manus: good morning from our middle east headquarters in dubai, i am manus cranny, dani burger beside me at london hq. it is "daybreak: europe." germany in limbo. experts warned we could see months of coalition wrangling as yesterday's elections leave the spd's olaf scholz inches ahead of the cdu. the evergrande fallout spreads.

investors join thousands of chinese households demanding on the back from the embeddable -- embattled developer. plus, the energy crisis goes global. the u.k. considers drafting the army to get fuel to petrol stations. chinese homes to cut back power usage. good morning. there is a smorgasbord of risk to hit these markets. you and i grappled with the dominant narrative -- is it evergrande, the fuel crisis, is it a fast fed paper -- taper? or is there a global re-rating of rates? good morning. dani: good morning. i would say if you look at all of those, you could make the argument that rates is the least. energy is going to be short-lived, rates is a global

market move. we have central banks in coordination starting to tighten policy. manus: absolutely. the new bond market tantrum. yes, the fed must tighten first, that's what you are used to happening, that's what every model has -- no. the bank of england, two year yields, bang. a new bond market tantrum, but not in treasury. a big move but nothing compared to both of the long end of the u.k. curve and the short end. bank of america, deutsche bank both calling rate hikes in the u.k. by february of next year. dani: it is so wild. if i were to ask you a couple of weeks ago when do we see this big move in bonds kick off, i don't think you or i would have said the day after the fed decision. it is significant you have central banks on the periphery

really leading the charge and having an impact, moving rates higher from here. manus: absolutely. i leave you with this -- yes, we work on a sunday -- a guest said i will put in context, you're talking about $10 billion per month. the bond market is have a trillion a day in terms of turnover. i put it to you, it is not the size of the number, it is the sentiment. how are markets looking? dani: market sentiment overall pretty positive. we have some depth buyers -- dip buyers, but get used to 140, 144 on your 10 year nominal bonds. not much of a move. s&p futures pushing higher, brent on a tear. goldman says $90 for their year end target. euro-dollar not moving much after the german election results, still somewhat muddied.

manus: google by thursday demands instruction on the oil markets. let's get to politics, the preliminary results are in, social democrats have edged ahead of angela merkel's conservatives in an unprecedentedly tight german election, which is still to decide who can lead europe's biggest economy. let's get to maria tadeo in berlin. your moment has arrived, it is crunch time reporting. who has the mandate? some of them had the worst results since world war ii. did anybody have a mandate? maria: you know, that is a good point. yesterday, i was asking reporters and they said we still have a mandate. they can both claim we should form a government and we want to lead a government, but this was a disaster night for the city

union. if you look at the results, it is the worst since the second world war. the question is who has a mandate, it is unclear. both major parties will say they do. it puts germany in a position where it can go both ways. we could get the traffic light coalition we talked about her weeks, or we could get the famous jamaica, in which the cdu, greens and liberal democrats get together. it is unclear. we are expecting months of negotiating, it is expected to be a beauty contest to try to bring parties into a potential coalition. one thing i would note, the downside risk here was the tail risk of a potentially left, to the left coalition, that is something we did not get yesterday. that threat of a more radical coalition on the left leaning side of the political spectrum will not manifest. this is still very much a country that is very centrist.

dani: thank you so much. having a very busy sunday, maria tadeo. to singapore, let's bring in juliette saly to get the latest on evergrande and asian markets. what are you looking at this morning? juliette: well, no news is good news. evergrande shares rising today, but it is unsure about the pricing impacts and if it will be contained. electric car units pare earlier losses after it warned of a shortage, scrapping plans for shanghai. there is overhang in terms of the overall property sector in china. one company was shares falling in hong kong and weighing on developers. that also weighing on the hang seng property and sex -- property index. the msci asia pacific index,

above the 50 day average. a lot more from energy and financial players, some concern about covered restrictions weighing on mikal casino players today. we are looking ahead to the golden week holiday. manus: i don't think you can have any holidays, for golden week. [laughter] juliette saly in singapore. europe is grappling with the looming energy crisis, record high prices, and china residence in several northern provinces are dealing with a shortage of coal and gas. our guest joins us now. stephen, you walk me through whether we are in a crisis or crunch this winter in china. good morning. stephen: i don't have a crystal ball, but i can tell you what is happening right now. there is a growing energy crisis

and growing energy fear. first, without talking about china, first you have to talk about europe. europe is facing eckerd low inventories -- record low inventories from their main supplier, norway and russia. whether politically motivated or not, they are not getting enough gas to power the post-pandemic economic recovery. because of that, prices of gas have surged higher and higher, leading to skyhigh electricity prices across the continent. at the same time, china is facing a similar issue, they are out of coal, they don't have enough to power their economy. they are also facing power outages in some regions. it is interesting because some provinces are ordered to cut industrial use because of emission goals, but there are power shortages. sets the stage for europe and china fighting over fuel this winter, when it gets cold, because the world uses the most

coal and gas in the winter. you will see higher prices as there is a bidding war going forward as temperatures turn colder. dani: that energy crisis coming for the rest of the world. stephen, thank you. let's get over to the bloomberg first word, juliette saly back with us. juliette: u.s. house bigger nancy pelosi has pledged to pass an info structure built this thursday. she said she will put the measure forward on monday. the senate has already passed a roads and bridges bill, but democrats are divided on a wider package of measures. pelosi says that will be lowered from $3.5 trillion. >> we will pass a bill this week. i promised we would bring the bill to the floor that was according to the language that those who wanted this brought to the floor tomorrow wrote into the rules. we will bring the bill tomorrow for consideration. but i am never bringing a bill to the floor that doesn't have

the votes. juliette: google's youtube ceo says the internet giant still holds a free speech as a core value. speaking to bloomberg in the first public comments since it agreed to a russian government order to remove material from political opponents, they said google had many things to say with regards to limiting content. two has faced criticism for pulling videos by opposition parties like alexei navalny. >> we get requests from governments and we consider why are we getting the request and what is happening on the ground, and based on different factors, we mesa decision. those are not always requests that make sense for us to honor, but in certain cases, we will honor them. in that country. juliette: 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. manus? manus: thank you very much. setting you up for the week ahead, the u.s. secretary general -- u.s. treasury secretary janet yellen and fed chair jerome powell will visit capitol hill twice to testify. and central banks take central stage on tuesday, we will hear from the bank of england and the boj, and of course jay powell himself. a big week. dani: it is. wednesday, we stay with japan, you have japan's ruling coalition, they choose a new ruler who will almost certain he the next prime minister. we also have the latest chinese pmi on thursday the official and unofficial gauges expected come in stronger than last month.

a lot to keep your eye on in this very risky market. coming up, investors rattled by the increased volatility in china from evergrande debt we will get the latest next. this is bloomberg. ♪

dani: welcome back to "bloomberg daybreak: europe," i am dani burger in monday -- in london with manus cranny in dubai. an electric car made her -- maker has said it might not be able to meet its financial obligations as a looks for investors. this as holders of bonds say

they have yet to be paid for a coupon do last week. the company has another 45 million dollars due on its dollar bond this week. manus: it is a question of the debt crisis, and how it ripples through global markets. investors close to beijing are counting on the government to do the backstop and contain the risk. with chinese stocks recovering, can that indoor -- endure? let's get to our guests. great to have you back. we are trying to grapple between interest payments, will they be made fully, and we are trying to understand contagion from evergrande. what is a controlled -- what does a controlled event from evergrande look like? now we are hearing wealth products having huge risks at play. how concerned are you about the

quintet of evergrande risks? >> at a high-level we are pretty sanguine about the risk. if you look at what is going on in the global high-year-old -- global high yield market, it is pretty contained. the chinese high-yield market only represents about 5% of global high yield. there has been systemic high-yield concerns come up but we are not in that bucket at that point. but it is a significant sector in one of the largest economies in the world, so we do need to be cautious. however, this is not new news. policymakers all know about evergrande. it hasn't only come up in the last week or so. they are acutely aware of the risk. they think there will be intervention, some policy, not necessarily liquidity or

bailouts, but a managed restructuring. go on. dani: i was going to ask, even amid that, we are looking at a chart right now that is the yield on u.s. dollar denominated credit in china. the spreads on this thing have gone terrible like in recent weeks. this -- you have a pretty etsy position given the market moves. at this point, do you see hedges, do you ride it through? how do you hold your position with the volatility in the market? bill: we haven't seen repricing globally. what we have seen is significant repricing of risk between the credit structure in asia and china specifically. you have this big spread between ig and high-yield, and in actual fact, a healthy repricing of

risk in that market. in your chart, we are moving closer to something like 18% spread in the chinese high-yield market. that would imply, if you look at it from in esther -- an investor buy interest position, at some point you got to think is this something you've been -- as an investor, and absolutely yes. do we think the markets are overpriced? yes. do we think there will be policy intervention and some sort of management structure? yes. we think given another month or so we will ride through this in terms of the markets and we will see significant tightening in credit spreads. manus: i like the way dani called it a gutsy call. she is more polite than i am.

[laughter] she is the quality on the show. you used a phrase, the policy put option. you think debt hold equity -- run me through the scenario, equity gets wiped out and debt holders take a major haircut offshore? bill: the reason i use the term is a lot has been written about this moment and believe in this moment in 2008 and 2009 supported by central bank policy push. this is a different kind of policy. a lot of this is self-induced by china itself. this is the tightening of regulation, whether the stocks, bond, or real estate. this is going to be mannish

because it has been self created by the authorities. to your question, you think there is going to be passing between international investors and domestic investors? the issue is china would want to be seen as having restructuring, how a mature capital market response to this. the reason we don't think this will be completely dislocated, i think it is important to demonstrate to international investors that china is still open for business and there is transparency in the process of restructuring. dani: i do wonder, in terms of the path china is taking and common prosperity, officials describing it as a eager cake with more pieces, but at the same time, you have someone saying the bigger cake means bigger for china and not necessarily the world. a potential shift in china and a

potential slowdown in china, does that portend poorly for stern worlds and big multinational companies? bill: on your first point, the prosperity important in any regulation. what they are trying to do is take some of the heat and the bubble in the market you experience in western economies. prosperity for the people, you should not underestimate, because there is a social contract here. when you have someone like evergrande, a large supplier in the region, it is a big social issue that needs to be addressed by the authorities to ensure people aren't affected by it. that's why we also believe there will be significant intervention in terms of the policy restructuring.

to the international point, china our reliance on the rest of the world to help develop their currency, help develop their capital market, help international investment flows. that's why we believe there will be -- around it, and china will not be pushed around by global investors into hurrying into a policy response. they will do it in a chinese way. i think over the next couple of weeks we will see what the restructuring plan looks like. manus: bill, stay with us. the best 15 minutes on china i have heard in a long time. the most cogent answers i've had to this risk in a long time. stay with us. bill street, our guest, has more to say on markets. the u.s. economy is the key conversation next. the fed conditions will start tapering soon, according to the head of the fed. and a trifecta of voices on

progress in the u.s. this is bloomberg. ♪

manus: it is your monday morning "daybreak: europe" with manus cranny, that is me, and dani burger in london. the bank of cleveland president says she backs tapering from november and joins a growing number of members who says the u.s. economy has met the fed conditions to start reducing asset purchases. dani: that certainly had a reaction, although it was the day after. let's get more from bill street, still with us. it was remarkable the day after the fed, we have this big move higher in yields, stocks that hold up, and there has been

commentary around that saying this is the reaffirmation of the reflation trade. do you see last week as a big shift in those terms? bill: yes, to a degree. look, in reality, the fed has a lot of rhetoric and managing expectations in the market. let's be clear, tapering is just slightly loose policy. more positional monetary policy is not moving anytime soon. the dot plots have been waving around a little bit and the supply-side into inflation, that always makes us a little nervous, but even if you start tapering, we don't expect a significant rise in interest rates.

it is completely different from when it was in the taper tantrum during the national crisis. manus: yeah, i had to slap my hand and stop getting excited about a 10 billion reduction per month in the bond market. it is about confidence another number. investment grade, briefly, your position on investment grade in a slowing u.s. economy -- long? bill: short. especially in the u.s., as from our previous conversation. no price is suggesting a high-yield consensus. we have been exposed to asia and china and we think high-yield is more compelling. dani: bill, great to get your

thoughts today, we will have to have you back soon. that was bill street. this is bloomberg. ♪ it's moving day. and while her friends are doing the heavy lifting, jess is busy moving her xfinity internet and tv services. it only takes about a minute. wait, a minute? but what have you been doing for the last two hours? ...delegating? oh, good one. move your xfinity services without breaking a sweat. xfinity makes moving easy. go online to transfer your services in about a minute. get started today.

dani: good morning from bloomberg's european headquarters, it has just gone 6:30 in london. i am dani burger with manus cranny in dubai. here is what you need to know. germany in limbo, he could see months of coalition talks as yesterday's election leaves the spd just inches above the cdu. the evergrande fallout spreads. investors join thousands of households amending money back

from the embattled developer. another bond payment due this week. plus, the inter-crisis goes global. the u.k. considering drafting the army to get fuel to petrol stations. in china, household coming back energy uses. it is quite the menu of risks from the germany election to the energy crisis to what is happening in china to rates. we were just talking to bill street, who had very cogent answers coming -- answers when it came to china. you were getting compensated well for the risks you are taking in these asia high-yield indexes. manus: yeah, we put off the rate run, but i think when you look at the high yield in asia, he sees 18% as a high-yield in asia and you will get compensated for taking that level of default risk. there will be a policy response, not necessarily in the western style of bondholders, but in a

chinese way. they will do it their way. the other dynamic we were talking about is a bond market and drum. if you look at what is happening in yield, bunds are higher because the fiscal sink up might not be the scenario for the bond market. there is a new bond market regime in play and live. dani: this does perhaps bring worries to the fore for the treasury because all of a sudden, these global bond yields are higher, so perhaps for foreign investors, the yield you get on treasuries is not attractive and this comes as the fed is set to step back on the market and as we get supply into the market to pay for a lot of the infrastructure coming into the u.s.. who is going to absorb that supply if all of a sudden international yields are higher? maybe i am over exaggerating things here, but it is a possible worry that could happen with the global bond market move. manus: absolutely.

we are showing twos over twos, u.k. over u.s. two-year yields on the chart. the market has priced in, banks are saying a rate hike in the u.k. is february 2022. by the end of next year, 25 basis points. they may tighten before the end of qe. let's take a sweep across the markets. the fear some would say in the equity markets despite winning for an interest rate payment in full from evergrande. i left yesterday -- if people watched on a sunday in europe, they would know that large outflows since 2018 took place in the u.s. the first outflows in stocks took place this year. 10-year at 144. the fed taper, what does it do? euro-dollar says we are not bothered with the german election at the moment.

dani: speaking of the german election, we had both arm and lashing -- armin lascet and olaf scholz saying they both should leave the government. there is not a clear winner. let's get the latest with maria tadeo in berlin. you have been up all night and tracking the election yesterday. where do we stand at the moment? maria: we knew this was going to be a very tight, close election and that's exactly what we have this morning. i have to say the social democrats of olaf scholz have edged over the cdu, but yesterday the reaction from both camps was essentially the same, they both say they have a mandate to form a coalition. at this stage, it could go both ways. you can get the traffic lights coalition, the famous traffic

lights, the famous traffic lights, the greens, liberal democrats and -- or the jamaican. the other thing that is interesting as we will hear from lascet, who said i want to leave the next government for the union but he is under pressure in particular from the bavarian sister unit to's party. it was a terrible night for the christian democrats. the pulling was accurate and they are in for the worst results since the second world war. it is a hard campaign for him. manus: maria, i suppose the question is if olaf scholz believes he has the mandate, and we could argue whether 1.5% is enough of a lead to warrant holding that flag, what are they saying around the hollowed halls

of power in terms of what he might have to give away to the greens or others to get them on board? maria: yeah, you make a good point, because yesterday when i was at the cdu, that was a line that was repeated any times to me by officials, saying a one percentage point events does not give you a bigger mandate than it would give us at d5. -- at 25. by definition, the spd does not have an automatic right to form a government. the issue is this will be a three-way coalition. he will have to draw in the greens but also the spd, and the problem is the spd is a natural coalition partner for the greens, but the natural coalition partner for the liberal democrats germany is the cdu and it was made clear yesterday by its leader.

we are in for a beauty contest that will probably last months before we get anything that looks like a coalition government in germany, potentially into next year. manus: ok, thank you very much, maria tadeo up all night and working hard chasing the politics in berlin. great work on the ground overnight, we will see you in the morning. we have a few lines coming through, the central bank governor in japan, saying, we have the text from his speech, they will not hesitate to add easing if necessary. the dollar is a little bit lower this morning. governor kuroda says they need to continue with easing persistently and watching the economic impact of covid closely. uncertainties for the economy are high due to the delta variant. this is the narrative should still -- you think about the fed and the bank of england and the

norse bank, those three moving incrementally toward less qe versus this. dani: yeah, this is a different tone than we have heard from other central banks, and also brazil, mexico as well. we are having the covid else a variant a very present and center in the boj, even though the delta variant is present in these regions as well. manus: absolutely, we are trying to get back to some semblance of normality. keep an eye on the yen. dollar-yen hasn't a great deal. let's go back to german politics. thomas, thank you for being with us. we are debating whether olaf scholz or armin lascet has the

mandate to claim. olaf scholz says he has the mandate. do you think you should have the first attempt at forming the first coalition? thomas: mandate is a big word with parties that have 75% of german, they will not have voted for the person who will become chancellor. what we are looking at is a structural change in the german party landscape with the end of the catch parties, the christian democrats the latest victim of this cross european move and the question of a mandate, what the german voters were really telling us us night is a big one. to your question, he certainly has a better chance of forming a government and that is not just because of 1.5 points ahead, but because he has momentum, he has

won this election, one that mr. laschet has significantly lost, now is a tactical game that we have seen in germany's history, a multidimensional chest game as -- chess game as we haven't seen it before. dani: i do wonder what you're foreseeing and terms of time this will take, not just to figure out which party is coming ahead, but the coalition wrangling, there have been estimates it could take as long as have a year. what do you foresee in terms of a timeline? thomas: politicians last night have made it clear they intend to go about this differently than four years ago, when there was a very detailed, very into the weeds type negotiation early on, before they even made a decision on which direction to

go. they intend not to repeat that, but to talk big picture and make decisions first and then go into the bullet point areas of negotiations. they hope to be much quicker than last time. that said, the question was asked by one last night, did you expect to be done by christmas? all of them said we sure hope to be done before christmas. manus: when vacuums open, shifts happen, don't they? is this macron's greatest opportunity of all as germany prevaricates? thomas: certainly, in the coming months and the next year, french politics and mr. macron's

fate will play big and german politics simply because france will hold the presidency of the european union and there is reelection in france. we will all be a little bit french from here in berlin, but that doesn't mean the big geopolitical factors will go away. central location, economic power, the quality of brokering a compromise in europe will still rest with germany. yes, there is a shift, 16 years of angela merkel are over, and a new chancellor, whoever it is, will need to find his voice. but that won't mean a huge shift in balance in europe. dani: i'm interested in some of the details about what that geopolitics look like after the selection, specifically with nato, if you have olaf scholz and his party, ruling out the

nato defense spending, and the greens also wanting an overhaul. we have a coalition between the two, what does the future look like for nato? thomas: it is clear there is a difference between defense and security, and pending on would become the chancellor. olaf scholz is a centrist and he has made clear during the election campaign that he does not intend to unilaterally end nuclear sharing, the most disputed element of defense policy in this country, certainly on the left. him in a centrist -- and he owns the party now. he himself is responsible for these big gains and he has large leverage on that front. the greens resent the 2%, but they are on word defense increases. -- on board with defense

increases. at the end of the day, i can still see moderate defense spending increases with olaf scholz. you will have a lot of smoke from germany on that, but a steadiness in terms of spending and direction. manus: what will the smoke or mirrors be with russia? merkel was saying for her fluency with russia, a woman who grew up in east germany and was very familiar with putin at a global geopolitics of all. what does the next level of german-russia relations -- what is the next level of german-russia relations? thomas: german-russia relations are at their lowest point since world war ii. certainly since 1990 -- shouldn't exaggerate. there was something called the

cold war. they are at the lowest in decades and it still can go down. that is because mr. putin keeps undermining the politics in this country, keeps wanting to split the west. social democracy has a tradition of wanting to reach out to russia, and they have made that clear over the past years, including their support of the disputed pipeline, nord stream 2 , but if olaf scholz can assent to the chancellery, he will have to coalesce to groups who are much less benign about russia. dani: thomas, fantastic to get your thoughts on this important day, after the german election. thank you again.

coming up, china cryptocurrency crackdown ramps up. we get reactions. this is bloomberg. ♪

>> china has banned crypto eight or nine times now. >> it is going to have a dampening effect on their ability to use cryptocurrency for any sort of transaction. >> this may be a misstep from china. >> we have seen truly the resiliency of the community around digital assets, and that volume has moved to other geographies. manus: some of the reactions to

the very latest crypto ban in china. it joins a small list of nations that have banned cryptocurrencies. exchanges have halted new registrations of chinese users and will retire current accounts. we are bringing in our crypto editor. when i covered this yesterday, the in bitcoin, it only dropped i 8% on a ban by china. that did not seem a huge market reaction to what seemed to be a pretty big piece of news. was it a big piece of news and was it an under reaction? good morning. joanna: it is along the lines of what china has done before, that it is a bigger step. you are seeing the ban on transactions, which they had not done before. it is not a total ban, it is not illegal like cocaine or something, you can still hold crypto but not do a lot with it.

you have a lot more coordination because the pboc issues the statement with nine other agencies. there could be a lot more of a concerted effort from here on out. having said that, if you are in china and you haven't made contingency plans around this, you might be doing that at this point. dani: two -- to manus's point, and bitcoin, how do you wrap your mind around that? joanna: crypto people are saying we have seen this before we don't think there will be a big issue around this, but bitcoin is pretty volatile and has a lot of interesting dynamics were people like to buy the dip, so it could just be people buying that. what remains to be seen is how this really plays out, what china does with it if it really starts enforcing, and if so, it coin and other crypto could go

down again. it was amazing, we saw the quick reaction and over the weekend, it builds back. ether is higher than it was before the announcement. dani: diamond hands, joanna. thank you so much for joining us. coming up, we turn to europe, where the impact of the energy crisis has started to spread to the rest of the world. we have our big story, next. this is bloomberg. ♪

dani: it is "bloomberg daybreak: europe," i am dani burger in london alongside manus in dubai. headlines here, the fuel shortage dominating. you can see the times, the first one, army will be sent into tackle the crisis.

over at the guardian, army delivering fuel. manus: certainly the imagery projected across the networks yesterday. 30% of the bp petrol stations are closed. europe also grappling with a looming crisis, and is not the only region in the world affected. let's get to our nerve -- our energy reporter. different regions have different issues, but what region could expect the most crunch this winter? stephen: that is a really good question. i think when you look at europe immediately, they are in probably the most dire situation. you look at their gas inventories, for example, they are at the lowest level on

record that goes back over a decade. they are struggling to secure gas. there is not enough gas flowing from russia, from norway, into the region to not only refill inventories before the winter, but also to meet their post-covid economic recovery. then there is lng, the liquid gas produced by qatar and u.s., china and other countries are just paying more about willing to pay more than europe to secure these cargoes. that leaves less and less for europe. dani: a lot of doom and gloom it feels like talking about this energy crisis. can you give us a silver lining? is there anyone who can potentially benefit from this? stephen: the traders? the trading firms are already making a killing. you talk to these traders, i talked to them every day, and they are pretty up beat across the board. not just the buyers -- excuse

me, not just the sellers, it is the buyers and all of those folks finding opportunities across the global market and benefiting. at the same time, guitar and -- qatar and the u.s. analyst really benefit. -- and australia will really benefit. the u.s. is pumping out more lng than ever before, it is a huge turnaround for the industry. manus: oil this morning about $75, no doubt about it. let's see what the opec-plus gathering does when they meet on october 4, could they turn on the taps a little more and where are those extra shipments of lng? our energy reporter there. let's leave our views this monday morning. i saw a line this morning about asian equities and the fearlessness in these markets

this morning. dani: absolutely, a lot of the energy leading from smaller cap as well. we will have the energy open for you next. that is it for us at "bloomberg daybreak: europe." this is bloomberg. ♪ (announcer) back pain hurts,

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>> good morning, everyone, and welcome to "bloomberg markets." cash trade is less than an hour away and you are your top headlines. germany in limbo. we could see months of coalition talks as olaf scholz narrowly defeats angela merkel's conservatives. investors join chinese households demanding their money back from evergrande.