♪ >> good morning from bloomberg. in by, i am manus cranny. with dani burger in the london hq. this is "daybreak: europe." tax breakdown. saudi arabia and uae failed to resolve their differences.

brand top $77 a barrel for the first time since 2018. . the end of social distancing. england lays out its plans to return to normal from july 19. boris johnson says "we need to learn to live with coronavirus." holding steady, the rba, its key rate at three-year bond yield target unchanged. it says of rate hike is unlikely until 2024 at the earliest. good morning, 6:00 a.m. in london. in abu dhabi, they never even made it to the virtual opec meeting. no meeting, no date, no barrels. is a tight market, dani. the tail risk of the uae opec is not moving. there seems to be a consensus that we could get a deal but it may take time. dani: right, that consensus, for

an oil market, that perhaps can calm some fears, but it is interesting to hear folks say that the long-term, this seems more bearish for oil if we do not get that agreement. what does that mean for opec in the future? does that mean more supply in the market? manus: some people are saying it is vitally, either they do a deal and take pressure off the market. there is political angst between saudi and the u.a.e. the uae is using oil as an excuse. think of what differentiates the uae to saudi -- yemen, israel, trade, this is a deeper, political narrative in the play, dani.

dani: for two countries that were seen drawing up plans for a political union a few years ago that did not come to fruition, if you can't agree to something as simple as pandemic response, what does that mean for the rest of the situation? what does that mean for asset prices that are so dependent on what comes out of the middle east? manus: yes, let's have a look at the board. dani: as we have been discussing, the price of brent higher, over $77 a barrel throughout the rest of the morning, people are going to be asking and we are going to be asking, what is the impact on a variety of asset classes? small caps are outperforming premarket. is that the cyclical trade back on, perhaps with inflation coming back? futures lower by 0.2%. the u.s. cash trade set to open

again after the july 4 and july 5 holiday. u.s. 10-year yields higher by two bps. is this the impact of oil or the impact of new deal on opec? opec has been plunged into crisis. the alliance called off talks yesterday after a bitter fight between saudi arabia and the uae blocked a supply increase, sending crude surging towards $80 a barrel. what happens next will determine whether the breakdown could escalate into an issue as destructive as last year's price war. let's bring in bloomberg energy and commerce he editor andrew james. andrew, we know these talks have been abandoned. does this seem like the talks are not going to take place at this point? what is the read on it so far? andrew: as a yourself and manus were looting to before, the general consensus of the market -- as yourself and manus alluded

to before, the general consensus of the market is talks could reconvene sooner and there will be some closed-door meetings going on. it will certainly be a volatile market, trading on rumors and speculation about what is happening. definitely going to be a volatile few weeks. manus: andrew, one of the things we had the trafigura chief economist on and he said the draw on stocks is unprecedented. gas prices trading higher. with gas on the move, american pockets are under pressure. how much of a role with the bride -- will the biden voice play perhaps in bringing some kind of consensus? andrew: the u.s. is definitely

going to be playing some sort of role. i am not sure if it is going to be similar to what trumpeted. i don't think -- going to be similar to what trump did. i am not sure biden will be so hands on. we may see a spike, five dollar or $10 increase in the next few weeks. manus: andrew, thank you very much. let us see if there is still space and time to get a meeting here before those barrels are due for shipment in august. andrew james, our bloomberg energy and commodity editor. let's bring in our, guest, maurice gravier chief investment officer at emirates mbd. i market on fire. oil is warring higher, gas prices higher. should i be worried from a macro

perspective, a global economy perspective? what does the ratchet in oil prices mean for you? marise: at this stage, there is no reason to overreact. american pockets could be under pressure but don't forget that american pockets are full. savings as a result of the money. goldman sachs one month ago came out with $80 on oil prices. this is the context of a global recovery. for me, opec+ have a great record. i would not overreact. dani: so don't overreact.

do not worry that $77 a barrel. . we have heard calls. the economist at traffic -- our guest was predicting $80 a barrel even before this spat. how do you factor in oil prices into other assets that you look at? maurice: you are right, it is a key question. for asset allocation [indiscernible] it is about what is the impact. oil is another inflationary factor because transport prices are higher. it is one of the reasons to be underweight. interest rates are too low. that is the key takeaway we have. is not just about oil, it is about overall disinflation and the inflation trend.

we are overweight equities. inflation is not bad for equities. manus: i think maybe you are getting ready to go to the south of france that is why maybe you are more relaxed about $77 a barrel on oil. [laughter] in broader perspective, how would the opec spat affect broader assets? i would like to narrow that down. going back to the chief economist conversation, he said stop panicking about inflation but inflation expectations, that is the risk. is that a risk, could, the breakevens the narrative of inflation expectation be the bigger risk here? maurice: that is interesting. there are inflation expectations and then there is real inflation. it could be volatile.

how long is transitory? i change my mind. i think some inflation could be with us for longer than what is thought. doesn't mean it is not ultimately transitory. there are structural factors behind inflation probably still there, you have a strong recovery, pent-up demand, you have, bottlenecks in the supply chain. they are real. but, again, we are not talking about hyperinflation at all, we are talking about 2% or 3% for some time. in terms of asset allocation, it is better for stocks. you have to sit on your hands and wait for interest rates to be higher. we don't expect a spike in

inflation expectations. dani: 50 basis points to low. we will see what that basis -- what the fedc has to sa. get to the first word news with simone foxman. good morning. simon: good morning. england will is all covid curbs, including social distancing and capacity limits on july 19. face masks will be voluntary and the government will no longer instruct people to work from home. prime minister boris johnson says cases will continue to rise, but people must learn to live with the virus and exercise judgment to protect themselves. the leaders of germany and france are urging china to allow more flights from europe as one way to strengthen political and economic ties.

a three-way video summit also discussed cooperation in africa and global vaccine supply. officials said the leaders agreed there is a window of opportunity to revive the iran nuclear deal. facebook, twitter, and google have warned that they may stop offering their services in hong kong if the government goes ahead with planned changes to data protection laws. according to dow jones, they were part of an industry group that raised concerns with the government in a private letter. they claimed rules to address what is known as doxxing, where private information is revealed publicly, could put staff at risk. global news, 24 hours a day, on air and on bloomberg quicktake, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus, dani. manus: simon, thank you very much. simon, thank you very much. an extension to its quantitative easing program.

we bring you the story, this is bloomberg. ♪

dani: welcome back to "daybreak: europe." i am dani burger in london and alongside me is manus cranny into by. the reserve bank industry has announced it is paring back the amount of weekly bond purchases. at the same time, it will be keeping the cash rate and three-year yield target unchanged. keeping an eye on this is juliette saly in singapore. this comes as the economy in australia is often recovery faster than expected. were we expecting something more hawkish from the rba, or does it fit the script?

juliette: it fits the script, but the key point is that three year old target pegged to the april 2024 bound and not pushing it out in november as some in the market had thought. that would have been a dovish signal from the rba as they deal with the delta variant which has australia causing a lot of lockdowns. the fact they are sticking to april of 2024 is being seen more as a hawkish signal coming from the roof from the rba. also confidence, reducing the amount of bonds from 5 billion to 4 billion. they say they will continue to keep this going until mid-november at the earliest. so he will not see a rate hike until 2024. had they pushed it back to november of 2024, you would not see a rate hike until 2025.

the aussie dollar is up 0.5% over the greenback. . the aussie dollar is at a one-month low against the q. kiwi. the rbnz could move in november. our chief asia economics correspondent says the rba is as bullish as they are dovish. they talked about the recovery in the overall economy, concerns about housing for prices rising too. you have a look at how the australian labor market is faring, unemployment at 5.1%. they spoke about closed borders, saying this is causing shortages of labor, particularly in areas affected by the closure of australia's international borders. so there are concerned still about the overall jobs market, dani. dani: juliet, thank you so much. juliette saly in singapore. still with us is maurice gravier. is the rba announcement today,

they said recovery is stronger-than-expected. and will continue that way. what are the tailwinds economies are getting now, especially ones with more vaccinations, what is preventing these banks from tightening sooner? maurice: no bank once to be the first to tighten -- wants to be the first to tighten. you remove the support, even in the case of the rba, you don't want to derail your recovery, and you probably don't want to be the only want to do so. so everyone is watching everyone. correct me if i am wrong, but i think the rba had set conditions before hiking rates. we are not there yet.

all the central banks care about their communication, not shocking the market, as they do about policy. they are trying to keep an open mind. manus: you are bang on the money which is that they want to see unemployment and wage growth of at least 3%. how comfortable are you with risk assets? you have a warning about negative rates. you are concerned about bubbles. but we are not there yet, in your opinion. are you taking on additional risk if you have to deploy capital in a negative interest environment? maurice: there isn't as much activity. the backdrop is fabulous for

risk assets, valuations are expensive. the bottom line, there is little alternative. we are overweight in equities. i just want to criticize that we are super bullish in --[indiscernible] even high yields in developing markets is getting hotter. so we are overweight equities but we are neutral cash. not just because cash has proven to be the only asset without upside. we need flexibility. if interest rates go higher, it would be an opportunity to put our cash into the market. that is the ideal sequence.

manus: next time the ray dalio is in abu dhabi, we should all have lunch and debate whether cash really is trash, or something to have in your back pocket. something for the weekend. maurice gravier, have a great break, cao at emirates nbd. he will stay with us, because we will talk more about china. the communist party sees that country economic primacy as an inevitability. but is it really? we have the details. this is bloomberg. ♪

manus: it is "daybreak: europe." i am manus cranny in dubai and

dani burger alongside me in london hq. china thinks it will become the biggest economy. when will that happen? today, the deep dive into the chinese economy. let's get to eric, our economist for bloomberg economics. eric, we know it is a social, political, global ambition with president xi jinping, but when will china overtake the u.s. to become the world's largest economy? eric: the short answer is it can happen soon. it depends. to answer this question, we have estimated a long-term potential growth for both china and the u.s., and based on that, trying to project when that could happen, for china to overtake. a couple of key factors shaping china's long-term growth, including the fertility rate,

how old people can work before they retire, that will affect the growth. on the other hand, china's domestic reforms, and how china is constantly being isolated from the outside world. it is going to affect the productivity growth, especially being discussed, the china-u.s. decoupling, will play a big part in how china can catch up in productivity. we look around these parameters and we have evaluated some base cases, upside and downside scenarios. in our base case, if everything goes on track, so we forecast china can finish the overtake, at the start of the next decade. but it is far from certain. if things go against the chinese way, then you might see china

will probably never be able to catch up. manus: eric, thank you so much. the big take is on your bloomberg terminal. our economist at bloomberg economics joining us for that take. maurice gravier has been listening in. let's get the emirates nbd take on china. are you drawn at any level on chinese bonds? on the severance first of all, let's kickoff their -- on the sovereigns first of all, let's kickoff there. maurice: i think valuation in china is risky. definitely a risk you can take. i don't know if china will overtake the u.s. as the world's largest economy.

it depends on purchasing power authority, based on that, it is already the case. what i know for sure is that they are already a global superpower. it is not just about gdp, it is about military power and soft power. dani: i am also curious, one of your calls is that markets will be a little bit less direction of. what are you getting from hedge funds now that you did not get in the past, attracting you to put your money there? maurice: i must be honest sometimes -- consequences of other choices. we want to be overweight stocks. however, there is a limit to the -- we want to take.

dani: marise, apologies to interrupt you, that is all we have time for today. thanks for joining us. this is bloomberg. ♪

annmarie: good morning from bloomberg european headquarters. i'm dani burger. alongside me is manus cranny. this is bloomberg daybreak: europe and here are today's top stories. opec-plus he to reserve their different blocking a deal -- opec-plus failed to reserve

their differences. england rails out -- boris johnson says we need to learn to live with coronavirus. the rba keeps its key rate and three year yield target unchanged. a rate hike is unlikely until 2024 at the earliest. $77 a barrel on brent capturing the attention of markets. martin malone from alpha books said there is concern around the economic competition between saudi arabia and the uae. manus: malone encapsulates it. this is a deeper level of thanks between saudi arabia -- angst

between saudi arabia and the united arab emirates. what binds us together keeps us further apart. it is an obama quote. they are traveling different directions. it does not look like the tail risk of the uae leaving opec is moving anywhere to the center. there is time to get a date in the diary to reconvene. the white house is hoping for that. dani: they certainly are. consumers are facing higher gas prices at the pump. that is tricky politically. that is not what the biden administration wants to see. biden and the white house released a statement saying your meal for the fourth of costs less. they don't want to see higher inflation, be it food or at the pump. manus: very laissez-faire so to

speak and very relaxed $77. the american consumer has a lot of dollars in their pockets from the stimulus check. the s&p 500 a little bit shaken. it is about how much risk you want to take going into the second half of the year. that is the critical point. bullish notes on gold, from a number of other houses talking about risk going into the second half. a fabulous risk environment at the back. you are up over 0.5%. another qe program, but this is the point. cba say still dovish rba puts pressure on the aussie dollar forecast. the key change is they no longer say 2020 for the earliest for rate hike -- 2024 for the earliest rate hike.

for the brent market, holding above $77 this morning. the opec-plus meeting never really happened. that deprives the market of vital barrels. we are joined by ron smith, the senior oil and gas analyst at bc x capital markets. do we need a new announcement of a new date for negotiation? is that the most important thing for the oil market today? >> for the oil market today, i don't think you're going to get a quick announcement. does not seem likely. i expect there are informal conversations going on between the opec leaders. saudi arabia and russia trying to figure out what to do. oil markets would like to see

some sort of assurance from opec-plus that things are going to be ok. i do expect some kind of compromise in the course of the next couple of weeks. from all the press reports, there was no real disagreement about increasing production come august. it is much more just about 2022. i expect they will find a way to get what they are not disagreeing on implemented by august. dani: what do you make of the long-term picture when it comes to opec? this raises the prospect that further into the future we do get the market as a free-for-all. may be not now, but you might have more barrels added and less following of the production agreements. what is your assumption? >> if you look at history, the discipline was always an issue.

when times were good, there was a strong sense on the margins to increase your production at the risk of opec, in particular saudi arabia, bearing the brunt of cuts. the only time historically opec had high levels is when times were very bad. the motivation was for everyone to get things done and get prices up. we are starting to see a return to the issue of discipline from the smaller members. if they don't come to some kind of agreement, we see the uae back out of opec less -- opec-plus. the risk reward premium can push them out of the organization. personally i would expect opec-plus to stay as an operating organization. it is far too useful to all of

its members. manus: can we be clear than, you believe the uae could leave opec-plus? would you expect saudi to balance that? is that moving toward your central case? >> i would expect some sort of compromise. let's assume they are adamant they want the entire increase they are demanding. in particular saudi is saying we don't want to completely absorb that. it is possible. i would expect some sort of compromise before april. that would be spread amongst the other members. between now and then, just about anything can happen.

it is possible uae would just come out completely. the amount saudi or russia would have to absorb has to do with the recovery from covid-19. if we are back to full global demand it is going to be a moot issue. dani: if we are back to full global demand, is supply enough? if uae wants to put out more supply, can opec keep up with that, should these agreements need to be reached? >> there is going to be the question, not so much opec-plus. capacity is roughly around were a was before covid-19. there is a substantial amount of increase they could do. the question is what will u.s. shale producers do? they have reacted more sedately

with managers focusing on generating cash flow. when prices go up they should start to react. the other question, what is happening to the non-opec-plus world? how much has the cut in production affected medium-term production levels? if you stop investing for a while, the gap is hard to make up. it takes a lot of time to recover lost production capacity. it is possible we will see a spike if we get a return to demand globally. there could still theoretically be a gap that needs to be covered that will take time for non-opec-plus to react to. manus: could that take us to $100?

could we see $100? >> for the permian frackers, it will take time. it would not surprise me if we saw $100. oil prices could do lots of things. there is going to be drilling in west texas, but it is going to take months for that to develop. dani: thank you for joining us this morning. let's get to the first word news. >> the leaders of germany and france are urging china to allow more flights from europe to strengthen political and

economic ties. the video summit also discussed cooperation in africa. leaders agree there is a window of opportunity to revive the iran nuclear deal. credit suisse says it is planning to introduce a work model that gives employees maximum flexibility. 13,000 staff will be able to decide how much time they want to spend outside and inside the office. the bank says its policy for the rest of its 49,000 global employees will be determined by local guidelines. japan will holding opening ceremony of the olympics without fans. iot members -- ioc members will attend but efforts are being made to downsize numbers.

global news -- global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: as england plans a full reopening on july 19, will other nations take the same approach? we get the latest. ♪

>> we must be honest with

ourselves that if we can't reopen our society in the next few weeks when we will be helped by the arrival of summer and the school holidays, we must ask ourselves, when will we be able to return? manus: boris johnson speaking at the press conference yesterday. reopening is on the agenda. face masks will be made voluntary. with high vaccination uptake, hospitalizations and deaths remaining low. will this inspire other nations to take the same approach? follow the data, as these news briefings have told us. what is the basis for the approach?

they are not at herd immunity yet are they? >> no. i don't think we are at herd immunity. nobody knows what herd immunity percentage is given we have the delta variant with different characteristics. it depends on the fitness of the virus. the basis for the decision is exactly what he said. if not now, when is it? why would we wait until september to find out we have a much worse scenario? and then have to review our position. i am glad of two things. neither of the key advisors have resigned. it did not look like there was a lot of lip writing -- biting. also i don't think there is

necessarily a way to think about this in any other direction apart from leaving the door open to closing and changing the guidance again. dani: a sad time when nobody resigning is seen as one of the biggest positives. how different is this approach? >> i understand that in holland they have removed mask mandates. i have not looked steep enough -- deep enough. i don't think many of them have that major guidance. nightclubs are open. whether they have opened every venue with a fantastic opportunity for the virus to spread, i don't know, but they

have moved the mask mandate. they are one week ahead or two weeks ahead of the u.k.. that is the one i do not necessarily understand. it is a simple thing to do for people and it is quite effective. what is it about masks that are so emotional and politically important? i don't get that part. manus: many people say mask wearing is a much more political issue. look, the question is this. does the u.k. set the roadmap for other countries? i look at bars and stay away from them.

>> the government is hoping people will make that decision. i will continue to wear my mask. let's see how the country changes. one of the critical things is that none of this irreversible talk was part of the discussion. that is critical. somebody asked me, do you think we can go back to lockdowns? i think if we have to, if we have a situation where the country's back is being broken, that is the only thing we can do. dani: some sense of normality is nice. i will wear a mask if i am on a crowded underground train. thank you for joining us. coming up we turn to china,

allowing its $12 trillion credit market to undergo a wave of defaults despite historically striving for market stability. we will discuss the details and their impact next.

dani: will come back to "bloomberg daybreak: europe." turning to china for the $12 trillion corporate credit market is the world's biggest after the u.s., and until recently, one of the most stable. beijing forces accountability on its weakest companies. a wave of defaults is ripping

through the markets. bloomberg has launched a new metric measuring stress in china on and offshore bonds. we have this new tracker, really fascinating. what are the signals we are getting? what is it telling us about the chinese credit market? >> this is all about introducing some level of short-term pain for gain. they are looking to curb hazard. even though we are seeing the record pace of defaults in china's credit market, the markets are remaining relatively resilient. that is an extraordinary sign of maturity. ultimately, a young market. in the offshore, we are seeing more stress payout.

especially the high-yield bonds. financial health starting to infiltrate that part of the market. manus: why is china allowing the defaults to rise at a record pace? i understand they want better leveraging and deleveraging but it is a dangerous game. >> this is a delicate dance for beijing. what it has to do is allow more firms to fail. it must do that to bring accountability into the market, stop borrowing in a reckless white. -- reckless way. it has to be careful which firms it is allowing to fail and how many. this allows a giant like quad wrong to collapse, that could trigger panic across the broader

market. whether we see good credits dragged down along with the bad. dani: if this is a change from a very historically stable market and you could face defaults, what do international investors do? >> this is forcing fundamental reassessment of risk. ultimately this comes to whether or not you still believe choosing to fail as a winning strategy in china. there are creditors saying this no longer is true, we cannot make this bet anymore. what we will do is we will start to see the repricing of risk. we will see weaker high-yield firms. spending more if they want to continue tackling the market.

longer term it is beneficial for investors. it should lead to better rewards for the risk they are taking. manus: thank you very much. let's just set up the agenda. this is what we have ahead. retail sales recorded in may. the data is expected to show an increase of more than 4% from the previous month. then you get germany, that report is going to look at the german economy. dani: ecb policy makers are going to be holding a special meeting. finally, the annual sun valley conference is set to return after being canceled during the pandemic. the concentration is going to be

oil today, isn't it? manus: absolutely. the next team are going to run through the oil market. what caught my eye are the fx implications. we will leave that to anna and mark. ♪ ♪

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anna: will come to "bloomberg markets the european open." mark cudmore joins us in singapore. cash trade is less than a half hour away -- less than an hour away. opec-plus in crisis. saudi arabia and the uae failed to resolve their differences, blocking a deal to boost output.