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This is the Bloomberg Day BAQ podcast. Good morning, It's Thursday, the fifth of February. I'm Caroline Hepca in London and.
I'm Stephen Carolin Brussels. Coming up today. Growing fears over how AI could up end business models rip through global markets for a third day in a trillion dollar tech sell off.
UK Prime Minister Kiss Starmer is forced to climb down and release documents relating to his appointment of Peter Mandelsson as US ambassador.
Plus how a group of puzzle loving mathletes in Prague are using sci fi inspired trading to dominate Europe's most volatile power market.
Let's start with the roundup of our top stories.
AI's potential to change business models large and small is driving a trillion dollar sell off in stocks and bonds and loans of companies. The route was first sparked by Anthropics release of a new two for legal Work earlier this week. The move ignited fears across markets that AI leaders will overtake established industry players and innovation sooner rather than later, and in a confusing mix of market signals. Even companies long seen as the prime beneficiaries of the
AI boom are showing signs of fatigue. In its latest earnings report, Alphabet topped projections for quarterly revenue, but said capital spending on AI will be significantly higher than anticipated. CEOs under pitch I says the money will deliver a returnal investment.
Revenue from AI solutions built by our partners increased nearly three hundred percent year over year, and commitments from our top fifteen software partners grew more than sixteen x year over year.
Center Pitcheye, speaking there as the Google parents, said that capital expenditure could come close to one hundred and eighty five billion dollars this year, compared with just under one hundred and twenty billion dollars that analysts had expected. I'll Tabet shares fluctuated and extended trading following the report.
The price of silver has plunged by as much as seventeen percent today after a two day recovery. Silver prize has hit an all time high in late January of more than one hundred and twenty dollars an ounce. Since then, though, silver has lost more than a third of its value and is trading at around seventy five dollars. The precious metal rally last month was driven by speculative leveraged bets, geopolitical upheaval and concerns over fed independence in the UK.
Kir Starmer's position is in doubt following the scrutiny of the appointment of Peter Mandelsson as UK ambassador to the US and his relationship with Jeffrey Epstein. The Prime Minister is facing backlash from his own party members after he struggled to answer questions from Opposition leader kemmy Badenoch about his knowledge of Epstein and Mandelsson's relationship. Speaking in Parliament yesterday, Starmer maintained he was not warned of the extent of wrongdoing.
Madlsson betrayed our country, our parliament and my party. Mister Speaker, he lied repeatedly to my team when asked about his relationship with Epstein before and during his tenure as ambassador.
K Starmer, speaking during Prime Minister's questions or he was forced to acknowledge that the material used to vest Mandlsson did contain details of Mandalsson's dealings with Epstein, Andp's voted to release all documents related to Mandelson's appointment as an ambassador. They'll be reviewed by the cross party Intelligence and Security Committee.
Now. The Bank of England is widely expected to leave interest rates on whold today as it waits for more evidence that inflation is under control. Bloomakes You and Potts has a preview.
Just one of thirty two economists in Bloomberg survey expects the rake cut today. The overwhelming consensus is that the UK SPASE eight will remain unchained at three point seventy five percent ahead of the twelve PM announcement. Rate setters will be weighing the contradictory problems of above target inflation and growing concerns about the labor market with unemployment now above five percent. But on productivity there could finally be
some good news. Speaking to Bloomberg's scianists say that headline productivity estimates may be masking a recent resurgence driven by the adoption of artificial intelligence. One economists from UBS Wealth Management saying the UK and global economy are likely in better shape than the media would have us believe. In London, I'm uing pots to Bloomberg Radio.
The European Central Bank is also likely to keep interest rates on hold for a fifth consecutive meeting. That's despite geopolitical tensions and a stronger euro. All economists surveyed by Bloomberg expect the deposit rate to be kept at two percent as today's meeting. Investors analyst cy rates staying there until the end of next year, with the chances of a hike in twenty twenty six receding.
I've got some breaking news this hour. BNP Pariba has reported unexpectedly high fourth quarter profit and raised some midterm financial targets. So the French lender achieved net income of two point nine seven billion euros in the three months through to December. The firms also raised its target for profitability for twenty twenty eight. Meanwhile, the Spanish lender BBVA has reported fourth quarter profits of just over two and
a half billion euros, broadly in line with estimers. Net interests income came in at over seven billion euros, with some two hundred million euros ahead of expectations. Bbva's shares have doubled over the last twelve months.
The biggest US lenders are pushing the European Union to loosen its cap on banker bonuses their lobby incomes. As the EU considers a wider set of reforms to boost competitiveness In books. Tam Adebayo has the story.
The EU is accelerating a planned review of its banking rule book after pressure from the States and for the sector's biggest names. There's one item that's top of the agenda. The likes of Goldman, Sachs and JP Morgan are pushing for a loosening of banker bonus rules, which currently cap payments at twice fixed salaries. But whilst the Association for Financial Markets in Europe has put the issue on its
wish list of reforms, there is some pushback. Bloomberg understands that insiders feel the change could come at the expense of other measures like simplifying capital structure and reducing daily regulatory burdens. In London, Tea at Bayo, Bloomberg Radio.
And those are our top stories for you this morning. Looking at the markets, the tech sell off continues in Asia. The MASCI Asia Pacific indexes down by one point three percent. Gold and silver continue to decline. Gold is down by one point two percent this morning. You've also got copper down today on the LME, Bitcoin falling to a ten month low in Asia, trading. Looking at stock futures for Europe, we're also expecting a lower open here. We're down by
two tens of one percent. The Blue Big Dollar spot indexes slightly firmer. The pound and the euro are both lower this morning ahead of central bank rate decisions.
Those are the markets in.
A moment more and the continuing tech sell off that's been deepening over AI disruption fears. Plus how a check trading firm took inspiration from science fiction to dominate Europe's most volatile power market. But another story that caught ari and a lot of attention this morning as well. In the UK, the bruising Prime Minister's questions for Kirs starmery yesterday.
Yeah, absolutely, MP's have voted for the government here in Britain to disclose all the documents relating to Peter mandelson appoint and his appointment as US ambassador. So Kis Starmer had wanted to keep those documents confidential, arguing that there were issues of national security, but instead they will now go to this parliamentary cross party committee for review and then presumably release. It's a major defeat for Kis Starmer
and that is the point. It shows the depth of anger of his own MPs really about this whole issue that has arisen because of Jeffrey Epstein and all of those files that were released. It could perhaps eventually precipitate a leadership challenge. We don't know, because it shows, really or could show how much was known about Mandalson's relationship with epscen or maybe more details before the decision was
made to appoint him as the UK's ambassador. So there was a really dramatic moment yesterday in Parliament when Kenny Badenot was asking the Prime Minister whether the official secret vetting for Mandalson mentioned this ongoing relationship with Epstein, and the Prime Minister applied at one point yes to stunned NPS. He then went on to say that Mandelson though didn't tell the truth when he was questioned.
Yeah.
Look, it's a huge political story in the UK and I've been interested to read what Matthew Brooker has been writing about this for Bloomberg Opinion, thinking about what the bigger picture might be actually for the future of the House of Lords. Will this finally prompt the long discussed
reform of how lords are appointed and vetted. Of course, the vetting they're very much in focus for Peter Mandelson as well, and whether or not this might see Labor deliver on some of what it's promised in its manifesto of being big changes for the upper house. I mean Matthew Brooker's point, you know, seems to be much easier to sack a prince than a lord at the moment.
As well. He makes quite a good argument for how this could be done as well, and says that look, you know, if you have an upper house that's unelected, you need to have confidence and the people who are in it. And if you don't have this sort of confidence, then you know that's going to cause bigger questions about the function and the value of the House of Lords.
Yeah, and I was really interested in his point that Canada has an upper house that's based on the UK's, but it's got this independent body that picks people to go into that upper house. Who's saying, look, why isn't that a model? I thought that it was a really interesting point, and we'll put a link to that story in our podcast show notes.
Well, let's get into the big market moving story that sell off continuing for a third day today, inspired by these fears over AI on the verge of up ending business models for a wide range of companies. We've now seen a trillion dollars wiped off software stocks as a result of this. Matt Blox, I'm senior analysts at Bloomberg Intelligence joins us now for more math. There have been many AI driven selloffs since chat GPT went mainstream. Is this the most significant one so far?
Yeah?
I think it is without question obviously probably one of the other noteworthy ones that comes to mind as well. You know, we heard about deep Seek. She kind of really shook up the industry. But yeah, I think the both the breadth and depth of the sell off and the speed of it has just been quite breath shaking.
Really the Deep See moment, I mean, was that because it was China versus the US that was the issue there, wasn't it? And then it leads to the question about whether the current sell off is an overreaction or not.
I think part of it was China US, but actually part of that Deep Seek moment was actually quite similar I think to what we're seeing now. Essentially, you know, the deep Seek model purported to do what the developed US market large language models we're doing, but massively reduced cost. Yeah, exactly, hugely cheaper. And this was like, you know, wow, we thought this was the new model, and actually maybe this
is the new model here. And I think that's exactly what's happening here is that you know, even kind of new generation software companies are potentially going to be usurped by these AI developed AI tools, you know, And that's really essentially what Anthropic has done. It said, Okay, we started with Claude code, Claudes large language model and code.
Claud Code helps software developers to you know, completely reimagine how I develop software for new programs, and that kind of evolved into Clawed Cowork, which actually now is an incredibly interesting and powerful add on to Excel, the most popular bit of productivity software in the world, and as
usurped Microsoft's own co pilot potentially in that platform. And now that's extended into the kind of legal tool you know, seemingly needing almost you know, very very kind of little human intervention to develop this code and providing a very powerful tool. I think that's kind of what's kind of really made people kind of you know, step back and rethink, wow, you know, we thought we had this figured out and
maybe we don't. And the answer to that in the short term, as it often is with markets, is let's just sell everything and think about it and then step back in once we have a new view about what the future is and pick our new winners once we've got that figured out.
This time around, as software stocks that are very much in focus, but are there other sectors could be vulnerable to this sort of investor pressure over AI in the future.
Yeah, exactly.
And obviously software has been the focus, but it has hit other industries. You know, One notable one has been the big advertising agencies. So if we look back to Tuesday Publicist, which is one of the biggest and most successful ad agencies, They've made a massive pivot towards technology and AI, so were perceived to be leading this transition
and managing it really well. They reported really good results and encouraging outlook, the whole ad agency group sell off, you know, eight to ten percent that day, and I've had further declines still because they are also perceived as an industry that could be completely disrupted by AI. And I think this whole kind of anthropic moment has again led to kind of incremental concerns that the modern these businesses. Yes we knew or exposed to it, but that seemed
to be managing that transition in a good way. Actually, we need to go back and rethink that. So I think anything that's kind of like a services based industry from ad agency's, legal, accounting, consulting, financial advisory, all these kind of human intensive service based industries potentially not going to be untouched by this.
Yes, it's sort of an incredible moment.
Is it going to be a transition with AI or just a rupture? I think investors are really kind of contemplating this. Matt, thank you so much for your time today. Matt Bloxham is Bloomberg's senior analyst with Bloomberg Intelligence.
Thank you for your time. Stay with us. More from Bloomberg Daybaque coming up after this.
Now, a check trading firm has come from nowhere to dominate Europe's most volatile power market. The trio behind Second Foundation to inspiration from science fiction, hiring maths prodigies from across Eastern Europe. Our energy reporter Eva Brendel joins us now for more. Eva, good morning, great to have you with us. How has Second Foundation become such an important player.
So the company operates on the ultrasure term market and to be successful in this you have to use algorithmic trading, and this is what they seem to be very good at. They have built very sophisticated algorithms that can react to the market in milliseconds. And to get good at this sort of trading is the main strategy is to have very smart employees who constantly can improve those algorithms. And so they hire a lot of smart radios with a
special love for solving math riddles. And they even say they have their most math Olympic medalists in Eastern Europe.
Wow, okay, so mass prodigies then are working for this company. Well, then tell us a bit more about the inter day power market that they operate in, the second foundation operates in, and why it's such a lucrative space actually to use all these people in.
So, the interjay power market has undergone a big change in recent years, and this has to do with the energy transition because as more renewables came into the system, more volatility came to the market. And yeah, now it is it's pretty hard to predict how windy it will be or how much sun will shine that day, prices
can hugely swing. And yeah, on very windy sunny days of the sea, prices will go negative or prices can also jump very high up to one thousand euro pomega what are when demand is high and it is also windless. And this increased volatility has made the market much more attractive for algorithmic traders who can react faster than anyone else.
Yeah, the co founders are fans of science fiction. How has that influenced their business?
So, first of all, the company is named after the second Foundation, this third book in Isaacs of Foundations Areas, and every new employee gets a copy of that book. And also they have other things named after science fiction books. So their trading platform is called soft Hoham, named after a supercomputer in the Three Body Problem. And also when you visit their company's park office, all of their walls areligned with bookshelves and you can guess what's in their even more science fiction books.
Okay, so then what's next for the company.
The company now expands a battery business across Europe, and they might at some point even beyond expand beyond energy. So they share with me that they might go into equity trading.
Next, this is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond.
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I'm Caroline Hepka and.
I'm Stephen Carol. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak Europe