Global Stocks Plunge, Zelenskyy Blasts Musk & Trump, 'Beige' UK Budget

0:02 Bloomberg Audio Studios, podcasts, radio, news. This is the Bloomberg Daybreak Europe podcast. Good morning.

0:12 It's Thursday, the 15th of October. I'm Caroline Hepke in London. Coming up today, stock losses deepen as semiconductor firms and AI darlings plunge across the globe. Ukraine says that it will resume refinery strikes as Russia continues its attack and Zelensky lashes out at Trump and Musk. Plus, will it be beige? The UK's chancellor vows to stay the path on boring ahead of this month's budget. Let's start with a roundup of our top stories. The global AI sell-off is accelerating, sending South Korean stocks down 8% and forcing a temporary trading halt. Samsung and SK Hynix fell more than 9%, extending a route that has also hit chipmakers across Wall Street. Bloomberg's Anthony Stevens says the downside momentum

1:01 is serious.

1:03 It's really quite a horrendous day, right? You look at the big caps in Japan and Korea, those are down around 5% to 6%. But you also have a lot worse pain on kind of these cyclicals that were traded as structural names in the AI supply chain, the likes of the passive component makers, cables, capacitors, all this niche stuff in the AI supply chain is getting hit around 9 to 10%. This is a significant drawdown that is also starting to cause real technical damage.

1:31 Bloomberg's markets reporter Anthony Stevens there speaking earlier, the selling pressure intensified after US inflation hit a five-month high, boosting expectations for further Federal Reserve interest rate hikes. US semiconductor stocks have now erased $ 1. 6 trillion in six sessions following unwinding this year's blistering AI rally. Investors also questioning AI spending after Corweave's bonds plunged to levels that typically indicate distress.

2:05 Corweave's debt due.

2:06 In 2032 is trading below 80 cents a dollar with yields above 15%. That comes as Corweave seeks an investment grade rating, which its co-founder told the FT would give it access to, quote, all the money in the world. Analyst at DA Davidson, Gil Luria, says that borrowing at high interest rates to build data centres may not be a good investment.

2:33 Is boring at nine percent and the best return they can get off of that is a five percent return it doesn't matter how how much they scale they're destroying value at every term and that's especially true for the type of neocloud that funds their entire investment based on debt and the more leverage we use to build data centers the more risk we're bringing into the system.

2:56 Gil Luria there, who has previously called CoreWeave the subprime tranche of AI. CoreWeave shares fell as much as 17% on Wednesday, although they're still up by more than 60% since last year's IPO. Anthropic has told prospective investors that its third quarter revenue hits $ 16. 8 billion as it pushes ahead with plans to go public. The company behind Claude says that it has achieved profitability in the quarter on an adjusted basis. Jensen Wong, the CEO of NVIDIA, whose chips power Anthropic and OpenAI's models, has given his view on Anthropic's upcoming IPO, speaking exclusively to Bloomberg.

3:40 I'm delighted to see their success. First of all, these are the two fastest growing technology companies in history. Their revenues are real. And their profits generated from their revenues are real. This last six months, AI went through a transition. It used to be unprofitable, unuseful, very curious, great potential.

3:58 And now we're using it in real work. It's productive and it's profitable. It's generating enormous profits for them. And so because the tokens are now profitable and because the token demand is so incredible, It's the reason why they want more compute because the compute translates to more tokens, to more profits, and that flywheel for them is going to be great.

4:18 So that was Nvidia's Jensen Wang there talking about, you know, the industry as a whole, as Anthropic is set to begin formally marketing its IPO as soon as the week of the 9th of November. Now, in other news, Ukraine's President Volodymyr Zelensky says that he plans to resume strikes on Russian refineries, defying President Trump's request to stop. He spoke to the Financial Times after accusing the U.S. president and and Elon Musk of throttling Ukraine's satellite usage. He told journalist Piers Morgan that he feels betrayed.

4:55 What was really strange and what was not like between partners, the day switch off Starlink. So something absolutely crazy steps between us. So we hold energy ceasefire from our side. Russia attacked us with hundreds of different missiles, including 40 ballistic missiles. And all these ballistic, by the way, all 100%.

5:23 that they use them against our energy infrastructure.

5:27 Ukraine's Vladimir Zelensky there speaking to the Piers Morgan uncensored show. The White House hasn't publicly responded to the allegation that it cut Ukraine's internet. In a post on his social media platform, Elon Musk said that any limits on speed or usage are, quote, decided by the US military and ultimately the president. Zelensky's comments escalate a feud with Trump, who shocked allies by signing a diesel deal with Russia.

5:58 The European Union is considering further trade curbs on China after limiting its car shipments. That's despite a former Chinese government advisor describing the agreement as a special arrangement which would not become a precedent. Now, the news comes after the bloc moved to cap the import of Chinese hybrid vehicles at 350,000 each year.

6:19 That was last week.

6:21 Ola Kalenia, CEO of Mercedes, welcomes the deal.

6:26 Our reaction to this agreement last Friday between the EU and China, we think it's a pragmatic agreement to create some level playing field here and maybe have a little bit of a pause in the market development.

6:43 Ola Kalenius speaking yesterday via a translator. The EU has signalled more trade action to come, with Germany expected to pursue similar limits on industries, including chemicals and engineering. The EU's top economic official, Valdis Dombrovskis, has told Bloomberg that imbalances in the EU-China trade relationship are not limited to automotive.

7:08 He said that earlier this week.

7:10 Now, the battle with China over trade comes amid another brewing showdown in Europe, this time over the EU's own budget. French presidential frontrunner Marine Le Pen wants to slash the country's contribution to that budget to the nearly two trillion euro plan. And with Le Pen ahead in the polls, Thibaut Adebayo reports that Brussels could be forced to listen.

7:34 Marine Le Pen is increasingly acting like a French president in waiting. The national rally leader travelled to Brussels yesterday to push her economic plan, including deep cuts to France's EU contribution. And a DOXA survey puts Le Pen first on 37%, five points higher than in May. It also shows her beating her rivals in a second round runoff in next April's election. Le Pen says adopting the EU budget before that election would be a democratic scandal. Her push to cut France's contribution comes as the country's fiscal troubles have driven borrowing costs to almost quarter century highs.

8:12 In London, Tiwa Adebayo, Bloomberg Radio.

8:15 Now to the UK, Chancellor John Healey says that he will stay the plan, stay the path rather, with plans to bring down borrowing over the next few years. He told broadcasters at the IMF annual summit in Bangkok that he will maintain fiscal discipline. Barclays UK chief economist Jack Meaning says that markets are not currently focused on Britain.

8:37 I guess what they're hoping for is that actually this one is relatively beige and quiet, though, because if you look around the world and kind of where the eyes of markets are, they're currently not focused on the UK. And I think it's quite useful for that to be the case. And I think they'll be aiming to have basically something that doesn't surprise too much in this one.

8:55 So Jack Meaning talking about a beige budget for the UK. Of course, that will land on the 28th of October. Now, he added that the danger for Healy could actually come next year when he's expected to find money for ambitious government spending plans. Although the IMF praised the UK's fiscal prudence, it warned that the government, if it had any budget giveaways, that those should be temporary and targeted. So something of a warning also for the UK from the IMF. Those are our top stories for you today. Let's look at the markets. So, a plunge in chip stocks deepens a global equity sell-off. We saw that on the Philadelphia Sox Index yesterday. The MSCI Asia-Pacific Index this morning down 2.7%.

9:41 The KOSPI set for its lowest close since April. Core Weave shares plunged as much as 17%. And European stock futures This morning, slumping seven-tenths of 1%. We have had out earnings from Ericsson beating analysts' expectations in Q3. EBITDA coming in at 10.12 billion. Swedish kronor. Meanwhile, all of the trouble or a lot of the trouble in the equity market also triggered by the US inflation data that has added to the idea of Fed interest rate hikes.

10:14 Yields on 10-year Treasuries have fallen nine basis points. On two-year securities sliding 10 basis points today. The markets are now pricing in 40 basis points of Fed hikes by the end of January. Let's see what that does to European yields. All prices break food down 1.7% at $ 104.

10:30 27.

10:30 Those are the markets.

10:36 In a moment, we'll bring you more on the tech stock tumble and the growing rift between Ukraine and the US over SpaceX's satellite technology on the battlefield. Before that, though, another story has caught my attention today. The UK has some odd quirks. One of them being leasehold ownership.

10:55 Do you know about this?

10:56 It's a century old form of owning a property where you buy it for a period of time. So basically you own it. Usually it's 99 years, sometimes 125 years. or even 999 years for those who've really got a long time horizon. But there is always a freeholder who owns the building and the land. Moana Conium has been writing a guide to navigating the UK leasehold system and laws and giving you the reasons really why the UK government is looking to get rid of this ancient system.

11:32 New proposals would ban leasehold on new build flats. but wouldn't automatically get rid of existing ones. Her guide is really useful. It talks about marriage values, about the 80-year threshold, all the niggly details that catch people out. But it starts with something really quite ghastly, the tale of how she suffered a break-in needed to replace a smashed window.

11:55 But getting that permission out of the leaseholder took her months and it cost her £ 820. That's not for the window. That's just permission to put the new window in. I'm going to put a link to it in our podcast show notes because this is the sort of thing everyone really needs to understand, especially if you are thinking about getting on that property ladder here in the UK. Now, chip stocks have plunged on Wall Street and in Asia, which means a global equity sell-off is deepening, concerns mounting over higher interest rates, stretch valuations, and the enormous cost of building artificial intelligence infrastructure. Joining us now, Bloomberg's markets guru, Anthony Stevens. Anthony, good to speak to you. How much

12:39 of this chip sell-off is about rising interest rates versus worries about the AI build-out?

12:45 How deep is the sell-off?

12:47 They are tangentially connected in that the most stressed borrowers in the AI space are the neo-clouds. The neo-clouds are seeing significant credit stress from both rates and the fact that their core customers, which are open AI and anthropic, are struggling vis-a-vis the existing huge hyperscalers in the U.S., So the likes of Meta or Google or Microsoft are suddenly starting to do a lot better. Meta obviously led the way with its Muse, Wonder Model, but Microsoft and Google are not far behind. And now that's showing up in the revenue run rates of OpenAI and Anthropic. So Anthropic's revenue run rate came out early in the session and didn't really help the sell-off. It just continued, right?

13:30 As a result, we have the most stressed borrowers are the ones that have promised to buy the most computing power. As a result, we're seeing a sharp retracement in the expectation of future CapEx. So the likes of the memory players in Korea, they're down double digits. The circuit board makers in Taiwan and Japan, they're down double digits and all kinds of cyclical turn structurals, right? Like the capacitors and the wires and the opticals, all this stuff we've been talking about for months, where the demand looked like blue sky, unlimited demand has now started to look a lot more like the cyclical demand of old. And it's that valuation repricing that we're seeing in markets now.

14:09 Okay. Fascinating. Talk to us about CoreWeave.

14:13 I mean, I spoke to the CEO, Michael Intrator, when he was in London last year. They were very bullish about the outlet for the UK. Their shares have plunged 17% yesterday. CoreWeave is a neo-cloud. So, I sort of wanted to start there because that's something of a new term. So firstly, what is a Neo cloud? And also, why are investors so worried about Coreweave's business and its debt in this kind of Neo cloud world?

14:42 Well, let's get into the Neo first. The Neo cloud refers to the fact that this is a cloud computing provider, just like Amazon, for example, but that specifically looks to serve the AI customer or the machine learning customer. So as a result, they are really bullish about everything because they have pretty unlimited demand. So it's a good trade on the far as the demand side of things are concerned.

15:02 It's the fact that they need to fund their build out with the debt that is weakness here, right? They have a pretty solid business, but the cost of that business is debt and an ever-increasing price of the components that go into data centers. So they are pretty much racing ahead of their cost increases and their cost of debt increases. And for that, they need pretty much unlimited growth at their core customers. And the core customer base is OpenAI and Anthropic, and to a lesser extent, some of the other hyperscalers, because no one has enough computational power.

15:37 But they are very leveraged to the growth rate of OpenAI.

15:41 Right. Okay. So, that's what's been going on with CoreWeave and I suppose why people have really focused.

15:46 In on that business.

15:47 Meanwhile, Anthropic, ahead of the IPO of Dario Amadei's business in November, they also put out some third quarter revenue numbers. Do the results help with AI concerns?

16:01 It helps with Anthropic. They certainly look like a lot healthier. Those are pretty decent numbers. They go to positive free cash flow. You know, this very hotly debated term adjusted income is in play here where they're positive adjusted net income. Nobody has any idea what they adjust by. which is very hotly debated. But it's not enough to rescue the tape today. And that's what people are focusing on. There's a lot of back of the envelope kind of calculation early in the Asian session. So it'll be interesting to see what European and US analysts write up. But essentially, there's a little bit of a sequential slowdown from one period of reporting to the other, which is catching the eyeballs more than the very strong headline numbers.

16:44 Yeah.

16:45 Okay. Honestly, really, really interesting.

16:47 Thank you so much for being with us and talking us through what's happening in terms of the global equity sell-off and the AI story.

16:53 But I have one other question for you.

16:54 I mentioned earlier in the program, the story that we are focused on on leaseholders here in the UK and a really nice piece that Morwenna Coniam has written, trying to help others because of the difficulties that she's had with her leasehold flat and I hear that Singapore is also a place that has the same system. Does it work more easily in Singapore than it does in London and the UK?

17:19 It does work easily because everyone knows that that's the system, right? You lease basically a 99-year lease from the government. There's a bunch of complicated math that depreciates your holdings down over that period. And in reality, the Singapore property market is so bullish and so ebullient that actually what happens is your property gets taken out by a property developer who tears it down and builds a new one. And then you get another lease. And on and on we go.

17:45 But there is a complicated set of math that everyone in Singapore is aware of. that kind of keeps track of the lease and how much time you have left before the government takes it back.

17:53 You see, another reason why Singapore maths is just so important for everybody. I get it, Anthony. Yes, we don't tend to tear them down in London. Maybe we should do that a little bit more, build something new. Anyway, that's a whole nother can of worms. Anthony, thank you so much for being with us. Bloomberg's markets reporter, Anthony Stephens.

18:11 Stay with us. More from Bloomberg Daybreak Europe coming up after this.

18:16 Ukraine has accused the United States of squashing its access to Starlink. The Republican Senator Tom Tillis has called for the Department of Defense Inspector General to investigate, suggesting it's a strategic snafu, in his words. It comes as Zelensky met with the UK Prime Minister Antti Burnham, who called it a dark and difficult moment. Joining us now from Poland is Piotr Skolimowski, who leads Bloomberg's coverage of Central and Eastern Europe. Because, Piotr, Poland is also very much involved here. The foreign minister, Radoslaw Sikorski, on social media, asking Elon Musk if he is playing politics with your products again. Musk saying in a post that any limits on the speed or usage are decided by the US military. Pyotr,

19:06 what do we know about what has happened to Ukraine's access to SpaceX satellite technology?

19:13 The matter is slightly complicated, but still let me explain. Essentially, what we found out yesterday, what Ukraine flagged was that the access to Starlink was limited. This applies to a certain infrastructure, part of the infrastructure that SpaceX, Musk, SpaceX offers, which is military-grade infrastructure. It's called Starshield. And obviously, Ukraine relies quite heavily on that system, on Starlink as well.

19:45 And Starshield is essentially very important for Ukraine when it comes to frontline operations and when it comes to mid-range strikes. So it's also for defense as well. What happened is that the service has slowed, meaning drones have basically flown much slower than they should. Obviously, they become the bigger target.

20:06 They cannot respond when it comes to logistics. And as you pointed out, the confusion over the whole situation was obviously Ukraine didn't get any advance warning about this. They've been trying to find out from Starlink what actually happened. As you mentioned, Zelensky actually accused government and Musk for being behind it and doing it deliberately. And at this point, what we know is that at least if we can basically rely on what Musk last night tweeted, was that essentially the decision when it comes to Starshield lies with the government and with the president. If we take his word for it, that's probably a decision of the U.S.

20:55 President.

20:55 But again, we haven't actually heard from Donald Trump explaining what exactly happened and why the system was slowed.

21:02 Yeah, indeed. There hasn't been a U.S. response.

21:05 So this, you know, hence the question, what has been going on? European allies can't replace the technology though, can they? So how much are Ukraine's allies also going to try to get the ear of the US president to try to support Ukraine this time round?

21:22 We haven't actually heard that much from allies so far, at least openly. There must be something happening in the background. At least what Ukraine said yesterday was that they are asking allies, they're asking the U.S. for explanation. Ukraine, obviously, since the war started, Ukraine has managed to develop its own resources and resources. It does affect their operations, but still they can increasingly rely on what they've developed or Europeans have provided for their attacks. There's a lot of services, for example, from France that allows them to attack Russia, for example, or map this out.

22:06 Now.

22:07 Still, the question is, Ukraine does rely heavily on the U.S., especially for arms, for example. I mean, there's a special NATO program which Europeans are financing or NATO members of European NATO members are financing for buying U.S.

22:23 Weapons.

22:23 So it needs U.S. weapons. It needs, for example, Patriots interceptors to shoot down ballistic missiles that are coming in from Russia.

22:32 So at the end of the day, U.S.

22:34 Has leverage. It's not as high as it was before, but it does provide selling. It's important also intelligence sharing and weapons as such as well.

22:46 Okay, so briefly, Zelensky has also told the Financial Times in the past few hours that the strikes against Russian oil refineries will resume. So I suppose my question, Piotr, what are you watching for next? What may come next?

22:59 Well, this is a serious breakdown in relations, probably something compared to what we've seen in the Oval Office more than a year ago at this point. So if he does resume attacks, and Russia has been attacking, let's be clear, Russia has been attacking, despite Trump's truce, as we call it, Russia has been attacking energy targets in Ukraine kind of openly.

23:22 So if this resumes, obviously we're probably going to hear more from Donald Trump, who has been. Quiet, at least for the last day. He's already said that Zelensky is a bit more of a problem here, that he's less willing to cut a deal with Russia. Obviously, what's at the front of Trump's mind is that obviously there is an election coming up, midterm elections. And he is really, really focused on getting the diesel deal done.

23:52 Of course, experts are saying it's not going to really increase or have a big impact on energy prices in the U.S. But at this point... We are going to see more attacks from Ukraine responding to Russia. And the key thing is what the U.S. will do next. If we are going into a situation where the U.S. goes all in by limiting intelligence sharing and actually stopping providing weapons to Ukraine, this is going to be a serious escalation. And, you know, it's clear that Zelensky is taking a big risk here, but he probably doesn't have a really good choice.

24:35 Thank you for listening to Bloomberg Daybreak Europe.

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