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tv   Bloomberg Markets European Open  Bloomberg  September 21, 2021 2:00am-4:00am EDT

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>> good morning and welcome to "european open." i am dani burger alongside mark singapore -- mark cudmore in singapore. here are your type headlines. the brink of default, evergrande falls further after there are signs beijing will not support
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the distress developer. asian stocks extend to clients, but u.s. stocks kick higher. bill dudley says the fallout from china real estate will not stop the fed on his track to taper. it has just gone 6:00 a.m. in london, mark you are in singapore, where it is later. markets perhaps more optimistic, is the? worst of it over? -- is the worst of it over? mark: they are a lot calm her, that is a good sign. we have stabilized, and i would not say there is much optimism, sentiment is fragile. yes, hong kong stocks are little softer today, japan stocks weaker because they are playing catch-up after monday, and crypto is softer, but generally
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it feels like people are nibbling at the idea of buying the debt, just not enthusiastically. dani: we will talk about crypto later. i can't wait until you give the explanation for why crypto has crashed. i know you have the explanation. mark: absolutely. no, i do not. dani: we are an hour away from the start of cash equity training. let's -- equity trading. let's talk about the sense of calm you're talking about, ftse futures up 1/10 of 1%. the big large caps ended more than 2% yesterday. we have ftse 100 up more than 1%, and dax up, not enough to erase the losses from yesterday. let's get a look at what is happening in american future indexes. late in the day buying
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yesterday, the highest turnover in the s&p 500 etf, the largest since 2020, so certainly a lot of nerves in the markets, but it is calm here with all of the benchmarks up at least 3/10 of a percent. what is the wider macro picture looking like? mark: it kind of backs up what you are pointing out on futures, we've got positivity but it is fragile. it is not enthusiastic. i think one of the most interesting things to draw attention to is the fx column, you can see a lot in the green and that is ultimately because it is the dollar suffering today. don't worry about the saudi arabian riyal. there is a relief rally in the canadian loonie as a result of trudeau winning election. a softer dollar is easing
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pressure and easing financial conditions. yes, japan stands out, early dramatic, but i repeat, they were off yesterday, so this is a catch-up. if we stay around these levels, expect geithner to be similarly painful tomorrow, but it will be a catch-up after a holiday and not fresh weakness. dani: excellent point and we will have to keep that in mind tomorrow. let's get into the market moves we have been seeing. of course, evergrande and juliette saly joins us in singapore. juliette: we are still seeing weakness in evergrande stocks and bonds ahead of the interest payment due on thursday, and snp saying they will likely default and less there is government intervention, but a growing chorus saying this is notchina's -- not china's lehman moments.
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a little more of a buy the dip in the hong kong property markets. we are also seeing bank money coming back into the banks and jeffries saying you should be buying the dip here and not seeing a systemic fallout coming through from evergrande. i want to show you on my gtv chart what we are seeing in evergrande's bonds, it has fallen some 75% since may and more broadly to mark's point, you are seeing the nikkei underperforming today but we've seen a little more of a tick up in casino players as well. also airline stocks. this is on news the u.s. will allow vaccinated travelers in. dani: thank you. mark, i have to say one of the things that stands out to me and all of this and maybe we can blame others for this, the
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amount analysts are bringing up lehman's. usually it is in the context of this is not lehman's, maybe this is bear stearns. but if you go to the terminal, and run how many story counts put specific words, if you put in lehman's, over 1000 stories yesterday mentioned the word lehman's. the average is usually under 200, under 100. what does it say to you that people are using this parallel, perhaps saying it is not a parallel? they are bringing it up. mark: i noticed this as well, i was at lehman when it went down, and i asked my colleague who was there at the end, and i said should i do a lehman comparison -- and he said should i do a lehman comparison and i said no, not another one. this is a common thing in
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financial markets, we are always looking for the last crisis. that is very much a feature of how financial markets are traded, which is why invariably crises don't repeat in short succession like that, they evolve into a slightly different type. that's why don't think we will have a lehman moment, and indeed, this is nothing like a lehman moments. we have much more lead up, we are much more aware, many more tools for the chinese government to solve the situation. at lehman, it wasn't the cost, it was the freezing of the financial system. china can essentially if they wanted leave evergrande to grind into the dust manage the system better because they don't have parliament and they can step in in a much more quick way if they need to. dani: that leads into the mliv question you and your colleagues are asking, how long will evergrande's assets last?
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so is what you are saying kind of not wrong, that the impact of this will be short-lived? mark: yes. but i have to say the reason we are a little hesitant today and not getting enthusiastically bearish or bullish is this hinges on the communication tomorrow when china returns from the four day weekend. everyone knows china can ease stress shortly -- quickly in the short term with just utter communication saying they will not leave an unmanaged bankruptcy or default, they will continue to manage the situation. everyone will relax and it will be fine. but until we get that communication, there will be nervousness. if we don't get communication tomorrow, markets will get very scared. i am in the camp that we will get enough communication tomorrow and enough measures, enough perhaps even targeted easing that markets will
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probably bounce at least in the short term. the evergrande issues will be over in the short-term panic at an end, but i have every low conviction on that. dani: is it the fed week or evergrande week? you can always get up-to-date analysis from mark and the rest of the team, go to him live -- mliv on your terminal. coming out, we will look at the winners and losers. plus, surging energy prices causing chaos and attention turns to renewables. next, we keep discussing evergrande. we will have a discussion with a guest, always on the cutting edge of positioning and what different types of traders are doing. if you have questions for our guests, send them along, if you want to ask marco question, the
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terminal. this is bloomberg. ♪
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>> there has been a lot of discussion about whether china is un-investable. i believe it isn't. the rules of law are not there, private property rights are not there. it has only gotten worse over the past year. evergrande is just the latest negative for investing in china. dani: the president of your denny researches citing a lack of rule of law and property -- private property to justify that china is not investable. there was angst yesterday prompted by evergrande and
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somewhat moderated today but evergrande still in decline after moody's set the chinese developer is on the brink of default. we are joined by our guest, a global macro strategist. china is something you look at a lot, your research a lot. what is your take? >> this is a particular challenging time for investors with the risks of policy mistakes rife across all parts of the world. i think global markets are trying to grapple with the idea of a disorderly unwind in policy stimulus which could take what is a natural midcycle slowdown first in china into an economic slump and i think that's what we've seen the past couple of months, huge degrees of policy uncertainty. the short run is the adverse market effects we've seen the past couple of days.
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with the caveat that over the next couple of weeks policymakers err on the side of caution, and that is how policymakers often respond, they manage market drawdowns and selloff to a large degree with effective moves. we expect not just in china but also the u.s. and all over the place, for policymakers to come in and step up their easing efforts in the next couple of weeks. mark: good morning, you say huge uncertainty but uncertainty creates opportunity. you expect central banks to provide sufficient easing the calm of the markets. in the context of the dislocations this week, where are you sing the macro space? viraj: we think the policy
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mistakes are being priced in. the u.k., we think markets may be underestimating the short-term negative impacts of the supply-demand imbalance and what it means for the gdp a negative impact, especially the ability to deliver hikes next year. but really the trade -- crosses look like they are vulnerable, just like and how the central bank's deliver tightening. dani: if i can focus on the market selloff we saw yesterday, these are not huge numbers, some of the u.s. stock market losses eased a bit, but looking at the red yesterday, how do you distinguish between a dip you want to buy and one you want to
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run its course? viraj: a lot of models suggest a mixed picture. we are seeing investors cutting their exposure with recent down grains -- downgrades to u.s. gdp from the summer. recently we are seeing the stretch longer position from exposure is from systematic investors and that's what we expect or think has happened the past couple of days, really for selling from systematic investors on the back of heightened market volatility. that typically tends to be a very short-lived affect, and it may take a couple of days if not weeks to work through, but for us, given the fact that general equity exposure is not as stretched as it was, we think there are opportunities and our advice would be to be selective. we are not looking to buy the dip broadly, we think with higher u.s. rates in the next
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couple of months, our favorite trades are long u.s. reopening and selective opportunities in the rest of the world like japan and some areas of e.m., and that's where we think there are more nuanced trades the next couple of months because it will not be green across the board. mark: when you wake up in the morning and turn on your monitors and your going to check one asset from the asia session to tell you what is going on in? china, what do you look out? say thursday morning, are you looking at evergrande, are you looking at the hang seng index, the tech index, tencent, onshore china markets, what is the single most important greater china indicator for you that you feel sets the tone for the day? viraj: if we think about this from a spin of a risk perspective, it has to be the sam why -- cm wipe your -- cmy.
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outflow from the equity market, is not necessarily seen a weaker yuan. we saw it yesterday with risky dollar-cmy, not sparking -- spiking in a dramatic way. but it will come from a weaker cmy. if it is just limited to certain areas them a but if it is going to be disorderly weakness like we've seen in the past, that spills greater trouble for global risk assets. dani: you heard it here first. you will stick around with us. >> justin trudeau poised to win
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a third term according to broadcasters. networks are predicting the governing liberals will win most seeds but fall short of regaining the parliamentary majority he was seeking. u.s. house democrats have unveiled legislation to fund the government until year end and suspended the debt limit through december 2022. it is part of a must pass spending bill needed to keep the government open past of the end of this month. the risky move aims to pressure republicans who pledge to vote against an increase in borrowing limits. the u.k. not bailout companies afflicted by its power prices and the government expects to see some businesses go bankrupt in the coming weeks. officials warn that the price cap protects millions of consumers and will remain in place. gas prices have more than tripled this year. global news 24 hours a day on air and on bloomberg quicktake,
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powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. dani: thank you so much. coming up, one of the most highly anticipated fed policy decisions in recent times is just one day away. we will di what the markets expect on the tabor timeline. that is next. this is bloomberg. ♪
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>> there is risk to their credibility because inflation is higher for longer, two, inflation expectations are starting to rise, and three, they have bound themselves on when they can raise rates, they said they would not raise rates
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until 2% inflation, and they wanted to stay above 2% in the future. if expectations get unanchored, that will push inflation up before we get to maximum sustainable employment. dani: bill dudley talking about the challenges the fed faces ahead of its meeting the kicks off today. we are still joined by our guest. among the things the fed has to face is of course what has been happening in china and evergrande, and the fed has faced down china before, thinking of 2015. i'm wondering if anything in the latest saga can cause the fed perhaps to rethink at their tightening schedule. viraj: it is probably too early for the fed to be reacting to what is going on in china, especially over the past 48 hours. we have seen the fed push out rate, delay rate hikes when you have seen global volatility,
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market volatility, and especially from china. don't think we are in that stage at the moment and i think the fed is really grappling with the domestic macro forces and not least higher inflationary pressures. but also as we reprice or price out delta risks to some extent with turning the corner, you've got positive news around vaccines for children yesterday, strip shots likely on the way. that suggests we will be in an environment where we have growth pressure in the u.s., we saw some strong u.s. sales data last week. also in a period where inflation expectations are likely to remain high. i think that will be the fed focus in the short-term. i would suggest the fed will be slightly more, and when we think about the broader concerns, more concerned about inflation pressures and the dots typically move in line with inflation and real-time inflation, so we see inflation moving higher recently. we think the risks this week we
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will get a cautious approach, especially the signal from the dots, potentially if not staying where they are but maybe moving higher as well, given the short-term risks around the u.s. economy. mark: do you think the surprise will come from the dots? do you think the tapering discussion is a distraction or do you think it is all about the dots, that any shock has to come from the dots? viraj: it is all about the rate hike. i think the tapir is well telegraphed and i don't think it will make that much difference to the past rates or the 10 year yield. macro turning the corner, we have already seen at least sale side gp expectations in the u.s. moving lower for growth. that suggests we are at the bottom of the growth, especially
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in bond markets. the 10 year is higher into year end, seasonal effects also positioning for us, and i think that suggests at least that is likely to be risks around the world, and slightly on the hawkish aside if you see some rate hikes being priced and. -- priced in over 23 and 24. dani: you say we sort of hit the bottom of the rate cycle but can we really get higher yields from their when we can still see this immense borrowing of foreign bonds. we have pretty remarkable stats, yesterday remarkable, investors jumping in and buying bonds. what does that do to the dynamic? viraj: when we think about especially japanese buying of u.s. treasuries, that tends to be seasonal, especially over the
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summer. we are moving out of the summer and -- dani: dani:sorry, we are out of time. right to have you on. coming up, we discussed the german election as investors weigh ♪
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dani: welcome back to the open. we are a half-hour away from the cash equity open. futures pointing higher. a lot of these equity benchmarks ended the day down more or nearly 2%, but we are seeing them bounce back ever so slightly. the dax up about 0.7%. cac 40 futures up about the same amount. u.k. futures up 0.8%. more of a sense of calm after yesterday's selloff.
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the asian session has much more to do with japan coming back online after a holiday. 30 minutes to go until the start of equity trading. not just equities on your radar. mark: i'm looking at cryptocurrencies today. i'm not going to explain what drives cryptocurrencies on any particular day, but i will say in the last 24 hours the news about coinbase not succeeding with their yield enhancement lending program is a big blow to the space because that is one of the big drivers. i think a lot of people don't understand the yields that are on offer in this space. the establishment name is a blow on sentiment. i would not want to ascribe too much in the short term. this shows the rising correlation between bitcoin and futures.
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all of them are rising. i decided to go for the benchmark in the crypto space. showing that we are seeing that rising correlation. this means that if we have this increase risk aversion, the highest level we have seen this year, cryptocurrencies have to selloff and vice versa. cryptocurrencies increasingly less likely to be a haven as we get more establishment involvement. instead, it is more likely to be a source of problems. people might have to sell their stocks to cover the losses. dani: not exactly fitting the idea of digital gold. i wonder if it speaks to who owns bitcoin. maybe this is a side effect of it becoming more widespread. is it acting like other asset classes if it does not serve diversification property? mark: that's absolutely right.
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it is completely that dynamic. it loses diversifying power. what you are seeing is that as the establishment rakes bitcoin, it will become more and more correlated. we can assume that we have just made a fresh look at the correlation. i think we will see much higher levels in the next year or two. dani: bitcoin down this morning 1.3%. not the worst of what it is, but it is under $45,000. just trading around $43,000. let's get over to the bloomberg business flash. here is laura wright. laura: the u.k. won't bailout companies afflicted by its power crisis and some businesses will go bankrupt in the coming weeks it is expected. britain's energy price caps will
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affect millions of consumers and will remain in place. gas prices have more than tripled this year. the company has agreed to acquire shells permian basin, accelerating consolidation in the largest u.s. oil patch. the deal will give the company an additional daily production of about 200,000 barrels of oil, making it one of the permian's biggest producers. shall will distribute $7 billion in proceeds to its shareholders. evergrande slips deeper in equity and credit markets. the s&p global rating said the developer is on the brink of default. the company places interest payments on thursday. that is the bloomberg business flash. dani: thank you so much. let's move to germany where bookmakers are favoring the spd to become the next german chancellor with the most recent odds rising slightly from last week. they also expect the most likely
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-- likely coalition to be a traffic coalition with the spd, the greens, and stp. let's get more on this from maria tadeo, who is tracking the election for us. momentum seems to be with the spd, but we want to know, when it comes to these equity markets, where are the potential losers and winners if things had in this direction? maria: without getting too much into the specific names, what is interesting is that there is a theme that is shaping up as we head into the vote on sunday. we know that the spd is leading. you mentioned the traffic light coalition. you also mentioned the greens. the spd and the greens are clear this country will need major additional funding to modernize the german economy and they focused specifically on green and digital. they say that spending could
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come into the tune of 50 billion euros. there are obvious winners that could emerge from this, renewable energy, anything that means turning this economy leaner and more efficient on the emissions and greener side. there is the tech and telecoms, especially the liberal democrats say that is where germany should focus on cutting and investing in the technology of the future. the flipside and this is where some of the downside risk could lay ahead is that prospect of a red-red-green coalition, that is a much more to the left tilt and german politics that would include the far-left and at that point a focus would be on some of the potential losers, and that would include the auto sector, which is huge in the country, also planes and aviation. it could also be real estate, that there is a real conversation happening in germany, particularly in cities like berlin, as to whether
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private companies hold too much of a portfolio when it comes to renting flats, but also the amount of rent paid in berlin. this is not a nationwide plan for the time being, but that could be one of the sectors in which investors could turn a much deeper look if we do get the red-red-green coalition. the prospect of a red-red-green coalition remains still very muted. mark: good morning. what is expected to be the fixed income impact from the election? maria: maybe i'm too obsessed with the bond and i look at it to much, but that is where the real story could be. we have seen it in deeply negative territory for so many years and perhaps that could change if the perception of risk around germany changes. the fact that we are heading to some extent into the unknown here, this could be a very
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different government to the merkel led coalitions, but also what it means for fiscal spending in the european union and that would have an impact on spreads. the pricing of the bond changes. that would have an effect on everything that trades in southern europe. dani: our local bond aficionado. thank you so much for staying on top of this. it will be a busy week for maria, so we appreciate her giving us the latest. the u.s. will reopen its borders soon to most vaccinated foreign travelers. we spoke to the air france ceo. he said his company is very happy about those changes. don't miss that conversation next. this is bloomberg. ♪
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>> i think the key agenda item for ireland is wind. we have been great developers of on shore wind. the next would be offshore wind. we have streamlined our applications framework so investors have certainty in terms of applying to invest in terms of offshore wind infrastructure in ireland. that would be a key agenda item. we have a very strong kindness component in our government and our government program and that is not disconnected from the energy agenda. there would be challenges of that, there is no doubt, but we are making considerable progress. >> are you worried about blackout risks and the amount of consumption data? >> data is taking up a considerable demand and energy terms, but we have been robust in terms of meeting that to date and i'm confident we have the right mix to maintain that sort
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of robust response. for us, the two key pillars of the next stage of economic growth or digitization and climate and the green economy. our investments are targeted as we emerge from covid towards the green economy and digitalization. we've got to try to marry the two in respect to the various challenges. covid has taught us many lessons and has accelerated some of the good ones. particularly in the delivery of health services. with in it has given people a closer connection with nature and an appreciation of existential threats. covid has created that in terms of a pandemic in a virus. people have a greater understanding of how near that existential threat climate change then perhaps they may have had prior to covid. >> talk to us about net zero by
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2050. will ireland achieve it? >> yes. we set very ambitious targets for reducing emissions by 51% by 2030 and zero by 2050. that is a very strong commitment to virus across every sector and by the end of the year, we will be publishing carbon budgets for each engine -- for each individual sector to industry. dani: ireland's prime minister speaking exclusively with bloomberg television about net zero targets, the green economy, and europe energy prices -- crisis. u.k. business secretary saying on sky news that as many as eight energy suppliers could go under in the current crisis, saying the next few days will be challenging, this is very serious, also will make a plan to tackle the co2 shortage hitting the food industry, noting one company had stopped
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supplying frozen goods to its customers because of that shortage. much more going on today. let's take a quick look at what you should be paying attention to. the u.n. general assembly beginning. the gas tech will begin. and we will also be getting updated forecasts from major global economies. the oecd issuing that and the greenwich economic forum, like ray dalio, and alan greenspan featured. is ray dalio going to tell us cash is trash? i feel like we could turn it into a drinking game at this point every time he says that. it seems like a pretty reliable viewpoint. mark: i think a drinking game for the dalio speech is probably the best way to use it. [laughter] always very smart and very informed, but unlikely to change
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what he has said. for me, it is that gas tech conference which is really important. when the fomc passes, we will go back to still having a gas crisis in europe unless the weather improves materially very soon. dani: let's get over to the first word news with laura wright. laura: the canadian prime minister is poised to win a third term. two networks say they are projecting the governing liberals will win the most seats, but fall short of regaining the parliamentary majority he was seeking. u.s. house democrats of unveiled legislation to fund the government until year end and suspend the debt limit until december 2022 as part of a must pass spending bill to keep the
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government open past the end of this month. the risky moves aims to pressure republicans to vote against an increase in borrowing limits. the u.k. won't bailout companies afflicted by its power crisis and the government expects to see some businesses go bankrupt in the coming weeks, according to the business sec.. he also said business energy -- britain's price caps will remain in place. gas prices have more than tripled this year. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. dani: thank you so much. moving to the u.s. which will soon reopen its borders to most foreign travelers as long as they are fully vaccinated against covid-19, a sweeping reform of the strict entry rules. european countries have been complaining about u.s. travel restrictions.
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air france says their company is very happy about the changes. he spoke with guy johnson and alix steel. >> 40% of our capacity and revenues were invested to and from the u.s. so it is fantastic news for our group and based on what we saw this summer, we expect a return of traffic numbers from 2019 to move forward very quickly. we are really, really happy about this. we have been waiting a long time. >> how are you going to configure the aircraft? economy heavy to start with? do you think this kick starts business travel? what kind of mixed you anticipate seeing? >> i think it is both. what we have seen so far in areas where restrictions have been lifted his pent-up demand
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both on the leisure side and the corporate side. many businesses have not seen their colleagues and customers for a year-and-a-half, so definitely in the short run we expect there to be a kickstart that continues still to be seen, but for families, it is great news, so we expect that to return quickly. as i said, pent-up demand for business, we will see if that holds after the initial demand gets realized. >> you think there is going to be a price war in the north atlantic as a result of this? a lot of capacity could potentially come back on. >> there will be some pricing pressure. what we experienced in europe, we have had much more worse pricing than that. we just got this news now, we are studying it, we are seeing how we can add capacity back.
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we will be loading new flights into the system probably as early as tomorrow. >> that is pretty soon. i'm wondering when the travel catalyst will be. if we put aside business travel for a second, i don't know what that is going to look like. summer season is over. are you looking at the christmas season being the big boost? if you are putting capacity and tomorrow, that implies a business travel boost. >> since the beginning of the crisis, our terms have really changed. many of our customers have been booking much closer to their departure dates because of the unknowns. when i mean we will load pricing capacity tomorrow, that does not mean flights for tomorrow, it means over the next 365 days. we may adjust that capacity getting closer, but we will add a capacity for sale starting tomorrow.
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you will see changes on our big network. dani: the air france klm ceo ben smith commenting. european airlines surged on that news yesterday, air france up more than 5%. iag up more than 11%. coming up, we will look at what stocks might be on the move today, including shell. the oil giant will distribute $7 billion to shareholders. that is next. this is bloomberg. ♪
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dani: welcome back to the open. we are about eight minutes from your cash equity trading with
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mouth -- most benchmarks pointing into the green. let's see what is happening under the hood with your stocks to watch. sam, thanks for joining us. some deal news coming out of shell. >> coming out last night for us, they have sold their permian business to conocophillips. the key part is they returned the vast majority of proceeds to shareholders, so very likely shares will rise this morning. mark: there is talk of a deal between national express and stagecoach. what is the story? >> those keenly watching the u.k. bus market, these companies have had effectively no one traveling on them and still at very low volumes over the course of the last 18 months. merging would mean they could spend more money on getting greener fleets, they can really
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save money across the board, so rather than growth transactions, more about saving costs. the implied premium is pretty high. dani: some earnings out of kingfisher today. >> on the flipside, kingfisher benefited a norma sleigh from the diy boom. people trying to improve their houses. they raised to their guidance for the second half, but they do see a little bit of extra caution and normalization. still expect the shares to rise, but not as much as one might initially expect. dani: that is our stocks reporter. we are about five minutes away until the open. will we see the dip fires reemerge? mark: i think so. not so enthusiastically, but during the show, the sentiment has clearly improved. i'm not saying it is due to us, but you can see the highs of the day.
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crypto has rebounded, dollars a little softer. we are seeing this little bit of positive sentiment. fomc's tomorrow and we have china returning from holiday and we have hong kong out. the real big catalysts we are waiting for is tomorrow and i don't expect major exuberance in either direction today, but i think it might be mildly positive sessions continue. dani: basically the worst is over, was said by a guest. do you give any credence to that idea that a lot of this systematic driven selling yesterday and that is over now? mark: certainly, his track record has been very good recently. also, you have the confirmation bias. that keeps on working and it doesn't. i do think the price action does reflect the fact that we saw the capitulation during the cash trading session in the u.s. yesterday and then we are seeing that immediate futures are down and finished down. a big recovery during the day
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yesterday. dani: a big recovery continuing today. mark, thanks so much for spending the past hour with us. we will have francine lacqua and tom mackenzie with you for the next hour. that market open for you as we head into the green. this is bloomberg. ♪
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francine: welcome back to the european market open. minutes to go until the start of cash equity trading. tom: here are your top stories. china's evergrande slumps further after the s&p says beijing is not likely to step in and support the distressed developer. the slump in asian stocks seizes amid those debt concerns, but european and u.s. futures take higher. is the worst of the selloff over? the fomc meets bill dudley, the
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fallout from china real estate will not stop the fed from signaling it is on track. francine: let's take a look at the futures. we did have a bit of pressure in asian markets and we saw a reversal in europe. this is the picture overall for the markets. european futures are gaining zero point 5%. we expect the open to be in the green. a lot of the focus is on improved sentiment. we did have a big selloff yesterday because of concerns around evergrande and we had a bit of reassurance from the white house saying they are monitoring the situation, ready to intervene if needed. those are the futures. tom: your point is that the situation around evergrande has not changed. it is still looking very dire. the sentiment, the stock market sentiment, the global market sentiment seems to have taken a
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look forward and you are seeing that reflected in the futures and in the first few seconds of the trade here. the ftse 100 getting 0.7%. the context is that we saw the biggest drop in two months yesterday, basic resources, financials really under pressure. the asian session, you started to see a bit of a turnaround. that is currently flat to positive. of course, the mainland and china is closed for a holiday until and through wednesday. over in japan, the nikkei was sharply off. let's change an on and see how things are playing out on a sector by sector basis. there seems to be some moderation around the pessimism that has leaked into the markets. energy is gaining 0.6%. much stronger. we are tracing some of the losses that were posted yesterday. close to a 1% again in terms of the sector breakout.
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let's look at the map and see how this is configuring. as investors tried to get their head around what is happening with evergrande. looking ahead at the fomc decision and whether or not we will get clarity about the timeline of the paper. bill dudley said the questions around evergrande will not impact the decision-making. the u.k. and the ftse 100 firmly in the green. the cac is lower. the dax is also lower. we are five days out from the election in germany. that is the picture into the open of trade in the european session. francine: european equity markets, you can see by the map, a little bit mixed. traders assessing risks based on the chinese crackdown. joining us now is our mliv strategist. everyday we try to figure out the liabilities and whether policymakers will intervene or not.
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seem to be getting a little better in terms of sentiment. what is it pointing to? a resolution or the fact that we have had a big enough selloff as it is? >> i think what we are seeing is that the market is digesting the possibility that maybe there is a default, maybe there is not a default, but that china will step in if there is risk of contagion. that is what we really worried about. we worried about contagion that affected markets all the way from china to the u.s. i think the consensus is building around the idea that whether or not we see a default at evergrande, there will be some effort to put a lid on it very quickly. i think there are worries about evergrande, but the worries about the rest of markets being dragged down by it, i think that has abated somewhat. tom: we saw the likes of twitter lower yesterday and may be
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contagion had gone too far. that aligns with what you are saying. where do you see the fallbacks materializing longer-term? or in the short to medium-term? >> my colleague had a fantastic quote on the mliv earlier, where he said that this is not so much about evergrande. it is about the fact that markets are generally overpriced. there is so much optimism in markets in this idea that fairytales don't end well for asset prices. i'm borrowing very heavily from him because i thought that really summed it up. this is about the fact that markets generally have built-in a lot of expectation and optimism and we have these other risks, we have the energy crisis in europe, we have the fed meeting. for all of those reasons, the market is at risk of a pullback. whether this is the point where we get that pullback, anybody's guess. francine: fairytales always end
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well for asset classes. [laughter] when you look at some of the other things, energy prices, does this affect the market as a whole or is it a problem of these power companies. >> the fairytale does not end well for the big, bad wolf, i will point out. [laughter] i'm far more worried about energy prices. at times when energy prices have soared or spiked, that has forced policymakers to pull back on liquidity a lot quicker than they wanted to and back off. i could point to 2008 and the oil spike that came in 2006. we are not seeing that secondary effect yet. there is a risk that as we move along the line that this could happen. we are not there yet. policymakers are keeping a close eye.
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there are caps on what households will pay for energy prices, but it is a risk in the long term. tom: it is a question of margins and earnings. along with the central banks and the growth trajectory. all of these things being questioned now. >> absolutely. if we see energy prices rally in much harder, that is a problem. even if you strip out energy prices from the core inflation measures, it does push -- it just pushes on everything else. it makes everything else more offensive. we are seeing those knock on implications. energy prices are going to feed through. francine: i need my crypto fx. >> absolutely. what we have really seen is that crypto, in the early days of crypto, it was a decorrelated
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asset. right now, we are seeing bitcoin correlated a lot more with risk and all of it. when we see a pullback in risky assets, we generally see a pullback in cryptocurrency and that makes it a very different value proposition for the diversified portfolio. tom: you hear people suggesting crypto's are a hedge in this type of environment. thank you so much. coming up, evergrande angst. the chinese developer slides further. this week is crucial. more on that next. this is bloomberg. ♪
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tom: welcome back to the open. we are 10 minutes into the european trading day. gains across the european index. in terms of the sectors, energy facing losses at the top of the list. a flip around from the action we saw yesterday. francine: let's look at some of the movers. shell. this is quite controversial. because of everything we're doing with climate change -- i was looking at iag. i was looking at shell.
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the reason why it is controversial is because people think these things need to be shut down and not sold off if we become greener. tom: if you are a shareholder, there is the upside of it being handed back. francine: there you go. tom: solid gains. francine: i can travel. tom: you can travel, we can travel. november is the timeline. this is huge for the sector. a lot of voices being very supportive of this. we are talking iag now. on the back of that news from the u.s. relaxing those border restrictions for people who are vaccinated. vaccines approved by the who. francine: it means that if you are a chinese tourist, you can travel -- kingfisher. i'm not a terrible diy person,
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but kingfisher said forecasting higher profits in the fiscal year is the outlook for diy spending improves, and the road i live in west london, it feels like everyone is getting a bathroom redone or some sort of an extension. kingfisher coming out with higher profits, but because they were expecting much more, jeffries is saying the first half would be confident. down some 2.7%. tom: people have some cash in their pockets, redo their houses. staying with the housing space, but a less positive picture, evergrande. fueling concerns of broader contagion. that is after s&p global ratings said the developer is on the brink of default. we asked some of our guests about the risks of investing in china. >> evergrande is just the latest negative for investing in china.
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>> we think there is quite unlikely to be a systematic risk. >> responded if needed. >> we are becoming a little more interested in taking risk. tom: joining us now is the global head of asset management at jp morgan. thank you for joining us. where do you stand on the question of invest ability in china? >> good morning. first and foremost, you've got to look at this is not being a new story. a lot of the rumblings around the whole issue in the chinese property market has been known for a while. there have been concerns that have already been talked about locally. the question of contagion then is probably a little bit of the wider markets.
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it is just that we happen to now have global focus on it. are there issues? then there is around whether it is going to influence their decision. it is not a pretty story. unsurprisingly, we are getting questions around will this reverberate more globally? we think that so much of this information is already known that we don't think it will be something that will necessarily set off a wave of problems. we are watching very closely, but we are somewhat reassured we are seeing probable further liquidity from injections of likes of the pboc and while we don't expect to see any major sort of bailout, we would expect to see a situation where chinese authorities do eventually move to calm the markets, rather as they have done in previous episodes where we have seen some issues bubbled up and the authorities in the policymakers
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in china have stood ready to comment. francine: it is quite refreshing to hear somebody saying they are confident about it. thinking 300 billion dollars in liabilities, you don't know who owns what. can you say with confidence that even if the chinese authorities let evergrande default and fail there is not going to be a repercussion around the world? that there is nothing systemic in there? asked we can never say never, of course. we are most concerned to make sure that liquidity continues to be provided to the chinese markets and the signs continue to be relatively strong. i think the price action more broadly around europe and what seeing in u.s. futures today suggest this is being seen . the property sector within china continues to be under pressure because the risk of a lock on
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here. you have seen the bank sector get a little bit of support. whether it is premature remains to be seen. i'm more concerned about the knock on sentiment when investor sentiment is a bit fragile. we have seen a drawdown and data over the summer. we know there were nerves around some of the energy pricing indicated earlier in the program today, but these are all things where it is a little more angst on top of investors. when we look at the fundamentals, the general growth direction of the wider economy, we still feel reasonably confident and we do think the situation will right itself, but it does deserve watching. tom: where is your regional bias in your risk on view? >> we continue to take regional bias toward the developed markets. we are very keen on investing in areas that have solid earnings growth. we have gone through that initial phase in markets where a
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rising tide lifts all boats, valuations get slow, everything gets dragged upwards. we are seeing investors get much more discerning and it is the usual suspects. it is very hard to ignore the u.s. market when earnings are in focus. the u.s. is really continue to surprise to the topside. that is large-cap as well as smaller cap. we have noted that europe and increasingly japan have started to play catch-up. we like to have that cyclical within, but we are pointing that within developed markets today. earnings quality, getting the cyclical tilt, but without getting into an area such as emerging markets because of these idiosyncratic stories. we still have quite a drag of sentiment within emerging markets and you have not about that wholesale declining u.s.
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dollar which tends to be supported at the moment. a nice balance and exposure across markets. tom: what do you do --francine: what do you do in euro specifically? if you look at what we have seen , after reaching the 50 and 100 day moving averages, we could revisit the 200-day moving average, which would mean there would be a little more downside to it. are you bullish on some countries? >> i would not necessarily look at that as being in long-term charge. if you look at the way europe has performed over the 2010's, u.s. equities in dollar terms are up around two hundred percent, european equities are up about 20%.
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around here, there is a lot of catch-up to do, and a lot of deep value across well positioned sectors and firms. we like the cyclical exposure. areas within the euro zone that have got the cyclical exposure, all of which europe has very strong brands within, so we think that is a secular play, some major innovations have taken place, that are very supportive and we think a reasonable outlook for the euro zone in general and a good deal less expensive than the u.s., as well, so it is a broad exposure and it is not so much country per country, but sector by sector. >> thank you so much. >> the government expects to see some businesses go bankrupt in
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the coming weeks. that is according to the business secretary. he also said britain's energy price caps protect millions of consumers and will remain in place. gas prices have already more than tripled this year. conocophillips has agreed to acquire shall's permian basin assets, accelerated consolidation. the deal will give conocophillips an additional daily production of around 200,000 barrels of oil, equivalent, making it one of the permian's biggest producers. shell distribute $7 billion in proceeds to a shareholders. twitter has agreed to pay $810 million to settle a class-action lawsuit that accused it of exaggerating growth prospects. the suit said at mid less -- misled investors in 2014. twitter has denied its executives lied or knowingly
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made misleading statements. that is the bloomberg business flash. tom: coming up, as the countdown to the german election continues, investors way what the results may mean for the markets. we take a look at the likely stock winners and losers next. this is bloomberg. ♪
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francine: welcome back to the open. we are 22 minutes into the european trading day in we are finally seeing a little bit of green. the fomc starts a two day meeting. the focus is also on china. in between concerns about energy prices. it does seem markets are focusing another positive today. bookmakers favor the spd's candidate in the german election. let's get more with maria tadeo. if we do have a traffic light coalition, the colors of a traffic light, what does that mean in terms of policies? maria: yes, when you look at the policy here and the different manifestoes, the greens and the
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spd both say the country needs a major boost when it comes to spending on modernizing the german economy and that means green and it mean digital and it could perhaps feed into some of those stocks that are renewables and everything that has to do with cutting emissions and green conversions. the other element to the traffic light coalition is the liberal democrats and they say germany needs to majorly cut and invest in future technology. that means perhaps telcos and the tech sector in germany. all of these policies could benefit from the traffic light coalition. we are betting this is going to be the chosen coalition, but it will be interesting to see if that were to be the case, who will be the finance minister in this potential coalition. that will set the tone in terms of future policy when it comes to housing, european policy, and potential changes to fiscal rules. tom: how does that all play into the fixed income market
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potentially? >> we have talked about potentially in the equity market how renewables in the whole tech sector could benefit, but the real story for many analysts is in the german bund. this had been a super safe european asset trading and negative territory for years, but that risk could change. the government is very different . if we do see a different type of coalition to the left. this could have a big impact on the repricing. again, that could be very important for european countries with -- which price against the bund overall. tom: coming up, energy chaos as gas prices surge globally.
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attention turns to the role of renewables. we discuss the aussie energy market as we head into the winter across the european session, you are looking at gains of 0.7%. leading the pack with cans of more than 1%, this is bloomberg. ♪
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francine: welcome back to the open. we are 30 minutes into the european trading day and here are your top stories. evergrande slumps further after the s&p says beijing is not likely to step in. the slump in asian stocks eases the debt concerns. is the worst of the selloff actually over? the fomc meets. bill dudley says the fallout from china real estate won't stop the fed from signaling it is on track to taper.
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things are looking a little bit up. yesterday, we had a selloff in carmakers. tom: in the end of the session at the s&p 500 ended in the red firmly, but there was some buying and that aligns with the view of jp morgan that this is a technical selloff and it was time to buy the dip. morgan stanley had a different view, suggesting that the chances now for the correction is growing. we are seeing some more optimism back in these markets. the stoxx 600 up. leading the pack in terms of the index. the cac 40 gaining more than 1%. digesting the travel news out of the u.s. and the u.k., positive impact on the airlines. we have heard about executives coming out and welcoming that news. how things are breaking down on a sector by sector basis.
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basic resources was firmly in the red yesterday. leading the pack very strongly indeed, media. followed by energy and basic resources. you are in the green. 0.2% lower on health care. that is the picture in the first 30 minutes or so of the trading session here in europe. looking ahead to the fomc, which starts and picks up later this week. here in europe, you also digest the higher gas prices, particularly a u.k. story. francine: angst about china's real estate crackdown. evergrande still in decline after moody's said the chinese developers on the brink of default. for more on this, our chief asia economics editor joins us with the latest. what exactly are investors worried about right now? that there is not enough state intervention? >> exactly, i think we are
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getting all kinds of scenarios game doubt by scenarios and analysts watching this. we are not getting any firm signals yet. in the form of a letter from the chairman, basically saying the company will pull out of its darkest moment and they plan to accelerate their construction program, but nonetheless people are expecting things to come to a head. a holiday in china has complicated things. the market reaction continues. obviously, the country is in trouble. -- company is in trouble. at what point might they get concerned about contagion spreading to other property developers and how will that spill over into the real economy? what i would say is we have had a lot of economists making the point that whatever else is going on, this is a serious moment for the chinese property sector, but it is not a lehman
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brothers moment. tom: not a lehman moment. in terms of the pboc, we have heard from a couple of strategists suggesting that the central bank will step in with increased liquidity. what is the role the pboc going forward when it comes to the pressures within the real estate sector in china? >> it is going to be really crucial to see how the authorities do deal with evergrande. they have been preaching this line about moral hazard. we will have to see how they do step into support evergrande. only last week, we had the pboc tipping some extra liquidity into the system. we are now coming up to the end of the quarter, but it is also assigned the pboc wants to make sure the financial system has enough money in it. we know that the authorities have been preaching the top line for many years now, pushing back against excess and the system, so it will be tricky to see how
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they navigate reinforcing their own message on discipline and rolling back and offering not a bailout, but certainly offering some kind of a restructuring. what i will say is that bank of america were out there putting their forecast on the basis that authorities have been slow to come in with support. they will make a broader move to support the economy before the year is up. francine: bloomberg lacqua correction. it is not moody's that said that, it is s&p. thank you for catching that. let's get straight to the bloomberg first word news with laura wright. laura: canadian prime minister justin trudeau is poised to win a third term according to a broadcaster. the two networks say they are projecting the governing local will win most seats, but short
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of getting the parliamentary majority he was seeking. u.s. house democrats of unveiled their budget and suspend the debt limit through 2022, part of a must pass spending bill needed to keep the government open past to the end of this month. the risky move aims to pressure republicans who pledged to vote against an increase in borrowing limit. the u.s. will soon open air travel to most foreigners as long as they are fully vaccinated against covid. the new rules will replace the current system, which currently bans non-americans arriving from places including the u.k., europe, china, and india. the policies are expected to start in early november. airline executives praised the move. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you. coming up, jp morgan launches a digital retail bank today in the
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u.k. the first step in the firm's plan to expand its consumer business overseas. we bring you the details next. this is bloomberg. ♪
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francine: welcome back to the open. it is an update. the focus on the fomc, the first of two days. maybe investors worry less about evergrande. lots of questions about potential default. jp morgan launched a digital retail bank and the u.k., the first step in their plan to expand consumer business overseas. the online bank plans to add savings and investment accounts along with loans and will try to tempt new customers with a 1% cashback on debit card spending for the first year. joining us now is u.k. finance editor. this is a fascinating move. are they using the u.k. is a test for the rest of europe? >> that is exactly our understanding. it is like a petri dish. they may expand to the continent and also globally, latin
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america. it is the first time jp morgan have ever moved retail operations overseas and that is extraordinary when you compare it to the size of the you -- u.s. retail operation it has. the question is is how it goes. tom: it is a very competitive space. what is the jp morgan strategy for cutting through that and standing out from the pack? >> you can kinda see they are trying to attract customers through award programs. what that gets he was basically 1% cashback for the first 12 months. various other sort of thing zero fees if you take in money from atm's. what they are hoping to do is build up a customer base and then expand. right now, it is just current accounts, but they said it will go into savings, investment,
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even mortgages. they are looking to create a full-service u.k. digital bank, which would be credit extraordinary. francine: is it a lucrative space? tom mackenzie just got back from asia, you have all of these accounts he was telling me, how can chase compete with them and make money out of it? >> exactly. you do have fintech as a very financial -- vibrant space. then you have all these massive u.k. legacy banks. jp morgan is saying we've got the brand, the resources, the tech spend and we can navigate a way through the middle of those two rivals either side of it. it is launched here today and it will be interesting to see how many customers end up picking it up and whether it proves successful long-term. tom: thank you very much indeed.
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francine, it is interesting given that competition and it is going to be interesting to see how much of a pickup they have. jp morgan come out it with this huge backlog and background of resources and ability. francine: i guess they can be -- a bit like amazon in the banking space. here is laura wright. laura: the u.k. won't bailout companies afflicted by its power crisis and the government expects to see some businesses go bankrupt in the coming weeks. britain's energy cap also protects millions of consumers and will remain in place. gas prices have already more than tripled this year. conocophillips has agreed to acquire shell's permian basin assets. the deal will give conocophillips an additional daily production of around
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200,000 barrels of oil equivalent, making it one of the permian's biggest producers. shell will distribute $7 billion in proceeds to a shareholders. evergrande slid, fueling concerns about broader contagion after s&p global ratings said the developers on the brink of default. they faced interest payments thursday. that is the bloomberg business flash. francine: thank you so much. now, the u.s. house democrats of unveiled legislation to fund the government until year end and suspect the debt limit through 2022. -- suspend the debt limit. republicans have pledged to vote against an increase in borrowing. some people think it is a big deal, some people don't think it is a big deal because it usually gets resolved. is this time more difficult than previous years? >> it is absolutely shaping up
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that way. i think a lot of folks who covered the 2011 debt ceiling showdown, which led to the first default in u.s. history, are having a little bit of unfortunate deja vu at the moment. it seems like there is a big showdown coming down the pike. republicans have said they won't vote for a debt ceiling increase if the democrats continue to press ahead with their three point five trillion dollars reconciliation package, which includes a lot of president biden's agenda. i think that certainly is shaping up like a big showdown. the democrats in linking it with the legislation that would keep the government running pass september 30 have really forced the issue and are looking to force republicans' hands and make them vote against funding the government and potentially voting for a shutdown, if they do continue to oppose a debt limit increase. both are sticking to the hardened positions and it is unclear what, if any path the
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--out of the showdown there will be. tom: who holds the cards? >> i think mitch mcconnell is really driving this in the sense that he is the one that is breaking with traditions in the past, debt limit increases have been bipartisan. he is flexing his muscle and saying we are not going to vote for that this time around. they need republican votes to get the 60 votes they need. they need 10 republican votes. mitch mcconnell is breaking with tradition here, but he is certainly using the power that he does have has the republican leader in the senate and unless he changes his position or democrats blank, we could be heading toward a government shutdown at the end of the month. francine: investors don't seem to be focused too much on it. is that because there is a belief that this is the way that washington works and at the 11th hour something will be done? >> i think that is the sense. that is how congress tends to
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work lately. usually it looks like all is lost in congress. with that being said, we wonder whether or not that will be the case this time around. people who watch congress very closely are a bit skeptical that perhaps this time the 11th hour rescue may not be coming down the pipe. tom: ok. the implications for the debt ceiling. coming up, european stocks and futures climb as the selloffs moderate. certain risks from the crackdown trade there risk to the fomc. we will discuss next.
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this is bloomberg. ♪
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>> evergrande is just the latest negative for investing in china. >> we think it is quite unlikely to be systemic. >> it is really premature to
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reach that conclusion. >> we are becoming a little more interested in taking risk. tom: some of our guests reacting to the evergrande story. the s&p warning that the default would be very likely. you have interest payments due, $86 million -- $86 billion. the question marks about systemic risk led to a lot of the selloff. things are very different today. gains across the european space at about 0.8%. about 1% grains -- gains for the cac 40. top sectors you are looking at energy, travel and leisure on the back of relaxation of travel restrictions around the u.s. that is the picture. much more optimistic today. may be looking ahead at the
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fomc. the systemic risks are around evergrande, they seem to have taken something of a backseat at least for now. francine: this is literally what i'm looking at the bloomberg terminal, is there any wine company listed? we talk about wine. it is a big business. huge concerns about the cold and stockpile because of the pandemic. at the moment, i can't find château, but if you know of anyone company listed on the stock market, send it in. a story that is fascinating, europe's one harvested this year is smaller than expected. this argues that could taste better. some château's are wasting 80% of production because of the inclement weather this year. tom: look it up at the terminal
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or online, a 20% drop from a year ago. from the likes of italy, france, but the quality of the wine is going to be that much higher. what does that mean for prices? what does that mean for supermarket shelves? francine: i will drink anything, but i try as a lot of us to figure out pricing dynamics. brexit makes the imports here much more expensive. in the pandemic, because restaurants were closed, a lot of these -- do you call them château's or wine factories? château's, a lot of them were sitting on bottles, so they have a huge stockpile. you could argue that even if there is not a great crop this year, maybe it is a way ofde -stocking. tom: there is an obligation in all of us to go across the border and load up.
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francine: we don't only want to talk about wine dynamics, but we need to look at market dynamics and a lot of the folks -- focuses on the fomc this week. >> good morning. a delectable conversation. there was very little chance this month and if anything, it makes it even more remote in my opinion. they will begin to taper soon, at the next meeting in november, and the fed will acknowledge by changing language in the statement by saying it will be more appropriate to do the budget later this year. that will be the most crucial aspect of the meeting. i think seven out of 18 have already penciled in at least one
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rate hike next year. meaning of two more jump onto the bandwagon, we may see the median shift and that will be crucial for the markets and the market reaction. in terms of the statement of economic projections, it will be interesting to see where they see inflation in 2022 and 2023. do they see it higher or lower and that has nominal implications for the market. tom: that is the fed, we have the boe, as well, as you well know. what should the markets be thinking about in terms of the bank of england could be the first mover in the developed world when it comes to raising rates? >> absolutely. i think what we will see is the consensus of policymakers saying that the basic pricing has been met.
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move up. i think that number will probably be the biggest take away. if you look at the two year maturities, they have sold off since the start of august. they are about 15 basis points higher. what does that tell us? it tells us the markets are prepared for tightening even before the boe is. most economists are penciling in a rate hike in november next year and the money markets are already pricing a rate hike as early as may of next year. [indiscernible] i think we are likely to see a rate hike sooner rather than later. francine: thank you so much. i love our viewers, tom mackenzie. we asked if they knew any companies of wine listed and somebody wrote in vweus.
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they produce wines and sell other things. then there are italian wine brands. tom: there we go. worth checking out and following as we adjust to this world of less wine, but better quality. plenty more ahead. that is it for the european market open. this is bloomberg. ♪
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>> there's been a lot of discussion of whether china is investable. >> dates had serious consequences for the rest of the world. >> 40% of our capacity and revenues are to and from the u.s.. it's fantastic here. >> this is "bloomberg surveillance: early edition." francine: good morning


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