'Bloomberg Surveillance: Early Edition' Full (03/03/23)
This is Bloomberg Surveillance early edition with Francine Lacqua. Well, good morning, everyone, and welcome to Bloomberg Surveillance Early Edition. I'm Francine Lacqua here in London, and here's what's coming up on today's program.
Positive economic data from China propelled global stocks through their first weekly gain in a month. But U.S. futures dropped as more Fed officials take a hawkish stance on rates. The FCA launches an investigation into the London Metal Exchange's handling of a short squeeze and nickel market last year when futures spiked 250 percent in a little over 24 hours. Plus, China's central bank governor
signals monetary policy will remain stable this year with the National People's Congress set to begin on Sunday. Now, U.S. data yesterday highlighted a tight job market that's contributing, of course, inflationary pressures. Investors watching the weekly jobless claims data closely for any sign that the labor market is starting to crack. Now for more on all of this, let's get straight to our Bloomberg Markets reporter, Valerie Title. Valerie. Good morning.
To break down the numbers for us yet again. Jobless claims continue to surprise in the 13 out of the 14 weeks they have come below estimates. You can see that here, that white bar coming in below the blue line, meaning that it's come below estimates. There was also some other concerning signs in the labor market data yesterday, Francine, one of which was that unit labor costs, a measure of wage inflation was revised up. And that came alongside labor productivity being revised down. Those are some worrying signs for the
Fed. That's surely something they don't want to see. We're getting some breaking news, Larry, out of those PMI. So we have it's like drip, drip, drip. We have Germany. We had some of the other ones.
And finally, we have the Eurozone aggregate PMI and it's coming in a slight below what we were expecting at fifty two point seven instead of the fifty three. So it's not huge. But Valerie, that it does seem, whether you look at ECB or you look at Fed, there just seems to be a realization that actually as long as the economy stays strong, then the hikes have to get much stronger. We heard that from Mr. Waller yesterday. Yeah. That's right.
Francine, it seems like whether it's the ECB or the Fed, we have had an incremental step up in hawkish language fed. Waller spoke. Yesterday he released some text on line. And what he said to me that stood out is that he needs to see CPI pullback significantly. He's implying the next CPI print, which
we get in the Fed's blackout period that comes on March 14th. If that doesn't pullback significantly, the terminal rate, his terminal rate in that dot plot is going to head higher. That was clearly some hawkish language at the Fed's wall, or he is a influential member at the Fed. So be sure to note anything he says. Thank you so much, Valerie title. I mean, what happened to him was also a little bit crazy. So we had prepared remarks from him. He was going to give the speech, but
then someone mistakenly put porn on the Web site or on the speaker phone. I mean, it doesn't happen every day. Valerie doesn't have it. It does not. It was quite something of value to tell there with the very latest on some of the markets.
Now let's bring in Ben Cartridge, director of Mondo Portfolio Services at Invesco. I mean, thank goodness we had those prepared remarks from Mr. Wallach, who was not able to actually deliver his speech, and he's certainly not able to do it.
Do you have a different view after the week where, you know, Governing Council, after governing council on the ECB board, where you have two, three Fed officials saying, look, you know, interest rate hikes will have to go higher? Well, I would I would agree that interest rates will be we'll be heading higher. I think that's too controversial. And, you know, it's causing some disquiet in markets, but I wouldn't discount the disinflationary forces that are sort of still in MA. Really? Yes. It's still too clear to it.
There is this rogue. Yeah. But no, I think there is. You know, it could be what it's likely to be a difficult period. But come the summer, there could be a more a growing chorus of voices about, you know, pausing rates and you know, maybe the next move would be would be lower. Not not at the summertime, but later in the year. But, Ben. And so the concern, I think, is that you
can go from like 9 percent inflation to 7, maybe to 6. What happens to go from 5 percent inflation to 2 percent if that's really their target? Yeah, I know. I think the the I think the suggestion is that you sort of need a recession, really. You need to get that labor market where it is. Yeah.
Yeah. To to deliver that 10 percent target. But look, I think like between here and there, if inflationary trends are sort of heading towards target but not hitting target, then the Federal Reserve can sort of take a pause on being quite so aggressive with policy. And, you know, given the sort of bearish consensus, you know, that could offer some relief to markets, of course, you know, when there is you know, when the recession comes, you know, that's not necessarily gonna be a good period for markets. But just talking relative to
expectations, you know, a softening pace of policy execution could offer relief to markets. So you're not buying bonds using this is I don't know whether there's anything as being mispriced at the moment or it's just now. You know, we're at peak well, like the silver portfolio construction element here. I think if we want to run our equity position, then we're all vulnerable to growth disappointments. And if the Fed does move a bit more aggressively. Then I think whilst the short end would rise, battling inflation and growth concerns I think do materialize and maybe longer bonds could be something more of a hedge in is still in an inflation environment or you know, where the Fed are talking more hawkish.
It does does bring about, as you said, more troubling growth outcomes into the future. David Westin, then talk to me a little bit about the earnings season. So they've pretty much held up. There were a lot of share buybacks and dividends. Are we sowing the seeds of the next crisis because we're not going to be investing enough? No, I don't. I wouldn't necessarily sort of buy buy into that.
I think corporate balance sheets of a generally in pretty good health. I think in certain sectors, you know, you sort of, you know, airlines perhaps in minors and things like that, you starting to see CapEx intentions tick up. I wouldn't necessarily say we're in talking about ill discipline quite yet. So, no, I think that the major concern to me isn't sort of management execution. It would still be this sort of generally inflationary picture.
And and how central banks react to sort of continue to drive our market view. I think not surprising that consumer keeps on spending. Not from the what I see in my own household. No, but I'm driving like we have these models.
And I understand that the models, you know, work in grandpas. But it's just when inflation so high. Your income's going down. It's pretty incredible to see things. So, you know, such consumer resilience.
Yeah, well, I think there is a couple of parts out. There is sort of quite a high throughput through the pandemic period. Savings rate went up either through DAX or through restricted spending. And here we are in an environment actually where, you know, the labor force might have a little bit more confidence because you know, that the you know, I don't think employers are quite so ready. There's a few areas like in tech and things like that where where there's sort of layoffs and a little bit in financial services.
But generally the labor markets in pretty good, good, good shape. So consumers are fairly confident in their jobs, coupled with reasonably high levels of savings, certainly in the middle and higher income portions of society. You know, that can continue to sort of drive a robust consumption story. All right, Ben, thank you so much from the inside. Ben Gertrude to their director of Model
Portfolio Service at Invesco. Coming up, we'll be joined by village chief executive is then lucky enough to talk earnings and the outlook at one of the world's biggest water services companies. That exclusive interview is next. And this is Bloomberg Quicktake.
Economics, finance, politics. This is Bloomberg Surveillance early edition of Francine Lacqua here in London. Now this week, the French utility Veolia reported a jump in annual earnings and pledged to increase its dividend by 5 percent.
The Water and waste management giant, which bought half of rival shares last year, benefited from drought in Europe and more stringent green policies across the world. Now that's in rising demand for Veolia services, which include decarbonisation, hazardous waste processing and plastic recycling. Well, we are delighted to be joined here in the studio by the village chief executive, said Mike Yaniv.
Thank you so much for joining us. First of all, congratulations on a very strong set of results you're giving back to shareholders. Is there pressure in general to actually give back to shareholders either through buybacks or dividends to make sure that they stick with you? Well, actually, as a company, we have to give back to shareholders and the company in investing for the future of the company. And we have many projects in Veolia and to the employees as well. And we have the right balance, I think. But you're right to mention it was
really a history cure for Veolia. You know, in terms of results and history cure because of the merger with the swears which has been delivered, you know, very you record and super successful year because it's just been a one year record results for three billion euro turnover, which is a plus 50 percent compared to a year ago of 14 percent. You know what? The constant rate and scope down to 30 percent of net results. So very happy. So not bad. When you look at, I guess the next two,
three, four years, the world is becoming much more conscious about how we use waste, how we deal with hazardous products. Where do you see the main growth for Vale? Yeah. So how would a company change as world has a better conscience? I guess there is a perfect specific momentum phone vendors services in the world for a company like us to benefit from it. You know, it's a it's a two thousand five hundred billion market super fast growing, as you can imagine.
And the populations are asking now that we talk to them about solutions, not about the realization moment, but they want that we act and speed up. And we here for that. We're here to help our customer base, their city or industry to decarbonise to it or to region. Right resource. He's doing it right.
So you pitch for contracts, of course, from governments or more at the local level. We have, of course, the U.S. the Inflation Reduction Act. Like if you look at the regions, who will be in a much better place in five, 10 years.
I guess, you know, the push is pretty much everywhere now in the US, in Europe, in Australia, in the Middle East, even, you know, in Asia, everywhere we see push for more on rent, a solution to pollution decarbonisation. And we are uniquely placed the leader worldwide. But in the top three in the US here in Europe.
No one in Australia. So we really, I think, are the largest decarbonising company. We've helped our customers save 14 million tonnes of carbon alone in 2022, which is amazing. It is pretty amazing when you look at inflation, the inflationary pressures, what it means for interest rates, but also government spending. Is this one of your biggest concerns? It's not a concern because really are protected against inflation, as we've seen in our results for 2022.
A very resilient model, but adaptive as well, because we are very international. And, you know, the mechanism of no automatic indexation formula helps us a lot. Is there something that you wish you could do better? I don't know whether it's a piece of technology that you hope you would have that will actually transform the way we do some of these things at a cheaper level. Or I know there's been, for example, a big scale in the UK about the way you process water and some of the holes there to try and keep the water like what do we need to do better? I guess it's not about, you know, the solutions. A lot of them are existing and we
already have a lot of technology. So now it's time to get up to speed of down deployment across the group. And a company like the old guy who's helping that in, you're talking about what risks discuss, which is a big thing. Reuse of wastewater is the solution.
We can develop more and more. In the UK, like in the in the in Europe, decarbonisation use waste and wastewater as an alternative fuel as opposed to importing fossil fuel is another solution. We can deploy more and more. But this is something that's coming in
and that's real. I know we also talk about fusion. How far away are we from, for example, having waste as fuel as something that makes a significant amount of the energy we consume? We already have the technology. We already have the industry or, you know, capabilities. Now, the scaling up is about having all the legislation aligning. Speeding up the authorization and
planning and process. So I guess, sir, this is not the technology was just missing laptops, it's more the speeding up of all the administrative element of it. Are there any components that actually because of the supply chain disruption you're missing to be able to scale up some of these technologies? Actually, we're innovating and a lot in the lithium recovery. Just to give an example. And actually, we have put a lot of energy in R and D to be able to scale up our capability to recycle electric car batteries, because in the electric car batteries, you have lithium, cobalt and NIKKEI, which are very scarce. And actually we think we can mine those to actually extract the metals to be able to go back into the looks of IBEX. I think Elon Musk two days ago was saying that actually you can live without earth rare earths.
He's trying to do these batteries. Do you think that's true? Is that a possible future or is it just too far away? Oh, I guess, you know, like maybe it will be able to do that. But in the meantime, we probably have 5, 10, 15 years where we will need a lot of those rare metals to actually provide, you know, cell phone batteries and electric car batteries. So instead of waiting for a new solution, what about deploying what we have today and speeding up and speeding that? I've talked me just a little bit about France specifically. So there have been a drop problem. And, of course, concerns about water leakages. So what would you implement today to make sure that that stopped going forward? Actually, two things.
You're right. Or France discovered that, you know, water was a such a rare resource that actually you couldn't, you know, just waste it or just use it once. And we have two things we can implement quickly. One is to improve the yield distribution
network of water distribution, because there is still one litre out of five in France, which is wasted in the distribution. Actually, it's even worse in the UK. If I may. And actually and we have a lot of technology to detect the leaks before they happen. And you can imagine it saves a lot of water. And the second thing is to reuse
wastewater. Of course, treated wastewater to go back in to, you know, helping the agriculture sector or the industries to use water, which is reused instead of, you know, taking it from a natural resource. Those two solutions will help save five to 10 years. Very, very likely. But we can have the same in the UK. And actually we've developed these technologies in Spain a lot. So we we have the ability to do better now instead.
Thank you so much for joining us today. That was Estelle Blackburn of the village chief executive, Greg Connors. I hope this is just one of many injuries here in the studio with the village chief executive. Coming up, the UK markets watchdog is launching an investigation into the London Metal Exchange on the halt to NIKKEI trading a year ago.
We have the details next. And this is. Economics, finance, politics. This is Bloomberg Surveillance Early Edition and Francine Lacqua here in London. Let's get straight to the Bloomberg first reduce. Here's the Hungarians. Hi, Leon. Hi, Francine. U.S.
Commerce Secretary Gina Raimondo says the administration is working to blunt the national security risk from various Chinese social media apps. In an interview with Bloomberg, Raimondo said the rules would apply to high profile targets like Tick Tock, as well as other Chinese platforms. What we're worried about is Chinese backed companies being on, you know, tens of millions of American homes, including members of the military and privacy concerns, data concerns, misinformation, concerns that doesn't just apply to ticktock. Now, Bloomberg has learned that Foxconn
plans to invest about 700 million dollars on a new plant in India to ramp up local production. The Taiwanese company, one of Apple's biggest suppliers, plans to make iPhone parts and possibly assemble handsets on the 300 acre site close to the airport in Bengaluru. The new plant could employ about one hundred a thousand people. Bloomberg has learned that Blackstone has defaulted on a five hundred and thirty one million euro bond backed by a portfolio of finished commercial property. Bond holders are said to have rejected the firm's request for another extension to dispose of the assets.
The default comes as rising interest rates hit European property values. Blackstone says it continues to have full confidence and the wider portfolio and its management team. The US is warning companies against doing business with those trying to evade sanctions on Russia. The Commerce Department says companies should watch for points where goods are legally purchased, but then sent on to Russia or Belarus.
Those locations include China, Macao and countries close to Russia, such as Turkey and Armenia. China's workforce has shrunk by more than 40 million people in the past three years. The drop since 2019 is equivalent to almost the entire workforce of Germany and reflects a rapid rise in the number of people retiring as well as the effect of the pandemic. Official data showed some seven hundred and thirty three million people were employed in China last year. Global knees powered by more than twenty seven hundred journalists and analysts and over one hundred and twenty countries.
I'm the Karen's and this is Bloomberg. Francine, thank you so much, Liane. Now, the U.K. market watchdog FCA has opened an investigation into the London Metal Exchange over its handling of a controversial short squeeze in the nickel market last year. Well, for more, let's bring Bloomberg's Johnson branding. Jonathan, exactly what do we know so far? And if you think about it, I mean, this we remember like it was yesterday because it was such high stakes and NIKKEI was falling and they had to shut it down and hedge funds were saying they cancelled my trades.
But why has the investigation taken such a long time to put in place 7:00 a.m. this morning? The FCA announced that they were going to essentially up the ante. They've had a monitoring and review of the London Metal Exchange since the problems in the NIKKEI market first came out in March last year. This is now a step up. This is an enforcement action. And the FCA said they're going to be looking at the LME conduct and systems and controls. So what does that mean going forward, Jonathan? Is there a worry that this could happen again? Is this why they're investigating it? I mean, I think the first the first thing to say is actually that this is unprecedented. This is the very first announced
enforcement action the ACA has ever conducted against an exchange so suggests a pretty serious concern. The ACA opened an enforcement investigation when they have reason to believe serious misconduct may have taken place. And so this will be their review of that. And that's in it.
And also, in addition to the Bank of England also saying separately that the is clearing house must also strengthen governance and improve its risk management. Thank you so much, Jonathan Browning there with the latest on the FCA probe into the LME nickel trading halt. Now we'll be covering all things UK every week on Thursdays at 9:00 a.m.
in our half an hour special. Coming up, we talk to the OSCE secretary general. Positive economic data from China propelled global stocks to their first weekly gain in a month. But U.S. futures dropped as more Fed officials take a hawkish stance on rates.
The FCA launches an investigation into the London Metal Exchange's handling of a short squeeze in the nickel market last year when futures spiked to 150 percent in a little over 24 hours. Plus, China's central bank governor signals monetary policy will remain stable this year with the National People's Congress set to begin on Sunday. Well, good morning, everyone, and welcome to Bloomberg Surveillance Early Edition on Francine Lacqua here in London. Now, the U.S. Secretary of State, Anthony Blinken and
the Russian foreign minister, Sergei Lavrov have met for the first time since Moscow invaded Ukraine last year. The two top diplomats briefly spoke on the sidelines of the G. 20 summit in Indiana. For more on all this, let's bring in Bloomberg's Maria Tadeo. He's in Brussels who had just come back also from Kiev. Hurry up. A brief but rare encounter between
Lavrov and Blinken. So what do we know? Very referencing this meeting between Abe Lincoln and Sergei Lavrov. They had not really spoken since the war started. This relationship for obvious reasons has gone cold.
Yesterday, we should note it was brief. Yes, it was an informal meeting. It happened at the G 20 that is going on with foreign ministers in India. It was brief. If you look at the readout from the
United States, the message conveyed by the American diplomacy is, a, Russia needs to return to a diplomatic solution on Ukraine. But also and this is important to reengage on the start nuclear disarmament program. Remember, Vladimir Putin had suspended that a week ago. When you look at the Russian, however, readout of this, they said the meeting was not very interesting. The other thing that we should note is that, once again, there is no communique. At the end of this June 20 meeting,
foreign ministers again were not able to strike a compromise over the language of the war around Ukraine. This is the second time it happens. Remember, finance ministers were not able to get to a communique, neither they point the finger to China or Russia and for western diplomacy. This is problematic currency because it is a step back from the language that he had agreed a year ago when they called the war a war. Yeah, absolutely. Maria, thanks so much for all of the
terrific briefing there on the ground Maria Tadeo in Brussels. Now let's continue our conversation on Ukraine. The NYSE secretary general, he Korman has just returned from his trip to Kiev as well. The NYSE Council last year decided to
recognize Ukraine as a prospective member country and an important step to the country looking to further integrate with the West. Well, joining us now is the OSCE secretary general. Yes. Korman thank you, Secretary-General, for joining us. Talk to me about the reconstruction of Ukraine. Do you have any insight right now on the
timeline of that would take on the money that would take or is it just too soon? Although the reconstruction is happening right now, I mean, on my visits to Kiev, I had the opportunity to visit Earth, in which of course it was a location where Russian forces attacked and destroyed a bridge, destroyed much of the civil infrastructure, water, energy and other. And you know, what I was able to see was a completely new bridge that was just about completed, all of the water and energy infrastructure replaced and fully functional. So, I mean, what is very important to understand is that reconstruction. Yes. I mean, of course, significant reconstruction will be required after the war. But reconstruction, recovery and reform are happening in Ukraine right now as we speak.
And the government and the people of Ukraine are not waiting for the end of hostilities to continue to improve their country, to rebuild and to look forward, of course. But a lot of actually world leaders are also trying to put in place some kind of framework to, of course, disperse money. This is certainly the case of the European Union, also with a session to the member countries with a list of things that Ukraine needs to do to make sure that they are part of the club. A lot of this will also be on how they
manage, for example, graft or how they manage some of the corruption concerns. What have you seen on the ground? Look, I mean, firstly, the people of Ukraine have really impressed and inspired the world with their courage, their strength, their resilience in the face of this unprovoked, unjustifiable and illegal war of aggression pursued against them by Russia. Now, despite this, I mean, and prior to the war getting under way, the government in Ukraine was already very much on the right path, pursuing reforms, pursuing efforts to modernize, including making sure that they've got the institutional arrangements in place, for example, to tackle corruption.
Now, while I was there this week, the government of Ukraine handed me a letter accepting our invitation for Ukraine to become part of the OSCE working group on bribery in international business transactions, for example, as a participant, which is an important step towards full membership and an important step towards making sure that all of the legislation, policies and practices in Ukraine are consistent with the standards that I expected of a prospective member of the Ori city. So the important point here again, this is another area about Ukraine is not waiting for the end of the war. Ukraine is taking steps now to reform and to modernize.
So Mr. Korman there has also been under closed doors. Talk about seizing further Russian assets to help with the rebuilding of Ukraine.
Where do you stand on this? Well, you know, clearly, Russia has caused this war. This is a war that Russia has started. Russia is causing significant damage and harm, the lives lost, the houses and infrastructure destroyed. I mean, it's just devastating to see what what is happening there. And, you know, whoever causes harm must repair that harm. And you clearly aware that that is that is a very important principle. I mean, but this this is obviously something that will have to be worked through by the international community through the appropriate forum on how that is best and most appropriately done.
But as a principal, of course, you know, Russia should be held to account and should ultimately have to pay for the damage that they have been causing. So do you think we should. Do you support a seizure, for example, of Russian central bank assets to help pay for the Ukraine reconstruction specifically? Well, look, I'm not going to go into the specific measures. I mean, clearly sanctions have been in place and continue to evolve for some time now. I mean, the principle position is that Russia ultimately will have to pay reparations for the harm and the damage that they've done and to help with the reconstruction effort to help finance the reconstruction effort. Dismissive of specific ways in which that is appropriately done is something that the international community has to work through together.
Of course, with Ukraine. And I'm confident that that will continue to be progressed. Mr. Krugman, we also need to talk a little bit about inflation, but also this global tax deal that has been blocked essentially with the US and Europe really clashing quite significantly over the OEC deal.
Where do you see this going forward? Can the EU go at it alone? Well, I don't agree with your characterization there. I've got to say so. You know, we remain quietly optimistic that our proposed reform, which was agreed by about 140 countries and jurisdictions around the world in October 21, we were quietly confident that that will continue to be implemented to make our international tax arrangements fairer and work better in a digitalized and globalized world economy. Pillar 2 The global minimum tax is essentially in place now. I mean, the 27 countries across the
European Union have agreed to legislate. There are many other countries around the world who are legislating. The United States has themselves a version of a global minimum tax already legislated through its so-called guilty regime. And we have recently provided guidance that ensures the appropriate interaction and compatibility between the city, global minimum tax arrangements and the guilty arrangements in the United States. So and in relation to Pillar 2, the reallocation of taxing rights. Yes.
I mean, there are intensive discussions underway, but we we are working towards the necessary compromise to achieve a multilateral convention document in the middle of this year. So when do you say so? By the middle of this year, we'll actually have a deal. And you're right, it actually wasn't my characterization.
It's the French and especially the French finance minister that said, look, this global deal will be blocked. When will we get it? Not well, I've seen. I've seen. Well, I've seen what my good friend and colleague a all now has said.
And I don't think that he quite put it the way you put it. But nevertheless. So there are two components to this deal. There is the reallocation of taxing rights under a pillar one. And it is true that this will require
some more discussions and some more compromising. But but, you know, I'm quietly confident that we will get there by the middle of this year. And in relation to Pillar 2, the Global Bedroom Tax. I mean, that is essentially now in place. And so, you know, from from where I sit,
we continue to progress in an orderly fashion. And, you know, I think that the world needs us to be ultimately successful here, because in the absence of an agreed and implemented multilateral agreement on this, we will continue to see a proliferation of unilateral measures which will put pressure on our international trading system at a time when, quite frankly, we don't need any more pressure on the global economy that is caused by a lack of international cooperation. Well, that's very encouraging news. Thanks so much for your time today. The obesity secretary General Motors. Now coming up with Citigroup seem to be the latest bank cutting jobs will focus on the state of the global labor market. That's coming up next. And this is.
Economics, finance, politics. This is Bloomberg Surveillance early edition of Francine Lacqua here in London. Now, Bloomberg has learned that city has to cut 1 percent of its workforce with those in the investment banking division amongst those affected.
Now the cuts are said to be part of normal business planning. They come just weeks after rival JP Morgan cut hundreds of mortgage employees. Now let's discuss the current state of the labor market with senior euro area economist for Bloomberg Economics, David Powell, and, of course, a Bloomberg economics editor.
Zoe, any advice we have? We're excited, first of all, doing this panel and bringing you both together. We're looking at labor economics and we're definitely look at inflation data. First of all, David, and we've established that David Paul Allen is not related to JPL, which the newsroom is very happy that we put a stop to that rumor. European companies have really recently revealed a string of job cuts, but it doesn't mean that the dynamics of the labour market are changing in any way. Well, it is changing a bit. There are signs and several indicators in the euro area as well as in the U.K. that the that some of this steam is
being taken out of the labour markets. For example, in the UK, the number of vacancies, open jobs is trending downward. That's probably also peaked in the euro area as well. So while the labour markets are very strong in both places, unemployment is close to a 40 year low. There are some signs that monetary
policy tightening is having an effect. OK, so talk about monetary tightening at the same time. So we talk about inflation day in, day out, and really we talk about the path of interest rates. But we need to understand what inflation does next. Lagarde has telegraphed it like a million and 10 times 50 basis points in March. Yes, 50 basis points in March.
So less than two weeks away. Looks completely baked in now. They had already said very clearly in February that they intend to do this. So now that there's no question the data this week just confirmed that the question really now is what happens in May? Markets are now almost pricing 50 basis points in May. And several policymakers have suggested they want that as well. We know that your model is a hawk still. He's gone out quite clearly and indicated this. And if no state is strong, it be
difficult to make a case to go slow down to 25. I mean, if you have to get inflation to 2 percent. Given where we are now and that crazy strong inflation figure from France and Spain this week, I mean, you cut aggressively now and maybe you have peak terminal rates in September and then you kind of slow down.
Does that make sense? I mean, philosophically, is it the right way to do like just hike no matter what comes and then you pause and think, well, the ECB has to be in the minutes yesterday released by the ECB that there's clearly a preference for front loading. So get that. I get that. There's large hikes out there first instead of kind of taking a long, gradual approach. So in all likelihood, by September, the hiking cycle have come to an end. And the governor of the Bank of France has already indicated that they want this all to be over by then and the economy will probably have weakened significantly more by then.
So it will be less need. But the time we pass the summer for more hikes, so likely more soon, more hikes sooner. And then and then a pause. Yeah. And we're speaking yesterday to the chair of solicitation on he saying, look, the problem is that there's always a 12 to 18 month lag on the impact of one to seek monetary policy readjustment to what how do you see this developing? So, yes, that's exactly the problem. The issue is just as a reminder, the ECB is not trying to slow inflation right now. What they're trying to do is make sure that inflation expectations get brought down so that we don't have the danger of a wage price spiral here, that people think inflation is going to stay high for very long.
So that longer and is the whole element here again. Now, if we're doing our math, we've got to. We are. The deposit rate is at two point five
percent right now. We'll get another 50 this month. So that'll be three. Then in May, another 50, that already takes us to four. And then if we think that, as David just mentioned, that there'll be hikes in June, July and maybe even September, that does take us clearly before, which is almost scary. I mean, it is quite scary. I it's certainly a huge shift where we haven't seen zombie companies, we haven't really seen anything ugly hit the economy. Is there then talk about a potential cut
into next year or is this just a conversation that we're going to have in the summer? Phillip Lane has who's the chief economist, said that he backed once they reach which peak it could be there at some time. If I remember correctly, markets right now are thinking that though the peak will stay there for that, they'll stay at that peak for quite a while. I think the ECB still burnt a bit from 2011 when they hiked and then were forced to cut in the same year. It's just been target took over. And they I don't think the ECB would like to seen as flip flopping. Yeah.
Is this a concern about just overall central bank credibility that they need to calibrate it so that they don't over tighten because cutting straight after is just not a good move? Well, they are certainly at risk of overt tightening. You know, if you look at central banking in the run up to this big jump in. Nation, most of the messaging was clearly anchored in what was what. What will happen two years down the road, kind of what their forecasts were, whereas now central banking is reacting to present inflation readings. And that doesn't take into account the
lag you mentioned for monetary policy. So we really not going to see a big impact for kind of twelve to 18 months. And at that stage, it may be quite obvious that they've done too much and they're fearful, right. Of not doing too much. A conversation for the Governing Council is not is also not on page. Yeah. So overall, though, because they know that core that headline inflation numbers are going to be slowing, the hawks have quite clearly shifted to say we need to watch core inflation. And if you look at this week, we know
Haidi Lun inflation among the euro area just fell. It just slowed very little bitches from eight point six to eight point five. Hard core inflation that strips out food and energy that jumped to yet the new record, a five point six percent. And there is.
Oh, yeah. If you look at the models, it looks like at some point now the core inflation will stay hot, high will be higher than headline inflation. And David already mentioned yesterday's minutes. The minutes showed that some policymakers warned that there was too much of a focus on core. But if you look at all the speeches right now, everyone's saying core inflation, core inflation, core inflation, we need to bring that down. And core inflation probably won't peak until the second quarter, I believe.
David, that's your forecast as well. Okay. Thank you both for joining us. David Powell there from our research firm and of course, our economics queen who oversees all of our ECB coverage as a new vice. Coming up, China's National People's Congress kicks off this Sunday. We'll discuss the political and economic implications next. And this is. An expected overhaul of China's financial regulatory regime would likely put more decision making of key economic policies in fewer hands and centralize it under Xi Jinping. And unlike in past policymaker lineups,
academic or international credentials won't necessarily be preferred. Her Li Fung, a close confidant of Xi, will likely be central to this reshuffle. He's expected to be named party chief of the People's Bank of China, as well as successor to Vice Premier Li of her as she's economic czar. The last vice premier who also took a top PBL position was Ju Rongji, whose tough reform style is PBL c governor in the mid 90s helped combat high inflation. The next PBL C governor could be due her seen a veteran banker and most recently the chairman of state owned financial conglomerate Citic Group under his watch. Citic played a major role in rescuing China's troubled debt manager, Juan Wrong.
Unlike current Governor EE Gong and party chief was shooting, neither her nor JU have reputations as academics or economic theorists. But analysts feel the reported leadership moves to install a party official and the veteran banker to key central bank positions could actually usher in more pragmatic and less hawkish policy. Stephen Engle Bloomberg News and staying with China. In a rare briefing previously, Governor Yang reiterated the central bank's prudent monetary policy approach, saying that currency volatility was not a concern. Let's get straight to Rebecca Wilkins,
our Asia government and politics correspondent in Hong Kong's very latest. Rebecca, what were your key takeaways from the briefing? Well, we really saw that China and the BBC are essentially happy with how monetary policy is currently being rolled out. The sort of key phrase here was to keep monetary policy purposeful, targeted and forceful and ensuring stability is really central here. It's unlikely we see much stimulus.
We know that authorities are still reported to be surprisingly happy with the growth numbers that we've seen so far. So focus is really going to be on sustaining inflation at the level it is and continuing to use existing tools like the triple R to manage liquidity. Rebecca, what can we expect from the National People's Congress starting on Sunday? So they'll remove better known economists for more party loyalties if they know governments so well, if they have the support of President Xi so much, can they actually get more things done? Yes, indeed. That's the hope that they will sort of be a sector of policymakers here, but really for see them paying the name of the game is going to be stability. It's all about insuring and restoring stability and calm, not just the financial system in the economy, but also to restore some of these dented crested credibility that she faces after we've seen sporadic protests and social unrest in response to the management of policy makers to Covid. A couple of key items to really look out for.
Growth is one of them. Of course, given the stronger numbers, we may see something more optimistic than a 5 per cent target could be something around 6 percent. Stimulus, as I say, not expecting something massive. And again, we're going to see this restructuring of these key financial institutions who are at the heart of restoring growth. Rebecca, thanks so much.
Rebecca Wilkins, we'll have plenty more, of course, throughout the day on China. And also look ahead to Lufthansa, the chief executive coming on later. This is.
We're in unprecedented times in terms of the volatility of the economic base that we're certainly all beholden to the data at this point. Point twenty three is also the story of yo headwinds from twenty two. Turning into tailwinds, this is a really unusual set of circumstances. Inflation expectations have gone up dramatically over the last 30 to 45 days. This is Bloomberg Surveillance early edition with Anna Edwards and Matt Miller. It's 10:00 a.m. in London, 5:00 a.m.
in New York and 6:00 p.m. in Hong Kong. Our top stories today. Interest rates may end up higher than expected. Central bankers in the U.S. and Europe warn they'll have to go further if inflation stays strong. The Adani empire gets a lifeline. Shares of the Indian billionaire's
embattled companies jumped after an investor makes a one point nine billion dollar bet on them. And Lufthansa sees crowded skies and bigger profits. The German carrier joins its peers in forecasting a travel rebound this year. Welcome to Bloomberg Surveillance Edition. I'm Donna Edwards in London with Matt Miller in New York. Matt, it strikes me we still very much in a post pandemic period, still suffering the legacy of the pandemic in some areas in the labor markets, which remain times in many parts of the world.
Lufthansa taking off because of all that revenge tourism still happening. Yeah, I mean, my two year onset is still wearing a mask. We. Three years on now. But let's take a look at what's going on in stocks right now, because it's really about, I think, an ebbing of interest rates today that's driving futures higher, maybe not driving futures higher, but holding them up a little bit, only up two tenths of 1 percent. And the 10 year yield continues to come
down. That's the tailwind right now off a five or six basis points to just about four, even if you want to go out. What's this, five significant digits? Well, I've never seen us go out five significant digits, but we did it four point 0 0 0 8 right now on the 10 year yield. Yesterday was pretty amazing because we saw the entire curve up above 4 percent. Now we're down below on the 10 year
yield. So we continue to come down there and that's a bigger tailwind for stocks. You can see futures rising a little bit. On that note, Max, crude is down just 14 cents, but still a seventy eight handle on a barrel of West Texas Intermediate. That's as expectations for the pickup in China post Covid zero policy continue. And then Bitcoin after Silver Gate and we'll talk about that. Stock continues to fall today. Bitcoin falls further now under twenty three thousand twenty two, three hundred seventy six. And a in terms of what we see in Asia,
you mentioned the Adani story and I want to bring viewers and listeners attention to this up 17 percent, Adani Enterprises after a big Indian investor makes a one point nine billion dollar bet. Timing couldn't be better, it seems. Or maybe this is the car following the horse. But we'll talk about that throughout the program as well. In terms of the broader market in Asia of more than 1 percent to NIKKEI had pretty decent gains in Tokyo, up one and a half percent.
And the dollar gets a little bit weaker against the yen. Actually, the Bloomberg dollar index coming down a little bit, so weaker against most of its major trading partners. But you can buy one hundred thirty six point one eight yen for your dollar right now. What do you see going on in Europe? Yeah, well, something in Asia certainly ending the week strong. Maybe it's that data looking back to the middle of the week. Let me go take three out of China. That seems to push risk assets a little
bit higher. Maybe that's still having a legacy impact on Europe as well. We see monkeys waving a little bit higher, despite the fact that when we started trading, we had U.S. futures in negative territory. But they seem to come back to the flat line slightly positive. European stocks then making up for what
they missed out on yesterday, catching up with Wall Street just a little bit. So we're stronger across European markets. Most sectors are in positive territory apart from media.
Will come to that in a moment. The pound I put in, the pound I could have put in the euro, we see a lot of dollar weakness and strength in other currencies. Perhaps that's adding to appetite for risk assets today. So the pound at one nineteen eighty
four. This is the auto sector. Interesting to watch developments politically in Europe. Europe has had to put on hold or postpone a vote that was supposed to take place next week on Tuesday, a vote on the future of the internal combustion engine. That's that's been put on hold. And as a result, we see a lot of questions being asked about whether European policy goes on the auto space. Germany had fit.
There were fears that Germany might have abstained, basically, which is why they postponed that universal music group. This is what's weighing on the media stocks here in Europe today. And it's interesting because the numbers themselves, thanks, of course, to a new album from Taylor Swift. I say of course, but I read that in the story at Universal Music Group that beat estimates. But there are concerns about a stock
based compensation for employees. Also concerns around the facts. And that appears to be weighing on the stock today. And here's the natural gas price. Martin, I put this in here because for a couple of reasons. This is the European benchmark. We're down a little bit. Forty five euros is much less than 320. And that's the kind of level we got to when we saw the spike at the height of the invasion of the early days of the invasion of Ukraine.
So that's worth thinking about. We are heading towards some colder weather, though, which is also something to think about. We are many times over the average price in 2020, though, also worth considering where we could fall, too. Also, another reason to include this is that here in the UK we've just had the well at least media in the UK, newspapers in the UK. The Times reporting that Chancellor Honda is poised to extend the energy price guarantee. That is basically support for households on their energy bills.
There's a new Taylor Swift album. Apparently so, and it helped Universal Music. But that was offset by, you know, there was a time when that would have resulted in, you know, tweets from Joe Weisenthal, an opinion column from John Authors, a cover story at Business Week. But now we just know it by rapping left to you and I. Yeah. A story on Universal Music Group.
All right. I'm gonna check that out to Fed. Policymakers are warning the central bank may need to lift interest rates to a higher peak. Atlanta Fed President Rafael Bostic says he's open to raising rates higher than he had envisioned. If the economy remains robust, repeating basically what the Fed's been saying for well over a year now, he's data dependent. Bloomberg's Valerie title joins us for more. Valerie Fed Governor Chris Waller's speech was rudely interrupted.
By, I guess, an adult video and a zoom call. But what did he tell us in this text? We got the text before he canceled his speech. Yes. Thankfully, the text was released on the Internet for all of us to see. He emphasized really that there's still a lot of key data to see him between now and then when the Fed convenes again at the end of March. But this is the key phrase for me. He needs to see CPI pullback significantly else. The terminal rate is going to head
higher. He used this word significantly. And even if we look at what economists have pencilled in for the next CPI print, it is not. It is definitely not forecast to have a significant pullback. So that was a clear hawkish signal from the Fed's Waller. The front end didn't really sell off on this. I found that surprising.
It goes without saying the front end has done a lot of work recently. We have priced in a lot of Fed hikes. Maybe it's time finally for a breather. Maybe it is. And what about the European story then here? Valerie, it to you at the ECB lunch told us that 4 percent terminal, right? That that is possible.
The street has been revising its ECB calls higher for the last 10 days, weeks. What's the latest? U.S. strategists were very busy yesterday revising their calls after the hot and hot core inflation print we got yesterday. Barclays kind of known as a dovish and a double shot, a dovish, dovish bank on their ECB calls, revised up to 4 percent, going for a 50 basis point hike in May. That's following another jumbo hike here at the next meeting in March.
Morgan Stanley and BNP both revising up their calls as well. Up to that 4 percent. Nice round number. But I also want to focus on something that Schäuble said in her speech yesterday. She she had a speech.
It was focused very much on Kuti, gave a lot of details on her thinking there. She said the large stock of assets that they have currently on their balance sheet may undermine their inflation fight and that a balance sheet, the balance sheet is too big. Then what's needed for their policy stance? It's comments like this on Kuti, combined with the fact that we're getting all these hot inflation prints, perhaps the pressure is going to amp up for the ECB to ramp up their Kutty pace.
Remember, Anna, they just started Q2 a few days ago and it's only at a 15 billion per month pace. I wouldn't be surprised if they amp it up. Right. It would take 30 years, apparently, for them to pay it off if they wanted to get rid of the balance sheet. They're still at 9 trillion. Right. The Fed, meanwhile, coming in just under a trillion. Valerie title. Thanks very much for that. Now one of the biggest names in emerging
market in emerging markets investing put an one point nine billion dollar bet on gal Tom O'Donnell's empire, sending the group stock soaring. The move by GQ gene marks the most significant show of support from a major money manager since the short seller report from Hindenburg Lopped. One hundred and fifty three billion dollars off the Indian conglomerates market value. Bloomberg's PR Sanjay joins us now from Mumbai for more. So PR, tell us about this investor. Tell us about the logic behind the bet. So as today, it was the most surprising fact for investors that A G Q G, a boutique investment firm coming in, investing in one point eighty seven billion dollars to be precise, and they have invested in stocks like many key stocks like Adani boats.
And unlike transmission, Adani Green Energy Ltd and the flagship company Adani interprets itself and the logic behind this investment. What? According to G. QED, our dividend is that he's betting on the quantity of assets.
So he's like, for instance, he said, you know, drawing a parallel to Adani puts when you know that the peer group in the US are all having negative cash returns. In this case, I'd only put two. Come on, sit on 30 percent. Market share in India is still having strong cash flows. So he's betting huge on cash flows and quality of assets in the same way.
The same goes with Adani green energy, not only transmission as well. So he believes firmly in the story. And that's why he says that when people are really fearful, it does not to you can be greedy.
That's that's the logic behind this investment, according to you, Jane. Okay. So that's that's his logic. That's why he is is a fan of the companies. And you can see that the impact this is having on stocks trading today, then, is this going to be something that helps Adani turn a corner? No, I don't think this is the only thing. Did they have to line up more funds because their monthly payments thinks that coming. And today as we speak, that is the
interesting route happening at the headquarters bottom at the bottom. Adani Enterprises Ltd. and Darby, what do we pick up as that is going to be moved on to sort of fixed income investors, which will begin from my Middle East to UK to US and which will conclude on March 14th? So the Hill will have to give a lot more reassurances to the investors in coming days. All right, Paul, thanks very much. PR Sanjay reporting from Mumbai. Mumbai on this big move back up in Adani, stocks on a one point nine billion dollar bet.
Now, don't you? Lufthansa has joined other major European airlines and predicting a travel rebound this year. The German flagship carrier expects a significant improvement in the one point six billion dollars in earnings that reported for 2022. Let's get more on this with Bloomberg's Oliver Crook, who's at the company's aviation center in Frankfurt. Ali, the shares blazing higher on earnings. A busy 24 hours for Lufthansa. We're hearing more and more about Emma Chandra.
Take us through the numbers. That's right, Matthew, you had a very busy 24 hours and the quote probably of the day for the CEO who is speaking right behind me there giving a press conference is Lufthansa is back. And that's certainly the sentiment among investors this morning. In a one point five billion. But there are a couple of footnotes attached to this. If you strip out cargo, which has been the kind of savior throughout the pandemic.
This is an airline that's still lost money on passenger traffic. So a lot of this upward momentum in the stock has to do on the outlook and where they see demand coming back. They predict 85 percent to 90 percent of free Covid capacity coming back into into action in 2023. We also had overnight the CEO's tenure being extended by another five years to 2028. And then the other thing.
Twenty two new aircraft, wide bodies, big planes, 17 from Air, 15 from Airbus, 7 from Boeing. So this is all fairly bullish in terms of the outlook. But again, a couple of footnotes attach to that. OK. So a big turnaround then for this business.
What does the flight path ahead look like? Matt was referencing Armani and I know the CEO has talked about the possibility of that. OK. Oliver, I don't know if you heard Anna, but she was asking about the NSA headlines that we saw across the terminal. What do we know? I don't think I don't think Oliver. I don't think I'll ever hear this at all, Frank. Bloomberg's Oliver Crump there.
Maybe our questions drowned out by a 787 Dreamliner. Let's take a look. Some of the stocks that we're watching in the premarket trade today. There are a lot of individual movers. I don't know why, but I picked most of them that go to the downside. Zee Scaler is one of them. You can see it's down more than 12
percent right now after deferred revenue, miss. The average analysts estimate it's weird because they killed it on adjusted P.S. and on overall revenue up 52 percent year over year. But they missed just slightly on deferred revenue, which itself was up 46 percent. The outlook smacked, too. They had CPS 152 to 153 this year. They had seen 123 to 125 and analysts
were only looking for 154. So go figure on that. Marvel Technologies, which makes semiconductors, not superheroes, forecasts adjusted gross margin for the first quarter of about 60 percent. Analysts were looking for 64 percent. That stock is down 9 percent, almost decimated in the premarket. And then Dell fell after delivering a disappointing outlook, stoking fears of a prolonged downturn in demand for computers and office equipment. Revenue will decrease 19 percent
sequentially in the first quarter. The fiscal first quarter, which ends in May, according to the CFO, Tom Sweet Sweet, added that infrastructure, which had led growth in recent quarters for Dell Technologies, will be down more than 20 percent. So big drop there in the forecast and the shares off three and three quarters percent in the premarket. Anna? Well, coming up in the program, then, we will talk to Jeffrey Gill, macro strategist for fixed income at Goldman Sachs Asset Management, to get her perspective on the latest headlines coming through from the Fed steak. Was it really dovish?
Does it sound in contrast to other more hawkish messages? We'll see how the market is is receiving Fed messaging right now. And US President Joe Biden and chancellor of Germany Olaf Schultz are meeting at the White House today. We will s
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