tv Bloomberg Markets European Open Bloomberg January 18, 2022 3:00am-4:00am EST
francine: let's take a look at the futures. we are not without a direction. it is clear the markets are anxious about fed rate hikes being more pronounced and coming quicker, more aggressively. we are seeing a number of moves on treasuries. quite a big psychological level.then yield curve flattening . tom: the two-year breaking above 1%. german bonds in focus for us as the markets readjust to a more aggressive forecast for the fed amid this inflation. has the bond market been overly complacent? the relative resilience, will it continue? we will focus on tech as a result of that. the ftse 100 down 0.3%. the spanish ibex down by 0.3%. we had some data around european
car registrations dropping 22% in the month of december. supply chains, bottlenecks, semi conductors. in the u.k., you had some job numbers. the surge in omicron. let's see how things are breaking out across the assets. the u.s. back to trading after that bank holiday yesterday. futures pointing lower by 0.5%. this is the u.s. two-year yield. yields have moved up quite aggressively, more than 10 basis points. we are focusing on the yen as well. the boj changing the language around inflation. are you going to see more pressure on the end as you see this divergence between the boj and the fed? given the geopolitics of the drone strike in the uae and the inability of some producers to meet their commitments, you are
seeing gains of 0.2% for brent. more than 1%. 1.8% for brent. goldman sachs up. $100 a barrel. francine: if we look at little deeper into some of the sectors that are moving, i think energy and technology and travel are some of the biggest losers. energy a little bit up on the side. brent touching a psychological level. this is some of the geopolitical concerns, usually short-lived for the oil market. what is not short-lived is that demand could pick up. omicron is possibly not as deadly as what we thought as well. a lot of these european stocks, energy on the way up attach, but everything else on the way down. tom: that is the broader picture negatively. then you have the individual corporate stories. rio tinto talking about a challenging quarter.
that stop down 0.5%. thg lower by almost 2%. their profits missing estimates. they faced growth challenges. commodity prices have been challenging for them. st micro, we pulled this one out because it is a high-yield environment. currently down almost 1%. let's get the bloomberg business flash with laura wright. >> activision blizzard has reportedly fired or disciplined more than 70 employees since july as part of efforts to address allegations of sexual harassment and other misconduct. the wall street journal says the ceo held back a report on the actions, worried about activision's reputation. a july lawsuit accused them of fostering a frat boy culture of sexual harassment and discrimination. pdf has been hit with a credit ratings cut after the french
state controlled was ordered by the government to sell more power at a deep discount under actions to tackle europe's energy crisis. edf plunged on the plans. crypto.com says it stopped all deposits while it investigates unauthorized activity on some accounts. the crypto wallets provider and trading platform tweeted that all funds are safe, that security is being enhanced. several users had recently use social media to report the alleged disappearance of funds. that is the bloomberg business flash. francine: thank you so much. u.s. treasuries slumping, leading to the decline. investors betting the fed will tighten policy faster than expected. let's get into some of the key market drivers with kristine aquino. we are also joined by our guest. thank you for joining us.
we have a million and one question on equities. it is clear there are repricing's in the market. why? >> i think it really is all about the inflation trend. the indication that prices in the u.s. in particular are rising at the fastest pace in four decades, that is a staggering level. we've heard from fed officials this is what they want to respond to. they have been very emphatic about wanting to tackle the price issues and that is what markets are pricing and now with the moment. tom: just a redhead crossing the terminal, toyota expected to miss its 9 million unit goal in terms of the full year. toyota expects to miss that, no doubt as a result of those shortages to the auto sector space in terms of supply chain constraints and semi conductors. let's bring you and thank you for joining us. are the markets still playing
catch-up in terms of pricing in these fed hikes or are they getting over their skis now? >> i think it is a little bit of realization that q4 may be the last quarter where we see some double-digit growth and looking at 2022, things are normalizing a little bit more, so people are revising their expectations, gdp is coming down, valuations are getting tighter. there is a little bit of catch-up to go on that. francine: are you expecting a big correction for equities overall and is that u.s. equities that will suffer the most? >> i think it is about being selective amongst multiples that have kind of run away from everyone. in terms of some earnings previews that we get, some of those things held up. expectations were too high despite the favorable outlook to a certain extent relative to
some of the sectors. it is a case where we do expect a little bit of normalization, but not too much of an overall correction. i think there will be some strong earnings coming through and that will help to hold up certain areas of the market. that is the structural growth names, the names that have not got carried away in terms of valuation from last year. tom: the jolt to the energy markets overnight, we will get into the details of the geopolitics later in the show. in terms of the structural forces underpinning oil and goldman sachs predicting $100 a barrel, how does that filter out across the equity space? kristine: i think it is adding to the worries that equity investors are looking at the moment. they are not just looking at the higher yield environment, which does squeeze some of the juice that we see from the higher growth sectors, but then you add in the inflation impulse and oil prices adding to that inflation
impulse, that creates a double whim he environment that could potentially hit risk assets in particular. it is very interesting that we are seeing the simultaneous moves now. it is one thing where investors are having to do just the yield move or just the rise in oil prices and commodity prices, but the double whim he situation we are seeing at the moment will really test risk appetite. francine: what do you do with u.k. assets right now? we have the inflation print. >> the thing about the u.k. is it is skewed toward financials and commodities, which are two areas of the market that do have some of those negatives. not looking too bad for the u.k. to add into the mix of negative.
you also have this tight labor market. that is definitely something that is apparent within the u.k. the u.k. has a bit more of a services skew, some may be more favorable to some of the industrial markets in europe. tom: the 10 year yield rising to 1.2%, the highest since october. plenty more with louise. staying with us. kristine aquino as well. coming up, yemen's cootie fighters claim to have launched a drone strike on the uae. the impact after the break. the details. this is bloomberg. ♪
tom: welcome back. we are 12 minutes into the european trading day. losses across the benchmarks of the stoxx 600. technology down more than 1.3%. the one sector that remains in the green, energy, given the run-up in oil prices. brent at $87 a barrel, up almost more than 1.5%. goldman with a forecast of $100
a barrel in the third quarter. talking a brent crude and what is underpinning the high prices rallying to 2014 highs, yemen's houthi fighters claim to have launched a drone strike on the uae, opec's third-biggest producer. let's go to our reporter in dubai. what do we know about this attack on abu dhabi and what is the impact? we are seeing elevated prices. does it remain sustained, the geopolitical risk around these tensions? >> the iranian backed houthis claim to have struck two targets in abu dhabi, the main airport in the city and an industrial area which contained a fuel depot. while we don't know just how successful the attacks were, the uae said they were probably caused by drones.
the oil markets more or less shrugged off the incidents yesterday and traders did not react much, but we are seeing a reaction this morning probably from asian traders and most of the oil in the persian gulf goes to asia, so that is probably why traders in that part of the world and singapore are a bit more concerned. i think the main thing people will be looking for in the oil market is what happens next. is this repeated or is it a one-off? francine: in general it is good to remind our viewers that a lot of geopolitical concerns, unless they escalate severely, are short-lived and looked through in the market. does this have the potential to escalate? >> that is what we are going to be looking out for. the houthis are threatening more attacks on the uae, saying they have increased its number of airstrikes in yemen, where it is part of a coalition involved in yemen's civil war.
i guess what yesterday shows is that the houthis are capable and willing to attack the uae. the uae has not threatened retaliation, it has not but not aggressive with its rhetoric so far, but i think if we see more attacks, especially if it leads to anything like a shutdown of energy production or a large number of civilian deaths, that is going to raise the stakes much more. francine: watching for any response from the uae. paul wallace, thank you for the details on that attack overnight in the uae. christine, how should markets be thinking about geopolitical risks now? we have russia, the geopolitical risks of the middle east. do investors need to start pricing in geopolitical risks and where they need to put their money to work to hedge? kristine: markets are notoriously bad at pricing geopolitical risk as we know. it is certainly something that
is reminding them of all these underlying issues that could provide some tail risk to markets. that is essentially how they are looking at some of these flareups in the region. you mentioned the russia situation with ukraine. we also got some situations in kazakhstan earlier in the year and now we have the situation in the uae. tom: i forgot north korea as well. kristine: of course! this is just a constant reminder to markets that yes, they have kind of the macro picture to consider, but on top of that, glaring and all of these potential geopolitical tail risks, it may take a while for them to escalate and drive the fundamentals of the market, but it is certainly something they should at least have an eye on. francine: let's talk about oil fundamentals. a disclaimer, i covered opec for 10 years and it is still one of the most fun jobs you can do out
there. the oil price swings we have had over the last 12 months. the fundamentals are pretty balanced. i want to point to it opec has been doing. opening up some of their taps and shale production is likely to pick up given the price of oil. we will bring that chart to you shortly. there it is. some of the beautiful charts we can do another bloomberg terminal. if the fundamentals remain balanced, are we going to remain range bound? louise: we are definitely seeing a lot of continued strength, a lot of demand. we are seeing all those activity numbers sitting strong numbers. in the next month or so, we have the chinese holiday, we have the chinese zero covid policy which is impacting activity. all of those indicators are pointing to a strong rebound, constrained supply, and these newer tacks just add to that
constraint as well. there would be a higher skew toward the upper bound. goldman at 100. may be a bit too optimistic. but you never know what can happen. as well as together geopolitical risks, you should not forget the options in terms of new variants and those types of rebounds, as well, which is also on our radar. also looking at extreme weather events. we are seeing that in the u.s., as well. lots of top-down macro things to contend with. but this earnings season definitely focused on fundamentals delivering within that environment. tom: when it comes to the inflationary picture, there seems to be a consensus building that supply chain issues could be resolved, but wage issues could remain elevated read which sectors of this equity market are best positioned to weather
that kind of adjustment? louise: obviously, the companies that have a larger labor force have also got the high freight numbers. any company that is exposed through logistics or they have a more extended supply chain are struggling. the smaller businesses, may be weaker or less flexible or less buildup of stock, so overall that skews toward large-cap, it skews toward technology or services. to avoid some of those negative impacts. they also have the big energy constant, as well, so there are some things that may be take a longer term view and hedge some of the cost to benefit within this environment, as well. francine: thank you both for joining us. in the meantime, we are also looking at moves from futures in
the u.s.. nasdaq actually falling, futures extending the drop to 1.5%. in europe, i don't know whether we have european stocks or sector group, but they are following the futures lower amid the surgeon treasury yields. i'm looking at german and u.s. yield curves. the german yields remaining negative, but very close to 0%. that is a level we are watching out for. we will talk u.s. banks ahead of goldman sachs earnings later today. this is bloomberg. ♪
francine: welcome back to the open. 22 minutes into the european trading day. there is quite a lot going on in the fixed income space in general. the 10 year yield remaining negative, but very close to 0%. gilt a little bit cheaper by 1.5 basis points across the backend. i'm also looking at cash. a lot going on with fixed income across the board. let's also focus on u.s. bank earnings. they are looking at fixed income ahead of numbers from goldman sachs. we could not be more delighted to have dani burger joining us. is that a different set of numbers that we should be looking at? dani: it is likely the same pain
points for goldman that it has been for the others. it is a macro story that has been difficult for banks. we have had trading on wall street that has boomed, but they still missed estimates. the issue here is the boom is fading at the same time when costs are going up. i brought a chart with me. i did not come empty-handed. i'm always going to bring a chart with me. happy belated christmas. we saw jp morgan's revenue continue to push higher, but expenses also grew. they totaled about 70 $7 billion. francine: the chart is coming. dani: perfect. goldman is set to give a one-time payout of $1 million plus two its partners each, so expenses are hugely in focus. tom: investments in technology.
francine: that is exciting. tom: i think it is interesting. dani: absolutely is. tom: but we are going to move on from that. loan growth. is that the upside? dani: we have chosen the complete opposite of the fundtech investments to go to the bread and butter growth. it is hugely important. this is what banks are all about. we have not seen it because rates have been low, consumers have a lot of liquidity, they don't need to take out loans. this past quarter has been pretty muted, but executives are very hope all. we have numbers from the fed that have shown an uptick in loan growth in the past few months. it is likely to get better, but i have to say the fourth quarter of 2020 one is still pretty muted. francine: for the record, let the record show that i thought it was not the best part of the
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francine: welcome back to the open. 30 minutes into the european trading day. here are the top stories. oil markets roiled. a drone strike on abu dhabi sparks tensions and accusations fly once again. boris johnson's former top aide accuses the prime minister about -- of lying to parliament. the repricing of treasuries. the flattening of the yield
curve. tom: across the benchmark, losses of more than 1% now. energy remaining the sector. a similar picture over on the cac. the ftse 100 relatively supported by that higher oil price. still losses of 0.7%. within the u.k., there are reports that the u.k. may get rid of this mandatory quarantine period for those who test positive at some point in the next few months. politics of the u.k. in focus. more broadly, the geopolitics given the attack on the uae by those houthi rebels. let's have a look at how things are playing out sector by sector.
it is the front-end in terms of the space where you see the stronger moves quite pronounced yesterday and the flattening of that yield curve as markets strive to price and just how hard and fast the fed is going to go to tackle inflation. energy remains the only sector in the green, up 0.4%. that is the picture as we way up these high yields. will this be contained going forward? francine: look at that. energy so lonely. european finance ministers meeting in brussels today i made an energy crisis and surging levels of inflation every three of the key new faces commenting on challenges europe is facing. >> now is the time to build up fiscal buffers again. we need resilience not only in the private sector, but in the public sector and this is why i'm very much in favor of reducing sovereign debt.
>> and my concerned about inflation? obviously so. purchasing power will be affected for individual citizens . the continued spike in energy prices is directly impacting purchasing powers, but we need to look beyond. >> we have to get back to the stricter rules and the stability and growth pact. francine: our europe correspondent maria tadeo joins us now. the focus is on energy prices. maria: yes, and the focus today is very much on energy prices. every finance minister i've spoken with today and yesterday highlighted that is an issue. they are concerned. they know what it does to household bills and what it does to companies. the stock is still reeling from that decision to lower prices to consumers. i also spoke with a commissioner
who is in charge of economic affairs for the european union and he told me it is energy that they believe is a main driver for inflation and conceited and sounding to me like someone who is about to revise his forecast, saying the factors pushing up inflation will fade, but probably not as soon as we expected. perhaps hinting that in a few weeks when the european union updates the forecast, they will lift their inflation, bringing the debate about what is temporary and what inflation is temporary. tom: ok, thank you. joining us now is the socgen chief economist. how are you and the team at socgen thinking about these changing inflationary dynamics, how prolonged they are going to be, and whether it shifts to a more hawkish stance from a central banks and will have an effect on bringing down prices? >> i think it is very important
that we distinguish the causes of inflation here. to my mind, there are three different things going on. there is the energy price story. to my mind, it is going to be very challenging for the ecb or any central bank to really address that issue, which is external, by at this stage of the cycle increasing interest rates. i think in terms of the energy prices in the short term, the right thing for central banks to do is to look through this, and in the longer-term, we need to think about our energy transition and the key word the transition. this is my first point. the second issue on the inflation side links into the various frictions we have seen globally and i think these will be resolved over the coming 6-18 months and this is what we also see from various forms of survey data. again, we can question whether
central banks should respond to this. then there is a third element where we see the differences on both sides of the atlantic. in the u.s., there was a much larger fiscal stimulus which boosted household income and let also to a strong demand driven inflation. we have seen some demand driven inflation in europe, as well, but again this is not something [indiscernible] francine: yeah, is it possible we are importing inflation from the u.s.? >> i think this is a good point. what has been going on in the u.s. is having an impact globally on inflation, so i think there is spillover, but the point i would make is that much as i think it would be right for the fed to start preparing to tighten, i think one of the issues the fed needs to be mindful of is that the fiscal policy is turning to a fiscal headwind as we move
toward 2022. simply because we are not getting those same effects. there may still be some carryover from the old stimulus, but as i was saying, we will see a slowing on u.s. household in terms relative to what we have seen over the past few years. the other sector we need to consider in the u.s. in particular are also the labor market dynamics. what we are seeing is that the fear of a wage inflation spiral does not seem to be materializing quite as aggressively and my concern is that if the energy prices remain very high, we could see disappointment on u.s. consumption moving into next year. tom: we are getting lines from the pboc, the inflationary dynamics are very different. the pboc saying they will roll out more policies to stabilize
the economy. do you start to factor that in as potentially a booster for the eurozone picture when it comes to the economic outlook? >> i think what we are seeing in china is the chinese authorities managing and balancing act here. they are trying to tame some of the leverage we saw around the real estate market. and the real estate sector in broader terms. but at the same time, they don't want to slow down to come too quickly either. there is really a balancing act going on. what i think from these latest measures is it is trying to stabilize and support growth rather than giving a strong impetus that would seek to significantly accelerate growth levels from here on out. in terms of the spillover to the u.s. in the euro area, yes, it
is a positive relative to the alternative scenario, but i don't see it as a strong impulse to growth per se. francine: is very sweet spot for chinese growth that the world needs? >> i think there is a sweet spot for everything. i think there is a sweet spot for china and given the relevance of the chinese economy for the global economy, it is a sweet spot for china and the global economy, as well? you talk about the geopolitical risks and how they have become more pronounced. how do you rank the geopolitical risks as you look at the economic implications? >> so, i think when we look at the various geopolitical risks, of course the economic implications comes through various different channels, but top of the list at the moment have to be the geopolitical risks that have implications for
the energy markets. i think the short-term issue that we discuss, but i think again carrying back to my point that there is a longer-term issue here as well and this is where i think what the european finance ministers ultimately decide becomes important. it won't be a decision just at the meetings today, but i think longer-term how europe manages its energy transition becomes critical for how our future energy prices develop. here is key as you look ahead for the outlook to see the next generation eu who rolled out quickly. this is what i'm watching now, the speed of rollout for those energy investments for the future. francine: thank you so much as always. coming up, a record your profits for the shipping industry. earnings expected to stay elevated well into 2022. fantastic story. up next.
variability with new variants emerging. francine: part of my conversation with dr. anthony fauci yesterday. he was not as optimistic that we could see the end of the pandemic. it is amazing that your outlook is slightly skewed. tom: the fourth shot being suggested is not as effective in its initial stages. the u.k. looking to adjust its policy around holding people and making people stay-at-home. francine: that is a big deal. this is according to the guardian. we could scrap mandatory isolation if you test positive and we were joking, not sure joking but what that means for travel policy. tom: countries may get more cautious about u.k. travelers if we haven't been quarantining.
cases remain high have omicron, but the roll out of the vaccine continues. we are 44 minutes into the trading day and the losses continue. let's get the first word news with laura wright. >> data suggests a fourth shot of the pfizer by in tech vaccine does not do enough to prevent the infection. those infected and the trial had only slight symptoms. organizers of the beijing winter olympics say they won't sell tickets to the general public. instead, select groups of spectators will be invited to attend and will be required to follow strict virus protocols. beijing residents are being urged to wear masks and gloves when opening oversees mail as authorities try to trace a local
omicron case. the bank of japan is seeing negative interest rates. the move suggests the world's third-largest economy is not immune. energy costs surging. the bank of japan nudged up its inflation forecast for the year starting in april and for the following year. the u.s. and its allies are reportedly dropping the idea of unplugging russia from the swiss international payment system if it attacks ukraine. according to germany, the nation involved believed that move could destabilize financial markets and they are said to be concerned it could spur the development of a non-western dominated payment infrastructure. edf has been hit with a credit rating cut. that is after the french state controlled utility was ordered by the government to sell more power at a steep discount to tackle europe's energy crisis. edf plunged on the plans which
could cost it he .4 billion euros. that is the bloomberg first word news. francine: laura wright in london. time for bloomberg big take. it has been a record your profits for the shipping industry. economists are worry that persistently high prices are stoking inflation and clouding recovery. joining us for more is our bloomberg trade editor. it really brought home when we had that logjam in the suez canal, how important these things actually are. ocean shipping remained elevated. is it going to get worse because there is still zero tolerance covid policy in china? >> it could, but most analysts expected to say -- stay the status quo. if ports in china start shutting
down or restricting workers. we are looking at ocean freight rates that have been very high. they are basically supposed to stay pretty elevated for the next six to 12 months. >> how to those rates plug into the broader macro picture? >> k-fed economist to we spoke with said that for every 15% increase in shipping rates, that adds 0.1% to core inflation. if you look at rates now, they are 150% above what they were a few years ago. we are looking at not an insignificant impact on the prices that you and i pay for things that the consumer level. francine: these are like are like our sofas, motorcycles, are gummy bears, which would probably be the ideal container. are there anything that regulators can do to nudge it back to normal? >> not very much. there are antitrust exemptions
in the u.s. and europe for the big container companies to cooperate on trading routes. they operate much the way airlines operate. there are some questions about whether competition is as robust as it could be, but there aren't that many regulatory tools to come in and affect the prices that companies are paying. tom: my key takeaway is an image of francine on a motorbike. francine: tell me what ideal container you have and i will tell you what you are. tom: accusations fly. prime minister boris's former top aide accuses him of lying to parliament. more on that next. this is bloomberg. ♪
we are also keeping our eye on the bond as well to see when that crosses zero. not quite yet, but implications for the ecb on that. i'm going to switch focus to what is happening here in terms of politics of the u.k. prime minister boris johnson former top aide accusing the prime minister of lying to parliament over his involvement in a rule breaking party. dominic cummings said he would swear under oath that johnson allowed the gathering that took place during the first wave of the pandemic. david, does dominic cummings' intervention put the final nail in the coffin for boris johnson? how significant is this from a disgruntled former aide? >> disgruntled former aide is the key thing. where this attack is coming from. not many fans of dominic cummings within the conservative party, potentially not among the
party -- country at large. this is the person who excused himself are driving around the north of england with his family saying he was testing his iphone. he is not the one to put the final nail in the coffin, but he has been behind many of these leaks and these allegations. we will have to see who else comes out and perhaps corroborates this. he talked about other people. we have had other reporters over the last few days say that no one else going on the record. we are still in this holding pattern as we wait for this report into exactly what happens. his intervention kind of keeping the story alive. francine: i'll say. >> maybe we will be here tomorrow talking about the next one. francine: who needs an opposition party with enemies like that? we have had various boris johnson apologies. this may be a telling question.
we talked about the tory party rage. is it a rage or are they asking questions? >> the rage was real over the last few days. reporters talking to many mp's, there was genuine anger. gathering in their own constituencies and many of them coming back in reporting that people are genuinely angry and the polls reflect that, as well. many people who voted for boris johnson and 2019, given that landslide victory, now saying they want him to go. it is not quite at the overwhelming stage. a lot of people are still sitting on their hands. the cabin and crucially falling into line. let's keep an eye on of the chancellor. is he just biding his time to see which way the wind blows? he has not exactly been out there on the airwaves backing up the prime minister, but for now everyone is holding the line. tom: they seem to be the two people to watch in terms of
potential contenders. francine: that apology to buckingham palace, i've never seen anything like it. that felt like his time was up and then he managed to climb back. tom: when it comes to that kind of offense to the monarch, it is quite startling. in terms of contender just briefly, you say he is keeping a low profile. >> she is clearly one to watch as well. she has made it clear she has ambitions for the top job. other names now emerging, as well. the trade minister. other backbenchers. many people will come out of the woodwork, i'm sure, as and when the moment comes, but for now it is pure speculation. we will have to see how this week really works out. francine: david, thank you so much. you can politics giving italian politics a run for their money. tom: a check of your markets.
>> major developed countries should adopt responsible economic policies and avoid severe impact for developing countries. >> given the type of technology associated with cryptocurrency we need to have a >> collective approach. >>-- a collective approach. >> this is bloomberg surveillance: early edition with francine lacqua. francine: good morning