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This is the Bloomberg Daybreak Europe

podcast. Good morning. It's Wednesday,

the 2nd of September. I'm Steven Carroll

in London. Coming up today, the global

bond selloff accelerates, putting

pressure on government borrowing costs

and erasing the gains from the US

Treasury's last intervention in the

markets. The rise in yields cuts the

British government's fiscal headroom in

half as Andy Bernham faces his first

prime minister's questions. Plus, does

your mouth need some AI? Be prepared.

Your toothbrush could be about to get

very high tech. Let's start with a

roundup of our top stories. The global

sell-off in bonds is continuing today,

wiping out the gains from the US

Treasury's buyback announcements. The

yield on 30-year treasuries reached

5.27%

yesterday. That's back to where it was

before Treasury Secretary Scott Bessant

announced plans to expand bond buybacks.

Dan Morehead, founder of Panta Capital

Management, says that Besson's plan drew

attention to an issue best left alone.

The only way a bluff works is if nobody

at the poker table knows you're

bluffing. And to slide an extra two

billion of chips out onto the table when

you are a force seller of two trillion

with a T every year of bonds just

doesn't make any sense. And I think it

just it it backfired because everyone

could see that they're off by three

orders of magnitude.

And like Morehead Scott Bessant argues

the buybacks were to address a market

that had moved out of line with its

fundamentals. But rising government

spending, surging investment, and

stubborn inflation are pushing borrowing

costs higher around the world. Steven

Major, global macro adviser at

Tradition, says markets are changing

where they see long-term interest rates.

The yields are higher because the policy

rate expectations have shifted. At the

start of the year, the US had three cuts

priced in for the year ahead. Oil prices

were falling. It was a much calmer

backdrop. Now we have at least a hike

priced in. So that's a swing of four.

425 is 100 basis points. That largely

explains the yield shift up.

>> Steven Major there. Germany's 30-year

yields touched their highest since 2011

and the equivalent UK rate rose to a

level last seen in 1998.

Well, the surge in UK borrowing costs

has left new Prime Minister Andy Burnon

with a 12 billion pound problem.

Bloomberg Economics estimates the

multi-deade highs in guilt yields have

the government's fiscal headroom. That

comes as the Labor leader pushed for

more public control over services like

water, energy, and transport.

We can make this next decade better than

the last. We can lift the prospects of

all our people and places. We can put

more power into every post code. We can

let Britain believe again.

The UK prime minister there in his first

House of Commons appearance since taking

office. Despite Bernham's optimism, the

global economic picture pits his

ambitions against Britain's fiscal

problems. Bernham's first day in

Parliament also saw his predecessor Kier

Starmer announced that he would resign

as an MP, sparking a bi-election in

North London.

European natural gas prices have surged

to their highest level since 2023 as the

Iran war escalates. Prices are now more

than 70% higher than at the start of

July when a temporary ceasefire had

lifted hopes of a potential resolution

to the conflict. The news comes as both

the United States and Iran carried out a

fresh wave of strikes. Bloomberg's John

Herskovitz says it's another escalation

in the war.

>> So the US has gone after more targets in

more places. Iran has responded about

going after US bases. The the worry is

that we're going to return to the cycle

of tit fortat strikes which can go on

for days and weeks as we've seen and

there's the this could present

challenges to energy supplies and then

there's the worry of further escalation

especially on the Iranian front.

>> Our editor John Herskovitz speaking

earlier Axios is reporting that the US

military attacked two Iranian government

tankers as part of a round of strikes

that took place yesterday.

The US Treasury Secretary Scott Bessant

says China prevented the G20 from

issuing a unanimous joint statement

after a meeting of finance chiefs this

week. Speaking to journalists at the

gathering in North Carolina yesterday,

the US Treasury chief criticized

Beijing's approach to trade with Iran.

The real problem, the Chinese pay the

Iranians in R&B. The R&B comes back to

the Gulf region and whether it is

through neighbors shipping the supplies

over or whether it is through banks such

as the one we put out of business in

Dubai on Friday or whether it is the

cash houses those are being closed down.

>> Treasury Secretary Scott Bassant there

after his remarks the Treasury released

a statement the voice of the in the

voice of the United States as G20 chair.

According to Bassant, 19 members of the

G20 backed the chair statement which

said that China specifically dissented

to the paragraphs focusing on the open

flow of ships through the straight of

Hormuz amongst others.

The German government is blaming Russia

for a failed drone attack at Leipig

airport last month. Its investigation

found the makeup of the drone and the

planning behind the incident point

toward Russian involvement. Here is

German Foreign Minister Johan Wadul

speaking to reporters via translator.

>> We must state that Russia shows no

willingness to compromise. On the

contrary, with the attempted attack on

Leipig, the Russian leadership has

consciously decided to significantly

damage our already heavily strained

bilateral relationship even further.

German foreign minister Johan Wadipul

there who announced the closure of the

Russian consulate in Bon at that press

conference. NATO's secretary general

Mark Rut expressed solidarity saying the

evidence that Germany presented was

clear. Russia's foreign ministry

spokeswoman told the state-run TAS news

agency that Germany will get quote a

fitting response for its decisions to

close Russian facilities.

And Nvidia is in advanced talks to

acquire the AI startup Hugging Face in a

deal that could total around $14

billion. Bloomberg understands the

transaction may include a $1 billion

retention package for employees of the

company. Franklin Temple Templeton's

Sarah Aragi argues Nvidia is acting like

a central bank for the AI boom.

>> Nvidia is backstopping a number of these

companies. They're they need that

financing. The hyperscalers don't need

it. Up until a few months ago, it was

their free cash flow that was supporting

this ecosystem, this spending. I do

think there's a little bit in terms of

now we think about rising rates and how

is that going to impact some of this

spending over time. Um, but you do need

Nvidia backstopping some of this to

continue to support the ecosystem.

>> I added recent moves by Nvidia should be

seen as ecosystem building rather than

circular finance. Buying hugging face

would give Nvidia control of one of the

key platforms where developers showcase

and share AI models. And those are our

top stories on the program. On the

markets, looking at the 10-year Treasury

yield, it's up another basis point today

at 4.81%. The 30-year yield is up a

basis point as well to 5.29%.

We've also seen JGB yields rising as

well. The global bond selloff continuing

on equities. The MSI Pacific index is

down 2.1%. and Euro stocks 50 futures

down by half of 1% oil and gas prices

rising further today. Brent cruds up by

another 1% to $958

as natural gas on the European TTF

benchmark is up another 2.5% currently

at €74 a megawatt hour. Now in a moment

we'll bring you the latest on that

grinding high higher in government

borrowing costs plus what's at stake for

Andy Burnham as he faces his first prime

minister's questions. But another story

that we've been reading this morning,

does your toothbrush need some AI?

Samantha Kelly has been writing about

some of the unexpected places that

artificial intelligence is being

employed. Take for example the new

toothbrush from Dyson, which has an

integrated camera to see how good a job

you're doing at brushing your teeth. It

then analyzes the footage powered by

machine learning algorithms trained on

hundreds of thousands of dental images

to identify trouble spots and fire a

short burst of mouth rinse at these

spots. So, Samantha writes, "This is

part of broader push by consumer tech

companies to normalize the presence of

cameras and devices that didn't

traditionally have them. Not quite sure

how I feel about uh this, but if you are

an AI evangelist who'd like to take your

chatbot with you on the go, Sonos has

announced that it will allow popular AI

assistants to connect to its devices,

part of the very rapidly evolving

consumer tech industry. Of course, Dyson

has been known to revolutionize some of

the devices that it has uh developed. to

think about hair dryers uh or indeed

vacuum cleaners back in the day as well.

So, it be interesting to see how whether

or not their version of the electric

toothbrush will take off with all of its

bells and whistles. We'll put a link to

that story in our podcast show notes.

Let's bring you up to speed on what's

happening on bond markets today after

inflation fears have driven global

borrowing costs to the highest since

2008. Our markets live strategist Mark

Cranfield joins us now for more. Mark,

this is yields pushing even higher today

with another raft of multi-deade highs

being breached as well. Are those

inflationary pressures that are pushing

bond yields higher set to continue given

that we are seeing oil and gas prices

moving higher as well?

>> Well, it certainly isn't helping that we

had a a renewal of the conflict between

US and Iran. They were shooting at each

other today. um possibly not on the same

scale that we saw a few months ago, but

the fact that it's restarted this week

has clearly unnerved the energy market.

We actually saw the December Brent

futures contract rise to the highest

level uh of this year, even higher than

it was during the the height of the

conflict back in March, April kind of

period. So, new highs for the Brent

futures there. We're heading back

towards the $100 kind of threshold,

which I think a lot of traders had put

in the background. and they were

thinking that we were going to be

settled between $80 to $90 range. So

this idea that we could be back at 100

is a bit of a jolt. It's a shock across

commodities and therefore to the fixed

income market as well. And so you can

it's feeding on itself. The market was

already pretty unstable in the bond

world anyway and now seeing high prices

go even higher is just making it worse.

So it's a pretty much a situation where

one bit of negativity is feeding into

another for the time being. We've also

seen in the US Treasury market the

effects of the uh Treasury Department's

interventions, the announcement of of

more buybacks being erased effectively.

Does this put us in a situation where

the US Treasury may act again in the

bond market?

>> Um quite possibly. As it happens, I was

at a Bloomberg conference yesterday, an

investing conference in in Singapore.

There's a wide range of people there and

a couple of people came up to me during

the break and they were discussing

exactly this kind of point and there

seems to be a general feeling that Scott

Bess is much more interventionist than

we've seen from many Treasury

secretaries. He's willing to go into the

currency market. He's already talked

about doing buybacks in the bond market.

And so people are getting ready for the

idea that he's just not going to stand

by and let long-term yields go higher

without doing anything about it at all.

and he might be pretty unconventional

about the way in which he comes in to to

stop that. So certainly everybody is on

edge thinking that if we do see a

continuation of yields and if you look

at the 10 year for example we seem to be

heading towards the 5% threshold

certainly if we saw headlines saying

that 5% on 10 years that would send

ripples around the world and you can

imagine that Scott Besson would be very

attuned to that. So yes, investors are

definitely expecting that something

probably something they haven't seen

before could well come in to try and

stabilize the bond market.

>> Oh well, that'll keep us on our our toes

anyway in the coming days as we're

watching to see if there is sort of

action. This is a global story though,

Mark and I wonder when you look at all

of the movements that we've seen and

across all the various asset classes as

well. Where are you seeing particular

vulnerabilities to this continuing rise

in yields?

I think this week we are actually seeing

equity markets beginning to crack on the

fact of higher yields really for the for

the first time in this cycle. I think

they they're really starting to take it

seriously. Uh we're having quite a down

day in Asia today. A few markets are

down around 3% today. Um the MCI Asia is

having one of its worst days for quite a

while. And it we had a collapse last

night of course on on US markets and it

looks as though it's going to to go

here. September October is typically a

bad period seasonality wise it's not

really good for equity markets anyway

and they do seem to be taking this

pretty seriously that yields are high

and not going to come down anytime soon.

So I think you can expect that the

further we go in terms of bond markets

the worse it's going to get for

equities.

>> Okay. Our markets live specialist Mark

Cranfield. Thank you very much.

Stay with us. More from Bloomberg

Daybreak Europe coming up after this.

Well, rising bond yields have put a

dampener on UK Prime Minister Andy

Bernham's return to Parliament after the

summer recess. He'll face MPs for his

first Prime Minister's questions today

as Bloomberg Economics estimates that

higher borrowing costs will half the

government's fiscal headroom ahead of

the next budget. Bloomberg opinion

columnist Rosa Prince joins us now for

more. Rosa, how much more difficult then

does Andy Burnham's autumn look now

given the pressures that we're just been

talking about on global markets?

>> Yeah. Well, it's certainly not not um an

economic outlook he would have hoped to

inherit, is it? Um, look, he already had

a lot of spending commitments over the

summer and, you know, bits and pieces

that he talked about making people's

lives a little easier. Then of course

that massive bill coming down the track

which he's still committed to to rea

raising defense spending. He still has

to set out how how he'll manage to do

that. I don't think that will come in

the budget. I think that's one more for

a spending review early next year. So um

absolutely the issue for K star was

always the same issue that was facing

his predecessor K star and and his

chancellor Rachel Ree. How do you make

the sums add up when he's still tied by

those commitments um that he says he's

going to stick to at Labour's manifesto

not to raise taxes, not to increase

borrowing. So um as you say, not an

ideal start to the term, although um as

we perhaps can talk about this is a a

prime minister who is a different

character to Kharma, much more

optimistic and much more willing to kind

of talk about about hope and and change.

>> Indeed. Yeah, we'll talk about Kirst

Starmer in just a moment because some

news relating to him as well. But we did

hear from Andy Burnham in parliament

yesterday. Although his prime minister's

question slot is today, what more did we

learn about Andy Burnham's vision as

prime minister and his plans from his

comments in parliament? What stood out

to you from those exchanges?

>> What stood out to me was not so much he

said as the way he said it. He's

definitely a much more fluent

communicator. He definitely engages with

the questions in the way that Kier

Starma didn't. Uh if somebody asks him

something, he he tends to speak, you

know, almost frankly, not not quite off

the off the cuff, but he's not buttoned

up in the way that Starhalmer was. Um

but in terms of his vision, he he really

talked about um wanting to have quite

radical change. Um he said that he

blamed um the policies of Margaret

Thatcher of austerity of uh Brexit for

Britain's problems and his solution to

that was um one was to put the public

services at the service of the public.

So getting a bit more government control

over those services. We don't know what

that exactly looks like, but he's

talking about getting involved in the

energy markets in things like the water

market. Um and and then he also talked

about this project he has that's very

dear to him of decentralization and

devolution putting power back in the

hands of local people. And the other

takeaway I had from that session

yesterday was that it's going to be a

fun matchup with um conservative leader

Kem Benedok. Um she she welcomed him but

she had a few digs and I think they're

they're quite well matched. You know

they're quite good on their feet both

both very smart people but who are also

able to sort of turn on the empathy and

the charm. So, I think it's going to be

quite fun covering Westminster under

these two.

>> All right. Well, we'll all turn into

PMQs today to see how that turns out. I

I do want to mentioned though, we did

have the announcement yesterday that

Kristar is going to step down as an MP

as well. Of course, after uh he left the

job as prime minister to be replaced by

Andy Burnham. How significant is it that

he's going?

>> Well, look, in some ways it's uh not a

surprise that a former prime minister

doesn't want to stick around and watch

his successor get on with it. Um, I do

think it was a shame that he ruled out

um, standing down so emphatically when

he stopped being prime minister cuz that

looks I think it always looks bad when

um, politicians U-turn and the public

does think we can't trust a word this

guy says. But more immediately for Andy

Bernham, it sets up quite a tricky

bi-election, a special election in his

uh constituency in North London where

the Green Party will really hope they

can capture the seat or perhaps one um

of the many left-wing um little local

parties that have sprung up. Um so a

danger there that Labour could lose a

seat. And Zack Palansky, the leader of

the Green Party, is rumored to um quite

fancy his his chances in this one. So

yeah, another we've had a series of

these interesting special elections and

we've got another one coming now.

>> This is Bloomberg Daybreak Europe, your

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