dani: this is "bloomberg daybreak: europe." and these of the story says that your agenda. manus: a president tells

bloomberg about the energy summit. a slowdown potential. a transition in the next rate hike will be either 50 or 75 basis points. plus, sterling is set to the worst week, double-digit inflation. retail sales

but the world will struggle with a lot more if xi jinping comes face-to-face with the rest of the world leaders. dani: all roads lead us to the king. 75 basis points talked about yesterday. my favorite quote saying is jackson hole and he said the any talk before this is random noise. let me show you what stocks are doing so far. asia index is on track to break its five streak. some stocks are lower. basically every down to tens of 1%. if you have the likes of j.p. morgan saying that they are defending their calls. it risks disrupting the financial markets. nasdaq futures are lower. today around 2 trillion worth of

options higher. manus: i suppose it comes down to this, how do you puncture that narrative? for powell to continue the narrative, it is strong on the dollar. it is a pound called malice. we have not even seen the war. there could be more implications. 2-year note are rising. the pivot at jackson molen, the dollar is up. the kings dollar. no limit to the partnership will come face-to-face with the

democracy they go 20 that global slowdown narrative is still being done to the teams around the world. the latest rounds from the fed. dani: she will give us that update. who also be there in singapore. let's start with the fed. they need to agree on it rate hike. the question is, what size will it be. let's bring in garfield. there is a confident to the narrative. what make for bank -- what do we make for where we are headed with the central bank? >> there is uncertainty for

investors. the diver knowing is out there and left of fun of going live. the rest eventually. a little bit less certain that that is the way to go. they are worried might go hard they are worried they might go to hot market said on what, there is a little less of the chance. that is or investors. keeps the risk on the table. if they go 75, that is my soft

and phones are. that is why dollar is wrong. manus: painting a pretty bleak picture there. manufacturing time in months. let's see what extent that data comes now and november. rate this november. -- great to see this november. thank you to garfield. let's talk about the u.k.. it is getting hammered, doubled it inflation. that. leaders readout is coming in just under minutes. will. the pound is frowned.

what do we think? >> it is about the impact of the cost of living crisis. vacations in the u.k.. great weather in july. most economists see a not quite our economists see a slight gain. there is a survey showing how hammered confidence is. i. act fight and same inflation. it might be 50 basis points but some may want 100 basis points this point. dani: all of that is really

remarkable. thank you so much. indonesia's president says the covid made a tax on nickel exports this year. they look to refined more at home. they spoke to us. >> you spoke about putting attacks on nickel products. is that going to happen this year? an export tax on nickel products? >> it is possible to impose it this year. dani: joining us now from singapore is juliette saly. any surprise there? juliette: what we really saw the biggest reaction to were some above comments saying that you could see president xi jinping

at the summit. we are seeing a big rally come through. a one month high on track. we will see what we can hear from jackson hole next week as well. this is also eight dollars think story. what does that mean for the biggest exporter. it could weekend to around 15,000 to the dollar. we are expecting a fake pickup and players across the region. more broadly, it is eight down day across asia. little concerned about china. they are looking ahead to whether or not it will follow suit. it has been a huge week in terms of china growth stories.

the regional benchmark index is on track. manus: thank you very much. that is a whole different monitor. we like it. you have a lot of notes. juliette saly there. from our singapore headquarters. more on that interview later in the show. let's take a look at some of the key think markets will bring. we will hear from the u.k.. how will consumer spending hold up. further and more pressure. we are looking at the borrowing

sectors as well. scheduled to speak at an event. dani: also we will have third-quarter earnings for investors really eager to see how the world largest agriculture machinery maker is doing. that bodes from inflation to ongoing supply-chain problems. coming up, fed officials offer divergent signals. we will discuss how the market is interpreting things. manus: plus, the indonesian president confirming the plans of xi jinping to attend the summit in bali next november. this is bloomberg. ♪

>> they confirmed what i suspected, the fed does not know where it is, that the world is very ambiguous at this point. minutes of a meeting are a very poor way to convey a collective message. >> i think they will continue to raise rates. if they are lucky, they can get it right. it is very difficult to know exactly where you are. there can be a lot of shock that comes in. they are trying to get it exactly right. if they are going to make a mistake, it will be tightening a little too much. they want to be sure they can ring inflation down. >> i think they will continue to

raise rates. >> that makes it more likely. manus: all speaking on the direction of fed policy in the next few months. joining me now is ann-katrin petersen from blackrock. there is that narrative. i like what you say that quickly getting inflation all the way down to target would smash growth and jobs. it is targeted at 2%. what do they have to do, what does blackrock institute think the fed has to do to get us closer to 2%?

ann-katrin: good morning. one of the key questions right now is how far these equities can extend and whether we will seek peak fed hawkish and us. the fed still seems to be looking through the lens of the cycle environment. we live in a very different world. this means that the fed is put into a bind. they can bring back inflation to that 2% target. this would mean that they have crushed the demand side.

it is not unusually high demand. it is the demand that they need to cope with. or they can expect to live with higher inflation. dani: can i just put a fine point on this? are you saying that in order to get inflation down, we need something that looks like or is a recession? ann-katrin: yes. in a world where we have these constraints, and the only way to get it back to 2%, we think at some point the fed will technology this and deliver

inflation. this is not likely in the near term in contrast what macro is expecting right now. it may come in 2023, from my perspective. manus: that dovish in 2023, that is just saying where we are right now? but to have cast dollar on record, me -- beating any numbers in history, a monster rally. do you stay strong and take more risk stage, add to growth and add to the risk narrative? ann-katrin: not this moment. there are two reasons why we think this is a bear market

rally. [indiscernible] the minutes that officials are prioritizing low inflation. we are at a point in earnings where we continue to see a strong shift and spending. this would not benefit earnings. we can continue to save concerns. they need to be cast out. [indiscernible] dani: can i extrapolate that

out? are you also expecting a wave? ann-katrin: not at this place. we would prefer that movement at this point in time. we think it would be fatter than equities at this dani: point. -- at this point. dani: thank you so much. ann-katrin petersen at blackrock. coming up, xi jinping and vladimir putin will join the summit this november.

more from our interview, next. this is bloomberg. ♪

manus: it is "bloomberg daybreak: europe." i am manus cranny alongside dani burger.

preparing for the 20 summit. it is confirmed to bloomberg that xi jinping and vladimir putin are planning to attend. he spoke to bloomberg's editor-in-chief. >> the rivalry of the big countries is worrying. we want things to be stable and peaceful. this is not only in indonesia. asian countries also want this. this visit did not help stability. >> what we really want is stability. key stability. >> there is a concern that if there is a conflict in taiwan, it would spill over into the

south china sea where there is territory that china can contest. in indonesia ready to defend themselves? are you ready for that conflict if it happens? >> we want the region to be peaceful. it should not come to the point where tensions arise and affect economic growth and the well-being of people. in my opinion, it is very important that there is a space for dialogue. especially in the big countries. the global situation is extremely difficult and this is not the further issues. we are going through an energy

crisis. the pandemic still exists in some countries. >> those of you who voted xi jinping to come to the country, has he said he will come? >> yes. >> and president putin? >> he has also said he will come. >> american investors, $9 million. china has invested $4 million. china is buying up a lot about refineries to make precious metals. america is losing the battle for half the mines in indonesia but also in southeast asia. to think that is fair -- do you think that is fair?

>> indonesia wants to be friends with everyone of any country. we do not have problems with any country. each country has their own approach. they have their own style and approach to bring in investments. it should not be a problem. but now, ways need about indonesia is investment technology. that will change in society. dani: the indonesian president. if it is geopolitical tensions or expectations, and continues to be all roads leading one-way. manus: we all became obsessed this morning on this call. it is what drove the dollar.

that is the bullish narrative. call me old-fashioned. it is not just risk about the narrative and dollar index. dani: many folks were calling for peak dollar if we are going to see a fed pivot. not going to play out in the markets that way. coming up we talk about a shift from boom to bust. 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 and most recommended wireless carrier. that's a whole lot of happy campers out there. and it's never too late to join them. get $450 off any new purchase of an eligible samsung device with xfinity mobile. or add a line to your plan today at xfinitymobile.com

♪ ♪ manus: this is bloomberg daybreak: europe. dani burger in london. these are the stories that set your agenda. manus: a summit like no other. the indonesian president tells bloomberg that vladimir putin

will attend the g20 summit in bali, setting off a showdown with joe biden. fed officials debate whether next month's rate hike should be 50 or 75 basis points. wall street struggling to build from yesterday's gains. pounding on cable. sterling set for its worst week since april, double-digit inflation and slumping consumer confidence. retail sales data hits at 7:00. we've been talking about it. it's been so fascinating. it's all about king dollar. if you look at what is punishing the most, it has been sterling with all the economic and inflation struggles we've been seeing. manus: it is. even on the prospect of hikes, it's been nothing to save the currency. you've got confidence at the lowest since 1974. let's have a look at cable.

a great no doubt. the jam was number one. the pound called malice. u.k. forwards. trading over the u.s. by the most since 2020. confidence is the lowest since 1974. the whole country goes on strike. yields in the u.s., they are grappling whether the hike or the pause at the beginning of 2023. the dollar remains high. route dropped by 4/10 of 1%. global economic recovery. dani: that angst playing out through equities this morning. asia stocks breaking their weekly streak of gains. china leading the way lower. it's those concerns of the economy. similarly, futures from europe to the u.s. are down about one third of 1%. there's a possibility of volatility. we have a large auctions x-ray

set to expire. jp morgan still defending his call, saying, we should be buying. that strategy has worked out. he thinks that these declines will be short-lived. we are heading into jackson hole. a lot of ill agility possible across -- volatility possible across these markets. there have been mounting concerns that the semiconductor demand is sending morning signs to the global economy. they have been warning of shrinking demand and announcing plans to dial back investment. after the scribble for chips during the pandemic, there are now concerns that the industry could be heading for its worst downturn in decades. to decide what this all means for the sector, we are joined by william de gaulle. there has been a little bit of conflicting signals. you hear from the mike rounds, nvidia saying they are concerned

about demand. they think demand is holding up. where are we in terms of a potential turn of demand for the chip sector? william: the semiconductor industry isn't a single block. it has huge variety within it. there wasn't a memory shortage as a result of covid. there isn't much to catch up on. semiconductor equipment, there was a massive shortage. you could look at central bank rate rises as an effort to cool it down enough for supplies to catch up. micron is seeing weakness in smartphones. it is selling memory trips which were never scarce. whereas companies like microchip are selling analog trips. there isn't any real ability to

increase supply easily. the man soared during the pandemic. the big catch up there and then the equip and company supplying them. you've got multiple quarters of back lobs -- backlogs. there is weakness in the memory area. they have more than enough demand to keep them going for a long time. looking at the whole thing is one -- as one homogenous group is very useful. manus: you go on to break that down. good morning and welcome to the show. you break that down even further. you are not worried about an excess capacity hitting the market next year. because of the leadtimes in terms of actually getting the gear to make the chips. just talk us through that and how that will play out. william: think about how covid affected the industry.

if you are a chipmaker and you are building a $20 billion plan, it's a big investment. building in the industry came to a halt during 2020. as we know, the demand for the stuff these factories make exploded during that time. there have been new applications. demand increased very rapidly. supply didn't increase. it never stops increasing. you have the most an armistice -- enormous shortage. it takes two to three years to build a plant from scratch. if you are going to build at a new location, which governments are trying to incentivize, it takes you longer. you need to put all the structures in place first. accelerating plans 80 months ago

does not result in capacity today. dani: let me ask you about the part of the chip industry which supply hasn't been as much of a problem. the memory chips, kung fu -- consumer facing months. apple marking down the price of its iphones. those earnings warnings i mentioned before. are you concerned about consumer demand for these products or these types of things that require chips? which aren't seeing that same supply problem. >> absolutely. gap. [laughter] there's a big slowdown going on here. that's the aim of central banks. they want to slow demand down. they want to slow the economy down. they want to slow it down enough so supply catches up. that's how you deal with inflation. there will be hiccups and demand. demand will fall. it is falling. investors will pick on the bits were you have the biggest gap between supply and demand. manus: when it comes to actually

investing in this market, when you look at the 52 billion dollar program that the biden administration has just enacted, do i now need to invest around a different narrative? is that going to divert even more aggressively on the back of the $52 billion program? what is the impact on my portfolio? william: yeah. this is a big change. it's a vast amount of money. it's not just the u.s. chip sector. there are big subsidies from other western governments to encourage chipmakers to build new capacity further away from china, further away from north korea. that subsidy, vast subsidy will change the economics of the company, providing equipment,

building capacity. the biggest cost of running a semiconductor factory is depreciation. it has been subsidized by the government. you can therefore afford to sell those chips for the same margin at a lower price. that encourages increasing use in developing new applications. anybody who is worried about excess capacity hasn't had their eyes open. that business model has been subsidized by governments, demand will increase, applications will rise. the entire industry accelerates forward. that's how the industry works. dani: it's interesting to hear this being applied to chips. we talked about that happening with commodities. there's been other government intervention besides just the surface acts, the subsidies.

just yesterday in the u.k., one takeover from a shanghai company looking at buying a u.k. based chip design software company was blocked by the government. how are you seeing these china tensions with the likes of u.k. specifically, the u.s. play out for the industry? william: i think the bifurcation between the two economies has been going on for quite a long time. even before tunnel trump. i think it is accelerating. you're going to get duplication of the industry. the global economy is probably inefficient. for the companies that are providing this, that's good news. they can double the orders. china has a huge disadvantage in this. it doesn't have anything approaching the capacity or capability to manufacture the equipment to make the chips. it's good at the dining chips and making chips.

it can't build the equipment. that's really the west key advantage she a politically at the moment. it looks as though that advantage is being pushed as hard as it possibly can. you have to wonder where the chinese semiconductor industry is going to go. if they can't get leading edge equipment, they can't build chips and they are being left behind where they were a couple years ago. the west accelerates forward with technology. it's difficult to see how the chinese could ever close that gap. if you are talking about quantum computing, it's a different game. we are not there yet. manus: we certainly aren't. this is all part of the narrative around the sanctions over russia in terms of how they hope to come to bear different sanctions on different areas. perhaps with that dominant outcome. thank you great context for a week that has seen substantial earnings in the semiconductor business.

let's get to juliette saly who is with us for the first word news. she's had a long week. juliette: european natural gas futures extend their gains as an energy supply crunch continues. the contract settled at 241 euros, above the previous record in early march. weeks after russia's invasion of ukraine. they are 11 times higher than usual for this time of year. u.k. consumer confidence has fallen to a record low this month as concerns about a recession increase in soaring inflation squeezes household finances. jfk declined three points to -44, the lowest since records started in 1974. their survey comes as the annual rate inflation top 10% last month. i u.s. federal judge says portions of the affidavit

justifying the search warrant for former president -- president donald trump mar-a-lago home should be unsealed. the justice department has one week to propose what information in the document should be kept secret. the government is supposed to release the affidavit to protect the integrity of the investigation. global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. ♪ dani: thank you so much. coming up after meeting expectations this quarter, the outlook for european earnings could be rocky. inflation won't be bad news for everyone. more on that next. this is bloomberg. ♪

manus: it's daybreak europe. it's friday. we got there. dani burger in london. after beating expectations this quarter, corporate earnings a little bit more rocky as inflation is bad news for everybody. let's get into this story, joined now with laura wright. european margins, outperformance this quarter. will that last? laura: this is a classic example of analysts being too cautious. operating margins in europe remain at record levels. according to the europe index, margins this quarter were around 100 basis points higher compared to the same time a year ago. companies successfully implemented cost mitigation measures during the pandemic. they were structured in order to survive. in light of recent higher costs,

companies have been able to pass those on to consumers who have been willing to dig deeper into their pockets. my chart breaks down some of the most interesting sectors. energy was the outperformer. oil brought home record profits this quarter. russia's invasion of ukraine led to sanctions against russia. as a result, oil and gas prices have spiked. consumer staples, resilient. nestle, unity, heineken have been able to successfully raise their prices. margins were weaker. this is really interesting. primarily down to carmakers who are still suffering from component shortages and have been able to fully fulfill demand. travel and leisure remain robust in that discretionary sector. no demand disruptions so far. materials here have been unable to fully offset their costs as the sector cools from really high price action in the last

two years. utility margins were crushed. down to 5.5%, 14% previously. wholesale gas prices have skyrocketed and are set to remain elevated again because of the war in ukraine. dani: we are seeing the worst of the energy crisis with power prices at record highs. can europe keep that profitability in check going forward? laura: the outlet for profitability in europe is deteriorating. my chart compares operating margins in 2022 compared to 2023. this is according to consensus of calculation by bloomberg intelligence. the stoxx 600. you can see that divergence appearing here. the risk is of true demand disruption as the economy weakens, incomes are constrained. that's going to make consumer oriented companies really vulnerable. add into that elevated inflation, employees asking for

increases to retain them. that adds to margins further. who are going to be the winners in this environment? that's where the value company starts to look really attractive. i know you will have it -- a chat with tim kraken. one of the smartest individuals in the bloomberg building. according to the quarterly scorecard, that's for oil companies as well as metals and mining. dani: thank you very much. let's get to the man himself now. the smartest one in the building is tim kraken. no pressure at all. i think it's really interesting that this rebound that we've seen in the markets since the nadir of last month has been led by growth which really hadn't been the narrative for the past year prior to that. are we seeing a shift? is growth back?

tim: it's a fascinating item. our quick answer on this is no. it's all about interest rates. we've been through a time of -- think specifically over the first half of the year. if we just want to focus in on 2022. interest rates were rising. inflation is an issue. in that environment, growth is count -- going to outperform -- value is going to outperform growth. we've had a reprieve for the past month and a half. the 10 year european bond has drifted back down from those peak levels at the end of june. that shifted the tenor of factor investing back towards roads. we think are fixed income strategist think that interest rates are going to get back towards peak levels again, given the backdrop of elevated sin stained inflation.

that feeds into value, not growth. manus: interesting. good to see you. rates peak out in the united states around 3.6% in march. so that is shifting higher. that looks as if the peak will be there. the second quarter, everything is screaming, buybacks will be canceled, and implosion and margins. it's a bit of a slowdown in retail. you know, is it all about rising costs? do you think the worst of that is passed? tim: it was interesting listening to lars. the analysts were generally too cautious going into the second quarter. i will raise my hand. we were also. it's definitely been a surprise from the standpoint of profitability in the second quarter. we think there is a shoe to fall. we are starting to see that drift down in 2023 margins.

that's what is important. the top he 22 lift that you see in the white line in that chart was driven by energy. if you look at the timeseries in 2023 expectations, which is that orange line, you see it starting to drift lower. with that in mind, it's a case of concern about demand, concern about elevated costs, and how long you can pass that through. don't forget, profit margins for europe are at record -- record levels right now. there's been a lot of good news built into those. not a slowing economy, not sustained inflation prices that will get harder and harder to pass along to customers. manus: thank you very much. let's see how the backwater plays out. coming up, the pound takes a pounding. the worst week since april.

we look at the very latest on the u.k. economy. right here on bloomberg. ♪

manus: let's check in on the u.k. now. the pound is set for the worst week since april. double-digit inflation. rate hikes can't stave the pound. let's get ready for retail sales. what do we expect? >> if you look at those figures, you can see consumer confidence is at a record low. it reflects just how grueling people feel about inflation getting into double digits. it's at -44. put that into context.

-30 is the level consistent with recession. at the same time when it comes to retail sales figures, they could be offset by spending on barbecues. we have that hot weather in july. there's a split among economists. mostly are not pointing to the drop. bloomberg economics is more optimistic. they see a very slight gain. either way, the figures added into the boe picture of the economy before the september meeting. it has said it is going to act fast to tame inflation. i can't see this figure making much of a difference. dani: thank you very much. you brought up the lines from socgen about the pound. i love that. really struggling to find reasons to buy. manus: that's a great attribution there. at that time, rates were at 15%. interest rates in the u.k. at 15

percent. i remember. down came the pound. it crashed even though rates were at those kind of double-digit levels. [inaudible] dani: yes. i want you to sing. that's all i need. [laughter] that's it for us on bloomberg to break europe. merrill -- more ahead. ♪

anna: good morning. welcome to bloomberg markets europe. mark cudmore joins in singapore to take us there all the market action this hour. your cash trade is less than 60 minutes away. here are your top stories. a summit like no other.