dani: good morning, this is "bloomberg daybreak: europe," i am dani burger in london. >> i will deliver on the energy crisis, dealing with people's energy bills that also dealing with the long-term issues we have on energy supply. dani: incoming prime minister liz truss set to earmark 130 billion pounds to contain gas and electricity prices for u.k. households. crude dynamics opec-plus announce a cut in production, but a rally fizzles as china lockdowns renewed concerns about demands. plus, russia risks a deep and prolonged economic damage as the impact of sanctions spreads according to an internal government report. we speak with ukraine's prime minister. we continue to get a raft of eu and u.k. proposals to lessen the damage done by the energy crisis. are they just a band-aid, is it

something that prolongs the issue and kicks the can further down the road? markets reacting positively, but how much of this was just about policy paralysis? finally we've gotten some adjustments, finally we've gotten something to act as a tonic. we are looking at futures, down 2/10 of 1% after a bruising session yesterday. a lot of the damage in the dax, it will more than -- tumbled more than 2%. is there liquidity get through challenging times? s&p 500 futures up 3/10 of 1%. the u.s. off-line yesterday for the labor day holiday. when it comes to the cross asset picture, another day of yields higher and it will be interesting to see how u.k. yields open later on in the day, considering the news we got

yesterday, saying they were going to frontload rate hikes. looking at a four point rate hike. a weaker dollar in turn as well. the pound up at 115, at its weakest since 1985. we have the scoop in terms of what liz truss might be proposing. how long can that last? brent crude also slightly lower this morning after a sizable rally yesterday. let's focus on asian markets, a rate decision from the rba. yuan appreciation. juliette saly has it all in singapore. juliette: another jumbo hike from the rba, 50 basis points getting the cash rate to 2.35%, we haven't seen it at that level in three years.

the fastest tightening in a generation from the rba. can see why when you have core inflation, the headline number at 1.6%. they are targeting 2024 and say they will be data-dependent and signaling there could be more rate hikes ahead. cda saying perhaps the average household has not felt the pain of the first jumbo hike because it takes about three months to trickle into the overall economy. let's look at what we are seeing in terms of market reaction. the aussie up by about one half of 1% in the opening session. pretty flat, because a 50 basis point hike was priced in and we could see weakness if we continue on the aggressive tightening cycle. the pboc getting a stronger bias in terms of the yuan reference rate, showing how aggressive it is. the offshore at a two-year low, the longest streak we have seen in terms of strong biases since

october 2019. some upside from the csi 300 on these verses stimulate the economy in particular, the cuts to the fx reserve requirement ratio. we are on a downbeat session in asia as we continue to grapple with global headwinds you talked about, asian stocks still at june 2020 lows. dani: thank you very much. juliette saly in singapore. let's get to our other stories with reporters around the world. we are going to talk about the new prime minister liz truss, and europe's reaction to the energy crisis, and the latest on opec. bruce will also break down russia's recession risk. liz truss has won the bitter race for prime minister in a closer than expected raise. we are joined by rosalind matheson. it seems like liz truss is

wasting no time, we expected some cost-of-living measures. there is a story now about energy measures. what are we seeing now? rosalind: could be quite a different approach by liz truss before she's even coming in as prime minister. she came in on no handouts, tax cuts only, definitely not a windfall tax on energy companies. she ran very hard with the tory party faithful, but what we are hearing from this exclusive reporting is they are looking at freezing energy prices around the current level. still very high but it is set to go much higher as soon as next month. they have to do that by completely redrawing the energy system in the u.k. very quickly. that would be significant. dani: and significant spending. the proposal would be nearly

half what was spent in the covid pandemic. it comes at a time when we are hearing from policymakers about frontloading hikes. what does that mean for public finances? rosalind: that is the question, it could cause 130 billion pounds over 18 months. how that actually works is light on detail at the moment. there could be subsidies on energy companies, or is it loans? the u.k. is already carrying a lot of debt from the pandemic. you are adding to that. if you freeze energy prices, what does that do? two people spend the money, how does that knock on into inflation? they've got questions about all of that. dani: thank you so much, bringing us the big questions and helping us answer them. we will continue the conversation about the u.k.'s future under liz truss later in the morning. we will speak with a former u.k. chancellor at about 8:30 a.m.

u.k. time. european governments are hoping to stave off energy catastrophe this winter. germany hoping to keep two of its nuclear energy plants on standby. there will be a call for demand reduction. meanwhile, the french president is backing an eu-wide windfall tax on energy companies. let's get more from our energy reporter. what is germany doing to get through this crisis now that nord stream appears to longer be an option for them? stephen: it will be very challenging for germany to hit their 95% goal for gas inventories by november. they are looking at keeping two nuclear reactors online of the three they plan to shut in december. that's a big turnaround for government that had committed to shutting those facilities. you can see they are thinking

outside the box trying to get the situation fixed. dani: that is germany. what about other european nations? stephen: we have macron and france saying we want to windfall tax for companies making a lot of money off of raw materials. they want to use that to potentially help households and businesses. germany doing the same thing. they had another bailout for a major utility. on friday, leaders across europe discussing potentially a number of measures, including reducing penalties on pollution, a price cap on natural gas used for power production and even shutting the power derivative market. right now, everything is on the table. we will have many more details from friday onward. dani: thank you very much. our energy reporter. sticking with the energy theme,

opec-plus has agreed on a supply cut of 100,000 barrels of oil per day for october. the surprise move reverses september's hike and deals a blow to the biden administration. we are joined by paul wallace. this does reverse the hike put in place after pressure from the u.s. we heard from the saudis yesterday saying they remain flexible. are we going to see a faster moving and more responsive opec? paul: i think it does signal that, although it wasn't a total surprise. yesterday's cut was, the consists was it wouldn't happen. the saudi's signaled late last month in an interview with bloomberg that cuts could be on the table. i think what they did yesterday was even though the cut itself was token, it was minuscule, it was telling traders to watch out, we will be serious about supply reductions if we feel

they are necessary. they essentially told the market that more could come if needs be, and presumably that means bigger ones could come. yesterday's decision is pretty irrelevant given how small it was but the market knows opec-plus is a serious about potential supply reductions in the future. dani: probably explains why we saw oil rally some 3% despite the smallness of the volume. thank you, paul wallace. bloomberg has viewed a confidential russian report that warns of deep and prolonged damage to its economy as a result of western economic sanctions. for more, we are joined by bruce einhorn. we have heard from russia officially saying the impact of sanctions is not severe. of course they are still bringing in money. their debt is nonexistent.

what is different about this report? bruce: you are right. the official line from russia is the impact of sanctions is not that bad. the economy will likely shrink by less than 3% this year and next year even better. according to this report bloomberg has seen, a report prepared for an internal meeting and the veracity of the report has been confirmed, it paints a much more dire picture. according to one of the scenarios, the economy could shrink more than 8% by 2023. another scenario has it down almost 12% by 2024. the report talks about the different industries, ranging from agriculture to aviation machine tools, all of them affected by sanctions. the inability to get critical components. this report also talks about the

possible brain drain of 200,000 i.t. specialists they might lose over the next two years. it paints a much different picture than what we are getting officially. this comes at a time when ukraine has launched a long anticipated counteroffensive in the south. just another sign the war that was supposed to be shock and awe short victory has turned into a long slog for russia. dani: thank, bruce einhorn. coming up on the program, a portfolio manager will join us on markets. do you want to be buying risk? plus, the uk prime minister tells bloomberg that europe and the u.s. needs to do more to ensure russia is defeated and warns that time is not on our sign -- is not on their side. this is bloomberg. ♪

>> i look ahead to the next political cycle and the possibility we've got deteriorating government financing, and have a labor government coming in, i am thinking of two potential crises. i am reminded of the crisis in 1992, and i am thinking about what is the possibility of an imf bailout like in 1976? dani: peter chat well on the state of the u.k. economy and the echoes of 1976. joining me is our guest. i have to say, he's not the only one. deutsche bank also saying we have a combination of fiscal spending and energy shock in sterling giving echoes of the

imf bailout. how concerned are you of a crisis in the u.k. on levels with the balance and payment crisis like we've seen in the past? >> certainly in the moment in the u.k., things are not looking good with energy prices, the slump you see, and the economic woes. it is looking negative, but that is pretty extreme. the economy is still fairly balanced in terms of various economic sectors, and we're are seeing some sustained growth despite the weakness in growth from the pandemic. in terms of absolute weakness, we know the numbers have been weaker than the rest of europe but there are certainly areas that are positive. the u.k. is looking a bit

stronger than certain areas in the euro zone. especially within the sphere of the ukraine war. some of the indicators, consumer strength, etc. dani: to that point, this has been the worst underperformance on record of domestics -- domestic stocks. is the worst priced and and upside from here? louise: in august, what we saw relative globally is small cap were starting to outperform, although the u.k. may be lagging and maybe some recessionary ways near return. small cap some of those trades in growth and sentiment starting

to come through in august. where are the alternatives? people are thinking where are we, at the bottom? dani: if i can play devils advocate, the doom and gloom, i'm wondering if the downside is pushed out, you have the proposals from liz truss, this has been described as a band-aid over current problems. economic damage gets pulled further out. this change, does it alter your longer-term view on u.k. equities? louise: to the extent that it is a band-aid, it is based on current projections of urging -- of energy prices. there is a lot of doom and gloom, but the tough question, will there be further negative impact or can we start to see

bits of a resolution? i think it's one of those things where at the moment, seem very negative, some negative headwinds around, but there are the potentials for companies to turn it around and things not to be as bad as expected. there are some areas of strength we are looking to within health care and consumer staples as well that have strength and global businesses benefiting as well. dani: in terms of health care, some of the consumer staples are traditionally considered more safety type sectors. i wonder what you do with utilities right now as a safety trade. there has been a divergence of enemy -- energy companies that have seen their collateral, they need to put up their hedges, we've seen europe propose

different liquidity things to provide for them to make sure they don't -- that they can meet the collateral. does this change how you look at the sector in terms of a pure safety type play? louise: in general, we have been in favor of the u.s. just because they're slightly less regulatory headwind, although at the moment there's a lot of uncertainty around european utilities and what additional curbs might be placed upon them, and additional restrictions. the u.s. has a bit more of a free market mentality. those of the areas we are looking at a bit more. utilities have performed well. right up there with energy names and terms of some of the events that have come through in the last couple of months. dani: real quickly, we are almost out of time. we need to mention the u.s. has come back online after the labor day holiday. are you expecting u.s. stocks to

retouch the june low? louise: at the moment, we will see in terms of how things open, but it does seem like there is a lot of negative sentiment out there. is there more negativity to come coming into september and looking at the november election time, and what might happen there. very conscious of the u.s.-taiwan situation and how that can escalate and it is impacting the rest of the world as well, the geopolitical tensions. i think lots of negativity and we've got the tail end of a couple of earnings coming through. they are not likely to move the market too much. i think it's about overall sentiment following some of the interest rates, interest rate expectations, really looking

toward european, ecb moves this week, and everything at the moment, a little bit of wait and see until we get the next data point. dani: thank you so much for joining us, really appreciate it, louise dudley. coming up, we will hear from ukraine's prime minister, who tells bloomberg that europe and the u.s. need to do more to ensure russia is defeated. that is next. this is bloomberg. ♪

>> you know, we have a war in ukraine, a bloody war, but the european union also had a hybrid war, it is gas and oil blackmail, it is disinformation,

it is the food crisis that russia creates by blocking our seaports. it is the migrant crisis that russia creates by killing civilians in ukraine and having a famine in africa and asian countries. all of this is elements of hybrid war. this will happen on the european continent and it is not so simple. it's not just because of the war in ukraine. it is because of the actions of russia in european union, in ukraine, around the world. now we have a principal war between a different world, the civilized war, democracy and freedom, and autocracy, soviet style principles between the russian empire. we don't want to be part of the russian empire, but we would like to be part of the free and

democratic europe and democratic world. it is important to understand that only to be united, we could win in this war, and save our democratic and freedom principles and we should go so that this winter we find a possibility to go to this war and win. we in ukraine protect the borders of europe from military invasion, but europe should protect the democratic principles in ukraine, should support us and protect the democratic and freedom principles in the territory of the european union. we should act together like one unit. >> do you have a clear commitment from european officials that these sanctions will stay on? it doesn't matter if nord stream 1 flows, if they come back or don't, the european union is not going to play along with the rules vladimir putin wants,

which is lift the sanctions. >> we see absolute understanding from european leaders that we are in a hybrid war. we have absolute understanding that russia is blackmailing european politicians, and we have absolute sure meant from european politics that they will stay with ukraine until the end. dani: the ukraine prime minister speaking to maria tadeo in brussels. coming up, a surprise supply cut. opec-plus agrees to remove $100,000 -- 100,000 barrels per day in october. more on that story next. this is bloomberg. ♪

dani: good morning.

this is "bloomberg daybreak: europe". i'm dani burger in london and these are the stories etc. agenda. >> i will deliver on the energy crisis, dealing with people's energy bills but also the long-term issues we have on energy supply. dani: incoming prime minister liz truss is set to earmarked 130 billion pounds to pay gas and electricity for u.k. households. opec announces a modest cut in production. plus, private warnings. russia risks deep and prolonged economic damage as the impact of sanctions spreads according to an internal report. we speak to ukraine's prime minister. another day grappling with the fallout of the energy crisis, the flow no longer moving through nord stream 1.

it is positive ever so slightly when it comes to risk assets, slightly lower to unchanged after a bruising session yesterday, especially for the dax, which tumbled some 2%. let me take you to the futures session. we are seeing losses of about .1% for dax futures, .2% when it comes to euro stoxx 50. we are trying to digest proposals we have seen, is that enough to uplift risk assets? we will have a guest on shortly who will answer those questions. s&p futures are up .3%, the u.k. is the only game in town. em struggles with a fed that hikes. and here up with the energy crisis and looming recession. yields driving higher, how much of that will be driven by the european session. the boe talking about

frontloading hikes at the same time as we have learned about the spending plan from liz truss. how much will that throw folks off of investing in u.k. assets? we are up half a percent when it comes to sterling, but after two months of political paralysis in the u.k., any movement at all is being treated as positive. dollar is weaker, the euro is stronger but still below parity and brent crude is down at 94.99. now let's get to the first word news with juliette saly in singapore. juliette: thanks, dani. liz truss, who is set to take over from boris johnson as uk prime minister is drafting plans to freeze u.k. electricity bills. it would see the government finance the difference what energy company's web charged under the previous system.

truss beat rishi sunak, taking 50% of votes cast. california has raised the emergency status of its electrical system as it tackles a blistering heat wave. electricity uses up the highest since 2017 with millions of homes and businesses cranking air conditioning to cope with a heat wave. volkswagen is pushing ahead to list a minority stake in porsche, paving the way for one of europe's biggest ipo's. it is planning the listing as early as the end of the month. the family behind the porsche brand will regain influence after they sold to vw. 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. this is bloomberg, dani? dani: thank you so much.

let's go back now to the energy theme. opec+ has agreed on a supply cut of 100,000 barrels a day for october. that reverses the septembers hike, that was pushed by the biden administration. we are joined by paul wallace, who covers energy and commodities. just the number itself, 100,000 is very minuscule in the grand scheme of things. what is the importance of this cut? >> hi, dani. it is a tiny cut in and of itself. it does seem to have had a psychological impact on the market. until about two weeks ago, the idea opec+ would cut supply was pretty much out of the question. now that is very much on the table and although yesterday's was a small, a lot of traders will be wondering whether

further and more significant supply cuts could come in the future if opec+ and the saudi's think that is necessary to prop up sagging prices. dani: and in terms of the u.s. response of this, what are we expecting because of course, the biden administration had pushed for upping the output which resulted in that increase in september. >> this decision came less than two months after biden went to jetta, ostensibly to ask saudi arabia and other oil producers to pump more oil. he got sort of a token in reese of 100,000 barrels, and yesterday's decision reverses that. the white house did put out a statement yesterday, a response to opec+'s decision.

it didn't mention opec+, it essentially said it does not want to see less oil on the markets and implied that global oil markets are still tight. but it did point to the fact that gasoline prices in the u.s. have come down a lot in the past two or three months, and that is what the biden administration is looking at. it wants to bring down pump prices. we will see if opec+'s decision yesterday goes somewhere to reversing that trend. dani: paul wallace there, who covers energy and commodities for us. another angle to this energy story, european governments are racing to stave off energy catastrophe this winter. germany plans to keep two nuclear plants on standby in case of a shortfall. energy ministers are calling for coordinated power reductions and

emergency liquidity tools when they meet on friday. the french president is backing an windfall tax on french prophets of energy companies. >> we support the european mechanism which reacts from the energy operators whose production costs are following the market's own prices. this affirms our supports. it is the most coherent to fight against destruction at the eu level. dani: joining us now is massimo di-odoardo, vice president of gas and energy research at wood mackenzie. a lot of proposals to dig through, perhaps best to start with macron proposing an eu-wide gas tax, we see that playing out in the u.k. with the windfall tax there. how do you judge it in terms of its effectiveness and the political appetite to put something in place like that?

massimo: policymakers understand they need to do something but exactly what is still very unclear. we think price cuts are perhaps away to achieve a more efficient result. putting price cuts particularly on power markets, particularly non-gas generators that are making extreme profits, after all their costs are extremely low. a price has two objectives in the market. it needs to provide a signal to reduce demand, but at the same time, provide a signal to invest in additional supply. the question is, do you need a price of 500 euros per megawatt

hour in the energy market to achieve suppliers pushing up again, or providing incentive for new investment. the idea of providing a price cut which is high enough to achieve those objectives, reduce demand and incentivize production, can to some extent reduce the energy bills. and also the potential requirement of additional taxes to fund bills otherwise. dani: this idea that if you have a price cap too low, it might discourage supply. how do you do that at a time when we are seeing asia become more competitive trying to secure global and lng supplies. how do policymakers ensure they stay competitive securing supplies? massimo: for gas, it is a

different thing. unlike hours, it is -- if a net price cap is imposed, we need to be mindful that competition to attract energy might be undermined. but the counterargument is if you put i g -- a price cap on gas prices, which is very high today, at a level that still undermines the perspective for substantial demand resurgence in asia. it allows oil prices in asia to go above the price cut. it can certainly go there. but the question is, is there enough additional demand in asia to shift substantial energy from europe to asia, to undermine the

ability to get energy to europe. if asian lng prices are too loose, certainly some will go to asia. his additional demand strong enough, and is additional cargo enough to soften prices in asia and have prices at that level? nobody knows, it is very much uncharted territory. dani: massimo, a lot to unpack there, obviously. part of the dynamic is, are we removing demand by some of these measures? i was talking to a research associate at cambridge who told me that governments need to be honest to their population and say, is going to be a hard winter, zoom less.

does that conversation need to be had? massimo: absolutely. the only way the market can balance is due lower demand. i think that's a fact. the question is, it is divisive in its behavior. obviously, heating demand in the summer is extremely low. but the big question is getting into winter, heating demand will be 65%. not to mention the reduction in the industrial sector, which has been extremely high. and will need to see demand reduction also. and part of that is about personal behaviors. but to your point, it needs to be very clear messages from policymakers to incentivize

demand reduction in households. dani: just to put a finer point on all of this, how worried about you are becoming would -- about the coming winter? massimo: if you think about it, market fundamentals over the last month or so have actually improved despite prices have gone up substantially. a lot of the price upside over the past month and a half has probably been driven more by tightness in the power market, which has pushed up gas prices, too. until the shutdown of nord stream 1 early last week, as a consequence, the storage levels have gone up in excess of 80%.

i think a lot of governments are comfortable with reaching high levels of storage. all of us were very skeptical about europe's ability to achieve those levels of storage. so we think the level of storage we have achieved now, and the 20% reduction, has a lot of psychological impact. it starts to become not really material. dani: i gotta jump in. we are running up against a commercial right. thanks for joining us this morning, that's the vice

president of gas and lng research at wood mackenzie. u.k. markets digest liz truss's energy plan. all eyes turned to the reaction from gilt and bond traders. this is bloomberg. ♪

dani: welcome back to "bloomberg daybreak: europe", i'm dani burger in london. liz truss has won the race to succeed boris johnson as uk prime minister, edging out former chancellor rishi sunak. >> 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. manus: we have had some bloomberg reporting about a new proposal when it comes to energy bills, are we expecting to get an official announcement today? >> she has been light on details all through this campaign aside from saying she would cut taxes. there are draft plans now to freeze energy prices around current levels ahead of a big increase that was supposed to come next month. she is due to give a speech today after she formally takes office. she has to go to see the queen first, and then she will give a more detailed announcement. that plan is pretty light on details so perhaps it is still being finalized but we do know it is now in circulation, a phrase in energy -- a freeze in

energy prices due to come today. dani: let's get to garfield reynolds from our mliv team. ros laying out more spending that we are going to see, potentially 130 billion pounds at a time when the boe is talking about frontloading rates and foreign investors have already fled from the gilt market. are they going to be any buyers left in the u.k.? >> one thing bond markets have shown this year is that there will be appetite for bonds that can give hefty yields. i think gilts will qualify after what has been going on. one factor is u.s. treasuries are already selling off as traders get ready for wall street to get back in after the labor day holiday.

and as well for the u.k., concerns about the extra fiscal stimulus. also, concerns about opec announcing its supply cut. and what russia is doing with gases driving up energy prices there. central bankers are determined to raise rates to tamp that down. we just had the australian bank sticking with its 50 basis point hike pace for at least another month. there are not reasons to see yields come down anywhere in the developed world, and of the u.k. just got an extra incentive for yields to go higher there. dani: and we have seen sterling react to the news of liz truss's plan, moving just below 116. do you see that move higher in sterling have any staying power? >> well, i think it could

potentially do so. one is going to uncertainty. a lot depends on whether truss's government can back out, god made -- can back up the promises she made. if the boe is at least as aggressive as others have done, you might see the pound get some sustained strength because of that interest rate differential. but the big concern is how credible will the markets regard the policies greatly tory prime minister -- the new tory prime minister delivered? dani: garfield relish from our bloomberg markets team.

coming up, volkswagen is driving ahead to list its minority stake in porsche despite markets turmoil. this is bloomberg. ♪

dani: welcome back to "bloomberg daybreak: europe". i'm dani burger in london. look like and has decided to push ahead with its -- volkswagen has decided to push ahead with this plan to list porsche this year. the german automaker is paving the way for what could be one of europe's biggest ipo's. joining us is craig trudell, this is coming at a time when markets are very volatile. we have seen other companies scrap plans for ipo's, why is porsche pushing ahead? >> there is definitely a family element to it.

the porsche family wants to have direct influence, that is incredibly important to them. it was a good 12 or 13 years ago that we saw an attempt by porsche to take over the much larger volkswagen. this is a sort of undoing of that episode more than a dozen years later. there is also an element of this benefiting volkswagen. you heard the ceo putting some comments out internally just over the last couple days talking about the fact that the proceeds would give volkswagen more flexibility to accelerate the transformation they are attempting. there is a lot they are trying to do in terms of going electric, and also a lot of effort to become more adept at

software. those things are really costly, and this is a situation where vw has a lot on its plate, and this can help toward all of those efforts. dani: thank you very much, craig trudell, our global car czar on the porsche ipo. also, keep an i out a possible speech from boris johnson as sterling continues to head higher, just under 1.16. more markets coverage to come. this is bloomberg. ♪

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anna: