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tv   Bloomberg Markets European Open  Bloomberg  July 19, 2022 3:00am-4:00am EDT

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here are your top stories. gazprom declares force majeure on some european gas buyers reinforcing russia's grip on eu energy supplies. a hiring freeze. apple joins its fellow tech giants in scaling back head plans. plus, a brutal heat wave. london may hit a record, 40 degrees as extreme temperatures ravage europe. let's check in on these markets. gains of around 1% yesterday across european equities but a choppy session in wall street. it was the apple decision around reducing headcount which sent the s&p lower and use all the close around 0.8%. let's shift it over as we weigh up the data coming out of the u.k. in terms of jobs.
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coming in well above the estimates. think about the response of the boe to this high inflationary environment and wages in the u.k. not matching. not matching the inflationary rate. at the real level were still seeing a pay cut for most workers. the spanish ibex down 0.6% as well as the ftse 100. iron ore and copper will be weighing on that sector. we look at the plans around the nationalization around a utility company. let's see how things are playing out across the sectors. the eu will be asking members to cut back on gas demands concerns the pipeline will not come back online on thursday. the jury is still out on that. we wait for that decision which rests in moscow. the futures in the u.s. looking to gain 0.2%. euro-dollar at 1.01 gaining
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0.3%. not a lot of movement on brent. let's get over to mark cudmore. you are looking at european gas prices. mark: yes. it is at the big issue this week. will we see the resumption of supply from the pipeline and what will happen to the gas prices? i want to show how extreme gas prices are and why we care so much. this white line is the 2022 gas prices and it is generally hovering above 100 euros for megawatt hour. we are at above 150 at the moment. the premium is well above the extreme high of the last five years. since june 2021 gas prices were
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starting to get crazy. and the blue line is the 2021 price. when you look at the range of the last five years, last year ends up being the extreme. until last year we never saw prices like this and now we are shattering those levels again. just to emphasize all of the hype around the gas price -- this is really extraordinary. we are still in the depths of this gas crisis in europe which is why it is so critical what is decided on the supply. tom: a stark reminder, the prices and as we await the decision out of moscow on nord stream one as the eu tells number states to cut back on gas demand. mark cudmore, thank you. speaking of energy prices, that brings us to the first of our
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top stories. gazprom has declared force majeure on several buyers signaling they intend to keep supplies cap reinforcing russia's grip on the region. what is happening when it comes to this decision by gazprom to declare force majeure? what does it mean in reality for the european utility companies? >> i think it was a real surprise it took them so long to do that. they have been supplying less gas for a good part of the last month. this is retroactive. the letter they send to customers shows it applies to the price from mid june. it is unclear how you apply force majeure retroactively. but i think the markets are taking it as a signal that
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either gazprom has no intention of turning back on nord stream or if it does, it will keep gas cap to at 40% as it has done for the last month. tom: still some uncertainty around this decision. thank you, isis. let's get to the political front and the risk emanating from italy. tomorrow is the important date. mario draghi increasing pressure not to resign. his departure could throw italy into chaos as economic warning signs build up for that country and across the euro zone. for more, we are joined by bloomberg's senior italy editor. mario draghi will be speaking tomorrow. what do we expect to hear? >> it is what everyone is asking in rome. the signs are that he will relent and walk back his
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decision to resign. but there is no certainty of this. forces and parliament have been trying to convince him that there will be a stable majority that can get things done which is what mario draghi cares about the most. a group of five-star lawmakers may walk out. but we still don't know. draghi is speaking tomorrow morning and we will probably here sometime later today the news of what he will say. tom: bloomberg's and the list as we look ahead to that speech and important decision by mario draghi. as economic concerns are in focus for that country as well. let's get into the key market drivers with our guest, lara cooper -- laura cooper. let's start with the recession fears that seem to have moved back into focus. yesterday's session highlighted
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by apple's decision to reduce its headcount. goldman sachs also looking at that. what is your assessment of the recessionary risk? laura: that is the key question, what type of recession will we get? at this point, we are assigned a fairly low probability to a u.s. contraction over the last -- the next 12 months and we will likely be in a period of moshe growth. an environment where real gdp is in a low single digit. and against this backdrop we will likely see some inflation pressures start to ease reducing the impetus for the fed to have to tighten as aggressively. he will continue to front load the rate hikes but not enough to trigger a sharp recession. tom: if we get to -- are you starting to think about the rate
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hike cycle as aggressive but short? and then you can think about opportunities in the first half of 2023 on the easing emphasis from the federal reserve? laura: that is largely the case. markets are well priced for the frontloading of fed rate hikes. we are slightly more dovish around the 175 basis point mark. investors are starting to position differently. they are starting to price in the rising market narrative. we still remain short duration. we like the front end of the curve. the fed eventually will have a dovish pivot. timing that is the key challenge. we are seeing outflows from short duration -- it is an interesting dynamic occurring when we look at investor sentiment. tom: let me push you on that timing. davos a sense of where you think
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that starts to land. laura: that is probably the key question we have been faced from clients. it is about a case of looking at inflation measures. will we see a sequential month on month print start to come down? key inflation drivers like used auto prices and fuel prices, retail inventory numbers are quite high. there is a confluence of factors that suggest we are near or at peak inflation in the u.s. which should support the easing from the fed. inflation will be sticky and elevated likely for some time. as we focus on growth risks, we are at a stage where we are seeing deterioration in the economic data and we will be watching the unemployment rate closely because we think that will be a catalyst. tom: around fixed income, where
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does that take you in terms of corporate credit and the opportunities of their? -- and the opportunities there? laura: that is a great question. our call is upgrade in terms of -- corporate fundamentals remain relatively healthy and when we look at the recession scorecard, we are not seeing imminent signs of a u.s. downturn. when we see that become more of the market narrative, we think investors will tilt towards quality in the credit spectrum. tom: tilting towards quality in credit. we would love to disperse laura cooper's energy and disperse at around the newsroom. temperatures and the uk's set to hit record levels today.
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the heatwave has already caused issues with transport. issues have been warned by u.k. health officials. let's bring in bloomberg's will mathis. if anyone was questioning the climate crisis before this week, they would surely have had a rude awakening given what we are seeing and the devastation across europe. just how bad will it get? >> today in the u.k., we are forecast to have the hottest temperature ever recorded in the country. it is as bad as anyone here has ever experienced. and in the u.k. we are not used to these kinds of temperatures. there is very little air conditioning. the government says a maximum of 3% of homes have ac. offices have air conditioning. but that is hard because all of
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the trains in london and other places are disrupted because of the tracks are not safe for trains at temperatures this high. it is really bad. the authorities are really cautioning people to take as many precautions as they can to stay cool and stay hydrated to stay safe during the heatwave. it is just going to keep getting worse. this kind of heat, while unprecedented, will soon become more normal. the record we are about to break today was only set in 2019. this kind of hot heat in the summer is here to stay. tom: it is remarkable to think that this becomes the new normal. livestock is not allowed to be transported at 37 degrees or above but that is the temperature you are getting in london's undergrounds and subways. thank you for the latest on the
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heatwave here in the u.k. and at the climate crisis as well that continues to ravish the euro zone. enteral banks in focus. the ecb set to deliver its first interest rate hike since 2011. that will be on thursday. we will discuss. this is bloomberg. ♪
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>> in 2020, a in bond yields did not seem to bother the new ecb president. >> we are not here to close spreads. it is not the function of the mission of the ecb. tom: times have changed. >> we will not tolerate fragmentation that will impair monetary policy. tom: it means bond yields for some euro region nation such as italy blowing out. it needs to be avoided. remember the debt crisis when storing yields for some nations almost destroyed the euro? back then, italian yields topped 7%. it took mario draghi's famous valve to quell the turmoil. >> whatever it takes. tom: today, interest rates are set to rise for the first time since 2011 to curb record
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inflation. italian yields have been climbing recently also surpassing 4%. the ecb is building a gadget to keep the bonds in line. how it will work remains a secret though fragments have come out such as ensuring it will not negate the effects of tightening. a process called sterilization. >> it should be part of the instrument but of course -- tom: will the ecb's new tool work? not everyone is so shirt. the instrument may be ready by the central banks next meeting, july 21, until then, we will have to see what markets yield for eurozone bonds. let's stay on the central bank story and bring back laura cooper. you're expecting the 25 basis points from madame lagarde and the ecb on thursday. you talk about the brutal trade-offs for the central bank.
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how far and how fast can they go given concerns about gas and political fragility as we look at the stable where pillar of stability mario draghi having to step down possibly as early as tomorrow? laura: it is the conflict facing the ecb about how to contain inflationary pressures. at the same time, we are seeing a deteriorating growth backdrop. they have to get out of negative policy rates. focus will tilt towards the anti-fragmentation tool. thursday we are looking for the size of the program. the conditionality around it and its purpose. how will it contain spreads? a lot of the narrowing since mid-june was on the back of the planned jewel coming and a forest. i think there is quite a bit of scope for disappointment because
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there will be ambiguous by construction. it will be a tool that is reactive rather than proactive. there are a number of constraints around this. you alluded to the political backdrop. there are operational and legal constraints. it will be interesting to see how they managed the tricky balancing act of raising rates in this inflationary environment will -- without triggering a downturn while we are also facing the energy crisis. tom: i want to go to the earnings picture. what is your assessment of what we see so far? laura: it is too soon to make judgment calls. ultimately, what we are seeing is earnings estimates remain too optimistic. what we will likely see is more margin pressure going forward. we are looking for corporate's guidance in terms of the demand outlook and how will they be able to pass these powers onto
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the consumers? we are tilting towards the defense of sectors. we like health care. tech is more challenging. health care has valuations below the market multiples. we are seeing the pent-up demand from covid. unlike other defensive's such as consumer staples or utilities, we are seeing tailwinds from structural sectors. tom: what do you do with commodities at this point? laura: if you look at the flow picture in may we saw investors capitulate from the sector. that gained traction in june. it is accelerating largely on the backs of markets pricing in a u.s. recession -- pricing in fears of a u.s. recession. i think there is still a case for upward commodity pressure.
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you want to have a soft commodity exposures and energy. when you think of the current backed up the disruptions of the russian invasion will likely remain for some time. and crop disruptions. there are a number of different ways commodities have upside from here. tom: you're seeing brent at 106. gold, little movement there. thank you for coming to the studio. laura cooper from blackrock. coming up later in the show, apple has said it will slow its hiring and growth. more on that in just a bit. this is bloomberg. ♪
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tom: welcome back to the open. we are 23 minutes into the trading day and your markets are lower in europe. after gains of almost 1% yesterday you are seeing losses of zero point 3% across the benchmark. the ftse 100 off by 0 -- 0.5%.
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let's see how things are playing out around individual stock stories. we are on the edges of earnings season. and details from the french government around eds. you are seeing a lot of upside with reaction from investors. up 15% on eds plants. -- eds plans. volvo down despite a beat in terms of second-quarter earnings. solid demand in terms of momentum and they are able to pass on some of the input costs they are struggling with. asas gaining 11% after resolving a dispute with their pilots. they can focus on financing plans. they did file for bankruptcy protection in the u.s. earlier this month. >> apple is said to be planning
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to slow hiring and spending growth with some divisions as they cope with the potential economic downturn. sources have told bloomberg that the decision comes from economic uncertainty though it is not a companywide a lessee. apple is still planning a productive -- and aggressive product schedule. bhp has joined rio tinto in signaling more headwinds to come. slowing global growth due to the war in ukraine, europe's energy crisis and tightening monetary conditions. it also said cost pressures would linger in the coming 12 months. rio tinto made similar dire remarks last week. goldman sachs will slow hiring and reinstate annual reviews that were suspended during the pandemic. the ceo said the bank is taking action to cut spending and improve efficiency.
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goldman and other big lenders including morgan stanley, jp morgan and citigroup reported substantially larger workforces in the second quarter. that is your bloomberg business flash. tom? tom: coming up, more on big tech. we will dig into news from apple and softbank next. question marks over arms ipo in the uk. plenty more coming up. this is bloomberg. ♪
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tom: welcome back to the open. 30 minutes into the european trading day. as prom declares force majeure
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-- gazprom declares force majeure on some european buyers. apple joins its fellow tech trains in scaling back headcount plans. goldman sachs will bring back its annual employee cull. and extreme temperatures ravage europe. let's check in on these markets. a sweltering day in the city of london. the european stoxx 600 down. stateside is where you saw losses especially after the announcement from apple that they would reducing their headcount growth. that sent the s&p down almost 1%. the dax is lower by 0.6%. jobs numbers look pretty good in the u.k. basic resources are a drag but
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jobs numbers coming in well above the estimates pointing to strength in the labor market though there are concerns about the cost of living crisis in the u.k. a bit of a defensive tilt. you see that in the bond markets. and in the sectors, you see health care and banks up there and utilities. those are the only three sectors in the green. heavy selling and travel and tech is off by 1.4%. financial services also lowered. the broad picture is a loss of 0.5% with the heaviest selling in france despite the opposite -- the optimism for eds there. let's get back to the tech story. is one of the biggest laggards. apple has said it will slow its hiring and spending growth next year two with a potential
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economic downturn meanwhile netflix is due to report results today and investors will be keen to see if it has a solution. joining me now is bloomberg quick takes alex webb. a finger on the pulse. and it comes to apple, the decision to reduce its hiring -- how significant is it and what does it tell us about the constraints around a company that is cash rich? >> the likes of google, meta, and ad tech companies. the first thing that gets hit is marketing budgets. it follows that these guys will suffer. apple is different but it is affected by inflation. if you are in the business of selling thousand dollar pieces
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of hardware to a consumer, the pace of refresh will slow down if people don't have as much discretionary spending. that is perhaps why the market panicked because they are reading across that there is a hesitation about whether apple will struggle. tom: inflationary caution for apple. when it comes to netflix, there has been concerned about this company that did well during the pandemic but now has struggled. what level of optimism is there if any from investors? >> reporting nearly 2 million fewer users -- more than half of that coming out of the u.s. the only place there will be growth is in a show. there have been some obvious big heads such as squid game but they are not expanding asian production. there are 100 million households
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that could be customers but they are using passwords from existing network subscribers. if you crackdown on the password sharing, that could be an upside. an optimistic number. they are also staggering releases a little bit more. rather than dumping a whole show at one go, and then cancel a subscription they are breaking them down. that helps extend the lifespan of someone's subscription because they don't turn out as quickly. tom: they want to create the stickiness. do they risk a backlash? >> ultimately, if the shows are good enough, people will do it. if there are people in secondary households, we think there are 100 million households that will
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subscribe if they don't currently? no. but if you get just 5%, that could be a meaningful number. the key thing is there had been an expectation in the last 5-8 years that meant -- that netflix was becoming high utility. as we enter a recessionary environment, it becomes clear that this is discretionary spending for a lot of people. tom: if you have disney plus or paramount or netflix, you look across and see where you can cut. alex, thank you on netflix and the stalling or reduction of hiring growth at apple. let's get to another tech story. softbank has paused talks on listing in london. causing political turmoil in the u.k. and for more on that, we are
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joined by kat. what about the change of heart about a london listing? >> it would have been an important win for the u.k. especially since this your listings have fallen to the lowest since the financial crisis in 2009. arms was a flagship company in london before it was taken private by softbank in 2016. losing potentially the listing early next year and having softbank refocused towards new york would be a big blow. we have seen a few other companies looking at london instead. it is creating a bit of a bad news cycle for london which is already not doing very well on the ipo scene. tom: a bad news cycle for london already pretty lackluster for ipo's.
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boris johnson's government had been pursuing a program to make london more attractive. do they double down or do they capitulate? >> the idea would be that this is a long-term post-brexit trying to make sure that london does not lose its standing as a financial center. i think this is going to be something they want to continue. the political turmoil is putting a big question mark for timing. if sunak becomes prime minister, there would be some continuity because as chancellor he was driving the push and some of the changes to the listing roles. -- listing rules. it is certainly another weight on the london listing seen at the moment and it is not a good look to be having political turmoil and uncertainty about what will happen and which changes will go through and who
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will be making the decisions. tom: a blow in terms of ipo's and building out that system here in the u.k. kat, thank you for the latest. u.s. banks are still adding staff to their ranks but is the hiring boom over? we will talk u.s. bank earnings next. this is bloomberg. ♪
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tom: welcome back to the open. we are 41 minutes into the trading day. a line from reuters. ecb policy makers to discuss 50 basis points as a rate hike this week. the meeting on thursday. the ecb will be clear about flagging 25 basis points and now the line from reuters policymakers will discuss 50 basis points. you see a pop in euro-dollar. yields higher. german bund two years up five basis points the italian two-year up four basis points. traders at goldman sachs have rescued the earnings from a slump with a 32% surge in
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second-quarter trading revenue. across wall street despite the tightest labor market in years, is the hiring boom over? what were the keys standouts or takeaways from the earnings across these banks? >> just how well goldman's traders did. one of the big areas for the ecb was the rates business. it is what saved their results in some ways. you look at the bank of america. a different story. what was interesting was the net interest income. two different things happening. trade is doing well and the traditional old-school form of lending is making a comeback. tom: the charge around trading making up for the investment
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losses. when it comes to hiring, it seems not that long ago when we were discussing the efforts the banks were having to go to to attract and retain talent. >> the mood has shifted. some banks are still adding staff. goldman is adding people. but they are cooling plans and bringing back performance reviews which is a way they cull staff. tom: thank you. joining us now for more analysis on this is filippo maria alloatti. thank you for joining us. what is your take on where these banks stand? filippo: it is a volatile market. in the short term, the
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volatility is here to stay. it is interesting the news about the ecb considering 50 basis points. as long as the fed does not finish the job in terms of bringing the rates, we have to live with volatility. it speaks for higher trading. we are already seeing lower activity. especially on the equity side. it is tough to see this changing at least in the short term. tom: that would've been my next question -- tough to see the investment part of the banking coming back in the short term. in a comes to that benefit, talking about the ecb considering 50 basis points this week, in terms of net interest,
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to what extent are banks benefiting from this? filippo: that is an interesting one. especially in europe we have been waiting for high interest rates for as long as i can remember, since the q. week experiment started. the hotter we get with the interest rate increase, now the talk is recession is around the corner. the cost of risk will increase. it becomes a bit of a balancing act for the management of the banks to have increasing revenue offset with the likely increase of the cost of credit and also the inflationary expense. this to me [indiscernible] if you look at some of the franchises, -- we know the
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economy is running at 80% or 9% cpi -- h percent or 9% cpi. there may be some rethinking when it comes to hiring. tom: i want to get more on that. in terms of cost cutting, is that where the fat is going to be cut? is it about headcount and reducing the investment in technology? where can they train their sites in terms of trimming some of these costs? filippo: a lot of the banks are invested heavily in tech. some of those -- the cloud, the i.t. service
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provider typically has a one-year renewal. it was not so much of an issue over the last few years [indiscernible] if you think, especially for 2023, it becomes quite a headwind for the bank. tom: as we consider the potential implications of a recession whether in the u.s. or europe, what is your level of confidence given your expertise when it comes to credit, in the credit quality of these banks? filippo: if you put things in perspective, it is a measure of
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credit loss on the consumer side versus an average average of 55 basis points. some of the banks are still pretty sanguine. jp morgan saying we will finish the year inside 20 basis points. if that is the case, i will be looking for the franchise on the consumer side. [indiscernible] it is possible we will have a recession but it will be next year. it is about increasing reserves. tom: to offset the recessionary
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risks and the pressure on credit. the head of financials at federated hermes on the back of the view that trading and volatility will continue to be a benefit for the banks. coming up, the french government offers to pay to fully nationalize the utility. we got the details on that next. this is bloomberg. ♪
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tom: welcome back to the open. 52 minutes into the european trading day. checking out where things stand. losses of 0.5%. the ecb officials are disgusting or considering 50 basis points as the hike on thursday. they had flagged 25 basis points but they are contending with high inflation. and the potential that russia will not restart the gas flows around toward stream one later this week. there is day is the day you are meant to get clarity on nord stream one. we know gazprom has declared
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force majeure for a number of european companies. concerns around inflation and ecb officials' response is 50 basis points. on thursday we are also expecting details around the anti-fragmentation tool and what the ecb can bring to bear on that front as political risk continues to bubble in italy. wednesday a crucial day for that nation. moves higher in the single currency on that news. edf, details coming through from the french government around the bailout for this company. gains of more than 15% for this company. the government already has 84%. 9.7 billion euros. offering around 12 euros a share for investors who are cheering the news.
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the details of that nationalization of that company is linked to the gas story and the energy price crunch around europe. unilever also looking for a bailout from the german government. let's get the bloomberg first word news with alice atkins. alice: bloomberg has learned that russia's gazprom has declared force majeure on at least three european gas buyers which means it cannot fulfill its obligations due to of receiving circumstances -- due to unforeseen circumstances. european commission is said to warned that could reduce gdp to up to 1.5%. in ukraine, the military chief says the situation has been completely stabilized. he posted on facebook after speaking with the chairman of the u.s. joint chiefs of staff. he said an important factor was
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the arrival of a new u.s. long-range artillery system. europe's heatwave is bringing water levels to dangerously levels. the rhine river is 37 meters above a mark that -- below a mark that would choke off a key. bloomberg has been told china may allow homeowners to temporarily halt mortgage payments without incurring penalties. the proposal requires approval from senior leaders. it is part of a broader push to stabilize and inject confidence into the housing market. the field of potential candidates to replace boris johnson is a. sunak and penny mordaunt maintained the top two places. more ballots scheduled for tuesday and wednesday after
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which just two contenders will remain. johnson returned to parliament on monday for a largely symbolic confidence vote. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: alice atkins and london, thank you. the news of the moment -- the ecb is looking closely at a half-point rate hike this week. money markets betting on over 100 basis points by september up from 75. the ecb looking to frontload for the first time and a decade. it is it for the european market open. stay with us for surveillance, the early edition. this is bloomberg. ♪
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