tv Bloomberg Markets European Open Bloomberg August 19, 2022 3:00am-4:00am EDT
the mixed messaging leaves wall street confused. sterling separates worst week, amid double-digit inflation, labor unrest and slumping consumer confidence. as we inched towards that, the jackson hole, euro stocks ftse futures down .2%. we did have a bit of a rally at the start of the week. and then the afternoon when we had earnings outside then today, u.s. equity futures also showing down this morning. investors diverging comments from fed officials. it's different what we heard from jim bullard from -- trying to strike notes of what could
happen as they continue to plow ahead with the hikes. the ibex opening down .4%. the ftse 100, and what's happening in china. aluminum and iron ore, both against the sovereign bond. a lot of focus today will be on the pound. also the pound versus the dollar, which is currently at one 19 point 02. -- 1.1902. this is what the asset check looks like. we need to talk about treasuries, dollar, part of the dollar move is thanks to the interview with you had with the indonesian president, where he said he is expecting both president xi jinping and vladimir putin to arrive. euro-dollar, 1.0075.
let's get over to the bloomberg managing editor. you're looking at the u.k., is it ok? mark: it is not ok. i don't want to give you bad news on the friday, it's still a weekend. you mentioned the plant, i'm looking at how cable sterling is versus the gap between two-year u.k. rates and two-year u.s. rates. u.k. rates have been raising rapidly. u.k. rates really rising quickly amid inflation data. that surge in u.k. rates versus u.s. rates is not supported cable at all. it is the country with the runway inflation problem, yet a weak economy and it's not a good picture, it struggling with the
aftereffects of brexit. then there's the fact that overnight, u.k. consumer confidence fell to a record low, data goes back to 1974. just look at the comparison. cable above two, almost every trader lost money. and then -- that was in 2008, it seemed like the crisis, it is even worse now. markets are convinced the next leader. francine: it is tough out there. i love that chart. thanks for that great chart. if you look into the petite, i
think it hasn't done so badly. let's kick it off with the fed, we've been speaking on the direction of policy over the next few months. >> they confirmed what i suspected, which was that the fed doesn't know where it is. that the convey a collective message. >> they can get lucky or they can get it right, it is difficult to know where you are. i'm sure they're not going to get exactly right. i think if they're going to make a mistake, it is going to be on tightening too much. they want to make sure they bring inflation down. >> i don't think we are in a recession right now. as we continue to raise rates,
and raise cost of borrowing across economy, it should be putting a tap on the brakes on the u.s. economy. that makes it more likely we will end up in a recession. francine: we have altaf kassam, head of emea investment at state street. there's so much going on, he said you are a great student of u.k. markets, is it when to get worse from here? hasn't done this badly is the euro stocks. >> there are two things holding up the ftse 100, one is the mix of the proportion of energy companies, that have done well. secondly, the weakness in sterling. a lot of countries on the ftse of -- ftse 100 has overseas earnings. put those together and the ftse 100 is actually outperformed a
lot of global markets through the slump of the first six months. undeniably, the use -- the u.k. economy is suffering. francine: what is your take on it? >> the banks have to keep raising rates. those -- for a long time in the summer, what is required for the bank of england. you seen two-year yields search 25 basis points this week. and it's telling the story that when futures are not very good, they're going down. there is no incentive to be buying and that's what you are
seeing. francine: at what point does the weaker currency become problematic for the u.k.? >> with the u.k., we have to start worrying pretty soon. we've seen the effects already about how the weakening currency with increasing amounts of inflation. that is when we reach a tipping point between the flattering effect of the weakening currency as inflation gets imported at higher and higher levels. i think we are reaching that point now. i don't think there's enough willingness to step in by sterling, even though it looks cheap in america. francine: are there any policies they can -- the next government can put in place to take the edge off in the u.k.? >> the most likely contender
being downing street says tax cuts -- they're going to help stabilize -- on top of that, until inflation is under control, you are not going to see a big turnaround in yields or sterling. francine: when you look at the market positioning overall, are the good days value trade over? >> it's not over completely. i think the real yields are certainly negative, it's going to be hard for value stocks to rally. i think the market is pricing in the pivot from the fed constantly fighting inflation to worrying more about growth. i think value stocks are in the doldrums of the moment.
with energy prices saying heights of they probably won't come off too much. i don't think they're going to see the rise we saw at the start of the year? francine: do you think it will continue? >> we started the year very positive on europe, but then the war in ukraine and that energy crisis, we quickly slipped to be more positive on the u.s.. the europe has a lot to do before comes this crisis. francine: we have conflicting messages from federal reserve officials. at the end of the dates of did they prioritize inflation overgrowth? >> yes. no question about it. they said get the inflation under control, back under 2%. i think that is the part that the markets have been going over. they not going to stop raising
rates, they are going to get to around 4%. it was raise and not raising cut. they're starting to get the message, in the coming months, that message will be august. francine: what does that mean them for treasuries? >> as you go higher, i think the two-year will come back to 3.75 24%. the 10-year yield is going to rise as well, not so much as the front end. francine: thank you so much. coming up, after beating expectations of supporters of the outlook for european corporate earnings could be
and the fed, we get to jackson hole next week. after beating expectations this quarter, the outlook for european quarter -- corporate earnings could be difficult. what is behind the european margin this quarter? laura: this is the classic example of analysts being to cautious. operating margins in your remain at record levels. margins almost 100 basis points higher. companies have successfully lamented cost -- implemented cost savings measures. in light of recent cost pressures, more customers have been happy to dig deeper into their pockets to offset those cost pressures. some of the most interesting sectors that tell the story on supplies, energy was an
outperformer are not margin basis. oil, record profits, sanctions against russia led to fighting the oil and gas prices. brands like unilever, heineken, netflix have been able to pass on higher prices to customers. discretionary was weaker. primarily carmakers still suffering from component shortages. they been unable to fill demand. elsewhere, with demand and leisure -- travel and leisure, demand remains robust. they been unable to offset higher prices. margin crashed because of a spike in oil and gas prices. francine: what is the consumer outlook sector by sector? laura: it is deteriorating. operating margin expectations in
202023, a clear deterioration is emerging. the real risk is what will demand destruction look like? when employees start to ask for higher wages to cope, that will be drive on margins. there are a few winners. that is when the classic value plays look attractive. according to the bloomberg forecast, keep your eye on oil, metal and mining companies. francine: thank you so much, laura wright with those margin expectations. next is altaf kassam, head of emea investment research at state street. we've seen pressures a new cast -- in the u.s., especially the
u.k., was your take on what sector could outperform others? altaf: i think it is going to be time to pivot toward -- we seen how utilities have been hammered because of high energy prices. were looking to health care, which is been effective, despite the pandemic being a health emergency, has been largely ignored. we think health care could start to shine going forward. francine: what is the catalyst? broadly speaking, equities have been looking up. altaf: it's hard to say way it will be, equities have been indulging in almost magical thinking, that rates could continue to rise and equities continue to remain resilient. it is giving a realization that cannot go on. we can't have rising rates and market standpoint. that is going to come to pass as
we realize central banks are focused on fighting inflation and not so worried about growth. francine: what is the catalyst? you take one or two weeks to play out. altaf: what's going to happen, we are going to get more from the fed said that they're serious about fighting inflation. were going to get higher inflation trends, we seen them and the u.s. and europe, and were seeing that we've reached a peak inflation, it is going to ebb away. that is going to take its toll on the markets. in the u.s., at the long end, i do see value. the been hurt a lot by that singular focus on inflation. i think they are trading a lot of value now, we're going to see tension on insurance companies and liability management. place a scene value is at the long end in the u.s..
john: this visit did not help stability? jokowi: what we want to stability, peace in the region. john: there is a concern that if there's a conflict in taiwan, it would spill over the south china sea, where you have territory, that china contests. is indonesia ready to defend itself or its lands and waters? are you ready for that conflict militarily if it happens? jokowi: we do want the region to be peaceful. it shouldn't come to the point the tensions rise until defects economic growth and then later effects the well-being of our people.
in my opinion, it is important that there is a space for dialogue between leaders, especially leaders big countries . the global situation is extremely difficult and there should be further unnecessary issues. we are going through food crisis , an energy crisis that has not been resolved. the pandemic still exists in some countries. john: i know that you have invited president xi jinping to come to the g20. has he said he will come here in november? john: jokowi: xi jinping will come. john: and vladimir putin? jokowi: president putin has also told me he will come. john: american investments in indonesia over the past five years is $9 billion. china has invested $40 billion. we have a chinese car factory around the corner. china is buying up a lot of the refineries to make precious
metals, america at the moment is limiting the battle -- losing the battle for hearts and minds in indonesia, but also southeast asia, do think that is fair? john: jokowi: indonesia wants to be friends with everyone. we don't have problems with any country. each country will have their own approach. each leader has their own style and approach to bring investment. it should not be a problem. but now what is needed by indonesia is investment, technology. that will change our society. francine: that was the indonesian president speaking to bloomberg's john micklethwait. let's get to the bloomberg business flash. laura: european national -- natural gas futures added to their gains.
the benchmark settled at 241 euros per megawatt hour. weeks after russia's invasion of -- meeting -- they are 11 times higher than usual. china tourism group has raised about $2 billion in its hong kong offering. the shortstop on august 25. it is the biggest listing in the asian financial hub so far this year. that is the bloomberg business flash. francine: laura wright in london. whoever becomes uk prime minister next month we'll have a double-digit inflation number over their heads. we'll talk about the health of the economy, what that means for stocks overall, the dollar climbs toward a one month high. geopolitical tensions may also be in the mix.
depending on cable sterling, suffer the worst week since april, amid double-digit inflation, consumer -- labor unrest. in consumer inflation -- consumer confidence. we are seeing movement on the dollar. the next catalyst is not only jackson hole, but in the fed. but markets will have to try to decide whether they will work on inflation at the expense of growth, and to what extent that means we will see a change in the treasuries. let's get to the groups they're moving. we do have some of the outlier calls, delivery companies doing extremely well as a better than expected. pressures for travel, now let's get to the first word news with laura wright. laura: indonesian president has told bloomberg that xi jinping
and vladimir putin are both planning to attend the g20 summit in bali. this will set up a showdown with western leaders, set to meet in person for the first time since russia's invasion of ukraine. european intelligence officials believe russia is using a nuclear power plant in southern ukraine to shield its troops and equipment, undermining the safety of plant operations. bloomberg understands officials think moscow is using the power station to provide cover. it is europe's largest nuclear facility in march. a u.s. federal judge may release portions of the affidavit justifying the affidavit should be unsealed. the justest department has one week to propose what information
should be kept secret. they went to protect the integrity of the investigation. global news 24 hours a day, on-air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thanks so much. the u.k., the month-to-month data at saw a small rise with the expectation being for drop. with the a 40 year highs, and consumer confidence at the lowest level since the 1970's. if you break down the data for us, how bad is it? >> it is not quite 3%. we've got to get some credit -- credit to our senior u.k. economist, who saw this coming. most economists said it was going to be a slow down and you to -- retail sales. it's been driven by online sales.
we had separate data saying there's been people spending on barbecues and staycation's because of that hot weather in july. underlying it, first of all, sales volumes, the difference and that comes onto inflation. we've got a 40 year high inflation, already in double digits. this is the reason the consumer confidence survey has come in at a record low, because people's outlook, because of the inflation is so bleak. francine: for the bank of england, a lot will depend on how inflation turns out. >> at the moment were seen 50 basis points from the bank of england in september. there been more hawkish calls recently. yesterday, the former boe center at said rates could hit 6%.
we've also seen expectations of the bank of england overtaking the fed and the next three years, that they foot back after that because of the recession risk in the u.k.. ivan sans mliv, 100 -- i even saw on mliv, the fact they were even discussing is insignificant. francine: after beating expectations the supporters of the outlook for european corporate earnings could be rocky. joining us now is tim craighead from bloomberg intelligence. what -- looking at the charts, is it going to be worse or better? tim: it's a shameless plug. we didn't have our reading list to show how graphic art
researches. we put charts. one of these dynamics is the issue you've been talking about. high inflation is not going away. we are going to stay at sustained high levels for structural reasons. what does that mean? interest rates are going to stay relatively elevated as well. from that perspective, we seen a dynamic the last six weeks that the third quarter started. that is this move back towards growth investing, away from value investing with the reprieve we've seen in 10 year yields. we don't think that lasts. we think the interest rates will continue to stay elevated. we think our aversion toward valued make sense at away from growth. francine: it is interesting. can this be sustained with the rising cost? tim: i think one of the big
surprises at of q2 earnings has been how good they were. they were better than we had anticipated. without profit margins were start to show signs of crocking -- of cracking. a lot of that positive surprise the market and profit margins were driven by energy. if you look at the 2023, that's where the market is going to be focused of that is where we hit started to see operating cost margins slip. we think this is the tip of the iceberg, more is likely to come. because of elevated costs and slowing growth. francine: what are safe havens in the european markets? tim: the poster child for safe haven is the swiss smi. but it is pharma and staples,
that this was currency is strong . that creates a headwind, like the dollar. the other sides of the ftse, you think there's a lot here is a big oil, big banks. that is where we see elevated prices, higher interest rates. that place are well into those groups. it also has a big chunk with unilever and the pharmas. there you've got a week currency that creates this translation benefit. this barbells the ftse and has produced a stable index. francine: what are the sector level drivers? tim: the one place where we see a big dislocation in terms of sector performance relative to the key underlying driver, financial relative performance, trends with interest rates.
over the past six months or so, this is split. interest rates are up, we think that disconnect comes back together. we don't see interest rates going down, we see financials trading up relative. francine: great charts, great summer reading from bloomberg intelligence. coming up, we speak to alex patelis, chief economic advisor to the greek prime minister. this is bloomberg. ♪
francine: welcome back to the open. it's a down day for european stocks, 600 down .2%. a lot of the focus on the dollar and what will see a jackson hole as various fed officials have been speaking with contradictory tones. greece set -- has enhanced surveillance programs tomorrow. joining us now is alex patelis, chief economic advisor to the greek prime minister. thank you for joining us. we have questions on tourism and
what that means for your growth forecast. how would you characterize the last decade for greece? any advice for countries that may have to do the same? alex: thank you. good morning. it is a big day for greece. 12 years coming to a close. it is also a story of hope and persistence against adversity. how many pundits predicted we would not make it. in the end, we have a country with record foreign investment. the export share of gdp has more than doubled. i would say the main takeaway from all this is that persistence pays off. ultimately -- the resilience of the greek people. francine: talk to me about
growth and whether you think you will have to revise growth upwards for this year because of stronger-than-expected tourism? alex: we are witnessing what some people call revenge travel. during lockdowns, we bought our breadmaking machine and pajamas. as the world is open again and people want to travel. greece is uniquely positioned. we don't have problems with our airports. no canceled flights. we are seeing record tourism in some areas. we are always conservative on our forecast, we think we will end up exceeding our official forecast overall. francine: are you planning to -- alex: germany is a different
position degrees. as a government, we have been ahead of supporting vulnerable households. the government has put in place large support measures, but the main philosophy is they need to be targeted. that means you want to support the more vulnerable households. we prefer giving more targeted measures. there is another difference, countries like germany are seeing a delay in the effect of higher gas prices onto retail prices. they had forward contracts. the pressure is going to be there for some time for them. i do think we increase are in a good place as far as supporting households. francine: are you talking about
to actually measures that could be announced in september? what kind of other measures could households expect in the short term? alex: the government has a primary deficit of 2% of gdp. we are going to stick with that. 2023, we have a target of achieving investment rate. any fiscal support measure needs to be both measured and targeted and proportional. the budget needs to show tax revenue coming in much better than expected. the prime minister will be making announcements in early september as to how to be used. we tend to be more methodical in the sense that we have a lot of uncertainty ahead of us.
we don't know what's going to happen with russian gas supplies. we don't want to use up all our mo today. francine: should we expect a decision on indices now that you've ended the surveillance program. alex: we do not -- we have a number of upgrades, we were emboldened by that. the target remains. whatever that entails, our bank -- political stability is important. in gdp on an incline. we are optimistic rating upgrades will come. francine: given the elections
you will the spring in greece, and some controversy. alex: we believe greece is one of the strongest points of the moment. if you compare the situation, and other european countries, we are seeing multiple coalitions of governments. also uncertainty in italy, as to what elections will produce. one reason why it has converged recently, we are optimistic and hopeful why the lessons from this 12 year period is that we fought populism and we have a single party government with a parliamentary majority. we think this will be the outcome of the elections in 23.
francine: do you worry that cost-of-living con -- crisis could happen in lesser government does more? alex: we believe that people or work good stewardship. greeks have been through many storms. i think they have learned from that the you cannot stop the storm from coming, this is a global storm. but you need a good captain to see you through. the people reward diligence and helping them a difficult times. francine: thank you for your time, alex patelis, she financial advisor to the greek prime minister. coming up, the largest producer of battery metal looks to produce more at home.
francine: welcome back to the market open. 52 minutes into the european trading day. the dax, .5% lower. retail sales in the u.k., rose more than estimated for the month of july. which -- we had a great round up , he seems to say the data suggests the bank of england may be emboldened to raise rates by 50 basis points when it meets next month, we had a great story yesterday saying market
expectations, it does seem eight months from now, the u.k. interest rates will be higher than the u.s.. the 10-year yield, 2.398 in the u.k.. the indonesian president said they may impose a tax on nickel this year. he spoke to bloomberg editor john micklethwait. jokowi: we want added value to assist indonesian so there's income for the state, opening job opportunities in indonesia, and most importantly, we can enjoy the added value. that is what we want. also with copper, and others. we are not being closed, we are being open. u.s., china, europe want to
cooperate, we are open? john: you're talking about putting attacks on nickel products. it is not going to happen this year? an export tax on nickel products. jokowi: it is possible to impose it this year. john: i consistent thing you've been talking about, between industries in the environment, you have a goal to make indonesia carbon neutral by 2060. most of your energy now comes from coal. coal prices have gone up. will you stick to your pledge that you would build no new coal-fired plants, that is gone forever? jokowi: our target is very ambitious. 51% in 2030.
in 2060 we should be at zero. but this should be -- this requires technology and funding. potential is clear. a shift from coal, it is not an easy thing. coal prices are still cheaper than geothermal. john: you tried to introduce a carbon tax. two dollars per ton. the government has twice deferred that. i wondered when you will do a carbon tax on coal. if the prices are this high. jokowi: we are currently comparing legislation. when it is finished, we will implement a carbon tax. i think we will probably do it this year. francine: the indonesian
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about how likely it is we can solve the inflation problem quickly. and in a way we do not have to include more policy and more rising rates. >> i'm waiting for the chance to buy europe, it is not there. i am attention to the national banks in europe, and those are turning around. that could be a real key for growth and opportunity.