tv Bloomberg Daybreak Europe Bloomberg May 5, 2022 1:00am-2:00am EDT
bed day gain in a decade. treasuries and aussie bonds yeah --rallied. crude studies after yesterday's gain on the eu banning russian oil. happy thursday, happy day after the bed, as expected the fed hiking 50 basis points but acting as expected. turned out to be a dovish thing. no to 75, that means financial conditions eased. let me get us our europe and u.s. futures check. u.s. stocks rallied by 3% yesterday. continuing to see s&p 500 futures in the drain. sam farr nasdaq. a pause from yesterday's monster rally. msci asia-pacific is up-to-date, it shows the extent markets are saying a breath of relief. even though we have issues in
china when we have issues with tact, hstech is what is leading the benchmark higher. -- tax, asia tech is what is leading the benchmark higher. dani: manus: the fact that that left-hand tailor risk of 75 basis points has been delayed, denied or definitely off the table. we can debate bad. i want to show you the virulent reaction at the short end of the curve. a drop of 14 basis points. the short and repriced aggressively, but 30-year paper does not believe that the fed has really got a grasp on inflation. let me show you the futures trading on 30 year paper, the highest close in three years in 30 government bonds. what you got his two year yield prices dropping ever so
slightly. the 10 year paper trading lighter by two 30nds. we get an opec-plus meeting today, so you are looking at nymex crude one await. 19. -- at 108.19. the dollar index flat on the back of the jumbo rate hikes. dani: a little bit of breaking news. unicredit coming in. it's the start of the italian banking season, loan provisions driven by russia 1.3 billion euros. this is what analysts had looked out for. their ratio of health at the bank 14%, after that hit from russia. their net profit excluding russia coming in at 1.2 billion euros, excluding russia.
they are still committed to distributing at least 16 billion euros through 2024, still trying to give something back to shareholders. manus: let's carry that russia theme through the credit agricole and societe generale numbers. agricole's russia exposure drops. they are saying that net income was lower, 552 million. that is a mess on revenue on the topline side of the business. the market had penciled in 5.7 billion. it is cautious in its provisions linked to the conflict. missing out on the industry boom seems to be the line. they have put 741 million provisional, almost double the
sun set aside a year ago. that is something to bear in mind when we look at credit agricole's numbers. dani: they are missing out on the ficc boom that the rest of the industry has seen. let's get to reporters from around the world or our other top stories. we will talk about the rate hike with our chief aixa --economics correspondent and a current. and stephen stapczynski has been following movements in oil with yesterday's eu proposal to ban russian oil. and an opec-plus meeting is on deck. juliette saly has the latest asia market action. manus: it fell to jay powell to speak to the american nation. to put forth his view on where rates would go, but also to take 75 off the table. >> 75 basis points is not
something the committee is actively considering. assuming conditions evolve with our expectations, we believe 50 basis points should be on the table for the next couple of meetings. manus: enda, this is going to be debated as to whether this was a dovish message to the market, or did the fed really miss a huge opportunity to get ahead of the curve? enda: it's the biggest moves since the year 2000. chairman powell signaled that 50 basis point moves are likely again. he did rule out 75 basis points, we don't know if it was on the table to begin with.
the central message was that that are going to do whatever it takes to rein in it inflation. he did tell people that will mean economic pain. he's not saying he will drive the economy into recession. but rate hikes are coming and he will do whatever it takes to get across the line. some economists are describing their reaction as [indiscernible] dani: enda, thank you very much. let's shift focus to the u.k. were the bank is expected to raise interest rates to their highest level in 13 years today. the central bank will clarify how it plans to sell off $1.1 trillion in government bond holdings. joining us is our economics reporter lizzy burden who is outside the boe. we got that 50 basis point hike from the fed yesterday, what are we expecting from the boe?
lizzy: there might be one or two members who want to follow the fed and go for a 50 basis point hike. bloomberg does not reckon they will be in the majority today. it sees a split vote, that reflects the difficult balance the bank needs to strike. you've got inflation running a new 30 year high. we're expecting officials to raise their forecast maybe into double digits for peak inflation. they are not going to add the weight of the war on the recovery, and you have had a raft of gloomy data since the banks last decision. so we reckon they will land in the middle at 25 basis points which will take the key rate to the highest in 13 years. manus: lizzy, good work. let's see what they deliver. our economics reporter outside the bank of england. oil steadied after yesterday's
surge. after the eu unveiled its plan to ban russian crude. let's bring in stephen stapczynski. this is round seven of sanctions. it looks as if the eu are going for broke on russian oil. it's also the transportation and the insurance. stephen: this is something that the market a few weeks ago was not expecting because russia is such a major supplier of oil. they eu wants to ban oil within six months. and they are looking to get rid of all crude products, gasoline, diesel, by the end of the year. there are some exceptions. hungary and slovakia will be allowed to continue importing through the end of 2023. the bloc is looking to target insurers of russian ships. in the case of an accident or
spill, they need insurance. if they don't have insurance, the shipper or buyer could be on the whole for billions of dollars worth of cleanup costs and a tough lawsuit. we also have the opec+ meeting later today. we are expecting a rubberstamp situation where they increased modestly because of the outlook in china. china is grappling with government lockdowns, and they are inspecting that to continue. dani: that's bloomberg stephen stapczynski. now to china, where u.s. regulators have added more than 80 companies including some high-profile chinese names to its list of firms that might be expelled from american exchanges. with more on china, we have juliette saly. hong kong is rallying despite this fear, what's going on? juliette: that has more to do with the fact that beijing has
pledged policy support to this sector and the economy while sticking with its covered zero policy. you are seeing a rally in hang seng tech stocks, and some of those companies that were going to be added to this list including bilibili. this is on reports the biden administration may impose some of the harshest sanctions yet against chinese companies. due to the fact that it has allegedly. the csi is returning from trade after a break, it had been rising in the morning session amid these pledges by beijing of policy support. have a look at my chart after we saw the services pmi plunged to its weakest since february 2020. a second month of contraction continuing to show the impact of these lockdowns particularly on
services. so investors want to see some of these pledges from beijing followed up by concrete policy support. manus: jules, thank you very much. let's take a look at some of the key market events. at noon u.k. time, the bank of england reveals its latest rate decision. 1:30 p.m. you get u.s. data including jobless claims and nonfarm productivity all heading into payrolls tomorrow. today opec+ convenes virtually. first quarter results will be out from conocophillips. dani: next we will talk about these inflation fears that are part of the fence path -- fed's path hiking 50 basis points. manus: and we will speak to be societe generale ceo.
>> the biggest issue is he is focused on inflation, and he is going to be more volkeresque. >> this is a problem of their own making. >> they were trying to emphasize , they are trying to say, he said it explicitly, there is no conflict between the labor market and it nation. -- inflation. >> going back to the 1930's, we have never been able to reduce in ration more than two went to have percentage points without inducing recession. >> i actually expected 75 to be
on the table. >> i don't think you should have taken 75 off the table. manus: some of the reaction to the fed's rate hike. the market still believes 200 basis points will be on the end of the year. powell acknowledged that the cycle won't be without some pain, though he is confident it will not bring about recession. the senior rate strategist at ing, that short end of the curve, i'd say what is a verily up to reaction -- very light reaction when 75 is taken off the table. and yet 30's move above 3%, do you think it was folly for
them to take 75 basis points off the table? antoine: my advice would be don't rule anything out. the fed might still need to hike 75. he has kept unsurprising to the upside. the risk is still there. should they have ruled it out, not necessarily. but it shows that the market needs to be ready for a hiking cycle of 50 basis point increments for at least the next three meetings. dani: if the risk is still there, is the market just misinterpreting powell? was yesterday's move not the right one? antoine: i don't think the market should change its view of the terminal rate in this cycle. it's just a repricing of the degree of nation panic -- of
inflation panic. the fed wants to look like there more on them control -- like they are more in control. manus: they took 75 out the table, i know it is early to argue this, but one could say they have missed the greatest window up front running the narrative that they were ever given. they just closed off the golden moment, yes or no? antoine: two things to that. the long-term interest-rate swaps, they rose after the meeting, suggesting like you said that perhaps the fed is slightly less in control. what the fed will be looking at is does the 10 year breakeven not cross the important 30% line. -- 3% line. what will tip the scales in
coming meetings is whether long-term inflation expectations do cross that line. dani: we have a chart from our energy -- our edithat shows the five-year breakeven spiking after yesterday, is this the market saying we don't know if you have that firm grasp as you say you do? antoine: another point i was going to make, if you compare the volatility in dollar rates versus euro, it's a good indicator of the market hawkish tone. we did not really know where the cycle will and, if ecb was behind the curve or to gradual. so that's clearly a preference in the market for a hawkish tone. manus: there is a another part to this called quantitative
tightening. you reckon 95 billion as the baseline, given they have taken 75 basis hikes off the table, does that increase the risk of a pastor cute -- faster qt? antoine: i don't think so. this is not what they want to do it every meeting. i don't think it is set in stone that they will change it. dani: we have seen bonds rally after a year that they have been crushed, heading for the worst year on record, has investor sentiment changed? is there a fundamental shift given the damage asset managers have sustained? antoine: it's too early to say.
it's the beginning of a hiking cycle. the main question is how far the fed needs to go to get inflation under control. and i don't think we have more information on this today. the terminal rate will be around three quarters of a percent, but it could be easily higher or lower. market sentiment will take a long time to shift. my view is we are closer to the end of the selloff. dani: antoine, thank you for joining. antoine bouvet, senior rate strategist at ing. don't miss our exclusive interview with jp morgan ceo jamie dimon, on deck next. this is bloomberg. ♪
dani: welcome back to bloomberg daybreak: europe, i'm dani burger in london alongside manus cranny in dubai. jamie dimon says the federal reserve should have moved quicker to hike rates. he told francine lacqua exclusively that the bank's actions leave only a one in three chance of a soft landing. >> very strong u.s. economy. consumers in great shape, lots of money. jobs are plentiful. though everything is distorted by inflation. business in very good shape. and that that is going to have to raise rates and reverse qe. enough so that 8% starts to come down over time. we are a little late. two years ago we had 15 years -- percent unemployment and no vaccine. the sooner they move, the better.
they are going to be raising rates. >> they talk about strong u.s. consumer, but you also talk about storm clouds? >> i hate the word unprecedented. there is monetary induced unbelievable growth around the world. we've never had that before. we have never had qt before. you look at q. week, that is one of the greatest experiments that has ever been done, and we are going to have to reverse it. it is a huge change in flows. my view is that rates will have to go up from here. and then you've got ukraine, which i think -- when you look at ukraine, the wishful thinking is that fed-induced slowdown works. but there is a chance this goes on for years, and you completely rattled global energy and wheat markets.
the western world needs to be prepared for that. and needs to take every action today to be prepared that that could get really bad tomorrow. >> so how do you handle that? what is your plan if it all goes pear-shaped? >> we will deal with it. that is life. >> how? >> american growth, i call this the marshall plan for energy, that we do everything we can. this doesn't violate climate change. but you do everything you can to get oil and gas into the hands of europeans so they don't freeze in the winter. i'm not saying it is going to happen, but you have national -- global energy is precarious. >> could europe see a recession because of the energy crisis? >> our economy says europe has slowed down to 2%. and economists agree with me, we
are looking at a static analysis rate but you were nine over for sure things don't stay the way they are. there is a very high chance oil will go higher. it only takes a million or two markets off the day that could drive prices up 30 or $40, and so we should prepare for that today. manus: great interview with francine and the jp morgan boss. quick snapshot of a repricing post the fed, you might have had euphoria, but we want to focus on the rates. you are looking at aussie rates now down 17 basis points, down by a third of a percent as the dollar remains the king. dani: an analyst says acting as expected turns out to be deb fischer. -- dovish.
bank of england is up next. crude steadies after yesterday's gain on the eu banning russian oil. it is a reappraisal in this market. it's not dovish to hike 50 basis points, but a dovish move in this market. manus: absolutely, the biggest hike in rates since 2000. the stock market loved it, it was quite literally euphoric. i want to show you the bond market. the long end of the curve does not believe that that has got hold of inflation. -- the fed has got hold of inflation. jumbo rate were taken off the table. 10-year futures down this morning. you are looking at the long end, the 30 paper in futures, prices decline, yields rising slightly higher. crude up after a 5% rally on the eu banning russian group.
jamie dimon says you could have a long enduring war. $30 of risk premium is not in there. and the dollar steadies again. you are seeing hybrid currencies drop as zero covid endures. dani: they euphoria that you spoke of taking a breather when it comes to the u.s. new jersey session. flat after rallying some 3% yesterday. the fed is worried about a moderation in growth. stocks were far too optimistic, at the same time, we have europe playing catch-up, up nearly 2.5%. they did not get the same boost the u.s. had gotten. this is msci asia-pacific without japan. a gain of someone percent despite a possible u.s.
crackdown in china listings in america. and yesterday's rally in tech in general after that fed decision. manus: socgen got their boost from higher rates and volatility in q1. helps to offset rising costs as the lender prepares to exit russia. revenues rose 17%, beating estimates. let's get to paris, caroline, is on the ground with frederic oudea. caroline: i'm happy to be joined by the ceo of societe generale, good morning. frederic: good morning. caroline: the equities were slightly missing on the cost of risk and operating expenses read can you tell us exactly what has been the impact of the war in you rein on your activities? frederic: strong performances
across the board. and strong management of the costs related. the cost of risk, 60% comes from russia both onshore and offshore exposure. the rest of the cost is very good. it is 39 basis points under control. we will book the impact of the disposal of rusbank in the second quarter. the impact of capital is largely good in the first quarter. when we will dispose in the second quarter, the impact on capital will be very limited. caroline: how much did you get from the sale of rusbank to vladimir putin? analysts expected will cover the subordinated debt, is that all you got? frederic: we don't disclose the detail. we had that which is positive
for the subordinated debt and beyond. caroline: aren't you afraid that vladimir putin will end up on these sanctions list before the deal is closed? is that something you expect in the coming weeks? frederic: if it were to happen, we will probably request a license. for the time being, it is not sanctioned and we are moving ahead smoothly. caroline: how much to expect in terms of impact in the second quarter? frederic: it is roughly minus 3 billion euros. as i said, in terms of capital impact, we had communicated 20 basis points, 14 basis points is already booked in the first quarter so the marginal impact would be just six basis points terms of capital. caroline: how much provisions do
you ultimately expect to book from your offshore exposure to russia, excluding rusbank which is estimated to be around 2.8 billion euros? frederic: that's come down in the second quarter. our ratio remained steady at 2.9%. we are giving guidance for 30-35 basis points for the full year, we had set below 30 basis points, so a marginal effect on the customers. caroline: then you have a secondary effect of the war in you reign, the impact -- ukrain e, the impact on growth, do you expect a recession in europe and how do you position for this? amrita: i think the outlook remains uncertain, as well as the final outcome. our central scenario is more of a soft landing of the gdp, than
a recession. we have a monetary policy in europe which would be very progressive. on inflation, yes, which will remain more important for longer because of the war. also related to energy prices. but then a soft landing. that's where we stand. caroline: we had the fed decision last night, what do you expect from higher rates? is that good or bad news for societe generale, your equities revenues were beating estimates, up 19.5% and fixed income up 22%. how do you expect to position with those high rates? frederic: i think this phrase was expected. i think the contrary would have been worrying for the markets and we saw a positive reaction. a monetary policy will be seen
by the markets as normal and good news. second, the performance is exceptionally strong in the first quarter. in different circumstances than last year, that shows the successful hard work we had on the business. both for fixed income integrity, and we are confident going forward to deliver good performances. caroline: so we can expect this kind of performance to be sustainable? frederic: there is always seasonality. the first quarter is always a strong one. not with 1.7 billion every quarter, but we are positive for good work we did. caroline: what do you expect the ecb to do after this fed decision? frederic: something probably more progressive in europe. the inflation is not as strong. but progressive normalization
probably, buying less bonds. then progressively increasing rates. caroline: both deutsche bank and ubs have warned about payroll pressure, inflation of wages. is that a concern for you in the race for talent? frederic: first quarter, big cost to income is 10% below our guidance for the full year. we are maintaining our guidance for this full year. we think we can monitor the cost this year. i think is probably more a u.s. thing. pressure is more important in viewers -- u.s. then europe. we have a relationship with our staff that is not just built in money. our working environment, the positive challenges, the sense of purpose of the company is also important. so it is one element which remains uncertain, but overall i
feel that we can control. caroline: we have the reelection of president macron 10 days ago, do you see any market risks with the legislative elections next month? frederic: i'm not a politician. the voting system in the parliament in france should not lead to a significant surprise. the polls seems to say if you have an even majority in the parliament. caroline: frederic oudea, ceo of a societe generale joining us for first-quarter earnings in france. dani: the socgen ceo speaking about the outlook for europe's economy. now let's get to the first word news with juliette saly in singapore. juliette: boris johnson is to meet his japanese counterpart in london today. they are expected to discuss a
plan to help asian nations diversify away from russian oil and gas. this as the un's has more than 300 civilians have been evacuated from mariupol in a new safe passage operation. chinese travel spending plummeted over the national holiday as the stringent covid restrictions cap people at home. tourist spending was down 43% from 2021. the number of rail trips fell 80%. brazil's central bank has raised its benchmark interest rate to 12.75%. it also signaled another height of a smaller size may come next month as policymakers seek to contain rampant inflation. brazil has raised rates by 10.75 percentage points since last year. booking holdings has reported better revenue, benefiting from
pent-up demand for leisure travel. shares jumped in after hours trading as it reported a record quarter for gross bookings. as travel executives say they are expecting a surge in bookings as consumers splurge. global news, 24 hours a day, on air, and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries. manus? manus: juliette saly in singapore. the energy aspects director of research amrita sen joins the team. today is an opec+ decision post video decision to ban russian oil. our reaction on bloomberg. ♪
manus: opec-plus is due to hold their virtual meeting today. they will add approximately 430,000 barrels of oil a day in june. despite the risks in a global energy market that some are warning is in april areas position. -- precarious position. >> in my view, the most important thing is we do everything we can. this does not violate climate change or change long-term objectives. that we do everything we can to get oil and gas into the hands of europeans, so they don't freeze in the winter. i'm not saying it is going to happen. but global energy is precarious. dani: the ceo of jp morgan there. or more, we are joined by the
director of research at energy aspects. jamie dimon talking about a need for a sort of the marshall plan for american energy. there is a huge move on the american energy sector. diesel prices have gone absolutely parabolic. supply, storage and stockpiles at a 2008 low. this before we possibly get an eu ban on russia, how does this play out? amrita: i'm glad you've asked about diesel prices. with all the focus on crude prices which are high but not as high as product prices, the market misses the point on how tight fundamentals are. crude is lacking other products. you've got recessionary fears, concerns about chinese growth. a lot of the spr, 90% is crude-based. and there is refinery maintenance.
product prices, particularly diesel, we have a serious problem in resupply. even when refineries come out of maintenance, we expect them the thousand -- demand is growing if you look at southeast asian demand. it is absolutely surging because this is the first year in two years where covid restrictions have been lifted. even though china has got lots of mobility restrictions, the government is prioritizing infrastructure spending to boost growth. that helps in boosting diesel prices at a time when chinese product exports structurally are lower because of government policy to focus on environmental concerns. diesel prices will remain at multi-year highs throughout this year. especially around the winter with the european band, we could risk running out of diesel. manus: if you go to the brief
item oil this morning, it is 90 days so far, the most since 2011. let's get to the top headline because i want you to tell us how will the eu when -- wean itself off of russian oil in six months? explain. amrita: europe imports about 3 million barrels of oil a day from russia. the short answer is that they cannot replace that from elsewhere. we just don't have alternatives. the answer is we will have to cut demand to be able to balance this market. dani: will this be a case that supply is just lower out there from an eu sanction on russia, or is it just shuffled around with new buyers? amrita: there will be reshuffling.
we have seen india buying a lot more russian oil, half a million per day. china continues to buy sbo, but it is continuing to [indiscernible] as well. hungary and slovakia are pushing for exemptions, so let's assume about half a million barrels continues to flow to europe. not all of it will find its way, is my point. manus: you've said factually we cannot do it. which takes us back to has the eu made a false premise? jamie dimon talks of a marshall plan for energy to make sure oil gets into europe to avoid a crisis this winter, do you agree? you can have an spr, but that is not exactly a marshall plan energy.
amrita: the spr is going to help in the summer. we are going to get more u.s. and west african crude, even more middle eastern crude, but the volume will not stack up. remember china is still in covid doldrums. imagine when they come up to buy, europe is going to lose out to asia when it starts to compete for oil and gas. the problem we have is that demand is still growing in europe. that's what needs to be tackled. dani: what does opec do that? amrita: opec will stick to its policy, 430,000 barrels of quarter increases a day. production continues to live quarters because there is no spare capacity outside the gcc. three to september when the deal ends, they are going to stick to their plan. manus: let's see how history rights that up in terms of their
response mechanism. very quickly, you've said it twice now in this interview. that they need to change the demand structure in europe. does that mean government and forced shutdowns of industry? how catastrophic can demand control get? amrita: governments will probably have to step in and reduce industrial demand. the biggest thing is to stop subsidizing, whether it is electricity or petrol prices. if consumers don't get used too high prices, why would demand actually go down? that's the biggest mistake the western world is making, artificially keeping demand high because we are simply not being exposed to prices. european petrol prices are already high because of taxes about everywhere -- but everywhere governments are
is it 1%? lizzy: that's what the bank of england is expected to do. there may be some on the committee who want to go for 50 basis points. bloomberg economics does not think they will be in the majority. it sees a split vote that would reflect the economic situation. inflation at a 13 year high. the bank expected to raise its forecast for peak inflation. and inflations are going to want to add the weight of the war on the recovery. we are likely to land in the middle at 25 basis points which would take the key rate to 1%. manus: will the rights market take active qt? lizzy: we have already had passive qt since march. the governor and the chief
economist have said they want to shrink the balance sheet. if we get to 1% today, that is the level at which the bank has said it will consider active sales. so it may get a consultation on how that's going to proceed. the bank needs to work out how much it will sell per month, whether it will do long or short dated maturities. the bank has said it wants to proceed carefully because this is uncharted territory, manus. manus: have a good day, lizzy burden. when my visa comes in for the trip i have just had, i should have bought more. dani: you should have bought more, done a little bit of shopping. it just goes to the volatility in this u.k. market. that question you asked, given the volatility in the bond market, can it really handle qt?
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