tv Bloomberg Markets Americas Bloomberg January 18, 2022 10:00am-11:00am EST
>> it is 30 minutes into the u.s. trading day on tuesday, january 18. here are the top stories we are following for you at this hour. the big deal is back. microsoft buying activision blizzard for $69 billion to push further into video games. no glory for goldman. goldman sachs shares shrink 8% as jumping expenses overshadow record banking revenue. treasury selloff, the curve flattens, and the two-year yield top 1%. tech it's hit hard while energy gets a lift. from new york, i'm kailey leinz, with my cohost in london, guy johnson. alix steel is off today. "bloomberg markets bochum to -- welcome to "bloomberg markets." on a macro global yeah, it seems
to be -- global level, it seems to be yields driving the headlines. guy: you've got everything in there. you've got the corporate results , the energy story and what is happening on the m&a front. we got a little bit of that out of europe yesterday with the unilever/gsk story. looks like it could still be an interesting year for m&a. there's lots of ways looking at this market. let's talk about the data we are getting because while last week was packed, this week a little light as we build up to the fed next week. we are getting the housing market data from the national association of house builders number. a little light, but not much. we come through at 83 versus 84. a little while ago we were trading in the 90's. we faded that move and then we started to pick back up again. it is going to be interesting to see what a higher-yielding environment is going to do to the housing market.
is it going to have an impact as we start to see mortgage rates creeping higher and higher, maybe has the fed starts to withdraw stimulus? as we come back to what we are thinking about today, the question of the day i think really sums it up. in terms of the equity market, what is the most important story out there right now? is it the earnings story? or is the rate story? here's my two pence on the story. for an equity market, it is yields. for this stock market, it is what is happening with the earnings picture. basically, if you are looking from a macro point of view, it is a rates story. from a single stock story, if you look at goldman sachs today, it is going to be the earnings narrative. let's get a more enlightened view of this.
let's bring in bloomberg's wall street correspondence and ali bassett. she is definitely on their earnings story -- correspondent sonali basak. she is definitely on the earnings story right now. and ira jersey, chief rate strategist for bloomberg intelligence. those are my thoughts. what do you think? sonali: it is a great question. if you look at the yield story, it is the cost of financing you are talking about. not everyone can be a microsoft and buy things in cash. you see blackstone shares on the year down more than goldman sachs on the year, even with the decline today. what does that tell you? it tells you investors are very worried about the ability of investment firms, the ability of corporations to invest as yields rise. if you take a look at that long-term yield curve, it also shows you just how much it has flattened and just how much people will be worried as banks
lend long, borrow short. kailey: the fives-30's spread at the flattest since 2020. ira, the two-year yield north of 1%. you have a 10 year yield trading at 1.83 percent. do these bond market moves look overdone at this point? ira: certainly from a momentum perspective, the two-year yield is certainly oversold a little bit, but at the same time, we are basically pressing in four hikes this year, the first time we have done that in quite a while. it is not a huge surprise that you have two-year yields upwards of 2%, and they will go higher assuming we had continued pricing for the fed continuing to hike next year. on the point of the fives-30's curve, if the fed is going to continue to hike and will start running off its balance sheet, you could get that down another
30 basis points of flattening. there might be some worries about that interest like sonali was mentioning. guy: do you think the fed is going to want to do something about it? could this accelerate the qt aspect of the story we have been talking about? ira: it definitely could. the fed is probably going to hike first, and then at the next meeting after they hike start to run off its balance sheet. the question is how do they do that. in the past they have wanted to do it very passively. they don't want to go out and sell bonds because they are not sure exactly how those reverse auctions would work. but i think it is important that if you do here jay powell next week talk about the curve being too flat and worrying what that signals through the economy, the fed would have to hike less aggressively than they might like. two-year yields are going to keep rising as the market
continues to price for a more and more aggressive fed, and that is certainly going to be the case if we see inflation where it is. oil prices being up a dollar today isn't helping that cause yet. kailey: in theory, it would benefit banks on the trading level, but it was equity volatility that really seemed to hit goldman, with that trading disappointing. what is the readthrough going to be for the likes of goldman-s and -- of morgan stanley tomorrow? sonali: we know morgan stanley has been the longtime leader in trading, but you have goldman sachs falling in equities more than jp morgan. that absolute number is still higher. a lot of competition in equities revenue. but how is that sustained through the end of the year? you want that fic volatility to remain higher, but it is
awkwardly cyclical, unfortunately, for with the banks start to reagan. the -- what the banks start to rake in. guy: you look at the cost story, and i am wondering what the fed is going to think about this when it looks at what is happening in the labor market. the banking sector deals related to the real economy. costs are rising very quickly. they are having to pay for talent. that is eating into margins. is that something that is going to be replicated more widely i think is a question the equity markets have to answer, and i think you look to their earnings picture here. is this something that is going to carry on? looking up the commons from goldman sachs, looking at become it's for jp morgan last week, we are going to pay up for talent. how much longer can they keep doing that? sonali: some of this is variable because a lot of it is bonus is contingent on revenue. now we have a lot of the banks
guiding but don't expect repeats this time around. with that said, if you sent about a big consumer bank, bank of america has raised not only their own minimum wages, but the minimum wage demanded by the people whose apply for them. that has ripple effects across the economy. we will be looking at april for with the proxy season looks like and the disparity between the ceo pay and the average worker for each of those banks. that could be a pretty stunning number this year. there's another thing to throw in the crosshairs here, and that is that the idea of rates rising impact in the consumer. mortgages, that is a big windfall for a bank like jp morgan, wells fargo. if that starts to be eaten into, all of a consumer confidence also dampen and float into other sectors as well. kailey: let's talk about how high rates can continue to rise. already at 1.83% after starting the year at 1.50%. does the bulk of the move come
in the first quarter, and then it stalls out? ira: it is very possible in the long end of the curve that that will be the case. i think the long end will readjust based on exactly how high the market think the fed is going to go. one of the interesting aspect of how this year might shape up is we might be pricing right now for a very aggressive fed, but a fed that does not go far. basically, if the fed four times this year, maybe they only hike one or two more times next year. that would keep yields right around 1% or 2%, but if the market starts to price for a slightly lower fed, but they hike longer and to higher yield levels, say the fed funds rate up above 2%, that is when you could really seat in your yields start to move higher and get ford's 2%, 2.25%. i don't think we will see a 3.25% to 4% two-year yield, but in your yield all the way up towards 3% is certainly something that would crimp the
economy, given we have been accustomed to low interest rates for a long time. kailey: sonali -- guy: sonali, i want to wrap things up with you. many of these banks have huge prime operations. those prime operations are getting bigger and bigger. what kind of risk tolerance is there within those prime operations when it comes to hedge funds, when it comes to understanding the impact the rates story is going to have on the markets? we are going into a much more volatile period. you can see that just across every asset class. sonali: it is incredible because in the wake of archegos, you have seen a massive shifting of prime brokerages on wall street, with goldman and jp morgan gaining so much share. hedge fund leverage remained pretty high last year at the end of it all. so what happened in the wake of archegos? there has been an onboarding of clients with a kenai towards risk -- with a keen eye towards
risk. but in fixed income, remember the damage that was faced in the repo market alone was the basis trades, and leverage that exceeds the amount you are seeing in equity markets. into next year, how are treasuries being traded, how macro is being traded will be of very keen interest on wall street. kailey: thank you so much to bloomberg's sonali basak and every jersey. coming -- and ira jersey. coming up, our resin yields more important than earnings to equity markets? all spring -- allspring global investments' senior portfolio manager will give us her answer. this is bloomberg. ♪ bloomberg. ♪
guy: let's get back to our question of the day. are rising yields more important than earnings when it comes to the equity market? joining us is margaret patel, allspring global investments senior portfolio manager. thanks for your time today. talk to me about what you see in these markets right now. we've got earnings season kicking off. we've got rates moving higher. which is driving the equity bus right now? margaret: right now as far as equity earnings, we have started to see the financials start to report, and you can see pretty clearly earnings are much more important than rates when you look at, say, goldman sachs today. the market reacted much more to that. i think that will continue to be the case, that it will be in earnings driven story. i think rates are too low, even with some very modest increases.
that is not enough to slow down the economy and the rail and derail an outlook for pretty good corporate earnings in this year of 2022. kailey: there has been a dramatic repricing of expectations for the federal reserve, now four hikes priced in this year. why do you think they will actually only move two? margaret: because i think there's no compelling reason to move aggressively with four hikes because from the fed's point of view, when they look out, they see an economy that is still probably decelerating this year. they see the risks of covid, which may have negative effects we don't know about, and it looks as if inflation is actually starting to come down from that 7% level. at the same time, you look at real average wages for workers, those have moved up. those are all very positive things the fed would like to see continue. so i really don't think they see any need to aggressively act and move for four hikes. i think two will be plenty.
the market has done their job already. that will mean that the fed is in a position to step back and watch and do very little. guy: how should i reposition for that? margaret: i think the most important thing is what companies, what sectors will have above average earnings in 2022. clearly, if you look at the way the market has wobbled around this year and even at the end of last year, you can see that investor enthusiasm for the more speculative sectors, the very highly priced sectors, a lot of that enthusiasm has deteriorated , not because of anything the fed has done, but simply because people are a little nervous about what may be overvalued. i think earnings will be the story of this year, looking for those companies will really be the task, and the companies that have proven long-term growth will continue to do pretty well. kailey: do you think margins can continue to hold in there?
margie: it is amazing how long they have. i think they can because we have seen companies produce more with less workers during covid, or they have been able to innovate and improve worker productivity, so they have been able to maintain those margins. so i'm not really looking for any margins squeeze. companies have so much liquidity , microsoft buying activision today is a great example of so much cash they can buy whatever they want, so they really aren't going to be much affected if we see short-term interest rates go up because they aren't really increasing their borrowing. so companies are in pretty good shape. i think the margins are once again going to surprise by maintaining this very high levels. guy: microsoft has plenty of dry powder, plenty of firepower, as you say. a huge balance sheet. other companies don't have that luxury to the same degree. if we do see yields going higher , dragging credit up with it in terms of the yield, do you think that will put a crimp on the m&a story this year, or is there a
need to rotate portfolios, a need to consolidate businesses, as may be some margin pressure starts to creep in? margie: i see corporations being in great shape. they have used the last couple of years of very low rates across the board to raise cash, to lengthen their maturities on the balance sheets, to pay down the bank, and to lock up very low rate interest rates, so companies, whether they are huge companies like microsoft or even smaller companies, have more cash on their balance sheet that they have ever had, so they have the flexibility. they learned the lesson during the financial crisis about the importance of that. must companies have had excess cash flow. they improve their balance sheet with these very low rates. they have no need to increase borrowing to make an acquisition. they have a lot of cash. not just huge companies, but even mid to small sized companies, to make an acquisition for virtually cash
on their balance sheets. so it looks like a couple of quarter-point moves is certainly not going to have any negative effect on corporations or consumers either. kailey: obviously there has been a negative effect on it comes to tech of higher yields. we have seen a rotation into value that has taken shape, yet we have seen the start of a value rotation that never really seems to stick. do you think this one will? margie: no i don't, because those are really short-term trading reactions to anticipated changes in interest rates or in the yield curve. they really aren't reflecting fundamental future earnings growth from these companies or the market multiple you're going to put on the prices of future earnings. i think it is a little bit of extreme volatility while we had this news vacuum before we start to see the whole fourth quarter outlook for 2022 being reported over the next few weeks. kailey: thank you so much for your insight today, margie p
here was more is bloomberg's leanna baker. obviously a massive deal. analysts say it makes strategic sense, but this is a big tech company -- leanna: microsoft so far has not faced the scrutiny that some bunnies like meta or alphabet have seen in washington. we will have to see if microsoft faces pushback. i can imagine that with gaming so mainstream and touching the consumer in so many ways, this is something they will really look into. some questions regulators will be thing about, will microsoft be too dominant in gaming? they own xbox and they do make some software like the "halo" games. owning the "call of duty" franchise will give it more power in the market. in wonder whether activision's biggest rival will be fighting this.
many different regulatory bodies all over the world. in china, will this face regulation there? what about the eu? this is going to be a really drawnout, protracted review that we should be -- we could be watching for years, potentially. guy: this is about gaming, but also about the metaverse. how should we think about the metaverse from an antitrust point of view? we don't even know what it is yet. leanna: it has the sort of buzz word thing that regulators might want to look at because they know it will be in the headlines . halo has been online for a long time, being a virtual online multiplayer game. certainly, microsoft's role in the metaverse and how dominant it will be is going to be something on people's mind. kailey: the elephant in the room is that activision blizzard has been mired in somewhat of a cultural controversy as it relates to gender in the workplace, and yet the ceo is staying in his role.
is that just for the acquisition, or is that a long-term microsoft bet on the company? leanna: if you take a look at the wording in microsoft press release, it is worded in a very specific way. to me, it is a bit unclear what his role is going forward at microsoft. to me, this seems like an elegant exit for some of the issues that activision has had, since now it will be microsoft's problem. gaming in general has had harassment issues across the board, so it is not just activision that has faced some of these issues, but certainly it is interesting, given how much it has been in the headlines, that all of a sudden it gets acquired by microsoft. guy: we are going to leave it there. we will continue to watch it. leon a baker joining us on this huge deal we have seen announced today that will take quite some time to clear regulatory scrutiny. is a huge win for goldman sachs. goldman sachs is the advisor to microsoft on such things.
today, shares down quite a lot. this on week trading. investment banking performing really well. we will talk next to an analyst who's got an overweight on the stock. we will get jeff harte's take on what is happening here. microsoft certainly a huge story, i would have thought, for goldman sachs, but today, the focus very much on the earnings picture. wages, costs, a massive story here. we will get his take on that next. this is bloomberg. ♪
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is a lot of red on the screen. abigail doolittle is here with the movers. abigail: we have declines for the s&p 500 and the nasdaq 100. both of these indexes on pace for the worst monthly performance since september. at one point earlier today, when the nasdaq was down more, the nasdaq 100 had been on pace for a roughly 6% decline on the month. at that point it would have been the worst month going back to march of last year. pretty decent declines once again. not surprisingly, the vix in that nasdaq 100 has remained elevated, up about 3% right now, between 28 and 29, so that is a fancy way of saying that investors are probably hedging around some risk off events here. rates have an a lot to do with that. the 10 year yield up about six basis points. even though haven bonds are selling off, that pressures high valuation tech stocks. you can see the yield up there.
a bright spots, let's take a look before we go towards a less bright spot, we have energy up 1.2%. i believe it is the only s&p 500 name sector that is higher. commodities, it is interesting to see this, you have two different risk assets here. stocks down, but commodities overall up. crude oil, has every thing to do with geopolitical tension, supply and demand, and the technicals right now are a tailwind for crude oil as well. exxon mobil in particular getting a nice bid, up 2.5%, as they have committed to zero emissions by 2050. before we take a look at one of the big drags on the day, goldman sachs, let's take a look at a super interesting chart. this points to a lot of what is going on right now. but we are looking at in blue, the five year yield, we are
looking at the 5-30's curve in white. as the yield curve comes in, that tends to him on a macro level, help stocks and creates a more favorable macroenvironment for stocks. we see that happening right now. of course, and have -- of course , ahead of potential inversion. selling be short in the middle and end, we see this interesting dynamic or get the yield going higher has helped the banks on the year, but today, the banks are not being helped by rising yields. stick a look at goldman sachs, having everything to do with weighing on stocks, down 7.6%, its worst day since june 2020. of course, their investment banking business is very strong. however, on the other hand, their trading revenue a bit of a disappointment, down 7%. equities expected to come in flat, down 11%. expenses rising, big payouts for
their real stars there. you can see the shares of goldman sachs falling off a bit of a cliff. guy: on the day, down by 7.5%. a couple of days, down by nearly 10%. thanks for the roundup. let's carry on the conversation about what is happening at goldman sachs. the call just concluded. what did we learn from solomon and co.? jeff harte, piper sandler senior research analyst, joining us now. the call has just wrapped up. at the end of it, how do you feel? jeffery: similar to i did coming in. the good news is they beat on revenues. trading was not dependent on equity investments. it was in wealth management, so a ton of good places. the bad news is expenses were quite a bit higher than we were expecting, and really, depending on how you calculate, it looks like they might have negative
operating leverage, which i think is weighing on sentiment. i think coming in with the inflationary pushes out there, the market was concerned about expenses come about what we have been hearing in financials so far is that the challenge becomes how do you differentiate between structural inflation expenses and investing for future growth. but i really think the expense side is what is scaring people, specifically goldman today. kailey: the cfo saying, "we are committed to pay more for top talent," and david solomon saying there is real inflation everywhere in the economy. is that a sign that this is not just a one quarter story, this is going to be the story within forward? jeff: it is hard to take one quarter and extrapolate forward
for the full year, but certainly the trends in the quarter have been not what we were hoping for on the expense side. i think you see higher expenses next year, the we kind of already expected some of that. i think the key is going to be where the revenues come in. the expense headwinds are not that big a surprise. the capital markets activity stays strong. i think that is going to be more the issue next year, the 2%, 3% type expense growth we are going to be facing. guy: in terms of what comes next , i am trying to figure out what goldman sachs is going to become. is it a retail bank? is it a technology company? is it an investment bank? is it a trading house? what is your view of how we should value these companies right now? i listened to what jamie dimon had to say on tech investments. he's all in. similar story at goldman sachs as well. some releasing the can investments being made, and investors in some ways have to take it on faith that these guys
know what they are doing in terms of where they are putting this money to work. how as an investor should i think about these huge amounts of money that are being put to work in technology and other areas of the business? jeff: there's a couple of things to consider. one would be look at track records. the company has a history of investing and creating returns. you mentioned jamie dimon and jp morgan as one of them. bank of america. they have a history for generating returns on these investment. but maybe the most important thing is look at the amount of money they are able to invest. just look at j.p. morgan. they've got a $15 billion investment budget, $15 billion. there are really no other financials out there that can match that. so it is not just fintech and smaller companies district in the industry and causing changes. it is going to be hard for any of them to match what jp morgan and goldman and these guys can put in as far as investment goes. coupled with the fact that over
the last 20 years, they have been successful investors. kailey: i am looking at goldman sachs shares, down 8% right now. obviously a lot of things not going right for them today. that may be a little more of a boost come of that they are advising microsoft on that acquisition of activision blizzard. when you think about the m&a environment moving forward, are there going to continue to be those opportunities as plentiful and advisory fees and the way they have been, or is that going to start dying down? jeff: i think the m&a cycle has more legs to run on. if you look historically, m&a doesn't typically have a good year or two and stop. you have multiple good years and hit all-time highs. all of the leading indicators we can look at like ceo confidence, the availability of financing, the economics, all of it is still flashing green, so i am thinking 2022 is just as likely to see an increase in m&a
revenues and a new record year coming off of what was a record year in 22 anyone -- record year in 2021. guy: david rubenstein is talking to bloomberg right now on another of our channels, talking about the idea that compensations on wall street "defy gravity." is this a wily coyote -- a wile e. coyote moment on wall street? jeff: as long as you are producing, you will probably always get paid. that is where it gets competitive. but when revenues are being generated, the people responsible for the revenues are going to be compensated. i think things are getting tighter and tighter outside of your revenue generators and some of those support functions, but that is what we are seeing all over the economy. on wall street, they have always been paid well.
i think they will probably continue to be paid well. kailey: it will be interesting to see what we see with expenses when it comes to the reports we have yet to get from morgan stanley and bank of america tomorrow. of the results we have seen thus far, what is the reach were going to be for those two banks? jeff: i think what we will see is still good capital market activity levels. trading probably a little weaker than we hoped, investment backing really strong, but the interesting thing tomorrow will be on the expense side. you may be had some more out it expenses through the pandemic. that is starting to come down now. morgan stanley, especially with the couple of acquisitions they made, it looks like there are more efficiency opportunities there. i suspect we will get some of the better expense stories tomorrow, but we will see how it comes out. kailey: thank you so much to jeff harte of piper sandler for joining us. we appreciate your time. coming up, brent and wti clung
kailey: this is "bloomberg markets." coming up, and exclusive interview with former treasury secretary steven mnuchin. this is bloomberg. ♪ let's check in now on the bloomberg first word news. in the u.k., prime minister boris johnson denies he was warned not to go ahead with the party in his office garden during the first pandemic lockdown. johnson's former aide dominic
cummings accused him of lying about the matter. johnson said no one told him the party was against the rules. if there is threatening johnson's political career. u.s. secretary of state antony blinken is in ukraine. he will meet with president valletta mid zelensky -- resident of a lot of air zelensky -- president volodymyr zelensky as tensions between ukraine and russia escalate. blinken will head to berlin later this week. opec sees the oil market well supported by strong demand this year. the cartel maintains a confident outlook that has allowed numbers to increase production. opec says stockpiles are considerably below their five-year average. that is your first word news. guy: thank you very much. let's talk about what is happening in the oil market right now. brent crude currently trading $87.55. wti, $85 $.45. we are at the highest level in seven years. is there more to come?
let's talk to emery to send, energy aspects -- to amrita sen, energy aspects rector of research. what gets us to $100? amrita: the fact that demand is so strong, despite the crude rally we have seen, it is a very promising sign. we had a cold snap in the u.s. heating oil is at a 12 year high. i think that the demand outlook is what is reassuring people that perhaps the very worst of covid is behind us. omicron fears are not worse as what people had feared. we know this very well, that supply has been lagging demand for a while. spare capacity is dwindling. there is no inventory. there's no excess inventory left. so now, as soon as people get more confident about demand, that is where you can start to see prices go up. kailey: you mention spare capacity. what is your real read on that right now? amrita: we have been saying this
for some time, that the real production increase ends up being about half. if you look at december-january numbers, the increase was barely 150,000 barrels per day in each of these months. the usual culprits, nigeria, angola, lots of these struggling to maintain production. a lack of investment, really. each month, you see production continuing to decline. even russian production has been fairly flat on fun months, not really rising. so you are effectively looking at the weight -- at saudi, uae, iraq for any reduction right now. guy: are we seeing places like ecuador coming back on string? we have seen some of the -- back on stream? we have seen some of the more minor players affecting the
ability of opec to deliver what is promised. is some of the -- is some of this going to alleviate going forward? amrita: the problem is because we don't have a buffer, any outage we see just aggravates the underlying problem because we have entered 2022 with near record stock levels. in q1 we should be building inventories because seasonally, that is what happens, and the wii drawdown over peak demand. we are not really building because of these outages. ecuador has come back. love you for now -- libya for now is backup, which should allow for inventories to rebuild a little bit, but our prognosis is that things could turn quite quickly in libya. elections have been delayed for several months, and we could easily see a few hundred thousand barrels a day of production go off-line again. when you have buffers, small outages like what we have seen over december and january matter a lot less, but we don't have that luxury. kailey: let's talk about the u.s.
shale producers have by and large maintained the discipline, but with an $85 handle on wti and potentially more room for upside, are they going to be able to continue to do so, or will they be to enticed drill? amrita: ultimately, it does come down to shareholders. so far we have seen any company that talk about growing production, their share prices still continue to come off. i think shareholders are putting a lot of pressure on these companies, saying you still need to return money to us and reduce debt. that does not mean they are not going to grow. we think in the second half with these price levels, they are going to drill, but we should not forget, regardless of the overall financial backdrop, if you look at the supply chain issues, whether it be rig shortages, labor complaints, that is a big cap on u.s. production right now. guy: how much geopolitics is there any price right now? we saw the attack the other day in abu dhabi. abu dhabi never gets attacked.
it is something that has happened in saudi, but now we are seeing it creep across a little further up into the uae. you mentioned the fact that the uae, saudi, maybe kuwait are the countries that have the spare capacity. if that spare capacity is put in question, how big a problem is that going to be, and what would that mean for prices? amrita: if you actually managed to get any of those capacities hit, which we don't think they will actually managed to, then you are talking well north of $100. but if you look at the headlines we have seen, whether it be russia, ukraine, the h outhie attacking certain facilities, but the fact that you are asking that question goes to highlight that we do not have buffers, spare capacity, and that is why even the smallest of potential threats to oil supplies can really ratchet up prices. so of course there's a few dollars right now of
geopolitical tensions baked into prices, but geopolitical only matters we don't have inventories and spare capacity. kailey: especially as a relates to russia and ukraine doesn't just matter for the oil markets. there is a natural gas read as well. when you think about european natural gas prices, what do you think about that trajectory? amrita: we are bullish natural gas prices in europe, and prices have come off a little bit now from the crazy highs we have seen in december, but our view is that russian supply into europe will remain challenge for most of the summer this year, which means that european gas prices will remain high throughout this year. it is cold right now. you are draining storage and refilling the storage is going to be a toll. guy: what is the correlation with the oil price? i know there is a correlation, but i am wondering how specific we can get in terms of what high gas prices, also a chinese
problem as well. this is a global problem, high gas prices. how does this ripple into the oil market? just give a sense of what higher gas prices means for high oil prices. amrita: i would argue that that relationship used to be a lot stronger in the past, but now gas is mostly used for electrification or electricity generation, and oil isn't. oil is much more a transportation fuel. even when gas prices were surging, and a lot of banks put out notes about 2 million barrels per day of extra oil demand because of high gas prices, we were mostly around 450,000 to 500,000 barrels per day. even that did not materialize. we are more around 300,000 to 350,000. in asia, have seen some increase when gas prices have gone up so much. in europe, the problem is with baseload electricity, you don't have a slowed oil generation, so that is really the issue with
that correlation. yes, it is there, but it is really at the margins and very much now in asia story. one of the things you are seeing in latin america is a massive diesel pull because there's a heat wave and drought. so yes, it is definitely a whether impact, but oil is very much a marginal barrel when it comes to electricity. it needs to be expensive, everything else, for oil to fall into that mix. kailey: i am wondering specifically about china which has taken a very different tack towards covid-19, locking down cities when they have outbreaks. how crucial is china to the demand story when it comes to oil? amrita: extremely, but i think what i have been very surprised by to a large extent for the crude market in particular is how resilient crude has been through 2021.
even with the absence of china. i think that tells you volumes as to how strong the market is. imagine when china comes back. where are we going to find the oil to actually fuel growth? that is a scary thought. this is something we have not been delving a lot into, when will china lift the zero covid policy. we don't think it is necessarily this year. it is probably next year. it does not mean that domestic demand isn't growing, but it is nowhere close to potentially the growth we could see, especially because demand still remains hamstrung because it has closed its borders. guy: thank you's -- kailey: thank you so much for your insight today. from new york and london, this is bloomberg. ♪
guy: let's tell you what prices are looking like right now. i will do this in reverse order because i think this is the way the market is looking right now. brent is trading at $87. amrita sen says we will go significant higher. but it does seem as if the crude market is leading the rates market. look at what is happening in germany today. 1, 2 basis points away from going to flat. potential he having a positive yield on the german 10 year. keep an eye on that. the yield market is leading what is happening with the stock market. stock is down 0.9%, trading $479. this is bloomberg. ♪ ♪
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-- by circa 1%. technology being hit the hardest. the close starts now. >> this is "bloomberg markets: european close," with guy johnson and alix steel. ♪ guy: european stocks off session lows, trading for 80 on the stoxx 600. technology leading the losses. energy probably having the best day. we are flirting with flat when it comes to the german 10 year, one basis point, two basis points away from zero. are we about to have a positive german 10 year? what impact will that have on treasuries? another factor impacting treasuries right now, brent crude trading $87 26 cents. it appears to be the energy market leading the rates market