'Bloomberg Surveillance: Early Edition' Full (06/17/2022)
Global economy is at the turning point. They're serious about 2 percent inflation. They're gonna have to crack the U.S. economy hard and it's then going to take the easing to offset that. We are choosing to pass parts of the price increases to consumers. Inflation is out of control. But now in a bear market we see a lot of good deals on the table now. This is Bloomberg Surveillance early edition with Francine Lacqua. Well good morning everyone and welcome to Bloomberg Surveillance
Early Edition on this Friday the 17th of June. I'm Francine Lacqua here in London. And here's what's coming up on today's program. The BMJ resists the global wave of central bank tightening sticking with super easing monetary policy and hitting the end again. While the rat resumes driving the S&P 500 to the lowest level since 2020 ISE recession fears return to Jerusalem higher. Even US Treasury yields rise. Plus the ECB president Christine Lagarde tells officials that the bank's new crisis fighting tool will protect borrowing costs for weaker eurozone nations. GDP yields close the gap with books. So let's go straight to our top story. It's been a major week of course for change at the world's
central banks. Now the BMJ has resisted the urge to join the rate hike club and kept its key rate at minus 0 1 percent. Now Japanese assets tumbled and the yen sank towards a 24 year low after Governor Kuroda held firm with rock bottom interest rates. Kuroda also said the central bank was focused on stemming losses in the country's currency. Citing the recent rapid weakening of the yen is negative for the economy as it increases uncertainties and companies will have a harder time putting together their business plans. Meanwhile stocks in Europe are trading little changed after
hitting the lowest level in more than a year. Overnight the NASDAQ wiped. Three quarters of a trillion dollars from its overall market cap. And like Japan and the U.S. the S&P and ECB both surprise this week. The former with a 50 basis point rate hike and the latter with an ad hoc meeting that led to new anti crisis tools. Now the S&P is Governor Thomas. Your dad also said
the central bank needed to get ahead of the narrative. We believe it was necessary to increase rates today. If we look at our inflation forecast it clearly shows that inflation is no higher. There's also certain risk of second round effects is certainly a risk that inflation does not come back below 2 percent buy alone by itself. And so we came to the conclusion that it's not the right time for us to make a certain adjustment of our monetary policy and to tighten. Meanwhile Christine Lagarde soothing words on a bond limits are narrowing the gap between German and Italian yields after the risk premium spread to its greatest in over two years. In the U.K. the Bank of England raised rates by comparatively meager 25
basis points continuing a narrative of steady and successive increases. Joining us now to break down all of these moves are reporters around the world Michelle John Briscoe Alexander WEBER and Lizzie Burdon. So Michelle let's start with you. What are the highlights from the BMJ announcement. It's pretty incredible that they're going against the grain and not budging. Well really what we saw here a governor was Governor Kuroda really holding the line. Stubborn almost on holding that yield curve control policy. He said it there's no reason to doubt its sustainability. In response to one of our own reporters questions on whether there were limits to why Sisi. He said there was no need to look at that right now. That the right now
you can tighten. You can you can watch others tighten. Excuse me in the face of maintaining why Sisi. So I think really what we saw here is him holding the line. We saw a market reaction that was a little wild in some ways but really relatively favorable given the week that we've had. And now you're seeing you know traders and the rest of us kind of limping into the weekend that I think you see that yen kind of holding right near that 134 level. Now it is important to note that Kuroda never mentioned a level during the press conference. He wanted to go of course keep that out of it. But he is mentioning all these reasons to
continue to monitoring currency very closely right now. Michelle thank you. Alex tell us more about these of these new antichrist as to. Well we have yet to see it. So the unexpectedly unexpected meeting this week only decided to accelerate work on this tour. We've heard some bits here and there. It probably were. I mean it will come down to a bond buying of weaker nations in the euro area. Some key questions remain to be answered like how will
they do that without affecting the monetary policy stance. Reminder they have to face the record inflation at the moment. Also what's the size of this new tour and how will they make it competitive. Bird to the courts which will look at this closely and it would probably be challenged in court. So they have to come up with a way that's legally watertight. And now we'll be looking for details probably ahead of the next Governing Council meeting in June July 3. Alex thanks so much. And Lizzie I mean the bill we only went for 25 basis points because we're looking at different data points.
But you know they talked about forcefully and it's freaking out the markets of it. Exactly. So the decision looks dovish compared to the Fed. But the guidance is more hawkish. The context is that the bear is never gone for more than a quarter point hike in its independent history. Five hikes in a row is already unprecedented. And remember the baby was out of the gates first in terms of tightening in its major players. But the reason that six of the nine member monetary policy committee didn't want to go for a bigger hike was because inflation is now forecast to peak 11 percent. They think that's going to tame
itself and weigh on demand whereas the other three members are more optimistic about the resilience of demand. But it's curious they're not in the majority when the GDP data showed that people are still going out and spending despite the cost of living crisis. Nonetheless as you say the guidance is more hawkish. Now markets expect rates to end the year at 3 percent. Yeah which is quite significant. Thank you to all of our reporters Michel as always go. Alexander WEBER and Lizzie Borden now joining us to
talk about some of the market analysis. Mike Bell J.P. Morgan Asset Management global market strategist. Mike we had a really crazy week when it comes to the markets central bank action. What did you learn this week. I guess we learned that the central banks are serious about dealing with inflation particularly the Fed. You are now being
priced at rates up to about three point eight percent near order. So you know the world is in a position now where central banks want to deal with the inflation problem but also facing the fact that that's going to lead to weaker growth. Is there a policy mistake in the making. Mike and actually I was speaking to Phillip Hildebrand of BlackRock and he was saying look markets or at least central banks need to make sure that the markets understand that because this is a supply shock that they won't be able to fix output. So I guess a recession could be inevitable. I think it depends how you define a policy in the state because I think I'm forcing the central banks are in a position where you know either they're going to have above target inflation for quite some time for the risk of recession is uncomfortably high as they tighten to try and deal with inflation. So either way we end up in recession or with the system they're above target
inflation which is the choice they have to make. You could argue that in hindsight they're making a policy mistake. So I think it's a bit unfair on the central banks. Ultimately they're in an almost impossible position here where to deal with inflation they're going to have to put rates up to a level which does risk causing a recession. I do think that recession risk is uncomfortably high at the moment. It can. I mean is it still a possibility that the Fed can engineer a soft landing. It's possible. Thought historically when you look at a soft landing we've seen. I wouldn't say it's likely because when you look at history the
occasions when we've had soft landings in the past as much lower wage space than we see now. You've never had a soft landing with wage growth as strong as it is currently. So that suggests that history is not on the side of the boat. So what does it mean for your portfolio building. What are you buying and what are you selling. Yeah I mean back in February I was saying it was made sense to cut risk back down to neutral in terms of equities. I stick with that view. Obviously markets have come down quite a long way since then. So even though I've been thinking that it makes sense to be neutral risk for the last few months if anything I now think we will be getting closer to the bottom of this fair market than we are the top. That's not to say that equities can still fall further but
we've obviously seen stock markets have fallen about 20 percent in most major regions year to date. In a normal recession and I think this recession if we get one it's going to be a relatively moderate one compared with say the dot com bubble or 2008. And so in a more normal recession you tend to see stocks school about 30 percent and we're down something like 20 percent now. So I would argue the market's already pricing about a two thirds probability of a recession. So you know you've got the fact that the moment recession risk is uncomfortably high but at least the market knows that. So I would stick with neutral on equities at the moment. What's interesting to me is that the bond market is not pricing in a recession. The bond market is pricing in a
tightening in monetary policy that's going to be required to deal with inflation and perhaps cause that recession. But of course in every recession in history the central banks that end not cutting rates. So one thing I would be doing at the moment is reducing underweight positions the duration. So Mike what does this tell us about. For example I don't know
whether eurozone periphery looks expensive right now whether you think that the ECB has tools or there are some of the interest credit dislocations that we saw this week that you would buy into. But ultimately I think that the ECB will do what it takes to keep the eurozone together. There's always when we come to this kind of crisis point and obviously a recession or much tighter monetary policy risks cutting the eurozone under some pressure again. But ultimately you always get this discussion around how ECB
would deal with it. How will they get round under legal hurdles that are in that way. But ultimately I think they're going to do what it takes to contain the spread between Italian and German bonds so that they can transmit monetary policy effectively and keep the eurozone together. Because if they don't do that then all the laws and all the rules about how you meant to conduct monetary policy are irrelevant. If they don't contain the eurozone. So I think ultimately they'll do what they like. Given the shock from the Swiss National Bank hike that actually energize the franc and given what we heard from Governor Kuroda the Bank of J was Swiss he and the trade of the weak. Oh yes. It's fascinating because there's two scenarios in which the young could grow stronger from here. The first is if you get to be a give up on the yield curve trial which obviously they didn't do last night. But the other scenario in which the young could grow stronger is
if you get a recession and then the very aggressive monetary policy tightening that you're currently seeing being price then further major economies outside of Japan is actually the market starts the price that rates are going to have to be cut rather than keep going up and up and up. Then the young could strengthen in that environment. Mike thanks so much. JP Morgan global market strategist Mike Bell stays with us coming up. Also don't miss our exclusive interview with the Bank of England chief economist Hugh Pill. That's on the latest P.C. decision. And it's at ten thirty a.m. London time. This is Bloomberg.
The turning point wins inflation continues so strongly and will the. Santo banks be able to. Slowly without creating a recession I'm optimistic. So my answer would be yes even if there is a recession here or there and there has been recessions in the past. I'm pretty confident about the ability of the beauty industry and of L'Oreal to be truly resilient in whatever the
context. And that's what we see today. Today the beauty market hasn't slowed down a bit versus 20 21. We see that consumers want to socialize after two years of lucked out. We also know that for employees and 60 percent of them told us that globally that's our number one concern is how to keep their purchasing power. How can you do that as an employer of U.S.. You have to
raise the salaries but sometimes you are not able to cope with the pace of inflation. So you have a digital solution. You've said that. So who should access to 250 different programs of benefits where you give money in benefits. It's a very well appreciated by the employees. Now you heard there from the chief executives of LVMH Royale and Eden right. They were speaking to Bloomberg at the Viva Tech Conference in Paris while still with us as JP Morgan global
market strategist Mike. But Mike we're talking a little bit about the dynamics of central banks across the world. And you were saying that you were particularly interested also in what yet and Governor Kuroda did. Are we looking no matter what an earnings recession. I don't think it's inevitable but I think if you get an economic recession then it will lead to an addict section. And so you know that's the risk out there. The good news at the
moment from markets is that valuations that come down a lot. So in pretty much every major market with the exception of really the growth stocks in the US which are still on a PE of about 20 despite sharp falls we've seen the value stocks in the US are trading on a PE of about 12 and stocks in U.K. Europe and China on a PE of about 10. And so the valuations have come down a long way now. They look pretty cheap but that's a price to earnings ratio. The risk is that the earnings now come under pressure. If we end up going into a recession and that's where you could see a bit the downside faculty markets if earnings do indeed go into an earnings recession on the back of an economic recession. So that's why as I said we would be still sort of more neutral on equities maybe a bit too early to be aggressively adding in at these levels. But given the valuation correction that's already happened and the fact that it's already down 20 percent or so I think it's going to be very hard to sell and then buy back in cheaper. So that's why we think you know big underweight positions are selling now is probably not why
even in tech. Well I think in tech that's why you've got valuations that haven't come down as much. Know they started very high. So the Russell 1000 growth was on a PE north of 30. That's now come down to 20. But as I say in most other parts of the world are trading on the sort of place at a 10 to 12. Now I don't think the PE on the tech stock should come down to 10 to 12 because a lot of these businesses can still deliver pretty good growth over the next 10 to 15 years. So for the genuine growers the question is what is the fat easy for them. Is it 20 or is it somewhere a bit lower than that but still higher than that. And that tends to wild region. And I think you know there is risk that valuations on some of those tech stocks could still fall further. So within that broadly neutral equity position that
we've been discussing over the last few months I think it's important not to help these overweight positions attack and great stocks as well. Mike what did you with China right now. So they're you know they're concerned of course about housing bubble about a huge correction underway. What does it mean for global markets. Yeah I mean I think the risks for China really is if the rest of the global economy slows materially then that would obviously hit China as well. I think if you were just worried about what's going on in China then I would be looking at the market at the
moment and thinking well it's gone down an awful long way already. And then valuation in China is very cheap to be able to buy an economy with. We think it's going to grow at about 4 percent in real terms per year over the next decade on a PE of about 10. Most of the time you'd be thinking well that's a pretty attractive opportunity. And I think if you've got a medium to long term investment horizon it is. And I would just sort of be looking to add there and hold for the long term more
tactically. If you care about the near term as I say I would be neutral. But it is the market that's priced in the most part new. So I certainly wouldn't be looking to be underweight. All right. Thanks so much Mike Belzer. JP Morgan global market strategist. Now coming up the National Australia Bank chief executive officer Ross McEwan joins us at 930 a.m. London time. We'll talk market volatility and how well equipped banks are to handle it. That's coming up shortly. And this is Bloomberg. Economics finance politics. This is Bloomberg Surveillance early edition of Francine Lacqua
here in London. Now let's get straight to the Bloomberg First World News on the World Trade Organization has approved a deal to watered down intellectual property and restrictions for the manufacturer of Covid-19 vaccines. WTO ministers approved a package of agreements that included the vaccine patient waiver. Well director general and goes your contrary. Weller has previously said she wanted to end the morally unacceptable and an equity of access to Covid-19 vaccines while the deal delivers a blow to vaccine manufacturers such as Pfizer Madonna and AstraZeneca. Now Joe Biden says recession in the US is not inevitable. In an interview with the Associated Press Biden says his aides including Treasury Secretary Janet Yellen and others have told him that his Covid aid package could have a marginal impact on inflation. He also said he disagreed with that view.
His comments came a day after the Federal Reserve executed its biggest rate hike in almost three decades. And sources say the European Commission plans to recommend that Ukraine and Moldova be granted candidate status to join the European Union. The move could be a symbolic step forward in the lengthy process to join the bloc for EU. Leaders are set to discuss the matter next week in Brussels. Germany's Olive Schulz France's Emilio Annmarie Horden in Mario Draghi endorsed Ukraine's membership bid during their trip to the US House committee. Investigation on the January 6 attack on the capital has heard that Vice President
Mike Pence came within 12 meters of the mob being before being rushed away by his security team. According to an FBI informant the invaders would have attacked pens if they'd found it. The panel painted a picture of then president Donald Trump being indifferent to the danger his vice president faced. And that's the Bloomberg First World News. Now lot of the action of course that we saw this week is going on when we look at the markets not only in Treasury but also some of the stocks. If you look at stocks and futures for the moment in the U.S. bouncing back again. Traders trying to catch their breath after a pretty strong rout triggered by fears of an economic downturn. And Treasury yields rose. The dollar rebounded from a two day of
losses. Now markets are rounding off a week buffeted by interest rate increases including the Federal Reserve's biggest move since 1994. We also had that shock Swiss National Bank hike that energize the franc. And then we had the latest boost in UK borrowing costs. In fact the rate hikes are drawing liquidity and that has sparked losses in a range of assets coming up. National Australia Bank chief executive Ross McEwan joins us next to talk market volatility and how well-equipped banks are to handle it. This is Bloomberg. The BMJ resists the global wave of central bank tightening sticking with super easy monetary policy and hitting the yen again. The rat resumes driving the S&P 500 to the lowest level since 2020 as recession fears return. The futures limp higher
even as Treasury yields rise. Plus ECB President Christine Lagarde tells officials that the banking crisis fighting to protect borrowing costs between figures and nations BGP yields close the gap as well. Good morning everyone and welcome to Bloomberg Surveillance Early Edition. Francine Lacqua here in London. Now the specter
of massive increases in Australian interest rates is threatening to break the back of the country's stock market where banks play of course a dominant role. Investors are fleeing bank shares following central bank raising the cash rate by 50 basis points to 0 8 5 percent last week. Well I'm delighted to be joined today in the studio by Ross McEwan his chief executive officer of the National Australia Bank. Thank you so much. Ross it's been a while so it's so good to catch up and in person and with nice weather in London. It's beautiful. Been a beautiful week in London. Thank you for putting it on for me. You got no problem talking about volatility and actually how much of a nightmare or how much of an opportunity that is for your bank. Well it's a
bit of both. And it's been interesting to see how the stock has come off about 20 percent over the last 10 to 15 days in an environment when actually banks can usually do reasonably well with interest rates coming up. We've had 12 years of interest rate down which is actually very difficult on a trading bank of commercial bank. And finally having them come up the bank stocks have come off but it just shows people are worried about what's happening with the economy. But people are worried about what are they worried about inflation. Are they starting to price in a recession or actually they just don't see a way out of this. Well look it appears that every country has got a difficulty with inflation and B that short term or long term inflation that's certainly coming through. We haven't seen for 30 years. But the other side
of it each country is quite different in how it needs to handle it. For example the Australian economy is very strong. It appears that the UK economy is a lot weaker. Therefore how do you deal with interest rate rises. So an interest rate rise in the Australian market place may be easier to absorb than actually in the UK where if you push it too hard you stop the economy. But even in Australia you do worry about your mortgage book. So
the economy can be you know strong enough to sustain it. But maybe some of your customers are not. Well our customers in the general sense are in pretty good shape now. There will always be when you get into different groupings there'll be some that will have some difficulty. We need to work with them to get them through these shocks. But
we've been have a buffer on what we actually think they can pay anyway when we do their assessment. And because the economy spins so good for so long and interest rates have been dropping many of our customers we haven't reduced down their interest payments that they've been making. Therefore they've got quite a buffer in there. So we think they are in pretty good shape but there will be some that will have difficulty. So at the moment you're not seeing any strains on borrowing for example is it in terms of timeline if there were you know some concerns when would you see it. Well I think you'd see it probably at 12 to 18 months because a lot of the customers. So sitting on the standard variable rate yes the rates have gone up.
We've got a number that have gone in the last couple of years or for fixed rate. And probably you've only seen about three months of those group coming through and going onto a higher rate. So that will take some time to come through. And the same in our New Zealand business which is a fixed rate market. Right. The shocks will be felt there first because you're going from 2
percent to 4 and a half percent when you come off. At the moment we're not seeing any impact from a customer's having real difficulty. So there's still good resilience in the marketplace. This still got jobs up three point nine percent. Unemployment three point two in New Zealand goes bad. We've got a job. And if got a job chance of payment a pretty good rest. Of course the relationship between Australia and China is extremely strong. What does the Covid Zero policy and the fact that we think it's here to stay mean for natural resources and therefore the Australian economy. I'm not an economist on what the impact would be but it's just the bond you have for the bank. Just as one of other things that we're having to deal with
be it interest rates going up be it inflation big higher and all the input prices being higher and then a slight slowing down of of of China which which does over time impact Australia because it's a big trading partner of ours. But at this stage we're not seeing major implications that over time it will have an impact impact on us. Yeah. Given all of this market dislocation given all of the volatility what do you worry about the most for the bank. Well right now the biggest worry I have for the bank but for Australia is Labor. Despite all that we're talking about we've got one of the lowest unemployment rates that we've ever
had. Every employer I talked to cannot find labour to grow their businesses. It's just amazing. Infrastructure programs in Australia a very. Strong I came through Northern Territory on my way up here talking to the Northern Territory government. The projects are going on in those areas. They need Labour. And so that would be the biggest one at the moment. I mean this is a huge problem because it takes again it takes it. There's a
mismatch in which time when they need labour and I guess how much time to train them. So why is there this mismatch which we're seeing almost across the world. Well we're seeing it across the world. And there must be a big group of people who have stepped back from the workforce. Australia has seen the Covid relate to do you think. Yeah but
Covid related to that. Then after Covid reassessing what they really want to do with life. Maybe they've retired slightly earlier and not been in the workforce for the next couple of years. Maybe they've taken a step back on some of the jobs that they were doing and saying I'm not going to do as much. Thank you. I'm feeling okay. There's a lot of money in the system so they're feeling alright about it. But in an Australian situation we lost a big number of our overseas students which participated in the workforce. We haven't seen immigration for the last two years. We saw a net loss of migrants last year in Australia for the first time. I think it's 40 years now. So this is quite big for the Australian economy. So getting it going from a labor
perspective is probably in my mind one of the biggest things to keep the economy moving. I mean reassessing your life is not it's never a good idea. We'd probably be you know I don't know if my dad was born south. But you know South Park is like that. Russ talked to me a little bit about it. You have a unit in France. Yes. What does that mean for the UK. Is the financial sector moving more to mainland Europe. Well we've got a lot of customers that actually operate out of Europe. And because of the you know the UK coming out through Brexit we have to service those customers. And our operation in France will do that. Of our top 100 largest customers 33 of them have businesses in Europe. So there's some
very strong connectivity between Australia and Europe as there is between Australia and the UK. So we've just set up a new office was over there yesterday opening it. We've got a really good team said sit there and met a lot of the customers that we will do business with Europe. But the unit in France is what. Because because of Brexit. So that you need two bases or how would you explain. We've got two bases. There are some things that we can do whether the London office that we've been allowed
to do from a regulatory perspective. But the core of a European business and the specialist people and the risk takers need to be in the European market. And we've basically been parents. How do you see London changing because of that as a financial centre. It's one of the things London I think it just needs to find itself getting out into the marketplace again. I think the UK just needs to get its confidence back to get back out to international markets and do business again. You've made the decision to come out of Europe so get back into the markets as quickly as you can and rebuild the confidence the trade and then the banking sector will be fine but easier said than done. Is that through incentives. Well I think a bit of energy towards it might help rather than constantly squabbling over what the issues are here. Let's get out and get the UK back
trading again. I know that the trade missions are out there but I think that would be very helpful for business as well. Ross thank you so much for joining us. Ross McEwan there the chief executive officer of the National Australia Bank. Coming up European nations are being forced to confront the possibility of keeping their economies running without Russian gas. We'll
discuss that story next. And this is a. Economics finance politics this is Bloomberg Surveillance early edition of Francine Lacqua. Here in London now against a backdrop of meeting in Keith between Ukraine's president and leaders of Europe's biggest economies region's worsening energy crisis of course is continuing. European gas prices gyrating as Moscow tightened its squeeze on crucial flows on the continent. Now this is forcing European nations to confront the prospect of keeping their economies running without Russian gas. Well joining us now is Anna. Sure. I share a figure that Bloomberg's natural gas reporter Anna. So what is exactly the impact of the
Russian gas supply cuts this week. So at the moment we are seeing about 50 percent increase in natural gas prices in Europe on a weekly basis. At the moment we are in the summer. So demand is lower. But this very crucial field gas authorities in Europe we are seeing first signs of this reduction in Russian gas supplies is already affecting injections in the storage and other estimates. Mackenzie estimates that lost seemed to mostly flower supplies
into Europe shut completely than we might actually run out of gas in storage. By January we just run to the peak winter demand. Gazprom reduced flows but not stream by 60 percent this week. So how will this actually affect the gas markets a little bit later in the summer and then in the winter which it could get pretty tight. Indeed the attention is now on their summer feel into storage as the European Union order that storage facilities must be at least 80 percent forward by the 1st of November. That's a very challenging target. Now to achieve with we're going to see a sustained reduction in Russian gas flows.
Then comes winter. Obviously much depends on the winter. It will depend how much LNG Europe will be getting from the nation such as Qatar. But still if this flows from Russia remain reduced there's going to be a challenge in the winter. Thanks so much for of course all of the update and then we'll see what happens also on the Russian side. I'm not sure Shery
Ahn CSKA Bloomberg's natural gas reporter now joining us to talk about the energy transition is a titan of the energy industry. He's Lord John Brown. He had a 40 year career at BP moving from apprentice to chief executive where he was a leader in the movement to push the company away from fossil fuels. Now he's now beyond net zero chairman. So Lord Brown thank you so much for joining us. I know we'll talk a little bit about equality shortly. But first on the energy transition it seems that there's a lot less appetite for ESG products. It seems that we don't have enough of the things to make sure that the transition is sped up. What kind of grade would you give your governments our
governments today on how they plan for this transition. Well inevitably the great CAC cannot be a good grade because we for years forgot that the one important thing about energy is getting secure supplies. And that means you need more than one choice on the sources of energy and you need more than you need available to you at all times just in case something happens. So we have a situation where energy security is right on the agenda. We have to diversify sources not least in Europe especially in Germany after the invention of the so-called energy where the energy and energy mender which reduced the number of choices Germany had in the past. So this is going to take time. We're going to have to
invest in everything including hydrocarbons importantly for the next five years. Very important indeed. But Brad if this takes time and we don't have that much time because we're losing that supply from Russia how tight hand how messy will these energy markets be. They're going to be very tight and they'll be very messy. We have to get investment to catch up with demand. And that's the important thing. We can put in a lot more renewable energy because it is local but it takes time to get the goods and services in place. Margins tight to get permits as well. We also have to develop hydrocarbons but not I hope for the long
term just to get us over this bridge. I do think ESG is not in the back not just frozen for the time being while we do something which is realistic which is to get energy to people regardless. But look I mean given the high inflation numbers it feels like we're running out of everything. There is not one commodity that hasn't gone up or that we're struggling to either mine or get to where it needs to be. What happens in the next two to three years to inflation because
of commodity prices because of energy. Well I'd expect energy prices stay up for quite a long time. And so whether they'll keep going up or stay up I can't comment. It all depends on the day today. But I think we're going to have to marshal a lot of resources. It's not as if everything is not there is just not available in the supply chain. Supply chain seem to be geared up again. We've broken the project feels we need it now. We need enough supplies to make electric motors wind turbines. We need more. We need more solar panels. We need more cables. We need for these things to get going now. But don't do we have. So even if we have the technology do we have the right components or is the
supply chain so broken that this will take 18 months 24 months longer than it would of five years ago. Well in an ideal world but there's no such thing. We would have laid all this out just right and everything would be perfectly smooth. So this is going to take several years to get sorted out. There's not going to be overnight without any doubt. And it takes I think a lot of great management and leadership to do this. We need to be clear. We have to put in place more capacity for
energy than the day today needs to have the ability to cover interruptions. And we need to make sure we're still committed to getting a carbon in the energy system. Now I repeat we will still need to generate the transition as we transition. It's not like. We have to generate enough hydrocarbons to bridge. What I hope
we don't do is invest in hydrocarbons that last for 30 years. And we say well right now you're not in 30 years. We need them in the intermediate term right now. But is there a danger again. Oil and gas seems to be back in vogue because of the higher returns because of the price of oil and the returns that they give back to shareholders through David. Does that actually mean
that the transition will be delayed. Not really I don't think. I think the oil and gas has never really been out of vogue globally. It's been out of the stock markets in the West. But actually people are still reading generate a lot of water and gas and put all over the world. And you know most of it comes from outside the world. The sort of U.S. European cloud comes from elsewhere. So we have some supplies not least in the US that can bridge a gap and converge quite quickly. Shale gas and oil. And I think investment is not forthcoming not because prices are high.
But in the end we have to figure out how to balance our energy mix so that the total net emissions from energy goes down. So that means we need to really redouble our efforts to decarbonise hydrocarbons. Didn't do believe that. You know President Biden going to Saudi Arabia asking for extra barrels to be put on the market. Does that send the wrong message to to you know net zero countries that it can do if it's for ever. But we're trying to I think
everybody is talking about a practical situation getting across a bridge here where the depth is there's nothing to cover the bridge. So prices are very high. If that were a real expectation the supply would be better. Prices will come down. And that's important for our economy. I think nobody wants to go around supporting a position where energy is not affordable not affordable for people both in the West and especially in the world outside the US that North America or Europe. So I think. Look Brad thanks so much. Yeah. Thank you so much. John Brown there beyond net zero chairman. Of course he stays with us and we'll talk a little bit about equality. Coming up we continue the conversation with our Brown
about power politics and homophobia. This is Brubeck. Economics finance or politics. This is Bloomberg Surveillance early edition of Francine Lacqua here in London. So do you have to be straight to get ahead in business. Well the former BP boss John Browne Lord Browne thought so. Look for years in the closet until he was outed by his first boyfriend. About eight years ago. Since then he's written a book exposing the homophobia within the business world called The Glass Closet. Why Coming Out is Good for Business. Well we're back with Lord Browne beyond net zero chairman and former BP chief executive Brown. You wrote this very important book in 2014. Since then. Do you
believe that things in the business world have gotten better. Oh definitely. I wrote a book with obviously looking backwards over my life which so I chose to stay in the closet for all sorts of reasons my family and the behavior of society. And then in 2014 I wrote the book and I think things have continued to improve. There's no doubt that if people continue that the situation was improving so much that I think if I speak to the Paul Allen very early generation entering business they keep wondering what the fuss was about and why I wrote the book. But but could we do even better. I mean I'm sure we can read that. How would you do even better. Does it go to the culture. I don't know whether you know many chief executives are still in the closet because they think they will penalize their careers. Well indeed they might be because there are so few people out of
the closet actively gay CEOs and very very few of the Fortune 500 are there. Very few I bet half a percent apparently. If the foods the members of boards of directors of a Fortune 500 explicitly outsource gay. These numbers are vanishingly small. So I think what it takes obviously to get it right a sense in a company that people can be included regardless of sexuality for example is tone from the top. Making sure that such continuous statements are made. Inclusion matters. Secondly role models. You have to have people who actually have succeeded and you need to promote them. Otherwise you simply are lecturing people about what could be. And thirdly being completely intolerant of any bigotry any discriminatory action
and taking immediate action. I think that's important. If you can create an inclusive society in business you are bound to get a team performance and you're bound to get better at the actual performance. It's stuck. It's not. Yeah and he's better at this. The Americans the Brits or the Europeans.
I think it depends. And talk to me if I'm the leader and I Dani Burger next to where you're own national trade. I'm very struck with the rates of improvement in the UK. The UK has done very well. If we're really pushing hard under a variety of prime ministers to get it get a quality of marriage quality of discussion I still think that there's plenty to do here. It's nice to do Europe. And there's plenty to do in other sectors. We're still only just seeing for example in sports. People are proud of what has come out. Thank you so much for joining us. That was John Brown V on net zero. This is Bloomberg.
Inflation is out of control. They're serious about 2 percent inflation. They're gonna have to crack the US economy hard and it's then going to take the easing costs that we are choosing to pass part of the price increases to consumers. But now in a bear market we see a lot of good deals on the table now. This is Bloomberg Surveillance early edition with Anna Edwards Matt Miller and Kailey Leinz. It's 10:00 a.m. in London 5:00 a.m. in New York and 5:00 p.m. in
Hong Kong on this Friday June 17th. Our top stories today however the outlier to the OJ resists the global wave of central bank tightening sticking with super easy monetary policy that hits the yen again on the construction. Officials are working on a call between Presidents Biden and she. With tensions high between the world's two biggest economies and the Bank of England's next moves. Our exclusive interview with the Bowie's chief economist Hugh Pale is straight ahead. Welcome to Bloomberg Surveillance Early Edition. I'm Anna Edwards in London with Matt Miller Krissy Gupta in New York. Kaley Lines is off today. And Chrissy what a week it has been. Assets really whipsawed. Stocks though looking set to end the
week lower. European equity markets taking some time to find their stride but actually making some gains this morning. Well I think a lot of the spotlight was actually on Asian equity markets even going into the closing bells yesterday here in the states law. This having to do with what the BMJ may or may not say. This is really important because they didn't quite deliver the perhaps groundbreaking market moving news that a lot of people were expecting too that this would be the moment that would crack the JCB market. We did not get that into. In fact we didn't get that. We also got comments that the BMJ is continuing to look to ease and that actually had a pretty dark impact on the entire Asian complex. You had the MSCI Asia Pacific index in
the red down about one point three percent overnight. Remember a lot of those losses were concentrated in Japan some spots of green in those Chinese indexes. But take a look at this. The Japanese yen is really where all the action is that weakness continuing to drop drop drop get stronger and stronger. The question here excuse me is that does dollar yen start to test the weakness the 20 year 23 year high excuse me in 135 that's going to be a really born handle to watch. And of course as we
continue to see the Japanese yen weakness we have to look at some of the other Asian currencies as well. The weakness in the Korean one at what point does this become an export war. Yeah that is interesting. But really it's all about the BMJ and trying to figure out exactly what's going on there in terms of what's happening here. We are seeing futures bounce a little bit but after another huge drop in the cash trade yesterday. Keep in mind that we closed on Friday down 2 percent at thirty nine hundred on the S&P. Last night we closed at 30 666 on the S&P. So we've lost a heck of a lot already this week. U.S. 10 year yields rising a bit but only up to 322. We've seen 340 this
week. So that's really moderate compared to where we've been. And now ex crude coming up but only to 1 1846 we've seen 124 on Texas Intermediate. So we're really moderate there as well compared to where we've been this week. Bitcoin right now at twenty one thousand forty nine of one point
eight percent for midnight. And everybody's really watching the 19 to 20 thousand dollar level to see if bitcoin can hold. But of course it's very much correlated as we've seen all year with futures and it continues to be that way. And what you see in terms of the cash trade in Europe. Yeah of course we've got a great conversation coming up later in the program on crypto. And this is the picture for European stocks. And just as Matt was pointing out there the way that we need to put the gains in S&P futures in the context of the losses of yesterday. The same is important here. European equity markets losing between 2 and 3 percent on the major markets in yesterday's session. So it is in that context that we look at the gains we're making today up a
percent on the CAC up a percent and a bit on the Xetra DAX over in Germany. So we struggled for direction in the earlier parts of the trading session. But as U.S. futures got a little more into their stride. So we see European stocks moving a little bit higher here. Let's have a look at what else is on the radar here in Europe. And we have the Italian five year yield.
The yield is dropping his money going into the five year debt products out of the gym. The Italian government and this is coming off to Christine Lagarde of course president of the ECB. She's been offering some soothing words talking about intervention in bond markets. If we were to see some blow out in the spreads beyond a certain level I assume. But we wait to see
what kind of levels we're talking about there. But that certainly think markets in the short term. Natural gas prices in Europe. This is the benchmark. But on up up another 6 percent this morning. And we all set for the biggest weekly gain in European gas prices since the invasion by Russia into Ukraine. And this because we've seen more and more European companies reporting that they're not getting hold of what they ask for from Gazprom. So Gazprom not sending them at the foot amount just 50 percent into Italy and into Slovakia today. The pound's reading whipsawed yesterday by where we had what we heard from the Bank of England. And what we didn't. More on that coming up shortly. And our interview with heat
pill. But this is where we are on cable 123. 18 and NIKKEI and Rain CAC which has the great ticker tires because it provides tires and on the auto parts the stock is up by 8 percent and that guiding higher. They say pricing is pretty strong and demand for tires is strong. I wondered what that tells us about the broader auto space thing Kristie. You know it's really interesting your time on the auto space and once again we're bringing it back full circle. That industry itself is has so much of a dependence on those Asian supply chains. Of course we're going to keep an eye once again on what happens in Asia how that ripple effects around the world as pivot here though and look at what's coming up ahead today. Fed chair Jerome Powell makes welcoming remarks at an inaugural conference on the international role of the dollar
hosted by the Fed. It's also triple witching day which is likely to exacerbate the frenzied nature of this week's price action. Of course the eco data. It does not stop will get us industrial production data at 915 a.m. New York time that all that is important. But the Bank of Japan has really been an obsession. This week the governor ha he got Kuroda held firm with rock bottom interest rates defying an intensifying global wave of central bank tightening. Let's get more with Paul Jackson our
economy editor in Japan and Korea. And Paul tell us exactly what the Bank of Japan did. It was really just a tweak in the language. Right. And the markets have really been testing Kuroda. Yeah I think the key point is corroded did just teed off. He added a reference to needing to watch foreign exchange rates and markets movements at the moment and that was about it. The market movements these last couple of days have been favorable
for the Bank of Japan is giving a bit of breathing room for him. I think earlier in the week when the yen was at its 24 year low pressure was really building up in Europe. Anything seemed possible today. But in the end he's kind of got out of jail and he's bought himself another month of breathing space.
But the fight goes on. We saw earlier in the day the yield levels going above the ceiling. To take operations to get them below zero point to five. Had they just announced after Kroger's press conference this afternoon that from Monday they will be starting daily fixed rate operations are the cheapest to deliver bonds that closely linked to futures. And Curtis says it's been speculative activity there. Paul thank you very much. Thanks for the update. Paul Jackson joining us from Tokyo with the latest on the Bio J. We'll sit with central banking once again. This week ECB President Christine Lagarde told euro area finance ministers that the new
anti crises tool will kick in if the borrowing costs for weaker nations rise too far or too fast. Let us get more details. Alex Faber joins us our European economy reporter. So more commentary coming through this week from the ECB. Some soothing words bringing down those spreads a little. Exactly. We are still looking for more details from the ECB. There are still a lot of open question like how big is this new program going to be and how will they make it legally watertight. It's it's there's a good chance that it will get a
challenge from courts again. And then also how do you define what's unwarranted fragmentation on bond markets. Remember different euro area countries have different debt levels. So it's natural that there's a differential between the bond tiers. But what's unwarranted. At which point will the ECB step in. That's the kind of details we are going to be looking for. And we think there's going to be more news at the next Governing Council meeting in July. Until then ECB staff will be hard at
work to make this program a reality. All right Alex thanks very much. Alex Baber there talking about the mysterious tool from the ECB will learn more about it at the near the end of the month. Now Bloomberg has learned that U.S. officials are working to arrange a call between President Biden and Xi Jinping of China. The sources say that the call could
come as soon as July. The US ambassador to China spoke yesterday. We're carrying on intensive dialogue and intensive set of meetings with them. That's our job and we'll do that to the best of our ability so that we can keep the government's talking. Emily Wilkins Bloomberg government reporter joins us from D.C. for more. So the two Emily haven't talked since right after I think the start of Russia's invasion of Ukraine. What do we expect. They haven't spoken since March and we could see a meeting
potentially around July. One of the reasons that we're really looking at this right now is because you are seeing other U.S. and Chinese officials go ahead have meetings. You saw Jake Sullivan in Luxembourg meet with a top Chinese diplomat for four and a half hours covering a range of topics including Taiwan the South China Sea. And this has sort of been the talks that have
been preludes in the past to Biden and Xi getting on the phone and actually having a conversation between the two of them. You've heard top administration officials say that they really want to look to set guardrails between the U.S. and China making sure that any disagreements between the two countries don't wind up escalating into a larger conflict. Emily isn't the only thing going on in Washington of course is January 6 hearings are ongoing and now we're getting some pretty chilling details about the escape of Vice President Mike Pence. What can you tell us about that. Yeah. So we knew that Mike Pence had been very close to the mob that broke into the Capitol on January 6 but we didn't really get a sense how close until yesterday when the January 6 committee revealed that he'd really only been about 40 feet away from a mob that had state that were individuals within it had its stated their intent that they'd want to hang him where they'd constructed nooses on the Capitol lawn for them. And the committee has tied this back to former President Trump saying
that he was the one who really did put pressure on Pence that he was told that it would be illegal to try and get Pence to overturn this accounting of the electoral votes something that the vice president really has as more of a ceremonial role. But even though that Trump was told that it was illegal he went ahead. He continued to sort of push this. And this goes to the larger point. The committee has tried to make its a few public hearings. It'll have some more next week and later in the month. But just trying to really focus on the point that Trump did try to overturn the results of the 2020 election even though his own advisers ISE came that came to him and said that the results of those that the election were legitimate and that Biden was legitimately the president. Emily thanks very much. Sure. Thanks to Emily Wilkins Bloomberg governments in Washington for those updates. Let's stick stateside. Elon Musk has held his first meeting with Twitter staff since agreeing to buy the company for 44 billion dollars in late April. The world's richest person told workers people
should be allowed to tweet pretty outrageous things. Joining us now is Matthew Bloxham senior analyst at Bloomberg Intelligence. Matthew good to speak to you. He said that he also said that there are different rules for exceptional people versus others. Give us some of the highlights. Yeah I mean he said a lot about his plans for the social media platform. But I guess unfortunately not a huge amount if anything about whether he's actually going to follow through on this deal to take the company private. And you know I guess with the shares trading down slightly the day they're at about a 30 percent discount to the fund 54 dollar 20 offer price is made still a high probability in the market that the deal isn't going to happen or certainly at a much lower price than originally slated. Yeah on this point you know he was asked about the threat of layoffs. He said that he noted the costs exceed revenue and that wasn't a great situation to be in.
So I think people may be still be worrying about their jobs. And again you need to be exceptional if you're going to be able to work from home. He also made some interesting points about how big he wants the platform to get. So he wants the platform to get to about a billion daily users. That's over four times the current level. And he sees an important role for subscriptions in validating human users now. You know bots and spam accounts are a big feature of the Twitter platform. And it's been an issue that he's he's not liked for a long time and could still derail his offer. So you know some interesting points. He made
the. Matthew Bloxham of Bloomberg Intelligence we thank you as always a fascinating story of course you're going to be watching those moves about Twitter and Tesla. But for now let's take a look at some of the stocks moving in the premarket trading in the United States. We'll start off with Carnival Cruise Lines because right
off the bat remember we have a massive sell off yesterday. So you are seeing a pretty broad rebound. And I love to look at the cruise lines and the airlines as a kind of gauge of not just broad a broad rebound but also a little bit of a volatility proxy. Remember we're not out of the woods. It's still over 30 handle. And when you have that situation Carnival Cruise Lines American Airlines those kind of names tend to actually have these big moves. Carnival Cruise Lines is one we're going to watch throughout the session. Up just shy 3 percent. Let's take a look at the tech space though. TSM Taiwan Semiconductor Manufacturing Company the 80 yards listed here in the States is the world's biggest chip maker. That will looks to have the next version of ESM assembled. The Dutch semi equipment makers most advanced chip making tool that coming in 2024 giving those
shares or losing yards is a little bit of a boost up nine tenths of one percent. And sticking with that theme of those textures. Let's talk about Adobe because they actually cut their sales forecast cut a lot of their kind of guidance simply based on lower summer demand. That being said the street saying that that makes execution risk the new overhang. How much can they actually deliver on some of the promises they make. If they're not getting that full demand of course is those comments that have the shares down about 3 percent in the pre market. OK. We'll get back to the markets. Big picture on these monkeys. What a rollercoaster week it has been. We will talk to any good groups and wisdom free. So I write to every says that coming up.
Also the downturn in crypto. We'll talk to Anthony trenches next. So co-founder. What does he make of the crypto Windsor. Where does it go from here. And what role is next. So playing in trying to trying to help out some of its rivals. Plus our exclusive interview with King Pale. Bank of England's chief economist they went for 25 and not 50 yesterday. Where do they go next. This is back.
This is Bloomberg Surveillance early edition on Matt Miller. Critic Gupta in New York and Anna Edwards in London Kailey Le
2022-06-20 23:22
