♪ dani: it has just gone 6:00 in the city of london. this is daybreak europe and your top stories today. on the lookout. jay powell reiterates that the fed is monitoring inflation risk area describing the current price surge as unique. treasuries hold onto gains. bloomberg sources say china will exempt hong kong ipos from cybersecurity reviews.

biden warns about the risks of doing business in the asian financial hub. an investment banking boom. forecasts turn to european bank earnings ramping up next week. and inflation jump that surprised even jay powell. that's the word from yesterday's testimony. howell wraps up two days in front of congress. waiting to act to taper back. the consequences of waiting sending chills through the market. a sloppy session yesterday with everything from small caps to europe selling off. we had a short sweep continuing in the bond market. i want to point out one marketing particular, one asset yield curve that we don't talk enough about. that has moved to its steepest since 2018. the market pricing in after jay powell spoke and after the most recent back between the fed and the policy mistake.

by letting inflation overshoot now, powell and cruel will have to tighten later down the road more aggressively, potentially cutting the economic recovery short. al arian writes, the facts on the ground call for the world's more powerful central banks to start using off of the stimulus pedal. by failing to do so, the fed runs the risk of having to slam policy breaks down the road. that could potentially create a recession. a recessionary fear echoing through the market this morning. let's take a look at what the data is doing so far. e-minis -- msci asia pacific's office lows for the day. 1/10 of 1%. down more severely earlier in the day. hong kong stocks giving a lift after china makes it easier to list ipo's in hong kong. i wanted to point out nasdaq futures, down for basis points. the rest of the american futures complex is moving higher. very interesting.

big tech underperforming. it underperformed yesterday as well. one of the shining parts of the equity market, no longer carrying us, 10 year yield at 131. a little bit of selling in the asian session. that matches the buy-in from yesterday's u.s. session. cable basically unmoved. policymakers sounding more hawkish. moving back over to the fed. jay powell is defending the central bank stands to keep providing support to the u.s. economy. that's as inflation runs at uncomfortable levels. take a listen. >> this is a shock going through the system associated with reopening of the economy. it has driven inflation well above 2%. we are not comfortable with that. that particular inflation is unique in history.

we don't have another example of the last time we were open to $20 trillion economies. we are trying to understand the base case and the risks. dani: his colleagues urge policymakers to move forward in reducing stimulus. he spoke exclusively to mike mckee. >> i think we are in a situation where we can taper. i think setting those parameters the right way, we don't want to draw markets or anything. i think it's time to end emergency measures. dani: the chicago fed president thinks the fed could again to taper bond purchases by years and as employment slides closer to 4.5%. >> if unemployment is at 4.5% at the end of the year and things are progressing the way that i'm expecting, i would guess that some adjustment would be in order. somewhere in that timeframe

probably. it will depend on the data. that's the whole point. dani: i want to move over to corporate news. lines crossing the terminal on erickson, the telecom company. second quarter adjusted operating profit coming in and missing estimates. 5.8 billion krona. 6.12 had been the estimate. this is obviously not a great sign for them as well. they are competing very heavily with nokia. that is potentially hurting some of their earnings. they are trying to claw back market share. missing on their operating profit. let's turn back to the fed. joining us now is lucy coutts. jm finn investment director. thank you for joining us. there's a lot going on now between earnings, fed speak, pal testimony. what do you think is winning out in the markets right now? is the fed controlling the direction of assets right now? >> -- lucy: good morning.

at the moment, the eyes of the investment world are looking at the u.s.. everything that jerome says matters. bond markets and economists have never been great forecasters of inflation. it's not that long ago since economists were talking about a prolonged slump in the world economy. at that time, commodities fell dramatically. it's that baselevel that inflation is being measured. in the u.s., it is running at 5.4%. that's a 13 year high. if you strip out, where jerome powell was leading, if you strip out the severe lines, the events, the new and used cars, things that are benefiting positively from us coming out of

the pandemic, that's a very narrow group of assets and items to measure inflation on. strip those out, inflation is at 2.47% which is lower than the pre-pandemic level. dani: i wonder what you make of this argument that despite what areas are seeing an inflation of tech, it will have an impact on the consumer. part of the reason i bring this up is because if you look at inflation and adjusted disposable income, it is very low. it has cratered. this is what al arian is arguing. you have a consumer who is per sat -- perhaps not willing to spend more. we are seeing higher prices throughout the economy. it might be too late. spending is pulling back. do you buy this argument? lucy: no. i don't really. i think this inflation has been

created by a booming demand. we are all being led out of the gates. there's a massive demand for goods such as new cars, etc. the supply of microchips. as we enter into this new world of more technology and digital, microchips are huge part of any economy. global shipping is disrupted hugely. the prices from shipping goods from china to the west coast of america has quadrupled. these things are very slow to readjust and rebound. on the flipside, we have a rebound in prices services. going to bars, restaurants, hairdressers. actually workers are not returning. they are happier having a drink at a bar rather than working behind the bar. dani: you mentioned some of the uptick in prices and

commodities, having to do with specific companies. will margins be concern for a lot of these commodity focused companies? lucy: i think that will be the case. businesses have to absorb that rise in raw material costs. dani: i see. we have more to cover. now let's get over to the first word news with annabelle droulers. annabelle: hey. joe biden says his administration is issuing an advisory to u.s. companies about what may happen if they do business in hong kong. he said that the situation in

the financial center is deteriorating and the chinese government is not keeping its commitment to hong kong. meanwhile, angela merkel has also pledged swift help for people affected by devastating floods in western germany. she called the situation a catastrophe. more than 60 people are dead and dozens are missing due to the torrential rains. the floods swamped parts of luxembourg, the netherlands, and belgium. in cuba, rulers will ease restrictions on food and medicine imports after mass protests over the weekend. the concession is designed to help alleviate the shortages. dozens of people took to the streets to demand freedom and food amid rolling blackouts and soaring inflation. the island saw its economy shrink 11% last year after the pandemic. that's the worst performance since the collapse of the soviet union. jeff bezos's company has picked an 18-year-old for its first crude mission to space.

he will accompany bezos into others on the flight scheduled for july 20. the company says he will be the youngest person ever in space. he was paid for by his father, the ceo of summer tech capital partners. global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. ♪ dani: thank you so much. i can't believe an 18-year-old is going to space before me. i'm flabbergasted. i need someone to buy me a ticket/maybe a birthday present. china plans to exempt companies going public in hong kong from the cybersecurity regulator. this is bloomberg. ♪

dani: it's bloomberg daybreak europe. it has just gone 6:13 a.m. plans to exempt companies from going public in hong kong, seeking the approval of the cybersecurity regulator. that removes one hurdle for businesses that list in the asian financial hub instead of the u.s.. for more, we are joined by candace zacharias. what exactly is the motivation behind china giving this exemption to companies that ipo in hong kong? candace: good morning. we've seen a lot of activity in the space around chinese companies listing overseas. that affected ipos headed for places like hong kong or the u.s. this was kicked off by the listing in new york this month. that one went ahead despite reservations among chinese

regulators about the security rex -- risks. what china is doing now is revising its role for offshore listing. it has the ability to hold offshore listings. it's infusing a cybersecurity review for companies. the exemption from the cybersecurity review signals to them that the process for chinese ipos will be less onerous if they are headed for hong kong compared to the u.s.. this is big news for chinese firms that need assets -- access to foreign capital. it's good news for hong kong and its exchange. it's good news for bankers who have made billions of dollars from offshore listings over the years. dani: we can see a positive reaction in the hong kong exchange and stocks anticipating that as well. thanks for giving us the latest on that.

lucy coutts. more tensions here between china and the u.s. around this data question. beyond ipos, how do you view the u.s. listings adrs that are already there? alibaba, tencent. how do you approach them now given the recent developments? lucy: very positively in the longer term. in the short term, we've got some clamp down by the regulators on how these businesses operate. but these businesses are, in my view, very well-placed for the long-term. tencent has just bought a stake in another chinese business, food delivery business. they are very exciting. in the west, we have businesses that are silo. for example, visa payments, amazon for e-commerce, facebook

for social media. alibaba, tencent, there's a whole ecosystem within their businesses. you don't really need to lead -- leave the app on your devices to benefit from what they provide to every consumer. dani: it's really interesting. if you think about tech at this moment, it's very expensive. perhaps some of the selloff in these companies is an attractive opportunity if they will still do well long-term. what you do with the facebook and amazons? they are having such expensive valuations. if you wanted to trade on valuations, you would have missed out on a huge run-up. what you make of the share prices at this point? lucy: i'm a long-term investor. the businesses that we mentioned, all of them are extremely high-quality businesses. very well-placed for the longer term. yet it seems odd that i'm biting

these individual shares constantly for clients. having bought them five years ago or longer, when they were much cheaper. they are still fundamentally great businesses. yes, markets and stock markets will go up and down. various defense such as the pandemic. if you sold them and brought them back, you should sit tight and go with the punches really. dani: the more cyclically oriented shares as well? lucy: i do. if you buy great businesses with great products, and good management and high returns on capital, i'm very happy with a long-term view in mind to sit tight. fundamentally, these businesses are excellent and very well-placed. dani: we are going to talk about banks a little bit. you will stick with us.

we have a lot of ground to cover here. lucy coutts. coming up, wall street digests the u.s. big bank earnings. we take a look ahead. european banks turn starting next week. this is bloomberg. ♪

♪ dani: welcome back bloomberg daybreak: europe. it was a week of mixed results for the u.s. big banks as wall street digests the figures. attention now turns to european banks. nebula, such a treat to have you on with us on of right a. -- on a friday. what have we learned at this point? nabila: morgan stanley followed the pattern that was set by wall

street earlier in the week. basically dealmakers were the stars of this quarter. traders failed to live up to the glory of last year. we knew that they would struggle, that they had a tough job ahead of them. wealth management was a bright spot. at morgan stanley, we saw that the wealth management business added $10 billion worth of new loans which was a very good sign. the ceo talked about a good economic recovery and a bright future ahead for the bank. dani: i was talking to one banking analyst earlier this week who called some of these a sugar high that wouldn't last. is that a widely held view, that these aren't sustainable revenues in dealmaking? nabila: that is the big question. dealmaking is traditionally a lucky business. this year, we are headed for a record year. globally, we knocked it up $2.5 trillion worth of deals.

at goldman sachs and morgan stanley, they have a really strong pipeline. they said that their pipeline looks better than what it did at the end of 2020. there are some clouds on the horizon. you have the biden administration trying to boost competition in certain sectors that have been very active in dealmaking of late. and then you've got the crackdown from china as well on u.s. listings. it's going to be hard to see how they sustain this level of growth year on year. dani: if that's the picture for u.s. banks, what can we expect this coming week when we get the european banking results? nabila: in the u.s., we saw that trading was down overall. equities fared a lot better than fixed income. that suggests that ubs, in a strong compared -- position in comparison to its rivals, they have a very big equities

business. credit suisse has been pulling back on that. deutsche bank full but -- pulled back on that a couple years ago. credit suisse is tilted towards fixed income. all eyes are on credit suisse. they've got a fruit problems to talk about this quarter. so many defections. they've had scores of bankers, dozens walk right out since they had that debacle of archegos and greenfield. that bank has been trying to restructure the investment bank. they've had a number of years. it will be interesting to see what the actual financial impact is of that and what the restructuring costs have been so far. dani: i love the way you phrase that. very diplomatic of you. that's our bloomberg finance reporter. lucy coutts. we wrapped up the u.s. bank earnings. have you learned anything? have the markets learned

anything that changes your view and how you approach the banking sector? lucy: no. not at all. i think the european banks next week, there's limited scope for some positive surprises. i think we are looking more towards the downside fundamentals. we've got expiring moratoriums. banks were given breathing space to borrow. they suspended payments. that allowed them to give me lending to businesses that needed it during covid times. that moratoria is coming to an end. we should see evidence of that in the report as well as how the delta variant is impacting businesses as well. dani: how acute do you figure that the delta variant were figure -- will figure in baking earnings? can we see that feature in european earnings as well? lucy: i think that's a

possibility. we can see the variant moving across the economies. we don't yet really know the impact that this is going to have on businesses. i can imagine for the businesses , it is a concern. the banking sector in particular is vulnerable to help businesses perform and whether they can repay their debts. dani: we've seen businesses accrue very large tax piles. we look at carnival for example. they are refinancing to lower debt. to some degree, it feels like we have skipped the default cycle. have we seen cyclicality stripped out of the market because of stimulus and low rates? are you expecting that default cycle to come later down the road? lucy: that's a really difficult one. it does feel as though we are having a party at the moment. interest rates are so low. businesses are refinancing all

the time which makes them very efficient. you do want to see businesses borrow low, reinvest that money into the business which then offers shareholders growth. ultimately, interest rates will rise. we don't know when. maybe next year or the year after. at that point, you don't want to be invested in a business that has a huge amount of debt. dani: how important to you are balance sheets? how closely will you be screening them? lucy: very carefully. dani: right. that's a great point to ended on. lucy coutts. thank you for joining us this friday. enjoy the rest of your weekend. coming up, south africa is pushed to the brink as police failed to complain -- contain looting and arson. we get the latest next. this is bloomberg.

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♪ dani: good morning from bloomberg's european headquarters. i'm dani burger and this is "daybreak: europe." these are the top stories. jay powell reiterates the fed is monitoring risks, describing the surge as unique. one less hurdle, bloomberg sources say hong kong ipo's are exempt from security reviews.

plus, an investment banking boom builds profit at morgan stanley. focus turns to bank ramping up next week every good morning. happy friday. a lot to digest. the earnings picture is predicted to be the strongest in this postwar history, or our concerns emanating from the central bank and jay powell, who said to congress yesterday that inflation is surprising to the upside much more so, yet he still watching. he's still waiting. that led to a sloppy session yesterday that turned around slightly today. we are seeing a yield curve that's steepest since 2013. i flagged this because it is similar, or at least highlighting a very similar risk to something a larry and said, mohamed el-erian, bloomberg opinion columnist said. is fear is the facts on the ground calls for the world's

most powerful central bank to start easing put off to stimulus accelerator, but by refusing to do so, they run the risk of having to slam policy breaks down the road. and that comes with the threat of the fed inadvertently engineering a recession. so are we concerned these markets, that we may have a sooner end to this economic cycle given the fed and jay powell's inaction at this moment? let's look at your equity markets. we are seeing a slightly better session than we had yesterday. msci asia pacific index off of his lows, hk, hong kong stocks shining, as well. you're also looking at a nasdaq 100 futures session that is slightly higher, as well, up two basis points leading losses yesterday. 10 year yield at 131.71, so some selling there. and finally a cable rate staying put, more hawkish and is coming from the boe. it is earnings season,

's coming out of richemont, reporting earnings. first quarter sales at 4.4 billion euros, a beat of their estimate. they're changing their board, so we're getting a management shuffle, as well. sales are triple digits in all regions. this is key because we knew china would be a brightpoint for richemont. it has been as we start to get recovery out of the pandemic, as well. first quarter sales are 129% increase. the expectation was a little more than double, so a very solid beat out of richemont. let's turn to south africa, where south africans are expected to face food and fuel shortages following days of violent unrest. fighters upended supply chains by looting supermarkets and torching goods trucks. more than 1400 people have been arrested since violence erected

after -- erupted after the performance prime minister -- former prime minister was -- of court. what does the situation look like in south africa? >> so, following the days of violence, absolute chaos. what we have not seen is a return to normalcy, especially in terms of the major highways that needs to be opened up. they are crucial because they are centered around the government consisting it isn't a problem at this point. they are going to be issued across the country in terms of delivery orders that have not arrived, and other provinces that are not affected. [indiscernible] one of the provinces remaining volatile, according to a government report.

dani: and the pictures we have a now up -- up now definitely show a start picture. what has the response been from the south african government? >> the government has been criticized by commentators for reacting too slowly. they've been contradicting each other in terms of role players and when it was acted upon. they have been -- [indiscernible] despite all the talk -- unemployment rate is superhigh. the government is saying these are not demonstrations about economic issues, but this is economic sabotage. that's why they responded with this response so far. dani: so a lot of crosscurrents

when it comes to the economy. they say it's economic sabotage. what could be the long-term economic consequences of this? >> the impact of covid exacerbated the situation. last year, 600,000 jobs were lost. we've seen a lot more that's going to fall apart on the heels of this. just in the retail sector that has been devastated the past few days, losses in excess of $343 million. we are also in the third wave of coronavirus. these riots came amid shutdowns on the economic sector. there is a ban on alcohol, so jobs in that sector not looking in great shape. there have been issues around the vaccination program, which has come to a halt. it's not been able to pick up.

we've seen massive coronavirus cases as a result of the delta variant. things not looking great. in terms of gdp, [indiscernible] will be shaped, commentators concerned about confidence [indiscernible] public and private infrastructure. dani: thank you for staying on top of this story for us. now, joining us to continue the conversation is mike schulz learn, chief economist at economist.coza. thank you for joining us. she walked me through some of the economic scenarios of the unrest in south africa. what do you see as the economic impact, the cost to gdp potentially, from this uprising? mike: well, we do know the damage to the economy is about half $1 billion.

for south africa, that's quite large, more than 1%. obviously we will make up some of it. but there are other problems because that's the direct damage. the main problem is our supply routes aren't open. the major highway in south africa has not been operating since day eight. as of 7:00 this morning, it was somewhat open. a postal highway has been opened in one direction this morning, which is a good sign. but when you've got that and the major railways not operating, ports not operating. the port of durban his about 65-70% of the goods in south africa. the impact is going to be felt quite in a large way, by our neighbors, as well, and it's

certainly going to have a long reputational impact. the business confidence and consumer confidence for the third quarter is going to look very bleak, dani. dani: right. and obviously, this has a human toll, as well, and sometimes it feels cold to talk about the investor side of it. but of course, a lot of south african assets haven't been performing as well. investor confidence isn't there. what will it take for investors to regain confidence in the south african market? mike: look, our market was starting to perform better. the rand strengthened against a lot of other currencies. then we started to have the rise and the rand really took a hit. it shows you investors are worried and probably fleeing south africa at the moment, the short-term portfolio investors. and we're looking at the whole picture changing rapidly

overnight. our stockmarket did have an up day or two, but obviously it's not looking good and we will only see some of the damage later down the road. but i think a lot of south african retailers, banks, have already been berated. it will have an impact, obviously on the ratings of the country when the ratings agencies look at us again because business profits are going to be down. unemployment is going to be up. and even more people crying out in need, so i think our budget deficit, which is going to be about 7%, is likely to be quite a bit higher. and under those circumstances, we will see downgrades. dani? dani: so given those economic impacts, what sort of fiscal policy response should there be, if any? mike: well, i think this is a

wake-up call to free up the economy a lot more and for state owned enterprises to be privatized, i think. and on the other end, i think the response is going to have to include a way that we include more people in the economy. south africa's major problem that we have is unemployment. that is the cause of poverty, 42.6% of the adult population is unemployed. and in fact, if we look at it the other way around, last year, about 35.5% of adult populationw was employed. the difference is people that were students, housewives, and the like. you've got a large bottom of people that have no income. although the looting, in many cases, were richer people with cars and some. but the point of the matter is,

we need to solve the unemployment problem, which will solve their poverty and inequality problem. so our focus should be, how do we get south africa to grow? had to be get people into jobs, and maybe a shift in labor market policies? also looking more at the state network, which are very often sadistic in nature, and do impede growth. dani: mike, thank you so much for joining us this morning. now, coming up later, we are going to be speaking to the ceo of south african lender, investec fund. that's going to be at 8:30 a.m. london time. let's get over to the first word news with annabelle droulers. hi, annabelle. annabelle: hey, dani. german chancellor angela merkel has pledged swift help for those in western germany. she called the situation a catastrophe. more than 60 people are dead and

dozens missing due to the torrential rain. the flood had parts of luxembourg, the netherlands, and belgium. bj sullivan is the latest firm to raise funds for bankers as the bidding war for employers on wall street heats up. the new salaries range from 100,000 dollars for 30 analysts to tilde $25,000 for associates -- $225,000 for associates. timko must face a lawsuit filed by female workers alleging the money manager operates as a fraternity, but favors white males. and orange county, california judge rejected an attempt to throw out claims in a lawsuit that alleged the company culture marginalizes women and favors men, regardless of qualification. a pimco spokeswoman declined to immediate comment. global news, 24 hours a day on air and on bloomberg quicktake, powered by more than 2,700 journalists and analysts in more than 120 countries.

this is bloomberg. dani? dani: thank you so much. that's annabelle droulers in hong kong. coming up, we're going to get back to our focus on the fed. also, conversations with charles evans, as st. louis fed chair on the topic. and everybody's mind is, you guessed it, inflation. this is bloomberg. ♪

♪ >> i think it's clear that some of the inflation will be temporary. how much and how much feeds into a more persistent process is really the question that the committee has to wrestle with going forward here. so, i think we're already above our target encore -- on core target.

we are projecting 3%. that's excluding food and energy prices. that's more inflation then we've seen in a long time in the u.s. and i think some of that will hang on and persist through 2022. and we have harder reports than we anticipated, so there's some possibility that we would ratchet up inflation in 2021 and 2022. so, this is a different situation then we've faced in the past. on the labor market, i think we have made substantial progress. we've come a long way from where we were last december. and all indications are, by anecdotal reports, that the labor market is going to continue to improve. a lot of people are looking toward september, october, when schools are back in session for

improvements. so i think we are in great shape in labor markets as far as having been able to make progress since last december. it's not fully healed. it's not fully done. but having come along way since december, i think the answer is yes. >> in terms of that progress then, do you think tapering may have to become sooner than those anticipate, perhaps pulling it forward into the fourth quarter of this year? >> well, the committee's going to debate that in earnest at the july meeting. i would emphasize parameters around the taper decision. the starting date is only one part of it. the pace of tapering is another part. mbs versus treasuries. and we can talk about that if you want. but i think the most important thing that i've been stressing here is the idea that you

probably don't want to be on automatic pilot in this situation. this is a really fast growing economy, lots of things happening both in the u.s. and globally. say we're never going to change the pace of purchases. we have to be more contingent than that because we are not quite sure where this inflation process is going to go. we need some optionality on the upside with respect to possible inflation shocks. dani: st. louis fed president james bullard speaking to bloomberg's michael mckee. we spoke to the chicago fed, charles evans, and while inflation has picked up more than expected, next year will be more number -- normal. >> so here we are now in a strong rebound, the economy is

recovering very strongly and growing very well. in fact, the numbers are so large, i have a hard time keeping them in my head. i'm expecting real gdp growth is going to be extraordinary number. and when you take an economy that's 75% and take it to 100% or more, that comes with growing pains. but growth has been good, 7% this year, looking for 3% next year, which is a very good level of growth. the kind of numbers i find more transparent in terms of naturalness or the unemployment rate numbers, even those are subject to a lot of interpretation given labor force . i'm looking for unemployment rate at the end of 2021 to be

about 4.5%. we're five point 9% unemployment right now and come down dramatically -- 5.9% unemployment right now and come down dramatically, which is good. i'm still optimistic that's the case. but that's certainly one of the things i monitoring. and the next year, i'm looking for unemployment to be under 4% so really looking for a strong economy supported strongly by fiscal support in 2022. the previous administration, the current administration, congress, they've been very strong in their support for bringing the economy back to full strength as quickly as possible, and i think that's the setting. now, of course, in line with things taking place more quickly than expected, inflation has picked up stronger. i certainly was expecting us to overshoot, go above 2% this year

because of reopening, base affects, where prices dropped a lot last year, and so inflation was expected to be well above 2%. however, i'm looking for core pce to be 3% year-over-year the end of this year. i feel optimistic, too, given some of the developments. never would have guessed that used car prices would be rising as they have. i think we had a 7% monthly rate for used cars. we've had a lot of unusual developments. and and expecting, though, that those are going to be -- i know it's a loaded word, transitory. i think that the inflation pressures are going to be more normal next year, and i'm looking for 2.1% core pce inflation in 2022. i think a lot of the reopening heat is going to subside. dani: charles evans there.

coming up, investors gear up for the bank of england to tighten policies faster than the fed. we're going to have more on that next with laura cooper. this is bloomberg. ♪

dani: investors are gearing up for the bank of england to tighten up policies faster for the fed. let's dive into this with laura cooper. thanks for joining us on this friday. you have noise coming out of the boe of more hawkish is -- hawkish nests. what are they seeing that's given them the impetus to tighten up sooner that's missing from the american economy? laura: i think when we look at what happened this week, we had very strong inflation reports on the u.k. that headline number at 2.5% mast with the bank of england the peak. we also had strong unemployment report, fastest pace of hiring on record. when we look at for the scheme

data, it's showing 5% of the workforce are still on support. i think together, it's the inflation backdrop alongside ongoing an employment recovery underpinning the need for these bank of englert members to see the scaling -- bank of england members to see the scaling back. we know fed chair powell is maintaining that dovish tone. dani: what is the impact of markets if we get this diverging of markets? laura: certainly we're already seeing that play out in terms of money market. if we look at what's happening in the u.k., markets are priced in for 15 basis points of hikes by next may. that's quite a material move from what we saw a week ago, about a year ahead of the u.s. we are beginning to see that divergence, and that is playing out in terms of the tenure spreads. dani: laura, thank you so much for joining us. that's it for bloomberg

daybreak: europe. we have the european open up next. mark and and i will walk you through that. enjoy your weekend from there on out. this is bloomberg. ♪

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♪ anna: good morning. welcome to bloomberg markets, the european open. i'm an edwards. on the lookout, jay powell reiterates the fed is monitoring inflation risks, describing the current price search -- surge. angela merkel and joe biden agree they won't allow the kremlin to use the nord stream 2 pipeline to threaten neighbors.