the euro was stronger. bonds in europe are selling off ever so slightly tied to that. one area where we are seeing action is japan. the nikkei the beloved child trading at a 34 year high. two year yield traded below 0%. they are just barely above that at this moment. the yen has begun to weaken again. it is this longer wait for the boj to normalize policy in the rate cut euphoria is helping with that story. let's get to our guest is global

the dollar didn't really move. it's basically unchanged. the dxy was even mainly slightly weaker. is there more skepticism priced into the fx market than the bond market? >> if we look at the dollar broadly speaking it is trading somewhat weekly. it is ahead of where it otherwise should be. that said on the cpi print we had last week there something for everyone and that data. i think really markets want to see a bit more data and confirmation that the fed moves before we put on an increasing short position. it's a waiting game.

the dollar over the course of the year should see a rise. not a huge move but at the same time the dollar tends to correlate strongly with the level of interest rate. dani: what do you have conviction on? peter: at the moment i dislike cable being at current levels of where it is. if we look at the pace of u.k. inflation declines the rhetoric is still pretty hawkish and on the basis i can see some scope for potential change in narrative. it has been by no means spectacular. i certainly think there is moving towards 1.24. dani: on china, yuan mildly perky. a lot of people were expecting a cut. is there some degree where china needs a weaker yuan and get that

export fuel to grow back in china. peter: in the sense we are already seeing the near shoring arguments. that are playing out in the next few years. chinese exports are not what they were five or 10 years ago. the weaker one in that context doesn't help a lot. certainly do them no harm. i think if we look at pboc particularly so we can expect in corning -- incremental for people to see. dani: is china exporting deflation to the world. peter: they are particularly doing so -- but in terms of manufactured goods. dani: thank you for joining this morning.

coming up, a continues on the red sea leading to further disruption to shipping in the region. this is bloomberg. ♪ chances of a plane crash -- 1 in 11 million. you're not gonna finish those salted nuts, right? never waking up from anesthesia -- 1 in 185,000. validate your parking or just see how it goes? what? why stress about the unlikely? does a killer clown worry about being struck by lightning -while winning the lottery? -sure don't. but your odds of falling victim to online crime are 1 in 4.

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dani: it's a special edition of mroom beshg markets in the u.s. still up in trading here in europe. geopolitics, the u.s. says it has shot down a missile launched from yemen towards one of its navy tee stroirs operating in the red sea. i'm joined by our news director. is this a different turn in what we've seen in terms of the houthis? if they're firing directly toward the navy destroyer? >> they were targeting military assets in the region although trying to disrupt commercial shipping. despite air strikes last week followed by another targeted air strike, the message is we can still strike back and we can still target shipping in the area, be it military, commercial, assets.

they have have been under bombardment. they know how to hide stuff, protect their assets particularly their rockets and missiles. what they're saying is despite that coordinated action late last week they can still try and disrupt shipping in the area. the question is does it force a further military response from the u.s. and u.k. to they kale the call is it still too dangerous to go through? that's what the houthis are trying to do is cause problems for an extended period. >> again extended period to be seen but the here and now certainly is disruption. where do we stand on those commercial ships who are able to go through the red sea? are the numbers just stacking up that those disrupted by the action in the area? >> we know it's been disrupted for many weeks now already, having to take a much longer route around adding weeks

potentially to shipments but we do know that qatar. it's not impacting the market this morning because the storage of gas in europe is still pretty high but certainly seeing qatar take action this morning. do other countries follow? and so on. and so is it taking that extended leg dpen that's going to start to impact oil and gas potentially not supply but certainly keep that premium prices for longer. >> thanks so much for joining us. on that note qatar sending tankers tlut strait after u.s. led air strikes.

as i was speaking about, pfr it had been about commercial ships, not about the energy complex whachlt does it mean to have the reaction? what does it mean to have tankers who are unable to cross the strait? >> it will depend entirely on how long that remains the case. they've clearly taken a pause in reaction to the military action we saw at the end of last week. the real question is how long that lasts. that will depend on whether there's further military action in the area. it's very manageable. if they had to send that dpas around africa that would clearly strain the fleet and may put some stress on the market. >> we're also in this period right now, it's extremely cold

in iowa where people are voting it's negative 25 degrees celsius. are you surprised that prices aren't climbing more given a possible disruption and the cold weather? >> we see cold in europe and in the u.s. it was well mroe freezing this morning. but up to now we had a mild winter, that means dpas stockpiles are high well supplied and although january and it doesn't feel like it, spring within in site. so speaking both about the lng, the cold weather will increase gas demand but there are supplies and the gas market can probably absorb it. >> so when we're talking about

the timeline for disruptions to become a bullish thing, what is that timeline then? because what you're describing is enough stockpiles to survive a couple weeks, what is that timeline then? >> the main impact will not be at this stage in the flow of oil and gas. it is basically about the time it takes to get oil and gas from the middle east to markets. it has seen freight rates to higher. if it were to happen for weeks and months, the freight rates would go higher and that would feed through the consumer. so it would probably be marginal and take some time but that's what people would be looking for. >> thank you very much for joining us this morning. we are looking at oil prices

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>> this is bloomberg markets. dav os is now in full swing the first day. >> the last year has been a story of pandemic savings that have been run down by consumers so very strong consumption and then we should not forget government spending has increased dramatically particularly in the u.s. so you've seen these two forces that have kind of been a counter vailing force to the contraction that we've seen in capital markets through tighter interest rates. probably more people have been surprised. the question is now how much

longer can this go? that's going to be the story of this year. in the sense it's the final normalization of the post pandemic adjustment. >> what are you watching out for this year? we started last year thinking we could see a huge recession. >> i think the story is going to be goods inflation is going to continue to drop quite rapidly. we have now negative numbers and that basically brings down the overall inflation numbers quite dramatically and as a result the markets have now priced in what i think is probably excessive interest rates cuts in the u.s. but that's going to run out at some point. this is the final leg. so by year end we're going to be done with that and then goods inflations is no longer going to drop. wage inflation is still very high. at some point we're going to

realize that it's not that easy to stabilize the 2% inflation target that central banks are looking for. so some of the optimism in rates right now in the u.s. in particular is probably overdone. >> is there something that you worry that is not being priced correctly? >> if anything i'm a little worried that we're sort of priced for near perfection sort of almost perfect soft landing where inflation is gone as a problem, where maybe central banks could be even cut in the face of any kind of potential weakness. i'm certain that what we're going to find is that inflation has become stickier than we think or than the market thinks right now for various reasons. we have lower growth, we have very high government spending, we have a fractured geopolitical system. so all this basically raises costs and what we're going to find as inflation drops now mostly driven by goods prices by the end of the year we're going

to realize that it doesn't settle easily at 2% let alone something less thant rates. i think more likely we'll settle above 2% which means central banks are going to have to stay on alert? >> because of what we've seen in the last 18 months but could be much more structural reasons. >> i think one of the stories of the last decade is a lot of investments have been done in the way of financial engineering. in some ways we're going to have to get back, this is another reason why we prefer infrastructure over private equity. we're going to have to get back to kind of macro long-term macro trends. and realize that financial engineer when interest rates are higher than they have been for decades, when growth is lower, when government spending is going to be constrained financial engineering driven invements are going to be much harder to find. so i think in some ways it's a health kri correction towards in a sense kind of returning to

investing really on fundamentals as opposed to a lot of leveraged debt and financial engineering. >> when you talk about risks, it's pretty incredible to think what's happening in the middle east and the fact that the market has barely taken notice. maybe there's been a by the of move on the oil price but there's a tax, there are drones, there's hutszies, there's yemen, there's ukraine. we don't know who becomes the next president of the united states. how do you deal with these unknowns? >> it's hard. i think the overall stories that we've moved towards a much more fragments geopolitical system therefore much more fragmented global economy that is organized in a sense in blocks. that means the loss of efficiency, higher costs, and probably means on balance a lower potential growth rate for the global economy. now, the focus has to be on maintaining the conflicts and where possible to try to solve them or stabilize them. in a sense the good news is that

a lot of these things are manmade. demographics there's not much we can do about the. that lowers potential growth. fragmentation in a sense we can address. we could find a way to stabilize a situation in the middle east. we could find a way to ultimately move towards some sort of ceasefire discussion in ukraine. and we can, we could stabilize relations between the u.s. and china. so a lot of this in a sense has been man made in recent years. it's a problem, it weighs on markets, the global economy. and hopefully discussions can be a contribution towards lessening these tensions and back to something a little less fragmented. >> is that likely? >> that's, i suppose at some level the simple answer would be not really when you look at the current state of play. on the other hand, the cost of this fragmented system over time i think is going to drive

political leaders and political system towards trying to address those things that we can address. some things we can't. demographics we can't do about we can hope productivity can be boosted whether through ai or other means but there's not much we can do about it. on the fragmented state of the global economy, in principle these are things that can be addressed through good policy making. >> what does a second term president trump mean for the economy? >> i think you're going to see her later on today certainly from a european perspective from a kind of globalist atlantis perspective it's of course a great concern. we've been there before, we survived it so we'll see what it means. the question overall does it lead to even more fragmentation in the global economy and if that's the case the cost of that will become quite apparent. >> a wide ranging conversation.

if you were to open up your textbook and look at the phrase buy the room sell the news you should see by the coin on that. you can see when bit coin was approved, the etf the price went as high as 48,000. it's declined 8% to trade just above 42,000. despite the flows going into the the etf not making much of a difference on the price. coming up, we're going to be speaking to the chief economist at ts lombard next here on bloomberg.

>> china's central bank holds a key interest rate as currency woes give way to what some believe will be a difficult

year. a u.s. fighter jet shot down an anticruise missile from a hutsdzy milton controlled area of yemen adding that there were no injuries or damages reported. u.s. law makers release a stop gap spending bill to avoid a partial government shutdown as iowa voters face frigid temperatures. european equities are falling after being little changed on friday. goldman says that stocks are overly crowded that the bulls are piling in and that represents a risk. meanwhile the cash trading is down, is not happening for u.s. cash markets in the bond market but here's your futures picture. it is weakening after a big rally after weaker than expected ppi. cut at 80%. meanwhile euro is weakening, it did strengthen briefly after data came out that revised the prior quarter that showed

germany didn't have that two successive quarters of a decline which means it's in a recession. so it continued to dodge a recession despite output shrinking at the end of 2023. joining us is oliver crook who is outside at a protest, not a protest but rather to the farmers there, the farmers union who is indeed a protest you can see it in the pictures. the camera is also protesting a by the, too. we're doing to soldier through it. you can hear it from it tone behind you. what is the public afrnth? >> this originated as a consequence of the budget crisis 17 billion euros missing. where is that money going to come from? part cutting some of the subcity and tax advantages to the

farmers. that has gone down like a lead balloon. this is the day where farmers have come from all over the country, up early in the morning. i spoke to someone five hours on their tractor to be here to park it on the front lawn to express their discontent. this is where rubber hits the road. there is not enough money to go around and as we see, there's a contraction that only adds to the pressure. so here in the heart of berlin thousands of tractrs miles long under the gate. we're going to hear from the farmers association and the finance minister is apparently going to speak on this stage right here in a little while. but really he is a brave man to do so because this is a group of people that is not happy with this government. >> again you can truly hear the

in the background there of that discontent. interesting, kind of this common theme we're seeing, the data is not awful. it's not great in europe but germany did avoid a scl traction. look at the u.s. the data is very stronging too than many expected. but on the ground there is discontent. what do you think accounts for the mismatch between the data, and the reality that folks are feeling every day? >> well, i think it has to be slightly different in different countries. but if we start with germany i think it's quite clear that policy makers have just overacted the tightening, from the ecb too much of a hike in interest rates and not enough of a turnaround yet. there's been also too much of a

contraction that your reporter was saying there's not enough money to go around. there literally is not muf money to go around. that has already returned to pretty close to 2019 levels and the ecb is saying they're going to take more out. if we look at fiscal policy the trajectory there looks pretty much like the same old same old austerity. back to the same old same old of germany trying to rebuilding. so there's a macro reason for the discontent in europe. in the u.s. it's slightly different because a lot more of an inequality stance to that.

>> when you look at the language, phillip lane said that eesing too early would be self-defeating. the other language, wage price gains, still want to continue with qt. given what you just said headed for a policy mistake? >> i think looking in the rear view mirror wage growth which is sticky in europe because wages are set in the european case. i think that actually a by the of wage growth wouldn't be such a bad thing in terms of rebalancing the german economy in particular, rebalances the european economy more broadly. the growth models that germany has hooun to highs torquecly is gone. it's worse than gone.

it's now a drag on growth because the main kind of export partner one of the main kind of export drivers in the 2010s was china and china is now soolt rated so they can't afford that type of investment. and worse than that, china has now moved to be a direct competitor and to be undermining the german export machine by exporting their own evs and that whole lobby within germany is very strong. and so what we're seeing now is that there's this kind of pushback against wage growth to keep germany competitive and keep this old model on the road when actually perhaps what would be a better thing is to say it's gone and move towards a more balanced part of private consumption led growth. >> even with all of that european equities risk in europe has been surprisingly boynt.

it's down but nothing that looks like a recession or challenged economy or policy error from the ecb. when is bad news bad news for risk in europe? >> i think, given where markets are at and we're obviously not quite there, i think what we've been saying is that the big picture analysis for the kind of 12-month outlook suggests that that policy tightening is going to come home to roost there's hope there perhaps in the leading indicators for the nearer term based on the trade cycle, based on korean exports rising, based on some of the data that we look at to get an idea of where the trade cycle is going ahead of time. but again, things have changed. so when the korean exports which typically has been a good leading indicator of export for the rest of the world, when that's turning up actually what we're seeing is a lot of that is

about parts, also parts and it's more tied into the the subsidies the u.s. is providing. so the relationship between those indicators and what the likes of germany can actually benefit from over the course of this year has very much changed. so i think there's a lot of people kind of buying into the those stories at this stage. so that's going to benefit those high countries as well. >> whether it continues will yet to be seen. thank you for joining us this morning. coming up taiwan had a pivotal election this weekend and the winner is someone china considers an instigator of war. we'll talk politics next. we'll talk politics next. this is bloomberg. were you woe wedding would be too much?

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>> the race for the white house shifts into the high gear later today. iowa kicks off the republican

presidential nomination races. donald trump heads into the caucuses with polls showing a commanding lead over rivals. joining us now, can i first say we're so happy we're having this discussion indoors and not in negative 25 celsius degrees weather in iowa? >> it's really a test to their strength and how passionate they feel for any of their candidates. i would argue it's more telling that president trump is leading in the polls. the latest we've heard is he has a 48% edge. 28 points more than his next rival sitting at just 20%. it's an interesting spot that he is getting this edge in. it's not just about the weather but speaking to a demographic that is largely midwestern farmers directly impacted by a lot of his trade policy with china. think about the biggest exports coming out of iowa, soy beans, corn, pork, the pillars of his

agricultural agreement with china and has been something farmers in particular have felt very passionate about and close to because it affects the pricing of their goods and livelihood yet you are still seeing the former president trump come out on top if these numbers hold. >> will he cross that psych lonlcal 50% threshold that maybe spells bad news for nikki haley and de-santos. is congress still dealing with that strange two-parter shutdown avoidance? we got from congress a temporary spending bill. how much time have they bought themselves? >> the g.o.p. has been trying to frame themselves as the party of fiscal austerity and responsibility not just to the united states but the rest of the world. you're seeing this on two levels, with speaker of the house coming off the chaos of mccarthy and trying to create a bipartisan bill.

it creates a little more funding for energy, transportation, defense, but only for six weeks. he's trying to fight off the more right-leaning members of his party saying that funding should be tied to more g.o.p. related causes. but it's a similar story even in iowa where nikki haley for example is campaigning as a fiscal conservative, as a candidate who is going to get the u.s.'s financing back on track. this is kind of a defining moment in terms of how they're going to do that because as soon as the 2024 presidential election is over, 2025, we hit the debt ceiling conversations once again. >> thank you for covering this for us. it is clear that 2024 which has so many elections is in full gear. we have the first election of the year taiwan which went to the polls this weekend. the ruling dpp party sealed

victory in saturday's election on the island at the center of u.s.-china tensions. here's what taiwan's new president had to say following his victory. >> we are telling the international community that between democracy and authoritarianism we will stand on the side of democracy. >> let's go to our chief north asia correspondent live and another beautiful night in taipei. you have someone elected which china has had strong words before. has china reacted or what has been the reaction to this result? >> well, from beijing it's been fairly muted. there's been some comments. they did not name him by name but we all know their stance on the dpp candidate who is now the president elect. he was the vice president under the president who really irked

beijing for the last eight years calling these two people essentially separatists. but again, probably the most telling development today was a diplomatic victory that beijing had. a very small pacific island nation of just 10,000 people had been diplomatcly aligned to taiwan along with 12 other nations, a dwindling number, since 1980. but today essentially the first working day after the election on saturday now out of the blue decided to switch allegiances to taipei to beijing and beijing obviously extremely happy with that. no matter what the size of the nation, 10,000 people or 20 million people, it doesn't matter. it's a further step of beijing isolating taiwan on the diplomatic stage. and that is something the new president elect is trying to counter, because during the

president's past eight years at least five latin american nations including el salvador and others, panama, switched their allegiance to beijing. so they want to stop that domino effect. but again beijing i guess could claim a diplomatic victory by bringing naru on board. >> when it comes to the economic consequence taiwan has the hub of the chip making industry $6 trillion tied to businesses in taiwan that use chips. in this election has it become clear what the implications for this specific industry will be? >> it's not going to change the dynamic right now. obviously in the last four years in particular as xi jinping has consolidated his power in beijing, as the biden administration has unleashed export controls on advanced tech nis against beijing. taiwan is going to be in the

cross hairs. that's why you see semi conductor manufacturing start building plants in arizona, in southern japan right now, they're doing their risk mitigation. but here's an interesting anecdote. on saturday night they had that press conference. you just saw the president elect with his running mate essentially holding a press conference right after declaring victory. and it was an international and domestic press conference. but guess who they gave the first question to? international media. in fact it was me, i'm sorry to say it was me who got the first question. can you imagine that happening in the united states if joe biden or donald trump won and said we'll give the first question to the reporter from taiwan? it would never happen, right? so it really emphasizes the point that they want to show to the world that this is a critical election and a critical victory and my question was about chips. and he essentially said he's going to do everything possible

to protect that industry. >> stephen, again it is notable that he gave the first question to international media but no surprise it was you. everyone should. thank you so much for the coverage. coverage. this is bloomberg.

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>> one of the great accusations that i've come across is that the retailers and the producers jacking up prices, gouging the consumer, greed-flaigs. push back against that. is there any hint of truth or is it overstated. >> that's clearly overstated. there's elastity. if you go too far you're going to lose out. so it's clear that we need to cover our costs and costs are increasing, sometimes we anticipate, sometimes we come behind. but we have to adjust. i think in the world of luxury which we are operating of course with every price increase you have to think about your

product. does the product yield that value? in last year as long as i've been in this industry this constant investment in improving the product. we've gotten rid of insect sides, we have gotten rid of herb sides. that has created additional costs but gives us a better product in the end. we are constantly investing in making our product better and better. then you have to transmit that to the consumer. and the way you transmit it to consumers is at it point of sale. we are actual retail so what does retail do to the consumer and how do we bring over to the consumer the tact that we sell quality products and yets price increases because of inflation. and yet it's, we want to seduce the customer to stay with yous or come to us as we go this way. >> we've got a couple different

issues at play. we've got still a number of events, live wars in the world. you saw a drop in your market share in china, sorry in russia and that perhaps transferred to the middle east. where would you say are you banking on for 2024 to bolster the numbers in champagne and connia? >> we're optimistic on the american markets as we think we have gone through this weird adaptation. we continue to be optimistic to continue the very nice growth we had in the southeast asia. treble -- travel retail has been good for us we hope to continue that. we continue to believe in most parts of the world but we also are concerned of course about all geopolitical situations which are --

>> how much attention do you pay to that? people will have lived through the supply chain crunch. we have issues in the red sea, huge amounts of global trade has been diverted around the south of africa. how concerned are you about a jolt in the global supply chain? >> we all know how important supply chain is and if there is a problem through the passage, through the gulf and sues canal, it means an impact on energy costs, it means an impact on the transportation timing and all that. we transport, we have decided to change to a few years ago to 100% transport by sea. we don't do any air freight any more for sustainability reasons. >> c.e.o. at a national retail fed ration speaking to bloomberg's manus. how is this for champagne in france? a number of bottles shipped in france has now dropped to its

lowest level since 1985. that market is struggling. coming up we're going to talk markets again.

>> good morning from our studios in london. i am dani burger. u.s. markets are closed for the martin luther king jr. holiday. i'll come to bloomberg markets. china's central bank -- currency woes give way to what some believe will be a difficult year. a u.s. fighter jet shutdown a missile fired from the red sea from a militant controlled area of yemen. u.s. lawmakers release a stopgap spending bill to avert a government shutdown as iowa republicans brave frigid

temperatures on the way to today's pivotal caucus. if you are in the u.s., you don't get to trade today but hopefully at least you are staying warm. european stocks have been up and down, down a fifth of 1% off the back of friday when the pivot party was in full swing. the ppi month over month was down from expectations. that meant we fueled those rate cut bets. meanwhile, cash market is closed, we are slightly lower after that rally on friday. the front end lowered by about 23 basis points off the back of that ppi data. finally the euro off of its lows this morning but still weaker versus the dollar. data came out from germany showing that it continued to dodge a recession, despite shrinking output at the end of

2023 and across the year as a whole. still, the mood on the ground in germany isn't necessarily reflecting that. joining us now is oliver crook who is in berlin at a protest that has to do with the discontent for the government. oliver, you could say the data is not so bad. we are not in a recession in germany but the reality on the ground is much different and you can hear it in the crowd behind you. why is there so much public anger against the schultz government? oliver: a couple of basis points above zero or under, it does not make a difference. at the end of the day, the german economy contracted last year and there is a good chance he could again this year and that makes some -- that means some tough decisions around the budget. a court ruling of the end of the last year, in a figurative sense, this is where the rubber hits the road.

these farmers have had subsidies subtracted. the government has backpedaled on some of that but pandora's box is open. you have thousands of tractors piled miles long around germany, around berlin. they have parked them right on schultz's front yard. there is a rally going on and we are hearing from some of the associations of farmers but also trains and the finance minister is standing on stage right now and he is going to speak shortly. this is a crowd that is not favorable to him. every time you hear schultz's name, you hear boos from the crowd. this is a challenging moment for its government -- for this government which is facing its lowest levels in the polls. dani: what is the outlook for the economy now that we have a quarter of a contraction in hand with the 2023 gdp? are there hopes of a recovery at this point? oliver: you look at the average economist survey, and they say

there is going to be a bit of growth this year. they say about 3/10 of 1%. deutsche bank sees another year of contraction in germany which is the last thing they need. add to that the strict borrowing limits that this government and germany has imposed upon itself. that is the condition they find themselves in and really this thing that used to be historically an advantage to the german economy, its massive industrial base, you see industrial output shrinking for the last six months and it is hard to see that trend changing, particularly with the price of energy, the labor shortage and the cost of labor. all of this culminates into the reality and now the political reality of those facts. dani: what does all of that mean for the state elections coming up in september? oliver: you look at the polls, the chancellor right now has

about 19% approval rating, the lowest since they have sorted doing these polls in 1997. olaf scholz plummeting in the polls. the only people that seem to be surging are the cdu, the far right in germany, now the second party. you have state elections, three of them in september and if they were held today, the far right afd would sweep all of them which is really without precedent in modern germany. dani: thank you so much. a very lively crowd behind him. it'll be interesting to see how much more likely -- lively they get. u.s. futures are down about 1/10 of 1%. small-cap futures down a quarter of 1%. evercore is looking to the earnings season that kicked off with the big banks in the u.s.. quote, amid political

/geopolitical catalysts and overly optimistic earnings expectations, a vix under 13 is underpricing market volatility. the base case remains for a first-half market correction. joining us now is colin graham, head of multi-asset strategies at robeco. is this market heading for a correction? colin: i would have some sympathy with those views. we think that the goldilocks or the no lending scenario is probably priced in now. if you look at risks, there are more downside risks than upside. we are respecting the momentum of the equity markets and the bond market. however, we are concerned that at some point, in the first half of this year, you will see a correction. dani: so the market has been moving quite forward, especially in the fourth quarter of 2023,

but what do you make of earnings expectations, because here is an area that has not kept up with the market. expectations for growth was around 7%. it has dropped to 1% as of the end of last week. here is the chart, how low is this bar? is this an opportunity for the market to get more juice this earnings season if expectations are so? oliver: -- are so low? oliver: if you have been an earnings bear for the last 12 months, you will of been severely disappointed because companies continue to generate earnings ahead of what their expectations are and indeed, not just focusing on earnings they have delivered of the the last quarter but also the outlook has been pretty ok, mainly because inflation has been coming down and you see massive fiscal

stimulus going into the economy. the labor market has held up well, so from that perspective, spending continues and as long as margins remain where they are, then topline growth will lead to bottom-line earnings growth. dani: you are right about that she wrote about this idea that you are not in the soft landing camp and that there will be stressed that relied on free money and qe. does that imply that you reject this idea that the fed put is back? the any stress in the system will result in potentially more rate cuts or even qe from the fed? oliver: we are in the camp that in order to see rate cuts, you would have to see an accident and it does not feel like a normal environment given the wages growing between 3% and 4%.

we have seen a massive disinflationary shock from china as well. these things are changing this year. for us, we think the bond bulls have gone over their skis in terms of rate cuts this year where interest rates should be going. our base case is fed rates, they need to be higher for longer than expected. we are looking at those opportunities. to avoid some of where we are seeing earnings struggling in the more cyclical areas. dani: what we make of banks in this environment. city is chopping a bunch of employees. from a macro perspective, the banks struggled last year, even when rates were moving higher.

what happens to banks in this environment where it is higher for longer? oliver: it is the net interest margins that matter here and you can see that from that perspective, it is not a great environment for those banks because they want to lend at a higher rate than they borrow, and from that perspective, that side of the banks earnings will struggle and for me, we are focusing on where the cracks are going to appear from higher interest rates, and we think that because people have turned out, that they have turned out there debt, think of u.s. mortgages, that the higher interest rates have not had a full impact that you would expect with pass-throughs being the lost flow, put on top of that the fiscal stimulus and you will see more this year with

$100 billion -- $100 billion package going through congress at the moment ahead of the u.s. elections. we have to respect that because it seems that this cycle is going to continue to extend. dani: one of the impacts of this cycle has been the correlation between stocks and bonds, the in the past two decades they have been deeply negative but that flip to positive as the worry shifted more towards inflation. one person from man group said as we get worried about growth yet again, that correlation can resume its classical negative relationship. what do you think or if we are saying higher for longer, we will still have that issue where bonds as a hedge to equities does not work out. oliver: as part of a big multi-asset team, we do expect the correlations to start to turn more negative, when interest rates and central banks

have room to cut. over the last two years they have not had room to cut because inflation has been so far away from their central rates. one of the key thesis we have is the easy disinflation will happen now and is going to get more difficult to get from 4% down to 2%. that is going to take much longer. economists that have plotted charts and extrapolated straight down, we don't think that is going to be the right path. if you look back at previous cycles where you see inflationary spikes, these spikes come in waves. it is not just one and done in terms of one spike and everything is back to normal. you generally see a secondary wave of inflation that is what we are focusing on, looking for those signs that expectations have gotten too dovish. dani: even if you're talking about your own book, i love that

you are honest about it because that is what everyone does. it is good to hear that you are honest. speaking of talking about your own book, of the things i want to get your take on as your long on japanese equities. how much juice -- i want to get your take on is you are long on japanese equities. how much juice is left in the tank? oliver: having been a long-term bull on japan, having made money and lost a lot of money, on jeopardy's equities and indeed on the currency, i think when i look at the changes from a bottom-up perspective, it is much different than we have seen before, so all of the -- but ultimately did not manage to make all the changes he wanted. starting to see those changes come through. it is really coming from a bottom-up perspective. you talk to the stock pickers here at robeco, who from a

fundamental perspective, ghosn look at all of these companies and what their earnings are and what their outlook is, it has become a lot more shareholder friendly in terms of the earnings expectations. you are also seeing some changes in legislation, thinking about the tax treatment for equities versus bonds and the government looking at that as well. dani: collin, we will have to end it there. that is colin graham of robeco. coming up, the conflict continues on the red sea, leading to further disruption in the shipping region. we will have more on that but first, here is your check on bonds. yields moving higher after stronger germany gdp data. ♪ high taxes can erode returns quickly, so you need a tax-optimized portfolio. at creative planning, our money managers and specialists work together to make sure your portfolio and wealth are managed in a tax-efficient manner. it's what you keep that really matters.

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dani: it is bloomberg markets. i am denny burger in london -- i am dani burger in london. -- after the u.s. led airstrikes on targets in yemen raised risks in the vital waterway. hear from -- here for more is rachel morrison. we talked about it during the break, and you put it so well that we would freak out about anything relating to the energy space and here we have this geopolitical conflict that is no longer just about commercial shippers. it's about tankers having to divert. why are prices moving more?

rachel: the qatari's were one of the only country still sending energy and those have now paused. these tankers can take another round. it will take longer but essentially we can still get those supplies. markets are feeling a bit relaxed about this because we've still got enough gas. we will get these supplies eventually and europe gets a lot of lng from the u.s.. it is a small amount of supply and only delayed rather than disrupted. dani: what about the demand side? it is obviously very cold outside and not just in europe or the u.s.. is there enough supply to cope with that kind of demand? rachel: we will see the impact on shorter-term prices. maybe in electricity markets, those intraday spikes, we will see an impact from the cold. on the longer-term month ahead gas contracts, which is the benchmark, we're looking at the

forecast for next week which looks a bit warmer. that is why prices have not moved a lot on the cold weather but obviously when you are walking around, you feel it. we will see it on the short-term. dani: i am one of those people who is not adding much to the gas prices because i only heat the room i am currently in with a space heater. maybe everyone has learned to cope with less. you have cold weather and you also have the disruptions in the red sea not get having an impact. when you look at the impact of potential diversions, is there an amount of time that this conflict stretches out that you think it is going to come to shore? is it a matter of time or is it about spreading the conflict? rachel: it is about spreading the conflict. if we see it move to areas where there could be physical disruption to supplies, that will impact prices. we're looking at options, where traders are seeing that risk and the moment the risk is increased but the disruption has not happened yet. dani: -- we have seen some in

the options market. some options with higher prices and also we have seen a real floor at 30 euros. prices do not want to drop below that. we are watching closely to see if we can get to a price that starts with a two instead of a three and the market does not want to go there. that shows the kind of resilience that there is with prices, but yes there is obviously the upside risk and we have seen the volatility if the market starts to rise, you want to get in on that rally as quickly as you can. dani: clearly still a tail risk. thank you so much for joining us. let's get to the details of what is happening in the red sea. the u.s. says it has shut down a missile launched from houthi controlled yemen toward one of their navy destroyers in the red sea. that have the knock on effect of what happened to the lng tanker. let's get to our managing editor for the middle east and north

africa, who was in istanbul. how is this incident different from what we have previously seen in the red sea? >> yesterday's incident took place on sunday when americans shutdown accrues missile launched by houthi militants in yemen at one of the u.s. navy destroyers. it came hours after the houthi's joint attack by u.s. and u.k. forces on their positions in the region of yemen. this is just showing the continuation of the back and forth between the u.s. and u.k. forces, the combined military forces on the one hand, and this iran backed military group, who tease in yemen, since the middle of last -- houthis in

yemen, since the middle of last week. that is basically where the situation is. it is precarious as is clear from qatar's decision to suspend some of their shipments from the area and both americans and the british are saying that shipping should stay away from the dangers. dani: we see the impact of that. we see the cost of shipping rates soaring, doubling since september. you also see insurance picking up. where do we stand on disruptions via the red sea? onur: many major operators including oil tanker operators have recently announced that they are not going to use this

waterway until it is safe to do so, and definitely qatar's decision to suspend some of its lng's shipments that were supposed to go through ads to the volatility. these are some of the goods that are being shipped, the markets seem to be shrugging off the impact because it is a critical waterway, but there is an alternative. it is more costly but sooner or later, you get the goods or the gas to the destination you are targeting. there are alternative sources of those fuels and goods at the moment but if the problem -- it could be a different ball game because the risk would be much higher. at this point, i think most

markets seem to be sort of passing through the increased risk to shipping in this area. dani: it has been quite remarkable, onur, especially looking at something like oil. we got above $80 a barrel on friday. now it is $77 for brent crude. in october when hamas attack israel, which was now over 100 days ago, you had that initial war premium priced in slightly with folks hoping there was not an escalation risk. where do we stand on the escalation risk, of potential involvement from iran? we are seeing is increased attacks from the houthi rebels backed by iran coming into direct conflict with the u.s., the u.k. and their allies. onur: the risk was always there from day one. i think that was one of the things that markets tried to have an understanding of and gauge to the extent that was

possible. it is difficult to do that. we have seen signs of that risk, of the regional conflicts, since pre-much very early in the invasion of gaza. -- since pretty much very early in the invasion of gaza by israel. that risk has been there since day one but on the other hand, i think so far, both iran and its proxy forces in the region on the one hand, and also the u.s. and israel on the other hand, have been somewhat careful not to completely push the conflict out of proportion and cause it to spill over across the region. that is where we stand right now. dani: on that note, very quickly, where does the tone

stand from the u.s. in encouraging that to not happen? onur: that is true, especially american president joe biden over the weekend highlighting the fact that americans were working behind the scenes to have that message going back and forth so that no misstep, no miscalculation in this conflict results in a spillover. dani: onur, thank you so much for that. bloomberg's onur ant. at the moment, oil prices falling just under 1%. $72 a barrel for wti. coming up, we speak with capital economics, jennifer mckweon. ♪

>> welcome to bloomberg markets. a key interest rate as some believe it will be a deck -- a difficult year. u.s. lawmakers release a stopgap spending bill a government shutdown as republicans brave frigid temperatures today's pivotal caucus. markets are closed. european equities are heading lower.

u.s. futures markets are also the it was that ppi data that needed another round of rate cuts. the rally has given way to some declines. liquidity is so low. how much do you want to read into this? the initial reaction from the last quarter to avoid a recession was for the euro to strengthen. in the past hour, saying the ecb is headed for a policy mistake if they keep rates restrictive and do not switch or ease up. the election year of 2024 has efficiently kicked off. in the u.s., the race the white house is shifting into high gear.

you can see there, that is isla. and just so extremely cold. donald trump is headed into the caucus with polls showing a commanding lead over nikki haley and ron desantis. they are getting ready to vote in that caucus center and morning. what are we expecting with that caucus fills up and when people go to the? >> the polls suggest that donald trump will be the clear winner, by a large margin. the partnership shows that he was leading with about 48%. a 20 point margin to nikki haley. the largest when it comes to the iowa caucus. he has kind of had a love-hate relationship with them. i think all eyes are not

necessarily on who will be the front runner but who will take second place? the question is, both candidates could easily be vice president, if they do not surpass donald trump. >> congress has been working to avoid a government shutdown. they have released a temporary spending delta variant a government shutdown. how much time are they buying themselves? >> literally six weeks. they are trying to force the bipartisan deal but as the curse of the house of -- the speaker the house seems to be coming anything that does not include cuts or favors, more like abortion, control by gun-control control or even immigration policies -- towing the line is getting very difficult. that is where mike johnson finds

himself. he is trying to uphold the narrative of republicans as this party of austerity and fiscal conservatives, but also trying to stay in house after the chaos that his predecessor had to deal with in october. >> re: hearing criticism from that further right contingent? >> there is a lot going on right now. when it comes to the actual deal , it is unclear what that is. we do know that if this bill -- it is bipartisan, but it is also not 100% cleared yet. it only requires four republicans to vote within the support system. the bar is fairly low to get this across the hurdle, but it would only find energy and

transportation for six weeks. this is where that conservative piece of the equation comes into play. this is exactly what the candidates are lobbying for. nikki haley is very vocal about getting finances in order. it feels like donald trump and his counterpart, ron desantis are leaning into tax cuts but do not have as thought through of a plan as nikki haley does. >> there could be quite an awkwardness while the republican caucus is ongoing. thank you so much for joining us. joining us now is jennifer mcewing at capital economics. jennifer, it is an election year for more than half of the world's population. how can the contours of this race change at all the physical

tightness or looseness that we are expecting to aid a soft landing or increase inflation? >> the key point to make is either the republicans or democrats will be very much constrained in terms of policy. we have already seen some evidence of market concern over that. at the same time, none of the key candidates have proposed a major tightening of fiscal policy. i'm not sure we are looking at major changes. >> there are negotiators trying to reach an agreement over tax cuts, hoping to explain tax breaks. how do you model in that type of fiscal easing into an economy that is widely asked acted to avoid a recession?

>> you have to try to offset that. the transition is delayed. it is very uncertain, so it is trying to factor in the implication of anything fiscal we might see. we need to think about how long that monetary tightening will take to have an impact on the economy. i'm sure they will be upsetting the kind of fiscal policies that we have seen muted so far. >> we were speaking with colin graham and his take was that if you take together some of the tax cuts and what is happening with energy and shipping rates, that there is a risk for v acceleration of inflation. ethan that there is that risk present in the american economy?

>> there are always risks. i would not read too much into the stickiness of core inflation at the end of the year. it is partly reflected in used car prices, which we know from the latest data will come down. we know leases that all of the signs point downwards in terms of inflation, so i'm not too concerned about that stickiness. i think there is every reason to expect u.s. core inflation and headline inflation to continue to moderate. there are some risks around shipping but one .2 member on shipping is that while stock rates have risen, most are longer-term, so it is

contractual rates that are important. those are still relatively low, even when we saw four fold increases during the pandemic. the impact on inflation was just a few tenths. he would not expect us to have a major impact. the bigger impact will come if commodity prices really started to surge. >> last month, 3.9% was the year-over-year rate. are you expecting a pretty steep come down in cpi? we were talking earlier and they said the sterling was too strong and that traders do not realize that the come down in u.k. inflation. >> we expecting a slight reduction.

that would be at odds with what we have seen where we saw inflation nudge up in december. apparently reflects how u.k. inner g market works and how prices are regulated. therefore, the implications will come through a little bit later. we might see an increase in headline inflation in the u.k., going into january. that aside, looking forward to the rest of this year, we think it is likely to weigh on inflation. we would expect inflation to fall back pretty sharply. by the second half of this year, and might be below rates in the euro zone. >> thank you a lot for your time today. now let's turn to luxury where

we see a sign of softness. champagne producers shipped fewer bottles of the bubbly last year. foreign shipments from the french region dropped 8.2 percent, according to the champagne -- manus cranny spoke with the ceo at a national panel yesterday. >> i think you have to take it as a context piece. we have set up, two years ago a team of revenue growth management. what they do is simply the effects on the consumer unless the city on price increases. on one hand, we are trying to adapt our prices to inflation because grapes get more expensive, salaries go up, transportation is more expensive and lasts has become much more ask the.

glass can be 50% of the cost of a product. you have to adjust for that. on one hand you look at adapting your process year cost and on the other hand, you try to mimic what will be the elasticity of your demand in the market. you predict and you can readjust on that basis. manus: one of the realizations i have come across is that tailors and producers are jacking up prices and gouging the consumer. push back against that. is there any hint of truth in any of the or is it just overstated? >> it is clearly overstated. there is customer elasticity. if you go too far on the price side, you will lose out. it is clear that we need to cover all costs.

sometimes we anticipate those increases and sometimes become behind. but we have to adjust. in the world of luxury, with every price increase, you have to think about the product. do they yield that value? this constant investment in improving the product. we have gotten rid of insecticides. we have gotten rid of herbicide. it also gives us a better product at the end. we are constantly investing in making our product better and better. you have to transmit that to the consumer. here we are back to retail. what does retail do to the consumer? how do we bring the fact that we

sell quality products and yet price increases because of inflation? yet we want to seduce the customer to stay with us or come to us as we go this way. >> at a federation panel speaking to bloomberg's manus cranny. let me show you what japanese markets did. trading at 834 year high. yields come down, giving the boj some breathing room. still ahead, apple's rare discount. that is next on the liver. -- on bloomberg. ♪

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i sold that. and you can manage it all in one place. i built this. and it was easy, with a partner that puts you first. godaddy. how am i going to find a doctor when i'm hallucinating? what do you think, fever monster? what about zocdoc? zocdoc? dr. castell has a great bedside manner. so many options. but dr. xichun will take your sketchy insurance. xi-chun! xi-chun, xi-chun, xi-chun! thanks, bro! you've got more options than you know. book now. >> welcome back to bloomberg markets. davos kicked off today. catching up with philipp hildebrand.

>> has been the story of pandemic savings that have been run down by consumers comes a very strong consumption. we should not forget government spending. you've seen these forces that have been countervailing force to the contraction that we have seen in capital market through tighter interest rates. how much longer can this go? how much longer can we have government spending the way we are seeing it? that is going to be the story of this year. it is the final normalization of the pandemic adjustment. >> what does that mean you are looking out for this year? libor rate about corporate default but we have not seen any of that. >> it will continue to drop rapidly.

we have negative numbers. as a result, the markets have priced in what i think is probably excessive interest rate cuts in the u.s., but that will run out at some point. by year-end, i would say we are going to be done with that. wage inflation is still high. it is not easy to stabilize. >> is there something that you are a not being priced in correctly? >> i'm worried that we have priced for near perfection. almost a perfect soft landing. maybe central banks could even cut in the face of any potential

weakness but i am certain that what we will find is that inflation has become sticky. for various reasons. we have lower growth and we have a fractured geopolitical system, so all of this raises cost. what we will find as inflation drops, by the end of the year, we will realize that it does not settle easily at 2%. more likely, we will settle slightly above 2%, which means central banks will have to stay on alert. >> this could be much more structural. >> one of the biggest stories in last decade is that a lot has been done in the way of financial engineering.

we have to get back. this is why we prefer infrastructure over private equity. we have to get back to long-term macro trends and realize that when interest rates are higher than what they have been in decades: government spending is constrained, they will be much harder to find. it is a healthy correction in a sense of returning on fundamentals as opposed to a lot of leveraged debt. >> it is incredible to think about what is happening in the middle east. maybe there is a move on the oil price. we also do not know who becomes the next president of the u.s., so how do you deal with all these unknowns?

>> the stories and much more fragmented. a much more fragmented global economy. that means the loss of efficiency and higher costs. it probably means lower potential growth rate for the global economy. the focus has to be on maintaining the conflict where possible to try to solve them or stabilize them. in a sense, the good news is that a lot of these things are man-made. demographics, there is not much we can do about it. fragmentation, we can address. we could find a way to ultimately move toward some sort of cease-fire discussion in the ukraine. we could stabilize relations between the u.s. and china. a lot of this has been man-made in recent years.

it weighs on market in the global economy. hopefully it can be a contribution and moving back towards something that is a little bit more fragmented than what we have. i suppose at some level, the simple answer would be not really, when you look at the current state of play. the cost of this fragmented system over time will drive political leaders and a political system towards addressing those things that we can address. demographics, there is not much to do about it. but there is not much that we can do about it. on the fragmented state of the global economy, these are things that can be addressed through good policymaking. christine lagarde talked about it the other day and i think you

will see her later on today. from a european perspective, from a globalist perspective, it is a great concern. the question overall be, doesn't lead to more fragmentation? >> philipp hildebrand speaking at davos. apple is offering a rare discount as much as $70 on the latest iphone, but only if you are in china. it is deepening years of dwindling demand. aggie, we have seen analysts note after analysts note this year, worried about apple. the concern seems to be about china specifically. what does this news do?

>> apple is known as a company that has been able to drive its own pricing power, especially france most up-to-date products. they have been able to commit to these very high prices and people still, and by them. what we are seeing is a twofold issue, one about competition from the local market. many people are looking to buy domestic brands like the new huawei phones. there is a fear of limiting who can use the iphones in china. there is a fear about people who work in certain sectors not being able to use these products. this is a discount happening on some of its latest products just ahead of the very important

lunar new year holiday and china. there are other discounts that apple has put up every year, but the latest iphone products, it is really significant. >> it is. we saw apple trade so high. where else -- ending the day lower by 11.5%. the company said they had no knowledge of this partnership and the research was done for the ai chatbot, so it is fighting back against this report coming out. the drop is so severe. is it about to be caught in the crosshairs of geopolitics? >> i thought this story was really interesting for the fact that although baidu pushed back

on this saying that they had no knowledge about the research being used in that way, and that if they were using any of their product, it would be what is publicly available. there was a huge fear that company is known to be providing ai for potential military purposes could essentially be at risk of sanctions from the u.s., and that is a real fear for people who trade chinese tech. this has never been more apparent. one of the people they were talking to said -- >> that is definitely telling and reflected in that share action. thank you so much. that does it for me. coming up, we will take you to

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>> european stocks are falling. a slew of speeches at the world economic forum in davos this week. taiwan elects a u.s. friendly president define china's warnings. we will take you live to davos.

all of that coming up this hour. i want to get a quick check on market. we are kicking off the conversation. european markets very much alive. bloomberg markets has been waiting patiently on the sidelines. mark, he is great because he has had a lot of different takes on that in the moment. i'm very curious about the country and take that you think the market is missing right now. >> officials from the fed, the european central bank -- interest rate cuts -- i think

markets have had to digest that after huge rallies and equity bonds, everything up until the end of the year. the early correction to markets. enough to allow. if is clearly investor appetite. they want to persuade everyone that it will not happen until well into the summer. my contrarian view is that i think the market is right. i think they are trying to hold back the tides, but they will fail, ultimately. >> he says the markets are right. talk to us about what is priced into the market. you talk about appetite for some of this issuance.

i wonder when you start to see the cracks arrive. did that kind of follow us into the new year? >> i think it is really weird. a crazy valley. but i thought was even crazier was a huge selloff in the summer and autumn, which made no sense to me, particularly with geopolitical events. indeed about upcoming supply. it is huge. there is a lot more to come. but interest rates come down. it might take a little bit of a breather in the data, but showing up in europe, we will see it below

inflation targets. the pace was set by the fed. i think by april or may, there will be a rate cut that sets everyone on the same channel. i expect markets to take great benefit from that. as far as liquidity, i think we are seeing investors happy to strap on investment rate risk and take credit risk, all at the same time. then seems to give me confidence that for the moment, there are no wheel plans on the horizon. i think -- >> dollar weakness was driving the euro and the pound to levels

i would fairly say are not representative of the strength of the economy. when do we see that unwind? >> it is all about the dollar. we may get a negative. the word flatlining is opposite. indeed, it might tempora a bit. at the moment, realistically you have a fairly clear outlook. i'm not too worried about that just yet. >> what changes that argument? you say it will ultimately shake out by the end of the year.

what flips it on its head? >> that is the one that you want to get right. i think oil is as good an indication as any. i think it will come back. i think the dollar weakness will be the trend of the year. they are determined. generally speaking, if the dollar is weakening, it is best for everyone but particularly for emerging markets. in that sense, if that is the trade, we know it makes it hard for us at the moment, but i think the dollar can strengthen. i do not think it will be lasting for more than a few weeks. >> thank you so much for

bringing that into crucial context for us. he is talking about the dollar and that being the one trade that you have to get right. you have to get the -- economic all right as well. let's start with your dollar call. >> what a great question. i would take it one step back. you have to get the risk right. that is whether it is dollar or equities. it is quite interesting if you look at equity market. they have been flatlining for four weeks. are they going to break on the upside or the downside? the dollar is tricky. some say that we might have a little bit of a growth wobble in

the u.s. with a little bit of risk off and dollar strength. it is a tricky call at the moment. >> why does that come from? >> i do not think you are going to get recession in the u.s. this year, but there are issues with growth. there were a lot of growth drivers in 2023. some of that feeds and also, the consumer, all of that cash. all of that kind of potentially sets you up for the downside. >> is coming hand-in-hand. i'm curious about your perspective. is it too soon? >> what will be interesting is in isla, whether it nikki haley can get some momentum and take that into the next, new

hampshire. whether she can actually make a dent, it seems like a long shot. but that makes the election more interesting at the end of the year. at the moment, it does not look terribly interesting for market. >> what difference does nikki haley make in that regard? >> it is a huge amount of uncertainty. a new candidate, a little bit more moderate could take the vote from biden in the center. it just makes it -- i'm not entirely sure of what all the policies are, but i suspect she is less physically loose than trump, which is interesting because trump seems to want to spend everything on fiscal policy, which i think is dangerous at this time.

>> looking at whether or not you want exposure on the physical front and monetary front. what is the game changer for you? are you concerned about trade policy? or are we concerned about consumer resilience? >> but i am interested in is if we are going to get the great switch. will it be a year where tech does not drive everything? i think we are going to switch away from u.s. equities. i think we are going to value. italian banks have been breaking to the upside. japan is breaking aggressively. these are very interesting signs that money is going to these places. we can get excited about nvidia or depressed about apple. i think, for me, when i'm

thinking about the states and the fed and whether or not they cut, all these things are critical. >> specifically and banks, monetary policy has been driving the story in europe but also in japan as well on the expectation that some point the boj will give way to an increase in interest rates, but how much more can a milk out of that at a time when people are saying that if the fed is going to cut rates, the ecb might beat them to it. >> this is great news if they can steepen it. somebody banks are so cheap. my favorite chart last year is millions is -- it is the most extreme and has ever been.

so who is going to double their ratio the next few years? banks have been really cheap. >> critics would say to cheap. you would be missing out on the great investments of meta-, or nvidia. >> they are great companies. prices -- prices what you pay, value is what you get. i think one or two is a little bit cheaper, but they are reasonably price for the rest of the market. the overpriced, relative to market. we need to redistribute that.

>> what dislocation are you most concerned with? >> it is under quite a bit of pressure. it has sold off since september. the fundamentals are coming into line. not much investment. i think there is an energy stock where there is a lack of supply. also in the oil price itself, there will be an entry point very soon. >> 71 handle on crude. we had to leave it there, but thank you so much for joining us this morning. a little bit of everything. we ran -- we really ran the gamut with him. coming up, we will take you to the forum. we will talk a little bit about

what the ecb policy looks like and european banks being undervalued. is the correct call with oil driven inflation remaining major themes in the market? our crew will be live on the scene and walked us through. stick with us. plenty more analysis and geopolitics ahead. it is an analysis and conversation that you do not want to miss. stick with us. this is bloomberg. ♪

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>> welcome back. it us from davos is joachim, alongside francine lacqua. over to you. >> i am delighted to speak. thank you for joining us. a beautiful view, but let's get to business and talk about ration. has anything changed your view on when we could get cut? >> i think it is too early to talk about cuts. inflation is still high. nevertheless, what we expect for

this year compared to last year, inflation will be half of the level of last year. this is good news. for me, all the discussions regarding inflation cuts comes too early. the markets, from time to time they are optimistic. sometimes they are overoptimistic. i have a different view. i want to see new data kicking in. >> if there is a mismatch between what you see the market sees, does it make it harder? does it impede the kind of work you are trying to do? >> it is about communication. explaining to the markets how we see the world. we addressed it several times. we want to wait for data and we

decide from meeting to meeting. this is still my broad understanding. the numbers i saw are about 3%. this is information. this is something that markets should see and then they can price what they want to price. >> is it safe to assume that a cup would come when you have new data? >> i think it is much too early. maybe we can wait for the summer break or whatever. i do not want to speculate. this is my understanding. we have issued new data. we are living in an uncertain world. 2024 is coming with a lot of

challenges. this will have an impact on monetary policy. we had to believe that meeting to meeting, understanding is the right way to do it. >> some are expecting wage bargaining before there is any thought about cutting. when you look at this -- i know it is early days, but can you give us any steps on how you see this going forward? >> i think it was unsure, last year how things might develop regarding wages. i would like to see how wages develop over the next 12 months. there is still something that has to do with the high inflation rates that we saw at the beginning of last year. there is time behind that. we will see more on the wage

side, but as i said, we have to wait for the data. >> is there anything you could see that would make you want to cut earlier? ? inflation is coming close to our target or close to our 2% target, maybe then i can change my mind, but this is too early. my focus on what i see is that we are coming close to our target by 2025, but it is a long way to go. >> how do you view the fed? if the fed starts cutting aggressively, what does that mean for the ecb? >> we are doing policy for the u.s. and we are looking at what the fed is doing, but we have our own story. this is different. >> how do you see inflation behaving in the next few months? will it be volatile or trajectory to the downside?

>> it looks like it is dependent on so many aspects. what i see is that inflation might come down over the next six months with some volatile numbers. i think the december number gave us the indication that it could be something that could happen in the first three months and then looks like it gives us the indication that inflation might come down. as i said at the beginning of the interview, we will see half of the inflation compared to 2023. >> what is your biggest concern in the next few months? all of this seems like a lot of uncertainty out there. >> on the monetary policy side, we achieved a lot. we gave the indication that we are committed to bringing inflation down to our target. i think this is really bringing

volatility to the market and it is also about trust. i believe that is what we are doing and davos to have a little bit of cooperation and achieving trust. this is so important for financial markets and the major challenge that i see for 2024. >> is it better to cut later? do think that goes to the trust of central banks? >> inflation is a greedy beast. it can be a very stubborn phenomenon, so we should be more stubborn and we should not cut too early. this was a mistake that was done in the past, and i do not want to repeat this mistake. >> is a possible we do not see a cut until the fourth quarter of this year? >> i do not want to speculate.

i will wait for the data. >> a lot of the talks will be with chief executives to try to understand the wages and everything that we talk about. he spent 24 hours talking about inflation. what is the most important conversation going to be? >> normally we are talking just between us between central banks. we can find some new people from different areas getting new insight. i will take advantage of dominoes and maybe find new ideas that i think are important. >> how much do you worry about the economy? >> we had a rather week 2023, so

2024 -- we will see growth picking up a little bit. i think germany has to do its homework. have some issues, but i believe the german industry has shown a lot of adaption capacity. i am a little bit skeptical about the economy. >> that was the president of the bank. i will hand it back to you in london. >> really trying to push for some kind of guidance on what the ecb will be following or what the market is pricing in. five rate cuts priced in. maybe, just maybe that is an overdone forecast. does the ecb stick to what jay powell and his colleagues say or do you see them marching to their own tune? one of the criticisms is that even though you are seeing the

federal reserve ready to cut rates, not to mention the u.k. economy, the concerns around cost-of-living and inflation may be even higher on the side of the atlantic. does that create some sort of divergence from the federal reserve? that does not even get us to the pb ocn doj. andrew joins us from the world economic forum and davos. stick with us. this is bloomberg. ♪

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>> welcome. i want to get to a developing story out in berlin. we are live from the scene covering some really interesting protests, but it is a complicated story. described the scene. what is happening behind you right now? >> this is the combination of a protest that has been going on for days now. farmers taking to the streets, objecting to some things that have been put in place. the government stepped back on some of that, but it was not

enough. now the farmers have driven to berlin, some of them for five hours to park their tractors right in front of the center of german government to really communicate the displeasure with what is going on here. this is the reality of what that looks like, when you need to start taking money from different parts of different industries, this is what you get. the finance minister spoke to the crowd. they are all standing against this government that they feel does not hear what they need. >> talk to us about what they are calling for next and demanding. where does schulz stand in all of this? >> what is interesting is that since the government already backtracked on a number of measures and reduced the amount of time it would take to come into effect, this is seeing to a

large degree as an avenue to air their displeasure with the government. there are also truckers here. i've spoken to nurses who have also been protesting, but we should tie this into the economic data out of germany. it is the only sort of developed major economy to contract. the outlook does not look much better than next year. but if you ask deutsche bank, they expect another year of contraction, which will only ramp up pressure on the government, dealing with a difficult situation. >> talk to us about that politically. governance with the eu and the relationship with other countries, you know what i mean, some of the allies.

where does this bill through and where is it most noticeable? >> what is interesting when you look at the protest, this is a protest against. you talk to different people and they have different opinions on what the solution is. what is clear is that there is not a great deal of faith. you hear this from everybody on the street and where this comes to a four is that you do not have elections until 2025, but you have state elections in september. if those elections were held today, they would sweep all three. it is unprecedented. look at the chancellor who is pulling right now. that is the lowest a chancellor has had since 1987, when they

started putting out these figures. next year, at the end when there will be a federal election. >> a lot to monitor. oliver is on the ground. a pretty dire background. he will bring us updates throughout the day. all was talking about what was going on and the distress in germany. my champion joins us to talk about the developments from that part. he was talking about the polling numbers in germany. joe biden's foreign-policy numbers are dropping, talking about more airstrikes a yemen. talk to us about whether this was a regional escalation. >> yes is the short answer. this began in one place, along

the borders between gaza and israel. it expanded into gaza. since then, you have had constant skirmishing on the northern border. israel has had to him the civilians from the border areas and then you had those in yemen who piled in. and you have various other iranian backed militias in iraq and syria also hitting u.s. interests. in essence, we are already seeing escalation, but what people are talking about when they say we are worried about escalation or regional war is much larger.

or if israel became directly engaged with iran. that is a completely different ballgame. the risk for that happening are increasing. especially if you listen to the rhetoric currently and israel, there is a growing belief that something will have to be done about hezbollah. that what happened in gaza -- they cannot risk that happening on the northern border. there is this buffer zone that should be cleared in southern lebanon, according to resolutions. it is not. there is a good deal of talk about clearing that area. the biden administration is trying to keep this continued, keep it in a box. so far, it has not really escalated. i the heat -- nobody wanted an

all out conflagration, but you can see the bumpers being taken away there, so it is a little bit concerning. >> in response to the airstrikes, the rebels have vowed to continue their attacks. they specified they are only attacking ships headed for israel, but when you look at the shipping industry, they are be routing around the cape of good hope and not be instigating the level of exposure they had before. talk to us about american credibility in this scenario, when they are talking about protecting a part of the world that commercial shippers do not believe is protected. >> it is a difficult position. they were reluctant to hit them

on land. this has been going on for about two months now, where they had interfered with shipping. 20% to 30% decline going through that channel. it is very significant with what has happened there, but there came a point where the u.s., backed by the u.k. in particular felt that they had to hit, and they hit quite hard. somewhere between 100 to 150 cruise missiles. they hit quite hard. it is very difficult to wipe out all the capabilities of a militia like them. they are mobile and quite resilient. they have been fighting for years. we are still waiting to see what

the response is. they said, this will not stand and we will hit back, and that implies escalation. it will require that the u.s. and the u.k. hit back again. we are still waiting for whatever the real response is going to be. >> you alluded that they have been at this for almost a decade in terms of carpet bombing yemen when the civil war has made it one of if not the worst place to live from a humanitarian standpoint. remember in 2014, they trying to help install government only for that to be quickly reversed. what does the future of yemen actually look like? >> it is hard to picture a stable future for yemen right now. one of the many ironies of what

has happened since october 7 is that the saudis essentially reversed the policy. they decided, we failed in crushing the movement. they were in negotiations to find some kind of stable relationship. they did the same with the iranians. they were trying to calm things down. that is why the saudi response was extremely measured, on one hand we do need to keep commercial shipping lanes open but on the other hand, we really do not want to see any kind of escalation. a far cry from a few years ago when the saudi's were pushing hard and trying to get more involvement from the u.s..

those rules are kind of reversed at this point. these major players are essentially being forced into action by a militia far away in yemen. they are being left with few choices and this is how escalation happens. it is because somehow they find themselves in a position where they cannot not act. >> even u.s. troops in baghdad are dealing with these iranian backed militias. what is the endgame? what are they trying to avoid? >> iran is -- it is trying to avoid a direct conflict with the

u.s. or israel, which it understands that it would lose in the sense that it would find a lot of capabilities destroyed. that, they do not want, but they are, at the minimum making the most of the opportunity to further the interest, which are anti-israel, anti-u.s., to get the u.s. out of the middle east, to box israel in, if not ultimately eliminate it. they saw an opportunity after october 7, and so far, if you were going to be completely objective and cold eyed about it , you would have to say that they are doing pretty well. they are tying the messiah in places that it does not want to be tied up. they are forcing the administration into decisions that it does not want to take.

we will have to see how it plays out. it is a dangerous game. >> do you think a different president would heal the rift in the middle east? >> no. the alternative president that we have their, the potential is for donald trump. that would be a very interesting moment in the sense that trump was both a friend and ally of jeanette yahoo! and israel and of the saudi's and uae. the one thing that he might do differently, i suspect, is to take a more direct line in hitting iran. >> one of his campaign pieces

has been how proud he was of the assassination and the iranian -- and the national -- in the national guard. mark, i could talk to you all day long and learned a ton. thank you so much for joining the program and from walking us through the delicate dynamics of what is happening. all coming off the october 7 attacks between israel and gaza. we go there next. next on the program on the chairman and founder joining us. stick with us. this is bloomberg. ♪

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over to you. >> let's talk about iron ore. prices have been easing and andrew is the best person to talk about that. we had a gangbusters fourth-quarter. the concern is china. why do you see prices headed? >> i do not actually think the concern is china. what we have had with iron ore is this megatrend, which is completely unchanged. event dips and bumps, but the megatrend for iron ore is firmly in place. you have accelerating steel consumption. electricity as opposed to cold, you will really see steel taking off. >> put a price to iron ore for the end of the year.

once that is a really good idea. what we know for sure is that will not happen. >> just put a price to it. >> the megatrend will stay in place. >> you say china has been a concern. there is no momentum. even china is concerned about its own growth. >> i do remember when china was growing in double digits, and it was tiny. it started growing high single digits, and that is massive. most economies are nowhere near. 5% growth is very powerful when you have that powerful of an economic base. >> i did -- do you share a rebound that would boost demand and price? >> i look at all the economics

but i also speak to chinese people. i go walking down the streets to various cities and i see the burning ambition in mothers and fathers who leave their children a better life than their parents did. remember, most people were from the revolution and came out of a farming sector. now they have gone into industrial and high-tech. the ambition is that they want to keep improving their lifestyle. >> are you expecting a rebound? >> that is completely fine. i'm expecting a rebound. it will be in the next several months. i'm not remotely concerned about it. i cannot be bothered about spikes and drops. what is the long-term future for this commodity? is it locked into the world?

will it be good for the world? it will not be good for the world unless we send iron ore green. i know they can do that, so we will be good for the world. >> how are you navigating china and the market? >> through saying exactly what we mean. everyone in china knows that what i say, i mean. who they see is who i am. they appreciate it. it is almost australian in that sense, even though it is a different historical culture, -- >> when you take a look at the market, investors have either pooled fully from the market or cut exposure to chinese assets. what is the biggest risk for china? >> i would say that they are leading the world in many cases

ongoing green. if they pull back, that would be a major risk because the popularity as a place by -- it helps their economy. as they push to go green, they have this massive fossil fuel driven sector still growing, but growing faster is the green energy program. that is where your future support base will come from. >> you have been talking about clean energy and presumably, you came here in your private jet. >> helicopter. >> what if the bet fails? what if you are wrong, along with them of the other people? >> i flew here on a product in the commodity. sustainable aviation fuel. it is like any other organic source.

it is good for paper washing but not good for anything else. we need to get into a field about produced fuel that the whole world can make and consume , which is so much better because it is democratic. you do not have your supply chains cut off. you can do it everywhere. that is green electricity. you can get green hydrogen and green ammonia. for the most hard to abide industry in the world, everybody considers it long-distance shipping. we approved it and we are going to prove it to the shipping industry. >> wen yu scale, how do you scale? >> it has brought the technology into existence and it has produced a hydrogen ship.

what it produces as its waste product is beautiful nitrogen. that chip is totally scalable. my last meeting was with the heads of shipping and the head of marketing and technology. they were pushing me to say, let's start placing orders. tell me, what is the new bill cost compared to the refit cost? and they said it is about the same. so i said, what is the operating costs that it has to get rid of? they sell it to shipping because it gets burned out and we burn it. we have to get away from that. we know the solution is there. >> you have been very vocal about ending fossil fuel. who is listening?

do you think the davos crowd will be listening to you? >> i think that soft interest is a factor to the davos crowd. if you consider your family important, your children important -- everyone's child is important, so you will only be planning your future through a lens of when will you take your company green? they always ask anyone who sits in the sea, when will you stop burning fossil fuel? if the answers are this decade, give them a hug. if it is next decade, ask which part? maybe give them a slap on the back, but if they say after 2035, say, you are ignoring global -- global climate. if we do not switch, we are toasting our kids.

what you delayed a decision in queensland because you say they are struggling. what is wrong with australia? what is the issue? >> what a set up. the issue is that we do not have enough green electricity yet in australia. i joined the political leaders in saying that we have to do more green industry or i can just get on and do it. last week we announced a 20 gigawatt program, circa $50 billion to bring in. we announced our commitment to that. we are building out the largest system that australia has ever seen. we are fully committed to it. that is someone walking the talk. >> always a pleasure. there you have it. the question that we must always

ask. always in the hot seat, he says. >> what is wrong with australia? thank you so much for that interview. an interesting context from davos, switzerland. we have plenty more interviews ahead. also joining from davos, switzerland. get a quick check on the markets. it is mlk day, so of course the cash and bond markets are closed by futures are alive and well. stocks are down. euro-dollar catching a little bit of a boost. recruit trading, down 1.5 percent. people are pulling out of that market as we talk about getting exposure. plenty of analysis still ahead. stick with us.

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i am kriti gupta. european stocks slip as traders weigh the monetary policy outlook. germany narrowly escaping reception -- recession. the fourth quarter gdp contracting in just the slightest. we are live in davos, switzerland. top issues on the docket including two wars on the global stage including israel and hamas and the war in ukraine. in the states, u.s. lawmakers release a stopgap spending bill to avert a government shutdown as iowa republicans brave frigid temperatures on the way to today's pivotal caucuses. i hear it is -33 degrees in iowa. -36 celsius. it's a frigid environment in the market. trading in the united states is closed due to mlk day.

4809, the contracts down about 2/10 of 1%. you aren't seeing the risk sentiment around the world in some of the stock market. they are echoing each other. euro-dollar is another one i have my eye on. it has been moving quite a bit throughout the session. one >> nine on euro-dollar. 1.09 on the euro-dollar. brent crude, down 1.7%. a lot going on in the markets. although it is closed in the united states, they are alive in europe. joining us now is the head of advisory solutions and market strategy at raymond james investment management. pledge to have you on this program. happy mlk -- pleasure to have you on this program, happy mlk day to you. what is the biggest market dislocation for you that we have kicked off with in this year? >> great to see you.

it is nice to have a day off in the u.s. i think the biggest dislocation that i am looking at in the market is how do you digest the possible rate cut pricing that the market has put in versus what the fed is going to do? for the past year or so, the market has been pretty aggressive at pricing what it thinks the fed is going to do. it has pretty much been offsides in every one of those cases. when you look at such a good rally heading into the end of 2023 and the fact that it flatlined in 2024 to start, you have to ask have we gone too far, too fast with respect to be rate cut pricing? and what will lead it to materialize? the recent data, as gives that -- good as it is, the pci was good. don't think that is enough to get the fed to move in march, let alone have six rate cuts

happen in 2024. what i would tell clients right now is it's ok to wait and watch the market. the opportunistic with downside. i think earnings are going to be good and there is a lot of opportunity to play a broadening market outside of the magnificent seven that led the market last year. kriti: a lot to chew on. i will take it piece by piece. the rate cuts that are getting priced into this market, we are looking at about five rate cuts priced in in 2024 for the federal reserve. if you compare that to the amount of market moves that the bond investors themselves are creating, you see that bid for the bond market argue boy have a more direct effect on the real economy than the market pricing itself or the federal reserve reacting, how worried should the fed be about the markets being in control? >> i think the fed -- i was surprised at how little the fed

pushed back against the market pricing. when you look at financial conditions, we are at the easiest financial conditions since september of 2022. we have gone up and far back in the opposite direction over the course of 12 to 18 months. that's a problem. i think at the end of the day, the fed is really good at at least anchoring consumer expectations. that is what's most important. how we have expectations anchored, the fed has done a good job of that. i don't think the fed has lost control of the narrative. the market has done this in the past. we will normalize if inflation becomes a bit hotter but i think there is some indigestion have to go through. there is such a dislocation in the market. the ratio between move and fix

is at an all-time high. we are going to go through a period where that remains the case and we will see what remains on the equity side. if earnings come in fairly strong, i don't think you will see that big pickup in equity because there is a good base on which you can continue to build. kriti: it kind of sounds like you are in the camp of consumer resilience really lasting. what's your timeframe on that when you look at the earnings strength? matthew: the consumer, i've learned over my career to never bet against the american consumer. that is a bet that is hard to win because we are great at spending money that we have and better at spending money that we don't necessarily have. i think one of the key pieces of the consumer that was so underappreciated last year was wage growth. sure, we have gone through all of the stimulus checks and exhausted almost all of the pandemic savings that were pent up. at the bottom 50% of the american consumer is making more

money and their wage growth has -- for the past 12 months at this point. you had jp morgan and bank of america last week and you continue to hear from them that the state of the consumer is good and you look at bank balances, they are still strong. those marginal dollars, those consumers can put it to the economy, they remain pretty strong. i don't think that changes. you continue to see pretty good wage growth. especially for the bottom cohorts. it's the top 50% that is more worrisome. but i think there wallets still remain open. the story of the american consumer is still there. at least for the duration of 2024. we will see what happens and where the economy goes they've we have this economic backdrop heading into next year. but i think the consumer remains a good enough base to allow equities to continue to expand. but, changing tastes do matter.

i have recommended to clients to fade some of these trades around travel and leisure and those sorts of things because i think the consumers feelings are constrained, even if they are not actually more constrained. kriti: it's the classic wealth effect worth getting -- working against the stock. you talk about the consumer resilience and base, talk to us about the corporate base as well. we are still in an era where a lot of these corporations, even outside the magnificent seven, are sitting on record piles of cash in an environment where we are dealing with inflation. is that a positive or a negative? matthew: i think it's a positive. corporate america has never been given enough credit for where they are. quarter after quarter after quarter, never materializing because companies have been smart. they have made investments, or at least the good companies you want to own have been making investments over the past 12 to 18 months with the cash they have and they have used really

cheap money during 2020 and 2021 to finance a lot of this project. so, the corporate balance sheets themselves are actually in a really good place. one of the areas i like the most for this year are smaller companies. downmarket cap, there has been dismissed concepcion --this misconception that is not true. a lot of smaller companies took advantage of cheap money. when you look at their capitalization rates, they are just as good a some of the large-cap companies right now. they are not getting ready for that. it's reflecting in valuations. i don't think there is a big problem particularly for higher-quality small-cap companies. so they can keep funding their growth. the picture looks really positive. kriti: but funding that growth, and you mentioned 2020 and 2021,

the record issuance that got them those cash cushions in the first place. when do we see the reckoning in the debt market for some of these companies? matthew: for larger companies like the s&p 500 or so, the biggest are of that issuance is a lot of that debt does not become due until at least 2030. we will look at the maturity over the next five years or so, you have maybe 5-6% companies with different debt maturities coming up. 40% will come to you post 2030. in the short-term, it's not that big of an issue. the market, isn't worrying about rising rates, sure. by and large, the companies that you want to own moving forward, even in the double v space, there are a lot of good balance

sheets that don't have this impending debt coming up in the near future. you have some good runway because you have good balance sheet management taking place over the past few years with record low interest rates. kriti: matt orton of raymond james, we have to leave it there. i keep throwing different asset classes at him and he keeps coming back with answers. we thank you for joining us on this mlk day. apart from that investment strategy and playbook, will be how the gop politics factor in. there is plenty in europe to keep us busy. we have a story live from berlin. set the scene where you are. >> that's right. this is the eighth day of farmers protests across germany where they have been blocking errors to air their grievances with the government. they have come to berlin, the capital city of germany to make their displeasure known to

chancellor schultz and the coalition here. some of them have driven through the night to park their tractors here. there is a procession over a mile long in this direction. we just had a number of associations from the farmers speaking. this has to do with the budget cuts. we talked about the budget crisis that unfurled in germany and this is where the rubber hits the road. they pulled some of the tags away from the farmers and that has unleashed an absolute torrent of protesters. it is mostly the farmers. you have truckers. i spoke to some people who were nurses and in the construction industry. it is an economic backdrop that is looking poor for germany. kriti: connect the dots. we have german data that suggests the german economy is chugging along. how does that translate further into the political pressure at the helm of the country?

>> we say chugging along because they dodged recession barely by a couple of basis points. we are talking about an economy that is flatlining and contracted last year. this year, it's not looking better. they expect a bit of growth in germany in 2024. comments bank and deutsche bank -- no country likes to get poor. certainly one with an affluent background. this is a government and a country that refuses to take out debt to debt finance and this is where we are brought to today. it is hard to see the situation improving at all and it's just the economic pressure that will ramp up the political pressure here in germany. kriti: a history that may not be working in their favor. thank you for reporting liv oute of berlin.

he covers some of the perils the citizens of germany are facing. that will be a theme around the world. how do you price the inflationary pressures, wealth gap of various g10 countries? coming up on the program, the axis bank ceo and managing director joins us. we have the interview in just a few moments. you do not want to miss it. stick with us. this is bloomberg. ♪ ♪ we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com

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♪ kriti: welcome back to bloomberg markets. i am kriti gupta in london. let's head over to dobbs, switzerland. -- davos, switzerland. haslinda, over to you. >> axis bank is one of the biggest private-sector banks in india. first off, i want to talk about india, it's going gangbusters. they have become the darling of investors. can momentum continue if china gets its act together? >> given the current disposition

and how they are embracing this and how they have gone about it from a geopolitical perspective to how they manage the economy and how they engage with the business partners globally, india is in a better place than before to get this right. we expect the current government to come back to power. given all of the factors aligning in favor for india, it should be helpful. >> what kind of growth can we see in india? sustainable? >> maybe next year, it could come down depending on how factors play out. india has reached a zone of 6% to 7% growth. can we sustain it? things are aligning in favor of india. china is struggling. i'm sure china will take the

necessary action to ensure they are back. it is good for india. anything uplifting the global economy is good. >> what could go wrong? >> -- is unproductive a. things are happening around the world that nobody could've imagined six months back. we also have to be aware of the fact that the interest rates of the emerging markets and the general economy will be higher for a longer time. for example, the u.s. has moved from a very loose fiscal market policy to the opposite. given what is going on there am a we expect interest rates to be higher. people are pricing in effect cuts. high interest rate impacts our

ever-growing -- economic growth. >> indian banks are also doing well. deposits, you are lagging behind. how are you looking to catch up to your bigger rivals? >> we would like to do much better. in that sense, yes we are. the deposit growth in the country itself has been -- they believe that it is very important for them to have liquidity in the system. all the other factors add to the deposits. the direction of cash in the system and balances. just because of our deposit, it has been muted. i think once we can get inflation down to the range we have, close to 4%, i think we

will see some rate cuts. hopefully that will improve liquidity. as an institution itself, we have a lot of work to do. we have done a lot of cleaning up. but, we are going through a transformation trying to build a system of how do we do things on a day-to-day basis. >> you talked about possibly cutting rates, when do you see that happening? >> i don't see it happening this year, maybe in the early part of next year. the full inflation is still higher than what we would like it to be. it feeds into a higher inflation story. it is coming under control, slowly and gradually. but i don't think we will see cuts this year. >> we talked about exuberance, is that a cause for concern and windows that become a red flag for you? >> any kind of exuberance is not good for risk taking -- the

risk-taking business. in that sense, the desire to grow could lead to banks starting to lend money. that could lead to loan losses. they are worried about exuberance. they at interest rates to all kinds of loans which means the cost of lending has gone up. it is a clear indication to the market that, slowdown. if you don't bring down the growth rates -- they are trying to see the positive growth rate and they are seeing the ability to converge. they do want things much higher than expected and taken care of. >> what could be the next move

from dr b.i.? >> you will see the impact of this come through in the next quarter. i don't think you will see exuberance being up the same level as before. if the feel and the numbers are not stocking up, they will take action. if you read what the governor has been saying, and is saying it openly, i think the message is clear. >> in terms of axis bank over the next 24 months, what would make sense? >> anything which adds to the sum of our businesses. we have just completed the city bank -- citibank acquisition.

we will shift from citibank technology to axis technology. we need to absorb this and get the full benefit out of it. never say no and never say never. but i don't see any transaction happening in a hurry. >> if the price is right. >> if the price is right but look at the markets in india, when is the price right? >> you have led the bank for five years. you have been credited for cleaning up the bank. what do you think is the best achievement for you? and what could you have done better? >> you talked about asset quality and that was important. another thing we did was announce a growth profit reinstatement strategy. i think we have stuck to that strategy. articulation of what you want to do, how you go about it has been

consistent. we have built on that over a period of time. that story is clear internally and externally. it allows our employees to be able to relate to something. the kind of work they have done is incredible. a lot of work in technology in terms of architecture and platforms that have been crated. and how the work -- the aspiration and ambition of employees. when i came in, i said i am here to take it to the next level. that is important. we have done that. everything could be done better. my job is to look at it as the glass is half empty and i keep

looking at it like that all the time. i keep looking at things and saying what could we do better. >> we thank you so much for your time today. great insights there. pretty, -- kriti, back to you. kriti: we thank you so much. having that conversation about whether or not india is that darling, of not just the em world but the growth story. is it the new china? still ahead, bill lee. plenty more ahead. this is bloombe ♪

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kriti: welcome to bloomberg markets. i am kriti cooped in london. headlines crossing the bloomberg terminal about the latest from boeing. i want to bring to these headlines. comment in a letter to workers saying they are opening factories for 737 operators for added oversight, saying an outside party will review the quality management system and deploy the team to work at spirit as well. spirit aerosystems, one of the key suppliers of boeing, not spirit airlines. they are saying added expect -- inspections will help throughout

the building process. there is a lot to digest in those comments and i want to bring in benedikt kammel, joining us with the latest. your initial take on the steps that boeing is taking? >> we heard that this was a letter to employees and it's one of a string of things the company has put forward. there was a town hall a week ago with the ceo. and the overarching theme in all of this is this is a company in crisis mode. but also, a company that wants to be as transparent and as clear in its messaging as it can. we know that of the two crashes that happened almost five years ago, if you go from that and the tiptoed response, the company has learned from that. that includes opening up to more

inspection. as you said when you read the headlines, there is adding another inspection layer to the processes that bring in not only a third party to help them but also a 737 operator. the likes of united, the likes of alaska. all the companies that fly the 737 max are being invited to come into boeing, review the processes. they are crucially deploying a team to spirit arrow. that is their supplier, to make sure that whatever spirit does is up to snuff and meets their standards. a deep dive into the processes to sharpen their inspections. kriti: talk to us about where you actually go from here. there is only a handful of major players in this space. boeing, airbus. i'm curious about the backlogs that are involved with a lot of these jets. for customers and airlines that are worried about a boeing 737

right now, do they have any option? benedikt: the short answer is they don't have a lot of options. this is a duopoly that has existed for many years. if you are a long-term airbus customer, you will probably remain a long-term airbus customer. if you are a boeing customer, you will stay in that camp. it has some hard economic reasons. you want what is called fleet commonality. you want to have one fleet, one plane. it minimizes training and inspections. it minimizes maintenance. all of these things, you don't want too much complexity in your fleets. the more you mix and match, the more complex it becomes. traditionally, a lot of allies have built their fleets around one supplier, be it airbus or boeing. as you say, it's very difficult to make that switch. even if you wanted to.

say you were a boeing loyalist, you have to join the back of a very long line at this point. airbus planes are sold out for many years in the case of the 320, which is the rival to the 737. you probably won't get a slot until the end of the decade. even if you wanted to make the switch, your options are very limited and you need some real patients. kriti: what kind of timeline are we looking out on top of the backlog you just described? these added layers of inspection, what does it do in terms of timeframe for actual delivery? >> it's too soon to say at this point what it will do for boeing. but it is probably fair to say that it will slow things down for the company as a whole. if you think about what we just heard, these inspections, that means extra time. the company at this point is saying this is not about putting

commercial and trust first, it's about putting the inspections first. right now, the production clip is not where the focus is. this will be interesting and something we will watch closely in terms of what the midterm and longer-term follow of this will be. what does it mean for the production rate? this was supposed to be a year for boeing where production really goes up. that seems to be one of the risk factors here. these extra inspections will take time. that also means, ultimately, having a less profitable business. you can say about the 737 whatever you want, it was a profitable program for boeing. the fewer planes they delivered, the less money. kriti: if we can go back in time here and talk about some of the last iteration of this that

boeing had gone through, when it came to the regulatory aspect from the fea and -- the faa and other aviation authority's around the world, china was the last to clear the 737 to go back into the air. do you see or forecast similar pushback? benedikt: boeing had hoped to resume deliveries to china. ever since the grounding of the 737, china has not taken delivery of any 737 maxes. we were seeing movements, they were moving around on the airfield. there was real optimism in the boeing camp that deliveries were just around the corner. this was coupled with a thawing of political relations and there was a general sense that boeing had managed to get over the final hump that life in terms of

their relationship with china was back to normal. now, there is a huge question mark over that. china is probably slowing things down again. the overarching theme is a great slowdown for boeing in terms of the regulatory response and the boeing build rate. but also, with the chinese, that are probably using this as an opportunity, saying hang on, not too fast. we want to make sure the plans you are delivering meet our specifications. and if anything, they might use it as a way, a political tool where they can say sure, we will take these planes but we want some concessions off the back of that. all of this making an unhealthy cocktail for boeing. but it does ultimately mean that on this front, there will be something of a slowdown. kriti: an interesting dynamic with boeing that leaves a lot of these airlines with little choice. i want to stick with the china

theme and bring in bill leach, chief economist -- bill lee, chief economist. we are talking about the dynamic with china right now it not only in regards of corporations, american corporations, whether it is the magnificent seven or boeing, but also, in light of the presidential election we had in taiwan as well. are we in for another trade war between the two largest global economies? >> we would have thought that because the democratic party got reelected and they are going to continue their independence. but one thing to keep in mind is that the democratic party lost control over the legislature. that means they won't be able to form a coalition government without having to compromise some of their more extreme views and make a deal with some of the minority parties in order to get their legislative program. that means that institutions will be eased up a bit.

there will be more domestic policies. they are going to have to temper their independence views. kriti: let's build on that and talk about what the trigger point might actually be. if we are breathing a sigh of relief on the taiwan front, we are in 2024 with a president election in the united states as well. what kind of tipping point are we looking at where tensions might react? -- three escalate? re-escalate? >> the one area everyone agrees is we have to be careful about china. the democratic and republican party are going to be very aggressive in trying to protect u.s. interests. in particular, to diversify supply chains and get around the fact that china has been the center of manufacturing for the world and supply chain center for the world, in order to get

more votes and in order to get more comfort with safety of its global supply chains. there will be much more talk about friend-shoring and re-shoring and diversifying where it is that we get all of our production. not just electronics but pharmaceuticals and a lot of other things that have been centered around china. kriti: is this only an economic war? i'm curious because i read some analysis coming out of the defense department that said the least funded part of the entire american defense system is actually in pacific command. our escalations, military escalations between china and the united states even on the docket? >> it's not on the docket of the financial markets. the markets have been focused on the pace of rate cuts. they have ignored that there are good cuts and bad cuts. the bad cuts are the ones that deal with the economy falling

apart and the fed having to lower rates in order to bolster a faltering economy. the source of that would be the supply side. we already see that in the who houthi attacks on the red sea. the fact that we have not funded for those complex is something the markets have not priced in yet. you are right to point out that the vulnerability of this -- if there is going to be a big shock in 2024, it will come from other fears. regional conflicts that become global. kriti: is that something that's worth pricing in at a time when we are smack in the middle of the iowa caucus? we are kicking off the presidential cycle and a foregone conclusion is that ultimately, it will be a question of donald trump or president biden.

is that something the economy should be thinking about and pricing in? the idea of a trump 2.0? >> u.s. split up a risks, whether it is trump 2.0 or some democratic 2.0, as i said before, the consensus is they will have to deal with china. that is a rubric around which we can talk about. funding defenses for unanticipated events. the unanticipated event is conflict that are considered contained and regional becoming more systemic. when we had ukraine breakout, it became a global concern because it interfered with energy prices. it interfered with food prices. we saw that it was relatively contained to europe. u.s. production of chemicals had been so strong that we were able to survive that kind of shock. what we don't have now is a defense against houthi

attacks that threat trade that goes through the red sea, which affects energy and manufacturing. kriti: could those risks in the south china sea and the red sea actually re-hype inflation? >> the reason we think it is a one-way path down is because supply chains become repaired. we are able to get stuff we could not get during the covid area. once we cut off the red sea as a huge transportation route, pricing of the stuff we import from the middle east and asia is going to skyrocket. that will re-manifest the problems we had during covid and that is the stagflation problem we wanted to avoid. again, a source of bad rate cuts. if the fed and global

central banks were forced to cut rates because of stagflation, that would be a terrible consequence. kriti: that doesn't even include the pricing related to geopolitics. bill lee, we thank you so much for your analysis this morning. right off the back of that crucial presidential election in taiwan. what does that mean for the united states? that's not the only election we are watching, we are officially in the swing of the 2024 u.s. presidential election. greg valliere will join us next. stick with us. this is bloomberg. ♪

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your small business needs to keep up, excel, and grow. constant contact. helping the small stand tall. kriti: welcome back to bloomberg markets. we are watching closely what the repercussions of the iowa caucus are going to be from around the

world. i want to get more insight. greg valliere, a pleasure to have you on this morning. especially on mlk day, where the u.s. markets are closed. appreciate you making the time. let's start with the iowa caucuses. how relevant are they? greg: i'd be a controlling and -- a contrarian and say they are not very relevant. i think they will be relevant for the third-place finisher, nikki haley or desantis. i think the third-place finisher will be out and we will be down to two by next week in new hampshire. i don't think it's relevant in terms of who's going to win, because we all know who's going to win. kriti: does the margin of victory matter? it's noticeable that nikki haley and ron desantis are steering clear of any criticisms of president trump. to what extent would that yield results down the road? greg: it could. i think that this will be

important in light of all the republicans who are now rushing to endorse donald trump. we saw over the weekend, marco rubio, who has never been a big fan of trump, he endorsed trump. a lot of republicans in the senate are endorsing trump now. there is a sense of momentum. even if trump does not win 50% in new hampshire, i don't think he will. i think nikki haley will dig into his total. once we get new hampshire into his total and then south carolina and nevada, the real story of politics is super tuesday on march 5. it looks to me as if trump is going to have a landslide on super tuesday and it's entirely possible by the next day, trump will be the presumptive nominee. kriti: what is the hot button issue here? there are so many from trade to fiscal -- which the gop is trying to take ownership of amid a variety of other issues.

not to mention policies around israel and gaza. if there is one issue that sets the candidates out, what would it be? greg: it's got to be immigration. i would reiterate that if joe biden loses this election, it will largely be because of immigration. i think the economy is coming back. it's not going to be a big plus provide an but it won't be as much of a drag as it appeared to be two months ago. what immigration is huge. we had, 10,000 people a day coming across the border. we had nearly 2 million people coming across the border illegally into the u.s. during the year of 2023. i think this has hurt biden badly because there is a perception in both parties that he doesn't have a plan. kriti: in terms of a plan, do president trump -- do nikki haley, du ron desantis, do any of them haven't immigration plan

that is sustainable? didn't -- have an immigration plan that is sustainable? didn't we see this in trump presidency? greg: we have a new namic, the new speaker of the house, mike johnson, who is very outspoken about the republican plan, hr two. it's a plan that i never think will make it past the democratic senate. if there is a deal, we will finish with something that is a bitter pill to swallow for biden and the democrats. kriti: can we expand on mike johnson at the moment? he is towing a tough line in terms of the stopgap funding bill that we have seen get passed in the last 24 hours or so. do you think he has what it takes to survive the pressures of his party when it comes to getting a lot more progress on the immigration front? greg: the jury is still out on

mike johnson. he got off to a good start. now, johnson faces a real crisis at the end of this week on january 19. part of the government could shut down. more of it could shut down on february the second. i think they will do a continuing resolution and they will extend all of this and kick the can down the road until early march. but that is not definite. johnson needs to get enough republicans to go along with this. the only way he gets that is to have democrats join him. that's going to make johnson much less popular among house conservatives. kriti: clearly trying to almost save face in so many regards when it comes to keeping the united states finances on track. one of my favorite fun facts about the timeline for the united states in the next 12 months is right after the 2024

presidential election, january of 2025 is when the fiscal debt ceiling conversation comes back in. it's the first thing the new president, whoever it is, we'll see. do you have any insight into what those debt conversations might look like at the start of next year? greg: it will look dysfunctional. i think that one of the real risks a year from now, as you mentioned, one of the real risks will be the credit rating agencies, fitch and s&p. these agencies may further downgrade u.s. debt. not only because our debt is so enormous but because we can't get a handle on doing anything. kriti: let's talk about these economic policies. nikki haley has established herself as having a plan to bring those debt concerns back under control. something that charles koch has

lauded her for. do president trump and ron desantis have a plan on that front? greg: their plan is to reduce the deficit. but when you get into specifics, they are very hazy. nobody wants to talk about social security or medicare. that's the third rail. if you touch it, you get electrocuted. i think the problem is nobody has any specific plans. when you have a specific plan, the public tends to rejected. kriti: talk to us about the plans they have been vocal about. tax cuts and even extending the 20 17th trump cuts as well. is this the right time for that, given that even the federal reserve is trying to stay away from any realm of stimulus? greg: it's a good point trade i think by the time we get to the general election, by the summer and by this fall, tax cuts will be a big issue.

it's popular among republicans but i think most people in the markets are leery. we don't need more stimulus and we sure don't need higher deficits. i think tax cuts will be a dominant issue seven or eight months from now. kriti: but it's interesting where these tax cuts are coming from. if you look at some of the policies these candidates have put forward, a lot of it comes at the expense of democratic funding, things around climate change and ev's and social welfare programs. what might the budget look like in 12 months? greg: we will show high deficits. i'm not sure we will be at 2 trillion like we were in the last year or close to 2 trillion. but when you look at the budget issues, there is perhaps a growing sense that we spend too much money on infrastructure. too much money during covid. i think all republicans and some democrats feel we have to curtail spending.

maybe we peaked out on spending. it's still going to go up for demographic reasons. i think the deficit this year may not be as bad as it was in the previous year. kriti: i have to wrap it up with you and talk about the foreign policy. we talked a lot about the economics of it. i'm curious about where some of these gop candidates might make or break it when it comes to israel, ukraine and china. at a time when president biden is getting a lot of pushback on his own foreign policy record, what do you think of it? greg: it's a huge issue. my fear is vladimir putin will get what he wanted all along, a lack of resolve, a growing sense of indifference on the part of the west. especially the u.s., to aid ukraine. i think the aid to ukraine is in trouble. it will be several weeks before we get out of congress. you can sense in congress a

growing lack of resolve to do more to help the ukrainians. kriti: it is certainly a lot to digest and i think $100 billion, 60 billion dollars is tied to immigration spending in order to clear the aid to ukraine. craig valliere, we thank you so much and we appreciate your analysis this morning. it is a really hot button issue and bloomberg tv will have live coverage of what is going on in the iowa caucuses and the platforms, the margin of victory that president trump is going to have. does that set the precedent for the new hampshire caucuses we are going to get? where you have more of an independent base and one nikki haley is expected to come out on top of. coming up, nikolai tangen.

stick with us. this is bloomberg. ♪ that first time you take a step back. i made that. with your very own online store. i sold that. and you can manage it all in one place. i built this. and it was easy, with a partner that puts you first. godaddy. how am i going to find a doctor when i'm hallucinating? what do you think, fever monster? what about zocdoc? zocdoc? dr. castell has a great bedside manner. so many options. but dr. xichun will take your sketchy insurance. xi-chun! xi-chun, xi-chun, xi-chun! thanks, bro! you've got more options than you know. book now.

guy: welcome to bloomberg markets. u.s. markets closed today. it is martin luther king junior holiday. we have some futures for you. we will show you that in just a moment. markets are drifting. we have a lot to price and today. what the u.s. volume else, i do not think you will be getting a clear signal. out of europe, a lot of analyst calls are having a big impact. l'oreal is under some pressure.

food delivery companies are under pressure as well. you are seeing some weakness, but i think it is sector single stock specific. there is a macro story today. i have been surprised by the number of speakers who have come out and told us that we have to wait for rate cut. we may not see any make onset all in 2024, which is in stark contrast with how we started hearing. we started the year by thinking that the soft landing would be accompanied by multiple rate cuts and that everything would be good and be a beautiful and immaculate disinflation process. 15 days in, does that still apply? joining us to discuss, michael,

you are standing next to me. do you have a clear view of the world today versus the beginning of the year? >> we are having an outlook that is more blurry than it used to be. coming into the year, rate cuts are coming and earnings are doing fine. now, we do not know anymore. like you said, the central banks are getting mixed messages. we are not really sure anymore. they have the habit of doing that quite often. i think that is what has changed this year. we have huge improvement in positioning and investors rushing into equities. you have earnings that are very study, but we have expectations,

great expectations for this year and the next. you have a lot of rate cuts still priced in. still in there. if something is going to give somewhere, it is all over the place. >> all of that certainty starting to dissipate. in some ways, i'm surprised it has not dissipated more. he came into this year with crystal-clear views about 2024 would look like. are they fraying around the edges? >> not at all. i stick with that view. clearly, you can see huge supply and network demand matching it in the corporate bonds. that gives me great confidence that this year will be the year of rate cuts and i echo what michael said regarding the ecb

and particular, trying to persuade us on those banks. we may think about it after the summer. i think they are both wishful thinking. i think we will see a rate cut in late spring. and finally, the bank of england. guy: what if that does not happen? data out of the u.s. -- let's look at the data out of the u.s. because the labor market is not rolling over. it remains strong. cpi is coming down more slowly. you talk to people in the sector and they talk about av acceleration. why is the data not telling us to push this out? >> do not look at the data.

they have proved to be utter rubbish. i would not put too much on that. look at expectations and decision-making panels. and just look at the window really. inflation is coming down quite hard. they were very weak and have continued to be weak. as far as the economy is concerned, look at the 0.3 drop. that is why central banks need to get their act together. that is the point. we're not talking about crazy interest rate cuts. i'm talking about a steady plan in the second quarter. positive for stocks and bonds. the oil price might go up.

what happens if we get rate cuts later? talk about how stretched some of this positioning is, if you plug in a higher rate from central banks. what kind of trading stories are they kicking out? quest you have the systematic strategies that have been buying equity futures in europe and the u.s. with high positioning of the minutes. those have been acting according to what the bond market is pricing. they are very fast to adjust. when you have a ms. price and there is an adjustment, those funds will adjust as well. you can expect heightened volatility but you can see that we are getting close in terms of

technicals and positioning. they can reverse quickly. probably not a crash. the outlook is still not bad. there is no reason but can you have a little drop? definitely. guy: six rate cuts might be a stretch. you very much. talking us through the start of 2024 and whether we have more clarity. if you want clarity, there is one place to go this week. francine is there with the norwegian wealth fund ceo. over to you. quest he certainly get clarity at the bank. at least you help that you get it. making sense of everything that is going wrong and puts a lot of angst in the world.

thank you for joining us. there is just not great news out there. how does it impact your investment outlook? >> i agree that it does not look good. we are optimistic when it comes to returns. if we start with rates, internationally, i do not see them coming down as fast as many other people. i think we have other pressures. which demand is really high in some countries, which could lead to spiraling of inflation, going forward. you have climate effects that are negative. a lot of things, but not a happy content. >> it means that they have to go around. could that impact negative the world economy, if this last much longer? flex absolutely. we are seeing banks going up and problems with the panama canal.

some of the traders -- >> i know you are an investor, but how do you look at the next 12 to 24 months? >> we are a very large fund. you have to be extremely long-term and very well diversified. we own a small part of the whole world, so you have to be there for a long time. >> it is not only because of the interest rates that we have seen. >> money is not free anymore and i do not think it will be for a long period of time. that has indications for companies that have that. we are seeing it in the market and we have seen the big jump in cost of capital.

from here, it will normalize a little bit going forward. >> you have a great podcast. what is always your killer questions understand whether you want to stay invested? >> we have this podcast called in good company. what i think is interesting is how big of a difference management can make. two businesses seem to be similar at one is doing extremely well and the other is doing badly. it is coming from the top. it is how they instill passion and drive, and it is fascinating. >> it is on this, changing how we do the economy. how do you do the companies? quest we have a lot of good portfolio managers. the ticking of the companies is decentralized.

quest 2023 is when we saw the world economy being resilient. does that change how you see the economy, going forward? >> what really derails things are the things that we never thought about, the financial crisis, and earthquake, covid, those type of situations are what will derail it, and we do not know what 2024 is going to be, but it will be something that none of us have thought about. i'm not especially interested in energy. maybe markets. quest you now have to be a geopolitical whisper to the greats and the goods to understand. you come to davos to try to figure out what the hotspots mean for investors? what are money markets getting wrong right now?

>> we are meeting a lot of ceos and i love to talk to the companies about how they are seeing inflationary pressures because sometimes the central banks are a little bit backwards looking, so to talk to than and to see what they are seeing right now and what they expect to see, that is really interesting. >> when you have a bad quarter, what do you tell your stakeholders? how difficult is it to manage volatility? >> we are running in the fund close to the index and we have a fantastic index and great people in the ministry. and there is a deep understanding of how we work. when we have a bad quarter, it is typically not a surprise because the market has been behaving on the. >> if you think the interest rate cuts are not coming, is it

because the economy is more fragile than we think? >> i think there just more pressure. i think the central banks will be very careful, in cutting rates to quickly. >> what does that mean for your returns? >> i think it will be lackluster. >> you cannot change your portfolio to make up for that? >> you cannot, really. when you are the size that we are, it is tough to change. all you want to do is to be invested in compound and benefit from earnings growth in the company. >> do you think there is a story that you think will come out that we have not talked about yet? is there anything that could change the way we look at the world? >> and i will be a big driver for efficient.

the assumption that we will increase productivity -- i have sam altman on the podcast and i ask him, what do you think? he said, you are too conservative. what do i do? i look around and i say, 20 percent improved efficiency. where is it coming from? all over the place. it is really transformational for 70 things. quest you actually buy the companies that are at the forefront of ai active quest you have the.com boom with the rally . did it happen? yes. share prices went down. i would not be surprised if we saw a correction in the ai related companies. it does not mean that ai is not real. quest it feels like the world is a little bit upside down.

quest the way to make money has to do the opposite of everyone else. violet is completely out of favor and you sell what is really old. you have to be contrarian. and there is reversion. that is the way to do it. you know, some of the green transition companies have done badly over the last year or so. esg has become a bad word in parts of the world. i expect some interesting opportunities there. quest we are looking at over 50% of gdp of substance going to the polls. how unnerving is that? >> a very good question. we will have big changes potentially in many places. it is less clear because you

often have people with different views but they might be positive for business. it is difficult to say what it would be. quest my boss is going to say the same. how do you change the number of employees? does it change with hiring? >> i think we have to do more. >> more in terms of analysis? >> data -- the whole thing. >> what are you most looking forward to in davos? >> i have back-to-back meetings over the next few days and i'm looking forward to meeting so many new people. it is very important to be shared. quest you have a question that you need answered? is there something that you wish you had a crystal ball for?

>> what is on your mind? i asked your boss before this interview, what is on his mind? ai. >> thank you for joining us. i'm going to hand it back to you in london. we'll work on the productivity. we will come back to you with what we have learned through the day. quest everything has to be 20% better. nikolai and francine, a fantastic conversation. some great interviews coming up. you do not want to tear your eyes away from what is happening in davos. not very optimistic about returns over the next few years. spiraling inflation. would not be surprised if there was a correction in ai stocks. more insights into our question of the day.

is the outlook for 2024 -- this is bloomberg. ♪

>> inflation has become sticky and for various reasons. we have lower growth and high government spending. we have a fractured geopolitical system, so all of this basically raises costs, and but we will find as inflation drops, by the end of the year, legal realize that it does not settle easily and 2% but i think more than likely, we will settle slightly above 2%, which means central banks will have to say on alert. quest blackrock talking to

francine a little earlier on from the world economic forum. a couple things to throw in on top of what he was. yet the norwegian health fund talking about the risk of spiraling inflation and he is not convinced that inflation is going to be easily attained. a u.s. advisory going out, regarding the red sea, indicating that the route is still too risky for ships. in inflationary narrative that may not have been there. is the outlook becoming clearer or a little bit more murky? the cio joining us now. christopher, what did you think at the beginning of this year? has the view started to change a little bit as we work our way through january active >> the most important thing about our

view is that it has not changed much. we came in thinking that inflation would be stickier. we continue to believe that today because the data we got last week confirms that the federal reserve has to be careful about cutting rates too soon and having a bp of what happened in the early 1980's. investors should be afraid of a repeat of that playbook. guy: they you not want to play and have them sort it out. how do you turn that into an investment decency? still this mentality. we have seen a little bit of it feeding. mie portfolio around that thesis. >> it lends someone to say

traditional stocks and bonds is not necessarily a great place to be. we are very much the camp that people need to be diversified and public markets have a piece of that, but the private markets as well. in february i have a book coming out called the holy grail of investing, talking about how you have to have these uncorrelated asset classes. today, the s&p 500 has one of the worst outlooks over the next decade and it has had in the last 40 years. if you look at any number of metrics, it is not a great place to be buying vanilla stocks, if you will. >> there was a note out from apollo talking about the stretched valuations that u.s. stocks have with the rest of the world. should i refine that and talk about u.s. tech stocks versus

the rest of the world? what happens if texts wobbles -- if it wobbles? bux they are wonderful companies with great market positions, but they are very expensive, and in 2021 to 2022, those stocks decline by 50%. if that is 30%, i'm not saying they are going to go down, but if they go down materially, everything else in index world will come down. there are some good values there, but the reality is, you had to three and look not just at the magnificent seven and the indices because there is a lot more value around the world that can behead if someone is willing to look as opposed to clicking a button and buying index. guy: i cannot member but it was,

probably pre-pandemic. peeking came out with a famous line, cash is trash. will cash be trash in 2024? >> it might be an asset this year. it is still not great, but at least it is a positive return today. a couple years ago, it was a negative tilray of return. if you are getting five and a quarter, it means inflation is more than five and a quarter and they will hike rates dramatically. it is not a bad place to be as the overall plan, but i would not make it 100% of the portfolio. >> certainly after the back end of last year, they treated in tandem. a great back in of last year going up 10 plus percent, but it

is not meant to do that. they are meant to be uncorrelated assets. what are the uncorrelated assets? what are the hedges, one way or the other? how do i build a portfolio that has that diversification in a go how correlated are some of those areas that you have outlined? quest very correlated, which is disconcerting for investors. in order to put together a portfolio, you have to find things that are not as correlated. bonds next year could actually provide some correlation benefit because if we had a major recession that causes the federal reserve to cut interest rate, most likely, stocks will get hammered but bonds will do well. it could do some good and give

you some correlation benefits, but you have to go outside of that and look at emerging markets. guy: i will leave you to the rest of your holiday. have to go. ♪ you can't buy great conversations or moments that matter, but you can invest in them. at t. rowe price our strategic investing approach can help you build the future you imagine. t. rowe price, invest with confidence.

guy: welcome back. it took use to the world economic forum. some really smart people talking about how they see the world. al gore speaking earlier to francine about the process he has seen on the environment and what came out of last year's 28. take a listen. >> the time has come to reform this process. the world is getting understandably impatient and frustrated that these conferences are rigged. the deck is stacked in favor of

the fossil fuel industry. there are so many loopholes and so many tricky phrases. it took 28 years before we could use the phrase fossil fuels. that is what it is and it has taken it this long to overcome the resistance. even naming the problem. >> what happens to climate change ledges if trump has a second term? >> i think that in spite of loopholes i have mentioned and in right of the frustration, many climate advocates like i have felt -- we see the direction of travel provoke is this an government. shifting towards though carbon renewable energy and toward men

zero. we see the same thing here at the world economic forum. it is unique in bringing all kinds of people together in a way that does not happen anywhere else. your question was? what if president trump gets into the white house. >> i hope that does not happen. there are many americans who are for him. the last time he became president. we continued march towards renewable energy. on the business side and state governments continued to pursue carbon reduction. here in davos, a republican meant state governor from georgia is leading off talking about electric vehicles and we are seeing with the legislation that president biden got past the inflation reductant -- reduction act.

we are seeing a change in the political realities on the ground in the u.s. with the creation of tens of thousands of new jobs and elected vehicles, wind, solar, green hydrogen, and now some of these red states are now seeing the benefit of all these new jobs being created and it is changing the reality. >> you think donald trump would not try to touch that younger >> i would not pretend to know what goes on in his calculations. tonight we will see the results of the first contest, which all the pundits tell us he is likely to win, but in new hampshire, it could be a different story. >> laying out some of the challenges that are going to be with us during 2024. let's get back to the question

of the day on that front. so much has changed since the start of the year. what does that mean in the terms of trying to learn how to reverse for the rest of the year? joining us now to discuss, thank you very much for joining us this holiday. let's talk about 2024. we came into the air talking about the idea that we would see a soft landing with a lot of rate cuts, and it was a great environment for buying bonds and stocks. is that starting to fray around the edges? >> i think they are still going to have a soft landing, absent the rate cuts. i think everybody was a little too aggressive and it was aided by powell's comments that we could see as many as six and now it is questionable based on what they are seeing in davos. we may not even get three.

>> if you get three, what would that mean and terms of where assets are? we feel strong around the back end of last year. they wobbled a little at the beginning of this year, but we are up your record highs. can be advanced from here if we only get three? >> i think we can. the main reason, if they cut rates will be to help the yield curve. when the curve is inverted, the treasury's borrowing cost go down because they have a tendency to borrow at the shortened of the market, which is still very high, so that is the only reason, and i can see where they would cut rates. the 10 year treasury? it is appropriately priced if we were at 2% inflation, and we are not. i do not expect any relief

there. i could foresee the 10 year and the thirty-year going up from here, as the market digests inflation. guy: to where? >> i think you could approach 4.5%. it needs to come in hot on the 10 year. guy: a couple things around this. let's talk about inflation free moment. there are a lot of people in davos. they are clearly very concerned -- conservative about inflation. is there still cause for concern on it nation? >> yes. they are ignoring a number of things. wage inflation settled in at about 5.3%.

chairman powell says that any wage growth, any wage increase above that is not accompanied by productivity is inflationary. if your target is 2% inflation and you have 5.3% wage inflation, and you have -- every day we are reading about strikes and labor unrest. this morning there was a piece about the nurses in chicago getting ready to go on strike. that is not the kind of environment conducive to lower inflation. >> the fed cuts two to three times this year. talk about the kind of returns we should be looking at. we had the head of the sovereign norwegian health fund on. is that what we should expect

now? low returns? >> in the index, yes. they are so dominated by the magnificent seven that you almost have to have some reversion. the return and nasdaq is less than 6%, so all we are doing is going back and revisiting historical returns. a lot of people think -- they got to the mistaken belief that you could grow at 15% to 16% on equities. it has always been unrealistic. >> we talk about the magnificent seven and how cyclical do you think they are? if you were to get a downturn, do you think they would -- there would be more cyclicality than you would have thought? >> possibly, but the focus would

be on valuation. they will drop, if the economy slows. it is inevitable. if you have a 10% drop in the price, that is over $100 billion that has to be made up by something else, see you drop tesla nvidia, 10% to 15% and the indexes are going to look very poor in terms of returns. it will be a stock pickers market just like it was in the 70's. >> this year feels like it will be volatile. how easy will it be to pick stocks? you look at last year and the s&p had a great year taking stocks. this is the challenge that a lot

of people face. then they get into some of those stocks and they get whipped around and i'm wondering how people should manage that process. what is your advice? picking good stocks is obviously the starting point, but the volatility is likely to be high. >> it will require incredible discipline. we are holding and waiting. he said the best thing i have going on for me right now is i do not have clients. my good friend larry mcdonald talks about the head fake with rates. jeff talked about it and predicted the short-term decline in rates, and route to rates going up longer-term because of a lack of physical discipline. you have to be incredibly disciplined.

and you have to wait. i think one of the area interviews, he said, treasuries -- cash is not trash. treasuries present a reasonable asset class, a good return and what will be a very volatile environment in 2024. guy: thank you for stopping by on your holiday. thank you very much. coming up, thousands of angry farmers protesting in berlin today. germany narrowly escaping following -- falling into a recession. this is an unpopular idea with the coalition and germany right now. we will turn our attention to what is happening there, next. this is bloomberg.

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guy: german gdp out later today. this happening on the same day that thousands of angry farmers descended on berlin with their tractors and loudly booed the minister making a protest against plans to tax cuts on fuel. tractors were blocking the streets. it was pretty busy. oliver was out there covering it for us. he joins us now from berlin. let's talk about what is happening here. germany feels like a very unhappy place and it is unhappy about a lot of.

how does the farmer protest fit into that? >> you can tie them together, the gdp and the farmer's story. this is where the rubber hits the road. this is the real manifestation of it. first the budget crisis. the government had to rollback these tax subsidies because of a budget crisis and funds disappeared overnight. the reality of lugging the whole is taking money from somebody in germany, and in this case it is the farmers. the second thing we saw is contraction in germany. though they dodged a recession, it was -- what does this look forward -- what does this look like going forward? slight growth in germany, but if you ask them, they expect contraction.

the direction of travel is what people are focused on. >> is this similar to the protest at deutsche bank? is it the same as the view being expressed? are there different strands that we need to focus on? or is it the same melting pot? >> i think there are different strands. the protest is about getting wages of, but you can say probably speaking that it is a very prosperous nation that is shrinking and getting poorer. that is not something people feel very secure with. it is very scary to people. the way it will manifest politically is a protest vote for the fringes of politics. the afd is a very far right party and is now the second party in germany.

this will all come off into a severe focus in december when you have three state elections in east germany if they were held today would be swept by the afd without precedent. >> great coverage this morning. really enjoyed seeing what is happening there. thank you very much. i want to take you back to what is happening in the world economic forum in davos. 20 us for an exclusive interview is the ceo, joined by francine. back over to you. >> joined by the chief executive . thank you so much for joining us. there is so much going on in the world economy. are you optimistic about year ahead? >> i think this year will bring

a lot of clarity. i think we have been fighting inflation and we have been bringing the numbers down. this year will confirm whether we defeated inflation or not. i think the market is anticipating a cut and different views on whether we will have a big cut. i see this as idealistic but i'm sure if the numbers come down, i think we will see a little bit of the cut. >> when you look at your priorities, what do they look like? >> priorities, we are active in all sectors. what matters are the themes that we have, for example, technologies. we are interested in enterprise software and digitalization, aia . aia is becoming very important to commodities and it is a game changer.

health care is a big theme as well. a lot of ai could be used in health care. people are very conscious about spending. the government is starting to admit that they have not invested in the health care sector, so a lot of opportunities will come. on top of this, you have in aging population that i think they will make sure to bring a lot of technologies in. quest everything is further out and takes years, but we have seen changes in your portfolios come so does that mean that you are likely to add to health care companies? >> people see us from time to time reducing exposure, and this

is normal activities. we positioning the portfolio -- i think they are healthy things in our dna. we still hold a big stake, but we are continuing to invest in u.k. and europe. i'm not signaling anything out of this. >> your very invested. are you concerned about commercial property? >> commercial property? yes. it is becoming -- especially if you have that, some of that. also in the office space, i think it has a little bit of risk. >> when you keep it? >> we are keeping. we are long-term investors. they think that we have stable

financial capabilities and a strong partner. you have agreed that we keep supporting the project and it is about time to exit, by all means. quest i.e. more positive on the u.s. than other parts of the world? there are uncertainties about division and the election coming up. >> it is the biggest market for our investment, but nowadays i see that other equity market might perform better. japan looks very interesting. europe. i think the market is anticipating a big cut, but -- which is idealistic. >> you are not expecting van cuts to c-reactive >> i am expecting a big fed cut.

but i am anticipating a cut but not the magnitude that the market is anticipating. quest how difficult is it to see what is happening on geopolitics? does it change your view on how you are invested in the region? >> i am very proud of my government mediating. i'm sorry about the casualties during the conflict. i pray that they can settle this as soon as possible, but i think getting into 2024 with a lot of geopolitical conflict -- i feel that the societal challenges will be one of the risks that we are monitoring very closely. >> does it mean that it is more

difficult to understand or read then early 2023 was? >> i do not think so in the short-term, but i think this is something that we should be aware of and monitor how people think about this issue and the polarization that we see in societies. this is one of the biggest risks that we see long-term. quest definitely with the globalization, the world is becoming smaller. this will have an impact on a trade and deglobalization and terrible policymaking, and different government, and in terms of the election, this year is a big year everywhere. definitely, businesses will have some sort of impact on the world economy. quest does not change how you

see the trajectory of regency want to be invested in daca you mentioned europe as having opportunities. is this because valuations were cheap or because you expect it to be ok? >> i think valuation is ok right now in europe. we have a long-term strategy that we have set and we have very proper asset allocation, and we are going to continue. nothing will change at the moment. quest this year was meant to be the year of china's we opening with a lot of positivity coming from china. >> china is going through challenges right now, no doubt. the local government would like to deleverage. you have the real estate problem as well but china is a big market and we cannot ignore it.

especially if you are long-term investors. quest thank you for joining us today. with that, i will send it back to you in london. it is only day one, so we have four more days. guy: some fantastic conversations coming out of davos. plenty more guests coming from francine and the rest of the team. european markets open today. u.s. markets? closed today. volume is a little light. what i think is interesting today is that we are seeing a little bit of a selloff in the bond market. this despite the fact that warnings are remaining around the red sea. we will carry on with our conversation of the day. how clear is 2024?

archie charged this will be joining us next. this is bloomberg. -- our chief strategist will be joining us next. this is bloomberg. ♪ ♪ ♪

♪ ♪ ♪ ♪

>> from the financial centers of the world, this is the number of markets without steel and guy johnson. -- alix steel and guy johnson. guy: 10:00 a.m. in new york, 3:00 in london. welcome to bloomberg markets. in the u.s., we are close, martin luther king jr. holiday today, as a result there is no trading. we have futures trading. here in europe, we have a lot to think about. a lot going on at the world economic forum. we will fold out into the day as it progresses.

stoxx 600 software, s&p futures software, the pound a little softer. the dollar is having a reasonable day today but i would take all of this price action with a pinch of salt, waiting for the u.s. to return. we have a lot of data to work our way through this week and still a lot of earnings, big banks still on deck this week. we are 15 days into 2024. we came into the year with a huge amount of certainty, didn't we? soft landing, it will be great, lots of rate cuts. is the outlook for 2024 still looking like that? is it becoming clearer or, dare i say, more murky? we are joined by justina lee and john. beginning of the year, everyone was highly certain, new what would happen this year, lots of rate cuts, soft landing, still convinced?

john: we are not. more so than the outlook becoming clearer is last year, markets got ahead of themselves in terms of optimism. it was always hard to rationalize why they started pricing in xm or a rate cuts by the fed. obviously a little overexcited. wait a minute, what are we doing here? we have massive elections everywhere. we have also seen escalation in the middle east, which everyone was hoping would not happen, and everyone is hoping it doesn't get worse from here but it certainly could. there is always politics but it feels like there are more moving parts than normal in 2024. if anybody knew what was happening this year, they were deluding themselves.

justina: absolutely confusing. there was a moment where i looked at the terminal, economists expecting four rate cuts from the ecb next year and then the next one says, no one is even thinking about rate cuts this year. that tells you that divergence here between a lot of policymakers and what markets are pricing in. one interesting thing that he pointed out, he made it very clear that the tolerance for inflation, any lingering threats of that is simply not there, especially now that you have geopolitical risk coming in potentially disrupting the supply chain and maybe bringing in a lot of the inflation risks that we thought were done and dusted. guy: you look at happening -- what is happening with strikes, wage negotiations, clearly upsetting central banks. i hear what you are saying but what is happening in markets tells a different story. if i looked at my bloomberg terminal and asset prices, there

has not been that much of a wrinkle emerging this far. equity markets have softened a little bit from the exuberance of last year. why are the markets still on track for six rate cuts out of the federal reserve, why are they on track for fresh record highs it comes to equities? why is none of that inflation being priced back in? justina: if you are the kind of person that believes there will be six rate cuts, there is some evidence, like pointing to last week's producer price data, but i am baffled, because of the same time, if you look at cpi, other sources of data, it doesn't point to inflation is overcome a recession is coming. maybe the story is different in europe. in equities there is a different story there. u.s. benchmarks, the story is do we still have faith in the mega caps, can they keep on rallying from here despite these valuations? that is maybe a different story

from the economic one. guy: the problem with 2024, even if you get it right, for quite a period of time, you will get it wrong. you have to have quite strong constitution this year even if you get it right. john: you may have good guesses about what will happen next, but how do you play those things in the markets? this is why we have diversified portfolios. as you say with inflation, there's been a lot of pushback from central bankers. at the same time, demand for european bond issuance this year has been massive, it will hit record levels. given that people are starting to worry about the level of sovereign debt, the deluge we will see in the markets, that is not being placed in the markets at all.

it is almost a belief in goldilocks still happening but it feels like there are so many things that could do real goldilocks this year. perhaps why central banks have been pushing back against it, trying to introduce a lot of bit more of a sense of reality. two-way risk. guy: how are the markets going to deal with this? are we starting to get an idea of that? it does seem that we are looking at a year of extreme volatility, right position being wrong for a while, ron positions being right. your perception as to whether those are the right or wrong positions. when i'm surprise what is we have not seen a pickup in volatility, we have not seen options being priced for some of these extreme positions. i wonder what the psychology is in markets right now. our people convinced of their own position so they don't feel they need to hedge? if hedging start to pick up, is

that a soulful filling prophecy? i wonder what is going on underneath the surface. justina: the market is interesting because we have seen volatility depressed for more than a year now, more for structural reasons. there's a lot of interest now in selling options than buying options. what that means is if you want to hedge right now, it is a cheap time to enter in those positions. on a macro level, it is interesting, because the equity market seems pretty confident in this goldilocks narrative. if you look at what the bond market is pricing in, we are not just talking about easing to get back to slightly looser levels, it is a full on recession. maybe the first place to look is not necessarily the mega caps but what cyclical shares are doing. guy: what i'm trying to discern at the moment is where people's uncertainty is showing up. if you look at the bond markets, equity markets, there is a huge

degree of uncertainty. i am not seeing it in the options market. if people start to get more uncertain about the outlook for 2024, where do i look for that? justina: that is a great question. we are not seeing that right now. maybe because there had not been these huge swing factors that are changing people's positions right now. but we are starting to see a lot of earnings estimates especially in europe coming down. that will be interesting because at a top-down level it doesn't seem like people are that pessimistic. guy: where would you look, john? looking for uncertainty, is it in company earnings expectations? multiples are showing up there. does it show up in commodities, options? where does uncertainty appear today? 60/40 is producing great returns but it shouldn't be. john: that is the trillion

dollar question. one place that i always look at is gold. near record highs but not quite getting above it. that works quite well. it is an old asset that is fairly well-known. you would think that if people have faith in interest rates, that they will fall harder, golda shouldn't be near a record high. oil is astonishing at the moment to me. hanging around $70, $80 a barrel in brent or most of the year despite all the volatility, issues in the middle east, despite the best efforts of the saudi's to keep the price propped up and moving higher. that is almost like a dog that has not barked. i would probably be looking at commodity prices more than anything else. guy: i find it unnerving.

it is almost too quiet out there. i don't know if that is because everyone is like a rabbit in the headlights. john: there may be an element of paralysis in it. i don't feel there is a high conviction. on the one hand, u.s. equities, tech, the magnificent seven are fully priced. most other equities are kind of cheapish. bonds are attractive, but is that because people have gotten into the habit of buying bonds the last 40 years of a bull market? i think there are an awful lot of views competing for attention. guy: raven in the headlights or is this a market that has conviction? justina: you just kind of jinxed it there.

if you think of market is overoptimistic about rate cuts, are you supposed to go short bonds here? we were talking about how borrowing equity volatility, but the rights market has become more active. that is another area where you can place trades. i would also be interested in seeing the internal leaderboard within the stock market. our people so risk tolerant, are they buying risky stocks, are they buying cyclicals or do they want to write mega caps? guy: looking for some rotation among those cyclical stocks. i am slightly unnerved about what is happening here. coming up, more insights into our question of the day. is the outlook for 2024 becoming clearer or more murky? steve sosnick of interactive brokers joins us next. this is bloomberg. ♪

>> what we expect for this year compared to last year, inflation will be half the level of last year. this is good news, per se, but as i said, inflation is too high. all the discussion regarding inflation cuts comes too early. guy: president of the bundesbank, a hawk to say the least. talking about rate cuts, i'm trying to think about how i should think about him today. some are saying we should not think about rate cuts at all. he is saying maybe we are a bit early in terms of our pricing but maybe we will get them. it just paints a picture of confusion at the moment. when do the rate cuts come, how big mother ultimately be?

we came into this year convinced that we will see ultimate rate cuts, soft landing, almost good. 15 days in, what do we think, is the outcome becoming clearer or more murky? joining us to answer the question is steve sosnick of interactive brokers. beginning of this year we knew what was happening. 15 days in, how convinced are we? steve: the markets, in some ways, i will not say delusional about wishful thinking is going on. we ended the year with what i like to call weaponized fomo. any asset that could have been bought was bought because there was this huge race to not miss benchmarks, portfolio managers to do their best to either perform on absolute terms or on relative terms. that catalyst is behind us. a lot of the features that were

priced in in late december remain with us. it is very tough as you have an election year in the u.s. that promises to be bizarre, and then you have the conundrum of equities pricing in solid earnings growth while at the same time the bond market is telling us we are getting six rate cuts. those are conflicting economic scenarios. there is a lot that has to be resolved this year. unfortunately, the outlook is murky and remains so. guy: how long will we have to wait to get resolution to that? when that resolution comes, how messy do you think it will be? so many conflicting forces in the market right now, the bond market is one way, the equity market is the other, very little protection in the equity market. volatility in the bond market has been extreme. how bumpy will that process of resolution of some of this tension will be to you think? steve: i think there will be

bonds in the road, there has to be. i think we will figure this out in the next couple weeks. it is earnings season and companies will be able to tell us, are the expectations for 24 too high or too low? you will have a fed meeting coming in a couple of weeks. we will see if powell pushes back. he has not pushed back on anything since, he has said with the markets wanted to hear at his press conferences and then let everyone else push back, but the community doesn't want to hear from the supporting cast, they want to hear from the star. these are things that make it was clearly going forward. also realize, the european parliamentary system, our election system comes into play today, the iowa caucuses. we will see how much of an impact the potential trump-biden race has on things which is likely to be rocky, shall we say. guy: how big of an impact do you think that will have?

i keep on being told by people, don't worry about pricing in the election until we get close to it. september come of tober, november, -- october, november, maybe we start to pricing the election. do you think it will be earlier this time around? steve: i do. you have a candidate who is volatility personified, another candidate, there are lots of question marks about the presidency that are raised rightly or wrongly. i think you'll get a lot of swings. these are older men. one of whom is basically appearing in court on a constant basis. these are all reasons for volatility around the election, yet, while we see the vix futures curve pricing in volatility later in the year, which is understandable, in the

short term, nobody wants to face him. guy: let's go from politics to geopolitics. do you think investors are being complacent there, as well? the u.s. advising ships to avoid the red sea once again today. another vessel has potentially been hit. all of this reporting is confusing coming out of this region. but the u.k. navy gets report of an incident south of the yemen area. this is really difficult to deal with, but it will have a material impact in terms of inflation, supply chains. how do markets fold that in without seeing a lot of volatility, or do you ignore it and assume it will be resolved? steve: sadly, the latter. i have always said, traders, particularly investors, markets in general, are lousy at geopolitics. equity investors are very good

at understanding the things that impact the bottom line of the companies they invest in. how does it affect earnings, cash flows, how does it affect cash flows -- revenues? when you start to get into geopolitical issues, particularly into corners of the world that are less understood, investors tend to punt on those things. i know that sounds nuts, especially when you talk about a key region of the world where a lot of shipping goes through, oil transit goes through, but somehow we are ignoring it. maybe the message being told to us from the oil markets is the man is not there so it doesn't matter if there are supply hiccups. in the near term, investors prefer to look past it unless there is something very specific that affects the companies they are investing in. guy: tough place to be this year, i think, for investors. great to catch up, enjoy the rest of the day.

steve sosnick, interactive brokers,'s chief strategist. another source of volatility this time coming from boeing. the company remains in crisis mode, faces an extensive inspection review from the faa, opening their doors to further inspections. what next for the troubled company? we will discuss it next. this is bloomberg. ♪ thanks to avalara, we can calculate sales tax automatically. avalarahhhhhh what if tax rates change? ahhhhhh filing sales tax returns? ahhhhhh business license guidance? ahhhhhh -cross-border sales? -ahhhhhh -item classification? -ahhhhhh does it connect with acc...? ahhhhhh ahhhhhh ahhhhhh

guy: china's aviation regulator has once again temporarily alter the restart of 737 max jet deliveries as bowling grapples with safety issues on the aircraft, particularly the max nine. the company is now looking to regain trust as it tries to build reliable aircraft. we have had a number of issues with this air frame, the 737

max, has been a struggle ever since. what happened with the alaska flight has made things more difficult. over the weekend, the aviation team put together a big take on what is happening here. i would urge everyone here to read it. benny is here to pull it all together for us, the story surrounding boeing. let's talk about where boeing is right now. we are in a situation where we are all trying to cover what is going on at boeing. boeing is trying to be transparent but old -- ultimately the only way that it will recover its reputation is over a long period of time with a lot of transparency and an unblemished safety record. where are they starting from in terms of that journey, what does it tell us about how long that process could take? >> the key thing is it will be a

long-term journey, and whether starting now -- we are barely a week into after this accident on the air alaska plane. what they can do at this point is work through the immediate aftermath, immediate aftershock of this accident. what they have done is put in some extra checks, deepening the inspections at the company, also at spirits. inviting suppliers and customers to come in and review their own processes. we know the faa is taking a very close look at them, may have a third party coming in, as well. if you stagger this in three phases, immediate, midterm, long-term, we are still in the immediate aftermath of this. management is trying to get to grips with it. the safety committee that was set up after those crashes five years ago, that is the group that is in charge at this point.

dave calhoun, the ceo, has made that clear. he is messaging fairly aggressively in terms of his presence to the staff, but at the same time, he has made clear that right now it's not about selling planes, our metrics, not about our goals. this is about safety and safety first. guy: let's assume that is a relatively long-term process that takes a while. is what we are hearing, that boeing will have to put safety before profitability? janet make money while it does this? does that undermine the case around it? it is so antagonistic to have both actually. benedikt: that is the conundrum for them. if you remember the long term grounding on the 737. can they get these two things together? it is unclear.

guy: sorry to rush you at the end there. my fault. fantastic coverage coming out on this boeing story. this is bloomberg. [laughter] how am i going to find a doctor when i'm hallucinating? what about zocdoc? so many options. yeah, and dr. xichun even takes your sketchy insurance. xi-chun, xi-chun, xi-chun! you've got more options than you know. book now.

>> we are telling the international community that between democracy and authoritarianism, we will stand on the side of democracy. guy: taiwan's still ruling democratic party speaking after winning the presidential election this weekend. you could argue that that victory deals something of a blow to beijing's ambition to have greater influence over the island, but the fact that there was not a majority, actually maintain the status quo, gives china-centric to work with.

amy celico at the albright stonebridge group joins us now to discuss. if the victory had been more convincing, china would have a problem, but it wasn't. i wonder because the dpp won but didn't get a majority, could this become something that china lives with, status quote, everyone wins kind of scenario? amy: i agree with you, guy. i don't think the chinese will ever admit it, but actually there is some good news even for beijing with this unprecedented third term victory for the dpp and meeting the presidency over taiwan. day, as everyone knows, lost seats in the legislature, so they don't have a majority there. it means they have to work with the other two opposition parties. the tpp, the newest party, had a decisive victory and actually mentoring.

this is the traditional antiestablishment party in taiwan, so democracy is working among the 23 million voters in a way that, of course, beijing will not celebrate the victory, will maintain a status quo that is good for all of us in seeing stability in the taiwan strait. we have seen that already by beijing not taking any provocative let terry actions in the wake of lai's victory on saturday. guy: how do you think this changes the relationship with united states? taiwan has been slowly pivoting toward the united states. does this slow that pivot down? amy: i think the united states have been really careful. the biden administration, and making sure they were congratulating the incoming lai administration on its victory but not provoking any side or giving any indication that this

was going to result in a warmer relationship with united states. like with the players in the region, it signals a maintenance of the status quo. president biden's first words when asked about the victory said that the u.s. does not support taiwan independence. secretary blinken's congratulatory note to the taiwan authorities data signal a maintaining of the status quo, unofficial relationship with the authorities in taiwan. all of that was meant not to provoke beijing. so we do have to see all sides, including william lai, and accepting victory on taiwan, no one was seemingly trying to provoke the situation right now. i think u.s.-taiwan relations, the four national security advisor saying that relationship is rocksolid in his unofficial trip to taiwan over the weekend,

really symbolizing maintenance of the status quo. guy: if you are an investor and thinking about how the world works right now, thinking about the global technology sector, is it also a continuation of what we have gotten now, continuation of the status quote when it comes to tech? amy: i think there will continue to be uncertainty on both sides of the taiwan strait just because a continuation of tensions. i don't want to paint an overly rosy view in the short term. investors, whether in the technology sector or any sector, investing in the indo pacific, has to watch the situation very carefully. right now, all three sides of this triangle that we are always concerned about, nobody is trying to instigate more instability.

that is good for investors. but let's look at the next milestones. they may 20 inauguration. in the lead up to that, how washington and beijing signal any changes. i don't think any party wants to unless provoked. of course, from beijing's perspective, what happens from here in the u.s. in november matters to that relationship. guy: you bring up the u.s. elections, let's talk about it through that lens. do you think that either party, regardless of who wins in november, will change the policy of persuading tech companies to invest in more productive capacity in the u.s.? we saw the chips out from the biden administration. if republicans win, do we see a continuation of that? amy: i think we will pay with there is bipartisan support. legislation was passed in congress on a bipartisan basis

to reinforce investment here in the united states. i absolutely believe that would continue whether president biden is reelected or the republican candidate is elected in november. i think that is some stability for investors, seeing that the u.s. must to be a hub for technology investment. in some ways, that is about the tense relationship with china. in other ways, it's just enforcing american competitiveness in global markets. guy: final question, coming from the beijing perspective. the chinese economy continues to struggle. we continue to look for stimulus but it does not,. come. should i be thinking about taiwan risk in that light, if the chinese economy doesn't recover, will the authorities take a less benign view to what is happening in taiwan? how does the economic backdrop

in china alter the course of its approach to this story? amy: i think beijing is firmly in the driver's seat to take one of two courses that you are asking about. does a slower chinese economic development story lead xi jinping to pursue more instability on another topic, taking domestic attention away from the economy? that is a possibility. but i have to say i think the alternative course is the more likely one. that is, if china continues to work on economic rebuilding, that means they do not want to see instability in the surrounding areas. they don't want to see any kind of activity in the taiwan street that would -- strait that will decrease their ability to organize. i lean toward the view that pragmatism will prevail with the

chinese government, unless provoked, and that is the big question, would not seek preemptively to just distract from a weak economy by taking any kind of action vis-a-vis taiwan. guy: really interesting way to start the year, such a critical election. so many elections this year and this one could prove to be so important in terms of establishing some stability early on. amy celico, thank you for stopping by on this holiday in the united states. next, we will talk about an area of geopolitics that is significantly less stable. more tension in the red sea. houthi attacks on shipping continues. u.s. authorities warning shipping off of that supply route through the red sea. we will talk about what this means for inflation, etc. next. this is bloomberg. ♪

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guy: let's talk about one of the stories that could be driving inflation concerns this year. tensions in the red sea. attacks on commercial vessels by houthis still ongoing, already having an impact on shipping costs bleeding through into what is happening with energy costs as well. according to the european economy commissioner, this will be something that we need to pay a great deal of attention to. joining us for more is mark champion. let's start on dealing with the red sea. we have seen a series of attacks by the u.s. and its allies designed to degraded the houthi 's ability to target ships, but

it looks like we had another attack on a ship. this is incredibly asymmetric, very hard to stop a small commendable force attacking these ships. are we starting to see this metastasize now? is this becoming what this will become in the medium-term in this region? marc: we don't have clarity yet and you are right to say it is asymmetric, very difficult for the u.s. to control. you as was clearly reluctant to hit the houthis on land. eventually they felt they had to. even now, they say they hope they degraded maybe 20% of the missile capability with the strike, which is quite a large strike, but it is very clear that the houthis are resilient, they are a militia.

the saudis spent a decade trying to wipe out their arms depots, all of these things, and failed. you are right, asymmetric is the problem. they have to hit one ship, one oil tanker. the u.s. has to prevent every missile -- the u.s. and its allies including the u.k.. it is extraordinarily difficult to manage. guy: does that give us any clues as to how long this will last for? is this the new reality? i am struggling to see what the exit looks like. marc: houthis say this is all about gaza, and there is reason to be skeptical about that. it is a moment of opportunity for them. they will have a lot of sympathy, do have a lot of sympathy from iran, the middle east, because they say it is linked to gaza. it also constrains what people

like the saudis can say and do because they cannot be seen supporting israel's actions in gaza. let's say israel is the root cause of this. how is that picture begin to evolve? troops on the ground for a number of weeks, waiting to see what the long-term story is, how that story resolves itself, as well. around that conflict is the potential to have other conflicts potentially to the north in lebanon, what happened with hezbollah. is the situation with hamas contained enough that hezbollah is the next target? what happens if we see a conflict erecting with hezbollah? marc: because nothing has happened, it seems all the big players, hezbollah, iran, the u.s., until now israel, do not want a wider conflagration, direct war between iran, the u.s., and israel.

but you are starting to see more voices in israel say what are we going to do about hezbollah? hezbollah is much stronger, larger than hamas. we cannot afford an october 7 in the north. we cannot afford to leave a situation on the border where 100,000 people have to be evacuated. how long will that continue? with escalations so often, you don't necessarily intend to escalate for it to happen, but the longer this goes on, the longer these questions will arise. we have seen the israelis hit a little bit harder in lebanon recently, so there is risk. guy: do they have a pretty good idea of what their troop commitments will be in gaza, does that now give them the clarity to understand what resources they have for dealing with potentially a hezbollah conflict? marc: i am sure they do.

it is a very competent force, the idf. they are pulling people out, but you have to remember, they mobilized large numbers of reserves, more than 300,000 troops. some of those, they will want back at work, some of those addressed -- at rest. i don't think there is anything imminent, no sign that the israelis are moving large forces to the north to invade lebanon, which would be a large project. guy: thank you very much indeed for keeping us updated. let's talk about how the strains in the supply chain are affecting what is happening around the world and the global economy. the uncertainty is hitting luxury businesses around the world. champagne, absolutely no exception. we will have an interview with the moet hennessy ceo.

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guy: seo so champagne went down last year, and this year could be may be maybe as tough, as well. over the weekend, my good friend manus cranny spoke to the ceo of moet hennessy, talking about inflation, how it is affecting the day-to-day business. he spoke at the national retail federation annual show in new york. >> at this stage, you have to take it on a context piece which affects how things work on a day-to-day basis. we set up a team, revenue growth management. they simulate the effects on the consumer elasticity of price increases.

on the one hand, we are trying to adapt our prices to inflation , inflation of our costs, because grapes get more expensive, transportation is more expensive, and importantly, glass has become much more expensive. in some products, it can be 50% of the cost of a product. if that goes up, you have to adjust for that. you look at adapting your prices to your cost, and on the other hand, of course, you try to mimic what will be the elasticity of your demand in different markets, so you kind of predict what the impact will be, readjust on that basis. >> one of the accusation that i have come across is that retailers and producers jacking up prices, gouging the consumer, greedflation. is there any hint of truth in any of that or is it just overstated? philippe: clearly overstated.

there is customer elasticity. if you go too far on the price side, you will lose out. it is clear that we need to cover our costs, and costs are increasing, sometimes we anticipate cost increases to sometimes become behind. in the world of luxury which we are operating, of course, with every price increase you have to think about your product. does the product yield that value? as long as i have been in this industry, there are constant investments in improving the products. since i have been at moet hennessy, we have gotten rid of insecticides, gotten rid of herbicides. that has created additional costs but also gives us a better product at the end. we are constantly investing in making our product at her and better. of course, that is on the product side. then you have transmit to the consumer.

the way you transmit to the consumer is at the point of sale. here we have retail. what does retail due to the consumer and how do we bring over to the consumer the fact that we sell quality products and yet the price increases because of inflation and because we constantly invest in them, and yet, we want to seduce the customer to stay with us or come to us as we go this way. manny: if i say to you this year relative to last year, how much would a bottle go up by? will champagne go up by 5% across-the-board, or can you take your premium up grants higher than that? philippe: it depends on the brand, and that is what we have done so far. some brands we have increased quite a lot, more stable base, i would say 2024 is a year with more moderate price increases. we took some price earlier last year, middle of last year.

we are going through this carefully to make sure that we are not leaving consumer expectations too much. manny: a couple different issues at play here. still a number of events, live wars around the world, you saw market share drop in russia, perhaps transferring into the middle east. where are you banking on in 2024 to bolster the numbers in champagne and cognac? philippe: we are optimistic in the american markets as we have gone through this re-adaptation back to normality. we continue to be optimistic, to continue that very nice growth we had in southeast asia. travel retail has been doing very well for us. travelers have been out there, buying in airports at a very high rate. we hope to continue that.

we continue to believe in most parts of the world but we are also concerned, of course, about all geopolitical situations. manny: how much attention do you pay to that? people in this room would have lived through the supply chain crunch. we have issues in the red sea, huge amounts of global floating trade diverted around the south of africa. how concerned are you about a jeweled in the global supply chain? philippe: we all know how fragile the supply chain is. if there is a problem through the passage of the cultivated -- the gulf of aden, it means an impact on energy prices, impacts on the transportation timing and all that. we have decided to change a few years ago to 100% transport by sea. we don't do any air freight anymore for sustainability reasons. everything goes by boat.

our products are nonperishable, so if they take longer to get there, it's not a problem. i would say more general, we stand up for free trade as a category. we believe in free trade, free trade of cultural goods as a way to bring humanity together. in a sense what is happening today is not very reassuring. guy: the moet hennessy ceo speaking to manus cranny over the weekend. takes a little bit longer for the champagne to get there, maybe it taste better with aging. let's talk about where we are with markets right now. u.s. holiday, u.s. markets are closed, therefore volume is like. stocks are allowed bit softer, a few earnings notes out there today. s&p futures are absolutely flat. the dollar is catching a little bit of a bid. are you more convinced about

what this year looks like then you were at the beginning of the year? ubs wealth management cio will be joining us next to discuss. this is bloomberg. ♪ doctor when i'm hallucinating? what about zocdoc? so many options. yeah, and dr. xichun even takes your sketchy insurance. xi-chun, xi-chun, xi-chun! you've got more options than you know. book now. (grunting) at morgan stanley, old school hard work meets bold new thinking. ( ♪♪ ) partnering to unlock new ideas, to create new legacies, to transform a company, industry, economy, generation. because grit and vision working in lockstep puts you on the path to your full potential. old school grit. new world ideas. morgan stanley. get over here kids. old school grit. time for today's lesson. wow. -whoa. what are those?

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>> monday, the 15th of january. european stocks have been softer, i have to say, a number of analysts calls outs there that -- calls out there having be a effect. the countdown to the close starts right now. nowps the countdown $is on in europe. this is bloomberg markets, european close. with guy johnson and alex steele. guy: so stocks are a little bit softer in europe. but we don't have the price signal coming out of the united states, as a result of whi