manus: good morning from our middle east headquarters. dani burger at london hq. they break europe with stories that set the agenda. the chorus for fed hikes grows. text tanks. -- tech tanks. korea tightens the five-year jgb yields the highest level since japan launched negative rates.

commodity traders at goldman post the best year in a decade. jp morgan, citi, wells fargo kick off the wall street earnings. a chorus line of hike ability is growing. going from three to five rate hikes. there's a big line this morning from the dr. doom of old. in order to turn this market around, you need more inflationary attitude. you cannot just raise interest rates bit by bit. how do you shock a bond market? dani: advocating for the handbrake you turn, which many participants fear, but if we are pricing in five rate hikes, physical conditions are still so loose, at what point -- how much balance sheet reduction do you

need to actually tighten conditions? manus: what is the goldilocks scenario? what is the scenario that does not drive you into recession? that does not deliver the aggressive taper tantrum? dani: i also have to point out what happened to tech yesterday. part of the fears are driven by rate tightening. martin adams at bloomberg intelligence points to the picture we are looking at here. it is not all about rates. it is also earnings growth set to be less than what we are expecting for the entirety of the sector. if you are worried about dr. doom's handbrake u-turn, tech might not be the place to be. manus: good morning. dani: good morning. let's dive into this morning's markets. europe playing catch-up with the u.s. fall yesterday.

declines of almost 0.9%. europe was closed by the time we got that major selloff in the s&p 500 and tech stocks. the s&p 500 is gaining today up 0.1%. the dollar continuing to trend at a november low. euro-dollar higher by 0.2%. your 10 year yield higher by 1.7 basis points area still under 1.73%. manus: where will we exhaust ourselves? lael brainard says she is open to raising interest rates as early as march. to ensure that price pressures are brought under control. >> we are hearing from families around the country about inflation. working people around the country are concerned about how far their paychecks will go. but inflation is too high. inflation is a monetary phenomenon and we have tools. we have a powerful set of tools that are very effective. we will use them to bring

inflation back down, to bring inflation down. getting inflation back down to 2% while sustaining a recovery that includes everyone. this is our most important task. dani: and the chorus of hawkish fed speak is growing. let's bring in enda curran. we have multiple fed speakers coming in. we just heard from lael brainard. have they backed themselves into a corner where they have to deliver four rate hikes or they have to start by march? >> lael brainard came very close to putting her finger on march when she said they would be free for a lift off as soon as they finish purchases. that is due in march. when you listen to her testimony, she talked about the impact on working families, the impact on paychecks. ms. brainard by all accounts -- it is quite notable. we had other comments from other fed governors as well. making the point that rate hikes

are coming. there could be as many as five this year. all depending on how inflation turns out. the mystery of will they or won't they is gone. the question is the pace of rate hikes and the pace of quantitative tightening. that would be dictated by inflation. manus: just think about it. it was december 1 when they finally did. the complexion of the fed is changing. the vice chair is lael brainard. what do we know on the overhaul? >> by all accounts it is an opportunity for president biden to talk to people from the progressive side of politics. indications are lael brainard's nomination is going to go through. questioning from both sides of the aisle is agreeable.

there are no hints there are going to be disruptions. she came from the dovish side of things. as for the remainder, who gets appointed, the thinking is president biden will have to make sure there is a nod to the progressive side of the democratic party. it is a tough time for the fed given where inflation is headed. the push for policymakers in one direction only. that is quite a turn from where we were only at the end of last year. mark: -- manus: enda curran with the very latest on the fed. the bond selloff taking center stage in asia this morning, japanese five year yields hitting the highest level since the central bank introduced negative rates. quite an extreme move given the size and scope.

>> a different story to what you had seen in the u.s. with that relief rally in bonds. a big spike coming through in yields, particularly on the japan five-year. this reuters report suggests bank of japan is moving toward some kind of messaging toward a rate hike. we have been watching this big move in the yen particularly on the selloff in equities, particularly those tech players. really waiting into the overall nikkei, driving down by over 1%. the bank of korea coming through with its third rate hike since the pandemic. 1.2 5% really putting inflation at the forefront here, trying to rein that in verses concerns about the omicron variant. we heard from the bank of korea governors saying this is still accommodative and even if you see the fed move toward a faster pace in terms of tightening rates, they think emerging markets could be hit, but not

korea. they are saying they are in a better position here. it would be different given the economy's stability. dani: some more news to bring us from asia, hitachi, the japanese construction giant, is selling half of its construction units take for ¥182.5 billion. it's going to retain about 24.4% of its stake in this sale. manus: the proceeds of course, this is what the shareholders were wondering. the stock took a battering earlier in the day. they are going to use the proceeds for things to include shareholder return. this is trying to sweeten the pill in terms of the development. -- the divestment. we will keep an eye on that. hitachi to sell part of its business.

what else have we got? dani: from asia to the u.s., and the supreme court there has blocked biden's shot or test rule which would have impacted 80 million workers. let's bring in bruce einhorn. this is a rule that in some ways had cities restricted in working for them. what are the implications of it? walk us through the details. >> the supreme court has said this mandate cannot go forward. at least at the national level. it is possible states can implem we have yet to see that for most of the blue states. the red states are highly unlikely to do anything like that. the biden administration -- two

of the conservatives joined with the supreme court liberals to a pulled a separate -- uphold a separate mandate that required vaccinations for people working in nursing homes and hospitals, other facilities that receive medicare and medicaid payments from the federal government. that is a small victory. the biden administration suffered a major defeat with the ruling that osha cannot go ahead with this mandate to have workers get shots or get tests. manus: thank you very much. bruce einhorn with the latest on the supreme court ruling. juliette saly has the first word news in singapore. >> european natural gas prices a surge on signs russia and the u.s. remain far from reaching -- an agreement on their differences over the ukraine.

the unprecedented move will cost the company is much as a .4 billion euros. british lawmakers have been morning an agent of china has been involved in political interference at westminster. the house of commons speakers has christine lee has been working for the chinese communist party. the chinese embassy says it never seeks influences and any foreign parliament. companies are being subpoenaed to handle videos and other posts for the house committee investigating the u.s. capitol riot last year. the chair the committee says the companies have provided inadequate responses. the queen has stripped prince andrew of his military titles and royal patronage is as he prepares to face trial over sexual assault. a trial could go ahead. andrew has denied the

allegations. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. dani: juliette saly in singapore. coming up, we discussed the growing chorus of hawkish fed speakers with our guest. manus: plus u.s. banks begin their reporting season for q4. we bring you conversation on what to expect later. ♪

>> three hikes is still a good baseline. we will have to wait and see what inflation looks like in the second half of the year.

if it continues to be high, the case could be made for four, maybe five hikes. dani: chris waller speaking to us on the u.s. rate hike path. his comments come off the back of many hawkish speakers from the fed saying we could see three, possibly four rate hikes. joining us now is a senior investment manager. you do not necessarily agree with the speakers, your thought is we will get two rate hike this year. why will the fed not be able to live up to what is priced in the market, which at this point is four rate hikes for 2022? >> good morning. i guess what we are trying to say is we can see the path to two hikes much more clearly. it is closer to us. it is the march and june hikes. the reason we are less optimistic with the next two hikes is owing to the fact that

we are getting an unprecedented withdrawal of liquidity in markets. at a time when we are potentially not just peeking, but also have quite a bit of uncertainty out of china with regard to the real estate sector and the downward momentum. that combination of withdrawing easy policy, at the same time, on a global scale, it has not been attempted before. we are much more cautious here, much more worried about risky assets. we see it as difficult for the fed to deliver those hikes. manus: good morning. the great withdrawal across the world. that is not just the fed. the bank of korea this morning and speculation on the bank of japan.

you are calling for potential tightening. what are the biggest chess pieces i need to move in my portfolio to prepare me and protect me? >> it is very tricky. that is what we have been trying to do. a global bond investor cannot just go low weight cash in a couple days. it is a couple of strategies at this stage. there are places you can look in your portfolio. we think duration is a low information trade. we prefer to play the curve if you like. actually if you look at the parts the curve in the u.s. where you are getting paid to take some of that risk, it is probably the very front end of the curve. why?

because we have fully priced in four hikes for the fed. it is difficult for them to do any more than that. therefore that is a good spot. the dollar, more tricky this year, but should do well versus emerging markets. perhaps looking at strategies to try to be defensive on the credit side is also an area we have been exploring. across the board, the curve and credit as well. dani: you bring up the conundrums, dollar weakness, but the curve as well. if you are seeing a steeper curve, what is the catalyst for the long end that has perpetually been pinned down despite a fed that is starting to broadcast more of a hawkish message? ella: the fed's stance and shift have supported the flattening of the curve, tightening policy,

depending on where you think we are in the cycle. you typically would see this flattening of the curve. that is something we are positioning for last year. however, at this juncture, we are more some pathetic to the steepening of the curve. why? because we do have uncertainty. also, fed tightening and qt in a very uncertain macro backdrop probably means the long end of the curve might be much more volatile. we are not huge fans of that part of the curve at this juncture. but i have to say that is probably where we think more value lies to the front end of the curve. manus: i will give you martin

malone's fact of the day. 2022 we are going to get 70 central banks hiking almost 200 times. that is little bit of context. you mentioned you want to get a sense of -- offensive in credit. we had a guest who wants to be long of high-yield in china. where are you most concerned about credit? >> we would be sympathetic. we think the bad news, it is better reflected, we have quite aggressive pricing there. there could be idiosyncratic opportunities. elsewhere, you are probably getting less buffering. europe we would say.

maybe u.s. investment grade. bond buyers still have to have credit allocations in their portfolios. we are saying basically you have to be cautious here when you have this backdrop. you have a huge amount of central banks tightening at the same time. we just have not seen that before, certainly not in the financial services world. that speaks to quite a lot of volatility. manus: unintended consequences. we are going to dig deeper into the asia call in china in just a moment. ella hoxha at pictet our guest this morning. coming up, we discuss china.

this is bloomberg. ♪

manus: it is "daybreak europe p or cup -- it is "daybreak europe." the annual trade surplus pushed to new heights. good news for the economy. being dragged down by the property market slump and sporadic covid outbreaks. ella hoxha is a senior investment manager at pictet. we touched on this before.

you had some sympathy for a high-yield trade in china but you need to be discerning. i gave you the top line, we are going to get 70 central banks aggressively tightening this year. but the pboc and policy in china might well be in a different trajectory. to what extent is that an opportunity in allocation for you? >> to the extent we have seen the duration on owning local government bonds in china, it is a good strategy. it is something we have been doing. something we have been adding to. that is because, as you clearly point out, we have real estate deleveraging. and then at the same time we have a pboc the has been very cautious on monetary policy.

that is quite positive for duration. with the inflation numbers in china being softer, that is probably for investors, it is better to hold. there are now opportunities in real estate. it is a very tricky area. you have to do your homework very well. but that is one sector that is pricing some of this negative scenario of credit. dani: i am assuming those 70 central banks hiking does not include the ecb. they have been vocal about holding steady. what are the risk we get week -- the risks we get the shocker of all chakras from the ecb and how do you prepare your portfolio?

ella: the ecb is one of the central banks i have followed the closest. they do appear to be behind the curve, not in terms of the macro, but in terms of this trend of central banks turning very hawkish. we have been getting little notes of that. the one that dragged their attention over the weekend last week was talk about the longer-term inflationary energy conditions, very much ongoing in europe. it was interesting in the more dovish camp of the ecb. with doves moving more toward that, saying we might have more inflation in europe, certainly the risks have been that we get more hawkish ecb reaction.

dani: unfortunately we are just about out of time. we are going to have to have you back on. thanks so much for joining us. ella hoxha, senior investment manager at pictet.

dani: good morning from bloomberg's european orders. i'm dani burger alongside manus cranny live from dubai. this is "bloomberg daybreak: europe." the chorus for fed hikes grows. equities slide aztec tanks -- slide as tech tanks. goldman commodity traders post

their best year in a decade. jp morgan, citi, and wells fargo kickoff earnings. does the fed have the stamina to tackle inflation to the degree they need to? dr. doom himself who of course was very vocal during the 1970's, henry kaufman says no. he says to turn the market around to a more non-inflationary attitude, you have to shock markets. you cannot raise interest rates bit by bit. manus: but did we make it to the end of the week really intact? the dollar flopped and rolled over. yields almost exhausted themselves. they were out of puff by the time they got to the end of the leg. i like the way you put it, have the fed locked themselves in? four rate hikes, five rate hikes, that is not tightening, merely adjusting to

normalization. a more normalized world. you are going to have 70 banks due to hundred rate hikes this year according to martin malone. a paradigm shift in liquidity. dani: that's a lot of doom and gloom for a friday. i thought we were supposed to be happy the weekend is approaching. but you are right. 70 banks. ella from pictet says the front end of the curve is priced in. she is taking the position of curve steepeners at this point. manus: it could be the balance sheet run all caps out encounters that trade. run down the balance sheet and you perhaps caps off the run higher on the longer end of the curve. to the markets, this is what you've got. euro stoxx 50, down 0.5%. euro-dollar, again, maybe it was

a bit aggressive. the dollar flopped. what really gets me as we have pivoted so quickly. positioning's were so bullish before christmas, to where we are running out of steam. we need the next aggressive pep in the dollar step. they are just positioning -- you know, foreign buyers, if you hedge, you get over 1% returns in u.s. treasuries if you are european investor. dani: i think flopped is the perfect adjective to describe what the dollar did. let's pivot to goldman's commodities come back. the banks unit had its strongest performances and a decade, revenue passed $2.2 billion last year. let's get to bloomberg's simone foxman. the huge rebound in the commodity desk, how important is this to goldman? >> the commodities desk has been

such an integral part of goldman sachs since the 1980's when it acquired j aaron and co-. folks who have come through the commodities desk include gary cohn and the like. for a very long time, goldman's commodities unit was really in a slump. a couple years ago, 2018, 2019, there were discussions about potentially scaling back the business after a storied run in the early 2000s that has not borne fruit in the past decade. now we are seeing this $2.2 billion revenue figure. if you think about it, after a couple years ago, the worst of the slump, 2017, we are talking revenues that failed to garner $300 million. what a huge comeback as we have seen commodities rapidly trading over the past year or two. manus: what is it going to mean

for the rest of the street? does anyone else have this size of commodity exposure? >> i think the impact is really what do investors think about commodities generally? because there has been a lot of love in the past year for the commodities space. it is not just the banking side, but also the hedge fund space. the macro commodity fund is among the best performing hedge funds across the street. some 24% gains on the hedge fund. years and years of -- i think investors may look at the commodities super cycle now and if you listen to goldman's own analyst jeff curry talking about the rise of the commodities super cycle, they may say maybe this is something we want to be exposed to. this took a lot of capital, a lot of energy, high potential for losses. but maybe something is changing because look at the returns you are seeing on the street.

look at the returns we are seeing in our investment portfolio. maybe commodities is a place, we would not have considered it, but now we want to have exposure. manus: if you want exposure you are going to have to pay up with those big sign on's. manus: simone foxman with the latest preview on the commodity outlook for goldman sachs. earnings season gets underway today. there must be excitement amongst thank analysts and stockholders because we are in a rising interest rate environment to come. i'm looking at some of the stocks. bank of america is up 45% over the last 12 months. is this going to be a dividend by back frenzy in 2022? good morning. >> good morning. i'm glad it is friday.

but yes, it should be -- yeah, it has been a hectic start to the year. it should be a very good operating environment for banks. everything is clicking on all cylinders. you bottomed the net interest margin last year. you still have the reserve releases which have boosted earnings in 2021 and will continue likely in 2022. m&a is going well so you have underwriting success. it should be a great operating environment for banks. with the price movements, a lot of those have moved already so we will see how the stoxx react. they are likely to be very good numbers. we are encouraged by what we see. dani: thank you for sharing my joy of friday. i guess it just turned friday for you, what is it, 1:30 in the morning? thank you for staying up and joining us. in terms of how we break down individual banking stocks, correct me if i'm wrong, but goldman is not among your

holdings. we had blockbuster numbers when it comes to their commodities desk. what would it take to change her mind to buy a little bit of goldman? >> goldman traditionally has more volatility which can be great when things are good on the trading side and it sounds like it is for them. we like morgan stanley because there is more protectable cash flow from their wealth management business, which is much bigger for them. that is why we have morgan stanley versus goldman. but i'm sure goldman will do well this earnings season also. manus: looking at the news flow overnight, jane fraser has managed to do a deal at citi. united overseas bank has agreed to pay just under $4 billion for the asian assets. where does citi sit in your viewpoint?

i know you have morgan stanley, jpm, etc., these are big dividend plays. what about citi? >> citi is a new position for us in our dividend strategy and it is the mirror image of j.p. morgan in terms of trying to execute a turnaround with new leadership versus jpm doing great with the same leadership for quite some time. i think investors last year really lagged peers in terms of performance, and investors kind of waiting on the turn, waiting to see evidence of the turn in the business and the organizational structure. we think they are close to that inflection point. it may not be this quarter, but within a quarter of that happening. then you look at the valuation, trading at less than one times chandra bull -- one times tangible, there is a good amount of safety. they did have a bit of a slipup

in the third quarter so it will be interesting to see what they say tomorrow. dani: let's stick to the theme of banking leadership. jamie dimon is always very vocal. when we have the earnings call today, perhaps tomorrow for you, from j.p. morgan, what are you looking to hear from jamie dimon to solidify your bullish view on jpm? >> jamie dimon always chimes in with some good quips during the earnings call. from him, i am looking to hear a couple things. one is, how has omicron affected their business and outlook for 2022? he has talked about how good the economy is and how good the consumer is. does that mean anything for them ? this dynamic around workers at the bank in terms of requiring vaccinations, they have been very hard line on that.

i want to know how that is impacting them from a workforce standpoint as well. and then just got to hear what he sees as the risks out there. the death of traditional banks has been vastly overstated for quite some time. i know he always gets questions about fintech on the call. i'm sure he might have a chuckle about the performance of the stocks in those areas. manus: much has been made of my demise. some people in this institution would be quite happy if i moved on. what is jamie dimon going to buy in europe? what is he going to buy in switzerland? people have said to me, be careful. there is jamie. this is the whole point. he is on the march. he has expanded to online banking in europe, so goldman has gone into high net worth.

what is next for jamie dimon relative to citi? >> they have been very aggressive in terms of their investment in business. they are going to continue to invest in the business. a lot of it has been on the technology. in the u.s., they are restricted , as you know, i'm sure. they would have to go overseas. that could be interesting with consolidation over there. we will have to wait and see. dani: i love that you and manus are on a first name business with mr. diamon. i wonder when you look at the landscape of banking how much you want to be into the banks that are really the investment bank powerhouse. you have this m&a powering

forward versus retail and consumer exposure. how do you divide the two? >> you want both. we have bank of america for example which is highly leveraged to the consumer, co mmercial lending, etc.. the regional banks, we have on our dividend strategy a lot of regional banks. more traditional in that sense. they have done very well so far this year. for us, we want to have a balance of both of those types of institutions and a portfolio -- in our portfolio. manus: i'm going to go to switzerland in a couple weeks time and catch up with ubs and julius baer. you have some exposure in europe through your etf's. what do you like and why? is it those that lean onto the i.b. side and have the

derivatives business? where do you go in europe? >> are exposure to europe is through the eu fn, our etf strategy portfolios. we do look at europe generally, overseas markets, the valuation disparity with the u.s. is tremendous. it has underperformed for the better part of a decade. we see value there. are exposure is more broad-based. but we do see tremendous value overseas in europe as well as other parts of the world. dani: one third of new money going into etf's have been financial etf so far this year. so you are not alone, walter. so great to have you on the program, think for staying up with us. walter todd, chief investment officer at greenwood capital.

this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." despite this year's turmoil, many analysts are bullish on european stocks. according to the average of 19 forecasters, the stoxx 600 will rise 5% by the end of 2022. dani: with all of this in mind we thought it would be the perfect time to take a deep dive into the opportunities across european equities. who better to do it with than tim craighead, bloomberg intelligence senior european equity strategist? let's get into some of them initiative. -- some of the minutiae.

you are favoring the swedish benchmark index versus the swiss one. break that down for us. >> we have this throughout a number of elements of our research. that call in particular, if you look at our scorecard, it is skewed toward cyclicals and away from defensive. we have a note out this morning about u.k. cyclicals and defensives. the omx versus the smi, sweden versus switzerland is a classic poster child of this. sweden is industrials and commercial banking. both of those are levered to things we can talk about. you have switzerland however that is almost equally levered to pharmaceuticals and consumer staples. novartis, roche, nestle. that is really what it boils down to. neither those markets are particularly cheap, but you have cyclical leverage with one and

you have exposure with the other where frankly we see the risk of some margin concern and not the operating leverage. manus: a great spread. good to have you with us as we gear up for this earnings season. you heard walter todd from greenwood. he is going to take more exposure to financials in europe. he has either fallen into the value trap or the opportunity. he is talking about the spread differential. what about it? financials? >> we are singing along the same hymnal. if you look at our work, the way we are thinking about it is financials are where you have leverage, particularly banks.

and what are now indisputable rising interest rates. week we have an interesting standpoint for how that plays through with net interest margin, then a return, and expansion of cash returns to shareholders through dividends and buybacks. with the energy space, i would throw in metals and mining's as well, there we have leverage to sustained economic recovery and that is what we think is going to play through in 2022. that is why the fed, the elite, raising rates. it is growth. those areas, even though they have recently performed well, are still very lowly valued because investors just have not bought into either the cyclical story or the sustainability of those ideas. we think that is where there is opportunity. dani: i love this statistic from

chris harvey at wells fargo. of companies that stopped reporting their eps, their forecast, because of covid, 80% of them have resumed doing so. what does the picture look like in europe? do we have a clearer picture of what growth is going to look like? >> it is an interesting thing. it is certainly improving. yes, we have to worry about omicron and that influences how we are commuting and staying at home and that good stuff. the evidence is pretty clear, too that we are going to get through this. within that context, i think companies are feeling more comfortable making projections. this coming earnings reporting period not only is timely within that context of the pandemic development, it is also the full-year numbers. where we will get the full monty. it is going to be quite telling to see where we go. earnings estimates revision has

slowed since we got out of the third quarter reporting period. unlike what they did the past couple quarters. some of that is simply a higher base. but i think there is some trepidation about costs, obviously. there is still some trepidation about supply chains even though there is evidence some of that is starting to improve. a risk that is not talked enough about we think is what happens with china and omicron because they are still keeping the near-zero policy and that could impact at least near to intermediate term supplies in certain instances, especially with port cities. there are risk factors out there, but it is going to be interesting to see if we have another round of positive revisions because companies are still able to manage through this. there is still pricing power. it will be quite telling. manus: let's see what gives

forth in this earnings season. tim craighead, bloomberg intelligence strategist with us. moscow says talks with the westar at a dead-end. -- talks with the west are at a dead-end. the impact on the energy market. this is bloomberg. ♪

dani: welcome back to "daybreak europe." the u.s. senate has blocked a measure to introduce restrictions on nord stream 2. what is the market reaction to the latest development? are we worse than we were a week ago in terms of the threat? >> we look at the energy market, particularly the european gas futures, we are probably worse off than we were a week ago.

we have seen this diplomatic effort, geneva, nato, yesterday talks in vienna. but the russian line has not shifted. they say we are at a dead-end. they viewed the situation at the ukrainian border could potentially escalate. this morning, a number of ukrainian government websites have been hacked. they have not said he was behind it. they do say it is a cyber attack. these websites read, ukrainians, your personal information has been obtained, be afraid and prepare for war. the situation is very tense. manus: a tense standoff in the energy markets. will it get tighter? maria tadeo with the latest. u.s. equity futures are turning around. we are just back in the green

this morning. dani: we are also looking at european futures off their lows for the morning session. i should say support as they play catch-up. happy friday to you, happy friday to everybody else is well. this is bloomberg. ♪

anna: good morning a welcome to "bloomberg markets: europe." i'm anna edwards live in london. mark cudmore joins us from singapore. the cash trade is less than an hour away. some do not like it hot, more fed voices on rate hikes as the urgency of inflation grows. tech tanks with european futures mixed this morning.