dani: this is "bloomberg daybreak: europe."

i am dani burger in london. manus cranny is in dubai, and these are the stories that set your agenda. manus: vladimir putin tells xi jinping that he understands the chinese president's hesitance on trade. >> ukraine should get all of the necessary materials they need because they have proven that if they have the military capabilities, they can defend themselves and we know they are fighting this fight not only for this brave nation but also for us. manus: concerns of fedex's worsening business conditions withdraw the profit outlook, sinking u.s. futures as an ominous sign for the economy. plus, energy concerns. germany is set to move towards

nationalizing three major gas suppliers including uniper, racing to forestall a marker -- market collapse. fedex is a warning about profits. at 1992, i was an awful come already trader and broker, and the pound crashed and trashed. it was a brutal day for risks. dani: manus, i would not have been good at trading in 1992 as well because i was less than one years old. it feels like friday is going to get even more volatile. i have got to show you what fedex posted to the markets. this is the thing that lit stocks on fire overnight. fedex following more than 16.5% in the post market trading. it is all about the macro.

that is there concern for asia and europe. that was not enough to tip stock markets over and we have already seen the bond market stall off. the fed is slowing consumer demand down and there is also signs of that in the data we see. the port of los angeles has seen its shipment volume dropped the most since the start of the pandemic. is this finally a consumer slow down with a recession? is that what we are seeing in the futures market? all of these indexes from the futures market down at least 0.6%. manus: this is the reality of what we have been talking about. let me show you across the assets. you have this debate in the market that the bank of japan might beat because it is a back holiday.

one of the excuses is having short yen into the risk of intervention. you are just seeing a bit of a rally in the yen dropping on the dollar. i like what valerie put in the chart this morning, which is nothing short of an immeasurable rise of the rates market. even the fedex narrative has not shifted the bond market. nymex crude is up 0.1%. we have the housing market which is imploding in china, so even the better-than-expected data but also weaker sales did nothing to sell -- help overall risks this morning and nothing to help the property market in china. dani: let's get to our reporters around the world. eric is in hong kong will bring us up to speed with the latest data out of hong kong. dooley at saly will have the data out of the markets and this

dollar story on the yuan. and we will talk about energy nationalization with stephen stapczynski. manus: the chinese data is out and showing signs of picking up. all growing faster than economists had expected, but it did nothing to save the risk narrative, eric. you run us through asia. you have got the data, what is this telling you about the chinese economy and the effectiveness of the medium-term lending cuts we have had. are they coming to bear? eric: yes, if you look at headline numbers, that is better than expected, but we look at more details. the recovery was probably not as great as it looks because some of the strong members boosted by some what of the near-term

sectors, like retail sales compared to july, it is a month on month contraction, so the reason it is going up is significant because we had a low day last year and also we would like a cut in the auto sector that is boosting the auto sales, but if you were moving that trade, the month-to-month looks weak given the increasing covid effect on the small operating rates in august. and it is also in part boosted by the auto production and also by the electricity production, which is due to the hot weather in august, so we are not going to see that sustained in the coming marks. dani: eric, thank you very much. that china data failing to boost sentiment. you also have the pboc once again moving to shore the yuan.

let's get more with juliette saly in sydney. juliette: that psychological seven to the dollar barrier broken yesterday and we remain weaker on the offshore yesterday, despite trying to step in. yuan weakness once again as they hit july 2020 lows. we had the 17th day where the pboc was stronger than expected, so a little bit weaker than what we saw on that record on wednesday. the bank sang that the stronger fixing is unlikely to repair this level which we have been broken at, but it could slow down the pain while we wait for the pboc to take measures, and that is what the market is looking for even though that china data was a beat on some fronts. that is a weighing into the stock market pictures, so let's look at the weakness on the asian markets. the csi 300 slid down by one

point 4% and the regional stocks on track for the fifth weekly declines. we also heard from the rba governor today. he said the chance of jumbo hikes is diminishing as those hikes already taken their toll on the economy. yields have spiked particularly on the short end, up by some 11 basis points. manus: jules, thank you very much. juliette saly in sydney. the russian president has acknowledged questions and concerns to the chinese counterpart over the war in ukraine. it is the first meeting between the two diplomatic allies since the invasion. bruce einhorn is with us. we are struck by the lack of dimension on ukraine. what did she coup after -- what did xi offer putin after the

meeting? bruce: not much. in the comments from president putin, he referred to china's concerns and questions about the ukraine situation. president putin also offered something to china, adjusting china's -- addressing china's big geopolitical concerns, taiwan. putin blasted the u.s. and what he called a satellite of provocations in the taiwan straits. in return, xi jinping did not offer strong support for russia's war in ukraine and did not even mention ukraine. he just noted that china is willing to work with russia to display the responsibilities of the major powers and playing a leading role to inject positive energy to a world in chaos. nobody talked about a no limits

partnership. that is something the two leaders agreed to when they met in beijing in february, shortly before the war started in ukraine. that was a time when russia seemed like it was in a stronger position than it is now. it will be interesting to see what happens today. one last thing. putin will meet today with prime minister modi from india. we will see if he gets a better reception from the indians. dani: bruce, you know you always need to get the last word. manus: she cut you off, bruce. i would never do that. dani: manus is the kind one between us. [laughter] i will embrace it. bruce einhorn there. let's talk about germany. it is going through advanced talks to take over at uniper and two other gas suppliers.

let's bring in stephen stapczynski. we got on the headline coming over the bloomberg terminal, germany working on the takeover of uniper. tell us the latest on what germany is doing and the impact of it. stephen: the cost is going to be billions. and the impact, the largest impact will be on the shareholders. uniper, they are looking to take control stake over -- injecting billions to take that steak and that will also lose the shares from other folks, so they will have to be careful about it. they are also looking to take over the former gazprom unit as well as another company. i am now just seeing the rosneft news as well. it looks like in the situation they are facing, it is unprecedented we had so they need to take unprecedented steps to bail out there sector and one

thing to avoid from these companies going on a bust to keep gas from slowing, we look at the spot market to replace russian gas and that is nationalization. that is one way to control this. it is looking like the government is moving forward with those plans. it is complicated, but they have few choices available to get that rate down on their energy system. manus: stephen, thank you very much. it is a pretty big red headline and the margin calls grow bigger. stephen stapczynski on the latest from germany. coming up on the show, we talk about central banks beginning to address inflation expectations. we will have that conversation for you on "bloomberg daybreak: europe." dani: we also have members of the public paying their respects

to queen elizabeth ii. this shows you the drive and meaningfulness of this period of morning -- mourning for queen elizabeth. you're looking at westminster hall. later today, the coffin will be moved to westminster abbey. this is bloomberg. ♪

>> i am fully encouraged by the fact that all central banks, have reaffirmed very clearly that there anchoring inflation

at 2%. dani: former ecb president jean-claude trichet on central banks gaining control of inflation expectations. that is something the market is grappling with ahead of the next fed decision. manus: the debate of 75 or 100. we are joined by david seban-jeantet, portfolio manager at socgen. societe generale. welcome to the show. here we go. there is only one word to describe this week's narrative in rates and dollars, and it is the renewed tipoff.

does not endure? do you think we are in for a new evolution in dollar strength and repricing of rates and yields? good morning. david: good morning. on the first question on the 75 and 100 basis points, i think 75 basis points is largely enough for the fed to get credibility back. we have a neutral to curb inflation, which is the quantitative tightening. this will have even more impact on inflation then raising rates by another 25 basis points. 75 basis points is enough for the fed. that being said, on the dollar spread, that imprint is largely behind us.

to some extent, the dollar flow is undervalued, and we think the jumbo rate hikes are going to be in europe now with the ecb and this will drive the two year spreads in yields to the euro now. we might see the lows. dani: we are in this moment of crisis of change. there is this argument that perhaps things like valuations are being overstressed. someone over at citi -- someone over at citi said that to tackle tightening conditions, it is bad for equities, and the best place to hide is in u.s. cash. are they wrong? david: what we call is that the

presses in the dollar is over, but it is time to hedge. now if you are going to hide and you are going to be relative in this environment, looking for where values are, it is probably a safe bet in a way that you assure there is hike in rate cuts for a recession in europe. in the meantime, you have a fiscal policy where you are cutting off rates, so with this curb dying out and at the same time, the bank has 6 trillion euros of deposits, that is going

positive in december. i think it is a risky but relatively attractive bet in this environment. manus: that bullishness for the banks, i understand the basic thesis. bullishness on the banks from liquidity, but is there a contrary trade to that to the short european credit given the nervousness around the economy and energy induced recession? what would that mean for credit? david: we are not yet back to being bullish on credit, but we have spread now when you look at the crossover on 500 basis points. it is a 600 multiple.

you see the spread and you discount the repo rate. the baseline forecast moves to 3%. again, after the covid phase, there is energy default and companies will protect the balance books, the loan books to a certain extent. probably the credit market that is least advanced at pricing the recession risks. you could say that equity markets have fallen from a direction. we look at the prospects of a recession.

dani: we are just up against a break. thank you for joining and we appreciate your thoughts this morning. that is david seban-jeantet, portfolio management -- portfolio manager at socgen. the pound is once again under pressure. forcing the pound from europe. this is bloomberg. ♪

dani: whatcom back to -- welcome back to "bloomberg daybreak: europe." i would like to welcome everyone to the friday edition of karaoke with "bloomberg daybreak: europe ." we are looking back to the anniversary of black friday. what where the top of the charts on that day?

manus: boys to men where the number one in the u.s. i was at number 70 part lane, a dreadful commodity composer, it was 1992, so we go back 30 years. the 16th of september, quite literally, having two in a part lane. dani: shopping on the brain, i said black friday, but i've mentioned -- i meant to say black wednesday. manus: is fine. kerry and john major, he kept on the political fracture. the pound is under pressure and it was down 15% with a crippling energy crisis. it is like a rerun.

on this date in 1992, george sorrow made $1 billion as he trashed and bounced out of the exchange rate mechanism. it became known as black wednesday. let's take it to a man who also gets this. there is no other system that you were using there. talk us through, mark. is there any relationship between today and black wednesday? we are all searching deeply for a wrong correlation. mark: central banks are a bit smarter. they do not usually host specific targets in front of traders and tried to push the rates beyond that. that was on the problem of the exchange rate mechanism. in the case of the pound, the pound gets a bullish market, and when it reached trading day, the central banks got all of that

from germany and it was supposed to step in for the currency to re-stabilize it. but then we have a limited exercise on how we go for that and even central banks have currencies falling through the ford -- floor and the traders knew that. so the traders got emboldened and they kept on selling until central banks gave in. dani: i have got to push on the second part of manus' question. ken what -- can we draw any corollaries today to the weakening of the pound in 1992? mark: it is fundamentally tied to a weakened economic situation. we can see that the monetary policy and the fiscal policy were not lined up together, the state of the economy did not deserve the pound as strong as it was, and there were risks

ahead. you have something like that, it is going to be the equity market or the currency or the bond markets, and the currency is the easiest way for people to express that. you are seeing that again today. people are not coming out of this very well, so they break the pound. dani: mark, thank you very much. i feel honored to have both mark and manus there with us to walk us through the events. what a treat. bloomberg's mark cranfield there. coming up, tension between diplomatic outlays. we will talk russia and

manus: it is your friday edition of "bloomberg daybreak: europe."

i am manus cranny in dubai and dani burger is in london. dani: vladimir putin tells xi jinping he understands the chinese president's apprehension about ukraine. >> ukraine should get all of the military material they need because they have proven that if they have the military capabilities, they do defend themselves and we know they are fighting this fight not only for this brave nation but also for us. dani: demand concerns. fedex cites worsening business conditions as it looks at a negative outlook, showing negative signs for the economy. plus, germany moves towards nationalizing three gas suppliers, racing to avoid a gas

shortage. we are getting past the 1992 anniversary of black wednesday, but we are still transfixed by economic woes, especially after that fedex report. manus: you rightly flagged it, which is more about europe and asia than it was about the whole plan. it is undeniable. equities, bonds, cross acids have been crushed this week and the measurable rise continues. deadlock makes the point. the rates are rising and it is a reprieve therapy and we have gone from 4% to 4.4% as a terminal rate by next year. would you want to be short yen for the long weekend in japan? dani: no. manus: that is the answer from analysts. iron ore is having nothing to do

with it, but the housing market in china is still weak and you are going to need the ultimate issue, policy divergence between china and the u.s. dani: i am a woman who was up to my words. post market fedex falling by more than 16.5% in the post market trade. that is spot on. this is a global picture of asia and europe and what that means for lessening values. let me show you what futures have done in the aftermath of this. fedex futures are down zero point 8% for the euro stoxx 50 and the nasdaq futures. it is fascinating because he said the fed will go to 4% or above. the terminal rate already sees 4.5%, so our stocks pricing that in, or is there more pain to come? it is the worst week for

equities since july. manus: the fed funds futures likely overestimating a little over 4%, the diversions between one person's view and where the market is. what we have is an admission of tensions between diplomatic allies, russian president vladimir putin, acknowledging the questions expressed by his chinese counterpart over the ukrainian war. they met in was pakistan it was the first in person talk -- uzbekistan. it was the first in prison talk between the two since early february. >> it does show that this is not a relationship of equals. if you look at the remarks that the presidents made, president putin raised the question of ukraine and said that china's has questions and concerns. president putin also addressed

what is probably china's biggest concern when it comes to relations with the u.s., which is with taiwan. putin blasted the u.s. and called the u.s. a satellite for provocations in the taiwan strait. in return, president xi did not give much to president putin. it did not talk about how china is willing to work with russia, talked about how china is concerned with being a great power with assuming responsibilities and trying to inject stability and positive energy to a world in chaos. a very different tone between the two leaders here. dani: and it is not just xi and putin. we have modi meeting with putin today. what are we hoping for from that meeting? bruce: prime minister modi is

trying to strike a balance and he wants to be close but not too close to russia. russia is a longtime provider of weaponry to india, a major trading partner. india's imports from russia have soared the last year. they have imparted 13 billion u.s. dollars from russia this year. india buying a lot of fossil fuels from russia. on the other hand, given that india also has a close relationship with the united states, they do not want to appear too close to russia. interesting that prime minister modi arrived at the meeting in uzbekistan later in the day. he missed some opportunities to

be photographed with president putin and xi jinping. dani: thank you very much. bruce einhorn there. joining us now is terry haines, founder of pangaea policy and advisory. given all of the geopolitics, we are focusing in on xi and putin. we have xi calling putin a friend, but then you have put an talking about xi raising questions about ukraine. what is your take away on the current state of ties between the two world leaders? terry: the takeaways are clear. i thought for a long time that russia was in compliance with china. the question is simple. can russia make any major decision without the chinese ok and an active support and cooperation? the answer is most definitely know, and that became clearer as

a result of the summit were questions had to be raised. it is more clear he is the junior partner of the relationship. manus: thank you for coming in. what is the higher priority for xi jinping? is it quashing domestic concerns about covid and the rates rising there than it is to wrinkle and american war by doing more with russia? terry: wrangling america is always in the cards, but fundamentally what has to happen in china is that dissent needs to be tamped down and the ways to do that include dealing with domestic economic problems. china is a bit over a barrel now in a way it has not been in 40 years. it is the first major downturn, so as they move into the

important october meetings, what needs to happen is that president xi and his party need to move forward and show proactive ways they are going to be able to address the domestic situation. you can continue to expect a high degree of key measures about the united states position, but this is to some extent once they get past the party summit. dani: does that mean the possibility of sanctions from the u.s. on china is a more proactive deterrent than it has been in times past heading into this momentous time for xi? terry: you are absolutely right with that. the threat of sanctions has now the potential for greater affect. i still think the united states is away from actually doing that, but at the same time, it

is made clear that china's plans in the south china sea and beyond are not going to stand not responded to, particularly as taiwan matters . manus: what is going to define the midterms for biden? detached from those issues because i am an irish man living in the middle east. what do you think the outcome is going to be? terry: let me go to your last point. there is a great deal of discussion in the united states and beyond about which party is going to control things. that is a misnomer. there will be majorities in the congress, but they will be so small regardless of which party ends up winning that there will not be any control.

the net end of that situation is probably similar to today. out of the 100% high, i will give you 40% that the republicans eke out all of the majority votes, 40% that there is a split, one party has one house and the other party has another, and a 20% chance that democrats have both houses. the net points for the voters -- viewers outside of the united states is that there are little changes. there is continued bipartisan unanimity on foreign policy whether it be on china, ukraine, or other issues. parenthetically, this is an opportunity for the united kingdom's new prime minister, truss, to have the opportunity to push harder on trade deals with the united states. dani: it is a big moment of

change for the u.k. and all of europe. i look at sweden and the right-wing getting for the first time a position in government. italy, maloney looks to be the front-runner for the premier. it looks like this wave is taking over europe considering the economic outlook. what does it mean to have more populist governments coming to the fore at a time when you have central banks tightening policy? terry: we are in a generation where fiscal policy makers have not had to think very much and now they do for the first time in a while because monetary policy has been positive before it is a fiscal. now you have a situation where there is inflation around the world and many steps have to be taken by the central banks to pull that back. at the same time, the fiscal policy makers are acting because they have not heard that in a while.

they are making political calculations whether it be truss in the u.k., biden in the united states, that throwing more money at a problem help it and shows empathy, but that situation is not going to last because of the increased deficits that result. the net debt is that you are going to see populist inspired by this disparity between fiscal and monetary policy. manus: can we pivot to get your view -- i am sitting in the uae, my neighbor is saudi arabia. we just saw in 1992 where the sterling crisis happened and it was the bush administration with a different world. here we are in a different part of the world. it is an important moment. what do you make of the foreign policy moves by biden in this part of the world?

how seismic of a shift was that? how important is the middle east to u.s. politics? terry: middle east is very important to united states politics. what the biden guarded against is focusing on one nation or one set of issues at the expense of many others. for all of the interest that the biden administration showed towards saudi arabia, it is entirely justified. it is an important ally and partner with the united states. i know there's concern and disquiet among other allies in the region that things on their agenda and the broader middle eastern concerns are not necessarily being addressed. i think the biden administration is going to have to not only

take a broader look at the kinds of things that it can do to help procure peace in the middle east and bring up the economic circumstances as well, it is going to have to listen to its allies and partners outside the kingdom itself. dani: really fantastic to have you on and thank you for making a stop here on your trip to the u.k. terry haines, founder of pangea policy advisory. coming up, ursula von der leyen calls for more arms for ukraine. you will hear from her next. this is bloomberg. ♪

juliette: you are watching "bloomberg daybreak: europe." germany says it is taking control of rosneft's german

unit, including three oil refineries as the country gets to grips with a looming energy crisis. it is looking to take over uniper and two other large gas suppliers. the government could buy control of a stake in uniper and invest through a capital increase. ukraine's president volodymyr zelenskyy says massive aerial site has been -- burial site has been found in izyum. the u.s. is giving ukraine $6 million in additional weaponry. that brings the total to almost $15 billion worth. ursula von der leyen has called on allies to provide ukraine all of the military aid it is asking for. speaking to bloomberg, she said that ukraine's recent destruction will be discussed at

a european congress later this month. >> ukraine should get all of the military materials they need because they have proven that if they have the military capabilities, they do defend themselves, and we know they are fighting the fight not only for this brave nation, but also for us. it is a question of whether autocracy will prevail and dominate or whether democracy will win. it is democracy that has the standing to win. whatever ukraine needs to defend itself should be given to ukraine. the reconstruction of ukraine needs many helping hands. we have discussed today how we can create a platform where the many friends ukraine has not only in the public sector governments but also the private sector can contribute to the

reconstruction of ukraine. we will have a first reconstruction conference for the 26th of october in berlin together with the president in germany. we will discuss how to most effectively organize the reconstruction, but of course as i european union, we are willing to take the responsibility to the different funding stakeholders that can join the platform. juliette: that was e.u. president ursula von der leyen speaking to bloomberg. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. dani. dani: thanks so much. juliette saly in sydney. coming up, warnings to the delivery giant fedex as they have risk assets overnight. how markets are dealing with the

prospects of more economic disaster. ♪ manus: some pictures now of the crean -- queen's coffin lying in state. the public are still able to q ueue to walk past her royal highness. that is open 24 hours a day until monday. members of the public around westminster abbey. the funeral preparations are being made and many dignitaries from around the world will be there to pay their respects on monday. ♪

dani: welcome back to "bloomberg

daybreak: europe." let's talk about fedex because the warning from this has crushed stocks overnight. fedex itself tumbled more than 16.5%. it is a flagging worsening micro-conditions from asia and europe, all meaning -- macro conditions from asia and europe, all meaning that the economic picture could get worse. that's brings in bloomberg's managing editor, -- let's bring in bloomberg's managing editor, mark cudmore. yields continue to go higher. how are you interpreting the markets' reaction to the bad macro news coming from fedex? mark: we care about these extraction of micro signals into a macro context. we only care when markets are

doing terribly. when people are looking for bad news, they are very attuned. the reaction here was quite notable to accompany that have a lot of people selling stocks on the back of this. i think that shows this is a market that is very vulnerable going into the fed next week. the selloff we saw on wednesday has not been enough to shake their positioning, has not been enough to cause capitulation, and that means more downside going into the weekend. manus: if you look at the bank of america survey, we started the week -- on friday, which is so bearish on stocks. they made the point that it may be more difficult for the equity markets to go dramatically lower. they are already in an extreme positioning. i think that is a flimsy narrative. your take?

mark: their look back period for the stressed dollar positioning is too short. the dollar is not very stretched. people are long on the dollar, but people are not overly stretched. people also do not trade off valuations for a once in a decade regime change. stock markets are no longer expensive. u.s. stock market was extremely expensive last year, but they are not cheap. you have got a long-term horizon and this might be developing where you might want to start buying and accumulating assets. it is not at that capitulation yet, and with the markets overshoot, they are not cheap. the environment is getting much worse. rates are tightening. which means it is likely we are both going to see earnings come lower next year and multiples

shrink. i expect prices to go much slower and we are going to be on a capitulation watch before we are on a watch for bullishness. manus: you have the framework much lower, but do you think we are down lower 20%? dani: you have 20 seconds to say it. mark: i think rates will go higher than 4.5%. it is a possible target. dani: there you go. take us out on the bearishness. you have got to love it. mark will be bad in a moment. -- back in a moment. this is bloomberg. ♪

anna: good morning. welcome to "bloomberg markets europe."