AI’s ‘Healthy’ Reality Check, US Midterm Countdown, UK's Slave Trade Legacy

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0:09 This is the Bloomberg Daybreak Hour podcast. Good morning. It's Monday, the 2nd of November. I'm Caroline Hipkett in London. Coming up today, markets stabilize after a global tech rout, but Howard Marks says that AI's aura of infallibility is starting to crack. Russia and Ukraine report cyber attacks on systems designed to warn the public of danger. Plus, reparations reset.

0:33 Britain rules out compensation for its role in the slave trade, but opens the door to an apology. Let's start with a roundup of our top stories. Markets are finding their footing this morning after last week's global rout in tech shares.

0:47 U.S.

0:47 Equity futures are higher, with most Asian markets also gaining after Friday's steep losses. The sell-off came as investors lost patience with firms whose core businesses are slowing as AI spending surges. Oak Tree's co-chair Howard Mark says the new skepticism has some upsides.

1:07 To me, What it says is it's somewhat burst the bubble of infallibility. You don't want to invest in something when everybody and his brother think he can't lose.

1:17 Right.

1:18 Because you'll pay a price commensurate with that infallibility. I think that now people are saying, hold on, wait a minute. Let's be a little more thoughtful.

1:28 Let's be a little more skeptical. That's very healthy.

1:31 Howard Marks there with traders bracing for more volatility around this week's US midterm elections. Morgan Stanley's Mike Wilson says that stocks could fall further in the near term, but he believes that that could create a great opportunity for investors to pile back in. Russia and Ukraine say that their emergency warning systems have been hit by separate cyber attacks.

1:52 Moscow's emergencies ministry claims a massive attack hit its application, which is designed to warn people of incoming drones. It followed Ukraine's announcement that its alert app had been hacked after false warnings of a nuclear threat appeared on it. Ukraine has blamed Russia for the hack, while Moscow is yet to say who is behind the attack on its systems. U.S.

2:16 officials are reportedly pushing a plan for Russia to restart selling natural gas to Europe. The Wall Street Journal says that Jared Kushner and Steve Witkoff pitched the idea last month. They envision Russia selling gas to an American entity, which would then sell it to Europe by passing sanctions. Speaking to Bloomberg, the European Union's top diplomat, Kaya Callas, took aim at U.S. efforts to normalize relations with Russia.

2:41 I just wonder how does it really look like for us. Normalizing Russia coming back to these international fora is just normalizing the war crimes being committed every day now.

2:57 Kai Callister speaking. Before the Wall Street Journal's story broke, European gas prices are at their highest in almost four years, driven in part by the conflict in the Middle East. Mass demonstrations in Germany turned violent this weekend as activists clashed with the police. Rioters confronted authorities in Cologne, Berlin and Frankfurt, where the main shopping street was blocked and over 30 people arrested. So the sound of demonstrations in Frankfurt there. The protests were organised by a group called Gen Z Regelt, calling for education, health, climate protection and an affordable life. The news comes as youth-driven protests have erupted across Europe in recent weeks in countries including France, Belgium,

3:54 Portugal and Albania. One of the key races in this week's US midterms has exposed a split among Democrats. Congresswoman Hayley Stephens has endorsed Republican Senate candidate Mike Rogers. She appeared with Rogers after being dropped from a planned event with party nominee Abdel El-Sayed. Stephens says that she can't support El-Sayed and is backing his rival instead.

4:19 I am endorsing Mike Rogers for the United States Senate today.

4:24 I don't belong in Abdul's campaign. So that was Haley Stevens, who fell out with Democrat nominee Abdul El-Sayed after a public spat over Israel. The shock endorsement underlines Democratic divisions between the party's left and more traditional moderates, this just days before the election. In the final days of the U.S. race, a New York Times-Siena poll puts Democrats in the lead in all seven of the battleground states for the U.S. Senate.

4:57 And lastly, 20-year-old Kimi Antonelli has been crowned Formula One's youngest ever world champion. The Mercedes driver finished third at the Mexico City Grand Prix to clinch the title. He is the first Italian to win the championship since 1953. And Antonelli says it's just the beginning.

5:16 It's an incredible moment, incredible feeling and I'm very grateful for all the opportunity that I was given, all the support, the family, the friends that I have and yeah to finally clinch it is an incredible feeling and this will be a new point where to start and build on again and try to get better because obviously we just want to keep winning because it's the best.

5:39 Feeling in the world. Antonelli scored nine wins across the entire season and finished in Mexico behind second place Lewis Hamilton and race winner Max Verstappen, but still, of course, managing to clinch the overall win. Amazing stuff. Lewis Hamilton standing next to him is more than twice his age. Really fascinating F1 over the weekend.

6:03 Right.

6:03 Let's think about the markets then this morning. So actually, we had a sort of late stage surprise on Friday where there was a big sell off in tech names after that huge earnings week that we had last week. This morning, though, things do seem to be stabilizing. So Nasdaq futures have now rebounded. They're back up about 1%.

6:20 S & P 500 up about half of 1% this morning. Most stocks in Asia are rising, but there's also the backstop because there is speculation that there will be new market support measures in China. Also, Treasury yields at $ 4. 93 this morning. OAT bond futures edging modestly firmer. Fitch did put France's credit rating on negative outlook, as that was a new line for Europe. And brain crude futures this morning are down 3%, $ 109.

6:45 98.

6:45 Talk of.

6:48 More diplomacy there in the Middle East. So, those are the markets and our top stories for you. In a moment, we are going to be bringing you more on the markets after the tech sell-off on Friday. Also, the UK faces pressure over reparations for slavery. We'll be talking about those two issues next. But something else has caught my eye today. AI is changing writing. There have now been really countless controversies over novels about whether they have or have not been written by AI or being perceived as being written by AI. Bloomberg's Morgan Meeker has been writing about one case in particular, the furore around Mia Ballard's book, Shy Girl. The author going down a really terrible road of being cancelled and having mental health problems. Now she's publishing,

7:35 self-publishing her own novels online. once more a new novella called poly is out she denies shy girl was ever written by ai but this really goes to the heart of um a lot of the issue in publishing now ai accused writers and a lot of it rests on the score that your book gets from pangram i mean it's the same also if you're in university you know there's there's really only one app that will score whether you have been using ai or not so Some think that it's maybe questionable, but it does mean that writers are ditching all sorts of things that they see as being associated with AI. Things like rhetorical repetition or the rule of three or M dashes. Writers are avoiding that now. Anyway, I think it's all altering the writing process and how

8:19 we think. Fascinating piece from Morgan Meeker. I'm going to put a link to it in our podcast show notes. Now, Wall Street got a bruising on Friday. The Nasdaq slumped 3.5%. The Philadelphia Semiconductor Index, the SOX, plunged more than 7%, fueled by concerns over AI.

8:34 U.S.

8:34 Futures, as I've mentioned, are high going into this Monday. But we've also got the midterms and Nvidia earnings, which remain event risks. Joining us now, Bloomberg's Markets Live executive editor, Mark Cudmore. Good to speak to you, Mark. So, are you in the Howard Marks camp, i.e. be more thoughtful, more skeptical about AI, or maybe in the Wilson camp by the dips, certainly in the US?

8:59 I'm actually in both the camps.

9:01 I think they're less contradictory than maybe the headline suggests.

9:05 So, Howard Marks is.

9:06 Just saying, you know, look, we've reached the stage of the AI bubble that, you know, people need to be a bit more selective. It's lost the kind of sheen of infallibility that you don't just buy a name because, you know, it's associated with the AI trade. And I think that's correct. Mike Wilson is saying, hey, look, you know, we're due for a bit of short-term pain at the moment because of some of that skepticism that's gone into the AI trade and because of the mid-term threat.

9:31 And because of the Iran-Middle East situation.

9:33 But longer-term, growth is good, earnings are good, and that ultimately, the pullback this month will be a buying opportunity. I very much agree with Mike Wilson on that, that this is, for medium-term investors, they'll look at any pain over the coming weeks as a good opportunity. But I completely, as you know, I'm a long-term skeptic that I think that some of the hype around the AI trade is very risky.

9:57 But as we've always discussed, if.

10:00 You find a bubble, you're meant to hop on board and ride it as it inflates until it bursts. I don't think this is the AI bubble bursting yet. I think we're just getting to the more skeptical stage, as Howard Marks outlines.

10:10 Yeah.

10:11 Okay.

10:12 What are the next steps then in the AI investment thesis? I mean, obviously, that is a very big thought, but I wonder what you're thinking about now in terms of AI.

10:21 Yeah.

10:22 So, one point is, as Howard Marks says, is we're getting more selective and the cost of funding is going to change. And that's going to really help identify the winners and losers. Some companies can actually afford to pay higher rates or some of the big hyperscalers are while they're pouring a lot of money away on the AI investment, they generate a lot of cash.

10:40 And so, they can probably ride this out a bit longer.

10:42 So, I think it's through the credit markets that we need to watch for how this evolves from here. I think one of the other things that's interesting is that, in line with the Mike Wilson idea that you buy the dip in the coming weeks, is the idea that underlying global growth is good. And you've got to remember that the stock market overall is a little bit expensive.

11:00 That's made up of very expensive AI tech names versus much of the rest of the stocks are very cheap. And I think the next stage of the AI will be like, actually, we see some productivity gains coming through to the consumer. Some improvement in service means consumer stocks start improving. And we basically see a widening out of the stock market rally. Now, because the US indexes are so tech-heavy and so tech-driven, They'll probably struggle a bit more.

11:25 But there are other indexes around the world which have very little AI exposure, and they'll probably do better. So, the next stage of AI is not necessarily tech, if you get me. It's actually to go the beneficiaries of AI boom, but not necessarily the tech names themselves.

11:40 Okay.

11:41 Just briefly also, though, China regulators meeting today to discuss support for capital markets. I mean, is that going to work against the bear market there?

11:49 Not in the short term, but it'll be like a few years ago where they'll keep on doing something until it works. I think ultimately, China's a great story for stock markets, but longer term, I think they really struggle in the short term and they tend to be very much drip feeding policy, but they keep on going until they get it to work.

12:05 And I think that's what we'll see.

12:07 Was it September 22 or 23 where we eventually, after like about 18 months of dripping a policy, they suddenly said, enough's enough. We're getting the stock market higher. And they succeed getting a lot higher. We've now had a pullback, but we've not erased the gains from back then. And I think they'll do the same thing again. When is the final list off? I don't know, but this isn't it just yet.

12:23 Okay. Mark, thank you so much for being with us and for your thoughts on AI and what's happening in China. That is Bloomberg's Markets Live executive editor, Mark Cudmore. Thank you. Stay with us. More from Bloomberg Daybreak Europe coming up after this. Now, Prime Minister Andy Burnham and King Charles are attending the Commonwealth Heads of Government meeting, CHOGM, in Antigua, as the British Prime Minister has discussed. said that and offered to discuss a British apology for slavery but rejected reparations.

12:54 Joining us now is Bloomberg's Tiba Adebayo to discuss. Good morning. What is the message from the Prime Minister and also from King Charles?

13:02 Well, Caroline, as far as the Prime Minister's confirmed, he has continued the Starmer stance, which is to reject calls for financial compensation for slavery. That has been the stance of the United Kingdom for quite some time. However, he did author an opinion piece in The Guardian last week, and that included a bit of a softening of the UK's position in He said that he's open to conversations about reparatory justice. Those have previously been ruled out. The piece says we are offering a structured dialogue with those affected by the transatlantic slave trade. So that does seem like a slight alteration to the stance under Starmer.

13:42 Thinking about the king.

13:43 Royal spokespeople speaking to the BBC have been very careful to say that this is a matter for government and it wouldn't be appropriate for the King to address matters of policy relating to the government's position. But they have previewed a speech that King Charles III is due to give today. tomorrow in Antigua they're saying he's going to speak with unflinching honesty and sincere sorrow about the pain caused by the transatlantic slave trade this is during the final leg of his Caribbean tour which ends in Antigua that's according to Buckingham Palace And I would say, Caroline, that does go a little bit further than what we have seen from the royal family in the past, certainly previous monarchs. So, as I mentioned, the king is set

14:25 to address Commonwealth leaders tomorrow in this speech. The palace has said that they were told in advance about Andy Burnham's opinion piece in The Guardian. Royal sources saying the decision about an apology is a matter for government. But it does seem that there is some coordination between the government and between the royal family about perhaps going a little bit further on this matter.

14:45 Than we've seen previously.

14:47 But there is also a more coordinated effort by Caribbean nations to push for reparations now. What are they hoping for? What are they trying to achieve? Yeah, that's right, Carolina.

14:56 It all started in June this year following a landmark vote from the United Nations which condemned the transatlantic slave trade as a crime against humanity. It should note that the UK and 52 other nations voted abstained here including france as well they said they didn't want to rank atrocities but after this event there was a conference in ghana where nations agreed on this outcome document which lays out a path for financial reparations which is one part of it but they're also arguing for cultural restitution debt relief climate justice um It's an update to the previous plans that we've seen. So, this 10-point plan from CARICOM, which is the Caribbean Community, kind of like the European Union for Caribbean States. This plan, it's including new calls

15:45 for compensation. And they're getting quite specific. So, there's a call for compensation around gender-based violence. for example, referring data that suggests that women represented approximately 30% of the estimated 20 million Africans forcefully transported across the Atlantic Ocean.

16:03 So, I'd say that there is not only.

16:06 A more coordinated approach to this, but certainly a more detailed approach. It's being led by the likes of Mia Motley, who is the Prime Minister of Barbados. She's been at the forefront of this movement for quite some time and is certainly leading the drafting of these documents.

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