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tv   Bloomberg Markets European Close  Bloomberg  October 15, 2021 11:00am-12:00pm EDT

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europe. this is bloomberg markets, european close with guy johnson and alix steel. guy: friday the 15th and near the close. a major hurdle was cleared on its way to becoming the next chancellor of germany to move on to formal coalition talks. united states will reopen to international travel on november 8 if people are fully vaccinated in a car crash, european auto sales were the worst in 25 years. they were down by 25% and the chip shortages being blamed. let's talk about the markets. energy markets are flying higher
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. it's the aviation sector that's driving us up. that's the best-performing sector on news that the north atlantic will finally open. we are just shy of 85. alix: you will need a plane to come to the u.s. and you will need jet fuel and that's helping to boost oil. the airlines are leading the way in the u.s. as well. i want to highlight energy. financials are getting a solid number. are we out of peak? we thought sales might have been good but expectations lead to a consumer that looks really hesitant with the sentiment index that fell to the second lowest level since 2011 step you got metals flying higher. zinc is at the highest level since 2007 with more factories
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shutting down because of high costs of natural gas. that is leading to higher yields in the u.s. and we are at the highs of this century -- of the session. guy: europe is getting a lift as well. there was a big move down and prices higher. let's dig into some of those stories in more detail. let's focus on germany. the german coalition deal is starting to be formed. the u.s. will open its borders to international travelers. let's break down the eu and we will look at the latest on the u.k. natural gas price story. a milestone in the bid to succeed angela merkel as the german chancellor. but listen to him talking
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earlier today. >> we decided on exploratory paper where the parties can come to an agreement. guy: joining us from berlin is aggie. >> what's happening next as they will go into official talks. these were exploratory talks to find out what the redline for the different parties are in we managed to glean some significant focuses for these coming coalition talks where the real mogadishu shins will be happening. we found out that the greens have managed to get the other two parties to commit to an earlier exit from the coal industry. it was originally 42038 and they are pushing that forward to 2030. the more focused of the three parties managed to get the other two parties to commit to
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returning to the constitutional debt limit for germany. alix: thank you. something that got us excited this morning, the u.s. will open its borders for vaccinated travelers november 8. can guy come over here? >> at the moment, u.s. will accept all vaccinations approved by the who and that's true of the astrazeneca jab as well as the others. they are being offered in other places so the u.s. is set to lift the ban on november 8. guy: we will certainly see the airlines ramping this story up and we are seeing it in the share prices at the moment. let's go from planes to cars. u.k. sales tumbling over 25%.
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the numbers are epically bad. let's talk through what we are learning here. i called it a car crash at the top of the show and that's what it feels like. >> that makes three months in a row and we've had more down months then months. we've gone from the industry expecting that this will be up from 2022 being a disastrous year last year to we may be down. that's the trendline and the expectation taking hold among analysts. this was really broad-based. it was across the board and automakers reported a 30% decline in the feeling that the chip shortages not going to get better any time soon, there is real concern the situation in southeast asia in particular is
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going to pose a problem to chip packaging and testing and that will be a burden on the industry for weeks and months to come. alix: thank you very much. let's look at what's going on with european gas prices. where were natural gas prices this week? >> they took a brief rally today after russia said it may resume supplies of their spot offers for the month but it depends on the domestic situation and attention shifted to monday or when extra capacity could happen to transfer gas via ukraine and poland becomes available. the question is on this excess
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capacity. at the same time, the gas prices are at high levels, in particular, the storage side. guy: thank you very much. fascinating story. there is a patchwork of things taking place. there is the nevadans -- the demand story on the airline side fitting into the oil prices which ripples back to all of the other energy shortages we are seeing. are the central banks going to have to react? we are starting to see evidence that the ecb might have to move. we will talk about that next. we will see where the euro and the pound is going. plenty of things to think about.
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this is bloomberg. ♪
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>> i think there are good arguments that a lot of what we be -- a but allete we see today is temporary in nature but also because it's lasting more from we know that some of the supply chain will fix in a year or so stop that should turn to something that is a bit stronger in terms of second-round effects. guy: the central bank governor speaking earlier this morning. we are joined by the cio and we
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are now actively pricing the fact that the fed will be raising rates next year in the market is bringing that or were stop the bank of england is possibly pricing a rate hike this year. inflation is starting to get sticky in a number of different areas and we are starting to see evidence that is beginning to impact the euro zone as well stop the market is starting to think about the puzzle till it's he just the possibility of pricing and ecb rate hikes. >> i believe the ecb have been not very clear on the inflationary message. i think there were underlying factors beyond the modeling which would suggest inflation is more of a concern. i understand the ecb in terms of energy prices were ends of demand but there is on denying factors, the political tensions, the negotiations, the potential
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risk of consumer expectations. i believe they will readjust their expectations and be forced if you like to consider a more hawkish fire meant. alix: that's counter to what we normally here. how mispriced are they? how much price is that? >> i believe in terms of the expectations on the timing side, i believe the market has been slightly complacent on this. although the expectation of inflation in the u.s. is ahead of the curve, in terms of europe, it is not the same. i think there could be a surprise which could provide some support to the euro from where we are now. guy: a lot of people are talking about selling rallies in the euro and the trend is probably down but you disagree?
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>> i agree with that. we close that at 120 early in the summer. we are also waiting for the correction higher and i think the interest rate differentials and the economic differentials wilson worth the dollar over the next few years. however, i would not like to talk about negative euros yet until we see this correction from the ecb on inflation which could take his back to the low one 20's. alix: do you feel if the ecb has to make that pivot, are they as aggressive as the fed? >> i think they will not be as aggressive. i think the fed is slightly more pragmatic. i think the ecb has to play more of a political role because of the huge levels of debt, because of the clear divergence within the council and the fact that it
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is managing a number of different countries. germany on the one pound is having a very different underlying requirement and a more hawkish approach. there will be more of a conflict within the ecb at i think the fed will for -- will fall more in line as numbers remain sticky which is what we expect. guy: if this is the case and we are moving into the environment where the ecb needs to be more hawkish, where does that leave the bcp market? it's a very tight spread. do you think that grows out and do you think the ecb will be in a position to support the peripherals? >> that's an extremely important point. between the btb's and inflation, the ecb has been focused on
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keeping spreads tide and volatility low. i think this projection may have to change a little bit if they start to sense inflationary figures coming through, it will be more than transitory so we we could see a potential marginal shift with inflation becoming more important. the sooner the central banks act, the easier it will be for them in the lower they will have to raise rates eventually. the concern is if the market feels they are behind the curve and they have to over compensate. alix: we have heard rumblings that once the emergency purchase program is over that there will be some kind of new asset purchase program or that the flexibility we got will move to the traditional asset purchase program. could we wind up having a hike
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but some kind of permanently looser monetary policy through a bond buying program? >> i think they will manage it separately in terms of the bond purchasing, the liquidity, the functioning of the market will be focusing on the underlying economic data in terms of inflationary pressures. the ecb did miss out on the inflation over the last year. their worst case was exactly the same as their central case and they did not expect inflation stop i think they are surprised by this resilience of inflation. they are a little bit more aware. they will be working both together. alix: interesting conversation, thank you so much. guy: angela merkel is in belgium
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and making some comments. she is clearly on the way out. angela merkel says she expects the new german government to be pro-europe which is where she says intensive talks are needed by poland. polish courts have effectively ruled they have primacy over eu rule which is a huge challenge. she is urging the next german government to seek a compromise on the eu issues. the biggest take away for me is that germany potentially could be heading back toward the debt break, this fiscal push we have seen may already be starting to run out of steam. alix: that is a hard thing to swallow when you look at what the energy crisis is unveiling and it's how much money we will
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have to spend for this energy transition and how expensive gas prices and power prices are right now so i don't know how you square all of those into one neat peg. guy: germany needs investment in hard infrastructure but considerable investment in digital infrastructure as well. the fact that they are saying we can have this coalition but we need to be fiscally conservative may change the trajectory here. you look at the united states with expectations we would have a huge amount of fiscal largess but that's starting to fade and it's starting to show up in the mcchicken data. -- in the michigan data. alix: this is bloomberg. ♪
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>> it's time for the bloomberg business flash. amazon has appealed a record $855 million fine from the european unions tough data protection rules. they ruled the company violated rules through processing of personal data and amazon did not there was any data breach. in the u.s., is moving to expand travel options for those vaccinated and clamped down on those who aren't. the u.s. will open its borders starting november 8. the old system barred most foreign nationals coming from certain laces like europe, india, brazil and china. it's the first day for some of the strictest coronavirus restrictions in the world stop in italy, you need up passport to enter public and private work
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places. you have to have one vaccine dose recovered from the virus were tested negative in the last 48 hours. the pass is required in italy to enter museums, theaters, gyms and indoor restaurants. sigg by two alitalia. the flagship airline of italy ended late yesterday after decades of lawsuits and norm -- numerous brushes with bankruptcy. ita is a much smaller carrier and will use the alitalia planes. that's the latest bloomberg business flash. guy: not quite the same without alitalia. alitalia had many issues but obviously, this was the airline that carried the pope. it was a classic moment of my childhood.
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it was always fantastic to watch that but it will be interesting to see how they get back into eight an increasingly consolidated market stop now we get to go across the atlantic. alix: that's exciting and i'm sure airlines are happy about that. it sounds like a non-onerous thing to come over which i feel will open up travel pretty quickly in the u.s.. when are you doing it? mid-november? guy: we will officially do it in november. it's exciting so i think there must be pent up demand. we might go to a rangers game.
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i think you will be intrigued to see if this is an extension of the vfr story visiting friends and family. it will be interesting how they configure the aircraft and many people are also saying that we haven't been able to do this for a long time and we will go to the front of the plane. it will be an interesting mix but i'm not sure that it will be dominated by business travel. alix: i'm starting to hear more and more wall street guys taking their first trip to london. i don't know if that will be the same. it could take a while. that's what i'm hearing on the street. guy: that's true but we've been
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open for you guys for a while step the initial trips were not business trips. they were going to italy or paris or london. i want to go there for fun rather than work. i think the business trips are starting to pick up and school is back. i'm not sure going the other way -- i think maybe before christmas, come around christmas i think will be huge. there will be so many people traveling across the atlantic to visit friends and relatives and family. alix: we are really close to vaccinate 12-year-old so that will help a lot. there are cases breaking out in secondary school so how does that factor in? you might not be able to bring your kids. how do you manage that? guy: i've got a simple solution
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to this. alix: leave them home? guy: just leave them home. this may not go down very well in my house. i think the issue of vaccinating kids will be huge. judging by the number of cases in schools now, it will be interesting to see how many people can go away for half a term because their kids have covid. the vaccination program is turning out to be more bumpy than the adult population was. let's talk about some of the news. david frost still indicating there is a big gap with the eu on brexit talks. the closes next, this is bloomberg. ♪
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guy: the friday session is almost done in europe but wow what a week it has been. we came into the week doom and gloom but a huge pivot on the upside latter in the week and that has continued today. i want to show you how this fits into the context of the wider story or europe stop this is the stoxx 600 this year and you can see the climb. this takes us into the mid-400 70's. we had a wobble but this is one of the best weeks, the best week going back to springtime here in europe. an incredible recovery in europe. year to date, up by 17%.
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we are not done yet but we are still tracking a little bit behind. travel and leisure is the dominant story today. the news on the north atlantic is driving iag. thanks and retail are up. this continues to be a big driver. telecom is down a little bit. a huge impact in terms of what is happening with education that's being taken badly by
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pearson investors today. utilities are under performing a little bit. let's talk it through the numbers. terrible car sales numbers and live tons could be the beneficiary of the reopening of europe to the united states. the metals market is on fire. alix: all those supply disruptions in a large part has to do with the skyrocketing power and natural gas opinions. the morgan stanley chief economy strategist, is this to blame for this huge boost and boom we have seen in metal prices? is it because of national -- natural gas prices? > to a large extent it is but comes against the backdrop of -- the backdrop of strong demand. during the heart of the
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lockdown, the spending we all used to do was converted to spending on goods and that's favorable for metals demand. it was our expectation that when the reopening happen, spending would come back. it just now seems to be stronger across the word in the energy commodities, strong demand for transportation fuels but we still see very strong spending. we are running up against the volatility to deliver all these things and that's frightening across the board and particularly in the broader commodity context. guy: what impact will the reopening of the atlantic have on kerosene demand? >> it is particularly important for the entire oil complex.
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refiners make gasoline and diesel and jet fuel and jet fuel is a product that sits in the middle. if you don't use the molecules that would go into jet fuel, you can partly blend them into gasoline and mostly into diesel. you can use these molecules elsewhere. that increases supply of these other type of oil products. therefore, these tools of demand are a bit oversupplied. when diesel -- when jet fuel demand comes back, you need to extract these molecules out of the diesel fuel and gasoline fuel and they tighten up and with that, the price per barrel tightens up. the refinery start to run faster and you can see how that would have a rod tightening of the entire crude market. it's very important. alix: you're talking my
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language. is the path of least resistance for oil up? what is the case potentially, we are already sitting at 84 on brent. >> it's either the oil price needs to be so low when we are oversupplied that it destroys new production, the other stable equilibrium position is when oil price is so high that it destroys demand which is what we need which is undersupplied. what has happened is we went from the supply destruction price to the demands destruction price. who knows exactly what the demand restructure price is? on the demand side, it's difficult to do the calculations. we have pent up savings and are keen to travel stop who knows what the demand distraction
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prices. we thought maybe $80 per barrel a couple of months ago but the doesn't seem to be much demand destruction yet so i think we can go higher. guy: i want to ask a question about gas so how much higher? >> 10 or $15, who knows guy:? guy:that's a lot. let's talk about the gas price in europe. there is all kinds of factors and it's hard to get a sense of what's happening. what is your assessment of the picture, is the market overpricing the demand story and the supply story and how much russian gas we will get? are we at the point of maximum pain? >> for gas we would say so. we are constructive on oil but also on natural gas. this is not so contradictory.
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the gas prices rallied so much more and gas is so much more expensive by any metric. inventories are low that has created a degree of concern in the market. we would say they are not so low that it would really threaten outages even in case of a cold winter. we are very close to the level where natural gas prices in europe is sufficient step over the last couple of ways, they are filling in at better rates. there is some demand destruction taking place even today. it is also our expectation that once russia fills up its storages, more supply from them will be forthcoming. alix: what's the potential
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downside if we are almost good to go in europe? what's the potential downside? >> natural gas and your views to trade at three dollars and that we are at 30. we might hit something in the mid teens. in a month or two, when we have more visibility whether the winter will be cold, there should be a reasonable price. guy: that's quite a big shift from where we are now, appreciate the analysis. we greatly appreciate your time today. let's take a quick look at the final numbers in europe. these are the european equity markets. a little bit of a drawback but a solid day with stocks up on this story that we will reopen the north atlantic. alix: investors struggle with
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the muted loan growth that many of the biggest banks talk about. we will discuss that coming off. this is bloomberg. ♪
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john: coming up in the next hour, this is bloomberg. alix: live from new york, i am alix steel with guy in london. investment is going through the roof that investors are struggling with muted loan growth. joining us now is the founder of tenant park whose firm has invested over $13 billion in middle-market credit.
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sanali: what is really happening in the real economy such that smaller firms are not seeing the rush we are seeing in the debt market? >> we are as busy as we've ever been in 14 years in the business and it's driven by a bunch of different factors including m&a that is driven by potential tax law changes and prices are very attractive for sellers. we are as busy as we have ever been so i am flexed by the big banks. maybe they don't have our hours coming to them for capital. we can provide a nice solution in a more noble, friendly manner. ssanali: why is this trend
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happening? >> capital charges are high faced in with the regulators give them, it's a labor-intensive business, the borrowers one nimble providers, they want people who solve their problems and their challenges. that's why you see the growth in the non-bank lender universe and we are just one of many players. we have never been busier an error and vestment meetings go on and on evaluating these deals. sanali: you mentioned the terms are more attractive than the traditional debt market so what are we talking about? >> for the classic middle-market borrower, we are talking about 550 to libor plus. in some cases, we coinvest in
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the equities of these companies. when our debt drives the growth, we want to participate in that growth that we will invest in the equity so the bundle of what we can provide is attractive to our investors between the loan we are making and the investment we sometimes make. . guy: great to see you in the office in new york. you talk about the rates that are on offer. the conversation at the moment relates to an elation and the inflationary impact in terms of how that will deliver higher rates. what is your assessment of what in elation is doing to company performances, credit worthiness and what higher rates will deliver to the loan market? >> the loans by and large are floating rates go up, the loans should certainly participate to a large extent in the increased rates. we are in many ways protected
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from increased inflation and increased rates. as lenders to companies, how does this impact these industries? what we focus on our companies that have high margins and are really important to their customers. if this company goes away, does anyone care is the main etchant. if this company raises its press -- it's prices, do their customers care and there -- and will there customers by that company product step the company's customers will accept higher prices. if you are lending to a company that has less value, that's less likely the case. alix: in the equity market, that translated into certain kinds of value stocks and bidding that up while keeping and buying technology and growth stocks to offset that.
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in your world, is there a sector that presents the best opportunity to hedge all of that? >> we invest in industrials but it's a light sector for us. generally invest in sectors like health care, technology, soft where, government services, consumer and business services. we tend to focus on areas where we think there is price flexibility and the companies can raise prices because the companies are so in porton to the ultimate customer. sanali: how are the companies you deal with dealing with supply chain issues? >> there is no doubt it is a challenge. dozens and dozens of ships are waiting to unload.
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it's interesting that it took until just the other day for them to conclude that they should keep the port open for 24 hours per day versus having a 12 hour work day after these months of challenges. they should have done that many months ago. it is impacting some companies and the customer has to deal with it. it will be a late christmas for some companies that will have challenges delivering their product. guy: is it transitory? >> no, this challenge will be here for a while. guy: are we moving into an environment where we will see inflation being higher, supplied bottlenecks becoming more real, energy, volatility in terms of pricing with big spikes come are we moving into a more volatile world? >> you could add labor into the
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mix as well. i'm not smart enough to say whether it will be a more volatile world but the world is getting more complex. we need to be able to synthesize these different elements as we try to make investment decisions. sanali: there is margin compression and wage inflation. how are companies spending their money these days, on wages or to stave off these supply chain constraints? >> yes and yes. if this balancing act that companies have to try to figure out between all the different elements. management teams will be challenged and investors will be challenged to figure it out. guy: it's great to see you in the studio and thank you for spending so much time with us. a segment of the market we don't spend a great deal of time
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covering. thank you both. i've lost track of the times we have seen her this week. it's been a pretty hectic week. this is bloomberg. ♪
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guy: the top u.s. business school was named this week. bloomberg spoke to our colleagues from that school. they caught up with the tpg executive about he isn't just about how he is investing in
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areas around climate change. > we are defining climate as a sector, stretching from the gridedthrough's into agriculture. if you look at the investments, in the case where we are going to step we made an investment in form energy which is creating grid scale batteries, the ability to store power not just for hours and miles but for days and weeks. we've invested in a company called grid serve which is inev charging business in the u.k. and we are seeing its ordinary opportunities across everything from the software that will enable this energy transition to father out issues like carbon capture and direct air capture. alix: later on, they will speak with carlos britto and a top executive from peloton.
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i have a feeling that talking about how to invest in the green energy transition and climate change will be a huge topic for all of these investors. i feel that's where the money will flow. i think it's a matter of what kind of returns you wind up getting and what you are willing to pay to make those investments. guy: the science is very unproven and some of these areas. it's interesting to hear them talk about direct air capture. that's an area of science that is unproven right now from a financial point of view. the mechanics work doing it on a scale that makes it financially viable, i think the jury is still out on that one. there are a number of areas, i think it will be a wide funnel to start with and everyone will ultimately figure out what works and you work your way through the process. alix: occidental has been into
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carbon capture for a long time and they are going heavy into direct air capture and i asked the ceo of what they will be in 10 or 15 years and they said they will not think of themselves as an oil company. they can take a module and move it around to different plants and if they pick the carbon out of the air, that will be an easy way to make money. that's the kind of business model they will have but that will not happen tomorrow. guy: going at that scale economically, we don't know yet whether that will be viable and maybe better science comes forward and provides a better opportunity. i don't know. it's a skeptical approach but you need to throw significant amounts of money at these different areas to figure out what will work. it's a bit like the arrival of the internet. you have to figure out what works and then scale back stop i
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suspect that will be the model. alix: you are old so you remember that. there is a milton global conference kicking off monday with full coverage all week of that stuff the senate is back in session and tuesday we get tech returns. guy: the ecb has a professional forecaster survey out next week will stop i will be interested to see what comes out of that. maybe the focus is on what happens with tech. you got american express and southwest of the end of next week as well. that wraps up the week and i hope you enjoyed your time with us. alan zentner is joining david on balance of power next. this is bloomberg. ♪
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announcer: from the world of politics to the world of
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business, this is "balance of power" with david westin. ♪ david: from bloomberg headquarters in new york, to a television -- toward television and radio audiences worldwide, welcome to "balance of power." equities are rising again. abigail, we are back risk on. abigail: we are. two weekly gains in a row. the best week for the s&p 500 going back to july. we are back to risk on, because a couple weeks ago it was a risk off. some investors must have amnesia. if you put it into a range, it


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