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00:00Inflation in the euro area is understandably high. And it is projected to stay that way for some time to come. I wouldn't be surprised if it's actually in my forecast that growth will slip below 2 percent but it won't actually pivot down into negative territory. It will be in that kind of you know deep recession territory. If you wanted to really get inflation back to the kind of price stability definition that we've seen in the last decade it's around 2 percent. This is Bloomberg Surveillance early edition with Francine Lacqua. Well good morning everyone and welcome to Bloomberg Surveillance early edition of Francine Lacqua Cintra Portugal for the ECB forum. Here's what's coming up on today's program. Inflation and growth fears weak U.S. consumer sentiment its risk appetite France cuts its GDP forecast and Spanish inflation unexpectedly soars to a record a herder of falls while Finland and Sweden take a major step towards NATO membership after Turkey drops its opposition. Plus a central spotlight. I sat down with the world's most powerful central bankers including Jay Powell Christine Lagarde Andrew Bailey and existing customers. Now first thing is first. So let's check in on the markets. This is the picture across the board for what we're seeing in Europe. We did see a little bit of pressure that comes from Chinese equities and that was a little bit earlier on. So stocks dropping again renewed worries about economic growth. Monetary policy tightens in much of the world to fight inflation. And of course the million dollar question is whether they will tighten too much and put the economy in jeopardy. European equities are falling for the first time in four days against sentiment. Also hurt by China remaining committed to a zero Covid policy approach. And then if you look at Spanish inflation unexpectedly surging to a record and that's really dashing hopes that inflation the euro zone's fourth biggest economy had peaked. It may also embolden ECB policymakers pushing for a big increase increases in interest rates. European stocks down one tenth of a percent. Now joining us now is Mark Carefully his chief investment officer at UBS Global Wealth Management Market. Great to speak to you. I know there's a number of conferences and a number of factors that are actually changing the way we look at equities and markets. Is there a danger or is it now almost a given that it's impossible for central banks to engineer a soft landing. It's not given that we end up in a recession or a stagflation. But of course as many people have said it's getting harder and harder to put a a stronger probability on the soft landing as we're starting to see things like manufacturing rollover a bit consumer confidence rollover. Those are surveys but we are starting to see a little bit in the hard data. And of course earnings haven't been really taken down yet by the sell side. So what does it mean for stocks going forward. Is there. Does the rotation continue. Or could we see worst case scenario. Well I think that the way we're trying to think about this is really we've got a broad range of outcomes based on a lot of decisions by powerful people around the world. You know what. What is going to happen. How much will the G-7 support Ukraine in the in the war. How much will the ECB or the Federal Reserve continue to hike. In some ways these are unknowable. So be prepared with a portfolio that contemplates what what would you how would you position if we do get more of a slump. And how would you also position if we move towards a soft landing. So we've tried to come up with a mix of assets that can do that. Which means that you know where do you tilt within equities for example where do you find value. Well we think that for the major indices like the S & P 500 it's going to be pretty difficult to push above something like the thirty nine hundred level. But below that we would tilt towards value because we've found that value tends to outperform growth when you have inflation above 3 percent and we're going to end this year with inflation above 3 percent. And then we're also looking for opportunities to tilt towards some more defensive sectors like health care. And also looking at you know where can you find stocks that are going to provide an income. If we're in a more recessionary environment. So Mark how much do you have to diversify given all of the probabilities of what could happen in various parts of the world. And what do you diversify into. This is definitely a time where we're diversifying I think for most investors who've been very focused on you know doing well by you even if they're just in a ETF of a major in index. What we're trying to say is look this really is a time to diversify globally but also to look at things like currency. So you know in a in a more slump scenario we'd be looking for the Swiss franc to gain ground. We're also staying into commodities. We believe that the supply demand picture means that commodities can remain strong. And so we've also taken positions in commodity currencies like the Australian dollar the Canadian dollar. Mark overall when you look at some of the defensive stocks or some of the strategies out there is there a region that looks more attractive than others. And where do you do. What do you do with Europe right now given the proximity of Russia. And also you know the fact that the ECB seems to be really behind the curve in fighting inflation. Yeah we're we're looking at it more front with that value tilt. But when you do that. What we've found is that it leads us to above average allocation to the UK where there is a strong cyclical energy commodity tilt and also strong valuations. And it also puts us a bit more in to see Japanese companies where we're we're finding more value as well. What's the ideal portfolio if we look at a protracted stagflation environment. I mean in a stagflation area environment where you're having this inflation remain higher. I I think you want to try to go for more of a commodity tilt because they're going to give you some of this protection against against the inflation. So I think that would be the number one recommendation if that continues. And of course the commodities still remains an effective hedge against a lot of the geopolitical tensions that we're facing. Mark thanks so much Mark Foley their chief investment officer at UBS Global Wealth Management. Now Finland and Sweden have been invited to join NATO after Turkey dropped its opposition to their bids. Meanwhile NATO's Secretary General Yann Stoltenberg has also confirmed that China is now part of a new strategic concept for the alliance. Now for more we're also joined by Bloomberg's Maria Tadeo who is at the NATO summit in Madrid. So Maria good morning again. How significant a breakthrough is this in terms of the Swedish and Finnish bits. Well Francine it is a real breakthrough and I think we need to take a step back and see why or the reasons behind this move from Sweden and Finland who are now ditching either neutral policy when it comes to Russia and now perceive it and see it as a threat. Now yesterday Francine the Turkish leader Mr. To One did meet with representatives of Finland and Sweden. They did have a meeting and of course came out with this breakthrough in which the Turkish now say we're not going to object and in fact we will support their candidacy to NATO. We have the reassurances that we need. And if anything this tells you Francine that this could not be turned into a political football at this point where the dangers are so great. According to the NATO secretary general and the concerns for these two countries would still be stuck in limbo in the face of Russia. So this is a real breakthrough. It really is a historic moment and a real change in terms of European security as a result of course of the war in Ukraine which has accelerated so many changes here already. Yes so we're seeing possibly really the biggest strategic overhaul in NATO since the Cold War. Is Ukraine invasion and the new concept regarding China actually bring us back to the dynamics of that era. Well Francine it sounds a little bit like that. The secretary general did give some indications today. He said the scene he didn't talk about the Cold War specifically but he did say this is quote the most serious security moment for the NATO alliance since the Second World War. He did also say the world is changing and has changed dramatically. It is becoming now a global competition and a dangerous place which means we have to update our strategy. That is of course the strategic compact for NATO for the next 10 years which now will brand Russia a threat to security. China a challenge. And then of course repeat that security. Of course it costs money but it does represent a fundamental pillar of democracy. That 2 percent needs to be the bare minimum. It is not the ceiling. It's now the floor for defense spending. Mary thanks so much. Maria Tadeo there in Madrid at the NATO summit. Doing great job. Of course underground. Coming up what's keeping the world's top central bankers up at night. Well we'll talk global monetary policy from central and the ECB forum. That's coming up next. And this is Mubarak. Economics finance politics this is Bloomberg Surveillance or the addition of Francine Lacqua. Here in central Portugal now pressure is definitely building on central bankers around the world to control surging inflation as they gather here in central for the ECB annual forum. Now with us now is Adam Posen president of the Peterson Institute for International Economics. One of the most brilliant lines also to talk about economics and what they've got wrong. Adam they fix it. Or is it now too late because they have to be so much more aggressive in fighting inflation. They can fix it but it's more costly than if they had gotten it right. And I want to be very clear. I think the Bank of England and the Federal Reserve got it wrong much more than the ECB did. Both of them the inflation was coming. It was a much bigger balance of wage inflation or domestic demand inflation versus supply shocks. But they can still fix it. It's just more costly. Do you have a good understanding of how much the Fed is willing to hike at the expense of economic growth to make sure that inflation is under control. Like how much how much will that pain be. I think the amount they're willing is basically unlimited at this point. You know the result the talk for years about the Greenspan Bernanke Yellen put. Well we've seen there's no put on equities right now because that was just a reflection of a zero inflation environment. It's to use the term lexicon graphic. It's that they have one goal. And until that goal is met they're not going to trade off on the rest of it. But how far will they have to go is the real question. I think they're agreed and they're committed to going past neutral meaning they'll get the 4 percent roughly by January or February. The question is do we have to get the 5.5 or something like that like my colleague Olivier Blanchard or Larry Summers would say. But what does that do to the economy that's bad. Again it's not inevitable recession but it's pretty high chance. The issue is how much does unemployment rise in that situation. The good news is on a structural basis I mean everybody I certainly am humbled at staying this after 2008 09 but it's night and day looking at corporate balance sheets at household balance sheets that the amount of leverage. So you know the amount of damage from a recession though in human terms high it's not going to be as big or lasting. But I don't think this is the end of the all powerful central banks because we really see the limits of their reach. Yes and no. That was always overdone. I mean it was overdone 25 years ago when they were talking about that way about Greenspan the maestro. But at the same time we do have this mission creep of central banks. They want him to get into climate. They want them to get into social justice. And I'm not making fun of that but it's just a general problem. We're seeing this with sanctions right now that policymakers in the U.S. and other Western democracies want to use finance rather than actually do things through legislation. So so what does that mean. Where are we going to end up in 10 years. Actually 10 years and 10 years and not survive yet God willing. You know I think the odds forecast are more and five years out is insane. But I think the odds are much more likely. We're going to be back in a low inflation low return world. If the change the green change that we need is underway that might get us out of it somewhat. But it's probably not productivity enhancing or debt or inflationary in the short term. It's probably disinflationary in the short term. I don't know. You worry about the Bank of England. What's the way forward for your better. I think the NPC of the Bank of England has to be more aggressive. Dave I mean in terms of the rate they're tightening that they can say well we're tightening faster in the Fed or the ECB but that's not the point. The UK is now a smaller less open economy. Brexit I think is amplifying the same shocks that everybody's getting the credibility the regime not so much the bank itself but the overall regime is down and imported. Inflation is going to be up with the pound declines. So I think it's not just they have to move but they have to keep moving. So unlike the UK I mean essentially the US or the euro area I think they really do have to go into recession. I think they really do have to put interest rates up more than say the Fed. But I mean it's very problematic. Right. From a political point of view I mean I know they're a political. But actually hiking when there is a downturn. Well people have been talking about this. I mean in a lot of countries in the US and you get pushback and people say you don't hike during a recession. Central banks are unwilling to. That's true if you have the luxury. But if we look back at the 80s and 90s let alone the 70s in England in Italy in in various emerging markets in Canada before inflation target you know you did hike into recession even in early 80s 80s Volcker the first Volcker disinflation was hiking into recession. That's the point. When you've lost some credibility and you've got too much inflation momentum that's what you have to do. So that means something about the ECB but also made Bank of England. Do we need to get rid of gradualism and just go front load. Just be very aggressive now. Even if it means the lowering rates further down the line I think the Eurozone. Therefore the ECB has a very different problem than neither the Fed or the Bank of England either. Supply shock it's much more supply shock much less an aggregate demand issue much less a wage issue. And so to me I think that if the ECB front loads too much they're just going to bring on the recession. That's probably already likely anyway. And overdo it for the Fed. For the it's the amount of front loading they're doing it doesn't really matter what they do between now and January as long as they get to roughly 4. But if we game theory and I know the game theory let's say you go into the winter. Right. There is a gas embargo. So we need to consume much more gas and oil to heat ourselves. Russia turns off the taps and this is the point where actually the ECB is meant to hike CAC. Can they continue hiking. I think they shouldn't. I mean my my point is I don't think the ECB needs to go much beyond what they're promising to do in September. I would prefer to look at President Lagarde comments yesterday as not so hawkish. It's a correction to the empty fuss over anti fragmentation that nothing was going to get in the way I think was right. But she talked about flexibility talked about optionality. She implied data dependence. And I think for the ECB again differently from the Fed and much differently from the Bank of England. That's the right call. When do we see peak inflation in Europe. Not until next spring because of the winter practice you just talked about Christine. Sorry. I think Christine Francine Lacqua. Sorry. Sorry. What an honor. You'll be next. The next president. Joking aside saturating the peak inflation in the US is probably very soon. Yeah it's a little later than we thought. But it's it's it's coming. If it's not it will be because wages are not stronger. That doesn't mean as high as inflation but stronger than we expected. If wages continue go out then summers and by a hard and firm in are right. And you have to be more aggressive. But I'm assuming or for not a forecasting that we're going to peak in the US in the UK. It's much more uncertain. I strongly doubt that peak anytime soon. Adam thank you so much as always for coming on. Bloomberg Adam posing there president of the Peterson Institute for International Economics. We'll have plenty more of course from Central today at 2:00 p.m. U.K. time will be hosting this panel with the world's most influential central bankers. Christine Lagarde Jay Powell Andrew Bailey and the VIX general manager Agustin Carstens. So we'll have plenty more from that. And then we're also looking at live pictures from NATO. President Biden just arriving while arriving earlier but now talking. I think they're actually briefing reporters in Madrid with Mr. Stoltenberg of NATO. We'll have plenty more on that throughout the program. This is Bloomberg. Economics finance politics. This is Bloomberg Surveillance early edition of Francine Lacqua here in London. Actually not in London in Central but looking at Madrid. Total confusion. Like when you're around the world in 80 days right. The action is also happening in Madrid. That's where President Biden is meeting the secretary general Jens Stoltenberg. President Biden saying that the U.S. is enhancing force posture in Europe. He's also saying that they want a permanent headquarters in Poland for the US Fifth Army corpse. And then Mr. Stoltenberg moments ago saying that actually the war was started by Vladimir Putin in Ukraine because he wanted less NATO but he's now getting more. So we'll look out for of course any other breakthrough in NATO is a pretty big deal that Turkey said yes to Sweden and Finland joining the alliance. Now let's get straight to the Bloomberg first reviews. Here's the idea. Hi Leon. Hi Francine. A former White House aide has offered a vivid portrait of Donald Trump's behavior during the January 6th Capitol riot. CASSIDY Hutchinson says Trump knew some of his supporters were armed when he told them to march on the building. Hutchinson also says she was told Trump tried to take the wheel of the presidential limousine when he wasn't allowed to travel to the capital during the attack. The former president said that incident did not happen now. JP Morgan no longer has any exposure to the NIKKEI bit that rocked the metals markets earlier this year. This after a drop in prices on the London Metal Exchange allowed the tycoon at the center of the massive short squeeze to exit his positions with the bank. JP Morgan emerged as the largest counterparty to the bet by China's Sun Shang Holdings Global News 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than one hundred and twenty countries. I'm beyond Karen's. This is Bloomberg Front saying back to you. I'm in London of course in London. I'm in Central. I will remember at the end. Thank you. Now coming up a little bit later on Bloomberg the world's most powerful central bankers. Talk to me a little bit later on. Jay Powell. Christine Lagarde Andrew Bailey and Agustin Carstens join me for an exclusive conversation at 2:00 p.m. London time. This is Bloomberg. Inflation and growth fears weak U.S. consumer sentiment hits risk appetite France cuts its GDP forecast of Spanish inflation unexpectedly soars to a record high hurdle falls. Finland and Sweden take a major step towards NATO membership after Turkey drops its opposition plus its interest spotlight. I sat down with the world's most powerful central bankers including Jay Powell Christine Lagarde Andrew Bailey and existing customers. So good morning and welcome to Bloomberg Surveillance EARLY EDITION everyone in Francine Lacqua here in central Portugal. Now South African inflation surged above the central bank's target range for the first time in more than five years. I met with the South African Reserve Bank governor earlier today and asked him how price pressures will factor into the upcoming monetary policy decisions. We had been worried about inflation from and from last year. Monetary policy now is a risk based. And so as early as November last year we took a view that inflation is going to rise. We expected that it will be outside of our target in the second quarter of this year. We thought that it would go out to six point three came out at six point five which was slightly higher than what we had expected. But there is no doubt that inflation around the world Easter is rising and we had to start recalibrating policy as early as in November last year. We were initially moving at rates of 25 basis points. Then we moved on to a 50 basis points. And in a way we do not even see it so much as a year a slamming of the brakes. Or if I was to use the analogy of a motor vehicle it is more like taking a foot off the accelerator than slamming on the brakes. Do you have to accelerate actually some of those hikes. I think the market is pricing a 75 basis point hike this year. Well our base line scenario which is captured in the quarterly projection model of the Reserve Bank. The forecast for this year is for 25 25 25. Over the course of the remaining three meetings of the Jagow if I did that you said date. That is just that. It's just a broad guideline. We can deviate from that. And actually we did deviate from that in the previous meeting and decided to do to do 50 basis points. We are in uncertain and Su Keenan environment. DAX becomes important but you can't wait until you see concrete evidence that second round effects are kicking in. You're going to have to take a view about the likelihood of the second run effects kicking in and thus exit. So first of all are you. So you're suggesting it seems that actually a 50 basis point hike is maybe more likely than 25 25 25 just to kind of really nip it in the bud. It's definitely not off the table. We did 50 basis points at the previous at the previous meeting. We would look at the data as we go into our policy meeting in July and we would act and we would act appropriately. And I think that the fact that we have been able to act earlier gives us the space to move at a at a measured pace. But that as I had said does not take the 50 basis points off the table. So are you worried that developed economies basically because they didn't start as quickly as you to hike rates now have to be more aggressive and will push the world into recession. Well I'm looking forward to the discussion of the developed economies this afternoon so that I can gain an insight from what they are seeing. I've got no doubt central bankers around the world are much more familiar with their own economies than most people. Most people are. What is in no doubt is that inflation surprised almost most of us on the on the upside and policy would have to be recalibrated so that we could actually deal with inflation going forward. The concern for us yet would be if inflation expectations become deep and cut and that is does it is appropriate that central banks act with speed. Well that was a South African Reserve Bank governor litigate Kenya. Go now to talk of course about some of the pressure that is building on central bankers around the world to control surging inflation as I gather Shery Ahn Cintra for the ECB annual forum. With me now is Richard Baldwin. He's professor of international economics at the Geneva Graduate Institute. Professor thank you for joining us. Now your speciality is trying to understand of course how these ever changing economies will evolve. First of all a simple but probably most difficult questions for the day is that it seems like everything is going faster and faster because of digitization. Does it mean that if we see a recession will come out of it quickly because everything moves faster. Or can we be stuck in a recession like you know 0 8 or even 70s. Well that's an interesting question. I mean digitization has definitely accelerated some things. But many of the things that cause recession like hiring people firing people starting investment to storing inventory has very physical constraints. And so maybe not accelerating as fast as it would be. So I can I can kind of see the point that it might change the speed but I don't think perceptibly enough to make a quarter faster or something like that. We have we underestimated the way that our economies and actually the way of living have changed because digitization but also because of Covid the work from home situation. And what does that mean. On how central banks should look at some of the data there. Yes well absolutely. That's basically what my last two books have been about is that digitization has changed as if I knew exactly. You know I say is changing the world faster than most people believe it in ways few expect. So my focus recently has been on the service sector. So so much of the discussion on shows like this has been about globalization and automation of the manufacturing sector. And what I'd like to point out is that this is now coming to the service sector both automation through machine learning stuff and globalization through outsourcing things. And you mentioned Covid Covid essentially took us to a frontier which made it much easier to offshore certain tasks in certain occupations. But that would be deflationary. Absolutely. So we're not in a deflation right now. So it is a structural thing you know so it's like a pretty long long run 10 trend. It is. We're already seeing it. But for it to to move the dial on deflation we would be talking about five or 10 years. And it's a structural change which is bringing down bringing an imported deflation in the rich countries. So what does it mean for the kind of inflation that we're seeing. And this is you know there are market participants or certain economies maybe some former central bankers that say look this is a supply shock inflation. So it's actually no matter what central banks do they're going to find it really tough to deal with it. Your research and your books would point to that right that we have this underlying deflation coupled with supply shocks. Yeah I mean that I think that's right. But I mean if the people around the table here they're stuck with something's going to happen over the next two to six quarters. So what I'm talking about is something that maybe their predecessors that their successors are going to have to worry about. But another aspect of that I've been focusing on services is one of the strange things in the economy now is that during Covid there was a switch from spending on services to goods and that's unwinding now. And because services are so more so much more job intensive goods that's providing a great big up swell. That's that's hopefully countering the pressure that the central banks are putting on the economy in order to slow inflation. But how long does that last. And this end we've seen the inflation data right. It's airline tickets going up at some of the things that we have been able to do for last two years. It's suddenly waiting at the airports lines. Right. Right. With all your baggage lost. How long does that last. So I would say of a few quarters. I mean but on the other the other side it's not clear that this is the last shock we're getting out of the whole thing. And the truly unusual thing is Covid in some sense was to shock. So it was a shock in Asia on supply when it hit them first then it was a lockdown shock in India when the West if you will and then a series of those and then the Russian invasion of Ukraine. All these came out of nowhere. There's nothing to say. There is not going to be another one. And I think it's like the other one be well could be a revival of Covid if the next variant of Covid is a little bit more virulent than the last one. We could have another lockdown for example. There is some possibility of an emerging market debt crisis which could could cause problems scare investors around the world. But the whole point about crises is if you could foresee them you'd be do them. But that that this this idea of unwinding into services. I think that's something that takes a while partly because there's a shortage of workers and people are just having trouble providing the services. Yeah which is why so many people are also asking for raises which not helping with inflation. Richard thank you so much for coming on. Richard Baldwin professor of international economics at the Geneva Graduate Institute. Now coming up Lithuania Central Bank. Governor give them some a. Joins us here in central Alaska for his view on a potential 50 50 basis point rate hike and what that would mean for inflationary pressures in the Eurozone. That's coming up shortly. And this is Goober. Economics finance politics this is Bloomberg Surveillance Early Edition. You look like you're at the center in Central. The ECB forum. Now with us now giving us some clues. The chairman of the board of the Bank of Lithuania and member of the ECB Governing Council. Thank you Governor for joining us. There's so much talk about inflation. First of all what does the ECB need to do now to keep inflation under control. The ECB needs to continue its monetary policy normalization. This is what ECB or its governing council started doing in December of course. And this is what we are going to do in future to have to do it to do it to fulfill our task to have price stability and to achieve 2 percent inflation in the medium term. You believe that 50 basis point hike should be on the table for the July meeting of the ECB. I mean does this make the most sense to front load and actually try and nip this inflation in the bud before we get into the winter months with a possible gas embargo. Well in June NIKKEI data what we had India made a decision like expressing intention to raise by 25 basis points in the end of July. If indeed the changes changes and like we see inflation acceleration in comparison to what we have seen in in in the beginning of June of course we should think up like more more and more powerful decisions to keep inflation to keep inflation back. But overall it feels like you know a central bank has to actually take a view on what happens to inflation the next 4 6 months. And do monetary policy for that and not look at the data now because then you're constantly behind the curve. Is that not fair. Not exactly. For what six months but forward to three years. Right. This is what matters. And because being reminded to point is that its decisions take effect only in a year or in a year or two years. So you know I understand the pain that people feel about this current or very high levels off of his headline current inflation. But unfortunately this inflation. But yet we observe it's already experienced inflation. It's already the. So we look to the future and be the do we do what is needed to curb inflation back to the levels of 2 percent. Do you think the ECB will will be able to manage inflation and get it back to do percent without inflicting too much economic pain on the part of the governing council. I can promise they do with what it's what it's needed to do to fulfill our financial stability. Well where do you see fragmentation. So again we've had some assurances that this is something that of course the ECB can deal with. Do we need a new tool to make sure that doesn't happen. Well fragmentation I see. Or the risk of fragmentation is is a concern. And therefore the Governing Council decision was to accelerate work in the vein of ECB and Eurosystem committees to take care this new into fragmentation tool. It's very important to have in mind in my point of view is just because it would act as a backstop and that the risk of fragmentation would remain a risk of fragmentation. And the fact of fragmentation. So it doesn't need to be a new tool that's so big that actually deters a market from testing it. It's not about being big or small. It's about about both being credible and that market perceives or sees the ECB commitment to you as the tool if it is needed. The problem is that there's at some point a political judgment right on whether you're you're helping with the debt of certain countries that maybe you know are not doing some structural reforms or whether it is really a widening of a spread that's unwarranted. That's very good question. And that's a tough question because it's tough to create here. Right. And to some extent it's also is like yep it's a tough question. And this is exactly the question we should disclose. We've been recalled to counsel at the expert level you know to have these great areas clear. But there is no magic bullet. There is no magic stick. There's no one magic criteria by which you can define this as fragmentation or not. One needs to take a holistic view and see the full picture. Yields change or yield spreads change or spreads etc.. Governor what's your biggest concern right now. My biggest continued concern is that view is too that we continue walking on on like keeping anchored inflation expectations and not then and not working later on how to re anchor inflation expectations with the anchor. Do you think there's a danger now that that they risk anchoring. Because we talk about inflation so much in the press and people that you know the past maybe we're not that interested on economics and inflation. So our decisions are data driven and we are on the path of monetary policy normalization. Now we are at the time when we are expressed very clearly that we are going to hike interest rates in the coming. Did you lie where you hide them. And do you continue doing this until A V V V V fulfill our task. What should be the message for it for citizens in your country but also in your that are struggling with the cost of living right now. One needs to understand that this painful painful period to wage inflation comes from the external factors. Can one of those factors is ferocious and unjustified aggression against Ukraine before we can before the consequences. So it's it's a difficult time but it will go it will go away. It's it's it's it's a matter of time. But is there a danger that if we have a gas embargo from Russia then it'll be impossible to hike rates further for the ECB. Not freedom. I think we are we are determined to to maintain our price stability objective. We had some CPI from Spain today. Do you see where the you know some of the CPI sting. You know this inflation basically staying here longer. And also countries that didn't have this kind of environment in the past. Well I think the inflation pressures become more and more broadly based. And this is this is the thing we want. We want to tackle. So inflation has stayed for longer than we have expected before but this is for different reasons. In the beginning we had a surge of far off aggregate demand and there was a lack of supply. Now we have effects of repression of the war if you rush into war against Ukraine and unfortunately unfortunately the high levels of credit inflation is the consequences of all these developments. But I was also seeing quite a lot of volatility with euro and currencies. How much does this add in terms of problems to the ECB Governing Council dealing with the inflationary pressures. Volatility of credit is Su Keenan NIKKEI like. We have a lot to deal with. That's not our problem. Thank you so much Governor. Thank you for joining us today and getting me. She of course there the chairman of the board of the Bank of Lithuanian member of the ECB Governing Council. Now let's get straight to the Bloomberg first where news in London as we get it. Hi Leon. Hi Francine. Finland and Sweden are closer to joining NATO after Turkey dropped its opposition to their bid. The two countries pledged to address president urge one's security concerns especially around Kurdish groups that Turkey considers terrorists. Membership for the two previous neutral countries will take months but marks a big shift in Europe's security landscape. Now Glenn Maxwell has been sentenced to 20 years in prison for sex trafficking and other charges related to helping Jeffrey EPSTEIN sexually abuse under-age girls. The prison term could be an effective life sentence for Maxwell who is 60 years old but is less than the 30 to 55 years sought by prosecutors. Wolf Screen Boots Alliance has abandoned the sale of its Boots pharmacy chain. The company says it failed to secure the desired valuation for the UK business amid a turbulent credit market. The deal was expected to bring in more than six billion dollars. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than one hundred and twenty countries have me and guarantees this is pulling back a frenzy. Leah thanks so much. Now coming up Tesla lays off 200 workers as the electric vehicle maker shutters its California facility. We have more on that story next. And this is Mubarak. Economics finance politics. This is Bloomberg Surveillance Early Edition and Francine Lacqua here in central Portugal. Now let's get to a Bloomberg scoop. And Tesla has laid off hundreds of workers on its auto pilot team after the Eevee maker shuts off facility in California. For more on all of this we're joined by Bloomberg's global car czar. He is Craig Trudell an avid also Iran watcher. Craig so what was the role that these staffers were actually doing. So these people were doing data labeling and the annotation and what that means is really sort of supervising and training these self-driving system that Tesla has been working on for years to it. At some point get its cars to be able to drive without human supervision. And so essentially what you have here are humans sort of getting involved with identifying and labeling things that you encounter every day on the road. So you know lane markers other vehicles us road signs and so on. And essentially teaching the computer to sort of recognize those things for itself and supervise that that there's sort of progress being made on that front. What Tesla has been trying to do is you know really sort of you know automate more of that because when you think about the amount of video and amount of data that's coming in from Tesla's cars you know for four years now they've been equipped with cameras to be able to sort of monitor their surroundings. So it's an awful lot of information coming in from from its cars out on the road. So Greg what might Tarzan need fewer workers. Why actually do they need fewer workers doing this task. So the work on automating that is still it's a little bit difficult to sort of you know unpack just how much progress they're made. They've talked about a dojo supercomputer and sort of the training for its system being automated in a big way. They've talked about an auto labeling products that they have developed internally but it's really hard from the outside to sort of assess you know just how far along they are in that task. What we do know based on the reporting overnight is that they've it looks like they've consolidated the work of the people doing these tasks and shut down a facility in the Silicon Valley area and consolidated this work to another facility. Also some workers doing this task in Buffalo New York where the company has had to maintain certain levels of employment to keep its hands on subsidies that the state has given the company you know years back. Craig thank you so much Craig Fidell there with the very latest of course on Tesla and Elon Musk. Now at 2 p.m. NIKKEI will also be hosting a panel of the world's most influential central bankers. Case in Lagarde Powell and Jubilee and the VIX general manager Augustin Carsten. So don't miss. Of course that panel that will be from Central Bloomberg Surveillance EARLY EDITION continues in the next hour with Kailey Leinz and critic Gupta in New York. CAC Dani Burger will be in London. And this is. Central bankers face a very difficult set of choices. Volatility is likely to persist as long as there's policy uncertainty. All this talk around peak inflation and peak cognition and some I think those two terms are being completed here. There has been some signs that economy is losing a little momentum. The wild card of course is if there's some kind of contagion in financial markets. This is Bloomberg Surveillance early edition with Anna Edwards Matt Miller and Kailey Leinz. It's 10:00 a.m. in London 5:00 a.m. in New York and 5:00 p.m. in Hong Kong. On this Wednesday June twenty ninth. Our top stories today. The pressure ramps up on the ECB to rise interest rates. Inflation in Spain unexpectedly soars to 10 percent. NATO says it's sending a message to Vladimir Putin. It moves one step closer to granting membership to Finland and Sweden. We're live in Madrid with the latest from the summit. And cutbacks at Tesla. Electric car maker lays off hundreds of workers on its auto pilot team. Well good morning. Welcome to Bloomberg Surveillance the EARLY EDITION. I'm Dani Burger in London alongside Kitty Gupta and Kaylee Lyons in New York. Both Anna Edwards and Matt Miller are off today and Kaylee feels like a market that's more willing to accept failure than success. Not really needing too strong of a catalyst to push equities down. Yeah I guess the only catalyst being that all of those recession fears that have taken markets down so substantially in recent weeks haven't really gone away. Even if we got a bit of a reprieve from them in recent days that was reflected definitely in Asia overnight. We're after a four day winning streak. Asian stocks finally snapped that rally. The MSCI Asia-Pacific index falling by about one point three percent. And really those losses were led by technology stocks. Those in Asia following on the losses we saw from U.S. technology yesterday. And as a result the Hang Seng Tech Index was down about three point three percent in the Asian trade. Now at the same time you were seeing money leaving risk assets you did see a little bit of that haven bid taking shape in the form of people going into government bonds like in Australia where the five year yield came in about six and a half basis points. And interestingly we've seen the Japanese yen fluctuating between gains and losses against the U.S. dollar right now essentially unchanged. We're trading right around 136 17 on the yen. But of course the yen caught up in the fact that the weakness spurred by the DOJ policy is maybe being offset by somewhat of a haven bid due to the growth concerns out there. But that is leaving the Japanese yen in a bit of a limbo period. Creating right around this 135 136 range is where we've been for a couple of weeks now. Well limbo I think is the perfect word Caylee for also what's happening you see in the US markets. Take a look at this. Futures not doing a whole lot there but flat in the session here perhaps waiting for a little bit of the economic data. We're going to get about eight thirty a.m. New York. Time to take a look at his 10 year yield the same message that you're getting a whole lot of well no real conviction in either direction. Crude though even that a marginal drop really down about one tenth of one percent still a 111 handle. How much of that is going to change. Put this into the context of bitcoin. Even that risk sentiment indicator down one point four percent. Remember a normal move on average one day move for bitcoin is about 4 percent. So really you're kind of seeing muted volatility once again. Danny I wonder how much of this is just waiting for what indications we might get from the eco data in a few hours. Well we are getting more eco data at least when it comes to Europe Kristie and it is a mixed picture. In Spain unexpected unexpectedly surging. It's Germany actually looking like the inflation number is cooling. But when it comes to this equity market it's this follow through from the negativity we saw in the U.S. Of course Europe is closed when the S & P 500 fell more than 2 percent. So some catch up today. Germany one of the worst performing down one point three percent. Not means overall it's a negative session for this equity index. Russell looking at Germany committing back to debt limits for 2023. That's of course after the spending spree. They went on for the pandemic German 10 year bond some buying here but just lower by three basis points. It was much lower earlier when we got that regional Germany CPI numbers that look soft that looks like inflation was turning. But a lot of crosscurrents be at higher CPI expected throughout the week. Or you're looking at him Seamus Shimkus for example over at the ECB saying hey we should move 50 basis points if the inflation data is really bad. Euro dollar that's slightly weaker. Not too much movement though. That's sitting at 1 0 5 13. And finally each and I'm one of the best performing stocks in the Europe. Stocks 600 this morning up five percent. It's been pretty grim for U.S. retail specifically but Europe performing much better each. And I'm seeing strong pre-tax sales that exceeded estimates. Margins are also higher after repeated warnings from analysts that margins would deteriorate. So perhaps it's not necessarily that all of retail is doing well. But Kelly it goes back to this idea. Is it a stock pickers market. Can you just buy all the retail or do you need to be very deliberate with which companies you look at. Yeah we've been talking about a stock pickers market and the success or failure of active management for some time. And that definitely is the conversation that continues. Danny. As for what else is continuing today the NATO summit is still under. In Madrid we have Finland and Sweden getting closer to joining the alliance. We'll have more on that in just a minute. Then looking ahead to eight thirty a.m. New York time we'll be getting some economic data here in the U.S. GDP figures are due. Investors will also hear from Cleveland Fed President Loretta Mestre and State Lewis Fed President Jim Bullard later on today. And the big event at 9:00 a.m. New York time. Bloomberg's very own Francine Lacqua will be hosting a panel with the world's most influential central bankers. Christine Lagarde of the ECB Jerome Powell of the Fed. Andrew Bailey of the BBC. And VIX general manager of Gustin Carsons at the ECB forum in central Portugal Kristie. Spanish inflation unexpectedly surging to a record Caley define that goes government efforts to rein it in. This comes as the ECB gears up to raise interest rates for the first time in more than a decade. The ECB is getting monies. Shimkus who just spoke to Francine Lacqua in central Portugal argue that 50 basis points should be a policy option for July. Francine joins us now from the ECB forum frenzy in a massive day for you. Give us the latest from the ECB forum. Christie so we're just hearing also from Loretta Mestre who's talking on the panel on inflation with Isabel Schnabel. And she's very clear she is not mincing her words. She says we are just at the beginning of normalizing this cycle. So she's basically saying look if we start to raise interest rates we won't stop until inflation is under control. She says she wants to see the benchmark lending rate reach three to three to three point five percent this year and then a little bit above 4 percent next year. Now what this means for a possible recession is that there's certainly risks of a recession. I'm going to try and really get to the bottom of how much pain economic pain a lot of the world central bankers are willing to inflict on their economies to make sure that inflation is under control. So this will be the overarching theme of the panel a little bit later. We'll try and look at inflation forecast why they've been so difficult to get right. And if you're the ECB you have a lot of supply shock. It's from the outside. So even if you hike rates can you really change output. And if you're hiking into the winter when there's a possible gas disruption coming from Russia what does that mean for the Fed. It's a little bit different. It's of course how far Jay Powell can go in putting the economy in a recession what kind of recession we could see if they hike aggressively. But also what's the alternative. And then the Bank of England of course has a lot more domestic concerns because of Brexit. Wage pressures are going up. And of course it's Diane carry some inflation expectations at the margin. So we have three great panelists. And then kind of overarching all of this is Augustin Carstens. He's a VIX head. He's a central bank of central banks. He's never been in their words. He says they're late to the game. What they had to take care of inflation a little bit earlier. And so I you know I'm expecting the panel to be entertaining and hopefully very insightful as well. Francine I think it's gonna be the panel of the week probably the panel of the year to be on his. Looking forward to that. Bloomberg's Francine Lacqua Central New. Of course can watch it too. It'll be at 2:00 p.m. U.K. time as quick as Francine said. Christine Lagarde on power. Andrew Bailey Agustin Carstens. Of course if you're in New York that's 9 a.m. now to NATO. Finland and Sweden have taken a major step on the way to membership there. Turkey dropped its opposition all but ensuring the military alliance expansion on Russia's doorstep. U.K. Prime Minister Boris Johnson spoke earlier. If Vladimir Putin was hoping that he would be getting less NATO on on his Western Front as a result of his unprovoked illegal invasion of of Ukraine. He's been proved completely wrong. He's getting more NATO. This is a historic summit in many ways. But we've already got two new members come again. Finland and Sweden a huge step forward for our alliance. Let's head over to Madrid for our coverage of that NATO meeting underway. Our European correspondent Maria Tadeo in Washington correspondent Annmarie Horden join us now Maria. Kicking it off with you. Just how big of a breakthrough is this. Well Danny this is shaping up to be a historic but also a moment of transformation for NATO perhaps the most sweeping changes to the alliance since the Cold War. And of course you heard it there from the U.K. prime minister. The expectation now that by the end of the summit NATO will now have 32 members. That would include Sweden and Finland of course accelerating and all of the changes that we've seen in European security as a result of the war in Ukraine on top of that. We have some indications now from the secretary general that Russia will now be branded a direct and significant threat to not just European security but also NATO and China label to a systemic challenge to this alliance. Of course we're just waiting at potentially moments away if I can see it correctly here on the big screens are waiting for the Ukrainian president Mr. Sandusky who was also going to participate in the meeting. And once again reiterate this call that Ukraine keeps the aspiration to one day join NATO and for the time being of course call for more weapons for allies to be able to defend itself against Russia. That is going to be again the bake or they're big. I mean ask from the Ukrainian president here. All right. Bloomberg's Maria Tadeo in Madrid. Thank you for joining us. Now let's head over to Marie. The U.S. has stressed that bringing Finland to NATO and Sweden into NATO could make the alliance more secure. So Anne-Marie as we look at President Biden's agenda at this summit what kind of strategic objectives is he claiming victory on. Well it's this one we know from a senior U.S. official telling us before this kicked off as this was the president's goal he wanted to get this deal across the finish line. And it was just about a month ago I was in the Rose Garden with the president and with the leaders of Finland and Sweden Sweden. And the president had said they need every NATO requirement and then some. And you know there's been a lot of questions about whether any concessions given to Turkey to get this deal across the finish line. We know Turkey has a longstanding request for those at 16 fighter jets. And a senior administration official told us last night there were no concessions. So this is a major win for the president on the international stage here in Madrid. Emory of course as you covered the latest from Madrid I have to ask you about some of the developments going on back here in D.C. that January 6 hearing. Of course some really shocking allegations from CASSIDY Hutchinson or I should say testimony from CASSIDY Hutchinson yesterday. Can you give us the latest on this January 6 hearings. He has the president scores this when it has the potential to be overshadowed rarely with what's going on back home. That were testimony from CASSIDY Hutchinson really painted this picture of a former president Donald Trump at times a quite violent and a bully. There was one damning report. She said that he leaned over into his SUV to try to grab the steering wheel. That we should note. NBC says his chief the head of his security detail dispute that account. There was a number of other scenarios. She described the president rage even at some point throwing dishes. So you can see that this could potentially overshadow President Biden's victory. The unity he is trying to have here amongst his allies in the face of his adversary President Putin as well as potentially China. But we should note this is just another moment where European leaders who won't really come out and say this in public but behind the scenes what they will tell you is that they just don't know what direction and what America. They will get next. And Murray thanks so much there. Bloomberg's Annmarie Horden in Madrid also giving us a great economic indicator. Clearly the economy in Madrid is doing well with construction going on back there. Thanks so much. And right now to a Bloomberg scoop. Tesla said to have laid off hundreds of workers on its auto pilot team. As the evening maker shudders. A California facility. For more we're joined by Craig to Bloomberg's global car czar. Craig so these are hourly workers that Musk is letting go of what happen. Because I thought he was saying it's salaried workers that are getting the can. Yeah. That's part of what's surprising here. It's not necessarily a shock that they're that they're getting rid of some some people who do the label and sanitation work related to auto pilot because the company has talked for some time about trying to automate more of that work. And this is really a matter of sort of teaching and overseeing what it's you know self-driving system is learning and doing the machine learning that it's going to take to get its cars to be able to drive themselves. But but absolutely it runs contrary to what Elon Musk told us and in Qatar just last week that the job cuts that he has envisioned for over the next few months are going to be salaried in that he's actually going to be adding hourly people. All right. Tesla shares down by about 1 percent in premarket trading. Bloomberg Quicktake it out. Thank you so much for joining us. Now as for some other stocks in the move in premarket trading I have to point out Carnival Cruise Lines because an analyst over at Morgan Stanley coming out swinging slashing his price target by almost half down to seven dollars a share. He actually introduced a bear case in which the stock could literally go to zero dollars. He was talking about the idea that bookings are slowing down that they're facing higher costs like on fuel. All of that he says is going to weigh on this stock. And that certainly is weighing on the stock this morning with a down 7 percent in early hours. You also had an analyst downgrade from Morgan Stanley for Upstart. This is a cloud based A.I. lending platform. It was downgraded to underweight with a price target indicating it could fall 47 percent from yesterday's close. Right now the stock down eight and a half percent in early hours trading around thirty three dollars or just underneath that. One more positive story out there though is Pinterest and announced that its co-founder and CEO will be stepping down replaced by Google's bill ready. Investors seem to welcome that news with the stock up about six point six percent before the Bell Disney. All right. Well coming up on the program from those individual stocks to the wider market. Sylvia Blonsky joins us CEO CIO and co-founder of Defiance ETF. Is she defying the sell off in buying. And we also speak to Chris Hare HSBC senior economist as inflation numbers for various your regions come in. Plus be sure to stay with Bloomberg for coverage of our panel panel on monetary policy. Live from central Portugal Francine we'll be in conversation with drum power. Christine Legarde Andrew Bailey and Augusten Parsons 9:00 a.m. in New York 2:00 p.m. in London. This is Bloomberg. This is Bloomberg Surveillance Early Edition. I'm critic Gupta with Kailey Leinz in New York and Dani Burger in London Anna Edwards and Matt Miller are off today's reunion of the movie crew and that honor. I do it totally as I have to do go in honor and do the nerdy thing here which is look at inflation look at break even expectations. I know everyone's talking about inflation here but take a look at this chart for our radio audience. Stick with me. Basically that surge that you saw that perhaps peak inflation that everyone was expecting in March. If you look at break even as he kind of got it because you actually see those inflation expectations in the 10 year the five year coming down a little bit. And ironically if you actually look at shipping rates or even commodity prices or some parts of commodity prices you'll see a pretty similar pattern. So let's bring in Lin Thomas and to break this all down for what it means for the trading day Bloomberg Markets editor she joins us now from London. Thank you as always Lin Lin let's break this down here. Some of those kind of pushers or drivers of inflation shipping rates are rent prices housing prices. Well some of them are easing a little bit. Are the markets going to take any of that into account. Well it certainly seems that bullish investors are looking really at this kind of data for what they're pointing to is why they want to get into this market. You know the idea that we're starting to see a roll and expectations. Commodity prices going down all point to that hope that we had a few months ago that inflation would be transitory. But you know look at the Spanish CPI data say at 10 percent. That to me points to really punchy hot numbers still coming through. And we talk about OK perhaps it's a peak in yield proximity and inflation but it surely does not seem that it's a peak in equity. I mean a trough in equity. Oh I'd say I mean just look at the 3 percent sell off in the Nasdaq yesterday. I mean if anyone thought that we were past this idea of like big fearful sell offs just ripping through the market I mean that is absolutely exhibit A of that we're still really much in this role. And as we focus so much on the macro we're going to get down a little bit more to the micro and look at the fundamentals when earnings season is underway how much your expectations aligns with the price action we have seen in these markets. My sense is it's still a big question mark. I mean I think everyone is very curious to see what the commentary from CEOs and from from company executives is going to be about inflation and whether we're starting to see consumers pull back on spending. Does that reinforce the recession narrative or are companies going to say look everything's relatively healthy we're getting through this it's going to be OK. Goldman Sachs also warning we're not pricing in the margin compression we're likely to see. Lin thank you as always for joining us. Lynn Thompson from our Bloomberg team and from our market analysis. And my go is where you want to head on your terminal. This is Bloomberg. This is Bloomberg Surveillance Early Edition. I'm Kailey Leinz with Carine Gupta in New York. Danny Danny Burger in London. Anna Edwards and Matt Miller are off today. Now keeping you up to date with news from around the world. Here's the first word in China. President Xi Jinping is predicting what he called a final victory over the Corona virus with the country's 0 Covid policy. She said that its most effective and economic approach for China is that Beijing just cut the quarantine for inbound travelers in half. But it's still one of the most difficult countries to enter. The price of basic goods in British stores is rising at the fastest pace in almost 14 years. That's forcing poorer families to take drastic action to make ends meet. The British Retail Consortium said that its shops are having to pass on some of the burden of soaring raw materials costs. Fresh food leads the surge with prices up 6 percent in the first half of the year. The wife of Supreme Court Justice Clarence Clarence Thomas has declined the January 6 committee's request for her to testify. A lawyer for Virginia Thomas says there is no sufficient basis for her to appear before the panel. Emails have indicated that her efforts to prevent Joe Biden from taking office were more extensive than previously known. And Scotch whisky is enjoying a comeback. Distillers porno Ricard and Diageo are shaking up the ancient industry by introducing lighter reduced alcohol varieties. They are aging the whisky and barrels that formerly held rum tequila or beer. The goal is to attract a new generation of consumers. The result. Scotch is now the biggest single contributor to sales group at Porno Ricard. And guys I got to be honest. Younger consumers drinking scotch. I'm gonna take the three of us back to our collective days at the University of Virginia and the corner and the bar Trinity which is the most popular. I can't see any 20 something going up to the bar and ordering scotch. Can you. You know I can't but I'm just not that sophisticated. Maybe dance. Definitely not in the college days. I'd be surprised if anyone has either the taste or the budget book. ISE. I got to say. Yeah they're just trying to supplant tequila. Tequila for the first time becoming the second biggest US spirit supplanting us whiskey. Some sorry whiskey. We'll just never be tequila. Maybe. Stop trying. All right. Coming up on the program we're going to be speaking to Sylvia Job Blonsky CEO of Defiance ETF. This is Bloomberg. This is Bloomberg Surveillance Early Edition. Here's what you need to know. The pressure ramps up on the ECB to raise interest rates. Inflation in Spain unexpectedly soars to 10 percent. NATO says it's sending a message to Vladimir Putin moving one step closer to granting membership to Finland and Sweden. And cutbacks at Tesla. Electric car maker lays off hundreds of workers on its auto pilot team. I'm Dani Burger in London alongside Critique Gupta and Kelly Lyons in New York. Both Anna Edwards and Matt Miller are off today and critique. It just feels like a market that any chance that we start to see stocks move forward it feels like gravity just keeps pulling them back down. Sentiment is just so poor out there. It is poor. But also keep in mind we look at the trading of this week especially as will always be a low volume week. Light liquidity in the markets is also the last week of the of the month of the quarter as well. So you are going to see the fact there are some rebalancing flows. Also you are looking at that in the face of a stronger dollar. Those foreign investors are going to look at that dollar and say well maybe now's not the time to hop into U.S. assets. And on top of that we've got a long weekend coming up in the state. So is this really the time to go full on at least ISE seems to be the taking the market right. And because not a ton going on Caley futures are about flat right now. Ten year yield. I want to call about flat as well. Where you are seeing some action here is in some of those commodities crude is up about five tenths of a percent. About 30 minutes ago it was actually down on the session. So it looks like perhaps a little bit of optimism baked into the commodities market. And of course Bitcoin you are starting to see some of those losses get paired about 30 minutes ago. That was down over 1 percent. Now making its way closer and closer to flat perhaps even positive Caylee. Yeah it's pretty quiet out there at least on the surface level Christi. But when you take a look beneath the surface there actually is a little bit more movement because there are some individual stocks on the move in premarket trading that are worth noting. The first one being Carnival Cruise Lines. And analysts over at Morgan Stanley slashing his price target on the stock by almost half to seven dollars a share and introducing a bear case of zero dollars. Talking about the fact that bookings are a bit weaker and they're facing higher costs including from fuel. And so all of that is leading to his pretty dire sentiment on the stock which is down 7 percent in early hours this morning trading around nine dollars and 58 cents. And I would point out it's taking fellow cruise operators down along with the likes of Royal Caribbean down by about three point six percent. One other downside story to talk about today is Tesla of course Bloomberg breaking the news with a scoop yesterday that it's laying off 200 of its autopilot workers at a facility in California that it's closing. Interestingly most of those hourly workers which kind of runs in contrast to what you on Musk had told Bloomberg just a week ago. But that stock is down one point four percent. Finally one more positive story out there because Danny I know you hate it when I'm talking about all downside movers. Pinterest co-founder and CEO Ben Silverman is stepping down being replaced by Google's bill ready and investors taking positively to that news with the stock up about three and a half percent before the bell. Kelly I know I give you a lot of grief for giving us all down day stories but I'm afraid I'm going to be a little downer as well because it's not a very positive European session. So you can yell at me as well after the show. European stocks. Those are down seven tenths of one percent. Following on from that drop in U.S. stocks yesterday of course Europe was closed at the time. But the thing we're really grappling with here is this dangerous mix of stubbornly high inflation and growth figures that don't really seem to be picking up steam or dropping enough to help put inflation back down. Spain unexpected unexpectedly rising to 10 percent for their CPI figures this month. I should say there were some regional German data that did suggest some slowing down or cooling in the inflationary story. Despite that we are seeing some bond buying going on just two basis points lower though. That's because again we're really having a hard time figuring out exactly what that inflation story is. You also have ECB members going against Christine Lagarde saying hey we should give ourselves optionality to go 50 basis points next month. Europe pretty much flat gonna pull a Caylee. I'll end on a positive story. And each of them sails very very strong exceeding analysts estimates margins also strong despite some low expectations of rising cost pressures Kelly. All right Danny. Well let's take a bigger picture. Look at these markets now through the lens specifically of ETF. Because the ETF bulls seem like they're done chasing this market after 3 5 percent bounces. That failed to endure. Investors have pulled roughly 10 billion dollars out of equity funds during last week's rally. The outflows are adding further evidence to souring investor sentiment. Joining us now is Sylvia Blonsky CEO CIO and co-founder of Defiance ETF up early for us in New York this morning. Sylvia what do you make of the flows we're seeing and what that indicates about the level of bearishness out there. Hi good morning Kelly. Great to be here. Well I think that it's sort of par for the course with what we're seeing in the market. So we've had last week felt a little bit like a bear market rally. And here we are kind of turning back. So. So you know as you alluded to it just didn't sustain as long as we. For as long as we thought we would. And I think that it's sort of the same story. You know whether it's ETF whether it's crypto whether it's equities investors remain on the sidelines now. And you know they're they're sort of afraid to get their chosen because of the uncertainty around inflation whether or not the Fed can execute a soft landing. You know how earnings season is going to be. And there's also just no liquidity in the market this week because of the holiday I think. And where we're off of that Russell we balance. So it's going to be a little bit of a slow and choppy week. Is there anywhere that you're not afraid to be dipping your toes in where maybe there is a buying of the dip opportunity Sylvia. Yes. So I'm actually not afraid to dip my toes anywhere at this point. I'm not calling the bottom. And I agreed with some of the former guests that you've had on that have said you know it's not necessarily compelling to just go out and buy today particularly during a holiday week. We might not get that rally in the short term. But you know I look at it in two different ways so far for one CAC plan for a younger person somebody investing for the long term. Dollar cost averaging. It doesn't matter whether it's this week or next week. If you're sort of getting it you know 2 percent lower 2 percent higher you're sort of in a fairly tradable bottom range. And I think that that won't really pay off in the future. And I particularly like quality names when we talk about that you know both quality ETF that represent sectors that will grow in the next five or 10 years or so and just quality names that have been beaten down. Some of the tech names for example. You know Apple got hammered yesterday. We have Alphabet we have Amazon semiconductors like Nvidia an I mean these are great bargains in the market for long term investors. Sylvia on the flip side of things in this type of environment where there's a lot of volatility is there any importance in holding that optionality of cash. You know it depends on who you are and what your personal situation is right. So I think that investors that you want to have some cash on the sidelines for sure some dry powder to implement in case we don't get that soft landing or we see a further leg lower. But I think you know you have all three indices in bear market territory touching correction to our territory at least S & P NASDAQ decidedly in bear territory. You know a very small percentage of the S & P 500 is trading above its 50 day average. Put call ratios are higher. You know consumer sentiment is just absolutely awful. And I think that you know these aren't all of the checkboxes that indicate recession and market bottom but they're you know they're calling for a bottoms right. So you can have some cash on the sides to play things go down further. But I think you know if you don't sort of need the money to live on and you're you know liquid enough with with your daily expenses and things like that putting money to work in the market over time is usually what works. Unfortunately none of us are smart enough to call the exact bottom. So you know dipping your toes and on these pullbacks 25 30 percent pullbacks major indices I think is the second time we've had that opportunity since Covid and before that a decade before. So you know I look to buy in these times. Sylvia let's broaden this out perhaps and look cross acid here because I'm curious on a benchmark level what the signals are in the markets is that yields of perhaps benchmark investors are looking at is it the inflation story. Oil prices. Is there any kind of cross asset move you're watching in particular say well OK if yields go up the S & P 500 is going to go down or vice versa. Yes. Yes. It was actually interesting because you know it didn't happen in the 10 year. Right. The 10 year seems to be steadying at about three point two percent. And then we saw complete carnage at market. So that's been you know a little bit of a separation compared to prior weeks. It's interesting. But what I'm really looking at is just inflation. And I think inflation is going to tell us a lot. It's going to tell us you know how hawkish the Fed needs to be how many times we think they'll they'll raise rates and whether or not that soft landing comes along. And I think that until we get consistent inflation rates or if you just like a good surprise investors are going to be wary and staying on the sidelines. OK so Sylvia when you look at the biggest risk to the equity market right now inflation recession which one wins out. I think I think inflation you know and I think that that that would be potentially one of the big catalysts that that move us to the latter along with the Fed sort of going too fast too strong because of it. So I think it's inflation you know if we have a recession. The interesting thing about talking recession right. When you look at recessions you usually think about something that's very pervasive very profound and just just something that attacks essentially the entire macro environment and the market. And we still don't have all of the ingredients for that recipe. Right. Jobs are still pretty strong. Consumers pretty strong. I get that sentiment is terrible. But the fact of the matter is they do have cash to spend. And you know you are getting some lightening up in housing starts and things like that. Geopolitics of course is is another potential headwind. China closures or potential headwind. Good news yesterday but maybe not today. So you know all of these things matter. But I think even if we get a recession it's going to be or it's likely to be short lived and not as big as we think. I just I think that you know we have a shot at a soft landing too. But I do think that the market won't be steady until we sort of prove that. Sylvia great to get your thoughts this morning Sylvia. Jack Blonsky of Defiance Snake. Yes. Now coming up Morgan Stanley predicts a euro area recession in the final quarter. Just Chris here thinks so as well. HSBC senior economist this is Bloomberg. This is Bloomberg Surveillance Early Edition. You're looking live at the principal room coming up later today. Port of L.A. executive director Jean Rocha. That's at eleven thirty a.m. in New York. Four thirty p.m. in London. This is Bloomberg. This is Bloomberg Surveillance Early Edition. I'm Dani Burger in London alongside critic Gupta and Kailey Leinz in New York. Anna Edwards and Matt Miller are both off today and Morgan Stanley economists are now expecting a euro area recession in the fourth quarter of this year. They blamed reduced energy supplies from Russia and falling confidence sort of the usual suspects. Well joining us now is Chris Hare senior economist at HSBC. So Morgan Stanley recession forecast for fourth quarter of this year. What say you. Not quite a recession but the eurozone economy is entering pretty dangerous territory. I mean in terms of numbers we've got growth pretty much flatlining in the second and third quarter of this year. That inflation squeeze on household incomes and household spending is really significant. We do have a little bit of recovery going on later the turn of this year and into next year. But there are those big risks out there. To what extent is household spending going to hold up given that real income squeeze. And to what extent should be worried about gas rationing. And that could be another negative factor too. So we didn't quite have a recession got a flatlining in the bill of the year but it's likely to be a pretty challenging few quarters ahead. And we heard from Christine Lagarde yesterday reiterating this idea of optionality and flexibility. But given we were just talking about the break how volatile this data is should they be giving more flexibility and not saying OK we're definitely going 25 basis points in the next month. Well the hope is or indeed our expectation is that when you think about that growth danger zone it's more in the near term when we're thinking about the real income squeeze when we're thinking about gas rationing. But then ultimately at the same time inflation is incredibly high. We expect eurozone inflation to be above 8 percent until at least September this year. And from there is certainly likely to fall relatively gradually. So I think it's right that the ECB does have to get with the program and signal the prospect of significant rate rises in order to help inflation back down. When we go into next year. But of course monetary policy works with a lag. So to the extent that we think that there may be scope for some underlying improvement next year that's the point at which monetary policy kicks in in terms of its disinflationary impacts. Well but let's not look so far into the future as all the way to next year. Let's just look toward July because as Dante indicates Christine Lagarde says the move has 25 basis points. But you have other members of the monetary policy committee saying well we should leave the door open to 50 depending on the data. What do you view as the likelihood that we actually get a larger move in a couple of weeks. I think there is a possibility for what it's worth. You're right. Christine Lagarde has signaled the possibility of 25 basis points similar to chief economist Philip Lane. And if anything more of this potential flexibility or option optionality in terms of the magnitude of rate rises could come in the September meeting. Perhaps the difference between July and September isn't all that big in terms of the medium term inflation outlook but potentially there is that risk. You know what. If inflation prints and the eurozone inflation print later this week comes out really strong indeed then maybe there will be a little bit more market pressure and pressure on the governing council to think well is that 25 basis points enough. But then of course alongside that rate rise the ECB needs to think about this anti fragmentation tool in order to bring about not too disorderly an increase in peripheral bond spreads. So there really is a lot in the ECB whose plate looks like 25 basis points for the upcoming meeting. But but yes there could be pressures to think about more or at least signal quite a bit more further down the line. Given that strength and inflation Chris let's fold in the G7 here because of course we know a price cap on oil is part of the conversation is something that Pedro Sanchez has even tried to implement on natural gas prices in Spain. Speaking of that Spanish inflation I have to ask though does that make any difference in terms of the ECB path. Do they see any impact from that. Well to some extent I suppose traditionally you should think that central banks would tend to quote look through energy type shocks because they are transitory influences on inflation were they were transitory has really fallen out of favor over the last few months. I guess it could help at the margin if something were agreed on an energy price cap to the extent that it keeps a lid on inflation in the near term. That might then in turn reduce the risk of concerning trends in inflation expectations and so-called record second round effects pushing up on wages and making that inflation more self-fulfilling and more persistent. So so yes it could help at the margin and it could also help rebalance the policy response. If you have a price cap on energy prices then maybe governments may not have to step in quite so aggressively with fiscal measures in terms of handouts for households for example. So it may be an attractive developments in the policy mix but let's see what actually comes out of it. Well as you point out that transitory is a word that we're retiring from the vocabulary which seems like fragmentation is the new one that's taking its place perhaps or anti fragmentation I should say. To what extent are we seeing a repeat or a parallel of what we saw in 2011 2013 with the Eurozone crisis. Well things don't mix. Nearly seems so severe is that you know if you look at peripheral bond spreads Italy certainly Greece for example things are much less severe than we saw in 2011. And of course as the policy response eventually we had from Mario Draghi whatever it takes backed up eventually by policy measures such as the OMT program in order to contain those peripheral bond spreads. What we're seeing now certainly isn't as severe as that but it looks like we do have to see strong signalling from the ECB perhaps not whatever it takes but some significant measures we think do have to come along in terms of a potential anti fragmentation tool that turns out to be credible. And if it doesn't turn out to be credible then there's that potential risk of persistently high peripheral bond spreads which would be a way weight on economic growth and might ultimately slow down the pace at which policy rates can can increase. So as I say it's not quite so severe but it's a really significant thing that the ECB we think needs to get right over the next month or so. Yeah certainly the politics making its way into the economics. Chris thanks so much for joining us. Chris Hare there of HSBC. Now stay with us for Bloomberg's coverage of the monetary policy panel live from central Portugal. It will be hosted by Francine Lacqua in conversation with Jerome Powell. Christine Lagarde. Andrew Bailey. And our guest in Carson's 9:00 a.m. in New York. 2:00 p.m. in London. This is Bloomberg. Central bankers face a very difficult set of choices. They can either bring inflation down but at a very heavy cost to the to the real economy they'd have to essentially crush them and raise interest rates very much in order to get inflation anywhere near the 2 percent. Or they can at some point accept that that cost is too high to tolerate for some time higher inflation. Phillip Hildebrand vice chairman of BlackRock speaking with us here on Bloomberg surveillance EARLY EDITION yesterday. Now Tom Keene co-anchor of Bloomberg Surveillance the original joins us now with his single best chart of the day. Tom what you got. Well what I got is a really simple chart. It's a little misleading when he explained through carefully here's a boring chart. It is the GDP of America taken as a presidential moving average. Four years. Sixteen quarters. And it's very subtle. You really can't see it on the chart before the great financial crisis. The run rate of our economy was three point four percent. And right now it's two point four percent. And of course excuse re trending down as well. But that's a difference over you know over over a good number of years. We moved down a figure from three point four percent to 2.5 percent economic growth. Tom tell us about your guests lineup. Who are you going to ask about this. Well we've got a lot of people coming up with the most appalling good Coop Jukes before Francine's important panel in Europe. And I really look for could choose to show us stronger dollar in the linkages here of the central bankers is we go to 9 a.m. there. All right. Well we're counting down the clock. Just about three hours to go but just a couple of minutes to go until surveillance starts. Tom Keene co-anchor of that show. Thanks so much. Looking forward to watching over the next couple of hours. Now as for what else we're watching today I'm gonna be paying attention to earnings specifically from General Mills which is due to report before the bell. And guys why I'm interested in this is because obviously it's related to food costs of which have gone up for the American consumer and for General Mills. They are excited to see sales growth not necessarily because of volume but because of those price increases raising the prices on their products in order to offset some of those higher costs. My question is how much are they going to continue having success doing that as the American consumer. Hit by inflation starts to penny pinch a little bit more. Obviously food is a necessity necessity unlike some more discretionary items. So maybe the elasticity is a bit different. But it's definitely going to be interesting to see what kind of commentary we get out of General Mills especially looking ahead what that outlook looks like greedy. Well especially Kaylie if they talk about that crazy R word the recession worse. That's going to be crucial as we talk about whether or not we're actually in one which brings me to the eco data we're actually going to get today. Some of those revised GDP numbers from the first quarter. You are going to get those numbers out today. Remember it's not really going to see some tiny tweaks here and there. But the question here is what is the directional the directional trend. You're also gonna get some personal consumption data. And of course that core PCI quarterly data of course the P C deflator we're going to get tomorrow as well. So there is a lot on the docket to keep an eye on. I wonder though Danny if the markets will actually react to it. And will any central bankers react to it and there will certainly be an opportunity for them to do so. I am watching and really everyone should be watching Francine Lacqua panel later today. It's going to be at 2:00 p.m. If you're here in the UK 9:00 a.m. I believe if you are in New York it's got Jerome Powell on. It has Christine Legarde Andrew Bailey Agustin Carstens from the VIX. I don't think that they'll be asking about General Mills Kelly but look all of that data will be in there. And Christine Lagarde has a lot to answer for. We're seeing different ECB Governing Council members coming out and speaking bunch of speaking right now. Kelly I know you're pointing this out talking about 150 basis points of hikes by March being reasonable. I mean Kailey Leinz a lot of crosscurrents with Christine Lagarde who is committed to that 25 basis hike next month. Yeah. How much is she really reflecting the consensus on the Governing Council or is she kind of alone in wanting to keep a move of that size. It's interesting looking up here which is commentary here. He's pointing to fiscal policy basically saying that if it stays supportive we're going to have to do more. So we have to keep that in mind that it's not just about the monetary policy response to inflation more so as well. The fiscal policy use potential to fuel that and how central bankers may having to fight for having to find themselves offsetting that to the extent. I find that point so interesting Kelly because it's the politics of fiscal government that knows it's populist does not like inflation of course. Who would trying to do something about it. But does that mean they're just making policy more easy. Well that's it for us. That early edition more surveillance ahead. This is Bloomberg.

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'Bloomberg Surveillance: Early Edition' Full (06/29/22)

Bloomberg Surveillance: Early Edition, live from London and New York. Francine Lacqua, Anna Edwards, Matt Miller, and Kailey Leinz deliver the latest news and analysis on the markets with leaders in global finance and economics. European Central Bank Governing Council Member Gedimias Simkus says the central bank should consider raising interest rates by twice the planned amount next month if the inflation outlook deteriorates. Sylvia Jablonski of Defiance ETFs and Chris Hare of HSBC weigh the biggest risks for the markets and the economy. (Source: Bloomberg)

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