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tv   Bloomberg Markets European Close  Bloomberg  July 15, 2022 11:00am-12:00pm EDT

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guy: his european countdown to the close starts right now. >> the countdown is on in europe. this is bloomberg markets: european close. guy: counting down to the end of the week, we are near session highs.
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germany is outperforming, the auto sector is having a good day. we are back above parity, but heading into a huge week for the eurozone. the ecb and italian government are huge factors we have to watch for next week. what's going to happen to the mario draghi government? alix: in the u.s., it's pretty much as you would expect. the retail sales numbers coming in stronger than expected, but when you put inflation into it, the numbers aren't that fantastic. the inflation expectation hitting a one year low which sent equities to a high for the session. overall bank sector leading the s&p. jim bullard saying we could see
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4% for rates by the end of year but he does not see a recession anywhere in sight. you have buying in the short and long end. steady as she goes. guy: as you say, a lot of confusion and head scratching about italy. mario draghi has less than a week to come up with a difficult compromise the populist within his government. as look at how the choreography is going to work. what are the chances of success? walk me through the next few days. >> mario draghi will be in parliament on wednesday for what is called communications. he will explain his thinking and
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we generate his intention to resign. the key question is whether there is room for him to walk back on his decision. if he can be convinced to stay. the main factor is political trust. he said it was a breach of trust between him and the parties. this breach must be mended. guy: is it plausible -- alix: is it plausible for him to bring together a new coalition and if not one are the risks? >> the real issue is not -- there is still a wide majority in parliament. he said he doesn't trust his parties anymore to be able to back him, to want to back his ambitious plan of reforms. he said i'm not here just to be in power at any cost. i'm here to do things and there are no longer the conditions to do things for italy.
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whether this is just tactical or whether he means it, we don't know. alix: thank you very much. joining us now for more italian politics is a ceo and founder of policy sonar. the perfect person to talk to about this. the markets really taking the disastrous situation in italy in stride. what are your risk scenarios right now? >> we have four days to go. the pressure is going up. so far, all we know is that mario draghi has used the -- approach to respond to five stars. he has said that he will only be the prime minister if there is
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national unity. that is very noble thought. another factor we need to understand is that without five stars, it will be difficult for him to keep the genie in the bottle. . this chuck norris posture, let's see whether it works its magic. there is lots of pressure. the mps will remain unemployed, they will not make it back to parliament. they have to repay their mortgages. i'm not sure they want to pull out. >> why is content doing what
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he's doing? what is his objective? >> he is trying to remind the world of five-star's existence. his idea is that the only way to reverse the trend is to radicalize the position of five stars. they are now weaponizing whatever they can. this time, it was a very controversial waste incinerator but tomorrow it could be something else. >> do you think there's a possibility some members of five-star break off and join the foreign minister's party to support draghi? >> the pressure is going up. this means there can be of
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further diaspora from five stars. some will join the minister of foreign affairs who just initiated a schism from five stars. there may be others. who break with the party for other reasons. we need to look at this as a dynamic. what's happening within five stars. >> how do you think this is going to work out? >> i believe that mario draghi has strong cards to play. he is almost indispensable in the face of the challenges they have. this crisis is quite unprecedented. he has a reputation for constantly coping with government crises. this one is political.
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it is opening -- happening at a time of confrontation between the west and eurasia. emmanuel macron has been crippled by the latest legislative actions. spain is a mess. let's look at the timeline. on wednesday next week, mario draghi will be back from tour of today's to algeria to negotiate. this will be a major step forward in the emancipation from russia. whoever challenges him these days is playing straight into the hands of vladimir putin, sergey lavrov, and xi jinping. >> even if mario draghi has strong cards to play and
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something ones a coming together, do we just relive this in july of next year? do you feel like the geopolitics have a chance of sorting themselves out? >> there is clearly a risk that other kerfuffle will occur in september october. that risk cannot be wished away. a lot will depend on what mario will say on wednesday. i think his idea is he will scorch parties and he will put forward a very tough agenda. he will leave no room to the parties in the majority. either you back me or you don't, there is no middle way. guy: in terms of how this is going to affect italy and its
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economy, mario draghi has been seen in brussels as the man who can fix italy's problem of absorption. italy is very bad at spending you money. given what is happening here, is there going to be a sense in brussels that we are going back to the old days where italy is still bad at spending money? what do you think the long-term effects of that are? >> if mario draghi goes, it's a disaster because we are back to the old world. we are back to fiscal discipline . not spending the money we should spend. also, i am worried at how the geopolitical repercussions. remember italy flirted with eurasia, china, russia. it was only with mario draghi we have gone back to normal. with mario draghi off the
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picture, i am worried that this is not -- alix: are you talking about the european funds expected to be dispersed? can the eu really not give it italy? >> i'm worried about that. i'm worried about recovery fund money. i'm also worried about the next budget session. we will have a wartime budget session which -- with lots of concerns about budget distress, inflation, and many other woes. guy: how do you see the ecb thinking about this? what is the talk and italy? the ecb is about to unveil a program that is essentially designed to deal with fragmentation. you have to wonder whether that fragmentation tool is the correct one to apply if italy has political problems.
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what is the italian perspective on this? >> you are right. tackling fragmentation makes sense as long as there is someone in the room and rome. if that person in the room is no longer there then insulating italy can be counterproductive because there is no incentive to do reforms. guy: great stuff, thank you very much indeed. joe biden deplaning off air force one. he is in the kingdom in saudi arabia. we think we are not going to get a deal on oil out of this trip. that has been the bloomberg
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reporting so far over the last few hours. we will watch this trip very carefully. we will continue to bring you the pictures as the president arrives in saudi arabia. this is bloomberg. ♪
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>> strong balance sheets and a strong financial system banks are in a good shape. the nonbanking financial sector is in good shape. if and when we do have a recession, i think it's going to be relatively shallow and short. guy: that was bill winters
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speaking on bloomberg television earlier addressing the concerns around a recession right now. the fed feels very unconcerned judging by the comments of the last 24 hours. the ecb is in a different position. it's going to be meeting next week, italy facing up and ash political crisis. we don't know if nord stream 1 will be turned back on again. what should the ecb be doing, what should we be expecting? the expectation is for 25 basis points, but what happens then? let's talk about italy. >> it's going to become very political and the economic sphere next week with the ecb. italy potentially without a functioning government. what does that do to the
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anti-fragmentation proposals? does it set him -- does it set in perverse proposals? it comes at a bad time. alix: we know that it's 4% what the ecb looks at on the bund yields. if they get to 4% and the anti-fragmentation tool has to kick in, how do we know that 4% was due to ecb hikes or political dysfunction? how are they going to monitor something like that to no one to help? -- two know when to help. >> it's chosen by the ecb. it's a hard thing to know perhaps you get some self-fulfilling aspects of pricing. also the degree to which the ecb
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might be making targets by setting a nominal target by inviting traders to test if they have the resolve not only their potential balance sheet, the potential flexing of the app reinvestment, but also the political backbone particularly in berlin to have what will be fiscal read dispute -- redistribution by the back door. that's how it will be labeled by the german press. guy: how much trouble is the european economy in? we could see the mario draghi government falling come at the ecb hiking by 25 basis points and potentially the gas being cut off. >> italian political unrest is part of your baseline assumptions. it's not something new. let's look at in the broader context.
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one of 18 economies. you talk about 25 basis points still leads real interest rates financial conditions very accommodative. the market is getting ahead pricing what might come next. it's the third one, whether this is the maintenance of nord stream 1 or a signal of material headwind to the german, french, italian, eurozone industrial base. you had bill winters comment about a shallow recession. it wouldn't be shallow if gas was cut off from large parts of the year this winter. -- alix: if it gets turned off, it could get turned back on. does it make sense for the ecb to go aggressive now and frontload the hype when you can?
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>> unfortunately, that is sitting out a set of conditions. the pricing, futures markets for gas are making the same calculations you have just espoused. what happens next is financial conditions, futures prices the real price the european industry is paying going forward is going to be materially affected by what is said on thursday. agnostic of whether thursday friday or next tuesday the price flips. guy: the china data are bad, the housing market is in real trouble. zero covid story is making its wa having a problem again is that for europe? >> it's less of a problem for europe than for china.
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what you saw in the underlying detail of today's gdp release is you have consumer services because of zero covid very weak. the export industrial numbers weren't so bad. the demand through for capital goods which is a big part of the german french industrial export orders doesn't look like it's going to be materially impacted by q2. when you get zero covid restrictions into the industrial basis of the second half of the year, that has to be a bigger fear for the eurozone economy. alix: i have to ask about the u.k. elections. who is going to be the next prime minister? can they avoid a recession? >> no.
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unger answered -- kenny marchant because she is the candidate who has the least association, least toxicity with the previous regime. many of the conservative mps are want to be committed to reinvent themselves to extend the term in office. i expect both quarters to be contraction and commonly accepted definition of recession. guy: so the u.k. is going to become texas? >> let's be credible if you're going to cut taxes. if you do that you're going to do more borrowing, difficult at a time when interest rates are
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moving up or you have to cut spending at a time when our backlogs in public services and -- guy: neither of those two options are realistic. >> i'm saying they are realistic, but let's have candidates who are going to codify what that means. in the u.k., we are still in the economics of make-believe. let's start moving to why she is the most credible candidate. guy: thank you very much indeed. this is bloomberg. ♪
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guy: the ftse 100 is up.
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all indices are up. the car sector is leading. the docs is benefiting. one of the factors has been the energy story. that's going to be huge next week. also what is happening with the ecb ended the italian story in the mix. the euro-dollar tracking up a little higher. the dollar is weakening on a day when we have had two critical pieces of data. the italian 10 year not doing very much. next week, i suspect it will be a bumpy ride for italian assets more broadly. next, the natural gas story in more focused. will nord stream 1 be turned back on again after the
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maintenance. germany is already starting to withdraw guest for summer use. -- withdraw gas for summer use. the european close is next. this is bloomberg. ♪ (inspiring music) - [narrator] at southern new hampshire university, you can reach your goals faster. that's because you can transfer in up to 90 credits towards your online degree. - i was able to cut my time in half. - [narrator] apply free at snhu.edu as a main street bank, pnc has helped over 7 million kids develop their passion for learning. and now we're providing 88 billion dollars to support underserved communities... ...helping us all move forward financially. pnc bank: see how we can make a difference for you.
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guy: we are about to wrap up the week. the european stocks are a sea of green. the dax is outperforming. it has been under -- underperforming recently. other stocks today coming through and lowering the landing cycles and european airports. next week is huge for your. -- europe. you have italy, the ecb in
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frankfurt. the biggest story is gas. we will talk about that in just a moment. on the week, we are down but climbing up out of yesterday's lows. the beginning of the week was fairly quiet, but a lot of volatility at the end of the week. retail is outperforming, health care is doing well. health care and food and beverage, that's the safe mix. that's where people have been running for safety this week. that is indicative of a risk off tone this week. italian banks have been under pressure this week understandably given the political pressures. also what you have is basic resources down things like copper, iron, lead. energy is also down.
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that's where the story has been on the negative side. the commodity story is very much the bottom end of the market story this week. let's talk about the individual names we are watching. airbus. boeing needs to have a massive show. it needs to deliver some orders. airbus had a great run into the air show. today up by 4.3%. richemont - china is a huge hangover for this sector. then we come to the troubled german gas company. the latest headline is not positive.
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this company is now starting to withdraw gas from storage. that should be there for winter, but there using it for summer. alix: that shows how tight we are and how grim it is for summer. let's get more insight into the energy market within europe as well as what happened on thursday with nord stream 1. thank you for joining us. how bad is the gas storage situation right now in europe? >> we have come to a time through june where the markets have started to correct. storage and started to rebuild and everything was looking ok up until june. we saw nord stream tailback
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production 40%. that started to create pressure in terms of pricing inside europe. then we had the terminal go down in the u.s.. freeport accounts for about 3% of all of the world lng trade and a large percentage of exports out of the u.s.. that was starting to put pressure on the markets. we saw equivalent prices in europe rise. what is now happening with nord stream 1 going into maintenance and the concerns about what will happen as to when it will come back, whether it will come back or not, we have seen the european prices spiked by $17. the u.k. which is full on storage at the moment is hitting around $30.
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>> does that mean rationing? >> if nord stream 1 doesn't come back, it is inevitable. we will see rationing in europe. most companies particularly in places like germany, italy, and france will look to court -- curtail what they can do if nord stream 1 doesn't come back. if it doesn't come back because russia uses it as a political tool or because of maintenance issues. alix: this makes the whole market tighter going forward. you guys just signed an agreement for a potential supply of 1.4 million tons per year of lng from north america. what was it like to come across that contract? i know it's not binding, but i'm sure it was more competitive then it might have been even six month ago. what the terms were in relation to the reality on the ground? parts --
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>> it's a natural evolution. it's a project we worked on for 18 months which came to fruition and the last six months have seen quite a hiatus of people attempting to get into those contracts. it put us in a strong position. we would expect as it goes forward to start to see gas moving into europe over the next three or four years. >> in terms of how you think about using gas and distribute in gas, you obviously have parts in the united states. your producing gas in the united states. how do you make the decision on whether you use it yourself or ship it to the u.k.? >> we have limited production of
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gas in the u.s. so that's not really an issue. the u.s. continues to be a resource of gas and energy prices have dropped off the back of freeport not being able to export. we have four massive gas fields in the u.s. that are not act to potential full production. the u.s. still has a massive abundant resource called natural gas, but we are limited on how much export can come out of the u.s.. there is no way we could meet the demand that europe would need even with nord stream 1 coming back at 40% capacity. >> gu plan to increase production? does she do you plan to increase production? you need a second round of lng export terminals to get up in the next few years to do that, would you be increasing right now? >> we don't have any u.s.
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onshore production. we will continue to source contracts into the lng terminal contracts that we have. guy: i want to change gear and talk about what is happening globally with chemicals. levels are low right now that is going to impact companies like basf. how does that by extension impact you? >> that is an issue we have gone through many times before as an industry. that is not a particular issue at the moment. we do have plans in place to do with that when the situations arrive. it arises every three or four years we have similar issues. alix: i wonder if you could put
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on your old cfo hat for a moment. if you were still cfo of an energy company, would you be hedging right now? are high prices sustainable or do you feel like we could be headed to 80 sooner if you just look at the oil market for a second? >> we have three major tailwinds. i wouldn't hedge, but i never did before. hedging you only use if you want to support the project. right now there are three headwinds. the economic outlook is weighing on oil prices right now. the china lockdowns and zero covid policy. that doesn't look like it's going to change before the conference. then whether the oil comes back on which looks less likely right now. that said, oil demand is back
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where it was pre-covid and we still have 2.5 million barrels per day of potential jet fuel demand may come back. even though we have seen a short-term correction over the past couple of weeks which is really about economic sentiment, i think you could see this break to the upside as demand continues to grow and china comes out of the zero lockdown policy. guy: by how much? >> i learned a long time ago not to predict prices. guy: we're starting to see gasoline prices coming down in the u.s., but you see that as being a long-term -- short-term story. we appreciate your time.
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final numbers out of europe, let's show you what they are for the week. a solid session being delivered today. even with the commodity legs, the ftse 100 is up. alix: coming up, president biden is in saudi arabia. this is bloomberg. ♪
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>> you are looking at a live shot of principal room. this is bloomberg.
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keeping you up-to-date from around the world, here's the first word. candidates for prime minister will face off and a televised debate. the next ballot is on monday. the eu is set to propose new sanctions on russia for the invasion of ukraine. the new measures are expected to target russian gold, introduce trade restrictions on machinery and add more people to the sanctions list. joe manchin has delivered a huge blow to president biden's agenda. he said he would not support new spending on climate measures or tax increases. he said he will back proposal on health care and drug prices.
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global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. guy: president biden has now arrived in saudi arabia. he will leave the middle east without any public announcement about releasing more supply from the region. >> the president touching down in the kingdom. this trip is all about oil supply. thank you for joining us. we are not going to get an emphatic announcement on more oil coming from the kingdom to help out the president. do you think this meeting is going to mean more oil at the
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next opec-plus meeting? >> i agree i don't think there's going to be a specific announcement on oil production. we have the top two world oil producers meeting, so it is an historic trip. it is good for market stability, energy security when the top two producers are meeting. there's a lot of focus on the president being here, but it's important to know that behind the scenes, a lot of u.s. officials have come here. this stop and see me when they come. this is been going on, this relationship building even though it's the president's first trip. a lot could come out of this trip, but it's just the beginning stages. i also think you will hear a lot more on other parts of the energy business. a lot on the energy transition, investing in infrastructure, and potentially you could hear something on nuclear. i understand there have been nuclear industry people from the u.s. here that could lead me to believe there could be an announcement on the saudi
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nuclear energy program and the u.s. involvement and it. >> you said it looks like they gave a nod at the last meeting to increase oil production. how much could they add? >> the spare capacity that could come on quickly is about 2 million barrels per day. but you are threading the needle because you don't want to give up all of that spare capacity. if hurricane hits the gulf coast and you need extra spare capacity, don't forget we have deluded the strategic petroleum reserve and others around the world so we need a spare capacity. it's important that this discussion should not be on increasing opec supply or gcc countries apply, but also non-opec supply. the bottom line is we need more energy from all sources not just oil. we need natural gas and
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everybody has to play that role. we need more production from the u.s., canada, mexico, brazil. then there is the whole refining downstream sector to talk about. >> this is only half the problem right now. when you look at saudi arabia, they are not meeting their current quotas. why is that? they want to keep more spare capacity in the tank? >> they traditionally have wanted to because they view it as an important for global energy security. during the summer it has to do with the heat that we are experiencing here and the power spikes that they have during the summer. i wouldn't pay that much attention to that. saudi arabia and the uae have had a good record on meeting their targets. it has been basically the other countries that for the same reason the u.s. producers are back to pre-pandemic production because of a lack in investment or upstream and that has to change. >> i'm sure you saw the
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encounter in bavaria went emmanuel macron chased the president to talk about his conversation. do you think the uae can get up to 4 million barrels per day? >> i'm happy that world leaders are becoming more conversant on energy issues. there's a lot of additional upside in the uae and saudi arabia. unlike other parts of the private sector, the international oil companies, the national oil companies are investing in new supply and this is really important. they can be the only ones. -- they cannot be the only ones. we need western energy companies to begin investing in hydrocarbons and there has been not just esg pressure but investor pressure. we want better returns. we have talked a lot to
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producers about increasing supply. the conversation has to move to the investor and financial community. >> what about prices right now? do you think this is going to be a longer-term correction? >> i think we are seeing a tale of two markets. the paper markets focused on years of recession and maybe waning energy or gasoline demand in the u.s. and the strong dollar maybe. on the physical side, there is tremendous pressure and type markets. the prices that the saudi's and other producers are able to charge are increasing because of the tightness in the market. you had a trader on wednesday that offered a six dollar premium to brent that couldn't find any takers. it shows you the tightness in the physical market. if we had a hurricane hit in the u.s., if we have china demand
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has been very soft, if that demand comes back and we expect china will reopen when the party congress happens in the fall, i think you're going to see a lot of additional pressure on the demand side of the equation. >> what i'm getting from you is higher for longer. >> yes and a lot more volatility. alix: thank you very much. we appreciate your time today. this is bloomberg. ♪
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alix: u.s. stocks are rallying. >> two major stories. citibank wells fargo both coming out.
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wells fargo talked about pain and mortgages because of the rate hikes but they're going to keep the buybacks. city and wells fargo both coming on the up and up. this is important as we talk about the broader look ahead and what it means for the economy. also the numbers we're going to get on monday. we still have to hear from goldman sachs and the rest of the crew. the other part of the story is the economic data. retail sales coming in hot. people are still spending spite sentiment coming in low. you also have inflation expectations coming in softer. that is good news for the market altogether. all good news. does that stay going into the close? guy: it's going to be a fascinating close and a fascinating week next week.
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let's talk about next week. it's good to busy. monday earnings from goldman sachs and of america. ibm and the farm bureau on monday. tuesday earnings from netflix. wednesday tesla. thursday? alix: guy has a ton of interviews lined up. thursday is the day. the east -- the ecb meeting and nord stream 1 is set to reopen july 21. that's going to be pivotal. then on friday earnings from twitter and intel. u.k. monthly retail sales. it is pmi day in europe. it's a good way to get the read on real-time for the economy. that wraps it up for next week. guy will be off air for the next two weeks. have a wonderful well-deserved break.
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coming up, anthony fauci will be joining balance of power on bloomberg television and radio. this is bloomberg. ♪ millions have made the switch from the big three to xfinity mobile.
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>> from the world of politics, to the world of business, this is "balance of power" with david westin. david: from bloomberg world headquarters in new york to our tv and radio audiences worldwide, welcome to "balance of power" i am joe mathieu in for david westin. it was over a year ago that president biden said we were close to declaring our independence from covid. a lot has happened and now today, as we

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