francine: welcome to the european market open. i am francine lacqua in london with tom mackenzie. tom: the s&p 500 drops to a 22 month low as the fed's loretta mester says u.s. recession will not stop fed hikes. the u.k.'s labour party surges to the biggest polling in over two decades in the wake of liz truss' mini budget. eu energy ministers are set to have an emergency convention on gas caps. francine: we have made it to friday, which means a volatility and some of the wild swings we have seen. the pound now back to the levels pre-kwasi kwarteng budget on

friday. ftse 100 features are flat. tom: james bullard also saying that the markets are getting it. not having higher rates without having more pain, but that was essentially the message from the fed officials. the ftse 100 currently down 0.1%. the estimates have been around 6.6% and that is slightly softer inflation out of spain, but the inflation print out of germany was distinct around 10%, the highest and nation out of germany. the cac currently getting 0.6%. we await more details on the energy plans from the banisters -- ministers in europe. tech once again in focus with apple fighting a rare downgrade. that has dragged the nasdaq down

lower. the s&p 500 is around 2%. we said in the headlines, a 22 month low for u.s. stocks. futures pointing up 0.5% stateside. getting back to the levels that we got before kwasi kwarteng's mini budget. the 10 year is at 3.72. brent is at $88 a barrel. francine: it is a funny day because we are also positioning for the end of the month so there is a look at the markets. what we are seeing out of the 19 groups that make up the stoxx 600, all of them are up, if you look at state's -- staples. energy, construction, insurance are on the way up.

on technology, i find it amazing that meta for the first time is saying that they are actually cutting jobs. that is something to keep and i are in for the tech space in general. -- an eye on in general for the tech space. tom: liquidity is draining from the world's financial system. former u.s. treasury secretary larry summers says we are in for the worst and's august of 2007, with the u.k. just one example of potential breakdowns. francine: we are joined by ven ram and willem sels, global cio of hsbc private bank. good morning. i do not know how painful your week was, but there are signs that things are steep blazing

for a little bit -- stabilizing for a little bit. willem: everybody is looking at what we should doing here and on our forecast for sterling, before the mini budget, we think that the u.k. remains vulnerable. we are own -- the only company that has not been burdened before that hit. it is a slow growth environment and we have the rising budget deficit and the rising interest rates will have an impact on this investment spending. markets generally are more and more turning their attention on the damage that these rates will due to growth, so that is why we are defensively positioned on the bank of england. tom: defensively positioned. ven ram, let's bring you in at this point, the warning from

larry summers that there are echoes of 2007 in these markets. does that align with what you are seeing? ven: it certainly aligns with what we are hearing from the markets. you have got so much leverage that needs to be unwound from the pension fund investing in the u.k. need to cover and hedge their guilt positions -- gilt positions. this needs to be orderly and the boe has the attempt. in the u.s., investors are having the highest record levels of money on the fed so they are returning to safety and how this will all play out, how that will be put back into the books. it is hard to say at this point because after october, the bank

of england looks at the soft data on bonds, but what happens after that? there needs to be more measures before october 14 and until then, it will be an uneasy period of calm. francine: at least there is relative, and others are interested. there is talk about companies going under, especially when you look at the smaller ones on the ftse trading. willem: i would say we are not in the ideal environment. when you look at the rates and so on, especially in the u.s. and asia, they fall as well. we have been sitting in the u.s. and today they said as well that even the u.k. households are

sitting on moving down. there is good opposition here and they are much more vulnerable. we will look at trading within the u.k. markets, but i think the global companies, perhaps the ftse 250 are more diversified than the u.k. economy and they are also benefiting from the sterling weakness. tom: where are you finding earnings resilience? willem: it is companies that are able to pass through their cost increases through to the customers. the quality for us as earnings resilience but also low leverage in this environment with rising rates. you can see that inflation seems to be getting by and there are areas where patient is falling. -- inflation is falling.

we are seeing companies benefiting from that on the offside and not yet capping their prices for their customers. they are able to protect those margins. look at the consumer staples. not the consumer treasuries because they are more dependent on the buying power of the consumer. francine: is there something that could change quickly? for the moment, some of these retailers have been able to pass increases. how do you differentiate within the subsectors of retail? willem: the luxury goods space is doing well and it is the resilience you have from households that are buying the luxury goods. they have the better savings and income as well. their level of disposable income is fine on the basics. we are not there yet where we see weakness in growth, so those

are areas where they are doing poorly in d.c. prices decline because of activity -- poorly and we see prices decline because of activity. oil prices are still a reason behind it but also because of supply chain disruptions. tom: differentiation within the retail sector. thank you. willem sels, global cio of hsbc private bank. he stays with us and thank you to ven ram as well. let's get the bloomberg first word news with laura -- alice atkins. alice: meta will reduce its employee headcount for the first time. they will trim expenses and reevaluate priorities. he says meta will likely be smaller in 2023 than it was this

year. it is the company's first major budget cut since its founding. canada's national housing agency is set to revise its forecast, now for 15% by 2023. -- group is starting to lay off employees after losing its union fund. bloomberg says it is said to cut the vision fund. most of the losses are coming from valuations for a portfolio company. and amazon is to close all but one of its u.s. call centers to promote work in an effort to save on real estate. the e-commerce giant as been seeking to reduce expenses as sales growth slows amid rising

inflation and economic uncertainty. that is your bloomberg business flash. francine: thank you. coming up, eu energy minsters -- ministers will meet

francine: welcome back to the open.

12 minutes into european trading day. it is a friday and a lot of the focus will be on the u.k. and the method from the fed is that even if we are in a recession, they will focus on inflation. european stocks getting some 0.7%, but it is also volatile as we raced towards the end of the month. tom: switching towards energy now and the eu energy ministers are gathering today to discuss joint measures to tackle the ongoing energy crisis. on the agenda is energy security and a potential cap on gap prices. this after the damage to the nord stream pipeline, what nato calls an act of sabotage. joining us from brussels is maria tadeo. what is the outlook for energy minutes -- ministers? how much does the price materially help? maria: there is a lot

behind-the-scenes and the meeting now started. we have heard just a few moments ago from the energy commissioner who repeated in her view, there needs to be a russian cap on guest immediately. she also said something interesting. she mentioned that countries with which we can negotiate, partners to bring down prices immediately. the issue is that that is her view and the proposal put forward by the commissioner, but this is a europe and you need everyone to agree on this. there is tension in the way we should go about this and there is no consensus for the time being for any cap whatsoever to come out of this meeting. the other interesting thing is the response to the mega package that was announced yesterday by germany. that's also creating tensions behind the scenes, some

suggesting that germany is going at it alone in the opposite of the solidarity message that the european and wants to send. francine: are they acting as one, is the million-dollar question. maria: that is a big question, if vladimir putin will get his way on the war, but also with infrastructure there is a real concern. you can feel it after the explosive leakage that happened around nord stream 1 and nord stream 2, and you do have a number of countries that say we need to step up the protection of our infrastructure. the commission also saying that any damage to european infrastructure will be responded with the strongest pushback. yesterday, they said at a press conference that this was potentially severe escalation, the mystery around the explosion

, and whether or not it was sabotage intended behind. francine: maria tadeo with the latest on this important meeting in brussels. let's unpack some of this with willem sels, global cio at hsbc private bank. i do not know whether the worst case scenario for energy is in has yet been priced in. willem: we do not know what will happen but there are still risks that we do not think are priced into the european markets, whether it be the equity markets with earnings, also the earnings calls or even in the euro as well. that is why we continue to have various arms underway on european stocks compared to the u.s. we have charted it all, so that

we have the elements and they are inputted into the currents. tom: on fx on the question of the pound, at least today, they are getting back to the levels pre-mini budget. and the markets are pricing in 140 basis points by the boe by december, and will this be enough to turn it around? willem: this is an interesting hike that is priced in and the markets are reacting to the yields spike. and may be the bank of england's intervention to stabilize the markets to some extent. but obviously the level where those yields stabilize and the level where the yields -- the

markets think that foreign buyers and local buyers are going to buy the debt. that is something we all set on the function on of whether we get any spending cuts. and whether we will have any further measures on top of the other measures that have been announced. lots of variables but i think the very -- the biggest variable is the growth rate. the u.k. is doing worse than others. we look at the sustainability and that is what people ours concerned about in the bond market. francine: when you look at fx when do you see -- what do we need to work our way through for the dollar to stop rising? willem: you mentioned the waiting game that markets are going through for equities or

bonds or fx. it is a multiple waiting game for core cpi to stabilize. we see inflation cutting down, but it is the prices that continue to be sticky and run still in bond markets around the world. that is linked to the labor market, so that is one to watch. the issues is that markets are lagging as an indicator and that is a function that is somewhat supported by the things we have had during the covid period. people are quite pessimistic. we will get a consumer survey soon, which has been relatively weak from the survey data. but spending seems to hold up. central banks want to see a deterioration in that spending growth.

and then they want to stabilize cpi. that will stabilize interest rates and then the dollar as well. tom: let's lean into what is happening in investment-grade credit because you have. been exposed to investment-grade. will it that much harder? if the fed has to work that much harder, than the risk of growth on spreads is high and recession risks increase. what then is the case for investment-grade? willem: within investment-grade's, we look at yields and we are also short with the situation. that is where people can pick up some income in part because this is an important development of returning to the portfolios, especially the challenge of the earnings results and so on. we pick up some investment-grade income from products and they

come from dividends, stocks, and those companies that continue to pay it out. with those levels, they are levels that are more attractive in portfolios. we continue to be selective on keeping duration short. and where people are sitting on a lot of cash because they think the interest rate hikes will go higher, there is some interest from our clients in investment-grade as well in the short duration. tom: short duration, be picky. making the case for investment-grade and consumer staples as well. willem sels, thank you very much. coming up, meta is freezing hiring and restructuring some departments. we get the details next. this is bloomberg. ♪

tom: welcome back to the open. we are 24 minutes into european trading day. happy friday. the bonds are down and equities are moving. u.s. futures also moving up at 0.9% after the battering they received yesterday. let's look at the individual stocks in focus.

we continue to look at what is happening on the earnings front and thinking about inventories. we are watching the beat up within the retail space, the consumer goods space, on the back of what happened to nike overnight. they are seeing inventories surge and they have to put -- push through discounts just to shift that inventory. adidas is down 4%. and another major producer of chipmakers, asml is up 1.3% despite micron in the u.s. announcing they will slow down production on the back of weaker demand. and gaining, so a good gain for a company that is working through bankruptcy for cineworld.

francine: mark zuckerberg said that he will reduce the headcount at meta for the first time since its founding. when i's first -- when i first saw that story, i had to do a double take. i wonder if this is indicating something bigger in tech but when you see facebook and meta doing that, it is like what do we work through? tom: like you said, since 2004, they have never cut headcount. there are going to be cutting budgets even in areas where they are trying to grow, so consequential canaries in the coal mines for the tech sector. francine: coming up, the u.k. narrowly averts a recession for now amid concerns of the party's confidence in their leader. that is coming up next and this is bloomberg. ♪

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francine: welcome to the open. 30 minutes into european trading day. the s&p 500 drops to a 20 month low as the fed's loretta mester says the u.s. position will not stop rate hikes. the u.k.'s labour party leads over the tories is in over two decades in the wake of liz truss' mini budget bid and eu energy ministers are meeting for an emergency intervention. we look at the context of what the fed does and what liz truss does next. tom: that means the market headlines will have to look at what happened yesterday because that is bonds, equities. as we have seen, these by the dip scenarios are a fairly regular basis on the back of

this volatility. we will see how sustainable this is on the back of those comments from the likes of willard saying that markets are learning that they will have to start to pay to face of these rates. the futures in the u.s. are up as well by 0.9%. the dax in germany adding 125 points and the ftse is up 0.6%. we have to remind viewers that in germany, we had inflation prints moving higher. it points to the conundrum for officials in brussels who are working with the energy price cap. we continue to focus on what is happening in the pound. back almost to the pre-mini budget levels. we know the prime minister and chancellor will be meeting with the head of the opr to discuss their analysis of fiscal

spending plans of the government. let's look at what sectors are performing. at the top of the list is retail followed by banks gaining 0.8%. just one sector down 0.2%. that is how it is playing out across sectors on a day when the bonds moves are off. the 10 year at zero point -- 4.03, down 10 basis points across the benchmark. we will see how long this lasts. francine: the u.k. economy grooves in the second quarter, averting her crisis. -- averting a crisis. for more on all of this, we are joined by bloomberg's lizzy burden. if you look at the data that we had, it is also pretty weak, but today the pound levels are to

what we saw prebudget. lizzy: the pound is more to do with the fact that the bank of england has showed it is willing to step in. the second quarter gdp figure is well construed, but what we are expecting is in the third quarter for the slump to begin because this is when we had the national bank holiday for the queen's funeral, the somber national news weighing. on the sentiment. and what we also had this morning from the house price data nationwide, showing no growth from september, so you are already starting to see the weight of inflation, rising interest rates, likely to rise even higher because the recession risks remain in the longer-term. tom: and this is having a political cost. we saw that remarkable poll yesterday in terms of the lead from the labour party versus the tories. what is the move when you speak to conservative mps leading up

to the party conference next week? lizzy: this is the biggest pole leap of any political party in 20 years. it all goes back to the budget. quest he kwarteng behind-the-scenes is pleading mp's to agree with his plan just to give liz truss the political cover to reverse the tax cut, but it does not look like that will happen. truss, cortan came out yesterday saying they will boost the economy, so these are huge moves owing into the tory conference. you have got the heavyweights of the party, some of them not even going like rishi sunak. francine: so where does this leave the government's resolve with tax cuts? lizzy: truss is in an awkward position because if she carries wrong, she risks angering

financial markets more. the bank of america saying that if she backs out, she risks her credibility. what she could do is cut spending and bloomberg economics says she needs to cut spending more than george osborne if she wants to balance the books. it is politically ugly. interesting that she will meet with the chief today and it is unusual of this situation. on the one hand, if the government tries to weigh on the independent forecasting, or is it the government capping on the markets, expecting that it should have gone to the adr in the first place if it wanted the credibility for the economic plans. tom: the four line of what we see from this government, isn't it? lizzy: the fiscal situation is

undermining the u.k. institution. look at how it has treated the bank of england and the leadership campaign, and this weekend it has to look at the boe for rescue from the pension funds. tom: there is a lot going on online, the prime minister and rishi sunak had forecast this move on the markets. that is going viral online from rishi sunak prior to losing that content. the burden, thank you and looking ahead to the tory party congress. bad news for mortgage holders. the bank of england will have to hike rates faster to compensate for the looser fiscal policy. for more, we are joined by jonathan. how are the banks reacting to uncertainty? jonathan: understandably, they are pulling off the standard

amid rising rates. they swap rates and if you look at the two year yields, the earnings breaking beginning in september, it was looking around for percent. that is now priced around 7%. they automatically have to reprice higher but the expectation is that the bank of england moves beginning with the mini budget, moving 4% by the end of this year. clearly, the panic is beginning to set in and we heard from liz truss this morning looking at if you were a family asking for a mortgage, hsbc has that at 4.3% for the beginning mortgage. that meant 6.6% and it is only going one way. francine: that means there are areas in the mortgage market

that worry about 20 is more turning -- which one is more concerning. jonathan: you think about the mini budget as a reaction. clearly, the higher lender value spaces the issue. if you think back to the pandemic, the government had came in and that is priced in on the federal, but that has expired at the end of this year. they are still operating at captive rates for the housing market, but they are only competing with people that have a guarantee and there is a difference between february and the highest long down growth. the area we are looking at, that is giving a standard, but what happens, we remember that this becomes unacceptable. first time buyers of the younger generation cannot get on this and it was already difficult with the rally we have seen.

that is an area we are watching closely. tom: the market is almost closed to younger buyers anyway. what are we seeing around the forecast for what the direction is in the months ahead? jonathan: the growth has already stalled. i think depending on how the bank of england reacts, you will see that the banks are battling down their expectations because hedge prices are costly in the way and they have to figure out how much money they have to spend to avoid debt. i expect the bank will begin to talk about provisions, increased risk, lowering volume and mortgage growth for the third quarter. that is the big story for them. i think the next few months or so, we will see people changing their town and the banks have --

tone and the banks have dashed those. francine: thank you. coming up, french inflation unexpectedly eases. we will break down european inflation next. this is bloomberg. ♪

francine: welcome back to the open. 43 minutes into european trading day. for the moment, european stocks are 1% higher. surprisingly, french inflation has slowed. the central banks decide whether to deliver another steep hike. i am delighted to be joined by one of r-star reporters on the ecb team. good morning. how much pressure do we see a leaved? >> the forecast for the inflation reading this morning is 9.11 percent and if you think about it, that is almost five times the ecb progress. if you take the policymakers at face value saying that we need to bring inflation back down, then the pressure is a enormous. we have seen some of that yesterday with policymakers rallying or starting to rally around another 75 basis points hike, which is a massive step.

we have also been seeing that they say a lot can happen between now and then for the next meeting. it will be an interesting time the next four weeks to hear what they do. tom: we talk about the need to convince the market. the fed is doing that with consistency of communications and their messaging. and as well as the rate hikes they are pushing through, but we know there are disputes within the ecb. are the next two meetings going to be 75? are they certain on that? >> it is interesting to speak about the vergence. --divergence. they all agree that we need to raise interest rates and something is wrong looking at inflation. the difference of opinion is in the nuance.

it is about the increment of the rate increases. they are still trying to figure out what the neutral rate is, and the concrete steps are complicated. the other thing is about the balance sheet, quantitative tightening. there are lots of details that need to be ironed out, often to deal with matters that inflation reacts to what the ecb is doing and they are all on the same page on that front. francine: if you are an economist or the ecb, even a chief executive, you need to grapple with inflation. france inflation is not as high as other countries. is this because of economic composer rees? >> i would say so. you always have different economies getting their energy from different sources, different import structures, production structures. economies are more services or

goods based, but also, fiscal measures and there was an interesting comment from the still acting prime minister in italy, mario draghi, and he agreed that we are in a situation where countries that can force fiscal stimulus, do it, and countries who cannot, don't do it. we are getting into a situation where we have to be increasing quality across the block. tom: the uncertainty is in italy to the crisis in the u.k., what is the read across from here to the eurozone? jana: the big warning signs will be on the italian government to say, irresponsible fiscal policy or what the market says is irresponsible fiscal policy has a huge consequences and it can

create market and it -- market panic. we have seen with the bank of england that the rates just went through the roof so tightening will be needed even more. we heard this morning from christine lagarde to the governments that you need to be clear on what you do because otherwise we might have to do more and you might not like it. tom: jana randow, comprehensive on the ecb and the ramifications for what is happening here in the u.k. and the fiscal spending as well. let's get the bloomberg first word news without atkins. alice: hurricane ian is regaining strength across the atlantic and is set to make landfall in south carolina later today. that after leaving a path of destruction across central florida, destroying homes and the power grids and leading to unprecedented floods.

power was knocked out to more than 2.6 million homes and businesses. abc reports at least nine people killed. president biden has denounced russia's plan to occupy regions of ukraine. moscow says it plans to apply what it calls treaties in ukraine's east today. this after the annexations were condemned as illegal by the united nations. hsbc is considering relocating its headquarters in canary wharf when the lease expires in 2027. the bank is aiming to create a more flexible workspace. options include moving to new premises in the capitol. it is not planning to leave london. china is allowing some cities to lower their mortgage rates for the first time. this is to help struggling has

market. it will remove the minimum interest rate until the end of the year. and at her and a source rexx skeleton is set to be auctioned in december. the fossil was unearthed in montana and is around 66 million years old. it is about 13 meters long and weighs in at -- 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: thank you so much. it is a nightmare. the eight-year-old somehow got a piece of -- that was up for sale. tom: i can see that. we love it. francine: we should call it crowdfunding. buying the deficit. there you go. dino dollars.

coming up, we will unpack the first hour of today's european meeting. this is bloomberg. ♪

francine: welcome back to the open. 53 minutes into european trading day. we saw an ugly session in the u.s. for the moment, u.s. stocks are stabilizing, gaining 1%. tom: we are one hour into the final day of action in what has been a dramatic week for the markets. gilt markets and the run on the pound, avoiding parity with the dollar. worries for investors and mortgage offers being rescinded at a rapid pace.

joining us now is jp barnett. what tested out for you as you have monitored the market rates -- stood out for you as you have monitored market rates? >> what is interesting on the markets, i do think that we will see in europe and the u.s. the third and second quarter in the red, the first time it has happened is the financial crisis in 29 -- 2009 and the other which is more telling to me and highlights how dramatic this quarter was. the s&p 500 was up 14% halfway through the quarter and is now in the red. this has never happened before in the history of the index since the 1990's. this is the first time it is turning out to be read at the

end and that shows you how short-lived the growth was and how much pressure there still is. francine: with the earnings season coming up, what are we watching? is it cost cuts or margins? >> the earnings estimates are coming down a little bit, at least staying somewhat stable for europe and i am more cautious. we have seen a scaling back in production and we have seen nike yesterday striking at the margins, so i am not sure if this earnings season will be another surprising thing like we saw in the second quarter, and that is something that investors could keep in mind. the margins will certainly be the one to keep an eye on. tom: apple, micron, nike some of those with sinking inventories.

how much comfort should we take from the s&p not going too low? >> a little bit because we always see these major pressures being put on the market but these are people selling into it, so that shows you there is at least some signs that the market has bottomed out. we also saw the price yesterday but giving it a bit of comfort. chances are that unless we get another growth from the fundamentals, the markets could at least consolidate on that level. i head of the earnings, i am not sure if this will be more in the coming days. francine: thank you very much. jp barnert with some of the moves. "bloomberg surveillance: early edition" is up next and this is bloomberg. ♪