dani: good morning and happy

friday. this is "bloomberg daybreak: europe." i'm dani burger in london. sticking with stimulus, the yen weakens as the bank of japan hold and waits for steins a more sustainable inflation. we will bring you the headlines from the news conference as they break in the next hour. the european interest rates the highest level since 2001. christine lagarde says the fight against inflation is not over. >> it is very like the case we will continue to increase rates in july which does not come as a brig -- big surprise to you but that is what i am telling you. this is so because we are determined to reach our target in a timely manner. manus: u.s. secretary of state henry kissinger says he believes the u.s. and china will go to war over china.

we have made it to the end of the weekend american equity is raging. back above 44,000 on u.s. stocks. in this economy when things are slowing down, microsoft hitting a new high. all the big tech names that got us to this point. there is that futures picture, more calm this morning, we have come in slightly from the ramp up yesterday. perhaps after the ecb conference and decision, we decided in retrospect the fed was dovish, compared to the ecb. that allowed the tech stocks to rally. it also decimated the dollar yesterday. let me show you what that euro-dollar did, is strengthened more than 1% versus the dollar. in today's session, more flat. we are taking profits on the euro but this shows you the differential between those two central banks. the other central bank we got,

that is acting dovish is the bank of japan. we had no change in that policy. this is where the decision happens. you see the dollar strengthened against the yen. let's get into those stories. we have the latest central bank action on the boj, and the ecb. we are looking at why the u.s. government has launched an investigation into goldman's role into silicon valley bank's collapse. japan's leftists yield curve control program unchanged following a two day policy meeting. paul, we expected this but the fact stands that inflation is over 3%. why is the boj sticking with its current policy? paul: it is a head scratcher at first glance, but essentially

the bank of japan thinks this inflation is not sustainable. it is sticking to the view that inflation will slow down, therefore there is a risk of it not achieving the 2% goal. against the backdrop of this is decades of weakness in prices and deflation, so that makes the situation in japan different from the rest of the world, where inflation is seen as more frightening, and you want to wipe it out with interest rate raises. that explains a little bit about the difference in policy direction. however, let's not assume the bank of japan will sustain this stimulus forever position. already economists have flagged the risks of tweaks to its yield cap control next month in july, when it should be updating its inflation forecast to show that inflation is actually proving to

be stronger than it initially forecast. dani: the implication for this, and other more hawkish central banks, is a weaker currency. we saw the yen around 1.41 per dollar, is there a risk of further intervention considering the implications for the yen? paul: that level last night, 1. 45 or something, so we are a ways off heading toward 1.46, the trigger for intervention last september. then again in october we got close to 1.52. we are a ways off that level, but officials are starting to warn markets on the currency moving too quickly. there is a lexicon of intervention warnings that japanese officials use, and we are at the low end of those mornings. they would ramp those up for any

action but we are a ways away from that. dani: thank you very much, and we will see what they have to say in about an hour and a half. after hiking 25 basis points as expected, ecb president christine lagarde says a july increase is likely. that hawkish message sent the bund curve into a twisting and flattening, jumping 15 basis points, trading near the highest level in a decade. the market interpreted this as hawkish. how did you see it? >> the july move was in many ways expected, and, of course, it was interesting. also all the analysis that came around it. the inflation outlook was

revised up which is not something you want to do is a central bank that wants to bring inflation to 2% from above 6% still. that was not good news. a lot of the debate was on the strength of the labor market. it was a hawkish message. we have seen upward revisions of rate calls overnight from banks including unicredit, bnp paribas , and those expect another step in december. markets want to extend for a more hawkish outcome. that is quite different from what we have seen from the fed. the president was clear saying we are not pausing and we have not discussed pausing. more needs to be done and more ground needs to be covered. a hawkish message from the ecb. dani: we will have luigi

speranza from bnp who is making a 4% terminal rate call. send me some messages on what you want me to ask him. you mentioned the labor market, and the strength, we are seeing that globally. what are the dynamics the ecb is trying to grapple with? jana: the president described it as a labor market and they. -- labor market enigma. we have seen wage gains, and the labor market wage gains are one of the biggest inflation drivers that we have in the euro zone. that is despite the economy slowing quite strongly. output is stagnant in many parts of the economy. that, of course, has to do with the shortage of workers partially because of migration flows after and during the pandemic, partially because of

demographics. it gives labor workers a lot of bargaining power on wages but also means a big transmission channel of monetary policy is falling away. what you would expect as interest rates go up, companies that go of workers, and that is not happening because they are afraid they cannot hire them back. the ecb needs to figure out how to deal with that, and what it means for monetary policy. you need to do more and rely on different transmission channels? how do you react to that? that will be inching to see going forward because there is not much that indicates that the labor market strength we are seeing, unemployment is close to a record low, that that will go away anytime soon. dani: your comments on the hot labor market have set off alarms on the streets of frankfurt. thank you for joining us. turning over to the u.s., bloomberg has learned u.s. justice department and fcc are

probing goldman sachs and its role over svb's collapse. thank you, john, for staying up late in d.c. what do we know about these investigations? >> not a lot at this point. this inquiry has to do with the final days of svb when it was in crisis. apparently, svb sold securities to goleman sachs at a loss, and asked goldman to help raise funds to stave off the collapse. obviously that did not work. it is not clear if goldman is accused of wrongdoing. oldman says it is cooperating with the investigation. -- goldman says it is cooperating with the investigation.

it shows you all these months later how this event continues to reverberate well beyond the banking industry. dani: and to that point, one of the hot topics at some of the senate and house hearings was pay for executives. we know pay for executives that failed banks is a subject of the bill. what is being debated? john: two senators on the banking committee, sherrod brown and tim scott, who is running for president on the republican ticket, are advancing a bill that will be voted on in committee next weekend that will impose -- allow for the federal deposit insurance corporation to impose regulations on banks, and that would include a mechanism

whereby bonuses and other compensation from bank executives of failed banks could be seized. it shows you these events, these collapses, even though we have gone through the debt ceiling crisis in washington, and great concern what the federal reserve will do, this frightened people. the politics have taken over. dani: ok, thank you very much. coming up, asian stocks extend their june rally. that follows the boj decision a short time ago. we will discuss the myriad of central banks in the market reaction. this is bloomberg. ♪

>> the fed has inflation coming down more slowly than a lot of folks, and the fed also has a smaller rise in unemployment than a lot of people expect. i think if the data is closer to market expectations versus fed expectations that they could be done in july. for the first time in a while, they are data dependent.

>> it is likely the case we will continue to increase rates in july, which probably does not come as a big surprise. that is what i'm telling you. this is so because we are determined to reach our target in a timely manner. dani: you have made it to the end of the week of a central bank in anza. that was the ecb president, christine lagarde, and former vice chair, richard clarida, on the fight on inflation in europe and the u.s. with the hindsight of christine lagarde's press conference on the ecb decision, we can interpret what happened at the fed, and powell is more dovish than the market's first reaction. euro rally strengthens more than 1% versus the dollar. it has flattened off today but it was a different interpretation between the two central banks.

let's get to christian kopf, head of fixed income, union investment. is this the euro raking out of its range? christian: it is the euro moving higher. what we got yesterday from the ecb was a hawkish notch, not so much the announcement they will hike in july, that was expected but the change in the core inflation forecast for 2025. who knows what inflation will be in 2025 or what core inflation will be, it is an arcane subject the ecb gave us a forecast which shows core inflation is moving further away from its target to 2.3%. with that forecast now, it will be difficult for the ecb to revise it back down in september, so that means another rate hike in september is baked in the cake, and we move to 4%

overnight in the euro area, and this is driving the euro higher yesterday. dani: what is your target on the euro? christian: our target is 1.15, and we revised it up. we have a great divergence in monetary policy between the major central bank's of the world with the ecb more hawkish than the fed. they have a reason to be hawkish, core inflation in the coming year is 4.6%, and in the united states, less than 4%. the euro area has more than inflation problem so the ecb will continue to hike. dani: we had both the ecb and the fomc revise their inflation forecasts about the ecb was the only one to hike, expecting higher inflation. there has been confusion around the fed decision this week. you share that confusion? christian: the u.s. did

something similar, they tried to implement some hawkish tilt to their message by moving the dot plot higher, but we had weak activity numbers in the u.s., and that means the market is discounting the situation where the fed may have a hike once more in july, which is our forecast, but not go further. i think the real interest rates in the u.s. are higher than that euro area, so the fed has done it job, they do not need to move much higher. the ecb has a little bit of work to do yet. there is another component of what we saw yesterday that has to do with the fact that growth numbers in europe are not as bad as people think they are. i returned from berlin from meetings, and to give you one number, germany tends to produce 5 million cars per year, and over the last 3-4 years they

have only been producing 3.5 million cars per year. chances are there will be catch up growth in europe, and car production and other forms of production will rise again in the euro area. growth in europe is not as bad as people thought it was, and it contributed to the rally in the euro. dani: one more point on the fed, and sorry to belabor the point but i want to raise something larry summers told bloomberg yesterday, saying, this meeting felt driven by internal political dynamics of the fed, as by any consistent and coherent reading of the economic situation. to put a finer point on it, are these criticisms unfounded on the fed? christian: larry summers is a brilliant economist, i would not be as harsh. you have to acknowledge the fed changed its economic projections and it did not move the interest rate. it begs the question why they

did not move. there is an element of inconsistency. one could have made the point that if you change your forecast, you should change of policy. they did not do that, and they want to wait for the lags. there is an element of inconsistency but i would not be that harsh on the fed. the real interest rates in the u.s. are higher than in europe, and there is a reason for the fed to wait for the impact of its monetary policy decisions. i think there is a case made to pause. dani: a case to pause as we contemplate where the direction of the economy is g. plenty of folks worry about a softening but amid of all of that i want to take you to the junkiest of junk, the triple-c' s. we have seen this big rally in the triple-c's, moving back to pre-svb levels. we are living on a dovish dream

at the moment. christian: yes, that has caused some worries for us and we do not agree with that movement. we have a similar development in the european yield, and you have something similar and the emerging-market space where the single b's are starting to rally. there is an element of exuberance, and that movement is missing the fact that even though the fed may not hike rates much further, they will stay at this elevated level for some time. paul volcker spoke about years before we would see the first rate cut. you have seen the market start to price out rate cuts in 2024 on both sides of the atlantic. what will happen to the highly indebted issuers if interest rates stay at these levels for 2-3 years? what happens if we go into 2025

or beyond? i think it could lead to defaults, and those will come at the lower end of the spectrum of the high-yield market. we do not really agree with that movement in the triple c's, or single b's. dani: if rates in the u.s. and europe, we are about to face a maturity wall. you say it will be bad in the highly indebted companies but is it contained to that? what did it take to spread further? christian: it depends on the maturity wall. the day of reckoning will come. our calculations show the maturity wall on the lower rate issuers in europe is around 2025-20 26, so there is some time left. the day of reckoning will come but it will likely come in 2025 only. if the ecb stays here for a long time, we should see an increase in default rates and the lower

rate at the end of the high-yield market, so selection becomes key in that market. dani: selection becomes key. if we get default rates, if they start to pick up, especially facing a maturity wall by 2025, where do you hide out? what do you like as your haven in this environment? christian: the good thing is there are plenty of places to hide out. we really like to hide out in corporates in the euro area. you receive 4.5% yield on very good names, solid names like bosch. i will not name all of the companies. companies issuing bonds at a yield of 0.5% per year back, and with the same business model and same profitability, those securities are offered in the market at a yield of 4.5%.

this is a great opportunity to go into issuers and wait what happens while being paid a handsome carried. you have inverted curves so i do not think this is an environment you have to go into the risky assets. the premium different for the risky markets has declined markedly with an increase in overnight rates. there are plenty of opportunities in investment grade corporates, and issuers with good ratings with handsome yields, and probably positive real yields in the euro area. dani: i'm afraid we have to end it there. you should not be on tv but enjoying that gorgeous weather. christian kopf, head of fixed income, union investment. enjoy the rest of your friday and your weaken. senior democrats in the senate are calling a probe into the surprise merger between the pga tour and saudi owned liv golf.

more on sports, next. this is bloomberg. ♪

dani: the chair of the senate finance committee has opened an investigation into the pga merger with liv golf. ron wyden is seeking evidence of the tax compliance as a tax-exempt organization, and the assessment of the impact on national security with the saudi firm. this comes one day after jenna reported that the doj is also investigating. we will have more news on that as it comes. a(jennifer). cthe reason why golo customers have such long term success is because we focus on real foods in the right balance so you get the results you want. when i tell people how easy it was for me to lose weight on golo, they don't believe me. they don't believe i can eat real food and lose this much weight. the release supplement makes losing weight easy. release sets you up for successful weight loss

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friday. this is "bloomberg daybreak: europe." i'm dani burger in london. sticking with stimulus, the yen weakens as the bank of japan holds while waiting for signs of more sustainable inflation. we will bring you the headlines from governor ueda's press conference in one hour. the ecb raises interest rates to the highest level since 2001. christine lagarde says the fight against inflation is not over. >> it is very likely the case we will continue to increase rates in july, which probably does not come as a big surprise to you. but that is what i'm telling you. this is so because we are determined to reach our target in a timely manner. dani: plus, former u.s. secretary of state henry kissinger says he believes the u.s. and china will go to war over taiwan.

happy friday, you have made it to the end of the week. we were talking to christian kopf about the wall the maturity that will face issues if we do not get any cuts, and have higher for longer. it is bananas to see what stocks are doing what they are doing. the s&p and nasdaq rallied more than 1% yesterday. if you look at today, we have given back some of that but we are pretty much flat and hanging onto these gains. we are above 44,000 right now, microsoft and tech have been leading us. microsoft at a new all-time high. the other impact of this, if we assume the tech rally was a more dovish interpretation of powell versus lagarde, you could see the euro strengthened against the dollar by more than 1%. christian kopf thinks it will go to 1.15.

the other decision, the bank of japan, this emboldened the yen bears. on that, it was the last central-bank decision, it ended without a surprise. the bank of japan stuck with it super easy policy and cap its yield curve control program unchanged. today's japan inflation is a very different one from 2016, when the policy was introduced. this is headline and core inflation. the was rallying towards 1.00, and deflation was a risk. core inflation is far above the boj's 2% target, and the yen is trading at about 1.40 to the dollar. let's get over to luigi speranza , chief global economist, bnp paribas. good morning and thank you for joining us. it was expected that the boj would not move. does it make sense to have this

super easy policy? luigi: good morning and thank you for having me. i think it is a question of time before changes arrive. what is remarkable about japan, it is not any longer the exception. core inflation is above 4%, and it will continue to move higher. in july they will revise upward the inflation forecast. there will be a change in yield curve control. dani: can i make a case to you that a hedge fund buddy of mine made? this idea that inflation is starting to pick up but the economy in japan is still nowhere near the u.s. it is not booming. nobody wants to be the guy responsible for undoing the

progress of inflation that japan is finally seen. is there some element that that would make it more hesitant to take strong action here? luigi: i think yield curve control is in need of some action. at the moment it seems -- the important point is the expectations. the expectations have moved in response to consistently high inflation. yield curve control, we will have to wait for a more significant step in terms of timing, but it is coming. like other central banks, the bank of japan will realize this shock is more persistent than they initially thought. dani: moving over to the ecb, we

were talking about your 4% call with one of our reporters. you have gotten a lot of excitement on it. why is that terminal rate of 4% for the ecb? luigi: the message was it was unachievable. it is still too high for too long. i think what we are seeing is the change in the mindset in consumers. inflation is becoming more entrenched, and this is reflected in the ecb projections. it is a clear sign inflation is proving stickier than anticipated, and this will persist. central banks will have to do more. there is a commitment for the next month and july that will not be enough. by september -- [indiscernible]

i think the terminal rate should be around four. dani: still we have this strong labor market, and this fact it is not transmitting policy as usual. how should the ecb deal with that? luigi: monetary policy is a key element in the framework of the ecb. the inflation outlook, underlying inflation, i think on this point there is higher confidence it is working. what we are seeing is a tightening on-demand and the supply-side. probably the ecb is more comfortable.

what worries us the most is inflation is still very high. where they are is not enough. i think yesterday was a lot of focus from lagarde, and the increase on core inflation. what is the risk? wages are catching up, but that will cause further rate increases. prices will spiral. we are not there, but there is some risk of this materializing. this will keep the ecb concerned.

they will leave rates at those levels for a longer period over time to get inflation where we want it to be. dani: if we need to do something to make sure we do not have a spiral, is a soft landing achievable? luigi: we think the economy will continue to run for a while, but probably will create inflation towards 2%. the ecb will not be able to slow down the economy as they have done over the past year with inflation. [indiscernible]

dani: before we let you go, there are a lot of different central-bank decisions we could talk about, i want to ask you one question on the u.s. we had those job claims yesterday. we have seen for a couple of weeks in a row they run higher by about 20,000 than expected. is this trend believable? are we starting to see some cracks in the u.s. labor market? luigi: i think the jobless claims, there is a sense. i think the direction is right. chair powell mentioned that. we think over time the tightening and monetary conditions will affect it. in the second part of the year towards q4, the labor market is showing signs.

my sense is the fed will have to insist on a hawkish tilt to make sure the conditions remain tight enough. dani: great to talk to you on this friday. luigi speranza, chief global economist, bnp paribas. let's bring you some of the company stories in tech stories we are following today. adobe shares gained in the u.s. after trading and raised its full-year forecast revenue and profit outlook on optimism that generative ai features will spur demand. you mentioned ai, you get a rally. they say software sales will be about $19.3 billion. in europe bloomberg has learned intel received 10 billion euros in subsidies from the german government for a chip manufacturing complex.

the u.s. tech company had previously postponed construction which it had agreed to with 6.8 billion euros. it blamed economic headwinds. coming up, former u.s. secretary of state, henry kissinger, spoke on china-u.s. relations. we will bring you some of that conversation, next, on bloomberg. ♪

>> i think our service revenue will grow relatively steadily in the second and third quarters. it is still hard to say how much it will grow, but it is part of the overall echo system for marketplace -- ecosystem for marketplace merchants, so long as we do a good job on the infrastructure of the ecosystem to grow, we will remain healthy.

>> i am always optimistic. people have offered counsel. >> you don't have any concerns about china at the moment for luxury? >> finally our activities are growing very well. dani: lvmh ceo discussing the outlook of the company and concerns to china's slowdown. the china conversation in the concern about growth and what the central bank will do is in the zeitgeist now. while the u.s. and china are pulling in different directions, both need to get their messaging right as their economies slow. let's go to daniel moss to talk

about his column. there has been plenty of commentary criticizing powell on his messaging this week. why is messaging for the central banks so important right now? daniel: it is becoming increasingly important for every central-bank over the past couple of decades, particularly since the global financial crisis of 2007-2009, when forward guidance and all the paraphernalia, the dots, forecasts, press conferences -- these became widespread. the central bank that did not do it stood out like a sore thumb. china has a different political system. but even they have moved a considerable direction in terms of communicating their intentions, and the likely policy trajectory to investors,

companies and consumers. it is really modern central banking as much about communication and substance. but the substance has to be there. dani: they have been relatively modest but i'm looking at the market reaction, the csi is up 1%, is the real value in signaling? daniel: it is interesting, the number of guests on bloomberg tv this week as china has cut a series of interest rates, first on tuesday which was a surprise, then yesterday which was rather expected. people keep coming back to signaling and intent. word has also emerged that the chinese government is planning a substantial stimulus package in part to address continued problems in real estate. the pboc moves in a technical

sense very narrow but people are enthusiastic that this suggests a broader policy shift underway within the official family. once expectations have been created, under delivery can be perilous. dani: thank you very much, daniel moss, our bloomberg opinion columnist. breaking news on micron, nearing a $1 billion investment in a chip packaging plant in india, according to people with knowledge of the matter speaking to bloomberg. this is happening at a time or u.s. tensions with china are picking up. china earlier last month barred micron chips in an escalation of the u.s. tech clash. we will keep an eye on that as this story develops. this is bloomberg. ♪

dani: former u.s. secretary of state, henry kissinger, is warning that china would end up in a military conflict with the u.s. over taiwan. speaking to bloomberg's editor-in-chief, john micklethwait, he says he holds out hope for dialogue that will lead to the escalation. >> the undercurrent of relations , i think some military conflict is probable. but i also think relations must be altered, and there have been signs on both sides.

they have not yet actually engaged in the sort of dialogue. i think they are moving towards it. i leave my mind open in relation to the outcome. >> yet a thing that has happened is china has got more involved in things beyond its traditional reach. you see china talking to zelenskyy, brokering a kind of truce between iran and saudi arabia. >> it should be inevitable part of the discussions that both sides tell each other with their core interests are, and determine how to handle situations in which they clash. i would hope for no conflict, or

avoid situations. dani: henry kissinger, who three weeks ago turned 100. you can watch that full conversation on bloomberg tv and our website this weekend. oil is steady in asia after jumping the most in six weeks yesterday. a weaker dollar helped. expectations for stimulus in china outweigh concerns over higher interest rates in the u.s. and europe. let's go to our energy reporter in singapore. can oil prices keep up this pace at the moment? >> i think it really depends on how optimistic folks are on china. that has been driving this the last few days.

china put out a quota for crude oil imports again, larger than expected, and almost 20 times larger than the three they put out at the same time last year. that means there is more crude buying and the expectation for stimulus. they have been easing monetary policy is the economic rebound has stalled. those together or something the market will closely watch but there are a lot of downsides, how interest rate in the u.s. and europe could push that further down. folks are looking at russian oil output, it is higher despite them saying they would reduce production because of the sanctions from europe. there are a lot of things from opec-plus watch, saudi arabia is cutting output by one million barrels per day through july. how will opec-plus react to a market that is softer when they meet next? there are a lot of downsides but right now oil is holding that

gain for the week. dani: i want to ask about lng. if anyone follows you on twitter, you posted pictures of an lng cargo ship. where did you get this, and can you send me one? stephen: i got it from a friend who got it a decade ago at a conference. if you want u.s. lng, go to a conference. dani: i first need a time traveling machine. on a more serious note, when it comes to lng, we saw an unexpected surge european prices. what does that mean for asia right now? stephen: the jump in european gas prices is outpacing the increase in gas prices in asia. that is bringing more lng into europe. it makes more economic sense to

send u.s. lng to europe. traders are hoarding it. europe has to import more lng. in asia, suppliers are cut short. -- caught short. folks like shell need to buy from the spot market to meet the obligations for contracted buyers in japan, china, korea. they were expecting a glut supplies are tighter because there is more lng being sent to europe. at the moment there is a tightness in supply that seems to be emerging but overall demand from the end users like japan and china, there spot buying has been relatively weak. unless there is another supply outage or demand were to bounce back in japan, china or korea, it is unlikely to see more competition from asia to take

lng away from europe. a lot will keep flowing to the u.k. and other european countries. dani: thank you so much. if you find a barrel of oil, send it my way. as we close out the hour, i want to show you the rally in china stocks. the hsi up more than 1.25%. there is reporting that beijing is planning major steps to revive the economy, including billions of dollars in new infrastructure spending, and looser rules for property investors. this is bloomberg. ♪

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