manus: good morning from our

middle east headquarters in dubai. i'm manus cranny. it's daybreak europe. g7 day, the group weighs a price cap on russian oil. global stocks start the week risk on as recession fears ease. chinese tech shares lead gains, while the dollar and treasuries decline. russia defaults on its foreign debt. for the first time in over 100 years. an event moscow labels as a farce. good monday morning, we are risk on. this market has had a pretty colossal turnaround on friday, 3% up on american equities despite rapid outflows. a defensive rally, goldman sachs saying the underbelly in the ramp-up was defensive.

why? because we are off the 14 year high of expectations for inflation. we will hear from bullard later. asian stocks rally on the tech story and jp morgan saying because of repositioning for the quarter you could see stocks rally another 7%. to the cross as a check this morning. oil as we going to opec, in the previous cycles of recession, in the past three this century oil on average dropped 66%. but it is a structurally different market in terms of capacity constraints. yields rise because maybe that excitement over the top of inflation on thursday and friday, you of m inflation expectations has perhaps topped out. copper has a reprieve, it has

dropped 11% on june, some stability coming to the china story. bloomberg calls it neutral positioning. we will put that to enda in just a moment. we've got maria tadeo in germany, covering the g7 summit for us. andrew james on the russia default, the first in a hundred years. and for news on the chinese economy, enda curran has the position for neutrality. the leaders of the g7 are committing to provide indefinite support for ukraine. they are said to be discussing at caps on the price of russian oil, as moscow defaulted on its foreign currency debt for the first time in a century. maria is on the ground, this was the sign from boris johnson over the weekend which was, be

careful not to undermine the unity on the war. maria: it is a g7 that is dominated by the war in ukraine. russia made sure to remind everyone here when it shelled the ukrainian capital hours before the g7 started on sunday. the challenges are enormous. they are staying united. inflation and the energy crisis, security, i could go on for another hour read none. we are waiting for solutions by the end of the summit. to go back to your point, the g7 leaders have stressed on day one that they are united and will stay together. they are democracies are bound by shared values and they will continue to do this as the war in the rain content -- ukraine continues. they are expected to say that

support for ukraine will stay on as long as the invasion continues. and if the start measure which could be announced, the caps on oil prices. there are questions around the technicality of this. does it work in real life and who would jump into this global coalition to make sure putin does not make the money he has been making since the war started. manus: it will be interesting to see whether that chasm opens up between the u.s., u.k. and german-french gathering in terms of pushing for some kind of an end to this war. we will be you through this morning in bavaria at the g7 summit. oil is trading higher this morning. investors on the lookout for any news from the g7 which is weighing on the price of all -- on the possible price cap. fears of recession also continue in the markets, let's get to our energy editor in singapore what he expects in terms of the g7

moves. we are waiting for the details on what a price cap might look like,, what do you think? >> hi, manus. the price cap news has been floated before, we have had this these over the weekend that it is being considered. as maria pointed out, at what level that is set will be crucial. we also don't have a lot of details about how exactly it would work. it would have through controls on shipping and insurance. until we have more details, it's not really moving oil significantly. we're basically holding steady. there is also some skepticism that it will actually work. our bloomberg oil strategist has a skeptical call on that. until we get more details, oil is continuing to trade on

recession fears. we are down about 12% from the peak in early june, even though we had a bit of a bump on friday. manus: that oil premium seems to have dissipated for now. we are off those highs in the gas markets as well. let's see with the details are from g7 at bavaria, our commodities and energy editor andrew james. russia has defaulted on its foreign currency sovereign debt for the first time in a century, a combination of topper western sanctions that shut down payment routes to overseas creditors. joining us now is our overseas editor for rates, garfield reynolds. it is a default in a per verse way, how would you describe this default? garfield: it's a default on the basis of russia's exclusion from

the global financial system is the best way of putting it. that's what the sanctions are aiming to do. because they are saying you can't really have access to dollars, we will take away your foreign exchange reserves and you are excluded from that part of the system. russia says we can still capable, in rubles -- can still pay people, with rubles, and that was a loophole that has since been repudiated. it is perverse, but the idea is the actions of the sovereign have excluded it from the international payments system and that is how the default has happened. it's not that the money is not there, but money is not allowed to be used for that because of the ruling from the u.s. and

others that russia is outside of civilized society. manus: certainly they are a pariah state use a phrase from the president, just referring to a different nation. garfield, the default is real, does it escalate from here? we will talk through the week, garfield reynolds on the first default since 1918. if you wonder what the underbelly of the american equity market was, it was mega cap defensives. the hang seng tech was up over 6%, a tech led rally. beijing in shanghai cutting the controls. you are looking at a more neutral economic stasis at the moment in china, whether that

escalates back to a growth trajectory will depend on stimulus. if the shanghai copy moves over 1%. over 1% on the csi 300, 1.4%. we are seeing a reprieve on the commodity side as we saw iron ore, tin and copper see a bit of a bounce. but these early indicators for june point to a chinese economy in recovery, in particular after lifting lockdowns across the city. let's get to enda curran, our economics editor, joining me to discuss the lifting of these lockdowns in shanghai. good to have you with me, we look at eight pieces of data, what is that telling you first of all from recession to expansion? enda: production on the industrial side of the economy is getting back on its feet.

early indicators have been in the red for some time now. the move back to new full territory is helped by the easing of lockdowns. construction is also doing well and we have seen new car sales in june beat what they were a year ago. the services side, or contact insensitive -- intensive side, retail and catering have not recovered because of ongoing curbs. the area read for june is picking up speed. the coming month should at least be a better month barring another major upping of the buyers. -- outbreak of the virus. manus: it is important to the

economy and the commodity complex. it is the 25th anniversary of the handover in hong kong. we are on tenterhooks with regards to taiwan, and ukraine and russia, what do you think xi once said to the world about hong kong? enda: he will make some kind of commentary on hong kong's role as a gateway for china's economy, as an international financial hub. playing that role and how he envisions that in the next 25 years. it is less likely that he will develop into civil liberties issues in hong kong. he is expected to delve into micro issues like the quarantine required for arrival.

it's not clear if you will -- if he will speak on ukraine or other issues. a lot of people will be looking to see if he is trying to signal , and how those will be taken by the western world and whether it is vegan wine all of branch -- jenny wine olive -- geniune olive branch for the resetting of hong kong. manus: a quick check of the markets, at 8 p.m. will be spain securely ppi -- spain's yearly ppi data. the latest trade balance at 1:30 p.m. u.k. time for hong kong. durable goods orders will be the

canary in the u.s. coalmine. i will talk about recession with jane foley, queen of fx some would say, she's at rabobank. this is bloomberg. ♪

>> if we do have a recession, it's likely that it would be on the shallower end for two reasons. one, private sector balance sheets are in the better shape than at the end of previous business cycles. while inflation is high, i don't think it is as entrenched as it was in previous high inflation eras. >> i think we will be fine. interest rate increases will slow down the economy, probably

more to a trend pace of growth as opposed to going below trend, so i think it's a little early to have this debate about recession probabilities in the u.s. manus: the feds james bullard, and a goldman sachs economist on u.s. recession risk. jane foley is the head of fx at rabobank, does she share this view, it will be shallow, do you think we will have a shallow recession, nothing more than not? >> we are forecasting a shallow recession may be towards the latter half of the year. that is the function of the aggressiveness of the federal rate hikes. we saw from paulo the commitment to putting that inflation

monster back in its cage. the fact that monetary policy is such a blunt tool means it could be difficult to avoid. as shallow recession for the u.s. has significant implications for interest rates and that is what we are seeing the market try to work out right now. manus: the market, who is not to love the market versus what the fed are telling you, it seems to have trimmed back aggressively in terms of where we go with rates. it shaved 50 basis points off last week. i want to deal with the forwards because i think that will drive the fx narrative. looking at rate cuts next year, does that challenge the dollar supremacy in a shallow recession? jane: if you are talking about an economy and recession, you would normally be saying yes, that is negative for the currency because you are talking about interest-rate cuts and

that sort of thinking. the thing about the dollar in terms of its function as a safe haven. if you're talking about recession in the u.s., that is not a strong endorsement for risky assets. when the risky assets are looking good, the dollar performs well. the other thing is what happens for europe? we think europe could be in recession at the end of this year or beginning of next. the risks for europe are stronger and this is because they are linked with energy. we have had concerns last week about what could happen to the gas supply in germany over the winter. we had significant concerns from germany's economy minister, and he went to the iea that putin could cut off gas completely. manus: so, the risks are stronger for a deeper and more

protracted recession, or it could be short and sharp. we just don't know where russia and ukraine ends, to be fair. but on a deeper and more protracted punch in europe, would you reopen speculation for parody, or is that me just trying to get a headline? jane: it's not our central view. we see a potential for euro-dollar to dip into these lows. if we were to break 103.50, there is not much between there and parody. we can outline scenarios in which we would have parity, that would mean recession in the euro zone and risks coming from russia with respect to gas prices. we have heard warnings from germany already about the possibility of having gas cut off to industry groups that sometimes, in order to protect

households and maybe hos pitals from energy shortages. if we have that scenario, it's likely the market will be concentrating on countries like italy, big industrialized nation very sensitive to energy prices. and if we concentrate on italy, we are likely to talk about that and -- debt and fragmentation, and the ecb knows it has to stop that fragmentation risk. there will be a lot of pressure on the ecb in those circumstances. that is a scenario where we could see parody. it is quite easy to outline the scenario in which it happened -- it could happen. manus: there is a lot to go wrong before you break that level which then leaves you 300 bips to trade to parity.

the scaling back in expectations of rate hikes for the ecb but can we just pause because the debate is this, whether the fed blinks, as in just does not do the whole 200 basis points. i put it this way, does the ecb need the fed to be less aggressive to allow them the latitude to do lists? -- do less? jane: i'm up here foreign-exchange perspective, could say there is an element of beating the joneses in terms of what central banks do. the ecb does not want to see parity, so if there is a stronger dollar on the back of the fed, the more the ecb needs to talk of its interest rate hikes to protect parity becoming part of the conversations we are having now. you could say that about other

central banks, too. look at the pressure on dollar-yen, for instance, that is a function of u.s. yields pushing higher, opening up the bank of japan to speculation they may have to do something about yield curve control. norgesbank, sweden, you could say they all have to do 50 now because the ecb is talking about 50 in september. there is an element of beating the joneses from a foreign-exchange point of view. the market expectation friday is maybe that inflation is not so bad in the u.s. it gives risk light to central banks. -- respite to other central banks. manus: we might need more than that to consolidate the thinking. jane fully they are on the fx calls, the head of fx strategy over at rabobank. the u.s. supreme court ends the constitutional right to abortion. more the story here. ♪

manus: it's daybreak europe, good morning, i'm manus cranny in dubai. bruce einhorn joins me on the reaction to the decision on the roe v. wade case, overturning of protected abortion rights enshrined in 1973. the reaction domestically, we have seen scenes of protest on both sides. the reactions at home and abroad, give us a sense. bruce: we've heard from the biden administration department of health and human services will protect the availability of abortion pills. that is something some states

are likely to restrict. attorney general garland said the department of justice would protect people who travel out of state to get abortions versus anticipating an attempt by some red states to criminalize or prosecute people who go to other states to get abortions they can no longer get home. --at home. there'll already 00 there -- there are already states that have laws going into effect now that roe v. wade is gone. about half of states will have laws that restrict abortion. manus: a great number of people are extrapolating from this ruling as something which will embolden the right and embolden a trump run. what do you make of that?

bruce: the first thing we have to focus on is the election in the fall, the midterm election in november. anybody who predicts how this is going to play out is taking a bit of a leap because we have never been in a situation like this where a constitutional right that has been in place for 50 years has been yanked away. what impact will that have on democratic voters who might have been sitting out this election? manus: we will pick this up through the morning, bruce einhorn there in hong millions have made the switch from the big three to xfinity mobile. that means millions are saving hundreds a year on their wireless bill. and all of those millions are on the nation's most reliable 5g network, with the carrier rated #1 in customer satisfaction. that's a whole lot of happy campers out there. and it's never too late to join them. get unlimited data with 5g included

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manus: good morning from our middle east headquarters in

dubai. i'm manus cranny, it's daybreak europe, these are the stories that set your agenda. g7 leaders commit to open-ended support for ukraine, the group weighs a price cap on russian oil. global stocks start the week risk on as recession fears ease. chinese tech shares lead gains while dollar and treasuries decline. not since the bolsheviks has russia defaulted, it now does the more the first time -- it now does for the first time in 100 years, an event that moscow labels a farce. it is a rally built on defense, it is too soon to talk about recession according to bullard. stocks rally this morning, asian stocks rise, the hangseng tech ramps up 6%. in china, bloomberg economics have china positioned at

neutral. global stocks also on the up despite the biggest exodus in nine weeks, nearly $17 billion flows out of global equities. 23.5 billion dollars accident bonds. a defensive rally all predicated on the thesis that inflation expectations came out the 14 year high. let's have a look at some of the other commodities. you are seeing goldman sachs remain bullish on commodities in the face of the recession test. in terms of the commodity complex, you got oil and bonds. let's have a quick look at the cross as a check. --asset check. let's move along and get across to laura wright with your first word news. laura: russia has defaulted on

its foreign currency sovereign debt for the first time in a century. the grace period for two coupons of $100 million in bonds expired at midnight last night. russia called in a farce, saying it has the funds to cover any bills and has been forced into nonpayment. profits at chinese industrial firms shrank, down six and a half percent from a year earlier, as easing covid restrictions allowed companies to resume production. separately, a bloomberg index of eight indicators in china showed improvement in june after two straight months of paul's. -- of falls. a poll suggests the majority of americans disagree with the supreme court overturning the right to abortion. it bound 59% of respondents were against the ruling. two thirds of women said they were against the decision.

voters were split along party lines with almost 80% of republicans in favor. india's reliance industries is in talks to raise $8 million for its buyout of a pharmacy chain from its american parent. reliance is in talks with barclays, hsbc, and runs and network with more than 200 stores across the u.k. 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, laura wright in london. the federal reserve bank of san francisco president says she expects that the central bank to raise interest rates that restrain the economy, though it is not clear how much further policymakers will need to go to bring down hot inflation. >> early term inflation

expectations have drifted up. the longer runs are remaining fairly anchored around our average 2% inflation target. they have inched up but not in the way you would expect them to do if you are losing the anchor and they had really got behind. manus: that's the latest state of play for the july meeting for the federal reserve. christian kopf is the head of fixed income and affects at union investments, he joins me now. it might not be such a straight trajectory for the ecb, layout the cassidy -- capacity for an aggressive ecb relative to the fed. christian: good morning, you are right. situation in europe is more tricky than in the u.s. mary daly made an important remark, she pointed out the

neutral rate needs to be seen in real terms. since we are facing higher inflation in the u.s., the rates would also have to go higher. in that respect, we are on a -- there may be another 75 basis point hike in july. in europe, the situation is more tricky. until late may, both the chief economist of the ecb and the ecb president said they would only hike by 25. then to the surprise of many, following last press conference on the ninth of june, president lagarde pointed out there may be a 50 basis point hike. we are facing a difficult situation with pressure from russia on energy prices. they may well settle for 25 basis points. we are looking for hints from the central bank gathering the

first three days of the week. manus: and we are also on the ground there with the g7. we are trying to work out the worst case scenario if russia cuts off the gas aggressively going into the winter. are you worried about major outages, about a short, sharp recession as a result of the gas prices? what will knock us in europe deeper? christian: that is the main risk we are facing at present. if you look at the situation in russia, they have been exporting $30 billion in oil and gas before the war every month. that is up to $60 billion. the export earnings have doubled since the onset of the war because of skyhigh prices in europe. at the same time, russia is no

longer able to use these export earnings in the way it used to. imports have declined by half, around $14 billion per month. if they want to weaponize gas, the time is now. you have the natural gas price on your screen, that is a high level that we are facing. that is the main risk in europe. we will see a sharp drop in gas exports to the european union and that may drop further if russia wants to weaponize it's gas. manus: certainly, those gas futures equivalent of $225 a barrel of oil. i think we got a clear reading from the ecb last week. we got a cracking scoop on ecb go, when lagarde gathered her merry band and they decided to reinvest the funds for maturing bonds.

she brought btp's from 4.6% to four point 4%, i call that a heck of an achievement. do we now have a line in the sand on btp's and the spread for what the tolerance level is for the ecb for fragmentation risk in the periphery? christian: i don't think so yet. i knew -- a new anti-fragmentation tool is ill-defined as of yet. changing around investment will be insufficient to curtail a rise of btp yields in the face of rising monetary policy interest rates. we are not there yet and the discussion is ongoing. most importantly, we need buy in from the physicals authorities. we are moving from the peace economy to a war economy, and we

cannot afford two conflict at the same time. we cannot have conflict with russia and at the same time have infighting in europe. if you ask will about crisis spiral out of control like in 2011, my answer is no, there will be means to contain it. manus: they have developed so many crisis mechanisms that we are well aware of and can be reprised. they may not be preferred. we will see with the new crisis kit is. going back to recession risk as a result of energy prices and the economy on a war footing, it is structurally different than the united states of america, in terms of liquidity. looking at the high-grade credit spreads, wrapping by -- ramping by 200 basis points, we are nowhere near covid-19 but they are blowing out. to what extent will be ecb be concerned about this ramp in

credit spreads? christian: that is a big problem. europe is a bank based economy. it has an impact on the financing provisions than it does in the u.s. you cannot ignore the rise of the massive spreads. if you look at the index, it is north of 500 basis points. that is a concern to the ecb and it will increase the risk of recession in the euro area. certain decompression spreads are as expected as you move towards higher rates in the euro area, so it is more about the speed. manus: christian, thank you very much. you get the prize for the best backdrop. in the garden, birds tweeting. and you have the tally on and are able to see the graphics.

you can come back indefinitely. that is christian kopf with sound effects, the head of fixed income and investment at union funds. the leaders of the g7 are expected to commit to indefinite support to ukraine. in germany the mountains look glorious. this is bloomberg. ♪

manus: monday morning on daybreak europe with me, manus cranny in dubai. the leaders of g7 are expected to commit to indefinite support for ukraine. they are meeting in germany and are said to be discussing a cap on the price of russian oil.

as moscow defaulted on its foreign currency debt for the first time in a century. skidmore with our european correspondent maria tadeo. the war continues, it is the biggest issue on the g7 agenda. will there be unity, is the question on my mind after watching newsreels on the u.s. and u.k. versus germany and france, is there a split? maria: of course, it is a g7 that is overshadowed by the war in ukraine. you had the shelling in the capital of ukraine before the g7 started, a political message from russia in the backdrop. when you look at all the different leaders gathered here, they insist this is about staying together, united. sending a clear message that the democracies of the world will face the russian invasion

together and will continue to do so. we are expecting today a communique that will reiterate open-ended support for ukraine when it comes to defending itself from the russian army. in fact, we now almost have confirmation that president zelenskyy will be joining the g7 leaders today in a videoconference. a lot of this is about how to help ukraine not just with weapons but financially, reconstruction, and the situation with blocked grain in ukrainian ports. the head of the council said at this point, russia is playing hunger games, taking the world to starvation hoping they will lift sanctions. manus: a brilliant report on sky news in regards to ouija being moved around between -- wheat

being moved around between russia and turkey. we have this story know about gas caps, this is an additional layer of sanctions, isn't it? maria: yeah, this is the most active discussion here at the g7. this is very crude but there is realpolitik behind this. the war has been profitable for the russian federation. oil and gas is a big moneymaker for the russian state. g7 leaders agreed there has got to be a way to bring down the revenue vladimir putin while the war is ongoing. we are once again debating the idea of a price cap. that means you pay a maximum price for russian oil. the question is around the technicality and what is the ceiling. and two, will all the buyers in the world join in a coalition. that is the most active

discussion. on top of this, yesterday we had an op-ed in a french newspaper, a number of ceos included saying it will not be enough. you need to prep the public opinion in europe but this is a warlike economy and is not just about supply and they have to reduce consumption of energy, especially as we enter the winter, they are worried about prices escalating and the societal tension as prices escalate. manus: maria, that is the most prescient point of all in terms of recession risk with rationing. as maria tracks that g7 meeting, it will have an impact on the metals market. gold prices are rising as some nations plan to announce a ban on imports from russia. industrial metals are on track for their worst quarter since

2008. get to our commodities editor in shanghai, jason, calamitous moves in copper and the commodity complex last week. why such extreme volatility and pressure? let's start with copper. >> the situation is you have relatively bullish impetus from the war in ukraine but also shrinking stockpiles. those things are being overwhelmed by fears of recession, recession in the g7, principally in the u.s. that is casting the biggest shadow i think over the copper market. manus: we have a bit of a bounceback from tin to copper, along with iron ore, and it goes back to that china could be reopening or going to neutral in terms of economic outlook. can china going towards more normality really bring us back

to previous highs? will they rescue the metals alone? jason: we are seeing a bit of a reopening trade as places like shanghai start to get back to normal. i think the outlook for china is probably a lot bleaker than it has been in the past. there's a bunch of reasons for that. i think the covid zero policy china is persisting with means the threat of lockdowns at some point on of the future sends a chill over economic activity, investment decisions, those kind of things. you have a situation with proxy markets. that continues to be in the doldrums. even if china comes in with a lot of infrastructure spending it's probably not going to upset this week -- offset this week

property market we are seeing. if the rest of the world falls of recession, that will affect chinese exports. that will ultimately ripple through two imports of commodities into china. manus: a very great list of unknown knowns as it were in terms of where the endgame is with china, jason rogers, our bloomberg senior editor of energy and commodities. the mliv pulls question was, what is the biggest tail risk for markets in the second half of the year? more on the response to the mliv blog. ♪

manus: it's your monday morning edition of daybreak europe with me, manus cranny, from dubai.

g7 leaders continued their summit in germany. tuesday nato leaders gather in madrid focused on the response ukraine. ecb forum in sintra, what will central bankers of the world have to say on policy? at the end of the week, hong kong works 25 years since the handover to china. state media it reporting a visit and speech from the president. and we get eurozone cpi data, will we get reprieve? equities are trading higher. the nikkei up over 1.4%. yields rising in china and japan, australian rates up 8%. if you think you topped out on the university of michigan inflation expectations, maybe the bond market is not as convinced as they were on thursday and friday. and you have that nice bounceback, iron ore up 4%.

copper had a bit of a higher trade, 60 month -- 16th month low on friday, but up. in terms of the reopening narrative, tech and commodities have had a bid. let's talk about the mliv pulse question, we asked what is the biggest tail risk for markets in the second half? well, mark greenfield has the answer, how did your survey respond? >> we had a pretty good response, 1700 people came into the survey. fortunately, for people in the investing world, we still see both the s&p 500 and treasury bonds underperforming a bit although the good news is it will not be as bad as the first have. so at least the inflation shock seems to be slightly moderated in people's outlook.

for the s&p 500 we see obedient forecast of 3700. -- median forecast of 3700. that's not too far from where the market is right now, 3900. november and december tend to be good months for the s&p 500. that would imply we go quite a bit lower first, and then we rebound towards the end of the year. we are probably looking at more near-term declines, which would fit in with the fed hiking policy because there is quite a way to go, and that an improvement toward the end of the year. still ending lower on the year. manus: let's hope it is not down to the level of 2008. i went to dinner saturday night, and some executives were saying get ready for 2200. some people well into their dessert.

the response and the shocks with the latest from the mliv team. at the qatar forum, one of the risks was on the geopolitical risks from taiwan to the war in ukraine. this morning, we've got relief bid across the equity markets. you are looking at iron ore up 4%. the biggest turnaround in u.s. equities on friday since may 2020. nearly $17 billion went out of global equities. $23.5 billion out of bonds, bonds capitulated. this is bloomberg. ♪

tom: good morning and welcome to "bloomberg markets: europe."