manus: good morning from dubai, i'm manus cranny alongside dani burger. it is daybreak europe with story setting your agenda. u.s. inflation in june jumps the most since 2008. jay powell is set for a capital drilling. discipline on wall street, fallout suffering fixed income trading. today is a turn of bank of

america, citi, and well fargo. apple seeking to boost the iphone output by 20%, and planning a partnership with goldman on a pay later service. warm welcome to the show. that is music to my ears, i could upgrade the iphone with a bind now, pay later. is that stoking the narrative? there are climate deniers, and inflation deniers. which camp will jay powell be in? the five-year breakeven we still off, but the trajectory of the five-year breakeven is to the upside. will jay powell join the transitorians? dani: we got a preview yesterday , mary daly continued to be in the transitory camp. the issue of whether it is

transitory or not is put well at rbc capital markets. they say there are problems with inflation being transitory -- we do not know how long the reopening will last, and how do we define transitory? to his first point, the deposit growth at banks, jp morgan, 23% outstanding -- that is a lot of cash people are sitting on that they can spend for a while. manus: how toxic was yesterday? jp morgan lending to the rich, not part of that club. lending to the rich was phenomenal. lending to mainstream was stagnant. on top of that, a rabid inflation number, the highest since 1991 on the core. i started trading commodities badly in 1991. with the lack of lending keeping money in the bank, inflation, it is not helping feed -- i think

the bank of america said it is taper -- which one should we be more frightened of? dani: in the markets it is a period of gestation. the moves are confounding. deals were barely changed after the hot cpi data took a 30 year bond yield to get any movement. it is often contradictory trading, as marcus try to figure out what is next. manus: the dodo flies, take it away. dani: kiwi dollar, the dodo is taking off after a hawkish tilt from the rbnz. it is gaming 0.9% -- gaining zero point 9% against the dollar. the 30 year bond yield above 2%. tepid at best, but got bond

yields moving higher. looking at moves in the dollar, giving up ever so slightly the gains yesterday. one of the biggest gains so far this year for the dollar. and an equity market in asia that is softer. the u.s. headline inflation price accelerated to 5.4% year on year, the most since 2008. let's listen to some of our guests and what they had to say about that figure. >> we see some of the reopening restart inflationary pressures coming through. >> today's cpi number tells us the market will switch to whirring about inflation again. >> inflation is front and center for a bond investor or equity investor. >> this is not a big deal, it is transitory -- and yet they are going faster for longer. >> i will not assume it will be

transitory. >> investors should prepare for the possibility bond markets are off. >> inflation will be worse than people think. i do not think it is temporary. >> this will not be music to the fed's ears. dani: joining us now is karim aita, investment advisor, bank of singapore. hopefully you can help us make sense of these moves and reaction to the big cpi jump, the most since 2008. you had bonds not reacting, small caps taking a bath yesterday. what do you make of the reaction? karim: it is going to test patience, and that is what the market is watching. cpi came stronger for four months in a row. 5.4% is the headline, and that is core inflation, the highest since 2008. the fed will have to comment

about this. we will see if they continue with their stance that it is transitory, or if it is more persistent. we have to dig deeper into the figures to understand what they might be saying. if you look at the inflation, a lot of the inflation figures came because of used car prices, lodging, airline tickets, and all these factors are due to the reopening of the economy. once these reseed two levels of pre-covid, then -- recede to levels of pre-covid, then it will be transitory. you can see they are supply chain related, and they will be easing further down the year. these are transitory, but the inflation figures are really high. a record since 1991.

let's see what the fed does. most likely the fed will talk about tapering this month and in september, and will not start tapering until the beginning of the year. they will take it to 2022. give ample heads up to the market so they have time. manus: i suppose that is what everybody hopes does not come to pass. 55% of the cpi can be explained with six items. we have a cracking chart. let me extrapolate forward to the end of 2022. if i look at the strip and the possibility of a hike in december 2022, and fully priced in january, 2023 -- is that too aggressive? when will the first hike be? karim: it might be a little

aggressive. we do not think they will raise rates until the end of tapering around 2023 for the first hike. they will watch the inflation figures. if the 10-year breakevens are 2.38, the transitory nature of inflation is still here. most likely that is what will happen. dani: in terms of this looking transitory, how much of a problem comes with the idea as defined by powell, we do not know how long transitory is. there could be second order effects. how do you navigate this environment when we do not know the length that transitory actually is? karim: they can look at inflation as long as inflation -- you have to look at breakeven inflation -- as long as they are around this level, they might see it as transitory.

how long is hard to say, but other factors affect this spirit if you look at the delta variant and the possibility of a slowdown of the economy going into 2022, the fed is going to watch this as well. the labor market is not up for speed. there is a lot of labor to catch up. there are a lot of factors the fed has to watch. they have to be very calibrated in their approach. the most important thing is the fed giving ample heads up, and that is what they are doing. manus: this is where forward guidance has a different dimension. i am drawn to the bank of america survey, the fund manager survey that talks about the cyclical boom has peaked. i want to get a sense from you whether you are beginning to talk about peak boom as the

survey does. growth down from 91%, topping out on earnings and growth estimates. they still have the long equity position. how do you square a peaking of growth with an unashamedly long risk position? karim: yes, we believe growth will remain strong in 2022. the drop in growth is because monetary impulse will be reduced. more essential rate hikes as well. the reopening of the economy is important as well. as growth -- as the growth rate slows down but still strong growth, that is good for the equity market. we cannot forget rates are low.

to invest in risky assets with a high yield is not there yet. dani: if i can go back to this bank of america survey, there is no alternative. you mentioned the reopening trade is good for risky assets, but how much of a move across global markets has to do with this idea bonds are priced to perfection, and if you want returns, you have to go into these growth assets? karim: that is a lot because there is no alternative. at the same time, maybe returns are behind us. even though the markets have an pricing in a lot of growth and prices have gone up due to reopening, the valuations are not cheap. we have to be careful of that. we have to be more selective and diversified than in the past.

before, wherever you through your money, you would see it grow. -- threw your money, you would see it grow. the better the books are, you have to be more selective. manus: i can tell the next conversation will be about robust balance sheets. and maybe dividends. thank you karim aita, investment advisor, bank of singapore. here is your first word news. >> syndney extended its lockdown for another two weeks as they battle a covid outbreak. the city saw 97 new cases yesterday, with its vaccine rollout making the country vulnerable to the delta variant. in south africa, deadly protests erected in the country following the former president's arrest,

show no signs of letting up. army was deployed. the violence has claimed more than 70 lives. face masks are compulsory on the london underground and buses despite the government lifting the legal requirement. the plan was criticized, and passengers will need to keep wearing face coverings unless they are medically exempt. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. dani: i am definitely going to be wearing masks for some time to come, whether they are mandated or not. coming up, we will talk banks. we have the second quarter earnings in the u.s. kicking off yesterday. today we have bank of america, wells fargo and citigroup. more on that, next. this is bloomberg.

♪ 11 dani: welcome back to "bloombg

daybreak: europe." i'm dani burger alongside manus cranny in dubai. investors are watching the latest big bank earnings for clues on how the pandemic recovery is playing out. we had j.p. morgan and goldman sachs eating mixed signals yesterday, and today it is wells fargo, bank of america, and citigroup. we are joined by our bloomberg finance reporter. let's start with a positive, we had strong m&a investment banking for j.p. morgan and goldman sachs. is this the new thing that will carry these banks three quarters to come? how much of a growth engine is this for the investment banks? >> it is all about deals and

deals. goleman sachs posted a 36% jump in revenue from investment banking to $3 billion. they advise on the top deals this year, including the megamerger between time warner and discovery. j.p. morgan also advised on that deal saw their investment banking revenues rise a record to 3.5 billion. it is their best every year, and whether that is sustainable is the big question. manus: absolutely. great to have you back with us. a couple of warning shots for me, we know the rich do not spend, but they borrow. they are borrowing but main street is not a j.p. morgan, and we are banking the money. that is a warning sign for me.

the average loan growth was flat. jamie dimon said, do not expect another release. are they the warning shot that holds us back? >> absolutely, and that is why you saw the stock selloff. the trading revenue being down was baked in, investors were expecting that. they were hoping for better news on the loan growth front. they jp morgan cfo thinks it will improve in the next couple of quarters, but that remains to be seen. america has come out of the pandemic in good shape, but people are reluctant to spend. spending has been off the stimulus payments. it will be interesting to see when people are happy to get back into the debt buckets. manus: thank you so much.

our finance reporter put in context around wall street's reports. we are going to speak to bank of america ceo, brian moynihan. wells fargo cfo will join the team later on. karim aita, investment advisor, bank of singapore is still with us. bumper bonuses on the way one can only assume. when you look at banks, they are bigger payers than the rest of the s&p 500. does that draw you to banks? do you have major exposure there? what are you saying to your clients about bank exposure? karim: on financials, we went over to january that they will perform. now the valuations are a bit hefty. if you look at u.s. financials versus world financials, it is 1.7 versus 1.27.

it is also higher for the world bank as well. while we still like u.s. banks, we want to be more selective. the reason we like banks as we expect the yield curve to steepen, and we have a 12 month of 1.9%. we like u.s. banks, however we still prefer european banks because of the valuation issue. u.s. banks are expected to have a little more buybacks. a lot of banks are expected the high single digits and the next 12 months. a pullback in banks is an opportunity to buy as well. dani: how important are balance sheets?

when you have inflation running hot, how important is the pricing power, someone who can defend their margins and positions? karim: it is very important, but u.s. banks have had a recent stress test, and they were very good. you can see none of the banks have reached the minimum ratio. the balance sheets of the banks are pretty good, but it is more about valuations at this point in time. manus: thank you very much, the differential driving the opportunity. karim aitam, investment advisor, bank of singapore. coming up, apple asking a 20% increase in the price of new iphones this year. we have the details, right here. ♪

manus: it is daybreak europe. i am manus cranny in dubai. dani burger is in london hq. you can buy now and pay later, a new service that will let users pay for any apple pay purchase in installments over time. the tech giant has asked suppliers for a 20% increase in its output of new iphones this year. that is a bloomberg scoop. updates will include camera and display improvements. they will help me with my desk work. big forecast uplift for iphone. i will have to upgrade. >> what is happening is apple is asking suppliers to prepare for

as many as 19 million new iphones this year. compared to last year and a year ago, apple has asked suppliers to prepare for 75 million headsets for product launch through the end of the year. it looks like they were confident of customers returning , and seeing their life returned to normal. dani: i am one of those people who waits a long time before buying new phones. it was not until a month ago i do not have a phone that i needed to put my fingerprint on to get into the phone. what new functionality will they have in this new iphone model? will it be anything to entice people like me to upgrade this year? >> the upgrades will actually be

incremental compared to the updates they offered last year. this is the second year for the 5g headsets. they will use technology to make phones more efficient. you may get a longer battery life. at the same time you will see better technology that will help you with better video recordings as well. we will see how customers will be more happy to go with the second generation of 5g iphones, the latest communication technology to help people stay connected when they are at home or going out.

dani: thank you so much for bringing that to us. that is bloomberg's debby wu. yesterday was not the best day for equities, apple ended the day up higher, 0.8%. it is clear there is a lot of appetite for those big cap stocks. whether there will be appetite for the iphone, apple certainly thinks so. manus: we are expecting -- 30% rise in revenue, 30%-50% rise across the fang season. can i get a camera that will make me look a little younger, and do my morning posts?

dani: you cannot use the filters. be genuine. everybody loves it. coming up, we will talk about the big banks, jp morgan and goldman sa

dani: good morning from bloomberg european headquarters. it is 6:30 a.m. here in london. i'm dani burger alongside manus cranny from dubai. there are today's top stories. cpi surge, u.s. inflation in june jumps the most sense 2008. jay powell set for a grilling on capitol hill. this appointment on wall street, jp morgan and goldman

shares fall from fixed-income trading. today it is bank of america, wells fargo, and citigroup's turn. apple is looking to boost iphone output up to 20%. it is planning a partnership with goldman on a buying now-pay later service. i have to say, amid all these bank earnings, the thing that stands out is that huge deposit growth -- 23% at j.p. morgan. we have consumers who are not spending as much as they can. how long does inflation last? people can pump more money into the economy at the moment. manus: absolutely. a red-hot rating on cpi, the highest since 1991. it was vicious, but there was a fairly muted reaction from the bond market. you have climate deniers, we saw what happened with the climate.

earlier i made a faux pas, will jay powell join the transitorians, but will he evangelize the transitory nature of inflation? he is in the hot seat. the risk is the bond market is desperately ill prepared, under positioned, and showing utter contempt for the inflation story. that is perhaps the bigger risk, unprepared and denying any risk from inflation. that is the bigger risk. dani: certainly. we see this imposition constantly when you have big washouts in the bond market, that positioning is still short despite all of this. it is not seen like these extreme stretch positions have been washed out of the market yet. people are not prepared, it feels. manus: bank of america

encapsulated it beautifully. it depends on whether you are an equity deplorer because of the low rates in the bond market. equities are struggling to understand where we are at the peak of a cyclical boom. we will see what jay powell says later today. the downside risk to inflation and high unemployment has receded. this is one of the bulwarks of monetary policy. the rbn along with the aussies are at the front end of monetary policy. what pressure does that bring? the dodo flies again. bonds showing disdain for the

hottest rating on inflation since 1991 -- or do you lean into the breakevens? crude oil down, they are cutting the long position. let's talk about the bank earnings. we will get wells fargo, bank of america cotta citigroup later today. let's reflect a little. you have had 24 hours to reflect. lending is lame to say the least. you have never had it so good in investment banking. how does it look going forward from here? is this the top? >> good morning. the bottom line, we have another good investment banking quarter, down from where we were last quarter. much better than last year. the main thesis of what you're

talking about, worried about interest rates, the main problem of the bank results is continuing, too much cash. the banks are sitting on huge deposits, three times as much cash on their balance sheets as this time last year. that is part of the problem in the yield markets. people are reticent to put this excess liquidity to work, especially the long end this inflation spike people are talking about, they can stand to lose some money. we will have to keep waiting, but from our point of view, we are still of the view that eventually with the economic recovery, rates will go back up, and the banks will benefit. dani: do we need to see a steeper curve for banks to have a better second half of the year? timothy: not necessarily. just getting money put to work

would start to help. we have started to see signs of that with the jp numbers, they were surprising to some extent. they said not only has travel and entertainment spending on their cardholder bills come back flat to where it was against 2019. like many banks they are talking about 2019 is the right benchmark instead of last year. they said spending is up in june versus where it was in june 2019. they started to show -- banks give us their average loans for the quarter, but also at the very end -- and growth at the end of the quarter in spending was higher than on average. a lot of little signs things are starting to come back. loan growth will happen but a steepening yield curve would help more.

we are hoping for both eventually. manus: i was channeling winston churchill, you never had it so good. i do not live in that world anymore. 2.5 trillion dollars worth of deals -- 45% drop in fixed income, and here lies the biggest issue, we do not know what m&a come through in the back half of the year, but we think there will be a reasonable amount. it is the fixed-income side that worries me, a 45% drop. give me your perspective. timothy: simple, last year this quarter we were up 100%. these numbers in investment banks will keep bouncing around a lot year-over-year as we put the pandemic behind us. i would not read much into it at this point. dani: putting the drama behind us, but you talk about promising

signs when it comes to spending. if not loan growth now, when? will we see it in the fourth quarter? will we have that fiscal cliff when people have plenty of money that the stimulus provided that they will not need loan growth? when will we see it? timothy: if it was not for jamie and his call yesterday, that is the right answer. people saved too much money. consumers and businesses are better off. we need to get through the end of the year, and they are counting on christmas and holiday spending, which is when we get the greatest use of debt and leveraged by the consumer. going back to the warning at the morgan stanley conference a couple months ago, we know consumer credit card balances are one of the biggest letters for the big banks. we really need a strong christmas to help get the cash on the balance sheets used up,

and people confident and booking big trips, buying big presence, buying new iphones, and hopefully that is when we start to get things moving. it is a hope trade at the moment. we are sitting on too much cash, and that is hurting rate. we need to see that cash deployed in spending for rates to change. manus: the fundamental problem, where will i borrow the money from? i may go to a different institution which is online. that is the key competitive threat. when you talk about opportunities in restructuring, i was drawn to jamie dimon talking acquisition strategy. what is your top pick on the restructuring story? we have wells fargo today and

sit tariff tariff -- -- and cit? timothy: we like wells fargo and citi. we have cap to these calls on. wells fargo is under a new ceo and is coming to the second anniversary. that has made a reasonable amount of progress. and year-over-year, they were expecting about $.98 up from a big loss, one of the worst results of any of the big banks last year with the provisions they took with losses. wells has already come back. we are expecting that story to keep working. we have citigroup on that list. citi is 6-12 months behind wells on its restructuring. we think the new ceo is off to a

good start with plans to simple if i the business. -- to simplify the business. we do not have to get rates to work for these things to improve. dani: manus, you have a new reason to buy a new iphone. manus: what rate will you lend me the money at? dani: we can discuss. thank you so much, timothy morgan, u.s. financials specialist, keefe, bruyette & woods. let's get over to the first word news. >> deadly protests erupted in south africa following the former president's arrest showed

no signs of letting up. hundreds of stores were looted, and the violence has claimed more than 70 lives. engine number one ceo spoke at the bloomberg sustainable business summit, fresh off the successful exxon mobil campaign to discuss the new etf and how investors can use their voting power to create change. >> one thing we can do is an economic and impact oriented activist campaign like we did with exxon. we have launched an etf. we launched this for people to stay invested in these big public companies over time. then we as the manager will vote actively. >> global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries.

manus: thank. coming up, the eu unveils the details of its green deal. that will make the first net zero continent on the deal. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." i'm manus cranny in dubai. the eu unveiled its plans to become the first carbon neutral continent by the middle of the century. big ambitions. maria tadeo joins us from brussels. this is undoubtedly a huge ambitious plan calling for -- what does it actually entail? maria: this is a huge proposal

that the european commission is putting forward today. 55, the references clear, to cut emissions by 55% in 2030. they will have to change climate measures across every industry in the european union. this package will entail 12 different pieces of legislation that will touch everything from aviation to transport, also energy efficiency, and taxation. it is a huge package. this is just the beginning. we should stress this is a proposal by the european commission. after that, it that's political. it will move forward to european leaders in the european parliament. usually for this to be approved it takes two years. they have to do it quicker because 2030 is really around the corner. dani: carbon pricing is important when it comes to taxing, and pricing as well.

looking at european carbon prices now, we have a chart that shows 53 euros per ton, on the higher end. is polluting going to become more and more expensive? maria: yes, that is a good observation. that amount will go up if today we see the commission, as we are expecting, to touch two key pillars of pricing. one will be the trading system. this is the biggest one. they could include more industries on that list. companies that buy and sell credit, and they could change the criteria to make it more expensive. the use of polluting machinery in industry, and the big surprise could be the carbon tax. there is speculation on this for weeks that the european union will introduce a levy.

those are the ones to watch. dani: we will keep an eye out for that. maria tadeo in brussels, thank you for joining us. let's look at how the eu new rules will affect the continent's financials. our green financial reporter joins us. what will we be expecting from europe? and what does all this mean if you are an investor in these financial markets? >> as maria said, this is the most climate undertaking in the world. it is supposed to affect every industry. if you are an investor holding the equity and debt of companies, or a bank lending to companies, this is a big deal to you. essentially what we are seeing is a roadmap for transition. this is the energy transition, where we are heading.

and these companies are behind the curve are not moving quickly enough, there is a real risk of stranded efforts, company valuations being impaired, and if you are a lender or investor, you need to take it seriously. the eu is leading the cart here, and you can see it adopted in other systems, like the u.k. and possibly in the u.s. similar things. the writing is on the wall about the energy transition, and that means if you are an investor or a banker, this is the biggest economic transition of our lifetime, and you want to be on the right side of it. manus: absolutely. how does this position in europe relative to the u.s. -- we hear a lot about the biden green agenda, leading from the front in regards to net zero and green policies. is your stepping ahead with this

announcement or leveling up? >> europe is already way ahead. you just need to look at the financial institutions in europe , what they are doing versus the u.s. this year we see most u.s. banks and several investors commit to net zero, but yorty had several european banks and investors doing that years ago. they are behind the trend in that regard. another major barometer embracing the climate agenda is fossil fuel finance, something climate activists look at closely, but also those who follow the esg agenda more closely. the u.s. banks are lending way more money to fossil fuel industry than banks in europe. that industry is going to be hit

hard by the transition, by carbon taxes. the u.s. is the one that needs to be catching up. that is really up-to-date. manus: thank you very much. you do not want to be on the wrong side of this trader left behind. updates on the green agenda for europe. coming up, the u.n. trade secretary on the trade deal with the u.s. that is next. this is bloomberg. ♪

>> i have never passed a deadline for any trade negotiations because the important thing is to get the right deal that works for both countries. there is a huge amount we can do

together. the u.s. is the u.k.'s largest trading partner. a million brits work in the u.s., a million citizens from the u.s. work for u.k. businesses. there are huge opportunities to build a close relationship. that is why i am going to the west coast to meet leading figures from the tech industry, politicians on the west coast as well. i am interested in getting the right deal for both of our countries rather than being in a hurry to do it. dani: i used to be one of the americans working in the u.k., there are loads of us. if you are looking for a comprehensive and correct deal, is it fair to say that cannot be done by 2021? >> that would be rough. we just concluded an agreement with australia, and that took a

year from start to finish. that was a rapid timeline. the timeline you are talking about would be extremely fast. getting an agreement, having those discussions with the united states about how we can work more closely together. we do face threats from elsewhere in the world. this is a strong basis for not just the u.k. and u.s. but other like-minded countries to work together. annmarie: i want to move on to the potential for travel corridors. we have heard the u.k. and u.s. are working on a travel corridor coming out of the pandemic. i left the u.k. twice to come to the united states, and because i had a blue passport, i could enter freely. that is not the same for british individuals, even if they are

vaccinated. is there any progress at the u.s. government on this? >> this is an area we are keen to see progress on. i am talking about the level of investment of u.k. companies in the u.s. and vice versa. we need to make it easier for businesspeople to travel because ultimately that is what helps drive trade, helps drive economic growth. there is only a certain amount you can achieve on a zoom meeting. we would like to see easier flow of our business travelers. dani: u.k. international trade secretary speaking to annmarie hordern. we have powell speaking today, but the bank of canada decision is the first out of the gate to be hawkish. they are expected to cut the weekly bond purchases by a third. we are getting more hawkish noise. manus: absolutely, and the

pricing for the middle of next year at a hundred basis points. the dodo flies again, the kiwis are getting set to pull back on qe. this is bloomberg. ♪ [ "me and you" by barry louis polisar ]

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♪ anna: good morning. welcome to "bloomberg markets: european open." i'm anna edwards live in london. mark cudmore joins us in singapore. the cash trade is less than an hour away. here are your top headlines. cpi surge. u.s. inflation for june jumps the most since 2008. jay powell is set for a growing on capitol hill. jpmo