>> bloomberg: europe.

these are the stories that your agenda. manus: jay powell vows to beat inflation. one fed governor backs another 75 basis point rate hike as treasuries trim the game. wall street's biggest banks get the green light to pay millions to investors after passing the fed's latest test with flying colors. historic step. the european union grants ukraine candidacy status while eu leaders devise strategies to weather russia's gas supply cut. we seem to have moved from inflation to our obsession about the failure of growth. or is it the other way around? your call. dani: i will certainly not make the call.

i am not brave enough. but it does feel like the inflation trade is blowing up nearly as quickly as we put it on. it is about the oil patch coming down, the decimation of commodities. let me show you what it is doing to the equity markets because futures are up once again after the u.s. rallied yesterday. s&p 500 futures are up 0.7%. tech is outperforming again. this is a bit of the undoing of the inflation trade. we have those longer durations increasing. tech is on track to end the week higher. a rarebit over prefer the markets come out what was once overly valued. we have euro stocks futures up. it was closed when the u.s. rallied, so maybe catch up. it does come off the back of yesterday's very weak pmi's out of europe, 16 month low. ray dalio and the folks at bridgewater doubling their short

bet on european tech. so finding buyers this morning, manus. manus: i think what it is is, is powell might verbalize and unconditional commitment. i think it is reflected globally in the aussie rates. i popped in the aussie rates for you on the tens because they are down. you are also seeing copper come down by 3% in singapore, the biggest one-day drop in a number of years. miners wiping out this year's gains on the global copper miner index. japanese inflation ahead of expectations. what does that do to the bank of japan? will that rock them of wcc? the yen strengthens slightly. oil stabilizers, but for me, it is about the rates market

basically believing that inflation may have topped out and they are more upset us or neurotic about the growth story. let's get the story from our reporters. juliette saly has the asian market reaction, so we will go around the house. dani: we also have maria tadeo, who has the latest on ukraine's eu candidacy. finally, we will talk about wall street banks and their resilience to the recession with patrick winters in sydney. kicking things off with jerome powell, who has promised to do all he can to curb runaway inflation during his second day testifying before congress. >> it is unconditional. the reason is we need to, in a particular situation, we have a labor market that is unsustainably high. we are very far from our inflation target. we need to restore price stability and get inflation back to 2%. without that, we are not going

to be able to have a sustained period of maximum employment. dani: fed president bowman backed an increase of 50 basis points in the next few meetings. let's get more details with enda curran. is this just everyone falling in line behind that 75 basis points in the next meeting, despite a market which feels like it is turning? enda: it feels like the conversation is moving toward 75. bowman is the latest. the chicago fed is another. you heard chairman powell use the word conditional thursday. he had not used it in wednesday, even though it was in his report to congress, so he made sure to put it on the record on thursday. he made two very clear points. the labor market is unsustainably hot and inflation

is nowhere near where it should be, nowhere near the 2% target. even though he says the economy is coming down on the hawkish side of things, the expectations now is not whether they go by 50 in july, it is whether they go by 75. manus: where are we on the recession debate? it is how much of a slowdown with the fed tolerated according to larry summers. you look at some of the big highs and they are talking about a 50% probability. morgan stanley, it is not there bear -- their bear case, but possibly their base case. enda: j.p. morgan is letting go of staff, pmi showing signs of softness. but the big debate is on the trade-off. what kind of recession will it be in the u.s.? will it be deep and long or somewhat shallow?

that is what people .2. consumers say -- bankers are making the point that the alternative is expectations become embedded. that will leave longer-term economic damage. that is why things are going so hard now. manus: i would give it to you in the shape of an inverted nike swish. there you go. you can come back with a balance later on. i don't know why i am laughing because it is not funny at all. our chief asia economics reporter enda curran. juliette saly keeps a straight every day on the show. she is in singapore. lots of inflation from japan. how does it leave here? juliette: indeed, manus. today is a positive day across asian equity markets.

we are certainly seeing a stronger yen today, up slightly from the 24 year lows. it is the tech layers giving a good boost as we see yields continue to drop and a chinese tech shares continuing to rebound from those 2020 lows, also helping up sentiment the fact that president xi has progrowth policies. bloomberg economic says that will be very positive. still seeing the drop coming through in yields, particularly in the shorter end in australia's tenure. let's take a look at the extreme removes in the three year yield over the course of this week, which has dropped by some 43 basis points. this is an interesting piece our mliv team has put together on their blog, saying you have not seen the six ordinary drop in the short end guilds during a rate hiking cycle. the rba is likely to hike next month, too.

out of the 11 times we have seen drops the significant, eight has been when the rba has been cutting rates and saying this is the big move in terms of a global potential slowdown. dani? dani: juliette saly in singapore. manus, bless you. i didn't say it at the time. it is also the second day of an historic summit of the eu leaders in brussels. yesterday, ukraine and moldova were granted candidate status for membership of the union. georgia was told it could win the same status if it meets certain conditions. >> all three countries are part of our european family. we never had any doubt about that. today's historic decision by leaders confirms that. it grants all three the perspective of eu exception and lays down the path ahead. i think this is a moment of great satisfaction and i am very pleased with the leaders endorsement of our opinions.

there can be no better sign of hope for the citizens of ukraine, moldova, and georgia in these troubled times. dani: for more, we are joined by maria tadeo. how significant is this i the eu? maria: it was expected, but we should not lose the importance of this and the historic nature of this decision made by european leaders. ukraine granted candidacy status to the european union. this had been the centerpiece for the foreign policy. they had campaign for this for years. then they get it as the war continues. to me, it was very striking yesterday to hear from the french president emmanuel macron. remember, this is happening during the french presidency. it was the war in ukraine that accelerated this whole thing. had russia not attacked ukraine, we probably would not be here

today making and announcing this decision, which goes back to this huge miscalculation by vladimir putin when unleashing this war. president the lenski -- president zelenskyy jumped on a call yesterday after the decision was announced. he thanked all the leaders, and as a very brief reminder, there is a big difference between being a candidacy country to the european union and a full member of the european union. sometimes this transition can take years. nonetheless, it is a political win for ukraine. manus: good to see you this morning. great interview, which i think we will see more of later. but a lot of challenges for the leaders at the summit on the economic front, on how to replace russian gas. we are entering this crisis zone, or we? -- aren't we? juliette: what a perfect -- maria: what a perfect storm that

is about to hit. we heard from the german economy minister declaring a gas emergency in germany. yesterday was about the politics, as you say. today was about the economy. we are expected to hear from the head of the european central bank. there are serious concerns about the world prospects. there is concern about the gas flow through the winter. and the storage in the summer that you fill ahead of the winter months for the europeans. they were very much about russia, now unilaterally cutting flows from the russian federation into big economies like germany and italy. manus: maria, we will see you later on. maria tadeo in brussels. wall street's biggest banks are set to give tens of billions of dollars to investors after passing the annual stress test whats. -- stress tests.

what were the stress tests and were they realistic? that is the question we need to ask ourselves. let's get our reporter on the story in terms of reality checks on the stress test. dani: let's get the patrick winters, who i believe is joining us now. to address manus's question, the grim indicators, they seem to do a lot better than perhaps expected, or they were expected to pass. break it down. what should we make of these results? patrick: this is like an annual parade for banks in the u.s., paying out returns to shareholders is dependent on parsing it. if we look back to last year, banks easily clear the stress test, setting the stage for big payouts. this year, the picture looks slightly more ambiguous. the u.s. banking giants are set to return $80 billion to shareholders this year, according to projections, but

there are question marks. what's more, this test was devised in february and the market has moved on since then. though you may see banks with shares rising on news of the stress test, i think banks need to be cautious about how much capital they want to hold back and return to shareholders. manus: let's see whether they pull the payments. that is patrick winters on the fed stress test. coming up, s&p tumbling into a bear market. recession worries in four days of this week. the fed wraps up the borrowing costs. we speak with our guest. that is next. dani: plus, more potential trouble on the horizon for boris johnson. a fresh election loss for his conservative party. consumer confidence hits a record low. we will be live from westminster. that is later. this is bloomberg. ♪

>> inflation is happening everywhere now. >> more of our inflation is from demand,, and we do have tools to deal with demand. our tools are blunt, but they are the right tools to deal with broad aggregate demand. we are very far from our inflation target. our intent is to bring inflation down to 2%. inflation getting back to 2%. it is unconditional. our commitment is the path has gotten more challenging thanks to the effects on oil prices and food prices. people do expect inflation to come back down to levels consistent with our price stability mandate. without that, we are not going to be able to have a sustained period of maximum employment. manus: the fed chair jerome powell speaking to house financial services committee yesterday. the governor shall bowman said

-- michelle bowman said she backs a 75 basis point hike in july and an increase of 50 basis points in the next couple meetings. socgen said the s&p 500 would tumble as much as 40% from its january peek over the next six months. some pretty tortured calls out there. dani: from recession risks to maybe the worst the equity market is over because the commodity rally is over. a lot to digest. helping us to do that is aneeka gupta, director of research at wisdomtree. take your equity knowledge and commodity knowledge and put them together. when you look at oil tumbling, at metals tumbling, how does that feed into your immediate input of what you're doing with equities? guest: it is a really challenging time. what we are really seeing right now is the economic data is

clearly reflecting a slowdown. we are definitely on that path. but commodities are responding. we are seeing oil prices come off. that is clearly resonating with recession fears. we have seen that across the industrial metals space where we have seen prices come off. i think that is largely reflecting the slowdown in china because china is one of the biggest producers and chasers of commodities. what we believe is over the long run commodities are going to be driven by the energy transition, the supply deficits that we have across the commodities space, and those calculus remain in position. sentiment is in the back of the commodity market right now. manus: aneeka, good to have you with us. let's a strap a late -- let's extrapolate that further. oil, copper, the first back-to-back weekly losses. this is against breakevens and

you begin to see that demolition in commodities permeating into the breakevens. and the discussion is this that we had this morning. does the sell side too doom laden because there is rollover in the breakevens meaning we will peak at inflation and maybe that will mean the fed will blink? guest: i have to disagree. one thing was very clear from yesterday's testimony by powell. what really came out quite clearly is the selloff we are seeing in the market is not going to pick up powell's intent to tame inflation. we have seen that across a number of fed speakers, where they are very clear they don't want inflation to become ingrained in the u.s. economy. they are late to the party, they are intent right now on fighting

inflation. guest: does --manus: does such a demonstrable rollover in breakevens not make the case that the rate hikes are working? by the way, this is not my view, i am just using the data. the breakevens are rolling over. guest: what central banks are doing is working, you are absolutely right. but is that enough? we are looking at inflation levels and inflation hovering around 9%, peaking around 10%. we are looking at inflation in the u.s. hovering around 7%. is the decline we have seen in commodities, which has only lasted for a very short period, is that enough to actually bring inflation down to levels that can match the underlying interest rates in each of these developed market economies? i think that is a big mismatch. there is a lot more work to be done by central banks. dani: let me throw a wrench into the cog in the debate you and

manus are having, or what the data is. you mentioned some of the come down in commodities is china, the economic slowdown there. you could say asia is behind us, behind the rest of the world in reopening. china has yet to fully reopen. when it does, the demand picture will get out of whack again. can we trust fallen commodities? can we trust the data of the fallen breakeven expectations as well? guest: you have hit the needle on the head because china is yet to reopen. asia since 2021 has not had that full reopening trade that the europe and -- that the u.s. and europe has enjoyed. that leg of the demand rally has yet to come to fruition, and that will also be another tailwind for the commodity rally. right now, i think there is too much fear and weak sentiment impacting the markets. recession fears permeating over

markets, i think that will soon abate on's you have fundamentals coming into light. dani: there is something aneeka has in her notes that i really love. central banks can't print commodities. i love that line. manus: there is a finite amount of commodities. but ed moore says on recession risks, you are at $80 as opposed to war premium, which is $30 above. the other thing we noticed this morning when talking about where we go with this conversation is europe. i want to get your opinion. i can't even open my pension statement because it is too much of a crucifixion. when i look at europe, it is at one of the biggest discounts. one of the biggest discounts to the u.s. that we have seen in many decades. you mentioned the pmi's. what is the turnkey for you to want to buy europe or step back

tepidly into europe? describe your position and your view. guest: unfortunately, now is definitely not the time. we have seen pmi data pointing to weakness. the other thing we did quote from the pmi data was despite the fact that we have seen supply disruptions start to ease, we have seen a buildup. it triggers a question of whether we are getting an inventory reversal, which could be a negative impact on the upcoming gdp prints for europe. the other thing that was highlighted in the pmi survey was companies are talking a lot about tightening, monetary tightening, of global financial conditions, which is impacting businesses very strongly. tons of positioning is value is the right place to be oriented within the equities space, especially for european

equities. the value trade still seems alive and kicking, and that is where we would position for europe. dani: certainly has paid off this year. things for joining us. aneeka gupta, director of research at wisdomtree. coming up, we are live at westminster. that's next. this is bloomberg. ♪

dani: that is "bloomberg daybreak: europe." dani burger and manus cranny. two heavy defeats in special elections in two different parts of the country. for more, we are joined by laura wright, live in westminster. break it down for us. how bad is this for boris johnson? laura: not a good look for boris johnson. we learned in the last 40 minutes that the conservative party chairman has resigned.

in his resignation letter, he took responsibility for the results. if we look at the details in wake field and yorkshire, that had a 12% swing. it was one of the redwall seats at the conservatives were able to take in 2019. what is extremely important are the results into the -- in tiverton. they were able to maintain a majority. the lib dems have taken from the conservatives in the last six months. boris johnson is the walking wounded. to add to this, consumer confidence coming in at a new record. manus: we will get b psst. girl. you can do better. ok. wow. i'm right here. and you can do better, too. at least with your big name wireless carrier. with xfinity mobile, you can get unlimited r $30 r month on the nation's most reliable 5g network. they can even save you hundreds a year on your wireless bill, over t-mobile, at&t and verizon. wow. i can do better. yes, you can.

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daybreak: europe.". dani: jay powell vows to be inflation. as treasury gains. no stress, they get the green light to pay off billions to investors after passing the feds latest test with flying colors. the eu leaders devise strategies to whether russia's have. we made it to the end of the week with an extraordinary bond rally, and route and commodities. it feels like this inflation trade is taking off as quickly as it was put on. manus: absolutely. the obsession now is about billing growth. in a up from wisdom treat was not buying any of the trade, rolling over in commodity. she wasn't having it.

the breakevens were rolling over. she was not convinced that that was enough to give the central banks, the fed, the latitude to let the dog off the leash, which is rate hikes. dani: exactly. you see it in the market, 70 basis points preston now for the next meeting. you get or sure, that is when you see that cut. manus: 30 basis points across the -- the biggest weekly drop since 2011. he got tenure on the board, down 15 basis points. got screwed up .5%. inflation beating expectations in japan. who would bring -- what would break the bank of japan? it will be today. copper get smashed, dumped or

presented london yesterday, down 3% again today. slow down. dani: dr. copper giving us some warning signs of the economy. feels like a very calm drift higher to end the week. something i feel like i'm not used to. i feel like it has been volatility every friday. this rally is continuing and features for the u.s., nasdaq futures up, if the fed is unable to continue to hike, if they don't keep doing 75 basis points, perhaps we can get a rally to come back in the growth sector. tech also rallying in hong kong, up more than 3%. european stocks are a pirate this morning after pmi's crushing yesterday, to the european growth story. a 16 month low. there doubling their bearish bets against european stocks.

manus: talk about the value proposition in european equities, the discount to the united states being even more significant. we talked about it, commodities rolling over. impacting copper, coming down by 3.6% this morning. let's get to daniela corsini. let's see whether you will take the other side of the trade. we are convinced, we are losing the battle that commodities rolling over under session obsession and fear. -- over recession obsession and fear. daniela: i agree with you. i think the current decline is explained by recession fear.

it is probably overdone, commodities declining over the next week. at some point, they will decline too much in rebound again with a strong movement, in my opinion. especially -- we have low inventories for copper and cadmium. with bullish long-term trends on demand. dani: does this count as another vote against our narrative that inflation risks are coming down? [laughter] manus: which is the tightest market?

to copper, tin, zinc, you talk about the supply constraints. let is establish which is the tightest market for viewers in terms of lmb stocks. daniela: zinc is currently the tightest market. in the longer term, i more positive on copper. i think copper is essential for investments in energy and infrastructure. as soon china reopens and we see physical demand growing in china, i think copper will rebound quickly. as we saw early. dani: we are on tour last -- we

were talking to our last guest, as china reopens, we are going to see rally. if we were to see recession, and that source of demand were to finally see more destruction, what does pricing in a recession look like in oil? is it the prices we see now or an even more steep decline? daniela: i think we will see a steeper decline. next year, oil prices could trade between 81 and -- we could go down to $80 if recession is confirmed. we would see some demand destruction, but only next year. this year but have a strong season. we have a rebounding sector in china reopening. we also sought chinese consumers currently -- i think this year

you have the crude oil prices. next year we could see lower prices. the average forecast for 2023 is close to $95. i think we could see declines below are 80 target. manus: what about on target -- products, going back to the inventory story. you make it clear, how do you see the gap in diesel and you look at the spread to move further and wider to represent that construction? daniela: i think the markets could increase further this summer because of the final market is tight. we had some refinery closure this year.

for the first time in 30 years, capacity declined in 2022 versus the year before. i think the marginal remain high we decline only next year. so far, i think it remains high. it will not help as they postponed the demand adjustment. dani: in germany, you have warning about a layman like contingent. -- layman -- lehman like contingent. if we do start seeing some of this demand rationing, what does

that picture look like? how about this again for germany? is it a lehman like contagion. daniela: i think the only way for europe is to -- the most important point will be how the government will ration gas. also -- i personally think the best way would be to spread it across the consumer sectors. i'm not sure the government will touch the housing sector. it is a risky strategy. we risk a recession in europe as we have low consumer confidence, high inflation and the ecb

hiking rates. the risk of recession in europe is weaker for next year. manus: you say it might be industry rather than -- that see that russian come through. when i look at gas prices in europe, we are nowhere near where we were at the peak of the invasion. yes, there is not coming from the german economy minister, when you look at gas prices in europe, as the kazakhstan prime minister this the other day, the risk of russia shutting off gas supplies in totality, do you think it is not a real risk? what do you think the market is under assuming that risk giving the structure at the moment?

daniela: it is not priced in. the commodity markets are not like equity markets. they just look at real-time, short-term. gas prices are just looking at flows today, tomorrow, next month. they are looking much forward. that is why i think the risk is not priced in. we don't see the direction of the european consumer to purchase gas. the reason gas prices is low compared with february is the fact that stocks increased, we are now close to the five-year terms of the percent of -- we are at 55 and percent and 66%,

versus a five-year average. we are well-positioned despite the explosion, the russians and despite the order high. manus: thank you very much, commodities economist at intesa some follow -- intesa sanpaolo. >> let's get to the first word news. bloomberg is wearing the u.s. is planning to escalate its complete that mexico is violating the free-trade agreement the country's share with canada. the u.s. has been working on a request for formal consultations under the trade deal. washington is concerned that mexico states energy policies violate the rule. the eu granting candidacy status

to ukraine, step on the path to membership that could last a decade. they will have to make conditions. the latest and brussels also granted candidate status to moldova. consumer confidence has dropped will record low in june as rising prices take a toll on the national mood. market research firm gf says its measure of sentiment dropped to -41, the lowest in the eight years. netflixes laid off another 300 employees as the streaming giant seeks to bring costs under control under uneven growth. the job losses, around 3% of the workforce, will mostly affect workers in the u.s.. they lost 200,000 subscribers

during the first quarter. global news 24 hours a day, on-air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. dani: thanks so much. coming up, u.s. senate has passed its biggest uncontrolled bill in three decades. just as the supreme court strikes down the need for a special reason to carry a gun outdoors in new york. this is bloomberg. ♪

dani: welcome back. to the u.s., where the senate passed its most broad-based gun reform in three decades last month -- last night.

it will help secure schools. it passed by wide margin in the upper house. as to pass the house of representatives before the present signs into law. becomes comes in date the supreme court struck down a new york law this is people need a special need to carry a gun public. a lot of confusion when it comes to where the u.s. stands on guns and safety. where are we at this point? >> it was a definite mixed bag for advocates of gun safety in the u.s.. the senate did pass the legislation on a bipartisan basis. this is the first significant gun legislation in decades in the u.s.. does things like expand background checks, provides money for school security, mental health resources, closes the so-called boyfriend

loophole. allowing people convicted of domestic abuse to be prohibited from buying guns. until now, that has been limited to spouses or domestic partners. there closing that loophole. this legislation almost assuredly will pass in the house. the republicans oppose it, but they are in the minority. president biden will sign it. that is happening on the same date we get this 6-3 decision, striking down a new york state law that has been in place for over 100 years prohibiting most people from carrying guns in public. this is a significant expansion of gun rights. it does not bode well for future cases that the court might hear

if people are looking to control guns. on the other hand, the nra, second amendment advocates think this is good news. manus: it is interesting to see this bipartisanship. what are the issues for the u.s. in regards to energy policy and mexico? they are escalating the claim that mexico is violating the free-trade agreement. >> the concern here is that the u.s. does not think mexico's current policies favoring state owned energy companies are in compliance with the trade agreement that went into effect a few years ago the updated nafta. the process going forward would be once the u.s. formally makes a decision on this, there is

about 100 day. -- 100 day period where negotiations could take place. if that is go without any agreement, there would be a more formal process that would begin. it is a drawn out procedure. the problem for the biden administration is the u.s. needs mexico's help at the border. manus: thank you. with the latest on the u.s. political situation from guns to trade. a double blow for the u.k. tories today. two heavy defeats at special elections in different parts of the u.k.. let's get back to westminster. laura wright is there. the question is, how much of a blow are these two election losses to boris johnson? he lost one of his leaders of the party that has gone as a result of this. is that a direct result of

losing the two election? >> it is. the conservative party chairman has submitted a resignation letter. he took responsibility for the results. a terrible night for the conservatives. in waitsfield, your church, a 12% swing to labor. it was one of the seeds conservatives claims back in 2019. the result being called a political earthquake. that has been a conservative stronghold since 1920. the lib dems managed to overturn a conservative majority. the largest to be overturned in any by election. he survived a vote of no-confidence earlier when 40% of his party voted against him. this concerns the mps are trying to orchestrate another vote of

no-confidence in boris johnson. dani: it is no secret the u.k. is dealing with this immense economic crisis. we have recent data on u.k. consumer confidence, how is that impacting the political landscape? laura: u.k. citizens are being squeezed on their incomes. consumer confidence data reached a record low, -41. to put that in context, -30 is a bearish position indicator. to add to this, inflation reached a 40 year high this week. real wages are falling, purchasing power is being diminished. the latest voter intention poll shows labor remains in the lead with a 6% lead. boris johnson is known to make a cat with nine lives look old. don't underestimate the prime

minister. manus: he will defend the tory bridge. in westminster, laura wright on the green. coming up, pink floyd sold its massive music back catalog. the story on bloomberg. ♪

manus: it's global news 24 hours a day, on-air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. manus: it's "bloomberg daybreak: europe." pink floyd looking to sell their massive music backlog. -- catalog. $500 million? it could be the largest sale of

music in history. the producer of the show, bruce, will get you $500 million. dani: i think i daybreak catalog could go for this amount. it is all about yields. at the end of the day, this is a fixed income asset. maybe i'm going to call peak in this market with pink floyd. manus: i want tournament or -- missing another brick in the wall. less time i sang was on cnbc. dani: will leave it there. ♪

>> good morning, welcome to