tv Bloomberg Markets European Open Bloomberg October 6, 2021 2:00am-4:00am EDT
dani: good morning. welcome to "bloomberg markets: european open." i am dani burger alongside mark cudmore in london. to take us through all the market action this hour. the cash trading is less than one hour away. here are your top headlines. inflation fears group markets. 10 year and 30 year yields hit the highest since june. bastogne and brookfield say it's time to sell pay the energy -- blackstone and brookfield say it's time to sell.
we are at the summit in slovenia. remaking britain. boris johnson will use his speech to shift the blame for the supply crisis, presenting it as an opportunity for the u.k. welcome to the european market open. 7:00 a.m. here in london. what a treat. we have mark here in london as well. you will be here for the next 1.5 weeks per it i don't know how we got so lucky to have you here, but of course, you could not have picked more interesting time to be alongside us in these markets. what do you make of yesterday's tuesday turn around and some angst in the market this morning? mark: i am still struggling to catch up with these markets but what is useful for catching up is that the short-term theme we are focusing on in markets today is what we have been talking about this week and over the last 10 days. that is the idea of higher bond yields, tech weakness in equity markets versus energy prices and that is feeding through to energy market gains and equity
markets as well so it's really those yields worries and how that is playing into the equity teams, the main thing we are focusing on in asia, in the short term, and the bigger picture story we will be all about this month. dani: we are worrying about china, worrying about energy. if anything, that concern has gotten more acute. i want to bring breaking lines on the german factory orders. demands -- whether supply can keep up with demand is a chief concern. they fell 7.7%. the median estimate has been a two point 2% fall. this is a pretty substantial miss. factory orders rising 11.7 percent year-over-year. that is lower than the year-over-year estimate of 16.4. the monthly figures and the yearly figures as well. looking into how that factors into the day.
let me give you a quick look at what the dating market -- the trading markets are doing. we are starting to head lower on the dax. down about .8% for the dax and the ftse 100. euro stoxx 50 futures down nearly 1%. rising yields this morning and the tenure stoking inflationary concerns and even more acute in europe given the energy crisis, given those continual highs when it comes to the price of natural gas be at here is your u.s. futures session. we have seen them waffle between 1% gains and losses for four straight days, the longest streak since august 2020 so this is quite the volatile session. nasdaq futures down .7%. perhaps a long duration bend to this market and your dow jones futures down .4%. what is the wider -- what does the wider market picture look like? mark: there are three big themes
of the short-term themes and the ones i have been talking about for the last week or two. you can see that yields are generally higher across the board. what is interesting is this has been most expressed in asia where we are seeing the higher moves in yields at the moment despite the fact that rbnz hydrates but there's no real reaction in the market. also in the fx markets, dollar strength and weakness across for the currencies because of the other side of the trade of dollar strength in the final thing to draw attention to is the korea leading weakness and that is about the tech play. samsung makes it more than 20% of the index so that is about tech weakness. indonesia outperforming and again, that is part of the energy outperformance and they are seeing slightly better covid news. a partial reopening in sentiment there. dani: i want to mention that we are seeing the gas benchmark open in europe, rising to a record 125, almost 126 euros.
it is per megawatt each hour, and the pricing action is different for europe and the u.k. so it throws me off frequently. while you were out, you missed it surpassing 100 euros. 125 euros. i feel like there is no end in sight for the gas prices surging. mark: i'm so excited that we are still talking about gas prices. i thought that this would be the big story. european markets this year. it was not just about inflation that plays into that. it was not just about covid, about china. for europe, it is about gas prices and they continue to go crazy. another fresh record in gas prices and the terrible factory orders out of germany. i think it will be a tough session out of europe. dani: i'm glad you are here for that emotional support to get us through that open. that's go ahead and turn to asia and hong kong where carrie lam has outlined plans to deal with the financial hub while delivering her annual policy
address. for more on those plans and carrie lam's address, we are joined by stephen in hong kong. what are some of the big takeaways for you? stephen: housing, housing, and housing. since the handover firm britain, home -- from britain, they tried to tackle and equities in housing and income, in a city with the least affordable housing market, and they have not been able to break what some would say is the monopoly by the big property tycoon. you have that scenario meshing with what is happening across the border, the common prosperity pushed by xi jinping. i'm not saying it is coming to hong kong, but this gave the opportunity to chief executive carrie lam to push her initiative to rollout low income housing in a massive new urban center on the border with china over the next decade. and beyond.
increasing 926,000 homes up there to house about 2.5 million people to help alleviate the housing crisis. this is what carrie lam had to say on that matter. >> it is the most vibrant area where urban development -- in the next 20 years will take place with as many as -- the metropolis will be the most important area in hong kong that facilitates integration with shenzhen. stephen: now, as most of these policy addresses are, this was long, lengthy, full of details, and carrie lam took the opportunity to praise the national security law which was imposed on hong kong a little more than a year ago and she says it brought the ability to hong kong and that they can now start tackling some of the big issues that have been hindering hong kong for so long. dani: thank you very much.
stephen north asia correspondent in hong kong. he brings up a good point. we have been talking about inflationary fears, energy fears, but of course, housing is a big part of that as well. it's not just asia. it's germany, the u.s., and throughout the world, this could add to price pressures. mark: a colleague of ours wrote a great piece about this about how this will become a great focus for central banks. i'm not sure the trade on this. property is one of the conventional inflationary plays and that is why it has a head on that theme. even those inflationary pressures coming, you know the central banks are focusing so i'm not sure how you express that in markets, unfortunately. dani: i'm not sure what the pain point is. housing is too expensive. maybe i don't want to buy a washing machine because that is getting more expensive. even though they have high savings, this means consumer spending is not as robust as it was. stephen: that's right. -- mark: that's right.
at some point, you get the transition where the consumer is suffering too much and they need to put more pain on markets. whether it is in the u.s., the u.k., or even cushy data out of japan, -- kishida in japan. we are talking about a higher focus on wealth taxes across the world. maybe we will have a little bit more of the pain for inflation on markets who benefited from inflation so far but there will be a slow transition and pushed back and forth. dani: is that the markets play we are looking for? this which in the tax regime -- the switch in the tax regime? mark: it's no longer going to be this golden period for markets while the real economy goes to higher markets. there might be more pressure on markets. i don't buy into this stagflation narrative. i think it will be a more difficult inflationary regime
for markets. dani: great to get your thoughts and of course, you can always get up-to-date insight from mark and the rest of the team. you just have to type mliv on your terminal. leaders gather for a special summit pennsylvania. on the agenda, china and the energy crisis. we are on the ground with maria tadeo, plus we will be speaking later with the ceo of volvo trucks. it's all about electrification, fuel shortages, supply chains. that is at 8:30 london time. first, up next, money investors sound the alarm on chinese stocks. you can hear what they have to say and get the take. if you have any questions for any of our guests, if you want to send mark cudmore a welcome back, welcome to london, please send them our way. this is bloomberg. ♪ ♪
>> if you are investing in markets, it's impossible to have no view about investing in china. it too big of a portion of the markets out there, too big of a portion of the -- >> chinese companies having western capital and a western vested interest in their success, very much suited china's goals. they don't need that anymore so they can take their $700 billion and take it back on shore to hong kong. >> they don't have all the answers yet because that story is still tbd, still developing. we are trying to figure out where it is going to land but we are still investing and deploying capital in china and we think that in many sectors, the fundamentals are still pretty strong. >> just like other investors, they need to reposition and i would say perhaps, you know, with this move, our expectation
of returns also needs to be adjusted. >> if you think about education, you think about health care, you think about housing, things that impact lower and middle income chinese people, those are areas you have to be more selective. the same thing around some of the businesses that have a lot of consumer data. broadly speaking, as china traded off, it could create interesting opportunities. dani: some of our bloomberg guests at the invest conference on investing in china. let's get one more expert voice in the mix. joining us now is the socgen global head of economics, cross-asset and research. thank you for joining us this morning. some differing opinions on china. which side do you fall on at this moment? you want to be playing in china or is it time to take money off the table in the region? >> our view on chinese equities overall is to be cautious because it is difficult but we do like the
theme around the china green transition. we like thematic investing when it comes to china and when you look at the companies that will benefit from the plan around the energy transition, they had to fall quite significantly, the csi 300. this is where the opportunity lies. the second point longer-term if you look at the premise of the common prosperity, which is to increase the purchasing power of the middle class by reducing inequality at the top and also at the bottom of the wealth distribution, it is actually quite powerful as a long-term growth potential. high inequality in the economy and society typically drives lower long-term returns. typically because the high income household has a marginal propensity to spend. mark: good morning for that
makes sense, this idea of being bullish longer-term but at that more nervous short term. i am curious what your trigger will be to get into the longer-term trades, to say it's time to get into the market. in the last couple of weeks, it's been tough for global equity markets. chinese equity markets are holding up ok over the last week even though we are getting negative headlines on evergrande and other property companies like fantasia. many portfolio managers are saying to stay away from china. it's doing ok. it seems to have priced in the weakness and it seems to have a discount in there. what will be the trigger to get into long-term trades? stephen: the trigger will be -- kokou: the trigger will be when the chinese government starts to inject liquidity and starts to ease the fiscal tightening it has been doing so far because it is clearly costing in terms of growth. as you mentioned, the risk premium has significant
discounts. the bad news is already in the price. i think that will be the trigger. so you start to see a shift from fiscal and monetary tightening because they have been trying to clean their balance sheet by letting companies like evergrande default in an orderly manner because they have the means to do so and it's clearly not the china lehmans moment. as we transition from these austerity and tightening measures for monetary and fiscal tomorrow easing, this is where the trigger will be for the equity market to do better going forward. dani: you will stick with us. kokou agbo-bloua, socgen global head of economics, and research. let's get bloomberg first word news with laura wright. laura: u.k. firms are facing a surge in inflationary pressures according to a survey by the british chamber of commerce. a record number of manufacturers are poised to increase prices as a result.
firms are grappling with supply chain disruptions and staff shortages. elizabeth warren has criticized the federal reserve leadership, saying jay powell shows bad judgment by failing to stop trade activity by top officials. warren questioned why powell did not prevent officials from making the investments and in a later interview with bloomberg, she repeated her opposition to the reappointment. >> i cannot support jay powell for renomination. my view is he ends his term with somebody else in place and i think the fed will be better off and i think our economy will be safer. laura: germany's greens have highlighted major policy differences with the cdu after they sounded each other out on forming a three-way coalition with the free democrats. the conservatives are hoping to lead a government under their
candidate to fight the narrow defeat of olaf scholz's social democrats. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. mark, dani. dani: laura wright in london. we have the british natural gas opening up this morning, opening up to a record 330 pence. if anyone wants to know what it is, it's the amount of energy in natural gas equivalent to 100,000 -- british thermal units. one pound of water by one degree fahrenheit. i will admit i read that definition. i do not have it memorized. i will memorize it because this story is not going away. that is a record high on natural gas. coming up, we talk about 30 year yield hitting the highest since june. we get the take of activist investor's co-ceo next.
>> i'm not saying the market will go down 20% tomorrow. i think it is really, really difficult to know. right now, it feels like we are in this goldilocks moment with the delta variant behind us, people coming back to value, rates rising. mark: that was the cohead of activist investor elliot investment management on the impact of rising interest rates and inflation. kokou agbo-bloua from socgen is still with sp had he talked about this goldilocks environment but it seems like we are starting to trade this idea
of high-yield and how it will pressure equity markets. do you think that is the dynamic pressuring equity markets? how far does it have to run? kokou: absolutely. it is clearly something that took the markets a bit by surprise. it is linked to the fed dots. the timing of the hiking cycle was pushing forward faster than expected. it is clearly something to watch. the bond yield is increasing for equities but it is important to realize that we are bouncing back from the covid crisis with $12 trillion of fiscal and monetary stimulus that have boosted the economy. companies are still reporting strong earnings. it is quite significant. commodity and material from all the green related equities in terms of transition because you
see a huge amount of capex. it will drive earnings for topline growth. we are still in an environment of significant excess savings, cumulative excess savings. that should drive demand going forward. we are not too worried about the bond yield. we have a target of 1.7 for the end of the year. we think it is consistent with the reflation trade. dani: you mentioned that bond equity correlation paid i know we have spoken in the past. if they start to sell off, that is where you worry about the systematic selling of allah to funds. as we see stocks marble and yields move higher, we will see that trigger of systematic selling. kokou: yes. that is clearly a risk. i don't think we there yet. the big difference this time around is the fiscal stimulus that is quite significant and this is one of the things that has driven the recovery in
stocks because you have seen a lot of balance sheet repair has been done through side companies. they are rich in terms of cash and strong cash flow as well. there is also a lot of growth in terms of capex that's being deployed so i think that the equity and bond market are telling the same story which is an environment of strong growth. clearly, china in the backdrop is an issue. we did see the market a bit wobbling. the first quarter of this year, we have equity going up and bonds selling off, and that is what -- with the reflation story. we took a bit of a pause because we were worried about the fourth wave of the delta variant. resuming the trend of higher growth being expressed to equities and bond markets. mark: do you have any material concerns about the debt next week? do you think it is a short-term
stress? will it panic markets? stephen: -- kokou: i think the sort of congress and democrats are trying to use the stress and equity market as a bargaining chip to force the republicans to have a bipartisan agreement. ultimately, it is something the market is looking through. i don't think we will have a significant market correction although i have to admit, i was surprised by a move which has moved quite high. dani: really great to catch up with you this morning. that was the socgen global head of economics cross-asset research. we go to the u.k. where the prime minister clashes with business over supply chain issues ahead of his much-anticipated conservative party conference speech. we heard from rishi sunak earlier in the week.
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dani: welcome back to the open. we are a half-hour from the cash equity open. pewter's indicating a not pretty open. ftse 100 down 0.8%. cac quarante looking weaker on 0.9%. a lot has to do with fears of inflation, stocks taking it on the chain after a tuesday turnaround -- taking it on the chin. 30 minutes to go until the open.
mark: everyone is getting more excited about energy prices and commodity prices. people are talking about stagflation. i look at 10 year yields, they have gone crazy. it is scaring markets. if you look at this chart, we are not yet near those highs from the first quarter. we were above 1.7% many days in the first quarter. we are below 1.6%. there is more we can do on the upside. i expect year-end we have more upside. this second chart, you can see we are at where the end of your forecast is. we are very much in line with the end of your forecast. these forecasts tend to chase
the market. yellow line is the end of year forecast. it fell significantly. i think we will see these chase the market back up and yields will go higher. dani: it does feel like it was not long ago where a lot of strategist said we have hit the cyclical peak and yields, and now it is so severe it is a bit of a game of catch up. mark: we switch the narrative so quickly on these things. we were wondering when 2% would break, and then it was a cyclical peak, we go back to 1% yields. there are some like me who thought yields would continue to go higher, we were wrong all summer. we feel a little justified it is turning belatedly in our favor. dani: this idea were people will say it is not the level of yields but the pace.
is the pace about sentiment? mark: no, there are volatility triggers. and hedging triggers. there are extra implications from a rapid change, but the level is still there. dani: some quick lines, macron will reappoin -- in france when it comes to the french governor, the bank of france governor, macron keeping the same guard. let's look at things we will look out for today. data kicking off at 10:00 a.m. u.k. time, euro retail sales are released. 30 minutes later we have the crude oil inventory report. we have seen oil prices that leave crude surging above $82 a
barrel. 11:30 a.m. boris johnson will speak at the conservative party conference. what he says about pay and taxes will be closely watched. the u.s. data will include the employment change ahead of the friday jobs data, which is closely watched. and mba mortgage applications. then esther george gives a talk at kansas city's banking forum for women. throughout the day we will have the bloomberg invest global conference. let's get over to the bloomberg business flash. laura: u.k. sales bidding average assets, also raising their full-year profit outlook
as they announce a 500 million pound share buyback. they will give dividend payouts around 50% of earnings. mark zuckerberg says accusations that facebook puts profits over user safety is not true. he addressed concerns in a note to staff after a whistleblower told a u.s. senate committee the company is well aware of the mental health risks of its platform. >> i would not be at this company as long as i have been if it did not prioritize safety. we do. we have invested billions of dollars. we have 40,000 people working in safety and security across the company. laura: in an interview with bloomberg, the chief investment officer who oversees $27 billion says investors need to be careful about putting cash in china listings. >> for 20 years chinese tech
companies having western capital and a western investment in their success suited china's goals. they do not need that anymore. they can take $700 billion and take it back into hong kong. i think that is what they are going to do. if i were investors, i would be really careful here. dani: thank you so much. moving to the u.k. where boris johnson is due to speak at the conservative party conference later today. it will be his first in person address since the pandemic, and he is expected to make policy announcements, including a possible rise in minimum-wage. >> there is no alternative. the u.k., we can do much better by becoming a highway to higher
productivity economy. we have fantastic supply chains and clever people who work on our logistics. they will fix these problems. dani: boris johnson talking about moving to a higher wage economy. let's get more details with lizzy burden. boris johnson talking about rising the minimum wage, is he picking a fight with business? lizzy: you heard him say businesses will deal with the consequences. the chancellor and the prime minister have been pushing this line that it would be a more productive economy. and of labor are growing pains.
it is a risky strategy. even brexit backers are urging the prime minister de's the immigration rules. there are groups saying in the run-up to christmas, it will not make a dent in the shortfall of truck drivers. companies are desperately trying to work out how they can avoid shortages on shelves at christmas. the chancellor did not rule out tax rises. last night his message has gone over like a lead balloon. mark: will there be a change in the minimum-wage coming. ? lizzy: there is speculation there could be.
from the prime minister 's media rounds, it makes sense given he was talking about ending the low cost economy. it will also be a response to rising inflation, the rising cost of living. the timing makes sense as well. and coming back to the question about johnson is picking a fight with business, this is an increase in the minimum wage hitting small businesses. they are going for this national insurance contribution rise.
it will be interesting to see how much the government increases the minimum-wage or whether it falls short. dani: thank you for staying on top of this story for us. that is lizzy burden. european leaders gather for a special summit in slovenia. rising tensions with china and the energy crisis are on the agenda. this is bloomberg. ♪
side, it is largely a political phenomenon. i think russia had invested interest in natural gas prices being high in the context of nord stream 2 approval. in the context of china, the decision around australian coal -- not to buy anymore, put them in the penalty box. what they failed to realize, even though the majority of their coal is domestically produced, things turn on the margin. while both of those are geopolitical causes, the interesting thing is when you look forward, high energy prices or fossil fuel prices is not necessarily a bug of esg, but a function. it is by design. you will promote transition to cleaner energy with higher fossil fuel prices. while not the cause here, when
we look forward, this will be the new norm where we see a spike in energy prices. it is something we have to get used to. to your question on inflation, i think we have all been surprised at how long this feels like it will last. the other interesting thing is, a lot of this is supply-side inflation. it is not clear monetary tools deal well with supply-side inflation. the risks are this can become self reinforcing and that is something we are relatively focused on. dani: soros fund management ceo and cio, don fitzpatrick. let's stay on this story, european leaders are gathering for a special summit to discuss the prices. an informal dinner was held last
night where china was high on the agenda. we go to maria tadeo. energy, a big story. we have been talking about it all morning. countries are pushing for a gas procurement. what are the details? maria: yes, with this energy story across europe on a daily basis,, energy prices jumping to a record high. this features highly on the agenda. when you look at the inflation picture. this could have an impact in the winter. a number of countries say the european union should negotiate big contracts when it comes to gas as a single unit. that would increase negotiating power. other countries, like france,
saying as we make the transition to greener energy, it is time to revisit energy in europe. a lot of countries have moved away from nuclear. that is problematic because they are increasingly dependent on russian gas. that could translate from the wholesale market to the household, and that is where the real ear is for european leaders. we could see pushback if those bills continue to increase. mark: china has also been a big discussion point. how big of a threat does europe see beijing to be? maria: one of the things that was interesting yesterday about this dinner. it was informal but there were no phones or advisors in the room. that is usually done with a sensitive topic that you do not want leak.
china is still a sensitive issue. they recognize this is a country that can work as a partner especially on climate but continues to be a strategic rival to the european union. in december there was an eu-china investment deal that was approved. that is now on hold, and many will tell you it is dead. it will not be ratified anytime soon. the european union is on a similar line is the united states, as the trade relationship continues to be very thorny. dani: thank you very much, maria tadeo. coming up, we will talk about stocks to watch. we will get you all the stocks to keep your eye on. this is bloomberg. ♪
dani: welcome back to the open, 10 minutes from the cash equity open. most indexes falling more than 0.7%. high bond yields, inflationary pressures, energy pressures weighing on equities this morning. let's get to the first word news. laura: hong kong's chief executive outline plans to develop the city's china border into a major metropolitan area, close to one million homes. it is an effort to ease the housing crisis. carrie lam also made a broad defense of the national security law imposed by beijing last june. david frost says france is unreasonable to suggest it is
not respecting the post-brexit deal on fish. they highlighted britain's reliance on imports for electricity supply. france said it is not getting enough fishing permits. senator warren has criticized the federal chair leadership, saying jay powell showed bad leadership, failing to stop trading by top officials. she questioned why he did not prevent officials from making the investment. in a later interview, she repeated her opposition to his reappointment. president xi jinping is planning to skip the g20 summit this month. xi won't attend the meeting in person, citing china's covid particles as the reason he is not leaving the country. he has not been outside of china since january, 2020. the summit begins october 30.
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. dani: thank you so much. let's get to your stocks to watch. you are starting out with u.k. groceries. >> tesco has given an update, and this will be closely watched given the m&a activity. tesco has launched a share buyback which is seen as great news, and it has raised its profits forecast. in the sector going forward, the impact of inflation and disruptions to supplies from the driver shortage. positive for tesco this morning. mark: what is the news on the tobacco company, imperial brands? >> given the esg concerns and
health risks have been reflected in the share price performance this year with shares up 1.2%. it looks like a positive forecast. it is on track to meet expectations and is expecting growth in cigarettes. it looks like a good update from them. telefonica are said to be considering a cell in their fiber unit which could be valued at 15 billion euros. this could be seen as a positive for investors given the interest , and it would free up cash to spend on other growth areas. dani: thank you so much. one thing i realize we have not talked about is bitcoin above $51,000. why is it moving? mark: i do not know why.
as usual. what is interesting is this break between cryptocurrencies over the past couple of weeks. we are seeing the correlation in stocks increase particularly in tech companies, and crypto has done well. this idea that the china news clamping down was a real buying opportunity, but i do not know the short-term driver, as i never do in cryptocurrency. dani: maybe som sentiment. mark: i think it is possible for broader sentiment that the dip buying is still there, even if not strong in stocks at the moment. this is not a market that is panicked.
maybe there is more pain to come. we are nowhere near a capitulation point in stocks. we have a lot more pain to come if we want capitulation. dani: we are waffling between up to missing heading into complacency when you miss risks and have that selloff. mark: we have a little more to go in being optimistic, but this is not the turning point, the big collapse. this is where we get a scare, and then the market will go higher again. there is a lot of liquidity out there. overall, central banks are supportive of markets. dani: they are important, but the rbn raising rates, so it is coming together of central banks.
dani: welcome back to the european market open. one minute to the start of cash equity trading. i'm dani burger alongside tom mackenzie. tom: inflation fears grip the market spirit 10 and 30 year yields hit the highest since june. stocks sink as blackstone says it is time to sell. boris johnson will use his speech at the conservative party conference to shift the blame for the supply chain crisis, presenting it as an opportunity for the u.k. volvo lands their biggest ever
commercial order for electric heavy goods vehicles. we will speak to the ceo of volvo trucks this hour. dani: let's get your look at futures, a negative start. most indexes are down 0.8%. higher yields pressuring the market. energy prices are taking off. markets are opening now. tom: as you know you had the dip buying in the u.s. that did not feed through in asia, particularly when it comes to the tech stocks. chinese tech stocks are edging toward a record low. in europe, wrestling with high energy prices, the consequences in terms of inflation and what it means for central banks, and policy action from governments. the cac quarante is down 1%. mr. villeroy will be reappointed
in france, he has the backing of macron. in the u.k. the ftse 100 losing 0.6%. boris johnson's speech later today will give some sense of what the tory party will do around the pressures from energy prices. in italy, a drop and in spain similar territory as well. the banks were gaining yesterday in the european session. currently energy down 0.6% despite the fact u.k. gas prices are back to record levels. utilities lower by 0.7%. the banks are taking some losses as well. red across the screen in the first few minutes.
dani: we are saying markets open to the downside. tuesday met with another slump on wednesday, but major moves in the bond space is prompting some selloff in duration names. the 10 and 30 year yields are at the highest since june, while the 10 year gilt yield hit the highest since may, 2019. let's bring in mark dowding, cio / senior portfolio manager, bluebay asset management. moves could continue with the removal of accommodative policy, but a deeper risk selloff is unlikely. thank you for joining us this morning. what we are seeing in yields currently, does it make you want
to take more risk off the table? mark: what we are seeing on inflation is a dynamic that is making us more nervous about the underpinning of risk assets. when you think about equities, they are long-duration assets. if we see higher levels of inflation, that will put pressure on bond yields. it will be difficult for risk assets to perform in that strong headwind. tom: in terms of the u.k. break even, rates of 4% for the first time since 2008. that underscores your point. how are you repositioning in this environment? mark: we have been taking short duration positions looking for yields to rise, and that is how we are trying to deliver returns
as active managers. in the u.k. things are particularly concerning. in the u.s. the growth outlook is still robust. you may have inflation, but the benefit of a strong economy. in the u.k. we are seeing a more pronounced jump in prices which will act as a headwind on the consumer. you will see slowing growth. the government seems to be doing their best to drive us toward the stagflation mess. we will be cautious when it comes to u.k. assets. the outlook in the u.k. looks grim at the minute, and it seems the only answer is we want higher wages for workers, but that means higher inflation and higher mortgage rates. wages may go up even more quickly. dani: we are expecting boris
johnson to speak about raising the minimum wage. you talk about potential disruption to consumers should we get rates moved because of the impact on the housing market. what is that trigger point? how far do yields in the u.k. need to move? mark: what you are looking at in terms of u.k. inflation, early next year we are looking at cpi at 6%. against that backdrop that puts pressure on the bank of england. they say they will be hiking rates. the bank of england, can imagine rates going up 75 basis points, maybe 1%. anything beyond that you will see an implosion in the u.k. housing market. the bank of england will
effectively be saying, boris, your agenda does not work. we have to go into recession to deal with the mess as a result of these transitory pressures rising out of supply disruptions. tom: that is a conundrum around the boe, and you are not mincing words around the government, economically illiterate is your line on that. when it comes to margins, the focus is shifting to earnings. where do you expect the squeeze to be most felt? are margin pressures being priced in accurately? mark: i think what we are discerning is a situation where we are saying corporations have pricing power and will be pricing the higher wage costs onto consumers, which is why we are bearish on the inflation
outlook. and certainly over the next nine months we see inflation a particular concern and markets. it may moderate next year, but for a time we will see elevated price pressures. there will be winners and losers here. the other thing we would note, during qe, we subdued volatility. as qe ends, expect more volatility in markets, more dispersion of returns. it could be a good time to be an active manager, but it will not be a good time to be long risk assets. dani: j.p. morgan asset management has the view that the bond vigilantes will be outgunned and we might be normalizing to some degree central-bank policy, but at the fed, the ability to unwind the
balance sheet, not wanting to raise borrowing costs for the government or create a financial firestorm. do you agree with that view that real yields are capped because of that? mark: it is an interesting point. i see a situation where inflation is more persistent and the economy as backup full employment, if we look at 3% inflation this time next year, and the economy is back at full employment, we think the federal reserve will lift interest rates at the back of next year, maybe twice. the big discussion is around the move on rates, and we see some normalization. we're talking about going back to 2% which seems a long way away from where we are. in the u.k. the problem is more acute.
when it comes to a balance sheet, people are getting twisted in knots. ultimately central banks will never sell them back. balance sheets expansion will be permanent and not temporary. we do not think we will see quantitative tightening at the end of the cycle, but more normalization of interest rates consistent with the fact we will have a decade ahead of us with a level of inflation will be a bit higher than what we have been used to over the last 10-20 years. i lot of investors have not seen inflation. i think the last time i saw inflation, i had hair on my head. it will be something investors have to adjust to. tom: you are looking out a
decade, but here and now, the standoff in washington over the debt ceiling, are you making changes around the political risks from d.c.? mark: not especially. i think the vote on the debt ceiling is going to fail. there will be a push to drive the democrats to do reconciliation. if you do that effectively, as opposed to hunting it to the future -- punting it to the future. there is political leverage by the gop to put this to reconciliation. the other angle is the biden package, and the democrats are uncomfortable if they have to put this through reconciliation at the same time. it's there is a lot to do in a
short space of time. the u.s. government could run out of money and a couple of weeks. it will take at least a week to put things through on a reconciliation track. that will become more clear over the weekend. dani: that is mark dowding, cio / senior portfolio manager, bluebay asset management. coming up, regulatory actions in china spark concerns they are taking an anti-investor shift. thoughts from the bloomberg invest conference, next. this is bloomberg. ♪
is in the european interest. i think the european union benefit from an enlargement process. >> on energy prices, they are at a record high. how worried are you about this winter? >> i think we have to be clear the gas prices are skyrocketing, and renewables, the prices have decreased over the last year and are stable. for us it is clear with energy in the long term, it is important to invest in renewables that gives us stable prices and more independence because gas is imported into the european union. the renewables, we are the
masters of the production, and next week the permission -- the commission will put forward a communication on energy overall, and we will discuss it in due course in the council. >> do you worry about laying politics? >> we will look at the whole structure and that communication. >> [speaking foreign language] >> [speaking foreign language] tom: we are listening to you commission president ursula von der leyen, asked about the energy crisis that europe is wrestling with. she was saying this is a serious issue, energy prices.
she said gas prices are skyrocketing, but she made the point unger term this underscores in her view the need to invest more in renewables. we are the leader when it comes to renewables, ursula von der leyen speaking live in slovenia. we will bring you more. let's look at what is moving in stocks. the u.k. supermarket, tesco, is launching a buyback as profit recovers. that is propelling the stock price, up more than 4%. positive news of the retail supermarket space in the u.k. we can switch focus to bayer, its first round up trial was linked to concerns about its
products and cancer. the jury has rejected the round up cancer link in this u.s. trial. another company we are looking at, this stock is falling after a stock sale plan by that german based travel company. it is pressuring the shares close to 6%. dani: ambu shares falling this morning, cutting its full year outlook as well. investors are divided on whether or not to invest in china. it is a discussion that is a large part of the bloomberg invest global conference. >> i think if you are investing in markets, it is impossible to have no view on china. it is too big a portion of the
markets and the global economy to ignore. >> chinese tech companies having western capital and a western invested interest in their success very much suited china's goals. they do not need that anymore. they can take their $700 billion back into hong kong. >> we do not have the answers yet, and that story is still developing. we are trying to figure out where it is going to land, we are still investing and deploying capital in china. we think the fundamentals are still strong. >> we need to reposition, and i would say our expectation of returns also need to be adjusted. >> you think about education, health care, housing, things that impact lower and middle-income chinese people, those are areas you have to be
more selective. same thing around businesses with consumer data. broadly speaking, it could create interesting opportunities. dani: let's add to the voices. mark dowding, cio / senior portfolio manager, bluebay asset management is still with us. are you deploying capital in china now? mark: yes, we have investments in china. the observations are that we know there is going to be a reorientation in the economy in consumer goods and exports. there are sectoral themes you can play there. we think the slowing of the economy should make you bullish on china. as they ease policy, yields
elsewhere in the economy are moving higher. there is an interesting dispersion there. the other important thing, based on beijing, it is clear the thing they object to is the oligarch class. you want to be careful of investing anywhere where it looks like there is someone who will be on the wrong side of the party by trying to build up too much personal influence. they want to tackle overstretched prices, health care prices, education prices. they want to squash these down to the benefit of everyday citizens in china. understanding what they are trying to achieve, it is important. there are opportunities to be had but in a slowing economy, the most outstanding one is on a
relative basis. tom: longer china rates. how confident are you that the officials in beijing can contain this? ever grand is facing a restructuring. can they contain this? mark: i think they can contain this. they have a lot of policy levers at their disposal. it is a very controlled economy. we have individual companies which will be stressed, but do we think we will end up with something systemic which takes down chinese financials? i'm sure beijing will not permit that to happen. they have sufficient control over the economy. this will not be like a lehman moment. it will be tough times in some
companies, but as bond investors , we are looking at opportunities and are more distressed opportunities because there will be times when you can pick up assets and cheap prices. there will be bargains to be had. where there is volatility, there will be opportunity, and hopefully we can make sure we are getting our way through that successfully. tom: mark dowding, cio / senior portfolio manager, bluebay asset management thank you for joining us, and have a great wednesday. let's check in on stocks we were referencing earlier. this is after the company announced a $1.3 billion stock sale plan. the travel company gaining 0.4%. stay with us. this is bloomberg.
and while her friends are doing the heavy lifting, jess is busy moving her xfinity internet and tv services. it only takes about a minute. wait, a minute? but what have you been doing for the last two hours? ...delegating? oh, good one. move your xfinity services without breaking a sweat. xfinity makes moving easy. go online to transfer your services in about a minute. get started today. dani: welcome back to the open,
30 minutes into the european trading day. inflation fears grip markets. 10 and 30 year yields the highest since june. blackstone says it is time to sell. boris johnson will use his speech at the conservative conference to shift the blame to supply chain prices, presenting it as an opportunity for the u.k.. the biggest order for electric vehicles, we will speak to the ceo for volvo trucks shortly.
losses more than 1%. tom: in terms of chinese tech stocks looking like they will close at the lowest level on record. the opportunity around the big tech names on wall street has not been handed on in terms of the values for sentiment among european investors. tech is heavily down in europe. the stoxx 600 is down more than six points. the dax down 1.5%. the cac quarante in similar territory. we will hear from boris johnson around 11:30 to see if he addresses the energy squeeze, the crisis. we heard the european commission president saying this was a significant issue, and she called for more investment in the renewables space. a conundrum on what the boe will do given that you have
breakevens around 4%. banks were at the top of the list yesterday. it is a different scenario today. banks down 0.1%. at the bottom, travel and leisure down 2%. technology selling off heavily. shares down more than 2.3%. the 10 and 30 year yields are back to june highs. that is the concern. inflation, energy crisis, however plays into yields, and the value trap for investors. dani: let's shift gears, a breakthrough deal for the electric truck sector. the fds is buying 100 electrical vehicle trucks from volvo. it is the largest commercial order of electric heavy goods
vehicles for volvo so far. roger alm, president, volvo trucks joins us now. a record order here. what does it mean for your outlook? roger: it means very much for the whole industry and volvo trucks and all of our customers. if we can move transports, and the transformation is happening now with these trucks and operation. this is a big deal, close to the largest company in northern europe for logistics and shipping transports, and there hundred units of this model for volvo trucks. this is a big deal for volvo trucks, and we think this is the largest electric vehicle deal for heavy trucks.
this production plan for us in the end of 2022, and we will continue into 2023 as well. this is a big moment for all of us at volvo trucks, and all of our customers. tom: give us a sense of the skies and sale of your -- size and scale of your ambitions. roger: we have big intention to scale up. we are selling electric trucks every day. we started with the medium segment in 2019, and now we want to scale up volume. we have set the ambitious target of 2030. 50% of valium -- 50% of volume. dani: as you say, an ambitious target, but the entirety of the
auto industry is grappling with supply chain issues. how has that affected you in the near term, and could it impact that ambitious target you set? roger: when talking about the supply chain situation, we have a purchasing organization working with the supply chain situation, and we will talk about it more in our quarter three report at the end of the month. tom: can you give us a sense where the supply chain pressures are most acute for your businesses. is it ships or batteries or the glass panels? give us a sense of where the squeeze is felt, and how long you expect it to be sustained. roger: we have talked about this only communicated before, and the chips and semiconductors in terms of the supply chain situation. i will not go into details at the moment. we will have more information in
our quarter three report. it is a big day talking about the largest deal we have been doing in the industry, and this is a great premise for us all. dani: perhaps a new issue arising and linked with this big order is the energy crisis throughout europe. is this a wake-up call that might push people to order more electric vehicles? roger: this is what we hope, that this will drive more transport companies to purchase these transports. it is possible to operate with battery trucks. now we have the heavy-duty ranges well. we can cover 50% of transport.
the infrastructure, in terms of electric power needs, we need to build out the infrastructure. we are taking the lead as the volvo group, investing into our own infrastructure network in europe. tom: how are you thinking about the drivers? in the u.k. we are faced with a shortage of drivers. a lot comes down to working conditions and how much of a toll the job takes. are you thinking about that as you design your vehicles? roger: we always take the driver in mind when we are manufacturing, designing and developing our product. the driver has always been the center of the development. moving into electric trucks, this is a big difference. there are no vibrations, no sound, and you hardly feel the truck is loaded.
a driver driving a full day are not tired and so forth. that is a huge improvement in the life of the driver. i have been driving a lot of diesel trucks and electric trucks, and it is fantastic driving and electric truck. dani: in general, do you see the design of trucks changing out volvo to accommodate these issues of drivers who say they're working conditions make them not want to reenter the industry? roger: i think mobility will help truck drivers and attract new drivers due to the working environment the driver will have. i hope that will have a benefit on their profession. we need more drivers in the industry.
we are working with education programs, driving programs in many parts of the world to help the industry and our customers to get more drivers. we need drivers to move the equipment around the world. tom: do you have a strong view on batteries versus hydrogen cells? do batteries come so good that they dominate, or does hydrogen have a real role? roger: we are working with alternatives, and we are focusing very much on batteries for electric trucks where they have them in different segments. we are looking into the heavy segment or we look at fuel cells, and we think these products will come out in the second half of the decade. that is where our focus is. dani: thank you so much for joining us. roger alm, president, volvo
trucks. as we have been speaking, the market open for 40 minutes, it continues to selloff a lot of pain. i was just sent a chart of the dax reaching, a key technical indicator. it seems this might continue if we are losing support lines. tom: 1.72 is the loss on the dax. now below the 200 day moving average. more selling pressure building up for german equities. this is not just a german story, it is across the european space, and how policymakers address challenges around energy. and whether investors are pricing this in properly. if they were not before, they are now. what will that mean for central banks? dani: andrew bailey has been
vocal saying raising rates will not bring more semiconductors into the industry. there are limits to monetary policy. we will discuss the clashes a business over supply chain issues ahead of the prime minister's conservative party conference. we will have all of that covered for you next. this is bloomberg. ♪
tom: welcome back to the open, 43 minutes into the european trading day. the picture across the markets is grim. the stoxx 600 down 1.5%. germany down 1.7%. the dax crossing the 200 day moving average. concerns about inflation, energy, and high yields. the prime minister boris johnson is due to speak at the conservative party conference later today in what will be his first in person conference address since the pandemic. he is expected to make policy announcements, including a possible rise in the minimum wage. >> there is no alternative. the u.k. can do much better by becoming a higher wage, higher productivity economy.
we have fantastic supply chains and clever people who work on our logistics. they will fix all these problems. tom: let's go to lizzy burden, who was at the conference. is johnson picking a fight with business, and what is the rationale? lizzy: businesses are angry that they feel they have to pick up the consequences for political decisions of brexit. the chancellor and prime minister are pushing the line that britain will benefit from higher pay, higher investment. the labor shortages are growing pains to a more productive economy. it is a risky strategy. brexit backers are urging the prime minister to change immigration rules, ease the
labor shortages. business groups say it is like pouring a thimble of water on the fire. they are short 100,000 drivers. the government had only received 2700 applications for drivers so far. companies are desperately trying to work out how to avoid shortages on shelves in the run-up to christmas. the chancellor was reluctant to rule out tax rises in the future. some of the business leader tori donors last night. dani: how likely is it we will have a change in the minimum wage? lizzy: big speculation that will come in the prime ministers speech today. it makes sense given he has been
talking about ending the low-wage low-cost economy. it will be a response to the rising inflation, the rising cost of living. a few policy announcements at this conference. uplifting universal credit. in terms of the timing, the low pay commission was going to proposals at the end of the month anyway. on whether he is fighting with business, and increased of the minimum wage would squeeze the smallest businesses who just got back on their feet post-pandemic, bracing for national insurance contributions to rise. it will be interesting to see how much it rises by. tom: great stuff on the ground
for us in manchester ahead of that speech by the prime minister at 11:30. laura: hong kong's chief executive outline plans to develop the china border into a major metropolitan area with close to one million homes in an effort to ease the housing crisis. in her final policy speech, carrie lam made a broad defense of the national security law imposed by beijing last june. u.k. firms face a surgeon inflationary pressures. the british chamber of commerce, a record number of manufacturers are poised to increase prices. firms are grappling with supply chain disruptions and staff shortages. senator warren said jay powell showed bad judgment by failing to stop unusual trading activity by top officials. speaking on the senate floor,
she questioned why powell did not prevent officials from making the investments, and in a later interview, she repeated her opposition to powell's reappointment. >> i cannot support jay powell for renomination. my view is he ends his term, we put somebody else in place. i think the fed will be better off in the economy will be safer. laura: 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. dani: coming up, higher yields for an ugly open and european stocks. haven flows into the dollar. we will dig into the market action. we will sort through this messy open. this is bloomberg. ♪
>> in this environment where rates are likely to go up on the back of higher inflation, what you do not want to own his long duration income, because you are more vulnerable. there is no place to hide. you want to own businesses and assets that can grow, and if multiples come down, value can increase because of the growth
in cash flows. at blackstone we have tried to be thematic investors, look at huge changes going on around the global economy, and how can we benefit from them? the movement of everything we do online. shopping, paying for things, entertainment, health care, education -- all of that. we invested in businesses like bumble, ancestry, and businesses that are one derivative off. digital infrastructure, data centers, we have been the biggest investors in the world and last mile logistics. where houses based on the e-commerce boom. we were doing that for the pandemic, but if you look at e-commerce, it has gone from 0% to 20%, and it will probably go to 40%. i say the same thing about life sciences, accelerated by the
pandemic. data and genomics coming together, immunotherapies, all of this. beaker the bedside, invest in buildings themselves, investing companies running trials, invest in promising therapies. how can you take advantage? i say this about green energy as well. wind, water, solar, and the infrastructure that goes with it. dani: that was jonathan great -- tom: that was jonathan gray, giving his thoughts on where he sees investment opportunities. let's look at what we will be watching for today. 10:00 a.m. u.k. time, euro area retail sales are released, giving us a sense of demand around consumption. 10:30, the crude inventory oil
report. then 11:30, boris johnson speaks at the conservative party conference. dani: then at noon, focus switches to the u.s. with data that includes the employment change ahead of friday's jobs report. then esther george gives a talk in the afternoon. throughout the day, the bloomberg invest conference continues. what do you make of the yield spike we are seeing today? >> it is something that has been long in the making. energy prices are soaring, particularly crude. energy traders will tell you that this will continue, so yields have more room to run. for risk assets, companies with higher valuations will probably get hit because of the inverse
correlation. banks, in retrospect, may be better off in the next quarter. tom: the u.k. 10 year breakeven topping 4% for the first time since 2008. what does this tell us about the conundrum for the boe? nour: the 10 year inflation gauge has hit the highest since 2008. money markets are pricing two rate hikes next year, the boe did not rule out raising rates before the end of the year. you also have the furlough scheme ending last month. this month is a crunch when it comes to data. we will see how much is the economy recovering, and what the boe needs to do to supplement that. dani: thank you so much. that is it for us. equity markets continue to turn
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