tv Bloomberg Markets European Open Bloomberg May 2, 2022 3:00am-4:00am EDT
buffett undertakes his biggest shopping spree in a decade, splashing $41 billion on company stakes. just a reminder of the bloodletting on u.s. markets friday, the biggest drop on the nasdaq and s&p 500 since early 2020, amazon seeing its biggest drop since 2006. concerns again around tech. for the month of april, the biggest global bond selloff on record. let's check how markets are shaping up as we digest weak economic data out of china. will the rhetoric from xi jinping and his cadres be enough to support sentiment around china's economy, given there is announced week this as a result -- pronounced weakness as a result of these lockdowns. it's worth reiterating, let's
not forget about the read across to europe, a major export market for china. demand for luxury goods in autos is going to be depressed. let's take a look cross asset. 50 basis point is baked in for wednesday. the commentary from jay powell as you are aggressive -- as to how aggressive they want to go will be in focus. and investors looking at a fourth rate hike. features a stateside looking at remaking some of the losses friday. but only by .6%. the japanese yen comfortably below the 1.30 level. we have heard from the bank of japan saying we are continuing our easing. pressure on the yen continues, down .4%. part of that is king dollar.
further strength in the greenback, implications for every asset from gold to emerging markets which we continue to read across. copper futures, in line with what we are seeing from china. president xi jinping saying we are going to step up infrastructure spending, then you have economic data reinforcing that fragility, and demand for copper with question marks, down 2%. as we look to a central bank week with that that front and center, and the boe as well. some calculation suggesting when it comes to the balance sheet runoffs, if you put the boj to the side, you are looking at more than 400 billion dollars being run off of these balance sheets by the end of a year. what it will mean for assets and whether investors have priced
that item along with rate hikes read this is an example of where they go in terms of that run down, letting some of these bonds run off, particularly mortgage-backed securities as well. you've got the fed here, the white line, the ecb in blue and in yellow, the boj. they are in mobile -- no mood to stop buying. that will be in focus again, and commentary from powell in terms of when they want to speed that up, if may is the month, and how fast they want to go on that run-up of the balance sheet. let's go to the bloomberg business flash now. laura: berkshire hathaway it is on its biggest stock brian --is on its biggest stock buying spree since 2008. boosting its stake in chevron and revealing it now holds a nine point 5% stake in
activision blizzard. buffett gave no indication he plans to step back anytime soon as they held their first in person meeting since 2019. qantas has reintroduced nonstop flights from new york and london. the airline says passengers will be able to start playing routes in late 2025. qantas had planned to start flights known internally as project sunrise in 2020 three, but it was delayed due to obit. -- covid. ping an insurance has held discussions with the bank on the idea of spinning off hsbc 's asian assets. the creator of the popular board
ap yacht collection of -- bored ape yacht collection of nft's, launched a virtual land collection. that is the largest offering of its kind to date. dani burger is not interested in buying any metaverse land, what about you? tom: i saw the trailer for this new land, it is very trippy. it is worth looking at and pulling up on youtube or their website, but this is quite a phenomenon. at a time when crypto is more broadly pretty soggy. let's get into key market drivers with his cleanup you know --with kristine aquino. a reminder that when it comes to the rhetoric from xi jinping, flowering when it comes to the economy with stepping up
support, but the economic data pointing to the constraints. and whether this rhetoric from officials is really going to be enough to address the significant concerns amid these lockdowns. kristine: and this is a real test of how far this rhetoric will go. the economic data bearing out the impact of lockdowns so far. we have spoken about china entering a phase where it needs to keep supporting markets, whether through verbal assurances like last week from the authorities. or actual concrete action to keep investor sentiment up. in the era of easy monetary policy, it is a cycle of policymakers keeping that economic support and shoring up sentiment, but the moment they pulled away, sentiment rumbles. -- crumbles.
we may see this cycle of doom restarting in china, which is an odd juxtaposition with the rest of the world. tom: what worries me is the lack of policymaking out of beijing. president xi jinping saying we are going to knuckle down on infrastructure spending, that is nothing new here. what is the read across from the em space? kristine: it is not great. we are seeing signs of investors worrying about contagion. em performance in april really getting dragged down by that china story. this was a big question at the start of the year. when china was pivoting tomorrow easing, just as the rest of the world is tightening, where does that leave china exposed, and will they be in a situation where they have to choose between tackling that inflation story in em markets, or pivoting towards china's tack of
supporting growth. tom: -- esty, let's bring you in, at one point does china have to consider the impact of the fed? esty: the impact from the china situation is more likely to be higher inflation than just the impact on growth, that's not what we want the fed to be focusing on because it is difficult to imagine them getting more hawkish. the growth picture from china is going to have a much bigger impact on europe than on the u.s. that that is not going to want to consider the that growth aspect considering the underlying health of the u.s. economy and psi -- and gdp aside, the risk is more about
inflation, and that adds to the problem. tom: as we look ahead to the fed decision and more clarity on the balance sheet runoff, already starting to see any signs of inflation peeking stays? esty: we are seeing signs that it is peeking. the employment index for the first quarter was higher than expected. that's not great from a fed perspective. a lot of areas are showing signs of improvement. the dallas that was encouraging, some of the other pce numbers were not as bad as feared. we will have to wait for april cpi hopefully coming down a little bit. at least in the right direction. we are seeing improvements, but are they going to be sustained enough over the next three months for the fed to take his foot off the tightening panel over the summer? where these shanghai lockdowns
to log, which means we are going to have renewed impact on supply chains and prices later in the year, just when things were improving, are they going to deteriorate again? i think we are around the peak, but the question is are we going to be able to have this period of disinflation that the market desperately needs. tom: esty dwek, cio at flowbank stays with us, we will get your calls within these markets. china front and center for us this morning. we are focused on earnings and for corporate story, let's check in on a couple of corporate movers today. vestas down 4.5%, that company saying it is going to be lowering its financial outlook for the year, forecasting its first loss in a decade related
partly to its pullout from the russian market. also down to supply chain constraints, potentially a loss of -5% this year in terms of margins. that being shown on the share price. adler down within 40%. this is a company that has been under pressure from short-sellers. this real estate company, in terms of what they have done recently, the group almost entirely the board quitting because kpmg refused to sign up on their latest results. that is a real estate investment company based in germany. tui, another german company, down .2%, the ceo according to reuters say they have added one point 3 million bookings in the past four weeks, saying they
tom: welcome back to the open, we are 40 minutes into the european trading day. losses up .7%, the ftse 100 is closed for a bank holiday. losses of 1% on the cac 40, every sector in the red rate autos and tech down, tech down 1.3%. after that heavy selloff stateside. we wailed the data out of china. shanghai's covid cases came in below 10,000 on sunday, the second day in a row, a sign the outbreak is continuing to ease. major restrictions on movement are still in place. disruption is in growth. the nation's economic activity contracted sharply in april. factory outlets hit the lowest level in more than two years. joining us is sam fazeli, senior pharmaceutical analyst for bloomberg. do the lockdowns out of shanghai
suggest that the officials leading this response are correct when they say that zero covid can work, they just need to double down, ensure the restrictions are tighter, that's what we're seeing now in shanghai? sam: no. tom, if you buy zero, they mean zero, we are 10,000 away from zero. if you look at this pace, exponential on the way up, and a similar shape on the way down. the halving rate will take several weeks. look at the response in beijing, 50 cases leading to lockdowns. if they are intent on going to zero, this will be a painful, long way away. tom: the timeframe, sam, because
it seems like officials are not backing down from this. do we have a sense of how long this will play out for? how much further disruption is likely, including across their major cities? what is the timeframe for continuing this? sam: you can do some mathematical modeling, and take out the cases are going down and get to a number at some point. one of the things that have got going for them is that it is getting warmer, summer months are coming, so that is going to help because it keeps people outdoors. but can you actually have absolutely zero. the only way they can do that is to really keep going at this until it gets to know infections, assuming there is no asymptomatic person still out there that has not been discovered, and assuming they completely seal up the borders,
then you can keep that zero covid. tom: and the huge cost to pay to enact that kind of policy. our senior pharmaceutical analyst, thank you for working through what is happening in china and the implications of covid zero. whether it is feasible longer term. esty dwek is still with us, i have questions on valuations, and to what extent european investors have priced in the impact of china, particularly when it comes to autos, luxury and other corporate's that have exposure to that market. esty: when we think about how much europe has had to price in from the ukraine-russia war, there is still some hope that these lockdown start to ease and that the impact can be relatively minimal. some sectors, particularly in
germany, are going to get hit. we are going to see delays in deliveries, parts, higher prices. that is just one more impact for europe. that growth picture is not looking so strong anymore for europe. recession, or whether it just feels like recession, it seems rather inevitable. tom: i have to ask about the barbell approach with value and tech on the other side, with tech posting is worst monthly law since 2008. how do you justify continuing significant exposure to the tech sector? esty: we are looking throughout the end of the year. we know that may can still be relatively ugly, although april set that bar pretty high. we don't think now is the time to cut exposure. we think earnings, most of them
were strong enough that we will see sustainability in earnings. and at some point, obviously for europe, but to some extent the u.s., is how much tightening can be u.s. economy with stand? some of these will come back and support the tech sector as well. a difficult period now. a little late to cut the exposure. but the second half of the year should look better for that whole segment. tom: why do you want to find hedges in gold and crypto versus the greenback at this point? esty: the dollar has been so strong already. when you think about the dollar position, it seems like a win-win, you have a euro, yen and renminbi weakening. you have interest rate
differentials, higher inflation, that is supporting the dollar. it is difficult to see it weakening so much. in china, crypto has been very tied to this sector, but hopefully that starts to ease as well in terms of correlation numbers and improves. gold has proven relatively resistant despite tightening monetary expectations. with these questions of sanctions, some emerging market countries could start to look towards gold as well. it's just having a few things in your portfolio that have slightly separate drivers to fill in that traditional asset allocation. tom: esty dwek, cio at flowbank, that barbell approach, maybe some upside in gold with concerns around sanctions. the oracle of omaha snaps up $41
was across the event for us. buffett is back it seems with a bang. laura: it is the largest buying spree since records began in 2008. one of the reasons is that they see buying companies as more advantageous than buybacks at present. cash on the balance sheets, warren buffett calls this oxygen. it stands at just over $100 billion, down from $144 billion at the end of 2021, but still higher than the threshold of $30 billion. munger and buffett still vehemently against cryptocurrencies. they say they prefer productive assets such as farmland or property. bloomberg intelligence believe that because of its diverse a variety of businesses and
earnings potential has been able to transcend inflation risks. tom: they battled through a lot of questions on this, everything from inflation to the war in ukraine. laura: they have increased the stakes in occidental petroleum and hp, most interesting where the increase in stakes in chevron. that now just stands shy of $26 billion. activision blizzard the gaming company has gone over to microsoft for $69 million, and warren buffett enacted an arbitrage play by increasing their state to 9.5% which signals conviction in his view that deal will go through. but no extra news from 91-year-old warren buffett and 98-year-old munger, greg abel is
reliance on russian oil by mid summer. it vows to veto any u.n. sanctions on the nation's energy. warren buffett undertakes his biggest shopping spree in at least a decade splashing $41 billion on companies including chevron last quarter. let's check in on the markets. after a significant selloff friday on wall street. the nasdaq under particular pressure. the biggest drops in the s&p 500 since early 2020. you have to consider the data out of china with the headlines pointing to further economic decline. the u.k. is closed for a bank holiday. we are looking ahead to the federal reserve decision. 50 basis points is a consensus. we also want to hear what jay powell has this a about the rate of pay's hikes. and the balance sheet runoff.
across the benchmark in europe, losses around 0.9%. don't forget about earnings. the dax is down 0.8 percent. on the geopolitics, officials in germany suggest they could wean themselves off russian energy or oil at least which is crucial by mid summer. the cac 40 is down 1.2%. in terms of how things are playing out across the sectors -- pressure when it comes to yields and the readjustment around faster pace of rate hikes. money market suggesting 450 basis point hikes from the federal reserve and how fast the balance sheet rolloff comes. technology is near the bottom of the list down one point 9%. tech suffers as yields rise generally. we are seeing supply chain constraints still a factor and
that is illustrated by what is happening in china with a lockdowns. let's get back to the energy question then and how far and how fast germany is prepared to go. european energy ministers holding a special meeting in brussels today. the war in ukraine continues and it comes after bloomberg news reported officials are considering a new package. that is when it could be announced. for more, we go to our european correspondent maria tadeo who is following the meeting in brussels for us. what is being discussed? maria: this is a meeting all about oil and potentially that embargo. i should note it is a light embargo. the germans have dropped the veto to this as long as they get a gradual phaseout. they talk about a transition period so the german industry can adjust but they would in
principle be in favor to this light embargo. the other important thing and robert havoc, the vice chancellor and climate minister will be attending the meeting. friday he took a quick test and tested positive to the coronavirus but yesterday's test came back negative so he will attend. there was an interesting set of data suggesting this could happen quicker because in fact germany is already majorly reducing its energy dependence on russia. to give you a few numbers. the germans say gas imports from russia have declined from 55% to now 35% since the war and oil has dropped from 35% to just now 12%. oil for the germans potentially from the -- for the germans potentially until the end of the gear so it is doable. tom: in terms of the division
that vladimir putin is trying to go for with the support traditionally -- that is starting to play out. we are starting to see that. maria: it is a big problem for the european union. until now there has been unanimity throughout the war and for any sanctions to be approved they need to be approved unanimously wide the eu 27. we talk about germany, the biggest economy. it is not the only country here. when you look at hungary, today we had a warning from victor or ben's spokesman -- from victor orban's spokesman saying it would be detrimental to our economy. repeating also that the country favors paying in rubles. this could get tricky. i would note and this is always
interesting when you look at victor is that you have to make a difference between what he says publicly, his bravado and what he does behind the scenes. until now, he has voted in favor of every sanctions package from the eu to russia. we will have to see if he is the odd man out or not. tom: the difference between the rhetoric and the reality when it comes to him. thank you, maria tadeo on the ground in brussels for that important meeting that she says could get contentious. we have a line from the german economy minister saying germany would be able to endure an oil embargo but there is still no unanimity -- unity among number states on the question of an oil embargo. reinforcing the divisions i continue within brussels on this question it again saying that germany would be able to endure that if it came to that. let's stay with the european
energy story and bring in the director of bruegel, guntram wolff. is it feasible that germany could wean itself off russian oil by the summer? what with the economic implications of a move like that be? guntram: thank you, tom. i think it is feasible. the german economics ministry has spent a lot of effort in finding alternative sources for oil and in particular, there is the last 10% or 12% missing 41 refinery in the northeast of germany. and for that, there is already a political solution in the form of a deal with poland so germany would be able to procure this oil from poland. in the end, it needs to be
sorted out on the ground technically and physically. but politically, i think germany is really equipped now basically wean itself off and survive without oil. tom: when it comes to the european approach, the hungarians making it clear over the weekend that they would not support a full oil embargo on russia. you expect that to remain the case? will there be no movement on that case given the opposition we see from hungary? guntram: hungary can try to veto but so far they have not dared to veto. i think ultimately for the hungarian prime minister, it is a really important question. if he were to really veto such a deal, he would play into the hands of vladimir putin and while i understand he wants to
protect his economy from the effects of a full embargo, hungary also has a history of having been invaded by the russians. so i cannot imagine that ultimately this goes down well with the hungarian population. in the end i think he will vote with the eu. and if he really opposes it, you can go for an intergovernmental solution where 26 countries vote yes and do it based outside the eu institutions and leave this one country out with the same affect and a very strong message isolating hungary. i don't thing in the end hungary will do that. tom: when it comes to the question of gas and this is much trickier for the germans and other states, what progress, concrete progress has there been made to make sure there is
sharing and the infrastructure has been improved? to what extent has there been greater alignment in the last few months? guntram: the first point to notice is that these are severe mistakes that have been done in the last 20 years that have increased germany's and europe's dependence on gazprom and russian gas. it is time to address those mistakes and reduce the dependency and diversify sources . this is the key lesson we need to take away from this. i think governments are really trying to do this but obviously it takes time to build terminals. it takes time to build new terminals from spain to the east. but i do think there has been some progress. we know that for example a country like bulgaria is starting to have more lng capacity and there would be a pipeline from bald -- bulgaria
to greece which would ideally be opened in the summer or the fall. this is progress but progress takes time. if light emerge putin was really do cut off gas, a lot would have to happen by basically reducing demand and shifting to alternative energy supplies such as coal and oil where i think new sources can be more easily found than for gas. tom: when it comes to the broader sanctions regime, there are still a lot of questions about at what point the eu, nato, and the u.s. look at what would be the trigger point? the german foreign minister coming out and saying it would require the retreat of all russian troops from all parts of ukraine. is that now the consensus? guntram: well, i mean, this is a
fiercely debated and i think the european union and germany in particular would be well advised to really follow the ukrainians in this question because it cannot be that in the end of the day, a country like germany decides on what is the point of acceptable compromise between ukraine and russia. i think the west should see itself as supporting ukraine as much as possible because ukraine is really not just fighting for its own existence vis-à-vis russia, it is really fighting for western european values and even our security. in that sense, i think they deserve our support and everything else we have to see and discuss with the you -- with the ukrainians and they have to give us a sign for when they think sanctions can be lifted.
tom: welcome back open. geopolitics remains top of the agenda. the german chancellor plans to invite the indian prime minister as a special guest to a g7 leaders summit in germany next month. it is a bid to sway india into joining the international alliance against russia. we are joined by our german reporter. the invitation, is it significant in terms of a gesture to india and how likely is modi to see this as an incentive to more closely align? >> i think it is a strong signal to india because it is not normal to invite another country in this current situation to a high-profile g7 meeting. it is clearly a sign that germany actively seeks to reach out to india.
we know that the chancellor and other ministers in the government are concerned with the russian war, after the war, there will be a more fractured global order and that the world will be divided between two different blocks again. and india has been staying neutral and has not supported the sanctions against russia and it is also not condemning russia. therefore germany is willing to reach out and foster economic ties in order in the long run or medium run to tie india towards the western block. tom: our bloomberg berlin bureau chief on the attempts by germany to pull india in to the direction. with an offer of g7 number ship
at least on the periphery. german companies are in a tight spot. the war escalates it could lead to an embargo on russian gas which in turn leads to restrictions on german -- the german economy. what are the biggest risks to german companies when it comes to the question of german energy imports? >> the biggest risk would be an abrupt cut off from russian gas. the related risk to oil or to coal are clearly there. it will hurt the companies and make things more expensive. the actual proper risk, the biggest downside scenario would be on the gas side of things and that is because basically many of the bigger industrial manufacturing sites across the country are directly linked to russian gas imports via a
sprawling network of pipelines. that would give the system potentially an immediate shock basically if supply were to come to an end abruptly. tom: what have companies been doing? they have had at least since february 24 to look at mitigation steps. what have they done to reduce the risks from this? >> many of the big industrial companies have basically done a very thorough review of their operations to identify areas and factories where they can potentially lower energy consumption to some degree or where they can technically -- or where they can stop or idle manufacturing. when you switch off a complex engine or aps of machinery like for example when you produce glass components, that is not something you can switch off and on as you wish because it is
technically more complicated so that area is much more difficult to react to a new potential set up. tom: do we have clarity as to which industrial sectors are most affected? >> yes, i think the biggest will be among the utilities. uniper is one of the companies that has been hit hardest. they have a significant exposure to russia. they have operations that rely on the whole business as a company and it accounts for a fifth of their revenue. in other areas it is less pronounced but all manufacturing sectors really feel the impact from high energy prices and that is something that is potentially going to be here to stay i guess. tom: our frankfurt bureau chief on how german carpets are trying to readjust to an environment of less russian oil and gas.
there are more wild rides in the crypto space. the creator of the popular bored ape yacht club collection launched a sale of virtual land. the sale raised about 320 $1 million of cryptocurrency as users scrambled to get one of 55,000 pieces of land in its metaverse project. there has been a lot of hype living -- leading up to this. let's start with the bored ape question. the demand for virtual land. help us understand. eddie: and absolutely lovely story -- an absolutely lovely story. i adore the bored ape picture spared the creators of bored ape have said here are some limited
series of parcels of land. they went on sale for $19,000 per parcel of digital land. people went crazy for it. people made money in non-fungible tokens. this is another opportunity from a successful publisher and we will get behind it and by more of the digital land and do our thing with it. but it showed a lot of the problems that blockchain networks inherently struggle with because the big demand that the networks slowed down, if you wanted to use them for something else during that period, it was not available. it shows us that the network is still fragile. it is not as big as people would like it. it also shows us that there is a
community out there that will buy digital assets and will trade it and see it as a proof of ownership of something scarce. and i think that is going to become valuable over time. tom: is this the use case that warren buffett is missing? eddie: in a sense it is, right? in a sense this is warren buffett's worst nightmare. people are buying digital land and he would rather own farmland. why would i want to own a picture of an ape when i can just copy someone else's picture. but it acts as a proof of ownership of something else. i could have a digital asset, a website, how did you know that i owned this website? i have the nft.
so, for collectors in the first instance it is valuable but there are use cases in things like supply chain. how do you know where a particular potato came from? i think those kinds of use cases flow from this first wave. tom: great stuff. a fascinating story. thank you come bloomberg's mliv eddie van der walt. surveillance early in addition is up next. this is bloomberg. ♪ what's it like having xfinity internet?
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>> my guess would be that the fed is going to need to go further. they're going to be up to the five range to get inflation meaningfully down. >> in the near term, inflation is high. it carries its own risk of momentum. on the other hand the higher energy prices are eating into disposable income. it is reducing consumption. >> we're here to show the country that we are getting through this pandemic.