dani: good morning. this is "bloomberg daybreak: europe." i am dani burger in london. these are the stories that set your agenda. today's job report will

data. it is quiet in d.c. while they respond to the dramatic output. russia's threats use nuclear weapons is real. deal or no deal, debt financing could stop the deal with elon musk and twitter. breaking lines coming from credit suisse. they are putting out a press release saying they are offering to buy back debt securities of up to 3 billion swiss francs. let me read you this line. transactions are consistent with the approach to liability and interest expense. allow us to take advantage of market conditions. they are reducing liability at a time when folks are worried about volatility. they are stepping back into this and buying back -- buying back debt that is cheaper. this is before their update on strategy on october 27. we will keep you updated on any

more breaking lines. let me show you what this equity market is doing. we have had fed officials coming to crash the party. we have heard from waller, lisa cook, staying on message. they are hiking and keeping levels at restrictive rates. we are looking at equities that may add to this picture. it had it been above 30 for a couple consecutive days. it drops below and one trader bets they will get to 150 by march of next year. they show some of the bearishness with potential heading ahead of the index. there are some concerns in the tech sector. missing heavily on their earnings. we will talk to annabelle about samsung. when you look at cross assets,

this is steady. we are waiting for payroll. that could really move the dial and inflate it stronger. it is around $145. that is just inches away from that level where the last intervention was. brent crude hanging pretty tight. the calls are stacking up after that opec cut. what would that mean for inflation as a whole? let's get to our other top stories. simon flint will join us. annable jewelers is going to look at the action and stocks. let's start with the jobs report that is to back earlier today. it certainly has the potential

for another jumbo fed rate hike. there are 255 jobs in september. hourly earnings are expected to rise month over month. 5.1% from a year ago. let's get to simon flint. we typically see folks getting job numbers wrong. this is what we have seen for the past years. what do we expect from this report? >> a lot of people are probably widely wrong. if i had to guess, i think it would come in a bit softer and closer to 100,000. the reason for that is because we have seen residual see analogy.

dani: it does seem like they are waiting. i was interested about how they were speaking yesterday about failures in the global economy. we do not exist here at the fed to help bailout the american economy. these are really strong words from a man who was one of the biggest dives not too long ago. are there any doves left at the fed? >> short answer is no. they were in limited supply last week. we saw them talking about how domestic demand already started to slow. at some stage at least, there would be to wait risks. other than that, the fed is laser focused on bringing down inflation. there are very few dovish calls for markets. it is one of the reasons why,

even if job markets come in a little soft, the impact on the market will probably not be that significant. dani: thank you very much. bloomberg's simon flint giving us the latest. joe biden has said the country is worried that vladimir putin's threats are real. they could lead to armageddon. let's dive deeper into the story. rebecca, are they shifting into the position of russia turning to nuclear weapons? >> we have seen strident remarks from president biden. he is underscoring the reality that it may turn to nuclear weapons in his war in ukraine. it is a contrast from the national security advisor last week that stressed that these comments and remarks will be in

line with other similar debts we have seen. there is a difference there and biden has made some historical gaffes. they have turned to extremely lean pressures. we are starting to see some criticism from the progress in the war. 300,000 men trying to flee and possibly being called up to join the russian army. this is increasing pressure to take action. dani: a really remarkable story about russians trying to seek asylum in that remote island. rebecca, we will have few later in the show. let's turn to the latest in a twist and turns of the twitter saga. there was a partial victory for

elon musk. it was delayed by the delaware judge until october 28. this gives both parties more time to contemplate a deal after elon musk revived his offer. renewed hope of a deal is pushing twitter shares higher. they are not quite at the $50 level. there is still skepticism that it will happen. that is really reinforced by debt financing being one of the biggest snagging points. elon musk swears this is contingent on debt financing being available. some folks have pulled out. it is a very difficult market right now. elon musk saying that this is all contingent on debt financing. bloomberg is reporting that this is one of the biggest sticking points. let's turn to asia stocks,

dropping for the first time in four days. annabelle, what is driving the news today? >> really, it is down to what we are hearing from fed officials. they are reinforcing that we must continue this fight to rein in inflation and stick with the path of tightening. you see that reflected in the treasury and bond space throughout the session. the dollar is looking a little bit flat but there are a lot of moves across the equities picture. taiwan going into the break. dani: thank you very much. anna bought -- annabelle in hong kong. those moves are fascinating. samsung, as well taking some pain.

coming up in the program, we will get more on how the feds hawkish stance is turning markets. we are hearing from speaker after speaker. we will discuss that, next. this is bloomberg. ♪

dani: the pivot narrative has -- it is a model that looks something like the bank of england intervention last month to stop the chaos. scott is the latest to put this forward, yesterday the chief investment officer saying that the end of fed tightening will come when something breaks and cracks are forming.

already, fed officials are pushing back on this version of the pivot narrative. >> we have tools in place to address financial stability concerns. we should not be looking to monetary policy for this purpose. the focus on monetary policy needs to be on one thing, fighting inflation. >> i fully expect that there will be some losses and failures around the global economy as we transition to a higher interest rate environment. that is the nature of capitalism. dani: joining us now is aneeka gupta from wisdomtree. they are saying that if something breaks, that is capitalism. what do you make of all this? aneeka: bad news becoming good

news. that is building the case in the fed pivot. the messaging we got from the fed overnight, clearly it is echoing a sense of a very hawkish stance on monetary policy. it looks like nothing is going to give. today's jobs data along with cpi from next week will provide a more definitive path on where we are headed in a monetary policy. dani: do you trade on those things, is not a reason to buy equities? aneeka: it would fuel a more bullish dance for equities. alongside if we do get a weaker inflation print, that will be another case for a revival. for now, the key thing is that you have this tug-of-war between the markets and the fed pushing aggressively to convince the markets that we are sticking to our stance. it will be interesting. dani: it is a strange time to be

bullish because you are fighting the fed. the mantra used to be, do not fight the fed. what will happen if markets need to price that out all of a sudden? aneeka: it will be interesting. we are entering q3 earnings season. it will be a very important chapter four markets. earnings expectations right now are extremely high versus where they should be. there is a quick calculation of the last few times we are in the run up to a recession. you're looking at an average decline of about 49% over that time period yet, earnings expectations are really high. the u.s. is looking at 200 when he five dollars. -- looking at $225.

you have earnings that are too high that need to correct. i think there are still a few headwinds. dani: if they have sold off and valuations are good, if we are using $115, that is still a very risky price. l --aneeka: absolutely. there is a lot of volatility ahead, especially for q3 into the season. dani: how will all of this change if it results in $100 barrel oil, how does your outlook change? aneeka: that decision where we were looking at up to a billion barrels, the 2 million barrel cut is not from today's level. it is from the august target

production levels. that is an important factor. the second thing, most of the members have barely been able to reach capacity right now. there are very few that have extra spare capacity. you are looking at only three members and none of them are willing to pump any additional. speculated positioning is one standard deviation below where we were ahead of the crash. we do have significant room to bring prices back up to where they should be. dani: this that mean it calls for 100 barrels or more? aneeka: i do not think so.

we are around the 90 level mark. looking at shorts being in an all-time high, they have a significant room to recover from where they are paired dani: -- from where they are. dani: you say that $60 we thought it was equilibrium, how long does that last? how long is $90 the equilibrium? aneeka: we have a significant amount of underinvestment in the oil sector. you have a very difficult position or you have this transition happening into new entry -- new energy. you have opec which controls 45% of the market, not willing to relieve the significant tightness we are seeing. i think it is very difficult right now to see prices going lower. i think they are headed higher from this point. dani: how do you factor in the

white house that will likely force them to tap into more reserves? aneeka: that is likely. we are waiting for more information on whether they will continue releasing the strategic reserves. that is not going to do enough to believe the oil price pressure. the big thing for oil prices, if we do see demand slowing in a very big way, it will be very hard to tip over the balance when you are looking at such a strong supply deficit. dani: let's macro this out. opec versus the fed. if the fed is contending with higher oil prices, does it change their trajectory, do they need to hike even more? aneeka: for the u.s., they are

not that reliant on opec and are not facing an energy crisis like we are. it is the case of domestic fasters -- factors that are fueling the inflation story. things like rent. the fed is on that narrative where they try to team that demand stemming from these factors. for the macro story, yes it is a lot worse, but as far as the fed is concerned, it is still laser focused on factors fueling in the u.s.. dani: do you have any thoughts on the european banking sector? every day we get a credit suisse headline and everyone is panicked. aneeka: if you look at that european banking sector, since

the financial crisis, liquidity conditions are in a much better position. over the weekend, it was complete panic. dani: especially on twitter. aneeka: they got out of control. he saw how it turned out. it was the opposite of what we anticipated. i believe there is still quite a bit of opportunity in the banking sector. if you are facing a perfect -- recession, that will affect the banking sector. you're going to see the banks faced with a much more difficult position with a slowdown. at the same time, they do have the advantage of rising yields which should put interest markets in a much more interesting position. dani: i feel like this language around credit suisse is around

the wider panic of market stability. how worried are you about market stability? are you worried there is somewhere we are not conscious of that might have a more significant issue? aneeka: that is a difficult one. that is fueling volatility in the markets. what is the next thing that could break? that is what markets are trying to anticipate. no one anticipates it facing this difficult situation with the sunrise yields. where we are more focused on these possible problems is in europe. europe is facing one of the tepper situations where you have

a lot higher inflation and a bake energy gap to fill. dani: we have to end it there. great catching up with you. that is aneeka gupta, director at wisdomtree. coming up, we bring you the nerve surrounding the chip sector. this is bloomberg. ♪

dani: welcome back to "bloomberg daybreak: europe." samsung has reported its first drop in profits since 2019 on the back of chipmakers facing sharp declines. it's get to annabelle, who is on top of the story. what did the results look like? >> not good ones. the first profit drop we have seen since 2019.

we also had net operating profit dropping. these are the preliminary results. we will actually get the net income and details of the performance that will come later in the month. not a great outlook from samsung. we had some macro devices that also missed sentiments to the tune around $1 billion. generally this is a broad industry trend. they are all cutting output to try and bring balance supply and it underscores the debt -- the depth. we see where it is more evident in the south street market. it is home to two of the biggest chipmakers.

both of these are battling the record drop in output. dani: i am distracted by two things, the video of all the cats and dogs but we don't have to get into that. the other is samsung moving higher. what is up with the market reaction? >> it plays into what we are seeing because it is weaker today. we did see a rising over the past few sessions. the possibility of a fed pipit is being quashed. that could be a possible move today. we are seeing gains

dani: this is bloomberg daybreak: europe. i'm dani burger in london with the stories that set your agenda. no pivot, no ambiguity. fed officials hammer the message. today's job report will be key. stocks read ahead of the data. disquiet in d.c. joe biden one's russia's threat to use nuclear weapons israel. -- is real. well, it is fed speaker after fed speaker this week saying we are not pausing, we are going to hike rates and keep them at a restrict of level. even going so far as to say they are not worried about financial stability, but they have tools to use to combat it. it is not going to be the reason

they bat off rate hikes. batting down this idea that liquidity issues will get them to blank. we are seeing an equity markets struggling to find its footing. it is off the back or in front of a jobs report that could be the game changer, could be moving markets. an equity market that wants to see losses crack in order to rally. we saw the vic's close above 30. someone out there is betting above 150 vix. nasdaq is weaker. stoxx 50 futures also weaker as well. looking cross asset, pretty steady. not much going on when it comes to the dollar or treasuries. perhaps we are doing table setting ahead of the nonfarm payrolls report. the yen is pretty steady as well, but close to that

intervention level. 90 was the level it was -- at which they last intervened. bright crude is -- brent crude is weaker. opec decided to cut by 2 million barrels a day. that is the big macro story. the micro story everyone is transfixed by his twitter. let's get into it. twitter's court case has been halted by a delaware judge until october 28. the idea is that gives both parties time to complete a deal after he revived his offer. any deal is said to stick on debt financing. our next guest knows this market well and he has been mostly bearish on corporate bonds, but says the market is now cheap. guy, i've got about $13 billion to sell you from elon musk, what say you? >> well, i think it is not now

is the right answer. he said, we have been bearish for most of this year. i'm probably more bullish than i have been for the last eight months. but i do think we have one more leg of widening and i'm afraid that the twitter deal will probably be amongst other things the things to push us a little wider over the next four to five weeks. dani: we have even seen banks really struggling to bring these debt packages to market. whether it be the apollo back that that banks ended up shelving. talking about the idea that this is one of the cracks showing up in the market. banks unable to offload the debt. are you concerned this is a symptom of a wider problem of wider market fragility? >> think it is definitely a symptom of wider market fragility, but the odd thing is

that the high-yield market for example and to some extent the leverage low market, the particularly high yield still relatively expensive in comparison to investment grade. since october, it has all been about rates. earlier, you are talking about rates and with the fed has been saying in this year has been dominated by rate. what we will see in the next phase is more concerns about defaults and it is the high-yield market which is going to push wider. while investment grade is beginning to look attractive, high-yield has some months of widening ahead of it. dani: how bad does it get for high-yield? >> well, one of the basic indicators to think about is the ratio of high-yield to investment grade. three is near the bottom end of the range. normally when we see the peak of spreads over the cycle, the ratio will be around four.

we have at least another 200 basis points of widening. they are at around 700 basis points over benchmark at the moment. i think we have another 200 basis points of widening to go. dani: this is the thing that interests me about why anyone would want to go into high-yield debt if triple b is going to be offering the 6% yields. back in june the highest-rated junk hans, that is what they were yielding. is there any area of this high-yield market that does interest you or is it all about the flight to quality right now? >> if i were forced to buy triple, the crossover would be the most attractive area of the market right now. i would particularly say somewhere in the three to four year area is where you will have the lowest losses, but i do think if you look across the investment grade, across the corporate bond market,

particularly in europe, it is a singular area that offers good value at the moment and we may have seen spreads peak in that area already. dani: at what point does it go from just struggles of issuance to a complete freezing of the market? is that in the horizon at all? >> i think the real thing you have to worry about is the default forecast baked into market expectations. not so much spreads, but where default levels are going to be. they're typically talking about 3% or 4% in the cycle. we are twice as high as that. by the end of next year, we think we can be in europe a defaults of around 9%. you mentioned samsung on some of the weaker earnings coming through. that will be a bigger focus in the q3 earnings. we will see companies generating

negative operating cash flow. it will continue on into next year and then people will be a lot more worried about default. that is really going to be the next trigger in terms of the market coming under pressure. dani: this is so interesting to me because we have seen the market kind of skip over the default cycle, and covered these companies were propped up. prior cycles were led by energy, energy is doing ok now. is there any historical corollary to what we are about to see in europe? >> sure, we have not had two cycles in europe since the creation of the euro. the first was 2001, 2002. the second was to thousand seven, 2008. -- 2007, 2008. the combination of relatively high levels of leverage, a shift in the market toward lower rated credits and expectations

particularly of a prophet slowdown over the course of 2023, these are going to be the pieces which come together to provoke that default cycle. dani: let's talk about sectors for you to where are you most worried? >> in the european credit markets, there isn't too much tech. where the valuations are most vulnerable at the moment are particularly in the industrial sector. these are cyclical sectors that will be more vulnerable. you have talked about that already on your program. european companies and companies across the world have been isolated or insulated from those problems because their hedges are somewhere between four and six quarters, but now they will be facing higher prices as the hedges rolloff from the q3 earnings figures. i think this is where we will see some of the cracks appearing in terms of the sectors. dani: are they cracks that could

be enough to cause the ecb to stop hiking? >> that is a really good question. i think the reality is is that the ecb will continue to have to hike in terms of the inflation cycle, but they will be in a little bit of a tricky situation like the bank of england, which is what do you do in terms of injecting calm and to various parts of the market? i do think the hiking cycle is going to have to continue. dani: what happens if we start to get a default and hiking cycle going on? >> there is turmoil, particularly in the high-yield market. i think the right way to think about it is you want to be invested in much more defensive sectors of the market. you want to be invested in single-a credits. we talked about that in terms of the european market. i think some of the noncyclical's offer good value as well. the utility sector, to my mind

this is one of the sectors which is a better defensive area. financials, as well. probably at a relatively good defensive area. i do think in the near term the markets will be difficult, particularly investment grade, and then looking further out in terms of high-yield, but there will probably be a period even within the next three or four months where the valuations will start looking really attractive. dani: guy, thank you very much. had a fixed income and credit research. great catching up with you. enjoy the weekend. let's get over to the first word news with simone foxman. >> hi, dani. swedish investigator say evidence points to recent ruptures of nord stream gas pipelines being caused by a

deliberate act. the swedish security service says its investigation has increased suspicions of sabotage , but did not indicate how the detonations happened or who might be responsible. president biden is pardoning thousands of americans convicted for possession of marijuana and ordering review of its legal status in a major step toward decriminalization. a blanket pardon has been issued for all prior charges of simple possession and urges governors to do the same for state offenses. the thai prime minister will visit the scene of the country's worst mass today after urging an urgent investigation into the tragedy. 34-year-old former police sergeant killed at least 38 people, most of them children, and a rampage that began at adair k center in the country's north. the assailant drove back to his

house and killed his family before taking his own life. 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. dani: thank you so much. coming up on the program, eu leaders grapple with the energy crisis, preparing for talks as they weigh whether to impose a price cap on gas. this is bloomberg. ♪

dani: eu leaders are set to hold talks on the second day of the european summit being held in the shadows of the war in ukraine.

the first ever gathering of the european political community, a new forum and that includes non-eu countries such as turkey, the u.k., and the focus returns to energy with european leaders grappling with the price cap on gas. for more, let's get to maria tadeo in prague covering the summit. the european political community, it is a new format for international bait and cooperation, so has the new format achieved anything? >> well, to some extent the fact that we are here with 44 heads of state and they were at a ball together around the table to talk about the big issues, russia, ukraine, security, food, that is already a win because this is a new concept and this was a trial run. the optics are already good, already a win. the trial run will continue and the next country to host will be

moldova. in terms of the action behind the scenes, it also served to get emmanuel macron and liz truss to clarify some issues. the u.k. prime minister, who stayed here for the summit yesterday, she said micron is a friend of the u.k., that the two countries agree that the only foe for europe is vladimir putin. they announced they will hold a u.k.-french bilateral summit to talk about a renewed, shared agenda. to some extent, that was already a cooling down of tensions between the two for the u.k. and the french. that is a win to some extent. dani: the other issue gripping europe is the energy problem. has there been any problem made on a potential solution, price caps on gas? >> that is the question today. yesterday was about the politics.

today, we go back to the eu 27. this is the only question that really matters. they all agree they want to see prices go down, but they still have not found or got into the magic formula. when i spoke to the dutch prime minister, he said, we want a solution. it's not going to come today, but it could come in the near future, so that means potentially weeks. let's take a look. >> what you feel here is that there is an overriding willingness to make it happen. that that will probably lead to the very near future. we have already done a lot. is there a model to replicate? how could we work in joint purchasing? all these issues will be discussed. >> that was the dutch prime minister yesterday speaking to

reporters in prague. i think he laid it out very well. we are not going to get a magic solution today, but it could come in the short future. fundamentally, it goes to the core issue, what does the price cap look like? there are options to lay up on the table. but they cannot agree for the time being on the magic formula that work for all of the eu 27. it was quite telling to me that they said it could come in the short future. that means technically, we could be moving closer to a solution by the end of the month because european leaders will meet for a formal summit in brussels at the end of october. dani: what i'm hearing from you is there is likely a vigorous debate that will unfold in rug today behind the scene -- prague today behind where you are. >> to be a flight on the wall. dani: oh yeah. [laughter]

you will be our flight on the wall. i'm positive you will get us some lines. [laughter] all right, maria tadeo in prague. back there out programming on the prague summit. coming up, the biden administration is hunkering down, plotting to respond to the oil production cuts by saudi arabia and its opec-plus allies. this is bloomberg. ♪

dani: it's bloomberg daybreak: europe. joe biden has said he's worried russian president putin's threats to use nuclear weapons are real and could lead to armageddon. let's dig into this. joining us now, rebecca, we have heard previously the u.s. saying skepticism as to whether these

threats are real. is this a shifting stance? >> yes, we have seen some quite strident remarks from president biden really underscoring the likelihood or possibility, the real possibility that putin may turn not just to nuclear weapons, but possibly chemical or biological weapons. it is a contrast with comments from jake sullivan which really place to these threats in the line of a string of other remarks that putin has made. on the one hand, we do know that president biden has historically made some rhetorical gaffs in the past, but on the other hand it is clear that putin is under daily rising pressure over defeat in russia's war in ukraine. we see for example more criticism over how the war is progressing in state media. of course, 300,000 men have fled

russia, trying to escape possibly being called up to the military there. ukrainian forces themselves are increasingly taken back land that has been annexed by russia. dani: elsewhere in d.c., the biden administration, as bloomberg puts it, has been seething over the opec at -- cut. what does it mean for biden and the white house and the democrats as we get to the midterms? >> absolutely. quite a big week for biden. certainly seems there is some level of bewilderment. biden himself coming out of that meanings -- meeting saying he is disappointed in looking for alternatives. the top energy advisor also saying he was surprised with the outcome. congressional democrats have posited potentially riyadh was trying to time this announcement

to create confusion and chaos ahead of the midterms. but the most powerful tool in bidens arsenal to combat this type of behavior from opec is the so-called nopec bill. there are plans to table this to return. it is a bit of a can of worms. we could see more discussion of that again going forward. dani: thank you very much. turning to china and our president xi jinping is all but certain to secure a third term in power at the communist party congress this month, observers will look for any indication china might move away from its covid zero policy. xi will continue with the common prosperity drive. that prosperity has roiled the tech and education sectors. let's bring in the greater china editor jenny marsh. what are we expecting heading into the people's party

congress? >> you know, i think there has been this idea that in the lead up to the congress that xi jinping has been reluctant to changes. common prosperity has been calibrated back a bit. a lot of the wall street banks are predicting that once the congress, passes, xi jinping and his government will have a freer hand to take bolder steps to shore up the economy. a better investing environment. very reluctant and hesitant to take this advice too much to heart because we haven't had any clear signs from xi or his government that that is in fact the case. dani: ok, jenni, thank you very

much. let's go over these lines from credit suisse, offering to buy back their debt securities up to 3 billion swiss franc. doing so after the selloff in that debt becoming more attractive to buy and at the same time trying to shore up finances and reduce leverage levels ahead of a planned october 27 unveiling of new strategy. so getting their ducks in a rail. credit suisse offering to buy 3 billion swiss francs of its own debt weeks away from that strategic review. i have strategic reserves on the brain. opec-plus is out there. we will continue the conversation. coming up is bloomberg markets europe. this is bloomberg. ♪

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