tv Bloomberg Daybreak Europe Bloomberg July 7, 2021 1:00am-2:00am EDT
$15 billion of market value. asian stocks take a leg lower. plus a big win for amazon. the pentagon scraps a cloud computing deal with microsoft. now it plans to split the contract between the firms. 6:00 p.m. a.m. in london, 10:00 a.m. here. we are encouraged. sent off brent. -- 3% off brent. the agony which is the word encouraged. the oil market thinks the white house might have an inside track. dani: what a different environment we are in with oil getting crushed yesterday. talks making progress. the u.s. and the bond market on fire yesterday with people fleeing to it.
growth concerns are squarely in the minds of the market. manus: you scratch your head and go why? perhaps there is a more malevolent move in the bond market. people have discussed peak u.s. growth. i think it is premature. it is more the hsbc view. you buy the rumor, you sell the fact on the qe programs. dani: you know i am always obsessed with positioning and the 10 year positioning -- the entire treasury market positioning is really helpful to understand why we had this move. you can see the jp morgan positioning of their clients. it is still extremely net short. we are basically our most short since 2018. this is not a market that is positioned for growth concern.
people getting squeezed out of their short positions here. a source i talked to yesterday said pensions on the long end of the long end of the curve were buying bonds up like hot cakes. this is a market that has had to really recalibrate. manus: indeed. you look at this move in the bond market. is the bond market flashing a real slowdown? dani: so far the bond market holding below the 1.4% level on the u.s. 10 year. a slight bit of buying's and the asian session, but nothing to undo what we saw yesterday. at the same time we are seeing people flee into growth. are people going to be going into growth stocks because they are concerned they can't get the incremental growth when it comes to value stocks? the nasdaq 100 outperforming. hs tech continues lower for its sixth consecutive day, now down more than 1%. oil as you have been discussing
around $74 a barrel and $.50 when it comes to brent crude. let's get more on where the markets are going. where the economy is going with callum pickering at barry berke. -- baron berg. these moves, be at the selloff from the oil market, be at the five 30's, a 10 year yield at 1.35%, is this a market that is pricing out further growth in the u.s.? >> i often hear this term peak growth in the market. there is a kernel of truth to it. we had such a huge downturn last year basically across the global economy. we have caught up so fast we are returning to pre-pandemic levels of gdp. the fast phase of the cycle is coming to an end. what we should be asking
ourselves each that pre-pandemic level of gdp, are we likely to be going faster than the past or slower? fundamentals look good. policymakers are driving can in -- economic growth. the economic data on a sustained basis is actually doingxdk bett. with that comes more durability in the inflation outlook. the bond market is the thing making me scratch my head the most. yields across the 10 year pretty much across the world. i just don't see that as a likely economic scenario for the future. manus: good save on the zoom light, well done. i scratch my head.
dani and i are looking at the 30's. can you try to explain to us why bonds are at 135 with a taper on the way, in theory, and a 7% growth number penciled in? why such subsumed level? >> it can only be two factors. first, and underlying doubt in the durability of the recovery. second, that central banks are still huge marginal buyers. you may be inclined just to hold this taper especially well the market is going, knowing full well if you are wrong and there is more growth in inflation, you can form an orderly queue outside the central bank, the fed, the ecb, the boj, we'll just take bonds from you.
it is mainly structural factors rather than fundamentals. what they really think the inflation outlook is for the u.s., i am pretty sure they will say it is 135 -- above 135. dani: there is another mystery i was hoping you could help me solve. i was looking through the report. ms. discussed issues with employment -- manus discussed issues with employment. it seems the same kinds of inflationary concerns we have been having. could that be the take away from the ism even though that is not how the bond market reacted? >> the bond market seems toóai e going the opposite way to fundamentals. this has been a story for the past 2, 3 months since we had that pickup at the beginning of the year. we are seeing the second phase of the inflation story. the first phase, the reopening.
here comes the cyclical recovery in demand which starts to push up on supply-side constraints and pushes inflation higher. 9lf÷when growth is strong, pricg power, wage setting power, is good. you can get decent inflation. the longer run, the fundamentals argument, it seems as if if you are worried about installation -- inflation at the beginning of the year you would be more worried and anyone who doubted the inflation story should be inclined to start thinking this is a realistic prop spect -- prospect. central banks at some point maybe later this year, early next year, start to worry about inflation risks. i don't think this is really an economic problem. we are fairly happy bond yields increased. that would be validation the story is playing out.
there may be short-term volatility. you have to start reducing your expected cash flow. that is an issue for equities. it is a temporary concern. manus: you talk about oil. very briefly, the market yesterday, the ecstasy of a six-year high to the agony of a 3% dump in wti. there are many culprits. when you look at the oil market, what is my risk here? uuúr■inflation expectations ratr than inflation? é■>> i am an economist. sloshing around. if producers want to step up production, that is going to
ease supply constraints. it does not change the inflation story. the oil issue is a question of inflation over the next 12 months, whereas the fundamentals , credit demand, that is the long-running story which is not changed by any of this. manus: stay with us. we have more with our guest host at berenberg on the markets. let's get our first word news. >> virgin atlantic and british airways say they will test the covid-19 vaccine verification system on passengers arriving at heathrow airport. airlines can check passengers' vaccine status before they reach border control cues. the trial will be open to those traveling on select flights from athens, los angeles, and other places.
in an enthralling semifinal, woo continue their run of wins, now it 13 games. fears of a half-empty stadium in london proved unfounded with supporters on both sides snapping up tickets. wembley is likely to be noisier as england plays denmark hoping to secure a place in a first major tournament final since 1966. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. dani: thank you. coming up, the eu unveils ambitious sustainable finance strategy. green bond standards it hopes will contribute to making the union carbon neutral by the middle of the century. he century.
dani: welcome back to "bloomberg daybreak: europe." the eu has set out a green bond standard and tighter measures on banks to better reflect the risk of climate change to the financial systems. the aim is to bring the world of finance in line with its ambitious goal to make the region carbon neutral by 2050. >> this will help bonds represent a sustainable investment. demand now outstrips supply. many companies and governments will issue environmentally friendly bonds. >> about half of green bonds are denominated in europe, making it the most popular currency for green bonds. manus: maria tadeo is with the
team in brussels. what is the eu trying to achieve with green financing? >> they say this is a new type of finance for a green economy. there are two elements here. one is the eu wants to scale out this market. the european union will have to issue 150 billion euros on an annual basis from now until 2026. 30% of that will have to be in green bonds. they have an interest in making this more liquid and a bigger market. the other has to do with dominance. the european union, they want to dominate this market. half of the issuance has been done in europe. the new standard for bonds would remove the risk of greenwashing for foreign investors. they believe if they get
approved quickly and they do it first, they will come to be the number one force. we see all that money moving into the esg for the european union. it does make sense on a practical basis but also in terms of the goal. dani: what are these products going to look like and who will be issuing them? >> it is a good question. the european union made it clear eu based institutions but also those that are not based in the european union can issue european green bonds. look at the specific format. they say this is not about just companies, this is about institutions, about governments, about financial institutions that may want to tap into the sector. there are other elements which i find interesting. this thing they call the european green bond standard. they want to make this the gold
standard for green bonds. this is something companies can put forward. it will be done on a voluntary basis. it would to some extent put out all the information around bonds that would remove the risk of greenwashing. which sometimes investors say they worry about, the lack of data with this european green bond standard. the eu was hoping all of this will be clear. manus: i suppose we should give you our commiseration. we will come back to that another day. >> we played a very good match, very proud. manus: there you go. well done. we will come back to you shortly. maria tadeo with the latest on green bonds. callum, we are not talking football. we are talking about 150 euros -- 150 billion euros worth of bonds.
5% per country is not equal. who wins the most in this stimulus package? >> the peripheral european countries when the most -- win the most. in particular italy. we have let's hope and auspicious mix of fundamentals in italy. you have a very well respected prime minister who is -- has a lot of cash in his pocket and the ability to negotiate with various elements of the italian political class in order to get to things done. boost italian investment and reform the economy. there was bad regulatory stuff going on. if they can align the regulatory framework, make things more transparent, that would be good for the economy. the economy in southern europe
has been flagging for almost two decades. it will see better trend growth as a result of this if the politics does not go badly wrong. dani: do most economic forecasts have this price in, the growth? there is such a long time between the economic recovery package being proposed and when the money and payments start coming in. have we caught up with ramifications of what they will be? >> the answer is no to that. we are still a little bit over excited about the prospect of the u.s. essentially borrowing to the front end of the recovery with demand-side stimulus. the supply side of the economy is where the real problems lie. we have plenty of demand on household balance sheets. incomes were good last year. households continue to go out
and spend. there is no economic logic behind stimulus on the front end of the recovery. you want to say 2, 3 years from now we might run up against supply constraints. have more underlying potential growth to potentially lift potential growth. that is where europeans are focusing. this is the political question. the money is there, ambition is there. if the politics go right you might get better growth in key european countries. manus: let's return back to super mario. politically the world is coalescing around draghi as merkel exits stage left. i want to go back to markets. we talk about the biggest beneficiary potentially being italy. i look at the btp bund spreads. is there room, is there scope to reprice further? or how will your landscape play
out in markets? >> an interesting question. we have looked hopefully -- well, probably for a decade. his this the time italy fixes its structural problems? those hopes were dashed because of internal italian politics getting in the way. this time around mr. draghi has more experience. he has cash in his pockets. we can spend some money here. this is a good situation. if it turns out, if this positive upside risk materializes, the spread can narrow. it needs to narrow in the universe of bond yields rising over time commensurate with the stronger economic outlook and more durable inflation risk. italy will hopefully play a big part.
has been tracking the return of the jedi. what is the jedi? >> well, the jedi contract is a giant cloud computing contract. the pentagon wanted to move to a cloud computing environment. they thought that would be a better battlefield management system for them. they put out this $10 billion contract over a number of years and it was going to be a one-shot wonder. one company was going to win. it was going to be a giant boost to the arm. market moving, game changing. it did not go to who everyone thought it was going to go to. everybody thought amazon was the frontrunner for this. to the point other companies were trying to split the deal in parts to get in on it with them. it went to microsoft. amazon charged that the trump administration did not like jeff
bezos because jeff bezos owns the washington post, had gotten in the way somehow. this has been in court and the pentagon finally said forget it. it's been a couple of years. this has been locked up in court forever. let's go to a solomonic solution and split the baby. let's do two providers. we would love microsoft to bid, we would love amazon to bid. if somebody else comes in,÷ñ,e will look at them, too. . dani: upon -- pun award of the day goes to manus with return of the jedi. on the flipside, how big of a losses this for microsoft? >> let me take that first. how big of a loss for microsoft? it is hard to say because there has been doubt about the
contract, full stop, because of legal tangles. the fact this goes into more certainty might be good for microsoft. you saw market reaction flat for microsoft. for amazon it is a win at something they were shut out on and they are back in, i'll be they were expecting. -- albeit less than they were expecting. for both companies, this is a pathway forward. you get to certainty, the fact this gets to be deliverable, it represents a lot of new business. it represents a shot in the arm in terms of contracting. neither of these companies has been the massive government contractors, when you think of u.s. federal contractors, this certainly puts them into the echelon. dani: thank you for staying on top of the story. derek wallbank in singapore joining us this morning.
dede plunges below its ipo prices and the u.s., out $15 billion of market value. asian stocks take a leg lower. plus a win for amazon. the pentagon scraps a cloud computing microsoft. it plans to split the contract between the firms. the market is screaming its concerns. it is there between the fire in the bond market and oil of course having a dramatic plunge as well. manus: i like what you said to me about the short squeeze. the jp morgan survey as short as they were in 2018. coming to the end of qe, going
into taper bill -- taperville. you sold the bonds, by the yields, sell the facts. 1.4% did not make sense given the growth trajectory, did it? dani: not just 1.4% but also below 2% on the 30 year yield. it is not a market that is preparing for inflation anymore. it seems like it is preparing for maybe even a policy mistake. growth at the long end there. i was talking to andrew brenner who was saying the market is concerned with the growth picture looks like six to 12 months from now. manus: the oil market from ecstasy to agony. down by 380% on brent futures. there is one word that changed the narrative. that is encouragement.
the white house termed their talks with the uae, saudi, and other parties. the trifecta of dominant in this market are encouraged. global oil markets are encouraged. wti and the dollar fluctuated. the s&p 500, the narrative coming through from a number of houses we can run through these markets. equities, you still have a number of houses saying you want to buy the dip. nymex crude comes back. the dollar studies as we go into this fomc minutes. let's talk about hong kong and the trading they do. fluctuating on the debut becoming the first chinese electric vehicle carmaker to
finish a so-called homecoming share sale. >> having a listing closer to home is always our strategy. as a china consumer and, we want to have our customers be our shareholders as well. coming to hong kong gives an opportunity to achieve that. >> some companies are hedging their bets, hedging against possible delisting from u.s. exchanges. it seems like there is this newfound pressure from chinese regulators when it comes to data security, data privacy. to what extent do you think the didi probe is going to speed other companies upcoming home? >> the regulatory environment is becoming more focused.
the data side, the privacy side come of the national security side. those were not positively focused as much. it is something we anticipate. we see the global environment gets tighter. data privacy, data security. that is why we are building up an effort in europe. the u.s., too. i think as a company that operates globally, you have to be prepared to address these issues and the regulatory oversight. >> tesla seems to have run into some issues in china whether it is recalls of nearly all vehicles in china, software issues. does the timing seem right to build your war chest and gain ground? >> people are asking us because
we directly compete with tesla. the result is we both grow quite well and tremendously. ultimately, having the competition will strengthen yourself. tesla is a tremendously powerful brand. they have great technologies and products. whether they will have the dominance like they had before is something we will watch. that will be difficult to maintain. dani: sticking in china, shares in didi plunged in u.s. trade. scrutiny over data security and broader claims by china.
other u.s. stocks tumbled. these moves complicate the picture for investors who are betting on the country's tech giants. sophia, thank you for joining us again. who is next? what is the next company is going to enter beijing's crosshairs? >> good morning. it was interesting what the executive was saying. it is all about data. what do these companies that have an and norm is amount of data -- enormous amount of data, how do governments control it? does it make sense for a chinese company to hand over control to shareholders? the regulatory focus in beijing is these companies, these tech companies that have access to
data. didi has almost half a billion users. that is a lot of information on where a user travels, how many times it uses that. potentially government officials using that as well. potentially sensitive data. how do you sanitize it, how do you control it, who can have it? manus: i love the china today article which talks about which foreign entities have access to this data, leaving a huge trove of national personal data in foreign hands. that could be the rub. how far is beijing going to make an effort to wean national champions off the u.s.? >> that is the big shift we are seeing out of beijing late
tuesday. a government body in china said it will step up regulatory oversight of chinese companies. that is a significant shift, strongly worded language. that could be a problem for these companies. there are 75 billion u.s. dollars raised from u.s. capital markets. this is an important source of capital. these hedge funds, mostly based in the u.s., they were once -- they want to know how they can exit their investment. they want to do that in u.s. capital markets. that is where the deep pool of liquidity is. if that avenue schatz, does it make sense -- if that avenue shuts, does it make sense to -- note.
in the world, need to be very sophisticated about, how do you allow decentralization to occur? while ensuring good risk management, compliance with law, the disclosure of what you are selling to your customers. that's why were so excited about bringing the former california financial institutions on board. we need people who have been policymakers in senior roles. successful companies are going to see that and compete for that talent. >> can you clarify the relationship between finance u.s. and binance globally? they are separate legal entities, but how are you owned by them or what is the relationship? >> we are not owned by them at all. we share a common founder and historically binance licensed
some technology and the name. a couple years ago it was clear the world was segmenting. you had most of the world which was still learning about crypto, did not have crypto licenses or requirements, and then an emerging part of the developed world putting crypto within a regulatory framework. we were founded to be a regulatory compliant license exchange. we got 43 u.s. states that allow us to trade in our borders. we will eventually have all 50. there are other parts of the world serve you different company -- served by a different company. we have a separate board of directors, separate ownership. you might think of us as a binance branded exchange doing our own business. different companies. >> when we talk about the u.s.
regulation or lack of, i'm curious as to your thoughts, as to why it has been so slow to see something more formative out of the regulators here, whether it is setting up guardrails, approving -- they're just does not seem to be any real momentum , at least that i can see publicly. >> honestly it is about the u.s. regulatory system. part of it is in this country, we set up different regulators and gave each of their share of turf. i know this having run one of these agencies. there is an error of turf conflict between the fed and the fcc. it is hard to get clarity. you look at the united kingdom where there is a single regulator for the financial system, the financial conduct authority, it is easier to get clarity.
here you have competition between agencies, overlap in jurisdictions. i will say we are not as far behind as people might think. the end of the last administration, all the major regulators got together for a working group and started finding clarity on certain crypto assets. that is an example of how our regulatory system can adapt if all regular leaders work together. >> we see the finance ceo talking to bloomberg. after pushing ahead with its global ambitions, japan's nomura is pulling back. abandoning its cash prime brokerage service in the u.s. and europe, giving some clients just six months to find a new provider. the fallout is profound. our investing editor in tokyo. good morning to you.
details on the scale back, is it a global retrenchment, or will we still do business at home, but the rest of the world and we refuse? >> we knew some kind of cuts were coming. nomura took this hit. they were showing they were very keen. we knew prime brokerage staff were looking at other opportunities in places like new york. this will not be across the board. they will still maintain operations in asia and japan, the biggest prime brokerage operation for nomura. it is quite a small player in europe. it is not a sweeping cut across the globe. dani: can we write this off and say not that much of an impact for nomura? does this have bigger ramifications?
>> monetarily, in terms of its revenue, it is not going to have a huge impact on earnings. but it is certainly denting the ceos ambitions, particularly in the u.s.. he has once run the operation in the u.s.. it is the biggest pull area and it is going to dent client relations there. he has another headache on his hands with the department -- the departure of research analysts and its prime brokerage chief in asia. on top of that of course he has the u.s. probe. dani: interesting months after the start of the archegos drama it continues. thank you for staying on top of this for us. that is russell ward in tokyo.
let's get over to the first word news. eric adams has won the democratic primary for mayor of new york city. the associated press called the race with 50 point -- 50.5% of the vote. the primary marks the first time the city has used ranked choice voting. adams is the favorite to win the general election over the republican nominee. deeper cooperations with the u.k. to help boost relations between the two nations as political tensions simmer. at a virtual meeting with more than 30 british business leaders, a pledge britain would continue to open its economy to the world and trade foreign companies equally. samsung has reported better-than-expected profit.
the company said a one time gain related to its display business. this is likely a payment from apple for failing to meet contract requirements after iphone mini sales came in lower than expected. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you very much. coming up on the show, the u.s. is encouraged by the ongoing opec talks. and has spoken to saudi arabia and the united arab emirates. this is bloomberg. ♪
>> opec is holding this thing together. that is what is reflected. you can see in the equities. >> either an agreement will be made and the uae will get dispensation or in the worst case scenario, people will hand in their membership cards to opec and it is a free-for-all. >> inflation is driving the fed as well. oil prices are part of the component that may not be transitory based on the issues we are seeing right now. >> if we were shorter-term traders, we would be selling our energy positions here and focusing more on those companies in the u.s. that are dividend oriented, income oriented, less dependent on the price of oil. manus: strategists and analysts discussing their views on opec-plus prices. the white house says the administration is encouraged to
the ongoing opec talks. the white house press secretary has said the u.s. had high-level talks with saudi arabia and the uae in hopes of reaching an agreement. let's bring in coverage for energy and commodities here in the middle east and north africa. welcome to the set. this is the first guest on set in 18 months. what happened? oil dropped yesterday in the states. is it all around this word encouraged? are you encouraged? is the energy team encouraged? >> we were surprised with the u.s. saying it was encouraged by its talks with members of opec. it is not said publicly who it is speaking to. it is sort of implied it is speaking to the saudi's and the iraqis -- emma roddy -- emirat e
s. as you said, oil dropped yesterday once u.s. traders got back from holiday. they obviously see more supply coming in august. they see opec striking a deal, some traders see the deal falling apart, opec members cheating, but either way they think more supply is coming to the market. dani: but oil prices seem like they can't make up their minds. we had them rising initially, dropping. they are a touch higher today. what is driving volatility and is going to continue? >> that is the thing. there is so much uncertainty. oil sort of surged in asian and european trading yesterday. the feeling was there will be no
output boost from opec-plus in august which is something markets had already priced in. we had the saudi arabians come up with their os piece -- os p. the official selling price for august. they are not planning and output boost. but there is still no certainty of that. markets did at least later in the day take their cue from these comments and they think opec will patch up its differences. dani: hopefully next time i can join you in the studio in dubai. oil a touch higher today. it does feel like this is a nervous brace for volatility. manus: i like what how we are said. the spread indicating $100 oil.
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