Europe Early Edition - 19-May-26

Ajouté : 2026-05-20

[00:00:23]Welcome to Europe early edition with me Ritika Gupta and Charlotte Reed at the G7 [music] meeting in Paris. Let's get into your headlines.

[00:00:34]EU economy commissioner Valdis Dombrovskis tells CNBC that Europe face a stackflationary shock as the French finance minister Roland Lescure says that policy makers must send a clear message to bond vigilantes.

[00:00:49]We need to make [music] sure that we reassure the bond markets on the fact that we are going to do everything we can to support growth without leaving public deficit go astray because it's not the right way of doing it. This is a supply shock. We're not going to solve a supply shock by >> [music] >> funding demand like there's no tomorrow.

[00:01:08]Crude prices dip [music] as President Trump says he has postponed a fresh attack on Iran and hints at progress in negotiations [music] with Tehran.

[00:01:18]We were getting ready to do a very major attack tomorrow and I put it off for a little while. Hopefully maybe forever but possibly for a little while.

[00:01:26]Cuz we've had uh very big discussions with Iran.

[00:01:31]And Elon Musk loses his case against Open AI with a California jury ruling that the billionaire waited too long to sue the ChatGPT maker over claims it violated [music] a deal to run the AI startup as a strictly charitable non-profit.

[00:01:59]>> Good morning and welcome to the show.

[00:02:01]Let's get into our top story. The French Finance Minister Roland Lescure told CNBC the global economy is facing a supply shock as a result of the war in the Middle East, but added that any financial support must be targeted.

[00:02:16]Lescure, who chaired a meeting between G7 finance ministers in Paris this week, said it's important to understand the impact of the crisis on growth, inflation and budget deficits before making decisions.

[00:02:30]Charlotte Reed joins us now. Charlotte, you've been speaking to a host of a global newsmakers at this G7 finance ministers meeting and this is as borrowing costs rise. We've seen oil prices of course spike. What are they telling you about how concerned they are? Do you think this Do you get the sense that this kind of high-stakes meeting will it amount to much when it comes to to policy changes?

[00:02:55]Well, you're right. You know, there was quite a bit of a somber tone speaking to the different participants here at the this all important G7 of course has been overshadowed by the war in Iran and the impact this could have on the global economy. And so catching up with Valdis Dombrovskis, of course the economy commissioner for Europe, we talked about the potential impact and you know, Europe had their forecast the spring forecast that is expected to be published on Thursday. So we didn't go into the exact numbers before the publication of this forecast, but he kind of indicated that of course taking into account the impact of the war in Iran, they actually see a stagflationary shock expected for Europe and they expect to downgrade their growth outlook for Europe. The previous outlook was a growth of 1.3% this year for Europe, 1.1% for the Eurozone and with inflation expected at 1.9%. Now we expect to see more inflation and less growth. So we had a chance to catch up with the commissioner yesterday and this is what he had to say.

[00:03:51]European economy has uh shown a resilience in uh face of this shock to large extent uh thanks also to the lessons learned and investments done since 2022 when uh Russia invaded Ukraine and we had a previous energy price uh shock. So, since then we had done a lot to diversify our uh energy flows to reduce our dependencies on imported fossil fuels to strengthen our energy interconnections and so on and so forth.

[00:04:23]So, that's all uh paying off uh now.

[00:04:26]But, at the same time, yes, the impact is still felt. So, in Europe, we are facing a stagflationary shock. So, uh later this week we'll be publishing the spring economic forecast where, well, uh in a sense, we'll be adjusting the economic growth figures down, whereas uh inflation figures up. So, uh this was also one of the topics we were discussing. So, what is appropriate policy response to this? And besides obviously addressing the root causes of conflict, we think it's important that the support measures we take are temporary and targeted, not the way the ones which are actually sustaining uh high demand for fossil fuels. And we also need to look at other value chains. So, it's not limited to oil and gas, but also to derivative products too.

[00:05:22]And also to other sectors like fertilizers, for example.

[00:05:26]And that is the key concern now, I guess, that a lot of these European governments don't have the fiscal headroom that they had in previous crises. How is your conversation with the governments of France, of Italy, the ones I think are putting extra measures to I guess protect households and businesses? So, what's the margin of of action there? And how much do you think they have done with the match? Well, indeed, margin of action is more limited now than it was some years ago. Uh like during the COVID, we were doing a broad-based fiscal stimulus. Uh but as a result, now we have elevated debt and deficit levels, and also interested environment is very different. Back then, we had broadly speaking zero interest rates. Now, interest rates are much higher. So, uh fiscal uh space is more limited. Uh that's why we argue for those temporary and targeted measures also to limit fiscal cost. Uh but also it's worth uh noting that if all countries will do broad-based uh uh measures and blunt the price signals, so to say, to sustain a fossil fuel uh consumption, that will keep global prices up. And the result, uh countries will be spending lots of money with a limited impact because uh sustaining the demand will also sustain uh the high prices. So, that's why it's important also to in in European Union in the case to continue our uh moving away from dependencies on fossil fuels. And this was part of our accelerate EU communication, where we outline also as part of our policy response that we need to accelerate the rollout of low-carbon fuels in the EU.

[00:07:15]And that was Valdis Dombrovskis, the EU economy commissioner. And at the end of the day, at the end of the the very first day of this G7 meeting, I had a chance to sit down with Roland Lescure, of course, the French finance minister, who's chairing this meeting here in Paris. And he's been chairing seven of these meetings since the beginning of the year. A lot of them have been virtual. They try to answer some of the critical moments uh since the start of war in Iran, how they can coordinate and look at the impact of the economy. They he a a somber tone when we spoke yesterday. He said, "Look, we are living a critical moment geopolitically, economically, and financially. That they are very aware of this. That the all these people in the room, he said, were very aware of this moment. That there was a sense of gravity among all the attendees. And that they have to find the right answers to the the the economic crisis that could unfold. But keeping, of course, in mind the potential inflation impact there as well." So, I had a chance to sit down with him. And we discussed about this critical moment.

[00:08:09]In order to weather the impact of this crisis on growth, we need to make sure we are targeted. That means we address the most vulnerable actors that are today facing this crisis. Domestically, some households, some sectors, you know, farming, fishing, are the most exposed.

[00:08:27]Transportation is. Some others are not.

[00:08:30]But also globally. We all agreed and we've asked the IMF and the World Bank to step up their game on that front.

[00:08:37]That some countries are obviously suffering more than others.

[00:08:43]This is cropping season in Africa. We know that there's massive fertilizer issue. Prices have gone up. And we're missing some. We need to make sure that we, as rich countries, are doing everything we can to help those countries that are the most vulnerable. And again, the IMF and the World Bank, obviously, are very aware of their mission and wanting to step up their game. So, understanding the impact on inflation, this is the monetary policy's part of the story. We had a great conversation with our central bankers. They're faced with a unique situation that, you know, negative impact on growth, positive impact on inflation.

[00:09:20]>> for some messaging from them to kind of help, well, given what we've seen in the bond market >> I felt, what I felt this morning, and I'm not surprised by this, but this is very important. They have their eye on the ball.

[00:09:31]And they're aware of the complexity of the situation. In the '70s, at the end of the day, an oil shock was inflationary. There was no debate about it. In the '90s and the '00s, an oil shock was recessionary. It wasn't inflationary anymore cuz at that time there was massive deflationary forces at bay. At the moment, we'll probably be in between. And the ability of central banks to monitor the situation and take the right decision at the end of the day is going to be very important. And I felt that again, in this moment of gravity, they had their on the board. They had the importance of their mission at hand.

[00:10:10]And And again, you know, this was a good day because we felt that um the solemnity of the moment was in everybody's mind and the willingness of everybody to do the right thing was also there.

[00:10:24]Because there is a feeling for a lot of um investors out there and people are watching it very closely that we have a bit of a perfect storm uh forming. So, you have the less inflationary shock pushing sovereign bond yields uh to they get high and rising rates uh to hit spending for governments, household, and businesses. How concerned are you?

[00:10:41]Because even if there's a resolution tomorrow to the war in Iran, the shock will last until lot of say at the end of next year at the earliest.

[00:10:48]>> I mean, it's a supply-side shock and we know the extent of it. 20% of global oil supply, 20% of uh liquid gas, some fertilizers or helium or others supplies that are missing. We also know that the the you know, the global economy was quite resilient coming into that crisis.

[00:11:05]The IMF has told us that before this crisis, they were on the way up in terms of um uh of um changing their their forecast uh up on growth and down on inflation. So, we entered this crisis quite resilient, but it's a shock.

[00:11:20]So, at the end of the day, what we need to make sure is that we understand the impact we can have on those uh great challenges that are growth, inflation, and budgetary deficit. We need to make sure we reassure the bond markets on the fact that we are going to do everything we can to support growth without leaving public deficit go astray because it's not the right way of doing it. This is a supply shock. You're not going to solve a supply shock by funding demand like there's no tomorrow. Everybody is aware of that and I think the market should be aware of that cuz we're going to be serious about it.

[00:11:55]And that was Roland Lescure, the French economy and finance minister, who of course has been chairing the very first day of that [music] G7 meeting yesterday, uh talking about the moment of gravity and how policy makers have their eye on the ball and that they're very aware of the complexity of the current situation. Now, today of course it will be a second day of that G7 finance minister and central bank governors meeting uh with some extra countries joining in, South Korea, India, Brazil, and Kenya attending today as well to talk about all these issues.

[00:12:22]Of course, trying to create a roadmap, try to create a dialogue with the US counterparts here uh ahead of the all-important EU uh the G7 leaders meeting that will be happening in just 4 weeks in Evian. You know, try to find and prepare some of these key issues, most of them will be around the economy, and try to have a roadmap for these all-important conversations that will be happening in just 4 weeks. Ruchika. Right, thank you, Charlotte, for the update there.

[00:12:47]And let's get a check at how our markets are trading this morning. We kick it off over here in Europe where we're seeing stocks 50 futures moving to the upside up some 2/10 of a percent. No major uh drama though. This is as oil prices do uh pull back. Last time I checked, Brent was trading off some 2% uh lower. This is as uh the President Donald Trump has said that he had held off fresh attacks on Iran. And let's flip up the board and see how Asian markets are digesting all of the news. You can see it's a a mixed picture on the board there. Nikkei 225 index down in the red off 4/10 of a percent. This is even as Japanese GDP came in better than expected. The Kospi down some 3%. We're seeing a lot of volatility there but we do see the Hang Seng index and the Shanghai composite trading in the green as oil prices do pull back. Let's see over in Wall Street how it gets set to open. We see it's set for another down day if futures are telling us anything. This is off the back of yesterday when we did see the tech sector getting hit in particular.

[00:13:49]From equities, let's take a look at bonds because this is where a lot of the action has been. It's been driving the moves that we've seen in equities as yields has risen. If we take a look at that US 10-year Treasury note, the yield there just steadying though still above 4.6% the highest in about a year. Then we also see the JGBs have been very much in focus. We've seen a record high for yields there. Those are still moving to the upside trading at 2.78% also 10-year gilts in the UK in focus as much for what we're seeing in the Middle East and the energy shock but also the uncertainty over the domestic picture here in the UK. That 10-year gilt yield at 5.14%.

[00:14:32]Let's flip up the board and look further out at the 30-year yield more sensitive to some of the the politics. Of course treasuries we're seeing on that 30-year at 5.13% here. This is again it's highest levels in in about a year. If we look at that 30-year gilt yield 5.8% the highest levels that we've really been seeing since 1998.

[00:14:56]Now for more to break down the bond moves, let's pleased to say that Mohit Kumar the chief economist and strategist for Europe at Jefferies joins me now.

[00:15:06]Mohit, thank you so much for joining me.

[00:15:07]First of all, break down the action that we're seeing in yields. A lot of concern now over inflation and a more complicated picture that we're seeing.

[00:15:17]What do you think the bond market are trying to tell uh rest of the market and central banks as well.

[00:15:25]So, like you were saying, uh the bond market is driven by two factors. One, inflation, and oil is inflationary.

[00:15:32]I think what's important in my mind is that even if we get a deal, let's say an optimistic scenario, we get a deal in a week, oil is not going to go back to pre-war levels.

[00:15:43]We think it's going to be 25-30% higher in 6 months' time, even if we get a deal. So, there is an inflation impact.

[00:15:50]And then there is a deficit impact because every government is going to provide subsidies for households for fuel.

[00:15:58]Which means that we have more borrowing, and that's a pressure at the long end of the curve.

[00:16:02]And then, of course, you've got specific instances, for example, in UK, where there is political uncertainty. So, combination of these factors is leading to bond yields higher over, let's say, a year level in US and almost 25 years in UK.

[00:16:18]So, Malhit, that's a great breakdown of what we're seeing in yields from, you know, the the US to the UK and to Japan.

[00:16:24]Markets, although in terms of the policy response before the Iran war, they were expecting that we were going to get a significant easing. Um is the bond market now forcing policy makers to rethink their plans, and which central bank do you think currently faces the biggest challenge when you're looking at the ECB to the Bank of England and the Fed?

[00:16:45]So, the market is pricing in hikes. We think it's not justified. Because oil prices are not just about inflation, it's also about growth. And yes, we get inflation higher, but we get growth lower by almost equal amounts.

[00:17:01]And there, I think, it's the question of mandate. So, if you think about the Fed, the ECB, and Bank of England, ECB has historically been very focused on inflation.

[00:17:12]The Fed gives equal weight to employment and inflation, and Bank of England also gives equal weight to growth and inflation.

[00:17:20]Which means that if I look at the central banks, can we get one precautionary hike from ECB? Very much possible. We could get a hike in the June meeting.

[00:17:29]But when I think about the Fed or the Bank of England, given effects on employment and inflation, I do not think they should act. So our view is no change from the Feds or the Bank of England over the next 6 months, and the hikes needs to be priced out because there is a growth element as well.

[00:17:47]But for ECB, at most one hike, and that is more of credibility issue more than anything else. It's not that one hike is really going to help. It's an external shock. It's a supply shock. It's not something that monetary policy can do.

[00:18:01]So May, let's also talk about JGBs for a minute because that's typically been quite a stable bond market. We've seen record yields there as well. Talk to me about how you're viewing Japan Central Bank, how it could move or act in response to what we're seeing in yields right now.

[00:18:20]So BOJ is the only central bank that we do think should hike and is very likely going to hike.

[00:18:27]And the Japan situation is slightly different from US, UK, or Europe because you have a combination of rising inflation, and that was before the energy impact.

[00:18:37]And you have a loose fiscal policy. The new Prime Minister Takachi is very clear that we will have a loose fiscal policy.

[00:18:45]So you already had a combination of higher inflation, looser fiscal policy, and that was pushing upward pressure on JGB yields. So we are still have steepeners in the JGB curve in the sense that we do think the long end of the curve should sell off even more given a combination of inflation, deficits, and a BOJ that wants to hike. The market is pricing in over two hikes from BOJ. We think they can deliver even more than what the market is pricing it.

[00:19:14]And Mohit, how are you looking at the credit markets coinciding with what we're seeing in you know the the government bond market as well? I mean, do you expect more stress to emerge there in corporate debt?

[00:19:27]Actually, credit markets are really interesting right now because if you look at spreads of credit market to bond yields, they are close to historical tights. They're not showing any stress in the market.

[00:19:40]And I think when we look at credit markets, we shouldn't just look at spreads. We should look at what the end investor wants. The end investor looks at total yields and total yields are highest in the credit space, I would say almost in the last 15 years. So, there is a lot of demand for credit. And unless we're looking at a serious recession scenario, and we are not, then I do not think we get a lot of stress in the credit market. So, yes, spreads can widen a bit, but from our perspective on a total yield basis, credit markets are still very attractive.

[00:20:14]So, credit markets relatively sanguine with what you're seeing in in the government bond market. Um but if this Middle East conflict, if that gets a whole lot worse and we do see oil prices sustained above $100 a barrel, how is that going to change your inflation outlook more broadly?

[00:20:32]So, let's say we take this scenario where oil remains above 100 for the next 6 months. Absolutely, that means we're looking at a much worse inflation picture, but more importantly, we could be looking at some countries in Europe going into recession. I don't think US still goes in recession, but Europe is very much possible.

[00:20:51]That scenario is definitely negative for credit. So, what we would see is a widening of credit spreads in that scenario. Of course, the high yield market, the lower rated market is going to suffer more because typically they do worse in a recession or a stagflation scenario compared to investment grade, but clearly that scenario would be a very negative for credit markets.

[00:21:12]All right. Thank you, Mohit Kumar, chief economist and strategist for Europe at Jefferies.

[00:21:18]Now, the IMF raised its growth outlook for the UK economy this year up to 1% from 0.8% in April. That is down on 2025's 1.4% figure with the IMF making clear that growth is contingent on commodity futures prices as of mid-May and that expansion won't recover until the second half of next year.

[00:21:38]The IMF also flagged risk tied to a potential challenge against Keir Starmer, warning that domestic uncertainty could hold back consumption and investment decisions.

[00:21:49]And coming up on the show, President Trump says Gulf states convinced him not [music] to launch another wave of attacks on Iran with the potential promise of peace just around the corner.

[00:22:01]>> [music] [music] >> Welcome back everyone. The US President Donald Trump said he has postponed plans to attack Iran today after Middle East leaders including from the UAE and Saudi Arabia asked him to hold off. So Dan Murphy joins us now with the latest. Dan Trump calling off these attacks and in response to the request from the Gulf states leaders from there.

[00:24:37]I mean how important is this going to be a factor in driving President Trump's decisions going forward?

[00:24:46]It will be an important factor and of course exactly what happens going forward remains unclear at this point.

[00:24:53]But President Trump has called off that planned military strike on Iran at least for now In a Truth Social post overnight, the president said he had been ready to launch a major attack as soon as today, but stood down at the request of the Gulf leaders here. And the backdrop to this message is curious, as well. There had really been no clear indication prior to Trump's post that a strike was imminent. And the Wall Street Journal also reports today that Trump had been leaning towards ordering a strike with aids and outside allies advising that a limited strike could perhaps pressure Iran into a deal, but ultimately the president pulled back and has now instructed the military to remain ready for a full large-scale assault on Iran on a moment's notice if an acceptable deal with Iran isn't reached. So, on the one hand, the president has pulled back here, stopping short of what he said was an imminent attack, while also still threatening a potential future attack on Iran if we don't see some kind of progress on the diplomatic front. And on that, Iran has now reportedly responded to the latest US proposal through Pakistani mediators offering a gradual reopening of the Strait of Hormuz, while also leaving the critical nuclear issue unresolved. And for the president, that's really a non-starter because President Trump has been clear. He's been saying the United States will not accept any deal that doesn't ensure that Iran can never have a new nuclear weapon. So, the two sides seemingly remain quite far apart at this stage.

[00:26:23]And while President Trump sought President Xi Jinping's help on Iran in Beijing just last week, the Secretary of State Marco Rubio Marco Rubio has downplayed that latest outreach as well, saying Trump didn't ask him for anything. So, the situation as it stands now is still one of diplomatic stalemate, not necessarily war, but not necessarily conflict or peace, either. And officials and analysts say Iran still wields quite significant leverage through the Strait of Hormuz and its remaining missiles and drones will also make a return to the pre-war status quo extremely difficult.

[00:27:00]So, pressure is seemingly rising on both sides to get a deal done here. Exactly how long the Iranians can hold out economically, how long President Trump can hold out politically, are two key questions that leaders here in the region are attempting to answer as we see oil prices also staying elevated off the back of what has been another potential return to kinetic activity and traders now ultimately assessing the likelihood of whether or not we will see this conflict in the Middle East continuing as well. It's back over to you.

[00:27:33]All right. Yeah, oil prices still above $100 a barrel but easing off today.

[00:27:36]Brent off some 2%. Thank you, Dan Murphy, for the update.

[00:27:40]Now, Uniper said it welcomed an announcement from Germany's Finance Ministry that it would start reprivatizing the firm, reprivatizing, excuse me, the firm. Now, the comment comes after a German media report that the government had kicked off a sales process for the bailed-out utility with an eye to reducing its stake from around 99% to just under 25 by the end of the year. Interested parties have reportedly been given until the 12th of June to contact the ministry.

[00:28:10]And coming up on the show, courtroom drama. Elon Musk loses his lawsuit against OpenAI. We'll bring you those details next. Stay with us.

[00:30:29]>> You're watching Europe early edition.

[00:30:30]I'm Ruskie Gupta. Let's get into your headlines. [music] The European Commission's Valdis Dombrovskis tells CNBC Europe is facing a stagflationary shock amid the energy crisis >> [music] >> as France's finance minister says lawmakers must send a clear message [music] to markets.

[00:30:48]We need to make sure that we reassure the bond markets on the fact that we are going to do everything we can to support growth without leaving public deficit [music] go straight because it's not the right way of doing it. This is a supply shock. Not going to solve a supply shock by funding demand like there's no tomorrow.

[00:31:06]Crude prices dip as President Trump says he has postponed a fresh attack on Iran [music] and hints at progress in negotiations with Tehran.

[00:31:15]We were getting ready to do a very major attack tomorrow. I put it off for a little while. Hopefully maybe forever, but possibly for a little while.

[00:31:23]Cuz we've had uh very big discussions with Iran.

[00:31:28]And Elon Musk loses his case against OpenAI with a California jury ruling that the billionaire waited too long to sue the chat GPT maker >> [music] >> over claims it violated a deal to run the AI startup as a strictly charitable non-profit.

[00:31:57]And let's see how markets are digesting all of the news. If we take a look at futures over here in Europe, they're moving to the upside. Stocks 50 futures up 2/10 of a percent. No a major drama.

[00:32:08]Uh this is as oil prices pull back. Last time I checked on Brent, it was off some 2%. This is as uh President Donald Trump has pulled back on uh postponed uh fresh attacks on Iran. Let's take a look at how Asian markets are currently trading.

[00:32:23]We see it is a mixed picture on our screen here. The Nikkei 225 index off some 4/10 percent. This is even as Japan's GDP did come in better than expected. The Kospi down some 2 and 1/2 a Uh that's as we've seen uh the tech sector uh getting hit, maybe taking its cues over from the US. And speaking of, let's see how US futures get set to open. Those are moving to the downside, building on some of the losses in yesterday's session. As I mentioned, we saw a tech sector getting hit. Traders though could be watching a full Nvidia results later this week as the next catalyst. Now moving on, Elon Musk has lost his lawsuit against OpenAI. A California jury ruled the SpaceX CEO and xAI founder waited too long to sue OpenAI and its CEO Sam Altman over claims they violated an agreement to run their AI venture strictly as a charitable nonprofit.

[00:33:20]Lawyers for OpenAI had argued the lawsuit was Musk's attempt to kneecap a rival after he failed to gain control of it. Musk slammed the verdict as a calendar technicality and vowed to appeal. Kate Rooney filed this report.

[00:33:36]Elon Musk lost his high-profile legal battle against OpenAI, ending a dramatic chapter in this tech rivalry. Within a couple of hours, the jury rejected Elon Musk's claims against OpenAI and its CEO Sam Altman. It all came down to timing.

[00:33:50]The jury decided that Musk did not actually file the lawsuit on time. It was outside of the statute of limitations. And that really streamlined the decision. Today was also an advisory jury, meaning that the judge had the final say. Judge Yvonne Gonzalez Rogers, just a few minutes after that jury decision, almost immediately agreed with the jury and decided that Altman and OpenAI are not liable. And the two claims of breach of charitable trust and unjust enrichment, she said, were dismissed as untimely. Musk's lead counsel reserved his client's right to an appeal, but the judge did show some skepticism, said there is a quote substantial amount of evidence to support the jury's finding. We did also speak to lawyers from both sides out here. He's a formidable adversary, of course, and he hires terrific lawyers, of course, and he is tenacious in his opinions and and of course and his positions, um but we find that the persistent application of legal principles and the remorseless search for evidence is what wins cases, even against Elon Musk. I have a one-word reaction.

[00:34:51]Appeal. Open AI's team today in the courtroom patting each other on the back, shaking hands, and celebrating outside the courtroom in Oakland, high-fiving, and taking selfies out here, really celebrating. It was a major sigh of relief for OpenAI as that company now looks to go public as soon as later this year. Kate Rooney for CNBC Business News in Oakland.

[00:35:12]And for more on that verdict and Elon Musk's reaction to it, head over to cnbc.com.

[00:35:18]Now, economic uncertainty due to the US-Israeli war on Iran has shunted European IPOs to the second half of the year in a marked split from the US, which just saw Cerebras blockbuster IPO, and it's eyeing SpaceX's debut just around the corner. That's according to MergerMarket's head of global ECM, Samuel Care, who joins me in studio now.

[00:35:42]Thank you so much for joining me on set.

[00:35:44]First of all, talk to me about your outlook for European IPOs this year. Of course, you've got the uncertainty from the Iran war going on, and then contrasting to what we're seeing in in the US. I mean, what is holding back investors right now?

[00:35:58]>> Sure.

[00:35:59]So, the European IPO market has had a bit of disappointing few weeks. We were not really expecting an incredibly busy first half of the year, but anything that we were expecting to see in the first half of the year is now been pretty much postponed at least to the second half. Now, a lot of that is to do with the uncertainty around the war, companies struggling really to visualize what their earnings are going to look like when it comes to that first quarter earnings post listing, how the war is going to impact supply costs with higher energy prices and such. There's also some issues with the European IPO market which are structural, which the investors are slightly less keen on new listings at the moment than they are in places like the States because of a record of underperformance from a few big European IPOs last year. So, when you combine that with the macro volatility, it's just a pretty negative cocktail for the market as a whole. So, a negative cocktail for issuers. But, how how's the recent [clears throat] bond market sell-off? How is that impacting, you know, we've seen global yields rising? How's that complicating the picture for the IPO market?

[00:36:54]>> complicates everything, right? You know, when you have bond prices rising, inflation worries coming in, and that comes again to supply side costs and and companies predicting their revenues and earnings. If you're not sure what debt market's going to be doing, the possibility of higher interest rates going forward, say the ECB does hike, uh we've also had possibilities about a Bank of England hike at some point as well. Global interest rate rises are a big problem for the IPO market. We saw that in the 2022 cycle coming forward.

[00:37:19]So, I would say it it it all plays against actually another ingredient to that negative cocktail we were talking about just then is is is higher bond prices. Now, we're also seeing maybe potentially expectations now that the Fed could hike, and we haven't seen that before. So, how you comparing though what we're seeing in the Europe PN IPO space which falling flat, but comparing that to what we're seeing in the US where it's looks like it's booming?

[00:37:40]>> Yeah, absolutely. Completely booming, right? Cerebras is the largest US IPO we've had in some time, and that's going to potentially be dwarfed by SpaceX should that come to market on June 12th, which I think is the most recently reported date that it's aiming for at 75 billion. And we've never seen anything like this. Now, you know, Alibaba, Saudi Aramco, you know, you're looking at sort of 25 billion up to 30 billion sort of IPO size. You know, but, you know, SpaceX would be well, excuse the pun, another worldly as it were when it comes to the IPO market.

[00:38:11]So, if you can get that deal done, it it would indicate a very positive sentiment for US new listings despite potentially Fed rate rises. So, a positive sentiment for US listings if we get this big blockbuster SpaceX IPO, but what about for European listings? Could it also actually bolster the sentiment here?

[00:38:28]Well, I mean, I I actually think there's a possibility it could be a negative for the whole global IPO market for other deals if SpaceX does come right. Because if you look at the uh as I said, the size of the deal at 75 billion, it's got the potential to recycle all the oxygen out of the room for anybody else. The capacity that that deal is going to demand from the global equity capital market investor base, you know, who are going to all be up for getting tickets potentially to a 75 billion dollar listing. Now, if you think about a typical IPO, you want to have the thing, you know, often five times covered by by the time you sort of come to pricing.

[00:38:58]So, it's going to be the the demand for the deal will have to be well in excess of 75 billion. So, almost nothing's going to be want to be be in the market at the same time because everybody's eyes are going to be on SpaceX. And in terms of IPOs in in Europe looking to list abroad where they see it as as more attractive, what what is needed now to really to reverse some of that movement?

[00:39:20]>> So, the European issues going to the states sort of thing, yeah. So, I actually think that's a bit of a misnomer that people always think about.

[00:39:26]So, when we look at the data when it comes to IPO performance, often European companies that list in the US actually perform worse than European companies that list in Europe. Now, the reason for that is they can often become orphan stocks. If they price their IPO, they have a result set of results for example that disappoint, their stock price falls and there isn't that investor base to catch the knife who really see the fundamental value in the story because, you know, they become just another name on on on on the a very sort of crowded US stock exchange and they don't have, say, the local support they would have, say, for example, listing on the local exchange.

[00:39:58]We saw that last year with Klarna when it came to the US. It has disappointed really since IPO and there is often talk had it listed in the Nordics, would it have had a better result over the longer term? Talk to me about particular sectors, particularly for Europe. Of course, AI is just the buzzword right now and I think you highlighted an appetite for AI and and biotech IPOs as well. I mean, do you see long-term conviction in that?

[00:40:22]Can Europe actually scale and compete with the US?

[00:40:26]And do you think investors right now when it comes to AI, are they still kind of Are they Are they still thinking about that kind of growth narrative over earnings? Yeah. Well, I'll I'll address the first one first. So, I think Europe I think we've actually got some different sectoral trends which I think are really interesting. I think defense is still a really interesting area for Europe at the moment. We've seen a bit of a de-rating in defense stocks recently.

[00:40:46]You know, Rheinmetall has come off those astronomic highs that it had before. And that I think creates a little bit of upside for the market. So, one of the big European IPOs potentially we do still expect to see this year is KNDS, which is a Franco-German tank maker.

[00:41:00]Now, if KNDS listed a decent discount to Rheinmetall given how that stock has already traded down a bit, then I think that leaves a quite a bit of upside for the market. And there is still that structural need for rearmament in Europe. You know, at top of the show and it's all about the war in Iran at the moment and there's still no real resolution to the war in Ukraine. And even though if that quietens down a bit, there still seems to be a long way to peace in both those of those theaters.

[00:41:22]So, I think defense is going to be a structural theme that we see more of.

[00:41:25]Europe needs knows that and can no longer rely on the US with President Trump's talk about NATO. So, that's a big you know, investment point for European countries. And the other point is energy. You know, if you look at it and the war in Iran has shown that you really cannot be dependent on global logistics for your energy supply anymore. You're going to have to have energy dependence. So, there is a real demand I think for European energy providers. Be it renewable, be it providing energy infrastructure. We're We're seeing a very big deal in Greece at the moment with PPC, which is providing energy infrastructure across the country including for data centers.

[00:41:56]So, I think any equity story that's linked to European energy security or European security itself, I think it's going to be popular. All right. We're going to have to leave it there, but thank you so much to Samuel Cabby, head of global ECM at Mergermarket.

[00:42:09]Now, Hong Kong listed shares in Standard Chartered are moving to the upside after it announced it will lay off nearly 8,000 people by the end of the decade or 15% of back office jobs as it pivots further towards AI. CEO Bill Winters said the move isn't cost-cutting but replacing lower value human capital with financial and investment capital. This is part of the lender strategy update in which it raised its rote target to 15% in 2028.

[00:42:40]And coming up on the show, Russia's president [music] Putin heads to China today less than a week after that visit by his US counterpart. [music] We'll cross live to Elaine in Beijing.

[00:45:05]>> President Trump has extended a waiver on sales of Russian oil in an attempt to stem rising fuel prices caused by the Iran war. Treasury Secretary Scott Bessen said his department would issue a new 30-day license to quote "ensure oil reaches the most energy vulnerable countries." This is the second time the US president has extended a waiver on Russian oil aiming to calm voter frustration over rising costs at the pump.

[00:45:33]Russian President Vladimir Putin is set to arrive in Beijing this evening and meet Chinese President Xi Jinping tomorrow. The high-profile visit comes just 4 days after the US President Donald Trump's own China trip. Elaine Yu joins us now with more. Elaine, talk to me about what is on the agenda as Vladimir Putin gets set to meet with his Chinese counterpart tomorrow again coming off the heels of President Trump's own visit.

[00:46:03]Hey Ritika, so this is uh Putin's 25th visit to China, although the two leaders have met over 40 times. Uh and this marks the 30 years since uh the two sides established uh a strategic partnership. But of course, the timing that this is just days after Trump's visit makes this very notable. And in terms of the agenda, a Kremlin spokesperson said that Putin hopes to uh discuss Trump's visit. Uh so, he'll get first hand and fresh intel from the Chinese president himself. And the Chinese Foreign Ministry also said that uh they'll be discussing uh views about their bilateral uh relationship and also various uh cooperation in sectors. Uh and also international and regional issues of mutual interest. So, that will no doubt include uh Iran, Ukraine, and US-China ties. Now, the Global Times, which is a Chinese state-owned uh newspaper, has been using these back-to-back summits to push the message that China is now, quote, a focal point of global diplomacy. And perhaps tellingly, um Putin also said in a video address ahead of his visit that we are not aligned against anyone, and we seek peace and uh universal prosperity. Now, but also high on the agenda is uh likely energy.

[00:47:21]Uh there's a delegation traveling with Putin, just like uh there was one for Trump. And reportedly, they include uh the bosses of Russia's oil and gas and energy giants from Rosneft to uh the aluminum producer Rusal and the nuclear power company Rosatom. And also uh Gazprom, which is behind the proposed Power of Siberia 2 pipeline that has been delayed with uh disagreements over pricing. And Putin just last week said that the two sides are in an advanced stage of agreeing to make a quote serious and very substantive step towards uh the oil and gas sector and he said that if it's possible to finalize and put finishing touches on these deals then I will be very pleased. So we'll certainly be watching for the energy deals and others that might come out of this summit.

[00:48:12]All right. Thank you. Thank you Elaine for the update.

[00:48:15]European Commissioner for the economy Valdis Dombrovskis told CNBC the energy shock from the war in Iran has provided Russia with some breathing space and urged continued pressure on Moscow.

[00:48:28]Unfortunately this energy price shock has provided some breathing space for Russia whose economy was in increasing difficulties before this war in Iran. But right now is receiving substantial windfall profits from high energy prices. So our message here is that therefore it's very important that we continue to sustain the pressure on Russia and now it's not the time to ease sanctions on Russia and also it's important to provide all necessary support to Ukraine. So I was updating the G7 finance ministers and central bank governors on the European Union's Ukraine support loan of 90 billion euros where we are in a sense finalizing all the necessary documents so that we are able to disburse in June as we had been foreseeing before but also calling on other G7 partners also to play their part in ensuring the necessary financing for Ukraine.

[00:49:37]And for more I'm pleased to say that Sergei Guriev the Dean at the London Business School joins me now. Sergei thank you so much for joining me. Let's start off there. We heard the comments from Valdis and Dombrovskis talking about the higher oil prices potentially benefiting Russia. So it's benefiting from this Middle East war.

[00:49:53]Talk to me about that. How Russia is faring economically when you have the higher oil prices on one hand, and then also the news that the US suspending some of those sanctions on Russia. So, sanctions potentially not really hitting their economy as they typically would have.

[00:50:12]Thank you very much, Ritika. Indeed, what Vladis said is exactly right.

[00:50:17]Effectively, oil prices that Russia is receiving. And this is slightly different from global oil prices because Russia was facing certain price discounts because of sanctions. Now, Russian oil prices doubled because of this recent war in the Middle East. And that completely solved Russian fiscal problem. In the beginning of the year, Russia was facing a major fiscal challenge. Was talking about introducing austerity.

[00:50:46]Growth was struggling.

[00:50:49]Actually, the first quarter reported negative growth, recession in Russian economy. But once the war started, March and April already reported very high budget revenues. And the fiscal problem's gone. Russia no longer needs to cut expenditure. If it had to cut expenditure, that would further decelerate the economy.

[00:51:09]Russia has already increased taxes this year because of fiscal pressures and sanctions pressure.

[00:51:15]But indeed, as you rightly said, President Trump just announced that he's continuing to suspend sanctions he himself introduced in November 2025, which were hitting Russian economy. So, yes, I fully agree with Vice President Dombrovskis that that's been a huge piece of luck for Russian economy, this this war. Yeah, certainly a reprieve for the Russian economy as you were outlining there, which had struggled at the the start of the year because of the war in Ukraine. But talk to me about, you know, we have Putin now visiting China to meet with Chinese counterpart Xi Jinping. I mean, talked about the strategic importance now of Russia to China as we see this energy security, these threats from the Middle East war and and what that means for that relationship. And you know, we could potentially see maybe some deals coming out of this.

[00:52:06]Yes, the main the main deal that Putin wants to discuss with Xi is of course the gas pipeline. So, after 2014, Russia dramatically turned to Chinese market and built what's called Power of Siberia gas pipeline. And so, now the discussion is about Power of Siberia 2, which would double Russian pipeline exports to China. Now, China's consistently delayed discussions about this pipeline because China has felt that it has energy security because of the diversification of sources of energy. Who knows, maybe this situation will be different. But overall, China has built substantial reserves of energy and can wait until the Middle Eastern conflict is over. Now, China has more capacity to sit and wait than say United States where political pressures are piling up.

[00:53:08]Russia needs this pipeline because Russia has lost European market for its gas. So, for Russia, this visit is very important. Most importantly, of course, Russia depends on China on technology, consumer goods, manufacturing goods. Indeed, Russia used to have EU as its major trade partner because of this recent war in Ukraine and going war in Ukraine the last 5 years 4 years, Russia turned to China and doubled trade with China. There is a major realignment of trade flows for Russian economy. Instead of EU, now China is Russia's biggest partner with a trade volumes doubling in the last 4 years.

[00:53:49]>> And so okay, this meeting is going to be coming off the back of course with of President Donald Trump's meeting over to China. Do you think Putin here might now be worried that this could be sidelined given maybe the US's ongoing relations with with China if they start to to stabilize?

[00:54:09]Yes, for Putin for Putin this triangle is very important. Actually, he thinks he has a special relationship with President Trump and he needs to navigate this triangle somehow because he depends on China greatly. He also depends on President Trump and not tightening the sanctions. He depends on President Trump forcing or pressuring Ukraine into accepting a peace or ceasefire that Putin wants to impose on on Ukraine. So, this is a very difficult diplomatic relationship. Now, it is important that while the visit [clears throat] of the American president was announced long time ago and was actually rescheduled a couple of times, President's President Putin's visit to China was announced right after President Trump's departure from China.

[00:55:01]So, it is almost like an improvised visit. So, we don't really know who called who and what extent advisors to Putin and Xi regrouped after departure of President Trump and decided to have a impromptu quick summit. So, but for Putin it's it's a not an unusual visit. Remember President Trump's visit to China was the first president American president's visit to China in a very long time.

[00:55:30]Putin goes to China all the time and President Xi goes to Moscow all the time. Since 2022, uh relationships become extremely close.

[00:55:38]All right. Sergei Guriev, Dean of London Business School, thank you so much for joining us.

[00:55:43]Before we go, a quick check on our markets. You see over here in Europe, stocks 50 futures moving to the upside up some 3/10 of a percent this as oil prices uh pull back over in the US.

[00:55:54]Futures lower this morning. That is it for today's show. I'm With >> [music] >> Gupta, Sport Box Europe is up next.

[00:59:29]>> Mhm.

[00:59:44]>> Mhm.