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tv   Bloomberg Markets European Open  Bloomberg  January 24, 2022 3:00am-4:00am EST

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in the hen house. francine: you could say the same when it comes to futures. fed watch. the focus will be on the goldman sachs call saying they are expecting more hikes that are priced in. giving the economy a soft landing. what the market worries about is all this geopolitics and may be a reason to sell with markets down. tom: what will it mean the terms of rate hikes? the goldman sachs line, maybe not priced in. but also the balance sheet, that is key. what they say about the run-up to balance sheet, when that starts, and how aggressively will they go? in terms of the actions and europe, lower on the ftse 100. a big week in terms of politics
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once again with that sue gray expected later this week. the french index down. in germany, similar. lower by 100 points on the day. in spain, the ibex is lower by a little bit less than what we are seeing in the u.k. and in germany, down by 5/10 of a percent erie it also the focus on italian politics. the decision by berlusconi not to throw his hat into the ring, it is a very opaque process. see how things are playing out across assets. gains after those solid losses we saw friday. the geopolitical risk of ukraine front and center. 0.4%. maybe this is a dead cat bounce. how much conviction is there in these markets? is it buy the dip back or is it
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fleeting upside? the 10 year seeing more action. the two-year up to basis points. -- two basis points. bitcoin, below $35,000, down by more than 1%. losses across the crypto space of about $1 trillion since record highs in november. francine: the main story is what is happening in geopolitics. we have heard market commentators say the selloff is not only because of ukraine. it is an excuse because we have been heavily bid and the rally has continued despite positioning, that this could be a good idea. if you look at the risk asset selloff, it has yet to impact the corporate bond market. the dollar stands to benefit from all of this. telecoms, the only sector in the green.
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tom: there was a lot of focus on unilever, the botched takeover attempt of gsk's consumer business. analysts are saying the foxes in the hen house with this activist investment -- investor taking a significant stake. piling pressure on alan jope. we have not had it reflected in the share price. the news is still being digested. in terms of the accell takeover from kkr, and philips coming in with the disappointing fourth-quarter. for the first half, a disappointing outlook. a couple big corporate stories we are watching. the bloomberg business, here is laura wright. >> kohls is fielding interest
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from two potential buyers. the latest comes from sycamore partners. private equity firm -- it is unclear how much the firm is willing to pay. wages will be raised above government guidelines after the company and across japan due to an ongoing labor shortage. the ceo of the drink giant told us consumers are more likely to accept price hikes because of the inflationary environment. >> i am hopeful business will come back in japan around mid february to the end of february. the peak time will come around that time. then the government will shift. that will help us. >> nelson peltz has taken a stake in unilever, adding to pressure on the ceo alan jope
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after he abandoned the bid to buy glaxosmithkline's consumer health business. that is the bloomberg business flash. francine: a lot for markets to digest into the week we will have. a fed decision wednesday. developments between russia and ukraine being watched very closely. let's break down the risks we are watching. we have many angles to get through. overarching all of this is what the fed will do. goldman sachs thinks the market's mispricing and the fed will be more aggressive in hiking. >> that still is the big question, particularly as traders keep setting their sights on the march meeting. that is really going to be the battleground for all of these expectations. the discussion around how quickly the fed could go,
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particularly for this first rate hike right out the gate, will they actually be bold enough to deliver that 50 basis point rate hike that some people including goldman arguing for? or will they be more cautious and sick with 25? still a big debate. the jury is out, what -- but worth watching. tom: you have been following twists and turns of the diplomacy with russia. we have headlines crossing in the u.k. after the u.s. in terms of advising that u.s. embassy staff -- the u.k. saying some embassy staff are to be withdrawn from kia. -- from kiev. where do things stand in terms of diplomacy? have we come to the end of the road? >> the headline you alluded to does show the united kingdom is following the footsteps of the united states by saying we need to remove everyone who is not a central personnel in ukraine
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because the risk of invasion from russia is very high. what i would note is this morning in brussels, the tone is different, at least on the record. we did hear from the head of the european diplomacy saying they do not want to dramatize by pulling people out of ukraine. talks with russia are ongoing. having said that, we hear speculation that germany is considering a plan to evacuate people from ukraine. germany still very much in focus. 48 hours this weekend of embarrassment from the german external service. a general got caught on tape saying vladimir putin deserves respect and should be handed some respect. he has resigned. nevertheless, this coming to a point now. francine: if you put this into context, the selloff is partly to do of course with the fed.
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his geopolitics also the main reason there is not a bid for euro-yen because euro could be at the frontline? is there something in ukraine or is it an excuse to sell? >> definitely geopolitics is still at the back of investors minds. we saw that last friday when we finally got the reprieve from the bond selloff. geopolitical sermons -- concerns definitely a factor into that. coming into the fed meeting this week, investors waiting to hear the latest thinking on policy, those geopolitical risks will certainly act as a counterweight to the potential catalyst for yields higher going into this week. tom: how are you thinking about these risks? how acute are they for you? have you changed your portfolio as a result of what we are seeing on the border between ukraine and russia? >> when it comes to this
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conflict, we have been trying to take advantage of it. we are looking at very short term by russian companies. bonds that only have two to four months maturity. it has been suffering two to the uncertainty around the border. to be clear, those are very select opportunities. francine: i guess the concern is this is a tactical opportunity. could there be a broader selloff in corporate bonds if it were to turn ugly? >> most likely. i am in christine's camp in that regard. you would not see direct impact more broadly. but the market is quite elevated when we look at the equity
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market. all of that plays in. when there is sentiment in the market like that, when you have a geopolitical event or potential event, the market takes notice. i would say in terms of fundamentals, there is impact. other than the energy market potentially as in august, concern about sanctions, so in that regard there is the uncertainty that could increase. overall, fundamentals not so much. there are very few companies in russia that are still relying on the bond market and that is because it has had such a fraught relationship with the bond market and the dollar bond market is an particular over so many years because of sanctions that have been increasing. there is very little actually in
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terms of bonds outstanding that could have a direct impact on it. indirectly he could have an impact because the market is on edge. tom: we are seeing oil prices up about 0.8%. part of that is geopolitical risk. how much of a factor could that be for your inflationary outlook? if we do get an invasion, what it means for prices and how that ways into your views -- weighs into your views on inflation. >> that is an example of the inflation. i personally believe it is sticky. it is not related to covid. there are many other factors that allow inflation to be more persistent. there are other areas clearly in
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terms of inflation that go beyond energy, but energy is one area i think that will have a big transformation. that is more related to climb all -- climate change and renewable energy and the way we are relying on energy. that will be with us for many years to come. it has nothing to do with covid. there are areas outside of energy that are also impacted. i spoke to a big import or from chinese goods over the weekend and he was saying china used to subsidize exports and now he is opting for deliveries, it is harder to get deliveries and it is significant more expensive because policies in china are changing. francine: hold that thought, we will get back to you very shortly on this. overall the million dollar question is, how do you -- all
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of this? whether you play the dollar with the fed or go for something more known, because they have been hit pretty hard for smaller companies. >> absolutely. what we are looking at his traders searching for trades that offer the path of least resistance heading into such a big decision week for the fed, the precursor to that march meeting. the dollar definitely has been in the crosshairs for a while, especially because we have been observing it has not followed the path of yields higher. it has gone its own way for some reasons. we have had our theories. definitely an anomaly at the moment. investors are really piling on the bearish dollar bet. we will see how that plays out and perhaps buying the fact after selling the rumor. tom: thank you for breaking down some of the key things we are watching.
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we have more calls when it comes to these credit markets and trying to work out what the table football is doing behind you. you spin around from your zoom and play a couple of games. >> it is like game theory. tom: there you go. corporate stories, unilever, a big corporate story. an activist investor has b ought a meaningful state, jeffries saying they are going to push for a split. the stock currently up almost 4.5% on the back of this.
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about unilever. we are also hearing about peloton, an activist shareholder. i'm wondering if the name of the game for 2022 is going to be more investors shareholders. i wonder whether it starts impacting the european corporate. as we have been hearing, pressure is going on unilever as nelson peltz buys a steak. this is bloomberg. this is bloomberg. ♪ this is bloomberg. ♪
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tom: welcome back to the open. losses of around 0.3% across the
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benchmark sectors. four in the green so far including telecom, energy, and autos. we are looking ahead, futures stateside, gains. francine: unilever, the chief executive alan jope is coming under increasing pressure. an activist investor bought a meaningful stake in the u.k. based consumer goods company. here with the very latest is dani burger. he is not having a fun time at all, alan jope. when he pulled out, the share price went flying. now activist investors are coming in. >> it does not inspire confidence, at least for alan jope, when you have activist investors stepping in. you have a disgruntled investor based. they sent share price is higher
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when the activist doesn't step in and the deal fails. -- activist does step in and the deal fails. it is going to be harder for alan jope to push his vision. his days are going to be harder whether they are numbered or not. the temperature of debate around unilever looks set to rise by several notches. tom: do we know how alan jope is going to respond? what it means for how he's going to adjust to this? >> his strategy had been one of aggressive acquisitions. something he built over a few months. switching to the u.k. list. that has been something he has advocated for. will he be able to do that with an activist investor here? it will be more difficult given jeffries analysts talk about breaking up unilever. this is very different than the vision. it is going to come head-to-head possibly with this activist
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investor. francine: when you look at some sectors, i don't know whether we will see a lot more shareholder activism in specific sectors or whether that is a fairly young phenomenon, and what that means for fixed income or corporate bonds you want to buy. >> that is one thing, there is more tension in it. why is that? the last two years in particular , companies have built up a lot of -- we saw big m&a transactions. in particular, may be other corporate buyers. companies are looking and that is something to watch out for. you also need to look for
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companies changing control which means you could return the bonds . the credit policy would deteriorate. generally companies do not have that protection. it is something to be looking at carefully. it can easily be supportive and credit quality is improving. it is something as investors we need to watch very carefully. tom: an environment where the markets are pricing in rate hikes, where do you want to be in terms of duration? do you want to be short, want to belong? where do you look in terms of risk? >> in terms of risk, quite conservative and cautious, both on interest rates, but also credit rates. we see that with the equity market selling off, something we have anticipated.
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there is more volatility around the race market and clearly monetary acquisition being less favorable would also affect risk markets. not just equities, but also credit. that is something we have been trying to rein-in. including putting hedges on. so we are concerned about interest rates and the hawkish and us -- hawkish and us -- hawkishness of the fed in particular. we have seen rating in duration but also credit risk. francine: thank you so much. we want to get you on rate my room, a 10 out of 10 for the background. >> thank you, i am not good at
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it. francine: we will rate the room first and then we will play a game. coming up later on, much more on the markets. we will speak with the allianz chief economist. don't miss that interview coming up shortly. ♪
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francine: 25 minutes into the european trading day. there's a bit of pressure with the dax, cac, and european stoxx 600 down. but futures in the u.s. are more mixed as it is a big week for geopolitics with ukraine. also a big politics week in italy and overarching all of that is the fed. we don't know what happens with the u.k. but the story is -- we both picked up on lamborghini going green. tom: they are going to phase out the combustion engine by 2024 completely, switching to hybrid in 2022 thomas still working with the design, you put your orders and already. -- order in already. francine: i am not a purist. i don't mind it would be green.
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there is no chance i would ever afford it. a lot of aficionados say the you just on have the sound when it is green. tom: that is what they have been trying to engineer. this is bloomberg. ♪
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francine: welcome back to the open. 30 minutes into the european trading day. fears of escalation. the u.s. leaves its embassy in ukraine. investors turn their attention to the fed's decision on wednesday. crypto crunch. more pressure over the weekend. bitcoin drops 50% from its all-time high in november. a little bit of repricing. the geopolitics has to be taken into context of the fed moving and the bold call saying the
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market is not pricing in how many hikes we could see from the fed. tom: the team having four hikes priced in. there are additional hikes at the market has not priced in. the new york times reporting putting troops into eastern europe, adding troops and military hardware into the region as well. the benchmark is down 0.3% here across the stoxx 600. the dax is lower. at the cac 40 off by 19 points. in the u.k., the ftse 100 down by 0.8%. one market for us when it comes to politics in the u.k. is that sue gray report, the civil servant who will be making some kind of judgment, putting the facts together around this scandal that has affected boris, and question marks over his
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leadership of the party. let's switch focus and look at how things are playing out sector by sector. we have seen oil up at about $88 a barrel. goldman sachs has that $100 a barrel target. fight goes under pressure -- fifos under pressure as well. in terms of the sectors, they remain in the green, including energy. at the bottom of the list is travel and leisure, but we have technology in there as well. the guilds on the two-year is up. less movement in terms of the 10 year. does that suggest there will be some policy mistake? the balance sheet, we have more clarity on wednesday. francine: economists at goldman sachs say they will tighten policy more than the current forecast. it suggests rate hikes. let's get to allianz's chief
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economist. the million dollar question is, is it the kind of inflation that warrants such aggressive hikes from the fed? or do we think it is too high? guest: that is the question of the year. i think that the fed may have to pause on the hike because they know that their hike cannot control inflation and they are very concerned about volatility suppression and the market derailing. i think this will tell us if you think -- if he thinks monetary effectiveness is back. in that case, he needs to calm
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down markets. maybe he will do the slowing cycle. tom: what does that mean for the balance sheet and the implications on the economy for the u.s. if you do get that june, july of this year? guest: i think the tapering is priced in. what matters now is the stoc ks. this is where it is essential in europe. the moment when we have seen the supply and demand issues on the treasury, it is essential. in any case, even though we finish tapering by march i don't think it will create anymore taper tantrum. what i think matters is we have three hikes right now for 2022, and i think we are confirming the scenarios of lower tightening. but as you see, this range
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goes from three hikes to do hikes to eat hikes. the end -- eight hikes. the end of period rates are essential. the monetary conditions will at best stay neutral. we will at times have normalizing. francine: we have a very active you are, so thank you anthony for writing in. this is something that has come up a couple times, that there seems to be an assumption that the fed will move by 25 basis points each time. is there a more clever way they could have a soft landing in the markets, or will they focus on what kind of economy will develop? guest: good point. it is reassuring because it renews guidance. the question is whether each
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rate hike will be question, will be put into question. there is an infusion of inflation. i would say regularity would be best in that case. we will end up much higher in the end of the year. there is a midterm election at the end of the year, which could compromise the pandemic. tom: the physical response of the u.s. has been halted as a result of the politics in washington. thank you. he will be staying with us, forecasting a slower rate hike cycle from the fed amid these inflationary question. marks italy starting its
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elections with mario draghi elections with mario draghi in pole position. is to be expected from today's vote? >> not too much from today's vote. the process is quite complicated. it takes delegates writing a name on a piece of paper. there are no official candidates. each of these names is read out loud by the head of the lower chamber, and most parties have announced that for today they are going to go to an empty ballot. francine: they just care if mario draghi stays prime minister. what are the chances if he has to leave government? who will take his place? reporter: it is difficult to
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tell. he is a very strong candidate, and i know that in the markets, most consider hemp prime minister. don't underestimate the powers of the president. that becomes important. tom: rome bureau chief on the applications of this vote getting underway in rome today. not throwing his hat in the ring. lewd -- our guest is still with us. how do you assess the political risk out of italy? the markets have been comforted by mario draghi at the helm. that could come to an end. is there a risk for the blowout spreads? what is the economic implication of this? guest: i prefer when the heat is on the u.s. and not on the euro
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zone. march 22, we had to wait for the pandemic purchase program. i still think italy is on a better path. mario draghi increase potential growth in italy on the back of next generation eu funding, the $325 million stimulus that italy is benefiting from today. it is very important to have success continuing in the path of reform on the structural side and clear catch-up on the
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investment side so they get onto a higher growth path. that is the optimistic scenario. the risks to remain. francine: will be see a sudden move? will the market afford a bit of time for things to settle. will be just see a widening of the spread? guest: i haven't seen italy's exit risk price for the last two years. in the crisis, they want to protect the euro at all costs. it had completely annihilated any form of pricing or premium coming from covid. i think this could continue because the ecb is still there.
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as you know, there is a reshuffling of the landscape after draghi. he used to be prime minister. we don't know what the italians want with the success of draghi. this is what markets could be worried about. it could go to unprecedented levels, but it could track wider with the spread, for sure. tom: the political changes in germany have been baked in. we have data crossing the terminal. does it change your view on the european economy?
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does it change your view on germany slipping a hind france? -- slipping behind france? guest: i am very happy about the numbers for germany because it shows their economic position. the road ahead is complicated. we don't know how china will react. trade is normalizing, too. the manufacturing sector is under massive transformation. guess how much germany needs to change. there is good news and i think this is great. everybody is happy that delta and omicron are behind us in europe. but the manufacturing sector and the trade sector are at bay for europe. francine: if you look at the world as a whole, and i know we are looking at emerging markets and what happens to the greenback on the back of the fed, where do we view china?
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are we underestimating the fact that china with lower growth could also reprice or reset the direction of the world economy? guest: what we see already is the fact that china is depressed. just imagine 2008 and 2012. we are in the exact same situation in china. we have 2020 corona, then we had another crisis in 2021, which was evergrande. these had massive costs on markets. everybody looking at emerging markets saying they will be affected by the fed taper tantrum 2.0, and instead what happened is the current demand for china has been so sluggish that some of these markets did not get the recovery. in 2022, the big question is whether china could delay growth, especially in europe? if china decides on europe,
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inflation is 150 basis points. supply chain will be much stronger than what we have experienced in 2021. this is quite an important question mark for 2022. we think it can be managed, but it depends on the decision on monetary policy. francine: thank you so much. you are almost like an honorary italian with your love of italy. tom: coming up, the u.s. orders family members of its diplomats in key f2 evacuate as fears grow over a russian invasion of ukraine. that story is next. this is bloomberg. ♪
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francine: welcome back to the open. 47 minutes into the european trading deck. u.s. futures advancing, european futures accelerating declines. it is a tale of different regions reacting different ways to the news. it is all about the fed. that is on wednesday. and it geopolitics, though more commentators think geopolitics and concern over the ukraine could be a reason or an excuse to actually sell the markets
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rather than something that is more an existential threat to them. tom: now the u.s. has ordered family members at the embassy in kiev to leave due to what it calls the continued threat of russian military action. meanwhile, eu foreign ministers meet in brussels to discuss their response to the conflict. we have lines crossing from the u.k. as well, asking some of their stuff. let's bring in our reporter. how symbolic is this were serious or substantial? is it substantial or symbolic from the u.s., the call for family members to leave kiev? reporter: it is probably just prudent at this point in time. you can say other nations are now following suit elsewhere. whenever things escalate inside a country and there is a threat, the first thing you will see is diplomats sending their families home even as they stay on and work. there is no indication the u.s.
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will shut their embassies or pull out the staff who are needed. but certainly it is a sign of the level of concern that we are seeing among many nations that things could potentially be building to some kind of action against ukraine. russia has denied it plans to invade the country, but the u.s. and others say their intelligence suggests it is a risk. right now, that is probably a prudent measure more than anything on their part. francine: how united is europe in this response? reporter: certainly expressions of unity from the european nations across the board that if there is a move against ukraine that that would be met by swift and severe penalties against the government in moscow. the reality is what penalties could be imposed? it is still up in the air. that is the place where you are seeing some difference of opinion about how severe to go in terms of potential economic
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sanctions. certainly they are united in their condemnation of any kind of action. but what you are seeing is disagreement about how strongly or how to go about penalizing russia in the event that that happens. the eu foreign ministers are meeting today in brussels, and even there they decided they don't want to discuss the details of potential sanctions. at this point, there is nothing on the table in terms of penalties to deter the russian president from acting. tom: rosalinda matheson on the geopolitical hot points. francine: we know that the eu will meet with ukraine and the u.s. secretary of state antony blinken today to talk about this. coming up, tumbling in crypto. it falls more than 50% from its all-time high. this is bloomberg. ♪
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tom: welcome back to the open. we are 53 minutes into your european trading deck. you are lower by 0.8% across the benchmark. every sector bar two in the red. two sectors remain in the green by the skin of their teeth.
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the yield curve continues to flatten. francine: selling pressure continues with the global crypto market after massive declines. bitcoin has lost more than 50% from its all-time high in november. to talk about all things crypto and maybe to look at the fed as well is eddie van der walt. when we think of crypto, we think of something uncorrelated to stocks, but you actually don't know what kind of measures it is looking at. cryptocurrencies with the latest risk. is there now a stronger coalition, including dog ecoin? reporter: we have seen cryptocurrencies, and particularly bitcoin, the coin being the market maker. it has been correlated a lot more with a risk asset and tech stocks. that is a function of it being more integrated into global markets. cryptocurrencies nowadays, there are futures contracts for bitcoin.
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there are ets. that makes it more sensitive to the general market sentiment and to risk appetite broadly. credit cycles, and so on. i think that is why crypto has become more correlated. tom: there is always a temptation to focus in on bitcoin, but those investing in that space have exposure to multiple cryptocurrencies. what can we learn from the different movements from the likes of solano and eta? reporter: eta particularly has significantly outperformed. this is on the back of the nft boom. we do see that when bitcoin draws down the whole of the space draws down. bitcoin is still absolutely the sentiment maker for the markets. but i think over time we will see -- these currencies will stay correlated, but they will have an upward bias compared to bitcoin. there are real-world users. francine: when does it become
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systemic and could it broaden the selloff, or will it be regulated? reporter: i don't think they are systemic at this moment in time. i think the equity markets tell bitcoin today is an update or a down day. there are places where bitcoin could become systemic, particularly with stable coins. those can have a spillover effect. we are starting to see regulation come in. once we start to see the movement go the other way, once we see bitcoin sell off, then the regulators will become worried and we will be hit harder with regulations. tom: eddie van der walt and all things crypto. currently bitcoin trading at around 34,000, either at 2300. continued pressure on the crypto space, down 50% since the peak in november.
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francine: that is interesting to see the correlation with stocks. interesting that u.s. futures are now higher, so definitely looking at other things. i would point to pressure with geopolitics and credit much closer to home. there is that energy dependence in europe. this is bloomberg. ♪
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>> the purpose of the sanctions is to deter russian aggression and so if they are triggered now you lose the deterrent effect. >> you claim we are planning we intend to attack ukraine even though we have said >> many times this isn't the case. we don't want to get overconfident. >> this is "bloomberg surveillance: early edition" with francine lacqua. francine: good morning everyone. here is what's coming


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