manus: good morning dubai. it is "daybreak: europe." with the stories that set your agenda. the delta variant pushes back into lockdown in the central bank signals what is to come. treasuries are little changed

with the declining outlook on yields. the u.s. freezes government funds held in the u.s. in the bank accounts. good morning, a phrase that comes to mind, we will talk about risk, which is the world central banks and customers are all held hostage to delta. central bank policy has done a u-turn. the bank of

about tina turner, paying amash to her in 1985. dani: bank of america gets a red card for that pun. i have had proud mary stuck in my head for the last 48 hours. there is no alternative. it's remarkable to see everyone walking toward equities but there will be lower returns for equities in the second half. so maybe don't load up on them. manus: that comes through when you look at the positioning. health is number one, tech is still the most crowded trade. growth is back at 27%, you are looking a real rewriting of risk. it cannot be said enough, the other thing that caught my eye was the language it came through. there's a split intern's of the find manager survey -- in terms of the survey. we will be playing those graphics through the morning. mr. powell acknowledge something very important. the powerful monetary policy has

limitations. a shock headline. if you want to hedge yourself against that, look no further than what palantir technology is doing. specifically saying for a black swan event. here is a corporation that is preparing for a black swan event. they are loading up gold on their balance sheet because they are concerned. this is a big tech company that serves the u.s. government. manus: monetary policy is held hostage to one case of delta, the personification there? dani: the kiwi dollar, let's get to the board. it dropped the most since may yesterday, dropping more than 1%. the rbnz is signaling they will tighten down the road.

a quick look on the other markets, equity markets in the u.s. yesterday dropping after continuously hitting all-time highs. let's get to that rbnz story because that one case of delta, as you say, not living on rates today. let's get the market impact. joining us is juliette saly. set the scene for us, what did the rbnz zoo -- do and how much of an about-face was it for the central bank? juliette: i'm going to say, what's delta got to do with it? leading into that nationwide lockdown, and then use all the rbnz which was widely expected to hike today become among the first central banks to do an about-face. as you mentioned we did see the kiwi initially drop but it has

paired those losses, coming through in the overall equity market on a broad-based positive session today. so the rbnz did indicate they do have a clear tightening bias and you can see that reflected in this chart, though we have paired how many potential rate hikes we are expecting to get over the course of this year, down from where we were seeing three yesterday, now only one by the end of 2021. it will rise to 2% by the end of 2023 but it's important to know that the governor said the decision was made in light of the lockdown and the policy is on hold for now. manus: we will have that conversation. a lovely chart that we can't view enough. we will have that conversation with the rbnz governor a little later. don't miss it, it is on daybreak

australia and thursday night in london. the european head of fx strategies, one covid case and the kiwi dumped by 1%. if we look at the much broader contest with -- context, which is central banks are quite literally out hostage to delta, something we note little about. how concerning is this kind of market move and reaction? are we over reading and over embellishing the story? >> good morning, manus. in the bigger picture, it's all about inflation risk. that's what we need to be having the conversation about. as we all know, without

persistent gains in wages, it is difficult for higher inflation and inflation expectations to become embedded. that said, compared to where we were a decade ago, the backdrop has changed. we have the combination of the forces of deglobalization, loose fiscal policy and capacity constraints, all pushing up price pressures. if you look at the rate of increase in inflation over the first six months of the year, the annualized pace of increase is pretty hot. so i think central banks are in a difficult spot because they're faced with the risk of either doing too little or too much. on inflation. and i think that worries markets, and i think if you look

at the equity market and the bond market, the function they've made is that price pressures will rise for a while but the increase will eventually weaken demand. but it is a gamble, and policymakers and markets know that. dani: i wonder if price pressures, considering what's happening with the delta variant, you have new zealand going into lockdown over just one case. presumably that continues to put pressure on the supply chain. how much does that factor into your thinking? >> quite a bit. it's one of the reasons why risk appetite generally has not collapse, but it has stalled. investors are thinking about that. the way it is transmitted into the fx market is to see generally less than half are

carrying, lest of the yield grab and there is more support in the u.s. dollar. as i said, if you look at the bond market and look at the equity market, the assumption of the bond market and the equity market, the assumption they are making is that the increase in inflation more effectively will be self-correcting. because price pressures are high, if you talking about asset prices are just goods and services, that will restrain demand and further down the road price pressures will moderate. but it is a gamble. the smart money investors know this and that's why you are seeing a little more support in the dollar and risk appetite is generally more restrained than it was a few months ago or a

quarter or two ago, definitely. manus: it seems as if there are more foreclosures in china and we are grappling with what the next six months will be. we're seeing a strong performance in you in in this quarter relative to the g10 space. as a hedge, as a protective positioning, where do you think the biggest flows will be, will it be to the dollar out right or to the yen and the swiss at the dominant side of the dollar trade? stephen: i was looking at this just yesterday. short euro long higher yield and long carry, during times of rising risk appetite you would

not be short euros with. -- euro swiss. if you had been short euros swiss year to date you would be up on the year, even on the basis of total return because despite the fact that the s&p is rated so deeply negative, that tells you something. the fact that the swiss franc tells you about global growth. in terms of the flows, the smart money is waiting, the delta variant and how governments react to the spread and new variants potentially later in the year or next year. but ultimately i think the inflation situation, because of the forces in play today that were not in play a decade ago, the smart money is on the sidelines waiting this see how

the whole situation plays out and how the central banks react to it. dani: stephen will be sticking around with us. let's get over to the first word news with simone. >> after monday's deficit -- desperate sees, thousands of afghans attempted to crowd onto planes in the wake of the taliban's takeover. afghanistan's new leaders attempting to send a conciliatory message pledging to build an inclusive government and prevent afghan territory from being used to target other nations. meanwhile u.k. prime minister boris johnson is expected to face intense scrutiny as the opens a debate in the house of commons later today and defends his government's decision to withdraw troops from the country. south korea wants to have 70% of

its population vaccinated by the end of september. an exclusive interview with bloomberg, the prime minister said his government will continue a while small businesses are hurt by the delta variant. >> one of the reasons why we think south korea has succeeded in prevention is because we didn't turn to extreme answers like lockdown. >> global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: later today we will speak with the head of norway's sovereign wealth fund, the largest wealth fund in the world. dani: first, u.s. stocks post

the biggest decline in a month. there are concerns about the delta variant and what it means for the global economic recovery. that is next. this is bloomberg. ♪

dani: welcome back to bloomberg "daybreak: europe." u.s. stocks posting their biggest decline in a month after growing concerns about the virus and what it means for growth. investors looking for clues about the timeline. stephen is still with us. i'm struck by some of the data we have gotten over the past few days. retail sales yesterday coming in

weaker. before that a survey that was also week. what do you make of the data we have seen and how has it affected your positioning, if at all? stephen: it depends what data you are looking at. the confidence data in the united states, a lot of people are talking about the delta variant. i actually think the inflation pressure is also a problem for consumers in america. the other data, some of which you mentioned, apart from inflation impacting the data, i think you are seeing a gradual normalization, the reopening boom is over. some of the earlier fiscal stimulus is starting to wane. basically on the whole, economies are reverting to the trend growth rates, that we were

seeing prior to the pandemic. when you step back and think about our economy and elsewhere, not much has really changed in terms of our capacity to grow, our challenges are still there, they are still difficult. on top of it, when you talk about the medium-term outlook for inflation, those risks, there's a certain amount of reality that debt is going to restrain growth and beat disinflationary. yes, that is true, but when you compare where we are today to 10 years ago, governments are not going to step back from the

possibility of more stimulus anytime soon. the capacity constraint issue, which we are seeing now, it is important for capacity -- our capacity to grow is limited. these are real issues, i think. manus: your other namesake said there's nothing so permanent as a temporary government program. you are right, all of these exceptional policies that we have, and we have had them for 10 years, they are growing. i want to get your sense of how divided the federal reserve is. 10 years ago we didn't have average inflation targeting, and we need to understand why that is. how will that play into the

taper, the speed of the taper that we assume will begin before the end of the year. that is the growing consensus. stephen: briefly, following on from one of the things that has changed now is the fiscal picture. governments now and in the immediate future will be less reluctant on the fiscal side and was central banks and quantitative easing, launching it quite easily, and now relying on it in some cases, there are big risks ahead, fiscal and monetary policy together. if you think back to powell's body language in his comments at the last fomc press conference, i don't think the fed is united yet. i don't think there is a consensus yet and i think over

the course of this conversation that we've been having, it is because of the divisions in views on what will happen with inflation. should the fed step back and wait for the higher inflation we are seeing to be sort of self-correcting as it impacts the debt, or is it going to persist for longer and cause the differences that we have now relative to 10 years ago. i don't think the central banks are united on this issue. so looking ahead to jackson hole, is it going to be a massive market mover and game changer? we are not convinced of that, precisely because there may not be a clear consensus yet on the fed, what is actually happening with inflation and what are the main risks of prices going forward, what is going to be the dominant issue for price pressures? dani: it sounds like our

favorite word, dissonance, is still front and center in this conversation. thanks for joining us this morning, stephen gallo. coming up, we turn to china where embattled -- poise for a $7 billion recapitalization. we will have more on that next. this is bloomberg. ♪

manus: this is bloomberg "daybreak: europe." let's get to the bloomberg school. poise to receive 50 billion yuan in fresh capital, all part of the maybury -- major overall to

resolve a crisis that is quite literally ruined the chinese credit market. rebecca is standing by. a shot in the arm, with this allay all the fears in the market? the story on the capitalization, what do they get? >> there poise to receive the equivalent of $7.7 billion capital injection, in line with cut some markets were expecting. and of course confirmation that it will become the biggest shareholder. certainly we are seeing investors concerns really assuaged by this news. if it goes through, it would mark the first major attempt by beijing to try to resolve the crisis that it emerged since publishing those 2020 results. dani: on the investor side, what does that mean for them?

is it going to be a calming event for them, or are there still concerns? >> we're seeing bonds really rise, particularly those shorter dated bonds from when they might've been concerned about the repayment factor. fundamentally the whole question is about the extent to which the chinese government continues to -- the other question will still be that we don't have the results, so we don't really know what that 7.7 billion in capital injection is actually trying to solve when it comes to potential losses. dani: thanks so much for staying on top of the story for us, rebecca. gold is steadying ahead of the central bank but of course what

comes out of the fomc minutes could have an impact on what the precious metal dials -- what it does. are they preparing for a black swan event? manus: obviously you will see some grey swans on the horizon. let's come out from behind the board and talk to one another. i don't think the director likes you and me. 50 million dollars worth of 100 ounce gold bars. dani: everyone is preparing for a black swan event. manus: it depends on where the dollar goes.

that will be a dominant issue for a lot of the commodities. the taliban leaders return from exile and pledge to target debris -- neighboring countries. this is bloomberg. ♪ comcast nbcuniversal is investing in entrepreneurs to bring what's next for sports technology to athletes, teams, and fans. that's why we created the sportstech accelerator, to invest in and develop the next generation of technology that will change the way we experience sports. we've already invested in entrepreneurs like ane swim, who develops products that provide hair protection so that everyone can enjoy the freedom of swimming. like the athletes competing in tokyo, these entrepreneurs have a fierce work ethic and drive to achieve - to change the game and inspire the team of tomorrow. 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 golo.

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from bloomberg's european headquarters. i'm dani burger alongside manus cranny who is alongside in dubai. this is bloomberg daybreak europe. cautiously hawkish. the central bank signaling tightening to come. traders await minutes from the fed for clues on tapering.

the taliban pledge afghanistan won't be a haven for terrorists. you might have seen u.s. equities take a dip yesterday but otherwise it is all about risk. the question today posed by p.j. manus: there is no alternative. if you look at what they are saying, dani, it is very, very clear. it could be a fed error. it could be -- the credit impulse rolled over in china. there is a lot to go wrong really to switch the equity investors. a lot of people have bought hedges into this meni dip. you have yet to reach an extreme positioning in equities.

dani: certainly. in equities as the bank of america has opponented out, you have healthcare as the most crowded sector. it is the first time in about a year. kind of a twinge of defenseness underneath the surface there. manus: a big drop in terms of growth, profit and expectation. let's show you the rest of the markets and show you what is going on with the kiwi and the rest of these these markets. a nine-month low at the rbn hold off on raising rates. to the taliban leadership. they have returns, leadership returning to afghanistan. the militant group has pledged not to target neighboring countries at a press conference in kabul.

they promised to build an inclusive government and protect the rights of women. >> god willing in accordancewith shrch sharia law, we will allow women to work. they will have an active presence. dani: at the same time the white house says it is in contact with the taliban to allow safe passage through the kabul airport. the u.s. is seeking to finish its vacuation by the end of august. >> we are engaging diplomatically with allies in different countries and the united nations. we are in contact with the taliban to ensure the safe passage of people to the antidepressant. dani: joining us now our guest. so what does the situation look like on the ground? >> on the ground it is --

developments happening. the the taliban leaders are back. what is expected next is an announcement of who is going to be in this who is going to be in charge. the taliban news reports have it regarding the -- of the airport in kabul, the only exit out because the militants control the land border. the americans are talking to the taliban. also saying -- asking citizens to shelterer in place. the development will be key today. manus: thank you very much p.

setting scene for us there of what is to come in afghanistan. our reporter on afghanistan. # let's turn the conversation our a chief economies. the world is debating what former government will be brought to bear and who'll support that government. you have some very bullish calls. can we pause for thought at the moment? terms of where is the most support going to come from in your view an why for this new taliban government? >> good morning, manus. i think dominic put it very, very well yesterday. that is that the global community are going to have to take a pragmatic approach to the taliban and the new leadership in kabul. and basically people have to get

rid of their outdated assumptions. this also goes very much for the new taliban because if we go back to the 1990's when they were earlier in power, the toplation was 10 million. it is now almost 40 million. the labor force was almost 2 million. it is now 12 million. so it is a significantly different place for the new taliban. the level of mobile phones was zero in the 1990's. it is now 25 million across the population. there is not just one airport in kabul. there is actually 40 airports. there is a significant level of development that can take place, especially among all of their neighbors. if we look in the entire region, the pivot by the taliban in

pakistan and china. it is a different different diplomatic approach to take. that's what we should look at in the long-term per spect even. dani: -- perspective. the more outward facing taliban, might be different than the one acting on the ground purke a different world -- pushing a different world view. how much does that complicate your view in terms of governments calling for pragmatism and the rest of the economists in terms of how you react to this looking for a more pragmatic approach. >> i think the short-term is dpoang to be very, very

important -- going to be very, very important in the transition. they are dealing with pakistan and the taliban direct liply and qatar -- directly and qatar. turkey also. turkey as a naito member -- a nato member, i think it is very, very important that all of these players as they run around pragmatically to a -- the best way to progress that people are going to sort of lock in advances and force leverage on the taliban to bring about these change changes. manus: martin, we're trying

grapple with placekickers, government, human lives, running away from a country country. can you put context -- it is a very interesting context in terms of population, working population and g.d.p. per capita. what is at play here for afghanistan and the world in term of natural resources. that is going to take foreign capital to help this country. so just set the economic scene for us in terms of what afghanistan has to offer and why they must be pragmatic. >> very famously, the national security adviser for barack obama, susan rice, as the head of national security, national security is not infrastructure spending.

this developing model is something afghanistan has never seen. we don't have to take the view of what the future will look like like in afghanistan. we look at all of the stanes. kazakhstan, uzbek stan. china's main strategy is coming through pakistan. there is no civil war in this changing government. to pivot pakistan and china absolutely needs police and stability. otherwise there will not be one dollar spent at all in afghanistan. it is a high risk here for all of these players that are involved. if we look at some of the natural resources that they have, beaus the u.k. and the u.s. have spent the last decade

planning all of the natural resources in afghanistan. mainly iron oreand copper are p largest. the former government in afghanistan stated it was over $3 trillion. they probably will have the largest resource of lithium which will be needed as we go to netzero the lithium price is at least double a decade ago. do you want to get the lett yum in bolivia or argentine -- argentina argentina. manus: thank you very much for your perspective on afghanistan. the data, the numbers and the natural resources. to first word news.

>> thanks, manus. new disee hand has found six additional cases of covid-19 as it begins a nationwide lockdown linked to a single case. the new zealand central bank refriend from an interest rate hike earlier keeping the official cash rate at .25%. they intend to start tightening soon. kathy wood laid out her case for why she has been pairing holdings tied to chinese tech giants. she rebutted investor michael burry. she says she doesn't believe bury understands investment opportunities in the innovation space. >> china has made it a priority to invest in innovation.

i'm wondering if something is changing there though. since november, every month there has been some new form of increased regulatory oversight crackdowns, social engineering, nationalizing the education companies. seems like that could be contradictory to their desire to become one of the most innovative countries in the world. >> global news 24 hours a day on air and on quick take powered by more than 2700 journal estes and analysts in more than 120 countries. this is bloombergs. dani: come up, goldman sachs and morgan stanley find some common ground on stricter covidry strekses. this is bloomberg.

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manus: it is day daybreak europe. i'm manus cranny. the riefls, goldman sachs, morgan stanley. suddenly have something to agree about. dani? dani: yep. they are agreeing on more strin jept precautions for staff returning to offices. across town morgan stanley has just informed staff they must soon provide proof of vaccination. goldman sachs, morgan stanley, i feel like these are two of the

banks that are prescriptive in terms of everyone needs to get back into the office. why are they softening now? what has pushed them to shift? >> you are absolutely right. these were among the banks that were more stride ept about their people returning to the office. at goldman sachs what you're seeing is that instead of saying to people to come back now, they are saying if you do come back, you are going to have to wear a mask in the office. these are some of the plans being discussed by the scenes. not yet yet implemented. and testing staff so they can spot infections before they spread across the floor. manus: i surreceived. had some water. don't need to -- surreceived, i

had some water. don't need to worry. at the fed, they have delayed the return to the office there as well as. it is about what the new normal isant it? >> absolutely. maybe going forward, wearing masks indoors and outdoors and having to show your vaccine passport will just become something normal that we all have to do to keep each other safe and the staff at the fed are leading the way there. they said they are delaying the return to office by at least a month taking them to mid october. toward the winter over there, it is normally the flu season. it is a good practice to wear masks anyway. he said the delta variant is a

risk. even to a state where they have a vaccination rate of 70%. he said they are going to be broader economic implications. this is what you're seeing at minute countries across asia. how that is disrupting our return to the new normal that we hoped to get back to this year. dani: talking about how covid is changing generation. molding the general ration. thanks so much for staying on top of the wall street story for us. coming up, manus. we talk about bhp shares plunging this morning. a deal for the oil and gas business. we have everything on commodities. this is bloomberg. ♪

>> there was an opportunity for us here to achieve a few things we give shareholders choice. the opportunity, oil and gas. others less so. this gives them the choice of how they want to allocate their portfolio. >> the value proposition for woodside and our shareholders is compelling. with this merger we will become a top 10 producer. we will have the cash flow, the balance sheet and the financial strength. dani: the coast of b.h.p. and

woodside. quite a few concerns pegged to it doesn't it? manus: yeah. we have a hold -- halting of operations in china. they are talking about the likelihood of stern cuts to china's steel output this year. there in lies the point. the steel industry was 80% lower year-on-year. that is the backdrop to this stronger dollar. concerns about covid and a chinese economy that definitely is coming off the peak one could say. let's get to our asia reporter james thornhill. shares are plunging this morning. what is the deep concern here? is it china slowing? exports to australia? what is the key concern? >> good morning, there, manus.

shares in sydney down 7%. for bhp that is a big hit. a number of factors at play. the delisting in london. that plan has not been universally popular. certainly we're hearing reports some of the u.s. investors are not happy with that to hold bhp in london. the primary listing in sydney and the secondary listings being elsewhere around the world. iron ore is down today. that is always going to be a drag on bhp. 70% of its earnings come from iron ore. they are removing a healthy earner. dani: you mentioned iron ore. you have bhp warning about this

stern test from china. its kearns may be triple -- concerns may be tripled. >> as you mentioned we had very strong demand from china's steelmakers in the first part of the year. that's what propelled up to record highs. north of $230 a pound. today we're trading in the mid $150's. as i was saying, it is a key part to the business. the headwinds are coming to china looking to pair that production because they want to control emissions. they got stronger green mandates as we know. they are trying control pollution. also they want to keep a lid on that, there are concerns in the

market that they might step in. when it is over 200 we have that. there is a few dynamics at play there. dani: all right james. thank you very much. that is our bloomberg mining reporter. there is a lot going on in this market of course. the kiwi dollar trading at a low. that is something catching the attention of markets ea long with the iron ore story. manus: pretty weighty on the ftse. a hawkish hold from the ki kiwis and that conversation with steven gallo set the scene, a more cautious tone and he like the swiss and the dollar. dani: a little bit of havens to

get your day started. that does it for us. that is it for us. we have the european open up next with francine lacqua. this is bloomberg. ♪

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francine: good morning everyone. west bounding to bloomberg markets, the european open. mark joins me from singapore. the cash trade is less than an hour away. here are your top headlines. u.s. stocks mosted the biggest decline in a month. investors look at clues about