tv Bloomberg Daybreak Australia Bloomberg July 5, 2022 6:00pm-7:00pm EDT
we are counting down to the major market open. >> the top stories this hour, easing tariffs on china failed to ease inflation concerns, the color rising to the highest level in more than two years. heidi: will plummets to a low, crude could slumped to $65 -- oil plummets to a allow, crude could slumped to $65. shery: u.s. futures are unchanged at the moment. we saw the s&p 500 reversing the earlier declines. what volatility we saw in the wall street -- wall street session, a reverse course and we have of course the energy prices under pressure. a bond yields under pressure. that is easing pressures.
the nasdaq gained after losing almost 2%. those recession concerns are at the forefront. we have the two year high and that is pressuring oil prices. in the asian session, rebounding off at the $100 a barrel level. falling below it and they dollar strength -- the dollar strength. we are talking about a 20 year low against the greenback. the dollar parity in sight for the euro. gas shortages are the economy there. the british pound, it is at a march 2020 low after the recent resignations and scandals in the u.k. government. >> it does seem that we could see more volatility ahead for the currency.
look at the surging at the dollar. the swiss franc and the yen now at the highest. some strategists are saying that the euro could be the cross that stands out over the medium term. we could have the boj force policies changes. that could have an impact on the right differential that is being priced in and the other factor is the haven factor. we could see investors turning to the japanese yen once again on these recession risks. we have a look at the equity space ahead of the trading session in asia. we are looking to a weakened start for australian and japanese stocks. q. week stocks are coming online fractionally higher. -- kiwi stocks are coming online
fractionally higher. we do have king dollar, also the pressure that we saw on the currency cross. heidi: we see the conflicting factors. we had the rba decision as expected, we see the fastest pace of tightening on record. we have that back-to-back basis point hike. a lot of economists are saying that there is no indication, the commitment to do whatever it takes to isolate inflation. there is no signs of that they are keen to follow the fed with a basis point move. it sits at the highest since may 2020. that was predicted by all but one out of 26 economists that we spoke to. it will be interesting to see the housing sector. the rba could have more of a
buffer when it comes to cages like household income to credit. households are more resilient even if we do see further downside for the park date -- property market. shery: whether we are talking about the inflationary concerns, at the same time those concerns have potential for recession. putting the odds of precision in the u.s.. 38%. given the tug-of-war between recession and cutting yields higher, we are saying the volatility in the bond space. we are talking about moving up 20 basis points. this would be the 29th time this year it has had a daily range of more than 15 basis points. after serving 23% in the overseas trading, sessions are all about volatility. let us discuss this with a chief correspondent, and our reporter.
it seems that markets are so undecided right now whether it is recession fears, inflation fears, finding any sort of equilibrium at this point. >> the circumstances that have been going on are extraordinary, they have not been seen for 40 years. supply shocks driving inflation up to 8% or higher even in some places. the u.k. has 10% inflation. you have got that, you have central banks raising rates. that is what they can do. it if they acknowledge that it is a blunt tool, some of the drivers of inflation are not going to feel that much impact directly from those rate hikes. not only do have associate risk -- recession risks, you have them from both directions. australia is about to get more
height food places -- height igh food prices because of the flood. you suck money out of the economy. both of these factors will help us slow the economy. inflation -- interest rates are still low on a historical basis. there is a tight balance sheet, they do not have as much of a toolbox. heidi: you talked about high energy prices. the outlook looks a bit uncertain. we see oil plunging. this is days after we heard a warning we could see the hundred $80 oil. -- $380 oil. >> tight supply and a number of analysts expecting that they
leading economies fall into recession. negative growth in the next three months and that is causing them to leave the u.s. -- believe the u.s. will also fall into a recession. a sharp drop in the tuesday session. look at texas intermediate and you may see why citigroup because of this concern is now predicting we could see boutros fall to $65 a barrel by the end of the year of the u.s. falls in recession and demand is hurt. you are looking at the bloomberg were recession crimps oil prices, the shop -- sharp drop during the recession. it shut up during the invasion, russian invasion of ukraine. it appears to be driving a sentiment. west texas intermediate was down
as much as 10% in the tuesday session. shanghai has launched a massive testing for covid in nine regions and this concerned about demand recovery in the biggest consumer of oil. we have retail prices starting to taper off. shery: all of those concerns leading to dollar strength which is pressuring emerging-markets. jp morgan sx index showing the lowest level going back to 2010 and the biggest one-day loss since 2020. the height of the pandemic. what happens to risk assets in this uncertain environment? >> i think the volatility we are seeing everywhere is going to be hitting risk assets in spades. you have a situation where a lot
of assets look very cheap after the big drops. investors have the money to put in the work. the question is if they want to put it into cash or bonds. it is fairly low yields with a high risk that what happens if cpi prints at an excessive level again? stepping back on concerns and a hard landing. it does look difficult to see in sustained -- any sustained gains. heidi: boris is sticking in after the resignation of two members of his government. he has named new signatories after their predecessors quit. the latest scandal, admitting he
was wrong to promote an empty despite having known about a complaint of sexual misconduct. -- an mp having known about a complaint of a sexual misconduct. >> it was the wrong thing to do. i apologize to everybody badly affected by it. there is no place in this government for anybody who is predatory or abuses their position of power. heidi: let us bring in joe from london. we saw the new appointment to ship the narrative but this comes on the back of months of scandals and missteps and public dissatisfaction. can boris johnson survive? >> it feels like there is an end of days feeling around the johnson administration. the resignations from ministers this evening and tomorrow mp --
and more mp's. it is falling away from boris johnson and it is not clear how i can brought it -- bring it back. it is almost cutting away from johnson at this point. we have seen the last day of his apprenticeship. shery: what this means for u.k. economic policy? >> this has been a boris johnson and light. in terms of how foreign policy will change, the question around the approach is tax cuts. the mps have been urging him to cut taxes. he was opposed to that in fears of fueling inflation. there is a shift on the approach. presumably he would have said we should go stronger on tax cuts.
that is something to watch out for. he used to be a business minister. he is setting up the new government. he has experience in industry. he seems to be a credible appointment. heidi: the latest on u.k. politics. going into the first word headlines. nato members have formally signed off on plans to bring sweden and finland in. renewing threats of expansion if the two northern nations do not exercise people it considers terrorists. the process can take many months. shanghai is conducting two rows of massive covid testing in nine of the 16 districts, fueling concerns of another lockdown.
this is after several infections on sunday and monday. one case was not outside of quarantine. -- found outside of quarantine. the u.s. is pushing the netherlands to ban asml from selling chipmaking care to china. it is an expansion to curb china's rise in chip production. it what what it an existing moratorium on advanced chipmaking gear to china. the touch firm is a leading makerwarnings affecting 50,000 e remain in place against -- across new south wales while renfro has eased in sydney, flash floods are possible in coastal areas further north. us has declared a significant event but is it to put a dollar figure on the estimated cost on affected communities.
>> we are looking at an economy losing momentum. >> increase in calls for a recession. >> economists have begun to cut their top-down economic forecasts for gdp. >> a downward revision. >> input costs have risen substantially. >> the consumer is more fragile. >> the earnings are concocting in the second half. >> we do expect the fed to hike rates more gradually. >> the fed is saying that it is collateral damage. >> the damage is based on
employment data. heidi: let us bring in our next guest who says we are pretty close to the bottom for global markets if we are not already there. we have the ceo of defiance. great catching up with you. shery: does it look like the market is finally starting to do the job for the fed? >> hello. i think we are pretty close. it is a losing game to call the bottom of the market. a lot has happened. if we look back a few months we are all worried about some of the things that are going to happen with inflation sticking around. that price is falling, and occurs minute -- indiscriminate selling. a lot of things have actually happened. correction territory, the nasdaq is pitiful.
the worst first half ever. since the big recession. the market has on a lot of work. a lot of that is taking off in the market before we hit the point. to think that we are seeing a lot of hope that we are nearing some bottoms here. that does not mean we cannot lower. -- cannot go lower. heidi: this environment, have you made any significant trades in the past week? >> i have made a lot of significant trades. the reason i have made them and continue to make them is i cannot call the bottom, but you have multiples that have gone from 21 to 15.5 below the your averages. -- year averages.
38-50 percent off of all-time highs. i am willing to hold those gains . investors who have the cash on the side and can do that, budget to live on what they have and put extra to work for a couple of years, that can pay off here. some things are changing. inflation is starting to budge a little bit. consumer spending has softened a little bit. sentiment is terrible. you are saying the narrative play out that perhaps the market has done ever of the fed's work and the may not need to be -- there may not need to be aggressive hikes on the future. heidi: how quickly will you see a turnaround in the softening of consumer sentiment? even if we do have an easing back oil prices, the inflationary mindset may be set in. >> it does but that is the time to think about being a buyer.
everyone is fully negative on the market. they think the average rate feels terrible about all of it. inflation is here to stay. the key is that psychologically i think investors would feel better about the situation if we got a couple of rates for the next few months with inflation coming down. across all sectors, goods and services, commodities, receiving the job numbers -- we see the job numbers softening up. i think the economy is going to slow. in terms of a massive session about puts us back for several years out, i do not think that is on the horizon. investors will think again, markets have done and what of the work and we have a slow growth rate. that does not mean we cannot make money in the equity market. >> what happens to the pandemic darlings? have we seen the bottom when it
comes to that space? >> i think it depends on the darling itself. i think some of the names that were benefiting from staying at home like peloton, they will have a tougher battle ahead of themselves. i view crypto similarly to a super aggressive growth asset, i would compare it to what we are saying in the nasdaq but with more volatility. weight so crypto up to 20%. -- we saw crypto up to 20%. a volatile world where you have these digital tokens the represent ownership or a block to technology that is creating peer-to-peer transactions. cryptocurrency plays a big part of that. whether it is the different countries, they big platforms, they will eventually play out. we are in it crypto area, -- we
are in a hebdo area. i am comfortable taking smaller positions. heidi: always great to talk with you. you can get a roundup of the stories you need to know getting -- to get your date don't edit your addition of daybreak. you can go to dayb . get the industries and assets that you care about. this is bloomberg. ♪
including jp morgan and amp capital tipped a third and final .5 percentage rate rise next month. immunizations set to meet today to consider a fourth covid-19 booster dose. i will discuss with a 10,000 death milestone on sunday -- it will discuss the 10,000 death milestone on sunday. we are continuing to watch out for the floods in sydney, the council of australia has declared it a significant event for the north wales region. that will move into the inflationary pressures for food in particular. shery: we wash not only inflationary pressures but recession concerns and that has pushed the dollar to the two year high. on the other side of the dollar, emerging market currencies is
falling to the two year low. the ruble fell to date. the russian currency has had a relentless rally since the invasion of ukraine. very counterintuitive but it has gained 143%. we saw the plunge of about 13% in the new york session. we wash the euro as well. dollar parity in sight for the threat of gas shortages from the wart leading to recession concerns in europe as well. the japanese yen not doing much. risk sentiment back on >> let usd
two chancellors went in quick success in succession. they say that they could not continue like this. this is after a was promoted by johnson. the ecb's landmark test of bank resilience was softer than many of bandar's had expected. in the toughest scenarios, the stress test did not result in meaningful losses. the ecb called the test a learning exercise. it is due to publish aggregate results on friday. a supply of fuel to sri lanka as the island nation runs out of dollars amid the worst economic crisis. new delhi has stopped supplying gasoline and diesel to its neighbor on credit and that is holding up some fuel shipments. and he has extended $3.5 billion to sri lanka.
shery: the uss had to be pushing the netherlands to ban asml from selling chipmaking care to china. quite an interesting time in given that they are listing tariffs -- lifting tariffs on chinese goods. >> what we know is that the deputy commerce secretary was in the netherlands at the beginning of june and end of may. he met with asml. they discussed this desire to limit china's access to equipment that is used in printing computer chips.
the computer chips that go into vehicles, computers and mobile phones. this is a chokepoint because china produces very little equipment itself. this is an area where they have a 5% market share globally. if the netherlands prevent asml from selling to china that would cut china off. from being able to produce these chips that are not quite the most cutting edge, not the highest tech. a generation behind what they call mature technology. this is something that has been on the table since a few weeks ago and presented by the u.s. officials. heidi: we do see that pressure from the u.s. administration starting from the at times but the ban on the top administration. how much is this down to the
diplomatic relationship. potential talks between proposed unrolling of some of these tariffs? >> this is something that is certainly being discussed. we know that in washington in particular on capitol hill, there is a lot of pressure on the administration to be tough on china. if you are going to be removing tariffs on lower technology goods, consumer goods, things like bicycles, household items, it makes sense you would want to be strategically redesigning the pressure you are putting on china to prevent china from catching up to or overtaking the u.s. in technology. it makes sense that if on the one hand you are easing up on china, you want to show that in another way you are being tough on china.
heidi: the latest. china has reported more covid-19 infections at its epicenter putting pressure on authorities to tame the outbreak before it spills over. for more, let us cross over to bloomberg shanghai. charlie, we know the province is a very important one when it comes to being an economic powerhouse and a huge area of course. what are authorities doing to contain it? >> it is sitting in the river delta which accounts for a quarter of china's total gdp. if those cases spread through the rest of the delta, the threat to chinese economies will be serious. that is why shanghai is taking a
reaction to learn shanghai is launching mass testing for covid testing. more than half of the city, and it will do that for a couple of days. concerns are definitely returning to the city, and obviously, the government is trying to avoid citywide lockdown. something that you have seen earlier this year which is costly and brutal. whether there will be another round of lockdowns in shanghai would depend on the result of the test. heidi: how whole -- how are households reacting to this? they are hoping that they will help the global economic recovery.
i wonder what the economic reality is on the ground. you never know when you go back into a lockdown? >> this is a bit frustrating. most students are go to schools and concerns about lockdowns. still lingering. that is because of china's is sticking -- that is because china is sticking to the covid zero strategy. the strategy is unlikely to change anytime soon. during his trip to wuhan last week, this is best for student china best. because it kept the economy going, this is inconvenient. china should be continuing
>> global financial conditions have tightened significantly. this is in part due to a banks having tightened in policy in response to the outlook for inflation. market and interest rates and corporate bond spreads have also risen in part reflect expectations of policy. developments in russia's invasion of ukraine are a key factor, affecting the global outlook. heidi: that is after this the central bank released the stability report. as were in ukraine is weighing heavily on the outlook for the rest of europe. let us go to the morning calls. >> we have had focusing on the euro this morning. the looking at the picture.
that does not look good right now. talking about stocks, we have been in decline over the previous few months. there are spreads on investment-grade and high-yield corporate debt are significantly. capital economics are saying this will not go away here because they are saying that a further deterioration in the euro zone economy moving forward. this is specifically the moves we are seeing in european gas prices. we see the rise over the past few weeks. capital economics essay that will only continue from here and that is with the assumption they are making that we will see a slowdown but not a complete halt to russian gas supplies. they are saying that there will be enough for the euro zone to be floating with recession this year. >> could this time finally be
it? what we get there -- will we get there? >> there is not much positive to say about the backdrop for the euro at all. one of the factors they are watching as we are not getting much support from higher yields because of the ecb is sticking with that plan for a 25 basis point hike this month. you can compare that to what we are saying from the fed. a situation where the fed's key rate is 50 basis points above that of the ecb. we can also take a look at what they are looking at as well. the deterioration we are seeing in the economic backdrop for europe, the pmi's also coming out because we did see services holding up but not as strong as we expected. we are not seeing translation, the pullback.
heidi, not looking good for the euro from here. 1 let us get some more on that. let us bring up the chart that shows you the big move. grappling with energy crisis, dipping the region into recession. that has hampered the ability to hike rates. also contending with record levels of inflation. let us bring in a rate treasurer. apparently to have you on this morning. take a look at the price action, does this have to do with dollar strength? is it the risk of fragmentation and the euro zone? >> we have a strong u.s. dollar, the fit hiking aggressively.
there are a couple of reasons why we like the u.s. dollar. it has in europe as you mentioned, my colleagues in europe moved to forecast recessions. they made the call about a week ago. we also have processions forecasted in the u.s. and a number of other countries. to add in the energy mix, the commodity price shock, nord one, supply disruptions, it is looking pretty negative. we are quite confident they'll move into a recession. -- that will move into a recession. >> are there a lot of fundamental economic and political reasons to be cautious of the currency? >> we are cautious on sterling for a couple of months now. the politics has not been helpful, the exposure to the european trade zone is a negative. a strong u.s. dollar is another
factor. we are forecasting recession in the u.k. from around q2-q3. shery: i think you are looking at japan, new zealand, and south korea. >> that is right. south korea and australia and new zealand are interesting. we think the downturns could be quite sharp. i have seen quite a in on consensus, the lowest gdp forecast on the bloomberg survey by a large margin. housing downturns and an unwind of the balloon is the story here. we are quite cautious on these economies. in japan, we are focused on forecasting technical recession with a couple of small negative prints in gdp. we are saying that the recession in japan will likely be miles, oil is coming off a little bit of the boj, keeping its foot
flat to the floor. a bit of a policy stimulus in japan and the currency is weaker of course. that should help a little bit. it is a recession story. >> you mentioned south korea and australia. are you forcing a boom and bust at this point? >> we are. we are seeing downside risk in australia. prices rose by 20% last year. we were not to be surprised to see them fall -- we would not be surprised if these are fault this year. particularly in sydney where i am. particularly a leverage on a story. down here when you have been able to borrow money at 2% and asset prices have been rising by 20%, you want to expose and you want to be levered but this rate works in reverse.
the fed has surprised many people with a u-turn. this mortgage rate has moved from 2.5% -- from 2% to 5%. heidi: we are seeing the australian bonds market continuing to extend the rally. a 10 year bond yield falling 15 basis points. i guess perhaps on the assumption that this means that the rba is moving to neutral quicker than the pace it has been moving at. your session call for us really is quite contrarian. we spoke to goldman yesterday and he said when you look at how household income goes to credit there is a bit of a buffer there and things will be ok. what makes you think that the correlation with a falling property will be much worse for the consumer? >> it has already fallen, mortgage rates have risen sharply.
it is certainly true that australia has a good deal of momentum behind it and interest rates are high. i am mindful when it comes to housing, it is not what happens to the average person, and what happened -- it is what happens at the margin. investors who have multiple properties, some of those need to let go, some investors choose to deliver, we could start a downturn like a nasty spiral. that raises risks that banks could tighten lending standards and consumer expounded on housing falls further. we are confident in our belief we are heading for a recession here. >> and rita strategist here in sydney. -- and a great strategist in sydney. shery: this is according to the ap, during a july 4 parade in
illinois we had a government accused of attacking the parade. he is charged with seven counts of first-degree murder. the state attorney promised dozens more charges would be used if the suspect is convicted of murder he would receive a mandatory life sentence without the possibility of parole. we are hearing the robber has been charged with seven counts of murder. this is after the mass shooting at a july 4 parade the left seven people dead. this is bloomberg. ♪
>> bridgewater is said to have posted a 32% return for the hedge fund. this is is an increased market volatility. bridgewater's performance, we saw them a struggle for years. how did they do this time around? >> bridgewater has had a pretty successful year in the first half, its hedge fund rolls 5% last month while the stock market felt more than.
8% does volatility we have seen in markets, they had some struggles earlier on. this does build on the return last year when they were at eight. it felt 13% and then for the eight years previous to that they posted a nominal annualized gain. this year's returns are good news for investors. heidi: how are they more promptly faring this year? >> macro funds had a tough go for several years. they struggled because previously there was not enough market volatility. they pointed to central banks having policies that were similar and rates being too low. we are seeing increased rising interest rates, surging
inflation, to mold in equity and bond markets. this is providing a lot of opportunity for macro funds to do well. we are seeing a lot of different flourish. would they were up in an aggregate of about 9% through may. that is a strong return. we have seen double-digit gains like odsp management. as a group, they are making a comeback after years of difficulty. shery: how about as a company? his bridgewater's performance -- is bridgewater's performance showing proof or is it something that they are doing right? >> if we look at bridgewater, they made money in about 65% of the markets in which they trade. they want interest rates,
stocks, commodities, corporate debt, and developed market currencies and more. keep in mind this is a $150 billion firm. they trade across a vast array of assets. returns seem to be reflective of the broader trends posting gains . within this strategy of hedge funds and microstrategy, for this year. heidi: let us get a check on the latest business flash headlines. sequoia china has raised about $9 billion to invest in technology and health care. the firm raised the money from investors across the u.s., europe, and middle east. it stems and -- stems out of regulatory crackdowns and pandemic slow down. total electric is said to be
considering joining toshiba. it would have a private equity firm. foreign funds have also approached them for a joint offer about the group has yet to indicate who it will partner with. toshiba has received eight buyout options. u.s. brokerage revealed that a canadian lender toronto dominion bank is winning a deal. bloomberg is being told that the parental bank is working with advisors to toronto bank is working with advisors. it could be pursuant an acquisition. shery: the bond space, the obvious 10 year yield. involving more than 10 basis points this point. the 10 year yield also under pressure. a lot of volatility in the treasury space. we are talking about the 10 year yield rising 2% to fall -- if 3%.
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