dani: this is bloomberg daybreak: europe. i'm dani burger in london

alongside manus cranny in dubai. these are the stories that set your agenda. >> it will likely require maintaining a restrictive policy stance for some time. the historical record cautions against prematurely loosening policy. manus: jerome powell puts global economies on alert with a warning of prolonged tightening as the european central bank signals further hikes. taking heat. asian markets tumbled and u.s. equity futures extended losses post-jackson hole speech selloff. germany looks set to hit its october gas storage targets as early as this month as the economy minister proposes an overhaul of power prices. dani, good to have you back from the bosporus. has powell crushed the pivot and open the door to 75 basis

points? dani: markets are certainly reacting that way. friday was all about risk moves, we are seeing the bond market catch up but stocks are still off tremendously this morning, let's dive into it. msci asia on track for its worst day since the spring-time. down 2%. we are also looking at european equities off again, it is a bank holiday in the u.k. happy thank holiday to all those observing it. if you're looking at european stocks, those futures are following a quarter of a percent. futures fall. s&p futures off by a 10th of a percent, and it continues to be -- nasdaq futures are not usually down by this much this early in the morning.

tech bets have been ramped up so we might be looking at a case of positioning moving against these markets. manus: jay powell inflicted flesh wounds on equities and a brutal reassessment over the rates market needs to get to. an adrenaline shot in the dollar , two year yields vaulting 20 basis points in the past six days in anz. that is a consequence even though you are seeing finland is saying we need a significant rate hike from the ecb. does nothing to give succor to the euro, down by half of a percent. bitcoin also down nearly 1%. the question for the rates market, whether that opportunity for pivot is now firmly crushed. we are on the glide path to 4%,

and we will be in a holding pattern there. dani: we will get more into that, manus. we are speaking with enda curran about that. juliette saly is in singapore to gauge the asian market reaction. manus: we are going to discuss the gas market with stephen stapczynski. let's focus on the jackson hole narrative. jerome powell doubled down on the need to curb inflation. saying the price pressures will require forceful action. >> the overarching focus right now is to bring inflation back to our 2% goal. price stability is the responsibility of the federal reserve and serves as the bedrock of our economy. without a price stability, the economy does not work for anyone. without price stability, we will not achieve a sustained period

of strong labor market conditions. the burdens of high inflation fall heaviest on those who are least able to bear them. manus: let's get to our chief asia economics correspondent, and the current from hong kong. they have lined up behind him, it was a short, plan to speech about getting to 4% and staying there. >> it really was, manus. a very simple message which was, interest rates are not just going up they will stay up for it does not just pushback about the fed easing monetary policy if the economy shows signs of pain. he was making clear, history is littered with examples of why they should not do so. it was a hawkish message repeated throughout the weekend by federal officials in various

interviews. inflation remains too high. but we will have a flesh -- fresh data point with u.s. jobs numbers on friday. that will determine where the fed numbers go from here. a soft jobs number could ignite views that the fed does not need to keep going at the pace they have been, but if it is strong, the opposite will be true. dani: we have also gotten strongly with from ecb officials, we heard from olli r en, villaroy, all talking about the need for the ecb to make policy more restrictive as they deal with inflation. but how different of a story is this considering the energy prices the ecb will be facing? >> there was a key takeaway that all of the sinful bankers -- central bankers were saying they all have to keep raising interest rates even if it does mean enforcing economic pain. schnabel had a very hawkish

message. what they are facing is an extraordinary energy crisis, which the ecb with raising interest rates cannot resolve but they will do that to bring down broader demand. and they realize that will hurt the economy. and the bank of japan's governor sees inflation being imported through commodities, that is why they continue to ease rather than titan. dani: that is enda curran revving up the central bank. let's get to the asian market with juliette saly in singapore. a very painful session so far. juliette: wait huge jay powell was going to be hawkish -- we knew jay powell was going to be hawkish.

that boj and pboc is weighing into asia. the msci asia-pacific with the biggest two your drop since june. and a drop in bond markets, the aussie 10-year up by about 10 basis points. the yen could get to one point -- 140 now. and the boj with a stronger case for the on short currency showing concern about the continued weakness in the yuan, which is at a two year low, breaking through 6.9 for the first time in two years. let's have a look at what we are hearing from the bank of korea. kathleen spoke to the governor at jackson hole and they have indicated they will keep hiking, too. they won't start -- stop tightening until they see inflation peaking at about 3%. the korean won has fallen in the most in about 11 weeks.

manus: it really is an asian fx collapse, relative to g10. the aussie 68.43, is going down, make sure you hedge. economists are turning more bearish on the outlook for the chinese economy, downgrading the forecast for 2022. it is now projected to grow 3.5%, down from 3.9%. we are joined by our economy editor from hong kong. these downgrades, .4%, is that substantial and what led to the survey down? >> this is a pretty substantial downgrade from economists. this is all due to factors over the last few months, the property sector is in crisis which is a major driver of what

we are seeing. the continued follow-up from lockdowns from covid zero restrictions is another factor. and now heading into august and september, the fallout from this heatwave and historic drugs creating power shortages. economists don't think the country is doing enough to save the economy right now. these rescue stimulus packages. just a couple of weeks ago, the central bank cuts halted the interest rate, that didn't seem to move the market too much. about $140 billion worth of stimulus was announced last week, also not really impressing economists at the moment. there are 70 different challenging factors that are -- so many different challenging factors contributing to this

downturn and not enough being done to prop it up. dani: the yuan continues to move lower this morning. jill, our china economy editor in hong kong. now to germany where the economy minister has told bloomberg berlin is considering caps on energy costs by reforming power market so that prices are no longer coupled to the most expensive supplier. we are joined by stephen stapczynski, we have this new proposal and germany talking about stockpiling gas supplies sooner than expected. how much is this mitigating the pain, or is it too little, too late? >> i think the big thing is how quickly they are moving on these policies? just the last be months because they are facing this risk of cut off from russia, they have

boosted the effort to refill inventories from natural gas. now they're looking at power reforms, and discussions across the eu about price caps and gas rationing within the region. when you look at gas inventories, 81% full, they need to hit 85% by october, they are ahead of time. but even if they are 95% full, if russia were to cut supply, there have been studies that suggest they won't be able to get through the winter. they still need russian supply, so it is a bit too little, too late. germany has said we can import more lng byte fast tracking these facilities, and we will get more from our neighbors, but russia is such an important provider that even if you have strong inventories, it might be challenging to avoid the economic hit when

temperatures turned colder. manus: it is a daily issue tracking those prices around europe. stephen stapczynski with the latest on the energy crisis. coming up, the fortescue metals ceo on profits for the mino which ha- -- miner which have slipped. dani: oil market signaling that relief could be in store. but is all of that enough to appease central banks? that is our big take story that we will talk about later this hour. this is bloomberg. ♪

manus: this is bloomberg daybreak: europe, i'm manus

cranny in dubai, dani for her alongside be in london. fortescue metals has a 40% drop in full your profit as record iron or shipments failed to offset the decline in prices amid concern over the slowdown in china. we are joined by the ceo, elizabeth gaines. this is the second-highest profit you have ever had. what went through my mind before the conversation was, to stand still at fortescue, you are going to have to ship the same record amount next year or more. is that the correct assumption? elizabeth: we have never been a company to stand still. we have had great success growing our iron ore business. we have gone to 189 million

tons in the year reported. in the new financial year we also had a new project which is expected to come online in the first quarter of next calendar year. that will add to our product suite, that is another 22 million tons of magnetite hard grade concentrate. we continue to invest with an ion growth, so we are not standing still. dani: among peers, it has been all about prices when it comes to profit. it is the biggest profit on record but it is a 40% drop given what we have seen from china. is the worst over when it comes to pain directly from an economic slowdown in china? elizabeth: it's always difficult to predict the iron ore price. the last few years we have seen

cyclicality and volatility in the iron ore market. there was a big supply shock in january 2019, when 19 million tons was taken out of the market and as a consequence we saw those very high prices, and we saw that in our financial year 2021. but the year just reported, the average price was $140 a ton and we realized 72% of that, $100 a ton of margin to us. we stay focused on what we can control, which is a low cost producer with strong margins. what we continue to see is strong demand for our products. we have been shipping to our customers in china for a long period of time and are very close to our customers, and continue to see strong demand. but overall inventories at chinese ports have stayed at about 138 million tons.

about 37% is overall inventory. that demonstrates the strong demand we continue to see. manus: when you look at the stimulus program the chinese are enacting every six to seven weeks we see mups, -- a new p iece. is that the kind of qualitative impulse you want to see? well that shift the demand for companies like fortescue? elizabeth: we see that these stimulus measures tend to be investment in infrastructure. one way to stay late the economy is to invest in infrastructure, and that drives demand for steel. the chinese government has a number of levers available to them to stimulate the economy but one of the beneficiaries tends to be steel, and therefore iron ore.

there is a strong demand for iron ore but the price has certainly come off from those record highs. but we think china will probably produce about a billion tons of crude steel this year. given that there has not been significant new supply to the market, that is a pretty balanced market composition. dani: do we get to a scenario then that we get close to the highs for iron ore that we saw last year? elizabeth: i never like to predict the iron ore price. i think the last couple of years have devastated how difficult it is to predict. obviously, supply is a key factor as well as demand. you are seeing from the results that we just reported, our iron ore business was generating $63 of margin per ton of iron ore. iron ore prices at or around

these current levels and our cost of production last financial year was $15.91 a ton, that clearly demonstrates the strength in our operations. manus: it is twice for three times you have mentioned the margin and the tightness in cost, which takes us to the issue for every ceo at the moment, which is costs whether it is on the input side or wages, capital expenditure, etc. is that rising materially? how are you balancing that? just give us a view of the input price rises you are seeing. elizabeth: it's a challenging inflationary environment. in australia, we certainly had strong demand for labor as well. so we are seeing increases in labor costs. we have guided production costs

for $18 a ton, that compares to what we reported for the last financial year. you see the increase, and that is driven largely by fuel costs. we are a significant consumer of diesel, we are seeing volatility in fuel costs. elevated oil prices and that flows to other consumables, ammonium nitrate, a range of consumables and other inputs are driving up our cost profile. we are still the lowest in the industry, but that is why we are so focused on innovation and the use of autonomy and other measures to keep our costs low. dani: perhaps the elephant in the room of this interview is that it will be your last, at least as ceo of fortescue metals . what is next for you when it comes to finding the next permanent ceo for fortescue

metals? elizabeth: i'm privilege that i will remain involved with the board. i started a decade ago as a nonexecutive director, and the chairman asked me to stay as a global investor for our renewable energy business, so i am really excited. we have to tackle the climate crisis, and the work we are doing to decarbonizing will be a significant contributor. the search is progressing. the great thing is we have a founder and chairman stepping in as executive chairman. and our operational excellence is second to none, so i am really confident that we will have ongoing excellent operating performance in the future. dani: elizabeth, thanks for coming on with us. last round-trip trip as ceo there, fortescue metals ceo

joining us this morning. coming up on the show, we will speak to the ark capital management chief, saed abukarsh, after the drama at jackson hole. has he changed his positioning? this is bloomberg. ♪

dani: it's bloomberg daybreak: europe, i'm dani burger in london. manus cranny is in dubai. let's get to the first word news with that is juliette saly in singapore. juliette: the federal reserve chief has offered a warning, expect interest rates to be higher in the fight against inflation. he hit back against investors saying that he and his

colleagues would not blink in their mission to cool prices. >> we are taking forceful steps to moderate demand so it comes into better alignment with supply. and to keep inflation expectations anchored. we will keep at it until we are confident the job is done. juliette: economists are turning more bearish on the outlook for china's economy, downgrading their forecast for 2022. the economy forecast to grow just 3.5%, down from three point 9%, suggesting economists are not convinced recent stimulus measures can counter the property crisis and covid outbreaks. south korea's central bank may raise rates again to tame inflation. governor rhee chang-yong says he is ready to intervene to stabilize south korea's currency and more open to outsize rate hikes. >> if our inflation continues to

be well above 5%, like chairman powell, of then bank of korea should also prioritize price stability. juliette: 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? manus: jules, thank you very much. coming up on the show, we are going to have the big take.

manus: this is bloomberg daybreak: europe, i'm manus cranny in dubai with dani burger

in london. >> restoring price stability will likely require maintaining a restrictive policy stands for some time. the historical record cautions strongly against prematurely loosening policy. dani: hawks all around. jerome powell puts global economies on alert with a warning of prolonged tightening. the european central signals for the hikes asian market. s tumble and u.s. markets tumbled from friday's post-speech selloff. germany looks to hit its october gas storage targets a month early as the economy minister proposes an overhaul of power prices. risk assets crushed yet again. it feels naive to have been talking about peak dollar, they are off to the races yet again. manus: i have a producer in

dubai who says i am forever young. it is about constriction and no rollover in the rates market. that is might take away from jackson hole. dani: we have seen it come out this morning, how much tightening they want? asian markets are in pain throughout the region as are c urrecies. european equities are also off. u.s. futures are weakening this morning. yet again, tech is getting crushed. down more than 1%. hedge funds had gorged on tech bets last month. are they now holding long tech stocks just when jay powell puts the pain on long-duration assets? manus: that is what is taking global equities to a one-month low. but there is an infusion of

adrenaline to the dollar, up by over half a percent, despite the market building up short positions on the dollar, the strongest short since 2021. there is a mighty campaign behind this effusive rally. even olli ren saying we need significant rate hikes in europe does nothing to put a floor under the euro, she is down half a percent. bitcoin is responding to the risk off narrative. when it is risk off, people by the dollar, -- buy the dollar, as well as the double punch on rate assets. dani: it is a strange time for this global inflation story. it is finally coming off of the boiler with commodity prices coming down, but it is still too hot for some of the world's central bankers. and the rate it which this

pressure comes down varies depending on the part of the world you are in. that is the subject of today's big take. enda, what is the thinking behind inflation peaking, despite the fact that there are still supply chain model x? -- bottlenecks. >> economists are pointing to commodities like copper, wheat and oil prices which have come off in the last few weeks. and when you consider the pressure from russia's invasion of ukraine. the commodities story is turning a little bit. there is a feeling that the u.s. inflation rate will come off in the second half of the year, protected by the strong dollar. and as all this works together, it will take pressure off of producers. we are seeing producer prices in

inflation slowdown, in china, for example. if goods inflation comes off it will take pressure off downstream for consumers. but this is a nuanced story. there are signs that it is turning a corner but in europe, we are dealing with an energy crisis and even if prices come off a peak it does not mean they will return to where they have been on average anytime soon. manus: i encourage everyone to read the story. those one-year forward expectations, u.s. one euro forwards are now down at 2.45%. so they are declining. what does it mean percent for banks, the just the position -- juxtaposition of raising rates aggressively? >> even if headline inflation is turning a point, very few people are expecting a return to the

central bank inflation target around 2-3%. a lot of people are saying that will be a long road back. you only have to look at the energy crisis in europe. and it continues to put pressure at least on a headline basis. that is why central bankers are warning they will keep raising rates until broader aggregate demand comes down and inflation is well down where it should be. that was the message out of jackson hole. all of the central banks that are tightening are making that point, even if inflation turns a quarter, it does not mean they will pull up stumps with their tightening cycle. jerome powell saying they are not even thinking about easing interest rates yet. that is the story, even if inflation is turning a corner, it is a long way back to her sinful bangs would be

comfortable with it. manus: there is a wonderful saying, the road to hell is paved with good intentions. on a macroeconomic thought, -- not a macroeconomic thought, just me reciting things you hear in a pub. that is our chief asia economic correspondent in hong kong. policymakers met in jackson hole and they spoke to bloomberg about where they see rates going, and what they believe needs to be done. >> the federal open market committee's overarching focus is to bring inflation back down to our 2% goal. >> i think we will have to move them up based on my current read in the data, above 4%, and probably hold them there next year. >> inflation is extremely high, the levels were unimaginable 18 months ago.

>> we have to get interest rates higher to slowdown demand and bring inflation back to our target. >> we get to about 3.4% by year end, at or above 3.4%, and then we have to let some of this play out. >> it could be well over 4%, i don't think that is out of the question. >> i have said 3.7 5-4% by the end of this year, and the sooner, the better. manus: 4%, could it be the new transitory? saed abukarsh, portfolio manager at ark capital management, good to have you with us. we will get to your clarion call on the euro breaking parity in a moment but talk about powell. do you think he has crushed a pivot, and is the door open for a jumbo hike in september of 75 basis points? saed: i think what powell has done is remove the idea that

recessionary pressure is going to dissuade the fed from pulling back. as powell has said since the beginning of the year, inflation is the main concern at this point in time. recession, leading us to lower gdp, i think we need to hike a lot more aggressively if the numbers continue to rise. if cpi continues to rise, the fed may have to reprice their terminal rate. we are on the same path as before but they have removed the idea that they will pull back if we are in recession. dani: still the same path but we get this really strong message from powell talking about the need to stay higher for longer. we are still pricing and market right now that sees cuts come september, is there more

repricing this market needs to do in order to say they will be aggressive for longer as long as inflation remains high? saed: i think one of the things most market participants forget is the fed is officially looking at inflation, but they are looking at equity and risk markets as a whole. it is not to say the fed is not flexible, they are very active in terms of what they do the next few quarters. because that inflation pressure is not something they plan for in terms of the energy crisis in europe, russia, and weather the past summer, these are not things they have planned for. and they are essentially playing it by here. 4% terminal rate, circling around there, but willow bay i just quarterly data -- will they adjust to quarterly data, i'm sure they will. manus: the rate market is

getting higher, the question is whether there is exhaustion or further to go across this curve in terms of flattening. i think you have seen some punching at the short end, maybe the next move is at the long end? saed: in terms of 2's and 10's and 5's, the vast majority of market participants are piling into 2's. that is the consensus trade. we could see the back and pick up more especially -- backend pick more especially if they evade radical recession. if we see some confidence in terms of growth, we could see the back end rally. our forecast is still looking at 3.5%-or percent. -- 4%. dani: manus teased you about

your euro parity call and you resisted the urge but let's get into it. manus: give him time. dani: how much more pain is thereto, in the common currency, saed? saed: it is about risk overall. as we head into the next three or four months, the pressure in terms of energy prices, and the risk of stagflation in europe given the overall macro backdrop puts his into his own where the euro could trade to low 90, even .85 next year. manus: throwing those numbers out there, are you randomly throwing out and 88 print -- an .88 print on the euro-dollar or do you really believe it could implode? saed: i think there is a chance

we could see euro-dollar unwind quite considerably, in terms of the next eight, nine months. the outlook has changed, the balance of payments. china's zero covid policy has changed. europe's export position, for the first time in a long time has not enjoyed the account surplus they have enjoyed. this is no longer about just global markets and dollar, this is essentially about europe. it is weaker against crosses, not just dollar alone. look at euro-swiss for example. dani: how worried are you about china? let's take it independently. you are looking at bloomberg economists far under the 5.5 percent target set by the pboc. how difficult will it be for the region and those dependent on it? saed: when we look at china, it

is this euro rate -- the zero rate policy. when the party congress occurs, we will have clarity whether china intends to keep the policy. if that stays, we don't see china picking up anytime soon into winter, especially into next year. if we do see a change in policy, which is unlikely until march of 2023, i don't think china demand will come back anytime soon. this is having a cross effect across all markets, especially with the inflationary backdrop. manus: are you worried about china-u.s., taiwan? more and more people come onto the show, it is a left-hand tail risk but it is migrating. do you and the people in your world talk about that as a material risk? saed: this is something we have

learned at least in terms of ukraine and russia, the event itself on the front end is a standard deviation beyond what we normally look at. however this is not what we are looking at in the short-term, this is more longer-term what happens if the u.s. and china go at it in terms of taiwan. this would see us look at outflows out of china, dollar china way about seven once again. a massive pullback i am terms of global allocation but this is more of a longer-term play. dani: great to have you on, saed abukarsh, chief portfolio manager and cofounder at ark capital management. coming up, olli ren, says it is time for action when it comes to inflation. this is bloomberg. ♪

dani: welcome back to bloomberg daybreak: europe. i'm dani burger in london with manus cranny in dubai. the bank of england governor says the european central bank must act forcefully to contain record inflation and keep expectations for price growth anchored. olli ren spoke with bloomberg at jackson hole. >> the reality is that it is an excessively high inflation globally. it is action time, and our mandate is price stability, and we will work accordingly. dani: for more, let's get to lizzy burden who is here with us in london.

some inflationary numbers might change the ecb's outlook, what are we expecting? >> it is the balance between transport and road fuel costs falling, and the core, food and energy, rising. germany is one of the only big four euro nations to see inflation rise but across the euro area it is the same balance. german inflation could reach double digits later in the year because you are seeing policy measures -- in france, and europe you will see inflation decline so the overall inflation rate is expected to slow just a notch from the 8.9% record high to 8.8% before it bounces back in september. that's partly because of the hot weather which will add to agricultural prices. but also russia shutting off gas to the nord stream 2 line.

manus: still mind blowing numbers. we just played you olli ren. analysts resolute about what is on the table. what are the other factors economically that will play in here? because this is an ecb which is on a one-way trajectory of the moment. >> the governing council is very much dominated by the hawks at the moment. if we get a bead on the inflation print, you could see 75 basis points in the september 8 meeting. the idea would also be to support the euro because it has been flirting around the euro-dollar parity. we also get the euro area unemployment rate for july on thursday. that's expected to hold at the

low level of 6.6%, still showing that the labor market is tight. even though the euro area, pmi does it suggest --, because pmi's suggests -- composite pmi suggests the worst is yet to come, bloomberg economics things 50 should stay the base case. manus: let's see whether they can deliver. euro dollar, saed abukarsh says it could go down to .88. berlin is proposing tackling soaring energy costs over the longer term by reforming power market so that prices are no longer coupled to the most expensive supplier. let's get to our energy reporter stephen.

i'm much more taken by the narrative that gas storage is filling up quite quickly in germany, how important is that? >> it is important that they are filling up the gas. they are at the level that they wanted to be at the beginning of october. they want to be 95% by november, they are at 81% now. no doubt that will help in the winter. but they are filling that just because they are still getting some supply from russia via nord stream 1 which is still flowing at 20%. it will fall to 0% at the end of the month for planned maintenance. and there is no guarantee it will come back. there have been studies that have said we won't be able to get through winter even with that. you still need russians applied to kind of top up -- supply to

top up every day. without that russians apply, if russia isn't pumping a little bit through the winter, the cost of gas rationing and the hit to the economy is much higher. dani: stephen stapczynski, thanks for joining us. we will talk more about these markets but first, let me show you what is going on at the kennedy space center. you are looking at the artemis one space rocket, the most powerful rocket yet as we look to go back to the move. it is not only yields that are about to blast higher. manus: and i understand there is a snoopy dog in their. -- in there. it is an unmanned mission which is about to fly. 1:11 the expected time to fly. eventually humans will return to the moon. this is bloomberg. ♪

manus: is your monday morning edition of daybreak europe from dubai and london, with dani burger and me, manus cranny. have we seen an expression of that across the index on friday? are we exhausted in terms of volatility on the rates market? dani: so fascinating that on friday you see risk that really hurt, and you mentioned bonds moving lower. but look at the vix, still vastly lower than some of these other volatility indexes. is there some catching up that needs to be done here? manus: the one line that i love was evercore, saying the last

place of hope of hiding was within the equity markets, that got trashed on friday. so the question is, whether we see a significant repricing again in the dollar? .88 is achievable in 2023 across a complete risk implosion across europe. dani: not just the euro heading lower, the sterling also down nearly 1% at 1.16. that's it for daybreak, more bloomberg to come. ♪

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dani: welcome to "bloomberg markets: europe." i am denny met --