tom: good morning from our studios in london. it is 10:00 a.m. here in london. u.s. markets are closed for the presidents' day holiday. i'll come to bloomberg markets. china's central bank works to shield the you one -- yuan from volatility. barclays and hsbc set to report later this week. we will wrap up the munich

security conference and give you the latest on israel's quest to free the remaining hostages being held in gaza. let's check in on these markets. with european markets pairing the earlier losses of the session, they are flat currently the context that friday european stocks got close to a record high, a two year high. the session today flat, a bit of a holding pattern and waiting for more data in terms of euro zone inflation and more detail on the fed as well, particularly when he think about the u.s.. the u.s. is closed for presidents' day. s&p futures pointing to modest gains for when markets reopen. not a lot of movement so far in the session for the currency, down a full percentage point now. it seems to be outweighing those geopolitical concerns when it comes to oil, which reached a three week high last week, but

$82 a barrel is back below $80 a barrel. the china story today, with china returning after the lunar holiday, china's stocks reopening for the first time since that holiday. stocks had rallied as officials sought to revive investor confidence, calling for pragmatic and forceful action. the market reaction, not terrible, gains a little over 1%. what do you make of the market reaction given there had been expectations of a pretty gang best session in china? >> and also the offshore market movement in hong kong. not too bad. it is the fifth day of gains -- session of gains since october, so let's take that into context.

are a lot of problems in the economy and people cannot ignore that. we saw some selling from foreign investors, so there is a take profit mentality. that still shows the caution in markets. there was heavy volume in chinese etf's, suggesting there might be some state buying supporting the market, not necessarily real investor confidence coming back. there are still questions over whether this is actual fund flow coming into the market, but if you look at economic data that is still the driving force. even though he said forceful measures, he did not specify which ones. there needs to be some kind of specific measures from the government and people were expecting that for the lunar new year holiday.

davos if you weeks ago was signaling there would not be massive stimulus this year. tom: they have become more explicit in terms of the role of the state in buying up assets and chinese stocks. we look ahead may be to the national people's congress likely to take place in march. what are you looking for next in terms of what could be the next catalyst even your experience around chinese markets? >> on the day today, people look at whether we get rate cuts. there was disappointment in cutting interest rates. we could get cuts to bank lending tomorrow, but those are short-term things. the government work report is set to be released in early march. that is when the government sets

growth targets for the year, so anything that is more ambitious than perhaps the market is expecting, anything more than 5.5%, even 5% will be a big target given the year on year comparison, but some kind of signal from beijing that we are talking about forceful, concrete measures, but what will they actually look like? i think the march meeting will signal to markets this is how beijing is going to play this, but also what is complicated things for the central bank is the divergence of policy with the u.s. federal reserve is continuing because if we did get interest rate cuts from the fed as early as march, which is when markets were expecting, the policy divergence would not be -- would not last so long, so managing volatility has become more of a problem than perhaps they were accounting for. tom: that is an interesting

component, markets is pushing that further out. thank you. let's do a deeper dive on the global economy now with an economist joining us on set. thanks for joining us. we will dig into her views on the fed and u.s., but before we go there, on china, can we make the argument that may be markets are underestimating the ability for china to come back in the second half as a driver for global growth? >> the best we can hope for china is cyclical upside surprise. any other economy that suffer the same complication of huge balance sheet overextension, property bubble, has suffered a significant financial crisis, so to achieve any growth is good,

but china has a problem. that makes it difficult to transition from export investment, which has taken china from low income to middle income. for that, you need a good transition toward services and consumer. this is a structural problem. china is doing well despite the structural problems. it is deflating these bubbles in a controlled way, but i find it difficult to get structurally excited about china. tom: because of issues around things like demographics, which is a longer-term challenge for the economy. we see the decline in population over at least two years now. when it comes to here and now from beijing, watched we be looking for? sophia gave us what she is

focused on. are there other elements you think might be pertinent for us? >> bringing costs down is going to be key, especially if local and state government does not want to take on too much debt. you need to try to stimulate that consumer channels much as possible, but taking interest rates lower puts downward pressure on fx, so it is a real question with the excess capacity, weakness at home, structural downward pressure on currencies, does china start to export disinflation and run the big balance surplus to finance spending at home? that is what i would be looking for, a disinflationary element coming out of china as you see interest rates decline. tom: that disinflationary element we see on the data. when it comes to europe, there

is a disconnect in terms of how european stocks are performing versus fundamentals in the european economy. what is next for the european economy? are you seeing anything that is give you confidence to revise higher your projections for the european economy or do we remain in a stagnation environment? >> and markets, it is always relative to the u.s.. the u.s. is the fastest-growing of all advanced economies. europe does not grow so quickly, but there is still pessimism in the price relative to fundamentals. what you have is too much fear around structural issues. uncertainties around reddish politics. when you put this together, you would expect to see a good recovery over the course of the year, from stagnation to trending here in tom: and the ecb plays a role in that? >> the ecb plays a role but it

is not the key driver like it is in the u.s. or u.k.. for the most part, it is the cyclical export sector that will drive improvement in european growth. to what extent do markets say european growth surprised us to the upside? the politics is not so bad. maybe we can take on risk and europe. the big factor will not be europe. it will be what happens in the u.s. election. if it is donald trump overnight risk increases. tom: the gravitational pull back to the u.s.. hard to argue with that point. really appreciate it. stay with us. this is bloomberg. ♪

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>> it is always a mistake to over interpret one month's number, especially when calculating seasonality is difficult. we have to recognize the possibility of a paradigm shift. a soft landing paradigm with the assumption that inflation was headed down to two in a tranquil, healthy, real economy has certainly been called into question by these data. i think the fed is going to have to be very careful. they were never right to be

focused on march for a cut. i had been saying that seemed premature and they and the markets have come around on that . i think that may is odds off at this point and probably should be odds off and i think we have to recognize what no one is talking about. there is a meaningful chance, maybe 15%, that the next move is going to be upwards in rates, not downwards in rates. tom: that was former treasury secretary larry summers on the fed's path forward. larry summers saying no one is talking about this, around 15%

chance that the next move from the federal reserve is not a cut but a hike because of his views around how inflation and that story is involved -- evolving. are you willing to consider that the next move could be a move higher for this federal reserve? where do you put the odds of that? is that something markets need to be thinking about on the periphery? >> inflation coming out of covid and supply shocks -- we do not have a very good handle on basic things like u.s. potential growth, trend interest rates. we are back to the plea -- pre-global financial crisis and i think the risks of a hike are limited, certainly in the near term. the risk that the fed does not cut probably higher and why is that? if it is because we have less gas will oil in the world, you do not want more inflation and

no rate cuts, but the u.s. economy is consistently priced to the upside, almost amazing how resilient the u.s. has been. if you just look at nominal gdp versus real gdp, nominal gdp has been decelerated as real gdp has been accelerated. it does not could better than that for the fed. if we get stronger real gdp and inflation is more sticky than we thought, we are better off with strong real gdp, contingent in the expectation for low rates. so if analysts say our discount rates are higher and we need to bring down our estimates, tomorrow you will be happy because gdp growth is better than you expect and we go back up. it is volatility with higher upside if we do not cut rates as long as the comes on the back of stronger growth. tom: on that strength, you have upgraded your forecast. >> we were nervous last year

about the yield curve inversion and reliability of soft data despite u.s. strength to say at some point there is going to be a recession but consistently do not see it. real gdp momentum is strong. a big element is sensible fiscal policy. if you look at state, local, and federal, you have almost 10% year-over-year growth in investment and normal growth in consumption. the fed is slowing momentum in the private sector. this is a good combination of policy amounting to lower inflation and stronger real gdp growth and it looks like they will pull it off. i do not see anything in the death of that makes me worried the u.s. is about to have this kind of moment. instead, the fed probably cuts

in june and adds momentum in the second half of the year. tom: you have revise that higher from 1.8 percent. you touch on the fed and the timeline there and you think it lands in june. we see trades adjusting to that view. does that mean when they finally go they pack in more of a punch? or are you closer to the view of 75 basis points? do they have to do more if they start later? >> we need to frame this around the question of what normal looks like. if the fed believes a normal funds rate is 4%, the argument is we can go to 4% and then stop. we do not need monetary policy to be tight and we think we are on top of inflation. if the economy stronger than expected, the fed makes a you can go to three. you have to define it around what normal looks like.

the market is already anticipating fed rate cuts. there is pushback on the march cut. if we get another pushback -- i only care if rates do not come down because we have less supply in the world and inflation is higher than expected. give me the stronger u.s. economy and no cuts. tom: thank you. 2.2% growth is the forecast. kallum pickering they are on the u.s. feel. still ahead, share buyback is part of the banking story as we look ahead to other earnings details. stay with us. this is bloomberg. ♪

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on european bank is raising investor payouts this quarter. santander raising investor payouts as it kicks off a share buyback worth about 1.5 billion euros or $1.6 billion. here to break it down is bloomberg's breaking news editor. give us more details around the buyback and what it tells us about the year they have had. >> basically, they were boosting payouts and that provides for a good read across the sector. we have seen the same from deutsche bank, so definitely it shows you how well they did off the back of higher interest rates and when they released earnings a few weeks back they said they expect revenues and profits to rise further, so this is quite particular as well. in the u.k., we have talked

about peking for margins. europe, there is still some way to go. tom: santander stock up 1.3% and record profits last year but that bright outlook as well. a different story when it comes to barclays. there is more detail we're looking for in terms of the longer-term plan for the bank. >> they are giving their first proper strategy update since 2016. we will see probably a loss in the fourth quarter. it is mainly because of job cuts and disposals and on the strategy side what investors want to see is firm commitment on how to make the retail bank a strong is the investment bank. where can they shift capital to grow in areas like credit cards? that is what investors are keen on. then buybacks on profit targets

are something to watch tomorrow. tom: arguably a pivotal moment with that strategy outline coming through for the first time since 2016. we have hsbc as well, another strong year. what are we looking for? >> we had a nice piece on the terminal laying out the near term or medium-term challenges for the bank and the key thing wednesday is exposure to commercial real estate. hsbc makes most of their profits in asia and in china you have liquidation, so i think investors are keen on details on these exposures and this will be a key talking point. more broadly, you have chinese-taiwan tensions escalating.

this cannot be good for any business. tom: the china exposure going to be scrutinized and that coming into light for us wednesday. thank you. giving us a preview what to expect from bank earnings after santander comes back with a buyback plan. let's check in on these markets. european stocks currently down .1%. u.s. futures pointing to gains when markets reopen tuesday. mastec futures up by close to .2%. this is bloomberg. ♪

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tom: welcome back to bloomberg markets. a bit of a choppy session so far

in europe this monday. you got close to record highs across european stocks by the close friday, a bit of profit taking looking for the next catalyst for european stocks. markets come back tuesday after the presidents' day holiday. $82 a barrel, close to 83 on brent. a drop there around 1%. the softness around demand seemingly offsetting geopolitical concerns for oil prices so far this session. let's get back to the fx space and bring in the global head of fx strategy at rbc. let's start with the u.s. dollar . markets starting to fade the question of a may cut and landing on june. how supportive is that likely to be for the greenback in the months ahead? >> it has been a transition from

the tail end of last year to where we are now. at some point, we were pricing almost the fed dot plot. as we get closer to the market pricing, it feels like there is less room to be excited. if you had the long dollar trade at the start of the year, it has been great. at current levels, it is more challenging. tom: would you fade the long dollar call? >> there is more room to the upside. it is a bit of a range trade. we have been bullish dollar a long time. there is room for gains, but it is not the obvious, straight up dollar trend of previous years. tom: what is behind the moves around euro-dollar? do you trade it on the fundamentals of the european economy or tie it to ecb?

elsa: it is a combination. it has finally become the consensus narrative that the u.s. is going to upper form europe next year, so use exceptionalism is baked into the price. if you rewind to last summer, or everyone was talking about u.s. recession, to us it seemed too high. positioning is already euro-dollar. tom: what is the next level you would be looking at? elsa: you will see longer-term interest for hedging and i think that cap they move because if you think about it from a long-term valuation perspective, the forward point is moving more in your favor, so i think that will act as a bit of a floor. tom: interesting. the other currency and focus for us is the japanese yen, a little strength of the session, but we

were hearing from the bank of japan governor last week and testimony in front of parliament in japan, expectations still that they will be ending their loose monetary policy. how are you thinking about the yen trade? elsa: it has been more about what the fed does that what the bank of japan does. whether they go march or april, despite the fact that it is a change that they will potentially get rates up to positive territory, the cost of hedging is driven more by what is happening on the u.s. side of the equation and that has kept us bullish for the last two to three years. it is a question of levels. do you want to be getting along? i think we will get better levels to get into that around march or april. tom: so march or april on exposure to the currency pair.

i know it has been of interest to you as well. they have different inflation dynamics in switzerland. expectations of further moves may be for the central bank? is it a hedge currency at this point? elsa: long swiss yen was my favorite trade last year. the central bank went from looking to buy swiss to taking a step back and that was a q that you can get short of the swiss franc. it has been a popular trade since the start of the year. i speak to a lot of investors and it has worked well. it makes sense as a carry trade, but i think you have to be mindful of positioning and markets getting ahead of themselves. tom: the commodity complex influenced by what is happening

in china and other jurisdictions. we continue to try to get a gauge as to how much strength is going to come through from the chinese economy. is there a commodity currency that is undervalued at this point if we see a pickup in demand? elsa: it has been popular for a lot of people but positioning is relatively light, so a lot of people have gone long but it is not as crowded as you might think. that is one that has room to perform if crude prices pick up through the year. the australian dollar still makes sense as a currency. if you want to belong over higher yields commodity currencies, it is a better way of doing that then short yen. tom: would that be a play against china as well?

it moves on the back of economic data that comes through from china. elsa: you are effectively using the fact that if you are going longer you want to -- a safer way of funding on the others. having that china exposure it makes for a less volatile kerry pair. tom: the u.s. election in november, trump versus biden seems to be the likely matchup. some of the currencies affected, i'm thinking the mexican peso. it was a big year for the mexican peso last year. how are you thinking about how to price political risk around fx markets? elsa: people are struggling with this. when you think about how the election outcome may affect the dollar, the mexican peso is more clear-cut but people have a hard time pinning down whether a

trump victory is dollar positive or dollar negative. most cola dollar positive, but a strong minority thinks it is dollar negative. again, you remove a little of that north american risk and make it more commodity neutral. tom: do you have a view on the pound when it comes to stagnation territory? we are in recession in the u.k.. we have an election likely this year. what do you see as the next catalyst for the pound? elsa: in the short-term, it looks like economic momentum is picking up. we will see that with data later this week, but it feels like we have gone from a period where everybody was bearish on the pound to things looking brighter. a longer-term perspective is still challenging because you still have twin deficits in the u.k. and the private sector also in deficit and from a long-term

perspective that does pose risk to the pound. tom: the triple deficit for the u.k.. currently the pound up against the u.s. dollar just .1%. thank you for the deep dive on the fx space. coming up, estonia's prime minister calls on the e.u. to boost the defense industry. putin's russia continues to loom large. that is next. this is bloomberg. ♪

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tom: welcome back. this is bloomberg markets. israel says it will launch a ground offensive on the gaza city of rafah unless hostages still held by hamas are released by the start of ramadan next month. more than a million palestinians fled to rafah during the start of the israel-hamas war. an israeli war cabinet member has promised to facilitate the

evacuation of civilians in coordination with the u.s. and egypt to minimize casualties. let's bring in bloomberg's news director for the region. what has the reaction been to this apparent deadline? >> the deadline gives us clarity on israel's timeline but does raise concern among israel's allies who have been urging benjamin netanyahu to be careful in terms of any offensive into rafah. more than a million palestinian refugees marched into that area close to the egyptian border. in the event of an offensive, where do they go? is the risk to the civilian population as a result? this is tightening concern. israel says it is part of their goals, they say that hamas is operating in that area but the proximity to civilians is what is worrying the u.s. went u.k.,

and others. now we have a sense that israel is only going to wait a few more weeks. tom: what does this mean for cease-fire negotiations? >> extra urgency to those cease-fire negotiations but israel has not signaled it is willing to engage further in those talks that were being held with egypt and others because they say that hamas is not negotiating in good faith. there are fundamental differences between them on what a cease-fire will look like, so there are not even any talks going on at the moment for a cease-fire and only have a couple weeks until the start of ramadan. is that the point israel would go in? very difficult for israel to be undertaking an offensive in crawford toward the end of ramadan, so possibly we are looking at a matter of weeks. will there be a cease-fire before then? it is difficult to know. tom: to the focus on ukraine

now, you and the team have been monitoring this since the start of the conflict. what stood out for you from the munich security conference? what jumped out in terms of what we have been hearing from western leaders? >> certainly the heightened sense of urgency around what is happening in ukraine but also the realization that they are not prepared for the longer term. europe for decades, no major conflicts, really. did not spend a lot on defense, did not engage with local defense industries and now thinking, if you look at the geopolitical landscape, what is it going to look like? the possibility of the u.s. in retreat around the world at some point, depending on who is going to be president in the u.s. but realistically either way. europe is not prepared for a

modern world and what power bases will look like and where conflicts might come and can they manage a russia where vladimir putin will be back in office for another term and feeling emboldened? tom: those russian presidential elections later this year. we will take a listen to the ukrainian president. >> mr. trump, if you will come, i am ready even to go with you to the frontline. tom: ok. still in ski there previewing the potential for a trump presidency. how are you thinking about the u.s. politics to this story? rosalind: the intriguing thing is they have their own history. personally very tricky, certainly not fans of each other. of course the famous phone call.

right now, he has a direct line to u.s. president joe biden, certainly a strong advocate of ukraine. donald trump, if he comes in office, the first thing he is going to do is end the war. he will get russia and ukraine to the table and it will all be sorted. he is not necessarily going to be a strong advocate of ukraine's cause and certainly not about supplying with weapons for the long haul. he probably wants the whole thing to be over, so you can see crane is preparing for the reality that a year from now is likely to look very different. tom: the latest one comes to what is unfolding in terms of conflict with israel and hamas but also ukraine and russia. switching focus to the corporate and technology appearing apple is said to be facing an e.u. fine of over $530 million for allegations it silenced music

streaming rivals on these platforms. sam, what is behind this fine? how significant could it be for apple? sam: apple will be fined by the european union around 500 million euros in the coming weeks, just shy of $540 million. the e.u. penalty is coming at the end of a procedure that has been going on since 2019 with -- when spotify first complained about apple to the european commission. since then, investigation has focused on how apple blocks such music streaming platforms from informing users of cheaper subscription options away from apple's app store. apple takes a commission from sales, so it has never been happy about these types of attempts to steer users away from subscription sales on the

app store, so here we are today with the end of a lengthy investigation coming to a close. the commission will conclude that apple was guilty and will slap them with this fine. tom: what does it mean longer-term for apple operations in europe? are they going to have to make significant changes? is this the start of a broader crackdown on technology by brussels and the commission? samuel: the most substantive change will be at comes not only with a fine but with order for apple to change his behaviors and will no longer be allowed to insert in its terms and conditions these types of clauses where blocks music streaming providers like spotify from directing users away from the epp store to make their subscription, so what we could see is increased ability to make

sales away from the app store and start selling subscriptions on safari and that will eat into apple's huge annual services revenue. we do not know exactly how much apple makes from the epp store, but it does have a sizable annual revenue for its services so it could have impact in that perspective. tom: is this part of a broader push by the commission to scrutinize big tech? is there anything else we should be watching? samuel: one thing we are keeping an eye on is the upcoming enforcement of the digital markets act, the attempt to rein in market abuses of some of the largest and strongest platforms. apple is included in that list. the european union is attempting to lay out a series of

obligations to restrict these types of abuses that the e.u. has unearthed over recent decades. that comes into play on march 7, but it is important that apple has appealed the designation of its app store so we have procedures underway here in europe and we will have to wait for the outcome of those. tom: excellent stuff on what this means for apple. staying on the european union, wander line -- vonder leyen will run for a second term as e.u. commission president, the former minister with the german government and the current e.u. commission president running for a second term. there is more coming up.

passenger traffic at dubai's airport. that is next. this is bloomberg. ♪

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tom: welcome back. this is bloomberg markets. travelers into dubai's international airport, the pastor counts surging 32% last year to 87 million, far past pre-pandemic travel -- traffic levels. by's -- dubai's airport ceo spoke to vonnie quinn. >> we invest in new technology because airport infrastructure is expensive and difficult, particularly on a constrained site. so we invest in new technologies to speed people through the airport. without building anything, if you can double the rate of capacity throughput you have doubled capacity of the overall airport, so that is an intelligent way because i have

not meant to customer over the years i have been in the business that wants to spend more time at an airport. usually the interface with a product if it is efficient and quick. that wins us more from our customers than any other single factor. >> presumably, you would need more slots. how constrained are you for airlines? paul: runway slots, we have a little capacity left on the runways. aircraft stands, we are ok at the moment and there is a program to build more passenger processing capacity, probably our biggest single barrier to expansion. the involvement of everyone in improving the process and investing in the technology to measure the customer journeys and optimize performance at every pinch point through the airport is one of our most successful and key focus areas for the business.

tom: that was the dubai airport ceo speaking to vonnie quinn. let's take a look at what else is ahead next week. we will hear from the bank of englert governor tuesday and see if he shed any light on his expectations around where rates go for the u.k.. we are now in recession officially in united kingdom, plus u.k. pmi thursday. the latest fed minutes coming wednesday as markets align with dot plots closer to 75 basis points. jobless claims appear thursday and fed speak through the week, including the ecb meeting minutes thursday, followed by eurozone cpi and pmi thursday. checking these markets, it has been a lackluster session in europe after close to a record gain friday. the european stocks inc. mark is down.

u.s. futures pointing to gains so far on the s&p. coming up, market views. stay with us. this is bloomberg. ♪ ♪ ♪

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tom: -- guy: good morning from london. i am guy johnson. it is the presidents' day holiday, so no trading. the year of the dragon starts with a whimper rather than a roar for chinese stocks as pressure mounts on beijing to do much more. santander surprising with a buyback. then we get numbers from barclays and hsbc. and europe tries to figure out how to defend itself and support ukraine if the u.s. pulls back.

we will have a story from the munich security conference. this is what markets look like this morning. european equities sitting near record highs. without the catalyst of the u.s. markets, we are drifting, barely budging, unchanged, as our u.s. futures. a huge week coming up. nvidia probably the star story. walmart, home depot to get through. the euro-dollar fairly flat as well. big catalyst coming up in terms of the data we are watching. we will see what the consumer looks like at the end of this week. chinese stocks, we were anticipating we would see them back with a bang today. it did not happen. we have reopened since the lunar new year holiday. mainland stocks rallying ahead of the holidays. there was this expectation officials would revive investor

confidence. it did not calm, has not come. stocks drift. the signal seems to be, from chinese investors, domestic investors, that they remain cautious until they actually see significant policy action. -- so there was this expectation last week we would see a big post lunar new year pop for chinese stocks. it did not happen. why not? >> it wasn't too bad, right? yes, the index rose. it is also the fifth day of gains for the index. let's not forget the context. every time they bought into a rally, it has not served them well. whenever the market gains that tends to be this biased towards profit taking. we saw some of that today. but a lot of the buying came in the afternoon.

we were looking, tracking volume in etf's. these are chinese state funds. volume was incredibly high. it does suggest there is a bit of a beijing put there, supporting the market, because the year of the dragon did need to start well. the new securities regulator announced, just before the holiday, these words used by officials -- forceful, pragmatic. where is that actually leading us to? what are the specifics behind that? guy: what about the beijing call -- at the moment, it feels like they are defending the market. what about pushing the market? the languages forceful, but we need the action care what kind of specific action do investors need to be convinced? sofia: it is a tough balancing act, because you do not want to stoke a stock market bubble -- guy: i feel like we are a long

way away from that now. sofia: we are. it is a government in defensive mode right now, but it does have this fear of, when things go up in china, they tend to go up pretty quickly. i think investors today focus on things like interest rate cuts. we did not get one yesterday from the pboc. that was a little bit of a disappointment. we could get one tomorrow from chinese banks. i think the big one will be at the beginning of march. that is when we get the government work reports, the target for gdp for this year, and a little bit of a plan from beijing on how they want to protect the property market and stop it from falling and reinvigorate the consumer in china. that is when we could get strong signals. i think a gdp target that looks more ambitious than the one they set last year -- only 5% off a low base -- could send a strong

signal those are coming. guy: normally, on a day we would expect the u.s. to be out and china back from holidays, you would expect a big focus on what is happening, how the chinese are spending. i have seen some of that today but not much of that today. the take seems to be the chinese went on holiday, they did all the things they normally did do but didn't spend quite as much. it seems like you have to be careful which numbers you are looking at. sofia: you are really digging into the holler -- into the data. also the holiday is a little bit longer. it is one day longer than in 2019. we are doing all comparisons pre-covid. so more trips were made, cinema tickets were pretty good. more spending in restaurants. but you smoothen that out over an eight day period instead of a seven day period. it is perhaps not big of a bump

as we thought. but you are seeing signs of a recovery. the fact that china is still in deflation, that is the concern, because to borrow a word from jay powell, transitory deflation was something policy makers were looking at, and now that is clear it is not transitory at all. i think, if we are standing here, what does this mean for the rest of the world? china is exporting deflation. surely this is good for the rest of the world. the thing couple getting things from china's stance is the fed rate cuts are being pushed to later and later in the year, and that complicates things for the pboc, because if they cut rates now, the policy divergence with the rest of the world is wider. that is the currency story the pboc does not want. guy: we will talk hikes in a few minutes time. thank you for that. sofia horta e costa joining us on what we have learned out of china day in the reaction we have seen in markets.

sofia mentioning what is happening with the fed. big week for the fed. today, though, the united states closed. president's day, a holiday. tuesday, we will dig in. a lot of numbers coming out of european banks. our clays results later in the week, hsbc, lloyds. the big story comes wednesday, we will get home depot, walmart, but wednesday we get minutes from the fed january meeting. nvidia will also report numbers after the bell. thursday, we get pmi data out of the u.k. and euro area. the ecb publishing its accounts for the last meeting as well. a lotto fed speak at that back end of the week. nagel and schnabel will be speaking. a ton of fed speak. some people are beginning to change their tune. what can we expect from the fed?

is the next move going to be a cut? as we watch those minutes and analyze those minutes, that is the nuance you want to be looking at. one does that cut,, does that cut come? we caught up with david westin, specifically the former u.s. treasury secretary, larry summers. this is his take. larry: it is always a mistake to over interpret one month's number. that is especially true in january, when calculating seasonality is difficult. but we have to recognize the possibility of a mini paradigm shift, a soft landing paradigm with the assumption inflation was headed down to 2% in a tranquil, healthy real economy has been called into question by these data. i think the fed is going to have to be very careful. they were never right to be focused on march for a cut.

i've been saying that that seemed premature. they, and the markets, have come around on that. i think may is odds off, at this point, and probably should be odds off. and, gosh, i think we have got to recognize what no one is talking about. there's a meaningful chance -- maybe it is 15% -- that the next move is going to be upwards in rates, not downwards in rates. guy: a meaningful risk that the next move is a hike from the federal reserve. larry summers talking to david westin back end of last week. chris watling, ceo of longview

economics, joins us now. how high? are the risks of a hike? chris: larry puts it at 15% paid i think it is lower, a handful percent. if you dig into what is going on in inflation, there's a lot of reasons to expect it to continue going down and only a couple reasons to see it go up for a month or two, which is really what is going on. it is a counter turn rally in inflation, if you like, and the main trend is downwards. that is where all the theoretical analysis inflation -- analysis of inflation is pointing at the moment. guy: we are struggling to predict inflation. inflation has been very hard to read recently. how humble do we need to be in terms of what we should inspect from the data? the market has gone all in on this idea, this narrative, that inflation will come down, we will have a goldilocks soft landing. how strongly should we query

that theory at the moment? chris: sure, you need to be humble. we wrote a piece quoting janet yellen from 2015, giving a speech about the idea that the reality is the fed does not really know exactly what drives inflation. it is a very complex subject. people talk about inflation expectations, they talk about a labor market, phillips curve, monetary -- there is lots of ways of thinking about inflation. having thought about all of them and analyze all of them, i think pretty much all of them say that inflation is going to trained down. whichever theory you take, yes, we have definitely got to be humble about it. it is complicated, and it is complex. but whichever theory, the trend is down. commodity prices are largely on the floor. look at net gas prices -- nat gas prices, back at pre-pandemic

levels. look at all the electricity prices in the states. they are pretty much as low as they get on a median regional assessment. or look at the labor market. yes, there is a little weight inflation still, but it is a lot lower than it was, and productivity in the state is accelerating, so unit labor costs look great. whichever way you cut and slice and dice the inflation pie, it looks to me that, other than the next month or two, the trend is still down. guy: we get indicated wage data out of the eurozone tomorrow. the ecb seems firmly focused on what is happening with the labor market with wages. again, how much do you think the ecb really knows about what is going on in front of it right now? the temptation is to focus on wages, maybe leave the cuts a little bit longer. do you think the rest of the economy is telling them they should be leaving it longer? does the same applied to the bank of england?

chris: the ecb should not be too slow to cut rates. look at what happened to lending, money growth. if you look at mortgage lending, it is at a 20 plus year low. it was negative last month. you have heard similar comments about all sorts of data in germany and sweden and other parts of the euro zone. the economy is suffering from tight money, and inflation is easy. we have a median inflation model for europe has come down very sharply in the last six to 12 months. and wages, as you know, tend to lack, as does employment. i think the ecb should not be too far behind the fed. neither should the bank of england, quite frankly. guy: yields have ticked up, as have equity markets. does that carry on? chris: i do not think it carries on for long. the main trend in yields is now

downwards, if you look at 10 year bonds. we have passed the hump of rate hikes. we are looking to rate cuts. the economy is generally slowing in the west, or not growing, if you look at the eurozone and the u.k. i think what we see is a bit of a countertrend move as chair powell has pushed back on rate cuts and the markets priced a few of the cuts out. we have seen that same sort of trend in 10 year bond yields. that is still very short. a lot of people, very short bonds. i think there is more downside potential here. the one thing i am quite focused on, quite concerned about, is what is going to happen to liquidity as we get later in the first half of this year. that may create an issue for bonds as it may create an issue for equity. i think all eyes on liquidity as well as the macro. the liquidity picture is interesting and somewhat

troubling. guy: the market is very tight, though. 80% of the rally we have seen so far this year in european equities is down to five stocks. there are a lot of tech stocks in there. a similar story in the united states. how vulnerable do you think the equity market is? if you see liquidity in the mann -- in the bond market, that could be one factor, but there is a long list right. nvidia reporting wednesday. how much to take this up? or do you think there is still upside? chris: i am worried about the second quarter of the year, because that is when liquidity gets tricky. the narratives of the advance in the market is a real concern and suggest it is not a well underpinned rally. the narratives reflect the fact there is all this liquidity running down, into the market, the past few months, whether it is from the bank funding premium program that ran out just a

couple weeks ago. all that extra liquidity propelled the u.s. market higher in a narrower sense, so one that liquidity runs out, if we do not have rate cuts by then -- which i do not think we will -- i think the market will struggle. it is a challenge. if you look at the u.s. equity market from a valuation perspective, evaluation is no way to do -- it is the third-highest measure of the shiller in 30 years. you either look to the pandemic or to the pmt bubble for a higher valuation. it is very richly priced, it is very narrow, and it is coming into a tough liquidity environment as we get to the second quarter of this year as we run out of rmp and run out of these emergency pandemic liquidity programs.

i am pretty troubled about what comes in q2 as we get to q3. that is when we start worrying, when does liquidity run dry, which is not far from where we are now. guy: thanks very much, chris watling at longview. a couple headlines i want to bring you. useful indicators as to what is happening around the world. israeli gdp coming through on an annual basis down 19.4%. unsurprising. we also have news coming through the european union will apply the first set of major rules to private credit funds. this is really about leverage. we will figure out what impact that will have. you see this huge growth in private lending that is starting to cause concerns among regulators on both sides of the atlantic get what we will talk about next, santander. posting record profits a few days ago. today, we will talk about the buyback. this is bloomberg. ♪

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guy: welcome back. watching "bloomberg markets." big day for european banks. santander delivering a dividend, a buyback. this comes a few days after it announced it numbers. the buyback is worth around 1.5 billion euros, 1.6 billion dollars. it boosted the dividend. barclasy will be out -- barclays will be out, hsbc, plus lloyd's. let's figure out where we are with the european bank reporting season. emea porting editor joins us now. i never get the frequency right

when it comes to santander. we spoke to and about and, a few days later, we get the share buyback and dividend announcedd. >> for santander, they like to spread the news. they have a nice surprise for investors february 19th. 1.5 billion euro buyback. this is -- i was just reading the note from j.p. morgan, saying they reckon capital returns at european banks are at peak. guy: why are they at a peak? is it because interest rate speak? is it because they expect -- tom: i think it is largely the rate cycle. in the u.k., we have already seen those interest rates rise, their impact as fed through for the european banks. after this point, your margins

drop, etc. you will be able to get buyback to shareholders. guy: barclays is out tomorrow. we also -- we get numbers and a strategy review pair what will we learn? tom: a strategy review will tell us a lot. on one extreme, you have people saying, does barclays really need such a big investment bank? i'm pretty sure management will come out and say yes and we will make the capital more distributed. guy: that is the -- tom: barclays uses up 50%, 60 percent of capital, that is what investors dislike, because you use all the capital up and the returns are lumpy. guy: hsbc, different story but very exposed. it is heavily exposed to china. they are talking about a bumpy year ahead.

do most of those come from china? tom: interesting reporting care they will talk about 2023, which seems to be -- he is saying it could be a tricky year ahead. where that will come, it is very asia focused. hsbc is focused on china. it is going through a tough patch, particularly in the last 10 years. what will be interesting for me on the hsbc results is how good was 23 -- -- how does that affect what numbers are going to look like? and is there another miss selling scandal? tom: i referred to lloyd's as

the bellwether. the thing that will probably be of most interest this period is motor finance, so through blackhorse subsidiary, they sell a lot of motor loans, and the fca has been saying we need to look across the industry. . very early days. they may not get the provision, but it will be interesting to see if they can get any detail or if they will just say wait and see. guy: thanks for setting us up for the busy week. that was bloomberg's tom metcalf . busy days as well coming in the european airlines sector. we will get numbers from iag, numbers from air france. that will tell us a lot about what is happening with the european consumer and the european consumer's propensity to continue to spend. one of the destinations, one of the transit destinations, is likely to be dubai for a european traveler these days. its international traveler

passenger count running high. paul griffith spoke exclusively with bloomberg's vonnie quinn. paul: what we do is invest -- particularly on a constrained site, so what we do is invest in new technology to speed people through the airport, because without building anything, if you can actually double the great -- rate of capacity of throughput, you have doubled the capacity of the airport. i haven't met a single customer over the years that wants to spend more time at an airport. usually, the interface with a product if it is efficient and quick. that wins us more plaudits from

our customer than any single factor. vonnie: presumably you would need more slots. how slot constrained are you for airlines? paul: runway slots, we still have a bit of capacity left on the runways. aircraft stands, we are ok at the moment. building more capacity is probably our biggest barrier to expansion, but the involvement of everyone in improving the process and investing in the technology to measure the customer journeys and optimize the performance at every single pinch point through the airport, that is one of our most successful and key focus. areas for the entire business. . ♪

>> to finish the job will take fortitude. we will need to resist the temptation to act quickly when patience is needed and be prepared to respond agiley as the economy evolves. guy: the san francisco fed president mary daly talking ahead of the fed minutes, which we will get wednesday. the narrative certainly, for many fed speakers at the moment, is patience is a virtue. what does that mean for the dollar? jeremy joins us now. the dollar has been moving

higher. how much more do you think this rally has got? >> good morning. i think there is still a way to go in terms of this rally. i think markets continue to pair back -- pare back immediate rate cuts. i think that does open the prospect of the dollar index making further gains. we bumped that up to around 105 last week. we can certainly move a tick or so higher, into the 106's. the key variables in term of the broader dynamic is how treasury markets and treasury yields play out, because of the correlation between the dollar and treasury yields remains pretty significant. in that context, we need to break through the 100 day moving average. guy: just talking tens care how

much more upside in yield do you think we can potentially get? let me. frame the question differently. if we have a greater risk of going to 4.5 than 3.5 now, how to give a risk is it to get 4.5 on a 10? jeremy: it is certainly a greater risk that we go higher in the narrow term. the 100 day could curtail the topside through the course of the last few sessions. this week, there is a dearth of data outside of those minutes to drive yields up into the upper 430's, but the context of next week's pc release, that does open up the propensity for a squeeze to the topside, and if we see that move in the context of annex couple weeks, i think that should keep the dollar relatively well supported. in the context of a near term,

and with a dearth of activity on volumes today, it will be on consolidation, but it is going to be a case of the dollar resolving higher the next weeks. guy: in terms of the move higher in yields, do you want to buy that? is this as good as it gets? there was a huge russians or treasuries at the beginning of the year. you get to 4.3, is that as good as you should expect? jeremy: i think we could risk breaking out through the 4.33 level. we could get an upper 4.30 threshold care that might be the sort of levels that could start to encourage interest to come back again. it is the case that if we take out the pricing for may and june, in terms of fed rate cuts, we are looking for the first fed ease in july, we could see and slightly higher level yields in

the near term, which would provide better and treat levels. guy: how does euro-dollar trade if the fed and ecb go roughly at the same time? how does a trade if they don't, i.e., the ecb is forced to go earlier? jeremy: there is greater propensity for the risk of the ecb going earlier. the macro data continues to be challenging. we expect that to be demonstrated this week. if the ecb is forced to go earlier than the fed, which is our base case scenario, we are at risk of the euro trading lower in the context of the next quarter or so, so i would not be surprised if we head back down towards below 1.06. i do not think we go much further, but there is paring back for long euro positions. the path of least resistance is

likely to be to the downside as far as the euro-dollars concerned over the next two to three months. you can find that not only against the dollar but potentially against sterling. that could be an interesting pare as well. guy: the sterling bulls seem to be resisting the economic did at the moment. you think that is sustainable? jeremy: no. we did see that recession dynamic played out in terms of gdp last week, but if you're looking at more contemporaneous data in the u.k., it is looking not necessarily bright but brighter. we saw that reflected in data at the end of last week. the housing market continues to show signs of recovery. if we see further extensions of gains in terms of pmi, that does provide better backdrop.

that may well be the case that euro-sterling could be under a little bit of pressure, because we did see that brief flirtation through 85 pence. -- guy: we have been talking about the big elements of the fx trade. talk to me about what some of the other side looks like. how do i want to trade a dollar rally? if i want to play the pound, what do i play the pound against? jeremy: invariably, everybody looks at the dollar dynamics, and obviously, that is going to be the key variable, so we need to understand the fed's reaction function, how you price that. i think it is still the case you want to be long dollars over the

worst of the next month or so, and to the quarter end, i think the dollar store is still a constructive one. in terms of your weakness, i think it is still best we look at that versus the dollar, but euro-sterling is worth keeping in mind in that context as well. it is still seeing susceptibility in those euro crosses as we move forward, and as we move towards the end of this quarter, we get closer to that policy reversal from the boj. i think that puts other crosses in play, particularly euro-yen. that will be more relevant and pertinent as we move towards the end and start to get to the meat of the resolution of the wage negotiations. if that is consistent with a boj recovery narrative, that will

play out in euro-young. guy: i want to take a step back and think about the bigger picture. equity markets incredibly strong since the beginning of the year but incredibly narrow. i think the statistics we worked out of the stoxx 600 is five stocks delivered 80% of the returns year to date. equity markets, if they were to wobble, walk me through how you would look at that and think about repositioning around that? how defensive, given the narrowness of the market we have seen so far, do we need to be around equities, and how does that ripped into other asset classes? jeremy: in simple terms, we look at equity markets, and it seems we have had a robust start of the year, but you are right to point to the narrowness of that improvement. i looked at equity markets the end of last year were almost priced to perfection in terms of

the degree of rate cuts priced into the market which looked inappropriate, and ultimately, we have been peering that back, but the equity markets have been held up i those specific stocks. if we were to see equity market vulnerability starting to play out, that will simply turned markets back into that offensive narrative. the dollar and its liquidity and the preponderance of macro resilience, which is significant relative to most other markets, will play into the dollar proving to be a net beneficiary of that reversal trade, if we were to start to see that equity market sentiment start to diminish, and/or question marks about resilience. guy: great to catch up. jeremy stretch joining us from cibc.

a quick check of where we are. the u.s. is out for presidents' day. as a result, equity markets just drifting sideways in europe. nothing to see in terms of the index levels. brent coming off a three week high, which is interesting. we are back to thinking about what the supply side story looks like, despite the weakness we have seen coming out of china. u.s. futures closed today for cash trade future still trading. not telling us much in terms of the direction of what we will see this week. we are waiting for nvidia to report wednesday. the brand story is interesting. it has had a decent run of late, just softening up a little bit. saudi aramco is talking about how it will finance its offering, talking about may be selling bonds this year, the company looking to sell longer dated debt to finance its operations. the cfo of the company spoke to bloomberg at the saudi capital

markets forum, which is currently taking place in the riyadh. >> last year was our second best year since the ipo. >> citi has a price target of $60 a barrel. bloomberg intelligence says it will take $108 a barrel. obviously, your preference will be for the higher one, but how are you prepared for the lower one? >> i do not run the saudi budget, so what we have is $60 is well above our costs. we have a lifting cost of three dollars a barrel. we started focusing very closely at it, because in the past four years, it has increased from $2.80 a barrel to $3.10 a

barrel. the margins are huge for us to worry about this, so are we prepared for different ranges of oil prices? yes, we are. you asked about supply-demand. we think, today, there is sufficient supply. we think command has recovered. last year, the estimates are demand was at an all-time high, and this year, there is considerable growth by all forecasters. the world, today, is still depending on very little capacity. there is about the percent, -- actually, 3% of world production to spare, and that is extremely dangerous to continue this into

the long-term. if you recall, the problems we had was gas did not have spare capacity. oil is a lot more stable, much less fluctuations, because there is spare capacity. the world is now down to 3% spare capacity. >> are you saying we are at dangerous levels of spare capacity? >> what i am saying is natural decline is -- call it 6%. on 103 million barrels, it is over 6 million barrels a day of lost capacity that needs to be replaced. that is a saudi arabia every two years. if it is a saudi arabia every two years, we have to ask where is this coming from? it probably may not happen this year, next year, but if there is not significant investment in supply, we will get there. guy: the saudi aramco cfo speaking with bloomberg's vonnie quinn in riyadh a little earlier

pay let's shift gears and talk about what is happening with a geopolitical situation. i want to talk about what is happening with ukraine. estonia's prime minister calling on the e.u. to boost the continent's defense industry by joint influence. this is bloomberg. ♪

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guy: 46 minutes past the hour. you are watching "bloomberg markets." let's talk about how europe will defend itself going forward estonia's prime minister says the e.u. should work on a plan to issue eurobonds to boost the continent's defenses. basically we are talking

something akin to what we saw during the pandemic. kaja kallas told bloomberg at interview at the munich security conference that the bonds issued by separate countries and eventually are basically too small to scale up. therefore, the bloc needs to invest more together. let's bring in bloomberg's european governments editor patrick o'connor -- patrick donahue. what are the chances? patrick: the chances are probably low, but kaja kallas is on the hawkish end of the spectrum. what we talk to leaders in the baltic region, we hear a lot of fairly tough rhetoric. this proposal for 100 billion euros -- at least it goes straight to the scale that europe would be facing if its

main ally, the u.s., falls behind, especially with the funding in ukraine. when you're talking about you politics and joint bond politics, that is a whole can of worms. this joint debt -- it was only during the pandemic that they pushed it forward. certainly, you have e.u. governments who would agree to something like this. france is one. but if you look at countries like this one and germany, it would be a tough sell. guy: joe biden said, over the weekend, was talking about the fact that there is no panic, no fear in europe about such an event taking place, i.e. the u.s. withdrawing. but what was your take away from the security conference? some of the coverage i read seems that is just -- seems to suggest europeans are getting

very nervous right now. patrick: i think that sums from joe biden's reference that there could be panic in europe. spending for ukraine is stuck in the house. the strain that is putting on ukrainian defenses is front and center at the munich security conference. this was the main topic. not only was the death of russia's opposition leader alexei navalny announced, there was also the fall of a city in eastern ukraine that has been held by ukrainian forces since the beginning of the war. it has been and battled. this is the russian military leveraging its advantage over what the ukrainians have, which is a lack of ammunition. this funding, this backing, it translates into weaponry, and you have ukrainian units on the front line who are rationing

their weapons, and this is a direct result. in the fall of that city is being used as a message to republicans of this is what will happen if the ukrainians do not get their weapons -- they could lose to russia. guy: in terms of what came out of the security conference, it feels like ukraine-russia war was dominant, but we have another conflict taking place overseas. we watched what was happening in rafah. we have a crew forced to abandon ship, a houthi attack, tensions ramping higher. your take on what is happening with the houthi attacks -- what's the latest on that story, and how do these fit together? patrick: as you say, this is the first case of a crew abandoning ship aced off a houthi attack in

the red sea. that is directly affecting global shipping. you have rate costs going up. oil prices have been bullied, because these shipping companies are sending loads all the way around africa, and that is leading to questions about a supply shock. tensions have not abated. the israel-hamas war was also front and center at the munich security conference, and this shows where we are. this tension risk is not abated. guy: was there a sense going out -- the israelis are taking a clear line when it comes to what is happening with the hostages. they are saying they must be released, or we will take the next steps, and we will move the conflict into southern gaza, into rafah. the egyptians are making preparations for that.

what was your take from the security conference in terms of where that conflict is going? if we were to see the hostages released, would that be enough for israel to back off? is this something that will be a more enduring conflict? what was the read? patrick: if anything, there was a sense of heightened concern and a critical perspective on the prospect of launching an attack on rafah at this point. we have 1.5 million gaza palestinians there. it was a matter of huge concern at the security conference, not just ukraine, but you can see how these interconnected or spiraling conflicts in eastern europe and the middle east are sort of really grabbing people's attention and a matter of huge concern for world leaders.

guy: thank you for the update. patrick donahue joining us on what came out of the security conference in munich. let's turn to tech. the big story is going to be nvidia. expectations quite high going into these numbers. this is a stock that has risen 50% year to date, and it is february 19. tom mackenzie joins us now. expectations are epically high. tom: if we cast our i back to the september quarter, revenues were coming in around $18 billion. that was up 200% year on year back in november. with or not we get that kind of increase this time around is the key question mark. what bloomberg intelligence is saying is the lead times in terms of the ability for nvidia to churn out these chips and get them to customers have shrunk somewhat, so bloomberg intelligence is skeptical you

get that blowout result, but the consensus is you go from $18 billion last quarter to $20 billion this quarter. you have the likes of lou capital markets targeting a price for nvidia of $1200. we will look for that segment breakdown as well. the software part of the play and the focus on enterprise as well. guy: i do not know how you predict going forward for this business. it trades at 100 times the multiple it is on. expectations going forward are very high. it will have to continue to deliver and deliver and deliver to justify those kinds of multiples. how much visibility do we really have on what comes next from these businesses? clearly accelerated. sustaining that acceleration is critical. tom: the case is these generative cases that power ai

-- they are still building out these massive data centers. we have all sorts of investors piling in to that part of the story and terms of the physical infrastructure, and we are still a ways away from completing that and matching the need, and the other ball case is you have all these other components they played to, like combining the hardware and software. a key question is that china market as well. they get just short of their revenues from china. the restriction is there and whether they can meet and get past those researchers from the u.s. guy: do they need china? if it is not china, someone else will buy it. patrick: for the moment, they do not, because they cannot match that demand, so at the moment, it is inconsequential. longer-term, it remains a question. the other longer-term question is to what extent does the competition start to catch up? it probably does not come this year, but sam altman is scouring the world to raise billions,

possibly trillions, to set up competitive chipmakers. we heard from softbank potentially looking at $100 billion u.s.. the competition stories becoming more present. guy: the multiples are amazing. certainly a big day for equity markets. thanks for setting us up. tom mackenzie. a quick headline check. ursula von der leyen, president of the european commission, saying we have to increase europe's defense capability. how that happens, how that is paid for, remains the critical question. quick look at the markets. the u.s. is out today. to be honest, markets absolutely calm as a result of that. president's day in the u.s. we will continue to track what is happening and set you up for the rest of the week. i will leave you now. kriti will pick up and speak to mark dowding. this is bloomberg. ♪

kriti: welcome to a special edition of "bloomberg markets" on this u.s. holiday. i am told it is president's day. i am kriti group that in london. let's get a quick check of the markets at this hour. -- i am kriti gupta. let's get a quick check of the markets. the stoxx 600 virtually unchanged at this moment.

some underperformers. the french and german index down. where you're seeing our performances in the u.k. higher by 0.2%. liquidity volume will be low, given that the u.s. trading volume simply is not there care that rings me to the u.s. futures picture, because that is still open. when you look at the s&p many futures, virtually unchanged. higher by 0.1%. slight our performance and the nasdaq, but not seeing much action. goldman sachs now talking about a price target of 5200 by year end, perhaps creating a bit of optimism off that call. the u.s. market is closed, the bond market as well. let's talk about these currencies. euro-dollar continues to be in lux, 1.0777 -- in flux, 1.0777.

cable at 1.26. seeing dollar weakness there. similar theme against the japanese yen, 149.99. against all g10 currencies, broadly weaker. a lot of me is asking how much of that is a function of the light liquidity? one of the key data points will be pmi. i want to get a preview from our bloomberg euro economy reporter, alex webb her. walk us through what we will expect from this data. alex: the key focus will be on the manufacturing side of things. we have been waiting for a turnaround in that sector for quite a long time now.

analysts expect the gauge to pick up just slightly but remained below the 50 mark care that is a separate expansion from contraction, so we are expecting another contraction in the u.k., germany, and france. at this stage, the details really matter. i think people will look into it and see if they detect any kind of a -- any signs of a turnaround that could ignite growth in germany, the bloc's biggest economy, which is very reliant on manufacturing. kriti: what does that mean in terms of pricing for the ecb? what would change the needle when we look at the data? or has it all kind of and in one direction, therefore bolstering the argument for what christine lagarde is saying? alex: the ecb is looking at various things at the moment. it is not just about economic momentum but also very much about the labor market, which

has not behaved as you would expect it to in such a weak economy, because it has remained very strong. therefore, the ecb is monitoring wage data very closely. we will get some of that this week, but still, it is a very important indicator. then, of course, inflation, which is expected to be on a bumpy, downward trend in this year. every monthly reading matters. a surprisingly weak reading could sway the mood in the governing council to a cut in april, but that would take a strong downward path. nevertheless, the discussion is very much live and will evolve with every data point that comes in. kriti: you're sounding just like christine lagarde. i need you to be a little more exciting. talk to us about where the weakness might come. when separating -- separating

the euro area country by country, there has been pushback. germany is not the sick man of europe. is it still portrayed this way, or are we looking to france, italy, spain for those signs of weakness? alex: germany still the key focus when we are looking at weak euro area countries. france is also not doing that great. the government downgraded its growth forecast this year. about germany, the mood is very bad. the economy may continue to contract in the first quarter. that may put it in a technical recession, although we should not get too excited about the term recession. it is a very shallow one, not looking much different from a stagnant economy in the broader region. but germany is still very much the weakness -- of the weakest points in the euro area. kriti: really interesting dynamic. don't let the german leaders

hear you say that. bloomberg's alex weber, thank you. let's talk about how you will trade and what that means for the markets. mark dowding joins us this afternoon, chief investment officer at bluebay. we just heard the importance of the pmi data and idea germany still being viewed as the sick man of europe. your take on whether that is the right read? mark: -- is bouncing around with next to no growth. the critical thing in terms of the ecb is going to be the upcoming inflation data we will see of the beginning of march. i think a march rate cut will be very unlikely pair that is too soon. but we see a chance of a move in april, and importantly, we are thinking the ecb are either going to be cutting ahead of the fed, and we continue to see u.s.

growth exceptionalism, but from a european perspective, when we speak to policymakers, there seems to be growing concern around downside risks. for example, what happens if trump wins this election? what does that mean for a european perspective, for example. kriti: you tell me, what does that mean from a european perspective? [laughter] mark: it is probably not great news for europe if trump wins. first and foremost, the idea that you may see the u.s. take a more inward position has a lot of policy makers in brussels or berlin pretty freaked out about the prospects of what that means in ukraine. it certainly means countries like germany probably need to do a lot more to step up to support the cause if they do not want to see russia ending up invading.

for the time being, of course, trump is looking like the most likely candidate to prevail in the upcoming elections, if you look at what is inferred in the betting markets. otherwise, the fact that the u.s. becomes more inward looking is a moment where, in many respects, europe needs to demonstrate more leadership and a bit more vigor. from that point of view, it is interesting to see how come historically, whenever we met with the ecb, the focus was price stability, price stability, price stability. nothing else really mattered. but increasingly, there needs to be more of a narrative that there needs to be a focus on growth, and that would be a healthy thing, if we actually see that changing in terms of lagarde's rhetoric. kriti: i want to separate the

fiscal from the monetary and dive into the fiscal. you are talking about the support or potential lack of support for ukraine from the united states. overnight, we had comments from the estonian prime minister talking up out 100 billion euros necessary. she is basically talking about war bonds of some sort. we need to be worried about what that does to fiscal budgets across europe? is fiscal more in focus from that perspective? mark: 100 billion euros is a lot of money, but the one thing we would say from a fiscal perspective is that europe has been on a more stricter fiscal path then is the case in the united states or the u.k. you look at the u.s. economy, and although it is booming, you're looking at 6.5 percent fiscal deficit this year.

yet trump is still campaigning on more tax cuts. you wonder where that deficit go in the united states, if the economy really did start to slow down. from a european perspective, we have seen a more robust fiscal approach being taken by the different authorities. frankly, if needs must. if europe needs to step up, they have to step up. i do not see much of an alternative to europe needing to be prepared to step in on ukraine if the u.s. is stepping back. i think, in all likelihood, we go in a direction where we see -- where we need to see more spending occur, and this is something that is at the back of the minds of fixed income investors, like ourselves, in terms of what that means, in terms of a risk premium attached to your assets. kriti: so that is the fiscal piece of the equation.

assuming some of these european economies can handle something like 100 billion euros of issuance just to help support ukraine, let's talk about the monetary piece. if you start to see the ecb front run the federal reserve, is there some sort of hidden curveball that comes between the ecb and the federal reserve, essentially diverging in honor their policy? is that something ok when it comes to the rest of the global economy, or is it better for them to be on the same page? mark: i do not think, in and of itself, it is problematic. if you look at reality, the u.s. economy is doing a very different thing to other oval economies, so the fact that policy is a bit different should not be, in itself, a very difficult thing. obviously, we have already got emerging markets cutting interest rates, because they were earlier when it came to rate hikes in the first place. similarly elsewhere, we are fretting to see japan go in a

completely different direction over the or so the next month or two, with a boj set to start tightening policy in many respects. that sort of policy divergence will be even more stark and one thing you would say is, if you are in a world where rates in the u.s. are being held because the economy remains strong, but you are starting to see rates starting to come down in that context of the euro zone, that could be something in fx markets that leaves a bid towards the u.s. dollar. we know the currency is overvalued on many metrics, certainly when it comes to the rights of -- to the price of beer. way too expensive. but in the economy is booming. from that point of view, you can see appreciation if you keep that performance going. kriti: i like how the price of beer is how you know the dollar

is overvalued. talk to us about your conviction trade and everything we have talked about on the fiscal and monetary front, what is the move? how do you trade it? mark: i like going short -- you are unlike late -- the other market we want to be sure is in gilt. i am thinking u.k. inflation is a bit too high. it will be hard for the bank of inland to cut rates. and with the tories losing badly last week, if anything, we will see the tories try to calibrate as big of a fiscal giveaway they think they can get away with. and there's always a risk they miss calibrate and markets take a more skeptical approach to fiscal easing. on the short side, the gilt and heb's is the right way for the

time being, but it is too early to be bullish when it comes to bunds or treasuries. there could be a little more pain ahead in terms of mobile yields over the words of the next couple weeks. kriti: really interesting dynamic. your short tilt call is -- your short gilt call is interesting. mark dowding, thank you so much for joining the program. covering a bit of everything on the fixed income market. coming up, saudi aramco saying global supply in the global markets is -- this is bloomberg. ♪ at ameriprise financial our advice is personalized based on your goals,

whatever they may be. all that planning has paid off. looks like you can make this work. we can make this work. and the feeling of confidence that comes from our advice... i can make this work. that seems to be universal. i can make this work. i can make this work. no wonder more than 9 out of 10 clients are likely to recommend us. because advice worth listening to is advice worth talking about. ameriprise financial.

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saudi aramco may -- the company looks at longer dated that. it cfo spoke to vonnie quinn. take a listen. >> last year, everybody talks about a challenging market. last year was our second best year since the ipo. vonnie: let me give you two figures. citi has a price target of $60 a barrel. bloomberg intelligence said it would take -- obviously, your preference would be for the higher one, but how are you prepared for the lower one? ziad: i do not run the saudi budget. what we have is $60 is well above our costs. we have a lifting cost of three dollars a barrel.

we started focusing very closely at it, but because for the past four years, it increased to $3 .10 a barrel. i know it's insignificant, but to us, it is a trend we monitor. the margins are huge for us to worry about this. are we prepared for different ranges of oil prices? yes, we are. you asked earlier about supply-demand. we think today, there is sufficient supply. we think demand has recovered. last year, the estimates were demand is at an all-time high, and this year, there is considerable growth by all forecasters. the world, today, is still depending on very little capacity. there's a doubt -- actually, 3%

of world production that is in despair, and that is extremely dangerous to continue this long-term. if you recall, the problems we had with gas was because gas did not have spare capacity. oil is a lot more stable, much less fluctuations, because there is spare capacity. the world is now down to 3% spare capacity. vonnie: are using we arrived dangerous levels of spare capacity? ziad: what i am saying is natural decline is -- call it 6%. on 103 million barrels, that is over 6 million barrels a day of capacity lost every year that has to be replaced. that is a saudi arabia every two years. if it is a saudi arabia every two years, we have to ask, where is this coming from? it may not -- it probably will

not happen this year, next year, but if there is not significant investment in supply, we will get there. kriti: that was the aramco cfo joining bloomberg's vonnie quinn. i want to bring her into the conversation, bloomberg's vonnie quinn on standby. talk to us about what stood out to you in terms of aramco's strategy, especially when it comes to the spare capacity question you asked. vonnie: it was a little bit of a surprise. that the percent idea, he was basically saying it does not have to be saudi aramco that makes all the investment in the world katie was saying the oil market perhaps is not take enough notice of the fact that there is only 3% spare capacity. it was also defending the fact that there is supply enough to meet demand. they are all these questions about whether the world is oversupplied with oil. his point was be careful what you wish for.

there is a lot less per capacity out there than the market is judging or taking notice of, and we have seen that. the markets look past all sorts of geely political -- geopolitical tensions. even with the red sea tensions, we have not seen oil jump that much, even though the houthis are active in the red sea area. also this idea that maximum sustained capacity had been signaled to go up to 13 million barrels, and that was postponed, or deferred or canceled. that would have been a saudi government decision, but there are a lot of questions about why that decision was made, and one of the takeaways is you can tell a lot about what the saudis think the demand is going to be for oil by the fact that they are not increasing that maximum sustained capacity. basically, it will stay at 12 million barrels a day. perhaps that is enough. kriti: that is the commodity piece of the equation. let's talk aramco itself.

if there is this hesitancy to be exposed to the oil market now, perhaps you are not seeing those geopolitical tensions show up because of that fear of exposure. what does that mean for appetite to actually have exposure to aramco, especially potentially talking another state, potentially expanding its operations. how are people thinking about aramco from a capital markets perspective? vonnie: it is a fascinating story right now, because as we know, we have reported another stake is likely to go on sale soon and that aramco has already engaged banks on this matter. this is the special shareholder who will decide this, who will officially decide that, and that is the saudi government, who already owns 90% plus of aramco. we have reported that another $20 billion worth might come online.

he did not confirm that will happen, but we are anticipating it at some time here what is likely is the company issues bonds that would be the first time in aramco's history it has done so. he said it would not necessarily be to support the dividend, but it would be good for aramco, it would be good for saudi arabia's economy, and particularly good for saudi markets. he specifically said equity capital markets in saudi arabia have become quite healthy and robust. kriti: the view out of riyadh. bloomberg's vonnie quinn. we go from aramco back into a deep dive of the commodity itself. i want to bring in a true expert. if these geopolitical tensions are not showing up in the price

of the commodity itself. why is that? >> you are starting to see a slightly more bullish tone creeping into the market. we are getting a premium for more immediate crude rises, which is a sign people are becoming more bullish. could it be more bullish? sure. but actually, what has changed in the past few weeks? not that much. there was a big freeze in the u.s. that took some supply off the market. we had some positive numbers from china in terms of the aviation demand. otherwise, things are going along as they were. the red sea crisis, or the chaos we have seen in the red sea, has not had a supply impact. it has diverted supply, but that just means it gets to where it needs to go later. it does not mean it does not get there. what has really changed? not a huge amount. but as a saudi aramco cfo was saying, the demand picture for

the year is pretty positive. there are reasons to have a list take. kriti: the former head of commodities at goldman sachs famously said this was the start of another super cycle. it feels like that rhetoric has died down. there are some who say inflationary dynamics will persist for years, not months. that was before the geopolitical tensions. do we still believe in the impetus for super cycle? if we have strong demand, is it enough for a super cycle? alaric: that is a pretty big question, one i am honestly not comfortable answering. there is, here and now, that mexico, wow, there's something coming down the horizon. you can look at saudi aramco's decision on spare capacity two ways. you can look at it as being bullish because there's less room for something to go wrong.

but you can be bearish as well and say, why are they not seeing in the future that there will be demand there? there are different ways to see those things. i think there is a way to look at things spiritually -- look at things bearishly, so i do not think there is a compelling super cycle. kriti: $83 handle on brent, but has not returned to that $90 mark. alaric, we have to leave it there. we pivot from oil to the tech space, the e.u. fining big tech again. this is bloomberg. ♪

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kriti: welcome to bloomberg markets. i'm kriti gupta. apple pay say european union find close to 500 million euros over investigations, allegations it silenced music streaming rivals including spotify. i want to bring in matt blocked a walk us through the story. historic in a lot of ways but some would say it doesn't matter because the 500 million euros is something like 11 hours of revenue for apple. matt: this goes back to a complaint that spotify made in 2019 about alleged

anticompetitive practices around its services in the store. we were expecting the eu to come out with this fine maybe next month, working out the details, but it is irrelevant in a number of ways. even though it feels big, it is not big at all to apple. since then, the european union has moved forward with the various digital legislation, the digital markets act. apple came out with a big press statement saying we are changing how we do business in the eu markets. a lot of what they are changing response to the alleged anticompetitive practice that were at stake in this case. the main thing here is that apple wasn't letting people advertise cheaper ways to get the service outside of the app store. apple is making a bunch of changes including allowing people to have their own app store, not just the apple one,

and if you stay on the apple store you can get lower fees. in any case, spotify, some years ago, started to move people away from moving forward to subscription through apple. you cannot pay through the apple service anymore anyway so it shouldn't be a big effect and the fine is irrelevant. the world has moved on since this case started. european commission showing its teeth, getting to grips with all of these companies. kriti: as the european commission, cma even, trying to rein in big tech, but the fines that they are imposing are two small. as we talk about this regulatory environment where europe goes harder on big tech, is there a number that will actually matter to a lot of these big tech names

given the pace they are growing at? matt: what is more important is the change of behavior. we will have to wait to see if the european commission says that when apple proposes is sufficient. that is the bigger constraint on how they operate. endear me, you can find a company up to 10% of their revenue, but imagine if the eu came out and find apple 10% of their revenue. case would drag on for years and years. what matters is strong legislation that forces the company to change its behavior, and that is what the dma is trying to do. kriti: it speaks to this idea of does this regulatory action even matter until how apple reacts in europe, sets a precedent to how they act around the rest of the world. nvidia, their earnings this

week, on top of softbank investing 100 billion in new chips, talk about the chips story. when does the story get old? matt: never? [laughter] the world is completely reliant on technology. i cannot see that changing, will continue to be an evolution, like an arms race in the technology space. chips will have to get more sophisticated. new innovations will come out so i think this story will keep us going for decades to come. kriti: really interesting dynamic. if you are talking about this innovation, 100 billion from the likes of softbank, nvidia growing into server chips. do you want exposure to it or is it too expensive? i will not make you answer that. thank you so much. he was so excited. we will have someone else to answer the question. patrick armstrong, chief

investment officer joints me this morning. let me put the question to you. it is tech too expensive and or does the pace of innovation justify it? patrick: it justifies it, but it is expensive. we actually sold apple at the beginning of the year, 30 times earnings, not delivering much growth. we bought into nvidia which was trading at 30 times forecast with incredible growth. nvidia is up to 33 times now. expensive stock. we, like everyone else, things that earnings will be great. sensational demand for the chip that everyone needs. they have incredible pricing power. expensive companies, incredible profit margins, incredible growth. we think those multiples are warranted. kriti: growth that is

decelerating. we talked about apple. microsoft is one of my favorite examples in terms of big tech that is still growing, but their growth is not as monumental as it has been in the past. 20, 30% in their cloud business was not as impressive as the 50% they were boasting at the initial startup of when this began. how do you monitor when is a good entry point for tech? patrick: right at the beginning of the year we sold microsoft and apple and bought meta and nvidia. we think cloud has been an incredible engine of growth for microsoft, google, amazon, but it is essentially a commodity product. there will not be sustainable pricing. right now it is hard to switch but eventually you won't have to compete on price on cloud. i don't think that is sustainable outside profits. i do think they will have to compete on price.

cloud in the near term will become less profitable even though it will have high revenue growth. if you are paying 30 times earnings, you want to have growth. apple didn't have growth, microsoft still has some meta and nvidia, we are attracted to the growth even though they are more expensive than nvidia. kriti: critics of tech bulls like yourself would argue that a lot of the gains that you are seeing is not indicative of the growth, more of a momentum play, a moving train that you that you don't want to get in front out because of this ai hype. how do you put a price on hype? patrick: that is the decision we came to at the beginning of the year. last year, i was selling nvidia. you get a premium for some and put options, forced me to buy it on a dip. that dip never happened.

the stock was up over to her 50% but earnings were up over 1000% on a forecast basis. nvidia actually got cheaper as 2023 progressed. year to date, outstripping forecast growth, but because the earnings growth is so fast, the profitability, companies are just clamoring to get a hold of the chips. they cannot produce enough to meet demand. that will lead to high profit margins. 33 times, 12 times forward earnings is the multiple we are happy to pay if there is incredible growth. kriti: patrick, let's talk about some of the macro dynamics affecting the tech space. concerned about the upward pressure we are seeing in yields. 4.27 is where the 10-year is hovering right now.

if you continue to see that upside pressure, what level spooks the stock market, what puts an end to this party? what level on yields are you watching to hit the stock market? patrick: i think we will have a yield curve as flat as a pancake entering 2024. as long as yields are moving higher because growth is outperforming, the u.s. will probably grow at 2.5% this year, just about its potential growth in the long-term. that growth will lead to earnings growth. multiples will not expand as 10-year yield's move higher, but companies generating earnings will move into that. our thesis is not predicated on a wave of fed cuts. we think the market is coming to our view that the fed will cut three times. the market was saying six times at the beginning of the year.

services growth, consumption is all strong. wage growth is outstripping consumption. it is still a jobseekers market, so we think wait growth outstrips consumption, pushing the economy forward. it will be really earnings growth driving the equity markets through the rest of the year. kriti: how much of the earnings growth -- i will marry the topics that we've been talking about. how much earnings growth is coming from the wage picture? we have seen headlines where companies are laying off so many people. the initial reaction is this is a cost efficiency move, creates more wealth in the stock market. is there immediate translation in the eps? patrick: you can see the cost structure is coming down, revenues going up. it is a margin expansion. when you take a monopolistic position, you set the prices of

your products. cutting the workforce increases efficiencies through ai and other technologies, boosting profit margins. technology companies are on the right side of this. i don't think the layoffs will really impact the u.s. job market. there are still 1.4 job openings were every unemployed person. unemployment is below 4%. that's that's a pretty good backdrop for the u.s. economy. kriti: final question to you, what is your conviction trait at the moment? patrick: defense stocks are a great place to be right now. bae systems in the u.k. is one of our largest positions. unfortunately, we are in a world where defense spending will stay strong. the nato thing i've talked about, wars in the middle east,

russia. all of these things, countries will be spending on defense. i think you'll have secular tailwinds in these markets. very consistent revenue growth from their. kriti: patrick armstrong, giving us his take on the tech space and defense space as well. thank you for joining the program. coming up on the program, we will switch into the backspace. tough times ahead for hsbc. why the ceo is telling his top executives -- what the ceo is telling his top executives before this week's report. this is bloomberg. ♪

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kriti: welcome to bloomberg markets. i'm kriti gupta. hsbc reporting fourth-quarter results on wednesday. the ceo painting a grim picture for the year ahead. let's bring in harry wilson. pleasure to have you on the program. august through this grandeur he has been having. harry: hsbc, most notable for their chinese real estate problems, and that is true for all major exposures in china. we have seen repeated provisions, exposure to the chinese real estate sector. although hsbc recently said it

will be a while before it gets better, that will make things difficult for them, even though they have positive tailwinds. interest rates are rising. kriti: it is those interest rates that are not helping their net interest margin, not just hsbc, let european banks as well. one of the themes we have seen is part back after buyback. where does hsbc stand on that? harry: they recently completed a $3 billion buyback, taking it over 7 billion over the last year. markets expecting about $2 million in the next program. that can be followed by others. on top of that, there will be a

special dividend, $.21 a share. kriti: talk to us about some of the bonus talk. a lot of junior bankers who want to know what is going on with that. where does hsbc stand on the way they are calculating some of the pay? harry: they have announced a change to their policy on that. what they are looking to do is benchmark their pay against peers. that mean some people at the junior level would get some kind of pay rise potentially, slightly larger bonuses than they would expect. generally, across london, it is not a pretty picture for bonuses this year. it is unlikely that a lot of people will see much of an

uptick in their pay. hsbc may be some that are pleasantly surprised that front. kriti: thank you so much for joining us for that update. hsbc reporting earnings on wednesday. barclays also due to release the reports for the fourth quarter. for a preview of what to expect, tom metcalf is all over that story. what to expect from barclays reporting tomorrow? tom: 7:00 a.m. what happened in q4, how the investment bank is doing. they have a big investor update where people will be closely watching what are they doing with the bank. shareholders do not value this global investment bank they have. executives are trying to wrestle with how can we keep this investment bank that they value, while bringing shareholders along, whether that is through expanding the retail side or

telling the story better. kriti: we were hearing about the buyback, dividend story. a lot of corporate europe saying to investors, here is something in the pot. european banks have been all over this. unicredit, commerce bank. where does barclays stand on that? tom: it is one of the levers they are expected to pull. it is interesting, anything they decide to give back to shareholders, they cannot invest in the business. it is a real balancing act. and then you have the fact that u.k. banks are further along in the right cycle then european ones. european banks are in a better position now to give back money whereas in the u.k., they are realizing we cannot keep returning capital to shareholders, given we don't know what is around the corner. kriti: in terms of not

knowing what's around the corner, we talked about that interest margins. if the right cycle has become a where does that come from? to your point, barclays has lagged some of its rivals for some time. is there rate growth to squeeze out here, how do they capitalize on that? tom: i would be surprise if there's anything in these results that suggest that. you have seen this with tess kobane. bill other parts of the bank so that that part of the bank is not so dominant. right now, 60% of capital at barclays. that is something they want to reduce as a portion. not shrink the investment bank but grow retail, a bit more in revenue, profit, hoping that that can appease shareholders. kriti: barclays is different because when you compare it to santander, barclays is not as regionally diversified as santander might be.

we had ana on the markets a few weeks ago saying that we are concerned about the right cycle, but look at where our businesses can still thrive, pointing to their brazil, latin american business. now, this morning, santander unveiling a $1.5 billion buyback -- euro buyback on top of that record profit. when does the party start for some of these european banks? tom: they will say that diversification where they have home markets, they can arbitrage what is happening in the macroeconomy. santander is a great example. the brazil market can be a useful thing, but at the same time, too risky, too many provisions there, etc. it is difficult to say, barclays, you should be like santander. i don't think that is what their

shareholders want. i think they do want a big center that is not as up and down, as lumpy as the capital markets business is. kriti: lumpy, i love that word, but accurate in terms of describing how this banking story works. one of the details we have been looking at, the banks that have more exposure to the u.s., loan loss provisions, how much of that is being hedged because of concerns in the u.s. are a thinking about the exposure to the end consumer? tom: u.k. banks are largely not to exposed to u.s. commercial real estate. they will be saying we learned our lesson from the last time, we will be ok. deutsche bank has exposure there. they had to quadruple their provisions, which makes you

think about how much people are thinking about this. certainly u.s. commercial real estate is a problem but not directly a problem. there is turmoil in the u.s. that will impact europe but it is unlikely to be directly transferring. it is more likely, the u.s. is sneezing, everyone else catches a cold. kriti: it feels like these european banks are looking at the commercial real estate risk. the commerce bank ceo said we learned our lesson from the global financial crisis. others would look at that risk and say it is isolated pockets, not systemic risk. what are you hearing? tom: that is the right analysis, does not appear systemic right now. it is almost like another regional banks crisis. what i would expect to see is -- most of the analysts are confident they can absorb any shocks. perhaps smaller names who might

be overexposed for their size, and then they will hit struggles. definitely a live issue, will continue to ricochet around the markets. the only thing i would say, our reporters are talking about troubles building up in the commercial real estate market in the u.s. for years now. interesting to see how dynamic this will be or if it is a slow burn. kriti: we are talking about this commercial real estate risk. it is not something that is being priced into the markets. with this exposure, with this rattled the european economy? have they been hedged against that like the commerzbank ceo said? u.k. home prices are still a concern, germany real estate sector is also kind of cracking. mike the european market be a bigger risk? tom: that is the worry.

germany is a great example. it's banks are exposed to the u.s. market but may be the bigger question is what does the domestic property market look like? as you look around, it is very easy to be pessimistic if you want to be. equally, you have people out there that are very bullish. personally, i went into the year thinking, it might be a year of plenty news, big losses and surprises. kind of looking forward to it but slightly wary. kriti: tom metcalf, thank you so much. i gave him the rapidfire round of all the banking questions. thank you for joining us this morning, afternoon. let's talk about a chart that caught my eye. as we talk about the banking sector, one that is hard to trade as we talk about the rate story, there is a chart that you

can access talking about what european banks are treating like relative to the broader stoxx 600. there is a real discount to how they are treating, despite if you look at their profit margins and buyback story, they are outperforming. we're only looking at the price to equity ratio, doesn't take into account the price-to-book ratio, but it is one that we continue to monitor. the bond market is closed today because of that presidents' day holiday in the u.s., but in the equity market, marginal gains. stoxx 600. 491.58. outperformance in the ftse 100. u.s. markets, futures markets are still open. 50.22 on those contracts. plenty coming up ahead. stick with us. more rates, more markets, more geopolitics. this is bloomberg. ♪

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kriti: welcome to bloomberg markets.

i'm kriti gupta. it is presidents' day in the united states, so you will see light volume on both sides of the atlantic. nevertheless, european markets are open. stoxx 600 unchanged at the moment. outperformance on the ftse 100, higher by .2%. quick check on u.s. markets. as we look at these u.s. markets, goldman sachs came out overnight to and raised their year end price target on the benchmark it. we are still away from that level. you are still seeing a bit of positivity on the screen. perhaps early indication of what is to come as we get a full amount of liquidity and trading volume when everyone comes back from the long weekend. nasdaq 100, higher by .1%, as we

talk about the tech story. apple find that don't make much of a difference, nvidia earnings coming out. massive investment from softbank overnight. quick check on the fx market. the nerd in me wants to go straight to the currencies. the bond market is closed but the 10-year closed at about 4.28. ordinarily that would mean strength in the bloomberg dollar index but we are getting the opposite. just enough to create enough of a tailwind into the likes of cable. euro-dollar at 1.07. dollar-yen, 150. we are seeing a lot of positioning around it. do we see that continue as we get the european data this week? i want to get a quick preview on those pmi numbers from our bloomberg euro area economy reporter alex weber.

a pleasure to have you on the program once again. walk us through the importance of this data set. alex: we are expecting a small uptick in numbers for the euro area pmi. especially looking at the manufacturing component of those data. manufacturing has been in decline for a long time after the pendulum swings after the pandemic. there have been tentative signs that it is finally turning around and analysts are waiting for more signs of that. it's a key factor behind the weakness in the euro zone economy. germany, prime example, probably will contract again in the quarter. france not doing all that much better. this will be important to judge whether the recovery that has been expected is finally arriving. kriti: everyone has been talking about whether germany is the

sick man of europe. we hear research notes say ultimately it will be the german economy that brings down all of europe. how true is that? alex: it does weigh on the euro zone economy, the bloc's largest economy, and is a problem in that manufacturing has a much stalled. there are structural reasons that are part of the debate right now. what is causing the current weakness? how long will it stick around? that is also why these data points matter to judge whether there is a cyclical turning point, our consumers spending more money, is foreign demand picking up to a sufficient extent? but there are also large structural problems that the german economy is facing. kriti: when christine lagarde and her colleagues look at this data, think about whether or not

that summertime price cut is still in line, what are they paying attention to most here? alex: the pmi data will also tell us a lot about wage data. the labor market, if it is holding up surprisingly well, whether the red sea troubles will have an impact on supply change, may push up cost further . the labor market has held up so surprisingly well, you cannot only look at economic activity, you have to look at price pressures also from that vantage point. we are getting a lot of wage data in the coming months. those will be parsed for any sign of a cool down. that feeds into the debate of whether the ecb should start cutting rates in june. that debate looks alive.

it looked like the majority was behind a later start but the french governor change that a bit, suggesting he is in favor of starting a little earlier. all of these data points matter very much for the debate in the ecb. kriti: alex webb are joining us from frankfurt, thank you for joining us. quick preview of that data and what central banks they actually be thinking. i want to get more analysis, when you go to how it is priced in the markets. head of european rate strategy. we were talking about whether germany remains the sick man of europe. we are seeing pushback from officials saying it is just tired, not sick. how is that priced into this market? >> thank you for having me. i know it has been talked about from all of us. also this time will be the eighth consecutive month that we

see pmi's in the contracted territory. when it comes to germany, we, all economists recognize there is a structural change required, and that will not happen in one day. that is why the ecb is not looking at just how germany is, it is looking at the overall picture with europe, which will also be released. i would not give so much importance just to the pmi just yet. interestingly, even the ecb released a report talking about how pmi's are not the best indicator of growth when an economy goes through shocks. that is the case were germany which is a big manufacturing economy. yes, there is stagnation, but if things are moderating, it justifies ecb more time. in terms of market pricing, we are still pricing in 80 or

90 basis points from the fed. kriti: gives the bankers more time. more time to cut? pooja: i believe so. they want to get the entire committee at the same page. luckily, and ecb, we have less hocks right now, but they want to be patient on wage data. given what we are seeing from the u.s., sudden changes in the cpi, momentum, the ecb will also try to be more cautious. for any central bank, the ecb, it is not cutting rates right now. it is just the financial conditions, what is brewing in the rates market. they should be content with so many rate cuts being priced. as an investor, corporate funding, i am looking at two-year, five-year bonds, so

i'm in good position from where i was last year in europe. kriti: we had mark dowding on earlier saying, in terms of his conviction trade, he is not short or bullish on boones or treasuries just yet. your take on the short jgb trade? pooja: given the fact that april will be the last chance to make changes to the policy, if they do not, the markets will give up on that. even if they do change, from what i have seen from the level of yen, it is only a u.s. driven market. if treasuries trade higher, that will make an impact on jgb's, bunds, everywhere.

i think, irrespective of what ecb does, boj does right now come it is a treasury-driven market. kriti: if it is a treasury-driven market, six months ago, there was concern if there was a supply glut. now the concern is there may not be enough for this insatiable demand. does liquidity matter at the moment? pooja: it does because we have 20 basis point moves if there is no liquidity. therefore liquidity matters. the point you mentioned, we have not seen this kind of supply. we were just talking to some clients, why is there no oversupply in february? what we are seeing is rates are lower, spreads are tightening. basically the story that the

fed, ecb, central banks will be cutting back. once they start pushing back, we will be at levels we were in october 1 treasuries were close to 5%. everyone knows that cuts are coming. for example, last week's retail sales, one week, markets started to buy treasuries. unfortunately, in the next few months we will have less clarity, but generally, our clients are looking at long-duration. very evident trade especially when it comes to flows. kriti: options have been strong on the back of that. what is the danger of front running that rate cut? pooja: lots of people did that in january. kriti: i feel like they have been doing that for two years. pooja: again, it is a tricky

trade. something that is being discussed. it is better to place short-term right now. i believe in being short-term gilts right now because we are heading to remit. at 200 basis points, i would think that the spread should tighten. that has been the trade for the last three years, where it is right now, until we get more certainty. kriti: you are talking about ranges. give us a floor, ceiling for the 10-year on treasuries? pooja: when it comes to the floor, i would look at what markets are pricing in when it comes to cuts from the fed. we are pretty much at fair level from the dot plots. i don't think there is much upside to where we are sitting. i think 4% is something. you will get sellers coming in unless we get better clues on when the fed is cutting.

how much higher we can go, that is complicated because of the dot plots, what the market is pricing is not fair value. kriti: if you had to put a number on the ceiling? pooja: 4 to 4.40 is something we are looking at. kriti: thank you so much. talking about the bond market. i feel like we just did a global tour of bond markets. coming up, we go into a little bit of tech, equities. southbank betting on arm to invest in ai products. we will bring you the latest next. this is bloomberg. ♪

kriti: welcome to bloomberg markets. i'm kriti gupta. shares of microcomputer are riding on a historic rally fueled by artificial intelligence.

supermicro makes data servers for chipmakers like nvidia. shares at more than tripled since january. the ceo talks about the strong market demand for servers. >> basically, we are able to build enough servers for our customers. as you know, there is now a chip shortage. once we have more supply from the chip company like nvidia, we can ship more to customers. >> let's talk about the chipmakers, nvidias. you are agnostic. you take chips from nvidia, intel. what are your tips like? >> it was a company i founded in 1993. both companies are 30 years old. we started working since day one, so for 30 years, engineering, partnership, and then go to market. we had been working very closely.

however, we hope to have more chips available. >> do you have a number, a dollar value for the total addressable market that you see for your company in the context of nai infrastructure buildout? >> we are always looking. market size is growing. the ai boom is basically a star. we believe the markets has a lot of room to grow, industry leader. as of today, our production capacity can support our revenue up to 25 billion dollars, for example, but we need more chips to as i mentioned. the market continues to grow, we continue to gain share, because of a better product, scale.

we are continuing to grow our production capacity in the united states and globally, as well. >> for our bloomberg television and radio audience, we are speaking to the supermicro ceo. let you said you were coming on the program, our audience had a lot of questions. one of them is about the fcc action taken against your company. they charged supermicro and the former ceo of the company with what they called widespread accounting violations. some numbers presented by the company. could you update the audience, investor base on where that process is, if you have put those concerned behind you? >> those concerns have been behind us for many years. first, we studied in detail, we can improve during those few years.

kriti: the ceo of supermicro speaking to bloomberg technology hosts ed ludlow and caroline hyde. southbank has announced the creation of a $100 billion chip venture of enabling ai semiconductors. alec weber joins us again. this is not necessarily talking about the ai hype, but $100 billion is not a small amount. alex: unless has dropped while i was walking over, they have not announced it. from sources, they are working on a project. the idea is that it is a semiconductor company that would ideally compete with the likes of nvidia. talking about a $100 billion investment to make it happen. huge amount of money. $30 billion funded by softbank,

other investors, we know not who, potentially from the middle east. this would be a massive play if it were to actually happen. the challenge here is, how do you catch up with a company like nvidia who have been doing this for quite some time? they are basically using expertise they built up through gaming in order to be the dominant player in ai. there are other mps trying to do this. a british company received a significant amount of capital investment. some of those investors have to write down the valley of their stakes because they haven't made the progress they expected. how they get there will be a fascinating story to follow. kriti: you have been covering tech for a very long time. talk about the believability factor when people make these promises around ai. we had an interview last week of

a u.k. stock which does a lot of legal work. they have been trying to use ai, the cloud, the internet of things as a part of their suite. as a result of that, a lot of stock analysts have said this is a stock that could capitalize on the ai hype. that is a very micra example of what we are seeing but how should we be approaching the ai momentum when talking about from nvidia and arm versus a company that is not as heavily investing as they are? alex: huge business in academic publications. they are sitting on a huge amount of data, if navigated affectively, could be a gold mine when it comes to ai. it is like saying in 1999 -- i don't want to sound too much like a bowl. but how do i play the internet?

companies are still around, a lot of them are the infrastructure that was needed to roll out the internet. that is kind of the space where nvidia and the cloud players are. we don't quite know what the generation of companies built on that infrastructure are going to do. we have seen openai. clearly early success story. but the likes of relics, that is where they are keen to find a niche. at the moment we have the general companies doing generative ai. there will be specialized companies, devising solutions targeted at particular industries, solutions. we have not seen those yet. how companies like these can mine their database of information in order to find a project that can yield massive results will be fascinating. relics has been around a long time.

it is a slow moving company, so how they do that will be interesting. kriti: let's go back to the arm story. massive rallies in the past few days rivaling some of the moves that we saw in the early tech space, ai stories. gained 30% in the last trading days, softbank. arm almost doubling in value. talk about the arm story. the ipo was good but not extraordinary. now it seemed to be picking up steam. alex: the question marks around arm was is this nai company? -- an ai company? it was hard to see given the information available at the time, how that could be the case. some of the comments around the earnings, the market seems to be buying this story now, that there is steam behind what they are doing in this space.

they don't necessarily have a direct exposure in the same way that nvidia does, but a lot of the stuff they do, arctic -- architectures they design to support. at the same time, what they are talking about now, i remember talking to arm seven years ago, maybe before they were taken private by softbank, they were talking about the internet of things. the use of those, that is not being talked about in the same breath as ai. in a sense it is not a new story but the market finally seems to be buying it. kriti: when i think about arm, i think about asml. they both offer something from a business model perspective, very few competitors. asml, these machines which nobody can really match. arm is the same way in being a chips designer itself, but there

are actually few competitors. why is that not a no-brainer for the stock to shoot up? alex: it was not entirely sure that the chipsets they were designing were the ai ones. they had the gpu accelerators that nvidia makes which are geared toward ai. arm is very good in things like mobile phones. you think about qualcomm, what they do is built on arm architecture, same with apple. just because you are in the chip space as it mean you are exposed to artificial intelligence. it is quite the sweet spot to be in, you are seeing efforts to compete with arm, maybe take chunks out of their market share, which is also a concern for investors around ipo time. we have seen chip stocks rise and fall. nvidia was a very small bible to in to even five years ago.

now it is the biggest chipmaker by capitalization in the world. intel was the 300 pound gorilla in the room, but now it seemed to be struggling at times. arm seems to be doing quite well. you do hear some concern that maybe the expectations are getting over-egged. nvidia is managing to meet them. arm, we will see. kriti: alex weber, pulling a classic british thing, putting some cool water on it. we will cover the geopolitics development over the weekend. stick with us. this is bloomberg. ♪

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leading toward the four ukraine

>> when you start talking about debt issuance in europe, it is often a taboo subject. that deposit came from the estonian prime minister, who is fairly hawkish. what she was painting was a picture of the scale of what europe would have to do to fill in the gap of where the u.s. is if the u.s. pulled out or stood back on in support. but, within the context of the eu, you are talking about debt, this is taboo. it was not until the pandemic hit that leaders got together

and talked about debt issuance to fight the economic impact of the pandemic. the issue has been raised time and again. there are eu member states generally in favor, france from one. but the netherlands, germany, that would be a hard sell. kriti: talk a little about how -- you ultimately get the funding that is needed, whether that is the $60 billion in aid or $100 billion in bond, or even that package from the u.s., how is that allocated? in terms of the actual defense, what does that look like? patrick: from what i understand, the estonian prime minister was talking about defense needs for eu member states to build up their defenses. when you're looking at a $60 billion package, that is direct

aid to ukraine. in those terms, there was a conference this weekend, leaders have said that the u.s. has finalized their package. $50 billion in assistance -- 50 million euros in assistance to ukraine in the u.s. should step in. kriti: when we talk about what the strategy in ukraine actually looks like, this is about the usage of drones or the u.s. we position on long-range missiles being sent? olaf scholz on some of the machinery that germany can send as well. denmark and while saying we will send all of our utility to ukraine. what kind of machinery does ukraine need? looks like we have lost patrick. but i want to talk about the

sector. you are getting a 10 of different rates from around the world about what kind of machinery ukraine needs. playback to the u.s., the concerns -- what are the concerns around the congressional spending bill is whether the u.s. is making his aggressive as they need. the death of alexi navalny is going to be the advance and the purse that some spending needs to make it over the line and deployed to ukraine. then you have to ask yourself in terms of eu nations, how much could this be? from a financial standpoint, how are investors doing this? i want to go to chris turner. he is at ing bank's london branch to walk us through these dynamics. i want to start with the financial side of this story in the fiscal allocation that europe is talking about.

in europe afford to help you -- can europe afford to help ukraine? chris: we have seen a substantial underperformance of european debt on this decision over the last couple we. -- weeks. right think the bond market -- i think the bond market will prevent this from happening. kriti: talk about this defense spending. woodway are talking about the geopolitical concerns, how to set factor in from an investor point of view? chris: that probably is the consensus view, mobile jet -- debt to gdp ratio is high. spending in the u.s. is running a large budget deficit during times of economic growth, but we have not seen substantial

underperformance of boat markets on the back of the fiscal situation. they have largely been driven by fed policy. i think over time and after the fed does cut rates, there will be this fiscal issue in the states which will prevent 10 year yield's sustainably coming under 10%, but that is a medium-term issue. kriti: let's tack about monetary policy. we are talking about the federal reserve. one of the concerns initially with the onset of the war in ukraine in addition to some of the pandemic issues you saw, some supply-chain concerns were around commodity pricing and what that would mean for inflationary dynamics. is there a readthrough from geopolitics into inflationary dynamics six for 12 months down the road? chris: not yet. look at the middle east. energy and oil prices -- but gas

prices remain low. container roots -- routes, but nowhere near the fakhrizadeh 2022. the issue does not come into the equation. i think the market is focusing on the classic issue of a slowdown in activity. obviously, we've seen headline inflation lower across the world and we are focusing on sticky services inflation, particularly in the states where we have that upside surprise last week and they consensus view that that was a left at the or trend could be lower. this inflation trends will dominate this year. kriti: we are seeing them at different paces. last seven days, we got u.s. cpi data and u.k. cpi data as well. one was a hotter print, one softer than we were expecting. that divergence between the two, is that a plaintiff concern to

you? chris: not really. the direction of travel is clear. short-term rates will come lower. central banks will have room to go back to neutral rebels -- levels. in the u.k., it is an issue of timing. in the second quarter, it is become clear that the u.k. disinflation trend is following what is happening u.s. and u.k. as well. maybe a few months where they do not fall in line with each other, but i think on a quarterly basis this will be a disinflation trend. kriti: where does the spook factor come in? what are we waiting for for central banks, for investors to say, hold on, maybe we are not making the progress that we want to be making? chris: that is a good question.

volatility across bond markets, historically, they are very low. the defense market is probably at the lowest level since before the invasion of ukraine in 2022. the risks are there. where will they come from? i think we would think of the inflation side that we are confident that the crisis will come lower. maybe there are geopolitical shocks. it is hard to tell. the and others about financial risks that remain. china comes into the fray. at the moment, it will be the unknown unknown that causes troubles down the road. from what we can see, it looks like this benign environment

should allow central banks -- kriti: let's talk about the translation into the ethics space. when we talk about this positioning, i started this year saying this strength we are seeing in the euro, in cable, that cannot sustain when we are talking about broad european weakness. this comes straight to the consumer in the u.s. yet it has persisted almost two months. where does that winning streak snap? chris: last week's price action, we had the upside on cpi. they will be able to hang onto those gains, but they did not. that goes back to what i was mentioning earlier. there is the view that u.s. rates will be coming lower this year and that window of price action that we saw in december last year where we the rates

fell quickly, we think that will be the story. probably not something that emerges until q2. 1.07 last week, no follow-through. volatility in the euro-dollar market is exceptionally low. people are reluctant to case breakouts until they get a conviction story. that may be in march if february's cpi print does come lower. that might be a window for the dollar or trend. kriti: what levels are we talking about? in 12 months, what does the euro-dollar look like? chris: we have been saying that since november. -- big dollar decline in the first. january and february are strong months. that ride that out and do not

expect any dollar weakness he next couple of months. we have got the bear trend is starting to show its face. we expects the first federal rate cut in may. we are slightly above the bloomberg consensus, which is 1.12 for the euro-dollar. we are at 1.15. ecb counting -- cutting rates as quickly as the u.s., but if the fed does start to bring rates lower, that should be good news. opportunities around the world, including emerging markets. we have not seen the big flow into emerging markets for three or four years. kriti: sounds like more of a positioning story rather than a european eco-story? is that right? chris: that is right and i think the global investment

environment. when you do get a steepening of the curve, it is good for activity. lower use rates, trading partners around the world, we have already seen that. in latin america, they have started preemptively having large rate cuts already. the dollar has peaked is their view. global growth prospects, where we stand now, there is opportunity for it to be revised higher if the fed does cut rates. would describe the economy is stagnant but even they are starting to look at little rays of light, opportunities slightly on the upside. perhaps levels of corrected far enough to support manufacturing production going forward.

the fx market is the most efficient in the world. numbers fairly priced right now but the story for the next couple of quarters will be a weaker dollar. kriti: euro-dollar may be the most fairly priced. thank you for joining us. a lot to digest in terms of these markets. we continue the conversation, this time with israel setting a firm deadline for continuing a -- an attack in rafah. this is bloomberg. ♪

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israel setting a warning to hamas about an attack on rafah. that is if hostages are not

released by ramadan next month. what do we know here? >> it is quite interesting. until now, israel has been saying please release our hostages, but it is not given deadline. israel has said that hamas's demands are delusional, too high , and that it will refuse to meet them. but now it is saying we are going to have to going to rafah. that is where the remaining battalions of thomas are hiding. the problem is there is also about one million refugees, gazan civilians who have moved from the north where the fighting started and were told by israel to move south to get out of the way. now they are in rafah.

you have one million gazan civilians plus hamas hiding among them. underneath them, there are the tunnels. as the problem. -- this is the problem. kriti: talk about the broader fallout. we talk about these peace negotiations that have in place for a while. reports that israel has backed away from any sort of an agreement, the demands being too much. what do the negotiations and prospects for peace actually look like? alisa: israel has said that it will not end the war until hamas is defeated. that means that either hamas has to surrender, or be defeated by war. those are the choices. it will not end the war before all of the hostages are returned. this is the difficulty. israel says that if it allows

hamas to stay in place, then it has lost the war. it cannot lose the war because it will appear weak and invite further attacks from hamas and also from the other iranian proxies, including hezbollah, which is already been attacked on the north. -- from the north. kriti: thank you for that update on the offense that israel is considering in terms of rafah. there is a humanitarian situation in gaza city. leaders around the world have their eye on it but it is not just between israel and gaza. the conflict has spread to the rest of the region. for the first time, a commercial cruise ship in the red sea's abandoned following an attack by the who seats. -- houthis. traditionally, when we see this kind of move in terms of

geopolitics would like this, there is a bear reaction in the markets. your initial take? alex: throughout these attacks, we have had a few milestones. the first was a landing of a helicopter which -- in addition to that, we had this oil tanker which was attacked. as we see -- for the first time, we've seen a crudely of a vessel. that is significant. it tells you something about how severe this is getting. we do not know the damage to the vessel or what is going to happen next, but in terms of markets, we are growing more accustomed to it. once you see the long way around, you know what is going to happen. the main shock is a fact you could not get through. global trade was already on its

way through. we did not know how long it was going to last. now the main continued is you will have to go all the way around. that is why you see these more muted reactions even as we see crews abandoning ships. kriti: do we see a lot of these commercial ships reroute. that means more fuel, more labor. we are curing from a letter of european and american ceos sing you up -- we had supply chain issues with the pandemic. this is nothing. but even for oil prices, why does it not show up in the oil price? alex: a few things -- the market capital recently -- you got lackluster responses. nothing to get excited about. you've got factors there. you've got relatively healthy

supply from the u.s., countries like brazil and guyana. but there is a backstop to the downside by opec-plus. you are seeing now the slow impact to the freight rates. you are seeing rates lifting in the middle east because these traits are becoming disjointed. these tankers are out positioned, things like that. i think why you are not seeing an impact on crude prices, the place in the oil market where you are going to see an impact is the tanker space. when the tankers base starts to be reduced, that affects wti in the u.s., how far you can send that away. kriti: let's stick with the u.s. story. they are now the number one exporter in the world of oil. you have opec-plus backstopping these prices. how much lower cannot push? how realistically is that oversupply from the u.s. being taken?

wti is like -- light crude versus dark crude is not the same actual product. it does not matter that the u.s. is number one. alex: in some ways, from then to now, one of the things that has changed is the addition of wti. these two benchmarks are completely different prices. that in part is why we saw such a drag in prices late last year. back to the question of how significant is the u.s.? hugely significant. invasion of ukraine, europe's move away from russian supplies. even then, you have had times for development in the market, time for extra barrels. the focus a lot of the u.s. and rightly so but there are other additions in brazil, guyana, canada, norway.

lots of those barrows do not go away. that is the other element. u.n. 200,000 barrels a day and that is not sound a lot but from five different places is one million barrels a day. kriti: what is the spook factor for this market on the upside and a downside? the oil market has been trading in the range for months now and is not broken past $84 on brent. what breaks it out of that range on either end? alex: the uncertainty going into the second half of the year, we have had an oil market earned often in the last six months. we have an amazing second half in china but a dreadful second half -- that is the big, obvious one. in the short term, we want the risk of low spikes. at the front of the curve, things look tight.

when demand surprises to the upside, that is where you can get a mismatch between the widest sentiments. questions about where rates are going to go. can oil demand remained robust for the rest of the year? what we see is for the most part demand has ended up being ok, despite the forecast. that is another element, the mismatch between the two. both traders and analysts find themselves with a reckoning. kriti: a find time to be an oil trainer. crude market looking asleep at the wheel but there is a lot more to it. you are seeing the stoxx 600 not moving a ton. underperformance on the continent, outperformance in the u.k. more market coverage ahead. this is bloomberg. ♪

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edition of bloomberg markets on this u.s. holiday. bond markets closed but equity markets also close but the futures market having as an indication. the stoxx 600 is hired by .1%. on a regional basis, underperformance in french and german indexes. the underperformer is the ftse 100, higher by .2%.

late liquidity, light volume seems to be the story. let's check on futures. they are broadly positive. perhaps having back into action. 5024 on those contracts. that is right on the heels of the u.s. -- year end price target getting 250 200 all on profit margins. outperformance in those nasdaq 100 futures. even though the pond markets are post, the currencies are doing something interesting. perhaps some dislocation in these markets. we are seeing some broad weakness in european currencies and in the dollar as well. i am sure our next guest will be all over those dynamics.

dollar-yen 1.49 96, virtually unchanged. jp joins us. thank you guys both for joining me. i want to talk about this currency picture. it is confusing to me why we are seeing sustained strength in the euro and cable despite pmi data continuing to not really justify those numbers. >> largely, we have been stuck in the high 1.20's for cable and just below 1.10 in the dollar-euro for a while. i do not really see any major change in that. the dollar strength permeates through everything. it looks like the fed will not be cutting rates this quarter or

even in may. in that sense, that is all that matters, the dollar value. it does seem as though the fed is holding on. to your point, with the weakness in european gross and now the u.k. grows, we have not seen much of an impact on valuations to the dollar. i wonder if that is because of the bank of england. i do not think that will last, but for the moment. the euro, i do not really understand the weakness of the currency but there is an opportunity until june for europe and central banks. everyone is believing in central bankers, which is worrying. kriti: everybody has confidence except markets. talk to us about whether or not this is ultimately a dollar

story. feel free to opine on whether or not the central bankers. >> i was just laughing. that is also a thing the market was not really predicting. i feel like central bankers were never predicting the market or the economy. it is just such a difficult thing. especially now, we have so many moving parts in this market with everything going on. inflation is fully tamed. rates are high, causing ripple effects, all corners of the market. we have the economy in china. we have geopolitical tensions all over. you never know when they are going to flareup. and we have corporate earnings results that are hard to predict. solid so far. all in all, that makes it a hard

thing, especially for the equity market, to make a great prediction for 2024. putting too much belief in central banks, talking about the timing. i have struggled to make a case for that one. kriti: does the equity market even care about the macro? often -- off that cpi report we got last week, the stock market only dropped 1% on the s&p 500. that is nothing relative to the sensitivity we have seen in the past. my question to you in light of the makes seven, big bank earnings, record profits and oil, does the macro even matter? >> i would say it does matter in the minds of the people i speak to. they still care about the larger picture. they have the problem that

everybody is underinvested. they're like, hey, i am in the macro picture. it is ok but expose her -- exposure especially in the hotter areas of the market. we have seen this massively with the heads of behavior towards auctions in the market in the system for quality, given that they are so cheap. it is not pushing aside the macro worries when it comes to earnings are going, i cannot help it. my exposure is too low, so i have to wrap market higher. kriti: it does feel like a momentum trade. marcus, jp said this market is invest -- underinvested in some ways. you nodded your head. >> the macro does not seem to be affecting anything at the moment.

that is creating a movement where i think the market wants to be risk on and equities are shorting off so macro worries, but bond markets are more freaked out by what they see as a central bank walking and holding on rates. i think was the end of the year, certainly by the summer, and effect markets to be lower in yield and more economic weakness. the picture will get more clear, but i think definitely the views are as far as putting money to work is borrowing numbers from nvidia later this week, the start of the year, people want to invest in see markets go higher on the currency and the bond side. they will play the same drum.

kriti: if rate cuts are the consensus view, eventually, that feels like a given now and it was not a month ago. why are people not piling into bonds right now? >> i do not know. it is a great buy. i certainly think there are opportunities where we repriced substantially by the end of the year, but for the moment, is it a five or six rate cuts, it looks like only three. positioning is out of whack. the bond markets we have seen a big supply, huge on sovereigns but also we had siemens last week and a 4 billion euro trade. a lot of corporate activity

starting to come through. investors want bonds, high yield, corporate high-yield, triple investment grade stuff. in that sense, there is money, and a lot of supply. kriti: i'm putting you on the spot. what comes first, 4.5 43.5 on the 10 year. marcus: 3.5. kriti: jp, i will put that into the stock market. if you are concerned about yields hitting 4.5 do we ripple effect into the stock market? j.p.: i do not think we see a ripple effect for the stock market. stocks have been fairly comfortable. still some issues in the banking sector but they are fairly contained. unless rates get a really sustained path of inflation

higher, i do not think the stock market -- kriti: bloomberg's j.p. barnett and marcus ashworth of bloomberg opinion. thank you both so much. a bit of bond and stock math. coming up, chief market strategist from minette at the talked about whether the market actually matters. this is bloomberg. ♪

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is the economy -- agilely is the economy of balls. kriti: that was mary daly ahead of the fed minutes on wednesday. let's get into markets. cio at london ciba joins me this afternoon. 2:12 here in london. let's start with the bond market. seems to be this question about what these rates are telling us at a time when swaps are saying rate cuts are just a matter of time. where yields on the surface? not dropping more. aoifinn: the discussion earlier about whether trusting the fed is the right thing to do, this is a bond market that has been going in their own direction. perhaps a growing competence not in with the fed is likely to do but the lack of necessity to do anything at the moment vis-a-vis rate cuts. that is what the bond market is

looking to, perhaps not signals from the fed. it has been ignoring those signals for the last 18 months. kriti: what would they need to step back into focus and say, this is the narrative that matters in this is the narrative we are going to trade? aoifinn: expectations are around the second quarter for the first rate cut listening to the san francisco fed, we heard the word agility. with this -- the fed has built a lot of agility. they can swoop and if there is an emergency or crisis of confidence. or they can hold fire and watch as inflation makes its way downward. we are probably surprised by the size of the deals. we would expect to see bond yields trending down. as far as why everyone is -- it is because of that sense of

fomo has never gone away. but we look at investment grade bonds or high yield, spreads are tight. there is a risk on environment in terms of how tight they are. for that reason, there has been -- around stepping into bonds. equities present such a compelling value relative to bonds today. kriti: such an interesting dynamic. 12 months ago, that was completely flipped on its head. talk to us about this yield move. i am obsessed with why yields are not below that 4% level. we just had markets of bloomberg opinion saying yields could potentially hit four point five before they consider three point i've. do you see the direction of travel going up for it comes down? aoifinn: it is volatile. this is where we have to pull the lens back and look at other factors that sometimes get ignored. have multiple elections this

year, over 50% of the worlds population going to the polls. there will be politicking and electioneering, promises being made. we have the fact that we have government debt rising and the demand-supply imbalance that could lead to yields being higher than they have been. if you look at those macro factors, it is real that we will see a supply-demand imbalance in the can suggest that demand will not be there for moms and that is why yields need to be where they are. i think most people has been expecting that yields will be heading down, but it is this hesitation, maybe going into gold, bitcoin. perhaps a suggestion that government bond is not a risk-free asset like it was in the past. kriti: that is so interesting. you mentioned the election and

might years perked up. thinking of the u.s. presidential election, might favorite fun fact is as soon as the election cycle ends, the first thing in the new residence docket is the debt ceiling yet again. it hits in january of 2025. is it too early to price in a potential trump versus biden? or the fiscal deficit concerns that will be popping in and about 12 months time? aoifinn: they probably will pop in more. what we have seen in the past is the insularity of equity markets. they are insulated from geopolitical ophir. -- fear. it should be shaking markets but it is not. around these budget ceilings and will they wont they. it does not have an effect on markets. at the end of the day, it is the

private sector driving sentiment around markets. there is not a belief that government institutions will kick the can down the road. central banks have the ammunition to help should they be needed to inject stimulus into the economy. it will not be an issue. when it comes to the election, as an certainty clears, and we will have that around the candidates, the uncertainty clearing, that is good for markets. what is clear is around election time itself, that is quite good for markets. neither side wants to tank the economy. it comes to the u.k., it is barely a year since the crisis confidence there in the many budgets. that is pretty much in many people's memory. could be more volatility in the u.k. and perhaps other countries but u.s., i see same. kriti: ironically, we are having

this conversation about who the next u.s. president could be on president's day. any early indication of who the most market friendly candidate could be coming given that neither one of them wants to tank any economy? aoifinn: that is difficult to say. traditionally, that would be the republican candidate, but the tax cuts are still in place. it is hard to promise. it is difficult to promise more tax cuts. we see historically low unemployment numbers and a strong positive growth to the economy. we are seeing that reflected in the stock market with the s&p reaching new highs. looking at this particular set of candidates, it could point to

a positive outcome the stock market. kriti: that is music to many people's ears who are worried that there's too much momentum in the s&p 500 right now. we have to leave it there, but it could go on for hours. we look forward to having you back. we go from the macro to the micro stories. apple facing a fine in the e.u. over music streaming. the details next. this is bloomberg. ♪

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one of the big stories in tech, perhaps not so big, apple facing a european union fine of close to 500 million euros. allegations that silenced

rivals, including spotify. 500 million euros is also how much apple makes in about 11 hours. does this matter? >> it is still a big fine. it is money that flows into the european union coffers, money that apple can easily cover. the big question is what it means in general for apple's business. apple charges typically a 30% royalty fee on any product. spotify would prefer people to sign of via its website where it does not have to pay the fee to apple. it was it will cost you $10 here or $12 here but only $10 if you

sign up on our website. the european union is cracking down on that. this is part of a bigger chipping away at apple's services. huge tech companies are the gatekeepers to big platforms. iox is such a platform, meta with facebook and instagram. the european union has been for some time trying to chip away at their dominant and to this behavior. kriti: the fact that they are the gatekeepers, to what extent has the e.u. made progress? if apple changes the way they offer it in the you, does it necessarily mean they would make the same changes in other parts of the world? alex: not necessarily. some think that they might. we have seen it with the charging port in the iphone, which is now global.

that makes sense from a scaled perspective. you can see why that is easy. apple might be tempted to admit that that is a better technology than lightning. when it comes to these software solutions, you have different app stores in europe than in the u.s. they are not necessarily incentivized to do this without there being regulatory beating. kriti: in terms of where apple would amend some of their other businesses, they have a bit of everything -- apple tv, streaming. 30 seconds, other weak spots in apples business? alex: the thing i started to

make changes to is the way they do payments. you basically are only allowed to use apple pay if you want to make payments with your phone. looks like that will be changing. the reason that a significant does not necessarily because of the money apple makes directly but because it is hard to trade your offer. hard to traded in for an android. if that starts to fry around the edges, then it gives consumers a greater opportunity to trade for an android. kriti: something to watch. driving us through all of the stories we are getting from the big tech names. thank you for joining the program. coming up, we switch from apple to oil. concerns over the demand outlook. we will hear from a cfo on what the like next.

brent crude trading at an 83 candle. stick with us. this is bloomberg. ♪ how am i going to find a doctor when i'm hallucinating? kriti: aramco may sell bonds 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.

this year.

>> your preference would be for the higher one but how are you prepared for the lower one? >> what we have is $60 is well above our costs. we have a lifting cost of three dollars a barrel. we are focusing closely on it. in the past four years, it is decreased to $3.1 a barrel. it is insignificant but to us it is a trend that we will monitor. the margins are huge for us to worry about. are we prepared for different ranges of oil prices? yes. you have to both supply and demand. we think today there is

sufficient supply. we think demand has recovered. last year, the estimates are that demand was at an all-time high. this year, there is considerable growth. the world today is still depending on capacity. there is about a 3%, 3.5% of production that is there. it is dangerous to continue this into the long-term. if you recall the problems we were having with gas is because gaston not have the full capacity. oil is more stable, less fluctuations. the world is now down to 3%. >> are you saying --? ziad: natural decline is at 6%.

103 million barrels is over 6 million barrels per day. that was lost. that is a saudi arabia every two years. where is this coming from? it probably will not happen this year if there is not significant investment in supply. kriti: aramco cfo speaking to vonnie quinn. i want to stick with the oil story and bring in the director of solid capital. it feels like a lot of people are talking about whether or not it is in ukraine, the red sea, between israel and gaza, whether or not any of that has an e-of

the oil market. we are looking at a treaty range for brent crude word has not crossed $85 a barrel in a long time. why are we not seeing more geopolitical risk premium baked into commodities? nadja: i think the market has been focused on the general picture and situational demand in china. demand in china is stronger then general perception would have you think that in our view, we believe oil is staging itself to break out of this range and move higher. we see strong demand in china, india, stronger margins around the globe. it shows the demand for the final products is there. kriti: what breaks it in the downward direction? nadia: if we have a slowdown in

the general economy, if we hit recessionary pressures from higher interest rates, but we have been waiting for these recessionary pressures to really hit the market for the last two years. that has not played out. when we think about the general risk premiums, the market has become accustomed to this feeling and we are looking at inventories in oil, in metals, that have stocks just in time. as we draw down on those inventories, that starts to affect things as we see demand pickup seasonally. we have had strong demand for gas. we approach the summer and that is where we see demand pickup for gasoline, but in the meantime we need the refineries to run.

that is the price indication we are getting from refinery market. kriti: in terms of those refinery margins, do they suggest some dislocation viewers even within the benchmarks between brent and wti, simply the fact that the u.s. may have more control on this oil market and opec has. is that going to show up in those refining margins in any way? nadia: the u.s. has been hit by winter storms in january. that was a big shock to production. in november, we had $13.3 billion per day production versus 9 million in saudi arabia. that has shifted the balance of power but now we need to see that recovery in the u.s. to have the shale patch actually producing. that will take some weeks. when we think about the end of the year forecast, the u.s.

engine for shale is still -- but now the market is forecasting 400,000 to 600,000 euros per day of growth. that is already priced in. right now where we are in terms of the come back after the enter is the market might fall short in the u.s. this is where the margins are still strong. when we look at wti, it has steepened. there is actually more demand for oil that is available immediately in the u.s. right now. kriti: in the corporate space, we have been seeing a lot of consolidation in the shell patch. creating fewer players in the permian basin. how is not going to ultimately reflect in production? nadia: there are the benefits of

scale. this is when the sun has spoken. exxon can bring on one million barrels more oil from the acquisition in the whole patch. the other hand, there are smaller players. this is when we think about the private players and what we see happening versus those big public companies. they should be scared and worried. when we think about the service industry, x i'm companies like that can take on the biggest projects, run their ranks 20 hours a day. we have a limit of 24. they are drilling three-mile lateral wells versus two. that brings down their costs.

when you look at the smaller players who cannot do that, that is a problem for them. digitalization will make drilling more efficient but the biggest players can afford to do that most relative to the smaller players. we will probably see a further widening instead of these plays. kriti: i want to ask about positioning. there has been a lot of questions. six months ago, more and more people were in the super cycle. this would be the start of an intensive 10 years for the commodities sector. it does not feeling that narrative is still there in terms of positioning, what are you seeing? nadia: the positioning is more balanced. the chinese leader new year

suggests that that reopening is happening and there has been big jumps year on year versus 29 teen. you think about the general specter, most speculative positioning in oil is in the market. we are in winter. that is where we have low inventories. we expect that to roll forward toward gasoline and not especially towards oil. we will see more purchasing in the oil market and the physical market, which will then play in. we see algorithms today even though it is a holiday. passive, slow-moving -- they are just getting into this market. an immediate target of $90 per barrel if you look at technicals. kriti: thank you for joining us. still ahead, the geopolitics,

some of which may be driving that bullish positioning. europe tries to figure out how to defend itself and support ukraine if the u.s. pulls back. we dive into the details bnext -- next. this is bloomberg. ♪

>> he was extraordinarily courageous and good man. >> be disastrous for human rights, democracy around the globe, for the situation in russia to be confirmed. for all of us around the globe, it will be tragic.

>> to put the spotlight back on the u.s. congress, which at this hour, is considering whether to find defensive systems for ukraine. the world is watching. >> looking for other ways we can help mr. putin accountable and we will work with the biden administration and the international community to make it clear that this is outrageous. kriti: welcome. a number of guests reacting to the death of alexey navalny. i want to bring in patrick donahue as well as roz matheson. roz, there's been pushback in congress, even in pieces of the eu around just how much aid is going to be given to ukraine at

a time when a lotta people are -- that they may want. to what extent does the death of alexi navalny pushed out pushback back and create more incentive to get the aid? roz: it seems like congress is that in the moment on ukraine, a reflection of the u.s. political climate right now. you can see those expressions of outrage about the death of alexi navalny across the board. above all, all it shows is that vladimir putin is not going anywhere. he will be reelected more than likely next month, whereas the u.s. election could be disruptive for the rest of the world, including europe. where does ukraine sit? this question of deed for ukraine, does it harden the view that ukraine is not getting anywhere and clearly running out of weapons?

does it change that dynamic? probably unlikely in -- to change anything in russia. putin is in charge. the positions in the u.s. are set in, reflecting the domestic political climate. kriti: patrick, if we are seeing pushback in the u.s., how much of a success story are we seeing in europe when it comes to the aid? the estonian prime minister saying that hundred billion euros in bonds to support the war effort in ukraine is necessary. do others in europe share that view? or is it 60 billion euros sufficient? patrick: if you look at the scale of what the prime minister called for, 100 billion, that was to bolster the eu's defense as a whole.

we are talking about that sort of scale if the u.s. is a key european allies steps back. in terms of the politics, in the e.u., when you start talking about joint debt issuance, a lot of taboos are involved. there is talk at least in germany.the impression we got is it was not going to happen. it took debt to get joint bonds going. that did not work to get e.u. back on its feet from the economic impact. but joint debt issuance for defense might be a whole different ballgame. countries like france are in favor of that. you had to get that through germany. kriti: patrick, what do defense capabilities look like for ukraine? what is the ask ben? what has europe offer to provide?

denmark said we are landing all of our artillery to ukraine. what more do they need? patrick: i would not say it is dire but the mood was dark. there was talk to leaders and players who sent the situation was grim. ukraine running low on ammunition. they are being outnumbered by russia 321. there are different scenarios, stories that we have, but first and foremost, if you talk to the ukrainian government, they say send ammunition first. they are so stretched on the frontline. this weekend, lisa the fall of a city on the frontline in the east that has been under bombardment since straight back

to the beginning of the war. if ukrainian forces cannot hold those positions on the frontline, this is why, because they lack ammunition. kriti: gruesome pictures coming out of that city. ross, patrick was mentioning some of the pictures from the munich security conference per the others that caught our eye was zelenskyy speaking about president trump, inviting him to the front lines, and being careful of any criticism. in the u.s., trump has faced a lot of criticism for being a putin apologist. what is trump's line on ukraine? roz:'s line is if he was president this war would be over, magically, just like that. that somehow he would ensure that ukraine and russia sat down and worked out a solution. it is not necessarily clear what that solution is.

that is something that is raising some concern, because ukraine says it does not want to negotiate. it is focused on trying to push russia out of its territory. every day that russia states -- tays, -- stays, the harder it is to get them out. the idea that donald trump can come in and magically unravel a war that has been going on for two years is causing concern. what he is saying is that he would require ukraine to essentially give up the land that russia now occupies. that is the concern that he would do that. kriti: it all comes on the back of those comments and whether or not the u.s. wants to continue to provide two thirds of the expenditures to nato and the allegations on space capabilities. patrick and ross walking us through developments over the

weekend. moorehead. stick with us. this is bloomberg. ♪ 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 the first time you connected your godaddy website and your store was also the first time you realized... well, we can do anything. cheesecake cookies? the chookie! manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com kriti: welcome.

beck's -- big names reporting earnings. joining us for a preview of what to expect is tom metcalf. berkeley is reporting results tomorrow. walk us through what we need to know. tom: that will be with the market is going to be focused on, essentially a structural update. what is barclays planning going forward? this is the ceo's first moment to leave his imprint on the bank. how drastic will that be? so far, reports suggest marginal

changes rather than anything too drastic. kriti: car buybacks part of that picture? tom: barclays has already been doing buyback dividends. they will probably be looking to paint a picture of more capital returns to shareholders. that will help the share price. kriti: that is the barclays peace. hsbc is not having a grand time. they also report earnings on wednesday. buybacks are also in the picture there. tom: they are very asia-focused. i think they have already announced 7 billion dollars of buybacks for 2023. analysts expect more. i expect they should be having a relatively strong year but the interesting thing is the ceo is saying 2023 is ok but i am worried about 2024. kriti: we were starting to see

rates in the u.k. or in europe or in the united states still remain a bit higher for longer, this that mean that interest margin has peaked? tom: certainly it has in the u.k. continental europe, there might be more space for it to run. this is all in predictions of what central bankers will do. if rate cuts come at some point this year, that movement period for banks toppling has come to an end. all they question of how do they manage margins and keep making profits even if interest rates are down a bit? kriti: that is what i imagine as well. it falls on investment banking and trading volatility. tom metcalf, we thank you. a lot ot that -- to digest. coming up, joe gilbert joins

wilbert. stick with us. this is bloomberg. ♪ so this is pickleball? it's basically tennis for babies, but for adults. it should be called wiffle tennis. pickle! yeah, aw! whoo! ♪♪ these guys are intense. we got nothing to worry about. with e*trade from morgan stanley, we're ready for whatever gets served up. dude, you gotta work on your trash talk. i'd rather work on saving for retirement. or college, since you like to get schooled. that's a pretty good burn, right? got him. good game. thanks for coming to our clinic, first one's free. 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.

>> welcome to a special edition of bloomberg markets. happy presidents' day. lizzie: let's check on these markets at the top of the hour. the stoxx 600 is currently higher 0.1% and volumes are up because of the reeds across the u.s.. we're low you got the s&p higher , 0.1%. we are waiting for a catalyst here, anything that could move

the markets. could that be nvidia earnings wednesday? not a whole lot of movement in the bonds. the two-year bund yield currently is not moving too much. the bloomberg dollar spot index is currently not moving very much either. you've got brent crude currently at $83 per barrel, weighing the tensions in the middle east against the demand outlook with lingering concerns there. iron ore is getting a bit of a blow because of the concerns about the chinese economy. this is after five days of gains. gold is holding pretty steady at just over $2000 per ounce. it's a pretty quiet day but let's bring in sophia and noor.

as our resident china expert in london, china is back online after the lunar new year holiday. you got this backdrop of negative economic clouds in the csi 300 is getting a bit of a boost. >> it did rise today in a rose for a fifth day which hasn't happened since october. some people were expecting more of a boost given the measures that were announced before the lunar new year. there is a new securities chief in this kind of language that officials are using in beijing to use more forceful measures to boost the economy. perhaps there was an expectation of more of a boom but we didn't get an interest rate cut from the pboc sunday which is a disappointment to some economists. the deflationary story continues to be the economic cloud over everything else.

even though markets came back with a positive spin, there has been some expectation that perhaps is underpinned by chinese state funds but not real investment flows. lizzy: the chinese premier is calling for pragmatic and forceful action to boost economic confidence. what does that mean? >> it can be. what exactly will come out of this? if we are looking for a catalyst , early march will be when we perhaps get one because that's when we get the government work report and when china sets its economic growth gdp targets for the year and perhaps gives a clue as to how they plan to achieve that. this is the premier that only a few weeks ago downplayed the need for further economic stimulus in china this year.

what that will translate to when it comes to forceful measures he might mean, i don't think the market will expect anything in terms of stimulus because he has downplayed the need for that week's -- and recent weeks. lizzy: we haven't got so much economic data this week but we get the fed minutes and the ecb minutes. what are you looking out for? >> the minutes are a little more backward looking but traders will be looking for statements or thoughts on where the conversation is when it comes to loosening monetary policy. we also have pmi coming up from europe, u.s. and the u.k. when i first started covering markets, those were the first reports i used to read. i used to take them too hard because those surveys provide the anecdotal evidence on where we think inflation and the economy is headed in right now, the question of consumer

spending is heavy on the mind of policymakers and traders alike. we have retail sales data out of the u.k. last week that's a price of upside in the u.s. surprise of the downside but the economies are doing the opposite things. the u.s. economy is more resilient than where we think the u.k. economy is but a more optimistic about the u.k.. when i used to sit here with guy johnson, they say there's true there's a lot of pessimism baked in but i think there is more optimism as we look to the u.k. lizzy: the ones who are most exposed to the rate path are the banks and they are reporting this week. we got barclays tomorrow and hsbc wednesday and lloyd's thursday. what's the highlight for you? >> we are looking at where interest met margins are. that's declining especially in u.k. businesses as the interest rate outlook changes in the u.k.. thanks to well under high interest rate environment and

i'm looking at any color we can get on the housing market. some of these are big mortgage lenders and we know that market is picking up in house prices have been more resilient than many people had expected. we didn't get the double digit declines last year and it seems activity is picking up again but we know there is a little bit of a race to the bottom it comes to mortgage lenders in the race they are offering. whether those business are -- businesses are being squeeze, any news on the buybacks and whether it makes sense given where we are, there is so much we can say which sets us up for an interesting week because it did surpass last week. lizzy: we can't talk about earnings without mentioning nvidia. i said maybe they will be a bellwether of the u.s. economy so how much can we use them like that? >> it's definitely a litmus test. there are things baked into the

tech rally and everything is about ai. if you look at earnings call and the ai references and machine learning skyrocketed and it shows you the kind of appetite. all sectors across the board are interested in incorporating this especially we have the labor market that's quite sticky. tech deftly plays a big part of it. if you look at the magnificent seven, it hasn't really been immune to the changes in yields. were talking about the treasuries. with the fed's minutes this week, there is a lot that could potentially sway the market into a downside risk especially as we've had these lofty valuations. lizzy: we are all in pink and red but i want to settle a debate because you been writing about the ftse 100 today. you say well it's cheap can be a bit of an opportunity for investors and you think there will be some global economic slowdown and it's a defensive play.

you say goldman makes the point that even if the ftse is cheap, almost half of its dividends are paid in dollars of that could be a headwind. >> the pound has been resilient. the volatility we've seen when it comes to rate cuts, ultimately, we are expecting the bank of england to cut rates sometime this year. it hasn't been as much of a gainer when you look at how aggressive the bank of england had been in maintaining its policy. i still look at the ftse 100 as an opportunity and i am changing my view when it comes to the u.k. market. i've been pessimistic for much of last year for good reason. i still think 2024 is a new tide this turning for the u.k. economy and even if the ftse 100 provides that defensive sector play, it could be in the favor of those looking to potentially

expose themselves to the u.k. with interesting valuations, much cheaper than their global peers by 30%. you also have the ftse 100 and they pay the highest dividend yield when it comes to earnings. i see of up -- a lot of optimism when it comes to the u.k. market. lizzy: we will have that discussion off air but thanks for joining me. coming up, joe gilbert, or folio manager and integrity will join us next. this is bloomberg. ♪

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january. we are calculating seasonality and it's difficult. i think we have to recognize the possibility of a mini paradigm shift. the soft landing paradigm with the assumption that inflation was headed down to 2% in a tranquil, healthy, real economy has certainly been called into question. i think the fed is going to have to be very careful. they were never right to be focused on march for a cut. i've been saying that seems premature. they and the markets have come around on that. i think may is odds off at this point and probably should be odds off. gosh, i think we've got to

recognize what no one is talking about. there is a meaningful chance, maybe 15% that the next move is going to be upwards in rates, not downwards in rates. lizzy: a meaningful project of the next moves says larry summers who speaking about the outlook for fed rate cuts. let's get more on the market implications. we are joined by joe gilbert from integrity asset management. what do you make of that, for the next move be a hike? >> good morning. thanks for having me on. i think secretary summers is probably a little tutor county and there. i don't think we will have any more hikes. i think we are done for this interest rate cycle. what we will have is higher for

longer or probably just more normalized rates which will probably take a little bit of sting out of the equity markets and the valuations. they are pretty peaky now so we won't see another hike but i don't think we will see cuts as soon as the market would like. lizzy: when do you expect the cuts to start? swaps are pricing about 90 points of cuts, down from 150 but when to they start for you? >> our base case now is probably sometime after the summer. right now, the first cut is in june which the market is pricing in we see that getting pushed back a little bit. investors have to realize that we started the year looking at six potential cuts and now we are down to a little less than one of 100 basis points fully. it doesn't really matter. once the fed actually starts, it

will be more bullish for investors. lizzy: after the summer so i suppose rather than ask you whether the u.s. is going to have a recession, how has it not had a recession? you're looking at the yield curve so how does that signal the loss of meaning? >> the yield curve has been little obfuscated by some of the qt the fed has done with its balance sheet. the u.s. -- we've come out of unprecedented times as far as liquidity goes. we came out of the pandemic and there was a lot of liquidity pumped into the balance sheet of companies and consumers. then you had this pent up demand that was also there. i think we still have excess liquidity in the system but the problem is nobody really knows

until we have a precise measure of how much liquidity is in the system but i think that excess look at any and excess savings that consumers have have allowed the continued spending to persist despite what normally happens in this type of environment. lizzy: you mentioned the readthrough to the corporate story and j powell has started talking about geopolitical risk in a way he didn't really until recently. also the impact on monetary policy but what about the readthrough to earnings? could we see geopolitical risk weighing on margins? >> that's a good point. i don't really know right now if we will see that immediately. obviously, the biggest transmission mechanism would be with oil and probably now with the red sea impacting trade flows, that will probably be a little bit of a lag so we won't see that soon.

there is the potential to bring more of a slow down later in the year. not more so in the first half of the year. i predict risk in the first half. lizzy: we've heard goldman actually say forget 5000, you're looking at 5200 where the s&p will end the year so it gets higher and higher. when does it stop? when do we see a bit of a pullback for u.s. equities. >> trees don't grow to the sky. we are a little more cautious near-term. we had a powerful rally in the last half of the year. it was the last two months of last year. investors were expecting a pull forward of rate cuts and that allowed valuations to expand and allowed the market to broaden out. leadership from the highflying

tech stocks resumed as well as mid-cap names which had abated and that pulled forward and we think it's time for the market to take a pause. we are not looking at anything draconian but we think the market will probably be a little sloppy over the next -- that's a technical term -- over the spring and summer before we probably resume a little bit of a rally. we will be passed a lot of the election that will be happening globally and we will see a strong part of the year after that. lizzy: one more thing -- most people say they wouldn't touch the regional banks with a barge pole but you say they are starting to peak your interest, why? >> i think we go where everybody else has already left. that's where you get the opportunities. with regional banks, their troubles have already been pretty much declared.

their existential risks that they previously had, we don't think they exist anymore. the credit story has been out there. if we get to a point where rates have peaked in the fed is going to come into play in the next six months, you get a tailwind for housing and mortgages. overall, valuations are not demanding and they should be able to return. there is also the potential for regulation. lizzy: joe gilbert, thank you for joining me on presidents day. and all the technical terms including sloppy. we will hear from the bank of england's former chief economist on what you think the bank of england should edit to rate cuts now. this is bloomberg. ♪

>> the risks for me are firmly

skewed toward the economy and towards the downside. that's why i think for me, this is a time when the banks should be considering very seriously withdrawing some of the tightening it put in place over the course of the last 18 months. that's to cushion the risks to the economy at a time where inflation now is anna click where they set their target by easter time and remain around target. for me, i think now is the time to be speaking a little more firmly about the need for cutting soother -- sooner rather than later. >> we are already technically in a recession so are you worried this could be deeper if the bank of england doesn't turn to cutting rates sooner? >> i thinks that's where the balance of risk lies, it's true the data this year so far such as it is is a bit brighter than the tail end of last year.

the jumping off point last year looks to be a more positive one. service of businesses, services of consumers, services of housing all pointing to a somewhat firmer start to the year. i still think we are looking at growth with the risk outlook still skewed pretty firmly on the downside. for me, the case for putting in place some upfront early insurance on the monetary policy side is strong and strengthening. i'm fearful we will leave that insurance a little too late in the year. lizzy: that was the former chief economist at the bank of england. you can check out more of that conversation on the bloomberg u.k. politics podcast. let's bring in phil aldrich.

you've covered the economy forever and you will remember that he was one of the biggest talks on monetary policy but there is saying the boe should cut now if he was still on the committee. is that dez is there any way they would cut rates before the fed? >> it does seem unlikely. the inflation problem we places more severe. even low rates of growth can be inflationary in the u.k. because low rates of demand can be inflationary because we have constrained supply. the economic capacity we have in the u.k. -- this was the bank of england's current chief economist. his successor head an analysis friday evening. even week growth can be inflationary because we cannot sustain without generating inflation anything more than about 1% per year.

if you look at what's happening in the u.s., they've got much faster demand growth in much faster economic capacity growth. they are in a much better position. they should be dealing with the inflation issue first. it seems they are in a position to be able to do that. lizzy: they were warning about the recession risk. you k is in technical recession but before we got that, the governor the bank of england said he wouldn't put too much weight on whether the u.k. was in a recession. willie mind more now that we have the figures that were worse than expected? >> yeah, that was the problem. the balancing act they have to make is that this is the difficult decision. on the one hand, you have

slightly worse than expected downturn. as andy was saying, i think everyone is expecting -- we've had two quarters of contraction and we will return to growth but relatively slow. what you are looking at is you've got conflicting signals. got inflation coming down a little bit faster than the bank of england was expecting. this is since there february update. and we are in recession so those two things would suggest that we can start contemplating cutting rates soon. on the other hand, you've got quite a tight labor market and wages rising faster than expected and very strong retail sales in the most recent data and you are looking ahead to april where they will be increases for minimum wage and benefits so these pressures would suggest -- they would be inflationary.

lizzy: our senior economics writer, thank you. terry haynes is coming up, this is bloomberg. ♪ 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.

>> he was an extraordinarily courageous and good man. this is a sad day. >> it's a tragedy for human rights, democracy around the globe, for the situation russia. it only confirms is a regime in russia. for all of us around different parts of the globe, it's tragic. >> put the spotlight right back on the u.s. congress which at this hour is considering whether to fund defensive systems for ukraine and the world is watching. >> we will look for other ways

we can hold mr. putin accountable for these actions. we will work with the biden administration and the international community to make it clear this is outrageous. lizzy: that was a number of our guest reacting to the debt the prominent put an opponent alexi navalny. joe biden condemned the kremlin for its role but our next guest says his response was to week. joining us now is terry haynes founder of pangea policy. what does the death of alexi navalny actually mean for the future of the war in ukraine and the strength of vladimir putin? are you pessimistic? >> i don't think his death means very much to the united states debate over how to support ukraine and how much unfortunately. what you have in washington is fundamentally a whole government failure. there is a lot of focus now on

house republicans because that's where the process lies. you had a situation in the states were two years ago, the rhetoric about the slavic-ukrainian and doing everything necessary has been replaced by a number of things. you not only have dissension in the republican party about whether and how to support ukraine but also a situation where president biden is not pushed out as much weapons and material as has been promised. and it has not tried to lead to, go force the congress to deal with ukraine. when it was time in november for example to deal with ukraine aid, something biden said was an emergency, three or four months ago, he paired it with border security.

it almost guaranteed it wasn't going to happen. the only reason why this end it ended up doing something on this earlier this month was because the senate decided to onpair and told biden so. which you got here is a situation where the highest geopolitical and u.s. political risk and 50 years, you've got a president that isn't pushing as hard as possible and dissension in both his party and the republican party on exactly who they should be helping when, how and why. that's a bad situation all the way around. lizzy: donald trump says if he wins the white house, he would end this war instantly. what does that even mean? >> you will have to ask former president trump about that. i think the impression that he is trying to leave his that he is a strong leader and is more respected on the world stage,

not liked but respected on the world stage and none of this happened on his watch and none of it would have happened if his watch had continued. we can argue about that till the cows come home. what he's trying to do is draw a line between the relative biden weakness which he's trying to hammer as a political message and relative strength which is the mantle he's trying to put on. lizzy: a key theme of the munich security conference over the weekend was this fear that it russia attacks a nato ally and donald trump is back in the white house that the u.s. won't ride to its rescue. how realistic is that threat? >> i don't discount the fear and upset of european governments about potential trump

presidency. one thing that is not at all understood in europe or in the broader debate is to do what president trump suggests is illegal under u.s. law. as a practical matter, he's not going to be able to unilaterally withdraw from nato should he become president, number one. for what it's worth, i understand that people read the news in europe and elsewhere and expressed concern about whether or not trump might be president. that's a real possibility certainly. i still have biden even after all his difficulties squeaking through the victory in a three party race. what you see in the united states race so far for the republican nomination is trump not able to unify his party and

importantly, not being able to appeal to the majority of independent voters which could be as little as 10% or as much is 40% of the overall electorate. if he doesn't to both of those things, he doesn't win. for what it's worth in europe, i tip this is more provide an. lizzy: let's turn away from europe. ing is warning that attention -- tensions in the south china sea could escalate of trump wins. they say the u.s. would not stand up to china like biden would. >> i don't think that's possible to know for a number of reasons. it's not as if tensions in the south china sea aren't already high. both the united states and chinese navies are running exercises in proximity of the south china sea so this is a very fraught situation anyway

and one that i think is underappreciated by markets. what you have to understand about u.s. politics is that the composition of the congress is as important or more important on many things than the presidency. where the congress is -- was last year and will continue to be is more pro-defense and more interventionist than even biden was. it was the congress that insisted that defense spending in the united states be 3% higher than present biden asked for. what you have is a situation where the united states congress will be a very forceful advocate for robust u.s. foreign policy. it has and will continue to be regardless of the election. what we will find should there be a trump presidency is a

congress that is still very much interested in shouldering and executing its responsibilities. even in ukraine where there is some dissension which we talked about, 75% of house representatives are in favor of ukraine aid. what you got is a process problem here that i think it's overwhelmed by numbers. how that happens isn't entirely clear but i think it will happen. lizzy: we've just had a headline crossing the terminal saying that the u.s. is weighing sending bombs and other weapons to israel according to a report by nbc. it's great to have you on the program, terry haynes that pangaea policy. last week, we spoke to democratic senator ben cardin about the death of alexi navalny. >> this is a tragic event. mr. putin is fully responsible

for this apparent death. it is absolutely tragic and the vice president spoke here at the munich security conference, vice president harris and repeated there will be consequences. mr. putin's actions are against alanity. navalny was the principal spokesman for the opposition to mr. putin and mr. putin decided that he had to be taken out and that's how it happened. sonali: any actions you intend to take from where you are standing? in terms of future investigations? >> there are many options. we have already are engaged in action based on the invasion of ukraine. we've already taken sanctions activities against russia. we will speak out about this and we will look for other ways we can hold mr. putin accountable

for these actions. we will work with the biden and the international community to make it clear that this is outrageous and it violates all basic rights and mr. navalny will not be silenced. is because will live on. we will all fight for the russian people. that mr. putin has a grip on. sonali: your committee has already back to the united states going after russian assets and freezing them and taking that money making sure they can give the windfall from that money to ukraine. where are we in that? your committee has backed the administration doing it but so far, nothing's happened. >> writes, the assets are frozen. whether we will seize them, we will pass legislation that will allow the u.s. government to seize those assets and use them to compensate ukraine for the damages.

the united states holds a small fraction of russia's international assets. most are held in europe. we need to work with our european partners of it's going to mean something in helping ukraine from the point of view of the financial compensation. at the end of this war, mr. putin needs to be held accountable for his work crimes and russia needs to be held accountable for compensating ukraine and the damages caused and we believe the assets we have control over can help with that. lizzy: that was democratic senator ben cardin on bloomberg late last week. . coming up, supermicro can suit -- computers is a shortage of chips is hindering sales. our interview with the company's ceo next. ♪

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lizzy: welcome back. shares of super micro computer are riding on a historic rally fueled by artificial intelligence. they make data service for chipmakers like nvidia who reports next week in shares of more than tripled since january. the ceo tells the host of bloomberg tech about the strong market demand for service. >> we are able to have enough service for our customers but there is a chip shortage. once we have more supply from the chip companies like nvidia, and then we can ship more to customers. >> let's talk about the chipmakers.

what are your relationships like with chipmakers? >> nvidia was founded in 1993 so we started to work together since then. we have a relationship in partnering with the final market. we have been working very closely. however, we hope they have more chips available. ed: do you have a dollar value for the total addressable market that you see for your company in the context of an ai infrastructure build out? >> [indiscernible] the market size is growing as you know. the ai boom is the star. we believe the market has room to grow.

as of today, our potential income capacity can support a revenue up to $25 billion. we need more chips. the market continues to grow and we continue to get market share because of our scale. we are continuing growing our potential capacity in the united states and globally as well. ed: we are speaking to supermicro ceo charlesliang. when we said you were coming on the program, our audience had many questions. one of them is about the sec action taken against your company in august of 2020. the sec chart supermicro and the former cfo with what they called widespread accounting violations.

some numbers were presented by the company so could you update the audience on where that process is and if you put those concerns behind you? >> yeah, those concerns have been behind us for many years. first, week can improve in a few years. lizzy: that was the ceo of super mike brown -- of micro -- of supermicro look pretty happy. coming up, the big bet on the middle east is starting to pay off. we will bring you to the big take story next. this is bloomberg. ♪

lizzy: welcome back. dubai international airport

surged 32% surpassing pre-pandemic levels. vonnie quinn landed an exclusive interview with the ceo of the airport. >> what we do is invest intelligently in new technology. airport infrastructure is very expensive and quite difficult to build the tickly a constrained site. what we do is invest in new technology to speed people through the airport. without building anything, if you can double the rates of capacity throughput come you double the capacity of the overall airport. that's a very intelligent way because i haven't met a single customer over the years i've been in the business that wants to spend more time at an airport. usually, the interface with the product, if it is efficient and quick, that wins plaudits from our customers more than any

other single factor. bonnie: how constrained are you now for airlines right now? >> runway slots, we have a little bit of capacity left on the runways. aircraft stands, we are ok at the moment there is a program to build more passenger processing capacity which is her biggest single biggest barrier to extension -- two expansion. the involvement of everyone improving the process and investing in the technology to measure the customer journey and optimize the performance that every single pinch point through the airport is one of our most successful and key focus areas for the entire business. lizzy: that was the dubai airport ceo. sticking with the middle east, can morale is starting to see a return on his investment in the region by making some major compromises and taking major risks.

he's managed to take advantage of a frenzy of dealmaking in the area. they have raised more than $30 billion in the last two years and he has worked on more than half of those deals with independent financial advisors. we are joined by our middle east finance reporter. mireles has been building these relationships and maintaining the relationships. can they weather the current geopolitical storm? >> that's the most important issue facing this right now. this is a company that has been in the middle east for many years and stuck by it through some pretty controversial times and has expanded massively. now this latest, with the conflict going on in gaza, it lets that determination to the test. what i think you've seen is this is an area that's not a lot to

get excited about in investment banking with very little deal mark -- dealmaking. this is one area where there is so much activity and so much client desire and demand. i think that's where you are seeing this tension is the fact that they are drawn to the activity but then it's a region that comes with so many geopolitical risks. lizzy: how much upside are we talking here? >> it's the one area around the world now that's growing. that's something to get excited about but it still pales in comparison to revenue you can generate in a plac the u.s. or the u.k.. for the most part, these banks would like to see a pickup in activity that's more broad-based. for now, they will take what they can get in terms of dubai being as popular and exciting as it's been. lizzy: as you get more rivals in the middle east, how much is the advantage being eroded? >> it's a place that values

loyalty. i think that will matter long-term. it's a good point. you're only as good as your bankers aren't only as good as your last deal. as more of these banks tried again in and steal some talent, they end up doing more innovative types of deals for these clients, you could see some competition. lizzy: have any of his bets in the region spectacularly failed? >> that's what's been so interesting. as he gets more town on the ground in is trying to plot beyond dubai, he's interested in adding it to riyadh and saudi, you've only seen them benefit. that should continue as long as the kind of booming markets there continue. it's definitely a unique place because it can have such high highs and low lows in terms of activity levels. lizzy: it's a fantastic big take and i recommend you read it.

thank you for telling us more about it. let's look at some of the movers before we go toward the close of the european trade. astrazeneca is up over 3%. astrazeneca has had this trial data showing its lung cancer drug has managed to slow disease progression. ryan mattel has announced plans to open a munitions factory in ukraine as has ramping -- has ramped up production as we approach the two-year anniversary of the war. they signed an agreement at the munich security conference. santander is up after it unveiled the $1.5 billion buyback off record profits last year. they are one of the biggest beneficiaries of the eu hikes and that will continue. coming up in the next hour, will

speak to the global chief economist from societe generale. this is bloomberg. ♪ 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.

when i was your age, we never had anything like this. you've got more options twhat? wifi?w. wifi that works all over the house, even the basement. the basement. so i can finally throw that party... and invite shannon barnes. dream do come true. xfinity gives you reliable wifi with wall-to-wall coverage on all your devices, even when everyone is online. maybe we'll even get married one day. i wonder what i will be doing? probably still living here with mom and dad. fast reliable speeds right where you need them. lizzy: hello. that's wall-to-wall wifi on the xfinity 10g network.

welcome. happy presidents day. let's get a check of the markets. you've have got volumes in europe. stoxx 600 currently higher i .2%, ftse 100, .3%. s&p eking out a gain ever so slightly. waiting for a catalyst. could it be nvidia's earnings?

we shall discuss in a moment but not a lot of movement in the bond space. we are looking at yields lower across most of the curve, front end in europe. germany at 2.81%. bloomberg u.s. dollar index currently steady. down from more than 150 at the start of this month. here in europe, we are down to 150. message delivered and received. if we slip again, you are currently looking at brent trading at 83 dollars a barrel, a touch stronger now. traders weighing lingering concerns against ongoing middle east tensions. we will discuss geopolitics later in this show. iron ore weaker.

that weakness continuing throughout the day after new concerns about the chinese economy. finally, the two gold holding steady. geopolitical risk rumbles on. joining me are christina lee and jp barnett. let's start with china. i did just mention iron ore. you've got china back online, bleak economic backdrop. >> that is the big question. 1 -- 1.3 is probably worth bringing up is we saw some etf scoring into the close. some chatter this may be a sign of state support, as we have seen in various training sessions this year. strong rebound in terms of travel and spending.

but it is clear that investors are waiting for more decisive easing, whether from the central banker the central government. it will take a lot more for this rebound to be sustainable. lizzy: that is the china picture. so much eco-data last week from the u.s., the u.k. this week not so much. what are you looking out for in terms of rate cuts ahead for the central banks? justina: what has been recent -- interesting from the recent data from the u.s. is there seems almost a re-acceleration of both. we have seen the jobs market tighten. investors will be paying attention to how much is a central bank acknowledging the progress of placement? -- inflation? that could bring up important questions for the order of central bank rate hikes with the

fed have -- acting first. lizzy: interesting. will the choreography be challenged? larry summers says the next move could be a hike. the banks are the most exposed to all of this movement in interest rates. lots of earnings this week, especially from the u.k. what are you watching out for? barclays, hsbc, lloyds. j.p.: a couple of things. the first is interest rates. have we gone peak in terms of bank earnings are is there more to come? then we want to hear from the banks. we wobbled a couple of weeks ago, still a lot going on with u.s. exposure. not much in the u.k. but we want

to hear about credit quality and with the banks are concerned about and if that is an important thing. lastly, we want to hear how confident is the consumer, what are they seeing in terms of credit card usage, the people feel comfortable to go out? or are they stricter with consumption? this will -- decide how a potential recession could look. lizzy: on this subject of finance, in the past few minutes, we had a bloomberg m&a scoop considering a potential acquisition of discover financial services. this would be a major move to boost its credit card offerings. that story developing as we speak. discover has fallen about 2% this year. i want to come back to the earnings picture. we cannot not talk about nvidia. that will be the highlight of the earnings.

can we really use that as a bellwether of the strength of the u.s. economy? justina: that is probably less direct. immense demand for the magnificent seven stocks. there is almost this perception that it is not tethered to the u.s. economy. it is about secular trends. that is what analysts have been looking for. they have this demand for data centers for general but the bar will be high. it is already up 47% this year. these ambitions are lofty. lizzy: goldman has said that the s&p could go higher, especially the 5000 mark. they see it ending the year at 5200. are we just going to get updates like this was more agreeing with

goldman? j.p.: probably. the risk appetite in the market wants to be bullish against all this. good arguments about the risks out there and what could go wrong. so many have missed the rally and are underweight in terms of risk overall, especially in the tech space. it is hard to convince those people that there are risks out there and they should be more cautious. also, analysts were told -- i feel like it is more bullish this year. just hoping that the wind is not catching it down the skyscraper. lizzy: all right. thanks to both of you. a preview of what might be a quiet week for eco-. still dizzy on the earnings front. coming up, the global chief

economist at societe generale. 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 wealth-changing question -- are you keeping as much of your investment gains as possible?

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need to resist the temptation to act quickly and be prepared to respond agilely as the economy evolves.

klaus: the number was stunning. we might get some slight revision. then we have this stunning surprise on payrolls. they are an important influence on inflation. then we had cpi. it was strongly driven by housing costs. shelter has a high weight. the federal reserve tends to look more at the pce. that has a lower rating in

housing and a greater rating in medical supplies, goods and services. the ppa number at the end of the week -- while it initially looked unlikely that the pce inflator would have the same backup that we had in the pci, now there is more questions. we will have to wait until february 29. lizzy: when does the fed start to cut? klaus: first cut in may. that still looks possible, but the risks are shifting. lizzy: if the fed cuts, does the ecb follow? klaus: they are in the same trend. i do not think there is really a relationship. the euro is cheap.

if the fed moves first, it could put in support for the euro, not a bad thing. it is really inflation. lizzy: speaking of messing up the choreography. i was speaking to a former chief of -- chief economist at the bank of england. he was one of the former hawks that the doe still on the policy committee. klaus: i'm not sure he is 100% wrong. the bank of england wants inflation under control. the u.k.'s uniquely week in the context of european economies. in the last couple of quarters, it is performed worse than the german economy. i think there is a case for the bank of england.

raising rates more than the ecb is 125 basis points higher than in the euro area. central bankers are by nature cautious people, but we feel confident that in the u.k. the first cut will be in may. lizzy: you mentioned the flip side to his argument, which is wage inflation in the u.k. what will it take to equal the labor market in the u.k. plus in the u.s.? klaus: in the u.k., the labor market is already cooling. at the moment, we have great uncertainty about the labor market. there have been significant problems. -- problems with the response rate in the labor market reports. wages and the u.k. are decelerating and decelerating

quickly. there is one problem that is common amongst a number of economies but not the u.s., which is labor productivity has been slow. wage growth has been fast. talking 7%. that does have an impact on underlying price pressures. in an ideal world, to accelerate the economy and reduce inflation, productivity -- a bout of productivity growth would be great. you need generally from labor productivity -- a lot of business investment, investment in human capital. but none of those is at the moment necessarily there. lizzy: we have been talking about china.

how much is chinese weakness going to hold back labor growth. klaus: it will hold it back but china strangles growth. one difficulty is related to real estate. on the other hand, there is a problem in that there is a reassertion of the communist party. i think that one has to worry about the entrepreneurial s pirit in china in the private sector. that suggests that chinese economic growth will be fairly low. however, we have also seen -- how low they let growth go. then they stimulate. it has been piecemeal and

difficult to follow up on but there have been lots and lots of measures, but they are difficult to grasp. it is easier if you have a big bazooka. if you do a lot of low things, stuff gets forgotten, but they are active in managing the economy. lizzy: but we only have the drip feed for now. thank you for joining me. still ahead, all eyes on berkeley fourth-quarter results. this is bloomberg. ♪

[announcer] if you're thinking about earning your degree online, snhu can help you get there. - i felt supported throughout the whole process, even from the first call. [graduate] my advisors consistently reached out and guided me along the way. - it was like i was talking to a friend, like someone that i had known for years. - the instructors were very helpful with everything that i was going through. [announcer] we'll be with you from day one to graduation to your dream job. ♪ it all starts the moment you find your program. [announcer] go to snhu.edu to get started. lizzy: welcome back.

4:20 p.m. in london. the drugmaker is working on the next wave of obesity drugs. he spoke on the david rubenstein show, talking his m&a strategy, ai, in the future of weight loss drugs. >> what we tried to look at is in the therapeutic area, blood cancer, we have been in blood cancers for over 20 years. we say this is an area we are in. we have deep understanding. therefore, it makes sense to add another medicine to that portfolio. we made that assessment. it is a good, strategic fit in a good financial, -- one of the things we have been more disciplined honesty critical to the lower end of the range are acquisitions and ensure a deep understanding.

generally, when we have got too far away from our core, the value increases. david: in 2023, we saw enormous increase in drugs that reduce your weight and they seem to work well. one company in the u.s., one in your. are you going to get into that business? it seems to be externally profitable. >> we are working on the next wave of medicines. i think these glp-1 medicines are well serviced by the companies. it is a fascinating story, goes back to the early 1990's. it took us almost 25 years to realize that these types of drugs have an effect on obesity. but we think there is opportunity to improve upon. can we come up with drugs that help us to better improve muscle and are easier to take? one area where novartis is one of the leaders is rna therapies. what that allows you to do is

take drugs that you normally would take every day only twice a year. cholesterol lowering, we have a medicine that you only have to take twice a year to lower cholesterol 60%. we are working on some of medicines for hypertension, blood pressure, other risk factors for cardiovascular disease. most people do not stay on their drugs. david: in 2023, ai burst onto the scene. everybody is now excited about ai. i was ai affecting your company? >> i think it will take more time than most people expect. productivity areas of ai has -- applications. productivity, we can use it for document generation, not sexy areas. in our sector most uniquely, can you speed up drug r&d?

we are working in clinical trials, optimizing clinical trials, but the big bets with county fairs, microsoft, google, if you others to say can you really discover novel drugs without ai? can you optimize drugs more quickly? this is all about a technology called oval fold. there is opportunity here, but you also have to acknowledge we only understand about 5% to 10% of what goes on in the human body. expect ai to use that -- to expect ai to extrapolate from that to come up with discoveries is going to take time. lizzy: you can check out that full conversation. back to banking -- barclays is set to release its report for the fourth quarter tomorrow. joining us now is tom metcalf. what are you expecting? the focus is how brave you can

be on the strategy. tom: the big question is how far will he push it? we have heard reporting that there will be more of a focus on the retail and the campaigns but that is the big question. barclays has a massive investment bank. how far will the executive go to push for more, a more manageable, more pleasant level? lizzy: then we get hsbc on wednesday. we have heard comments from the ceo warning of tougher times ahead. for all these banks, it is not just the central bank pivot. what else is on hsbc's mind? tom: they are very exposed to china. and they have got the long run

in commercial real estate. this just how hsbc comes out. as the chinese economy recovers, you expect hsbc to do well, but that is the point. they coming for an interest rate cycle now. how well-positioned are they for whatever 2024 has around the corner? lizzy: what happens to hsbc of trump gets back into the white house and you have even more tension between the u.s. and china? i see hsbc has got a new bonus cloud to improve transparency on compensation. is this just a token move? tom: i had a question for one of the junior staff. maybe you get less guaranteed pay and more flexibility on the discretionary site. but this is not the big bonus part of the package.

this is not the support staff and bank tellers. interesting shift, -- lizzy: tom metcalf, thanks. we look toward the wrist results from barclays tomorrow, hsbc on wednesday, and lloyd's on thursday. volumes are low because it is the u.s. holiday. that has bled across to european markets. stoxx 600 higher by .2%. mixed picture. cac 40 unchanged. dax lower and the ftse 100 is picking up gains. stoxx 600 has barely moved after that search last week of 1.4%. we are moments away from the

close. coming up, director of economic policy -- policy research at veda partners. this is bloomberg. ♪ how am i going to find a doctor when i'm hallucinating? lizzy: welcome back. 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.

stocks are finishing up the day in european rating. let's check in and where the day is ending.

-- this is because we have had concerns about the chinese economy if we just zoom in on some of these stocks that have been on the move throughout the session, astrazeneca has been a gainer. this is after it announced progress on its cancer drug. sandy and their enjoying a positive session today. this is on the news of its share buyback after a positive year in 2023. one of the biggest beneficiaries of those ecb hikes. we also have rheinmetall, which has had a deal struck at the munich security conference to open an ammunition factory in ukraine. it has been ramping up production since the invasion.

this deal is making traders happy as we close the session today. ukraine has been high on the agenda. munich security conference ended over the weekend but nato officials voiced their concerns that the u.s. may scale back support in the region. patrick donahue joins me for more. how serious is the direct of ukraine not getting what it and the lenski having to come -- and volodymyr zelenskyy having to make a deal he does not want? patrick: with the u.s., the threat is very real. this we coming munich security conference, ukrainian officials pushing hard to see what they can do. it all depends on what happens in the house. $60 billion has been promised from the biden administration but it has been months and that is taking a toll on ukrainian

officials on the frontline. ukraine is running low on ammunition. it is having a difficult time with us over the weekend, a city in eastern ukraine fell, which was under attack since the beginning of the war. this shows what could happen as russian forces test the gradient military all across the frontline. this battle could start going the other way. lizzy: what about fears that if trump got back into the white house and russia were to attack another nato ally that just leave them hanging out to dry? patrick: those are comments that trump made last week that sent a

shock wave through europe. they are similar to things he said in the past. lizzy: can we seriously? patrick: i think you can avoid taking it seriously what he says, but i mean what it does put on the table at least in europe is to what extent europe can rely on the u.s. as a partner, which is why you have wide-ranging discussions on what europe can do to scale up its defense ministry to put itself in a position to defend itself against russian attack. that might be years off but given what the kremlin has done in ukraine, and a lot of people we talk to, especially in natives eastern flank, openly talk about this. what happens if russia attacks

of the next 5, 6, 7 years? lizzy: patrick donahue across all the twists and turns in the munich security conference. we thank you for that analysis. volodymyr zelenskyy was speaking out to donald trump about his comments on the ward. he spoke in response to an audience question conference. -- at the munich security conference. >> if it is too, i am ready to go with him to the frontline. -- if it is trump, i am ready to go with him to the frontline. i think if we are in dialogue about how to finish the war, we have to demonstrate people who are decision-makers what does it mean? the real war, not instagram. lizzy: joining us to talk about

the upcoming u.s. election is henrietta. they told invitation from volodymyr zelenskyy. do you think donald trump will take it? henrietta: i sincerely doubt it. that is not something that president trump likes to do when he was in office and i do not think it is something he would like to do now that he is out of office. i would find it surprising to say the least if you were to travel to ukraine. lizzy: who is your current but to take the white house? henrietta: it is my current forecast that biden wins the white house with a republican senate majority and probably a democratic house. that is my base case, 60% odds. i see a 20% chance that trump wins, in which case there is a

red wave's that would give republicans control of the house and senate. one thing with ukraine is there is a strong hand democrats would have in the event that trump were to be president again and it was a republican controlled house and senate. democrats could hold up government funding is a minority party in exchange for aid to ukraine in israel. they would have a powerful upperhand, just as you are seeing republicans obstruct now. there is a no, which means nothing will pass. democrats come if they were in the minority, since the senate need 60 votes, they would be in a position to say we will not keep the government open unless you provide aid to ukraine. interesting dynamic but that is a year from now. too long to rest on. lizzy: what are the chances that either biden or trump drops off

the balance -- valid? henrietta: the only place where i'm comfortable saying there is real chance -- zelenskyy brodd of instagram. all of the twitterverse, hyper elite media, news outlets, there is a foam meant of discord, mostly from the democratic side. the polls are not improving. xi is not doing major interviews , far fewer than -- he is not doing major interviews can be fewer than barack obama. he needs to get out on the campaign trail white house staff continues to be secure in their own opinion that come march 7, stated the union address they will turn this ship around and we are waiting for super tuesday, march 5.

we have no primary season to speak of and no third party candidate that will enter. there were hopes for nikki haley, joe manchin, anyone to enter into the race amongst market participants coming investors. they were willing to believe there would be a third-party candidate rushing into save the day. now that is relegated to the chambers of groupthink. republicans are so enmeshed behind trump with his immovable base that even if there was a material never trump faction, they cannot break out of their 20% or 30% shelti do anything. a lot is going on in the democratic camp. lizzy: but if trump does win, are investors ready? henrietta: i think investors are

starting to position that way. i am getting a lot of questions about the universal baseline tariff. this is something president trump spoke a lot about in 2017, 2018. paul ryan was using the word reciprocal, he was and love the idea of a reciprocal tariff and that is effectively with the universal baseline tariff is. it is the only revenue raiser in the trump tax plan. the individual tax cuts from 2017, in order to keep the baseline where they were before would cost 2.7 trillion dollars. if you are unwilling to change entitlements, social security, medicare, medicaid, raise any indian -- any individual tax brackets, you need an outside source of income. the only one the trump campaign

has identified is a universal baseline tariff. investors are starting to position around that. the first place to go is a combination of the auto manufacturers and china there is about $140 million or so into items that are never tariff. in any of the existing 370 million dollars of goods coming over from china the terrorist at higher rates. you can make that 150% without batting night. the idea of a universal baseline tariff needs to be considered. my experience, we are starting to see investors get on that bandwagon. lizzy: thanks. coming up, larry summers says

there is still a chance the next fed move could be a hike. this is bloomberg. [speaking foreign language] -- this is bloomberg. ♪ hey you, with the small business... ...whoa... you've got all kinds of bright ideas, that your customers need to know about. constant contact makes it easy. with everything from managing your social posts, and events, to email and sms marketing. constant contact delivers all the tools you need

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markets.

>> soft landing paradigm with the assumption that inflation was headed down to 2% in a tranquil, healthy, real economy. that has been called into question by these data. the fed is going to have to be careful. they were never right to be focused on march for a cut. i have been saying that that seemed premature. they and the markets have come around on that. i think may is off at this point and probably should be odds off. i think we have got to recognize what no one is talking about. there is a meaningful chance,

maybe 15%, that the next move is going to be upward in rates, not downward. to use a metaphor that i used to use on this show, the worst thing you can do when a doctor prescribes antibiotics is finish part of the course, feel better, give up on the antibiotics because you do not like taking them, and see what happens. the disease tends to come back. it tends to be harder to go after the second time. interest rates elevated to contain inflation are like antibiotics. i think the fed has to be careful in this environment. i think many people who confused

what they wanted with what was real were in too much of a hurry to declare that we were in a phase of major easing with respect to monetary policy. david: let me continue your analogy to a disease. we are not republican the 22%. the -- we are not recovering fully to 2%. we have a low-grade fever. what does that mean for the economy? larry: look, you can always rush back to work when you are sick and have not yet recovered. sometimes it also works out. but usually you have to make

sure your healthy before you go back to business as usual. chairman powell has said so many times to percent, 2%, 2%. as you will recall from previous conversations, i did not think it was a great idea to have so specific a target, but we have had one and repeated it a large number of times. if we decide that 2% has lost its meaning and is not something we have to accept when there is strong political pressures to ease, if we send that signal, i wonder why anyone would believe that we are going to stick with whatever it is that we settle into.

and then when that feeds into expectations, it will get harder to hold the level that we have. we are headed into as populists and election period as you or i can remember in our lifetimes. we usually think of the fed is a bulwark against populism, not as a reinforcer of populist pressures. lizzy: perhaps a spoonful of sugar would help that medicine go down. that was larry summers with his prescription for the u.s. economy. still ahead, kathy faces its first-ever eu fine. -- apple faces its first ever eu fine. this is bloomberg. ♪

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markets. apple is going to face a european union fine close to 500 million euros over allegations that it silenced music streaming rivals like spotify.

when you think about a 500 million euro fine, if you think about a company with a $2.8 trillion market cap, it seems like a drop in the ocean? matt: yeah. this goes back to a 2019 complaint that spotify made to the european union that apple was allegedly -- how it is operating its platform on fears that they were not letting spotify advertise that you could subscribe cheaper by going to the spotify website. apple a few weeks ago came out with a big, long press release about how they were changing business practices in europe. that is essentially a way europe

is trying to cut down on these big tech companies and break these alleged -- anti-competitive alleged behaviors. the other thing is that spotify quite some time ago stopped allowing you to buy or pay for their service through the app store, saying there have been quite a few changes going on. the eu is saying we are a strong policymaker and regulator of these markets. lizzy: apple's defense is that it has helped spotify in europe. how much of a defense is that? matt: it has some credibility. spotify has 100 million users and without being accessible through apple, with have gotten there? spotify might say we would have been a more profitable company if we were having to pay 30% to

apple. we could've priced more competitively and had more subscribers than we have today or if we had invested in other technologies. there is some merit to what apple is saying but i think this is an issue about a platform and a rival, a sensitive issue and not just in europe. are we going to see more of this across the world in terms of how big tech companies are policed? lizzy: this move to stop digital platforms from abusing their position as digital gatekeepers? thank you. interesting to see phillips securities downgrading apple to neutral when we also have this news about the eu fine. that does it for us. it has been a blast with

geopolitics, earnings, macro -- so much to cover. thanks for joining us. this is bloomberg. ♪ 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.