manus: good morning from our middle east headquarters in dubai. i'm manus cranny along with annmarie hordern at london hq. it is "bloomberg daybreak: europe." the talk of tapering begins as the fed moves up its forecast for a rate hike, predicting two increases by the end of 2023. the dollar surges. president biden talks prospect

of better relations with russia after his summit with president putin. tensions remain from cyberattacks to human rights. china's intervention in the market picks up steam, beijing looks to maintain financial stability targeting commodity, and currencies. 6:00 a.m. in london, the start of a treacherous journey of retreat for the fed. not just two hikes in 2023, go to the bottom line. they are talking seven rate hikes in 2022. i am so relieved we are talking about talking about tapering. good news, i say. annmarie: jay powell wants to retire the phrase, this was the meeting they were talking about talking about tapering. the next meeting, they will talk about tapering, and potentially do we get the taper?

is the fed saying that it is not transitory? manus: we have a couple of market participants, does this mean it is not transitory. every meeting, every single meeting we are live. that is a shift in gears. great op-ed this morning, the phrase was coined, the treacherous road of retreat. the market conditions make this a good time as any to signal the dissent from the monetary -- the mountain of monetary. junk yields are below inflation, and real yields, it is not a tantrum yet until there is a yield shuffle. manus: there is the potential

risk of a policy mistake, and that risk is as high as a new variant for covid. let's look at where we trade this morning. it is a big market day following that meeting from the fmoc. this is where futures are in the united states. s&p down 0.3%. euro-dollar down below 1.19. bloomberg dollar index, the best it has had in a year, the dollar surging. that means brent a leg lower. this is where the belly of the curve yesterday, where we sell that rise in yields. this has to do with what jay powell said. take a listen. >> the federal open market committee capped interest rates near zero and maintain our asset

purchases. the housing sector is strong at business investment is at a solid pace. shift and demand can be large and rapid, and bottlenecks, hiring difficult these and other constraints could limit how quickly supply can adjust. that raises the possibility inflation could be higher and more persistent than we expected. we will be looking at a strong labor market. it is not a time to reach hard conclusions about the labor market. it is about inflation and the path of policy. we need to see more data and be a little patient. manus: annmarie: joining us now is eric lonergan, co-portfolio manager, m&g. what was the most hawkish surprise, the tilt of dot plots for when we could see rate rises. where does this leave your outlook on the fed?

manus: this is one of those moments -- i think he has gone to get the guitar. annmarie: i hope so. i think he heard you singing, and thought he could aid your vocals. we are still dealing with technical issues. we have enough to talk about when it comes to the federal reserve. manus: the belly of the curve come on the five-year paper is where you saw the ratchet. the question, as you reprice, the drama was not the short end, it was in the valley. jp morgan said get ready for a hawkish surprise. the market is under assuming an under position. jp morgan still calling for a selloff in the bond markets.

i think eric is back with us. why don't you start the conversation? annmarie: very gracious of you. eric lonergan, co-portfolio manager, m&g still with us. he did not get his guitar. what are your first thoughts after yesterday's surprise meeting and that massive hawkish tilt? eric: i think manus hit the nail on the head, which is it has changed at every meeting, it will be game on. this is the very beginning of the process of the market repricing its expectations and beliefs about the fed. do we really think we will wait until 2023? it is highly likely there are rate increases next year. it is an entirely reasonable

thing for the fed to be doing, and i agree that the markets need it to happen. for me, the big question is one of the features of the last decade has been that markets are a lot more sensitive to monetary policy than the real economy. markets are priced for perfection currently across the major asset classes. i am anticipating opportunities. we have been patient this year. we have the view that markets are very vulnerable to a shift in fed expectations. that is the big question, how significant the reverberation is through markets. manus: we will dance across the asset classes. let's start with ground zero in the bond market. the reason why -- let's reset.

if we get big fiscal boost in the back half and a taper, take us through your target on treasuries. eric: i would love to see if you can put up a chart of 30s, because something interesting is happening. we had a taper tantrum in the bond market in the first quarter. if you look at the yield in 30 year treasuries, it is lower than it was at the end of february. 3.5 months where the long end of the yield curve, which we priced aggressively earlier in the year, has discounted a lot of what is happening. you are absolutely right, the action will be at the short end, the 5s look vulnerable. we will see a shift in rate expectations, but it may be the case that the long end of the yield curve likes that, because

effectively the long end of the market is saying it was totally naive to ever think the fed would let inflation get out of control. if anything, markets will be vulnerable to arising fed funds rate, and that component of your insurance policy in a portfolio is very valid. the logical thing to be doing here is effectively to try to exploit the curve. you keep the 30s for protection in your portfolio, but the shorter end of the yield curve, the 5s is the opposite part of the curve to be short. you could see material vulnerability if the economy remains robust. annmarie: what about the equity market? it was said if we see what we

saw yesterday, futures lower, it may be a buying opportunity for some? eric: what i would say, before we get to the buying opportunity, let's see what the nature of the repricing is. the reality is the s&p 500 is trading on the highest multiple cents the bubble. what -- since the bubble. the virus was a catalyst for a lower level of real interest rate structures. the question now is whether a readjustment causes trouble. i still think having an exposure to diversify global equities, particularly a value tilt that gives more momentum, because it will put pressure on the discount rate. i think you want to be very

close to benchmark at the moment. if anything, you want to belong of cash, because this is an environment where opportunities will emerge. the euphoria of risk taking where we are in phenomenal recovery and super loose monetary policy, that regime has plausibly ended. we are in the final stages were we will see a resumption of volatility, so you want to be positioned to exploit that volatility. manus: i hope you will not say anybody kidnapped goldilocks. i will be upset if she is taken away. the question of the day, what other assets will be impacted? we are moving into a new regime where we talk about tapering size and scale and speed. what is the fallout? you still want to be long long end of the curve to protect yourself. what about the dollar?

have the bears run into a brick wall? eric: the dollar is fascinating. ronald reagan. in many ways, if we remember reaganomics -- is where we have to go back to where we had fiscal stimulus into a strong economy -- the big surprise, it was dick cheney who it was a trip it into under reagan -- if we remember that regime, loose fiscal policy into a strong economy, it shifts rate infrastructures. the surprise was you had a deficit and a strong dollar. that is a plausible realistic playbook to have in this instance as well. we shall see. the immediate response, weakness against the dollar in e.m.,

dollar strength across the board. that is a plausible dynamic. when people talk about this new regime, that is a u.s. centric perspective on the world. there is no new regime in europe or china. this is u.s. specific fiscal stimulus and cyclical recovery. the logical consequence is higher interest rates and a stronger currency. manus: thank you very much, nothing new in any financial markets? eric stays with us, eric lonergan, our guest host this morning. the ecb chief economist joins us , and others. a very pivotal and critical watching for you.

simone: juneteenth will become a federal holiday in the united states. the day recognizes the emancipation of black americans from slavery. president biden will sign the bill on thursday at an event in the white house with remarks from the president and vice president harris. hong kong national security police have arrested five executives of the pro-democracy apple daily newspaper for suspected breaches of the national security law. the government escalates its case against activists and media tycoon, jimmy lai. the u.s. justice department is suing to stop a proposed acquisition. the government argues a merger between two of the world's largest insurance brokers could eliminate competition.

it is the first lawsuit under the biden administration to stop a merger. shares of both companies tumbled on the news. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. annmarie: thank you so much, simone fox. presidents biden and putin in a face-to-face summit. we are live with a recap in geneva, moments away. this is bloomberg. ♪

pres. biden: i made it clear i

will continue to raise issues of fundamental human rights, because that is what we are, that is who we are. >> a return of the ambassadors to their workplaces, return of americans back to moscow, and ours back to washington. we agreed they would return. pres. biden: there is a genuine prospect to significant improve relationships between our countries without us giving up a solitary thing based on principle and values. manus: president biden and putin speaking after their face-to-face meeting, both leaders claiming victory in the summit. biden said he raised the human rights violations, and warned about cyberattacks. the meeting was seen as a success in the home country of moscow.

yousef gamal el-din was on the ground. how would you describe the outcomes? who got the upper hand, or is it different audiences? different perceptions? yousef: geneva is coming back to life this early morning our after the city held its breath for the last couple of days as the meetings took place. in many ways this was about trying to make progress. the bar was low going into discussions. you look at the footage of the men meeting, a couple things to highlight. you could argue this was a surprise and a time of the coronavirus when they shook hands. you could see biden leaning toward boudin, -- board putin, and putin relaxing in his seat. outcomes, you mentioned moves on the ambassadorial side which is

seen as a step forward. there is no clear timeline. there are new red lines around cyberspace, a point biden made several times, but no reset. the genuine prospect of progress , and the markets are taking that in stride at the moment. annmarie: thank you so much for that recap, yousef gamal el-din, in geneva. just ahead, china's measures to contain risks in the financial system, including moves on commodities, currencies and stock indices. we will look at what this means, next. this is bloomberg. ♪

annmarie: good morning, this is "bloomberg daybreak: europe." china is resorting to forceful measures to contain risk in the financial system. in recent weeks ordered state firms to curb the overseas commodity exposure, force domestic banks to hold more foreign currencies, and put a cap on coal prices. since january we have seen beijing come out and say they are worried about asset bubbles. is that why they are intervening in financial markets? >> yes, exactly. we have gotten warnings from officials since january saying, really blaming the amount of liquidity in the financial system globally, and the fact that most of it made its way into the mainland. you see asset bubbles, we saw that in the stock market, and

the bond market cornering leverage by squeezing money markets. the new front is the commodities market. you saw the bloomberg commodity index rising to a 10 year high earlier this month. that is a problem for beijing. it has an impact on inflation, and we saw the latest data showing producer prices extremely high in china right now. also, there is not much beijing can do to control this. they are trying to guide commodity prices lower, but that has not worked. now it has resorted to forceful measures like selling metals from state reserves to get those prices lower. manus: what is the risk of this? a lovely story was written yesterday by your team, in terms

of how much copper china needs in an average year versus what they have in the backyard, so to speak, to intervene with, do they have the capacity to stop the spike in prices? sofia: that is an excellent question. a goldman sachs analyst last week put out a report saying it is a battle china cannot win. a lot of commodities are priced in dollars, and the impact has to do with what is happening globally with supply. supply and demand pressures. what china can do is guide domestic prices lower, and it is trying to do that rather unsuccessfully so far. it does have a limit. the problem here is overt and direct intervention. it kind of goes against what

president xi jinping is trying to do with chinese financial markets, to remove the risk of hazard and get rid of state influence. the assumption is the state will intervene in markets when things are too hot or problematic. the absence of intervention is typically taken as condoning or allowing for a rally or speculative behavior in markets. that is what is happening to commodities. if the state does not intervene and is not forceful, speculation will only increase and how the hazard has fed its way into china. manus: thank you so much, that is our chief china markets correspondent. what is the risk that the chinese go for over tightening? i have been told do not fight

the fed or the pboc, why would i fight china? eric: this is a fascinating juncture because i go back to this global narrative that has been hijacked by a regime shift in america. rater emphasis on fiscal policy. people are ignoring the fact that europe and china have not changed. europe and china have been disinflationary forces, and china still is. people say they are not a disinflationary force -- yes, it is. it is a capital-intensive and investment led economy. they managed it extraordinarily effectively over the last 15-20 years, they have avoided recessions. as soon as it heats up, they slow it down and target specific sectors. they have started tightening. i would be preoccupied from an investor standpoint in those sectors were there have been shortages like commodities.

the chinese are going after the sectors now, trying to slow things down. annmarie: thank you so much for joining us. eric lonergan, co-portfolio manager, m&g. more coming up, next. in business, it's never just another day. it's the big sale, or the big presentation. the day where everything goes right. or the one where nothing does. with comcast business you get the network that can deliver gig speeds to the most businesses and advanced cybersecurity to protect every device on it— all backed by a dedicated team, 24/7. every day in business is a big day. we'll keep you ready for what's next. comcast business powering possibilities. (announcer) if you've struggled to lose weight, you might think you were born with a slow metabolism, but what you may have is insulin resistance. fat becomes trapped inside your body and it becomes very difficult to lose weight. now there's release from golo. it naturally helps reverse insulin resistance,

stops sugar cravings, and releases stubborn fat, all while controlling stress and emotional eating. at last, a diet pill that actually works. go to golo.com to get yours. that's g-o-l-o.com. annmarie: good morning from

bloomberg's european headquarters. i'm annmarie hordern with manus cranny, live from dubai. the talk on tapering begins as of the fed moves up its forecast for a rate hike, predicting two increases by the end of 2023. president biden touts the prospect of better relations with russia.

significant tensions remain from cyberattacks to human rights. china's intervention in the markets except steam, beijing asked to maintain financial stability, targeting commodities, currencies, and stock indices. 90 minutes from the start of european equity trading. what a meeting it was from jay powell, quite a different tone. inflation not so transitory, and finally talking about the dots being moved up. manus: you have to take those with a grain of salt. annmarie: you are right. manus: i think the headline, two hikes penciled in for 2023. for me, it is about we are live every meeting. we are live every meeting, that is what they are telling us. that has a big implication in terms of tapering, and what is

the consequence, the belly of the curve, the spike in 5's, but well behaved 30's. eric lonergan says maybe you get more action out of the 5's. we are live every meeting, and you are right. annmarie: jackson hole. manus: a whole new meaning. annmarie: i think everyone was expecting this language to be introduced in august at jackson hole. now it has been brought forward. what do you say at jackson hole? manus: you need to put the request in. i think jonathan would be upset if i turn up with my louis vuitton at jackson hole. has the dollar run into a brick wall? the bonds have repriced.

i was told to stop getting so excited, a 50 point by 2023 -- calm down, nobody has been kidnapped. annmarie: we should look at what john authers had to say. he is calling it a treacherous retreat. market conditions make this a good a time as any to signal the decent form -- the dissent from monetary support. the treacherous retreat. he says this is the time to do it. manus: i do not call a 13 point basis hike -- that was a little quirky. you have equity markets drawing down. discombobulated but not dislocated. the euro-dollar, huge brick wall. this has repriced the dollar to the upside, the euro drops the most since 2019.

goldman sachs and deutsche bank with -- abandon a bullish view. keep an eye on yields. the five-year paper is where the big spike was. we were talking about -- let's get into commodity prices. we have had a surge during the pandemic led by an upsurge. catalytic converters have increased as they contain the precious metals. in chile, copper is a key target for gangs. in canada, police are investigating a dramatic increase of timber. it is not commodity speculating traders, but crime which is driving it. let's get away food and agricultural reporter, and one

of the authors of today's big take. what is happening is around crime and not speculators? >> good morning. as we know, commodities, it has been there for centuries. what is happening now, we are hearing about this increase all over the world. canada, nigeria, all sorts of businesses, people being targeted. car owners. it is hard to put it all together, but this is based on an interview with experts in law enforcement agencies who confirm that indeed we have an increase of activity. annmarie: why the increase in

this boom of activity during the pandemic? >> it is a combination of factors, but soaring prices of everything is providing an incentive. then we have the backdrop of the pandemic, which has had a tremendous impact on supply chains. borders are getting opened and closed and reopened. police resources are being diverted to other things. at the same time, looking at the level of infections, government officials that would normally visit some site -- it is suddenly not the same as it was. at the same time we have this economic hit when it comes to food and developing countries, there is a level of desperation. food insecurity increases, and

that provides fertile ground for criminals to thrive. manus: how come people are having to pay more for protection? what action are they taking? >> all sorts of companies can be a target, from small business owners to big global companies. for small businesses, they are resorting to simple measures, increasing security guards, but it gets complicated the bigger the company is. if you have a global company that uses sources from all sorts of vocations -- all sorts of locations, that gets complicated. the starting point is to identify the risk. if you do have some risk in your

supply chains, you need to be aware to rectify them. it varies across the board, but companies need to be flexible and aware of it in the first place. annmarie: thank you so much for that round up, bloomberg's food and agricultural reporter. check out her story on your bloomberg terminal. let's get a recap of your first word news. simone: juneteenth will become a federal holiday in the united states, the day recognizes the emancipation of black americans from slavery. president biden will sign the bill at an event from the white house. hong kong national security police have arrested five executives of the pro-democracy

apple daily newspaper for suspected breaches of the national security law. the government escalates its case against activists and media tycoon, jimmy lai, who is serving a 20 month sentence for his role in a 2019 protest. commerzbank has promoted the cfo and extended her contract and a sign that the lender is trying to get more power to an executive passed over for the ceo role. the upgraded job of deputy ceo comes after a prolonged period of executive change that saw the former ceo and the chairman of the board leave the company last summer. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you very much. up next, biden and putin

paper over the differences in their first face-to-face summit. we are live from geneva, in a moment. this is bloomberg. ♪

pres. biden: i made it clear to president putin that i will continue to raise issues of fundamental human rights because that is what we are, that is who we are. >> with regards to the return of the bath others to their workplaces, the return of american ambassadors to moscow, and our ambassador to washington, we agreed they would return. pres. biden: there is a genuine prospect to significantly

improve relations between our countries without us giving up a single thing based on principle and our values. annmarie: president biden and putin speaking after their face-to-face meeting. biden said he raised human rights violations and warned on cyberattacks. for moscow, the fact that he got a meeting was a success. we are joined now by amos j. hochstein, executive vp of lng marketing, tellurian. he worked very closely with vice president joe biden, perfect voice, live from our brussels studio. i want to talk about the redlines joe biden set regarding cybersecurity. if there was going to be another hack like solarwinds, deal expect the united states to visibly counterattack that? amos: first, good to be here in

studio after all this time. i think what president biden showed yesterday was that you can have engagement with russia. you can recognize they are a real power, a maligned power, and you can engage with them without giving up your principal and your value and york security concerns. on cyber, president biden could not have been more clear that he raised these issues directly, and there will be a response moving forward. a line has been drawn here by president biden confronting president putin, saying, i know you did it, and you cannot do it again. and if you will come there will be consequences. i do not think they discussed what the consequences will be, but it is clear the united states will respond if there is another attack like that.

the most important thing is to prevent that attack from happening by making it clear there will be consequences. manus: amos, good to have you here. i think you are one of the first guests to have in the studio, which takes me nice to benchmarking progress. you know this vice president, you know him as president. do you get a sense that having the meeting, 2.5 hours left, is it constructive, do you think biden will interpret this as a jumping off point? amos: yes, i think when president biden was vice president, and since then, has been clear ride about the threat russia poses to a unified and democratic europe. when president biden talks about corruption, the fight against

corruption is part of the national security strategy, in the european context he is talking about russia and the fact they have been a maligned actor in europe trying to undermine democracies in europe. he knows that russia has been trying to be more aggressive toward the united states when it comes to cyber. he knows russia has done actions in venezuela. it has not been a productive or effective power in syria. there are areas where there is clear concern, and president biden for 10 years has been one of the clear voices on that. as president, you have to engage as previous presidents have with rusher, whether they are progressing or not or improving or not. he is a big believer and always has been that personal

relationships and in person meetings are far more effective both with your friends and allies as well as your adversaries. i am not surprised he wanted this meeting early on to set the stage, clear guidelines on where the united states stands on different issues, and raise these issues, and show that a meeting does not mean a victory for the other side because the meeting happened. this is not about who won the meeting. that is turning politics into sports. it is about what is good for the united states, and that is what he was trying to receive yesterday. annmarie: you said he wants to sit down with friends and adversaries. leading up to this meeting, he did sit down with friends, and there were quite a few wins. do you think the european leaders have gone far enough to lineup with the united states when it comes to tough talk on

china? amos: we are in the early stages of that. the united states has made it clear china is a great adversary it comes to the future and the rest of the 21st century. the united states cannot fight the concerns with china alone. it needs to do it together with europe. we are not there yet as a unified front and a cooperative front between the united states and europe when it comes to china on all fronts, whether cyber, supply chains and so on. i think we made a lot of progress, and the idea of the united states going to europe and having the g7 summit, meeting at nato and talking about china in that context as the first trip as president, that goes a long way. i am in brussels meeting with officials from the commission, and clearly the messages there -- the message is there.

on areas of climate, china controls significant percentages of solar manufacturing, components. if we allow that to continue, the united states and europe will face a new opec when it comes to the energy system of the future, and it will not be several countries in the middle east. it will be china and a few others. there is a great risk here. we just saw coming off of four years of the trump administration with little cooperation with the u.s. and europe, and we are in the early stages of meeting i to i on china. -- meeting eye to eye on china. manus: the germans, it will take a little time before they come on side with your home country in america.

elections tomorrow, what is the risk to a nuclear deal? everybody says it will go ahead, but will it be delayed and will there be more wrangling over it? amos: the election will be the beginning, not the end. and likely the transition in iran to a new leadership. they support continuing the nuclear deal with a stronger term and other vague language. it means we are likely to end up, both parties would like to return to the jcpoa, the nuclear agreement. iran is not in a rush, and it has its own interest it would like to pursue. the rise in oil prices since

president biden was elected, the price has almost doubled, that means iran's exports are rising, and the revenue they are getting is higher. that eases some domestic pressure of the sanctions. that pressure is still there, but not as acute as it was. there will be tough negotiations . neither side feels under the gun to get this done right away. both sides have domestic pressures, and they have to ensure what they come back with is something they can sell. i think the momentum is there to return to the agreement, as the most effective way to prevent iran from achieving nuclear weapons. it may not happen as everybody has wanted. manus: great to have you with us

on annmarie's last day. amos j. hochstein, executive vp of lng marketing, tellurian. coming up, central bank voices are all here. there is one destination -- bloomberg. ♪

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♪ manus: [laughter] did you like that? you are very pedantic. i personally think the red jacket -- not a lot of people talk about that -- but how you have grown in the past 7.5 years. it has been phenomenal, and you

really are a strong anchor to work with. annmarie: oh my god. manus: there you go. annmarie: manus. manus: this is last year's bonus. annmarie: these are beautiful. it has been a fantastic ride. to you, mentoring me along the way. an absolutely amazing mentor. the team, this is why we can do what we do, they are in our ears, interfaces, cutting us off when something is wrong. and the audience, thank you for waking up with manus and myself. i am going to miss this. manus: the scrums at opec will not be the same. bring on capitol hill and the white house scrums.

your country men and women should be fearful because you are coming for them in the white house. i will miss you. annmarie: thank you, manus. this is bloomberg. ♪

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>> good morning, welcome to "bloomberg markets: european open." our markets live managing editor joins me to go over all of the market action. less than an hour away from the open. the tapering begins as the fed moves up its forecast for a rate hike. two increases by the end of 2023.