tv Bloomberg Daybreak Europe Bloomberg July 19, 2022 1:00am-2:00am EDT
>> this is bloomberg daybreak europe. i'm dani burger in london and these are the stories that set your agenda. the legal clause for some european customers. a signal a russian energy giant might keep gas prices capped. apple may curb job growth plans amid concerns of an economic downturn. orban candidates remain in the u.k. readership race. the tory party has yet to produce a front-runner. apple admits they have hired too much for the current environment, and those job numbers need to
this is adding to recession fears. not a surprise we are seeing a slowdown in hiring from some of these major firms including tech players. microsoft says it will cut jobs so a slowdown in hiring. we heard similar from goldman sachs. we have seen some of the tightest labor markets, perhaps moving to natural attrition. let's take a look at the asian session. some of these apple suppliers under pressure. taiwan semiconductor and han hi in taipei, falling to the downside, adding to a negative tone in asia as we get recessionary fears spooking investors as well as covid cases rising in china. the nikkei was closed yesterday for a public holiday.
another scoop we have, a grace period and reprieved him mortgage holders in china who have put money down on properties in terms of these properties haven't been made and developers scrapped the projects, causing pain for the property sector that is under pressure. chinese developers shares tumbled despite the news. a mortgage holiday may only ease anger in the short-term and bloomberg intelligence says it could hurt the smaller lenders particularly in rural lenders -- rural areas. dani: breaking lines, it is earnings season. one dollars 50 six, the estimate was one dollar 52, there was concern a stronger dollar would hurt their profit.
net sales slightly missed for the second quarter, 12.7 8 billion. a core eps from novartis amid a stronger dollar, giving a strategic review of a company that is upgrading their guidance. a forced measure on european gas fires. it may intend to keep supplies capped. joining me is our energy reporter. what does this mean? take us through signaling from gazprom. >> shipments from june 14, it was dated july 14 so retroactively declaring afm on supplies for delivery over the last month. they have cut supplies to germany.
the nord stream pipeline supply was down 60% until it entered full-blown maintenance july 11, when it shut down completely. there are fears once the maintenance and's on july 21, in a few days, it won't go back to full capacity. it might not come back online at all. because the force majeure letter sent to german buyers doesn't have an end date for when this fm is covered until, there are fears they will use the letter and the situation to continue to reduce flows or no flows at all to europe. europe needs the gas. germany is going into their inventories and burning gas to help the heatwave. this is the time of year they should be building stockpiles, not using them so they are ready for winter. dani: thanks so much.
we will get back to you in a bit. brussels is preparing to tell eu members to cut gas consumption. the concern, there won't be enough supply come winter. traders at goldman sachs may have rescued earnings from an investment bank slump. despite the tightest labor market in half a century, u.s. banks are adding staff. there might be changes going forward. let's get more with our senior editor. how do we interpret this? we might have had hiring in the past but setting aside less money going forward, how big of a shift is this from the u.s. banking giant? >> this is what is called the top of the market. banks often do this, when things are going well, they hire. post-pandemic, especially on the
investment banking side, things are turning dramatically and oldman is a great case in point. they were the most aggressive hirers in the second quarter but they say they will reduce compensation costs significantly, slow the pace of hiring, and are bringing back performance reviews. in most companies performance reviews are standard, but at goldman sachs it is often a way they used to weed out underperformers. not a good message for investment bankers across wall street. that reflects what we see in the market. equity issuance and bond issuance has been slow. david solomon called issuance anemic, signaling it may be a tough bonus season for bankers come the end of the year. dani: nothing like getting the blood boiling like performance reviews. david, thank you. italian prime minister mario
draghi is under pressure not to resign. his departure could throw italy into chaos as economic warning signs build. we are joined by our senior italy editor. seems like some folks in the five-star movement are breaking rank with giuseppe conte. what is happening? >> we have reports to that end and that follows about a week of should i stay or should i go from mario draghi. he insisted he doesn't want to continue with a weakened majority and that includes the five-star movement led by just what they can't take -- by gisu eppe conte. there is the possibility of a breakout group convincing draghi to stay, which would come with the push from civil society, national leaders
across the world, trying to entreat draghi to stay in office. there is a possibility that breakaway lawmakers would appeal to draghi commit -- to join the majority and leave the five-star movement outside government. we will know tomorrow a little better what will happen. draghi is due to speak in parliament. he is likely to say whether he will stay or go. dani: thank you very much. let's take a look at the other key developments we will watch for today. at 10:00 a.m. u.k. time, will it be red hot like the u.s.? 1:00 p.m., bloomberg crypto summit in new york that's underway.
-- gets underway. 1:30, u.s. housing data will include permits. u.k.'s chancellor and the boe governor addressed events in london. later, 9:00 p.m., netflix will release second-quarter earnings. will you be able to share an account? coming up, stuck around 3%. 10 year yields have been near that level as -- we will discuss next. netflix has a plan to crackdown on password sharing. we will bring you the latest on tech earnings. this is bloomberg. ♪
dani: welcome back. 10 year yields yesterday once again tested 3% but seems like every time they do, they find a buyer. that forces yields to dip lower the round number. yesterday it was no exception. recession fears and haven buying , all of those are trumping the effects of that scorching hot inflation prints we continue to get. hedge funds may be one of the buyers. this chart is net buying of treasures by cayman islands buyers. this is to say what hedge funds are buying in the u.s. treasury market. for may, which is backward looking, that is when we got treasuries heading 3%, we had record buying from the hedge fund crowd. this unrelenting pressure to haven by every time we get near 3%, seems like it is continuing.
peter oppenheimer from goldman sachs says it is premature to take that sort of that. -- that sort of bet. >> the data suggests core inflation is rising ahead of most people's expectations at a pretty broad-based. it is premature to believe inflation will come down quickly. dani: joining us is deputy chief investment officer at tobin. or do you fall in this debate? is it too soon to be buying bonds? >> i do think inflation has not come to an end yet. it is something that will be persistent. there will be highs and lows but it is something [indiscernible] not be able to raise rates high enough to get it under control. it is premature from my point of view to start buying treasuries not. at the end of the day, hedge
funds, you never know but they might have at the back of the trade. dani: basically telling me in the most polite way possible, it is too simplistic. maybe this is simplistic but i will go there. we have seen the yield curve at its most inverted in over a decade. it started to flatten, started to re-steepen but once we get to a recession, the yield curve does indeed steepen. when do you position for that? is it too soon to say yields are coming down? when do you place recessionary bets? >> i think recessionary bets are longer-term. i think they gain the yield curve has inverted and flattened, that is a game we are playing. it is not a good indicator but if you are applying common sense and looking at what is going on in the economy at the moment,
there are orange and red flecks that you can see moving towards subdued consumer demand and that will hurt badly. over the last couple years [indiscernible] exceptional consumer demand. dani: i have a feeling you might be hinting a bit on your stock. you said the current selloff is only the beginning. how bad does it get? >> personally i see markets going down by another 20% by the end of the year. if you look at what happened to tech stocks over the last six months, they haven't corrected that much after all. the index didn't drop so much. the concentration we have seen year-to-year [indiscernible]
tech stocks and their valuation remains elevated compared to the market. [indiscernible] there earnings are not going to be as much growing as they did [indiscernible] turning point has been reached, the valuation gap will narrow substantially and this will have a huge impact on the markets [indiscernible] dani: does that mean that now more than ever is a dangerous time to be investing passively, specifically in market cap-weighted indices? >> exactly. i'm worried because if you look at the market crisis in 2000, they were investing already but there was not as much as it is today so we haven't seen in
markets like that, where so much risk was concentrated into one small part of the market that might correct back. it is like you are getting more timid and a disk snapping back and it will be much more brutal than it was in 2000. dani: what does that mean? for many pillars of support of this market, who are impassive, be it in pension funds or retail investors buying on different interactive brokers, those types of accounts, if we lose that base of investors because these passive investments elicit the worst of damage, what does it do to the market environment? >> it is going to track and this is something we have seen, investors started to run away from negatives and didn't
realize sometimes you have to sit out certain crises. [indiscernible] don't have to be invested in high concentrations. this will be a problem. offside risk, and participate in the rebound [indiscernible] that is the worry i have. this on top of the fact that today it is important that you have your private savings, that you are not relying on the government to pay your pension. if this is going to widen the gaps people have been terms of income once they retire. dani: what do you say to people who want to say fully -- stay fully invested but don't like stock valuations and the concentration of the market? where did they go? >> one obvious thing is
diversifying from [indiscernible] it is all about diversification. you can also add a layer to your investment. protections is something in equities that is liquid and you can optimize better between cost and efficiencies of your hedge and you can see pension funds are turning towards expended solutions and this allows them to stay invested in risky assets [indiscernible] onside risks. dani: thank you very much. talking about investing in these volatile times. more earnings coming your way, volvo trucks operating profit, looking at 13.5 billion krona, the estimate was 12.5.
there does seem to be warning signs in these lines. north america demand, europe demand are in line but china, that demand is falling. 700,000 units, it had seen 880,000. the second quarter truck in deck -- intake fell 31% and the supply chain issues mean they have extra costs. this has been a problem over and over for vehicle makers. it is a truck order intake that is down 8%. i set a higher number. the cost picture has been eating into auto sales. we are seeing that more widespread in the current market environment. that is volvo's second quarter. coming up, force majeure declared. one of the hottest days of the year in the u.k.. what this means for europe's
dani: welcome back. i'm dani burger in london. gazprom declared force majeure on european natural gas fires, reinforcing russia's grip on energy. this while a heat is tormenting europe, pushing power systems to the edge. joining me is bloomberg's energy reporter. how share of a sign is this that come nord stream ending maintenance thursday, that flows will be severely capped if not gone from russia to europe? >> there is no set view on whether or not things will
return on july 21 when they are supposed to, but this is one more piece of an -- evidence that may be utilities shouldn't get their hopes up, that gazprom will be reviving flows fully when the maintenance is scheduled to end. you also have a turbine, which they use as an excuse, which was missing last month, which is why they reduced flow by 60%. the turbine is still missing. it has left canada and is on its way to russia according to local press. it won't arrive until july 24 and will take days to install. it may not be commissioned to pump gas into the pipeline until early august. these things are showing you can't get your hopes up later this week. dani: perhaps that is why we see this story talking about brussels telling eu member states to curb gasoline demand. how dire of estate are we in that we don't have demand
capping coming into the winter? stephen: you need to curb the natural gas demand. the fact is, there isn't enough gas on the market especially if russia cuts output. without russian gas, things will be tight this winter. the only way to fix this is to reduce your own consumption and that is what the european commission is looking to do to curb the gas demand. dani: adding to the summer of discontent with already record temperatures. thanks so much. coming up, u.s. banks are adding to their ranks, but is the hiring boom over? we will talk u.s. bank earnings, next. this i
dani: good morning. i am dani burger in london and these are the stories that set your agenda. gazprom set to trigger the legal clause for some european customers which may signal they may intend to keep gas supply capped. apple becomes the latest tech company to curb job growth plans, amid mounting concern of an economic downturn. wide open candidates remain in the leadership race, as the tory party has yet to produce a clear front runner. it was that apple story that made markets reversed yesterday. at what point, u.s. markets were up 1%, only to end the day lower. making 2022 the most volatile year for equities since the global financial crisis. the price action this morning but whilst some of that volatility. we are looking a little change. s&p 500 futures are up just .2%.
nasdaq still underperforming after the apple news. not just apple, it has been google, twitter. a lot of tech companies that seem to be slowing hiring which extends into the base. we will get into that in a moment. european stocks down .7%. it might be a game of catch up. there are a lot of risks in europe as well. we mentioned gazprom calling force majeure on one of its customers. is it a signal that the flows from nord stream might not be there when they open? you also have the ecb at the same time. you have italian politics. the euro has just pushed into the green, up about .1%. they initially slumped on an ft report that brussels will ask some of the eu members to curb gas demands. crude just turned positive, up
above $102 a barrel. we had the keystone pipeline flowing from canada to the u.s. force majeure there as well so some overflow also means pressure on this very tight oil market. bond buying, we are unable to breach 3% given that folks are happy to buy this haven with concerns of recessions, so yields down two days is points -- basis points. traders at goldman sachs has rescued the earnings from an investment banking slump. and across wall street, despite the tightest labor market in half a century, banks, led by goldman sachs, were still adding stuff in the last quarter but is the hiring boom over? let's focus on what we learned with walter todd, cio at greenwood capital. thank you for joining bloomberg get again. we have the final of the results from goldman. it does feel touchy at the
moment in terms of how the overall market digested these earnings but what say you with all these over and done with? are you still a buyer or are you adding further to your u.s. bank position? walter: good morning from the u.s., early morning. we are underweight financials and banks specifically. we do own bank of america, jp morgan. in general, their earnings have been better than feared from most of these banks. goldman with the big trading beat this morning. bank of america also beating. i think you have heard consistent messaging from the ceos. i think james gorman used the term complicated, jamie dimon complex. there's a lot of moving pieces. david solomon of goldman was probably the most cautious on his call today. dani: hey, walter, i do want to
jump in because we do have the sound of david solomon speaking at his earnings call. i want to play that for you and our viewers and get your reaction. >> there's no question that the market environment has gotten more complicated, and a combination of macro economic conditions and geopolitics is having a material impact on asset prices, market activity, and confidence. we see inflation deeply entrenched. we expect there will be more volatility and more uncertainty. dani: for one, i am now scared you are a mind reader since he said that and i wanted to play that tape to you. let me get your reaction coming from executives, specifically the little signs of uncertainty coming from solomon. walter: he definitely struck the most cautious tone on the call today. i would contrast it with brian moynihan from bank of america who said i don't know the difference between headquartered in the southeastern u.s. or new
york. nevertheless, solomon said he thought it was prudent to be cautious given all the uncertainties that are out there, so we will see. it will definitely impact -- the hiring intentions, he talked about human resource capital and evaluating that carefully and keeping an eye on expenses as well. dani: in terms of the cost cutting at banks because of that, looking at slowing hiring, setting aside less for compensation, will that be enough if we see a recession? how will these businesses at the biggest u.s. banks need to change in such a scenario? walter: i think the banks are in much better shape than the global financial crisis. reference volatility in that period. you heard this from jamie dimon, from all the bank ceos in terms of their capital levels. we saw the drop in investment banking and advisory revenue, down 50% for a lot of these
banks. clearly, they would have more credit lot -- more credit losses. as long as it is not a significantly deep and long recession, i think it will be ok. clearly slower but that would have to reserve more for losses and that is what investors are concerned about. dani: what becomes the engine of growth? it is all about trading, that was able to carry them higher with dealmaking slowing down. mortgages, jp morgan had to fire folks at that part of the company. how does the business model change? walter: great question. it goes back to traditional banking, business of lending money and collecting the excess spread on that lending. we heard from bank of america, loans up 12%. the net interest margin had a huge boost and forecasted another $900 to $1 billion in excess of growth in the next quarter. the traditional banking businesses is will make them
money through this cycle right now. dani: there's that mean you like some of these regional banks? walter: yeah, depending on their mix of business, as along as they don't have too much housing exposure, yes. some of the regionals could see some pretty decent quarters. we will hear from some this week. wells fargo, we have heard from them. yeah, regional banks could be interesting. the valuations have really been hit hard and the dividend yield a pretty attractive as well. dani: it's been a strange few years, to say the least. as we enter the earnings season, there has been a lot of analysts, bank of america basically saying this earnings season will be make or break. if it is underperforming, we see capitulation. what has the conversation been like with you and the folks at greenwood? is there a sense of fear at all in terms of what we might get from corporate? walter: yeah, it feels like
bracing for impact with this earnings season. but it is really how stocks respond to the news. look at the way jp morgan initially traded down, but now trading higher than it was prior to the earnings announcement. micron, stock up 15%. how do stocks respond to what is anticipated bad news i think will give us an idea of how we can move forward through this earnings season when people are clearly expecting numbers to come down. dani: really appreciate your time, especially when it is 1:30 a.m. where you are? walter: safe to say i am alone in the office. dani: fair enough. thanks, walter todd, cio at greenwood capital. now let's get to the first word news with juliette saly. juliette: hey, dani. apple set to be planning to slow hiring and spending growth next year and some divisions as the company comes with the potential
economic downturn. the decision stems from economic uncertainty, although it is not a companywide policy. apple is still planning an aggressive product launch in 2023 that includes they mixed reality headset. bhp has joined rio tinto in signaling more turbulence to come for commodity producers. bhp warned of slowing global growth due to the war in ukraine, europe's energy crisis, and tightening monetary conditions. pressures would linger over the coming 12 months. rio tinto made similar dire remarks last week. goldman sachs is planning to slow hiring and reinstate annual performance reviews that were suspended during the pandemic. the cfo said on a conference call, the bank is thinking action to cut spending and improve efficiency. goldman another big wall street lenders reported substantially larger workforces in the second quarter compared to earlier. softbank is said to have plans
of a london ipo of designer arm. sources say the walkout of leading officials in boris johnson's administration have paused the talks for now as they played a leading role in talks with softbank. the company continues to pursue an ipo for the business in new york. agreed with pilots unions on 5.5 year collective bargaining agreement, ending the pilot strike. flights will resume according to the regular traffic program as soon as possible. the strike grounded most of the company's fleet for over two weeks over the peak holiday season. global news 24 hours a day on air and on bloomberg quicktake powered by more than 2700 journalists and analysts. dani? dani: thanks so much, juliette saly. the ecp is set to meet later this week and markets will be fixated on the possibility central bank's new tool to counter the increases could be
tested sooner than expected, especially amid fresh political uncertainty in italy. tom mackenzie reports. tom: in 2020, rising bond yields did not seem to bother the new ecb president. >> we are not here to close spreads. this is not the function, the mission of the ecb. tom: but times have changed. >> we will not tolerate fragmentation that would impair monetary policy transferred -- tom: what exactly is fragmentation? to christine lagarde and the european central bank, it means bond yields for some euro region nations such as italy blowing up. it needs to be avoided. remember the debt crisis when soaring yields for some nations almost destroyed the euro? back then, italian yields topped 7%. it took the former ecb president mario draghi's famous valid to quell the turmoil.
today come interest rates are set to rise for the first time since 2011 to curb record inflation. italian yields have been climbing, recently passing 4%. in response, the ecb is building a gadget to keep the bond in line. how exactly it will work remains a secret. though, fragments have come out, such as ensuring it won't negate the effects of tightening. a process called sterilization. >> my personal view is it should be part of the instrument, but of course -- tom: will the ecb's new crisis tool work? not everyone is so sure. the instrument may be ready by the central bank's next meeting on july 21. until then, we will have to see what markets yield for eurozone bonds. dani: tom mackenzie on the fragmentation of european bonds. coming up, how are tech firms
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dani: welcome back to bloomberg daybreak: europe. i am dani burger. as we head into the tech earnings season, apple says it will slow hiring and spending growth next year in order to cope with the potential economic downturn. joining us now to discuss the earnings season is alex webb. apple is another one of these tech companies talking about a change in the pace of hiring. how big of a change is this, what does it mean for the tech sector? alex: three different levels. you've got the companies that are may be reducing headcounts, completely freezing hiring like twitter.
companies that are slowing down the pace of hiring such as google. and then companies are slowing down some of the pace of hiring in some divisions like apple. apple is very much in the lowest end of the scale, but it shows the effects of inflation. you look at the googles and facebook's of the world, they are affected by the economic environment as a whole. the likes of apple, inflation obviously affects your ability to buy a $1000 item. dani: tech was sort of the port in the storm during covid. these companies still selling products. perhaps the one that exemplifies the most is netflix. massive stay-at-home home. they have the earnings on deck. what are the expectations? alex: there is very much going to be a decline in the number of users. as much as 2 million. predominantly in the u.s., about half in the u.s. the only gains are expected to be seen in asia.
it is not looking brilliant for netflix. i think there has been an expectation for some investors that this has become almost utility, that everybody will have netflix as their base layer. it looks like it is becoming discretionary spending. it gets taken away when people look at their bills. dani: i feel like it was maybe two, one year ago we were talking about netflix and i asked something about when did they finally pull that lever of ending password sharing to juice more returns out? are we finally at that stage? are they going to look at doing this? alex: they said they are going to do this already. they will start trialing it in latin america soon, essentially. that was reported yesterday. they reckoned there are 100 million households around the world that are sharing passwords. 100 million accounts. they will ask you to pay an additional fee in latin america to be able to share that password with another household.
it will not affect people going on holiday. if you are in a different location for two weeks, that will not affect -- you will not lose your rights. but it does show the potential upside. 100 million, but also a sense of desperation. dani: you have to forgive me for this because you know i cannot have you on not asking about twitter. honestly, i try not to read a story every day on it because it will blow over everything else i am doing in life. what is happening right now in the twitter musk drama? alex: in another filing, twitters lawyers said that elon's complaints about bots are relevant. -- irrelevant. a lot of sympathy given that elon started the deal he will fix the bots problem. dani: that is why he liked twitter. alex: the upside potentially. then, of course, things changed in the financial side of things and then the bots become the
reason to ditch it. his lawyers will have to pull an incredible rabbit out of the hat to make this deal not happen. dani: alex, thank you so much. alex webb literally answering every single tech question for us. coming up, speaking of tech, softbank pausing its listings in the u.k. of the chip designer arm. that was sent to become a london listing. it cited political turmoil in westminster. more on that story next. this is bloomberg. ♪
1:00 p.m. is the bloomberg crypto summit. speakers will include sam bank man-fried. matt levine will be taking a break from writing his column to moderate the panel. at 1:30 p.m., we get u.s. housing data. the chancellor zahawi and andrew bailey will address an event at the mansion house. at 9 p.m., netflix will release its second-quarter earnings report. will you no longer be able to share your password? softbank is said to have temporally paused talks on listing shares on a chip division arm in london, explaining political turmoil for the reason. for now, we are joined -- what exactly is happening here? why do they say that politics is the reason they cannot list in london? >> it's mainly because some of
the very important people who are leading the talks to get softbank to list in london have resigned over this political turmoil. as long as we can't figure out who is actually the new people who would potentially be in th e talks, the discussions are temporarily being held. this does not mean the talks are completely off. as long as they figure out who will be the people replacing the ones who have left, it is very possible the talks could be revived in the next several months. dani: one of my questions is, we are still likely to get an arm listing in new york, so perhaps they don't want to list in london and this is a convenient excuse? >> it is not impossible, but based on what we know so far, i believe this political
uncertainty is playing a key role in making the talks uncertain at this point. you rightly point out a listing in the u.s. has always been softbank's primary focus based on what our sources have told us and what masayoshi son himself has said. whether or not this london listing happens or not, it is less important than the new york or u.s. listing, which we expect to happen sometime next year. dani: ok, thank you so much. min joeng lee on the latest with softbank and their arm ipo. she talked about u.k. politics as the blame the reason why this listing has stalled and the race to secede -- succeed boris johnson has narrowed. four candidates vying for the two spots to face a vote by party membership. whoever succeeds will take over
at a time of growing economic problems. we are now joined by lizzie borden. we have u.k. data, speaking of economic problems, what are we expecting? lizzie: less than five minutes. we expect the unemployment rate will hold steady and pay growth will stay elevated. with the inflation data we are expecting tomorrow, and we are expecting another jump in u.k. inflation, that should give the bank of england more ammunition to go for a half-point height in august. yesterday, we had the outgoing big hock michael sanders speaking. he says he sees interest rates rising to 2% and that is because of this tightness in the labor market. dani: in about a minute, labor has been a topic in the conservative debate. how is that shaping in? lizzy: it is something that all the candidates actually agreed in the last tv debate. they said they were concerned about a wage price spiral. perhaps those concerns are
overblown, because in the public sector, employers don't have the same power to respond to wage rises with price rises. let's see how that pans out. dani: thank you very much. lizzy burden. now as we close out the hour, we continue to see equity markets on edge after the reversal from apple. you are looking at european futures down half a percent. u.s. futures are up just .3%. it is still bond buying. looking at 10 year yields moving lower. haven vying with the fears of recession. bloomberg markets europe is up next. i'm