tv Bloomberg Daybreak Europe Bloomberg April 5, 2022 1:00am-2:00am EDT
say card energy supplies. the nickel fallout, j p.m. reviews its commodity exposure after last month's chaos. what do we have so far? a hawkish hold from the rba. intervention and the fx markets. a curfew in peru. it is the mounting warnings of growth from jamie dimon to chinese mobility. dani: the warnings are stacking up from participants in the market. peru putting a curfew on due to inflation protests. it is a global concern about rising prices. manus: it may be one of the most underpriced risks. a bear market rally is over, so this is what we have from will smith. that leaves us more constructive
on bonds than stocks near-term. growth takes center stage. doubling down on a defensive basis. china will knock 3% off global growth. jamie dimon has a warning on global growth, and potentially what could happen in the rates narrative. dani: if that is the warning from dimon, let me take you to the warning from this market. any old-school trader will tell you the dow transportation average since march 20 nine, falling 7%. s&p following only 1.1%. broader gloom encyclicals concerning the health of an otherwise booming american economy. manus: let's get into cross assets. the aussie at the highest since
2021, because the patience is gone from the rba. patience demise from the rba, the euro is lower. more sanctions may come. what form could that take in terms of the energy complex, according to macron? it looks like we are at a tipping point. macron talks about the eu sanctioning oil and coal from russia. we are now pricing in a 70 percent probability of rates being 2.5% by christmas. dani: christmas comes not early, but you can sign a breath of
relief. unchanged pretty much everywhere. euro stoxx 50, 0.3%. 0.1% decline from s&p futures. tech outperformed yesterday. not a lot going on in equities this morning. manus: maria tadeo has the latest on the war in ukraine. jp morgan is reviewing commodity exposure. laura wright has the latest on elon musk. juliette saly has more on the markets. dani: the u.s. treasury has halted dollar debt payments from the russian government accounts. this comes after those alleged atrocities committed by russian troops in the ukrainian town of
bucha were discovered. the u.s. and europe are promising more sanctions, but what will they likely be and how effective will they likely be? maria: there are more sanctions coming, that is clear as day. the u.s. treasury either sends russia into default, or they have to lose whatever reserves they have left if they want to make those u.s. denominated payments of russian debt. when it comes to the european union, the picture is more difficult. 27 different countries have to agree but inevitably the conversation will have to focus on energy. it is shifting to energy. i make distinctions between coal, oil and gas. there will be a very important meeting in brussels.
if there was to be an embargo, it would come from that direction. first coal, then oil, then finally gas for the dependency is bigger. manus: thank you very much, maria tadeo in brussels. jp morgan is to review their business with some commodity clients, a move that could drain more liquidity out of the sector. what is going on after nickel's short squeeze last month? is this going to be about credit facilities to commodities, is it going to be about exposure over risk limits? what is the backdrop to the j p.m. -- jpm review? >> they want to expose risk exposure to metals and lme. this comes after that surge in
nickel. that ended trading for more than a week, and that caused strife in the market. they want to remove, potentially taking out position to allow different traders to have positions in that market. by doing that, that would reduce the liquidity in the metals market. there was a liquidity problem in the metals market. getting jp morgan to lower their spot would lead to less liquidity and more volatility because there would be huge moves in the market and not enough folks to hit those offers appropriately. that will cause more wild swings going forward. if they do that, other things could potentially follow. it could be a domino effect that could lead to more price swings, volatility, uncertainty for traders trying to navigate that market. dani: this comes after the fca
launching an internal probe yesterday. thank you. elon musk has become twitter's largest shareholder, and he already has ideas how to shakeup the social media platform. joining us is laura wright. i knew you would be all over this story. laura: elon musk, always controversial and a newsmaker. twitter had its largest intraday gain since the debut in 2013. despite the tech rout, twitter shares have been steadily climbing since the russian invasion of ukraine because the platform is a valuable source of information. elon musk wants to turn 80
million followers a new route for the company. there was a read across with tesla shares, tesla reporting record first-quarter delivery. they were able to outmaneuver supply chain, congestion, and rolling lockdowns in china. they launched a berlin plant weeks ago. i want to bring you want to a little twitter poll elon musk started. he wants to know if twitter users would like an edit button. maybe his stake is not so passive after all. manus: let's see if it turns into a more activist role. dani: give manus an edit button.
manus: thank you very much, laura wright. rba rates unchanged, the moves expected. juliette saly is in singapore. the aussie spiking, but give us the caveats. juliette: absolutely, the word patient has been in every policy statement since november. it was big and what the market was looking for. the aussie holding a high since june 2021. repricing in the bond market specifically with the three year yield which was holding around 3% before the rba decision. we now see it at 2.4%. a lot of repricing is baked into financial markets already. we are waiting to see the rba
catch up to what the market was saying, and remove the keyword of patience. a rate hike in august according to bloomberg economics. we could see a move by july. the market reversing many of the earlier gains. it is all about keeping inflation under control, a conundrum across the globe. the private gauge of inflation was at a 13 year high yesterday, and unemployment at a 13 year low, around 4%. we see more moves of repricing. tree .2% target rate in a years time -- 3.2% target rate in a years time. dani: in terms of asian markets, china and hong kong are closed today for holidays. let's look at what is up and running today. at 10:00 a.m. u.k. time, ministers will meet to discuss sanctions imposed on russia over
the war in ukraine. we are expecting the latest data on the u.s. trade balance. manus: two :00 p.m., the nato secretary-general holding a press conference ahead of the meeting of ministers in brussels. 3:00, a virtual discussion on the unequal impact of inflation posted by the minneapolis fed. will she throw her hat in the ring for a 50 basis point hike? we will continue the conversation on elon musk, now twitter's biggest shareholder. tech shares lead the gains. this is bloomberg. ♪
manus: this is "bloomberg daybreak: europe," with manus cranny, that is me in dubai, and dani burger. currencies are flying higher and the rates market is topping up. five basis points in australia come on the consequence is a move in the aussie. the rba talking about wages picking up but the aggregate level is at a low level. inflation has increased but remains lower than in other countries. growth, a lot of caveats. you could run into exhaustion. you see that is pulling the boots of japan and the u.s., yields trading higher this morning.
inversions continue around the u.s. markets. dani: it is a global story, this hawkish and us from central banks, but the caveats to global growth. let's get to our guests this half-hour, norman villamin, cio private banking, union bancaire privee. something that central banks are dealing with, but also governments who have proved, -- government in peru declaring a curfew. and protests in sri lanka about economic concerns. what does it tell you that we are seeing unrest in the developing world, and trying to grapple with rising inflation? norman: this highlights the fragility of the global economy right now, under the pressure of rising commodity prices. a lot of people are focusing on rising energy prices, but as we
get to the summer, the rising food price story will make its way through the narrative, especially in the emerging markets. that is why investors need to be cautious in this space because of the risk of unrest and fragility in those economies. manus: are we underpricing that risk? we did not see inflation coming, more intelligent people than me, we did not believe we would see a war between russia and ukraine, and nobody has seen this monster destruction of supply chains, so how underpriced is the risk of global social unrest? >> if you look in the equity and credit markets, it is well underpriced. essentially equity and u.s. credit markets are seeking a soft landing, pricing that the fed will be successful
containing inflation, and successful to avert a recession, but we think recessionary risks are growing, and investors need to protect themselves. dani: what would you put that risk at of a recession? norman: because of the strength of the u.s. and european economies going into february, we probably do not see a recession in 2022, but the risk in 2023 is rising meaningfully. manus: we were looking at wirp this morning on the bloomberg, it's rates could climb to 2.5%, further ahead than the dot plot suggests. the war in ukraine, and escalation plus duration hunters will bring in buyers at 2.5%.
would duration hunters and protection against a global recession risk, social unrest, cap out yields at the moment, is this as high as we go in the yield spike for now? norman: we think there is going to be a tug-of-war betwee inflation pressure which the market is focused on, and the narrative will focus on the risk to growth. the 2.5% probably caps things here. beyond that, you will get credit problems within the system that will likely have to re-strain the fed. dani: let me get into those credit problems, when you get a yield curve flattening, credit specifically high-yield jump bonds -- junk bonds underperform, and there is a risk of negative performance as well. could we see negative returns
come into high-yield bonds? norman: we are concerned about that. if you look at what high-yield spreads are telling you today, they are essentially saying a soft landing, everything will be fine. there is a scenario where that happens, but right now for investors in that space, they are not being compensated for the risk that something else occurs, that being a more meaningful slowdown, defaults picking up, or outright recession. manus: let's go to the tails, the narrative is a global recession is a tale risk -- tail risk. we look at mobility in china, the lockdown in china at the moment according to data that we analyzed, the goldman sachs mobility index suggests a 3% knock to global growth, not near as bad as the height of the global pandemic, but we do not
know what it is in china. how concerned are you that the china slow down, shut down, supply chain crunch again becomes a bigger risk than we understand at the moment? norman: it is certainly something we are watching, and you can see the government in china is trying to lean against the slow down aggressively, releasing liquidity, announcing programs to stabilize growth despite the lockdowns. what is interesting, and we step out of the china picture, you look at the impact it would have on europe, and a norm is trading partner with china, and there are already being busted by the war in ukraine, higher oil and gas prices, and another shock through the european system would put european growth at risk. in combination between europe and china, that is a big risk
globally. manus: and there is the goldman sachs ability graph, you can see the heightened differential. stay with us, norman villamin, cio private banking, union bancaire privee. coming up, morgan stanley's chief strategist says the bear market rally is over. is that the view of our guest? this is bloomberg. ♪
up 1.6%. the aussies playing the catch-up game. norman villamin, cio private banking, union bancaire privee, the word patience has gone. what does that mean for aussie rates? they are going to play catch-up to the fed, the boe, but they have more room they would say than the others because their inflation is not as outrageously bad. norman: they have a little bit more room but in terms of the aussie dollar come all the other thing they will have to keep in mind is the booming commodity prices around the world. that will funnel liquidity into the australian market going forward. one of the interesting things we
see, we know commodity prices and commodity equities have done well, what is remarkable is commodity currencies, the australian dollar, the canadian dollar, the new zealand dollar -- investors and you do not want to chase the commodity space, we think commodity currencies are ways to be able to participate in this long cycle move that we see ahead. dani: if this is the idea that you can chase it in commodity prices, will investors be too late? norman: the way we look at it, and we saw this with the u.s. announcement on the release of spr. at these levels more of a two way risk if the u.s. and europe sanction russia and energy out of russia.
on the flipside, the release of supply exposes investors. we look at currencies we talk about commodity currencies, you will get the higher rate environment, which will give you a bit of carry, and they are underpriced relative to commodities. you have a better risk-reward here we think, looking ahead. dani: thank you so much for joining us. that is norman villamin, cio private banking, union bancaire privee. let's linger on the aussie dollar, it is the removal of the word patience, but also the yen getting intervention. the boj and kuroda trying to slow that weakening. manus: so comfortable for the economy in terms of what it will do but in terms of the overall currency intervention, this
its commodity exposure. stock markets incredibly resilient right now if you look at yield curves that are flattening. still there are some parts of these risk assets that are flashing warning signs. you have the dow transport index underperforming. you also have credit. you have junk underperforming as well. this is something our last guest was pointing out. credit likely to underperform in this environment of higher inflation. mark: -- manus: do not get carried away with inverted yield curves according to pimco. it is a warning not an actual fact we are going to tank into recession. the view from barclays is that the inverted yield curves typically are not what we should
be looking at. nothing current inverted curve, but what is the market saying one year out? the market is straight -- is starting to price in rate hikes from the fed for 2024. duration hunters the world unite at 2.4%. i'm going to leave that thought there for the moment. dani: i'm going to do a market check for us. we have not seen a ton of action in equities considering a rally yesterday. the rally was in tech stocks, elon musk taking a stake in twitter. we are down by .05% in the nasdaq. elsewhere we are seeing losses. are we going to see more sanctions on russia?
what does the picture look like? manus: it is going to have an impact in terms of recession risk in europe. you are seeing aussie dollar spike higher. the euro is down for the fourth day in a row. the risk of a new sanctions, what are they? :, gas, oil? if the fed tightens more aggressively -- i love the word jumbo. the nymex is up. you've got the euro under pressure. nymex screwed up over 1%. all economic ties with moscow must be severed. all economic ties with moscow must be severed. that is the german finance minister. dani: quite the jumbo statement.
that did not work. i will work on it. let's continue with this story over energy. possible sanctions to russia and the follow-up for nations. germany will temporarily nationalize a unit of gazprom as the country seeks to safeguard security of its gas supply. that is the latest move to protect energy infrastructure on the continent. the kremlin and the fallout from russia's invasion of ukraine. we are joined by our bloomberg team leader for gas, power, and renewables in europe. why did germans take control of this gazprom unit and why is it so key to security of supply? >> we have seen gazprom germ anna owns a lot of storage supplies. there are other companies and those companies own storage facilities across europe.
the ownership of gazprom had changed at the end of last month and basically, we did not know who owned it. gazprom said we exited but did not tell anyone who owned. when you look at filings you could not figure out who the beneficiary owner was. germany had one look at that and said we need to safeguard supplies for next winter and to do that we need to fill storage. that is why they took control. manus: what are the consequences for the trading arm in london and gazprom energy as well? >> what is interesting is that gazprom germana is at the top of the trade and the trading unit, and it trades lng and gas and electricity, all of that, is under gazprom germana. that is also the unit that holds the hedges.
energy that was previously purchased for gazprom energy, a u.k. retail supplier, and wing gas, suppliers and germany. it is well-known that governments find hedges for that. it is unclear what it will mean for gazprom energy at the moment the u.k. government has made plans to nationalize gazprom energy should it fail. manus: thank you very much for being with us this morning. the very latest on nationalizations of gazprom assets. james, we just showed a graphic of finland, germany, italy, etc.
, 94 percent dependent on russia for gas, finland. italy, 40%. how can europe sanction russian gas? is that even realistic? >> i think you are right. a lot of countries have a very high dependency on russian gas. that means it is very difficult to target gas in contrast to crude and diesel where you can, redirect trade flows to make that work. we are seeing companies within europe saying if there was to be a major sanction, they would stop functioning. dani: walk us through that scenario. alleged war crimes forces europe to start considering sanctioning of russian gas. what happens?
>> we cannot easily replace the supply from russia. we have already turned up a lot of supply from norway. we have imported to italy from algeria. realistically, the more we cut into russian supply, the more we are going to have to see demand destruction in europe. we have seen a pivot towards coal. we have done the flexibilities which already. now it is a question of how industry might have to cut to offset the loss if we were to sanction russian gas. mark: -- manus: we are showing the pipelines. there are ports and pipelines. the veins of europe are ultimately tied to russia. the flow of gas delivers dollars
for russia. they don't want to slow the flow. give the market some perspective in terms of the flow as it stands at the moment. how wide has that gap been? how real has the risk flow from russia to europe really been? >> since we have had the start of the conflict in ukraine, it is up compared to early on in the year. a lot of european customers have this big incentive to import heavily from russian gas. we have contractual suppliers in europe which means you have to have a certain flow rate. unless those contracts are ended prematurely, we need to get a
certain amount, 320 million cubic meters per day flowing into the economy. dani: last week we had russia saying its clients -- demanding at one point to pay in rubles but also saying they can open special currency accounts, they pay gazprom bank in foreign currency, that gets translated into rubles. is there any evidence we have had european clients open up these special accounts with gazprom bank? >> it is unclear to what extent these companies have opened up these new accounts. on the russian side, in terms of making the logistical change where you are paying gazprom bank, and according to some european buyers, it does not constitute a breach of contract.
it is the same regime as we have had so far. that said we have european governments like the g7 talking about not wanting to comply with russian changes and there is political friction in terms of whether companies can sign up for these new contracts. there are risks of involuntary defaults. at the moment it looks like the regime -- they will still be paying in dollars. mark: -- manus: you take the process a step further and that is why we speak to energy. so the counterparties in europe -- in many ways this is a vicarious isolation of gazprom
bank from sanctions. it is a very ironic way in terms of forcing counterparties to open accounts with gazprom bank. as you say this protects the very lifeblood of the russian overseas financing. >> that is right. what we have seen is that gazprom bank itself has been relatively isolated from that. this goes one step further ensuring that one does not get sanctioned because it is integral to the payment system of europe paying for russian gas. at the very least it is an afterthought in order to provide that security. dani: thanks so much for joining
us, really fascinating development. let's get to the first word news with juliette saly in singapore. >> the earth may warm by more than three degrees celsius, twice the international goal and tried in the paris agreement. the report from the intergovernmental panel on unchecked emissions of greenhouse gas pushing to record levels. scientists say emissions must peak before 2025 to keep climate targets alive. shanghai has reported more than 13,000 deadly covid cases for the first time as a sweeping lockdown and mass testing of residence continues. the outbreak in the financial hub pushed the national total to more than 16,000 infections, the highest one-day figure recorded in china during the pandemic. the u.k. is to push ahead with the privatization of state-owned
broadcaster channel for television. bloomberg understands the government sees the sale as letting the channel grow and generate intellectual property, but with it remaining a public sector broadcaster. the company is likely to come alongside other broadcasting reforms. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. manus: do not miss our conversation with the u.s. trade representative at 8:30 a.m. london time. this is bloomberg. ♪
may enter negative interest rates in 2022 or 2023 as a steps up efforts to curb inflation. that is the view of slovenia central bank governor. joining us now is bloomberg's western economics editor. we have euro area inflation hitting a record high. what does this mean for how aggressively the ecb needs to be weighing the potential economic issues ongoing? >> that is right. the euro area inflation rights just hit 7.5%. we got the reading on friday, a record since the euro started. we have record rates in a lot of euro area countries. the more hawkish members of the ecb governing council said we need to act and soon.
so what is keeping the ecb from doing anything? they need to end the bond purchases first. this month they are ending the special bond purchase program they have that they introduced during the pandemic what they still have their old bond purchasing program, qe that started in 2015 and that needs to end this year. now the slovenian central bank governor my colleague spoke to yesterday. he said he can imagine that program ending at the beginning of the third quarter and that would potentially open up the ecb for starting to hike rates may be in september. your member friday the dutch central bank chief who is -- he said he could see a rate hike anytime from september.
one a rate hike seems to be there, even the most dovish members seem to be on board with that. money markets are much more aggressive. they are expecting two hikes this year and another two in january and march. manus: maybe ecb members are looking over their shoulder at the pillorying of the fed. it is hard to know what to do. look, elsewhere central bankers are already hiking rates. i hawkish hold from the rba this morning. what is holding them back? is it all about war and recession risk? >> i don't think there is going to be stagflation.
stagflation is stagnating economy at the same time as high interest rates. the european economy still is going to go here. there is the danger of if europe does cut off energy supplies from russia, that would have a huge impact on euro area countries, especially germany because we know they are dependent on russian energy. that could put countries into order two contractions, that would be a recession. because of the war in ukraine, you have consumer confidence falling and that in turn leads to higher energy prices. people are buying less. that could push inflation rates down again.
that is the issue here. the chief economist spoke on friday and he said we need to be prepared for that scenario. the bank of england governor who your remember was the sole mpc member not to push for a rate hike last month, he said he also sees the danger of inflation, not only for inflation rates falling. that is something you need to keep in mind. central bankers just do not want to make a mistake. manus: indeed. great to have you with us this morning. this is bloomberg.
manus: jp morgan are reviewing their business with some of the commodity sector after last month's nickel short squeeze. let's get the scene set. it has been a turbulent time in the nickel market. this has been a wake-up call to credit officers across the brokerage and banking businesses about what is my counterparty risk to the lme? what swaps have i got? what positions have i got and all they are multimarket property?
>> the fallout from the lme and what happened last month where they had to halt trading or prices when crazy for people are exiting the market, or volatility has been on seen before in this market that has been traded for decades and decades, these are things to be looking at. jp morgan is the first of perhaps many other banks keeping a close eye and seeing, do we want our counterparties trading in this market? do we want more volume? that is going to have a wider impact on the metals market because as more liquidity exits and there is less trading on the exchange, there will be more volatility. it snowballs and more volatility brings more volatility because prices have more wild swings. the calm for this market if it is going -- for this market is not going to be coming anytime
soon it seems. dani: there was also the lme ceo on european programming a couple weeks ago saying they would not bar russia's supply until regulation told them to do so. russian supply is stacking up at the lme. what is going on there? >> that is a problem. there are folks still accepting russian shipments of metal. have a long-term contract. that has been widely practiced across industry. but the spot sale, the extra metal shipments both are not accepting them. they do not want to add finance to moscow. what is happening is a lot of these branded russian metals are ending up in warehouses operated and owned by lme. what is happening there means there is a large glut of metals people don't want to touch which is causing dislocation in the