tv Bloomberg Markets European Close Bloomberg February 14, 2023 11:00am-12:00pm EST
>> tuesday the 14th of february. yields moving higher on a sticky inflation report. the countdown to the close starts now. >> the countdown is on in europe. this is bloomberg markets, european close with guy johnson and alix steel. dani: some serious whiplash and markets right now. 10 minutes ago i said european equities were changing. up 2/10 of 1%. telecoms and consumer goods
beating gains. able to put in some strengthening versus the dollar. your cable rate so far today. we had a hot jobs wage growth number coming into the u.k. surpassing expectations the hyacinths data started to be collected in 2001 setting aside the covid era weirdness of that data. that has increased rate height expectations from the boe. the peak about 10 basis points higher. could see your reaction in the two year yield. of course it's not just the u.k. story this is moving off of. it's also off of sympathy in the u.s. market right now. alix: a pretty chunky move for the front end of the two-year. it raises the question what's priced in. i've no idea what to make of market action. you know the equity market has been with flashed all over the place.
we were down big and then up and now down again. the s&p off 3/10 of 1%. that echoes what we were seeing in the bond market. you had the two-year jumping by eight or nine basis points. i find it to be very perplexing. we are back to that inversion we haven't seen since 1981. the fed this can have to deal with the disinflation that is slow to get those prices lower. they may have to do more. it's a head scratcher. dani: maybe it's just all about positioning. we are assuming this discomfort -- sitting in this discomfort of inflation for longer which brings us to the question of the day. disinflation, is it fact or fiction.
simon, you are here next to me in the studio, what do you say? does this confirm whether disinflation is happening or if it's just a fiction. simon: it's definitely happening. the issue is there's literally no ability to go into shock. inflation slots tell you what inflation is good to be. they're projecting us steady downward trend. in this kind of any kind of shock priced in. it's just your basic facts so cpi markets. we don't really know it can happen so we'll use the path of least resistance. anything can happen to shock markets here. alix: it's fact but it's hard to understand what that means for markets. factor fiction. nora: i want to say it's fact but it's hard to prove. if you look at how inflation is manifesting itself in the u.s.
you're looking at the biggest contributor here increasing inflation looking at food inflation, that's really going to reinforce the fed and its trajectory as much as we see powell is looking at core we are still seeing the consumer really being part -- hard-hit by those price pressures and that's can a push off and help the fed continue on with that and help them reinforce recently. dani: perhaps this points to some of the confusion, if i were to give you this data a week ago you would've struggled to trade with what markets are doing today. so much back and forth, what do you make of it? >> what we are seeing today. if you look at the instant reaction, we will give you the granular reaction, we see quite a bit of volatility.
little change on the session and what we will see is more high in volatility. we -- trader saying we don't know what's going on in the fed says they will press on but now you've got the class dove representative peak -- someone is a lot more senior in the u.s. administration and now we will start seeing a bit more push and pull from traders. the bulls will say yes absolutely the economy is doing well. we will have those stocks rise, perhaps we are hedging seeing the fed is going to continue to raise rates. inflation is more entrenched in the economy and that's cannot wait -- weigh on those volatilities. alix: let me focus on the u.k. for a second. with the wage numbers worth 14 basis points on the two-year in
the gilt market and is the disinflation factor fiction a different answer in the u.k.? simon: the u.k. has this issue where it seems whatever happens to the rest of the world happens to the u.k. but happens worse in the u.k. so inflation will probably remain more entrenched in the u.k., you got rpi just a 13%, talking almost at the end of the rate hiking cycle which is obviously sounds very contradictory in the first instance. but the u.k. has this underlying issue. i think behind closed doors certainly governments will be leaning on the central bank because we have a huge mortgage problem in the u.k.. 100,000 people coming off fixed-rate mortgages every month and that will have a huge effect on the economy. it's only getting get worse through 2023 into 2024. it's affecting what the u.k. can do. dani: perhaps a ceiling for how
high they can go. the last press conference when they hiked he seems more sanguine, less concerned. he said there are risks and inflation surprises to the upside in the near term but does that tonal shift we start to see from him and other central banks, does data like this mean the tone has to go back to the hawkish language we had last year? simon: inflation is remaining more stubborn than expected. you look at what's happening in china. there's been a few false starts. the data last week suggests the easing is beginning to get trapped -- get traction. there's a very strong linkage to global inflation pressures. just when domestic pressures might start to be coming down, of these global pressures might
start to pick up again. having to re-up that hawkish energy. right at the point where the economy is looking like it's about to be in recession. and make it much worse than they anticipate. alix: energy prices move higher. i understand that's general, but you get the feedthrough. i'll ask the same question but for the u.k.. disinflation, a factor fiction when it comes to the u.k.? >> the difficulty is it doesn't give the central bank that kind of lead to say we can parse -- we can pause. it's difficult to see them saying wages of come up but we will be more mindful. we know from bailey last year
inflation and financial stability to the point that simon was making we have people coming off from 2% mortgages and now it's about 4.4% through what i'm hearing from anecdotal stories and that's can be harder to parse through with higher rates, higher inflation and then you have the china story and the global effect so it's difficult to see how the u.k. shooting its way out of here i would've loved to see trends of disinflation coming out of the u.k. but we are not seeing that yet unfortunately. dani: then you add in all the conversations about strikes and demand for higher pay. thank you both so much for joining us. coming up, more on our question of the day. we will pose that question to the senior multi-asset strategist at state street bank. this is bloomberg. ♪
cpi numbers. yields pushing higher in those sticky numbers brings us to our question of the day. disinflation, what did we learn from the cpi report. let's bring in the senior multi-asset specialist -- strategist at state street. what do you make of it? is disinflation a fact or fiction? >> my pleasure to be here. a great question. inflation is coming down so that's probably suggests it's a fact but it is coming down way too slow to give anybody comfort that we have gotten past inflation going away sometime soon. so definitely not that. so coming down slowly. alix: is it the same in the
u.k.? you look at the wage data, superhot that's not even counting public sector and all the strikes. factor fiction in the u.k.? >> global trends of global economists are slowing down. probably the key question to appreciate his monetary policy does work. you hike interest rates the economy slows and inflation goes away it just takes longer. we come through a period of low interest rates where they refinanced of low interest rates , a longer material. it just takes longer. it's coming down. is it enough? we need more. dani: a lot of the market was quick to price in the end or inflation coming back to 2%. you look at breakevens. what does it look like or what should market pricing look like if this will take longer if it
is an extended periods of time more than most investors are comfortable with? >> i have to agree i've been scratching my head for the last couple of months we've been very much in the camp for sticky inflation and higher for longer market pushing against this notion. i think the last couple of weeks we've had the huge payroll number now we get to inflation. what was interesting last week we had a restatement of q4 inflation, the number in the u.s. as well. that kind of slowdown we saw that's maybe not as pronounced. so i think it's kind of market needs to really rethink its pricing. and that's beginning to happen. as we usually have the market moves and now we are not pricing any. that's beginning to happen.
equities surprisingly not responding yet. i still will not be surprised to see more weakness. alix: it's been perplexing, the resilience in the equity market versus the turbulence at higher rates in the bond market what's going on? >> i think the equities market i can see how you can have the scenario of were getting closer to peak rate and maybe multiples don't need to progress very much and if you look at earnings expectation, a consensus is for a couple of quarters of negative earnings growth in the second half of the year. that's your soft landing in the equity market. i don't think that's realistic. we will probably get recession and the longer we delay this recession it's a harder lending we will get. so change in earnings expectation will be a good sign that we can get those quite high equity levels and it needs to
come down. dani: goldman had this no doubt that europe was more attractive than the u.s.. >> i'll take the other side. the great news in europe is the energy crisis hasn't happened. we had warm weather, but the economy is still slowing, the consumer is still not spending and we just got off double-digit inflation. so we definitely need to see more proportion on rates. the longer we delay recession the harder we will be hit. when it comes, europe is very slick -- is very cyclical. it's super dependent and that will be challenging. so i would be surprised. i think at this stage of the cycle, you need to not really go
for value and the cheaper stuff, you need to go for things we can still see some earnings resilience. that's definitely not europe. alix: so what is that? >> the easy play is emerging markets in china. we know it's reopening and cheap trade we know people stayed out of the country for years so there's opportunity to come back. if you want to stay in developed markets, the u.k. is a good choice. its currency weakness and its global and most companies derive profits from abroad, its energy, defensive. u.s. over europe. alix: contrarian call over there. thank you so much, always great to get your perspective. coming up we will stay in
alix: ford's stock going nowhere. germany and the u.k. will be hit the hardest. oliver cook spoke with martin sander who heads the ev business in the region. >> i'm confident we're doing the right thing and to the right thing to set up our company for a successful future. we are market leader in the field. in the process -- when it comes to passenger vehicles we are
building an exciting lineup of vehicles but also facing -- the total industry on the lowest part for many years. tough competition in the european market. making sure from a cost perspective we are competitive going into the future and this is why we've decided to improve efficiency of our company in part of a large program and a large number of activities is also an elimination of 3800 roles in product development and administration across europe. >> more broadly for the futures of jobs in the industry do you think it's a leaner industry going forward in terms of jobs? martin: one thing is the headwind but the industry is moving into an electric vehicle world.
and electric vehicles are much less complex than ice products and this affects engineering, production. so the whole industry will get significantly leaner that it was in the past and as a company you have to react to that and make sure that you apply this low-level of complexity into your organization otherwise you won't be competitive. >> i know you cannot talk specifically about numbers on cost savings but in terms of how significant a step forward on the journey for cost savings is this headcount reduction. martin: it's a very important part on our way of building competitive really highly competitive company in europe. it's only one component of a
wide range of initiatives which all are aiming at proving the efficiency of our company in all areas. dani: general manager of ford's electric vehicle business in europe. here with us from berlin is oliver. martin saying he's reacting to what the industry is saying, what were your takeaways? oliver: 3800 jobs is significant. 1300 of those in the u.k.. it's down to this transition that will be painful. in the interview earlier he likened the transition for ford to actually starting a new company. he was talking about in terms of the opportunities there are huge challenges associated with that as well. they need to simplify and save money across the board. part of the headcount -- part of that is the headcount
reductions. you have the general stuff, energy costs in europe and all the supply chain issues throughout the last year. you have the rising competition. on the high end you have tesla with room to squeeze. they dropped prices which made ford drop their prices. on the low end you have competition out of china. it doesn't take into account the inflation reduction act trying to bring this green business to the united states. it's clear they need to have a comprehensive plan. alix: do you help with subsidies for example or go with more of the stick which is setting cap sandal limits which brings me to the whole point of the eu finalizing its ban of combustion vehicles. any thoughts on that? oliver: this was not expected that they would bring in this law that would ban the sale of new combustion engine cars.
this also questions around it. charging infrastructure is not there. he said it's not there but is confident it will get there and the adoption of these takes over that the business case will make that happen. as another question around this as well which is the economics on the mass-market ev vehicle. you see companies like tesla focusing on the high end vehicles. what about the mass-market car. you get skepticism that they will get a reasonably priced ev and that's crucial to getting to net zero. alix: we are moments away from the close of the european trading. equities holding up and that's impressive considering the selloff in the bond market. dani will take you through the close. here's what's happening in the
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dani: stocks just finishing up the trading day in europe despite the fact we are starting to see equities slip into the red. we do have some earnings that are helping lift up the overall index. also, cpi came in line, it is a un-american story, less to price in for the european equities. if you look at the overall session, it is unremarkable. we did see gains, owing of 2/10 of 1% -- only up to tenths of 1%. no huge risk being taken up at the moment.
if we break it down into sectors, some of them that were worse off were what you would expect if we are pricing in higher rates. i did see technology in the bottom earlier. it hasn't come back up to one of the top performers -- has come back up to one of the top performers. bank gains are usually a higher rate story. a higher rate story tends to be bad for tech. i mentioned some earnings. i'm going to start us off to some of the earnings to the downside. the biggest loser in the stoxx 600, the concern all about price of metals. muscle pricing has come in that is problematic -- metal pricing has come in that is problematic.
norsk hydro, the same problem. liberty global is a competitor to them, taking a 4.9% stake. liberty global for their part has said this isn't the start of the take over offer, they just see a strategic stake to be taken over, as well as others. let's get you set up for your trading day tomorrow. one of the big ones is going to be u.k. cpi. we're going to have the second day of a nato meeting. then we get the data coming in. we had jobs today, it was hotter than expected, the hottest wage growth since the data had been collected since 2001. that has seen this huge pickup in front of yields in the u.k.. a lot of repricing going. glencore expecting record earnings on them, another
quarter of a strong trading season. barclays earnings, the expectation they will be strong given volatility and rates. carrying earnings -- kerring earnings, i do not need expectations for that. what also needs to have a new creative director at one of their biggest brands. alex: what are you expecting tomorrow? give it to me. swetha: i think the theme is the q4 has been worse than expected. no one would be surprised that gucci was weak in the fourth
quarter of was weak in the fourh quarter of the year. the cells would have declined anywhere from 12 to 13%. what is more important, the worst things were in q4, the likelihood of them improving in q1 or better. comments about the new designer and how they expect to reposition the brand with him in place will be more watched than the historic's themselves. alix: what will be the good things the market needs to hear ? dani: what would get investors excited about the new designer? swetha: the new designer comes from valentina, privately held. gucci is one of the four brands that have breached the euro level. this is going to be a substantial game changer for the designer. what the market wants to see from gucci is a widening of the price architecture as well as a infusion of newness. if you look at a lot of the
other brands, they are maybe 40 to 50% bigger than they were in 2019, while gucci has flatlined after a very heavy creative burst that is all in the alexander era. i think the market miss cissy a little bit of a renovation in terms of design, i think -- i think the markets need to see a little bit of a renovation in terms of design. dani: are gucci consumers a little bit more price sensitive than we thought? swetha: we saw this last week with capri when they reported michael kors resul theyt took pricing too far considerings. brands that has been exposed to a entry-level as a consumer.
compared to the top-tier luxury brands. dani: i think your sound might be a little strange. balenciaga, there had been the scandal around their concerns about some of the photos being taken in one of their ads, is that likely to have any hit earnings at all related company profits? swetha: there is a unfortunate incident. it does appear that the brand was that we affected. it is one of their smaller brands. gucci is 57% of their sales, 72% of their profits. that is much more important. i think what the scandal does show is that it is much more about how companies and brands have to manage their exposure and to mitigate these crisis, similar to adidas. mip these in the bug before
they blow up --nip these in the bud. alix: i have to think that the tell wind is over at this point. do you expecting to continue? what is going to be the readthrough? swetha: i would've thought so tooo. results suggested that in the calendar fourth-quarter, american tourists were shopping in europe, which has contributed to very strong growth europe, wd to very strong growth numbers in the european division as well as for regional. we saw strong growth with the american cluster, not necessarily in the u.s. that sector has continued, whether that benefits gucci is a different question because of the different nature of the customer based in the u.s. versus for the other brands, who typically benefit from a list price elastic consumer.
alix: how are some of these brands thinking about physical stores? dani: i was speaking with the ceo of pandora, different business, the entry-level consumer. the ceo was saying it is important for them to expand at the retail physical space to get those entry-level consumers in. how important is it that gucci, the brands continue to expanded their physical presence? swetha: lecture is a bricks and mortar experience, it is all about -- lecture is about the bricks and mortar experience, it is all of -- luxury is all about the bricks and mortar experience. in terms of space, gucci is well spaced. the issue for the last five years, if anything has been a retrenchment of space, or too much space in china, tier two malls, new management of -- current management of gucci that has been in place for some time
has done a excellent job in retrenching from some of these tier two malls and making sure it is in the malls there luxury counterparts are in. i do not intend a issue of space growth would be too much for them. alix: what is priced into the stock? up about 3% since that low in december? -- 20% since that low in december? swetha: it trades at a 30% discount to the quality compounder within the sector. if they go anyway toward alleviating concerns about the gucci brand and its turnaround as well as current trading in china, i think the shares could benefit. dani: thank you very much.
let's get a check on where markets are settling. barely able to out again for the stoxx 600. that is being led by telecom, . perhaps that is why we are seeing the dax move lower. not too much drama, but a lot of unchanged in today's market. alix: i invent new words all the time. you are seeing higher yields. whew break that down. all coming up at the top of the hour. i p.m. in london, 12:00 p.m. in new york. nato defense chiefs are in brussels for a two-day meeting to discuss pending targets. we will hear more from
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>> and live shot of the principal room -- they live shot of the principal room. this is bloomberg. the united arab emirates energy minister say supply problems amongst some oil producers could tighten the market next year as the demand rises. >> i believe that we need more supply in the future. with the increase in demand, the forecast for this year, definitely there will be an increase year. >> the energy administer spoke to bloomberg at the world government summit in dubai.
russia's nuclear experts have surged, boosting the kremlin's revenue over a new generation of bias. russia's nuclear fuel and technology sales rose more than 20% in 2022. from egypt to iran and china in india. in process -- brussels, defense minister's to discuss weapons deliveries including tanks and ammunition to ukraine. the issue of elkhart is not the most urgent now. he says ukraine is going through munition many times higher than allies current rate to protection -- production, straining. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries.
dani: let's get more on that nato meeting, which interests it second day. trying to -- joining -- joining, u.s. council of foreign relations and head of defense steady. he worked at nato as a assistant secretary general for the french investment for six years. thanks for joining us. you're the perfect person for this. does the spending target get raised to 2%. of course, the old thing was towards 2%. what difference would that make with this new target and can countries actually hit the target? camille: when the nato allies decided to commit to the 2% target in 2014, it seems a bit aspirational. many of them were not there. there were only three countries there. we moved to eight now and many
of them coming closer. that enables the others to step up their military in a security environment, which is --. alix: you say to percent should be the floor, what should be the new goal? camille: what is the most important at the moment is cpi reach of the 2% goal and reach it fast. the challenge is to sustain the effort over time. it is not about so much in flagging a new number than making sure -- is truly committed to this number over time. also, rebuild.
dani: what should we spend on the most? camille: we have a urgency. this is about ammunition, delivering ammunition, also defenses. we see how much damage that the russian campaign withdrawals on ukraine and infrastructure and cities. there is a ramp up on deliveries. those are the immediate effort. on top of that, the european military news to rebuild some capacity that has been lost over time, over 20 years of tradition warfare.
nato allies into invest in technology because that has been the trademark of nato. it alix: that is doing a lot. there are concerns about spillover. we saw the issue about what is happening with romania. her romania said that did not happen. moldova seems to be getting wrapped up into the conflict in several ways. i appreciate that moldova is not a natal number. what is the risk here that it does spread? -- nato member. what is the risk here that it does spread? camille: that has been a cautious approach by nato and russia not to get into any confrontation whether it is voluntary or involuntary. we have seen a couple of months ago that there are now
overflights in the airspace. we have to beonstantly careful, which requires a very vigilant present. that has been a constant element since the february of 2022. dani: we have a press conference with blinken not that long ago. but of the conversationbut of ts china spy balloon. how heavily do you think that will feature in this week's natal meeting? -- nato meeting. camille: this year's meeting is focused on ukraine. not only nato allies, like-minded countries that are supporting ukraine. to really try to get things moving. there's a date on revising nato's guidance when it comes to
administering. stocks have been limited over the last few years. finally, protecting the critical infrastructure, especially under infrastructures. those are three of the very important of the items that were there. when it comes to china, there has been a ongoing debate on the weather how should nato tackle the china challenge feared that has been a clear message at the last -- china challenge. that has been a clear message. it will structure the military of tomato. -- nato. alix: we appreciate your
perspective appeared european council of foreign relations. these markets are getting crazy. it is all due to what is happening in the bond market. this is happening with a two year yield, five-year and teen year. this follows a two-year over in the u.k. come up now a whopping 20 basis points. these are big move happening on the u.k. wage data in the u.s. cpi number. we will have more after the break. this is bloomberg. this is bloomberg. ♪ avalarahhh ahhh ahhh ahhh
expected. right now we are down. it is going to be interesting to see how this day ends. this all about yields. check out this four year yield rested closer to that 5% with a lot of the fed speakers talking about that the target rate is going to be somewhere above 5%. that 5%. that was before today cpi reports, maybe it is going higher. we have the 2/10 by going levels not seen since 1981. it has been hovering around here . we are now at a new low. this is not a two year yield. all of this this in the context of this year's big rally. this is the performance of big tech, tech more sensitive to yield action since the last cpr report in january. when you take a -- cpr report in
january. when you take a look at the gains, meta, it is amazing the gains we have. that puts today into context. it is going to be interesting to see if today's downside will continue or if it is a little blip in the road. alix: yields up on the front end 20 basis points. dani: the highest since october 2022. concerns about the market are alive and well. let's take a quick look at what we are watching today. we are going to have the new york fed president speaking later today after the cpi report. we are also going to have airbnb earnings. alix: it is not to be interesting to see how it closes out. coming up, up, a former secretay
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