manus: good morning. it is "daybreak: europe." manus cranny and dani burger alongside me. stay vigilant. jay powell says the fed is ready to take action if prices get too hot. blackrock's larry fink and david

branson joining chorus warning on inflation. economic growth slows in line with forecast as consumer sending picks up. the u.s. sticks with the trump arrow halt of economic dialogue with beijing. plus, morgan stanley is next on the docket for big bank earnings. how will it stack up against wall street rivals? warm welcome, 6:00 a.m. in london, just 9:00 a.m. here. substantial progress, three words i would say the bond market, the fx market were underprepared for. jay powell leans into the slack narrative. there is slack in the system and there is a ways to go before we are ready to do anything with policy. dani: good morning. that was a green light. for the first time this year, the nasdaq 100 is outperforming the small-cap index.

small-cap index falls for a second consecutive day. it's worse -- its worst two-day performance since may. manus: there is one ceo who is all about wages. for 10 years, hoping that wages would rise. larry fink says that we will see an epic shift in inflation and he is giving pay rises. this is the wages number from the last. it is turning a little bit higher. our guest suggests that we could be at the start of a new regime in the wage dynamic. that could shift the fed more aggressively. that is a risk. dani: not only transitory inflation. the recipe is there. you have the nfid survey also showing that small businesses

were the most considered about filling roles then they had been on record. at what point do they start raising wages to fill in that gap? manus: you and i have talked about real yields. how is the rest of the bond market looking? decidedly unprepared. dani: i had to pull a real yields to drive home the point that we are seeing real yields dip below 1%, the first time since february. a central bank that keeps providing liquidity. elsewhere, we are seeing a dollar that is stronger. bloomberg dollar spot defiant against those lower real yields. the equity market, anything value not doing so well. europe getting hammered in the premarket session this morning. hammered, perhaps a little bit of a hyperbole. finally, brent down 0.7% at $74 a barrel.

opec-plus restarting costs, that the o.a.t. may have that higher baseline they have been fighting for. chair jay powell said the central bank is still a ways away from tapering. >> inflation has increased notably and will likely remain elevated in coming months before moderating. inflation is being temporarily boosted by base effects as the sharp pandemic related price increases from last spring drop out of the calculation. participants expect that progress will continue and we will continue these discussions in coming weeks. we will provide advanced notice before any changes. rod things including wages, unemployment, participation. we just said substantial further progress. we also said we would provide notice well in advance of

actually tapering. manus: our guest host this morning, from ups -- from ubs wealth management. i would say that is all the hallmarks of soft taper plastered all over it, which is leaning into the slack argument. how much slack do you guys and girls at ubs believe there is in the economy? kiran: we agree with what jay powell is saying. i think if you look at what the fed is going to focus on, it will be a combination of inflation and unemployment. inflation, we think, has peaked at a higher level and been longer-lasting. i think if we look at -- if we look forward, there is nothing that will pressure the fed into

tapering or hiking rates prematurely. the breakeven rate is 2.2%, 2.3%. there is no problem there. talking about these one-off effects, they will be suppressing inflation late into the year. used car prices do not go up forever. they will come down. the substantial further progress test has not been met. employment still 5.5%. that has a ways to go down before -- to go down to where it was before the pandemic. dani: if i could play devils advocate, and this is an argument that mohamed el-erian talks about, the idea of transitory not necessarily be in the right debate. the idea that no valid -- that no matter how long it lasts, what sectors, that we get this hike up in prices that crimp the

recovery, that makes consumers not go out and spend. even if we don't see inflation next year as well. kiran: there is obviously a lot going on. consumers have saved a lot of money to the pandemic. at the same time, we are seeing this big transition away from spending on goods and toward spending on services. there are so many moving parts that it is sometimes hard to tell what is genuinely transitory and what will be more long-lasting? of course, if there is longer-lasting price hikes in parts of the economy that the consumer will rely on, that would be a risk longer-term to growth. our inclination is to think that a lot of this is transitory and related to the different shifts we are seeing in the economy as we recover from the pandemic. manus: your boss is all over

linkedin and the front of his linkedin, it was quite well read, u.s. inflation is no barrier to further equity gains. thank, mark. where do i deploy it? larry fink says we are at the foothills of an epic change. he is giving 8% pay rises. larry fink is giving his staff 8% pay rises. for me, it is quite staggering. this is where we begin to need to understand, how do i deploy capital in a quasi-inflation area environment? kiran: we have been focusing a lot on the reflation plays which over the past month have not done well because we have seen that decline in bond yields. is the fed going to be forced into hiking rates prematurely,

cut off the recovery and cause reflation -- because deflation at a later rate? a lot of people have been worrying about the delta variant. in our view, we think a lot of technical factors have been pushing down the 10 year bond yield. limited supply from the treasury. increased by from the fed as they manage their accounts. if those factors wear off, we think yields start to rise again. that should be supportive for those reflation traits, things like energy, financials, which have been underperforming of late but do represent opportunities in the months ahead. dani: until that happens, in the equity world, how concerned are you about concentration? we have seen the tests, microsoft and nvidia now

accounts for 27% of the s&p 500 index. how much of that is a risk as we get more volatility? kiran: the interesting thing about the u.s. equity markets is it is quite edged between the secular growth plays and cyclical plays. at the index level, things have been relatively calm even though we have seen rotation between things like tech and the reflation plays. if the index does start to concentrate, that is more of a risk at the moment. things like the u.s. equity market diversify themselves quite nicely. we talk about how to diversify across different sectors and regions. i think the relatively low volatility of the index level has been a good manifestation. dani: we definitely need to get into some of those other regions so you will stick with us. that is kiran ganesh, ubs wealth

management. let's get over to the first word news with annabelle droulers. annabelle: starting in the united states, a handful of states with the lowest vaccination rates are driving the recent uptick. missouri, infections or cnet records not seen -- infections are cnet levels not seen since february. a seven day average of about 21,000 new cases across the u.s., compared to 200,000 in january. brazilian president jair bolsonaro will resent -- will remain hospitalized in sao paulo. doctors have ruled out an emergency surgery. he has been moved to the hospital after suffering from abdominal pain after 10 days of a cups. netflix said they are planning

to offer video games on the streaming platform within the next year. former ea and facebook executive has been hired to lead the effort. games will appear alongside current content and for now, subscribers will not be charged extra. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus? manus: coming up, president trump may have been out of office for six months but his economic policy toward china remains -- towards china, will that remain invoke at the white house? the details coming next. this is bloomberg. ♪

dani: it is "daybreak: europe." i am dani burger in london alongside manus cranny in dubai. the economic recovery seems to be studying with growth slowing in line with forecasts. let's bring in juliette saly, who has been all over the data. the nice beat in retail sales. juliette: this was a surprise with retail sales rising 12.1% year on year from june with estimates of 10.8%. getting back to those levels of the pre-pandemic, 2019. we know that consumption has been where the overall economic recovery in china has been lagging. we heard from alan from bank of america -- from helen from bank of america earlier, she said the shows people were spending from that june 10 promotion. when we look at that v-shaped

recovery, gdp coming in at 7.9% in the quarter. we knew this would come down substantially from the 18.3% in the first quarter. the economy did grow 5.5% in the last quarter when you strip out the effects of the pandemic. that is stronger than the two previous quarters, showing beijing is probably on track for the yearly growth target of 6%. they are seeing this potential shift we saw coming through from policymakers could signal a little more weakness in the second half. they are saying the pboc appears to be preparing for the worst. they are expecting one more rrr cut in the fourth quarter. we did see a partial rollover today of medium-term loans. say in will remain -- bloomberg intelligence saying policy will remain supportive.

manus: a little bit of breaking news from juliette saly in singapore, this time on china. redeeming some of the perpetual bonds, the 2.875 perpetual's. this was a bloomberg scoop yesterday, we thought that they might do this. they had been dropping, although looking at the bloomberg intelligence analytics, talking about an improvement in the liquidity of the company. onshore debt had been under pressure since last week. bi have run the numbers, said things have gotten a little bit that are. dani: it has been an interesting test case as to whether china would continue to support troubled companies at risk of defaulting. let's stick with china. it is -- as china's economic

recovery appears to be studying, deterioration in ties between the world's biggest economies is continuing. the biden administration extending a trump era halt. it used to be every single time we had a tension headline between the u.s. and china, it was enough to knock markets down. how are you pricing the geopolitical risk between these two world superpowers? kiran: certainly relevant to be thinking about this. while a style might be very different between the biden administration and the trump administration, the rivalry between the u.s. and china is still very much in place. i think for the moment, the market is going to be more focused on the regulatory issues in china.

how does china balance stimulating its economy and regulating some of the parts of the economy where there are some concerns, whether that is technology, real estate, asset management. that is the biggest -- the bigger driver for the moment. as we move forward, we will be watching to see particularly tensions around the south china sea, around trade. for the moment, it is really that domestic regulatory pressure that seems to be the key driver of markets. manus: many asset managers and allocators deflect and say, we don't trade geopolitics. one thing, yield. one place you can get that is in chinese government bonds. flow has been a standard story

for 18 months. the compression against the u.s. has been phenomenal. trading at around 2.90. with the movement on the rrr, with projected support from pboc, do you think the yields continue to drop? i know your asset management arm is saying there is another 100 basis points. what portion do chinese bonds play for you? kiran: it is something we have been discussing with clients, how to diversify the bond portfolio there. the return potential there is now much more limited. within the opportunities to earn fixed income returns are shifting toward asia, things like asia high-yield. i think the best opportunity to get in this area was a few months ago.

we saw that yield compression. we have seen some of the risks increasing in parts of the high-yield spectrum. we do think investors need to be a little more cautious about the extent they enter into these areas at the moment, given the elevated risk to parts of the high-yield segment. manus: thank you so much. i think we have run out of time on this one. have a constructive conversation with your boss about inflation. helsing and days with the euboea -- halcyon days with the ubs wealth management. coming up, u.s. fuel inventories expand but the story that is moving the market, uae is set to

close a deal with -- we get the details. this is bloomberg. ♪

manus: it is "daybreak: europe." manus cranny in dubai, dani burger in london. gas stockpiles unexpectedly rising. and, on the signs of an opec-plus, could be an agreement in the offing. talks are still ongoing but they are nearing a deal. that gives the uae a more generous output limit next year and allows opec-plus to boost its supplies in the coming months. the market seems to take this news is good news. seems like the varieties got a little extra production

capacity. the saudis may well get an extension. what does it mean for the flow of oil to the market? >> you have seen oil is down yesterday, continuing its decline today. the market is expecting some sort of deal where saudi arabia, the uae, the other opec partners add supply to the market. before, there was going to be a deal for them to start adding 400,000 barrels per day in august and upping that every month until december. that fell through because the uae wanted the baseline to change from 2022. now that it looks like they will be getting a change to the baseline, the deal will be going through. we are seeing that opec could be adding more but we are not sure when. when you add that supply to the

market, it will provide the much-needed capacity because of the increase of demand across the board. there is a glitch element to this as well. because of the unity being shown between uae and saudi arabia, that could be sort of long-term wish, and they see it as a less catalyst, and they see rent going up to $80 per barrel. dani: you mentioned briefly the demand picture. physically how is global oil demand faring at this point in time? stephen: in a way that he would probably not expected. actually, gasoline demand is still down compared to 2019 levels. what is recovering is a type of oil product that is used for producing plastics. that is because a lot of people are at home, they are buying

things on amazon. the things they are buying on amazon are being delivered by freight or train, and that is boosting diesel demand. fuel oil being used for cooking across asia is also increasing in demand. it is uneven but we are seeing pockets of demand recovering. where we are not seeing it is the gasoline demand. gasoline stockpiles in the u.s. continue to rise and that is pulling down the market to a certain extent. it is trending upwards. dani: thank you so much. thank you so -- manus, looking in oil today, $.25 on brent. we are certainly seeing it down -- seeing it come down. manus: for the maraudings -- em iratis, kkr. that is part of this subplot of

where this pressure is coming for. but what is on the scorecards? dani: we will talk banks next. we have had morgan stanley, bank of america. we will break down the hits and misses. this is bloomberg. ♪ [ "me and you" by barry louis polisar ] ♪ me and you just singing on the train ♪ ♪ me and you listening to the rain ♪ ♪ me and you we are the same ♪ ♪ me and you have all the fame we need ♪ ♪ indeed, you and me are we ♪ ♪ me and you singing in the park ♪ ♪ me and you, we're waiting for the dark ♪ so many people are overweight now, and asking themselves, "why can't i lose weight?" for most, the reason is insulin resistance, and they don't even know they have it. conventional starvation diets don't address insulin resistance. that's why they don't work. now there's release from golo.

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dani: good morning. it has just gone 6:30 a.m. in london.

i am dani burger alongside manus cranny. today's top stories. staying vigilant, jay powell says the fed is ready to take on action if prices get too hot. blackrock's larry fink and dave ramsey joined the choir. economic growth slows in line with forecasts as consumer spending sticks up. then, morgan stanley is next on the docket for big bank earnings. how will it stack up against its wall street rivals? good morning. yes, we did hear from jay powell. we get a second day of testimony today. there he sanguine on the inflation picture. a stark contrast from larry fink, who says epic changes on the way. manus: so epic that larry fink has offered an 8% pay rise.

fink warns that you will have to do more on wages. if you look at the chart of wages, it is just turning up ever so slightly. it is very unlikely you get an 8% pay rise, they will take it off you next year. dani: jay powell did point to the end of some of the unemployment benefits. maybe that picks up the slack in the labor market. a lot of the unemployed are women. this does point to a gender gap, with women staying home to take care of kids who are not in school. so it does go further than just unemployment benefits. manus: absolutely. whatever way you cut it up, the bond market has a whole host of things to consider. the rising malaysian adult of aramid, -- malaysian delta variant, lockdowns in city. we have not seen sub-1% since february on real rates.

the dollar was down by less than half a percent yesterday. maybe it was the real rates rather than the dovish inclination from jay powell at the fed. the gdp in china was a little bit lighter. i was surprised, i said, let's not split hairs between 8% and 7.9%. she said, no, this is a much lower level than anticipated. oil is down as it looks like we have a raising of the ability of the varieties to produce oil. down 0.7%. investors are watching closely the latest u.s. bank earnings for clues about how the pandemic is playing out for them in the real economy. bank of america has reported second-quarter figures. the stock fell as the lender struggled. tepid loan growth, the ceo brian

moynihan spoke with david westin. >> there are a couple of things. one, the vaccines, the virus, and the variants, that is the key. if we keep winning that war, hospitals stay in great shape, more and more people it vaccinated lowering the risk of serious sickness but that is all great news. on top of that, you are hearing or small business customers, for example, last fall, it is all about the virus. this spring, workers and supply chains. whether support is not fully open, goods and services, that is where you are seeing some of these temporary spikes in prices and frankly just availability. i think the biggest constraint other than the virus pathway itself is going to be, can i get people to do the work and can i

get the goods to actually sell? that is what we hear from our customers that they are worried about. those are farming customers who can't get people to work and the arvest are coming up. that is construction workers, truck drivers. we need to make sure that we get people back and after the jobs, get them the skills, continue to provide a great career for them. >> there is a raging debate about inflation. everyone agrees it is here, it is coming. they don't agree on how long it will last. are you seeing any indications of a slowdown in economic activity because of higher prices? >> not from -- you don't see them pulling back yet. that is the operative word, yet. consumer spending rose in the second quarter, faster growth. faster growth rate compared to

the second quarter of 2019, which needs 10% for two years. people are spending money, so prices are not affecting them yet. >> the reported burnout of some of the junior bankers. he already said you are increasing compensation. are you having trouble retaining people, and some of the junior talent? >> not really. our turnover rate is pretty much the same as it has been. kids coming out of college, they are very talented kids, especially around the investment banking area. there is a lot of equity. we are trading more broadly in the company, 19 of us in the office for maybe five or six months, a new class coming in that intern with us last year.

going back to business school, that is fine. if you want to stand the workplace, work in a different part of the company. this is a heavily talented, 50% diverse candidates, great group of kids, come in and enjoy the company and learn. we have to give them a chance to see each other. some of the informality is tremendous and it has not been able to add -- not been able to been pad because of the pandemic and we are reversing that out. dani: earnings coming in weaker than had been expected, second-quarter net income, taiwanese dollars, missing estimates. margins here, 50%. apple, their news yesterday of course, important here as well. manus: they have given some guidance on the forward-looking

on the margin, and they say they should expect those margins relative to the first quarter. the apple story from yesterday, tsmc, one of the big suppliers into apple, apple going for a 20% boost of their overall production of iphones. t-live for everybody there, viewers can pick it up. the way to revenue on the actual chips, 18% of sales on the most advanced chips. just keep that in mind. margin pressure but of course a huge boost. what have we got on the banks? dani: we just heard from brian moynihan. wells fargo's cfo has been speaking to bloomberg. he more or less has been breaking down the bank's

second-quarter earnings. >> you think about loans. it is a little bit of the same story as we have been seeing. in our commercial banking business, we are continuing to see those decline. clients have a lot of liquidity, there are supply chain issues, huge demand. they are not able to build inventory. we have not quite seen the inflection point. i think people are hopeful that at some point over the coming quarters, we will. manus: let's bring in our financial reporter. we caught up a little bit earlier, the very symptom of the matter -- very simple fact of the matter is, i don't need to borrow, i are saving -- i am saving a few dollars, and i am not rushing out to leverage up. that is not good news for main street banking in the u.s., is it? >> this is the stimulus that

really helps the banks get through the pandemic last year. it helps them avoid widespread defaults. but it has caused issues this year. customers are still not prepared to spend. there is growth in something like credit cards but it is not getting to the interest-bearing part. people are still more inclined to pay down as they go. businesses have not seen the need to tap credit lines or take out new loans. this is why we saw bank of america shares yesterday down the biggest they have been in eight months after they said that loans in the computer unit were down. wells fargo was down a similar amount. when you combine that with these record low interest rates we are seeing, that is weighing really have an -- weighing really heavily on the banks core business, lending.

dani: when it comes to the outlook for loan growth, is there any catalyst that could bring it back for banks? at the moment, it does not seem like you have a consumer in any rush to spend the piles of cash they are sitting on or at the very least take out loans? nabila: absolutely. we saw that deposits were up a lot as well. bank of america did say that they are seeing a turning point in this quarter. even though loans were down compared to a year ago, they were up compared with the first quarter of this year. that is the first time we have seen sequential growth period by period for a year. at jp morgan, there was a bit of debate. the cfo saying, maybe we won't see much growth this year in terms of that interest-bearing credit. jamie dimon is saying, no, in his opinion, the consumer will

come back and start to borrow again and will again start to get into a stage where they don't pay off their credit cards as quickly as they are now doing. manus: the leverage forever. i can't wait to take out the next loan. i want to get a job at blackrock, by the way. pay rises for everybody. on a slightly more serious note, that is a big line from larry fink of isn't it? a percent pay rise for everybody from director and below. that is either a raise for talent, a recognition of hard work, or that corporations need to share more of their profits. nabila: if you guys worked at blackrock, i am sure you would deserve more than an 8% raise. [laughter] larry fink thinks that inflation

is here to stay. when you have that view, it is no wonder you are lifting by 8%. he is saying that other employees around the debtor other employers around the country -- he is saying that other employers around the country will have to follow suit. he is saying there will be an epic change in the economy from this persistently high inflation. dani: we have to figure out how we can get you to have more of an input on manus and i's pay. thank you so much for joining us. let's get over to the first word news with annabelle droulers. annabelle: brazilian president jair bolsonaro remains hospitalized in sao paulo after being diagnosed with a partial intestinal disruption. doctors have ruled out emergency surgery for now.

he had been moved to hospital after suffering abdominal pain after 10 days of hiccups. netflix is taking its first major steps beyond tv shows and films. the company is planning to offer video games on its streaming platform within the next year. a bloomberg source says games will appear alongside current netflix content and for now subscribers will not be charged extra. shares rose and extended trade on the news. daimler's second-quarter earnings beat estimates. that is due to that global chip shortage. earnings before interest and tax searched -- surged, beating the bloomberg estimate. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries.

this is bloomberg. manus? manus: thank you very much. you are very familiar with airbnb, how to book your vacation and your loft apartment in new york when you go there. it looks like softbank is delving into the south korean market. they are going to deploy to trillion won in south korea, into the south korean firm which is cloud-based booking and others for hotels, etc. a lump of cash going from southbank into south korea -- softbank into south korea. we will have more on that story very shortly. coming up, we spoke to another tech tighten, the microsoft ceo on the cloud offerings as

cybersecurity threats are keeping him up at night. this is bloomberg. ♪

>> we will, and we are in the process of a generational shift. we have now done this entirety of generational shift. that means governance, that means one share, one vote, and that also means leon stepping down from the firm at the beginning of the year and josh stepping back upon closing of the deal. manus: apollo's mark rowan speaking in the latest installment of our investment talk series. you can see more of the interview, 4:00 p.m. london time. microsoft kicked off the 2021 conference. the ceo satya nadella spoke with emily chang on the cloud company offerings to how cybersecurity

is adjusting his thinking. >> in hybrid work, the real currency or the real need is flexibility, that means more options for how to get to your software, your files. we are excited about this new category we announced, the windows 365. for example, we are all getting ready to welcome interns. a way for them to have pc that is available in the cloud, which means it is easy to provision, easy to secure. in the pandemic, some of the software engineers, industrial engineers had real issues because they wanted access to the most sophisticated computer capabilities. now they can have that in the cloud. they can do that on the home computer or a corporation issued computer. we are really excited.

emily: i know you're are focused on giving your partners the most powerful technology and tools. you're also giving teams customers more features. how does this all fit into your vision of how we will be working differently a decade from now? >> one of the other exciting announcements from this morning, if anything, the silos that exist between communication process have to come down, so the friction all has to be broken. that's what the collaboration application, many of them got built during the pandemic. people were building the connections between dynamics 365 or power apps and teams. what we did this morning was to announce we are going to make that friction free from a licensing perspective. i think it is going to speak to the overall need of flexibility.

when we do our own surveys with employees, 70% say they want human connection and 70% say they want flexibility. that's the hybrid paradox. that means that means it requires structural change. how we think about the process as well as the place work happens. we are working across all those dimensions. dani: satya nadella

major hurdles. of course the social impact is interesting. this time we can't win this

state. it needs to be affordable for the middle class and working class or it is simply not going to happen. >> let's see how the that comes to bear. the very latest from europe and brussels. wrap up this week with the fed. the john august piece. i encourage everyone to read it. alan greenspan talked about the paradigm shift in technology. talks about the conundrum. >> one of the quotes says until something breaks like a surgeon. consistently chosen to tighten more than the bond market said. what a metaphor.

>> that's it from me i'm on the road next week. i leave you in charge. this is bloomberg. >> i won't break it. rk it. (announcer) back pain hurts,

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>> good morning. welcome to bloomberg markets. i'm anna edwards we go through all to have market action this hour. here are your top headlines. jay powell said the fed is ready to take action if prices get too hot. china's recovery steadies. economic growth slows in line