manus: good morning, i am manus cranny. it is "bloomberg daybreak: europe." china begins military exercises around taiwan. in retaliation for nancy pelosi's visit to the island. opec-plus delivers one of the smallest increases in its six decade history. the street in focus. bank of england expected to announce its biggest rate hike in years. fed officials keep up tough talk

of fighting inflation. let's bring you bank numbers. 1.9 8 billion, way ahead of the 1.6 expected. way ahead of estimates. you are looking at left density -- at lufthansa, looking to ramp up and meet revenge tourism. it will remain high for the rest of the year. they see a full year above half a billion euros. 585 million euros. clearly positive. stock is down nearly 15%.

let me give you a snapshot. to date drop. nasdaq is down most percent -- almost 3%. they talk about risk, perhaps they stepped into early. -- they stepped in too early. equity trading does not reflect headwinds in the world. let's look across assets. oil at a six-month low last night. some of the biggest moves in these markets. globally, up 10% since june. waiting for a rate hike of 50% -- 50 basis points. a meager add of oil by opec-plus. we talk about that in a moment.

table, ubs -- cable, ubs. let's get the latest on taiwan, dubai, and the opec-plus update. let's get to politics. nancy pelosi moved her asia trip to south korea. her trip to taiwan is still being felt. we have this breaking headlines. military drills have started today, step one of the chinese response to nancy pelosi. >> yesterday, the taiwanese government reported they detected 27 chinese warplanes -- military planes that flew around taiwan airspace.

many crossed the line separating the two sides. today we have the beginning of these military drills. these are in six areas around the island, according to the maps we have seen from china. some of these areas are up to or even crossing into taiwan's area and borders. taiwan is saying that they expect this will and by sunday. between now and then they are having flights take alternate routes, japan, the philippines. back in washington, further repercussions from the trip and from china's response. the white house is urging democrats not to support a bipartisan bill that would

designate taiwan as a non-nato ally. another indication of the strong support taiwan has from democrats and republicans in washington. perhaps something that will gain more support as this reaction continues. manus: thank you. to the oil market, a plunge. yesterday, investors weighing that tiny increase in opec-plus apply against a weaker u.s. demand. very limited capacity. paul wallace has been watching that. was this a slap in the face to the biden administration?

>> i think a lot of people will see it as a slap in the face to the white house, especially so soon after joe biden made his trip to saudi arabia. it is clear that u.s. officials would have been expecting more additional oil coming onto the market. however, opec-plus will say there are signs of weakening demand across the world. -- demand across the world. oil still dropped by almost 4%. that was because of the bearish demand out of the u.s. the group would say that that is justifying its move in the sense that demand is slowing down.

they are going to struggle themselves with raising capacity. they are pretty much at max. manus: it was a fair increase. the bank of england today is expected to push through the biggest interest rate. lizzy burden has the risk and statistics. 80% probability for that rate hike. to think that is in the market? -- do you think that is in the market? >> it is the reason the market has impaired back, the recession risk. we will see 50 basis points today.

the reason is that the governor has said they are prepared to act forcefully. we saw in the latest data, yet again we are not even at the peak yet. maybe it will last longer. on top of that, you still have a tight labor market in the u.k.. really combining the tightness in the market with supply shock in europe. let's not forget, you have seen the fed jumbling rate hikes. that is the international pressure. then you have pressure from the prime minister. highly critical of the record.

this is why they are expecting that point. manus: let's eat what they deliver and what language they use. enjoy your day. we get the rate decision at the bank of england. andrew bailey will have the press conference. francine lacqua will also sit down for an interview. let's see what you make of the recession risk period ing reporting a net income above estimate. we have a little bit of a guidance as well expected to rise.

let's get to tanate phutrakul, who joints me now. -- who joins me now. note material adjustment higher to the cost of risk, would you echo that sentiment? tanate: thank you. if you look at our results, it indicates a little bit of what you said. our results are robust in light of certain market development. the asset quality is robust. growth is robust. we have reported a small risk this quarter. looking for to inflation and energy prices, we are cautious about what the future will bring. so far, so good. manus: are you reducing any

credit exposure to the energy sector? you have any direct or major exposure to germany that you need to declare to the market? any of the major utilities there? tanate: not at all. we have been managing portfolio in terms of exposure. we have sustainability and have been tapping financing for white some time. in terms of germany, one of the all markers. we are quite pleased with retail banking and how they look. manus: dividends is a big part of the narrative.

talking through the forward trajectory on the outlook on ing -- talk me through the forward trajectory on the outlook in ong. --in ing. tanate: we declared dividends to be paid in august and are standing at a high capital level. we are looking to target at 12.5%. we are looking at any future capital returns. we are in a strong capital position for the time being. manus: how concerned are you in any way that they might stand in the way of dividends and buybacks given all the risks

that we have just outlined in the angst people see? any indication of hesitation on dividends and buybacks? tanate: side all. i think the regulators are very cognizant about financial institutions in europe including providing unacceptable return to shareholders. it is about keeping investors engaged in making sure they can be relied upon. they know the path, where they are headed. i think they have been helpful in instructions. manus: what is your best estimate? if i look at the landscape ahead of you, an energy crisis, a war

in europe, a slowdown on the way -- the word you are using is cautious -- you think you will have a slowdown or consumer recession in europe? tanate: we are looking at a mild recession at the end of the year. our strategy is based on three things. to be able to react to circumstances changing. we want to be diversified and be focused on cost efficiency. the same time, progress and sustainability. making climate transitions. i think we are ready for it.

manus: thank you very much. we wish you well. we will see you on the next quarter. my guest from ing. let's look at the markets. lizzy will bring you the rate decision at 1:00 strikes 12:00 p.m. -- that rate decision when the clock strikes 12:00 p.m. don't worry, i will not say it. u.s. jobless claims later in the day. that is at 3:00 u.k. time. then, mester will join to discuss policy at an event in pittsburgh. if you look at some of the flow that we have had from bullard,

don't get too excited. tesla host their annual meeting and elon musk will

manus: it is "bloomberg daybreak: europe." we are ahead of alibaba's earnings. they have sold about a third of their stake -- softbank has sold

about a third of their stake of alibaba. >> that is a concern in some of the tech valuations in financial stability. there are reports that we have seen sale of derivatives raising $22 billion in cash which will help softbank's balance issue. analysts say it is more of an approach, then having a shot reaction -- a shock reaction. let's split the board. we are expecting to see a quarterly decline. we have had regulatory crackdown, u.s.-cina --

u.s.-china relations weighing heavily. they still see the stock as a by and undervalued. manus: certainly, goldman-s are shifting their view as well. you have alibaba boosting broader equity, you look at imagery from cctv about military exercises over taiwan. it does not look as if we are de-escalating. >> we are not. you're continuing to seek weakness coming through in that taiwanese market. down about four tens of 1%. pretty flat on the dollar. overall, it is a much bigger picture. when it comes to taiwan dollar -- we could see further pressure

on this currency. there is relief that has not been major military incident. we are still seeing slowing growth to go below 30. manus: thank you very much. delete saly putting it together for us. stocks to watch. hiring 5000 people. you're talking about cash flow. it will be interesting to see how the market responds. it is at 80% above 2019 levels. all about investment banks. that is the alpha within.

keep your eyes on id dollars -- adidas. we want to know about their supply chain, access to asia. they missed last time. they missed recently, so there was a little bit of concern. keep an eye on adidas in terms of consumer and supply chain. three stocks to watch. who will have markets? kuhnert will join me later. this is bloomberg. ♪

manus: it is "bloomberg daybreak: europe."

i am manus cranny. let's get back to juliette saly. first word news. >> live round military drills around taiwan by china which will continue until sunday. maximum restraint in the region after nancy pelosi visited taiwan. there is expressed concern that developments could destabilize the region and lead to miscalculation. u.s. senate has voted by 95 to 1 , to approve nato expansion. if it wins approval from all current nato members, they will join the stony and latvia as members ordering russia -- join list ona -- listonia and latvia

as members bordering russia. washington withdrew years ago -- ramping up the enrichment program. a group of professional golfers are suing the pga tour about a monopoly they claim is hurting their careers by predict -- by preventing them from joining another tour. the pj countries that the lawsuit is a bid -- the pga counters that the lawsuit is a bid for golfers to have free reign. global news, 24 hours a day, on-air and at bloomberg quicktake, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you very much. juliette saly in singapore. a number of different factors being talked about. stocks are rising.

dumb money running in. the question is, state street says, stocks perhaps misplaced. it is important to bear in mind upside. if you believe tenure paper is to 71. -- .271. we have mester later.

manus: good morning from bloomberg to gores and to. i'm manus cranny. live fire drills, china begins military exercises around taiwan. state run cctv reports in retaliation for pelosi's is it to the island. opec-plus delivers one of the smallest production increases in its history. rebuffing calls by president biden. the bank of england expected to announce its biggest rate hike in 27 years. as fed officials keep the tough talk of fighting inflation. how misplaced is your allegiance to risk? that is a question state street hang -- equity markets which are

higher this morning, have -- let's have a look at them. we have is equities giving back at 1%. the nasdaq -- global stocks of rally 10% since june. buybacks, $21 billion this week. $400 billion expected this year, beating the 2018 high. buybacks are part of the narrative. bank of america, saying stock sentiment still below the five-year low of their indicator. are fools rushing in? let's have a look at the bond market. those on traders meeting the commodity traders, and the -- leaving the equity traders behind. 75 basis points is live

according to the rhetoric we've heard from mary daly, 50 basis points on the table, 75 is likely. they want to frontload this rate hikes. keep an eye on that. yields are rising, barely thousand barrels added, a slap to the biden administration. wheat is up by 1% in chicago. ubs, starting at 115. because of an energy crisis and political procrastination. adidas, i told you we would wait for the results when they come through. they are taking a hit from the supply chain. greater china sales dropped by 35%. the core of lockdown is hitting adidas. sales down 35% in china. haven't seen all the slowdown or

cancellations as yet. in terms of sales set they rose by 4% in north america, latin america up 37%. you are seeing second-quarter revenue that meets the estimates . it is up 10% on the air. north america striding weight, up 37%. latin america, 50%. these are revenues numbers. the margin is slipping, 50.3. these are the important things to note, gross margins still around 49%. the pain is in china. they did not experience a meaningful slowdown in products or cancellation at the wholesale.

will keep an eye on adidas through the day. scorching temperatures adding to the energy crisis in europe. france says it will likely expand the pauses of nuclear generation capacity. high temperatures continue to make it difficult. talk me through this story. could france be at more risk than germany this winter with the nuclear landscape? talk me through it. >> it is the heat that is having an impact on the french energy sector. 40 degrees celsius. the volatility -- has warned this means a higher river temperatures. they need this water to cool down the reactors. we have restrictions in place to

not harm the environment. there's a much bigger problem, half of the 56 nuclear reactors in france are currently out of service. not functioning, not delivering any power. capacity is below 50% of what they could produce in france today. the output is expected to be below -- the lowest in more than three decades. this is having an impact on france's ability to provide to neighbors heard -- neighbors. france has historically been an exporter of energy. these days it is importing energy. in the first seven months of the year, they had to import 100

days of electricity in 10 years ago, they only imported 10 days a year. a huge difference here is the french rely more on electricity for hot water and because of this reliance on nuclear, they haven't invested as much in renewables as other neighboring countries. they've talked about restarting some coal factories. this is the debate. coal prices have been spiking higher. london, the you kate was capitalized by pull fire at some juncture. if we talk about germinates of their expected to close the last of the nuclear plants by the end of the air. this is launched investigation

into how they got there. is that an inevitability or is a window on that. >> 10 years ago, in germany, -- she decided to exit nuclear totally after the fukushima accident. today, there are only three reactors left in germany. those were supposed to be shut down by the end of this year. with the current ukraine situation, energy crisis, gas shortage in germinates of their stock of extending the lifetime of the nuclear reactors. the german chancellor said yesterday that it could make sense. he is waiting for the results of the study before making a decision. there's currently a stress test going on in germany had of the

winter, people in the coalition calling for the extension of the lifetime of the reactors, including the finance minister. saying no one would understand today these reactors in germany were closed for ideological reasons. it is sensible they would be extended through this winter. even next winter, that is a tiny portion of the energy needs in germany. manus: the landscape for nuclear power is in france and germany. the oil prices, investors pray much concerned about the tiny supply increase from opec-plus. and the producer group --

the warehouse trying to justify the pressure to produce more. >> we have a decision today to continue increases that quite frankly were supposed to go to zero. we will see at the meeting next month where the market is and what opec does them. we will continue to have the same message, whether it is sovereign or private company. if you have the capacity, it is time to invest in it and make sure the global economy has what needs to continue to grow. if it doesn't, both the sovereigns and private companies will suffer the dust consequences. manus: that is a mess talking to the team yesterday in the u.s..

do i thing the americans care about, gas is down 50 days in a row. >> technically they should be insulted. the opec-plus did offer an increase. it is the smallest increase in years, they should be grateful that there is a symbolic gesture. many analysts foresaw and expected this, is opec noted in its own communicate, they delivered -- that would just be an implosion. the undoing of a fist bump. that is a -- >> if you look at the actual production going on, which they claim, the actual production in the market, it is already higher

than 3 billion barrels per day. as we go through the summer months, every month is another 650,000 barrels a day. these are not being met. by the end of the year, the production level will be around 4 billion barrels. will they follow through? it is a symbolic gesture, which should be appreciated. manus: everyone is able to produce a thousand barrels on top. the only two producers that have materially stepped up their production are saudi arabia and the uae. the question is, will they incrementally get to 12 million

and how long can they stay there? what do you think the longer-term capacity is where the enduring capacity is? >> that's a good question. realistically, it is roughly the maximum right now. longer-term, they could do 11.5, as stated in the production target. longer-term, years and not months. saudi arabia can produce more, but we should the customer ourselves to reality. likewise for the uae. manus: where is russian production? it is being sold at a deeply discounted rate to a number of countries. where is their production?

all serious sanctions would cause a reduced capacity. >> that is not happening. the russian production did a u-turn because february and march were the first months of effectively caution. then production dropped million barrels a day. it kept going up and up, if you look at crude, it is back to preinvasion levels. it is very strong, this is driven by domestic demand. it is a combination of summer driving season and the actual war. this is summer. as we head into september, this will gradually ease. the strength and the russian domestic markets will ease. people will no longer take the

drive to the seaside or whatever. manus: here's the burning question that we have. sorry i for speaking over you. apologies. the question is, with driving at the lowest level since the summer of 2028, stockpiles rising, demand destruction evident, i'm being told by a number of different people, am i going to sell any quicker than 120 in this oil market? >> was probably yes. if you look at futures markets, i think is the best gauge of how the market feels. the six-month spread -- it used to be tender also barrel, now it is five dollars.

the demand is expected to we can come winter. we still don't know the actual impact of the demand destruction going on there. the united states is at the forefront. everyone is looking at the u.s. gas buildup and all the stories come out. we don't know what might happen in asia, which hasn't been one of the key triggers of demand over the last month. that is a significant downside to oil prices. if asia gets impacted by demand destruction in any way significantly, there is no way we would have three digit oil prices. manus: we will see what happens with the taiwan straits as well, and the u.s. taiwan situation. thank you for making your call. coming up, i catch up with marcus kuhnert.

net sales expected to rise 69%. this is bloomberg. ♪

manus: it's "bloomberg daybreak: europe." i'm manus cranny in dubai. germany says -- that is the cfo marcus kuhnert put a number on that. could you have you with me. we'll get to the numbers. in terms of sales, 22 billion dollars above estimate. how big a role did currency play in delivering the top line growth. good morning. marcus: good morning. first of all, let me state we

are currently facing three robust and resilient infrastructures, currency is strong, which was the main driver with the guidance. that is predominantly currency driven. we've basically confirmed the organic guidance from may. the uplift is coming from currency. manus: do you think -- nothing so permanent as the temporary government program. you think the euro languishes, do think the dollar remain strong, is it something you're banking on? >> no. you can never bank on currency developments. what we are doing is observing markets. we look how currencies are doing. we are eventually adjusting actions buying currencies. when currencies taken expected

move, we believe we will be facing a relatively strong dollar against the euro. that provides, at least for the next couple months, a tailwind for a business. manus: maybe the headwind is a risk of a gas embargo from russia. we seen intermittent interruptions. you expect you will have gas outages, energy outages in the second half of the year? more importantly, what is your disaster recovery scenario if that happens? marcus: first of all, let me clearly state we are not an energy intense company. we have energy costs about 100 million euro per year. if you can pair this -- compare this to other companies, does

almost nothing. we do not have a super big exposure to current -- energy costs. currently, with the inflated energy prices, we foresee some additional 50 million in energy costs this year. this is somewhat manageable. this will not affect our guidance. in case of a gas shortage, i would say we are well prepared. biggest exposure to europe, especially in germany, we can relatively easily switch from gas to a mix of electricity and oil. everything up to a 50% gas shortage can be relatively easily compensated and mitigated , with quite small additional costs. manus: that is going to be comforting to know, both in terms of the scale of your exposure and your preparedness

to deal with it. your ceo, said we cannot survive without an external innovation. you are the cfo, are you and the ceo preparing for around of m&a? where do you want to grow the business if the opportunity presents itself geographically, first of all? marcus: we do not have a specific geographical priority. principle eat we want to strengthen our sectors. we look at priorities, life science is the sector or we see market consolidation. at the same time, very attractive technologies cropping up. that is an attractive field for emma day. we are looking in the health care division collectively for opportunities to strengthen our pipelines up her diamond -- and

in electronics, we are strategically well set up. however, we also have an open eye if there's interesting strategic opportunity emerging. there's no pressing need at the moment. that is how i would describe the current emma day priority and landscape for 2022, the more likely scenario is if we do something in the remaining five months the year, it will beat most probably technology driven. we are more open and flexible for bigger deals we look into 2023 and beyond. manus: i want to squeeze to more and. do you think the strength of the dollar is a headwind for you buying u.s. assets? marcus: there's not much to say other than you are right.

that is true. manus: grand. covid vaccines, how does it look right now? marcus: good. nothing to complain. we have a solid order book. we have seen a decline quarter over quarter, which was expected. it is predominantly covid driven. that goes hand-in-hand and is expected as we already have assumed the covid tailwind year-over-year, will be declining. that is nothing unexpected. other intakes, very robust. nothing to worry about. manus: thank you very much for being with me, those are some of the most direct answers of have this earnings season.

you're going up the leaderboard. merck's cfo, marcus kuhnert. let's get to bank of england. we are waiting for this jumbo weight -- rate hike. the growing risk of recession, lizzie, take it away, what do we expect? good morning. >> we are expecting a 50 basis point hike from the bank of england. on top of that, we are expecting more information about quantitative easing. the bank of england governor has already said we are going to get 50 to 100 billion pounds of quantitative tightening in the first year. what we are expecting today is more detail on the pace of that tightening and are we going to go out as we came into this in terms of across the curve.

i point out to ironies. the bank of england paid over face value for these historically. as they are sold, the treasuries are going to have to cover the boe. this government cash cow is becoming a drain on the public finances. at the same time, the next trimester, liz trust likely to be, is also wanting to cut taxes, which means the boe is going to have to pull opposite levers -- to levers in opposite directions at the same time buried manus: more on the rate decision with the government this afternoon on bloomberg. this is bloomberg. ♪