tv Bloomberg Daybreak Europe Bloomberg June 17, 2022 1:00am-2:00am EDT
>> this is "bloomberg daybreak: europe." i am tom mackenzie alongside dani burger in london and these are the stories that set your agenda. dani: --super easy monetary policy, hitting the end again. wall street crushed. driving the s&p 500 to its lowest level since session fears return. ecb president lagarde is set to tell -- protect borrowing costs. tom, i'm back in what feels like a very dramatic market. slamming risk assets. tom: and historic week for the
-- an historic week. the fed had a basis hike. dani: that will be interesting. tom: the yen in focus for us on the back of that decision. whether or not corona spells out any adjustment to the trading and for the 10 year bond over in japan, when it comes to that press conference, 7:30 u.k. time . the japanese yen weaker by one point 3%. when it comes to euro-dollar, this sort of caught fire yesterday on the back of the news that madam lagarde -- details around this anti-fragmentation tool that she says will be used if there is a sharp spike in the weaker nations. a bit more detail on that currently. lower by .2%.
the two-year when it comes to that, the yields are up five basis points. we will continue to see where these yields start to level out if they do given the fed is now looking at 3.8% when it comes to that. concerns about china. the demand picture, we know they will be testing every single week, every single person in shanghai. population around 26 million. also hearing from the u.s. ambassador in china. he says covid zero will not end until early 2020 at the latest. dani: looking at the equity picture, it's continuing, adding to the macro concerns. in any other world, the tightness or the extreme fast pace of tightening we have seen for financial conditions will usually stop the fed from moving faster or at least make them
pause but it shows what a different world we are living in. we are coming back slightly. both are up in terms of s&p futures and your stocks, and the damage was immense yesterday so perhaps not unusual to see a little bit of buying but given recent patterns, is not crazy to tank this would not last. more of a selloff in the asia-pacific region. we will get into this a bit in a moment. a weaker yen doing nothing to support japanese stocks. punishing them, down 1.4%. tom: let's get to our reporter with the boj in focus. david and juliette saly will keep us up-to-date with the market reaction pay lizzy burden -- reaction. lizzy burden is here. >> capping off a major week,
let's kick off with the boj which has kept its key rate at -.1%. the bank of japan maintains its yield curve control and asset purchase policy. japanese assets tumbled but the yen sinking. our bloomberg opinion columnist joins us now, and dan, we did get this unusual hint towards concerns about the yen from the boj decision. does it seem like they are moving towards a situation where they will step into intervene? dan: they and the ministry of finance may well intervene but until there is a fundamental shift in the underlying reason for japan's currency weakness, which is >> monetary policy, you will not see a sustained turnaround. you will see a relatively
ineffectual attempt to purchase time. beware the kuroda press conference. people seem to think there is always a chance they will change their policy. he keeps pushing back. all i said was we are keeping our altar easy monetary policy. we can have low rates and it can be altar easy. tom: daniel on the boj, looking ahead at the importance of that conference ahead of the boj. the latest moves, david, what are you looking at across all of the moves and which currencies are looking most honorable? >> everyone is vulnerable.
it left every central bank open to sudden moves. the yen has definitely been a volatile one when you look at implied volatility. it has come off slightly after the boj risks being priced out. it remains elevated. you look at the one week level, markets are priced in, moving three points either way. even after that is priced out. moving forward to next week, we have jerome powell speaking. it will be a big driver for dollar-yen in the near term. dani: thank you very much. our fx and rates strategist in singapore. it's been a crazy week for markets. juliette saly is standing by in singapore. not going anywhere on friday. juliette: that is both tom and
dan alluded to, -- whether or not we are going to see verbal moves to suggest they are going to look at that yield curve control because you have seen the 10 year yield dropped from the 2016 highs after the decision. we have been looking as well very closely at what the moves have been in the yen and it initially fluctuated and rebounded somewhat from the 24 year lows. weaker dollar-yen, 133.93 against the dollar. we have not seen the boj change their policy. a lot more downward momentum on the yen. hsbc's paul telling us the yen will recover. looking at weakness across the board, that is on the progrowth policies we are looking ahead to , the potential tweaks from the pboc to key lending rates. in terms of the global recession selloff, that is going through
into asia. down for a seventh session in a row and this is the longest losing streak we have seen for asian stocks since the height of the pandemic in march 2020. tom: seventh session in a row. thank you, juliette saly, with the breakdown of the major moves across the asian markets. christine lagarde told euro area finance ministers about the plans. that is according to people briefed on their discussions. joining us now is lizzy burden with the details. tell us about this new crisis, what we have heard about this referring from -- briefing from madam lagarde. missy -- lizzy: it has not hiked since 2011 and the worry is the weaker nations will be exposed when you get financial turbulence. yesterday, madam lagarde said when bond yields -- when bond
spreads wide and so much, that is when it is going to kick in or when markets start moving at certain speeds, that is when it is going to kick in. she did not say what the thresholds would be. the weaknesses in the currency blocks are coming out. dani: did bot hiking for the fifth straight meeting and they have particularly aggressive forward-looking statements as well. why 25 basis points this time around? lizzy: this position has been seen as dovish. you can ask what more the bank of england needs when you have a cost-of-living crisis like this. the context is bid has never hiked more than five times. it has never done more than 25 basis points. it was the first out of the gate to start tightening with other major peers. the reason is we have a
recession in all but name in the u.k. the economy has started to contract. the housing market is starting to slow. that is the worry for six of the nine members of the committee that inflation will start to tame it itself because of the recession risks. yes, the guidance is more hawkish. they are saying they will act forcefully if necessary. crucially, this time, all nine members of the committee are signing up for that. the markets are seeing a 50 basis point hike in august. tom: which would be for the first time for the boe, a 50 basis point hike. thank you for the breakdown. the reaction to the boe, great decision yesterday. do not miss our exclusive interview talking about that with the chief economist on the latest decision and that will be a conversation well worth tuning in for at 10:30 a.m. london time. let's take a look at what key market participants are watching out for today.
we will have the latest trade data from italy which caused -- and the blowout we are seeing and also 10:00 a.m., we will have euro area cpi. dani: at 2:00 p.m., we have the conference board leading index being released an industrial production data at 4:00 p.m., and trade balance figures are published. coming up, japan's bond traders were closely watching the bank of japan policy decision. they continue to challenge that 25 basis point bound set by the boj and we will discuss the latest moves in this market, next. this is bloomberg. ♪
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>> -- continue so strongly. the banks be able to -- without creating a recession. we are optimistic. >> even if there is a recession here or there, i'm pretty confident about the beauty industry to be totally resilient whatever the context. today, the beauty market has not slowed down a bit versus 2021. we see that consumers want to socialize after two years of lockdown. >> globally, their number one concern is how to keep their purchasing power. how can you do that? sometimes, you are not able to cope with the pace of inflation so you have a digital solution,
access to 250 different programs of benefits where you give money in benefits and it's very well appreciated by the employees. tom: ok, you heard from the ceo's speaking to bloomberg at the conference in paris. dani: all eyes will turn to the boj press conference. have been talking about it all morning but so far, after the release of their decision where they stayed committed to the project of yield curve control, they did of course mention -- for the first time in quite a few years in their statement and what we have seen is a market that continues to challenge the boj for four consecutive days. the jgb's have traded above the 25 band. at the moment, they are .256. boj has continued to buy bonds so what does this mean to them?
is the market saying we don't believe you will be able to continue? let's get into it with the head of credit. if we do get a boj that abandons yield curve control, what would be the implications for your world of fixed income? what's interesting. we are in a world where we are going to have increasing pressure overall on yields globally. we have kind of had already six months of fixed income markets where risk-free assets are hurting you the most. the knock on impact towards credit overall is quite significant. >> where are we broadly in the
repricing of the fixed income market to the central bank moves we have seen in the last four or five days? >> credit is ahead of the game a little bit here compared to equities. you are looking at high-yield credit spreads. investment-grade spreads. global credit is telling you that we are -- probability of a recession, of a global recession. and i don't think equity markets are -- they are a lot more optimistic than the credit markets. dani: we have seen them fall into a bear market. it's scary that they are more optimistic.
75% probability is what you are seeing priced in. the r word has been thrown around a lot recently but what would a recession actually look like? this time around, what with the contours of it be? how bad would it be? azhar: that is a really good question. in a way, we get scared by that word because our memories take us back to the great financial crisis or even the covid drawdown which really significantly -- the amount of support we had. this is more akin to an early 2000's style recession. i think the impact is likely to be less overall in terms of
whether that the levels of unemployment we can get to. we are talking about growth at a level to combat inflation and we will have to go into a recession. can we do that without, you know, really sustaining that for a long time? we are in a relatively good place from a broad economic perspective for this right now, particularly because of covid. we should not disregard the last couple of years which has helped . we are in a place from a credit center where -- got into it early. tom: we talked about the recession with the higher rates. it is something of an unknown in
terms of the impacts across the credit space. you lead all those things together. balance sheets -- as you say as a result of what happened during covid. where do you want to be hiding out within that environment? dani: we might be having some sound troubles. tom, i love that question. this idea that default rates are low, balance sheets are really strong, what does it look like this time? tom: do you have us? we have some connection issues. can you hear us ok? ok, it seems like we have some technical issues. we will try and reestablish that line. his notes are interesting in terms of how you position we have seen the outflows around the high-grade bonds out of the u.s. about $9 billion worth. it suggests there's pain there.
he will be talking in his notes around where we go with yields and whether we start to cap out on the back of what is happening so the repricing across these credit markets will reestablish the line. it has been a remarkable week for anyone with exposure to credit. dani: a lot of the selloff in credit has been this duration risk. you are seeing some hints of this idea. the hints have been getting louder and bigger but it is default risk we are worried about. the balance sheets are strong. perhaps this time, the cycle looks different and the recession is different and you don't have this immense -- tom: will the pain be in the private markets more than the public markets? dani: i was talking to people literally all day yesterday and the day before. they said that there was a reckoning. that was basically the conversation.
after yesterday, private markets will be feeling the pain, too. tom: that was a call from dani burger. we will get much more on these markets. historic week for the central bank. beautiful shot of london as we look through. temperatures may be 34 degrees later today. plenty more coming up. this is bloomberg. ♪
dani: you are watching "bloomberg daybreak: europe." first word news now. senior officials in the biden administration are said to be considering limits on fuel exports. the white house is struggling to contain a surge in gasoline prices that topped five dollars a gallon. the limits stop short of a complete ban on foreign sales of petroleum products. gasoline exports have risen by
11%. joe biden says a recession in the u.s. is not inevitable. in an interview with the associated press, biden says his aides have told him that his covid aid package could have a marginal impact on inflation. he said he disagrees with that view. his comments came a day after the federal reserve executed its biggest rate hike in almost three decades. sources say the european commission plans to recognize that ukraine and moldova be given status to join the bloc. e.u. leaders are set to discuss the matter. emmanuel macron and mario draghi endorsed ukraine during their trip to kyiv. vice president mike pence came within 12 meters of the mob
before being rushed away by his team. according to an fbi informant, they would have attacked pence if they found him. the panel painted a picture of donald trump being indifferent to the dangers his vice president faced. an airport will limit capacity this summer. it seems to be suffering -- security staff are expected to persist through the month. the operator says the maximum number of passengers will vary. 73,500 in august. the dutch arm described the reduction as "highly detrimental." nobody likes pop-ups on websites but now the british government plans to do something about it. the u.k. is considering rolling back data protection obligations and consent boxes in an attempt to boost research.
the data would deliver one billion pounds over 10 years according to the government. the announcement criticized the e.u.'s general data protection regulation. 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. i am juliette saly. this is bloomberg. tom: juliette, thank you very much indeed. let's get you up to speed. modest moves in terms of yields across the yield curve. back to the levels we saw on monday. the dot plot sees 3.4%. 3.8% next year. dani: some relief in u.s. futures this morning when it comes to stocks. remarkable selling. 90 stocks fell on the s&p 500,
>> this bloomberg daybreak i'm dani burger alongside tom mckenzie in london. these are your headlines. >> the d.o.j. resists the globalback sticking with easy monetarily policy and hitting the yen again. wall street crushed. driving the s&p 500 to the lowest level since 2020 as recession fears return. but futures yield higher as treasury yields rise. plus, president laguard telling them that they will protect borrowing cost. it's since moved slightly lower. .02 of a percent. you're looking at euro dollar
105 going down .03 of 1%. and you see how they ajust to the high inflationary rate. and what it means around recession riskings. the s&p with an 85% of a recession. it is japanese yen is the focus of us today on the back of the decision by the d.o.j. and to continue their ultra policy we'll see if they make any changes in terms of the rhetoric. counting 133 by 1.3% the euro 105. a lot details about the antique frag -- fragmentation. you're back to the levels that we saw at the start of this week. 7 a base points with the hike
from the federal reserve. and under pressure today on concerns of china, covid zero, lower by 4%. watch the basis resources sector and the minors when they open in the uk in particular 1.22 on the iron ioer. dani? dani: when you have 1% of the stocks selling off, we are asking the question when is the bottom of this equity market? we are very data dependent and each release will move these markets because it might signal it will be 75 basis points again. but so far this morning, we are seeing some appetite when it comes to european and s&p futures. both are up 1% near the highs of this morning but it's a different story in asia pacific index. that's being led almost entirely by japan, chinese equities are slightly higher but the nikkei is down 1.3%. we are in the world where
despite the fact that japan is having easier policy than everybody is and everybody is tightening that is not enough. the nikkei moving lower this morning, tom. tom: let's cap a major week. and the decisions by the b. o.j. resisting the bank of japan has kept the rate at minus 0.1% the central bank maintained the yield control and assets purchase policy japanese assets tumbled but the yen sinking to a 24-year low. madam lagarde said that it will kick in the borrowing costs ride too far or too fast. with us is steven gallo head of f.x. at b.m.o. capital markets. steve, good morning.
after a tumultuous week and monetarily policy. i want to start with the b.o.j. it's an opportunity to start building positions in the yen now given that many see fixilation at some point in the near future. >> it depends on how you define capitulation. on the one hand, it's important not to get too exciteed with the fundamentals the fundamental for the yen has been a very weak negative core picture in particular the rise in oil prices has hit the balance of payments negatively. you might even go as far as calling ate shock to the balance of payments due to energies reliance on oil imports. and so, the overwhelming flow's picture has fundamentally been
yen negative. and compounding that, of course, has been the b.o.j.'s policy -- policy aversions with other central banks. so if you think -- if you think about what might be driving that, it is the fact that japan is very much used to an ultra-low interest rate. i'm not talking just about the base rate. i'm talking of j.g.b. yields. dani: it does feel like a bizzaro world because you have a lot of volatility in the yen that's comparatively. it's been more volatile in the brazilian real. that's a crazy thing to try to wrap your head around. what does that mean for portfolios where in years past the yen was this back las. it was the port in the storm. >> yeah, well, every major
economy is undergoing an adjustment. as the fed charts its own path and as the fed continues to hike aggressively, it puts pressure on yields upward globally. and central banks have -- it's not quite this simple because they have this -- but it sometimes can be as simple as, well, you are -- you either follow the fed or you don't in japan's case, if they're not going to follow other central banks particularly the fed with monetarily easing and let yields rise, then the currency has to shoulder a significant part of the adjustment, a significant share of the adjustment. and so we do see the end ultimately going lower even if there are tweaks over the coming months to the monetarily policy
setting like for example changing the midpoint moving the midpoint higher on the 10-year yield. ultimately because of the picture and buzz of that resistance to letting j.g.b. yields rise because of the obvious fragility associated with that for the public sector in japan. we think the currency will continue to fall so we're talking about 138 in dollar yen in three months. >> so further weakness for the yen. 105 on euro dollar after some strength that we saw yesterday on the back of this news. mad damn lagarde has given more detail around the ante fragmentation talk that officials there are working out. is it net positive for the yield currency? >> yes, i think the rhetoric aren't it and this sort of reaffirmation sort of if you like of whatever it takes preserve the euro, that certainly helped spread the fed's communication over 75 days
in the rate hike and also it provides some relief to credit markets in europe because they manage to telegraph the 75 basis point hike using the rhetoric and the dots pretty well for markets overall namely the f.x. market. to put things in perspective, you have to look at all of the moving parts in europe and out of any major economy, the euro area probably has the most moving parts. so i wouldn't describe what the e.c. doing as normal zation. they are experimenting with what it's going to look like to exit these ultra loose policies that they've been in for so long. dani: we are short on time here. but i really want to get just a pulse fleck you because it's been a crazy week. we're talking about things that seem unprecedented to the b.o.j. to the e.c.b. we haven't touched on the fed or the b.o.e. yet.
what has your conversation been like this week with you and the team over there at b.m.o.? how much confusion is there? how much furor is there? >> i guess i have to come back to the u.s. dollar again. and if you listen to the feds' rhetoric, the rhetoric coming from policy official and the official communique in terms of the impact of the strong dollar as a result of the fed's monetarily policy, at the moment it's not really anywhere close to the top of the list. , you know, the -- the fed in power are charting their own course. and they're looking to get inflation under control. and that is to a degree putting currencies, bond marketers credit spreads outside of the united states under pressure because effectively what the fed is doing is a form of decoupling. it's going after a domestic
inflation problem with the world's primary most important reserve currency. and you know, that -- for the remainder of the year that is going to be one of the -- the main focal points. when will we start to see inflation, clearer signs that inflation is peak and clearer since that the outlook for the u.s. economy and as of right now, it does look like the fed is on for the most part on auto pilot. so it's going to be a bumpy few months >> set on on auto pilot and set for a burpy few months. european head of b.m.o. at capital markets european head of f.fx strategy on the experimentation and the flows that you're seeing around japan. let's get to the top news with julie in singapore. jules? julie: elon pucks has agreed to buy the company for $44 billion in late april.
the world's ripest person told reporters that ferrari is accelerating the shift towards electrification. it's planning to start a factory in northern italy in to battery-powered cars. they will invest $4.4 euros that will make up 60% of its pickup trucks by 2026. ferrari c.e.o. says his company will not be going down that road. >> you know, he's going to spend the money for the computer in the -- i think this it. >> soaks wang has agreed to pay
$80 million. according to a settlement deal filed on wednesday in a san francisco federal court. owners of some gasoline powered cars sold between 2025 will be eligible for compensation as $250. global news 24 hours a day and on bloomberg quicktake powered by 100 journalists and analysts. this is bloomberg. tom? tim: juliette saly in singapore. thank you. come up, european nations confronting the possibility of keeping their economies running without gas. we discuss this story next. this is bloomberg.
>> ukraine belongs to the european family, a milestone on its preconditioned-rich past is a company. the e.u. candidates will be discussing this next days. we know it needs unanimity. at the european council i will push for a unit find council. germany is in favor of ukraine. >> i will push for a message of our visit that italy wants ukraine in the european union. i wants ukraine to have candidate status and it will back this position in the next european council meeting. >> we will stand by you describe support it in the european perspective as we agreed at the precise summit this is what we reiterated to president officer lens cut dain: hearing from the leaders
who are backing ukraine's candidacy to become a member of the european union. they pledged their support after traveling by overnight train to the captain action visit was aimed to send a message of unity and unconditional support for zelensky and the ukrainian people. joining me now is the bureau chief. we had macron all over there. the pictures are stunning. they're all in suitses. and zelensky still in the outfit that he has been wearing for most of the visit. what was achieved in the visit? birgit: it sends this signal of unity. basically europe is standing behind ukraine. and not only behind ukraine but also behind eastern europe because this signal of european being ready to basically safeguard the eastern european countries with really important work and these european
countries are concerned. so obviously, you know, you crane -- being given the candidacy which will be discussed at the next eu council this is not having an immediate impact but it does sandy clear signal russia that the european union is standing behind its partners and will do everything necessary to protect the -- the region and the area. >> what is the level of concern in germany? >> for sure. we have seen sort of the past days gas has been cut back so they are watching this very, very closely, you know that they are having these kind of meetings behind closed doors. but so far they say, energy is a gas supply -- energy supply is not in danger.
but they are looking at it on a day-to-day basis and they are obviously looking as a political development because as the economics minister said that it's -- they do see this move of cutting back gas by putin to be politically motivated. so we do not know for example how the decision and how the backing of this e.u. leaders for ukraine is going down with putin and how he will react. >> ok bloomberg's birgit jennen with the background by those three members of the european union. the question is gas. is it the energy crisis arguably has worsened. moscow tightened the squeeze on gas flows. this is forcing european nations to confront possibly keeping
their misrunning without gas. joining us is bloomberg gas and power leaders what do we know? what is the late nest terms of supplies to europe and where we stand? >> i think one of the biggest she's shocks that believe -- one of the shocks that we've had is so have russia cut one of its biggest allies. austria, italy. those countries have -- you know, and at the of a very confuse couple of months in which, europe couldn't decide how to pay for gas in rubles, german company, italian company, austrian companies they found a way to pay for it. and the market, we're paying for gas in rubles. and even the other countries getting cut off. this was the biggest -- the biggest shock for everyone. you see that in price. prices are up to 50% already
♪ >> we will not suffer any shortages for two reasons the supply chain team did a good job and also the path of that. if you ask me what is the view of on the semiconductor, i hear different voice. some people say that the situation will be normalized. someone else is claiming that we still need to be better.
>> this week it's all about central banks. there's almost too much to discuss. but we're going to do our best. joining sus paul dodson the next opportunity for fireworks, 7:30. the drama has started. they're still committed to their easy policy. for the first time since 2010. i mean, what power does the b. o.j. have left to get these markets under control? >> good question. good question. i mean, it's the central bank so it's got infinite weaponry at its disposal, right? and yet, it's facing a lot of speculation. speculation that the yen is going to carry on weakening because it will be successful containing yields. it's going to relent and the yields are going rise. every which way it turns, it's got people beating down the door
trying to get ahead of it. and either way, you know, it's been decent damage to the economy. you saw them talking a little bit more urgently about the fx market,na i, which , which is something that is a rarely. it will be interesting to see if there will be any more follow-through on that and there are possibles that they could still announce tweaking that press. given the fact that any significant move from here stay widening the yield or shifting -- it will be seen as a major change in policy. and that's what should have been in statement. but the speculation is going to continue. they're going to look that trade. >> meanwhile, we're looking at the e.c.b. and the details on the anti-fragmentation talks being built out by the european bank. what will that do to take a grip
on inflation? >> again, you know, kind of like -- can they be kind of jogy like in terms of whatever it takes to defend this? i think, you know, market has been good so far. stronger and stronger statements that there's some sort of backstop there. and at some point if people if they felt confident there will be great yields if you know you had the e.c.b. behind your back. i think everywhere we rook at the moment. and the central banks are basically mounting the defense. they've drawn it out. and they're throwing the oil off the ramparts trying to contain these markets and kind of everywhere we look that pressure is still building at the moment. you know, very hard to contain. and it's going to take action not just words to achieve it. dani: i want to get quick, if we're going on a trip to from the fed to the u.s. how much volatility could we see against future c.p.i.? less than a minute here, paul.
paul: humongous decisions coming around that. because if we have it's higher than people are expecting, it's going be seen witha 75 basis points. we've nor liesed it at the 50 basis point as far as the low end. and and it's front load. and that will change as we've been seeing. >> great round out there thank you out of asia for us. now, a reminder that that press conference which we'll be discussing 7:30 uk time. and as paul said, we will be watching for the language. will they widen that ban when it comes to the control. plenty more to come. this is bloomberg - [announcer] imagine . having fuller, thicker,
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