Transcripts For BLOOMBERG Bloomberg 20240704

This is bloomberg daybreak europe. Im lizzy burden in london. Fitch stripped the u. S. Of its aaa Credit Rating citing deficits and an erosion of governance. Mobile equities sell off treasury secretary janet yellen blast the surprise decision calling arbitrary and outdated. Plus, donald trump charged. The former president is indicted over his efforts to overturn the 2020 president ial election. Charges he has repeatedly denied. We will bring you all the details. Good morning and welcome to wednesday. You might have as but of deja vu. Remember 2011 one s p downgraded the u. S. And triggered a selloff in risk assets around the world. It somewhat ironically boosted treasuries as investors sought out haven assets. Fitch as downgraded the u. S. For the First Time Since 1994, you will see that initially pushed treasuries higher before the move stabilized moving the two down a basis point. U. S. Futures now pointing to a lower opening. The rally that drove the s p up almost 30 from its october lows taking a breather. In terms of over haven assets, the yen is trading stronger against the dollar. Gold is also up. Oil resumed its rally after indications of a huge drawdown in u. S. Inventories which signaled the market there is tightening. Were going to break down all of these moves drop show but lets start with the asian Market Reaction to the fitch downgrade with tania chen. What is happening where you are . Tania a lot of the risk off sentiment spilling over into the asian markets today. Starting as an asian equities broadly speaking, down for a second day led by declines to the nikkei and hong kong tech shares. More specifically in japan we saw news about softbank and Masayoshi Son is exploring an potential ipo around the Semiconductor Unit with a valuation of upwards of 60 billion. This is according to people familiar with the matter and we will hopefully get more details in Early September around a roadshow. Back to china, more details around there. And there stimulus plans today so regulators are pushing local governments, regional authorities to speed up their local bond issuance which will help with infrastructure spending. It has been a lot of positive drip feed and soundbites. We have seen measures to help with consumption and invigorate capital markets. We will have to be patient for a bit longer. Historically, august has been a pretty rough month the Greater China indexes. Going to currencies here, the riskon sentiment still playing out in the currency market. We have aussie dollar and kiwi dollar kiwi dollar falling a bit. It is extending declines since the reserve bank of australia held rates as a. The kiwi dollar is sinking. They had unemployment data at a twoyear high. I want to take a quick note of jgb 10 japan yields around 6. 3 . On monday the bank of japan stepped in and around 0. 6 . It throws out the dilemma of what line in the sand they are trying to defend here. Dani it was. Two are of asian markets. It is time now for our roundtable. With us as Valerie Tytel and jill disis. Lets start with the u. S. News. Fitch has cut the u. S. Credit rating from a aaa to a aa plus her worries about the nations budget deficits. In a statement, the agency said the rating downgrade of the United States reflects the expected physical deterioration over the next three years, a high and growing general Government Debt burden and the erosion of governance relative to aa and aaa rated peers over the past two decades. U. S. Treasury secretary janet yellen is not taking it lying down. She said the decision was arbitrary and outdated. Economist Larry Summers and Mohamed Elerian have criticized the move. L area and called it strange while summers said there are reasons for concern about the long trajectory of the u. S. Deficit in the countrys ability to service its debt not in doubt. It was a decade ago with s p but why now . Jill when you look at the statements from janet yellen and summers, there is this belief or surprise over what happened today. The other thing with s p decision a decade ago, it was made in the wake of really stressful debt talks over the debt ceiling limit. That is sort of, you are seeing history repeat itself a bit here. You saw in the fitch statement that they pointed to the idea of erosion of governance been a factor in making this decision. We heard from Biden Administration officials on a call that they suspect that maybe there are elements of the donald trump january 6 pieces of this as well when youre talking about the erosion of governance. Ultimately what fitch is saying is it comes down to mediumterm concerns about rising debt, rising Government Debt and deficits that are factoring into this decision today. While it does seem like a surprise, it has some level of president s there. For fitch to make this decision today and say it is about the mediumterm outlook, they are trying to back that up their response there. Lizzy that is a downgrade decision itself. Will we see history repeating itself in terms of the market a lot valerie . Valerie when the s p downgraded the u. S. It was a different scenario. We were right out of the debt limit standoff which happened only days after that. It might be ill advised to look at how the market traded back in 2011 as a guide. Today, you look at the markets and perhaps outside of the equity market is clearly its of the red, the rest of the markets seem not to be reacting too much. The dollar is flat and even dollar swiss is not seeing a haven and gold has barely budged. This narrative could change throughout the day as we try to understand what is going on here but fitch is pointing out what we already know that the u. S. Debt burden is high, growing. They spent this period of economic expansion after the pandemic not making the government bottom line any better but spending a lot more money. We know that biden, the money that the Biden Administration has spent is one of the key reasons why we have not entered a recession. It has kept manufacturing from falling off a cliff. It has kept other parts of the u. S. Economy strong because of the Government Spending. Maybe the trigger for this downgrade was the announcement the treasury on monday that thirdquarter debt issuance is going to be around 1 trillion which is a lot more than what the markets expected. Nearly 250 billion more than what the markets had expected for the Third Quarter when it comes to treasury issuance. We get the funding announcement from the treasury today. Again, not good news for the treasury markets. We are expecting very large increases when it comes to long end debt issuance. Maybe that could spark a further fear or selloff in treasury yields but we got a lot of that yesterday, lizzie. The tenure yields moved 10 basis points and the 30 year for a new high this year on a wave of government issuance we are going to get. Lizzy lets stay with the u. S. Economy but the latest date of that came in softer and reinforces the case for a fed pause. Jolts data showed job openings filed june nine point 6 million, the lowest level since april 2021. Meanwhile, the ism factor index contracted for ninth straight month. Jill, not a whole lot to ship the narrative here. Jill no, actually not. A lot of the jolts data reinforces what we know about this continued resilience for the labor market contributing to factors for a while we have pushed off a lot of the recession forecasts. The data, we saw that while hiring is falling, layoffs are also falling as well. It seems like employers are very reticent to lay off or get rid of the workers they have. They want to hold onto them. Ultimately, yes, it speaks to this continued picture of strong resilience within the labor markets. The minnesota fed president kashkari and others have said as the fed works to reduce inflation and tried to get back down to the 2 limit, they are necessarily going to see a update uptick in employment as labor pressure needs through. Resilience in the labor market is likely going to be a continued cooling in the next few months into next year but ultimately, i think we are seeing more data researching what we already know about the u. S. Economy right now. Lizzy valerie, we heard from austan goolsbee, chicago fred president fed president and raphael bostic. Did they give clues whether they will hike again in september . Valerie goolsby is one of the major dogs and did not want to precommit to september moves. His reasoning was a bit understandable. He is saying that we have in a false improvement before and he does not want to precommit given we have two inflation prints between now and the next fed meeting. That rationale does make sense. But he is known at the as the head of the doves. Even the dogs dont necessarily want to precommit to dogs dont want to precommit to going on pause. Raphael bostic is a nonvoter and urged more caution but said there has been significant progress on inflation. He wants the fed to be cautious, patient and resolute. He is not a voter but said he would grudgingly have supported the last rate hike. Perhaps that gives you a glimpse into how he is inking when september rolls around. Lizzy donald trump was indicted in washington on federal charges over his efforts to overturn the 2020 president ial election. This is the third medically explosive criminal prosecution of the former president. If trump stands accused of conspiracy today for the u. S. , to obstruct an official proceeding, and against the right to vote and have that vote counted. Each of those charges can carry penalties of as many as 20 years in prison. The former president has repeatedly denied wrongdoing. That is the politics. I want to look ahead to what else is coming up today. At 12 00 p. M. London time we get for our earnings. There will be a test of the credibility of a ferrari solidification strategy. At 1 30 p. M. It is the quarterly refunding announcement. Dealers expect u. S. Debt managers to lift coupon bearing debt sales across the yield curve. Monday as you were saying the treasury already boosted its estimate for fed borrowing for the job july through September Quarter which was a record. Finally at 10 30 p. M. , brazils Interest Rate decision that may finally start unwinding Monetary Policy. It is ironic that emerging markets have led the charge on hikes and now it seems leading the charge on cuts. Lots of positioning around the central bank turning the cycle. Do you reckon we could see a slide in the riau it is a bigger than expect to cut . Valerie that is what is on the markets mind at the moment. We did get the cut from the latin american central bank. Chile is a smaller company. Brazil is the important one today. There are a lot of hedge funds with big positioning with think that purcell could cut drastically today. Theres 25 basis points in the market is pricing in 50 points. The risk is if they do go ahead and switch to an easing cycle from perhaps they will not punish the currency. It did not happen with chile last week and perhaps brazil get away with a big cut today. Lizzy the aussie dollar had its worst day since march yesterday after the rba decision. Thank you to Valerie Tytel and jill disis for our morning roundtable. You can get stories to get your day going in todays addition of daybreak. Today, they lead on havens rising and fitchs downgrade of the u. S. Credit rating. Next, they say the boj is a long way from raising rates and finally, the oil jump after the big draw down u. S. Stockpiles. All that and more on the daybreak newsletter which terminal subscribers can find by going to dayb. Ron fitch cut in the u. S. Credit rating over worries about the nations budget deficits. We will bring you the latest Market Reaction. Plenty to discuss. I disagree with secretary of the treasury yellens notion that this was arbitrary. The fitch rating downgrade came as a surprise. The things that do surprise us a bit in terms of estimates. There is a governance problem, and that is truly a problem that we will face going forward. This comes at an economically sensitive time in the last thing that yellen needs but from a market perspective. The u. S. Economy continues to show resilience. I think markets will brush off. Lizzy those were bloomberg tv guests reacting to the u. S. Downgrade by fitch. Were going to stay on that story. Bloomberg mliv strategist Mark Cranfield joins us now. The irony is this gave treasuries a lift at first. How much do you the Market Reaction to echoed that of 2011 one s p downgraded the u. S. . Mark not too much. As far as a treasuries themselves are concerned, of course they depend more on the u. S. Data and what the fed is doing and other factors like that. We have a big jobs report coming out friday and the treasury markets will not want to do too much ahead of that. When you look at what fitch did today, it is a catchup trade because s p downgraded, dropped the aaa to a aa plus rating 12 years ago so fitch has been waiting for some time and crucially, what they have done here is they had them on watch negative and now they put them on to an unchanged status. That means that fitch is not going to do anything in the near future so the u. S. Is safe on that interview but it is a reminder that the fiscal situation in the u. S. Is not particularly good and we have another sign of that as well because the u. S. Treasury needs to increase its borrowing requirements. That is a shock to the treasury market although they handled it well anyway. The fallout from this is probably going to be relatively small in the bond market. We are seeing weakness in u. S. Equities today and a bit of a selloff in dollaryen which suggests there is a risk off mood across markets. That has got more to do with china. China are going to restrict the gaming usage of youngsters in the country which is bad for tech stocks in china. They were down today. Also, the fact that is it is august markets. We have had a good run in equities across the world in the beginning of august and there is a good excuse for people to pull back some risk here. Fitch is coincidental, but probably not the trigger for why markets are negative today. Lizzy what about the haven assets . You mentioned the yen. What about the swiss franc . Mark it would also benefit quite a bit today as well. And particularly the fact that we have had a ratings downgrade than one aaa country, people will be looking at the others. It is not unusual for us to get a whole sequence of sovereign downgrades. Once one goes, you get quite a few that follow. There are quite a few European Countries with aaa ratings who some people may say why did they still have those kind of ratings when the United States is already down to aa . You think of sweden and denmark as well. If investors start thinking there are more downgrades to come, in europe than this was frank will do extremely well because then this was frank memo would do well. The euro has a downside on that as well. Certainly, investors will be starting to think are there other nations around the world who might lose their aaa status as well . That is a pretty good question and there are a few even outside europe might be as risk as well. Let lizzy lets talk about the moves in oil, resuming its rally on indications of drawdown in inventories. What do you make of these moves . Will they last . Mark it is probably a oneoff thing, these big drug bounce drawdowns dont typically stay but it could be a positive that the market is rooting improving on oil. It is basically between 70 90 over a relatively long period. As far as asset classes, we need to see a break outside of that range before other people get worried. Interest rate markets will be the first ones to be taking those. If we go above 90 in oil that was part people worrying that inflation is coming back and Central Banks look at it again and the fed may rethink what path they will take from september onwards. At the moment, oil is still within that same range but if this does lead to a much stronger rally is in oil, the has people thinking that 100 are back on the table, that changes the picture a lots. For now, it is all pretty much contained. Lizzy we have a bot decision coming up tomorrow. How a boe decision coming up tomorrow. Mark traders are scaling back on the rate hikes by events. It was only six weeks ago that the market was pricing for 6. 25 of u. K. Rates. Now we are way, way back into the five percent range. The boe is probably going to go with 25 basis points. They need to do something but dont want to risk too much. The data is already be gaining to show beginning to show that inflation is coming down in the u. K. And the boe does not want to scare consumers too much , particularly after the Summer Holidays are out of the way. People have to cut back on their spending because mortgage payments are already high and going higher because of the lag effect. It could sound more dovish than people actually expect. Lizzy thanks to bloomberg mliv strategist Mark Cranfield. Plenty more ahead. This is bloomberg. Lizzy welcome back to bloomberg daybreak europe. Fitch has cut the u. S. Credit rating from a pristine aaa. Our markets reporter Valerie Tytel is here with more on the flight safety. Valerie the flight to safety, a lot of the happenings in the equity market should be say. The equity market is in the red. When you look at the market holistically, this is where the impact mostly is seen. You have as a futures down 0. 5 . Euro stoxx futures down 0. 7 . If we look at the traditional haven assets, there is not much of a move yet. I say yet because markets have just started trading here its in the london hour and the narrative can change quickly. Lets check in on how the dollar is faring. The dollar roughly flat. We have maybe a slight bid to the swissie which is stronger versus the u. S. Dollar by 0. 1 . Spot gold up 0. 2 . If i look at this and compare it to maybe what we would expect if we look at what happened in 2011 one s p downgraded the u. S. , this is not essentially the risk off mood that we got back then. The markets are quite team. Lets check on treasury market. Back in 2011 will make did get the s p downgraded, it was in the wake of the debt limit standoff and we saw a big move into treasuries with yields when lower. We are not seeing a lot of movement when on the treasury market. The biggest move on the front end with materials down to basis points but the 10 year yield is roughly unchanged. Lizzy thanks to bloombergs Valerie Tytel. Coming up, after fitch stripped the u. S. Of its aaa Credit Rating we will bring you the latest reactions and more next. This is bloomberg. announcer enough with the calorie counting, carb cutting, diet fatigue, and stress. Just taking one golo release capsule with three balanced meals a day has been clinically proven to repair metabolism, optimize insulin levels, and balance the hormones that make weight loss easy. Release works with your body, not against it, so you can put dieting behind you and go live your life. Head to golo. Com now to join the over 2 Million People who have found the right way to lose weight and get healthier with golo. Awww. Awww. Nope. Constant Contact delivers the Marketing Tools your Small Business needs to keep up, excel, and grow. Constant contact. Helping the small stand tall. Good morning this is bloomberg daybreak asia europe in london and these are the stories that you are waking up to. Fitch strips the u. S. Of its aaa Credit Rating exciting ballooning deficits and in erosion of governance. We will have equities selloff. It treasury secretary janet yellen blast the surprise decision calling it arbitrary and outdated. Plus donald trump charge, the former president is indicted in his efforts to overturn his the 2020 election, charges he is denied. We will bring you details. Good morning and welcome to wednesday, he could be forgiven for waking up and thinking it was a bit like 2011. Her member when the s p downgraded the u. S. , it triggered a selloff in risk assets around the world and more ironically whos to and investors sought out haven assets. If youre just waking up to the news that fitch has downgraded the u. S. For the First Time Since 1994 will see that initially pushed treasuries higher before the move stabilized leaving that to year yield down a basis point. U. S. Futures now pointing to a lower opening, the rally that drove the s p up almost 30 from its october lows taking a bit of a breather but jp morgans trading desk says it will be back. It seems the s p reasserting itself next month before climbing to an alltime high. In terms of other haven assets the yen is trading stronger against the dollar as is the swissie, gold is up to. We will break down those moves throughout the show. Lets get more on this downgraded with bloombergs jill, what are the details and what are the latest reactions . Ultimately what this comes down to is fitch saying it is an issue of some concerns of governance. That comes off the back of various debt talks that happened a couple months ago. It does feel a little weird for this kind of decision to happen to months out from one the debate over the debt ceiling was resolved but also what fitch is saying is they have some mediumterm outlook concerns about rising deficits, rising Government Debt. We just saw the treasury a couple days ago saying they were bringing their projections and the forecast for borrowing and what the july quarter looks like one trillion. That issue of rising Government Debt is underscoring this downgraded from fitch. Initially a bit of a shock but doesnt actually significantly change much for the u. S. . It does not really seem like it yet unless there is something we are missing. As you pointed out there has been some pretty muted Market Reaction aside from equities. If you look at the dollar it is still pretty steady there. Ultimately i think this is a lot of fitch saying things we have been talking about for many months. Years at this point so yes the government deficit is rising, you are looking at rising debt to gdp with that is also a consequence of the Government Spending more as we are getting past the postpandemic boom. We have seen what the recession forecasts have looked like, we have been pushing those back. We have seen a lot of resilience. Within the u. S. Economy right now off the back of this Government Spending, a lot of this is underscoring things that we already know about the u. S. Economy. I think several of the critics to this decision including Larry Summers and others have made those points. Ultimately it does seem like we are going to have to see some continued reaction and follow from this decision from fitch to see if that actually changes the needle watch beyond the initial shock of the reaction. Thank you for that update, i want to go now to tanya to see how asian markets are reacting. What is happening where you are . Like jill was saying we are seeing a little bit of that risk off sentiment bleed into the asian markets here. Asian equities broadly lower for the second day led by these declines in japan in the hong kong tech shares. I will take you into japan a little more with softbank breaking just a little while ago this mega conglomerate. It is potentially exploring some sort of ipo of its Semi Conductor unit, that could be at a valuation of north of 60 billion according to people familiar. We are still waiting for more details but there might be a potential roadshow in september and turning back to china, the news does not stop regarding stimulus. We have got authorities urging local governments to boost and continue to issue their local government bonds and that will help with the investment and infrastructure spending. We have seen a positive sound bite, positive drip feed of stimulus measures playing out since we got that news from the politburo. China equity bulls might still have to be more patient and historically august has been a rough month for the Greater China indices. Turning to currencies, as you mentioned the dollar is bouncing in and out of gains and losses. Particularly the aussie dollar and kiwi dollar are in the red. They are sinking, aussie dollar still declining after the reserve bank of australia decision yesterday and the kiwi dollar also lowered. Today there was unemployment data out showing that unemployment was at a twoyear high. A quick mention of jgb yields because we saw the boj come into the market on monday and that was around the. 60 percent yield at the 10 year and now we are around those levels so there may be a little dilemma they are weighing right now in japan. You mentioned the aussie dollar slide, you have to wonder whether the real could see something similar if it is more dovish than expected. Thank you for that update on asian markets. I want to continue the conversation about the u. S. Downgrade and look ahead to the bank of england decision tomorrow. Berenbergs senior economist, great to have you with us. Lets start with a credit downgrade. It janet yellen says it is arbitrary, update outdated. I could imagine if you were the u. S. Treasury to borrow a lot for various physical initiatives, it is never good when a Rating Agency says we dont like your debt is much as we use to. There is no risk whatsoever that the u. S. Would default and this is not with the conversation should focus on. The relevant point is whether or not u. S. Policy is on a sustainable path. The other question is no, Credit Ratings should reflect that. At the u. S. Is borrowing a lot these are inflationary policies. At some point spending needs to match. It does not need to happen yet the u. S. Enjoys an exorbitant privilege and gets away with a lot of fiscal nonsense but at some point bond market, credit agencies will say this needs to fall into balance. I think this is an early sign of what is to come if we see more inflation. Meanwhile here in the u. K. The office for budget responsibility says the u. K. Is more vulnerable than other advanced economies in terms of its public finances. Do you think that is too pessimistic, and whether others could see a downgrade like the u. S. . I would not be surprised if we see other downgrades, only on the basis that the u. S. Is the benchmark. It is the most safe debt in the world. It is partly the reason why gold does not trade like it use to and treasuries trade as if it is gold. In the case of the u. K. Almost a quarter of the debt is the inflation linked to. If they can get the inflation problem under control it is no worry if it doesnt that ratchets up borrowing costs for the u. K. Governments have bet on inflation at staying as low as the eye can see and have run up huge debts as a result. They have gotten away with a lot of fiscal nonsense. Now we have inflation, you have to set your fiscal policy on course. If the u. K. Is not at risk of default but it does have to fix its fiscal position at some point. There has been a debate about whether we have talked about this off air about whether the u. K. Government should have done more fiscally to help control that problem. Part of the inflation is a physical phenomenon. Actually a good part. During the pandemic economies dramatically cut their Production Supply and they supported demand at an ordinary level through things like the furlough scheme and stimulus checks. At that generated a huge imbalance between the demand and supply which needs to play out. Monetary policy accommodated it and now both policies are in reverse. Whether u. K. Differs from the u. S. Fiscal policy is contractionary in the u. K. Whereas in the u. S. It is moderately to the tune of half a percent of gdp per year. The fiscal authorities are to blame for the inflation just as much a Central Banks. Lets talk about the Central Bank Decision tomorrow. You are expecting a 25 basis point hike, rates peaking at five. 7 . So many of the Monetary Policy committee went for the 50 last time, unexpectedly. Not just the usual suspects. What about record high wage growth . I think the question is are wages leading inflation or are they lagging inflation. We have to ask a series of questions about how to understand that. It generally the wage price spiral occurs when excellent Inflation Expectations are elevated. And workers are in anticipation of future inflation and the net high inflation become selffulfilling. And then we just go again. What we actually see in the data, the bank of englands own survey suggests expectations are coming down fast, labor markets are loosening. At the number of unemployed workers is rising. It all points towards workers benefiting from tight labor markets, saying we want higher wage settlements to compensate for past income losses. But the Economic Conditions for wages to keep rising are not there. So with a lag i would expect wages to follow inflation down, just as they have followed inflation. Speaking on a balance we know that sarah bredon is going to replace as deputy governor, what is your reading of how she will affect the balance of the committee . At least early on you generally see that new member side with the governor. The question is what happens when you start to get close to what might be considered peak Interest Rates. These case for me would be we get 25 basis points this week, 25 in september and then they stop. There is a risk we get to 575 at the bank of englands reaction function is no longer a function of its three year forecast. What markets should look at is the threemonth month cpi forecast which is in the back of the Monetary Policy report. If data comes in above that than the bank of england will surprise markets just as it did in june, if data comes in line with that they will go 25 or pause. Briefly on that, that the ex fed chair doing this review. Should he introduce the dot plot for the boe . I would love to see the dot plots for the bank of england but what we need to keep in mind in markets is effective Interest Rate so the rates paid on actual credit, about half what Central Banks are. If central bank stop tightening now there is still de facto months of Monetary Policy tightening to come through. In the risk now of Monetary Policy accidents if we keep going. Potentially a suggestion that then it could make in that review, we keep an eye on it. Senior economist great happy with me at this early hour. Dont miss our coverage of the bank of englands policy decision at midday u. K. Time with the press conference 30 minutes later. Donald trump has been indicted on federal charges accused of a conspiracy to overturn the 2020 president ial election. The former u. S. President s third criminal indictment as he makes his latest run for the white house. He has repeatedly denied any wrongdoing and bloomberg has more from the federal courthouse in washington. The former president charged with four different counts including conspiracy to u. S. , conspiracy to obstruct an official proceeding, obstruction of and attempt to inch obstruct a proceeding and conspiracy against the right to vote and have that vote counted. Charges which convicted could carry 20 years in prison. As for what happens next the former president has been ordered to appear here in washington at this federal courthouse before the magistrate to thursday, august 3 at 4 p. M. Eastern time. It is also worth noting this is not the only legal challenge facing the former president , this is the second indictment federally he is facing. He was also indicted in relation to the classified documents case down in florida. Trial date for may 20 at 2024 has been set in that case. He was also indicted separately on state charges in new york in relation to hushmoney payments made to stormy daniels. We could see another indictment coming in the month of august, the District Attorney in georgia who has been investigating efforts to overturn the 2020 election result in that state has long said she plans to bring that indictment before september. At the legal challenges for the former president are mounting and we will await his appearance here in washington at the federal courthouse on thursday. Here with special counsel jack smith speaking at the department of justice on tuesday. It is described in the indictment, it was fueled by lies. Lies by the defendant, targeted at obstructing a bedrock function of the u. S. Government. In this case, my office will seek a speedy trial so that our evidence can be tested in court and judged by a jury of citizens. From washington bloomberg news. Lets take a look at some of the things markets are watching today. At 12 p. M. U. K. Time we are set to get fresh data on u. S. Mortgage applications. At 1 30 the u. S. Treasury will release its quarterly refunding plan set to show a rampup in issuance of longer dated securities, that is likely to stretch into next year forced by a rapidly deteriorating budget deficit. And it soaring Interest Rates. Earnings season rolls on with Semi Conductor Company Qualcomm do to report later in the u. S. And brazils central bank will deliver its latest Rate Decision at 10 30 u. K. Time. The bank cutting rates for the first time in three years. Coming up oil rallies after pointing to huge drawdowns in u. S. Inventories, we discussed next, this is bloomberg i need it cool at night. You trying to ice me out of the bed . Baby, only on game nights. You know you are retired right . Am i . Ya save up to 500 on the new sleep number® smart bed. Plus, free Home Delivery when you add an adjustable base. Shop now only at sleep number®. Welcome back to bloomberg day europe, oil has resumed a rally after an industry estimate pointed to a huge draw down in u. S. Inventories adding to signals that the market tightening. Joining me now to break down those moves is stephen, how does this fit into the larger global picture . First lets look at this drawdown in inventories in the u. S. The api is reporting according to bloomberg sources that there was basically if confirmed would be the biggest drop on a volume basis going back to 1982. That is huge and that draws into a larger picture that saudi arabia and opecplus had been Cutting Supply and they have been pushing down exports from their countries and tightening the market going into the second half of the year. Now that we are in the second half of the year, there has been this larger you but these cuts added up as they continue will reduce the amount of supply, especially as you see demand rise. The u. S. In the summer, it is driving season so we are seeing from this api numbers, gasoline inventories falling in the u. S. We are seeing gasoline prices rise around the world, as that supply tightens. It fits this picture that while for the first half of the year we were talking about this potential overhang of oil, that overhang is starting to disappear. And we are getting a bit of a tighter picture, and that is why oil has been trading up over the last few sessions. The narrative here is the chinese economic recovery, what is the markets view on Chinese Oil Demand . This goes two ways. The chinese picture is a little complicated because yes you are seeing this rebound in chinese crude imports. Especially last month when the numbers came out. It provided this bullish sentiment in the market because everyone is looking at china. They are a huge market in their demand was week last year because of strict covid policies and everyone expected a roaring comeback. But while these deliveries to china are increasing, we are seeing from the data we are pulling that a lot of these crude shipments and product shipments are going into inventories. That suggests that chinese oil and oil product demand for 2023 may be has already peaked. If that is the case than one of the bullish scenarios is sort of being taken out of the market. People are looking at china and what china does will have an enormous impact. If the demand for products is not there, if the economic recovery is stalling and that will take some of the wind out of the bullish sale for oil that i described previously. Which of course ties into when or whether we get a bazooka. Thank you for that update. Coming up the u. S. Says Antony Blinken has spoken with the president of and conveys support for democracy. It will bring you the latest after the military coup in the west africa nation, that is next. This is bloomberg. Welcome back to bloomberg daybreak europe, the u. S. Says secretary of state Antony Blinken has spoken with the president of niger conveyed his support for democracy. Several countries have been evacuating citizens after the military coup in the west africa nation. Joining me now is bloombergs africa correspondent. What are the latest developments on the situation in niger . Good morning, we did hear overnight from the u. S. Secretary of state that the state department is saying that Antony Blinken did speak with president mohamed, conveying the support for democracy. Still continuing to drive home that message that they want to see a return to Constitutional Order in the country, despite this and despite what we have seen over the past few days. Especially from the regional block of west african countries, financially squeezing the military leaders in niger. There still appears to be a doubling down of leaders, coup leaders in this country. We do you see an African Union we did see an African Union putting more sanctions on the country but coup leaders in niger and molly mali continuing to say any sort of intervention by leaders would be a declaration of war against these countries. So even though we are inching closer to these deadlines, it does not appear that there is a deescalation at any point in time of the situation. We did see a number of European Countries evacuating their citizens but still we are waiting to see any sort of development in terms of peace negotiations between a number of international countries. Who will likely be the biggest winners and losers from this . It might still be early to make any specific declaration at this point. I think what this crisis has brought to light is the role that france is playing in this region. Specifically in the zahara region and it is something they have made a priority about the past 10 years. There is a question about frances role, about emmanuel macrons specific strategy in africa. There are also questions about democracy and whether it continues to survive in this part of the world. In terms of economic questions, there was concern in particular about uranium. Niger in 2022 they were the worlds seventh are just uranium exporter. But we have heard within bloomberg is that there are no concerns about the specific minds operating in the country but what could potentially be put set back is the countries aspirations to produce and export oil. Potentially cold. I think when we talk about the humanitarian aspect of this this country relies on Financial Aid so we have already seen a number of countries cut back on their own Financial Aid or suspend them. The u. S. Notably has not done that. They have not declared this a coup because if they do, then the law would immediately trigger Financial Aid to be cut. We have to think about the humanitarian aspect, the economic aspect and what this means for the region as a whole. Thank you to bloombergs africa correspondent for the update on the situation in niger. We want to check in on the markets because we have had this downgrade from fitch of u. S. Credit, lets look at how it is affecting haven assets off the back of that downgrade. You are seeing the yen and the swiss franc trading higher against the dollar. Gold also up. My conclusion from our conversations this morning is that this is not 2011, like when s p downgraded the u. S. Then. This morning investors seem to be looking further ahead to the ecodata and that we have already had. In terms of treasuries the two year yield is down to basis points, the 10 year flat, we keep an eye on those markets. 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