tv Bloomberg Markets European Close Bloomberg October 11, 2021 11:00am-12:00pm EDT
announcer: the countdown is on in europe. this is "bloomberg markets: european close" with guy johnson and alix steel. guy: monday the 11th, 30 minutes to the close. what do you need to know out of your? traders betting the bank of england will hike by the end of the year. over the weekend, highlighting their concerns over inflation. we will be joined by the ceo to talk about the partnership and returns scaled down. it falls out of fashion was
investors as management shakeup sees the ceo stepping aside. supply chain issues. getting slammed on the back of that one. equities flat today, going nowhere. the bond market is closed stateside. alix: wti up over 2%. i want to highlight energy and the bank index because cyclicals are in charge. energy outperforming over 1%. the kbw bank index up 40% this year. what is priced in? the raise and beat model will go by the wayside if we try to take into account demand and input costs.
this is the 10-year bond futures index. a little bit of selling. yields pushing higher. we will be talking to the ceo. aluminum up 2.8%. we have not seen these levels in 13 years, continuing to grind higher. i worry at some point this will bite margins. you wonder how long demand will hold up. guy: we will talk more about energy in a moment. the industrial sector worried about the lack of availability of energy. we will see what happens. it is a risk. it is something the bank of england is monitoring closely. the inflationary narrative becoming more part of what the bank is talking about. over the weekend, andrew bailey warning about damaging inflation unless policymakers take action. michael saunders also suggesting
investors were right to bring forward bets on rate hikes. here with more on the story is ben. the market has been out in front. it has looked to what the market has been saying. the bank is belatedly starting to catch up. how much of the rate hike news is already in the price? >> good afternoon. i think plenty is already priced in the market. we are now around 16 basis points. the bankrate is 50 basis points. it is traditionally priced at had in previous cycles. this spread is telling you markets are prepared for two rate hikes at least.
there is limited room to surge because there's nothing to stop the market positioning for a third rate hike. they may need to moderate going forward. alix: appreciate it. having connection issues, but week appreciate you staying with us. it is also a story that will never go away, brexit. britain is headed to a class with the european union this week. joe, what is the latest? joe: we have a big speech being given by the brexit minister tomorrow where the tension is ratcheting up again. you have the u.k. saying the online protocol with the divorce treaty, the u.k. says that
needs to be fundamentally changed. the e.u. is saying we are trying to come up with practical fixes. the u.k. says this is not enough. we need fundamental altering of the protocol that the e.u. does not want to give. the key question is how the e.u. would react to that. would they be willing to give way on key issues? that looks unlikely. if they don't give way, the u.k. is saying we will suspend parts of the protocol because we want to protect the united kingdom. if that started, the e.u. might start a trade war with the u.k., so we are back in the realm of serious tensions approaching a one point -- boiling point. it is brexit all over again.
guy: given supply constraints, we are facing a trade war. we look forward to the speech tomorrow in lisbon. as brexit tensions rise, we have the possibility of another similar event taking place, the exit of poland from the e.u. we did see the court ruling last week that suggested polish law had supremacy over e.u. law. this puts both sides in a difficult position. poland does not want to leave the e.u. tensions were already high. maria tadeo has more. maria: there is a conversation over whether we could see: leave the european union. you have the controversial court ruling from the polish constitutional court. we are seeing member states of
the e.u. no that betting on a euro exit does not bode well for the economy. they are moving to say we want to stay in the european union but we want to change the rules. we want to move power from brussels. that is what the polish government is trying to say. a lot of these matters should stay national. this is a rule that is not just about the courts but about the fundamental value of the european union. will we see an exit? probably not. polls show poland does want to stay in the european union but it does set a challenge on the judiciary front and also the money poland was expecting to get from the european commission. it is clear the european union will not give a sent to the polish government if they do not backtrack on these measures.
that could put polish assets under pressure if we don't see stimulus. we did see inflation in the country surging. the polish government is under a lot of stress to tame that down. you don't want to have a political storm in the midst of an economic one. guy: that is certainly something that sounds like a good idea. whether it comes to pass, we will see. the u.k. is facing storms with brent approaching $85 a barrel as the power crisis across europe continues to provide problems. asia and europe both competing for gas and oil. rachel morrison is here with the latest. are we starting to talk about demand destruction? that was my sense, that industrials are starting to get nervous. they are worried they will not get what they want and they are
talking about suppressing activity. >> we are hearing a lot more from industry about how difficult they are finding prices this high. they have been this high for quite some time. it does not look like there's any chance they will drop soon. we are hearing meetings in the u.k. between industry and government. that is the case all over europe. we have a story today with data showing industrial gas use is lower this month than pre-pandemic. manufacturers are making less because gas is so high. how much worse it gets depends on what governments can do to help industry and shield them from prices. there's a limited amount the government can do. they have outlined things they would like the government to consider. they cannot intervene in the market easily. kicking the can down the road on renewable costs and things
he will retain his influence as leader of the people's party but faces criminal charges in at least two investigations. in germany, he will leave his post by january. he lost a close election last month. chancellor angela merkel's party will search for new leadership. british officials are concerned that a lack of pilots could slow down a rebound in flights to pre-pandemic levels according to "the telegraph" newspaper as doubled usual number of pilots retired. the u.k. recently eased entry rules for foreign travelers in a bid to boost global tourism. global news 24 hours a day. i am laura wright. this is bloomberg. alix: thanks so much. the top story in the u.k. are the comments from officials
driving the surge in gilt yields. it started a few weeks ago when they doubled down on the possibility of an imminent rate hike on rising inflation risks. he tells "the telegraph" it is appropriate the markets have moved to price in significant tightening earlier. geoff yu joins us. what is your call? is the market right? is the market leading the boe? geoff: it is not. i think it is a policy air. i do not think the u.k. is in a position to withstand rate hikes. this will bring the cost of servicing mortgages higher. it does not sound like much. on an individual basis, it is ok.
real incomes are probably not going to rise as strong as inflation. with other supply issues, i think this is risky territory. guy: let's talk about what the other side of that is. if we end up in a situation where inflation starts to become embedded, the bank may take the view that is the bigger threat. what is wrong with that argument? geoff: what type of inflation is becoming persistent? is it wages? we don't even have a good snapshot of the labor market yet. the boe has admitted that. then it is going to be supply issues. if it is that, that eats into real income. we could see household demand disruption on top of corporate disruption. putting those together, i don't see a clear case for a second
round coming through. that is why i say this is policy error. alix: it feels like the boe could be on a different trajectory. do you think the market is leading the boe? i understand you don't think so, but it seems this is a different kind of world. geoff: i think it is a combination of both. last tuesday or wednesday, we had a move in pricing for december hikes. markets moved ahead of the commentary over the weekend. whether that was due to energy issues or going back to the persistence of inflation, i respect the price action. i am not sure what drove the market into that reaction. we've had two members comment. if it is the market-leading, the market is taking a risk. the boe is taking a risk, too. guy: the bank of england's
credibility is not great when it comes to promising rate hikes and not delivering. geoff: it is going to be an unreliable reliable boyfriend. the risk of credibility is your tightening into a cyclical slow on the household side. going back to mortgage servicing, if that impacts housing prices, that feeds back into a wealth effect that could impact demand as well. we saw that in the global financial crisis. i would like to see more data on the income side. if the market is roaring and can stand additional hikes, i will say i got it wrong. right now, we don't have confirmation yet. why can't we wait another quarter or two? alix: would you be taking an
active position on the market with that? geoff: right now, i think the best view on that apart from pushing back against the december hike is the euro-sterling. on the fiscal side, i thought the view the u.k. was planning more aggressively than europe could result in upward moves in euro-sterling. i think euro-sterling is looking interesting. the german election result would have driven it further if it had been pro conservative. right now, the set up for the u.k. is very sensitive. i am ok with a proportion area normalization move. what is the harm in waiting until the winter months are over and we can get demand recovery around february or even may?
to price an entire cycle, i think the market is getting ahead of itself. guy: you could make an argument the bank of england should be going the opposite direction. that is something the bank should be potentially leaning in on. taxes are likely to rise. is there a possibility the bank has to do a 180? geoff: precisely. the reason i thought euro-sterling would outperform it will be difficult for the banks to hike into fiscal tightening for all the things we listed. tax increases amongst other things as well so that was already difficult. if they do things early and compound the situation,
household cash flow will face serious restraints the next six month or so. if you hike into that, you risk data falling off. what is the rush? why not wait until we get a better picture of income growth? then they can move accordingly. alix: is there another central bank looking at a policy mistake? it does seem it is on a removing accommodation trajectory. geoff: i would not say so. within g10, the boe probably stands out. central and eastern europe is looking interesting. they are hiking aggressively as well. can they see the labor market in the region continue to recover at a stronger clip? that is where i am looking for
potential u-turns as well. guy: how high would you put the possibility recession in the next 24 months in the u.k.? geoff: in the u.k., very low, below 50%. if they hike within six months, i think that changes the equation. pres. biden: thanks for the -- guy: thanks for the analysis. greatly appreciate it. this is bloomberg. ♪
deployment of spectrum. the u.s. and european union plan to announce at least 20 more countries will join an agreement to reduce methane emissions. canada and germany are among them. methane is one of the most powerful greenhouse gases. the u.n. has found 80% of measures can be implemented at no cost. natural gas futures in europe fell after prices surged to new highs last week. traders weighed growing concerns over the supply crunch against prospects for russia shipping more gas. that is the latest business flash. guy: thank you very much. the papers over the weekend were filled with the idea of suggestions from the russian envoy saying if you treat us better and take a less hostile
stance, that is likely to improve the prospect of us shipping more gas to you, which is exactly what everybody was worried about. alix: what precautions are people taking? i know that you bought a generator. that will not go away this winter. there will be this geopolitical hangover when it comes to energy. what are people doing about it? guy: at the moment, i don't think people are doing a lot about it. i wonder if we will see more failures of energy companies in the u.k. we were talking about this at the beginning of the show. the real danger is industrial activity starts to become curtailed. i think for industrials, this is where the problem lies. companies cannot make the economics work if you are running a large factory, that is where the problem is going to lie. that could come very soon.
alix: we have already seen this in china. the difference is china will backstop growth to some extent and to help struggling businesses to some extent. in the u.k., it is very different. we are looking at potential rate hikes in the boe, taking away from government programs. it is a different scenario from china. guy: you put that altogether, that is a powerful combination. you put the energy story as an overlay to all of that, it makes life difficult for the economy. you wonder whether or not we get the unreliable reliable boyfriend going back into play. the bank of england may be trying to talk the market in a particular direction but does not end up delivering on it. this is bloomberg. ♪
guy: wrapping up the session in europe. european equities going nowhere. finishing fairly flat. we are seeing a little bit of outperformance. the cac 40 flat. the dax pre-much flat as well. they headline level, not a lot going on. let's have a quick look at how the session has developed. we will take a look at the stoxx 600. it is a fairly tight range. intraday 457 is where we are closing. down less than .1%. we have gone sideways. waiting for a catalyst. is that going to provide the action? let's take a look at where we are with the other asset classes. the columbus day holiday shuttered the bond market stateside, but take a look at where the bund is. -12 basis points.
maybe we will get a german 10 year at zero. crude prices climb. nice depends on your point of view. $84 as you can see. gas a little bit lower, baby an expectation vladimir putin delivers on the promise to provide more gas to europe. nevertheless we are still at elevated levels, elevated enough to suppress industrial activity. let's take a quick look at what the sector story looks like. at a headline level, not a lot happening. take a look at iron ore. a huge bounce back. aluminum popping higher. the car industry up 1.4%. the energy sector providing real strength on the upside. the bottom end of the market, utilities down, obviously a concern about what is happening with the energy story. some of the luxury sectors also under pressure. let's talk individual names.
bloomberg reporting the deal -- this consolidation idea within the french supermarket sector seems to have fallen foul of price. cannot get the price right. carrefour down two and a half percent. entain, citigroup initiated coverage in the space, they are looking at what is happening with draftkings. they do not believe a deal will happen. asos down 12.2%. coming under real pressure. supply chain issues are a massive problem for this sector and this company in particular in the ceo is stepping down as well. alix: let's get more on asos. bloomberg deirdre hipwell joins us now. some retailers are never getting this because demand is so strong they can manage their barbara -- there margin problems. where does asos sit on that?
deirdre: asos is facing rising costs that puts pressure on its margins. we have had others talking about high supply chain cost. a thinking about asos we also have wage inflation. they are having to spend more to acquire new customers. also what is happening with customers -- during the pandemic when we are all wearing loungewear we were not returning clothes as much where now returns are getting back to normal and that is at large costs for online retailers. all of these costs are rising, which is why the outlook has risen -- guy: christmas now looks really difficult. u.k. consumers are being pressured on a number of fronts.
we were talking earlier about the possibility of interest rates going higher. we do have energy prices going higher. can i draw a line between the other things consumers have to think about? does it mean they buy less from asos? guy: -- deirdre: in general asos would have seen a lot of sales increase during the pandemic where people do not have any choice. now shops are being reopened and there is much more choice for people to choose. that said asos sales were pretty good. they are expecting sales to slow down, at least in the next six months. don't forget, they have outlined quite an ambitious rescue target . in the short-term, there is quite a lot of pressure on consumers. also consumers are going out to
restaurants more and eating. the spend is being spread across a lot more areas than just clothing. guy: thank you very much. deirdre hipwell on what is happening with asos as we get retail sales numbers out of the united states on friday. looking forward to seeing what those numbers deliver. sports betting was something to watch very carefully. there was not much sports. but there was, people working to bet on, if they were not, they went into the market. there is interesting call by citigroup. what they are talking about his we are going to getzen -- get consolidation within sports betting. they are not convinced the draftkings entain bid is going to happen. why not? there has been a lot of speculation. bloomberg's thomas sealed here to talk about this. this was the expected path we would see.
consolidation and quite a big footprint in the states that this issue -- this industry would continue to consolidate rapidly. why are people not so sure? thomas: it is complex and there are a lot of moving parts. the bit of the pie everyone wants his m and jim -- is mgm. draftkings has to find a way to unpick that and strike a deal with mgm for sale a license to the underlying technology. this is the secret sauce that makes it valuable. meanwhile entain is growing superfast. it rejected an offer in january worth $11 billion. it is already valued more than double that. the incentives may be do not line up. the other thing that may be concerning to shareholders is the offer from draft kings is mostly draftkings stock. u.k. shareholders may not want to accept that as payment.
the stock is quite volatile, is already down 30%. all of these things means the market is not betting this deal goes ahead. alix: is there another suitor that could come in? thomas: it a good question. no one has been flushed out. mgm was the previous suitor but has not made a move. mgm's ceo made important comments that they do see a path to controlling mgm. that is the jewel in the crown. the reason for that, it is the u.s. market. the u.s. market is booming. they see a huge market. guy: consolidation is still part of the narrative. thomas: yes. caesars bought william hill last year and in the other direction flutter bought the stars group,
of canadian betting company. these transatlantic tieups are still roaring ahead. alix: really appreciate it. bloomberg's thomas sealed joining us. breaking news on southwest. member they had to cut their flights and have not been able to reschedule due to the fact they do not have the personnel to do that. the coo commenting on the cancellations in a video for employees. he says we are still short on workers, especially flight crews. we need more staffing cushions for disruptions. cannot tell you we are out of the woods. i cannot tell if this is a southwest specific story or is this the broader problem as we have demand picking up, flights ramping up, and you do not have the labor to support it? guy: it feels at the moment like a southwest specific. you have seen disruptions elsewhere, but nothing like on
the scale we have seen with southwest. i think this is going to be a difficult transition for the aviation industry and companies specifically, how they manage labor, labor pushing back in terms of vaccine mandates and different working practices, all of that will cause problems representative of what we will see going forward. this is industry that in the past has faced significant labor problems. alix: then you throw the vaccine mandates in there or they will have to fire or furlough workers that are not getting the vaccines, this will get worse. i wonder what kind of position this puts the unions in an terms of trying to increase wages? guy: you take a step back, labor, labor. companies have been able to dictate, now they cannot. the labor narrative is in every single conversation with every single company. it will be fascinating to see what happens on some of these calls in terms of what companies
have to say as we go through the earnings story. we have wrapped up in europe. a quiet session today. a little bit of a spike during the auction process in the u.k.. does push the ftse 100 up sharply. i checked this every single day. you do not see this kind of price action. right in the tail end of the session, the ftse up .7%. alix: let's get to where we are not flat and that is in the commodity market. surging aluminum prices but also lme is looking to expand in the base metal market. they are looking for a green aluminum digitally traded. we will break that down with the lme ceo matthew chamberlain. this is bloomberg. ♪
new york, 5:30 in london. this is bloomberg. let's check in on the bloomberg first word news. i am laura wright. european governments are leaning towards backing and battled imf managing director. the fund's board is preparing to make a decision on the future of the bulgarian economist. there have been allegations of improper behavior during her previous job at the world bank. she denied any wrongdoing. in poland nationalist leaders slammed the opposition after the biggest antigovernment protest this year. this year the opposition leader accused the ruling party of trying to take poland out of the eu. governments call that fake news. the u.k. is headed for a fight with the european union over the
border controls in northern ireland. u.k. brexit minister david frost blast for a significant change in the northern island -- will ask for a significant change in the northern ireland agreement -- willing to make adjustment to ease bottlenecks. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am laura wright. this is bloomberg. alix: thanks so much. one of the big market moves of this week than last week as what we are seeing in metal prices. oil climbing $85. the base metals are well. aluminum the highest level since 2008. copper is still climbing higher. on the structural shift when it comes to using these metals to green the planet. how much more juice is there and are we going to see any more short-term disruptions? i want to get some insight from matthew chamberlain, london
metal exchange ceo. a lot to get through. it is also lme week. it is exciting it is back. just in terms of what you're seeing now in the price action, what are you hearing on the ground? is there still a lot of bullish sentiment? matthew: as you say we had our lme seminar today. it has been a source of discussion. as your graph showed, some good price action. i think that short-term -- you're in the short term at prices like any other commodities being impacted by number of transient factors. you have high energy, you have logistics, supply disruptions, and a lot of the price movements we've been seeing are a consequence of that. it is also undeniable that if we look at where we came from at the depth of the pandemic, there has been this longer-term trend.
exactly as you say. that is driven by the longer-term supply story, i.e. it is hard to bring new supply online, and the demand side, particularly the green revolution and the need for these metals in a more electric society. guy: the need for the metals and electric society is something a lot of people are talking about. i know you've been discussing this as well. the focus is trying to ensure as we make this energy transition, the metals we are using fit the narrative, that they have not, from dirty minds, they have not, from minds using nonsustainable energy. you are starting to move in this direction. we have the metal hub transactions taking place. how much demand is there for that kind of transparency within the supply chain. matthew: transparency is
absolutely crucial. we at lme have been grappling with this question because exactly as you say, metals cannot expect to be part of the solution unless we can show metals themselves are sold in a responsible and sustainable manner. if we take a look at aluminum, we know a lot of aluminum is produced from low carbon power sources, but a lot is also produced from high carbon power sources. there have been calls for us to exclude high carbon production. we do not think that is the right thing to do. then there would not be enough aluminum on the market and that graph you were showing would be significantly more upwardly inclined. what we want to do is to bring transparency and to have a world where there is disclosure of the metal that trades on our exchange. if you take delivery or you trade metal, you can get data
about the sustainability characteristics of that metal, be that environmental, be that social, be at the prominent story. assure you are comfortable with the metal it is in your supply chain. alix: how much more of a premium will those buyers pay for that green aluminum? matthew: a great question. i do not think anybody really knows. if you talk in the market and say what is the green premium, normally people say $10 a ton. there is a finger in the air number. the deal we have announced today, which is a partnership with metals hub, which is a spot trading platform that facilitates the spot trading of specific commodities is the first step that helping to answer that question. what we perceive as a world where you have lme to deal with your high-level hedging, your
broadcast metal, but there is a more digital way where you can then go and source specific parses of metal with specific sustainability characteristics like low carbon. what we can do, together with our partners, is to produce real transaction data that actually answers your question with real numbers. guy: can you see a situation where there is dirty aluminum and you have to say no, that is not part of our business anymore? matthew: great question. certainly that is what we have done for the human rights elements. we have already put in place rules that say if you're metal is using child labor were supporting conflict finance, we are sorry, but we you cannot be on our market. that is because those issues are binary. the world has decided those are
bad things and we are able to put that into our rules. right now carbon is more of a spectrum. people have different views on the carbon footprint and that is why we believe the disclosure and user choice is the right way to deal with it. in five or 10 years, could we see a future where you can only have lower carbon, yes, i certainly think the world could end up there. alix: you expect liquidity to be drained less than your typical aluminum contract and go to the more green ones? matthew: that is a really important question. we have not split the current contract because -- what we use the spot trading platform to build that interest on low carbon and maybe we bring that back to the main market when the demand is there. guy: enjoy the week. fantastic to see lme week back up and running. i appreciate it.
guy: we have -- alix: upside on the s&p, up .4%. volume is like. let's look at the movers with abigail doolittle. abigail: these are the top in the s&p 500. a reversal from the top you hours ago. at this point you have tech trading higher. at that time tech was trading higher. tech had been higher, banks lower, even though the bond market is closed in the u.s.
it is almost as if stocks in the premarket were trading off of the action in the u.k. and europe. you can see technology coming through. apple, microsoft, tesla. today is more about the cyclical trade and the value trade. no longer being called reflation trade. we will see bp is up in a big way. oil above $81, best level in more than seven years. occidental petroleum also higher. it is also about the metals. take a look at rio tinto, up nearly 3%. copper, aluminum, all of the metals trading higher. interestingly enough, even though bond markets are closed, there are no yields to judge by on the day, perhaps it is the gilt yield for the german 10 year helping out. maybe it is just ahead of earnings season kicking off this week with those big banks. guy: talking about the big
banks, jamie dimon talking at the imf right now. take a look. the mf world bank annual meeting will be kicking off. we also have charlie evans speaking tomorrow. chicago fit. the big events tomorrow and later this week or the cpi number in the retail sales number. the week has started to build up. alix: we have more coming up. the bond market will be open in the u.s.. imf world economic outlook will come out. g20 trade ministers will meet in italy. my favorite is the eu green bond sale. interested what kind of demand we will see. i cannot imagine how oversubscribed it will end up being. guy: i imagine we'll see substantial numbers tomorrow. what do we have coming up next? you and i will go to radio. alix: this is bloomberg. ♪
>> this arbitrary debt ceiling process i think we ought to get rid of entirely. >> to the world of business -- >> paper not going back to the service sector because they see it as unreliable. >> this is "balance of power" with david westin. ♪ david: from bloomberg's world headquarters in new york to our tv and radio audiences worldwide, welcome to "balance of power." congress may be taking a short break right now but the white house is hard at work trying to move president biden's economic agenda forward despite the resistance. for the state of play right now we turned were washington correspondent joe mathieu, host of sound on weekdays on bloomberg radio. thanks for coming to us from the white house. give us a sense of what is going on at the building behind you. are they getting discouraged? joe: they might be after hearing the language on sunday morning television.