tv Bloomberg Daybreak Europe Bloomberg January 6, 2022 1:00am-2:00am EST
♪ manus: good morning from our middle east headquarters in dubai. it's daybreak europe. the stories that set your agenda. fed minutes signal a more aggressive rate hiking schedule than expected. the treasury picks up steam. stocks and futures drop as tech sells off. bund deals make a break for zero. german inflation today may shift
the narrative. gradualism is toast. the balance sheets will be reduced. the question for the bond market is, what is the pace of balance sheet reduction? how and when will they do it? good morning. dani: good morning. it's not often that we have a minutes that will take the market by surprise. the fed is abandoning gradualism. yesterday, it looked like a step change. that's a shock to markets. the past four days, this is the biggest move for real yields since march 2020. manus: the question is this. we are moving from qe to qt. this is what we must abate, the scale of the shock and equities.
that has not manifested itself to a far shock. that's what the fed must avoid. avoid the shock. dani: absolutely. for the most part, we've continued to have accommodative conditions which has allowed stoxx to remain easy. if we do get this tightening in financial conditions finally, is that what prompts the bar shock? everything across-the-board really badly hurt. manus: absolutely. goldman sachs exposure. tech exposure is at a record low. hedge ease or dumping tech at a furious rate. dani: absolutely. europe playing catch-up in a big way this morning. this is significant because europe usually does better forgetting that rotation to attack into value. not so today.
european futures down by 2%. that will fall from an all-time high. more pain today. yields higher by two basis points. money flowing into yen. other risk assets down this morning. manus: we will talk about that no moment. the december meeting showing officials considering rate hikes earlier and faster than expected. it has led to a selloff across the treasury curve. let's get the reaction across markets. juliette saly is in hong kong. let me bring it first to you, archie's asia correspondent. i sent you earlier, it's not just a pivot, it's a vault change from the fed. good morning. >> it really is a very hawkish turn. they are not just signaling
interest rate hikes. the fed is also talking about balance sheet normalization. quantitative tightening. the question now is not a matter of if but when the fed starts tightening. january is too soon. there's a meeting this month and we will get jobs data this week. we will have fed speakers coming up. most odds are now on march in terms of a possible lift off point. it will signal what it's going to do with its balance sheet. for most emerging-market central banks watching this today, it's been a rude awakening that the fed has taken a hawkish turn. it will be all about tightening policy. dani: a rude awakening across-the-board. thank you so much. let's bring juliette saly into the conversation. what are you seeing? how painful is this morning's session? juliette: pretty painful here in
asia. down for a third session. seeing a lot of weakness coming through in japan. the market hasn't its worst day since june of last year. a big selloff coming through honest really is market which is having its worst day since february last year. we are still seeing a big selloff. let's flip the board. hong kong re-imposing measures for the first time since almost a year. we heard in the last hour from cathay pacific. they are only going to slide 2% of pre-covid passengers in 2021. 20% of pre-cargo flight. as you can expect, a lot of weakness coming through in these reopening stocks as well today. manus: thank you very much. let's move it over to the crypto space. bitcoin did not like what it heard from the fed.
crashing to levels that we haven't seen since the december flash crash. july no lassiter has the most here. joanna, in the first instance, crypto took about our -- a bar. >> exactly. if you thought that you couldn't hide in stocks or bonds, you also couldn't hide in crypto which has tried to boost this narrative that it behaves independently and it's a good hedge against other assets. it is not today. bitcoin is down below 45,000, its weakest point since the early december flash crash. ethereum is at its weakest point since october. it's actually doing worse. across-the-board in crypto, we've also seen that weakness. manus: thank you very much. let's get the very first response from our guest this morning.
lots of opinions this morning. you can take for hate -- rate hikes in your stride. they have the capacity to reduce the balance sheet. what is the biggest risk for an asset allocator? good morning. salman: good morning. the biggest risk is debt in the system. that's the structural reality of the last many years. exacerbated by the pandemic. the real rate situation has been a key requirement for keeping that date under control and keeping it sustainable. our thinking is that the fed will find it very difficult to tinker with this reality, especially given the burden on all the leverage side. although it was mentioned in the fed minutes, a bit premature. they need to get to the hikes first.
we are above world war ii levels right now. dani: what's the fear? is it the gradual rise in real rates? is it a step change in real rates? salman: it is a step change. we've been negative for some time now, thinking about potential volatility by the fed. if we go with the moves we've seen so far, driven by real rates, it is starting to shape like a policy mistake. the fed will have to discontinue. the reason behind it, as we know from 2018, 2013, if these moves go faster, they could really shake the system. there are some indications of policy mistakes starting to take shape. dani: we want to dig into this deeper so you will stick with us.
that's salman ahmed. let's get to the first word news with juliette saly in singapore. juliette: russia and its allies set the send troops to kazakhstan at the request of the country's president after violent clashes with antigovernment protesters. the central bank will temple airily hauled financial market operations following the biggest challenge to leadership in decades. italy set to make jabs compulsory for people over 50 and will further reduced what unvaccinated people will do after covid cases rose to lower -- record levels. president macron is under pressure. more than 320,000 cases. australia has revoked the visa of novak djokovic after he arrived in melbourne for the first grand slam tournament of the year. he has not made his vaccination status publicly known and had been granted a medical exception to enter the country.
federal officials now say he has not met entry requirements and will be deported. >> on the issue of mr. djokovic, rules are rules. there are no special cases. rules are rules. it's what i said yesterday. that's the policy of the government. juliette: global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. manus: thank you very much. coming up, we continue the conversation with our guest house this morning. more about the fed. this is bloomberg. ♪
conference very clearly, they were going to go. >> is this a meaningful shift where the federal reserve is going to raise rates so rapidly? >> i don't think they will be as cautious as they were in december. remember, this is just the fed target. >> what has changed in terms of the fed reaction functions? >> as we know, it's usually not the first rate that matters. it's usually the last one. >> a few hikes with real rates going quite low and likely to remain real low is probably accommodative. >> the only surprise perhaps was the view on the balance sheet runoff. >> we should expect volatility to return to markets when we get unexpected results out of central bankers. >> orderly volatility in the marketplace because the fed has signaled pretty significantly about their taper goals. >> bloomberg tv guests
commenting on the fed minutes. let's bring in another one. we were just talking. you flagged the potential for policy mistake. if we are headed towards a policy mistake, what does that mean for your portfolio? what do you want to buy and sell? salman: you are thinking about the 2018 as the baseline template. for the steepening of the curve, there's a big answer for that. in terms of our positioning, we think that's the right stance to take in a world that will still have high inflation even though it may come down from very high levels right now. it will be visibly above 2%. in a world where central banks will need to be concerned about the way -- very high debt ratio. we see that in europe already. we've been asking for inflation
for so long. now it's there. why complain? that may be the start. we are positive on value. we think the volatility due to macro policy factors is going to be much higher in 2022 than it was in 2021 where the pandemic was a key factor still. manus: can we dig into your value theme? there's no need to rush to this. you are already ahead of the curve and deep into the pivot from growth to value. can i dig deeper on that. goldman-s hedge among -- fund exposure showing the lowest exposure on record. how deep into that pivot are you? will you add more to value, specifically into u.s. relative to growth in the u.s.? salman: in the u.s. on the
growth side, we already depreciating. we are seeing growth. it's more about growth quality. we saw that when unprofitable tech started to come under a lot of pressure. that part of the market has had a big shock to it. it's the quality tech stocks which continue to rally. we are choosing between quality versus unprofitable tech. this is an environment where you have to be very careful. that is something that has been an ongoing trend that is going to be accelerated by this policy shift. when it comes to value, it's really those which have underlying earnings that we are focused on. dani: it's interesting. it seems that the shift to value isn't this clean. it's a better cycle, cyclicals. yesterday, we saw small-cap tech
lead the declines. europe looks like it will have an ugly day as well. what do you make of these types of assets selling off? in that classic, cyclical. salman: you know what? this has been increased by the potential pivot. of course, the trends will continue to come through as the omicron situation stabilizes. our view for some time has been that omicron is likely to be a bigger supply-side issue than a demand-side issue. that's where some of those supplies chain issues come into play, depending on the business model. that's also important with supply-side issues which were starting to improve. they will probably get accelerated again because of what you see with omicron.
manus: you said that you are underweight duration. what caught my eye is your position. we are talking about policy divergence. ecb, boj relative to one another or the timing of that. i want to focus on the differential between the ecb and the fed. for you, that's about boones. in our headlines, we say going to zero. talk me through how soon -- you've upgraded your bund allocation to neutral. what does that mean? salman: as you mentioned, it's more of a relative value assessment relative than saying that boones will deliver positive as it returns. the u.s. treasuries are much more exposed to negative shock, given where we are in the cycle and the vergence is coming through in the policy.
it's more of a relative value in that case. having said that, i think the overarching force would be yields to go up higher or from -- cost of money. dani: a few guests see europe playing catch-up in terms of growth. do you see that as well? is that another factor that could perhaps create boones selling off and and ecp that is more hawkish than we expect? salman: potentially, the pressure will always need to be more hawkish than they are right now. what you've seen over the last few months is that the fed was behind the curve in terms of its narrative and rhetoric. and quite suddenly had to shift course, ignoring that inflation is there. we have not seen that in the ecb. the ecb's policy is different from the fed. they also have to think about
liquidity in the credit spreads in the system. that is something we learned once again during the pandemic shock. the spreads matter first finance show -- for financial stability. visit -- the ecb cannot become as hawkish as the fed can. it's a big issue in the background. manus: we certainly learned that during the pandemic. you can for central banks into buying junk [laughter] . [laughter] spreads matter. we will talk about that in just a moment. don't hang up the soon -- zoom. dani and i will discuss chinese tech with our guest. is he brave enough to have a little bit of tech for the weekend? this is bloomberg. ♪
>> the ability to live with the virus which is extremely easily transmissible, that isn't as fatal is the exact opposite of china's policy of zero covid. >> we are seeing border controls being tightened. >> we may see more shutdowns of large cities. that could cause economic weakness. >> there's going to be questions about the sustainability of the zero covid approach. this time of thing will happen again and again. >> this is a politically driven challenge. it's not primarily a virus driven challenge. they will stick with it. manus: some of the guests on bloomberg tv speaking about china's covid policy.
covid is just one of the concerns in china at the moment. you have the hammering and stocks on the tech side. spreading into asia's broader markets. fed officials are considering raising rates. i will ask you the same question we've asked many global investors and they seem quite bearish. how and -- investable is china? he joins john fitzpatrick -- let's have a look at the rest of the go hearts. -- cohorts. you have all of the stalwarts negative on china. is china investable for you in 2022? salman: frankly, i think china is a complex economy and a complex market. it is significant. i would look at china's market
which was one of the best-performing bond markets in the world last year and has been doing a lot of work that shows that china volatility is very comparable. it depends which asset class you are talking about. it becomes clearer. there's no doubt there's a profound regulatory shift going on there. there is differentiation starting to take place. we have to appreciate the size of the market, the complexity, and the depreciation with an asset classes. it was a great case of that. dani: if we dig into the equity picture a bit more, you have this double whammy of tech wobbles in the u.s. spilling out across the world. tencent selling stakes that seem to hit all of the tech stocks.
is this too much at risk in tech specifically to try to dive into the market? salman: we think so for the short term. this has been a very tight relationship since the pandemic began. given our outlook on real rates in the short term, they may decompress further. we think in the short-term, we are likely to see more headwinds there. having said that, i think depreciation will take hold and we will certainly go back to buying tech and continue to avoid uncomfortable tech on that side of the market. manus: can i just push you? you mentioned real rates there.
the turn higher in real rates. 20 pips and four days. do you think that moves fate some? do you think that this bike is a bit too rich? salman: very sharp and fast. our assessment for 2022 is that we may settle around 50 to six debases points. having said that, i think the question is, where do real rates settle in five years, 10 years time? that's where the pricing really comes into play. if you look at the fed forecast, it is zero real rate at the short end. we are starting to question that we can have zero real rate from a steady perspective. how much that is.
dani: good morning from bloomberg's european headquarters. i'm dani burger with manus cranny. this is bloomberg daybreak: europe. here's what you need to know. hawks out in full force. fed minutes signal more aggressive rate hikes than expected. the treasury route picks up steam, stocks and futures drop as tech sells off. plus, bund yields make a break for zero. german inflation may give
further clues. what an exciting market day. it was the fed minutes that really shook assets. we saw a real yields in the past four days jump 20 basis points, the fastest pace we've seen. those rates move toward zero. we remember the big market event in march of 2020. our last guest saying that the fear here is a step change in these real rates. manus: absolutely. the conversation we just had with fidelity is not about the trajectory of what we've done in the past couple of days, as you pointed out. it's about where we are in five years, where are real rates in five years? infidelities view, they go to positive. if the fed wanted to re-grasp the higher ground and narrative and control the inflation or say, we are trying to get there, we are trying to offload the balance sheets, bloomberg
financial conditions for the united states of america, tighten me up. you raise me up. but josh grogan in there. good morning. dani: [laughter] i have to say that this index is still positive which suggests easy conditions. are we starting to see that change? i think that will be the important thing for risk assets. they can't be easy if we will see stocks continue to selloff. manus: but then the whole extreme ease that we had in qe and the pivot to qt is because we were in extreme environment. that's the message from fidelity. here's the stoxx. we saw that trashing of tech yesterday. down 3% on the cash market. the pivot from growth to value continues. hedge funds dumping tech at a rate that we haven't seen on record in hedge funds. the rest of the market, 10 year yields spiking higher yesterday, the highest levels since 2020.
stoxx 50 down 2%. the curve actually flatten. dollar-yen, number saying that it could make it to 120. jbm says this is a value proposition on the n the moment. dani: let's just talk about supply chain disruptions. the global chip shortage, they could potentially start to ease this year. the demand for battery-powered vehicles grows. joining us now is philippe houchois. thank you for joining us this morning. there are some estimates and expectations out there that the chip crunch might ease. i should point out that delivery times in december rose yet again. is it too soon to say that the supply chain issue is going to sort itself out? philippe: it's too soon to see
how much it normalizes, i guess. the good news in itself is that we have not had bad news on the supply issues in the past six weeks. that in itself is some for the -- form of good news. we are not at the point where we can confidently say that production is going to go back to normal. we are in and in between face. that's an improvement in itself. manus: i want you to think about this and at the end of the interview, i want you to give us an answer. the f-150. you have the ford vehicle. the new hummer. i will leave you with that thought and i wanted answer. what will happen to demand this year? are we going to buy because we have back loads of cash? philippe: no. there's pent-up demand to begin with. that will take some time. even if we have some easing of supply issues, we are not going
to see a normalization of inventory at these levels. that's very true in the u.s.. that's partly true in europe. all the pent up demand for cars in europe is less then what we see in the u.s. right now. normalization of production, inventory buildup is going to be something that starts towards the end of 22. european carmaker stocks are trading at record highs. does that make sense to you? philippe: it's a very unusual cycle. to be fair, we have very strong earnings across the industry. some of them are structural. that's the hope. at the same time, share prices are high. the traditional valuation multiples are in line with what we have seen previously. do earnings rollover as they
have done cyclically in the industry for many decades? or do we see a bit more stability in the earnings? the discussion becomes around the multiples. the share rates are high. the multiples are compressed, as they are typically at the peak of the earnings cycles. we have earnings that are as good as we've ever seen in the oil industry. manus: tell me this then. is this the year that tesla really gets challenged by gm, ford, and vw? philippe: the ramp up of sales by these competitors is accelerating to some extent. i think actually, this year is more about whether tesla is going to continue to demonstrate that amazing ability to grow. keep in mind, they have berlin and austin. 2022 is more about, do we see a
situation where tesla gains a significant amount of shares because they are able to deliver products and their backup has been growing steadily for the next -- last few months? about six months right now. i would put it in those terms. 2022 is about, is tesla going to go from a theoretical threat to the industry to a more tangible threat as they execute and grow quite fast? there global shares will start to register. a bit more than 1% market share. are we looking at 3% market share over the next two years at tesla? that's what the issue is for 2022. dani: that's fascinating. there's a lot of excitement around the electric subaru. your appointed tesla taking more market share. it's not just the normal players of the vw's.
it's also lucid, rivian. if tesla will continue to take market shares, does that mean that there's not enough space for all these carmakers that were getting into evm startups? philippe: not everybody is going to win in these conditions. keep in mind, this is what we call a zero-sum game. for traditional carmakers, we are replacing traditional combustion engines with electric vehicles. when you sell ev's, you sell fewer. when you are tesla, there's no trade up. it's pure incremental growth. i think when you think about tesla, are we starting to talk about tesla market share or are we talking about tesla's share of the electric market? again, their share is still around 80% of the u.s. market in battery ev's. this is going to shrink over
time. and has to shrink or otherwise there's no growth. manus: very well-made point there. you've had time to think about those questions on value, demand, pricing. do you want silverado, a 150, or a hummer? [laughter] philippe: ford and gm. that's part of my answer. ford has not been on top of the truck market for bad reasons. by all accounts, the ford f-150 is the king of trucks. hopefully the electric version will hold that tradition. manus: you are a good sport. well hedged on the device side. fully hedge. we've been talking about trucks
and cars for the past 48 hours. we spoke to bloomberg tv about the vehicle launch. >> market. we anticipate that we will start with the work truck variant and that will be available in spring of next year. in the fall, we will have the rst and we will work to get them to customers as quickly as we can. the reception has been great. the first edition of the rst sold out in 12 minutes and reservations are still coming in. we are super excited about the response that we are getting because this is a ground-up ev truck that has so much capability. we are so excited to share it with the world. >> congratulations on all the people ordering already. at the same time, you are a year or so behind where ford is with the f-150. how will you catch up? is it important for general motors to catch up with ford when it comes to this full-size pickup? >> when you look at the ev race,
we've already had the bulls out for several years. we are shipping hummers as we speak. the cadillac lyric will be out in a few months. early next year, we are going to have the silverado and the chevrolet blazer. i am so excited about all the electric vehicles that we have coming. that's why i'm so confident that by mid decade, we will be the leader in ev's with the battery plants we have, with the assembly plants we are putting in place, with the models and volume segments of the market. we are going for total leadership. >> with regards to the accessibility of some of these vehicles, a lot of your competitors, these are still relatively expensive vehicles that can sometimes cost $60,000 or more once you get them fully loaded. when do we get to a point when we see a little bit more price accessibility that we see
broader adoption of ev's? >> i think that's why it is so important that we have the chevrolet equinox coming out. it is so important to get into that affordable part of the market. it's a huge volume segment and that's exactly where we are targeting the equinox. it's going to be nicely equipped. people are going to see just how much value they are going to get for that starting price of $30,000. that's when you will see that huge adoption, especially with the work we are doing to make sure that there's adequate charging. i'm super excited to get those affordable ev's into the marketplace. as you know, we really want to bring everybody and. dani: these electric trucks are pretty cool. i think i will be the only person left without an electric
f-150 at this point. manus: i just can't wait for an electric. i have a vision of me. dani: if you are looking for a copilot, i would sign up for sure. let's get over to the first word news with juliet. perfect. juliette saly in singapore. juliette: hey. russia and its allies sending troops to kazakhstan at the request of the probe -- country's president. the central bank says it will temporarily halt financial market operations following the biggest challenge the central asian countries leadership in decades. italy is to make jabs compulsory so people over 50 and will further reduce what unvaccinated people can do. this after covid cases rose to record levels. president macron under pressure after seven europe's highest
ever daily count of infections yesterday. more than 320,000 cases. north korea says it testfired a missile on wednesday as it continues to develop strategic weapons and a challenge to the u.s. and its allies. state media saying it hit a target more than 430 miles away. the test comes days after kim jong-un indicated nuclear talks with the u.s. were a low priority. global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. manus: thank you very much. quick snapshot of what's going on on the global markets map. it's all about the contagion from the rates repricing in the united states of america. if you look at the consequence in the fx, the aussie dollar down, the renminbi softer, the krona.
this is about the dollar. goldman sachs says, it's all in the dollar for him at the moment. manus: yeah. -- dani: yeah. the market trying to adjust pricing now. the yen has been flagging all morning. it's been fascinating. if you look at j.p. morgan's index, it's at a record low. yesterday, we had buying of the yen. it's this haven play. it's a concern. are we headed to a policy mistake? manus: absolutely. we are going to talk more about policy divergence in just a moment. it's all about the bund. fidelity says they will make it to zero. who also saying that? manus: exactly. -- dani: exactly. german inflation may give further clues on that. that's next. this is bloomberg. ♪
♪ manus: it's daybreak europe. i manus cranny. to germany. the topic, bund yields. we get the german inflation data later today. the volatility may be on the way for the bond market. zoe chave its is with us. it to have you with us. inflation data from germany today. the great debate is whether inflation will can turn -- return to consensus. >> in germany, the number should definitely be down. it has had an eye watering 6%. in december, the prediction is that it will retreat to 5.6.
that's obviously still quite a high number. this is partially statistical. travel numbers should fallout and that should make quite a severe number. further on, we think that the november number probably was the peak. further down, we get the euro area numbers. we are likely to see the number retreating there. it was 4.9 in november. it's likely to go down to 4.8. earlier this week, the french central bank governor said that we have likely seen peak euro area inflation right now. all done from here. just as a reminder, inflation numbers will stay very elevated throughout 2022. predictions are that it won't be
until the fourth quarter that the euro area number will be below the 2% level. dani: within all of this, one of the idiosyncratic issues that europe is facing is sky high energy prices. is that not going to see inflation higher for longer in the region? >> energy is definitely the wise card here. the thing here is what we need to think about when we think about inflation. the year on year number. last year in the first quarter, we saw a big jump in energy prices. now the first quarter this year, we are likely to see an equally high jump. that means that although the numbers are still not painful, there should be rare -- a retreat with energy. a lot of european governments have put in measures to stop those sky high energy prices
from actually reaching consumers. so that means that while on paper, we've got this huge energy inflation, the individuals don't feel some. that does make a difference. dani: great round up there. thank you so much for joining us. coming up, markets reacted those fomc minutes that we've been talking about. the impact the commodities as well. oil following on that prospect. concerns about demand in china, next. this is bloomberg. ♪
how do you look at oil this morning? brent still around $80 per barrel. is this the aftermath of the fed moving more hawkish on risk assets? is the overriding concern china and growth there? bertie: as you say, we saw oil retreat early this morning. definitely oil took a tumble yesterday following the fed's announcement. this morning, it's more about looking at chinese demand and whether there will be a weakening due to the covert outbreak which is the worst we've seen since the initial flareup. everybody looks so quickly get china because it's ages -- asia's largest economy. they are still pursuing this zero-tolerance strategy. whenever there's a locked down, it affects the oil demand there. manus: in terms of the
supply-side, we also got some data. we've had this 400,000 barrels promised by opec in december. they promised to put it back on the market in february. the reality of what opec actually delivered in december was something very different. where the numbers? bertie: exactly. the reality will be different. we've already seen nigeria struggling to hike its output in line with its closure. problems in libya. there were militias that shut down libya's largest oil field. that caused a big production drop and also they had some pipeline repairs which was an additional amount off-line. they've seen progress on the maintenance side but there still an issue with the largest oil field. of course, everybody is looking at kazakhstan with antigovernment protests. people are waiting to see whether that is affecting their
oil production. some producers have lost 2 million barrels a day which is more than nigeria. that would have a big impact as well if oil production is affected. manus: we picked that up with bob mcnally yesterday morning. thank you so much. so, the bond markets got quite a kick. this is about whether we go in march with a rate hike and how furious or fast those rate hikes come and how much a rundown we have. the curve flattened yesterday. dani: curve flattened. small caps selling off. is this the market signifying that we might be headed for a policy mistake? if we are seeing these assets sensitive to growth also getting hit hard yesterday. manus: yep. the question is, you saw the car
anna: good morning and welcome to bloomberg markets era. mark cudmore joins us in singapore to take us through all the market action this hour. the cash rate is less than an hour away. here are your top headlines. hocks out in force. fed minutes signal more aggressive rate hikes than previously expected. futures drop as tech sells off in the treasury rout picks up steam.