‘Bloomberg Surveillance: Early Edition’ Full (10/20/22)

I am a fighter, not.
I have been honest about the mistakes I've made, but what I don't apologize
for is the fact that we have helped households through this winter, through
the energy price guarantee, two year energy freeze gone, tax free shopping
gone, economic credibility gone onto supposed best friend, the full
amount of chance he's gone us well. This is Bloomberg Surveillance early
edition with Francine Lacqua. Well, 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. Truss on the brink.
The prime minister fires her home secretary just days after ousting her
chancellor. As members of her Conservative Party
begin to revolt, risk evaporates. China debates a cut to quarantine rules.
Stocks drop as inflation and growth risks continue to swirl.
Plus, out of power. Tesla slides postmark it as delivery and
supply bottlenecks. Third quarter results.
Elon Musk promises an epic era. Now, first thing is first, let's check
in on the markets. And actually, there's quite a lot going
on in terms of beekeepers, but also yields not only in the U.S.
but in the UK.

Now, overall, there does seem to be a
focus on the market of inflation, the fact that central banks once again will
have to fight really hard and that will tip the global economy into, if not a
recession, a significant slowdown. So we're seeing a lot of pressure across
the board. European stocks down half a percent.
Energy is one of the only industries that's really gaining in today's trading
session.

This is on the back.
For example, Brent, one point three percent higher.
Now U.S. Treasury yields holding your recent
highs again, policy sensitive to your Treasury yield at near the high since
2007. That's quite significant.
And then the yen also weakening to 150. That's the first time we saw it since
nineteen ninety. The European map, if we take a look at
the difference between some of these countries, the UK pretty much flat as is
the CAC 14 footsie, maybe just a bit more pressure on the DAX down seven
tenths of a percent. So it's been a day and an evening of
political turmoil in the U.K.

With Liz Truss's premiership looking
close to imploding at prime minister's questions.
Opposition Labour Party leader Keir Starmer laid out a list of government u
turns to energy freeze gone tax free shopping, gone economic credibility and
supposed best friend for a bit of tax. Now he's gone as well.
Well, let's bring in Bloomberg's Lizzie Borden Lizzie.
When you look at, frankly, the last 48 hours.
Does the prime minister stay or go? While the journalists are lining up in
Downing Street, waiting for the podium to arrive outside number 10, the
pressure is on for Lazarus to resign.

The winds really have changed since
yesterday when it seemed that most Tory MP thought they'd let her cling on until
at least the Halloween budget. But yesterday afternoon, after Prime
Minister's questions, the prime minister only added to Keir Starmer as less of
what had gone from her premiership, the Home Secretary, Ellen Bravo problem.
And then for a bit. The Chief Whip, Wendy Morton, though
that resignation was retracted and she's actually just gone into Number 10
Downing Street. Then on top of the economic strategy of
personal mix being gone now, Truss's connection to her core really is only
Grexit. But in her cabinet, she's surrounded now
by Romania's problem and replacement is grunt shops.
He voted remain and he supported restlessly not in the leadership
election, but crucially gone, according to Tory backbench MP is the dignity of
the party.

They're embarrassed, livid by what
happened over the fracking vote last night.
There were allegations of manhandling of an MP to get him through the right
lobby, although they have been denied by him and those involved.
And there was chaos around the voting itself.
So Truss is desperate. It looks like she's doomed and we're
really just waiting for who could possibly replace her.
Yeah, I mean, who could possibly replace or is the question on everyone's lips
because you need consensus. If they're going to change prime
minister housing market, taking all of this laissez.
Well, I mean, if you look at the polling, interestingly, the membership
wants Boris Johnson. The population wants Russia sooner.
But the 1922 committee of Tory backbenchers probably won't want to make
the same mistake they've just made and put it to the membership.
They may want to bypass them and just anoint a successor to less trust.
The markets seem to be doing okay. Although the pound not so well.
But that's because, as your former guest, Dean Turner from UBS put it, the
markets are more concentrated on what the chancellor is doing, which speaks to
who's in charge of this government 100 percent and certainly who's in
charge of the markets.

Lizzie, thank you so much.
Lizzie Borden there outside number 10. Now, yesterday, Deputy Bank of England
Governor John Cunliffe told the Treasury Committee in parliament that British
politicians at the top of government were the cause of market chaos.
The source put it that way of that budget.
And you could save that period, I think was with
ministerial decisions on fiscal policy. I mean, this of course, means a couple
of things in terms of CPI, in terms of what you.
Political turmoil means for the gilt market.
One of our best stories today is from James, her ISE saying, look, the US, the
UK disastrous budget caused traders to flee the gilt market and there is no
sign yet that they're coming back. So let's get back to Lizzie Borden at
number 10.

What does this all mean for the Bank of
England? Well, for the Bank of England, as I say,
it's really all about fiscal policy at this point.
But the problem is that Jeremy Hunt has taken away a lot of the sugar rush,
which heightens the recession risk, which means that the baby is going to be
conscious again. Despite that double digit inflation
print for September that we saw yesterday of
its own potential contribution to a UK recession.
And really the Bank of England governor, though, has made it clear that he is
very much focused again on inflation fighting.
There was this period of an emergency intervention.
But as we've heard in recent days, they are going to get back on with active
quantitative tightening, even though not at the long end, so that they can keep
on high on financial stability.

But they do not want to be the
government's backstop anymore. All right, Lizzie, thanks so much.
Bloomberg's Lizzie Britton there with the very latest.
Now, let me just recap some of things that we've heard in terms of UK gilts.
I think we haven't maybe a longer term charge for gilts.
It's very clear that bond futures still today show that investors are closing
positions fast, trading activity low compared with normal levels, which
basically means that traders that fled the gilts market, there's no sign that
they're coming back just yet.

Coming up, Lewis Fed President James
Bullard sees an end to aggressive rate hikes early next year.
Our exclusive interview next. This is Bloomberg. I do think they will have an impact and
in some ways have had an impact. I would cite the housing market in
particular where it appears that no increase in rates has really changed
the dynamics there. So that's some place that
I would say there are not long and variable lags there.
You know, that market anticipated Fed moves that before they were even in
train this this spring.

And so that that's a place where we see
an impact right away. But, you know, it's a big ship and takes
a while to steer the ship. And so the housing market is not the
whole economy. So it certainly isn't.
And it's certainly not the main one main things trading inflation now cause
prices have fallen that rents are important, though.
And certainly they certainly are. And in fact, that's one reason why
people are so worried about inflation staying high next year, is that those
rents are the way they calculate they're going to spread out over several months.
Yeah, but we're aware of the lags in the calculation.
And so we'll take that on board and take a look at that.
But yeah, you're right.
The core measure, P.C.

Inflation is still in the high fours and
Dallas fed trimmed mean four point seven, five or so.
So pretty high inflation in the U.S., even if you try to trim out some of the
more volatile components. So we're gonna have to get that turned
around, moving in the right direction back toward 2 percent.
So how are you gonna do that? What does this mean for the restrictive
terminal rate? The September steps, median target
interest rate, four point four percent this year, four point six percent next
year. What do you after the latest data?
What are your projections now? Well, if you look at the September
summary of economic projections, the so-called dot plot, it did seem like the
committee was coalescing around further rate increases at upcoming meetings even
by the end of the year. So that seems to be the base case.
Right now, most of that has been priced in the market.
So I would anticipate that that's having an impact right now.
So that's good news if you're trying to get inflation down.
But we'll have to follow through on that in the subsequent meetings this year and
get the policy rate up to a level where we can put meaningful downward pressure
on inflation.

I think that's the the main goal
immediately ahead of us at the CME. Was the St.
Louis Fed president, James Bullard there he sees an end to the front loading of
aggressive hikes by early next year. Now we're joined by Kevin Tarzi.
He is portfolio adviser and member of the Investment Committee at Juliette
Saly. Kevin, thank you for joining us.
So Mr. Bullard sees a 2023 shift with end of
front loading hikes. Is this wishful thinking?
Whether it's a question of political courage, really, because we know that
given the level of unemployment, which is still the key variable
which will impact interest rates in the end, you have, you know, these
unemployment rates moving into non-inflationary levels.
This would mean a potential a severe I would say a recession in the US in the
area of of 23 percent for inflation to get back on track 2 to the 2 percent
target. So, so far, politicians are quite keen
on stating that they will do whatever they can and whatever it takes to bring
inflation back to 2 percent.

But we know that when times are getting
more and more difficult to be more and more difficult for them to be courageous
enough to move back to this target. So, Kevin, what does that mean, first of
all, where do you expect treasuries by year end?
Well, you know, don't tread on Treasury markets again.
You know, there's lots being integrated, greater lots being factored in, terminal
rates and the four of 0 5 percent. That's already a decent level of
tightening being being priced in. I'd say the main question is, you know,
when will the Fed private when they if they eventually pivot and this would be
at some point, in our opinion, that come back around mid to 2023.
And this puts get some pressure on longer term interest rates, because it
would mean that the Fed would be shifting a bit late and hence it would
be waiting on growth and waiting on a long term, longer term rates.
So when you look at, you know, all of the concerning bad news across the world
in terms of valuations, in terms of inflation, the possible recession, where
are you putting your money right now? Well, I'm not getting on on on on equity
markets where we prefer to allocate assets in those points.
I'd say most a recession resilient part of the equity markets.
Health care is one we're having luxury companies are publishing today and in
France.

No, that's not our area where we'd like
to allocate assets to luxury names, which tend to be quite resilient
provided that the recession is not that severe of the impending recession.
It's not that severe on fixed income markets.
I'd say your credit markets are integrating a fair bit of the pessimism.
We get very decent yields on those credit markets between 8 and 10 percent
on the, say, most indebted part of the market, whether it's in Europe or in the
US. And this integrates, I'd say.
And that's a very high level of default rates, which is I'd say unlikely to
happen going forward. So that's I'd say the two areas where we
would be allocate most of most of our overall assets these days.
Kevin, when you look further afield, I don't know whether you need to get the
dollar calls right.

It feels like the riskiest position if
you feel that it goes down and actually it goes ever higher.
What's your take on the dollar and therefore, what does it mean for, for
example, emerging market credit? Yeah.
Well, so on. On the on the U.S.
on the U.S. dollar, it has been, you know, several
factors helping and that security was, do you
know it's the best performing assets. This year, there's probably more more to
go on that front. Why?
That is because the energy crisis is far from being solved in Europe.
There's still this huge Damocles sort of potential gas stoppage in it in Europe.
The other one is, you know, interest rates differential, growth differential.
And on that front, I mean, if we do expect recession to be hitting the US
over the next twelve months, it will likely be coming much sooner into
Europe.

That's more likely to happen over the
next coming six months. So, you know, this would mean that the
dollar has further room to appreciate versus the euro going forward.
Kevin, very quickly, when you look at your face now, the right time to get in
or out of bonds. Well, again, now on credit markets, I
would say is a very right time to enter on those on those markets.
Again, you know, we are living through volatile times the to to say the two
state, to say the least.

But, you know, you have to carry with
you when you're investing in those in those credits and those credit
markets. And, you know, again, on the I'd say
short term part of the yield curve is whether it's the U.S.
or the euro area. There's already a lot being being priced
in. I'd say a long term, long term euro.
Right. I'd be a bit more a bit more cautious
because there are still lots of supply coming.
There's a natural, I'd say, price insensitive buyer, which is the ECB,
which is going to pull out of all of the markets.
And this is likely not going to help. It's a longer term euro rates.
OK. Kevin, thanks so much, Kevin.
Those are a portfolio adviser, a member of the investment committee at Gummy
Yak.

Now let's get straight to the Bloomberg
First 4 News. Here's La India and Thailand.
Hi, Francine. Let's trust his premiership is looking
increasingly fragile after a day of drama at Westminster.
The UK home secretary, Suellen a Bronfman, he was fired earlier in the
day. Cautious ISE.
The prime minister accused the government of breaking key pledges.
Tensions came to a head later in a chaotic Collins vote over Truss's
controversial plan to restart shale gas fracking, with reports of employees
manhandled into voting with the government.
Now, president flooding me as the landscape has also Ukrainians to consume
electricity with, quote, awareness tomorrow.
This after a grid operator warned of rolling blackouts because of damage to
the country's power infrastructure from missile attacks by Moscow.
Russia, meanwhile, has extended martial law in full occupied areas of Ukraine,
limiting civilian movements.

Bloomberg has learned that China is
considering reducing the amount of time inbound travellers must spend in
mandatory quarantine. This as the country's Covid zero policy
leaves the increasingly isolated from the west of the world.
Bureaucrats are looking at cutting quarantine to two days in a hotel and
then five days at home. Down from a total of 10 days of
isolation at present. And French President Emmanuel Macron has
used a fast track decree to push through his budget, effectively bypassing the
lower house of Parliament. This after the bill was debated in
France's National Assembly for several days, during which it became clear it
wouldn't secure enough votes to actually pass.
Mark Gurman centrist group is nearing 40 seat short after losing its majority,
and that was earlier this year. Global news 24 hours a day on air and on
Bloomberg Quicktake powered by more than twenty seven hundred journalist time to
analysts and more than one hundred and twenty countries.
I'm beyond guarantees at this is Bloomberg and thanks so much.
Coming up, Tesla sales fall short of Wall Street estimates, but Elon Musk
tells investors in the end of the year will be epic.
We'll take a look at the numbers.

And this is Bloomberg. Economics, finance, politics.
This is Bloomberg Surveillance early edition on Francine Lacqua here in
London. Now, Tesla has reported sales that fell
short of Wall Street estimates, citing delivery and production bottlenecks and
prompting Elon Musk to assure investors that demand for his company's cars
remains strong. As factories ran, we're looking forward
to a record breaking Q2 Q4. So is it really, you know, not going
where it looks? Looks like we'll have an epic end of
Europe. Well, joining us now is Bloomberg's
global autos editor. He's Craig Judelson.
Craig. Good morning.
Thanks so much for joining us again. So how serious are demand issues for
Tesla? So we entered this this earnings report.
With that being the real big question, right.
There was kind of a troubling deliveries report just a few weeks ago, much
shorter of pretty much everybody's estimates, you know, concerning that
production exceeded deliveries by about twenty two thousand vehicles, just sort
of unprecedented for two for Tesla.

They usually sort of clean out by the
end of each quarter. And, you know, you heard the knock on
wood there that sort of allowed for, you know, hey, maybe some things could still
go go astray in the fourth quarter. You also heard later on the call the CFO
sort of allow for the idea that we should expect that again in the fourth
quarter production, more production than deliveries, more cars and transit at the
end of the quarter. You also heard Elon Musk talk a little
bit about, you know, he did allow for the idea that demand is a little harder
to come by because of economic headwinds.
So this wasn't necessarily the, you know, a few SIV abuela that you would
have hoped if you were sort of rooting for Musk, putting the demand concerns or
putting putting them to rest.

Yes.
Very quickly, is the share buyback possible?
Interestingly, Musk said that this is something that has not been decided by
the board. But that didn't stop him from sort of
floating the idea that something like on the order of five to 10 billion dollar
share buyback could be possible. So that may be some way to sort of put
some concerns to ease about what the stock's been doing lately.
Craig, thanks so much. Craig Shadow there with the very latest
on Elon Musk. Now we're joined.
Coming up, we're joined by David Hunt. He's as chief executive of PJM, which
has more than one trillion dollars in assets under management.
We'll get his thoughts on the market outlook.
That's coming up next. And this is. Trucks on the brink.
The prime minister fires her home secretary just days after ousting her
chancellor. As members of her Conservative Party get
to revolt, brisk evaporates.

China debates a cut to quarantine rules.
But stocks drop as inflation and French risks continue to swirl.
Plus, out of power. Tesla slides post markets as delivery
and supply bottlenecks. Third quarter results.
But Elon Musk promises an epic year eggs.
Well, good morning, everyone, and welcome to Bloomberg Surveillance Early
Edition. I'm Francine Lacqua here in London.
Now the news cycle relentless, especially relentless at this moment
from the mayhem in Downing Street to earnings season next week.
But my next guest likes to look at the long term picture for the markets.
Well, David Hunt is president and chief executive of PJM, which has one point
three trillion dollars in assets under management.
He joins me here in the London studio. So, David, welcome to London.
Nice to be with you, Frances. Welcome to, of course, our studio when
you look at inflation. David, this is the biggest concern for
asset managers, for private equity, really for any kind of investor and the
people also trying to make ends meet. How will this end?
Well, I think that the first thing to recognize is that actually it's very
different around the world.

It's easy to kind of extrapolate maybe
from your home country, but you're in China, for example.
Inflation is not a big deal and the economy is shrinking.
In Japan, inflation is not a big deal. And there's almost no growth anywhere in
the US. We have high inflation, which is pretty
broad based. And in Europe we have high inflation,
but which is more targeted toward energy and food and a few other sorts.
It's a very different story. And I think it does lead you to
different conclusions about how things begin to come come undone at the end of
this. Personally, I think we're headed into a
kind of post Covid regime, which is very different.
It will be higher inflation. It will be still fairly low rates by
historical standards. And unfortunately, we'll go back to
somewhat of a low growth phenomena in the developed world.
So what does it mean, your offerings for your clients?
How will they change? Because it is going to be much more
difficult, too.

Well, it's going to be much more
difficult to make money, but it's easier maybe to lose money in this kind of
environment. Well, yes and no.
And this is where it's a wonderful thing to be a long term investor.
While it's undoubtedly true that if you were a big holder of bonds at the moment
and rates went up on you like that, you're feeling a little bit a little bit
poor. But in truth, over the next 18 months,
the money that we put out we think is going to be some of the best money,
actually, that we invest. This is what happened after the GFC.
I mean, we now have an entry point and we can talk about when that happens.
But but there is an entry point now, I think, to put money to work at far more
attractive terms than we've seen over the last five years.
So I think there's real room for optimism for long term investors.
But you've got to be able to ride this out a little bit.
All right.

So, first of all, how do you not catch a
falling knife? And so what is the right entry point?
Well, I think that is the million dollar question for sure.
And for us anyway, what we're really watching is, is the rates of inflation
and trying to figure out when those are indeed coming down.
And you can see some early signs. I mean, the base effects will naturally
bring these down for short. But I do think inflation is likely to
stay higher than the market anyway, believes that they will.
And the reason for that is actually how much money has been put into the economy
by fiscal stimulus, whether that's here in the UK or in the US.
We've had more than 10 percent of GDP pumped into consumers and businesses
wallets and they're spending that.

And there's a lot of momentum behind it.
Do you worry about zombie companies? And to your point of actually putting
capital to work, can you demand higher fees in this volatile environment?
So there is no question that a lot of the money that has gone into the economy
for Covid has meant that the natural process of creative destruction probably
has been delayed a little bit. And I would say we're going to see that
more in Europe than the US, where much of the support actually went to
unemployment insurance, whereas much of the support in Europe actually went into
companies.

But nevertheless, I do think gradually
you will see a kind of creative destruction.
You will begin to see as we head into recessions that there will be a rise in
credit losses and defaults. And that's a natural part of beginning
to get demand under under control. And central banks want that.
But nothing like an 0 7 0 8 crisis actually very different.
I think the analogies are not that helpful.
The GFC was fundamentally a liquidity issue that was driven by banks that were
undercapitalized.

We actually have the opposite problem
now. The banks are in very good shape.
The GFC was not really a credit issue. This I think if we have kind of a mild
to moderate recession, at least in much of the developed world, which will be
driven by higher rate. You're going to have actually more of a
credit issue than we did before, but I don't think you're going to have the
same kind of liquidity issue. I mean, if you look at some of the
credit issue, I mean, there was a bit of liquidity concern for some of the
pension funds, longer day pension funds here, which I'm sure you felt very
close. Every couple of concerns, of course,
with shadow banking. How do you stress tests, you know,
leverage companies at the moment that are OK at 1 percent interest rates, not
so much at 5 percent. So it's I'm really glad you raised the
leverage question, because whenever the question of kind of where where should
we worry what's going to break up? The answer to that is almost always
follow the leverage because that oftentimes driven by the use of
derivatives is in fact where you see things that people thought were
relatively tame all of the sudden with fast moves and prices can't make margin
calls.

And that's what you saw in the gilts
market here. And, you know, that's what we saw.
Actually, you know, a couple of years ago in the in the U.S.
government's market. So we're watching those markets that
have built in leverage very carefully to get out or it or no, just to borrow
money to monitor what the what the leverage situation is to make sure when
we have enough liquidity in our portfolios so that clients can move in
and out when they when they want. And secondly, of course, that we do have
dry powder, that if prices moved, you know, dramatically lower, that we could
actually move in in force for sure. David, are you here to do business?
I wonder what you make of all the political turmoil.
And, you know, we mentioned the pensions, but also yesterday was a
pretty extraordinary day for the UK. No, it really has been absolutely an
amazing week to be here for sure. And I'm I'm sure you don't need yet
another kind of commentator on the UK political situation.
But I can say that markets are very clear about what they expect and that it
at these heightened levels of interest rates, you know, having big unfunded
liabilities by the government is really not going to be acceptable.
And I think that was sternly delivered here by markets, but that should be
watched in the U.S.

And in other other markets.
Italy comes to mind where for sure the same kinds of problems exists.
So I think this has been a very, very important week for the world to watch.
What are you most optimistic about? I mean, we do know there's a lot of
things that could go wrong. And we talk about this day and doubt
before. The chief executive of such a respected
and large come like PJM are two, three years.
Will we be better in a better place than we are now or the opportunities for you?
So I remain extremely optimistic as an active investor.
I mean, I really do think that at these levels of prices that as as we go
through the recession, we hit the bottom.
Of course, the markets will come back faster than the real economy.
We will actually see really terrific buying opportunities.
By any measure right now, you know, rates are too high, spreads are too
wide.

And the real question for many of us is
when to make that move, not whether because I think I think the next 24
months will actually be very attractive, but people should be optimistic as long
as they have a long term view. Are your clients optimistic or have they
been? Yes, right.
They have been trying to know. And we've seen one of the biggest
differences. I think that I can remember between
institutional investors who have not changed their essay, there's been no
panic whatsoever. In fact, many of them have been
selectively kind of rebalancing into this and retail where you have seen a
lot of big outflows and people just kind of running from anything that said fixed
income. But the two are very different.
And so I think most long term investors are riding this out and feel as if they
have an opportunity now in front of them.
How difficult is it to go from what we've lived through in the last 12 years
to the next 10 years with, you know, Kutty with central banks just taking on
a completely different.

It really is.
I mean, so I mentioned this kind of new regime.
And so what we're working the most with clients on is so if inflation is higher,
what does that mean for your portfolio? If rates are going to be a bit higher,
what does that mean if emerging markets no longer really operate as a block?
You know, how do you break all of that up?
So it's a very interesting time to be an investor.
Yes, certainly not Delta. So much for joining us today.
Come back soon to London and here on air.
David on their president and chief executive officer of PJM.
Now, in the meantime, let's also check on pound.
We probably need to also check on gilts. The focus is on the politics.
Now, we did hear from Mr. Broadbent of the Bank of England.
It's not clear if rates must rise as much as Market C.
Remember, it is November 3rd that we have the Bank of England decision.
It's on October 30.

First that we're expecting more details
from the chancellor in terms of fiscal spending.
But then, of course, the million dollar question is, does a prime minister stay?
What comes if she goes and how does that change the fiscal equation?
Now, let's get straight to your Bloomberg business flash.
Here's the Hungarians highly on. Hi, Francine.
SALES have said as luxury shoppers in China returned to stores after Covid
restrictions eased, snapping up the. And Kelly, handbags revenue rose 24
percent in the third quarter, excluding currency swings, topping analysts
estimates. The results provide more evidence that
producers of luxury goods remain mostly immune to the wider squeeze on spending.
Now Philip Morris has increased its offer for smokeless tobacco company
Swedish Match. The total value of the revised offer
from the Swiss based tobacco giant amounts to about fifteen point eight
billion dollars. A takeover would give Philip Morris a
vast distribution network over in the US, the world's largest market for
smoking alternatives.

It says it will not increase the price
of further. And Bloomberg has learned Saudi Aramco
is pushing ahead with plans for an IPO of its oil trading business.
And what would be one of the largest listings this year?
Sources say the firm is working with advisers for a listing and react as
early as this year, which could value the units at more than 30 billion
dollars. Add that to Bloomberg business plus.
Francine, thanks so much. Now coming up, EU leaders gather in
Brussels on the agenda for sanctions on Iran.
Protections against energy, sabotage. That's up next.
And this is good work. Economics, finance, politics.
This is Bloomberg Surveillance early edition of Francine Lacqua here in
London. Now, European leaders gather in Brussels
this morning for a highly anticipated summit dominated by energy and the war
in Ukraine. The meeting comes after the head of the
commission or solve underlying unveiled a sweeping plan to bring down energy
prices. Now to debrief us all.
We go to our Europe correspondent used to do who's covering the summit, Maria.
Great to speak to you again. There is a plan of action, but is there
the political consensus to get it done? Yeah.
Francine, and frankly, that is the key question today and there is no simple
answer for it.

We've now seen the plan put forward by
the head of the commission. We've talked about this dynamic, very
dynamic price cap. The idea of a circuit breaker in the
derivatives markets, too. We've talked about the joint purchases.
But ultimately, these are ideas that will only fly if European leaders agreed
to them and give it the green light. Now, I am being told today the sticking
points essentially remain. The Germans continue to be very worried
about the implications of any cap whatsoever.
They worried that could limit supplies and their priorities to get a hold of
supplies. And then, of course, you have this
growing coalition of countries that want to see a price limitation being put
forward. So, Francine, overall, I'm being told
consensus at this stage, a lot can change in 24 hours in Brussels.
But right now, if that's world, it looks in many ways that this is going to be a
long but also very thorny discussion tonight.
Yeah, and to be fair, usually a lot has changed in 24 hours in Brussels.
Maria, thanks so much.

Maria Tadeo there was the very latest
from Brussels. Now the energy crisis forcing
governments to rethink how they generate power.
One alternative being considered Turkish power shift.
Now these giants floating power plants are run by Turkey's car power ship.
They burn fossil fuels and are usually spotted on the coastlines of Africa and
emerging markets. But the company says it's now in talks
with four European Union nations. Well, we're now joined by setting up a.
Managing director at Car Power Ship. Zain, thank you so much for joining us.
It does seem that the idea is not as green as many governments would like it
in Europe. The idea may be important just to make
sure that we don't have blackouts in Germany, as far as I understand, is now
backing off those options. Who are you talking with in terms of
governments in Europe? Thank you very much.
It's far, far worse if we have built conventional land based power plants
that are combined cycle that our fuel fuel inside ship and they've done this
speculatively before any contract so that these power plants can be mobilized
in less than 30 days.

So these technologies have been in use
in Europe for many decades before and they are not new to the European
utilities. The only difference is that they're
built inside rather than on land. We have been meeting with the leading
four economies in Europe to provide electricity and we have been in very
mature discussions and hope to have a couple of the ships operating before the
winter peak so that we can lower electricity bills and make sure no
industry, no household gets like that Zain.
So who would like to buy this? If you look at some of the economy
ministers or energy ministers? Is France looking into this?
Are they ready to to accept and actually use some of the car power ships?
How much do you think you'll be president in Europe in six months from
now? We hope that if we can go through the
regulatory processes which are made for conventional project development for the
standards, regulatory process will take approximately one year.
If we can expedite the process for implementing faster solution, we should
be able through a commission and make regularly operational through gigawatts
of electricity in Europe in less than 60 days from today.
When you look at some of the again, the countries or you haven't talked with
Paris.

Is it something that they'd be
interested in? We understand that Germany may not be
looking at this option, but that France could be.
We are speaking with all four of the leading economies in Europe.
They have been requesting also keep their names confidential for the time
being for security of supply reasons.
So with your permission, we will respect our potential clients request.
But I would be very happy to share that information first week of December when
hopefully all the power ships will be operational.
And for the moment. I understand there are 33 power ships in
operation across Africa and other emerging markets.
How long are these contracts for the short term contracts?
We have one year and the limit of 25 years.
These ships have a lifetime of more than 30 years, but it is very natural for use
of the ship for three to five years with a medium term contract.
And then one understands the merits of it and how local electricity generated
from it and how reliable it is, then provide for a contract extension.
That flexibility is not possible with a lumpy far flat since the structure is
thick and it can not be more.

But we can provide that flexibility with
floating far flat. Zain, thanks so much.
Know her as either a managing director at Car Power Ship.
Joining us this morning. Now let's get straight to the Bloomberg
first word use. Here's Leon Guarantee.
Hi, Leon. Hi, Francine.
Toss. His premiership is looking increasingly
fragile after a day of drama at Westminster.
UK Home Secretary Suellen a problem. He was fired earlier in the day,
criticized the prime minister and accused the government of breaking key
pledges. Tensions came to a head later in a
chaotic Commons vote to trust his controversial plan to restart shale gas
fracking, with reports of employees manhandled into voting.
With the government now present flawed to me as the lens, he has asked
Ukrainians to consume electricity with, quote, awareness tomorrow.
This after a grid operator warned of rolling blackouts because of damage to
the country's power infrastructure from missile attacks by Moscow.
Russia, meanwhile, has extended martial law in four occupied areas of Ukraine
and limiting civilian movements.

Bloomberg has learned that China is
considering reducing the amount of time inbound travelers must spend in
mandatory quarantine. That's after the country's cape and zero
policy leaves the increasingly isolated from the rest of the world.
Bureaucrats are looking at cutting quarantine to two days in a hotel and
then five days at home, down from a table of 10 days of isolation.
At present, French President Emmanuel Macron has used a fast track to create a
push through his budget, effectively bypassing the lower house of Parliament.
That's after the bill was debated in France's National Assembly for several
days, during which it became clear it wouldn't secure enough votes to pass
Macron centrist, agreeing its nearly 40 seats short after losing its majority.
That happened earlier this year. Lebanese 24 hours a day on air and on
Bloomberg Quicktake, powered by more than twenty seven hundred journalists
sent to analysts and more than one hundred and twenty countries at me and
guarantees.

This is fleabag.
Francine, Leon, thanks so much. Coming up, the British cabinet has
become something of a revolving door and the prime minister is under immense
pressure to be the next person to leave. We have the latest mayhem in Downing
Street. This is Bloomberg. Economics, finance, politics.
This is Bloomberg Surveillance Early Edition.
Francine Lacqua here in London. This is a picture for guilds.
Again, there's a move across the board in fixed income, but certainly you can
see the two year yield at the one that's most sensitive to everything that's
happening in the next two years 3, 5, 4. So it's been a day and an evening of
political turmoil in the UK with Liz Truss's premiership.
Look looking close to imploding. Let's bring in Bloomberg's Lizzie Burton
now. So, Lizzie, where does it actually leave
the prime minister? Well, my colleagues, Alex, where Kerman
Ceci Donaldson put it, well, they described yesterday as not just
ideological rigidity, not just political misjudgment, but amateurish sniffs for
all the world to see.

It was the resignation of Home Secretary
Stella Bronfman and then her scathing resignation letter.
We're going to hear from her with her resignation speech we expect in the
Commons later. Then the vote on fracking and all the
chaos surrounding the allegations of manhandling to get a Tory MP through the
right side of the lobby to vote. The MP involved and the ministers, I
should say, have denied that, although there were multiple eyewitnesses and
there was, of course, confusion as well over whether the fracking vote was a
confidence vote in the government or not.
And that has flip flopped multiple times.
And the chief whip and the deputy whip quit and then quit.
So in some frenzied, it has been absolute chaos.
The pressure is for less stress to quit.

And we're just waiting for the lectern
outside number 10. I have seen so many commentators
commenting that it's now like Italy and so many times being offended by that.
In the meantime, the Bank of England governor Ben Broadbent, also saying it's
not clear that UK interest rates need to raise as much as markets are betting at
the moment. RTS Britain outside number 10 Bloomberg
Surveillance EARLY EDITION continues. This is Bloomberg.

Clearly, Vernon, decelerating
environment right now and the market leadership ISE to make a ton of sense.
IBEX is a relative game. The dollar remains.
You know, first amongst equals in this we will not see weakness in the dollar
until the other economies start to do either as well or better than the U.S.
I haven't seen enough evidence that there's been any sort of break in the
way things function. Yes, we we're going through a painful
period in the markets.

It's a very difficult environment,
right. We're at market breaking levels and in
almost every asset class. This is Bloomberg Surveillance early
edition with Anna Edwards, Matt Miller and Kailey Leinz.
It's 10:00 a.m. in London, 5:00 a.m.
in New York and 5:00 p.m. in Hong Kong.
Our top stories today on the brink. Let's trustees hold on.
The premiership is hanging by a thread as many members of our UK Conservative
Party agitate for her to go. Tesla slides delivery and supply
bottlenecks at the Eevee make his third quarter results.
See a yellow musk tries to assure investors promising an epic year end and
a sweetened offer. Philip Morris says its new bid for
Swedish match is its best and final as it targets the world's largest market
for smoking alternatives.

Welcome to Bloomberg Surveillance
Edition. I'm Anna Edwards in London with Matt
Miller and Kailey Leinz in New York and Carnegie Hall.
Not to be distracted by the politics here in the UK, but away from that.
The rising yield environment still very much in focus.
Yeah, and that is weighing on risk appetite really around the world and
definitely true in Asia overnight where stocks were down pretty much across the
board. But what's interesting is the MSCI
Asia-Pacific index as a whole cut its losses about in half, only right now,
down about three quarters of one percent after earlier losses of more than one
and a half percent. And the reason for the rise off of
session lows with some Bloomberg reporting that China may be looking to
cut its Covid quarantine measures short or potentially just two days in a hotel,
then five days at home.

So that would be a reduction and an
easing of some of the really strict Covid zero protocols there.
So that helped things out. But still a down day for equities, also
a down day mostly for bonds, and that yields are moving higher around the
world, really seen follow through upward pressure on yields like we saw in
treasuries yesterday in the overnight session, including in Australia, where
the two year yield rose 12 basis points to 351.
That's the high is going back to 2012. And of course, the Japanese bond market
has not been immune to these forces. We have seen the 10 year JCB yield once
again above that 25 basis point cap that the Bank of Japan would like to keep
there, which is why they announced an unscheduled bond buying program to try
to keep that yield curve control. And of course, that is contributing to a
weaker Japanese yen. We are on intervention watch because we
are very, very close to one fifty per dollar, Matt, right now dollar yen
trading at one forty nine ninety two.

So that's a pair to watch very, very
closely. Yeah.
We won't know until we do. And then markets will react very
sincerely if if that happens. Take a look what's going on in futures.
We are down about half a percent on S&P futures now of course Teslas and S&P
stock, but we're watching that and it's dragged very closely.
Tesla on the Nasdaq futures down nine, nine tenths of 1 percent.
So you could see tech stocks take a big drop.
But just keep in mind how many tech stocks these days are in the broader
index. The 10 year yield continues to rise and
really yields across the curves, across the curve are rising to cycle highs.
Right.

We're looking at four sixty basically on
the two year right now for sixteen on the 10 year and then I'm screwed.
Crude up one of the third a dollar. Thirty six up one and a half percent, a
little bit more than that to eighty six ninety one.
So we do see a little bit of gain there. That may be a little bit of optimism
across the oil market as we hear news that China is considering cutting the
Covid quarantine time for inbound travelers.
And what do you see in terms of the European stock market?
Yeah, we did see that news around China, the pulp oil higher.
It didn't keep its impacts on equity markets, but some of that pop higher in
oil did last. And that, as you point out, I see it
really divergent picture across European equity markets depending on the sector
weighting of these different geographies.
So the London market down a tenth of a percent or so.
The DAX in Germany really underperforming because it doesn't have
the weighting towards oil names.

It also doesn't have the luxury
assistance that France has today. More on that in a moment.
It is the energy sector that is the only one that is going higher across Europe
today. I picked that out as one of the sectors
to follow today. Energy markets that energy stocks
rallied up by one point four percent, but that is the only sector moving
higher. Everything else moving negative today.
This is the two year yield to pick this out for this for the gilt market, of
course, three point five, four percent. And we do see yields going higher.
And to match point, this is a global phenomenon.
This is something we're watching in other geographies in Germany and in
Italy for a little time this morning. It looked a little bit nervous, as if
the gilt market was going to pricing in high yield gains then other markets.
But that doesn't seem to have been the case.
Now it's sort of on par with the rest of what's going on in Europe, not all that
similar to what's going on in the German market this morning.
And Ericsson is down by fourteen point seven percent.
The telecom equipment maker, the profits disappointing that under pressure from
an activist investor, that also guiding it, prudent to expect that some of that
customers might cut back on spending, given all of the headwinds that they're
facing and that they see is a luxury goods company.
It was up much more strongly than they say, only up by three tenths of 1
percent.

Not doing as bad as had been anticipated
in China is one part of the story. Stop me if you've heard this before.
American tourists in Europe with strong dollars spending on luxury items seems
to be coming to the coming to the aid at the luxury sextet.
Let us talk about something that's happening here in London.
It's been a day and an evening of political turmoil in the U.K.
with little Truss's premiership looking. To imploding at prime minister's
questions yesterday, the opposition Labour Party leader, Keir Starmer laid
out a list, a litany of government Utahans.
Two year energy freeze. Goal.
Tax free shopping. Gone.
Economic credibility. And her supposed best friend, the fall
of Chancellor. He's gone as well.
For more, let's bring in Bloomberg's Lizzie Burton.
Downing Street, I mean, that was yesterday lunchtime.
Lizzie, since then, she obviously had that appearance in parliament and then
we had a really troubled vote in parliament, really messy, chaotic scenes
in the House in Westminster.

Where does all of this leave his trust?
Well, on a list, Truss only added to the list of things that are gone from her
premiership and the hours that followed Prime Minister's questions.
Gone is another holder of one of the great offices of state, the home
secretary gone. Of course, there's much of her economic
strategy and really her only connection to her core vote now is Brexit.
And yet her cabinet is now filled with Romania's, the new home secretary grant
shops. Very sad remain.
And he also supported Ricci soon back in the summer leadership election.
But crucially, gone is the party's dignity, according to Tory back benchers
themselves. They were livid last night because of
what happened around the fracking vote. There were allegations of manhandling of
an MP by two senior ministers to go in the right lobby and vote the
government's way. That's been denied by the MP involved
and the ministers involved. But still, there are calls from both
employees in the Tory Party and the Labour Party for an investigation.
So the wind has changed in Westminster today.
It had seemed that Liz Truss was going to be allowed to cling on until at least
the Halloween budget.

But now the pressure is mounting for her
to resign. Today, we're just waiting for a lectern
to arrive. And if that lectern doesn't arrive and
she does indeed resign, Lizzie, what happens next?
Who would replace her? Well, interestingly, the polling shows a
difference the party membership would like Boris Johnson to come back.
But the population who would like Rashi Su not who of course, lost out.
So trust over the summer. He's the former chancellor.
You may see the 1922 committee of Tory backbenchers opting to appoint anoint, I
should say, a successor to skip this very divisive leadership election
process that we saw over the summer, bypass the party membership because we
see where their decisions lead.

But the trouble is, whoever they pick
would have a seriously diluted mandate that would raise this pressure for a
general election. A new Tory once thought, given it
already looked like the Tories were going to get annihilated at an election.
Yesterday's only added to the chaos. All right, Lizzie, thanks very much.
Lizzie BURDEN, their reporting from Downing Street.
We are waiting for any changes there and we'll bring them to you the minute they
happen. Now let's get back to the markets.
Tesla shares down after the Eevee maker reported sales fell well short of Wall
Street estimates, citing delivery and production bottlenecks.
The MIS prompted Elon Musk to assure investors that demand for his company's
cars remains strong.

Factories room.
We're looking forward to a record breaking huge Q4.
So is it really? No, not the word looks.
Looks like you have an epic end of Europe.
Joining us now is Craig Trudell, Bloomberg's global autos editor.
So what do we know? I mean, Craig, it looks like Tesla's
sales fell about six hundred million dollars short of the Street's estimates.
If you factor in even one hundred thousand dollars a car average selling
price, that's six thousand vehicles. Right.
I think there was also some mention of dollar strength playing a part there.
I think you also, I think just have to step back a little bit and do sort of
acknowledge that this company is growing quite a bit.
Right. Revenue did increase by 56 percent.
Having said that, they've really sort of set a high bar for themselves by, you
know, the talk the talk along the lines of what we just heard from Musk of, you
know, an epic outlook and lots of talk about record breaking results.
You know, this is a case where this is a company that's gone from, you know, to
car plants to four in the course of roughly a year.
And so you would definitely expect that they would have record deliveries and so
forth.

I think the big concern going into this
was that, you know, deliveries fell quite short of production last quarter.
They sort of allowed for the fact that they expect that to continue in the
fourth quarter so that, you know, sort of allows that demand concern to fester
a little bit. They also expect to come up a little
short of their 50 percent annual growth outlook for for this year.
And so, you know, they didn't necessarily put totally to bed this
concern about demand. And maybe what we'll see in the coming
weeks is perhaps some some price cuts from from the company after many, many
price increases because of all of the material costs and so forth that have
that prompted those increase. Well, that would be interesting.
That would be a pivot in itself. We worry about we think about the pivot
from a macro perspective, the focus on inflation setting to growth.
If we saw that from tests, that might tell us something interesting.
Musk was talking and acknowledging some of the weak spots in Europe and
Christine telling.

Yeah, absolutely.
I think he talked about, you know, the idea that demand is and I quote him a
little harder to come by. So, you know, I think he's he's alluded
to the idea that the property market in China is a drag here in Europe.
It's the energy crisis. He alluded to the idea that the Federal
Reserve is is raising interest rates and sort of clings to his belief that
they'll actually have to bring them back down a little bit, which is is
definitely a sort of contrarian view, I think.
But, you know, I think he did sort of allow for the idea that, you know,
demand while it is strong, it's going to be a difficult environment for them.
And that certainly is making it harder than it's been for them in the past.
All right, Craig, great to get an update from you.
Thanks so much.

We'll continue to follow Tesla this
morning, obviously, as the shares look set to fall and could be a big drag on
the broader market. Let's get to some big deal news.
Philip Morris has increased its offer for smokeless tobacco rival Swedish
match. The total value of the revised offer
from the Swiss based tobacco giant amounts to about fifteen point eight
billion dollars. Now, a takeover would give Philip Morris
a vast distribution network in the US, again, which is the world's largest
market for smoking alternatives.

Bloomberg's Andy Hoffman joins us now.
And Andy, this is really interesting because, of course, Philip Morris, you
know, that's an American company and American name, the break up with Altria
just 15 or 16 years ago. Is this going to be enough now to get it
back in the US? Are the hedge fund shareholders of
Swedish match going to get on board of the deal?
Good morning, Matt. Yes, this is the big question.
What we're hearing additionally and early on is that this increase to about
116 kronor from one hundred and six krona initially should be enough for
some to tender. However, the big question is valid
investment management. That's the hedge fund that owns,
we believe, more than 7, 7 1/2 percent of Philip Morris International.
And what they decide to do and whether or not this is enough for them is the
big question. We haven't heard from them so far.
So we don't know where they are. Indeed, as you were saying, this is all
about getting back into the US market. Philip Morris International, as they've
moved to what they call a smoking alternative products and the US is the
largest market for smoking alternative products, things like vaping.
Nicotine patches, which is what Swedish match makes.
And that's why Philip Morris, which right now is not in the US market, wants
to get their.

Well, and on that note, how does this
deal with Altria to sell I in the U.S. fit into this equation, right?
Well, Elizabeth, also a key move. This is a sort of a interesting
strategic move by Philip Morris at this point.
What it does is it gives them their spending about two point seven billion
dollars. This deal with Altria gives them access
to the U.S. market to sell the icons product, which
is needed to buy from product.

It's not tobacco.
Would you buy it on fire in the that you vaporizes?
And Philip Morris, that is that is the smoking alternative that is better at
this point. Philip Morris not able to sell that
product. That was not true.
His product to sell in the US. But this view argued with that, right.
Once they begin manufacturing VIX product in the United States, that
should be in about 18 months. And it gives them leverage.
Here is the fight with the Swedish match your orders?
Because they say, well, this is our regions and the U.S.
market and perhaps we don't need Swedish match.
If you're not willing to accept this offer, which grew up Merck's Morris said
their best and final offer. All right.
Thanks so much, Andy Hoffman, Melissa ISE, jinx, Anna.
Andy, thank you very much for joining us.
Now, let's quickly take a look at some other company stories we have our eye on
this morning with some stocks moving in premarket trading here in the U.S..
All of them related to earnings that were reported after the bell yesterday.
First up, IBM topping expectations on revenue, plus boosting its full year.
Forecasts really signal still strong demand, which is helping them contend
with dollar strength that a lot of companies are facing right now.
IBM up about 3 percent before the bell.

It's also a positive story for Las Vegas
Sands. The casino operator, it's adjusted
property IBEX, topping expectations strength for Marina Bay Sands in
Singapore, helping offset a still weak Macao.
It is up a little more than 1 percent. But sinking to the downside is Alcoa,
the big aluminum maker, posting a surprise loss there, dealing with higher
costs, but by slumping prices as well for aluminum himself.
So all of that taking down the company's performance and the stock with it.
It's down about 9 percent in early hours and now it's your turn.
Now it is my third. And that was definitely worth a mention.
So I'm glad we got that coming up on the program.
Then Caylee could get to joins us with some treat.
Director of research, so much to talk about from UK gilt markets to the
weakness in the yen and the possibility of intervention.
What breaks if we see further intervention?
And talking of the markets and the macro picture we have been hearing from the
St.

Louis Fed president, Jim Bullard.
He says it's important the Fed follows through on expected rate hikes.
Part of our exclusive interview ahead. November, a meeting has been more or
less priced in the markets at at the 75 basis point number.
Again, you know, I think you do want a way to actually get to the meeting to
see what the situation is there. The December meeting is a little farther
away. We will have more data at that point. Welcome back to Bloomberg Surveillance,
I'm Matt Miller here in New York. Kailey Leinz Anna Edwards with us out of
London. And we are looking at yields that are at
cycle highs really across the curve. I was interested to see two year yields
up to almost to 60 when I logged into my terminal this morning.
Five year yields at two thirty seven, 10 year yields at 415.
So this is, I think, just another example that there are reasonable
alternatives to stock. So some real competition coming from
rates. Let's get over right now to fill Sara
Fino, Bloomberg, senior markets editor, to talk about this.
So, Phil, you know, there was an idea that maybe we hit a bottom bank.
America said their survey screams capitulation.
Nonetheless, it seems that there's other stuff to buy.
You don't need to get the dip in equities just yet.
Yeah, it's been pretty hard to make the case that the worst is over, it's time
to come rushing back into stocks.

As that chart shows, you know, if you're
getting 4 percent plus on on treasuries, that's not too bad at a time when the
outlook is not great. Everyone's been waiting for that
capitulation. Even Bank of America says they might.
They think we might get the the people throwing in the towel early 2023.
So that means several more months of, you know, sort of the market grinding
lower. And that's just you know, that's just
not an environment that's going to encourage people to come back into the
market, especially given the economic news.
And you played that clip from Bullard from the Fed, basically saying 75 basis
points is baked in.

Rates could be going higher still.
Yeah, and just to delay the capitulation point, a little more fail because it is
something that so many people are watching for and waiting for.
I spoke to one guest this morning who said, no, we're not close to it.
Maybe it doesn't come till sometime in 2023 because we haven't seen yields go
as high as they are going to go yet. And that, I suppose, is the missing data
point. Absolutely, and you know, there's just
no urgency on the part of investors to come in.
You get these little mini rallies like we saw at the start of this week where,
you know, the selling kind of peters out a little bit.
People start to creep back in.

But there's just no follow through, no
momentum. And, you know, the economic data is
probably going to continue to be very difficult for a while.
You know, we haven't really seen a huge uptick in unemployment.
And you almost want you want a sense that things have gotten really bad in
the economy before people start to look for that bottom.
Phil, thanks so much. Bring back Phil Serafina with the latest
on the markets and for more market analysis, check out MF Life.
Go on your feedback terminals, find the markets live blog lots on there about
energy prices again and UK politics bases bring back. This is Bloomberg Surveillance early
edition. Here is what you need to know.
On the brink, these trusts seize hold on the premiership.
He's hanging by a thread as many members of the UK Conservative Party as you say,
it's for her to go. Tesla slides a delivery and supply
bottlenecks hit the Eevee, make its third quarter results.
CEO Elon Musk tries to assure investors promising an epic year end and a
sweetens off. Philip Morris says its new bid for
Swedish match is its best and final as it targets the world's largest market
for smoking alternatives.

I'm not Edwards in London with Matt
Miller and Kailey Leinz in New York. And man, it seems European equity
markets struggling to to find any momentum.
Yes, we got the political chaos. Not really jumping on the latest news
lines out of China and wary of volatility in government debt markets.
Yeah, absolutely. I mean, we're seeing rising yields here,
which is, I think, one of the reasons that you see lacklustre demand for stock
or actually the opposite of that. Right.
S&P 500 futures are down four tenths of one percent.
NASDAQ futures are down three quarters of one percent.
The concern here, right, some earnings stories.
Tesla having to defend demand for its products, seeing some weakness this
morning.

And that could drag on the these two
indexes. Here you see the 10 year yield right now
rising even less than 1 basis point, but still at 414.
And we showed you earlier, the two year yield at four fifty nine right now.
So across the curve, we're seeing those yields continue to rise.
And the question of whether or not we've hit a bottom in stocks is also being
asked of yield. Right.
Have we hit a high in yields? Have we had a low in terms of price of
bonds? Not makes crude up about one third
percent. We did have a pop this morning and crude
and some other commodities on that news that China may reduce the quarantine
time for inbound travelers.

It wasn't enough to sustain a rally in
stocks, but it certainly has sustained a rally in crude as we see Brent rising as
well. Kelly, what you see in terms of pre
market movers? Well, there's a lot of earnings related
movers to keep an eye on. One of them being Tesla, which, as Anna
mentioned, disappointed in its report after the bell yesterday.
The issue really is on delivery supply chain bottlenecks, making it difficult
for Tesla actually to get cars to people.
And as a result, the top line missed expectations.
And, yes, Iwan Musk is trying to say it's not a demand problem, but still
shares being way down in premarket trading to the tune of about five point
six percent.

It's an even bigger drop, though, for
Alcoa, the big aluminum maker. It's facing higher costs, but prices of
aluminum are going down. All of that adding up to a surprise loss
for the company in the quarter, they reported.
So it's down about 9 percent. One more positive story out there,
though, is IBM. It actually topped expectations and
raised its forecast, signaling strong demand.
It's being able to withstand a stronger dollar and those ethics headwinds as
well. So IBM up about 3 percent before the
Ballina. Yeah, quite a lot of divergence, it
seems, across the reporting, the corporate reporting schedule so far,
Kaylee, and this reporting season at the European markets, taking all of that on
board and showing some moves lower. These stocks, 600 in Europe down by six
tenths of one percent and not many sectors.
No sectors going in positive territory apart from energy.
That seems to be one area where we are managing to eke out some positive
ground.

The UK two year yield at three point
forty nine percent. Actually a bit of a turnaround here.
We had seen that we are now seeing buying of UK debt.
We have seen some selling. We have seen those yields getting high
and now we see them coming a little bit lower.
But the point remains that we are seeing the UK market move kind of in step with
the rest of the European markets today.

And that is something really given the
political turmoil that we've seen in recent weeks and it continued overnight.
Ericsson down by 16 percent, just shy of this is the telecom equipment company,
of course, and they missed in terms of their profit that they reported to the
markets. They are under pressure from an activist
investor and they are also being cautious about what happens from here,
saying it would be prudent to assume that some of their customers reduce
their spending on, for example, 5 G M M, as is the luxury goods company out of
Paris. And of course, we've seen a number of
luxury goods companies having quite a good quarter reporting better than
expected in China, but also saying that American tourists in Europe are spending
those strong dollars, Matt, and that is adding up to some better results for the
sector. All right.
We'll continue to watch, obviously, all those luxury goods companies.
It's really is it really is a threat, I think, in today's markets.
Let's get to a NIKKEI Gupta right now isn't free director of research and take
a bigger view first.

The thirty five thousand foot view
NIKKEI. The question of whether we hit a bottom
in markets has been asked. Bank of America came out with a survey
yesterday saying that the results scream capitulation.
Nonetheless, it looks like we're gonna be down again today as rates continue to
rise. What's your view?
I couldn't agree more with them. A very good morning, Matt.
And you know, where we kind of share the same view because we have we have seen
equity market volatility remain high as monetary policy is increased at an
excessively sharp rate across central banks in developed markets.
And now as we enter the Q3 earnings season, the key focus is really going to
be on current macroeconomic challenges that are being priced into stocks and
that's going to be alongside forward guidance.
So investors are going to be looking very, very closely into what that
forward guidance really is.

And the reality is the brief rally that
we've seen so far has been owing to some pretty good earnings coming in.
But inflation and the strong dollar, I believe, are obscuring the real earnings
picture. So I think higher discount rates will
continue to deflate earnings multiples and it's still too early to say if we've
hit the bottom. OK, then those higher discount rates, of
course, links into a conversation about how high yields go.
Then NIKKEI. And I wonder if you could weigh in on
that in the UK. From a UK perspective, we've just heard
from broadband at the Bank of England saying that UK rates may not rise as
much as Market C, which does sound a little a little more dovish than some of
the commentary of late.

That's from Ben Broadbent, deputy
governor at the BBC. How aligned do you think our market
expectations of hikes and the banks intentions?
Hey, good morning. Yes, there is a slight disconnect.
And that's because we've been over the past few weeks, we've been through a
stream and a raft of changes coming in from the government and the Bank of
England. So we've you know, we started off with
this launch of the original mini budget. We've then taken a
complete reverse course of the mini budget and a reverse on fiscal policy.
And now the key focus really is on quantitative tightening being delayed
until next year. Now, given the fact that we've taken
such a sharp tone on fiscal policy, there is a very strong likelihood of
that really impacting the market on the downside as well.
So while originally our expectations for the Bank of England was to come in with
an aggressive 100 basis point rate hike, we now think there is a possibility of
them lowering that to around 75 basis points.
Because if you think about it, this reversed take on fiscal policy is also
likely to impact demand going forward.
We're seeing a very high inventory levels.
We're seeing a drag on consumer demand.

And the key focus for the Bank of
England is the need to loosen this ever so tight labor market.
Know that is that is being tightening even more since Brexit.
So to get from a 10 percent down to a six percent was relatively easy.
But now to loosen that from 6 percent all the way down to 4 percent is going
to be a lot more harder than it got on the subject of fiscal policy.
How are you thinking about that in the US and the implications of the mid-term
elections for that as a potential market risk event that's now less than three
weeks away. Morning, Kelly.
Yes, that's a very interesting question. You know, and what happened in the bank
in U.K. and, you know, with the Bank of England
having to step in. It is a big stark reminder for the rest
of the world to not make the same mistake that the U.K.
has made.

So I think for now, the US will tread
very carefully on its own, on its own, on its take for fiscal policy.
We you know, we do have fiscal deficits at a very high level.
And I think given the fact that now we're entering the midterm election
period, you know, focus is going to remain on managing that fine balance
between not having very loose fiscal policy alongside the fact that, you
know, you've got the Federal Reserve on an extremely sharp, tighter and tighter
monetary monetary policy path. OK, I NIKKEI, thank you so much for
joining us. Where will the next geography for
volatility be any CAC? So joining us there from Wisdom Tree
with the latest on the markets. And coming up, St.
Louis Fed President Jim Bullard expects a shift in Fed policy early next year.
Part of our exclusive interview next. This is. This is Bloomberg Surveillance Early
Edition. You're looking live at the principal
room.

Coming up later today, an interview with
Blackstone president and CEO Jonathan Gray.
That's at eight thirty a.m. in New York, 1 3 p.m.
in London. This is Bloomberg. This is Bloomberg Surveillance early
edition and cable lines with Matt Miller in New York and the Anna Edwards in
London. While St.
Louis Fed President Jim Bullard says he expects the central bank to end its
front loading of aggressive interest rate hikes by early next year.
He spoke exclusively with Bloomberg's Kathleen Hays.
I do think, though, they will have an impact and in some ways have had an
impact. I would cite the housing market in
particular where it appears that no increase in rates has has really
changed the dynamics there. So that's some place that
I would say there are not long and variable lags there.
You know, that market anticipated Fed moves before they were even in train
this spring.

And so that that's a place where we see
an impact right away. But, you know, it's a big ship and it
takes a while to steer the ship. And so the housing market is not the
whole economy. So it certainly isn't.
And it's certainly not the main one. The main main things driving inflation
now cause prices have fallen that rents are important, though.
And certainly they certainly are. And in fact, that's one reason why
people are so worried about inflation staying high next year, is that those
rents are the way they calculate they're going to spread out over several months.
Yeah, but we're aware of the lags in the calculation.
And so we'll take that on board and take a look at that.
But yeah, you're right.
The the core measure of P.C. inflation is still in the high fours and
Dallas fed trimmed mean four point seven, five or so.
So pretty high inflation in the U.S., even if you try to trim out some of the
more volatile components.

So we're going to have to get that
turnaround moving in the right direction and back toward 2 percent.
So how are you going to do that? What does this mean for the restrictive
terminal rate? The September steps, medium target
interest rate, four point four percent this year, four point six percent next
year. What do you do after the latest data?
What are your projections now? Well, if you look at the September
summary of economic projections, the so-called dot plot, it did seem like the
committee was coalescing around further rate increases at upcoming meetings even
by the end of the year. So that seems to be the base case.
Right now, most of that has been priced in the market.
So I would anticipate that that's having an impact right now.
So that's good news if you're trying to get inflation down.
But we'll have to follow through on that in the subsequent meetings this year and
get the policy rate up to a level where we can put meaningful downward pressure
on inflation. I think that's the main goal immediately
ahead of us. So, you know, off the cuff right now,
what what would you say that level looks like it's going to be?
Is it going to be higher, for example, than you thought it might be?
Is that that is that that is that the risk here?
Not that you're going to be okay with that lower, but there actually need to
have a more rate to get to a more restrictive level.
Yeah, I've done this calculation of us from a minimal level that you would have
to get to to put downward pressure on inflation.
I didn't.

I did it at a conference in Stanford at
Stanford in May. And you can look it up on my web page.
At that time it came out, that number came out to three and a half percent.
But since then, the inflation news, unfortunately, has surprised continued
to surprise to the upside. So if you do that again now,
you know, you're going to get something closer to what send the dot plot, four
and a half, four, seventy five, something like that.
And I think also, you know, we're data dependent and we're
watching the data.

I think we're predicting at least the
dot plot is predicting that inflation will come down.
It will be a disinflationary year in 2023.
St. Louis Fed President Jim Bullard in an
exclusive interview. They're joining us now to further
discuss this Bloomberg Markets editor, Valerie Title.
Valerie, did we get anything new from him there?
He's reiterating what we've heard from other Fed officials that core core
inflation is the real enemy here.

But I want to pick apart one thing he
said, and it was at the end of his speech.
He said market based inflation expectations are looking good.
I want to pick that apart. Break evens since October.
This entire month have shifted higher across the curve.
And then if we look at survey based inflation metrics, you miss data, for
example, those ticked higher as well.

And we know that the U.S.
survey explicitly follows gas prices. And we've seen things like like the
China reopening news. Right.
That that has boosted oil prices this morning, nearly 2 percent after closing
3 percent higher yesterday. I think there's a real risk that
inflation expectations tick higher from here.
And that will cause a ratcheting higher of the terminal rate.
All right. Well, U.S.
yields hitting highs, cycle highs right now.
As you showed an excellent chart earlier, Valerie, the BMJ again stepping
in to defend their yield target. It's the same all over again.
But what do we actually worry about or why?
And when do we actually worry about a B DOJ shift?
Look, we all know that this BMJ OJ policy could break soon.
We just don't know when. But I would put it in the bucket of
things that could ruin your Thanksgiving, Matt.
The market is very, very worried. And I want to show you something here on
this chart. I've mapped out here the 10 year yen
swap rate versus the bond yield. And we can see here with this red line,
that's the 25 basis point yield curve control that the DOJ defends.
The swap rate is trading at sixty one basis points.
That means those hedgers in the market.

We're getting so worried that a yield
curve control brake situation might come.
They're willing to pay nearly 35 basis points above above the VIX target to put
it on. And and look, you know, yes, dollar yen
is showing some fireworks, but the real fireworks comes from when the Bank of
Japan shifts on their yield curve control.
And then the last true buyer of fixed income steps back.
And the and the world is really flooded with higher term premium and yields
surge everywhere. Okay.
And I know that this could have read across outside Japan.
Of course, Valerie, we heard from Jim O'Neill, formerly of Goldman Sachs, of
course, who said pretty recently, if this is poorly handled, it could have a
much bigger global consequence than the recent U.K.
mess. So we will watch very carefully.
Thank you very much. Thanks, Valerie.
Myself. The update that both the Fed and also
the BMJ.

And if you want to see value ease at
Charles up close, then you can go to D.C.
go. That is the functions used on the bean
bag terminal. Coming up on this program, European
leaders are gathering for a two day summit on energy.
How bleak or otherwise is the picture for this winter?
We're live from Brussels next. It's just being back. Our biggest cost base is purchasing
parts and and and our staff, the the overall energy cost is not negligible,
but it will not endanger our business in the current situation.
Our founding father, Charles Roll, said in nineteen hundred that he foresees a
great future for electric cars once charging is fixed and it's available.
And I think now we are here fulfilling his prophecy.
We are fighting for the number one spot in terms of pure TV sales in Europe.
It's the very first time that you can acquire the super luxury segment an
electric car.

The cost of even ISE is concerned as we
scale this technology. Eventually costs will start to come down
from my perspective. I think electric is only a transition
with hydrogen can really be the solution.
We need to protect the affordability for the middle classes to access clean, safe
automobiles. This is fundamental and of course the
energy inflation is not helping. Europe in particularly particular will
be challenged in the next two, maybe three years.
And we're working on fixing that, especially Germany does being dependent
on gas coming from Russia. The governments there have understood
that they cannot bet on only one solution, and especially not what we
see. For instance, you know, was the energy
crisis, for instance, in Europe. We would like to have hydrogen if we go
look a little bit longer mid to long term.
I think this may even be a catalyst to go quicker into renewables.
Some European auto executives, their global auto executives speaking this
week on Bloomberg Television about their ambitions and plans to compete with the
likes of Tesla and how they intend to deal with the energy crisis that we see
on the continent and in the UK.

Let's get a look at what's ahead today.
The Turkish central bank will likely deliver another cut, further cementing
its outlier status among global central banks.
And then U.S. data coming out today includes US
existing home sales. Initial jobless claims conference board
leading index. So you'll get those signals on the
economy to the markets and to the Fed. Blackstone, Philip Morris and SNAP will
be among the companies posting results today.
And interesting after Philip Morris brings its bid to sweetest match up to
almost 16 billion dollars.

And finally, European Union leaders
gather in Brussels for a summit that is dominated by energy and the war in
Ukraine. The meeting comes after the head of the
commission, Ursula von der Leyen, unveiled a sweeping plan to bring down
energy prices across the continent. Now let's get to my European
correspondent, Maria Tadeo, who is covering that summit.
Martin, you were just mentioning there, yet there is a plan for action around
energy and energy and war.

Are they very linked to topics of
conversation at this summit? Is there any political consensus around
the plan? Will Arnett today, finally, we get to
find out whether or not there is consensus, it is decision time.
Remember, the criticism just a few weeks ago is that there were so many ideas
floating in the European space that it was very difficult to get to an actual
informed debate that could produce results because there just weren't too
many options out there. We know now that the commission has put
out a point plan. They talk about the well, dynamic, very
dynamic price cap. It's unclear exactly how that would work
in the real market. They also talk about a circuit breaker
that could potentially put an end to price spikes in the market.
The joint purchases of gas, all of this coming together for leaders to debate.
The reality is, however, in this meeting, which I'm being told so far,
we're very far from consensus. That is from a source that I talked to
who says this is still a conversation between a growing number of countries
that want to see a price cap and Germany.
Germany continues to say they do not support this idea because they worry the
implications of it.

The signal that it would send to the
market could compromise supply for the Germans right now.
This is a story about securing supply, even if it is expensive.
This is going to get tense today. I am being told, as I said, there is no
consensus on this. But you know very well in Brussels, the
night is young and 24 hours. Well, a lot of things can change in the
city. Maria, just quickly, as we talk about
contention on some of these issues, are they at least still unified in their
support for Ukraine or are we starting to see some wavering in that support?
Look, I think what we'll have to keep a close eye on, Viktor Orban, the
Hungarian prime minister, always very outspoken.
The problem child for some in the European Union, but also Italy overnight
through was a private conversation from Silvio Berlusconi, which has created a
national scandal in the country.

He flat out blames Ukraine, essentially,
for pushing Vladimir Putin into this invasion.
He says some of the content has been taken out of context, but this is now a
very contentious debate in Italy. The problem, of course, is Mario Draghi
is on his way out. This meeting could be his last.
And then this is a government that is still in the making.
OK, Maria, thanks very much. The Italian perspective there on what's
going on in Ukraine, Maria Tadeo in Brussels.
She'll keep us up to date with all of the conclusions on energy and the war in
Ukraine. That is it for EARLY EDITION.
We will keep the coverage coming, though.
This is back..

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