>> from the financial centers of the world, this is "bloomberg markets" with alix steel and guy johnson. ♪ >> welcome to "bloomberg mar kets." i am anna edwards. we have no trading in the united states today. plenty of trading in europe, lots to talk about in europe. let's have a look at what we have seen on the equities market picture, on the broader asset picture. on the host of assets crucial to today's trading in europe, the

u.k. political story, the european gas story. european gas prices, european benchmark up by a 30% jump today. 279 euros per megawatt hour. this is the highest we have touched this year -- not the highest we have touched this year. better news around stockpiles, better news on friday around the possibility of the nord stream pipeline. we heard they were not going to open up the nord stream pipeline. it is that story that is permeating other assets today. dax down 2.5%. london market down .8%, more resilient because of its bias towards energy. euro taking a hit, we did have a 0.98 handle, now it is at 0.99, down by .4%.

a big jump in the u.k. gas price, not just the euro zone story. we did see that yield responding , also adding in political uncertainty. we've got plenty to talk about when it comes to u.k. politics. u.k.'s next prime minister is set to be announced today at 12:30 london time, it has been over the last couple of months a face off between truss and sunak. lizzy burden joins us now. what are we likely to hear today? >> in less than two and a half hours, the fourth document of number 10 downing street in six years is going to be announced. it is likely to be the third female leader in britain -- british history, liz truss is widely expected to win this contest. she inherits an economic crisis that has no comparison except

since the early 1970's, double-digit inflation, a recession on the way. the pound in august had its worst month since the brexit recommend -- referendum. the first order of business will be to go to the queens scottish residence where boris johnson will go separately. she will see the queen and then return to downing street to make a speech expected to focus on the urgency of the cost of living crisis. on wednesday, she will meet with her new cabinet to discuss how to deal with it. she will face prime ministers questions. once she is in, the challenge is staying there. we are expecting another general election by the latest, january 2025. to appeal to the general public is to be a different task to winning over this conservative party membership that she hopes to get.

tom: in the u.k. -- anna: in the u.k., between richie soon at and liz truss. remind us of what is likely to look like, a truss prime ministership. lizzie: indeed. there are always surprises in british politics. trust, throughout the campaign has expressed her preference to tax cuts, what she called handouts. she says she wants to take on the economic orthodoxy of the treasury and the bank of england . she blames the boe for the inflation crisis and wants to review the mandate, she said she was a firm believer of its independence. we have lots of commentators on bloomberg tv warning about a crisis in gilts and sterling.

charlie e even trust one over the passing membership as he puts it, the markets. anna: thank you, lizzy burden with a look at the timing of what is to follow. and what we can expect from a prime minister, truss is expected to what we see confirmed later today. joining us now, sir simon fraser , managing partner at flint local. very good to see you, nice to speak to you. the first order of business, whoever is prime minister, poling does suggest it will be liz truss, the first order of business would be to do something about the cost-of-living crisis. what would you expect to hear? >> it is not a done deal yet. obviously, she has to come in. as lizzie mentioned, the challenges that face her, the big challenge is at a time of

inflation, particularly what to do about the energy crisis. while she is a supporter of the small state and started off the campaign cautious about supporting households and businesses, she has been converted and i think we are going to see a significant package of short-term support. the precise form of it, we do not know. anna: the europeans in the form of the you were talk about -- talking about a capital cap to gas prices. somebody to pick up the difference. you think the u.k. would go down a similar route, or will this be about cushioning the blow on the way? simon: it looks as if they are going down that route capping prices for households and small businesses. whether they do it through support households or whether they cap it and support energy suppliers is not clear. i think the latter is the favored route. anna: we have spent a lot of time looking at what markets are pricing in and we have been

talking about how tilt yields have been rising. they -- there has been more of an emphasis in the u.k., maybe nervousness about fiscal spending and borrowing. is that something in conversations that will be heard? simon: it is concerned. we have heard this since the treasury of the bank of an -- england. inflation is high. arming for the u.k. has become more expensive because there is a question, or longed leadership conference over the summer hasn't help markets understand what is happening. the big issue or liz truss is, is she going to be able to strike the right balance between her conviction, a small state, low tax and the obvious route that in the short term, we will need massive state intervention. how does she get the credibility of that right? anna: in terms of her popularity

with the people, a yougov poll over the weekend said 12% expect her to be a good or great leader. we do not know much about what she would be like as a leader yet, she hasn't gotten the job yet. what can she do about that? it is easy to be relatively popular when you are giving away money. simon: there is a jaundice about british prime ministers. they have gone quickly. i think about liz truss, she is a experienced minister. she has been in government for more than a decade. she shouldn't be written off as a novice. people tend to underestimate her political skills. she has good interpersonal skills. she has got quite a few good talents and assets. what kind of government is she going to build? is she going for a cabinet over the right or is she going to try and have a broader cabinet

because she's got to unite her party, and her country with an election not far down the line? anna: you do not think she would become -- >> i think to call the election now would be risky, because we are going into difficult times. a much better thing if she can is to get credible policies in place to say things are getting better. anna: she wears clothing similar to -- do those comparisons stand up? simon: a unique factor in british history. one thing that is true, she is, i think, a conviction politician like margaret thatcher. i do not think she had done a lot of borrowings such as liz truss is promising at the time when we got such high inflation. there are similarities. the british people like that

since of positive, can-do spirit. anna: you has been a lot of time thinking about the economy, but also global policy, foreign policy. she is clearly tested in that regard, she has been foreign secretary for a while. is she a continued candidate when comes to that? simon: i think the british policy will be continuous under her. she will continue the tradition in ukraine, make sure that putin takes the blame for problems domestically and not the british government. she will be tough on russia. i think she will be tough in her negotiations of the e.u., she is very dependent on support from the progress of her own party. she will be pro-american, i think. one of the things she has talked about is the toughening of the position against china, that is something we've got to look at that is a difficult balance to be struck between meeting the can -- security considerations, but keeping a sensible

relationship open with the world's guest or second-biggest economy. anna: what went wrong, thinking about the big picture, with richie sunak? we are expecting to hear that liz truss has become prime minister. simon: he carried a lot of responsibility with decisions made by the previous government. i think within the party, there had been seller's remorse about boris johnson. they got rid of him and regretted it. i think it was difficult for him to turn that around. i do not think he struck as quite a good with the -- good a chord with the party as she had. i think she got the interaction with the party better. anna: he stood by boris johnson. simon: that is right. the other thing you have to work, he was more popular

amongst conservative mps. one of the things she's got to do is assert her authority in parliament and within her own party. she has got to have on paper a big majority, i do not think it is going to feel like that. she hasn't been elected to win that majority. anna: thank you for joining us. sir fraser joining us, managing partner at flint global and formerly with the former -- foreign and wealth office. we will keep you up-to-date with plenty of news from around the world. let's get an update on that. laura: the results of the contest to defeat boris johnson as prime minister will be announced today with the winner taking over after a meeting with the queen tomorrow. foreign secretary liz truss is the favorite to win and will come into office facing a brutal economic slaughter. president biden's top climate envoy says he is so full climate

talks with china will resume after discussion following house speaker pelosi's visit to taiwan last month. speaking exclusively to bloomberg, says the u.s. and china must restart talks to "th at will reshape response from other countries around the planet." >> we have got to treat this like a war, mobilizing every facet of the economy to deal with it. laura: china has suspended climate change talks with the u.s. as part of a series of what is called countermeasures to show its the pleasure with a low season visit to taiwan. china has extended its lockdown for most of -- 21 million residents, entertainment venues, schools and restaurants remaining closed. all of the countries mainland provinces recorded at least one local covid case over the past 10 days. reflecting the broadest outbreak since february 2021 when this closure started.

those in chile have -- voters in chile have prioritized the environment, dealing a blow to a three-year campaign. with almost all ballots counted, 62% rejected the plan which argued would hurt growth and development. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am laura wright. this is bloomberg. anna: next, more on europe's energy crisis and the you made special measures to reign in soaring energy costs. we look in to the meeting set to take place friday. what can leaders do? this is bloomberg. ♪

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anna: welcome back to "bloomberg markets." european gas prices have been rising today, hours after g7 leaders agreed to implement a price cap on russian oil. -- reversed plans to resume gas flows through the nord stream pipeline. a number of special measures to reign in soaring prices will be discussed. we are joined by the bloomberg energy reporter, steven, thank you for joining. i see a line from the kremlin saying the nord stream gas -- is there. european leaders will look at this as retaliation for the caps on crisis, but the europeans putting in place on russian oil. remind us where we want to on the supply, the amount of supply coming through from russia at the moment?

it is coming through to hungry, but not the nord stream pipeline. >> there is a little coming through hungry, the ukraine pipeline, nothing flowing through nord stream. nord stream 1 is important -- nord stream is important supply to germany, it is zero and is likely to state zero through this winter. that is why you are seeing european gas prices up 25% today and there is the threat it could continue rising. there is an effort across most of europe to refill most of its inventories. germany is about 83% full. -- has warned even if you get to 95%, without the russian pipeline, that is still not enough gas to get through the winter, which means demand destruction or curbing supply in industries will be a necessary

move the governments will have to consider. anna: we heard over the weekend from the swedish and finnish regime saying they are putting in place a backstop for you quality -- utilities to try and prevent what is causing a moment. we have heard in months go by the germans talking about the situation and potentially turning into something like that. ascribe how this could go wrong in terms of liquidity around -- describe how this could go wrong in terms of the quiddity with the sector. stephen: they have to rebuild their inventories and i up a lot of their capital margin calls. they are on -- a lot of different beds in term of hedging, and you have unit perp, they are burning through hundreds of millions of dollars every day and need more money from the government to stay afloat. you can see the situation for utilities are dire, but for industry, it depends on the

natural gas prices. there -- that is why you are seeing fertilizer companies shutting down, companies are closing because they cannot afford to stay up online. it is hurting households, power bills are rising and that is going to affect the consumer spending on that in across the board. it is having a wide reaching impact. anna: we know sweden and finland are putting in place liquidity measures. we know germany has announced a large package of measures, 10 billions of euros. we are building towards a big pan-eu meeting on friday. what do we expect after that? stephen: it is unclear whether we will come to a conclusion on friday. we know they will discuss a number of different of measures. one is putting a price cap on natural gas for use for electricity. that would help keep electricity prices at a certain level and stop the giant surges and spikes

in the futures market. they are considering potentially measures to stop derivative trading for electricity, which would be a huge shock to the entire system. they are looking at different ways to tag electricity prices, looking at ways to reform how natural asset is priced in europe. they are looking at everything. will they be able to come to a conclusion? it is unclear. anna: thank you very much. the latest on what is a big jump in gas prices in europe. still ahead, companies are staying on the credit sidelines as they lower euros with higher risks on foreign energy risks, september a big month for the credit market. what does this month have in store? we will talk about that next. this is bloomberg. ♪

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anna: welcome back. euro and the rising risks from an energy crisis have come, staying shy of raising more credit. priscilla, nice to speak to you. companies are nervous they jump in yields we have seen in the gas crisis at hand. >> absolutely. companies are very nervous. coming into this week, we are expecting --bond sales. companies were expected to come

to the market, the monday, wednesday, tuesday ahead of the ecb. supply has been muted. that is because everyone is in assertion. measures of credit risk are going up. which means there is uncertainty in the air and companies are opting -- >> ubs was saying last week spreads me to be wider. is there a sense those spreads will widen further? priscila: no one was expecting this. the correction today has been this fed ascertaining uncertainty. we have had good in the broader scheme of things, month for credit markets during summer. what we are seeing today is the widening credit spread raising the recovery throughout the market. anna: thanks for the update. on the corporate debt market. we will get his perspective on the gas crisis and uk's

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anna: welcome back to this special edition of bloomberg markets. european markets are open and trading. good to see you with us today. just after 10:30 in london. joining us with analysis, geoff yu. very nice to have you with us. let's talk about what is going on with the energy crisis in europe. starting with germany, we saw from german pmi data today, below 50, in contraction territory. underlining the weakness of which we were already inflicted on some european economies. now, we at in gas. do you see anything that changes the outlook for the european

economy in the short term? geoffrey: beyond the war, this is beyond that and doesn't change, we just go by the european central assumption. i expect them to move the downside forecast issued in june, which is the lack of 1.7% contraction next year. that has been seen, pmi numbers, expectations are week. we have to get ready for more of this. anna: do you think a policy which caps gas prices or something similar, cannot put a stop for the trends we have seen, stocks weaker, euro weaker, yields

it depends on the distribution by the germany -- moving from about 3.5% of household disposable income independent energy 10% or higher. if you can cap between three and five range, that is manageable. then the bond ecb will step up in pricing. if they do 75, fiscal easing past sufficient rate support, that can help with the euro. my main concern is, the current account deficit. the usual lua should estimate, that rate applies. we can see why fiscal authority wants to ease policy. we can see monetary policy makers want to tighten policy. what does it mean to have those two moving in opposite directions? geoffrey: they are happening. let's be clear. fiscal policy right now is moving, expanding fiscal policy as much as possible for economies to stand still. this is preventing the economy from falling off a cliff.

this is different compared to what happened in 2017 in the u.s. that is what i go back to, does the euro help arrest -- it is not going to turn things around. fundamentals are different now. anna: are we concerned about european unity as opposed to the context of the euro and thinking about eurozone unity? the german foreign minister winner -- morning it is going to be a big test of european unity. geoffrey: that word, solidarity, is something you are going to hear more over the coming weeks. i am less pessimistic on that. we saw during the pandemic, a support package, yes, that did take a last-minute compromise. i think the european crisis when it comes to financial resources, i think they will come through. on the foreign policy side with respect to ukraine, that is when

the test will come through. i think that is where more political noise will happen. anna: i know polling suggested italians are decreasingly in favor of sanctions on russia, because of the impact it is having domestically. is that something we need to watch, a dynamic we need to watch across europe? geoffrey: we need to watch because specific companies have different energy exposures. in hungary, hungary is less affected by the energy crisis. akin to its gas contract with russia, i did a study on it that europe would face the -- higher household. in that context, and in inflation, other countries in eastern europe, the u.k. has its

own policy. the new prime minister i expect will stay the course of sanctions. it is going to be difficult getting a compromise. anna: do you see opportunity within the energy spaces in europe at this point? geoffrey: it depends on how you ask the question. act to the pandemic, there were opportunities in energies. there were opportunities for bailouts. you accelerate the path towards net zero and in return the government said we will provide support. this time around, suppliers from the utility companies at large admit there will be a greater support therefore that, green transmission. i think it is more about energy dependence, less of one single person in the market. anna: let me pivot to the u.k.,

there is a lot of uncertainty hanging around the u.k. political scene. whoever wins, trusts is expected by many to win leadership, what is at stake for you when you look at this from a market perspective? geoffrey: literally within five minutes of becoming prime minister, spell out what are the plans and what are the break down, what will the break downs on support be. i am seeing blunders do blame, that will have a fiscal impact. the u.k. fiscal condition is mixed right now. we are paying more in terms of interest payments. i think the u.k. can handle a large increase of expenditure. more will go to the household, lowering the household needs to be better redistributed to eu k along those lines. it is getting through this

winter, limited disruption as possible. going back to your point about opportunity in europe, there needs to be a long-term plan for energy dependence. that means to be a process in the short-term and long-term, which require a lot of investment. anna: how do the markets are watching this? some people suggest risk premium around u.k. politics. do you think, on the one hand, markets might want to see support for economy but might be nervous about borrowing levels going forward? what are you watching for? geoffrey: it is less about borrowing levels. i mentioned earlier the debt profiles are manageable. so, smaller ownership over these investors. you have that discretion in selling, a near 14 or 15 year maturity profile in terms of structures favorable. there will be more worries about

the short-term, what fiscal injection does is it could accelerate inflation. the boe will try to deal with it, but in the short term, you pay more in terms of interest expenses. it will go on a nominal basis with higher inflation. income taxes, the main component for revenue. the dynamics will cause a disruption and the boe will be selling guilds. it is about the short-term and the volatility in the market, do not worry too much about the -- u.k. fiscal profile, it is not italy. anna: not italy, that is good to hear from a market viewpoint. what about the pound? you said parity is not out of the realm of possibility, we are at 115. geoffrey: going back to parity, the u.k. right now is already applied week. $7 trillion worth of government assets, we find that we are at

the shortest or most under held in sterling last two or three months, especially driven by overseas. energy investors who drive sterling do not have any more to sell. the u.k. doesn't have to worry about its payments turning, it was never good in the first place. if you look at the u.k. assets, especially equities and other payments where we talk about real estate and investment banking, i think all of that will place strength. it is a question of stabilizing sterling, rather than driving sterling higher. a lot will depend on whether the boe and the western fiscal project tree is. anna: thanks for your thoughts this morning. geoff yu at bivy melon. let's get a first word news

update. >> ukraine's prime minister is in brussels today for the eu ukrainian council, expected to bring up the topic of financial aid as well as the countries member in -- memory ship in the european union. president zelenskyy met with his top military commanders over the weekend to discuss the situation on the front lines. ukrainian forces are trying to respond in the -- region, which russia occupied shortly after the start of their invasion. the results of the contest to succeed boris johnson as prime minister will be announced today. the winner taking over after a meeting with the queen tomorrow. foreign secretary liz trusts is the favorite to win and will come in facing a brutal economic storm. meanwhile in germany, the government expects to receive a large revenue boost by capping windfall profits generated by energy companies as a key benefiting disruptions from the energy electricity market.

chancellor schultz spoke in a press conference in the unveiling of a new $65 billion release plan to tame the cost of living crisis. >> [speaking non-english language] >> make sure no excessive problems could be used, in the case of the e.g. levy. we use the many, many, many billions we have raised in the process to relieve the burden of citizens with electricity price break. that helps insurers citizens cannot use a basic supply of electricity at cheaper prices. laura: bed bath & beyond is confirming its cfo -- skyscraper on monday. his death was a suicide. last week, the company said it would/jobs. it was named in a security broad suit filed last month. it accused several parties of

inflating the company chair. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am laura wright. this is bloomberg. anna: coming up, a bloomberg exclusive. we talk climate with john kerry, the u.s. special dental envoy for climate. this is bloomberg. ♪

anna: welcome back to "bloomberg markets."

let's talk climate, u.s. climate envoy john kerry says russia has moved to weaponize energy exports to convince nations to accelerate away from fossil fuels. john: fuel, gas, oil, has been weaponized by president putin. in war, obviously, people go to extremes because of the stakes. anna: what is the -- measure, we know the u.s. has suggested -- fossil fuels to fill the gap in europe, is that not a good suggestion? john: no, as long as it is accompanied by a huge uptick at the rate and amount of renewable

energy being deployed. you say, what is the shorthand, quick take out of this, it is be as independent as you can in your own energy grid. get your renewables out there. begin to wean yourselves from the weapon that is being used against you, which is the dependency on fossil fuel and gas. >> as a result, as germany is investing in gas facilities right now? john: yes, they are. here is the way we look at it. there will be gas and oil pumped for some period of time, no matter what. that is cooked into the rate at which people are now saying we will reduce our emissions. net zero by 2050. you can do that by using gas to some degree if it replaces coal or oil. why, because gas is 50% less polluting. for a period of time if you are using gas in place of coal, that

is a gain, a reduction in emissions. after you we 2030 or somewhere in that this entity, in order to get to net zero by 2050, you must be reducing the emissions from the gas. remember, it is only 50% less, not 100%, so it is still emissions problem. i think president biden understands and his policy embraces the notion we can use gas to transition, but it must be transitional or capturing the -- all the omissions. so, repletion -- replenishing some of what is needed to keep europe and its economy humming or keep homes, that will be necessary in the short term with the transition. nobody should be fooled into thinking, oh, wow. because of ukraine, we can forget about dealing with the climate crisis. no, no, no. i am convinced the world is

going to get to a net zero carbon economy, we will get there. it is a challenge -- the challenge is, will we get there in time to avoid the worst consequences of the crisis? right now, as we sit here, that is not happening. over the next week as we go to sharm el-sheikh, come together in new york, we must agree to accelerate the provision of funding, the sharing of technology, the targets that we are setting in our countries that have to grow. we have to treat this like a war. we literally mobilizing every facet of our economy to deal with it. anna: that was the u.s. special envoy john kerry. coming up, we will get an update on politics in kenya. kenya supreme court waited a challenge to the recent election insults, headlines coming through. we will get a rundown of what

you need to know next. this is bloomberg. ♪

anna: welcome back.

a special edition of "bloomberg markets" because it is a holiday in the united states. let's talk about kenya. kenya's supreme court levering a judgment today on a suit that could overturn the results of last month's presidential election. david joins us now to take us through the details. i see a couple news lines coming through from the supreme court, but no decision. what are we expecting to hear today? david: expected to be delivering the judgment after the leader rejected the outcome of last month's election, when he lost two william ruto. they will close -- they closed arguments on friday. they are deliberating the judgment. the main issue they have toward them, they have gone -- this

afternoon, we will have the supreme court president justice delivered the final verdict. anna: if odinga is successful in this legal action, what would happen? david: if we see a indication as part of the constitution, it means it goes back to the balance within 60 days. more -- in the previous election in 2017, a swift reaction. shilling taking a hit, quite evident within the selection.

in the event, given when rejected the results and went to court, we saw supreme action in terms of yields on kenyan bonds going up. anna: we watched the kenyan shilling and yields of kenyan debt. we have seen notification of the election results in the past and can, we have seen tense political situations happen. this has been fairly violence free so far, but what else do we have to see? david: with history, and 2007, the elections have been -- during the campaigns, during the

election and when the result was declared, people were unharmed. whoever becomes president will have to -- which will to their supporters, indicate the government after this, the confirmation after this. anna: ok. thank you for the update. david joining us with the latest on kenyan politics, we have heard three of the nine arguments by the supreme court so far. we will wait for the others, and a decision from the supreme court to get to a final verdict on whether that alexion stands from last month or whether it will be nullified. back to the markets closer to london, and the european equity

markets and beyond. european equity story is negative, dax in this market down by 2.3%. bearing the brunt of the selling we have seen in europe, ptf down . in germany, chemicals, industrials, utilities, all of those being hit. we have the euro under pressure because of the same story, down .3%. the story we are talking about gas flow cutting off supply in the nord stream pipeline. the nord stream 1, that is what we are not seeing flowed through anymore, we have seen a 24% jump in the natural gas price in the euro. really recouping the losses we saw during last week's session. yields, the two year yield in

the u.k. jumping on uncertainty and political uncertainty. more on that, coming up shortly. this is bloomberg. ♪ an xfinity rewards special offer.

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>> welcome back to bloomberg markets, a special edition of bloomberg markets. i'm anna edwards in london. european equity markets are up and training and it is a really risk off session. gas prices are jumping up by 28.3% on the european benchmark. a big turnaround from the uighur price we saw last week. today looks very different. flows through the north stream pipeline indefinitely. they are negative but not by quite so much.

in germany we see a windfall there. the euro under pressure. we did have a 0.98 handle. now we are add 0.98 -- 0.99. the uk2 year yield reflects the broader gas story. it lets get an update on that gas story. gas prices jump up 30%. bloomberg's will kennedy joins us now. good to speak to you. we have a gas from russia but this pipeline makes all the difference going into winter. will: germany is particularly reliant on russian gas. germany has been dealing with

this situation as best it can but traders have been expecting this pipeline to come back and they are quickly having to adjust the situation. jonathan: olaf scholz -- anna: olaf scholz saying over the weekend is confident there will not be black outs. we are not at the november target but even if we did hit that november target some say that will not be enough. joost: it will be a question of early -- will: it will be a question of early winter and late winter. stockpiles supply businesses and household. in the second half of winter they will largely be consumed without the ability to bring in enough gas because the ability to import energy remains constrained. a lot will depend on the weather.

even if there are no blackouts, damage is being done because a lot of german companies are reducing consumption. anna: you have oil prices going higher this morning, 61. power is being generated through oil instead of gas. will: that is part of the story. people are very focused on the meeting later today. saudi arabia has come into the market. perhaps they are worried about this disconnect between futures and physical reality. they might make a symbolic cut today just to show they mean business. anna: let's get an external perspective. joining us is joost beaumont from abn amro. is your base case assumption a

recession for the eurozone economy? how long does it last? joost: yes, it is definitely possible to answer those questions. a base case for a eurozone recession is connected to what you were talking about earlier, gas supplies and rationing of energy supplies in the euro zone. will already mentioned that will do a lot of damage to companies. they will see margins squeezed. some of them will be viable to keep operating. i can explain a little more later. but high energy bills will also hit household very hard so disposable income is eroding. we will see consumption and investment, and we expect

recession to start in q3, so this quarter. there is a harsh winter ahead of us. anna: a harsh winter ahead. do you see any investment opportunities around you? joost: in terms of investment, it is pretty difficult to take a position at the moment. we saw last week in the euro bank there were two days where they issued a lot of new deals and after that the market was shut again because of weak openings. it is really volatile but investors are saying many have been ahead of us. remain cautious on investments.

stronger names and a bit shorter duration. we remain pretty cautious. anna: how would you expect yields to respond -- i'm thinking sovereign debt here. how would you expect them to respond to announcements by european governments to cap gas prices? the bond market might like to see something to shore up growth, but they might be nervous that taxpayers will be left to foot the bill. how do you expect the bond market to respond? joost: the bond market has fallen apart between the inflation story, central-bank hikes, recession fears that will in the end lead to lower -- we have seen germany announce a package yesterday. the government is looking

for a package in the coming weeks. these do not have too much impact, and overall, if we look at the lower term rates at the moment, the market is pricing and more rate hikes for the ecb. that could lead to a bit of a lower rate in the coming months. anna: do you think the window for ecb rate hikes is short? is it shrinking, joost. -- is it shrinking, joost? joost: yes. the more we move towards the end of the year, the mortgage becomes clear how bad it will be. we expect quite a big recession

towards the end of the year. the ecb will be in a much more difficult position to continue hiking rates very aggressively. that is why we think the rate hikes cycle will end in december. anna: when you look at the united states here, the arguments for putting up rates even at a time when the consumer will be struggling, the argument is even if the inflation is driven by the supply side, there is quite a bit being driven by the demand side. is it entirely being driven by supply-side? joost: most is the inflation we see in the u.k. is on this side. households will be faced with really high energy bills. more and more households will be having difficulties paying their bills. companies as well.

it is driven by the supply-side. a big difference between the u.s. and europe is the u.s. is much stronger. in europe it is remaining relatively modest. the outlook for the consumer is pretty dire because on the one hand household purchasing power is lower, but on the other hand we expect unemployment to start rising. it hampers the growth in wages. in the end households in europe will be faced with decline. anna: september is usually a busy month or corporates in many places of the world. we heard earlier in the program from one of my colleagues who suggested that is not happening to the same degree in europe this year.

joost: the risk hereher and in the financial wor i am looking at 00 -- the stronger risk here and in the financial world i am looking at -- it is much more difficult to raise funding our capital in the debt market because they are so dependent. they need some stable base for them to really attract investor appetite. investors are cautious. they are taking more of a wait and see approach. issuers -- anna: thank you very much for your time.

joost beaumont joining us there from adn amro. -- abn amro. >> the results of a contest to find out who succeed boris johnson will be revealed shortly. they will come into office facing a brutal economic storm. president biden's top climate envoy says he is hopeful that climate talks with china will resume after discussions stalled following nancy pelosi's visit to taiwan last month. speaking exclusively to bloomberg john kerry said the u.s. and china must restart talks because " that is what shapes the response of other countries around the planet." >> it is literally mobilizing every facet of our economy. >> china suspended climate change talks in the u.s. after

-- as a series of measures to show its displeasure with pelosi 's visit to the country. trade has we added -- reacted to russia's decision to keep its main pipeline closed indefinitely. european leaders are preparing for an emergency meeting where a number of measures will be discussed. china has extended its locked down for most of chengdu's 21 million residents with all entertainment venues, schools, and public buildings remaining closed. they have recorded at least 1 covid case in the last 20 days. political news, 24 hours a day , powered by journalists in more than 120 countries.

anna: let's have a quick look at where we are on the market. one of the stories laura was talking about her high gas prices. she was mentioning a jump of 30%. pairing that jump with the european benchmark up. we do see a lot of moves higher in energy prices across the european continent. the dax is down by 2% industry and consumer discretionary and utility company is coming under fire -- companies coming under fire. we got the u.k. 2 year yield that could have been in the italian 5 year. we will get more on the u.k. political story, more on what we can expect after who will succeed the next uk prime

minister. we expect to get that decision later on today. we will get an update for you shortly. this is bloomberg.

anna: welcome back to bloomberg markets, a special edition of the program. it is a public holiday. u.k. politics -- politics of uncertainty are hanging over the u.k. right now. britain's next prime minister is set to be announced adjust an hour to -- from now. let's get to downing street. what are we expecting to hear? >> in just under an hour, 12:15 to 12:30, we will find out who will be the 56th prime minister of great britain. of course, rishi sunak is

inheriting an economic situation with inflation that is only set to climb. that risk is only increasing. the next step in this choreographed dance, boris johnson tomorrow morning will make his farewell speech then he and whoever wins the contest well ahead together to bow moral -- balmoral. then the new leader will come back. she is focused to focus on the cost of living in her speech. on wednesday morning she will meet with her new cabinet system before heading to her first prime minister's questions. the challenge she is in is staying there because a

general election must be held by january 2025 and appealing to the people will be different than holding the minds of the tory voters who will pick the next leader. anna: lizzy burden fighting with many other voices in the background to tell the story in u.k. politics today. we wait until early this afternoon to hear more. dr. matthew goodman, professor of politics at the university of kent, it is good to see you. is that the assumption you are making? >> all holes -- polls suggest that tr -- she is going to become our first conservative female prime minister.

trip she was not backed by majority of conservative mps. things are looking pretty dicey. anna: clearly plenty -- the gas prices are surging once again. how she manages could be difficult. she has to be the majority in the house of commons. does she have the moral authority that boris johnson brought with him in 2019? >> truss has a conservative majority of almost 80, but there is this rift within the conservative party that remains unresolved. there are the one nation conservatives who want a more centrist move and then there are the johnson boy list, -- loyalists the more openly

pro-brexit faction within the party. they want a tough position on the eu, they went to have lower migration, they want to get back to fiscal conservatism, thatcherite economics and someone. that will become a hallmark of the trusts -- truss premiership. johnson will be quiet but i suspect he will be back as a prominent voice on the back benches in the coming years. anna: look for clues in the formation > party --

> here is a basic problem for the conservative party. they have lost pensioners,, an at the same time they are losing what support they have left among university graduates, middle-class professionals, people on the outskirts in the commuter belt, so somehow liz tr uss needs to find a message that can unite that 2019 coalition. she hopes her big energy plan will show that she has a plan for the energy crisis. she will have to find a message that can rally these different factions within the conservative party. on the current numbers in the polls today, if there was an election tomorrow, there would be a comfortable labor majority. the stakes for our enormous --

truss are innermost. it is unlikely we will see an early election. it is likely we will see considerable turmoil. what truss will want to say going into that next election is " stay focused." it will be a reboot of the david cameron plan in 2015. " do not let labor ruin a strong, rebounding economy." she has to win her gamble and her gamble is presiding over low tax cuts by the presiding over a new plan for prioritizing economic growth that will deliver. this is a huge gamble. anna: she has been popular in the conservative power popular

in the conservative power. -- conservative party. no she has to be popular with the country. -- now she has to be popular with the country. how do you think she will go down with the wider british public? prof. goodwin: she may be standing by. she may be standing by the legacy of johnson -- she may be standing by the legacy of johnson. she needs to draw a line between her and the previous administration. some of your viewers will remember tony blair but the conservatives are in a weak position at the moment so truss will have five minutes with the country this week. she has a five-minute conversation and she will have to explain why she is different from johnson and how she will address this economic crisis.

voters will tune out until the next general election. she will need to have a detailed plan for the energy crisis. how well she addressed the -- will she address the productivity problem? anna: no doubt she is taking notes. coming up on the program we will get back to the european energy crisis as the eu weighs measures to rein in the crisis. this is bloomberg. ♪

anna: welcome back to bloomberg markets, a special edition of the program. european markets are trading. let's have a look at where we are on the energy markets story right now. gas prices have jumped at 26.5%. this is still a substantial turnaround from last week. last week gas prices were falling. there was a lot of optimism. today looks very different. that takes its toll on the stock

markets across europe. the german dax down 3%. still under pressure. 0.98 is what we euro against the -- what we saw earlier, a three year low of the euro against the dollar. that is what we have on the markets for you right now. let's get back to the energy story coming through from germany in particular. as energy prices continue to soar, germany revealed a relief plan over the weekend to help address the cost of living crisis. it take us through what germany announced over the weekend. >> it is a whole set of

measures. it is largely geared towards easing the pain for the consumer. we see subsidies for a household, for children going to increase. travel again, the euro to get it is going to be prolonged and pensioners will get something. the government is also basically keeping pressure on the eu to go ahead with the windfall levy that the eu is discussing among other measures as well. that will access -- use excess profit that renewables make, basically take that money and to subsidize a cap on the electricity bill for consumers.

this is sort of the overall package, which big government has assembled. it is aimed at keeping the public in line with the government policy vis-a-vis russia. anna: designed to keep the public on board with german policy towards russia and the sanctions there. we will wait until friday to see what the eu response is then. we heard from the derman chancellor that he was confident there -- german chancellor that he was confident it would be no blackouts in germany this winter. birgit: i do think he has been really overly optimistic yesterday. we have seen obviously on the weekend gas -- there is a lot of uncertainty now about the current, energy the gas, and any

kind of supply for germany. to promise no blackouts is probably premature. one really has to see how germany will fill the remaining gap from 85% now towards the planned 95% in the coming weeks without russian gas. anna: thanks very much for that update. birgit joining us with the latest on germany. we will get an economist's perspective later. i want to get some breaking news from kenya. we have been waiting to see if the kenyan supreme court would uphold the recent victory in the presidential election. they have done so. the kenyan supreme court upholds the election with the court

saying the winner received a majority of votes. both forms showed no discrepancies. there were a whole host of detailed findings from the supreme court, but the big headline story is that the election victory stands. the big legal case is unsuccessful. ruto is sworn in on september 13.we ru se the swearing in of 00 -- we will see the swearing in of ruto as the next president of kenya. some have previously defended the results. they will see how this goes down with the wider kenyan community. that is the latest on kenyan politics. back to the european story now.

the european equity markets and european assets are being hit by further concerns around the gas crisis. let's bring in freya. what is your assessment? freya: we were already forecasting a significant recession for the euro area since early this year with the eventa of the last few days we will have to -- this year. with the events of the last few days, we will have to see if we downgrade that. inflation, generating demand destruction, and that energy shock alongside the fact that the fed has still not dealt with inflation or is not satisfied with the balance of supply and

mourned --demand within the u.s. is something europe will have to deal with. we are looking at a prolonged period of stagflationary impulse for europe in general. anna: do you see any signs -- is it possible to make any forecasts about when inflation peaks given the control of the tax -- gas tax? freya: we had a period last week where were there was a decline in prices. we had a reminder at jackson hole that the fed feels it has more to do. that is a hit to demand. we have dreams coming true from

china as well. that is a reminder that the supply side is not really there. then we had the supply side coming back and saying " do not forget about us. we are here as well." that is really the driving force of the headline, particularly year-over-year, but the marginal increase in prices. it goes much deeper than just commodity prices, this inflationary problem we are seeing, particularly in the u.k. and in the u.s. because of the destruction of supply and the demand hangover left over from stimulus and the pandemic. anna: it is not as simple as saying " we will have commodity

disinflation." if we stay at these levels, it is not possible to say that inflation is back down to normal levels. it will still be inflated. freya: exactly, which is why we are calling it a disinflation barrage. -- disinflation mirage. if it is driven by commodities, it is very much a barrage of disinflation, because underneath that there is still a demand- supply mismatch in the united states and it to an extent within the euro area. the u.k. is quite lucky to have received a reasonable rebound in labor supply, but that underlying problem of mismatch

in supply and demand in the labor market over a longer time period is less intense in europe. we come to the u.k., and there is a much more serious problem with supply. labor has been damaged since 2016 with the onset of the uncertainties of brexit and change legislation. that will be compounded by the covid shop as well. you get the dynamic side described with the fed as well. you have these different things driving inflation. that is addressed by either of the party candidates for the election where the focus is very much on the fiscal side and passing the buck to the anna: anna: bank of england. where would you -- passing the buck to the bank of england. anna: from an economy

perspective, where should the focus be? what kind of policies would you like to see the new prime minister put in place? freya: the problem is there is this sort of institutional failure. all politicians want to get reelected and they have to tackle both high inflation and supporting those who are most vulnerable to the cost of living crisis and it is much easier to say " we have to run a general election before the end of '24 so let's push the hard part of this over to the bank of england." markets have definitely latched onto. what we see is this focus on printing out the debt to gdp ratio in the u.k. is one of the lowest in the g7, say germany.

what is important is the changes to gdp given the inflationary backdrop and given the array of supply-side problems the u.k. has faced, simply cutting taxes against that backdrop of damage supply is perhaps more inflationary than politicians would like to admit. anna: given the headache faced by european policy makers right now, where do you expect to the ecb to land? how many hikes do we get overall this cycle? freya: we are coming down on the side of 75 this week because of -- because the data points in that direction. the ecb's touch and go each time whether they will come down on the more hawkish side.

the labor data have come through. for the euro area, there is less of an underlying inflationary problem. there will be a continuation of wage stickiness because of how wage settlements are made and the lag that entails into next year, but if we look at the composition of pay packets it is in the one-off payments almost in the japanese-style. anna: -- the underlying inflation appears to be less intense. anna: thank you. coming up on the program, we will stick with this theme. that the ecb faces a tough decision. the gas price benchmark in europe is up by 24% right now. we will get further analysis

anna: welcome back to this is special edition of bloomberg markets. a public holiday in the u.s. mean there is no trading there. let's keep you up-to-date with all the news from around the world. >> ukraine's prime minister is in brussels today for that eu- ukrainian council. his expected to bring up the topic of financial aid as well as the country's membership in the european union. president volodymyr zelenskyy met with his top military command over the weekend. ukrainian forces are trying to advance in a region that russia occupied shortly after the start of their invasion. in germany, they are expected to

receive a big revenue cap on profits generated by energy companies. olaf scholz announced a relief plan to tame the cost of living crisis. >> we will make sure that no such problems can be used. we will use the many, many millions that we have raised in the process to really of citizens from the energy prices. citizens can use energy at cheaper prices. >> china is slashing the amount of foreign-exchange deposit banks for the second time this year. the people's bank of china and other financial institutions will have to hold 6% -they-are

expected to increase -- california's strained power grid is expected to come under more stress today because of a punishing heat wave, increasing the risk of blackouts. much of california is under an excessive heat warning for the next 4 days with temperatures in sacramento forecasted to reach about 45 degrees celsius or 114 degrees fahrenheit. powered by more than 2700 journalists and analysts in more than 120 countries, i'm laura wright. anna: let's get back to the ecb conversation. the european central bank faces a conversation this thursday. joining us with a look at what is ahead, we will speak with

alexander weber. gas prices does this just added to the headache at the ecb? how hard does it make the job? alexander: it highlights the dilemma. strong inflationary pressures down the line, weaker economic growth in the coming months, so the ecb has to pick a side. recent commentary suggests they are going to prioritize the fight against inflation. there was another surprise. high inflation readings last week so the pressure is on the ecb to tackle this issue and most officials have made it clear that inflation is the top concern, more than growth. anna: inflation is the top concern. going hand-in-hand is the weakness in the euro.

it is arguably the tension between the u.s. and the eurozone that have driven that weakness. alexander: she will definitely be asked about the topic. it is something officials have commented on more strongly. with the euro solo it has been a confirmation to policymakers. a strong rate hike led to maybe help push the euro a little higher but i am skeptical it would change anything in the longer run because the economic outlook for europe is so weak. the same time, it also highlights that the ecb cannot afford to fall further behind the fed. anna: alexander weber with a briefing on the ecb. in half an hour's time we will

find out who the new british prime minister will be. what can we expect? what do we expect a list trust leadership -- liz truss leadership to look like? lizzy: you have double-digit inflation on the way. for the fact and --further crises that will affect liz truss's leadership. she blames the bank of england for letting the inflation crisis get out of control. she says she wants to review its mandate. she says she strongly believes in the boe independence but all of that has created concern in markets. the ecb is running about a

crisis in sterling. the pound had its worst performance against the dollar since the brexit vote. she might win over the tory party membership, but she will also have to convert the market. anna: winning over the market, winning over the public support, perhaps a little more challenging. what do we know about boris johnson, what he plans to do next, where he will appear next? investigations into how much he misled parliament are still going on. lizzy: indeed. i think it is quite safe to say that boris johnson will have a lucrative career on the u.s. peaking circuit at -- speaking circuit. he will also make millions out of his memoirs. he was a journalist before he was a politician, so perhaps he will return to that. indeed, you will go back to the back benches as an mp.

he is facing investigation. the question is, does he quit being an mp? if you wanted to come back as tory leader, that could pave the way. i remember his words in his last speech -- "hasta la vista, baby!" maybe he will be back. anna: she will bring us the details of who becomes the next u.k. prime minister. that is said to be announced by the conservative party within the next half-hour or so. we are of course watching what is going on in the markets. this is the national gas price, jumping by 24.7%.

they were not sending any gas over the weekend through that nord stream pipeline. that was expected to open on saturday, and it didn't. analysts quickly downgraded their estimates of how much gas would flow from russia to europe this winter. the euro under pressure as well, 0.9937. stay tuned for the next hour. we will find out who the next uk prime minister is. this is bloomberg.

♪ >> welcome to "bloomberg markets ," everyone. in this the next prime minister will be. the next leader will inherit an economic storm facing britain that includes an energy crisis in europe and a race to facebook for catastrophe this winter. stocks dropping for the sixth

time in seven days. the euro actually sinking. the euro falling again. this is about the worsening energy crisis in europe. if you look at the pressure, it is more on the backside because of the proximity and the reliance on nord stream 1. the pound actually pretty steady before the u.k.'s ruling conservative party announces the winner of the contest later today. it will be in half an hour. the pageantry that comes with it including the trip of the next prime minister to meet the queen in scotland tomorrow when they officially become the head of state. gas prices surging more than 30%. european ministers prepared to discuss special measures to the costs.

here he is weighing in on a price gap. >> i think it is clear. it takes time. but explaining it to all the member states, we want to be consistent with the policy of sanctions. >> bloomberg's will kennedy joins us now with the latest. it goes from bad to worse. is this a worst case scenario? are we talking about an oil and gas embargo from russia? will: know, russia is not embargo in its own gas. >> is not sending any. -- it is not sending any. will: we have in estimating energy were between the u.s. and europe on one hand and rush on the other. we have seen that play out in different places. clearly, the idea by the g7 on friday, things are aggressive by

russia in response, saying they will keep the pipeline linking germany and russia closed. >> i know it is a bizarre feature. is this all political? could we start to see shipments rolled back into europe? will: the picture of a bit of oil leaking out i don't think is enough to close down the pipeline. those who service the turbines did not think it should be shut. you can see it is politically motivated and there is little prospect while things remain as they are of this pipeline being turned on. russia can use this to ratchet up and down. >> what does this mean for the energy complex in europe? some countries have nuclear power, but can they wrap it up? will: europe is in a position

this winter and this will make it worse. we have stockpiles that will not last through the whole winter. losing 20% of nord stream makes a big difference. in the second half of winter, europe will be invaded and it will not just depend on how cold it gets. >> we were expecting this or a lot of people were expecting this. can we buy things from other countries? will: we can buy a limited amount. usa is the one that stepped into should record amounts across the atlantic. but there are capacity constraints. there is only so much energy the u.s. kinship because there are only so many export terminals in america.

it has the terminals but not all the places. germany will not get any lng imports later this winter. it is difficult and especially difficult for germany. >> do we have a european plan on how to deal with this? >> not yet -- will: not yet. there have been plans for sometime, but energy ministers meet on friday, and there are proposals on the table to reduce demand to make the winter more manageable. and second, to alleviate the pressure on consumers and businesses inside the idea of attacking the price of power and gas. that is not easy. i think what we can take away is politicians are ready for more radical interventions in markets and maybe even suspending markets. >> what happens to a lot of these companies?

a lot of family households will not be able to pay the huge bills that will come through the winter, and it is the same for businesses. will government have to step in and take over? will: clearly, that is the way it is structured. that is unsustainable for many households. when you are seeing, the message we are getting from lose trust is the most -- l is they will step iniz truss we have already seen huge interventions. we saw germany announced a 65 billion euro package yesterday. there has been a lot and there is more coming. this will be a hugely expensive event for the government. >> will overseas our energy coverage in europe. we are joined by james.

i am sure you have a couple extra sweaters to make sure you are prepared for the winter, but this is not a laughing matter. this will be an issue for households and businesses. james: as you just laid out, it really is a concerning situation because we already knew before we got into the rapid price rises that the energy for gas and electricity, that we had a problem with distribution, with the disruption of a and cohorts who have been done for a number of years in the sort of shock we are seeing has the potential to tip large numbers of consumers into a very difficult financial situation indeed. that will be a huge concern socially and economically. the problem is a lot the solutions that are on the table are things which have been tried in the past and have the potential to really make things

worse. the price caps are a bad way to go. the armor aggressive. the reduce -- they are regressive. the reduce energy consumption and create as many problems as they solve. it feels like a very good idea, but it has to be carefully implemented to avoid a further inflationary pull. francine: how much do you worry about it for businesses and markets? are we going to see a lot of companies go under? james: potentially, that is the case. i think privatizing business has been taken too far in recent years. essentially, we had a large number of slaves of the community -- swathes of the community around the world. it is not good for the medium and long-term health of the

economy. they will suck away resources from where they more effectively can be put to use. that obviously is going to be a very political question, political answer. francine: the team at morgan stanley actually says they see more pain in store for european profit margins. this is what they wrote this morning. with corporate power starting to fade, the margin outlook is likely to get much more difficult next year. a large indicator pointing to a global financial crisis. what does that mean for corporate? james: big picture, there is potentially a healthy rebalancing. there is the concentration of 10% to 35%. we have seen a financial is asian of the world, and there has not been -- and that has not

been good for the long-term health of the economy. that is not a specific comment on europe or any company but just in general across the western world that there is far too much super profitability. that has dragged down economics to a high savings and that is a problem and this could be a backdoor route to resolving that. you have weakening economic growth and pressures with margins. it wasn't unsuspended state of affairs -- it was an unsuspended state of affairs. francine: what is the short-term? can short-term be seven or eight months? james: i think that is reasonable.

i think in terms of the monetary tightening, the fed is closer to the end than the beginning. the ecb have been dragging their feet and maybe will catch up. in terms of the economic outlook, it will be a tough q4 in europe and the u.k. i don't think it will be as bad in the u.s. they are less reliant on russian energy, but the cumulative effect will be depressing at least through two quarters of next year. beyond that, i am afraid my crystal ball starts to look a bit hazy, and depending on situations like russia and ukraine, anything can happen. francine: cassandra as well going with this. where are you going out in these kinds of markets? james: it is tough, isn't it? we got a glimpse at this in 2018.

buying financial assets is not particularly profitable. everything was overvalued at the same time. it is an unhealthy place to be. i don't want to be buying risky assets at this juncture. i am still strong on the u.s. dollar because it is supported from the dollar, but some of the markets have evolved and that includes a lot of em local markets that are definitely leading in value and i am happy to extend it through the duration of this year. francine: how much higher can the dollar go from here? the sky is the limit it feels like. james: you get back to the early 1980's at the end of the accord

and you struggle to see us getting there because the financial system is so leveraged to the u.s. dollar these days. i don't think we can get that far. i think we are nearer to the end than the beginning. but into q4 particularly, the situation in europe and the u.k. is so no win that the dollar will not be changed for a good few months yet. francine: ok. ok. we will continue exploring the idea. james will be sticking around. we have to talk about the u.k. that is coming up next. who be the chosen one to replace boris johnson at the u.k. -- as the next prime minister of the u.k.? we will bring you that live 15

minutes from now. this is after a bruising tory race. this is bloomberg. ♪

♪ francine: welcome to "bloomberg markets." britain's next prime minister is set to be announced in about 12 minutes from now. the face-off between liz truss and rishi sunak. for more, we are joined by lizzy burden who is outside number 10 downing street. you must be surrounded by thousands and thousands of reporters as we wait to hear the big news. >> that his expectation.

there are journalists from all around the world here at two levels, even more than when boris johnson resigned. we are here to see you will be the 56 prime minister -- 56th prime minister. if it is liz truss, she is going to inherit a forbidding economic situation. a long recession and the pmi's this morning show the risk of not only increased. so it is a very, very difficult situation. to get what is next, boris johnson will make his farewell speech in the morning. then both he and the winner will go to see the queen tomorrow, and then the winner will come back and make a speech at downing street. if it is liz truss, you expect her to focus on the urgency of

the cost of living crisis and then discuss how to deal with it. one of the plans being floated at the moment is a freeze on energy bills. and then she will face the prime minister's questions. the challenge will be holding onto power because facing a general election will be a very different challenge to winning over the 160,000 tory members. francine: you say we know that she has been i guess putting her team together if she were to become the next prime minister. can she hold onto the promises made? lizzy: even some of her closest supporters are warning that perhaps she will not be able to, that she will have to make a screeching u-turn in the first few weeks of being in office. of course, that would undermine her authority. some of those supporters are saying the tax cuts, the increases in defense spending, the freeze on energy bills, that

it was amateurish to say the increase in taxes. there is a big difference between campaign economics and government economics. truss, if she has shown as anything, it is her ability to pivot as a politician. francine: thank you so much. we are back with james. james, i don't know how the brits vote for a new prime minister. do you go to the pub and wait for the speech on who saves the nation from higher energy costs? james: i am sure it is a cause for celebration, but it is pretty much a british institution so i am sure they will view that as a worldly excuse actually. francine: what are you expecting? you talk about the bank of england, independence, the fact

that what they are in charge of an inflation. there are a number of things, even tax cuts. how much are we going to see of liz truss in campaign when she gets in office? james: there is truth in the middle of all of this. i share concerns about how the bank has handled the situation. there is a vengeance of the bank of england which we all understand. mention the supply shock and the cost of living and the crisis and the impact it will have on the economy and inflation expectations. use and years and years, inflation was marginally below target. it can lead to things becoming self-fulfilling regardless of the cause. i am not a big fan of targeting. it is a terrible idea and has been executed terribly.

i would like to see more holistic approaches. the bank of england, it does not look like that is what we will get. i think that still eludes to inappropriate policymaking all the way. the idea of unfunded tax cuts at the moment feels like pouring fuel on an already raging fire. francine: is the weaker pound necessarily all bad news? james: in theory, it helps with exports if we go into a global recession. i am not sure we should be reliant on that. the last 18 months, we have been short sterling, one of our more profitable trade, and i cannot see reason to change that view right here and right now. bank of england is risking conjuring up what led to a very disastrous situation in the mid to late 1970's. ultimately, we have a huge deficit. it does not look like a great

destination for foreign investment. if nobody is prepared to fund that kind of deficit, sterling will keep falling. we import a lot of it to food and that feeds back into the inflation picture and becomes a self-leveling prophecy. i would read that the bank of england has not graphed that situation and it can get worse. francine: the pound falling 15% against the dollar this year with yields surging and rate hike expectations shooting higher. are you buying anything right now, james? james: we are concerned with the outlook. at the moment, given the mood we have seen so far, we might have expected the steepness. we think the backend can continue to underperform, even if global yields reversed on this point. francine: do you buy anything in

terms of the mid-caps with corporate bonds or anything like that right now? james: nope get some of the ftse 100 companies saw the revenues going to boost the bottom line. you can try to construct a portfolio on some of those names . i am a macro guy first and foremost. it tightens margins, cost pressures, i do not want to be into many assets to a degree. francine: you are so depressing. is there anything? [laughter] james: debt looks pretty attractive. they were much quicker to respond to the inflationary environment. value emerging. and i think we are in the process of inflation peeking in a letter countries. i think there is value in certain markets.

there are currency bonds. a rally in the long end of the market. francine: you are picking a good football team so that to cheer. james: exactly. francine: there you go. thank you so much as always. still ahead, we are moments, 4 minutes away from the announcement of the next prime minister. we will have the announcement line and all the market reaction that goes with it. this is bloomberg. ♪

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francine: welcome to bloomberg markets. we are moments away from finding out the new prime minister. let's get to 10 downing street. who will it be? lizzie: it is widely expected to be list trust. -- liz truss. she seemed to have been partly responsible for boris johnson's

downfall. his downfall triggered the wave of resignations that brought down boris johnson. his economic message was much bleaker and realistic than liz truss'. she says her tax cut will boost growth. francine: we are just getting movement. let's go straight to the community center where we have reports. >> working together to deliver this contest which has shown the conservative party to be a good voice and good friends. [applause]

we held 12 regional postings. attended by 20,000 party members. watch on line by 2.5 million members of the public. this involves our two fantastic candidates, 14 hours of questioning and more than 600 questions from party members. these were in addition to the online hosting. this concluded last wednesday with a fantastic event at the wimbley arena attended by 6000 party members. i would like to pay tribute to darren mott and the dedicated team. [applause]

i would also like to thank my colleagues. most of all, i would like to thank our party members who have undertaken the solemn duty of choosing our next leader and next prime minister. they have engaged constructively, positively, and thoughtfully in the process. that is also keeping busy, getting our message out across the united kingdom. [applause]

finally, i would like to take this opportunity to take a huge thank you to our outgoing prime minister, boris johnson. [applause] visit leadership through brexit, the pandemic, -- his ship throughout brexit, -- his leadership throughout brexit, the pandemic, and now the war in ukraine. it is time to unite through our new leader and prime minister to continue.

[applause] our new prime minister it build on the outgoing legacy and continue to deliver prosperity, opportunity, and security. with no further ado, please welcome our two fantastic candidates rishi sunak and liz truss. [applause] to announce the results of the

leadership election, recommend -- welcome sir graham brady. [applause] graham: good afternoon, everybody. on the seventh of july, the prime minister announced his resignation as leader of our party. the committee organized five ballots over an eight-day period. concluding the leadership election for which we have responsibility. if out of the membership has now concluded. i worked closely with the board of the party and the electrical service -- electoral services to make sure everyone could vote in and sure our ballots were secure as well as free and fair.

i would like to thank the executive and my fellow officers and our staff for all of their help and support, especially during the parliamentary rounds of voting. i would like to think the party board and staff for their hard work and organization to allow so many members to see the candidates in action. i am grateful for the professionalism with which they dealt with the ballots in this treating, collecting, and counting the vote of online and in prison. i would like to think the party members who have taken this responsibility seriously, all the candidates who put themselves forward for election, and in particular my colleagues rishi sunak , and liz truss.

they have proven to be outstanding candidates to be the leader of our party. [applause] returning officer as party leadership elections declare the total number of eligible voters was 172,000. the term in the election was 82.6%. the total number of votes rejected was 654. the total number of votes to each candidate was as follows. rishi sunak 60,399, liz truss

81,000. liz truss has been elected though the dirt of the party. -- the leader of the party. [applause] >> it is an honor to be elected as leader of the conservative and unionist party. i would like to think the 1922

committee, the party chairman, and the conservative party for organizing one of the longest job interviews in history thank you erie much. i would also like to thank my family, my friends, i political colleagues and all of those who helped on this campaign. i am incredibly grateful for all of your support. i would like to pay tribute to my fellow candidates, particularly rishi sunak. it has been a hard-fought campaign. [applause] i also want to think our outgoing leader, my friend, boris johnson. [applause]

boris, you got brexit done, you crushed jeremy corbyn, you rolled out the vaccine, and you stood up to vladimir. you are -- up to vladimir putin. you are admired. [applause] friends and colleagues, thank you for putting your faith in me to lead our great conservative party, the greatest political party on earth. [applause] i know that our beliefs resonate

with the british people. our belief in freedom and the ability to control your own life, low taxes and personal responsibility. i know that is why people voted for us in such numbers in 2019. as your party leader, i intend to deliver what we promised the voters across our great country. [applause] during this leadership campaign, i campaigned as a conservative and i will government as a conservative. [applause] and my friends, we need to show that we will deliver it for the

next two years. i will deliver a bold plan to cut taxes and grow our economy. i will deliver on the energy crisis, dealing with people's energy bills and also dealing with long-term issues we have on energy supply. [applause] i will deliver on the national health service. [applause] but we all will deliver for our country, and i will make sure that we use all of the fantastic talents of the conservative party, our brilliant members of parliament.

our councils and activists in members across our country because my friends, i know that we will deliver, we will deliver, and we will deliver. [applause] and we will deliver a great victory for the conservative party in 2024. thank you. thank you. [applause]

francine: liz truss will be the next prime minister of the u.k.. she is promising to tackle the energy soaring bills. they were maybe expecting more details. what was striking was the fact that she mentioned boris johnson and it raises the question of whether he will be back and if his shadow will stay up there and loom large. it comes at a moment of immense pressure for the conservative party we are going to discuss this in just a second. we will be joined by lizzy burden as well. what did you take away from the speech?

>> what was interesting, there were a couple of awkward pauses in the applause after she mentioned boris johnson called her a friend. it was a repeat of her overview of what she intends to do when she is in the chair formally as prime minister. a lot of it is focused on cutting taxes. talking about energy and inflation high in the u.k. a lot of small businesses in trouble and how are we going to manage energy bills going into the winter and a blanket tax cut seems to be their number one priority. and also a windfall on energy. and we expect her to go into

more detail tomorrow and will give a longer speech and shed light on what her plans are. francine: her victory seems to be smaller than we expected. does that hurt her policy? rosalind: what we saw was 80,000 to 60,000, somewhat reflecting what we have seen in the parliamentary ranks where we saw not a majority voting for her initially and that leadership. she is coming in with complexity and doesn't have the full backing of the parliamentary party and the tories. she will be governing in effect without a public mandate for up to two years until the next session comes. she is coming in from perhaps not broad support from those areas.

francine: nina, we just heard the speech and we expect the cabinet announcement in the next couple of days. what will be her first task on energy prices? nina: we have heard the rhetoric of the goals, a cost, energy prices will be the first substantial task. we have not had a lot of detail on what she is going to do and how she is going to fund it. there are stories that she will go a lot further than what we heard it during the campaign. a further attacks on energy companies is one option but she has not been super supportive. francine: yet she said she would continue cutting taxes.

she said she will deliver what you promised. nina: another option would be bill freezes and temporary gap g over the next years or decade and another option is there will be increased borrowing to fund any of these. this is the detail we will be looking for in the next week to two weeks because her campaign has been light on detail. francine: i'm sure it is the circus of the media but what will be her biggest challenge? she won narrowly and not what we were expecting within her party. a lot of people in the poll said

she wouldn't do a good job. rosalind the general feeling -- rosalind: the general feeling is that she won't. they would say this is not the time to call an election because we could be risking our own seats. the polling is not particularly terrific. a leader coming in for this fashion because for an election quickly because they have the public mandate. if she unleashes stimulus for the economy, even then the tories will be going to election on the back and you will probably see her opt to continue to govern in effect for the next couple of years without going for the mandate at all. francine: thank you very much, rosalind mathieson. let's cross over to lizzy burden. i don't know whether there will

be protesters what was your big surprise? lizzy: the music is a blaring. the awkward pause in the speech was when liz truss praised boris johnson. she was very keen to praise her friend, boris johnson. i think it is interesting to think about the economic cycles. we are already in double-digit and then the recession risk it will be negative or zero growth for the next few years.

perhaps she will try to do it past the peak. she can try to influence that by what she does on energy. the other point she made as well as low taxes is she indicated she would see something in the short term and would freeze energy bills but also in the long-term easy it supply issues they face. francine: thank you so much. let's bring in the research professor at the center for british politics. when you look at the speech and how much liz truss has one bite, what can she do in the next week to reassure the public in great britain that she is on top of it? professor: to remove -- release an emergency package to say that she understands the energy costs and so many choices they

face. she will be judged by that. the new prime minister is generally in the first judged and it is important that she hits the note on the energy crisis. francine: what is the right note. she seems to be going down a more conservative way of governing, especially compared to her main rival in the race what can she do to help households prof. bogdanor: what could be called handouts in the early campaign and to help people who are in trouble with the energy prices and compiling that with tax cuts.

people talk about a package of 100 billion pounds. that is far greater than we needed to help us out here combine that with tax cuts. that is the strategy and it is rather risky. but the strategy can only work if we become free trade country, lowering income tax levels, lowering corporation taxes. francine: i guess the concern is that they want be a lot of people able to pay for gas our energy prices. it is cash is a choice of bailing companies out now or 10 months from now? nina: there is the challenge of how do we help people are

literally wondering if they will be able to keep their lights on and what to do on the energy crisis. one area of risk is that if you shield house costs too much you don't give they -- them the incentive. if they cap the bills it won't keep them more mindful of how to use their energy. the second part is low growth, low productivity and recession and what do we do on that front? those can be opposing goals because one would seem to indicate some tax cutting, stimulus and then on the other hand could drag inflation higher and the cost of living is feeding into that. francine: if you look at what we heard in the last 25 minutes or

so, liz truss has won the tory leadership contest and will be the next prime minister of the u.k. peer chi has pledged to cut taxes and tackle the energy crisis. the pound steady after the victory that was widely expected and we will have all of the market reaction to the new prime minister and talk about pageantry. we know she is going to go to see the queen tomorrow. then she becomes prime minister of the u.k. tomorrow. this is bloomberg. ♪

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francine: welcome to "bloomberg markets." liz truss announced as the new u.k. leader after weeks of party voting. an economic storm including an energy crisis in europe and staving of a catastrophe this winter. the energy crisis, stocks dropping the sixth time in seven days. this is what we heard in the last 30 minutes or so we had a short speech by liz truss who planned to work on the energy crisis. we don't know who will be in charge of the treasury here we do know that she says she will continue to cut taxes. european tax -- markets slumping. european stocks down, the euro also following as the worsening

crisis adding risk to a global economy facing higher inflation with monetary tightening. lizzy burden joins us from number 10. she first passed to go to scotland to meet with the queen. lizzy: she has to kiss the hand of the queen and boris johnson will also go up. they have to go to her and scotland and after that we will hear from liz truss again. then she will meet with her new cabinet. the business secretary would have responsibly for energy.

and then questions wednesday afternoon. in the acceptance speech she mentioned her three main priorities, tax cuts, dealing with energy, and the nhs and kept repeating the word delivery which has been a theme of her campaign. she wants to record her departments. francine: i think was striking that we didn't have details. i don't know how quickly we will know about those around her. well boris johnson come back and influence policy? lizzy: i think boris johnson will find it highly lucrative with republicans and will probably break in a few millions for his memoir.

remember that he was a journalist. you are right that he would like to return to politics. i thought there were hints of that in his last speech in the house of commons. perhaps it was a hint that he will be back. francine: just reassure everyone, i know the cat is still at downing. lizzy: larry the cat is a permanent resident of downing street. francine: i think i saw him behind you a moment ago. joining us now, it is exciting to have a fresh face.

you wonder who they will put in price and how she is going to pull this off. >> that will be the most challenging a prime minister has had. inflation problems, geopolitical issues. the level of difficulty is high. francine: the most difficult thing she needs to deal with is the energy crisis. you speak to market participants you also need construction. bila you need to have some kind ofl: gap but you should not add to the economy. you need to take away demand from somewhere else.

in some ways she has made her life more difficult to buy ruling out different policy tools she could use. francine: she didn't win by the huge gap we thought she would does that change the way she speaks to u.k. citizens in her policies and will she ever call for election? bilal: she didn't get the majority of tory members. i think in the end, the only way she can capture a larger section is how she delivers on her promises. the other challenge she will have is just like any other midterm replacement of a leader, they struggle to replace a former leader. that has an additional challenge. i think she will struggle to regain popularity. francine: how does she get

points? does she challenge the independent? bilal: if she did that, it is very dangerous course because that could potentially lead to broader financial market turmoil and have an impact on the economy. it will be interesting to whether she goes to personnel or a mandate change. francine: what do you think it will be? bilal: i think she will do nothing. now that she is in office, she will stand back from trying to change too much at the bank of england. francine: is pound weakness help with exports? bilal: it helps with exports but the issue today is energy and inflation you want a stronger concern -- currency, especially for imports. in general, a weak currency is

good for exports but it depends on the nature of the cycle we are in. francine: how do you think the u.k. will change in the next two to three years. it feels like a lifetime given the winter we will have. is there anything you could buy in the markets that put you on better footing? bilal: at the moment the u.k. is better to underperform. the u.k. has the potential to bounce back. issue is timing. the larger issue that is more troubling is that by her ruling out tax hikes in talking more about free markets and so on, she may suffer from the inequality issue in the u.k.. if you go back to the 1970's, there was social unrest.

that could be a very turbulent time for the u.k.. francine: she was talking to the tory members, could she become the prime minister to them. bilal: she has done massive u-turn so i think she could. that tow shoot she has the ability to change when the circumstances change. the question is whether she will have enough time to do all of that. it is going to be very difficult for her to do that. francine: any part of the market that looks attractive question work bilal: -- attractive? bilal: right now nothing. francine: dollar strength, ftse

100, mi crushing the silver lining? bilal: we are not in an environment to doing value trades. i will hold off for three or four months and be more defensive. the eurozone has been hit with every single shock you can imagine. you want to stay away from the region until things stabilize and look at other parts of the world. francine: such as? bilal: i think the u.s. and places like japan. francine: do you play on currencies? bilal: the currencies are volatile. the dollar will still continue to do well in this environment because the u.s. doesn't have the same energy problems. that is positive for the dollar.

francine: at some point it will be a prompt for the u.s.. bilal: in an environment where there is a shortage of commodities, the strong dollar helps the u.s. they have enough domestic demand to not have to rely on exports. it is not such a big issue right now. it curbs the inflationary pressures which helps the u.s. francine: given what we are seeing with gas and oil prices, i'm assuming you think it is unavoidable for recession? bilal: mobile recession is probably on the cards as well or china could already be in a recession. for china, 2% growth rate is in fact a recession. i think we are in that recession territory which combined with higher inflation means stagflationary witches back to the 1970's. francine: it is a nightmare.

bilal: absolutely. francine: we saw japan unable to do anything. bilal: for the last 30 or 40 years, every shock to the world you could always have the central bank able to cut interest rates, whether it was a recession, global financial crisis, they can cut rates. we have lost the big support for the market and the economy and that makes things more challenging. you need cooperation between countries and that is not forthcoming. francine: let's get some of the business flash headlines. rising interest rates continue to weigh on demand for u.s. housing. a source has job losses originating $7.2 billion in

mortgages in the first six months of the year, down 15% compared with a year ago. amounts of foreign exchange deposits banks need, the people's bank of china say financial institutions will need to hold 6% of foreign currency reserves, down from 8%. the move expected to increase supply of foreign currency making it more appealing. bed, bath, and beyond confirming its chief financial officer fell to his death from a skyscraper. the death has been ruled as suicide. he was also named in a securities fraud suit in federal court which accused several people of artificially inflating figures. we will have more on the markets

and look at the pound as liz truss is uk prime minister.

>> liz truss has won the bitter race to succeed boris johnson as u.k. prime minister she emerged victorious today after a two-month conservative party

leadership contest that started with 11 candidates and concluded with a runoff between rishi sunak. a speech was made after the announcement. >> we will deliver over the next two years. i will deliver a bold plan to cut taxes and grow our economy. i will deliver on the energy crisis, dealing with people's energy bills but also dealing with the long-term issues we have on energy supply. >> she will visit queen elizabeth the second on tuesday and then be formally appointed. she will become britain's third female prime minister. members of embassy staff and a civilian were killed in ukraine.

the latest in a series of attacks since the taliban seized power. the power grid set to come under more stress today because of a heat wave increasing the chance of blackouts. hot temperatures and a rash of a wild fires posing a threat to california's power grid. much of california under excessive warnings. temperature in sacramento forecast at 113 degrees fahrenheit. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. francine: welcome back to "bloomberg markets." opec plus agreeing on a cut for

october. the surprise move reverses september hike and gave a blow to the biden administration. we are joined by julian lee, one of our experts. if you are opec, what are you thinking? julian: you are thinking that oil prices have been sliding. they were down below $90 a barrel at one point. that is territory that saudi arabia doesn't want to see prices at and russia doesn't either. this is an attempt to talk the market back up. an output cut of 100,000 barrels a day on paper targets, already missing by more than 3 million barrels a day is meaningless in terms of actual physical supply. this is about messaging, about

telling the oil markets that opec-plus is prepared to act quickly if the market looks like it is weakening. francine: we have had a very warm summer. what happens december 1? julian: this will be the really big question. on the fifth of december, a european union ban on imports of russian crude comes into effect. that could take between 1.2 to 1.4 million barrels. and russia is a key member of the opec-plus group. that makes for a very difficult dynamic, because i don't think russia is going to what the rest of the group to increase production if they are able to to take the market share.

that leaves opec-plus in a difficult position in terms of actually balancing the market. francine: how does europe get its energy? they are trying to put energy to one side in the summer months. now with nord stream not coming back online, could be horrible. julian: it could be. i don't think europe has been putting energy to the side. francine: preparing. julian: europe has been doing a lot to build up its reserves of natural gas and those that have the storage capacity. the u.k. doesn't. they have been working hard to reduce consumption of gas and electricity. those two things are absolutely crucial for europe over the next

couple of months before the cold weather starts to kick in. in the u.k., we have no gas storage capacity so we can't build up reserves. we seem to have done very little to try and encourage people to use less during the summer months maybe that will come with a new prime minister. francine: i've heard from conversations from insiders that there are basic panic calls with government trying to figure out how to support part of the population that need it most while at the same time reducing demand. is there an equation we should look at? julian: i am not sure there is an equation but i think there is help focused on those who need it most. it has to take priority over a nationwide cut in prices. the problem with a nationwide cut in prices, as much as i

would like to see one personally for my own finances, but the problem with that is it does nothing to encourage people to use less. so it really ought to be very targeted. francine: the problem is we are at demand destruction. by turning the switch on or by going into a recession. julian: this is what government should be focusing on. how do you reduce demand in an orderly and measured way that doesn't require unplanned blackout. francine: is that possible? julian: there are steps that are possible and that have already been taken in parts of europe, not read using -- cooling and heating buildings as much as

they normally do. those kinds of steps are important. francine: thank you, julian atlee. we will have more on the u.k. and energy prices. the euro following as the region's worsening energy crisis is starting to spook investors. we are also seeing value because there is holiday in the u.s. this is bloomberg. ♪

francine: welcome back to "bloomberg markets." look at the beautiful shot over westminster looking at parliament, liz truss winning to be the new prime minister of the u.k. the pound hovering near the lowest level since 1985. we have the very latest. are we in a crisis?

liz truss not winning by the majority we thought she would she talked about boris johnson. i don't know if the policies will change. >> the big question is what happens to the economy question mark the next questions -- economy? the next question who will be the chancellor in charge of managing the economy. very extreme before investors whether you are a sterling trader or equities investor. that will set the tone for markets and also what is to become of the bank of inflation mandates. she has returned to that -- referred to that as something she could look at when she gets in place. but still questions over these two key

interest. francine: is there anything that would be sterling supportive? kristine: if the news becomes bad enough, it becomes good news and that could play out in that could be if we see the economy showing signs of distress that her government will have to deploy some support or assistance for consumers in a u.k. household into the wintertime. we are seeing that with germany and that could be a similar silver lining for the u.k. and sterling. francine: did you see any quirks in the markets? i know people were saying you never know but she was widely expected. is there anything in lesser-known parts of the markets? kristine: it was all as expected.

maybe cable turned higher a few but we know for a fact it is going to be truss. it is going to be noisy trading heading into the next few weeks as we wait and see for the specifics of that cabinet and how that will shape up. the plan moving into the wintertime and what she and her cabinet will do about the cost of living. francine: we saw liz truss give quite a few interviews over the weekend but no details on how she is going to deal with the energy crisis and also with the speech she gave to the tory members that she was cutting taxes. funding will be a concern. kristine: at a time when borrowing costs for the u.k. are surging. that was also due to

expectations of what the bank of england be doing. it is going to be interesting what sort of -- if she have to backtrack from her earlier campaign promises because all of what she said so far however little in specifics, but will mean dire things for the economy. francine: it is going to be a big week we have ecb on thursday, dollar continuing to go higher. is there anything we should be watching for in the energy space? we haven't been able to save energy. kristine: this is something i have heard about. it couldn't have come at a worse time, especially with what we are seeing in europe.

the second and third round effect of this crisis feeding into the broader inflation outlook. something to keep in mind. inflation indicators are definitely worth watching. francine: also joining us is chris watling. when you look at how liz truss has positioned herself in going to see the queen it tomorrow, how will liz truss the campaign or different from liz truss the prime minister? >> particular worried about the party movement we have seen. at a time when she is cutting

taxes. how it is funded is very important. the energy crisis is a huge issue. the challenges in the economy at a time when we are likely going into a recession. i think that is what she faces. francine: she also won the tory leadership but in a closer race. does that change her policies? chris: it might mean some compromise. but when you the ground running as leader, it was 51-49.

francine: what does this mean for sterling? is there any good that can come from a weaker pound for experts or anything else? chris: it will help a bit. the level helps contain the economy and inflation. it is not a good thing.

the market move is a lot of concern. francine: you are right. if you look at pound, what would the markets look like if they were worried about what is coming, more worried? chris: i think they are worried. it is down 15%. if i stand back and think about

what a recession would be, it could the two recession. i am concerned for the next 12 months. also the way she goes about incrementing fiscal policy. francine: we had a note and it said him expecting european currencies to remain lower at longer. he writes the following, friday's announcement that the nord stream gas line would be stop for the foreseeable future due to leakage has added further downward impetus to the rest of

the european currencies. what happens to euro from here? chris: i think the euro, the trend is lower. it is very difficult to see it through the energy crisis. there is enough a lot to contend with. it is very hard. he had the macro backdrop in the energy crisis. francine: is there anything out

there that actually points to good news. it is difficult to see what we will end up with in the long run but is anything we should look to for a silver lining? chris: i think there is always a silver lining. reorganizing the energy pendants and challenges. i like some of the policies in the u.k. contribute into cleaning up energy. inflation will come down fast but a recession is very likely in 2023.

it is the way markets work. francine: thank you so much. angel: this trust has won the bitter race for prime minister. the foreign secretary emerged victorious after a two-month conservative party readership contest that started with 11 candidates and concluded with a runoff against the former chancellor rishi sunak. ,she will become the third female prime minister. she is expected to bring up the topic of financial aid and membership in the european union . vladimir loosely -- volodymyr

zelenskyy matt to discuss the front lines. ukrainian forces trying to advance which russia is occupying. in canada, police searching for two suspects believed to have stabbed to death people in an indigenous community. it was one of the deadliest mass killings in the country's history. they have not determined a motive. the head of sovereign indigenous nations suggested the stabbings could be drug related. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. francine: we will continue to follow the change in leadership in the u.k.. sterling unchanged we will talk

more about liz truss as the uk prime minister. this is bloomberg. ♪ ♪♪ energy demands are rising. and the effects are being felt everywhere. that's why at chevron, we're increasing production in the permian basin by 15%. and we're projected to reach 1 million barrels

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francine: welcome back to "bloomberg markets." liz truss set to leave -- be the new uk prime minister and it meant turmoil for the u.k. let's discuss the challenges. thank you so much for joining us. as a professor of politics, what do you think the next 12 months will bring? is there any lesson in history that liz truss can try to do? andrew: obviously it, inevitably when a conservative woman becomes prime minister, we start hearing the --

i suppose there are some comparison since 1979, a very difficult economic addition. a problem with inflation, unemployment, the trade unions. also, other people didn't really think it was great that she would perform in the role. you can see there are similarities but lots of differences as well. one important difference is that margaret thatcher had a complicated relationship with the community and wasn't architect of the single market. francine: when you look at the next 12 to 18 months, the

concern about the strikes, cost-of-living, energy, does liz truss need to pivot to become prime minister for all u.k. citizens? she be able to do that compared to the liz truss we saw in the five minute speech after being announced prime minister? andrew: as she said in the speech, it doesn't point to the direction of a conciliatory government for the whole country. however, up to this point, she had to appeal to that constituency, first conservative members of parliament and then conservative party members. a relatively small group unrepresentative of the population at large. so far everything has been winning the support of that group but does she actually have the mandate to do that and the strength to do that and if so,

what is she going to do? what policy will she pursue? francine: in her acceptance speech, she said boris johnson was admired. no mention of scotland. how does she she deal with scotland and their wanting to be independent, potentially? andrew: a question for they prime minister when asked how she did, she said in reality it will not be possible and there will be issues about whether scotland is allowed to have a second independence referendum. another big issue is northern ireland on which she has taken competitive approaches with the

european union. francine: the big concern is what happens to the markets. thank you very much. if we talk about the real concerns for the u.k., let's talk about the concerns with the market with kristine aquino. if you look at sterling, it is hard to say it is not in crisis. kristine: we are seeing levels coming up to the 30th anniversary of black wednesday in mid-september. people have made the parallels, just as they have been making comparisons between liz truss and thatcher. is it anything like black wednesday? arguably, it could be a little worse because we are not just facing a contained currency crisis but a very widespread

sort of decline in markets and a breakdown in sentiment field by the fact that we are in the midst of this crisis and there isn't an easy way out. francine: i feel like the market is detached to the u.s. markets predicting a 22% inflation in the u.k.? is it slowly being priced in? kristine: it is still the market trying to figure out, inflation above 20% is one thing. the other question will be how is the bank of england going to react to this and that is driving the direction for the pound. we are definitely seeing the mismatch in yields in currency which are going in the opposite direction. the currency is looking forward to the implications of the tightening that will have to

happen to combat such levels of inflation. yields are waiting for a signal from the bank of england. the last time we heard from them was before we heard from jay powell and calling for multiple rate hikes. it will be interesting to see if they follow the same direction. francine: kailey: it is playing -- francine: it is all playing out in the currency markets. is this the exciting part of the market? kristine: like i say, for the euro, if there is one asset that encompasses the challenges the u.k. has, it has to be the pound , because of the spectacular decline we have seen. the beginning of this was kicked off with the leadership

challenge of boris johnson and around that time, the pound against the dollar was hovering at 120 and now we are at and 15, the lowest level since 1985. francine: known is going on holiday again. thank you much. coming up, peter chat well -- peter chatwell. liz truss is the new uk prime minister. this is bloomberg. ♪ >> week one of the u.s. open in the books. cocoa golf in the quarters. she is fighting back, taking the

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>> our kids. i am dani burger in london. -- welcome to bloomberg markets. i am dani burger in london pure liz truss clutches tory leadership to become the u.k.'s next prime minister. europe's energy catastrophe. leaders raced to find solutions to the energy crotch -- crunch. and energy fallout. european stocks slump, euro retreats to a two decade low, and gas prices surge with no clear solution in sight for the

crisis. let's start with the story in the u.k. with liz truss set to become the next prime minister after winning the conservative party leadership race. let's get to 10 downing street. we heard from liz truss a short five minute speech, but how does this set up the next prime ministers ship for truss? >> she was praising of her friend, as she called him, boris johnson, full of admiration. so perhaps this message was targeted at the tory party membership. she also mentioned her three priorities, no taxes, energy, and the nhs, so appealing to the base. it was scanned on detail. that is what people -- scant on detail. that is what people in britain will be craving.

u.k. inflation is only set to rise. a recession is predicted with two years of negative or zero growth. for the majority of households, facing fuel poverty because of the energy crisis. the like of which we have not seen since the 1970's, but we are expected to learn more in the coming days. liz truss has said the package will be the scale of the -- dani: she won 57.3% of the conservative party member vote. it is hard to argue she is coming in with any sort of mandate. what does this mean in terms of her policies until we get another election? lizzy: i think there is no choice but to tackle the cost-of-living crisis had on. what it looks like is a freeze

on energy bills, but there are ups and downs to that. she needs to control inflation. energy is driving it. it is going to be extremely expensive. the question is where the funding comes from. market commentators have warned about a crisis. she has also indicated she wants a longer term plan for energy as well. we are waiting for details on what it would be. it looks like her business secretary will be jacob rees-mogg. they will meet wednesday morning and hopefully after that we will get more on how they will handle the energy crisis. dani: you and i talked about the new term emerging. we know what the likely makeup a her government will be. what we know about the type of

policies that she is going to approach the next year with? peter: -- lizzy: as we heard in the acceptance speech, this emphasis on low taxes. she says she attempts to govern as she campaigned, as a conservative. many are wondering how this adds up when she was to cut taxes but also help with energy bills but also increase spending on defense. many of her closest supporters are saying she will have to use -- in the early days of her premiership, which would underline -- undermine her authority. but trust on nymex -- trustonomics is defined by low taxes. she has blamed -- yesterday she said she was strongly in favor of independence, so markets will

be watching closely so the institution's credibility on inflation is not undermined. dani: thank you. a long day for you there. we appreciate it. let's also get to the market reaction. joining us now is peter chatwell . what a day for you to join us, peter. it is all about europe, but let's start with what lizzy was saying. there is fear of whether truss 's policies will exacerbate or lessen. how much is this pricing? peter: what we have done is the market has come into price this as being an increasingly likely outcome. we are not pricing this actually becoming the most likely

outcome. the most probable outcome. a sterling crisis as a result of this next move from the moxie of the u.k.. i see a clear path of probability. now that we have had a government -- the leader of the conservatives essentially buying into the role through fiscal policy, which the economy cannot afford, then we are on the path to further inflation damage. really the package of energy capping would take away inflation in the near term. it would push it into the future. so over that three year horizon, which is with the bank of england looks at. i see it is untenable. i cannot see inflation going down anywhere near 2%.

therefore, the weak currency and much higher interest rates is what i can see over that horizon. i can therefore see the position for the consumer being worse than it is now. i look ahead to the inexplicable cycle and the possibility that we have deteriorating finances and have a labor government coming in. i'm thinking of two potential crises this remind me of. i am reminded of the erm crisis in 1992. i am thinking about the possibility of an imf bailout like a 1976. dani: you think that is possible? is this worst-case? peter: that sequence where we have the conservative government deteriorating physical conditions and then being replaced by a labor government,

that is when i think we could have a significant deterioration of the fiscal position such that if things have not material change -- materially change in the economy and i do not see the trade deficit actually improving over the horizon, then those are scenarios that i think the market will increasingly price in. the tail risk at the moment becoming more probable. dani: it is certainly a grim future you are painting. if the markets were to price that in, where do sterling go? is it below parity? peter: i do not think one needs to look much further than parity for now because it is not heavily priced into the options market. one only needs to look at parity to get a good payoff. one should think about a five handle.

should be thinking about terminal rates for the bank of england hiking cycle. my estimates are that the neutral rates for the u.k. have been rising over the last 18 months. for the bank of england to really tackle inflation, they need to get rates comfortably above that. dani: this is very big that the market will need to do. you're describing higher yields but a consistently weaker currency that europe is facing as well. is there any level for the u.k. at which yields become high enough that they can attract foreign buyers again? peter: that can only happen once the situation in the u.s. has really piqued and we have seen the market pricing in all of this dollar upside. looking at the u.s., what i see on the interest rate curve is we are pricing in these cuts from

march 2023 down to december 2025. i do not see those as being deliverable. if we are right, the inflation turns out to be a lot stickier. the fed has more to do over a medium-term horizon and has to pause or hike after q1 of next year. then there is more dollar upside. really one can only expect that the euro, sterling, and others against the dollar could stabilize probably q2 of next year onward. we still have a lot of downside. dani: and -- until that happens, continue to have a strong dollar. globally, central banks are faced with it. before we get to a point where we talk about foreign-exchange cooperation. peter: it has been difficult in the past. given the new and geopolitical

situation we are in now, globalization continues to roll back. i do not think we have the capacity really to make those sorts of records. dani: peter, that is all we have time for. thanks for joining us. some bold calls. peter chatwell thereof mizuho. keeping up-to-date with the first news from around the world, here is angela feliciano. angela: liz truss has won the bitter race to secede -- succeed boris johnson as prime minister. she emerged victorious after a two month leadership process that started with 11 candidates and concluded with a runoff against former chancellor rishi sunak. truss made a short speech after the results were announced. >> my friends, we need to show that we will deliver over the next two years.

i will deliver a bold plan to cut taxes and grow our economy. i will deliver on the energy crisis, dealing with people's energy bills but also dealing with the long-term issues we have on energy supply. angela: truss will not take power until she visits queen elizabeth ii to be formally appointed. she'll become britain's third female prime minister. opec-plus has agreed on a supply cut for october. it deals a blow to the biden administration. the cut is aimed at stabilizing global markets after a faltering economic backdrop triggered the longest price drop in two years. the cut will take the price back to august levels. california's strained power grid is set to come under more stress today because of a punishing heat wave increasing the chance of blackouts.

blisteringly hot temperatures and a rash of wildfires are posing a threat to california's power grid. much of california's under and excessive heat warning for the next four days. temperatures in sacramento forecast at about 45 degrees celsius or 114 fahrenheit. 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. i am angela feliciano. this is bloomberg. ♪

>> surprise. nobody should be surprised by the decision of the russian government. we need to be prepared for a

total end of gas supply from russia. dani: some commentary from bruno le maire over the weekend. russia decided to keep its main gas pipeline shut indefinitely. the kremlin says problems with the nord stream pipeline are due to sanctions by european nations. rachel morrison leads the team coverage and joins us now. we have this on friday. you can see why the market reaction today, quite a shock, quite a surprise. is it a surprise that this has happened, that they have kept nord stream shut indefinitely? rachel: we were expecting the market to react sharply. this has been kind of tactic of putin, to keep europe guessing what is going to happen on the nord stream pipeline. in some ways, we were always prepared for it. otherwise, it was a surprise. what policymakers have been saying is we should plan not to

have any flow from russia for the rest of the winter and plan a cording to that. dani: from what we have heard from governments so far, what are the stand out options they are considering? rachel: we have heard from germany and the netherlands over the weekend and today on how they are going to help consumers deal with rising prices. when the price spikes, that feeds into consumer prices eventually as well. at the moment, policymakers are concerned with how to soft and the blow for consumers. they are also looking at how to fix the problem in the wholesale market, how to perhaps have a cap on russian gas prices. there are lots of ideas presented at the moment. those will be discussed for the rest of the countries trying to hammer out what they are going to do to try to tackle the wholesale price rises. dani: they are also talking with the possibility of margin calls

and how collateral requirements are going to move sharply for energy supplies. the nordic had to plan around that. what does that look like? rachel: seeing classes moving from being about pricing, which is impactful, to also being about companies. it is a tale of two stories, some companies doing extremely well after the crisis and possibly being subject to a windfall tax and some companies who can hardly trade anymore. they are coming to governments saying, we do not have enough liquidity. you need to help us and back our trades. you need to give us access to government credit facilities, which we have seen. we will see if that becomes wider throughout europe. dani: we are seeing gas prices spike, but in prior weeks there had been a fall, perhaps hopefulness around stockpiles that reached 80% levels, especially for places like

germany. to what degree does that shield europe, or is this a short-term band-aid? rachel: it is both. that was giving markets optimism, but the latest are looking less likely to be met because weather starts to get cold and gas we use for heating rather than storing and then we take gas out of storage. becomes hired -- harder to keep those levels higher. depending on how cold it is and how quickly we burn through the gas we have, we could be left in the back half of the winter without as much to rely on in storage and problems to potentially come. dani: thank you. we are looking at spiking up about 18% at the moment. still ahead, climate change is still a priority and the energy crisis could be a catalyst for a transition to cleaner energy. we will hear from john kerry. this is bloomberg. ♪

dani: welcome back to u.s. markets -- bloomberg markets. u.s. special envoy john kerry says now is the time to combat climate change. he spoke at an exclusive interview in hanoi. mr. kerry: fuel, gas, oil has been weaponized by president putin. in war, obviously people go to extremes. >> what is the best stopgap measure? we know the u.s. has suggested exporting fossil fuels to fill the gap in europe. is that not a contradiction to what you are pursuing, which is clean energy?

mr. kerry: it is not as long as it is temporary, as long as it is accompanied by a huge uptick at the rate and amount of renewable energy being deployed. what is the shorthand out of this? it is be as independent as you can in your own energy grade. get your renewables out there. begin to when your selves from the weapon that is being used against you which is dependency on fossil fuel and gas. >> germany is investing and gas facilities now. mr. kerry: they are. here is way we look at it. there will be gas and oil pumped for some period of time no matter what. that is cooked in to the rate at which people are now saying we will reduce our emissions. net zero for 2050. you can do that.

gas cometh it replaces coal or oil -- gas is 50% less polluting , so for a period of time if you are using gas in place of coal that is a reduction in emissions . after you reach 2030 or that vicinity, to get to net zero by 2050 you must be reducing the emissions from the gas and it is only 50% less, not 100% less. it is still emissions problems. i think president biden understands and is policy and breaches the notion we can use gas to transition but it must be capturing emissions. and so replenishing some of what we needed to keep europe and its economy humming or to heat homes , that will be necessary in the short term of the transition but

nobody should be fooled into thinking because of ukraine we can just forget about dealing with the climate crisis. no. i am convinced the world is going to get to a net zero carbon economy. we will get there. the challenge is will we get there in time to avoid the worst consequences of the crisis? right now, that is not happening . that is our challenge. over the next weeks, as we come together in new york, we must agree to accelerate funding, sharing of technology, targets that we are setting in our countries have to grow. we have to treat this like a war. literally mobilizing every facet of our economy to deal with it. dani: u.s. special presidential envoy for climate john kerry speaking in vietnam.

now let's get to the bloomberg business flash. with that is into feliciano -- angela feliciano. angela: a setback to become more digital. the company says the $1.4 billion acquisition has collapsed. the deal would have been the biggest transaction since taking the reins less than two years ago. considering selling shares in its initial public offering to retail investors across europe in an attempt to cap customer enthusiasm. europe's largest carmakers talking to local banks about offering a portion of its stock for retail customers in countries including germany, austria, switzerland, and france. that is your bloomberg business flash. dani: coming up on the program, we will get insight on the markets and more investments.

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dani: welcome to bloomberg markets. i am dani burger. it is an ugly starch to the week for european trading, all of it off one market in particular. in commodities, net gas futures jumping 30%, currently trailing from that put up 15%. all this stemming from russia friday announcing they would keep nord stream 1 closed indefinitely. it is crisis level reaction that we are seeing across markets as they try to adjust to the new reality. bonds selling off. it will be leading the pack on your screen. will this cause the ecb to tighten more? they have gone beyond 70 five basis points to keep inflation in check or will they be concentrated on the possibility

of recession? what does that mean for yields? it also means, save for the dollar, currencies are getting crushed. the krona is doing ok considering commodity currencies are able to survive in this. we do have the british unchanged after the u.k.'s new prime minister, announced as liz truss. all of that creating a toxic mix for any risk assets, equities throughout europe selling off, as they did before we learned about the nordstrom cut off. it is a drastic readjustment this market might do is we consider not just energy prices but the financial and economic fallout from it. let's get more on that. let's bring in luke hickmore, investor director -- investment director at abrdn. it feels like a toxic mix from

finances, we currencies come into the energy prices. is europe too toxic now to touch? can you invest in european assets? luke: it depends on how long it takes to get through this crisis. if we are talking about the recession problem over the next -- well into next year, then it is too early. if you can see light at the end of the tunnel into 2024 -- this is a good time to get bold. markets tend to be about year ahead of where the economy is, so there may be that light. today, with all this new flow, it is difficult to see. dani: a year ahead. you're describing the necessity for looking two years ahead if

you want to see any positivity in this market. looking at government measures, helping households quit putting a cap energy come out to what degree is this a band-aid and we are going to see persistent entries from here on out? luke: i woke up without thought. this is a long-term structural issue that is tougher governments to sort out. we are looking at liz truss and her potential plans, germany looking at spending 65% at controlling their own energy crisis over there. that is reflected across the continent. physical positions for governments are going to get worse and getting worse as yields are getting higher and interest rates are going higher. that is the moment now for equity and risk investment. dani: is this a doom for things

like sterling considering we have seen yields move higher but that has done nothing to support? luke: i think your point earlier that this has been one of the worst periods of sterling for the last seven or eight years is a fair one. we have not seen a lot of reaction to liz truss. sterling is not really moving. it may just be we are waiting to see the details of what she is going to spend, how it will be funded, and what the bank is going to do. it is tough. i am not sure. there are some natural circuit breaks we could see kick in. one of those is coming out next week. the next rate rise will be incredibly important. just ensuring there is some

faith they can do something to secure the inflationary problem. dani: not to be the most bearish person, is there anything they can do at this point to stop the inflation move we are seeing considering we just got dealt a fresh blow the energy crisis around europe? luke: it is not going to be popular, but it is 100 basis point rate. next week, we kneeling which that we are in control, doing things about it, and still independent and going to remain that way through the foreseeable future. dani: if your thesis is one of at least for the next year out bearish europe, bearish risk assets, how is the best way to treat it? if we are talking about currency

is, there's probably not a clean short if we are going to get 100 basis points from the boe cannot maybe 75 from the ecb. how do you actually play bearishness in the market? luke: i am an awful assets investor. i always have been. i do not even try. i do not take sf risk. there are early opportunities and yields in particular. once we got over the shock and awe about how much for schools going to be spent and start looking -- started looking at the economy over the next year, i think you have to realize it is now probably a shorter pause than rate rises hedging off into the tail end of next year. starting to get invested in

yield markets, whether that is -- in many cases. right now, it is not a bad place to be. you might have to wait 2, 3 years before your proven right. dani: u.s. markets off-line today for the holidays. no one is watching. that means you can give us your most controversial take on u.s. markets and get no complaints. how are you you viewing u.s. risk assets now? to some degree, europe at the u.k. not looking so good. are we back where if you want to invest in equities he have to go to the u.s.? luke: especially with the company i work for. you look at what sterling and euro has done with higher and higher yields, wider and wider, priced in yearly stages of a recession. that is not the case for the

u.s.. so not risen at the same pace as yields have risen in the u.s. and i do not think that pricing in a serious risk of recession in the u.s. -- i would avoid that market now. i think there are better values in europe if you want debt and if you want specialism in sterling. that is not going to be popular. it is tough for one of the biggest capital markets in the world. dani: what about for u.s. equities? what would make you a buyer there? luke: it has to be inflation stopping off and really if you want to get involved in the tech industry, if you want to look at long-duration equity assets, you need to see a top to inflation, rolling off the other side. there may be a pause in inflationary increases we have seen over the last six months, but we have not really seen a rolling over yet.

it is going to take that before we really get there and potentially further earning divisions looking forward. they have come down a long way. there is still to me plenty of room in the u.s. to really push earnings down before it is cheap and you can get involved. that is probably going to be -- the s&p 500. i do not think it will be a two handle. dani: thank you so much, coming in hot with the controversial calls this monday. let kick more -- luke hickmore, investor director at abrdn. now angela feliciano. angela: liz truss has won the bitter race to succeed -- succeed boris johnson as uk prime minister achieve emerged victorious today after a conservative party leadership contest that started with 11 candidates and concluded with a runoff against rishi sunak. she will become britain's third

female prime minister. gas prices surged more than 30% today as traders reacted to russia late friday keeping its main pipeline shut indefinitely. ministers are preparing for an emergency meeting this friday were a number of special measures will be discussed. and canada, police are searching for two suspects believed to have stabbed to death 10 people in an indigenous community and injuring 16 others. it was one of the deadliest mass killings in the country's history. they have not determined a motive but the stabbings could be drug related. china has extended its lockdown for most of the residents with entertainment venues and schools remain closed. country's provinces reported at

least one local covid case over the past 10 days, the broadest outbreak since at least february 2021, when closures started. 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. i am. this is bloomberg. ♪

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dani:dani: a legal battle is now unfolding in singapore. a local subsidiary is being accused by a billionaire client of negligence. he is suing the bank hundred million dollars in damages and

lost income. first, the billionaire tycoon who is launching this, what we know about him? >> we have gotten to know him well over the last several years because this lawsuit began with a scandal that hit the streets of geneva in 2016 when the fund manager or relationship manager who managed the money confessed to almost a decade-long fraud with a series of mistakes he made that he then fundamentally tried to cover up across a range of clients that he managed. we are now seven years on. he had hundreds of millions invested through a credit suisse trust. dani: in terms of his history with credit suisse and other legal proceedings, he has been

trying to push -- what does that tell us about the likelihood of him succeeding in his suit against them? hugo: he has been a thorn in the side of credit suisse over that period. he launched potentially three lawsuits primarily in singapore, and one in bermuda. new zealand was thrown out because the judge there except of the argument from the bank that switzerland, none of those three islands was really the jurisdiction for any litigation. but he won big in bermuda. a trial was held on february on a similar case. he made allegations local life insurance have been negligent and should have spotted the fraud and won big to the tune of $600 million. credit suisse is appealing that. for now, that $600 million verdict stands and credit suisse

has to cough up that money and it is held in escrow pending an appeal. dani: what is the risk for credit suisse on this one specific trial, hugo? hugo: the figure is significant, 800 million dollars. what is more significant -- that is an amount of money many wall street brands could swallow. the trouble is this comes on top of a win in march and a series of mistakes that have cost the bank significantly. credit suisse was at the heart of scandals. what is happening is you have this mounting inbox of legal headaches and provisions that the bank has to account for any time when it is not firing on all cylinders like many of its rivals. these legal costs are really

adding up for the bank. dani: as you are pointing out, this is not credit suisse's first brush with controversy in the headlines. what does this mean in terms of looking at reputational risk for credit suisse? hugo: it is significant. what the judge in bermuda decided was the life insurance business that managed his money had turned what he calls a blind eye to the fraudster's activity. when any potential client is looking at credit suisse were an american bank to park their assets, they will remember that. over a half-dozen other wealthy russians also had money managed and are equally angry, but

essentially you have a real reputational risk the bank is facing. people are thinking twice if this is a safe place. credit suisse says they never knew anything about the fraud because he hid it from his colleagues and they have made enormous debts to rectify the compliance problem they had, but reputational risks -- reputations have a way of taking a wild to be recovered. dani: thank you very much miller, for the latest on credit suisse. opec-plus agreed to cut oil output starting next month. we are hearing from alexander novak commencing the proposed -- alessandra novak, saying the proposed tax on russian oil is adding. this is bloomberg. ♪

dani: oil jumping today after opec-plus agreed to a surprise a supply cut. the group agreed to curb output i 100,000 barrels a day starting in october. russia's energy minister says opec-plus has a range of tools to balance the oil market and the proposed cap on russian oil is adding uncertainty. let's bring in will kennedy. 100,000 barrels is not that significant in terms of actual volume, so what is the significance? >> a month ago they raise production by the same amount, which was seen as a response to white house lobbying to opec and his partners to do something about high oil prices and they have seen fit to reverse that

within just a month. the other significance is saying we can go on both directions to manage the market. since the pandemic, it has been about bringing oil back into the market. the market should be aware we can go both ways to respond quickly to changes in the outlook. i think a little concerned about demand. and a very small production in numbers dani:. they are willing to call another meeting at any time, so are we about to see a more flexible and more quick acting opec then we have? will: it looks like that. the saudi minister has always been keen to meet and very active by saying i can call a meeting whenever i like. he is adding to that and clearly a way of keeping the market on its toes. we have a lot of uncertainty over the next few months when we look at energy prices and what is going to happen to the wider

economy. it is not surprising opec is keeping options open. dani: you mentioned this is irreversible from what they had done after significant lobbying from the u.s. to increase output. what will the u.s. response likely be? will: i think they probably will pay lip service to the relationship. there will be a bit of disappointment, but it is worth remembering oil prices and gasoline prices in the u.s. have come down a long way from where they were over the summer when washington was incredibly anxious. so it is a slightly different environment. will they want oil to go higher than here? absolutely not. it is striking a balance between the needs of consumers and producers. dani: i'm looking at lines sing the iran nuclear talks are diverging. we heard from the u.s. last week, saying they were less

confident in iran. has it been priced out of the market? will: i think the market has been driven a lot by iran headlines in the last couple weeks and i think they are one of the reasons opec wants to maintain flex ability, and case it gets those extra iranian barrels into the market. it does seem there are hurdles toward a deal and the market should not be counting on this barrels anytime soon as well as willingness to cut i think perhaps fading prospects for a deal and one reason we have seen oil supply. dani: i wanted to go back to these lines from novak saying a proposed cap on russian oil adds uncertainty. are you surprised by that line? what do you make of the noise we are carrying around russia when it comes to oil output? will: the g7 said it wanted to pursue this plan to tap the price of oil exports from russia using the insurance and shipping market.

russia has said clearly that it will not allow this to happen and that if people do this it will not so oil on that basis. clearly it is another thing in this complicate in market adding uncertainty. if the price cap is pushed heavily, it will be interesting to see what that does to russian exports. dani: thank you. will kennedy giving us the latest on oil and also a line just crossing the bloomberg that there will be a longer, deeper recession as the energy crisis unfolds. we will bring all of that to our guests coming up in the next hour. we will have the chief u.k. economist. an ugly day from europe. the only thing moving higher is gas and oil. this is bloomberg.

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♪ >> it is 10:00 at yum in new york, 3:00 p.m. in london. here are the top market stories we are following at this hour. list truss -- liz truss becomes the u.k.'s next prime minister. sterling is steady. eu leaders race to find solutions to the energy crunch to keep a key pipeline shut indefinitely. alexander novak says the proposed price cap on russian oil is adding uncertainty. and energy fallout. european stocks lump. europe retreats to a two decade

low with no clear solution insight for the crisis. welcome to "bloomberg markets." happy monday. i'm dani burger. in the u.k., liz truss will become the next prime minister after winning the conservative party leadership race. let's get straight to 10 downing street, where lizzy burden is standing by. we heard that quick speech from her. what were some of the main takeaways behind her victory and what she said? lizzy: she was very much still appealing to the tory voters who chose her as leader. she said she admires her friend boris johnson, a line which prompted a silence typical of her speeches. she also said her priorities were cutting taxes, dealing with energy, the national health service, so very much addressing that tory core. but she is going to have to pivot her message to the general public if she wants to stay in power because she is going to

have to call a general election by january 2025 if she is to stay on. labour at the moment would win a general election. she is going to have to broaden her message because more than half of u.k. households face poverty at the moment. because of that got double-digit inflation at the moment. it hasn't even peaked. the bank of england is expecting two years of negative or zero economic growth. so what we are expecting to come up is a package on the scale of the furlough scheme in the covid pandemic, and also a freeze on energy bills, but the problem with that would be that it would be very expensive. it would not be very targeted and it would not do much to help businesses. dani: thank, bloomberg's lizzy burden at 10 downing street. let's get now to how the markets are reacting. bloomberg editor nora lily --

bloomberg's editor joins us now. sterling is higher at the moment. is this all priced in, a liz truss p.m.? >> for member, it is a u.s. holiday today, so perhaps it is trading altogether here. the pound surged by 15% so far against the dollar. you look at u.k. yields across the curve and you can see that the short end has been selling off a lot more aggressively in recent weeks. that is because they are pricing in the risk of those fiscal policies. now the question is whether or not she will continue or follow through with them. dani: and to that point, it is all about king dollar at this moment. every now and then i feel it would get folks on the program willing to make a big, bold call, saying maybe it will peak. are those arguments valid, that king dollar is going to lose its crown anytime soon? nour: it is very tough to tell

you yes or not in this situation because the bulls and the bears both have very strong cases. where else would you park your money? looking at the european continent, looking at the euro trading at $.99 against the dollar, and the pound not far off from parity right now. where else would you go in terms of g10 fx? it is hard to see anywhere but the dollar is the trade to go, at least for the time being. dani: thank you very much. let's add another voice to the conversation. do you think that is right. nour was just telling us the only place you can go in g10 is the dollar. does that hold true today? >> we have seen some other currencies hold up, including the swiss franc, where you have the swiss national bank finally decoupling from the ecb, even though switch or lend certainly doesn't have the same inflation problem as the other countries.

but there's a willingness to hike rates if needed to really support the swiss franc, one of the only currencies that has held up against the dollar. but i don't see the dollar we getting much against the euro or sterling for a while. dani: in terms of what we need to price in and political risk, is all priced in in cable when we have seen declines last month that were the worst since the brexit referendum? is all of the bad news already baked into the picture? esty: there is some expectation that liz truss is going to trickle article 16, that you will -- going to trigger article 16, that you will have some things happening with the irish protocol. some of that is already priced in. how she does it and to what extent it brings the whole brexit agreement, we could see further volatility. we have until look -- we haven't had a lot of details on some of the policies she once to do, and

they are feeling quite inflationary, so we have to see that as a positive because the bank of england has to hike, or if it is very risky in the current situation. dani: if we do see inflation of 22% next year, which is goldman's forecast should we see no change in the current trajectory of net gas prices, 22% inflation in the u.k., bring me forward to that. if you are going to invest around it, what needs to do the most serious repricing in u.k. assets? esty: the thing is the ftse historically and even this year has really traded much more with global equities than around the u.k. trendline. the ftse 100 will broadly follow global growth and global indices. domestic stocks in the u.k. are much more at risk. those companies that don't have the pricing power that are

dependent on on lower wage earners and their shopping, we have already seen in the u.s. that shift in where people are putting their money. any companies that are going to be away from that, so lower in retail, that suffers. i think we will continue to see pressure there because inflation will eat at margins and consumers will shift their spending patterns. dani: perhaps one other saving grace for u.k. stocks is the fact that it has so much exposure to energy. european energy stocks in general have rallied something like 25% this year. would you still be a buyer in this market, or has that run its course? esty: we are seeing oil prices dip a little bit, so we could see an impact on the energy sector at the moment, but a lot of energy companies both in the u.s. and in europe have not caught up to oil prices before

the war in the ukraine, so there was still upside potential there. we have seen a big part of the move, but it does not feel like rice's can fall much below $80 for the oil price. that suggests there are still a lot of strong earnings to come through for energy, unless you are having a very strong recessionary sort of panic in the market. i think the energy sector will continue to do well. dani: i do wonder in terms of the panic what you are laying out, what could drastically change the -- certainly a risk that is present. we will continue to talk more about that. this is bloomberg. ♪

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>> here's the first word. i'm angel fully ciano. liz truss -- i'm angel fully ciano -- liz truss emerged

victorious after a two-month conservative party leadership contest that started with 11 candidates and ended with a runoff with former chancellor of the exchequer rishi sunak. >> my friends, we need to show that we will deliver over the next two years. i will deliver a bold plan to cut taxes and grow our economy. i will deliver on the energy crisis, dealing with people's energy bills, but also dealing with the long-term issues we have on energy supply. >> truss will take power tuesday, when she visits queen elizabeth to be formally appointed. she will become -- the surprise move reverses september's hike

and deals a blow to the biden administration. after a faltering economic backdrop triggered the longest price rout into years -- in two years. a bombing in the afghan capital of kabul today killed two numbers of embassy staff and at least one civilian. moscow declared the blast and unacceptable terrorist attack. it is the latest in a series of attacks since the taliban seized power a year ago. california's power great assent to come under even more stress today because of a punishing heat wave increasing the chance of blackouts. blisteringly hot temperatures and a rash of wildfires are posing a threat to california's power grid. temperatures in sacramento are forecast to crest tuesday at about 45 degrees celsius, or

wondered 14 degrees fahrenheit. 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. i'm angel feliciano. this is bloomberg. dani: thank you so much. let's get a check on these markets because it continues to be an externally difficult trading session to start the week, all dominated by the giant jump we have seen this morning and that gas prices. this in reaction to russia friday saying they will shut the flow of gas through nord stream 1 to europe indefinitely. this market was closed when that happened. we had a pretty big gut punch reaction. still, the impacts being felt across assets. euro versus the dollar at $.99. it could go to $.97. it is a persistent weakness and at its lowest level since 2002. sterling come a change after liz

truss was announced as prime minister. overall, it is a risk off picture. sell everything, and the stoxx 600 down 0.8% as well. still with us is esty dweck, cio of flow bank. is europe now a toxic asset? would you be willing to trade to buy risk in the continent? esty: not today. we see that it is still dependent on the energy picture. we don't know if and when russia will turn it back on, and we know they are going to keep playing these games even if this is a few days into the winter. while the storage levels are better than expected, that is storage for the winter months. if we get cut off before, we are going to need to use that storage, those reserves faster, and that makes it another very

complicated picture for europe. so the euro is bearing the brunt of it, but not a lot of good news coming out of the old continent right now. dani: a huge part of that euro weakness has been one of the dollar's parabolic move against everything. right now, the rb i governor from the bank of india is essentially saying that it is difficult to give guidance in the current environment and the current uncertainty, pinning it to jackson hole, pinning it to the fed, and that their commentary has large spillover effect on emerging markets. this is a story that many central bank chiefs are faced with, of a hawkish fed, meaning that their currencies are extremely weak. are we about to see a period of more currency intervention as everyone from india, japan, europe, the u.k. is faced with this reality?

esty: it is possible. we are certainly seeing very strong effects from the jackson hole speech and generally from the fed's stance for the last six months. jackson hole was perceived as more hawkish than many had hoped for, but it was not that big of a change of tone other than reemphasizing that rates are going to stay higher for longer. that puts a lot of pressure on emerging markets in particular and emerging-market central banks who need to hike to keep their currencies competitive against the dollar. at some point, even though some weakness can help with exports, it does not help. the fact that we are seeing some weakness in the renminbi is certainly not helping emerging-market asian currencies either. dani: and that type of higher yield, but yet a weaker currency, that brings up what many people say are emerging-market type trading for both sterling and for the euro. you mentioned in terms of

current accounts that he weaker currency might help there. what really is stark is deficits. is there not a degree to which central banks need to keep a weak currency to try to hope their capital accounts? esty: we see that a little bit, but the reality is we are in an environment where everyone knows central banks need to fight inflation. we know that the u.k. growth needs to be supported, and we have seen, even with the u.s., that the market is not as concerned, certainly for the developed economies, with the public finances as they are for emerging-market. it is not as much of a factor as many expected it to be, or maybe as it has been in the past, so that gives a little bit of leeway for these central banks not to be solely focused on that and really to keep an eye on that inflation picture. dani: the debate of course

coming for the ecb, for the decision later this week. is it inflation, or is it a looming recession? what do you make of it? which way is the ecb going to tend towards when it comes to their meeting on thursday? esty: the ecb has one very clear mandate, and that is inflation. even though they have very little control over energy prices, that is the main problem for inflation right now, they still have to act. their second mandate is not about growth. it is about financial stability. we will be seeing what happens with the italian election, with yields. maybe if the ecb is particularly hawkish on thursday, they can give more details on their new tools and give some clarity there that can may be ease some of the concerns for the market. this market is pricing in, or closer to pricing and 75 basis points.

i think they will just take it when they are ready. dani: just doing some quick math here, which i am are markedly bad at for someone who enjoys spending her time in xl -- i am remarkably bad at for someone who enjoys spending their time in excel, the rba, 50 basis points. ecb, 75 perhaps. but even if it is just 50, adding those together means we will get an average g10 policy rate of 1.5%, which would be the highest level since february 2009, when we started to see stocks tumble in an about-face from central banks. this time it feels like we will not stop there. do global markets really have a grasp on the fallout from that, on speculative assets and things like the housing market? esty: when you look at what the markets have done this year, you clearly see that the pain came early because the fed warned us pretty much since march they

were going to have to hike and they were going to hike a lot. in may and june and obviously into july, they just kept increasing that rate. i think we are pricing and a lot of that. you were mentioning some of the other central banks, but even after jackson hole, if you look at the fed, the expedition for the fed funds rate did not move so much at the end of the year. markets were already pricing 50, 25, 25. it may now be 75, 25, 25. the bank of england has been at 75 for a while. so this isn't news for the market. we have certainly priced in quite a bit of tightening, quite a bit of impact on valuation, and you can see that across a lot of sectors. unless we really need to see a lot more tightening then what is currently being priced in by the market, i think equities are already pricing and a lot of the fallout from what we are seeing. dani: great to get your thoughts this morning. thanks so much for joining us.

that is esty dwek, cio of flowbank. still ahead, we will discuss the energy fallout as russia cuts off flows to nord stream 1 indefinitely. this is bloomberg. ♪

dani: french finance minister bruno le maire spoke at the forum in italy. >> nobody should be surprised by the last decision of the russian government. we need to be prepared for a total cut of gas supplies from russia. we have been preparing that kind of decision. many of the member states over the last weeks last months. so we must be prepared, which

means reducing our gas consumption. this is the first thing to do. then -- our supply chains. that is exactly what we are doing now. and also trying to bring in for the future new energy production , renewable energies, and nuclear energy. we all expected that kind of decision, and we will be prepared. >> the decision yesterday by the g7 to impose a price cut on russian oil, how much do you think this is going to reduce the income for russia? >> i think we need to reduce all revenues for russia because we don't want to put sanctions against russia to have russia benefiting revenues from oil and gas. the idea of capping the price for oil is, i think, the right one. the fact that the g7 decided to

move in that direction is good news. then there remains three points over the next weeks. the first one, we are forced to get the unanimity of the 27 member states of the eu because if you want to change the rules, you need the unanimity of the 27 member states. let's not take that for granted. the second is the outreach. we need to convince other partners outside the g7 to join that initiative because we don't want it to be a western initiative against russia. we want this capping of oil price to be the global initiative against war in ukraine. the point is important, which is how to define the oil price. ♪

dani: welcome back to "bloomberg markets." we are an hour away from the european close. it is an ugly session. joining us to give us an update is bloomberg editor nor all ali -- editor nour al ali. one asset decisively in the green is oil. opec makes a cut of 100,000 arrows next month. it is pretty minuscule in terms of volume. what do you make of the sizable market reaction? nour: that reaction is reaction to the european energy crisis as a whole. we did see russia cut its key nord stream pipeline to europe, and that has definitely swayed the markets in that oil for gas substitution. the cut from opec+ is definitely

symbolic. you have seen prices come down generally for oil, and you have seen that come down from june, and opec has said repeatedly we are not really happy about lower prices because they are not reflecting the tightness in the market. saudi arabia is one of the biggest producers of oil in the world. they lead opec production. there production really outpaces or surpasses pretty much any other producer and opec. you can see that sentiment carrying through of that cut today. dani: so perhaps a little bit of repricing in terms of this oil market from that fall we had seen. that other market that is decisively up, not gas, futures up 15%. it was not up 30% one point today, so the worst of it perhaps priced out. i wonder how much of that is about some of the government measures we might see, and if not, how governments should be think about possible intervention and support. nour: the u.k. is one of these

cases where you see the prices of the energy crisis really playing out in the market. we had raised price caps earlier this month for residential consumers, but as mrs. are still dealing with higher prices. some of them are dealing with 11 fold higher costs than they typically pay, and that will to -- that will differently feed into that inflation picture in the u.k. in europe. that puts into question whether central banks can respond as aggressively as possible as we start seeing governments or prime ministers that are incoming like truss now touting ideas like fiscal policies that will support the economy in this very difficult time. dani: thank you so much, as always. the energy crisis is one of the many challenges facing liz truss, which as we learned, will become the next prime minister. according to bloomberg economics, rocketing energy costs mean inflation picking close to 15% in january.

joining us now is elizabeth martins, chief u.s. economist at hsbc. in terms of what we have learned from liz truss as how she plans to tackle this, we heard a speech from her, really light on specific details. we are lucky to get something tomorrow, or at least as the first order of business. what are you expecting when it comes to tackling the energy crisis in the u.k.? >> first of all, i think she said she will lay out a plan within the next week, and then i think by the end of the month we will probably have a full budget in the u.k., so we will know a lot more than, but i think it falls into two kinds of categories. first, the tax cuts we know about because we heard a lot about them in the campaign period. that is the first plank. she has talked a lot about that. she has said she prefers cutting taxes to handing money out as transfers.

but that is not enough. it is not going to go nearly far enough to offset the shock of higher prices for households and businesses. we think there were also have to be a package of mothers -- package of measures along those lines as well. she has been tightlipped about how she would deal with those, other than saying she prefers tax cuts to handouts. lots of things are under consideration. a rebate like rishi sunak talked about, but also more drastically, the prospect of an energy price freeze, so keeping household energy prices lower than they would be if they rise in october, so that is the really interesting one, i think. dani: it has been said, and we were talking with estee dweck earlier, about the issues the u.k. will face in terms of its public finances. you had this immense spending coming in at a time where the boe is set to hike interest

rates. what does it mean for public finances? can they support the spending again as we see interest rates move into more restrictive territory? elizabeth: it is really tricky. normally in a recession or independent come of the global financial crisis, you had a huge fiscal response from the government. at the same time, the be a was -- the boe was cutting rates, buying bonds. it is the opposite this time. they are hiking rates and potentially about to start selling bonds. debt is linked to inflation. some benefits spending is linked to inflation. so it is a bit of a vicious circle. it is kind of untested, to be honest. we have not tried active sales of bonds from the boe before. it happens at a time when demands for gilts is not quite as dependable as it used to be, things like pension funds for an investor is not quite as keen as maybe they once were, so i think

it does make for some quite tricky fiscal maths. the other thing is the fiscal targets. the u.k. has a mandate to balance the books of the current budget over three years, and i think probably in the next chancellor comes in with the new budget, they will have to either say we are suspending the rules because this is an emergency, it is very different circumstances, or perhaps we are changing them to something a bit easier to achieve when it comes to -- to achieve. dani: when it comes to gilts, it does not seem like that is able to attract any inflows given the spike higher in yields, considering that sterling keeps falling. is there a level that the boe can get yields to come of that they can raise rates that might eventually attract that foreign and flow -- that foreign inflow? elizabeth: i'm not a gilt market expert area i'm sure there is a level at some point. i'm not sure what that level might be. i think it is about a number of

factors. supply and demand of gilts in the market, but also confidence in the u.k. public finances and the u.k. economy more broadly. we are in a situation at the moment where the fiscal maths is looking a little bit tricky. dani: elizabeth, thank you very much for joining us today. that is elizabeth martins, it just bc chief u.k. economist. coming up, more on europe's energy crisis with the former the neto bunker -- former veneto banca boardman but. this is bloomberg. ♪ ♪♪ energy demands are rising.

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dani: asked months opec+ agreed to increase oil output in the near future, but today it voted

to cut daily output by 100,000 barrels as policymakers make drastic changes in reaction to the global energy crisis. speaking of which, eu energy ministers will meet friday to discuss solutions to curb energy demand in coming months. russia and definitely halted the nord stream pipeline, cutting -- pipeline, citing sanctions as the reason. when birds rachel morrison joins us now -- bloomberg's rachel morrison joins us now and covers energy for bloomberg. what sort of position is europe in now that russia said they will stop the flow indefinitely? how dire does it look? rachel: we had reduced flows in the nord stream pipeline before, so in terms of actual flows, it is not a huge cut. but what really shows is that we may not get those flows back at all. the reasons that russia is giving our sanctions and a kind of oil leak that they found, but a photo we saw of the oil leak did not look particularly serious, so we can really see that this is what russia is using as leverage over europe to

try to get an easing of sanctions. so europe is really starting to realize that it cannot count on any flows of russian gas for the rest of the winter. that will be the kind of base case. dani: to that point, we are getting breaking lines at this minute from von der leyen, not just talking about caps in terms of russian oil, but saying the eu will cap the price of russian pipeline gas. von der leyen also seeing the eu will help electricity producers with liquidity. that liquidity piece is something we have heard the nordics talk about when it comes to collateral. taking this all into account, what does it look like the direction we are heading in when we get the energy ministers meeting later in the week come of the solutions that they are going to propose? rachel: they have a lot to discuss and we are seeing a lot of proposals coming out. the czech presidency has brought out some proposals. what remains to be seen is which of those stick and gather support. price caps that you mentioned,

that could either be in the wholesale market or a kind of cap unjust russian gas, which would be interesting. we have seen it in oil. but it is difficult to do, and there seems to be some talk about trying to separate that from the european price to kind of keep it from having too much influence on european prices. then there's the consumer part, which the eu is also looking at with great urgency, how to reduce bills for people because winter is coming, there's going to be huge energy bills for everyone across europe, so they are looking at both parts, and then whilst all of this is happening, european companies are struggling, and that would be even more disastrous to have a sort of contagion effect if some of the energy suppliers start to get into financial difficult piece. dani: thank you so much, bloomberg's rachel morrison. turning to some of the broader impacts of this global energy crisis, the aluminum industry is calling for government assistance to stay afloat. european production has dropped to the lowest levels since the

1970's, and industry insiders say the escalating energy crisis is now threatening to create an extinction event across aluminum production. let's bring in bloomberg's jack's archie, who wrote about this over the weekend. an extinction event. to what degree is this hyperbole versus a likely outcome for this metals industry? jack: i don't think it is hyperbole. it is extremely energy intensive to make aluminum. it involves running a lot of power. it takes about 15 megawatt hours to make a ton of aluminum, which is enough to deliver power to five german households for a whole year. when energy prices as we have seen in europe rocket much higher, smelting aluminum simply doesn't make economic sense anymore, so we will see a situation where, unless aluminum smelters have major government

support or they have captive energy supplies, for example in iceland, possibly norway with its hydropower supplies, but other than that, the industry is really in a total crisis. dani: has the market accurately priced this in? is there a big readjustment that is going to need to unfold if it is crisis coming for the industry? jack: i don't think it is a huge deal for global aluminum prices. the eu is a relatively small part of aluminum production. china is the big aluminum producer. the eu accounts for something like 1.5% of aluminum production. at the end of the day, eu production falling is a bit of a rounding error for the world. for european industry it matters an awful lot because these are the smelters that produce aluminum it is then turned into parts for cars, for planes, for

defense uses. so it is the beginning point of a huge supply chain that feeds european factories, and i think european politicians, need to consider consumers, other companies, all the rest of it. but they need to consider which parts of the supply chain you want to preserve and this winter and possibly several winters i had that are going to be very expensive. dani: important context. thank you so much. great piece. really recommend everyone go and read that. adding another voice to the conversation, joining us now is pier paolo raimondi, former veneto banca board member. you are now studying climate, energy, and resources program. how far away from historical precedent are we in this current environment? >> today the you is finding

itself in the worst energy crisis since 1973. the issue is also that we are facing different contexts because energy markets in europe have realized during the past decade that we are seeing the come back of the state, so this is an unprecedented event also because we would need to see how the eu will deliver its energy transition as well. dani: the finish economy minister warned that this has the ingredients for an energy industry lehman brothers moment. do you think that it is very likely that we could see a contagion like moment had the energy industry? >> we already see some companies asking for bailouts, and energy

intensive companies will need to ask help for government support and government money. the issue is to find the right balance between protecting the consumer's and protect in the industry as well as the climate. dani: and to that point, obviously the drama we are seeing which is perhaps not the best way to put it, in today's market has to do with the fact that russia's flow through nord stream 1 has halted. in france, some of the nuclear plants can't rise. more demand for cooling as we have a very hot summer, and what that all means for the winter. it is climate change. to what degree are some of the bozos just a band-aid that are

not going to fix some of the long-term stresses we will have because of that? >> the main issue is that we are seeing multiple crisis. people are getting used to multiple crisis that affects hydropower, nuclear power, and now the gas crisis. the critical aspect is to find the balance between protecting the consumer's and it is crucial because we are in a tight gas market, so there are not enough volumes as of today to replace all of the russian gas. dani: so not enough volumes to replace the russian gas. you have a populace who's going to continue to see that inflationary pressure. we did have protests over the

weekend in some nordic countries, specifically in prague -- not nordic countries -- over demand to have the state support them when it comes to energy bills. what is the likelihood that over the energy crisis, over inflation, that we are going to see more political discontent sweeping europe? >> it will be likely to see more social unrest, even because we are moving towards the winter, and so we will depend also on how the winter will be. if we are facing a harsh winter, this will be really difficult for consumers and households, and so in several countries we could see populism and nationalism that will try to prevent and protect their national interests at the expense of eu integration. dani: does that mean we are

about to see a rupture in what has been a pretty remarkable eu unity following a russia invasion of ukraine? >> so far we have seen remarkable unity in the eu, and now it is time for the government to implement all of the plans, for example regarding gas storage, we see some positive elements, but also for demand reduction. we need to see governments coming closer together to face the current crisis, in order to prevent disruptions and competition among consumers and states. dani: we were just talking to jack about some of the issues and metal markets and in other markets as well. this is a problem being faced across industry, across continents. what is the likelihood that we

are going to see more companies falter, that we will see more defaults as consumers are unable to pay, and it means that they are unable to pay and have to draw down some of their cash reserves? are you worried about industrywide default as an effective what we are currently seeing in these energy prices? >> yes, energy intensive companies and industry, we could see more and more companies default. now it is time for governments to find that balance to ensure the funds to the most born over groups -- the most vulnerable groups in society, private consumers but also the private sector. the critical issue here is to avoid universal subsidies because so far, governments have allocated a massive amount of public money, but in a universal way. this has exacerbated the issue,

the tight market and so on. so it will be critical to governments to protect the most vulnerable groups while leaving the price to adjust the market. dani: ok, thanks for your time today. coming up in the next hour, we are going to be speaking to the pantheon macroeconomics chief u.k. economist on what the future of the u.k. looks like liz truss at the helm. this is bloomberg. ♪

♪ dani: europe continues to deal with the fallout of germany no longer getting gas flowing

through the nord stream 1 pipeline. russia cutting off flows indefinitely. we are looking at net gas futures off of the highs, but we are also getting some breaking lines of a draft document that set out plans for the eu energy meeting on friday. from what bloomberg has seen, let me walk you through these lines. they may call for a coordinated power cut and emergency liquidity instruments. they also may propose assessment of carbon etf's.

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dani: the u.s. is off-line for the labor day holiday as europe grapples with the energy rises. the countdown to the close starts right now. if there is one asset class that is dominating the trading of all others, it is the energy market. dutch gas futures higher by 13%. this is the market trying to digest what it means that russia has, flow from nord stream 1. it is one that might be a lehman brothers like moment for the energy market, that is what the finish economy minister said but will it be a lehman