Bloomberg Markets Full Show (07/04/2022 - 9-11AM)
>> FROM THE FINANCIAL CENTERS OF THE WORLD, THIS IS BLOOMBERG MARKETS WITH ALIX STEEL AND GUY JOHNSON. DIE: IT IS 9:00 IN NEW YORK, HAPPY FOURTH OF JULY. THESE ARE THE MAIN STORIES WE'RE ARE TRACKING FOR THIS JULY. GAS PRICES CONTINUE TO SOAR IN EUROPE, TRADERS ARE TURNING THEIR ATTENTION TO STRIKE SPINE REGION ENERGY WORKERS.
-- NORWEGIAN ENERGY WORKERS. GERMANY SEES ITS FIRST MONTHLY TRADE DEFICIT IN 30 YEARS. THE PRICES OF IMPORTANT FOOD AND ENERGY SURGE. DESPITE ALL THIS, THE ECB WILL SEEK TO DECARBONIZING ITS BALANCE SHEET. INTERESTING TIMING ON THAT. FROM LONDON, I AM GUY JOHNSON.
WELCOME TO BLOOMBERG MARKETS. LET'S TALK ABOUT WHERE WE ARE WITH THOSE MARKETS RIGHT NOW. THIS IS THE PICTURE WE FIND OURSELVES WITH. WE HAVE VERY LIGHT VOLUME. THE U.S. IS OUT, THAT IS IN THE EUROPEAN MARKETS. THAT IS LARGELY REACTING TO THE FRIDAY WALL STREET CLOSE. ENERGY STOCKS ARE SIGNIFICANTLY
BIG. WE WILL TALK MUCH MORE ABOUT ENERGY THROUGHOUT THE SHOW. THE GYM AND -- GERMAN 10 IS OFF. IT WAS MASSIVELY BIG TOWARD THE BACKEND OF LAST WEEK. WE'VE BEEN AS HIGH THIS YEAR AS 1.7.
THAT CAN CONTRACT DOWN THERE AT THE BOTTOM, THAT IS DUTCH NATURAL GAS. THAT'S A CONTRACT WE USE ALONG THE U.K. IT IS UP SHARPLY TODAY. PAY ATTENTION TO THE STORY, IT'S GOING TO BECOME MORE PROBLEM ATTIC AS WE HEAD THROUGH SUMMER AND INTO WINTER. IT IS A KEY DRIVER OF THE
GERMAN DEFICIT AND THE INFLATION NARRATIVE WE ARE WATCHING. LET'S TRY TO GET ALTOGETHER. WE WILL SEE WITH THE SECOND HALF IS GOING TO LOOK LIKE AN UNDERSTAND WHERE YOU CAN PUT YOUR MONEY TO WORK. THE INFLATION NARRATIVE HAS DOMINATED THE FIRST HALF. IT THE RECESSION NARRATIVE WILL DOMINATE THE SECOND HALF.
HOW DO YOU NOT LOSE MONEY IN THE SECOND HALF OF THE YEAR? LET'S BRING IN AN INFRASTRUCTURE CAPITAL ADVISOR MANAGER. HAPPY FOURTH OF JULY. THANKS FOR JOINING US RIGHT AND EARLY. LET'S TALK ABOUT THE SECOND HALF OF THE YEAR. THE FIRST HALF WAS VERY BUMPY. HOW DO I AVOID LOSING MONEY IN THE SECOND HALF? >> IT'S GREAT TO BE ON. HAPPY FOURTH. THE FIRST THING IS THERE IS ONE CRITICAL ELEMENT THAT ALMOST EVERY INVESTOR IS MISSING GLOBALLY. THAT IS THAT THE FED IS NOT BEHIND THE CURVE.
THEY HAVE BEEN NEUTRALIZING THEIR BOND PURCHASES FOR OVER A YEAR. THEY ARE SHRINKING THE MONETARY BASE THIS YEAR BY ALMOST 15%, WHICH IS THE FASTEST SINCE THE GREAT DEPRESSION. IF YOU LOOK AT THE COMMODITY MARKET, THE FED HAS BROUGHT DOWN THE PPI TYPE INFLATION.
COMMODITY INFLATION IS DOWN BY 20%, DRIVEN BY A LOWER MONETARY BASE WHICH DRIVES THE DOLLAR UP 10%. WE THINK THE SECOND HALF, AT LEAST THE MARKET WILL FIGURE THAT OUT. THE RISK IS THE FED IS BEHIND THE CURVE. THEY ARE MORE KEYED IN.
THEY MAY BE THE LAST TO FIGURE OUT THEY'VE CARVED INFLATION. WE THINK WE ARE NEAR THE BOTTOM. YOU CAN ENTER THE BOND MARKET. WE THINK WE ARE STABILIZING 3% IN THE AREA WHERE WE ARE STABILIZED ON THE 10 YEAR IN THE U.S. WE THINK YOU CAN MAKE MONEY IN BONDS, DEFENSIVE DIVIDEND STOCKS, IT'S NOT TIME TO GO INTO BITCOIN OR PROFITLESS TECH. THERE ARE A LOT OF BARGAINS OUT THERE ON DEFENSE STOCKS IN THE BOND MARKET. GUY:
IT SOUNDS LIKE IT STARTS ULTIMATELY WITH SOME STABILIZATION IN THE U.S. 10 YEAR. LAST WEEK WAS INCREDIBLY WHIPPY. YOU THINK THERE IS MORE DOWNSIDE SIGNIFICANTLY ON THAT 10 YEAR YIELD? DO YOU THINK IT'S GOING TO STABILIZE AROUND 3%? WALK ME THROUGH THAT BOND TRADE. >> I WOULDN'T NECESSARILY GO BY TREASURIES. A LOT OF FIXED INCOME SECURITIES, WE LOVE PROPS OVER PREFERRED STOCKS. THE TREASURIES STABILIZE, THAT PROVIDES A BID FOR ALL ASSETS. THE 10 YEAR IS A KEY DRIVER OF
THE VALUATION. OUR VALUE ON THE S&P IS 4400 AT ROUGHLY 3% 10 YEAR. THAT WOULD DROP 15%. IT DOESN'T JUST STABILIZE THE BOND MARKET, IT STABILIZES THE EQUITY MARKET. WE ARE REASONABLY CONSTRUCTIVE. WE DON'T THINK THE NEXT REPORT WILL BE GOOD IN JULY. THE REPORT THE COMES OUT IN A
WEEK FOR JUNE, THE JULY REPORT THAT COMES OUT IN AUGUST, COMMODITIES WILL BE DOWN, GAS PRICES ARE DOWN. OUR NATURAL GAS PRICES ARE DOWN 33 PERCENT WHILE EUROPE IS SKYROCKETING. U.S. INFLATION SHOULD COOL OFF IN THE FALL. WE THINK THAT'S A GOOD BACKDROP TO MOVE INTO ASSETS. SEPTEMBER AND OCTOBER ARE USUALLY VOLATILE. WE COULD CATCH A PANDEMIC LEVEL
IN THE FALL. BUYING DIVIDENDS AND FIXED INCOME NOW IS PROBABLY THE WAY TO REENTER THE MARKET. GUY: LET'S STICK WITH EQUITIES. THE EARNINGS SUSAN IS SOON TO BE UPON US. WHAT WILL THAT DELIVER?
>> IT WILL MOSTLY BE WINNERS, CLEARLY SOME LOSERS. BUT A LOT OF VIEWERS IN THE U.S. DON'T APPRECIATE IS EUROPE'S LOSS IS THE U.S. GAIN. IT'S NOT JUST ENERGY. IT'S ALSO MATERIALS INCLUDING STEEL, CHEMICALS, FERTILIZER.
YOU MENTIONED THERE MIGHT BE SHUTDOWNS IN EUROPE. GUESS WHERE THAT SHORTFALL IS COMING FROM? THE U.S. THAT'S A HUGE SUPPORT FOR EARNINGS AND THE FUNDAMENTAL ECONOMY. WE DON'T THINK THE U.S. WILL HAVE A SIGNIFICANT RECESSION. IT'S OFF THE BACKS OF FAILED ENERGY TRANSITIONS.
WE THINK UTILITIES WILL BE STRONG. SOME CONSUMER STOCKS WILL BE WEAK BECAUSE THEY ARE MOVING FROM GOODS TO SERVICES. GUY: IS THIS THE FABLED'S TO -- SOFT LANDING -- FABLED SOFT LANDING? >> WE THINK SO. WE COULD HAVE NEGATIVE GROWTH THIS QUARTER. THAT DOESN'T MEAN IT'S A RECESSION. NORMALLY, RECESSIONS ARE CHARACTERIZED BY SIGNIFICANT INCREASES IN EMPLOYMENT, WHICH WE DON'T SEE. ALL OF THE MANUFACTURING
BUSINESSES ARE BOOMING. OUR HOUSING SECTOR IS VERY STRONG. WE HAVE A SHORTAGE OF HOUSING. NORMALLY THERE ARE TREMENDOUSLY OFFICE AND HOUSING.
WE MIGHT HAVE A RECESSION, BUT NOT A SIGNIFICANT INCREASE IN UNEMPLOYMENT OR DEFAULTS. WE THINK IT'S GOING TO BE A 2001 STYLE VERY MILD RECESSION. DIVIDEND STOCKS DO WELL ON A RELATIVE BASIS. WE DON'T SEE ARMAGEDDON FOR THE U.S.. EUROPE IS HEADED INTO RECESSION. THE U.K. IN ITALY PARTICULARLY, THEY
HAVE EXCESSIVE EXPOSURE TO NATURAL GAS. WE ARE CONSTRUCTIVE ABOUT THE U.S. GUY: GIVEN ALL THAT, YOU ARE SAYING YOU DON'T THINK THERE IS GOING TO BE US RECESSION -- A RECESSION OR WON'T FEEL LIKE ONE. THE HOUSING MARKET STILL LOOKS VERY STRONG. YOU THINK WE CAN IT CONTINUE TO DELIVER GROWTH DESPITE THE FACT THAT WE STILL HAVE SIGNIFICANT SUPPLY-SIDE ISSUES? I HEAR WHAT YOU ARE SAYING ABOUT COMMODITY INFLATION MAY COME DOWN. IT'S NOT JUST COMMODITY INFLATION DRIVING THE ISSUES WE HAVE. IT IS SHORTAGES ACROSS THE
SUPPLY CHAIN. MANUFACTURERS ARE COMPLAINING ABOUT THAT. THEY ARE STILL FOCUSED ON THE FACT THAT THERE ARE SHORTAGES. WHY IS THE FED NOT GOING TO CONTINUE TO HIT THAT ISSUE VERY HARD? >> WE THINK THEY ARE. THEY ARE PERPETUALLY BEHIND THE CURVE. THEY ARE -- POWELL IS VERY MUCH
A POLITICIAN. HE WAS TRAINED AS A POLITICIAN. WE THINK THEY WILL OVERSHOOT LIKE THEY NORMALLY DO. THAT COULD RISK MORE OF A DOWNTURN IN THE U.S. IF YOU LOOK AT OUR INFLATIONARY EXPECTATIONS, YOU CAN LOOK IT UP ON THE TERMINAL, THEY COME DOWN 1% OVER THE LAST THREE MONTHS. THE FED DOESN'T REALLY LOOK AT THAT. THEY SHOULD.
WE THINK WE ARE ON A PATH TO REDUCE INFLATION AND COMMODITIES ARE SIGNALING THAT. IT IS A RISK THAT THE FED IS LOOKING IN THE REARVIEW MIRROR, COMPLETELY BEHIND THE CURVE, THIS TIME ON INFLATION IMPROVING AND THEY KEEP SHRINKING THE MONETARY BASE. THAT'S NOT GOOD FOR STOCK AND BOND MARKETS.
THAT'S WHAT THEY DID IN 2018. HOPEFULLY THEY BACK OFF TOWARD THE END OF THE YEAR. GUY: ENJOY THE FOURTH. WE APPRECIATE YOUR TIME. THANK YOU VERY MUCH INDEED. WE NEED TO KEEP YOU UP-TO-DATE WITH WHAT'S HAPPENING AROUND THE WORLD. HERE IS AN OPPORTUNITY TO DO THAT. >> PRESIDENT BIDEN REPORTEDLY MAY LIFT SOME OF THE TRUMP ERA TARIFFS ON CHINESE GOODS SOON. ACCORDING TO THE WALL STREET
JOURNAL, THE PRESIDENT COULD ANNOUNCE THAT THIS WEEK. JANET YELLEN HAS CALLED THE TARIFFS DRAGGED ON THE ECONOMY. OTHERS SEE TARIFFS AS LEVERAGE TO GET CONCESSIONS FROM CHINA. RUSSIAN TROOPS ARE COMING CLOSER TO THEIR GOAL OF TAKING OVER THE DONBASS REGION. FORCES WITHDREW FROM A KEY CITY, SAYING THAT EXTENDING THE DEFENSE WOULD HAVE LESS FATAL CONSEQUENCES.
UKRAINE WILL UNVEIL A BLUEPRINT FOR REBUILDING THE COUNTRY. IT'S EXPECTED TO COST HUNDREDS OF BILLIONS OF DOLLARS. THE BIGGEST CYBER SECURITY BREACH IN CHINESE HISTORY, HACKERS CLAIM TO OF STOLEN DATA FROM ONE BILLION AT RESIDENCE IN CHINA AFTER BREACHING A POLICE DATABASE. THEY OFFERED TO SELL 23 TERABYTES OF DATA FOR $200,000. GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BERG WICK TAKE, POWERED BY 2700 JOURNALISTS AND ANALYSTS. THIS IS BLOOMBERG. GUY: THANK INDEED. CREDIT SUISSE CUTTING IN ASIA.
WE WILL FIND OUT WHAT'S GOING ON. THAT'S NEXT. THIS IS BLOOMBERG. ♪ GUY: 40 MINUTES -- 14 MINUTE PAST THE ARE. CREDIT SUISSE IS CUTTING FRONTLINE ROLES. THEY GRAPPLE WITH LOSSES AND A WEAKENING OUTLOOK FOR THE GLOBAL ECONOMY. JOINING US IS OUR FINANCE
REPORTER MICHAEL MOORE. THANKS VERY MUCH FOR JOINING US. IS THIS A CREDIT SUISSE ISSUE? IS THIS IN ASIA ISSUE? I WANT TO KNOW WHAT THE GENESIS OF THE ISSUE IS. MICHAEL: IT'S BOTH. CREDIT SUISSE HAS LAID OUT AN AMBITIOUS COST-CUTTING TARGETS.
THIS WOULD HELP ON THAT FRONT. THEY TALKED A LOT AT THEIR INVESTOR DAY ABOUT A GOOD CHUNK OF THE COST CUTS WILL COME ON THE TECHNOLOGY SIDE. I DON'T THINK YOU CAN GET THERE ALL THE WAY FROM THIS. I THINK THE OTHER PIECE OF IT IS ASIA HAS SLOAN -- SLOWED DOWN. THANKS OF HIRED AGGRESSIVELY THERE IN THE ANTICIPATION A MORE DEALS COMING. THE LONGER THAT GETS PUSHED OUT, THE LESS SENSE IT MAKES TO HAVE PEOPLE SITTING AROUND WAITING FOR THE BOOM. GUY: THIS IS A STORY A LOT OF PEOPLE
ARE PAYING ATTENTION TO. THEY ARE EXTRAPOLATING, LOOKING AT WHAT'S HAPPENING IN ASIA. THEY HIRED AGGRESSIVELY, THERE WAS AN INVESTMENT BANKING BOOM. THAT SOUNDS FAMILIAR TO THOSE ON WALL STREET AT THE MOMENT. THEY ARE WONDERING IF THIS INCREDIBLE RUN WE'VE HAD ON WALL STREET AND ELSEWHERE IS SUSTAINABLE. IS THIS A HARBINGER OF WHAT COULD HAPPEN ELSEWHERE? MICHAEL: IT COULD BE.
WE'VE SEEN IPOS FALL OFF THE CLIFF. YOU'VE SEEN POCKETS OF THE DEBT ISSUANCE FOLLOWING -- FALLING. M&A HAS HELD UP REASONABLY WELL. THERE WAS A LOT OF HIRING AMID THE LAST TWO YEARS. WE HAD VERY ACTIVE MARKETS. THAT HAS COME TO A HALT. ASIA STANDS OUT OF THAT.
CREDIT SUISSE IN THEIR ANNOUNCEMENT LAST MONTH SAID THEY WILL LIKELY HAVE A SECOND QUARTER LOSS, THEY CALLED OUT THE SLOWDOWN IN ASIA. IT IS STANDING OUT FOR NOW. AS WE SEE, VOLUMES DROP GLOBALLY. SOME OF THOSE HIRING PLANS COULD BE PUT ON HOLD OR REVERSED. GUY: NOT JUST IN ASIA BUT ON WALL STREET? WEALTH MANAGEMENT, A DIFFERENT DYNAMIC AT THE MOMENT. IS IT AFFECTED BY WHAT CREDIT
SUISSE IS DOING? MICHAEL: LESS SO. THAT IS MORE OF A CASE OVER THE LONG TERM. WEALTH MANAGEMENT, YOU DON'T GET THE AGGRESSIVE SWINGS OF HIRING AND FIRING BECAUSE IT IS LESS TRANSACTION-BASED. WHEN YOU HAVE THIS BACKUP OF DEALS THAT NEED TO GET DONE IT, YOU ARE GOING TO THROW SOMEBODY'S AT THE PROBLEM. I THINK WEALTH MANAGEMENT TENDS TO BE A LITTLE MORE STABLE ON THE HIRING AND FIRING FRONT. IF WE HAVE SEEN WEALTH CLIENTS AT CREDIT SUISSE PULLBACK BECAUSE OF THE VOLATILITY, YOU COULD SEE SOME CUTS THERE. GUY:
IN TERMS OF TALENT RETENTION, THIS IS CLEARLY IMPORTANT. THAT MAY CHANGE. CREDIT SUISSE IS LAYING PEOPLE OFF INTO WHAT SHOULD BE A GOOD LABOR MARKET. HOW HARD HAS IT BEEN FOR CREDIT
SUISSE TO HOLD ONTO PEOPLE? WHEN THEY ARE LET GO AND IT STARTS IN ASIA AND MAYBE IT SPREADS ELSEWHERE, ARE THEY AT THE MOMENT GOING TO BE GOING INTO A RELATIVELY GOOD LABOR MARKET? WHAT IS THE LABOR MARKET AND FINANCE? MICHAEL: IT DEPENDS ON THE AIR YOU ARE IN. THE TOUGH PART IS IF YOU'RE IN EQUITY ISSUANCE, THERE'S NOT A LOT GOING ON. THERE'S NOT A GREAT BAD FOR PEOPLE. IN TERMS OF CREDIT SUISSE, THEY LOST A LOT OF JUNIOR BANKERS WHO WERE VERY EXPERIENCED.
THAT SEEMS TO HAVE SLOWED DOWN. WE WILL SEE HOW THAT PROGRESSES, IF THEY CONTINUE TO LOSE MONEY, THAT WILL BE THREE QUARTERS IN A ROW. THAT COULD START TO WEIGH ON THE TALENT. AFTER THAT INITIAL EXODUS, WE HAVE SEEN THAT SLOW DOWN A LITTLE BIT. GUY: IT'S GREAT TO CATCH UP. THANK YOU VERY MUCH INDEED. IT MAY BE A HARBINGER OF WHAT'S COMING LATER ON WALL STREET. COMING UP, THE ECB GOVERNING
COUNCIL IS TALKING ABOUT THE FACT THAT THEY WILL -- THERE WILL BE MORE HIKES. THIS IS BLOOMBERG. GUY: LET'S TALK ABOUT WHAT'S GOING TO BE HAPPENING THIS WEEKEND, TONIGHT TO BE MORE SPECIFIC, AND BOSTON. THE BOSTON POPS IS BACK. IT'S A HUGE EVENT NOT ONLY FOR BOSTON BUT FOR BLOOMBERG. WE'VE BEEN TAKING THE TEMPERATURE, GETTING A TASTE OF WHAT WE CAN EXPECT.
>> BOSTON IS KNOWN FOR MANY FOODS. AND ALSO LOBSTER. >> LOBSTER AND CLAM CHOWDER. >> BOSTONIANS HAVE BEEN DINING ON CERTAIN STAPLES FOR DECADES, EVEN CENTURIES. DO YOU KNOW A NICKNAME FOR
BOSTON? >> BEANTOWN. >> DO YOU KNOW WHERE THAT COMES FROM? >> IT'S THE HOME OF THE BEANS. >> BESIDES OYSTERS, THEY KNOW A THING OR TWO ABOUT BIG BEANS. >> IT STARTED IN THE 1600S. NATIVE AMERICANS TAUGHT THEM HOW TO COOK BEANS.
>> IT STARTS WITH SALT PORK AND ONIONS. >> WE ADD BROWN SUGAR AND MUSTARD POWDER. THIS RECIPE HAS BEEN USED FOR ABOUT 100 YEARS. IT HASN'T DEVIATED SINCE THEN. >> IT'S TIME FOR A ROAST BEEF SANDWICH. >> DO YOU KNOW WHO CLAIMS TO HAVE INVENTED IT? >> WE CLAIM WE INVENTED THE ROAST BEEF SANDWICH.
>> IN 1951 WHEN A WEDDING IT CAUSED A LOT OF BEEF. >> THEY ROT THE ROAST BEEF OVER TO THE HOT DOG STAND AND SLICED THE ROAST BEEF AND PUT IT ON HAMBURGER ROLLS. >> THE ROAST BEEF SANDWICH WAS BORN. >> WE WILL COOK IT MEDIUM RARE. THE ROLE IS TOASTED GOLDEN
BROWN. WE HAVE MAYO AND CHEESE AND PLENTY OF BARBECUE SAUCE. >> I'M THINKING A BOSTON CREAM -- PIE? THAT'S THE ONE. INVENTED AT THE OMNI PARKER HOUSE.
>> IT'S REALLY A CAKE. THEY ONLY HAD PIE PANS TO BAKE WITH IN THE LATE 1860'S. >> AFTER PREPPING SPONGE CAKE, ASSEMBLY BEGINS.
>> WE CUT IT IN HALF. WE ADD THE FILLING AND THE TOP LAYER. WE WILL PUT CREAM AROUND THE OUTSIDE. FOR THE WHITE CHOCOLATE, WE DO
A SPIDERWEB. YOU START IN THE CENTER AND GO INTO THE CENTER AND COME BACK OUT. WE PUT ALMONDS AROUND THE OUTSIDE TO FINISH OUR BOSTON CREAM PIE. >> A LOT GOES INTO THESE BOSTON FOOD STAPLES. ONLY ONE THING REALLY MATTERS. >> IT JUST HAS TO TASTE GOOD. GUY: I'M SURE IT DOES.
WE'RE GOING TO TAKE YOU BACK TO BOSTON A LITTLE BIT LATER ON IN THIS PROGRAM. ROMAINE BOSTICK IS SETTING UP FOR THE LIGHTS WE CAN EXPECT LATER, THE FIREWORKS THAT WILL BE ON OFFER AS THE BOSTON POPS DEBT BACK INTO GEAR. THAT'S LATER. THAT'S GET AN UPDATE. WE'RE LOOKING AT THE BUSINESS -- BIGGEST BUSINESS STORIES. ANGEL: THE CRYPTO LENDER HAS JOINED ITS RIVALS IN SURVIVING THE MARKET ROUTE.
THE COMPANY HAS FROZEN WITHDRAWALS AND HIRED ADVISORS FOR A POSSIBLE RESTRUCTURING. THERE HAVE BEEN 190 $7 MILLION IN CUSTOMER THRALL SINCE JUNE 12. AIRBUS IS RUNNING BEHIND ITS GOAL FOR AIRCRAFT LIVERY. THE COMPANY HANDED OVER FEWER THAN 300 PLANES THE FIRST HALF OF THE YEAR. THAT IS BEHIND THE TARGET OF
720. SUPPLY CHAIN ISSUES ARE HOLDING BACK DELIVERIES. AIRBUS SAID 20 PLANES COULDN'T BE SHIPPED BECAUSE THEY DID NOT HAVE ENGINES YET. RENT GROWTH IN LONDON'S PREMIUM DISTRICT WILL FLOW INTO THE SECOND HALF OF THE YEAR. IT'S CURBING WHAT TENANTS ARE ABLE TO PAY. RENT ROSE THE MOST IN TWO DECADES IN THE FIRST SIX MONTHS OF THE YEAR. THAT IS YOUR BLOOMBERG BUSINESS
FLASH. GUY: THANK INDEED IT. COMING UP, WE HAVE THE CHIEF MARKETS STRATEGIST, GETTING HIS TAKE ON THE GAS CRISIS THAT IS GRIPPING HERE. WHAT IT MEANS FOR THE ECB. WE WILL GET HIS TAKE ON WHAT'S HAPPENING WITH INFLATION OVER IN THE UNITED STATES OF AMERICA. THAT ALL LIES AHEAD. THIS IS BLOOMBERG. GUY: APPROACHING HALF PAST THE HOUR IN LONDON. YOU ARE WATCHING BLOOMBERG
MARKETS THIS FOURTH OF JULY. LET'S TALK ABOUT THOSE MARKETS. LIGHT VOLUME IS A FEATURE OF THE LANDSCAPE AS A RESULT OF THE HOLIDAY IN THE UNITED STATES. STOCKS ARE UP BY 0.9%. U.S. FUTURES ARE MARGINALLY LOWER. EUROPE IS PRICING IN THE FRIDAY CLOSE. WE DO SEE A LITTLE BIT OF A BACKING OFF AND IT COMES TO THE BOND MARKET TODAY. NO REAL SURPRISE THERE.
WE SEE SOME SIGNIFICANT MOVES ON YIELDS. LET'S RUN YOU AROUND EUROPE BRIEFLY. THE GERMAN TENURE IS UP 10 BASIS POINTS. FRANCIS UP BY 13 BASIS POINTS. THERE IT WAS A HUGE BID BACK
INTO THE BOND MARKET. IT'S WITH THE U.S. OUT. THE REAL STORY IT REMAINS WHAT IS HAPPENING IN THE ENERGY MARKETS. IT'S THE ONLY SECTOR. GAS PRICES CONTINUE TO SURGE. WE ARE CONTENDING WITH RUSSIAN
GAS BEING REDUCED, WE'VE GOT TO FACTOR IN THAT NORWEGIAN FLOW COULD BE REDUCED. WE COULD BE ABOUT TO SEE SOME STRIKES BY ENERGY WORKERS IN NORWAY. LET'S TALK ABOUT THE IMPLICATIONS OF ALL OF THIS AND HOW EASY IT IS TO GAUGE. CHRIS WHATLEY IS JOINING US NOW. HOW DO I CALL WHAT IS GOING TO HAPPEN IN THE EUROPEAN ECONOMY IN THE SECOND HALF OF THE YEAR IF I DON'T KNOW WHETHER OR NOT THE RUSSIANS ARE GOING TO LEAVE THE GAS ON OR TURN IT OFF? CHRIS: THAT'S A GREAT QUESTION.
THAT IS A HUGE WILDCARD IN TERMS OF THE WHOLE EQUATION. IF IT DOES GET TURNED OFF, WE WILL BE HAVING A DISTINCT SHORTAGE OF GAS AND ENERGY IN EUROPE AND A BIG SPIKE IN PRICES AS A RESULT. A THIRD OF EUROPEAN GAS CAME FROM RUSSIA. THEY ARE DOING THEIR BEST TO DIVERSIFY.
IT'S GOING TO TAKE TIME. IT NEEDS TO BUILD INFRASTRUCTURE TO DO THAT. IF THERE IS A TURNING OFF, PROPER TURNING OFF, THERE WILL BE A SPIKE AND A RECESSION AND QUITE A CHUNKY ONE. IF THINGS GO BACK TO NORMAL, EUROPE IS SKIRTING WITH THE RECESSION ANYWAY. STRUCTURALLY, THE EUROPEAN
ECONOMIES ARE DEPENDENT AND IN REASONABLY GOOD SHAPE. THE INFLATION ISSUE IS CAUSING A MAJOR HEADACHE AT THE MOMENT. GUY: HOW HARD DO YOU THINK THE ECB WILL GO? CHRIS: GLOBALLY, INTEREST RATE OUTLOOK HAS CHANGED DRAMATICALLY IN THE LAST TWO OR THREE WEEKS. THE WHOLE MARKET HAS CHANGED LITERALLY FROM THE MIDDLE OF JUNE. COMING INTO JUNE, IT WAS ABOUT INFLATION.
NOW IT'S ALL ABOUT GROWTH GLOBALLY. PEOPLE ARE WORRIED ABOUT THE GROWTH OUTLOOK. YOU'VE SEEN WHAT COMMODITY PRICES HAVE BEEN DOING, COPPER COMING UP DRAMATICALLY IN RECENT WEEKS.
THAT'S A SIGN THAT INFLATION SHOULD DISSIPATE. IT SHOULD DISSIPATE FROM HERE. THAT'S CHANGING THE OUTLOOK. THE ECB WILL BE RAISING RATES OVER THE COURSE OF THIS YEAR.
I'M NOT SURE THEY WILL BE DOING THAT EXTRA. I THINK THEY WILL BE DONE BY THE END OF THE YEAR. IN TERMS OF THE FED RATE CUTS, IN TERMS OF THE BANK OF ENGLAND THINKING ABOUT THAT IN 2023 AND 2024, THEY WILL START THINKING ABOUT THAT IN TERMS OF THE ECB AS WELL.
THE MARKET DEBATE SHIFTED IN TWO WEEKS. THE MARKET IS RESPONDING. NORMALLY, IT'S THE CENTRAL BANKS. GUY: LET'S TALK ABOUT THAT SEQUENCING. THE LANGUAGE FROM THE FED REMAINS VERY CLEAR. WE ARE GOING TO DEFEAT
INFLATION. THE BIGGER RISK IS WE DO TOO LITTLE, NOT TOO MUCH. IS THAT THE BASE CASE, THE FED IN PARTICULAR IS GOING TO KEEP ITS FOOT FIRMLY ON THE BREAK UNTIL IT SEES INFLATION COMING DOWN VERY SHARPLY? CHRIS: THEY ARE GOING TO RAISE RATES AT THE NEXT TWO MEETINGS AND PROBABLY 50.
WE GET INTO SEPTEMBER, THAT'S WHEN THE MARKETS ARE STARTING TO THINK ABOUT IT. WE'VE TAKEN 25 BASIS POINTS OUT OF THE RATE HIKES 42022. IN THE LAST TWO WEEKS, THE MARKET IS TAKING SOME OF THE HIKES OUT.
THE FED'S LANGUAGE IS VERY HAWKISH. WE HEARD POWELL LAST WEEK ABOUT DEFEATING INFLATION. THEY ARE GOING TO DO THAT. THEY WILL WANT TO SEE INFLATION COME DOWN. LOOK AT THE GROWTH RATE IN THE STATES. IT IS GROWING LESS THAN NOMINAL GDP. NOMINAL GDP IS NOT THAT FAR OFF.
IT'S MUCH SLOWER THAN THE GROWTH RATE OF NORMAL GDP, WHICH IS NOT ENOUGH MONEY TO SERVICE GROWTH. INFLATION SHOULD SLOW FROM HERE. WE COULD SEE IT COME DOWN PRETTY FAST OVER THE SECOND HALF OF THE YEAR. THAT COULD CHANGE A LOT OF THE FED'S RECORDS.
THE MARKET MOVES AHEAD OF THE FED IT. IT HAS STARTED TO MOVE THE LAST TWO WEEKS. GUY: WHAT DO YOU DO WITH EQUITIES? CHRIS: THE RECESSION RISKS ARE GROWING. THERE'S NO DOUBT ABOUT THAT IT
IS THE BASE CASE IN THE STATES. WHAT DO YOU DO WITH EQUITIES? THERE MAY BE A RESUMPTION. THE CONCERNS ARE CERTAINLY BUILDING FOR THE FOURTH QUARTER INTO 2023.
IT'S BEEN SUCH A TOUGH FIRST HALF. WHAT YOU SEE IN TOUGH FIRST HALVES IS IMPROVEMENT IN THE SECOND HALF. INFLATION STARTS COMING OFF, THAT WILL ALLOW THE MARKET TO BREATHE.
IT DEPENDS ON YOUR TIMEFRAME. IF YOU ARE SHORT, I WOULD NOT BE TOO BEARISH. IF YOU ARE A LONG-TERM INVESTOR, I'D BE WATCHING THINGS FOR THE NEXT WEEKS AND MONTHS. WE HAVE A LOT OF INFORMATION OVER THE NEXT FEW WEEKS. THAT WILL BE INSIGHTFUL AND HELPFUL, PARTICULARLY THE WAY COMMODITY PRICES BEHAVED. IF THE OIL PRICE COMES OFF,
THAT IS ENCOURAGING FOR THE EQUITY MARKET. GUY: HOW LOW COULD EQUITIES GO? OVER THE MEDIAN T ERM, WHAT COULD YOU BE LOOKING FOR? WHAT IS THE POTENTIAL DOWNSIDE IF WE DO GET A RECESSION THAT STARTS TO HIT THE EARNINGS STORY STOPS? CHRIS: IF YOU'VE GOT THE EARNINGS REVISED DOWN TYPICALLY IN A RECESSION, BETWEEN 20 AND 40% DEPENDING ON THE DEPTH OF THE RECESSION. IN 2001, IT WAS MILDER. THE PANDEMIC WAS QUICKER. YOU'VE GOT TO DO THAT AS A MINIMUM. THEN YOU PROBABLY GOT TO LOWER THE VALUATION METRIC ON THE S&P 500 AS WELL.
FOR EXAMPLE, THE U.S. MARKET IS ABOUT 5.75%. YOU'VE GOT A SEVEN OR AND NINE. YOU CAN CLEARLY GET BEARISH IF YOU WANT TO. GUY: DO YOU THINK THERE IS A RESET? THERE USED TO BE AN EXPECTATION OVER THE FAST FEW CYCLES THAT WE SNAP BACK WEEKLY? WE START TO SEE SOME LIQUIDITY INJECTED INTO THE SYSTEM BY CENTRAL BANKS MORE BROADLY AND THAT SENDS RISK ASSETS OFF TO THE RACES AGAIN. ARE WE GOING TO SEE THAT AGAIN? ARE WE IN A NEW PARADIGM? THEY SAID THEY DIDN'T THINK WE WERE GOING TO GO BACK TO THAT DISINFLATIONARY WORLD WHICH WOULD ALLOW THEM TO BEHAVE THAT WAY. CHRIS: ABSOLUTELY. FOR THE 10 YEAR, BALANCE SHEETS IN THE CONSUMER LEVEL AND THE COMMERCIAL BANKS ARE SHRINKING. THEY ARE GETTING THEIR HOUSES
IN ORDER. IT WASN'T UNTIL THE PANDEMIC BEFORE THEY SORTED THOSE OUT. THEY SORTED THEM OUT ACROSS THE U.K. AND THE U.S. THAT WAS DISINFLATIONARY. BALANCE SHEETS WERE SORTED. THE ECONOMIES ARE STRUCTURALLY STRONG. THAT IS STILL THERE. HOUSING THE IS ABOUT MORE THAN IT WAS 10 YEARS AGO.
THESE GUYS ARE IN GREAT SHAPE, THERE IS NO LONGER DISINFLATION. IN THE LAST YEAR AND A HALF, IT'S BEEN A DIFFERENT BALLGAME. IT'S TOTALLY DIFFERENT FROM WHAT WE'VE SEEN SINCE THE FINANCIAL CRISIS. GUY: WHAT HAPPENS WITH CHINA? COVID CASES ARE STARTING TO SURGE IN A NUMBER OF REGIONS, LOCKDOWNS ARE REAPPLIED. IF CHINA CAN GET A GRIP AND DECIDED CAN LOOSEN SOME OF THESE RESTRICTIONS, WE WILL SEE AN EXPLOSION IN DEMAND FROM THAT ECONOMY, A SHARP PICKUP WHICH WILL DRIVE COMMODITIES STRONGLY AND START TO EASE UP SOME OF THE SUPPLY CHAIN STORIES WE'VE BEEN WATCHING. HOW DO YOU FACTOR CHINA INTO YOUR THINKING? >> THE REAL QUESTION IS WHICH OF THOSE FACTORS IS MOST IMPORTANT. GLOBALLY, THE OPENING UP OF
SUPPLY CHAINS. WE'VE SEEN GOODS PRICES START TO SUFFER. YOU COULD REALLY GET DISINFLATION OR DEFLATION I SHOULD SAY. WE SHOULD BE QUITE CAREFUL AS WE SEE INFLATION DISSIPATE IN THE SECOND HALF. WE NEED A BIT MORE GROWTH OUT
OF CHINA. WE NEED SOME OPENING UP OF SUPPLY CHAINS. THAT WOULD BE VERY HELPFUL. I THINK CHINA IS THE ONE PART OF THE WORLD THAT IS EASING, WHERE THE MONEY CYCLE IS IN AN EASING CYCLE AT THE MOMENT. THAT IS QUITE POSITIVE. I THINK OPENING UP THE SUPPLY CHAINS WOULD BE QUITE POWERFUL FOR WHAT WE SEE IN THE WEST AND HELPING WITH THAT INFLATION PROBLEM. GUY:
IT'S ALWAYS A PLEASURE. THANK YOU VERY MUCH INDEED FOR YOUR TIME. CHRIS WHATLEY, CHIEF MARKET STRATEGIST. THANK INDEED. , UP, WHERE WE GO WITH EUROPEAN A POLICY FROM HERE. -- COMING UP, WHERE WE GO WITH EUROPEAN POLICY FROM HERE.
THAT'S NEXT, THIS IS BLOOMBERG. ♪ GUY: EUROPEAN LEADERS ARE MEETING AT RIGHT NOW TO DISCUSS UKRAINE'S FUTURE, EVEN AS A COUNTRY DEALS WITH ITS HORRIFIC PRESENT. LET'S GO TO SWITZERLAND AND RING IN MARIA WHO JOINS US FROM THE UKRAINE RECOVERY CONFERENCE IN LAGARDE NO. -- CONFERENCE. MARIA: WE ARE HERE. THE WEATHER IS CHANGING. I DON'T KNOW IF IT MEANS ANYTHING. THE COMMISSIONER IS JOINING US NOW.
I KNOW YOU'VE BEEN HERE TALKING ABOUT RECONSTRUCTION OF UKRAINE, SOME OF THE NUMBERS ARE IN NORMA'S. POTENTIAL HE 500 BILLION EUROS. IN TERMS OF THE ACTUAL SHORT-TERM FUNDING, WHAT DOES UKRAINE NEED? >> FIRST OF ALL, WE NEED TO DISTINGUISH SHORT-TERM ASSISTANCE TO HELP UKRAINE AND THEN MORE OF A POSTWAR RECONSTRUCTION. THE CONFERENCE TODAY, WE ARE LOOKING AT BOTH ASPECTS. IN REGARDS TO SHORT-TERM FINANCIAL ASSISTANCE NEEDS, THE INTERNATIONAL MONETARY FUND IS PUTTING FINANCING OUT FOR UKRAINE. IT'S VERY SUBSTANTIAL AMOUNT OF FUNDING.
FROM THE EU SIDE, THEY ARE WORKING ON ADDITIONAL 9 BILLION EUROS. THE FIRST PART OF THIS IS COMING BEFORE SUMMER BREAK. THE UNITED STATES ANNOUNCED A PROGRAM THAT THEY ARE ALREADY DISPERSING.
IT IS A SIZABLE MOBILIZATION OF INTERNATIONAL COORDINATION. THAT'S WHY IT'S IMPORTANT. LONGER-TERM CONSTRUCTION, IT'S A MAJOR ENDEAVOR BOTH FINANCIALLY AND ALSO FROM AN ORGANIZATIONAL POINT OF VIEW. AT THE END OF THE DAY, THIS NEEDS TO BE LED BY UKRAINE ITSELF AND THEY ARE WORKING ON A RECONSTRUCTION PLANET.
INTERNATIONAL DONORS ARE SUPPORTING THIS. FROM THE EU SIDE, THEY ARE ORGANIZING THE WORK AND PROVIDING FINANCIAL HELP. MARIA: WHAT DO YOU SAY TO THOSE WHERE YOU NEED THAT BOOST TO MORALE. WHEN IT COMES TO LONG-TERM FUNDING, YOU DON'T KNOW. WHAT'S THE POINT OF DOING THIS? >> WHEN THE WAR IS ENDING, WE DID START PREPARATIONS NOW. WE NEED TO START WITH THE CONSTRUCTION.
IN BETWEEN, WE NEED CRITICAL INFRASTRUCTURE WHICH NEEDS TO BE DONE. MARIA: UKRAINIANS NEED TIME TO GO BACK, THEY MADE SOME GAINS OVER THE WEEKEND. THE G7, THE GERMAN FINANCE MINISTER SAID THERE WILL BE DEFAULT, UKRAINE HAS THE MONEY THEY NEED. THAT IS COVERED NOW. WE HEAR FROM UKRAINIANS SAYING IT MAY BE MORE ON A MONTHLY BASIS. ARE YOU PREPARED TO UNDERWRITE THAT? >> I WAS MENTIONING THAT. WE WILL BE WORKING AND DELIVERING THIS.
OTHER COUNTRIES AND INTERNATIONAL INSTITUTIONS ARE CONTRIBUTING. THE FINANCING NEED IS VERY SIZABLE. IT'S ESTIMATED AT $39 BILLION BY THE END OF THE YEAR. MARIA: YOU THINK UKRAINE CAN AVOID THAT? THE COUNTRY WILL NEED YOUR HELP AND THEY WILL HELP THE COUNTRY.
>> WE NEED TO SUPPORT UKRAINE AND FROM OTHER ANGLES. POLITICALLY, FINANCIALLY, MILITARILY, HUMANITARIAN ASSISTANCE. WHERE ARE DETERMINED TO DO SO FOR AS NEEDED. MARIA: WHAT DOES THAT MEAN? IT'S DIFFICULT TO PUT A NUMBER ON IT. WE KNOW IT'S GOING TO BE A DIFFICULT WINTER FOR EUROPEAN CONSUMERS. PUBLIC OPINION IS GOING TO SHIFT TO SAY YES WE WANT TO HELP UKRAINE, BUT WE NEED TO HELP OURSELVES. DO YOU WORRY ABOUT THAT
SCENARIO WHERE THE PUBLIC MOVES AWAY FROM DOING WHATEVER IT TAKES? >> THE BEST WAY TO DEAL WITH THE WARS TO STOP THE WAR. WE CAN SEE HOW WE MITIGATE THE IMPACT ON EU HOUSEHOLDS AND COMPANIES AS WE LOOK AT ENERGY PRICES AND FOOD PRICES. THAT'S WHAT THEY ARE WORKING ON. MARIA: WE TALKED ABOUT RUSSIA CUTTING OFF THE GAS, IS THAT SOMETHING YOU ARE EXPECTING. ARE YOU READY FOR IT? IS THERE A PLAN B. VLADIMIR PUTIN HOLDS A LOT OF
CARDS. >> THAT'S WHY WE ARE WORKING ACTIVELY TO DIVERSIFY OUR GAS SUPPLIES. WE ARE TALKING TO OUR SUPPLIERS, THE U.S. HAS AGREED TO SUPPLY SUBSTANTIAL ADDITIONAL AMOUNTS WITH MANY OTHER COUNTRIES. CLEARLY, WE SEE RUSSIA CUT ENOUGH GAS SUPPLIES TO NUMBER OF COUNTRIES. THAT IS SOMETHING WE NEED TO
TAKE SERIOUSLY. WE NEED TO SEE HOW DO MITIGATE THAT THIS WINTER. IT SHOWS WE CANNOT RELY ON IT RUSSIA AS A SUPPLIER. WE NEED TO MOVE AWAY FROM RUSSIAN SUPPLIES. MARIA: YOU MADE THAT CLEAR, IT WILL BE THE END OF RUSSIA'S A MAJOR ENERGY PLAYER. WILL INDIA AND CHINA GO FOR IT? THANK YOU SO MUCH FOR YOUR TIME. HAVE A GREAT CONFERENCE.
WE APPRECIATE YOUR TIME. GUY: NICE INTERVIEW, RIGHT STUFF. GUY: I WANT TO TAKE YOU TO BOSTON AHEAD OF THE FIREWORKS THIS EVENING. ROMAINE BOSTICK IS THERE AHEAD OF THE BOSTON POPS FOURTH OF JULY SPECTACULAR. LET'S START A MORE SOMBER NOTE. A MOMENT AGO, WE WERE IN SWITZERLAND TALKING ABOUT THE RECONSTRUCTION OF UKRAINE. WILL THE WAR MAKE ITS PRESENCE
FELT WHERE YOU ARE THIS EVENING? ROMAINE: WE HEARD FROM THE BOSTON POPS CONDUCTOR YESTERDAY. HE TALKS ABOUT THE IMPORTANCE OF MARKING THE WAR, 100 DAYS SINCE THE INVASION. THERE WILL BE A SPECIAL TRIBUTE TO THE MEN WOMEN WHO ARE FIGHTING FOR THEIR FREEDOM OVER THERE. THAT'S A BIG THEME OF THE BOSTON POPS. THEY ARE CELEBRANT IN THE BOSTON -- BIRTHDAY OF THE UNITED STATES. IT WILL FOCUS ON THE FIGHT FOR FREEDOM AROUND THE WORLD AND THERE WILL BE A PLAYING OF THE UKRAINIAN NATIONAL ANTHEM. GUY: IT'S THE FIRST TIME YOU'VE BEEN BACK FOR A WHILE. TALK TO ME ABOUT WHAT IT'S
GOING TO LOOK LIKE. HOW MANY PEOPLE ARE YOU EXPECTING BETWEEN WHERE YOU ARE AND THE CHARLES RIVER? ROMAINE: THEY ARE LOOKING AT ABOUT 400,000 PEOPLE COMING OVER HERE. THE BANDSHELL IS RIGHT BEHIND ME. IN FRONT OF ME IS JUST THE BEAUTIFUL ESPLANADE AROUND THE CHARLES RIVER. PEOPLE WILL SEE THE FIREWORKS AT THE END WHICH ARE OVER THE CHARLES RIVER. THIS IS A BIG EVENT IN BOSTON AND IT HASN'T OCCURRED SINCE 2019 BECAUSE OF THE PANDEMIC.
THERE IS A LOT OF EXCITEMENT ABOUT THIS. GUY: WHAT DOES THE LINEUP LOOK LIKE? ROMAINE: HEATHER HEADLEY, THE TONY AWARD WINNING ACTRESS IS HERE. THE QUEEN OF FUNK SHAKA CON. YOU HAVE THE BOSTON POPS ORCHESTRA, A BIG PART OF THE REASON WHY A LOT OF PEOPLE COME HERE. THEY ARE FANTASTIC.
THEY DO THEIR TRADITIONAL PATRIOTIC SONGS, THIS IS GOING TO BE INTERESTING. THERE ARE SEVERAL NEW SONGS THEY'VE WRITTEN FOR THIS, INCLUDING ONE DEDICATED TO THE 54TH MASSACHUSETTS INFANTRY, IT WAS MADE FAMOUS IN THE MOVIE GLORY, THE SECOND ALL-BLACK REGIMENT IN THE UNITED STATES OF AMERICA THAT FOUGHT DURING THE CIVIL WAR AND WAS MEMORIALIZED IN THAT MOVIE. THERE IS A SPECIAL SONG COMPOSED FOR THIS OCCASION. GUY: I CAN'T WAIT. IT'S GOING TO BE A LITTLE LATE
FOR ME. I'M LOOKING FORWARD TO SEEING THOSE FIREWORKS. HAVE A GREAT EVENING. THANK YOU VERY MUCH INDEED. THEY WILL BE WARMING UP FOR
THAT HUGE EVENT LATER ON IT. THE BOSTON POPS FOURTH OF JULY SPECTACULAR, 8:00 P.M. EASTERN RIGHT HERE ON BLOOMBERG TELEVISION. WE WILL CONTINUE TO TRACK WHAT'S HAPPENING WITH THESE MARKETS, WATCHING AND EQUITY MARKET.
WE WILL TAKE YOU BACK TO THAT >> THIS IS "BLOOMBERG MARKETS" WITH GUY JOHNSON AND ALIX STEEL. ♪ GUY: 3:00 P.M. IN LONDON, 10:00 A.M. IN NEW YORK. U.S. MARKETS CLOSED, IT IS INDEPENDENCE DAY, THE FOURTH OF JULY. HAPPY FOURTH. HERE ARE OUR TOP STORIES. AS PRICES CONTINUE SOARING IN
EUROPE. IMMINENT STRIKE SPINAL REGION ENERGY WORKERS. THE PRICES ARE NEARLY DOUBLE SINCE THE START OF JUNE. GERMANY SEES ITS FIRST EARTHLY TRADE DEFICIT IN 30 YEARS. PRICES SEE -- SURGING.
PIVOTING CORPORATE REINVESTMENTS TOWARDS COMPANIES THAT POLLUTE LESS. THOSE ARE THE HEADLINES, THESE ARE THE MARKETS. WE ARE GETTING HEADLINES COMING THROUGH FROM THE ECB. THE ECB'S CAUTIONING AGAINST THE CAP RISK PREMIA, THE FIGHT BACK AGAINST FRAGMENTATION. THE TOOL BEING DESIGNED BY THE ECB TO FIGHT FRAGMENTATION IS BEGINNING TO TAKE SHAPE.
THE GERMANS ARE GETTING NERVOUS, THEY ARE WORRIED THAT IT COULD INFLUENCE THEM IN A NEGATIVE WAY. YOU WONDER. WE WILL TALK ABOUT THE ECB IN MORE DETAIL IN A FEW MINUTES. EXCEPTIONAL CIRCUMSTANCES NEEDED , MR. NAUGLE SAYS OF THE BUNDESBANK. THIS IS WHERE WE SIT WITH EQUITY MARKETS RIGHT NOW, WE ARE TRADING FOR 10 ON THE STOXX 600. ENERGY STOCKS UP BY .7%.
VOLUME IS ETHICALLY LIGHT, WE SEE THE FOURTH OF JULY HAVING ITS EFFECT OVER HERE. THE GERMAN 10 YEAR IS ON OFFER, WE ARE SEEING YIELDS COMING BACK. THEY GOT SOLD HARD AT THE END OF LAST WEEK. YIELDS COMING DOWN ON BOTH SIDES OF THE ATLANTIC. NATURAL GAS FUTURES, PAY ATTENTION TO WHAT IS HAPPENING. NAT GAS, A LOOK AT THE DUTCH CONTRACT AND U.K. CONTRACT.
SHARPLY TO THE UPSIDE. ENERGY CRISIS VERY REAL ON THIS SIDE OF THE ATLANTIC. LET'S TALK ABOUT HOW THIS IS GOING TO IMPACT MARKETS IN THE SECOND HALF OF THE YEAR. KATE, I HAVEN'T SEEN YOU FOR A FEW WEEKS. WE HAVE A -- WE HAD A LB FIRST HALF.
HOW AM I GOING TO AVOID LOSING MONEY IN THE SECOND? KATE: THE WAY TO AVOID LOSING MONEY IS TO INVEST BEST IN AN INFLATIONARY WORLD. WE HAVEN'T SEEN THIS FOR 35 YEARS. YOU HAVE GOT TO LEARN HOW TO WORK IN AN INFLATIONARY WORLD, THAT IS WHAT WE ARE WORKING ON AND SEEING. GUY: WHAT DOES THAT MEAN? CAN YOU HEAR ME? CATE: I CAN HEAR YOU NOW. GUY:
WE HAD A LITTLE GLITCH, A TRANSATLANTIC GREMLIN. LET'S TALK ABOUT WHAT THAT MEANS IN TERMS OF HOW I WANT TO BE INVESTING. CATE: WELL, WHAT YOU HAVE TO DO, GUY, IS STAY AWAY FROM THINGS LIKE CASH. FIXED INCOME, ANYTHING THAT
DOES NOT PRICE WITH INFLATION WHAT DOES REPRICE WITH INFLATION? REAL ESTATE. EQUITIES BROADLY DO. COMMODITIES REALLY REPRICE WITH INFLATION. THAT IS WHAT YOU ARE SEEING WITH ENERGY, OTHER COMMODITIES. THE PROBLEM WITH COMMODITIES IS THAT THEY ARE STUCK, THEY ARE TERRIBLE INVESTORS. YOU CAN INVEST IN COMPANIES IN THE COMMODITY SPACE. A COMPANY LIKE RIO TINTO IS SOMETHING LIKE -- WE LIKE, YIELDS ARE 12%.
ANOTHER COMPANY SIMILAR IN THAT SPACE IS A DHP, ALSO IRON, OR, COPPER. THESE ARE LOUSY FROM AN ESG POINT OF VIEW, WHICH IS IMPORTANT. IF YOU ARE TRYING TO MAKE MONEY IN THIS ENVIRONMENT, THAT IS WHAT YOU HAVE TO DO. SLOWING RATE SECURITIES, SOMETHING LIKE THE -- YIELDING 9% BECAUSE IT IS REPRICING. INTEREST RATES, PITS, THESE THINGS REPRICE. GUY: RIGHT. COME BACK TO THE MINING STOCKS. COPPER IS DOWN 18% OVER THE
LAST FEW WEEKS, NOUN 25% SINCE THE RECENT HIGH. SOME OF THESE METALS ARE BEGINNING TO UNWIND. AREN'T YOU CONCERNED THAT MAY BE SOME OF THE PEAKS ARE IN, AND WITH INFLATION RISING, THESE COMPANIES ARE GOING TO GET SQUEEZED JUST AS OTHER COMPANIES ARE? THE TOP LINE IS NOT MOVING AS AGGRESSIVELY, BUT THE COSTS IN THE MIDDLE ARE GOING TO BE HERE. ON THE LIKES OF RIO, SUFFERING AND THAT -- ARE THE LIKES OF RIO GOING TO BE SUFFERING IN THAT KIND OF SCENARIO? CATE: YOU ARE GETTING A 12% YIELD.
NOTHING MATTERS. RIO KNOWS HOW TO OPERATE THIS ENVIRONMENT, THEY HAVE BEEN OPERATING FOR DECADES. THEY HAVE 12%, THEY MAKE 25% CASH FLOW MARGINS. THEY HAVE VERY LIGHT BALANCE SHEETS. THEY ARE VERY SUCCESSFUL, THEY KNOW HOW TO OPERATE IN THIS ENVIRONMENT. GUY: SO YOU ARE NOT WORRIED ABOUT CAPITAL APPRECIATION? YOU ARE NOT WORRIED WHAT HAPPENS WITH THE SHARE PRICE? IT IS THE DIVIDEND THAT IS PART --DRIVING YOU? CATE: IT IS, AND THE SHARE PRICE WILL FOLLOW.
YOU DO NOT WANT TO INVEST IN THE ACTUAL COMMODITIES, COPPER GOES -- IF YOU BUY THE COMPANY SAID ARE GETTING THE INCOME, YOU MAY NEED A SUPER CYCLE RIGHT NOW WITH EVERYTHING GOING ON. THAT IS WHY I THINK THESE ARE INTERESTING INVESTMENTS. GUY: TALKING OF EARNINGS MORE BROADLY, WE ARE ABOUT EARNINGS SEASON STARTING. THERE IS A SENSE OF NERVOUSNESS THAT THIS COULD BE THE START OF A DETERIORATION ON THE EARNINGS FRONT. WE HAVE ALREADY SEEN ALL DOUBLE COMPRESSION VALUATION, ARE WE ABOUT TO SEE THE SECOND LEG WHEN IT COMES TO EQUITIES MORE BROADLY AS WE START TO SEE WEAKNESS IN EARNINGS? CATE: WE ARE, IT IS ALSO GOING TO BE THE KITCHEN SINK PHENOMENON.
WHERE COMPANIES ARE SAYING, HEY, IT IS BAD NEWS. LET'S DUMP THE KITCHEN SINK IN. WHAT IS HAPPENING IS, THE MARKET ANTICIPATES THIS. THE MARKET IS PROBABLY AHEAD OF
EARNINGS. I WOULD ARGUE THAT, EVEN IF WE HAVE WEAK EARNINGS, THE STOCKS MAY ACTUALLY RECOVER. THE MARKET IS LOOKING -- WORKING THROUGH THIS. GUY:
YOU DO NOT THINK THE MARKET IS LOOKING THROUGH AND SEEING A RECESSION ON THE OTHERS? CATE: THE MARKET MAY SEE A RECESSION. IF WE DO, IT IS GOING TO BE THE STRANGEST RECESSION I HAVE EVER SEEN. HE WILL HAVE LABOR SHORTAGES, WE STILL HAVE INFLATION, EMPLOYMENT, A STRONG REAL ESTATE MARKET, SO IT IS GOING TO BE A RECESSION BECAUSE THE FED WANTS THERE TO BE A RECESSION.
THE FED CAN KEEP RAISING RATES, BUT IT IS GOING TO BE A STRANGE RECESSION. IT IS GOING TO BE A RECESSION UNLIKE ANY RECESSION I HAVE EVER SEEN. GUY: EVERY RECESSION IS DIFFERENT. THE FED CLEARLY WANTS TO SLOW
THINGS DOWN, IT CLEARLY NEEDS TO DELIVER DEMAND DESTRUCTION. WHEN DO YOU START TO SEE THAT HAVING A MATERIAL IMPACT ON MARKETS? IT HAS THUS FAR, WE HAVE SEEN EQUITY MARKETS COMING DOWN. I DO NOT THINK WE HAVE GOTTEN TO THE POINT OF FULLY PRICING IN A RECESSION.
WHAT DO YOU AS AN INVESTOR DO IN THE KIND OF RECESSION YOU ARE EXPECTING? YOU SAY WE STILL GOT A RELATIVELY GOOD HOUSING AND LABOR MARKET. FED IS GOING TO HAVE TO STOP ON BOTH OF THOSE. YEAH. I AM NOT LIKING THE SOUND OF
THAT LITTLE NOISE I HEARD IN MY EAR. USUALLY INDICATES THE CALL MAY HAVE DROPPED. CATE, ARE YOU STILL WITH US? CATE: I AM STILL WITH YOU. GUY: EXCELLENT, THAT IS GOOD. WE LIKE THAT. WHAT I WANT TO DO IN THAT KIND OF RECESSION, THE FED, IF IT SEES THAT STRENGTHEN THE HOUSING MARKET AND LABOR MARKET, IT IS GOING TO TAKE THAT AS A SIGNAL THAT IT NEEDS TO OR. CATE: THE MAIN THING THE FED IS
LOOKING AT AS -- IS THE ENERGY PRICE. IF PEOPLE ARE FEELING PAIN AT THE PUMP. I THINK AS OIL PRODUCTION RAMPS UP, AND WE SEE A RELIEF ON THE ENERGY SIDE, THAT IS GOING TO GREATLY IMPROVE THE INFLATION SECTOR. THE COSTS ARE NOT GOING TO BE AS DEMANDING AS THEY WERE. WE HAVE HAD STRONG YEARS, I
WOULD HOPE BELIEVE THAT INFLATION IS GOING TO EBB. HOWEVER, IN THE END, SO LONG AS WE HAVE INFLATION, THE FED ARE GOING TO STOMP ON THIS AND DO THEIR BEST. THE EQUITY MARKETS HAVE LOOKED THROUGH IT, THEY ARE GOING TO REPRICE.
WE ARE GOING TO BE LOOKING AT COMPANIES THAT CAN BREAK PRICE. THAT ARE GOING TO PIVOT, PIVOT TO THE ITEMS I TALKED ABOUT. PIVOT. SLOWING RATE BONDS. THE MARKET IS GOING TO REACT.
THERE ARE GOING TO BE SECTORS THAT ARE WINNERS, SOME SECTORS ARE GOING TO BE LOSERS CATE:. WE ARE GOING TO LEAVE YOU THERE. CONNECTION ISSUES STARTING TO MANIFEST THEMSELVES. CATE FEDDIS, PRESIDENT AND CIO OF GRACE CAPITAL. WE GET BACK TO THE ISSUE OF REBUILDING UKRAINE.
THERE IS A LARGE CONFERENCE TAKING PLACE IN LAGARDERE, SWITZERLAND. MARIA TADEO IS THERE, SHE IS GOING TO BE SPEAKING TO THE EUROPEAN BANKS THROUGH RECONSTRUCTION AND DEVELOPMENT, THE PRESIDENT. THAT CONVERSATION IS NEXT. THIS IS BLOOMBERG. GUY: EUROPEAN POLICY MAKERS ARE DISCUSSING HOW TO REBUILD UKRAINE. DOING SO IN LAGARDERE, SWITZERLAND.
MARIA TADEO IS AT THE UKRAINIAN RECOVERY CONFERENCE AND JOINS US NOW. MARIA. MARIA: WE BATTLE THE ELEMENTS TODAY, A MEETING IS HAPPENING. THANK YOU FOR THE EUROPEAN BANK IN DEVELOPMENTS AND RECONSTRUCTION. I KNOW YOU HAD A -- ABOUT THE FUTURE OF UKRAINE. THE DAMAGE, I WAS PAYING ATTENTION TO THE DEBATE GOING ON BEHIND THE SCENES. SOME OF WHAT I HEARD AND LISTEN
TO, THEY ARE ENORMOUS. IN YOUR ANALYSIS AND TO HAVE DONE, HOW MUCH MONEY DOES UKRAINE NEED? ODILE: IT IS DIFFICULT TO ASSESS BECAUSE THE WAR IS STILL GOING ON. IT IS DIFFICULT TO HAVE A DEFINITE FIGURE. I THINK THE ASSESSMENT OF INFRASTRUCTURE, THE LEVEL OF INFRASTRUCTURE DESTROYED IS AROUND 100 BILLION. OF COURSE, YOU HAVE -- THE PRIVATE SECTOR BECAUSE OF LOSS OF OPPORTUNITY, LOSS OF CAPITAL TO DEVELOP, TO SELL YOUR BUSINESS AND SO ON. I THINK IT WILL LESSEN -- THE IMPACT ON THE ECONOMY IS HUGE, A HUGE LOSS OF CAPITAL AND REVENUE. MARIA: THE EAST PART OF THE COUNTRY
DOES APPEAR TO BE FULLY DESTROYED. THAT IS FOR THE LONG TERM, AND YOU SAY 100 BILLION EUROS, IS THAT IN THE SPACE OF 10 YEARS? ODILE: THAT IS ONLY FOR THE INFRASTRUCTURE. THEN, WE NEED TO PROVIDE EQUITY FOR THE COMPANIES IN THE BANKING SECTOR, MORE THAN 100 BILLION. MARIA: I HAVE HEARD ANALYSIS OF ONE TRILLION EUROS COULD BE IN THE CARDS OR LONG-TERM. ON THE SHORT-TERM, IT DID SEEM THAT FUNDING NEEDS FOR THE COUNTRY WERE COVERED FOR THE YEAR. THE G7 AGREE TO, I SPOKE TO THE
GERMAN FINANCE MINISTER THE TALK ABOUT A DEBT RESTRUCTURING, A DEFAULT OF UKRAINE, THAT IS PICKING UP MOMENTUM. WHAT WAS YOUR IMPRESSION WHEN YOU SPOKE INSIDE? ODILE: I THINK THAT HAS BEEN A LOT OF FOCUS, RIGHTLY SO. TO COVER THE NEEDS AND IT IS FOLLOWING THE G7, ALL COMMITTED AND COVER THE 500 BILLION FOR INFRASTRUCTURE. I THINK THIS IS THE PROCESS OF BEING IMPLEMENTED. IT TAKES TIME, YOU HAVE TO GO THROUGH PARLIAMENT TO FIND A WAY TO GET THE FINANCING. THE E.U. IS WORKING ON GETTING 900 -- FINANCE, IT IS A PROCESS IN THE MAKING. IT SHOULD GIVE THE ABILITY TO
THE GOVERNMENT FOR THE NEXT MONTH. MARIA: IT SEEMS THE GERMANS ARE THE ONES PUSHING BACK, ESPECIALLY IN TALKS ON THE EIGHT HUNDRED BILLION. I KNOW YOU ARE ASKING, WHAT DO YOU SAY TO YOUR DESK TO YOUR CRITICS WHO ARGUE, YOU COME HERE, YOU TALK ABOUT THE RECONSTRUCTION OF UKRAINE, BUT A LOT OF THIS SEEMS HYPOTHETICAL. NOBODY KNOWS IF THIS IS GOING TO END. WHY IS IT IMPORTANT TO SHOW UP TO AN EVENT LIKE THIS, EVEN THOUGH WE DO NOT KNOW WHAT THE SITUATION LOOKS LIKE AND THE PEACE UKRAINE IS GOING TO GET? ODILE: WE NEED TO HELP UKRAINE, NOW. IT IS TRUE FOR THE SUPPORT OF THE COUNTRY AND ECONOMY.
WE ARE FINANCING THE INFRASTRUCTURE, RAILWAYS, GAS COMPANY, ELECTRICITY COMPANY, PRIVATE SECTOR, INDUSTRIES IN THE BUSINESS AND PHARMACEUTICAL. THIS IS TO KEEP THE CUT -- ECONOMY AFLOAT. THIS WILL ENHANCE RECONSTRUCTION. THE MORE THE ECONOMY IS ON ITS FEET AND FUNCTION, THE MORE THE PRIVATE SECTOR CAN DO BUSINESS. THE BETTER IT WILL BE, THE BETTER PLACE THE COUNTRY WILL BE FOR RECONSTRUCTION. I THINK IT IS VERY IMPORTANT.
IT IS ALSO IMPORTANT TO START THINKING ABOUT REBUILDING RECONSTRUCTION, AND ALSO TO THINK ABOUT SCENARIOS. RECONSTRUCTION MAY NOT HAPPEN AT ONCE. YOU MAY HAVE A PIECE SEGMENT, EVERYTHING IS SETTLED. YOU MAY START RECONSTRUCTING, INVESTING, REBUILDING, EVEN IF THE WAR IS STILL ON IN SOME AREAS OF THE COUNTRY. I THINK THAT IS SOMETHING WE NEED TO WORK ON. RECONSTRUCTION IS A HUGE START, IT REQUIRES A LOT OF PREPARATION, A LOT OF COORDINATION, DEFINING THE PRIORITIES, THE METHODOLOGY. ALSO, IT IS GOOD TO THINK ABOUT
THAT EARLY ON. MARIA: BRIEFLY, I WONDER, THIS WILL BE THE QUESTION. HE THE UKRAINIANS SAY -- UKRAINIANS SAY THE RUSSIANS WILL HAVE TO PAY REPARATIONS . A LOT OF OFFICIALS DO NOT BELIEVE THAT WILL HAPPEN, PUTIN WILL NOT PAY A CENT.
THE AMERICANS HAVE SPENT A LOT OF MONEY ON THE WEAPONS, THE IMPRESSION I GET IS THAT THIS WILL FALL PREDOMINANTLY ON THE EUROPEANS AND EUROPEAN UNION. CAN THE E.U. WEATHER THIS, AND PROVIDE THIS FUNDING? ODILE: CURRENTLY, I THINK THE COMMUNITY -- THE U.S., CANADA, COUNTRIES CONTRIBUTING TO SUPPORT THE ECONOMY. WE SEE A LOT OF DONOR SUPPORT TO ENABLE US TO TAKE ADDITIONAL RISK, BECAUSE WE ARE AS A BANK, FINANCING THE COUNTRY NOW. FOR THAT, WE SHARE THE RISK CONSUMER REPORT. IT FALLS FROM EVERYBODY, I THINK.
WE NEED TO CONTINUE TO BE LIKE THAT. MARIA: DO YOU BELIEVE EUROPE WILL LEAD THIS? ODILE: EUROPE WILL HAVE A BIG ROLE TO PLAY BECAUSE OF THE EUROPE PERSPECTIVE. THE COUNTRY, U.K. -- UKRAINE IS A CANDIDATE COUNTRY TO EUROPE, EVERYBODY KNOWS THAT REFORM WILL BE DRIVEN BY INTROSPECTIVE OF E.U. MEMBERSHIP. IT WILL ALSO BE INTENSIFYING SUPPORT. IT'S -- IT NEEDS TO BE ASSERTED FOURTH AND TWO OTHER PARTNERS GLOBALLY, WHO FEEL CONCERNED ABOUT THE GOVERNMENT AND WILL PARTICIPATE. MARIA: WHEN YOU LOOK AT THE SITUATION
OF THE COUNTRY, A FINAL QUESTION. YOU ENTERED THIS TWICE, YOU MENTIONED WORD REFORMS. A LOT OF THE CRITICISM OF THE UKRAINIAN ECONOMY FOR A WHILE IS VERY MUCH THAT, BY THE -- THERE ARE PROBLEMS WITH MORAL -- RULE OF LAW. DO YOU TRUST THAT PRESIDENT ZELENSKYY CAN DO WITH EVERY PREVIOUS ADMINISTRATION HAS FAILED TO? ODILE: IT IS IMPORTANT IN RECONSTRUCTION. WHAT IS IMPORTANT NOW, IN THE COMPLEX OF THE WAR, TO REVERT FROM GOING BACK ON REFORM. A LOT OF REFORMS HAVE BEEN DONE, PUBLIC COMPANIES, SO FORTH. THERE HAS BEEN A LOT OF REFORM
AND TRANSFORMATION, FIGHT AGAINST CORRUPTION. YOU LOOK AT THE INSTITUTIONS PUT IN PLACE. IT IS IMPORTANT TO PRESERVE THEIR FUNCTIONING AND ABILITY TO ACT. THE GERMAN CONTRACT IS IMPORTANT. STOP ENGAGING IN NEW REFORM WHENEVER POSSIBLE, BECAUSE EVERYBODY UNDERSTANDS THAT FOR THE GOVERNMENT -- ARE HUGE NOW, I THINK IT IS GOOD TO HAVE THIS AND SPEAK ABOUT THE KEY ISSUE.
WHEN YOU THINK ABOUT RECONSTRUCTION, YOU NEED -- AND FOR THAT, REFORM WILL BE VERY IMPORTANT TO HAVE STABILITY, CREDIBLE, TRANSPARENT ENVIRONMENT. MARIA: THE UKRAINIANS HAVE SAID -- THEY BLAME IT ON THE OLD SOVIET SYSTEM, THEY WANT TO TRANSFORM THE ECONOMY GOING INTO THE FUTURE. ODILE: I THINK THEY KNOW BECAUSE OF THE E.U.
-- IS VERY INTEREST. MARIA: THANK YOU FOR THAT, PRESIDENT OF THE EUROPEAN BANK OF REDEVELOPMENT AND RECONSTRUCTION. MAYBE THE WEATHER CHANGES TONIGHT. ODILE: HOPE SO. MARIA: IF NOT, WE WILL TRY AGAIN. THANK YOU SO MUCH. GUY: THANK YOU VERY MUCH, INDEED. NICE INTERVIEW, MARIA TADDEO JOINING US FROM LAGARDERE.
WE ALSO HAVE HEADS COMING OUT RELATED OUT OF GERMANY THIS TIME, THE CHANCELLOR HAS BEEN SPEAKING. THIS, AFTER WE SEE THE TASK FORCE MEETING ON THE ISSUE OF INFLATION. SCHULZ SAYING THE CURRENT PRICE IS AKIN TO THE 1970'S IN TERMS OF THE HISTORICAL PRESIDENT, GERMANY FACES A HISTORICAL CHALLENGE WITH INFLATION AND PLANS TO DEVELOP INFLATION FIGHTING PLANS OVER THE COMING WEEKS. THIS ON THE SAME DAY THAT WE HAVE SEEN GERMANY DELIVERING ITS FIRST MONTHLY TRADE DEFICIT IN 30 YEARS, THE INFLATION NOW FROM AN CENTER. GAS, A BIG PART OF THAT STORY. WE WILL CONTINUE TO MONITORING WHAT IS HAPPENING WITH GAS PRICES.
LOOKING AT NOW IS A SURGE IN GAS PRICES. EQUITIES, GOING SIDEWAYS. THIS IS WHAT THE BOND MARKET LOOKS LIKE. GERMAN 10 YEAR, 1.317. THIS IS BLOOMBERG. >> KEEPING YOU UP-TO-DATE WITH THE WORLD NEWS.
PRESIDENT BIDEN REPORTEDLY MAY LIFT SOME TRUMP ERA TARIFFS ON CHINESE GOODS. ACCORDING TO THE WALL STREET JOURNAL, THE PRESIDENT COULD ANNOUNCE HIS DECISION THIS WEEK. TREASURY SECRETARY JANET YELLEN HAS CALLED THE TARIFFS A DRAG ON THE ECONOMY. OTHERS IN THE MINISTRATION SEE
THE TARIFF AS LEVERAGE TO GET CONCESSIONS FROM CHINA. RUSSIAN TROOPS ARE COMING CLOSER TO THEIR GOAL OF TAKING OVER UKRAINE'S DONBASS REGION. UKRAINE FORCES WITHDREW FROM A KEY CITY IN A PROVINCE SAYING THAT EXTENDING ITS DEFENSE WOULD HAVE LESS THAN FATAL CONSEQUENT THIS. UKRAINE WILL UNVEIL A BREW PRINT -- BLUEPRINT THIS WEEK FOR REPAIRING THE COUNTRY. IT COULD COST HUNDREDS OF BILLIONS OF DOLLARS. THE EUROPEAN CENTRAL BANK MAKING ITS MOST SIGNIFICANT SHIFT TO MAKE ENVIRONMENTAL CONFEDERATIONS INTO MONETARY POLICY.
THE ECB SAYS IS -- IT WILL TILT CORPORATE BOND HOLDING TOWARDS ISSUERS THAT DEMONSTRATE THAT ARE CLIMATE PERFORMANCE. THE CARBONIZED BONED -- BOND HOLDING -- EXPECTED OVER THE COMING YEARS. GLOBAL NEWS 24 HOURS A DAY ON AIR AND ON BLOOMBERG QUICKTAKE. POWERED BY MORE THAN 2,700 JOURNALISTS AND ANALYSTS IN MORE THAN 120 COUNTRIES.
I AM ANGEL FOR LUCIANO -- FELICIANO. THIS IS BLOOMBERG. GUY: MARKETS, I THOUGHT THE STORY RELATED TO PRESIDENT BIDEN WOULD HAVE A BIGGER IMPACT ON FUTURES. THERE WAS A MINOR BLIP WHEN THE STORY CAME OUT, BUT U.S. FUTURES ON THE S&P, -.5%. NASDAQ A LITTLE SOFTER. AT THE MOMENT, U.S. FUTURES ARE NEGATIVE. YOU CAN SEE WHAT IS HAPPENING
THERE. THE STOCKS 600 UP BY .5%, LARGELY REACTING ON FRIDAY TO THE CLOSE. THE BIG STORY HAS EUROPE WITH THE ENERGY STORY AND INFLATION NARRATIVE, WE HEARD THE GERMAN CHANCELLOR MAKING COMMENTS ON THAT. TALKING ABOUT THE IDEA THAT HE NEEDS TO DELIVER MORE ON THE INFLATION FRONT, OR MORE ON THE INFLATION FIGHTING FRONT. THAT IS THE LINE YOU COULD TYPE BACK INTO WHAT PRESIDENT BIDEN IS TALKING ABOUT, REDUCTION ON TARIFFS MAY EASE THE BANKS OF SCHOOL ISSUES, WE COULD SEE AN INFLATION STORY OVER IN THE UNITED STATES. KEEP AN EYE ON BOTH OF THOSE.
WE ARE GETTING HEADLINES COMING THROUGH, THE PRESIDENT AND JUSTIN TRUDEAU OF CANADA ARE TO VISIT MEXICO IN NOVEMBER. AGAIN, INTERESTING NARRATIVE AROUND MEXICO POTENTIALLY GETTING THE RE-SHORING BENEFITS. THAT HAS YET TO FULLY HAPPEN. WE WILL THINK ABOUT THAT AS WE WORK OUR WAY TOWARDS THAT TRIP. TRAVEL TOPPING THE PANDEMIC AGENDA AT THE MOMENT. WE TALK ABOUT THAT IN THE NEXT HOUR, WE TALK TO THE PRESIDENT AND CEO OF BEST WESTERN HOTELS AND RESORTS.
WE HAVE ISSUES IN EUROPE, THE FOCUS ON ALL OF THAT IN THE NEXT HOUR. THIS IS BLOOMBERG. GUY: WE'VE GOT AN HOUR TO GO BEFORE THE END OF TRADING IN EUROPE. FUTURES -- WALL STREET IS OUT, WHICH SUCKS VOLUME OUT OF THE NARRATIVE OVER HERE. I WANT TO TALK ABOUT WHAT IS HAPPENING IN THE TRAY OF -- TRAVEL SPACE. THE FIRST I WANT TO TALK ABOUT IS WHAT IS HAPPENING IN -- WE NEED TO TALK ABOUT AIRBUS. LET'S START OFF WITH EAST JET. THE LOCAL CARRIER IN EUROPE REALLY STRUGGLING, MASSIVE STOCK SHORTAGES, -- STAFF SHORTAGES, PROBLEMS WITHOUT -- AIRPORTS. ALL OF THAT COMING TOGETHER TO
MEAN A NUMBER OF CANCELLATIONS. AS A RESULT, PETER, THE CHIEF OPERATING OFFICER AT EASYJET HAS DECIDED THAT HE IS GOING TO BE STEPPING DOWN. HE CAME FROM RYANAIR TO EASYJET, CLEARLY THIS IS A MAN FALLING ON HIS SWORD AS A RESULT OF THE PROBLEMS WE HAVE SEEN. WE TALK ABOUT NOW -- THAT NOW, AND AIRBUS. WE ARE JOINED BY PHILIP. LET'S TALK ABOUT WHAT IS HAPPENING WITH EASYJET. PETER VALUE IS STEPPING ASIDE,
HOW IS THIS GOING TO SOLVE THE PROBLEM? >> EASYJET, THE CEO IS LEAVING. JUST AS IT IS STRUGGLING WITH VARIOUS CANCELLATION, WHEN YOU JOIN RYANAIR IN EASYJET FROM RYANAIR IN 2019. EVEN THAT WAS A NATURAL SPLIT. IT IS A DIFFICULT MOMENT FOR EASYJET, THE FOCUS ON IMPROVING THE OPERATIONS AFTER -- THEY WALK OUT AND SPAIN.
THERE IS MORE STRIKES TO FOLLOW THIS MONTH. IT IS NOT EASY. DAVID MORGAN, WHO PREVIOUSLY FILLED THE ROLE STEPPING IN AS INTERIM CEO OH WILL HAVE -- COO WILL HAVE TO DEAL WITH -- IN AMSTERDAM. GUY: WHAT IS HAPPENING MORE BROADLY WITH THE TRAVEL STORY THIS WEEK? WE'VE GOT TRAINED STRIKES STARTING TO KICK IN AND FRANCE. WALK ME THROUGH WHAT THE REST OF THE WEEK LOOKS LIKE. I FEEL LIKE I NEED A TRAVEL UPDATE AS TO WHAT WE ARE SEEING. WE'VE GOT ISSUES IN SAF, A NUMBER OF CARRIERS REALLY STRUGGLING RIGHT NOW.
>> THE SAF ISSUES ARE DIFFERENT. THE SAF WANTED TO STRIKE, THEY HAVEN'T COME UP WITH DAYS THEY ARE GOING TO STRIKE. THERE ISSUE IS MAINLY TO -- WITH JOB SECURITY. SAF IS IN THE MIDST OF A MASSIVE RESTRUCTURING, THEY NEED INJECTION OF LIQUIDITY FROM NEW INVESTORS AND EXISTING INVESTORS . SAF IS LOOKING AT A BLEAK
FUTURE AT THE MOMENT, AS THINGS STAND. THAT IS PARTLY WHY THEY HAVE DECIDED TO STRIKE. THEY HAVEN'T AGREED ON COMPENSATION PLAN. THEY STILL COULD -- STILL TALK ABOUT A DRILL COULD BE STRUCK GOING FORWARD.
THEY HAVE WONDERED ANY SORT OF STRIKE WILL COST THEM ABOUT 9 MILLION EUROS TODAY. GUY: SID, LABOR ISSUES AND SUPPLY CHAIN ISSUES. HIP HITTING AIRBUS. THIS IS A COMPANY WITH AGGRESSIVE TARGETS AND TURNS OF -- TERMS OF RAMPING UP PRODUCTIONS.
THE EIGHTH THE 20 -- A320 AIRCRAFT IS STRUGGLING. WALK US THROUGH WHY. >> STRUGGLING WITH PRODUCTION AND SUPPLY CHAIN ISSUES ACROSS THE BOARD. THAT MAY BE STARTING SHORTAGES. YOU REMEMBER WHY -- FROM THE SUPPLIES, AND TALKED ABOUT DELIVERING 720 PLANES IN 2022. SO FAR IN THE SIX MONTH, THEY HAVE HANDED OVER THAN -- FEWER THAN 300.
IT IS TO FITS OF THE WAY TOWARD THE 2022 GOAL. THE CEO HAS SAID THE COMPANY HAS 20 NARROW BODIES BUILT BY THE END OF MAY, THAT WERE YET TO RECEIVE ENGINE'S AND COULD NOT BE SHIPPED. ACROSS THE SUPPLY CHAIN, THERE ARE BIGGER ISSUES. GUY: CALLING THEM GLIDERS, WE ARE BUILDING GLIDERS. GREAT STUFF, THANK YOU VERY MUCH, INDEED. SIDDHARTHA PHILIP JOINING US AND WHAT IS HAPPENING IN THE TRAVEL SPACE. LET'S PUT HOTELS INTO THAT MIX,
IT IS NOT JUST AIRLINES THAT ARE SEEING ISSUES. GOT A HUGE SURGE IN DEMAND, BUT THE SUPPLY-SIDE IS REALLY WHERE THE CHALLENGE LIES AT THE MOMENT. WE ARE SEEING THIS IN ANY PARTS OF THE WORLD, AND AS WE CELEBRATE THE FOURTH OF JULY WEEKEND, WE THINK WE SHOULD TAKE A LOOK AT THIS. LET'S GET A TAKE FROM BEST
WESTERN, LARRY COOK KULIK IS THE PRESIDENT AND CEO OF BEST WESTERN HOTELS AND RESORTS. 18 BRANDS, 4500 HOTELS WORLDWIDE , MORE THAN 4500 HOTELS WORLDWIDE. A GREAT PERSON TO TALK TO. LARRY, THE FOURTH OF JULY WEEKEND. HUGE DEMAND FOR TRAVEL. WHAT ARE YOU SEEING THIS WEEKEND? LARRY: THANK YOU. FIRST, HAPPY FOURTH OF JULY TO EVERYONE WHO WAS WATCHING TODAY.
WE ARE SEEING TREMENDOUSLY STRONG DEMAND, LIKE AN HOUR HOTELS, THIS SUMMER. FOR CONTEXT, THIS SATURDAY -- THE SATURDAY BEFORE MEMORIAL DAY WEEKEND, WE SET AN ABSOLUTE, HISTORIC RECORD WITH REGARD TO AVERAGE, DAILY RATE IN BEST WESTERN HOTELS. WE SAW THAT CONTINUATION OF STRENGTH THROUGH THE SUMMER SEASON. INTERESTINGLY, CONTINUED TO BE TREMENDOUSLY STRONG THROUGH THE FOURTH OF JULY WEEKEND. ON SATURDAY, TWO DAYS PAST, WE HAD OVER 1000 HOTELS HIT OCCUPANCY GREATER THAN 91%. DEMAND CONTINUES, AS WE SEE AN EXTENSION OF THE BOOKING WINDOW, WHICH IS A TRULY -- REFLECTION OF CONSUMER CONFIDENCE THAT THEY ARE GOING TO CONTINUE TO TRAVEL OVER THE SUMMER MONTHS. GUY:
ARE ALL ROOMS AVAILABLE? I WAS TALKING TO ANOTHER LARGE HOTEL OPERATOR, HE WAS TELLING ME THEY ARE STRUGGLING NOT TO OPEN HOTELS, BUT TO OPEN ALL THE ROOMS WITHIN HOTELS. WHAT ARE YOU SEEING? LARRY: OUR HOTEL METERS ARE -- LEADERS ARE GENERALLY SMALL BUSINESS OWNERS. I HAVE TO APPLAUD THEM IN THAT, THEY RUN THEIR HOTELS ON A PERSONAL LEVEL.
THEY ARE DOING THEIR BEST TO BE EMPLOYERS OF CHOICE, AND WHILE THROUGH THE PANDEMIC WE SAW SOME STRUGGLING WITH LABOR ISSUES, THAT IS RESOLVING ITSELF. I WOULD SAY THE VAST MAJORITY OF OUR HOTEL LEADERS HAVE 100% INVENTORY OPEN. GUY: DO YOU THINK THIS DEMAND IS SUSTAINABLE? LARRY: WE ABSOLUTELY HOPE THAT IT IS SUSTAINABLE. WE DO HAVE HEADWINDS, WE RECOGNIZE THAT AS AN INDUSTRY. YOU HAVE INFLATION, PART OF THAT IS GAS, COST TO TRAVELERS. THE COST OF FLIGHTS RIGHT NOW
CONTINUE TO ESCALATE. AS I MENTIONED EARLIER, WE SEE THEM BOOKING -- THE BOOKING WINDOW CONTINUING TO EXPAND, WHICH IS A TRUE REFLECTION OF TRAVELERS BEING CONFIDENT THAT, WHEN THEY BOOK, THEY WILL TRAVEL. SOMETHING ELSE THAT IS VERY IMPORTANT IS, AMERICAN HOTEL ASSOCIATION IN CONJUNCTION WITH COAL EGRET LABS DID A STUDY RECENTLY. WHAT THEY BELIEVE TO BE TRUE, I HAVE NO REASON TO DOUBT IT, 86% OF BUSINESS TRAVELERS SAY THAT FACE-TO-FACE INTERACTIONS ARE TREMENDOUSLY IMPORTANT AND ADD VALUE TO THEIR BUSINESS. PEOPLE PREFER TO DO BUSINESS IN PERSON. WHEN ONE BUSINESS TRAVELER TRAVELS, YOU KNOW THE COMPETITOR WILL ALSO TRAVEL.
IT IS THAT COMPETITIVE NATURE, WHEN ONE TRAVELS, THE OTHER MUST, AS WELL. WE SEE THAT AS A POSITIVE WITH REGARD TO BUSINESS TRAVEL, WHICH WILL CARRY US THROUGH HOPEFULLY THE FALL AND WINTER SHOULDER SEASONS. GUY: OK, LET'S DELVE INTO THE DETAILS. RELATIVE TO 2019, I.E., PRE-PANDEMIC, OUR -- OUR
BUSINESSES BACK? HOW MUCH OF BUSINESS TRAVELERS BACK AS A PERCENTAGE? LARRY: THE STUDY THAT I RELY UPON SAY THAT BUSINESS TRAVEL IS APPROXIMATELY 80% OF WHERE IT WAS. GUY: IS THAT WHAT YOU ARE SEEING WITH YOUR BUSINESS? I APPRECIATE THE STUDY, BUT IS THAT WHAT YOU ARE SEEING IN TERMS OF THE HOTELS YOU GUYS ARE RUNNING? LARRY: ABSOLUTELY. WE SEE THAT IN WEEK BUSINESS, WHICH IS WHAT WE CALL THE TRAVEL BUSINESS, RETURNING TO OUR HOTEL LEADERS. YES, SIR. GUY: IN TERMS OF THE GEOGRAPHY, YOU HAVE GOT A HUGE --. WHAT DIFFERENCES ARE WE SEEING
GEOGRAPHICALLY IN THE AREAS YOU OPERATE? LARRY: NORTH AMERICA CAME BACK EARLY IS DOWN STRONGEST. I THINK THAT WAS BECAUSE OF THE WAY WE HAD OUR VACCINE ROLLOUT PROGRAM, I THINK CONSUMER CONFIDENCE CAME BACK STRONGEST IN THE UNITED STATES. EURO -- EUROPE CAME BACK NEXT. IN THAT REGARD, I THINK IT IS TERRIFIC THAT THE ADMINISTRATION HAS REMOVED THE TESTING MANDATE FOR COMING BACK INTO THE UNITED STATES, WHICH HAS U.S. TRAVELERS TRAVELING
INTERNATIONALLY AND COMING BACK, AS WELL AS INTERNATIONAL TRAVELERS COMING INTO THE UNITED STATES. WE SAW EUROPE COME BACK SECOND. ASIA IS LACKING, THERE IS NO DOUBT ABOUT IT. CHINA IS STRUGGLING.
IT IS UNEVEN INTERNATIONALLY, I AM SURE YOU HAVE HEARD THAT FROM OTHERS, AS WELL. IN THE UNITED STATES, VERY STRONG. ACTUALLY, TOURISM IS THOSE KEY MARKETS IN EUROPE THAT WE ARE FORTUNATE WE HAVE GREAT PARTNERS IN EUROPE AND THE HEB, CENTRAL EUROPE, THEIR KEY DESTINATION CITIES SUCH AS PARIS AND LONDON. THROUGHOUT SCANDINAVIA, DOING TREMENDOUSLY WELL. WHERE WE HAVE MULTIPLE BEST WESTERN AND HOTELS THAT CAN MEET THE DEMANDS OF TRAVELERS. GUY: TO GO BACK TO THE DEMAND QUESTION, DO YOU THINK DEMAND WILL BE AS STRONG NEXT YEAR? A LOT OF PEOPLE PENT UP DURING THE PANDEMIC, VERY KEEN TO TRAVEL.
YOU GOT A SUPER DOLLAR, WHICH HELPS YOU GUYS COMING OVER HERE. DO YOU THINK THIS IS A ONE-OFF, OR PEOPLE ARE SET TO CHANGE MORE BROADLY TO THE KIND OF, I AM GOING TO REVIEW MY LIFE, TRAVEL MORE, SPEND MORE TIME DOING THE THINGS I WANT TO DO KIND OF MENTALITY? LARRY: I THINK YOUR TAKE ON IT IS ABSOLUTELY CORRECT. I DO NOT THINK IT IS JUST PENT UP DEMAND THAT WILL THEN WANE. I THINK PEOPLE HAVE LOOKED AT
HOW THEY LIVE LIFE, ONE TO BE ABLE TO SAY THEY ENJOYED THEMSELVES THROUGHOUT THEIR LIVES AND WANT TO TRAVEL. TRAVEL IS SOMETHING THAT IS IN EVERYONE'S DNA, IT IS EXPERIENCE, THE ENJOYING LIFE. I BELIEVE THAT WILL CONTINUE NOW MORE THAN EVER. GUY: LARRY, ENJOY THE FOURTH. THANK YOU FOR YOUR TIME, PRESIDENT AND CEO OF BEST WESTERN HOTELS AND RESORTS. THANK YOU INDEED. THIS IS BLOOMBERG. GUY: ITALIAN DEBT CURRENTLY TRADING 180 9.2 BASIS POINTS OVER GERMAN DEBT.
BOWENS, KEY SPREAD HE WANT TO PAY ATTENTION TO. THE ECB CLEARLY IS, IT HAS GROWN CONCERNED OVER THE LAST FEW WEEKS THAT WHEN IT STARTS TO PRIME MONETARY POLICY, YOU COULD SEE THAT SPREAD WIDENING OUT. YOU COULD SEE THAT TRANSMISSION MECHANISM OF THE MONETARY POLICY, IT IS DESIGNING A TOOL THAT COULD POTENTIALLY FIGHT SUCH FRAGMENTATION, SPREAD WIDENING. IT IS STARTING TO SEE CRACK'S APPEAR WITHIN THE GOVERNING COUNCIL. CRACK'S THAT ARE MAYBE RIGHT TO THE CORVETTE GOVERNING COUNCIL. NOGEL AT BULLINGER'S BANK INDICATING TODAY THAT HE HAS CONCERNS ABOUT THE USE OF THIS NEW, SPECIAL, AND DEFRAGMENTATION TOOL.
WHAT ARE HIS CONCERNS AND THE IMPACT IT COULD HAVE? I'M NOT SEEING MUCH MARKET INTERACTION -- REACTION. ALEX, LET'S TALK ABOUT MR. NAUGLE'S CONCERNS. WHAT ARE THEY? >> HE IS CONCERNED THAT THE DISTINCTION BETWEEN WHAT IS A JUSTIFIED SPREAD AND WHAT IS AN UNJUSTIFIED SPREAD COULD GET YOU IN DIRE STRAIGHT. HE WANTS TO SEE CONDITIONALITY ON THE FISCAL FRONT TO MAKE SURE THE ECB IS NOT DISHING OUT CASH TO GOVERNMENT. HE IS CONCERNED IN GENERAL THAT THIS LEADS TO QUESTIONS DEALT WITH THE DEBT CRISIS, MEANING MONETARY FINANCING AND THAT IT IT'S IN THE WAY OF FIGHTING INFLATION, IT IS RUNNING AT RECORD LEVELS. BUYING BONDS, AS WOULD PROBABLY BE A KEY FEATURE OF THIS NEW CRISIS TOOL, GOES AGAINST THE FRAGMENTATION TO BE DEALT WITH. GUY:
PRESUMABLY, HE IS TRYING TO DO THIS BEFORE WE GET THE DETAILS OF WHAT THE TOOL IS GOING TO LOOK LIKE. HE IS TRYING TO SHAPE THE DEBATE BEFORE THE FINAL TOOL IS UNVEILED. WHEN ARE WE GOING TO SEE THAT? ALEX: WE ARE WAITING FOR IT TO BE AT THE NEXT GOVERNING MEETING, WHICH IS ON JULY 21. WE HAVE HEARD FROM POLICYMAKERS WHEN IT IS GOING TO BE ANNOUNCED, OTHERWISE, THEY ANNOUNCED THEY ARE WORKING ON THIS TOOL AND DO NOT THINK LAGARDE CAN SAY TO THE PUB
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