tom: good morning from bloomberg 's european headquarters. i'm tom mackenzie. this is "daybreak: europe." ecb policy makers sparring over ending stimulus amid a rise in inflation. stocks are mixed as we position for the u.s. jobs report. chinese taxpayers some gains as ride-hailing companies come under criticism.

we will hear from president xi jinping. opec plus sticks with plans to supply hikes. perspective from -- of energy aspects. i want to bring your attention to the positioning of two of the biggest, most important central banks. a terminal chart showing what is happening, in terms of a yield differential narrowing between the pboc and the fed. when it comes to the benchmark, the u.s. 10 year and chinese 10 year. chinese 10 year 280. the u.s. 10 year at 130. not near the 70 highs we got earlier for the u.s. 10 year. but those of you coagulating coming to the idea that 150 is what you get come the end of the year. china is different. pboc pumping about $40 billion to $50 billion into its banking system to support sme's.

that is playing into the bond space. 280 on the u.s. benchmark. that is one to watch when it comes to money flows. technology in focus when it comes to the chinese story. let's check in on the markets. some tech shares have been paring stronger gains. there is a view the regulatory button is coming to play. we will listen to see what president xi jinping says today, whether he gives us more information on the direction of travel. we can also look at what is happening across the mse are asia-pacific. in terms of the futures. lacking in direction. a mixed close yesterday. a bit of strength yesterday. currently up 118. oil, $56 a barrel. it is down following that decision by opec bus. the euro, economic rebound and

surging inflation sparking debate among ecb lec makers about when to begin -- ebc policy makers about when to begin an exit. due to the spike as transitory. some worry the altar lose policy runs for too long risks allowing the situation to get under control. the president weighed in on intensifying debate and ahead of the policy meeting next week. >> we should also not ignore the risk of excessive inflation. consisting uncertainty, we should not set in stone this policy stands for too long. tom: joining us is wei li from blackrock institute. the markets, do they need to price in a more hawkish ecb? >> i think any discussion around the tech program, tech emergency

services program, should be viewed as operational. because there will be questions around what will happen when the program expires in march next year. in our view, the asset purchase program still needs to be stepped up. even though in the near term we see the transitory spike in europe, as we have seen inflationary prints, in the medium-term, the forecast will we will see the medium-term inflation to be materially behind, materially below the target of the ecb. it would warrant greater easing over the medium-term. if that should be compared with the fed, where any kind of a near-term spike in inflation can contribute to where it is not forecast -- indicating the framework. they could let bygones be

bygones, which is my medium term inflation below target should warrant greater easing, and is one of the reasons why we are overweight european assets at this juncture. tom: that is one of the reasons you have upgraded it. what are the factors supporting that view? >> in our view, at this point of the global restart story, the momentum is really frozen in out to other parts of the world, especially in europe. we see a ton getting passed over to europe and the likes of japan. at the same time, the macro story reflected in the micro side. earnings outward, ratio in europe very quickly catching up in the u.s. because of this tactical shift of momentum, we have upgraded

our european asset view from neutral to overweight while moderating our view on emerging-market equities. u.s. equities are overweight to neutral. tom: when it comes to europe, is it a cyclical play? a reopening play? >> it is very much a cyclical, technical play. we have yet to make the big -- longer-term preference for europe. in the near term because of this passing over, passing of the baton, we think european assets extend to benefits. to make that longer-term to feel comfortable with the structural challenges european markets have faced over the years. and a bigger call in our view. technically, we are comfortable with our overweight in europe. we do see the restart story has further to play out.

especially as vaccination progress really starts to catch up. tom: you touched on the fact inflation is behind the target. to what extent are you focused on wage growth in europe and of the question whether it puts margins in peril? >> the rate points, there is a certain stickiness in some of the wage growth we have seen coming out of the crisis, especially in sectors that have really come under capacity constraints. inc. about the margin evolution. the story in europe is also the story in the u.s. over the years, margins have enjoyed significant expansion, thanks to low interest rates, low tax environments, globalization leading to costs being cut at a certain level. but all of that coming under

pressure. and we have bigger questions around them. if you think about the environment of where tax is heading, where cost production dates, thinking about travel for globalization. also, the loan rate environment. we cannot take it for granted forever. all of that raising questions around evolution. recent earnings .2 margins close to record highs in the u.s. we wonder if this can continue. right now, the trend is strong. some questions -- we have a nest -- tom: you tied in rates. high yields generally good for the financial sector in europe and elsewhere. bond yields have been edging up gradually. are they capped at these levels, given your view on the need for additional support? >> the fact that we do see

european restart, momentum catching up, still behind where the u.s. is, in terms of how long it will take for europe to get back to pre-pandemic growth levels and pre-pandemic growth trends. the u.s. has caught up with pre-pandemic levels, yet to catch up with pre-pandemic growth trends by the end of this year. europe is behind this. think about inflationary, it is also behind that in the u.s., in our view. in our view, the low rate environment in europe structurally, the support from ecb is here to stay. as a result, we see bond yields grinding higher in the near term, because of the inflationary pressure. ultimately, the magnitude will be capped because of where

europe is structured. tom: switching focus to china. you are neutral on chinese equities. we have seen the pboc providing more funding for banks to support sme's. a mixture of data out of china causing concern. what do you need to see to change your view fundamentally on chinese equities? >> currently, neutral chinese equities. strategically, we are overweight significantly in the allocation of global investors to the chinese equity market. in the near term, for us to be more positive, overweight chinese equities, we have to be comfortable we have seen peak red glittery in terms of regulatory clampdown focus. maybe we are getting towards it, it is not entirely clear. our neutral tactical overweight -- tactical view on chinese

equities is considering the fact that while the market has come off of a lot, the earlier year peak, everything else being equal might be better valuation looking better. but because we want to price in greater equity risk premium and earnings growth reduction, we are keeping our neutral real. it is a nontrivial decision, given a wide range of factors playing out. we want to feel comfortable peak regulatory is behind us. now we see easing coming to that. tom: two catalysts, peak regulation and easing. certainly some fun flows from foreign investors into the chinese markets. wei li stays with us. we will discuss all things u.s. in the next couple of minutes. let's get the first word news with simone foxman.

simone: new york and new jersey have declared states of emergency due to record-breaking rain. the remnants of hurricane ida pummeled the region. central park got three inches of rain. new york and new jersey got 6.4 inches in three hours. roughly the equivalent of seven weeks of average rainfall. halted train services, down trees, and swamped streets. of the u.s. supreme court refused to block a texas law outlawing most abortions after six weeks of pregnancy in a 5-4 ruling. it marks a watershed ruling allowing a law to stand at odds with previous rulings that protect abortion rights, though much later in pregnancy. the order hints of the conservative court may be ready to overturn the landmark 1973 roe v. wade ruling. apple is asking all u.s. employees to report vaccination status. they are telling workers to voluntarily declare if they have

been inoculated i september, regardless of whether they are working remotely or from an office. unlike several tech sector peers, apple is not mandating vaccines. it will use vaccine data to inform its covert response efforts and protocols. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: simone foxman. coming up, assessing the economic recovery. investors await the u.s. jobs report out friday. we discuss the u.s. economy, a tapered timeline, and inflation. that is next. this is bloomberg. ♪

tom: welcome back, this is bloomberg "daybreak: europe." i'm tom mackenzie. investors are looking ahead to the u.s. nonfarm payroll reports as they assess when the fed may begin tapering. data showed companies added fewer jobs than expected in august, reflecting persistent hiring challenges and suggesting a slowdown in the labor market rip every -- recovery. wei li is still with us. what number are you looking at? is there a specific number when it comes to nonfarm payrolls that would change your positioning when it comes to the u.s.? >> i think the near term from month to month, we need to worry about the choppiness of data coming out of the communique in

this unprecedented environment when supply and demand are coming back online at even paces. we will see very choppy numbers. i would encourage it to rise above the monthly month-to-month reading, and recognize the labor market is making progress, enough progress to warrant a taper later this year. and our expectation at this juncture is for tapering to be strong in september, be announced in november, and start by the end of the year. i think the strong number this friday will take away for that happening. even if it is below expectations, there is more awareness that a month-to-month can be very choppy. as we have already seen with the

payroll numbers, inflation numbers. one thing to be aware of is tapering really needs to make the distinction that it does not automatically lead to a lift, and taper tantrum -- which we have affected the market environment. robust enough for us to have a reasonably digestible taper experience. tom: of course, part of that consideration for jay powell and the fomc is the evolving situation around the delta variant and the pandemic more broadly. the market seems to be saying it is a risk. are they right? >> based on what we have seen so far in highly vaccinated countries, the delta variant has represented a delay, but not a derailment of the restart.

the vaccination remains to be reasonably effective toward serious illness and hospitalization. that is the underpinning reason for a stew feel reasonably comfortable, especially around the progress of the restart story in highly vaccinated countries, including the u.s., the u.k., and europe. the story is somewhat different in less vaccinated regions and countries, such as the emerging markets where they previously perhaps could be viewed as seemingly in control of the virus lockdown situation. but the delta variant kind of takes over. there are bigger questions around how much of a delay it would be for some of the lesser vaccinated countries and the long-term scarring. this is why there is a broader

preference for developed market equities over emerging-market equities, because of this delta variant and covid uncertainty. fundamentally, our view remains that vaccination and the delta variant and covid development represents a delay rather than a fundamental derailment of the overall resource stories that would look to, including emerging markets, to catch up and gradually come back out over time. tom: i want to switch focus to u.s. bonds. we talked about at the european space earlier. treasuries, u.s. treasuries are trash, that is the word bill gross, the bond king around fixed income has laid out for his views. the only direction for yields is up. do you agree? >> i increasingly hear fixed

income investors looking to equities as a place to allocate. from my perspective, agreeing with the observation that tactically, direction of travel is underway in the u.s.. obviously not a straight line. given the disconnect we are currently seeing between robust fundamental stories, we believe it would gradually climb higher to close the gap, close the disconnect. and because of the fact policy framework, we think going higher would be slower to respond to higher inflation. ultimately, we still see real yield to stay in negative territory for an extended period of time.

that together with above trend growth is very important mix for support for risk assets, which is why we are comfortable, even at this juncture, from markets going strength to strength equity performance to still hold equities, to still hold in markets. tom: remain invested. the backdrop of negative real rates for the longer-term and gradually rising yields supports an important analysis. thank you for joining us, wei li . coming up, the countdown to the german election continues. we break down the key coalitions and what they could mean for economic policy. this is bloomberg. ♪

>> one of the jobs of an

international bank is to comply with complex laws and sanctions laws wherever they are implemented. that complexity has increased. but we will navigate that, as we have done so far and will continue to do so going forward. tom: hsbc ceo noah quinn speaking to francine lacqua. you can watch the full in schools of -- exclusive interview starting at 11:00 p.m. london time. starting at midnight friday london time, clips will appear on bloomberg television and bloomberg radio, among other platforms. turning to germany. just three weeks out from an election that will change the political landscape in europe's largest economy. as we near the end of angela merkel's time in a power, the focus turns to what kind of government we could see postelection. maria tadeo is in berlin. what are the different coalition

options gaining traction at this point? >> how much time do we have to go through all of this? mathematically, we have five different parties that could join in the next government. it is an election that is incredibly open. there are many different formations that can come up after september. today, i want to focus on towo -- two specifically. these coalitions are making headlines in germany, but taking the spotlight when it comes to the political debate. you assume the spd will win the election in about three weeks time. he will have a range of possibilities. he could turn to the liberals, the party of christian lintner. and the more market friendly, perhaps. also market letter policies. you could have the traffic light coalition. this is the greens. the free -- the spd. you can also have the greens on that front joining, too.

if it doesn't work, he can turn to what is represented as the green, green, red coalition. that means greens, but more far to the left parties here. that is being presented as an option that would not be the most market friendly for investors. it could potentially go for bigger tax hikes. a lot of it will depend on the outcome of the election and polling. what is clear is the next chancellor will have a difficult job. it is not just about governing with another rival or a two party coalition, but heading into a three-way government. tom: maria tadeo with an update on what some of those different combinations could mean from the back of the political run. the election on september 26. christian linda willoughby speaking to bloomberg ahead of the election as a three party election becomes likely.

the liberals may play a key role in building the first post angela merkel government. opec-plus stuck to its production schedule yesterday. the group betting the global market can absorb the additional supply as demand improves.

>> good morning from bloomberg's european headquarters. this is "bloomberg daybreak: europe" and these are today's top stories. ecb policy makers spar over ending stimulus amid a rise in inflation. global markets position for tomorrow's u.s. jobs report. chinese tech pares some gains as ride-hailing companies come under criticism. and opec-plus flips the script

with plan supply hikes. oil dips. we will get perspective. let's check on the data. a lack of direction coming through asia. u.s. futures are pointing to slightly lower oil by close to 0.4%. following that opec decision, 400 thousand additional barrels a day. the euro-dollar is essentially flat. comments from the likes of the german bund is bank -- bundesb ank. let's get to the opec story. opec-plus has stuck with a plan to boost crude oil production, wagering the global market can absorb additional supply as demand improves.

ship tracking data shows the global flow plunged last month. this is raising questions abo individual nations' ability to raise oil supply. the first person we wanted to speak to on the back of this meeting. the amount of time they spent discussing this, just one hour -- the harmony around opec-plus, do you see harmony? >> for now, definitely. felt a bit like everybody is in holiday mode. seems like an end of august, early september meeting. i think the harmony is very good right now. there was some concern. there were definitely concerns about covid cases rising and

demand being lackluster in asia, potentially the u.s. as well, but with rent up $72 -- brent at $72, a pause was not something they would have gone ahead with. i will say, coming winter, if demand concerns are still there, i would not rule out. for now there is harmony. tom: all of it interesting, but the fact you could get this at some point in the winter, giving themselves optionality, where to market fundamentals stand? -- where do market fundamentals stand? >> china has come out of covid very quickly. even by our expectations. restrictions are using. oil demand is rising.

southeast asia has been the drag and now the u.s. i do think the market is pretty delusional right now with what is going on with hurricane ida. we have lost an enormous amount of hydrocarbon production, combined with upstream plus refining. the market is confused because of the damage. i think that does give opec some leeway. even if you are losing demand, you are losing production. that could help balance the market, even come november if demand has not picked up as materially as they hoped for. tom: there is a view from opec-plus you're going to be getting a surplus as soon as january. you do not agree. you have been downgrading production outlooks. run us through that. >> the main point, and you

mentioned this, is the ability for opec members to raise production is really in question right now. west africa in particular, but even some middle eastern opec members have not been able to raise production. even russia, where there is a lot of focus, if you look a much production has been going up, it has been flat, around 10.4, 10.5 million barrels a day. people are talking about 11.78 for russian production next year. they have never done those kind of numbers. that is where i think these are based on unrealistic expectations for next year's numbers. the secretariat is calling for one million barrels. we have to be flat balancing for next year's numbers. that is where the baffling thing is. of course they have to say every country will raise production per quarter. the reality is very different.

tom: voices out of tehran talking down the prospect of a near-term deal. when should the markets are pricing in additional uranium production? >> this is the most interesting thing. we are calling for -- including uranium later this year and all next year. opec balances have to assume iran stays the same. i agree the timeline continues to get pushed back. for now we are assuming later in the year but we would not be surprised if that slips into 2022. clearly there is not any urgency compared to earlier in the year when we were expecting by july. tom:6 you talked about pricing around the sweet spot. does that level maintain and be sustained until the end of the year?

>> i think so, especially -- hurricane season, there is more to come. on our calculations, net hydrocarbon loss could be 40 million barrels right now. prices should be higher going into year end. natural gas prices are soaring and that will boost demand in places like bangladesh, pakistan, even japan. when prices are this high, they will switch to burning fuel oil. that is another thing for the market to focus on. tom: high prices from here. don't assume opec manages to get production up to previous levels. always a pleasure. let's get the first word news now. >> hospital admissions of covid patients in the united states

are declining for the first time since late june. it is a sign the latest surge may have peaked at least for now. the national decline is driven by falling numbers in recent hotspots, florida, texas, and the deep south. new york and new jersey have declared an emergency due to record-breaking rains as the remnants of hurricane ida pummeled the region. central park got three inches of rain within one hour. new york airport and jersey got 6.42 inches in three hours, the equivalent of seven weeks of average rainfall. the flooding halted train services, downed trees, and swamps streets. paramount has delayed the release of a top gun sequel into next year as hollywood continues to wrestle with the pandemic. the film, starring tom cruise, was expected to debut in november and will instead be released in may exclusively in cinemas rather than a

simultaneous release on streaming services. shares of netflix rose to their highest since january on the announcement the platform will be streaming seinfeld starting october 1. the debut of the famous show about nothing has been long awaited. netflix owns the rights to all 180 episodes in 2019 and bloomberg intelligence writes the shows arrival maybe a key catalyst for future user growth. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: coming up, china's debt rally is under threat as the government summons 11 car healing companies for disturbing fair competition. ♪

tom: welcome back. this is "bloomberg daybreak: europe." and announcement at a time of rising global antitrust and google's dominance on mobile platforms. the bill was passed in south korea and the u.s. justice department may file an antitrust lawsuit over google's digital ad practices as soon the end of the year. joining us now is peter elstrom. peter, what are the details around this move by apple?

>> as you say, apple and google have been under pressure globally for their practices within their app stores. they take hefty fees. in the case of apple it is often 30% for many of the apps, and then in-out purchases. -- in-app purchases. we got news out of korea that had been expected. in this case, the japan regulators were investigating apple and they were looking at these practices. as part of that settlement, apple agreed to let these app developers let their users make these purchases, and they decided to make this a global practice, a bit of a surprise, and could really open the door to some avoidance of these big

fees which customers have been paying. tom: potentially longer-term important for that space. in terms of google and this threat, how seriously should investors be taking that? >> google has been under scrutiny for a long time about how it uses these practices. the regulators in washington are serious about going after the company for practices they deem as taking advantage of broad power it has within online advertising markets. it is similar to the power facebook has. regulators are very serious and it looks like they are coming back to take another run at google. tom: bloomberg's peter elstrom, thank you very much indeed. let's check on this terminal chart illustrating what has been happening with chinese big names listed in hong kong.

you have been seeing this sharp leg up, the view now starting to be that possibly be have hit a bottom in terms of the regulatory crunch. it comes down to implementation, but many of these companies are looking attractive when you look at balance sheets and the fact they have such dominance in the chinese market. chinese firms are rushing -- we have been charting this. as companies learn to live with the new era of regulations, the president of hong kong stock exchange sees other companies following china's lead in regulatory reform. >> it is a regulatory process i would expect it will be a long march. not only in china, also around the world.

whether it is the data, the privacy of information, national security, issues of how to regulate companies that have monopolistic powers, these are things we will continue seeing. tom: that was the hong kong exchange ceo. john, what are the details? what are we hearing from these chinese companies trying to pay lip service? are they doing more than that? around this prosperity theme president xi keeps pushing. >> it has become clear that common prosperity is this overarching ideology xi is using to run the world's second-largest economy. companies are falling in line. everyone sees where the future direction of travel is going. they want to get ahead of that. you have seen this happen in the sense of tencent, other

companies putting more money into their philanthropic activities. that is to show these companies are backing what the communist party wants to achieve. tom: to what extent does it shelter them from further regulatory scrutiny? >> there is an obvious pr government relations benefit. i don't think it is going to resolve any of the ongoing issues companies have with regulators, but just today we had the 11 companies on a call to tell them to fix their problems in terms of anti- competitive behavior. i expect regulation to continue tightening the matter what these companies say.

tom: what are you and the team going to be looking for? >> we expect president xi to try and take a more reassuring tone. obviously markets, investors, businesses have been taken aback with the flurry of activity in regulation that has taken place. this is meant to help lure more investors, more business, to china. it is an opportunity for xi to ensure that china continues to be open. tom: looking ahead to that speech by xi jinping. moose by chinese corporates around common prosperity. let's check on the futures before we had to break. european futures lackluster, lacking direction.

in terms of the ftse 100, flat. coming up, the latest ftse 100 shuffle. what does this mean for the u.k.'s efforts to nurture technology companies? we are going to discuss next. ♪

tom: this is "bloomberg daybreak: europe." the latest ftse makeover has been announced, reshuffling the u.k. benchmark index. morrison's will join the ftse 100. booted out our takeaway.com and weir group.

what did the changes tell us? let's pull in craig. what are your assessments of the changes? >> it is a football analogy. there are allegations. they happen on an ongoing basis. they happen every three months. this instance, the index can stay current. this was odd and that -- in that the additions are basically driven by m&a inflated market caps. they are certain to come back out again before long. rules are rules. it just seems a bit unfortunate in the sense that -- in the

nature of the changes. tom: we love a football analogy. you're talking about the oddness of this. they take out one of these tech companies. what did you make of that? >> there are a couple of elements. number one, taking out just eat, which is a pandemic play, which arguably in the world going forward will be less so in terms of where it stands, it is not like it is semiconductors. or software, per se. i'm less worried about this pet -- this technology name being taken out. it does serve to highlight the scarcity of big tech in the u.k.. holland has its semi equipment,

sweden has telecom equipment. it is somewhat different in that the u.k. has real depth in health care technology, and i'm curious to see how this develops over time, but it is too soon to tell. as you said, the key is what happens longer-term post-brexit that will help or hinder. that is still unanswered. tom: one of the old school firms looking to shift its primary listing. >> in terms of the immediate impact on the index, assuming bhp meets shareholder approval, that is going to be much more significant. we have written an awful lot

about the ftse's low valuation, which stems from its uniquely large exposure to businesses like mining and energy and banks. the commodity companies like bhp always trade across peak earnings, which is where we are now. which is exactly why the ftse is so outrageously cheap. it just has to be. bhp's departure will slightly lessen this drag and increase the relative weight to more traditional sectors. whether health care or staples or industrials. that is not a bad thing. i do think that is an interesting, maybe more significant change to the index. tom: what is your outlook at this point for the ftse 100? the valuation play. still a good investment? >> our view on the ftse is

relatively constructive because it is exposure to a global economic expansion that sustains into 2022. it is not because of value. if you take out some of that underlying cheap sector stuff, the medium ftse stock -- median ftse stock is trading 17 times. it is not a cheap investment when you look at the rest of the index. it does have a earnings potential that we think continues to be underestimated by consensus. tom: thank you very much. tim craighead, bloomberg intelligence. asia, you have technology shares doing moderately ok in hong

kong. u.s. futures are looking a little lower. we are looking ahead to farm -- nonfarm payrolls out friday to give a steer on the fed's direction and timing around the taper. more ahead including the european open. european open. (announcer) back pain hurts,

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anna: welcome to "the european open." mark cudmore joins us from singapore to take us through the market action this hour. the cash trade is just less than an hour away. here are your top headlines. traders way the economic recovery after data overnight points to slower u.s. labor markets. investment garbage. talking trash about treasuries.