♪ >> good morning.

i'm dani burger in london. energy clash. russia threatens to cut gas supplies through your crane. it's less lincoln thing western europe as the eu declares the lord stream -- nord stream disruption sabotage. sterling resumes its decline. the dollar climbs yet again and stocks tumble. >> the volatility will go on. if you look at the inflation numbers in europe and interest rates going up, i can't see that the volatility goes away over the next 12 months. dani: volatility probably the understatement -- volatility here to stay. probably the understatement of the century. we have continued pain when it comes to the european energy markets.

we have this continued hawkish speak from the fed. we had bullard yesterday talking about this idea that you need to continue to raise interest rates in order for them to retain their credibility. stocks selloff yet again. we have a bloomberg scoop that apple will not be increasing production of iphones. european stocks futures down nearly 1%. u.s. dollar again continues to hit new highs for the bloomberg dollar spot at its highest since two thousand two and we have really seen treasuries under pressure. we had an abysmal five option yesterday. 10 year yield hitting 4% are in the asia trading session.

it's also what's happening in the u.k., the action in the long end of the market was remarkable. yesterday a second consecutive day of a more than 40 basis point move. it has moved over the past 20 days nearly 200 basis points. this 30 year yield is implied daily move eight basis points. this is bar shock levels. we have to contend with an extremely different volatility picture. pension funds deleveraging. certainly something captivating spilling out into the wider globe. it's not just u.k. and u.s. assets. asian assets are under pressure amid all of this. juliette saly has it covered in singapore. >> look at the regional benchmark index. we have not seen this level since the height of the pandemic

significant selling coming through once again in the region. you mentioned the apple story had of course the apple suppliers in this part of the region very much being hit. we are also watching the big moves in yields similar to what you saw in the treasury market and we saw the u.s. treasury yield get towards that for percent level for the first time since 2010. in australia -- the yield on the 10 year's jumping around three months. we are still seeing weakness in offshore currency that has hit a record low against the dollar. we've got the onshore at its lowest since the gfci. mike comes to the overall selloff in asian stocks, the drawdown 36%. the most we have seen in around a decade. in 2011 when we had the european

debt crisis, the japan earthquake and america losing its aaa status. it is going to be a seventh weekly loss for the regional benchmark index. with the third time that has happened this century in 22 years. dani: let's get to some of our other top stories. maria tadeo is with us on the energy crisis. garfield reynolds to talk about the market reaction and charlie wells talking about his meeting with top london bankers. let's start with the energy story. the nord stream pipeline has been damaged. joining us is maria tadeo. what do we know so far about this? >> there were explosions and

leakage around the nord stream one and two yesterday. the swedish and danish put out a press conference in which they say they believe this was not a coincidence and it was done deliberately. that means someone intentionally tried to do real damage on critical infrastructure and blow up the pipes. we have reaction which i want to bring in from the head of the european commission because the language here tells you a lot. ursula vendor land -- ursula vendor land -- she also goes on to say any deliberate disruption of active european energy infrastructure is unacceptable and will lead to the strongest possible response.

the other thing is that this could be a serious risk scenario. there is a big difference between playing politics on the supply side to potentially actively blowing up infrastructure and that is exactly what ursula von der leyen is alluding to hear. dani: maria tadeo from brussels. the imf has delivered a stinging rebuke of the uk's new unfunded tax cuts, calling them excessive and in need of revision. adding to criticism of a plan which sent the pound to a record low in the bond market under extreme pressure. we are joined by enda curran. how strange is this to hear the imf criticizing fiscal policy from the g10 nation? >> it's very direct, it's very

blunt and unusual to be aimed at an advanced economy the size of the u.k.. the policy looks excessive on the physical side. they said it could in fact end up stoking inequality. so it was a very direct rebuttal by the imf. the first time they had clashed of course. the imf was back against u.k. policy. i plan to set out their own fiscal policy

right now it's a very stinging rebuke from the imf and it is pretty unusual and it goes to show the amount of international scrutiny towards the uk's recent actions. dani: i have to wonder if part of the imf thinking is that perhaps there are consequences beyond the u.k.. we heard from fed officials warning about that. is there an idea that this could have a bigger spillover impact than just the u.k. itself? >> certainly there are international elements making this comment. it's more about what it means for mobile market sentiment and of course how it spills over to europe. there's no doubt about it that the global community is keeping an eye on this for spillovers and waiting to see what kind of response will come from the central bank. a recession for the u.k. is clearly not good for the european or global growth story either.

dani: thank you, and a one way this has all played out is some of the damage we have seen in the gilt market. on term borrowing costs soared above 5% for the first time in two decades. moves of more than 40 basis points for the past two days. nelnet spilling over into the u.s. markets. -- has elevated inflation and rapid central bank tightening drive of global route. let's get to garfield reynolds. something like a u.k. 30 year yield traded like distressed that swinging 40 basis points in just one day. are these the kind of things that make you start to think about a bar shock in this market? >> i think you have seen some signs that there might have been

bar shock going on because of the way this keeps on infecting treasuries and all manner of other assets. it's exactly what happens when you have a shock like that. there are a lot of people trapped in gilts they would like to sell but they have already lost so much and they're worried they're going to lose more when they actually sell them, so he sell something more liquid like treasuries. so that your books look a little bit better. there's definitely been times that some of the moves in treasuries are being driven by a sudden desire to dump these assets. and they're also concerns out there about liquidity in the treasuries market. finally you've got your stronger dollar move which is also adding to the concern in the bond market sound the japanese yen got close to 140 five per dollar again overnight. that has some worried that the

ministry of finance would need to intervene again. it's been so much last week when it intervened that they are now going to be facing a situation where they might have to tap their treasuries holdings in order to buy yen yen. agencies are worried that japan might need to sell treasuries. that would be another source of sales of treasuries. dani: sometimes i need to remind myself how strange it is to see things like aaa government paper selling off the way it is. these are usually havens that don't behave in the way that we are seeing right now. are there any signs that some of the selloff can slow down? >> the one song that is out there is you've got a lot of people invested and strategists saying that at least some parts of the government bond markets

are starting to look attractive. there's a strong anticipation that all this is going to push places like the u.k. and elsewhere towards recession. when that's the case and you look at 10 year u.s. yields at 4% and you look at markets still reasonably confident that inflation will come down in the next year or two, those parts of the bond market further out, we have had jeffrey gundlach talking about how he's buying treasuries. citigroup is investing. jp morgan assets saying they are looking to add to longer term debt. as that chorus of investors grows and they start to buy, that does give you a chance if other things settle down for these yields to come a bit lower or at least stop climbing quite so rapidly.

dani: fair enough. it goes back to the point that perhaps it's not tina anymore. there is an alternative now. thank you, garfield reynolds. citigroup met with top wall street executives to discuss the government's fiscal plan amid a plunging pound and surging bond yields. we got a statement from the treasury about what's happening so far. what are we expecting? what's going to happen behind closed doors? >> it's been a big week for the chancellor. he is slated to meet with executives from the top banks and those executives are going to have a very simple question. what happened? this was a government that was supposed to be pro-business. this was a budget announced on friday that was supposed to be pro the city. we have seen one of the most

dramatic weeks on records -- on record in recent memory. the questions are going to focus on whether this chancellor takes the impact of fiscal policy on markets seriously and what he can do to try to regain the trust of investors who really are concerned about the level of government borrowing that would be needed to implement some of these policies. dani: 1 wall st or that might be happy is steve schwarzman. maybe not everyone is disappointment. got to make light of the situation to some degree or else it's just all depressing. coming up, do not miss our exclusive interview with the deutsche bank ceo. he will give his outlook on the global economy and the banking sector. this is bloomberg. ♪

>> if you have a chance to refinance your debt for next year, do it now because the volatility with stay with us. if you look at the inflation numbers in europe and the interest rates going up, i can't see that the volatility goes away over the next 12 months. i'm confident that the u.k. will come through this. i cannot tell you actually what today's rate moves are and volatility as a set space. i can also see that over time the pound is coming back. dani: deutsche bank ceo christian sewing speaking about continued market volatility and the pound bouncing back. joining us is stephen dalio. you talk about this idea that we might have had a cathartic moment for repricing of u.k. risk. are you more convinced of that

looking at the price action. is the worst over for sterling? >> our position on that is sort of moderate. the extent of the move in the dollar, it had all the signs of a classic blow off the top in the u.s. dollar in terms of the price action, the lack of liquidity. we keep saying this, but the fed keeps regaining its hawkish stance. i think at the moment the fx market and the rates market are pretty much fully priced for what the fed is signaling it's going to do. i think where there is still a risk for dollar upside is the extent to which the fx market price is in the odds of a global recession. those can still go higher and that concerns us especially as we head into the winter.

two of the most difficult things to predict, putin and the weather. the outlook is great. dani: at the moment in time -- the outlook isn't great. dani: it's a moment in time -- i want to go back to this idiosyncratic risk that is the u.k.. i and many folks woke up this morning too an imf statement that felt quite remarkable saying that given an elevated inflation pressure in many countries including the u.k., we do not recommend large and untargeted fiscal packages at this juncture as it is important that fiscal policy does not work at cross purposes to monetary policy. what do you make of that? >> i think it's an acknowledgment of the fact that at the moment the politics are driving the economics and the u.k. and not the other way around. conservative government of just

under two years or so, the next general election. they are trying to supercharge growth. the idea that it's idiosyncratic to the u.k., the u.k. is seeing the worst of it right now. but this is what happens when you exit a decade or more of ultra easy monetary policies, quantitative easing. bond markets are dysfunctional. and they behave in a dysfunctional manner. what you are seeing isn't increase in risk premium. -- is an increase in risk premiums. with the dollar liquidity going out, the forces of globalization are in retrenchment. non-dollar reserve currencies are running into the limits of their exorbitant privilege. what is sterling, under 5% to global allocated reserves. we're getting close to the

limits of what they can do without risk premiums adjusting sharply. this is what we have been talking about all year. the u.k. was overdue for this type of adjustment. it's just been very violent. dani: extremely violent. 200 basis point move in the long end of the u.k. curve in just a month. it's kind of the way that a distressed debt would trade, not aaa government paper. what are the ramifications of this extreme rate of change? >> cross asset did you say? dani: exactly. >> it is certainly not good for the nondollar currencies in question. it's positive for the dollar. when you take an economy like the u.k. which runs a very sizable external deficit, that needs to be covered either by

u.k. residents selling foreign assets and covering the current account deficit that way or by nonresidents investing in the u.k.. and at what point will that happen. we are still not sure the adjustment is over. in terms of client conversations we are having and what we're hearing from our customers, they are on the sidelines waiting to see how this all plays out before they start deploying equity cash. dani: there are still unknowns. -- liquidity cash. dani: there are still unknowns. the energy crisis in europe getting significantly worse in about 24 hours. >> right, so we have a long potentially difficult winter ahead of us. we are going to be watching those winter weather forecasts

especially the ones that start to come in and crystallize in the next week or so, what are they saying about the outlook for temperatures in western europe. the fx market is going to trade those forecasts and on top of that, you have another unknown. the putin regime. what are they going to do next. we're not through this yet. this is why we are very reluctant -- everything we saw on monday, friday last week at the signs of a blow off top in the u.s. dollar. it's what you tend to see. aside from the fed, there still a lot of unanswered questions. dani: it's true. it looks like the u.s. isn't going to step in. there is no likelihood of a plaza accord. you so much for joining us this

morning, head of european fx strategy at bmo stephen gallo. the 19th of october director of the u.s. national economy council will be a guest on the david rubenstein showed where he talks about the possibility or lack thereof of dollar intervention. come up later in the show, three nord stream pipelines damaged by suspected sabotage as europe's energy crisis worsens. we will bring you the latest. this is bloomberg. ♪

dani: welcome back to bloomberg daybreak: europe. i'm dani burger in london. highly leveraged assets really under pressure has weenie continue to talk about asset classes. one that identifies --

exemplifies this roller coaster ride is bitcoin. look at what happened yesterday. it was gaining 6% at one point. then we get a slide of more than 5% in just the span of 10 minutes. this is extreme volatility that shows how sensitive investors are, how much risk there is, how much nerves are out there. bitcoin is back below 19,000. coming up, three nord stream pipelines damaged by suspected sabotage as europe's energy sabot(announcer)pe's energy enough with the calorie counting,

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dani: good morning. this is bloomberg daybreak: europe. these are the stories that set your agenda. the eu declares the norton stream destruction as sabotage. imf tells the youth a government -- toasting kate government about a decline. the dollar climbs yet again as stocks tumble with hawkish fed commentary. uncertainty is said to be here to stay. >> the volatility will continue to stay with us. if you look at the inflation numbers and the interest rates going up, i cannot see that the volatility goes away in the next 12 months. dani: the adjustment is not yet over.

that is what we were just told with clients staying on the sidelines given all the energy uncertainty. the european commission is considering a price gap on russian oil. at the same time, fed speakers continuing the hawkish message saying that credibility is on the line. features have been falling. we also add the bloomberg scoop the apple will not ramp up production of their new iphone as planned because of the worsening consumer demand. stocks and futures are down more than 1%. we are looking at the bloomberg dollar spot that continues to be the only thing continuing to get cash and dollar buying is the only event thing at this moment. we are looking at a weaker euro this morning. during the asian section this did hit 4%.

it is not just the fed. this huge selloff, looking at yields that top 1.5%. a huge move in the past month. 40 basis point the last year. this is about five times their typical average for one day. some extreme volatility. this is when you get those risk type shocks that move into the treasury market. a lot of other top news. let's get it all in singapore. >> russian leaders have declared victory and you and condemned referendums. there is a large chunk of occupied ukraine. people's republic posted that 99.23% had voted to join the russian federation. a news agency also reported

flags in other regions. hurricane ian is said to be one of the most costly storms as it heads to the coastline. massive evacuations, school shutdowns and cancellations within estimate the losses could exceed $45 billion. saudi arabia has appointed their son to replace the prime minister. the prince already oversees major portfolios including economic policy and internal security. his father remains head of state. top golf players are withdrawing from the pga tour amid suspension from taking part in the saudi arabia leak. phil mickelson had previously said he would withdraw and is

now suing the pta -- the pga. global news, 24 hours a day, on-air and at bloomberg quicktake, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. dani: thank you so much. three nord stream 2 pipelines have been down -- damaged by suspected sabotage. europe will have to survive without any russia gas. joining us now is maria tadeo. what do we know so far? maria: there has been explosions same day around the nordstrom. the countries that reported the footage that happened yesterday said they believe that this was deliberate and not aiken -- a coincidence or accident.

the head of the european commission is saying that the damage will carry a response. overall, the real issue is that you can play politics but you do see that there is an attempt to create damage and blowup critical infrastructure which opens up a whole new risk scenario. dani: what does this mean for flows, is russia gas still going anywhere in europe? maria: the nord stream 2 is politically dead. when you look at the nord stream 1, if you had any hopes or expectations that some of the flows could increase, i think the message is clear. there will not be any gas from the pipeline in a long time. the other issue is potentially an arbitration spat between russia and ukraine.

that means that some of the transit actually did diminish. this is yet another reminder that there is no russian gas, it is perhaps keeping up the storage that you had already and perhaps what you had at peak hours. dani: we already had folks talking about what they would do in order to cut down on usage. thank you so much for giving us the latest. do not miss our exclusive interview with the bank governor and council member which will be at 10:00 a.m. u.k. time. deutsche bank ceo has told us that market volatility will continue for the next year. the german letter is well-positioned. he also addressed the turmoil and said that markets will not go so far to describe it as a currency crisis. >> this is the decade of

volatility. a lot of things that have happened in ukraine show us that volatility will take over. that means you need a risk management. for deutsche bank, we have transferred them quite significantly. -- transformed them quite significantly. we have always said that the positions are for the clients and that is what we have stated. in europe and also in the u.s.. i think that is really key. in the states, if you do not have up risk management, there is exposure.

we have bonds trading at $.25. how is that impacting you? >> fortunately, this is the advantage of being in a corporate bank. of having a bank within proper business lines see you are not too dependent on one business line. we entered this period with these kinds of moves as not unrealistic. this is how we position ourselves. in this regard, i am quite comfortable and confident in the positions we have. if i look at our balance sheet, there is no concentration. there is no meaning for one region and it is now paying off. >> u.k. experiencing a crisis

right now? dani: a little issue with the tape, but you get the issue of it. the recession is very comfortable with their position. not concerned about these market moves. saying, this is not a currency crisis. we have seen the majority of the moves emanating from that market. coming up, we will talk about something else coming up. his apple backing off after an anticipated search falters? more on that coming next. this is bloomberg. ♪

dani: welcome back to "bloomberg daybreak: europe." apple seems to be backing off production after an anticipated surge in demand failed to materialize. the company told suppliers to back off from assembly of the eye 14 by as many as 6 million units. instead, apple will produce 90 million, roughly the same level as the prior year. in the tech space, the summary kicks off as policy leaders and entrepreneurs discuss things like ai, crypto and cybersecurity. our next guest is one of the most established tech partners.

you find it becomes our men. he founded many businesses and became an entrepreneur in this country for a long time. now we are in the middle of a government pursuing strategy under margaret thatcher. what would you advise the government right now. >> they might have to. i don't think we have seen anything like that for a very long time. dani: we play devils advocate. the companies you have won't benefit the supply side. we the that story at this time. -- we love that story. this is just a wrong time to do that. he has a very negative affect on

increased inflation and making the bank of england race interest further. -- raise interest further. dani: what becomes the breaking point? >> it is very simple. when they cannot afford to increase it anymore. people will not buy it. dani: we have talked about the implication on gilt markets, pound, the u.k. budget. you're talking to your founders and entrepreneurs, what do discuss for the business? hermann: we're in a very difficult situation. technology is not exempt from the recession we have we need to consider cash because cash is king. we will have to extend the

runways to be able to survive longer without further cash injection. that is the priority. dani: in terms of tech and having to raise interest rates further, what point does it become a problem and you see rates are unsustainable? hermann: the bank of england does not directly affect it because they are liquidity based. it is different. any of them are large companies. they do not have to pay an interest rate. we are hoping that the company will increase in value and venture companies will be able

to sell the global stock market. the interest rate does not have a direct effect. a recession has an effect on the venture business as does everything else. dani: i wonder what that picture looks like for this environment? you have to crystallize a significant loss. is the market frozen? hermann: the ip is certainly close. there is the statistic about the best recession that it is the best time to start a new company because you have access to people more easily and there is not such an extensive search for jobs in the employment market is not as tight as last year and

valuations are somewhat more reasonable. it is a good time to start the company. it is also a good time to start a new find. venture funds are strongly correlated with recessions. dani: you have also been a big proponent of homegrown tech, are you worried that that might be dissipated, the ability to continue to grow in this country if it looks like we are in an environment where assets are? stale and weaker? -- stale and weaker? hermann: this is one of the problems. it would have been a disaster if they had a monopoly which we thought they were about to do.

this is a difficult situation for the u.k. but also most of europe. dani: are we seeing any signs or perhaps it is too early. what are you worried about? hermann: we are worried about the u.k. which has been leading europe in venture capital and falling behind. the relationship between the u.k. and europe has changed. the way i described the situation, silicon valley is here, the u.k. is here, europe is here. the gradient has been quite steep. what has happened is that the border is still the same but the gradient has moved closer to silicon valley.

u.k. has to find another gear. dani: what is that like to find another gear? hermann: a closer relationship with europe. dani: it does not look like we are headed in that direction. hermann: not in the short term. it seems more like policy. once this government runs its course, i think we will have a closer relationship with europe as well. there will only be three technologies to china and europe. we have got a good positioning. it does still include britain. dani: i understand this idea

that at some point the government will have to you turn. as for now, they are really sticking to this message that the deficit will not balloon much more. as someone who needs to advise companies and investing in the u.k. becomes more risky, what steps to take to adjust? hermann: the main thing is to watch the cash. companies do not go bust because they make losses. they get into real difficulty because they run out of cash. cash has to be the number one priority. dani: cash is king. thank you for joining us. hermann hauser from amadeus. coming up, we continue the conversation. this is bloomberg.

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>> everybody needs to have scenario planning. with the bank, we have our scenario planning. we know there is no increasing conflict. in particular, europe and germany need to work with them. dani: deutsche bank ceo speaking to bloomberg about tensions between the world's two largest economies escalating over taiwan. much closer to home, we are expected to meet with -- a meeting to discuss fiscal plans

among surging bond yields. here we have bloomberg reporter charlie wells. take us to being a fly on the wall. what is expected to take place? >> these are some of wall street's biggest banks. more likely than not, they will discuss the gap between intent and outcome. we saw the chancellor announced measures that would make the city happy. last week the city was in disarray. bond yields were up and a lot were concerned about these fiscal measures would mean. we look at what the chancellor would do to reinsure investors and indicate they are taking policy seriously. dani: if it is any indication of his message not being well

received, he will have to go on a massive trauma offensive. >> banking is about trust. when you look at some of the language, it does put some of that trust under pressure. i think these conversations were scheduled before that statement they came out on friday. it is going to be a little more difficult. we heard yesterday from the former ceo of barclays about what this could potentially accomplish. >> the only currency that matters in the u.k. right now is affordability. i think the announcement earlier today on bloomberg headlines that the chancellor will spend time with banks and traders and distributors is important. >> this is being seen as a step in the right direction. dani: thank you very much.

i am sure you will be back in the not-too-distant future to last more -- let us know more. let's look at some the things you will be watching out for. ecb president scheduled to speak at the forum. they are talking about continuing to hike rates. we will also hear from deputy director at an event in europe. 3:15 p.m., jerome powell will give scheduled remarks and event posted by the federal reserve bank. also, a lot more data to calm and potential for volatility. we will keep on top of it all. this is bloomberg. ♪

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