♪ >> we've just been hugely stress tested here over the bond yields tantrum, and markets survived. >> clearly the market is going to have to navigate this transition from incredible monetary accommodation to thinking about what removing some of that is going to look like. >> where policy stands today needs to be seen. there are tough decisions ahead. >> we still have the long-term structural forces that way against significant acceleration in growth.

>> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: can morning, everyone -- good morning, everyone. a simulcast on bloomberg radio, on bloomberg television. andrew sheets to join us of morgan stanley. in this hour we are joined by the president of the united states. jonathan: andy president of the ecb as well. the president -- and the president of the ecb. the president of the united states set to speak. we will take those comments from the president. press release from the adminstration this morning on new greenhouse gas emission targets. this is a big domestic push, not just an international one. tom: and also the reaffirmation of emissions. it seems to me this is a reaffirmation of pre-trump climate change in america. how do they do that without making it obvious? jonathan: reaffirming that and re-upping it, and trying to

reclaim some credibility on an issue they lost on khamenei be a lot more than others, in the previous four years -- they lost on, maybe a lot more than others, in the previous four years. lisa: we have been talking all mornings about how there are two prongs to this. the domestic story, that this will bring investment back to the u.s. and create better jobs and competition for the u.s., and the international story. basically, the world needs help, and it will help us all. i'm wondering what kind of teeth he has behind it, what kind of money, and where it is going to go. tom: and whether that money is going to be federal, state, or corporate. we decided to give some good coverage to this this morning. it is something off the paris agreement and may the reaffirmation of climate change of the last four years, but it does dovetail into the economics of the moment, and that is christine lagarde at the bottom of the hour. jonathan: let's talk about the

bond buying program. in about 30 minutes, the ecb president is going to get peppered with questions about the bond buying program. you told us he would frontload the buying in this quarter. what does that mean? is that what we have already seen? that doesn't look like frontloading to us. it might be boring to some people, but it matters for this market. if you lose credibility now, what does that mean when things get more stressful? tom: on the data front, i'm going to call it a churn to the market. because of the time, and as we wait for the vice president and a movie to be played, and then we will bring you the president of the united states, we need to get caught up on the finance of the moment. there's no one better to do that with then andrew sheets of morgan stanley, their chief cross asset strategist. how does your view change on allocation given the strength of the american locomotive? andrew: i think that is a great

place to start. the growth backdrop appears incredibly strong. our economists at morgan stanley have continued to hold an above consensus view on both u.s. and global growth. so we are certainly in that strong growth camp. but i also think we have to acknowledge that this unusually fast recovery could mean we also have an unusually fast cycle, and unusually short cycle, and thus it is time for investors to start moving out of many of the strategies, the sectors that often work in that early cycle right after a recession period, into things that tend to work better when conditions get a little bit more midcycle, when that recovery is a little more mature. those are the rotations we are starting to make, switching out of small caps into large caps, moving into more quality stocks. i think that's going to be an important theme as growth is very strong, but i we could be facing a cycle that looks much

hotter and faster than those we are used to. jonathan: i want you to build on that because it has been lost on some people still. you've been pushing that story for the best part of a couple of months. the shorter, hotter cycle. what are the signpost you are using to suggest that this cycle will be shorter, will be hotter? andrew: i think it is fascinating because it is really three overlapping cycles. there's economic conditions, business, confidence conditions, and market conditions. if we think about the cycle, that kind of cyclical movement in very simple terms, it is about going from low, depressed levels to high, elevated levels. for the economy, it is about how quickly you go back above trend in inflation. how quickly are you below average in unemployment. those things i think will happen unusually fast. that is the view of ellen zentner, our chief u.s. economist. it is about moving from caution to aggression. it is about high corporate

confidence coming back. see this in business confidence surveys, but those are rapidly improving, and we think they will continue to improve. market valuations have already returned to cyclical peaks in many cases unusually fast. i think all of that is consistent with a progression happening much faster than what investors are used to. lisa: have risk assets already priced in the peak of this hotter, shorter cycle? andrew: in some cases they have. if you look at what we are forecasting for the s&p 500, my colleague mike wilson has a 3900 target for the end of this year, so i think it is fair to say we think u.s. equities have priced and a lot of good news on credit spreads or near cyclical tights and our forecast for the end of

the year. we think the market has priced in a lot. on the interest rate front, we think inflation breakevens have generally hit our targets. we had been more optimistic those would move higher, and we now think that needs to pause. there are some key movements there. one market that we think is not priced in, where there is still risk premium, is in e.m. local debt. that is a market we have recently upgraded on the emerging-market side. that's one area where i still think there's some padding. jonathan: as we await opening remarks from the president of the united states at the global climate summit, the vice president speaking right now. you are looking at peak growth in the united states. does that mean one thing for the equity market and something else for the bond market? do those two asset classes read into that differently? andrew: potentially because i do think the bond market is directly linked or heavily influenced by what the federal reserve does, where i think the

equity market will be influenced by both the fed, but also the progression of earnings and another of -- and a number of other factors. this is a component of my colleague mike wilson's downgrade on small caps, just the concern that the market picture is going to get more complicated. you have costs rising in the supply chain, and those costs are not going to be equally easy to pass on, and customers, we think it will be harder for some of those smaller companies to do so. you already see the bond market pricing in a near-term path that we think is more hawkish. jonathan: stay close. we will come back to you in just a moment. andrew sheets there of morgan stanley. the president of the united states addressing the world on climate change. let's listen in. pres. biden: it is also providing a better future for all of us. that's why when i talk about

climate, i think jobs. within our climate response lies an extraordinary job creation and economic opportunity, ready to be fired up. that's why i've proposed a huge investment in american infrastructure and american innovation, to tap the economic opportunity that climate change presents, and a critical infrastructure to produce and protect clean technology, both those we can harness today and those that we will invent tomorrow. i talked to the experts and i see the potential for a more prosperous and equitable future. the signs are unmistakable. the science is undeniable. the cost of inaction keeps mounting. the united states isn't waiting. we are resolving to take action, not only our federal government, but our cities and states all across our country. small businesses, large

businesses, large corporations, american workers in every field. i see an opportunity to create millions of good paying middle-class union jobs. i see line workers laying thousands of miles of transmission lines for clean, modern, resilient grids. i see workers capping hundreds of thousands of oil and gas wells that need to be cleaned up and abandoned coal mines that need to be reclaimed, putting a stop to the methane leaks that have affected the health of our communities. i see autoworkers building the next generation of electric vehicles and electricians installing nationwide for 500,000 charging stations along our highways. i see the engineers and the construction workers building new carbon capture and green hydrogen plants to forge cleaner steel and cement and produce clean power. i see farmers deploying

cutting-edge tools to make soil of our heartland the next frontier in carbon innovation. by maintaining those investments and putting these people to work , the united states sets out on the road to cut greenhouse gases in half by the end of this decade. that's where we are headed as a nation. that's what we can do if we take action to build an economy that is not only more prosperous, but healthier, fairer, and cleaner for the entire planet. these steps will set america on a path to a net zero economy by 2050, but america represents less than 15% of world emissions. no nation can solve this crisis on our own, as i know you all fully understand. all of us, particularly those that represent the world's largest economies, we have to step up.

those that do take action and make bold investments in their people, in the clean energy future, will win the good jobs of tomorrow and make their economies more resilient and competitive. so let's run that race, win a more sustainable future than we have now, overcome the existential crisis of our times. we know how critically important that is because scientists tell us that this is the decisive decade. this is the decade we must make decisions that will avoid the worst consequences of a climate crisis. we must try to keep the earth's temperature to an increase of just 1.5 degrees celsius. the world beyond 1.5 degrees means more frequent and intense fires, floods, droughts, heat waves, and hurricanes, tearing through communities, ripping away lives and livelihoods. increasingly, dire impacts to

our public health. it is undeniable, the idea of accelerating and a punishing reality that will come if we don't move. we can't resign ourselves to that future. we have to take action, all of us, and this summit is our first step on the road we will travel together, god willing all of us, to and through glasgow this november at the climate change conference. to set our world on a path to secure, prosperous, and sustainable future. the health of communities around the world depends on it. the well-being of our workers depends on it. the strength of our economies depends on. the countries that take decisive action now to create the industries of the future will be the ones that reap the economic benefits of the clean energy boom that is coming. we are here at this summit to

discuss how each of us, each country can set higher climate ambitions that will in turn create good paying jobs, advance innovative technologies, and help vulnerable countries adapt to climate impacts. we have to move quickly to meet these challenges. the steps are countries take between now and glasgow will set the world up for success to protect livelihoods around the world and keep global warming at a maximum of 1.5 degrees celsius. we must get on the path now in order to do that. if we do, we will breathe easier, literally and figuratively. we will create good jobs here at home for millions of americans and lay a strong foundation for growth for the future. and that can be your goal as well. this is a moral imperative, and economic imperative. a moment of peril, but also a

moment of extraordinary possibilities. time is short, but i believe we can do this, and i believe that we will do this. thank you for being part of this summit. thank you for the commitments you have made to the communities you are from. god bless you all, and i look forward to the progress we can make together today and beyond. we really have no choice. we have to get this done. jonathan: that was the president of the united states kicking off the virtual leaders summit on climate. the president addressing that summit, saying they are on a path to net zero emissions by 2050 here in the united states, re-upping, renewing and increasing some of the goals here in america. a clear focus of this speech, jobs. it was a word he used continuously as he addressed international leaders. good paying jobs, transitioning workers from one industry to another.

we have to take decisive action now to reap the benefits of the revolution that is coming. tom: it is such a difference, jon. i think we have to look back at the last four years and compare and contrast presidential tone and presidential quote. what i heard there, as president biden mentioned, it is a first step for him to change the rhetoric. jonathan: what i heard was an outreach to international leaders, simultaneously a message for the domestic economy as well. you will hear more about good paying, middle-class jobs from this president. tom: martin schenker with us, our editor-at-large for all that we do. president trump a few years ago talking about the con that is global warming. there's never been an abrupt change like this, has there? martin: no, and it is not lost

on world leaders. in another four years, you could get another total switch on climate. so where is this issue long-term is the question. lisa: also, president biden coming out and saying this kicks off a race for the best jobs. the countries that are the first movers are being more aggressive in combating climate change that will be the ones rewarded with better jobs. what kind of muscle is biden putting behind this from the united states, given the lack of bipartisan support behind some of his green spending? martin: you put your finger right on the issue. the emission targets are quite aggressive, double what obama's were. but you are not going to get this done voluntarily. there needs to be legislation requirements that are going to cause pain as well as opportunity in the economy, and getting politicians to agree on regulations that change behavior

is going to be exceedingly difficult. lisa: when he talks about jobs, which jobs is he talking about? is he talking about solar and wind power plant operators? is he talking about researchers about electric batteries? how wholesale is this? can we quantify it any way? martin: i don't think that he can. he says he sees many of these jobs being union jobs. so he would like to see them actually build things like charging stations across the country. but the key issue is how are you going to get that done through a congress that is sharply divided? jonathan: the president moved the goalposts recently and said he wants to unite the country, not the congress. on this issue, does he need to unite congress? martin: i think he absolutely does. there are pockets of republicans

who acknowledge this is something that needs to be addressed, but the public certainly think that climate is an important issue that needs to get some government response. getting all of those things to work together in a common way is going to be his task, and that of his cabinet. pete buttigieg will play a large role in that. jonathan: a defining moment for this administration, for sure. tom, secretary blinken coming out, saying the biden adminstration will do more than any other on climate. tom: i look at the quote. i will circle back to this. i know i sound like a broken record, but this is an administration that not only has to create trust come but sustain -- create trust, but sustain deep, penetrating trust. jonathan: that goes beyond this administration, that is your

point. this from bank of america on earth day today. they say "it pays to be green. we see higher multiples on companies that are leading the drive." i want to talk to andrew sheets on this, morgan stanley chief cross asset strategist. can you walk me through how you are approaching this issue? andrew: i think something that is really important to how we are thinking about this for morgan stanley is something you saw the president come back to, which is this is a huge structural investment theme, maybe one of the biggest the u.s. and the world is going to face over the next 30 years. it is fascinating. it wasn't more than five years ago when investors everywhere were really worried about a lack of investment. you were entering this world where there were structural shifts in capex driving major problems for the global economy. the green transition across a number of industries, a huge

secular theme. look at something like the utilities industry, a sector that has often seemed a little bit sleepy, a little boring. huge transitions going on there, benefiting some companies, not benefiting others. those are areas where you can multi-decade runways of investment, greening of the business, and those are things that i think have said vacant obligations for investors -- have significant implications for investors. tom: where is morgan stanley on esg in america? four months ago, our president conflated his hairspray with the ozone hole in the antarctic. how does morgan stanley see the united states advancing forward on esg as we come out of that statement five years ago? andrew: i think you mentioned a key point that this issue of commitment is an unknown question. politics can change rapidly. we have seen that in the u.s.

it could change again. some of this is a question of where are the economics. one thing that is very important in the utilities space is the economics of going green are very good. it is not just the environmental right thing to do. it is often the right thing to do from a business perspective. that makes it very sticky. that means you are not counting on the political winds, that you also have this other incentive driver behind it. so the shifts to electric vehicles are not just about consumer preferences for green cars. they are about the economics, the improved economics of some of those ev's and autonomous vehicles. so where is the political aspect of it, but also the economic aspect of it? because that gives it an additional push. lisa: going forward, how much has already been baked in? how much is overpriced at this point, based on near-term goals versus opportunities, areas that

perhaps are not factoring in a green push? andrew: it is a challenging dynamic because you have seen huge success in many of these esg focused companies, which is great to see come but also means you have higher valuations, more stretched valuations in some places, which creates obvious challenges. i do think it is about looking for places where maybe the story is a little bit less exciting, but is equally important on a long-term view. again, in europe, the utility sector is one where, maybe not the most exciting companies, but where you have a story of multiyear, may be multi-decade investment that is possible. jonathan: good to hear from you. andrew sheets, morgan stanley chief cross asset strategist, joining us. we had that decision from the ecb. christine lagarde speaking in

about 15 minutes' time. know what you own. was it peter lynch that used to talk about that? know what you own. a lot of inflows and money lining up to get inside, and look at what is in that etf. top of the pile, apple, microsoft, amazon, facebook. maybe they are the companies leading the transition in the united states, but when people buy that etf passively, do they know what they own? tom: in the etf world, i think that is dead on. we go to the statistics here of the r squared of about 0.992 the nasdaq. i will say -- of about 0.99 to the nasdaq. i will say the structural change in the u.s. folds into esg. jonathan: clearly there's a

premium being attached to the companies making this push, which goes back to an earlier comment i think we have all made this morning. regardless of who is in the white house, there's clearly a credibility issue with the federal government. lisa: but there is a difficult time quantifying what is a green push. who is doing the best climate initiative in terms of corporations. i think frances donald said one of the most interesting things this morning. the way they are looking at it is countries, not companies, that are investing more heavily in combating climate change, that is where they are looking to invest. i wonder how much that is going to become a theme going forward. tom: i want to mention the president of china is speaking now. president xi is speaking. this is wrapped up in the immediate politics of climate change, but also the really interesting relationships here, not only between china and the u.s., but if u.s. and russia as well. jonathan: three things on the radar. initial jobless claims in the u.s. coming next, a press

conference with christine lagarde, and world leaders addressing the climate summit. this is "bloomberg surveillance." ♪

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jonathan: from new york city for our audience worldwide, this is "bloomberg surveillance" live on tv and radio. alongside tom keene and lisa abramowicz, i'm jonathan ferro. economic data due in the united states. here it is. here is michael mckee. michael: last week we had a big surprise because of the easter distortions to jobless claims, they fell significantly. this time they go down again. that is good news for the economy because maybe some of the seasonal factors are working their way out of the data. 500 47,000 initial jobless claims. this is the kind of number we had been expecting. last week everybody said it was easter, it is hard to seasonally adjust. it is possible some of that leapt over into this week or

last week as well. we do not know yet. if we continue this kind of thing it will be a decrease of 39,000 from the previously revised number of the week before. the lowest level for initial claims since march 14, when it was 256,000. that was the week before we started getting the amazingly high claims numbers. tom: michael mckee with bloomberg's and all of the fancy moving averages. what i am seeing is a curvature. we are going from convex, rolling over to a concave set of moving averages. can you call a trend change when we move from the convex to the concave? michael: you probably can. i will be cautious and say this time of year seasonal is difficult, let's wait another week. have me back next thursday and we will talk about. if this is the trend, this is what we will -- what we were

expecting to see from some time. jonathan: from new york to frankfurt, germany, we need to catch up with the president of the ecb, christine lagarde. let's take a listen. pres. lagarde: continue to constrain economic activity in the short-term. looking ahead, progress with vaccination campaigns and the envisaged gradual relaxation of containment measures underpin the expectation of a firm rebound in economic activity in the course of 2021. inflation has picked up over recent months on account of some idiosyncratic and temporary factors, and in increase in energy price inflation. at the same time, underlying price pressures remain subdued in the context of significant economic slack and weak demand.

preserving favorable financing conditions over the pandemic period remains the essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability. euro area financing conditions have remained broadly stable recently, after the increase in market interest rates earlier in the year. risks to wider financing conditions remain. against this background, the governing council decided to reconfirm its very accommodative monetary policy stance. we will keep the key ecb interest rates unchanged. we expect them to remain at their present or lower levels until we have seen the inflation outlook converge to a level

sufficiently close, but below 2% within our projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics. we will continue to conduct net asset purchases under the pandemic emergency purchase program, with a total envelope of 1850 euros until at least the end of march 22, or in any case until the governing council judges the coronavirus crisis phase is over. since the incoming information confirmed the joint assessment of financing conditions and the inflation outlook carried out at the march monetary policy meeting, the governing council expect purchases under the pepp

over the current quarter to continue to be conducted at a significantly higher pace than during the first month of the year. we will purchase flexibly, according to market conditions, and with a view to preventing a tightening of financing conditions inconsistent with countering the downward impact of the pandemic on the projected path of inflation. in addition, the flexibility of purchases over time across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy. if favorable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the pepp, the envelope need not be

used in full. equally, the envelope could be recalibrated if required to maintain favorable finance conditions to help counter the negative pandemic shock. we will continue to reinvest the principal payments from maturing securities purchased under the pepp until at least the end of 2023. in any case, the future role off of the pepp portfolio will be managed to avoid interference with the appropriate monetary policy stance. net purchases under our asset purchase program will continue at the monthly pace of 20 billion euros. we continue to expect monthly net asset purchases under the app to run for as long as necessary to reinforce the

accommodative impact of our policy rate and to end shortly, before we start raising the key ecb interest rates. we also intend to continue reinvesting the principal payments from maturing securities purchased under the app for an extended period of time past the date when we start raising the key ecb interest rates, and in any case for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation. finally, we will continue to provide ample liquidity through our refinancing operations, in particular the latest operations in the third series of targeted longer-term refinancing operations, tltro three, has registered a high take-up of funds. the funding obtained through

peltro three plays a crucial -- through peltro three -- tltro three plays a crucial role in lending to households. this helps preserve favorable conditions for all sectors of the economy and safeguard medium-term price stability. we will also continue to monitor developments in the exchange rate with regard to the possible implications for the medium-term inflation outlook. we stand ready to adjust all of our instruments as appropriate to ensure inflation moves towards our aim in a sustained manner in line with our commitment to symmetry. let me now explain our assessment in greater detail, starting with the economic analysis. euro area real gdp declined by .7% in the fourth quarter of

2020. to stand at 4.9% below its pre-pandemic level one year earlier. incoming economic data, surveys, and high-frequency indicators suggest economic activity may have contracted again in the first quarter of this year, but point two a resumption of growth in the second quarter. business surveys indicate the manufacturing sector continues to recover, supported by solid global demand. at the same time, restrictions on mobility and social interaction still limit activity in the services sector, although there are signs of bottoming out. fiscal policy measures continue to support households and firms, but consumers remain cautious in

view of the pandemic and its impact on employment and earnings. despite weaker corporate balance sheets and elevated uncertainty about the economic outlook, business investment has shown resilience. looking ahead, the progress with vaccination campaigns, which should allow for a gradual relaxation of containment measures, should pave the way for a firm rebound in economic activity in the course of 2021. over the medium-term, the recovery of the euro area economy is expected to be driven by a recovery in domestic and global demand supported by favorable financing conditions and fiscal stimulus. overall, while the risks surrounding the euro area growth outlook over the near-term

continue to be on the downside, medium-term risks remain more balanced. on the one hand, better prospects for global demand bolstered i the sizable fiscal stimulus and the progress of vaccination campaigns are encouraging. on the other hand, the ongoing pandemic, including the spread of virus mutations come and its implications for economic and financial conditions, continues to be sources of downside risk. euro area annual inflation increased to 1.3% in march 2021 from .9% in february on account of a strong increase in energy price inflation that reflected a sizable upward base effect and a month on month increase. this increase more than offset

decreases in food price inflation and in h icp inflation excluding energy and food. headline inflation is likely to increase further in the coming months, but some activities expected throughout the year, reflecting the changing dynamics of idiosyncratic and temporary factors. these factors can be expected to fade out of annual inflation rates early next year. underlying price pressures are expected to increase somewhat this year, owing to short-term supply constraints and the recovery in domestic demand, although that remains subdued overall, in part reflecting low wage pressures in the context of economic slack, and the appreciation of the euro exchange rate. once the impact of the pandemic fades, the unwinding of the high

level of slack supported by accommodative fiscal and monetary policies will contribute to gradual increase in inflation over the medium term. survey-based measures and market-based indicators of longer-term inflation expectations remain on subdued levels, although market-based indicators have continued the gradual increase. turning to the monetary analysis, the annual growth rate of brought money stood at 12.3% in february 2021 after 12.5% in january. strong money growth continued to be supported by the ongoing asset purchases by the euro system and the largest source of money creation. the narrow monetary aggregate has remained the main contributor to brought money growth consistent with still

heightened reference for liquidity in the money holding sector, and a low opportunity cost of holding the most liquid forms of money. overall, lending to the private sector remained broadly unchanged. the monthly lending flow to nonfinancial corporations showed a modest pickup in february compared with the previous month. this was also reflected in a slightly higher annual growth rate of 7.1% after 6.9% in january. monthly lending flows to households continue to be solid, with the annual growth rate of loans to household remaining unchanged at 3% in february. the latest euro area bank lending survey for the first quarter of 2021 reports moderate

tightening of credit standards for loans to firms following more significant tightening in the previous two quarters. heightened risk perceptions among banks were again the main contributor to the tightening, although the impact was less pronounced than in previous survey rounds. survey banks also reported a renewed fall in demand, mainly driven by a continued decline in demand for financing fixed investment. with regard to lending to households, the survey indicated lower demand for loans for houses purchased, while the credit standards for these loans eased slightly, supported by competition among lenders. overall, our policy measures,

together with the measures adopted by national governments and other european institutions, remain essential to support bank lending conditions and access financing, in particular by those most affected by the pandemic. to sum up, across check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is necessary to support economic activity and the robust convergence of inflation to levels below, but close to 2% over the medium term. regarding fiscal policies, in ambitious and courted needed fiscal stance remains crucial, as premature withdrawal of fiscal support would risk delaying the recovery and amplifying the longer-term

scarring effects. national fiscal policies should thus continue to provide critical and timely support to the firms and households most exposed to the ongoing pandemic and the associated containment measures. at the same time, fiscal measures taken in response to the pandemic emergency should come as much as possible, remain temporary and targeted in nature to address vulnerabilities effectively and to support a swift recovery of the euro area economy. the three safety nets endorsed by the european council for workers, businesses, and governments provide important funding support. the governing council reiterates the key role of the next generation eu package and the urgency of it becoming

operational without delay. it calls on member states to ensure a timely ratification of the own resources decision to finalize their recovery and resilience plans promptly, and to deploy the funds from productive public spending accompanied by productivity enhancing structural policies. this would allow the next generation eu program to contribute to a faster, stronger , and more uniform recovery, and would increase economic resilience and the growth potential of member state economies, thereby supporting the effectiveness of monetary policy in the euro area. such structural policies are particularly important in improving economic structures and institutions, and

accelerating the green and digital transitions. we now stand ready to take your questions. >> thank you very much. today the first question goes to market news international. over to you. >> good afternoon. can you hear me ok? pres. lagarde: very well. >> thank you. two questions. firstly, i would be interested to hear whether you think the outlook is improving sufficiently come as your colleague has suggested, to consider slowing the pace of pepp purchases, and whether this was something that was discussed. secondly, interested to know whether the move higher in the euro the last couple of weeks was also raised in the meeting in the context of wanting to prevent premature tightening of financial conditions. thank you. pres. lagarde: thank you very much for your questions.

it gives me a chance to go back to the key part of our deliberations, which has to do with taking a good look at the economic situation, both from a growth perspective, from an inflation perspective, from the financing terms that are available in the context of forming our joint assessment. in terms of outlook, it is very much on the one hand, the other hand situation. there are clearly signs of improvement that are coming from an improvement in the rollout of the vaccination plans in most euro area countries. that is on the one hand. on the other hand, we are clearly seeing continued contagion, continued pressure put upon some of the economic

sectors as well as the health sector, and equally on the more negative side of things, we are seeing the risk of potential evolution of the virus in the variants that can constitute a threat. we still have this overall environment of uncertainty about the economic situation that surround the near-term outlook. it is very much reflected in the consumer behavior because when you look at the retail sales, they rose in february. they remained well below the pre-pandemic level at well below the fourth quarter of 2020. that is an indication of consumer confidence. on the other hand, you have a service sector that seems to be bottoming out, which is still in contractionary territory, the pmi on services is 49.6.

short of the 50. heading in the right direction. this was the sector most affected by the economic recession. it is very much on the one hand, on the other hand. that is for the economic outlook. if we look at the risk assessment we always conduct as well, we still have the same risk assessment as we had in march. we still see near-term risks tilted to the downside, and we still seek medium-term risks much more balanced. overall, everything we have looked at in terms of high-frequency indicators, latest information, data surveys, really confirm the projection that we had in march. that is on all accounts, and in

terms of inflation numbers, we are also on the same page as we were with our projections in march. it is against that background we conduct our joint assessment. you asked me a second question, which has to do with the appreciation of the euro. we do not target any kind of exchange rate. we monitor very carefully exchange rate and variation because, clearly, that can have a downside impact on prices. we are very attentive to that. thank you. >> thank you very much. the next question goes to isabella. >> hello and thank you for the opportunity. president lagarde, two questions. the first question is on the

pepp purchases. the governing council expects over the current quarter, pepp purchases to continue to be conducted at a significantly higher pace during the first quarter of this year. the question is what is your assessment of this decision so far? our financial conditions as favorable as the governing council would like them to be? my second question is on the possible link between the next generation eu and monetary policy. you mentioned the governing council has raised the rate and the key role of the next generation eu -- can we assume that a long delay of next generation, or premature fiscal tightening could lead to longer accommodation by the ecb? thank you.

pres. lagarde: thank you very much. i will take your second question first because it is a case of everybody having to do their job, and everybody having to comply with their respective mandate. our mandate is price stability. we are riveted to the aim we have under the circumstances, so next generation eu is clearly in the physical domain, as our some national decisions that have been made, that are being made. fiscal authorities have to do with they have to do. we certainly complement each other, but we are not substitutes. if there was delay or any hurdles, that would not be overcome. it is not a question of substituting because we are

complementing each other, each of us in our respective area, and with our respective mandate. on the pepp purchase, you did pick up in the introductory statement we decided to keep the pace of purchase at a significantly higher pace. i want to remind you that when we do that, it is with a view to preserving favorable financing conditions. when, back in march, we observed the financing conditions, we decided we had to take action and we significantly increased our pace of purchase. that was clearly the case. that decision was made on march 15 and was readily implemented, not for the entire month, which is the relevant period of time when you want to assess the pace of purchase, but we implemented

right away and we have continued doing so without any wavering, and in a very determined and decisive way. there has been a clear and significant increase in that pace of purchase and it will continue to be that way because as i said earlier, our assessment of the economic situation is broadly the same, and the joint assessment that we do on an intermediate basis, as opposed to the comprehensive assessment we conduct at the time of the projections come also leads us to believe we need to continue those purchases at this significantly high pace than during the first two months of 2021. >> thank you. the next question goes to

carolyn of bloomberg news. >> good afternoon. first of all, i want to follow up on one of the previous questions about a gradual phasing out of pepp purchases in the third quarter. i would like to know what the ecb would need to see in order for it to return to its normal pace of purchases. with this be a confirmation of the economic outlook you saw in march as your colleague suggested in a recent interview, or what you need to see a upward revision to your forecast, an end to restrictions, what can you tell us about that? in terms of the financing conditions you are just speaking about, your bank lending service showed banks expected tighten credit standards further in the current quarter after they've already done that in the past three quarters. is that a worrying sign in your assessment. what is -- what basically are

you doing about that? pres. lagarde: thank you for your questions. on the first one, let me assure you that on the occasion of the governing council we did not discuss any phasing out of pepp, because it is simply premature. i would also observe that any determination concerning the pace of purchase under the pepp is not on a date or calendar basis. it is data dependent. we have pledged to preserve favorable financing conditions. we conducted joint assessment of the financing conditions, and the inflation outlook. it is the combination of the two , the financial conditions and the inflation outlook, it is on the basis of these two elements, which are quite complicated in

their own respect, that we determine the pace of purchase. that is what we have done this time around on an intermediate basis. we will do it again in june when we have the projections. any phasing out was not discussed and is premature. on the bank lending survey, i would remind you, i think it is mentioned very clearly in the introductory statement, that loans in volume numbers have slightly increased over the last quarter. that is for the nonfinancial corporate sector and has remained roughly the same for the households. that is backward looking. the bls is forward-looking and translates the sentiment and the views of banks as to their future activity. this bls, as