tv Bloomberg Markets European Close Bloomberg January 5, 2022 11:00am-12:00pm EST
really lifting the market. the canton starts now. >> the countdown is on in europe. this is "bloomberg markets: european close," with guy johnson and alix steel. ♪ guy: 29 minutes to the european close, this is what the price action looks like. european stocks off their highs. we are near record highs. the auto sector definitely driving this market. brent crude is higher, up by 1.5%, $81.26. how much higher can we go? the other factor is that the dollar is on the back foot. euro-dollar up by 0.4%. 1.1334 right now.
alix: here in the u.s., we are waiting for those fed minutes. i think the question becomes where and when do we actually move. the s&p a little heavy here. i should say flat. but the health care really underperforms. text still underperforming. the growthier names coming off. you can see that with the ark innovation etf which has gotten hammered over the last few weeks. i'm going to skip the real yield for a second. the russell 1000 value index is up 0.6%. growth has now trailed value by about 1.5%, the worst lag for growth to the start of the year since 1995. so is this move into value real, or are we going to see growth continue to pick up? the growth argument is going to come when you get to the real yield at -94 basis points. if that stays negative, do you still need to buy attack? this conversation definitely percolating when we get those minutes today from the fed at 2:00 p.m. guy: absolutely, and all of this
against a backdrop of what is happening with omicron. prime minister boris johnson saying within the last few minutes that the u.k. is scrapping predeparture tests for international travel. it is also going back to lateral flows from pcr as you arrive back in the country. all of this happening as his government remains determined that we will see no further restrictions. pm johnson: lockdowns are not cost free. they impose a devastating toll on our physical and mental well-being, on our businesses, jobs, and livelihoods, and on the left out of our children. this government does not believe we need to shut down our country again. instead we are taking a balanced approach, using the protection of the boosters to reduce the spread of the virus while acting to strengthen our nhs, protect critical services, and keep our supply chains open. guy: the british prime ministers
peeking in the house of commons a few minutes ago. sam fazeli a bloomberg intelligence joining us to give us his assessment of what is happening here. is that the right course of action? the u.k. government seems to be taking a more hands-off approach than many other european governments, and there is apparently some evidence that omicron is already peaking. what is your view of what is happening here? sam: nice to see you again in the first of 2022 discussions. hopefully not many of them for covid. i have to agree with what the u.k. approach is. what is the point of testing people coming into the country if you already have such high levels of infections? how much difference does that make? the other thing they have done is to say we are going to suspend pcr. it is enough to do lateral flow. we all know that the most infectious time period is when the lateral flow is positive, and we also know that if you get
the lateral flow test at home, it is the same value as the pcr, so what value is that? alix: i feel like officials at the cdc are also trying to think about that as well. to that point, the other question guy mentioned was when are we peaking. there is some conversation that we will peak in the u.s. in the next few weeks, the end of january. your modeling, your research, what does that tell you about peaking in the u.k. and the u.s.? sam: my extremely sophisticated modeling just looks at what happened in south africa and gives you a four to five week window. reality is i have seen so many professional modelers look at this and find that essentially they are wrong, so i think let's just not think about that too much. let's hope that in the next week or two, the u.k. will peak hopefully, and then of course the u.s. a couple of weeks before. we know what these waves look like, and i am hoping that
omicron will go down the same way. so a couple of weeks for the u.k., fingers crossed. alix: sam, really appreciate it. always good to see you. in the meantime, here in the u.s. we are awaiting a white house press briefing by the covid-19 response team. we will bring you any updates as they cross as well. joining us now is paul hunter, university of east anglia professor of medicine. it is good to talk to you. you heard sam say that we could peak in the u.k. in the next couple of weeks. that is what we are pointing to. you share that assessment? paul: i think that is most lightly to be the case, yes. the fact that we have not strengthened restrictions at the moment is the right thing to do in the u.k. modeling from more particularly -- from warwick in recent days has adjusted that any further restrictions now will not affect the size of the peak and could potentially extend the duration
of the epidemic, so i think we are likely to see a peak in cases within the next week or so, and probably a peak in hospitalizations a week or so after that. but there is to a certain amount of uncertainty, particularly with increases occurring slightly more rapidly now in the over 60's who are clearly the group most likely to go into hospital, so there is remaining uncertainty about how things will pan out over this month, but i think by and large, it is interesting to see most people who are modelers or who have put a lot of effort into understanding omicron and covid over the last years, there is a sense of greater optimism around now that i think was the case even a month ago. guy: professor, as we look to
2022, what can we learn from omicron that is useful? are we finally going to get to the point where we learn to live with covid in 2022? does it become endemic? two future variants become maybe more transmissible, but less dangerous? paul: that is certainly right. omicron is certainly not going to be the last variant. the other coronaviruses throw off variants probably everyone or two years. that is likely to remain the same with covid. but it is quite likely that this is going to be the last variant of concern, or at least almost the last variant of concern. although we are going to see the covid virus continuing to circulate probably for decades to come, i think we are not going to see the same sort of severity that we have seen even with omicron going forward, so i
think the optimism that we might be approaching the end of this pandemic is not ill-founded. alix: what makes you think that this could be the last variant of significance? paul: if you look at each of the waves that has occurred in europe and most parts of the world, the case fatality rate seems to have declined with each wave. so although we saw a lot of cases of delta, we did not see as many deaths as we did with alpha, and with omicron, again, a lot more cases, but far fewer deaths. and far fewer people ending up on intensive care units. so the situation is moving towards a less severe illness, and in fact, coming more and more into some bloods with the
common cold, which it certainly will do more in the future. but there is still a lot of uncertainty about exactly what might happen and what new variants will appear in the future, so we can't say yet that we are definitely past it, but i think there is grounds for optimism at the moment. guy: just picking up on that point, do we know how much protection omicron infections are going to provide? if somebody gets omicron, how protected are they against, for instance, delta, or some of the future variant that are going to come? paul: when you look at protection, there's two types of protection. there's protection against infection and protection against severe disease. we saw that there's very little cross protection between delta and omicron as applies to infection, which is basically
infection of the nose and throat. so omicron isn't going to really protect against delta infections, and delta hasn't really protected that well against omicron, although there is some degree of protection. protection against severe disease is much better maintained between the two variants, and even when you look at omicron versus omicron, we know that protection against infections, nose and throat infections doesn't last forever for any of the coronaviruses, and probably within anywhere between three to six years, we get reinfected with the same coronaviruses, and we are likely to see that, but each reinfection will probably be associated with less severe disease because that is better protected both in terms of overtime and across different new variants.
impact that fed hikes could have on european stocks. the line goes something like this. higher real yields can help value trades to outperform in 2022 such as the u.k. and pan-european financials. a fed hike not be fatal to european equities, which have recovered from them in the past. the idea here is that actually, european value stocks, cyclicals actually have a higher correlation to u.s. rates rather than european rates, and if the fed is raising rates on the ecb is not, that could be good for the cyclical sector. thanks, automotive, the insurance sector would do well. you've got health care, personal care, utilities, food and beverage may be doing a little less well. it was interesting to see jeffries downgrading nestle. charlotte ryland, ccla investment co. ha -- ccla investment co-head, joining us now. do i want to be in european cyclicals? charlotte: i think it depends on why using the fed is raising
rates. the fed is moving from a situation in which they had emergency low rates because of the pandemic, moving off that level, and they are worried about inflation and making sure they are keeping those inflationary pressures. they are not doing it because we are seeing enormous consumer or economic boom. most of the economists we are looking at are saying that we are moving a bit slower this year because we've had a lot of the reopening, that fiscal stimulus we saw last year is coming off. the consumer is getting more expensive. so it is a slightly more difficult environment, so to read into that that we have a cyclical boom because rates are going up i think is looking slightly in the wrong place. something like european banks, they depend on what the ecb is doing. it makes it a very difficult situation for banks. alix: if we wind up seeing a fed
hike or a series of hikes move bund yields up, if we get to zero on the 10 year, for example , does that change the narrative a little bit when it comes to european value? charlotte: it very much depends on what we have a net value bucket. we have a number of stocks there that have got significant structural issues, retail, things like telecom stocks that have competition issues, so i don't think just looking at where the rates will go removes some of the impediments in terms of growing their earnings and in terms of their relative attractiveness. guy: u.s. tech selling off pretty hard over the last few days. does that continue? is there an opportunity? how do you see it? charlotte: i think we have seen that on a number of occasions.
clearly amongst some of the more highly valued parts of tech, the ones that are more concept stocks and less profitable, some of the stocks moved up very heavily last year like nvidia. there are really interesting stocks in terms of valuation getting a little heady. if we look at the tech sector as a whole, there are still very strong growth drivers. there are still very high margin businesses in general. so it is a slightly more difficult environment for those that remain reasonably well-placed. alix: in that case, is this the opportunity to go buy u.s. tech, or do you need to look at european technology, european luxury, and buy what has been outperforming already? charlotte: there's an awful lot to choose from, isn't there? i think you should be looking at
the microsofts and adobes of this world, those are great long-term names. guy: what kind of performance are you expect in this year out of your equity portfolios? charlotte: i wish i could say we will have another 20% year, but i expect that is not what we will be looking at. as you have rates moving up, that is going to make it more difficult to get the valuations we saw last year. the reopening benefit has also come through, so markets are probably looking a bit more subdued this year. i think that means a less spectacular year for equities, but certainly not expect in going backwards as we go beyond perhaps a new variant. alix: based on that and your outlook and what you would like,
how much do you need to be in cash to take advantage of any kind of volatility that we are going to see? charlotte: we did sort of tactically take up our cash positions into year end based on the uncertainty of the new variant, which seems to be coming out is not as severe as we might have feared. so we have on occasion taken cash positions up to take advantage of where valuations were extended, so we can work that back into the market this quarter. alix: thank you very much. always good to catch up with you. coming up, falling temperatures in europe, rising tensions in ukraine creating a perfect storm for the energy markets. we will have the detailed outlook next. this is bloomberg. ♪
how high it goes. the sky is the limit. it is impossible to but an average price number on natural gas for the first quarter of this year. we picked a number, it turned out to be in the high $40 per million btu's, but it could be $100. alix: that was ed morse speaking to us in the last hour about what is up with natural gas prices in europe, how high they can go, and the volatility we have seen. in the meantime, u.s. secretary of state antony blinken is speaking with his german counterpart this morning, and at the top of the agenda, rising tensions in ukraine get obviously a political lease and the topic and europe's gas crisis. here with more is annmarie hordern, bloomberg washington correspondent. this is where the prices and political meet. you are not getting the same kind of pass-through in terms of the pipeline from ukraine to europe, and therein lies the problem. what you expect them to come out
of this meeting? annmarie: it is an interesting time because you have the geopolitics and the energy markets playing together, and you can see president vladimir putin and the criminal and using the energy crisis in europe to their advantage as leverage. we heard from the german foreign minister in her first trip to washington, but her second meeting with secretary of state antony blinken, that it is a decisive moment right now in ukraine, and that they want to work together with the united states to make sure they are pushing for dialogue when it comes to foreign policy in ukraine, and this is going to be really what she and the secretary of state will likely be talking about if they do give this joint press conference later today. another very interesting point we should keep in mind is that she was the leader of the green party, so she lines up with the united states when it comes to nervousness around nord stream 2. a little bit of a different line then what chancellor olaf scholz has to say, which in the end is what putin is trying to use as
leverage. guy: how much difference is there in the attitude of the united states versus the germans? the germans are heavily exposed to russian gas. she is much more hawkish on russia. scholz has made it clear that they are talking to the administration. if we do see a ukrainian invasion by the russians, how much tolerance really is there going to be in europe, in germany, for a reduction in supplies into europe of gas, particularly if the weather is cold? how big a difference could we see in the approach from washington to berlin? annmarie: it is a great question because germany is reliant on russian gas, especially the fact that they closed nuclear, they are shutting down all their coal. they need this gas from russia. roof olaf scholz has towed the same line angela merkel date,
which is that this is a private company endeavor and a nonpolitical institution is in germany that is going to give it a checkmark. he wants to maintain that this is business as usual, while the foreign minister campaigned on wanting to shut down nord stream 2, so she is much more hawkish and lines up with the united states. it will be very interesting with the response will be roots guarding -- response will be regarding nord stream 2 if putin crosses over the ukraine border. alix: i am wondering what antony blinken can offer germany to help because they are really in between a rock and a hard place. annmarie: all of nato seems to be on the same page right now when it comes to russia, and that is dealing with russia in terms of dialogue. we know that next week the deputy secretary of state wendy sherman is going to be leading the u.s. in those talks with
russia. before they do anything in terms of the united states, before president biden got on the phone with president putin, he made sure he spoke to his european allies and counterparts. so you do see the u.s. wanting to mix sure they are in alignment with their european allies when they are confronting president putin, but you are not going to see, and terms of movement in response to putin militarily. it is going to be sanctions, and the nuclear option will be the swiss payment system. guy: thank you very much, indeed. maybe we will get a press conference later on and learn a little more about this story. equity markets coming into the close positive, but off the highs. the close is next. this is bloomberg. ♪
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europe. i think the component parts today are interesting. the outperformance is coming from the dax. that's what's driving the outperformance. german carmakers are powering ahead today. we have had a slow fade. session lows hit first thing. a tight range over the last couple of hours. in terms of the sector breakdown, the sector -- the car
sector is getting into gear. the miners are trading higher so our energy. utilities are off. financial services are off as well. car for, are we going to see consolidation in the french grocery sector? the other end of the spectrum, nestle down by 2.7%. that has a big effect on the stoxx 600. then the car sector. i want to talk about still in
test. -- stellantis. he has a deal with amazon to produce delivery vehicles. it looks like we have a potential deal in the cloud helping out in terms of the driving capability going forward. the stock responding very well. the whole of the auto sector is having a positive date today in europe. alix: volkswagen, toyota, they said they are coming for tesla. they have laid out plans to spend $170 billion to stay on top. the short seller, tesla is worth more than volkswagen market cap. despite the fact that volkswagen
sells three times more cars than tesla. can they catch up and will they get the credit in the market? what did you make of that dislocation that was shortselling -- can volkswagen get the kind of valuation that tesla does because it sells more cars? >> you said three times for volkswagen, it's about 10 times their sales relative tesla last year. with toyota, it will be about 11. we have not gotten final results yet. in any case, it's definitely something that has been playing out for quite some time. it is been months since tesla broke the $1 trillion mark. the market has done away with fundamentals driven by internal conduct -- combustion engines.
they want to know how quickly you can respond to tesla. we have seen a big run up in valuations of general motors and ford. with volkswagen and toyota, you have a case where these are the two biggest automakers in terms of volume and market cap among the traditional incumbents. they have not had the halo that fortis had recently in terms of writing the coattails tesla. that's what we may be seeing in terms of a run-up in the european car stocks early this year. guy: are we going to see tesla coming down or the carmakers coming up?
stellantis is getting in on the game. craig: there's room for so much market cap. they're going to be losers here. primarily in the form of internal combustion engine cars. perhaps some of the weaker car companies having trouble more so than the strong companies with balance sheets the likes of toyota and volkswagen. that's what we were most intrigued by today was the idea that these are two companies that throw off a ton of cash. tesla has gotten to where it has been largely on the basis of elon musk ring able to go to the market and raise money for years and years before they were able to make much money. they still aren't generating cash, it's a company that is in the growth phase and it's to be determined whether we will see the significant profits that the
market is pricing and at this point. alix: what would it take you think for investors to start giving traditional auto companies the kind of confidence that they give the likes of rivian and tesla? what do they have to prove to get some of those investors? craig: you have to have some real volume. to tesla's credit, they have very significant lead in electric vehicles. while we talked that the competition is coming, they
you're looking at the ledge vehicle segment. it is still a small subsegment of the auto market. you have to show volume with the early ev's. you have to show significant investment dollars behind the rhetoric and have to start seeing capacity coming online. that's what we are seeing with volkswagen last year and this year. i think we will see that with toyota going forward now that they have come around to the idea that they can't cling to hybrids forever. guy: we are going to carry on the conversation around what is happening in the auto sector later on. we will hear from the ceo of gm. that conversation happening right here on bloomberg. the conversation coming from the ces technology conference. alix: coming up, lenovo is unveiling its latest and environmentally friendly laptop at ces. the lenovo north america president be joining us next. guy: let's check where european markets finished.
that's due to soaring prices across the region. the average residential consumer will pay $2100 on energy this year and the biggest increase will be in italy and the u.k.. bavaria's new prime minister redoubled the commitment to adopt the euro in two years. transition must be treated with care. >> we are fully committed to the first of january 2024. >> the comments were the first explicit pledge made since he took office in december. emmanuel macron is taken in aggressive stance up a notch. he did use the word annoying and
an interview a newspaper. he said vaccination is the top strategy against the pandemic. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. alix: lenovo is unveiling its newest thinkpad laptops at the ces conference. the latest models are more powerful and more environmentally friendly. with us is the lenovo north american president. what are the highlights? >> happy new year. this is the week of ces. a very exciting time of year for everyone in the technology industry. we wish we were there in person,
but we are still fully virtual and moving ahead with product lunches as planned. one of the biggest announcements for ces this year is what we call the first thinkpad in almost a decade. it was sustainably designed. looking at things like gen z as the focus of what we're going to design our next generation products for. it's not your traditional black scene -- sleek thinkpad. we have used one hunter percent recycled material. things like vegan leather to create a soft attractive touch. we have beefed up all of the audio and visual components the you traditionally would see in a high and home set up with hd cameras, ir cameras, directional microphones, and larger speakers
than what we traditionally used. it is all powered by a product new to the market. it is one of those products that we have introduced with a nod to sustainability and innovation. guy: i'm really curious. as to the target audience. thinkpads are often used by corporate's. is this in response to the fact the corporate's are saying to you we want to see your supply chains getting greener? we want to see your products getting greener? is this an esg push? >> that's absolute right. 18 months ago, we introduced a carbon offset program. corporations were buying some of our product to go invest and click on a button and say i am supplying dollars to funded sustainable efforts to ensure carbon offset. i was just in new york city a
few weeks ago meeting with wall street financial firms and what we are starting to see is rfps coming out of these large corporations saying what are you doing to make sure you are keeping things sustainable? this is something that lenovo has taken on. let's design something ground up that is sustainably thought in mind. it's also shipping containers that we ship the men. the boxes are made out of bamboo and sugarcane fibers that are fully compostable. you can throw it in your garden after it gets shipped to you. we're trying to say what are the trends in the industry as we are working from this remote and hybrid environment that makes sense? alix: to that point, i'm wondering does it cost you more to make and what is the pricing power that comes with that? you are also dealing with
shipping delays, chip shortages, there's a lot of input cost happening of -- happening at the same time. >> when we start looking at the full component cost of shipping increase cost, what we are seeing is things like shipping by freight is about five times higher this year than last year. two times higher on airfreight cost. we're starting to do things like making sure the boxers are smaller and lighter weight. some of our large customers, we are shipping in multi pack boxes to reduce the footprint and the weight and especially the space that it takes to ship some of these devices. that is something we are looking at. one of the things that you do is in order to make sure you are innovating, we spent over $2 billion in r&d to make sure we are innovating products sick customers want.
-- products that customers want. they want a more sustainable product for their corporations, their enterprises, and their home used. guy: what are you seeing in terms of the trends in terms of usage particularly in the corporate products? a lot of the people are going to be working from home as a result of omicron. they are still going to be using virtual meetings, zoom, teams. how does this new product fit into that landscape and how does it involve with the landscape? there's a lot of conversations around what's going to be happening with meta-. how is this new product going to fit into that? >> with this particular notebook, we worked with amd to make sure we are developing a product that delivers the highest and most realistic audio qualities for teams usage, zoom usage, and to create an
environment where you are hybrid lee there. -- hybrid there. working remotely is now turning into hybrid work. it is an area of the market where the more you could create a better virtual experience for employees or consumers, that's some of the trends that are driving the industry today. alix: what is it like to get your hands on chips and stuff? how are you dealing with the shortages that everyone is having to deal with right now? you mentioned making packaging lighter so you have a lower footprint. what about chips? >> we have seen supply chain issues for well over a year. being the number one pc manufacturer in the world, it gives us a lot of pout. we have made massive announcements when it comes to buying products early.
we made early investments on the. that's one of the things that kept us up front as the number one pc manufacturer. we have leveraged all of our worldwide manufacturing locations. we are operating in 180 worldwide global markets and manufacturing in 10 countries. that allows us to spread out the areas where we can procure and build products closer to the customer which reduces the shipping time you were talking about. guy: we appreciate your time. thank you very much for bringing us the news. that was the lenovo north american president. later today, we will go back to ces. joined by qualcomm president and ceo. that coming up on bloomberg television at 2:00 p.m. new york time. coming up, we will take you to the fed minutes. we need to count you down to 2
guy: investors are looking for fresh news from the fed minutes. what are you expecting? >> in terms of learning something, it's probably going to focus on the qt aspect. they have told us they are ready to raise rates if necessary. they don't know what the longer-term path for hiking is going to be. they do know they have a problem with the size of the balance sheet. one of the questions is what happens if the fed does qt?
this is what happened the last time they did qt to the s&p 500. the balance sheet started going down and nothing happened. the stock market kept going up. this is the pandemic right there. that doesn't look like it's a major problem. what then is the time and for what they're going to do and how are they going to do that? that is maybe going to change from the last time. last time, they waited about two years after shrinking the balance sheet. in terms of raising rates, there is one thing we want to look at. it's not the adp number this morning. two other numbers came out today. this is mortgage applications and auto sales. both of them look at the trend.
you don't look at the individual dots, but look at the trend down. those are interest-rate sensitive sectors. the fed may not have to raise rates as quickly as they thought if demand cools, that should cool inflation a little bit. then qt becomes important because it tightens financial conditions without raising the cost of money too much. alix: are we going to hear anything about omicron being transitory or hurting demand? >> no, the fed last met just as omicron was getting started. we may hear something about the virus in general and the fact that it leaves everybody up in the air about what's going to happen. that we are no better off now than we were. it's three weeks ago and at this point, we have seen a lot of developments with omicron. alix: thank you. here's what we're watching the next 24 hours.
antony blinken and his german counterpart going to hold it news conference on supply chain disruption. guy: the economic data continues at pace, we are going to get services, durable goods, trade balance data in the next 24 hours. keep an eye on the cpi number. is going to be a busy day tomorrow. balance of power is next. this is bloomberg. ♪
>> the supply side i think overwhelms the demand-side contributors to the inflationary pressure we are dealing with. >> this is balance of power with david westin. david: welcome to balance of power. tomorrow marks the first anniversary of the mob attack on the capitol. to set the stage, we turn to our washington correspondent. thank you for being with us. give us a sense of what we should expect tomorrow. >> the capitol is busy in anticipation for what is going to happen tomorrow. tomorrow, we will have the president and vice president here giving a speech and remarks