tom: that this is "bloomberg daybreak: europe", i'm tom mackenzie here in london with

manus in istanbul. manus: 30 year treasury yields reach the highest since 2014 following yesterday's move in gilts, as price concerns deepened. tech stocks lead asian stocks lower. joint borrowing, germany will back, and issuance of eu debt -- common issuance of eu debt with conditions. vladimir putin threatens more attacks. tom, we are still on two are in istanbul, we have a capital markets forum. i suppose bond markets will make it into those conversations. we had var shock 1, and var shock 2. a depth charge exploded into gilts again.

10 year paper exploded 33 basis points, and 10-year inflation up by the most on record since 1994. there is a lack of faith in kwasi kwarteng, in terms of the fiscal probity of this government. the bank of england emergency backstop but it was not enough to settle the gilt market, they are going to need to find another 60 billion of spending cuts to write the gilt market. this is about var shock 2. tom: it was remarkable to watch that selloff in u.k. gilts, at one point the 10-year off by about 30 basis points higher. jordan rochester on the afternoon show saying he expects the pound to get to parity, this is all about that economic recession concern. and the mismatch between what the markets and the chancellor

has been doing. in the u.s., the fourth day of closing in the red and futures are pointing to further read on the screen as we digest comments from lael brainard saying we have to take into account there is going to be a lag in terms of rate hikes and how that affects the economy. also pointing to global risks but goldman sachs saying this is not the time to bet on a fed pivot. zero stoc -- euro stoxx futures lower by about .6%, it was a mixed picture towards the end of the session. a little bit of optimism on german stocks on expectations maybe there is subsidies around of the energy space, but it is geopolitics and the concern about rate rises and the prospects of recession that weighed on markets yesterday. a couple of individual corporate stories, you saw a rally in

renault on the back of the news that nissan is going to be investing $750 million in that company's ev business, basf gained 6% on the back of news they could be looking at 100 billion worth of euros for subsidies for households and businesses. that's all chemical producers gaining on the back of that. manus: ben bernanke who has just been anointed as a nobel laureate warning financial problems don't begin with an episode, but an episode begins over time. you don't need to tame inflation in six months, a prescient warning to the market. valerie tytel is in london

breaking down the move in bond markets, while maria tadeo is in brussels to talk about eu energy funds. tom: and ros will give us the latest on the russian escalation in ukraine, and juliette will talk chips and asian markets. manus: let's talk about depth charges in the bond markets, the repercussions of the guilt explosion yesterday. valerie has the global impact as investors get ready to absorb any more data. put this in context for us. valerie: i'm every morning on the edge of my seat, this market feels like it is about to break. we saw volatility that was huge in the gilt market yesterday. but gilt market is not small, it is a $2 trillion bond market failing to function for over a week now. the longer this goes, the more markets will get nervous about this spreading to other assets,

btp's, for example, we saw the treasury market react overnight, 30-year yields are 10 basis points higher. the longer this goes on, the more we are worried about this spreading to other assets. we are showing a chart about bond liquidity, it is worsening in italy, treasuries in germany. this is going to come back to bite the markets. tom: interesting to see the spread between italian and german debt actually tighten. he saw the selloff in german debt, but bid in italian debt around the potential for joint issuance of debt. breaking down the markets when it comes to fixed income. olaf scholz will reverse a steadfast german position and support the issuance of eu debt to cushion the blow of the energy crisis. the pivot however comes with strings attached.

for more, we go to our european correspondent in brussels. this is quite the turnaround, germany has opened to joint debt, but these are loans not grants and that is important. maria: that is the key, and it comes with strings attached. is not a repeat of the 2020 recovery fund. that was the instrument to deal with the fallout of the pandemic, went to the market, fund raise of 750 billion euros that were paid out in grants and loans. at this point, we are not talking about grants, just credit. the european institutions which are aaa rated, would get a better funding cost, a country like italy could get the money and distribute that to member states. they will have to pay it back,

and if you get money from european institutions, there are conditions attached. the key is this is about funding and locking in the borrowing cost. for a country like italy but across the periphery you have to get them to deal with this energy crisis at the best rate possible, this is the plan the german chancellor is contemplating. there is another nuance, germany is a big power player, but every decision in the eu has to be taken unanimously. yesterday when i spoke with the dutch finance minister, she told me she did not see any need for new instruments. this will play out over the next few weeks. manus: but the critical thing is when those pandemic funds were launched, we were at deeply lower rates. so we are in a very structurally different market where the competition in the bond market

is hard and heavy, so it's going to be expensive to do this. they will have to pay up. great reporting on the german pivot, maria tadeo in brussels. u.s. president biden has condemned the brutality of russian missile strikes across ukraine as putin warns of more attacks. cities including kyiv were hit by a barrage yesterday killing at least 11 and wounding 60. the strikes, after -- come after russia blaming ukraine for strikes on a bridge linking crimea to russia. the timing of this, it's an escalation over three days, are we in some kind of turning point in this war? ros: it really does show us the trajectory this war is on. it comes as vladimir putin suffers severe setbacks on the ground. it is not just about the bridge linking crimea, although that

was a personal prestige below. ukrainian troops have retaken territory in the east and are pushing forward in the south, so if troops are -- his strips are struggling, he has announced mobilizations to reservists at home, and is in a owner at this point. the missile attacks that were conducted yesterday drew widespread praise amongst hard-liners in russia, pushing him to escalate to do more. the message is that vladimir putin is not going to de-escalate in ukraine. in fact, he's going to date in on his goals -- dig in on his goals, not taking anymore but certainly not backing down. tom: in the weeks and months ahead, what options does he have at this point? ros: he does not have options on

the ground. as we get to winter, the ground in the rain turns -- the ground in ukraine turns very muddy. they could be launching ordinance at each other but unable to make ground, in that case what is put in do, continue to use missiles to target infrastructure in cities he can hit from kyiv to lvov, odessa, and just trying to cause disruption for the ukrainian people. the other thing he can do is hit things that turn off the power for ukrainians in winter that deprives them of electricity. tom: hence the need for more air defenses. our executive editor for international government on the latest retaliation from russia to cities across the ukraine. asian stocks remain under pressure as the biden administration's curbs on access

to u.s. semiconductor technology ways on chipmakers. -- weighs on chipmakers. juliette: a bloomberg opinion columnists saying the chip sector did not need another reason to be sold off, we have seen 200 billion dollars wiped off globally since these u.s.-china tensions weighed into sentiment. south korea and taiwan were offline yesterday. taiex is at november 2020 lows, hang seng is at january 2019 levels. we thought there might be upside in the japanese reopening theme. you have seen a little bit of that but that has been priced in and instead we are seeing some up on the nikkei, down 2.6%.

weakness coming through in japan's economy as well, this is the biggest consecutive decline going back to 1996. really just showing the impact of the weekend on imports -- weak yen on imports. manus: juliette in singapore. get your tickets to japan. coming up, we are going to check with the chief effects strategist at -- fx strategist at socgen, what is the makeup the yen -- he think of the yen? tom: nomura on the pound saying

they see parity by the end of the year. this is bloomberg. ♪

>> we're starting to see the effect on some sectors but it's going to take time for that came late of tightening -- team live -- cumulative tightening to transmit through the economy. >> over the past few months, we have heard more reports from our business and community contacts of reduced job turnover, and that some are finding it easier to attract qualified workers. these are signs that some of the unusual labor demand may be waning. tom: lael brainard and evans

saying they are starting to see the effects of tightening in the u.s. economy. manus: the global perspective is interesting. fresh from his nobel economics prize, this is what ben bernanke had to say, "what should be kept in mind is that an inflation target is a medium-term target, it doesn't have to be met in six months or anything like that," should it be listened to? kit juckes's with tom and i this morning, we will come back to reynard and evans in just a moment, i think this is a saly tory warning of you are about to break something from a man who knows a thing or two about crises. you don't need to get there immediately. kit: it's interesting coming

from him. i don't know how the fed in practice when they meet in november are going to react. having missed the start of the inflation spike, they feel under a great deal of pressure not to be too casual, and that's why they have laid out this policy of 75 basis points in november, another 50 in december. we will know if they have went too far when we get the history books, but let's say core cpi inflation hit six and a half percent this week, and could start backing off or sending anything other than hawkish. i don't think pouring cal ming oil over the equity and bond markets is going to be how they are looking at the world

the next couple of weeks. tom: it's interesting to hear the vice chair pointing to the global outlook as well, tying that into her commentary. central to those global risks is the strength of the u.s. dollar but we are nowhere near a plaza accord style agreement. if something intensely breaks, where are we on the damage from the dollar and the need for the fed to consider this? kit: it's not hurting the u.s. economy that much, it is helping fight inflation as far as they are concerned. they have underneath a very strong labor market. the number of jobs available to those who want one, the gap is narrowing, but i would say the biggest problem if anything, is not breaking, but the bond market is going to cause all the damage. if we view or percent -- 4% as

the stopping point and then come back and find 10 year yields up a quarter-point, something will break in a big way, so they have to manage that. a sort of plaza accord solution i would say is six months more of this, but in the interim, one could start -- what could start scaring policymakers is if we accelerate bond yields higher across the board. that will get everybody looking at public finance cost of their debt, what it does to the economy, then that gets much more worrying. manus: kit, i'm going to give you a warning, i don't want you to steal our u.k. thunder. we will talk more about the bond shock in a moment. the next 100 basis points that will matter will be in the bond market.

what will be the kind of breaks in the next 50-75 basis points if the fed dare go up that level again? i save dare, what do i know, if they go that trajectory? kit: we are going to get a further, possibly significant inversion in the curve this side of christmas. that's going to make anybody looking at the historical relevance of the inverted yield curve start getting the heebie-jeebies. secondly, we have become incredibly used to the idea that bond yields stay superlow. as that happens, we have leveraged our whole financial system to what we saw in the u.k., or a spike higher in bond yields caused damage in the pension industry. you can get variants of that all

across the world just as effectively, because we are not used to the idea of a 5% 10-year yield, or anything like that. you can start creating very unforeseen damage. tom: and maybe some of those heebie-jeebies, not something that manus cranny suffers from. we will get your calls on all things u.k., the pronounced selloff in gilts, and your views on the pound after the break. the head of fx strategy at socgen. don't miss our interview with the cleveland fed president, we will get her views on the u.s. economy. this is bloomberg. ♪

tom: welcome back, u.k. gilts

sold off again yesterday led by patient-linked -- inflation-linked notes after be a we backstop measures -- boe backstop measures failed to reassure markets. still with us is the head of fx strategy at socgen. let's get your thoughts on the market action yesterday, that selloff in gilts. the chancellor brought forward fiscal plans a month early with the obr, and for boe trying to reassure markets there will be enough liquidity. and yet we saw this selloff. kit: the glib answer is coming out with a budget on halloween is too much of an invitation for everybody. the u.k. helps the move in bond

yields along but it is not the driving force, rates are up, everybody is issuing debt at the same time, so it all feeds on itself. part of the issue this week is that yesterday what was happening in the u.k. was magnified by announcements in euro that we will get in one form or another more debt issued but adds to it all. the u.k. is in that sense relatively small the pushing along, i just think it all keep it going. manus: we got just two minutes. yes, the credibility of the u.k., we had bigger move than expected yesterday them the var shock two weeks ago, so will there be reasserting of pressure on sterling, when do we break parity? kit: i'd be surprised if we

break parity in this move because you do need another stock to confidence. the market is short sterling, a lot of people have used it as a way to go along of the dollar. i don't think we will break parity unless we are driving the euro down with us, but i definitely think the dollar is going up against both of them over time still. tom: the markets uprising at least 100 basis points from the boe november 3, can they really be that aggressive? kit: they probably will feel the need to be quite aggressive in the sense that they are revising up estimates for what they have to do, as fast as the government is revising its spending plan. the two have to work together if you are going to get the kind of fiscal largess at the same time as you have got an inflation problem, the bank probably does feel that it has to be aggressive to be honest. they will wreck the company in

the process between them and we will have to worry about that down the road. does the 1% move stabilize the foreign exchange market, not really. but i wouldn't fall off my chair in surprise if they went more than i expected. manus: stay on that chair. yields alone will not save your currency, that's one thing we have learned in the past 14 days. kit juckes, thank you for joining tom and myself, head of fx strategy at socgen. just look around... this digital age we're living in, it's pretty unbelievable. problem is, not everyone's fully living in it. nobody should have to take a class or fill out a medical form on public wifi with a screen the size of your hand. home internet shouldn't be a luxury. everyone should have it. and now a lot more people can.

so let's go. the digital age is waiting. millions have made the switch from the big three to the best kept secret in wireless: xfinity mobile. that means millions are saving hundreds a year with the fastest mobile service. and now, introducing, the best price for two lines of unlimited. just $30 per line. there are millions of happy campers out there. and this is the perfect time to join them... add a line to your existing plan, or see for yourself how easy it is to save by talking to our helpful switch squad at your local xfinity store today.

manus: this is "bloomberg daybreak: europe". i'm manus cranny in istanbul

with tom mackenzie in london, with the stories that set your agenda. tom: 30-year treasury yields reached the highest since 2014, following yesterday's move in gilts. tech stocks again leading asian chairs and futures lower. germany will back common issuance of eu debt to question the blow of the energy crisis with conditions. joe biden pledges to provide ukraine with advanced air defense systems as vladimir putin threatens more attacks. manus: very good morning from istanbul. we hear from the capital markets forum for bloomberg. but the depth charge in the bond market, you have a 20 basis point move on budget day, this is var shock 2 in the gilt market even though the bank of

england are backstopping, it is not enough as kwasi kwarteng brings forward his fiscal plans to october 31. but the market has a lack of belief in the credibility of this government. oil, the battle lines are drawn between demand angst and opec games, lower this morning. the imf, world bank and jamie dimon all talking recession. oil is lower, aussie is lower on that story as well. dimon talks about the next 100 basis points as being the next most painful level. covid zero is set to be extended. and the bond market continues to react viciously to the gilt market moves yesterday evening in u.s. treasuries. tom: and you had four straight days of losses, it looks like futures bear this out, setting

ourselves up for a fifth straight day of losses. a long way to go in terms of u.s. equities and stocks. goldman sachs saying it is not time for the fed to pivot, they are short equities in the short-term. e-mini-futures losses of .5%. europe ended in the red yesterday by about .2%, you are seeing further losses despite unity around the need for support in the energy crisis. it is loans, not grants, that is the importance but you have germans aligning with southern europeans on that front. a couple of individual corporate's. we have the story of renault, as they try and restructure this two decade alliance. we saw upside yesterday on the back of the announcement that nissan would be prepared to invest up to 700 million dollars in there ev unit.

renault is looking to reduce its shareholdings in nissan as well. basf bid on the back of an german expert panel recommending subsidies, the chemical maker very reliant on gas. let's get the first word news now with simone foxman in doha. simone: president has threatened more strikes against ukrainian infrastructure after russian missiles hit cities across the country. u.s. president joe biden condemned what he called the brutality of the attacks, the most intense since the first days of the invasion. french drivers face more fuel shortages after unions continued strikes at the country's biggest refineries. president emmanuel macron's government is being urged to

mediate after almost a third of petrol stations have shortfalls. japan has reopened its border today to vaccinated travelers, ending three years of pandemic restrictions. with a weak yen and low inflation, hopes are high as airlines ramp-up international flights. reports have emerged of iranian oil workers joining protests over the death of a 22-year-old woman last month in the custody of so-called morality police. social media videos show dozens of laborers and uniformed workers marching. global news, 24 hours a day, on air, and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg, manus? manus: simone foxman they at delhi financial center --there

at doha financial center. jamie dimon says headwinds are likely to push the u.s. into recession by the middle of next year. speaking with cnbc, he said europe is already in a downturn and is likely to put the u.s. in some kind of recession in the next six to nine months. the head of the world bank and imf sounding alarms, the imf director said higher u.s. rates are starting to bite. and the world bank president warning of real danger of worldwide contraction. let's unpack all of this, we are joined by the chief economist at high frequency economics. carl, some pretty brutal warnings from imf and world bank. jamie dimon same recession in the next six to nine months, does 4.5% from the fed delivery

a hard landing or just a mellifluous slowdown? carl: i think the notion of a soft landing is a nice dream. but it's something central banks have rarely been able to deliver. almost every experience in my career, which goes back many years, central banks have gone after inflation by tightening monetary conditions and they have generated recession. that is the only way they have to affect prices that are too high, is to cause demand to shrink relative to supply. the only brave part about jamie dimon's statement is putting a six to nine month timeframe on it because we got a good, precise view of what it is going to happen. it is certainly not happening right now but the cards do seem to be on the table. tom: part of the calculation for the fed, and the implication for

the recession risks, will be data thursday out of the u.s. the data that you analyze, what are you seeing to suggest clarity on the stickiness of these higher prices stateside? carl: the fed is not going to find what it was to seat, it is going to see headline come down, but that will mainly be a function of gasoline prices. when we look at core elements of the cpi, you are going to see too high rates of increases of prices, and combined that with labor market data showing that it remains tight. we're not seeing the elements we need to look for the fed to declare it has done its job of stabilizing prices. it will he nice for a few minutes when they see the headline, but it won't affect the fed's trajectory one bit. manus: you are not holding any

punches back, so let's go with the flow. bank of america, we are fleeing to cash like it is 2020. but it is tempting to be a contrarian bull when there is a bond rout into cheaper valuation in stocks, is it too soon? tom: i think we've lost the connection with manus. he is in istanbul, this happen sometimes. we will try to reestablish the line with him. carl weinberg is with us as we try to assess the trajectory of the global economy. carl, you are still with us which is fantastic. the question manus was framing was the opportunity given the selloff in the bond and equity markets.

what would you need to see to give you the confidence to advise investors that this is the time to dip your town? -- your toe? carl: it's easier for the u.s. than the u.k. to think about what the terminal rate might be. we're thinking at the end of the day, one of the good things that's going to come out of this whole episode is we will get positive real interest rates. that means if we get to stay neutral rates, that would normally be somewhere above inflation expectations. of where nominal rates are going to be. at the long end, we look to 100 to 200 basis points above inflation is being normal. i think we still have a ways to go on rates to get to those high levels, but what we should look for in a terminal rate from the fed, is not only a rate high enough to contain inflation now

but to establish price stability in the longer-term, that's a positive real rate. long-term inflation expectations of 2.5% plus a really small spread. tom: manus, let's bring you in, we have reestablished the live. manus: i had a temporary faries. i'm a bit obsessed with american mortgages, the average treasury rate is over 4%? the 30-year mortgage in the united states of america is above 7%. reverting a 15-year rally in 15 months, that is brutal. that is yet to be put in that role market, that is a u.s. recession in the making. carl: it has been in the housing market at the margin. most of our mortgages are fixed

rate. for people who already have homes, there is no impact. for people who want to buy homes, that makes an impact and affects the home construction industry. and that leads to slower activity, lower prices for construction materials, less employment in construction. there is a strong impact on the housing market, but homeowners and consumers aren't as affected as they are over there. this by the way is very different from 2007, when a lot of speculative homebuying was financed by variable-rate mortgages, so that when interest rates started go up, that caused the financial crisis. we are nowhere near that kind of situation right now. it will have marginal impact on new construction and new transactions, but not on the existing homeowners as long as they can stay put. tom: i think manus has dropped

off again, maybe to check on that u.k. mortgage. before we let you go, this is an line that stood out from your latest research focused on the u.k. of europe " we now know of no way to chart the course of britain's economy, " that is quite the statement from someone like yourself who has been so many years monitoring the u.k. economy. drawing on your experience, how do you characterize this moment for the u.k. economy? carl: we have a political crisis linked to an economic crisis, they are both spinning around in kind of a spiral. there is no way to tell how the economy is going to end up, until we know how the politics is going to end up. well the truss government finance this package, or will they be compelled to withdraw it?

will the prime minister be compelled to resign, it doesn't seem likely now but it is possible. with the bank of a limb, there is the big question whether this government will step on the independence of the bank of england. it ran on the platform to do but has backed away from. the bank's hiking rates when the government is insisting on stimulating the economy with more deficit spending, that might be a reason for the government to take the extraordinary step of stepping on the bank of england's independence which would send the sterling into a tailspin. there are so many loose ends, we have to wait for that politics to clarify themselves. the budget will be one thing, and we will get two forecasts for the u.k. economy. and i bet they will be very different between what the government projects, and what the bank projects with its

assessment. then we will see how we can reconcile. so everything is in the air right now, it's impossible to forecast. tom: that mountain of uncertainty facing the u.k., maybe we get some clarity come the end of the month. carl weinberg, chief economist at high frequency economics, thank indeed. a redhead across the terminal, tsmc shares plunging to the biggest decline on record, currently down 7.8%. the central semiconductor maker based in taiwan as investors digest the restrictions by the white house on friday around ai supercomputing chips, but also those who produce the equipment

and a very significant step up in restrictions. tsmc taking a hit on the back of venues. manus: the stoxx index had already been under a lot of pressure. keeping an eye on the likes of asml, and let me check out what is going on with the dax. that will give you a little bit of an indication. a drop on the decks of 1%. sticking with the german theme, olaf scholz will support the issuance of joint european debt to ease the energy crisis. bloomberg. ♪ -- next on bloomberg. ♪

>> the pockets of every country are different. many countries have undertaken similar measures sometimes earlier, and you can't compare them one-on-one. what we have been trying to do as ministers of finance, to see what we can do together, where the means can be found and how we can take a longer-term view. manus: the dutch finance minister speaking with maria tadeo yesterday about the fiscal response to the energy crisis. since we have had a bloomberg's group that germany is changing tack to support joint debt issuance with conditions. let's get to maria, this is quite a pivotal moment for germany, they were going to pop

200 billion support to their own nation, but now we are talking joint debts. maria: this would not be a repeat of the recovery fund in 2020, where olaf scholz was the german finance minister at the time. it would be joint debt, the european institutions tap the market, then pay it out as cash to member states. the members that would be inclined to take this, if you go to the market as a domestic borrower, you may not be able to lock in the rate of a institution like the eu. this is all about locking that rate in in a way that is beneficial for your country, they believe it is better to do it as 27 than as individual nations.

germany is changing tone but this has to be approved unanimously. we heard from the dutch finance minister, she was not convinced. tom: what has prompted this shift from the germans? maria: it's a you turn that in some ways was initiated by the germans themselves. two weeks ago they came up with this 200 billion euro package to help the german economy, but that set off alarms. there was criticism that germany was sending the wrong message, that this was each man to themselves and that had to be remediated. maybe that is what has prompted the shift in tone, and it is becoming clear to european leaders that they need to coordinate. and there needs to be a joint response to deal with the energy crisis. we have that deadline october

20, european leaders expect to see a plan from the commission to bring down energy. the question is whether this joint debt would feature as part of the energy response package. tom: maria tadeo in brussels on that important shift from the germans, and looking ahead to the brother response -- further response from the eu. the bond selloff deepens as lawmakers returned to parliament in's the u.k.'s mini-budget wreaked havoc. this is bloomberg. ♪

manus: it's bloomberg daybreak: europe, i manus cranny in istanbul with tom mackenzie at london hq. tom: u.k. gilts sold off

aggressively yesterday led by inflation-linked notes, after the bank of england's backstop measures failed to reassure the market. some strategist doubt the bank's plan to restart active gilts sales october 31. leigh-ann, let's start with you on the politics of this and what is happening with the chancellor and their attempts to reassure their party. leigh-ann: parliament reopens today. they are back in business after two weeks' holiday for annual party conferences paid at 2:30 today, the chancellor is expected to answer treasury questions in the commons. this is the first time he would've faced mps since we saw

the pound diploma and all that market turmoil happening. this will be the time for kwasi kwarteng to lay out his agenda. yesterday we saw that y -- u-turn that they are going to bring forward that fiscal statement. kwasi kwarteng insisting that was going to be at the end of november, now we know it is going to be before the boe rates decision. this is good news because the bank of england now knows what they will delight wit -- deal with. liz truss and kwasi kwarteng will be on a charm offensive, they will be meeting with rebellious backbenchers. they will be meeting with the 1922 committee. also, kwasi kwarteng is off to washington later to meet with the imf. manus: it's all about confidence. that's really what the market wants to get from them, let's see if they can deliver that in washington.

tom, you flagged tsmc on the tank this morning, down over 8%. i wonder how pervasive that will be across the rest of our markets, 240 billion wiped out globally this year. tom: there is tensions between the u.s. and china, but also the buildup of inventory in the semiconductor space, those dual pressures being digested for investors. up next, bloomberg markets: europe. ♪

♪ >> good morning. welcome to bloomberg markets europe. i'm anna edwards. the cash trade is less than an hour away. here are your top headlines.