manus: good morning from blue. we have the stories to set your agenda. janet yellen warns of catastrophe, including possible default, at the deadline looms. u.s. stocks suffer their worst rou since may as the treasury selloff continues. a dangerous man.

senator elizabeth warren launches a blistering attack on jay powell, potentially complicating his path to re-nomination. plus. >> do we expect gas shortages in europe? no. it is a matter of adjustment of price. manus: the power crisis escalates from europe to china. beijing mold hiking industrial power prices. warm welcome to the show, 6:00 a.m. in london, 7:00 a.m. in the netherlands. breaking lines. a manufacturer of the gear that makes the chips talking about an

the opportunity to reach 25 gross margins. every week we are debating shortages, aren't we? >> it is all about margin pressures. everyone from your chipmaker to nike, now of course, concern coming to the fore is also energy prices. yet another thing to concern you about the prices you are paying and the margins you can eke out. >> they are raising the annual revenue opportunity, 24 to 30 billion euros. they expect to continue growing the dividend and the buybacks. good news. i have no idea if i am an equity holder. might be my retirement fund. we have explosive energy markets , the bank of england i think torched the bond markets globally, and the fed taper.

succession is in play. those are the elements that have brought us to -- we had muhammad ali arian tweeting one of the bloomberg stories yesterday. read it up. dani: him tweeting saying the risk of stagflation is not just energy, is quite a few current supply-side challenges the global economy faces. i should say #economy if you want to look it up yourself. it is this uncertainty coming into the market, and in terms of being noticed, as you point to the u.k. setting the bond market on fire, we have yields picking up, u.k. across the curve with gilt yields, and absolute avalanche of selling rigging out globally. taking stocks with it. manus: absolutely. when you look at the consensus for bond yields, where does -- where was 30 year paper at the

start of the year? you are now looking at 164 to 208. at what stage do people jump in and say actually this yield is appealing? but there is no doubt about it. the energy complex is absolutely shredding the idea we are going to have inflation in the medium term. dani: we are unsure what inflation is going to look at -- look like, we are unsure if the u.s. is going to reach the debt ceiling. investors are demanding more compensation for holding a 10 year. let's get into the models, let's get into the federal reserve of new york model. the term premium creeping back up. let's go to the charts for this. the first time in a few months,

this tells me investors see a lot of risk and they want to be compensated for it. manus: take it away. you have the markets. dani: asia catching up to the u.s. equity trade. the u.s. and europe. we are seeing debt buying. the u.s. 10 year, 15322. brent oil, a little relief. just under $78 a barrel. manus: jerome powell and janet yellen are both using very strong language. catastrophe if the u.s. fails to raise the debt ceiling. yellen says the treasury will run out of cash. if congress does not act. the language is provocative, isn't it, from yellen? catastrophe and implosion. where are we? why is she using such strong language?

>> it could not get any more blunt. you hear the u.s. treasury secretary warning the u.s. government could run out of money three weeks from now and with all the spillover consequences of that, being the risk of the financial rises, she said there would ultimately be a recession. she has warned of catastrophe. it highlights the dire straits the treasury is in. given the logjam going on between democrats and republicans at the moment. even without warning, later in the day, republicans dug into their position. they do not see a near-term breakthrough in terms of either spending or lifting the debt ceiling. this does become another source of volatility. this global energy surge, we have the ongoing supply chain problems. the u.s. debt ceiling is going to be front and center for the world economy.

dani: speaking of provocative language, senator elizabeth warren hitting out at jay powell, calling him a dangerous man. how significant is this given that powell is headed for re-nomination? >> a very blunt warning from senator warren, making it clear she will oppose the reappointment of the fed chair jerome powell. it puts the ball in president biden's court. senator warren's intervention might just they are opposed to reappointment which raises questions. does biden look for somebody new? if he does, who is that? for u.s. monetary policy, going to a fairly critical junction. the fed has lost two regional president's yesterday.

washington dc inside the beltway will take on a greater meaning for global monetary policy, especially emerging-market central banks. they will want to know who is going to steer the fed and what direction will monetary policy take. all of that hinges on who gets appointed. dani: thanks for staying on top of it for us. i want to mention some lines crossing over the election in japan. it looks like a runoff. a runoff for japan's ruling party election. we are looking at japanese stocks slipping a tiny bit, but not a noticeable response. mark: -- manus: i suppose it is the question now.

the debate is what comes after abenomics? in the next 20 minutes is when we perhaps have this runoff. we will get more clarity. there is a line for all of our viewers to chip into. this is about global equity market dislocation as well as -- money going into the yen ever so slightly and the dollar later. we are going to talk about u.s. stocks next. it is the tail that wags the dog. good morning. dani: it was the biggest rout in u.s. stocks since may yesterday afternoon, and that selloff following through into the asian session. let's bring in juliette saly who has the details.

juliet: -- juliette: there was no doubt it was going to be a day of pain. we saw inflation concerns weighing on tech stocks. also worth noting half the components on the s&p 500 falling 10% from the 52 week high. we are seeing pain flow through into growth stocks in asia as well. the msci asia pacific index down by as much as 2%. the worst session since march. we are now at a six-week low. the selloff flowing through into the likes of japan and south korea, being hit by that micron warning as well. where we are seeing upside is in banking stocks. citi said they think banks exposure to china's unsure property market is limited in the fallout of the evergrande saga. let's look at how stocks are on track the quarter.

the worst quarter since march 2020 at the head of the pandemic. asian stocks down by 5% over the quarter. manus: everybody warns september is going to be a risky month. a little bit more breaking news from beijing. not on evergrande, but the global power story. they are considering raising industrial power prices. that is to ease the growing supply crunch. what does that mean for the world? we know the electricity markets are regulated by 10%. how big a move is this? >> this is a big move. it gets right to the heart of what is causing china's power crunch as a global energy squeeze. it has different characteristics in every region.

in china, power generators are buying expensive coal but selling into an electricity market where prices are fixed to 10% margins. the government and beijing is discussing how to address this and it is thinking of some measure freeing up electricity prices to let those loss-making power generators sell electricity at higher prices or floating rates. at the moment that means supplying more electricity to stop power curbs. we have seen two provinces already think about similar measures themselves. this looks like the crisis is speeding up a reform process that has been stalled for many years. dani: thanks very much. let's stick with china, were evergrande's ills are piling up.

another $45 million bond interest payment due today. the fed has questioned wall street banks about evergrande exposure. a ratings cut for evergrande. what does that downgrade mean exactly for the developer? >> it takes evergrande to the deepest level of junk out of those three major rating firms. a lot of this had been price in. it is probably off the back of it, likely missed payment on a coupon they came last week. there has not been any information released to bondholders or by the company yet about what precisely is going to happen with this outstanding coupon. another coupon due today and the broader issue here is we don't

know precisely what is under the hood when it comes to evergrande. another 260 million dollars bond, which creditors say evergrande are on the hook for. however it was not listed on the exchange. it does contain default risk. only one bond comes due on sunday, but it does point to the broader issue of how much debt evergrande might have and the lack of transparency causes issues for creditors. manus: that is up to regulators to talk about potential risk. thank you very much. we will follow the money and the interest rate payment. as we have been saying, it is heating up in japan. if the runoff begins now, we understand it is key she to -- k ono and kishida facing off.

they have nearly identical numbers of votes. but in the runoff election, lawmakers vote. kishida got more. far more important. the topix down. this is bloomberg. ♪

dani: it is "bloomberg daybreak: europe." kono and kishida face a runoff in the ldp vote with the winner likely to become the next japanese prime minister. let's bring in our chief north asia correspondent in hong kong. getting the results sooner than we expected.

what is the takeaway so far? >> the way it is stacking up, the lawmaker votes, it looks as though -- it looks as though kishida is going to be the next prime minister because again, they have a first round of voting that included the rank-and-file ld members from around the nation, and they tend to go with loyalty toward kono. however, the lawmaker but we just got in parliament was overwhelmingly for kishida as well as the third-party -- the third candidate i should say. those individuals, kishida and takaichi, they would back kishida and kono would be left on the sidelines.

kono considered to be more the maverick. he is a reform-minded politician, a fluent english speaker, georgetown graduate, a favorite of young people across japan. he has more twitter followers than any other candidates combined. he was considered business community friendly. that is why you are seeing the stock market go down. the topix down on this expectation that kono may be out and that kishida, perhaps the more safe pick, is going to be the next prime minister. he is a former banker, former foreign minister. manus: where are we on the stimulus side? you talk about the power. he has the twitter followers. this is going to come down to who is going to drive the economy. if you read the story, it suggests that kishida is a bigger proponent of stimulus.

is that a correct analysis? >> he has been on record as saying he wants to see trillions of yen spending in covid relief measures. many candidates have talked about fiscal stimulus. there has been a run-up in that kind of expectation. we are also expecting on the monetary front to continue the super easy policy at the boj. he is a close ally of yamamoto, seen as the architect of our been in -- abenomics. yamamoto recently called for fiscal spending and retaining 2% inflation. there is conflict if kishida wins this vote today and takes over as prime minister on october 4. manus: keeping an eye on the

nikkei, we are down, along with the topix. you're going to get a lot of people saying this could be something to do with politics. this is probably more to do with global economics and the tech crunch saw in europe and across in the nasdaq yesterday. stephen engle. the nasdaq having its worst selloff since march of this year. the topix down 2.75%. surging energy prices boosting inflation, slowing recovery from the pandemic induced recession. meanwhile, adding to the dilemma of the world's central banks. david, how are you?

dani and i have been chatting about a global stagflation issue. are we in a period of global stagflation? good morning. >> good morning. as a matter of fact, talking about the world economy, demand is not the problem. it is the supply-side. this is typically what we have seen in the late stage of the business cycle, ergo a phase where we like to talk about stagflation and stagflation is usually the result -- there is enough demand or too much demand and not enough supply. we are in this space. what you can call it is -- the big question is how long will it last? how will the supply-side adjust the higher demand? >> in terms of trying to cope with it, manus pointed something

out to me i cannot stop thinking about. that was coming from andrew bailey saying the shocks we are seeing are restricted to the supply-side and there's only so much central banks can do about it. what can central banks do about this? are they hamstrung in terms of coping with supply-side shocks? >> to be honest, central banks are not in a role to deal with that. market forces encourage to increase supply. this is what we have seen here. politics can also do something. you see, central banks can contribute to that by dampening demand by higher rates, by more monetary policy. but the challenge for central banks as they have committed themselves so much to austere financial markets to play their

role to stimulate the economy. now they are really careful. some are testing if they can withdraw the stimulus. some are not. this is the challenge for central banks to see if signaling withdrawing stimulus is too much for financial markets. headwinds also for the world economy. the path to bring demand and supply together is rather on the market site. -- side. manus: we spoke to the secretary general. goldman is talking $90. bank of america talking $100.

do you believe in the reality of demand destruction in the oil market? how much of a risk is oil ramping at these levels to demand into the global economy? >> oil is the bigger risk than the gas crisis, which we have seen already rising fast. as a matter of fact, there is no shortage of oil in the medium-term. there is no shortage of gas. it is simply that at the present time, there is a mismatch of supply and demand. you have the china story that they are not allowing electricity prices to rise. this is a mechanism which is not set in motion to bring supply and demand together again.

the oil market, we think there would be demand destruction, but temporarily. dani: you are going to set us up for the conversation we are having today about, and what do we have that? you see oil being problem now. we are going to keep you around. we have much more to discuss. just want to quickly go over what we have learned from the japanese election so far. it is kono and kishida facing off in a runoff for the ldp vote. this is for japan's prime minister. the two women candidates not moving onto the next round. the vote happening earlier than we expected. we could get the final result of this runoff earlier as well. manus: the nikkei and the topics down -- the topix down. there is a cracking piece on the terminal.

regardless of who wins in the markets, there will not be a celebratory mood. global markets under pressure. the nikkei at 32,000 -- we are 29,500 at the moment. what you have going on is an the equity markets is more a deep-seated concern about the global bond markets and that is on global equity markets. oil is a bigger problem than gas. there's plenty of it. dani: as you were talking about and as we heard from others, it is the under-investment that is constantly weighing on the price of oil. we are going to be talking about that coming up next. manus: we have bumped off the $80 level, heavenly? the build in u.s. -- for the

first time in weeks. this is bloomberg. ♪

>> good morning from bloomberg's european headquarters. it is six: 30 a.m. in the city of london. i am dani burger alongside manus cranny in dubai. this is "bloomberg daybreak: europe." janet yellen warns of catastrophe. u.s. stocks suffered their worst drought -- rout since may. a dangerous man. senator elizabeth warren

launches an attack on powell. plus. >> do we expect shortages in europe? at the end, it's a matter of, you know, is price. such high prices. >> the power crisis escalates from europe to china. industrial price powers using the crunch. manus, happy middle of the week to you. we are almost there but we have a lot to be within the medium term. this global bond market has been on fire. this deepening selloff has started to send equity markets slower. he saw the worst one-day performance of the nasdaq since march 2020. we are unable to buy the dip, sustain any gains. we are seeing futures in the u.s. turn higher. the selloff moving into asian

stock markets as well. manus: we both looked at the bank of america story. i have got to hand it to you. we found the best mine of all. plagiarism is right. you know what i learned about pavlov's dogs in psychology? maslow's hierarchy of needs and pavlov's dogs. tell me about the pavlovian dip buying phenomenon. dani: we had morgan stanley warning that markets could get worse. as you said, a very colorful way, calling it a pavlovian buy the dip response. wonderful market imagery for you. basically saying that there is a chance of a bigger fragility event in equities before year-end. moral hazard. it cannot lose attitude from

investors. it only raises the risk of a larger fragility shock. pavlovian buy the dip response. manus: and it does bring that energy to mine -- imagery to mind. it is an interesting move. 30 year government bonds moved by 11 basis points. i have one or two people who look for opportunities and they said we are coming close to the bloomberg consensus numbers. they have cash to deploy. we will pick up the trading at over 2%. this could be come along the dell ceiling, janet yellen is using words like catastrophe. i know it is her job, but the debt ceiling could put the cap on the yields. dani: it could. the debt ceiling is typically one of these things that investors ignore. they say it always gets figured out and we have janet saying

catastrophe. manus: so let's see whether that catastrophe is across the markets. the bond markets, equity market that caused the spiral. the worst day on the s&p 500 since about the start of the year. let's have a look at the risk board and get to those markets for you. no doubt about it, there is a small pavlovian response after the worst selloff we have had in a number of months. they are buying the stocks. we have the nasdaq which got crushed yesterday. nymex down 1.8%. a bit of an inventory deal in a number of months you are looking at piles up for the first time in eight weeks. cable has -- in part, this is a dollar story. drilling getting entered by this concern around inflation and that is a view around nomura.

it is reacting to this inflationary shock. let's talk a little bit more about the oil market because -- withstand the pressure of the equity market selloff. was it demand destruction? i don't know. oil demand is continuing to grow through the middle of the next decade. the global fuel consumption fully recovering from its pandemic slumped in 2020 three. i spoke to the secretary general. let's take a listen. >> the worst is over for this pandemic. the recovery will continue. it may be slow. it may be bumpy, but we are on the path of this positive

trajectory. manus: we will not need as much oil from opec as we did in 2019 until 2026. is it correct to assume that between now and 2026, gore still going to have to have restrained and cuts? mohammed -- you are still going to have to have restraints and cuts? >> the first outlook released by any repeatable institution. and we are positive in this outlook in terms of demand. demand will continue to grow. this will ease the consumption of energy. we are projecting 28% growth in

energy between now and 2045 for good reason. the population of the world will grow. we have also projected to you that the global economy will more than double between now and 2045. we believe that going into 2026, energy poverty will be brought back on the front banner together with climate. therefore, the world will double its efforts with the united nations as a result several years ago. manus: the opec secretary-general speaking to me late yesterday evening. the energy markets have retraced slightly.

the head of european energy research at morgan stanley. i could not get the secretary-general to even hint whether opec will be prepared to add more barrels. but let's deal with this oil market. the small pause this morning but is it a pause before another resurgence? are you in the $1900 camphor oil or demand disruption? good morning. >> good morning. he is certainly a skilled deflector of those types of questions. look, the question that you are asking is exactly the right one. the real conundrum is that we should be undersupplied. and then we are finding even more inventory tools so there is something to be explained in oil market for six at the moment. the picture is not entirely clear. could it be well more than that? we can find 2 million barrels a

day of inventory over the last month or two. so what seems to be happening is that oil prices have long disconnected from the marginal cost of production but they are searching for the price at which demand is starting to be destroyed and that is the mechanism by which oil prices recovery takes place. once the man destruction price -- it's analytically a challenging task. if you look at oil prices in the basket of emerging market currencies, oil prices in indonesia hundred p.m., south african rand, you are already looking at prices in those local currencies that are either at the level we saw in 2012 and 2013 or well beyond that. 2012 to 2013 in dollars spent was $110 per barrel.

in those countries, you are seeing equivalent prices like that hit it would be reasonable to expect that at least in those parts of the emerging world, some demand instruction is -- demand disruption is starting to take place. dani: in some places, demand disruption is taking place. you had written that $80 a barrel is where we see that demand disruption. does that estimate have to change if we do not see it more widespread? >> that is an excellent question. that was back in june. a long time ago. we put a lot of stimulus in the system during the covid response . the tricky thing about trying to figure out what the demand disruption price really is is that some of the historical analysis that you would typically do to find that price are somewhat distorted by this enormous amount of stimulus and given that that stimulus is in place, it may well be higher.

i think that there are some lessons to be learned from their recent experience in the natural gas markets. in the market for electricity. you are seeing a similar thing being played out at the moment. those markets are also searching for the price disruption level and those markets are telling you it is quite high. to the upside. manus: martin, when you see china coming in and trying to control power prices this morning, that has a potential cascade effect on global growth. how do you interpret the move by the chinese this morning that they may control power prices? >> it is really quite a tricky one because it reverberates around the world. the consequences pop up in unexpected places. aluminum smelting is very electricity intensity of --

intensive. china produces a 60% of the world aluminum broadly, and therefore, with villas curtailment, we are now seeing aluminum prices spiked. we are also seeing china pull harder on the seaboard markets for natural gas to still produce as much electricity as they can. normally, europe is a big landing ground for the world's lng. europe, we have our own situation around natural gas inventories. the imports are a real challenge. so when china sort of starts to put in place some of those measures, it really reverberates around the world. you would expect this would be inflationary to a degree and a headwind to growth. >> on that note, jeff carey from goldman sachs yesterday speaking to francine lacqua, saying this is the old economy, this

underinvestment, chronic underinvestment. given those dynamics, how long do we have to live with this, martin? --do we have to live with this? >> this is a question of the modern age had surprised this is not getting more traction. i think it is referring to the net zero report and in that report, they said, look, to meet their global warming targets, oil and gas consumption must fall sharply. oil must fall by a quarter between now and 2030. and then they go on to say, to really do that, we should not develop any new oil and gas projects anymore, and frankly, that makes sense. if we complete stop investing, production of oil and gas will fall off even sharper so we need some level of investment to manage the decline in the output of fossil fuels. they put a figure on it.

$350 billion of annual investment in oil and gas development is what they think is still needed in the net zero scenario that is fully compliant with the goals. last year, capex was $350 billion. this year, this number is not going out. we will have to see whether it goes up in 2022 because at least for the property listed oil industry, going to shareholders with a message of, well, we are increasing investment. it has become extremely difficult. hard parts of the oil industry -- it is half the world's oil industry. a story of growing capex has become impossible. you have an industry that is effectively investing for net zero and then the question is, is our demand on track for net zero? the demand rebound coming out of the covid crisis has been rather strong. arguably, it is not. we may need to live with it

for a while. dani: we are coming up to a break. i want to thank you so much for joining us this morning. that is the global oil strategist and head of european energy research at morgan stanley. let's get to the first word news with juliette saly. juliette: china stepped into by a stake in a struggling retail bank from evergrande as it seeks to limit contagion. evergrande is offloading a 20% stake in the bank for just over 1.5 billion dollars. according to a hong kong socket statement, all proceeds will go to settle debts with the lender, leaving nothing more for bondholders. boris johnson says the u.k.'s fuel crisis is stabilizing. speaking publicly for the first time since panic buying at gas stations left many without petrol, the prime minister pushed back against industry demands for more visas for foreign truckers. the country is facing an estimated shortfall of 100,000

truck drivers. 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. coming up, the energy crunch goes global. the ceo says the surging gas prices could last through the entire winter. do not miss our exclusive interview. that is next. this is bloomberg. ♪

>> i think as we go through it, it is the first time.

such high prices. it started from europe and china. all of the energy from the u.s. went to -- of course, it lifts prices in europe. inventories are low so low inventories obviously are not a good idea. to answer your first question of the future hike, we don't know. it is clear that we are facing such an unusual situation which means, by the way, that it is also proof that natural gas has a role to play in the energy transition and this is why chinese demand is so high. >> march 20, 22 -- >> winter. march or april. it will the patent on the

temperatures. i don't expect some shortage of gas. the question of course will be if it is going to high and then you could see some strange move. some countries are speaking about fuel which will be not good at all for climate change. >> what do you think opec-plus can do to limit this increase in prices for the rest of the year? >> what they could do is produce more. u.s. shareholder. we are seeing players which are prudent in their supplies. maybe some of them -- all of that is delayed so we have entered into, i would say, a

cycle of high prices. lower investment. generally, the oil business, when prices are high, people begin to invest more. >> so you think the cycle will go through the winter as well or longer? >> it's possible. honestly, in february, -- it would be at such high prices. you have a global dynamic. climate change. in particular, in western countries. we are putting more money in renewables. this trend has not incentivized people to rush. i think in the u.s., you also have some consolidation. less players with less investments. discipline in the oil markets. it will be how long it takes for people to forget.

$40 or less. it could take time. we will see. >> is brexit responsible for the u.k. -- >> i am not involved in that. it is a shortage of truck drivers. not only in the u.k. in france and in the u.s. covid i think is responsible. these professional truck drivers discover their lives or maybe not so easy. the salary to drive trucks is not enough. in the u.k., i think it is exacerbated. that is another point. it is not directly linked to brexit. covid plus i think is the policy followed by the government. we are not involved in that so i'm not sure what is the extent

of this crisis. we don't see that in france. dani: patrick speaking to caroline connan. we have all eyes on the ecb form panel happening later today. more on that next. this is bloomberg. ♪

manus: -- japan for daybreak europe. dani burger is in london. i am manus cranny in dubai. account is ongoing. uchida -- the count is ongoing. kushida with the edge. all of our bloomberg terminal users can hop on and get the very latest. this is going to the edge in terms of the former foreign minister.

kushida having the edge. this is the line from adrian kennedy, our editor on the g live blog. dani: kono seems to be the most popular candidate with voters. manus, we are looking at the topix and the nikkei dropping. cashing some of the falling of u.s. stock prices, not necessarily a politics story. manus: the japanese stock market, as you can see, the nikkei is down 2.25%, likewise with the topix. is there a shift from growth to value as these yields rise in the u.s. and globally? just heard from a number of people talking demand disruption in the oil market. the line of the day goes to dani burger. is it alive and well?

dani: pavlovian buy the dip. u.s. futures up at the moment. that is it for us. the european open is up next. we will have it continue on into the next hour. this is bloomberg. ♪

dani: good morning, everyone, and welcome to "bloomberg markets: european open." i am francine lacqua with tom mackenzie. here are your top headlines. debt ceiling fears. janet yellen warns of catastrophe including a possible default. treasuries selloff is eased. elizabeth warren launches a blustering attack. jay powell potentially complicating