ECB board members continue to dampen hopes of further rate cuts. We hear from the heads of the Austrian and Croatian central banks who believe risks remain on both sides. U.S. President Donald Trump has hailed a ‘very good phone call’ with his Russian counterpart Vladimir Putin ahead of Ukraine talks in Budapest. President Volodomyr Zelenskyy is due to hold talks at the White House later today. And in banking news, the U.S.-listed shares giant BBVA pop after the Spanish giant failed in its €17bn hostile takeover bid of rival lender Sabadell. It did not manage to reach the 30 per cent threshold to be granted a second attempt.
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The CNBC app, global market news in one place. Customizable sections and personalized alerts. Stocks tracking, interactive charts and market insights, all in your hands. Stay connected, stay informed. Download the CNBC app today. [Music] Uh, happy Friday everybody. Welcome to Schoolbox Europe with myself, Steve Sedwick, and these are your headlines. ECB governors continue to lower expectations of further rate cuts with the heads of the Austrian and Croatian central banks telling this very channel they see potential risks pointing either side. I think uh we’re in a good place regarding uh the interest rates. Uh but of course things might change quickly. Uh it’s important to keep your powder dry in a situation with elevated uncertainties. it’s more likely that you will have to move one way or the or the other. Well, we’re going to hear from the UK Chancellor of the Exjector Rachel Reeves later today. You can catch that interview on CNBC International YouTube channel. Elsewhere, the US President Donald Trump announces a second meeting with Russia’s Vladimir Putin as Zalinski prepares to visit the White House today. I thought it was a very good phone call. I thought very productive, but I’ll be meeting with President Putin and uh we’ll make a determination. I’m meeting with President Zinski and I’ll be telling him about the call. I mean, we have a problem. They don’t get along too well, those two. And it looks like it’s over for now. The US listed shares of BBVA pop as the lender’s hostile takeover bid for rival Sabadel fails, falling short of a 30% threshold needed for a second attempt. [Music] A very good morning to all everybody. Look, the markets came off a little bit yesterday state side and there’s a little bit of a dampener going on, but are we really ringing alarm bells on these global markets at the moment? And quite frankly, there are so many contradictory indicators at the moment. You might be forgiven for thinking I don’t know where to look. I mean, look at the bond market for instance, the 10year paper on the uh treasuries which we were all worried about expanding to the upside the yield early yield early in the year, weren’t we? about fiscal issues states side and elsewhere. Look at it now. It’s 3.949. So what’s that saying to you? Back to a traditional safe haven away from the equity market and you’re less worried about the fiscal position of the states. You think we’re going to get rate cuts in the United States. All of the above could be part of your rationale. Look at the VIX for instance trading at 25. Big pop was elevated around about 20 quite recently. Now trading at 25 as well. Is that another little alarm bell that you’re ringing out there as well? And what are we seeing in the corporate world? Well, by and large, the markets look pretty sanguin, don’t they? We’re we’re we’re trading only a couple of percent away from absolutely skyhigh record levels on the S&P, for instance, 6629. And I keep reading about how the AI capex spending cycle will keep uh the froth in the market for a long period to come. But the question is, and I I saw it raised in one article today. Does that mean if a lot of people have to spend more money on AI, there’s going to be less money for buybacks? I think that’s an interesting idea, isn’t it? You think about it. Buybacks, enormous, enormous prop, understated prop for the markets as well. And what are we seeing in the banks as well? Well, we’ve seen the concerns over first brand collapse. We’ve seen this concern over trickle as well. Now in the last 24 hours, the KBW, the US banks index was falling fairly aggressively because regional banks Zion and Western Alliance are taking sizable charges because of what? Because of what? Yeah. Bad loans to a couple of borrowers. And the question being asked right from the top, right from the Jamie Diamonds of this world down to the bottom, me is is this more systemic or actually are these one-off situations as well? Lots of questions out. Oh, by the way, and I forgot the other reason why we’re seeing alarm as well. Have you seen gold and silver? Well, if you blinked, you would have missed a few more dollars to the upside on both of those as well. Silver being incredibly volatile was around about 53 bucks. Now, gold just goes from strength to strength. So, in the meantime, our coverage of the IMF and World Bank annual meetings in Washington continues with the ECB president telling a panel that the bank is well placed to face any future shocks. Karen spoke to a recently appointed ECB governing council member and Austrian National Bank Governor Martin Cocker uh who argued that it was important for the central bank to keep its powder dry. We have of course a situation in Europe where the growth is not as high as we would want it to be actually uh but for the uh ECB’s policy the interest rate and of course the inflation rate is important and uh the inflation rate is pretty stable around uh 2% that’s the target of the ECP uh so we are in a good place and uh uh the rates have been uh reduced over the last couple of of months but we are steady uh since uh spring and uh as long as nothing changes dramatically uh I think we’re in a good is uh what interest rate policy concerns. When you say nothing changes dramatically, it’s been a year of flux. We’ve seen so many external threats. Domestically, there’s been a big fiscal package coming through out of Germany and obviously from the Europeans as well. There’s been a lot of change. So, how do you weigh up some of that change? You’re absolutely right. And that’s surprising to a certain extent. Uh we’ve seen a lot of risks upside downside risks lots of things uh changing geopolitically uh in the trade uh era uh area but uh uh with regard to the numbers we get in the projections for the inflation rate uh for the growth rate uh and also what we get from financial market uh we see quite some stability uh and as long uh this is there uh I think uh we’re in a good place regarding uh the interest rates uh but of course things might change quickly uh It’s important to keep your powder dry and be able to act at any moment in time uh when things might change when we need to change and that’s the reason why we have a meeting to meeting approach. We look at the data uh and the new data that comes in tells us whether there might be changes or not. Well, Karen also sat down with fellow governing council member and Croatian National Bank Governor Boris Vuchk who said he was monitoring supply chain risks. I think it’s necessary to keep all the options open for any interest rate move in the in the future be it uh down or or up. Uh as you know we always say we are working based on the incoming data meeting by meeting and uh we’ll see what kind of the data we’ll get uh by the next meetings and then we have to keep all the options always open. Is it increasingly unlikely that a hike would be needed in the near future? I wouldn’t say that it’s increasingly unlikely. I would say that uh we are in a situation where the uncertainties are still elevated and in a situation with elevated uncertainties, it’s more likely that you will have to move one way or the or the other. But let’s leave the time to tell us what will happen. There’s been a huge discussion about downside risk, but what are the upside risks when it comes to price stability to the inflation? Well, the upside risk for the inflation to to go up are certainly I would say at the moment primarily from the geopolitical situation from the tariffs uh voluntary export restrictions which might have an impact on the supply chains. If they disrupt the supply chains to more serious uh extent then you might see also increases in the in the prices along the uh supply chains. We are monitoring supply chains so far. Uh there are adjustments in the supply chains but they have not produced uh significant price pressures. However, going further down the road in with evolving stories on the tariffs or uh or uh voluntary export restrictions, this is not warranted. We have to be very careful and and monitor this risk. So, these are the I would say primary risk that I see at the moment for the upside. Well, the UK Chancellor Rachel Reeves has played down the odds of a bank tax in November’s budget. lot of lobbying going on from the likes of Barklers and others to prevent that as well, saying she wants a competitive environment. Basically, the banks pay more tax as it is anyway than most of their rivals on the continent and of course in the states. Reeves added that the balance has to be right, adding the government wants everyone to pay their fair what is the it wants everyone to pay their fair share of tax. I’d love to know what a fair share of tax is in the eyes of the government. Anyway, we might find out because later today Karen is sitting down with the UK Charles Vic Shaker Rachel Reeves on the sideline of the IMF Wealthbank meetings in Washington DC. You can catch that on CMBBT International live YouTube channel. Goes on, doesn’t it? International live view channel. C 5:30 p.m. London time. But I have a question for Rita. Rita, do you pay your fair share of tax? Are you a working person? because I have a feeling that Rachel Reef doesn’t see us as working people, sees us as something else. Well, Steve, like you, I pay my taxes. So, let’s move it on onto the markets. I’m going to kick off here in the US where a lot of that risk off fear really came from um on concerns about credit quality in the banking space that bled through into the S&P 500. You can see that closed off about 6/10 of a percent lower and also the tech space closing down half a percent lower. It was Zans’s Bank, Western Alliance. Those two regional banks really led the selloff in those banking stocks. The KBW bank index was off more than three and a half% even hitting some of those bigger banks, the likes of JP Morgan. There are questions about whether this is idiosyncratic or actually a bigger issue within the banking industry. And that fear spread through into the US uh private fund space as well. You can see blue owl there um off around 7% or so. Arrows was down some three and a half%. Apollo also got hit off the back of that. And if we take a look at how US futures are trading this morning, they look to add more uh towards the downside on those fears. Actually overshadowing what was some more positive news on the tariff front with the White House looking to relieve some of those uh tariffs on the US auto industry. Let’s h up the board and look take a look at Asia now where the mood in Asia is also one of a flight to safety with stocks uh lower tracking those uh credit concerns risk over in the US the financials here uh were also off off the back of that Hong Kong you can see one of the worst performers down some 1.9% investors concerned about those US China tensions um as well as maybe just taking some profit off the table they have had some pretty strong uh rallies let’s flip up the board and take a look at uh the European in uh futures and how they look set to trade. Also looks to be a down day uh across the board here with the DAX uh getting hit the worst there down some uh 1.3% along with the Footsie MIB. The Footsie futures off 1% still if we look at the week-to- date picture still looks like some of those majors are still on track uh to make some gains especially that CAC 40 which got that big bid off the luxury space Steve. Yeah, but you know what that’s brilliant market coverage but I’m not going to let you get away with that. I didn’t say do you pay your taxes. I know that you are the most honest person in newsroom. I said you pay your fair share of taxes because fair seems to be the word for all of us at the moment. I I fear Rita that the chancellor doesn’t think that we pay our fair share of taxes as well. But anyway, maybe Carol will find out what fair share of taxes later on as well. I might ask Bob Parker if he pays his fair share. In fact, why don’t I do that as well? Do you pay your fair Morning Bob Parker? Um, you are the person who I’ve loved speaking to the most over the my entire career at CNBC. You are, of course, senior adviser, International Capital Markets Association. I’ve got to bring you in on the other stuff in a moment, but I might as well just do this while I’m got bee in my bonnet. I hate being told that I’m not necessarily paying my fair share of taxes. I don’t know what’s fair. I think it’s a very subjective announcement. I pay my taxes. I pay every single penny. They seem quite a lot. Um, define the word fair. And the answer is we can’t. Exactly. Okay. Now we have to quantify it. So in the interest of transparency the last n years and n is a very large number um I think my average income tax relative to you’re getting more detail than I thought here. Let’s listen in everyone. So it’s averaged around 40%. So is that fair though Robert? Should you be paying 50% plus? I find this is again very subjective but I remember with the was one stage when income tax went up to 50% at the margin. I remember as well and I remember saying to myself, is it worth working? And I think you actually reach that sort of that line whereby did you have Mr. Laugher in your head talking to you? I had I I was very keen on Mr. Laugher at the time and I I decided that 50% actually was very close to is it worth it. 40% I think is testing it. 45 to 50% is really over you add in everything as you well know local tax and local taxes every single other thing as well yes so is it fair okay we’re we’re verging actually we’re coming to a definition of what’s fair or not and I think we’re on the verge of unfair love to know love to know um but but in terms of what’s coming down the pipe as well do you think actually if the chance and I will move back to the markets that if the chancellor of the execut of United Kingdom does find a way of increasing wealth taxes on uh a segment of the population which is already paying historically higher taxes. Do you think that’s going to create a problem overall and there will be some form of flight or actually it’s going to have the ler effect of creating less returns? Um I think we’re close to that point and actually I attended recently a very interesting seminar at the National Institute for Economic Social Research and their conclusion was sort of twofold. number one uh that there is actually a fiscal gap which needs to be filled of about30 billion pounds. So taxes have to go up one way or another. Uh and they and I think they’re right and politically it’s probably uh the approach that we’re going to see is that there will not be cuts in public spending. There probably won’t be increases in public spending, but I think it’s naive to assume that there going to be cuts in public spending. Um and their view was that the simplest route is actually to increase income tax. now to increase income tax. That’s happening already through fiscal drag and you know you and I drag where you leave uh the rate at the previous level and ignore the fact that inflation has made more people pay at a at that level. Yeah. So if you actually look at the quantum of income tax raised today relative to 5 years ago relative to 10 years ago it is significantly higher because of fiscal drag. So indirectly income tax is going up anyway. Now you know a simple route um which you know Reeves has said is politically she doesn’t want to do but a simple route actually would be just to increase income tax by perhaps one or 2%. Okay. Now to come back to your question is that going to have an adverse ler effect i.e. is it going to stop people working? Uh I think there is a serious risk that we may be close to that point at a time when actually if you look at the activity numbers in the UK we’ve already got a problem in the UK. We have 20% inactive between the age of 16 and 64. Better move on because you’re not here to talk about that. But we’ve just eaten most of our time up with it. But I actually No, not most of my time. 10 year Treasury is 3.9 odd% as well. The VIX is trading at 25 as well. Bob, um I see lots of little signs that historically you and I in our long careers, yours being illustrious, mine being more mundane, um would would normally be alarm signals. Do you see alarm signals in the market? Yes. Um and I think the things to watch are you know obviously what’s going to happen between the US and China on the trade talks at the moment um that does not look positive. It looks as though those discussions are going to be difficult. I think probably America will back down from 100% tariff but um you know we could well end up at more than the current rate of 30%. So that’s factor number one. Factor number two is what’s happening in credit markets. And I think that you know one alarm bell and we need to monitor this very carefully in the weeks ahead is what’s happening to high yield spreads. What’s happening in the leverage loan market? Uh at the moment the credit rating agencies are saying they don’t expect much of an increase in default rates or in debt restructuring. Can I ask you a question? Do the ratings agencies ever expect increases in delinquencies and defaulting loan rates before it happens? Uh probably not. Okay. Thank you. Right. If you actually look at the if you look at the history, you know, it supports your comment. Um, so we need to look at spreads. Um, and you know, if we look at this what’s happened in recent weeks, uh, not in investment grade, we’ve got this very interesting divergence between investment grade spreads and high yield spreads. So, um, and we’ve seen, you know, whether it’s first brands and others, um, some very significant defaults. And, you know, yesterday we saw announcements from a number of regional banks that they’re seeing default rates coming up. So risk factor number one, US China trade. Risk factor number two, what’s happening in credit markets. Um, and you know, you’ve had some pretty robust statements from the IMF this week warning about what potentially could happen in credit markets. So those are the two key the key ones. Valuations um are getting valuations are very stretched. Yeah. And that’s the problem. Um well, I think two other alarm bells. number one, you know, that the price earnings ratio of the magnificent 7 plus the tech sector in the states, we’ve got pees well above 30. Um, you know, we’ve got a PE on the S&P of around 22 23. Um, even, you know, European and Asian markets, the pees are now looking quite high. Um, you know, the Japanese market, the PE, um, you know, just two months ago, um, was down at around 12. Now it’s 16. So, we’ve seen quite an expansion there. So valuations also investor clustering. Now uh investors are still uh very heavily clustered in the states and in the tech sector. Now there has been some slight unwinding of that clustering but uh you know the investor surveys are still very clear heavy concentration uh in US tech still. Okay. Now I’ll just jump in because Rod said one more question but I’m not believing him. I’ve got a couple more. Um he’s been around as long as you and I have. Um um and so that I know that I can treat him with disdain. Um um are there any safe havens left? Um given the extraordinary move we’ve seen in some of the more traditional ones the u okay there are two safe havens which are extremely expensive. So we can talk about gold um you know frankly forecasting the gold price now is vering on impossible. All we know is that it is gold and other precious metals are looking extremely stretched and you know if we look at silver if we look at platinum palladium same sort of story. So that safe haven super stretched. If we look at another safe haven the Swiss Frank Swiss Frank is fairly stable against euro but where the pressure point there is Swiss bond yields and Swiss bond yields have come down to close to zero. Uh so that’s looking very stretched. uh what is not looking stretched uh and which is what I have been doing personally is actually switching out of growth or cyclical equities into value defensive equities and frankly into cash and although central banks you know the Fed is going to cut interest rates and therefore dollar cash rates are going to come down um you know it’s time possibly to be slightly boring and I don’t like coming on CNBC and saying to your viewers let’s it’s time to be a little bit boring the entire quarter of a century I you just carry on So, so listen, no, it is there are times when you want to actually reduce risk and I think now is the time to do that. I see that with a lot of the guests who sit in that seat and they’re all fund managers. They’ve all got to be in the market. They’re all active, you know, and and and I look at their eyes and they say, “Oh, no, you got to be invested.” And I was like, I do you really want to be invested? But they have to be. They have to come on and say that because that’s their their remit as well. But value equities, I think, are you know, number one, they’re cheap. Where where in the value array? I mean, it’s a big array. Okay. Well, it it basically high dividend defensive um you know basically underleveraged sectors. Um so you know you can look at very dull sectors like utilities um you know like consumers which will have a decent interest rate when the when the uh when the yield gets more exciting when the base cover rates. Exactly. So I think that’s where you know that’s where you can hide in what is going to be I think quite a difficult couple of months. Bob you couldn’t be dull if you tried. I have always loved speaking to you and I always will for the for the next 25 years that we do that as well. I’m sure we’ll see how Bob love to see you. Have a brilliant weekend. Bob Parker, senior adviser, International Capital Markets Association. US President Donald Trump has announced he will meet his Russian counterpart Vladimir Putin in Budapest, hailing a very productive phone call between the leaders. The meeting will be the second time the leaders have come face to face during Trump’s second term after uh Anchorage and could happen within the next two weeks according to the US leader. Speaking to reporters, Trump outlined preparations for the meeting. Marco Rubio is going to be meeting with his counterpart, as you know, Labro, and they’ll be meeting pretty soon. They’re going to set up a a time and a place very shortly. Maybe it’s already set up. They’ve already spoken. And I thought it was a very good phone call. I thought very productive. But I’ll be meeting with President Putin, and uh we’ll make a determination. Tomorrow I’m meeting with President Silinski and I’ll be telling them about the call. I mean, we have a problem. They don’t get along too well, those two. And it’s sometimes tough to have meetings. Well, Trump’s surprise announcement comes as he prepares to host the Ukrainian President Vladimir Zinsky at the White House today and puts potentially into question US support for Keev. The whole conversation hasn’t been around about Tomahawk’s long range uh weapons capable of potentially hitting Moscow, but appeared to cast doubt on the prospect following his call with Mr. Putin. In a post on X, Zalinski said Russia was rushing to resume talks towards ending the war after the mention of the aforementioned Tomahawks. Coming up on the show, US listed shares of BBVA jump as its pursuit of Sabadel fails. Wow. It’s played out on the airwaves of CNBC, isn’t it? Charlotte joins me to discuss. Plus, OpenAI’s deal spree continues amid mounting warnings over stretch valuations in the sector. And we wrap up a heavy week of comments from policy makers and central bankers with the former ECB president JeanClaude Cliche. Don’t miss that at 9:30 BST. [Music] Uh BBVA has failed in its 17 billion euro takeover bid for rival Sabadel. The offer was accepted by just over a quarter of shareholders uh uh representing yeah just as I say well below the 30% they needed in short the 50% they need to take control but 30% for a second bid. BBVA says it will now resume dividend and share buyback plans in the coming months. I’ll miss this chat on air. The two CEOs, one saying it’s a great deal, the other one saying it’s a terrible deal. 18 months of that that we only 18 months feels longer to a certain extent. But this is the end of this saga now in this Spanish banking merger that has failed there the results that was a surprise uh really because for a lot of analysis the question was where in the threshold between 30 and 50% the number would the takeup number would fall and how much cash then BBVA would need in order to make a secondary offer but look there won’t be a secondary offer altogether because that has failed we kind of had a hint of that a couple of days ago when Sabadel said that their customers who are also shareholders that only 2.8% 8% of them had taken the BBVA offer which made about 1.1% of Sabadel Sutter share capital. So that was kind of giving an indication that maybe it would be a steep upper hill for uh BBVA to get to the threshold and we know that this battle had been highly politicized. It’s been a really difficult one because it was a Catalan entity being taken over by by a Spanish bank from northern Spain and we know that there had been a complicating things for them the beyond the talk of job losses and the concentration access formemes in the region and you saw political reaction yesterday including the deputy prime minister of Spain saying it was good news that the the deal had failed and the president of the Catalonia region as well reacting on X saying this it confirms what we have always defended a banking system adapted to the reality of Catalonia and its business fabric. So again you remember French government have put some stringent conditions as well. So what now for BBVA? Well they say an acceleration for shareholders return. They will restart their share buyback for 1 billion by the end of this month and an additional share buyback when they get the ECB green light for this. What we hear from a lot of analysts is that this is a relief. This is a relief for BBVA shareholders in the short term because there was a lot of uncertainty hanging over the two bank for such a long period. Shortm 20 seconds. We’ll come back to it properly later on as well, but it was good news for Sabadel shareholders and it’s still good news cuz they’re a better bank now, aren’t they? Well, it made them clean up their house to a certain extent. Now, today we might see their shares dive a little bit. Great news for Santonair as well because they managed to get the TSB unit in the battle. Very nice. [Music]