tv Bloomberg Markets European Close Bloomberg September 26, 2022 11:00am-12:00pm EDT
guy: monday the 26th of september. european stocks fairly mixed. the action is in the bond market and foreign-exchange. we will talk much more about what has been happening. the countdown to the close starts right now. >> the countdown is on in europe. this is bloomberg markets, european close with guy johnson and alix steel. european equity -- guy: european
equities bouncing off the lows for the year. we are up but only just. at least it is green on the sprain. it is double what we find in foreign-exchange. euro dollar .90 649. that is despite pricing in a 75 basis point hike from the ecb. then we come to the pound. we are down .6%. still nothing from the bank of england. alix: i am struggling to understand, particularly after hitting 1.03 overnight. in the u.s. things are confusing as well. first of all you have higher yields. in some ways it is no surprise because we have such a downdraft last week so the debt may be bouncing. the other side is you had a lot of volume coming into the market
on friday, which could have helped to stop. it is hard to see sustained upside with yields pushing so much higher and you have the stronger dollar. two of these together, you have to wonder how much you have to rewrite 2023 earnings and how much of recessin on what the bond market and the dollar are telling you guys. guy: i do feel the action is certainly in london. the market route which we begin friday after the announcement of the new fiscal measures, those measures are beginning to unnerve conservative lawmakers. some are saying the bank of england may need to step in and rescue the country from what is happening. is there going to do that? what are the options if it were going to do that? the bank has been pricing all day. lizzy burden joins us from the
labour party conference in liverpool. what are you hearing about the bank of england and what it does next? lizzy: sky news reported earlier that the bank of england was going to be making a statement. it has not come yet. bloomberg has not have that confirmed that we can expect one today. what we could get is talks. jp morgan's allen monk says that's what he thought would happen rather than emergency hike and that is an option. the other alternative is they could put the brakes on active gilt sales. that is what we are expecting they could do in the thursday meeting but they decided to press ahead with quantitative tightening.
we are waiting for the bank of england to reassure markets. even one of liz truss'economic advisors is saying kwasi kwarteng needs to do more to reassure markets. he said on friday markets will react as they will. i've been going through the archives. in 2012 george osborne as chancellor says he gets a daily verdict on the credibility of economic policy from bond investors, very much keeping an eye on the market. alix: the market now would be sanguine. you are at the labor market conference. what are their plans to capitalize on what is happening in the tory party? lizzy: i spoke to the shadow chancellor of the exchequer, and she is a former boe economist so she was trying to show she
understands the importance of markets and the impact on the cost of borrowing if they were the government. she had a different tone to kwasi kwarteng, trying to underscore that for us. labor is already ahead of conservatives in the polls, including on the question of how they would manage the economy, people trusting them to manage the economy. the questions remain whether people will buy into the decision of a fairer, greener economy. lots of big pictures announced today but we are waiting for much more detail, and also how they will afford all of these promises. the opposition labor leader said he would scrap this top tax but he would go ahead with the cuts to the basic rate. how would we afford to do that and spend on public services without adding to borrowing? i also interviewed the shadow business leader who was making
his case for why business should be on leave. take a listen to this. >> you look at what the government is saying to the workers. you take some more pain now, pain in the future. that is not a sufficient answer and i do not think people will be calmed down by the role of the chancellor which is given such a vote of no confidence in the markets is the way forward. lizzy: labor has a difficult job because it needs to make a sweeter office to business that a corporation tax cut, a reversal of the payroll tax rise , and all the other measures that kwasi kwarteng has for businesses. that is where labor stands at the moment. alix: thanks a lot. great reporting on the ground. lizzy burden joining us. joining us now is paros -- is charles bedard.
where is the boe? what should they be doing? charles: it has a very difficult problems. one of the difficulties is if the bank should raise interest rates quite sharply in order to strengthen the pound it would not resolve the underlying problems we have in this country , which is fiscal policy is going in one direction, expansionary, and monetary policies going in another direction, restrictive. having to make two policies coexist in completely opposite directions is a recipe for an absolute crash. there are only two alternatives. one is you forget the trade rate and show it goes lower to provide more opportunities, and the bank of england one way or the other not to raise interest rates.
and you go to growth and it is a huge gamble. the other alternative is to recognize that your expansionary fiscal policy is the wrong policy at the wrong time. i do not see liz truss and kwasi kwarteng doing that. essentially we make it a short-term rise in interest rates, but consider what happens if interest rates go up even more. that is bound to lead to a degree to recession, tax receipts go down, expenditures go up, the deficit rises, driven by the cost of public sector debt, and the unsustainable position of the debt ratio gets even worse even quicker. on a policy of expansive fiscal -- will not work.
you have to choose either expansive policies or to cut on the fiscal side. guy: none of those options sound particular he attractive as you laid them out. what you think of the bank of england will do? charles: the bank of england is in a very difficult position and i think it has to work with the counselor. if the counselor says you will not raise interest rates because it will kill my policy than they will not. if the chancellor except -- if the chancellor accepts interest rates will go up i will he achieve his growth policy in the short-term? we will go into recession in the public sector deficit gets worse and worse. alix: if the boe did hike to stem the tide, what would be the level they would have to hike to to stop from selling? charles: the honest answer to that is i don't know.
given the short-term confidence in markets it might have to be reasonably considerable. guy: is the bank of england's independence in question? you are saying fiscal and monetary policy need to not be antagonistic. ultimately the governor should listen to what the chancellor is saying and vacuum up. if that is the case, is that in independent central bank? charles: the degree of independence central banks have had has always been exaggerated. except in the euro area where independence is guaranteed by treaty, the independence of the central bank hangs on the whim of the executive and legislature of the day. if the executive and legislature decide they want something else, they will get it.
alix: what happens to the economy? what kind of recession do you think the u.k. is in store for right now? charles: it depends on what you want to do. it depends on whether you give total priority to getting inflation down, and then you are faced with undoubtedly a recession. that will be -- that will mean kwasi kwarteng's desire dies for the next couple years and there is a question of whether he would swallow that. if he is not prepared to swallow that that effectively he has to ensure the central bank does not raise interest rates that much and it means the exchange rate goes out from under, so be it. guy: he paid a tricky scenario for the bank, to say the least.
thank you very much indeed. as you've been speaking the u.k. 30 year soaring 41%, poised for its biggest jump on record. charles goodhart, thank you very much, indeed. we will turn from one challenge for europe to another. italy's relationship with rest of europe under giorgia meloni. what is it going to look like? we will find out next. we will go back to rome and the latest on this story. that is next. this is bloomberg. ♪
guy: it was a historic election in italy on a number of fronts. giorgia meloni is on track to become the country's first female prime minister. she is said to lead italy's most right wing government since world war ii. >> if we will be called to govern this country we will do it for all italians, for everybody, with the goal of uniting this people while stressing what unites rather than what divides.
the great goal we have always given ourselves was to ensure italians can once again be proud to be italians, be proud to waive the tricolor flag. this is our task and one we will fulfill if we are called upon to govern this nation. guy: joining us with some perspective and foresight into what is happening is professor of political science for the university of florence. thank you for your time today. what you think this new government is going to mean for italy? roberto: now i am a professor in rome. that said, this is an interesting turn of events for italy. we are entering a new phase,
uncharted territory. you mentioned the most right wing government since world war ii. i'm not concerned about giorgia meloni -- i'm concerned about the confidence she will bring into the government. that is the major issue. alix: sorry about the mixup, we appreciate you clarifying for us. roberto: i have to say it or else my university will beat me. alix: there enough. how are you looking at the next few months? any government has a hard time finding its footing. what we need to look out for? what we take seriously, and what to investors need to put on the sidelines? roberto: the inverse thing --
the first thing the investor has to look out as the composition of the government. who will be the next minister of the economy? will it be a politician or somebody with real expertise in numbers and budgets. then at the end of october, the chambers will convene on october 13 after electing the chairman and the house and senate. we will not see a government before october, but once we see the composition of the government we can have a clue about the direction giorgia meloni wants to take italy. guy: how stable do you think this government could be? roberto: that is a good question. the average italian government
in the last 30 years has been less than does two years. i do not expect this government despite the solid majority will last more than the average we have seen so far. the differences in foreign policy and also domestic policy and i think -- [indiscernible] in the european election mr. soul beanie had 34% -- mr. solvini had 34%. he will want to gain. [indiscernible] alix: to that point, how much time will they spend seeing i'd
and how much time are they going to spend fighting over stuff which will impede any kind of reform? roberto: is a hard question to answer. in the beginning the government will be ok. they will not start fighting right away. there will be complications of government. eventually they'll come up with the capital portfolio that will please the three main parties. after that, much will depend upon what will happen in europe at the international level. guy: the italian government was well received in brussels when it was run by mario draghi. how do you think the italian
government will be received in brussels when it is run by giorgia meloni? roberto: with some diffidence. i think it is a big change. we go from one of the most respected european statesmen to an unknown. she is not completely unknown, but she is known to be ripple of europe. the position will not be the same as mario draghi. i do not expect giorgia meloni to wreck the boat. she is a nationalist. i don't think she is willing to jeopardize the money [indiscernible]
porsche shares will begin trading thursday. credit suisse says it is working on asset and business sales. the bank is looking for ways to cut costs and restore profits under strategic land to be announced next month. no details yet but bloomberg has reported credit suisse is considering the sale of its latin american wealth management operations, including brazil. the ceo of unilever plans to retire after the end of 23. alan jones -- decided aftra tumultuous period -- decided after a tumultuous period -- it is starting a search for jope's successor. guy: about five minutes to go until the european equity markets close for the day. it does not look very exciting. below the surface there are plenty of things happening.
these are markets buffeted by all of the other assets. i talk about the bond market and foreign-exchange. the ftse 100 usually has an antagonistic relationship with the pound. the pound goes down and the ftse goes up. how much further does the pound have to fall? that is going to be a big story for the ftse going forward. the component parts are fascinating. look at the house bill today -- the house builders today. the market is getting nervous about higher rates. dax flapped. the news -- dax flat. the news there is what is happening with volkswagen, the pricing of porsche at the top end of the day. the cac 40 going nowhere in a hurry. the action is in the pound, it is in the euro, it is in european bond markets. that is where the focus is.
guy: to be honest, i'm not sure there much to be gained. we are looking at a map of europe today. other than outperformance in italy. everything else is negative. the ftse mib up .8% on the election victory we saw over the weekend for giorgia meloni. let's talk about what is happening with the stoxx 600, get a sense of where we have been going, where we have come from. we started the day over there, we finished the day over here. in the meantime there has been a little bit of volatility. down .3%.
trading at 3.90, 3.89. we are waiting to see what is happening in the bond market and the foreign-exchange market because that is where the real action is. let me talk a little bit about that. now trading 1.08 2022 on cable. still not heard from the bank of england. charles goodhart was making a good point, he said the bank of england could fight the treasury or work with the treasury. it might make the decision to work with the treasury in which case you will not get the rate hikes the market is pricing in. if that does not happen it is the currency that takes a hit. the market is basically pricing it rate hikes. u.k. 10 at 4.1, you have the biggest move ever in the 30 year. you are seeing very aggressive moves on the u.k. curve. we also have euro-dollar down
.1%. we have comments from christine lagarde and what is happening with the italian story. travel and leisure is up, technology is up, the car sector is having a good day. we will talk about volkswagen in a moment. the bottom of the market retailers and insurers. that is the yield story. let's talk about individual stocks. jope will be stepping down at unilever, the stop responding reasonably positive. volkswagen looking like it will price the porsche ipo at the top end of the range. let me show you one of the use k -- one of the u.k. households, the prospect of higher rates steering this market. alix: i am seeing a headline that says the boe andrew bailey is monitoring elements and financial markets very closely. i'm not sure where that is coming from but i wanted to
alert you of that and says he will not hesitate to change rates by as much as needed. i'm trying to figure out where that is coming from but it looks like we are getting the beginning of verbal intervention. speaking of verbal intervention, ecb president christine lagarde says the central bank will continue to increase borrowing costs despite slowing economic conditions. >> we expect to raise interest rates further over the next several meetings to dampen demand and guard against the risk of a persistent upward shift in inflation expectations. alix: joining us is the imd senior rate strategist. can we talk about this andrew bailey headline? the next headline saying the s&p will make a full assessment at the next meeting and will not hesitate to change rates as much as needed. is this enough? >> the first thing to say is november is very far away in
time. given the ability we have had in financial markets i do not think many investors will be keen to get their toe back in the market anytime soon when you take into account the risk assets we have seen. secondly we need to ask is increasing the rates the right strategy to resolve the crisis. there are three problems -- including the bank of england quantitative tightening. you have to ask yourself which one of these problems is the interest rate hike going to solve? [indiscernible] on the other hand, it will make the other two problems worse.
i think of that headline is correct and they will refrain to actually intervene, they are giving themselves a lot of time to assess what is the right policy choice. guy: will the market give them that much time? antoine: i don't think so. there are a lot of other steps that could be taken which are low hanging fruits when it comes to restoring confidence in the markets. i am a rates person. clearly quantitative tightening is adding supply to the market which means private industries has to by more gilts on top of private investors being reluctant to buy gilts. the least it could do is put that on ice. alix: an update on the currency
point, 1.06 for the cable rate dropping like a stone after this statement. what you think is more likely? that we will see qt end early or scrap that right now or a big interbank meeting rate hike? antoine: by the sound of the press release or the headline you just read, clearly the intermediate height -- the inter-meeting hike is not very likely. i'm not sure this is lies choice [indiscernible] just a thought experiment. no one knows how much they need to hike to restore confidence. no guarantee that it works. secondly, what if it does not work? what if the bank of england hikes 300 basis points tomorrow and the currency keeps falling.
it is not a policy i think it will take very likely. guy: you think we are about to find out whether the u.k. has an independent central bank? antoine: to be quite honest with you, one of the problems is treasury at the bank of england are not working together, at least that is the perception from the bond market. if you take into account the fact that the bank of england is an inflation problem come that the treasury is trying to scuttle growth, the impression it gives to financial markets is that the institutions charged with financial and the u.k. are working at cross purposes. [indiscernible] alix: this is a tough question to answer, but at what point would rates go high enough that investors would have to come in
because the coupons are so good? antoine: that is my point. i did not think anyone knows and i am not sure that level exists. on the one hand it will stop the outflows out of the u.k. come on the other hand they will make some problems worse and some of the problems they will make worse are one of the reasons we see these. i do not think we can take an arbitrary increase in say this will solve the problem and stop the set up in selling. i do not think that level exists. guy: the market is sitting u.k. interest rates. the market is sending a very clear message that rates need to be higher. how is the central bank communicate with the markets and try and solve this problem? i'm wondering if there is a way
of talking without doing? is it possible that could be done? we are independent, we are going to make sure we do the right thing. what kind of communications does the market want to hear? antoine: it is really tricky. it is easy to look at the movement in yields, especially the gilt market. one of the points we have been making since the beginning of the year is the liquidity in the gilt market is dreadful and worsening. every new budget is making the situation worse. as much as there are legitimate growth and macro concerns for the italian markets, i think part of the reason we are seeing such high yields is also that a quiddity is vanishing and this is a market -- that liquidity is
vanishing and this is a market that is a cornerstone of other markets that is dysfunctional and not reflecting a good price signal for the economy. that is the first thing. a lot of people are pulling for higher rates. how could the bank of england communicate that? it has been very tricky. the first step today would be to downplay the importance. to the extent the point of a flexible currency is to help the economy. this is what the study is effectively doing. guy: they get significantly weaker from here. antoine bouvet, ing senior rate strategist. we did not even talk about the bdp boned spread -- the btp b und spread widening out. a little bit higher through the option but not enough to affect the bigger picture.
plenty to talk about following the statement from the bank of england on the cable show. will do that at 5:00 london time, 12:00 in new york. find us on all of your bloomberg devices. a podcast available on spotify and apple later. guy: coming up -- alix: coming up, the foreign minister of cyprus will join us. this is bloomberg. ♪
the country's. russian men and their family flock to the borders. witnesses reported long lines at moscow's maid airport. the ocd has slashed its global growth forecast. the paris-based organization says the global economy will expand just .2% -- just 2% in 2023. the oecd also expects further interest rate hikes. in turkey president erdogan has stepped up his criticism of greece and saying forces are using greece like a puppet and has been critical of what he calls a greek military buildup. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. guy? guy: i want to turn back to
those headlines in just a moment. russian war in ukraine has cost the global economy $2.8 trillion so far according to the oecd. it is a snapshot of the shock of the seven-month conflict it was also part of the agenda of this year's gathering of world leaders at the united nations. joining us now is the foreign minister of cyprus. i want to come back and talk about president erdogan in a moment. but let's talk about president putin and his view in your relationship with russia. cyprus used to have a very close relationship with russia. has that changed forever? >> it has changed. i hope not forever, but surely it will not be the same as it has been in the past. cyprus is very sensitive on issues like integrity, in volume
ability of borders from all of this has been damaged. we join with our partners in the european union and others inaudibly condemning the russian invasion but also participating in the sanctions. alix: bloomberg reported earlier this morning that eu countries will delay russian oil price caps because of divisions within the eu, citing cyprus and hungary as disc of the countries that oppose it. can you confirm that? >> no. i find it very easy for the top pond and's and journalists -- for the top pundist and journalists to always put cyprus
and the hungry along with these issues. alix: so you are ok with an oil price cap? >> we will see what the proposal is which is never been presented in front of us. we go along with the other countries with unity. guy: let's come back to those comments by president erdogan and what he says about greece. president erdogan said we will defend our interests against greece against all means. he is warning the greek government's recent steps will lower it into a swamp. he is talking in a very bellicose fashion about greece. you at cyprus have the issue of turkey to resolve. the issue of northern cyprus to resolve. when you hear language like that , how do you think greece should respond? how do you think cyprus should respond? >> i will begin by saying we are
very concerned with the technicals you have rightly qualified, the narrative of mr. erdogan. turkey is present on the island and we fear that in the case of any conflict in the aegean sea will affect us directly because will be used [indiscernible] on the other hand, mr. erdogan pretending he is under threat from greece. i would call it preposterous. greece is not threatening nobody. greece will defend its territory and its islands should they be attacked. alix: attic that along with the
war in ukraine, how has that changed cyprus relationship with the west, with rest of european nations and the u.s.? >> as i have said before we have aligned fully with the west because we belong to the west, we are members of the european union, therefore we belong to the west. they will never accept that we will be different. we want to be partnered with e.u. if mr. erdogan and his threats -- i want to remind your viewers that they have not participated in the sanctions against russia. on the contrary, they make profit from their
nonparticipation there is another issue. they have made some agreements. these should be scrutinized and examined. on the other hand, the trade of gold the arabian embargo has been busted by turkey to things like gold versus trade or currency a few years ago. i understand there's a trial in new york against the turkish bank for this. alix: we will have to leave it there. we appreciate the time. foreign minister for cyprus. thank you very much. this is bloomberg. ♪
alix: we are checking in on the u.s. markets. definitely rolling over. the news picked up steam once the boe said they will mate -- they will wait for next meeting. this is a chart of s&p futures. we did make a right into positive territory from the s&p was up .8% and we rolled over. the nasdaq also flat. it definitely feels like there was a dead cat bounce earlier in the morning. as you have higher bond yields in the dollar, cable goes another leg lower and the dollar higher, that will ding equities. guy: with the pound stuff i am
wondering whether we get a quiet conclusion to the session before we get back into the low-volume elements in asia tomorrow morning. i wonder whether we will see more fireworks there. it is going to be tricky. this was not a strong statement from the bank of england, it was basically a we are going to continue to monitor and watch and see what happens. let's talk about the weather, my favorite subject. better than talking about what is happening in the markets. her akkadian nearing west -- hurricane ian nearing western cuba and will potentially pose a threat to florida. joining us is bloomberg brian sullivan. walk us through the next few hours. brian: evacuations will start in the area around tampa bay around 2:00 eastern time in new york. before it happens, the storm will hit western cuba and caused
major flooding, landslides to damage the electric grid and send people running for their lives there as well. alix: what industries are in this path? brian: mainly it is citrus. the energy sector is probably dodging a bullet on this one because it is to the west of the gulf of mexico. alix: watching that carefully in the middle of hurricane season. brian sullivan, thank you very much. that wraps up for me and guy on television. coming up the former back -- the former head of the bank of ireland will be joining david westin. we have a lot of the cable show. guy: we have plenty to discuss. the pound under a little bit of pressure. not much. not near the lows. alix and i talking about all of
announcer: from the world of politics to the world of business, this is "balance of power" with david westin. david: from bloomberg world headquarters in new york to our television and radio audiences worldwide, welcome to "balance of power" where what continued on friday continues into today, with the pound weakening and the yield on guilt going up. we turned to lizzy burden, our bloomberg economics and government corrent