00:00♪ DANI: HAPPY MONDAY, WELCOME TO THIS SPECIAL EDITION OF "BLOOMBERG MARKETS." WE ARE PUSHING AHEAD TO THE BANK OF ENGLAND RATE DECISION THIS WEEKEND WHAT TO EXPECT AS YIELDS TOP 5% FOR THE FIRST TIME SINCE 2008. PLUS WE ARE LIVE AT THE PARIS AIR SHOW SPEAKING TO THE CEOS OF SAFFRON AND DOCK SO AVIATION. AND HOW ARTIFICIAL INTELLIGENCE IS HELPING A 104-YEAR-OLD FRENCH COMPANY IN THEIR TURNAROUND EFFORTS. WE WILL DISCUSS WHY DANONE IS FEEDING ON THE TECHNOLOGY FOR A YOGURT RENAISSANCE. THOSE MIGHT BE TWO WORDS THAT DON'T BELONG TOGETHER, BUT ANYWAY. EUROPEAN STOCKS DOWN 1%, LIGHT VOLUME WITH THE U.S. HOLIDAY BUT NEVERTHELESS CONCERNED ABOUT CHINA. WE DIDN'T GET ANY SPECIFIC STIMULUS MEASURES OVER THE WEEKEND BUT REMEMBER, NYMEX CRUDE IS FALLING. WE JUST HAD NADIA MARTIN LS THAT THE SHORT POSITIONING ON WTI DOES NOT MATCH FUNDAMENTALS AND TWO-YEAR YIELDS HAVE MOVED HIGHER, OVER 5%, THE HIGHEST SINCE 2008. A LOT TO DIG THROUGH ON THESE MARKETS. MAX IS WITH US, MULTI-ASSET STRATEGIST. YOU CAN KNOW ANYTHING -- EVERYTHING AND STILL BE SO CONFUSED BY THIS MARKET. JUST STOCKS KEEP GOING HIGHER AND POSITIONING IT IS STILL OK. WHAT GIVES? MAX: ON THE FUNDAMENTAL SIDE, THINGS ARE NOT REALLY THAT BAD, RIGHT? PARTICULARLY EXPECTATIONS, Q2 EXPECTATIONS ARE FLAT QUARTER OVER QUARTER AND WHEN WE LOOK AT THE EXPECTATIONS AROUND TOP-DOWN GROWTH AS WELL, REMEMBER WE STARTED THE YEAR WITH EXPECTATION AROUND CONSENSUS THAT THERE WOULD BE AN EARNINGS RECESSION WITH A BID -- BIG MARGIN SQUEEZE AND A RECOVERY IN THE SECOND HALF. WHAT HAPPENS NOW IS THAT THE GROWTH HAS HELD UP MUCH, MUCH BETTER. YOU WOULD THINK THAT CONSENSUS SAYS OK, GOT THAT WRONG, SCRAP IT. WHAT HAPPENED IS THAT PEOPLE JUST PUSHED OUT THE RECESSION AND WE ARE FACED WITH AN ENVIRONMENT WHERE CONSENSUS SAYS THERE WILL BE A U.S. RECESSION IN Q3 AND Q4. AGAINST THAT, YOU DON'T REALLY NEED SPECTACULAR GROWTH. YOU DON'T NEED IT TO BE CATASTROPHIC. FUNDAMENTALS ARE NOT REALLY THAT BAD. DANI: FOLKS SAYING THAT IT'S NOT RECESSION, IT'S JUST A DELAYED. PEOPLE MARRIED TO THE RECESSION CALL? MAX: I GENUINELY THINK SO. WE HAVE HAD A BULLISH VIEW SINCE THE START OF THE YEAR AND WHAT WE HAVE BEEN FACED WITH WAS FIRST THIS IDEA OF A MARGIN SQUEEZE AND A BANKING CRISIS AND THEN CONCERNS AROUND REAL ESTATE AND THE CREDIT CRUNCH. AND YOU HAVE TO BE LIKE NO IT'S NOT REALLY CHANGING, NOT REALLY HITTING US AGAINST THE WALL. THAT'S SORT OF WHAT WE HAVE BEEN DEALING WITH THE LAST FIVE OR SIX MONTHS. FRANKLY I THINK WHAT HAS CHANGED NOW IS THAT NEAR-TERM SUDDENLY WE ARE LOOKING AND IT'S LIKE WHAT ARE THE NEAR-TERM DOWNSIDE CATALYSTS? NOT EVEN LIQUIDITY LOOKS THAT AWFUL. FRANKLY I THINK WHAT IS HAPPENING NOW IS REAL MONEY DISCRETIONARY INVESTORS ARE REALLY GETTING SQUEEZED INTO THE MARKET GIVEN THAT THEY HAVE GONE SO UNDERWEIGHT THROUGHOUT THE FIRST FIVE MONTHS AND GIVEN, LIKE YOU HAVE SAID, THEY HAVE BEEN KICKING THE CAN OF THE RECESSION DOWN THE ROAD. NOT REALLY CANCELING UP BUT SAYING IT'S GOING TO COME. THE CREDIT CRUNCH HAS TO COME, HAS TO COME. THE REALITY IS THAT FINANCIAL CONDITIONS, ALL THESE THINGS, THEY HAVE BEEN EASING UP. WE KEEP GETTING ASKED WHEN DOES MONETARY TIGHTENING HIT? BUT IT'S LIKE EQUITIES ARE UP, SPREADS ARE TIGHTER, THE DOLLAR IS LOWER. VOLATILITY IS LOWER. EVERYTHING HAS BEEN EASIER THE LAST EIGHT OR NINE MONTHS. DANI: HOW DO YOU SWEAR THIS AGAINST THE JANUS HENDERSON ARGUMENT THAT KEEPS SAYING THERE WILL BE A CREDIT CRUNCH AT SOME POINT. RATES ARE HIGHER, TWO MORE HIKES IN THE LATEST DOT PLOT. YOU HAVE ALREADY SEEN SOME RUPTURES, BE IT REGIONAL U.S. BANKS, YOU MENTIONED SOME OF THEM THROUGH THE PENSION CRISIS IN THE U.K., WHERE WE WILL GET ANOTHER EVENT LIKE THAT. ARE YOU SAYING THAT WE CAN HANDLE IT? MAX: NO AND I DISAGREE WITH THE UNPRICED IN. REMEMBER LAST YEAR THE ECB WAS INTRODUCING A NEW SPREAD MECHANISM. THEN WE HAD THE A LDI CRISIS IN THE U.K. AND SVP WITH A COUPLE OF REGIONAL BANKS REALLY STRUGGLING IN THE U.S.. IT'S NOT LIKE NOTHING IS BROKEN. IT'S JUST NOT AS EXISTENTIAL AS IT WAS 15 YEARS AGO. THERE'S AN URGE FROM THE BEARS SAYING YOU KNOW WHAT IT HAS TO BE A CATASTROPHE, OTHERWISE IT'S NOT THAT ENOUGH, RIGHT? BUT IF WE ARE HONEST, THE S & P PEAK TO TROUGH WENT DOWN 25%. EUROPEAN STOCKS WENT DOWN MORE THAN 30%. IT'S FINE, RIGHT, WE HAVE SEEN IT. WHY PRICE A RECESSION NOW IF WE ARE CLEARLY NOT IN ONE? LOOKING AT PERHAPS THE SOME OF THE MORE DISCONCERTING DATA FINDS LIKE THE REGIONAL FED SURVEYS, EVEN THEY ARE STARTING TO RUN THE LATEST A TINY BIT BETTER. FUNDAMENTALS DON'T LOOK THAT BAD. ESPECIALLY NOT AS BAD AGAINST EARNINGS EXPECTATIONS AND TOP-DOWN GROWTH. DANI: SO YOU ARE BULLISH AND EVERYONE MAX: SMALL CAPS IN THE U.S. COULD BE A NICE CYCLICAL UPSIDE HEDGE. THE REALITY IS THEY HAVEN'T PARTICIPATED REALLY IN THE RALLY YET. BECAUSE THERE ARE SOME PROFITABILITY CONCERNS AROUND THAT, A LOT OF THAT WAS SORT OF DRIVEN UP BY THE AI NASDAQ CRAZE AND THIS HANDFUL OF STOCKS. BUT IF INDEED IT TURNS OUT THAT IN THE RUN-UP GROWTH IS BETTER, PARTICULARLY IN THE U.S., THAT THERE IS THIS CONTINUED RESILIENCE, SMALL CAPS ARE A NICE DECENT UPSIDE HEDGE. LOOKING AT WHERE WE WERE IN OUR ALLOCATIONS TO OVERWEIGHT HIGH-YIELD, THAT HAS BEEN BROADLY FOLLOWING THE AVERAGE STOCK, RIGHT? IT'S BEEN MUCH MORE FOLLOWING THE BROADER MACRO ENVIRONMENT RATHER THAN -- RATHER THAN THE AI CRAZE. THAT LOOKS LIKE YOU HAVE FURTHER TO GO, REALLY. DANI: SOMETHING IN THE RISKIEST PART OF THE MARKET, TRIPLE C'S, DO YOU FEEL SAFE THERE? MAX: WE CAN NEVER FEEL SAFE WITH TRIPLE C BUT GOING DOWN FROM A BROADER MULTI-ASSET PERSPECTIVE, GROWTH IS NOT GOING THROUGH THE ROOF, RIGHT, BUT IT IS OK. BETTER THAN EXPECTED. WHAT IS THAT? THAT'S GOLDILOCKS. TYPICAL GOLDILOCKS. YOU DON'T WANT TO HOLD UP WITH GOING LONGER ON DOLLAR CASH FOR 5%. I DON'T HAVE ANYTHING AGAINST CASH BUT YOU COULD GO INTO BRAZIL AND CASH AND GET DOUBLE DIGITS. WHY NOT? YOU SAY GROWTH IS OK, NOT SPECTACULAR BUT CONTINUING TO TICK ALONG, I DON'T HAVE ANYTHING AGAINST THAT, BUT WHY WOULD YOU DO IT IN DOLLAR OR EURO WHERE YOU GET 2.5 THE AMOUNT. LATIN AMERICA, AN EXAMPLE. TRIPLE C'S, HIGH-YIELD CREDIT. THAT'S THE CARRIER PREFERENCE ACROSS THE ASSET CLASSES. DANI: HOW ARE YOU FEELING ABOUT CHINA EXPOSE ASSETS? MAX: THAT'S A BIT TRICKIER. PARTICULARLY IN MET LATIN AMERICA IT'S TRICKIER. THERE HAS BEEN A LOT OF HELP FOR A BIG BANG IN STIMULUS AND IT HAS JUST CONTINUED TO COME A BIT MORE MEASURED, A BIT MORE TARGETED THAN PEOPLE HAD HOPED FOR. I GUESS, YOU KNOW, PROBABLY WITH CHINESE EXPOSED ASSETS LIKE THE LUXURY TRADE THAT IS ONE WHERE YOU HAVE ALSO GOT TO BE CAREFUL. WE HAVEN'T REALLY BEEN JUMPING INTO THE JAPAN TRADE, EITHER. I DON'T FULLY READ INTO THAT THING AROUND JAPAN BEING SUDDENLY IN THE LAST TWO OR THREE MONTHS, YOU KNOW, SUDDENLY TURNING UPSIDE DOWN. ALL THE JAPANESE ARE SUDDENLY YOUNG AGAIN AND SPENDING LIKE CRAZY? DANI: I'M AFRAID THAT'S ALL WE HAVE TIME FOR BUT CAN I SAY HOW STRANGE IT IS THAT BEING A OLD IN THE MIDDLE OF A BULL MARKET IS -- A BULL IN THE MIDDLE OF A BULL MARKET IS SUDDENLY CONTRARIAN? MAX: IT'S CERTAINLY BEEN VERY STRANGE IN THE LAST FEW MONTHS. DANI: HOME SELLERS IN LONDON, IN U.K. CUTTING PRICES MORE THAN IN ANY OTHER REGION THIS MONTH. ASKING PRICES DROPPED FROM LAST MONTH ACCORDING TO PROPERTY PORTAL. AT THE SAME TIME, RATES CONTINUING TO RISE, HITTING 6% FOR THE FIRST TIME SINCE 2001 WITH HOUSING EXPERTS WARNING OF THE RISING RISK OF A DEEP HIGH -- HOUSING DOWNTURN. COMING UP, THE WORLD'S LARGEST AIR SHOW IS BACK. WE ARE BACK ON THE GROUND WITH OLIVIA ANDRES, NEXT. THIS IS BLOOMBERG. GUY: WELCOME BACK TO BLOOMBERG MARKETS, WELCOME BACK TO THE PARIS AIR SHOW HERE. DAY ONE IS WINDING DOWN BUT WE ARE NOT DONE WITH OUR FANTASTIC GUESTS FOR YOU. IF THERE IS ONE THING PEOPLE ARE TALKING ABOUT HERE IS WHAT IS HAPPENING WITH THE SUPPLY DEMAND BALANCE. DEMAND IS CLEARLY BACK FOR AVIATION IN A BIG WAY BUT THE SUPPLY SIDE IS STRUGGLING TO CATCH UP. SO WHAT WE THOUGHT WE WOULD DO IS TALK TO ONE OF THE WORLD'S BIGGEST SUPPLIERS TO THE AVIATION MARKET. A HUGE FRENCH COMPANY THAT MAKES EVERYTHING FROM JET ENGINES TO LANDING GEAR. I THINK THEY EVEN MAKE THE OVERHEAD BINS THAT WE SEE IN THE AIRCRAFT THAT WE FLY ON. OLIVIER ANDRIES IS THE CEO AND JOINS US NOW. OLIVIER: THANK YOU. GUY: DEMAND IS BACK. OLIVIER: STRONGLY. GUY: WHERE IS SUPPLY? OLIVIER: WE HAVE GONE FROM AN UNPRECEDENTED DEMAND IN 2022 WHAT WE SEE TODAY, UNPRECEDENTED SHORTAGE OF SUPPLY. TWO THINGS. PEOPLE ALONG THE VALUE CHAIN ARE STARTING TO GET BACK. YOU KNOW? THEY ADAPTED DURING THE PANDEMIC. PEOPLE ARE GETTING THE COMPETENCIES IN THE RESOURCES BACK. AND THERE IS A NEED TO TRAIN PEOPLE. AND THE OTHER THING IS TENSIONS THAT HAVE BEEN EXACERBATED BY THE INVASION OF UKRAINE BY RUSSIA. CREATING A SIGNIFICANT TENSION AROUND STEEL, TITANIUM, ALUMINUM. IT'S A COMBINATION OF BOTH THAT IS CREATING THIS SIGNIFICANT SUPPLY SHORTAGE. DANI: HOW LONG DOES IT -- GUY: HOW LONG DOES IT LAST? > > PROBABLY ALL YEAR INTO THE COURSE OF 2024. TO ME WE ARE UP TO THE SECOND OF LAST YEAR. GUY: YOU WANT TO BUILD MORE RESILIENT SUPPLY CHAINS. HOW DOES CHINA FIT INTO THAT? GUY: WE HAVE -- OLIVIER: WE HAVE TO TAKE INTO ACCOUNT THE GEOPOLITICAL TENSIONS ARE RISING AND WE HAVE TO HIT A PRICE THAT IS ELUSIVE. WE NEED TO WORK ON THE RESIDENCY OF OUR SUPER PENSION. NOT TO BE TOO DEPENDENT ON A SINGLE COUNTRY. AVOIDING SINGLE POINTS OF FAILURE AND BASICALLY MAKING SURE THAT WHATEVER HAPPENS, WE HAVE AN ALTERNATIVE PATH. GUY: LET'S TALK ABOUT ONE OF YOUR MAJOR BUSINESSES, THE JET ENGINE BUSINESS. ALONG WITH GE, YOU MAKE A MEANT -- AN ENGINE THAT SITS BELOW MANY OF THE NARROW BODIES OF THE WORLD. HUGELY SUCCESSFUL, TURNING OUT TO BE SLIGHTLY MORE FRAGILE THAN MANY WOULD HAVE ANTICIPATED. WHY ARE THE LATEST GENERATION OF FUEL SIPPING HIGHLY EFFICIENT JET ENGINES PROVING TO BE LESS DURABLE THAN ORIGINALLY ANTICIPATED? OLIVIER: REMEMBER 30 YEARS AGO IN THE EARLY DAYS, WE HAD ISSUES AROUND THAT ENVIRONMENT. SUCH AS IN THE GULF AND INDIA. ENGINES ARE SUFFERING MUCH MORE BECAUSE IT IS DUSTY AND SANDY. NOT GOOD FOR THE ENGINES. IN THE EARLY DAYS WE HAD SOME ISSUES AND WE ARE FIXED THEN. NOW, YOU KNOW, THE ENGINES ARE RUNNING WELL. SO IT IS A LEAP WELL BEYOND TODAY, THAT'S WHERE WE ARE COMPARED TO 30 YEARS AGO. DOING THIS IN SEPARATE ENVIRONMENTS. GUY: DO YOU THINK THAT BEING MORE ADVANCED IN THOSE FIXES MEAN YOU ARE THE ENGINE? WE JUST SAW THIS HUGE INDIGO ORDER. DO YOU THINK WE WILL SEE THE LEAP BEING THE ENGINE OF CHOICE IN HOSTILE ENVIRONMENTS? IS IT GOING TO BECOME A BIGGER FACTOR, GOING FORWARD? OLIVIER: THAT WILL DEPEND ON THIS NEW ORDER. BUT THE FACT IS THAT TODAY, WHEN YOU LOOK AT INDIA, WHEN YOU LOOK AT THE GULF, THE LEAP IS THE ENGINE OF CHOICE. IN TERMS OF DURABILITY, WE HAVEN'T HAD TIME. GUY: SO YOU ARE ALREADY TALKING TO INDIGO. OLIVIER: WE ARE ALREADY TALKING TO INDIGO. IN THE U.S. WE SWITCHED FROM THE OTHER GUY TO US. GUY: I LOVE THE WAY THAT WORKS IN THIS INDUSTRY. OLIVIER: WE WILL SEE WHAT HAPPENS, YOU KNOW. GUY: BUT YOU WILL BECOME THE ENGINE OF CHOICE IN THESE REGIONS? OLIVIER: WE ARE TODAY. WE ARE TODAY. AS A MATTER OF FACT, WE ARE TODAY. GUY: YOU ARE CONSIDERING BUYING RAYTHEON'S UM UM AH COCKPIT AVIATION BUSINESS. I THINK I'M BEING IMPRECISE ABOUT THAT. OLIVIER: WE HAVE COMMUNICATED ON THAT. WE WILL NOT BE GIVING OUT ANY FURTHER DETAILS. THE ONLY THING I WOULD SAY THAT IT IS RATIONAL FOR US TO GET INTO THE FLIGHT CONTROL BUSINESS. THE AFTERMARKET IS SOLID. GUY: THE WORDS FLIGHT CONTROL SEEMED TO GO OUT OF MY HEAD, THANK YOU FOR REMINDING ME OF IT. THE REASON I ASK IS THIS, AND YOU DON'T HAVE TO GIVE ME DETAILS AS TO WHETHER YOU WILL PROCEED WITH IT. YOU ALREADY INDICATED THAT IT WOULD FIT WELL WITH THE BUSINESS. IT'S EITHER SHARE BUYBACKS OR A FLIGHT BUSINESS. COULD YOU, THEORETICALLY, DO BOTH? OLIVIER: OF COURSE WE COULD DO BOTH. IT'S NOT ONE OF THE OTHER. THE FACT IS WE HAVE A STRONG BALANCE SHEET TODAY. NO DEBT. WE ARE NOT CASH POSITIVE. GENERATING A VERY STRONG CURVE. WE CAN DO BOTH. WE HAVE A POLICY OF PASSING DOWN TO SHAREHOLDERS, WE BELIEVE IT IS IMPORTANT THEY ARE HAPPY. AT THE SAME TIME, WE MAY CONSIDER OPPORTUNISTIC MERGERS AND ACQUISITION. GUY: THAT'S PROBABLY AS MUCH ON THAT SUBJECT AS I CAN. THANK YOU VERY MUCH INDEED FOR STOPPING BY TO CS. OLIVIER ANDRIES CEO OF SAFRAN. DANI, BACK TO YOU. DANI: THANK YOU FOR ANOTHER FANTASTIC CONVERSATION THEREFROM THE PARIS AIR SHOW. FIRST COMING UP WE WILL TALK ABOUT NEW RESTRICTIONS BEING IMPOSED ON ASSET MANAGEMENT. THIS IS BLOOMBERG. ♪ DANI: THE U.K. FINANCIAL CONDUCT AUTHORITY HAS IMPOSED STRICT RESTRICTIONS ON THE MOVEMENT OF CASH AND ASSET BY ODIE ACID --O -- ODEY ASSET MANAGEMENT. WHAT EXACTLY IS THE SCA DOING HERE? JONATHAN: THIS IS THE FIRST TIME THEY HAVE DECIDED TO LIMIT AND RESTRICT THE AMOUNT OF ASSETS THAT ODEY ASSET MANAGEMENT CAN DO IN THEIR NAME. THE DAY TO DAY BUSINESS CARRIES ON BUT THEIR OWN ASSETS, THEIR OWN SONS -- FUNDS, THEY ARE UNDER TIGHTER CONTROL. YOU SAID -- DANI: YOU SAID THIS IS THE FIRST INSTANCE OF THE WALKS -- WATCHDOG ACTUALLY DOING SOMETHING. THAT ASSIGNED THERE IS MORE TO? -- IS THAT A SIGN THAT THERE IS MORE TO COME? JONATHAN: INCREASED OVERSIGHT OVER ODEY MANAGEMENT, WE KNOW THERE HAS BEEN INCREASED MANAGEMENT INTO CRISPIN FOR TWO YEARS. BUT THEY HAVE SAID NOTHING UNTIL THIS POINT. THIS IS THE FIRST SIGN THAT THEY ARE PREPARED TO ACT. DANI: ARE THEY GETTING PRESSURE TO DO SO? JONATHAN: YOU COULD SAY THAT. THERE HAS BEEN A POWERFUL TREASURY SELECT COMMITTEE, A GROUP OF LAWMAKERS THAT HAS A KIND OF WATCHDOG ROLE OVER THE WATCHDOG. THEY SENT A LETTER ASKING FOR AN UPDATE AND A BROADER EXPLANATION OF WHAT THE SP -- SCA'S DOING AROUND BROADER MISCONDUCT. DANI: WHAT POWERS DOES THE FCA HAVE? DO WE HAVE HISTORICAL EXAMPLES OF THEM TAKING THE REINS OF A HEDGE FUND? JONATHAN: IN THIS CASE YOU CAN SEE THE FIRST STEPS OF MAKING SURE NO ASSETS DISSIPATE. WHAT HAPPENS NEXT IS ENFORCEMENT. DANI: HOW MUCH IS ABOUT PROTECTING INVESTORS? JONATHAN: IT'S CRUCIAL BUT THERE IS A BROADER ISSUE AS FAR AS THE FCA SAYING AND MAKING A REALLY BIG PLAY AROUND NONFINANCIAL MISCONDUCT BEING CRUCIAL TO THE OVERSIGHT. WITH A CRUCIAL IMPORTANT EPISODE IN THE CITY, NONE MORE SO THAN THIS ONE. DANI: WHAT KIND OF TIMELINE CAN BE EXPECT? ANYTHING, I GUESS, IS A TALL ORDER. JONATHAN: A LETTER BACK FROM THE COMMITTEE WITH AN UPDATE LIKELY TO COME IN THE NEXT COUPLE OF WEEKS. THEN THERE IS A MEETING THAT THEY HAVE WITH THE SELECT COMMITTEE. DANI: THANK YOU FOR THAT UPDATE. THAT IS JONATHAN BROWNING. ALL RIGHT, LET'S TAKE A LOOK AT WHERE MARKETS ARE TRADING AS WE HEAD CLOSER TO THE CLOSE OF THE EUROPEAN CASH TRADE. CLOSER TO A NEGATIVE SESSION. THE PARIS EXCHANGE, CAP 40 DOWN MORE THAN 1%. THIS INDEX HAS THE MOST EXPOSURE TO CHINA. THE LVMH'S HAVE REALLY BENEFITED FROM STRONG ASIA GROWTH, STRONG CHINA GROWTH SPECIFICALLY. EVEN SO WE WERE SPEAKING WITH MAX KENTON OR WHO SAID HE WOULDN'T BE BETTING ON LVMH DANI: STOCKDANI: . THE TROUBLE STARTED OVERNIGHT IN ASIA. CHINA HAD A BROAD SETTLE OFF. WE DIDN'T GET ANY DETAILS OF STIMULUS COMING OUT OF THE CHINESE STATE COUNCIL MEETING. WE HAD A NEGATIVE CHINA SESSION BLEEDING INTO A EURO FOR ONE. NO CASH EQUITY TRADE. NO POSITIVE IMPULSE COMING FROM THE U.S. TO LIFT UP EUROPEAN STOCKS. WE HAD A PRETTY DOUR SESSION. DOWN MORE THAN 1% IN ONE OF THE WORST PERFORMING REGIONS IF YOU ARE LOOKING FOR A CHINA EXPOSED REGION. FTSE 100, A LITTLE BIT BETTER. DOWN 7/10 OF 1%. IBEX, FALLING 8/10 OF 1%. BANKS WERE ONE OF THE BETTER PERFORMING SECTORS. IN TERMS OF THE TRADE ITSELF, VOLUMES WERE PRETTY LIGHT. MUCH LIGHTER THAN YOU WOULD EXPECT ON A NORMAL DAY AREA NOT SURPRISING CONSIDERING THAT THE U.S. IS OFF-LINE TODAY, THOUGH FUTURES ARE TRADING IN THE U.S. DOWN. WE REALLY JUST KIND OF SANK THROUGHOUT THE SESSION. OPENING LOWER IN CONTINUING TO FALL AS WE GOT TO THE CLOSE, DOWN MORE THAN 1%. PLEASE EXCUSE ME AS I READJUST MY MIC, HERE. THE BANKS INDEX, THIS IS WHAT I WAS TALKING ABOUT IN PART OF THE REASON FTSE DIDN'T DO AS POORLY, BANKS ENDING HIGHER EVER SO SLIGHTLY, THREE 100S OF A PERCENT. EVERYTHING ELSE WAS REALLY NEGATIVE. CHEMICALS, CONSTRUCTION, SOME OF THE WORST SECTORS AND THAT'S A PROBLEM IF YOU HAVE CONCERNS ABOUT THE ECONOMY. THESE WERE HEAVILY CYCLICAL TYPE ENGINE -- INDEXES. ENERGY MIGHT BE TURNING INTO THAT INSURANCE AND TECHNOLOGY HAS SOME OF THE BOND PROXY. FOR THE INDIVIDUAL STOCK MOVERS, SARTORIUS IS A COMPANY THAT SUPPLIES COVID LAB EQUIPMENT. THAT FELL SOME 14.5%. SAYING THAT DEMAND JUST ISN'T THERE. THOSE SHARES FELL AND THEY CUT THEIR OUTLOOK. FAST PARTNERS, A SWEDISH REAL ESTATE COMPANY, GETTING CUT TO JUNK. A LOT OF CONCERNS ABOUT THE SWEDISH MARKET AT THE MOMENT CONSIDERING ALL THE FLOATING NOTE RATES. HE OTHER SWEDISH COMPANIES FALLING INTO TROUBLE AS WELL. LVMH AGAIN, IT'S REALLY THE CHINA TRADE. PLAYING OUT NEARLY 2%. MAX WAS TALKING TO US SAYING THAT THE CHINA TRADE WAS A BIT TRICKY, HENCE WHY HE WOULDN'T WANT TO OWN THIS. THAT'S YOUR PICTURE FOR EUROPEAN EQUITIES. TALKING ABOUT AVIATION, WE ARE GETTING BACK TO THE PARIS AIR SHOW WHERE GUY JOHNSON IS WITH A GUEST. JONATHAN: OUR FINAL -- GUY: OUR FINAL GUEST OF THE DAY. WE HAVE THE CEO OF ESSO AVIATION. THEY MAKE THE FALCON BUSINESS JETLINER. A WELL DIVERSIFIED BUSINESS. NICE TO SEE YOU. THANK YOU, THANK YOU FOR JOINING US. LET'S START OFF BY TALKING ABOUT WHAT'S HAPPENING AND YOU RIGHT NOW. HAS THE WAR IN UKRAINE CHANGED PERMANENTLY THE THINKING AROUND WHEN IT COMES TO HOW EUROPE SPENDS ON DEFENSE? HAS THERE BEEN A SHIFT OR IS THE SHIFT STILL YET TO COME? > > YES, IT'S A BIG CHANGE. MOST OF THE EUROPEAN COUNTRIES COULDN'T HAVE SEEN THIS AND WE HAD NOW A WAR THAT THE BORDER. IT SHOWS THAT YOU ALWAYS NEED TO BE PREPARED AT WAR, TO PREVENT WAR. GUY: STRUCTURALLY HIGHER DEFENSE BUDGETS GOING FORWARD? ERIC: I THINK THAT WHERE THERE IS THIS KIND OF TICKING, THERE IS THE FACT THAT THE WAR IS POSSIBLE AND YOU WANT TO KEEP YOUR PEOPLE SAFE, TO AVOID WAR, YOU NEED TO BE REPAIRED. GUY: THERE IS A SUGGESTION IN TRAINING IS ALREADY UNDERWAY THAT UKRAINIANS COULD BE ARMED WITH F-16S. PUT ABOUT MIRAGES? WHAT ABOUT WHAT WE SAW FLYING HERE EARLIER ON? ERIC: UNTIL NOW THERE WAS NO WISH FOR THIS BUT REALLY IT IS AWAITING DECISION. DANI: HOW QUICKLY -- GUY: HOW QUICKLY CAN THE PILOTS BE TRAINED? ERIC: THERE IS TRAINING AND A PILOT COULD FLY F-16 OR EVEN BARRAGE, THESE WESTERN STANDARD FIGHTERS. GUY: IT SEEMS THERE IS STILL A BIAS IN EUROPE TO PURCHASE AMERICAN. ERIC: IT'S TRUE. IT'S THE KIND OF SPINOFF WHERE YOU WANT TO BUY U.S. AND WE BELIEVE THAT WE HAVE A GOOD OFFER ON THE BARRAGE. WE MAY SEE GREECE, FOR EXAMPLE. IT'S AN ALTERNATIVE TO THE U.S., NOT AGAINST THE U.S., BUT I STILL BELIEVE THAT EUROPEANS SHOULD PURCHASE EUROPEAN MANUFACTURED AIRCRAFT. GUY: IT'S NOT JUST THE RUSSIA UKRAINE SITUATION PEOPLE HAVE THEIR EYES ON. THE SITUATION THAT'S DEVELOPING IN ASIA. THE GEOPOLITICAL TENSION AROUND CHINA SEEMS TO BE INCREASING. WHERE DO WE STAND WITH THAT? ERIC: WE SOLD TO INDIA. DID SO ON TIME DESPITE THE COVID CRISIS. WE WILL SEE WHAT THE FUTURE IS GOING TO BE. I CANNOT ANSWER RIGHT NOW THE QUESTION THAT NEW ORDERS TAKEN BY INDIA, WE ARE SUPPORTING THE INDIAN NAVY. IT IS KNOWN. WE ARE WAITING FOR DECISION. DANI: YOU BRING -- GUY: YOU BRING UP THE ISSUE OF SUPPLY CHAINS. THAT'S MASSIVE ON THE CIVIL SIDE. HOW IS THAT BEING AFFECTED ON THE MILITARY SIDE AND WHY ARE WE IN THIS SITUATION? ERIC: WE FACED PROBLEMS WITH THE SUPPLY CHAIN, AS IS TRUE FOR OTHERS. WE ARE NOT SO MUCH DELAYED IN DELIVERING. IT IS HOWEVER MORE DIFFICULT WITH THE FALCON. MEANING THAT THE SUPPLY CHAIN FROM THE U.S. OR FROM RENTS IS FACING DIFFICULTIES. MAINLY BECAUSE OF A LABOR SHORTAGE AFTER COVID. MANY WORKERS LEFT COMPANIES AND TOOK TIME TO RECOVER THEIR SITUATION. IT IS GETTING A LITTLE BIT BETTER NOW. DANI: YOU THINK YOU WILL -- GUY: YOU THINK YOU WILL HAVE THIS RESOLVED BY WHEN? ERIC: WE ARE NOW TRYING TO GET 1000 MORE WORKERS IN 2023, AND THEN WE HAD 1000 MORE IN 2022, SO FOR A COMPANY LIKE US IT IS A HUGE LEVEL OF GETTING A NEW, NEW EMPLOYEES. SAME STORY WITH THE SUPPLY CHAIN. WE ARE RECOVERING. WE CAN GUARANTEE OUR CUSTOMERS THAT THEY WILL GET THEIR OWN ON THEIR OWN TIME. GUY: WE HAVE SEEN SOME COMPANIES PUSHING BACK ON PRIVATE JETS. IS THAT SOMETHING YOU SEE BEING REPLICATED? ERIC: NO I SEE IN THIS PART OF THE WORLD, MAYBE IN FRANCE, MAYBE OTHERS, THEY ARE GETTING PUSH FROM SOME POLITICAL SIDES TO SAY THEY ARE REDUCING BUT BUSINESS JETS ARE JUST TO FUEL THE ECONOMY. 80% ARE THESE COMPANIES FUELING ECONOMIC. 10% OF THESE GOVERNMENTS. 10% ARE PRIVATE. IF WE WANT THE ECONOMY TO RECOVER, TO CONTINUE, WE NEED TO GET THIS TOOL. IT'S A TOOL FOR THE COMPANIES. I DON'T SEE WHY WE SHOULD PREVENT TYPE OF AIRCRAFT TO BE SANCTIONED COMPARED TO COMMERCIAL ONES. DAGUY: DOES EUROPE FEEL ANTI-AVIATION? ERIC: YES AND NO. WE HAVE THE VOICE OF THOSE AGAINST BEING HIGHER THAN THOSE WHO ARE SUPPORTING. GUY: HOW DO YOU SOLVE THAT? > > IT'S A COMMUNICATION ISSUE. THAT'S IMPORTANT. BUT LOOKING AT THE AIR SHOW, THE FIRST PART IS PROFESSIONAL. THE SECOND PART IS AROUND. OVER THE WEEKEND WE SEE THE FAMILIES THAT ARE GOING TO BE HERE. INNING IT'S A POPULAR EXHIBITION. THEY WANT TO SEE THESE BEAUTIFUL MACHINES AND WE WILL TAKE ADVANTAGE OF THIS WEEKEND TO RECRUIT ALSO. GUY: RECRUITING STAFF? INTERESTING. THE FRENCH PRESIDENT WAS HERE EARLIER. WHAT PRESIDENT DID YOU GIVE HIM? ERIC: WE SHALL CONTINUE TO PROMOTE TOGETHER AS IT IS A STRATEGY IN WHICH WE ARE CONTINUING TO PROMOTE OUR AIRCRAFT ON THE COMMERCIAL SIDE AND WHATEVER IS THE FUTURE HAVE NEW TECHNOLOGIES AROUND COMBAT. CLOUD COMBAT. THAT IS GOING TO TAKE PLACE WITH DIFFERENT STANDARDS. WE ARE NOW AT EXTREMES THAT ARE COMING. THEN WE WILL SHIFT TO THE NEXT GENERATION. GUY: THANK YOU, SIR, FOR JOINING US. GUY: GUY, THANK YOU VERY MUCH. A REALLY FANTASTIC DAY OF INTERVIEWS. IT HAS BEEN A LONG DAY FOR GUY BUT HE'S DOING IT AGAIN TOMORROW AND IF YOU WANT TO FIND OUT MORE , SUBSCRIBE TO THE OFFICIAL BLOOMBERG PARISH NEWSLETTER AND YOU CAN SUBSCRIBE TO THE CODE YOU SEE IN FRONT OF ME HERE. LET'S CHECK WHERE EUROPEAN STOCKS SETTLED AS WE HEAD INTO THE BREAK. THE STOCK INDEX FALLING MORE THAN 1%. THE FIRST DATE FOR EUROPEAN EQUITIES IN THREE WEEKS. THE FTSE 100 FARES A BIT BETTER. HELPED OUT MAYBE BY THE FX AROUND EIGHT WEAKER STERLING. BARELY MISSING THE DECLINE OF 1%. THIS IS BLOOMBERG. DANI: THE BANK OF ENGLAND IS SET TO REVEAL RATE DECISIONS ON THURSDAY. MOHAMED EL-ERIAN TWEETED EARLIER ABOUT THE UPCOMING DECISION SAYING IT IS A BIG WEEK FOR THE BANK OF ENGLAND AND A TRICKY ONE AS WELL AND THERE IS LITTER -- LITTLE DOUBT THAT THE DOE WILL INCREASE INTEREST RATE THURSDAY, THERE WILL BE A LOT OF VIEWS ON THE SIZE OF THE HIKE AND POLICY GUIDANCE AROUND WHAT FOLLOWS AS STAND ALONE AND IN COMBINATION. INDEED FOR THE CENTRAL MAJOR BANKS THEY FACE ONE OF THE TRICKIEST SETS OF POLICY CHALLENGES. FOR MORE, LET'S GET TO JENNIFER MCCOWAN, CHIEF ECONOMIC ECOLOGIST. GOOD TO SPEAK WITH YOU TODAY. HOW DIFFICULT IS THEIR PROSPECT ON THIS THURSDAY? HOW DIFFICULT OF AN ENVIRONMENT IS THIS IN TERMS OF BEING A BANK LIKE THIS IN THE U.K.? J JENNIFER: IT'S DIFFICULT FOR MOST BANKS THE BANK OF ENGLAND HAS IT PARTICULARLY HARD. ON THE ONE HAND WE HAVE PARTICULARLY HIGH WAGE GROWTH IN THE U.K., A REAL PROBLEM FROM THE PERSPECTIVE OF THE BANK OF ENGLAND. INFLATION ABOVE 8%. CORE INFLATION ABOVE 6%. AT THE SAME TIME THE ECONOMY IS FRAGILE AND IT MAY WELL BE, WE EXPECT THE U.K. TO SLIDE INTO RECESSION IN THE MONTHS AHEAD AND THE BANK OF ENGLAND WILL BE CONSCIOUS OF THAT KIND OF FRAGILITY AT THE SAME TIME. DANI: FINALLY TODAY WE HAD MORTGAGE RATES GO ABOVE 6%. HOW, HOW PAINFUL IS THIS PERIOD GOING TO BE FOR THE CONSUMER AND IS THAT INCREASE THE RISK THAT THE BOE WILL OVER TIGHTEN? JENNIFER: IT WILL BE VERY PAINFUL. 6% MORTGAGE RATES WILL HIT A LOT OF PEOPLE HARD. IT IS FEEDING INTO THE MARKET RATES AND INTEREST RATES. TYING INTO WHAT PEOPLE ARE ACTUALLY PAYING WITH A BIT OF A SHIFT IN THE U.K. IN TERMS OF VARIABLE INTEREST RATES. AS PEOPLE START IN THOSE FIXES COME UP FOR RENEWAL, MORE AND MORE PEOPLE ARE GOING TO HIT HIGHER AND HIGHER MORTGAGE RATES. THAT'S HOW THESE PEOPLE, HOW MUCH THEY HAVE AVAILABLE TO SPEND. DANI: INFLATION AROUND 8%, DOES THIS ECONOMY LOOK PRIME FOR STAGFLATION? JENNIFER: I THINK UNFORTUNATELY IT IS. WE STILL HAVE A MAJOR ISSUE IN THE U.K. OF LABOR SUPPLY AND A TIGHT LABOR MARKET BECAUSE OF THAT. WE ARE NOT IN AN ENVIRONMENT WHERE THE LABOR MARKET IS REALLY STEAMING AHEAD IN A STRONG STATE BUT WE ARE IN AN ENVIRONMENT SUPPLY, DRIVING UP WAGE GROWTH WITH REALLY STRONG PRICE PRESSURES. NOT JUST IN HEADLINE. DANI: AT THE SAME TIME WE HAVE A FED ON ITS PAWS, WHATEVER YOU WANT TO CALL IT. HOW DOES THAT HOLD THAT THE BOE IN TERMS OF HIKING? JENNIFER: I DON'T THINK IT DOES AT ALL, PARTICULARLY AS YOU SAID, THE DEAD HAS MADE IT CLEAR THAT THIS IS NOT AN ENDING TO THE TIGHTENING CYCLE. NOT MUCH EVIDENCE IN THE U.K. OF EASING PARTICULARLY. EASING OFF, NOT SO IN THE U.K., IT'S PRETTY CLEAR FROM THE PERSPECTIVE OF THE BANK OF ENGLAND THERE IS MORE TO BE DONE. THERE PROBABLY IS A BIT FURTHER TO GO THERE, IN ANY CASE. DANI: IS THIS WHAT HIKES ARE GOING TO LOOK LIKE LATER ON? STEP UP, PAUSE, STEP UP, PAUSE? JENNIFER: MAYBE. IT WOULDN'T BE SURPRISING THAT IF DURING THE END OF A CYCLE YOU START TO GET THE ODD PAUSE HERE AND THERE. IT HAS BEEN AGGRESSIVE ALREADY. THAT SAID, I THINK THAT THE EXPERIENCE OF DEVIOUS CYCLES SUGGESTS THEY TURN RELATIVELY QUICKLY AND DON'T TEND TO PETER OUT. EACH ONE IS DIFFERENT BUT THE NORM IS THAT THEY DON'T. THAT IS WHAT WE ARE EXPECTING FROM THE FED. EXPECTING A HIKE IN JULY. PERHAPS A SEPTEMBER HIKE AT THE ECB, PRICED IN. THE EVIDENCE THAT WE HAVE ALREADY SEEN IS THAT THERE IS CORE PRICE PRESSURE STARTING TO STRENGTHEN. DANI: WISE SIGNAL TWO HIKES, THEN, IF IT'S ASPIRATIONAL? WHAT PURPOSE DO THEY SERVE, THEN? JENNIFER: THAT IS A RISK AS THE MARKET PRICES CUTS AND LOOKS AHEAD TOO FAR. AN INDICATION FOR FINANCIAL CONDITIONS. IF YOU ARE TRYING TO INDICATE AT THE SAME TIME THAT THERE'S A CYCLE WITH CUTS NOT TOO FAR OFF. JUST AN ELEMENT OF CAUTION. CENTRAL BANKS KEEP TAKING IN SURPRISE. NOT LEAST OF WHICH THE FED, PARTICULARLY THE FED, BY THE STICKINESS OF CORE INFLATION. THE FED PROBABLY GENUINELY DOES NEED TO WAIT FOR SOME MORE EVIDENCE OF EASING IN THE LABOR MARKETS AND LABOR CONDITIONS. EASING IN THE CORE COMPONENTS OF THE CPI LIKE RENTS TO BE MORE CONFIDENT THAT IT IS TIME TO END THE TIGHTENING CYCLE. DANI: ENJOY THE REST OF YOUR WORK, JENNIFER -- WEEK, JENNIFER, OVER AT CAPITAL CHIEF GLOBAL. COMING UP, WE MOVE AWAY FROM CENTRAL BANKS AND TALK ABOUT AI. DANI: ONE TOP-PERFORMING GLOBAL EQUITY FUND IS WINNING BIG BY BETTING ON AI, BUT NOT FOR YOU MIGHT THINK. GATHERING SMALL MID-CAP COMPANIES TO BE ENHANCED BY AI, LIKE CAP 24, UP 26 PERCENT YEAR-TO-DATE FOR U.S.-BASED AUCTIONEER WEBSITE. THEY ALSO HOLD A MAKER OF HOT MELT GLUE DISPENSING EQUIPMENT THAT THEY WILL BENEFIT FROM INCREASED CHIP DEMAND COAT -- DEMAND. THERE IS SO MUCH HAPPENING WITH AI, LET'S STICK WITH THIS THEME AND MAKE A SMOOTHIE BY THROWING SOME YOGURT INTO THE MIX. A 104-YEAR-OLD FRENCH COMPANY, DANONE, PART OF A RENAISSANCE BASED ON AI. LET'S BRING IN TOSHA ON THIS. OK, WHAT DOES -- WHAT IS DANONE DOING? AI AND YOGURT DON'T COMPUTE IN MY BRAIN. TOSHA: THEY HAVE BEEN STRUGGLING FOR SEVEN OF THE LAST NINE YEARS, THAT'S BEFORE YOU EVEN HAD THE HIT OF THE COST-OF-LIVING CRISIS, SEEING SHOPPERS TRADING DOWN TO CHOOSE SUPERMARKET PLANS OVER LEADING BRANDS LIKE DANONE AND THEY ARE LOOKING AT USING AI TO ANALYZE DECADES OF DATA AND RESEARCH ON BACTERIA, HOW IT DIRECT WITH OTHER INGREDIENTS, TO FIGURE OUT INTIMATE LINKS BETWEEN HEALTH BENEFIT AND HEALTH OUTCOMES AND PARTICULAR ASPECTS OF BACTERIA. HUMANS WOULDN'T BE ABLE TO DO THIS. YOU NEED AI TO NOTICE THESE LINKS. THEY ARE TESTING NOT JUST ONE HYPOTHESIS AT A TIME, THEY ARE THROWING IT ALL AT THE WALL TO SEE WHAT STICKS. DANI: HOW DO YOU SEPARATE THE MARKETING CLAIMS FROM ACTUAL SCIENCE AND OFFICIAL USE OF THE AI? DASHA: THAT'S THE ISSUE, IT'S DIFFICULT TO AND FROM THE PERSPECTIVE OF THESE COMPANIES THEY HAVE COMBINED A TRACK RECORD OF CONSUMER TRUST WITH SOME OF THE SCIENCE AND SOME OF THE MARKETING AND THE ABILITY TO SELL THINGS IN BULK AND BRING THESE WHAT THEY SAY ARE BENEFITS TO LOTS OF PEOPLE BUT I THINK ESSENTIALLY THERE IS A LOT WE STILL DON'T KNOW ABOUT NUTRITION. A LOT OF RESEARCH THAT STILL NEEDS TO HAPPEN WITH GETTING ADVICE. YOU WILL HAVE COMPANIES LIKE NESTLE AND DANONE THAT THEY HAVE PATENTED A STRAIN OR A PARTICULAR, A PARTICULAR ASPECT OR HEALTH BENEFIT OF A PARTICULAR STRAIN. THEY CAN CLAIM THAT, BUT REALLY A LOT OF IT IS JUST FERMENTING MILK. DANI: SO YOU HAVE MADE YOGURT EXCITING AGAIN, DASHA. THANK YOU AGAIN. THAT DOES IT FOR THIS SPECIAL EDITION OF "BLOOMBERG MARKETS." THIS IS BLOOMBERG.