'Bloomberg Surveillance: Early Edition' Full (03/08/23)
This is Bloomberg Surveillance early edition with Francine Lacqua. Good morning, everyone, and welcome to Bloomberg Surveillance Early Edition on Francine Lacqua here in London. Here's what's coming up on today's program. If the totality of the data were to indicate that faster tightening is warranted, we'd be prepared to increase the pace of rate hikes. Investors caught out as Fed Chair Jay Powell opens the door to bigger and faster rate hikes in his testimony to Congress. Global stocks under pressure.
Treasury yields junk. The 2 year yield tops 5 percent for the first time since 2007. The top 10 curve inverts by the most since 1981. Plus, our executive lineup on the International Women's Day. This hour, we're joined by the Deutsche
Bank chief executive for the UK and Ireland TMR. First thing is first, let's check on the markets after we had a lot of volatility and put a lot of change in pricing yesterday. Now, global stock markets today still trying to figure out exactly what they heard from Jay Powell, what that means for expectations of interest rate hikes.
Now, it's very clear that as soon as Jay Powell starts speaking, especially one quote, which we'll get to in a second. It boosted interest rate wagers. There are two banks this morning that were the first ones actually to change their expectations. First of all, asset manager BlackRock are saying actually Fed fund rates cannot reach 6 percent this year. And then Goldman also increasing one of their rate bets. And that means that they're seeing rising above, I think, five point six percent this year. European stocks down at one tenth of a percent. Certainly not the ugly session that we
saw in Asia, but we are seeing a bit more pressure, for example, on the footsie down three tenths of a percent in Italy and Spain. Actually, they're holding onto a little bit of gains, gaining some one tenths of a percent. Now, the Fed chair, Jay Powell, says the central bank will likely lift rates, interest rates higher, possibly faster than previously anticipated. Testifying before the U.S. Senate, Powell sounded hawkish, very hawkish as he hinted at more hikes to come. The latest economic data have come in
stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we'd be prepared to increase the pace of rate hikes. Now to dive deeper into this, let's bring in Bloomberg market reporter Valerie Title. I know there's a lot of people saying,
look, there was a miscommunication last time around, but also in January, let's not mince words. The data completely changed. Everything came in harder than expected. Yeah, that's right. Francine, in his opinion of it, the fact that he is mentioning this pace opening that table for a 50 basis point rate rise begs the question, did he intend to have 50 basis points as the base case when the Fed convenes later this month? Does the data still matter more than his words? And what data do we need to see on Friday to undo all of this market movement that we saw since that key statement from him? Remember, Francine, we'd only heard comments about the pace from the most hawkish of those FOMC FOMC members of which were nonvoters. So the fact that he threw this out there was very surprising to markets.
Twos tends inverted as the tutorial took another leap higher. We hit a low in the ISE session of 1 0 8 basis points negative 1 2 8 basis points for the two tenths curve. Valerie, thanks so much for your time. Tell there. OUR MARKETS REPORTER Now let's bring in Gina Martin Adams, chief equity strategist at Bloomberg Intelligence and Bloomberg's Christine Aquino. So thank you both for joining us. First of all, Christine, I don't know whether it was miscommunication last time around or miscommunication yesterday, but something's changed, right? How aggressive Jay Powell wants to be. Is this because there is a realization that to get to 2 percent, he kept on saying that's their target. They need to somehow it's not crushed
the economy, certainly lower it significantly. Absolutely frenzied. I mean, it was quite the difference in the message from Powell yesterday versus in February. I mean, part of that, I think, is because they have more data to back up the idea that the economy is running quite hot and they're going to have to do a lot more on inflation. But also, Powell probably saw the impact
of his message in February, right. When he was talking about a little bit of easing in financial conditions and also mentioning disinflation, the impact that that has had on markets right where we suddenly were dealing with a no landing scenario. People were thinking, well, maybe the economy will survive this after all. And in just how much that void risk assets in particular, I think he saw that reaction and decided he's going to have to walk back that message, do a complete 180 and re-emphasize the Fed is not done with inflation. And Jim, before we get onto equities, I
guess there was a question that a lot of market participants were assuming that he wouldn't maybe go to that 2 percent. Right. Or that he'd really take his time. And so I don't know what would the biggest surprise in his message yesterday was. Yeah. I you know, I think it really was a short term surprise. As Christine mentioned, it was really
about a reset of expectations on a month over month basis that if you really think about this long term, this has been the story for us for more than a year, is the market constantly goes back and says, oh, maybe, maybe the Fed's going to slow down. Maybe the Fed is going to stop. Maybe the Fed is going it's going to take this too far and they're going to start to acknowledge that. And then the Fed comes back and reminds the market repeatedly that, guess what? We're still focused on an inflation target of 2 percent and we're still nowhere near that 2 percent.
So in a lot of ways, this is just consistent with a longer term picture. I don't want to get too caught up in the short term because the one big consistent message is the Fed is not going to stop and sell data until they see that that's sustainable inflation pace coming through. I think they've got some success to lean on and they might have leaned a little bit too heavily on that early in the year and the markets seized on that.
Right. The Fed started noting, you know, maybe some softening in economic conditions. They started noting some softening in wage pressures. And the markets seized on that really quickly. So this to me is about the market and
the market's natural reaction to it. And under emphasized item, is there like a bias in the markets because they're too optimistic about the scenario or. I don't think that that the Fed will crush the economy.
Well, I think there's a bias, frankly, in the bond market constantly. That has been really problematic over the course of the last two years. And that bias is toward an environment of deflation, disinflation risk as opposed to inflation risk. This is only natural after 20 years of disinflation and deflation of the bond market would be persistently so wrong.
But frankly, that is what's really driving everything. So the equity market looks to the bond market to tell us what is going to happen with the Fed. The bond market is persistently saying the Fed certainly isn't going to take rates too high because we're not going to see this inflation as more than transitory.
The bond market keeps leaning on that. And that disconnect with the Fed is what creates these periods of tension. So, Christine, you look at the inverted yield curve and again, it's been it's never been this inverted since 1981, but there's still quite a lot of pushback in the markets in saying, look, this time is different. I don't know whether it's as reliable an
indicator as before for an impending recession. Yeah. Well, lots of questions over that. Francine Lacqua. I think the bottom line is that it is very reflective of what we're seeing now in terms of how the bond market is trying to digest. His message.
I mean, we have seen quite the run up in short term Treasury bill yields. I mean, the very popular trade this year because cash is king and that's certainly where you can get some of that trade that's yielding quite a bit more now. And then on the long end, of course, just thinking about what is this all going to do longer term to inflation, to growth. And, you know, people are positioning for that now. Right.
And as you mentioned, something has to break. We've seen a lot of emphasis in palace testimony and pushback from lawmakers about the job market in particular. And I think increasingly the signs of poor are pointing to that part of the economy as something that will need to break protocol. So we can see inflation back to target. So what does that mean for companies and earnings going forward? You know, I think earnings are reflecting the broader subset of macro economic conditions more than they are interest rates. Right. We we look at interest rates as a driver
of valuations. We look at macro economic conditions as a driver of earnings growth and what companies are contending with. Now, is this really kind of tough environment in which growth is slowing? Revenue volume sales are slowing down, reflecting the tightening interest rate conditions that we've had, as well as the stage of cycle that we're in. We're anticipating a bout of 5 percent contraction in earnings growth over the course of the next 12 months. The market is saying maybe we're not
going to get quite that much. So there is downside risk to the earnings estimates. And then on the other side, the market valuation multiple is constrained by this notion that interest rates are just going to continue to go higher, at least for the short term. It's really difficult for stocks to experience any sort of really strong upside burst without that support from valuations while earnings are continuing to drag. So it leaves stocks sort of stuck in this range trade. I do believe we went a long way to
pricing a lot of this risk in 2022, and that's why equities have been able to behave reasonably so far in 2023. You have to have a material deterioration in the earnings outlook to see equities sort of pushed to new lows. But in the interim, there's just not a lot of reason to get terribly optimistic. And that leaves us kind of waffling
around, searching for that next stimulus to sort of seize on. Beautifully explained. As always, Gina, thank you so much. Gina Martin Adams, chief equity stress at Bloomberg Intelligence and our very own Christine Aquino from. And now coming up, Deutsche Bank's chief executive for the UK and Ireland, Tina Lee, joins us on this International Women's Day. That conversation is up next.
This is Bloomberg. Although they've raised rates considerably, it's not clear how long the lag effects are for the impact. And once the impact starts to play out, how damaging that impact is, they. They're in uncharted territory.
It's a difficult place to be. Might you know, if I could if I could tell one thing to the chairman. I would I would tend to see less. Citadel founder, chief executive officer Ken Griffin, speaking to Bloomberg exclusively about the central bank being in uncharted territory and limited, actually, how much it can fight inflation with rate rises. Now let's bring in Tina Lee, Deutsche Bank chief executive officer for UK and Ireland. As always, thank you so much for coming on. The workers are kind of like this wait and see limbo in terms of what central banks do as inflation, whether they have to really crash, they come to get to that 2 percent cut target.
They still want that to present as a target. What are our clients feeling okay about the future in terms of markets and the economy? So I think at this point there is definitely been a bit of improvement in mood music over the last couple of months. I mean, clearly here in the UK you have an economy which does look like it is not going to be going into a deeper recession as perhaps even our own economists were predicting a year ago. So whilst we think a recession is going to be maybe five months, last year, we thought it might be eight. So we think that there could be a dip
into a technical recession. But really what that means, I think, is really the outlook for interest rates. And we started to see actually Governor Bailey be slightly more dovish in terms of his comments, particularly last week. And we clearly have an NPC meeting this week. So when I think about our own forecasts, we're anticipating terminal rates about four and a quarter percent. So that means an additional 25 basis
points. So whether that comes this march or it comes later, I think will be interesting to see. And you're confident that that companies can withstand even if they have to refinance. And we spoke, for example, for the term of NatWest saying, look, they, for example, stress tested their clients. I know it's different to what you guys do because it sets mortgages.
But as the economy kind of flexible enough to deal with these interest rate hikes. Yes. Well, we've already started to see a big wave of refinancing already this year. So we've seen a record volume of corporate bond issuance in January, February. So we're certainly not seeing that
stress in the system. So certainly when we look at all credit loan loss provisions, we're actually forecasting, though, it's going to be flat to last year. So where last year we were more concerned around the macroeconomic backdrop. Now it's more around a single name risks that might crystallise over the year.
Where do you want to grow the UK? Probably two main areas, actually three. The first is all the investments that we've been making in UK investment banking over the years in terms of really just hiring of people. What I'm most excited about is actually the investments we've been making in wealth management. Over the last 18 months we've hired
about 35 client coverage bankers here in the UK and we think there's a real opportunity to tap into that ultra high net worth family office space that we can use to leverage our traditional strengths and invest in banking. So today is also International Women's Day. So reflecting on how women are investing differently, maybe investing more, trading differently like it does, that is not reflected in the kind of workforce that you're trying to attract. Absolutely. I mean, we've always been very clear that, look, diversity is absolutely critical for us. And overall, the management board has
set off 35 by 25 targets. So 35 percent of veeps d an M.D. to be female here in the UK. So we've been able to report that we've got a record number of female promotes this year, 42 percent. I mean, it's an amazing number. So for me, it's not just about women at
the top of the organisation, but actually how we continue to really build that pipe and actually make sure that the women within our organisation and are so many talented women coming through, supported get stretch roles, the executive experience and the leadership roles to take that next step. What's your biggest challenge in that retention? So is it know offering flexible hours? Is it? What kind of conversations do you have to have with strong females that you want to keep? We have lots of different conversations. Women have lots of different challenges. So for me, one size doesn't fit all.
It's everything from flexible working career opportunities, mentoring, sponsorship, sponsorship is really key for us. And one of the things we've actually relaunched this year is I'll return this program. So for those highly talented women that perhaps have been out of the workforce for five or maybe 10 years, we want to bring back into Deutsche Bank. Has Covid made a meaningful difference to the upside or to the downside, actually, to recruiting females, because a lot of them also have just not come back to work in the wider economy? That's right. I think it's actually a little bit too early to say. Post Covid. But the way we're looking at it is not just about our female population, but also our male population. So one of the things that we are looking
to do and we've we have announced it is to actually improve parental leave for our male colleagues. Increasing that to 16 weeks. So it's really around helping working families, not just. Paying off female colleagues. All right, Tina, thanks so much. Tina, Deutsche Bank chief executive officer for you can. Stays with us and we'll talk a bit more about Briggs and, of course, the Windsor framework shortly. Coming up, we'll shift the conversation to the UK and discuss the future of the city of London.
We'll get more with Deutsche Bank. That's next. And this is Bloomberg. Economics, finance, politics. This is Bloomberg Surveillance Early
Edition and Francine Lacqua here in London. Still with us to really Deutsche Bank chief executive officer for UK and Ireland. Tina, thank you so much for sticking around. We're talking a little bit about some of the efforts of where you want to grow in the UK as a bank. Talk to me about Brexit. So if you look at the Windsor framework, does it make a meaningful difference for the city of London going forward? I think it's the beginning. So the most important thing for me is
the fact that now that the Northern Ireland protocol was not yet signed is hopefully on its way to be signed. So there's a number of outstanding issues that we have seen post Brexit that have been unresolved and in particular the memorandum of understanding between UK and EU regulators. So whilst in itself, I don't think it's a game changer if I'm honest. What it does, I think is it just sets a really good foundation for future discussions. So when I think about it, it's really around the mood.
Music is the mood music at every level, not just at the regulatory level, but also at the political level that actually gives the opportunity for the UK and the EU to actually have more constructive discussions of how often animal services industry should look. Do you feel like now it's still at the forefront of the government's mind? So we were promised a big bang 2.0 that never really came. And then just the last 10 days, the UK and London specifically has lost to the guy who goes yes to other financial centres. So I think it's twofold.
First of all, the governments, the door is always open in terms of listening to industry and wanting ideas to how one can make London a competitive financial centre. So I think that's really important. Second of all, I think clearly the news around ARM was disappointing. And one of those things that I think, you know, has clearly had a lot of press. However, I think it's important to look
at that just in the context of London as a financial centre. It's not just about listing on the London Stock Exchange. It really is only one element of what is a vast and complex ecosystem.
So when I actually take a look at London as a whole and I think about, you know, the the the amount of global foreign exchange, for example, that is traded here in London, 38 percent of the global flows, more dollars are traded in London than are traded in New York, for example, the amount of hedge funds assets under management here. The private equity presence, you know, this is a marketplace that isn't actually going to lose its competitive ness over time. The other point is it's not just about London and New York. So, yes, it's disappointing. However, as we continue to navigate a multipolar world. We know that our competition is not only going to come from New York, but also from Dubai, from Shanghai, from Singapore, as well as from the eurozone.
So London has to remain nimble. And I think that's the most important thing to remember. But through regulation is different regulation. Is there anything that is there one thing that actually would ask the government today to focus on that would help you attract more investment for your clients and also just do your business here? Yes. So I think there's no one magic silver here.
There's no one thing that I think is going to solve this. I think it's a it's a series of actions that can take place. I think the work around prospectus disclosures is helpful. Retail documentation, again, is helpful. The consultation that is coming out
around the senior managers regime. One thing which I do think is very interesting, however, is the is the secondary objective that's currently going through the financial services and markets bill around the secondary objectives on growth and international competitiveness for the FCA and for the PR. And what that looks like I think will be interesting. So I'm sure there'll be a consultation in the weeks and months ahead and we're very interested to participate in that consultation. We've talked about diversity. We've talked about some of the challenges and opportunities for Deutsche Bank. Does it feel good actually running the
group in the UK and in Ireland at the moment where people having, for example, their bonus pools? I would say this is a great time to be the CEO of Deutsche Bank. Today, we're celebrating our 150 year establishments of Deutsche Bank in London. So it's a real moment for us. So the UK is a great place to be. I think, you know, the tone in the market, certainly January, February, we've started to see a lot more positive noise coming out of our clients. We've seen continued market activity. We've seen continued market volatility.
So we're broadly confident that actually in the latter half of the year, we should see an improvement in the fee pool in origination and advisory. So it's all about talking to clients at this point. Tina, thanks so much as always for joining us. Tina Leder, Deutsche Bank chief executive officer for UK and Ireland, joining us on International Women's Day. Just a reminder, I know everybody knows what we will be covering all things UK every week on Thursdays at 9 p.m.
in our half an hour special. We also have a podcast that goes with it. That is also out every Thursday. Coming up, we continue our conversation. On this International Women's Day, specifically, the gender pay gap has a pandemic recovery hindered the progress in workplace equality? We'll discuss that next. And then stocks really reeling from worries about a recession.
This is Bloomberg. If the totality of the data were to indicate that faster tightening is warranted, we'd be prepared to increase the pace of rate hikes. Investors caught out as Fed Chair Jay Powell opens the door to bigger and faster rate hikes in his testimony to Congress. Global stocks under pressure and Treasury yields jumped.
The two year yield tops 5 percent for the first time since 2007. The top 10 curve inverts by the most since 1991. And the U.K. fires up reserve coal plants for the first time after an electricity shortage amid a cold snap.
Well, good morning, everyone. Welcome to Bloomberg Surveillance EARLY EDITION. Happy International Women's Day. I'm Francine Lacqua here in London. Now, gender equality continues to be a major ESG question for C suite executives and investors as Bloomberg celebrates International Women's Day. Let's discuss the gender pay gap and outside of the business world, how world events are impacting women's rights globally.
Well, here with us, Madison Mills from Bloomberg Quicktake Madison. Good morning. And thank you for coming on. This is a big day. The biggest news, of course, news stories affecting women in the U.S. So let's start with overturning of Roe v. Wade.
Yeah. Fran, I wish that I could give a rosier outlook for International Women's Day. But I'm just gonna go through some of the big news from the past year, starting in the US, like you said, with SCOTUS overturning Roe v. Wade, that triggered outright abortion bans and restrictions in over a dozen states across the US. And we really need to look at Texas here, because a group of women from that state is suing the state, saying that its abortion ban prevented them from getting the health care that they needed during their pregnancies, saying that it prevented them from getting potentially lifesaving care. They had doctors telling them they needed to go outside of the state of Texas to get that care. So that's gonna be really critical to
watch. But I also want to note that this isn't just an issue in the United States. When you look at Nigeria, you can be jailed for up to 14 years if you get an abortion there. In Poland, there are extreme restrictions in Italy.
Doctors can refuse abortions. So this is one of the reasons that the UN human rights chief did come out strongly against the US when Roe v. Wade was overturned, saying that it was a huge setback and blow to women's rights, not just in the US, but globally. The U.N. secretary general has also made the sobering warning, sober warning on women's rights globally. So how is the progress outside of the U.S.
and the rest of the world? Yes, sir. I'm here in the Middle East. So I'm going to start with the big story going on in Iran. Twenty two year old Mussa Meany died after being detained for allegedly violating laws about wearing headscarves outside her death, sparking protests across the country, mainly led by women and girls that have gone on for months. And now we're seeing a potentially and
allegedly some retaliation against those protests with these poisoning poisonings at schools that women and girls are attending school. Schoolgirls in particular. And we're looking to see a response from the Iranian government to those poisonings of hundreds of young girls. I also want to look at Afghanistan after the US troops pulled out in 2021 and the Taliban took back over. We're seeing that women are not able to work. Education is heavily limited.
Women can't divorce their husbands as well. And then we have to look at the situation in Ukraine after Russia's invasion of Ukraine. We're seeing that Russian forces are using sexual assault as a weapon of war. Sex trafficking of women and children has increased. And all of this, like you are
mentioning, Fran, is part of the equation that the U.N. is looking at when getting to that number three hundred years until we can reach gender equality across the globe. And many, of course, on this International Women's Day, we think of all the women and girls in Iraq and Afghanistan and other dangerous places that really, you know, that politicians want to forget. And of course, we don't. Let's also bring in our Bloomberg equality reporter. Olivia cannot be a Hulu with some great stories live. You've done some tremendous works, actually.
So please get your on air today. Talk to us about the current female representation today in the workforce. How does it compare to two male participants and how does the situation change globally? So it does vary across the globe, but roughly speaking, it's about 30 percent. We take it across the globe, but then say, for example, in North America, it's higher at 40 percent. And in the Asia-Pacific region, it's 35 percent. But then also, if you break into those numbers of it, then that kind of mass that obviously women are more represented at lower levels, at lower pay levels.
So if you take the global population of CEOs, for example, then it's about 6 percent women. So I think it took us three. And actually I really read and I urge everyone to go and read your stuff because it's you know, it's great articles that usually really also pull at the heartstrings, like why, you know, why we're not doing better. What are some of the key factors holding them back from breaking through the glass ceiling? And we talk about it right in the NEWSROOM. We've crunched the numbers. Yes. So I think there are there's one
particular phase in life where which really kind of holds women back in the workforce. And that, of course, is what's being described as the motherhood penalty. And so there's the fact is that when women tend to take on more childcare responsibilities, also when their parents are older, they tend to take on more responsibilities. And then there's also phases of life like the menopause. So, for example, women often have health issues which aren't really adequately addressed at work, and sometimes that can also lead them to take a step back.
So how does a gender pay parity change from country to country? Are there incentives that really make a meaningful difference? Well, the EU, for example, is looking to introduce a similar kind of policy to in the U.K. when it comes to gender pay transparency that would kind of mandate large companies to put the gender pay gap. So that's one thing. But then there's also a number of other things like encouraging fathers to take parental leave is a really big fight. It could be a really big factor. And then also making flexible working
the default is not think that a lot of groups are pushing for that. And again, what we tried to look at everything through the economic lens, like if you look at some of the data, how much has Covid impacted females back? Weirdly, at the same time, we're here, for example. And again, it depends on the industries. If you're working in finance and maybe if you're, you know, young, talented female, you're more valuable to a company. But in other parts of the world, we're really seeing a huge retrenchment.
Yeah, I mean, it's critical and I think that what you were saying earlier is so important to look at because it's not just that we're seeing women still continuing to struggle to get to those upper range of management. There's also a huge gap in the opportunities given to women across racial lines. Right. We see that women of color are continuing to be in those lower level mid-level management positions in these companies and struggling to get up to those higher level C suite level positions. There's a really cool function on the terminal you can use to look up some of this data that Dan Carter sent out or earlier.
If you run the company ticker than equity than F a ESG, you can see these statistics. And it really is staggering to look through some of the companies that we talk about all the time and see the makeup both across gender and racial lines at the upper rings of these companies. You've done some fantastic work also focusing really on the UK and how is the divide in certain places is getting much worse. What are you focusing on next?
At the moment, we all really wanting to drill down into childcare. We feel like it's a really important issue. And the fact that it's just very expensive in the UK is really one of most expensive places in the NYSE for a parent. And that puts a lot of pressure on mothers in particular to take time off work. All right. Thank you both for joining us. Olivia, come on to Hulu there and many
emails from Bloomberg. Quick take. Coming up, a cold snap forces a UK to fire up a reserve cold front with plenty more on that next. This is Bloomberg. Economics, finance, politics. This is Bloomberg Surveillance early
edition on Francine Lacqua here in London. Now the U.K. power grid called on a new backup coal fired reserve to generate power for the first time yesterday as a cold snap hit the country. The reserve units were later stood down after a peak evening demand eased as evident with that story. Of course, a pivot to a green economy will not be an easy one.
A new report by investment management from 91 says a transition to net zero will be a disorderly one. Now we're joined by NASDAQ Moolah, chief sustainability officer at ninety one Jonathan Ferro. Thanks so much for joining us and thank you also for joining us, especially in Trash Woman's Day. So we'll talk a little bit about some of the initiatives at your firm. But first, when you look at the energy transition, had we underestimated the pace at which this could happen? And what does that mean for use of fossil fuel, including coal? Hi, Francine, thank you for having me. I think we expect the transition to be linear and easy and it's going to be a lot more complex.
But the fact that you're asking me about the importance of turning on to coal fired reactors yesterday actually speaks to how far we've come in 2012. 40 percent of the UK electricity was generated from coal. This year it's going to be sub 1 percent. 40 percent was generated from renewables. So we've come a long way. We now need to figure out how to deal with the intermittency of renewables. Yeah.
So how do we do that first? I mean, there's many questions about actually, do we still use rare earths going forward? Nuclear fusion. Like, how are you expecting the transition to go as the next two years? Bumpy. And then does it get easier? I think for the next two years, particularly for energy, it's going to work out a lot of these technologies.
So nuclear seems to be making a bit of a resurgence. The US is busy commissioning new nuclear reactors. We didn't think that was possible 10 years ago. Battery technology is evolving at a rapid pace. If batteries get to where the biggest proponents of renewables hope they won't, then that will solve a lot of the problem.
And there's also green hydrogen coming. So all these technologies are in development and the next two years are going to give us a good indication of where we get to are all the investments that they're going to the US setting. Partly this is the Inflation Reduction Act. Partly it's just that there's just more incentives and more technology in the US. And what does that mean for investors wanting to put money here to work in green renewable energy in the UK? So I think the Inflation Reduction Act is a big positive for the US that it's not the whole story. There was a great report on Bloomberg
actually a couple of weeks ago, which showed that once the EU quantified the benefits of their subsidies, they are now comfortable that they actually provide an equivalent, if not slightly more supplies to a lot of the green economy. And I think the UK has also done a really good job. I mean, the rollout of renewables in the UK has been super impressive. But green investment, I mean, we're still hearing about greenwashing. We're still hearing about some of the labels that were put on green products and then have to be taken away.
So how do you handle that? Ninety 91. I think we handle it by dealing with bottom up analysis, so our reliance on those labels is actually really low. So we take a green bond. We have what we call a green bond calculator to actually assess what is happening inside the company rather than saying off to Green Bond. That makes it safe. We can buy that. But it takes a lot more analysis. It takes a lot more work in order for us to get comfortable that something is sustainable.
And I think that's what we need to do for the next little while. Has the energy and often we forget, you know, as the energy complex actually changed investor appetite. So was there a naming and shaming two years ago if you didn't only invest in green now? That's changed because a lot of these huge energy companies are giving such big returns and share buybacks and dividends.
I think the combination of high energy prices and the impact of that on the share prices has made the attractiveness of oil companies as an investment opportunity much higher than it was two years ago. It's very easy to say we won't own oil when oil prices at twenty five dollars a barrel. It's much more difficult at eighty dollars a barrel. So there is that element. But I think what we need to go back to
is CapEx in fossil fuels has fallen dramatically since 2015. That's why we seeing the high oil prices because supply is looking like it's diminishing going forward. And we haven't dealt with demand enough frenzy. So what we need to be doing is investing more in the climate solutions that actually start to deal with the demand for fossil fuels. Concrete, what does that look like? And again, if you're an investor, it's very difficult. You have these heavy emitting sectors and a lot of investor will say, I don't really know what to do with them at this point, but the returns are just too appetizing. So I think what we're looking at is
three pillars. Let's let's let's look at it like that. So firstly, what are we doing to help develop the new climate solutions? So we have a fund called Global Environment Fund. I think you've met my colleague a few weeks ago. Deirdre has done an excellent job in explaining exactly how those solutions are going to deal with demand. We then are dealing with the transition of those sectors that we're going to need for a long time to come. Cement accounts for 7 to 8 per cent of global emissions, steel tonnes to 7, 7 to 8 percent of global emissions.
They're not going away. We need to transition them because we need the output of the renewables to build the buildings for all GDP. And then the last bucket is those sectors like fossil fuels, where we are increasingly engaging with those companies to understand their transition plans to try and hold them accountable for those transition plans. It's not always easy in the current environment, but that is an ongoing project that we're working on a mirror on this International Women's Day.
We also try and highlight some of the economic issues, of course, that hold women back. But economically, it means that you have a big portion of the population staying at home. And that leads, for example, to a tight labor market in the UK. We talked about childcare and we have some great, great analysis, of course, on our website. What are some of the things that you're doing at your firm that really help in retailing females, especially at those crucial times where a lot of either one to leave the workforce or jump ship? I think one of the things I've been very privileged to have in my career is as I've had a child have flexibility. It doesn't mean I'm worthless. It means I've been able to shift the time around in order to deal with that.
And I think that's one of the things we try and provide. And it's going to sound like a small thing that actually I think it's enormous. The senior leadership in our business that are men also spend time with their children because that equalizes everything. Right.
So that makes it okay. If our head of distribution was taking Tuesday afternoons off to watch your son play cricket now, it makes it OK for women to say, hey, I've got to go to my daughter's dance recital. It's not something that you get embarrassed about.
It's me. And you have to do what's necessary. Yeah, you hear that more and more as well. Thank you so much for coming onto this mirror. Will other chief sustainability officer at 91. Now let's get straight to your Bloomberg First World News here.
Samuel Chen, heightened by Francine. President Xi Jinping has unveiled a sweeping overhaul of China's bureaucracy. It includes the creation of an enlarged national financial regulator and a new agency to manage data. The revamp aims to make the economy more self-reliant as the US ramps up blocks on China obtaining advanced technology. The White House has endorsed a bipartisan bill that could give President Obama an authority to ban or force a sale of ticktock. The move could break a deadlock over how to handle privacy concerns around the Chinese owned app. The bill doesn't explicitly mention Tick
Tock, which has 100 million users in the US, but it's clear the app is the main target of the legislation. And Intel is said to be seeking more subsidies from the German government to move ahead with a chip plant in the eastern part of the country. Sources tell Bloomberg the chip designer wants an additional 4 to 5 billion euros on top of an earlier, a deal worth 7 billion euros. Intel had delayed the start of the project due to economic headwinds and the UK are anti-union has called off a train strike next week after receiving a new pay offer from Network Rail, which runs infrastructure and substations. Other strikes are still set to go ahead. Train operating companies later this month. The country's railways have been beset by industrial action in a long run dispute over pay. And Bloomberg sources say Germany will
likely prohibit some components made by while away from the country's 5G wireless network. An Interior Ministry paper on the ban is seen by Bloomberg shows supply could be restricted from providing key parts if it's directly or indirectly controlled by another government. The US, UK and EU have become increasingly focused on security risks posed by Chinese firms. And that's your Bloomberg first word. Thank you so much again. Coming up, taking the rap added ISE cuts its dividend as earnings take a hit from the split with rapper.
You will dig into the numbers next. And this is Bloomberg. Economics, finance, politics. This is Bloomberg Surveillance early edition of Francine Lacqua here in London. Now, I did ask shares dropped this morning after the German sportswear maker announced a dividend slash. Analysts were also disappointed, but the new chief executive's lack of firm targets.
Let's get straight to our very own reporter, Oliver Cook. The man also loves a trainer or two, so only. What were the main key takeaways? Yes. Francine, it's an earnings report that is pretty light on good news.
So let's start with that. So last year sales were up 12 percent in North America, up 44 percent in Latin America. And that just about exhausts the good news out of that earnings report. You had 4 percent growth in Asia Pacific, which is still growth.
But if you look at China, sales were down 36 percent last year. They did a miss on the dividend. Revenue is going to fall. They project this year in the single high digit percentage figures.
I mean, it's all about the consumer in China. It's about the consumer more broadly. It's about whether inflation is going to bite and whether consumers are going to start pulling back on this. But also, they have way too much inventory in the United States.
Here in Europe. And of course, the big inventory question, which is the big question throughout all of the RTX, is what is going to happen with the one point three billion dollars worth of easy inventory that they can no longer sell? Yes. What do we know will happen right now? How much of the downfall or actually the concerns is it is because of this? So this is absolutely huge and they're projecting a their first loss. If they can't sell any of it, their first loss in 30 years this year. So, you know, one point three billion dollars in lost sales. Five hundred million dollars in terms of
profit. If you look at their profit last year, it was only about six hundred and sixty nine million. That's almost 75 percent of their total profit.
They're saying it might be lost as a result of this easy partnership. So what are they going to do with it? Are they just going to dump these sneakers? Are they going to try to? Apparently, you cannot take the logos off because they're woven in. So these are very high margin products and it's very hard to see how they're gonna resolve this if you dig into the annual report. However, they did say that there is a 15 to 30 percent chance that they might be able to sell on. They're currently in legal disputes with Kenya West about this. But if you look at the secondary market, if they're able to sell it, it is holding up very well on eBay.
There are more than 40000 listings for easy does easy and some of them are going for twenty five thousand dollars. I mean, it's crazy. I love the fact that you did the market research Jihye Lee, I would expect nothing less. So outside, yousee, how are things looking? So we have the new CEO and it's been a really roller coaster since he was announced, so he was announced back in November. The shares rallied almost 50 percent. He's 57 years old. He's a Norwegian and he's known for the turnarounds, for turning companies around. He spent nine years of Puma, where he doubled sales over that period of time, which is why you had so much exuberance in the market when he was appointed.
However, he takes over in January and he drops this bomb in February about the easy and the problems ahead. And he's facing a very, very stark picture. So is this partially a management technique to get all of the bad news out? Set the bar a little bit lower and then start the turnaround? I think that that could be part of it, but he'll certainly be an interesting twelve months ahead. It certainly will. An interesting twelve months. That's the euphemism of the year, Ali.
As always, thanks so much. Ali Cook there with the very latest on Adidas added us. We asked the former chief executive how you pronounce it, and he said it doesn't matter as long as you buy the shoes. The picture for markets, I guess, a little bit more stable than it was about an hour ago. But still, they're reeling from concerns
about recession. They want to understand more about what Jay Powells boosting interest rate wagers means for sure, an asset class and of course, that had driven up Treasury bond yields and revived fears that the US will not be able to dodge a recession. Bloomberg Surveillance EARLY EDITION continues in the next hour. Matt Miller and Anna Edwards. Of course, in London and New York, this is Bloomberg. About the fat.
All right. Thanks very much to you. Yes. Thanks, guys. When she back or do we not know? Yeah. No, I don't blame them. I did.
I took everything out and more. In fact, the second time I quit. This is cool. No, I just forgotten when they when. When she left. Oh, that's not so long. Yeah. Oh, whips. Sorry, I forgot the.
I don't say 90. Man, I wish Silver Gate and Adidas and have a very similar color scheme. Thank you. I saw it on YouTube. I actually like a few times a week and I think I sort of empathize with. Inflationary pressures are running higher than expected, but over time we can achieve 2 percent inflation and we will. We will stay the course until the job is done.
The interest rate tool as a means of controlling inflation is a second. It's a Kevin surge with a dull knife is a really difficult tool to get the job done with. It's not going to be quite as I think easy for them to navigate this as out as they seem to think. This is Bloomberg Surveillance early edition with Anna Edwards and Matt Miller. He's telling him in London, 5:00 a.m. in New York and 6:00 p.m. in Hong Kong. Our top stories today, a warning from Fed chair Jerome Powell.
The central bank may need to speed up interest rate hikes in order to tame inflation added asteroids to move past the easy fiasco. But it's still not clear what the German shoe company will do with one point three billion dollars worth of products. And the cryptic, friendly bank, Silver Gate looks for a way to stay in business. U.S. regulators all talking with managements about how to avoid a shutdown. Welcome to Bloomberg Surveillance Early
Edition. I'm Anna Edwards in London with Christine Gupta in New York. Matt Miller is off today. And Christine, we heard from Jerome Powell. We certainly heard from Jerome. Piled on. The markets reacted. We'll hear again today.
We have slowly well enough going to be another focus because you saw the stock market especially sell off on those comes essentially higher for longer is a message from Chairman Powell. No surprise to the bond market, but still enough to push those risk assets lower and something that you could see rebound just a little bit today, at least in the early session. Take a look at futures higher by about one tenth of 1 percent. This is important, but perhaps not seeing as much conviction as we would expect in that direction. And really a lot of caution right now.
Anna, on this idea that, well, there may be even more hawkish talk ahead, which people could be very sensitive to. To me, though, the stories in the bond market, because the 10 year yield getting closer to that 4 percent level, a two year yield sustainably above 5 percent. What does that mean for the curve and version of the 2 10 spread? We are now at negative 106 basis points for international audiences. Recessions usually get to negative 50 basis points back in the 80s, the Volcker era negative 200. Are we set for a repeat of that deflationary story and I'm screwed? Might be a good indicator of that 77 handle right now if we are set for that kind of repeat.
That's where we're going to see a lot of pressure right now. The only lower by about three tenths of one percent on the day, really following a little bit of the risk sentiment. The Bloomberg dollar index, an interesting story, higher by about one tenth of one percent stronger.
But really, most of its strength or most of its price action is coming from Asia, which is interesting because most of the kind of action in Asia on the equity side was really a direct result of what you saw in the U.S. session, simply this idea that markets were dropping. But to me, the currency picture is really, really important when it comes to the Asian story. And overnight, you did see a lot of
different kind of metrics to measure that across the board. Asia Pacific Index down about 1 percent on the day with the outperform or was the NIKKEI Japanese equities kind of one of the only major benchmarks in the green higher by about five tenths of one percent. But again, the currency story is important because you did see that dollar strength come in the Japanese yen and the Korean one, which, by the way, overnight signed an agreement to kind of lessen some of the tensions that are there, something that's very important to life, the president Biden, who's trying to have a united front in Asia against potential aggression from China in North Korea. So that's something that's really reflected in the equity markets here, Anna, when it comes to dollar strength. DAX. So watching the dollar, dollar strength,
certainly a feature of the past 24 hours, Kristie. The European equity market picture looks pretty mixed actually. We're managing to eke out some gains in southern Europe. The German market also up by one tenth of a percent. But broadly speaking, we're heading lower.
Most sectors in Europe are in negative territory. So this is pretty broad based. We have the banking sector going higher and that's all to do with higher rates and the higher rate environment that seems to be lifting some of those bank stocks.
I should make mention of a breaking news line, euro area GDP failing to grow in the fourth quarter. The initial estimate for DAX. Inflationary pressures are running higher than expected, but over time we can achieve 2 percent inflation and we will. We will stay the course until the job is done.
The interest rate tool as a means of controlling inflation is a second. Having surged with a dull knife is a really difficult tool to get the job done with. It's not going to be quite as I think. Easy for them to navigate best as out as they seem to think. This is Bloomberg Surveillance early
edition with Anna Edwards and Matt Miller. Is telling him in London, 5:00 a.m. in New York and 6:00 p.m. in Hong Kong. Our top stories today, a warning from Fed chair Jerome Powell. The central bank may need to speed up interest rate hikes in order to tame inflation added asteroids to move past the easy fiasco. But it's still not clear what the German shoe company will do with one point three billion dollars worth of products and the crypto friendly bank. Silver Gate looks for a way to stay in
business. U.S. regulators are talking with managements about how to avoid a shutdown. Welcome to Bloomberg Surveillance Early Edition. I'm Anna Edwards in London with Christie Gupta in New York. Matt Miller is off today. And Christine.
We heard from Jerome Powell. We certainly heard from Jerome. Piled on. The markets reacted. We'll hear again today. We have slowly well enough going to be another focus because you saw the stock market especially sell off on those comes essentially higher for longer is a message from Chairman Powell. No surprise to the bond market, but still enough to push those risk assets lower and something that you could see rebound just a little bit today, at least in the early session. Take a look at futures higher by about
one tenth of 1 percent. This is important, but perhaps not seeing as much conviction as we would expect in that direction. And really a lot of caution right now. Anna, on this idea that, well, there may be even more hawkish talk ahead, which people could be very sensitive to. To me, though, the stories in the bond market, because the 10 year yield getting closer to that 4 percent level, a two year yield sustainably above 5 percent. What does that mean for the curve and
version of the two 10 spread? We are now at negative 160 basis points for our international audiences. Recessions usually get to negative 50 basis points back in the 80s, the Volcker era negative 200. Are we set for a repeat of that deflationary story and I'm screwed? Might be a good indicator of that 77 handle right now if we are set for that kind of repeat. That's where we're going to see a lot of
pressure right now. The only lower by about three tenths of one percent on the day, really following a little bit of the risk sentiment. The Bloomberg dollar index, an interesting story, higher by about one tenth of one percent stronger. But really, most of its strength or most of its price action is coming from Asia, which is interesting because most of the kind of action in Asia on the equity side was really a direct result of what you saw in the U.S. session, simply this idea that markets
were dropping. But to me, the currency picture is really, really important when it comes to the Asian story. And overnight, you did see a lot of different kind of metrics to measure that across the board. Asia Pacific Index down about 1 percent
on the day with the outperform or was the NIKKEI Japanese equities kind of one of the only major benchmarks in the green higher by about five tenths of one percent. But again, the currency story is important because you did see that dollar strength come in the Japanese yen and the Korean one, which, by the way, overnight signed an agreement to kind of lessen some of the tensions that are there, something that's very important to life, the president Biden, who's trying to have a united front in Asia against potential aggression from China in North Korea. So that's something that's really reflected in the equity markets here, Anna, when it comes to dollar strength. DAX. So watching the dollar, dollar strength, certainly a feature of the past 24 hours, Kristie. The European equity market picture looks
pretty mixed naturally. We're managing to eke out some gains in southern Europe. The German market also up by one tenth of a percent. But broadly speaking, we're heading
lower. Most sectors in Europe are in negative territory. So this is pretty broad based. We have the banking sector going higher and that's all to do with higher rates and the higher rate environment that seems to be lifting some of those bank stocks. I should make make mention of a breaking
news line, euro area GDP failing to grow in the fourth quarter. The initial estimate for that growth number was zero point one percent. So we had expected that the fourth quarter number would come in slightly positive, didn't it? Came in flat. So raising questions, perhaps not new ones about just how resilient or otherwise the European economy has been to all the things that were thrown at it around the winter with higher energy costs and the like. Talking of energy costs. Well, one sector that's not doing too
badly today. That is also an auto parts, but it's the auto parts side that's actually on the optimistic front. So Continental based over in Germany, the auto parts supply up by just shy of 5 percent as the company put out a fairly upbeat outlook, according to some of the analysts, ADM Group and insurance business in the U.K. I mentioned this one. It's not the biggest, but there are other insurance groups reporting this week.
So this could be important. The profits they're able to make at their U.K. car insurance business seems to be part of the disappointment and that stock moves lower Ziva down. This is a fragrances business, a sense and fragrance flavors and fragrances business. And they confirmed last night that they all the subject, along with others in the sector. It would appear they are the subject of a probe and anti competition probe, anti-trust probe by EU and Swiss regulators.
So certainly we'll keep an eye on that sector as a result. I'm talking about rising yields and that's what we've we've seen, Kristie, along with the falling share prices, rising yields, rising dollar. Well, that continues to be the case into the UK session as well into the European session. More broadly, European yields have been
going higher for the last few hours. U.K. yields also going higher. And we're now talking about a peak rate in the U.K. We're now starting to fully priced that end of 5 percent, which is something we haven't seen since, I think October, Kristie. Yeah, that four, five, six story of the ECB being we and the US is starting to come true as we get closer and closer.
Central bank certainly in focus, especially today stateside. Fed chair Jerome Powell said the central bank will likely lift interest rates higher and possibly faster than previously anticipated, testifying before the U.S. Senate. How how did. Hawkish as he hinted at more hikes to come. Take a listen. The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be to be higher than previously anticipated. If the tot