>> the job of a prime minister

in difficult circumstances is to keep going. >> this is bloomberg "daybreak: europe." i'm dani burger in london with manus cranny in dubai. these are the stories that set your agenda. manus: defiance at number 10, boris johnson refuses to resign as the exodus of cabinet members continues. the prime minister goes on the offensive. even more restrictive treasury yields surge after the fed underscored a commitment to fighting inflation. oil remains under pressure while the u.s. and allies consider tapping russian -- capping russian crude prices. that's the bloomberg scoop but the pressure is at number 10 in

these markets. good morning. dani: it's remarkable to see fx volatility ratchet higher, to look at on volatility ratcheting higher, and yet everything is peachy and sanguine in stock land. giving stocks the go ahead, perhaps the foolish hope that the fed would cause. let's take you to this mornings markets because we continue to see this rally continuing for what would be the third day of having u.s. stocks participate with the holiday week shortened for them. politics perhaps not having too much to do with where equities are going, but we're looking at gains of more than 1% for most of these indexes. the s&p 500 futures perhaps a little bit weaker.

we saw 10-year gilts moving higher, more hawkish type processing but overall it seems that despite some of the turmoil displacing the economic fear in the market, we're happy to buy equities and buy the dip at the moment. manus: maybe that is part of the value narrative that we refer to yesterday. killing me softly, the dollar is dragging a little bit in these markets as well. the added pressure on the oil market, wti was down by 12% at one point. oil with a small reprieve, the the third-largest drop, exploding by 18 basis points. three words that reaffirm the optionality for the federal reserve to go hard, go heavy, 75

basis points, optionality on the table. outside risk, on starting to the dollar, it's risk. will talk to stephen gallo a little later on. dani: let's get to our reporters from around the world with our top stories. outside number 10 downing street where the heat is on boris johnson after a chaotic two days. manus: the epic -- fx markets with a pickup on the massive moves, juliette is with us with samsung which is driving a large part of the asian narrative today. dani: let's get to the front

pages of the u.k. newspapers, desperate and deluded on the guardian front page. dozens of conservative mps have resign from the roles amending he step down. the prime minister sacked a former ally from the cabinet and he remains defiant, saying he will continue to fight for his political life. >> not going to happen. history teaches us that the best way to have stability in government and not to have early elections is to allow people with mandates to get on. dani: for more, let's get to downing street where our reporter is standing by. resignation after resignation, what are johnson's options and is he as good as gone at this point? >> more than 40 resignations

now. i picked up this newspaper calling for johnson to quit but it seems unlikely he is going to do that. if he does, he would set out a timetable for leadership elections so that someone else can take over, or he could go immediately and there would be a caretaker, but if he doesn't resign, the question is how far is he willing to push the constitution? if they change the rules next week as expected, it is still not a hard law that he needs to go. it would then go to a vote of no-confidence in parliament and then he would have to go. but if he calls an election takes a gamble with that, the queen could refuse to do that on the grounds that he doesn't have the confidence of his party anymore.

of course someone needs to be the prime minister. his argument is that his mandate is colossal, it's the biggest since margaret thatcher. but that was 20, and ultimately it's the party, not orest johnson. manus: when you see moments like this, the most brilliant line says one of the cabinet industries went to johnson telling him it was time to quit. boris downed the whiskey and turned on gold. what do you think johnson is trying to achieve by that signaling? he is losing ministers hand over fist, but to fire gold is one of those moments that shows he will not leave voluntarily. >> this is johnson trying to

show that he is willing to fight back. it is also perhaps a bit of revenge, because to undermine his leadership in 2016, in the sense that he was -- remember one of the big policy issues of this government is to level up the parts of the country that were left behind. that is left someone who is new to the department or not as experienced, will that goal be completed? bloomberg has a brilliant leveling up scorecard that shows how far behind the government already was on that goal. manus: a great round up there from downing street. to the fed, officials solidify

their result to keep raising the rates for longer to prevent higher inflation from becoming entrenched. the fed absolutely unrepentant and unrelenting and it does continue to crown king dollar with these words of even more restrictive policy. >> i think the hawkish tone will guide the conflation's problem. that's one we will focus on. if we bite the bullet now, it's better than let the inflation genie out of the bottle. leaving the option of even bigger heights than 75 basis on the potential table.

dani: that partially leading to what we are looking at, these calls of parity. saying the euro remains unviable this summer, is there anyone left bullish on the single currency right now? >> there's not many at the moment. there is no real reason to buy the dip, shall we say.

scrubbed one of its controversial policies, the so-called circuit breaker. the new chief executive with a big boost for an lot of the

airlines. dani: thanks so much, juliette saly there in singapore. let's look at some of the key things participants will be looking out for in today's market. we will have the latest production stats from germany, the ecb will publish the account of the june policy meeting so market participants will be looking for clues on what the interest rate outlook will be after we had those s&p minutes yesterday. manus: this goes to the heart of the call on lack of clarity from the ecb. jobless claims, consistent with the signal coming from the rising jobs claims. and the crude inventory to report at 4:00 p.m. as we saw the apis ratchet lower.

coming up, a jumbo rate rise, more detail on the fed minutes from the june meeting. dani: we will also talk about france, they will up there stake 100% according to the prime minister. we will have that later in the show for you. this is bloomberg. ♪

>> the bigger mistake to make, let's put it that way, would be to fail through price stability. >> we are already signaling our monetary policy through outsourcing more liquidity. >> moving gradually, there is uncertainty about the outcome, but with the option to act decidedly downward pressure.

>> which monetary policy would be inappropriate? >> inflation has quickly increased. >> i don't think we're going to go back to that environment of low inflation. >> we should be moving to a policy rate that is higher than this point. dani: central bankers from around the world weighing in on monetary policy and of course inflation and price stability still among the chief concerns. certainly achieve concern among this market whether it is recession or inflation on our mind. manus: recession obsession or inflation neurosis. we learn yesterday the fomc --

the federal reserve officials have decided to keep hiking interest rates to prevent inflation from becoming entrenched. even if that shows a bit of a slow down for the u.s. economy after 75 basis point hike last month, policymakers back to raising them again in july. optionality is the name of the game. a chief investment officer at lombard, good to have you with us. someone else did the counting and mentioned inflation 90 times but didn't mention recession. with these three little words, even more restrictive, have they given themselves huge optionality to to do another hike in the next meeting? >> the next meeting is probably a 75 basis point hike that we will see and probably we are seeing something like 70% in

2023. from that perspective i think it is already embedded in the market price and therefore we could see a better equity market performance going into the second half of 2022. of course there is much more rate hikes that are necessary and in this scenario it will be potentially bad for the u.s. equity market. does that mean you are among this crowd buying equities and where so if that is the case? >> well, we have a neutral -- were trying to create a convex return for our portfolios by protecting this equity exposure

because the percent negative scenario is not small and therefore we need to protect our assets. in terms of equity preferences, we have recently increased our chinese equity against the rest of the emerging market because the authorities were becoming more accommodating in terms of monetary and fiscal policy and a little bit of loosening of the measures on covid. manus: it's two for china and one for us this week on the scores. i like the fact that you see a significant turnaround in the second half of the year. in part, does that underpin your continued belief in a commodity super cycle?

aluminum getting crushed, iron or on its way to $90. is that catharsis done in the commodity space, and would it embolden you to step back in, and if so, how? >> i would be rather in the camp to step back in because it represents a very good hedge to inflation for our clients. for that reason we like industrial metals. if we talk about energy, the potential of russia slowing the flow of glass toward your -- the flow of gas toward your. -- toward europe. dani: we fell back below $100 in

wti. it is getting decimated in the past few days with little new information and impetus. what is going on, is it all just more of it technical factor of margin call type environments, of deleveraging risk right now? >> i think the market is sometimes very worried about inflation and sometimes word about recession. i think what is affecting the price of oil is that people were starting to get very worried, they are revising the demand side for oil. in the end, we know there are a lot of constraints in terms of supply and there is a lot of margin to improve going forward with the lack of investment over the last few years.

in the scenario of the recession we think it will go back in the coming months. dani: square this with me in your equity view that it will be better from here. oil will continue to be high. we still have a lot of supply constraints. doesn't it continue to force inflation if not higher, at least elevated? why would they not step back and allow equities to rally? >> in that scenario, we would expect the fed to go something around 350 and still be able to deliver good earnings. also keep in mind, there are already a lot of those in the

news and therefore the evaluation really reflects that. the pe on trailing earnings is at 11 right now which is quite a low level. manus: i like the way you pitched it in terms of put option strategies, etc. but i wonder if they are little expensive at the moment but when it comes to that balance between growth to value, 3.5 rate for cash, does that mean -- what does it mean for value? >> we are still very much in favor of valuing quality and we still think it is time to invest in growth. there will be a time when we would recommend to buy growth stops.

it is still too early right now to do so. we have a preference for companies that have a strong balance sheet and can generate plat -- cash flows with pricing power that fall into the value category. manus: thank you very much, let's see how the second half shapes up. coming up, a defiant boris johnson desperately clinging to power after resignations from the government. we bring you the very latest from westminster, right here on bloomberg. ♪

manus: this is "daybreak: europe." dani burger is in london.

a moment of reprieve in the equity markets. we have erased 2% losses four times in 2022. i don't know, it's all about the chips this morning in asia. is that enough to embolden u.s. equity traders? dani: there was a lot of concern about chips, that perhaps indicated a slow down. maybe it's not as simple as my propensity to go toward doom and gloom. coming 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: this is "bloomberg

daybreak europe cap -- daybreak europe.": dani: boris johnson refuses to resign, firing michael gove. treasury yields a surge after fed minutes underscore commitment to fighting inflation. the euro is deemed unviable as it edges toward 1-1 with the dollar. the u.s. and its allies consider capping russian crude prices. a bruising session, whether it be politics behind it or skyhigh energy prices for anyone who is long sterling. it is unviable, says kit about the euro. manus: a brutal call. we will see what gallo chimes in with. britain's bond market, 18 basis points up because of three

little words. it was even more restrictive. that is what brutalized the short end. of the curve. took the dollar up as well. euro is not effectively on bible. it is probably bruising we close to parity at the moment. king dollar is defiant. crude is down. a quarter of a percent up. the ief secretary-general was in this morning. do not be lulled into a false sense of security by this price on cable. i wonder if boris goes to sterling bonds. we will ask stephen gallo. dani: also defiance in this equity market. perhaps it was oil falling under $100 that assuaged some fears.

it is all priced in, this recessionary-ness. he is staying neutral and but other folks happy to go in and buy. we are at more than 1% for euro stocks 50 futures, ftse 100 futures, and the msci asia pacific, a lot of this having to do with samsung beating on earnings. perhaps the gloom on chipmakers is done. a little weaker on the s&p 500 futures but we are still in the green. manus: that's good to know. i only need a 20% bounce in that and i can breathe easy. let's leave the equity market story the. desperate, deluded. we are talking about the front pages of this morning's newspaper the guardian describing boris johnson. quite an unprecedented revolt on his own government. dozens of conservative mp's have

resign from their roles demanding he stepped down. the prime minister even sacked his former ally michael gove from the cabinet. johnson remains defiance, signaling he will return -- signaling he will continue the fight of his political life. >> history teaches us that the best way to have a period of stability in government is not to have early elections, but to allow people with mandates to get on. manus: for more let's get the downing street. lizzy burden is on the ground. an utterly defiant prime minister ignoring the great deal of questions, sitting very quietly through javid's speech. >> i'm sure many of us stayed up late waiting for the podium to

appear outside that door but the resignation seemed inevitable and never came. let me recap yesterday. started with prime minister's questions at lunch time. care starmer launched a stinging attack not just on the prime minister, but those who stayed loyal to him. then you had that statement from sajid javid whose resignation as health secretary triggered the snowball effect. now more than 40 resignations. then johnson faced a grilling from the parliamentary liaison committee. they focused on his integrity. time and again he referred to the 2019 election mandate, the biggest since margaret thatcher. then what we thought would surely push him over the edge, a delegation of cabinet ministers including the new chancellor, who had been imposed less than 24 hours, called on him to resign, but no. johnson says he is going to fight on and he singles that by sacking michael gove who is a

dangerous figure to have on the back benches because he is seen as someone who is very competent in the conservative party. dani: when it comes to johnson's effort to hang on, can he even put together a government at this point? does he even have enough people who have not resigned to assemble a cabinet? lizzy: this is what is going to be difficult. it is not just the big names like rishi sunak and sajid javid. to fill vacancies that is going to be extremely difficult. johnson is fighting on. if he resigns, he could do like theresa may and set a timetable for leadership elections or he could hand overthrew a caretaker, go immediately, and it could be somebody like deputy dominic raab. if he does not voluntarily

resign as he is not expected to, it could signal how far he's willing to push the limits of the constitution. is he going to call a general election? the queen could say you are not doing that because you lost the confidence of your party. or it could go to the 1922 committee of conservative backbenchers. they are expected to change the rules next week, have another confidence vote, and vote him out. even that would not force him to go. it would go to the house of commons and then he would have to go. dani: thank you very much. lizzy burden will be outside 10 downing street for us all day. stephen gallo joins us. i love what you wrote in the end of your note from last month saying johnson could face a leadership challenge but you thought it might come by the. so you were right -- you thought it might come by the first half of next year. so you are right. is the political risk in the

pound or should there be more embedded in it? >> for the most part the political risk is largely priced in sterling. when johnson does step aside, i don't think you are going to see much of a rally. it is important to point out the weakness we have seen in sterling your today -- year to date is fundamentally competitiveness. this was very much on display and highlighted in the q1 current-account data. this data can be noisy and prone to revision, but there were also early science the first quarter of the year that the u.k. is becoming more dependent on shakier forms of external financing to cover the short form fall on the current-account. everything else including the political backdrop and potentially even fiscal risks, medium-term, while they are

important, they are largely incidental in our view. manus: good to have you with us. we only ever see you in moments of great angst. if it is not brexit, it is other things like the u.s. election. good to have you with us. we have retested pandemic lows, brexit los. what does that do to the bank of england? what triggers the bank of england to do a defensive lay on the currency if at all? >> they are in a tough spot. in the current environment right now, until the fed backs off on the pace of tightening, we do not think rate hikes or a lack of rate hikes from the bank of england are good for sterling. in terms of defending the pound, the bank of england is in our opinion never going to publicly say they are attempting to defend sterling.

they have learned lessons i think of erm. that is not going to happen, but i would say if anything a faster pace of rate hikes from the boe is potentially more damaging for sterling after the initial spike higher on the move from the bank of england. in terms of positioning, it looks like positioning in cable to us is pretty light. we think it could get to 1:15 pretty easily -- 1.15 pretty easily. the move in cable has not been driven by better positioning. it has been driven by flows. when you have that situation, it is difficult to reverse those flows, a dramatic shift in trade and global conditions.

dani: if you want to talk drama let's talk the euro. we were all looking at german energy prices. this is pricing for the next year. sky high easily at a record. this idea of a consumption squeeze for the consumer. are you agreeing with kit that at this moment the euro is not viable? >> well, i think the euro is the anti-dollar. in the short run i would agree with that view. there really is no reason to be buying the currency aggressively right now. but on a one here horizon, you think the fed is not only going to be halting qt but extending the balance sheet and cutting interest rates, these are good levels to be buying euros. that is a really big area of uncertainty.

in terms of the energy price situation, the view is of course we are seeing near-term downside in energy prices, particularly oil, because of rising recession risks and the stronger dollar, don't forget that. the view is that medium-term, structurally, there is simply not enough oil or refined products to meet the incremental demand. once we have the slowdown, you are still going to be looking at upward pressure on prices over the medium-term. looking at euro where it is right now, i think if oil had not fallen and if u.s. treasury yields had not shown indications of a peek at the longer end, it would actually be comforting to be at parity already. the fact that oil is not higher

and u.s. yields of the long end of the curve in particular look like they have peaked for the time being, i think that is providing a bit of support to the euro short-term. manus: you are coming with your a game on one-liners. what is the end? the same two narratives you talk about, yield speaking in the u.s. and oil's ability to stabilize, i'm not making a call, i'm just paraphrasing your notes. those two protagonists and the potential of a slowdown, a global slowdown, material slowdown, does the yen suddenly become a haven? >> we acknowledge that the decline in longer-term u.s. yields and yields, or recently weaker oil, that is slowing the move in dollar yen, the move

higher that is. but there are a lot of differences between the yen and sterling. largely it has been a negative or flows picture which has driven the yen lower. yes investors have been shorting the yen on bod expectations -- boj expectations, but the boj is in a similar spot because in the absence of global qb outside of japan, risk premiums have to adjust higher to cover large current-account shortfalls or large trade deficits. that means higher borrowing costs, higher yields, for a weaker currency, or some combination of the two. that is the situation that japan is in, that the bank of england is in, that the yen and sterling are in. it is a difficult global environment especially with central banks, maybe with the

exception of japan, stepping back from oppressive easing. manus: they are all still in there at the moment. good to see you this morning. we will check on those calls. stephen gallo, european head of fx at bno. let's get back to the first word news. >> samsung electronics reported slowest profit growth in two years with rising material costs and lukewarm consumer demand raising margins. preliminary operating profit rose to $10.7 billion in the three months ending june. sales increased 21%. almost $59 billion, slightly above estimates. we will get a full report later this month. crypto broker voyager digital has filed for chapter 11 bankruptcy protection, the latest in a growing list of casualties from crypto's rout.

last month, voyager had secured a $485 million credit line from a crypto mogul. cal bell group's's asia fund is likely to have half the exposure to greater china than previous funds, driven by investor concerns over rising political risks and regulatory uncertainty. the asset manager is telling investors the targeted china exposure for its six asia fund will be 20% to 40% compared with 40% to 50% on average for previous funds. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. dani: thanks so much. coming up, the climate emergency requires strong radical decisions according to the french prime minister yesterday. so we have the government planning to fully nationalize

nuclear giant edf. this is bloomberg. ♪

dani: it is "bloomberg daybreak europe." the french prime minister announced on wednesday an electricity giant edf will be nationalized with the state increasing its ownership from 84% to 100%. the move will help france ride out europe's worst energy crisis in decade. she spoke in front of the general assembly during her policy speech kicking off macron's second mandate after he lost his outright majority last month. >> this will improve electricity

production and performance. you must ensure certainty in the face of the war and its consequences as well as the huge challenges ahead. that is why i confirmed today the intention of the french state to hold 100% of edf capital. dani: put simply, why does the french government want to nationalize edf? >> that is a story that has been going on for years and not decades. but of course it has become closer reality since the war and ukraine and it was already a proposal in macron's presidential campaign. it is a way for the french government to help edf navigate through the current energy crisis. edf has a lot of debt. there is less debt actually, 43 billion euros at the end of last year, and it was expected to

continue to rise this year because edf's earnings are expected to plunge. it is also a way for france to continue to invest in nuclear. macron has promised he will build between six and 14 new nuclear reactors by 2015. you need investments for that and a lot of edf's reactors in france are aging. up to half of them have been closed on and off for maintenance over the past few months. finally edf has worked recently about drought and the low river level that may also import data -- impact output. manus: good to have you with us this morning. the french approach and german approach are different. the germans want to limit exposure on the bailout and the french, it is a different policy.

not for me to criticize. are there any other hurdles from the eu given that differential? the germans are limiting losses, nationalizing losses in france. >> in 2019, macron's government tried to buy out edf minority shareholders. it was stopped at the time by the eu commission because this was considered state aid. a lot has changed since the war in ukraine. you mentioned germany bailing out the utility uniper. we heard on french television a couple days ago, she said today the nationalization will not be a problem from the competition standpoint. manus: thank you very much. you are still one of the best actor up covid work from home

set ups i have seen -- is good. dani: i like to imagine the set up even when she is not on tv because it looks so good. manus: she is one of the best producers in the business. keeping it real for us in france. coming up, british airways, no cheer there. an update on the trouble troubles. -- travel troubles. this is bloomberg. ♪

manus: it is daybreak europe. brandon lewis has resigned, the northern ireland secretary. we will have more on that story through the next hour. he said a government relies on

honesty, integrity, and mutual respect. let's talk travel disruption. british airways is nearing the end of -- with unions. 10,000 flights to go. is that the top line? is that the worst? >> 30,000 altogether is what we found out. 10,300 flights to go. we heard about that yesterday on british airways. this really is as the airline grapples with a staffing crisis that has hit it. the unit of iag has scrapped 30% of its schedule from april through october. short-haul flights will be affected and ba has been among the hardest hit by this staffing crunch after dismissing 10,000 workers during the covid pandemic when we saw so many planes grounded. dani: it is not just ba is that? >> no, it is easyjet and ba,

some of the hardest hit. fly be cantering -- canceling hundreds of flights and this is just 12 weeks after they resumed operations. we have a staffing crisis and we have also got a problem with delays in aircraft. there is so much going on but remember if you are going away, check your travel details. dani: thank you very much. the latest travel disruptions, now it is time to travel out. manus: so long as i see you next wednesday morning. this is bloomberg. ♪

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dani: -- anna: good morning.