tv Bloomberg Markets European Open Bloomberg July 7, 2022 3:00am-4:00am EDT
the prime minister clings to power as the avalanche of resignations continues. we are live from downing street. treasury yields surged after fed minutes underscore its commitment to fighting inflation. plus, the path the parity. the euro is deemed unbuyable as europe lurches toward possible recession. samsung sales boost sentiment in stocks. francine: let's take a look at the futures. it is even more drama than a spanish telenovela. the prime minister is clinging on. pricing in that the prime minister cannot stay on for long but we need to watch out for that it still has further to go downwards because of inflation and growth prospects. tom: x officials and aides coming out and saying it is not
a question of if, but when boris johnson is forced out. in terms of ua k assets, not a lot of sensitivity. we will be in downing street live for the latest on that story. the spanish ibex gaining more than 1%, that was the 100 up .9%. you had optimism around the earnings picture. we also got the fomc minutes suggesting that the restrictive policy could remain in the cards if inflation remains elevated. determination from the fed to get back to the 2% target. wti is about $98 a barrel. the cac 40 up about 1.2%. the u.k. up about 69 points. after gains of .3 and .8% on wall street yesterday, the theaters looking to build on that optimism, about .3%. the u.s. to year 2.97.
currently 1.01 on the euro-dollar, and the option suggesting a 50% probability of parity within the next month, gains of .1% for the currency. 98 dollars a barrel on wti, down .3% on recession and growth concerns and what is happening in china. francine: if you look at the industry groups moving the most, energy on the upside, and basic resources all getting between 1.7 and 2%. the focus is on inflation data, and ecb minutes later. they will talk about whether we get fragmentation. we could see sectors on the periphery, and if markets are right about a 50 basis point height, -- hike in september, what does that mean for some of
the sectors like banks that are much more in tune with what the ecb does. tom: back to the u.k. now, desperate and deluded, that is the front page of this morning's guardian newspaper as johnson faces unprecedented results within his government. thousands of conservative mps have resigned, demanding he steps down. he even sacked a former ally from cabinet. but johnson has signaled he will continue to fight for his political life. >> you are asking about something that is not going to happen. history teaches us that the best way to have stability and government and not to have early elections, is to allow people with mandates to get on. tom: for more, we are joined by
our bloomberg u.k. reporter, lizzy burden. the greased piglet slipping out of the grip of his own parliamentary party, what is next for boris johnson? >> the resignations keep on coming. we have now passed the 50 mark. this morning, you lost the northern ireland secretary and the treasury minister. almost a third of the government is gone now, almost unprecedented in british history. this has consequences not just for johnson but his government's legislative agenda. mps were complaining that sessions were being canceled because the government cannot get the staff. it means the administration is paralyzed. boris johnson is biting on, or trying to, which she signaled by
-- he signalled by sacking michael gove, seen as one of the most competent government members. he may try to announce a new economic policy alongside his new chancellor. francine: lazy, does he go this week or next week? >> it seems so unlike boris johnson to resign. if he were to do it this week, it seems more likely to be next week but it that way. the 1922 conservative committee of backbenchers is having a meeting next week during which it is likely to reelect its leadership with people who are in favor of changing the rules and having another confidence vote. and it would go to a vote of no-confidence in parliament.
it is how far johnson wants to push the constitution. if he tries to call a general election, and market say there is a 90% chance he could do that in 20, the queen could turn down that request. a strategist tells me, don't touch the pound. francine: it probably has further to go. lizzy burden there for us from number 10 downing street. let's get over to our mliv managing editor, mark, there is quite a lot going on with inflation in the u.s. mark: absolutely, good morning. the fed minutes make clear that that is much more focused on inflation then recession and they are right to be so. the database that point yesterday. the isi pmi data was strong and we took some positivity from
that. but job openings in the u.s., 14 months ago i was worried this was at a record level, but that seems outdated. i thought it was a record at 8.1 million, it has just fallen to 11 million. i.e., we could lose another 3 million job openings and we could get to a record unseen before march last year. that shows how hot the jobs market is in the u.s. the situation is deteriorating very rapidly but from a very strong point. the household consumer balance sheets are exceptionally strong, the labor market is hot. that is why the u.s. recession will come later than people think, and inflation will prove stickier and that is why the fed will have to hike more than expected and that is why the yields will go higher. tom: mark cudmore on the outlook
for yields. for more on this story and the themes on the markets, we will bring in tatjana puhan, deputy chief investment officer at tobam. on that line from mark, markets are pricing 75 basis points from the fed in july, do the markets need to reassess how hard and fast the fed will go? >> the narrative you are seeing between markets is, is it going to be inflation or recession? depending on which way the news is coming in, which moves that you see. yesterday we saw about fed coming in really hard on inflation, and you saw bonds selloff. when it is recession, bonds really rally. francine: we are all obsessed with the u.k., tatjana, when you look at what could be priced in pound, i know there is
concern about inflation and growth, does it matter there is this political battle with boris johnson wanting to go for sterling? tatjana: the more this goes on, the more harm it will do. but it is on the short term. on the long-term, inflation, and one underestimated scenario is where we have recession and inflation and potentially central banks could feel obliged to keep rates up, and not make them go down again, especially that fed. it takes its mandate of keeping inflation normal. seriously, even if it means they risk triggering recession that is worse than it would have been otherwise. tom: is there a vulnerability in u.k. assets to the politics? we haven't seen it yet. sterling is up .3% today.
but as you are saying, it is more about the inflation and the trajectory of the boe that is affecting the pound. tatjana: that is one of the bigger drivers of the pound right now. it is hard to find anyone bullish on the pound right now. everyone saying the move is headed lower partly because the dollar has been so strong, and the risk of sentiment in markets, everyone is looking for safety and that is certainly not in the pound. francine: where do you see safety? tatjana: there are some fund managers who actually want a lot of cash because they feel this is even better than the other alternatives you could be exposed to. i think you should think about hedging strategies, that help you to reduce your risky asset exposure. at the end of the day, it sounds boring but diversification is an
important element of safety. in markets with very high uncertainty, it is hard to predict what will happen next. tom: on the question of oil, wti $98 a barrel, we have a bloomberg report pointing to traders freaking out but the prices dropping. this is good news surely for inflation, why are we not celebrating this? tatjana: i guess we are not celebrating because this indicates some sort of recession risk priced in. it is for a bad reason that the oil price is going down. again, i think energy and access to energy is going to be a key factor going forward. for me in the longer run, i think the fact that now oil prices are declining a little bit, it is just a short-term phenomenon but i would not pay too much attention. francine: every day there is bad
news. is there any glimmer of hope, something that looks a little stronger, maybe a data point that we could bring in? >> probably earnings season in the next few weeks. the question from investors, will corporate profits hold up in this environment? will companies pass on increases or will you have company saying we are squeezed on both sides with inflation, lower demand biting into profits. if you see that, it is trouble but maybe you don't and that is the right spot. francine: i can't believe it is earnings season, i feel like it was two minutes ago. tom: maybe in that space there is a little optimism. francine: tatjana puhan, deputy chief investment officer at tobam stays with us. samsung reports better than expected earnings, banishing investor fears about the $50 billion chip industry.
tom: let's look at some of the individual corporate's. i am not going to delve too deeply into the semiconductor space. laura wright will break down what is happening with samsung earnings being reflected across the semiconductor space. telecom italia, the board has agreed to allow the ceo to spin off parts of the business to extract value. edf, we have the details that the government will nationalize this company. a 21% jump in revenue for samsung with better-than-expected results for south korea's largest company, sparking a rally for the chipmaking sector. laura wright is across the results of south korea's largest company. laura: samsung closed up 3.2%.
sales boosted by this narrative that weakening demand from consumers was somewhat overplayed. sales benefiting from currency depreciation. the won down by 9% against the dollar year to date. higher raw material costs are starting to bite. the chipmaking sector is basing headwinds. south korean semiconductor stockpiles increased more than 50% year-over-year for the month of may, the highest level in almost four years. consumers paring back expensive technology spending. and with aggressive tightening from central banks, chip names are really under pressure. francine: what does that mean for the sector? laura: one hedge fund has been buying up shares of the samsung over the last week. they think it offers an attractive entry point. it has fallen almost 40% from
its all-time high in early 2021. there was a chipmaker rally in the asian session, we are starting to see a rate across -- read across in europe with lots of green across the screen. francine: let's bring back in the deputy chief investment officer at tobam to drill the markets. tech stocks, do you see any value in that sector? tatjana: i think it is still overvalued. you can see certain corrections but when it comes to the really large stocks, we still see a lot of excess earnings priced into these valuations. and if these companies can catch up, the valuations are
justifiable. if there is deterioration in economic growth, it has to be priced in. it will be reflected in the loss of earnings of these companies. tom: you have written about this and the fragility around the consumer as we lead into that earnings season, beyond technology what is vulnerable to further downgrades? the consensus seems to be that these earnings are too high at this point. tatjana: the major risk concentration at the moment is technology but there are a few other sectors. especially the last 12 months, they have been pushed. energy is an example. the question is whether it is the second half, or are energy prices going to rise, or is this
something that is also going to trigger un-inversion. if we think about the longer-term, the claimant transition -- there are a lot of energy names that may not be able to participate and be part of this transition. but this is more on the longer end. francine: do you do anything with chinese stocks or parts of the market that are very exposed to china's overweight gdp numbers? tatjana: yes, we are having [indiscernible] but we are not really taking beds. -- bets. at the moment, china is a good place to search for [indiscernible] i don't share this longer-term perspective because for me china
remains a big geopolitical risk and is something i personally prefer to stay away from. tom: tatjana on geopolitical risks. we can't turn away from what is happening with russian gas, july 11 is when the pipe gets shut down for maintenance. are we underpricing the risk that that final 40% of gas will finally be cut off from russia to europe? tatjana: yes, i think markets underestimate the risk. they are underestimating the impact on the productivity of companies. they are trying to tell us, everything will be all right and we will manage somehow. but i think, once the moment is really there, it will be much worse than we anticipated. so, there is more to be expected
from that and probably also more downsides. tom: the deputy chief investment officer at tobam, on the underpriced risks around additional gas cuts from russia to europe, and the market being striving asset pricing this morning. boris johnson desperately clings to power after an avalanche of resignations. we will bring you the very latest from westminster. this is bloomberg. ♪
tom: welcome back to the open. we are 24 minutes into the european trading day. risk on. gains of over 1% across the benchmark. teachers stateside pointing to gains up .3%, building on gains we saw yesterday. the sectors led by energy and basic resources, just one sector in the red, food and beverage. every single sector now pointing up. let's get the first word news with laura wright. laura: the u.s. and allies are said to be discussing capping the price of russian oil between 40 and $60 a barrel, while minimizing the impact on their own economies. sources say the threshold would depend on market conditions.
the u.s. weighing enforcement tools including secondary sanctions as a measure of last resort. shanghai has reported the highest number of covid infections since may. it is raising concerns of another lockdown in china's initial hub. beijing reported four new cases. the capitol is set to roll up the first ever vaccine mandate next week, limiting access to entertainment venues to inoculated people. france will nationalize nuclear giant edf. the prime minister said the state will raise its stake to 100% from 84% currently. the government aims to have new management in place from september. british airways is nearing a deal with one of the unions, it would avoid action during the
travel season. the airline has scrapped nearly 40,000 flights since april. ba had earlier refused to cancel a tencent pay cut. 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. francine: now we will have plenty on the markets. we will have a look at what the u.k. does next, and the prime minister. and we will talk the maddox with evy hambro of the blackrock. this is bloomberg. ♪
avalanche of resignations continues. treasury yields a search after the fed underscores its commitment to fighting inflation. the path to parity is deemed viable as europe lurches toward recession. samsung beats earnings. they are polka sing on the tech rally in asia and saying, let's by on that. tom: temporarily at least. brushing off what we saw from the fomc around that more restrictive policy, the market pricing 75 basis points for the next hike. gains across europe of more than 1%, building on modest gains yesterday out of wall street and europe. some of the leading sectors including energy and basic resources. we continue to focus on the fx space, the euro-dollar and options markets implying a 50% probability of getting down to parity on euro-dollar the next
month. let's see how things are playing out across sectors. oil is up this morning, wti currently down to $98 a barrel, brent 100 and one dollars, up .4%. energy is leading up to .8%, followed by autos and basic resources. every single sector is in the green, even food and beverage and travel. bonds being sold off across the european space. yields the most pronounced in the german ten-year. the italian bdp, again in the yield of five basis points. francine: i called it completely wrong yesterday, i thought he would hang on through the summer. now i have a tweet clarifying that he is not boris johnson's cat, so he is not going anywhere, and saying don't worry
about me, focus on the cabinet. tom: that is good news. we will get an update from lizzy burden on the ground, that 50 resignations from ministers and aides. the consensus is not if he will go, but when. francine: larry the cat has not resigned. could we be the moment to focus on longer-term trends? our next guest says he is interested in technology, inflation and the energy transition, we are joined by the head of the medic investing at blackrock. they give so much for joining us, -- thank you so much for running us. these are for protracted changes in the economy we will see, but will they be upended by short-term volatility? evy: it has been a difficult last be months. the last few months there have been consistent returns for these themes.
the medic investing is about backing growth companies. we have seen a combination of interest rates and uncertainties around recession but when you look at the underlying business, these are long-term trends that will support consistent growth through cycles. you look at the energy transition. we all know we have to move to a lower carbon intensive global economy. there isn't a choice. society wants it, businesses are moving in that direction. it's going to completely transform the commodity intensity of the global economy. think about a wind turbine array, that is an hundred times more commodity intensive than a gas turbine. tom: where are we in the derating of these growth sectors? if you have cash on the sidelines and want to get exposure, in terms of the timing
, when to get that exposure? evy: very famous people who are much better investors say things like you have to be greedy when other people are fearful. we have seen a sharp selloff in a lot of sectors. a lot of companies are a lot lower than a few months ago. when you are looking at these businesses, sticking with quality is a great thing to do. there are great quality thematic names we have across our portfolios that will deliver results for our clients. francine: it is counterintuitive to have the president going to saudi arabia to ask for more oil , while still transitioning to become greener. will it take longer, will it take a different path and then we are back on track? one of the other things we keep hearing is we don't have enough of the commodities for the energy transition, which is why it has been slower. evy: i would not say it has been slower because of supply.
what we've seen is the need to do this at scale and that pace, it is essential. the things that are holding up are not necessarily supply, it is more about regulation, getting the permission to build things. you don't want a wind farm next to your house. the regulations and planning are slowing things down. commodity supply constrained, no doubt about that, and you are completely right. when we think about the scale of increase in supply that is needed between now and the end of this decade, it is enormous. the speed to develop these assets is very long now. we have to consider huge amounts of things whether it is the permitting process, issues surrounding existing assets were committees are blocking the road for supply. tom: has the urgency around national security, does it ensure you have the supplies you need? we have seen green party
officials within the german government calling for the re-firing of coal powered power stations. to what extent is that damaging the transition we were hoping to see before this conflict took place? evy: the conflict has made everybody wake-up that we need to do this faster than previously thought. we have to balance that i can stay just transition. we cannot have the volatility in power prices, the high levels we are now seeing across europe. the forward prices for electricity in mainland europe are incredibly high. it's really going to be hurting a lot of businesses. to absorb that and pass that on to their end customers. it's that balancing act between the need to do this at scale and speed, but also in a way that is not unjust for the end consumer. francine: what do you do for technology and robotic technology? is there a danger you are selling everything off but
economies are changing so now is the time to invest in some of these new companies? evy: i think you are completely right, these things will be fantastic to back in your portfolio. we have approved through time that is an essential way of getting outperformance in the medium to long-term. we are going through a cycle right now, these are great opportunities to reset your portfolio makes and say, i may have missed the run of the last year or two, the theme is still very intact and now is a great entry point. tom: politics, i will leave that one to you, francine. in terms of the pressure on brent and wti, are we starting to see more sustained demand destruction? is the commodities bull run starting to erode? evy: there are some things consumers don't want to have to pay for at certain high levels, and you will see certain commodity prices constraining consumption. people are having to choose, do
i want to get in my car, fill it up, or will i do a little less driving because it is that much more expensive? clearly, commodity prices have an impact on consumption. when it comes to things we have no choice to do, the move to green, decarbonizing everything in our daily lives, that is something that has to happen. francine: our clients -- are c lients engaged with this, we are going to see a huge cost-of-living crisis. we have put so much power in central banks, we don't know how much they can get out of this mess. evy: they are absolutely engaged on this. the thing we have had most consistently from clients is they want to understand it. if you want to do some thing at that scale and speed, by default, it is complex. to help our clients navigate through this is an essential part of the work we are doing
researching these themes. the energy transition has to be the largest mobilization of capital over the shortest period of time we have seen in years. we are weaning ourselves off of fossil fuel, it's a big one we have got to work through. tom: a bit of a challenge, arguably we don't have a government. let's get a government first, and then we can start to work on these. on the new term on commodities, and on those longer-term thematics. that is evy hambro, global head of thematic and sector investing at blackrock. boris johnson fights for his political life as dozens of resignations continue. the u.k. prime minister bowing to stare down the meat. we are live in downing street
we see some better-than-expected figures. tom: desperate and deluded, that is the front page of this morning's newspaper as boris johnson faces revolt within his government. dozens of conservative mps have resigned, demanding he stepped down. the prime minister sacked former ally michael gove from his cabinet. but johnson he remains defiant. >> how is your week going? >> terrific. like many others. francine: that was a killer. he has signaled he will continue to buy for his political life. >> you are asking about something that is not going to happen. history teaches us that the best way to have a period of stability in government long-term, is to allow people
with mandates to get on. francine: or more, we are joined by reporter lizzy burden. is there any way he can actually hang on? lizzy: it's a test of boris johnson's dignity, how far can it stretch? the resignations keep coming. he has lost northern ireland secretary brandon lewis, and the treasury secretary. almost a third of the government, unprecedented in recent political history. it does not just have consequences for his political survival but the business of government. mps are complaining that legislative sessions to discuss upcoming bills are being canceled. the x brexit secretary says he has turned down a job in government. but johnson as you say is going to fight on. he has sacked michael gove, seen
as one of the most competent ministers in the government and has announced a new economic policy as a turnaround measure next week. next week, the 1922 committee of conservative backbenchers is meeting. if it changes its rules, it could vote johnson out. it is not a concrete rule, it would then go to a vote of confidence in the house of parliament. tom: we are just getting a line from the newly appointed chancellor of the exchequer telling the prime minister that he has to step down. quote, it will only get worse for you, the conservative party and all the country. must do the right thing and go now. that is dynamite from the chancellor who has only been in office for a couple of days. francine: apparently he one of the job and now he is like, prime minister it is time to go.
i underestimated how this woodstove also quickly, we thought maybe he would survive for a couple more weeks. with his newly appointed chancellor shooting him like that, i don't know how it ends. tom: the contents is in westminster is not if you will go, but when. we will get the analysis now from jonathan portes, a professor of economics and public policy at king's college. thank you for your time, what do you make of the chancellor of the exchequer only in his post for a couple of days now calling for the prime minister to step down? jonathan: as you have said, the question of boris johnson is sort of in the past. it is just a question of when, it is really about what happens next. i have to say, it is pretty hard
to take seriously a chancellor who 36 hours ago thought boris johnson was the right man for the job, and accepted the chancellorship, and now 36 hours later is saying the prime minister has to resign. francine: i would probably disagree with that. he has put himself at the forefront and is now not seen as a loyalist. does it not give him a better chance to become the next prime minister? jonathan portes: which you trust -- would you trust zahawi at this point? francine: the question is, who else is there? jonathan: indeed.
it is not easy to predict what happens next. in the next few hours, most days the prime minister it would go into we have some sort of leadership vote from the conservative party. it is much harder to predict who would win that or what that means for the u.k. economy because there are very different visions within the conservative party. we heard that what was needed was to take advantage of the benefits of brexit by wholesale deregulation and ripping up european rules. there are others in the conservative party who want a different approach. i think it is very difficult at this point to know where the country is going economically, as well as politically. tom: just to draw you out, taking debt --you have been a sharp critic of austerity and the damage of brexit.
what would you say are the priorities of the incoming government? jonathan: there are two priorities, european and domestic. on the european front, there is genuine opportunity. the european union has understandably given up on boris johnson. they couldn't trust a word he said, like the rest of us. whoever is next from their point of view will be at least someone who they will try to do business with. there is an opportunity to reset the relationship with the eu, and to drop the threat to break international law by canceling the northern ireland protocol. while relations with the eu are not going to be easy, there is an opportunity to reset the relationship. there is a very clear
imperative, whether it is exit -- brexit, whatever their position is, it will reset and enable them to negotiate in good faith, in a way boris johnson was simply incapable of doing. domestically, as you say, i was indeed a critic of austerity. that doesn't mean i think we should have massive tax cuts were stimulus now. austerity was damaging precisely because it was done at the wrong time, when demand in the economy was too low. that is not the position at the moment. the u.k. economy does not need broad-based tax cuts. if there are candidates in the election, and i suspect there will become tried to appeal by
we are 54 minutes into the european trading day. gains of 1.2% across the benchmark. let's turn to the euro, many traders calling it unbuyable. >> i don't know how to handicap the risk of that gas getting turned off. if we have a full or stop in gas flows of any significant nature over the summer or autumn, it will trade lower, recession would be pretty much unavoidable. tom: joining us is our emea credit managing editor, how symbolic is this move towards parity? are we reaching peak bearishness? >> the euro has been through so much for the past two decades, and yet this is what is bringing it down to parity. it shows the uncertainty we are facing in markets with the
possibility that russia could remove its gas from the market. it's showing just how scared people are that that could actually happen. francine: it's scary, but you cannot really feel the ripple as we would have 12 months ago. >> people are still trying to u.s. as how big of a risk this is. that's why people don't really want to trade its right now. you are seeing within the banking sector, people starting to step back a little bit. they want to see how far this will go. this is a major repricing of the euro. francine: thanks so much, our emea credit managing editor. talk about drama. i didn't know that u.k. politics could deliver such trauma. the newly appointed chancellor saying that johnson should resign. this is two days into the drop after -- the job after rishi sunak resigned tuesday night. tom: the implosion of this
government continues. you have the education secretary, michelle donovan, announcing that she is resigning from government. being appointed again just a couple of days ago when javid stepped down. the reshuffle and now she is resigning. we will have more from 10 downing street and lizzy burden as this continues to play out. francine: if you are a terminal user, the deputy prime minister dominic raab will not be joining the resign or's. this is bloomberg. ♪