>> this is bloomberg daybreak:

europe. i'm dani burger alongside manus cranny and these are the stories that set your agenda. madness: mario draghi offered to resign as the saudi minister is refused by the president in an effort to stem a growing political and market crisis. sharp deceleration. china's economy grows at the slowest pace since the covert outbreak two years ago. likely putting the nation's gdp target out of reach. asian stocks are mostly lower. jamie dimon offers a downbeat assessment of the global economy . jp morgan and morgan stanley earnings miss the estimates. citigroup hits the tape today. warm welcome to the show. friday. we got there. it's been good to be together. i just listen to the chris waller tape. we all get ahead of ourselves. that's the key message from the

fed. we into a 100 basis point hiking frenzy and it's been tempered. far too aggressive, and of yourself. dani: this is the bullish guy. if you expected someone to endorse 100 basis points, it would be him. he found it more like powell, centrist. getting the market to back off basis points hike. as high as 94 basis points priced into this month. now it's 84. manus: i don't know what the italian word is. we have to call francine. she's on the beat [speaking non-english language] in italy at the moment. italy is in a state of crisis. that could be punched out in the spreads to boones. dani: makes the conversation much more difficult for the ecb. i was ready to show you futures. they don't open until 7:00. we have an hour to go into like and show you that. let me walk you through the rest of the equity market. hong kong tech is open and

falling. down more than 1%. this after we had alibaba facing more fines over a potential data breach. that sending the sector lower. china data in just a moment. down 2%. equity futures in europe are higher than more than 1%. italy, not baked into this picture. stocks have fallen 3.5% yesterday with drama unfolding. s&p futures are also up about 3/10 of 1%. a warning from bank of america saying that we could see the s&p fall to 3000. that would be a 20% drop from the current level. also downgrading her year-end target. nasdaq futures outperforming. it comes back to this idea that we are talking about. perhaps the market got ahead of itself. manus: when you arrived this morning, we had a quick chat. the the debate for the day is,

the bar to a 100 basis point from the fed has been raised. they want us to reset and reappraise and be more data dependent. rates come down at the tenure paper. we are still sub 3% on that bank of america note. 3000 by the end of the year. 3200. they see rates at 3.25%. they also see yields at around 2.7 percent this year. oil comes lower. biden is deciding, what is a win. i love what he has to say about the dollar. don't fight it. he wants to see supply solutions on crude, not demand disruption. that would be a very big signal in terms of the oil market, inflation, and the dollar narrative. euro comes back from parity. the narrative is, all hail king

dollar. that translates into the euro. this is still not fairly formed. $16 billion of long positions on the dollar. back in mid 2019. $36 billion. miles to go before we sleep on the long trade and the dollar. dani: it's tempting with parity but never able to hold below it. other top stories from around the world. the unfolding drama in italian politics. hong kong to break down the latest chinese gdp figures. manus: the president's visit with the saudi arabian crown prince. he will get a recap as well on the u.s. bank earnings. let's focus in on the pollux of italy first. mario draghi's resignation has been rejected by the president. the president could ask draghi to go before parliament in the

coming days to seek a formal vote on the government's future. a bigger challenge is that. let's get to our bloomberg reporter. what is the scenario now? what happens next? >> that's a great question. the answer to that question is very unclear at this stage. we are going to find out only in coming days. there is a possibility that a dilemma between draghi and commission parties will be able to be patched up with a vote of confidence from both parties. at the same time, draghi has signaled in a very strong way that he's just not happy with how his partners have behaved. he could confirm his resignation and just leave the post of italian per minister.

that would be devastating. dani: i want to jump in. it is perhaps devastating for the markets, looking at equities and italy sliding. yesterday, spreads widening. bdp futures taking a beating as well. what does this mean for investors? is the political risk fully priced in? >> at the moment, markets are having a muted reaction. if we look at the long-term, dealing with russia's invasion of ukraine. this is catastrophic for the whole country. draghi has started on a very ambitious path of reforms to free up the market, strobe competition, changeup the justice system to cut red tape. this is all on the question if he walks away today. dani: thank you very much.

china's economy expanded in the second quarter at the slowest pace since 2020. the result of numerous covert outbreaks in lockdowns in the country's biggest city. let's get more on this with enda curran. we have this data out of china today. walk us through it. enda: a pretty downbeat set of numbers. second quarter gdp came in at 0.4%. much worse than expected. showing signs of the hole left in the economy by the big shanghai locked down over april and may. we had downbeat news showing that prices and activities continue to slide. that's a part of the economy that makes up 20% of total activity. that's a negative. on the more recent high-frequency indicators for june, better readings for retail sales, up 3% for the month. that was something of a rebound.

there is caution there. inflation has an impact. industrial output showing stabilization. the take away could be china's economy bottoming out. it didn't speak to a big rebound. of course, it means the target of 5.5% is impossibly cheap this year. manus: that retail sow -- sale bounce, that was a mini trade. thank you very much. the very latest chinese data. the president of the united states is on his middle east trip and he says that he will raise the issue of human rights in his upcoming meeting with the saudi crown prince. let's get to yousef. good to see you. spent the past hour together talking about this trip and this stage. for lesson on what you are reading.

what is your assessment on the ground? yousef: it's hot, humid. if you had to pick the worst time of year to come visit, today would be at. 53 lights pointing at me. that doesn't make it easier. we are counting down to the arrival of the u.s. president. interestingly, 50 years to the day since richard nixon came to visit the saudi king in his time. it was amidst the global inflationary storm. interesting parallels on that front. no news conference slated at the moment. the optics will be awkward. we aren't clear about the protocol of the meeting between the u.s. president and the saudi crown prince. the reason being that the u.s. president took the moral high ground or argued for the moral high ground after the killing of jamal khashoggi. the saudi crown prince has denied ordering of the killing but has accepted possibility for it. can he get the saudi's to pump more oil?

the simple answer is that it's going to be very difficult. rbc capital talks about 11.5 million barrels per day. if you combine the uae and saudi arabia, maybe 3 million barrels per day. the best you can get is a pledge. that is capacity. you don't mess around with the reserves of the central bank. the price starts moving aggressively to the upside. that and diplomatic activity including security will be some of the highlights. dani: thank you very much. to the banking sector. morgan stanley plummeted last quarter. capital market seized up. jp morgan extended share buybacks after reporting a miss on second court revenue. the two ceos sounded upbeat about the economic outlook. >> there's a range of potential

outcomes, from a soft landing to a hard landing, driven by how much rates go up. the effect of volatile markets. it isn't going to change how we run the company. we've managed through recesses before and i'm comfortable we will do it while. >> we are frankly guessing at this stage. i think it's unlikely to be a deep and dramatic procession in the u.s.. the environment is very complicated. bought of uncertainty. frankly for our business model, we fare relatively well. manus: two titans of wall street there. optionality is a great word. diamond makes it clear, there's a hurricane coming but the consumer is stronger than it was in 2009. leverage, leverage, leverage. that's the point.

you might have a slowdown but it's perhaps not going to be as aggressive as it was in 2009. it will certainly be different. dani: that's this idea that perhaps all the doom and gloom is overdone. we still have a consumer that is in healthy shape. for the baking and things to come, more exposed to the consumer. there might be more optimism versus those who rely on investment banking and see the flow diminished as jp morgan did. manus: i know i sent myself e-mail last month. at 6:00, go to bed at 6:00 to get up for this time zone. let's look at some of the numbers inside this. ficc revenue, 4.7 billion. let me just send you the same one. 4.7 one billion. it is shy of what the market had actually expected. this is the point. it's about dealmaking.

we know it went into the top. we were looking for 5.1 one billion. investment banking revenue down 61%. here's the point. that's the crunch point. that's what every ceo are under pressure. dani: i think it's notable as well that they set aside more for bad loans. not a huge amount. $430 million for bad loans. that compares to last year. $3 billion released from those reserves. they didn't get that this time around. manus: comp is only up 5%. come back as a junior banker. dani: maybe not now. [laughter] i think you could pass. if anyone is looking for something from manus, i think he's ready. [laughter]

let's talk about what's coming up on the show. we talk inflation with the head of inflation trading at bank of ireland global markets. manus: we will be live to saudi arabia on the latest leg of the president's visit to the middle east. joe biden arriving in saudi arabia. this is bloomberg.

>> i fully support another basis point increase. however, my base case for july depends on incoming data. we have important data releases on retail sales, housing, inflation expectations coming in before the next meeting. if that data comes in stronger than expected, it would make me

lean towards a larger hike at the july meeting. manus: christopher waller there lending his support to the 75 basis point hike this month. markets have also given the fed a vote of credibility. five your breakevens falling from their march peak. therein lies the point. we've had this conundrum. when the breakevens rollover and yet yields manage to rally. our guest is semin soher power. good to have you with us. powell is one of few people to correctly guess last year's jump in inflation. no pressure on you this morning. good to have you with us. what do we have in terms of whether inflation has topped out? how quickly do we travel from 9% to 5% to five percent to 2%?

very different goods -- discussions. good morning. semin: good morning. markets are playing this year. really extort mary situation. totally dependent on the price action. it's very interesting that the market focuses on u.s. recession fierce. they have seen breakevens significantly lower. we will see stabilization. we will see a pullback by the

end of the year. the way the market is treating inflation, we are seeing interest rates being frontloaded. obviously jay powell told us [inaudible] inflation on the upside. dani: this is the thing. your base case is that we stabilize from here. we pull back 6%. will we be in a position next year as markets are currently pricing that there's enough economic damage or inflation has come in enough to cause the fed to pause the cycle? or even cut, i suppose. >> -- semin: yes. that's the question. you can't do that, despite the fact that inflation -- the

market is much less worried about sticky inflation and all the big things we've been discussing this year. the market is nomo -- now focusing on the labor market side of things. we know that the labor market is still holding on well. there's upside and downside risk going forward. that's what we heard about cpi. they will have to go well beyond the neutral rate. those rate cuts are already priced in. so the market is already pricing that in.

manus: let's just pause for a second. you talk about the two tencent dow hard the fed is going to go. that's exactly the same that our bond story has this morning. we've got a cracking chart. all the way back to 1980. the question to you as a market observer. is the depth of inversion -- will the fed tolerate? will it be a year 2000 version? will it be a 1980, crushing, bruising, implosion? how inverted will they be? able to tolerate in the year 2022. it is structurally different and fundamentally different. semin: that will depend entirely on growth momentum. if there's one group in the market who already believes that we are in a typical recession.

un-inversion in q2 is very likely. looking at europe as well. we are looking at possibly an event driven recession risk if the russian got is completely cut off. that would be an instant recession in europe which would mean that european growth and global growth predictions would end up getting revised. dani: let's focus in on europe. you mentioned it. we saw bdp spreads start to whiten the other -- start to widen yesterday. the cash market closed when we got this announcement that draghi had resigned. that resignation was rejected. tell me your fears in terms of a debt crisis in europe. if politics is an additional stressor to italy alongside the ecb attempting to tighten policy. semin: obviously, ecb is aware that the market is expecting

them to deliver. they know that the markets will test that. the way i see things, we were already seeing 8.6% cpi. we are expecting to see a further increase to 10% later in the air. we are hearing from turbine labor unions that they are asking for a percent rate increases. inflationary pressures are so strong. the ecb is really forced to deliver the rate hike priced in. even if you look past the shock of russian gas, we believe that the policy channels will be used to deal with that. we can see direct loans to

industries which might be impacted by those gas rationing measures. dani: i have to jump in. we are running up against the break. thank you so much for joining us. we will have to get you back on the program. appreciate your time this morning. coming up, recession perception. u.s. consumers spending like there's no tomorrow. we let you know what we bought from amazon prime day. actually nothing. a lot of people did. we take a look at those numbers, next. this is bloomberg. ♪

dani: welcome back to bloomberg daybreak: europe. online spending in the u.s. rose eight point 5% to nearly $12 billion during amazon's today prime day sale.

the event helped boost traffic on their own site. amazon selling more than 300 million items. props for the strength of the consumer. manus: the strength of the consumer is a theme for morgan stanley, jp morgan. what'd they buy? diapers. [laughter] beauty products. apple watches. dani: that's for next time you visit london. i will have it ready to go for you. you seem like a rolex guy to me. manus: she has expensive taste on my behalf. we will catch up 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.

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manus: it's "bloomberg markets:

-- it's "bloomberg daybreak: europe." we met friday with the dani: stories that set your agenda. dani:dani: resignation rejected. draghi's resignation is rejected. china's economy grows at the slowest pace of covid outbreak, likely putting the nation's gdp target out of reach, stocks are mostly lower. banking on turbulence, jamie dimon offers a mixed assessment of the global economy. citigroup and wells fargo are up today. saying there is still hurricane, the consumer is strong. something would been talk about all week. manus: the consumer remain strong, they have left -- less leverage than going into 2008,

2009. we all got ahead of ourselves pricing and 100 basis points. dani: duration bet undone a bit. manus: big moves across the bond market yesterday. when bullard and waller both backed off on the risk of 100 basis points, we got far too excited. the inversion -- the debate is this. the bond curve continues to invert. it backed off from the depth of its current version of by basis points. do get a 2000 inversion, back to back recessions of 56 basis points, or something akin to the year 1980? marlene by .4%. the dollar is still king.

the euro study, we are going to see what happens next with mario draghi and his cause light resignation mode. breaking news. dani: first quarter sales coming in 12%, handily beating the estimate of 10.7%. the idea that the consumer is strong. maybe it will be a cartier watch rolex. -- instead of a rolex. that could be one of the supporters of european stocks, up .8%. we are going to get burberry sales later today. we will see if that concerns the strength in the luxury goods consumer. hong kong type -- tech looks weak. alibaba facing another probe, perhaps regulation is back. s&p 500 futures, basically

unchanged. the nasdaq continues to outperform. it goes back to the story, perhaps a gaza -- i have ourselves some duration. perhaps the fed is not going to go 100 basis points. manus: on those small numbers, european sales of 45%, american cells up 20. -- 28%. president biden middle east trip. he says he will raise the issue of human rights and his upcoming meeting with the saudi crown prince. >> my views on khashoggi have been positively clear. the reason i'm going to saudi arabia is much broader, it is to promote u.s. interest in away that i think we have an opportunity to reassert what i

think we made a mistake of walking away from. our influence in the middle east. manus: let's get to our guests. what are the tangible outcomes from a visit to jenna, what is a win? >> the feedback on the grounds of they want to keep this as simple as possible. they want to create -- you heard some of the commentary from u.s. president. on the campaign trail, he wanted to make saudi crown prince a pariah after the killing of khashoggi. it was a difficult swing. to argue that moral high ground, and now because you want oil prices to come down, they push for fresh conversation. how do you manage the optics out of this? you went to israel's of the first thing he did was shake

hands. what happens when he meets the crown prince? does he shake print -- shake hands? the crown prince have tends to be a hugger. the bigger points on saudi oil, they don't have that much they can pump took in addition to what they already doing. they are close to maximum capacity. the target is 11.04 million barrels per day. the uae has a little more as well. meddling with capacity creates an new set of problems. that is one of two things on the agenda. dani: he said there speculation about potential normalization of ties between saudi arabia and israel. are we expecting any breakthroughs soon? >> a roadmap at best. i was catching up this morning, the saudis going to be careful not to give the us too much at this time.

yes, united arab emirates and bahrain moved quickly. in saudi arabia, because the kingdom is the custodian of the two holy mosques, they have an additional responsibility to push for resolution of some of the long-standing issues around the state of palestine. until we get more clarity on that front, and deep reflection on what mobilization would imply it, they are not afraid to go yet. that doesn't mean they can't ease into it, which is why we have seen this agreement from the saudis to allow commercial flights from israel through the skies of the kingdom, which might sound like a little step, it is a historic step nonetheless. it shows the saudis are willing to have these discussions as part of a bigger roadmap. manus: what is the mood in riyadh? is it is historic for them as it is from a global perspective and

from the u.s. political perspective? >> it is. looking at the local paper, they are saying at the moment for saudi arabia to reassert itself on the global stage. also, saudi arabia playing an important role in managing global energy supplies. that meeting is a kind of confirmation of the heavy role the crown prince and the saudi king want the country to play in global affairs. there's generally optimism about the potential benefits for the kingdom in terms of the economy and future security. the other think we are going to be looking at is integration with other countries around sharing missile defense system, around coordination of intelligence agencies. that is going to be one of the

focal points as well of the u.s. president tsai go visit. -- u.s. president's visit. dani: to speak with us is the chief investment strategist at northern trust, you are going more into cash, how concerned are you? are you concerned we are about to hit the world scare and and continued inflation scare? >> we need to look at the current situation as proof where an ace firm slowdown, potentially a recession on top of that. to reflect that risk, the probability that has been increasing, we think it is prudent to take a more cautious approach and raise a little bit of cash. that is the underlying thought. manus: together, you've got neutral on the equity position. when you listen to jamie dimon,

i pay more attention to them than pretty much any brokers the coming. i think they were reluctant to call it perception. the confident on the consumers, on america, translate that into strategy for us. >> if you look at some of the aspects of the drivers of the economies of the u.s. consumer in particularly, there was a strong balance that came into this with a fair amount of spending power. and an amount of the get -- economic momentum. we have to reflect on the global position, on europe and the natural gas prices and how that has translated to the european consumer. and the chinese consumer of the global picture of the significant slowdown. will that be something more serious from a u.s. perspective? probably not. there the back of the queue in

terms of the slowdown. dani: >> from an economic growth perspective, certainly. from the markets perspective, we have to be more circumspect. u.s. earnings expectations -- are still very elevated in the u.s.. despite the confidence, they also miss on the expectation side. there is still a risk factor there we have to acknowledge. manus: dani sent me a note this morning. you can see a weapon draw. the consequence of that, you've got cash, but how much more exposure to dollar to take? the other note we talked about -- he said it is going to be hard to get on top of the dollar. don't fight it. positioning not that long. cash in dollars, do you take

more fx exposure? >> at the moment somewhere along on the dollar. we have that dollar position and we are happy to keep it on. at the same time, we are also wary of setback potential. interest rate expectations are quite elevated in terms of policy tightening. the dollar is fairly expensive month intelligence behind the dollar strength would drop away. we are keeping the trades, there is a potential there. dani: to come into the mind of the excel buildings of the data mining modeling team at northern trust when you are looking at the dollar as it applies to equities. at what point do you say the dollar strength is going to affect profits?

>> it is hard. we are humble when it comes to currency forecasting. i don't know anybody who can do it consistently. we look at valuations, we look at momentum, which is clearly stretch. the dollar has had a great run. we look at the cyclical factors, what is happening with global growth, the geopolitical spectrum? at the moment, it is a stretch trade, it is not circular. manus: going back to notes, we want to supply-side solution to the drop in oil rather than the demand destruction narrative. markets on copper, iron ore, oil or on a demand destruction.

that is not good backdrop. how much of the warming is copper, iron works, those kinds of drops? >> for us, clear warnings. the supply-side adjustment narrative is lovely if you can get it. it is more of a hope trade than a strategy trade. it is reflective of high prices and the fact that the economy is clearly slowing down. even if the u.s. is able to avoid the deep recession, it is still in slowdown mode. that is what you see reflected in the commodity prices, one of the reasons we went neutral natural resources. manus: thank you very much. next time come back, let's see where the dollar is. america subfolder session risk, coming up, triple d.

as the time presidents rejection of draghi's resignation last night, what does it mean for markets?

manus: it's "bloomberg daybreak: europe." i'm manus cranny with dani burger in london. the italian prime minister cycle resignation has been rejected by the president. he could ask draghi to go before parliament in coming days to seek a formal vote on the government itself. dani: let's get into the conversation with lorenzo codogno. his services chief economist at

the treasury department of the italian ministry of economy and finance. lorenzo, thank you for joining us. let's start with the nitty-gritty, how confident are you that the government can avoid further rupture? lorenzo: there will be a vote on wednesday. the book will be crucial. i think if draghi decides to step down and the government collapses, there will be elections. they are the essence of democracy. it is not a disaster. even in terms of timing, it is not clear to me, it provides an advantage here. i think the situation is unstable at the moment. but again, elections are not -- manus: the markets have tentatively tested the spreads.

equities down 4% to 5% at one juncture yesterday. in the event that we go to elections, the base case scenario, markets detect a lack of continuity. you think we will see more taxing and the spreads, which should be a huge headache for the ecb, as they go for anti-fragmentation initiative. lorenzo: i think it is a possibility. the global environment has become less -- there has been a turn in the global financial cycle, starting from the fed. on top of that, some uncertainty in the italian politics. the recipe for patients is that. it would put more pressure on the ecb on the 21st of july to deliver on the anti-fragmentation tool. dani: lorenzo, possibility

spreads widened, how bad could it get? are you concerned about a form of debt crisis or another? lorenzo: it is a concern because the global scenario is worsening . it is not just italy ended is not specific to italy. we time that with gdp, with the situation worsening globally, clearly there must be a risk of the spread widening. that is why i think there's a huge responsibility on the ecb to make sure that italy is spread widening, it remains contained in not to impinge on the stability of the euro and the transmission of monetary policy. this puts a lot of pressure on the ecb on 21 july to make sure that what they decide to do is effective. manus: we've moved a long way from the debt crisis we covered many years ago. let's firm a couple things.

eight, is the risk of a risk -- would you put that at zero, and what is the compromise? compromise that can be delivered from disobey or mario -- giuseppe or mario? lorenzo: they both are scheduled for wednesday -- the vote is scheduled for wednesday. five days in politics -- it could be for back, they could reunite with the other parties in government. draghi it continue with the same majority for a few months until spring of next year. that would be possible. i think as we enter into political -- it will be difficult for draghi and his government to deliver under forms.

-- deliver under forms, it would not be a disaster really goes for early elections. many options are still open. on the possible crisis in europe, my feeling is that europe has the tools to respond to any crisis. the situation has changed for the better. dani: lorenzo, you say europe has the tools, italy itself, fragmentation comes over criticism from can't take in terms of -- should there be a new government, what would be the right mix of policy for the italian economy, in less than a minute? lorenzo: the target was delivering proper policies for the country. maybe he could have done more in terms of pushing for reforms.

as we seen to date the political environment is not an easy one. i think he has managed to do a decent job in this difficult situation. manus: thank you for being with us. lorenzo codogno, chief economist. dani: the g20 finance chief in indonesia with the war a new creation -- with the war in ukraine, and inflation.

manus: dani: welcome back to "bloomberg daybreak: europe." i'm dani burger with manus cranny in london. manus: this girl gets around. she stepped best gigs and the

best backdrops. she's got the agenda at the g20. you got this background, your chill, you are everywhere. good afternoon. how are you? >> hey there, manus. the g20 meeting [laughter] coming against the backdrop of darkening clouds over the global economy. we talk about surging inflation, the cpi and the u.s. at a 40 year high. we have a food crisis, energy crisis, gas prices. the plates full. when you look at the communique, what did they talk about is cooperation among g20 nations when it comes to food and energy. what is interesting is ukraine's of the war is a breccia and supply chains. the all points to disagreement

and the wording when it comes to the eventual communicate, if that were to happen. thanks so much, dani: haslinda in ali. your about to leave london manus, you arrived at the lowest point since the covid pandemic. things are finally in your favor. it makes me unhappy exhibit happy for you. manus: you go home to the king dollar. good to be together. i'm going to be out for a week. dani: i'll take the ropes. i won't break anything, i promise, manus. that is it for us. markets up next. this is bloomberg. ♪

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