dani: this is "bloomberg daybreak: europe." i am dani burger in london with

manus cranny in dubai. these are the stories is that your agenda. manus: 75 basis points for ecb hike. five to about 4% by early next year. >> it is necessary to move them up. by early next year. manus: china has 21 million people under new covid measures. perilous predictions, the s&p drops. the warning bubble is still yet to pop. good morning. reaffirmation's of the

affirmation that we will get to the higher side and hold. dani: i can't help but think that that is what is in bolding the bubble watchers. morgan stanley doubling down on the message as well. it looks like someone might be listening. a couple different things going on. the report that tencent will divest, that could weigh on china's tech stock. who will talk to juliette saly about that in a moment. these are questions from nasdaq futures. it may affect hundreds of millions of dollars. that has made the impact of

turning around the future session as well. manus: absolutely. you will see nasdaq take a bath. we did make it through 3.5%. that has got a pervasive effect. we are almost 142 the dollar-yen. lowest since 1998. crude market is broken. i just thought we would give you a little bit of reflection on the back of china. china risk.

dani: i love that, worse cross asset performance. a good tease there. don't go anywhere. we'll get to this shortly. first, reports from around the world. the latest on central banks, market bubbles and downbeat predictions. manus: then we get the latest on lockdown announcements in china. let's reset to the fed. rates need to be above 4% by early next year and less for some to help cool inflation. let's get to our asia correspondent, enda curran.

what did you take away from the message? the soft market function worked? enda: i think it is well established. i think the markets have got to adjust to market staying higher for longer. he also said that they will talk about may be the fed pivoting or cutting interest rates when the fed starts to peek out. it is quite unlikely. more hawkish synchronicity from the fed. doubling down on the message from them in recent weeks. it seems to be a consistent message rates are staying higher for longer. dani: thank you so much.

pressure in europe grows on officials to act more aggressively to fight inflation. hiking in other 125 basis points , another 75 basis point hike already baked in. now we are joined by bloomberg's lizzy burden. >> goldman sachs and bank of america now seeing 75 basis points. it is partly because of the inflation we had yesterday. a new all-time high for august. it implies that is broad-based. it could start to show you some raw data. this not just about what they have been saying.

the fed has been very clear about their messaging in jackson hole. we have to be clear. it is a guideline, nice decision. the chief economist was still very cautious about his remarks this week. you should see that reflective in the market today. manus: thank you. that will go down with economics. stacking on the narrative. prepare for epic finale. those are the words of that legendary investor as smart tragedy looms over markets and how the bubble may bust.

some here, equity markets arriving in numbers. some have seen a soft landing. it is a great piece. >> yes. if they are not going to go downward, the rally we have seen is a fantastic bear market rally. we indicated there is a lot more to go. a soft landing at 3400. we also have to factor in the fed stopping the hiking a month from now.

dani: this is the only one place we are able to hide out for the dollar. could that have the moment continue? >> i think it does. it would benefit the risk. the second is how hawkish it is. that is what we are going to see we will be looking at the basis points.

president trump coming more hawkish. it will single -- single -- signal some of those rate hikes. i think that was a sign of the dollar tightening. dani: a bloomberg contrarian think the dollar will fall. there is more week china data coming out. also, a major lockdown of some 20 million people. juliette saly in singapore. this is a huge thing in china -- region in china that will be shutting down. >> 21 million people.

if this is going to happen, what is next and how much further will china go with this covid zero policy? everything else is opening up. this is adding to the sentiment after a bad august. they are exacerbating lockdowns. asian stock is falling. he mentioned the other day that began is pushing to a 24 year low. i will show you might as well. they're trying to defend this currency. another look at what we are seeing in terms of covid zero on china's economy. this is starting to hit the private survey as well.

this is below estimates. not only for large businesses but small and medium as well. manus: thank you very much. we would like to see with the policy response is there. thank you very much, juliette saly in singapore. let's look at some stories. 10:00 a.m., how the gdp will trigger. also, unemployment numbers. dani: also, 1:30 pm, data from the u.s. that will include initial jobless claims. later, a u.s. chip manufacturer. manus: coming up, more from rates rising. dani: later, berenberg chief

economist holger schmieding on the outlook. this is bloomberg. ♪

>> it will be very to move it to somewhat of 4% by early next year. i told him this. i do not anticipate the fed cutting the monetary target next year. dani: cleveland fed president loretta mester on rate hikes for next year. if this continues the bullish message of 4%, it is the market

the needs to readjust. also big readjustments from last month. manus: we talk about summer a lot, have a look at august. this was the worst cross asset drop since 1991. number one is began on all this. diana ross and lionel richie which fits. these are global equities. 4% and u.s. treasuries again. they were down over 2%. the least worse is high-yield.

dani: are those also commodities? that does not look like enough. the phrase summer of discontent was fitting for you. it is so true. let's bring at -- bring that to our guests, you have loretta mester saying they will not correct. is there more adjustment to come. >> there is deafly more to come. there is a second shoe to drop

period nowhere near the effect. it will take three or four more quarters to move through. manus: you are a guest after my own heart. something about the other issue dropping, let's talk about the size. a similar dollar shock that has yet to burst. your warning about the earnings. can it be as bad? it it is up, we will have a tough time economically it seems pretty well contained. where are you, mid 1930's or?

sunaina: let's look at a couple of the different recessions. if you look at dds destruction, 15%-20% down. if you look at the great financial crisis, .5%-30% down for future for financials. it is your call, where we are going to land. my bet is on a more wild recession. we have already seen the wide side. we have seen inflation going back 100 years. going up in a spike in a spiking coming down quickly. we will see disinflation coming through in the next few quarters. light money is on a more mild recession. -- might money is on a more wild

-- mild recession. dani: mild recession, soft landing, will it be worse in europe than the you s -- then the u.s.? sunaina: it will be. dani: is this price gap on russian oil actually going to come through? sunaina: the issue is that there is no leadership in the u.k. dani: willits bert more demand -- will it spur more demand? sunaina: it might. if there is any way for them to start buying internationally again, it will help ease pressures. manus: we are not going to know

what they are doing at the gathering. you need to regulate. sunaina: i agree with you. i agreed that would be the best way for them to go about it. europe is taking a long time to make these decisions. we'll see a lot more volatility. we are finding ourselves in summer and already having an energy crisis. dani: how painful or this before corporate's -- ba.4 corporate's?

-- be for corporates? sunaina: think about growth. health care, cyber security, daycare. we will see how all of this plays out. disinflation is help for for all of them. manus: it certainly could got low. in great vortexes of volatility, they can deliver great moment of white opportunities and mna and gorging. is that the next evolution?

sunaina: for sure, it is a buying opportunity. if they are going to their own stressors, there are not going to be buying or spending too much cash. we will have continued m&a activity. it will come from private equity. the needs to be drawn and put to work. dani: even if there was a lot of dry powder, you would be taking a big hit on valuation. they are not even selling. that is a big prospect right now. sunaina: it is, you ask do i sell now or do i wait? if i wait, how long? a lot need cash to grow.

you have to talk about how my going to go out and get that and know that the private markets are flush with cash? to answer your question more directly, potentially. they will be waiting for their own to start spending a bunch of money again. they are some great buying opportunities. we are seeing it play out. dani: great to have you here. we will also be speaking to the president on one of the world's largest capital managers. $25 billion of management. don't miss that interview around 9:30 a.m. london time. manus: coming up, fears on slowing sales of a high-tech to

to china. more on that story, here on bloomberg. ♪

manus: it is "bloomberg daybreak: europe." i am manus cranny in dubai with dani burger in london. i want to get this right, i will read what is in front of me. we are looking at the euro, trying to find a flaw. dani: what are the statistics? 131 basis points this month. the lowest since 1992. this is when we get to the argument. the argument that they are trading. it continues to get punished.

manus: absolutely. the dxy is at a record high. since we get to understand about that narrative change in the out -- output. the dollar is short of 140 but we may make it there. we will talk to the chief economist for berenberg pst. girl. you can do better. at least with your big-name wireless carrier. with xfinity mobile you can get unlimited for $30 per month on the nation's most reliable 5g network. they can even save you hundreds a year on your wireless bill over t-mobile, at&t, and verizon. wow. i can do better! yes you can! i can do better, too! now you really can do better! switch to the fastest mobile service - xfinity mobile. now with the best price on two lines of unlimited. just $30 a line.

manus: this is bloomberg daybreak: europe. i'm manus cranny in dubai with dani burger in london. dani: keeping up the pressure.

yields rise as investors price in 75 basis points of hikes from the ecb. loretta mester says rates need to rise above 4% by next year. >> is necessary to move the fed funds rate up to 4% by early next year and hold it there. i do not anticipate the fed cutting the rate of next year. dani: china puts 21 million hundred new covid measures. perilous prediction, the s&p drops nearly 18% but famed investor jeremy grantham says this super bubble has yet to pop. we are off the back of an ugly month. all of our viewers have been waiting with bated breath to know what the number one hit was since 1981, if they didn't catch it earlier.

manus: you didn't listen to the last section, that's the problem. "my endless love," diana ross and lionel richie. the end of august 1981, i'm not going to sing out loud. here is your cross assets check. at the short end, yields spiking higher. loretta mester reaffirms 4%. the dollar is king but has yet to spring through 140. nymex crude takes a bath, weaker data in china taking wind out of the growth. copper is down almost 1%. dani: certainly, some weakness in this equity market. grantham says the bubble has yet to burst. there is your picture when it comes to energy prices.

here is your equity markets. we may go to 3400 on the s&p. we are not there yet in the futures. nvidia video warning about china regulation and tencent reporting they will divest. all of that leading to this ugly picture for equities. we are down 1%. michael wilson saying 3400 is his scenario in a soft landing, that's 15% lower than we are at the moment. that's not what he thinks there will be if there is a recession. manus: and our guest just said, she doesn't think it will be the 1930's but more to thousands -- 2000's.

which takes us back to grantham, who says we will have a fairly tough time. let's get to bonds. echoing market volatility. if you look at vix relative to fx vol, equity vol has been contained. what does a goldilocks soft landing look like in 2023? dani: volatility is unusually low in the s&p 500 vix, i wonder how much of it is structural. you see bearish bets filing up. -- piling up. there is an inverse etf that shorts the s&p 500, and it has added the most cash since the pandemic. people are willing to short this

index but they don't necessarily want to buy volatility. so it is just this very divided market. but it has got to change if we need to price out cuts, which the market thinks will happen next year. manus: equity markets have come off up 8% since august. the s&p 500 dropped $1.6 billion off the market value. they repriced because they no longer believe there will be a fed pivot. that is when markets began to repriced but high yield is the last holdout in a decent soft landing. let's shift gears to singapore. jules has got the first word news. juliette: manus, the chinese metropolis of chengdu has locked down its 21 million residents, forbidding them to leave their homes except in special

circumstances. it is the biggest city to be locked down since shanghai, as china continues its covid zero battle. the region has until now been largely untouched by coronavirus. the favorite to succeed boris johnson has ruled out taxes if she becomes uk prime minister. truss also said she would not introduce any new taxes on the energy sector. the results of the session will be announced on monday. a top u.s. official has said china has committed human rights abuses against ethnic muslims, and may be guilty of crimes against humanity. the u.n. high commissioner for human rights sites testimony alleging patterns of torture as well as the desecration of holy site.

sarah palin has lost a special congressional election in alaska, in a district that has been republican for nearly five decades. democrat mary peltola flipped the loan house seat, during the majority in the house chamber, and setting up a rematch. australia's home prices solve their largest monthly drop in almost four decades. prices in city, the largest market, slipped 2.3% and melbourne dropped 2.4%. the biggest decline since 1983, with rising interest rates expected to drive further falls this year and next. 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: juliette saly in singapore. the pressure is growing in europe. officials need to act more aggressively to fight inflation. money markets are now pricing a bigger hike from the ecb. 120 five basis by october now priced in, and at least 75 now baked in. holger schmieding is the chief economist at berenberg, great to have you with us. 2-year yield's exploding, 10 year yields have had the biggest monthly move since 1990, and the european curve is flattening. do they raise rates by 75 in september. holger: the ecb wants to make the point that we are serious about fighting inflation.

we want to reestablish our credentials. still, the ecb board is a fairly mixed batch of people. it's possible they do 75 in september but a more typical ecb compromise would be to move 50 but provide us with some hint that in october, it could be another 50. dani: this is what i keep coming back to, would we really care if the ecb is going 5475 if there is going to be recession? doesn't really matter for the wider economic landscape? holger: first of all, it definitely matters for markets as we have seen. second, doesn't matter for the economy? not very much. we have a serious inflation issue in europe, but this is the inflation coming out of natural gas, especially out of electricity.

if the eu decides now about unlocking electricity prices from gas prices, it will have a much bigger impact on inflation the next six months than anything the ecb could do. for that matter, i would say they should overdo it because if they do too much, they would be adding to a recession which unfortunately with these energy prices would be quite painful anyway. manus: that's a big call on the risk from price cuts. let me put it to you this way, i'm going to show you german electricity prices one year forward. from 1000 euros -- this is the price action yesterday. by want to show you be chart, 1000 euros per kilowatt hour to 500, surely the solution is regulation of an otc market and not price caps? holger: the solution is indeed

better regulation of markets, especially the electricity market which has to be uncoupled from gas markets. but now to have to fec -- de facto these huge moves in gas prices setting prices for the vast majority of electricity which does not come from natural gas really does not make much sense. therefore, it is much more urgent for europe. interest rates in normal times matter a lot but at the moment they are not the key thing for the economic outlook. dani: these are the prices manus was talking about. does separating the market not have this perverse effect of doing things like discouraging renewables? all of a sudden, they are not getting the same price tag.

holger: in normal market conditions, that makes sense. but when the prices for natural gas were driven by a classic market panic, going up so much in a short time, you should not allow that to affect other markets which are mostly non-gas. so, a price cap may be the solution. we have to find a mechanism where the natural gas, where the next most expensive source of it electricity, rather than the most expensive source sets the price on the market. manus: holger, what is the risk of serious social unrest across europe this winter? and i mean serious unrest. holger: i think that risk is not

very high. we will see governments take the pain. there will be some protests here and there. we will see in a little bit -- maybe a little bit in the election. this is where governments have to understand, they have to shield to those who cannot afford these energy bills from the pain. as with many other issues, europe will muddle through this as well probably with a lot of variation from nation to nation but without major aggression. dani: during covid we had rock-bottom interest rates, what does it mean for public financing if governments go on a spending spree right when we are getting the boe and ecb moving into restrictive rates? holger: it is less easy now than it was during covid.

having said that, real interest rates are very low. we should not use the currency, which is completely ludicrous , being boosted by energy prices. any estimate of what the future inflation will be, i would say europe may be 2.5%. five-year costs deflated by an average of 2.5 percent inflation does not look that unbearable. so i think this is doable. dani: thanks so much for joining, that is holger schmieding, berenberg chief economist. italian government's plan to sell ita. more on that story next. this is bloomberg. ♪

manus: this is bloomberg daybreak: europe, i'm manus cranny in dubai. dani burger in london. we've learned that members of credit suisse's board are split over the size of cuts to be made to the troubled investment bank. our swiss banking reporter joining us now. marion, a board divided and a strategy in tatters, how divided are they? >> is difficult to say at this point. they are negotiating this weekend at their keyboard meeting. going into it, they are very split over how much they want to

cut the investment bank. they announced last month they wanted to review the whole banks strategy and figure out what to do with this investment bank. dani: i'm looking at this quote saying that the benefits of having an investment bank have never been visible in the credit suisse numbers. what are the non-benefits in this case of having an investment bank? >> they want to do good service to their billionaire and million our clients, and that requires an investment bank to access markets. if i am a millionaire or billionaire and wanted company to ipo, i can funnel that through an investment bank. they can offer me debt financing products, etc.

there was the argument that there is a crossover in services. but there are many players, for example julius baer is a wealth manager that outsources a lot of that stuff. there are arguments had with clients wanting to keep the investment bank because it is powerful, and we can provide good services to wealth management plans -- wealth management clients. manus: the bottom line is, they are trying to turn credit suisse into what ubs became and it is just a question whether they can take the pain. but retaining dealmakers gets harder and harder. if you are waiting at your desk for what they decide above, you

are not making deals, why would you stay? >> that's the question many employees are asking. not only in the investment banking decision, waiting to hear whether their team mifid cut. but -- might get cut. they are waiting to hear can we extend deals to clients are not. what's our positioning? there is a lot of uncertainty going forward and markets are not necessarily helping either. dani: that's bloomberg's swiss making reporter marion haf termeyer. let's cross into italy now. the leader of the right-wing bloc expected to win italy's general election has criticized the plan to sell state-owned carrier ita airways.

for more, we are joined by our milan bureau chief. tommaso, is this deal dead on arrival? >> hi, good morning. it looks like we don't have a deal again on alitalia and its successor ita airways. yesterday morning it looks like we had a deal. mario draghi decided to sell the company which was born out of alitalia to an investor group that includes delta. then during the day, meloni who is likely to win the next general election made clear that she does not want ita to be sold after italy invested so much money. but draghi made clear that the company can't survive standing alone. it needs an investment partner.

it has lost 200 million euros in the last six months. manus: italians love their national flag carrier. thanks for jumping in, you are the quickest reporter we have seen in a decade. well done. when you go to the next voting mode went -- voting moment, is the country bothered about what happens in the airline? >> italians have had their taxes raised over 10 million euros. -- billion euros. i think generally speaking, italians don't want to put more money into our national carrier. alitalia, ita was created to keep the roots but the last ceo

was the former -- he made clear his duty was to prepare for a sale. and the government essentially completed the process, electing air france and delta. then you have meloni saying we don't want air france to buy our national carrier. do you think italians want to spend more money into their national carrier? meloni is clearly getting most likely 25% of votes in the next election, the center-right bloc will most likely went on to the election, so we will see. manus: tommaso, thank you so much, our milan bureau chief on the very latest state of play.

prepare for an epic finale, those are the words of the legendary jeremy grantham, channeling his inner bear. we will take you through the language in just a moment on bloomberg. ♪

manus: it was a brutal end to august. the s&p lost $1.6 trillion, 1.5 of that went on friday and money. i don't know why i am laughing because it has serious implications. down another 1% as we speak. dani: nasdaq and asia stocks are down, we are looking at another lockdown in china. i also am feeling the pain of having moved to this country

five years ago and sterling at 1.15, the worst month since brexit. sterling keeps getting crushed, i feel like i can never leave this country now. manus: you never know, i might be home. i housing risk, a bond crisis. dani: more bloomberg up next. ♪

>> good morning, welcome to bloomberg markets europe. i'm dani burger in london with mark cudmore joining in singapore to take us through all the market action.