Changing of Lagarde, Binance's $6.3B Hack, Big Tech's Bruising Week

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0:09 This is the Bloomberg Daybreak Europe podcast. Good morning. It's Friday, the 30th of October. I'm Caroline Hepka in London. Coming up today, ECB President Christine Lagarde has announced an early exit, leaving behind a daunting economic inheritance. Hackers have stolen $ 6. 3 billion from crypto exchange Binance in the biggest blockchain theft on record. And it's been a rough week for big tech.

0:35 Amazon and Intel are the latest giants to disappoint investors hoping for AI-fuelled returns. Let's start with a roundup of our top stories. Christine Lagarde says she's leaving the ECB early to have the freedom to speak about politics. She discussed her plan after the European Central Bank held rates steady yesterday. Former Central Bank governors Klaas Canot and Pablo Hernandez de Cos are frontrunners to replace her in a list that may well expand. Lagarde told reporters in Frankfurt she wants to shed her political neutrality.

1:10 I want to have the freedom of speech, the freedom of expression, and the freedom to engage on matters that are not monetary policy matters. I don't think that I can remain neutral. I don't think that I can be comfortable in that neutrality at the present time.

1:31 That was Christine Lagarde speaking, who is also, of course, a former French finance minister, announcing her exit at a time when her home country is at the epicentre of Europe's bond market turmoil. Bloomberg's FX and Breits reporter Alice Gledhill says that dominated the press conference about the rate decision.

1:50 All the questions pretty much from journalists were either about her future and her stepping down and then France. And it's very much the elephant in the room. But she was very careful with how she discussed the French bond issues.

2:05 That was Bloomberg's Alice Gledhill speaking this morning. Bank of France Governor Emmanuel Moulin says that it's not the ECB's job to step in to help France with its fiscal challenges. Euro area leaders will meet in four weeks' time to discuss Lagarde's successor before she leaves office next February. The Bank of Japan has held its benchmark interest rate untouched but is signalling a hike may be coming. In a statement, the central bank says that for the first time that underlying inflation has reached its 2% target, more than 80% of economists now expect a BOJ hike in December. Bitcoin tumbled after a suspected hack of the world's largest crypto exchange.

2:48 Binance says that $ 6. 3 billion of funds have been impacted in what the industry is describing as crypto's biggest ever hack. Our crypto reporter, Sivashri Ghosh, explains.

3:00 This is the largest crypto exchange that has been hacked. And the exchange has confirmed that about $ 2. 5 billion of assets have been frozen. But they have not yet given us the total amount of money that has been lost or hacked. There are some blockchain reports that are estimating that about $ 5. 8 billion of Binance-linked wallets have been kind of impacted. And the money has kind of gone out of those wallets. But we are waiting for confirmation from the exchange.

3:32 Our crypto reporter, Sivashvi Ghosh, after Binance said that it had temporarily suspended all deposits and withdrawals, blockchain intelligence firm TRM Labs claims North Korea was behind the attack, saying it bases that judgment on, quote, robust intelligence. The tech sell-off is deepening after another day of disappointing earnings. Amazon's results showed its core businesses slowing as it plans capital spending of $ 220 billion this year. Tony Wang, portfolio manager at T. Rowe Price, says that investors want returns for numbers that large.

4:12 We're at a point where there's a lot of spending. I think the market wants to see strong returns on that. So you have to essentially beat expectations on revenue and your core business as well as cloud and then also have the margin.

4:24 Accretive, I think.

4:25 So you kind of have all that that the market is looking for in order to.

4:30 Justify the spend.

4:32 Wang adds that Amazon is far from alone, as many of tech's biggest names have been bruised this week. Intel plunged in late trading after missing revenue estimates. Alphabet saw a record drop earlier this week for similar reasons, wiping out $ 500 billion in market value. Investors are increasingly concerned that AI is eroding tech giants' profitability, even as they borrow trillions to build new infrastructure. Oil prices have climbed towards $ 117 a barrel on signs that the U.S. may resume strikes against Iran. It comes as sources have told the Wall Street Journal that a top U.S. commander briefed President Trump on military options on Thursday. Ziad Daoud from Blue Bay Economics sees oil rising further, but not as

5:17 high as the $ 150 a barrel, which some analysts fear.

5:21 Oil can spike, you know, temporarily to any price. We just think that 120 and 130 is a sustainable, probably, ceiling if the war resumes. And that's for the following reasons. We think that a lot of the disruption and the geopolitical escalation is already priced in the price of oil. You see that by looking at the price of oil, which is rising, versus the flows from the region, which are also rising. You know, if you have more flows, prices should come down than not. So that tells me there is a lot of geopolitical risk premium embedded in the oil price.

5:51 That was Ziad Daoud from Bloomberg Economics. It follows reports that Ukraine's military has paused strikes on Russian oil refineries after weeks of pressure from President Trump. The UK Treasury could find itself with billions of extra pounds at its disposal. That's if downbeat forecasts are raised. Bloomberg's Tima Adebayo has more now.

6:15 The official projections surrounding Chancellor John Healey's budget this week were subdued compared to private sector expectations. Jim O'Neill, a former advisor to Prime Minister Andy Burnham, said yesterday he was baffled by the Offit for Budget Responsibilities prediction. A recent run of Bumper UK data was not included in the fiscal watchdog's 1.2% 2026 growth forecast, which was completed in early September. That was before the release of unexpectedly strong July and August GDP figures. Forecasters at JPMorgan and Goldman Sachs expect growth of 1.6% this year and 1.5% in 2027.

6:50 In London, Tiwa Adebayo, Bloomberg Radio.

6:58 And lastly, legendary actor Patrick Stewart has died in Los Angeles at the age of 86. Most widely known for his work in The X-Men, Stewart also won three Olivier Awards and a Grammy. His career began on the stage with the Royal Shakespeare Company with roles like this one in Macbeth on PBS in 2010. Is this a.

7:19 Dagger which I see before me?

7:22 Come, let me clutch thee.

7:27 Patrick Stewart there. Gosh, that voice. William Shatner from the original Star Trek series has called him a magnificent actor, while Marvel Studios says it is deeply saddened. Yeah, Patrick Stewart. I'm sure lots of people have got their favourite moments from his long and quite incredible career. I just remember that moment where he tried to pitch a film to Ricky Gervais in extras. Yes, he could do comedy. Amazing. Now, it is just about 6.09 a.m. Let's have a look at the markets this morning. So, the dominant theme at the moment is the tech-led risk-off sell-off that we are seeing in Asia in particular. All-country world index down two-tenths of 1%. But look at the Nikkei dropping 2.3%. The

8:12 KOSPI down a very significant 4.7%. As we rotate out of tech, it also looks like Treasuries are bid. So, 10-year Treasury yields at 492 down by two basis points this morning. It does look as if there's some AI capex fatigue, particularly around Amazon and Intel. The Nikkei 225, the worst performer among investors. The major indices, certainly in Japan, is down 2.3%. Let's also look at the oil markets this morning, trading at $ 116. 54, so up by 1.5%. Stock futures for Europe are down half of 1%. NASDAQ futures also dropping 2% this morning. So, that's a look at where we are in markets. In a moment, we'll bring you more on the future of Christine Lagarde and the ECB after Bloomberg broke news of her early departure yesterday.

9:01 And we will round up the week in tech earnings, really crucial to understanding the AI build-out. There's always another story, though, that catches my eye, especially on a Friday as I think about the weekend. And I picked out this one today. Who gets to decide on national culture? A new Netflix adaptation.

9:21 And a period film, two adaptations of a Polish novel have sparked a national obsession in Poland. The book is The Doll, Lalka, in my non-existent Polish. Bloomberg's Zosia Wanet has been writing about this, saying that book clubs and social media and dinner tables in Poland have been filled with what she says is a vicious debate about which is the better adaptation. The book's 700 pages long. It's about sort of obsessive love, this merchant who falls for an aristocrat. He is amassing his fortune. He's trying to make it in high society. Does it ring any bells?

9:57 I think lots of parallels in other European novels of the 19th. century. Because this also is about a kind of big sweeping portrait of Poland in the 1890s. Apparently, it also really has deeply resonant stories. chapters in it because Poland is such a fast-growing economy now that is radically transforming itself. I think Sosha Warnett's story interested me because, as I say, parallels to other European countries, to other novels like Anna Karenina, Tolstoy, or Great Expectations from Dickens, and maybe some of those adaptations like Emerald Fennell's Wuthering Heights or, well, there's a new Pride and Prejudice and a new Sense and Sensibility film out this year, which are much more traditional. So I see that argument more

10:48 and more. A rapidly changing society. We're looking to the past. Who has the right to adapt to these great works of fiction, these kind of great classical novels that Europe has. I think Poland's having that argument, but I see it in lots of other European countries too. So fascinating. I'm putting a link to Zosia Wanet's story in our podcast show notes as we head into the weekend. Maybe you'll pick up a book as I might this weekend too.

11:17 ECB President Christine Lagarde is stepping down nine months early to be able to speak about political issues, just as France's presidential election and budget crisis are deepening. It comes as the ECB held interest rates at 2.5% yesterday, as expected. Bloomberg's Jana Randall joins us now from Frankfurt. Jana, you broke the news. Before Lagarde announced it herself yesterday, the ECB president says that she wants freedom... She broke the mould at the central bank. How will her time as ECB president be remembered or judged, do you think?

11:53 Good morning.

11:54 Yes.

11:54 So, lots of elements to discuss there. And we could, you know, take quite some time. But to be brief, you know, steep learning curve, I would say. She's not a central banker or she was not a central banker before she got the job. So, there were a few rumbles. We will all remember her remarks early on. We're not here to close spreads. That caused some disruption, I should say, in the early days of the pandemic. But overall, I think she can look back to a quite positive legacy.

12:25 The ECB was the only central bank, the only big central bank, I should say, that actually managed to get inflation back to 2%, back to target after the big shock that followed the Russian invasion of Ukraine and right before the Iran war. So, the ECB was pretty much on track there. She can also, you know, claim... to have restored camaraderie on the governing council. We do remember the divisive Draghi years. And, you know, there was quite a bit of commotion publicly and a lot of argument when Draghi left. And now look at the governors. Yeah.

13:10 from the same hymn sheet. It's all very civil. They get along. It doesn't mean they're not, you know, they're not always of the same opinion, but they found a way of doing business in a very efficient and very friendly way, I should say. And that is truly her doing. The other thing that's worth mentioning is, of course, the digital euro. Which she pushed throughout her time at the ECB and probably still will in her final weeks and months. So, yeah, overall, I think a successful presidency. Except for how she handled the exit, I have to say. I mean, you know, we've...

13:51 speculated about her leaving early for the past year and a half now. Finally, we have some certainty, but that she, if you ask me, could have handled a lot better.

14:03 Yeah, because she made the announcement at the same time as this rate decision from the ECB. And so you saw in the press conference yesterday that there were a lot of questions about her personal future alongside what the central bank is actually doing. And so there are question marks about what she may go on to do in the future, you know, how she handles the role maybe between now and February, perhaps, but also about who will replace her, how that process is going to work. I mean, Germany saying that there'll be a decision by the end of the year.

14:36 Yeah, I mean, the next couple of months are going to be very difficult for her because, you know, in a way she's said goodbye. She still needs to be there. And she said she is going to be focused and she will do her job until she leaves. But, yes, her mind may already be in France and elsewhere. And then...

14:59 It's not a whole lot of time to find a replacement. So there were rumors before, of course, and governments were already on the case. Two frontrunners, Pablo Hernández de Cos, Klaas Knot, both very well-respected politicians. candidates and now it's for governments to really negotiate in the end it comes down to the German Chancellor Friedrich Merz to the French President Emmanuel Macron to agree and as the former Merz said yesterday he wants to do that by the end of the year so you know they have some talking to do.

15:32 Yeah, absolutely. Jana, thank you so much for being with us and for briefing us on what was your scoop yesterday, learning early about Christine Lagarde actually stepping down in February. Bloomberg's Jana Randall there from Frankfurt. As for the monetary policy, of course, holding steady at 2.5%. Is this the ECB wrapping up its hiking cycle? There may be one more we shall see. So, our thanks to Jana. Stay with us.

16:04 More from Bloomberg Daybreak Hub coming up after this. Okay, let's turn to the story about tech. It has been one of the most crucial and important weeks for tech this week. Results from Microsoft, Alphabet, Intel, a whole range of semiconductor names, AI infrastructures generating revenue, but the cost of building it out means some really big winners and losers out of this week. So I wanted to speak to Bloomberg's equity strategist, Ruhail Amin, about this. Great to have you on the radio program. First, just update us on the latest earnings, Amazon and Intel.

16:46 Yeah.

16:46 So, Intel reported results after the bell last night and the stock is down more than 20%. So, it looks like it's going to sell off quite strongly at the open and it's going to break a couple of very key technical support levels. What's concerned the market with Intel specifically is the comments that management made around the softness in the PC market. So, the PC business for them is about 50% of sales, so quite a large driver of the business and the stock. And they mentioned that because of limited IT budgets and memory constraints weighing on demand, there's going to be some softness heading into the first half of next year. And as a result, you're going to start to see some analyst estimates come down.

17:30 Okay.

17:31 And so, yeah, that's quite a significant sell-off for Intel.

17:35 Okay.

17:36 So, this could be quite a big day, actually. And if you look at the stock futures for the NASDAQ, they've really slumped. Let's see what happens with those share prices. In terms of this week, though, what stands out as a beat? I mean, surely, that's got to be Microsoft. Microsoft, for sure.

17:51 So, Microsoft is an interesting one because that particular stock has diverged versus the other hyperscalers, so Amazon Meta and Alphabet. Alphabet obviously having a very bad day yesterday, record drop, raising $ 500 billion in market value. But what I thought was interesting from the Microsoft earnings was the comments from the CFO on the earnings call where she spoke very positively about the strength of their balance sheet and that they're still free cash flow positive versus some of the other hyperscalers, which is just burning through cash. And the problem that the market is trying to understand is, okay, great, all of this investment is great. But ultimately, you're no longer, you know, these companies are no longer funding this investment

18:34 from the cash that their businesses generate. They're going to have to tap debt markets and other sources of funding. And when you do that, the returns question, when you're going to generate adequate returns becomes sharper. And that's what's causing a lot of the consternation in the market.

18:51 In terms of Alphabet, do you think that Wednesday has sort of crystallized some of the concerns? Why was it such a big disappointment?

19:00 Yeah, very much so. So, obviously, they had a second consecutive quarter of turning negative free cash flow for about two decades since they listed as a business. They've never been free cash flow negative. The previous quarter was the first time. But the other concern with Alphabet was the slowdown in the search business. Search revenue growth slowed to about 12% from 17%. And there's some concern that these new AI tools and AI things that they're kind of rolling out is starting to cannibalize elements of their existing business and potentially going to be lower margin.

19:37 Yeah, absolutely. I mean, search is going up in terms of the AI-driven search and the queries. So, people are using it, but it's about whether you can make money from it or not. As for the other companies that are reported, again, it's not just the hyperscalers. There were lots of memory and semiconductor names, lots out of South Korea this week as well. So, just give us a perspective on that as well.

20:03 Yeah.

20:03 So, we did have some South Korean names, including SK Hynix and Samsung Report. SK Hynix was pretty strong. So, that's a bellwether stock for memory. They mentioned that memory demand continues to be very strong throughout, you know, they're kind of sold out until like 2029.

20:22 Yes.

20:23 And that did provide a little bit of a boost earlier on in the week, but obviously superseded by the hyperscalers, which is ultimately what's driving the trade and the index following, you know, Alphabet and Amazon Intel today.

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