Putin’s Trump Call Win, Britain’s Big EU Reset, Banks Bullish On Europe
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Bloomberg Audio Studios. Podcasts. Radio. News. This is the Bloomberg Daybreak Europe podcast, available every morning on Apple, Spotify or wherever you listen. It's Tuesday the 20th of May in London. I'm Caroline Hepke. And I'm Stephen Carroll. Coming up today, Donald Trump's two-hour call with Vladimir Putin hands Russia a win as the US president steps back from Ukraine peace talks.

A landmark deal that leaves many details unresolved. Britain's big EU reset turns out to be just the start of negotiations. Plus betting on Europe, where a growing number of Wall Street banks expect European stocks to see their best performance versus the US in at least two decades. Let's start with a roundup of our top stories.

This is not my war.

This is not the war. I mean, we got ourselves entangled in something that we shouldn't have been involved in and we would have been a lot better off. And maybe the whole thing would have been better off because it can't be much worse. It's a real mess. It's a death trap. So I think that, yeah, I would say I do have a certain line, but I don't want to say what that line is because I think it makes the negotiation even more difficult than it is.

Reacting to the comments from the US President, one European official told Bloomberg that leaders fear Trump is disengaging from the diplomatic effort. Another said the US President had made it clear he didn't want to impose more sanctions and was retreating from his own proposal for a ceasefire.

The UK and the European Union signed an agreement to ease border checks on food in what Prime Minister Keir Starmer called a landmark deal. But the bigger reset moment that was built up by the Starmer government turns out to be only the start of talks in many key areas with no concrete result on a defence and security pact.

The UK government says that the deal on agri-food products will add £9 billion or 0.2% of GDP to the UK economy every year by 2040. The two sides agreed, though, only to work towards a youth visa programme. And while the UK claimed a victory on the use of e-gates for British passport holders, the actual agreement talks about their potential use where appropriate.

Meanwhile, Brussels secured 12 years of ongoing access to British fishing waters. Keir Starmer says the deal is a win-win. Britain is back on the world stage, working with our partners.

doing deals that will grow our economy and putting more money in the pockets of working people. The UK Prime Minister has signed a series of trade deals in recent weeks. His Chancellor told the BBC that a pact with the six-member Gulf Cooperation Council, including Saudi Arabia, the United Arab Emirates and Qatar, was the next goal.

Israel says it will take over all of Gaza as some democracies warn the country is breaking international law and could be sanctioned. The Israeli military told Gazans to evacuate their second biggest city, Kan Yunis, ahead of what it called an unprecedented attack on Hamas. British Prime Minister Keir Starmer says Israel's conduct is unacceptable. This is a really serious, intolerable situation and that's why we are working intensely to coordinate with other leaders how we respond to this.

Starmer was joined by the leaders of France and Canada, who said they will take action if aid isn't allowed into Gaza. Food security experts say all Gazans are now malnourished, with one in five facing extreme starvation. Now let's turn our attention back to the UK, because Bloomberg has learned that the Bank of England is considering loosening post-financial crisis rules that force lenders to separate their retail and investment banking arms. Bloomberg's Ewan Potts has more.

Staff at the Prudential Regulation Authority are said to be looking at relaxing the ring fencing requirements for UK banks, but without scrapping them entirely.

Some of the country's biggest banks, including HSBC, NatWest and Lloyds, wrote to the Chancellor in April calling for ring fencing to be abolished, saying it makes British banking less competitive. But scrapping the rules, which finally came into force in 2019, is not without controversy. John Vickers, a former BOE chief economist who led work on the rules, warns that the loosening could end up reducing the capital invested in the UK, harming economic growth. In London, I'm Ewan Potts, Bloomberg Radio.

The United States risks a fiscal disaster if a recession hits as Republicans push ahead with their sweeping package of tax cuts. That's according to Jim Milstein, the co-chair of Guggenheim Securities, who spoke to Bloomberg after a key U.S. House committee advanced President Donald Trump's massive tax and spending package.

Meanwhile, the Joint Committee on Taxation has estimated the bill's total cost at $3.8 trillion over the next decade. But Milstein told Bloomberg the figure assumes the U.S. avoids a recession. These projections are all made on a 10-year basis. And they assume...

you know, consistent economic growth. So just imagine the Trump tariffs because of the uncertainty and the variability. Imagine we have a recession in the last five or six recessions. The budget deficit actually blows out.

Guggenheim's Jim Milstein spoke to Bloomberg as President Trump plans to go to the Capitol today to urge fractious Republicans to overcome divisions and unite behind his signature tax cut legislation. So that was the Guggenheim warning. There's been another. J.P. Morgan CEO Jamie Dimon has warned that inflation and stagflation are mortgages.

likely than many people think and that today's markets aren't pricing in the impact of a potential downturn in the US. Speaking at the bank's investor day, Diamond emphasized the uncertainty at play. You haven't seen an effect of tariffs. The market came down 10%, it's back up 10%. I think that's an extraordinary amount of complacency. That's my own view. That when I've seen all these things adding up that are on the fringes of extreme kind of thing,

I don't think we could predict the outcome. And I think the chance of inflation going up and stagflation is a little bit higher than other people think. Jamie Dimon says that he believes the bank, though, will be fine amid the turbulence. Wall Street's biggest banks say that it is sticking with its forecast for full year net interest income of $94.5 billion at J.P. Morgan.

Those are your top stories on the markets. We saw the S&P 500 rise for a sixth straight session yesterday. It's on the cusp of a bull market now, up 19.7% from lows on the 8th of April. Stocks 500 futures were up by half of 1% this morning. The stock 600 finished yesterday up a tenth of 1%. European stocks are up 8.3% so far this year, outperforming the S&P 500.

We did see also the 30-year yield. We were watching closely yesterday for reaction to Moody's downgrade as well. It did come down later, the yield at the end of the session. So 4.91% is where that is trading at the moment. The Bloomberg Dollar Spot Index, though, holding steady after yesterday's losses as well. It fell by 0.6% yesterday as well. And an IPO of note in Asia as well. CATL, the Chinese battery maker, shares up 17% in Hong Kong. It's the world's biggest listing this year.

Wow, interesting. Okay, so those are the markets. Well, in a moment, we're going to bring you more about the repercussions of that Trump-Putin two-hour call yesterday and also why an increasing number of Wall Street banks actually expect European stocks to outperform their American equivalents this year, that is. But there's another story that we've been reading about this morning.

This is the latest list of must-have travel items for this summer. Yes, I think we're clearly highly anticipating our summer holidays. The team over at Bloomberg Businessweek have compiled this. How many have you got, Stephen Cowell, on this list? I have none. And to be frank, I had a few difficulties understanding some of them. Really? I mean, I was confused by, for example, there was a

candle called Hotel Lobby and I was like, oh, a candle that smells like a hotel lobby. That's an interesting idea, but no, actually that's the name of the company and the scent that is being recommended by our colleagues is the Capri scent, which is citrus, jasmine and amaro liqueur, which sounds like a good holiday. But hang on, that's if you don't go on holiday, surely. That's the candle that you stay at home. It's for your holiday at home. Okay, fine. That's your staycation. Yeah, they had instant coffee pods

And lots of other things that you can put into your recycled luggage if you want to buy recycled luggage as well. Yeah, plenty of tips. We'll give the travel experts a chance to check out that list. It's on Bloomberg.com. We'll put a link to it in our show notes as well. Now let's bring you more on what emerged from Donald Trump's phone call with Vladimir Putin. The leader spoke for a couple of hours. Trump says that ceasefire talks between Russia and Ukraine will start immediately.

but apparently without any pressure on Putin. Our EMEA news director Rosalind Matheson joins us now for more. Good morning, Ros. Was there any progress towards ending the war? There seems to be some consternation in Europe about what the

call actually means. Well, that's right. It's very unclear where we're left with all of this because it was a lengthy phone call. There were a lot of comments from everybody afterwards, but also Donald Trump did speak with the Ukrainian president and he spoke, as you say, with European leaders afterwards. So an awful lot of telephone calls

going on. And the upshot is that we don't seem to be any further along the road to understanding what the pathway is to end this war. As you say, the US President says that talks will start immediately, but we don't know exactly what that means, where, what are the parameters of these working level talks, ministerial talks,

At some point, do we get towards leadership talks? Under what parameters would those talks be happening? And above all, the message that comes from this is that Donald Trump is now saying it's up to Russia and Ukraine to talk directly and to sort this out in the sense that even though he says

the US is not walking away, that he really is disengaging from being the direct conduit in that process. And he's saying, you know, Russia and Ukraine need to sit down somewhere, possibly the Vatican, under what terms we don't know, with what teams we don't know, and find a way to end this. And he's really saying if there's at some point he feels it's not progressing, the US will indeed walk away. So he doesn't seem to want to be directly involved at this point in

in negotiating the end to this war. Now, he spoke to several European leaders after this phone call with Vladimir Putin as well. What do we know about how those conversations went? Well, it's interesting again, because Donald Trump afterwards was saying this is a European situation. He started to use that language. This is Europe's issue, not the US's. And again, clearly punting it over to the Europeans. But arguably, he's been trying to cut them out of the process until now and exclude them from some of the negotiations. Now he's saying this is yours to

deal with. And we know from the European side, the officials that we talked to afterward, that high level of concern that it seems to be that Donald Trump is saying he's washing his hands of this in terms of directly negotiating the end to the war. And does that mean that Donald Trump doesn't want to keep imposing sanctions on Russia? He doesn't want to keep the pressure up on Vladimir Putin and dangle the prospect of economic sanctions and tightening those because the US still does have some leverage in

on the sanctions front. And again, the concern that the ball's been put back into a different court. And where do we go from here? Yeah. And I suppose many people are reading this as surely highly supportive of Vladimir Putin and Russia. And what does the Ukrainian president say about the prospect of talks between two countries that have been at war for three years? Yeah.

Well, he says he's keen for talks, but he obviously wants to understand what the plan is. He said he's willing for there to be talks in the Vatican, in Istanbul again. And of course, we had recently those working level talks in Turkey between Russia and Ukraine that seemingly went nowhere.

What he's saying is he expects Russia to now lay out every single demand to end this war in a memorandum. So it's on the table. This is exactly what you want. I mean, we kind of already know what Vladimir Putin wants. He's got quite his maximalist demands going, including on territory, but at least have a very clear sense from Russia, these are the things we want.

to end this war and then to have those negotiations. But he also wants promises in a way from the US that they will keep open the door to further sanctions on Russia and further pressure on Russia, Europe as well, that Europe is actually keeping some of those sanctions going, as we know.

But he says he just wants to now have a plan to sit down and have that conversation. This was all playing out as the UK and the EU were unveiling their new partnership agreement. But looking at the detail of it, it seems like progress on key issues like UK access to the EU's defence fund appeared more aspirational than immediate.

Yeah, it's interesting that meeting yesterday between the leaders of the UK and some of the European leaders is a sense that they want to have a pathway and all these things, but they're putting it all down the road. I mean, there was a lot of, we'll do this, but we don't quite know when or how in the whole outlines of the EU and UK agreement. On the defence side, you know, we know that the EU has given initial approval to this fund.

and formal approval will probably come next week. And this is about, you know, distributing funds to member states and others possibly to support them as they build things like ammunition and drones. So you raise the money in the capital market, so you disperse it to member states. But they've left the door open to the UK being part of that deal

but we just don't know how again. They're talking about you have to pay a fee, maybe, if you're outside the EU to be a participant. There might be other conditions that we don't know about. They were asked about that yesterday and they both said they were very unclear from the EU and the UK side. And it could be weeks, if not months, if some of that is laid out. So...

the pathway for the UK and for British companies particularly to take part in this and have access potentially to some of this investment money that also remains very unclear.

Yeah, of course, you know, the UK in some senses has led the way in the defence of Ukraine, along with all of those European partners. So, yes, there's a big question mark about how much Britain will be involved. And I think as well, one of the more concrete elements of what was talked about was the use of the passport gates, which is something that people have seen as an actual threat.

you know, an actual change that's happened since Brexit that affect individuals who are travelling. And it's very unclear because that's something that has to be implemented at a national level. So there's no timeline as to when that could be done because each individual country would have to change their own systems for it to be available to do so. Although announcement in principle very well and good, the practicalities, again, do seem quite unclear from here on in because the change that would have to be made

will take time. Yeah, I would say, you know, one can weigh the speed of you getting through passport control in Europe for your holiday versus a defence and security pact for the strength of the European continent as being really quite different political propositions. Thank you so much, Ros, for being with us this morning and talking about all of these major issues for Europe. That is our EMEA News Director, Roslyn Matheson.

When you have bars in the sky, onboard showers and award-winning in-flight entertainment, it's no surprise that Emirates was recently named the best airline in the world. We fly you to over 140 destinations and with partners across the globe, we connect you to another 1,700 cities across six continents. So when we say we're also the largest international airline, what we really mean is...

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A number of top Wall Street strategists are betting that European stocks will continue their recent strength and outperform the US by the best margin in at least two decades. Our equity strategy reporter, Sagarika Jason Ghani, joins us now for more. Sagarika, good morning. Who is making these bets?

and how well do they see European markets performing? Good morning, Stephen. We polled about 20 strategists in top US as well as European banks. And the two projections that stand out are from JP Morgan and Citigroup.

Now, both banks expect European stocks to rally further this year while they see the S&P 500 dropping from current levels. So, all in all, we tallied up the two forecasts and what we found was that JP Morgan's forecasts show that it would be the best year for the stock 600 on record relative to the S&P 500. And Citi's estimates are for the best relative performance since 2005. Okay, huge cheer from the European side then, surely.

But is it about European strength or is it about US underperformance and uncertainty? I mean, what is driving this trend? You know, it's a factor of both. It's been a very unusual setup for European markets this year, I have to say. Now, in the past few years,

The region has mostly been seen as a diversifier trade. So when investors wanted to swap out of the U.S., Europe was touted as cheap and you would see a brief rotation back into European markets. Some of that is at play again as investors question the resilience of U.S. assets in the trade war.

Importantly, Europe's had some factors that have independently drawn investors as well, mainly the historic fiscal reform in Germany. That's boosted economic growth estimates over the coming years. And so the outlook has brightened for beyond just 2025. Strategists say it is a sustainable improvement in the European outlook independently. That's what the market is betting on, that Europe will win ever.

Sagarika, which sectors rather do Stratus see as likely to perform well in Europe or is this a broad performance they're looking at? It's both. Europe's benchmark carries quite a few sectors that are particularly exposed to global growth.

and global trade. So, you know, some of these sectors are miners, automakers, luxury goods makers. They have a big market in China, in the US as well. So in market jargon, these are known as cyclical sectors. They tend to do well when the global economy is

on an upswing and they do poorly when growth is weakening. Now, as the trade uncertainty with the US clears up, we had the big temporary trade truce between the US and China. These are some of the sectors that strategists are particularly recommending.

This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond. Look for us on your podcast feed every morning on Apple, Spotify and anywhere else you get your podcasts. You can also listen live each morning on London DAB Radio, the Bloomberg Business App and Bloomberg.com.

Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa, play Bloomberg 1130. I'm Caroline Hepke. 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.

Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? Financial services and generosity programs are combined to help you build a financial roadmap for the future while also creating opportunities to give back along the way. Visit Thrivent.com to learn more. Thrivent, where money means more.

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