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tv   Bloomberg Markets European Open  Bloomberg  October 18, 2021 3:00am-4:00am EDT

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england will have to act. and facebook plans to create 10,000 new high skilled jobs in europe over the next five years and we will speak to the facebook vice president in the next hour. let's look at future is. a little bit mixed. a lot of it is on inflation concerns. francine lagarde leaves there is inflationary pressures. she reminded everyone that they will -- that the ecb will stay supportive while the bank of england says we need to act before the inflation support becomes entrenched. if you look at european markets, they are seeing some pressure. not huge. look at some of the things we are seeing, a lot of movement on the two year in germany, spain,
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and switzerland. as we go into earnings, concerns about inflation and about what we are seeing overall including the energy crisis. we are expecting less upside for some of the earnings in europe and we expect the margins to be squeezed somewhat as well. among the futures that are moving the most if you look at the u.s., a little bit of a global picture that is on the cusp, not deciding if they are going to go up or down for the moment. this is an overall picture for some of the banks for example in europe. down 0.2 percent. still a lot of support for the banks because it is a good inflation strategy. let's also have a look at the sectors. it would be great to bring them up. let me see what we have right now. we have energy, something we are keeping an eye on. and the u.k. gilt market being
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repressed after what we have seen from andrew bailey. all of this are among the fierce debate about the dangers of inflation and how central bank should respond. andrew bailey says they will have to act. joining us now -- i think we were meant to hear from andrew bailey but we will get to that in a second but joining us now is john o'toole. a lot going on in the markets. a lot of focus on inflation and the repricing of bonds. what is more attractive right now? john: we are looking at things through the prism of financial conditions and we see them as still quite accommodative. real yields continued to be negative -- continue to be negative. we do see a growth slow down. we see the inflation impacts
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coming through and they are quite substantial but we are still in the transitory camp but the duration of the transition is debatable. francine: how worried are you about some of the earnings coming out because of the energy prices even if inflation is transitory? john: first sure the short-term will have tremendous pressure on company margins. we have had a decent beginning to the earnings season in the u.s. particularly the bank sector. there will be sectoral differences. rates will drift up which will favor more highly -- segments of the market but inflationary headwind will be a phenomenon economy wide. francine: what does it mean when you look at the earnings seasons, where do you find the best value? our bank still a hedge against inflation? will we see a real price of
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other multiples -- will we see a re-price of other multiples? john: there are pockets of value. consumer discretionary is less expensive. there is a shift towards more value oriented segments. we are multi-asset investors so we are allocating assets globally and we are neutral on directional equities. we are looking for nondirectional relative value positions because we feel things are quite top-heavy. we have a lot of skittishness in markets we see week in and week out. if there is a dip, people are buying it which is still the prevailing narrative. we may be coming to the end of that. francine: why do you think we are coming to an end of that? you are right. we usually see a pattern of a bit of asia pressure on some of
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the markets and then europe is seeing some pressure and then usually, we see some dip buying when it comes to the u.s. what is the catalyst for changing? john: we are getting to an end of an extended period of accommodation. we are coming to a new regime. the bank of england giving explicit signals as to their next steps. the federal reserve has been successful in their communication in splitting tapering from rate hikes. we don't see the ecb doing anything for an extended period. czar changing. we are coming to the end of a regime. the question is will it drift higher so more benign or will we get some spikes? i think we will see in the
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coming months and quarters some more utility than we have in the last few months. francine: what is your take on china? i don't know if we will see a repricing of the growth prospects overall. do you buy anything with exposure to china? john: there are areas of value popping up that are china related. it is early days in the finance story. the impacts will be felt far and wide particularly the emerging complex. in china, next year is an important year for china. the olympics, the party congress, the targeted growth rate is 6%. 4.9% was as we expected. that was widely anticipated by
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the market. we could see on a relative basis that china could become more appealing. but again, we are looking to take nondirectional positions for our portfolios. francine: john, thank you so much. john o'toole will stay with us. coming up, supply chain problems impacting profits for european companies. we will talk more on earnings and more on the u.k. with john o'toole. this is bloomberg. ♪♪
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francine: welcome back to the open. 10 minutes into the trading day. happy monday. we have a busy week. let's take a look at what is on the move. let's start with philips, the company that produces earnings guidance. i think we spoke to the chief executive. we will get on to philips shortly. the other thing we are looking at is umicore. these are lithium -- this is a lithium producer.
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i don't know if umicore has overpaid. maybe they could have done more. there is some disappointment for investors. thg, is a hut founder. it is moving. it will give up its controversial hold and share. -- golden share. this is one of the biggest gainers in today's trading session. painting some six point 7%. supply chain costs are hitting europe's third-quarter profits. a study has found u.k. companies more than doubled third-quarter losses. >> it is really a matter of chips and ships. we have a shortage of components
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and you see the delays in the shipping industry and the congestion at the ports that probably intensified during the quarter. the biggest impact in september. that set us back at least $150 million in the quarter. francine: global ports are becoming more gridlocked threatening to impact the holiday season. what is behind the latest? enda: the story here in hong kong at the moment with the hong kong shenzhen, there are over 100 container ships backed up because we had two typhoons in a row last week. you have delays on this side of the world, it ricochets through to delays on the west coast of the u.s. and europe and now we are talking about a delay of shipments and delivery of goods to shopping centers around the world which means higher costs
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involved in delivering those goods which feeds through to the global inflationary story and eventually through to the idea that the global recovery is losing momentum because of the ongoing supply crunch. the congestion we are seeing in hong kong for example which is considered to be one of the more efficient ports is an indication of how acute the pressure remains and certainly given that we are in peak shipping season for the holiday season. most manufacturers say they are looking past christmas into next year. francine: i have to say chips and ships is one of the most difficult thing to say. i feel like my fair lady every time i try to say it. is there any indication of a circuit breaker? enda: it is difficult to say. on one hand, there is a view that all of this will snap back.
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the global demand story could come to a boil. demand for goods made in china especially after christmas. there is the view also that you have a lot of supply coming online given that it is containers, the supply of semiconductors, that will all flood the market and bring things back. and then you have the broader story around prices with commodities and raw materials. there is a feeling that once we get past the energy crunch and after the winter, those prices could also combat. there is a way out. but we speak to a lot of manufacturers and when we do they always say that they are not looking one month ahead or 2-3 months. six months out, they do not expect any near-term circuit breaker or major relief in the kinds of costs and challenges they are facing. that is why a lot of these people are girding -- whatever
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is happening this year, they are girding for chips and ships as an issue to last at least through early 2022 and if not then, into the middle of next year. francine: thank you so much. and a karen, head of lt asset solutions. i don't know the timeline you are looking at or if this makes a difference to how we should play the market but is there a danger we will see a flooding of chips? that could lead to a bigger problem. john: the supply chain issues are things that are probably not going to be fixed quickly. there was a wall street or a white house report last week talking about reskilling workers . these are long-term things that take time. the period we have been through
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is exceptional. the pandemic, and a snap back and we are left at a precipice. what does that mean? the timing is difficult. it seems likely, i think you reported that a port will be open 24 hours to alleviate the backlog. francine: what does it mean -- are there any parts of the markets that are attractive right now? or is it tricky to find right now? john: we have had some positions in asia reflecting this concern that basically the intraregional trade problem, and slow down predicated by china but also the semiconductor situation which has been quite persistent -- the debate now is to whether these
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impacts will be transitory or not. they tend to be more persistent than people might like to think. these are more headwinds. this is reflecting or we see them as economic headwinds that will take some time to play through. francine: what is your take on the u.k. right now? john: we have a negative view on sterling. we know sterling is running and the bank of england brought forward a rate hike expectation. it is interesting to us that there has been no reaction to that news which supports our thesis. it is a longer term view that past brexit will play out slowly and britain is isolated.
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this will prove to be a problem economically. we are already seeing edge. energy dependence on gas is exacerbating the problem but also the labor market situation. it is a direct result of brexit. and these are headwinds again. we think that will be reflected in a weaker pound over longer term. francine: is there anything that looks attractive right now? i don't know if there will be tax changes in the future or if the u.k. will be able to attract foreign investment but is there something long-term? john: global equities are quite cheap. the index is heavily energy oriented. the u.k. and japan look relatively more attractive. francine: overall, i don't know if you buy into crypto or gold
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but is there something away from equities or bonds that we should be thinking about loading up on? john: commodities would be a nice hedge against inflation. the bloomberg commodity index made all-time highs last week and the previous week. the trend has been huge. old we have had as a plate -- gold we have had as a play in our portfolios. crypto is something we do not invest in because of its volatility. it is not clear to us that it is an effective diversifier. francine: do you do anything with gold? john: yes, we have used it as a hedge previously. we don't have any position in it now.
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the dollar is a reasonable hedge. the environment is uncertain so we have a preference for the dollar in the event that this all goes bad. the dollar will be the destination for safe haven flows. francine: what is one thing you are selling right now? we went around the world in 12 minutes. is there anything right now you think, i have had a good run with it but it is time to selloff? john: in terms of our equity positioning, we have played a rally. we are neutral. we have not gone short. if you sell equities, what do you buy? we are long on credit. we are long on investment credit.
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despite all of the short news that seems bad, growth is still expected to be above trend. unless we have a growth slow down. no one is calling for a recession. the environment could remain moderately pro-risk and we are looking for better entry-level spirit any -- for better entry-level's. -- levels. there are warning signs -- it is not a stable equilibrium. it feels like there could be a breakout. francine: john o'toole, amundi. coming up, we speak to facebook's nicola mendelson after facebook said it would invest in jobs in europe to help build its meta-verse. that is coming up shortly.
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and this is bloomberg. ♪and this is bloomberg. ♪
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francine: welcome back to the open. 24 minutes into the trading day. futures. a lot of focus when companies start reporting on inflation. whether it is transitory or the
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risk of a becoming entrenched. you can see the euro stoxx 600 down. and similar losses with u.s. futures. let's get straight to your bloomberg business flash. >> goldman sachs has received approval to take 100 percent ownership of its security joint venture in china paving the way for an aggressive expansion in the second largest economy. apple is unveiling the first redesign of its macbook pro in five years. the new model will include a magnetic charter -- charger and and hdmi code removed from the last model. real estate listing company zillow is putting on hold u.s. home purchases as it works through a backlog of properties. it bought more than 3800 homes
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in the second quarter to flip and is beyond operational capacity. the break could be a boom for the main rival open door. netflix squid game will create almost $900 million and value for the company according to figures seen by bloomberg. it cost just 21.4 million dollars to produce. netflix stock has climbed 7% since the release of the show on september 17 and even investors critical of the company expect it will lift its performance in the third quarter or its forecast for the fourth quarter if not both and that is your bloomberg business flash. francine. francine: i cannot make up my mind whether i want to see it or not. it is darker. my benchmark is leeann. may be otherwise i will just look at the netflix numbers instead. >> all i have to say is i am
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desperate to watch it. i still have not but i have watched the trailer so i promise you i will watch it this week and report back to you. my benchmark is how many people are watching it. i will report back and maybe i will get you a nice tea so you can watch it with that then. francine: deal. you have seven days. coming up, we will have a full round up on china. this is bloomberg. ♪
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francine: welcome back to the open. 30 minutes into the trading day. data disappointment. china's third-quarter gdp misses estimates. the property slump and energy crisis weighing on the economy. andrew bailey says the bank of england will have to act. facebook plans to create 10,000
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new high skilled jobs in europe over the next five years. we will speak to the facebook vice president. this is what we are seeing on the markets. a little bit of a down day as we try to figure out what the market is focusing on. european stocks down 0.4%. partly because of disappointment on gdp growth in china. pressure on european stocks. this is because of supply chain concerns. the chips and ships. it is definitely weighing on some of the earnings overall. the docs and the cac and the ftse 100 cash the d -- the dax, the cac, the ftse 100 impacted.
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we are seeing a repricing in bonds. energy is hurting some of the companies right here. we are trying to figure out what the breakeven point is for energy consumption so will there be more of a shift or rotation to oil consumption from where we are right now? china's economy weakened in the third quarter. slightly below estimates. recorder print came down from the 7.9%. joining us now is sophia. great to speak to you. how much weakness is china willing to tolerate in its economy? >> that is the key question. remember, china has a growth target of 6% set back in march which i the time people were saying would be extremely easy to achieve. the pboc governor on sunday said growth remains intact and china could still achieve that this
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year but it is still the question. how much further will growth slow in the fourth quarter? the energy crisis and the property market crisis really kicked in in october after the period that the data is showing. we were already seeing weakness in two significant drivers in china's economy and that is bound to get worse in the fourth quarter. china is still willing to tolerate slowing growth. it is unlikely to ease monetary policy anytime soon. francine: what are the authorities saying about the evergrande contagion? we are hearing from the pboc and others that everything is still under control. >> controllable and contained, those are the keywords. those have been uttered by chinese authorities in the last two days. this is of her time -- this is
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the first time that the pboc has responded. saying the pboc is watching this and he thinks that china will be able to control the evergrande risk. one key thing to note is that the pboc is looking to limit the risk from spilling over into the rest of the real estate sector. i would love to have asked him how he thinks that is going. we are seeing more companies saying they will struggle to pay coupons do on their dollar debt. a lot of deadlines looming this month. and evergrande with a 30 day grace period also coming up in october. we will see whether evergrande itself can make good on debt obligations. is that working? what is china doing to contain evergrande's risks from spilling
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over into the rest of the property market? and when will it no to -- know to step in? francine: the gazillion impossible question to ask is what kind of timeline are we looking for? could it take longer than a few months? >> a resolution forever grand could take months -- a resolution for evergrande could take months or years. but january is what we should be looking at which is when a significant portion of the china real estate sector has to pay, not just coupons, but principal amounts on their debt. that is a big deadline for the sector. citi credit analysts saying
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the pboc has to do something before that otherwise we could see a lot more pain and significant slowdown in china's economy. it is unnecessary. taking it a bit too far in citigroup's opinion. there is still a lot of time. we could still see a lot more defaults. most economists and credit analysts say that what the answer to your million dollar question is, nobody knows. francine: [laughter] thank you so much. coming up, we speak to facebook's nicola mendelson after facebook said it will invest in 10,000 new jobs in europe in the next five years to help it build its meta-verse. this is bloomberg. ♪this is bloomberg. ♪
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francine: welcome back to the open. 30 -- 38 minutes into the trading day and we are seeing some pressure as we wait for earnings from the u.s. and we are worried about chips and ships. it is all about the supply chain disruption and what that means for future growth earnings. mix into that the energy concerns. corporate news, facebook is
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investing in thousands of jobs in europe but the u.k. will miss out. the tech giant wants to create about 10,000 new positions in the eu in the next five years as part of its push to create a meta-verse. it targets a market span. mark zuckerberg painted his vision for the meta-verse as the future of facebook where consumers would live, work, and play within it. we speak with nicola mendelson. thank you for giving us a little bit of your time. when you look at the meta-verse and what you have just announced, 10,000 new jobs, how many more jobs could we see? is the meta-verse taking over the way we will interact with all social platforms? nicola: good to talk to you.
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those are a lot of questions. let's take each one. we are really excited about our plans to announce 10,000 new highly skilled jobs within the eu in the next five years. the eu is a fantastic place to be able to do business given the size of the consumer market and the incredible universities and the talent. it builds on the investments we have been making over the years whether it is the research development we have for artificial intelligence in paris or the labs we have in cork. these jobs will put europeans in the center of our plans for our future. we are excited about the meta-verse. we see it as being the next computing platform. it is about making social interactions, the whole digital experience better. it is not about replacing the
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physical. it is so much better when we do this in person. but it is about the interactions we have online which will become much closer to the experience we have when interacting and person. we want to do our part in building the meta-verse. but no one company will own the meta-verse. it will be like the internet. francine: what is the next step for the meta-verse? it is difficult to do scribe it especially if you are not familiar with it because we don't have it yet. i don't know if it means that facebook will have to look at other ways of digitizing, monetizing and the hardware that goes with it. nicola: there are a number of different things. from the monetization side, we start with the people first like everything. just like the rest of the internet, there will be a lot of free things in the meta-verse
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but there will also be paid experiences. i did a session recently where i took a number of our partners and we had a meeting on the moon. i never bought i would say that to you. it was interesting. there were 20 of us. we were on the moon. we took cell fees with our avatars with the earth in the background. you and i like doing this 2-d, but it is a lot of fun peering -- it is a lot of fun. francine: when you look at the fact that you are doing these 10,000 positions in europe, what kind of skill sets are you looking for? is it a real sign of support for the tech industry in europe? what are you seeing in europe
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that you are not seeing elsewhere? nicola: the jobs are a mixture. highly skilled. engineering, product jobs and associated business functions. europe is a fantastic bed of talent because of the universities. that is why we are excited to do this announcement. this is over the next five years. we will start recruiting before the end of the year. we are also interested and have explored what it means for how people work. not all of these jobs will be requiring people to come into the office. they can be in different places. or different countries. francine: apple and google are killing the ad cookies. what does that mean because of your advertisers?
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do you have to work extra hard to keep your advertisers? nicola: as a company, we face a lot of competition from different tech companies. we have seen the changes that apple has made particularly with ios 14. some businesses are navigating the changes. we continue to make sure we adapt our system to help businesses reach their customers and improve business outcomes while delivering conversions while at the same time honoring consumer privacy. we continue to share best practices. our top priority is to make sure that businesses that are coming on with us, either existing or new, that we are helping them drive their marketing objectives and helping them connect with consumers that matter especially into the holidays to make sure they can convert into sales and
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growth. that is what gets us excited. francine: are you expecting any pullback in advertising into the holiday season because of supply chain disruptions? nicola: all industries are seeing supply chain disruptions at the moment impacting them in different ways. our conversations that we have been having with business partners, it is very much square on for the busiest holiday period of the year and what is likely to be the biggest online marketing effort that we have seen given the digitization of the last 18 months. francine: i'm getting a lot of messages on twitter and instagram asking, what do i need to do to work for facebook? what kinds of skills -- the skills of tomorrow that you're looking for today to try to build this new meta-verse? nicola: that is great that
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people are interested. we are hiring. it will be a lot of different jobs. engineers, people interested and have skills in artificial intelligence, machine learning, design. across the spectrum. 10,000 jobs is a significant number. check us out online because we are definitely hiring. francine: if you look at the whistleblower, how has the internal response been to some of the revelations that she put forward? nicola: i want to be clear. her revelations and the subsequent coverage does not reflect the company i know, the company that i care about and that i am proud to work for. i want to be really clear. she does talk about the fact that we do research. and the reason we do research is because we care about the issues.
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we are in a new world and we are developing new products so we are always doing research as are many companies to allow us to get ahead of the issues. francine: there has not been an internal reckoning or some kind of internal investigation? are there any changes that she suggested that you would make? nicola: i want to be clear because some of the things that were put out is that we are encouraging bad content and we want it on our platforms and that is just not true. if you look at how we have invested so heavily in misinformation, hate speech and extremism and the money we have invested, a significant number, and we have increased by four times the number of people working these teams to over 40,000 people in recent years. we do not agree with the characterization of the issues
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but we do agree and we have been talking about it for a long time is that we do need standard rules for the internet. we have been calling for that and we will keep calling for that. francine: do you think it will lead to more regulation? nicola: i think it well. we don't think that is a bad thing. we already have regulation. a lot of regulation has been led by europe with things like gdpr. we think that more will come and it is something we are calling for. francine: nikola, thank you for your time -- nicola, thank you for your time. coming up, we talk a lot more about inflation. andrew bailey says the bank of england will have to act as energy concerns stoke global concerns. this is bloomberg. ♪
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francine: welcome back to the open. a 50 minutes into the trading day. let's get straight to the news. leigh-ann: pboc governor says authorities can contain risks to the chinese economy from the ever grand crisis.
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concerns that pressure from ever grand is spilling over. new zealand's inflation rate has jumped more than expected in the third quarter the fastest pace in 10 years reinforcing that the central bank will keep raising interest rates. inflation rates surged to 4.9% from 3.3%. and netflix's squid game will create almost $900 million in value for the company according to figures seen by bloomberg. it stands out because it cost just 21.4 million dollars to produce. the netflix stocks have raised 7% since the show has been released and even investors critical of the company expects it to lift expectations for the third quarter if not the fourth quarter or both. global news 24 hours a day, on air and on bloomberg quicktake,
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powered by more than 2700 journalists and analysts in more than 120 countries. i am leigh-ann gerrans. this is bloomberg. francine. francine: this is what we are seeing in the markets. overall, a little bit of pressure because earnings are coming out. analysts expect pressure on margins. we are seeing repricing on the bond markets. there is divergence between what we are hearing from andrew bailey paying they must act to avoid inflation becoming entrenched and the ecb being much cooler about transitory inflation. coining us to talk about the markets is our markets live team. congratulations on that. what are you watching out for for monday? a busy week ahead. china growth not as good as expected. >> it is a monday. the market watchers will tell you that this is the crescendo
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in that part of the symphony because we are at the moment when we are building up inflationary expectations and central bankers are starting to respond. there is even another type of bond purchasing programs appeared the bank of england seems to be different. the thing to note with the bank of england in particular is mpc voting members are more dovish than andrew bailey. money markets are pricing in a rate hike, 25 basis points. francine: will we see a lot of price action in bonds more than equities? >> we have seen gilts move when bailey was more hawkish earlier. the pound is heavily weighted. the ftse 100 is more commodity back. strength there because of
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commodities rising. francine: what else is on your watch? energy prices -- chips and ships. the idea is that there is a traffic jam and we don't know how much worse the supply chains could be tomorrow. >> supply chains and bitcoin. what is happening with the supply chain issue is that china's input has slowed down but their experts have increased. ultimately, i think that is a good sign. it is weighing on the global economy though and we are still recovering from covid. shipments take time. people that ordered cars six months ago are still waiting. francine: bitcoin is on the rise after some pressure over the weekend. >> and everyone will tell you that we are feeling the market is right for the new high to be established. let's be more cautious. this is a cash base.
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people will tell you it is diverting attention away from the cryptocurrencies. the argument i would say is if you dip your toes into the water , wouldn't you want to go in for the dive? there are volatile waves of the cryptocurrency market is something to keep in mind. open interest for the next three months is soaring. francine: if she says to stay calm, stay calm. that is my number one piece of advice. ♪
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>> we believe it is a short-term impact. global trade flows will return to normal. >> the energy story means it will last longer. and it will of course get into the annual numbers as a consequence of that. >> working together to see how best we should be watchful of the situation. >> there are very good arguments to say what we see is --. francine:

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