tv Bloomberg Markets European Close Bloomberg October 6, 2021 11:00am-12:00pm EDT
johnson and alix steel. ♪ guy: wednesday the sixth. what do you need to know out of europe? the roller coaster ride continues. yesterday we were up. today, stocks fade, that we are off our lows. we are now starting to catch a bit of a bid in the bond market. yields coming down. the wild ride also continuing in european gas markets. what we had today is a massive fade often earlier spike. we faded massively. we are still up circa 20% this week. the reason for the selloff? vladimir putin saying that russia stands ready to help. i'm sure that is going to go down well in europe. talking of stocks, let's go back to some individual single names.
tesco boosting guidance, delivering a buyback. we got a new ceo one week into the job. let's took a look at where we are with equities right now. we are still down, but off our lows. we are down by around 0.8% in the stoxx 600. gas prices absolutely sensational moves today. we went up by 20%, 30%. then it absolutely collapse. it does seem as if those comments from vladimir putin may have provided a catalyst for that. alix: but the result? guy bought a generator. i feel like that was the headline for me in the morning. you caved. you must be actually worried, yeah? guy: i'm a little concerned that the lights don't stay on. it is too early to tell at this point in time, but my experience over the last two years is
fortune favors the prepared mind, or in this case, buy a generator. alix: that was my headline for today. but within the equity market, some interesting things are happening. we came down early in the morning. futures were getting crushed. after the adp number, we bounced off the lows. the s&p now down by 0.4%. we are kind of all over the place in terms of finding direction, but the faang index up by 0.4%. you do have some buying coming into the bond market, so yields lower by about two basis points. that is helping offset some of the pressure on those long-duration names. but is going to be hard to find direction until we get some kind of solid move in the jobs market , or it may just come down to d.c. when prices start to roll over for inflation. but i did want to point out this. breakevens on a 10 year basis, we are seeing them lower by about one basis point today, but we are at 2.44%, the highest we
have seen in quite some time. if that higher place and expectation gets baked in, that is a different story for central banks. guy: absolutely. the energy story, this is what the market is trying to figure out right now. it does tell a story of what is happening here in europe, and the energy story is front and center right now. we have faded the move aggressively today. vladimir putin coming out saying, we've got this. we are ready to help. but this is a problem for european leaders. there's not enough storage. there was a conversation at the western balkans summit. they are talking about basically coming together to provide a storage solution, but that is going to take forever to get that in place.
nevertheless, this is what they had to say. >> it is a serious issue. i thing we have to be very clear that the gas prices skyrocketing. >> it is a national problem, so we have to do with this at the national level as well. >> we must change policy because the reason why the prices are up is the fault of the commission, so we have to change some regulations. otherwise, everybody will suffer. >> the energy prices are damaging our economies. they are really harsh for our population. these are judy cruz are of can be used to kind of moderate the fluctuations in prices. >> but the renewables, the prices have decreased over the last years and are stable. so for us, it is very clear that with energy in the long-term, it is important to invest in renewables.
that gives us stable prices and more independence. guy: let's get some insight into what is happening with this crazy price action. saad rahim, chief economist at trafigura, joining us now. the price action looks absolutely insane. is it? saad: i would say so. i think rising the way that it did today and then falling the way it has, that is a $50 movie equivalent in brent today on the barrel. so this is telling you that obviously, we had gotten to a top we had not seen before, and in any market when you are moving up that quickly, over the last two days, let alone the last month, what you have seen, something had to give. we were already to starting to see a bit on the industrials a
man -- on the industrial demand side. we were saying be solver for this, there are industrial cuts or potentially russia's thing we would provide more supply. it seems like the third is what is happening. alix: what is the capacity of russia to actually do that? from my understanding, they need to take october to refill their own natural gas stores, so maybe in november they would have the ability to do something like that, but rhetoric is cheap, so i wonder how much is real. saad: i think that is right. they've had their own outages. they had a fire at a processing plant. that is part of the reason their inventories have been very low. as you say, they need to replenish those going into a cold winter in russia. so i think they are focusing on rebuilding that. but all of the solutions we are looking at short of demand reductions in the short term will take some time. even getting new supplies through will take some time, but
certainly building anything like strategic socks -- strategic stocks, alternative sources of supply, those are long-term solutions. the time to rebuild stocks is in times of plenty, and we haven't done that. it is a challenge certainly at this time. guy: so is this whippy price action the new normal? saad: it needs to be met with some sort of response, whether that is a reduction in demand. for a physical commodity, it is really coming down to what is the price that can be set where supply and demand clear. we are seeing some evidence of this going into it. where we are right now is we have been in late september, early october. the sun has still been shining for the most part. once we get into a cold winter, sometime in february which is still a long way away from now, that could really play havoc in all of this.
so we could get a period where people are saying things feel easier and take a little bit of a breather, and then something comes on on the weather front that really upends this whole part. alix: this price action is bananas because i never seen anything like this. you compared to things like bitcoin, and that is also bananas. what happens if it is not cold. morgan stanley had a contrarian note that talked about the fact they do think supply is going to come from russia faster than the market thinks, and that if you have a weather event that is in freezing, you may be way over pricing the potential here. how does that play out in the market? saad: if you look at the price and where it is right now, is that something that is justified by fundamentals, especially if it is a warm winter? potentially know, and it doesn't take much to shift this. but why this is so sensitive really is this hits people's homes.
it hits industrial production, economic activity. these are all things that are unlike bitcoin or even something like lumber. you can slow that down, but you can't turn off the lights indefinitely. you can't turn off the heat in winter. at some point, there has to be a solver poor. so eventually, it seems like that is going to be the solution. it feels like if we are going to increase to the levels that are needed, potentially the fundament of the trip is in as bad if the weather is ok. guy: i think europe reliant on russia to play that role is going to have long-lasting geopolitical implications, which we have been talking about for quite some time. you bring up the issue of the economic impact of all of this. i appreciate the gas prices are higher, but they are lower than they are in europe, and it has the capacity to pump
significantly more. from an economic point of view, is the u.s. going to perform in this environment simply because it has the availability of energy that it requires to satisfy the demand that exists within the economy, and europe potentially doesn't? saad: there's definitely the potential for that. as you say, it has much more abundant supply. it is currently exporting lng, so it has that flex ability a little bit. as you say, production has been down. so could you start to turn that backup? your points on prices are absolutely right. they have gone above $60 to a price level we haven't seen in many years. but those are still only about 1/5 of where oil prices have
gone. so there's more they pull their that could get you some production. but if europe and asia are already coming back on industrial activity, the u.s. could say we have the ability to turn this up. the u.s. has either forms of energy as well. they still have their nuclear plans. europe, let's not forget, has retired about 40% of its coal capacity in the last five years, see your ability to switch between fuels is less. that does but the u.s. at an advantage. alix: also, shareholders don't want those companies to ramp up supply. thanks a lot, saad rahim. coming up, energy prices surging, fueling concern about inflation. we will talk about that with aneeka gupta, wisdom tree
ritika: let's check in on the bloomberg first word news. president biden will meet with financial and corporate leaders today to discuss a potentially devastating debt default. amongst those attending, j.p. morgan chase's jamie dimon, brian moynihan of bank of america, and citigroups'jane fraser -- and citigroup's jane fraser. u.s. companies added more jobs than forecast in september, according to adp. business payrolls increased by 568,000, the most in three months, and it is suggested that hiring challenges are beginning
to ease as more americans returned to the workforce. the government comes out with its jobs report on friday. energy prices in europe have extended their rally. the recent supply crunch showed no signs of easing, and that printed the european using -- the european union to move to protect the economy. spain and france are amongst those calling on the eu to investigate. 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. i'm ritika gupta. this is bloomberg. alix: markets definitely volatile in recent weeks. the supply crunch added to investor worries about inflation, and then you top it off with slowing growth. just look at german factory orders, down by over 7%. so what do you do with that as an investor? aneeka gupta of wisdomtree joins us now. breakevens are on the rise. real rates are still negative.
what do you do with that? aneeka: your absolute right. energy prices have been on the rise, especially in europe. it is clearly feeding into inflation expectations. we have seen u.k. breakeven rates hit a record level, along with germany, france, italy, and spain. it has definitely become a concern for investors right now. guy: do you favor the united states over europe as a result of this? we've got a lot of demand in the economy right now, but if europe is supply constrained because of energy prices, presumably the u.s. economy is going to do better. aneeka: i think the fundamentals supporting the economy are quite different. right now we are still very up to mystic on the european economy, and that primarily is on the basis of the fact that europe is still -- it hasn't recovered fully from its gdp
growth rate, so there is still a lot more to go in terms of catching up to its pre-covid levels. in terms of the u.s., i think they have already deemed the pre-covid growth rate that it had. the u.s. is likely to face a lot higher margin pressure when you compare that with europe you have less urgent pressure, and that is also been feeding into the q2 earnings results that we saw in the last quarter. so i think looking at, european equities have a much better prospect going forward, given the fact that you have less margin pressure compared to the u.s. also in the u.s., investors are paying less attention to the upcoming tax rate hike, and i think that would also feed into higher costs for several of the companies. alix: so where is the value
trade within europe? energy is finally outperforming european technology. banks have gotten a nice bid as you have gotten relatively higher yields. how much more juice is there into that, and where do you play it? aneeka: i think right now, what we are really focusing on is within the energy transition and the climate theme. there are so many ways to play that. you start with just looking at high natural gas prices. on the back of that, clearly we have seen a lot of switching taking place from gas to coal, gas to oil, and obviously here in europe, europe being a climate leader, you are also seeing a spike in carbon prices. so carbon is definitely benefiting on the back of this because the more we see companies switch, the higher the need for eu allowances. that is one way we are looking at this way to play this.
the other, let's not forget europe relies in a very big way, nearly 1/5 of europe's energy comes from renewable energy. based on climate change, which remains front and center, we have had a number of renewables sources such as wind and solar power that have essentially not been able to fill in that gap when it was needed the most. so that again beckons the call for more infrastructure, more technology and infra-structure investment. guy: how do you play that? in my buying investments? how do i actually play that story? aneeka: the interesting way to play it is actually via battery technology. the companies that are really focused on infrastructure into the grid, whereby you can actually harness and store renewable sources of energy, and
then release them when and is -- when it is most required. the third way we are trying to play the new narrative egging place in the markets is via high dividend paying stocks. right now, given the fact that we've had a better-than-expected adp print, investors are cementing the fact that they are very likely to see the fed taper next month. now investors are turning their attention to high dividend paying stocks. if you really look at it, given the commodity boom we have seen so far, within em, which is one of the cheapest in equity markets, we are seeing the highest dividend paying stocks actually outperform in this current environment, so that is another way we expect investors to take advantage of this current scenario. guy: great stuff. thank you very much, indeed. really appreciate it. thank you very much.
ritika: it is time for the bloomberg business flash. saudi aramco is close to claiming the prized position as the world's most valuable company from apple. the oil giant has soared thanks to higher oil prices. its valuation is now $2 trillion. apple shares have been hurt as consumers slow down spending on home entertainment. in the u.k., tesco plans to buy back shares and boost profitability. the grocery chain is trying to lift its last lecture -- to lift its lackluster stock performance as private equity firms are taking aim at supermarkets.
the buybacks will begin this month. british prime minister boris johnson is trying to deliver on his promise to remake the country after brexit. he spoke at the conservative party conference in manchester. pm johnson: we are embarking now on a change in direction that has been long overdue in the u.k. economy. we are not going back to the same old broken model with low growth, low wages, and low productivity, all of it enabled and assisted by uncontrolled immigration. ritika: johnson says he will accept whatever it recommends. that is the latest business flash. guy: thank you very much, indeed. boris johnson in some ways speaking to this inflationary narrative we have been focusing on so much. if there is higher productivity, maybe we actually see the sting being taken out of potentially higher wages he's alluding to. he is certainly hinting at the
possibility we will see the minimal wage being raised, but basically he is saying you're not going to have uncontrolled immigration that pushes down wages. we are going to control immigration. that is going to push up wages. we are already in a situation in the u.k.. we will have potential he not a labor shortage, but a skills shortage. we are basically going to transition from a gap we've got the moment to filling those gaps. that could be really painful for business. alix: no kidding, especially when input costs are bananas. if you are a business, how do you manage that volatility even if you wind up getting supply? some breaking news here i want to share with you, ark investment is going to close its new york office october 31 and moved to florida, effective november 1. ark investments is where all the cool stuff is. that's cathie wood. and they are going to florida. they are cutting bait and running. guy: they are not the first.
you could argue they are not particularly innovative in this idea, are they? there was a piece on the terminal couple of days back about how this move south is stoking tension locally, and both florida and particularly in texas. i think there are going to be downsides to this move. we will see exactly how it works out, but many people have already trod this path. alix: real estate in new york, everyone says it always comes back. these are some big behemoths that are moving with some large money, and a lot of people. guy: wall street is now an idea rather than a place. that certainly seems to be the narrative i'm hearing. alix: that was really deep. guy: european markets are about to close. this is bloomberg. ♪
wednesday session in europe. we are down hard across the main markets. a silver lining, we are off our lows, largely driven by what we are seeing stateside. we are now moving a little bit more positive, back to flat. that has had an effect in europe. volume is substantial. the move to the downside has been driven by date volume. let's look at what is happening with the session. definitely off our lows but still down over a percent. the story is centering around the energy market. u.k. natural gas has been the wildest ride. we are up on a three day basis by 13%. this morning after decent rise
yesterday we spiked massively. at this point we are up 60%. we have definitely paid that. vladimir putin seems responsible for that. he is coming out and saying we are ready to help. it is interesting this comes after we starting to see testing taking place on nord stream 2. nevertheless, the russian change of heart seems to help things out. sector basis we are down across the board. banks are the upper former -- are the outperformer. the bottom end of the market, retailers. it feels like it is the fashion sector is dragging that down. it is those kinds of firms that are driving that sector lower. autos down, telecoms are also lower. i want to show you hsbc, up
3.41%. that is a huge counterweight to the market. tui is down in the travel sector. it's is going to shareholders to raise money, not surprising where we have been. tesco upgrading its guidance. the new ceeo. -- a new co. the issue with u.k. groceries is you have private equity circling. you see what has happened with morrison. the shares of tesco have underperformed. positive guidance and payback for shareholders. the question is is it going to be enough? alix: it is it going to last as we have that global supply chain crunch? that is not going away anytime soon. guy and i spoke to guy platten yesterday about how long the supply chain issues could last. guy p.: i think we'll to the
problems well into 2022 but towards the middle of next year things will start to become more normalized and that is what we are banking on. there will be an end. alix: joining us for more is eric planner. how come the supply chain issues do not filter through so much at tesco? eric: tesco is the biggest player in the u.k. groceries sector. they have buying power they have been using to lower prices and boost their earnings. at the moment they are using it to lay in more supplies. they are buying more turkeys, buying more other things they need for the christmas season. they have been hit by fuel shortages that have been hitting gas stations across the u.k.. they have had shortages there. on the flipside, not so bad. there are some bare shelves in some areas but nothing
structural at this point. guy: let's hope it does not get worse. ted murphy has been the job for a year. we have seen what has happened in the grocery sector. we have seen what has happened to see dnr. the tesco shares have underperformed. is this an effort to stave off that pressure? eric: there has to be an element of that when you see a buyback like that. they have raised their guidance and are doing everything they can to stave off the pressure. tesco will be a bigger to swallow than william morrison. the third-largest player also got taken out by private equity when walmart sold its controlling interests there. clearly there is a lot of interest in that sector, both for tesco and sainsbury, which is the number two player, you have to be watching that. alix: why the interest in private equity in this space? eric: it is a good question
given margins are tight. for years it seemed like a terrible business to be in across europe and all the sudden you are seeing this, you are seeing in france with one of the biggest players there drew some interest from canada. one reason in the case of morrison is the property portfolio they have. that is valuable. there is that interest. the other thing is the pandemic. you look at all of these players in the u.k., they boomed during the pandemic. people panicked buying toilet paper and tunafish and pasta and those kinds of things. guy: i think you just described my least favorite shopping basket. eric, in terms of what happens next, let's set this up. if we go back to normal and
people stop buying, what are these companies worth? this is about as good as it gets. people have to stay home. we are digitizing, but what comes after this? what does the post-pandemic supermarket world look like? it is not as if amazon is going anywhere. eric: that is a good question. the other element of these -- of the pandemic is companies that were behind online or having their lunch eaten by amazon. they learn something by the pandemic. they learned how to become online players. that is a bigger part of their business. they are seen as being worth more. people are looking at the property portfolios and they say maybe there is something there. guy: thank you ray much. the tesco story with eric pfanner. let's look at where the european stocks have settled. a negative day but off our lows.
the ftse 100 down 1.15% but tesco having more positive session. the dax down 1.5% and the cac 40 down 1.26%. alix: amazon has not done much with its grocery business. coming up, let's go political. francine lacqua sat down with u.s. secretary of state antony blinken on whether he sees any thought in the tensions between the u.s. and china. more on that next. this is bloomberg. ♪
secretary blinken spoke earlier with francine lacqua in paris. sec. blinken: they spoke on the phone a few weeks ago and had a productive conversation covering a lot of issues. whether they will have occasion to get together in the months ahead, we will see. they are likely to participate in some fashion in the g20 meeting. they had a productive conversation and we will continue the work they set out stop francine: with seen incursions of chinese planes in taiwan. is there a redline you think president xi will not cross? does he understand a redline or are tensions high? sec. blinken: the actions we have seen by china are provocative and potentially destabilizing. what i hope is these actions will cease because there is
always the possibility of miscalculation, of miscommunication. that is dangerous. in the past we have managed to handle the issues surrounding taiwan in a way that is sustained stability. provocative actions go in the wrong direction and it is very important that no one take any unilateral actions to change the status quo by force. we need to see china sees some of the actions it has taken because they are potentially a source of instability, not stability. francine: u.s. needs to try to take a hard line but try to find a common ground when it comes to climate change. sec. blinken: there are many issues in the relationship between united states and china. it is one of the most
consequential and complicated relationships in the world and it has different aspects. there is a competitive aspect we know very well. there are adversarial aspects. there are also cooperative aspects. we have to deal in every single one of these aspects of the relationship. climate happens to be an existential issue that affects everyone on the planet, whether it is united states, whether it is china, whether is any other country. china has great responsibility when it comes to dealing effectively with climate chains -- with climate change. we are about 30% of global emissions. this important for both of us to step up and meet our responsibilities. that means ambitious targets for how we will curb lime and shirt -- curb climate change and making sure we are helping others deal with that resilience and taking important steps like moving away from coal.
francine: there's a lot of focus on how the chinese authorities are dealing with ever grande. sec. blinken: china has to make sovereign economic decisions for itself but we also know that what china does economically will have profound ramifications, profound effects on the entire world because all of our economies are so intertwined. certainly when it comes to something that could have a major impact on the chinese economy, we are looking to china to act responsibly and deal with any challenges. guy: antony blinken talking to francine lacqua in paris. i find it interesting the attitude china is taking. it is saying we will secure supplies at any cost. it will firmly focus on making
sure power is provided, whether that is in coal or elsewhere, this ahead of a climate summit that feels like it is struggling with higher prices. alix: india saying the same thing. how do you cooperate on climate and then disagree other things? how you separate that. that will be tricky. also you have joe manchin speaking at a news conference moments ago and he says his number for the economic agenda is still $1.5 trillion. is our president biden saying he would be willing to look at something less than 3.5 chile dollars, but still more than what roadmap -- still more than what joe manchin wants. he is putting the pressure back on mitch mcconnell and chuck schumer to work out the debt limit issue. the gop is a no go. it is a nonstarter. i do not know how it gets done without reconciliation. guy: reconciliation has a time factor.
we do not have that much time, or they go by the filibuster route which reduces us from 60 to 50. do you produce a permanent carveout on the filibuster for the debt ceiling to avoid this kind of thing going forward? the two things are connected. mitch mcconnell pushing the democrats in the direction of reconciliation because it means i have to focus their attention there rather than focusing on the spending bill. alix: i think the question is what you need to price into the market? if infrastructure spending will happen on a private level matter what, fine. in terms of the debt ceiling limit, if it gets past, ok, but when, and what kind of terminal will we see? barclays had a note out we are not pricing in this kind of risk in this kind of risk is the biggest one we have seen when it comes to the debt ceiling limit. we have to do that. guy: it will be coming up very
concern around valuation. on the other hand, apple down .9%. as goes apple so goes the market. the s&p 500 down .7%. the dow down more than 1%. apple waited to the dow as well. cisco underperforming. there does not seem to be a specific piece of news driving that action. old-school tech is reacting poorly to the recent stock we have had an volatility we have had for technology around rates generally rising. as for other sectors, it is weakness for the banks and energy. rates are mainly in a little bit. enough to cause jp morgan and bank of america both down .9%. take a look at exxon mobil and chevron, those are two of the bigger laggards on the s&p 500. not a lot of great places to hide. alphabet and amazon are higher
on the day. some of the big internet names popping slightly. the most part the trend is lower. guy: the trend has been away from those names so it is interesting energy comes lower. nevertheless, we are seeing the focus remaining firmly -- what is happening with the debt ceiling story in d.c. barclays talking about this. barclays seeing the debt ceiling impact as an "tail risk for markets," saying the chance for u.s. default is greater at any point in the last decade. joining us is barclays head of equities and derivatives strategy. let's talk about the distribution curve of outcomes. how close to the center is a breach of the debt ceiling? maneesh: we still think it is a
tale event. we have been here in the past and in the past we have had at the last minute things get resolved. that is the base case. compared to the previous episodes, the last five or six years, this is probably the highest possibility of something going wrong. alix: if you look at what the s&p has done, it'll be the fifth consecutive 1% move for the s&p. we have not seen that in a long time. how do you play this move when you have this uncertainty with the debt ceiling that has not been priced in yet. maneesh: part of the problem is there lots of different factors affecting the market. all of these are viewed as scale events but we talk about the debt ceiling, it is positive what is happening in china with the ever grand situation and the
broader decrease in credit. there is also the increase in oil prices which has raised the prospect of a stagflation scenario that has been brought to the front. all of these things are in some sense a tale event. we do not expect them to be the baseline. that is the confluence of those things that have happened, going to the debt ceiling particularly. we have an event. things are likely to play out over time. for the debt ceiling we have december 18 as a hard date. when we see is not priced in, there is no volatility around that event as opposed to back in the election, around elections there was a significant bump. that is not there right now. guy: how precise do you have to be? you talk about the heart event. there seems to be a series of dates that are plus or minus the 18th.
the government would likely be able to divert funds from one place to another to make sure payments are made. how precise you need to be in terms of hedging this as an event? maneesh: that is a great point. by december 18, route a few weeks or madeley a month around that, but even if you look at that -- around a few weeks or maybe a month around that. if you look at the option market is pretty smooth, there is no excess buffer on that time. alix: when we are dealing with that part that has a heart out, maybe, we are also looking at energy prices that are bananas. the movement we have seen a natural gas should not be happening. are you playing that right now? maneesh: we do not have anything specific on that front, but certainly, the concept this inflation that is expected to be
transitory, which is our base case, the tail risk is -- one channel through which that can happen is the higher oil prices. we have constructed these baskets of stocks, which are more exposed to inflation or to real rates depending on what your view is, and you can express the view on either of these variables. guy: more broadly, puts still look seriously expensive. if you look at the risks at the moment, and i appreciate some of those are not particular precise in terms of when they pop up on the calendar, but nevertheless puts still look expensive. if i want to hedge to the downside, how my doing it? maneesh: the key thing is that puts are expensive because
investors have put a lot of protection. one way to play this is to do put spread or call spreads. you are playing for the fact that any selloff is not going to spiral out of control and you are selling more expensive downside strikes on the highest strikes in the vix and acted help you decrease your overall cost. you can buy puts in the s&p or cell calls or things like that. alix: have to leave it there. that wraps it up for me and guy on television. coming up, anthony fauci will be joining david westin on bloomberg television. this is bloomberg. ♪
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westin. ♪ david: welcome to a special edition of "balance of power" from washington dc to our tv and radio audiences worldwide. washington is the home not just of congress and the president but also the national institutes of health where dr. anthony fauci heads the institute for allergy and infectious disease. we welcome dr. fauci back to bloomberg. let's start at where i get a lot of questions. that is children. where are we in the process of getting a vaccine approved for children. days were a couple of weeks? dr. fauci: as you know when you talk about children of different ages, what we have his approval to be able to give vaccines from