♪ >> good morning from our middle

east headquarters in dubai, i'm manus cranny. this is daybreak europe with the story that sets your agenda. the fed's mary daly is hike next month. >> i have a baseline case going into september. 50 basis points. that's where i have been since the last meeting. i have an open mind about whether it is going to be necessary. >> the u.s. attorney general said he personally approved the search of donald trump's residence. the f.b.i. was looking for classified documents relating to nuke weapons. and the u.k. g.d.p. is set to drop in the next hour. expectations for a contraction of the economy. that is a battle for prime minister continues.

7:00 a.m. in frankfurt and paris. we kick off. bring our debate guns. take some of the hot air out of this market. inequity markets are a little bit higher this morning. there is a deep misunderstanding about the risks that are out there. the s&p came out with gains. the nasdaq up 20% from its lows. as far as equity market risks are concerned, nearly $3 trillion has been added on the nasdaq. the battle of the bulls is there. the equity markets are raging but of course euro stoxx 50. flat, the price of power, if you think you're going to work from home for the winter of 2022,

2023. the price of power will drive people back to the office in troves. we need to start talking about that in terms of the overall economy. let me show you what is going on in the bond markets and the dollar. the dollar is down for five days in a row now. there you go. we'll come back to that in just a moment. by the power of technology, i take you back to dax. we're flat on that we'll run through it in a moment. the bond markets around the world are lit up. aussie rates are spiking higher as well. we'll come back to those in just a moment. mark is covering the bond market. lizzi covering the u.k. g.d.p. numbers and bruce has the latest development for the search of the trump residence. juliette saly is looking at the asian market. largely reflecting the drop in

the energy costs representing moderation of inflation pressures. meanwhile, san francisco fed president mary daily saying she is open the a .75 hike next month. >> i have a hike that is 50 basis points where i have been since the last meeting but i have an open mind whether 75 will be necessary and a lot will depend on the labor market, inflation and where we start to see -- we see those things slow enough to whether we have the momentum. >> mark is with me. it has been a huge week. hike speed floated by everybody. here we are the great pausability factor. what do you make of daly's comments? >> if anyone is worried that the markets are not going to be

awake as to their risks in the next few weeks, they only have to look at what mary had to say the next few weeks will be very -- especially for bond markets. by saying she is -- 75 basis points but she sees 50 as the base case. markets want to hear clarity. they want to know what the fed hike is going to be going into the meeting so you're going to have five weeks of uncertainty. other speakers who'll be like daly where some will be looking for a big hike. some looking for a small hike. numbers will be bouncing around a lot. this morning, when mary was speaking, we saw treasuries initially sell off and they recovered. it has ban lively session. usually it has been pretty quiet. that's what we can expect in the u.s. time zone where the treasury market, it is the big

daddy and pushes around all the other markets. bond traders are not going to relax between now and the fed meeting, there will be lots of bumps along the road and every data point could tell them something different. >> exactly. today we're going to get inflation expectations out of the 10-year part of the curve. we are expecting that to come in 3%. thank you very much. we'll see you a little bit later in the show. to tuch, we have more data points to come on the growth side. the g.d.p. for the economy probably contracted for the second quarter. an extra bank holiday for the queen's jubilee in june. this is going to be a reading. you're all on holiday partying for the queen over that long weekend. how bad will it be? >> economists survaifd expect.2% contraction you see largely

because of the bank holiday we all enjoyed in june. june is set to see a 1.2% slowdown in growth. when you have a bank holiday, you turn a weekday into a weekend. what is interesting is because we didn't have a bank holiday in the third quarter, you'll likely see an upswing from the second to third quarters. that means in the u.k. we're not going to have two consecutive courses of negative growth which means the queen has saved us from a technical recession now. last week they foresaw the five consecutive quarters of slowdown so this bank holiday is saving us from that for now. >> ok. lizzi, we'll dig a little bit deeper into these numbers as we go. five quarters on the recession. we'll see how deep it is.

the have searched donald trump's home looking for nuke documents according to a report from the "washington post." maker garland said he i -- merrick garland said he approved it and is asking a judge to unseal the warrant >> i personally approved the decision to seek a search warrant in this matter. second, the department does not take such decision lightly. >> let's bring in bruce einhorn. it was a further step forward in he wanted to unseal the warrant and what they found. we have a response from trump. good morning. >> that's right, manus. the attorney general doesn't have the ability to unseal the warrant or the receipt. this is the agents gave to the people at mar-a-lago when they finished the search.

he had to ask a court, a judge to unseal it. the judge won't do that without permission from former president trump and his team just within the last hour or two, we have had a statement from former president trump on truth media, truth social, his social media site saying he would not oppose this. the former president also said in his statement i'm going a step further by encouraging the immediate release of those documents. i'm encouraging in all caps there. so it seems like we are going to get them. it is worth noting that the former president had these documents since the search. and has the ability to release it himself unlike merrick garland, he doesn't need anybody's permission. he has them. seems like one way or another we are going to get these documents. one the one document that we're not going to see is the affidavit that was filed with the court in order to get the

warrant. the affidavit is what likely has a lot of the details behind what it is that they were searching for. we may not get that much more in the warrant and in the receipt but we will be getting some information. and final point is as you mentioned earlier, the "washington post" reported that among the documents the agents were looking for when they were at mar-a-lago, there were -- they were looking for things related to nuke weapons. we don't have any further details about that "washington post" is citing people familiar. these were related to nuke weapons. we don't know if they were american nuke weapons or other countries' nuke weapons. that is still unclear. >> ok. let's see how it goes through the day. bruce ion northern asia covering the trump story. japanese shares powering ahead. traders returning from holiday.

jewels? >> we are on track for a fourth weekly gain on the regional bench mark index, the longest streak we have had since january of 2021 thanks to japan playing catchup to that rally. january 2022, highs a little bit flat on china's market coming off of those gains we saw yesterday. the first weekly gain in six. the malaysian ringette is rising. the economy there rising 8.9% in the quarter over the year the fastest pace in a year. let's have a look at what we're expecting from hong among the a couple of hours time because it is a very different picture there. we know a lot of the covid headwinds really weighing into this economy expecting year-on-year the economy to contract by 1.4% and some according to a bloomberg survey suggesting we may not see any

growth in hong kong at all for 2022. the covid issues leading to a brain drain. we actually saw hong kong's population decline 1.6% in the past 12 months. 120,000 people leaving hong kons is the third straight decline we have seen. hong kong gramg with a number of issues even before the pandemic. >> thank you very much. juliette saly in singapore there. thank you for the roundup. coming up on the show, we're going to talk market, inflation, c.p.i. and the fed's response. this is bloomberg.

>> markets are completely ignoring fed speakers now. they don't want to hear it. >> are they fighting the fed? >> i think they are fighting the fed. i think they need to bring the big guns out. we need powell to come out and speak. until he speaks, i think the markets rally can keep going. manus: punching itself it out for reality. tatjana is with me. this is probably one of the most unloved, mocked rallies that i have lived through. bring out the big guns. bring out powell. bust this myth. bust this rally. what do you recommend?

tatjana: it is very difficult at you say as the moment. we are scratching our heads also how can it be? the market is reacting in this way. i come out a little bit in middle. the bond market is too negative. anticipating too much -- central blanks turn very quickly and we don't see it that way. we do think central banks are focusing on inflation and they have more runway than the bond market is currently allowing them or expecting them to have. contrary with the equity market, we have seen an enormous rally over the last month but we are also still down year to date. and that is similar to how i'm

thinking about spreads actually. the rally is very strong over the last few weeks. but if we say the equity market is completely wrong we have forgotten what the equity market went through for the year and what we have been thinking about since the beginning of the year pretty much is recession. we have thought about inflation and recession and the supply chain issues. all of this should already be in the market. now to go and say well, the equity market is ignoring it all, it may have already anticipated or -- anticipated a large part of it and they are aligning themselves to say the recession may be shallow or -- i think we're in the middle. manus: we have a lot to unpack. we don't have great memories, do

we? we just want to shine a light on the july rally of 9% when everybody was getting ready to go to the south of france. now they are in the south of france and still miss the rally. talk to me about what you think positioning is like out there? there is a sea change. the job of equity market and fund managers and portfolio managers like you is to make a big call on allocation. do you think it is much maligned? let's start briefly with the positioning. tatjana: in terms of positioning, yes, people may not have -- i think i want to turn it around. the positioning i don't think is as short or you know, not participating in the rally as you may want to imply, the rally over the last few weeks. it is just the spirit has changed. the animal marginally, reluctant

to sell anything. we want to buy. even on the margin, there is reluctance, to hold onto every asset that you have, it makes its very difficult to find a seller. that's really what is jumping things up. i don't think it is extremely conservative but conservative and everybody is holding off. manus: like to line that you put forward there in terms of we may be moving from a deep seeded fear. we were gripped by fear at one point. talk about the credit markets. at the end of the day, you know,

maybe people are not selling their equity assets. you talk about the credit market. it is interesting. there are lots of stories on the bloomberg this morning about maybe it is time to be cautious and step into credit. you say there is going to be some spread widening ahead of the end of the year but it is not going to be that disaster eck. again, it is almost like -- drastic. it is almost like warm porridge from goldilocks is it? is that your base case scenario for credit markets? tatjana: i would -- yes, actually. i think you summarized it very nicely there. where again, the credit markets generally anticipate a session by about 18 months. we have seen the spread widening. clearly we are seeing a rally which felt very strong over the last few weeks. but it only felt so strong because we had this wide engine

yields. not necessarily spreads but in yields. interest rates -- credit spreads widened. a significant widening and absolute yield. now we see some of it coming back. i think it is similar to the equity markets where we have already priced in a lot. the volatility that i have anticipated toward the end of the year, it is really -- i agree that they highlighted earlier. the bond market is pricing in too early and too much of a recession and so to the extent, we have seen this earlier in the year. all of a sudden, the markets listen to the central banks and interest rates went higher and now we're in a -- we know what is going to happen. the central banks don't know

we have a period again where the market is not listening to the central bank and i have a strong kneeling the 40-year is out. -- feeling that the 40-year is out. the rates are going higher and that could cause more volumetivity. manus: i think there is a hearing aid problem across a couple of these markets. it is a bit like -- producers of this show. thank you very much for being with me this morning. coming up on the show. almost $1 trillion spent on infrastructure across the globe since 2013. we take a look at kenya here on bloomberg. ♪

>> china's belton road initiative has scattered almost $1 trillion in infrastructure development across the globe since 2013. some of that money has gone heefer in kenya, this nairobi expressway just opened in august. it runs 2700 kilometers through a city with serious congestion problems. it cost almost $600 million entirely designed, financed and built using chinese funds but the bigger project is the railway. it runs more than 350 miles from the capital of nairobi to the sea port town. a chinese firm had operated the railway but this year kenya railways turned over the product to reduce operating costs by

50%. the worry that it may not be profitable for sometime. for many, these projects are welcome, especially in the nation much in need of infrastructure development. >> great progress on growth, infrastructure. it is cheaper for us to deliver. the transformation is good. >> money from china has flowed freely across the continent with fewer strings attached than funds from the west. china is kenya's biggest trading partner. three times as big it is a u.s in the runup to the elections, both candidates expressed the fact that china is important to economy and will play a part going forward but that position remains controversial especially with growing calls for more transparency about these deals and growing concerns about gas.

manus: reporting from nairobi on the import of china's road initiative in kenya. jewel yeat yet sally is with me in singapore >> bloomberg has been told president biden is getting ready to launch his re-election bid after the midterms. it could be a possible rematch with donald trump. most democrats would prefer a different candidate. those close to biden said he is committed to stop trump from returning to the oval office. lizsaid doing so would send a wg message to businesses, international investors and the public. her rival, former chancellor, has put up another $10 billion to help people pay soaring energy bills. south korea's president cleared the air of bribery charges.

the move gives lee the right to work at the firm. he spent 18 months in prison before being released on parole a year ago. powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus? manus: thank you. coming up, we're going to dig into the oil markets. we have enjoyed a pretty big week of a rally. up over 5%. one of the factors driving that and how deep is the european energy crisis? we'll discuss t

manus: good morning from our

middle east headquarters in dubai. i'm manus cranny, this is daybreak europe with the stories that set your agenda. u.s. producer prices unexpectedly fall, but mary daly is not ruling out a half-point basis move next month. >> i have a base case in september of 50 basis points but i have an open mind about whether 75 will be necessary. manus: the u.s. attorney general and says he personally approved the search of donald trump's residence. the washington post reports the fbi was looking for classified documents. u.k. gdp is out in the next hour, expectations are for a contraction as the battle for prime minister continues to rage between liz truss and rishi sunak.

oil heads for the biggest weekly gain in four months, speculation that the fuel situation will guide the demand trajectory. goldman sachs predicting the rises. u.s. gas back at five bucks by the end of the year, not what the white house will want to hear. stephen stapczynski talks me through the bullish week that was, good to have you with me. supply constriction. geopolitical neurosis. what drives this week? >> is a bit of both isn't it? you have issues in the gulf of mexico, output is off-line. the market is spooked. it is seeing a bit of a price increase the last few days. you have fears that russia was going to cut supply via pipeline to europe. while it did not cause shortage, it caused fears that there is still from moscow and russian

supply risk that will keep markets swaying up and down. you had the iea say that natural gas levels in europe are at the highest level ever. it is expensive to generate electricity so they will likely switch to oil. that's how they generated electricity decades ago, that was one of their main sources. but they switched to gas and coal due to either it being more expensive or they wanted to curb emissions. they are going to switch back to oil. that will help increase oil demand through the end of the year according to the iea. opec+ came out with the report that we could potentially see an oversupply of oil this quarter, so there are different signals but we are seeing a more bullish trend after weeks of selloffs. manus: it will come down to whether the global economy slows

and whether china reopens. those of the other two big demand-side aspects. stephen stapczynski there, our energy christof ruehl reporter. joining me is christof ruehl christof ruehl, senior research center on global policy at columbia university. good to have you with me, you were listening to stephen there. i've got the iea saying demand will ramp higher. and then i've got opec telling me i will pivot into a surplus in this quarter. can you marry these two for me? christof: this is a market which is confusing when we listen to the pronouncements of actors. traditionally, the iea has --and opec has on the same.

number one, there is no shortage of oil. despite everything you have seen around recession fears in china, there are still safety walls in the system. strategic safety reserves and shale production possibility to increase, spare capacity in the middle east. there are opec countries under civil unrest or sanctions. there are safety walls which can be activated. but that accounts for the drift of oil prices down, which makes me agree with both the iea and opec which both say supply will exceed demand in the third quarter. manus: all those little tabs, spr, iran, libya, nigeria which you are reluctant to game countries, i have no problem. and saudi and m iraqi spare capacity. all these are restricted by

politics. christof: so they can be switched on and off by politics. that is why i: safety valves. this -- call it safety valves. we are seeing volatility jumping, no longer at 150. manus: so you see the risk closer to 80 on the downside? christof: yes, now comes the big but, global reserve capacity is so small despite the safety valves that any minor geopolitical incident you name it could throw the system into a price spike. that's why a bet on declining prices for the rest of the year is risky and why some people don't take it. manus: prude people don't.

the 100,000 rise by opec, was it symbolism, pragmatic response given we have got limited spare capacity which opec acknowledged? how would you describe the 100,000 barrel at? -- add? christof: a subtle gesture for the president coming by, and it was a reminder to everybody that opec+ likes high prices and they want to keep russia in the fold. in the last thing russia needs is lower prices. manus: do you think russia held back, restricted the amount delivered at the opec committee meeting ? christof: what we are seeing is a cooling off of high demand for cheap russian oil in india, and china. there is a three-way move that shows the eu is stopping

import of seabourn russian crude. we see russian crude directed to asia. now russian product is being exported to the middle east. on february 5, there is a stop to refined products from russia. manus: they are blocked out of europe and diverting their flow? christof: the products embargo is february 5. nobody buys oil to drink it, it is derived demand, europe needs products to be refined. now it is a three-way trade to replace these direct links to russia. manus: how bleak will things get in europe, one year forward electricity prices are projected

to be blown out of the water. talk me through your version of winter in your homeland in germany. christof: i don't think it will be as bleak as people make it out to be. current prices today in france of electricity are the equivalent of 1000 dolla rs per barrel of oil. already we see a huge demand decline in natural gas, particularly in germany. russia is really hurting. look at the numbers. compared to one year ago, russia's gas output was 60%. they note this is lost for good. russia should not exclude the possibility they will cut off in winter. the inventory billing programs in europe including germany are bang on the five-year average.

even if they reach full inventories by november, that will tidy them over two and a half months, winter takes three and a half to four months, so they will still need russian gas in that case. anecdotally, from the little village where i was coming to you from germany, i have never seen so much people chopping wood in front of their houses. way north of 70% of the population basically said bring it on. manus: in other words, full blockade. don't turn on nord stream 2. quickly because we are running out of time, they thousand dollars a barrel equivalent of oil in france, russia switches off the gas and we only have 70% in the tank, how much of the squeeze comes to pass in the market? are you looking at $1200 equivalent?

christof: of electricity prices. the smallest part of natural gas consumption goes into power generation. much more important is space heating, and industrial. the industrial sector needs feed stop for the industry which has to be maintained even if households are freezing. that is why this support of 70% of households is itself important. manus: i have this image of you out chopping wood in the black forest. christof: i'm not going to be there in the winter. manus: i think we can safely say he will be with us for the whole of the winter. my guest on the energy markets this morning. let's get across to jules with the first word. juliette: south korea's president has cleared the heir

of south korea's largest company of bribery charges. the move gives lee the right to work at the firm. he spent 18 months in prison before being released on parole a year ago. apple has asked suppliers to release its next generation phones, despite worsening projections for the smartphone market. it is asking assemblers to make 90 million of its iphone devices. ping an insurance is against a proposed spinoff of its asia operations. pin gan is hsbc's largest shareholder. the spinoff is estimated to generate 25 billion dollars of reduced costs. sales of electric vehicle maker rivian rose to $360 million in

the second quarter, above expectations. the company expects to make a full-year loss of almost five and a half billion dollars. rivian blames ongoing supply constraints. 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. manus: coming up on the show. we're going to look at the russian economy. after christof's conversation, what could the impact on the gdp be? sweeping sanctions expected to set outlook back four years in the quarter following the invasion of ukraine. the story with our chief economist for russia. ♪

manus: this is bloomberg daybreak: europe. welcome to the show, i'm manus cranny in dubai. russian gdp figures will hit the tickertape today and are expected to show dramatic contraction. it follows sanctions on the country after putin's invasion of the ukraine. we are joined by our chief economist for russia, welcome to the show. how bad is this set of data going to be? >> depends on the perspective. it will show actual contraction of around 5%. that is not a l -- that is a lot. this will shave at least four years of prior growth. this is much less than people

had expected when they imposed the sanctions. i think this decline will put russia on a trajectory of losing 5% to 4% gdp this year and another 2% next year. just listening to christof talking about russian exports of gas and oil, you frame it in a way that look, this is nowhere near as bad as people thought it was going to be. is that bolstered by high oil and gas prices? does that run out or fade because they simply can't export as much at the original price? >> the story is very different for oil and gas. in gas, there is a dramatic decline in volumes. russia now exports 20% of what it used to export to the european union. this is 80% of the total natural

gas exports . on the oil in front, the situation is completely different. russia found outlets to sell most of the oil which used to go to europe. so oil exports supports russian growth. manus: longer-term, you delineated that it is the implosion of the gas exports that has perhaps been the most pain. they are finding buyers for russian oil, but on a longer-term trajectory, we don't know where the end of this war is and how long russia will be in the cold so to speak. how do you see the longer-term prospects for russia? >> they break down into productivity growth and demography. it has been driven by western investments the last 20 years,

and that is gone. what is left is demography which is not good for russia. our projection is 1% annual growth is probably the maximum growth rate for the years to come. manus: let's see with the data gives us later today, alexander, and q -- thank you for joining me. coming up, cooler inflation reading for july is welcome news, but the fight against rampant price rises is far from over. mary daly's interview on bloomberg. ♪

>> the scale of 50, 75 does not just depend on a data point like cpi. i like to say we are data dependent, not data point

dependent. i look at a lot of things coming in, we have inflation numbers, employment numbers. we actually spend a lot of time, i and my colleagues, talking to businesses, households, people in stores, what are you feeling? and are you seeing signs that the economy is slowing? i put together global growth and have a base case of 50 basis points but i have an open mind about whether 75 will be necessary. a lot of that will depend on the labor market, inflation and whether we see those things slow enough to say we have the momentum we need. >> but it is not about ending this rate hike path. just looking at those numbers, do they support your baseline? >> 50 or 75?

i think 50 supports the baseline. the numbers we got show that we have certainty about the path of inflation. we don't want to be head fake, we have an inflation report coming out before the next meeting. it behooves us to stay data-dependent and not call it. i still think 50 basis points is the case but i am open to 75. >> we have another inflation and jobs report. i want to hit some of the big points first. in terms of recession risk, there frequently seems to be a sense that once there is signs of recession risks rising, the fed will pull back. are you willing to let those risks materialize if you have to?

two risk recession if that's what it takes in the and to get inflation down? >> let's start with this. we are a long way from evaluating those risks. look at the employment report. whether they are trying to find work, they do not feel a recession. jobs are plentiful. the main marker for recession is, is it hard to get a job and are incomes falling? you don't see that right have. i don't see recession as our perimeter risk. the most important factor is inflation has been high too long and we need to bring that down. when i am balancing the risks, i am balancing how quick we we can bring it down without tipping the labor market over and that is why 50 make sense right now. >> the stockmarket bullishness,

is that challenging to the federal reserve given that it could relax financial conditions which is not what the fed wants to see at this moment? >> we look at a broad range of financial conditions. the stock market is simply one of them. i am also looking at mortgage interest rates, borrowing rates for businesses and consumers. and i really want those to remain tight and tightening as we go because we don't want financial conditions to relax. we want them to remain tight so we can continue to bridle the economy somewhat. remember financial conditions have been so loose because we were adding accommodation to get us through the pandemic. that we want people that back and we want the economy to slow, bring supply and demand back in balance and deliver a sustainable growth that delivers on price stability and full employment. this is achievable but it takes some time to work its way through. >> would you ultimately be comfortable with triggering a

recession even if it is mild in order to get over inflation? >> let me just say what is true is that i think about what americans really are expecting us to achieve. and that is a smoother transition that doesn't require a recession. it actually delivers on a slower economy that is still giving people the jobs they need and the price stability that they deserve. that's what i'm looking for and i am focused on 100%. manus: mary daly there, what a great way to put it, doesn't want to see a head fake in terms of jumping off on one data point. busy, what we looking for on gdp? lizzy: we are expecting an 0.2% contraction in september. the cost-of-living crisis has

likely bid into retail spending and because of the extra bank holiday in june. if it had not been for the upswing in the third quarter we are expecting because there is not a bank holiday then, that long but shallow recession really would have been starting now in the second quarter. what this figure will mean for the bank of england, if it is a smaller hit to gdp than expected, edible add to their argument for a 50 basis point hike in september. manus: let's see what the data is when it hits the tape. our bloomberg europe is up next. ♪

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>> welcome