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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 2: This is the Bloomberg Daybreakerate podcast. Good Morning, It's Thursday, the twenty fifth of September in London and Caroline Hepcik coming up today. Is this a spot Nicker moment. HSBC says it's made a world first breakthrough in quantum computing for financial markets. Not a bubble but the new normal. Bank of America says that sky high US stock valuations may be warranted more than in the past. Plus a bitter pill for the UK, the government offers an olive branch after pharmaceutical companies publicly condemned the country. Let's start with the roundup of our top stories. HSBC says that it has made a breakthrough in quantum computing for trading using IBM's processor. The lender says it is the first time real trades have been used at scale to show so the potential benefits of this emerging technology. Bloomberg's Chris Pitt has the details.
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Speaker 3: A Sputnik moment. That's how HSBC's executive in charge of quantum computing described their successful deployment of the technology in financial markets. The London headquartered banks said it had used a Heron quantum processor to deliver a thirty four percent improvement in predicting how likely a bond is to trade at a given price. HSBC's trial marks the first time a bank has used real trades at scale to demonstrate the benefits of quantum computing, which could now lead to a flurry of activity as financial companies step up efforts to harness the technology. In London, Chris Pitt Bloomberg Radio.
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Speaker 2: Intel has approached Apple about an investment in a bid to secure its future. Bloomberg understands the two firms have had early stage talk about working more closely together. Our US Deals reporter Ryan Gould says an agreement could be pivotal for Intel.
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Speaker 4: This obviously comes on the beck of both the US government investing in Intel directly one of its largest shareholders, and also would potentially follow a five billion dollar investment from both in Nvidia and a two billion dollar investment from SoftBank. I guess one way to put this all together is you know Intel is on the.
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Speaker 2: Comeback, Bloomberg's Ryan Gould speaking there, a deal with Apple would represent further validation of the chip maker's turnaround efforts. Although it's unlikely that Apple would switch back to Intel processes in its devices. Shares of Intel rose by six point four percent to thirty one dollars twenty two on Wednesday in New York after Bloomberg reported on the discussions. Strategist at Bank of America are making the case that sky high valuations in the S and P five hundred maybe appropriate. In a note, the lenders head of Equity and Quantitative Strategy has said that the higher quality makeup of the index and the potential for a boom in sales could justify the pricey levels, adding perhaps we should anchor to today's multiples as the new normal. The comments come as the US equity index has taken a breather in the last forty eight hours, following gains of more than thirty percent from aprils low. Amy wu Silverman is the head of Derivatives strategy at RBC.
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Speaker 1: Whenever I'm speaking at a relatively large meeting, so you know, maybe thirty or more investors, everyone's going around that they're talking about their bearish sentiment. And then if I say show of hands, who thinks the market is going to be higher by yr? In like ninety percent of folks raise their hands. So it's a reluctance in the rally for sure, But then again there's this impulse to be very concerned about that right tail and feel like they still have to chase it because as they know that, they cannot be left behind.
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Speaker 2: Amy wou Silverman speaking there as the S and P five hundreds twelve month forward price to earnings ratio hit twenty two point nine this week. Now, that is a level that has been topped only twice this century, the other times the dot com bubble and the twenty twenty pandemic rally. Now, the US has cart tariffs on EU auto imports to fifteen percent. It's retroactive, so back to the first of August. It locks in terms of trade that were struck in a deal almost two months ago. The move will help to ease tensions with Brussels, with shares in European car makers arising on the announcement. New car registrations across Europe also rose by four point seven percent in August, according to the Continents also lobby the ACEA, their latest data out today on tariffs. Most other new U rates take effect from September, while exemptions remain for aircraft pharmaceuticals and certain raw materials. Talks continue on steel and aluminium, where EU exports still face tarifs of up to fifty percent. Meanwhile, the Trump administration launches investigations into imports of robotics, industrial machinery and medical devices, setting the stage for fresh duties. So that's all the news when it comes to the US and the EU on tariffs. Now Here in the UK, the Bank of England governor and a key policy maker publicly disagreed about the rates path ahead, showing the split at the top of UK monetary policy. Andrew Bailey says that there is further to go on interest rate cuts due to the weakening labor market, but then hours later Megan Green proposed skipping a cut in November due to fears around high inflation. The divide shows how macroeconomics is struggling to find easy answers to the trade war. Traders, meanwhile, see little prospect of the Bank of England moving rates in either November or December, and they have only one quarter point reduction fully priced in for twenty twenty six. Last, the Russia plans to run a budget deficit for a fifth year as the cost of its war with Ukraine mounts to the Finance Ministry projects a fiscal gap equivalent to about fifty five billion dollars in twenty twenty six. War spending is climbing while all in gas revenue is falling, pushing Moscow to raise value added tax rates and to borrow
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more. This comes as President Donald Trump is pointing to those strains, saying the Russian economy is weakening. He says, with EU support, Ukraine is in a position to win back all the territory at lost. Since twenty twenty two, Ukrainian President of Losomierzelinsky has urged allies to take stronger action against Russia.
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Speaker 3: If it takes weapons to do it, if it takes pressure on Russia, then it must be.
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Speaker 4: Done, and it must be done now. Otherwise put In will keep driving the war forward wider and.
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Speaker 2: Deeper Ukraine's wildams Zelenski, speaking there at the UN General Assembly. Trump's shift on the country's chances of victory was hailed by officials in Kiev and Europe, but the President has offered no new US measures to support Ukraine. Privately, officials are more concerned it puts the responsibility onto Europe to act those are our top stories for you this morning. Let's think about the markets then, Stop futures for Europe are down a tenth of one percent. S and P five hundred, and now is that EMAILI futures though, are higher despite the drops that we saw on war Street yesterday. The S and P five hundred down one and a half percent, the Hanksying Tech Index this morning jumping almost two percent, CUSI three hundred index almost one percent higher. TENNY Treasury yields easier basis point to four fourteen. And you also have the dollar this morning on the Bloomberg Dollar Spot Index down by about a tenth of one percent. Of those are the markets right now. In a moment, we're going to bring you more on the news that HSBC says it's used a quantum processor to vastly improve bond trading as a trial result. But let's discuss it, and also why there's a growing standoff between the UK government and global farmer giants over medicine prices. Before we get to that, though, another story caught my eye Disney Jimmy Kimmel the issue of free speech in the United States. So Bloomberg's Beth Cohen has an opinion column out that I just thought was really interesting because it detects a shift in the balance of risks for corporate leaders, which I thought was very fascinating. The only other person with more on the line, maybe than Kimmel returning to the screens this week was Disney's CEO Bob Eiger, Beth Courh writing that he was the one who sidelined Kimmel, then he was the one who brought him back because of a backlash. Eiger had been a strong critic of President Trump and the Trump administration during the president's first term. Then when he returned to office, rather than sort of standing his ground, Eiger cut back on Disney's DEI efforts. But then the backlash about canceling Jimmy Kimmel has Iger really under pressure again. Trump's also threatening to sue ABC. But as Beth Carrot explains, Eiger's decision to reinstate Kimmel is a sign that companies are realizing that perhaps they need to find their redlines and push back against the Trump administration. I thought this was interesting simply for the discussion around trends and what's going on with the Trump administration, how corporate America is thinking about it, I think it also has kind of global ramifications. But I'm going to put a link to Beth Cawrott's opinion piece in our show notes for you can have a think about it. Whatever your view on the subject, I think it was an interesting discussion. Now, HSBC says that it has achieved a break through and deploying quantum computing and financial markets using IBM's Heron quantum processor. Joining me now to discuss this, bilion boxed Tia ad a Bio. Good morning. Look. I to even understand.
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Speaker 3: This story too.
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Speaker 2: I think you have to wrap your mind around what quantum computing actually is. Can you just give us an idea of why people are just so excited about this?
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Speaker 5: Yeah?
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Speaker 6: Well, I mean just a quick breakdown. Quantum computing is essentially computing that harnesses the power of quantum physics, and that's a series of core principles that are only true at a quantum level, so very different to the assumptions that we see in classical physics. And just like the differences between quantum and classical physics, quantum and SUPERCC computers also operate differently, so unlike the computers that we have now at power your laptop, your phone. Quantum computers do their calculations in parallel, and that's key because they don't try and find answers one step at a time. They use quantum bits to simultateaneously solve those problems. So a practical example for you, if you asked a supercomputer, perhaps to solve a maze, it would basically explore every single possibility one of the time, so it would eliminate the ones that don't work before eventually finding the solution. And that's a process which, depending on how big the maze is, could take weeks or even years. But with a quantum computer, it compares and considers all of the possibilities at once, so in theory, it gets to the answer much quicker. And that's why people are so excited about what HSBC says they've done. They've said they've figured out how to apply this to financial services.
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Speaker 2: So what have they actually achieved? And you know, how easy would it be to reproduce this.
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Speaker 6: While they're saying that their test show early indicators that quantum computing can be used to improve trading performance. So it wasn't based on live trading. It was a trial, but in collaboration with IBM, they've shown a thirty four percent improvement in predicting how likely a bond is to trade at a given price point. But this is really significant because it's the first time that any bank has used real trades to demonstrate what quantum computing can do. To date, we've seen it used mostly within the confines of academic research or by specialist tech firms. So this is an important development according to HSBC.
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Speaker 2: Yeah, and so that's why you've got them talking about a sput Nick
moment. Why is that phrase important? It basically it unleashed the competition between Russia and the US, you know, to get to space, basically created NASA. So that's why it's kind of maybe seeing a big galvanizing effect in terms of the financial titans. Then who are already putting a lot of money into this area, What are they doing and then what could we see coming next potentially. Yeah.
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Speaker 6: So really, up until this point, it's been tech firms that have been really driving the development in this space, but we are seeing financial services providers begin to invest heavily as well. So the likes of JP Morgan, Goldman, Sachs City Group, they're all exploring the area and I think they're definitely very interested in the potential benefits, and as I mentioned, they're really key not to let competitors get ahead of them. But in terms of the payout actually from this angles, there's some research from McKinsey that says revenue from quantum computing could surge as much as seventy two billion dollars in a decade from about four billion last year, and that's going to be fueled by developments in industries such as chemicals, life sciences, and finance. So there's definitely this idea that, as we see so often in the sector, that if one Wall Street player is able to be successful in deploying the technology, there will be this sort of big snowball effect and others will really strive to keep up. And that's why some experts are saying that when quantum computing is adopted on mass in the financial services sector, it could be explosive. We could see it come all at once, all of a sudden. We've already seen Google saying last year that its latest quantum process as a Winner, has solved a problem in five minutes that the world's most powerful supercomputers couldn't do even if they had been working on it since the universe began to so that's.
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Speaker 3: Quite a big difference.
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Speaker 6: So it seems like we could be well on our way to change in the sector.
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Speaker 2: Yeah, that is so fascinating, isn't it. HSBC very enthusiastic about it, although of course there's still much debate about a quantum computing what it can do. There are also issues a bit like with AI on kind of error rates. But anyway, I think it's a very interesting story to think about and if you want to understand a bit more about this mind blowing technology. I do also highly recommend watching mathematician Hannah Fries Bloomberg documentary series on this. It's called The Future with Hannah Fry, and of course she made an Emmy Award winning episode called the Quantum Arms Race. She actually got to go IBM look at the research facility. So if you want to have a view of what this computer actually looks like, Fry talks about it, she sees it, she explains the technology. So yeah, you can have a look at that documentary. I really recommend it highly. My thanks to Bloomberg's Tea and aabio then for taking us through that. HSBC quantum computing story. Stay with us. More from Bloomberg day bakup coming up after this. In the past month, more than two billion pounds of investment has been paused or scrapped here in the UK. Why Well, it's all to do with pharmaceutical companies who are calling the country the worst in Europe for drug prices. Now, Patrick Valance, the UK's Science Minister, says that the government needs to fix the commercial relationship, even if it means paying more. Are UK politics to border. James Walcott joins me now to discuss how bad have relations between the UK government and the pharmaceutical sector actually become.
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Speaker 5: Now, life science is one of the government's eight growth areas in their industry strategy, So that's where they think they can actually get serious economic growth if they pour money. You wouldn't think that if you would look at some of the comments of pharmaceutical executives in recent weeks. I mean, Eli Lilly, you just mentioned UK is probably the worst in Europe for drug pricing. Navatas's UK boss called Britain largely uninvestible. Merk pulled out a billion in investment just recently the past two weeks. They had already built their office at King's Cross, they will leave it unoccupied. And then as well as that, you have Astor Zeneko, who back in January walked away from four hundred and fifty million. Is worth saying, Caroline, A lot of these announcements came right before the US President state visit, and that is something that plays into this where US tariffs and also NHS drug pricing have become key sticking points.
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Speaker 3: Yeah.
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Speaker 2: And given the political importance, the huge significance of the NHS for voters in Britain, it's amazing that this already seems to be flying somewhat under the radar. I think in the UK, why are the two sides so far apart?
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Speaker 5: Well on your flying under the radar point, this has been a slow burn. Yeah, there are two things. There is the firewood, which is UK drug pricing policy, and there is the spark, which is the US tariff policy. Now, the drug pricing, if you're looking to buy a drug, the UK assesses on what's called a quoi, which is how much it will improve your life for how much of a cost. And here in Britain the NHS broadly goes between about twenty pounds to thirty thousand pounds a year is a good price. The pharmaceutical sector says, no, no, no, that should be close to fifty thousand pounds a year. It's worth saying that Britain's measure has not been adjusted for inflation in twenty five years. So the drug companies say, look broadly, most health organizations around the world spend about fifteen to twenty percent of their sort of income a year on drugs. The NHS it's nine percent, So they go, you're getting a much better deal here than most others. Now that's the fire. There is then the spark. The US has said two things. One is weighing and threatening TA prices on drug imports. Trump has said as much as two hundred and fifty percent. He's floated that would be crippling and for a lot of these pauses in the UK investment it's in tandement outs with the US investments, so many are reorientating the resources of America. The other is there is talk in the US of what's called a most Favored Nation policy, which is where you take the cheapest drug price around the world and apply it to America. And a lot of these drug companies going well that would be Britain. And so unless we get prices higher in the UK, we are at risk of having to put UK prices over onto the US. Take those two together and you give even sort of normally quite mild mannered CEOs the excuse used language that the sort of things I just said to you.
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Speaker 2: Where does this leave then the public voters and also the UK economy.
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Speaker 5: So after the doctors themselves, the NHS spends its second largest part of its budget on drugs themselves, about twenty billion a year, give or take. If you were to see that start rising, and I will say, there is an agreement that's part of the drug pricing called the Voluntary Agreement on Price. It's called VPAG that limits drug prices to going up about two percent a year to limit NHS costs. Some drug makers would see it closer to nineteen percent increases. So you take that twenty billion when they announced this for a voluntary agreement that the government announced it had saved fourteen billion. So at the very least you could see that unwinding. And it comes at a moment when really the government doesn't really have much money to spare. It would much rather be platlunk it's health sector budget into the doctors and into productivity rather than to drugs. However, the standoff has been going on since the summer, when West Street and the Health set you walked away from drug price negotiations. The comments this morning from the Science Minister Patrick Valance suggests the government may be looking to try and resolve that, and he told both the Ft, the BBC and Press that pricing may have to be an issue. So currently it seems like the government are working their way towards increasing drug prices.
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Speaker 7: This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond.
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Speaker 2: Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa play Bloomberg eleven thirty. I'm Caroline Hepka.
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Speaker 7: And I'm Stephen Carroll. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak Europe,