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This is the Bloomberg Daybreakerate podcast. Good Morning, It's Finday the twenty second of May. I'm Caline Hepgitt in London. Coming up today, The Iran war upends inflation beds, as one analyst warns, the whole Moves closure threatens a recession rivaling two thousand and eight. European growth buckles under the weight of the war as energy costs surge. Plus why global aid cuts could be making the growing Ebola crisis in Africa worse. Let's start with a roundup of our
top stories. The US war in Iran is triggering another wave of price hikes across a global economy that has barely recovered from the last inflation shock. Investors are also starting to worry about the implications for the more than fifty trillion dollar market for G seven sovereign bombs. Bloomberg Economics says that the oil shot caused by the closure of the Strait of Homers is ending the global trend of disinflation. Higher crude gas and shipping costs are lifting
prices across major economies. The impact is clearest in North America and in Europe. USCPI is moving back towards four percent, while inflation in the Euro Area has risen by around one percentage point. Ali Dorweller is cocio at Rock Creek.
The risks just keep multiplying in terms of what investors have to think about and interest rates, consumer sentiment, what is driving inflation. If we don't have some resolution in terms of energy prices, we think all of that will continue to be an increased risk to portfolios and it will mean more bond volatility, which I think investors have now gotten used to.
Ali Dorweller, speaking there as rapid Down Energy, has warned that a closure of the Strait of Houmers until the end of August would raise the risk of an economic downturn approaching the scale of the two thousand and eight Great Recession. In its latest note, Rapidan said that if the waterway remains shut until August, it would deepen the third quarter supply deficit to roughly six million bars of
oil a day. Now, the EU is slashing its growth forecasts as the scale of the fallout from Iran becomes clearer. The Block now expects Euro Area GDP to increase zero point nine percent this year. That's compared to one point four percent last year. Economy Commission at Valdis Dombrovskis says both growth and inflation are going in the wrong direction.
In basically conforms to esawcoming, which is stokeflationary shocked to European economy, meaning simultaneous slow down of economic growth and increase in inflation.
Don Brovskis adds if energy prices stay higher for longer, growth prospects for the EU will be roughly halved both this year and next year. The Commission has called for restraint from European countries despite the downturn, fearing a breach of their fiscal rules. Confidence among the lowest earning Britains plunged in May as the Iran energy shot reaches household budgets. GfK's consumer spending INDEGS shows those at the bottom are pulling back from purchases even before the worst of the
shock actually arrives. Chancellor of chel Reeves set out a number of measures to try to ease the cost of living crisis.
First of all, we have extended the freeze on fuel duty until at least the end of this year. I understand how concern families and businesses are at the moment about the implications of the conflict in the Middle East. This is not a war that we started.
I've been very.
Open in my views that this war was a mistake. But regardless of that, it is having an impact on people here in the UK.
But the Chancellor has ruled out universal energy bills support in the announcement that she made yesterday. Both Reeves and her Prime Minister Kirs Armer have been trying to convey a sense of business as usual despite the leadership battle with Andy Burnham. Iran says that there has been progress in talks with the US, but the country is also trying to set up a permanent toll in the Strait
of Hormuz. The semi official Iranian Students news agency reported the latest peace proposal from the US has narrowed the gap between the two sides, but a Bloomberg interview with the Iranian ambassador to France revealed that the country was in talks with Oman about setting up a toll system in the strait. US Section of State Marco Rubio says that would not be feasible.
We were in China last week. We mentioned this about the tolling there against it. No one in the world is in favor of a tolling system.
It can't happen.
It would be unacceptable, would make a diplomatic deal unfeasible if they were to continue to pursue that. It's a threat to the world that they were trying to do that.
The conflicting statements on the two sides make it unclear if they are actually any closer to a deal. Oil prices are consistently trading above one hundred dollars a bow as the world's buffers of reserves shrink rapidly. President Trump says that the US will deploy an additional five thousand troops to Poland, reversing plans to suspend deployment to the country. He announced the news via social media yesterday, citing the
election of nationalists Carol Navrocki as Poland's president. The decision marks an abrupt u turn a week after the Pentagon paused plans to send about four thousand soldiers to Poland, even though some were already en route. Vita ni Leo Shiny, who is the ambassador of the European Union to the United States, urged the White House to uphold its commitments to NATO.
The President request that in European countries and European Alliance allies in the NATO do their part. We are following it through. So I do believe that you know the strategic part which US presence in the in Europe is as well, probably the expectation that the members tips fairly have.
That was the EU ambassador to the US, Jovita and Nelio Shiny, speaking there. The US president also earlier threatened to pull troops from Germany and suggested that a broader draw down of US forces in Europe after a feud with other NATO nations over their refusal to help in the Iran War. Ukraine and its allies are increasingly confident that Russia's invasion is losing steam. The country's growing effectiveness at deploying drones capable of inflicting heavy Russian troop losses
is being matched by strikes deep inside Russia. This, alongside an economic slowdown and internet restrictions, is stoking domestic criticism of Russian President Vlasimir Putin. BlueBag understands that some Kremlin officials believe that the conflict has reached a dead end with no clear resolution. The news comes as the US Defense Agency found a Ukrainian offensive earlier this year retook about four hundred square kilometers from Russia after thousands of
Starlink Internet terminals operated by Putin's forces were deactivated. So those are our top stories for you this morning. Let's get to the markets. So in terms of stocks, we see a big rally in Asia. The MCI Asia Pacific indexes up at one percent, so continuing games that we saw yesterday, the Nike jumps by two point seven percent. Worth noting a couple of individual stock moves, soft bank surging in Japan, Lenovo climbing to a twenty six year high in Hong Kong. Stop futures for Europe and the
US also very positive one percent. Half of the US SOX fifty futures this after bent crewed futures have rebounded one point seven percent, trading at one hundred and four dollars thirty. Gold is edging lowre this morning, three tenths of one percent. TENNY US Treasury yeels down at basis point at four point fifty six this hour. Those are
the markets now. In a moment, we're going to bring you more on whether investors no longer see inflation as temporary after these crisis well in the Middle East, but also COVID and the efforts to contain the deadly Ebola outbreak. We'll be bringing you more on that. But another story has caught my eye this morning. Bike lanes with miniature green areas. They're popping up all over cities everywhere, it seems.
I wonder whether you've noticed them. These green verges that incorporate cycle paths help cities with flood protection, also wildlife protection in this era of climate change. It's also because of tight budgets, cities can use these multi purpose sort of designs in cities and pull funding from different pots
to pay for them. Blomberg's Laura Laker has been writing about their use in one city in Wales and Cardiff, about how some otters apparently have moved into a section of this sort of greenery along the canal in Cardiff, and that that footage really sent this kind of ripple of excitement across the city about it. I love this story. I get why people see these patches of greenery as
something good. You know, it's about sustainable drainage for cities to try to lower temperatures, especially as you know London's going to head into this heat wave over the weekend. Esthetically, though I have some doubts they can kind of end
up just running wild. They're expensive to maintain, and I do think that there's a danger of councils adding up these tiny areas of square footage into one big number, making it sound like, you know, the greenery, maybe the size of a park, when of course it isn't a new park. But I thought that discussion, which has been massively contentious in so many places, is very interesting. We're going to put a link to it in our podcast
show notes for you to learn more about it. Now to the bond market's next by way of Oscar Wild's famous quote, to lose one parent, mister worthing may be regarded as misfortune. To lose both looks like carelessness. While investors seem to feel that way about inflation. One episode in the twenty twenties may be misfortune, but two could be a bad trend, and it is upending and threatening to upend the fifty trillion dollar plus market for sovereign
bonds across g seven countries. Our Bloomberg economic reporter Mark Schrewers is in Frankfurt and joins us to discuss. Good morning, Mark, I hope you don't mind my little diversion into the literary world to talk about bond yields. How much have bond yields moved due to the war in Iran and also concerns about another energy price shock.
Yeah, good morning from Frankfurt. We indeed saw quite some movement in bondmarks in recent days and weeks, and boring casts are searching globally. Are also among the Group of Seven countries or the major economies, they have reached the many cases levels we haven't seen since the financial crisis, in some case not even since the nineteen nineties. I think we need to separate issues here. One is the more short term, the other is the more medium to
longer term. In the short term, we have the US war on Iran that has triggered a search and an energy costs and is pushing inflation up globally, and given the back and forth between the US and in Iran, it's likely that the conflict will last longer and keep inflation higher for longer. On the other hand, we have
more medium to longer term factors. Investors are starting to worry that inflation, higher inflation is here to stay, and indeed, there are some good reasons to believe that the future will bring more volatile and probably also higher inflation, more frequent supply shocks. You need to remember that the one we see at the moment is only happening four years after the last one, and commodity price shots have been
the biggest drive of global inflation historically. And on the other hand, there are some big structural changes in the global economy that could lead to more inflation, volatile and higher price pressures in the future, and investors one compensation for that. Yeah.
Okay, So then in terms of the sort of main reasons, I mean you started to outline them a bit there. What are the main reasons that markets may expect higher inflation in the future, maybe even structurally higher inflation actually going forwards?
Yeah, I would say there are quite a number of factors that play here, and many present a kind of reversal of turns we saw in the past when it kept inflation lower pre pandemic. For example, we have the le globalization, so that means geopolitical tangions and fragmentation, disrupting global supply chains, rising cars and it will take It
will take time for companies to adjust. We have demographics, so the supply of labor is declining with the ongoing aging, with the aging of societies, and that will likely increase wage pressures we have there So rising dead levels, not least public debt levels could also generate a kind of inflation bias, also because it could prevent central banks from hiking rates as needed, and also other factors that play decombanization.
For example, I would say, to be fair, there are also other factors like AI, whether the jury is still out, and whether it will be inflationary or disinflationary. But bottom line, I would say there are quite a number of reasons to believe in or expect higher inflation in the future.
Yes, that maybe we'll be going in you know that, maybe we're entering a whole new area. Well, how will central banks react?
That's the one billion dollar question. What will center banks do? What will happen to two rates? For sure, policymakers are in an increasingly tricky spot short term looking at the war. You know, we have rising inflation, we have rising price pressures, and that would call for rate hikes. But there's also a severe risk of a significant slowdown of the global economy of growth, and central banks don't want to worsen
that by tightening. Looking at the medium to longer term, I would say central banks will have to defend their heart won credibility. But it also seems reasonable to expect that there will be enormous pressure from governments to keep rates lower given the high dead levels we talked about earlier.
For the big take we did, I talked to to to a guy Claudy Borio, former head of monetary in the Economic Department at the bis SO, the Center banks of central banks, and he said he would expect that the next decade will present the biggest challenge for central banks indicates, and it will be particularly interesting in the US because you know, incoming fetcher Kevin Walsh is under pressure to cut rates, while the circumstances don't speak in
favor of that. So coming back to your question, I would say it's fair to expect that rates will be structurally higher in the future, and for sure, at least for the moment, a return to zero rates or even negative rates we saw on parts of the world economy in recent years they seemed very unlikely.
Yes, okay, so maybe it's a new decade long trend that we're going into. Mark, thank you so much for being with me. Very interesting to get your views. That is Bloomberg Economic reporter Marksraers in Frankfort, and you can read Mark's piece that he has written alongside a number of other Bloomberg colleagues. Is the big take story today. Iran war upends inflation, bets in global debt markets. Stay
with us. More from Bloomberg Day baqub coming up after this now the Ebola outbreak in Central Africa, which the World Health Organization has declared a public health emergency of International concern with no approved vaccine or treatment. The disease is spreading in a conflict ravage region. Joining us now is Bloomberg TV correspondent and anchor Jennifer Zabasaja. Good to speak to. Jennifer. Congo suffered its first nony boler outbreak half a century ago, I learned, and it has dealt
with sixteen outbreaks since. What is the latest in terms of the extent of this outbreak.
That's right, Caroline, this country is no stranger to outbreaks, and as you were mentioning, we've seen sixteen outbreaks before this is the seventeenth, and so as of today we are learning hundreds of people in the Congo are suspected to be infected and at least more than one hundred people have died according to the World Health Organization. Much of the suspected cases are centered in the Democratic Republic
of Congo. Although because this is a rare evil a strain, as you were mentioning there in the intro, the concern really from health officials is that we had been seeing this spread going undetected for weeks and so we do know of one additional death that happened in neighboring Uganda, and the concern is that this could become a potentially regional outbreak if we aren't able to get to the heart of some of the symptoms around this ballustrain and
also some vaccines and resolutions around contract tracing and surveillance. And so that is why we are hearing from the WHO, also the Africa CDC increasing the importance of what we are seeing right now in Central and Eastern Africa.
Yeah, and you've been doing a lot of reporting around this. Earlier this week you spoke to the Congo country director for the Danish Refugee Council, Caitlin Brady, I wanted to bring our listeners some of this, giving some details about the developing situation on the ground. Have a listen.
So for at least two weeks, it would seem there were some cases, some deaths before the alert was raised, and as jonas when health worker started dying. What we've seen now is a very rapid response by the government and also by the health agencies like MSF and medic for example, who are doing the very best to do the contact tracing and to identify among those contacts who shows preliminary symptoms make sure those people are isolating.
So that was the Congo country director for the Danish Refugee Council, Caitlin Brady, that you were speaking to. So then how are authorities and charities and aide groups, Jennifer helping people to deal with the spread? I mean, the early detection we learn failed because this is a very rare strain and it's a very volatile region of the world.
Right, volatile region, a rare strain, and of course we should mention Caroline important context is that we have seen aid decreasing over the past year, of course, beginning with the US and ending USAID, but also a number of other Western governments that just contributing to a weakening of
surveillance systems and health systems. And so this week on our Next Africa podcast, we spoke to Caitlin who is in Goma about the situation on the ground and really what her and her peers are trying to do and trying to step in in the absence of some of these other health agencies and officials that had decreased. I guess I should say because of some of the cuts that we had seen, and a lot of the focus that she gets into is the importance of education in
the population. But then also you know every day stemming of virus, so cleaning of hands, having clean sanitation and water. And again this is a conflict ravage area, but also population dense and very difficult terrain, and so getting any sort of vaccinations or any supplies that they need isn't as easy as potentially in the neighboring Uganda, where the terrain is a little bit less less severe and less mountainous,
I guess I should say. And so we are seeing officials really just trying to step up their surveillance, stepping up education and doing just about anything they can in order to keep the population safe and isolate those who
potentially are showing some signs of symptoms. And we should note that this ebola strain, there's still not a lot that is known about it, and the concern with ibola is that it is very fatal, and so they want to make sure that they are treating for the right strain, especially considering and I heard you mention this, Caroline, there is no vaccine and treatment at this case, so it's still quite an evolving situation, not just for the region,
I should mention, but also internationally for a number of health agencies and countries.
Yeah, just very briefly, the World Health Organization saying that there's a low probability of international spread, but that doesn't mean that aren't international week percussions.
Yeah, and we're hearing from the CDC saying that the risk to the public remains low. But still we're seeing international health agencies stepping up their own surveillance, where we've
heard the US CDC stepping in as well. And yeah, we are seeing a number of countries in the region continue to step up testing and also surveillance testing of getting your temperature checked and even from the US, residents are being cautioned not to travel or if they have traveled to the region, ensuring that they are isolated and
just tested before going out into the public. So definitely becoming an international concern as we heard from the WHO, and really that we should point out that is to mobilize resources, which is effectively what we have been seeing over the past few days.
This is Bloomberg Daybreak Europe, your morning brief on the stories making news from London to Wall Street and beyond.
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