manus: good morning from our

middle east headquarters in dubai, i am manus cranny and it is "daybreak: europe." recession on the horizon. u.s. equity futures slipped, oil drops on ongoing growth concerns, weighing on sentiment. larry summers says the recession could hit the year-end. energy fears oil could be facing demand destruction according to asia. german unions worn the gas crisis could wipe out entire industries. our guest weighs in on a bailout. plus, recession. russia takes a key eastern ukrainian city. moscow showing no signs of a slowdown as kyiv's allies are looking for a plan. welcome.

larry summers is calling a little less than a 50-50 chance of a recession this year. the u.s., u.k., euro area and japan, and it could last five quarters. these are the equity futures trading right now. the second half, bonds will be a haven according to morgan stanley. we are not done with the bear market and have not had the concluding chapter. equities lower through trade this morning. across assets, it's about the narrative of recession, how long, deep, painful and moderate will the recession be? let me show you across the assets. copper at a 17 month low. we are beginning to consider a hard landing. let's look at some of the commodity boards in terms of the pricing we have across the market. you have copper also trading lower this morning. crude oil flat at $108, jp morgan with the huge note where they talk about the risk being

something of a stratospheric nature. $380 a barrel. in a podcast, talking about demand destruction in the energy market at the moment. dollar-yen, the short end. the yen strengthens and the dollar rose over ever so slightly. that's the state of play in the markets. you are seeing futures trade on this fourth of july. about 288 in terms of yield in the cash market. juliette saly joins me in singapore and she will wrap up all of the asian markets. we also have hong kong, and the existential risk that threatens the german economy from the power industry as a result of the war in ukraine. asian stocks have been turning green relative to the u.s., so

little bit of a difference for the first time in four sessions. jules has the differential in singapore. juliette: it has been a tough time and a tough start to the year for asian markets, as we know, but a little reprieve to start the new trading week as we see gains in japan and australia. you have these recession and growth fears hitting the tech players, taiwan extending losses from friday. hong kong may catch up because it was close on friday as well. we are continuing to get bullish calls on china's market, particularly into the latter part of the year, this time from jeffries, bullish on the csi 300 forward-looking indicators showing upside. a bit of upside in china's market in the afternoon session. looking ahead to the rba, we could get the first back to back 50 basis point hike from the central bank as they try to get ahead of inflation. you've got bonds rising, yields

lower, three-year debt 2.9% had let's look about -- 2.9%. let's look at regional stocks. expecting upward momentum when it comes to data, expecting a 30% gain on the nfci -- msci asia-pacific index. you mentioned the call pointing to the likes of recession in japan. also south korea and australia. china will be the outlier as we start to see more positive momentum in its economy. that is backed up by the securities journal, one of the national newspapers today saying more policy support is likely. dani: -- manus: jules, thank you. a chinese developer says it did not pay a one million-dollar note that matured on sunday. joining me is kristy hung, one

of the first to raise the red flags on these liquidity problems. good to see you. how widespread? you flagged this concern and they have missed a number of debt payments. how widespread a problem are we going to have going into the second half of the year? kristy: the contagion has so far spread from evergrande to others, and they are one of the top 15 chinese developers. a lot of the other smaller chinese developers are also struggling, standing at the brink of potential default. manus: indeed. i suppose the question is this -- we've seen chinese authorities try to slow down, to liberally slow down this sector last year, but what you think they are going to do about the

situation, what will they do in liquidity come unto you expect any action from them for the sector? kristy: from a policy standpoint, we believe the best timing for the government to step in and help was late last year. six months on, a lot of damage of confidence, whether among the debt market or buyers or mainlanders have already been done. we think the sector has a long road ahead to restore confidence and sentiment what the government can do at this point is expand on sorbonne sales to more chinese developers. perhaps for the state to help some of the struggling players. the housing market, we expect room for more mortgage rate cuts in the second half and more policy stimulus on local city levels to revive demands. manus: ok, think you very much.

the very latest on the property sector. the german federation of trade unions has warned the entire german industry could face a collapse because of the cuts of supplies of russian natural gas. olaf scholz is signaling a bailout for big companies. big, serious warnings. let's bring in andrew james, our editor. what more can you tell us about this morning from the german federation? it sounds very sick in terms of the -- andrew: russian gas to germany down about 60%. the nord stream pipeline goes into maintenance later this month and there is increasing angst in germany the flows might

not come back at all. we have the head of the trade unions using language like collapse. she specifically engined the aluminum, chemicals and glass industries. that's also chiming a bit with robert harbert, the german economy minister. he's been using phrases like economic warfare, talking about vladimir putin consciously pursuing a strategy to weaken german unity. he's been morning of steep price rises. the prospect of the cascading collapses of power companies if they are not allowed to raise prices outside of contracted levels. the warnings out of germany definitely have been dire the last couple of days. manus: they are indeed. let's talk a little bit about the oil and energy market. this is a sunday podcast, they've got vtol on there every

sunday and they're talking about demand destruction. clarifying what a lot of us have been speculating about, talking about the crack spreads specifically. andrew: yeah. we've been seeing some demand destruction in the u.s. we had a rolling average of gasoline demand which has dropped for the first time to the lowest since 2014. we've obviously got the fourth of july holiday in the u.s. today so it will be very interesting to see what sort of driving levels are like compared to more normal years. and yes, gas -- if what to the germans are saying happens, we will see demand destruction. it will be rapid and sudden destruction. manus: yeah, it certainly will could -- certainly will. you got the jp morgan note as well talking about the risks,

looking at 380 dollars potentially on the price of a barrel of oil if the tabs are turned off in russia. andrew james on the very latest for the energy market. let's look the other things the markets will be focused on today, this fourth of july. we will have euro area ppi data and tomorrow, data from the u.s. including factory orders, ford posts june sales figures. let's see how they are doing on electric vehicle sales. thursday, the ecb publish their account of their june meeting. friday come at the big report, jobs report, including nonfarm payrolls. that is expected to slow slightly from the may readings. let's see what the june reading comes through as. coming up, former treasury secretary larry summers sees arising danger of a recession hitting america before the end of the year. he has confident central bankers

have inflation under control. plus, another summer weekend and we look at the travel chaos around europe with an aviation analyst. this is bloomberg. ♪

>> i think the risks of a 2022 recession are significantly higher than i would have judged six or nine weeks ago. we've got the first quarter numbers in the bank. they are negative for gdp. there are many forecasters who believe the second quarter, which ended yesterday, also had

negative gdp growth. it is not really the formal definition of recession, but people often say it is a recession when you have two quarters of negative gdp growth in a row, so it's probably close to a 50-50 chance, maybe a bit less than that that we have two negative quarters in a row. i think you have to say that the chance that a recession is ultimately dated as having begun in 2022 has gone up significantly. manus: larry summers warning on the rising risk of recession this year and he went on to add this would cause an early reduction in inflationary pressures, meaning central banks may have to once again change course. my next guest things a u.s. and global economy may slow but

avoid a recession. she goes head-to-head with larry summers. what makes you believe we will slow -- i get your point that markets are pricing in the slowdown but not a recession. what kind of slowdown does the agri-market already have priced in? -- equity market already have priced in? >> especially in the u.s. we are starting from a very high level in terms of growth. we are seeing the decelerates and -- deceleration but underlying data is holding up. we have seen it weaken in june so we will see what the second quarter looks like. for now the markets are pricing in a scare but not an outright recession. we are seeing a little more revision to the downside of earnings and i think that will come through in the next couple of weeks. a little more pain ahead but then inflationary pressures are

starting to come down as well and that should allow for a better outlook for the second half of the year. manus: that chimes with the charge that we put out, the stories we created, earnings estimates are just a little bit too robust and the market needs to play catch up, or the analysts need to play catch up. what is the most vulnerable sector to an earnings downgrade? esty: at the moment it feels like the cyclicals where there is more downside in terms of earnings. everyone in the market knows their earnings estimates at the moment are too high. some of these expected downgrades are already coming or priced into the market, but we still need to see those. as we get into the negative retail headlines like we saw in the last couple of days, that probably will weigh on sentiment. cyclicals for sure where we see earnings and spending is going more on prudent energy and less

on some of those discretionary items, that can have an impact as well. manus: so, no recession, but a slowdown. would you take a contrarian view then that the fed not only is expeditious but continues a little more aggressively than the market is now beginning to think? because there purred -- pulling the terminal rate forward to the middle of next year, 3.3% to 4%. expedition -- expeditious moves to contain inflation. where does the fed get to before they slow? esty: i think they will start to acknowledge the growth picture has changed at the end of the second quarter, that inflation is coming down and starting to have an impact on growth. so they will at least acknowledge the growth picture for the second half of the year. that might not come until jackson hole. we need to have a couple more data points in terms of

inflation ahead of that. hopefully those shows that inflation is coming down slowly and that's also why i think we probably avoid a recession, in the second half, from september, the fed doesn't have to be as aggressive as it has been and hopefully they don't wait too long before acknowledging the growth picture is changing and the economy is cooling. manus: robert hayes back -- haybeck in germany warning about a cascade of failures and economic warfare. when you look at european markets i don't think we are prepared for this kind of cataclysmic event. is there a tailwind that has yet to be properly priced into european markets? esty: i think we have a bigger risk to european growth than the u.s. or elsewhere. we know europe is so dependent on russian oil and gas and gas

in particular. we no inventory levels -- we know inventory levels are too low. it doesn't seem like the summer would be the best timing for the russians to do this, especially from their side things going a little bit better than expected. the market is definitely not pricing in such a dire scenario. whether that materializes, as you said, more of a tail risk at this point. manus: commodities this morning under quite a bit of pressure, copper at a 17 month low. i've got various people calling hard landing. it is yet to be priced in. goldman with the note, talking about iron ore, the path of least resistance to the downside. commodities have been under pressure in the second half. lme down over 20%, the metals index down 25% in the second quarter. in a slowdown-not-recession

scenario, how do you view the commodity complex? esty: the fact that commodities have come down is good news, it will help with these disinflationary pressures we will see or move toward less inflation pressures. that's one of the positive points. at some point, they did become extremely high, partly for speculative reasons and not just because the economy was reopening in doing well. we know the china story plays into the commodities space very heavily. it is expected to pick up after lockdowns. i don't know how much is priced in. if you factor in lower growth, some concern about europe and reopening in china, we are getting closer to where it is. there could be further downside pressure but i'm not sure how much that -- we could overshoot

to the downside but china should come back online later in the year as well. manus: the dollar, if we look at the currency story, it is very much driven by risk and yield, isn't it? does the dollar remain still a haven, if you talk about the u.s. outperforming on a global basis in the slowdown scenario, does the dollar remain the strongest currency as we go into the second half? esty: it does feel like we are getting closer to a peak, the dollar retreats a little bit when yields are retreating. i am not sure how much it falls, though. we probably are close to a peak or have seen the peak. i'm not sure how much it strengthens, yes, we will have a little bit of easing in terms of yields and may be set expectations and at the same time, more haven flows, especially if growth starts to slow in the third quarter and we have growth fears grow even more

than the last couple of weeks. more of an even balance for the dollar. i think to some extent we have underpinned, but i think we are close to a peak, especially if we see yields come down, maybe not from where we are today, we could have another move higher first, but those should retreat eventually as well. manus: esty, thank you for your thoughts this monday morning. coming up later today, we are live from ukraine. the recovery conference and we will be speaking with the european commission and oecd secretary-general, that is later this morning. this is bloomberg. ♪

manus: it is your monday morning edition of "daybreak: europe," i am manus cranny dubai. let's get juliette saly in singapore. juliette: thank you. ukraine says it has pulled troops from a strategic city in the luhansk reason, confirming russia has taken control. russia had said it had taken control of a city. ukraine's armed forces say the order to withdraw was made to prevent heavy casualties. the british chambers of commerce say more u.k. forms are expected to raise prices in the next -- firms are expected to raise prices in the next three months. more than a quarter predict a drop in profits. meanwhile, the resolution foundation think tank says

disposable incomes in u.k. households have fallen 15% annalee. the european exploring ways to keep banks from earning windfall profits from a subsidized earning programs it lost during the pandemic. this according to the financial times. the ecb governing council is reportedly planning to discuss how to curb the extra margin banks could earn by placing them back on deposit at the central bank. danish police say a gunman opened fire in a busy shopping center in copenhagen, killing three people and wounding three others. a 22-year-old danish man has been arrested in there are no indications anyone else was involved in the attack. police are still investigating. gun violence is relatively rare in denmark. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.

manus? manus: thank you very much. coming up on the show, another weekend and more flights canceled. we look at the travel chaos around europe. our aviation analyst joins the show in a moment. ♪ when people come, they say they've tried lots of diets, nothing's worked or they've lost the same 10, 20, 50 pounds over and over again. they need a real solution. i've always fought with 5-10 pounds all the time. eating all these different things and nothing's ever working. i've done the diets, all the diets. before golo, i was barely eating

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cranny into by -- in dubai. u.s. equity futures slipped, will drops the ongoing growth concerns way on sentiment. former treasury secretary larry summers says the recession could hit by year end. larry: i think the risks of a 2022 recession are significantly higher than i would have judged six or nine weeks ago. manus: energy fears, oil could face demand destruction according to asia's head of vtol, and german unions warning about wiping out entire industries. plus, russia takes a key eastern ukrainian city. moscow showing no signs of slowdown as ukraine's allies

look to unveil a plan to rebuild the battered economy happy independence day for the fourth of july. wherever you are in the world. if you are celebrating that, you might not be raising a glass to the equity market. it is starting with pressure again today. eckley market down, yields falling, deals and equity futures dropping. morgan stanley says the brutality, we are done with -- we are not done with the bear market or have the concluding chapter. u.s. equity futures, i think we are in for an earnings shock. that's what we are expecting in terms of catch up. let me give you some levels on u.s. equity futures. this down 6/10 of 1% pure nasdaq down 6/10 of 1%. the dow jones down by half of 1%. the risk of recession according to larry summers has shifted quite dramatically. in the space of six to nine weeks.

i think the timeframe is the most shocking comment from larry summers. the second bigger issue will be the commodity complex. let me show you what is going off -- going on across emm. if you hone your sightlines in on sovereign bonds, you are looking at australian rates down by seven basis points and then the commodity complex really reflects the concern, the deepening concern about recession. goldman with the big know, they talked about the mini recession in china in april and the consequences will be pervasive. i and orne -- iron ore down. $90 on the ticket for that. aluminum has got a stock inventory getting crushed and that will help it on the upside. commodities under pressure. are they really pricing in a hard landing?

lme metals down in the second quarter but does that reflect a hard landing or just a slow drift? those are your markets, let's talk about one major industry getting a lot of tough headlines at the moment, airlines, airports, preparing for significant disruption to schedules over the summer at a time when travel is returning to pre-pandemic levels. i am joined by laura wright. disruption everywhere. how bad a summer are we expected -- are we expecting and why? laura: the picture looking negative. industrial action threatening to derail the recovery and that the industry has been yearning for since the pandemic. walkouts at certain carriers. a national rail strike in france following similar action in the u.k. and british airways ground

staff at heathrow also threatening to strike during the summer months. the thing in common is pay. workers seeing wages being eroded, the latest eurozone cpi reading, 8.7% year-over-year, the latest u.k. reading, 9.1%. workers want to be fairly compensated against that tough macro backdrop, especially at a time when demand is booming in the sector. we've also had announcements of capacity cuts at airports and airlines, amsterdam airport, a reduction of 20% during the summer period, and at gatwick it is 11%. according to data, airline worldwide employment was 2.9 million at the end of 2019 and it is only projected to reach $2.7 million -- 2.7 million by the end of 2022.

many workers have left the industry and found jobs elsewhere and are reluctant to return to a volatile sector. manus: certainly we are seeing that everywhere. when you walk up to the airports, there are long queues. the consequences, what is the very short-term impact as they take capacity out and what is the medium term outlook. john: short-term, -- laura: short-term, cancellations. you can see my board, cancellations for june compared to 2019. italy is a laggard with flight cancellations up 442%. the united states is in outperformer compared to europe with the least flight cancellations, illustrating the disruption picture is less pronounced to there. in the medium-term, the key question is where will demand fall after the peak summer

season given the pressures and cost-of-living. ticket prices are already elevated compared to 2019. just over the weekend, the ryanair ceo outlined that airfare is too cheap at this level because of oil prices and environmental charges. there have been ugly share price drops the last month, and looking forward, what analysts really want to see at these levels, are the airlines a bargain or still considerably overvalued? manus: that is a question we can maybe ask our next guest. laura, lovely work. the state of play, the chaos to, or are currently living in the airline industry. john stricklin is my guest from jail us consulting, -- jls consulting. good to have you with me. we are in a perfect storm in terms of the airlines, the airports, and yet we have rabid

revenge tourism alive. set the stage for me. we have seen all of the data from laura in terms of the capacity. how big a challenge is it for the airlines to get through this. let's start there. john: an enormous challenge. this is an industry that was pretty much out of action around two years, very minimal period's of flying. it was combined with waves of covid and myriad restrictions put in place by governments in terms of travel and quality requirements and so on. last year, airlines were gearing up for different things and they did not happen. we were talking about this year,

it is well beyond the normal planning timeframe for airlines and air. having had false starts, there is no way the industry could be ready for peak summer. i think everyone's been surprised at the strength it has come back. pent up demand or revenge travel, call it what you will. we've seen a lot of people leave the sector, there are many stresses and strains at frontline jobs, whether it be lifting heavy bags or dealing with angry passengers. many have gone elsewhere for jobs. manus: what does this mean for the airlines? i am not saying michael is calling the death of low-cost airlines, he would be on the phone screaming at me, but we will come back to that in a moment. how do you get more people back into the frontline of the airline, back in the cockpit,

back to airlines that desperately need pilots? is it a whole new regime of costs and wages, are we under assuming this revolution in costs in the airline industry that is about to come? john: as you said, i've been around a long time and i think this is a moment of considerable pressure. that only are we seeing industry -- and manifesting in some cases, i think unions in some cases are civilly trying to get back to where they were. there were cuts and jobless is -- job losses. considering the lack of competitiveness, i wonder if there needs to be a reappraisal, especially on frontline jobs relative to areas of work while the industry is tight. there will be a strain and

change the composition of airlines, and may be seeing labor taking a greater share in the future. manus: i want to get through to other issues, so if we can be brief on these. i cut up with you at a big air show here, we were at the emirates. what does it mean for the airline industry, for boeing and airbus? will there be an immediate uptick of demand, three or five year order books -- will the order books suddenly explode on the back of revenge tourism or is it not as easily correlated as that? a quick one. john: it's not so easily correlated. the workhorses of these short-haul airlines, where were seeing a lot of recession travel coming back, and low-cost carriers. long-haul is harder to call

because airlines have downgraded many of those flights. there is a struggle. there is a new aircraft not even in testing yet. but yes, the order books are strong and looking robust on the sean -- short-haul side for the next several years. manus: let's squared off with michael's comments, michael o'leary from ryanair. airfares are too cheap, 18% of the cpi. not many facts stick in my head these days but they were 18%. airfares are cheap. i admit i have made it on the back of this narrative -- i quote him, it has been my doing, i don't believe air travel is sustainable in the near term. are we calling some kind of a pivotal moment in the low-cost

airline industry? is this the death of that model, or is it just challenged? john: i wouldn't say it is a death at all, it is something to take note of when michael o'leary says that, he's been a master. i think what we will see is relative, low-cost carriers will continue. one thing they are most adept at is using fares to get people on board the aircraft and then setting the other non-ticket revenues, ryanair in double-digit values. if they can find other ways to generate money other than ticket price, they can at least get us on board with those little pads. but yes, it is still formidable for me consumers. -- many consumers.

but it is a challenge in terms of getting cost back. manus: john, thank you for being with us. the best value for money in additional ancillary services is fast-track from ryanair. i can assure you of that. john strickland my guest this morning. coming up, a warning for the head of the german unions, a cut in russian gas supplies could result in the collapse of entire industries. we have the story on bloomberg. ♪

manus: it is your monday morning addition of "daybreak: europe." the head of the german federation of trade unions has warned the entire german industry it could face collapse because of the cut of supplies of russian natural gas per this comes as german chancellor olaf scholz discussed using bailout tools could be on the table again for large industries. -- large companies. andrew is back with me. what more can you tell me about this morning from the german federation of trade unions? it is broad reaching and sounds cataclysmic if it comes to pass. andrew: that's right. it is pretty dire.

singled out was aluminum, glass and chemicals, those are the industries she was talking about. but it is not a lone voice. it sort of chimes with what the german economy minister has been talking about, talking about cascading failures among power companies if they are not allowed to pass on costs to consumers and industries. a bit of a bit of the back story here, russian gas flows to germany through the nord stream 2 pipeline, already down about 60%. that pipeline goes into maintenance later this month. there is a lot of concern generally that maybe those flows will not start again. that is prompting these warnings. manus: yeah, and this is like the rolling hits from russia in terms of where they will allow gas to flow through two.

-- flow through to. let's talk about mr. muller, he is referring to demand destruction. at these levels, can you imagine what more could come to pass of russia turned off the taps completely, which is the jp morgan note? andrew: that's right. we are already seeing some demand destruction in the u.s., seeing it happen in gasoline, gasoline demand on a four week rolling basis is the lowest since 2014, excluding the height of the pandemic. and of course it is the fourth of july today, so it will be interesting to look at driving activity there. yes, we have these eye watering numbers from j.p. morgan, talking about if russia turned off 3 million barrels per day about, it would be about 190,

and if it was i've million per day, it could be 380. this is a worst-case scenario because putin would be denying his own war machine of a lot of sums. manus: absolutely, and if you think from a market construct point of view, we only have 1.7 million barrels of spare capacity in the system according to bobbing family -- all that mcnally and other analysts. juliette saly is an sing of her and she has latest on the first word news. juliette: teslas global delivery dipped in the latest quarter because of the shutdown and the shanghai factory. the automaker shipped almost 255,000 cars in -- worldwide in june. it missed forecasts. amazon founder jeff bezos has

criticized president biden tweeting that companies running gas stations should reduce gas prices. he says it is either a misdirection or deep understanding -- deep misunderstanding of market dynamics. the white house stated that elevated gas prices are not basic market dynamics but a market feeling american consumers. 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: jules, thank you. bitcoin, i love it over the weekend, you can see everyone coming home and having a look at it. a low at $19,000 over the weekend, down 1.6%. ether down by 2.85%. you've got cryptocurrencies on the move, the el salvador

president buying more bitcoin despite a 57% drop in the price. as we start to like, don't forget you gave up putting 1% in june, the steepest drop in data going back to 2010. these crypto spaces under pressure this morning, bitcoin and ether drop. coming up, don't let the optimism among the equity analysts for you, -- fool you. we give you the in live -- mliv pulse survey. ♪

>> hi inflation is probably worse over the very long term. >> inflation rules the game. >> that's why the fed is committed to curtailing inflation, that is the bigger problem right now.

>> this risk of entrenchment where inflation fears are in your head and you expect it to keep happening is elevated. >> shifting away from inflation. >> i think it is recession risk. >> markets are not sure, that's why you see this going on in the markets and we are at a tipping point. >> inflation is pretty thin right now. we are aware of a higher inflationary environment, people adjusting budgets. >> i think people are [indiscernible] >> there are recession proof strategies investors used in the last economic cycle, things like cash and high-grade bonds and treasuries, those cannot be the strategies you go full force into at a time when inflation is high. manus: how to survive in an inflationary world, the

respondents to the mliv pulse survey this week. mark has the analysis. we are getting ready for an earnings downgrade. the question is, are we already in a because i recession -- quasi-recession. mark: you look at how the bond market has performed, they seem to have decided recession risk is now by far the most significant factor that will affect major assets in the months ahead. you saw in the two-year german bunds, the widest week ever. even in the financial crisis but -- crisis. it had collapsed across the curve. we are not sure inflation has peaked, so there could be some wrinkles in that direction. manus: i like the take, a few

wrinkles to come in inflation. thank you, mark. a big week for markets. rba position mark, fomc on wednesday, then the jobs report on friday. the number will be critically important. 273 is what we are looking for versus 390. happy fourth of july to our american viewers. we've got a blockbuster day ahead right here on bloomberg. ♪

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