dani: this is bloomberg daybreak: europe, i'm dani burger in london alongside manus cranny in dubai with the stories etc. agenda. manus: six months to forget the s&p 500's worst performance in 50 years underscores global growth fears but investors hope for a better second half. kicking off july on a back foot. president xi jinping declares hong kong reborn on the 25th anniversary of the return to chinese rule. this is his first trip from the mainland since covid. italian and euro region cpi figures hit today. the latest series of staggering inflation readings. it is one of the worst first taps in the history of bonds and equities, toxic terror on the markets.

but i like michael burry, multiple compression, next up, earnings compression. we are only halfway there, good morning. dani: it is quite bearish it seems. the bears are not looking to go quietly the second half of the year. one of the worst years for stocks and bonds, both getting pummeled in the quarter. let me show you what equities are doing because it still is not too good of a friday. down 1% on s&p 500 futures. not a lot of reprieve in this market. i want to bring up russell 2000 futures, there was a time i was checking this every day. it is small caps, the economically sensitive companies, those are now down 1.3%. an analyst says if you are a company, you need to prepare for recession. euro stoxx 50 futures are down

.8%, we are expecting euro area inflation figures around 10:00 a.m. london time. and the msci asia pacific down .9%. manus: to the heart of the issue, you will talk more about the chips market, i am more obsessed with the u.s. consumer. they are faltering and that is what is driving these markets. we have a two handle on the bonds, 2.95. it is the worst first half of the bond market since 1973. the worst weed in terms of drop in yield in eight weeks. when it comes to bitcoin, again, you have got some pretty interesting discussions around bitcoin with people buying the day. aussie dollar, if you believe recession is gripping the world, they have topped out with the aussie dollar down 1.19%.

i have no idea what wnt offshore inc. is. none. this is a mystery. it is down 6%. [laughter] dani: something is going on there. manus: tim craighead is going to round up some of the worst numbers in the first half or equities and bonds. dani: it is also a historic and very windy day in hong kong. yvonne man is there to tell us all about it. meanwhile, juliette saly in singapore running out the latest moves in asia. let's start out with u.s. markets, the s&p 500 suffering the worst have since 1970. a look back suggests dismal performance may not be an indicator of what's ahead. some of us crunched all the numbers, bloomberg's intelligence director of research. it's easy to be all doom and gloom. let's just start with the first half. maybe not stop with the doom and

gloom, take us through the doom and gloom. >> as you all have talked about, if you think about across europe, we are down 20% across most major markets. we have seen huge pe compression. many of the markets are at 11, 12 times earnings which is a huge deflation. if we want to throw the positive, i think you have to look at a lot of the bad news as priced in. at this point, you've got euro that is trading at a two standard deviation discount to the u.s. over a 10 year norm. the u.s. is compressed, europe is compressed but the value proposition in europe is clearer. if you look at the ftse, now below 10 times forward earnings with a 4% dividend yield. yes, there is lots of doom and gloom and we have triggers we

have to get through to see a turn in the market but a lot of is discounted. manus: tim, good to see you. a lot of people are worried about the geopolitical situation. there is a lot of value in european equity markets. if i sent to you, what are you most worried about in the second half, is it credit spreads blowing out, the fed, or geopol risk? tim: it really boils down to some simple fundamentals. if you ask are we higher at the end of the year than we are now, i would say yes but we have to get through two things. the first one is midyear earnings. you talked about it a little bit in the lead in. we think companies absolutely are incented to throw in the kitchen sink here. there is clearly demand pressure, cost pressure. we have yet to see on a

consensus basis at least in europe any real capitulation when it comes to earnings expectations. we've seen valuations contract, but we have not seen it on earnings and we are worried as we go into this reporting period. the second one is, we need to see the inflection in inflation. at least in inflation expectations. we are starting to see that with some of the five-year forward expectations out of the states. things are starting to pull back. that's what will allow central banks to start the pullback on their tightening measures. manus: tim craighead there with the latest, on the troubles and tribulations from markets in the second half of the year. the bloomberg intelligence director for research. to china and hong kong. xi jinping has hammered home the importance of one country, two

systems as hong kong's new chief executive was sworn in on the 25th anniversary of chinese rule. >> hong kong enjoys a unique position, favorable conditions and broad space for development read the central authorities fully support hong kong in seizing the historic opportunities presented by our country's development and in aligning with our national strategies. yvonne man is tracking the story and visit by xi jinping, great to have you with us. we don't often get you in our time zone. what do you think his key message was domestically and globally? ? >> we are dealing with a typo in. -- typhoon. history repeating itself that way. we heard the tone from president she was not as the mulch u.s. as

the weather right now. -- president xi was not as to mulch u.s. 0-- -- tumultuous as the weather right now. this speech was positive and warm, and he talked about how hong kong was always on his mind. he was like a father speaking to a child, that a harmonious family would always prosper. he defended the crackdown hong kong has gone through whether it is the crushing political dissent and how that was important in restoring stability. and now that hong kong can focus more on economic development and stability. stability is the key word here. we heard in his speech yesterday of hong kong having this rebirth after years of tumultuousness environments, people storming the streets. the last time he struck a really harsh tone saying anyone who

questioned china's sovereignty over hong kong would quote the impermissible. this is setting it up for video chief executive to deliver now. he talked about that are governance -- better governance and increased competency from the readership. -- the leadership. he criticized carrie lam for failing to address poverty, and the increasingly wide wealth gap and for failing to fix the housing issue. hong kong is the world's least affordable real estate market. is this a sign of a seismic shift for the tycoons who have had a strong grip on the real estate sector. really it was a very fuzzy sort of speech we heard from the president, thereby cementing his control and giving his blessing to john li. basically saying the ball is in your court now. dani: thank you very much.

we look forward to having you back for more conversations on this. the first half of the year was also rough in asia, including big moves in stocks, bonds, fx really everything. let's bring in juliette saly for more details on the punishing six months. juliette: we saw asian stocks down by 18% since getting of the year, their worst annual drop since 2008. when you look at the superlatives, the nikkei had its biggest first half all since 2016 despite weakening the end. china had its biggest first half fault since 2018. june was a positive month. as analysts started to turn more bullish on chinese equities, looking forward to the remainder of the year. the yen was really hit hard by yield differential.

year-to-date down 17% against the dollar, its biggest fall on record. the onshore renminbi year-to-date down 5.6%. meanwhile, we are just looking at your bond talking -- yvonne talk about the hong kong market as we see john li takeover from carrie lam. we have dealt with the pandemic and the crackdown on tech and the national security law. when you look at the hang seng tech, it actually outperformed in the first and last year of her tenure. manus: let's see what the new chap in charge delivers. do it sally putting in context from singapore. at 10:00 a.m. we will get the june cpi reading for the whole of the euro area released. we have seen some pretty brutal

numbers, 10% in spain. 10:00 a.m. the cpi from italy will hit the table. dani: we will also get u.s. data at 3:00 p.m., construction spending and manufacturing after week data yesterday in terms of spending. retail figures from russia are being published and later today, the czech republic takes over the rotating eu presidency for six months. we will have a gathering in prague. manus: coming up, the head of fixed income, henrietta pacquement, her view on the markets right here on bloomberg. dani: and we will also speak to the executive council of hong kong, governor bernard chan on hong kong and china relations on the 25th anniversary of the

territory's handover. that will be later this hour. this is bloomberg. ♪

>> inflation is a bigger risk because it is here, and if it doesn't come under control quickly it does enormous long-term damage. is there a risk of recession, clearly there is a significant risk within the next 12 months. my quarrel with the fed and how it is managing monetary policy is i think there is a mindset that sees inflation as a psychological problem rather than a monetary problem. dani: the pennsylvania senator with scathing criticism of the federal reserve and its handling of inflation. we are looking at high yield spreads and the ccc 's going past 1000 basis

points. manus: it is a key part of the u.s. yield curve also serving as an indicator to suggest the economy may be heading for recession. three-month bills will exceed 10 year bills within three months. this is the new york model much focused on, does henrietta pacquement focus on the fed as much as bloomberg does, she is the head of fixed income at allspring global investors. set the stage, toomey is concerned about the psychology of markets, after the worst start to the year on record. it is a toxic combo, stocks and bonds collapsed by the most on record. i asked my last just the same question, are you more filled with fear or do you see opportunities for moderate. -- moderate greed? henrietta: as my colleague said,

a lot is now priced in. if you look at credit on the equity side, spreads are over 200 basis points. that is indicating the pricing in of a mild recession on the european side. and we are starting to see spreads on the u.s. side brought in out as well. they have not reached the same level and that makes sense, the euro area is more vulnerable to a recession than the u.s. but we are starting to see the markets pricing a recession in, which makes sense at this point. is this enough? i guess the question is we are heading into the summer months, and we know that liquidity tends to drop off. so, it is likely to exacerbate moves up or down over the next couple months. dani: henrietta, i find this move in spreads really fascinating. i started out talking to menace

about it, triple see above 1000 basis points, above the level where the fed pivoted. what does that mean for the cycle in terms of where these spreads could go? henrietta: exactly, and that is something to watch. the good thing we have seen is a bit of weakness on the u.s. consumer. one of the drivers of inflation is the strength of the u.s. consumer. in a way, that is working at this point but it is not the only driver. you have got the commodities, on the energy and food side as well our drivers. those are going to be stickier and harder to deal with. the fed were ecb have less impact. that's the other elements we are looking at, the path of commodities. we have seen a bit of a peak. if you look at the indices, there is still pressure on oil

and gas and we need to see how that plays out later in the year. manus: we have the bloomberg commodity index and the subcomponents of that, the metals under pressure and agriculture spiking and energy also on fire. but when you look at this narrative about inflation, i just want to know whether you lean more into commodities turning over or should we believe that breakevens, yes, the five and 10 year breakevens have rolled over. or, are we being lulled into a false sense of security and the fed will not be as quick to lean on that data? henrietta: i think the fed will be quick to lean on that data. the reason being, we need to see some of the drivers pushing the commodities at the moment. i think autumn in the winter is going to be interesting particularly for gas, that's the big one we will be looking for in the european context.

and to a degree food as well. it is the turnover on the index on the commodities side just a temporary reprieve or is it something lasting, that is the question at the moment and that is what central banks will be looking for. dani: we have more hits from europe later today when we get euro area inflation, expected around 8.5%. walk us through how you take that into your asset allocation, what kind of sectors and different types of fixed income you like in europe? henrietta: at the moment on the credit side, given the likely challenges from a growth perspective, we are still looking at quality trades with companies with solid balance sheets that can withstand margin compression. and will be able to sail through a tricky few months ahead.

were talking about artist compression, that is what we are expecting more of in the second half of this year. then on the bright side, i think that will be an interesting one. we saw the 10 year peak at 3.5%, it is now 3%. the change in focus from fear of inflation from the market perspective to fear of growth. i think we will see a bit of a battle to and fro over the next few months in terms of those two big drivers. manus: we had ing with us and standard chartered closing their underweight son duration in q3. we had antoine monday saying we will look back six months ago and say this was a great moment to buy bonds. what about the dollar, our ethics is tight at the moment -- our fx is tight at the moment,

does the dollar rollover if rates roll down? henrietta: the dollar does look strong. talking about the yen and chinese currency, and it is strong for a reason. the it on the rates side, or relative growth prospects, so it makes sense for it to be strong. but it looks stretched and that is the challenge. that is why we are not taking huge amounts of currency risk at the moment. it is strong but it should be this is strong at this point. dani: strong but perhaps stretched. that is feeling like a lot of where we are in this market. how difficult is it for you to have conviction right now? henrietta: it is tough. we are getting used to range trading and buying the dip.

so, there is a painful adaptation that we see an of the first half of this year. as a result, the second half isn't necessarily going to be particularly easy to navigate either. dani: painful adaptation, i have to say i love that. a really good phrase to take us into the second half. henrietta pacquement, senior portfolio manager and head of global fixed income at allspring global investments. we will focus on inflation, central bankers grappling to bring price pressures under control. the italian cpi rating do out later -- due out later this month. will they surprise the upside? ♪

manus: we got there, it's

friday, it's daybreak europe. juliette saly is in singapore. juliette: the ukrainian president has captured russian forces in the snake island in the black sea. in the country's east, friendly forces are closing in on ukraine's last major hold in luhansk. the u.s. supreme court has restricted the environmental protection agency's authority to curb greenhouse gases. it is a blow to president biden's climate change agenda. the court said they cannot try to shift power generation from fossil fuel plants to cleaner sources. a former apple lawyer has pleaded guilty to insider trading over a five-year period.

he admitted profiting from confidential earnings information during his decade-long career. he was responsible for enforcing the insider trading policy. 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. dani: juliette saly in singapore, thank you so much. debate indicators today will be all about cpi. italian, euro cpi all come out at 10:00 a.m. estimates are for 8.4% in june. we also had spanish and french cpi that all sword. french cpi coming in

manus: it's daybreak europe, i'm manus cranny in dubai with dani burger in london. these are the stories etc. agenda. dani: that s&p 500's worst performance in 50 years underscores global growth fears. defending the crackdown, president xi jinping declares hong kong reborn on the 25th anniversary of its return to chinese rule on his first trip off the mainland since covid. italian and hero area cpi figures in today, rounding out the latest series of staggering inflation readings. we made it to july, but it doesn't feel too cheery. burry is bringing out your inner bear, the bears refused to go away as we go into the second half of the year. manus: $8 trillion wiped off of

u.s. equities. bond markets are beginning to understand what the recession risks might be. just had a discussion with henrietta pacquement and she said this bond market is going to tussle, 2.95 on the 10 year government bonds. the worst second half for government bond since 1973. opec add back all the barrels that were taken off the market over the past two years by the end of august. it is weak three of eight -- week 3 of a decline. what will president biden asked the saudi's for in terms of pumping more oil. bitcoin bounces back. and if you are really going into some kind of an earnings compression, recession, lower growth period, sustained attractive lower growth --

protracted lower growth do you want to be short? dani: or do you want to belong these equities? the first half was the worst since the 1970's, it encapsulated a fed that was on the path of normalizing interest rates. for the second half, will it be all about earnings compression? goldman sachs as we have not factor this in. executives warning about slowing demand. micron was the last yesterday. russell 2000, no surprise it is underperforming. is valley really going to be able to do well if this is what the earnings picture looks like? msci asia-pacific down 1%. manus: xi jinping has hammered home the message today in hong kong of one country, two systems as the new chief executive was

sworn in on the 20 bit anniversary of chinese rule. >> hong kong enjoys a unique position, favorable conditions and broad development. the central authorities fully support hong kong in seizing the historic opportunities presented by our country's development. dani: let's get to bloomberg's yvonne man who is joined with a guest. yvonne: the weather certainly has been tumultuous, but the tone in hong kong has been calm. we talked about defending the crackdown through historic social stability. one country, two systems is something he really took pains to sell. the hong kong executive council

is here, always great to have you thank you for joining us. >> lots of people were asking about the future of hong kong given that we are now at the 25th anniversary. he gave a strong message that if two system is working or hong kong, why should it change? he did not give a definitive answer to what happens 25 years later, but the message is he may go beyond 25. the term he used was long-term. yvonne: that was one of the key principles he laid out for john li, what does that mean? >> i think after the 2019 social unrest, mainland china repeatedly reminded us that two systems comes after the one country. the whole idea is one country, two systems.

we should also be reminded about the one country. most people in hong kong do a great, how do we get two systems in the first place? yonne: both xi and li stressed the importance of tackling social issues like housing. we see in the mainland crackdown on property. could we see something like that? was there a warning to some of the tycoons that perhaps there is a shift? >> i think hong kong -- yvonne: sorry. >> hong kong is still under the capitalist model. we still enjoy a large freedom. but we do care about the community as well. there is no change of policy, we have to be more mindful. the wealth needs to be trickled

down to the community. yvonne: do the market and government need to be more balanced? do we address monopolies? >> there has been a lot of investor interest. not just in china, hong kong people are fed up with it. we are taking our time, basically procrastinating. what happened in 2019 is others got frustrated with government. we have to take care of so many different interests but we have to get things done and fix problems. yvonne: last question. there are issues emerging out of covid zero, what are you seeing in terms of discussions? >> i think there is a good sign.

it is not just hong kong it is also mainland china. they recently announced reductions of the quarantine time in china. so i see some good signs that we will reform as well. i think the next couple of months they will have further relaxation that might happen. yvonne: -- >> all in all, we will uphold that principle. we have to make sure public health is still our main concern. we also need to look out for the interests of the business community. it is not easy for the incoming administration, they need to figure out how best to [indiscernible] yvonne: there is a lot we don't know about john li, the business

community needs him to prove himself. what do you know that you don't think the public knows? >> he is from a disciplinary services background. he does not have a lot of knowledge in other areas. the team that he recruited are very good. i foresee that the incoming administration will be more like a teamwork, it will not just be on one person. i actually see some good signs that we find the right person especially with housing. he recruited quite a number of very good civil servants to address the housing shortage in hong kong. yvonne: thank you so much for joining us, bernard chan former leader of the executive council. i know you are wrapping up 15 years of public service as well, congratulations. i am afraid to go on camera after that windstorm. dani: go straight into a

building, get a hairdryer. absolute troopers they are putting up with the wind and rain . let her get to dry weather. very dry and cozy in the london studio. manus: that's what you call in pursuit of the final question with the final guest. never let it be said that we don't go right to the edge when it comes to the elements on this show. never mind the desert and 50 degrees, eh? dani: if i was out in doha that's what i would have looked like what it would have been sweat instead of rain. manus: energy, germany mulling u niper. the huge energy giant as russian gas slows.

more on the story. this is bloomberg. ♪

manus: this is bloomberg daybreak: europe, i'm manus cranny in dubai with dani burger in london. germany is in talks with uniper to stem a fallout from russia's views to slash natural gas. let's go to our editor for energy. this would be a pretty monumental moment that the germans need to backstop one of their biggest energy providers. we are now beginning to understand systemic risk in the energy market, what is your take? >> it is systemic risk. germany which has relied perhaps more than any other major

european economy on russian gas is realizing it has got a big problem this winter. it would have nearly as much russian gas as they expected, maybe not at all. that depends on president putin. flows are 40% of what they should be and that is constraining their ability to fill storage. in the case of uniper, it is the biggest single buyer of russian gas through pipelines. it is having to find that gas elsewhere to supply customers and having to pay huge prices. according to calculations, they are spending 30 million euros a day to cover that gas short. if you multiply that through the winter you are quickly talking very serious money and a situation in uniper will no longer be a going concern. the government is going to have to help out, and it would be a surprise if we finish this

winter where uniper is the only company that seeks government help. dani: talk me through gas when it pertains to the u.s. it is political and you have president joe biden attempting to put in measures to support the consumer, what is the trajectory look like? >> for natural gas in the u.s., they are trying to export it. germany and everyone wants to buy it. that has put up prices in the u.s. if we are talking about gasoline, that is the biggest pinch point for u.s. consumers. it has started falling a little bit in recent days. crude prices have also fallen. they remain extremely elevated. unless we see a real downturn in demand, they will likely remain elevated and we haven't seen that yet. dani: bloomberg's will kennedy there. oil at the same time headed for

a third weekly drop, the longest losing run this year. concerned that recession will cut into energy demand. joining us now is crystol energy , founder and ceo of energy advisor firm crystol energy. we were talking about uniper, and deutsche bank yesterday saying germany risks imminent recession if there is a cut off, how precarious is germany when it pertains to gas? carole: good morning. markets are much more interesting to observe than oil, because you have with oil alternatives out there. but gas is a very regional business. the case of germany's dependence on russia is critical because they don't have access straightaway, and we have to understand why the eu has been slow in pursuing sanctioning of

russian gas. with gas prices elevated, and if you compare them with oil prices from the beginning of last year, they have shot through the roof in europe. in the eu, european gas prices. we talk about elevated oil prices but they are more moderated than gas prices. i'm not surprised energy feeds into inflation. with the risk of further disruptions from russia to germany, the biggest buyer of russian gas, the fear of recession is becoming much more pronounced than say a few months ago. manus: good to have you with us this morning. i washed a roll call of global leaders on the nato presser yesterday in madrid. boris, biden, i'd like to make a cup of tea after that, it's all about russia, it was all putin

is causing high food and energy prices. are you any more knowledgeable about what this price cap on russian oil might be, how would it work, would it really cut prices? carole: first of all, it would be too simplistic to blame it all on russia and the war in great -- in ukraine. it is important factor contributing to prices where they are today. but it is a slogan because politicians are not able. there is pressure on prices for domestic people. for the domestic market it is a sensitive area. that is one thing i wanted to clarify. i see it again, conceptually, it is a simple concept because as a consumer, you tell the producer if i pay more than a certain price, you have to keep selling me at a certain price.

but it is naive to believe that russia is going to accept that. it was a lot of clever maneuvering to give incentive to russia to continue selling at this price, whatever that is. you also have other important consumers, particularly china. so many countries are coming together. with very different administrative capacity. how on earth is that going to work. dani: let me take you to another political conundrum. at what p --at one point, biden saying he will speak with u.s. allies in the region, was the market premature in expecting success in this front? carole: president biden said it is to the benefit of producers in the region to put more oil on the market whether they deliver that are not.

what is more on his mind is the global demand outlook and recessionary fears are more worrying. a few months ago, we talked about recession but it was a bit of a distant risk, now it is closer to becoming a tangible reality. that by itself may stop producers from putting oil into the market and crushing prices. one area of discussion which i am assuming would be supporting russia still as part of opec+, so there could be pressure on the saudi's to maybe distance russia and so they get less benefit from the current prices. manus: do you think there is any real risk, listening, this is your war, not our problem, you think there is a risk saudi arabia could push russia out of opec+? carole: i think russia is important for the logic

committee -- longitude longevity of the producers group. russia is producing twice what the second producer in opec is producing. it would be i think a mistake, if we look at the strategic interests of the organization to push russia away. they may suspend it. manus: that's because maybe they are not able to actually produce those quotas. the morning after the day before, crystol energy, founder and ceo carole nakhle. dani: i warning from south korea of a slowdown in the ship sector. -- chip sector. this is bloomberg. ♪

dani: it's your friday edition of daybreak europe. dani burger in london and manus cranny in dubai. i have gotten obsessed with the semiconductor story. we used to talk about it all the time. the problem that retailers had, they have a lot of inventory and then people stopped spending. that seems to be happening with chipmakers. south korea saying stockpiles up to the highest in four years. micron earnings yesterday warning that sales would be slower and the ceo saying consumer spending is being reallocated away from electronic devices. manus: maybe we are having that last revenge spend on our holidays in business class and from there possibly it is downhill. you talk about the diversion of spending.

by the time i got on the telly this morning, we talked about the author of the big short. we are halfway through the market fall, we have regaled viewers with the torture of their funds, the worst first half on record for bonds and stocks. here is what he says, we are down on nasdaq, bitcoin down 64-65 percent. the multiple compression, next up, earnings compression so maybe we are just halfway. that is a pretty rumpled call. -- rough old call. dani: goldman sachs earlier in the week said we might have this discussion of whether we price in a recession or not. but one thing that is not priced is a deterioration in earnings. there was a story yesterday talking about there is a 300%

gain in price target for some stocks, i don't think we have grappled with where earnings are going to go. manus: no, but we have debated growth versus value almost ad nausea, so why not finish with abyss of -- with a bit of tesla? so far this year, $350 billion wipeout on the stock. that is just a five-day example. bank of america saying he has had it all his own way. tesla's market share will go from 70% of the electric vehicle market to about 11%. and dani, that is coming hard and fast. by 2025. why? gm and ford will comment scoop up the market -- come and scoop up the market from tesla. dani: and you have to contend

with this economy. we have heard from a lot of chief executives about firing people and cutting back. we also get zero data today on cpi. manus: yes we will. it will be the final round. we are looking for the pan-european number, expecting eight and half percent, italy expecting 9%. the euro is lighter on its feet on the back of this. have you boxed yourself in with 25 basis points in july? manus: dani: ecb members, will they have that flexibility if