tom: good morning from bloomberg's european headquarters in london. i'm tom mackenzie. this is "bloomberg daybreak: europe." president biden and president xi speak on the phone a med u.s. frustration over dead-end talks with china. global stocks tick higher. the ecb slows the pace a bond buying but christine lagarde insists it is not a move to wind

down emergency stimulus. biden's vaccine mandate, he calls the unvaccinated a threat, and requires shots for federal workers, and pledging new rules for larger private firms. the presidents of the largest economies in the world picking up the phone for the second time to talk things through. there has been an impasse on how things are progressing with conversations at the highest levels. we have a chart showing what is happening on the trade front. xf:when president trump was in office, they wanted to reduce china's surplus with the u.s. that has not happened, the export machine in china firing on all cylinders. you saw that with the august data. almost $295 billion of exports, the biggest market remains the united states despite tariffs on

hundreds of billions of dollars of china's products. china sees itself in a position of strength. in the trade picture, the strength of those exports mean china will see itself in a strong position. let's check in on the markets because the china story is in focus. the s&p walking back reporting yesterday, they have moderated that report and it has led to a pick up in tech stocks listed in hong kong. across the broader asian market, the msci sees gains, two point 7% gains for tech in china. after a negative close in the after a negative close in the u.s., 3% upsi>y1@w u.s. futures, there is a grappling concern about the delta variant. the euro-dollar is 118.31.

let's get back to the top story and china. joe biden has called xi jinping over his frustration with dead-end talks. it was the second call between the leaders and comes at a time intention between the relationship. biden hopes personal engagement will advance cooperation. from your perspective, what is the importance of the call, and what was the aim as we know it from our reporting out of washington for president biden? >> they are talking, that is good. they had a call in february after biden became president, but nothing since then. joe biden sent lower level -- no disrespect to john kerry -- lower level officials to talk to the chinese.

they have had fairly unproductive talks. those highlighted more of the differences and the dustups that left a sour taste in joe biden's mouth, because he thinks he can probably get these talks and relationships back on a more serious level by appealing to xi directly. the white house initiated the call. it lasted 90 minutes, to unpack the serious issues. from most accounts, these were candid and direct and straightforward talks over a host of issues. those that divide the countries, and issues that the nations can cooperate on. this is not a reset in the

relationship between china and the united states, but it is a start. we have to see where this goes forward. chinese state media says they would like to see more regular dialogue between the leaders. that is where we stand now. nothing substantive came out of this talk that we can decipher other than an appeal between the leaders of these nations that have continued talks, to air grievances, and find common ground. tom: just the second call, and an important 1, 90 minutes total. joining us is tatjana greil castro, co-head of public markets / portfolio manager, muzinich & co.. thank you for joining us bright and early this friday morning.

in terms of how the market should be looking at the china risk when it comes to geopolitics seems to be put to one side. other events are dominating our attention like the events in afghanistan. our markets taking in the geopolitical risk? tatjana: i agree that it is good they are talking. the tensions really escalated over the tariffs under trump. china would like those tariffs to go away, at least be reduced. that could be a positive, because every clearly the u.s. is reaching out to china, and they would like to make some changes. it is a bargaining tool the chinese are lucky to use to put

pressure on the u.s., that whatever they agree to give could be an exchange of reassessing the tariffs, and to what extent they make sense. i think it could be a positive trigger for market. s. tom: there has been a lot of discussion whether china is investable. you heard from george soros and blackrock. what do you see in fund flows into the chinese credit space, and what are clients telling you? tatjana: on the credit side, and reflecting what we are doing in china, i can tell you it has been 12 months or so that the better quality part of the chinese market, a huge credit

market, was not issuing as much. the government tried to get companies to issue more within china rather than nationally. there was less opportunity to invest. you have the riskier part, that is currently in turmoil and mostly reflected in ever grande. it looks very likely that company is defaulting. probably with the help of the government, so it is not too disorderly, but it looks like there will be a haircut, and they are not paying the coupon, so that constitutes a default and has bigger implications on the broader chinese high-yield market.

tom: is that an entrenched view on exposure in china, or is there an element you would have to see to change the dynamics to allow you to get exposure? or is it an area of the market you would never touch? tatjana: it depends on the level of risk we are taking in different portfolios. with some, they are china and asia focused. and then the global portfolios where it is not crucial to be invested in china. we have pulled back significantly. sanctions last year are coming into effect in november, which is another point for the talks.

that means anyone related to u.s. persons cannot own a certain company, and that reduced our holdings significantly. clearly, more recently, a story from april has largely played out, and more on the equity side , and now with the gaming companies, there is clearly a lot of change in the chinese government and their thinking on what to support. when it comes to gaming, we have restrictions in western europe on gaming, but we do not see it

in terms of computer games. we do not see this as gaming. the chinese view with gaming restrictions in place, we think about slot machines or that sort of gaming. clearly, this is gaming that takes place in the house, some people spend hours and days on it every day. clearly there is a social component to it. tom: i was a witness to that when i was there for over five years. tatjana greil castro will stay with us. let's get the first word news. laura: fed president robert kaplan says they are selling all their stock holdings by the end of the month amid ethical concerns about their trading activity. the dallas and boston fed residence released nearly identical statements.

the u.k. wholesale electricity prices surged earlier this week as europe faces an energy crunch. it highlights the current extreme volatility in the market. a lack of natural gas supply across the continent, with record prices in spain, germany, and france. china released crude from its strategic reserves with the explicit aim of lowering prices. the announcement comes amid surging energy prices in china. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: coming up, christine

lagarde says the ecb will dig into the policy decision, and what slower bond buying will mean for the credit market. that is next. tomorrow, the 20th anniversary of the 9/11 terrorist attacks. bloomberg will have a special weekend coverage looking back on that momentous day. this is bloomberg. ♪

tom: happy friday, this is "bloomberg daybreak: europe." the ecb will slow the pace of its pandemic bond buying program in the final quarter of the year. it is a shift christine lagarde says does not amount to a taper. she spoke after the central bank's policy decision.

>> the rebound phase in the recovery of the euro area economy is increasingly advanced. inflation has increased to 3% in august. we expect inflation to rise further this autumn, but to decline next year. the new projections for the annual inflation are at 2.2% in 2021. we see the risks to the economic outlook is broadly balanced. what we are doing is recalibrating pep. tom: still with us is tatjana greil castro, co-head of public markets / portfolio manager, muzinich & co. thank you for staying with us. what for you was the standout point from this meeting, from the decision, and from christine lagarde? tatjana: two things stood out. she said she wants to keep

favorable financial market conditions, and what that implies really is with less supply, the sufferings they are issuing are at a new level. we continue to see fiscal policy , this is working together with monetary policy, and we should not forget draghi was always talking about wanting fiscal policy to be more expensive in helping monetary policy. now they are both working on the fiscal side. if you see how fiscal and

monetary policy are working hand-in-hand, that is good for financial markets. tom: very supportive to financial markets, does that suggest markets should not be seeing this as the start of a taper by the ecb? tatjana: [indiscernible] since 2013 with the taper tantrum, it had implications for the market. she used to work with calibrating. she did a good job. people are concerned of the communication may be confusing because this was a difficult communication exercise, and she did a good job of it. the expectation is that recalibrating is a slight reduction in purchases, but negative issuance.

the issuance is broadly matching the expectations that reduction would be around 10 million a month, and that will be in line with the issuance for the fourth quarter. it really is going hand-in-hand if it continues. december is going to be an important meeting. the implication is pep will be partially replaced with a more flexible purchase program. so as not to go from 80 billion down to 20, it will be more flexible on what the policy demands. it is matching fiscal and monetary policy, that is what we should be taking away from this. tom: that december meeting is

expected to be hotly contested as they discuss the implications as you suggested. in terms of the credit space, and we have a chart that shows in terms of real yields on high-yield debt in europe, we are in negative territory in the high-yield space. presumably the conditions for this negative real yields in the high-yield space continue if you have supportive liquidity and market conditions pushed through by the ecb. are you exposed to high-yield credit in europe, and you expect these conditions to continue? tatjana: those real yields are not just negative, that is a sign that everything else is negative too. you are right that we have to start on real terms.

negative debt is on nominal terms, and we should be looking in real terms and currency adjusted terms. the dollar, euros, to what extent it piles up and there is more negative yield. to your question, yes, it will continue to be supportive. and actually when you look at the spreads, yields are negative because inflation at the moment is higher and interest rates are lower, when it comes to spreads, they are close to historical lows, but they are not lower than historic lows. at the same time as economic recovery continues, we see next to no defaults. there is a low default environment that we expect it to continue. then really negative terms, so

many other terms are also negative or more negative. in relative terms, the markets look attractive. tom: important context from tatjana greil castro, thank you for joining us. coming up, biden delivers his harshest criticism yet at unvaccinated american adults. we discussed the rising african covid-19 variants that could threaten an end to the pandemic. this is bloomberg. ♪

pres. biden: tonight i'm announcing the department of labor is developing emergency rules to require all employers with 100 or more employees, over

80 million workers, to ensure their workforces are fully vaccinated. or, show a negative test at least once a week. tom: president biden announcing new measures requiring federal workers and millions of health care workers be vaccinated against the virus. those who do not comply could be dismissed, and employers could be fined. globally the pandemic could be at the risk of worsening due to variants in africa. in terms of this mandate, it seems like a dramatic step for president biden. how significant is it, and what issues is he trying to tackle? >> in this announcement, president biden is taking a hard stance to shore up the numbers vaccinated in the u.s. we have seen the rates of fully

vaccinated americans stall that 53%, and we are seeing the impact of that in the spreading delta variant in the u.s. and is hitting the recovery a little bit as indicated in the jobs numbers last week. president biden is taking a critical stance in his remark criticizing those who are unvaccinated and blaming them for prolonging the pandemic. in terms of responses to this, public officials have praised biden and this new approach. the business community are subject to this mandate, and those who do not comply could be fined thousands of dollars. they have taken a cautious approach, issuing statements saying they hope to iron out the details of the mandate. tom: the danger of new variants has long been a concern for scientists. what are researchers saying about the variants we are seeing in africa?

lisa: this is from a new study published where scientists looked at genomic data from several countries in africa and found that new variants have emerged. they say this is due to the low vaccination rates in africa, because many countries do not have good access to vaccinations. about 3% of the population on the african continent is vaccinated. with unvaccinated folks, you spreading, and it can evolve to create new variants which could be more infectious or vaccines would not work as well against them, which has the potential to prolong the pandemic. tom: coming up, easyjet shares take a beating as the company rejects a takeover approach. we will dive into the airlines

sector with daniel roeska, senior analyst, sanford c. bernstein. that is next. this is bloomberg. ♪ and there you have it— -woah. wireless on the most reliable network nationwide. wow! -big deal! ...we get unlimited for just $30 bucks. sweet, but mine has 5g included. relax people, my wireless is crushing it. that's because you all have xfinity mobile with your internet. it's wireless so good, it keeps one upping itself. switch to xfinity mobile and save hundreds on your wireless bill. plus, save up to $400 when you purchase a new samsung phone or upgrade your existing phone. learn more at your local xfinity store today. so many people are overweight now, and asking themselves, "why can't i lose weight?" for most, the reason is insulin resistance, and they don't even know they have it. conventional starvation diets don't address insulin resistance. that's why they don't work. now there's release from golo.

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>> morning from bloomberg european headquarters. this is "bloomberg daybreak: europe. president biden and she speak on the phone amid frustration over dead-end talks. the ecb slows the pace of bond buying but christine lagarde says it is not a move to wind down emergency stimulus.

and biden's vaccine mandate. the president calls the unvaccinated a threat, requiring shots for federal workers and pledging new rules for large private firms. the mood music changing in terms of these markets. wall street closed in the red. the mood has changed. japan is back in the green in asia. china tech stocks seeing strength around the changes and reporting on the ban on online games. it seems to be less severe than the s&p originally reported. futures are pointing up by about 0.3%. futures in the u.s. also gaining 13 points. easyjet shares closed down over $.10 with the company saying it

will raise $2 billion in a stock sale. daniel, what was your take on the attempted takeover of easyjet? >> this is one of the last big remaining options in the european space. there is very little network overlap between those airlines, which makes for good synergies as you combine them. it would have been a really interesting proposition. tom: what does the failure of this deal to progress tell us about future consolidation? >> it is a painful picture we have seen for decades in europe. it remains really tough because we have companies and management

teams and companies that like the airlines as they are and a different regulatory environment makes cross-border mergers not impossible, but tricky. in the legs of the majors, this is probably it. further down the road, the issue becomes -- although small airlines are much more heavily indebted than easyjet at this point. any buyer needs to consider the amount of debt they would be taking on. the answer is probably no. >> easyjet raising close to $2 billion. how much runway does this give them? >> it puts them in the same

league as ryanair. not having to worry about the ups and downs of viruses and variance. you have a new chairman coming. a new ceo on the board. it is their first step to say, before we go into winter, let's get the $1.2 billion, we will be better for it. a very long runway to w eather whatever is to come. >> how much of a gamble is it for easyjet going alone? are they in a position to look at their own acquisitions? maybe carving out market share at least from the leptons us of the world? -- leptons a -- lufthansas of the world? >> johan framed that he wants to

do this to have the firing power to do something. for airlines to do something means one of two things. it means -- buying more planes sooner, something they did not want to do. it is more designed to write the balance sheet and prevent further discussions with the rating agency. >> are there obvious stakes -- steps easyjet can take to close the gap? the gap has been widening between easyjet and ryanair in terms of not just passenger numbers, but stock as well. >> one thing they have done, peter bello who used to work for ryanair has gone through a big cost restructuring, more than we

ever see with easyjet. that is one thing that is not fully recognized, we are positive on easyjet. what they need to get back to is growth. a low-cost airline that is not growing will remain a low-cost airline for very long. did they have the audacity to go back and accelerate their plan next year? >> from your perspective, crunching the numbers, where are we in terms of the return of short-haul flights within the european space? how much work needs to be done to get back to pre-pandemic levels? >> we have our at -- we are at 70% of precrisis levels, where we thought we would be. the market has been more bullish the past couple months, and you have seen that in share price. investors are a little disappointed it is not better.

it is a little bit weaker throughout the winter. the next bright spot on the horizon is easter trouble -- easter travel and then the eastern european short-haul network has the opportunity to be at pre-covid levels. we will have to wait until 2023 until we are back at pre-covid profitability. next years fares will still be very low. good news for you and you going on vacation, not good news for airlines. capacity and number of passengers by 2022, profitability back by 2023. tom: as you are sitting there is an frankfurt, i would be remiss to not ask about german elections. in terms of the political risk facing the airline space, is this something that should be factored in by investors as well? >> the political risk out of

germany does not present a large headwind to airlines outside of germany. the main thing you see is that all four parties who may be part of a coalition have strong environmental agendas. that is something people have been expecting. that is not an addition. there are individual policy mandates that make intra-germany flying much harder or really clampdown on leptons a -- lufthansa. everybody has been expecting harder regulations. tom: i like the way you characterize it. this story is more than a eurozone story. thank you for joining us. let's get the first word news now.

>> the white house says president biden has a -- had a broad and strategic telephone conversation with xi jinping. the second ever call between the leaders underscoring frustration with what the u.s. calls beijing's lack of engagement with washington. they say the u.s. president wanted to see whether personal engagement could help advance cooperation. the ecb will slow the pace of its pandemic bond buying program. christine lagarde insists it is a recalibration that does not herald a wind down in stimulus. the bank will conduct purchases at a modestly lower pace than the 80 billion euros a month of the last few quarters. >> the lady is not tapering. what we are doing is recalibrating, what i will remind you is a pandemic

emergency purchase program. >> amazon will spend an extra $1.2 billion by 2025 on a package, including paying the complete costs of college tuition for employees. goldman sachs is dropping social distancing rules in its london office and returning to full occupancy starting next week. an internal memo says half of the bank's london workers are already in the office each day. it will retain mask wearing in common areas and mandatory testing. free food is also going, which goldman sachs says will support local restaurants. 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. tom: coming up, and energy supply crunch sends european prices soaring.

the challenges it presents for the continent. ♪

tom: this is "bloomberg daybreak: europe." prices for gas, electricity, and carbon surging across the continent. ireland is warning of a power shortfall that could lead to blackouts. joining us now, bloomberg's editor for gas and power. what is causing this energy crunch? >> to start with, the global shortage of natural gas, and that is all because of rising

demand after the pandemic. for europe it also comes down to last year, we did not have enough time to restock our supplies. if you are talking about power and the energy transition with increased renewables, that is making energy prices very volatile. it is a big risk of these price surges when there is low wind as there has been the past few days. tom: what are the potential impacts for this coming winter when demand is going to surge presumably? >> it could potentially get very serious. low wind. on top of that, it could get unplanned producers, the big

power stations in the u.k. for example, there might not be enough power. it might not lead to blackouts. it might be worst-case scenario. there are measures companies can take, but what is clear is this is going to have a big impact on consumers like you and me who are going to face really high bills this winter. it is also a big pain for factories around europe now having to deal with these prices just as they are coming out of the pandemic. tom: give us a sense if any relief is coming down the pike from nord stream 2. is that going to increase the supply? >> it will.

the pipeline will start close to europe into germany next month. it is still unsure exactly how much gas europe will get this year. it is unclear when it will be up to full capacity. it will relieve europe a bit. but it is very difficult to say what it is going to mean for prices. prices were still rising on wednesday. traders definitely are looking forward to more supplies, but the impact on prices, it is very difficult to say right now. tom: the potential impact on consumers and factories as we said in and around europe in the lead up to winter.

coming up from london to new york, offices were supposed to be buzzing, but several companies delayed their come back. we will discuss more next. ♪

>> 20 years ago it was a tactic. it was a tactic to get a strategic opportunity done and you may or may not do it. today it is actually an industry. there are firms in the business of doing m&a. they get given money, billion some of them, i think we will see a $50 billion fund in the next five to 10 years. they want to do transaction.

they also delegate down to junior talent like we are. so the biggest checkbook in the world 20 years ago was ge and now an m&a firm may have a bigger checkbook. >> you think we will see a $50 billion private equity fund? >> definitely. people forget in 2001 kkr did the big millennial fund, it was like $5 billion, and that was only 20 years ago. i think kkr reported they raised the $7 billion in the first quarter. capital into private equity, the attributes, i can't see why it would not happen. >> it is remarkable. >> have always known u.s. someone who will go anywhere and talk to -- i have always known

you as someone who will go anywhere and talk to anyone even if it means leaving thanksgiving dinner to catch a plane. what about china? do you agree with george soros that doing business in china is no longer morally justifiable because it is tantamount to supporting totalitarian regimes? >> no. and the reason i don't agree is not that i have some -- i'm a business person. there are politicians who make that -- the amount of business people that are getting involved in these issues, because there is only one side -- the reason it is an issue is because there's two sides. china is something our government should deal with. in my world, i try to look at business as business. i think there is too much pressure, way too much focus, on business trying to get involved in issues -- most of these

issues are 55-45 or 60-40. there are a lot of people who think there is clarity on what side we should be on and i think it is very dangerous. tom: the other key discussion in big banks is the return to work. the delta variant has upended the plan and many large companies have delayed their come back entirely. from new york and london, the return to office agenda differs widely. what are we hearing from the u.s.? >> we have to start with the u.s. because we had a lot of breaking news overnight. microsoft and blackrock, those delaying their return to work saying they don't know when it will be safe to return next month because of the delta

variant. meanwhile you have president biden saying for the larger players it must be mandatory to have the vaccine or have mandatory testing in place. bloomberg did a survey of 100 big employers and they found 53% of them still don't require the vaccination for their staff. even on wall street, which has been one of the most aggressive in trying to get bankers back to their desks. we see different stances here. the likes of jp morgan have not done so. >> hong kong taking a much different approach when it comes to covid and isolation, the three weeks you have to do it, mandated, hotels. causing a lot of problems for ex-pats. how are they doing with return to office? >> i want to take a look at our favorite index here which of course tracks the sandwich shales from -- sandwich sales from pret a manger.

they have been very strict, taking a very zero covid approach, isolating themselves really from the world. this has had backlash from business saying this could detriment their reputation as being a key financial hub. tom: ridership on the underground, it feels a bit busier's and the city of london. what does that mean for return to office? what can we gauge from this? >> a lot of activity picking up. on the london underground you have had your busiest morning going back all the way to march of 2020. we are still 50% below pre-pandemic levels. it does suggest a return back to desks. it can also be the back-to-school factor as well. i also want to point out a story for next week that we will be watching. goldman sachs will be returning to their offices at full capacity.

dropping a few of those social distancing measures. tom: ending the free food as well to support local businesses. vanke you for breaking that down for us. let's check on the markets. he change in mood after wall street closed lower. asia has picked up. japan is back in the green. chinese stocks are back in the green as well on the back of technology shares picking up, some change in the reporting and some walking back on the ban on online games. as far as futures in europe, they are pointing up by 0.3%. the futures in the green. euro-dollar at 1.18. the ecb saying that taper was

not a taper. christine lagarde saying they are not tapering, but they were adjusting bond purchases. the focus now shifting to what happens in december. likely to be contentious. 's take a look at the things we are watching out for today. 11:30 a.m. u.k. time, the bank of russia announces its rate decision, followed by trade and dg -- trade and gdp figures. #xthe latest canadian unemploymt figures will be released. we have claims out of the u.s. yesterday falling, suggesting the labor market in some areas is improving. 1:30 p.m. we are going to have data from the u.s. including wholesale inventories. eu economic and financial affairs ministers will gather in slovenia for an informal meeting. that is it for "daybreak europe." the markets are in the green as

we head toward the end of the week. . ♪

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anna: good morning. mark cudmore, our markets live managing editor joins us in singapore to take us through the market action this hour. cash trade is less than an hour away. here are your top headlines. president biden and xi ■ speak n the phone. the lady isn't tapering. the ecb slows the pace of bond buying,