tv Bloomberg Markets European Close Bloomberg July 18, 2022 11:00am-12:00pm EDT
this is where we stand. stoxx 600 is up 5.9%. nearly all sectors in europe in positive territory. a couple of sectors drifting into the red as we get towards the close. personal consumer goods, grocery stores, food beverage and tobacco. the best performing basic resources and energy. we've got brent crude and is driving some optimism. brent crude rising with that risk appetite we talked about in the last hour. if we are pulling back our expectations at the margins for just how much aggressive hiking we are going to see from the federal reserve does not leave a little bit of room for risk assets. alix: it feels like it's a similar story here in the u.s., s&p financials having a solid
move today as well as goldman sachs. some of the reopening stocks are all leading the rally within the s&p and food is just one example of all the commodities that are really rallying today. you have some of the commodity related names doing well. part and parcel of why the ftse in your neck of the woods is doing well as well. homebuilder sentiment in the u.s. fell to the lowest since may of 2020. no one really blinked and i. that's what the fed wants to is cool the housing market. it looks like they are being successful. the story this week does feel like it's going to be over in your neck of the woods with record high gas prices. you have the ecb and italian politics. that's where the action is. anna: all of these things are going to come to a head on thursday. thursday we open the ecb,
mindful of the italian political story. will the taps from russia get turned back on again after they have been down with maintenance work. the u.k. is bracing for a heat wave this week. temperatures in london and the south of england might hit a record-setting 40 degrees celsius or 104 degrees fahrenheit. we had colleagues in jeddah last week and it seemed it was going to be warmer here than in saudi arabia. a bit nonsensical but such is the place we find ourselves here. excess heat can lead to excess death. that is tragically part of the conversation. there's a lot of focus on whether infrastructure really stands up to this kind of test and does that throw investment opportunities. alix: bloomberg has learned that gazprom declared -- on three
european gas prices -- gas buyers. we have the map that shows just how hot it is. we have a force majeure being declared which means you are not able to fulfill a contracted volume due to something out of your control. at the same time we have july 21 is the deadline for nordstrom one -- nord stream one to come back online. >> at the moment we know that gazprom has contacted three european buyers and the force majeure applies to a time that has already passed. what this is being interpreted as it is a signal about what's going to happen to flows and the attitude that gazprom and russia are taking towards fulfilling contracts and sending gas to europe. we don't really know what that means exactly when they say that it's to do with nord stream one. we know nord stream is shut for
maintenance. it's supposed to come back thursday. we have had strange messages from gazprom saying they haven't received paperwork for the turbines and the ones being repaired will not reach russia from germany in time. we don't know whether that's the case or not. some flows should be able to be restored on thursday. it may be a political decision as to whether that happens or not anna: really interesting to see the language coming out of gazprom. the search is on to try to find other sources of energy more broadly. the italian prime minister has been in north africa trying to do deals with the algerians. there is a scramble within europe to get hands on those lng cargoes. the ones that use to unquestioningly perhaps go to asia.
now there's more competition for those. >> several european leaders have said the best thing europe can do at the moment is prepare for winter without russian gas. that means trying to source different gas from other countries and that means competition on price. lng will come to the highest bidder. that is what will be pushing prices is trying to get hold of all of these supplies and trying to draw those away from asia and china towards europe. alix: unit for uses credit line from the government. gas is superexpensive. what do we know about that? how much money is germany going to have to give it survive this? >> the unit per situation is quite worrying because it has been taking gas out of storage
for the supply contract that it has. that is gas that is supposed to be building up before the winter. we know that the government wants to wait until thursday to see what happens with nord stream flows to see if they come back on. but each day that passes, it seems to get into more difficulties. they have now drawn down allhe credit facilities a government backed loan. all the credit they have from their shareholder and the finnish government has been used as well so that really are at the end of what they can do and they are cranking up the pressure on the german government to come up with a bailout for them. anna: just moving this story all the time. thank you for the update, rachel morrison with the latest. we are hearing from joseph
burrell saying the eu should be prepared for a cut off from russia. in the midst of all of that back to the hot temperatures we are seeing and our ability to cope with that. the u.k. set for record-breaking nighttime temperatures. let's bring all of these energy scenes together. let's get the investor take on europe's energy crisis. portfolio manager and cohead of public market's -- very nice to speak to you. what's your base case assessment for how europe navigates its way through the latter part of the summer and through the winter because there are certain things that look to be lining up in quite a worrying direction. >> good afternoon. quite right. clearly the gas supply is one of the big features building to inflation and recession.
in my mind the russians will probably pay it. it will bring some back on but not all of it. they will keep you guessing for the best way to extract value out for them. i don't think it will go to zero but it won't go to 100. we'll have to see how much of the diminished supply can be fulfilled in other sources. but it will probably have some impact on the economy in the second half. it's not just if you can heat your home, it's an emotional component that comes with it. alix: if the gas doesn't get turned on thursday. >> i heard what you said earlier. i don't think it's going to be an on-off day.
it's probably going to be more gradual. it's part of this whole guessing game. we have to try it out, is it going to work, we still have a turbine missing, we will only be able to do a third or half of full capacity. i think it will be a far more drawn out uncertainty. we do not get a full conclusion by thursday. anna: it will be developing through thursday and maybe beyond. we heard the european union's assessment of the impact. the eu estimates that a russian gas hold would cut gdp by 1.5% in a worst-case scenario. is not in keeping with your estimate of what happened here? what is the worst case look like?
-- what does the worst case look like? >> -- corporate credit, when you look at how yields and compare european high yields to u.s. high yields to u.s. high-yield, european high-yield is trading about 200 basis points higher to the u.s., so that is reflective of the uncertainty around will europe have enough gas over the winter or not until they get more independent. i think we are already pricing in a large part of the recession fear and impact of the lack of gas. fundamentally we feel that it is fully priced in but clearly to the extent that there could be more negative sentiment coming over the next two months. there could be further spread widening. alix: it does feel like we are getting very pessimistic. if nothing bad does happen and
eventually the gas does flow, are we looking at some upsides? at what point would european equities make a good investment? >> i don't think we will get all the answers we are hoping for this week. i believe we will be kept guessing so it's not going to be the full on that we are expecting and it's likely going to take a look of time until we know when the good investments are coming. fundamentally some of it is already priced in but at the same time, it is going to take some time for us to have that clarity. if you have a 12 month, 18 month investment horizon those yields
look very attractive. short a little bit of widening, could there be a little bit of a rally. that's the thing. you will never find the optimal entry point i think what we are saying is definitely in fixed income. even the prices that we see on average in the 80's, if it's a good entry point now will get cheaper may be. you could also see a very strong rally. anna: i know you are a member of the ecb's bond market contact group and i wonder what message you think the bond markets are sending the ecb as we wait for that meeting that takes place later on this week. we are expecting an interest rate hike from the ecb put a lot of focus will be on peripheral spreads on the fragmentation. what message does the ecb want to send head of that meeting? >> the rally is partly
reflective of democracies that the ecb left it too late. -- one is events are overtaking the ecb schedule and i think the other message is i think overly optimistic in what the ecb will be able to deliver. it is lacking in detail, whatever it takes to pull out the -- many years ago. so that is i think there is a risk that they will under deliver. alix: i'm starting to hear that more and more.
>> 12 years of failure and i think that any sense that the conservative party is the party of the economy has just been blown out of the water. if you look at the leadership crisis that's been going on at the moment. hundreds of billions of pounds of unfunded spending commitments. so there's no way the conservatives can claim that they are the party of economics anymore. anna: that was the u.k. labor leader care star in her -- cure starmer -- the bank of england became an issue among the candidates. and didn't she may change the bank of england's mandate. i wonder if you've done much
analysis looking at the different policies the various candidates are putting forward and what their impact would be on the u.k. economy. i saw some research from citi that the policies of liz trust would provide police stability for the u.k. economy because of the size of the tax cuts being promised and institutional changes. everyone looking at any of the details of that? >> i think there's a difference between the candidates, but it may be one more of timing rather than magnitude in terms of tax cuts with some candidates arguing for early tax cuts and others arguing for tax cuts in time. that presumably would be talking about next year. there is a need to provide additional support as households
face much higher energy again this autumn. i think there is cause for some concern about the magnitude of tax cuts as they are being proposed by some candidates and how the bank of england might respond to such a difficult stimulus, particularly if it's unfunded. there's also the question about the bank of england as well and how far bank of england's independence might come under threat from some candidates. alix: is that how you understood what she was talking about? i'm just going to cut taxes but then the inflationary story is on the boe. what did you make of her coming to the boe and putting it in play? >> it was an interesting take. there have been criticisms of the bank of england not doing enough to address high inflation. being too slow in raising interest rates.
although arguably it's very difficult to adopt mandatory policy. we have an economy now which is a little bit on a knife edge. we have inflation which is headed towards double digits and confidence which is extremely weak. bank of england in any event has already raised rates and is likely to continue raising rates. i think markets get somewhat nervous about the suggestion that central independence could be under threat and that politicians may start to decide how monetary policy is managed. the bank of england's mandate is very clear already. 2% inflation. it's not clear how you would change that mandate to address the current crisis.
anna: you seem to be inspired by the bank of japan. she referenced the boj. i know ing in response to that reference said the boj consistently came close to achieving its 2% target. for so long it had a deflation problem in japan. pointing to the bank of england's record and saying it's miles away right now. since it became independent, it hasn't been all that far off the mark. what kind of inspiration do you think she meant or could take from the bank of england example? >> straightforwardly, japanese inflation has been very low for a long time and it's been problematic. to an extent you can argue that japanese inflation is low due to structural factors.
in the backdrop is quite different to the u.k. condition at the moment where we have probably to strong demand and some supply-side constraints. boj has been pumping money into the economy and continues to do so much against the trend we are seeing elsewhere in the world. i'm not sure that's the policy is trust will be proposing to tackle the inflation issue. one other feature that is interesting is the part back to monetarism. and the suggestion that that might be the right approach to have the money supply target. that wasn't a particularly successful policy back in the early 80's. it was associated with the u.k. economy going into recession. alix: sarah hewin.
anna: welcome back to bloomberg markets: european close. let's have a look at where we are as we head to the close of the european market. the ftse 100 in london. we spent all of today in positive territory in most sectors across the economy have been positive territory. he was dominated by reigning in on policy. with that reigning in of
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anna: welcome back to bloomberg markets the european close. just seconds to go. 20 seconds until the end of the trading day. if you've been in the office in europe no doubt you've been benefiting from some air conditioning. if you've been at home, you have my sympathies. temperatures have been heating up in parts of europe over weeks on the continent and certainly over the last 48 hours here in the u.k.
the stoxx 600 started the session positive territory and pretty much stayed there. his start with -- we start with the influence of u.s. futures. fred expectations still -- fed expectations still dominant. we are getting out of the fixed income product. five-year french yield going higher. the german yield i could have put in as well. it's all part of the same story. it stood out to me in the gmm function. recent direction of travel for the dollar. that has given way a little bit to some strengths for the euro today and strength for the pound. some of those moves in the dollar adding momentum to commodities. brent crude up by 4.7%.
the risk appetite is lifting other assets. let's bring things down from a sector perspective. -- break things down from a sector perspective. we do have an appetite for commodities at this point. this is a food delivery business based in london. stock is up by 6.5% despite the fact that they issued a fairly cautious statement downgrading some of their expectations. direct line insurance is an insurance business. this on the back of the fact that the cost of repairing things that we ensure such as cars has increased. they were caught a little offside on that and that has
been weighing on other insurance in that sector. a little bit misleading the price action. by some measures it's pretty flat this morning. the reason you are seeing such a big move is it has stripped out the consumer part of the business. it makes panhandle painkillers -- panadol painkillers. quite a substantial company. alix: sensodyne does translate. i definitely have that toothpaste at home. the ceo spoke to bloomberg television's dani burger earlier today on this spinoff. >> they have both been shareholders of this business and they have been great owners
of the business. 55% roughly 55% will be floated on the market and 45% will be held by gsk and pfizer and they have both said this is an investment vehicle for them but they will monetize at some point to maximize shareholder value. i have been great shareholders. we have relationships with both companies. as we get into this we will be working with them. my focus is delivering on the commitments to this fantastic business because the business was created from the largest transactions in the last seven years. in the outcome is a business 100% focused on consumer health. >> let me dig into that more. thank you for the correction. it's monday bring. your targets at the moment. you have laid out a plan of
annual growth in the medium term. it's a pretty punchy forecast. how do you expect to meet them? where is the drive and growth going to come from? >> 4% to 6% growth and we feel really good about it. this portfolio we are going to take forward with the joint venture of pfizer brought us into mineral supplements, extended our leadership position and we divested 50 growth diluted brands. we have delivered in that 4% to 6% range and we just have a great portfolio that we believe will enable us to deliver that growth. these are categories that are growing in the 3% to 4% range and we compete in places like therapeutic oral health which is a faster growing segment.
and we have great brands. so we feel good about our ability to invest in innovation and growth. anna: that was brian mcnamara talking to bloomberg's dani burger. italy and the political story in italy. prime minister mario draghi is being pressured to reverse his pledge to resign as soon as this week. the snow is the realm bureau chief. i see our latest reporting suggests that some of the lawmakers in mario draghi's coalition are working on some kind of last-ditch plan to try to convince the prime minister to stay. >> the pendulum is swinging in a way. if you are in the weekend, the mood was very gloomy and draghi was determined to go through with his resignation.
now the activities of lawmakers trying to avoid a government crisis in the middle of summer seems to be having at least some effect at least internally in the parliament. the five-star group that split with draghi, some of the lawmakers still want to be with draghi and are trying to find a way to signal this to keep the group together. alix: how divided is the five-star movement? the conflict would have to be quite large within that movement. >> it is deeply divided. the movement has been and permanent assembly the last few days. divided over almost everything. -- apparently he's even a bit more -- it doesn't want to go through with that. thanks it has gone a bit too far.
but part of the lawmakers really want to break ranks with draghi and some think it would be a very bad idea to send italy into crisis right now. the foreign minister who has already quit five-star over disagreement and was critical, the movement is completely divided and this may offer at just the support he needs to stay on as prime minister. anna: we will wait to hear from mario draghi on wednesday. what is at stake here then? mario draghi has been trying to introduce reforms to the italian economy. i read that some of the money that is due to italy from the european union is contingent upon those reforms. is that what we are talking about here? >> yes. italy is facing a recession even if economies are doing better. very high inflation.
especially the medicine energy crunch that threatens supplies for next winter. of course you need an effective government. and other european leaders can trust. there's going to be confidence votes in both branches of parliament. it all comes down to whether this parliamentary activity will be enough. alix: has the probability of a snap election in the fall no reason? -- now risen? >> it is stable. the momentum towards snap elections seems to have slowed a
bit. the right would want to go to elections because they knew they would probably win. at the same time they know they would get a country deep crisis in the middle of the budget session next fall. while you have already scheduled actions in march and spring and they are still riding high in the polls. they could let draghi get the job done and then scheduled elections. alix: that sets the backdrop for what the ecb has to manage in its meeting on thursday. the potential collapse of an italian government. it's already facing record inflation and preparing for its first interest rate hikes in decades. how can the ecb address the italian political crisis?
>> if you sleep to the mandate, the ecb has nothing to offer. the ecb's mandate is price stability. inflation is at 8.6% and climbing. so the ecb's concern is to bring inflation back down and how an italian government deals with that, that at least on paper is not something the ecb should worry about that course that's not true. that's why policymakers are in parallel also working on a tool that counters fragmentation and financial markets and the biggest challenge they have to address is to distinguish what they see in financial markets and what's unwarranted.
that's the challenge they have to face with her widening spread in the periphery is the result of a government crisis political instability or whether it's actually something that speaks more to the fact that monetary policy is not transmitted equally across the region. anna: getting to a number on that might be incredibly difficult. you might know it if you see it, but it's difficult to define exactly what kind of political concern about specific italian factions, what that's going to really look like. how much detail should we expect the ecb to give us on that? >> absolutely. the ecb will want to be as ambiguous as it can be in describing the new tool. of course it needs to offer a few details to at the same time
make sure the market is believing it. what we expect is some form of unlimited program. we know from past lawsuits the ecb had to face that unlimited is in itself a word that might actually not mean unlimited to the full extent of the word but it will be big. policymakers are prepared to make it big. they are also working on some form of conditionality which means some strings attached that any government, the italian as well, will have to meet or will have to be subject to if it wants to benefit from asset purchases. there are a few other things that have been discussed here and there. it's very much unclear how forthcoming it will be. there are certainly a lot of
expectations and it won't be an easy meeting for the president. alix: do you think we get enough specifics of the transmission protection mechanism to satisfy investors on thursday? >> it's a very good question. i think the ecb will try. from what we hear there are so many hurdles to clear that it will be really a challenge and i'm not fully convinced, personally. anna: what else do we look out for? we are expecting interest rate hike. with all of the talk about how far through the hiking cycle we are in the u.s., it's worth remembering that we haven't even seen the start of that hike just yet and that is expected to come on thursday. >> very true. the ecb flag was very specific data 25 point basis hike for july but of course is only very
small compared to the fed that has held out a process of 100 basis points week after this. that just shows you how careful the ecb is. there are some calls from some governors for bigger steps. it's very unlikely. anna: a lot of time still to talk about that. coming up, airbus and boeing at the air show. we are live on the ground with the ceo of airbus. ♪
television and radio audience worldwide. we are joined by the ceo of airbus. he is guillaume faury. nice to see you. thanks for your time as ever. these shows used to be dominated by orders. they were all about orders. it was boeing versus airbus. who would come out on top. does it matter? >> probably a bit less now than it used to be in the past because we are constrained by the supply chain at the moment. at airbus we have a very large backlog in the priority is to serve existing plans. we are focusing as much as we can on getting things in order in the supply chain and being able to deliver. guy: let's talk about those orders. you are already a little behind where you were last year and you have a slightly lower target. >> we are the same level as we were at the end of each one last
year. indeed we have to deliver more to get to 720. we are slightly behind. we see how july plays out. it's back loaded. we had similar situations in the bus. i remember 2018 was even more backloaded and we finally made it. guy: you when i spoke a few weeks ago in doha. he spoke about building gliders. we were frustrated. he couldn't get the engines that you wanted. has there been progress? >> not really. it is slightly worse than it was at the end of may. we think we are quite at the bottom. things will probably get better moving forward. but we need to get more engines to put engines on all of our planes. guy: how many do you currently have without engines?
>> 26 planes without engines by the end of june. >> is this just an everybody problem? >> it's an everybody problem. >> where do you see yourself in the wide-body recovery? >> the same thing as our colleagues. actually that's true. we see a good momentum in the wide-body business. more than what we thought before. it's very likely that this recovery will keep increasing, keep accelerating. so it's not unlikely that we will be sold out as well helen wide-body's leave for 24-25. guy: you have just taken a massive order from china. it does raise the question again about deliveries. he talked about going to 75.
how about 76? -- you talked about going to 75. how about 76? >> we are not yet there. this order from the airlines will serve -- going up to rate 75 is something important to us we want to maintain that trade and we are happy to get orders that will help feed the needs of others for at least the second half of this decade in the beginning of next decade. and when it comes to china we have been delivering airplanes to the chinese airlines during the pandemic. 20% of our deliveries went to china as before. we have to replenish orders to the chinese airlines to go. guy: let's talk about energy.
let's start off with energy shortages this winter. the german government is already talking about the potential for limiting energy availability to industry. one of your key lands is in germany. the -- obviously you have lines in different parts of the world are you getting ready for the possibility that you may see a reduction in energy? what impact could that have anna: >> that's a scenario we have on our risk map. it's not unlikely that there will be energy shortages not only in europe -- not only in germany but in europe. what will be the possibility to adapt to such a scenario is part of the risk for availability of many things including energy. guy: could affect delivery? >> the impact is not to affect operational activities and we are trying to look at different
ways getting different ways of operating with less energy requirements and we think that's manageable. but it will need a lot of work and a lot of activity to get there. guy: we are standing here. it's been incredibly warm here today. probably the warmest air show i've ever been to. i understand it's hot in toulouse as well. this is why the airline made the progression it needed to make in terms of the work of getting to net zero. are you confident that we are making fast enough progress at this point? >> this industry needs to get faster. it's important to see energy producers as an ecosystem. there is a big shift from 2019 to 2022. i see only people which are
convinced that this is the challenge that we must overcome but it's all about speed. we need more speed in this weather is a stark reminder that global warming is already happening now. guy: do you worry all the other challenges the industry is facing right now may deflect away from that challenge? >> the focus that was put on carbonization during covid. we have been very focused on accelerating decarbonization. i think there is a consensus that this becomes the priority and we are no longer on if or when, it is now. and we are on how now. we are working on solutions we are no longer on the problem. we are on the solutions. guy: guillaume faury, the ceo of airbus. back to you.
alix: great to see you there. i hope you can get some air conditioning. great stuff coming out of farnborough. we miss you here. today you've got earnings from ibm. i understand it's 8:00 p.m. your time. definitely will be looking for some of those results. anna: indicated. -- indeed. tomorrow we focus in and get the aftermath of that. we will also be looking at earnings from netflix. member that last time around. it took it down a whole new road when it came to the streaming wars. u.s. housing stocks will be interesting given the housing data and sentiment on that front and u.k. jobs data just like in the u.s., we have seen a tight labor market and the u.k. and so that will be interesting to watch how that evolves. and we will get area cpi as
>> from the world politics to the world is this, this is "balance of power" with david westin. ♪ david: from bloomberg world headquarters in new york to our television and radio audience worldwide, welcome to "balance of power." president biden has returned from the middle east where he went over to discuss a number of subjects, one of which, of course, was oi