dani: this is "bloomberg

daybreak: europe." i am dani burger alongside manus cranny but the stories this at your agenda. manus: president xi and putin are set to meet for the first time since the war in ukraine. plus, bridgewater could tank. the eu sets its sights on -- to counter its idea of a price cap. good morning. we have some pretty big divergent views.

the beasts and veterans of wall street go head-to-head. good morning. dani: good morning. we saw some of that play out yesterday. european equities ended the day down. perhaps they will play a little bit of catch-up today. futures into the green. some of the hong kong indices are doing better. it is a mixed bag when it comes to s&p futures. for all intensive purposes, they are flat. tomorrow, $3.2 trillion.

adjustments are made ahead of those options. manus: also, the bond market choked on that tenure auction this week. they are salivating at the thoughts of 4%. this is what we have for you. 4.5--- 4.5%-6%. a rate of just over 4%. dollar-yen, the dollar is strong. he doubts it would be g2 intervention. they do not want anymore dollar weakness. the iea reckons that china will fall the most in -- since 1990.

note price cap yet. of course, the magnificent bond has it all. we came in this morning, we asked about that yield convergent. it really feels like treasuries at this moment belief that the fed is not just talking the talk they will walk the walk. they will send this economy into recession to get inflation down. manus: i like what cathie wood said. they have to break something before they stop. you are looking at the rest of inversions. the chinese curve, the most inverted since 2007. huge economies send pretty good signs about it. all more inversion to come. let's get to the agenda. dani: the signals are certainly

gloomy. let's get to some other top stories around the world. we will get the latest on jean jinping -- on xi jinping's trip. manus: we talked about wall street. ray dalio warning that rachel have to rise up to 4.5 percent-6%. it is a good time to buy stocks. it is tracking the narrative. how should investors interpret this. the time for investors. no major recession and than the

fed taps out. >> i'm sure they would see that as a longtime investor. he is probably thinking about markets over the last decade. he is probably looking at what happens now in that context. we have had a big disruption. i'm looking at companies that would survive for a long time. i see some value there. i am sure that is what investors are thinking. someone who can sit with their investment decisions for a long time. not everyone can. you have to take that into account. you may be pointing out some very salient points about the market but not everyone can trade the way he does.

dani: the other hand, we have ray dalio talking about 4.5%. terminal rates with a slide in stock. these views coexist together. >> i think what he is saying is more representative of what you're seeing. inversion that you're talking about earlier certainly ties in with the kind of risky was talking about. people use that as an insurance policy. they can get the soft landing. it turns into a hard landing and eventually they have to change course. not case. if you do fear that that is a reasonable risk, you would want to go is far down the yield curve as possible. that will give you the protection, if the fed does make a mistake.

that jumps too much and consumers pullback. that is really what it is. a hedge in portfolio risks. in the short-term, they be retrading in a more aggressive way. the background, they will probably keep it. dani: thank you. mark, there. humiliated by lightning fast ukrainian gains, vladimir putin seeks to turn the tide in his struggling invasion. he will meet the chinese leader later. for more, where joined by bruce einhorn. coming into this meeting, is in eight different position. how does that factor in from

what we are expecting from the two leaders? >> you make a good point. when you meet them in time of the beijing olympics and announce the no limits friendship, russia was on the verge of invading ukraine. love people and russia, and the west, elsewhere, thought it was going to go very quickly. of course, that did not happen. now, they are meeting at a time when russia just suffered a humiliating defeat in northwestern ukraine. not a president putin himself but of his management of the war of mainstream politicians.

they just referred to this as a war. being the people were not allowed to say. russia needs to treat it as a war and have mass mobilization. something president putin has hesitated to do. they might change their views on the war if there is more hardship they have to face directly. this is the backdrop to the meeting that will now take place. meanwhile, the chinese president is coming in in a weakened position from where he was because they had multiple covid outbreaks, had that long shut down. manus: there is not a lot to do -- he has had a lot to deal with in terms of domestic. thank you very much, bruce, the

very latest on the upcoming meeting. growth has slowed sharply. several major banks may not make it to the 3% level anymore. to dive in deeper, let's bring in our chief agent correspondent. when i read this story, i was not exactly shocked in that consensus is building to the left-hand side. your much more dexterity us then i. >> it is the pace. the government sets it, you think it would hit it. here we are in september and most economists are settling around 3.5% growth rate this year. it is all because the economy continues to be spiraling.

even if there is a bit of a bounce, it is expected to show retail sales. all of that is expected to remain. it is because of covid zero, the real estate slump, exports. that is the backdrop for that meeting with vladimir putin. china's economy is slowing down and not getting much of a lift from external demand either. that goes to show you that a shortage is not the problem. it is trying to get the spirits on investing again. dani: thank you very much. to europe, where the commission has proposed to member states changes that would lead to a

squeezing of the sector. it all comes as they ramp up as a result of gas supplies. where do we stand in terms of proposals and industry response. >> you have a few things. they are looking for a demand cut round 5% of peak hours. 10% in total. that is unprecedented, never been done before. you're also looking at levees or windfall tax on energy producers of to a certain degree. that would likely go back to help support households and small businesses as they deal with the larger our bills. there also seeing more money being brought in to help them

with this liquidity problem in the futures market. all of them were so high that it has dried up liquidity. more broadly speaking, bloomberg has reported that the german government was looking to nationalize or bailout the largest gas importer. the french government is also looking at several measures to provide more money for their utilities. u.k. is looking to freeze power bills. everyone is looking to do something. in terms of an agreement, nothing has been done yet. hopefully, they are looking to get something done early next month or this month. manus: let's see what actions they actually take.

quite a fast clip across infrastructure and production. we have this agenda. ecb gives a keynote speech at the conference in lisbon. we have u.s. data including retail sales and initial jobless claims. later in the day, results from the u.s. giant adobe. dani: is also worth noting that we have chinese president xi jinping continuing his trip abroad. he is expected to meet vladimir putin. this will be the first meeting in person since moscow's forces invaded ukraine. manus: they will be interesting to see the theater that comes with that. coming up, are you brave enough to buy the dip.

-- brave enough to buy the dip? the clues on who you listen to about u.s. wall street. dani: we will also talk about private credit with blair jacobson. stay with us. this is bloomberg. ♪

>> 75 will be on the table. >> we have more reason for 75 basis points. >> we will see higher and higher rates if these numbers keep coming this spring. >> i think markets are overreacting. >> the fed is not going to blink. pres. biden: the stock market

does not reflect the state of the economy. dani: they are discussing current market conditions in fed policy. >> joining us now is hani redha from pinebridge investments. i love what you have written here. we expect the ongoing anti-goldilocks scenario. what is that? what is called porridge look like? hani: good morning. through 2020 and 2021, we had a goldilocks environment for markets overall. we had growth accelerating and loosening financial conditions. perfect condition for all things financial to go up. this year, we are telling our clients is that we will have the

reverse. decelerating growth and tightening financial conditions as the fed's operation catch up went into full gear. that is different for most financial assets. that is what anti-goldilocks means. a lot of that is behind us. dani: it is due and gloom. goes on to this year. what changes, what is the regime shift to a more favorable environment? hani: it will beat the recession that resets. dani: that does not sound like a light at the end of the tunnel. hani: that depends on your position. if you keep it powder dry, that can be a good entry. keep your head down is the way

to position for now. or, we have a soft issue lending to use the fed's own language. either way, metro -- macro cycle becomes the inflection point to see markets have a durable rally. manus: we are getting it all this morning. anti-goldilocks, summer fling, the summer of love that fades. 15 years of low mortgages. it took 15 months to undo 15 years.

>> that scenario that is still playing out will be dragged. very early indicator and i think we'll see a monetary growth if the housing market is still in a downturn. this is the place to keep your eye on for the leading edge. it also has an impact on inflation data. we saw this week with the shelter component being the sticking part that got people's eyebrows up. dani: rent is surging the most

since 1990. it is remarkable to seat risk assets come back. they took a bath immediately in the aftermath. is there some sense that this set up is risky, toxic going into the fed meeting? hani: i think it is really on thin ice. mixing a lot of metaphors here. manus: we love it. dani: we can see these attempts to rally. it is really difficult when you have the fed in this mode of tightening. we think it is not going away. you can expect that continue to rise for the next few months or so before we see any kind of turnaround.

that links to what is being said about the housing market. is not just in terms of churn and burn and flipping, it is the chronic lack of building that we did in the last cycle that leaves a shortage of housing for people to live in. manus: i should refer to my own brothers movements in terms of the market flipping and burning but that is essentially the average american family. i want to know why -- that is a moderate view. do you think the move by china talking to return and pfizer could be the game changer? why are you overweight? hani: this is the marketplace

with a lot of dirty shirts. the exercise right now is to find the least dirty shirts. a lot of people came out of the earnings season feeling that things were less bad. that is not particularly exciting. things are disappointing. for us, i would rather take a disappointing recovery over less bad than feared. it is a less dirty shirt. dani: thank you so much. wearing the less dirty shirt, skating on thin ice, with the anti-goldilocks. i think i got it.

dani: welcome back to "bloomberg daybreak: europe." i am dani burger in london with manus cranny into by. after a cpi report that had $2 trillion off global equity markets, it is a little underweight. an xfinity rewards special offer. xfinity customers join xfinity rewards and get an early access code to play the open beta.

early access begins september 16th, first on playstation. visit xfinity.com/rewards. an xfinity rewards special offer. xfinity customers join xfinity rewards and get an early access code to play the open beta.

early access begins september 16th, first on playstation. visit xfinity.com/rewards. manus: this is bloomberg europe.

i'm manus cranny in dubai with dani burger in london. dani: a friendship with limits. president she and put in are set to meet for the first time since the war in ukraine. plus, bear versus ball. ray dalio warns of stocks could sink another 20% while david rubenstein says it is time to buy the debt. the eu sets insight on energy windfall taxes. but shelves the idea of price caps. let's continue with that story in europe. the european commission has proposed to member states are raft of regulatory changes to alleviate the liquidity squeeze in the energy sector. >> the design of this package is extraordinary. emergency intervention package,

temporary, for use in special article in our treaty. that means members state will be able to find agreement very fast. i saw a willingness among our ministers that they will support measures today. that helps them support their consumers. and also, avoid rations or need for curtailment. dani: let's get to stephen stapczynski. we've had a lot of signals from the ecb, be at various drafts, where do we stand in what is being proposed? >> one of the big things would be a levy on energy companies. they are looking at a wind all tax for those making profits above a certain point. i want to protect households and small businesses, but also add

more liquidity to trading desks. essentially give them away to pay for margin calls because they have been enormous. with liquidity drying up across the gas and power futures curve, you are seeing a giant swing on prices because there is no one able to trade. the few trades there are, are so wide. providing more liquidity will be able to shore up that market. they are looking at mandatory power demand cuts, 5% during certain peak hours. and revenue caps to lower the cost for power generation. and to lower power demand by 10%. nothing is a done deal. there are still discussions ongoing. there are hopes something will be done this month or early next month. dani: what is the it reaction from industry likely to be?

jp morgan talking about the idea the windfall tax means oil majors will step back on spending. >> this creates an issue because reducing demand is important but what about supply? if you are doing a windfall tax, if you are an energy major, you have spent billions investing in natural gas, oil and coal as well. for much of the last decade, prices were lower. this profit could allow them to reinvest in more upstream fossil fuels. whether it europe wants to reduce demand of fossils because of the energy transition, that's another discussion. but capping profits does provide a difficult situation for energy companies that don't want to increase supply. it creates that paradox.

it will be difficult for companies and governments to reconcile those differences. dani: that's bloomberg's stephen stapczynski. manus, you have been seeing this play out in energy futures, china driving oil markets, i know you have had your eye on not gas futures. manus: you and i were chatting about this this morning. you know the conversation the other day about central bank policy trading on hope, there are a european gas futures ending the day up 9.7% intraday. hope is the alpha policy in europe. natural short closures will take the demand heat out of this market. that is their policy, that is a risky policy but validated by the people i have spoken to. dani: this is consequential not

just for energy markets but every european corporate facing higher bills. let's dig into that more and focus on private capital. as its backing european private capital are expected to double in the next four years. now a lot of that growth is going to be led by debt private markets. this is a sector that has to contend with risk, from rising interest rates to recessionary fears. all of which could sour sentiment and spur defaults. someone who is very familiar, blair jacobson, the cohead of european credit at ares management. a pioneering force in direct lending. it's a fascinating time from the industry considering covid, this huge lending sperry -- lending

spree from you and your peers, has it held up considering recession? blair: we are facing three major concerns. the highest levels of inflation many of us have seen in our professional careers. it started last year and has been exacerbated by the war. we are in a rising rates environment. central banks have said it is going to continue. you mentioned fears around an economic slowdown and recession. we have been consistent, cautious. we are benefiting from the fact that private equity firms in europe are sitting on record amounts of dry powder. that is now may be 35%, a favorable demand imbalance. dani: are you scaling back in terms of how risky you are willing to get in deploying

capital? blair: part of our model is we have been highly selective. we talk to maybe 2000 companies every year in europe. we make loans to maybe 30, 40, 50. we are looking to back the best companies we can find in defense of. manus: it's good to have you, you said you have become more cautious, the natural pro quo is out of 1200, you do 40. where are you most worried about default risk? blair: our portfolio naturally under weights sectors that are most default prone. you won't see a lot of consumer retail, energy, oil, power, media advertising. we are focused on stable sectors that are less linked to gdp growth.

sectors like telecommunications, health care, software and business services. dani: we have heard anecdotally of others who are pulling back on lending, who are worried about defaults. what are you seeing that is allowing you to continue to do this when others aren't? blair: it starts with a strong capital base in europe. we have 80 people in six offices looking for transactions. it is dependent on which companies you are focusing on. we have focused on being senior in the capital structure, tightened up our loan documentation in case things decline. . dani: you are preparing, but are you expecting some defaults? a default wave. blair: we are mindful of the macro. however we are long-term investors. we have seen in the first six months of the year companies continuing to grow. they have passed on the

inflation they have seen by raising prices. as a lender to these companies, we have a different outlook for what needs to happen compared to what key stakeholders need to see happen. manus: that is about the capital structure, and therein lies the point. private credit loans are floaters. the majority are on floating-rate. are you seeing a large appetite to switch? are you having to consider that to help weather the storm? blair: that's a great observation. we are in a rising rate environment despite the macro. for us, it is a double-edged soared. -- sword. our best returns go up when the base rates increase. the question you are getting at,

at what point do companies have trouble absorbing base rate increases? we have done map on this as it relates to our portfolio. base rates need to rise 6% for it to start pinching companies. the other factor, starting in january this year, most of our company started to hedge their interest rate exposure. manus: floating 6% rates, do you think there is a risk as ray dalio says? blair: the forward curves would not indicate it is expected. when i moved to the u.k. in 2005, the rates were 5% going to 6% so it could happen. dani: are you hiring more restructuring experts in your business? blair: we have always had that as part of our team in europe. we have 15 dedicated to

monitoring the portfolio. we have three senior-level restructuring experts. we have always had at the cornerstone of our strategy capital preservation. when you are lending to middle sized companies, things can happen even in good environments. strong defense is a part of our strategy. dani: you are cautiously optimistic for ares, but the future of covid was this hunger of deals. people doing light lending where they had less protections. are you fearful for the industry and as a whole? blair: we did see this trend coming into 2022. by our estimates, the european direct lending market went to light. that means you only have rights when the company has liquidity issue.

those aren't loans that we participated in and i would be concerned if i had a lot of those in our portfolio. manus: one last squeeze, who is the most desperate for funding at the moment? because we are fascinated. who is the most desperate at the moment? blair: what we have seen his increased demand from larger companies. this is an interesting dynamic. the capital markets are basically closed. commercial banks are risk off. investment banks are risk off. that has created a nice dynamic because we are a large-scale fund manager, so the average profitability of a company we are lending to is probably up compared to last year. big convergence trend lending to larger companies that can't get

capital today in traditional liquid markets. manus: go for size or go home. blair jacobson there. cohead of credit at ares management. let's get you laura wright in london. laura: volodymyr zelenskyy has visited izyum, the largest city captured from russia during a counteroffensive in the country's northeast. a car carrying the president collided with another vehicle. the president did not suffer serious injuries. underline has worked to provide access to your brain. -- ukraine. korea and u.s. are stepping up efforts to resolve the dispute over electric vehicle subsidies. in an exclusive interview, the trade minister said the two

sides will hold talks on friday. the chinese mega-city of chengdu is allowing most residents to leave homes, dismantling a two week lockdown. people who tested negative in the previous 24 hours will be allowed to return to work, all transport hubs and supermarkets will reopen. global news, 24 hours a day, on air, and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries. manus: coming up, xi and putin are set to meet for the first time since the russian president launched his invasion of ukraine. testing the no limits relationship. dani: indeed. we want to bring you live pictures from westminster hall, where britain's queen elizabeth

the second is lying in state. mourners are queuing, even at 3:00 a.m. people were still lining up to pay their respects to the monarch. manus: that line will last until 6:30 on monday. it is on a raised platform called a catafaulk trade in royal standard with the crown. this is bloomberg. ♪

manus: daybreak europe. i'm manus cranny in dubai with dani burger in london.

humiliated by ukrainian gains on the battlefield. the russian president is facing narrowing options as he seeks to turn the tide on this seven month old invasion. he is unlikely to be thrown a lifeline when he meets the chinese leader in pakistan -- uzbekistan later today. bruce, putin's position has changed since their last meeting which was this great brotherly love with no limits. >> you are right. that was back in february around the time of the beijing olympics. the two presidents met shortly the or russia -- shortly before russia invaded ukraine. at the time, lots of people expected it would lead to an easy russian victory. that hasn't happened. now the two presidents are about to meet under different circumstances.

russia has suffered this humiliating defeat in northeastern ukraine. there is a long way to go before this war ends, but russia is really in a different position than just a few weeks ago even. it puts president putin in a very weekend position -- w eakened position when he is meeting with president xi jinping today. dani: for xi, it is a different picture as well considering what china has gone through. talk us through what it means for this meeting. >> xi jinping has had his struggles as well. shanghai had a multi-month lockdown. there are still covid cases all over the country. president xi is going after this latest lockdown in chengdu, huge city in western china.

it was several weeks as opposed to several months. president xi jinping can point to this as a sign that his zero-tolerance policy is working. of course, at a huge cost to the chinese economy. and to people whose freedom is restricted. if you compare the two presidents and where they stand compared to when they last met, xi has the advantage. manus: bruce, the war, zelenskyy visiting the frontline, putin facing down pressure amongst the public and in the kremlin. that is growing in terms of the scale of the losses. are we at an inflection point, or is that an overly optimistic western interpretation? >> it is possible we are at a

major inflection point. that has been a major defeat for russia. losing ground they had spent months fighting to gain just in a matter of days. we're seeing criticism not of president putin but at least of the management of the war from mainstream political figures, including the head of the communist party who has referred to this as a war. that was a taboo word for a long time, you are supposed to call in a military operation. that is something president putin is still reluctant to do because he doesn't want to risk a backlash. what we are seeing is russian attacks on civilian infrastructure in ukraine. that is a violation of international law. russia says they are not doing it but these attacks have happened and are likely to continue. dani: bruce einhorn giving us

the latest on ukraine. it's the merge. crypto markets racing for an upgrade for the history books. this is bloomberg. ♪

dani: welcome back to daybreak europe, i'm dani burger in london. manus cranny is in dubai. ethereum is getting a revamp which will make the blockchain more efficient. according to developers, that should pay the way or -- for it to scale up and become quicker. the update which has been years in the making should go smoothly. investors are wary of pickups. we are joined by our senior crypto reporter. where are we with the merge at this point? >> hey, dani.

the target timing has been pushed back a little bit as the hash rate goes down. it looks like some miners may be going off-line just a little bit. it looks like it is going to be at the back of the next hour. it is still imminent. manus: tell us, how is the market reacting? is it seamless? >> it looks like so far things are going pretty well. there are a lot of people hedging. there are still some caution, and there is still, ether itself is little changed on the day. there isn't a huge amount of enthusiasm at this point in the price. but we will see when this actually happens. if it goes up, people think

there could be optimism. it could be a bigger move after it is done. dani: joanna ossinger giving us the update on the merge. it's going to be an interesting 24 hours. we have u.s. data including retail sales. it will be interesting to look at how much the consumer is willing to spend right now. manus: xi meeting with putin. we have just nipped to the downside in the equity markets. from our interview, 6% is where it begins to pinch on the economy. "bloomberg markets: europe" is up next. ♪

an xfinity rewards special offer. xfinity customers join xfinity rewards and get an early access code to play the open beta. early access begins september 16th, first on playstation. visit xfinity.com/rewards. s is amazing. and keep it off with golo i've been maintaining. the weight is gone and it's never coming back.

with golo, i've not only kept off the weight but i'm happier, i'm healthier, and i have a new lease on life. golo is the only thing that will let you lose weight and keep it off. who loses 138 pounds in nine months? i did! golo's a lifestyle change and you make the change and it stays off. (soft music)

anna: good morning. open to "bloomberg markets: europe", i'm