>> good morning, i'm tom

mackenzie in london and these are the stories that set your agenda. jerome powell leaves the door open to consecutive rate hikes with christine lagarde and andrew bailey also seeing more tightening as inflation remains sticky. top banks all past the fed's annual resiliency test, clearing a key hurdle for returning dollars to shareholders. and signals that an industry glut is easing. we check-in on the data markets, it was a mixed picture when it came to the close of course in the u.s. yesterday. we are weighing up the comments it came through from the central bankers, andrew bailey, christine lagarde of the ecb, locking in essentially the height coming through in july,

that is the expectation and there was no pushback from christine lagarde on that front, though she was uncommitted when it comes to the september decision. that remains live for the ecb. jerome powell and the fed reiterating the options to go to again in terms of heightening at the fed, keeping the door open to that prospect as it continues that hawkish measure, as we check in on the markets and have a look at the futures or at least the s&p over the last two days. again a bit of a mixed picture. the nasdaq ending higher in the session, the s&p down a little bit. in terms of the yield story, you do still have that differential, that gap, the inversion of 100 basis points between the two's and the tenants.

renault raising its four year operating margin and the target for the operating margin for the full year two between 7%-8%. it last saw its operating margin target at 6%. this is renault, the french company in cooperative partnership with renault over in japan. between 7% and 8%, so a broader picture than has been seen by the french carmaker. let's see how asian markets are faring. charlotte, what is standing out to you, how are those asian markets shape up? charlotte: the spotlight is on japanese yen. both currencies have been weakened for the last seven months. starting with the chinese income

of the pboc has stepped into support the currency for the third time this week, and this is the strongest premium move we've seen since november. however, that would not withstand the weakness we saw in the yuan. telling us there's a high chance of pboc will continue its strong guidance revert to other policy tools if the weakness -- we look at the japanese yen, it marginally advanced as we head to the lunch break here. on wednesday speaking alongside his european partners he struck a dovish tone about the short-term outlook for the monetary conditions while

indicating that normalizing policy, he is more confident about the pickup in underlying inflation starting next year. so there's nothing too surprising from his comments, however some economies have lowered expectations that the policy adjustment could start by the end of july. tom: we are checking on the yen right now, down point him percent versus the u.s. dollar. around up of the stories you need to know to get the day going in today's edition of daybreak. we can zero in on some of the individual stories and the focus for us on the daybreak now. they will change a framework in light of the route that came through, with smaller and midsize lenders in the u.s.. that will come through at a later stage but the stress tests in the current framework show

the big lenders all past essentially with flying colors. so there is that opportunity to return some cash to shareholders. we will see to what extent and when they make that decision how that comes through. a number of the big names rose yesterday on the back of that. that spy story, the chinese balloon over u.s. territory at the wall street journal reporting that it contained u.s. technology. we would be surprised frankly if it did not contain u.s. technology. we heard from big names yesterday, we are expecting a decision from sweden later today. the expectation is they will go 25 basis points. time for a roundtable. >> central banks really the central story today. we've been talking about all the

commentary coming out of the ecb forum, francine lacqua has been there the past few days. the message has been that resilient economies are keeping inflation high and the military tightening needs to continue. >> we still have ground to cover. >> although policy is restrictive, it may not be restrictive enough and has not been restrictive for long enough. >> we are data-dependent. we will decide on a meeting by meeting basis. >> underlying inflation is still a bit lower, around 2%. that's why we are keeping policy unchanged at the moment. >> if our baseline stance and we know that we will very likely hike again in july. >> we are going to make decisions with the little bit more time between them. i would not take moving in

consecutive meetings off the table at all. >> you had jerome powell going on to say that we are a long way from rate cuts. christine lagarde saying that the ecb is going to tighten the month if current trends hold, and then andrew bailey of the bank of england said that market pricing for rates is there, but several more hikes could becoming. he says that they may stay at peak levels for longer than trade is currently expecting. we had the governor of japan saying that they could start normalizing policy if the bank becomes confident in a pickup inflation for next year but right now it expects prices to slow in 2023. tom: val is giggling in the corner, do you want to comment? >> may be comedian as a central

banker, he was cracking so many jokes. tom: he stole the limelight. >> he did. the one thing it was interesting was powell's comments about hikes. you can put it down to the fact that we are near quarter end and there's a little bit of bizarre price action going on in the market, or the fact that the market doesn't necessarily want to believe it, thinking the data will turn sour at any moment now. we do get jobless claims today at 1:30. tom: that data has been the last . it seems they pass the stress test with pretty clear colors. >> rising and post market trading because analysts have listed them as among the banks most likely to see their cash flow burdens ease.

i would like to point out that the criteria were announced before the regional banking crisis and maybe that would've made a difference. tom: that's an important point in terms of the health of the banking sector. is this really the stress test that was needed for the banks, and what is your expectation that they will start handing cash back to shareholders or whether they want to keep some stockpiled in the event of a potential downturn? >> last week powell was vague when he mention new capital requirements for the banking industry. perhaps they will be a bit less eager to nancy's buybacks until they get more details that what powell hinted at last week to congress. but i think an eyebrow is always raised with these stress test, ever since we learn that the fed never stress tested banks for a when yields exploded during an economic downturn. you can say are the really worth it, are the really telling us anything about the health of these banks when with constantly

confront a situation later this year that the u.s. economy has not in a while, and that being higher rates for longer. tom: likely the banks will hold pat until they get a few more details before announcing those buybacks. thank you very much indeed. here's what else we are watching today, inflation numbers so important as we think about what christine lagarde from the ecb has been saying. inflation numbers out of europe today, we will get german regional numbers in terms of inflation at 1:00 p.m. u.k. time. spanish inflation at 8:30 and we are expecting spanish inflation to come down on a year on year basis for the latest month. german inflation expected to take up year on year i 6.3% in the month of june versus may.

really consequential for how ecb officials think about the next steps. in an economy that has struggled with the failing real estate sector, a sharp drop in property prices, the expectation is that a hike will come through. bloomberg economic sees a terminal rate of about 4% and say inflation remains sticky in that economy. when it comes to the inflation picture, where is your focus going to be? >> 20 minutes from now we get the regional print from the largest economic zone for germany, where all the manufacturing really is based. we've had quite a lot of sour data out of germany. it doesn't manifest itself in a weaker inflation print today, i

will keep my eye on that. tom: the most him sort -- important story is that beyonce bounce in inflation. >> it is real, we have beyonce playing in stockholm and you did see an impact on sweetest inflation. this is an artist who is a higher caliber than most and therefore you would expect paying a higher ticket price. she did sing about bills, bills, bills, but taylor swift is having the same effect in the u.s.. tom: they're talking about the beyonce bounce in london as well . this is growing, thank you very much indeed. on the analysis and what to watch with inflation. coming up, is the glut easing?

a strong forecast, despite the company's challenges in china. we will get the details next. and exposure to the world's largest economy. stay with us. this is bloomberg. ♪

tom: welcome back. micron has given a better than expected outlook that the industry glut is easing. but it continues to face significant headwinds in china. rebecca, good guidance then, but also a warning. tell us more. >> we did have this robustly optimistic outlook essentially saying that the worst is over and that the trough in revenues is passed, and that supply and demand balance is now leveling out. asian chipmakers and related stocks lifted just a touch as well, reinforcing that since that the glut is now firmly behind the sector. however, as you state china is the big sticking point for micron and they already have given a warning that about half of their china related i'm it's would be affected. that was a cybersecurity probe

that essentially said that micron could no longer supply critical infrastructure in china. that is expected to hurt somewhat, micron has said it rejected an impact of about doubled digit percentage impact on revenues potentially, but the other question is whether or not the u.s.-china tensions can still find a leveling off. micron is really the only u.s. firm so far targeted in this way by beijing. so china's response has been relatively muted so far. we also have that janet yellen visit expected for early july. a little bit of a thought around the edges continuing, it should be another bright spot for firms like micron. tom: we are also hearing the news that china has enacted a

new foreign relations law targeting western hegemony. there seems to be on one level and outreach of foreign firms to draw investment back into china. >> the timing is certainly interesting and i think it does speak to this difficulty for beijing trying on one hand to balance ruin and shoring up confidence for foreign investors who are worried about retaining their investments in china, and on the other hand trying to provide a robust response to biden tariffs. it's pushing back against western hegemony, but essentially it's cobbling together existing tools that china already uses to push back against the west. the way to read it i think is a declaration of intent rather

than any new legislation in and of itself. but it's still important for two reasons. xi jinping's continued efforts to try to find ways to push back against the u.s. and the second is that it allows you to consolidate the chinese communist party over government agencies. that is critical as part of pushing forward xi jinping's foreign policy agenda. tom: very interesting. the readthrough from those micron earnings, thank you very much indeed. rebecca touched on what is happening in terms of the u.s.-china relationship. five months ago balloon believed to be a chinese spy balloon crossed over into u.s. territory. the balloon was eventually shot down by u.s. fighters. the wall street journal now reporting that u.s. defense and intelligence agencies have been going through the equipment

after the shootdown of that balloon. they have been analyzing the debris retrieved, and they say what it shows is that the balloon was crammed with commercially available u.s. gear, some of it for sale online, and mixed in with specialized chinese sensors. according to this wall street journal report, intelligence agencies in the u.s. are finding that the balloon and it -- balloon was made up of commercial products and equipment, things you could buy or that was produced in the u.s.. but the u.s. component would underscore the shift in focus for trying to restrict some of those texts exports.

the pboc pushes back on the weakness around the yuan. year to date it is down about 5% versus the u.s. dollar. a chief economist and someone who really has his finger on the pulse of all things china says he sees it getting back to 7.3 in the next two months, but it is another sign that the pboc is coming uncomfortable when the weaknesses come through for the chinese currency. let's bring in our markets slide managing editor, mark cudmore. talk to us about the appetite or not for chinese assets, the reopening play and whether it has finally come completely run out of steam. mark: there is no appetite for the reopening. there is no appetite for chinese assets. people have completely given up on china reopening. investment is faltering and

exports are slowing. it's just a really negative picture. there is no obvious trigger to turn this around. last year there was a bid to in covid zero. the government does not want to stimulate another massive re-inflation of the property bubble when there is still a large debt overhang. so you've got a country where there is no kind of animal spirits, there's no excitement to get the assets going again and not an obvious trigger to turn that around either. tom: mark cudmore, thank you. the lack of animal spirits in chinese stocks. more on the broader ai space

coming up next hour. this is bloomberg. ♪

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be further enhanced. tom: that was the blackstone cfo speaking to bloomberg about the edge he thing ai gives to business. on an unprecedented scale. a spokesperson did not respond to comment. blackrock is betting on artificial intelligence by latching onto the promise of productivity gains. it said it is implementing over eight -- overweight to ai saying it could be a big return striver even in a macro climate. openai has chosen london to house its first corporate office outside the u.s.. the company ceo has previously suggested france, poland are also in the running, making it a

win for the u.k. which has faced increasing rivalry to become europe's tech center. that will be welcome news as well for the british prime minister. a couple of weeks ago he touted the u.k. is being the hopes of the future for regulatory framework for artificial intelligence. coming up britain's largest water supply drowning in debt. the government responding to his plan. we dive in hi, i'm katie, i've lost 110 pounds on golo in just over a year. golo is different than other programs i had been on because i was specifically looking for something that helped with insulin resistance. i had had conversations with my physician indicating that that was probably an issue that i was facing and making it more difficult for me to sustain weight loss. golo has been more sustainable.

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tom: good morning, this is

bloomberg "daybreak: europe." i'm tom mackenzie in london and these are the stories that set your agenda. a lot of focus on what is happening with central bank governors and the comments overnight. on the panel yesterday from the likes of christine lagarde, jerome powell, and the bank of japan. it seems that we are in a position where the equity markets are now awaiting the next catalyst. yes, central bankers are remaining largely hawk us -- hawkish, jay powell leaving the door open to potentially two additional hikes. right now targeting 5.6%. he has left the door open to do additional hikes. the equity market so far have weathered the hawkish stance from central banks. it is the earnings season that

may the next catalyst. this is the two day move and it was a mixed picture across u.s. equities yesterday. we do have gdp and jobless claims out later today. maybe that is next theater move, the futures pointing flat. let's have a look at the yield reaction to jay powell's comments. finally and ultimately it was not that surprising that he kept the door open to potentially two additional hikes. it is worth reiterating the yield curve inversion between the 10 year and the two year. it's around 100 basis points, the inversion for many signaling a recession is coming, if not this year than maybe next.

now to all things europe, with a particular focus on greece. the greek central-bank government is confident that his party will -- he says it is too early to think about the ecb hike in september. >> if the baseline develops as we think, then perhaps yes, in july we will have a hike. inflation is falling, past decisions will have an impact from now on as well. we also have tightened our balance sheet. all in all i think we are following the path to work our plan. tom: that was the bank of greece governor speaking to bloomberg yesterday. here's the data coming through

out of europe. we start with the regional print out of germany, at month on month you're looking at a drop of -0.2% in the previous month of may. the month of june, it increased for that particular region. year on year, 6.2%. pretty significantly higher, there is an increase in inflation year on year out of this regional heartland of germany, a big industrial heartland. we will get spanish cpi as well in the next couple of hours. that will at least partly informed the next steps for the ecb.

european leaders are gathering brussels after the traumatic events in russia last weekend. joining us is our europe correspondent who will be covering the summit today. how will the hawkish messages that have been received in the halls? of power in brussels? >> you are right, the take away from it, we are going to be persistent when it comes to the hiking path as long as inflation stays persistent. he also know very well this tacit understanding between the politicians and the central bank that they do not comment on the ecb and the european will not comment on the politics, but we have seen some discontent this week, when you listen to the italian premier this week. some believe european central

bank's, you could argue that she endorsed the message. the cure could be worse than the actual disease. we will try to sneak a question or two, but i think it is fair to say at one point it's a political issue for several policy makers. if you get a downturn and the european central bank is not able to orchestrate the soft landing, then ultimately they have to tell the voters why. that is a political story. >> all of this has linkages to the war in ukraine. what are you expecting to hear in terms of that conflict? >> we see another summit in

which the war in ukraine, for me it is an eclipse, we know the european leaders will debate about the situation. i should stress however that the meeting today is not in response to the events we saw play out in russia, it was already on the agenda. but again there will be a focus point and we know that there will be new guests to this summit. the whispers now in brussels, he will stay as the head of nato for another year. the war broke out and now he stays at the job. tom: excellent job there in brussels. thank you very much indeed.

tom whip is departing after almost four decades to join ubs. they're looking to integrate credit suisse operations here in the americas after the emergency takeover of the failed swiss lender earlier this year. reports that britain's weakest water company is in talks over contingency plans which could include a temporary nationalization. our reporter covers distress there in your. this country has caused a lot of controversy and distress. >> it has co-operational performance due to regulatory

panels. it has to do with underinvestment in security and infrastructure. >> as you say, they have been pumping raw sewage into our rivers and streams. they are not alone in having a debt burden or liking investment . is this a one-off or is it symptomatic of water malaise across britain's utilities? >> i think it is more of an industrywide problem. it is definitely across the industry, and one of the problems is that over half of the industry's death is linked

to inflation. tom: the u.k. is a bit of an outlier. thank you very much on the plight of water in the potential plans to nationalize that utility company. coming up, with all those heavy sanctions in terms of russia, where has their gas gone? from the waterways of the u.k. to the gas supply out of russia. is it all going to china? we will find out next. we have been following the trail. this is bloomberg. ♪

tom: welcome back to bloomberg "daybreak: europe." is thursday, so it is time for our new weekly commodity

segment. among the questions we are asking today is where did all that banned russian gas go? the man with all the answers is here. you have been tracking this, what happened and what is happening with russian gas because it is not coming here. >> it is an important conversation because when we talk about the oil market, one of the things we've been talking about of the past few months is that russian oil has found its way to the market. gas is very different because gas relies on pipeline infrastructure to get it to where it needs to do and you can change that overnight. europe has been pipeline imports like lng. china would like to sell all that gas to asia but it needs to redirect the pipelines and that takes years and that hasn't happened. gazprom is just not producing as

much gas as it used to. russian gas production is down 13% from preinvasion levels. revenues are down to 45% in the first five months. tom: so that is the gas component in terms of the mix. what has happened to russian oil? >> russian oil is a very different story. russian oil has found its way to market. you just need to get it on a ship and find someone to buy it. it doesn't rely on this pipeline infrastructure that needs to be built through long-term financing. we see millions and millions of barrels of russian oil go to india and china. russian oil production and exports are pretty close to the levels they were before the invasion. the war has had little impact on

the level of oil production in russia. tom: we had the news lines coming out in the u.s. coming in lower. yet you see opec meeting, what is happening with your markets? >> i think the draw yesterday was important. it's what people have been looking for. as analyst look at the balance between supply and demand, people expect the market to tighten. the draw we saw yesterday in the u.s. is an indication that may be starting to happen. i think the market needs that to happen if it is to turn around like many people expect. but overlaying the situation there is still an ample supply of oil.

we have kept asia in particular really well surprise. we have new oil from places like brazil and the americas. for all the talk of russia, supply has been fairly good and the china demand is fairly robust but perhaps not growing a squat -- quite as quickly as some predicted. maybe this is an inflection point. we will see. tom: will kennedy from our team. that story is very well read on the terminal right now so do have a deep dive in terms of where all that russian gas has gone. staying on the commodities story, europe come the world's biggest consumer of chocolate,

and west africa, the leading grower of cocoa beans share a common goal to make the sector sustainable. but a warning that we will all need to pay more for meats. imminent european union regulations to ensure they are not written on. chocolate is going to become pricier, it plays into our inflation concerns and it is a concern for chocolate lovers out there. there is a serious component as well which is a question about land and labor as well. >> it's a question about all these things that a lot of top producing companies have been talking about for a while. this is a law that will be forcing them to implement some of the specific changes.

it actually is going into law today. what it seems to do is try to cut down on e.u. consumption where there are harmful and environmental practices. you mention things like child labor and deforested land. the onus is trying to cut down on what it is the farmers are potentially going to be doing or exposed to. really who is going to be impacted are the consumers, but it will be a lot of the companies that will have to implement this and pass on the cost to the consumer. they will really have to crackdown on this. tom: is this being welcome in places like the ivory coast and ghana, and what do you expect to see next? >> at the heart of this is really the cost. to be compliant is going to be

expensive. they are concerned about who is going to bear the brunt of this costs. they are going to have to add on additional costs for traceability systems and other things like that. that could affect their own incomes at this point in time. i was speaking to the president of ghana who was saying he believes the country is going to be compliant with the new law. there's concern about how it's going to continue to put more pressure on the consumers and inflation all together. we will really have to see how it plays out over the next 18 months. tom: a really interesting story. the mountain west group ceo has

told bloomberg the u.k. bank will only work with corporate clients that can produce credible energy transition plans. she spoke to anna edwards in london. >> it is complicated but it is imperative. i talk about india's climate emergency. it isn't going to happen unless we come together to drive this change. there is really good momentum, huge amounts of private-sector money, huge mobilization, real change in real drive, but it is at the practical level. how do you get those public and private sector partnerships? >> coming up, bank of england governor andrew bailey sticks to his message on curbing inflation at the ecb banking form. that is next.

this is bloomberg. ♪

>> i can understand why their critics of us and central banks, we have a job to do. i think our job is to turn inflation and we will do whatever is necessary. i'm afraid always have to say that it is a worse outcome if we don't get inflation back to target. tom: that was bank of england governor andrew bailing -- andrew bailey yesterday. he said interest rates could remain at peak levels for longer than traders currently expect. our u.k. correspondent joins me now for the details. what did you take from the remarks of andrew bailey?

>> usually the bank and officials tend to see it as a bit grumpy, but market should respond to the bank and not the other way around. one in five traders, there is a one in five chance of 6.5 percent even earlier than february but his response is, we will see. he also says it's down to the tightness of the labor market but it is more down to the response to covid than it is to brexit. economists have been rethinking where rates will peak and what that will mean for the economy. they see a higher peak rate, 6.5%. but the bank of england has been shaken, that's what the jumbo hike shows. one analyst says the bank of

england has a credibility problem and that raises the risk of over tightening. more data on the u.k. economy at 9:30. tom: what is the government doing, they have limited tools, but they're trying to address inflation, at least on the surface. >> they have plenty of tools, but none of them are particularly palatable. essentially each one has promised a crackdown on anything that is putting vulnerable people at risk and said he will keep a watchful eye on their progress. they have written to companies and asked him to show restraint. but these are businesses, not charities. on the one hand they are telling shareholders they have healthy profit margins and the opposition labor leader was

critical of these gestures yesterday. economist being critical too, saying the government just wants to be seen to be doing things. it needs to be seen to be working in tandem with the bank of england. it does not look like it will boost inflation anytime soon. tom: implications of those comments from the boe and what they're trying to do to address the inflation picture here. the report came in higher than the previous month for the region in germany. so that is going to be consequential. we have the overall print for germany after 1:00 p.m. u.k.

time. we are watching yields taking up higher on the u.s. 10 year and two year tenure. we will zero in on german bunds and the price action when they start trading. a reminder that these inflation issues have not gone away, aligning to the comments we've been hearing from ecb officials. bloomberg markets today coming up, stay with us. okay. i'll work on that. the queen sleep number 360 c2 smart bed is now only $899. dd an adjustable base. shop now only at sleep number.

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>> this is bloomberg markets today, live in london with tom