manus: a very good morning from our middle east headquarters in dubai. i am manus cranny alongside dani burger at london hq. fed rate hike surge. powell voiced vigilance, saying he will not let inflation take root. and vice chair clarity resigns

two weeks early. plus, the usm or desha thou to continue talking -- plus the u.s. and russia vow to continue talking. we have moved from existential angst to palpable ease. the market is teetering literally on the edge of reality. he was channeling churchill. dani: he really is. it is this precipice of change that he is capturing in this market, saying this is not the end, not even the beginning of the end, but perhaps the end of the beginning. as you say, channeling churchill. we see some slows in the bond market. manus: we brought this up last week. we wondered whether you had a shot -- shock and you would say on the equity side of the market, there is something strange going on. dani: hey, i always defer to the experts.

it is not me saying something strange is going on. it is charlie mick elliott. always really tied in. saying there is a lot of leverage in the system, we are headed for a minsky moment. the tech gains was due to a buildup of leverage in dealer positioning. manus: you take your minsky moment, your equity market, and i will see you and raise you on a bond also. have a look at this, this is a very aggressive movement in terms of -- there you go. there is your bond market. the magic of tv, the bond market appear to. -- appeared. look at the scale of the outflows, the biggest since march 2020. you are looking at 10 year notes, the worst week in 42 years with the loss of over 40

-- of over 4%, the last time we saw that was 1980 and that was a vulgar shock. even i cannot remember where i was in 1980. dani: [laughs] i don't think you were in london trading yet. those are my favorite moments. we have to give a shout out to our queen of charts valerie. let me get you into what the markets are doing this morning. we are seeing a more or less flat equity session when it comes to u.s. futures. there is a little bit of underperformance intact, we saw it rebound late in the day. you can see that in the treasury market, the selloff is being led yet again by the front end of the curve. looking at the two year yield, the highest since february 2020, up 1.5 basis points. i want to point out aluminum, it is nearing $3000.

because aluminum is surging due to producers not having enough power to put out or output, but in a bit of ironing, the lme not lose -- listing prices because they have also lost power. manus: i like the irony. you know where we will go with this. you say aluminum, i say alu 0minium. fed chair jay powell says they will stop inflation from becoming entrenched. meanwhile, vice chair richard clarida is set to resign to weeks before his term ands following new revelations that -- about his stock trading activities. let's bring in enda curran. that message to the market, a bit late, isn't it? enda: a little, but it is a

doubling down on the new hawkins message -- hawkish message coming from the fed. like you say, he made the point they will make sure inflation does not become entrenched. he also made some broad observations on how the economy will emerge from the pandemic a little differently. you have to say, it doesn't lend further weight to the idea that the fed are on track to rate hike, presumably in this quarter. and the balance sheet perhaps shrinking. we know the market has made a big shift, yesterday goldman with calls for four rate hikes this year. i think the expectations are that the fed are heading for liftoff and chairman pal is backing this up -- chairman pal backing this up. dani: we learned clarinet will

depart about two weeks early. how much of this is tied to concerns about ethics and trading in passive funds? enda: it is part of the makes. there is no doubt that several fed governors high up in the corporate governance scandal. last year, the assessment of private investments as the crisis took off. clarinet did not say his leaving was linked to that, but he will be replaced by brainerd. the fed has introduced vigorous new rules around personal trading fed governors can do. the expectation is these kind of scandals will be brought to a halt. it has been a bad run for the fed when it comes to questions of personal property and handling of investments and a time of crisis. dani: thank you very much.

markets are relatively steady today, but the question everybody wants to know, is this the calm before the storm? let's get to set -- to juliette saly. the nikkei following this morning. juliette: it had been on a public holiday yesterday, so it did not trade for the three-day weekend. a little bit of weakness coming through in the key index. also japan will expand covid measures to the end of february. fairly directionless in asia. seeing a bit in aussie bonds after retail sales sebastian out of the park when the country came out of lockdown, and let's have a look at the impact to some of the hong kong assets. particularly cathay pacific it, trading a little lower today, down by 10% in the past 12 months. we have heard that hong kong will ban transit travelers from high risk travelers, adding to

further was for the airlines. we are expecting cathay pacific's first quarter cash burn could increase because of border restrictions. manus: thank you very much. the top u.s. and russian diplomats have agreed to keep talking even as they acknowledge a first round of security discussions did little to resolve differences. eight hours of conversation, but maybe the good news is they are still talking. maria tadeo is on this story. the talks did not produce a breakthrough and i don't think anybody was expecting that, but the message about invasion, that was perhaps some of the most important aspects of it. maria: yes. you are right. there was no breakthrough but no one was expecting one. everyone is still at the table and that is considered the only breakthrough that came out from that eating yesterday.

let's make no mistake, there is no clear path to a diplomatic resolution to the growing tensions we are seeing in ukraine, but nonetheless, talks continue. we did hear from russian officials saying they do not want to invade, that is not their intention, but they still want a get -- i guarantee ukraine will not join nato in the future. for the united states and the alliance that is a redline. now we are going to the nato summit happening tomorrow. the irony is we are talking about european security, ukraine security, and that was off the table yesterday. the question is whether or not this will be good enough for the ukrainian government and also something the european union can live with. dani: thank you for keeping us updated. let's get to the first word news.

juliette saly is back with us in singapore. juliette: new york city's covid-19 infections may have reached a peak about a month after the first case of the omicron variant was identified. a seven-day average of emergency department visits have dipped significantly since the end of december. the european parliament president has died in hospital in italy. he was admitted last month due to a serious complication with his immune system. he was first elected to the european parliament in 2000 nine, becoming its president in 2019. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus? manus: juliette saly in singapore. thank you very much. coming up, post-pandemic growth for the u.s. may look different according to fed chair jerome powell. we break down the comments with

our guest, next. ts with our guest, next.

>> i think they should go faster than the market. obviously it depends on how the economy evolves. my best guess is they needed to do at least four or five rate hikes this year. it would not surprise me if we get into and every meeting kind of cycle at some point. manus: william dudley there sing the federal reserve needs to be more hawkish, stem inflation. jerome powell said yesterday the central bank will prevent higher inflation from becoming entrenched. but bill dudley says they are not hawkish enough. what is pricing in the bond

markets? that is the question. we turn to our guest. rates is your game, credit is your interest. we are teetering on the edge and this is what he has to say, you're on the edge and he goes on to quote winston churchill, teetering on the edge, this is not the end, it is not even the beginning of the end, but perhaps the end of the beginning. how would you describe seven days of trading in the evolution of the narrative? is it the end of a beginning of a much bigger bond vigilante move? good morning. >> good morning. what i want to point out is the

pace of change of thinking. if you remember, it was only the end of last year, almost yesterday, the new year, the idea of transitory was strong, we are going from needing to look at this as an inflation threat. and sort of pace really i think is what is so stunning in my mind. we are going from the tapering will end early this year and maybe we have a rate hike mid-to-late this year, and now we are already going to the rate hike being as early as march. the pace is what surprises me. and the tone has changed so much, again, from transitory to oh my god we are behind the curve. so yeah, it is really something to look out for.

one thing really quickly also, the market is still struggling with the idea that the central bank is not cuddling them as much as we have enjoyed over so many years. the financial market conditions need to tighten, that is what the central bank is setting out to be. in the end, it comes down to financial market conditions tightening and what does that mean for the equity market and bond market and generally for risky assets. this is something investors are struggling with. dani: so much to unpack there and i think that is an excellent point, something charlie mcelliot made, the fed is much lower at this moment. when you are looking at risk markets and high-yield bonds, how do you way up -- weigh up

these factors, fundamentals might be strong but we have the price discovery hurting risk assets? tatjiana: exactly, exactly. as you pointed out, we are not anywhere close to a recession. companies are will set up for liquidity. this is of secondary importance. valuation is more critical. when you look at high-yield, generally in credit we have two risks, the interest rate risks, which is something the higher-quality names need to worry about, and then you have credit risk, which is what high-yield is worried about. in high-yield, we come to look at the equity markets. it was discussed earlier how high equity markets are and valuations are.

to the extent that financial conditions are favorable, liquidity potentially being withdrawn, it could lead to a selloff in risky assets that would affect the high-yield market. and spreads are not at all tight , but they were tight during. do you get compensated for it? yes. but when we look at the broader picture and how it is likely to change, i think it is worth being careful. manus: obviously credit is the other key focus for you. we are wondering, we were looking at a couple of charts. one is where are two-year rates and five-year rates two years forward? we are back to where we were in 2016.

with that beginning of movement in the forward rates, has that yet to come to bear in credit markets? tatjiana: i think this gets us back to the point from earlier that investors are not really set up yet to expect that there is a potential for financial market conditions to tighten. dani, as you put it, it is very strong. we got so used to it. it is very difficult for markets to open themselves up to a new trading environment. this is actually what i am expecting and we are testing that out the next few months. dani: thank you so much. you're going to stick around with us.

coming up, opening the floodgates. markets racing for a barrage of early supply in 2022. more on that next. this is bloomberg. ♪

manus: it is your daily daybreak europe with manus cranny into by and dani burger in london. the amount of government bonds that will hit the market this year is at a swell. the central banks plan to start trimming balance, flooding the market with an extra $230 billion worth of paper. let's get more with our credit market reporter. thank you for joining us this morning. why are bond markets particularly at risk from debt supply this year? >> we are not going to get a

massive issuance this year. paradoxically, the amount of government bonds is going to drop. what will change is the biggest buyers will buy less of that. they are trying to deal with inflation. the biggest buyers, obviously the central banks. we will have the bulk of new supply coming, more than $200 billion of new debt that the private market will have to absorb by themselves. bond prices are dropping, yield drives because of that dynamic. dani: thank you very much, excellent reporting. our credit market reporter. still with us is our guest. sovereign debt issuance is one thing, but since the start of the year, we've seen corporate credit issuance has been strong as well. the supply coming into the market, how do you judge these dynamics? tatjiana: the supply and demand

is always something -- remember when the treasury market grew very strongly and there was so much concern. it was difficult to judge what it really means. when it comes to corporate credit supply, yes, it is out of the gate. in europe, less so. it was quiet last week. we do expect decent supply this year compared to the last two years. we expect declining supply. but again, similar to what was earlier said, the ecb is a big buyer of corporate credit. the reduction -- that's because

any corporate credit -- that continues. in terms of central bank demand for corporate credit, we don't see that big an impact earlier in the year. it would only be in the second half to the extent that the atp may stop it. manus: yuri and carry on inflation was 5% in december. we were looking at 8%. there was the reality of inflation in europe. bill dudley accuses the fed of living and fantasyland and they are forecasting to waken up. what is the risk that the ecb is behind the curve in their assessment of inflation and therefore a jolt is a risk for 2022 in the bund market? tatjiana: i can help myself.

the ecb and their inflation story, i always see a big disney castle. so strongly in my mind. and why is that? it seems to me that they are putting their head in the sand and missing the reality. you just call up the latest inflation data and they say this is temporary. look at our forecast. anybody who has tried to forecast something, we know how biased you can be. it is about presumption. it seems to me the assumptions, they are anchored to a certain past that it might not be reflective of what we are seeing , if there is a change in the economy. i am worried about the ecb's credibility and what it means

when markets wake up to that. i think they really cornered themselves and it is difficult to get out of the corner. also, monetary policy. they would want to have more room to maneuver when there is a recession and hopefully quickly lower rates again. but if they are always stuck at negative rates, it is -- they are tying themselves and they don't have enough tools to react going forward. i think they put themselves in a difficult situation. it is their own doing. manus: ok, i tell you what, you want to get a call to join the ecb board. [laughter] they've got their head in the sand and living in disney. it is a little like this show every day, a whole new world.

coming up on the show, the battering of tech stocks not over yet. they rallied to .7% yesterday but is there more to come? the existential threat

there is room everybody or is there a specific market you are going after right now? >> there is a trend for electric vehicles. marco how much money do you think you are going to have to pump into everything? you mentioned you are going to

start a factory in the u.s. what kind of money are you looking to deploy? >> about $6 billion so far. >> good morning from bloomberg's european headquarters. i am dani burger alongside manus cranny, who is live in dubai. here is what you need to know. fed hikes surge as they predict more than four. the treasury curve flattens before tomorrow's cpi. powell vows he won't let inflation take root.

plus, the u.s. and russia vowed to keep talking to reduce tensions while progress is made in geneva. is it a kaminski moment for markets? that's what charlie elliott says. he says there is too much leverage in the system and as the fed pulls away, it is going to be price discovery to private investors, no longer the fed. manus: that's what we are testing pretty much every day, existential angst in the equity markets. tatyana talks very much about after,, the ability to tighten f com. dani: we are showing u.s. financial conditions, but her words on ecb and the european economy say we are heading to seeing credibility removed from the ecb. the market has to wake up to

that and what happens when the market does? manus: i think she said it is disney world, head in the sand, and they do have a credibility factor. i talked about existential threats or existential angst and moments of great relief. that's what you saw on the nasdaq. it is giving that back. s&p 500 slipped by .8%. the dollar did not track step-by-step. paying in the bond market -- pain in the bond market is not delivered all in one full swoop. other minium is closed. they have their own exit stencil threat from a power outage. people are talking about much higher levels with the aluminum futures and not the cash. talking about $3000 on the lme cash. dani: let's turn back to tech

stocks because the battering might not be over yet. that's what some options on the most popular etf's are showing. interest is near the highest on record as the rate hike conviction comes head-to-head with skyhigh valuations. joining us now is howie li. thanks for joining us. good morning. what you are hearing from clients at lgm, have you noticed a sentiment shipped or regime change when it comes to how people are approaching tech? howie: a lot of investors are still asking, where are the valuations? and looking at the short-term effects of the rate hikes. what we are sure of when it comes to tech is the volatility we are seeing --

speaking to our economist at lgin, a sharp rise in rates puts some pressure on tech in the near-term, but in the long term it has less effect compared to other sectors. traditional tech might be seeing some higher valuations, but there are other areas of digitization where valuations are not as rich. manus: good to have you on the show. one of the big suggestions's momentum will meet its maker this year. it is like the five heads of the apocalypse, that they will meet their maker. momentum will meet its maker this year. is this a year where we have to become a lot more nuanced about how you trade tech? which is the five big bulwarks of tech versus the rest of the market? howie: i think tech is a

traditional sector that has been around for a long time. we have always been big believers in looking at traditional tax but opportunities long-term, specifically digitization. let's go back to the point around valuations. valuations are looking pretty attractive in certain areas that we invest in. i will give you a few examples. in health care breakthroughs, that is valued at one of its lowest points in the last three years relative to its history. when it comes to digital payments, perhaps on the finance sector, we are seeing e payments from companies like after pay also trading below the median and at the lower range of valuations. looking at areas such as green energy, hydrogen, and battery

technologies, those are tech related investments focused on another industry or sector. those are at lower ranges in the midteens certainly. dani: you hint in some of your notes we might be seeing a commodity super cycle. francisco blanche at bank of america sees 120 on a barrel of oil. how do you position if we are positioning for that commodity super cycle? howie: great point. the macroenvironment has been positive for commodities. look at what happened in 2021. the abroad commodities indices outperformed the equities when you look at something like msci world. you have to remember heading into 2022, that is an inflation

hedge. it is a real asset with intrinsic value and it represents contribution to cpi. investors are looking at commodities as an investment. a good way to do that is to invest in the commodities futures index. there are things we can do when it comes to commodities investing. they are a good place to consider commodities in an asset allocation portfolio. manus: on the debate between growth and value, it's been a significant play last week. dani sent me this story. 38% of all new money in 2022 has gone into the banks. we are in this debate about the scale of a hiking cycle. do you see this as being a big

theme to play through, with that scale of money flowing in? 38% of all new cash has gone into financials. howie: the financial sector is always something investors look at in this kind of environment, conserving both rate hikes and inflation. there are other opportunities. i touched on the health care sector earlier. there has been some pressure in that industry because of the shortages, but at the end of the day, while financial is an area to look at, you can also look at health care, especially health care tech. that is an area we have been following and believe there are great opportunities. tech companies are trying to do more with less. another area, while we are on the topic of pressure on the

supply side, we have areas such as e-commerce logistics which are presenting some attractive proposition as well, because here are companies trying to answer the demand that consumers are essentially requesting for delivery of goods to them and solving supply-side issues by going to smart warehousing and digitization of fulfillment when it comes to delivery of goods. dani: can i take what you have said and flip it on its head? you are describing a complicated trading environment. you need to be more discerning with what you are picking, maybe not buying tech writ large. people are often talking their own book and saying, this is a time you need to be active. you can't be holding passive funds because of the

complexities you are describing. what do you say to that? howie: it is a great point, being able to really highlight where you want to invest. we have been talking to our investors about investing. trying to pick single stocks in this kind of environment is going to be tricky and more challenging. we believe in growth diversification when it comes to thematic investing. having a strong view of what to invest in this environment is helpful, but there are broader approaches where if you look at something like robotics automation, the portfolio that we run, we take a multi sector approach and find the leaders in digitization in order to get there. there are a variety of approaches. when it comes to active versus passive, it requires active

input into that process to select the right areas invest in in the near-term. manus: thanks for joining us this morning. the big themes from howie lie at lgim. let's get the first word news. >> staff in boris johnson's office were reportedly invited to a party in the downing street garden in may in breach of lockdown rules. an email invitation was apparently sent to more than 100 people by a member of the prime minister's team. johnson's spokesperson declined to comment. north korea fired what appeared to be a ballistic missile for the second time in less than a week. south korea's military say the north launched an unidentified projectile into the waters of the korean peninsula that appears to be a ballistic missile.

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. dani: thanks so much, juliette saly in singapore. coming up, the u.s. and russia agreed to keep talking despite no breakthrough in discussions in geneva. this is bloomberg. ♪ >> you think electric vehicles will reach 10% of the market this year? >> that's difficult to say. based on demand we are seeing, it feels like the demand is there. the question will be, how quickly can we execute to build

capacity to meet demand? that's what we are busy doing. within the next 24 months, we expect to get to 600,000 battery electric units globally, before our bigger investments we are making in kentucky and tennessee for batteries and assembly, because they don't come online until about 2025. >> 1.5 million tests is quite a feat. estimates say that will get you through a week or so. >> be smart with resources. why not use the tests strategically when you need them? how are we using them? a child is diagnosed with covid in a classroom, we give that classroom take home test kits so we can determine if we should close the school or just the classroom or what we should do

with that particular area. what has happened in the past, you have one diagnosis, you want to close the entire school. that makes no sense. instead of using our resources in a strategic fashion, signs have shown just because one child has covid in a classroom, it doesn't mean the entire classroom is infected. we want to be smarter and we want to pivot and most importantly, defeat covid. manus: it is daybreak: europe. top u.s. and russian diplomats have agreed to keep talking even as they acknowledge a first round of security discussions did little to resolve their differences. joining us now is maria. no breakthrough. they are still talking, which is if you look at the currency a

huge rally on the ruble. the markets have taken this as a good sign. did the russians show any stepping back from the invading ukraine narrative? maria: they didn't. to some extent, they repeated the line that this is not their intention, they don't want to engage in a military conflict. pointing at ukraine becoming very close to nato does pose a security threat to russia and therefore russia would have a right to take action on that front. there was a risk potentially to the united states but also that russia could walk away and decide these talks are not solving issues and we are just going to leave. the point is they are still at the negotiating table and talks are ongoing. tomorrow we have that important nato summit and russia will be playing a part. the other thing that was a

highlight from that bilateral talk yesterday between u.s. and russian officials is that russia is reiterating they want a guarantee set in stone that ukraine will not join nato. that could become problematic because the ukrainian government wants to make it clear they are a sovereign nation and they want to move away from the russian influence. dani: at the same time, russia not bringing any more supply into germany. when you are describing bilateral talks, nato has a large say over these talks. what are we expecting from the alliance? maria: a lot of this happening over future aspirations a country like ukraine may have, but also others over russia that could be enticed to join the 30 member alliance. yesterday we heard from the head of nato, stoltenberg, who said,

i know it is possible to make deals with russia. we have done it. if they want to take the diplomatic way forward, we are willing to listen to their concerns, but they also need to listen to our concerns. he stated the risk for military intervention is still very high. the irony of all of this is that we are talking about potentially an armed military conflict in europe and the european union is nowhere to be seen. dani: thank you, bloomberg's maria tadeo staying on top of the geopolitical tensions. it is not totally unrelated considering europe and the lack of supply has caused high-energy prices. philip lane said rate hikes this year were unlikely. we were just talking to tatyana, who sees otherwise. manus: she says this is where

the ecb is very introspective. think about what william dudley accused the fed of, the former head of the new york fed. they are in fantasyland. they have to become more aggressive. tatyana made the point that the ecb is in fantasyland, deluded in terms of estimates they have made. here is lane talking about euro area inflation, coming back towards to present in 2023. we have had inflation numbers hitting records of 5% in december. that is about what the analysts look for at 4.8%. dani: that number very stunning. it was very high in germany, over 5%. philip lane seems to be beating this drum. just three days ago he gave another interview where he said the same thing. he is not giving up on what he sees as the transitory nature of inflation.

manus: the risk is this in the euro, the bond market, that they are jolted by a wake-up call that they need to throw in room 101. core inflation in the euro zone at 2.6% in december. coming up, sandwich sale. omicron rages. we take a look at the prep index on how the economy is faring. this is bloomberg. ♪

>> omicron has presented an unprecedented challenge. >> the virus is not leaving the

planet. >> the peak them out with omicron is probably having. >> there is a lot of pent-up demand for the vaccine. >> it is mostly unvaccinated people hospitalized. >> this is a drug that has shown it works against the very end. we are going to have 3 million courses in the u.s. by the end of january. >> the world should be in a better position with tests. >> we might have an annual booster. dani: the view from big pharma, ceos weighing in on the omicron search. let's stick with that theme. will economies finally returned to normal in 2022? the u.k. government think self. they plan to be one of the first major economies to transition from a pandemic to end mx.

with no locked down early data gives us a look at what the future could be. how u.k. commentator lizzie joins us. you and the team have been looking at data serious what have we learned about what they economy looks like? lizzie: first, tighter restrictions and higher consumer caution are weighing on spending. although u.k. retail sales grew in december, you can see footfall at brick and mortar stores declined even though there was not a lockdown. you can also see there was a hit to hospitality, retail, and leisure because people were staying at home. our very own pret index shows that coffee sales are recovering faster in the suburbs of london than in london. lots of workers started the year on sick leave and the center for

economics says that wills -- that will cost the u.k. gdp 8.8 percent in january and february. that is why ministers are calling for the isolation period to be cut from seven days to five to reduce economic disruption, turning from pandemic to endemic. manus: pret is the benchmark. thank you very much. expenses in the dif see, a good value everywhere else. tom metcalf joins us. no job, no job from citi. are they going to go the same as jp morgan and be as robust with their message? tom: it is not as widespread. this is focused on the u.s., where you are allowed to have vaccine mandates. jamie dimon said in new york

there is a vaccine mandate. if you want to come into the office, you have to be vaccinated. they say 97% of employees have gotten the job. across the wider space, dimon is saying there is no way they can apply the policy universally in the u.s. and across the world, so every office will have a different approach. when you come to europe and asia where vaccine mandates are harder to implement, you have a different approach. the message from j.p. morgan is this is complicated and there is no way to make a universal policy. dani: it's not just big banks looking at changing their policy. tech as well. what have we heard from meta? tom: it has pushed back again it's returned to office to march 28. there are a ton of caveats. they say you can extend if you want to spend a few more months at home. they don't have a playbook for

this and each company is feeling it out. dani: tom, thank you. meta of course facebook's new name. it is more calm this morning, but we continue to see a bit of a curve flattening, a conundrum the fed has even talked about. manus: the debate is this. i don't know whether the word is aggressive, but if you go for a demonstrative runoff in the balance sheet earlier than expected, does that deliver a flattening of the curve rather than a steepening? the breaking headlines are about philip lane in terms of his view on where inflation is. back to 2% by 2023-2024. dani: he rightly said that is a dramatic change because inflation came in at 5% for the euro area, the highest figure

ever. that's going to be a pretty dramatic move from 5% to 2%. manus: absolutely. we are keeping an eye on the two year yields, .9% in the u.s. mark will take you through bloomberg markets: europe. ♪ every day in business brings something new.

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anna: good morning. welcome to "bloomberg markets europe." the cash trade is just less than an hour away. here are your top headlines. fed hike that's search as traders bet on four this year. the treasury curve flattens before cpi tomorrow. powell vows vigilance saying he will not let inflation take