guy: friday, 30th of june. halfway through the year and stocks are having a solid session. every sector in positive territory. the countdown starts right now. announcer: the countdown is on in europe. this is "bloomberg markets: european close" with guy johnson and alix steel. guy: equities are up by 1.25%. the stoxx 600 is having another solid session. it has been a wild, bumpy ride and difficult to navigate. a number of stocks of come

through it with shining, shining performances. melrose industries is one. it has had a solid run so far. technicians are getting worried. the semiconductor sector has been the star performer so far this year and arab has been no except -- and europe has been no exception. the technology stocks on both sides of the atlantic have been star performers. sonali: we have some star performers in the u.s. also. there is green almost everywhere. on the s&p, the bulls are out. you are looking at over 44,000. even with the 2-year yield that has risen to almost 4.88 this week. it is a little tapering today but a much higher level than we have seen in many weeks. i wanted to touch on goal because you have seen a lot of

gold bugs out lately. it is almost a hedge against the market exuberance worried about a recession. it is just above 1900. that's see if it stays at those levels. i want to touch on so five technologies -- sofi technologies. it got a rise on the heels of the decisions about president biden >> action -- president biden's actions to bring low relief but that has been disputed. lenders in the country. there will be a lot of eyes on that stock throughout the day. guy: i am surprised today has not been more about the data we have seen. with everything else going on, you can understand why. the inflation data on both sides of the atlantic are painting and fascinating picture. in europe, it has been about headline versus core and the dispersion around europe. the core numbers are what really

matters but these are the headlines. take a look at spain. from 2.9% to 1.6%. a real slide. italy from 8% to 6.7%. in germany, 6.3% to six point 8%. there are some quirks that may wash out next time. the problem is that the core inflation number has remained very sticky. it went up. that has been the narrative over the first half of the year that has confounded so many people, how sticky core inflation has been. sonali: certainly a lot of surprises to the market. this brings us to the question. do you make a half-time adjustment? when we think about this idea that the market has really fought this idea of higher inflation and higher rates for so long, when you think about what is ahead, even with sticky

inflation, do we see this idea that there is somehow a pullback at bay? >> this is the time for the vehicle -- the mea culpa. it is time to look at your game plan and adjust it accordingly and ties to two big themes. where do you think the fed or ecb where major central banks are going? things are really complex because they are different falls to that. and economic recovery out of china plays a big role in how we view stocks and commodities, particularly in this region. we are talking about luxuries and a trading partner with europe. if your thesis is that china's recovery will not be as robust as we thought, or if it is that he fed will cut rates or continue to raise rates, you have to adjust the portfolio a lot more aggressive. guy: you have some pretty big

calls at the beginning of the year. some have not worked out. let's talk about why and what the tells us about the second half. >> hello guys. the thinking was that the euro and pound would strengthen and that is what we are seeing at the moment. what has not gone so well is the yen because the bank of japan continues to put captures in captivity. as long as the bank of japan says we will not treat control, and you should at 2% is here, i think the yen will underperform. no mistake because the yen is moving in line with the fundament there. the call is about whether the boj will move on its curb control. if they move, the yen will push higher as well. there is no question about it. ironically, if the yen continues to all -- the ministry of

finance is ansi about a -- is antsy about a weaker yen. we may see the boj bite the bullet. sonali: i am glad you brought up the yen because there are lots of questions about relative moves in the market, not just absolute you -- moves. when you take a look at the market, what looks crowded and what looks offsides heading into the second half of the? >> at the start of the year, we had a pretty good management which was that inflation would collapse to 2%, bring down inflation, and the fed would start cutting rates. right now, inflation is sticky. the economy and the jobs market in the u.s. is proving to be read yet. he fed is still on a hiking mode. the same goes for the ecb, and to an greater extent -- a

greater extent, the boe. for the spreads that we are looking at, i think they are pretty expensive. i think they will narrow as well. that is how you want to position your portfolio. guy: let's talk about timing. you can get the call right but if you get the timing wrong, you are off. the first half has felt like we got the timing wrong. like maybe the recession comes in the second half or 2024. but these haven't happened in the first half. why did we get the timing wrong? >> the banking crisis. oh my god. svb was a big thing for us. one of the oldest things in markets was that, if banks are going higher, banks are

definitely the haven. a lot of strategists got that wrong. i don't think you could have predicted sda fall for svb as we saw. it was deep, drastic, and the kind of crisis that got people thinking, are we back in the financial crisis. luckily, we were not. we are better than we were in march. he also have the war in ukraine. guy: china did not happen the way everyone expected. sonali: no -- >> no. we have seen fixed income in much stronger than the markets expects and that is the biggest risk. the pboc has been largely dormant, especially with covid, but we are seeing this come up but the markets are pushing back because we are not sure how robust the economic recovery is. you have to pmi data. manufacturing did not come up as much as we wanted.

that prompt of expectations. all they have to step up there stimulus? that got optimism in the markets which is a very calm elated -- a very convoluted way. if you look at me last year, gold was something i was pessimistic about. it has held up better than i anticipated. but i am doubling down. i think gold is not behaving the way we think it is. sonali: you talk about svb but it is incredible the stunning rise you have seen in the s&p 500 over the last two quarters. it percent in the second quarter. even with the bank crises, what has got to give? >> a lot. if you look at the 60/40 portfolio, one is not telling the right thing. we have looked at this diversification as the go to for market volatility but right now,

bonds and stocks are telling opposite things. bond traders have always predicted recessions before they happened. stocks seem to be a lot more buoyant, especially on the speculation the fed has to ease slower than the market is anticipating. who is right? the stocks or the bonds? guy: great stuff. nour al ali and ven ram, thank you very much. coming up, do you make a half-time adjustment? we are going to hear from the bank of america head of european equity strategy. this is bloomberg. ♪

>> -- this market is sobering so

again. this market is just moving on economic data and does not take into account the fact inflation is still a center bond target or the fed does not stop hiking. where the ecb saying there is more to do. guy: claudia, you be as equity strategy --ubs head of equity strategy speaking to us yesterday. question of the day. do you make a half-time adjustment? joining us is sebastian raedler. are you going to be right in the second half? do you make a half-time adjustment? sebastian: on the question of, are we going to be right, i hope so. second, we do not make an adjustment. we see the same fundamentals. credit is already so weak. why is the economy holding up?

in your area, growth was weakening very sharply. christine lagarde was mentioning this. in china, we have gone from sizzling to fizzling. the u.s. is still strong because the credit side is weak but fiscal policy is offsetting that for now. sonali: what happens in the second half when it comes to the rate side you are looking at at the ecb with euro inflation and the pmi? what is the relative story? sebastian: it depends relative what to what. if you say what is the relative story, european growth is weakening and the u.s. is still holding up. we think both will begin in the second half and that is bad for european equities because they are more cyclical. if you think of central banks -- this is been the story for the whole year. what is for a problem? high inflation or central growth? at the moment, they are focused on high inflation.

we think they will shift to growth in the second half. guy: as a portfolio growth manager, i have been cautious in the first half and underperformed. what do i do now? sebastian: the story is weaker growth and inflation. at the moment, risk markets are extremely tied. records in the u.s. are at the lowest level since 2004. within 100 basis points of the 15 yellow. if growth weekends, risk premium will move wider. this means equities lower, cyclicals on the defensive. you want to be far away from financials and go into the hiding places. food and beverages. sonali: i am wondering how deeply you get defensive? would you recommend you even go short at this point, or do you buy volatility? sebastian: i would absolutely recommend going short.

our predictions so the equity market in europe has effectively flatlined. it has flatlined since february because growth has already weekend. we see around 50% downside for the stoxx 600 into yen. what i go short? absolutely. guy: will you stake short on european stocks of china comes out with a big stimulus package? sebastian: i think that then we need to reconsider because that is the big question. is there a further tightening of credit conditions? a weakening of the credit cycle? you are at the end of the year and have the peak credit track. the u.s. has rebounded. it's strongest physical rebound in 20 years since the pandemic. that has safety for now. is any policy stimulus comes along, we would have to reconsider but that is not on the cards for now. guy: how badly things get here?

you keep talking about the red herring. do you think it gets bad enough or more people to step in? sebastian: but i am saying is, given all the stimulus packages you put through earlier this year, the ira, the infrastructure act and chips act, they are now making the impact felt. the treasury is telling us they have given out subsidies and the pickup has been are sharper than expected. it is effectively the impact of stimulus packages you had earlier. don't think anyone is thinking of any new stimulus, given how strong the economy is. for us to see anymore new stimulus, we would have to see economic this. guy: what is the trade if this goes wrong? sebastian: i don't think there are a lot of crowded trains because people are confused and see a lot of -- trades because people are confused and see a

lot. that being said, and a lot of our clients hold european financials will do well because the ecb is hiking. with growth risks and risk premiums moving wider, european banks will be a clear underperformer. sonali: it is interesting to think of european banks as the underperformer. how bad is the decline get? you look at the eu and the u.s. and there was supposed to be -- that was never felt properly. sebastian: clients could see the credit crunch on the horizon and already started being nervous about financials. if you say, how bad can it? we expect credit to widen by to basis points which is effectively the best estimate for risk premiums. it can easily underperform another 15 basis points. guy: do not chase the rally, do not buy the dip? sebastian: correct.

guy: if the market does sell off and gets bad, what would encourage you to think, actually, there is an opportunity here. what do we need to see? sebastian: we are looking forward for there to be a pullback. we think there will be a buying opportunity but only once they have fully digested the basis point increase. what we need to see his clear signs that's all of this is fully digested, given that we have not -- is clear signs that all of this is digested fully, given we have not seen a change. we think there will be a trough in the macro cycle late this year or early next year. then the clear cycle of growth is the trough starting to rebound. sonali: you cannot have been clearer. that is sebastian raedler, bank of america head of european

equity strategy. we are turning to protest turning violent in france, following the police shooting of a teenager. this is bloomberg. ♪

guy: more violence in france. hundreds were arrested. it was the third night of protests across the country, following the police killing of a teenager. president emmanuel macron left a meeting in brussels and had to head home to hold crisis talks. this as the government considers declaring a state of emergency. let's go to paris. our bureau chief alexander -- alan joins us. we have seen the pictures. can you describe the reality of what errors is like as we work

our way through these protests? >> central paris is mostly calm. there were one or two stores that were looted last night. but generally, these protests, like some that have preceded it are happening in summer of paris and other cities. these are protests that are in part about economic exclusion and part about perceptions of racism in police. the protests happened largely in neighborhoods that are either majority descendants of immigrants from north africa, or central africa. it tends to not be in central paris. the protests have become stronger over the three nights they haven't. there has been more people on the streets and a bigger police response. it does not look like things are declining, certainly not yet. they are expected to go on for

several more nights. they have been mainly at night, after dark which is roughly from 11:00 p.m. until 4:00 in the morning. sonali: you kind of started to talk about the range of troubles that brewed protests earlier in the year for different economic reasons. and now these concerns about racism and police force. what does this mean for paris, emmanuel macron, and the relationship between the people and the government? alan: it is different. the protests earlier this year were against retirement reform. that was a pretty broad-based opposition to increasing the retirement age to 64 from 62. it was mostly calm and not this real anger that -- anger you get . you have had riots in sweden and

in the u.s. over racism issues. france is a difficult country to talk about because they refused to collect data over race. it is hard to describe it. but france, like any other multiethnic country, has racism. violence you are seeing is something that has been an issue in france for decades, which is the exclusion of french-born children and grandchildren of emigrants mainly from north africa, and how they have been excluded from french economic life largely based on who they are and where they come from. guy: how is the right responding to this? alan: as you might expect, initially there was a big effort to blame nahel, the teenager who was killed by the police officer. to say he is a bad kid and has a

long police record. that has not held up. police officer has been charged with murder and is being held in pretrial detention. much more of it is about the violence and this is terrible, and there is no justification ever for violence now. and that the people committing violence are attacking the french state and institution. as usual, they are trying to find a group to demonize. demonizing the victim did not work out very well so they are looking for other groups. guy: thank you very much. alan katz, our paris bureau chief. we are heading into the close. european equities are near session highs. it just takes a little off the session highs. it has been a solid week for european equities. i will show at the numbers look like in a moment.

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guy: we are wrapping up the session and week in europe. we are searching into the end of the week. it has been a really solid week. what we have seen today is the cac up by 1.3% and the dac up by 1.3%. a solid session. almost every single sector is in positive territory. but you so that show you the session how it has developed -- let me show you the session how it has developed. it has been a quiet start but an incremental slow build toward sendo that has taken us up nearly 2% over the last few days -- toward a crescendo that has taken us up nearly 2% over the

last few days. the market has come back strongly. let's talk about the sector story to give an idea of what has happened. this is the last five days. thanks are the outperformer's. read tell and cars have done well. the only sector in the negative is the health care sector. the defensive end of the market -- the staple and a of the markets has underperformed which tells you the risk or narrative have seen. thanks are the outperformers. all three stocks are in negative territory. iag. i use this as a vehicle to tell a story about heathrow, the big dominant user of terminal five at heathrow is owned by iag. there is a new coo coming to heathrow. will that represents a reset between the relationship of the

-- represent a reset between the relationship of the airport in the airline? we have moved on quickly. i was going to show other stocks but i am being told i have to move on. next week, monday, we get manufacturing pmi data. tuesday, the reserve bank of australia decision which caught us by surprise. wednesday, opec. it is a sensational story at the moment. germany factory orders will come through by the end of the week. then, the aix-en-provence economic form taking place. we have great guests lined up from there. sonali, next week will be an interesting one. we have also had inflation data. plus we need to think about what

the second half of the year is going to look like. sonali: that is right. it is the start of the second half after a big first half. it brings us to the question of the day. do you make a half-time adjustment? joining us is melanie. you think about just how exuberant the first half has been relative to all the best -- bad news that has been expected, how do you see adjustments being made to cater to the second half of this? melanie: at this point, the first half was better than expected but it was so in a technical recession, having contracted 1.1 percent in q4 and q1. incoming surveys have started to weekend, in line with -- to weaken, in line with the economy, fearing recession will

be exceptionally weak. surveys are coming our way, pointing to continued weakness in the arizona colony for his coming quarters. guy: in the first half of the year, we have seen very sticky core inflation. do we see that in the second half of the year? melanie: core inflation rose in june which is the biggest story today. he headline inflation came down despite the increase. that increase was driven by base effects related to services in germany. this factor will keep the core rate quite elevated for the coming two months. we expect it will stay around the 5.3% mark until august. but then the tide will turn. not energy dense inflation is weakening so we expect the core rate to come down quite sharply after august.

sonali: how do you think about the direction of travel for rates, given where inflation is? is there any potential risk of more upside than the market is expecting? melanie: definitely. at this point, the ecb has all but promised a july rate hike. given that inflation has averaged --, it will go ahead with the hike. the? is over september. given recent speak out of since, we expect the ecb will go again. and given they are focusing on this unit labor cost, which will continue to rise, the risk is clearly toward further hikes come q4. guy: what happens if the pboc, the chinese authorities, deliver massive stimulus in the second half of this year? will that mean the ecb has to remain hawkish for longer?

how will that change the narrative? the first half of the year, we thought the chinese economy was going to roar but it fizzle. if they rally in the second half, how does that change? melanie: if they pick up speed, it is supporting disinflation. it will not change the outlook for inflation in the euro zone unless there is a stark pickup in chinese demand for natural gas. at this point, natural gas price features already point to increasing gas prices because demand will increase as european governments again try to refill the gas storage is. the storage we saw last year which led to the sharp increase of prices. if we see chinese demand for natural gas picks up really sharply, then there is a risk of upside and energy inflation in

the eurozone. but the base effects should continue to offset this for the remainder of the year. we do not think a chinese rebound or pickup in chinese growth will be inflationary for the eurozone. sonali: when you think about the inflation story in europe, how much is there more ability to keep passing on prices? worldwide, there is a question about margins coming under further pressure because of a lack of ability to keep going. melanie: we have been seeing a lot in surveys, particularly within manufacturing. firms are seeing a very sharp fall in their input costs. these stocks are pushing through those stock prices that start increased prices is why we are seeing disinflation on goods. but on services, we are not seen that yet. although services have also seen bills come down, they are

getting higher wage demand so workers are requiring higher wages and still seeing high input costs and are trying to push those onto customers. that is the biggest risk to the inflation outlook in the moment. guy: what surprise do the most in the first half? what did you not expect that we have seen? melanie: in the first half, the biggest surprise was the resilience of the economy. for us, we are seeing rollover in the money data which meant consumers were pulling out their deposits very quickly. although some of it was to move them into longer dated deposits, that is usually a sign that precedes every session in the eurozone. resilience has come as the biggest surprise. sonali: how much tighter to financial conditions get from here, given things may need to be tighter than expected? melanie: if the ecb continues to

tighten, then financial situations will -- financial conditions will continue to tighten further. we have already seen higher interest rates for those requesting a new mortgage or a new mortgage or new loan. they have also tightened criteria standards. if there is a continued squeeze on bank margins, which looks likely, they will continue to do this. basically passing on the heart to the consumer, which in effect, is how the ecb will manage to lower aggregate demand in the economy. it has acknowledged for a very long time that were inflation to come down , the economic data has to slow. guy: thank you very much indeed. melanie debono. european markets are now close for the week. and little tick lower towards the end of the day.

so a positive session for the ftse, dax and cac. we will turn to sonali's favorite session that subject. big banks. we will take all things banking with aaron klein, workings senior fellow in economic studies and deputy assistant secretary of the u.s. treasury. this is bloomberg. ♪ wouldn't qualify for an erc tax refund. you should get a second opinion from innovation refunds at no upfront cost. sometimes you need a second opinion. all these walls gotta go! ah ah ah! i'd love a second opinion. take the first step to see if your small business qualifies.

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constant contact delivers the marketing tools your small business needs to keep up, excel, and grow. constant contact. helping the small stand tall. >> christina hooper, invesco teeth global market stst joins bloomberg tv at 1:30 p.m., new york time. this is bloomberg. the biggest of u.s. banks will be allowed to resume dividend payments and share buybacks. we expect announcements today as long as they passed the federal reserve stress test, as they all did.

joining us now is aaron klein, brookings senior fellow in economic studies and the former deputy assistant secretary to the u.s. treasury. when you look at the bank stress test, they all passed, including failed banks like credit suisse. there is question about whether the stress tests are doing what they are supposed to and whether there will be more comfort in big banks loosening capital return when people are worried about the economy. aaron: aaron: the fed has doubled down on stress tests even when they have not worked. they made mistakes. at silicon valley bank. stress test for years and not include a sharp hike in interest rate scenarios which is what brought them down. so did first republic. there are lots of different ways to do it, simple to more complex. the fed seems to favor more

complex rules. and to be guided by the common test results, sometimes despite common sense. believe the model over your eyes sometimes as part of the problem. guy: we are in a situation where stress test tell us the big banks do not need extra capital, yet we are going to see policies kick in that will require extra capital. which situation do you think is right? aaron: i think you have to ask what is the core problem? is it that banks are too undercapitalized or that we are not measuring the right risks and right amount of capital or that with the amount of banks that fail, we do not have a sense of how to deal with it? in the case of svb e, regulators panicked and reversed themselves. they said it was not systemic before and when it came time to let it though, they got too afraid. regulators need to the more

carefully about how they can let something fail than to try to devise in since -- devise a system in which nothing will fail. because ultimately it will happen and you cannot go back and keep saying, we will make the task better. sonali: there are the tests themselves but another issue that the arguments you can make is the system incentivizes some problems we have seen brewing in the regional banks system. particularly the idea that the fhl bank borrowings have more than double from more than 80 banks in the country. and to this idea that some of this lending has been incentivized by the structures of the system. what do you think? aaron: i think that is entirely true. the home loan bank system you referred to -- silicon valley bank went from zero to the number one borrower. number two was first republic.

we have an overreliance on that system for a small number of institutions without regulatory oversight and scrutiny. when the crisis happens, a lot of folks fled to the homegrown system and there is value there. when you start looking at institutions that are more problematic, they are leaning into the home bank system well before the problem. that is what we saw with washington mutual and bank of america in 2008. then we saw it again with silicon valley bank and first republic. regulators are not leaning in to address these issues say we will make a better test -- a better stress test. sonali: do you think they should? when it comes to fhl officials, they to be paid as federal officials instead of bank officials? aaron: it is not. i think the federal reserve regional banks is a model for

them. i think it is higher for government employees but far less than what they are earning. it incentivizes the homegrown bank to go bigger. that is not in the best interest of the economy. sonali: switching interests. had president biden and the scope of his conversation around biting -- bideomics. is this a realistic place to go for the biden administration, given the push back something ranks have given about the idea of overdraft protection actually helping? aaron: is a huge success. both -- aaron co. this is a huge success. they voluntarily change their overdraft policies in ways that should have returned $5 billion a year or more according to consumers and my estimates.

when you are looking at a billion dollars a year from some of the largest institutions going back into the pockets of people working paycheck-to-paycheck. there was no new law or regulation. the biden administration talks a good game. ultimately, the industry change its policies in ways that will make the system far more fair for working people. guy: we are an a situation -- in a situation where the industry can self regulate but needs help in other areas. the different cap scales -- banks obviously have different regulations and to different kinds of help. how far away are we from a regulatory structure that is more tailored to individual banks, that allows individual banks to exist and have different business models? and to be managed on a case-by-case basis. it feels like we are in a world of one-size-fits-all or at least in brackets "one-size-fits-all."

how far we ate -- we from being able to tailor where we are? aaron: it is good if you tailor the measurements right. i do not think we are a one-size-fits-all. there is small, medium, large, triple xl and more. you want some tailoring but on the other hand, there are practices banks have gone into. i have gone into a few small banks that are overdraft giants. some tailoring may mean regulatory relief. but in my world, where i think regulators had more cars to go after bad practices, some of the tailored regulation would be very challenging for a few banks. particularly smaller ones that are drifting far from their core mission of banking and are just feed generating machines. sonali: it is interesting.

there is a question of what fees look like for the regional banking system going forward. how concerned are you about the system moving forward as these perennial issues really start to compound? aaron: i think regional banks are better off than people appreciate. slick on vale was not a regional bank. it had -- four branches. silicon valley had four. first republic had under 100 branches. he dealt with venture capital and uber wealthy people. americans want 44 hundred banks. we need to keep it simple with diversity and size and baking -- they verse the in size and banking. guy: i expect sonali: to continue this conversation all afternoon. we are going to wrap it there.

aaron klein, brookings senior fellow. this is bloomberg. ♪

sonali: we might be off the session highs but stocks are still up. we are looking at tables out to play. abigail doolittle is checking moves. abigail: a lot has to do without both. initially i was going to put in a one-week board but apple is up for the seventh straight week in a row, the longest streak since july 2021. why not look at all? 11.21%. apple went above the $3 trillion market cap spot. one of the biggest -- the biggest company in the world. the first company to do that.

but in terms of the illustrious business, the balance sheet. that is not the story of the quarter. let's take a look at the quarter for stocks. there is the nasdaq of 15%. the russell, even though lacking, is up 5%. the bigger story is the 2-year yield backing up to 4.86, looking right past silicon valley bank and the regional bank turmoil. crude oil is not participating. there is a mixed message because crude oil, and risk asset, not agreeing with stock investors' assessments of what is ahead. we are looking at the record of the best to have for the nasdaq 100 ever. it is gaining 38.6%. the rest of the bars are annual so the nasdaq 100 is better than it does most years and we are

only halfway through. but let's bring oil back into the picture because we are seeing an interesting divergence on the year that should be worried some to investors if you look at -- worrisome to investors if you look at the past. here is the bloomberg commodity and that, down 13.16%. in the past, commodities tend to lead and there is a lot of sensitivity to be fed interest rate policy. the hiking will be interesting. guy: this encapsulates the first half. thank you very much. abigail doolittle. we are understanding even will announce to access to protect student loan borrowers after the supreme court tossed out his relief plan. you will speak later. coming up, the raise capital general partner joins us with ed ludlow. this is bloomberg.

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>> from the heart of where innovation, money, and power collide, in silicon valley and beyond, this is "bloomberg technology" with caroline hyde and ed ludlow. ed: i'm ed ludlow here in san francisco. caroline hyde is off today. this is "bloomberg technology." coming up on the program, apple hits a $3 trillion valuation. we we close above that milestone? remains to be seen. the ceo of inflection ai discusses his company after raising a whopping two