>> i recognize, given the

situation i cannot deliver the mandate on which i was elected by the current servant of party. i have therefore spoken to his majesty the king to notify him that i am resigning as leader of the conservative party. dani: written in crisis, liz truss steps down just 44 days in office, the search is on for a tory successor. bond traders in control. treasury yields continue their historic climb with investors pricing a 5% terminal rate, driving u.s. equities lower. plus, unity on energy. germany agrees to join eu countries to explore a gas price cap as the continent's leaders tackle crisis in brussels. good morning, this is "bloomberg daybreak: europe", i'm dani burger in london. you made it to friday after a

turbulent week, a week where bond vigilantes are back in charge whether it be helping push truss out of from your ship, or the 5% fed funds rates next year, it is a market that is risk off. equity futures are declining this morning read europe stocks are significantly lower than the rest of the world. they did end higher last night. s&p 500 is weaker. tech underperforming, snap earnings plunging 27% taking the rest of the social media giants with it. also not helping tech is a market that is pricing 5% for the u.s. by next year. the philly fed's patrick harker saying yesterday rates are likely to rise above 4%. let's switch up the boards.

the yen continues to selloff versus the dollar. an analyst at sbi asset management pointing out that speculation is right, they are selling u.s. bonds to fund fx intervention. when it comes to currency, we are squarely focused on the pound. sterling is weaker, it is not just a stronger dollar story it is also weaker versus the euro. options are pricing in continued pain for sterling despite the fact that liz truss is out. yes, liz truss has quit as prime minister. the u.k. has been plunged into fresh political crisis following the resignation of the shortest serving prime minister. her 44-day 10 year saw her announce a massive package of tax cuts before facing a massive market route. >> i recognize though given the situation, i cannot deliver the mandate on which i was elected by the conservative party.

i have therefore spoken to his majesty the king to notify him that i am resigning as leader of the conservative party. dani: let's go to anna edwards, who is life in westminster. as we watch social media celebrating that head of lettuce that lasted longer than liz truss, what happens now? anna: light relief from social media i suppose. good morning from westminster. the conservative party are trying to find their third leader this year, from johnson to truss to let's wait and see. the 1922 committee and those who run the party have been putting the focus on it being quick. this is the key parts of it. here is the chair of the 1922

committee that represents the backbencher mp's. >> we have a threshold that should be achievable by any serious candidate. a threshold of 100 members of parliament nominating a candidate will allow for three candidates potentially to come forward. we have no say or knowledge of who they will be at this point. anna: a maximum of three candidates will get onto the ballot because you need 100 mp's support to even get there. we could have a prime minister by monday if the party manages to decide amongst itself, if the runner-up next down -- back down. it's worth saying that other parties are calling for a general election. that looks to be more political will and a constitutional

requirement and therefore, unlikely to happen. dani: we need three at the forefront. if you look at the papers, boris johnson is on the front of maybe half of them. how chaotic is this likely to be? who is likely to be the one who takes over? anna: you could get chaotic but the upside is it will be short. there is the possibility boris johnson tries to run for this. he is actually on holiday at the moment, perhaps cutting that short to try and bounceback into number 10. there are many would like that to happen, he has a mandate from 2019. he is still under investigation by the committee on privileges because of the scandals that predated the prime ministersh ip of liz truss. we see the former chancellor,

although the johnson camp don't like him because they blame him for triggering his downfall. but we had a good crisis in gilt markets because he forecast this would happen, and if trussonomics was implemented. dani: trussonomics might be dead, but what is still alive are the economic issues in the u.k. what is the next prime minister inheriting? anna: a cost-of-living crisis, a squeezed consumer, recession either here or on its way. they will not inherit much room to maneuver no matter how much the prime minister manages to -- we know the bond vigilantes are back. we know the market has been calling the shots of late. we have seen that in the strong pivot away from growth, towards a much more caretaker, safe pair

of hands approach in jeremy hunt. the market is watching him closely, he will talk to the banking sector next week to see if that is where he tries to close the fiscal gap. we have to watch the 31st of october, this times reporting that date might move. venue prime minister might not be announced until next friday. would that leave time to work on some kind of fiscal statement? the market might be interested with jeremy hunt as chancellor and what happens with that fiscal event for 31st of october. dani: a busy day ahead for you. anna edwards i -- outside of westminster. we are joined by alan wager, research associate on changing europe at king's college london, thanks for joining us after a crazy month.

your reaction to liz truss resigning, can the conservative party draw a line amid this turbulence? alan: it will be difficult amid the truss month and a half. it will be hard to shake off the economic incompetence tag. whoever becomes the next leader of the party, the massive curveball if you like of the potential for a return of boris johnson, so there is no clear inauguration plan. there is no clear strategy by those that have taken liz truss out. the men in gray suits, there is clearly huge uncertainty over the future direction of the conservative party, whether it moves towards economic stability or returns to boris johnson now.

dani: to that point, a lot of the papers have boris johnson on the front page, whether it be the daily mail framing it as -- the sun's having bojo saying i will be back. or saying will boris bounceback to number 10, what will this look like if boris gets some serious backing? alan: it's a hell of a story. u.k. newspapers love a great story. we need 100 nominations from conservative mps, and then it would likely get to a members vote. it is clear from surveys we have seen the last 48-72 hours if you like, that the tory membership are willing to either forgive or

forget, or both, the reasons why boris johnson had to leave office in the first place. it's probably highly unlikely that the actual public, the voters, will be as willing to forgive the transgressions of boris johnson. the next mother v-- month or so there will be a series of hearings on character that could lead to him being suspended from the house of commons. but at the moment oris johnson is being carried forward by the momentum of the idea that he is the only person that can save the conservative party at the moment. there is a sense of that with panic like coming through the conservative party today. dani: you say the wider public will be less likely to forgive him but regardless of who becomes prime minister, they don't have a national mandate,

nor a mandate from the grassroots tory party. what does that mean for their ability to enact policy change? alan: it's not clear that there is a majority in commons to afford tax cuts that jeremy hunt has been talking up since he became chancellor. and it's not really that clear when there is a majority for any sort of tax riders either. that's the problem now is whether or not there was a mandate from 20 for either trussonomics, or the economic populism of boris johnson, in a way the economic and political situation now is so different that they conservative party is going to struggle to be governable, regardless of whether it has a amended, or the democratic merits of having an election, one looks more likely

now than it did a few months ago. the boris johnson dynamic brings with it the possibility potentially of a party split. and the members in parliament dramatically changing as a result of that, another unknown in the mix. dani: these all feel very negative for the conservative party, how long do you expect these scars to stay? when we look back in 10 years, what will be the state of the conservative party? alan: i have tried to pinpoint these moments when you get big changes, these shift changes if you like in british political life. the conservative party has been in power now for 12 years, before that the labour party was in power 13 years, before that conservatives in power 18 years. what we see is these big transitions, and we will have to see a lot of soul-searching from

the conservative party which down out - went down a particular route with brexit. a lot of the economic cleavages in the party were often disguised by first, brexit and the economic populism of boris johnson who is able to be all things to all men often. and now we have these big economic divisions between the leveling up agenda and what we saw from trussonomics really exposed the conservative party. they will have to come to agreement about what the point of the conservative party is. dani: i'm also seeing some soul-searching probably from you as well after getting up at 6:00 a.m. to talk politics. we really appreciate it, alan wager, research associate at the changing europe initiative at king's college london. u.s. bonds fall into the longest slump since 1984.

we will look at the swap market driving the selloff. this is bloomberg. ♪

dani: from u.k. bond vigilantes to the american variety, the swap market is pricing a 5% peak fed funds rate in the u.s. for

the first half of 2023. that has driven a worldwide selloff in bonds, treasuries are now in the longest sustained slump in 38 years. joining us is our markets editor , 5%? >> we have hit another milestone and we will go into another fed meeting where the fed has to catch up to market expectations. i've got a chart which simplifies where we are. the last dots we got from the fed show that there are 2023. was just over 4.5%, the market is now pricing 5%. yet again the fed will be chasing its tail. we are hearing from fed officials that the fight is in core cpi but i want to show you the break even, which is a market traded expectation of inflation. they have gone higher all this month. the entire curve has shifted higher meaning that you cannot

discount that we might get another about of -- bout of head line inflation in core cpi just when we expected it to turn this year. dani: don't we have a situation where the higher the terminal rate ratchets up, it just adds more pressure on the boj to exit their extraordinary easy policy? >> this could be a big mess not just for japan but the spillover effects from the bank of japan breaking on their yield curve control would be incredible. the amount of fixed income volatility, the amount of term premium that would flood the bond market is a scary thought. i want to take you through this chart of just how scared the market is. this is the 10-year yen in versus the yield on the 10-year bond. this line is the yield curve control at 25 basis points. the market is so scared about a rate that they are willing to

pay 40 basis points above that line to put a head john. that's incredible, this is the last time u.s. yields peaked in mid june, we have turned a corner. this is happening at a time when japan inflation hit 3% earlier this morning. the trade deficit year on year, 40% higher the cost of their imports due to weakening currency in higher energy prices. it's incredible how nervous the market is over a scenario like this. we don't know when, but it could be coming soon. dani: scary numbers and a scary chart just in time for spooky season. valerie tytel, our markets reporter. the u.s. considers expanding chip restrictions on china to cover quantum computing and ai, that story next. this is bloomberg. ♪

dani: beijing has summoned chipmakers for urgent talks the past week as it tries to assess the damage of u.s. curbs on chinese semiconductor firms. the u.s. is looking to expand restrictions further. we are joined by rebecca choong wilkins, our asia government reporter in hong kong, let's talk about the expansion of restrictions what does the u.s. look like they are targeting now? >> it looks like the biden administration are in the early stages of potentially expanding export controls to quantum computing technologies and also ai, which could be a significant expansion. the plans are in early stages, they are in discussions with experts over precisely how they would be rolled out.

dani: what will china's response likely be, we know from reporting that they have gathered with leaders in the space, how levay tackle this? >> there does seem to be a question mark around precisely how beijing is going to muster coherent response. we know that meeting took place focused specifically on how the immediate impacts are going to be for china's many companies that rely on access to these high-tech chip manufacturing semiconductors. the other question for china in particular is to what extent they are able to garner support from allies and partners, to make sure this attempt by the u.s. to possibly bifurcate between countries that choose to continue to access china's market rather than pullback in line with u.s. curbs, whether or not china is able to influence

that. there are many countries will be caught in the middle, many asian countries in particular, and so there is this uncertainty over whether or not they will want to effectively be forced to take sides here. dani: rebecca thanks so much, our asia government reporter in hong kong. some of the chip names falling, we are seeing losses, some of these around 3%. the chip story is not the only thing hurting tech, the higher fed funds rate we are pricing in and snapchat earnings yesterday. shares plunged after the bell on its lowest quarterly sales growth ever. they fell as much is 20 fo -- 27% as a decline in advertising spending dragged on result. it's peers meta-, pinterest and alphabet all selling off. one type of ad-based company

that isn't here is twitter. it's been telling its staff that there are plans -- aren't plans for a companywide layoff following a report that elon musk intends to cut the workforce 70%. white house officials are discussing whether to subject some of elon musk's deals to security reviews. >> people close to the biden white house have told bloomberg that u.s. officials are becoming increasingly concerned with what they perceive as elon musk's pro-russia stance, and the fact that he has plans to buy twitter with a group of foreign investors. of particular concern was his threat recently to stop the starlink satellite service to ukraine, although after coming under fire for complaining that it was costing spacex $70 million, he tweeted that they would continue to supply the

service for free. discussions by white house officials are in the early stages as they consider legal options. it looks like absence -- options to finalize elon musk's $40 billion buyout of twitter are heading towards completion a week from friday. muska said on a tesla earnings conference call that he is excited about the situation and said quote, "he is obviously overpaying," twitter has denied a report from the washington post that musk told investors when he was putting the deal together that he planned to cut 75% of twitter's staff when he takes over. that would cut twitter to a skeletal 2000 plus operation. a memo from twitters general counsel says no companywide layoffs are planned. dani: for what it's worth,

twitter shares did fall slightly after hours but not as dramatically as other social media giants considering they fell some 4%, or snap 27%, just .3%. it is under the price elon musk has offered, $54.20 so perhaps some skepticism still priced in as to whether or not the deal will go through but the increased scrutiny does feel like we are inching closer to that along with that member that twitter has denied. we will speak with the telia c 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...

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this is "bloomberg daybreak: europe". i'm dani burger in london with the stories that set your agenda. >> i recognize though given the situation, i cannot deliver the mandate on which i was elected by the conservative party. i have therefore spoken to his majesty the king to notify him that i am resigning as leader of the conservative party. dani: britain in crisis. liz truss steps down after 44 days in office, capping a historically short term as prime minister, the search is on for a tory successor. bond traders in control. treasury yields continued their historic climb with investors pricing a 5% terminal rate. plus, unity on energy. germany agrees to join other eu countries in exploring a gas cap as leaders tackle the looming

energy crisis in brussels. it's been a week, and probably a year with this bond market dictating the macroenvironment. when it comes to the u.k., the bond vigilantes helped to push liz truss out of office. when it comes to the u.s., it is risk assets getting pummeled thanks to a 5% p that is priced in for fed funds rate next year. a selloff on equities, the usual culprits of yields higher and stronger dollar. euro stoxx 50 futures are lower at 1%, they are doing worse this morning. tech is also doing worse, nasdaq futures down .7% after abysmal snap reports yesterday, concerns that economic slowdown will mean companies will cut back on their marketing spend. here is the rub, it is a 10-year yield that is now 4.25%, it is up an additional 2.5 basis

points this morning. we heard from the philadelphia fed president saying the fed terminal rate could be well above 4%. the market has priced in well above 4%. it's the pond stint -- constant drumbeat of positive earnings. it is higher oil prices after reports yesterday of china reopening. and then we have a dollar versus the yen trading at 150, an analyst at sbi management pointing out there has been speculation that because of the levels not just in the yen but of cross currencies versus the dollar, that we are having more defense from central banks. but it looks like them selling treasuries, so that feeds into this loop where you get treasuries sold off, yields pushed higher, that hurts currencies and they need to keep doing this. and then of course, the pound

sinking despite the fact that a new prime minister will come in, both versus the dollar and euro. let's get our top stories this morning, with the first word news is juliette saly. juliette: the white house is accused of sending technicians to crimea to support -- the ukrainian president says russia must compensate his country for the discretion that has been wrought by moscow's invasion. the european union will press ahead with emergency actions to address the energy crisis. that is after germany paved the way for a temporary price cap on natural gas. it sends a clear signal to the market that the bloc is ready to act together. the st. louis fed says it will think differently about officials participating in private events, after criticism of james bullard for speaking last week at a private event

hosted by citigroup. bullard's appearance could be seen as a violation of federal rules to avoid providing advantage to any market participants. adidas issued a profit warning as good pileup in china and western markets. the german sportswear maker expects an operating margin of 4%, down from 7%. the ceo has announced he will step down next year. 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: jules, thank you so much. we are going to take another look at the runners and riders in the race to follow liz truss as prime minister. could boris johnson be making a comeback? we will also dive back into the european earnings story. this is bloomberg. ♪

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dani: one of scandinavia's top telecom providers, telia, has met estimates in the third quarter. the outlook is impacted by energy prices and rising interest rates. joining us to discuss the outlook is allison kirkby, ceo of telia. i have to start with what is top of mind for possibly everyone where i am this morning, it is political volatility. in the u.k., you don't have exposure but your biggest markets we'd did have a government that is more to the right. how are you viewing political volatility in running a multibillion dollar business? allison: we are just getting on with our business as you would expect.

and we are just delighted that the swedish government has been able to form a lot faster this time than it did four years ago. although ministers have been appointed and i'm very much looking forward to meeting the new prime minister, and his ministers in the coming weeks. i think we have a bit more stability here then aware you're sitting today, dani. [laughter] dani: the bar is low, allison. political risk to not an issue but the other macro risk in the earnings release is energy. what does the energy outlook mean for your outlook and ability to forecast and get costs in check? allison: we had continued very strong international and operational momentum this quarter, and delivering absolutely in line with our midterm ambitions, 2.3% on the top line, 4.9% on the bottom line.

we saw energy double in the third quarter which meant underlying ebitda only grew 1%. we have seen our energy go up by 900 million this year, almost a doubling in the year. to mitigate that, we are delivering on our digital transformation plan which is helping offset those headwinds. and we are working with pricing initiatives to ensure we can continue to provide the region with safe, secure high-speed networks which are increasingly under demand. we are hedging as much energy as we can, we are buying ppa's, but we are very much focused on the plan we set out to deliver last year. dani: there have been some analysts who talk about your 20,000 employees and consultants , but would you look at revisiting mean duration --

remuneration, for hiring tweak costs? allison: that was underpinning our transformation where we were taking on 2 billion kroner by the end of 2023. we are sticking to that plan and accelerating where we can. our unions across the region are being very reasonable in negotiations for the balance of this year. but we need to step up everything we do, we need to make our products and services the best they can be. and price them relative to the value for money they offer. dani: just quickly since we only have a few moments, snap concerns about digital advertising spend, are you seeing a pullback in digital advertising spend? allison: not yet, we had another 20% growth in digital ad spend

in sweden, and we had a all-time record third-quarter. but as we look forward we are more cautious but there is no sign of any of our advertisers pulling back. but we will take any recessionary pressures into our outlook for next year, that is why we are walking back on any outlook next year until we report on fourth-quarter results at the end of january. dani: that's all we have time for. a pleasure as always, allison kirkby, ceo of telia. there is political chaos in the u.k., let's take a look at a snapshot of liz truss's brief time in office. >> i will grow the economy through tax cuts and reform. >> it was becoming a distraction so that is why we changed that policy. >> we will keep an iron grip on the nation's finances.

>> mr. speaker, the last thing we need is a general election. >> we need to reassure fiscal markets of our discipline, i have therefore decided to keep the increase in corporate tax planned by the former government. >> i recognize though given the situation, i cannot deliver the mandate on which i was elected by the conservative party. i have therefore spoken to his majesty the king to notify him that i am resigning as leader of the conservative party. dani: that's what liz truss said, let's look at some of these dates. we had on september 5, her winning the leadership contest, eight she announces energy support package, the 23rd was the queen's funeral, then she refrained from backpedaling until the third of october.

that takes us to a succession of u-turns, sacking her chancellor and home secretary and then her own resignation yesterday. a historically short-term as prime minister. anna edwards is at westminster, what is the process likely to look like, the one to replace her? anna: good morning again, posttraumatic stress from looking at that very speedy recap. all of that happened in 44 days, just a month and a half, the process is going to be quick. that is the aim at least, there is a high bar for getting on the list and there is a maximum of three mp's who can stand as the next leader of the conservative party. we will watch carefully with those three are, that should become clear over the weekend. voting is on monday, and it could be later on monday we have the answer as to who is prime minister but we could have to wait until friday because if

mp's can't decide, it goes to membership and that takes longer. monday possibly, latest friday. the labour party and other parties are calling for a general election but constitutional experts say right now this is not a requirement. transfers of power without parliament have happened before and will probably happen again. dani: there are people walking around behind you, the fact that there are people at westminster at 6:45 in the morning is indicative of the intrigue. thank you so much, and it will be back throughout programming. and her show is in the next hour. for more on the story, marc ostwald chief executive at adm investors services joins us now. what is it say that we have a market that if not dictating was heavily influential in pushing a

prime minister out? marc: it's not really surprising, there is two aspects to it. a lot of governments find themselves in difficult positions at the moment. this has been a point lesson for any government that thought it could spend its way out of trouble, given the high debt levels, many cap countries are not going to tolerate people who don't have a clear plan. the other thing that is more important is there needs to be clear communication, this applies as much to fiscal policy as it does to monetary policy. if you get lack of clarity, you are likely to find yourself on the back foot with financial markets. dani: what does that mean in terms of who's next, whether it be rishi, penny, bojo coming back, will that likely inject more stability into the market picture? marc: the problem is we have had

this period of great instability , the volatility in the gilt market has been i watering - eye watering is one way of describing it. this situation, the confidence that was there for markets has basically gone. to restore it is going to take a lot more effort than the way it has been disposed of. so people will be wanting to see what mr. hunt, who is ostensibly staying on his chancellor, will have two deliver in terms of specifics on fiscal policy. and then also see that the conservative party isn't going to continue with this bout of what one would call internecine warfare, it could go through

another process of seeking a prime minister or potentially another general election. because of that, markets will be on high alert for any signs we are going back to a situation where everything becomes really, really unclear at the moment that remains the case. dani: if i make the argument that ultimately it is not about the politics in terms of where this u.k. market goes, where sterling goes, because of the structural issue s the u.k. is facing, be at higher borrowing costs, we look at the sterling being deeply negative. can you buy u.k. assets when that is the backdrop regardless of prime minister? marc: that's absolutely correct, the u.k. faces a lot of challenges that has to do with a lot of other economies, but the u.k. ones are particularly

acute. a lot of this is not just because of what happened under ms. truss, or indeed under her predecessor mr. johnson, they are cumulative and much more acute than perhaps elsewhere. therefore getting the economy going is actually very important , unfortunately, what we're looking at in terms of the reversals which have been announced by mr. hunt is a very stagflationary environment, per se that does not really advance the outlook for the u.k. dani: talk to be about a new wave of austerity, what would that look like? marc: we've reinstated the rebound in the corporation tax. we're looking at spending cuts in an economy were a lot of consumers are feeling under pressure.

none of that bodes particularly well, and none of it is growth stimulate have, -- stimulative, so i can't see a situation where this turns more positive in the near term regardless of who the prime minister is. the u.k. faces a long road back now, and to a certain extent is a situation of the conservative party's making. dani: what is the road back not of the nation, but of the conservative party given this is a party that prided itself on economic know how? allison: it certainly has done over the years but what we have seen in recent years has not been the case. i think we are now looking at a party which is so deeply divided that the risk here is that it will at some point split. because i can't see how the party can now unite behind any

prime minister, whether it is boris johnson which would lack credibility, or anybody else. the fact of the matter is there are deep divisions. whoever comes in, whichever wing of the party they come in from is likely to be attacked and be undermined by the other faction. and that is going to be problematic as we go forward. dani: our guest from king's college said something similar, that this might be a turning point for the party. marc ostwald, global strategist at adm investors services. eu leaders react to liz truss's resignation, but germany yields on capping gas prices. we will have the latest for you. this is bloomberg. ♪

>> france as a nation and friend of the british people above all once stability especially in the current context, a context of war and energy crisis, it is important that the united kingdom regains political stability very quickly. dani: emmanuel macron reacting to liz truss's resignation and calling for stability. let's get more european reaction to the chaos in the u.k., we are joined by maria tadeo. maria, what are we hearing? >> dani, not a lot. and i don't mean that as disrespect but it shows two things, one is for european leaders, this is a story that with the focus on the energy crisis they don't look at the u.k. narrative as a priority.

two, on a personal basis for a lot of european leaders they say we can't express a lot of emotion when it comes to liz truss because she was barely in office. we had barely any contact with her. liz truss was just a single bilateral meeting, she never made it to brussels, she never even made it to a meeting with the head of the commission to debate the many pending issues that continue to roll over between the u.k. and european union. that tells you so much about this relationship, for a lot of european leaders this is a country that is very volatile. it is not stable, and the lack of stability as the french president alluded to, means there is not a strong diplomatic relationship because everything changes so much. i did ask the french president, are you said about this -- sad

about this state of affairs, and he did say we need a strong, stable u.k. and when it comes to liz truss, it is like saying goodbye to a colleague make of that what you will. dani: eu leaders reaching agreement over energy? >> yeah, and quickly, this was a meeting that wrapped just a few hours ago at 2:45 in the morning, they finally agreed to something. let's separate the span to what is actually in this deal. they endorsed be political guidance to the plan by the head of the commission, that includes the dynamic price cap, joint purchases, intervention on the gtf market. there is a lot of details but they give it the political okay and in the next few weeks we should see the legal tools for this to manifest in the market. it's important to say that germany has dropped its fierce

resistance to a price cap. dani: we think our hours are bad. bloomberg's maria tadeo there. some corporate news this morning, renault earnings a mess, revenue did climbed by 8.95 billion euros but the estimate had been 9.5. they blamed supply chain woes that continue, it is a tough time for automakers. deutsche bank as well, sources telling bloomberg that they laid off dozens of staffers and its investment banking division, dealmaking fees has been stymied with a volatility in this market. ♪