Bloomberg Markets: European Close 10/23/2023

Bloomberg Markets European Close. Live from New York and London, analyzing the major market moving stories across the day in Europe, hear from the biggest newsmakers and showcase the unrivaled expertise of Bloomberg News. (Source: Bloomberg) European stocks are off their lows and Paris is in the green, but London is still a little lower. The focus remains on single stocks, but the focus is now starting to shift towards the index level. The Stoxx 600 is down, but this is due to strong volume and positive trends from single stocks. The ten year yield is down by two basis points and Walgreens is up by 5%. Meanwhile, the US is seeing some buying coming in into the long end of the curve. However, analysts suggest that if yields continue to climb, this will be a problem for the US and if earnings disappoint, this could be a major issue. Key topics for the week include tech reporting, yields, geopolitics, the budget deficit in the US, and the size of the expected yield curve. Key to the week is whether the earnings story will be the dominant earnings story, according to Deutsche Bank's Private Bank.

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Monday, the 23rd of October. I'm in New York. Back home in Europe, stocks are off their lows, but it feels like a really cautious session. As you can see, Paris back in the green, but London is still down. Frankfurt is still a little lower. And again, it's a big volume day. The countdown to the close starts right now. The countdown is on in Europe. This is Bloomberg Markets European close with Guy Johnson and Alix Steel. Okay. This is what's happening in Europe right now. Equities are off their lows. Volume is reasonably good right now. I still think the focus remains on single stocks, though. You are now starting to see some action at the index level you got there. What's going to be really hard today? But look at that. 432 So we've seen a break down. But as I say, we're bouncing a little bit. This feels like it's led by the US. Single stocks matter today. You've got the Stoxx 600 lower but take a look at what's happening with Volkswagen German Cup. Why did German companies pre-release I thought we were getting the earnings later on this week they come out they're disappointing why do you want to pre-release when the disappointing as well anyway Volkswagen is down today you got some decent news coming through from Philips though So basically what you're seeing here I still think is a focus on single stocks, Alex, but the index action I think is finally starting to come through. Yep. And the same thing here for the really S & P, you're looking at energy really underperforming as oil winds up getting hit. Chevron also down a little bit on that deal. But take a look what's happening in US equities that we are well off the lows, which is really incredible. You're also seeing some buying coming in into the long end of the curve. Right now. You have the ten year yield down by two basis points. I also want to point out a fun one. Walgreens apropos of nothing. It's up by 5%. J.P. Morgan upgrading the stock. The idea is like it's gotten beaten up so much now we can start buying. And I wonder if as we get through earnings, it'll be like we've been beaten up enough, the bar to beats real low. It's not going to take a lot then to get a rally in a particular stock. So you think Santa Claus might show up? I do. I think there's a lot of book squaring. I don't know when that's going to is going to take place. I guess it's all because I guess if yields continue to climb, that's going to be a problem. If earnings disappoint, that's going to be a problem. But I agree. Yet the bar is being lowered a little bit when it comes to that earnings narrative. But it's tech this week. It is. And that's everything. If tech I this is I honestly I think this is the week tech delivers that maybe this market still got legs. I think if not the yield narrative becomes the overriding story maybe plus you throw in the geopolitics, the technicals, all of that sort of stuff. So catch of the day is what is going to matter more this week? Is it going to be that yield story? We pushed three 5% on a US ten year or is it going to be that big earnings story that we continue to watch out for as we work our way through this week saying it stuck on the head of investment solutions for Central Europe and the US at Deutsche Bank. Private Bank joins us now in London. ZM Great to see you. I'm sorry, I'm not there. What are you watching out for this week? You've got big tech reporting, you've got a big move in yields. Once again, we go through 5% on a US ten year. Which of those two factors is going to be dominant this week, do you think? Thank you, Guy. And I tried to keep your seat warm while while you're enjoying New York. So that. So in a way to significant topics that we need to tackle separately. I don't think it's one or the other, but by the end of today, most probably you may end up having conflicting views that some part will assume earnings are the most critical or the or the yields. The way I look into it is there have been a lot of non-economic factors that have been pushing yields quite high. And we really maybe didn't pay enough attention as markets in terms of why they they were so fundamental. Just to give an example, the yield curve control coming from Japan, the economy, conditions in China or the budget deficit in the US or in in a way, how the issuances have been increased over the last months and especially the expected in size of issuances in different segments of the yield curve. And all these are still there and they haven't disappeared. In addition to that, there are further economic impact that we will be seeing in the future. So earnings are quite important and they are showing the actual state of the economy. That's why when I look into the earnings, how things have been in the past and where they can end up is critical. But yields being elevated and the economic draw down that we will see most probably in the coming months with this type of a yield level and a significant increase in concerns with uncertainties. I know it's I, I park on that side. So it's an if I'm wondering, though, what you think then is it is fairly priced because you could also make an argument that the yield story and the gloomy outlook we've already priced in so it won't take a lot to get upside. Is that a correct assessment when it comes to, say, European equities? You can say that it's true, because when you look into the European equities broadly, it has been the value play, which technically shouldn't be that much of a concern with the the growth concerns that we have broadly and the US is a massive play for that. But at the same time, growth is is growing and it's not going there. You've been talking about the Magnificent Seven and the earnings intake, especially in the US and European equities with the elevated yields also in US, as well as the hurdles coming around the globe, which impacts Europe directly, having a huge pressure now and hence we are heading into a more difficult environment than we were a month ago. Then if there is so much going on at the moment, so much risk and uncertainty, probably more importantly that investors need to to bear in mind why should investors be investing? Why shouldn't you just retreat to the sidelines, wait and see what happens? I can't remember. I've been doing this a long time. I can't remember a time in which there was this much uncertainty. We certainly haven't seen it for ten, 20 years. Why do you want to be investing with such uncertainty, which you can't price and you can't really analyse? That's a that's a great question. But one thing that is very important when it comes into investment is the risk premia, where the risk premia is. And what happens if I leave my cash in cash and or invest in the broader investment products? This is how investors are looking into things, because there have been an accumulation of growth in terms of the investments that they most of the investors have achieved and equity markets performed really well. So we cannot ignore the fact that this year, even though it started with a lot of headwinds, there were very strong performances that we've seen in most of the investment assets. And if the risk free rates are now reaching into a level, especially when you put your money into a very conservative fixed income assets and you're getting rewarded by a significant return, then why would you leave that out? So this is where we see and I think one of your guests also was asking, where should I invest rather than whether I should invest or not, is the question that we also hear from our clients. So when do you think would be the right time to put more money, say, into equities? What would you need to see for that to happen? And now that we're heading towards the heat of the fourth quarter, towards the end of the year and keeping existing portfolios as is and not increasing the risk on Moody's, the position that we are in. So where then you can add more is especially the equilibrium between the VIX and MOVE index has tilted towards equity volatility more than bonds for the first time for quite a while. And we would like to see that coming back down and in order to then have a better visibility on the not only valuations but also earnings. And so we'll see potentially better than expected earnings broadly both in US and in Europe. But as we have experienced last week with one negative news or slightly lesser expectation, that can be a massive sell off. So we will want to be exposed to that. I think we would like to see some of those core earnings and validations to find its way out towards the end of the year and start looking into the core of the value chain and find the right places to invest. It's tough. I mean, I think those takeaways definitely. Tamzin and thank you very much, Zainab Allosteric Unload. Joining us, head of Investment Solutions for Central Europe and us at Deutsche Bank Private bank and Guy this is we were talking about this off air is that do we get a Santa Claus rally like do we get that scenario this year or is this time very different? Like, how are you going to present your portfolio at the end of the year to your clients when you could also just be putting your money, money market funds? I think it's safe to do that. It's a really tricky question and I think it was talking there about where do I want to invest? Do I want to invest? Those are two big questions right now. Do I want to invest comes first and then you get to the where do I want to invest? And and as you were talking about earlier, with so much money in money market funds, people making so much money off that as well. Yeah. The the compounding effects of of that month after month must be enormous right now. Right. Which also then flies in the way of we're going to have a landing at all. Yeah. I spend that money market money advancing to know where it's going. Yes I kind of is that supporting the consumer at the moment? To a certain extent as well. Yeah. And I because we're don't know that off the bat which is quite interesting. So it seems like in being invested. Yes. Where do you do? It is a whole different story. So coming up, we're going to talk about one company that's getting hit and that shares of Volkswagen, the German automaker, cutting its third year, third quarter, I should say, forecast, even though we get earnings later in the year. But then they do some pre announcing it gets confusing, but the stock is down. We'll break it down for you. This is Bloomberg. Today, Bloomberg's Guy Johnson and Alix Steel sat down for an exclusive interview with Virgin Atlantic CEO Shai Weiss and Delta CEO Ed Bastian. The health of airline companies, the future of business travel and headwinds facing the industry. Tune in today at 11:30 a.m. Eastern, 4:30 p.m. London time on Bloomberg Television. Income tax changes everything. So Volkswagen shares under a little bit of pressure. The carmaker cutting its forecasts. This according this thanks basically to high production costs. We understand there's been some flooding that's impacted a key supplier in Slovenia. But I think actually the bigger picture here is that there isn't the demand necessarily that we thought that there was going to be for some of these products. Another pre-release, you got to love a German corporate pre-release. Why? Why do they keep doing this anyway? So in business, reporter Stefan Nicola joins us now. Stefan, let's talk a little bit about what is happening. Why? What is the disappointment? Where is the key area of disappointment in these numbers? I'm not seeing demand for the new EVs, but I'm also saying that there's a supply side issue here as well. Which of those two things is is this is the problem demand or supply here? Yeah, I guess it's a bit of both. VW cited hedging losses for its out for its forecast cut, but I think analysts are mainly disappointed about the two things you already mentioned. The demand for its EVs aren't isn't as great as expected. And also they've fallen behind in China its biggest market to local champion BYD. And that is really of concern. Another side of the issue is that the costs, mainly at the main VW brands at the moment are too high. So the company is under pressure to get both issues under control. So how much of that is idiosyncratic Volkswagen thing and how much of that is also industry wide? Yeah, the industry is under pressure a bit. We saw Elon Musk, Tesla, you know, really being a bit downbeat last week, a bit cautious. The first, you know, sales slowdown in a while. Elon Musk has warned time and again during his call that interest rates are are really affecting consumer confidence and that the same is true in Europe. High living costs are troubling consumers and really they're not shifting to EVs at a pace that that was expected by the companies here. Musk, though, is lowering prices. Musk can use dynamic pricing to drive demand. Does Volkswagen have that capacity? Yes, they certainly have fewer capacity to do that. We have to remember that the unions are very strong in Europe, in Germany. And, you know, VW is shifting to EVs while also having to invest in combustion engine models. So they are certainly under much more pressure than Tesla, you know, to to drive those both both vehicles at the same time and make a profit. And that is not an easy thing to do. I mean, Tesla has government support to some extent and they're still having issues. I mean, there's a nice subsidy here in the U.S. Does Germany have the same kind of subsidy? I mean, you're just not going to get the volume without the subsidy unless you're uber wealthy. Yeah, that's true. And of course, Volkswagen is a global company just like Tesla has become. But the subsidies in Europe for EV purchasing are going down, and that's one reason why Volkswagen is suffering on that front. It's also having to build up a large EV supply chain battery factories, raw materials and all of that is really difficult and expensive, and that's why we're seeing the shares on the pressure. All right. Thank you so much. We really appreciate it. Bloomberg staff on Nikola. And then we'll get earnings later this week. So we'll see what happens there. All right. Coming up, it is also a very big week for European luxury caring. And our may as well report third quarter sales and revenue tomorrow. Again, there's industry stuff and there's idiosyncratic stuff. We're going to speak to Carol Magill, head of European luxury goods research over at Barclays. This is Bloomberg. Our Amazing Caring are set to report third quarter sales and revenue tomorrow. So why don't you do a nice preview? Because clearly luxury retail has been under a lot of pressure. Carol Maggio is head of European luxury goods research over at Barclays. Barclays updated its estimates for Amazon, has an overweight rating on the stock with a price target of 20 €77. Carroll, thank you so much for joining us. So let's start with Hermes. What's going to be the bright spot? What's going to be the negative? Because in some ways they have a lot more pricing power ability than, say, carrying. Yes. Hi. Thanks for having me. So I feel like it's going to be okay tomorrow. You know, compared to the rest of the sector and things like caring, for instance, EMS is supposed to be seen as more defensive and should be able to report quite a solid growth. So we expect growth for our message to be up around 13% to three sales. And so, you know, you they should be able to report positive growth still in the key regions. So the US cohort should be positive, but also the Chinese, of course, in the European markets. So, you know, this could be, of course, the bright spot compared to peers that the US and maybe the US market, for instance, is still quite optimistic versus the rest of the space world. For peers it has to negative already. What about pricing? So they raise their prices for certain brands like Chanel, right? What are we going to get a read on how well that's going if the market can absorb that? I think it's going quite well for them. And if you compare what Amazon has done compared to peers, I think their price increase has been quite lower compared to a name like Chanel, for instance. So they only raise their prices by 7% this year in 23. And in our view, of course, the sector has been raising their prices by double digits. So compared to the rest of the street, Elemis has been much more in a way in the cautious on price increase. And so in my view, they could still do even a bit more. When you look toward next year because of that, because they're coming from a much lower base of price increase versus peers, and of course because the brand is such a high brand image, I think they can see pricing without seeing that much pushback from consumers. Interesting. Even the lower price point, I mean, I pay lower in quotes, but even lower price point for Hermes. Yes, I think so. I think, you know, on things like accessories, shoes. I think you can still raise prices because, again, compared to peers, they are still quite attractive. So in my view, pricing also remains a key strength of elms compared to other names in the sector. All right, let's go to Caring then. Could be a very different story. What do you think we're going to see tomorrow? Yes, that's going to be yes, I think that's really the key contrasting factor here. Tomorrow is what is quite good and carrying, I think, a bit more under pressure. So I think for carrying we expect them to report a negative growth in Q3. So we have -8% in our expectation for the group in minus seven for the key brand Gucci. So here is in the tail, of course, all the key markets will be under pressure. So of course the Chinese cohort, the US cohort and as well the European one could still be under pressure for the key brands as well. So we just know don't expect much improvement in the short term. And of course, when you look at Gucci, the key focus is now on the new no brand transition, right. To highlight a designer a few months ago and you have shown is first collection in September. But of course, it's too soon for now to tell if it's going to be a success or not. So in our view, we are still in the really wait and see mode for Gucci and for this recovery story. But in the meantime, we have a tough macro environment, a big gap versus peer into the performance. So I just don't see no cheering getting better in the short term to make it more of a next year story at best. Datadog. But but but does it also wind up meaning that these changes, management, artistic changes could be that catalyst? We just don't know when that catalyst actually happens. Yes, that's a possibility. I think as well, we need a bit more clarity as to what the new management is supposed to do. Are we going to see a clear imaginary site for Gucci brand? This is not clear yet. Are we going to see much more changes at the company level? Again, we just don't know for the moment. So I think once we have a bit more understanding of what's going to happen at the brand level, this could maybe also be a reassuring sign for the markets as to Gucci being able to get back on track. So wrapping that all in, then when we when we have the idiosyncratic interest in credit issues, you also have China, which we know is struggling, the US which has question marks. Europe seems to be in some respects a little weaker, like what we heard from LVMH, surprisingly. So what's actually priced in? On a macro level, like have we priced in enough macro uncertainty to these names? I think we have to some extent, but at the same time, I feel like we may have just entered the phase of no downgrade cycle in luxury goods. And I think things really started to become a bit more under pressure in Q3. So over the past few weeks, But I think we can still expect some negative news flow coming from the macro environment. The Chinese consumer, who I think has been quite resilient in luxury goods spending up until now. But I'm just wondering, you know, up until when can this last and are we going to see a bit much more pressure from the Chinese consumer going forward? So in my view, it is pricing to some extent, but I still expect a bit more pressure to come in in the short term. If not, then becoming a bit more optimistic on luxury. But I think we still have to wait to see that. Okay. So where do you think the Chinese consumer is then versus, say, US and Europe? I think for now they have seen the reported quite positive growth. And when you look at what LVMH was saying on the Iqoo three sales update, there are quite a key growth driver. So they are actually fine versus of course, the US cohorts. That is no negative and the European cohort which became negative in Q3. So I think the Chinese are still the most resilient, but in my view we could expect as well this cohort to become so impacted by the macro environment to some extent at some point in the upcoming quarters. So in my view, I'm just a bit more cautious that in Q4, maybe next year we could also see Chinese being a bit less of a growth driver as it has been in the past few quarters. Oh, interesting. And maybe that part not necessarily being priced sort of any softness there. We've been expecting it, but they've been. Okay. Before I let you go, though. What about us and Europe? Because the trend was us is going into Europe and we're going to be buying stuff. I may be talking my own book, but I'm not doing that anymore. So I'm wondering how you see those areas playing out. Yeah, absolutely. I think so. There's a bit more reason to be cautious on the Western market, not just China. So of course, as mentioned, the US market has been negative for a few quarters now and I guess it can remain like that for again, a few more upcoming quarters. I think the comps could get easier for the American cohorts by next year. But you know, at the same time, you also have some election in the US taking place next year. And when this happens, it's going to bring a bit more volatility so consumers can maybe stay in a wait and see mode before spending more on luxury goods. So it could take some time for the US cohort to get better. And on the European side, we have, as I mentioned by LVMH, just seen them turn negative in this quarter. So it can they be like the US cohort and be, you know, weak for pretty much a year? So I guess, you know, maybe the risk you see here on the downside for the European cohorts. So basically the Western side is under pressure as well. Yeah. So data that maybe the worst isn't baked in. Carol, thank you so much. Really appreciate it. Wonderful lead up into tomorrow. Carol Maggio, a head of European luxury goods research over at Barclays. Just taking a quick check on the markets. We're just moments away from the close of European trading. You have European stocks actually eking out a gain. You get travel and leisure, retail and media within the ESA. XRP doing pretty well. The Euro Stoxx 50 also in positive territory. Plus our exclusive interview with is Virgin Atlantic and Ed Bastian, Delta Air. This is Bloomberg. You'll be next to market trading about to come to a conclusion. Monday is generally of being reasonably positive. In fact, in the States. The last 15 Mondays have been up and things certainly are starting to turn around. Maybe a little late for Europe. Paris moves into positive territory. Germany comes back to flat. London looks a little light. The reason for that, the big mining stocks are a little soft today. That's dragging down the London market a little bit. Let's take a look at the session. You can see the bounce quite clearly in terms of what has happened midday onwards. We come up off our lows. We come back to neutral. But look at the levels for 33. We broken that 440 level. We're kind of holding below that now. That has been a key psychological line in the sand for a lot of investors of late. The fact that we're breaking down towards the bottom end of the recent range really quite significant. This on the day, of course, where we've seen the US ten year hitting 5%. We've come back a little bit from that. But nevertheless, we're in a position now where we are off the lows bunch of single stocks. The single stock story continues to be where I think the real interest lies right now. Volkswagen, I keep repeating this. What is it about German companies that they have to pre-released when they have bad news? Today, Volkswagen did that. We're expecting the numbers a little later on this week. And the stock has reacted quite strongly to that. We're down by 1.2%. Good news. Philips upgrading its outlook, though. That stock bounces. So when you get positive news, you get a reaction. This regroup, I think is another fascinating company. This is a this is a property company, a housing company out of the UK. Couple of things happening here, one of which on a sort of single stock level, they've downgraded their numbers today. The market has taken that on board and we've seen the sector coming under pressure. But it's interesting, the Chancellor of the Exchequer, Jeremy Hunt's, talking about more help on the demand side for first time buyers. And it's going to be interesting to see how the Conservatives manage the housing market going into the next general election. This is a critical area for them. You could argue everybody says that it's all about supply and there's very little evidence that actually we're starting to see more supply coming into the market. So we're going to watch out that one. What's that one? Quite carefully. But but the bigger story here is, of course, what's happening with yields and that gradual erosion that is happening in the UK housing market as a result of gilt yields progressively moving higher. Is the Bank of England done? We're going to wait. We're going to watch on that front. And the housing market absolutely sensitive to what is happening there. So this SRI group down by 5.52% today. Okay. We welcome now all Bloomberg Television and radio audiences. We need to talk about what's happening in the airline sector. So, Alex, I've got a theory if you want to know what's happening with the global economy, you don't ask an economist, Definitely don't ask an economist. Instead, you want to ask an airline CEO. Why do you want to ask an airline CEO? Think about it. They sit at the intersection of pretty much everything consumer demand, business confidence, global supply chains, the labour market, geopolitics, fuel prices. The list goes on and on and on. So are we heading for a soft landing with the global economy or is the landing going to be a hard one? We've got the perfect people to ask that question to. The CEO of Delta is, of course, Ed Bastian, the CEO of Virgin Atlantic is Shai Wise. Delta, remember, owns 49% of Virgin and Delta's just posted Q3 earnings. Fellas, nice to see you. Good to be with you. So we were having a little chat in the green room beforehand. I talked to Shai every once in a while in London. When I talk to Shai, he talks to me about various things and one of the things he talks to me about is the impact that he's had on it. In many ways, this this can be demonstrated, but I think the most critical way it can be demonstrated is by what you're wearing on your feet. He tells me that he is responsible for you being cooler, for your footwear, being better. He takes credit for all of this. So we've got to clear this up before we start the interview. Well, there's no is this true? There's no question he gets a lot of the credit for me being cooler. Guess that's okay. That's a good start by the footwear. I'm not so sure. There's a lot of people that feel like they've they've taken ownership of my footwear of choice. So. So she has a line he has to stand in. But it's okay. So that's a that's a not really actually, I think that's a that's some shade. The only thing I would add to that, if you look at the timeline, admits it's happened in the last five years. They've known each other for 11 years. Go figure. It was he was in the queue. He's in the queue. And they didn't get him the store wearing ties and then he'll then I'll maybe give him his was I was going to ask about this. I've never ever seen him in a tie ever. I think I think I think that's right. Okay. Well I think we've I think we've resolved the Yeah, we've resolve this issue. Okay. Everybody's using everybody's talking about landings at the moment. So let's talk about landings. As I said at the beginning, this conversation kind of brings everything together. You guys see absolutely everything. And you've got a credit card business, you've got an oil refinery, you've got you've got all of these things that allow you to figure out what is happening in the world right now if you were to. Describe a landing that the US economy is going to have. The global economy is going to have. What kind of landing do you see? Well, this has been the most forecasted recession. I've been in business over 40 years that I think I've ever seen. And as far as I'm concerned, I think we're going to have a good landing. With respect to the confluence of financial variables we're talking about, we have a consumer in our country that is reasonably in good shape, particularly as you get to the upper end of the income strata. In our business, specifically air travel, 40% of our excuse me, 75% of our revenues come from the top 40% of consumers, consumers that have household earnings of $100,000 a year or greater. And at Delta, that number is arguably even higher. And Virgin, I'd suggest it's also higher in terms of the higher percentage that cohort in the Fed just released this data just last week, coincidentally. But we've been touting this for some time, accumulated over $30 trillion of net worth from real estate, the market savings from pre-pandemic to current times. So our consumer is in really, really good shape. The reality is that you're going to you've got winners and losers in this economy and the good sector that people accelerated purchases during the during the pandemic aren't maybe doing as well. But if you live in the experience economy, who most of most of us do, it's doing quite well. I think we need the Alex indicator for this because I'm a SkyMiles Delta person. I took a lot of trips last year. I flew business class. This was I am describing. I am what you're describing. Yeah, I love I love you, but I don't love me yet because we're not doing that this year. We're going to like, look, we're down, we're saving. I mean, I feel like I'm a good example is sort of what you're trying to trying to get at were how can you be so reliant on if you're spending? Well, if you look at our planes, our planes are full. Our planes are full almost everywhere you go, particularly internationally, The international economy is still recovering from COVID. The other indicator I tell people is if you look at a statistic, you guys are about the math and the analytics. If you look at the airline industry has a lot going on to your to your point guy. There is one number in the airline industry that's proven resilient over 50 years, and that's the percent of money spent on air travel and the size of the economy. Yeah, it's 1.3% year in and year out. It broke during the pandemic, obviously, because people couldn't travel. But that gap in 20 through 22 of people that wanted to travel, the inherent value of the size of the economy versus people that could that gap was over $300 billion that people could not spend. So we're just now starting to get back to normalized trends. So it's going to continue to stay strong, I think, for years. If I could just I don't think you've ever be this quiet, but this is going well. It's really good. So I'm just I'm just thinking about the tie proposition here. And I don't know how to respond, but if I can just add, I think the US is is slightly different than what we're seeing in the UK. I think it's a story of two halves. If you look at our at our kind of our numbers, we're probably about 95% of 2019 in terms of overall travel, in terms of the consumer, the retail side of it, we're probably 115% in terms of revenue and about 95% of of of of demand. But on the corporate side, we're probably around 75%. And that still underlines a very strong recovery in the US and a weaker recovery. It's coming back. Like what? What is happening here? Is this a permanent shift? Yeah. And you know, we always think about is this a structural or a transitory shift? It's hard to say because we're seeing both the tech sector, of course, the strike in the media and entertainment and the West Coast, and just a general sensation that things need to hunker down a bit because of this constant discussion on recession. So I think it's it's difficult to say. What we are seeing is longer booking cycles. So even the corporates are buying well in advance. And the shorter end bookings tend to, you know, take it a bit more cautiously. But I think overall both that and I would agree that we're just seeing the recovery of the international markets. There is a softer landing or a good landing, a said said for the US economy. Europe has got to be probably a year behind that. So there's so much more to bring it back to 2019 levels and beyond. I think it's the really the beyond that is interesting. Mike Wirth was sitting in that chair a few minutes ago. I said you were coming at He's like, ask him about the SkyMiles story. He did. He actually said, I love you, too, Mike. You rolled it out. You rolled out the changes. You've had to roll some of it back. What kind of feedback are you getting now in terms of you've got really loyal customers. They were obviously had their noses out of joint a little bit. Do you think you've got the balance right now? You never get the balance right. In aggregate, when you have so many different people with an opinion. The two things that we saw when we made the change, first of all, the reason we made the changes is because Alex implies, you know this there is a lot of demand for our premium product, our premium services, our clubs, our Delta one product, the telephone line, etc. We needed to rebalance because we had far more premium customers than ever and we were investing in premium assets. But we just can't continue to keep up with the demand set that we have. Any individual looks at that as to how it's going to affect them, him or her. And so you're going to get a lot of opinions. There were some things that we did that I thought were maybe too aggressive in trying to get to that equilibrium quickly. And so we pulled back and we said we got to we got to go at this at a much more measured pace, understanding as we build new Premium Club's new premium assets to allow the demand set to be satisfied, maybe in a little bit better matter. So to that point, I had to wait online line to get into the lounge and I went to France and business class was she was very upset about Mary said. I was definitely an entitled New Yorker moment for me at JFK. But what else are you looking at? Other other things in the SkyMiles program that now is going to be on board for tweaking? Well, the lounge access certainly was one of one of the important things. The the lifetime let's see, we took miles out of the equation. We've had this balance between miles. We're called SkyMiles. You got to take the name. No money? No. But we are making. We are. We are. We are making it much more dollar denominated in terms of loyalty and as compared to solely, solely miles, which is what it historically had been. And we've been transitioning for quite a number of years. And so we've had an element of both. People have found it confusing trying to keep up miles and dollars. So we move we move pretty quickly. We've pulled back in some ways people that have long time loyalty with the airline in terms of miles in seats were grandfathering in creating new status for them. So we're trying to find a good equilibrium here. So I think one of the things that occurred to me as I watched this unfold was what people are really saying is getting through an airport is really hard. They want it. They want to make that journey through the airport easier. Once they get on board, fine. But getting through the airport is a tough. It depends on who you fly. It's fine. Yes. Okay. Good. Disclaimer that I'm a you. When you look at the airports that you operate in, are you happy with the airports that you're dealing with right now? What, like terminal three? We've got new scanners coming through. Are they are they going to work? Is the terminal three experience what it would like you what you would like it to be? Because the whole a lot of what it's been talking about is that initial experience of going through the airport. Indeed. And, you know, we look at journeys rather than just the the point of flying. So end to end. And our impact, of course, is the greatest in our clubhouses, in our lounges that we share with with Delta and of course, on the plane. But if we could see a better experience at airports, especially at Heathrow, but around the world, that would make a tremendous difference. And indeed, you know, terminal three at Heathrow is the home of Virgin, home of Delta, and it's the oldest terminal. It's over 60 years old. So we need to think of what next for that experience and how we can, with the new leadership team at Heathrow, make a new home for our customers. But, you know, overall with safety, which I think is, you know, new systems and new machines joining up the biometrics and a quicker passage of of of your baggage, there are many, many things we can do, but I wish we could control it from start to finish all over the world. That's never going to happen. Yeah. Let's add, we started off the conversation talking about all the things you do, which gives you great visibility on what's happening with the economy. I was thinking about we were talking about this this morning. Is Delta, a conglomerate. It's got an airline. It's got a refinery. It's got a card business. It's got a really big maintenance business. You put all this together, is the whole fit logical? Can I think of Delta as a as a control? You said earlier in the interview, we are an airline. Are you an airline or are you just an airline? We are an airline. Yeah. But we also appreciate the fact that the airline business has a lot of volatility to it. Right. And this helps make that balance. And so what we've been after is trying to find a more diversified stream of earnings for for stability, for our investor base, for our employees, for our customers, so that we can ride through these challenging times, turbulent times that we inevitably have seen and will continue to see. So with the credit card revenues being a big part of it through American Express, through our MRO, in terms of third party servicing, through the work we're doing, trying to control fewer people, think about the airlines as having a lot of factors outside of your control. Implied a little bit in your question. We've taken a contrarian view for many years at Delta. We control much more in focus on the things we can control as compared to things that we can't control, and trying to do a better job of managing that. And that's what you're seeing. So you're seeing I wouldn't call it a conglomerate, but you're seeing an airline taking control of its future and its outcome. And as a result of that, the market also gives us value, the highest market cap in the in the world in terms of any airline out there and also the top revenues. Which brings us to geopolitics and sort of how to hedge that risk. And obviously what's happening in Israel has created a lot of strife within the industry. So I know you're also Israelis. This is a particularly vulnerable issue as well. Do we know can we quantify yet what losing those that the air traffic is going to do for for earnings, etc.? Well, I'll start with I want, you know, the situation in Israel, of course, after the atrocities of October the seventh is still unpredictable. So I think there are right now the major impact is being, of course, people are not flying into Israel and because of that, they're not flying also to the area, into Jordan, into into Egypt, into other locations. And there has been an immediate impact on the price of fuel which has gone up. Yeah, gone up quite considerably since then. I think from here on, it's it depends on what the outcome is. If Israel can contain its war to the south and to Gaza and really taking out the Hamas, then that's one outcome. And if, God forbid, it becomes a much more of a regional conflict, then we don't know how it's going to impact. But I think, you know, overall war in the Middle East is always a dampening. But I don't think we've seen tremendous amount. We have three flights a day, I think. So with two flights a day, Delta has three flights a day to Israel. And of course, we're not flying until it's safe to do so. But we'll have to see what the broader implications are. Let's wrap it up. And you're here in New York because you're getting a CEO of the Year award. Thank you this evening. Congratulations. Thank you. What does that mean to you? What does that mean to the airline? Well, first of all, it's because of the 100,000 women and men of Delta Airlines that I'm receiving that award. So on my behalf, I'm accepting it. But it's really for for our team, because our team did an incredible job managing through the pandemic. And I think that was the reason why we were selected to receive this award. It's it's a great honor to be to be recognized by your peers across multiple industries. But it's really a great honor for our people because I'm really proud, because they're the real heroes in my in my thing. They came in every single day when people were told to stay home. Yeah, we kept the airways open during the worst of times, putting our lives at risk to make certain that doctors and nurses and frontline responders could get to where they need to be. No one that was traveling during the pandemic wanted to travel. People were traveling because they had to travel. And we were. And it wasn't just Delta, it was the airlines as a whole that kept the airways open that enabled our country to recover and manage through this. And three years later, it's remarkable. Three years ago, we were down to only 10% of our revenues. This year we just reported our third quarter results record high in terms of revenues ever because of the hard work they did during those that period of time. And of course, the great loyalty we have from our customers. Guys, it's great to see you. Good to see you. Thank you. Thanks for stopping by. Thank you. Yeah, I think we've we we we cleared up. We said obviously. But now the ties, the issues, the issues that I'm working on, ties with them. And so you got to take me and ask, would you think that I would pay good money to see I would even buy it for me too. I yeah, I know what I'm. It's a new fund created. Thank you very much. BOTH Yeah. Now, thanks. Birthday present Next birthday present for Shai Weiss. It's definitely some sort of neckwear. Fellows, great to see you. Thank you very much indeed. Capacity from Delta Shy away from Virgin Atlantic. Thank you very much indeed. This is Bloomberg. Every Monday, we're bringing you money under cover. A look at less visible parts of the global market that are attracting more money. And today, we're exploring deal making in the private equity space. Joining us now is Simona mallory, UBS Global, co-head of the Alternative Capital Group and Bloomberg's Lisa Abramowicz. Liza, thank you so much. Alix Simona. I did want to get your sense because we're talking so much about how the IPO pipeline has come down and there's this real existential question about how much pain is going to be felt to the private equity equity sphere. You said, Simona, the private equity deal dealmakers are facing the biggest tests of their career. Why? Listen, they're operating under an environment now with high interest rates, high inflation, incredible geopolitical uncertainty. So the part of that, it's shifted completely since two years ago. And they need to work harder to create value. They lived in the last five years in an environment where they were buying businesses, They were keeping their were benefiting from multiple expansion, lots of liquidity in the private and public market and making a lot of money in the process. This is now stop. Simona, are you surprised we haven't seen more bankruptcies or consolidations within the private equity sphere? Least in bankruptcy, not so much. It's very hard to kill an established GP, but consolidation. We see more for sure. If you think about it, today we have around more than 10,000 US as manager and they can't all survive. Investors are very much focusing on the larger on the specialized one of the best performing one. So not everyone will be able to raise funds and the consolidation will be inevitable. There's also a question about private equity versus private debt. And we've seen the likes of Apollo say it is the golden era for credit. It is a time to go into credit. Why go into equity if you could be getting yields of upwards of 10% without leverage in the credit sphere? How big of a hurdle is that going to be on the equity space, the private equity space? They said, I think their private equity has grown to a market that is now $1.5 trillion. So quite sizable. And investors have been piling in because they were attracted by high yields, high interest rates and a less risky profile compared to equities. But I think that today there is a bit of pulling off because when you think about investing in the next 3 to 5 years and locking your capital for a long period of time, some of the things that are actually preparing to go into high yield are a bit more liquid. And on the other side, the private credit industry has been relatively unproven in time of challenges, of default, of bankruptcy. So we need to see how they are going to deal with it, because some of them don't have the infrastructure to deal with a lot of issues. So I think there is still room for traditional PE going forward. Well, there's still room, but has the growth phase ended? Right. I mean, this is sort of one of the questions we've got private credit really ballooning in terms of fundraising. Are you seeing the same kind of thing in private equity or do you expect it to be a one and a half trillion market today and next year and the year after? Now, listen, I think you raise a good point. Private equity today is not a growth asset class. There are reports that say that for every $3 that people are trying to raise, there is only $1 of capital available. This means that the balance will be flat at best, if not declining in the traditional p e. Does it mean that the easiest thing is that no, there is still capital is not an issue. There is still more 3.5 trillion of dry powder that needs to be spent. I think for the next 1218 months the PE will need to focus on spending the money they had of exiting the acid they own and returning capital to the LP, and then they all fly with and start at the gate. And the limited partners can keep investing in private equity. One of the reasons why this hasn't happened is that the distribution has been the lowest since the global financial crisis. Just real quick here, Simona, have you been surprised at how much private equity firms have invested in one another to sort of keep each other going without having to sell or cash out at an unfavourable value? I would not be surprised because this has been fueling the industry for a very long time. And when you think about private equity, the avenue for exit is strategic, which in times like these are quite conscious and inward focused because they have their own issue to address. It's the public market which hasn't been open to a lot of private equity IPOs. And then it's the other private equity. You can see an additional layer of growth and additional life span in that in that in a corporate portfolio company. And this, I think for the next 12 months will be one of the main driver of activity in in the global market. Simon Omolara, UBS, thank you so much. Over to you, Alex. All right, Lisa, thanks a lot. Really appreciate that. That wraps it up for a very busy show. On this Monday, equities actually off of their lows. The S & P trading into positive territory of bonds, also catching a little bit of a bid there. Coming up, Phillip Belmont joins Bloomberg Technology Zoellick, CEO. This is Bloomberg.

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