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tv   Bloomberg Markets European Open  Bloomberg  July 21, 2022 3:00am-4:00am EDT

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tom mackenzie is in london. tom: hike but by how much? the ecb is set to raise rates for the first time in a decade. the question, 25 or 50 basis points? italy's government teeters on the brink as mario draghi's attempt to resurrect his coalition collapses. turning on the taps, nord stream says gas shipments from russia have restarted. prices tumble. there was optimism in the early parts of this morning on the news of gas supply coming through from nord stream 1. it is the year of italian politics that is central, and you are seeing losses of 0.4%. it was a modestly positive day on wall street, more of an earnings story. the ftse 100 is currently flat.
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the ftse 100 currently down 0.1% . we will keep an eye on italian assets. after a passionate speech from mario, there was a bid for italian assets, then a selloff. the cac quarante is down 0.4%. let's switch over and see how things are playing out. there has been a sharp selloff on the back of the trading that started today, yields up. the price is lower on the italian 10 year. it is still below the 4% level. concern from the ecb officials. we continue to assess the impact
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on the single currency depending on what happens later today from the ecb in terms of the rate hike. it was remarkable, the passionate speech from the prime minister, then if yours later it started to fall apart. francine: yes, we heard two speeches from mario draghi, and both were uncompromising. he said he backed the government or he is out, and they are now in turmoil. you have three coalition partners not deciding to vote in that support. he tried to strong-arm the fractious coalition, and it failed. it will probably be elections because he will resign today. i think it is impossible for the president of the republic to do what he did last week and say he has confidence and i do not accept your resignation. we will see elections in october but it has implications for the
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ecb and anti-fragmentation tools. italy is also due to receive 22 billion in december, but this was a quid pro quo if they did reforms. what happens of draghi is no longer here? tom: absolutely. also, the complications for the european central bank. an important decision later today. the ecb is set to increase interest rates later today for the first time in 11 years. markets are expecting an increase of at least 0.25%, but reports suggest the bank may go further. dani burger is in frankfurt. what can we expect today in terms of a hike? what are the markets telling us? dani: i would not have this job if i actually knew but markets are evenly split at this moment,
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50% either way. the case for 50 basis points is a strong one, inflation coming in at 8.6%. it is hard to justify negative rates in that scenario. hiking 50 basis points would get us to neutral. it is a difficult time, there are questions about energy and a coming recession predicted for europe. it is still accommodative. the case for 25 is one of credibility, the ecb and christine lagarde explicitly guided to 25 basis points. they might lose credibility of guidance but perhaps they do not need it if they want to be reactionary to the ongoing inflationary and economic situation. francine: it was interesting, citigroup saying the problem if
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they do not do 25 and do 50, is it puts in question their resolve with the anti-fragmentation tools. is it the italian anticrisis tool, and how does that complicate things for the ecb? dani: i almost have to call it that. it certainly complicates things. we see at the moment this morning spreads widening because of the political turmoil because of what is happening in rome. if the ecb steps in with an anti-fragmentation tool, it might look optically not great, they are stepping in and intervening in italian politics. the other risk is what comes afterwards? what does the italian government look like? if it is more populous, it might be someone who will not comply with what we are expecting from an anti-fragmentation tool. and it is likely to face german
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constitutional court. will traders test the tool if they know it will face legal challenges? francine: it is so rough to know what they will do. if they put the bar so high no one can access the anti-fragmentation tool, you wonder what the point of it is. dani burger joining us from frankfurt, she will lead our special coverage of the ecb decision and our reaction to it. tom: let's get back to the other big story of the day, gas flows along the nord stream from russia have resumed but with uncertainty around the future of supplies. the eu is asking never states to reduce consumption. >> we have to reduce our gas consumption. i know this is a big ask for all of the european union, but it is necessary to protect us. every member state should reduce
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the use of gas, and our second objective is to provide a safety net for all member states. tom: will kennedy, our managing editor for energy joins us here at how significant is it that the nord stream 1 is back online? will: it is important, the time it was down for maintenance, the russians would not turn it back on. there is some relief in the market that we have those flows that we saw before the pipeline went down. that is no guarantee for the months ahead. 40% is only 40%, and it still leaves gas supplies in europe constrained. vladimir putin has already signaled there are more problems ahead. he is talking about another gas
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compressor on the pipeline that needs maintenance and could reduce flows to 20%. there is a lot of gamesmanship there. this pipeline gives putin a lot of leverage in his mind. francine: thank you, will kennedy, our managing editor covering energy and commodities. let's get into the key market drivers with monica defend, head of amundi institute. i have so many questions. this is the first time in 11 years ecb is hiking rates, 25 or 50. is it a credibility problem if they do 50? monica: no, our baseline is 25. this is related to what they will announce with the anti-fragmentation tool.
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it is 25, and nothing concrete on anti-fragmentation. these should come with something on the anti-fragmentation tool, and we do not think the ecb is there yet. francine: let's go straight to the man of the hour, mario draghi, as we think he is about to resign. >> i would like [indiscernible] to express what i want to do. >> how much time do you think
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will be necessary? >> until mid day. let's suspend the session until mid day. now this hearing is suspended, and will start again mid day. tom: that is 11:00 a.m. u.k. time. we do not get the resignation speech or announcement from mario draghi yet. that is expectation after the break down of his coalition. let's go back to our guest, monica defend, head of amundi institute. what you do with italian assets during this uncertainty? monica: we moved to neutral, the exposure. on the equity side, there are still some relevant
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opportunities. we are positioning on the equity market. obviously fixed income will stay. francine: i'm so confused about what happened. we thought mario draghi would go to the lower house to tender his resignation. he now says he wants to speak to the president. we assume he is tendering his resignation. is there any conceivable way in which the president of the republic, for the second time in two weeks, says, mario draghi, i do not accept your resignation. monica: the problem is there is a lot at stake, 22 billion is a lot of money that the country needs. otherwise the economy will struggle. there are reforms that need to
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be accomplished. those aspects are really important for the country, and there is nothing the ecb can do. the ecb [indiscernible] i think there is a risk on stability, then we will see how the market -- it is really difficult for the parliament to move ahead. tom: you are seeing a yield move of about 11 or 12 basis points. what is the complexity around the anti-fragmentation tool? what will the markets be looking for, and how does the political risk and italy make it that much more challenging for the ecb? monica: definitely, it is making it more challenging for the ecb, but we think the tool has to be
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a long-term tool to manage -- it has to be a european long-term tool. it is not going to be a powerful tool. francine: thank you, monica defend, head of amundi institute . we will have plenty more from italy. the ecb is set to raise rates for the first time in over a decade. coming up come on the value of ipo's in london have fallen to the lowest since the global financial crisis. we speak to the chief executive of the london stock exchange, next. this is bloomberg. ♪
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tom: welcome back to the open. we are 50 minutes into the trading day and getting a lack of direction for the markets as we wait for that position from the ecb. do they go 50 basis points are go more conservative with 25 basis points? italy is muddying the waters for the central bank. stateside is range bound after modest gains on wall street yesterday. japanese conglomerate, softbank,
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held talks about publicly listing in london over the uncertainty in the u.k. this is a further blow to boris johnson's vision for london is a global financial center. since 2016 ipo's are losing steam in the u.k., making up 30% of total listing proceeds in europe. joining us now is julia hoggett, ceo, london stock exchange. thank you. give us your sense for demands of publicly listed companies in the u.k. we have rates going up, so it is not just unique, but it has been subdued in the first half of this year. you expect this to continue? do you see any pickup in momentum? julia: there is a distinction between the preparation activity companies are doing to get ready to come to market, and the choice they make about when they do so. the preparation is continuing,
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and we have a lot of conversations, and companies are getting ready. the question two when -- the question to when, obviously we are seeing a shift in the interest rate environment. we have seen the russian-ukraine circumstances. there is a global reset that was not anticipated. that is factoring into timing decisions. the other point is that total issuance is down 64%, where it is down 81% in the u.s. everybody focuses on ipo's, but iowa say a listing is for life and not just christmas. we have to focus on the capital. francine: good morning from the political chaos capital in europe at the moment, rome.
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london is not as calm as it used to be. as we await a new prime minister, what does this mean for the stock exchange? julia: i always think of my job as a five-year forward job. i was a fixed income person for many years, so i think in those terms. we have to work on today and prepare for tomorrow in years to come. people make long-term investments. we have to have long-term visions for what we do. that long-term vision is coalescing in a way i have not seen in a long time. we have seen it with the creation of the capital markets, and the chance to pick up to really work on how we continue to enhance the dynamism of the u.k. market. that is happening. that commitment is cross party and totally focused in the u.k.,
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and there is a greater consensus. tom: the reporting from some outlets has suggested the reason softbank held back on listing in the u.k. is because of political uncertainty. that as a risk, your reaction to that, and how disappointed are you now that they are considering other venues? julia: i want to win every offering that i can, and i feel strongly there is a compelling case to have the listing in the u.k. when they were here before, they had a higher valuation than its peers. it has a strong track record here, and u.k. wants access. i think there is a compelling case, but that is clearly for the company ended shareholders to decide. tom: have you been part of that lobbying effort? julia: we have been working really hard.
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we have to be young, scrappy, and hungry, and we should fight for everything that we think we have a compelling strategy to propose. if we have a good case, we should argue for it. francine: what would that look like? what request or advice or whatever you want to call it would you want the next prime minister and chancellor to have? can london be the best financial capital in europe, and what should it focus on? julia: i think london still is the european financial capital. if you look at capital raising, it is the largest venue outside of greater china and the u.s. that is where we should be. u.k. has great potential. we have top-flight universities, a unicorn we create every 26 days, and a great capability to start companies. what we need to enhance is to
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create an environment were great companies should start here, grow here, and stay here. we have not always had a system that runs through the tape, therefore one of the reasons we are creating this is to focus on the dynamism of the private market ecosystem in the u.k., the crossover ecosystem and the public ecosystem. and not just ask the government for this or that tweak, but take proper ownership. tom: on the question of equality, the vast majority of companies going to in the u.k. are headed by men. is there more that can be done by regulators to change that mix and get more women, more diversity into the boardrooms of these companies looking to list in the u.k.? julia: you would be surprised if
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i did not say there was more we could do. i feel passionately about this. we have to call this out. the evidence that women produce less value is not there, so we need to make sure we call it out. earlier this year we had international women's week and focused on women empowerment and entrepreneurship, and pointed out the mismatches in excess of capital and tried to create opportunities for women to connect with venture capitalists to find financing. we are increased we moving into creating venues in the marketplace as well to reduce the amount of friction that it causes people to find private finance. i hope that creates a quality in the process. our job is to keep talking about it, fighting for it. francine: thank you. we need a whole lower on this.
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-- we need a whole hour on this. julia hoggett, ceo, london stock exchange. coming up, decision day from the european, first time in 11 years we saw interest rates rise here. 25 or 50 basis points is the question. we continue our coverage live from frankfurt. this is bloomberg. ♪
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tom: welcome back to the open, 26 minutes into the trading day. we are zeroing in on individual names for you. nokia was a beat, beating estimates amidst growing demand for 5g gear. they are managing to successfully navigate spy chain constraints -- supply chain constraints. you are seeing profit outlook for the year. ocado was a mess in the first half. nokia up 5% o francine: welcome e
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open, 30 minutes into the trading day and here are your top stories.
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hike by how much? the ecb is set to raise rates for the first time in over a decade. italy's government teeters on the brink, mario draghi tells lawmakers he is making his way to the palace for a meeting with the president. turning on the taps, nord stream says gas shipment from russia have restarted as prices tumble. we are keeping a close eye on what is going on in italy. it is a beautiful palace not far from here. this is where the president of the republic lives. we were expecting a resignation speech from mario draghi at 8:00 london time, we did not get that. he said he would make his way to tender his resignation, we think, or there is an agreement between him and the president. despite this confusion, speaking to insiders close to the president and the prime minister, it seems base case, elections in october.
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mario draghi will probably no longer be prime minister after that. tom: a couple more hours of uncertainty as we wait for that meeting, or that meeting continues. in terms of how things are playing out across equity markets, we bring you to the italian equities and sectors, but the banking sector in italy is feeling the pain. the italian index is down 1.4%. across the benchmark, losses of 0.2% as we await the decision from the ecb. will they go 50 or 25 basis points? the dax is down 0.2%. the ftse 100 down 0.3%. we have two contenders as they battle it out. in terms of sectors, a little range bound across markets.
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media, gains of 0.1%. the other half of the sectors, the biggest selloff is in consumer basic resources and utilities. it is earnings season, and one stock is a beat. francine: they have reported an earnings beat for the first half as supply chain disruptions have created a challenging environment. we are joined by gilles andrier, ceo, givaudan. when you look at your input costs, and this is one of the biggest challenges not only for your company but the sectors, what will they look like in the next six months? gilles: good morning. overall we are looking at close to 10% for the year in addition
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to energy, transport, everything is up for a company. we have made good progress in recovering those higher input costs through price increases. for the first half we are growing 6.2%, and 40% of growth is driven by price increase. we are on a good track to recover the increase of raw materials for this year and the next few months in 2023. we are on a very good track. tom: any sense that your customers and clients are getting wary about taking additional costs on board. is there any fragility, and when do you expect to see input prices come down? gilles: essentially having a price increase conversation with our clients, it is not a popular
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discussion to have. at the same time we are working in a collaborative way to make that happen. we do not see a translation of those increases of prices on the retail side into a volume decline. the volume growth is running at more than 4% for the first six months. the outlook for the next six months is difficult to read. today we do not see any sign of slow down. consumers are not down trading like in the economy crisis of 2008. that is what we can say today. francine: what does that mean
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overall for margins in the next six months and beyond? gilles: obviously with raw materials, 45% ourselves, this is a large number, more than 2.4 billion of sales. this is a large number two recover. the goal is to protect the margin in terms of absolute number, and we are on a good track to do that. that is why we have a beat on sales. and also a beat on the margin was better than expected in the first six months. going forward we are confident we can sustain a good level of margins by protecting the food price increase. in terms of input costs, very difficult to read because inflation is running around the world.
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we have a lot of challenges on the supply chain, logistics, transport, everything -- that is the consequence of the huge rebound in 2021, which still has some effects in 2022. and obviously it is amplified by the war in ukraine. we do not see that coming down yet in the next six months, maybe later, but not this year. tom: you announced cuts to spending on r&d, is that a short-term response or more permanent? is there a risk to growth on the back of those cuts? gilles: no, we did not say we are cutting on r&d and innovation, this is the engine of givaudan. we spend 10% of our sales on r&d. this is the difference, every fragrance, every flavor is
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specific to our brand. it is so much a driver for consumers that this is something that is key to get the best and most relevant taste and smell for our clients, that is what they are looking for. we never cut on the engine. that is the only way you can grow into the future. what we have done is be more frugal and everything we do, we did not go back to traveling around the world. frugality but no cuts on the engine of givaudan. francine: when are you expecting things to get a little better? gilles: that is a good question. the real positive is that we continue to see very good volume trends.
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we have more than 4% of volume in the first six month with high comparables in the first six months of 2021. this is very good, something that is good for the trading of our clients around the world. it is also something quite unique to givaudan, we sell in a everyone,. that creates hedges. we do sell fragrances and flavors with all types of clients. when one is down, the other compensates. that is the natural hedge of givaudan. i'm confident that even though things will take time to recover, we will navigate in this challenging environment with good growth and financial results. tom: gilles andrier, ceo,
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givaudan, thank you for joining us on the back of that first half the for the business, still able to maintain margins and pass on the costs to customers. when it comes to the political crisis, francine is taking the front seat in rome. i'm scratching my head, struggling to understand how this plays out. when you look at italian equities, investors are concerned, you see a drop of 1.8% across italian equities. yields are up as well. francine: if we cut out the noise, and there will be a lot of haggling, where one faction or party wants this or that, or if draghi's resignation will be accepted, we are going to elections. whether you are behind that were not, mario draghi is uncompromising.
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they did not vote for him, so he must be out. the timing does not do anyone any favors because the eu funds due in december, and that fragmentation tool. we are looking at possible elections in october. what investors need to think about is what coalition will we get? are they euro skeptic? will they do the reforms to get that 22 billion euros so badly needed from the eu recovery fund? that is the only question investors and traders need an answer to right now. tom: how sustainable that government will be. coming up, we will wrap up the big tech stories over the last one he four hours. microsoft and google freeze hiring. stay with us. this is bloomberg. ♪
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francine: welcome back. 43 minutes into the european trading day. a selloff for european assets, italian assets in particular. there is uncertainty about the ecb fragmentation tool. europe worries about italy, the markets worry even more because
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we do not know what that means for the fund, and we do not know what comes after this government. tom: heightened uncertainty. 65 governments over the last many years in italy -- francine: never boring. tom: from the macro in the politics to the tech sector. significant developments, tesla beat with its profit estimates. the ev maker also sold 75% of its bitcoin stake. microsoft and google have joined the hiring freeze amid inflation concerns. that sentiment is extending to china. tiktok has fallen from last year after investors cashed out with its ipo now on ice. joining me now is alex webb.
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let's start with tesla and elon musk. alex: the numbers were in line. the bitcoin is interesting. the number significant affected was the cash position which was short of what the market expected but roosted to about $900 by selling down -- $900 million by selling down that coin stake. francine: does this make sense moneywise, or do they believe less in bitcoin? alex: i do not know what they are thinking on bitcoin. it was an important signal early on when they bought it. i tend to think it is about the cash position, making it rosier
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for investors. is it a good trade? it is below from where they bought it, so on that basis, probably not. if elon would hold on for dear life, he would be hanging onto it. he made a point of saying, do not read too much into it. tom: when it comes to microsoft and google, slowing hiring or putting a cap on hiring, this is a trend across the tech space? alex: they will be hit by a pullback on advertising, they will feel the pain a little more keenly than others. it more reflects these companies may see the expansion opportunities from before. they will not be hurt per se, but they are usually hiring
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because they want to exploit a space, perhaps there are opportunities that are not as great as they were. francine: what is going on with bytedance? alex: bytedance is excited to an ipo before too long. people are selling their stakes in the private market because they will not get that influx of cash for an ipo. the private trades have seen a reduction in the valuation. they most recently announced valuation, they valued the company at $460 billion. recent trades have seen it at $300 billion. the trend in which social media stocks have been going, on the whole over the past year they have been going down. people are not spending as much time online as they were during the lockdowns. bytedance is not immune to that. tom: wrapping up some of the big
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stories of the day, alex webb. it is decision date in frankfurt, the ecb will give its first hike in 11 years, but will the governing council go to 25 or go big and push for 50? we have more on that story, next. this is bloomberg. ♪
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tom: welcome back to the open. 51 minutes into the trading day. losses of 0.3% across the benchmark but the pain is most acute we felt in italy -- most acutely felt in italy. the banking sector is down more than 4%, yields up. francine is on the ground following the twists and turns and the uncertainty of the politics of italy. francine: i am, and it is extreme a messy. no one was expecting what happened yesterday. first support for mario draghi, then coalition partners saying they will no longer support, and they decided not to vote. what this means has huge implications. it looks like we will have elections in october. mario draghi decided not to announce to the lower chamber that he will resign. he has gone to the president to speak with him before going back
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to the lower house to tell us what his plan is. tom: the italian politics, the spreads around 2.20, that takes us to the challenges of the ecb becoming ever more subdued. the bank is expected to raise interest rates for the first time in 11 years as gas supply concerns and political turmoil in italy way on the minds of the governing council. will they opt for more of a hike ? we are joined by dani burger, on the ground in frankfurt. what is your assessment? dani: if we take our cues from the market, it is a coin toss, 50-50 odds of going 50 or 25 basis points. there is an argument for 50. the guidance is for 25 but inflation is coming in in europe at 8.6%. it is hard to justify nakata
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made of sants of interest rates -- it is hard to -- if we are worried about the economy, gas, the italian elections, the only argument for 25 is this issue of credibility around forward guidance. madame lagarde has been explicit in saying it would be 25. they risk losing credibility but perhaps they do not need it and forward guidance is not the way forward. francine: the problem is that if markets cannot believe -- if you telegraph we will hike 25 and they do not do 25, maybe the markets will start questioning the anti-fragmentation tool. dani: that is an excellent point. it is all around credibility. the credibility of an anti-fragmentation tool is not
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to fight back but threatened, italian politics. the ecb needs to step in and use the tool, that is not optically a great look. this is supposed to keep them in check. at the same time they could face threats from the german court system, it is likely to be challenged there. we see other bond buying programs get through the court system, but will traders test it up until then? this really is the most important thing we will get out of the meeting today. tom: more clarity is expected, we will see if it is enough for investors. what about gas supplies? nord stream 1 coming back online. can we at least relax on this topic? dani: not completely.
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it definitely will be a sigh of relief that it is flowing. if gas was complete be shut off, that would be a different story for the ecb, who has to reckon with a quicker and more forceful recession. now the calculation will be to see to what extent gas is flowing back. the data says 40%, that is still low, we will see demand curves put in place, but at least for now that fact that it is flowing will likely push the ecb slightly in the direction of 50 basis points. tom: bloomberg's dani burger on the ground in frankfurt for us. we will have special coverage, dani will be leading that for us beginning at 1:15 london time right here on bloomberg. meanwhile, we continue to watch and read the tea leaves in rome. super mario is losing some of his luster.
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what is the potential makeup of the next government? francine: what is interesting, we have a special guest coming up, the former prime minister, now one of the kingmakers in parliament. it will be interesting if he sees the split we saw yesterday between the coalition and something reflective of the italian electorate. the question is, if we have a right wing coalition, are they euro skeptic? that is what we will try to find out. tom: currently italian equities down 2%. "bloomberg
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>> i think inflation this year, we are seeing prices of comm


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