>> the story continues that inflation is a problem and it is going to stay problem. >> the fed is not done raising rates and we can't be too optimistic at the market level. >> we could easily get another negative gdp press for the second quarter. >> the recession, it is exaggerated at the moment. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: hello europe, for our

audiences worldwide, good morning. for bloomberg tv and radio, i am tom -- alongside tom keene and lisa abramowicz, it was july 7, 2011, the last time ecb height -- hiked rates. tom: they don't like to do it and it has to do with the state of their experiment. we will spend a lot of time with this. i wore my eu bowtie format for bottom guard. jonathan: i do. tom: it is a beautiful light blue. we've got a nodding acquaintance with italy and you have been on the lawn in frankfurt, what is your thoughts? jonathan: it is about the hiking cycle. how much further can they go? in italy, mario draghi resigns. before that, they need to deliver some reforms.

there is not going to be much work to get it done without the government. tom: are we frontloading political chaos and turmoil? you got the united kingdom, you have draghi, the modest issue of a war. this is as political. jonathan: can wait put a lid on the bond market and anti-fragmentation talk? tom: it's a distraction, i don't get it. i have yet to seen an essay that shows how it works. the applied theory of it to me is a mystery. jonathan: is that unwarranted breakout today? that is something they've got to deliver. what we don't know is the conditionality around the talk and what is and what is not a count of yields.

maybe we will have to wait. tom: with early morning bar in venice, i wander into the empty bar and read italian papers and understand i don't know what is going on in italy. it is its own unique experiment. i showed the nominal gdp chart with matt miller and draghi is all they had. i loved what they said at citi, mario draghi is experienced and influential. how do you replace that? jonathan: coming from twitter, asking for ecb backstock, a prime minister who is ecb president and invented this -- it's like must send money. tom: let's see if anybody is

catching up with draghi. jonathan: nord stream one back online and reduced capacity, but relative to what some expected, good news. >> it is flowing at 40%, that if an outright set off. -- shut off. they're taking corrective action to reduce gas supply. we know it is a volatile situation and that could still shut off at any time. russia holds the power now. jonathan: these are tough times. we will be on top of the story in europe. i will guide you to the markets, down .1% on the nasdaq --s&p, yields higher by 50 basis points in italy, 17 on a 10 year. no trauma stateside, 3.04% yield on the 10 year. the totally unchanged, 101.81 --

one point 0181 -- 1.0181. kailey: it is the weakest euro going back two decades and that will matter when they make decisions. we think it will be 25 basis points, they told us that but the report indicated maybe 50 was in consideration. we know what it is called but we don't know what it looks like and when you have spread between italian yields in german yields to about 230 basis points on the back of the resignation of draghi, i would not want to be christine lagarde in the press conference. of course it starts at 8:45 a.m. eastern time. in between that we will get initial jobless claims in the

u.s. and we will have to try hard to pay attention to that given everything else that is going on. we have been seeing an uptrend since april. what kind of cooling in the labor market does that signal? after the bell we will be getting more earnings. it could be interesting because the forecasts, given the economic trajectory and weakness they are seeing, advertisers are pulling back. what does ad revenue look like? that could be a signal for meta-, alphabet, sactown 60% -- 67% -- snap down six or 7%. jonathan: joining us as a strategist at hsbc. getting there was the title. anyone who knows you knows you have been bearish, are you getting less bearish? max: not quite. we're getting there, as the

title says. we are getting indications that aggregate positioning is less neutral and more convincingly bearish than what we are seeing in the real money decision -- positioning shifting toward pessimistic stocks. that is generally good because it means the recessionary talk, the doom and gloom scenario are becoming more consensus. the bad thing, and while they are still risk off, significantly underweight in equities, is because the fundamental picture has not really right and up. what we are seeing is that the fundamental picture and fundamental headwinds have broadened out. you see that in manufacturing and industrials, seeing weakness with consumers in the housing market. that is the fundamental headwind trumping the positioning. tom: if we extend inflation and

nominal gdp into a better nominal revenue, how does that change your multi-asset strategy to have a better money illusion? max: i guess we need a couple of things. on the earning side, we need a couple of earnings revisions down particularly on the cyclical side of things. this is like bitcoin but some of their earnings estimates have held up pretty well year to date. because at the end of the day, it is a nominal wonder. we have just heard in the beginning that there might be two consecutive quarters of a real gdp contraction, technically a recession. but in equity guide says i was expecting quite the earnings growth. at the beginning of the year i thought most of that would come from real earnings growth. we have been wrong on that but most of it woke up on inflation but the nominal number will

change, do i have to care? you don't until merchants start to contract. the fact that we don't have that much pricing power, the fact that we can top down the leading indicators feeding into lower aggregate demand, that will call your earnings estimate into question. that is the trajectory we are getting into now and where you are starting to see cyclical earnings revisions starting to downgrade a bit more. kailey: if the days of market expansion are over, where is the safe place to be? max: at the moment, it is still in sovereign. develop market sovereigns, we do like this for most because that is where we are seeing fundamental headwinds. we are already seeing the fate of both hard and soft turning around and frontloaded heights being pressed in.

it's that, to me, looks quite attractive. i do think on the growth side of things, rates volatility is coming down. we do prefer u.s. equities to x u.s. equities, the u.k., the more cyclical markets. though should be suffering once we get more and more cyclical earnings revisions to the downside. and we like the earnings market on the bond side and equity. on the bond side, spreads are much higher compared to where they were 2014 and 2015 and the many recession when you look at high-yield sprints, look at the dollar versus ig. that is below the peak from the many recession, very much in contrast and on top of that is equity. we are starting to see the signature sign of china's credit

cycle really bottoming out. that should be for emerging market assets getting forward at the very latest. jonathan: thank you, max ket tner of hsbc. we will talk to francine lacqua and onto tech week for a big week in tech. some companies had to slow hiring, amazon, netflix, robin hood, tesla, twitter, how long is the list? lisa: long and growing where -- kailey: long and growing longer. every day. even these huge cash flow economic companies are looking at the cash flow environment and saying we should slow things down. what signal does that send about the u.s. economy? jonathan: this and that the objective of the fed, to get rid of job openings? tom: we've never seen this, it

is an original playbook and i do not think it will play politically well. jonathan: futures negative, positive .1% on this. from new york city looking into europe for most of the morning, francine from rome next. ritika: keeping you up to date with news around the world, i am a cadet. russia extending the gas line to europe after a maintenance period. they were worried it would stay out of service longer in retaliation for the russian invasion of ukraine. they have been coming gas to russia for months but it still relies on political escape. joining around the world on confirming inflation after months of standing on the sidelines, the ecb expected to weigh in for the first time in 11 years.

it may deviate from guidance by considering an increase -- the bank of japan continues to grow while remaining rates unchanged. it is extremely wary of moving too quickly to boost rates. inflation averaging 2.3% for the current fiscal year, the first time that piaget expected price gains above the 2% target. members of the conservative party in the u.k. deciding who will be the next prime minister. the former chancellor and -- five months of voting among conservative members of congress. microsoft, google among the latest tech companies to hit the brakes on hiring, they say they are eliminating many job listings.

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. i'm ritika gupta/ . this is bloomberg. ♪

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>> it is very clear. we support draghi until the end

and we will try to keep fighting on the program and the campaign. jonathan: prime minister modi draghi resigns, it was a former italian prime minister speaking with francine lacqua. i'm jonathan ferro together with kailey leinz and tom keene. the nasdaq 100 up .2%, goes higher by a couple basis points, crude falls back, slipping beneath the radar but a sizable move. any $5.13 and to round things -- $95.13. and the tiniest bit of euro strength going into the decision, 8:15 eastern time. tom: it is very nuanced, something to watch. that usual turkish lira angst, but worth watching.

the swiss franc supposed to be at 0.98 moments ago, a big deal to see it below .99 as we go into the important moment for the ecb and christine lagarde. francine lacqua is in rome, not just in a heatwave but in a normal summer in rome made more complex by the collapse of the draghi 10-year -- 10-year -- tenure. she will join us cozy in the moment with a spreads that she has earned. francine: and air-conditioning. tom: yes. for draghi, what is next? francine: we don't know what's next but we -- he will probably be looking at italian politics from afar. there is no real legitimacy 10

taking charge of the government, he has been in charge for many months but that is something a lot of italians supported. it is something the market supported, investor supported and the eu supported because he brought reforms needed to access bu funds. we don't know whether this is self-inflicted. or political markings that ended his government. one sign is we are going to go into elections eight or nine months anyway. the fact that they are in october, three or four months, is a huge deal. i won't rule out the fact that he goes on a cruise ship with florence johnson -- boris who's also out of a job, but anything happens. jonathan: i'm sure you would like to join them, tom. but italian democracy. francine: i think the commission fears they will not continue

with progress. there's a question whether it remains investable if they don't have access. democracy is by going to elections and so it is a loaded question. the right thing to do in a fully functioning democracy is to go to elections. whatever coalition, no matter how frustrating or bumpy, this is what the people wanted. but you are giving 22 billion euros in december, you want something in exchange. you want reforms because the country needs to change. they're probably looking at political chaos and wondering what to do with all the money they should be giving out and if we stay on the reform path. kailey: a future coalition will each be built and obviously, five-star has some blame. is the influence going to brain as a result? -- wain as a result? francine: part of the problem,

the foreign minister was part of the five-star movement and broke away to do his own party, the problem is they are losing momentum. the head of the five-star and populist movement felt it was his last chance to feel credible in the eyes of the electors a you broke with current government. but yesterday, the center-right, other parties said we cannot continue as long as we stay with the five parties. if you go to elections, the latest polls suggest if you went to elections tomorrow, it would be a right-wing coalition without the five-star movement. there's a big on -- unknown. in the past they have been euro skeptic and it's unclear what we'll strike ahead of an election, said number 25 or october 2. tom: it is on the on the story goes, for american listeners and

viewers, they are aware of italy flat on its back, yet they keep going. is that the assumption, that they just stagger forward, or can there actually be some form of shift to a different government, a different political society? francine: we spoke to various politicians today and they said this will be remer in the history books because it is something like 56 or 60 governments in the last several years depending on what you use as a starting point. but it's always the government that if the markets or authorities outside, we do not think it would be on a growth path here. this is a view widely assumed by markets, may wrongly in certain parts because he had no legitimacy. he was with a government that was putting a different path, a path of growth, a path of less waste and cutting costs, and path of less -- for example,

some of the social workers. so this rupture with the government that seemed to work for inside political reasons, it is unclear how it plays out with the electorate and officials in europe, both in frankfurt at the ecb and brussels at the commission. jonathan: no one better to cover the story, francine lacqua on the italian political situation, looking toward frankfurt as we count down to the political situation and we have to talk about russian energy supply as well, the prospect of europeans pulling back on the use of gas into winter. this is what the spanish, greeks and portuguese think. they are rejecting the call for a 15% cut in natural gas consumption to help germany. the spanish energy minister said this. contrary to other countries, spain has not been living beyond its means in energy terms. tom: ok, that's a separation and

timeless like the divide between italy and germany. but what you make of the headline an hour ago on annexation of eastern ukraine toward russia? this is a political soup lagarde has to step into. i will listen to fragmentation theory and i question whether she will deliver that. my guess is a delay. jonathan: 8:15 eastern time, 8:45 with president lagarde. the euro-dollar positive it .1%, 10193. from new york, this is bloomberg.. ♪

jonathan: a long list of tech companies coming up with decisions to postpone hiring, cut job openings, maybe even to outright cut the workforce. a big week for big tech coming up next week. futures unchanged in the s&p 500, the nasdaq 100 positive .2%. the main event is on the other

side of the break. shaping up as follows on a 10 year yield, act of the basis points, 3.0452%. if you want to see movement, looked italy. the spread between italy and germany wider, italian 10 year up by 17 or 18 basis points. the spread something like two at a 30 basis points. we are not a million miles away from 240 back in june even though the 10 year is different -- is far away. the german and italian 10 years have been widening. the premise are no more, mario draghi has resigned. couple getting things for madame lagarde. >> it is an overlay and a publication. but you talk about the hotel, at the top of the spanish steps.

francine come out wonderful to see her in rome. it is out of the 19th century. what has changed, since time began? it is the same story, right? jonathan: in places like italy after the second world war, they wanted to make decision-making more difficult because they did not want a concentration of power after miscellany. -- mussolini. it has complicated the ability to deliver reforms. the new world view around the italian political situation is if they don't get the government together or get to a position where they're able to deliver those reforms, they can't unlock this and that's what francine was talking about this morning. but that euro-dollar at 102, let's sit there just a moment. it's not about 25 or 50. it's about the length of the cycle. how long is the hiking cycle in europe going to be? can they deliver 100 basis points worth of rate hikes? 50 basis points of rate hikes?

for all of this talk about going 25 today, 50 in september, where is europe in september? can you make a call right now? tom: i can't other than the gdp question. jonathan: it is tremendous given the gas situation with russia. tom: what i would say for american viewers, so what, why does this matter to me? all of the decisions we will see at the 8:00 hour in 90 minutes limits and constraints the degrees of freedom and as lagarde says, the optionality of what jerome powell can do. that's why we are focusing on this today. right now, and this is an important conversation, megan greene joins us from kennedy. she is chief economist at kroll institute as well. she's been thinking about this thing we are throwing around, fragmentation theory. i have seen 25 articles on this

and it all comes down to the mechanism or process that is going to be involved. what process will they do that will, in terms of this, close the loop, complete the circle so it is a legitimate fragmentation tool toward success? >> first of all, the tool is meant to bring down an unwarranted rise in spreads. if you look at italy right now, spreads arising but i'm not sure it's unwarranted. so that is one test. but the key to this is an rp station -- ups -- obvious geisha. -- obfuscation. they have to keep a two way bet for portfolio managers, which is on right now. but they need to maintain that. the german constitutional court needs all the details, so obvious geisha -- rp station --

obfuscation won't work. arguably, the ecb might say to italy, it is back. but the conditionality might actually be complying with the physical rules or keeping up with targets for the next eu fund. looking at italy, it's unlikely italy it will be able to do that if it has an election. tom: what is so important to me, i go to the great roman new york university, the high ground of the find mathematics every hedge. if they institute a fragmentation program, they have to re-hedge or restructured somewhere. how do they do that? how do you actually set a fragmentation tool, the second, third or fourth time around down the time continuum? megan: that's the trick. the idea as investors or to test

is inevitably, try to figure out what the trigger points are and how much tech intervention there is. it needs to be complicated so investors can't work that out so they will not constantly tested. i don't see them pulling this off. as the story is they don't have all the details working out -- worked out which makes sense because they've only been working on it for a couple of weeks. but a soft launch is not going to work today given what is going on in italy and the concerns about russia turning gas off. it seems like nord stream one already had some gas moving through it, a tentative good sign. if they don't turn off the tops now, they still might into fall and winter. tom: -- jonathan: you mentioned owing to, it was never used. do you-- o and t. do you get a sense it will have to be used? megan: i think it will. they confuse everyone because no one bothered to test out how it

works. i think the key is in confusion and obfuscation. the problem is the german constitutional court will want to this, which makes sewing the confusion difficult in the medium-term. jonathan: the critical thing is there something that happens on the periphery that you could say is impairing the monetary policy? megan: because it is bank driven, the corridor is already a divergence and has been since the ecb announced it would wind down the qe program. in theory, if you have different credit conditions and lending conditions in the core versus the periphery, that affects how monetary policy is transmitted into the real economy and it will be difficult -- different.

there is already a divergence and as i mentioned at the beginning, it has to be a warranted intervention. the divergence has to -- there should be spread, for example. they can't produce all of those altogether and if you look at italy and the spanish economy, there are reasons why it lending conditions are different. they ecb does not want to get rid of all of that, carol contribute to the hazard, northern european countries would be opposed to that. but they have to figure out some trigger for when there is an unwarranted diversion in lending conditions and spreads. that is the trick. nobody can really define that. kailey: clearly the anti-fragmentation tool will capture our focus today which overshadows the first hike from the ecb going back to 2011. edits not necessarily about the start of hiking, it is how far they will be able to get considering their hiking into weakness. we spoke with jennifer of

capital economics yesterday. she said to percent, to which i responded what? what do you think? megan: i don't think there's any chance. i think that is too high. if russia wants to use the tool of cutting off gas, the most powerful time is now given that europe is trying to pivot away from russia for energy. i do think the tap will be turned down or turned off later this year and that will cause factories to shut down. it is not just a pricing issue, it is as apply issue. that should push the euro zone into a recession. they might not technically go into recession until the beginning of next year but i doubt the ecb will be able to hike so aggressively. jonathan: i wanted to squeeze this and because i think it is so important over the last few months, the relationship between the core and their periphery. there are european countries

that are less reliant on russian gas. germany more heavily. the germans essentially asking southern europeans to cut consumption of gas to help europe through a tough winter. you've followed greece and the forced austerity of the last decade or so, do you sense we might have tension in reverse from the periphery back toward the core? megan: certainly, germans are asking for solidarity. an peripheral companies probably -- countries are probably thinking, what happens during the euro zone? we do not get a lot of that. but italy is reliant on russia for energy as well so it is not just a core versus periphery issue. it is spain and portugal, which has independence. i hope there is a focus on a european response to this. that is the case you saw with the european commission recommendations that came out yesterday.

but we could start to see cracks coming through as germany acts -- asks for solidarity and the adjustments were entirely on them during the euro crisis, so why should they make an adjustment this time? that will be part of the dynamic. jonathan: thank you, megan greene of the kroll institute. tom: we've got to figure this out so people stay with us. the degrees of freedom, the optionality of jerome powell, trade on the back end of the gdp equation and it matters on consumption, a wall of tourism we have this year. we need a stable europe for all sorts of reasons. forget the heatwave, that is a one-off, we need your up to get its act together. jonathan: we talked about it a few times, the double-headed you get out of europe from weaker

earnings and a weaker euro. it is something francine said earlier this morning, going through italy this summer, every second person, every second tourists, and american accent. tom: no question about it. greg told me on wall street week, you go to paris and there is basically an american outpost, the asians are not there because covid. jonathan: from new york, this is bloomberg. ritika: keeping you up-to-date with news around the world with the first word, i'm the cook of debt. the european central bank on the verge of doing so big and has not done in 11 years, raise interest rates. policymakers may deviate from guidance of a court appoint hike and increase rates by twice that amount in the euro zone, setting a record bus month. an administration official predicts a price cap on russian oil should take effect by december. the deputy treasury secretary said there will be insurance for

oil. supporters argue this would deprive them of much-needed revenue and keep prices from soaring when the insurance bank takes effect. the kremlin is in a rush to hold referendums in ukrainian territory occupied by troops, giving pushing the ground to absorb them into russia as early as september. this would signal the unwillingness to discuss giving up territories in any future peace talks. biden expects to speak with xi jinping in the next 10 days. feminization is considering whether to lift tariffs on chinese imports to ease inflation. relations between the u.s. and china have gotten worse as they have not condemned the russian invasion in ukraine. more than $1.2 billion, an investigation to symbolize the beijing trust campaign to weigh in on a powerful industry. pushing ahead with an ipo in the

u.s., again, the government wishes. 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. i'm ritika gupta. this is bloomberg. ♪

>> in the case of the euro zone, we think it will lead to a mild recession partly related to the uncertainty around that. but the ecb is going to have to press ahead. jonathan: jennifer, head of global economics at capital economics talking about the potential for the ecb to get to 2%. moments ago, megan said no way. futures positive, into negative territory on the nasdaq, positive 0.05%. yields are higher on the 10 year, much higher on a 10 year and up by 13 basis points but

just off session highs into the ecb decision at 8:15 eastern time. i want to finish here because we can't let this one slide, crude down 4.8% and 95 handle now on wti. tom: the last couple of days, you have to watch it come out longer than the equity market. it shows the back-and-forth max was talking about earlier, you see it all of the screens today. so much of that uncertainty toward the u.s., the 8:00 hour and what we hear from frankfurt, germany. right now, we want to italian the energy discussion and try to make sense of that. we do that with our senior executive energy for -- editor for energy and commodities. as you know, there is answer them, antwerp and rotterdam called. there was a number of years ago and outrage over something called rotterdam plus.

we don't have time to explain it, i don't understand it. but it has to do with the price you call up 600%, near 200% annual over the last 2, 3, four years. all of that discussion folds into gas and oil. brent crude as well. what is that perception, i should say, of the persistency of high net cap -- net gas prices in europe right now? >> natural gas prices are going to stay elevated to the winter new matter what happens with pipelines closing. there will be a consumer -- a considerable shortage of natural gas this winter, we just don't know how bad it's going to get. that's going to keep gas prices elevated, power price will be elevated and that means coal prices will be elevated because a lot of utilities across europe are trying to turn back on power plants that burn coal.

they are buying coal. tom: with the price have gone up without the war in ukraine? will: not to this extent. as you remember, the issues started almost a year ago, last fall, it started to be not as strong as people expected. there was a perception that russia was going out of its way to limit this and that is when gas prices started to climb. it is potentially bound to russia and that accelerated once the war started. it would be higher perhaps, we see strong energy markets across the world, strong demand for coal in india and china, strong demand for gas in asia, too. but they would not have been this high. jonathan: we want to talk about nord stream one capacity. i understand it is running at 40% capacity now. on the russian side, the spot between pie -- >> -- parts to

maintain this, what you think will run through nord stream run and the weeks to come based on that? >> that seems to be the baseline russia wants to set. putin talked about his issue with gas turbines. one has been out for repair, that is coming back, hopefully it is -- his idea yesterday was a second one goes for repairs and the first will be back in sight. there is a lot of gamesmanship here. obviously i don't think anyone thinks putin is being the honest bearer of news about gas turbines. he clearly sees the nord stream flows as a way to put pressure on europe as a wider, strategic situation plays out to do with sanctions and the war in ukraine. kailey: obviously there are still gigantic question marks around supply, the europeans are

trying to respond with demand. you have spain, greece and portugal saying no thank you. what if europe can get together and get demand down enough? will: it shows it is not a uniform picture across europe. germany is the most exposed and went all in on russian gas. it has the biggest problem and those, although they are having to pay a huge amount of money, the implications of nord stream one stopping are less acute for germany and other sovereign european countries. i think the point they are trying to make is we are not in the same boat here. there is some hint of i should not say schadenfreude, but some people are making the point this is the reversal of the crisis a few years ago. kailey: to the point of germany's vulnerability, the imf says -- 4.8% off growth.

it rings to question what others apply they can get. the u.s. promised to send what they can, how much does that actually help? will: it is growing every day. the outlook for europe would even be more catastrophic but there are limits into how much gas the u.s. can export. the gulf of mexico shows this across the atlantic. one plant blew up a few weeks ago, taking down the limits on exports a little. every molecule that can flow across the atlantic is probably flowing. europe is absolutely willing to pay but there are limits and bottlenecks at the other end. germany has been rushing to put in temporary plants so you can -- it has not been able to do that previously. jonathan: awesome to catch up,

will kennedy at bloomberg. do you remember the derogatory acronym use at the time, for italy and greece? think about the way those countries were treated during that period. when they have to have austerity forced upon them, whether use of the dirty back then. -- you solidarity back then. -- eu solidarity. tom: the core of europe did not engage that debate for months and quarters. i love to talk to will kennedy because i learn new words every time. he reminded me and he mentioned schadenfreude, as we come out of the all-star break, the schadenfreude of the boston red sox is extra ordinary. jonathan: how are they getting on? tom: they are not. jonathan: the yankees. tom: they went in strong into the all-star. jonathan: brutal.

tom: it was my childhood. jonathan: blue jays tomorrow. tom: look at you. jonathan: i does have the schedule. they fire their manager. tom: what are we doing with english football? jonathan: it starts in august. preseason of course, a little tour, a little wager into the united states. tom: are they friendly or do they hate each other? jonathan: they find some players, it is friendly stuff. players, it is friendly stuff. futures down .2%, mom: how was school?

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>> that story continues that inflation is a problem and it is going to stay a problem. >> the fed is not done raising rates and i think we can't be too optimistic at the market level. >> we could easily get another negative gdp press for the second quarter of this year. >> it is a little exaggerated at the moment. >> at difficult situation to the bank of england ecb. >> this has