set your.

Agenda.Diplomatic efforts intensify as israel weighs a response to iran's drone andmissile attack. The UN chief calls for de-escalation toavert a wider conflict. Global markets show signs of stability,with crude prices easing as oil traders largely shrug off Iran's assault onhopes the conflict is contained for now. Plus, German Chancellor Olav Schulzarrives in China for talks with President Xi Jinping on a mission todial down tensions between Beijing and Europe.Let's check in on these markets. Yes, signs of relative stability,relatively sanguine in the face of these.

Geopolitical risks, despite theunprecedented nature, of course, of Iran's attack on Israel over theweekend. This is a picture across the stocksfutures that European futures pointed to gains of 4/10 of a percent footsie, 100lower by 31 points. That's what's being flat on the futures.S&P futures at 5187, looking to gain by 4/10 of a percent after a challengingweek, of course, for US stocks last week.Nasdaq futures at 18000 to 50 points to the gains of 71 points.Let's look cross set that in. There have been a lot of scrutiny on theoil, gold and treasury action.

And here is the pricing then so far inthe session this Monday to these geopolitical risks, $90 a barrel, Brent,moving lower by 4/10 of a percent. Gold getting a lift, though, up 4/10 at2355 per troy ounce, one of six on the single currency, up a 10th of a percent.The dollar is in fact a little softer so far in the session.The benchmark ten year yield edging higher by close to three basis points at455. Quickly reflecting on the metals storyas well, because we had the ban midnight Friday by the US and UK on some metalsbeing sent and shipped from Russia. Aluminium, nickel in focus and you'reseeing some price action there in the.

Session today.Prices up on name, up 4.9%, nickel on the LME up close to 4% as well at 3.7%.We continue to keep across that story for you.The consequences, of course, for the global metals market.Let's cross back though, to Vonnie Quinn, who's standing by for the broadermarket check and the reaction, of course, to that attack by Iran on israelhas rippling across the asian session and the middle east.Vonnie it is interesting to see how thedifferent markets are reacting. Tom you mentioned that we're lookingquite cheery as we head into the.

European and us sessions not so in asia.We had a down session overnight, but there were a lot of factors involved.Don't forget this was Asia's first opportunity to react to Friday's US dataas well. And of course, the idea that some morecuts might be off the table, at least at the moment, for a longer period of time.But we did have some risk of sentiment really across Asia, particularlyAustralia and Japan and Korea, not so much in China.We actually had an obsession, the first in seven sessions in China because ofsupport for stock markets. Some might call it a regulatorycrackdown, some might call it regulatory.

Support.Either way, it's giving Chinese investors in the mainland some hope thatthere might be a little bit more activity in that market.So as I said, the Nikkei, it started it was down about 1.8% at its lowest level.It ended the session down 9/10 of a percent.The yen continues to weaken. We are well above 153 now.We're very close to 154, another 4/10 of a percent there.And then I did want to point to the shekel because we did see that improve.So it traded weaker. It began trading a little bit strongerin the wake of the attacks on the idea.

That, you know, the notes that I've beengetting say things like sigh of relief or escalation averted, We have to see.We don't know that that's going to be the case.But right now, the markets certainly feel like that will be the case.I do want to point to the session in the Middle East on Sunday, because this wasjust a few hours after the attacks. We saw Saudi Arabia open 1.8% lower.It ended the session down 3/10 of a percent.We saw a lot of volatility in Israel. We were down, we were up.We were down a lot. We were up a lot.We ended the session for the narrow.

Market, up about a quarter of a percent.And for the broader market, about 3/10 of a percent.And then you mostly can see the reaction in silver, a little bit more strong thanin gold, up 1.2% it has been tracking gold on.Okay, Vonnie Quinn, Thank you very much indeed.In Dubai with the check on the Asian and Middle East market reaction to, ofcourse, the geopolitics that have unfolded over the weekend.The US, by the way, hoping, of course, to avoid further escalation and talk ofwar escalation. That is something, of course, that moneywas feeding into the market check there.

Avoiding escalation, of course, is thefocus for the US leading to a wider war in the Middle East.That's something they want to avoid. Following Iran's attack on Israel onSaturday, US Secretary of State Antony Blinken says that while the US is notseeking escalation, it will continue to support Israel's defense.Let's bring in Mark Champion from Bloomberg Opinion.Mark, are the markets, in your opinion, being overly sanguine about the riskshere or are they reading this right? You know, I don't think they're beingoverly sanguine. I think the you know, the importantthing that happened was that the.

Iranians, as soon as the you know, theyhad made this very large attack, they immediately said, as far as we concernour concern, this concludes it. And so the fact that the Iranians tookthat view and the fact that in reality, despite it being an enormousattack, unprecedented, it it actually failed.So vast majority, virtually all of the missiles were shot down.There was minor damage. One only one young woman is badlyinjured. But in terms of what might havehappened, you know, it largely failed. And that creates the space for Israel ifit wants to, to de-escalate or at least.

To put off, you know, any response.And it looks like that the latter is is what they're doing.They had a fairly inconclusive war cabinet meeting last night.And they you know, they are keeping all options on the table.They prepared options to they've said the IDF, the Soviets have prepared allthe options in order to take retaliatory action.They have not said they're going to do to do so.And it sounds like, you know, there is at least going to be a delay.One central point attention seems to be between the right wing members, theextreme right wing members of this war.

Over this war cabinet and the pressurecoming through from from Washington and the US president and his his team.How do you see that that tension evolving and how consequential is that?And how does that tie in to your view that this could be an opportunity, thismoment for Israel to regain the international initiative that arguablyit's lost, is that that tension is very real.It is very significant. It has been a huge driver throughout theconflict in Gaza. You know, after the Hamas attacks ofOctober the seventh. And it is very consequential at themoment,.

You know, in terms of retaliationagainst Iran in Netanyahu's hand and in the hands ofthe sort of motivation, cabinet members are strengthened simply because the rolethat the US played, the role that the UK played, the role that Jordan played.These were all quite material. And they they for the first time reallysince, you know, early on in the Gaza war, put all these allies on the samepage again. And that is something that, you know,the Israelis will be loathe to give up lightly.On the other hand, you know, the right wing of the cabinet is making demands,will make demands.

What we may see play out is anegotiation between Israel and and the and the US over exchanging really, youknow, restraint with regard to Iran for, you know, more US support in Gaza and toresume the war in Gaza and go into Rafah.You know, in my view that is a mistake unless it is extremely well prepared,much better prepared than, you know, previous assaults and to make sure thatthere aren't civilian casualties in the same way, but that we may well see thatas the negotiation that goes forward. Okay, Mark Champion from BloombergOpinion, thank you very much indeed. Well-worth reading.Mark's piece is, of course, opinion.

Pieces on the terminal and on Bloombergdot com for that context and analysis and those views.Now switching focus to the German chancellor Olaf Schulz, who is currentlyin China, has been on his second visit to China.He started in Chongqing. He's expected to deliver the delicatemessage that Beijing has not acted on European warnings to end discriminatorybusiness practices. Joining me now is Bloomberg's OliverCrook, who looks at this from both, both angles early in the journey, then fromfrom Berlin to Beijing, what what is Schulz hoping ultimately to achieve?Yeah.

Tom, He's walking really a very delicatetightrope here. As a second visit as chancellor, aswe've mentioned, he's going to he's going to meet the Premier, He's going tomeet the president. He's going to meet local officials allaround, as you mentioned, in Chongqing. And just to give you illustrate for theaudience, perhaps people who are not so familiar with the city, maybe theyhaven't heard very much of it. This is a city of more than 30 millionpeople and it's one of the biggest on the planet.And this really illustrates why this market is so important to Germany.And as you can see, the CEO is with him.

You have BMW, Mercedes, Siemens, BASF,Bayer, Merck. And in terms of what he's actuallytrying to achieve and the agenda topics that he's going to be speaking about,there is obviously the war in Ukraine, which sort of looms heavily, very largeover this. We know sort of where China's positionhas been on this. That is going to be hard to make anysort of progress. Was there is the EU dumping probe?Yes, on EVs, but also on other topics that we heard a lot about it from JanetYellen last week when she was in China talking about this overcapacity thatChina is bringing into the market and.

The green transition, which of course isalso connected here. We talk about the solar industry.For example, the US and India have put up trade barriers on solar panels thatcome from China because there are so low in price.Those have all come into Europe and that has really driven the price.And so these are all the topics and it's very challenging for Schulze because itis such a key economic relationship. As you can see, a quarter trillion eurostraded last year with China, the biggest trading partner for Germany, though itis down 15% from the year previous. And what Schulze needs to do is to walkthat fine line on the one hand,.

Preserving the economic relationship,while on the other not trying to step on the toes of the policy relationships andthe policy goals of the broader EU. Only does that move lower, 15.5%?Does that talk to the de-risking that Olaf Schulz and his team have talkedabout when it comes to the China story? How real is that?Yeah, perhaps to a certain degree. Tom And I think it's really interestingwhen you look at the different things. So just to illustrate the point of howmassive this relationship is for these companies, I mean, BMW, they sell athird of their cars over in China. Same thing with Mercedes.BASF is about 13%, but China is 50% of.

The chemical sector.So BASF isn't looking back. They don't want to de-risk.They say this is where we need to be. ZEMIN It's closer to 12%.But when you look at some of the data and what the companies are saying, thisis actually very interesting. When they did a survey, the GermanChambers of commerce in China saying basically, do you have equal access tothe market? Is it a fair competition?65 two thirds of German companies say that they face unfair competition inChina currently. But what's also interesting on thequestion of derisking the German.

Companies at home, where is China intheir supply chain? Still, more than a third of themanufacturing companies have that. That is down 10%.So that is one thing. But, Tom, when you look at foreigndirect investment into China, and this is obviously a key metric here, we had arecord last year of €12 billion. So really on that on that front, youknow, German companies say we need to be in this market and we need to win inthis market and they're dumping cash into it.Okay. Bloomberg's Oliver Crook on theimportance of this visit by the German.

Chancellor to China that continues, ofcourse, starting in Chongqing now in Shanghai.Holly, thank you. Coming up, can the UK build its techindustry into a leader in AI? How realistic is that?We're going to speak to No. Hurley, the CEO of A.I.Company, Littrell Labs and a former VP at Chip Designer.That interview is next. This is Bloomberg. Welcome back to Bloomberg DaybreakEurope. Let's take a look at the tech sectorright now.

Microsoft recently announcing plans toopen a new air hub in London to drive work on advancing language models, largelanguage models, alarms and supporting infrastructure.Joining me to discuss the future of the UK tech sector, that is now Holly, CEOof Littrell Labs and a former VP at UK chip designer arm.Of course, such a consequential company within the tech space based inCambridge, listed in the US now. Thank you very much for joining us thismorning. Let's talk about this is somethingclearly that Rishi sitting at the Prime Minister the Government will welcome.They've wanted to craft the U.K.

Into into a leader, global leader whenit comes to AI and tech. What are the consequences of a company?What is the significance of a company like Microsoft building out developingand investing in India up here in London?Well, I think it's a it's a fantastic endorsement for the talent that we havein London and in the U.K. more broadly.You know, it validates a long history of computer science and research off theback of what a really good strong universities from a researchperspective. And it's not just Imperial Oxford,Cambridge, the obvious ones, but also.

Universities like Manchester, Sheffield,Leeds, Newcastle University, etc.. So across the country there's afantastic base of research and this is validation that we are world leaders inthis. And literally labs, of course, spun outof Newcastle where it's been at Newcastle.So I want to get I want to get your take on what your company is doing and theproposition around AI from from the labs shortly.But let me get your view on talent here in the U.K.Can you touch on that? What is the depth and breadth of thattalent?.

How how, how aggressive is the fight nowfor talent? Because I'm hearing from from somecompanies in the U.S. coming over that poaching from the likesof DeepMind and others. What is that looking like right now?Yes, it's really competitive from a talent perspective.And, you know, again, because we have this history of having around computerscience and AI in this country, then we're an obvious magnet for forcorporations come into. And you mentioned DeepMind.DeepMind was one of the early innovators based here in London in 2010.So it just goes to show that we have the.

Talent.Actually, talent attracts more talent as well.So researchers want to work together and they want to work on the biggestproblems together. So this has become this country hasbecome a hub for air talent. Well, so what does little labs do isare you able to stand out? There's risks.People are flying in risks of a bubble within, i.e., you're out fundraisingright now. What is that looking like?What do you do? What's the proposition?What's the funding looking like?.

So for us, the big challenge that we seein AI is it's computationally incredibly complex.And so as a result of that is it's just not sustainable from an energyperspective. We need to address this complexityproblem and that is what we're looking to do at Littoral Labs by taking anddeveloping a different approach that is more energy efficient.It's fast and it's computationally more efficient than the classic neuralnetwork approaches that we see today. And how how receptive are investors tothat idea, to that proposition, that they are very receptive to that to thatproposition?.

I mean, I think we'venobody you've got to be blind to not recognize that the that the AI energyproblem is real. And we need to do something really quitesignificant to address that. If if this is going to scale and meetits promise, that message resonates, I think, aroundthe world that's coming through. The Financial Times reporting today thatthe UK government is now looking potentially at regulating around II.Having said that, they were not they're going to take a hands off approach.Yes. What would the policy prescription lookwhat should it look like, the policy.

Prescription from the UK?Does it need to mirror the EU Air Act? Do you have problems with how should theregulatory framework build out here in the UK?You know, one of the biggest challenge with regulatory regulatory frameworks isis they generally lack the technology and trying.That's the biggest challenge from a business perspective is many of therules are written on, on how the technology was months and months ago.And so that can cause, that could cause challenges within business.A certain amount of regulation is good. It's just how well it keeps up with theprogress in technology that that I see.

Is as one of the biggest risk factors,though, whether you whether you do a lightweight or heavy weight regulation.I personally prefer a lighter weight regulation, but recognise regulation isimportant. This affects people's lives and that.For we need to have a good regulation. Just briefly, you're out fundraisingright now. Early stage.Yeah. So so let's let's see if you push backon this. But at some point, you going to belooking to IPO and to list would you would you look at the UK it has thetalent does it have the fundamentals in.

Terms of the capital markets for acompany like yours? I think I think that's one of thebiggest challenges in the UK is we have all of this fantastic talent here andyet we don't have we don't have a microsoft, we don't have a Google.And why is that? Actually, we have a really good startupcommunity and getting startup funding is, is is strong in the UK.The challenge comes at the scale up stage.When you when you've proven out your technology and you've you've got acustomer and you've got a market, then you want to scale and you wantsignificant amounts of capital at that.

Point to scale worldwide.And that's where the big hole is in the UK.And actually in most cases it's almost institutionalized now that startups inthe UK end up opening a presence in the US, a move in that for that scale incapital. I think that's one of the challenges andif the Government's going to address anything, it needs to address that gap,that scaling gap. And this is really, really, reallyinteresting not only with a company to watch their literal labs.The CEO of that company, formerly VP at the chipmaker arm, not thank you verymuch indeed.

There's plenty more coming up.Stay with us. This is bring that. Welcome back.Now, first quarter earnings will be pivotal for the European market afterits upper two quarters of misses and negative revisions.Joining me now is Tim Craighead from Bloomberg Intelligence, who's been doinga deep dive and a preview on all of this for us.Tim, with equity markets there not far off record highs.What is your view as we head into an earnings season that some would suggestis more important than even the central.

Banks at this point?I think you're right. In a lot of ways.As you highlighted, we've gone through two quarters of declining earnings.We're suffering negative revisions in terms of consensus expectations now forthe better part of nine months. Valuations have lifted because of thecentral bank pivot sentiment that has developed and that makes that makes fora tricky earnings reporting period. What we'll see here hopefully is abottom up view on a on how companies are executing on a handful of underlyingthemes that, you know, could transcend the the earnings picture or say, themacro picture.

As we look out over the next 12 to 18months. And Tim, you've highlighted tencompanies in particular focus for you in the theme here in Europe during theresults season. Tell us which companies.Those are why you've zeroed in on those. Yeah, it's I said there's a couple ofunder a handful of underlying themes that we think are particularly importantwhether it be what's going on with China, what's happening with technology,things along those lines. And you know, we cover 2000 companies,we do earnings preview work. What this note does is bring togetherthe preview on what we think are a.

Handful of key bellwethers that shouldgive a finger on the pulse of some of these key, key trends.And so what are some of the key metrics that you're going to be looking atacross these companies? Is it going to be margins?Is going to be volumes? Is it going to be an inflationary input?What is it that you're going to be kind of focused in on when it comes to the tothe particular metrics? Well, so let's look at China.It's, you know, obviously front and center.You've got a company like LVMH. We need to see what transpires withtheir order trends, I'm sorry, their.

Sales trends.Are we continuing to see travel and what is the demand?From a bottom up perspective on mainland China?Porsche is another case in point where China is critical.You know, with with them you've got the high end sales trend.You've also got the transition to EV. And China is on the order of 30 to 35%of its of its earnings. So I think it does depend on whichcompany which trends you look at in technology.You can't have a conversation today without talking about A.I.in video.

Might be the poster child from the chipperspective, but ASML is the enabling technology and seeing with their ordergrowth in terms of CapEx, spending will be crucial.Tim Craighead from Bloomberg Intelligence with a really importantpreview of a crucial earnings season. Thank you, Tim.Plenty more coming up. John Kirby, communications adviser forthe White House National Security Council, will be joining surveillance todiscuss the escalation in the Middle East markets.Today is up next. This is Bloomberg.

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