tv Bloomberg Daybreak Europe Bloomberg August 1, 2022 1:00am-2:00am EDT
middle east headquarters in dubai. i'm manus cranny. this is daybreak europe, the stories etc. agenda. chinese manufacturing unexpectedly contracts in july, services weekend, highlighting the fragility of the nations rebound. powering through, hsbc profit beats estimate propelled by rising interest rates. the lender commits to restoring its dividend to pre-covered levels. >> we committed to pay half of that return out by way of dividend, a 50% ratio. mathematically what people see is a very material step up in next year's dividends. manus: kashkari the hawk, the fed doubts says the fomc is committed to reducing inflation to the 2% goal. future's debt but asian stocks
point higher. hsbc has delivered a monster beat, $5.96 billion, way ahead of what the market estimated driven in part by the upgrade on interest rates. but they are beginning to build a defensive case against a major shareholder about breaking up the business. he was clear, united we stand. it will be three to five years away from a material event, this hong kong stock is up 2.5% after the results. in terms of headlines, there will be a material update in dividends. they find it hard to see any value to shareholders but they are listening to their institutional shareholder. they faced their institutional investors in hong kong face-to-face tomorrow.
the smtp considered a worst-case scenario in the mortgage market, 6% of the loan market could be exposed to be written off. hsbc expects over a billion dollars worth of credit losses, up 400 million dollars net, hundred 42 million dollars in regards to china. lending is weak in hong kong and china. that's hsbc. we will take you inside views from ewen stephenson later in the show. we drank more beer, 7.6% in organic first half volume for heineken, a monster beat as well. the market had expected by .73%. they are revising guidance for 2023. they are sling in 2.0 5 billion in organic revenue.
by percentage terms, that was 24.3% material uplift for heineken. risk off this morning. chinese pmi contracts, that sets a risk off in markets. it's ready for a meaningful shift lower, futures are down by .4% as we rallied by 9% in the month of july. is the short covering rally done in equities? let's have a look at 10 year government bonds and again. a drop in the bond yields. fcom conditions did materially ease throughout the month. larry summers lambasting jay powell over his wishful thinking but there has been a collapse in yields, 37 points in july. nymex is down going into opec.
and yen rallies for the fourth day in a row, bitcoin down 1.7%. let's get to everybody. i've listened to myself enough. and the current is in hong kong to breakdown the latest on chinese pmi. cindy wang in taipei with the political tensions in taiwan. and we get the latest on war in ukraine with bruce einhorn. manufacturing data unexpectedly contracts and property sales shrink, highlighting the fragility of the recovery. as the government sticks to the strict covid zero approach. tightening restrictions when virus outbreaks occur. our chief north asia economics correspondent joins us now. return to contraction. how surprised our you by the data? >> definitely surprised.
it is a step backward for the recovery. slipped back to 49 into negative territory, quite broad-based from large manufacturers to small companies. this is going beyond the supply chain problems we all know about and suggests global demand is starting to weaken in a material way for china's exporters. this is been the big engine have china's recovery. it is a warning sign. it comes against the backdrop of the weakening property sector with data saying sales among top 100 developers continue to weaken. it is a pincer movement, slowing property and a slowdown in manufacturing certainly means more pressure on china as we head into the second half. manus: that was reflected from hsbc, concerned about the lending in hong kong and china with more impairments to come. enda curran there, our chief
asia economics correspondent. the u.s. house speakers trip started in singapore where she was sent to meet the prime minister and other officials. questions and world about whether she would defy chinese warnings and stop in taiwan. so far there has been no mention of the island on the schedule. let's get to our breaking news editor in taipei, will she risk it? one article saying the chinese would be prepared to shoot down any military aircraft that escorted her. >> will she or won't she? many in taiwan and around the world are eager to find out. if she does visit, it will be the first time in 25 years someone in her position will visit the democratic island. it will be a huge boost to taiwan. due to the seven city --
sensitivity of the trip, we have very little information. this statement from her office gives mention of the taiwan stopover. taiwan's government has been very tightlipped. when asked whether taiwan is prepared for any possible pelosi visit, that premier neither denied nor confirmed. and said, we reflect their plans in terms of timing the visit. judging from media reports, it is likely pelosi will visit taiwan later this week. a source says pelosi will fly on the fourth of august to meet the president in taipei. she could go into taiwan at any point of her trip. manus: cindy, thank you very
much, we will talk to you later. with investors are shrugging off sluggish chinese pmi, or are they? juliette saly is in singapore with the main market moves. we had a swoon in the first instance, but is it just expected because of zero covid you have this retrenchment? juliette: markets as we know are forward-looking also. expectations are driving sentiment to kickstart the trading month, with stocks up by about 1.5% despite that weakness. we are seeing develop and sign of, home sales continued to plunge in china and evergrande failed to update the market on its anticipated restructure. this index of china developers is at the lowest since march. also seeing weakness in semiconductor stocks on reports the u.s. may be restricting access to china from these chipmaking players.
the csi 300 has not shrugged off pmi data and is starting up on a positive note. let's have a look at july, you mentioned the s&p 500 rising 9%. it was different in china, having the worst month since march and the index plunging 7%. the reopening euphoria pretty much erased. this was the half we were expecting, positive momentum in equities. instead covid zero and no new stimulus announced by authorities has underwhelmed investors who saw three -- sold $3 million of stock. the most underperformance since 2016 versus u.s. stocks. manus: thank you very much, juliette saly in singapore. president zelenskyy shared a statement over the weekend that schelling killed a ukrainian grain mogul and his wife.
a great loss for all of ukraine after invaluable contribution to the development of the agricultural and shipbuilding industries. with the latest on the war is bruce einhorn in hong kong. we are building up to some release of grains, a moment of relief for the world. talk us through the latest and what this announcement means. bruce: manus, the president referred to the head of one of the largest agricultural companies, he and his wife both killed in schelling of the port city of nikolaev in their home. the attack one of the largest since the beginning of the war in the city. residences, a sports complex, schools, according to the
ukrainian government all these were attacked. this is in keeping with the pattern we have seen with the russian military attacking a lot of civilian and nonmilitary targets. the ukrainian side seems to be more precise in its attacks on russian military targets. regarding the grain shipments, there is some hope that there will be a shipment today. the turkish government had brokered an agreement about a week ago for the safe passage of ships carrying grain -- manus: how optimistic are you that they will actually happen? bruce: that's a good question because so far, there hasn't been any. we will see, the turkish officials as today is the day, we could see movement from the ukrainian port city of od essa. however until that ship sales,
we don't know. this is vitally important for countries around the world that are highly dependent on imports of grain, and important for ukraine itself because exports are vital to its economy. manus: absolutely, we will keep an eye on that, the tracking and the shipping. bruce einhorn with the latest on the war in ukraine. the fed's neel kashkari says they will need to keep an eye on inflation and to do what it needs to bring the prices down. we will talk through the market impact on bloomberg. ♪
conference that the fed was now at the neutral interest rate, calling it 2.5%. >> we're going to do everything we can to avoid recession but we are committed to bringing recession down and will do what we need to do. we are a long way away from achieving an economy that is back at 2% inflation, and that is where we need to get to. manus: that is the fed president and the former treasury secretary larry summers. joining me now is skylar montgomery koning, senior global macro strategist at ts. rolling back the dovish powell, how misguided is powell suggesting that 2.5% is neutral? is it wishful thinking, or indefensible, good morning.
skylar: i think 2.5% is quite low, we see it as higher than that. we think the fed will hike above 4%. you need to have a significant impact on inflation to get it back to acceptable levels while also having employment at acceptable levels. markets and economists are taking what they want to hear from it but since the start of the hiking cycle, the fed has said they are data dependent but will hike until they see inflation coming down in a significant way. i don't think that has changed. as we continue to see inflation, in strong, we will see that the tightening so far is not enough to get it down. in the market will move to pricing a higher terminal rate. manus: you see a closer to 4%, is that why you continue to buy
letters on bonds? skylar: it's different in europe because the european curve tends to follow the u.s. especially into recession. the biggest to look at is the three month or 10 year curve, or the fed's near-term forward spread. that has all flattened massively in the u.s. manus: do you think that the flattening has run its course? do you think the bond market has discounted a quasi-hard landing? that level of inversion on the 2's and 10's, do you think it is fully stopped for a more aggressive fed? skylar: i think we need to go a little further. european latin or's opportunity to get to -- flatteners present more of an opportunity
to get to zero or below zero. manus: if i look at the month of july, there was a monster rally both in stocks and in bonds. 36 basis points in treasuries, 9% on the s&p 500. and fcom, this is the great debate, how much anxiety will the loosening of that before the fed? it is almost an undoing of their own pain they have tried to deliver to stymie our inflation enthusiasm. how much angst will they have overridden easing fcom? skylar: i think the problem is we're in this period where we don't have another fed meeting until september. they have said we will do more hikes and are getting to a higher terminal rate. they are still saying that the
--i think they will continue to be worried about this loosening of financial conditions. you could get, and we will get more hawkish comments in the september meeting of that continues. manus: what is the bigger risk to bond markets? a double jumbo bank of england hike, which one or two people have sentiment over the weekend, saying the boe needs to hike by over a hundred basis points. that is one very left tail risk, i will give you another, i will give you two because it is monday. 100 basis points, double jumbo from the bank of england. for a moment of capitulation from the boj, take your choice. skylar: capitulation from the bank of japan is much larger in terms of, people are expecting more hedges from the bank of
england. the more you frontload, you can push it further out. when the yield goes higher, it won't be significant. when you see capitulation from the bank of japan, the markets have been completely one-way, and they have been saying time and time again that the bank of japan has kept their yields target. historically, when you see capitulation in the yield curve target, yields shoot sharply higher. i think the repercussions of that because of the volatility is much bigger than if you saw jumbo rate hike from the bank of england. manus: good sport, with the two tail risks. skylar montgomery koning, my guess this morning, senior global macro strategist at ts lombard. coming up, summers strikes. more on the story right here.
manus: it's daybreak europe from dubai and london. louis vuitton's epee disruption after its pilots -- lufthansa may face disruption after pilots voted for strike. a wage deal could unleash another wave of cancellations unless the airline's negotiators and labor representatives can settle differences. u.k. dot workers are planning to bring europe's biggest container port to a standstill, worsening supply chain problems.
and finally, the barristers are on strike. along with british telecoms, all out on picket lines. there is the scene outside, not the old bailey, one of the major courts in the united kingdom. wigs on strike, who would've thought you would see that? lizzy burden is in the u.k., she can shed light on this month's turmoil. economics 101, the barristers strike is shocking, but what is this going to cost the economy? lizzy: it is causing massive disruption but that is clearly what the strikers want to do. they want to get attention for their cause because when can they unions get a pay rise other than in a massive cost-of-living crisis? in terms of the u.k. economy, a research center estimated that three days of travel strikes in
june would have cost 100 million pounds. frankly, i drop in the ocean compared to the overall u.k. economy. it looks visible because transport strikes are affecting everyone but at the same time, after a pandemic, people are much more adaptable and can work from home better than ever before. in terms of the risk of a wage price spiral, bloomberg economics says it is not a big chance. compared to the 1970's, the bank of england's independent, union membership is lower and you have more automation. that means really the u.k. economy can probably weather this storm although optically it does look bad. manus: it is certainly a fragile economy, whether it is a cumulative effect, that is the question. there is political instability, the currency is up and more on the mortgage market from hsbc in a moment. it looks like zahawi has gone
behind liz truss in the tory election, the ballots arrived on the doormats of conservative members a little later today. is sunak slipping further behind, where are we in polling? visit: it looks like it. it is not just the chancellor. in is also the former northern ireland secretary adding to truss's case on brexit. you also had tom to ca -- tugenhat, which is significant because he was so anti-truss in the tv debate. betting markets are saying she lands a 90% chance of being the next prime minister. sunak has overnight been said to be planning an income tax cut before the end of the next parliament, but at this stage it
looks like a desperate u-turn to try and close the gap on truss. manus: indeed and some interesting notes coming in. we've got the bank of england litter this week as well. have a look at the demographics. this is about the younger thatcherite groups standing behind liz truss as opposed to rishi sunak. great reporting, the cost of strikes in the u.k. coming up, this is what we've got. russian gas squeezes mean germany is preparing for a millions have made the switch from the big three to xfinity mobile. that means millions are saving hundreds a year on their wireless bill. and all of those millions are on the nation's most reliable 5g network, with the carrier rated #1 in customer satisfaction. that's a whole lot of happy campers out there. and it's never too late to join them.
me, manus cranny, in dubai with the stories that set your agenda. chinese manufacturing unexpectedly contracted in july, services weekend highlighting the fragility of the economic rebound. hsbc topples estimates, propelled by rising interest rates. the lender commits to restoring its dividend to pre-covered levels. >> we've committed to pay half of the 50% payout ratio. mathematically when you run that through what you will see is a very material step up in dividends next year. manus: kashkari the hawk, the fed dove pivots. the fomc is committed to slowing inflation to 2%. u.s. futures dip and asian stocks attempt to push higher. very well and welcome to the show. risk is starting off under
pressure, the pmi contracted in china. is that enough to unseat sentiment? hsbc are concerned about lending in hong kong and china and see a week outlook. it's have a look at futures. ubs says there is a 50% chance of a materially lower equity market in the second half. this is the state of play on the stock market. you put on 9% in the first half of the year but this return to chinese contraction shows the fragility of the global market. ubs saying there is meaningful risk, 50% possibility of markets trading lower into the second half of the year. you're looking at stocks having the best month since 2020. standard chartered saying you have a short covering of underweight risk exposure, is what you saw in the latter part of july. the dax down .2%. to the oil markets, it's have a look across asset classes.
it's opec. while the russians even allow any additional supply given that we are in the death of war? yields rise, yen rallies for the fourth day, the hedges are covering their shorts, now back to the lowest level since 2021. short positions about a third of what they were at the peak. this risk off narrative being built in terms of yen rallying, bitcoin down nearly 2%, we will keep an eye on bond markets. in terms of the rest of the narrative, let's get your first word headlines. juliette saly is with me in singapore, jules? juliette: england has won a major international football tournament for the first time in 50 years. after extra time, the lionesses be germany for the first time. it is the biggest when since the men's team brought home the world cup in 1966. it was watched by a record crowd
of 87,000 at wembley, underscoring the massive growth of the women's game. the latest chinese data shows the country's rebound is fragile. factory activity contracted in july as property sales continue to shrink. it is adding for more calls for policy stimulus tubule growth. the government is sticking to the covid zero policy. house speaker nancy pelosi is starting her trip to asia in singapore. questions are swirling about whether she defies chinese warnings not to stop off in taiwan. china has threatened unspecified consequences if pelosi visits. beijing considers the island as part of its territory. 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. manus: jules, thank you very
much. europe's largest economy is scrambling to get ready for one of the hardest winters in decades. the parliament is turning down the thermostat. the presidential palace is no longer lighted at night. pools are no longer heated. they are preparing havens to keep people safe from the cold after decades of denial of russia's move to squeeze the deliveries. joining us is our industrial reporter, well, good to have you with me in frankfurt. this is serious rationing mode by the germans. is it a sporadic risk for a rising risk of a full cut off by putting? -- by putin? >> i think it is a rising risk. that is what the german industry is preparing for. talking to executives behind the
scenes, a lot of people think as soon as we see a cold snap in november or october, peter is going to cut off the gas and that will be the maximum pain point, so that is what they are preparing for. manus: do you think the preparations, i've read out a list, parliament is not late at night, there will be cold shelters. it is almost warlike in the imagery that comes to mind from the 1940's, sheltering, is the country prepare, is europe. for this? >> i think german politicians and needs apologies are slowly getting their populations prepared for that kind of thing. you are absolutely right, so far, it has not felt like this. you see a lot of refugees in german cities and passing through train stations. this winter, citizens were really notice -- will really
notice something serious is going on and this will have a real impact. manus: in terms of the economy, you have the manufacturing beasts, the heart of industry as the world sees it in germany. will of the rationing impact mercedes, porsche, siemens, the beasts of industry, aren't they? >> they are indeed. what we're not sure about yet is what scale of rationing there will need to be. that partly depends on the exact size of the gas shock, but also the weather. we can't predict what it will be like. actually those card companies interestingly are not really on the frontline of this thing. it is more like chemicals and steel and paper, those are the most gas intensive industries. but cars --
manus: go ahead, finish your thought. >> those kind of famous german names like porsche, bmw, they could be hit by supply chain impacts if the gas supply to the chemical sector gets cut off. i think that is the concern, unforeseen supply chain effect that could hit companies and lead to shortages like the ones we have seen with the chips crisis. manus: that is the latest on the rationing of energy in germany. let's bring in my guest carole nakhle. she is with the crystol energy, the ceo and founder. will has explained the bleak outlook on the gas front. we have seen sporadic cutouts and intermittent downgrading of flow. nord stream 1 is off. do you think complete cutoff is
reflected yet in the price? at the start of the war we saw that. germany is finding other sources. talk me through the consequences of a complete shutdown. carole: a complete shut off is being considered whether it has been priced, we will see. the key today is to build gas storage. we heard earlier about what germany is doing in the black forest. i see would being piled, people are installing would stoves -- w ood stoves. they are suspending short-term lets because they want to save energy. the more you save on gas consumption today, the more you have available for storage and that should take you through the winter season. to be able to face this worst-case scenario of a complete shutdown. though maybe not yet fully priced in expectations it is being considered. manus: in terms of finding the
alternative supplies, and much has been made of this. the italians with algeria cutting off spain. the qataris were busy with asia, we might get to you later in 2023. it is not that easy to supplant the russian supply, where are we on revealing storage -- refilling storage levels in europe? carole: the storage levels is here if you compare them to last year, they are healthier than what we saw in 2021. if you look at the data, it has been increasing month by month. whether they hit their ambitious target of 99.5 percent by the end of this year. we heard one energy minister saying that is too ambitious but it depends on two main factors. one, how much saving they can do today and second, really the winter season how early we will
start feeling the cold. and how much longer it will last. so there is a bit of unknown but i think the gas storage is healthier than where we were last year, which gives us some hope to say the least. manus: i think that is interesting on the gas storage front, we are ahead of 2021. brent is at 100 and three dollars, nymex is at 97 dollars. there is an opec meeting. novak was with prince bin salman on friday, can you envision a roadmap that would see the russians allow additional barrels in opec+? carole: it is possible because it depends on what they will get in return. today for russia they are already cutting a lot of their
gas supplies to their most important customer, europe. in this sense, they are losing massive revenues. what is keeping their economy afloat is oil. it is important for russian military might and their economy. it will not be easy unless they get something in return. i am quite excited about the opec+ meeting because it is the first after the visit of president biden to the middle east. and, we have seen rearranged production agreements, so nobody knows what will come out of the meeting but it seems the situation will remain the same for september and after that we will see what happens. manus: but the saudis made it clear that it would be opec+ who decides that there will be additional barrels. the rub of it is, when the russians ran out of opec when we
were all last in vienna, the agreement imploded. the saudis threatened to pump at will. do we run the same scenario here? russians do not want to lift up levels from this meeting and there is a breakup? or a dispute, whatever you call it. carole: so far, opec+ has portrayed a united front. we heard the new secretary general re-iterating the importance of russia for the alliance. and especially for the long-term. we are in completely different market conditions than when we had the disputes in march 2020, when we were seeing serious demand destruction. today russian oil is trading at a discount, less than a few months ago, but still substantial. it is unlikely the saudis want
to lose their ally. they are the only country that can make a difference in terms of production, but it is a delicate balancing act between keeping americans happy, but keeping the russians even happier. manus: but let's get to the rub of the matter, how do you keep america happy and keep the russians on side? the oil is back in the market, there is a deficit of 2.7, how does saudi arabia deliver more oil with the agreement of the russians? carole: the saudis made it clear, they will respond to the market. the fundamentals supporting the status quo of production levels where they are, we saw downward pressure on prices because of macroeconomic pressures. that data from the u.s. is not encouraging last week, or from china. from this perspective, they can say there is no need for additional supplies. libya was able to restore production to april levels, another 607,000 barrels a day.
we are seeing shale coming back. the saudis might say there is no urgency but we would be willing to step in if conditions change. manus: and we didn't even get to manchin and the u.s. we will have to do that on another day. i am excited for the opec meeting as well, we will talk over the next couple of days. carole nakhle, founder and ceo of crystol energy. hsbc estimates -- profts trounced the estimates. we talked of the ceo right here on bloomberg. this is bloomberg. ♪
hsbc, delivering better than estimated profits, restoring quarterly dividends into 2023. i caught up with the chief financial officer and we started talking about the health that drove these results. >> rising rates were beneficial. interest income was up 20%, revenues of 12% overall. we also kept costs flat, so we had under norma's amount of operating leverage. and we also had a one-off tax benefit. profits return to shareholders are up 60% from a year ago. manus: you expected credit losses of over a billion dollars, where are the biggest sources of concern, is a china? >> if there is one portfolio globally that bankers pay
attention to, it is our offshore real estate exposure, just over $12 billion. about a third of it is substandard or impaired. we have taken another $150 million worth of provisions this quarter for that. the outlook for chinese real estate continues to be weak. manus: ping an, have you heard any informal or bilateral conversations with them so far? >> we're definitely talking to ping an and continue to. they have raised issues as you would expect with any major shareholder. we have still got work ongoing on the structural alternatives they have proposed. manus: are they actively asking you to split the bank? are they making a category for sci -- categoric request to
split the bank in the listing? >> what we understand they are looking for is some form of structural alternative. we spent time with outside advisors looking at it. we put details into our investment tootles -- materials today. when we look at all of the structural alternatives, complaints that it would take us three to five years to implement any material structural alternative, together with high ongoing synergies. most of what we can see today, it is hard to find any value we can put in front of shareholders. manus: what kind of dividend, do you expect to reward with a special dividend to hold investors with you? how do you set the dividend narrative in 2023? >> we announced today we are returning to quarterly dividends. we are very conscious of the fact that pre-covid we were
paying out 51 cents a share, we are keen to get back to that as soon as possible. manus: hsbc's cfo with me a little earlier on being categoric that a breakup of the bank was not something they were looking at in any way. they did not see the case for that at all. visit tliv to get all of that interview. another hefty week for earnings. we will discuss how european companies are coping with inflation, and recessionary fears, but is the margin being crimped? on bloomberg. ♪
just seven minutes to 7:00 a.m. it has been an eventful quarter, many companies facing turmoil and seeing inflation in their numbers. we get another set of results later today. this week more evidence about the delicate balancing act of european companies. we have had heineken this morning. april joins me from amsterdam, that are organic growth numbers, and they are pushing hard on pricing and revenue management. are we seeing concern on inflation? >> morning, yes. heineken reported a strong set of results this morning. the key figure on organic growth was 7.6%, which peaked expectations.
they maintained guidance for 2022, and longer-term outlook for 2023. we have more people going out at bars and restaurants across europe to drink beer. and heineken has been able to mitigate some inflationary pressures by raising prices. we saw last week that its rival avn and have -- ab inbev also reported better-than-expected reports. that goes to show how people are still willing to drink beer despite higher prices. manus: coming out of a pandemic it is nice to socialize again. on the supply chain side, how to get your beer from one place to another, you have rising interest rates at maersk, inflation issues developing, how did that play out for them? >> yes, so maersk is still
expected to have a strong quarter driven by historically high freight rates. but those rates are starting to go down. 2022 could be a peak year for maersk, and if they remain high, this could offset weakness in volumes. we saw from its german peer, which raised its guidance, their strong fy and q2 performance was driven by historically high freight rates, so maersk could see a similar boost. manus: just set the stage briefly with the energy crisis to get in germany and high oil prices. how might that play out in bp? we saw very strong shall numbers. -- shell numbers. >> vp is expecting another
strong quarter with a boost from high gas and oil prices, and is expected to follow peers like shell which has seen stocks soaring in tandem with the invasion in ukraine. analysts are looking to see if they will extend their buyback. manus: let's see what the numbers are throughout the week and how the market reacts. april roach there from amsterdam a quick snapshot of foreign exchange. you see some of the carry trade's in yen being paid for in the euro. there is a shift in sentiment this morning across the markets. bloomberg markets europe is up next. ♪
this is xfinity rewards. our way of showing our appreciation. with rewards of all shapes and sizes. [ cheers ] are we actually going? yes!! and once in a lifetime moments. two tickets to nascar! yes! find rewards like these and so many more in the xfinity app. millions have made the switch from the big three to xfinity mobile. that means millions are saving hundreds a year
on their wireless bill. and all of those millions are on the nation's most reliable 5g network, with the carrier rated #1 in customer satisfaction. that's a whole lot of happy campers out there. and it's never too late to join them. get unlimited data with 5g included for just $30 a line per month when you get 4 lines. switch to xfinity mobile today.