♪ >> good morning from our middle east headquarters in dubai. i'm manus. let's set you up with the stories. china cuts rates as the economy takes repeated hits from coronavirus. global bonds under siege of the huge spike as traders ramp up the fed hike bet. actman shows for a 50 basis

points hike. more turmoil in the embattled bank for breaking covid rules after just nine months on the job. 6:00 a.m. in london. and it is 7:00 a.m. at credit suisse. how do you shake the bond traders into accepting something may need be done at a dramatic level? bill actman makes the point. go large, go now, go early. 50 basis points. regain your credibility. the federal reserve could work to restore its credibilities with an initial 50 bits comprised to shock and awe the market. question to the market, when was the last time you saw 50 basis-point hike that was not very well guided to you? whatever way you stack it up, it could be shock and awe for the

bond marriage i put it to you that this fed doesn't have the chutzpah do do it. this is the point, jimmy diamond saying five to seven rate hikes could be on the cards. waller said five was an opportunity and what does shock and awe really mean at the short end of the curb? would it anchor the long end of the curve and therefore stymie yestipners. national liquidity has disapated. goldman still say stocks is where you want the be. nobody wants to short these markets. mr. heartned on the report from last week. equity still getting inflows. it's 1994. what do you do? shorten the attack.

shorten the inch g. that's what you have to do. let's talk about asia. cutting ruts over 4% above above one standard deviation above the estimate. and there en lie it is point. it's about a strength in the economy, but there's still not ahead of the curve in terms of the rate cut. it's the first time in almost two years. the economy has been under pressure as they say, bill is calling for 50 basis points of the hikeman store credibility. let's put it all together what would any of them do. ender joins me now. the chinese data in of itself together that with a rate cut the data first of all, they talk about the quality of the tech, the a.i., the robot it's a tech-driven narrative with low value growth under pressure. >> well, we had a a lot of data. the fourth quarter g.d.p. at 4%

and full year coming in at 8.1%. those numbers are ancient history because the bigger focus was on the partial numbers for december. we saw retail sales slowing at 1. #%. and all the talk was that's all about the outbreak of the virus and the aggressive control to stop the virus spreading, really hurting the consumer. consumption makes up the biggest driver of china's economy going forward that's why we saw the central bank come off the sidelines today and lower two key interest rates in the lower money markets. that's not just a sign that they're taking action, it's signal more support will be coming down the track because the horse know that the economy start on a soft foot. most obers think it will take a few rate cuts to turn that around. manus: and you talked about the pboc indicating on rates this morning. this is the mlf.

talk me through what we think might come next. >> well, so, look, this interest rate could by the pboc expect to slow it, manus. it will take some pressure off mortgage holders. that should hold the housing market. we see a slide in house prices over the month of december. this is the game changer the pboc will keep tweaking the interest rates the bigger story will have to be what happens with the vie plus china? is it sustain national how much will a hit be on consumption? the bigger side of the story is going to be government spending. keep a close eye on where the omicron outbreaks go. if they suppress it, that's good for the consumer. if they don't that will start to choke the economy and it will pressure the pboc and the government to start propping things more. manus: ok.

ender, that's gong be a big theme for this year and the concern. very latest on the data and prospect for rate cuts in china. well, the bonds -- global bonds remain under pressure this morning. there's a real segmentallity in the bond trader's minds. treasuries they're not physically trading today but the selloff continues in the futures on other sovereign debt cash markets. look at the australians. speaking of which we've got our very own aussie to talk about the pain of the bond market. it's torturous out there, jules. good morning. >> is it torturous. manus. this is the prospect of a m ar -- marge rate hike. seeing a spike in the new zealand 10-year yield and we're watching some moves in japan ahead of the b.o.j. even though

the bank says if you do see faster than expected faster than expected normal zation could be an overkill to the overall economic recovery. we have seen these rate cuts are the pboc and that's seeing bonds bid in china. let's have a look from that cut as well to what you're seeing in emerging margin currency. and this is leading the decline among f.x. and snapping that five-day win as we see this diverse generals between the u.s. yields and what you've seen with china's rate cuts and implications saying that china implication for rate cut a bit of a mixed bag for a number of these asian currencies, manus? manus: what kind of flaw it will create? juliet with the latest from singapore. to credit suisse, he was only appointed nine months ago to

steer the bank through scandals. let's get to our investing editor russell ward. this goes to the essence of what is leadership and if the leader breaks the rules at credit suisse this is it's taken very, very seriously. where does it live credit suisse? >> good morning, manus. that's a good point. the issue over quarantine breaches by the chairman emerged just over a month ago when he left switzerland before completing a period of isolation. he's also reportedly went to the tennis tournament in contradiction of the covid rules. s that big shock. because we should be out of crisis and out of scandal not leading it into another one. he was a pete:ed in april after the scandals of greenfield capital and arcagos capital.

he vowed to have a culture of accountability. he's having to account for his own mistakes by resigning. manus: he's gone. and mr. lehman is in. that's the headquarters of credit suisse. russell ward the very latest. julia is back with your first ward headlines. jules? julia: manus, boris johnson is considering staff changes and a series of rule breaking parties at downing street. the uk prime minister is planning populist announcement including tackling the backlog of operations in the health service and removing remaining covid-19 restrictions later this month. novak djokovic has been deporred from australia after a federal court upheld a decision to revoke his visa. he had hoped to compete for a 21st grand slam title and a potential 1 million payday

the australia government said he risk boosting anti-vaccine use. in a statement djokovic said he respected the court's ruling and now plans to go back home. a volume change eruption in tonga was so powerful, it was heard as far as away as alaska. and triggered a tsunami. information on casualties in tonga is still uncertain. global news 24 hours a day powered by more than 27 journalists and analysts in more than 127 countries. this is bloomberg. manus. manus: juliet, thank you. key interest rate first the first time in a few years. fed hikes in march, they ramp

up. plus, u.s.-russian talks have failed to resolve the nato standoff. we dig into the geo political risk. this is bloomberg.

♪ manus: it's bloomberg daybreak. i'm manus cranny. china has cut the best rate for the first time in almost two years. the economic growth slowed last quarter and the country battled covid outbreaks. meanwhile bill ackman says the fed needs to hike 50 basis points to restore creditable. richard is a rate strategist at toronto dominnian bank. you say we've gotten too aggressive in our assumptions on the hikes coming down the pike from the fed.

here's bill actman. i've seen bond markets react from various ways. the only way really to grab ahold of the narrative again from the bond market is to shock and awe. do you think there's a possible? do we need a shake and awe? 50 basis point one-off hike to reset the tone? good morning. >> thank you very much for having me. central banks have sent us the message that they need to act swiftly and substantially to keep inflation under control. but we think that the fed will go three basis points high. need less to say we are expecting that they will be using each to hike rates. 50 basis is a bit too much. nevin your chart, you have suggested that last. and it was seen in 1994. at that time we were in a different basis cycle. in fact instead of giving four

hikes, the fed could start with the q.t. program. because we do realize that most of the central banks getting uncomfortable about this side of the balance sheet that's why we started producing as quickly as possible. it's not just fed. we have heard this from b.o.e. uncomfortable. but they can do much because they still have not met their inflation mandate. >> what would a shock look like? adjusting the balance sheet? if you say unlikely. you're saying three, maybe four. what would a shock of the balance sheet look like? >> it would be definitely something like we saw even in -- the balance sheet introduction was suggested at 13, 015. marks are trying to price on the hikes for the year.

but it's you see a reduction in the balance sheet, basically you're saying there will not back big buyer, which means a lot of duration supply is going back to the mark. that's where we could see the rateses getting -- rates getting hit. that is something we will be monitoring very closely. it basically starts the 10-year deal. you actually start hitting so high. just the percent level. i think the focus will be done from the front end to actually the -- handle it. the last central bank will try to tighten the financial condition. manus: so what can -- what can we handle then in terms of -- you're channel your tantrum and

i thought it was about the speed and the undoing in 2015. so what can we hand eagle in bond market? if they go for a webber balance sheet reduction, what does that do to real rates? give us those two target for you because that seems like it's the process you're leaning towards. >> yes, the front desk seems pretty well priced. but if you're talking about the 10-year read, she could last as high as that for balance sheet reduction. we're basically -- so i think what will follow even 10-year reads some of that's where we could -- that's what we would feel like and being a threat. so now if you do seem tight as well as wire balance sheets, the 10-year, the duration of the

guard will basically get it. i think in short, we are -- if fed does deliver on three to four hikes as well as duty this year. manus: now, where the bond market goes in the u.s. the vol forgets are palpable. look at the whole structure. you know, there's a segmentallity in the bond market. but you talk specifically about a vulnerability in the boons. in this unwinding at 10 and a half% in the u.s., how siege like mentality could grip the boom market? and where do i trade to? above zero and to where? >> basically it's extremely song. so even if the e.c.b. is not tightening as fast as the fed, they will be reacting. they have been reacting since

the start of the year so we are targeting something like 30 basis points by the end of the year we do feel like they will be in a better stage. and will drive us a better indication of when they start hiking reads. that could be better. >> so even though we have a lot of support from e.c.b., but the strong global coalition will be extremely better. so we are target 30 basis points for your end. >> ok. bridgett, stay with us. pooja kumra, senior rate strategist at toronto dominnian. coming up on the show. oil traders say crude could rise further because of their tighter supplies. we discuss the market. that's next. this is bloomberg.

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manus: it's bloomberg daybreak. i'm manus cranny from dubai. the market is taking up. there are concerns about the impact of omicron beginning to ease. the world's biggest demand in oil traders says prices already up more than 10% this year could squeeze higher. just how high can she go? energy and commodity's team leader is with me why are vitol so optimistic? >> well, adding their name to a listening list of people who are bullish about oil price, the strong consensus is that omicron is not going to have that much of an impact on oil demands. and at the same time you've got some of the world's biggest producers including many opec members, very much struggling to

raise production so the thinking is that especially as well go furor into the year when -- when demand should be rising quite strongly, we're going to -- we're going to see supply problems. manus: just on supply problems. we talk about the european context. europe, armstrong by russia in terms of supply flow. but e.d.s. is cut their gas, oil due to a strike. that's just another -- another layer, capacity, constraints. outages, supply strengths. when it comes to the demand side. i want to talk about europe in terms of demand destruction or where are we with -- with gas prices etc. in europe? because we're on the edge with ukraine, russia and the whole sort of north stream. just put me out the biggest and most most important gadget for the market? >> this is the thing that for europe, the problem is when it

comes to energy it's mainly gas. but it definitely feeds into oil. what veto was saying and this is what people are increasingly saying is that gas prices have risen so much that we are getting to the point where we're seeing demand destruction. vitol is saying they're seeing a cutting back in consumption. i don't think people are saying, we're going to see users cut back on oil in a big way. but it's a bit of a lesson for oil. the question though is at what point does oil get to that stage? is it 90 dollars a barrel or there be demand destruction? i think rainwear ran it to 148. thank you very much. that's paul wallace with me on the energy markets. let's bring it back to pooja kumra. within the rate es's markets you look at core p.t.i. and you rip

out these horrible variables. oil and gas. do you think energy prices are much tight tiger to run? what facet does oil in the rates narrative for you? >> thank you so much. oil has been driving the marks. we actually saw a 26%. we are seeing some unusually high price -- inflation numbers from regions across the board. even europe we saw 5% high inflation. now, it does tron kate of over economy. you're talking about normal rates. that's when it's a big season which is basically markets expectation on inflation. and that is driving extremely high when you see a fight or a 7% number. that's when you think that's the

better drinker. and we also know is that 2020 was all about extremely low inflation. the carbon was extremely high sprints. what we are heading to in 2005 is more as the tradition. esau, he's wanting to have a more central bank. >> given the fact that we have behind the though thought right. we need be scared for the second half of the train to look like it's going be wealthy. be special. easing off across the border. >> ok. pooj, thank you very much. the rate strategy at toronto. coming up on the show. growth risk, might. china cuts rates for the first time in almost two years.

we dig into the challenges facing the world's second bussest economy on bloomberg.

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>> good morning from our middle east headquarters in dubai. i am manus cranny for daybreak europe. growth risks mound. china cuts rates as the economy takes repeated hits from the coronavirus. mobile bond yields under siege. traders ramp up the fed hike bets. a shock 50 basis point hike. more turmoil at credit suisse. the embattled bank ousts its

chairman after nine months on the job. good morning. we just had toronto dominion go head-to-head with bill ackman. how do you redefine the narrative in the bond market? how do you joel stte the bond market? bill ackman says it is all about that ability. really read garner your credentials, the one driving the bus and not sitting at the back. surprise moves will be the shock and they need -- aew they need -- the shock and awe they need. that is what has been priced in. my guest, through a lovely new narrative which is three or four rate hikes. jamie dimon says you can see five to seven rate hikes.

ackman says throw it around in shape and size and give me 50 basis points. toronto dominion say a more aggressive balance sheet reduction would mean less rate hikes. the front end is very well priced but for toronto dominion -- she said to me a more demonstrative run in the balance sheet for her would take yields to 2.5% on treasuries and pause the 30 basis points. let's look at the rest of the markets. it is martin luther king day. equities really not that heartened by the fact that the chinese have cut rates with a growth number which is one standard deviation above the expected level. bond futures trade at 108.58. brent is at a near seven-year high on a tightening market. let's talk about the divergence in central banks.

china cutting rates for the first time in almost two years as her economic growth came in at her the next acted but it does draw into question the velocity of the chinese economy. enda curran is with me. take me through the data first of all. enda: on a headline basis, fourth-quarter growth came in at 4%. full-year growth, 8.1%, well above the target. that would suggest a fairly robust economy. the december data showed the economy was losing momentum to the end of last year, especially retail sales. they slowed to 1.7%. weakness across the board. buying clothing, jewelry, and that is being pinned on the outbreak of the virus across the country. that of course forced the government to enforce strict restrictions to keep the virus under control which can cause disruptions. that story is expected to change

in the near term. industrial production is doing well. the manufacturing side of thing is holding up at the bigger story is one the chinese economy has started the year on a soft footing. the central bank came off the sidelines to take steps they did by easing interest rates. manus: the market was looking for 3.8%. very much a similar story in the u.s. the question is, will that endure? the signaling from the pboc was about the medium lending rate. extrapolate for me what that signals and what kind of impact that can have. enda: it should mean that the banks will follow suit later this week. it flows through to companies and mortgage holders, remember we saw another fall in house prices in december for the fourth month in a row.

they want to ease some of the pressure on the housing sector. the bigger story for the pboc will depend on what happens with the virus. if they can continue to contain it the way that they have done, that will take pressure off the consumer story and allow manufacturing to carry on as it was. if they cannot do that, there will have to be more government support so the pboc may only be starting its work. some economists say more interest rate cuts and tweaking will be coming. the government will have to step up with more spending on infrastructure projects. it all depends on how the zero covid policy pans out, manus, because that will drive the stimulus story. there is no doubt that the economy is starting off on a weaker note. lower economists say that more support is needed. manus: that zero covid policy does not look like it is going away. lines seen across the bloomberg terminal at the moment. joining me now is my guest, the chief economist for asia pacific at natixis.

great to have you with us this morning. when you look at this growth, a little bit better than the markets penciled in but a rate cut. interesting combination today. what kind of growth do you think we will get for this year in china? >> good point. i don't think we need to look at the fourth quarter. the more negative base affects next year. we need to look as much as possible in data we have, big data. what has been happening in the wake of the chinese new year. there, i think the news for lockdown increasingly is in shenzhen.

that can bode well for consumption. the pboc is the key. i would rule out this 4% which is helped by the fact that they lowered the 2022 actual number. partially to 4%. let's focus on -- that is the key. it is telling because this is not a one year rate. it's a five-year rate, important for mortgages, for the economy. the pboc is telling us that help is needed and the pboc will be there. that is the key. we are keeping the growth rate at 5.6% at natixis. manus: the other dynamic that we are looking at, many people have said huge social, socioeconomic, political change last year in technology, in education, and

data. the consequence -- and housing. housing. the credit impulse. we put the credit impulse together in the library. we are looking at a collapse in the credit impulse, which is either telling me that there was some tragic policy error last year or it was a very deliberate slowdown. when you look at the credit impulse below the levels of 2018, below the 2014 levels, are we beginning to form a base? do you expect the credit impulse to be boosted from here? alicia: absolutely. absolutely. i think this plummeting credit impulse is due to two things. first, fear. there was no credit demand because companies did fear the future in many sectors as you mentioned, and the other reason is that they were hesitant to leverage.

basically the demand wasn't there but also banks were not ready to land, especially -- which although it doesn't get -- not much of the funding through the bank but mostly through presale. it set the tone for banks to be cautious and we had a lot of corruption cases as well. caution on the demand and the supply. pboc is showing the way. we need credit. it will be a rally on credit this year because it is desperately needed. manus: one thing which our chief economist and the team had noted, it's a complementary functionality. unconventional monetary policy but end a has made the point, be prepared for more fiscal policy. how much more fiscal help are you expecting and where will it come? will it be the crafted, targeted

smaller pieces of policy rather than big, bold, the policy of old? alicia: frankly, i think the reason why we are seeing the pboc come in at the forefront of the stimulus rather than the fiscal front, which we were initially expecting at natixis, is that it is not working. let me clarify that. we have had an increase on bond issuance from local governments but they are basically sitting on the money and they are not investing. we will have more detail tomorrow but we think that the fixed asset investment is increasing mainly because of manufacturing which is what we have had so far. we do not have a lot actually. it's basically negative. this means the usual fiscal stimulus china is accustomed to is not really working and that is why we need more monetary

stimulus. i hope that they can turn this around. but because of the corruption cases and the fear, this is going to be hard so i do not expect a big fiscal multiplier, to put it simply. manus: can we go back to the quality of growth? the slowdown you are expecting, i want to put something back to you. ing send me a note. i want to talk about the quality of growth. often, we get obsessed with headlines. new energy, cars, 145% growth. industrial robots, 45 percent growth. industrial profits through 38% up to november 2021 on a margin of 7%. these are colossally smart areas of growth. this of course caused angst in america. energy, industrial robots, etc.

the quality of the growth at 4% is very different to what 8% was 10 years ago, isn't it? alicia: all of that is industrial and that is what china has been growing on for years so i don't see the change, just -- if you tell me -- is it good for innovation? is it good for productivity? that is what people will be importing from china in the future, whether it is robots or electric vehicles. i can see the positive on the side of sustained exports. translating will be very hard. dollar terms in a trade surplus in china. the negative is that what i should be seeing for that quality of growth is consumption. that is what we thought should

come. it's not so much manufacturing no matter how developed. what i'm trying to say here is that it is positive in terms of innovation. the world allows it. but it isn't what i thought china was about to do. that theory i have been hearing, whether it is with rebalancing or inflation. i thought we were waiting for consumption. manus: the consumption is not there. it fell out of the water in america as well. a be something quite strange going on with the consumer all over the world. alicia garcia-herrero, chief economist at asia pacific. the other side of the trade to ing. a little bit of clarity for you. i brought you some news earlier. it is 2.6 gigawatts of oil and gas and i am given to understand

that is more than 1.5 million homes approximately. the saudi oil minister is on the tape at the moment saying he is unconcerned about the rise in oil prices. joe biden in the white house might have something different to say about that. let's get back to singapore. we know where we are going and we can steer the bus and change the gears. juliette saly is in singapore. juliette: -- has resigned nine months as credit suisse chairman. it follows a series of missteps including reported breaches of quarantine rules. the swiss bank has named -- as chairman, effective immediately. boris johnson is reported to be considering staff changes and a series of policy announcements in the wake of a crisis over pandemic role breaking parties at downing street. he is planning populist announcements including tackling the backlog of operations in the health service and removing

remaining covid-19 restrictions later this month. unilever is said to be talking to banks about more financing to raise its offer for the consumer unit. this after the pharma giant rejected unilever's third and latest bid at $68 billion. unilever is considering eventually selling some non-core assets from the portfolio to help fund an acquisition. the drugmaker said it is sticking with plans to spin off portfolio plans. 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: thank. juliette saly in singapore. u.s. and russian talks have failed to resolve the standoff over ukraine. we dig into the geopolitical risk, next. this is bloomberg. ♪

manus: it is daybreak europe. i am manus cranny in dubai, on tenterhooks. i want to show you the personification of risk. these are some of the bond markets. russian and ukrainian dollar denominated bond yields. exploding on a 10-year above 10% . ukraine and russia. exponential explosion in yields. nobody owns russian bonds. it is an indicator of risk. the markets are pricing the worst possible case scenario.

this is about worst-case scenario planning. martin malone and his tweet last night. the ruble, 15% devaluation relative to the past five-year average. it is imploding, worst-performing emerging market the start of the year. russia may false flag justifying getting into ukraine. sabotaging their own operations to fabricate maybe the opportunity to invade. what is the latest? are we stepping down or are we on the precipice of a hot button real war? >> it is looking like the

latter, manus. following the talk last week, they are on totally different tracks. there are russian actors that are preparing false flag operations and creating publications that would justify an invasion. the ukrainian government is saying all evidence points to russia. cyberattacks it suffered last week. president biden's security advisor, jake sullivan, said the u.s. was not ready to fully blame russia on that. they are still looking into it. the republicans in the u.s. are calling for more forceful

action, saying the u.s. needs to get germany to agree to permanently halt the natural gas pipeline, nord stream 2, that has not yet begun operations that would be delivering gas from russia to germany. manus: i mean, that is the very serious part of this, bruce, isn't it? on the nord stream 2 pipeline, it's all but effectively up and running. bruce, could they step back from nord stream 2 at this very late juncture? how big an injury to putin would that be? bruce: the big problem that the biden administration faces, trying to do that is that it is not at all clear that the germans are onboard board with this plan. holes published showed a majority of germans want this pipeline to begin operation. we know that there are members

of the coalition that recently took power in germany that are strongly behind it as well as some who are opposed to it. that is still quite unclear at the moment. that does make the u.s. and its allies planning more difficult as they try to figure out a way out of this crisis, manus. manus: who is the biggest injured party from nord stream 2 as we see gas prices ratcheting all the way around europe and lots of blame being hurled around as to why we have gotten to that situation? winky very much. coming up, another bruising week in politics. it's time for boris johnson -- planning a raft of policy announcements as he battles plummeting poll numbers. we will bring you the very latest. this is bloomberg. ♪ erg. ♪

manus: it is "bloomberg daybreak: europe." it's manus cranny in dubai. serious backlash over the role breaking party inside downing street. let's get the very latest from london. the risk to the prime minister is the question everybody is asking. is he on a slippery slope? >> it has been dubbed safe. he plans to get the permits are back on track, manus, but it is not looking good as they continue to load under number 10 downing street. it is carrying on from the scandal so we did hear from the labor leader, keira starmer, during the sunday show on the bbc. he said boris johnson lied. he called for him to resign

again. the health secretary did a very similar thing on sky news but also on sky news was the chairman of the conservative party, all of our doubt in, and he had unwavering support for boris johnson he said boris johnson should stay in the top job and the country should focus on moving its way out of the coronavirus pandemic and also reviving the economy and this support comes as six mp's have publicly -- six conservative mp's have publicly called for boris johnson to resign and we are also waiting to see that crucial report into these parties and the scandal at downing street to see if even more mp's will come forward and asked for eight or ship contest to be triggered in the country. the difficult thing about that is who is going to take over

from boris johnson? manus: thank you very much. boris on the ropes. let's see how he escapes to being challenged for the leadership. bloomberg markets europe is up next with anna and mark. this is bloomberg. ♪

anna: good morning. welcome to "bloomberg markets: european." i'm ada edwards in london. mark cudmore joins us from singapore to take us through all of the market action this hour. the cash trading is less than an hour away. growth risks mount. china cuts rates as the economy takes repeated hits from covert outbreaks. mobile bonds under siege. traders ramp up fed hike that's. a --