>> good morning and welcome to bloomberg markets, the european open. i'm tom mackenzie. mark cudmore joins me in singapore to take us through all the market action at this hour. the cash trade is just less than an hour away. here are your top headlines. the reflation trade bounces back. u.s. 10 year yields are set for their first back-to-back weekly gains since march.

jp morgan sees it on an upward trajectory. disney gets its magic back. the entertainment giant jumped an extended trading. plus, a sprinkling of the muska magnetism. if altering election campaign. we are live on the ground. right, mark cudmore, we mentioned you in the top. we appreciate your insight at the top of the hour. what are you watching? mark: good morning. thank god it is friday and welcome to the european market open show. it is pretty dull out there. it is a summer market friday. that was a combination of two negative stories. one is the delta variant, korea

is getting hit badly. then there is also this chip story, but today, samsung really took a whack after the recent guidance, saying the chip holdup is affecting them, which is interesting. korea was the real focus, but otherwise there were not too many broad themes. tom: korea was one of the costs in particular. it had such a strong run-up precisely because of the semi conductor story. now it is changing. supply is starting to meet demand is the call. we are just under an hour from the start of cash equity trading in europe. let's take a look at the futures . the s&p notching up another record in the u.s.. the sentiments slightly more subdued on the back of those

delta variant concerns. china as well, the regulatory push and the closure, which could have an impact globally in terms of supply chains. european futures are flat, currently down 2.5 points. the ftse 100 futures are just very modest gains. in bit of a flat feeding on friday to not suggest that the news flow is insignificant in any way. we are still wrestling with the question of this reflation trade, whether it is back in any sustained way, and whether and to what extent you can look past the delta variant. china, south korea, japan, all wrestling with the variant. nasdaq futures just down by about 10 points. the dow jones, modest gains. mark, what are you looking at? mark: as you said, the price action is a reflection where

inflation is the big one. it is a flat or a quiet session today because we don't have any new news own of those fronts. there is probably only one thing to draw attention to and that is the commodities column. it is already across the board. this reflects this idea that as we are seeing this resurgent wave in the virus, this delta variant, there is a little more concern about growth. it is very much concentrated around what is happening in china. how aggressive the response will be, but that is weighing on commodities. they are the largest commodity importer in the world, largest consumer of almost every commodity out there, and that is where commodities are generally weaker. across the gmm, it is the top of the equities column. the korean currency losing the most and currencies. tom: it is worth building

another commodity story. this divergence between australia, the major producer of commodities, and south korea, with inputs of a different type in terms of semi conductor errors just semi conductors. -- semi conductors. the concern about semi conductors. how that is playing into the views on input prices. we have the iea out earlier in terms of the demand reduction forecast, as a result of the delta variant. the push and pull in terms of that supply and demand picture with these input prices are playing out with different impacts across markets, certainly when you look at south korea, that divergence between south korea and australia. mark: i don't think that just because we have talked about this commodities throughout that we have fully priced it in. there is much more to play in this. in terms of the korea australia,

i was looking at korea's terms of trade and the phenomenal collapse over the past year just really in terms of scale, the speed, and the scope of that move. korea's a major commodity importer. they rely on the rest of the world. it has gone much faster than we think and i think that the other theme is the pressure we are going to get in terms of food prices on certain economies, whether that will cause political change. we are seeing food prices rise the most since the arab spring and political disruption. how is this feeding through in terms of the energy side into speeding up some of the carbon plans? there are so many strands to this story. whether it is food prices, whether it is the relative value on the fx, and it plays into some of the sector divergence, as well. tom: and the view that we will continue to grind up on the 10-year yield.

135 now in terms of the u.s. 10-year. that is playing into the reflation trade. the argument from some and one of our guests suggesting you can look through the delta variant at the u.s. and europe because of vaccination rates and immunity and the focus should be on the growth story. earnings coming in very strong again. the consensus view for the u.s. is that earnings will be up 9%. some argue that analysts are not quite pricing in the growth story on earnings. mark: the earnings story is incredibly positive and i sympathize with that bullish view. i think that vaccinations have been shown to work. one of my mantras i've been repeating another show is that the delta variant kind of disrupts, but it does not derail the recovery. we still have a generally positive backdrop. i don't think that is going to necessarily help navigate the shorter-term period. it does not mean that we won't get some disruption, because

even there is a very positive, constructive backdrop, there is a lot of liquidity, earnings are very strong, vaccinations are coming through, valuations are also expensive. it is not likening assets out there are cheap. even there is a positive story, no one knows about this. even though i expected to maintain a kind of positive story overall and i don't see any major negative catalysts on the horizon, it does mean we are vulnerable for short-term volatility. that is particularly relevant in the height of summer in august where we do have the low liquidity. we will see some more scares, but ultimately come september we will be looking more positive again. tom: talking of liquidity, the focus will shift to the pboc. we have the loan prime rate, we have calls from some ex-officials close to the pboc saying now is the time to come in with a surprise cut. that is not the bloomberg economics view.

you are hearing from people close to the pboc saying it is time for the benchmark rate cut. it would be a surprise, but we will be focused on liquidity conditions in china as a result of these restrictions around the delta variant, although as we have been reporting it seems to be having some success in terms of eroding the spread of the variant. mark: yes, monday is the data slew. it is important to emphasize that china is still going to have a great year of growth. there is still positive growth out there. we expected to be slightly negative. we get some more idea of what we want in terms of easing. most of the market out there does not see further easing from china. why are they going to ease? the rest of the world is talking about hiking and is not seen growth that strong, but there are some prominent voices that

have seen that it is time for some more easing. even though economists are not forecasting it yet, many in the market are betting that that easing will come through. tom: absolutely. great insight as ever. you can get up-to-date analysis and insight from mark and the rest of the team. go to mliv on your terminal. coming up, that is a wrap, the end of another busy earnings season. we will break down the hits and the misses and what to look out for in the second half of the year. plus, merkel's would-be successor seeks a sprinkling of elon musk's star powder as he tours tesla's new factory. we are live in berlin. up next, we dive back into all the market action. our guest from bnp paribas joins us to discuss the reflation trade, china's crackdown, and plenty more. if you have any questions of your own, please send them to

us. this is bloomberg. ♪

tom: welcome back to the open. we are a little under 50 minutes away from the cash equity trade here in europe. investors assessing the level of risk to the u.s. and europe from the delta variant and we have already seen it continue to sap sentiment in asia. taking a positive view on the outlook for reflation is our guest from j.p. morgan. they write bond yields and cyclicals bottoms last week and are now on an upward trajectory. joining us now is our guest from bnp paribas. thank you for joining us. what are the risk premiums telling you about appetite and

the credit market? >> the risk premiums are very low for cyclical assets, so if you are bullish on the economy, the credit market has already largely discounted that, but unusual the cyclical asset trade with the negative risk premium. those are usually the assets that start to underperform when you get qe tapering. the market usually assumes the fed is making a mistake. the credit is not a place to bet a noise cyclical recovery right now. >> one thing about credit is, u.s. credit markets have not been particularly exciting this year because they have been performing so strongly.

high yield has shown a little bit of spread widening. do you think there is a start of a cycle turning in light of the fact that we may be seeing the yield cycle turning or do you think credit will stay very strong overall? >> i think credit will earn its kerry for the next big month or so. the key thing to watch is what corporate's are doing. it basically built mode surround themselves and what is interesting is that going into 2021 and as we see the economy recover, they cap to balances extremely high. that means two things. you can't default when you have a lot of liquidity, but it also means they don't really need to issue that much bonds into the market. as long as you have low supply pressures, it is difficult for

the market to go very far. that suggests that we are in for a fairly stable environment at least into early next year and at that point, the slow draining of liquidity that comes from the qe paper will start to have an impact. we are a few months away from that. >> what is your appetite for high-yield and china? >> it is an exciting opportunity. when it comes to covid, china was first in and it was first out and it was the first major economy to embark on policy tightening. here we are in the middle of 2021 and we see the effects of that. credit growth has slowed down. it is the only market where you can get double digit yields globally in credit today. my guess is that over the next

couple of quarters, you guys alluded to earlier, we are going to see a slight positive shift in the policy stance because the pboc needs to take out some insurance against outside risk to growth. they are up against a geopolitical struggle against the u.s.. they can't really rely on expert markets that much. they are also hosting the olympics next year, so they can't really afford to remove zero-tolerance against covid, so they need some insurance against that growth. my guess is that going to be on the market for china high-yield, including the sector including the policy that they are speculating in, all that stays the same. >> the latest in terms of private equity not being able to hunt -- fund the real estate

market. we will get more from victor, desk analyst in the next few minutes, staying with us. let's get the first word news with laura wright here in london. >> the u.s. has cleared booster shots for immunocompromised individuals. fully vaccinated individuals do not yet need a third dose. the u.s. supreme court judge has rejected a challenge to indiana university's requirements that all students be vaccinated for the coming semester. the case marks the first time the highest court has acted on a vaccine mandate. the pentagon says that is sending about 3000 u.s. troops to afghanistan to help evacuate diplomats. the u.k. government says it is deploying 600 soldiers to assist british nationals to leave the country. taliban fighters are reported to have captured the birthplace of their movement and the second

largest city in afghanistan. they were driven out during the u.s. led invasion of 2001. police in plymouth have confirmed six people including a suspected gunman have died in a firearms incident. three females, two males, and a suspect died. murders committed with firearms average about 30 per year in the u.k., which has some of the world's strictest gun control laws. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. mark, tom. tom: thank you. coming up, china's tech crackdown kicks into high gear this weekend with signs of more on the way. we discuss the risks on the opportunities in the world's second-largest economy. that is next. this is bloomberg. ♪

>> let's start off with that alibaba news. >> executive saying they will be facing higher taxes. >> complying with all the regulations. >> eying a revival of the hong kong ipo plans. >> local media in china, 21st century business news, as well as bloomberg news saying that bytedance has denied that report. >> they may be hit with a $1 billion antitrust fund. we have seen some response from the company. also giving up data control. >> investors for a half decade or basically pulling the wool over their own eyes. >> i think things will be much clearer under the new rules and one year or two years. >> the chinese authorities are in their long margins. >> china signaling that its push

to regulate parts of the economy will be deep and sustained over the next five years. >> this will be the most significant of all the regulatory resets, as we call it, that china has done. we think it is going to reshape the landscape for china equities really quite profoundly. >> ok, a roundup of the key moments in what has been a major week for china's regulatory environment. we have seen a wave of crackdowns culminating in a signal that there are likely to be more to come. virus concerns playing into some negative in the equity sessions. the benchmark in the mainland on mainland china. career concerns and also the

semi conductor space. i'm very pleased to say thank you for sticking with us. in terms of that regulatory environment, you touched on this. there is a lot more excitement than over in the u.s., given the spread tightness in the u.s., but are you being naïve as carson block was suggesting, a longtime china bear. is he right to suggest that we do not have enough transparency and clarity in terms of the corporate matching nations in china and those balance sheets? >> there is definitely an element of truth in that, but i think what really matters is that the chinese policy right now with prospective the real estate sector is one where they

are enforcing more prudent behavior with respect to their balance sheets. the policy of the three red lines which says that unless you meet certain credit quality standards, you are not allowed to issue anymore bonds, that means the most leveraged corporate will have to have a deleveraging de-risking strategy over the next few years and that is inherently credit positive, it means that risks will go down and it is bullish for corporate bonds. the question is can they get to the other side? can they execute? is there enough funding for them while they go through that journey and that is where the? has been in the reason why we have had all this volatility in the last few months. if the next step for the pboc is

to shift slightly in the dovish direction, it was last month and we will see a slight increase going forward. >> can i interrupt you very quickly? >> yes. >> we have very little time left. i sympathize with your generally positive you that they will manage this well. can you imagine a situation where there is a real divergence and how they manage the offshore bonds versus the onshore bonds, particularly a big entity like ever granting? >> i don't think that there is any particular reason for china for the policymakers to want companies to rely heavily on the offshore markets, but that i can see as a positive, given that it will be an incident for them to

reduce reliance on offshore debt, reduce their issuance of offshore debt, and that will create at some level corporate bond scarcity. >> we are running out of time, i have to jump in. thank you for your insight. plenty more. stay with us. this is bloomberg. ♪

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>> welcome back to the open. a little over 30 minutes away from the cash equity open. we had the record over in the u.s. that not being handed over to asia. a muted session in asia. in terms of the futures, the ftse 100, just gains of 0.1%. the cac 40, futures are flat. investors just digesting the earnings news. mark, what are you looking at this morning? mark: yes, i'm looking at the

chip stories. the thing we have been talking about for the last year is that there is a shortage of microchips out there that is impacting a lot of businesses. we have talked with a lot of carmaker companies. we talked with a lot of electronics companies. it is one of the biggest examples of disrupting supply chains. it is feeding through to inflation. the story is taking on a new nuance. we have seen all the major chip companies in the world talking about aggressive expansion of their supply. that is going to take time in certain sectors and what we are seeing as we still have a massive delay in supplying some chips, but we have a fair bit of supply in other ones and that is memory chips and that is affecting samsung overnight. this is intel taiwan semiconductor manufacturing company and samsung, three of the largest chipmakers in the world. they are all down you today -- year to date. these are normalized charts year to date. samsung is the yellow line,

taking the most recent tanking. they are one of the most largest producers of semi conductor chips in the world. they produce a lot of electronic goods. there is a mismatch between the chips they are producing and the chips that they need also out there. therefore, they are having to delay some of their own products, there is talk of delaying one of the very successful galaxy note products and that has been a real blow. at the same time, they still can't get enough supply into the market and there is a worry that all of these companies increasing supply, we might go into the typical commodity, supply, boom bust cycle, and we may have way too many semi conductor chips and a massive price war and these long-term outlooks are looking increasingly negative. tom: such an important story and write to point out there is the difference between where the chips are needed.

you are talking smartphones, gaming devices, versus what you are seeing, and that played into the earnings season. taking a pond on twitter at a couple of the semi conductor makers. it was a big component of the earnings discussion. the earnings season winding down here. cyclical stocks have consistently been estimates in europe, but will that continue in the second half when uncertainty not just about semi-conductors and inflation, but the pandemic persists? for more, our guest at bloomberg intelligence joins us now. what is your scorecard at this point in the year? the mid-half, the earnings, where do we stand? >> earnings overall really could not have been better. if you want to get down to brass tacks. we had about two thirds of the companies report better-than-expected numbers as opposed to the quarter that missed. we never see that in europe. quite typically, we are sort of

half/half. it is not the manage expectations that it is accustomed to seeing in the u.s. earnings growth for the quarter ended up at 180%. we knew it was going to be big, but the initial expectation was 130%. it was a massive beat. the thing that i would say is that is not across everywhere. as you just mentioned, the cyclical industries did better. we saw energy, we some materials, even banks. and it was not just provisions. we started to see revenue growth, which was huge. staples took it in the chin. zero growth. expectations were 8% growth. that is where some of the cost pressures and worries came to fruition. >> you said it has been such a strong earnings season overall and that is why we have seen the reaction has been much more based around forward guidance.

what is your take away from what management teams are saying about cost, supply chains, and margins? >> it is interesting. the numbers are actually pretty similar. we had about two thirds of the companies give positive guidance notwithstanding all of the worries that are pervasive in the market. with those companies, the stocks did react positively by a couple of percentage points on a one-day basis and that is good. estimates for next year were revised up a couple of percent. for the 25% of companies that missed estimates, it was a problem. that is where we ended up with the stocks that were down three or 4% on the day, estimates that were cut by 10% or 11% this year, and a few percent next year. the market going into earnings was definitely set up for i need to good news, and if you did not

deliver on that, clearly there was punishment. >> how should investors be thinking about how china factors into this? we got more details on the framework, but the european industrials that have so much exposure, how is that likely to impact earnings season? >> it is really interesting. i was in asia in the early 2000 teens. this in ways reminds me of what was the anticorruption campaign that really expanded into an anti-extravagance campaign. it was a problem. with macau gaming stocks, luxury goods stocks that sold so much into china. there was a little bit of inkling of that now. but the focus still seems to be sort of on china's three mountains -- education, property, and health care. beyond the technology issues.

unless it extends beyond that and gets into selling high-end goods and driving the chinese economy, i don't think europe has an awful lot to worry about, but if something -- it is something we are quite focused on. china is a growth engine. we do see it sustaining next year, which would be a positive. >> back to developed markets. most are at or near record highs. it is an incredible earnings season pretty much across the world. it is one of these unique years were despite stockmarkets keep going up, they keep getting cheaper. what is your perception of valuation? what stands out as particularly cheap? >> mark, our take on valuation is that we can't push it too much further.

at 16-plus times forward earnings for europe, that is pretty close to fair value if you look at the euro stoxx 600. there are markets that are a chunk cheaper. you look at the index number, the ftse stands out at 12.7 times. we have argued many times that it is always going to be cheap. it has too much oil, it has too many minors, and it has too many banks among other things, and those are just cheap groups. we put out a note today kind of talking about this. the ftse in ways is not as cheap as you think, though. the median stock in the ftse actually trades at 16.5 times, more than half of the group has a multiple of 17 times. the issue is that 35% of its weight trade less than 10 times. it is structural, it is not

saying there is not an opportunity, and we are really focused in the second half, on cyclicals. we do think it is sustaining it notwithstanding currently and that gives us a bias toward cyclical industries, whether that be industrials or banks or energy and materials. that is where we think the earnings upside is an we think the market going forward is earnings oriented, not valuation . tom: great, thank you as ever. senior european strategist at bloomberg intelligence. coming up, elon musk has touched down in berlin before the electric carmaker hosts one of the front runners to succeed angela merkel as chancellor. we will get the latest next. this is bloomberg. ♪

tom: happy friday, welcome back to the open. just under 20 minutes away from the cash equities open in europe. disney posted a strong set of results in the third quarter and defied its streaming skeptics with a beat on new subscribers to its streaming service, disney plus. shares are rising in post market trade. we spoke to the ceo, who defended the company's strategy for box office releases. >> both bob iger and i, along with the leaders of our creative and distribution teams, determined this was the right strategy because it enables us to reach the broadest possible audience. tom: joining us now for more is our guest from bloomberg intelligence to dig into the disney numbers. what were the key takeaways for you? >> i think one of the big

takeaways was the strong growth has disney plus added 12 million new subscribers compared to netflix, which did sub 2 million. that was a strong outcome and they were definitely talking very optimistically about the kind of future runway. they talked about a total adjustable market of 1.1 billion households across the world. they've got plans to launch hopefully in a number of important asian markets between japan and eastern europe, so near-term and long-term growth for the streaming service is very good and it absorbed price increase very well. costs would be surprised about the low level of turn despite the price increases over the last few quarters. that was an important point. the parks business came back well in the quarter, perhaps not such a big surprise given that

lockdowns have been easing across the world and people are keen to get back out there on holiday. but they are also seeing strong demand going forward in that part of the business despite concerns around the delta virus, particularly in the u.s.. they are seeing very confident and optimistic about the fundamentals going forward. mark: good morning, matt. the ceo defended their big film release strategy. scarlett johansson has been less impressed by it. surely, this is just a facet of the pandemic. do you not think that next year when we assume optimistically that all cinemas are fully open and we go back to big-screen releases that we will slightly result to the old strategy or do you think we have seen impermanence shift in how disney controls their big film releases? >> [indiscernible] you could just tell from the way he was answering questions that

disney+ and streaming platforms are their most important priority going forward, so i think they will be looking to put more and more of the new content through those, but they will also judge every release on its merits, but you can see a lot more streaming first or kind of side-by-side launches. when there is just a pure theatrical release, initially, the exclusive window is just going to get shorter and shorter. i think the role going forward for disney is going to be significantly diminished. tom: implications for those contracts with some of the key talent that they sign for those blockbusters. matt, digging into some of those earnings, from bloomberg intelligence. tesla ceo elon musk has touched down in berlin. the chancellor candidate will visit tesla's unfinished car and

battery factory, transforming germany's auto industry is a key concern for september's national election in germany. your biggest economy tries to modernize one of its key sectors. let's get more from our reporter on the ground outside that factory. what is the significance of elon musk's visit for the politics of germany? >> yes, look, tom, there is a read across here read we know that elon musk will be visiting the site on the outskirts of berlin. you see it behind me. this is a huge plant under construction. tesla says this will be one of their biggest, most advanced sites for electric vehicles. we know that theory on paper and reality. there have been a number of delays that are causing issues for tesla. when it comes to reopening and the inauguration of this site, the data is unclear.

elon musk has blamed bureaucracy for this, saying the paperwork in germany is complicated and difficult to do business here. that meeting with the head of the cdu in berlin will probably be about that, but it is also about the significance for the politics here. this as the cdu candidate has been dropping in polls and he is hoping that he will get some of that star power coming from elon musk to prop up his image, but also show and tell germans that i'm someone who is really in charge of running business, i'm here with a big ceo, and i can bring in the jobs and the industry that is so crucial for germany, like cars for the future, but also this huge push to go green in this economy. >> that is a very positive spin around it, but isn't tesla quite a threat to the german auto industry, which is already so incumbent?

how much of a threat is it? >> look, it is. when you look at the regulation coming out of the european union and you look at brussels, they have made it clear they want to see the end of combustion cars and by 2030 most cars hitting the road should be electric. for the german carmaker industry, this is something they say provides an opportunity, but we know they are lagging behind. there is a lot of money moving into that investment, but we still see they are not quite there yet. something like tesla would be a competitor. the germans will tell you that tesla remains a very niche car. they want to create electric vehicles for the mass public, for the average german, who is going to want to feel like i want to buy my german car and make it electric and still by made in germany. that is the spin on this, but it could be a potential rival for the politics here in germany. they will tell you this is all part of a comprehensive package. this is an economy that does

need to get more digital. it does need to get more green. it is a key issue in the election in september. who is going to be the chancellor that can really take the german economy forward, move from that very industrial base into the industries of the future? >> important strength being touched on by maria in berlin for us. elon musk expected on the ground behind maria and a little under an hour or so. coming up, we will look at your stocks to watch, including adidas, as the sportswear giant sells its underperforming reebok brand. details are next. this is bloomberg. ♪

tom: welcome back to the open. a little under nine minutes away from the cash equities trade here in europe.

let's get to your stocks to watch. what are you starting off with? >> thanks. i'm starting off with looking at philip morris. philip morris is a step closer to acquiring for 165 pence per share. what's more is that the board is actually backing this deal, citing financial resources, the research and development, as well. it is not just about the price tag. there is going to be a lot of scrutiny into this deal. the ethics about a tobacco maker buying drugs company. we have also had about 20 organizations signing a letter to the board urging them to reset ont decision here. mark: good morning. i did not know that reebok has fallen out of fashion, but that seems to be the implication that adidas has been trying to sell it for the last 10 years. what is going on there? >> reebok has clearly been out

of fashion for a while. i do disagreeing to sell to author -- adidas agreeing to sell to authentic brands. we saw adidas shares rising off the back of this. it has never been able to revive this brand. it has been trying since it acquired it many years ago. the deal won't really change its financial position, won't change its long-term target, most of the money will be returned to the shareholders. it will be mostly a cash deal, as well. tom: also taking a look at a company for services, pooches. zoo plus got a takeover bid. what does this mean for the all-important pet industry? >> it is friday, so we do talk pets. zoo plus getting a takeover bid. it is about 3 billion euros. it represents about a 40% premium to yesterday's close.

saying that the management board actually back to this deal, so they will be recommending it to shareholders. we should be watching some of those retailers at the open to see how they move off the back of this. tom: breaking down some of the stocks to watch for you as we close in, about six minutes away from the open of trade in the u.k. and europe. let's check in on the u.s. 10-year just to mark this one for you. just a small move down in yields. you were pointing out earlier that commodities are under something of a bit of pressure as well. mark: yes, these yields are certainly a bit softer. i would not want to read too much into it given it is in august friday summer. these yields are slightly soft. it does kind of match up with the fact that commodities are little bit weaker. it ties into the slightly more negative growth story on the idea that the delta variant has come back a little bit stronger.

we are not seeing much of that elsewhere. we are seeing a slight soft tone. despite the fact that yields are softer, the dollar is slightly bit against. we are little bit risk-averse as we approach the european market open this period of time. tom: it does not seem like there is a lot of conviction around this risk reversal, if we are seeing it as very muted at this point.it was a muted session in asia after a record session in the u.s. futures pointing at flat after a mildly positive day largely yesterday for the european markets. we will see how that all plays out in terms of that debate around the delta variant and what it means for the prospects of growth, not just in the u.s., but in countries like japan, south korea, australia, all battling with that virus. we were mentioning the yield environment and we will continue to keep an eye on that. jackson hole remains in focus for investors toward the end of this month. you have a slew of central bank policy decisions in this month

as well, but also in september. we are just a few minutes away from the open of trade here in europe. plenty more ahead. thank you, mark, as ever for breaking things down with us and bringing that expert market analysis. plenty more ahead. stay with us. this is bloomberg. ♪ comcast nbcuniversal is investing

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tom: welcome back to the european market open. a minute to go until the start of cash equity trading. the reflection -- the reflation trade ounces back. 10-year yields are set for

back-to-back gains. jp morgan sees them on an upward trajectory. disney gets its magic act. jumping in extended trading. traders top estimates. parks make a profit for the first time since the pandemic. and a sprinkling of the musk magnetism. angela merkel's successor. take a look at the futures as we close in to this friday open here in europe. a muted session in asia after some solid gains another record on wall street. here is what we are looking at across the european session as things get underway this friday morning. we talked about a muted session in asia with continued concerns over the delta variant. and the continued regulatory push by chinese regulators.

the ftse 100 eking out some positive movement. the politics intertwining with the corporate story around the future of autos and tesla. elon musk will be on the ground in about an hour. the ftse 100 of 0.2 percent. the cac 40 in more modest positive territory. and flat on the ibex in spain. investors may be taking a pause after a season of solid earnings. earnings topping estimates. there is a debate for investors. italy is flat. a bit of a muted session. strongest gains in london with the ftse up 0.2 percent. the reflation trade taking a comeback as u.s. 10-year gilts

head for their first back-to-back weekly gains since march. the 10-year gilts oft with a few basis points but that does not a road the fact that the broader momentum appears to have yields going higher. kalon of fitch and kaplan taking a positive position. we believe that we are on and upward trajectory. joining us now is bob parker from quilvest wealth management committee. are you aligned with that view? is the reflation trade back? and if it is back, is it on solid footing? bob: i would call it a reflation stroke inflationary trade. we stay higher for longer but the answer is yes. if we go back two weeks when the

u.s. two-year -- tenure yields were up --, interestingly, if you look at a lot of the hedge fund performance data for june and july, many hedge funds which are macro are fixed income investors were on the wrong side of the market that explains partly the short squeeze. also, we had a number of technical factors. a shortage of treasuries in the repo market. having said that, although i think u.s. growth peaked in the second quarter, numbers for this quarter and going into the fourth quarter remain robust. you have seen some modest improvement month on month in the inflation numbers but i still think that if you look at your on your inflation, we could easily see figures of close to 4% during the fourth quarter of this year. inflation stubborn in terms of

the speed with which it starts to come down and the growth numbers, if you look at the atlanta fed gdp now model, that is suggesting 6% annualized growth in the third quarter and i think we are on track for the fed forecast for 7%. i call it the reflation and inflation trade meaning higher trend yields over the months to come. tom: higher trend yields over the months to come. in terms of the growth picture, combined that with the yield story and the implications of corporate's and stocks, to what extent can growth continue to put a floor under stocks even in a high-yield environment? bob: i think the key question is the speed with which yields go higher. if we are in a situation where we have the taper tantrum and obviously, we have to watch september with the fed meeting

and statements at the jackson hole mating but if the central scenario is a yields move higher but at a slow pace, then i don't think that will derail global equity markets. if we get a situation which we have seen in the past, if we get a 20-30 basis point jump over a short space of time in the next month, i think that will cause quite a lot of damage. but if we move slowly to a yield of 1.5% or 1.6% of u.s. treasury, high-end by the end of this year, i think that constrains the s&p but i don't think it will result in a significant reckitt reversal. i central case is that the s&p grinds higher but i emphasize the moderate pace of both yield increases and the scope for further upside in the s&p. tom: that gradual is asian in terms of the depreciation of the yield central to that -- that

gradual -- we have the policy meeting in september. anything around the inflation picture with that strong bpi print? have any of those elements changed your view of the timing for tapering? bob: my view has always been and i have been slightly away from the consensus but i have always believed tapering would commence in the fourth quarter of this year. you have to make a clear distinction between the 80 billion that the fed is purchasing in the u.s. treasury market and the 40 billion that is secured. there is a consensus i would argue at the fed that we do have overheating in the housing market. if you look at data from freddie mac and fannie mae, if you look at the shiller indices of price index -- increases, we are

looking at significant double digit growth in real estate prices. consequently, the case for continuing what the purchases, i think that case is very weak indeed. i'm a -- i'm assuming that in september, the fed will announce that it will reduce its mortgage backed securities and he assumed the 40 billion could be reduced to 20 billion in the fourth quarter. whether they start reducing u.s. purges is less clear but it is entirely possible that as we go into the first quarter next year , the 80 billion is gradually reduced to 60 billion that they are obviously very concerned to avoid taper tantrum. tom: looking to the fourth quarter. the housing market is very hot indeed. bob parker from quilvest wealth

management will stay with us. china's tech crackdown kicked into high gear this week with signs of more on the way. we will discuss risks and the opportunities in the world's second-largest economy. that is next and this is bloomberg. ♪ bloomberg. ♪

>> let's start off with the

alibaba news. >> executive saying they would be facing higher taxes going forward. >> people tend to comply with the regulations. >> bytedance may be working its ipo plans. >> local media in china as well as bloomberg news saying bytedance has denied the report. >> meituan may be hit with a $1 billion fine. didi also giving updated control. >> investors for past decades were basically pulling the wool over their own eyes. >> i think's will be much clearer under the new rules. >> this time around, insurance companies. >> deep and sustained.

>> this will be the most significant of all the regulatory resets that china has done. we think they will reshape the landscape china equities quite profoundly. tom: i roundup of the key moments and -- and what has been a major wait for the chinese regulatory environment. we have seen a wave of crackdowns culminating in a signal that there is likely to be more to come. at was part of the five-year plan outlining the regulatory pushed across multiple different sectors. at environment as well as virus concerns playing into some negative sentiment in the equity session over in china. in asia broadly, in terms of the msci asia-pacific pacific, down 0.4%. recouping some of the losses from earlier in the session. and the benchmark in the csi 300

still below the 5000 level, down almost 30 in the session. a muted session in the mainland. still under pressure in hong kong. down more than 2.2%. and korea remains in focus. not just the delta variant but questions about the health of the semiconductor industry. the power of such a first half results earnings and a rally there in terms of the kospi. some of those gains being taken off the table. let's bring in bob parker from quilvest wealth management committee come he is a member there and still with us. i want to focus on china. i know you have a deep understanding of that economy. i wonder though if you have any more clarity in terms of where the president and his team are putting things in the literary context. it is not just education companies, tech companies but

also real estate and health care. you have more clarity on where this regulatory push is going? bob: the five-year plan was published earlier this week is very detailed and comprehensive and it covers a whole range of sectors. you mentioned fintech regulatory increase. that started some months ago. one of the issues there was the chinese authorities' can sit -- continuing concern about the shadow banking industry i think. high levels of growth in consumer lending by the fintech companies. i also think you had some pushback's from the bank, from the banking sector. that was highlighted by the fact that the price earnings ratio on the banking sector was at a very low six. whereas the tech sector are in china, if you go back two

months, the price earnings ratio was in the mid-30's. with the correction we have seen, the price earnings ratio has come down to less than 30 but we still have very high levels of divergence among sectors in china. coming back to your question overregulation, i think we are going to see high levels of increased regulation across a whole swath of sectors. the message from the chinese authorities is very clear. they want to have a dramatic increase in governance. and that in turn, you asked at the question whether that will result in a lower rate of growth. i think there is a risk that there is going to be more of a growth slow down next year. if one looks at growth projections for 2022, we could see growth between 5% and 6% other than 6% plus. a more moderate rate of growth.

and that in turn probably means that the key question is, should investors move back into the chinese government --chinese market after his performance? and i think it is too early and we need to watch and wait for the risk factors we are facing at the moment. tom: that is interesting. interesting. bob: we cannot ignore them either. tom: too early to get in and timing difficult. you would stay clear of some of those big-name tech companies including alibaba and others? bob: i think that is correct. we want more clarity on how the regulatory framework is going to evolve over the months and years to come. we cannot take nor the fact that if we look at the chinese tech sector, you still have a price earnings ratio in the high 20's.

and that is matched with low price earnings ratio in energy, banking, and industrials. i would rather sit on the sidelines for the moment. tom: patience required. bob parker, we appreciate your time this friday morning. thank you very much. indeed. coming up, a bumper earnings season. we look into the solid performance of most european cyclicals of our senior strategist for bloomberg intelligence, tim craighead. that is next and this is bloomberg. ♪is bloomberg. ♪

tom: welcome back to the open. we are 20 minutes into the european trading day. a bit of optimism in london. the ftse 100 posting some modest gains as is the cac 40. the ftse 100 up 0.3%. the dax is flat. the border index is flat after a down session in asia but records in the u.s. let's look at what else is on the move. some individual stocks. adidas selling its reeboks

brands for 2.5 billion u.s. dollars. a gain of 2% for adidas. and in the travel industry, firmly in focus as reopening continues to spike the delta variant. a pickup for bookings for this german company. gains of 0.8%. bookings surge on the border reopening's it has posted about a 940 million euro loss but it is seeing a pickup in bookings. their stock in focus, the all-important pet supplies. zooplus. wow, gains of almost 40%. this is on the back of a story around, a takeover bid for this company. you can see there is a bid by trade gate premarket after the

retail of supplies from helmand and friedman. this is a takeover offer of just under 400 million euros could gaining strongly on the back of that. as earnings season winds down, will that continue in the second half when uncertainty about the pandemic persists? for more detailed analysis on this, let's bring in tim from bloomberg intelligence. what is the scorecard in terms of looking ahead to the end of the year? tim: it is nice to be here in the office. it is unambiguously positive by our reach. a couple of points to make. two thirds of the companies that have reported, almost all of them at this point, have beaten expectations. about a quarter has missed.

this is far better than the typical reporting period in europe where we see half-half. interesting enough, consensus was looking for 130% growth at the beginning of the quarter which seems crazy but it is against an easy comparison from last year. it is ending the quarter at 100 80%. massively better than expected. it has been driven with cyclicals. thank energy, -- think energy and mining's and banks -- mining and banks. you mentioned semis this morning. the supply of the chip industry. and st micro has also done well given how it feeds its chips into the system.

that is part of the staples group -- that has notably disappointed with gross missing -- with gross missing expected numbers. tom: what are we hearing from that forward guidance? tim: the numbers have been somewhat similar to what we talked about with beats versus misses. there have been more positive points of guidance than negative which is frankly surprising given all of the wall of worry we have been climbing about supply chains and cost and whatnot. there is a lot of recognition i think that it is an issue but most management seems to think it is manageable. and it is important. the set up coming into the quarter was one of positive dynamics that needed to be beat and raised. that is pretty much what we have seen. stocks have responded positively

to positive guidance. up a couple of percent on the day net. but if you missed guidance, take no prisoners. stocks down 3% or 4%. the punishment was worse for that quarter of companies that missed guidance. tom: there is another view that analysts are underestimating growth going forward. in terms of the china impact, the regulatory framework being built, to what extent should this be factored in when we think about earnings from europe? tim: it is interesting. and the focus in our mind has been on what the policymakers are doing, changing their focus to benefit in their view the mass market for chinese people. there has been talk about three mountains. education, and we saw what happened there recently.

property and health care. all areas that pressure chinese consumers. tech got brought into this for a lot of extravagant reasons from the standpoint of wealth being created etc. etc. that part is what worries us a little bit. it harkens back to 2012 with the anticorruption campaign that extended into the anti-extravagance campaign. a number of luxury goods got hits. we don't anticipate that but it is something we are focused on with the tea leaves. tom: before we let you go, valuations. what is looking attractive? tim: it is interesting. overall, european market is at about 16.5 times and we don't see it going up much. we are focused on earnings trends.

the ftse is less than 13 times earnings. that seems cheap. our point of contention but that is at the average stock or the median stock in the ftse is actually 16.5 times similar to the european market. and half of the stocks are trading over 17 times. it is not that cheap. tom: we always appreciate your time. tim from bloomberg intelligence. we have disney results coming up as well so stay with us for that. some beats on the disney plus. this is bloomberg. ♪♪

tom: happy friday and welcome back to the open. we are 30 minutes in to the european trading day. let's take a look at the markets. the stocks euros 600, that index is flat.

it was a down day in asia. and continues to be a down day in asia. a number of concerns around the delta variant and china's regulatory push. the ftse 100 posting gains of 0.3%. it was another record day for wall street. europe may be looking to their u.s. friends and ignoring some of the sour sentiment in asia. the cac 40 is up in france almost 10 points. let's look at some of the sectors and how it is breaking down across europe. on top of the pile is retail. gaining about 0.4%. in terms of the vaccine rollout across europe, there has been a lot of success there. there has been a lot of concerns about the delta variant but the reopening trade remains good in europe. a solid earnings season. on the downside though,

technology down about 0.5%. that is the sector under the most pressure here in europe. it is worth pointing out that hong kong, the tech stocks they are also feeling the pinch on the back of continued concerns about the direction or china's regulators. let's get the bloomberg first word news now with laura wright in london. laura: the u.s. has cleared a third jab for those immunocompromised. the fda says other fully vaccinated individuals do not need a third dose. u.s. supreme court judge has rejected a challenge to indiana university's requirement that all students be vaccinated against covid for the coming september -- semester. this is a first time the highest court has acted on a vaccine mandate. the pentagon says it is sending 3000 troops to afghanistan to help evacuate diplomats pair the

u.k. is deploying 600 soldiers to assist edition nationals from leaving the country. taliban fighters have reportedly captured kandahar. they were driven out during the u.s. invasion of 2001. police and plymouth in southwest england have confirmed six individuals have died. no motive has yet been reported. murders committed with firearms average around 30 per year in the u.k. which has some of the strictest gun control laws. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom. tom: laura wright, thank you indeed. disney posted a strong set of results and the third quarter and a fight it's streaming

skeptics with a beat on new subscribers to its service. shares rising inputs market trade. the ceo defended the strategy of the company for box office releases. >> both bob weidner and i along with our leaders of the creative and distribution teams determined this was the right move because it enabled us to reach the broadest possible audience. tom: joining us now is match from bloomberg intelligence. the subscriber levels that disney plus is managing to pull in surprising to the upside for the markets. are they able to maintain this momentum going forward? >> it seems that way. the company is quite optimistic about the near term and long-term outlook. 1.1 billion households. around 116 million on disney

plus. that gives them a lot of growth. they are expanding coverage in the near-term into a number of asian markets including japan which is a strong market for disney and some european markets also. i think the momentum should still be strong. it will not be a straight line for them. but very optimistic commentary yesterday about the future of streaming. tom: those new markets interesting particularly japan. do we have any clarity on when additional numbers might be coming from those countries? >> nothing specific unfortunately. just that it is a new directional trend but there is a long way for them to go in terms of penetration issues. there is a big audience. that should up the numbers. tom: and that pent-up demand for

the parks, clearly seeing that hits and filter through in a positive way. you we have a sense as to the impact of the consumer concerns around the delta variant? or do we expect the pent-up demand to boost the numbers we are seeing in the parks in the u.s. as well as in asia and europe? >> they had a good quarter as people came back to some of their bigger parks. there has been a lot of demand for the parks. this is very strong. they are also expanding their cruise line activity. the delta variant at this point, doesn't seem to be impacting them. in the short-term, the strength

of the parks business and the appetite for consumers to get back and enjoy them is for sure. tom: what about the controversy around the direct streaming versus cinema releases? are they able to work through the kind of contention that scarlett johansson has brought to the fore on this issue? >> they have not mentioned her by name but they have said that a lot has been going on in the last 12-18 months involving the way they pay talent. i think it is clear from the comments yesterday that streaming will continue to be a priority for them in terms of releasing new content. cinemas were struggling before the pandemic anyway. they will come back and play a role but i think the mindset has shifted quite significantly and that will have implications for how they pay talent and it will also have implications for how we actually get access to the

content coming up in the future. tom: interesting. cinemas playing a role streaming still in the forefront even as things normalize. matt, breaking down disney earnings. coming up, elon musk has touched down in berlin. before he hosts one of the front runners to succeed angela merkel as chancellor peered we will get the latest. this is bloomberg. ♪oomberg. ♪

tom: welcome back to the open. we are 40 minutes into the european trading day. markets in europe with modest gains. it is the ftse leading the pack up almost 0.4%. jetblue flight arrived in heathrow yesterday afternoon. it is part of a shift to make transatlantic travel more affordable and comfortable. robert hayes spoke with guy johnson after touching down in the u.k. >> we are going to keep the fares low. every time jetblue has come onto the market, fares stay low permanently. we saw it in jfk, lax.

fares are still half now in business class than they were pre-2014. >> i cannot fly the other way. when is that going to change? you can flight into the u.k. from the u.s. but what about some reciprocity? >> the opening up by the u.k. government was terrific. we saw our daily bookings triple between jfk and heathrow on that day. as a u.s.-based carrier, i want to say that most of what we will sell will be in the u.s. which is great for jetblue. the u.s. government should open up. there is no reason not to. you can fly from countries that have much higher covid infection rates that you cannot come from countries in europe where infection rates are much lower. it is not a risk-based approach. when will it open up? i cannot tell you. >> by christmas?

>> hopefully, sooner than that. it is really hard to predict how they are thinking about this. >> what is next dr. london? -- what is next after london? >> it will keep us busy for a while. it is a premium market. our lower fares will stimulate demand. we will look at other markets, paris is of great interest to us. some of the regional u.k. markets in the summer. >> you are incredibly well known in the united states but not over here. you will be putting a lot of flights on now. when will we see a big marketing push? when will we see a lot of spend to raise awareness? a lot of people over here, i have had a conversation with. >> it will take time.

let's get the restrictions lifted by the u.s. government and we think that will drive a lot of demand. to me, that feels the right time for us to expand our marketing efforts in the u.k. >> let's talk about what is happening stateside. delta is making its presence felt in a significant way. are you went is abating that is going to have -- are you anticipating that is going to have an impact? >> yes. certainly, over the last couple of weeks it has been, as we have seen the delta variant go up, it is something we have seen an impact on. in our earnings call at the end of july, i said i was cautious about september for that reason. right now, it is playing out pretty much as we expected.

what i have learned is that case counts continue to rise and you get more customers wanting refunds. what i would say is that i think this will be a short term peak if you look at how the delta variant has come through the u.k. and other countries. it is a 6-8 week peak. there is no reason to assume that will be different in the u.s. tom: that was robin hayes speaking to guy johnson. let's get a bloomberg business flash. here is laura wright. laura: zooplus, the bid is backed by the zooplus management. zooplus has been among the big winners of the pandemic lockdowns as people stuck at home bought pets. phillip morris has moved closer to the acquisition of vectura.

vectura says the offer by phillip morris is fair and reasonable supporting an opinion by carlisle. many are urging victoria to reconsider. airbnb shares fell after they trading after a decline was reported in bookings. the company blamed the spread of the delta variant of covid-19 for the gloomy outlook but it did beat wall street expectations for a second quarter for revenue that came in up 37% on 2019 levels. after spending a decade of trying to revive it, adidas has sold reebok to authentic brands for 2.5 billion dollars. the majority will be paid in cash with the deal expected to close in the first quarter of 2020 two. authentic brands represent more than 30 names. are you cool enough to wear

reebok? tom: i ditched my reebok years ago because i saw this coming, frankly. laura: you are ahead of the curve. tom: but i did have the ones with the little circular pump where you wed pop-up -- anyway, that is enough. they were cool for a while but maybe not. laura wright, thank you for the latest joining us from london. what is cool for sure, or the markets would have you believe this, are all things tesla. elon musk has touched down in berlin this morning. the chancellor candidate lance will visit the factory. transforming germany's auto industry is key as europe's biggest economy tries to modernize.

we are joined by maria tadeo who is outside the tesla factory outside berlin all morning. what is the significance of elon musk's visit? maria: it is a very good point you make because on the one hand , this is a company story. elon musk is here for a reason. tesla is developing this huge site you see behind me. the idea is they will be producing those electric vehicles and this is going to be a major site to did develop tesla cars. the other story is the politics. on one hand, elon musk has been very vocal and public around the idea that german bureaucracy is creating issues for the sites. the idea was that in 2021, we would see the inauguration of the site you see behind me. there have been a number of delays and the data is uncertain. elon musk has said a lot of this

is because of the german bureaucracy. the other political story is a meeting with the cdu chancellor candidate. normally, it is the corporate trying to get something out of the politicians but in this case, you could argue that it is the opposite. the politician is seeking the meeting with elon musk. we want to look into the future of the german car industry. it is always -- it is also a way for him to revive his campaign. he has been slipping in polls for the last few weeks. they are trying to build momentum into the campaign. the latest polls show a very complicated picture. for they german potential successor for angela merkel. he has polling as an individual candidate but it has taken a big beating, down three percentage points this week. tom: i wonder if there is any

risk of him tying himself to this project. what have we been hearing from executives from the likes of vw? or do they see tesla as an opportunity to build out the supply chain? maria: it is a very good question because on one hand what the cdu and every politician in germany will tell you is they want to invest in the industry for the future. they want to go more green and modernize the german economy. germany is a powerhouse economy when it comes to exports but if you look at the fundamentals of the economy, you could argue that there is a lot of modernizing that is needed. for the german auto industries, they will tell you that they do not see tesla as a rival. they see this as a very niche vehicle and the price point is also potentially a problem.

they want to appeal to a mass market and go greener. they will have to do to follow the european regulations. by 2035, no more combustion cars should be on the road. germany argues that germans want to see made in germany or a new take on it but we will have to see. tom: maria tadeo outside the tesla factory which is currently still being built. elon musk is expected in about 10 minutes. maria will be on that story. getting back to the markets. we will talk about expectations for tapering. that is next in this is bloomberg. and that is your live shot of new york. ♪ shot of new york. ♪

tom: welcome back to the open. we are 55 minutes into the european trading day. the european stoxx 600 gaining about 0.1%. it is worth pointing out that it is on track for its 10th straight close at record levels. the longest streak since 1999. it keeps grinding higher. we will see how it closes out at the end of the session today. retailers and miners are leading the pack. nora, thank you for joining us. how are you looking at things

when it comes to the focus on jackson hole and the question about tapering at a time when the delta variant is having an impact in states like florida and texas? >> good morning. i think the big question here is what does market expect inflation to be? currently, markets are quite cold. we have seen a subdued reaction to the cpi numbers that came out the other day. let's take a step back. at inflation swaps are breakevens and they will tell you the same thing. the market is pricing inflation at a transitory rate. they believe the fed and do not believe it is going to be deflationary. that is important. that has been the message of the fed. that inflation will be transitory and we will taper when we see a steady recovery. if we take a step back again and see what the fed has been

saying, you can see how the narrative has shifted from talking about talking about tapering to talking about tapering. a few fed officials including bostitch and others have said they are thinking about gradually increasing the tapering conversation and that is important when you look at the gradual reintroduction of it. you can tell the fed has learned from the 2013 taper tantrum's. markets are slowly believing and that. that is why we have seen a subdued reaction from the dollar and the treasuries earlier this week. tom: nour from our mliv team breaking out the tapering issue. they are in line with the fed view. and the fed governors' view

that inflation will ultimately be transitory. cpi was largely in line. we can check back in on the european markets. we are about an hour into the session. it looks like we are eyeing another record close in europe. a 10th straight record close, the longest running streak since 1999. gains of a little under 0.2% in europe. the ftse 100 leading the pack up 0.4%. plenty more. stay with us. surveillance is next. this is bloomberg. ♪g. ♪

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no reason not to. >> children have to be back in school, we cannot have the continuation of the work from home situation anymore if we can avoid it. >> we are continuing to engage with the tele-band. we are not blind to the suffering of the civilians. >> this is "bloomberg surveillance: early edition." francine:: good morning and welcome to "bloomberg surveillance: early edition." i'm francine