♪ manus: good morning. it's daybreak europe with the stories that set your agenda. tapering. the most fed officials see the central bank slowing bond purchases later this year. oled wants the taper over by the end of the first quarter in 2022. commodities crunch. the king pushes to cut steel output, rain in prices.

iron ore leads the metal complex lower. tech crackdown weighs on the equity market. the irs blocks the taliban. good morning. it's paper live, king dollar. my favorite line goes to this. wanda. the fed tapering is clearly in a training camp mode. jackson hole is likely to be the pre-safe haven game. september or november, fomc will be the live event. i love that. the preseason game. do you know what i reckon? i was in the car looking at two twitter seeds at the same time. they have taken the heat out of jackson hole. dani: if i can extend that

metaphor even further. what ending -- inning are we in? what inning do we start to see tapering pulling back? that's a big question. we know tapering is coming. there's the timing debate as edward pointed to there. manus: u.n. die talked about bullard. they say to get tapering done by the end of first quarter. we will rip it up for the social as well. greg is busy here. he's back in the chair. never listen to bullard. there's king dollar. there's king dollar. does she fly higher? dani: that's at a november 2020 hi. it's the market to have a reaction. one of the remarkable things about yesterday, this idea of tapering. not that much of a reaction. manus: not at all.

repressed, depressed. take it away. have a look at the board. dani: let's look at where yields stand. they are ticking higher by a base point when it comes to 10 year yield. this morning, it continues to be king dollar. the highest since november 2020, taking out march highs. because of that, you have demand and issues in china when it comes to foreclosures. you are seeing commodities crushed this morning. oil and iron ore. let's stick on that fed story. the latest minutes show that most officials agree that they can start tapering later this year. then there's james bullard of the fed who prefers a faster timeline calling for an end to tapering by the first quarter of 2022. we are joined now by kiran ganesh. you've already watched of interview earlier when he was talking with his guests about

bullard's bullishness. i will put that question to you as well. do we listen to bullard, his hockessin if -- hawkish and us? kiran: the fed is clearly a committee. you will have some people be more hawkish, some people at the dovish end. if you look both sides of that, we can see that there's a healthy term for september. others looking for q1 2022. where the consensus is likely to come out is somewhere around november, december. the jackson hole meeting is august, the pregame. then you have the season starting in november or december. we think that's probably the valid one. the important thing to stress that we've heard from those minutes is that just because the season starts in november or december, it doesn't mean you

need to keep playing. you can take a timeout at any time. they stress that things like the delta variant, sensitivity to jobs data. they were keen to stress that just because papering starts, that doesn't fix a date for win rate hikes start. how learning lessons from the autopilot debacle we saw in 2018 and stressing here that there's no mechanical link between the start of tapering, the start of rate hikes. that should go some way to explaining the reticent lack of reaction we saw in the bond markets even though the equity markets probably need to digest a little bit that tapering may be starting this year rather than next. manus: that's a lovely way to carry across. you are right. it was almost adrift from the bond market. no huge reaction from the equity market thus far. my last guest said, don't listen

to bullard. if you go for a slow progressive reduction in the balance sheet, i think you end mark in the team have done the analysis. it's a fairly minuscule impact. you think of to we ends, it's a .6% reduction in equities. do you really think that that is the scale of the impact on the equity market when tapering of qe finishes? kiran: i think it will -- there are so many factors that go into a this. whether it's the starting points , the pace of the taper, whether they continue to taper at a fixed pace, when rate hikes start. by the time you add all those things up over that kind of timeframe, other factors like economic growth, whether we see risk scenarios materializing, whether it's the delta variant, these things are much bigger than any one variable in the

whole taper equation. we've got that reflexivity. the fed is going to be sensitive to all those other factors. if we start to see the equity market reacting very badly or the bond market reacting badly, the fed will take that into account when it makes its next decision. we don't think anyone step is likely to have a huge impact. we've seen indigestion in equities yesterday later in the session. that's the kind of thing we think will be reasonable. it's unlikely that any part of this will cause a larger reaction. dani: let me put another argument to you as to where we might not see that large of a reaction. this comes from jim polson. the reaction has already happened. that's because the pace of growth and money supply has already come down. that is starting in march of this year. this is what the chart shows. the fed went on autopilot, maintains the same level of purchases.

the growth has come down. we have seen that market reaction. what do you make of that argument? kiran: that is fair. we can look at the rate of change or the change of the change. both of those things are things that equity market investors look for. one key point to layer onto this is that equity markets have been calling for that handover to take place between monetary policy and fiscal policy. the infrastructure bill and the budget reconciliation meet -- needs to go through the u.s. fiscal system. we think that's on course. we will see $2.5 trillion of spending coming through in the u.s.. while we've got this tape and -- tapering happening on the monetary side, that handover is happening to the fiscal side. we are getting stimulus from somewhere. that is something that equity markets have been looking for many years, predating the

pandemic. manus: stay with us. kiran ganesh. indigestion only for the equity market. let's see whether that comes to fruition. annabelle droulers is standing by with the first word news from hong kong. annabelle: thanks. president biden says the u.s. will remain in afghanistan until all americans are able to leave the country. even if that takes longer than the august 31 deadline to withdraw. he told abc news that american intelligence didn't for see such a rapid advance by the taliban. >> the idea that somehow there's a way to have gotten out without chaos ensuing, i don't know how that happens. annabelle: a large u.k. study has found vaccines are less effective against the delta variant of covid-19. the pfizer shot was 93% effective against symptomatic infection shortly after the second does compared to 71% for

the oxford-astrazeneca jab. pfizer's efficacy ebbs over time to reach a similar level. vaccination didn't diminish the viral load carried by those with the delta variant. the u.k. is to start offering booster shots to all vaccinated adults from's temer 20th. the move is a massive expansion of a program previously limited to those with weakened immune systems. infections from the coronavirus delta variant surge. the u.s. is facing a new wave of covid infections primarily among the unvaccinated. 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 tom much. here is something to frame our conversation for this morning. that's your global macro movers. gmm on the terminal. one thing that stands out to me,

very green box the bloomberg dollar spot. that deep red throughout the entirety of the commodity columns. manus: if you look at the chart, there was a roland recover. let's go on and on the commodity bloc. iron ore in singapore town .5%. still take by 4%. copper on a roll down. a much more pervasive fact is that china is seeking to curb steel output. they will get a grip again on the housing market. this is frightening the horses in the commodity complex. absolutely, are they done with tech regulation? is it all about bringing iron ore lower? 40% on from a high. a grip on the economy and some of these big plays. dani: the port closure.

>> we are at a situation now where the body of our low and the start market is extreme he hi. therefore, any main change in inflation will hit both parts. in the past, it hits one of them and not the other. they can mold move in >> the same direction. >>do you have to do things differently with that in mind? >> we are a long-term investor. we are so big. it's difficult to move around. in a way, we are also dutiful

for counterparties. given that we have a time horizon, we will probably have to see through it. >> is not what you own, it's what you choose not to open when you're this big. what are you choosing not to own right now and why? >> we are quite index narrow in the way we run our portfolio. we have various things we don't own for esg reasons. we started to settle down various things already back in 2012. that has been a good strategy. that is something we will increase going forward. >> what does that mean for the region going forward? think about china. do you have to reduce that because of esg concerns? >> not necessarily. we have 5% of the funding and china. it's one of the biggest markets in the world. it has done really well for us. we continue to be invested there. >> some people call it on

investable. do you think it still is investable and why? >> i think it is. you have a lot of great companies there. some big technology companies there. we have large positions there. we believe in a lot of those business models. >> the regulatory shift can happen overnight. you need to have protectable regulation there as well. some kind of certainty, looking forward several years. do you have that with china? >> i think we have uncertainty all over the place. we have uncertainty in all markets. it's the nature of it. it's different in china. that's life as an investor. >> do you think things are changing more rapidly over the last couple of months? >> things are changing quite quickly. we have people on the ground. people are looking at these things. we will make necessary adjustments in the portfolio. manus: the ceo of norway's

sovereign wealth fund discussing investment cases for china. let's have a look at the long arm of regulation on the commodity board this morning. china cracking down on the property market. they want things to be very clear for all in china when it comes to that policy crackdown on housing. the dollar is higher. iron ore is lower as they push for less regulators. still -- copper is down in london now. let's take that conversation to kiran ganesh. we will circle back to investing in china in a moment. there's a pivotal moment in the commodities. oil down for the sixth day in a row. what is the miniature repricing in commodities indicating to you? kiran: i think it's indicating the level of regulation, the risk premium getting built into

the commodity complex. slow down we've seen in the macro environment. particularly when we look at the commodities. it's a reflection of what we see from the delta variant and what that's doing to some of the travel and tourism spending. outside of china, we are seeing airline bookings in places like the u.s. have dropped as a result of the consumer comments we've seen from the delta variant. those factors are layering in to get a higher risk premium for commodities. we still think that oil will be moving higher over the coming months as opec stays constrained with the supply and as the basic trend towards higher mobility in europe and the u.s. comes back. dani: does that mean that the phrase commodity super cycle can start to creep back into our dialogue? does the recent action suggest that that's not something we

will see? kiran: people tend to talk about super cycles when the cycle is looking super. at the moment, that's under threat from some of the regulation we've seen in china. i think some of the specific commodities most impacted by the carbon transition, there's a bit of an argument there that we could see more prolonged times of high demand and low supply. that could mean we get that super cycle in prices. for the moment, it's those linked to china in particular. we think there's room for oil to move somewhat higher over the next few months. manus: you will be the first one that will call on when it gets within kissing distance of $100. we listened to norse bank there. they have a dollar or two to swing around. 5% exposure to china. do you have a higher level exposure recommended to china? they see it as eminently

investable. do you share that strength of conviction with china? kiran: we share that view that china is investable. that roughly 5% allocation is in line with global benchmarks. we think that's a sensible level to be at. today, it's about being more selective within that allocation. obviously, some of the largest tech names are more subject to regulation. we've seen steps and things like education, property. things that have a social impact more in the face of regulation. some of the parts exposed to things like green technologies have done really well. another area within china that we like is the high-yield market in asia. we've seen spreads widening very significantly. we think the steps announced yesterday to bailout reduces some of the risks for other

state owned enterprises and set a precedent that china is still willing to step in for systemically important industries and companies. dani: it sounds like you might be more in the camp of ray dalio who calls the latest happenings in china more of a wiggle than anything else. they can for joining us this morning. that's kiran ganesh. coming up, china pushes forward with a pledge to curb steel production. futures trading at the lowest in eight months. more commodity discussions on deck. this is bloomberg. ♪

>> we are noting that we are at

that very high point in the cycle. we continue to see a norma's amounts of government stimulus and infrastructure spending. >> copper, gold is really good for any business going forward. >> the crystal ball for the near term is a crowded one. >> its attractive in the short-term. dani: some of our recent guests on bloomberg tv discussing the outlook for commodities. let's stick with the commodity stories. we've been talking about this morning. getting hard hit by iron ore and steel. iron ore dropping more than 6.5%. steel is down nearly 4%. king dollar and china as well weighing on these markets. let's get more into it. joining us is andrew james. thank you for joining us this morning. let's start with the china

portion of the picture. how much is that weighing on the current action that were seeing, specifically in steel and iron ore? andrew: hi there. iron ore has been following sharply since mid july, down about 35%. that's mainly due to beijing wanting to curb pollution and omissions from the seal sector. the first half steel production actually set a record. the expectations are now that steel production is really going to have to drop a lot in the second half. that's being reflected in the iron ore price. it's also running into a bit more of a headwind now with the intensifying campaign to rein in property prices. manus: interesting. delta has played a part in the psychological shift as well. property transactions down 30%.

the overreaching arm of policy is common prosperity. that resets our landscape about this frenzy in housing in china. andrew: that's right. beijing is accelerating this campaign to rein in housing prices. we've seen local authorities falling in behind it. we've got shanghai boosting. some cities delaying land sales. what some people call the holy grail in chinese economic policy is the property tax. that's been batted around for a decade or more. there's rising speculation that this could be the time that beijing goes ahead with it. it would kill two birds with one stone. xi jinping has been talking a lot about reducing inequality.

they want to rein in credit risks and property tax would do that. dani: given that we are seeing a stronger dollar out of the u.s. with the fed starting to look at tapering, does that mean that the center of gravity is going to continue to pull down on these commodities? is that where we are expecting the direction to continue? andrew: yeah. i think that's right. certainly with iron ore. steel perhaps as well. some of your previous guests have alluded to, some of these commodities that are important to the trend -- energy transition still have a very constructive longer-term backdrop, given that copper is used in both solar, wind, and electric vehicle charges. that's the phenomenal growth at the moment. i think we will see a general downward pressure from china. the green meadows should still

do ok. manus: thank you so much. our asia entity commodities editor andrew james. (announcer) looking for a better way to lose weight and feel good? how about the one with the 98% success rate and the more affordable weight loss solution? that's golo. there are no monthly fees and it's guaranteed to work or you don't pay. how can golo offer all of that? because it's not like any of those diets you've already tried. it's the new way to lose weight. no stimulants, no starving, just results. results you'll keep for life. no more sacrificing to lose weight only to put it back on. no more sacrificing, period. it improves your lifestyle and delivers incredible results. with over 2 million satisfied customers, golo is the new way to lose weight. this is the only program i have ever done that i have never deprived myself of anything. (announcer) if what you're currently doing to lose weight isn't working,

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by christmas? quits hopefully even sooner than that, but of course, i don't really know. it is really hard to predict how they are thinking about it. >> good morning from bloomberg european headquarters where this is "bloomberg daybreak: europe." tilting toward tapering. most analysts see the federal

bank slowing easing. commodities crunch. beijing pushes to cut steel output and reign in house prices. in the tech crackdown weighs on equities. and the imf blocks the taliban from using assets just days before kabul is set to get $5 million. in the fomc minutes, there was consensus it is time to start tapering. we have seen the dollar pushed to its highest since 2020. our guest in the last half-hour saying the market cares more about the timing of rate hikes and not necessarily tapering, which is consensus at this point. manus: yeah, what kind of tape or timeline do we get? i asked our guest about getting

the taper done, and yet, bullard talks about rate hikes by the end of 2022. our guest, not me, says never listen to jim bullard. i will leave you with that. that we are in preseason game and really what you see is actually a little bit later, so the preseason game has begun. september or november is the most likely time. it is the latest set of fed minutes. officials agreeing they could start to taper later this year. let's get to the chief u.s. economist of peers lumbar.

you gave a very sobering and refreshing reminder -- great to have you with us -- the focus on the taper is often misguided and misplaced. you think we are misplaced. you say the fed impact will come from average inflation targeting and ending the dollar policy. have we run away with ourselves? good morning. >> yeah, good morning. for good evening for me. i think we have gone way too far on this taper thing. the other side of taper is what is happening to the deficit. the fed is buying $1 trillion. even if they go to zero by the middle of next year, you are still going to end up with a taper that does not put the onus

of financing with what is going on with the deficit. taper is not going to tighten financial position. everyone is focused on taper, obviously, because it means a hike in the funds rate, and here is where we take the fed at its word, but they are really going to lag in terms of funds rate. the market is going to have to learn to trade in real curve. dani: if we are in a world where the fed is trying hard to disentangle the rate, does the

fed then hedge towards a position where they are making a policy error? >> no, it is not in ever. it is a market error. the fed may err on the side of doing less rather than doing more. we never said we would ease less, just not tighten too soon. they are going to have a hard time teaching the market that they mean it when they say a hike a year, it may take 2, 3 years to get where they are. the economy has to work with them in order to do that, but they have already laid that out.

and a 2.5%, 3% inflation rate environment, rather than as we get close to 2%, you have to start to taper -- i'm sorry, start to tighten. and we have been here before, but we have been here before where the market keeps trading through different realities, and that will be the curve over the next several years. manus: we are not trading the green era of 25 bits every time you blink and go off for a week holiday, and you come back and it is at it again. what is the shape of the curve we need to trade? i take it from what you have just said to mean you expect a lower if not quite a bit lower terminal rate maybe than the

market has assumed of the moment, so give us some numbers. >> it is not so much a question of the terminal rate. it is going 5, 7, 10 years out, right? what i'm really talking about this if they are lagging, you get to the point where the market tends to believe the fed is right on curve, and rather than get the flattening we have seen today, you start to do this taper. standard knee-jerk reaction, but as you go forward in the economy , the real economic expansion starts to take hold. the real expansion of the cycle starts to take hold.

the structure of rates will slowly go up. the fed is going to have to manage that, and this is where -- we were talking before, and i think correctly so, talking about a policy error. the fed has put itself in a position where it is going to have to manage this by managing the quantity of assets on its balance sheets. and that is a very difficult thing to do. dani: if the mantra from powell is do no harm, in wyoming, what does powell not want to do or say to upset markets at this point? >> first of all, i think there's a good chance he will talk about what i just said, that they are going to err on the side of caution and having a high inflation target means they will be less quick to react in

anticipation of high inflation for all sorts of good reasons, right? and part of that, which would be unsaid, is not putting the bid on the dollar. the dollar gets traded by a lot of people at a lot of different rates and a lot of different policies, but the fed has to be putting their bid on the dollar. i think the other aspect he will talk about, and i think he was sort of -- not headline, but telegraphed a little bit is he talked about cryptocurrencies.

the fed has a big study due to come out in september. their work on creating it with the central bank, but it is a big report. the fed is very involved, and it would not surprise me if cryptocurrency and its role in the financial system and the risks of cryptocurrency and the financial system are not part of the jacksonville speech and that he leads the official announcement -- i said in july -- they announced back at the july meeting, but in the mid-september meeting, you are going to get the official announcement in september. manus: can i ask you very briefly, but before you go -- we are up against a time bar here

-- we have a strong dollar, king dollar. how comfortable do you think the treasury will be with this strong dollar? i don't think they have that capacity at the moment to reprice the dollar, but i don't know what capacity they have two reprice the dollar. is there any comfort with a stronger dollar? >> i think to risk, but there's not much they can do about it. they have set a policy that does not allow other central banks to move like the ecb, to pin their currency cheap and run with a huge net surplus in their current account. the only thing the fed can really do is stick to the zero

bound itself for as long as possible and let markets understand that the cost of that is higher inflation, but they are willing to accept that. dani: thank you for staying up to join us. what is it -- 2:00 a.m. over there? >> 1:41. dani: thanks so much. now let's get to first word news. annabelle: the u.s. is offering booster shots to all vaccinated adults from september 20. the move is a massive expansion of a program critical for those with weakened immune systems. the u.s. is facing a new wave of covert infections, primarily among the unvaccinated. the claimant can represent some

46 million u.k. consumers. the case stems from an eu ruling that mastercard fees were unfair and a breach of competition law. the american company says the claims are serious and says they are being driven by lawyers. global news 24 hours a day and on bloombergquinttake -- bloomberg quicktake. manus: coming up on the show, president joe biden says chaos in afghanistan was unavoidable. -- up next, the latest on afghanistan. ♪

>> the chip shortage, already the action has been taken by our buyers, and this will also go away. if this will go away in a short term, i don't think so. if it will continue in long-term, i don't think so, but it will continue in the short term. manus: nissan's coo talking about supply issues. we understand toyota is going to cut global output by 40%. they say it is the delta rising across southeast asia. 900,000 was the number they announced in july. that gives you around 500,000 cards. delta has collapsed production

numbers for toyota. delta is bottlenecking the world. what impact will delta have on the fed? dani: absolutely. mentioning fomc minutes before it even had an impact on the chip sector. that is such an important question. let's stay with that semiconductor shortage. the largest chipmaker has topped estimates on the second quarter, but nvidia is warning its bid to acquire arm is taking longer than expected. ed: nvidia continues to see strong demand from gaming and data centers. gaming revenue surged 85% in this quarter to more than $3 billion. he gave a rosy outlook for the current quarter as well. that demand is still there. demand is greater than supply according to nvidia. the chip shortage is here to stay, at least into most of next

year, 2020 two. nvidia has a business model -- nvidia says it has been able let leads to secure enough supply to meet its growth targets. nvidia says it is still confident the deal with softbank will get done, but it is pending regulatory approval. nvidia acknowledged that talks of global regulators are taking longer than expected. they also acknowledged the grievances with licensees including intel and qualcomm that are competitors of nvidia. we know chips for crypto mining have used it the bottom line in the top quarter and had an effect on the last quarter.

manus: the latest update on nvidia and its bid to buy arm. president biden has said he will withdraw all americans from afghanistan even if it takes longer than the original august 31 deadline. >> the idea that there is somehow an idea to have gotten out without chaos -- i don't know how that happens. dani: the president defended his decision to leave kabul as the taliban advanced. >> that was a failure of the government leadership and also political failure of the international allies.

this is a failure of the peace process that changed to a war process. manus: the blame game ratchets a little bit higher. let's get to our reporter. donnie says he is in talks about a return to the country. does he really still have any leverage at home or globally left? >> i think he is hoping to get leverage.

he was avoiding being hanged the way the former president of afghanistan was. his leaving was a surprise to all afghans. he hopes to cut back in order to work at home. dani: thanks so much for bringing us the latest. we will have to have you back on . coming up, china pledges to curb steel production. we see iron or futures trade at the lowest in eight months. we will discuss commodities

next. this is bloomberg. ♪

dani: welcome back to "bloomberg daybreak europe." let's get another check on commodities. they continued her head lower this morning. you have king dollar, china impact, but all of that translating to an iron or price falling more than 6% -- they continue to head lower this morning, translating to an iron ore price falling more than 6%. manus: a very prescient warning given about the china regime view on commodities. that performance today. iron or plunged on the back of

stern tax from china, stern cuts on steel output. delta, china' a slowdown and regulation, more regulation behind these markets in china. dani: manus setting the scene in terms of what is dragging prices lower. how do you see the balance of risk as it portends to the direction of travel for commodities here? mark: lower. everything is turning pretty pear-shaped in a hurry. as we said yesterday, our colleague in london, we were looking for a risky moment, and this is just the start of it.

in the background, these risks were building. the warning from china has been coming for a while. really, now, it is tumbling into equities as well. you just saw the headlines about toyota. suddenly just before the close of the japanese market, there was a headline that toyota was chopping the japanese market. we got red across the board in asia, so you can tell that europe is going to inherit an extremely sour mood, and there does not appear to be anything much on the horizon to shake them out of it. manus: and that is quite a profound call. we could be looking at a minsky moment in these markets. we are going to struggle at the open, certainly in the commodity

-heavy london index. all the big oil trading there, shell and bp as well. dani: you see european futures already off by about 9%. that is it for us. european open up next. ♪ so many people are overweight now

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welcome to "bloomberg markets: european open." i'm francine lacqua in london. our cudmore joining us from singapore to take us to the market action. the cash trading's less than one hour away. tilting toward tapering, most see the central bank slowing bond purchases later this year. bullard wants the taper over by the first quarter 2022.