kriti: morning and welcome to

"daybreak: europe". i'm kriti gupta in london. december fed minutes suggesting u.s. rates might stay higher for longer, but clear progress on the inflation front. asian stocks led by china, following wall street lower. oil extending gain after supply constraints in libya and a blast in iran killed nearly 100 people. in europe, inflation in focus, german cpi likely to have risen significantly in 2023. will it move the dial for the ecb? we will break the data live. it is still the first trading day -- week i should say of 2024, so volume is going to be incredibly light. if you look at the futures picture, you are seeing marginal movement. euro stoxx 50 futures are on the back foot, only down 0.1%, the rest of the screen.

across asset story is different because the bond market is still repricing. they are going to be digesting cues from the fomc minutes. we will bring that analysis later. 3.92 on the 10-year, pulling back from the 4% level. it stayed sustainably below, even though yesterday you almost retouched that level, nevertheless the move you would think would push the dollar higher. the pound remains stronger, 1.09 on euro-dollar. brent crude, $78 handle on that commodity. let's see how asian markets are faring, avril hong standing by in singapore. good morning, walk us through the asian trade. >> we are seeing risk appetite sapped in this part of the world. a gauge of stocks flat, mostly declining for a third session.

the fed minutes not helping things along, chinese stocks are the big decliner. we had the tyson services pmi showing expansion, better than expected, but that is not lifting the mood because the private survey has been diverging from the official prince that have been telling us demand is still weak in the chinese economy. we also have the property sector overhang. all that is fueling expectations we will see pboc rate cuts this year. the yield on the benchmark 10-year in china hit the lowest level since april 2020 earlier in the session. let's let the board because i wanted to get you up to speed with japan. we had some of the moves. this is related to the marine transport stocks, as well as oil and coal. these are the sectors propping up the broad-based gauge in japan. in the country, it is the first chance to react, this is the first trading day for them.

investors are also assessing the fallout from the new year's day quake. we have a chemicals company among the ones that are declining. it has factories near the epicenter of the quake. we're seeing the construction-related stocks running higher, on speculation we will see rising demand for reconstruction in the country. kriti: really interesting dynamic. as japanese traders digest not only the japanese headlines, but geopolitical tensions we have seen the last week. at the same time, you are also digesting minutes coming out of the federal reserve yesterday. what they discussed at the december meeting, sam unsteady from the markets today team joins me this morning. what did we learn from these fomc minutes? >> i don't think it changes the picture a huge amount. everyone was expecting this

dovish pivot that we saw in december, it broadly does. the first couple of days of the year we have had this unwinding of pretty heavy bets that went on particularly in december in terms of wine rate cuts will come. there is nothing in there that specifically points to march being when cuts will come, but bear in mind, that is 10 weeks away and there is plenty of data to come before that. it backs up both the dovish pivot you saw in december, and backs up the slight pullback you have seen at the beginning of this year. kriti: that jobs data will be another crucial component friday. something that was notable, our chief u.s. economist made the point clearly that if you look at these fomc minutes, labor is coming back into the conversation in a way that it was perhaps absent the past three months or so. the idea that rate cuts may not come off based on the labor market, but underlying strength of the consumer.

she said it creates some acknowledgment that the rule is in effect when it comes to economics. your thoughts on the labor market dynamics? >> we had jolts yesterday, and then we have a couple of more, adp today, then we have payroll. then we get a clear picture of the labor market going into the end of last year. as we continued the next couple of months, we will get plenty more data. if there is more focus, it would appear everything is moving in the right direction. it is cooling, but not too much. it is doing everything the fed would wanted to do. whether that cool is enough for there to be a cut, we will see. they want to push themselves towards this soft landing dynamic. if they do, march probably does remain on the table, but i wouldn't be surprised if you see caution on that over the course of the week. but that's now going to be the focus. you can see that when you look at futures and treasuries. we have come in the last couple

of mornings, and everything has been all red, everything today looks pretty flat, that's because we're now waiting for that data. kriti: caution, which seems to be the message from the federal reserve, that perhaps a hike is off the table but a hold is not. we thank sam as always. also, what will also be factoring in his day is the geopolitical tensions. the federal reserve and policymakers don't usually hike in the face of geopolitical tensions. does that actually extend, they have been holding rates higher when there doesn't feel like there is any easing on the escalation. lasts in central iran have killed nearly 100 people, adding to risks that the war between israel and hamas is widening into broader regional conflict. patrick sykes standing by for us in istanbul. talk us through the details on what happened in this particular blast. and the reaction thus far.

>> so far, we know there were two blasts about 20 minutes apart according to the interior minister. they both happened in a central province near the cemetery that holds the tomb of soleimani, the former iranian general. it was the anniversary of his killing by a u.s. drone strike in 2020. so there were large crowds in the area marking that event. we understand two blasts went off. so far, 95 people confirmed dead. the death toll was revised slightly down overnight due to some double counting. almost 300 wounded. next steps, the big question is who exactly iran accuses of responsibility, and how explicitly it does that? and how it goes about responding. so far, it has hinted that it is holding israel responsible.

that's something the u.s. has said it thinks unlikely. but iran hasn't come out as forcefully and explicitly yet as we might expect if that's their final view. kriti: it's a interesting dynamic when it comes to the location of this blast. not just for the regional audience, but even in the context of the united states, because one of the main points in president trump's foreign policy agenda was that he brag about killing soleimani. that was one of his campaign pikes for lack of a better term going into the 2024 election. patrick sykes bringing us that crucial analysis. we will be monitoring geopolitical tensions closely, especially the readthrough going into markets. we already see heightened geopolitics factored into the oil picture. but then you have to factor in the eco-data, we get plenty of that starting in about 20

minutes time. we have german inflation, talking about whether that conversation of 2023, germany being the sick man of europe sustains. the trend shows a one-year downward trajectory. we get north rhine-westphalia data in line for last year, but data coming up at 630 a.m. u.k. time. then in london we get the decision-maker panel survey. that will be crucial adding one more data point to the narrative at 9:30 a.m. u.k. time, we will bring that live as we get it. i and the states, jobless claims are due today. we have the jobs data on friday, so this perhaps an early indicator of what that trend looks like. it has been fairly choppy for the last year, so a lot to digest when you talk about what you are pricing in, in a way that is low on trading volume to begin with. that is something nevertheless we watch in terms of what kind of set up it creates for when you see more volume hit the desk at going into next week. you can get a full roundup of

stories to get your day going in today's edition of daybreak. if you are a subscriber, all you type is dayb on your terminal. you will get these bigger market moves. remember, there seems to be in the absence of any major spikes and reallocations, you are seeing plenty in the background. china, for exam, oil rising in the middle east, and what's going on with banks talking about their chinese operations. we will have the full analysis on that daybreak page, but for now we will bring analysis on the electoral calendar not in the u.s. or the u.k., but the rest of the world. 2024 has a packed electoral calendar. 40 country set to go to the polls. a deep dive into the key races that matter for your investor playbook, next. this is bloomberg. ♪

kriti: welcome back to "daybreak: europe". i'm kriti gupta in london. 2024 a massive year for elections around the world. 40 countries going to the polls. for we get to the u.s. rates in november, taiwan voting next week. russia and south africa holding elections amid domestic political unrest very lucky for us, we have to discuss these pressure points, our bloomberg

team from around the world. russia expert marc champion from bloomberg opinion and samson ellis, our hero chief from taiwan. i want to start with the taiwanese story. walk me through what is at stake in these elections next week. >> we are just over a week away from what may not be the most consequential election in the world this year, but it is one of the most consequential, not just for voters in taiwan but also for the health of cross strait security in the indo-pacific region, and of the health of u.s.-china ties. the big question this election will answer is where the majority of taiwanese voters see taiwan's future. essentially, we have had eight years of rule from the democratic progressive party. this is a party who is one of their foundational beliefs is that taiwan is an independent, sovereign nation that is seeking

broader international recognition. and whose long-term future is some kind of permanent separation from china. versus the chinese nationalist party, the kuomintang, which was first established in china more than a hundred years ago. and moved to taiwan after the chinese civil war, and to fundamentally believe that taiwan should be part of some kind of china. and envisions better relations with china. that's a policy they would seek to further if they reclaim power in the election. you have this standoff between what is a fundamental question, where taiwan sees its future. if the dpp candidate wins, lai t ching-te, you would likely see him seek to further taiwan's

separate status from china, or at least work hard to promote that. you would likely see his administration worked closely with the american side to bolster taiwan's defenses. also to push back against what is widely perceived as an increasingly assertive china when it comes on the political and military side, when it comes to technology and semiconductors, of course, the u.s. would find a much more willing partner in taiwan if the dpp were to win. on the other hand, if the other party were to win, you would seek taiwan shifted its stance and seek to further integrate its economy with the china's. kriti: just expand a little bit on the immediate reaction that china might have for that result. >> obviously, that is one of the big questions, how will china react to it? there is no doubt that their preferred outcome would be

victory by the kmt. they have been quite upfront with saying so. the taiwan affairs office in beijing, that's the organization in charge of promoting unification with taiwan, has urged taiwanese voters to make what they call a wise choice. which is clear in that they mean vote for the kmt. but it's very much up in the air. we're currently in the blackout period, we're not allowed to report on or discuss opinion polls, even previous ones. but one thing we can say for sure is that it's going to be a tight election, so whether or not china will get is preferred outcome, we will have to wait and see. in terms of the united states, that's the other big player in this three-white relationship. opinions are very much divided. the united states has repeatedly

said they do not have a preferred outcome for the election, they respect the will of taiwanese voters, but is widely viewed as they would prefer a dpp victory, in that they would have a much more willing negotiating partner in taipei if that were the case. kriti: something we will be monitoring closely, as this is a part of the world that is held quite literally between the two largest economies. samson ellis, thank you for bringing that crucial understanding around the taiwanese election. from taipei to south africa. ana monteiro joins us from johannesburg. the ruling african national congress has been in power for three decades. walk us through the prospects of maintaining that majority. >> it looks like they could be slim if we go by polls that have come out since october until now. there is a chance of the party may lose its 50% majority. the implication is that it could

usher in an era of coalition politics at the national level, which of the country hasn't seen. judging by the experiences on a municipal level, people are extremely worried about what the outcomes of that might be. you can take johannesburg as an example. the biggest metropolitan area in the country, currently a coalition government, and of the infrastructure has become more dilapidated. we have seen decline in electricity provision. nationwide but going back to johannesburg specifically, delivery has become an issue. this has led to concern among investors and voters that coalitions might not be effective in terms of delivering the services south african businesses and consumers need. this has reflected in concerns about what this could mean for the stock market. kriti: this will have big

connotations for how much exposure global investors want to this part of the world, at a time when perhaps the appetite for em is creeping back in the conversation on the idea that dollar weakness may sustain. make it for that report on south africa. on our tour around the world to russia. marc champion, talk to us about how important this election is for vladimir putin. >> the first thing to understand about it, is like the two you discussed, this isn't an election in a meaningful sense. we know exactly what the outcome will be. it's not even as suspenseful as previous russian elections. the country has become, since the war in ukraine, a much more authoritarian structure. in that sense, there is no suspense. we know that vladimir putin will be reelected. but for him, it is very important. he's taking it very seriously.

for two reasons relate, one is in terms of legitimacy, he did take a big gamble when he invaded ukraine. he didn't think it was going to be, but it has become a very difficult campaign. a lot of questions arising in opinion polls in russia. there has been a lot of support for the war previously, but that is beginning to erode. you see questions, the top question people wanted to ask when they were polled was how long is this war going to go on? he knows that this is an issue. he has support. he will be able to continue. he is not under any threat. but it is an issue. legitimacy is a very important question for authoritarian leaders. no less so for putin. elections are a form of political theater that helped to

establish that legitimacy. they will be taking no chances. the interesting thing is you may well see -- it is still a little way away in terms of what might pass for a campaign, but you may well see the war kind of deemphasized. because the message the government will want to get out is don't worry, you can have a decent life, regardless of the war. they may focus more on issues of the economy and welfare, which people are concerned about because the war is taking up so much of the government budget. kriti: is a really interesting dynamic, because in the lead up to this, there have been a lot of questions more recently commented on by the united states government, for example, about where archrival alexi navalny was being held, or others factoring into the election, whether they stand a real shot. we thank the three of you for

your analysis about elections around the world. ana monteiro from to his break, and our taipei bureau chief, samson ellis. plenty more analysis ahead. stick with us. this is bloomberg. ♪

kriti: welcome back to "daybreak: europe". morgan stanley's executive chairman and former ceo is among those expecting the fed to cut rates this year. we spoke exclusively with the james gorman on his way out. >> they could move a couple of times. we started this journey with inflation at 10%, rates at zero, unemployment at 3.5 percent. my objective was to get us to 4, 4 and four. 4% inflation, 4% unemployment.

we are about 3% inflation, 5.5 at rates and 3.5 unemployment, so rates will come down. kriti: morgan stanley's former ceo james gorman. his last interview with our very own sonali basak. crypto asset manager grayscale investments is in talks with firms including j.p. morgan and goldman sachs for them to potentially play a role in its proposed to bitcoin etf. the banks are considered to be authorized participants, firms that have the power to create and redeem shares of the fund. as grayscale looks to convert its bitcoin trust into an etf. to the biggest hedge funds. they ended the year with double-digit gains in what was a bumpy one for investors trying to navigate 2023. ken griffin's main citadel wellington fund posted 15% return, izzy englander's millennium gaining close to 10%.

let's see if those gains actually sustain into 2024. that's a big concern as we have the tailwind of the federal reserve and other central banks cutting rates, and creating momentum for what is commonly known as the smart money. we go from the wall street story to the eco one. inflation numbers from north rhine-westphalia just minutes away. we will bring the data as it crosses the terminal and instant analysis. this is bloomberg. ♪ ♪ ♪ ♪ ♪

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kriti: december fed minute

suggesting u.s. rates may stay high for some time, but market clear progress on inflation. asian stocks led by china, following wall street lower. oil gains following suppl y obstructions in libya following blasts in around that killed 100 people. data hitting the wire in just a few minutes. let's get a quick check on these markets. when you look at the futures trading action, remember very thin trading volume but you are seeing marginal gains, specifically ftse 100 futures higher 0.1%. euro stoxx 50 futures in the last 30 minutes in the red, they are now marginally in the grain. across the atlantic, green on the screen for the s&p 500 and nasdaq 100, seeing more momentum given the selloff the last couple of days. i want to show the cross assets story because monetary policy is changing the game here.

a 10-year yield at 3.91, it had almost 4% level yesterday. to see that fullback is interesting,. you would think that pullback in the yield story would affect the dollar. but grating a strong bid into the euro and pound. cable at about 1.26. brent crude is only higher 0.8%, but still trading at about a $78 handle. as we stand by for that data, we will pivot to the u.k., where prime minister rishi sunak began 2023 asking voters to judge him by five pledges. a year on, he can only claim victory on one. that leaves an uphill battle before the general election within the next year. our u.k. correspondent lizzy burden is all over that story. opposition leader keir starmer expected to give a speech today. lizzy: he will present himself as the candidate for change, saying britain is crying out

after 14 years nearly of conservative rule, that is time for national renewal under labour. sunak will say it is a change from boris johnson and liz truss, still though he is 20 points, if not more behind labour in the polls, so he has a come to close. but if you listen in the labour camp, strategists are warning their own people, don't get complacent. they point to examples like donald trump's surprise victory in 2016 where the result the fight the polls. how is sunak going to hope to close that gap? on march 6:00, we get the spring budget, it is an early date which has set tongues wagging in westminster because many are now wondering whether we will have a may election. this will be an opportunity to lay traps for labour. but conservatives will want to make pledges that labour would find it hard not to match, but

if they took them on, would find it difficult to commit to their own fiscal pledges on top. kriti: it makes politics and economics in the u.k. even more challenging. lizzy burden all over that story. in a year that could be make or break for this economy. speaking of make or break, german inflation coming out here. when you look at the cpi, the northwest west philly at data rising 3.5% on a year-over-year basis, on a month over month basis it is about 0.1%. i want to bring in our european correspondent oliver crook, talk to us about your initial read into these numbers. >> to remind everybody out there, north rhine-westphalia is the biggest region economically of germany. it accounts for 20% of the federal index for inflation, so this figure is significant. year on year up 3.5% is not the direction people want to go. let's look at the month on

month, it is a contraction. -0.1%, so again, maybe not the intent to the world. when you think short term, there is the base effect from last december, where you had a lot of energy subsidies for the ailing, and difficulties that came from the invasion of ukraine and that gas shortage, so be government stepped in, so you are getting that base effect in december. but longer-term in germany it is interesting because you look at the basket of major european countries, italy, france, spain, germany is the only country where they are not expected to hit 2% inflation by 2026. also to think about what the budget crisis and what effect that will have, there will be lower subsidies, higher taxes, that will all be inflationary but for germany, was more important is not so much inflation, the acronym to watch out for will be gdp, not cpi. we expect another technical recession in germany, we will get that data in a couple of weeks. kriti: what is the readthrough going into the ecb?

is this still at its core a germany story, or something that extends to the rest of the continent, given that tomorrow we get inflation data for all of the euro area? >> definitely, the issue will be a german one, where you expect that to be more elevated among many eurozone countries, however for december, you expect cpi to come in at the euro level at 3%. faster than we saw in november at 2.4%, that's an acceleration, in fact, the first in eight months, because it has been downward for inflation which have been great for the ecb, but there are a couple of caveats. that november print was weaker than anyone had anticipated, so that ecb bonus, maybe they give some of that back in december. the other is core versus headline, core has been the focus for the ecb. while we are seeing inflation bumping up in december, that spread between core and headline narrowed. it is worth taking a moment and thinking about where we were a year ago, the print in december

was 9.2%. 12 months later we're talking about 3%, everything moving in the right direction. the one thing we need to care about in 2024 is while the ecb still expects inflation to give her down, maybe the last mile will be harder for the ecb. kriti: we will see how that pricing comes, as we were speaking, those german bund futures already spiking off of the data you just broke down. it will be an interesting dynamic of how much of that continues going into the rest of the trading session. oliver crook, thank you for joining this morning. i want to stick with the fiscal story in europe and talk about hungary. debt payments doubling in the third quarter, putting the nation on track to surpass italy for the highest level of debt in the european union. interest payments ballooned to 7.1 billion dollars in the period between january to september, twice as much as the same period in 2020 two. hungary became one of it first

emerging-market sovereigns to sell dollar bonds to meet its rising financing needs. we go over to the united states, where donald trump has asked the u.s. supreme court to overturn a ruling barring him from the presidential ballot in colorado. in an appeal yesterday, he urged the courts to declare that he did not take part in the insurrection by trying to overturn his 2020 election loss. a push that culminated with a deadly riot at the u.s. capitol previously confidential documents related to jeffrey epstein have been made public in court in new york read many of the names featured are widely reported former associates of the disgraced financier, including former u.s. president bill clinton, and of the uk's prince andrew. both have denied participating in unappropriate conduct with epstein. mark zuckerberg sold nearly half a clearly bang dollars of meta-shares in the final two months of 2023, during a

two-year hiatus during which the stock price hit its lowest in two years. meta-shares rebounded 190 4% in 2023, outperforming every tech giant with the exception of nvidia. coming up, we look at the ftse 100's performance 40 years on from its founding, and what it says about the wider u.k. economy not to mention the precedent for the rest of the world. this is bloomberg. ♪

kriti: welcome back to "daybreak: europe". i'm pretty good to in london. there is a lot of conversation

about how you position for 2024, and whether or not the u.k. investing market, whether it is cable, or guilds or the ftse 100, is investable in this year. a true expert and britain joining us now this morning, senior editor for markets, john authers, a veteran of the financial times joining us. we convinced him to join is early, begged, more like it. we are thrilled to have you. let's talk a little about the u.k. economy in respect of the rest of the world. we're speaking to a global audience, and it feels like 2023 was a part of the world we largely brushed off. i want to put you on the spot with comments from moody's. we had that morning last november where they warned against the crisis in the united states when it comes to the deficit. they very specifically said the affirmation of their aaa credit rating reflects moody's view that the u.s.'s formidable credit strength continues to preserve the sovereign's credit

profile. they go on to say the unique role of the u.s. dollar, the treasury bond market in the global financial system provide extraordinary funding capacity, especially when it comes to some of the other pieces of their investment thesis. they also said it reduces the risk of a sudden spiraling of funding costs. that is a lot of jargon for what immediately came to mind, and i blame you for turning me to think this way, which is historical context, that's where the u.k. stood at one point. there historical strength being the trading power of the world has sustained their longevity. some might argue that is no longer the case. you might argue that the u.k. economy is still relevant for other investors around the world. john: i think what moody's are talking about, the classic expression to cover this is exorbitant's privilege, which is

what the french president once complained about shortly after they had taken the u.s. out of the bretton woods fixed agreement, which i believe the two of us have discussed once or twice in the past. yes, it certainly is the case that the u.s. has far more freedom of maneuver when it comes to raising debt than the u.k. now does because it's bulk is so much larger. because it's able to issue debt in its own currency, and and is able to print its own money. that means that any great risk of a true default is very minimal. however, where i do think britain has quite important messages for the u.s. is that it was britain where the gilt market melted down in spectacular fashion in october of 2022. that's what cost liz truss her job as prime minister.

there were specific reasons why the bond market revolted the way that it did when the government unveiled this plan for very aggressive deficit spending. but the basic fact remains that it did happen. that there were issues with liquidity in the gilts market that meant that you did get this perverse reaction that saw gilt yields surging up. and it's not inconceivable that something similar could happen in the states. it has all those in built advantages which means it will take longer to happen. there is a very good case that it was that near disaster in the u.k. for the gilt market that changed a lot of other central banks' attitudes, that they might've still been talking

against inflation and raising rates, but in terms of liquidity, actually making sure that the bond market can keep functioning, they have been much more generous. and that ultimately does have effects such as the entirety of last year when [indiscernible] kriti: critics would say this is only the fourth or fifth most liquid market, therefore it would set the precedent for what you are seeing in the treasury market, but when you look at the third order of 2023, it was the exact fears you saw in terms of the digestibility of treasury supplied. you had a chart in your column this morning talking about how that might translate to other risk-free assets. talking about the spread between 30-year mortgage rates versus 30-year treasuries. tell us why the spread matters. john: it's a way of trying to get at the motion of the risk-free yield. nothing is risk-free, however in

finance, we assume 10-year treasuries to be risk-free. normally, these mortgages have an implicit government guarantee, if not a specific, official one and they are therefore normally trading very closely in line with each other. what's interesting at the moment, and what contributed possibly to the fed u-turn at the end of last year was that mortgages have been trading very much higher in terms of yields than treasuries. that created that much more in the way of political difficulties, and that much more fear in the market back in september or october of last year. you had fixed rates doing what they were doing, that's a problem, people will notice it. why do you get that kind of difference?

it's possible because there is concerns about ability to pay mortgages, but in practice, that really isn't it. households have cash. lots of people have in-fixed mortgages that they are comfortably able to pay. this is a fact of our lives in the post-pandemic world, that actually you don't need to worry too much about mortgage credit. that leads to the suggestion that maybe it is because treasuries are benefiting from something that mortgage-backed bonds aren't, such as deliberate attempts to keep the real yields oiled. kriti: how has that factored into what felt like jay powell's worst nightmare, which is asset inflation? every time we saw markets conditions ease, when the federal reserve and its peers were trying to be more hawkish, it did the opposite. i think because of that resilience you were speaking to. but when you look at the financial conditions index now, for example, it is right back

where it was two years ago. john: it is almost exactly where it is before the ukraine invasion, if you are looking at the chart on the wall at the moment. that first big dipped into red territory, anything below zero is tight financial conditions. that doesn't happen until the invasion has happened. this is basically right back to where we were two years ago, in terms of how easy it is to buy financing for both bonds and equities. the thing that most surprised me about jay powell's performance last month in his press conference. which the minutes from the fomc yesterday didn't completely correct. but continue to suggest that there was something strange there. was that he didn't push back against the easing of financial conditions at all.

even he was asked a very direct question, does it bother you that financial conditions are easing? he more or less said no. i don't quite understand. we can talk about goldilocks, things are looking good, a soft landing looks more plausible than it has done for a while. some of the core measures of inflation are still 4%. the battle definitely isn't won yet. it surprises me a lot that he is comfortable with markets doing what they're doing. kriti: especially when the lag hasn't even been quantified yet. hasn't the narrative going into this been that there is no roadmap? even though initially people compared this to follow her in the 70's, commodity prices are no longer driving inflation the way they did 50 years ago. talk to us about this lag

though, how do you even do that kind of math? john: milton friedman back in the day reckoned it was 12 to 18 months. that was based on his own sort of hard work. largely during the bretton woods period, where there was more of a relation to gold, and so on but plainly, there was something to that. the issue we have got, and very disconcerting for people like me who have a certain amount of experience, because it arms you two go into work, then you discover it doesn't actually help you at all at this point. because the way the monetary lag after the pandemic is something for which there is no good precedent. none. it's obvious that the lag is longer, we can kind of understand why because rates stayed low for so long. people could really lock in. meaning yeah, that the lag will be longer before it hurts them,

and also, they have more cash in their pockets than usual. but no, i do not how long that lag is. that is one of the great imponderables the last year. kriti: you said something crucial, cash in the pockets. i'm curious about the current market dynamic. my favorite fact about 2023 is we are 5.3 trillion dollars sitting in money market funds. money that hasn't been deployed to the stock market and is driving interest rates at a faster pace than federal reserve monetary policy is. are the markets in control of the economy right now? john: probably -- they tend to be. certainly, if you look at the last few months, the fed has done nothing. the interest rate is where it was, where it's been ever since july of last year. and there's been a massive monetary pivot thanks to what has happened at the long end of the bond market. you can borrow stuff much more

cheaply, you can get mortgages much more cheaply, and that liquefies the world. that is largely the doing of the markets. and it seems to me -- i mean, we have had pushback, but not strong pushback that that's where the fed wants to be. you then enter into some very complicated stuff. they much of conspiracy theories in my inbox concerning the political cycle that the fed won't want to do anything to upset the apple carts in an election year -- which i find a little far-fetched. jay powell is a card-carrying republican who was initially appointed by donald trump. i don't think he is particularly partisan at all, but i don't think he is doing this to help joe biden. kriti: it's interesting when you talk about jay powell and his initial iteration under president trump, he actually was

advocating for insurance cuts at a time when they are talking about the trade war. we could dive into this for hours, but john authers, we have to leave it there, he is our senior editor and opinion columnist. not to mention a 29-year veteran of the financial times. stick with us. this is bloomberg. ♪

kriti: welcome back to "bloomberg daybreak: europe." as we sign off, i want to put one chart on your radar talking about the liquidity story. we spent 10 minutes diving into it with john authers. this is the takeaway, in yesterday's fomc minutes, there was the big conversation about how you put a pause on some of this quantitative tightening. you are seeing the bank reserves

at $3.5 trillion, well above the levels in 2022. when do you stop that qt, and what kind of dislocation doesn't create for a treasury market that is having a stop and start when it comes to the dislocations they are dealing with in terms of treasury supply? important chart to keep in mind talking about the momentum and rollout of the fed's balance sheet. that is the thought i want to leave you with. up next, "markets today," setting you up for the european open. stick with us. this is bloomberg. ♪

>> this is "bloomberg markets: today." mark cudmore joins us from singapore