tv Bloomberg Markets European Open Bloomberg July 22, 2022 3:00am-4:00am EDT
here are your top stories. with the surprise hike, the ecb ends eight years of negative rates. christine lagarde says surging inflation made it an easier call. uncertainty in rome. italy will chose mary draghi -- mario draghi's successor on septum or 25th as political uncertainty and economic concerns mount. stocks and ecb's pay the price. snapping the rally. snapchat's parent misses on revenues, sending shares plunging after hours and weighing on asia tech stocks and u.s. futures today. let's check in on the markets. after three days of gains, you have the disappointment around snap and that weighed on the likes of meta as well. it was the games we saw toward the end of the session on wall street, three straight days, and globally you are still looking at the best week for global
markets in about a month. whether that can be sustained remains the question. we have data out around u.k. retail sales, less badly than some forecasted. you are seeing losses of about 0.1% across the ftse. spanish ibex, the banking sector, santander walking away from a potential deal and a levy being proposed by officials in madrid. they look to maybe using tax credits to offset some of that hit. the german dax lower by 0.5%. the spanish ibex down by five points. the cac 40 down. 50 basis points in the cpi fragmentation talk. it will come down, the experts say, to implementation of that. whether italy fits criteria is a different topic. let's see how things are playing out given what we saw yesterday on wall street.
there were concerns around economic data. jobless claims came in higher than some expected. factory orders looking softer stateside, underscoring some concerns around the recessionary risks for that economy. futures, when it comes to the nasdaq, pointing lower by 0.7%, digesting those very bad results from snap. euro-dollar, 1.02. the dollar is bid. not a lot of movement, but you did see a rally in yield yesterday that came off toward the end of the session as investors digested implementation and implications of that anti-fragmentation talk. brent up to 105. let's get back to the ecb. that is doubling the expected size of its first expected rate hike in a decade, saying it will determine the size of future moves. >> we expect inflation to remain
undesirably high for some time. owing to continue pressure from energy and food prices and pipeline pressures in the pricing chain. >> for more, we are joined by our reporter, who is charting all of this for us. why the last-minute change of heart? we heard that some officials within the government council were pushing for 25 basis points, then they coalesced around 50. what was behind that surprise move? reporter: certainly some policymakers were initially in favor and preferred to stick to the forward guidance the ecb had offered in the run-up to the meeting. but in the end, it came down to inflation. the president said clearly that some of the risk the ecb identified in its june meeting terry lies and they saw the price -- in its june meeting materialized. one thing that helped them make
that decision to go in big and bold and follow the path that other central banks have taken over the past weeks and months was the creation of that tpi, that transmission protection instrument, that will allow the ecb to make sure that policy is transmitted to each and every corner of the region, that there is no disorderly reaction and bond markets. that is what made them feel strong about going in big yesterday. tom: it is something for everyone, the doves and the hawks having their concerns addressed by the announcement yesterday. what have we learned about this tpi tool and when it may be used? reporter: there were a few details. the biggest message is there are no limits to this tool. for now, the ecb is prepared to
go in big if necessary. it is going to focus on the public sector market, although there could be an option if warranted. maturities well range from one to 10 years, so that is slightly different from other purchase programs the ecb has run in the past. it will accept the same status that creditors or other investors take should there be a bond restructuring, which is not to be expected in the euro zone. the most interesting was the conditions the ecb set out. they all relate to sound fiscal policies. the ecb will make their judgment with the help of targets laid out by the commission by an international organization. it is at the discretion of the ecb. the president was very clear about that. she also said the policymakers will not hesitate to use the tool if needed, but she also said they prefer to keep it on
the shelf. tom: jana randow, she prefers to keep it on the shelf but will use it if they see the need. thank you for bringing us the latest and of the anti-fragmentation tool. still waiting for more details. let's get into the key drivers with our guest. we want to talk about what we have seen with global equities. let's start with the central bank action. your take on this decision by the ecb and where it leads your view in terms of the rate trajectory for the central bank of europe, and ultimately where rates end this year. guest: thank you for having me. when i think about this rate move we just saw, i think this 50 basis point hike was not as surprising as it could have been given it was a bit leaked and the ecb has been so far behind the curve. i think the unveiling of the anti-fragmentation tool likely
gave the impetus to be more aggressive with that rate hike than the 25 basis originally being debated. like the fed, it is very clear that the ecb's intent on fighting inflation and doing it at the expense of economic growth. it seems like the ecb is more likely to frontload rate hikes to preserve optionality for later meetings. i think that was also reflected in the removal of the forward guidance we saw. ultimately, we saw easy be -- we expect ecb rates to reach 50 basis points to year end. tom: 75 basis points by the year end. we are looking back at history. 2008 and 2011 when the ecb hyped -- hyped rates and then had to move back again. we are facing a different economy today. but is that the risk the ecb is trying to pull?
you are hiking into recession and they will have to walk them back pretty quickly? guest: i think that very much is the risk. it is the same for the fed as well. that risk of over tightening is a real possibility, which is why i think when it comes to recessionary risk both for the u.s. and europe it seems more like a coin flip probability whether you get a soft landing or a recession. i think looking forward into 2023 for the ecb, it is more likely they end up delivering less than what the market is pricing, given the effect it will have on slowing growth. tom: what do you make of this tpi tool? the acronym is coming out of the ecb, another one to add to the alphabet soup. how much of a bluff is this from the ecb? are you convinced this tool has the teeth to deal with the kind of blowout yields people are concerned about when it comes to italy, spain, and others? guest: of course, the context for this tool is the ecb has the
added complication of tightening policy without hurting those indebted nations like italy. broadly speaking, the anti-fragmentation tool does not seem like a cure all, and i think that was reflected in the wider spreads we saw yesterday. ultimately, it is not clear if it will ever be used. the details are scarce and unclear. it depends on the severity of the risk, which i think can be really difficult to measure. i think policymakers are very serious about confronting the risk, but i don't think the market got all the information it was really seeking from this latest meeting. tom: still looking for a little more clarity on the details of this tpi tool. yields lower both at the front and long end, down by about four basis points. five basis points, the italian tenure at 3.49. madison faller stays with us. we will get more of her calls after the break. coming up, tech stocks get
across european equities. futures on the s&p looking lower by 0.2%. nasdaq down by 0.6%. snapshots parent company snap plummeted 27% after disappointing revenue raised concerns about the outlook for online appetite. meta and pinterest fell on the news. it was the second time they had a selloff. joining us is madison faller. what is your assessment of the tech sector? you say there are opportunities in reasonably priced parts of tech. where are we in some of the multiple impressions and how concerned are you about the earnings we are seeing come through? guest: the technology sector is reflecting capital and tech is still broadly seeking a difficult environment. we are seeing profit wars, companies suspending or cutting
their profit plan. what is important to note is some firms have more risk than others. we are seeing more risk from unprofitable tech categories, electronics demand or supply chain constraints. we see the most opportunities specifically within the more consistent, stable earning streams. ultimately, that comes back to focusing on the companies still providing growth at a reasonable price. really being valuation aware when we are making these decisions. tom: valuation aware when we are making these decisions. the other sectors you like our health care and industrials. talk about that and whether cyclicals have come to the end of their shelf life given recession concerns. guest: especially now the fact we have these rising recessionary risks, we want to be skewed more toward quality and defensive areas of the market. you really want to be stepping away from some of those traditional sick nichols --
cyclicals like financials, materials. health care for instance is conditioned as a defensive sector. it has had consistent earnings growth even through the global financial crisis. it has exposure toward longer-term growth and innovation as well. when it comes to industrials, that is a cyclical sector, but a lot of industrials are also backed by these tailwinds around automation as well. those are the other two areas, in addition to the technology segment, that we are most invested in. tom: i am interested in your call to move away from financials. does that suggest your assessment is yields in the u.s. have started to top out at these levels? guest: yes, certainly. i think we are seeing that play out in the market dynamics over the course of the last few months. we saw the 10 year rise north of 3% and they started to come back down over the course of the last few weeks. i think that negative economic
feedback loop has started to pressure yields. that does suggest that yields are in the process of speaking, which leads to an interesting conversation around fixed income as well. tom: we have some data coming through when it comes to the euro zone economy. manufacturing pmi for france coming in at 49.6. a pretty decent miss versus the forecast. it is 49.6. the forecast was 51. services pmi also coming in softer. there is a view you will be switching from manufacturing to services as the economy adjusts post-covid. pmi coming in at 52.1 versus 53.9. it is a miss in services and manufacturing for french july pmi. we have some commentary around the ecb as well. the lavoie of the bank of france saying the tpi is a sign that
the ecb is credible on normalization roadmaps. just an update as well. another headline crossing the terminal, germany in the process of a bailout deal for uniper. we knew that would be on the desk of the chancellor today. i have gone through those redheads for our viewers, but let's get back to what we are seeing across markets. you don't think we are before capitulation? pretty decent gains stateside, but you think there is further to go in terms of pressure across these stocks? guest: yes. this is a very well telegraphed recession risk, so risk assets are well on their way to pricing in more of this negative news. but i think a full recession is not priced in the market. markets could move lower. with that said, for long-term investors i still think these levels look compelling. if i think about where the level
at which i might close my eyes and by broadly -- and buy probably, that is probably a 27% fall from january's highs, which is consistent with the average recession over the last several years. that is another 12% decline from current levels after the rally. i think we will get a sense of where that inflection point might be once you get out since the shift might be -- the shift the fed might be making. tom: close your eyes and buy on the s&p. madison faller, great takes. vice president and global market strategist at j.p. morgan private bank. coming up, u.k. retail sales fall in june as food spending jumps. we take a look at the economic picture, the health of the u.k. economy next. this is bloomberg. ♪
tom: welcome back to the open. we are 20 minutes into the european trading day. losses of 10% -- 0.1% across european equities. s&p pointing lower by 0.3%. nasdaq lower by 0.6%. let's check in on some of the stock movers of the day. we take on board some of the earnings. santander, this is about them
walking away from a potential bid of the city unit in mexico. they will not be pursuing that. santander walking away from that nonbinding offer, gaining 1.8% on the back of that. norsk hydro, we will speak to exec it is from that business, gaining 3.7% on the back of a decision to have cash to shareholders in terms of buybacks and dividends as well. ssab, maker of steel products, down. warning about pressures in a challenging market for the third quarter. let's get the bloomberg business flash with alice atkins. alice: one of elon musk's top tenants is under internal investigation for his role in the plant to purchase hard to get construction materials. he is the executive running tesla's texas factory. tesla's details are being worked
out. some employees have already been fired over the investigation. amazon is starting delivery of packages to u.s. customers using their first of as many of 100,000 a. vehicles. they expect a have vehicles deployed in 100 studies. -- in 100 cities. speaking on bloomberg tv, the ceo confirmed plans to cover for percent of nonmanufacturing roles. >> these are some of the hardest positions a leader has to take in running a business. we are trying to be as intentional in terms of what that means for the business and individuals as we work through that process. this doesn't impact our manufacturing team. it is more heavily in other aspects. alice: mattel says second quarter margins shrink due to inflation, higher supply chain costs, and royalty expenses. growth margin dropped to 44.4%
from 47.5% a year earlier. however, profit and sales were beaten by demand for action figures. chief executive officer says he still expects growth the second half of next year. tom: alice atkins in london, thank you. data out this morning shows u.k. retail sales did better than expected in june. even so, consumer confidence is languishing at a 48 year low. that is according to a separate report from gfk that showed the broader impacts of soaring inflation. joining me is lizzy burden to break this down for us. what are some of the key takeaways that stood out? reporter: this is slightly better than expected, but still a slight drop in retail sales. what that reflects is the cost of living crisis is weighing on consumers. you can see it in the gfk survey, which is very gloomy. consumers are depressed about the outlook. but that has been rebuilt aided
in retail sales with spending on food because of the queen's jubilee weekend bank holiday. that give it a bit of a boost. in terms of what it means for the bank of england at its august decision, i don't think it moves the dial. you already have the inflation data this week showing a new 40 year high. you have the jobs data. even though we have reached peak tightness, it is still tight. 50 basis points from the bank of england looks pretty long-term. tom: it doesn't really move the dial. what about the politics of the u.k. and the polling around who is likely to be the winner? we have two contenders now. reporter: he seems to be hoping he can turn it around. he has two tv debates coming up. the debate is focusing on the economic argument. you could ask whether the trust is that radical.
controversial, but the centers for economic and business research says there is 60 billion pounds worth of tax cuts. perhaps that is too optimistic. perhaps the ob are would change its position on headroom given the recession risks. but also, in favor is the argument that this is premature consolidation leading to the recession risks. that is what truss is arguing on the airwaves, that you should trust her with the economy. whether she can convince investors of that, we don't know, because they are worried about her position not just on tax cuts, but also on brexit and the bank of england. they are saying a treaty would warn investors away from not just sterling, but gilts as well. tom: we still don't really know who the contender is. truss had views on brexit. she was a remainer, then changed
to be pro brexit. she used to be a member of the liberal democrats, now is on the right of the conservative party. it is difficult to get a gauge of what she stands for. there is that gap and sunak will have to work hard to make up that gap. reporter: she was loyal to the end, but the ultimate cameroonian before that. liz truss, who is she really? that is the question we hope to answer in the tv debates. tom: lizzy burden on the politics of the u.k., the changing fortunes of that race, and that data as well. the ecb ends eight years of negative rates. our guest joins us next. this is bloomberg. ♪
we are all hocks now with a surprise hike, the ecb ends eight years of negative rates. christine lagarde says surging inflation. italy will choose mario draghi's successor on september 20 bit as political and economic concerns mount. stoxx and btp's pay the price. snapchat misses on revenue, sending shares plunging after hours and weighing on asian tech and u.s. futures today. let's check on these markets. global markets with the best week in a month. you did have concerns about earnings from snap but also eco data from the u.s. suggests there is weakening. talking of data, we had pmi's out of france, misses on manufacturing and services.
that has weighed on the euro, which is lower. the boones and btp's our bid in the current session. oil is at the top of the list pushing energy. at the bottom of the list, you have got construction materials, industrials, food and beverage as well. a mixed picture but you are seeing a move lower. a bit of choppiness in the session this friday as we adjusted that 50 basis point hike from the ecb and around the details of that anti-fragmentation tool. we are expecting data from germany around manufacturing pmi, 49.2 is the july number. let's move the prompt up. the forecast was 50.7. it is a mess in terms of july many during pmi -- manufacturing
pmi. euro-dollar down .7%. when we get back to parity, madame lagarde talking about pressures on the euro being one of the factors with inflation that made frontloading hikes easier. here's what's happening across the yields of space. you have 1.095 on the german ten-year. you are seeing a move into german bunds and btp's, lower yields on the 30 year. there is movement on the five-year, 17 basis points on the front end as we weigh that manufacturing pmi data out of germany. italy will hold an early election on september 25, the center-right coalition is currently leading. that is after mario draghi
resigned as prime minister thursday. >> it is a turning point in italian history. we had a government working very well with the respective the entire italian community, not only the business community, the people. >> the markets are worried, and if they are, we are worried. italy has massive opportunities, we have a strong entrepreneurial category. we have weathered other crises before but it would have been better if this never happened. >> the italian people, for the first time in our life, the fantastic mario draghi.
we started to have the last 20 years italy was not that much supported from the other countries. this is the first time we have solved the pandemic and have the worst problem of ukraine. >> it's not good news for europe, the west, ukraine. truckee and other coalitions where very strong in supporting ukraine. italy was one of the most supportive countries. we have to keep fighting. tom: meanwhile, the ecb doubled the expected size of its first rate hike in more than a decade, saying economic data will determine the size of future moves. >> we expect inflation to remain undesirably high for some time. owing to continued pressure from
energy, food prices and pipeline pressures in the supply chain. joining me now is camille de courcel, head of g10 rates strategy in europe at bnp paribas. the data from france and germany on manufacturing and services missing across both metrics, seems to underscore the fragility of a eurozone and the risks of hiking aggressively into a potential recession. what is your assessment of the risks around this ecb move? camille: good morning, everyone. the number will reinforce the fear of recession in the euro zone over the coming months. it is below our own expectations. i would highlight that in our projections we had q2 and q3 being the trough for both.
it does not mean that things will not get better in upcoming quarters. tom: and what is your take on tpi, the anti-fragmentation tool and whether it is effectively going to be implemented and can cap the yields of countries like italy. there has been a move into btp's, it suggests on the surface that investors are relaxed. camille: i would have to say initially, our reaction was that the messaging was very strong. it was making the transmission a precondition of the ecb's ability. but then in the press conference, it soon became quite clear that it is not intended to address idiosyncratic risks such as political jitters. and that is exactly what we were
hearing before the event. lagarde added that the ecb does not take a stance on political matters but she said the ont is for disorderly market dynamics, created for idiosyncratic risks. there is a tension between the two risks and the two programs. tom: what does that mean for spreads, 237 between bunds and btp's. camille: from here it can only widen. at this juncture, our ju dgement is that the tpi cannot prevent it. we have an election in two months time. the tpi might not be activated.
therefore, it is a recipe for wider spreads. we think with the tpi it was quite clear that it is more of a reactive tool than a preemptive tool. overall, there would need to be a widening to a significant extent before [indiscernible] tom: so italy -- camille: btp's fred could go to 260 basis points -- spread could go to 260 basis points at least. tom: 260 the level to watch, currently at 237. 30. the other risk to italian politics is gas. how much of that risk is priced into european added at this point -- credit at this point? camille: recently we saw the credit market had weakened
and was pricing the risk of a technical recession. now the risk would be that as we go into the winter perhaps, we have some supply disruption in gas. even though the recent news was positive, it is not mean the risk of a gas disruption as we go into the winter goes away. the risk is still there. if we were to enter into a phase where europe-russian, or the eu-russia, hiking the supply of it, we could see moving into a full-blown recession in which case we expect the liquidity market to price wider spreads from here, and [indiscernible] therefore we have recommended to have a few recession hedges in
our portfolios assesses -- across assets. tom: the need for recessionary hedges given that gas shock, the worst-case scenario is not currently raised into european -- priced into european credit. coming up, the german government is in the final stage of a deal to bail out uniper, to prevent the collapse of a linchpin in the country's energy network. this is bloomberg. ♪
tom: welcome back to the open. we are 43 minutes into the european trading day. equities range bound, digesting weaker than expected manufacturing and services pmi for the month of june for germany and france. the german government is in the final stage of a deal to bail out uniper to prevent the collapse of the country's energy network. joining me is our frankfurt be rocchi, what do we know about the bailout and when it is likely to be finalized? >> there will be a key meeting basically today in the german chancellery in berlin where the details of the proposed bailout
package will be discussed. from what we're hearing, they are very close to a final agreement. the german government will take a direct equity stake in the company probably between 25% and 30% and also agreed to a pretty significant financing package worth around 8 billion euros to help uniper stay afloat. tom: what does that mean for the business going forward? is that support likely to be enough, and the broader energy complex in europe adjusting to that lower flow of gas? >> it would buy the company some more time to adjust to the new reality i guess on the energy market. uniper has been heavily reliant on gas imports from russia. those have been reduced, the general aim is to cut the russian gas imports basically to zero over time.
it's probably part of a broader overhaul for the company to basically set out on a new strategic direction. tom: ok, the closing stages of a bailout by the german government of uniper. his team with the first reflect is happening on right a earlier -- friday earlier this week. alice: russian shelling against a densely populated area in you rain -- ukraine's second largest city. the barrage hit a mosque, medical facility and shopping center. italy will hold an early election on september 25, after mario draghi resigned as prime minister. the vote was called after the president dissolved parliament. the center-right coalition could have a clear majority. the euro area's third biggest
faces months of uncertainty. jobless claims rose to the highest rate for the third week since september. labor department data showed initial unemployment claims increased by 7000 to 251 thousand, higher than forecast. the january hearings have been told former president trump took no action for hours to stop the violent mob storming the capital ol. one form or a televised hearing that a trump tweet calling former president pence -- vice president mike pence a coward is like pouring gasoline on a fire. 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. tom: ellis, thank you.
and also telling people what they are doing and being transparent. and you start to see adjustments. at the end of the day, the fed's toughest job is the fact that it is trying to slow down an economy which has strong employment and wage growth, and strong spending. and that's an unusual case to see that all at once. and by the way the u.s. being one of the strongest economies in the world, so they have a tough job but they are using the tools they have to raise rates and change the balance sheet, but more important ly telling people and seeing the market suggested that. >> do we think inflation has peaked? if you are asked that, what would you say? >> it would be different for different areas. you are seeing some areas where the rate of increase is starting
to tip over. but other areas wage growth is still very strong. economists would say it is peking. our team says that that will continue to raise rates. the research team at bank of america has year end recession, a call they made a few weeks ago. but it is a slight recession not accompanied by high un employment. it is more the fed slowing the economy. peaking, rather than the actual peak. it is starting to flatten out. it is not the 115 dollar change, but expectations as they look forward, and i think expectations are starting to flatten a bit. >> flat is one thing, down is another. even when we peak and start to come down, how fast is it likely to come down?
at the end of 2023, what is your team saying? >> they think recession and inflation will calm down. by the end of 2023, you are starting to work your way back to the 2% growth rate in the united states if i remember right. but it is still under trend growth, still recovering, so they see recession having tipped over enough for that fed to pull back on rates a little bit. the fed funds rate comes back down towards the end of next year but it is relatively the same. tom: that was the bank of america chairman and ceo. let's get back to the tech space. snapchat's parent plummeted 27% after disappointing revenue raised concerns about the outlook for online advertising. meta and pinterest also fell.
joining us now is alex webb from quicktake. you've been talking about this, the risks around advertising and how we need to differentiate between parts of the tech sector that are exposed to it. and those that are not. >> the first thing in recession that is cut is the advertising budget. that is why the first impact has been on ad tech stocks. facebook and google are at the top of the tier, snap a little further down, and twitter is somewhere around there. snap was trading at a very generous multiple , hundred 45 times forward earnings. it is valued as a growth stock, and if there is any wrinkle in revenue, it will get punished. they had reduced forecast a little bit. it was in the current quarter where they said it was flat
compared to last year. tom: and yet, they are adding users. >> they are, but if people are not spending to find those users that it is all kind of moot. tiktok's who bring up a lot of attention right now. we don't have visibility into their numbers. they have brought back their planned ipo. the valuation at tiktok has been cut in private markets, so it is not rosy in social media. tom: twitter earnings are out later today, advertising is an important part of that business. >> it seems that they are unlikely to say a huge amount about the ongoing court case. whether they need to or not, that will be the fifth that they used to not talk about it. they have been in stasis because of this impending deal and therefore may be haven't been
able to take as many of the big strategic decisions they might have otherwise. tom: in terms of headcount cuts, as anything evolved around that, or is it given that we will see more of that as economic data continues to weaken stateside? >> i think so probably. these companies have been hiring aggressively for quite some time. it's been about exploring new opportunities, market segments that provide opportunities for growth. if those opportunities don't exist, you don't need to be doing the hiring. it is about saying, if we don't see the opportunities to perform better, we might not have those high headcounts. tom: alex webb on the dwindling advertising revenue for some of these companies. twitter earnings are out later today. let's check on your markets before we close the hour. modest gains across european equities of .1%. european stocks closed yesterday
in the green despite that bigger than expected hike from the ecb of 50 basis points. s&p e-mini's are down .4%, nasdaq futures are up .7%, tying into what alex was talking about around concerns on tech earnings , particularly advertising. european data pointing to slowing growth, any factoring and services data out of france and germany was disappointing. there is a move into bunds and btyp';s, a big move into the front end of german bunds. yields down by 20 basis points. surveillance: early edition is up next. this is bloomberg. ♪