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This is the Bloomberg Day BAQT podcast. Good morning, It's Thursday, the sixteenth of October. I'm Caroline hepkat in London and.
I'm Stephen Caroline Brussels. Coming up today, British officials revealed that China has been accessing classified UK systems for at least ten years.
A leading economic think tank says the Chancellor Rachel Reeves needs a fifty billion pound buffer if she wants to balance the UK's books in the years ahead.
Plus not such smart money.
Billionaire investor Ken Griffin says Generative AI isn't helping hedge funds beat the market.
Let's start with a roundup of our top stories.
Chinese state actors have systematically compromised the UK government's classified computer systems for more than a decade. Bloomberg has learned China routinely accessed Britain's secret information, in one example by purchasing a data center which held confidential intelligence. The news comes as politicians in Westminster are debating if China is a threat after a court case around alleged Chinese spies collapsed.
Leader of the Opposition Kenny.
Badenock says, the Prime Minister has questions to answer.
He cannot explain why he could not see this case through.
He should have seen this case through.
And let me be clear, mister speaker, about what has happened. A serious case involving national security has collapsed because this government.
Is too weak to stand up to China now.
In response to the government says that the previous conservative Conservative administration did to not desiccate designate China as a threat. Several government officials who spoke to Bloomberg anonymously say the scale of cybersecurity breaches show Beijing poses a significant threat to national security. A recent breach of a major US based cybersecurity provider has also been blamed on state backed hackers from China. Chinese officials have not responded to Bloomberg's requests for comment.
US Treasury Secretary Scott Bessent is suggesting a new pause on tariffs for Chinese goods if the country stops its plans for rare earth market dominance. The two countries have both significantly ramped up their threats and sanctions over the past week. The US Treasury Secretary also took aim at one of China's top negotiators, calling him quote unhinged.
Perhaps the Vice Minister who showed up here with variancendiari language on August twenty eighth has gone rogue instead quote, China will cause global chaos if.
If the port shipping fees go through.
Bessend added that he wants to coordinate an international response from democracies to undermine China's plans to control the rare earth metals market. He added that market moves wouldn't influence him, saying that the US won't negotiate with China quote because the stock market is going down.
The UK's Chancellor Rachel Reeves needs to raise her fiscal boffer five fold to have a better than even chance of avoiding more tax rises and spending cuts. That's according to the Institute for Fiscal Studies, which warns that restoring the current nine point nine billion pound margin won't be enough to balance the book's long term with more. Here's Bimberg's Crispitz fifty billion.
That's the figure the IFS says is needed to avoid what it calls a fiscal groundhog day, where the government repeatedly faces pressure to tighten policy from one forecast to the next by comparison, the leading economics think tank says that restoring the government's current raiser thin headroom would still only give Reeves a one in three chance of meeting
her pledge to balance spending long term. The analysis highlights the scale of the challenge facing the Chancellor ahead of what's expected to be a difficult budget later this month in London. Chris Pitt Bloomberg Radio.
France's Prime Minister Sebacia Lecornu may be able to survive to no confidence motions. Today he won the backing of the Socialist Party after announcing the suspension of contentious pension changes. Lecorn Who's probable survival brings some respite from the recent
political turmoil that has driven up France's boring costs. The government still faces major fiscal challenges, though Charlotte de Montpellier's senior economists at IG has told Bloomberg the current situation isn't much of a relief for markets.
Given the political landscape currently. I think we can expect.
That if it goes through, the budget will be.
More expansionary than this one, so it.
Means that the deficit to GDP ratio will be worse than the one that is.
Currently the imph next year.
Charlotte de Montpellier's senior economists at ing speaking then, these socialists have already warned that their decision not to Censulo Corny today doesn't give the premier a blank check.
US President Donald Trump says he's authorized the CIA to take covert action in Venezuela in order to stem a flow of drugs and illegal migrants to the United States. It confirms an earlier report in The New York Times, which said the agency would be enabled to carry out lethal operations in Venezuela and wider action in the Caribbean. Speaking at the White House, Trump rebuff to reporters' question on whether the CIA has the authority to take out Venezuelan President Nicholas Maduro.
I think Venezuela is feeling heat, but I think a lot of other countries are feeling heat too. We're not going to let this country, our country, be ruined because other people want to drop. As you say, their worst, they have given us their worst, I.
Was President Trump, speaking as the US has already hit half a dozen voats in the Southern Caribbean since the start of September, saying the vessels were transporting drugs to America.
Now, Bloomberg understands that EU countries will begin debating next week just how much preferential treatment to give European firms bidding for public contracts.
Bloomberg's Mihil Kubala has more.
The EU is looking for ways to boost homegrown companies and strengthen its industrial base, sources have told Bloomberg France is leading the drive to prioritize European companies in public contracts worth about two and a half trillion euros. That's a market equivalent to about fifteen percent of the bloc's GDP. The push is a way to counterbalance protection as US
trade policies or Chinnel's weaponization of certain raw materials. Still, officials war that implementing the buy European approach could be complex in some sectors. Defense, for example, the block is still heavily reliant on American suppliers in Brussels.
Michael Kubala Bloomberg Radio, and those are your top stories on the market. It's the MSCIS Specific Index seven tents higher this morning. The NICK and Tokyo's up by one point three percent. Eurostocks fifty futures down four tenths this morning, as we're looking at the Bloomberg Dollar Spot Index, a tenth of one percent weeker, the euros at one sixteen fifty six, the tenure treasury yield holding steady at four point zero two percent.
Well, in a moment, we'll bring you more on the UK cybersecurity breach and also why Citadel's Ken Griffin isn't impressed by.
AI, at least not yet.
There's also another story though here that's got our attention today. Perhaps I should say caught our eye haha. Could smart glasses replace our smartphones?
I'm really glad that someone else has joined ludd Eyede's corner with you and me, Caroline, who's essentially somewhat suspicious of new technology.
This has been Burke.
Opinion column as Katherine Thorbeck has been writing about the massive amounts of money that big tech companies are pouring into developing smart glasses, doing things like making them look better of course making them more functional. AIS helping with that as well. She points to a recent survey of eight con trees, which includes China, India and the US stow and that forty eight percent of people were interested in purchasing a pair of smart glasses in.
The next year.
The trust of Catherine's argument, though, was essentially they might have the technopanies might have to go a bit further to try and convince us that we need this technology.
Look, I think fifty to fifty is actually pretty good. To my mind, is a bit kind of Ready Player one or even Stephen They Live, which is a really old movie reference. Basically, are we in this kind of post privacy sort of world where you're going to wear those smart glasses. I always thought that headphones might not take off. They are absolutely ubiquitous. I'm surprised that people wear them at all times of the day and night.
So maybe it's not so far fetched that people will also wear tech on their faces on their glasses.
We need to draw two lists after this conversation. One is pieces of technology we thought wouldn't take off but did. Another is films that Stephen has not seen to get reference in our conversations. You can read Captain's piece at Bloomberg dot com Forward slash Opinion.
Okay, let's get to our top story here in the UK, Chinese state actors have compromised classified UK government systems for more than a decade. We now learn joining US is our chief Asia correspondent Roslyn matheson Good Morning, Roz. Look what do we know that about this security breach? What information was accessed and also how.
This was our exclusive reporting which shows that they were routinely and successfully accessing low and medium level classified information
for at least a decade. And this is things like private communications, some diplomatic cables, discussion around government policy, so it wasn't top secret information, but it was still classified information and doing so it seems routinely, and one person told us endlessly for about ten years without detection, and some of it was potentially through a particular data center that was sold to an entity that had a link to China some time ago.
That's now been tightened up.
But the fact is that it seems like these Chinese state actors were just coming in constantly and getting fairly low level information, but information that's still class is classified and information that could be used potentially against the UK given it's about things like again that the formulation of government policy ross.
This exclusive reporting is coming after the collapse of a trial of two men accused of spying for China because, according to prosecutors, successive British governments had declined to formally designate China as a threat to national security.
Could that designation change now?
Well, there's obviously a bit of pressure again around there. So this is something that's come up for many years, and not just under this administration. Is you have China hawks in various governments saying that the UK needs to move forward and do this. And obviously the fact that this case was seen to have collapsed in part because of the UK not using this designation has brought it
back into the conversation. But you can see from some of the witness statements that we're given from bureaucrats at least is that they couch this as a complex relationship with China, between the China and UK, and that they say that the UK is ready to confront China, it's ready to compete with China, but also it does want an economic relationship with China, and just points again to that type rope that many UK governments seem to walk,
and that the Starma government certainly is very much walking, is that it wants that door open to China, it needs that economic relationship and so you've got to make political calculations out of that.
And yet this is in a complex, you know, global situation. It also comes as US authorities have issued these warnings about significant cyber threat because of a breach of a major US based cybersecurity provider F five. They call it a catastrophic breach. And again this is something that is blamed on state backed hackers from China. So there's also a broader concern and it's about you know, the US China relation and the UK US China relationship.
Well, that's right, and in fact the UK has been caught up in this because there's been warnings issued here because of customers potentially have been breached in the UK,
not just in the US. And some of these are really big companies and they use some of these systems, and you know, the reporting shows that these hackers possibly stole parts of source code which are used in application services, again by very big companies, and so you've had warnings to companies across the US but also in the UK that they need to go and check their systems and they're going to be seeing if there's been any infiltration.
And so certainly that has also come across here doubt will be part of the conversation about how countries not to see UK, but the US and well, frankly everywhere are handling this proliferation of cyber attacks that come from China actors, but also from actors all around the world, and how do you bulletproof your systems and also how do you respond to the fact that often it's state barked rols.
Have we heard any thing from China about all of this, It's.
Interesting they've been pretty quiet.
I mean they did when the case was dropped against these two people in the UK, they did say it showed the case was without merit. And they've also there's been a few editorials in China state media in recent days saying that this shows that there's just an unnecessary level of paranoia, as they call it in the UK about China, and there are people who are tempting to use all of this to try and cause problems in
the relationship. But you haven't had a lot of very public comments made from China specifically about this by case with the two being dropped, and perhaps they just want to let that be because again, China has its own incentive to have the relationship stay on and improved footing with the UK again mostly around train and investment.
Okay, Rolls, thank you so much for being with us. That is our chief Asia correspondent rose In Mathison, thank you stay with us. More from Bloomberg daybaqube coming up after this.
What's Citadel's Cam Griffin is the I just big name and finance to weigh in on the subject of artificial intelligence as companies have been investing massive amounts of money in the technology, but the debate over what returns it can provide is continuing. Cam Griffin saying that AI isn't meaningfully affecting hedgephones so far. Our reporter to out bios here with more details.
TIA. What is Cam Griffin's view on this? Then?
Yeah, it's interesting.
So he was speaking at an investors conference in New York and he made his views on this issue pretty clear. Essentially, he says there are ways that AI can help enhance productivity, but when it comes to actually helping hedge funds beat the market and generate alpha, he thinks it falls short. And when talking about his own shop Citadel, Griffin said that AI hasn't replaced meaningful research. This isn't the first time,
he's made sort of skeptical comments about AI. He's previously called it a limited tool when it comes to investment analysis, and has typically downplayed fears that the tech could replace human jobs in the past. So fundamentally he thinks that it's unlikely to create widespread change, So it will have impact, but not perhaps in the profound way that others in the industry have come to expect.
Well, that's the thing.
It's a lively debate in the industry, and one you know, with a lot of money potentially resting on it.
What are the other views?
So this view definitely does set Griffin apart from his peers. I mean, just take the example of JP Morgan CEO Jamie Diamond. He recently said that the Bank spends two billion dollars a year developing AI technology, but also crucially that they save the same amount because of the tech. He was speaking to Bloomberg last week and he was very clear about just how impactful he thinks that AI is and how impactful it could be in the future.
He said the Bank already has hundreds of use cases for it and only expects that to grow, and in terms of its impact in the world, he compared it to something like the printing press, so hugely significant in terms of history and its impact.
On the future.
But we have also heard from multiple others in the world of financial services. They've praised AI, and that includes a former Treasury Secretary Larry Summers. He called the emergence of AI a moment of stunning technological possibility. In the UK, there's also been Charlie Nunn, the CEO of Lloyd's Bank, he said the AI is core to the firm's operations, and just recently Golden Sachs CEO David Solomon released a vision statement about how the company is going to reorganize
itself to fully benefit from AI. So in terms of the financial services sector at least, Griffin seems to be certainly in the minority here.
Outside of the financial industry though too.
But I mean, what do we know about the broader effects that AI is already having on the economy.
Well, there are mixed opinions about this, so you know, on the one hand, there are some that argue that the productivity gains from AI will result in faster and certainly more sustainable economic growth. For example, recently, Federal Reserve Governor Christopher Waller said that AI will be a huge boost to the economy.
Aside from questions about how AI's gained will be distributed, there's a more fundamental matter of how they will be measured.
Even at a macro level.
Are using AI to increase productivity, that's the payoff for a profit maximizing firm. This gain in producing more output with the same inputs is counted in gross domestic product and as a result you're getting more output the same number of inputs. Productivity per unit of input goes up, and that raises GDP and productivity growth.
So the Fed's Christopher Waller, they're talking about the payoff from AI, but not everyone agrees with this entirely. There are specific concerns about the impact of AI on the labor market, particularly entry level jobs that could be vulnerable. Bloomberg reporting actually from this summer concluded that even if the technology only eliminates one fifth of new graduate jobs over the next five years, that would still have major ramifications for a generation of young workers and also for
the economy. So there is both anxiety and optimism about a potential impact.
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