tv Bloomberg Markets European Close Bloomberg September 8, 2021 11:00am-12:00pm EDT
guy: wednesday 8, 30 minutes to the close. this is what you need to know. andrew bailey will testify in the next few minutes. we bring you his comments on financial stability. stocks flying a little higher today. maybe in october, the european electricity -- the plan to start using the controversial pipeline next month. european gas prices have been going up week after week. we have seen record after record. today we are continuing to see higher close to the atlantic suffering from the u.k. gas prices. gas prices in new york are up around 7% to 8%.
now by 1.4%, down by seven tens of 1%. 9/10 of 1%. a little early look like the u.s. was going to be climbing, but we are starting to see a dip when it comes to wall street. taylor: when we take a look at the major averages, it is red for three straight days. we take a look at the s&p and russell, those domestically focused companies. we are holding onto 4500 here. when you think about round numbers within the s&p. otherwise, it is a rotation out of that cyclical trade. you see that with bonds. they are down two basis and reversing some of the yield higher then we saw yesterday. the 135 system key technical level here as we think about where we are in 10 year yield. i would note we are up less than a point.
still relatively calm. anything below 20 can be seen as calm. it appears may be some of those calls about slowing growth, maybe some of the calls about not being over in u.s. equities starting here through the market. guy: a little bit cautious. as we come through into september, looking forward to the rest of the year. warnings getting louder, kind of a relentless run we have seen an american prices may be about the pause or take a turn for the worse. goldman sachs, morgan stanley, all issuing over the last day or so about the potential negative shots we could see. >> the u.s. market is in a tough place over the next 60 days. you have a period right think growth in the u.s. is going to look week in september. a lot might be in the rearview
mirror. but the week data in september at a time when you have heightened risks from the delta variant, schools reopening, etc. guy: let's bring another voice into the conversation. he is head of research and global markets in international security. first of all, thank you for making it here. thank you for making it, it is great to see. here we are, beginning of september. people meant to be coming back to the office, we have had an incredible run over the summer. really since the start of the year for u.s. equity. the european picture looks more nuanced. i'm curious as to where you sit. and thought some of the rest of the year looks like. what are the catalysts for u.s. equities? what is the picture look like in europe? >> i think the coat -- two kind
of dominant themes that determine general risk are covid , but more from linking it to the supply constraint problem that has become much more evident. that could be the real focus in terms of potential to lower growth. covid in asia, which is at a different state to europe the the united states -- and the united states, the area for goods globally. improvement there. covid is an element still. those supply constraint i spoke about, clearly those are a big issue in terms of potential price increases going forward. we are starting to see growth projections for this year, 6.2%, 5.7%. given the supply constraints. and how uncertain. in terms of europe versus the
u.s., is still to be confirmed. growth in the second half of this year looks like it is going to be stronger in europe than is in the united states. we do have the relative dynamic from a macro perspective which looks better for europe. therefore, it could provide some support for europe, given the fact the monetary policy diversions is still widening perhaps in favor of the u.s. dollar. taylor: when you talk about slowing growth, i'm wondering how much is expected you can only restart an economy once. you can only get that huge growth rate once. review surprised at the rate at which we were having to downgrade some of these forecasts? derek: i think we were always going to be into more certain periods once we got to the initial phase of a very strong rebound in economic growth. that sense was perhaps -- it is
the supply constraint in terms of where we are today. we are beginning to hear more and more total stories of the supply constraints potentially being with us, not food is the remainder of this year but through perhaps the first quarter. so what we need to see is the uneven roll of vaccines, which means the risks are different in asia to elsewhere. we need to see that equalize. then the logic should be that the supply constraints start to kind of stabilize and that opens up better prospects for growth in 2022. at the beginning, the period of uncertainty over the next couple months will be a lot more elevated. guy: how it risked he thing equity markets are during that period?
10 million open jobs in the united states. american business cannot find people they want. and employ them. if they are going the people they want, they haven't paid them more. -- they have to pay them more. gas prices at electricity prices shooting higher. consumers will look at that and say i want a pay raise. can companies absorb that and still continue to deliver decent, topline and bottom-line product of living? derek: the margins reported in corporate earnings is just gone. they were healthy. i think that is a good indication that there is potential over the coming quarters. guy: the markets looked good. we already priced that in. derek: sure. what will determine whether or not there is a price correction of any substantial is whether or not those supply constraints
start getting standard further into 2022. then there will have to be reassessment. of course it is quite reluctant when i talk to clients about corrections -- why are we where we are today? ultimately, you look back to last year. every member talking to you before and you are asking me -- i remember talking to before and you are asking me how other countries were responding to this. the monetary authorities came in aggressively with monitoring fiscal stimulus. going forward, there is going to be less of that available. but there is still confidence that the authority is to step in ultimately. taylor: can we talk with the unwind of those emergency measures? we are having a lot of conversations about what is $120 billion in asset purchases doing that 100 billion dollars or $80 billion couldn't do? as you think about the ecb in europe, what are the conversations about keeping the
patient on emergency medicine if the emergency might start to be over? derek: what i think lies ahead -- from a central bank perspective, when we look back to the period after the great financial crisis and we take the period from the fed starting with the speech in 2013, tapering in 2014, then again in 2015 and 2016. if you look to what was happening amongst other central banks in the space, they were going completely the other way. ecb, expansion, boj, concentrates from canada, norway, commodity prices. but the fed kept going. had a massive divergence that resulted in a commodity price crass in the turmoil in china. i think going forward from here, why they are being so careful is to try and synchronize more of
what happened back in 2014, 2016. that would matter and all of that. as much as possible, coordinating policy reversal. it is hugely important to avoid the failures coming out of the last crisis. guy: many would argue that they have done little more than support asset prices. to your point earlier on about the fact that asset prices ultimately -- do you think that is as true now -- we have seen a lot of qe. you can argue the impact is diminished significantly as a result of the amount of money. you need more on the fiscal policy rather than monetary policy. do think there is the political well, the support asset prices and the way like it was a couple years ago? derek: the big difference in the
covid crisis -- central banks were hugely supportive. for more on the fiscal side because there was much more force for that given the uniqueness of prices we'd come out of. but it has expanded significantly. you have to conclude from that that the scope and relative balance are far less on a which takes me back to the point i just mentioned. far, far better to be slower and more cautious coming out of this than previously, because the capacity is not like it was. taylor: you know it's cool? you make all your guests stand. we at least give them chairs. [laughter] i love it. we are finally getting guests in the studio. taylor: it is fantastic. the process is still little difficult, but we are streamlining it. i hope more follow. taylor: derek is going to be
in japan, the government reported a coalition will extend the coronavirus state of emergency until september the 30th, according to nhk. 17 others to the region will be downgraded to less district virus measures. china's move to complete the election systems will make it all -- less strict virus measures. china's will move to complete its purge of hong kong's election system. new rules make it all but impossible. they have over 300 elective legislators and district counselors from pro-democracy groups have resigned. global news 24 hours a day on
air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. taylor: thank you as always. we are getting some comments from boe's anja bailey's testimony, trying to the -- andrew daley's testimony. they are just turning to introduce. we are going to get a lot of the comments coming out just momentarily. in the meantime, i want to do all of this and more with marcus, the bloomberg opinion columnist. marcus, what are you expecting to hear here? as we think about tax creases, if there could be an impact on the economy going forward. marcus: i'm not sure quite what to expect. he has not had a very good time, particulate from the lords. it is quite defensive. defending his record which was
suspiciously close to the amount of guilt from the debt management office. leaving that point aside, just on the economy, we know they are going to stop essentially buying more gilts at the end of this year. there are no plans to continue. they have set out this summer, are almost strange and illogical game plan for reducing the amount they have come close to 900 billion pounds on a balance sheet, which enables interest rates going up to half a percent that might mature. then at 1%, they start selling. that is not going to happen for several years. the rate is not that high. i think you will see some cost and u.k. economy, but you will see the slowdown in the states. you will see some of the slowdown due to logistical in the u.k..
it will be positive and try to avoid [indiscernible] guy: that is always job number one for central bankers. derek is still with us. this is about federal stability. does the u.k. -- financial stability. does the u.k. face any risks? the housing market has been creeping up. we have seen support coming through from the government, that seems to have faded now, but the housing market continues to plow ever higher. we've got stock markets relatively elevated levels. i talked to the governor, he was surprised that we had yields moving higher. what you think he makes of was happening with asset prices? derek: in one sense, he will be concerned. in another sense, he will go i know exactly why. my team at the bank of england are part of what is driving this.
when you look across the financial markets from the credit space to high-yield debt to cryptocurrencies, the latest source of speculation -- investors will continue to chase yield. for as long as the fixed income markets have yields at such depressed levels. when you ask about our the risks, yes. there are huge risks. i think in all of the markets based on what has been taking place. but saying when that could result in a reversal -- very difficult. i do have concern specifically in terms of macro in the u.k.. when you look at what is happening fiscally, as marcus spoke about, the bank of england talking about plans for reversing policy, you'd be led to thinking u.k. is in a great position and across the 10, it is the contrary in terms of
where gdp is today relative to before covid. they neither in brexit -- then that you throw in a brexit. guy: potentially inflation coming through from the labor market and shortages showing about super market shelves. take a listen to what the governor is saying. >> it has been exacerbated by the continuing and balance of demand. that has been pushing up. now there are a few other things going on, which are unrelated to covid. an obvious case in point is the shortage of semiconductor chips. you see that around the world. you see that in the u.k., yukon production which is at its lowest level for a long time. you also look at inflation, very strong inflation.
those two months have been highest for a long time in terms of the rates of inflation because the demand can't be met. it is pushing up, as it is in the u.s. come up to hong kong prices. there is an underlying story of and balance to demand, which we thought would, by now, be well on the way to correcting itself. what has caused that failure to sort of have that correction, it is the persistence of covid. if you go back to what we are doing a year ago, even up until the spring, we were expecting this to obviously not persist. for that rebalancing to happen. i will finish with a couple points. that said, the overall economic impact of covid in this country
has over time i would say. but within its context on that activity, within the context of imbalance in demand and -- for good and services. we are seeing some leveling of recovery, is the short-term indicators are suggesting -- guy: you have been listening to the governor of the bank of england, andrew bailey. that is -- i think it will be worth listening to for a while longer, there could be interesting questions coming up. i write to thank our guests for joining us. -- would like to thank our guests for joining us. thank you to derek for making his way direct testing regime to be live here in the studio. >> thailand is one of the countries -- >> and relationships as well.
the semiconductor chip supply comes from a number of asian countries. theirs was a big plot destroyed by fire in japan. you might think they are unrelated and random, but they happened closely. >> you've outlined this case of the commodity price increases. what are the chances this persists longer than you imagine and what is your thinking around that? it is not exact science. >> as we said before, we think it has not been persistent. for a couple reasons. opposite of that one concern where it goes in the direction which i am sure you want to come back to. commodity prices generally in history, commodity prices do revert back toward their mean levels. i would say the other point to make is the cost for commodity
guy: for the european close, let's talk about where equities are the side of the pond. we are looking at the ftse dax, down by 1.3%. there was a moment around an hour ago when we thought the u.s. markets would be on cruise, going nowhere. there we took a turn for the worse, driven by the number which is going to cause some concern certainly for ceos that are going to employ people out there. some a jobs available, so few people wanted to film the. we get into the details in just
a moment in figure out exactly what is happening here. that is next, this is bloomberg. ♪ in business, it's never just another day. it's the big sale, or the big presentation. the day where everything goes right. or the one where nothing does. with comcast business you get the network that can deliver gig speeds to the most businesses and advanced cybersecurity to protect every device on it— all backed by a dedicated team, 24/7. every day in business is a big day. we'll keep you ready for what's next. comcast business powering possibilities.
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are. you can see behind me, the map telling the story. a sea of red across europe. the docs under significant pressure down by 1.4%. other main markets down by 7%. in paris, down by 8/10 of 1%. we are hearing is some weakness still being extended by the united states. it would look we are going to recover, we will see it take a turn for the worst at a result of which is starting to fade to early recovery. this take a look at the session introductory on here molding for the last couple days has been light. today, we come in and flatline. this is the recovery of us talking about earlier on. i think it was the jobs number, i am not sure. it is worth paying attention to. we are ahead of the ecb tomorrow, another factor to think about when listening to governor bailey talk about financial stability risk down in westminster.
let's take a look at some of the other assets. i think it is worth talking about. you got the grr that is worth looking at. only 2, 3 sectors in positive territory. it tells a story. you got the auto sector down, that is what is leading on germany today. the industrial sector is down, financial services and banks. these are heavyweight sectors that are weighing on europe. individual names, let's talk about the story. martin's going to auction. the offers are final come as a result of which we are seeing more since looking like we are going to see an auction. smiths group, one of the reasons london is better today, becky percent. it is going to be selling some assets in the medical devices division. as a result, the story is more streamlined. certainly something the market is rewarding.
we have also seen aviation stocks doing well today. there was a story i think in the telegraph newspaper first thing this morning, talking about the idea that the u.k. is looking to get rid of its traffic light system, that could come as early as next month. that would be a huge boom. in terms of just the instability of that traffic light system has caused for u.k. travelers and therefore, by extension, maybe we will see the u.k. traveler returning to the sky largely absent over the summer and compared -- in comparison to some of the other countries around europe. that would be warmly welcomed by the likes of easyjet. as a result, we see the stock up by 1.7%. taylor: elevate tech but instability, it seems totally disjointed. also within some of the international flights we talk about. so interesting on this topic. they have called for more
pragmatic approach. he writes for bloomberg opinion saying the lack of pragmatism around international travel is striking. all the many governments have eased restrictions, some appear to be preserved and cement. sam joins us now. we love the brutal honesty and perhaps some of the comments. what you already from the health perspective of what looks like -- right here at this moment? sam: i first want to say, a big thank you to my colleague who was a major contributor to this, perhaps even more than myself to this piece. it was a joint effort. the issue is highlighted by what you just said. of course, the u.k. government decided to head together and figure this out. the reality is, you need to have
a system in place. i don't think we are ready to open up the gate to let anybody come and go as they like. we do know vaccinated people can still be infectious and infected. you need a system that is a bit more logical. a bit more seamless between the countries. we have a system that works really well across europe. i current they cannot travel to the u.s.. i don't know why. i can't figure it out. why can't i go to the u.s. customer i can -- u.s.? i can go to mexico and stay. that's what this piece talks about. let's please get together and figure this out. guy: what do you think the system should look like? if you are building it from the ground up, if you returning to figure out a way to get people back in the air and flying more easily, what would it look like? how would it work? sam: allow vaccinated people through. they need a definition for what
vaccination is. is it two doses, three doses, which vaccine is it? get together and figure that out. of them through that too much restrictions. but perhaps one a lateral flow antigen testing. if you test positive -- you test positive in 90% of cases if you are positive. keep that testing there. the only cost a few dollars. that really makes life a lot easier. guy: we look forward to maybe that happening. let's hope they are listening. a great piece, greatly appreciated your time. let's carry on the conversation, andrew lobbenberg joining us now. he follows the aviation sector from hsbc. sam is talking about the fact of the system set in concrete, that we are not allowing the science to lead us in terms of allowing travel to restart. what is going to happen this winter if that doesn't change to
european transport companies, aviation companies? they weathered the summer better than people anticipated, but now we are getting into difficult months. andrew: i think it is clear that the summer, in terms of trading within europe was good. slightly better than most companies expected. as sam said, travel restrictions from the u.k. are tighter than within the eu. companies -- countries with exposure to the u.k. have seen less than vibrant trading. given what we were expecting in june, i think july and august from the u.k. were quite encouraging. for the flag carriers at least, it is the outlook of the transatlantic opening, which is the key issue. there was hope that market would open around the g7 summit in june. that would open when chancellor
merkel went to the white house in july. here we are with the trans atlantic still shut. taylor: it's interesting, a lot of u.s. airline analysts have seen consolidation or future partnerships are inevitable given the squeeze we've been through. if you think about your european airlines, do you expect more consolidation or at least further partnerships to whether through this? andrew: i mean, in a normal environment, when the industry goes through tough times, you would expect consolidation, absolutely. what we've got at the moment is the reverse. we've had very little exit within europe. we've also had a flurry of new entrants. it is the reverse of what you would expect. i do expect that when we start to go flying again and when companies try to rebuild their balance sheets, i expect we get that time a return of darwinism
and some of the week will fail and we will get the consolidation. but it is also worth noting that in europe, but equally in the u.s., something we have to take in account are even the larger ones are not permitted to go end by other carriers. as part of the terms. until we are clear of that, that will be a constraint on the consolidation. but that is of course coming get rid of the proliferation of new entrants and we will get consolidation. guy: do we have to wait for a full reopening, or at least significant reopening, before we start to see the cash calls i think a lot of people in this industry are anticipating? i'm seeing european carriers, taking money from government. at some point there is an expectation they will raise additional funds from the private market, today that some of that. maybe not all the way but certainly some of the way.
when does that happen? does it happen this winter customer or does it happen later on when we see the antegrade been and wide-body travel returns customer -- returns? andrew: when they come to market , they've been clear they are coming to the market, they will want to have as constructive an equity story as they can deliver. that will manage the scale of dilution that stakeholders will suffer. obviously, a key component of that equity story would be the reopening of the north atlantic which most people in international aviation were hoping would be the example of how to reopen markets that could then be carried on around the world.
the opening of the trans atlantic is likened to be an important factor in the timing of the call. taylor: andrew lobbenberg, thank you. my key takeaway is totally a global story. not here, but if you close your eyes or ears and the issue we discussed and within european airlines certainly faced here with the u.s. as well. guy: in some ways, in some ways not. what we saw early on was a very big pickup in domestic travel. visiting friends and family was a big feature of the recovery in united states, it is much easier to travel around the continental united states than it is to travel around continental europe. in some ways, u.s. carriers have had an advantage and support has been different. but they north atlantic is pivotal here. i'm trying to go to the conference taking place in boston at the beginning of october, it is a struggle. i'm hoping i get to make it.
but trying to find a way into the united states, quite difficult. i hope it happens, it would be fantastic to go to. this industry has been at the forefront of the pandemic crisis. let's take a look at what european stocks of wrapped up, a tick lower during the auction for the 100 but not much. finishing around the 7100 level, 33. also sector under pressure, the travel sector under pressure. the dax, some of the car stocks coming down. the airlines having a more positive day. these are the final numbers. this is bloomberg. ♪
taylor: a big meeting coming up tomorrow on thursday. the ecb meets to decide whether and when to start reducing pandemic era stimulus. dovish memories of the ecb has become increasingly public as boomer guests have discussed. >> we are in a different universe, it seems in the u.s. and europe. in the u.s., you had a commitment to purchase exactly the same amount every month into this is a clear-cut commitment. tapering means something. in europe, their flexibility. >> the inflation situation in europe is different from the united states. when the covid shot came, the country was not performing well. there is a lot of slack in the economy. it was too low. it is a visible, different situation from the u.s.. >> it is a short-term blip in inflation we are seeing right
now. the hawkish members among others, the one for my own country, once again to short-term focused, not looking through the volatility of the data which we think the ecb at large will do. >> there will be something vocal , which is to be expected. new guidance, new outlook for a very long time before they are ready. >> we need to watch the dove to see if they are switching. even though they could very well be a reduction in the purchases, that is this week, i don't think it is going to do anything else but stressed the dovish point. taylor: the dovish point. maria and frankfurt ahead of the meeting. what are some takeaways you are going to be looking for? maria: we know they will improve the forecast. a lot of this has to do with the vaccination rate in europe which will be improved in one big
focus will be inflation. it will dictate a lot of policy going forward. really, the focus will be significant a higher. we are alluding to that, there is a clear -- that could be changed tomorrow. that will be a challenge for the ecb, to say we are adjusting the program. this is not a taper. the reason we are going at it is the conditions are improving. this is not a taper. we are not removing stimulus. [indiscernible] guy: the pace, maybe not the size of the total package. that is the distinction we need to make. we are looking forward to your coverage tomorrow from frankfurt at the ecb. go but, we look forward to in the morning. as a work our way to the day, will bring you events as they
unfold. let's continue the conversation to set up what we can expect. a workday management senior strategist joining us now. let's look at the program. there are too kind of programs to think about, one is the emergency program for the pandemic and the longer-term adp program. the market at the moment, to my mind, judging by the people i have been speaking to his largely expecting the pace is going to change. there is significantly higher rate that maria was just talking about, the language is going to change around that. what would generate a surprise here? i think the market is expecting things to slow down a bit. i am wondering whether tomorrow will generate any interest. >> you are right. nearly everyone expects it to slow the pace. the first thing i would say, if there is a surprise tomorrow, it would be a dovish one. reasonably keeps the pace
constant that is a significantly higher based in the first month of the year. it makes a strong case. the fed has not moved yet. the recovery, you have a slowdown from china. who knows what can happen? there is apsley no reason for the ecb to rush. the total envelope is largely deficient to continue buying at the current rate. the balance of risk is a dovish surprise. could they slow it's a below 60 billion, which seems to be the consensus? i don't think so. it makes no sense. it would be a big mistake, a big risk at least. in terms of communicating this kind of decision. you know, convincing the market to not taper before the end of
the program, which is a very different decision to make. guy: as taylor was mentioning, there is a debate it seems to becoming increasingly public between the hawks and doves. maybe as you suggest, the doves do more tomorrow. but the debate is starting about what happens. it is less to do with the paper and more to do with the app program, the longer asset purchase program that has been in existence pre-pandemic. there is a suggestion that with inflation starting to run as high as it is, that is what we should be thinking about right now. we should not be thinking about taking flex ability from the program introducing it to the app. we should not be thinking about the app as something that is going to exist forever. how do we start this debate? how does this debate work in your mind between the hawks and doves? frederik: that is absolutely right.
i suspect the debate will only start the day after tomorrow. i don't think the council today and tomorrow will even discuss the end and transition to app version. this is going to be a long process. again, you don't need to commit to anything today. you have at least three months, by the end of the year, before making a decision. then you're making a decision in terms of size and flexibility of app. it is small right now, 20 billion. it is difficult to imagine, at least from the bond market perspective, that the app will go to just a zero and levered that -- leave it at 20. it will increase the size to 40 billion or 50 billion. equally importantly, the flexibility to the app is critical to some countries and
some markets. think of greece. then, from april 2022, greek bonds would be a big problem from a perspective of the country and the area. there are a lot of decisions to make, much harder than the ones they will be discussing tomorrow. this is for the next. taylor: we were speaking with derek earlier, talking about trying to get global central banks synchronized. that we learned our lessons and some of the mistakes from 2013 when the fed was tapering and out of sync with some of the other major global central banks. are you getting a sense that this time around, we want more synchrony on a global scale? frederik: perhaps not explicitly. from the former members we just heard on the program, the big difference in terms of the
situation both in the u.s. and in the area. the big defenses the synchrony of the coronation in each country, region, between fiscal policy and monetary policy. when i am thinking about the size of the app, just as a signal for markets or to support asset prices, monetary policy needs fiscal policy to take over and for that to happen, for the ecb to be successful, you need to secure this state. for that to happen, something that was said recently, you need to take into account the expected increase in government bond supply in the coming years and like it or not, come in support in the next few years to make sure this recovery continues. taylor: frederik ducrozet,
>> we ever stagnating rather than declining. >> this is "balance of power" with david westin. david: from bloomberg world headquarters in new york to our tv and radio audiences worldwide welcome to balance of power. joining us is abigail, you and i were just talking, maybe three days in a row down in equities. abigail: it feels more serious to any selling we have done in weeks. yesterday the pressure fell in on positive news from apple. that came out in that stock having a big win help lift us off of the lows even though it was a mixed close. today it is unclear what we could lift stocks, it has a difficult character because the s&p down -- the s&p 500 is