or see for yourself how easy it is to save by talking to our helpful switch squad at your local xfinity store today. dani: this is "bloomberg

daybreak: europe". i'm dani burger in london manus back in dubai. manus: the u.k. chancellor says the boe will be to blame if markets tank after bond buying ends. asian stocks and treasuries decline before today's critical inflation print. plus, as opec plus trims its demand outlook, u.s. officials fear the russian oil price cap plan may fail.

this as vladimir putin warns all energy infrastructure is at risk. dani, one thing is for sure when you are looking at gray swan and black swan events, it's not like 2008, it's multiple attacks and the gilt market is the personification of ground zero left tail risk and gray swans rising. dani: on a day like today, where we look at fire sales coming from pensions ahead of cpi, why put risk on your book? yes, stocks are down in europe, we are seeing consolidation everywhere else save european equities and ftse 100 futures. those are down .5% for europe, the ftse 100 underperformed yesterday. what got hit was asset managers

in the u.k., these fears of fire sales, and property developers with mortgage rates shooting higher. the consolidation in s&p 500 ahead of cpi, the vix curve looking really primed for volatility. it is a steep backwardatio n, and we are looking at hstech, jules is talking about this. chip stocks are under pressure and we get tsmc earnings later. manus: don't ever say i don't read your emails, you can see the little tick, she's chasing me this morning, i don't read enough of your emails. i read everybody's emails. have a look at the oil market, because somebody needs to read the one from america and the one back from saudi arabia. we are down .8% on wti, opec

trimming the demand outlook, that validates the saudi opec+ cut. and then you have this salvo of rhetoric between the u.s. lambasting the cut, and you have the saudi's talking back to the u.s. narrative, saying they acted in good faith. "it was with noble objectives," dollar-yen flat at the moment, cable steady relative to the chancellor throwing policy under the bus. let's talk gilts. where do you want to start because where i think the bank of england snarfles up every single offer that was in the market was that to deliver stability, or is it another sign

of panic to come? dani: pensions have not taken the boe up on their offer, but yesterday base will in and buy a record amount. we reached 5% on the 30-year yield again only 42 fall after the boe started buying, this is a round-trip, the panic is clearly still in this market. manus: it obviously is there, 20 bips says perhaps liquidity is draining away. it is a multiple of shocks that will deliver perhaps the most brutal restraint of fcom. reporters are standing by, how do we tackle u.k. market and politics? jules brings us up to speed as ever, she has the global chips story. dani: she is always respectful.

and we have stephen stapczynski on hand with the latest on oil. chancellor kwasi kwarteng says the bank of england will be responsible if markets quake after its bond buying program ends friday. at the annual meeting, kwarteng told sky news any turmoil after the bank withdraws support is quote, a matter for the governor. let's bring in lizzy burden. independence felt like it has been under threat, with kwarteng shifting higher blame to the boe what does this mean with them playing chicken? lizzy: the prime minister and bank of england are under pressure to make big u-turns. yesterday at prime minister's questions, liz truss said she will not make fiscal cuts even though she needs to find 60 billion pounds to restore market credibility.

meanwhile, andrew bailey looks like he is going to have to you t -- u-turn on all the tough talk where he definitely said he will end emergency bond buying tomorrow no matter what happens. his argument is if he continues, he will have his foot both on the gas and the break of the same time. the chief economist huw pill has set the boe needs to focus on finding inflation, but u.k. pension funds are dependent on this lifeline now. and kwarteng is adding pressure on the bank continued support. today investors are holding their breath to see who blinks first, the bank of england or government. manus: let's see how that battle goes, one thing is for sure, the riks with their view on the property market next year, going from but he percent growth in

september to down 18%, that is what higher rates means in reality for the u.k. economy. lizzy burden on the u.k. political debacle. sources say biden administration officials are growing concerned about the plan to cap the price of oil from russia, after opec launches surprise cuts last week. let's get more with our energies order, here we are, the battle lines are drawn, the biden administration have basically said, by your actions you are wrecking the price cap. markets are down 6% this week. >> what we are looking at in the market this week is something different. everyone is focusing on this recession fear, a hawkish fed, and the chance of increased interest rates. that puts the context of the opec+ cut in a different window, opec+ and saudi arabia are

saying we are looking at lower demand because of possible recession, and that is why we are cutting back. the biden administration says they are picking russia over the united states. last year we did have that big jump in oil prices, now we are falling as folks focus on recession fears. but this squabble between the u.s. and saudi arabia is making the biden administration worried. they do put a cap on russian oil, they are worried russia may retaliate and say we do not want to export that oil. what does that mean for the u.s.-saudi arabia relationship after that as well? one thing to remember is the u.s. will go forward with the price cap. they have confirmed there is wide support within the biden administration, and europe wants to do it, too. now we have to see what happens to the market if there is more

potential cuts to exports from russia. dani: the backdrop for the biden administration is midterms complicating the picture. bloomberg's energy reporter stephen stapczynski. let's get back to the chips story, chip stocks in asia remain under pressure ahead of tsmc reporting today. jules, or rea -- more red. juliette: just seeing the global ramification of the story, applied materials slashed fourth-quarter guidance. very much weighing through into a negative session for chip players. the regional benchmark down a fifth day, cpi playing a portion but still april 2022 lows. and the hang seng tech index remains as is lowest level since inception. let's look at tsmc because we

did have taiwan's economic minister try to bring some calm in an interview from washington, saying investors are panicked and do not understand the complicated biden rules that will be implemented. we will watch the tliv blog for more insight. but we are very much watching the impact of the dollar. tsmc had a 31.8% exchange rate appreciated, instead we have seen the dollar appreciated 32% against the taiwan dollar, that will play into their earnings, but still very bullish on this stock when you look on the bloomberg. manus: thank you very much, juliette saly on taiwan semiconductors we will break those numbers when they come through the tape.

you've got your m -- u.k. turmoil, the latest news follows the bank of england stepping up 4.6 billion pounds of gilts yesterday. let's bring in our chief rights correspondent for asia -- rates for spun it for asia. the bank having lived -- of england restrained the gilt market. what happens tomorrow when they close up shop on threadneedle street as buyers? >> some of the answer to that, what level of thermal we get, depends on what cpi we get and the way the u.s. treasuries market reacts. what we get out of the fed with guards so that -- regards to that and how much that plays into increased or decreased fed hawkishness.

there is the possibility we get a fairly quiet finish to the week in the gilt market if uscp i can set the right stage. bailey's comments on wednesday or tuesday did seem to lead to a lot of selling overnight in the gilt market, and the boe came in and did a lot of buying and ultimately they settle down. they have gone the market used to the idea that yes, they really will step away, and if there are doubts about whether to sell gilts, now is the time to do it the concern is after they finished, it might be in other markets because -- dani: you mentioned cpi, what are we expecting a few hours from now? garfield: headline cpi will

slowdown to 8.1%, but core cpi is going to speed up. the atlanta number is going to be real focused, because whatever goes on with headline even if it picks up, if core cpi accelerates, some forecast it will go to a new high. that will really quash any hopes that the fed will regard inflation as potentially peaking, and therefore it can look at calibrations we're flagging, and calibrate a less harsh and hawkish pace of tightening. dani: garfield, thank you, that's our chief rates correspondent for asia. let's take a look at things we are watching out for today. this afternoon, is that all-important u.s. inflation data.

we are expecting the pace of consumer price rises too slow to 8.1%, down from 8.3%. it's also u.s. weekly jobless claims, we will look for cracks in the labor market. manus: in the afternoon, the ecb's nagel, a confluence of data from the states and language from the ecb. we discussed u.s. economic data with oliver kettlewell at mattrick capital -- mashreq capital, how hot of a cpi print is he expecting?

>> we've never seen this kind of volatility, up and down, all this year, ups and downs

intraday. but all this volatility should be your friend, it should create opportunities for stocks being mispriced if researchers have found their job well. dani: a friend of volatility, john rogers, junior. manus: and he kept the dream of value investing alive. but let's shift to the bond markets, they are live and fri sky, oliver kettlewell is the head of fixed income at mashreq capital, hope you don't have gilts on that book of yours? compliance will be happy. we've got an explosion of volatility, how are you reacting? oliver: i don't think it is time to buy the dip, i know he is a famous value investor, but you need to see data bottoming,

unemployment rising not falling. the opposite is happening right now, so it is not quite time to buy the dip just yet. dani: can i say as a general statement for this market, that the threshold at which it becomes attractive to buy has been raised? oliver: i think so, even take the calibration comment last night that the fed made. i don't think that means the fed pivot any time soon, powell said in the summer that 75 basis point rate hikes are not the norm. but they have felt like that the last few months. there is more weakness in the stock market to come, i don't think it goes down 40 to 50% like you reporting earlier on, but it gets weaker from here. manus: it was jamie dimon who

suggested it might be another significant leg lower. not me, i'm not going on the hook for that call. i just sit here and let people like you make calls. kashkari made it clear that the bar for the fed to pivot was much higher, but he talked about the speed and velocity of rates. if we did 2%, the market cannot cope with anything like that, the market cannot cope with anything bigger than 75 basis points, credit? oliver: 1% it probably could, we are so used to 75 basis point rate hikes that i think they would take it in stride. we would think the fed are getting closer to the terminal rate quicker, rather than having to take the pain of 75, 25 whatever it may be, let's get to the end. dani: i like it, so let me

challenge it because that is what we are here to do. can we not use the u.k. as an example to say there are more opec pockets of leverage that exist outside the banking system. and the fed might face the same problem where the bond market runs away from it. oliver: that point will come probably in december or the turn of the year, i think 75 is a done deal for november. if you think back to jumbo sized rate hikes, there is a leg effect, so if they start spring-summer it will hit the real economy in q4. the numbers in the beginning of the shower strong -- show, were strong, hopefully they come off the cliff. i think end of the year data

could be weak enough for the fed to pivot, and eventually for stocks as well. manus: in the bond market, you've got apollo salivating at credit. your job is to deliver yield, they have delivered yield maturity in a zero rate world for 20 years. what part of the gilt market are you most active in? oliver: it's a similar thing to what we have talked about, investment grade. investment grade has not worked out for investors year to date, a lot of investment grade has performed worse than high-yield. when you talk about the market breaking, when the market eventually breaks, the most overleveraged companies are the ones that get hurt the most. and those will be high-yield, so

we will rather be in investment grade names than high-yield corporate's. dani: some of the cracks in the credit market are apparent when you look at the lack of banks issuing leveraged debt. two you does that scream prices for this leverage credit market? -- crisis for this leverage credit market? oliver: some of the investment grade issuers don't need to issue debt. if i take this part of the world for sovereign bonds, they are flush with cash, so they don't need to issue bonds, they are okay. if you are a corporate rolling over debt, it is difficult to do that because you are having to issue debt for double digits, so that will be challenging. manus: we are showing high-yield investment grade bonds, and we have picked a couple of peaks, one is covid going back

retrospectively. then we go back to the sort of debt crisis of europe, explosive up to 2000 basis points over. it's interesting how we are just hovering around those lehman moments. we are at around 533 for high-yield, and 165 for ig, are we anywhere close to a pivotal moment on liquidity, risk and var as we were in 2008? oliver: i think we're getting there, i don't think we will see quite the market calamity we saw because it has been quite an quarterly drawdown. whereas something like covid and the gfc, the market was week for the whole of '08, but it was --

but there was that sharp drawdown times that number october and then the whole lehman brothers fiasco happened, so i think it is more of an aggressive drawdown rather than a stock market calamity. manus: liquidity goes like that overnight from the entire equity market, oliver, thank you very much. putting into context the markets, the head of fixed income and markets at mashreq capital. dani: let's talk about later today, we will hear from top policy makers including the imf managing director, the world bank president and ireland finance minister, and the european commissioner for the economy paolo gentiloni.

>> i'm simone foxman in doha with your first word news. the head of the imf says ukraine will need $3 billion a month next year to finance its wartime economy, which means allies will have to give more support. russia's president says any energy infrastructure in the world is at risk after explosions in the nord stream gas pipelines. speaking in moscow, he blamed damage on the u.s., ukraine and poland calling them beneficiaries of the blasts. the u.s. is considering a total ban on russian aluminum and response of military escalation in ukraine. the biden administration is weighing an upright ban. hi, my name's steve. i lost 138 pounds on golo and i kept it off.

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manus: this is "bloomberg daybreak: europe." i am manus cranny in dubai with dani burger in london. these are the stories that set your agenda. dani: the buick e -- the boe may be to blame. stocks decline for today's crucial inflation print. fed seems to want to continue rate hikes. u.s. officials feel there russia price cap plant may fail as putin warns that infrastructure is at risk. manus, i want to dive into markets but i hear we have from breaking news when it comes to

tsmc. manus: we do. that income at $280.9 billion. that is a significant beat. very comfortably beating at what they had. it will be interesting to see what they say in terms of ev and the supply chain side. there has been an emergency terms of the chip market as of late. dani: i am also seeing that they beat their gross margin. to your point, i want to see some lines on the supply chain.

shall we get to what some of these futures are doing. these are outperforming. we underperformed the market. house managers in the u.k. under pressure. why would you take that risk right now? it is primed for volatility. finally, starting to gain a little bit here. a really strong margin might be for us to push into the green. manus: it is a reasonable beat. you have a battle line drawn between the saudi's and americans in terms of acting

with noble intent. this will not stop the demise of the yen. this is not a clear fact. sterling set us up for another attack and debacle. treasuries, they are trading at 3.91%. dani: i don't remember last time we had a boring day. it seems like all the actions around the ukraine story saying that the boe will be responsible if markets slide after the bond buying program. they believe the government may need to find 16 billion pounds.

over the week, economist and bankers have given their take on what is happening in the boe and what is next for the economy. >> you have got three days left and you have to have this done. >> the bank of england can talk tough but fundamentally they will have to extend it. they are trying to hold things together as best they can. >> the confusion comes between the financial side and the merger side. they are now trying to do different things. >> that is a very dangerous cocktail for markets. >> they are trying to maintain price stability with this other instrument. >> this is not looking to be another deep recession. >> i worry this is not enough. there will have to come up with their version of whatever it takes. >> -- dani: for more, we bring

in bloomberg's lizzy burden. liz truss says she will not you turn. what do you think? lizzy: behind the scenes, people do not think so. she said she is not willing to cut spending but they say she needs to find the billion pounds worth of savings if she wants to oz the books and restore credibility. even that would be tough given how it was already picked. it leaves the other option being to do a u-turn on the tax cuts. this is what the treasury select committee sees down the line. there is base case that you get something to give.

manus: perhaps get some breathing space. if there is a bond direction next week and britain is down to the governor, as he boxing the governor in two extend -- to extend? lizzy: liz truss was saying the bank of england did not do enough to fight inflation. the reverse on that is that independence was sacrosanct. now, the bank of england is not willing to fight inflation because they have to fight their tune. they can continue with these tough talks tomorrow. i just hope that markets get in line in time. he could fold with the program as expected.

he could leave him to the mercy of the markets and sees what happens, or have a creative solution by raising money to ease longer-term debt. we will have to see if they can choose that kind of option. manus: thank you very much. lizzy burden on u.k. politics at the moment. our guest at the moment is mitesh parikh. coat deputy head of discretionary macro and fixed income at schonfeld strategic. good to have you back. let's talk about this gilt market. i want context for you and how broken it is and if bailey has to pretend and not shut up shop

tomorrow. mitesh: absolutely. the interesting thing about the gilt market is much more around liquidity -- liquidity as you touched upon. as guilt increases, the present value of those liquid these starts to decrease. it improves the position for these funds. ultimately, there is a fiscal side from the government and the bank of england trying to retain financial -- stability. we have a huge move and a lot of this is liquidity driven. he struggled to get any sort of meaningful position. this is causing the movement and lack of credibility from the

government to have the market stabilized. dani: which is the greatest danger from the boe right now? staying in market for the pensions or mixing that and focusing on short-term interest rates? mitesh: it is a very difficult situation to be in. on one hand, the decision-makers panel which was published a week or so ago shows that they are now up at 4.8% from 4.2%. there is significant pressure to get in line with their market points by the middle of next year. this is versus where we sit today. the november meeting is now priced at 112 basis points.

they just added a 50 basis point hike a few weeks ago. more broadly speaking, if they have a decision to make, i thought it was bold and they have to unwind by the end of this week. the reality is, those assets, it will be difficult to do that. manus: your road is discretionary. from a general sentiment point of view, how are you positioning for forward inflation? will there be another attack on sterling or guilt -- gilt? mitesh: i think for sharp pressure has diminished. it was at 3, 4 hikes.

in terms of positioning, it is much more difficult given how it is priced. we still think from the dollar, you can see much more strength. as financial conditions continue to tighten, we have seen significant information from central banks. as to maintain stability. we are not sure how sustainable this is. they have collapsed over the last weeks. we will get the latest numbers from today. that compares to march, 2020 when we saw some outflow in treasuries. we are back to these types of stress levels. more quickly, we see a lot of

disconnect happening. the move we are seeing has been so significant. we at 70 basis points from the start of august. the fact that 10 year real yields are coming in from zero until 1%. it is very destabilizing. dani: this is fascinating because we are in this world were we have central banks dealing with the banking system. the pensions are outside of the banking system. what does this look like? is there something that you fear will break? mitesh: that is a good question and a more broad debate.

if i look across funding markets, all of these things, we are not seeing significant stressors currently. right now, that suggests to us that something might break. the pace of the leveraging that we are starting to see and how yield curves is broken down, for the last 10 days or so, it is the first time were have seen bonds and equities. to answer your question, we are not seeing anything specific in funding markets suggest that the end is nine. it is problematic right now. we are struggling to be able to transact as a result. manus: wrecking ball's but not

quite at the crisis yet. mitesh parikh will stay with us. he is our guest from schonfeld strategic. this is bloomberg. ♪

>> for me, the bar for such a change is very high. we have not yet seen much evidence that the underlying inflation, services, wage, labor, has changed. i think we are ways away from that. dani: minneapolis fed president there. his comments came after the september fed minutes were released. as traders look ahead later today. still with me and manny is mitesh parikh from schonfeld strategic advisors.

we got fed minutes yesterday, perhaps there is a case for not pivoting pausing. is the fed going to continue to be in such a rush and why be in such a rush? mitesh: if you look at core cpi, we have not seen the likes of those levels for a long time. if you look at the components and wages, those remain sticky. today's number is very significant. a much better -- bigger number than expected. a lot of them are around .4. we are seeing is that no forecast has been able to call where it tops out. i think for the fed, they are trying to repave it.

we are seeing demand and labor starting to soften. the market has held on for the meeting. more basis points priced in september. might most likely base case is that we get to the end of the year and we will see what they are doing. that means that the fed really wants to see three of these. manus: translating that into the dollar, you mentioned that maybe one of the preferences. if that will price you are

dollar higher, and if that is so, where do you want to be? mitesh: the reality is u.s. is the least. if you look at alternatives elsewhere, they are along the euro right now. same allies for the pound and most of asia. the reality is there are alternatives. that does mean that by definition, the dollar does need to get stronger as part of the process. where i think the weaknesses are is in asia. this is not just from the chinese, but the japanese, india, korea, etc.. the fact is where the risk is that something has to give. dani: if i can squeeze in an existential question, we have seen time and time again, assets that should be risk-free are acting pretty risky, whether it

be at the long and, various currencies. has your playbook changed after this year and need to be thrown out the window? mitesh: if you look at the 60/40 portfolio, it is the worst on record to date. i think that tells you how difficult the modern playbook has been. going back, the has been abundant. now, we are in the reverse of that. liquidy has been withdrawn and it is happening at a much more rapid pace. there are cross-links across the margin. that is something that we have to be aware of. this is as you see rates normalize into ultimately positive real rates.

i think the liquidy question is top of mind. i think, more broadly, the longer this goes on for, the more risk we are for something breaking. manus: there it is in terms of liquidity risk across the bloomberg terminal. thank you for coming in. i like to know we are not exactly at a breaking point yet. that is our guest this morning. mitesh parikh, cohead of discretionary macro and fixed income at schonfeld strategic . dani: samsung will get a one year exemption from u.s. chip curves on china. -- curbs on china. wall street journal reporting that samsung gets a one exemption. coming up, back to reality for italy's new leader.

struggling to form a new government, we will break down the biggest obstacles she faces. this is bloomberg. ♪

dani: italy's new parliament will convene for the first time since the election. it was a clear win from meloni. the brothers of italy leader is in a race against time to put together a coalition government. for more, let's turn to our bloomberg reporter. what are the biggest challenges that meloni is up against? >> [indiscernible]

there is probably a recession coming to europe. the ecb board member said, no thank you. now she is struggling to find an equally respected figure. it is not what markets were expecting. manus: we will have to leave it there. a few of those classic sound connection issues to roll through. alessandro, we will come back to any moment. the stage is set. a bond battle bruise. i knew i would get a triple in.

a wrecking ball has just been through across the board and across the risks. dani: i think it is interesting to look at this lenses that way. a potential set up for other things like this to happen. the longer it goes on, credibility risk and liquidity risk. how is that for a triplet? manus: you go. that what happens -- that is what happens when you have been with sa while. -- with us a while. we will see what the bank of england are forced to do today. dani: i want to see what the auction looks like. will it be a big one, will risks still be embedded in the system? more to come. this is bloomberg. ♪

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