♪ >> good morning. this is "bloomberg daybreak: europe." i am tom mackenzie in london. asian stocks tried water as jay powell says the u.s. labor

market has cooled considerably. the fed chair fails to offer timeline for rate cuts. nato ramps up air defense support for ukraine as new reports suggest the war is heading toward still meet. volkswagen slowdown. the german auto giant cuts its margin outlook, blaming disappointing ev demand and the costs of a possible closure of its audi plants in belgium. ♪ happy wednesday. this is "bloomberg daybreak: europe." european futures pointing to gains of 0.3 percent with the context that you've had six consecutive days of gains for the u.s. market. nasdaq 100 notching the records once again.

it was the banks that lifted nasdaq to new highs. modest gains in the session but in the context of this longest streak since january. european stocks futures looking to add 11 point. in terms of the u.s. picture we will be thinking about what jay powell saying, s&p futures pointing higher by just 0.1%. nasdaq futures also higher, looking to have 36 point. after that record yesterday jay powell mentioning the labor market, mentioning risks around the jobs market of the u.s. even if you failed to give that timeline. markets still pressing in a 70% chance, or thereabouts, of the first cut coming in september. that has not really adjust much on the back of the testimony that continues in the u.s. today from jay powell. euro-dollar in and reflection in terms of the french politics as the socialist reach out to macron's party, may be some kind of coalition.

brent, $84 a barrel. gold posting gains at 2667. . avril hong with the data out of china in focus. avril: absolutely. we are seeing that is the driver of sentiment on the mainland benchmark csi 300 is pretty flat after the china cpi came in lower-than-expected, just highlighting how those deflationary pressures persist in asia's largest economy. potentially also leading to further expectations of a rate cut from the pboc in september when the federal reserve could also move. and this is against the backdrop of going into next, where there's going to be a big meeting with the top leaders of china and not much is expected in the way of stimulus from that third -- this is where you see the mainland movement. elsewhere in the region, given how powell sounding somewhat

dovish, given how he flagged risk to the u.s. labor market but not getting anything in terms of timeline, it is pretty flat among equities elsewhere. china bond markets continue taking higher. we had -- ticking higher. we had a recent survey on the line in the sand for them is on the 10 year yield if it hits two. .25%. on the 30 year yield, 2.45 percent. if we see it hitting below that level, that's when the pboc might act. let's flip the board again. it's also about the rbnz today sounding dovish andrew got the kiwi really dropping, losing ground. also wanted to highlight what we are seeing in the japanese currency. don't forget, this week is when consultations with the boj with institutional investors are on the way to kind of suss out what they feel about the plan to address bond purchases.

it sounds like they've been asking for pretty hefty reductions. but i think there is a bit of a muted reaction to what powell set overnight. tom? tom: and of course, what powell has been talking about of course overshadows too much what is happening in the asian markets, particularly further lines in the sand you outlined. if the fed goes, may be that gives the pboc some breathing room avril hong the giving us detail on the asian markets. jay powell has been careful not to offer a timeline for rate cuts in comments to u.s. lawmakers yesterday but he says labor market conditions have now cooled considerably. >> the most recent inflation readings, however, have shown some further progress and more good data would strengthen our confidence that inflation is moving sustainably toward 2%. we continue to make decisions meeting by meeting. we know reducing policy restrict to soon or too much could stall

or even rivers the progress we have -- reverse the progress we have seen on inflation. tom: let's bring in jill disis at this point, who's been monitoring all of this for us. given what we heard from jay powell, how likely does a september cut by the fed now look? jill: well, tom, i mean, look, yes, he avoided pinning down a specific date for when the interest rate cut would come but he certainly did talk about the: labor market quite a bit. by our count, it was something like five times that the subject came up in the context of his remarks. when you are looking at the full picture here, it does seem like yes, may be the fed is actually considering that september timeline for that interest rate cut. we've had, what? three consecutive months of these rising unemployment rates. that idea that the labor market is continuing to cool. we still have about three inflation prints before we actually get into some toebbe or so time is on the fed's side if

jay powell is saying we need to see more data to make them more comfortable. i think it's likely the fed may feel comfortable with the timeline if the data continues to follow this trend we have been think. tom: we will need to see what the cpi on thursday, tomorrow, out of the u.s. does in terms of underscoring that or at least building on that picture with core expected to come in month on month at about 0.2%. we will see what the data endued comes through at. in terms of what we have been hearing from the u.s. treasury secretary, also given testimony. what do we hear from janet yellen? jill: yes. janet yellen seemed to reinforce some of those powell comments. we heard similar sentiment from her about how the labor market is no longer driving inflation to the extent we saw earlier in the pandemic recovery. it doesn't seem like from janet yellen, obviously, treasury secretary, but remember, former fed chair as well, she

understands these economic issues really well, she's kinda playing along those same lines. i think you are hearing a lot of these important voices within economics that they are all seeing this trend towards this cooling labor market. that puts us in a very different position then we were even just a few months ago. tom: jill disis, thank you very much indeed, in terms of the details coming through with that testimony from jay powell and the treasury secretary. which continues for jay powell today. nato opening its summit in washington by promising five long-range air defense systems for ukraine. the fresh shell of support comes even as the alliance resist offering kyiv a clear path towards membership. pres. biden: united states will make sure that when we export critical defense interceptors, ukraine goes to the front of the line. [applause] they will get this assistance before anyone else gets it.

all told, ukraine will receive hundreds of additional interceptors over the next year, helping protect ukrainian cities against russian missiles. tom: for more on this, let's bring in bloomberg's kriti gupta. you have been following this for us. in terms of the support for ukraine coming through from nato, how consequential is it? what is new? what is being repated? what's the depth of support? >> the five long-range missile systems are significant because when we were going into the summit, the added defense was not telegraphed. it was something ukraine and volodymyr zelenskyy was pushing for, but it was not something that was guaranteed or getting the endorsement from joe biden prior to this nato summit. what's important is the types of defense systems they have been talking about. they have been on the hunt for those patriot missile systems for a long time. four out of the five are those systems. they are.

long-range missile systems the question is not just defending against any attacks from russia. and remember in the last 48 hours as well, you had that deadly attack on the children's hospital in kyiv. this follows the international fallout from that as well. what's also significant is now with these long-range missiles, ukraine, with some country' defense capabilitiess, has the capability to have a bigger offensive and have these missiles going to russia, as opposed to only having a defensive position. tom: there are caveats around to what extent they can use those in russian territory. but that attack leaving i believe at least 40 dead, that russian attack on a children's hospital just under scoring the need for these systems. vladimir putin has been meeting with leaders from all around the world and it seems to be a little less isolated than he once was. >> viktor orban, narendra modi, xi jinping. not to mention his almost parade

like meeting with kim jong-un in north korea as well. you do see a lot of meetings in terms of kind of creating this access of -- axis against nato or specifically the u.s. what that does to change the way that china operates, etc., has not really shown up yet outside of pushing these various players saying we are on a patient initiative, we are looking for peace in ukraine. they're still trying not to alienate the united states and other allies. turkey is a fabless example. they're trying to skirt the line of being a nato member, but working with china, bring in the shanghai cooperation organization, but also having a dialogue open with russia. it is concerning. it has been a subject of concern at the nato summit that vladimir putin, isolated for two years and counting, is able to have these meetings. tom: that turkey dynamic is really fastening, given its nato membership. interesting to see that picture of narendra modi, literally that hug to put in, and the focus

from india. kriti gupta, thank you for the latest. 2:30 p.m. u.k. time, the boe's huw pill, the chief economist, will be speaking. there seems to be some consensus formed, may be moving towards a consensus that maybe august is in the cards for the boe in terms of its first rate cut. interesting to hear from huw pill later today. 3:00 p.m., you will get further testimony from the fed chair, of course jay powell. we will see if he does get pushed on that timeframe for rate cuts in a more kind of substantial way. at 6:00 p.m. u.k. time, there is a u.s. 10 year bond auction. that's after an option that came through yesterday. it was well received by the markets. we will see if that holds up later today with that 10 year bond auction in the u.s. coming up, volkswagen hitting the brakes. we take a look at why the german car giant is cutting its margin guidance.

that is next. this is bloomberg. ♪

♪ tom: welcome back to "bloomberg daybreak: europe." a redhead crossing the terminal. this is reporting from the financial times that microsoft has given up its observer seat on openai's board, of course, the company behind chatgpt. microsoft giving up its observer seat on the board. microsoft invested about $13 billion in openai, a company most recently valued at about 80 billion u.s. dollars. the financial times are porting this is probably down to regulatory scrutiny of this type between microsoft and openai so they are giving up this board seat, effective immediate.

apple also expected to take an role that is not happening. we will bring you more as and when we get it. to another corporate story right now. volkswagen has cut its full year margin forecast after warning it may close its brussels plant as low ev demand hits its audi division. danny lee has been following the story and brings us the details. what does this mean for vw? >> so it is cuttingyeah, it's margin outlook for the are 27% and that's down as much from 7.5%. what's interesting is the amount of extra additional costs it is breaking into this announcement, an extra 2.6 billion euros overall. they do not specify specifically what these extra costs are, but clearly it's never good for a company which is adding additional costs into its picture. but of course, their backdrop is

factory electric vehicle sales in europe, sales are weak, demand is poor. for volkswagen and other brands, such as mercedes, mercedes-benz, trying to go through this ev transition in europe, they are well behind the likes of china, who are setting up store on the block on the continent. as these european brands try to transition, there clearly is a bit of a struggle in mashing supply and demand. -- matching supply and demand. as the announcement was made, the likes of audi as well, its belgium plant might be closed, there's new no -- no new models slated to be made. you look at what automakers are try to do to balance the production picture. for bloomberg intelligence, they're kind of indicated that the likes of vw, this backdrop gives them a pathway to potentially write down some of its ev assets, as is the picture

we are kind of seeing across europe. tom: underscoring the challenges around this shift to ev's for some of these automakers. how is it likely to affect their announcement, in terms of the set up for vw in its earnings picture for the second quarter, danny? danny: we are going to see volkswagen produce its first half earnings on august 1. i took a look on the terminal to see what its operating profit performance looks like and it's holding steady around 5.8 billion euros at the moment but that has come down a little bit from an earlier high. after the first quarter when it, you know the week sales performance saw it cut its profit performance by 20%, it would clearly hope to avoid another cut in that. volkswagen still pushing ahead with investments in the likes of ev's after the investment, the 5 billion u.s. dollar investment in rivian in the u.s., you still got investments in china, so it still seems fully-throated into

this ev transition but looks like it's going to take a little bit longer. tom: danny, thank you very much indeed for breaking down the details when it comes to the latest from vw. switching focus to boeing, the aircraft maker delivering some good news for once. it's not often you get to say that about boeing. the troubled u.s. playmaker added over 44 commercial aircraft last month, the most since the 737-max blowout in january. our global aviation editor joins us with the details. you brought us airbus yesterday, now we focus on the boeing numbers. how do they stack up against their european rival? >> you are right that it's not often we get to say good news and boeing in the same sentence. this is a fairly good set of numbers from them. 44 aircraft altogether, 37 there of, 35, excuse me, of the 737, that's obviously on one hand the most crucial aircraft but also

the one involved in this january mishap that set off the chain reaction of events since. the other thing you have to look at, we saw it on the screen, if you stacked that up against airbus, they are obviously quite a bit behind. airbus came out with numbers on monday and they look better still. but for both companies, it is looking a little better heading into the latter part of the. the first half was obviously with boeing marked by the fallout from that january 5 mishap. for airbus, it was also a difficult first half. they had considerable supply chain issues and those were visible in the numbers. we saw the profit warning about a week ago. there's a lot of hope that the second half will bring a sense of relief for both playmakers. tom: -- plane makers. tom: where are we in terms of the road to recovery for boeing? >> the big building block that remains for them is who will take over the company? we know dave calhoun has said he wants to lead by the end of the year so they have about six

months to figure it out. there is no clear leader who has emerged as a successor, so that's one thing they will keep a close eye on. the next check in with boeing and the aviation industry writ large will be in about 10 days when everybody meets in the south of london. boeing will be there, a lot of executives will be there, will be taking the temperature of sort of the order activity. what is the appetite out there? and crucially, what is the supply chain issue looking like? that is the big bottleneck at this point for the industry at large. can they get over that? can they fulfill these orders they have managed to accumulate over the last couple of years? execution really is the big question for boeing and airbus. and for boeing in particular, who will oversee the execution? tom: really interesting in terms of who we are looking for in terms of taking over the company, the need to execute around supply chain challenges. benedikt kammel, thank you so much indeed in terms of the

latest on boeing and the challenges ahead. thank you very much for the update. moody's cuts kenya's credit deeper into junk after deadly protests force the government to scrap a new tax plan. we will have the details then on that story, next. this is bloomberg. ♪

♪ tom: welcome back to "bloomberg daybreak: europe." moody's has cut kenya's credit rating deeper into junk after deadly protests forced the government to scrap a plan to raise more than $2 billion in new taxes. the cut sees can you drop one level to caa1 at moody's with its negative outlook maintained. let's bring in eric, who joins us from nairobi for the details,

there implications as well for the economy of kenya. what will the downgrade and increased borrowing costs mean for the leader over and kenya -- over in kenya, mean for that government going forward? >> as you rightfully mentioned, one of the key consequences of their ratings downgrade is increased borrowing for kenya's government. that's because the country is considered a risky borrower, therefore, bondholders will see a premium on lending rates. already, we saw the yields, on the yield to maturity for kenya's dollar bonds that mature in 2031, 2032 and 2048 rising by two basis points yesterday. we have tertiary bond auction at least once every month. we have been seeing week on week for the treasury bills, you have seen it rising, so that's

likely to continue. there will also be increased borrowing because the government has had to cut about 177 billion shillings, equivalent to 1.28 billion dollars out of the original budget. that balance has been raised through additional borrowing so they will be pressured to borrow more on that will also put pressure on interest rates. tom: ok, so more borrowing and a cut to the budget, as you say, of around 1.3 billion u.s. dollars equivalent. what does it mean more broadly for the government's spending plans in the months and years ahead? eric: one of those things will be the president announced on friday that -- who has reached the official retirement age of 60, will have to leave office immediately. there's pressure on the chief

administrator secretaries who are to be hired so that has been stopped until further notice. we will also be seeing a lot of budget cuts for several ministries and government departments, so that's going to affect a lot of key projects. he also did announce that about 47 state owned enterprises will be dissolved as a result of those budget cuts. tom: ok, eric in nairobi on the downgrade and the implications for the finances and politics of that country. thank you very much indeed for the update. briefly getting you up to speed in terms of the inflation data out of china, because it is a reminder of the challenges in the world''s second-largest economys. in terms of the consumer price index, essentially back and around zero so below the estimates in terms of cpi. producer prices as well, factory gate prices remain significantly in deflation following as falling 0.8%. really speaks to the challenges.

they cannot do that until the fed lowers rates, arguably. what's happening in china linking to what's happening in the fed and you can see the pressure in terms of stocks today. the csi 300, the benchmark in china, down 0.2%. the 10 year yield currently at 2 .26 on the chinese benchmark 10 year. joe biden hosts a nato summit in washington as questions over his candidacy, of course, continue to boom. we will have more on the u.s. president's week of reckoning. that is next. this is bloomberg. ♪

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♪ ♪

tom: good morning, this is bloomberg daybreak: europe and i'm tom mackenzie. european futures point higher after stocks knowledge -- notch another record. hearing testimony to u.s. lawmakers. nato ramps up air defense support for ukraine as assessments suggest the war is headed toward stalemates and volkswagen cuts margin outlooks blaming disappointing demand and costs from a closure in belgium. european futures pointing to modest gains and we will watch volkswagen at the open. ftse futures gaining 17 points. after the losses of tuesday futures are looking to build on

the additional record after six days of gains. longest winning streak since january, modest gains for futures. nasdaq pointing to the upside after hitting a fresh record. keeping our eyes on euro-dollar and france, negotiations continue. the u.s. 10 year is 429. jay powell continuing testimony and emphasizing the cooling without committing to a cut. brent crude is down and the dollar is seeing a lift. breaking from the global foundry, tsmc coming through with sales data for june, 207 billion taiwanese dollars in

sales. this is the manufacturer for nvidia and apple of course. this is up 80% and cost the $1 trillion mark. sales data, 207 billion taiwanese dollars. annabelle droulers has been watching but we will start with tsmc. how do these numbers tie in for tsmc? annabelle: second-quarter average is likely to beat the estimate so there is a quirk, taiwanese companies need to release sales figures. we can extrapolate how that feeds into estimates for the second quarter.

the expectation is 652 billion taiwanese dollars of sales for the second quarter. this figure says we are likely to exceed that when you take into account numbers for may and april. revenue growth of around 35% on the year, likely to exceed that next week and what we get in terms of revenue moving forward in capex. tsmc is a company that has been on a tear in 2024 given that it is a sole supplier to nvidia and apple. tom: you've been monitoring strikes in -- in -- in -- in

south korea at samsung. what this means for supply chains, what is the up -- what is the update in terms of strikes? annabelle: when the news broke we did not see a reaction in share price. big weakness was with suppliers, that -- that -- that broader ramification. samsung's biggest labor union issued or started a strike on monday that was supposed to conclude, but we got a statement saying management was not engaging on demands and they're calling for an indefinite strike which they had foreshadowed they would be open to proceeding with. samsung workers want transparency around bonuses, greater assurances and higher pay.

extra leave. samsung saying it has not impacted chip production. very much a live story. samsung's union says management will be forced to meet them at the table. tom: indeed. that to the geopolitics. questions over joe biden in and opponents unseating him. let's bring in grady -- kriti.

headlines talking about strength in performance. there was energy, vigor. to what extent is the story evolving? kriti: he is under pressure. what is crucial is how many calls are subsiding and who seeing pressure to pick someone else. some saying it should be harris. pritzker is a billionaire so there are people saying he is capable including folks on the docket.

it is important to talk about who is supporting this. no major senate democrat has been vocal. if you heard this from chuck schumer or hakeem jeffries in the senate that would be a bigger move to have him removed. right now you're seeing a handful of legislators, not the senior members. tom: interesting how you break it down with the two-year versus the for. it seems a lot of lawmakers are giving themselves options. what are you watching for in terms of how this moves? kriti: the convention is not until august. they have to lock in the nominee.

to get to the role the platform committee meets on july 11, friday and they will have the discussion of whether biden represents the party. there are rules. 99% of the delegates are already pledged to him. he would have as much pressure as you want, this is president biden's call. tom: august is just around the corner. thank you very much indeed for the latest on the nato summit. more coming through on the u.k. because as the gathering gets underway keir starmer will publish a roadmap showing how the country will ramp up defense spending to 2.5% of gdp, facing calls to clarify its position and policy.

he committed to achieving the goal as soon the public finances allow without giving details on timing. switching focus, french football team fc porto is in discussions with the owner of lever -- liverpool and considering a proposal to sell a majority stake of capital to fenway sports group, the six time french champions have been struggling and risk being penalized by the french regulator without new funding. oracle shares fell after elon musk said his startup would rely less on the company's cloud technology. his firm will build a system to train aia internally. the company is ending talks on a potential cloud deal that would have seen x ai getting cloud

service from oracle. jurors over the collapse of our key guests capital management, charlie wells joins us. so much focus on how this came tearing down, but the question of whether he is culpable is in the hands of the jury. charlie: these are 12 new yorkers going through seven weeks of evidence. this was inside baseball and no juror necessarily has this sophisticated knowledge. so the judge was pushing defense and prosecution to speak in ways they could understand. if are determining whether bill engaged in fraud, conspiracy, or

whether this was an ordinary type of trading, risky but legal. tom: you will have to get the jury up to speed, but he gave a tongue lashing to make sure evidence is clear. if he gets convicted, what would that mean? charlie: in theory he could face over 200 years in prison. this is white collar and in white collar sentencing if convicted, sentences can be served concurrently. if you want to look back at a fraud trial sam bankman-fried, he faced a maximum sentence of over 100 years and got 25, so that puts this into the context

of huge potential prison time, but white collar works differently. tom: we wait for that decision from the jury on the case. indeed. french -- not french president, fed president jerome powell avoids rate cut timing questions. we will unpack his comments and market impact next read this is bloomberg. ♪

>> inflation has eased notably. more good data would strengthen our confidence and the labor market conditions have cooled compared to two years ago. we are aware if we loosen policy

too late or too little we could hurt economic activity. too much or too soon and we could undermine progress on laois and. our direction seems to be as we make more progress we loosen policy. tom: jerome powell testifying yesterday. let's bring in the head of market analysis. as you listened to the fed chair speak is it your view this is a fed chair leaning toward a cut in september? janet: it has been for a while -- we get more evidence because he said the labor market is in

better balance and the fed's focus is not just inflation. shifting to the growth side of things, if you leave rate cuts too late, that could do some damage to the economy. if you look at the job data gains r.o.k. -- gains are ok. health and services has been in decline notably in june, so it is really worth starting to worry about the labor market. tom: if the compulsion for cutting in september or whenever is weakness versus a downtrend, if that is compelling them to cut, is that supportive for stocks? janet: that is the thing, right

now we have that goldilocks scenario. which is great for markets and our base case is a soft landing but if the fed wait he see weakness this year. if you look at economic surprises the u.s. has been going down, negative, contrary to other major economies, so that is why the case is building for rate cuts. we see more weakness in the fourth quarter. that could be market concern. tom: one more on the u.s. and politics, we lead up to elections in november, is there complacency about political risks in the u.s. with inflationary input from a trump presidency? janet: yeah, it's not just complacency in the political

side, there is a lot of complacency. in general be economic backdrop is ok but you look at where the market is trading, near post-covid technicals really overbought so indeed there is complacency and on the political side i think -- yeah, yeah, if trump were to get into our, it would be inflationary. that is the obvious conclusion and if we get a congress set up that is democratic and trump as president that would be the worst scenario because you don't get tax cuts but you get trade wars. tom: that is interesting in terms of what that would mean. ftse 100 is up 5% year to date,

below gains in the u.s., but a more stable political outcome for now. can they u.k. take a leadership role? janet: so we still think the u.s. is likely to outperform because the macro setting is progrowth and growth quality but we upgraded u.k. because i think political stability helps if you look at where the ftse is trading so it helps but for the u.k. the valuation is underwhelming and a good diversifier if you are bullish on the u.s. and you want value stock to balance that. u.k. is quite defensive and

gives a hedge to inflation risks because you have commodities so it is not -- it is a cheap way to hedge against inflation. tom: ok, maybe a hedge to u.s. exposure. you mentioned you are overweight in the u.s. with caution. where does that take you within equities? citigroup saying it is time to take profit on ai winners and semi conductors and spread your bets, do you agree with that view? janet: we are positive on semi conductors for quite a while, not taking a positive view because in a lot of the focus is on the tailwind on semi conductors. according to analysts we track semi conductors and we are in

the middle of an uptrend so we do not think it is time for us to take that positive view away, let alone benefits of ai. unless the theme matures, i do not think we should start to take away the positive view, but i understand the technicals so that could be a pullback but at the same time it may be a good time to add to these positions when markets have a pullback. tom: buy the dip but there is a significant pullback. six straight days of gains. janet at rbc brewin dolphin, indeed. plenty more coming up. this is bloomberg. ♪ (♪♪)

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>> also the labor market was very tight, now we have a strong labor market, but fewer parishioners that would create inflationary concern. tom: janet yellen giving testimony alongside jay powell and he will give testimony today. jay powell emphasized the labor market calling risks, he did not commit to a september cut. indeed he did lend the take that there is softness. inflation coming down. softness, inflation, we will see

if the trend continues. that data coming through on thursday will be important with market volatility and a broad picture of softening and how you think about the fed. bloomberg thinks unemployment will go to 4.5 percent in the fourth quarter, when the balance of risks will shift toward the labor market. let's look at the next board because you've got another -- another -- another record for the s&p, six consecutive games. longest trends with games coming through. this is really half, less than half of the stocks are doing the heavy lifting on expectations of earnings growth from chip and tech names. is this a cautionary signal?

all under 250 members. inflation in china, lack of inflation because prices fell 0.8%. producer prices in china and cpi, fit straight month around zero, showing the lack of optimism so policy makers need to act but they are constrained and if a cut comes through that could give some breathing room to policymakers. coming up, the former italian prime minister on the politics of europe on the opening trade. stay with us. this is bloomberg. ♪

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>> good morning from london i'm kriti gupta. we're an hour away from opening trade.