tv Bloomberg Markets European Close Bloomberg July 8, 2022 11:00am-12:00pm EDT
>> european stocks are big, and the euro is hanging in there. the countdown to the close starts right now. >> the countdown is on in europe. this is bloomberg markets european close with guy johnson and alix steel. guy: germany is doing the heavy lifting, but it has been a heavy week. a number of fronts are working
against it. electricity prices, gas prices, a huge price of the narrative i wondered if it would be enough to get parenting on the euro-dollar, but it isn't 174. john claude is going to join us later on. this is what i think is the main event in europe. what is happening with gas prices. a little lower on the week. significantly higher. trying to predict where the global economy is going without -- it looks as though gas prices are going to continue to crime -- climb higher. >> this is a mixed message. at least what we have had in the states. a lot of it is in the red. we have payroll numbers, and also light volume. the s&p 500 is up only 1/10 of 1%.
light volume environment, and how much of it is actually participation for it i've said this over and over. we hit a summer. where it will be a major factor. we see a lot more movement, a lot more volatility that we've grown accustomed to. we are up eight basis points. we are at 3.08. the dollar strength continues, although marginally, i am putting it dollar and yen here because with the passing of the prime minister, the former prime minister, the dollar-yen is where you see the most wide range interesting moves today, given the news. we will keep an eye on that. the implication on policy and financial markets could be huge. let's talk about commodities. as we talk about those moves, we see a ripple effect it seems a little bit muted. usually, we see more happening in the commodity index, up only .6%. guy: more about that in a moment. let's focus on what is happening
with the euro. the euro to dollar parity, i thought we would get it around the payroll number, but we didn't. the head of fx strategy is joining us to give us his take. i thought we might get through. i thought the payroll number would be good enough to do it, but it wasn't. is it a matter of time? >> possibly. the fed is very hawkish with even more participants endorsing it. we have an ecb, which is divided, and where some of the key people on the board are. for now, it is a difficult situation for the euro. i would say, i rated the payrolls is a sick out of 10 -- six out of 10 positive. looking at the revision of the numbers, it was fine. you can say it was weak, but it was not a blockbuster.
alex: talk about how weak the euro would be if it dropped below parity. for example, it could go as low as 90 written some other calls from jordan in rochester say 95. it is all hanging on the idea that natural gas could get shut down or flows to europe to get shut down as early as next week how low can it go? >> it depends what happens. we changed our forecast. we expect the euro to go into session towards the end of the year. gases a major issue. there is a different kind of story. with respect to the ecb, the same way that there is an argument that says fed tightening is going to help u.s. inflation, it is important. the ecb being easy isn't going to help european growth, and it
is not going to help european -- springdale european inflation. -- bring down european inflation. that is not our forecast. guy: all of schultz's on the tape. the german chancellor print we are preparing for energy shortages. there is already talk of another german city dimming the lights. they are shutting down minutes bull swimming pools, and their housing authorities that are reducing temperatures for their tenants. they are only allowing them to take koch hours within certain hours. we are in the middle of summer. how can we -- how easy is it to make prediction on what is happening in europe and we don't know how brutal it could ultimately become? i've seen some expectations. where do you see gas being cut off? i don't understand the function of the ecb and that will scenario? >> i think the mission of the
ecb is to keep inflation stable. how far they've departed from that, i think that is open to debate. if it was the case that keeping inflation low but keeping the lights on, there would be a strong case for that, but it is not clear that you can make that argument. i think the fed is the case, we see significant shutdowns, and activity. a deep recession europe. the euro will be damaged. we will see that throughout. i think it is also a question, you know. they are way behind the curve in terms of inflation. it will meet market expectations with been -- and exceeded. we don't think the fed will do that. there is a case for the euro here. despite how messy the economic situation is.
kriti: it almost feels like the story was driven by what the bond market was pricing and. interest rate differentials. it was driving the story and having ripple effects across the world. what is transplanting that logic to europe. how much of the movie is really coming off of the lack of those? >> there is been a significant driver of the euro, and the fact that it spreads between italy and germany, and it stays relatively stable off of the highest, that is actually a euro plus. there is a debate within the ecb right now. it is the hawks have some way to prevent fragmentation. it will give hawkish policy, and we will see how the debate plays out.
one side is deeply afraid of the fragmentation issue because of the political invitations -- inclinations. the other side will give up, and they would like to see it grow more normal, given where inflation is. guy: there is a communication challenge. christine lagarde has been speaking in france. she is talking about just that issue. the fact that she has to let councilmember speak, and she cannot suppress that view, because germany is concerned about the fragmentation tool. she is expressing that concern. as talk about the communication point of view. i will reach her notes with a great deal of interest. you reference this is an issue. we have a market that is trying to price into a recession. we have a market that will bring inflation to target. 2.5%. is the fed comfortable with
that? >> they might be, and the privacy of their own living rooms, but i don't think they want to say that in public. if you are forecasting in the market, you want to get 50% from each side of your forecast. at this point, the fed was to get 90% of the risk of being on the side of inflation going down, and it begins to approach targets, because so far, they have not shown any recognition of the indication that the economy is softening significantly. i think they will, ultimately, but they will begin to see inflation numbers come down. i would say that next week's inflation numbers are likely a disaster because of energy prices. but after that, the inflation picture looks much better. more than over six months of the year. kriti: i am curious what happens
with the wide range of views that you see in terms of what an -- a european recession look like. it becomes a sharp, deep recession. does that change with the federal reserve will do? >> they would react to local recessions, to inflation, or disinflation being important because the rest of the world is softening so much. but i think right now, they feel that their problem is getting both headline and core numbers looking respectable, and they are arguing that they are nowhere near that. they don't want the base with any sign of flexibility on the forecast. they want to say that they want to see numbers lie. it could happen by september. kriti: the head of strategy. we will discuss this with context of japan.
walk us through the sentiment on the ground. >> all throughout the day, i was on the ground, and at the scene of the shooting earlier before i went to the hospital, and i spoke to a number of locals, and they all said to me, i can't believe it. what happened is extremely sad. the people of japan are shocked and confused. shocked because we just don't see many shootings in japan. the last time a current premise or was shot was 90 years ago. we are confused because the assassination of the longest-serving premier comes two days before a major upper house election. it seemed like a politically motivated killing, with arguably the biggest issues being japanese security on the ballot, but police are saying it was not a politically motivated assassination rid we will be looking for more details to come as they come to light, but it is actually devastating. japan will be in morning.
guy: it was incredible to watch the pictures of how this unfolded. we didn't have much security, and it did not react quickly. as you say, gun violence is very rare in japan, but nevertheless, one of the features of the political landscape is being able to meet your politicians. do you think that changes now? are they going to get more security? >> he was guarded by police. there were prefectural police, and at least one special police agent. at the time of the shooting. politicians say it is pretty common to go on the road and rally for support, leading to the upper house elections or general election. we don't see too much security on the ground, and a lot of people can get quite close to the politicians when they are on the road.
they are campaigning for something like this. the guard detail reportedly did not tackle the shooter immediately. he was then -- had time, -- was able to reload his gun and shoot again for a second time. investigators obviously are declined to comment about that detail. at the moment, they say they are still investigating the potential lapses in security, but still, the prime minister called him and eight to men dress -- a tremendous politician. there is still grief about what happened, for everyone japan. guy: shocking news. thank you very much. 16 minutes into saturday. a long day. the head of fx strategies is still with us. do you see any policy
implications from this? we saw some movement in the yen as a result of the shooting. obviously, he is right at the center of economics and how it influences boj politics. >> let me say this is a very sad and tragic event, and it is a sad reflection on the state of the world. such an event could take place. i think he is going to be remembered for his efforts to modernize and reform the japanese economic structure, which included monetary policy but more bravely, trying to ease up the restrictions that have held back the japanese economy. in terms of monetary policy, the yen back to where it was just before the terrible event. i think right now the monetary
pillar is the wrong tool for policy. it was meant to be wendy's tools of deflation were a problem, and when the issues were a problem, in terms of inadequate demand. now, it is a world where inflation is higher for the wrong reasons. it was never meant -- conserve -- yield curve control was never meant to choose an interest rate that was not the market rate. that was not the equilibrium rate. then, to stabilize expectations around the equilibrium, we think it is on the way out, but it is a question of timing. it terrible thing. i don't think it will make it much faster on the exit, but it is the issue of our -- are far
deeper, and the policies are far deeper. kriti: one of the consequences of the curve control has been a continuously weakening yen. the likes of the last time we saw this, it was on the table for currency intervention. is it on the table again? >> japan might intervene. we don't think so. there are a couple of shots to talk about it, and have a temporary effect, but as long as they maintain it, intervention will be wasted. i think that is not on the table. i do think they are going to begin to discuss making yield curve control more flexible. that is probably the -- that was in the cards, anyways. guy: a change of direction, rishi sunak has announced he is standing to be the next premise
or. what are the prospects of the pound? >> as respected as he is for economics and the market ability, the u.k. has deep structural problems. an inability to gain new trading partners, having sort of damaged its relation with the euro, these issues are not going to go away. i think so far, in political instability, link to boris johnson, that could be a small positive. but i look at the polls, and if the market thinks he is a chance against labor, you can see sterling appreciate, but if it stays the way it is, you are going to see sterling underperforming. it will go up if euro goes up, but not big-time. it will like.
-- lag. guy: everyone stopped watching and watched the wimbledon. that is the story that's everyone poking -- focusing on on friday. thank you very much. the head of fx strategies. up next, we will turn our attention to what is happening with the gas story year. we will try to explain how canada could be the key to easing the squeeze on european gas flow. but maybe not. that is next. this is bloomberg.
energy reporter. thank you, as always, for joining us. walk us through the implications, especially as we are racing against the clock for a gas shut off. >> we've had some indications that there may be movement, and the sanctions potentially could send the turbine to germany, and for germany to then send it to russia where it can be serviced and undergo the maintenance for the nord stream. it is just one turbine. sorry about that. what the economy minister in germany wants to make sure is that putin has no excuse to not do the maintenance, but we don't know how much one turbine will actually change the situation, and whether or not it will mean it flows, and it is restored after the maintenance.
guy: that was probably unipolar wondering what was going on. talk to us about the price reaction. maybe there will be a piece of equipment, or more on the way. there is a great deal of skepticism that once it is turned off, it will be turned back on. how much of that is reflected in the price. if it is not turned back on, how much more upside could there be? >> at the moment, what is being priced in is the possibility that flows don't return. nobody thinks they will return fully, and perhaps they will return to where they are now, but it seems unlikely that they will return fully, and one turbine is not going to change the situation because they need six turbines, and only two are working, so one does not make a huge amount of difference in
getting back to full flows. but politically, there seems to be a softening on germany to be able to get the turbine to russia. that could appease putin in some way, but the truth is that nobody really knows, and it seems that the market is preparing for flows to not return, so indeed, if that turns out to not be the case, prices could fall from where we are. guy: thank you very much printable you get that call. greatly appreciate it. rachel morrison on the energy story. we will get more on the energy crisis later this hour. the former ecb president will join us. he is joining us in a few minutes time in france, where the ecb members are gathered. take a look at european stocks. we are heading towards the close here in europe. at fairly positive day. european equities are big, and up by 1.2%.
♪ >> european markets wrapping up what has been like a very long week. this the picture we find ourselves with as we come into the close. the dax performing quite prongly. it's doing very well and the upside is where we are. underperformance for the ftse 100 and up by half of 1%. it's been a bumpy week. let me show you the stock 600 the last five days to show you what has been happening.
you've got to plug in what's going on with the currency story as well to get the full picture. the u.s. is out monday and nothing happening, very light volume and it's lower and essentially a climb back and by the week we're up 2.5%. i want to plug in the currency story because euro-dollar has been going in a completely different direction, big move lower the beginning of the week and you see monday nothing but tuesday you see the big move. the action i think has been in the currency market and gas markets and strongly in the energy markets and certainly the bond market as well where we see significant volatility and where we are with euro-dollar. 1 .0181. in terms of breakdown from a sector point of view from a stock sector point of view, retail bid, industrial goods bid you have the technology section and financial services having a fairly good week as well.
utilities are at the bottom and a lot of that is reverberating what is happening with stocks like juniper and i'll show you on the day. the german utilities with gas surprises continuing to climb, electricity prices continuing to rise under significant fresh and the story around e.t. f. where the french are going to nationalize it taking advice from goldman sachs. that's the rotation you've seen. on the day let's see the action. rolls royce, the manufacturer among other things actually painting a positive picture. it's starting to see a recovery coming back more quickly than anticipated and the long haul has been under additional pressure and e.t. f. up 5% and we'll see what the nationalization will do with utilities and the
french government while try to figure it out and uniper putting up its hands saying we'll need government help and a lot of money and as a result we like to see the german government taking a significant stake. uniper trading down .02%. it's centered on the energy story and what's happening with gas and electricity and you rarely see that price into the euro. but it's a derivative. the euro comes down and we're on parity watch and trying to figure out where we'll go from here. what signals does that one for one euro-dollar represent what it tells us about the european economy. we try to find out and go to the south of france to the exxon economic conference and find the former e.c.b. president jeanne-claude. what signal do you take away from euro-dollar at
nearly one. jean-claude: i'm not surprised because the u.s. started raising rates quite earlier and also with energy and announcing increases of rate and you know the increase of rates in europe is to be expected this month and the next increase of rates in september so we will see exactly what happens but i'm not surprised quite frankly the exchange markets are taking into account the difference. the difference can be explained and they have good reasons for that. but when the european settles back we continue to increase rates and perhaps the u.s. fed will reconsider they've done a positive job then we will see some kind of rebalancing is my understanding and of course it would be good to
have the euro up in comparison with the present level because they are presently importing inflation which is not good, of course. kriti: i'd like to ask about the impact presentation tool we're waiting the debut and don't know what it looks like and i'm curious, what would you do if you had to create that tool, what would it look like? jean-claude: first of all, it seems to me in europe there is a question or issue, of course in the u.s. which is how do you deal with the necessity to take care of it as a whole and maintain stability in line with the stability anchoring interest rate expectations and medium turn around 2% on one hand and when you increase rates, the increase spreads between the various signature in europe.
i think the e.c.b. was right to say we'll increase rates on the one hand and we will see exactly how to deal with the crisis of segmentation -- fragmentation. but all taken into account, i trust that the e.c.b. has weaponry that they can utilize and of course you have also a lot of mechanism that we've decided upon in the past and are very, very effective in my opinion. guy: the t.p.m. is a very attache tight, transmission protection mechanism, we'll see whether or not we get more than a title at the july meeting. jean-claude, you're confident the concerns of the german can be overcome. the e.c.b. has continued to push the boundaries what it is allowed to do, what is legal. it's so far managed to avoid any serious
sanctions from any legal authorities but do you think it's getting closer and closer to the point it can do no more? jean-claude: you know, i have some memory of that because i was myself the last central bank in europe to increase rates and at the same time the first central banker to purchase credible securities, namely treasuries of italy, spain and greece, ireland and portugal. so i could do both if i may in a situation which is not, of course exactly the same as today but i take it as long as you have a problem which is you have some speculation which you judged and founded on the one hand and you have a problem of transmission of monetary policy because of the speculation, the e.c.b. can do a lot. if you are in another universe where you cannot
qualify what's happening of pure speculation, then as i said already, you have other weapons that could be utilized but in any case, it seems to me it's very clear that the markets should not trust that they can speculate without any problem in the area. they could not in the past and will not in the future. kriti: i'd like to talk about the fiscal side of the equation, germany, for example, i believe the story is they could breach the gas limits if the gas is indeed shut off from russia. i'm curious about the risk of that kind of fiscal discipline? jean-claude: well, i would say ordinarily, of course, to the extent we have a single currency and we do not have a credible institution, we do not have a budget, we don't have a political unity in europe. it's no more that you have some discipline in regards
to the fiscal policies, so i take it of course that getting out of the dramatic covid exercise all countries had to consider going out. but when we are out of the dramatic period and also taking into account the war in ukraine, my understanding, if we want to have a prosperous utopia, we have to respect some rules because again, it's a quid pro quo for the fact we do not have a failable government and budget. guy: thank you, the gross stability pack, you may have seen it there. let's talk about the issue of gas being shut off in europe. if that were to happen, you would see a very sharp slowdown economically and see inflation going up very rapidly.
could you walk me through what you think the reaction function of the e.c.b. would be in that kind of extreme scenario? jean-claude: the e.c.b. like all central banks have to balance permanently between the assets and liabilities associated with any decision. it's clear if we have such an evolution of prices that you are mentioning, of course you have to take even more into account the impact on the real economy and the depressive impact on the real economy. that being said, there is a needle in the compass, if i may, because you have to continue anchoring inflation expectations median term. if you don't do that, you are preparing the way for inflation and the u.s. knows better than anybody what happen in the such a case, you have to get the
fed deciding to increase rates at levels that are decided upon and this is a new element of catastrophe. so anchoring solidly inflation expectation and remain credible for the fed as well as for the e.c.b. is in essence in my opinion whatever the circumstances. guy: i can't remember the number of times i heard you talk about the e.c.b. having a single needle in its compass and that is inflation, managing the mandate. so you're saying that even if we were to see growth slowing down rapidly, the e.c.b. should firmly focus on its inflation mandate because there's been some deviation some would argue, focus on spread, focus on growth, but you're saying the single needle still exists? jean-claude: yes, the
single needle depends upon the economy. if it is already sliping rapidly, you have much less inflationary pressure and then it is easier, of course, to stabilize inflation expectations. it doesn't mean that you don't look at everything. and by the way, when i was myself president, i increased wage and at the same time purchased lots of credible securities and lots of treasuries. you can do both and you have sometimes to do both. don't forget if there is a big impact on the economy, then you have much less inflationary pressure. guy: unless it's enforced and you have a supercheap currency which could lead to second round effects which i heard you talk about many times over the years. we must leave it all, enjoy it, thanks for your time. former e.c.b. president, thanks very much, indeed. we'll take you from the
>> this is bloomberg market, the european close. you're looking at a live shot of the principal room. kriti: keeping you up to date. in japan, shinzo abe has been shot and killed while speaking at a campaign rally. the attack shocked the country where political violence and guns are rare. the suspect was arrested moments after the shooting. the man told police he intended to kill abe because he was frustrated
with him. he was 67 and the longest serving prime minister in japan's history. in the u.k., suk an entered the race. let's restore trust and reunite the country. the u.s. is expected to press the case at the g-20 meeting in bally. the u.s. and its allies will try to prevent the presence of the kremlin from converting the conference's agenda. sergey lavrov met with the chinese on the sidelines of the meeting. 24 hours a day and on bloomberg wick take, powered by more than 2700 journalists and analysts in more than 120 countries, i'm ritka gupta. guy? guy: thanks very much, indeed. elon musk has arrived in the sun valley conference in idaho. his twitter deal might be
in jeopardy. once again we have doubts over spam accounts, or at least elon musk does and is expected to speak at the conference tomorrow. today we find our bloomberg's ed ludlow there. what is he expected to say? ed: yeah, you know, i'm told by sources that he is expected to address the twitter deal or at least get asked about it. that's how the format of the conference works, you know. it's a series of onstage panel speeches and fireside chats and often those in attendance do get the opportunity to ask questions as well. this is the topic on top of everyone's mind. i'm told he arrived yesterday evening and i have not laid eyes on him and he arrived at the back entrance of the resort which is shut off by security. it's funny but the c.e.o.
of pra deal, i asked him if he worried if musk was going to walk away and he didn't respond. there are more questions than answers at this point. kriti: more questions than answers but i'm curious about the audience, you have the likes of warren buffett, bob iger, is there perhaps any chance the iciness around the details are actually broken given the audience he's speaking to? ed: yeah, but you have to remember the conference is completely behind closed doors, right? that these are the unwritten rules that attendees do not discuss what is discussed inside the room. i think what's interesting is that folks here have a lot of opinions what's going on. "the washington post" cited anonymous sources that said musk's team just don't believe twitter's data or the evidence twitter is giving is
verifiable on the level of the platform and earlier you had twitter executives give a briefing that said yes, the number of bots on the platform is less than 5% and we don't believe twitter or a third party outsider can verify it because we use a mix of public and private data and the timing was suspect. the discussion i'm having around here is we are moving towards perhaps a lower price point, musk coming back in. because walking away seems very complicated for both sides. guy: let's talk about what else you're finding out. a lot of people there with fingers in many pies. the media sector has quite a good read on what's happening with the consumer. what are you getting? ed: yes, definitely concerns about inflation and recession. the public market volatility has spooked people here. private market investors across private he can yet
and venture capital basically feel like some of them they want to keep their powder dry and some of them you look for opportunity and people remind me out of the 2002 dot-com, companies were born like google and air bnb. they still see the consumer globally as having money to spend and streaming is an interesting one. when times are hard and inflation is high, what do you give up? to me it seems obvious i cancel one of my many subscriptions, i got all of them and watch a lot of tv, you know, guy. but they are confident that the consumer will keep spending across telecommas well, the broadband and mobile phone, that's what the liberty c.e.o. told me as well. definitely these are the big pictures we have on top of mind but there's careful optimism. kriti: i, too, ed ludlow, have all the subscriptions and thank you for the update from sun valley,
kriti: the jobs report having a different reaction in the market now as we get closer to close. >> we have stocks higher and investors seem to be digesting the report. no news is good news right now. looking at the week. the s&p up five days in a row and the first time we've seen it since november of last years and last week was a down week and we're looking at the bear market bounce with all these indexes.
last week was a strong week and investors want in. let's look at the next board and you see an upcoming pressure for stocks could be the earning season and this is the reaction for stocks in the earning season and so you see in 2020 and 2021 we had stocks climbing but the last two quarters have been brutal for stocks relative to earning seasons as companies had to guide down and not being able to manage supply chains and other issues. however, i would suggest it looks like this bounce may continue and perhaps the earning season won't be quite as bad as expected. relative to yields, they're popping higher on the strong jobs report and relatively inflationary report and this is a three day look at the 10-year yield, back above right around 310 or so, investors, stock traders and bond investors seem to be getting more comfortable being in this
territory. and let's look at the bigger movers on the day and one of them is marathon digital, up 25%. bit coin headed to its best week since march and we've been talking about the technicals over the last week and looks like there a capitulation bottom in place and pit coin is firmed $30,000 or above. blowout numbers in china on tesla and "the washington post" reports the twitter deal might not go through and sea world down 4%, not a great quarter -- excuse me, citigroup cut the sea world, this on six flags, actually, no sea world, actually. i'm playing this live on poor performance in june and upstart holdings two negative sales preannouncements in a row. guy: thank you very much, indeed. let's look at what we've got on the week ahead. it's a busy week, monday keep an eye on what's
happening with nord stream and tuesday biden leaving for the middle east, wednesday c.p.i. from the united states. that is the one you really want to pay attention to. coming up, "balance of power." have a great weekend, everybody. this is bloomberg. ♪ >> people might want to switch. millions have made the switch from the big three
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>> from the world of politics to the world of business, this is "balance of power with david westin." ♪ david: from bloomberg world headquarters in new york to our tv audiences worldwide, welcome to "balance of power." as we come to air we're waiting for president joe biden to come on air, he was dealing orders connected to abortion and