US Retaliates Against Iran Strikes; Investors Spooked by Warsh Hold

0:28Support for this show comes from Public.com. workflow and your agent handles the rest. Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by public investing. Brokered services by open to the Public Investing Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor.

1:05Complete disclosures available at public.com slash disclosures. AI is entering its most consequential phase where scale, safety and sovereignty will determine who leads and who lags. Join Bloomberg Tech in London on November 2nd and 3rd as global leaders across business, finance and policy examine the defining trade-offs shaping the future of AI. Thank you to our presenting sponsor Salesforce and supporting sponsors IDA Ireland and Schneider Electric. Learn more at bloomberglive.com slash techlondon.

1:41Bloomberg Audio Studios, podcasts, radio, news. Good morning, I'm Nathan Hager. And I'm Karen Moscow. Here are the stories we're following today. Karen, we begin with retaliation in the Middle East. The U.S. has hit dozens of Iranian targets in a two-hour operation following Iran's surprise ballistic missile attack on a U.S. base in Jordan this week. President Trump had warned the U.S. would be hitting Iran, quote, very hard. Israeli Prime Minister Benjamin Netanyahu says he stands behind the president. We're partners. We're allies. He's the senior partner. It's the United States of America, let's not forget.

2:21And I'm a junior partner. But I'm the prime minister of Israel. And when I have to stand up for the interests of my country and the security of my country, I do so. Israeli Prime Minister Benjamin Netanyahu spoke in an interview with ABC News. We get the very latest from Bloomberg Middle East correspondent Abir Abu Omar in Dubai. The U.S. military did strike military targets. It stopped short of targeting bridges, civilian infrastructure. So for the time being, we're still seeing measured attacks on both fronts by Iran and by the United States. but definitely not a positive sign because we're seeing an escalation.

2:58That ceasefire that was signed or that temporary ceasefire that was signed in Switzerland seems to be a thing of the past now. Bloomberg Zabir Abu Omar reports two liquefied natural gas tankers were hit with drones off Egypt's Mediterranean coast. Around the same time as the U.S. attacks, there has been no claim of responsibility. Well, Nathan, as the war takes a toll on the U.S. weapons stockpile, the Defense Department announced two massive contracts worth about$135 billion to major U.S. defense companies. The Army reported a$59 billion agreement with Lockheed Martin to bolster production of Patriot interceptors.

3:33At the same time, the Pentagon unveiled contracts worth as much as$76 billion for General Dynamics and Huntington Ingalls Industries to expand construction of the U.S.'s top nuclear submarines. Let's turn to the economy now, Karen. Bond investors are sending a message following the Federal Reserve's decision to keep interest rates unchanged and the news conference from Fed Chair Kevin Warsh. We get the latest from Bloomberg's John Tucker. John. And Nate, it's not a good message. The market's questioning Warsh's credibility. Investors sent the long bond yield to a 19-year high. Stocks tumbled. The Dow falling over a thousand points.

4:11It's because the Warsh Fed didn't move, even as Warsh acknowledged an inflation problem. Inflation remains elevated relative to the committee's 2 % goal. The committee remains resolute. You've heard this before, but we will deliver price stability. If there is an inflation problem, Torsten Slock at Apollo Management is like a lot of investors asking this question. Well, what are we waiting for? We didn't get a clear answer for what exactly are we waiting for, which was, of course, was a subtle way to try to get some forward guidance. Well, it doesn't help Worsh's credibility. The three members of the Fed's Open Market Committee dissented.

4:47If Worsh can take away any solace, maybe it's from the fact that he hasn't been skewered yet by President Trump. Inflation, by the way, has been running above the Fed's target for five straight years. In New York, I'm John Tucker, Bloomberg Radio. Let's turn to the equity markets now. Futures are higher following a pair of big tech earnings. Let's start with Microsoft. Those shares are up more than 7 % in early trading. the company's cloud unit grew 43 percent, its fastest clip in four years, and that pace is accelerating. Analysts say that suggests Microsoft's AI and computing services are making inroads with customers.

5:23On the earnings call, CEO Satya Nadella told analysts the company is quickly increasing its data center capacity. We're also bringing capacity online faster than ever. Over the last fiscal year, we've reduced dock-to-live times for new GPUs in our largest regions by nearly 50 percent. All up, we added another gigawatt of capacity this quarter and remain on track to roughly double our overall capacity in just two years. And CEO Satya Nadella also indicated Microsoft would hold the line on new capital spending this year. Well, on the flip side, Nathan shares a meta. They're down almost 9%. The Facebook and Instagram owner gave a disappointing quarterly revenue forecast, and that's stepping up pressure on CEO Mark Zuckerberg to ease investor concerns that the company is not swiftly benefiting from its massive outlay on artificial intelligence.

6:12Zuckerberg spoke on the company conference call. Our investments in AI are accelerating every major part of our core business. They're improving the experience for people using our apps, driving better performance for advertisers, and helping our teams build new experiences and ship faster. Second, we are developing new personal agents that will be the foundation for our next wave of products and revenue lines in the months and years ahead. Mark Zuckerberg and Meta reported its lowest free cash flow in years, a sign of ballooning expenses for AI bets, which could amount to$145 billion this year.

6:47And we also got some earnings in Asia, Karen, including a blowout quarter for Samsung Electronics. South Korea's largest company posted a 250-fold surge in chip profits. Samsung now expects memory shortages to worsen next year, reflecting the relentless pace of the global AI infrastructure build-out. We get more from Bloomberg's Seoul Bureau Chief Kat Barton. It was an absolutely historic quarter for them. Record profits for their semiconductor division. Obviously, their mobile phones and their other electronics didn't do quite so well. They actually tipped into a loss. But the semiconductors are doing so outlandishly well that it's carrying the whole company at this stage.

7:25That's Bloomberg's Kat Barton. And despite the blowout, Samsung shares fell almost 3%. Nathan, the big tech earnings continue today. Both Apple and Amazon report after the closing bell. And we get a preview with Bloomberg's Tom Busby. Apple is expected to report another blowout quarter for sales of iPhones and other gadgets, despite raising prices because of a memory chip shortage. Services like Apple Music and iCloud also expect it to see gains. At Amazon, the big focus is the Amazon Web Services Cloud Computing Unit, but investors will want an update on the billions being spent on artificial intelligence and how its AI development compares with Alphabet, Microsoft, Meta, and others.

8:03At Apple, Bloomberg Consensus calls for revenue of$108.85 billion on earnings per share of$1.89. At Amazon, Bloomberg Consensus calls for revenue of just over$197 billion on earnings per share of$1.83. Tom Busby, Bloomberg Radio. Okay, Tom, thanks. Let's turn to what's happening in Washington, D.C. now. On Capitol Hill, the Senate committee that's considering Todd Blanche to be the next attorney general abruptly called off its confirmation vote last night. Two Republican senators are still holding out support. One of them is Tom Tillis of North Carolina. He says he wants Blanche to meet with Jeffrey Epstein's victims first.

8:39Mr. Blanche was willing to say that he would meet with them and counsel. I understand the restriction. The counsel has to be present. I expect that meeting to occur before I'm willing to vote out of this committee. And I'm trying to get to yes, but this is a very important part of getting to yes. Senator Tom Tillis spoke during last night's hearing on Blanche's nomination. The other holdout Republican, John Cornyn, says he wants changes to President Trump's settlement with the IRS over the 2019 leak of his tax returns. Cornyn wants to ensure any bans on investigations into the president or his businesses only apply to the tax agency and not the Justice Department.

9:18Well, elsewhere on Capitol Hill, Nathan, Dr. Anthony Fauci declined to testify in a Senate hearing on his role in the U.S. response to COVID-19, invoking his Fifth Amendment rights. And Bloomers' Amy Morris has details on the volatile hearing from Washington. I said, sit quietly, you are not recognized. Another word and you're gone. Republican Senator Rand Paul threatening to have Fauci's attorney removed, which he eventually did, for trying to speak during the hearing when he was not recognized. Fauci, in his opening remarks, said the hearing was designed to push him into saying something incriminating.

9:50The only conclusion I can reach is that the sole reason he is calling me before this committee is to get me to say something, anything that could vindicate his repeated public pledges that I end up, in his words, behind bars. Senator Paul denied Fauci's assertion of privilege and said there would be repercussions for not answering the questions. In Washington, Amy Morris, Bloomberg Radio. Amy, thanks. And this programming note, Bloomberg Radio is introducing a new feature exclusively for subscribers at Bloomberg.com and our terminal clients. You can help shape our conversations by submitting questions for our analysts and experts to answer live on air.

10:32Subscribers can go to Bloomberg.com slash ask radio to send in those questions and you may just hear them asked on air. That's Bloomberg.com slash ask radio.

10:47Time now for a look at some of the other stories making news in New York and around the world. And for that, we're joined by Bloomberg's Michael Barr. Michael, good morning. Good morning, Karen. In Massachusetts, Patrick Clancy took the witness stand to testify in the murder trial of his former wife, Lindsay. She is accused of killing the couple's three young children in their Duxbury home in 2023. Patrick Clancy admitted his wife struggled with depression before the murders. Lindsay's mental health started to deteriorate. And when you say that, sir, what is it that you, as your husband, observed?

11:18Just increased stress and anxiety. Lindsey Clancy's lawyer says that she had killed her children because she was suffering from severe postpartum mental illness. Prosecutors say she planned the killings. Hope is dwindling for any rescue in southwestern Japan after Tuesday's 7.1 magnitude earthquake. Reports say the death toll for now is at 30. New York Governor Kathy Hochul says she's committed to getting it right when it comes to the future of data centers in the state and the nation. Hochul held a roundtable event in Monroe County, joined by business and local leaders and residents voicing concerns over protecting the environment and the energy grid.

11:58Every part of the state has a different perspective. In the capital region, we heard from business leaders and local officials, environmental advocates and organized labor. Long Island, the focus was on water. Water is a more limited resource around Long Island. New York wants to block building large data centers for up to one year. Global News, 24 hours a day. And whenever you want it with Bloomberg News Now, I'm Michael Barr and this is Bloomberg, Karen. Thanks, Michael. Time now for our Bloomberg Sports Update. And for that, we bring in John Stashauer. Thanks, Karen. The baseball trade deadline comes on Monday.

12:33And a name they keep hearing about is Detroit Tigers ace pitcher Tarek Skubal, two-time winner of the Cy Young Award. He started yesterday in a Tiger game against Baltimore, got a standing ovation from Detroit fans because he may well get traded before the deadline. San Jose Sharks have locked up their 20-year-old star Macklin Celebrini with a five-year extension worth$94 million. That's your Bloomberg Sports Update. Stay with us. More from Bloomberg Daybreak coming up after this. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions.

13:13Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. or if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the rest. Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API.

13:53Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., Member FINRA, and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. As markets move and headlines break, what matters most is context. A Bloomberg subscription gives you unmatched reporting, sharp analysis, and powerful tools that help you connect the dots. Visit Bloomberg.com slash podcast offer to learn more.

14:57the Fed decided to keep interest rates on hold. Here to help us make sense of what's happening in this market this morning is Bloomberg Managing Editor Dan Curtis. Dan, let's start off with Microsoft. Is it all about the spending? Reining in, apparently, the spending for Microsoft. Good morning. Good morning. That's right. So the shares are up 8 % in the pre-market, and the company is reining in spending. But on a very important note, it is also monetizing on the spending that it's putting out. So just to put some numbers into context, Microsoft's operating expenditures rose 10 % year on year for the last quarter, and its free cash flow was still$20 billion.

15:38So the companies spent$41 billion in CapEx, and Wall Street was expecting a bit more than that. So again, Microsoft spending a bit less than Wall Street was estimating, but still beating on the revenue. Azure growth, which is key to reading in on its AI performance, was up 43 % on the quarter, one of the best quarters in years. And the annual revenue for that segment topped$100 billion for the first time ever. The unit is seeing efficiency gains, faster capacity delivery with demand still exceeding supply. So a very strong story from the AI side there. Also, Copilot, another AI tool, paid seats for that more than doubled sequentially to over 30 million.

16:18and user satisfaction scores also doubled. So it's starting to see its AI strategy paying off here with capital expenditures that are coming in lower than expected. And for the full year, it's seeing CapEx of$175 billion. That's less than$190 billion of the previous forecast. So again, this company is starting to see revenue, starting to see monetization, and it's not spending as much as Wall Street was expecting. Is it an opposite side of the coin then when it comes to what we got from Meta? Yeah, basically. I mean, those shares are down 9 % in the pre-market. The company reported its lowest free cash flow in years, just around$2 billion on the ballooning expenses of its AI bets.

16:59Third quarter revenue is seen coming in at$61 to$64 billion. The midpoint of that is softer than estimates. So it's raising the CapEx outlook and the revenue is not quite what Wall Street was looking for. The 2026 full-year expenses were raised to$165 billion to$169 billion range, not just CapEx, but also higher costs due to legal proceedings. Now, Zuckerberg is looking towards a future where AI agents carry out tasks 24-7 for customers. The build is expensive, and the revenue isn't supporting the company yet. He's also been exploring a new cloud business to run out compute. He said, quote, there is just nowhere near enough compute for all of the demand.

17:37That said, it looks like Meta doesn't need all that demand. So that could also be a little bit of pressure for investors saying, well, if there's demand for compute, why aren't you using it and why are you renting it out? We have just 30 seconds left here, Dan. But after the Fed decided to keep interest rates on hold, it seems like bond investors are disagreeing this morning. That's right. So we have the 30-year yield at the highest level in decades, and a large portion of that's coming from the tips rate, so the premium over kind of the inflation outlook. So there's a lot of question marks as to how much conviction Warsh has to fighting inflation.

18:14As you said, the Fed has held three members dissented in favor of a hike. And Warsh said that the bond market had done some of the Fed's work with the tightening there. So markets walked away with that one. You know, on the Fed decision itself, markets didn't move much during the conference was what really sparked the move. This is Bloomberg Daybreak, your morning podcast on the stories making news from Wall Street to Washington and beyond. Look for us on your podcast feed by 6 a.m. Eastern each morning on Apple, Spotify, or anywhere else you listen. You can also listen live each morning starting at 5 a.m.

18:46Wall Street time on Bloomberg 1130 in New York, Bloomberg 99.1 in Washington, Bloomberg 92.9 in Boston, and nationwide on Sirius XM Channel 121. Plus, listen coast-to-coast on the Bloomberg Business app now with Apple CarPlay and Android Auto interfaces. And don't forget to subscribe to Bloomberg News Now. It's the latest news whenever you want it, in five minutes or less. Search Bloomberg News Now on your favorite podcast platform to stay informed all day long. I'm Karen Moscow. And I'm Nathan Hager. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak.

19:33The Bloomberg This Weekend Podcast. News, politics, and the lighter side of Bloomberg. The most coveted cosmetic enhancement in Asia right now are elf ears. Elf ears. Yes, people are getting injections to enhance their ears. I really don't need anything else to learn to be self-conscious about. This is not something I needed to have on my radar. The Bloomberg This Weekend Podcast. Subscribe today on Apple, Spotify, or wherever you listen. Thank you.