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tv   Bloomberg Markets European Close  Bloomberg  May 30, 2022 11:00am-12:01pm EDT

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guy: european stocks higher, the countdown to bang the clouds start right now. >> the countdown is on in europe . this is bloomberg markets: european close with guy johnson and alix steel.
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guy: 4:00 in london, 30 minutes to go until the close. stoxx 600 up, luxury stocks doing quite well because china is going to open the door after a. of long suppressed growth. you also have the euro-dollar on the move. we have just seen comments from governor waller over the fed. the governor supporting hikes. to bang israel debate over whether you get those kill or more 50 basis point hikes from the fed. governor waller coming through on the hawkish and end, talking about several 50 basis point
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hikes, talking about moving above neutral but cautioning beyond that and is supporting the move to neutral by year end end. 50 basis point hikes could be close to bang 2%. keep hiking through the, we could have an awfully long way to go. potential for the ecb to go faster. we have seen a harmonized print out of spain and germany. to not to discuss. then factor and bang what is happening with china, a reopening trade will ease demand and supply, which could help deal with inflationary headwind. let us bring in the ceo and head of research at macro hide.
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let us start with that 50 basis point hike for several meetings. you guys discuss this all the time about how high the fed is going to go. where do you land at the moment? >> we think at least 5.25. we think they're buying is a real possibility they could go to bank almost -- go to almost 8%.that would be much lower in that context. equities in our view, a large part of what makes them higher is low interest rates, but if we get interest rates up to 8%, that will crush earnings. guy: your review is defined is more about inflation and less growth. a recession is probable? >> yes. even 4.5% is recession
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territory. inflation is high the u.s. the fed will need to raise rates a lot to get down to 2%. guy: nobody seems to believe that the fed is targeting -- the fed will be happy with 3% or 4% inflation. you get it to the macro level but not crash the economy. >> in the end, a large part will be the political response to inflation at 3%. will households still be complaining? guy: jerome powell said tuesday -- that could be an interesting meeting. how do you think that gretchen will go? you laid out a country that will
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be hit hard. do you really want that if you are a politician? >> i think the main focus will be inflation. if you look at political polling in the u.s., the biggest issue is inflation. he will encourage powell to do something. talons here is supply chain issues. if the fed is the only tool to bring inflation down, they will have to raise rates dramatically if biden is not doing anything on the supply side. guy: dac -- pcb, 8.7% print in germany today bank. how much this the spread need to close? >> what the ecb has been saying
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is that a large amount of this is related to commodities. the data we are seeing the moment comes as that even commodity related inflation has not turned yet. inflation was supposed to go down a bit this month but instead it has gone up a lot. huge pressure on the ecb to do something. guy: china is the other question. in reopening potentially in beijing and shanghai this week. is that good news or bad news? on the good news side, it will ease up supply chains and provide more manned, but that demand story could be negative. >> hard to say. markets are positive -- thinking positively at the moment, the larger question is how
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sustainable is this lifting of the lockdown? will we have another? we do not know the level of vaccination in china. if the population is not highly vaccinated, there is a risk of another lockdown. guy: is that your base case? a series of lockdowns and this is not the ending of this process? the economic impact is not big enough that chinese authorities will back off of the road because it? >> it is hard to tell. can you accept high -- the high level of debt amongst the elderly population that is not vaccinated? guy: is this an entry point into china? would more stimulus help?
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the chinese -- -- chinese stocks have not done that well. >> we still have regulatory issues. ultimately, the direction of travel is regulating the private sector. the most common transmission of stimulus is the property sector. that sector is impaired in china right now. i am skeptical. near-term, we could be someone, but there bring it -- there is not enough to policy big rally. guy: thank you. keeping you up-to-date from around the world is angel feliciano. angel: in germany, inflation has hit an all-time high, adding urgency to the ecb's stimulus.
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prices rose 8.7% from eight year ago. european union nations have not broken the stalemate over a russian oil embargo. hungry refusing to back a compromise on sanctions. >> we have been working hard and successfully sanction packages already. it has never been easy. the commission and the french president and i have been working to move forward on this package. we are not there bring -- there yet, but my expectations are that we will be there in the next 48 hours. angel: all members would have to
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agree for sanctions to be imposed. in nepal, the bodies of 22 people on board a plane that crashed have been recovered. global news 24 hours a day on-air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i am angel feliciano. this is bloomberg. ♪
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guy: german inflation hitting 8.7% in may. that is a data series high. this adds to the urgency when it comes to the ecb's exit from
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crisis era stimulus. are we going to see and acceleration of the ecb's playbook? the message from christine lagarde is one of caution but one of needing to do something in order to stem this crisis. is that caution going to prevail? are we going to see the ecb moving quicker when other central banks are pressing on the accelerator? >> there is a case to be made for that. the ecb has always said it is data dependent. spanish inflation has come in higher than expected, german inflation higher than expected. we will get an idea of where the euro is tomorrow.
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policymakers are meeting soon and will decide. christine lagarde has already said that after the start of july, rate hikes will follow that month. there is a debate to be had about how big that rate increase will have to be. voices are getting louder about 50 basis points. guy: 50 basis points, how big a shift with that be? would that be 50 basis points and then expecting the market to extrapolate more? what would be the message? jana: it is certainly not the mainstream scenario. the plane has been cautious lately, but if you look closely
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at what president lagarde has said, she has said left off in july, at the end of negative rates by the end of the third quarter, whether that is zero 4 --, both is possible and will depend on data. guy: how big a concern would fragmentation risk be? you get a big reaction in dtp. jana: that has been a concern for the past month -- fragmentation has gone up. policymakers do not seem extremely concerned about the spreads. they have widened, but not to the extent we have seen in previous episodes of crisis.
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the vice president said last week that spreads are nowhere near levels that trigger similar responses than in the past. it is contained, but there is a risk that the situation will deteriorate. that is something they will look closely at. guy: thank you very much, joining us from expert -- from frankfurt. if the fed is going to hike rates, how high does the ecb need to go? >> at least 3%. the challenge for the ecb is that they are worried about the economic fallout from the current picture. unlike the u.s., europe has an energy problem. with while they have incredibly
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high inflation, they are not calling for domestic hikes from the ecb. the hit to the industrial sector is top of mind for the german economy. ate 50 basis point hike is possible but not probable because the ecb is cautious. 25 is the most likely outcome. guy: to the question of fragmentation, how you think the ecb will react? >> they have sold out of, but if you look at the selloff relative to treasuries and bonds, it is what you would expect. it has not weakened a lot more relative to those markets. if we were to see 50, it would widened significantly. guy: in the u.k., there have
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been plenty of calls for crises -- sterling crisis over the years. bank of america is saying that if we head towards his turn crisis as the currency struggles , is increasing hard to decipher and less transparent. we worry u.k. policy undermines the pound. we have seen significant headwind on the supply side and the sense that the doe is losing control -- boe is losing control over its mandate. this is date bit edgy for the -- a bit edgy for the u.k. >> i think the u.k. does have these big challenges, but every developed country has these issues, everybody has incredibly
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high inflation, the challenge that central banks have been late to react to inflation. it is more about developing markets as a whole. the way the u.k. is behaving is similar to the way europe is behaving. we just have to look at the bigger picture. overall, dm markets seeing higher inflation then em. the american market not prepared to talk about the supply-side. there does not seem to be much narrative around brexit, which is unspoken at the moment. i am starting to hear more and more that the u.k. designated significant supply-side reform and it is probably at the forefront of needing that to happen soon.
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if it does not, what are the implications? >> i agree there needs to be something on the supply-side and that grexit is important and that inflation is higher than it would be without brexit. but the whole world needs a supply-side reboot and the u.s. needs it to deal with deglobalization. if the u.k. does not deal with these reforms, it will have chronically higher inflation, but how much higher? in general, before covid, the u.k. had 1% or 2% higher inflation than the euro zone and did not have a full on prices. i would not separate chronically high inflation from a supply-side dynamic. guy: it would be remiss of me
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not to speak about bitcoin. we should be range bound on bitcoin, circa 30,000. i am hurting in the that hearing a lot of close to the downside, some to the upside. >> my overall case is bearish. it is highly chronic on equity. we are up towards 4200 and bitcoin is doing the same. crypto has benefited from low interest rates. as rates go up, crypto will get hit hard. there is somewhat of a distinction between bitcoin and altcoins where bitcoin is viewed as a safe haven. guy: how much damage has been done structurally to the market by failures of stable coins?
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there are a lot of tourists in the crypto market and talk of institutional money flowing in. how much of that is a result of the turbulence? structurally, things have changed within the market. >> to mean, the biggest shift is to retail investors, who are sensitive to p&l and came with an expectation of higher returns. there are other issues for them, the regulation backdrops. institutions are not necessarily scared, but retailers have been affected. guy: how bearish are you? >> bitcoin could go down towards 25,000. guy: would it go lower?
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some people are talking single digits. >> like below the 10 thousands? the way that would happen would be if we were to see higher interest rates and a recession dynamic. guy: let a spring this together. you started off talking 8% interest in the u.s. where would that put bitcoin? >> closer to the 8000 or 9000 mark. guy: thank you. we are heading towards the end of the day in europe. memorial day in the states, light volume. luxury stocks have gone well today bank -- today.
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european markets up by .6%, brent picking up steam over the last hour. yields higher, prices of bonds lower, euro dollar trading in the high 1.07's. this is bloomberg. ♪
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guy: coming in at the end of the day in europe, we are about to see the markets close. ftse 100 starting with 7600. other stocks under significant pressure in the u.k. to a greater extent. the dax and the cac 40 trading higher. for the cac 40, big luxury names driving it.
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l'oreal trading higher. this on the back of china starting to talk about the fact it is going to loosen some restrictions. luxury stocks have huge exposure in china. any kind of a sign that we will see some of the restrictions going brings these stocks up. names like sinnott be worker -- weaker today. it is light volume today, memorial day in the u.s. this is bloomberg. at fidelity, your dedicated advisor
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guy: we are wrapping up in europe. it is a quiet monday. the u.s. is out. volume is like. -- light. the cac 40 and dax are both up. underperformance from the u.k. today. drug stocks in particular look
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like they are underperforming. so the ftse 100 is being dragged down. other stocks are not showing gains either. the cac 40 is up by 7/10 of 1%. it has been a cautious session without the u.s. to add volume. and we have lighter volume today. this is how we have been trading, a relatively tight range, and ethic giving us a clear sense of direction. a cap higher on the china news. and we are only up by 6/10 of 1%. as i said, it little bit of a drift higher coming through. in terms of the sector breakdown and other asset classes we are watching, let's take a look at the other assets because they are contributing to some of the moves. brent crude trading circa 120. the german 10 year is up by eight basis points.
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this on the back of strong inflation news from spain and germany today. tomorrow we will get the eurozone. and we were talking about this earlier, talking about the idea you could see 50 basis points through from the ecb. that would propel the euro-dollar up. we are trading at 1.07. nearly 1.08 right now. the breakdown, as we go through, just to give you an idea of what is happening, this is significant, a china focused story. luxury stocks are up by 2.5%. technology is doing well. travel and leisure with a solid day. retail is doing well. much more defensive buyers in the market. food and beverage, that is where the other performances coming through. a more risk on cents from the sector story in this market. individual stocks. i want to start with city world. top gun maverick came out this weekend.
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i think europe got to see it before the united states. my kids are itching to go watch it. many people have already seen it. it was an absolute smash. and as a result, we are seeing city world group trading up strongly on the back of that, nearly up 15% on the back of "maverick." and luxury stocks are doing well. lbmh is a heavily weighted story. and i was going to talk about diamond cartier. and china is a big factor when it comes to the sector, interesting changes out in china in terms of being able to buy a vehicles. big bonuses committed in terms of ev purchases. we have seen virtually no cars being sold in china over the last few months. the china story is part of the narrative we have been watching today all markets live, very
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focused on what is happening with the chinese economy and what investors anticipate on what happens next with covid zero policies and the impact they will have on the markets. china epi will provide us with new indications tomorrow as to whether or not growth is bottoming out, even as restrictions continue. this is what we have heard. >> i like china. >> many are calling on investable. >> september, october, they will start one of the biggest fiscal impulses in history. >> there is a possibility that they reopen and they stimulate the economy. >> there is a part of the world where you will see economic activity go up quickly. >> attractive long-term growth drivers are still backed. we will be cautious, but we are optimistic about china as a country. >> we are expecting to increase our exposure in china. >> i see a deepening
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relationship. guy: very wide discretion. one area that we have been watching certainly very carefully is what has been happening in the car market. ev growth forecasts are crumbling. shanghai, last month, not a single vehicle was sold. so let's talk about what reopening could bring to the market. how much of an impact have the lockdowns had in terms of the car market? >> you mentioned in shanghai. it was breathtaking to see a goose egg last month. it's not just the sales, it is the production. and that is actually a city that is a major source of production for companies like tesla. and you've also seen major disruptions to vw and toyota. just today, we saw out of toyota
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a lower than expected production for the month of april. they still have managed to better sort of struggle through this disruption than vw, which through april worldwide sales have been down 30%. so this market is getting back on its feet, production wise, will be a big deal for companies that have a lot of exposure. vw among the foreign carmakers, as big as they come, still even after rough months and years for them. guy: i want to talk about the auto producers, the reference china when it comes to not just sales in china but around the world, because of the supply chain and parts that are so dependent on china. if we start reopening, how quickly do we start to see that easing? craig: we saw a report from reuters today laying out the idea that tesla has gotten close
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to 70% of pre-lockdown production levels. so, this has been a sort of day-to-day, week to week thing followed closely. as is the nature of all things tesla. and they really have sort of paddled the false positives, thinking that they will get back up, if not fully on their feet, but close to it. it will be really challenging because you do not just spool up a supply chain overnight. as much as china is renowned for being able to quickly and -- to more quickly adapt to realities and change plans on a dime, it is difficult for even china to go from zero or close to it back to where they were before all of the lockdowns. guy: talk about supply and demand. as you say, zero. it's amazing to see a huge city like that with no vehicle sales. it feels like they are tiptoeing into this, the authorities announcing a few little things
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to help out consumers. tell us what we are seeing. craig: the authorities do not have to do much. if you look at the way that sales have been trending globally, with the exception here in europe, auto sales demand has been extremely strong. this has been a production constrained story. but to your point, we are seeing a little bit of support in more rural areas for electric vehicles. those are some of the places that arguably need a little more help, where it has been the megacities of where you do not need necessarily more subsidies. so, we will see a phase out -- the plan is still at the end of this year, in terms of national subsidies, but we will still keep it on a local level and a bit more targeted. there is a question of whether or not the phase out this year might also be reconsidered. we have seen rumblings of that recently.
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there's a question of whether or not that is really needed because we have seen strong uptick in china versus everywhere else in the world. guy: so, the long-lasting effect, we will see. craig, thank you very much. and european stocks have finished for the day. let me give you an idea of what has happened. let's see what has happened. a little dip judging by the numbers on the screen, but not much. a tiny movement during the auction process. we are almost exactly on that 7600 level for the ftse 100. those are the closing prices. let's get up-to-date with news from around the world. >> guy, china has reported the fewest new cases of the coronavirus in almost three months. the easing of outbreaks has led officials to relax some of the virus controls. shanghai has ruled out measures to support its lockdown hit
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economy. russia is planning a bond payment mechanism to fight off u.s. sanctions and a potential default. it would allow foreign investors to open accounts in russian banks in rubles and hard currency. the finance minister told the newspaper that unlike the previous payment system, investors would be able to access funds without restriction. and on capitol hill, lawmakers are setting the timetable to negotiate new gun laws. democrats are signaling they would accept unlimited progress in exchange for action that would reduce gun violence in the nation. some republicans are indicating interest in gun control legislation, following the elementary school massacre in texas. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm angel feliciano. this is bloomberg. ♪
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guy: european leaders are gathered today in brussels, discussing the oil embargo on russia. the prime minister earlier said that in eu agreement on russian oil and the embargo upon it is unlikely to be reached today. she spoke to bloomberg before the summit. >> we will not reach an agreement today. >> you won't? >> know, but there's a lot work going on today. >> when you see this from the outside, the reality is that has been almost a month since the head of the commission announced it, the european union promised the mother of all sanctions.
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if you are russia, perhaps you spot weakness. is that a problem? >> well, putin does not believe much --. we have been united, which is a huge exercise considering we have 27 different countries, 27 different internal politics going on. but we still try to keep unity. and sometimes it was clear that it would be more difficult when the sanctions came first. now there are sanctions that hurt european countries, therefore we have different sensitivities. >> you say the impact will be felt now by europeans. there's no where does not carry a cost. i wonder, however, all of this has to do with the victory of ukraine. what is victory? what does it mean? in your eyes, what does it look like? >> it is pretty ukrainians to
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say, but when russia goes back to its borders and also the war crimes are punished, prosecuted internationally so that aggression does not pay off. that's a clear sign to signal to everybody that it cannot work like this. we have a peace agreement and everybody stays where they are. there are still atrocities for the people in those territories. and there could be a course of one year or two years. so we have to be ready for that. guy: so, speaking to bloomberg earlier today and brussels. more insight now. are we reaching the limits of what your ca -- of what europe can do in sanctioning russia? it exceed wonder if gas will ever be possible, given the struggle with oil. >> i think we are reaching the
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limit. we are talking about sanctions that would not just hurt russia, but hurt european companies, and european consumers. in addition, the public is starting to give a little bit -- they are getting fatigued with the war. the war has been going on for three months. it's obviously a tragedy for ukraine, but the extreme interest that lease out in the early days of the war is wearing off, simply because it's been around for some time now. it'terrible becauses the war is not over. -- it's terrible because the war is not over, but the public has to support them. guy: hungary is not budging on sanctions. will they budge, you think? >> there are two issues. their prime minister is clearly a difficult character within the european union. but there is also the other
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thing, hungary is extremely dependent on russian energy. if they were to agree to an embargo, they would have to find enormous amounts of energy summerhouse. and the tragedy -- somewhere else. and they tragedy is everybody's looking for energy somewhere else. it would be difficult for them to replace all of that energy that they currently have coming from russia, with everybody looking for other resources. guy: the public is shifting its attention away from the war. but the focus is now on the cost-of-living crisis. energy prices are going up. food prices are rising. there was a conversation earlier between putin and the president of turkey talking about the black sea and shipments. is this the next flashpoint? trying to figure out a way of getting ukrainian grain out through the black sea and onto the world market. >> that is what western leaders are trying to make happen. it's extremely difficult, that
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the moment of the grain the world needs, especially developing countries, but the american economy and wealthy countries as well, the grain is in ukrainian storage facilities and they cannot get out. it is too dangerous to ship it through the black sea. so western leaders have been trying to figure it out for some time, whether they can provide transport, but in the end it is up to shipping companies, whether they consider the risk acceptable. guy: is that possible? could we see naval ve ssels escort ships? we have been worried about a no-fly zone, putting effectively nato aircraft up against russian aircraft. but i think we can agree we would be putting nato marine vessels and russian marine vessels in exactly the same scenario. >> very close to each other. i wish i could say it is a
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workable scenario. i think it would be highly risky. it would have to be led by the u.s. and, as you said, it would put nato vessels in 70 and -- in close proximity. and there could possibly be clashes in the biloxi. as much as we -- in the biloxi. as much as we -- black sea. guy: so that grain will stay in ukraine? or could it come down to turkey or other exit mechanisms to get it onto the world market? >> there are limited alternatives. for exhibit getting it out the land way or out through river ports, but that is much smaller quantities we are talking about. romania is trying to help. but then the grain has to get to romania first. shipping is really the lifeline of the globalized economy and at the moment ukraine is in a tough
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spot. guy: talk about nato. do you think sweden and finland will join? elizabeth: i think they will. the question is whether they will receive their invitation before the nato summit at the end of june. that is what people were assuming what happened. but there have been objections over sweden's relations with the kurds. guy: how long could it be delayed for? president erdogan has a huge issue with the kurds. he is facing an election. it's a major problem for him at the moment. when do you think you will allow it to happen? elisabeth: at the beginning, we were thinking that this was a way for him to get -- from the united states. but now he has put specific demands to suite in that sweden, for example, suspend arm imports.
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that it curtail its relations with kurdish groups. unless they meet the demands, he has not agreed to back down. it was not just -- he clearly has a major grievance with sweden and the kurds. he could drag out for a long time to get that concession. guy: what is a long time mean? is it months, years? how long could it last? there are elections upcoming in turkey. elisabeth: at the very least until the elections. then he can drop after that because the well of other issues that are more urgent to the turkish voters. but it is not going to be within the next few weeks. and, unfortunately, this demonstrates nato's weakness, just at the moment when they need to look united. this issue was completely unexpected and it demonstrates that nato is not united. guy: what about the turkish
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president, and turkish relations with nato allies? at the moment he is being seen as difficult. is that his new role? t southern flank is importanthe -- the southern flank is important and critical in some ways. how does the relationship change between turkey and the rest of nato? elisabeth: he has been seen as difficult for a long time. now he is seen as unbearable, but he does not care because there other nato member state can be kicked out. and as you mentioned, turkey is vital to nato, strategically. it has played that role for decades. and everybody was over at the time that turkey was not an ideal candidate, but they wanted it because it was strategically located. i think he is relishing the role of being the difficult one because he gets things done because everybody knows it's in
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their interest to keep nato as harmonious as possible. guy: we will leave it there. interesting conversation. thank you very much indeed. ok, we are nearly done. but we need to talk about what will happen in the next 24 hours. and what is happening over the busy week. in terms of what we are watching, inflation. inflation, inflation, inflation across the euro zone. data tomorrow. and out of the u.s. and china. this is bloomberg. ♪
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guy: plenty coming up over the next 24 hours. one highlight is a meeting that will be taking place tomorrow between president biden and mr. powell. it will be a fascinating conversation. today, i think in some ways a little bit of a warm-up event for tomorrow.
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we have inflation data out of europe today. we'll get headline numbers tomorrow. french and italian headline inflation. and china pmi. it will come down to the relationship between politics and monetary policy. and the meeting in the white house tomorrow will be fascinating. today signaled basically that he wants to hike until it hurts. will that be the message coming out of the meeting as well? we have coverage lined up for you tomorrow. i hope you enjoyed the show. this is bloomberg. ♪
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