♪ manus: good morning from our middle east headquarters in dubai. it's daybreak europe. the stories that set the agenda. fed day. jay powell will set a march hike. how big? president biden ways sanctions against vladimir putin while russia invades ukraine. germany seeks an exemption for

energy. big tech clause back the losses. microsoft shares rebound after hours as the cloud looks set to drive the growth ahead. it's fed day. what jay powell says will absolutely define q1 and q2 for the bond market. i like what valerie had to say this morning. the short end is all hocked up. how are the clients position going into this? this is what is happening at j.p. morgan. the short-sellers have been wiped out. there's been a collapse in the short positions. the equity market crash. the bond market cleansed its sole of the short-sellers and the primary sellers george. i like that word. dani: i like the word cleanse. we all need a little bit of cleansing. it's hard to tell whether this

is the markets getting spooked or it is simply profit-taking. it's not just the bond market. you say bonds, i say equities. equity positioning has been flushed out after the recent selloff. deutsche bank pointed out that positioning is underweight for the first time since climbing back from those post-pandemic lows. it's an interesting set up heading into the fed today. manus: absolutely. there you go. there's your positioning. they could still be a little bit more to go if it's qt and it is sizable qt. dani: let's get a check on what the markets are doing this morning. if all this positioning has been flushed out, what can you do besides sit and wait on your hands until the fed decision? money coming into tech after

microsoft earnings yesterday. when the futures opened up, we had 1.4%. this is a remarkable turnaround. mirroring the action that we saw in microsoft overnight. weakness in the dollar heading into the fed decision. little changed on the u.s. 10 year yield. brent crude pumping out more of that strategic released reserves at $88 a barrel. let's get to asia. what we are seeing is mixed ahead of the fed. the csi 300 is attempting to avert a technical bear market. let's get to juliette saly in singapore. the dreaded technical bear market. what are you seeing? juliette: upside coming through in afternoon trade. it's getting closer to bear market territory. the momentum today has come after state media called for

calm. lunar new year coming up. winter olympics. they will want to see stability in the market. a number of houses calling for a good year. it has been selling off significantly and flirting with that bear market territory over the past month. let's have a look at how skittish asian investors are ahead of the fed. 14 month low. i mentioned the slight rebound coming through in china trading in the afternoon session. the topics entered a correction yesterday. it is still under pressure today. the kospi is going to get towards bear market trajectory. 18% off of its july high. the onshore you want rising, the seventh day in a row that we saw the fix from the pboc in line with estimates. they are getting comfortable with the strength of the yuan. it's nearing a record. manus: thank you very much.

reaction. thank you for joining us this morning. tremendous volatility in the equity markets. dislocation, some would say. how do you look at this? should equity markets be fearful that the fed put has dissipated? aneeka: very good morning. yes. we've seen a very sharp sector rotation out of growth and into value. the sector has typically not been invoked over the last decade. that strength is really coming back. the primary reason is growth tends to have a higher duration as cash flows are expected in the future. as we see this sharp fed pivot, we are beginning to see growth,

under a lot of strain. that's been at the epicenter of the selloff. valuation is coming back into focus. i think that will be the prime factor for 2022. dani: great to speak with you this morning. ahead of the fed decision, a lot of people tilting to a more hawkish expectation. is that fully priced into equities? aneeka: very good morning. i think typically, we would always rely on the fed to try to look into restoring a bit of equity market calm, given the fact that we've seen such a strong selloff. this time around, u.s. market conditions are very tight. a very strong labor market. inflation is surging above the fed's levels. i think we have less optionality

to actually to try to be a bit more dovish at this meeting. that is still fully priced in. the expectation is that the fed is going to be a lot more hawkish and we could see a much more hawkish tone at this meeting. dani: bracing for the hocks. you will stick around with us. now from the fed to ukraine. let's turn to the crisis unfolding. president biden says he would consider sanctioning vladimir putin if the orders and invasion of ukraine. russia has denied that it has such intentions. germany has pushed for an exemption for the energy sector if there's a move to block russian banks. let's go to our europe correspondent maria tadeo. we know schulz has met to discuss russia. what was the outcome of those talks maria: two things are worth keeping an eye on. president buying saying that he

would go after vladimir putin himself if he were to order that invasion of ukraine. a lot of the time, we talk about the people around vladimir putin. the russian leadership. but never the man himself. we heard yesterday. there was a working dinner. they are fully united on the situation when it comes to russia. they would ask the country to de-escalate, they would push for conditions to -- make sure that russia does de-escalate. vladimir putin will have a call with macron on friday. he said sanctions would be big. however, bloomberg reporting that the germans are considered -- considering an exemption to energy related companies if it means the gas supply would be higher than it was this week. manus: interesting. i encourage everybody to go back into listen to bob mcnally who talks about the probability of an incursion with serious

sanctions. he sees that is only 30% probability. a very insightful discussion there. in terms of the scalability of sanctions. thank you. great work tracking the ukraine story. juliette has your first word news. juliette: the stakes are rising for boris johnson after police began formally probing allegations he held parties that broke the government some pandemic roles. the police process is likely to take longer than the ongoing civil service probe. her investigation could be public as soon as today. microsoft shares were covered in late trade after the software giant reassured investors that is cloud computing business has the potential to drive growth. they posted profit games -- gains with revenue climbing 50%.

new york state has seen an 86% decrease in covid cases since it's january 7. deaths and hospitalizations remain elevated. rates of severe illness and death fell in the u.s. during the omicron surge compared with the delta wave as well as last winters. global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. dani: thanks so much. coming up, the imf cuts its world economic growth forecast for 2022. weaker prospects for the u.s. and china along with persistent inflation. manus: plus, bloomberg sits down with the french presidential candidates and leader of the fall light -- fall right -- far right national rally. she warns about creating a new cold war. we bring that to you later in the program. ♪

♪ >> the main reason for the downgrade for this year comes from significant ground -- downgrades for the u.s. and china. so we have the u.s. being downgraded by 1.2 percentage points and china falling quite significantly. the reason for the u.s. is that we no longer have the bill back better fiscal package in our baseline. we are also expecting monetary tightening in the u.s.. that's in the baseline. there are supply disruptions. dani: the imf on cutting the world economic growth forecast for 2022. at the same time, goldman sachs seeing risk of sharp fed tightening to tame inflation and hurting stocks. they see a rate shock that triggers a growth stop.

everyone waiting for fed commentary and decisions today. still with us is aneeka gupta. you are not shaken by the fed. are you shaken by the policy -- possibility of weaker growth? aneeka: i think it's going to be quite a differentiated trajectory across. we are going to see lower growth. rising expectations for growth in china has been quite low. i think the pboc and the chinese government are very focused this year on reinstating stability. they have a progrowth focus. they are going to try to do everything possible to re-stimulate the economy after the hurdles faced in 2021. i think our outlook is a lot more optimistic for china. we still continue with our

positive outlook on european growth. going into 2022. manus: so obviously everybody is trying to understand whether we move from pandemic to endemic. for everybody, that will dictate where we go in terms of growth, in terms of tractors. there's a couple things that we need to grapple with. earnings outlooks are always challenging. you've made that point. duration is challenged. equities are challenged. when you look at the earnings outlook. are you worried? we had a chart at the start of the show with the earnings outlook being negative for the first time since 2020. does that chime for you? are you worried about earnings? aneeka: that is the most important point. that's really going to be the

underscoring factor of whether we will see a rotation actually stay as it is. like you said, if you look back on the earnings trajectory going forward for q4 2021, it is value sectors that have the highest opportunities. we are looking at energy, industrials, utilities having the best outlook for 2022 in comparison to tech. you mentioned microsoft. yes, there are concerns there. pellets on as well not living up to expectations. netflix also not living up to expectations. a lot of the tech socks have been light on the earnings so far. that's also leaving -- leading to that selloff we are seeing

where tech is at the epicenter. dani: i have to wonder, when you look at the chart that was just mentioned, you have this huge bed -- bevy of earnings upgrades last year. how much of that had to do with fiscal stimulus? how concerned should we be be -- should we be about earnings when we no longer have that support from the fiscal side? aneeka: absolutely. the market has always been awash with liquidity. the fiscal stimulus definitely helped push investors further into actually investing in the market. from a tech perspective, we've had record earnings results over the course of 2021. now as we see them getting downgraded, investors have less incentive to actually hold onto tech. given the fact that you have another hurdle coming up with going from two rate hikes last year to about four for 2022,

that's also lowering the projections of future cash flows with these tech stocks. everyone relies on them at their present values. that's another factor that is penalizing the sector as a whole. manus: you lean towards dividend orientated stocks. and where will i find those? obviously not in profit wealth. where do i look for deeper, robust, enduring dividends? aneeka: absolutely. at wisdom tree, we are focused on value oriented, height evident stocks -- high dividend stocks that have that durability and sustainability to help investors navigate this space as

we move into 2022. a more hawkish fed, something we haven't witnessed for the last 10 years. these sectors where we see most opportunity are really in the energy space right now, in consumer discretionary, in the industrial space. that's where we are seeing very strong dividend payouts. dani: i do have to wonder, when you look at the mix, pushing above 38 yesterday. that's the gauge for the tech vix. you have the fix pushing above 30. at what level do you start to get worried? aneeka: that's a very important point. we've always been very used to very low volatility. i think our indicator would be, when you start to be vix above the 50 mark, that's a cause for

concern. even within that environment, there's going to be opportunity. just like in 2021, emerging markets as a whole did quite poorly. even within that space, there was opportunities. if you look at value in emerging markets, there was an opportunity in high dividend stocks. the emerging markets really benefited from the higher commodity environment. even if we do see volatility levels rise, it would be a healthy correction that would follow from their and even a mixed bag. you would be able to find very well discounted value stocks. manus: stay with us for a little bit more. we will dig deeper into the wisdom tree research and view in just a little bit. coming up, oil. the industry showed tensions

over ukraine. the spillover to global investors. brent drops by 10.1%. this is bloomberg. ♪

♪ >> our base case is no disruption. there's two sources of a disruption. sanctions or an accident. i could call it mutually assured destruction. it's not in the interest of other -- any party. manus: commodities research. a quick check on the oil market. we have bobbing nelly saying,

$150 will come. he sees sanctions risk at 30%. two very different sets of parameters. let's talk to aneeka gupta. there's a great debate about whether you should have fossil fuel in your portfolio. where do you reach for dividends? b pay has a 12 month yield of 4.25%. i look at billy's and anglo. in this pen a commodity and oil, where do you deploy that is acceptable to wisdom tree? aneeka: that's a great question. i would say that right now, the energy sector as a whole is witnessing the lowest capex that it seen him 2004.

between 2000 and 2008, we had x been deterring creech -- increased by 350%. now, we've seen that drop down to the lowest level since 2014. as a consequent of that, we've seen most of these oil companies really clear out their balance sheet. they are trying to slowly navigate their way into the energy transition space. i think oil prices are definitely trading at a premium as they price and that geopolitical risk that is on the horizon. structurally, we are looking at a deficit continuing for the first quarter of 2022 which should definitely lend a cue for the energy sector as a whole. i think having that in your portfolio would be very important for 2022. dani: at the same time, you

talked about that commodities have proven that they are an inflation hedge. they are useful in terms of the geopolitical context and inflationary context. how overweight are you in the commodity space as a whole? aneeka: we are definitely overweight at this point in time. the reason being, commodities are a cyclical asset. the two factors that will drive commodities that started off in 2020 will be the energy transition and infrastructure fund -- spending. we are still holding our hopes on the infrastructure spending that is being launched in europe, in the u.s.. as well as relying on cup 26. it has become more and more evident that as the gap between policies that have been put forward versus the actual

enactment of these policies narrowing, we are going to move more and more towards carbon abating ecologies which helps these sort of commodities especially in the industrial metals space and another tailwind would be within agriculture. we've seen a lot of extreme weather conditions. it should help provide for a number of agricultural commodities as we saw back in 2021. dani: thank you so much for joining the program. really fantastic to have you on. coming up, investors weighing concerns about tightening monetary policy from the fed. we speak with the morgan stanley head of fm as we see a little touch of weakness in the bloomberg dollar spot heading into this week's decision. we are looking at equities pushed higher after yesterday's very volatile session.

all of that coming up next. this is ♪ -- this is bloomberg. ♪ every day in business brings something new. so get the flexibility of the new mobile service designed for your small business. introducing comcast business mobile. you get the most reliable network with nationwide 5g included. and you can get unlimited data for just $30 per line per month when you get four lines or mix and match data options. available now for comcast business internet customers with no line-activation fees or term contract required. see if you can save by switching today. comcast business. powering possibilities.

♪ dani: good morning from bloomberg's european headquarters. i'm dani burger with manus cranny. this is bloomberg daybreak europe. here's what you need to know. that day. jay powell almost certainly signaling a march hike. how big? raising the stakes. president biden weighing sanctions against vladimir putin if russia invades ukraine. germany six an exemption for energy. big tack clause back losses.

a rebound. everyone sitting around waiting for the fed but the set up for the fed decision in these markets is fascinating. you have a move to neutral and bond markets. jp market positioning equities. deutsche bank pointing out that we are underweight on equity market positioning since november 2020. manus: the shorts ran for the hills as far as jp morgan was concerned. there was a cleansing of the short as they put it. as i put it to you, the primary deal is gorged on bonds. they couldn't get enough. that says to me that the bond market is more fearful of recession risk and that's what goldman is warning of. what does that due to the equities story? is a 10% drawdown already priced

in on the growth side? dani: i do have to wonder, to what degree was this just profit-taking as well? i feel like there are plenty reasons to back off on some of the bearishness on the bond market. manus: backup the trucks, stu but -- scoop up your stocks. we are underweight as we go into the fed meeting. you have a bounceback and equities. there's a chart that you were referring to. this is the deutsche bank positioning on equities. we are back below the line that indicates that we are a bit underweight in terms of positioning. it has actually turned negative. let's check out how we are doing. s&p 500 trades up by a quarter of 1%. half of 1% now on the nasdaq.

euro-dollar is flat. james lord is about to give up the ghost. we can check out whether he still things it's flagging. brent is flat. 88.21. we wait to see where we are on the supply side from opec next week. dani: we can't forget that among the risks the market is coping with is not just the fed and earnings, it's politics in europe. opinion polls are pointing to a tightening race in the french presidential election. the far right candidate is one of the challengers looking to unseat president macron. she sat down in paris for a discussion on the unfolding crisis in eastern europe. >> the european union is asking all countries to abandon their despond at sea. it's totally absent from the discussion. we were sidelined. we don't even have a folding chair in the discussion between the united states and russia even though franch originated

these discussions. this proves a loss of influence. today, the united states absolutely wants to bring ukraine into nato. we are creating the conditions for a conflict that has no reason to be. i don't believe in sanctions against russia. they are counterproductive. a new kind of cold war has been created and the eu followed the united states. the reality is that russia has been pushed into the arms of china. i think there's greater danger in pushing russia into the arms of china than in maintaining despond as he with russia and instead absorbing it into a european process. manus: talking to the friends presidential candidate. the leader of the national rally. well to the em traders. they are closely monitoring the fed meeting, seeing the spillover in the fx space. let's get to our guest, james

lord. james, good morning. good to see you. you joined us and we had a bit of a joshing session about you throwing in the towel on the dollar. you are not wrong. january is a month of two halves. more renaissance as we go into the fed tonight. do you think we've fully hawked ourselves in equity markets, rates markets? has it played out in the dollar for you sufficiently? do you think it is still time to say, the dollar has popped out? james: yeah. we are sticking with our call. we think that the dollars run is pretty much over already. can you rule out a final flurry if the fed is externally hawkish today? no. i guess you can't completely relate out. we would be sellers of the rally.

we are in that process. what you see if you look back at the last five or so fed hiking cycles, the generally -- dollar tops out around the time of the first hike. what you see in the month leading up to the first hike is that the dollar consolidates. six months after the first hike, the dollar tends to go down. we are still eight weeks away from what we think will be the first hike. nonetheless, that is something which we are getting into that zone where the dollar will really run into some headwinds. that's what history suggests. if you look at growth momentum, the u.s. economy is underperforming a little bit compared to the rest of the world. a crucial thing for fx is that the diversions relative to the rest of the world, what you are seeing is that these indices are

moving in favor of europe and emerging markets. that is something that tends to lead to dollar weakness. dani: we love it when people stick with their convictions. it's good to hear. you mentioned em growth picking up. we've seen some em outperformance. i have to wonder, as we head into a fed decision today, is there anything we could hear from jay powell and company that the rails the relative outperformance of the developing world? james: yeah. i think there is. if jay powell signals that a hike could come, that would be something which would be a hawkish surprise. language in the statement that suggests that the fed is going to take a gradual approach to tightening may be language that to some suggests that they intend to try to go ahead. that would be a hawkish surprise

clearly. even in that scenario, i would question how long the impact on emerging markets would be. i think if the fed signaled such a hawkish intent, the market would very quickly price in a reversal of that, that the fed would not be able to deliver such a hawkish cycle. you would see some rotation out of u.s. equities into global equities and the rest of the world. it's about u.s. economic underperformance. the u.s. economy could not handle any rate hikes. if you look at how em has traded so far this year, the resilience is remarkable. i think in the face of what you've seen in stocks and with the u.s. rates, that resilience is remarkable. i think it's reflective of

investors being extremely underweight emerging-market assets. so there's a lot of scope for people to allocate into em. i think the hawkish supplies -- surprise from the fed would have a temporary impact. manus: if you are not careful, you are going to get a call from your ceo that u.s. exceptionalism and outperformance is a thing of history. [laughter] you are not on message. let's extrapolate. james: we are a global bank. [laughter] manus: good media trading. we talk about surprises and shocks. that can emanate from monetary policy. it could also emanate from geopolitics. russia is not there. russia is nowhere near the most read story on the bloomberg terminal at the moment. that tells me the world and the market isn't worried. what i want to know from you is, there's always a risk of a tale

whisked. whether it's from ukraine, russia, omicron, whatever else. i look at euro swiss. where is the destination or hedge in that marriott of moon shaped risk that you could look at for morgan stanley, head of fx? james: what currencies would move the most in response to an escalation? manus: where's the haven currency for you? is it swiss against euro, swiss against yen? is it yen outright? hedge yourself for tail risk. james: yeah. swiss and yen are a tradition always for a safe haven. i think that would remain the case in this situation. we do still have a short and view and that is largely because we do expect that risk

conditions will improve and that the use of the currency can be maintained. should there be a tail risk event emerging, safe havens will do well in the yen yen is as safe as they come. i absolutely think that would be one. i think the remember he will continue to trade extreme well. although the chinese economy is not doing well, i think they want the currency to be quite stable. if we saw until risk emanating from russia and ukraine, the chinese economy would not be affected by it. given the policy of the pboc, i think you will probably see what's there as well. dani: let me take the other side of the question which perhaps you did want to answer. if we do get this tail risk event, if there is any sort of escalation besides the obvious,

what could be the biggest impact to the downside? james: i think you could see an impact on the euro potentially being an interesting one. this is a currency which i think most people assume would be impacted to the south -- downside. perhaps you would see some retaliation from russia toward europe in the event of escalation. that would be expected to be bad as it goes. however, that can explain the weakness that we've seen. at the same time, the inflation stuff may well be that the actions are more hawkish. i think that is something that people need to keep in mind. the ecb is on a journey here. they are becoming increasingly fascinated.

that suggests that there's a little more room for them but -- to become more concerned. it's obvious that the euro would go down. i'm not so sure about that. we quite like the euro. we are long euro versus cable, versus sterling at the moment. dani: great to have you on the program this morning. thanks for joining us. let's get over to the first word news with juliette saly in singapore. juliette: the stakes are rising for boris johnson. he and his hat -- staff held parties that broke pandemic rules. the police process is likely to take longer than the ongoing civil service probe. reports say her investigation could be published as soon as wednesday. president biden says he has no intention of putting u.s. troops in ukraine.

speaking to reporters in washington, he ruled out deploying u.s. or nato forces but said he would consider personally sanctioning vladimir putin if he orders an invasion of ukraine. atop white house advisor said that u.s. troops were ready to go at a moments notice. >> we have no intention of putting american forces or nato forces in ukraine. as i said, there will be serious economic consequences if he moves. juliette: global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. manus: thank you very much. coming up, deutsche bank and bank of america. the latest on banking bonuses. this is bloomberg.

♪

♪ manus: the banking world rumbles on. it's wednesday and it's increasing the battle to retain and attract employees. there won't be much retention. good to have you with us. it's bonus season. where would you prefer to be, deutsche bank or bank of america? good morning. >> good morning either one will do. people working in banking these days. deutsche bank is weighing an

increase to its bonus pool of 15% as it navigates the challenges of competing for talent while keeping costs down which is always a battle. according to our sources, the overall expansion and payout marks strong diversions across the bank. what that means is that the increases are going to be people in the front-office, traders, m&a advisors. unfortunately, staff may see substantial drops. ultimately, this is targeted towards revenue generators. dani: i love that. be coldhearted, follow the cash. give us the latest on bank of america. what bonuses are we seeing from their? >> share.

they are rewarding almost all of their employees. further boosting compensation. most firms globally compete to attract and retain the revenue earners. it comes on top of regular conversations. if they earn as much as half $1 million a year, that would be about 97% of the global workforce being eligible for the benefits. manus: jamie dimon got a 10% pay rise. i suppose you will have the rates traders. i'm hearing lots of people tell me that the rates market was quiet and imploded in the end of december. it has gotten off to a very

quiet start. people are not writing tickets. tell me, who will seek the most? equity, bonds, or fast fx? >> as you said, on the fixed income side, the interest people are not in a good camp in the fourth quarter. we saw that with morgan stanley. these people are doing well over the past year. generally people who work in the investment banking. mergers and acquisitions. that's also equity capital markets. whether that will continue, it's hard to say. at this point in time, the bonus per will is looking back at the year before. everyone has done relatively well. whether that continues, whether there's an increasing diversions in the year ahead, that remains

to be seen. so far from what we've seen with bonuses, it's been rampant. not just in financial services. they are giving their staff a second celery -- salary. it's good times ahead. dani: now we need to make the argument for how our jobs are linked to banking. thank you so much. just want to give us breaking lines. the wind turbine maker with disappointing revenue, the forecast for 2022. their guidance is between 15 billion and 60.5 billion, below the estimate. it's been a difficult run for them, given the supply chain worries. manus: yep.

if it's not ships and ships, it's everything else in between. they have warranty provision levels for 2021 for 4.1%. we will keep an eye on how that stock opens as we go to the open. pretty much in line. the revenue will be 16.5. the estimate was 16.57. that's below the estimate. my apology. despite a tough environment, microsoft has reported a record quarterly revenue with bullish forecasts. we discussed. this is bloomberg. ♪

♪ dani: welcome back.

microsoft reporting earnings turning around, ending the post market session higher. let's get to laura wright. it's an interesting backdrop for the tech giant. walk us through the macro picture. laura: that mirrors the selloff that we saw back in march of 2020. fed rate, geopolitical tension, those are some of the catalysts. a well-known tech analyst says this is the most important earnings season in a decade for those tech bellwethers. the key question, contact turnaround the negative momentum that we've seen? manus's favorite word, bifurcation. the transformation includes microsoft. tesla felt today. it's less clear-cut about the future.

manus: that tom keene there. good to see you. what about the cloud, what about games? what is going to drive the top line of earnings as we go forward? laura: microsoft with record revenue. the market is on edge. even though the intelligent cloud part of the business fell in line with forecasts, the is your unit fell short of some really bullish whispers. that said, your unit still posted revenue growth of 46%. an anonymous number. it showed how high each expectation is at the time. is it looking forward that puts microsoft in a really unique position for the gaming metaverse?

manus: thank you very much. you got it all in there. well done. nasdaq up for tense of 1%. we will leave you in the capable hands of mark and anna. good morning. ♪ every day in business brings something new.

so get the flexibility of the new mobile service designed for your small business. introducing comcast business mobile. you get the most reliable network with nationwide 5g included. and you can get unlimited data for just $30 per line per month when you get four lines or mix and match data options. available now for comcast business internet customers with no line-activation fees or term contract required. see if you can save by switching today. comcast business. powering possibilities.

♪ anna: good morning and welcome to bloomberg markets europe. mark cudmore joins us from singapore to take us through all the market action this hour. the cash trade in europe is less than an hour away. here are your top headlines. that day. features climb ahead of today's meeting. jay powell will almost certainly signal a march i. how big? big tech clause back losses.