>> the real question for the fed is if they want to surprise any dovish direction. >> their patients will be rewarded if they do not get aggressive early in the cycle. >> i would like them to just get on with it. >> they have been going 85 miles per hour in the left-hand lane, and they need to catch up and catch up quickly. >> we think the fed comes into this year like a hawk and leaves like a fed -- like a dove. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: geopolitics gripping this market. good morning. this is "bloomberg surveillance ," live on tv and radio. alongside tom keene and lisa abramowicz, i am jonathan ferro. down.8 in the s&p. tom: equities, bonds, currencies , most information on the bond market, and i am looking at the

2's/10's, flattening is en vogue. jonathan: curve flatter. goldman this morning saying go to cash, just a little bit. i want to go through this call. still overweight equities and -- downgrading credit to underweight over three months and 12 months. cash becoming an asset class again. tom: everyone recalibrating. the year starts in march -- with a vengeance do you see that this year as well. i will not go over the strategy changes, but you will see a ton of people are just. jonathan: geopolitics at the epicenter of this for many people. lisa: if the year is just starting in march, i do not want to be here -- it will be the longest year in history. the geopolitics to me, it is interesting to see the risk aversion. bonds are big. what is the message, the idea that long bonds when people are

talking about entrenched runaway inflation? the flip last week is indicative of a market that people cannot and will not abandon despite some of these dire calls. jonathan: brent to 94 wti, 92. lisa: people are wondering whether people have priced too much into the ukraine-russia conflict. a deutsche bank survey came out -- in all fairness completed before the late february, late friday statements about an imminent conflict. only 7% of respondents thought the ukraine-russia conflict would have a long-lasting effect on the markets. jonathan: equities are downhearted in the nasdaq, in europe even more so. underperformance in europe. they missed the downdraft late friday afternoon. in frankfurt, germany, down 3.2%. yields come in to basis points. -- two basis points.

the swiss stronger, the yen stronger. lisa: how much is being priced into the market with respect to the ukraine potential conflict with russia? today, we hear from german chancellor olaf scholz, who is heading to ukraine today, to russia tomorrow. how much can they avoid some sort of crisis, particularly with natural gas spiking on the heels of the increasing conflict? this is a conundrum. mike wilson say this could be a polar vortex for risk assets, particularly stocks. others saying this seems to be a short-term risk. 11:15 am, we hear from ecb president christine lagarde, dressing the european parliament. how much do we get some sort of walk back from what she said last week and continued pushback on the market pricing? we have already repriced a little bit, pushing back to when they may raise rates for the first time. however, do they want to give it a little more discomfort to bond

markets that have been quiescent in the face of a lot of dovish commentary? at 11:30 a.m., the fed's board of governors holding a routine meeting. also, mary daly's comments over the weekend, the san francisco fed resident, sang abrupt and aggressive action can actually have destabilizing effects on the very growth and price stability we are trying to achieve, so what i favor is moving in march, watching, measuring, being careful ahead of us and increasing interest rates when it is the best place to do that it has the market gotten ahead of itself? the flattest 2's/10's spread going back to april of 2020. jonathan: the tone of that interview was very interesting. she was very relaxed when talking about these issues. it did not sound like someone panicked at all. lisa: i think that was

deliberate. how much is she pushing back on jim bullard's concern after the cpi report, how much was she trying to say we had to be balanced at a time when risks are on both sides and you have people saying we are moving too fast and we will break the market? jonathan: let's get to the bond markets. we can do that with subadra rajappa, head of u.s. rates strategy at socgen. i do not expect you to have a crystal ball on things associated with geopolitics. what i would like is to try to understand how negative development inside ukraine would influence central bank policy from your perspective. how do you think it would? subadra: it does play a factor because of the fact that you do not want to be seen as aggressively hawkish or raising rates too fast in a time when geopolitics is a key concern. the key indicator is the 2's/10's part of the curve

around 40 basis points. any hawkish -- i've said this many times before. the last thing the fed wants to do is too aggressively flatten out the curve and lead to a recession. there is a lot baked into the bond market right now. we are pricing in six rate hikes by the end of the year. that is an aggressive policy path already. i do not think you will get much more of a hawkish tone from the fed. they will be very hawkish. jonathan: what happens in ukraine will influence -- how would you expect the yield curve in italy and germany to develop off the back of those stories? subadra: so far, we have seen a

steepening of the yield curve in europe because the ecb hike expectation is getting priced into the market. i think they are in a tough situation, with oil being a key issue. and with ukraine being in their backyard. you will see some rate hikes getting priced out of the market if the ukraine situation gets worse. natural gas is a very important issue for them. energy prices have gone up meaningfully. the ecb does not want to be punitive and sound hawkish at a time when geopolitics is front and center, especially because of the fact that oil prices will eat into consumer spending, not just in europe but also in the u.s. i think central banks are very aware of that. tom: what is your view of a flat curve, maybe 10 basis point spread, whatever, and an inverted curve?

what is the difference between those two for markets? subadra: there is not really much of a difference, per se. at these levels, 40 basis points away from being close to zero or inverted. so we are watching the curve closely to see what signals we are getting. typically, a flat or inverted curve will lead to a slowdown in growth in about a year or two's time. in past rate hikes, you tend to see the fed hike rates well past inversion. in the last two cycles, it 1999 as well as 2005, they hiked rates by 1.25 to 1.5% after the curve inverted. this time around, they will be cautious. they're looking at signals from the yield curve to make sure they do not tighten policy to fast, especially since the recovery still fragile. you are looking at a first quarter where growth will be

meaningfully slower. you are looking at perhaps a weaker retail sales number because of the omicron variant. under the circumstances, the fed will be cautious when it comes to policy and policy will be very measured. lisa: is this environment getting more concerning for credit? subadra: yeah, definitely. you start to see credit spreads wide in. -- widen. the fact that the fed will start walking away from the market, especially asset purchases, will be more constraining in general. the talk is there will be a decent rapid unwind of the balance sheet, starting sometime in june or july of this year and going to next year. the policy of accommodation being removed from asset purchases will impact both treasuries as well as credit projects. jonathan: thank you, as always. subadra rajappa of socgen on a flatter if not inverted yield

curve further down the road. --available on bloomberg.com and on the bloomberg terminal p of the lessons of the past week? lisa: you have a lot of people coming out and saying inflation is becoming more entrenched and it will accelerating in the way we have not gotten used to and have not seen since the 1970's. at the market consensus continues to be the opposite, that we are heading back to where we were but the path will be rougher. i find this compelling. the transitory argument is the conviction right now in markets, despite the fact that has been abandoned by the fed, at least verbally, and you have a growing number of big figures saying they see something very different from what they have seen in the past. jonathan: the big change in markets is how much quicker the for think -- people think the fed will move. quicker is the shift of the last

few weeks. the ultimate destination has not changed. the trajectory to climate is steeper. that is the change. for the market for the next 12 months, at least. tom: the evidence of the mountain on the y axis or the timeline on the x axis is simple. we need more data like we will see with retail sales today. i cannot say that those determinants will be made to data -- that is the way it always happens. jonathan: matt brill will join us from invesco in the next hour as a spread start to gap wider and the likes of goldman go underweight credit and overweight cash. yields are higher at the front end. good morning. down a basis point to 1.92. this is bloomberg.

ritika: with the first word news, i'm ritika gupta. the ambassador bridge that ling's ontario to the u.s. has reopened after a five-day protest against vaccine mandates stopped traffic. police cleared demonstrators before moving barriers erected at the site. the bridge handles an estimated 25% of trade between canada and the u.s. --the latest report supported the initiative. switzerland lags behind most nations on tobacco advertising. hsbc holding plans to -- it is a bit to catch up with rivals on compensation. the lender reportedly wants to avoid losing junior staff to

other wall street firms who have been upping pay. more senior employees are said to have pay hikes up to 10%. crown resorts accepted the u.s. climate equity giant takeover offer. crown was found unsuitable to run its sydney casino and was given two years to address wrongdoing in its melbourne operation. global news 24 hours a day on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> let's hope that diplomacy works. it is about diplomacy deterrence. the president has made it clear it clear -- there is a big price for russia to pay to go there. jonathan: speaker pelosi over the weekend. euro equity market group by geopolitical risk right now. in the states, down about 30 eight points, -0.9% on wall street. nasdaq 100 down a little more than 1%. no drama in the treasury market.

yields are down a whole lot more in the market with the swiss stronger and the japanese yen stronger. tom: euro-swiss stronger, correlated with gold. oil down to 90 four dollars on brent crude -- annmarie hordern with us. what are you focused on? annmarie: it is the germans, olaf scholz -- maria: it is the germans, olaf scholz. vladimir putin meeting with him tomorrow for the first time here this is a chancellor who is under huge pressure.

domestically, polls continue to drop for him. he is stuck with a gas problem and economic problem. if there are big sanctions on the russian economy, it is germany that will hurt most. tom: help us with our perspective -- we have world war ii, then we have, basically, gorbachev allowing for the epa chief -- repatriation of east germany. right now, how does mr. putin perceive germany 2022? maria: i think that is unclear, and it is unclear because it is new leadership. when it comes to angela merkel, that is someone who grew up in east germany, who spoke fluent russian. the two of them had an understanding. you could argue a lot of the problems germany and russia have are the making of angela merkel and the appeasement she pursued 14 years. but for vladimir putin, this is a test when it comes to olaf

scholz. he does not know this man, does not know how far he can push him. he does not know what kind of reaction he will get from olaf scholz, who is under pressure. it is not accurate to say germans do not care about ukraine. public opinion has really shifted. lisa: meanwhile, what is the u.s. relationship with ukraine? annmarie: president biden spoke with president zelensky yesterday. the readout said similar rhetoric we had heard -- shift severe economic sanctions on russia. following the meeting, you heard from a u.s. official that this is not in the readout of my that they are looking at even more aid economic aid to ukraine. also, something not discussed in the readout, but the ukrainians came out forthright was that president zelensky invited

president biden to come to kyiv. that will not happen. the u.s. telling americans to get out of ukraine in the next 48 hours. lisa: in the meantime -- when they are talking how they can better position in the case of a military conflict. annmarie: sending troops to ukraine is off the table. that is something the president has at a number of times. but the administration sent another 3000 troops to poland on the part of that deterrence strategy, sending more troops to the eastern flank of nato to try to deter president vladimir putin. but they also brought back individuals that were part of the army in ukraine who were helping them on a strategic front. what is so interesting is what president putin does not want is a stronger native.

given what is happening now, that is exactly what he is getting. lisa: that is the question, and i would love for you to weigh in on this, the idea that ukraine putting out the idea they may potentially remove their application to native. what is the intel on that? maria: that is a point where you have to be clear. when you talk about nato and ukraine, that is in the constitution. the country made a pledge, a promise, they want to join both the e.u. and nato. to change that, you need to change the constitution. for that, you need a political majority that does not exist. if they were to do that, the government would like the collapse. that would lead to social unrest. ukrainian public opinion does not want to move east, they want to move west. jonathan: maria tadeo at of brussels, thank you. annmarie hordern in washington, d.c. the ukrainian ambassador to britain, in a comment to the

bbc, it got a lot of attention overnight. lisa: they are in a tough spot. nobody wants a war. if they can defuse this quickly, that is terrific. at the same time, this is in their dna, as maria was saying. i wonder how much of it is trying to thread the needle between putin and his aggression and keeping the support of the u.s. and germany at a time when there is not appetite to send troops. jonathan: how much of a difference would you say now between and 2014 -- tom: huge difference. it is a really important question. i do not think has been discussed enough. back to catherine the great, 1753, there is a direct link of crimea with moscow. that is irrefutable. there is a bunch of history in the middle 20th century, agreements, where that comes under argument. this is totally different. this is about a land moving from kyiv west and eastern poland

that is clearly not russian terrain. you can argue about the path down to the black sea -- frankly, over the weekend, that is where my study was, far more on the black sea, on what nato will do in romania in terms of showing the flag and building out a presence in romania. i get the all the focus is belarus -- sorry, i am also focused on the black seat. jonathan: clearly tension hitting the equity market in europe. equity futures look like this in america -- down 0.8% on the s&p. on the nasdaq, down a little more than 1%. tons to cover. the fallout from the super bowl. i love this week -- my bloomberg moment was not the halftime show, it was not knowing how to scan the qr code. you scanned it. lisa: i did, and i was frankly proud of myself that i was standing the benson qr code --

jonathan: you should not scan a qr code if you do not know what it will be -- lisa: when you go to restaurants, they could be scamming you, too -- jonathan: i think they are try to give you the menu. i am saying it is a bad habit to get to. this is bloomberg. ♪ erg. ♪

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jonathan: suddenly a lot of people born in the late 70's and early 80's seeming very old last night when they remembered where they were when those songs came out. i felt the same way. i'm with you. you are not alone. nasdaq down 1%. some group love on valentine's day. russell futures down by .5%. we've got geopolitical risk on the one hand. you've got the inflation story on the other. you've got the fed rate story as well. goldman sachs pulled back from 5100 year end to 4900 not on earnings. evaluations.

they put out the forecast for equities. they were looking for two hikes. now they are looking for seven. a move at every single meeting for 2022. in the treasury market we were through 160 last week on two's. we pulled back. that curve is flatter. in the 30's. flat 210 spread very briefly -- that to 10 spread very briefly .

-- is this my valentines present from you? that banner? i love you, too, tk. fields community seven basis points in germany. lisa wondering how i'm still keeping a straight face. the banks really suffering. as we pulled back on yields and start to recalibrate. when the ecb is going to make a move. switching the board to finish on this. euro swiss down by .5%.

curiously, crude very close to a 95. that's across asset price action. let's say good morning to romain. romaine: good morning. happy valentine's day to my second favorite anchor on bloomberg television. last week we started off with a lot of concerns about fundamentals. concerns about a more aggressive thread. tech remains on the back foot. any business that has some sort of cross-border exposure down. there is a bid to some of the haven assets. flip up the board, northrop

grumman and lockheed martin. lockheed shares slightly higher probably for a different reason. that deal that was apparently going to be blocked by the federal trade commission. spelunking apparently got a bid from -- splunk apparently got a bid from cisco. speculation about m&a remains in that space. peloton shares down slightly after the interview with the new ceo gave to the financial times saying he does not plan to pursue any type of m&a for peloton. tom: we finally have headlines across the european time zones. this from mr. putin as well. nato eastwards expansion is endless and very dangerous.

going back to the core visibility of the nato issue. we talked about mr. stoltenberg in romania late last week on the black sea. we will continue to monitor those headlines out of russia. oil under $94 a barrel on brent crude. tom: the history of that line all those decades ago. when he floated that idea of not moving an inch eastward. and we are still debating what he meant by that. the u.s. decided their interpretation of that line and just the belief for the russians that that was a promise. for him it was a promise. for america it was anything but. tom: it's not our job to give an opinion on this. i'm certainly not going to give an opinion on nato or eu continental. the complexities given from an

original 15 nations out towards 28 nations, it's just more complex now than the simplicity post-world war ii. jonathan: when you look at the range of arguments, is that what it's really about? is it nato or something bigger than that? tom: many people will say it's not just about nato. it is way more complex. mostly about the near abroad is the phrase that's used. we will talk about that in a moment. right now jim polson joining from minnesota. are you building cash? goldman sachs is building cash at a cash time. i can't believe i'm saying this. is jim polson building cash? >> i wish i had. we've got a hot mess here. there is no doubt. we've got runaway inflation

supposedly. we've got the fed regardless of what it does if it goes big, that's going to be a policy mistake. we've got yield curves flattening around the deal. we have a potential war coming out us escalating, $100 crude. it just seems like a real mess. i would say two things. i kind of like all the reasons to be fearful and there's just a not and -- a lot and everyone is downgrading their forecast. you look at the s&p, all this stuff, is it even off 10% at the moment from its highs? kind of in the background holding in there. and then the fundamental backdrop here to me seems good. i still think the economy if anything was re-accelerating coming out of omicron. i know it could get hit hard in parts of the world like in europe. there could be recessions.

but here in the united states the fundamentals remain pretty good. i would be more tempted to try not to think what might happen the next 30 days and think where you might be some time before the end of the year. lisa: let's say you have some cash. are you buying because you are looking past the next 30 days? >> i would be. if you are sitting in cash, i think it's a good opportunity to be taking advantage of some of this sphere as it unfolds here. we also got a technical today. maybe we have to go back and visit those monday lows we did a couple weeks ago. i would look at putting in more of the cyclical small caps and i would be adding to international markets and might take a good look at europe. jonathan: let's go there. europe where? >> i guess my favorite still is

emerging markets x china and i have been overweight. i am still overweight they are. we have recently just this year moved up our international weights in the global -- from underweight to slightly overweight. i still think the international markets are going to beat the u.s. as the year unfolds. of course that will depend on what happens with the european situation. i am more worried about it seems like this geopolitical crisis has been well telegraphed and vetted for quite a while. the scarier ones come out of left field. no one expects it and you wake up some morning and oil is up $20 because there was an attack overnight. this one markets have had time to digest it before the fact and

may be that also says something about how serious it will actually occur or not. i don't know if europe is my favorite but if it really gets damaged that's more interesting. international markets themselves are probably going to have a pretty good year relative to the united states overall. i still think the u.s. is going to see 5000. jonathan: jim polson sounding bullish. futures down. the nasdaq down just half of 1%. tom: we are recovering. i like what jim says about how far down our way. is it a correction. are we going to go to standard deviations. what you see here on the bloomberg launchpad is it just lit up like a candle with the

red and green blinking. he sort of just see the pulse and i go to the russian -- and you sort of just see the pulse and i go to the russian headlines. putin asked lavrov if there is a chance to agree on key issues. that's the pulse that we are following across the bloomberg world. jonathan: there has been a turn. let me identify where we are seeing that. the equity benchmark was down by more than 3%. so we are off the lows on equity futures and yields are turning in the treasury market as well. so your yield curve is still flatter but two's are picking up now. tom: the vix under 30 gets my attention. jonathan: from new york city, this is bloomberg. ♪

>> president joe biden told ukrainian leaders that the u.s. and its allies would react swiftly and decisively if russia or to attack ukraine. russia has repeatedly said it has no plans to invade. the german chancellor is set to meet with putin in moscow tomorrow. hong kong's daily covid cases top 2000 for the first time ever with a worsening out right threatening the cities covid zero push. cases have exceeded capacity at hong kong hospitals and officials have asked for beijing support including help with its test kit supply. pakistan is warning that afghanistan could descend into chaos and threaten regional stability. the prime minister pointed to

the u.s. refusal to recognize the taliban coupled with sanctions and frozen assets. the international olympic committee is pushing back against a ruling that allows russian olympic committee figure skater to continue to compete at the beijing winter olympics despite failing a drug test. the ioc says it will not hold a metal ceremony if she finishes on the podium. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> i wouldn't be so quick to assume that we are going to see an invasion of ukraine. what we can say is all the preparations are in place for a regional war in ukraine. that's not the same thing as saying it's inevitable. jonathan: the tone in this market shifts. futures turn positive. yields higher two basis points on tens. crude down one full percentage point and here's the headline from the russian foreign minister sergei lavrov. i would propose to continue diplomatic measures, continue contacts with the west. says there's always a chance to agree. tom: these are just headlines coming out at rapid speed. putin said "all right" in response.

the elasticity in the short-term bond yield. oil doing better. the backdrop, i want you to bring in maria but the backdrop here, not only are the headlines from the russian leaders but at the same time, the press waiting in ukraine for the leaders of germany and ukraine. for those on the radio it's really quite something when the german and ukrainian flags in kiev as the story moves minute by minute. jonathan: joining us now, maria tadeo out of brussels. your read on the headlines. >> it is very significant. vladimir putin said he wanted to speak to two people.

he's had a meeting so far with sergei lavrov who is a very experienced diplomat and he is saying we should still talk with the west, there may be a way forward. vladimir putin has made it clear it's a yes. we can go for it. this one so far does show that vladimir putin does want to continue with dialogue. he spoke with emmanuel macron, the french president told him there can be no x -- escalation. you can argue this is a clear signal that vladimir putin is still at the table. jonathan: how important is the meeting with the russian president going to be? >> incredibly important. it's the first time we see them meet together. when you look at the european union and russia, it's also important because the timing.

there was a report suggesting russia can invade on tuesday. so that moment in time, this date was particularly important. all of will have to make a very clear signal whether or not he wants to go ahead with the nord stream 2 pipeline but also tell putin we are willing to take economic pain for you to back off from ukraine. tom: if we go to diplomacy 101, what are the mechanisms for any set of world leaders to allow mr. putin to save face? >> there's two areas in which they believe they can save face. they want to be more transparent in the way we deal with our military. perhaps there's areas we could both pull back.

also if they are much more clear in terms of the weapons the military our conduct. when it comes to nato, this is something ukraine is not willing to give up so either russia changes tone on that or it's very difficult to see what a compromise looks like. the russians believe this is a threat for them. they are not going to ditch the nato promise. it is connected with the identity of the country. tom: if we reaffirm the warm water presence that putin needs on the black sea, it is not enough to save face so that ukraine can consider joining nato? >> i would say crimea for many is long gone and it's very much accepted although it's politically perhaps not correct to say that it won't ever go

back to ukraine. i think it's more in the eastern territories where there could be some little ground. for the ukrainian side is also problematic. even with the minsk agreement, you give way at first russians to move further into ukraine. >> one thing sergei lavrov said was that part of the u.s. response to russia was more construct. do we know what the context was? >> this is what really catches my eye. the united states and nato both send letters to russia. vladimir putin said i will study them and look at them very carefully. the united states were not leaked and we don't know what the united states promised to russia in those letters. it's very interesting that russia said we like better what we see from the u.s. when it comes to nato nothing has changed. it's also very tricky because they have always said nothing will get decided on ukraine.

we don't want to repeat a yell to moment. that's not what this is about. jonathan: tomorrow chancellor schultz goes to russia to meet with vladimir putin just to set the scene here, incredibly long table. looks like something 20 feet long with the russian president at the one and and foreign minister sergei lavrov. and the foreign minister proposing further diplomatic efforts and just a simple response from the russian president. tom: you've got to believe it is stage-managed to a great extent. nevertheless it's a move forward. i would go back to what markets are responding. we have our usual indicators and i would say you can look at not a gloom board but a board

tightly correlated into the emotions going on in europe. that would be centered on euro swiss, brent crude, gold, my eyes are failing me. 1857. it's a little bit weaker in the last number of minutes. if got to go back to two tens u.s. spread which is a little better than it was an hour ago. jonathan: of the front-end is so much higher right now as we have a lift on the treasury curve. up five basis points. lisa: it highlights the uncertainty. the lack of understanding of what vladimir putin motivation is. the volatility in treasury yields, take a look at some of the implied volatility. people don't know where to look next. jonathan: the russian president vladimir putin saying all right to his foreign minister's

proposal to continue diplomatic efforts. this turns positive on the s&p by a single point. the nasdaq unchanged. yields higher on the front-end by five basis points. from new york, this is bloomberg. ♪

>> there are a lot of dynamics under the hood. it makes sense to start repositioning portfolios. >> we are not getting as much bang for buck with real earnings. >> stocks will be your best inflation hedge. >> our call has been more subdued market returns and more differentiated -- more differentiation within that. >> this is "bloomberg surveillance" with tom keene, and lisa abramowicz. tom: we welcome all of