Europe Early Edition - 28-May-26

Added: 2026-05-31

[00:00:21]Welcome to Europe Early Edition with me, Retica Gupta. Let's get into your headlines. Oil prices whip sore as Kuwait defends against missile and drone threats and the US bombs Iran hours after peace talk comments from Marco Rubio send prices plunging.

[00:00:40]The bottom line is that uh we prefer the negotiated uh diplomatic route and we're going to give it every chance to succeed. You know, you're giving it every chance to succeed.

[00:00:48]>> Federal Reserve Governors Neil Qashqari and Austin Goulsby sound the alarm on inflation, warning CNBC on the impact of price pressures.

[00:00:58]>> Inflation all around the world is much too high. We're all trying to assess, you know, none of us are foreign policy experts. When is that conflict going to get resolved? We had a tariff increase in inflation which was supposed to go away. It hadn't gone away yet and then we added this one on top of it. So that's a that's a little more disturbing situation.

[00:01:21]>> And equity market see red around the world slamming the brakes on yesterday's record close on Wall Street.

[00:01:39]Good morning and welcome to the show.

[00:01:41]Let's get into our top story. Crude prices pushing higher this morning after Iran's revolutionary guards said it had targeted a US air base in response to what it said was a US attack in the south of the country. That's according to state news agency Tasnim. It is not immediately clear which base Iran targeted. The report comes after Kuwait's military said air defenses were engaging hostile drones and missiles.

[00:02:09]The origin of the attacks was not immediately confirmed. And overnight, the US carried out fresh strikes on Iran, targeting a military site believed to threaten American military personnel and commercial shipping. a US official told MS Now several Iranian drones were also reportedly intercepted and downed.

[00:02:29]The strikes represent the second incident in three days with the US military characterizing its actions as defensive.

[00:02:38]This as divisions remain between Washington and Thran amid efforts to reach a peace deal. US President Donald Trump said he is not yet satisfied on an agreement with Iran, also saying he is unsure a deal should be struck if countries including Saudi Arabia and Qatar don't sign on to the Abraham Accords. Secretary of State Marco Rubio said the US would do what it can for a deal to succeed.

[00:03:05]>> There's an agreement to be made. We want that to be made. I think there's been some progress and some interest and we'll see over the next few hours and days whether progress could be made. I just want to remind everybody, Mr. President, you know this well, you have other options available to you if that doesn't work. But the bottom line is that uh we prefer the negotiated uh diplomatic route, and we're going to give it every chance to succeed. I know you're giving it every chance to succeed, Mr. President. But here's the bottom line, cuz I keep getting asked, "What is this all about?" It's very simple. Iran and these people in charge of Iran can never have a nuclear weapon.

[00:03:34]And they will never have a nuclear weapon, and they most certainly will not have one as long as you're president of the United States. On that point, it's very clear. Let's get a check on how oil markets are reacting. You can see that jump nearly up 4% for WTI. Crude and Brent up 3.7%.

[00:03:51]They're still trading below $100 a barrel. But this again after this uh warnings of of fresh American strikes uh renewed concerns over disruption to the straight of Hormuz and getting commercial shipping through. Um we had seen oil falling dramatically. his optimism that we were getting closer to a deal between US Iran. Um but of course that seems to have now paired back in a big way and again WTI and Brent up to the tune of nearly 4% for both those benchmarks. Now a pair of Fed officials have warned on inflationary risks with Chicago Fed President Austin Goulsby telling CNBC energy inflation from the Iran war has lasted longer than anticipated creating a stagflationary shock for Asian economies. His Minneapolis counterpart Neil Kashkari said consumer prices are still much too high. But he hailed the resilience of the US economy saying the labor market appears to be holding up.

[00:04:52]>> US economy has proven to be remarkably resilient. Uh every time we think it's really slowing down, it surprises us in a good way with more strength and the labor market has held up with an unemployment rate of 4.3%. So certainly I'm going to continue to watch the labor market. Things like unemployment claims, unemployment claims in America have been very low. Uh right now it seems like the US labor market is holding up and I'm going to continue to look for the underlying resilience in the economy.

[00:05:17]And then of course as we were just talking about paying attention to what's happening around the world in terms of global events and what happens in the street of Hormuz. So, a lot of attention on the real economy in America, on the labor market, and then paying close attention to what's happening geopolitically with the negotiations that are taking place.

[00:05:35]>> Carrie and Joji joins me now with more.

[00:05:38]Thanks for jo joining me. Um, great interviews, a lot to unpack there. I mean, one of the big questions is whether the fed policy is restrictive uh enough. Of course, those two warning about the higher risks of inflation. And I thought also uh interesting comments there uh talking about the stagflationary shocks for Asian economies. But then the US economy still managing uh to hold up despite uh the rise in energy prices, despite these greater risks of inflation. Carrie, >> yeah, I mean central bankers from around the world are convened in Tokyo today to attend a conference that's been hosted by the central bank here, the Bank of Japan. And we spoke to these two Fed presidents on the sidelines of that. I mean, as you know, the Fed has a dual mandate. One, inflation and two, jobs.

[00:06:27]And I think it's it's a pattern that we're seeing across the g globe with three, you know, three months into this war, the spike from energy is having a domino effect in all corners of the economy for many of these companies uh countries, excuse me, globally. Um, so I did ask Neil Kashkari, he's the Minneapolis Fed president about that all-consuming question on inflation.

[00:06:49]Take a listen. The >> inflation all around the world is much too high driven. We had the co inflation of course and supply chains and the war in Ukraine and much more recently of course now we have the war in Iran and the conflict in the Middle East. And so we're all trying to assess, you know, none of us are foreign policy experts.

[00:07:06]When is that conflict going to get resolved? And then importantly, when will supply chain start to normalize and when will the inflation stir surge start to fade? And so, you know, I think many of us are grappling with similar issues that are just affecting economies everywhere around the world >> because inflation not only in the US but here in Japan was high already to begin with before this war started. But right now is is are f the inflationary pressures are is it mostly coming from energy or is it still the tailwind from what was left over from before?

[00:07:34]>> There's some tailwind from what was left over before. Uh obviously we also have tariff induced inflation that the world was also grappling with with the the trade negotiations that have been taking place. That started at least for the US I think we saw the light at the end of the tunnel when the tariff induced inflation should start to fade. But now of course the Iran conflict has upended that with uh with energy prices and it's not simply energy. Of course it's fertilizer and then those inputs do affect other categories as well. And so one of the things I'm going to be looking for is when do we see energy prices affecting the broader economy and inflation in the broader economy.

[00:08:14]>> Of course, inflation and energy is not the only variable for the Fed itself as an institution. There's a new chair coming in, Kevin Walsh, and he's said many times about the priority and the need to shrink the Fed's balance sheet.

[00:08:27]I did ask Neil Kashkari about that and he said any move would have to be gentle, slow and communicated well in advance. And I should point out that yields of course have been spiking globally. Here in Japan, we're seeing JGB yields at 30-year highs. It's a very different situation here, right? Because a lot of the debt is held domestically.

[00:08:45]So, a lot on the table as these central bankers meet here in Tokyo. Back to you.

[00:08:51]>> Okay, thanks Caori. Now, let's get a check on your markets now, particularly as we're seeing those tensions ramp up between the US and Iran as we're seeing oil prices rising over here in Europe.

[00:09:03]You can see markets into the red here.

[00:09:05]Stocks 50 futures moving further into the downside now off some 1.2% again as oil prices rise. Let's flip up the board and take a look at our dollar crosses and we're seeing the US dollar rising for a third straight day against the major benchmarks. It's acting as that safe haven trading at a oneweek high. I also want to focus in on the yen. You can see trading pretty much flat now, but it has been under a lot of pressure.

[00:09:32]It's closing in on that 160 threshold versus uh the dollar. That is some intervention levels. Uh let's see how Asian markets are also reacting to the news. And you can see again a sea of red there across the board. the losses led by the Hangen index down some 2.3% and the Cosby up some 3% as well. And this follows what was another record high session for the US over in Wall Street where we saw just small moves to the upside but again notching another record uh high. Um but this morning if we look at futures, we're seeing them moving to the downside. Um but small moves, nothing compared to what we're seeing to its peers uh in Europe and Asia. But markets, they're going to be looking ahead to the PCE data coming out later today. That could be potentially the next catalyst. Now, I'm pleased to say that joining me to break down all the market moves is Yokim Clement, the head of strategy at Penmure uh Libram. So Yokim, thank you for joining me on set.

[00:10:36]Um let's first look talk about what we're seeing in equity markets now coming off some of those highs but still I mean the US trading at record highs they've looked through a lot of the impacts from the Middle East war uh a markets just underpricing the risk in your view >> absolutely I think uh we are in a situation where we're going two steps forward one step back when it comes to a resolution of the Iran war uh I think eventually we will get there but markets are a bit too complacent about how fast we will get there, how quickly the straight of Hormus will reopen. And in my view, both high energy prices and the corresponding inflation pressures are not going to go away as fast as the equity markets expect.

[00:11:17]>> Should investors then be hedging for downside risk and where because you're seeing bonds also lower uh with stocks today, you know, as yields rise as is concern around inflation. So, where should investors be be hedging? Uh I think within equity markets the utility space remains one of the most interesting spaces. It's defensive in nature but it benefits from both the higher energy prices as well as increased AI demand. And what keeps equity markets rising particularly in the US is obviously the uh optimism about AI and the AI growth story uh which overshadows a lot of what is going on in other sectors. So speaking of overshadowing, I mean, how do you reconcile what we're seeing in the market right now where you have stocks stocks um also going up whilst you're also seeing bonds uh going down and then as you mentioned here, I mean, we've got gold down uh today. Um and then this AI trade bubbling along. So how should investors be making sense of all of that?

[00:12:18]>> Yeah, it's really two markets in one. um the there like you talk to people who are enthusiastic about AI and the tech space um and they just kind of don't care about the risks to the macroeconomy overall. It's a totally different world than than the rest of it. And as an investor, I play both uh both stories at the same time. We remain invested in tech stocks for now in the semiconductor space, etc. Um but we're increasingly cautious there about uh the kind of signs of irrational exuberance that are starting to pop up in that space.

[00:12:54]>> So you're concerned there about the just the dominance of the few stocks you know leading the market. Um but if you look at market breadth in the US last week we did see the the S&P equal weighted index outperform and the Russell 2000 outperforming as well. Is that just a temporary thing? Is it still big tech driving this rally? Well, we've seen over the last week that the uh European AI winners, just like the US AI winners, have started to top out a little bit. Uh but I do think that is a shortterm trading top rather than an end to the boom or a rotation into the broader market.

[00:13:29]>> So, how do you play the AI trade in Europe? I mean, can it really compete with the US?

[00:13:35]Well, obviously uh in Europe we don't have uh the hyperscalers that you have in the US, but we do have the entire supply chain. We've got the ASMLs, the ASM Internationals, the semiconductor names. Uh those are still the best ways to play the AI trade in Europe and I think they still have way to run. And is there a case for European equities given that valuations have come in when you're comparing to the gains that we've seen in the US um and Asia as well given you know records on on this AI trade. Do you think there's more scope for Europe given I mean would you say there's more market breath so more less kind of concentration in those just big names like we're seeing in the US? Well, eventually I do think that the uh rally will broaden out, but I think it is going to be more a situation of where those highly concentrated semiconductor and AI names will start to lag the overall market as basically there's a little bit more realist realism coming into the AI uh growth forecast of analysts and investors.

[00:14:37]>> And how should central banks be looking at the economy right now given what we're seeing uh in the Middle East? I mean would you say starting with the US I guess is inflation high enough to warrant rate hikes from the Fed? I mean we heard in the interview said from Austin Goulsby Neil cash warning of those inflation risks. Would you say the Fed is restricted enough?

[00:15:00]>> Uh I think for the time being they are restricted enough. Uh markets are now pricing in the possibility of rate hikes and Lisa Cook for example has mentioned that the main risks are to the upside.

[00:15:11]However, if you actually look at the situation, we all know that uh central banks shouldn't react to supply side uh supply driven inflation uh and should try to look through it as much as they possibly can. And uh with Kevin Worsh coming in, you obviously got a bit more dovish uh chairman. So I think for now the Fed will remain on hold and just kind of look at where uh we see energy inflation spilling over into core inflation. If that happens then they have to hike.

[00:15:41]>> So if the ECB do you think they have boxed themselves in now for a hike over the summer and what does that mean for equities and also you know with the Bank of England as well?

[00:15:51]>> Uh I think the ECB is in a situation where according to our forecasts inflation in the Euro zone will run at 2.5% potentially higher and they have to react to that. Uh they are in a in a very different situation than the US uh is and the Fed is in that example. Um, should they hike as much as the money markets imply? No. Uh, I think one or two rate hikes will be enough because those rate hikes will also dampen an already soft economy even more and that leads to enough demand destruction to keep inflation under control.

[00:16:25]>> Is it going to change the game for stocks if we get rate hikes across the board?

[00:16:29]>> Uh, initially yes, but I don't think it is going to be such a big uh rate hike cycle that it becomes a real problem for the stock markets. I think this is more like a 5% 10% uh correction rather than a a major shift in trends.

[00:16:43]>> And we've talked about the exuberance leading stocks higher um despite what we're seeing in the Middle East war. If we do get a resolution, do we see some meaningful upside for stocks or is that already now been priced in in your view?

[00:16:58]uh I think some of it has been priced in but it's it's always the case that when you get a resolution people will run uh for all the stocks that uh have been so far been limited because of risks of high inflation. So the automotive sector the consumer discretionary sector in general those are the names that I think will pop in a situation where we get a resolution and an opening of the straight of HUD.

[00:17:22]>> And how are you looking at the UK right now? Of course there's a lot of political uncertainty there as well. Um, in the notes that I've been reading, they're suggesting that we're going to get rate hikes no matter who the next prime minister is. So, what does that mean for the Footsie 100?

[00:17:37]>> Uh, it would be bad news for the Footsie 100 because uh the political uncertainty and the political chaos in the UK already weighs on uh the stock market in the UK because our bond yields are so high and are more volatile. Uh one of the things that people don't realize is that uh the guilt market is actually less liquid uh than some of the smaller uh government bond markets in Europe like Spain for example and that means there's a higher risk premium and that will only increase if the Bank of England hikes interest rates >> and do you seen any opportunities for for UK stocks and if so where?

[00:18:14]>> Uh I think there are two uh areas of opportunity. On the one hand, we shouldn't forget that the UK government is rolling out uh the second biggest infrastructure package in Europe after Germany. So, construction companies and companies that are in the infrastructure space in the UK to us are a really good way to play as a as a hedge.

[00:18:35]>> All right, we'll have to leave it there, but thank you so much Yokam Clement, the head of strategy at Pame Liberum for breaking down all of the market moves for us. Now, coming up on the show, we'll be breaking down Anetta's interview with the ECB's vice president, Louis Deidos, following the bank's latest financial stability review.

[00:18:52]That's coming up next. Stay with us.

[00:21:05]Hello, welcome back everyone. UK consumer services sector confidence has fallen to its lowest level since February 2025 according to a Confederation of British Industry survey. Business profitability in the sector fell at the fastest pace in almost six years. The ECB has warned that Europe's financial vulnerabilities could be amplified due to the fallout from the Iran war and lingering trade tensions. The bank warned of a dent to growth, higher borrowing costs, and a challenge to some member states ability to sustain public budgets. Speaking to CNBC, ECB vice president Lua Gindos warned of a high risk of market correction amid the ongoing geopolitical situation.

[00:21:50]The main narrative and the main message of uh you know our financial stability report, our financial stability review is that uh you know there is a risk of a correction because valuations in markets are quite high, quite elevated and I think that uh perhaps in comparison with the situation six months ago. Uh the main element of concern from our standpoint is geopolitical risk.

[00:22:15]Geopolitical risk has been on the rise and uh this could uh give rise to some issues and some problems given you know the high valuations. On top of that we have the fiscal situation in Europe. We have the situation of non-banks mainly private credit and private equity equity institutions and the inter interconnection of these uh non-banks with the ranking the ranking system. So it's a it's a combination of elements.

[00:22:43]is uh you cannot look as at a single one but uh perhaps you know the new uh element to take into consideration is the geopolitical risk >> exactly that risk seems to be not really relevant for many investors if especially we look at equity markets. So um what do you think um can be triggered by an by prolonged war in uh in Iran and the closing of the straight of commerce.

[00:23:14]>> Well that's uh you know the main uh question mark now how long the conflict is going to to last uh how intense the conflict is going to be. um markets discount that uh the conflict uh will be over uh shortly and uh if that's not you know the situation that could trigger you know a modification in the perception of markets that in combination with other the other elements that I have mentioned before high valuations the fiscal situation uh non banks uh is you know is the is is a combination of elements a combination of factors that might trigger a a correction in markets Dindas also outlined the dominance of the private credit sector in the US versus Europe.

[00:24:00]>> We have dedicated a full chapter to to private credit and the potential implications that this might have uh you know for for financial stability in the Euro area. Uh here you know a couple of comments. The first one is that the exposure in Europe of the European banks and the financial intermediaries to private trade is very limited. It's not big. even though they are growing rapidly.

[00:24:23]Second, uh well the possibility of a spillover from the US because in the US uh private credit and private equity are much more much more relevant and are much bigger players than in in Europe is something that we have to take into consideration. It's something that we have to look at very very carefully. I think that uh uh you know these players play an important role because they are lending to parts of the economy that are not normally covered by banks or by even capital markets. But simultaneously there are other elements that are are not are not positive. For instance, uh they are opaque instruments. Uh they are very leveraged. Uh they have uh you know some kind of potential liquidity mismatches. Uh and they are interconnected with uh with the with the banks. Even though as I have said before uh the the the volume of private credit in in Europe is limited and it's not systemic. It's not going to have to give rise any sort of systemic you know uh situation in in in in Europe. So the the recommendation that we are making is look at it, monitor the evolution and take into consideration the the level of leon the the number of leaison and the the size of the leaison and the links between the banks uh and the and the and the private market institutions.

[00:25:40]>> Yeah. In that chapter, you also have looked into the the scenario whether a collapse of the private credit world could be comparable to the collapse of the subprime world many years ago. What were your conclusions? Well, the conclusion is that the impact would be much more much more limited especially in the case of Europe because the exposure of the of the financial markets to to to private credit is is much more much more limited as I have said before.

[00:26:12]Nevertheless, uh you cannot single out a concrete, you know, uh uh potential risk. I think that you have to to look at uh you need to have a comprehensive uh approach to the this potential uh vulnerabilities that you know because it's not only you know a single element the one that is going to give rise to repricing in in in markets. So I think that we have to be attentive I would not like you know to have a single to single out any concrete potential threat. I think that uh sometimes uh well you have a trigger uh but uh uh is the the the the complete uh situation and the complete picture of potential threats that are looming ahead. The ones that we have to consider whenever you know we we we analyze the financial stability situation of the European markets.

[00:27:04]>> And coming up on the show, oil prices jump as the US and Iran exchange fire, putting further pressure on a fragile ceasefire.

[00:29:26]You're watching Europe Early Edition.

[00:29:27]I'm Riska Gupta. Let's get into your headlines. Oil prices whips saw as Kuwait defends against missile and drone threats and the US bombs Iran hours after peace talks. Comments from Marco Rubio sent prices plunging.

[00:29:44]>> The bottom line is that uh we prefer the negotiated uh diplomatic route and we're going to give it every chance to succeed. I know you're giving it every chance to succeed.

[00:29:52]>> Federal Reserve governors Neil Qashqari and Austin Goulby sound the alarm on inflation, warning CNBC on the impact of price pressures.

[00:30:02]>> The inflation all around the world is much too high. We're all trying to assess, you know, none of us are foreign policy experts. When is that conflict going to get resolved?

[00:30:11]>> We had a tariff increase in inflation which was supposed to go away. It hadn't gone away yet and then we added this one on top of it. So that's a that's a little more disturbing situation.

[00:30:26]>> An equity market see red around the world slamming the brakes on yesterday's record close on Wall Street.

[00:30:34]And the EU reportedly plans a more aggressive push to loosen its dependence on US tech back European champions. The CEO of Mistral AI tells CNBC he welcomes the block strategy to prioritize AI.

[00:30:49]>> Europe is starting to be looking at at AI as a strategic asset the same way it has look at gas and and that's I would say there is a realization even in the policy maker side that something needs to be done. But really the the companies I would say are the one that are making crude prices pushing higher this morning. This after Iran's revolutionary guard said it had targeted a US air base in response to what it said was a US attack in the south of the country.

[00:31:28]That's according to state news agency Tasnim. Now, it's not immediately clear which base Iran targeted, and the report comes after Kuwait's military said air defenses were engaging hostile drones and missiles. The origin of the attacks was not immediately confirmed. And overnight, the US carried out fresh attacks on Iran, targeting a military site believed to threaten American military personnel and commercial shipping, a US official told MS Now.

[00:31:57]Several Iranian drones were also reportedly intercepted and downed. The strikes represent the second incident in three days with the US military characterizing its actions as defensive.

[00:32:09]Let's get a check of where oil is trading. You can see some big moves to the upside. WTI crude and Brent up more than 3% still trading below that hundred dollar a barrel mark. But we had seen oil prices uh plunging up until then.

[00:32:26]And now we're seeing um as tensions ratchet up, we're seeing a big spike in those oil prices. Now, let's get more with Callum McFersonson. He's the head of commodities at Invest. Callum, thanks so much uh for joining me. First of all, with tensions ratcheting up again, um did you think the oil markets got ahead of themselves earlier that there would be um some kind of a deal maybe quicker uh than we're seeing play out? Are they underpricing risk? and and where do you think oil should be trading at right now given what we're we're seeing play out?

[00:33:01]>> Thank you. Yes, good morning. It's it's incredibly hard to know quite what to make of of all this really because for for for some weeks now while these negotiations have been going on we've had on almost a daily basis one side uh coming out and saying that progress is being made that we've agreed to these things and so on. Um and then later the other side saying no actually we didn't agree to that. Uh and this has happened both ways around. Yesterday it it was the Iranians uh that started to talk about their the memorandum of understanding and the things on it that apparently both sides had agreed to and then the White House later on said this is a complete uh fabrication.

[00:33:44]um and and and of course there's there's been a backdrop then from time to time we've had these flare ups of uh military uh strikes and retaliations and and so on. So, um, overall it's it's very very hard for the markets to know quite what what's to how to react to to all of this. And and of course, the reality is we can't just sort of shut up the oil market and go on holiday for a few months until this is all sorted out and come back because there are real consumers and producers and refiners that need to trade, that need to um hedge themselves, buy cargos and so on.

[00:34:20]Um so prices have to be made and and the market just has to um try and respond deal with this as best it can deal with this uncertainty.

[00:34:29]>> Head you mentioned there just trading on each of the different headlines uh that are coming out not necessarily reflecting what the real realities are on the ground. I mean what do you think in terms of the traffic going through the straight? How is it looking right now? How fragile uh is this current, you know, recovery in those physical oil oil uh flows?

[00:34:51]>> Well, there does seem to be some some evidence that some more ships are going through, but um but they're still going through, as I understand it, with transponders off, so they're hiding their location. It's there's there's no real sign that um things are getting back to normal, that insurance companies would be confident insuring vessels and so on. um we're nowhere near that. I I I I don't think I mean we the memorandum of understanding still hasn't been agreed and even once it has been agreed that it isn't clear what the pathway to the sort of reopening of the straight is because because let's be clear it's not that that there's a sort of gate that has been closed and that just needs to be opened. Um there's there's going to it's all about having confidence that that the war definitely has ended and we're not going to get some flare up uh going on. And and bear in mind that the memorandum of understanding um so so far as we understand from the terms that are being discussed is not going to resolve the the nuclear question. Um that is going to be left to uh further negotiations. there was talk of a 60-day window uh for th for those points to be resolved that so that's going to continue going on in the background and that presents the danger of there being some sort of uh a flare up or a breakdown in those >> so are we underestimating then the scale of the disruption that we're seeing to to infrastructure shipping insurance disruptions I mean these are these some kind of long-term longlasting effects that we may have >> yes I think the market's probably becoming more confident that we're going to be able to get through the the coming summer. Uh and I say that because we've seen um the physical market and particularly the refined products like jet fuel and diesel uh come down significantly from their highs. So we did see at one point jet fuel trading at over $200 per barrel. um now it's much more like 130 which is or 140 which is still very high but but it it has come down come down a lot so I I think there's increasing confidence that we will get through this summer period without major disruptions but but I agree that that's that's not really sustainable in in in the longer term so so the market is sort of you know pricing in some kind of resolution over over the coming months I would say Callum, talking about commodities beyond crude there, you mentioned jet fuel and these expectations now that it's not maybe bad as bad as what was was feared.

[00:37:27]Um, what about the other commodities exposed here when it comes to fertilizers and petrochemicals?

[00:37:34]>> Yes. Yes. Well, I mean the these there are similar pressures there and and I think the same sort of comments can apply that uh the market is sort of finding ways of muddling through uh for for now but this isn't a a sustainable uh solution in the long term. So I so so I think you know whichever commodity or industry you look at you you come to the same sort of conclusion. It's it that the markets markets are coping, but but uh we we there needs to be a proper resolution um relatively soon.

[00:38:04]>> And K, when things do start to stabilize, when we do get some kind of of a deal, um where did you see prices maybe of oil stabilizing? What kind of a range are you looking at?

[00:38:19]Uh well I I I think it's I don't think it's going to um sort of come crashing down right to where it what immediately to sort of 60 or 70 where we were before before the war started. Um and and and similarly for for for the refined products which of course will be much more affected than than brands anyway.

[00:38:41]Um I think there will be an initial sort of wave of of oil coming out of of the Gulf which has been sort of trapped there because we've got all these ships there waiting to come out. So that will that will happen um when when we reach this point where um those shipping companies have confidence to to to move out of the straight and then it will take a month or or so for those to reach their destinations in Asia or Europe or whatever >> and in Mhm. But but but then there there's but then beyond that we've got all the infrastructure damage to to to to deal with in uh whe where there's been serious damage to to production and and refining uh capacity in in in the Gulf.

[00:39:26]Um and that's going to take time to to resolve. So I so I don't think we're going to return to sort of what we would call completely normal for for for probably some months.

[00:39:36]>> We'll have to leave it there. Thank you so much, Callum McFersonson, the head of commodities at Investeek.

[00:39:43]Now, let's get a quick check on how markets are reacting to the latest in in the Middle East. As we see those tensions ratchet up globally, we are seeing stocks in the red. Over here in Europe, we're seeing stocks 50 futures moving to the downside off the tune of 1% as oil prices rise. We see WTI and Bren um above higher more than 3%. Uh let's flip up the board and take a look at how Wall Street gets set uh to open.

[00:40:08]You're seeing modest moves to the downside. Not as much as what we're seeing for Europe and in Asia where we are seeing much uh bigger losses for the hang and the Cosby. In yesterday's uh session in the US, we did see another record high close in the Wall Street albeit was just small very small moves to the upside but but still a record nonetheless. Um but today futures uh moving to the downside and traders are going to be looking out for that PCE data that could potentially be uh the next catalyst uh for today's moves. Now Meta plans to charge users for artificial intelligence features for the first time as the company seeks a revenue stream for the AI era beyond advertisements. It will start testing its two AI subscription plans in Bolivia, Guatemala, and Singapore next month. The cheapest version starts at $7.99 per month. The company says it is offering premium tools that allow users to enhance their presence, boost content, and automate tasks. And the EU is reportedly preparing a new plan to loosen its dependence on US technology by backing European alternatives in a number of critical sectors. That is according to the Financial Times, which cited a draft document. He says the block is looking to increase incentives to help with the construction of data centers whilst also favoring homegrown cloud and AI tech firms. The plan could also represent a more aggressive push from the EU from regulating big tech to favoring European services. Now Arjun caught up with the CEO of one of Europe's most valuable tech startups, Mistral AI, and he joins us now with more. Arjun, take it away. What do you have for us?

[00:41:56]>> Yeah, that's right, Rita. At the heart of this conversation about sort of tech sovereignty, this idea that Europe needs to have more independent infrastructure really is a company called Mistra, valued at nearly 12 billion euros. This is seen as one of the alternatives in Europe to the likes of Open AI and Anthropic. Now Mistra started life developing some of these frontier uh AI models but has since developed his business further to start building infrastructure. It's invested about 4 billion euros into data centers across France and Sweden specifically to run all of its AI and service uh its customers as well and it's ramping up capacity through to 2030 as well. Now Arthur mentioned the CEO who you mentioned there. He was in front of lawmakers just a couple of weeks ago here in France and he warned that Europe has a 2-year window to build out infrastructure and independent AI infrastructure from the US. I caught up with Arthur Mench for my podcast the tech download and asked him to expand on these comments. Let's listen in. Europe is starting to be looking at at AI as a strategic asset the same way it has looked at gas and and that's I would say there is a realization even in the policy maker side that something needs to be done but really the the companies I would say are the one that are making it happen what we see with all of our customers in the US in Europe in Asia is that uh the kind of proposition that we bring which is centered around open source models that can be customized is resonating with them and that brings demand And we believe that that window which is fairly short actually because there's only a limited amount of chips, a limited amount of memory and limited amount of of of electricity. Uh we believe that the demand we see allows us to take a very meaningful position in everything that is related to mission critical AI deployment. Uh so that I think is is the hope uh that we have.

[00:43:43]But really the what I what I'm regretting and that's the reason why I was asked to actually go to see lawmakers in France and and I wanted to share that this is not only a technological problem it's actually a macroeconomic problem. Uh you can't afford to have a commercial deficit of a trillion uh if you actually want to stay competitive and in the race and so that's something I think that people are realizing that we're talking about something that should be concerning for any one of us.

[00:44:10]So Arthur Mench calling this really a strategic priority and a macroeconomic one as well saying that the value can't flow back uh to the US and needs to acrue here in Europe. Hence the push to build European infrastructure. But the reality is as infrastructure is being built in Europe, it still depends so heavily on foreign companies. You think about chips from US companies like Nvidia, right? Those are being produced over by TSMC in Taiwan. The memories coming from SKHix and Samsung in South Korea. And so you can see that the supply chain I is global. It's a fact certainly that Arthur Mench recognizes.

[00:44:44]But what's interesting about that is he sees building European infrastructure as potentially a way to bring more of those foreign companies building here in Europe. Let's just listen in.

[00:44:54]>> Europe could actually build more uh but for this it needs a market uh and for for it to to have a market it actually needs to have cloud providers. Uh so we go where we think we have an edge which is the digital services. uh the deployment of AI serverless systems that allows to build AI applications, the deployment of a highv value skilled workforce that allows to turn those uh serverless services into AI applications that deliver value and we build value for that. Then we reinvest in R&D. we actually buy chips. Uh, and eventually we think that the tech ecosystem in Europe in particular can grow to a point where it becomes a good idea for a fab to set up for a for a company like Samsung for instance or a company like SK Enix or a company like TSMC to set up a fab in in Europe. But for this to happen, you actually need for those companies to have a market and the market is uh the infrastructure that is getting built. So let's start where we are strong. That's what we shared. And then let's let's create something that allows every countries of the world to get enough leverage and to participate into the air revolution in a way that is not creating unfair dependencies.

[00:46:04]>> I thought that was a fascinating point from Arthur Mench there saying that actually if European companies are building infrastructure like data centers then that's going to be an incentive for chip companies to actually come over to Europe and set up fabs or factories to manufacture these chips.

[00:46:18]That's something that just hasn't happened yet. You've seen it over in the US with TSMC and Samsung and others setting up fabs over there because there is huge uh customer base over there. And of course uh the the the president has really urged these companies to set up shop in the US. Something that's not happened in Europe. But certainly those conversations around sovereignty are ramping up. They will continue to ramp up and Mral sees itself very much at the heart of Europe's ambitions when it comes to independent AI infrastructure.

[00:46:45]Rita, >> fascinating stuff. Thank you so much Arj for bringing us that interview. And coming up on the show, we'll speak to ING's Carson Broski as German economists cut growth forecasts for the year. That conversation after the break.

[00:49:11]Hello and welcome back to the show. The German Council of Economic Experts has reduced its growth forecast for the year. It now estimates growth of 0.5% for 2026. That's down from 0.9% it predicted back in November. The group cited the impact from the Middle East conflict, higher energy prices, and the US trade policy for the downgrade. I'm pleased to say that Carson Breesky, the global head of macro research at Iingg joins me now for more on this. Let's start there with the cut in the forecast by this German Council of Economic Experts. It's cut its forecast again for 2026. So would you say now looking at that explain the reasons behind it? Of course the Middle East is a part of that but how much of it is about temporary shocks like the energy uh crisis and and the Middle East and how much of it is reflecting a much more deeper issue structural issues like uncompetitiveness uh and and the you know what it's facing with competition in China.

[00:50:09]>> Yeah, good morning. I think you you nicely summed it up. I think the the council of economic advisor has now joined the crowd. Um you know having the the the previous forecast was expected.

[00:50:20]We also have 0.4 0.5% of GDP growth this year. The reasons behind it are first of all the war in the Middle East. It is clearly already weighing on private consumption. I think German car drivers currently already pay more for gasoline than they paid in 2022. So that's an enormous hit to private consumption.

[00:50:41]We're also obviously an an export oriented economy is depending on uh on everything that's going on. We have these new uncertainties. We also have still the uncertainties from from tariffs. So that is weighing on industry. Um and then on top of that there is the the growing frustration that we're not seeing these structural reforms that were promised when this government actually entered office last year. What we've seen so far is big fiscal stimulus and this fiscal stimulus especially on defense should carry the economy a little bit this year. Um there is too little coming on infrastructure and it's simply not accompanied yet by structural reforms that could enhance German competitiveness again >> and you talked about the exportled growth model there being under pressure particularly one of it is from China also the US tariffs on the sector. So would you say that this kind of growth model for Germany is essentially broken?

[00:51:39]>> It definitely is. Um and entire the this economic business model for for Germany is is up for a complete overhaul. If you take a step back uh you know what was this business model based on? It was based on on cheap energy. Energy energy prices did not matter for German industry and it was exports globalization. Um and over the last uh decades there was always someone across the world that was really hungry for for for goods produced in in Germany with the the war in Ukraine um decoupling from Russian energy. Energy all of a sudden has become more expensive. Um so there no longer is cheap energy for for German businesses. And then next to this there there is China. China was really with open arms buying goods produced in Germany over the last decades but now has become a system rival. China is able to produce the same goods that Germany used to produce at higher quality and at cheaper prices. So which means Germany needs to to kind of reinvent its economic business model if it wants to uh to grow again.

[00:52:47]>> So Ken, let's get back to to China in a moment, but first you mentioned the higher oil uh energy prices. is I mean are you concerned if we get those persisting through the summer what that is going to mean for consumer demand? At what point are we going to start to see uh a big uh dent in uh consumer um consumption?

[00:53:07]>> Yeah, I think um this dent in consumer consumption is already happening. Um and maybe only well a very good performance of the German national team at the World Cup in the US might help. Um no but just a kidding aside um so private consumption will not be a growth driver this year. Um there is there is too much pressure on on private consumption. I think the the risk is if the war in the Middle East continues if um the energy price shock also becomes another supply chain shock. Um then we would see that also German industry would suffer and that could mean that German industry would have to either reduce production temporarily hold production. Um and then we would also have really not only private consumption um being down but also um industrial production again being much weaker and I think the fiscal stimulus we're getting will not be able to offset these negative effects.

[00:54:01]>> So Carson, you mentioned there the the limitations there of the fiscal stimulus. You've also said that the government hasn't been able to step in with the the structural reforms that are needed. What about also the ECB and their role in in kind of helping move the economy along? Have they essentially boxed themselves in now for a rate hike over summer? How much uh of that is going to complicate the picture of course uh you know in in pressuring growth?

[00:54:26]>> Yeah. Well, I think we heard already earlier this week from from Isabel Schnabble. Um I think that a a ECB rate hike in two weeks from now is almost a done deal. I think that the ECB also given the lessons it had in 2022 when it was too late to react to an inflation wave that they will feel forced to hike in two weeks from now. But this is not 2022. So I don't expect really aggressive ECB rate hikes. I expect one maximum two rate hikes over the summer.

[00:54:55]And let's also to be honest of course uh an an economy like the German economy could do with lower interest rates but it is not the level of interest rate that will determine the the destiny of the German economy. It is really these structural reforms that the country needs. some tax cuts, um reforms in the uh in the social system, uh in in the pension system, more innovation combined with really fiscal stimulus reaching the economy that is much more important than whatever the ECB will do over the next month.

[00:55:27]>> And all of this caston happening as the German economy minister is over in China for a visit. Thank you so much, Carson Breeski, the global head of macro research as Iing. Now before we go, a quick check on your markets moving to the downside in Europe off some 7/10en of a percent uh in the stocks 50 futures. This is as oil prices rise.

[00:55:47]Last time I checked to the tune nearly 4% for for WTI uh and Brent. Uh of course over in the US uh we're also seeing futures moving to the downside.

[00:55:57]Not as bad as what we're seeing in Europe. That is it for today's show Gupta. Sportox Europe is up next.