♪ ♪ >> good morning from bloomberg's era korean headquarters. these are today's top stories. a moment of truth for china ever grand as dollar bonds come due today. shares surge along with other chinese developers as sentiment turns positive. powell's tapering timeline. the fed chair says they could start scaling back asset

purchases in november. the treasury curve flattens and global stocks rally. the bank of england's policy puzzle will get decisions from the boe as well as central banks in norway, turkey, south africa, and more. it is what investors continue to digest. the announcement from the fed and jay powell that november is very much in play for tapering. also, the dot plots. i want to show you the changes that we've seen from the last meeting in june. the importance is the fact that there is no consensus around whether or not you see a rate hike in 2022. that appears to be with the bulls in the market are hanging their hats on. the fed funds pricing into hikes in 2023. less than one in 2022. jay powell is insisted that the end of tapering which he flagged as being in the mid-2022 doesn't necessarily mean an immediate

start to the rate hike cycle. that's what investors have been looking at. let's check in on the markets. pboc in play as well with the decision over liquidity injections. that relief around ever grand, even if it's only temporary. gains across the asian session of 5/10 of 1%. japan is closed for the holiday. in terms of the futures, building on the optimism we saw yesterday. too tense of a percent. oil is in focus as well. goldman sachs egging you could see $90 a barrel if there's a cold winter this year. the bloomberg dollar index closing in on a new record high. let's get the market reaction with juliette saly in singapore. what's out for you? juliet: $17 billion injection from the previous he bringing, to asian markets that have been

rattled over the last couple of weeks. hong kong resuming trade after yesterday's holiday, jumping in italy by as much as 2.5%. a lot more money going back into those property stocks. korea has been on holiday this week. foreign investment dumped out of this market. we are looking at the risk barometer as well. the aussie yen rebounded somewhat yesterday as we started to see traders assess that some of these risks with the fed have dissipated somewhat. let's have a look at the flattening of the yield curve that you mention. japan out of action for a holiday. there's a little bit more hawkish momentum coming through in the fed. if you look ahead to u.s. futures, looking like we could see some gains coming back through into these markets. the other key focus for investors is the bank of england decision. tom: thank you very much.

the implications and reactions to that policymaking from the fed. ever grand shares and its dollar bonds are higher today as investors stressed that the chinese developer will avoid a debt resolution. we are joined by bloomberg's sophia. is the crisis over? can you explain today's market reaction in hong kong? it will be short-lived. sophia: good morning. very speculative trading in hong kong. markets were closed yesterday so there's a catch up with the relief rally and mainland stocks. the pboc ingested liquidity for a fourth trading day which is really helping the sentiment there. the key thing is that ever grand has negotiated a deal with its bondholders for a payment that was due today.

the offshore bondholders are expecting some kind of deal to be discussed on that front as well. if ever grand doesn't pay that coupon today, it still has a 30 day grace time within which it is expected to renegotiate those terms. the market is betting on that there will be a lot of encouragement from beijing for this to be a very orderly discussion. we still have the dollar bonds trading at $.30. that suggests a restructuring where you do recover 30% of your money. the mood is a lot brighter than it was on monday. tom: a brighter mood for now. what is next on the docket when it comes to those watching the story around ever grand? sophia: this is a fast-moving story. you can get burnt if you really

invest on an outcome as you see today. the stock was up as much as 32% at the open, the most since 2009. there was a lot of short today, short covering on the dollar bond side. any announcement we get today on whether that interest payment was made or not could be more your time. we are expecting that around europe, u.s. hours. any indication of what the terms would be and whether beijing is acting to facilitate that it all . the communication from china has been very unclear. the statement from ever grand yesterday about its negotiations with bondholders didn't really say with the terms were. we don't know what the haircut would be. we don't know what that would look like on the dollar bond side. that's very much in focus for

the next 30 days. tom: still a lot of known unknowns. thank you very much. don't miss our special coverage of the ever grand situation, right here on bloomberg tv. that's the ever grand effect. friday morning at 2:30 a.m. u.k. time. the fed says it's for most taper time and rate hikes might not be that far behind. the bank of england, norge bank, and the snb are all in the spotlight. running is now is bloomberg's chief north asia correspondent. what are you looking for? what are we expecting to hear from these central banks? >> a lot of expection. they would be the first g10 central bank to do so. economists, the chatter is about what signal they will send for more hikes heading into next

year. we have the bank of england, it is trickier for them. growth is slowing in the u.k. but inflation is quickening. we will have to see how the bank of england manages to send a message about how they don't want to choke off the recovery while they want to keep ahead of market betting on interest rates into next year. that outlook is unlikely to be resolved today. the bank of england is expected to keep rates at a low and stick to its asset purchasing program. we have to wait a couple more months to get clarity on where the bank of england is headed from here. tom: thank you. stay with us. later in the program, we will be outside the bank of england. the bank governor will be live on bloomberg. let's get the first word news now with juliette saly. juliette: president biden will meet his friend counterpart in

person next month in an effort to maintain ties. the u.s. nuclear powered submarine deal with australia outraged officials in power. biden spoke with him over the phone for the first time since the agreement was announced. the leaders agreed that open consultation would have benefited the situation. the u.s. fda has authorized a third booster dose of the pfizer vaccine for at groups. that includes people over the age of 65 and those at high risk of severe illness. it allows a single dose six months after the original shot. the total hit to revenue this year for the world carmakers is now estimated at $210 billion. this is the latest forecast. the industry will build 7.7 fewer vehicles in 2021 due to the chip crisis. semiconductor availability has worsened as automakers have no

more to spend. more than 1.5 million households in britain are being forced to switch energy suppliers after two more retailers collapsed as prices soar, bringing the tally of firms to seven since early august. the u.k. business secretary says that more companies would be in trouble as retail prices failed to cover costs. global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. tom: thank you very much. let's take a look at the other key events that matter to markets today. we get a decision from the norwegian central bank, expected to be the first central bank presiding over a deed -- g10 country the height rakes. we will get the euro zone pmi as we continue to track the state of the recovery in europe amid the delta variant.

the bank of england decision comes at midday u.k. time. markets pricing in the third boe rate hike in may of next year. we will get initial jobless claims out of the united states. that's a data point that jay powell and team are watching. coming up, jay powell signals the fed could start tapering in november. he also says rate hikes might not be that far behind. we discussed the latest. later on in the show, we speak to the finance professor at peking university and senior fellow at carnegie. we get his fuse on ever grand and its broader impact on the chinese economy. this is bloomberg. ♪

>> we continue to expect that it will be appropriate to maintain the current target range for the fellow funds rate until the labor market conditions have reached levels with maximum employment. if progress continues as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted. participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate. half of participants forecast that these favorable economic conditions will be fulfilled by the end of next year. as a result, the median projection for the appropriate level of the federal funds rate lies above the affected lower

bound in 2022. tom: it's almost taper time and rate hikes may not be far behind. that was the message from the fed chair. we are joined by kit juckes. the markets seem to be happy. the communication from jay powell has struck a very difficult balance around tapering and the timeline there for rate hikes. can we put the fears of a taper tantrum to bed? kit: yeah. as they raise rates, yields will go on rising. we had the taper tantrum in the first quarter of the year when we reprice treasury markets aggressively. and then we had a big moment at the june fomc when the dot plot moved. this relative to that is an adjustment rather than something that makes you hide under a desk. that's the message i got.

they are on track. their hand was stayed a little bit by the economic situation, the health situation, possibly by the debt situation in the state. we didn't get a big enough change in the markets to shape things. tom: did the dot plot changes that we've seen, there is no consensus whether you see a hike next year. there's now a bit of a moderate hawkish tilt around some of these projections. but no consensus. is the lack of consensus on that question enough to support these markets, in the short to medium-term? kit: in the short term for two reasons. there's a sense that some of the dot moves are sending a signal within the fed as opposed to telling us what is likely to happen. the second is that you took, they are going to have to paper twice as much because they are

buying twice as many bonds as they did the last time we went through this. if they start in november and want to raise rates next year, they will have to bank up twice as fast with twice as many bonds. they have to reduce the pace of actress -- asset purchases to have any chance of raising rates next year, even if they can coalesce around that idea. when the treasury starts buying fewer bonds, what happens to yields? if that went well, i suppose they could go very quickly. those already of -- are the sort of questions we will ask now. i was hoping for something more exciting to liven things up. the economy is doing fine. they are going to taper. yields are going to edge higher. we are not going to get a big

volatility spike out of this. tom: ok. you touched on the yields. the five year yield coming higher. the long and coming off of flattening of the yield curve. given that and the pace of tapering that you are for seeing there, you see a bid for the greenback. how sustained will that be? how much support is there for the dollar? looking at near record highs now. kit: it has 5% upside from here over the course of time. the difficulty is that it will be rate expectations and we are still over a year away from a rate hike. i can't believe that we can get to a position where we are confident that the u.s. is going to escape the zero bound. bank of japan and the european central stuck there. that doesn't give the dollar a significant left.

that will be reinforcing what we've seen ever since 2014. tom: potential 5% upside for the greenback. there is support around euro sterling. it annoys you. unpack that for us and why you are frustrated. kit: the bank of england has the potential to raise rates considerably earlier than some of the central banks because they are willing to do so while they are still buying bonds to get with more inflation than some, we've got it decent chance of a rate hike next year. however, with all the problems were having with supply chains, with too many weak months of retail sales numbers, with an economy that is struggling a little bit at the moment, the chance i'm going to get of getting the euro sterling rates to drop to 0.8, make a move back into where we were at the time

of the referendum, is vanishing. i might go on holiday more often. i'm feeling as if the window of opportunity is shutting. tom: that would be a nice silver lining for you and many others. i want your views in norway. we are expecting a rate hike from the norwegian central bank later today. a forecast of four additional hikes next year. is this priced into the krona? kit: that's part of the problem. the krona is going up on the back of expectations of rate rises and oil prices very strong. the challenge in the currency market is that it's the most risk sensitive currency amongst the major currencies. it will do fine, provided equities are going up, provided bond markets are shining and everything is good. with everybody on the same side,

if they get an announcement that is as expected, don't cut encouragement that there's another rate hike coming in a couple months and then we start seeing equities slip. you've got a lot of people who might feel the need to take their profits interim positioning. this is a trade you join if you like being part of a party without the will. tom: we will be back with you to talk more china. kit juckes. coming up, ever grant shares bounce back as investors fears of a disorderly debt resolution subside. more on the troubled property giant, next. this is bloomberg. ♪

>> the ever grant situation seems very particular to china. >> we have to monitor closely for a spillover effect globally. at this point, i don't see this developing into a global crisis. >> second and third order impact. we have to stay close to that. >> they own everything, the land, the companies, the banks get i don't see a loss of trucks -- trust in the system. >> jay powell giving us their thoughts on the possible spillover from ever grant. our guest is still with us. to what extent are you

reassessing your views of the chinese economy, the outlook for the world's second-largest economy in light of what we have been seeing out of her grand? kit: there are more downside risks then there have been for a while. ever grant is a controllable, symptom of a policy to get rid of some excess in an economy and takedown excessive buildup of debt. if you are trying to maintain additional control over the economy the way that the chinese authority is doing as the same time as we have other hurdles facing them from the health crisis and everything else that we know about, it seems that the loser in that is that you are going to have to tolerate a significantly slower rate of growth over the next your two. and that has almost bigger knock on effects than the rest -- on the rest of the world. the people that have done really

well exporting to china, there are all sorts of questions about whether they decide they will prevent the currency weakening significantly at all. it could reduce volatility. the big takeaway for me is that this isn't some big catastrophe related to ever grant from here. this is an economic slowdown that will continue as they ease monetary policy. tom: that takes us onto what the pboc has been doing. injections of liquidity. when you make the case that it's time for a more aggressive action from the chinese central bank? is there a danger they will be behind the curve? kit: i don't think they are necessarily behind the curve. they are doing all sorts of other things, making sure that systems liquefy. if you want to avoid contagion, make sure there isn't a shortage of financial liquidity in the system. everyone understands that you will do whatever you can to not

drag a lot of companies down. i think it's inevitable that we will get lower rates some months down the road. tom: we appreciate your time. a deep dive into the fomc decision, the impact of ever grant on the chinese economy. a finance professor on ever grant and its broader impact on china. let's check in on the european futures. optimism after green on the screen yesterday across the european markets. gains of five tents of 1% in terms of european futures. u.s. futures gaining 3/10 of 1%. relief around ever grant and digesting the dovish tapering stance from jay powell and co-. lenny more ahead. this is bloomberg. ♪

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>> good morning. it is 6:30 a.m. in the city of london. a moment of truth for china ever grand. a dollar bond coupon comes due today. shares surge along with other chinese developers as sentiment turns positive. the fed chair says they could start scaling back asset purchases in november.

global stocks rally. the bank of england's policy puzzle. we look at decisions from the be away -- the boe. the fed hands it off to other central banks around the world, notably the boe, with a decision out at midday local time. at least modest optimism continues in the asian session the pb eoc coming in with a $17 billion net increase. the central bank tries to ease the concerns around the property developers and stocks rally in. the context is in terms of a significant drop for shares. in terms of what else is happening, futures in the u.s. are in the green. closing up about 1% on wall street. futures in the u.s. pointed up

by about 0.3%. goldman sachs predicting you could be seeing $90 per barrel for brent if there is a particularly cold winter. the bloomberg dollar index is on focus on the back of the fomc, close to a new record high for the u.s. dollar. let's get back to the ever grand story. policymakers are beginning to examine what went wrong and what the implications are for the wider chinese economy. for more, we are joined by finance professor at peking university, and someone who is on the ground in beijing, has expertise in the economy. thank you for joining us. there are reports out this

morning that we could be looking at a restructuring of evergrande into three different entities. we have not confirmed this yet. would that align with your views that this will be a managed restructuring at this point? >> yes. we have heard several different stories about different types of restructuring. the way you have to think about it is you have these hierarchies of interventions that the regulators can do. at the very top, guarantee everything and we are back to where we were. at the bottom, do nothing and let the chips fall where they may. clearly, beijing will come somewhere in the middle. the problem there is what makes sense economically is not necessarily what makes sense politically, which is also very complicated. the regulators have to find a

point that fits both policy and regulatory objectives. >> that comes down to moral hazard, which i know you have studied in depth. what is the conundrum there, the straitjacket around significantly dealing with moral hazard? >> the problem is that moral hazard has underpinned the growth model. there has been an enormous amount of debt used to fund unproductive parts of the economy. no one is going to lend money into these project in less there is some sort of guarantee that they are going to be safe. that is really what moral hazard is. go ahead and land. if they don't pay you back, i will pay you back. eliminating moral hazard really means changing the structure of the entire credit market.

the way that the credit market has been built up on this basis. but, more importantly, it needs undermining the growth model. the only way you're able to get these high levels of growth is because a lot of this investment that is underpinned by moral hazard. everyone agrees that moral hazard is a bad thing but it is difficult to get rid of but it is a slow process in china. as we saw happened with evergrande, it can get out of control quickly in unexpected ways. >> it can get out of control in unexpected ways. the complex web of obligations this company has to its suppliers, employees, owners of wealth management product, how difficult does it make it that

there will not be spread beyond evergrande? >> there are the interconnections through the financial system, and i think a lot of people understood that and regulators were ready to step in quickly and resolve problems of financial contagion. i think what surprised them was what i call the financial distress behavior. that is, when the risk of insolvency rises, of course, if you are a stakeholder in that entity, a competitor, supplier, creditor, whatever, you have to change your behavior. the way that you change your behavior is usually more damaging. you get into a spiral where rising risk changes behavior and the changing behavior makes the

risk even higher. i will not go through the components but i think the most dramatic was the fall in homebuying. in august, down 20%, which was astonishing. if people buy fewer homes, that puts pressure on the property developers, who depend on leverage and very high turnover. >> should investors be bracing for additional failures in the property sector, the broader shift to tighten liquidity or credit to some of these highly leveraged companies? >> in may of 2019, we were all shocked by the collapse of a bank. we have since had a series of credit events, let's call them. this is how the system shows the

strains developing we will see a series of these and whether they occur in the property sector or other sectors, it is hard to say. we will probably see more pressure on the property sector because evergrande was not the only overleveraged major property developer. >> we had the china beige book saying that if you look a decade out, you could be looking at growth of 1% or 2%. the much more near-term view from fitch is that you could see 8% this year. how are you weighing this up in terms of where the economy goes this year? >> it is an important drag bunt china still has the ammunition to keep this game going a little bit longer. here, i am speaking out of my depth, but i would argue that perhaps because we have a very

important party congress next year that they will want to keep growth rates quite high at least until then. it is after that that we start to see a real shift in the economy. but the shift we want to see in the economy is pretty dramatic. basically, you have to increase consumption. that requires a major shift of income from local governments to the household sector, and that is very politically tough to pull off. it will be a difficult process. the growth rates will probably be much lower than most of us, even the pessimists, would predict today. that has been the historical track record. when this growth model ends, the adjustment is always more difficult than even the pessimists expected. >> one last question really on

the credit markets. are we seeing greater levels of sophistication around pricing the credit risks, offshore and onshore when it comes to some of these questions in china? >> offshore, i really don't think there is a significant contagion impact. domestically, we will see. when the problem first started, you started to see the sort of smart-alecky responses from fund managers in shanghai and shenzhen, that whenever bond prices fall, i am really smart, i buy them because i know they will always be fully repaid. that is the kind of mentality that the pp eoc is trying to ring out of the market. if bondholders, banks are substantially protected, then we will not see credit

differentiation. i suspect one of the real things that the pboc and regulators are trying to get out of this is an elimination of that mentality. in which case we should start to see distinction among types of bond. >> thank you for breaking that down for us. chipping away with the question of moral hazard in china. finance professor at peking university, thank you for your time. don't miss our special coverage. the evergrande effect, friday morning 2:30 a.m. u.k. time. let's get the first word news now. >> chair jay powell says the fed could begin scaling back asset purchases as soon as november and complete the process by mid-2022 but he left the process -- left the door open to keep the process going longer if needed.

the doc plot reveals a growing inclination among officials to raise rates next year. >> we continue to expect it will be appropriate to maintain the current target for federal funds rate until labor market conditions have reached levels consistent with employment, and inflation is on track to moderately exceed 2% for some time. >> now estimated at $210 billion. that is the latest dire forecast from partners which say the industry will build 7.7 million fewer vehicles in 2021 due to the chip crisis. despite efforts to shore up the supply chain, automakers exhaust stock piles, and other injury -- other industries have no more to spare. president biden will meet his french counterpart emmanuel macron in person next month

after a u.s. nuclear powered submarine deal with australia outraged officials in paris. the leaders agreed that open consultation's would have benefited the situation. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪ >> coming up, the bank of england's policy puzzle. rising inflation and slower growth. we are live. this is bloomberg. ♪

>> welcome back to bloomberg daybreak europe. just a few weeks after warning interest rates need to rise in the next few years, the bank of england finds itself facing a delicate alan some risks at the recovery stalls and inflation accelerates. you could call it a central bank policy puzzle. on doe decision day, our reporter is outside the bank of england for us. what can we expect from andrew bailey later today? >> we are expecting the bank of england to vote to keep interest rates on hold at 0.1% and at least one of the nine-member committee to vote to end asset purchases early.

michael saunders, we will have to see if any of his colleagues will join him this month. we will also get an exchange of letters between the governor andrew bailey and the chancellor. that is protocol after inflation surged past the target. neither economists nor markets nor the bank of england had predicted that. the question is, how transitory is transitory? the bank had forecast that inflation would peak at 4% and fall in 2022 and 2023. some of that price growth could persist. labor shortages, energy cost rises. if we are going to pay our way out of this skills mismatch and not get more output for those pay rises, that will add to inflationary pressure. the economic act of has dim somewhat since the last set of forecasts. it will be interesting to see

how the bank weighs the latest data to see what it's thinking really is. >> u.k. economy reporter outside of the boe. lizzy will be covering all of that for tv and the bloomberg. two more energy suppliers in britain collapsed. the number of british households caught up increases to 1.5 million. joining us, our energy reporter, rachel morrison. what are the details? >> yesterday, two more collapsed, which takes the total to seven since the start of august, when we saw the energy price surge happening. it is really what the minister warned about this week, that suppliers were starting to go and he expects more. we are poised for more energy

suppliers to say they are going under. action, looking like government backed loans. to take on the customers. the government has been very clear that they are not going to bail out sales companies if you are not hedged and you have not done business in the right way. we are seeing those companies start to leave the market. >> we have the prospect of loans from the u.k. government. as you say, they are not going to comment bail them out. should we expect more to go to the wall? >> yes, the business energy minister has said more will. the energy regulator also expecting more to go under. we don't know how many, we don't know the financial precariousness.

but as prices have risen, it squeezed their bottom lines. they are not able to buy the electricity and gas. at that point, they have to declare themselves bankrupt. one point 5 million households, it is really starting to rack up. people are wondering what happens when their supplier goes under. really, the advice is not to do anything. you should wait for a company to be found to replace your supplier and wait for them to contact you. i think the government is worried that people will start to panic that they will not have electricity or gas when they need it but they have procedures in place to make sure that is not the case. >> ok, coming up, the final company six parties in germany will take part in a televised

debate tonight ahead of sunday's vote. this is bloomberg. ♪ ♪

>> germany is the biggest country in europe. it is the driver of the economy in europe. the german election is not only important for germany but for europe as a whole. so, we are following the campaign very closely. >> that was the austrian chancellor telling us that the center-right would suffer if cdu

fails to win in sunday's vote. we will hear from the parties currently sitting in the bundestag after a televised debate. tonight, we also hear from the smaller parties that they may enter into coalition with. for more on the state of play, we are joined by our reporter in lynn. how significant is the final debate ahead of sunday's election the echo --sunday's elections? >> usually of a would not be crucial. we have already heard from the three main chancellor candidates. today, it is significant because the smaller parties which usually pole at around 10%, they are not important in normal elections, they will be key in this one. paul's signal that the next

german government could be a three party coalition. we will hear from the party to the left, i would argue, in germany. also, the fdp. i want to hear, who do they want to work with. we have already heard from the fpd and the greens that they see each other as natural coalition partners. but who will be the third? that will be very much the key. secondly, what are their requests? what are some of the conditions they will put on the table to enter a government? in the last elections, christian lehner played this very hard and said he would only back the government if he got the finance ministry. that could be a dealbreaker. those are two things i will be watching out for. this is a debate that would

usually not matter this much but this year, it really does. >> what about foreign policy and the tension between france, australia, and the u.s. over the submarine packed, the aukus pact? how is that playing into their thinking? >> this is a story that is being presented as a manual micron versus the anglo-saxon world. but in reality, it has implications on germany. sources have told me that the german government and berlin have been very supportive of the french government and the two of them have been very much in line saying that the way this was negotiated was unacceptable. the future government of germany will have to make distinctions with trade policy, foreign policy, and crucially where they stand when it comes to china,

especially as we are seeing more political tensions. >> the countdown to that vote. we do of course have plenty more on that coming up. this is the end of daybreak. european market open is next. this is bloomberg. ♪

dani: good morning and welcome to "bloomberg markets: european open." i'm dani burger alongside mark cudmore from singapore. we are less than one hour from the cash equity trading. here are your top headlines. a moment of truth for china evergrande. shares search along with other developers a sentiment turns positive.

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