tv Bloomberg Markets European Open Bloomberg May 16, 2022 3:00am-4:00am EDT
here are your top stories. if lockdown have a china adjust the outlook for consumer spending. stock futures and oil are weaker. germany will stop importing russian crude by year end even without an eu-wideband. nato prepares to welcome finland and sweden. grayscale which operates the world's biggest crypto fund makes its european debut with a new etf. we speak to the ceo this hour. >> let's take a look at that futures. a bit of pressure which has a lot to do with the global environment. food prices are higher. and a bit of concern over china. >> a lot of concern around economic data particularly consumer spending, down just over 11%.
industrial production slumping as a result of lockdowns we are seeing in shanghai and in jiling province. many analysts saying it will continue to remain challenging. we look for that policy response, some of that came through with cut morning -- mortgage rates. in terms of the read across, a reminder of stagflationary risks. year-to-date, global stocks down about 17%. inflation prints out of the u.k. and eurozone are later this week. the cac 40 lower by .7%, the ibex lower by .5%. the geopolitics with that headline out of finland and sweden, and how that plays into this crucial week. let's see how things are playing out across assets. worth reminding viewers that on friday, it was a solid session for both european and u.s. equities, nasdaq ending higher by .3%.
longer-term, pressure remaining. maybe some pockets of value to open up, we will discuss that with bob parker in a few minutes. mastec teachers with losses of .7%. a bit of a move out of risk. the 10 year down three basis points. the pound sterling, this is part of our survey, one point 22, survey suggests you can get to 1.15. in terms of brent crude, currently at $110 a barrel. softer by 1.3%, chinese data plane into concerns. we want to check quickly on crypto, given we have the ceo of grayscale coming up in 30 minutes time. low $30,000. ether is about $3000, but still under pressure.
>> i imagine a lot of these traders are trying to price in global downturns amid price pressures and rising borrowing costs, the main worry on the back of chinese data, which is why there is pressure on oil. when it comes to the sectors, it suggests one group has gained, telecoms. you have pockets of stocks that are not doing too badly, but all the other sectors are on the down. travel and leisure down almost 1%, chemicals and basis greek court -- and basic resources down .7%. reynaud has come to an agreement to sell its russian business. it's a second largest market outside of france. renault down 1% on the back of that deal. ryanair saying it expects to return to reasonable profitability later this year, but warning of potential impacts
of things like the invasion of ukraine, currently down 3.3%. and this is on announcement by baring they will be buying this company. the deal all in terms of that speculation. this is a maker of translation and search services. we will watch that stock when it starts to price. >> let's get to our mliv managing editor, mark cudmore. you are looking at this terrible data out of china this morning. >> yes, good morning. you're talking about companies in the post-covid world. there is one part of the world that is right back in covid times. that is china. this is a 10 year heart -- chart of retail sales and industrial production. yellow is retail sales. we collapsed in february 2020.
we are collapsing again. what is worrying is industrial production has fallen below the start of the pandemic. that means we are getting both inflationary and a negative growth impulse. i'm china, the news is we are getting a stagflationary impulse. these missed economist forecasts, and that is why markets are treading pretty negatively this morning. >> our bloomberg's mliv managing editor, thank you for breaking that down. let's get into some key market drivers with eddie banner belt -- vendor about, but also bob parker. your take on the china data, is this is bad as it gets? the market is right, this is a big stagflationary impulse.
we're seeing if production is slow, you asked if demand has remained strong. it is china still a big factory for the rest of the world economy? that drives this narrative that central banks will have to push up on rates, but they don't want to. they want to bring inflation under control, but they don't want to create demand destruction and i think that's the risk here. >> if we look at markets which are bearish overall, i guess they don't know where to go, there is inflation concerns and a clear trajectory forbade markets, is there any pocke ts of opportunity? >> there has been a lot of talk about value stocks, but they have not been outperforming the way we would like to see. when you break them down, what you see is it is not the buying
of high stocks, it is the avoidance of low value stocks. that's where the outperformance has been. i think europe may be comes back a little bit if we see a pivot away from ukraine being a major risk factor, so there are definitely opportunities. tom: bob parker, let's bring you in, are we finding a floor in these markets? bob: there are a number of important factors. i would highlight the extent of defensive positions. if you look at technical analysis on put and call ratios that is looking very stretched. the degree of investor leverage has collapsed. all of that suggests the big decline we saw in global equity markets read that is highly
correlated. for example, if you look at u.s. equity sectors, over the last month, every sector in the u.s. equity markets has had a negative return. this selling pressure and negative performance was across virtually all markets. we have short-term technical support factors but we have to record highs we still got some serious headwinds. that that is going to raise rates at its next meeting, growth is slowing and as a result i think any support could be short-term. are we going to get a sustained rally from here, absolutely not. >> are we going to get a recession coupled with a pretty strong market correction? you heard from lloyd blankfein saying the u.s. should prepare for a recession. >> clearly, the probability of a u.s. recession [indiscernible] but i would argue it is still
not the central case. the central case is we go through eight period frankly, of a mediocre growth. over the next 12 months, the u.s. is going to average plus or minus 2%. we had the revised forecast from the eu commission suggesting growth is going to be 2.7%. i think they're going to have to revise that down further. and these port numbers out of china today. one indicator in china which is frankly very negative is the service sector pmi which is now down to 36, a recessionary number. i think it is still premature to forecast a global recession or a u.s. recession, but we have to recognize a period of very mediocre growth, sub 2% over the next 12 months for the major economies.
>> eddie, let's bring you in on all things crypto. the tumbled last week, are we seeing institutions come back in and proving supportive within the crypto space? currently below $30,000 for bitcoin. >> it illustrates how volatile crypto is and seeing whether they have the appetite for this. clients have been wanting to get in, so not a surprise they are here at scale. i think the cryptocurrency space is telling us a lot more about wider investment sentiment. cryptocurrencies telus people are bearish. there is no better barometer of risk right now than the cryptocurrency space. >> you heard it here first with our eddie van der walt, also some great mliv surveys. stay with us, bob parker, advisor at.
off sentiment being illustrated. everything else in the red. checking on currencies, euro-dollar currently 1.0 or, sterling 1.22. francine: this week coincided on the showcase of our launch, the question was can the ftse 100 outperform the s&p 500 this year? the majority said yes with 58% backing the ftse. the problem is that the u.k. is still be perfect thunderstorm for everything the world is living through, but so much more intense in terms of inflation, what is your outlook for the
u.k.? bob: i'm afraid it's very negative. the bank of england forecast is that growth is going to contract next year, the second half of this year we are at best going to have flat growth. and inflation is going to remain elevated. the bank of england forecast is too high i think at 10%, but for the second half of this year, a picture of zero growth and 6-7% inflation is the central case scenario. and we've got political risk. you have been talking in the program about the problems with the northern ireland protocol. markets don't like political uncertainty. they don't like the risk of a trade war between the u.k. and eu cannot think of anything
positive to say about u.k. markets -- is that the pound could depreciate very significantly. the ftse is very undervalued. of the ftse can stay undervalued for a long period of time. i think you have to remain negative, and continue to run short positions on sterling. tom: continue to run short positions on sterling. 1.1 five is the view from our participants as a potential floor per sterling, is that the kind of for you expect to see on sterling? bob: i focus on the sterling against the euro, rather than cable. it is underpinned for a further move, 1.04 on the euro against the dollar. we could get to parity over the next few weeks with the fed raising rates. coming back to sterling against the euro, we are trading at
about .85. i think a move towards .87, .88 is highly likely. further selling pressure, and one factor is the spread between 10-year boones and gilts given the prospect of week economic growth. and that takes away some support for sterling. i come back to my point, i would rather focus on the euro. francine: i've heard if you look at the proximity europe has with russia, there is a concern the ecb will not be able to raise rates. is it more on the euro play rather than sterling? bob: i think the consensus is the ecb will raise rates three times this year. that takes their deposit rate to plus 25 basis points.
it's clear the monetary tightening by the fed is going to be more significant than monetary tightening by the ecb. if you look at risk factors in europe, one major risk factor is gas supplies are cut off from russia to europe, and that would have a recessionary effect which would push back the ecb from raising interest rates. it is not the central case. i think the eu forecast of 2.7% growth, that is going to be revised down. it is entirely possible this year will only see eurozone growth close to 2%. tom: are you finding any pockets of value within equities? bob: the answer is that valuations have come down
significantly. i think the japanese market right now represents low risk value. i think it is too early to go into the chinese market. if you look at some of the latin american markets, which rallied significantly, they have adjusted significantly downwards in the last few months and i think there are opportunities there. particularly in metals prices which are correcting. in europe, there are pockets of interesting value. i still think that over the next month or two europe will outperform the states. tom: further outperformance break europe versus the u.s., bob parker, advisor at cbp q uilvest, thank you. let's get the first word news. >> europe's largest discount
airlines says that strong bookings trend could be disrupted by factors including the war in ukraine. it is targeting what it calls reasonable profitability this fiscal year. saudi aramco has posted its highest profit. it posted surging profit on the weight of the russian invasion into ukraine. net income is almost $40 billion, up 82%. a bloomberg scoop has revealed credit suisse is holding talks on potentially replacing this ceo as soon as this year after a stream of scandals and misfires. some members are said to be worried that he is not getting a handle on the banks problems. goldman sachs is to allow senior staff to take unlimited vacation
days as competition intensifies to retain talent. junior employees will still have limits but will get two extra days off each year. staff will be required to take three weeks off each year starting next year. francine: laura wright in london. april data out of china has shed light on the impact of covid zero. more on the impact of that next. this is bloomberg. ♪
francine: welcome back to the open. 23 minutes into the european trading day. stock futures in europe down .8%. concerns about chinese data which is why we are seeing more of a correction. tom: and the chinese economy is paying a price with industrial output and consumer spending sliding to the worst levels since the pandemic again. joining us to break down the numbers is our chief asian economics correspondent. it looks like economists have gone wrong on their estimates, where they undere thes impact of lockdownstimating?
>> it looks out there having a much bigger impact than was expected. you mentioned weakness in terms of industrial output and. on the jobless side of things, there is a survey jobless rate which captures that market which rose to 6.1%. within those numbers, youth unemployment hit a record 16-20 four-year-old age bracket. there is a sense of urgency in terms of putting a floor under the economy. there is some good news coming out of shanghai today with the vice mayor gwen mckenzie roadmap for how to a lot of this. but of course, everybody is asking how sustainable covid
zero will be given how transmissible omicron is. francine: is there something else policymakers can do to ease that pain? enda: we had a big move from the central bank over the weekend where they are lowering costs for first-time house buyers. that is the other side which is the real estate crunch which has not been getting as much attention, and one of the big drags on activity. on the other side of the economy, the pboc skipped an opportunity to bring down the one-year lending rate. because there is enough money in the financial system that will go towards helping the real economy. there was a signal from xi jinping about the critical importance of taking risks out of the economy and making sure
there are jobs in the economy. that speech from december serviced in the press today. more measures will be expected on the spending side of things in the coming weeks. francine: enda curran with a fabulous background. futures are seeing a lot of pressure where there is a repricing and they are trying to find a floor. tom: nasdaq futures are lower by 1%. later this hour we will be speaking exclusively to michael sonnenshein, the ceo of grayscale investment. stay with us. this is bloomberg. ♪
european trading day. lockdown havoc, chinese industrial output and consumer spending sinks to the worst level since the pandemic began. germany will stop importing russian crude by year end even without a ban. grayscale which operates the world's biggest crypto pond makes its european debut. on the markets, things aren't looking too hot. tom: and not within the crypto space as well, either down around 5%. concerned about the data out of china. concerns about stagflation, the chairman of goldman sachs saying there is a very real risk of recession in the u.s. central bank tightness and geopolitical concerns, the nato
expansion to finland and sweden, the benchmark is down by .5%, the dax is lower, and the ftse 100 currently down .4%. let's see how things are across the sectors as the risk off move continues to percolate. futures are lower. telecoms, utilities and basic resources clinging onto gains. telecom the highest at .7%. at the bottom our construction and travel and leisure. ryanair expecting reasonable profitability, but concerned about impacts of situations like the war in ukraine. francine: germany plans to stop importing russian oil by the end of the year even if the eu fails to agree on a ban. european ministers are meeting in brussels to allay hungarian
beers. -- fears. nato has rallied around sweden and finland after they announced plans to join the alliance. that marks a change in europe's security architecture. joining us from brussels is maria tadeo, and our alessandro speciale. still no deal on an energy embargo, good morning to you. maria: that was a big summit for the foreign minister of germany. she got that line that says the g7 will not recognize any of the land grabs russia may be planning on doing, particularly in the east of the country. the issue is what happens to russian oil?
it's been two weeks since the european union put out the initial draft plan. the g7 has agreed too, but europeans are unable to get to an eu 27 deal. what germany is doing now, and hungary continues to block them, we are going to go ahead. the germans have majorly cut their reliance, from 35% of the start of the war to now 12%. we spoke with the top european diplomat who told us there are some reasons behind the hungarian position, we hope to clear the air, and approve this package unanimously. tom: alessandro, let's bring you in. what has been the reaction to sweden and finland joining this alliance? >> it has been a broadly
enthusiastic reception. it had been decades that countries like sweden, 200 years of neutrality now coming to an end. this would be more than 1000 kilometers of borders with russia, and will make it much easier for nato to protect its baltic members. tom: thank you, that was our european correspondent and jerome bureau chief on the implications of this application by finland and sweden to join nato. don't miss this exclusive conversation with the ukrainian foreign minister in brussels. livia paggi, the head of political risk at gpw joins us now. given your deep experience with
russia and vladimir, what is your expected response out of moscow to this decision? livia: at the beginning of this conflict, the issue of finland and sweden joining nato was considered to be a redline for putin. he's really backed down in terms of rhetoric. he's made threats that there could be consequences, but it is much less aggressive than what we initially heard out of putin's speeches early on. this is i believe due to russia's weakening position militarily in ukraine at the moment. francine: it seems like turkey is playing a pivotal role. mr. stoltenberg is traveling there to get them on side. livia: turkey has always played this dual role between europe and russia.
turkey has continued to buy arms from russia. turkey has had a number of conflict with europe itself. we really see it playing both sides, trying to show that it is a key player in this conflict which we have seen them do in syria and other conflicts. tom: that is a split within nato. turkey will see what decision they come to. hungary is proving a problem in terms of getting sanctions across the line, is this a result of vladimir putin welcoming? is this success for moscow? livia: moscow knows its biggest card to play is energy. what we see moscow doing is using energy as a weapon in this conflict, and increasingly so by cutting off gas to poland and bulgaria. the fact that hungary is not playing along with the rest of europe shows how difficult it is
for the eu to unite, and how much the shortage of gas will impact the european economy. francine: how does this change the war in ukraine? even if we don't have fighting talk from pugin, does he become more aggressive with ukraine? it's counterintuitive to say that he does not do anything with it. livia: what we're seeing is that putin has backtracked what it can do militarily in this conflict. we initially saw them looking to take over kyiv and major cities. right now, it is really focusing on the east and the donbass region, trying to consolidate its position there. it remains unclear what will happen going forward, whether he will try again to go for the cities. but at the moment, our military context have indicated.
and therefore we will probably see much more targeted focus in eastern regions as opposed to the whole country. tom: how constrained to see around financing this for the long term? livia: i'm not sure how constrained he is from a binance perspective -- a finance perspective because he is still getting access to foreign capital even though there has been sanctions on the central bank. but from a logistical and equipment perspective, from a morale perspective, he is certainly struggling. francine: which means he will want to only a next part of ukraine, what is the endgame? livia: what putin is best at doing, creating frozen conflicts where he is a master player in a country without necessarily controlling the entire country,
but that makes russia's role indispensable. whether that means focusing on only the eastern part. francine: can he have the backing and back home to continue this? livia: polls do show that there is broad support in russia for this war. it is difficult to tell because the information the population receives has certain biases. they are getting information that might not be accurate. but certainly, he does have majority support in country at the moment for the conflict. tom: livia paggi, head of geopolitical risk, with some fascinating insights and the implications for finland and sweden as they move closer to joining nato. we will be speaking exclusively to michael sonnenshein, the ceo of grayscale investments, about their european debut. don't miss that conversation in
it is their first foray into the competitive crypto etf market. joining us is the grayscale chief executive officer michael sonnenshein, congratulations, it's a good day in all this market craziness. how crowded is the market for crypto etf's? michael: there is an opportunity in the u.s. and the u.k. it is exciting to see both the u.s. and u.k. have put out executive orders focusing on digital asset innovation and regulation. investors have been patient and frankly deserve access to this exposure in the form of an etp that has certain protections and familiarity. tom: given the week we have just had in crypto markets, the
questions around terra, did this make your team pause? michael: it is an equity-based etf. many have come to know the grayscale team for digital asset exposure. we felt it is time to give them, complementary exposure to focus on the companies that are building the infrastructure around the transformation of financial services. the grayscale future appointments etf is about focusing on the confluence of tech, digital assets and finance. francine: are investors really that sophisticated? i want to make money and make it fast, and i'm not sure it is the right time? michael: most of the investors
putting capital into crypto are doing so over longer-term time horizons. they are not going to be deterred by volatility. they know what comes with the territory. fundamentally, if their conviction has not changed and they can buy the same asset 30% or 50% lower than a few days or weeks ago, for a lot of investors that is compelling. tom: how are investors thinking about the space when economic conditions are being tightened and liquidity is being drained? michael: it seems like no asset space could be saved from the recent drawdowns. investors are either averaging down on their positions or taking new positions altogether. francine: you are talking about the crypto believers. how many non-crypto believers are now taking meetings with you to find out about the product? michael: it's pretty compelling
to see who has been investing in the crypto space. any of the regulatory risk some investors would have previously perceived has been funked off -- shrugged off. pensions, endowments absolutely. what's interesting is that it went to retail investors before institutions. institutional adoption has been accelerating in the last 18 months. tom: the u.s. dollar is up on some measures here to date. bitcoin is down about 30% year-to-date. just by the greenback and you are getting that hedge. bitcoin does not offer that inflationary hedge, and within an inflationary environment they are losing value. michael: on a longer-term time horizon, the thing about crypto is that it mean something different to everybody. for certain investors it is a
store of digital value that remains uncorrelated to other markets. two other investors, they may be more excited about it as a technology, but what we have to remember is it remains early days for the asset class. every week we are unlocking new opportunities and use cases around crypto. francine: how did you get into crypto, give us a glimpse into how it started? michael: i've been around crypto for about the last eight years. i had a traditional finance background and was ready for a new challenge to build something. we have an unbelievable team and every day everyone is looking to build and offer access to this ecosystem. tom: talk to me about what happened last week with terra, an algorithmic stablecoin, and then you have tether, are you concerned about tether, first
off, and is this the death for algorithmic stablecoin's? michael: these were assets created to have liquidity remain primarily for traders and others moving out of different asset positions and not wanting to have to rely on traditional banking. what a lot of investors are thinking about is evaluating different stablecoin's, are they functioning as intended? we did see a lot of leverage in liquidity, out of the system generally when you see that happen it tends to be a good lesson for the crypto ecosystem. and it does come out stronger and more resilient. francine: are you expecting these kind of crazy swings to last for much longer? michael: crypto is a new ecosystem. i will say the market is as developed and two sided as it has ever been. you have lending, derivatives and all the trading tools that
investors at one point never had. a lot of that will help to dampen volatility over time. tom: do you look at price levels work crypto's in terms of floors, some people suggested $30,000 as a crucial level, are there levels were looking out for with bitcoin? michael: i'm not going to pretend to be able to pick spots, if i did have a crys tal ball, when you look at who is investing and how early it is, i think the opportunity remains quite bright as a whole. francine: are you setting up shop in the u.k. or europe to expand here? michael: the team was very thoughtful about our launch. we did not want to look at your as an entire content -- continent, but look at different financial hubs with different
investor appetites and behaviors? francine: which ones? michael: the etf will be launched on the london, deutsche bourse and italiana, but it wil l expand in europe. tom: the clock is ticking around that deadline with the sec to convert the grayscale fund into an etf, do you think you will get to that deadline? michael: global viewers know what is happening. in the u.s., grayscale runs the bitcoin trust, they have been working proactively with the sec to convert into an etf. we continue to make progress with regulators. investors who have been in this audit have been advocating for this to convert to an etf.
as i said, it is a matter of when, not if. francine: you confident it will happen? michael: it will happen and we would love to be able to bring assets like that to europe. francine: michael, you have to come back. michael: i will. francine: pinky promise, that's what we do on the bloomberg. that was grayscale's chief executive officer michael sonnenshein. tom: the european bank for reconstruction and development commits one billion euros in aid to ukraine. we will be joined by the president to discuss how the bank is reacting to the fallout of the war. ♪
francine: welcome back to the open. we are 54 minutes into the european trading day. still seeing pressure, we opened about .8 percent lower, now european stocks are down half a percent. concerns about global growth and china, central banks moving inflation, mr. blankfein of goldman sachs saying we could look at a recession in the u.s. tom: an interesting call from j.p. morgan, they are upgrading
some china internet stocks to overweight. this is the same team that put out the note saying chinese tech was essentially on investable, -- uninvestable, which we then found out was a mistake in terms of publication. significant uncertainties remain, but they should start to abate on the back of certain regulatory announcements. francine: u.s. futures also with a downward trend. the g7 wednesday will give us an indication of what could go right or wrong in the economies. on the u.s. board, the futures are down .6%. telecoms are advancing, bono phone climbed after an emirate firm bought 10% of the company. and the 10 year u.s. yield
dropping. tom: we continue to watch for parity on the euro-dollar. essentially range bound. and starlink, this is part of our survey today, the forecast of 1.15 on pound-dollar at some point this year. 1.22 is where we are now. the u.k. front and center when it comes to concerns about stagflation. francine: that's it for the european market open. surveillance: early edition is up next. we will look at china, politics. this is bloomberg. ♪
xfinity mobile runs on america's most reliable 5g network, but for up to half the price of verizon so you have more money for more stuff. this phone? fewer groceries. this phone? more groceries! this phone? fewer concert tickets. this phone? more concert tickets. and not just for my shows. switch to xfinity mobile for half the price of verizon. new and existing customers get amazing value with our everyday pricing. switch today.