tv Bloomberg Markets European Close Bloomberg August 18, 2022 11:00am-12:00pm EDT
guy: european stocks drift higher. were seeing a bounce in commodities. the energy stocks are up. everything else going sideways. the countdown to the close starts now. >> the countdown is on in europe. this is bloomberg markets: european close. guy johnson and alix steel. guy: drifter european stocks, we
are up by around 2/10 of 1%. the heavy lifting being done by the commodity stocks. brent crude moving higher. or positive, set of china even crewed a lift. trading 96 on crewed. the problem with that is a lot of people are finding growth expectations for china. if that's the case, does brent hold up. what is holding up as the dollar certainly against the turkish lira. 100 basis points up, does that make sense. a lot of people don't think so. >> i'd like to hear from someone who does think it makes sense. here in the u.s. very similar, the s&p up by over 2% in the energy space. s&p more broad looking totally flat. meh is a great word to describe the market action. cisco, that's actually helping to support the s&p, it had earnings, they gave a bullish
forecast and they see the chip supply shortage easing. they can facilitate -- fulfill more orders. bed, bath & beyond, ryan cohen apparently wants out. as katie was saying, that's a good barometer of risk sentiment in the market. >> it doesn't feel too good. a strike today, big rail strike coming through. raging about what the right policy formulation is for the u.k.. for bank of england, saying a little earlier to bloomberg the bank of england should now cut interest rates. his remarks in strong contrast rising sharply in order to deal with this inflationary surge with 40 year highs in the u.k.. he spoke to lizzy burden and stephen carol. >> looked for rate cuts in the last meeting.
the arguments to stop there very powerful. not least because the bank is forecasted a long recession and their actually forecasting deflation as well. this is a temporary phenomenon. >> lizzie joins us now on sat. interesting listening to what he had to say. he's concerned as a result of which policy needs to turn rapidly. yet we had an inflation print that is i watering. double digits. people are now actively talking about 100 basis point hikes here in the u.k.. you describe 50 basis point hike , where does that leave 100 basis points. >> people are talking about 100 basis points. i think it might be person. >> the debate is starting and moves out from there. >> it's a real minority call.
his view is inflation will get so high it will tame itself. our response was what's the point the monetary policy committee then if it's just going to sit on its hands. after the inflation print, economists have moved to say it good to say it can be 50 basis points. not even markets are even pricing for 75 basis points. remember the talk of the committee isn't can it be -- the hawk of the committee isn't can it be there. a big question mark. frankly at this point 100 basis points does seem rogue. alix: i felt like what danny also brought to the conversation for me was what happens to inflation and a recessionary environment. if we get a recession to prices
come down, is demand able to stay high if inflation is more structural. i feel like at the heart that's what everyone will be debating. >> that is the point, he's saying inflation will get so high that it will weigh on demand, companies have to let go of staff. it takes the heat out of the job market and inflation tames itself. this is the whole reason why liz truss is talking about changing the bank of england's mandate because she says it's not fit for purpose. we asked danny what he thought about it. he said it would be like fiddling at a time when rome is burning. he did acknowledge it's going to take a couple of years to properly review the boe's mandate. by that point inflation will probably have come down already. guy: the central bank, the bank of england continues to be behind the curve. it continues to underestimate the impact inflation is having and how sticky that inflation
could prove to be. it is playing catch-up. is the perception that the bank of england is still behind the curve most people in the market and how does it correct that? >> it is an easy criticism to make. you speak to economists or underestimating inflation it's not to the boe officials, and then every time it happened they add on the difference that they got it wrong to the next print. yet inflation keeps on getting higher. you now seeing cities saying you'll see inflation at 15%. is the bank of in the behind this curve, there's a huge recession risk. already talked about a long recession the likes of which we haven't seen since the 1990's. to be fair to the bank of england they have a difficult line to tread. >> i feel like it gets worse really quickly because now we have transportation strikes all over london and in the u.k.. i can't believe guy made it into the office. i'm wondering why the strikes
now and the risk event of a wage price spiral which is exactly what andrew bailey warned about months ago. >> guy has a bicycle like me. i had no problem getting to the office today. is there going to be a wage price spiral and the u.k., we have the jobs data this week. it shows that yes the labor market might be cooling a bit but it still red hot. in the inflation data you can see the main driver is food but it's stretching its broad-based through the economy so it is a real risk. part of the reason why you're getting such high food price is that supermarket is the biggest private sector employer and they are having their own mini wage price spiral. that's a bit the boe has targeted. >> i think lizzy burden just told me to get off my bike. very -- thank you very much indeed. all the details on what's happening in the u.k. economy.
ironically was fairly easy to forget workday on the train. but you have to drive to a slightly different train station. a lot of people are working from home. it will be intriguing to see what effect that has. bank of america head of european equity strategy joins us now. what do you make of this debate. are we behind the curve or in front of the curve in terms of debate. when you look at it from an equity point of view, you've got talking about high rates in the next block. the bank of england has to go through but further. >> where do we sit, as we discussed, i think inflation the u.s. is already peaked, this is a global phenomenon. a global leader already seeing the peak. energy prices are still going up. inflation is just way too high. but what matters for equity markets is how much more we discount. i think the point of peak central bank is already behind us. that happened effectively in june.
the proxy for how much central bank has to do already down 40 or 50 basis points print we think that will continue. we seen this in the rally. it helps to grow the quality segment of the market. >> have we reached peak hawkish miss for the boe and if we have, do you do domestic facing equities or international facing equities? sebastian: i do think the current pricing in the market is fair, the market clearly has double-digit inflation. however if you start to upset rate hikes that will dominate in fixed income markets in europe and in the u.k. as well. the question is do you by the domestic equities which have been beaten up badly over the last couple of months. the answer is they are extremely cyclical. we think that's the case. >> if you want to buy europe you don't want to buy europe, you
don't -- you want to buy it if it doesn't have exposure to europe. sebastian: think about utilities, we think that could repeat itself. there are some companies that are extremely strong but others that are extremely defensive, a stable cash flow. they get police earnings downgrade and reliably outperform estimates to growth weakens. alix: i'm get a harp on the u.k. for a second. what is that mean for the u.k. market? it's basically in essence a commodities play if you're avoiding that stock. is that a good bet? >> the u.k. a standout outperformer. it's got a lot of energy and was lifted up by the commodities rally. would we think is we will see lots of global growth weighing in on commodities because they are very cyclical. they have discounted very
>> it's obviously a difficult situation for central banks because they also see the economy is slowing and europe is heading for a recession. when you look at core inflation in europe and some wage inflation coming through europe, it's difficult to already make that pivot because of the weaker economy. alix: i don't want to be a central banker right now. isabel spoke to reuters talking about the fact that a heavy hike -- hefty hike may be needed when the bank meets us next month. she says specifically a number
of indicators are pointing towards an elevated risk of inflation d anchoring. have equity markets reacted or priced in that possibility? sebastian: i think they were pricing it effectively in the middle of june. when the market was down from the peak. the suggested you have a terrific spike in the discount rate. but the sharpest spike we seen in 20 years. central banks would have to know overboard, since then this comes down. you see the first signs of inflation rolling over and that means the global inflation story is coming very close to its peak. guy: how do you see the ecb progressing? they also said even if we entered a recession, it's quite unlikely inflationary pressures will abate by themselves. we will have to hike during that downturn. sebastian: i think it's very
unlikely. guy: you are fighting the ecb here? sebastian: just to keep you entertained. remember 2008 it was the same thing. inflation was very high. partly due to high commodity prices. but let's move forward six months. i think it's a low probability event. if it does slow, commodity prices will fall. the rate of change in commodities from the peak value will be committed and further recession by definition is demand destruction. it goes from being inflationary to below supply and a lot of prices will come down and the central bank's biggest problem will be weaker growth or weakening labor market. >> you could make the argument the energy crisis on the climate crisis are happening at the same time as structural inflation issues. even if people don't go to work or not buying stuff they still need to turn the lights on in their house. sebastian: remember the power
market in the energy market it's a very cyclical market. a lot of activity doesn't happen. means demand not only for general goods but also energy comes down. what i would argue, one reason why we have this terrific inflation problem globally is you have the strong inventory cycling in the u.s.. all the companies restocking, ordering, of supply chains being stretched. that's a huge inflationary shock. the inventory side is no rolling over. again that's a disinflationary signal into the global system. >> you are seeing that in the retail space. talking very much about that. but to turn for just a second, will energy prices be structurally higher going forward. we've had years of very low energy prices in europe, structurally it now looks as if they will be significantly
higher maybe for a decade before the green revolution really kicks in. if that is the case, do we understand the full implications of that in terms of the industrialization that could happen around that, the long-term drag that that could add to growth. sebastian: if you look at the forecasts in our instance, around 30 or $40 paid would we expect for there to be a recession and for the oil price to drop to $80. coming from 130 going to 75 is a terrific disinflation -- disinflationary impulse. but it is the highest structural drop. the problem europe is not only energy prices are high globally but you're also the region with the highest. just on the structural outlook, a lot of homework to do for european business to stay competitive with this disadvantage. >> is this basically why you see
more 10% downside for european stoxx 600. what's going to be the trigger for that. >> so the story that guy was talking about, we play that out over the next five years. they don't have the patience to wait five years. the 10% downside is more related to the point earlier. growth momentum will weaken. there's a lot of relief saying maybe the fed will stop hiking by the end of the year. finally we are in the clear. what we are saying is it typically takes a year for the full impact for the weakening of growth and monetary policy to come through. the number one driver for equities's growth. as this weakens, that means lower equities. equities will price for that in the middle of june. they are no longer discouraging this. they have this risk as it materializes. guy: you are going to be
watching jay powell next week. this can be some european representatives as well. powell's going to be front and center. powell is hawkish pretty feels he has to push back, how does that change the narrative from your point of view in terms of the way inflation will come down and the fed's tolerance -- the fed's understanding of when the tipping point comes in and how long that tipping point is, it can realistically start to loosen up. sebastian: there's a question of what will he say. i don't think he will say much because they're waiting for the data to come in. i think he will try to get through the event without walk -- rocking the boat too much. it's good to go up and put some pressure, but if over the coming months we see fading inflation and weakening growth than the balance of risk for central banks will look different. there'll be a shift and that's a big theme that basically means
central banks will become more dovish. if you look over the last 60 years, fading inflation is a fantastic combination for bond yields. we are positioned for lower bond yields, overweight the quality stocks. if in three months in two months time they see this weaker growth, lower inflation they will become more dovish. guy: great to see you. great stuff, this is bloomberg.
expressed interest. jim is another name in the early mix. calling for change in ownership with disappointing performance in recent years. china is lashing out at a $52 billion program to disband american manufacturing of semiconductors print and industry association says it contains elements that violate fair market principles and target china's own efforts to build in the ship making industry. the legislation pivoted -- advanced chips in china. swiss watches rose over 8%, the highest level since 2014. demand a sword during the pandemic paired exports to the u.s. rose, the biggest market to watch. -- for watches. the german lender expects that's
likely to be different from the downturn seen in the financial crisis. deutsche bank says there's a need for housing. the market probably won't repeat its severe and sustained decline. that's your latest business flash. alix: i really hope it's not like the housing crash in 2008. we talked to mark and he was saying 1.6 million homes, of the u.s. still short 1.6 million homes. that's tremendous. guy: it's good to be interesting as well. the supply coming through, supply chain issues, that's coming through on the market but the market is still up supply. talked about the fact volumes are coming down. would you get to really crack is prices. in terms of regions in the united states at the how those prices will hold up or not hold up. he talks about an aggregate move lower. some markets are quite
vulnerable. alix: definitely that a lookout for. long-term he wouldn't sort of give 30 year mortgage rates. in the longer-term you looking at 5.5 seems like a fair point, may be above. the ideas looking at 5.5 for the earlier fix. which is where we are now. guy: let's say the fed goes even more aggressive to the upside. that the fed comes out and it's quite hawkish. could it be a seven handle. you wonder how the market would react to that kind of environment. how much more you could see. if prices come down that much with the 5.5, is there risk on the upside of that. alix: you also wonder with rent so high, can we stomach actually 5.5 or six because of the rental problem? guy: do people come out of
guy: we are wrapping up the session here this thursday. drifting sideways in aggregate. their geographical distances. what's happening in that market, inasmuch as we've seen 100 basis point cuts on the central bank which feels less monetary policy orthodoxy than political orthodoxy. the ftse 100, despite the fact energy doing fairly well today it's a bit of an underperformer. this is the story, a bit of a
pickup first thing. the markets looking for guidance pray we are stuck around this level which we've been at for the last few days. let me show you what's happening there. you are seeing the commodity story strong today, energies up by 1.74%. that's the miners in the oil stocks. technologies up, chemicals up. the cyclicality from the industrial sector. bottom under the market, retail off today. interesting to see what's happening stateside. grim news out of the retail space as well. you've also got the banks down as well. let's talk about some individual names to pick out here. manchester united. apparently the family could be interested in selling a minority stake. i suspect also private equity,
with also run the numbers. up by 1.9% today. ao world is a retailer of mainly bridges, dishwashers, it's getting upgrade on the back of what appears to now be some more comprehensive guidance from the business as to what they see. clearly this is a company you would expect in recession to have a tough time. a lot of that is factored into what we see with the company in of share price performance. now that they're getting more visibility it allows the market to take a better understanding of what's happening. this is interesting story. this is a fintech that europe is at a bit of a problem with. today though, the stock is getting marked down around 4%. a lot of it has to do with internal restart of travel, they've whole lot of factors to
bear in mind. interesting to see the company cutting marked down so aggressively on the back of that down by rent 4%, this is a really interesting space right now for europe because it's sort of technologically -- technology arena. that's really weighed on the technology sector today down by around 4%. let alix: get to the story -- alix: let's get to the store you were talking about. delivering a shock rate cut. despite inflation going to a high, the lira at a record low. tim, is there any world, any theory where this cut makes sense. tim: the central bank of turkey has as much credibility as the management of man united. that's a state they are in at this state. they have 80% inflation and it
is rising. and they cut rates so mine is 66%. who would hold lira assets at this point. certainly not, there's no sense in it at all. this is about erdogan crippling the central bank and about elections. he's got to hold elections, he needs low rates to get the credit markets going to get jobs and all of that going. but the risk is obviously the lira as you mentioned. a big balance of payments crisis. can it survive till the elections next year. what happens after the elections? guy: he's preparing for the elections, let's say the akp wins that election, then what? tim: one of the reasons he possibly cut rates is he's got
five or six billion dollars, he's got money from the gcc also , he things he got enough reserves trying hold the currency, i'm tempted to say below 20, the elections could cut rates in windows elections. but he will have to spend that money on the currency and then basically whoever wins will have huge skeletons in the cupboard. it's basically bankrupt from the central bank perspective. there's going to have to be a reckoning after the elections one way or another. >> do you think this is the start of rate cutting cycle to get to the election in which case what does that even look like? tim: erdogan is always in rate cutting cycle or rate cutting mode. it's just ridiculous. zero credibility. a huge wacky experiment with
policy. in going on really since 2011. the last decade has been about this. the inflation target reaching 5%. it's nothing to do with global supply-side stuff in ukraine and russia, it's about bad policy. bad monetary policy choice erdogan forcing the central bank to do crazy things that will end badly for turkey. >> what's happening with growth? the focus out of the economy broad pandemic there's evidence that it's slowing down sharply. this has to have an impact. talk to me about what's happening on the growth side. >> is very loose monetary policy stance. the price is inflation. some evidence now that as with poland this week we got rather disappointing second-quarter gdp numbers. remember, turkey had the big
manufacturing sectors which are very much linked on supply chains. i guess with the gas crisis in europe there will be discussions to turkey and that makes life even more difficult for turkey but in the end they care more about inflation. that's the big problem. inflation is 80%, living standards will be under pressure. that's the complication for erdogan going into elections. this means of cutting rates doesn't help him. certain -- certainly cutting policy rates is can help him. alix: what can he then do? no no set a combat this inflation so what can he do? tim: the strategy is to get money from anywhere. behind the back of the sofa, the money from russia is what you see. trying to defend the currency, provide an exchange rate anchor
and hope they can help moderate. erdogan is meeting zelenskyy and trying to push peace talks. he is desperate for peace in ukraine. the other big hit has been energy and food import prices which bashed the deficit. that put more pressure on the exchange rate and also put pressure on the --, it's put a difficult on him. he things low interest rates -- thinks high interest rates caused inflation. he thinks cutting interest rates will moderate inflation. it's wrong. there's no economic basis for it. it's failed over the last decade. it will continue to fail. the only question is head -- does turkey had the end of the road before and flexion -- before this or after. >> why is moscow supporting and
kara -- ankara? tim: turkey is a key nato member. putin is very eager to create division within nato. he sold as for hundreds to turkey, that wrangled with the americans. leading to questions about sanctions on turkey because of that. it's basically continued for line actions by putin attacking the west. guy: always great to catch up, thank you very much indeed. let's look at where european equities have been, seeing the final numbers come through. sentiments are fairly sideways session for most of the afternoon. a little bit of a push higher. this is where we are finishing up. a little bit softer over the
last hour or so. all finishing in positive territory. the top of the hour, taking to the airwaves. i'll be doing this remotely trying to navigate the strike story here in the u.k.. i'm not to be on my bike. i will be on a train. we will try to figure out what's happening. itunes, spotify, that's where this can be found. alix: but you ride your bike to the train. guy: there will be some bike riding but not all the way home. alix: that would take you like a day. that's just because you live far away. much more coming up on cable. coming up after the break, 5 -- piling up of the short-sellers piling up on the meme stocks. we will talk with the head of predictive analytics next. this is bloomberg. ♪
shot of the principal room coming up. the former u.s. ambassador to ukraine joining 12:00 p.m. new york time. this is bloomberg. >> keeping you up today with news from around the world, longtime trump organization cfo allen weisselberg is pleaded guilty to all 15 felony tax fraud charges he was facing. he admitted he schemed for years to avoid taxes that included unreported parks. bloomberg has learned he won't implicate his boss but will have to testify against the trump company. prosecutors will ask for a sentence. the bank giving the key rate will soon overtake that of the federal reserve. projections of where the key rate will be one and three years from now. the lift and was taken by
positive -- in the u.k. the so-called summer of discontent is about to get worse. the most widespread disruption yet due to strikes by rail workers at subway staff. there will be followed by an eight day strike by dockworkers. the biggest container port in the u.k.. they may get some relief from a crisis that helps transport of energy products and other goods on some of the most important rivers. water levels on the rhine are set to rise at a narrow waypoint , at a point where many barges find it uneconomical to transit that stretch. 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. this is bloomberg. guy: thank you very much indeed. the revenge of the meme stocks.
shares of companies like amc and gamestop and bed, bath & beyond have soared this month. it's the numbers on the screen. that's led to losses of more than 1.6 billion dollars to for short-sellers. joining us is the s3 head of predictive analytics which uses algorithms and historical data to help make future predictions. thank you very much indeed for joining us. walking to the role that short-sellers have played during this process. and how much pain has been felt. >> this is gamestop from a couple years ago and it's happening again with bed, bath & beyond leading the train car with amc and gamestop also. shorts were down in august already. with market losses, they've gotten back half $1 billion of that loss. so when their active we are
seeing short squeeze. bed, bath & beyond is interesting because the short squeeze weave swing -- we've seen have been replaced with those who basically jumped in at five or $10. alix: isn't short interest totally different than it was a year and? -- a year and a half ago? >> this was declining overall in the market. recently we've seen an uptick as short-sellers are putting back their positions because they missed much of the rally. the string to increase their long positions. in these stocks we are seeing $2 billion worth of shortages from amc and gmb. we've seen big plays on this. >> so in terms of current positioning, how would you describe it? is this -- as the market is
evolving, new shorts have come in. how big are those compared to the ones that were previously there and how much staying power do they have in terms of the volatility we are seeing? >> the differences the old shorts have to exit their trades. kind of like trench warfare. the first set of soldiers took a beating. what we saw in bed, bath & beyond or shorts that took huge losses at five or 10, $15 a share. they started getting out. everything that was returned there was a new shorts because they thought people thought it was overpriced. gamestop and amc we see the short squeeze take this out of the market over the past month. to the tune of 5 million shares. alix: how much more is that to shift? how much more short covering do we need to see and when do we
level out. trying to get a sense of how much that can leave the rally. >> this is really -- you have a large amount of short recovery but a small piece of what the daily trading volume is. i don't think you will see that much on short recovering in the near future because there's a little bit of retracing in price. bed, bath & beyond i think there will be short covering. >> if i want to borrow stocks, how much availability is there and how much will it cost me? >> the stock market is really tight. all three names have over 90%, there's not much stock left or borrowed to cover short sales. the new short gets in using that. bed, bath & beyond, we've seen rates on existing shorts at 12
to 20%. so it's getting really tough the stock. alix: traditionally, what does this tell us than about what hedge funds need to do for the end of the year to chase performance as the shortselling get squeezed. >> what we are seeing is overall on the market shortselling we've seen this with the value of shorts or up. so since the market high around june 16 we've seen $170 billion worth of market increase on the short side which is offset by 45 billion dollars worth of shortselling. the value of the total short book is up even though we've seen this in the market. what's happening is hedge funds are getting in, getting more exposure on the long and short side because they need to make up the performance they missed in the last couple of weeks? >> what i find interesting at
the same time we are seeing it's incredibly cheap. how are the shorts using options as well to protect their positions. what is the overall picture? >> you are seeing option trading , and easy way to get leverage on the long side in the short side. what we're seeing is a lot of options like in bed, bath & beyond and amc. everything is being dealt a hedge so if you are hedging, you're offsetting that trading to be equity markets. there's -- they making that market maker flat. so that activity is actually, the option makers translating that due to the hedging of the stocks. alix: we really appreciate it.
alix: stocks are mixed trying to inch up higher. >> we've moved into the green out of the red, small gains but nonetheless we are looking at these off the lows we had yesterday. we now have s&p 500 up for out of the last five days trying to go back above 4300. the energy indexes higher up 2.1% in line with crude oil. this could be why we have yields down on the day. yields are down, stocks are higher. as for some of the earnings removers -- the earnings movers. cisco up 6.5 percent.
more importantly the outlook for the fiscal first quarter, of the current quarter we are in right now looking for revenue growth of two to 4% versus last. investors are cheering that. estee lauder up 2.5%, they also have a solid second half outlook , folks returning to the world using makeup in those products. bj's wholesale club up, they had a huge day. it beat by 32% on the bottom line. 9% on the top line. improving what we saw with the other retailers. target that was the case as well. a messy quarter down 5.7%. as for the meme stocks you were talking about, here's bed, bath & beyond. interesting to take a look to make the case you have a double top going on that could go all the way to where it was before this big rally. the impetus of the selling, ryan
cohen indicating to sell a large portion of the total state. plus call options, a very tricky exercise to make sure he would not create some type of profit or actually if you take a look, probably around current levels. it's going be intruding to see how this plays out. as we take a look at the day, i suspect we are off of the low point we have been. earlier today when we had been just at a small loss it has been the smallest trading range for the s&p 500 going all the way back to new year's eve of last year. >> great stuff, abigail doolittle with what's happening in markets. ok, what are we watching for the next 24 hours? today we have a hearing on the former president trump's mar-a-lago search documents. alix: tomorrow we get u.k. sales
>> in the world of politics to the world of business, this is balance of power westin. -- power with david westin. david: from bloomberg world headquarters in new york to our television and radio audiences worldwide, welcome to balance of power. the markets i think are caught between the fomc minutes from yesterday and the jackson hole meetings coming up next week, trying to decide where they went ahead. to give us a sense of both of those because he cover the minutes yesterday we welcome bloomberg international economic and