guy johnson and alix steel. guy: 30 minutes until the close. minus taking another hit. iron ore dropping below $100 a ton. the brutal collapse in that commodity continuing. you kate retail sales shockingly dropped a fourth month in a row. is the economic momentum in the u.k. stalling? people could be out having fun, socializing. this is crucial data. the boe meets next week. travel stops surging as the u.k. is expected to announce a significant shift in covid travel policy. it could come this afternoon. markets look like this.

we are watching the witching stateside. miners are a huge drag today. gas prices taking up a little bit. there is concern that these fertilizer factories are shutting down and what that is causing is a co2 crisis. the ripple effect of these high-energy prices being felt. alix: we are still feeling the pain in the u.s. gasoline prices are higher. this is how the session is shaping up. it looks like we are in for a nasty day. the have the university of michigan sentiment index. that is weighing on current condition and thought. that is not necessarily a good scenario for growth. tech down about 1%. russell 2000 holding up relatively well, 0.2% down.

there is going to be a little shift within the russell. on the flipside, you have some selling in the bond market. in the u.s., yields are up about three basis points. the next stop is about 1.41. the dollar getting a nice pop. a little bit of safety bid into the fx market. guy: we are getting rebalancing over here and the bigger dax as well come next week. let's get back to that gas story, which has been so important this week in europe. supply crush sending energy prices to records and starting to squeeze profits for some of the big industry. we have been talking about the co2 story. rachel morrison, bloomberg energy reporter joins us now. you start to see the effects in the economy. what are we learning about the effects of this crunch?

>> it has been more of a quiet day on the market with us seeing the effects of demand destruction and big industrial users stopping using as much energy because prices have gotten so high. we are seeing an artificial ceiling for prices where even if the fundamentals are still pushing them up, when people stop using gas and electricity for processing, the price cannot get any higher. we are seeing price come off a little bit today. we have the effect going across the economy, companies starting to change what they are doing because of these prices. we are seeing ammonia, companies in norway not making as much ammonia. in germany, a big chemical company bafs says hi power prices are impacting them. alix: thanks a lot. let's get to what we are dealing

with in terms of central banks. the euro area inflation outlook may turn out higher if the conflation -- if the coronavirus . inflation to the upside. there was an interesting report we had talking about how we are going to exceed that 2% target in a few years. a lot of questions as to the potential upside of inflation in europe. joining us from frankfurt is alexander weber. walk me through what we have heard in this evolving conversation on inflation in like four years time. >> we have had a significant pickup in the debate on inflation outlook today. the latvian central bank governor told us inflation could turn up higher than the current forecast suggests. so far they have said it is

temporary mostly. kazakh said the ongoing supply chain recovery and rising inflation expectations could add pressure in the medium-term. we heard from the irish central bank governor who said some officials think the current forecast is too low. the vice president said the ecb will pay particular attention to wage negotiation. they could make the inflation pressures more permanent if wages rise. there are still many reasons to believe the inflation outlook is temporary. we have seen the debate is far from over and will probably only intensify in the coming months. guy: it is going to be an interesting few months. thank you. alexander weber joining us from frankfurt. u.k. retail sales falling unexpectedly. it is the worst stretch of

declines since records go back to 1996. ritika gupta has more details. ritika: downward surprise for retail sales. they are down 0.9%. they were expecting a rise of 0.5%. u.k. retailers getting ready for school to start and going back to work. it seems the coronavirus's crimping a lot of that demand. we are down four straight months on retail sales. we are lower across the main categories. one important thing to note is this does not include restaurants. there could be this idea of the consumer preferences shifting, spending less on clothing and more on going out and socializing. interesting to compare with the u.s. they saw the consumer driving up retail sales. we are not seeing that in the u.k. i want to highlight the headwinds facing retail. supply chain, labor shortage, and inflation.

i picked this out because the bank of england saying inflation could peek at 4% this year. a lot of talk about how that could hold. alix: thank you very much. what all this means for the boe next week. joining us is peter schaffrik, rbc global macro strategist. you have confirmed the data we are getting in the u.s., growth scenario. you have inflation expectations rising to 3% in august, 5% in the u.s. what kind of find does that put the boe in? >> one thing more central banks have told us is they think a good part of the inflation increases are temporary. the question is out there whether or not that is true. temporary is relatively -- you can stretch that definition. it could be two years temporary

supply bottlenecks. that is obviously putting pressure on it. the bigger question is when you look at temporary factors and non-temporary factors, particularly wage develop in spirit in the u.k. you see -- wage developments. in the u.k. you see wage develop and's. next week, we don't think any of these things matter. we don't think next week we'll see any significant change. for the medium-term this will become a story. guy: there is a move in the market to price in an earlier rate hike from the bank of england. the bank of england looks super optimistic judging by current data. you look at its projections in terms of the end of the year. do we think we need to price back out from the gilt market, the money market any kind of

rate hike from the bank of england over the medium-term? the data would suggest maybe the economy is starting to slow. you have retail sales coming down. the consumer is a huge part of the u.k. economy. we have this added headwind of increasing energy prices. i am wondering whether the bank is being too optimistic? >> i want to dissect the main statement you made, should the market price out rate hikes? what we have seen those last few days is a significant jump in the rate hikes in the market. that was particularly on back of the energy story and how long-lasting that is we will have to see. the market has now priced for some time that we all got some rate hikes done. we think there is a decent chance by the end of next year the banks will get to the

magical 50 basis points that they have outlined is a crucial point. we not only have temporary factors, but the labor market is getting tight. we might get a slowdown in the growth numbers. we have shortage of labor that will likely put more pressure on prices. the bank will probably not look away entirely. alix: i feel like the elephant in the room now is these power prices. an economist will say they are transient. the headline just crossed the bloomberg that italy is said to curb high power bills. we have seen it in spain, greece , france, subsidies. this is serious money on a serious issue that may not have a quick fix. i wonder how this pays into you

-- how this plays into your growth forecast, allocation forecast, and central-bank numbers? >> i would like to dissect it a bit. there are two ways to think about it. the one is growth in the other inflation. on growth, there is quite a number of companies that react to this that have to take production down. on the consumer side, it might impact the demand from consumers. that is growth dampening. from the central banks, you have to think if the situation lingers, what is the second round effect of them? you have potentially the reaction from wage earners. at the end of the day, the line is yes this will go away eventually, but when that is we

don't know exactly. what is going to happen is they are going to sit and hope they are right. if the effect comes through, they will have to react. guy: you listen to alexander and some of the names he was listing earlier with the concerns around inflation in the governing council. that debate is heating up. have a great weekend. thank you very much. what do we have coming up? miners getting slammed again today. iron ore prices collapsing. the head of u.k. equities joining us next. this is bloomberg. ♪ his is bloomberg. ♪

alix: european equities are dropping to lowe's we have not seen since july 30. the big culprit is iron ore. iron ore getting cut from its price target. prices could drop below 100 per ton over the next few months. all of that has to deal with china policy. they want to green their economy. they have to because pollution is so bad. that means cutting down on steel production when iron ore is an input into that. it is a simple three line. guy: absolutely. i have a bunch of questions. have the mining stocks already priced this end? we have seen further moves lower. are we going to see steel and iron ore diverging?

in theory there is still quite a bit of demand for steel. in theory there is the possibility you could end up with a divergence between steel and iron ore. the biggest question after going up so much, is there more softness in the price? how much more to go? alan custis is here, lazard asset management. it was a big updraft, big downdraft. the miners have priced in some of it. do you think these stocks have further to fall? >> good afternoon. first and foremost, the stocks never priced in the high iron ore prices we saw her earlier in the year. when we look at iron ore stocks now and what they are effectively pricing, we are

saying they are pricing around $85 iron ore prices. this has been happening for some time. there have been concerns in the market that we are moving into an oversupply situation. i think the combination of steel cuts and the oversupply coming back in and the very high prices is kind of a perfect storm in terms of the pullback. in theory the iron ore price should stabilize around the 90th percentile, which at the moment is around $75. there is the risk of the overshoot. alix: if we look at what happened to iron ore and then the stocks, the template for what happens if china goes after you, is there another metal or

commodity that is at a similar risk we can look at? >> at the moment the market has been overlooking the potential impacts on copper. the ever grant situation, the concerns around china property in the production of new homes in china could be a risk to copper. copper has flatlined the last three months and are choosing to ignore some of the concerns at the moment. there is the risk of some contagion. guy: how easy is it to priced some of these stocks right now? in some ways this is a simpler narrative to understand. there is an environmental issue. there are a bunch of factors that come together that feel fairly fundamental.

is the pricing in this area straightforward? the market is still scratching its head, trying to understand what chinese policy is? do we face the same problem when it comes to the minors? >> i think we do. the one thing that is different this time around is the financial robustness of the minors compared to previous down terms if you want to call it that is completely different. these companies have very little debt. anglo american was doing a far sale of assets. now they are all net cash. as an investor in the space, you

have got a firm ground to make an assessment. there is a fundamental level at which you start to see supply destruction. you are seeing some of the high cost producers are stopping already. alix: what do you buy on this? if i take a look at correlation of oil prices to oil stocks, they don't move in tandem anymore. the metals market might be a different story. where is the buying opportunity? >> that is the $64,000 question. i think there is a risk that we get an overshoot because it was clearly momentum trade on the way up. iron ore could go below what i would see as the fundamental support level, which would be

around $75 to $80 per ton. if you see iron ore at that price level, you should think about getting more constructive on the space. the energy story we are seeing at the moment, the global energy shortage, how does that feed and? -- feed in? >> another good question. i think the world is now spending a greater percentage of gdp on energy than it did at any time other than 2008. i have been cognizant of the risk of an higher oil price. we are aware the investment in infrastructure in oil and gas has gone walkabout the last three years. we know that coming into this year we may exit at 100 billion

barrels of demand per day. there is still the risk that we get a spike up in the oil price, and that continues to be supportive of oil stocks that are nowhere near the share prices they were when we went into the pandemic which was also associated with a low oil price. if i am looking at mining versus oil, i have to be back in oil price is part of the portfolio trade. alix: great stuff. love talking to you. this is bloomberg. ♪ is bloomberg. ♪

ritika: it is time for a look at some of the biggest business stories in the news right now.

the auto industry has/the outlook for production due to the global chip shortage. ihs cut its forecast by 2.6%. next year the industry will make 9% fewer viewers close, roughly a .5 million cars and trucks. the ceo of deutsche bank has apologized to the country's top regulators after one of the top analysts found what was described as a failed government-backed pension system. he told officials deutsche bank does not share those views. jp morgan will take the first step in its plan to expand its business overseas. it will launch a digital retail bank in the u.k.. it will be called chase and will be online only. they will have 600 employees. that is your latest is flash. alix: u.k. prime minister boris

johnson says the u.k. is going to sign a global methane pledge. this comes as president biden wasn't speaking earlier, trying to push members of the economy's form ahead of cop 26 to get tougher on climate. part of that is pledging methane reduction missions. guy: boris johnson is increasingly in a difficult place ahead of what is going to happen in glasgow later this year. that meeting is looking difficult in terms of the politics around it. we will see what happens. people are switching to call. that is going to be a huge problem. your pain equities sliding into the close. that is next. this is bloomberg. ♪ this is bloomberg. ♪

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guy: we are wrapping up the equity session in europe. wrapping up the equity week.

neither of them are positive. take a look at the map. spain one of the few outliers in terms of main markets. it is trading higher. elsewhere the news is fairly bleak. the ftse is down 1.2%. miners are taking a huge chunk out of the ftse but the cac is off, the dax is down. it feels like it has gained more momentum today in terms of downside. once we get through witching stateside we start to see more track should -- more traction on wall street? another down week. not a big drop but it is a drop. we are getting to the bottom of the 400 60's. we were trading at 455, then we got up into the 70's. we reverse that.

not far away from record highs. we are giving background. growth fears are manifesting themselves. you can see that in different areas. iron ore down. that is the contract. we have broken 100 today. we have futures creeping back up again in the u.k.. that is a drag on growth. brent crude down .9%. the energy stopped feeding that narrative. let's take a look at what it means from a sector point of view. we will show you how it breaks down. their only two sectors that are positive. travel and leisure is up. the reason for that, we are expecting a shift in the travel rules in the u.k.. we will break it for you when it does and try to understand it if that is possible. down at the bottom of the market what we have is a conflagration of factors which are making life

difficult. the basic resources sector down hard. the big miners are feeling the iron ore story. interesting the conversation we just had with alan custis. the chemical sector is off as well. big chemical companies like basf. it is not the energy story. it is the beat stock story. it is a story of rippling through the economy. the fertilizer maker which produce a lot of ammonia, one of the byproducts of that is co2. you now have a problem with co2, and the stock issue into the plastics industry. there is a ripple effect which is starting to work its way through european industry. chemicals, which in theory should be in a good place because we are going into an investment cycle. consumers are consuming. we have a corporate investment cycle which will mean they are spending money.

chemical maker should be a big beneficiary but they are suffering from this higher energy story, a high gas story. the car sector is down. a big narrative developing. is it going to be temporary? is it going to cause a growth slowed down? all of this is a difficult knot at the moment. the iron ore story fairly strong. iag up 4.55%. british airways, along with all of the other airlines, trading off the back of this expected news in the u.k.. commerzbank, cerberus apparently raising its stake in that business, commerce back 1.90%. the real story is what is happening in the mining story and what is happening with metals, particularly iron ore and the ripple effect, this

energy crisis europe is facing and how this will affect different segments. i feel like the financial crisis you have to figure out where the ripple effect is going next. apparently it is co2. the meat industry worried it will not have enough co2. alix: it is spreading to other countries that do not have a shortage of gas like here in the u.s.. more on that, the ieepa -- the iea director says those prices could persist. >> i think we could see high prices high for the next week's. the most important factor would be how the winter conditions will be, with the harsh winter, a push up of gas prices in europe and asia. alix: let's get more insight with jean-paul harreman.

analyzes a ton of data in the energy market and brings data to energy players. jean-paul is the perfect person to ask this question. how haida gas prices day and for how long? jean-paul: -- how high do gas prices stay and for how long? jean-paul: clung to say -- hard to say how long it will last. the high gas prices are caused by supply issues on the back of covid recovery. what we are seeing is gas storage levels are relatively low at the moment. there is very little room to play around those levels. that means more pressure on those prices. guy: in terms of what is your expectation for the winter, it is quite warm outside. we do not know what the weather will look like or feel like.

how wide is the fan chart of different outcomes in terms of the way europe will have to react? jean-paul: there a few trends in has been very dry over last week's or during the summer. low water reserves and low gas storage levels. that means there is quite a potential for upward pressure on that fan. on the other hand, wind generation levels have been low over the last week's. exceptionally low. in the u.k. wind has not been as low as this since the 1960's. very exceptional. we are expecting wind generation will pick up as the autumn

starts. that should alleviate some of the pressure on gas, on prices. it could get tight. guy: how did trump -- alix: how the companies by their energy in europe, in theory when they have contracts for the bulk of their energy and have the extra energy on the spot market or is a little bit different? jean-paul: exactly. from a risk perspective you would always hatch a part of your position forward. those companies are usually pretty well-off. the problem is that the risk is more late cash flow. if you have hedged your position but you are waiting for your customers to pay, there might be a delay in getting the increase

in prices back from your customers. we are seeing the first supplies fail in the u.k. already. it is just a matter of how have they hatched everything in front, or are they leaving bits over in the portfolio and it exposes them? guy: the idea was that europe would have a series of interconnections that would allow power prices to even out. is what is happening now in argument for more interconnectedness, for d.c. grids to connect sunny parts of europe to wintry parts of europe? why is it not working as envisioned? do we need to spend more thought -- more money? jean-paul: in all fairness it is working quite well for the continent.

if you look at price convergence across the continent, the connectors are making sure the price levels from portugal to poland and from poland to greece to the south of norway are relatively the same. it is that the levels are quite high because of fundamentals. of course, if you are on an island that is a different story. the u.k. has a relatively tight margin for forecast deviations in the winter, about 4.3? what's. -- about 4.3 gigawatts. with the fire we had in the largest interconnect or with france, which is another two gigawatts, and britain it looks

a lot tighter. alix: if we talk about the crisis in terms of utilities and the consumer and we talked about in terms of these fertilizer companies and the repercussions in the food industry, what is the next industry we need to be watching that we need to be hearing about monday morning? jean-paul: what we are seeing is demand destruction by fertilizer companies. metal is probably the next one you will see, aluminum smelters, that kind of factory. alix: thanks very much. jean-paul harreman. guy, we have some travel headlines. guy: very exciting travel headlines out of the u.k. i'm trying to make sense of what we are getting. the u.k. is going from a green, amber, red traffic light system

when it comes to managing travel, we are now shifting to a stop start system. just about everything will be -- most conch lease -- most countries are going to be classified as green. there are going to be a few red countries. the number of red countries is being reduced. the transport secretary keeping his job, understanding the maldives will come up the red list. eight countries in total will be coming off of the red list. the concern, and i've heard a number of scientists stop in about this is that this will mean, the testing regime is likely to change, does this mean the u.k. does not have quite the same handle as it had before on the bidding new variants, and will be -- and it will be interesting as we go into the winter weather or not this gets reversed. at the moment the travel sector

is reacting positively. alix: i will have an editorial opinion and say i think it will get stricter and more complicated because i do not think the u.k. can go with the green or red thank. we will get light red, dark red -- i'm joking, but it literally has changed on a dime in terms of the travel rules. let's get back to the energy story. it is happening in the u.s. to a different degree. yesterday i spoke to the adco ceo. he is new. he came into the role in january just in time for the texas deep-freeze. i said what does the gas price issue in europe mean for your business when you're selling aggie equipment to farmers? >> we had that same situation in one of our u.s. factories earlier this year where because some of the weather issues throughout the midwest and southern states, we had natural gas prices spike tremendously.

we use those for top rating are paint systems. we had to shut down for a period because of that issue. it was short. you are talking about a more chronic issue and that not only shows up for us directly but it shows up indirectly. a lot of energy intensive industries, steel billing -- still being one of them. it is a real problem added onto the other supply chain challenges we have been dealing with over this last year and a half, with labor shortages, now energy prices getting high and freight issues in getting parts where they need to be. they are all combined to constrain our abilities to serve farmers demand. we have the highest order bank in the history of our company because a lot of excitement over these new products but we are concerned over the deliveries. alix: where is the light at the end of the tunnel?

eric: it is a ways off. we do not expect weeks or months away, we expect 2022 as finally the supply chain, i think it is tied to covid success. as the world has more and more success with vaccinations and other treatments, getting on top of that, the pandemic is put in check a bit more. that allows suppliers to save more operating and parts into the supply chain. that is primary. also responding to the overall demand surge, with covid everyone hit the brakes hard. we were dead in the water for a while, not producing anything. then all of a sudden we came out of it at the market has been strong since then we will have a record year. the supply chain whipsawed. they are still adjusting to that

. i think it will be mid next year before work our way through this. alix: guy, i thought it was interesting, his order book is so strong he is not taking anymore because he does not know if you can deliver them. that says it all. guy: some of waited a long time to find new kit and now they cannot get it. you throw in the fertilizer story, it will be tough to be a farmer. you cannot get the equipment you want. you will be capacity constrained and maybe you will see a shortage of fertilizer. they make matthew ferguson tractors, which are pretty cool tractors. have to love a nice tractor. alix: sure. guy: i grew up in guernsey, there is a small island nearby where you can only drive tractors, you cannot have cars.

a couple of the kids were obsessed with matthew ferguson tractors. alix: i knew there was a story. i know men and big things but there was a story specifically with the tractor. guy: you cannot look at nice cars but you could look at nice tractors. european stocks, u.k. stocks finishing your session blows. you have continued to see a downward trajectory throughout most of the day. the auction has continued that story. the ftse 100 at 69.44. we are below 7000. this is bloomberg. ♪

guy: this is your -- ritika: this is the european close. coming up, ellen pao. this is bloomberg.

it is time for the bloomberg business flash, look at some of the biggest business stories in the news. apple is under fire for removing a protest voting app tied to jailed russian opposition leader alexei navalny. it can no longer be found in its russian online stores. democratic senator chris murphy calls apples action indefensible. neither one of the uk's two most prestigious universities is at the top of the rankings. st. andrews in scotland took the number one stop -- number one spot. oxford and cambridge universities finished second and third. paris has become one of the hottest cities in europe for finance professionals. companies are beeping up operations are -- beefing up

oppositions -- operations. but answers that use london as a baseball operations are moving to the continent. alix: everyone is moving to texas to new york but all the bankers are moving from london to paris. we both have our issues. guy: absolutely. i cannot listen to ritika so i have no idea what she was talking about. david: everyone wants to -- alix: everyone wants to hire in paris and headhunters having a great job. guy: not everyone wants to move from london to paris. do you want to go there when you have a shortage of english-language schools, international schools are limited, trying to get a place is difficult. i think there is a hiring crunch. part of it is a mismatch of supply and demand and it is interesting to see local banks suffering right now. that is where the headcount is coming from. alix: coming up, the fda booster

meeting is underway. voting happens later this afternoon in the u.s., president biding a virtual vaccine summit trying to increase supply for developing nations. more on all of that next. this is bloomberg. ♪

alix: an ugly date evolving in the u.s.. s&p 500 testing the 50 day moving average. abigail doolittle is here to help us break down the market action. abigail: ugly indeed. big tech selling off. rising rates roiling big tech. big tech sensitive to valuations. when rates backed up that brings valuation questions into the forefront. apple well below its moving average, suggesting more selling could be ahead. you have six joint dollars worth of market cap. this is a big reason why the major averages are down.

if we look at natural resources, we will see some of the metal and mining stocks are lower after iron fell below $100 per pound, down 8% from the peak earlier this year. another commodity bubble popping. we have down and mosaic all down, and albemarle, the paint company was downgraded at hsbc to a neutral, helping or hindering -- hurting, weighing on the space, and mosaic giving back some of the gains. we do have one bright spot. that is travel, but not enough to offset the bigger declines. guy: a similar story as well. the travel stocks getting a bid. we are done for the week. we have to go to the cable, so we still have radio. in theory on television we are done. the week ahead looks interesting. the next 24 hours looks fairly interesting.

the booster shot story will be in the u.s. today and the rest of the week. we have german elections on the back of the week. i assume we get back traffic to new york. a load of rate positions. fomc, boj, brazil, even south africans are getting in on the action. the booster shot story is one we will pay attention to a great deal. alix: i am looking forward to unga in theory, we have some great guests, and the trains are terrible, so how will i get home? that is obviously my big concern. we are headed to radio. coming up, republican texas congressman kevin grady will be joining "balance of power" with david westin and go to dab digital radio for guy and myself. this is bloomberg. ♪

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>> from the world of politics -- >> we did not pay for that tax

cut. we borrowed to pay for the tax cut. >> to the world of business -- >> we focused on the price tag and not enough on the values. alix: -- >> this is balance of power with david westin. david: from bloomberg's world headquarters in new york to our tv and radio audiences worldwide, welcome to "balance of power." we start with a check on the markets. joining us is abigail doolittle. it is quadruple witching day. abigail: it is. david: there are three of them but they still call it quadruple. abigail: i guess it sounds scarier. we do have extra volatility for stocks, all of these options changing hands or being rolled over. the point is rising rates. we have the 10 year yields, on the week higher. rising rates brings back

inflation