tv Bloomberg Markets European Open Bloomberg February 4, 2022 3:00am-4:00am EST
engulfing boris johnson. four top aides to the prime minister resigned. francine: bonds under significant pressure after we had a more hawkish tilt from the bank of england and the ecb. markets still trying to figure out what those two central banks were telling us, but there was a lot of reports from amazon earnings that blew everyone out of the water. tom: what is happening in the tech space, energy prices as well and oil. we will talk about that shortly. the ftse 100 points to gains of 0.4%. there still getting earnings that are not stopping there was intesa sao paulo and as we are waiting for the indexes to open appear. the boe coming in and raising rates to 100 -- 50 basis points. that was a split in the vote and we are looking to price in another hike next month.
in terms of the ecb, it was the statement and it was christine lagarde's commentary that was more hawkish. marking back a previous expectation that a rate hike will be for this year. the cac is up by 46 points. let us change it to see how things are looking across assets. the moves yesterday on the back of the ecb were pronounced, including the euro. that 1% move and whether that will be sustained as a markets take the back foot when it comes to the renewed hawkish niche -- hawkish nests from christine lagarde. there has been i divergence from the boe and the ecb. that divergence is now narrowed. across the yield space, yields rising from the germ and boon to the italians to the japanese. on the 10 year yield, minus two
basis points. the five year yield breaking its territory for the first time since 2020. that is moving up again bite nine basis points for the five year. the 10 year is also gaining four basis points as well. let us see how things are moving and playing out. the media search is about 2500 thousand. there have been warnings from the administration that this will be a challenging month of january. passing that number will be challenging. futures point to gains of 1%. it was really amazon that kicked into gear after a round of more than 4%. meta was a record drop, but amazon doing really well with aws in the advertising business as well. the u.s. 10 year yields are up as well. it has gotten more action than that two year yield.
and brent at $91 a barrel. it came above $90 for the first time since 2014. francine: that will support a lot of the oil majors and we had that goldman sachs policy that said they expect it to be dovish. amazon blew everyone out of the water. if you think about how they did compared to meta, if amazon hold onto their gains of 14% which we saw post-trade yesterday, it will add 200 billion to its capita today. 0.7% higher in europe and energy also leading the gains higher. the only ones that are weaker still gaining overall is consumer staples. then we look at yields in europe. there is a lot of movement in the euro and that is changing a lot of the corporate's we are watching. tom: in terms of intesa, they
are returning 22 billion euros after their meetings. they are doubling profits this year. and carlsberg, the estimator that beat 2021 but they also reported on the challenges around input costs as well and the continued drag from the pandemic. coming up 1% for the drinks maker. we are also looking at technologies and it is remarkable on what we are seeing, the split between meta and amazon. almost making up in terms of the rally for the share price, amazon making up for the record loss we saw from meta. doing out see the call out of facebook from the rest of the pack? francine: i am a user of both, and with my personal taste, i
have been using facebook less. you probably have been shopping on amazon more, which is why they were able to increase their prices on prime. it was a beautiful opinion piece looking at evaluations but also saying that facebook has a problem with short videos. this is why some of their competitors are doing well. tom: tiktok really taking the fight there. the company coming into the china video space. you can see the divergence here in terms of the sharp drop of meta with the gains of met -- of amazon and alphabet. francine: you and i have made an account on tiktok. i will keep it secret until we release something fun for the world. let us get the bloomberg business flash with laura wright. laura: amazon plans to increase its membership price for the first time since 2018. they topped estimates for sales.
the company hired 140,000 workers during the holiday. -- the holiday period. american express is encouraging stocks in the u.k. and new york. the company had previously said that most colleagues will work remotely even after the pandemic is done. they plan a phased approach. he says the slowdowns rivaled facebook and protected the industry slumps. the shares of snap rising up as much as 54% with pinterest climbing as much as 38%.
that is the bloomberg business flash. tom: thank you. a turbulent times in the markets from those u.s. tech earnings and we discussed the boe and ecb decisions across the global assets. investors look ahead to the key catalysts. here is our u.s. reporter with our markets editor. matt is going to break down the tech story for us and christine, let us talk about the payrolls and how that factors into the shift away from the ecb and boe temporarily back to the fed. what are we looking for? kristine: those wage gain figures as part of that report will be important. that'll again tell the story of how fast the fed will have to go and how far behind the curve they are. what is happening with these numbers today -- it is funny because you said it is friday
and i almost forgot because all of all of the excitement in europe. it will tell us the longevity again of this inflation story that is building is in the u.s. and everywhere in the world. francine: yesterday was not dull when it came to central banks. the ecb and the boe definitely keeping traders on their toes. let us talk about tech valuations and tech stocks. maybe it was too deep and too strong simply because you have tech companies that do well and others where they are not going to have users because people do not want to be on that platform. matt: the sentiment shifts very quickly and there were declines from meta this week about the impact of tiktok and the apple change and add tracking. that has led into a sharp slowdown around their q1
revenues. they see 7% growth down 20% from q4. a big mismatch in terms of the expectations. the technology industry meeting that at a rapid pace. you have mentioned short video and they have introduced reels on instagram. it is getting traction but it is not there yet. it has still got some way to go to reach the impact from tiktok. tom: what stood out for me in terms of medical and the businesses, the strength of amazon with aws and prime coming through to raise those rates. of course the e-commerce business lagged a bit versus meta, where they seat 97% revenues. and amazon has a large advertising trunk as well. that portfolio part of the app is becoming a strength at this point.
matt: the ads business brings $10 billion of revenue. it is a stark difference in advertising. if you went into a store and you thought some production -- promotion for a product, that -- some of the pressure that meta is seeing from tiktok. we see that key one outlook for the revenue grow, so that price increase on prime that they announced really brought that to a degree, but it will bring the business up for margin revenues which will offset some of that inflationary pressure they will see on wages. francine: the million dollar question is whether these tech companies, and tom has a great chart on this, on whether some of these companies have a fast
growth or growth stocks. you have to make a difference between whether you are meta or amazon? kristine: the chart was fascinating in marking how the story of tech is shifting in 2022. investors are not just lifting all of these tech companies into one homogenous group. they are differentiating now versus -- differentiating now between profitless tech and profitable tech. they see if they have anything else to offer behind the frosts that they have enjoyed over the past couple of years. the difference we are seeing in terms of amazon versus meta really drive the story. tom: looking back to the bc -- ecb and that boe, where we in the market pricing on the back of this central-bank action? francine, we talked about the
lack of transparency around some of these decisions. kristine: there is definitely a uniform ramp-up in trader expectations for where the ecb and boe will go this year. traders are now betting that the ecb will exit its era of negative deposit rates. that'll be the first time in seven years and that tells you where the season is going. the direction of travel is trending towards a positive yields, and that will be a massive shift given that europe has been in a bedrock of negative rates and yields for years. francine: thank you both for joining us. kristine aquino and matt block some joining us. my term on the deck is not what we will be seeing on japanese yields and it is not going to be easy for governor kuroda.
tom: welcome back to the open. we are 15 minutes into european trading day. gains across the stoxx 600 up 0.3%. the s&p points to games. the stronger picture for the nasdaq 100 on the back of equity stocks from yesterday in the leg trait -- late trade. energy and construction and basic resources leading. wti breaking its stocks for the first time since 2019. francine: bank of england raised rates but it was a risk or of 850 basis point rate hike. here is what they had to say. >> compared with the
expectations in december, risks to the inflation outlook are tilted to the upside, particularly in the near term. >> we are not raising the rates because the economy is roaring away, but an increase in rates is necessary because inflation will return without it. >> there is also concern and determination around the table not to rush into the decision unless we had proper assessment based on data. >> what it be a mistake to extrapolate from what we have done today? it is an inevitable mantra. >> the critical one has to do with labor markets. there was a lot of nine u.k. labor force that eventually had to leave the united kingdom which has not been totally replaced.
the shortage of workers having a bearing on the forces of the market in the u.k.. francine: yesterday was a big central-bank day and we had a conversation with andrew bailey of the bank of england. we tried to gauge how he thought interest rates would develop. let us look at these yields. we are seeing europe and the u.s. and even the u.k., they turned positive for the first time since 2016. let us bring in our chart because it encapsulated the concerns around the world that markets are pricing in. the yield on the side of government bonds are heading zero for the first time since 2016 where officials announced negative interest rate strategy. the question now is that the boj will follow some of these tightening policies. i do not know how much of a concern that is. drawing is now is virginie maisonneuve, global cio of
equity from allianz. it moves across the board for the central banks. is there a growing concern that this will -- inflation? virginie: this could be a transitory hawkish moment. the reality is that we have new factors to prices, inflationary pressures, so that is an issue along with unemployment pictures around the world that are not much better. at the same time, we are told that sometime in 2023, we will have to base effect as global supply chain problems result. that brings two dynamic forces that create an environment where we could see and inflation and growth patterns in the future.
it is important for central banks to allianz in the sand if they want to prepare for the second half. tom: the pboc is the one standout. they have a slow down there for the coming rates, but in terms of liquidity adjustment, how are asset markets going to be rid -- adjusting to the rate rise and the action around the balance sheet, the boe, and the fed? virginie: that is important to notice that because as you continue to increase, you are creating a picture that could be quite dramatic and at the same time we know that this slowdown is likely to come in the second half and inflation is likely to be slower as well. a very strong balancing act. it will probably create more volatility in the market. it is a good message on the whole economy. f there's something that struck
me. george serve ellis has changed his view on the euro and this was going on. they are pivoting toward the bullish euro-dollar following the ecb press conference, but they had not emphasized the need that this was the time to reprice the currency. did you reprice anything after those two press conferences yesterday? virginie: you have to look at it in the short and longer term. we know that this is a surprise factor that europe is moving faster than anticipated. christine lagarde made the point clear about employment and energy. at the same time, that is the big surprise. estimates support the euro. if you go belong that -- jan that, you'll probably get higher yields in the u.s. nominal term.
i believe we are going to see this volatile exchange based on that issue, particularly on normalization. tom: nirmala sitharaman -- virginie maisonneuve, cio at allianz. the latest on the global markets. francine: just to hear about the banks and things shifting based on a more hawkish christine lagarde. coming up, the bank of england has 850 point -- a 50 basis point hike. near miss. that is what had everyone talking. this is bloomberg. ♪
differentiation. the tech sectors have competitiveness among them and you will see more of those differentiations. the whole digitalization of the economy and everything, there are a lot of things there. francine: given what happened with meta, is it too soon to -- it is a good investment but it could see longer to see the fruits of that. what does that mean of -- for the investor? virginie: we like the concept of the structure of monetization from a consumer standpoint. but you cannot play through suppliers rather than companies who believe they are creating the metaverse. tom: virginie maisonneuve,
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francine: welcome back to the open. 30 minutes into european trading day. amazon delivers front results from the e-commerce giant. the hawks have it with a boe hike for a bigger increase while the ecb and christine lagarde no longer rule it out. plus the brink of crisis for boris johnson is deepening. if you look at the markets, the
bets are on the hawkish central-bank environment around the world are also impacting japanese yields. there is a lift off thanks to amazon on the tech stocks. tom: what a historic day for central banks yesterday with the boe governor and adjusting to that rate rise. we have not seen that since 2004 and of course that split within the voter group and the members looking to another rate hike next month. in the u.s. and the stoxx 600, -- amazon came out with a strong beat. they put out concerns around the tech sector in terms of the mess that was meta. up 0.3% for the cac and energy and financials are up 0.6%. but a see how things are
breaking down across the different sectors. we will get to the yield story. markets reach up there pricing around more hawkish central banks. energy is gaining 0.2%. most of the sectors are in the red, but it is a flat day across the space. merkel and autos are down -- chemical and autos are down. you see the adjustments to a more hawkish central-bank. the five year german bund breaking positive territory yield for the first time since 2018. we heard that hawkish commentary from christine lagarde. we will get to that conversation with steven major in a few seconds. francine: they are hawkish but without great conviction. certainly not as much is the fed. when you speak to the central
bank officials, they say that the rates will raise, but it is gradually. tom: 40 basis points for the ecb is being priced in for the year. it is a conundrum arguably more so for the bank of england given the pressure around wages and energy costs. it might be a different scenario versus the euro zone. it will be eight more difficult picture for the bank of england. francine: the interview of the day. the bank of england raising a key rate policy. the governor voting was a 5-4 majority. governor bailey told us that he will move interest rates after an unexpected shock to get inflation rates under control. >> i think we will raise rates again. more likely than not. when i say that, do not over interpret it did -- it.
there are good reasons within our forecast and our reports suggest that we will see inflation, and demand growth start to weaken. that's depends on the path of the energy crisis. we would like to see something faster and better than we said, so there is a lot of uncertainty around it. that is the key point. for me it was a question saying, i think it makes sense for the 25 basis points. francine: the market is pricing in interest rates by 1% by may. are they right? >> if we move by 25, we will get in there. tech stock, i do not have any numbers in my head. you have to form an opinion
based on what you are observing in terms of the economy just as we do. francine: are they off the mark or are they in line with expectations? >> are we going -- francine: the balance sheet, are we going more for 2025 even while thinking about sales? do you say have -- you have an idea of where the terminal rate will be in your mind? >> we don't have a figure. we have no real experience on this front and we will have to feel out why the reason is. we were talking about the level of the central bank reserves in the system. there are two bookmarks. we have got what it is today, which is what it is in the united states. then we have what it was before the financial crisis where it
was very low. it was critically low from a financial standpoint. we have changed liquidity regulation for banks. it is clearly higher. francine: that was bank of england governor andrew bailey speaking to me yesterday. we will speak with the bank of england chief economist later today on the pay raises and whether there will be a payraise rise as well. we are delighted to be joined by steven major, managing director and global head of research at hong kong and shanghai banking. could we see a taper tantrum on the back of what is happened yesterday? steven: cutie is going to happen
now because they have reached the 50 basis point threshold. the markets are concerned about it and mr. bailey was quite candid that they are feeling in a way that there will be a consultation with the market. this is new and selling bonds out of the portfolio is not new, so that is potential for the bond market, given how the curve sits flat compared to its global peers. if and when they reached 1% of the bank rate and the commission of data, it is a long ways away. if and when they reach 1%, we are going to consider the sales. i do not think qt would allow a natural warm up. that has been expected for sometimes in the market and it can take a bit of stride.
it is more cyclical than the markets. tom: does that have a read across to the corporate? as it's based in the u.k. and how should the investors in this space think about it? steven: it is a small amount of bonds that we have got and it has also been put to surprise. i do not see how it can be the surprise because of central banks are moving to some sort of normality, they should have some sort of credit on their books. if they go back to business as usual, they are going to manage the amount of reserves and use the opposite part of market arbitrations. -- operations. the role of the credit a few days ago, that should not have been a big surprise and there are going to be -- on those names because the challenge in euro is in credit. there is a lack of bonds and it
trades through the primaries. some investors are keen to pick up some of those bonds. francine: we could be looking at the fastest tightening since 1997, pricing in 1% interest rates in may. what kind of timeline are you looking at? steven: i do not know whether we will get as high as that. it is passed dependent. just imagine what it will look like in june. what happens if inflation is falling dramatically at this point and what happens if unemployment is going up? it could be a different set of conditions. that is just talking about the u.k. what about the global read across, what is happening in china? china is the last one to be easing at the moment. there is a bit of a global story
and a local story that will change rapidly. i think 1% is already a long way away from where we are now. 1% is the key lining for the bank because the bank has made it so. the bank has said that is the threshold where they are going to consult on the selling down of the global valley. tom: how are you thinking about sterling at this point? does the fragility of the u.k. economy off set that in terms of turning higher -- more bearish on sterling? steven: it is the old-fashioned research method which is to look at the financial, so sterling seems to have done alright on the back of that. a more considered opinion would recognize that throughout history sterling has sometimes been a taller policy. if the u.k. has a really high inflation rate and there's this
question about the falling of potential gdp which is the follow-up from brexit a few years ago, maybe rates cannot go up very much. in that case, the heat needs to be taken out through sterling, the shape of the curve, so the bank of england is aware of this. in some ways, sterling is positive all of the policy here. it might enjoy rate differentials, but that is a temporary thing. francine: one of the most interesting market moves we saw today was the five year yield in japan turning positive for the first time since 2016. this could lead to a global repricing of ponds across the world. are they getting too ahead of themselves? the world might look different in june of this year as you say. steven: when you are in a tightening trend, the
possibility of the curve that moves the fastest is the belly. that is the five-year. you have got the decade cheapest in the u.s., so there is a possibility that the bank of japan policy will change. similar to the ecb and the bank of england. that is critical. i do not know whether the bank of england really needs to start hiking rates yet. i think that is still a long way off. but again markets are in risk management mode and they are looking at the probabilities related to this year and next year. tom: risk management for this year. steven major, global head of research at hsbc stays with us. boris johnson's deepens. following the resignation of four aides, that story later in
england and the ecb. yields in japan and the five-year action for the positive since 2016. they have shifted a bit and are receiving more pressure from energy and technology and pressure on the staples. tom: let us get back to you steven major from hsbc. he is still with us. maybe europe is in a sweet spot. they are going to stop pet in march and 30 basis points priced in for this year. we have readjusted to a more hawkish rate from christine lagarde, but compared to other central banks, are inflationary pressures different here? as europe in nice wheat spot -- in a sweet spot? steven: many people will look
for the guidance and that is what has driven their forecast. that is why people were forecasting 2023 for the first hike. maybe something is going to change. maybe some of the speeches are going to come out, so that may slowly get it back. but you are right. there is not a common inflation problem they have to worry about. there is a big headline number. wages are not spiraling upwards and ecb can take its time, but there is this thing called risk management and is about longer run credibility. go for a small hike at some stage, it could be later this year or next year, but our forecast has always .23. a small rate hike may save the
need to go later. markets will be pleased that central banks are getting on with it, but it does not change the fact that when they hike, they do not get very far and the rate they end up with, the terminal rate, will be lower than the previous cycle. francine: what we have a grasp on is the wage growth, so if you look at the bank of england, they are suddenly three times higher than november. during brexit and labor shortages with the u.k., could we see a similar pattern in the u.k. -- the euro zone where wage growth is hard? steven: in germany, there was no evidence of rising wage increases to worry about. he unions were pricing more than 4% and 6%. given the inflation rate, it is
under expectations. workers are thinking that if we offer too much, we could lose our job to someone else or we will lose market share to japan or china. the workers are rational. in the u.k., there is a lack of labor. many people left the country with the impact of brexit. it is likely that the potential gdp of the u.k. is over than where it would be before the pressure. you do not see that wages are concerned for the bank of england. to nip inflation in the bud is going to lower that risk. tom: do you like the china sovereign still and south africa? steven: we have not changed much in terms of the forecast for the treasuries there.
we think it is 1.5 by the year end. the year is still young. some of these markets led by south africa look very interesting now that their real rates are so high compared to their equity rates. china we think is still using and that has been a win-win market now. that trend is still taking place. francine: stephen, thank you very much. as always, steven major the global head of research at hsbc. we will have the story next on whether the prime minister can hold onto power. this is bloomberg. ♪
tom: welcome back to the open. we are 53 minutes into european trading day. the markets in europe are currently turning down. the only standout is the ftse 100 turning up by 0.4%. every other sector is read. we see the yields and the german five-year bond rating into the positive territory for the first time since 2018. sterling at 1.35. technology is remarkable given
meta and amazon is killing it with aws, advertising, and the g abtheir subscription. francine: i love your care of the valuations and the sectors we are looking at. it is showing how amazon is showing meta how it is good -- how it is done. they increased their valuation today. amazon is very big on the cloud and they are able to increase their prices for prime customers. tom: that more diversified market business. you have got a focus on video so they want to take it back from tiktok. francine: i like the reels on instagram. it does not cut the trends from tiktok, but it is all right. the crisis on boris johnson
after his aides resigned. joining us now is the head of our emea news desk. it was one of his closest aides. reporter: there are four senior jobs at downing street, and we zero in on munira mirza. she was by his side for 14 years back when he was mayor of london , and for her to decide that she can no longer defend him or work with him, that really sends shock waves around westminster last night. there's a sense that the sands are shifting here. they were trying to spin it last night saying that this was part of a clear out that the prime minister promised when he made his apology earlier in the week
that he was going to restructure downing street and brings a new people, but he never intended for it to be his closest aides who would be leaving. tom: what are we watching for next? what is the next tipping point? reporter: there are multiple from downing street leaving this morning. the key here will be someone from the cabinet, the government. we have rishi sunak, the chancellor yesterday, putting an attack on the prime minister, but he did say something that where eyewitness words. coming from the chancellor, he is not defending what the prime minister said. that is a shift. let us keep our eyes peeled on that stature that they themselves can no longer support the prime minister. we have the 54 magic number of their constant letters that need to go in and order to trigger the confidence vote.
>> it would be a mistake to extrapolate that rates are at an inevitable march. >> risk to the inflation outlook are tilted to the upside. particularly in the near term. >> i think it unlikely we will raise rates again. announcer: this is "bloomberg surveillance: early edition." with francine lacqua. francine: good morning, welcome to "bloomberg surveillance: early edition." i'm francine lacqua in london. a hawkish tone