Good morning.
It's Thursday, the twenty eighth of January in London. This is the Bloomberg Daybreak Europe podcast. I'm Stephen Carroll. Coming up today. Global debt markets are close to their biggest two month gain on record as investors gamble on central bank interest rate cuts. The shipping firm Hapac Lloyd says the red Sea trade route is still too risky for its vessels, and Apple wins a reprieve to sell it smartwatches while it fights a patent claim by a medical
device maker. Let's start with a roundup of our top stories. Global bonds are on track to post their biggest two month gain on record. The news comes as traders ramp up expectations that major central banks will slash interest rates next year. James camp, Managing director of fixed income at Eagle Asset Management, is watching volatility in the market closely.
The Move Index the measure of treasury volatility. Unlike the Vicks, the measure equity volatility is still extremely elevated. So the highway of interest rate outcomes for the ten years still very wide. So caution on duration, particularly on the taxable side, is warranted.
Here CAP's comments of Bloomberg come as recession fears for summer, strengthening the case to own bonds. The Bloomberg Global Aggregate Total Return Index rose nearly ten percent over November and December. That's its best run in data, which goes back to nineteen ninety. The shipping joint HAPAC Lloyd says it will keep its ships away from the Red Sea amid fears
of further attacks from militants. That's despite decisions by rivals MERSK and CMACTM to return to the route after the launch of a US led task force to protect ships traveling in the area. Spot rates for container shipping have jumped by twenty six percent over the past four weeks as vessels take longer routes to avoid the Red Sea. The United States has announced its final military aid package of the year for Ukraine, worth two hundred and fifty
million dollars. That's his political wranglings held up agreement over further support. The US Secretary of State Anthony Blak think and called on Congress to act as soon as possible to approve more spending. The Biden administration says it's provided more than forty four billion dollars in military aid two Kiev since Russia's full scale invasion began twenty two months ago. A new Bloomberg survey of economists shows they think Britain
will avoid a recession next year. The aggregate of their expectations is for growth of zero point three percent in twenty twenty four. Avoiding a recession would be a boost for the Chancellor, Jeremy Hunt, who set March the sixth as the date of the spring budget, but Labour's Shadow Financial Secretary to the Treasury, James Murray, says the government is stuck in internal squabbles.
The briefings around inheritance stacks are a sign of desperation from Rushie Sunak because he's desperate to keep his backbenches on side. Naturally, its conservative internal politics which is driving these briefings rather than any consideration of what's right for people across the country.
Just by the Labor politicians' words, the spring budget will likely be the Chancellor's last chance to change tax and spending policies before the general election in the UK. Apple has won the right to continue selling specific models of its smart watches for the time being. The company says its Series nine and Ultra two watches are back in retail stores and will be available online on Thursday. Bloomberg's Charlie Palace has more.
It comes after a court ruling in a patent fight, providing a quick reprieve for its seventeen billion dollar business. The US International Trade Commission had beenned the important sale of the products at Apple's official channels after it ruled in favor of Massimo Corpum medical device maker in a patent infringement case. Apple pulled the watches from its website on December twenty first and in retail stores on Christmas Eve. In New York, Charlie Pellett Bloomberg Radio.
While turning two News from Here. In Europe, the former President of the European Commission, Dolor has died, aged ninety eight. He led the EU executive from nineteen eighty five to nineteen ninety five, helping to build the single Market, pave the way for the Common currency, and oversee the expansion of the Union from ten to fifteen countries. Current Commission President our Slavander Lyn described him as a visionary who
made our Europe stronger. Here he is in twenty twelve speaking about the need for European cooperation in the face of the Euro Area death crisis.
You will see them.
Among this, there was also a lack of spirit of cooperation. Not all powers are in Brussels. We must remind systems of this often because governments easily attack Brussels on this. Not all powers in Brussels, they are shared. What we need is a spirit of cooperation. This spirit of cooperation was absent from the Economic Union and mainly from the Council of Finance Ministers in Phenoes.
Jacques de Laurier there speaking through a translator. Back in twenty twelve. The AFP news agency report that he died in his sleep at home in Paris on Wednesday. Well, in a moment, we'll be getting the latest on the continuing disruption to shipping through the Red Sea. But one Bloomberg piece that caught my eye this morning a column from our Bloomberg opinion writer Lisa Jarvis about the phenomenon
of dry January. Perhaps but early to be thinking about it for some of us, But according to data if a Morning consult, fewer Americans gave up drinking alcohol in January of this year. Lisa Jarvis suggesting in this piece that perhaps instead of giving ourselves a hard and fast rules. We should be thinking about a damp January rather than
a completely dry one. The idea being to focus on the most important element, which is thinking about our relationship with alcohol after perhaps an indulgent Christmas season for some of us. She quotes George Coop, who's director of the US National Institute on Alcoholbeast and Alcoholism, as saying, the key guidelines are setting standards, sticking to them, and then managoring your progress. Perhaps some food for thought as we head into the new year from Lisa Jarvis from Bloomberg Opinion.
You can find that piece on the terminal and of course on Bloomberg dot com as well. Let's get back to the markets and that global bond rally. One Bloomberg index tracking returns showing it's best run on record after gains of nearly ten percent over November and December. This as traders continue to focus on when central banks will cut rates next year. Our currency and rights Stratis Venram joins us now for more Van, great to have.
You with us.
Can you put the scale of this bond rally in contacts for us? How big is it?
Morning, Stephen? It is pretty big? I mean if you look at the global bond market rally, we haven't rallied this hard in the past. The rally of the past two months is the deepest that we have seen since to since nineteen ninety to be precise. So it's a big scale of rally that we are talking about. Some of the recent enthusiasm towards bonds is imminently understandable considering that major central banks except the BOG preparing the markets
to expect rate cuts in twenty twenty four. I think the long bond trade as a sound basis in the US, considering that the FED is the most restrictive policy rate among the majors central banks. The ECB has less of a real policy rate to boast off, while the BUE is negative real policy rate if you take into account the UK sticky services inflation, which is still holding about six percent, So the global bond market rally is kind
of uneven. Is more sanctified in the US and to a lesser degree in the US Eurozone, and is definitely questionable to some degree in the UK if you ask me, yeah.
I'm very interesting. Given the move in the moving yields perhaps has been more exaggerated than some places than others. I'm interested in the US Treasury auctions in this week as well, though the two in the five year auctions that took place, both seeing very strong demand. What should we be reading into that?
Absolutely with reads, with rates having reached the peaks for the cycle, the hunger for shorter data notes is kind of well founded in the US. After all, you're still getting a four percent plus rate, which you can't find anywhere else in the developed world. And it's not just about the yield you get. You're also buying into this
notion of capital gains. Should the Fed cut traits as deeply as the markets expect, which is some one fifty basis points by the end of twenty twenty four, So you've got a yield to speak of and potential capital gains. So that's a combustible combination for the markets.
What does this mean for central banks?
Then?
Are some the markets doing some of their work for them essentially by doing the easing and does that mean that center banks will be able to keep rights higher for longer? Is there sort of a strange cycle going on here?
Yeah, it is kind of bizarre. You know, the rally in the bond markets in a sense, makes life more difficult for them some central banks because of the loser financial conditions that it spawns. It is less of a problem for the FED because it can affort some loosening of financial conditions, considering that it's real policy rate is the most restrictive, so it'll be happy for the markets to do some of its work. But that's not the case.
For instance, if you look at the POE for example, this breakneck rally has the potential to keep inflation simmering away in the background, frustrating its efforts to get inflation back down to two percent. So it's it's an odd kettle of fish.
Yeah, and making it harder for some an instant point on that front for the BOE. What does all of this mean for other assets? Though you've been writing racing by the prospects of the NASDAC in this environment.
Well, the NASTAC one hundred index is kind of highly overvalued at current levels. If you imagine technology stocks as very long duration bonds, estimate their cash flows in the future, and then bring them back to present value, what you find is that the intrinsic value is about twelve eight
seventy seven, So at current levels. The Nasdaq is overvalued by staggering thirty percent, but you know we are in so we are in a kind of a bubble territory like we were in the Doorden during the days of the dot com, except that dot Com is replaced by AI. But as he knows, Stephen, the markets can remain irrational for longer than one can remain solvent. Even so, it's hard to see them, as sec Hunter doing as well as in as well next year as it did this year.
Yeah, very interesting to think about that in that context as well, and I do like your comparison to the dot com bubble as well. Venram Our Currency Right Strategers, thanks so much for joining us with the latest on
the markets. As we're watching that rally in bonds. Taking a bit of a pause on treasuries this morning as we look at the ten year yield holding at that three point eight percent level, so up a basis point, but just pausing it seems as we look at the returns tracked by that Bloomberg aggregate index over November and December reaching gains of nearly ten percent. Let's turn to
the Middle East next. The shipping company HAPAG Lloyd says it'll keep its vessels away from the Red Sea trade route after the recent spate of attacks on ships by Huthy militants from Yemen. Are Managing editor for Economic and Government News in the Middle East, Silvia Style joins US now from more Sylvia. Great to have you with us. So shipping companies are divided on whether or not to
use the Red CEA route. Now, does this mean that the US led efforts to protect chips in this area aren't working?
Yes, thank you. Yes, I think there's quite a bit of confusion about what this ued US led plan will actually do. It's this idea of having a protection for shipping in this region. It actually already exists as actually already forces based there. So I think some of the companies are a bit confused as to what it will really entail. And the U s Secretary of Defenses in the region and is meant to outline some of those
plans over the coming days. So I think, you know, based on this idea before of having this sort of force and what's already there, I think it's more about the uncertainty of what it will actually entail and if actually, you know, additional ships or additional forces in that area will actually in fact cause more risk because in a various sort of tightly patched shipping area, the more you know military ships that you have there, the easier it
is for things to kind of slip into something that escalates. So I think that's probably where things are now. And it's still quite unclear to companies about how this will work and if it will work at all. So I think that's kind of where we are now, and like the companies we're you know, people covering the region are still trying to understand what this will actually entail.
Yes, the situation unclear for shipping companies as well. Though if we think about this more broadly, though, is the Red Sea the biggest risk for wider escalation of the Israel Hamas war something that we've been watching very closely since the start of the conflict.
I think it's the biggest risk for things that wild affect global markets, this shipment of goods and oil, for example. In terms of where things could escalate on the ground, you have Iraq right now, and in Syria where you've got you know, in various areas groups and militia and fighters backed by Iran, and you know, various sort of proxy escalations happening there as well. You've had the US strikes on groups in Iraq, which the US has said
we're targeting US troops. These are Iranian backgroups around denied involvement. So I think in terms of actual escalation, the flashpoints are on the ground in terms of how things could sort of be more explosive, but in terms of how things could affect global markets and shipments of goods and the things that financial markets look at, it really is the Red Sea that's in focus right now.
Meanwhile, diplomatic efforts to see progress in the Israel Hamas war continuing. President Biden speaking to Katari ruler this week. Is there any sign of another ceasefire being agreed or being negotiated.
Well, it's very clear that countries that are watching what's happening in terms of Israel's invasion of Gaza are putting pressure on Israel to agree to another ceasefire, and it's clear that there is a real desire and the international community for things to de escalate and for that to
come to an end. Obviously, Israel says it won't end its military operations in Gaza until Hamas has been destroyed, which is kind of a kind of quite unclear how long that will take and what they would consider to be a success. So I think for now, at least when you look at what Israeli officials are saying in local media, there isn't any sign that those efforts are moving forward anytime soon for there to be another pause. But then, you know, the longer this goes on, you
know the pressure still will increase more. And it's been reported that a US Secretary of State, Anthony Blinkn, is on another trip to the region in the next few days as well, where this is bound to be a topic that comes up again.
This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning, on Apple, Spotify and anywhere you get your podcasts. You can also listen live each morning on London Dab Radio, Bloomberg Business App, and Bloomberg dot Com. Our flagship New York station is also available on your Amazon Alexa device. Just say Alexa
play Bloomberg eleven thirty. I'm Stephen Carroll. Join us again tomorrow for all the news you need to start your day right here on Bloomberg Daybreak Europe