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tv   Bloomberg Markets European Open  Bloomberg  September 8, 2022 3:00am-4:00am EDT

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the ecb on the brink of a 75 basis point hike as a recession risks arise while eu leaders ready emergency measures. lael brainard joins the chorus of ventas futures -- fed s peakers vowing to do whatever it takes to fight inflation. liz truss lays out her plan to tackle soaring gas and power prices today. it's a big day for europe, it is also a big day for what treasuries could be positioned ahead of some fed calls. goldman hiked their expectations for federal rate hikes into the winter. euro stoxx futures gaining .4%, similar gains for futures in london, dax futures. in london, the big story is liz truss. day two in the job coming out with the package to help with the cost-of-living crisis.
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this pain ibex gaining .6%, and if you look at what they futures are saying, and we have seen in europe they start on a good footing and there is anxiousness as there is reversal. let me look at euro, currently 0.9999, it is a story of dollar strength. we will look at what fed officials say and the ecb. we are talking about yields, one of the most important benchmarks for global markets. the u.s. 10 year 3.3313, s&p futures up point to percent. for more, we are joined by maria tadeo in frankfurt. so good to see you, the ecb on track for another rate hike. the question is how aggressive can they be at this point?
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maria: that is the only question because the european central bank has to hike rates. the single mandate is price stability close due to percent, if you look at the picture of inflation some places now more than triple that goal. the only tension going into the meeting is will it be 75 basis points or is it a 50 basis point hike? the 75 basis point camp argues there is now a window and you have to take quick action. this is about the credibility of the institution. the 50 basis points, what they say is there is no denying this is an economy facing recession and a full-blown energy crisis. we will have to wait until 2:15 frankfurt time to find out. today we're hearing frankfurt at the ecb but tomorrow there is an important energy ministers
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meeting in brussels. this is a story of the ramifications of it that has become a single subject now for policymakers. francine: because of that weakness in the euro zone, is it 50 or 75 basis points? we will have coverage of madame lagarde's news conference today at 1:15 p.m. u.k. time. joining us to talk about the big rates decision and everything with energy prices is maria municchi, fund manager at m&g, and kristine aquino. what a day, i don't know whether we just look at dollar strength because this makes it a nightmare for a lot of european companies. >> one of the things we will watch out for for the ecb is whether madame lagarde addresses
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the euro weakness. we know that anytime a central banker pays attention to currency, that is significant. that is something we are seeing out of japan and china, if we see it out of the ecb, that would be very interesting. francine: maria, what are you expecting from the ecb? maria: today, the market is prepared for a significant act from the ecb. eyes have been on monetary policy for the past be months. is it 50 or 75, the market is prepared for that. the risks are more into the fiscal policies, and particularly, the meeting is extremely important in that respect. francine: i the greater scheme of things, does it make a
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material difference that the ecb hikes by 50 or 75? >> there was a little bit of a pullback in pricing heading into the meeting today, but whether it is today or in october, i think they are bracing for that jumbo rate hike. i would be interested to find out whether the ecb validates the idea that there could be multiple jumbo rate hikes, and what they will be saying about their asset purchase program. that is another lever of policy that could potentially not be priced in yet because there is an overwhelming focus on the rate hike aspect. but there is this other side of policy that could have big implications especially for yields. francine: what's the right tool, maria, to do this? if the ecb's hiking too aggressively in a recession, this could spell disaster? maria: there has been an extreme focus on the monetary policy, but actually it is only one leg.
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there is the fiscal policy which has an incredibly important role, especially with the energy crisis inflation issues. so, what we should watch carefully is how fiscal policies unfold and what the differences are across countries that really could make a difference in markets. francine: this cut both of our eyes, goldman sachs lifting their expectations for fed hikes in september, does it automatically transfer over to europe? >> that is kind of the expectation but that creates such a big headache for policymakers outside the u.s. it creates this issue of the fed going ahead of everyone else in terms of tightening, and everyone else having to catch up. this is the big reason we have seen overwhelming dollar
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strength this year and just stampeding the currency markets. precisely because there is this perception that the fed is ahead of the game and no one can outdo them. francine: at what point does the dollar stop rising is the quad really and dollar question? maria: this year, we have seen such a huge move, some of the underpinning of that is the differentials in interest rate policies but there is a fundamental element. more specifically, the energy crisis hitting europe but also capital flows in different parts of the world. one area to watch is the yen, it has been extreme the week this year, also the interest rate policy is very different from what we have seen in the u.s.
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capital flows are going in the opposite direction of yen strength. if we see some slowdown in the economy, worries about recession, yen could still prove to be an interesting place to be from a defensive standpoint. francine: this is one of the things we talked about yesterday with yen. if you look at global balances, is there anything that. the dollar rising -- that will stop the dollar rising further? >> may be countries mounting a defense of their currencies. we know that this only works if it is more of a concerted effort. we are not necessarily seeing it yet, we are seeing certain central banks expressing concern, but until there is this more concerted effort against the dollar strength it is hard to see what stops it. francine: thank you both for
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joining us on this important ecb day. maria municchi, multi-asset fund manager at m&g stays with us. we are getting news out of darktrace, shares are jumping as much as 30% after the u.s. private equity firm thoma bravo said it did not intend to make an offer for the firm. the firm had revealed that was in early discussions about a possible takeover but today they said an agreement cannot be reached, that share price down 20%. china continues with his covid zero approach, locking down chengdu after increasing cases but just how costly is the strategy becoming? this is bloomberg. ♪
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francine: welcome back to the open, we are 11 minutes into the european trading day and holding onto gains. stocks are rebounding, there is a lot of repositioning ahead of that ecb meeting. most investors expect 75 basis points but because we had weaker data in the euro zone, a couple have flipped to 50 basis points today.
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and we did have a couple of, the reserve bank of australia governor commenting on the case for slower monetary tightening. chengdu has extended a weeklong lockdown in most downtown areas after covid cases increased. president xi's commitment to covid zero is becoming more costly with growth forecasts being slashed. joining us is our chief economist for bloomberg, and we are still with maria. tom, you understand china like few people do. you wrote this book, "china, the bubble that ever pops," is it pumping now -- popping now? >> certainly, there is extreme
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stress right now for any country in the world attempting to maintain zero covid, it is going to become an extreme cost. we see that right now with chengdu, a city of 21 million, accounting for almost to percent of china's gdp lockdown. -- locked down. at the same time, china is attempting a really significant correction in the real estate sector. francine: it feels like policymakers have been reluctant to do more. >> the challenge is you can't go full in on stimulus in an economy which you are also having to lockdown to prevent covid. the two forces move in opposite directions. francine: is there going to be change in covid zero going forward? >> the consensus for months has been we get to the party congress which we now know is
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october 16. xi jinping gets a third term as preeminent leader, and then the exit from covid zero begins. the big doubt around that is october 16 isn't that far away and we don't seem to have seen any debate about what the exit from covid zero looks like. neither have we seen china moved to acquire the mrna vaccines they would need to give their population a shot at resilience from the virus. my assumption is we stop moving in that direction after october 16, but the proprietary steps don't seem to be being taken. francine: maria, from a market standpoint? maria: things are obviously very complicated, which we are seeing across the globe. the issue with china as we have much less visibility of what is going to happen. so, it is really something to
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watch closely. we have various information on what we can expect going forward. francine: does it change your perception on emerging markets, is there anything you would buy as an intolerant if -- as an alternative to the west? maria: there is opportunities, may be outside china in that respect. but there is opportunity for diversification still. watching the issue of global growth which is something we will touch more broadly than single countries. francine: looking at real estate in china, is it worse this time? >> certainly, covid zero isn't making life easier. people who are locked in at home can't go to a show and buy a new property. this property correction has been years in the making. we've had years of over leverage
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and overinvestment. that means china's property supply is running way ahead of what we call fundamental demand. not for speculators but people who actually want to buy a home and live in it. the best case scenario is there is a correction which is on -- which is a moderate drag over several years. the nightmare scenario is they lose control, a crash in 2020 to or 23 -- 2022 or 2023, if that happens look out below. china's real estate sector has been the single biggest contributor to china's growth. and probably the biggest contributor to demand for commodities. think about iron ore, for example. we're going to see a drug on property -- drag on property which is going to take fractions
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off china's growth in the years ahead. we will see that driving on commodity producers like brazil and australia. if that happens quickly, that brings financial crisis interview for china. francine: that means less increases from the fed? >> china's actually giving the fed a bit of unassessed -- an assist in a strange way. think back to to thousand eight, the big contribution was that enormous stimulus which got the world going again. in a sense, the weakness in china is helping europe and the u.s. now. if china did a stimulus, ramped up its demand, we would see oil prices and agriculture prices coming back up. that would make the inflation problem in europe and the u.s. that much more difficult. francine: maria, we saw goldman
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sachs increase their bets on more hikes from the fed? maria: we are seeing the best window of opportunity for central banks to act. we are still seeing data which is relatively benign. labor markets relatively benign. this is the perfect time to be aggressive in terms of rates. whatever happens next will be much more data-dependent. but also in particular on the labor market, what's happening to employment and labor participation. labor participation in the u.s. is still beyond where we were before the pandemic. changing rates of labor participation can have a huge impact. is it going to continue to be tight or be less so? francine: maria, thanks and also tom, here in london for the week.
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now let's get straight to the bloomberg business flash. laura: mixed results in elon musk's fight to cancel his buyout of twitter. a judge is allowing claims of a recent whistleblower to the case but he is not allowing him to push the trial date. he is slamming musk for not turning over text that could be evidence. australia has passed the first climate legislation in a decade. it legislates up 43% cut to carbon dioxide emissions. it brings australia in line with nations like canada, south korea and japan but it lags behind the u.s. and united kingdom. kim kardashian has a new business venture. she and a former partner at carlyle group are launching a private equity firm.
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it will focus on consumer and media businesses. the apparel business kim kardashian started in 2019 has been valued at too $.3 billion. francine: now we are also getting breaking news out of -- the chief executive speaking at a conference. saying commerzbank can still reach their 2022 net income target. he has said they can still achieve the 2020 to targets. apple unveils new products in its biggest product launch of the year. no hike in the prices despite inflation. we will have plenty more on that next. this is bloomberg. ♪
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>> inflation in our country is far too high. we are not close to the federal reserve's target, so that that is quite focused on making sure we do the steps necessary to bring inflation back to its target. i am committed to doing that, my colleagues at the fed are committed. we understand that in doing
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that, there may be further slowdown in the economy. francine: the fed vice chair for supervision on inflation being far too high, speaking in washington. we are still seeing a bit of a rebound. european stocks holding onto gains, .3% higher. some of the regional advancements is retail but also basic resources. investors face the harsh reality of sharp rate rises. pcv takes center stage later today, the question is do they hike by 75 basis points? it's the biggest product launch of the year. apple unveiled an above devices -- unveiled a new lineup of devices. bloomberg's emily chang has more details. >> apple unveiling a slew have
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new products including iphones, watches and airpods. the biggest surprise isn't the technology but how much it costs. despite inflation, apple is not raising prices on its newfound. -- new phone. you can buy an iphone 14 for the same price as an iphone 13 last year. there are technological differences, thinner, better battery life, also satellite capabilities for all they knew i 14 -- all the new iphone 14s. they also unveiled a new apple watch ultra smartwatch geared toward outdoor enthusiasts. they call at your own personal dive computer. and when it comes to airpods, we got the first upgrade in two years. the big question is will
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consumers buy any of these new products when they are under pressure? all eyes will be on just how big this new apple upgrade cycle will be. emily chang, bloomberg cupertino. francine: we speak to the goldman sachs economist jari stehn. dollar strength putting pressure on asian policymakers to step up efforts to curtail currency weakness. this is bloomberg. ♪
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francine: welcome back to the open, 30 minutes into the european trading day. show time. the brink of a jumbo 75 basis
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point hike as recession risks arise. eu leaders are readying emergency energy measures. lael brainard joins a chorus of fed is -- speakers vowing to do whatever it takes to fight inflation. liz truss lays out her plan to tackle soaring gas prices today. european stoxx gaining .3%, investors preparing for unprecedented old monetary policy tightening by the ecb. the question is, is it 75 or 50, we will have a conversation with jari stehn of goldman sachs. the dollar erasing losses after japanese officials arranged a meeting to discuss international financing conditions. we also had a terrific briefing on what china is doing right
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now. insurance bets and a basic resources gaining, under pressure are retail, to percent lower and auto parts .8% lower. let's talk about the ecb holding its first meeting since july. officials raising the key rate for the first time since 2011. the central bank is on the brink of a 75 basis point hike to wrestle back control over inflation, even as the risk of eurozone recession rises. let's get straight to the chief economist at goldman sachs, jari, an exciting day if you are or euro watcher? >> we do think they will hike by 75 basis points today. the inflation numbers have been high. the commentary has been hawkish. and the euro stands at very low levels.
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we think that's going to be enough to convince the council to opt for 75 basis points. there have been voices supporting a more steady pace. so, we don't think it is a done deal but given what the inflation numbers are doing, we think that the more likely outcome. we do look for 75. the key is how they explain this rate move. here we think they will say it's an unusually large step justified given what inflation is doing but it does frontload some of the adjustment. francine: if you look at four things traders are watching, a story by ven ram saying it is the margin of interest rate hikes but also the forecast of inflation that has to do with energy prices, the protection instrument and what happens to the euro. out of those four, what is most interesting? jari: most interesting is the
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increment and the forward guidance, or the communication around that. i think the other aspects are worth watching out for, too. on the projections, i think the questions are how much do they cut growth numbers? we think they will lower the growth numbers substantially but stay away from showing a technical recession. the inflation projections will go up substantially. we think the key numbers probably the 2023 number where we think they will go to 4.5% as a motivation for taking a big step. we will also watch commentary on the exchange rate. here, i think they will stick to -- they are not targeting the exchange rate but the weakness of the exchange rate does matter because it does affect inflation
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outlook at a time when energy prices are rising rapidly. and many commodity prices are denominated. francine: we don't exactly know if that mechanism will be used. for the moment everything seems stable. are we being lulled in a false sense of security? jari: it is striking how well sovereign spreads have held, despite a pretty substantial repricing of the rate path. and a big increase in core interest rates in europe. on the back of two things, one is that the signals out of the center-right coalition in italy. that's likely to stay ahead in the polls, has been fairly conservatory when it comes to the policy-setting.
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secondly, that the tbi has been very effective in keeping expectations under, as far as sovereign strength goes. but we worry that there is lingering sovereign stress in the background, the euro area economy is slowing, particularly in italy. we think the election is going to create some policy uncertainty in october. and we do think btp's spreads will widen more from here, towards to hunt 50 basis points. francine: when you look at weaker euro, i understand it imports in inflation but at the same time you can export more. how do you think they are viewing this? jari: it's a trade-off, as of course, the bigger rate decision where you have on the one hand high inflation. on the other hand, you have the prospect of a recession.
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so, we think that trade-off matters a lot but i think for today what will dominate is that inflation is high. the recent prints have surprised to the upside. we think inflation metrics will rise further, and i think that will dominate today. looking into the fourth quarter ahead here, we think they will then slow the pace in october. as you are getting closer to a more neutral level of rates. and also, as the economy is entering recession. francine: how bad do you think the recession will get in europe? and it does it make sense to frontload? what would you do if you were in charge? jari: the latest data points have been better as far as the third-quarter growth pace. but the energy crisis still looms large. and we do think a recession over
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the next couple of quarters is very likely, centered in germany and italy where gas dependence is higher. now we are seeing some offset on the fiscal side. and also, some energy measures are being discussed at the eu-level that might mitigate this. but i do think recession is coming. given where interest rates are at the moment, they are clearly below neutral, inflation is high. so i think there is a case to move rapidly now. i think there was also a case to slowdown later in the year as you are in recession. and as a rates approach more normal levels. francine: how do they combat? this ever rising dollar, and i know goldman sachs increased your forecast for interest-rate hikes from the fed september and november. can the ecb do anything? jari: i think that is going to
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be a consideration over the next couple of meetings. to make sure the rate differential doesn't widen too much. because i think that has been one of the driving factors of weakening euro. in the near term, we think the euro will weaken further to $.97. so i think, that will be part of the consideration. ultimately most of the euro weakening has been driven by deterioration of the growth outlook. by the energy crisis, and also by the risk that it could be a more severe recession than what's being anticipated. francine: jari, thank you so much. the chief economist at goldman sachs. breaking out of germany. there is no need for a quick decision on comics bank -- commerzbank stake, and he is
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satisfied with performance. he has reiterated the need to restore borrowing limits. finnish insurance group sampo plans a dual listing in stockholm. we speak to the ceo next. this is bloomberg. ♪
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francine: welcome back to the open, everyone. 40 to minutes into the european trading day. we're seeing treasuries pushing higher in the u.s. the dollar firm, everything losses after japanese officials arranged a meeting to discuss international markets. investors are now facing a reality of higher interest rates in europe. let's get to the bloomberg first word news. laura: u.s. national jake sullivan is warning that a chinese invasion of taiwan remains a threat. he spoke to bloomberg for the david rubenstein show. >> i think it remains a distinct
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threat that there could be a military contingency around taiwan. the people's republic of china has stated its official policy that it is not taking the invasion of taiwan off the table. laura: new prime minister liz truss will today set out her plans to tackle soaring energy bills. it will be her first significant act as leader. truss has been trying to evoke memories of her predecessor margaret thatcher. the pound falling to the lowest level against the dollar since 1985. president biden is holding back on a decision to scrap trump era tariffs on chinese imports as the administration studies ways to help businesses seeking relates. -- relief. the federal reserve's battle to
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bring inflation under control will likely cause more harm to the u.s. and world economy than anticipated. that is according to a pair of papers set for presentation at the brookings institute conference. one says the fed will have to push unemployment higher. the other warns of the hit to developing nations from rising u.s. rates and a strong dollar. chengdu is the largest city to shut since shanghai earlier this year. the decision to prolong the weeklong lockdown shows beijing remains committed to covid zero as it becomes more costly for the economy. 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. francine: finish based insurance group sampo is holding a
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conference in london outlining its profit and growth opportunities. it has exceeded financial targets and is now evaluating listing shares in stockholm in addition to helsinki. we are now joined by the chief executive, torbjorn magnusson. first of all, why the dual listing? torbjorn: it's a pleasure to be here. with the journey to become a pure play insurance company, we have reached that point. we have excellent momentum in the business. growth with profitability. and we show great resilience to the present climate in the world. being listed in sweden and finland. francine: why now? torbjorn: this was the point in
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time when the simplification was complete. so this is a good point in time for it. francine: when you were still a nordea stock, you did not do it. has something changed in your thinking going forward? torbjorn: we are a unique asset to the stockholm exchange. and it is for us, much easier to explain the company as a pure play insurance company. and also, we have had a large number of contacts with investors the past couple of years, and there is a global in first -- interest in us as the largest insurance market in sweden. francine: how much are you worried about the cost of living affecting hastings?
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torbjorn: i think the hastings group is operating in a more challenging market. but on the other hand, they are developing well and preparing for a changing market that will come next year. francine: will you raise prices? torbjorn: we do all the time and that is absolutely necessary in the u.k. market. this will be painful for those insurers that don't. francine: what's your outlook for market growth in the u.k.? torbjorn: we operate in the digital segment that has shown the most growth in the u.k. market over a decade. and we don't put a number on that. but it's very reassuring to be operating in that market. what happens is that we have broadened our product portfolio to include home insurance, and
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we see more than 20% growth on an annual basis for our developing their. -- our development there. francine: to what extent does the energy crunch affect insurance operations? torbjorn: our insurance model has shown the resilience to the present climate in the world. and we even gained from the increased interest rates in our investment portfolios. there is no doubt a link from the energy crisis to the insurance results. francine: so how are you position for rising interest rates? at bloomberg, we always say happy ecb day. torbjorn: it is unclear whether we get 50 or 75 basis points, what does it mean for your group we will earn more on the fixed income portfolio. but we have relatively speaking
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been in a good position because we are short duration moreso then many of our peers so we are relatively speaking in a competitive position. francine: what makes you most confident about sampo? torbjorn: we have an exceptional track record. and we have the same people running the business. we have our results for the past few quarters, we have a proclamation of leadership in the digital arena, within the nordics as well as the u.k. combined with a strong solid results, and good growth. we will continue doing what we do, and trying to develop a little bit every day. francine: thank you, the chief executive officer of sampo, leading property and casualty insurer in the nordics region. liz truss appears to rule out
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funding energy support with a windfall tax on energy companies. we will have more on that shortly. this is bloomberg. ♪
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francine: welcome back to the
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open, everyone. 51 minutes into the european trading day. stocks rebounding, treasuries pushing higher, lowering the u.s. 10-year yield. investors in europe focusing on the european central bank and facing the reality of sharper interest rate rises. whether they go for 50 or 75 is something we have to see. euro stoxx scanning .1%, the dax seeing our reversal. uk prime minister liz truss is resisting calls to fund energy support with a windfall tax. she was grilled during her first prime minister's questions in parliament yesterday. lizzy burden was at downing street, how much of the energy bailout plan was leaked? lizzy: bloomberg has got its hands on lots of the documents. they are going to cost to
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hundred billion pounds, this is support for consumers and businesses. we want to know how much is going to be targeted, how fiscally wasteful. and also, how is it going to be funded. liz truss in her first standoff with the opposition leader keir starmer yesterday. she was asked whether the windfall tax would be continued, another bloomberg scooper because treasury analysis we revealed showed that if the energy tax were to be continued. because of the excess profits and war in ukraine, you could rake in tens of billions of pounds. she seemed to rule out pmq's, but then a little bit of a roll back later in the day. but also, how much borrowing will this necessitate. francine: they have one plan for the economy and she needs to address cost-of-living.
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but the chancellor has gone full swing ahead, let's read -- let's deregulate. lizzy: also being much softer on the bank of england. he is seeing he sees independence at the boe being sacrosanct, that they will meet the governor once a week and then down to twice a week. because as well, if to hundred billion pounds of an energy package isn't a handout, what is? francine: does she need to go big in the first week to actually set the tone? lizzy: this energy crisis as at the heart of the cost-of-living crisis. that's why she's taking it off of the top and dealing head on. it should have an im pact.our
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analysis suggests inflation could have peaked and recession may be avoided. maybe 75 points in the next boe meeting will be less likely. but you will have inflation higher over the long-term because of the economy overheating. francine: that's it for the european market open, surveillance early edition is up next. we will have a full roundup of stocks to watch, darktrace is one to keep an eye on. in europe, stocks are still rising, so we will look also at euro levels and talk currencies. this is bloomberg. ♪
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>> the recession, i hope it doesn't happen. but we have forecasted because we think it is likely.


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