tv Bloomberg Markets European Open Bloomberg January 27, 2022 3:00am-4:01am EST
politics, russia-ukraine, and the pandemic. as markets digest a more hawkish jay powell, the markets under price their shift, and it is the case of a firm i on inflation, which in his view could go higher from here. in terms of the market pricing, close to five hikes this year, and a 20% chance of 50 basis points in march. there is that 20% chance of 50 basis points. we are looking at the markets right now. european markets are digesting and the wake we saw in wall street. the u.k. ftse 100 is low. this is a half a point increase in terms of the rate for
february. digesting the hawkish commentary. the balance sheet is running off in the background. that stays open for additional hikes. he is planning for more aggressive hikes at a faster pace. let us see how things are playing out across the assets. the nasdaq was the one index in the green yesterday. the others have further losses of 1% after a source session stateside. we did see the gains leading up and that is when you had the selloff of jay powell spoke. the u.s. 10 year is a flattening. it is flattening the yield curve and it is a 14 basis point move in the session for the u.s. there is move on the ruble. the geopolitics are still going
on between muska and washington. brent again at $90 a barrel. the implications for joe biden as they try to address the issue. bitcoin rallied yesterday. it is down 0.5%. francine: what a day. we are still in rome waiting for the presidential election, but yesterday, we are all washing -- watching jay powell's statement. i am 100 percent what are strategist was writing on her blog and he was putting it as the statement being in line with expectations, but jay powell is
confident and that inflation will be under control and that the economy is strong. it really sanctified four rate hikes in 2022. at the end of the entry, he said was is a yield growing almost 2%, we should not worry about the flattening yield curve. that being one of the things keeping powell up at night is all speculation. tom: we know from blackrock's whaley earlier, she thinks that there are four or five hikes is too much. fran is on the ground in rome for us. fran is monitoring all of that for us. let us get the bloomberg business flash was laura wright. laura: chinese authorities are
considering dismantling evergrande by reselling assets. this suggests beijing by officials call for the developer to sell off most of its assets. the exception would be for property management and its electric vehicle unit. lg has surged on its debut, south korea's largest ever. they plan to meet global demand for ev factories. it is the third plant property. intel reported earnings of 80% shares in the first quarter, less than estimates. a turnaround plan will weigh heavily on its performance. the ceo has made it clear that the company is in investment mode. that is the bloomberg business flash. tom: thank you, laura.
fed chair jerome powell has signaled a march rate. the fed will act to cool inflation. here's what he had to say yesterday at the fomc conference. >> the federal markets committee kept interest rates at zero. the economy has shown great strength in resilience in the face of the ongoing pandemic. we continue to expect a clinician -- inflation to decline over the year. the economy no longer needs sustained high levels of monetary policy support. we will need to be nimble so we can respond to the range of plausible outcomes. the committee is keeping in mind to raise the federal funds rate at the next meeting. tom: let us get into the key
market drivers with our market editor kristine aquino. also joining us is norman villamin, chief investment officer at union bancaire privee. jay powell left the door open for four rate hikes in 2022. why did the markets not lead -- see this coming given the inflation data? kristine: the trend for this year and starting from the end of last year is still about markets not fully believing that the fed will do what it is going to do. we saw this initially when we heard from jay powell in december, saying the fed could potentially deliver three rate hikes. we thought markets were slow to price that in and we did not see that until early january.
then we only got around an idea of a fourth rate hike after hearing from several members alluding to that. bullard is one of them and very much a favorite of markets one -- when it comes to clues about how the fed is thinking about this. there has been a pattern about markets being slow to believe the fed, and price in what the fed is telling us. any doubts about what happened before the fed conference yesterday have gone away. we have this new reality. francine: good morning. when you look at the plan, it does not seem to be that far off with what markets were pricing. they could hike more, but we do not know the strength or amount by which they would raise interest rates.
is it that far off market expectations? kristine: francine, it is a difference in the pace that markets were originally expecting. markets were waking up to the fact that it is about the tightening cycles this year. turns expectations of the speed of which they were doing it. we could potentially see as many as seven, according to some of the commentators we have seen this week in terms of the fed, so it is that adjustment to the pace of which the fed is going to go. now that the markets are getting on the same page, potentially it will be after the initial reaction a bit more calm in the markets. tom: norman, let us bring you in.
i clear sentiment from jay powell yesterday that this is a different economy we were looking at. the rate of inflation, the strength of the economy, and the labor markets. you change your forecast of two rate hikes for 2022? how are you thinking about the comments we heard from the head of the fed? norman: this thing that was different about this was his take on the q and a that asset prices do not mean for stability, but for people who are more cautious for them to be so so they do not disrupt financial markets in this condition. powell put this idea out on the fed, and that is not constraining him. there are more rate hikes on the table and the ones in the press conference, but the balance sheets is going to be important given how much majorities are
taking place in 2020. francine: what does that mean for your position on the yield curve? norman: for the short duration, we think the whole curve is going to shift up. they will not go up as much as the short rates. we do think they will try to keep the overall curve shape possibly float, but they have a challenging time i had in 2022 beyond -- ahead in 2022 and beyond. tom: what is the reader cross for how the banks see this? kristine: what makes this how markets are thinking about this is thinking about these meetings being a bit more alive. that was the indication from the fed yesterday. argus are going to have to
follow that well and -- markets are going to have to follow that well and think about the meetings. the meeting next week is certainly a big one for the boe. we have got markets fully buying into the idea of a 25 basis points rate hike next week. potentially ramping up bets for even more later this year and even faster this year. these are going to be interesting because they are the first time in terms of how much markets are expecting this for this year. last i
around 10 basis points for the end of this year. that is going to be interesting, especially given the aftermath. francine: norman, i want to bring up this bloomberg chart which we have been showing on a daily basis which is the flattening yield curve. i want to come back to this idea that our market strategist said, which is that it will not flatten further. we are looking at this wrong. now it is all about qe, so the longer day maturities are off the balance sheet. how do you see this playing out? norman: if you look at what the fed has on the balance sheet, they have short durations on this balance sheet, which is what matured. what came out of this meeting yesterday is that they are going to use those maturities to calibrate policy premieres. it does not suggest that they can pick and choose what they are selling from here. that is the reason why we see flattening take place. tom: we will be back with norman shortly. we also had kristine aquino, are live markets editor there. we will get more on norman's
thoughts in a few minutes. what is check on the markets. the stoxx 600 now lower than 1%. the nasdaq futures are pointing up by more than 1%. across the stakes, you see everyone. one that remains that -- in the green is deutsche bank gaining almost 3%, the best year so far. we speak with the cfo and will have more on that throughout the next few hours. the benchmark lower as markets adjust for this hawkish fed. stay with us. this is bloomberg. ♪
tom: welcome back to the open. we are 16 minutes into european trading day. the benchmarks of the european stoxx 600 are down almost 1%. the markets are pricing in five federal reserve hikes this year. this is after jay powell left the door open for more rate hikes and addressing the balance sheet question. we will get more about that. that is running in the background, the way that jay
powell is describing it into play. the markets now pricing in five rate hikes from the fed. the banking sector, and one stand out today in terms of the corporate banks, deutsche bank posting their fourth-quarter results which capped their best years in a decade. dani burger spoke with the ceo. >> we continue to hold the stock in market share against what was a relatively strong fourth quarter of 2020. going into 2022, we are seeing a bit more momentum. the markets have been disrupted the first few weeks of the year. we have navigated that reasonably well. we are doing better than where we were last year, and we continue to see the high momentum we saw late last year. dani: could we see surprise moves from the ecb? >> are economist on monday
called for the first move to be before the end of the year on the positive rate, which is ahead of where the market is by far. their judgment is a recognition of the likely persistence of inflation, although it will moderate this year we think relative to 2021, the conditions are still high somewhat. the fact that inflation has lasted longer, it gives the ecb the opportunity to begin to normalize the market policy environment. that is certainly something that would benefit our business. we also think it is healthy for an economy to end what has been a relatively long-standing condition of negative interest rates. we all see that as an unnatural condition. tom: dani burger's conversation
with deutsche bank ceo. we are going to get the details around this with the ceo, christian sewing, come march. the market levels remain high. francine: we are on the fact that they are struggling to get upfront. how long deutsche bank has come in the last 12 to 14 months. there were always negative news around deutsche bank, and that certainly evokes strategies around the legacy issues in the past. tom: we also talk about credit suisse when they talk about deutsche bank. let us bring in norman villamin, chief investment officer at union bancaire privee. let us get your views of the
sector as the markets price in rate hikes for 2022. do you buy into finance banks at this stage? is there an opportunity? norman: we are holding banks right now. we think the banks in the u.s. have priced the cycle reasonably well. on the european side, the markets have not really priced the ecb to move on a meaningful basis yet, there are's -- is still a catalyst for the european banks to move on that motion in the coming months ahead. francine: give me a hint as to whether the 60-40 portfolio strategy is still alive in this environment. norman: that does not make sense anymore for a lot of investors and that is because the yield curve is below, so even if the
markets fall, one, you do not get much yields fall to cushion that. we have seen more recently the yields rising and the markets falling, so we are taking an approach that is more focused on protection strategies, alternative strategies that is a foundation for portfolios in a difficult market. tom: how have you changed your portfolio on the back of the earnings we have seen? a mixed picture on the earnings picture we have seen so far. norman: that has probably been the biggest disappointment that remains under the radar, talking about the fed that is clearly an issue in terms of market repricing. but there are also upgrades to 2022 expectations, and that means earnings expectations and earnings growth is not going to be enough to offset the
complications ahead in 2022. tom: we appreciate your insights as we work through these comments from jay powell. norman villamin, cio of wealth management at union bancaire privee. they pay a record for profits. the ev maker warns of supply chain problems ahead. we talk that ahead. this is bloomberg. ♪
tom: welcome back to the open. we are 24 minutes into european trading day. paring some of the heavier losses across the european space. we still have 0.9%. deutsche bank is playing a role there. the yields are up and the tens are a bit lower. brent selling off at around $89 a barrel. an update on tesla. the electric carmaker warned it will not be introducing new models this year. lots are positive, but they are not going to be ramping up additional models that people are hoping for this year. >> it is not enough for tesla and it is why it was selling off did supply chain issues are
rearing their head again. we see factories in california and they have been underperforming from the conduction -- production levels. this is a supply chain nightmare taking place at the end of last year, but the bar is so high this earnings system. investors must seek positive new news. that said, tesla did reach their new targets. no indication at present that anything will be hit. tom: thank you for the breakdown on the total implication for the new models coming up into the pipeline for 2022. let us look at what else is coming out. we assess the outlook for retail treating with june felix next and it is a crisis for oris
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tom: welcome back to the open. we are 30 minutes into european trading day. here are your top stories. the fed lift off for jay powell expecting a march fed hike. equity wipe out and global stocks selloff on the fed. european stocks stall at the open. plus a boris johnson in crisis. we will speak to the former prime minister tony blair about russia, ukraine, and the pandemic. the fed put off is resolved.
jay powell says the conditions are different, the economy is strong, and for that reason they are leaving the door open to four hikes. that amount gets baking in and that starts to apply the rate hikes. the money markets are pricing five rate hikes and there is a chance of a 50 basis point move in march. the consensus was that is being factored in with some places in the markets. we will check in on how the things are playing out with the index this morning. we have paired some of the heavy losses, but we are still down 0.9% across the europeans toxics hundred created the yield curve is flattening. it is lower on the 10. you have still got a basis point move on the fed yesterday, and we have top around the balance
sheets. this is going to be rolling off in the background and the focus is on nbs unrolling its treasures. the weather remains in the green and you have got a solid set of earnings for deutsche bank. at the bottom of the list, we have technology, travel and leisure, and consumer retail. it is worth staying tuned because we do not have the markets as well. retail training, we talk about that with june felix of ig group . we also talk with former u.k. prime minister tony blair. fran, i wants to get out to you because we are talking about the politics of the u.k.. you are monitoring the politics of italy. where do we stand on that front
and how is the view from the fed playing out in the aerospace? -- euro space? francine: what we heard from jay powell is that it is moving the markets more hawkish, but he was intentionally mentioning the fact that growth is ok, though if you worry about inflation, it seems to suggest that a good type of inflation comes from that growth and it is seen as positive. christine lagarde potentially seeing some of those moves. the yield curve is not the thing that we should be looking at. we should wait and see whether there is a consensus that it crosses off and becomes the italian president. it is a weird way of voting. i have good newspapers i wants to show you. some are talking about the
president. they are really linking this to the way that the popes are chosen because there are a lot of things that come to mind. you have met taro as one of the people at the bank and it is very secretive. names come out and they come and go. it is unclear whether the frontrunner will get it. tom: i have an appropriate restaurant a recommendation for you. i am sure i am butchering the name, but here are the selloffs. if you have not been there, you should. francine: i want to catch even the latest night adventures that go out, so i would say, forget the fed for just this time, seat
yourself and adjust the movement so you know that it centers the groups at which they are walking out of the senate from. tom: that is the commitment of francine lacqua. she is not distracted by fine wine. she is focused day today and she stands in front of the forum. we also have max behind the stage who is doing things behind the scenes. the other big question is what the fed is planning through with a trillion dollar balance sheet. >> if things develop as expected, we will be normalizing policy, meaning we are going to hand off our asset prices in march, meaning we will be raising the rates over the course of the year, and that is just the road to normalizing policy. that is what we are going to be doing.
tom: let us get more with this now. bloomberg markets editor kristine aquino is with us. what this means for the treasury markets. jay powell's push for providing more details. he did not give a lot. there was a focus on the treasuries. kristine: how it is playing out in the treasury market is the anticipation of how the yield curve will move after this. which sector of the treasury market is vulnerable? the rolling off the balance sheets of the fed, but also all of the inflation pressures that are coming into commitment, or is it a repricing from the short end that it may be done for the pricing of the fed. to sum up how this displays in
the treasury market, there is going to be confusion over the next couple of weeks with investors trying to figure out what it means for the fed to be raising rates and rolling off of the balance sheets. this has never been done in recent fed history. this tightening action that we are seeing here. it is introducing a lot to the treasury markets that we have probably never seen before. francine: this is the most interesting part, the fact that if we look at the historical charts, a lot of what we say about the flattening yield curves is this qt. what are we expecting? where are markets expecting interest rates to be at the end of the year? kristine: we were looking at that pricing of the fed, markets fully pricing five fit -- fed rate hikes for this year, and
that is a recalibration of the reaction function that markets have for for the fed, especially overnight. finally getting its head around this idea that the fed could deliver more than what it was originally expecting and potentially faster as well. it is getting that pricing in line with what we heard from jay powell yesterday on the 25 basis points after he gained about 100 point -- before. tom: thank you for breaking down the implications on the balance sheets there. now, one year since gamestop hit its price as traders of mark -- read it flooded the market. also people took to the amc stocks at the height of meme stock trading last january. let us get to a company that has
been an important player at the stakes. joining us now is june felix, ceo of ig group. june, get into the means docs -- meme stocks and the trends. i am looking at net trading that beats 271 million pounds and profit is up 7.6%. how does that yield the company up since 2022? june: thank you for having me. we are excited about these results. if you look at the market conditions over the last six months, it is a great indication that we are set up for sustainable growth. with the record of profits, we are looking for that for the past six months.
we see options are growing dramatically 44% over the last three years, and equity trading is up 18% over that timeframe, which is why we are excited about the trade acquisitions. have also seen that in japan as well and across also -- all of europe. with japan, we group 29% year on year as well. this is a global trend. tom: just to hear it's now, the volatility we are seeing in these markets, how are your clients responding to that? how are retail investors
adjusting to that lower view than normal? june: they are adjusting very well because everything from equities into commodities and options, there is a wide array, and what we do is make sure they are well educated as well as knowledgeable in their interests. they trade on the outside platform, and we make it easy for them to find and access that. plus we give them the confidence to execute their trading strategies. that has been the foundation as to why are clients are so loyal. francine: talk to us about the correlation between people stuck at home. at the height of the pandemic, this is a disclaimer. even my 10-year-old was interested in crypto. he probably would have gotten into meme stocks. what we see this trend change as
people go back to the office, or will it not change that much? june: the trend is upward. as people started going back to work, we did not see any change in terms of trading pad words -- patterns, so the affluent amount of people coming into trading is growing, and because we offer options to people, we find we attract these wealthy and experienced traders on the platform. we have a loyalty that would make people envy it. tom: you mentioned this as part of your business to build back your footprint in the u.s. how is that progressing in a market that is incredibly competitive? june: it is a perfect entry
point for us. it is a and -- an award-winning platform that helps people really understand the trading market and it is progressing well. it has been a success and it has already delivered 31% year on year growth, and there is right attentional for us to grow that business even more -- great potential for us to join that business -- grow that business even more. francine: june felix joining us to talk about the markets. the labor leader says that boris johnson has lost all authority not only in his own party but in the country. running us now to discuss this -- joining us now to discuss this along with public health is tony blair, the former u.k.
prime minister. thank you for joining us. in the middle of negotiations with russia on ukraine, how do you think allies of the united kingdom are looking at downing street and the scandal that is engulfing the country right now? tony: i was really going to talk about adult vaccination globally but this will be whatever it is, and in the next few days, there will be a report published, and the party will make up its mind on what it wants to do. there was a speech last week and it might be the most important thing with this particular scandal. people are still rightly concerned within the news. the question is how britain will proceed in the future.
as a change of consequence if we are planning to deal with it? we have got climate ambitions that are enormous. we have got a technology revolution at the same time, so my anxiety is not having a plan for the future for the country. other people comment on what happened in u.k. politics. francine: i understand that. we will get to this report in the short while. overall, what should the prime minister do now? when he broke the law, is it as simple as people asking him to resign from the party? tony: i do not know, and i do not want to turn into a commentator on the politics, but if you take a step back and look at the bigger issue facing the country, that is what it -- i am
most concerned with. tom: mr. blair, we will get to that report with the institution, but on the geopolitics of the moment with russia and ukraine, where is the space for cooperation between a west that is partly divided and the leader of russia who you met and worked with who has increasingly high-risk ambitions for that country? tony: it is absolutely clear that you have got to have a strong and united front. ukraine is going to face a huge set of consequences, and even though there are oppositions in europe, i think there is basic unity. if russia -- it is all the case on russia, which is ukraine out to join nato, which it is not,
but the way it is trying to encircle russia, these things are wrong informed. we have got to understand that the ambition of president putin is to say that the russians have a fear of input. it does not matter if these countries are inside this sphere of influence or not. a short-term issue around how you make sure that if russia does invade ukraine, it pays a heavy price for that. there are longer-term questions which are questions to do with how you would ensure that europe is not dependent on russian gas supplies. this is a big problem if we end up in that situation where europe is constrained about taking action because it worries about gas supplies receding. tom: that certainly seems to be on the mind of olaf scholz, the
minister of germany. how far do you think the u.k. should go in assisting, in sending military assistance to ukraine? tony: i think the governor is doing the right thing. it has made a strong statement in words and action in terms of what it has done. we will be in this instance very strongly on the side of the u.s. where we have got to be a united front. if we end up in a situation where there are russian forces trying to take territory from ukraine, they are going to be met with sanctions that will bring economic and political consequences. francine: mr. blair, let us talk about the report that came out, and you are trying to talk about this global vaccination beings successful.
there is this vaccination nationalization over the last two years. tony: that is why we need to do better next year. what we do with this report, we work with different experts, is to say that this will be a challenge with future pandemics and we have also got a huge opportunity. it is one thing to look for during this time of covid, his advances in medical science. we show how the world economy would save trillions of dollars if it worked together by cooperating, ensuring that vaccines are produced and distributed more quickly, ensuring that manufacturing is spread around the world. you have got these new vaccines that will be coming onto the market soon, and the potential
there is to save millions of lives. you have got -- there have been enormous advances in medical trials. francine: from a practical point of view, who would make this? is it the role of the world health organization? tony: the world health organization has a big role to play, but we suggest another thing. whatever differences there are between different parts of the world, and we can see this now with russia and ukraine, we are fighting a future pandemic and ensuring that we are using the best advantages of the world. this should be something the world can unite around. the other thing is that you have got the capacity today to do genomic sequencing at scale, and
that can transform the structures of a country. massive opportunities if we can get ourselves organized. at least one part of the world's mind is directed towards this. tom: how do you see the private sector playing a role in this effort? tony: the private sector has got a huge role to play with the development of vaccines, but we need to make sure that the dispersal of manufacturing in many countries and to the developing world is looking at partnerships with the major western companies to build the capacity in their countries, and we have got to make sure it in the future that we mobilize the any factoring capacity fast. -- manufacturing capacity fast. now there are a lot of vaccines floating into the developing world, but we had a period of
vix months where countries were short of vaccine. you cannot have that again. if you have that, you have the mutations happening and you have a bigger problem happening in even the western countries that have vaccinated their populations. these things are obvious and they are clear. they utilize the best advances and the rest of it is bringing the world together. francine: mr. blair, last time we talked about china and the stabilizing force for the world economy and may be geopolitics. even what is happening with russia and ukraine, would that give the green light to attempt as well? tony: that would again be devastating and its impact on the world economy, geopolitics, but i think it is important that
the west gives a strong signal on russia and ukraine. there is a basic difference did it is a value system. i used to have this conversation with president putin years ago when i would say to him, whether these countries want to come up with europe and nato, that is their decision paid if you are fine, i do not mind. they are free to make that choice. the problem is that he believes, that it is not their choice. they are under a broader russian sphere of influence whether they like it or they do not like it. all of these things will be much more compelling for people if the russian economy -- 70% the science of the u.k. economy, so it is circumstances. it would be for these countries to focus on how they improve their own internal economy.