tv Bloomberg Markets European Open Bloomberg June 28, 2022 3:00am-4:00am EDT
for the ecb conference with tom mackenzie. tom: focus on energy, g-7 leaders exploring a price cap on russian gas as well as oil, crude climes for the third day. strategic outlook. nato is set to label china a systemic challenge instead of anniversary, sources say. the alliance lands a sevenfold increase to better deter -- central bankers converge on the portuguese hillside where they will look to set the tone on tackling inflation. let's check in on the markets. losses of around 16% across the u.s. space. --.6% across the u.s. space, mastec selling the heaviest. the mood has changed in the buildup to the open.
gains of .3% on the ftse 100, china suggesting they will ease requirements when it comes to quarantine her inbound travelers from three weeks to 10 days, some optimism china gaining a little over 1% last time i looked. the spanish ibex and the cac carotid -- 40 up by .9%. the debate continues about inflation or recession, and which of those two is most in focus for investors. oil remains in focus as well, given the news that the g7 is looking to target not just oil but also gas. let's see how things are playing out sector by sector. it was a positive for european equities yesterday. tuesday for the open we are building on the gains. s&p futures looking at gains of .5% after the loss of yesterday, the u.s. 10 year report 20, not
a whole lot of movement across treasuries. the csi 1%, 11% gains for the benchmark over the past month. you are closing in two able market for chinese equities. some fund managers including j.p. morgan increasing the allocation to chinese tech stocks. brent, $170 a barrel gaining almost 2% news out of libya and ecuador that supplies will be restricted there and the g7 component as well. credit suisse, another important day, the ceo will outline a deep dive into that bank. 2022 has been flagged as a pivotal turnaround year for that bank. erickson down .3% and siemens getting 1.4%/
let's get up to sintra where francine lacqua is on the ground battling the weather conditions looking forward to a very important meeting tomorrow. and looking ahead to the speed from adam lagarde. -- speech from madame lagarde. francine: good weather & in portugal in almost july, but we are getting windswept and it is quite cold. looking at central banks we knew there was this tightrope with ever more aggressive rate hikes. we saw the 75 basis point hike last time, with the engineering of the soft landing or avoiding the hard and deep recession that markets fear. you are right, tom, it is all about christine lagarde opening up that for under the retreat in sintra. that will be at 9:00 u.k. time
then we go into panels, then i will be speaking about monetary policy with andrew bailey and jay powell. there was a stark warning about some of these central banks. a lot of the focus will be on fragmentation just in the last couple minutes we had the news from reuters saying the ecb will offset purchases, this is a tool that will start to be getting used -- that was used in 2012. tom: the sterilization mechanism. francine lacqua on the ground in sintra. we will be back with francine out of the next 30 minutes. some great guests coming out of sintra and that important panel at 9:00 u.k. time. the global bounce from a bear market stalled yesterday on wall
street. there is a little more upside today. ongoing concerns about high inflation and slow economic growth, caution was evident in the asian session to begin with. things turned around on the back of the news that china will ease some quarantine restric tions. stronger yen and i climb in treasuries. the u.s. 10 year currently at 3.20, the u.s. 10 year at 3.10. joining us is fabiana fedeli, cio of equities at m&g plc. is recession or inflation the bigger risk for equities in the second half of this year? fabiana: good morning, tom. i think we are at a point where there will be a bit of a tug between the two, you see it on the long end of the curve in u.s. yields. the concerns are mostly on the
inflation side and the impact that is having on demand and on consumers. we would suspect that we as we go through the year will be concerns about recession and the impact that will have on the overall globally enemy -- global economy. francine: tom: we have heard talk about the bullwhip effect, and calls from cathie wood about inventor he being built up, nike results suggesting that. are we starting to see may be the conditions to suggest that the fed could cause if not backtrack on rate hikes towards the end of the year? fabiana: towards the end of the year it could be possible. i'm not sure we can talk about backtracking, maybe just a lesser steepening of those rates.
but for now we are just so behind the curve. there are a couple of other things the market is not looking at. the ecb is ending their cspp, corporate sector purchase program, they hold 16% of investment grade in europe. that is going to have an impact and possibly a selloff on equity -- spill off on equity markets. we have seen a lot of the defensive stocks have done better, but we suspect the next earnings season will be the big leveler where some of the perceived defensive stocks will turn out not to be so defensive. we have also maintained the fact that this is a market with a lot of selection and not growth investing. tom: a big level when it comes to earnings, many would argue that is the next shoe to drop.
you expect pronounced downgrades across the equity space, and where will we see the resiliency do you think? fabiana: the market does anticipate some earnings being revised down. in the tech sector that has happened. you are starting to see it in that consumer discretionary sectors before analysts have cut sales forecasts, but not quite to that level. we feel that capitulation is not there yet, but for some stock we already, see some interesting levels,, so it's really going to be about consumer discretionary. there is still some ways to go but arguably it will be soon when we will -- when you will find some value there. my teams have started buying into some of the technology stocks and we are waiting the on the -- to see on the consumer
discretionary stocks. francine: tom: where across the tech ecosystem are you seeing the deratings that make it attractive at this point? fabiana: it's all about earnings visibility, the likelihood that there is resilience, it is all about pricing power, having unique ip. there is still a lot of tech stocks out there that either have a lot of froth or frankly no earnings visibility, and they will be calling in a downturn particularly because of weakening demand. just look at strong pricing, strong ip, and strong balance sheets. tom: what are the changes you are making across the multi-asset strategy, fabiana? fabiana: we were underweight to
some equities between neutral and underweight, and some duration until april. in the second quarter we started to close some of those underweights, and we are closer to neutral position. we are closer on the u.s. side for treasuries we are short on the belly of the curve, but we are longer when we get to longer duration because of the fact that there is going to be more concerned about the inflationary outlook. we tried to be selective from the country perspective. for example, japan. tom: japan and adding in tech, staying selective, fabiana fedeli, cio for equities at m &g. the ecb forum kicks off today with madame lagarde do to give
because there is restrictions easing in china. we are back in sintra for the ecb forum kicking off with president lagarde due to give her keynote at 9:00 a.m. u.k. time. joining me now is martins kazaks , the latvia bank central governor. talk to be about what the ecb, could do in, july, this 25 basis point still of the table. martins: my base case is 25 in july, 50 in september. it is just natural, with the current situation, it was the right move. francine: we are looking at
inflation at another record high, what would warrant a 50 basis point hike? martins: it is what happened to the labor market, what happened to the anchoring of expectations? do the expectation start going up. do we see that -- becomes more regular, more often. in this case, nipping the bud as the president has said. in my view, frontloading in this case would be a reasonable choice. francine: 50 basis point hike? martins: the current focus is 25 but when we made the decision we will have another look at it and if we see the situation has worsened and inflation is higher.
sometimes inflation expectations, then in my view, frontloading the increase would be a reasonable choice. francine: is it something the ecb could learn from the fed? martins: we are watching that. francine: again, and we talk about this frontloading and the fact that it gives you more tools to see what happens towards the end of the year. martins: the important thing is to address expectations. monetary policy is in opposition to address like our problems -- the core problems. but what we should care about is when those negative supply-side shots start to date, -- start to fade, we need you make sure are not second-round effects that make inflation more permanent. that is our task at the moment, make the cut while it is still small. francine: do you see a scenario
where you could hike quite aggressively and then have two cuts in the end of next year? martins: that would be a recession scenario or something like that. at the current moment, interest rates have been at this negative level for quite a long time. and i think they are still way below what would be the neutral interest-rate, so i think we can raise the rates quite quickly. and i would also say the visibility at the current moment is very low, there's lots of uncertainty. one of the major problems as the war in ukraine, the negative supply-side shots both for energy and food prices are more likely to, in the autumn -- come in the autumn which would make
inflation run for longer. francine: do you see a recession in the cards? martins: i think the risk of recession is nontrivial. francine: 50%? martins: i wouldn't mention specific numbers. but we should not ignore the risk of recession. it is not only about europe, it is the global economy because we have the supply chain problem, artificial inflation, it will start eating into consumption. francine: talk to me about the bond tantrum we have seen the last couple weeks, is there a danger that it deters the path forward for the ecb? martins: of course, if this monetary policy starts, there is also the risk of fragmentation. the key message in this respect is fragmentation risk should not
stand in the way of monetary policy and normalization. the important message is monetary policy is not the only game in town. we must deal with fragmentation when spreads start to live a life of their own and get disconnected. but it is also fiscal policy, it is very much structural policy that will determine the health of economies and what is the correct price. francine: do you have the proper tool to deal with privatization -- fragmentation? francine: oh martins: if necessary, we will come up with other tools and we are working on one. but the specific use will depend on the situation when it is necessary. if one looks at spreads of the current moment, they have come down, so the market should not
be carried away. francine: do you need a tool big enough to be used as a deterrent? martins: it should be a backstop and hopefully never used. francine: there is a story on sterilization, and some of the thinking around that which was a tool which was also used in 2012. martins: sterilization could be an element. francine: does that more likely than not? martins: my view is it should be part of it, but it will need to be discussed. francine: talk to me about energy prices. we talk about this uncertain world, but we see china opening up, think this is the most uncertain world in the last 20 years. we have had the financial crisis. martins: there is always uncertainty, it is up and down, and there are different factors. uncertainty is elevated. the global economy is very interlinked.
there is a war in europe. so, uncertainty is high. but we managed that in the past and we will manage and do the best we can in this case as well. francine: what is the secondary concern, awake spiral -- a wage spiral, consumption? martins: i would worry about the [indiscernible] , it was elegantly presented in the recent report switching from inflation read james to -- regimes to higher immobilization risk. finding that low inflation can be self stabilizing. what we should do is not allowed to transit ourselves to the high
inflation rate regime, which means non-linearities again. and what happens with wages in the labor market. francine: thank you so much for your time, the governor of the bank of latvia. i will send it back to london. we will have more from sintra. tom: i'm amazed you and the guest did not blow away because the wind seemed quite extreme. the redhead terminal on the back of that conversation with the latvian central bank governors saying that 50 basis points is worth looking at for july. you've seen a move in germany higher by six basis points, the italian 10 year higher by 10 basis points. this is bloomberg. ♪
joining us now is bloomberg's annmarie hordern, is this price kept going to work, good morning. >> great to be with you. we should note that this is really just the start of the discussion to have more discussions about these price caps. one, there is going to be further discussions on price caps on price caps on russian gas, as well as a nod to a potential mechanism for a price cap on russian oil. the issue is you have to get a number of countries on board, the buyers, many are concerned this will distort energy markets. at the same time, russia has to be willing to take that lower price and still export their goods. for russia, this is how they are going to be able to make their money. they have been bringing in massive profits last month, $20 billion in terms of exports for fossil fuels because of skyhigh energy prices. if they don't want to take a
price cap, they could face long-term destruction of their industry. this is never been done before and the g7 saying they want to explore the idea. tom: unprecedented action as the g7 looks to per tale -- curtail the flow of cash. we returned to the ecb forum in sintra, and the chief economic advisor at unicredit joins us next. this is bloomberg. ♪
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gas, as well as on oil. as supply concerns mount, crude climbs for the third day. nato is set to label china a systemic challenge, instead of anniversary -- an adversary. plus, central bankers converge on the portuguese hillside where they will look to set the tone on tackling inflation. let's check in on these markets. we've learned to take moves in the volatility we are seeing some upside with a dose of skepticism given the concerns about recession and inflation. european equities building on the gains we saw yesterday. in european equities, you so iselle up stateside, nasdaq pointing higher in terms of the futures after losses of .8% yesterday.
europe up .3%, the dax with gains of .4%, and the u.k. the ftse 100 up .8%. basic resources coming back stronger. inflation in focus, we've been hearing from central bankers and are looking forward to madame lagarde speaking at 8:00. let's switch it over and see how things are playing out on a sector by sector basis when you are seeing a cell up when it comes to sovereign debt on the back of comments by the latvian central bank governors to francine saying 50 basis points should be considered for july. basic resources with gains, energy up 1.8%, moves higher in brent and wti. only two streamers -- sectors in the red including health care, down .3%. let's get the business flash now with laura wright. laura: sorts credit suisse has
been convicted of money laundering for april. drug dealer. it is another blow to credit suisse's. the bank says it has been strengthening its anti-money laundering framework and plans to appeal the decision. u.s. banks are boosting dividends in response to clearing fed stress tests. the goldman dividend will jump to $2.50, morgan stanley is raising its quarterly dividend by 10% and authorizing multi-year share buyback program . boris johnson's bill to override part of brexit has survived parliament, getting a step closer to becoming law.
it easily passed despite opposition from his predecessor theresa may within his party. it would unilaterally amend the post-brexit settlement on northern ireland. robinhood chairs surged as bloomberg reported that ftx is said to be exploring a n acquisition. in a statement, sam bankman-fried says while ftx is excited, no m&a conversations are happening. tom: another factor choosing the markets is the news that china will be decreasing its quarantine from three weeks to ten days. central bankers gathering for the ecb forum in sintra. let's go down to francine who is on the ground, very windy another fantastic guest. francine: i'm looking forward to
hearing from president lagarde opening the sintra forum, and what she says about fragmentation. joining us now is erik nielsen, group chief economist at unicredit. i have a million russians to ask you. you are doing a panel on it patient tomorrow rate 0-- --panel on inflation tomorrow. erik: i'm not sure they are behind the curve per se. the important thing with inflation is it is behind us in many ways, and we have to make sure it does not become self-fulfilling through rate increases. there is talk about the inflation expectation story but what matters is we got this shock, and a central banks can't do anything about what has happened or is hitting us right now. francine: does the economy right now were id 50 basis point hike -- warrant a 50 basis point hike
in july instead of september? erik: the economy does not need monetary stimulus because it looks like we are heading into her a session. -- heading into a recession. francine: i guess the million dollars question, central banks have explained that we are having a supply shock, but it will not help without output. erik: this is where i think the ecb has not done such a good job. it is a supply stock, they were clear on this from the beginning. then they talked about there is a risk in america and europe of slowing demand and it is justified to withdraw monetary stimulus. however domestic demand in the euro zone today is lower than at the end of 2019, so how can this
be a demand component at all? francine: so how difficult is it for the ecb? if we hike in a slow economy, can we avoid recession? erik: i don't think we can avoid it now. we have a massive shock, global trade because of china and all the rest of it declining. we have no fiscal help basically. that overwhelmingly spells recession to me. francine: would it not be easier to adjust towards the end of the year, where also gas consumption can go significant way higher? --significantly higher? erik: i don't like the idea of frontloading something to have room for easing later on. you do the best we can right now. then comes the problem that
inflation is high, it is probably a good time to exit [speaking foreign language] but that is why we get the fragmentation story going. there is a common sense element to say in the face of these levels, how can we have negative rates, and i agree with that. francine: do you think we are starting to see consumer spending going down because of this inflation fear that we are going back to the 1970's? erik: the big question, this is where people really disagree. there is a hole in the pocket of people, there is excess savings, 10-12% in america, 7.5% in the euro zone but we don't know how it is distributed among income groups.
there is evidence it is concentrated among the wealthier. how this pans out, we don't know, this is where the reasonable view can disagree -- reasonable few can disagree. i'm a little more doubtful about this, but who knows. francine: we have seen huge bond market moves and that leads as to how the ecb deals with fragmentation. is there a general sense that the market is leading what central banks need to do? erik: i think that forward guidance is misplaced. the ecb has basically done nothing, they did qe and yet they had the biggest monetary stimulus in decades because market prices were decreasing so fast. i don't think the ecb or the fed are doing as much as demand through prices. -- reprices. francine: thank you so much, the
tom: welcome back to the open, we are 42 minutes into the european trading day. gains on the benchmark of .3%, futures stateside up by .2% and .3%. the cell up in the bond market was pronounced in germany, yields up about 8%. yields also up on italian btp's. seven basis points on the 10 years, after we heard from the latvian central bank governor talking to francine lacqua in sintra. we will hear from president lagarde later at 9:00 local time. he said that 50 basis points july should not be ruled out. martins: the current focus is 25, but when we make the
decision it warrants another look. if we see that the inflation reading is high, and we see negative inflation expectations, then in my view, the increase would be a reasonable choice. tom: the governor of the bank of latvia speaking earlier in the show at the ecb forum in sintra. joining me now on set is michael scott, lead portfolio manager at man group, the world's largest publicly listed hedge fund. what a great day to talk credit. let's start with that and the pricing of the central bank timing, how much has been priced in at this point? michael: as we came into this year, it was clear central banks were behind the curve. now they are obviously trying to play catch up and with that frontloading hikes aggressively. in credit markets we have seen significant repricing on account of interest rate and inflation
expectations being better understood by the market. as we look forward, these interest rate hikes will start to ease into demand, and we think demand start to weaken in the second half of this year will be due further disruption -- lead to further disruption. tom: more disruption looking ahead. when it comes to europe, one of the vulnerabilities? michael: they are across all major developed markets, not just europe, the u.s. and the u.k. europe has happened earlier. it is pricing in a degree of demand downturn in the second half. nonetheless, we think that mid to lower rungs of the market which really need growth to grow into their capital structures will come under pressure in the second half this year. francine: tom: does that mean you want to be positioned in high quality versus the weaker quality stuff?
is it versus higher yields, do you want to be in investment grade as you look to those recession risks? michael: the market is offering long-term value, but these are stable cash businesses in the mid to upper echelons of the high-yield space. these are typically utilities, or farmer companies. -- pharma companies. the lower half as the -- has the potential to underperform. cash flow analysis is the bedrock of credit analysis. ultimately, you need to see the -- to repay the coupons and essentially refinance the debt. as we look to a weaker demand backdrop, it is paramount to find businesses that can generate cash and grow a bit. --
ebidta, so having strong pricing power is critical in this environment. tom: during the pandemic, a lot of these companies were able to refinance at very low rates, how much of a buffer does that give them? michael: that's a good point and because of the stimulus that was enacted during the covid period, a lot of creditors turned up their debt. from a maturity perspective we don't see the pressures as that acute. default will certainly rise, but the maturity wall has been pushed out two or three years in the future. tom: you see a pickup in defaults, but in terms of historical comparisons many are saying it does not look concerning. if you expect and what are you monitoring -- do you expect a pickup and what are you
monitoring? michael: we are looking at the default rate backdrop and we are moving into a weaker demand picture the next six to 12 months. we think defaults will pick up. in terms of how hard the landing is, historically the president does not look very good. we are expecting defaults to become cyclically higher as we adapt the vent demand backdrop in the second half. we like noncyclical businesses currently. we think the valuations underperformed on interest-rate activity. we think interest rates are very well priced by bond markets and the cash flows of these less cyclical sectors are offering long-term value. that's very much an opposite
view to the cyclical parts of the market which have a significant ability to underperform the next six months. tom: look for those less cyclical businesses as you parse the corporate space with cash flows in mind. michael scott, the lead portfolio manager at man group. let's get the first word news. laura: g7 leaders will instruct ministers to explore implementing a price cap of russian gas. it could be announced at the end of the g7 summit today. leaders are expected to mention a plan to cap prices of russian oil, which could work by imposing restrictions on insurance and shipping. china has reduced quarantine times for inbound travelers by half. in the comers will only need to spend seven days in a facility,
down from 14 days of hotel quarantine in many parts of china currently, and as many as 21 days in the past. 46 people have been found dead in a lori art in -- lorrie parked in san antonio, texas. the san antonio merrick suggested the people who died were immigrants. that is as temperatures reached as high as 39 degrees celsius and in the area yesterday read nato it is planning to label china as a systemic challenge. the so-called strategic concept document is likely to highlight a deepening partnership between beijing and moscow and is due to be signed up by major leaders at their madrid meeting. bloomberg understands china will not be called an adversary. global news, 24 hours a day, on air, and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries.
tom: welcome back to the open. 53 minutes into the european trading day this tuesday morning. some of the earlier gains being paired a little bit, upside out .3% on the european stoxx. and a sell down in terms of sovereign debt, german bund yields down by about six basis points on the 10 year. let's get the corporate stories in focus. the continuing saga around credit suisse which has about to boost the business with clients and cut costs. it comes as the bank is hit with a historic money laundering conviction. we are joined by tom metcalf, who has been across this story for many on month. talk to us about the abilities for thomas got stayin -- the
ceo, to convince investors this is a pivotal year for the bank. >> that is his remit today. to go out there and set ship. in terms of the size of cost cuts, about 200 million swiss francs. really doubling down on the wealth business, looking towards asian markets to continue growth. and will see how investors react. tom: have a managed to put archegos behind them, or is there more from those that could come back to haunt credit squeeze? >> by the end of this year, they want everything boxed off and not to come back again. but that is not how these things work every week it seems there is a new development. the money laundering case yesterday, they keep
getting hit with scandals. i am just waiting for the next shoe to drop. tom: it makes them vulnerable to be a takeover target. >> their share prices around the six euro mark. for credit squeeze, that is extraordinary. people will be looking at it. very difficult to put off a bank m&a. tom: thank you very much indeed. keeping across the credit suisse story for us. surveillance: early edition is up next. the ecb president is giving her keynote speech in sintra. we will take you to that life. as markets hold onto gains. essence pe meani --s&p even
is pointing to gains of .4%. the german ten-year currently up six basis points, the italian bdp is up five basis points. some optimism had come through from china changing its quarantine rules, 10 days versus three weeks, having the quarantine giving some the hope that further restriction easing is coming through. the csi 300 has performed well, gaining about 11% for the month, 1% today. the pboc pledging to continue to support the economy. madame lagarde is up next live. this is bloomberg. ♪
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