>> look, the economy is so strong. we look at the leading indicators. they are still positive. >> cash flow is still quite strong. >> the fundamental backdrop to me still >> >> seems pretty good. this is bloomberg surveillance with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning. our studios in new york, we welcome you on radio and television and we continue to monitor what we see in moscow, what we hear from ukraine.

all of it falls back to what the bloomberg terminal says. it is a better market. jonathan the optics improved around russia and ukraine and now we need to see the substance . he hasn't seen the facts on the ground yet. tom: here's a set of headlines that we are watching. three sets of headlines. russia with its silence in meetings, ukraine moments ago, and nato stepping in with a link -- with a long presser. what matters to you of the three sets of headlines? jonathan: what we have heard from sergei lavrov is there are troops possibly going back to their bases after what he calls drills. point number two, the nato secretary-general would like to see that withdrawal on the ground. he hasn't seen that yet. he wants to see evidence. i think that is what everyone wants to see, the substance to

backup the better optics. the markets aren't going to hang around. the possibility of something better happening here. tom: boris johnson weighs in now. this in the last number of minutes. a sign of the poem attic opening to resolve the ukraine crisis. -- a sign of diplomatic opening to resolve the ukraine crisis. jonathan: i can't speak for the prime minister, but president macron has been over. i'm sure that he might go over too. tom: he gets frequent flyer miles. let's look at the domestic front. in 28 minutes we get ppi. is it cpi? no, but all of a sudden it is important. lisa: the shift from dialogue from the geopolitical headlines. i love how you go to jonathan and say that you are british you must be a speaker for boris

johnson. all of us on the list that we are seeing in yields lead to a more negative feedback loop into equities. we see continued resilience despite those particular fears? tom: to me what is important is the new definitions of year-end to take a point terminal rate on inflation. that is really open to debate. lisa: no one knows. you have people saying that we are about to use the hyperinflation, all of a sudden that will be the topic for the rest of the hour. people say we have more entrenched inflationary pressures. then people say it is still transitory and it will feed off into the same regime we were facing pre-pandemic. i think it is really interesting, the notes from the meeting, from the fed meeting tomorrow, how much they focus on the fed balance sheet as a tool of some of their policy. tom: it is too important to let

up. what is important on the hyper is not so much inflation, it is the certitude that we are coming down. jonathan: it is a collapse in the confidence of the underlying currency. it is when people go around with massive banks of cash trying to pay for things. a lot of people would like to use the h-word and there might be securities that benefit them, i'm thinking of a certain tech ceo, that's not what we have. we have a inflation? absolutely. does it deserve the h-word, look at zimbabwe and venezuela. don't use the h-word. lisa: i knew this was coming. jonathan: it is ridiculous to

use the h-word.anyone who studies economics, is a student of economic history, they now to use the h word when inflation is at 7.5% is ridiculous. high inflation yes. divorced from the facts on the ground, i'm on board. hyperinflation, let's get real. tom: the data and then the stock climates. the vix 2.4, a better equity market. jonathan: yields are up too. crew falls back by 3%. -- crude falls back from 3%. i think that we need to quote the ukrainians more. this came from the ministry of foreign affairs of ukraine. on russian statements regarding withdrawal of some forces from the ukrainian border we in ukraine have a rule. we don't believe what we hear we believe what we see.

if withdrawal follows these statements we will believe in a real de-escalation. those are the comments from ukraine. tom: headlines coming out as well, waiting in moscow for german and russian meetings. now we await our chief investment strategist. scott, what has changed in your view staggering from 1231 21. if you had to rewrite the outlook how would it be different and what would be the nuances of change? scott: obviously the big push and pull at present and over the year will be the battle between inflation and the fed's response to it. there is a subtle nuance that i think is important. any student of long-term financial history will recognize the important thing is not that

the fed is raising interest rates but why. if there is a benign narrative behind that associated with robust economic growth the market is fine. if on the other hand, the point that jonathan raised, if the fed is believed to be behind the curve on inflation and is scrambling to keep up, that is not a benign narrative. that is also the debate between single market trading sessions where you see intraday market volatility. jonathan: when you start to see real yields rise and growth decelerate, which is what people anticipate, what does that market look like? are you seeing that evolving real-time? scott: i think that we are already seeing that evolving real-time, even though we are talking about the fed raising interest rates, the market yields are already rising and mortgage rates are rising.

there are already tighter monetary conditions. i'm not calling them tight. by the end of the year we could be looking at one rate economic path in terms of gdp, inflation, and interest rates that looks suspiciously like a pre-pandemic quarter or two. i think the market returns to a greater focus on valuation and quality. we are talking about equities. less of a focus on the volatility that has dominated the market, the so-called reopening trade. lisa: what is the role of cash among the slew of uncertainty? scott: i think that cash has an optional value in market volatility that is rather appealing. historically cash has been a practically zero return investment. in a more volatile market environment the option value of cash increases.

therefore the appeal increases. it gives an investor the ability to take advantage of price volatility rather than be victimized by it. jonathan: do you mind if i pick a sector to finish on? the banks are getting a ton of attention, rising yields, the banks have done really nicely through friday. up in the u.s. and europe a lot with a late stage pickup, but it continues. what is your thought on the sector given that we expect growth decelerate and a higher policy rate but ultimately flatter curves with it? scott: i will generalize here, pretty attractive valuations in the banking sector coupled with balance sheets are in good shape coupled with a lending tailwind in pretty good shape. it is a pretty good environment for traditional financials. the kind of year that we expect to unfold over 2022. jonathan: thank you, as always.

breaking things down, as things improve on the nasdaq up to percent on the s&p. tom: the micro data, i would say two hours sustained we cannot forget with all of the discussion on international relations and diplomacy the modest inflation report in 20 minutes that may move the market evermore so. jonathan: then the fed minutes tomorrow and a ton of fed speak. the back half of this week really picks up. lisa: what is going to drive market action? it is such a skittish market. are we going to be talking about ukraine after a: 30, are we going to be talking about the fed moving quickly? pick your data point and your narrative. that is why cash as an optionality is making that much more sense for many people. jonathan: i've heard it from different people now.

,", blackrock, the option of holding casts -- holding cash through what could be a volatile year. tom: an open investment company's 3% or 4% cash could go up to 7% or 8%, that is double cash. jonathan: 5% cash was the manager survey. 5.3% cash levels jumped to. that was jumps, just to be clear. 5.3%. it may be heading in that direction to add a little more. the yields are up by four basis points and crude is lower by almost 3%. the optics improve. my stress, the optics improve around ukraine -- i stress, the optics improve around ukraine. >> keeping you up-to-date with news around the world. some russian troops are pulling

back after drills that raised the prospect of an attack on ukraine according to the russian defense ministry which said they completed their drills. the u.s. warned of a russian invasion but the kremlin says that it has no plans for an attack. german chancellor schultz is in moscow to meet with vladimir putin. demonstrators against vaccine mandates halted traffic at two major border crossings into western canada. some vowed to stay even as prime minister trudeau gave the government emergency powers to end blockades. the main border post in alberta and manitoba has been closed. commercial traffic to the u.s. was blocked by semitrailers and farm equipment. the white house considering a federal gasoline tax holiday. top democratic lawmakers are weighing the move of pausing fees at the pub as part of a broader campaign to fight rising fuel prices. shares of virgin galactic a

jumping, tickets for journey into space will start tomorrow. the price is $450,000. commercial service will begin later this year. the money gram has agreed to be acquired by dearborn partners in an all cash transaction valued at $1.8 billion representing approximately 50% premiums of money gram's closing price. global news, 24 hours a day on-air and on quicktake, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> the fact that no one really knows what the sanctions could be, no one knows if russia is actually going to attack or not, despite the headlines, that uncertainty can also raise prices. jonathan: what a rally it has been year for 2022. the atlantic council. futures are higher of 1.5% on the s&p coming back a little from session highs. the nasdaq 100 of almost two full percentage points. crude backing down, lower, heading south by 2.9% to $92.75. tom: a definitive conversation

with the professor of international relations, an important group effort, the retreat of the west, which was timely to say the least over the past 24 months. i want to take it the other way, professor, and say the advance of the east. if i look at putin, and this is a phrase from you, the power and partisanship that we can see, how much power does mr. putin hold and what partisanship can you look for as the east advances? >> i am going to be with you. putin holds a lot of cards, and he is displaying them. he has been using them and displaying them. they are mostly hard power cards , like deploying troops and running exercises and moving ships through the darnell streets and -- dardanelles

straits and so forth. there is a lot of opposition in europe to what he's doing. the closer you get to russia the more opposition there is. in the baltic states, obviously in ukraine. he has gotten himself to a point now where he has laid down a lot of demands, and i think we are now at crunch time where we will see whether or not he gets traction on his main demand, that ukraine not join nato. i think that is where the game is right now. we are in the 11th hour, or whatever metaphor you want to use. there are some hopeful signs, but this could easily go south. tom: what will you listen for from the new leader of germany in the coming hours? >> this is a very interesting trip. he stopped yesterday in kyiv and

had a conversation with ukrainian leader before moving onto putin. i think the question here is what i'm looking for is whether or not his comment yesterday about nato being his country's desire, to be part of nato, being more a "dream" than realistic goal is somehow the basis of private negotiations, something we are not privy to, and arrangements going on and whether or not the announcement this morning that russia was pulling back troops is in response to that. it is unclear, reading tea leaves. that is where i think the discussion and negotiation is now. lisa: usually it is reading tea

leaves about we have an unprecedented amount of information from the u.s. administration in real time about what they believe to be happening. how do you read that? >> i think there are multiple audiences. one of them is to underscore to the ukrainians how serious the situation is. the second, or maybe it should be the first, is to deter putin. they are getting information. really raise his understanding of the stakes involved. the u.s. is trying to get in front of the narrative or information game. the third is trying to demonstrate to the american public that the biden administration is managing this more effectively than the afghan pullout.

tom: go back to the founding of all this. is this the new containment? are we searching for a new western strategy to contain the leader of russia? >> i think that the west is searching for. a strategy i don't think that primary western states like u.s., germany, the u.k., and others, i don't think that this is what they had imagined. ironically thus far putin's efforts to change the european security structure have actually i think given nato, the western alliance, new purpose. something that it hasn't had, as your question alludes, since the soviet union collapsed 30 years ago. the deployment of u.s. and other troops in eastern europe and the

delivery of thousands of antitank missiles and weapons to ukraine. putin has managed to get everyone's attention in the west, but the results are not all favorable to him.whether or not this is what takes form and the western collective strategy is unclear. remember, what joe biden would like to be focused on is china and east asia. so every day that he and his team is investing time in europe is a day really that they are not getting the message out as much with respect to east asia and china. i say that despite the fact that the secretary of state is in east asia right now. that story is very -- jonathan: i with the for you to come back soon so we can extend that conversation to the second chapter, which i believe is the discussion about china. thank you.

did anyone even know where the secretary of state was before he said that? lisa: we talked about it yesterday that he would be in australia speaking with east asian nations to try to shore up support versus china, but we are not talking about that. jonathan: not even in the back text, it's not in the newspaper. tom: life goes on. that shows that there are things away from what we are witnessing on the continent of europe. i think that you will see that throughout the biden government. i think he said about the communication model about the biden administration is something that we've underplayed. they have been incredibly focused on giving out information. jonathan: ppi is just around the corner and a: 30 eastern. we are looking for a hot number, but a deceleration we hope, i

stress. futures up 1.4 on the s&p, yields higher, crude lower. mike mckee is ready to go to break down the stater for you. from new york city, this is bloomberg. ♪

jonathan: seconds away from some economic data in america with tom keene lisa abramowicz, i'm jonathan ferro. your equity market has left, yields are higher, crude is lower. we have some ppi data. michael mckee, it is hot. michael: this will not be good news for the fed. the ppi on a month over month basis comes in up 1% after a .3% rise last month. the forecast was for .5%. double the rate of inflation in january. leave out food and energy and we are up .8%. the forecast was for .5%. it leaves the final demand on a year-over-year basis at 9.7%. we thought because of base affects we should be dropping to

9.1%, but no drop there. 6.9% -- the core is 8.3% year-over-year. the forecast was for her to drop to 7.9%. if you add trade services, which is wholesalers, 6.9%. a significant increase in producer price or factory gate inflation on the month. we can look at what it was mostly made up of. i'll take a look for that while you do the markets. let me also point out the entire manufacturing comes in a 3.1. it was expected to jump to 12.1%, better than the negatives .7%. we did have an increase in empire hiring but new orders do

not rise that much. jonathan: not trading off the back of this in a big way. future still elevated. on the nasdaq 100 up 1.7. yields on 10 to 2.03. on the front end by a single basis hiring but new orders do not rise that point, to 1.58. if you look at where ppi is, prices at the factory still climbing come and look at cpi, the headline figure, think about margins for corporations. how much of this can they pass on to the consumer and are we starting to get to that point in the story where there's just a little bit of pushback from the consumer? how high is the price tolerance on the consumption end of things. tom: i would nate -- i would not take that as a general tone, i would take it as a diffusion from sectors that cannot pass it on in sectors that can. mike, you mentioned empire manufacturing. it is better but it is way below the optimism that was expected. fold that into tomorrow's retail sales report, which is now a bigger deal than it was.

michael: it will be interesting to see what americans did. the feeling we saw in december is spending pullback a little bit. tom: are we just guessing? michael: at this point. we saw a decline in spending 1.9% last month. the forecast is it will rise to percent. we hope americans are back spend a. the question has been services versus goods. in the ppi, the index for services rose .7% and for goods 1.3%. it up like we are seeing more services industry spending, but even more on goods and that is the turn the fed has been waiting for that has not happened. lisa: i am surprised markets are not moving more because people were expecting there to be a plateau. we were expecting peak inflation

discussions to take all this month. this does not give any wind to that unless i am looking at the wrong data. at what point do people sate this is prolonged, it is not necessarily reaching that peak as early as we thought? michael: what has happened is the ppi is coming out after the cpi. people are thinking this is the january ppi. whatever impact it is going to have has probably already been in the inflation figures. there's not a direct correlation between the two but it is not looking forward, that may be why we are not seeing the rise we have seen. we also have some crosscurrents hitting. in terms of inflation that do not have anything to do with traditional drivers, oil prices and natural gas prices moving because of the situation in europe. we have to wait in see how those come out.

they would shut more in the final demand figures, but not until february. jonathan: thank you. we have already had the january inflation surprise, ppi confirming the trend. things are still hot on the factory and for the consumer. the next read on cpi's march 10, the fed decides march 16. tom: the vix comes back. still green on the screen off relatively good news in europe. the chief financial economist at jefferies joins us. the inflation reports we have seen signified more sustained inflation. do you need to take a terminal rate year end or end of first quarter 2023 and bring it up? anetta: i would say we should certainly be pricing more hikes into the curve. the question should be pricing more in the next six months and i think the answer to that is no because although inflation has

persisted longer than expected, we have some forward-looking indicators that still suggest within the next few months it will peak. the fact is we do. no how much of this will self-correct -- we do not know how much of this will self-correct and how much will have to be squeezed out by the fed. tom: are those poised in cpi or ppi? what are the tea leaves that give you the confidence inflation ebbs after the sets of data we received? aneta: one of the things that drives inflation's product shortages and we have clearly seen that build and intensify through the course of the last year. those supply demand imbalances in a consumer product space actually peak around october. in november and december inputs search tremendously at a time when demand -- as a result, we

built inventories in the retail sector where inventories are at the highest level they have been since april of 2020. we are also seeing signs inflation expectations are running with the new york fed survey that came out yesterday. inflation expectations climb to levels not seen since april 2020. i think consumers are recognizing the product shortages are not as acute as they were since september and october it feels like that is what they are responding to. lisa: where does inflation have to come down to make you feel like they fed can hike less than seven times and still be complacent? aneta: if we see the month over month trajectory to appoint three type reading -- to a .3

type reading -- when we think about the sustainability of this cycle, i think that is more of a question related to the labor market and the shape of the curve. i think those pressures will persist. right now that to meet the labor market has just put a floor under inflation at around 3%. given where we are because of unit labor cost. i think there is a peak of this inflation story that will have to be squeezed up by the fed and probably because the terminal rate is not enough to do that. they're not want to say we need to be pricing anymore than seven hikes into 2022. lisa: what terminal rate is possible to keep the economy from tanking? how much can the fed hike before it curtails any kind of recovery and goes in the opposite direction? aneta: i think it has to do with how they distribute those hikes.

if they get to the neutral rate in one year, that could potentially two into a recession. if they hike seven times, which is our base case, that is going to take off just under 1% from growth momentum in 2023, which is obsolete a sizable drop, but not enough to put us in a recession. it depends how quickly we get to that neutral place. jonathan: does someone want in the meeting room at jefferies? is that with the banging is? aneta: apparently there is construction behind me. jonathan: we will let you go. we appreciate it. aneta mentioned the new york fed survey. what i thought is who they survey? most people i talked to say this is it. lisa: let's put it in perspective. people are expecting it to decelerate a bit, maybe not to keep accelerating.

this is logical if you look at the base of facts. this is basically if you go from 7% to 6.8%, you are seeing a decline, but is it going to change the outlook for people? at the same time if you get a serious rollover and consumers buying into the transitory story, how much does that become a self fulfilling prophecy? jonathan: to jeezy consumer confidence on friday? not looking good -- did you see consumer confidence on friday? not looking good. tom: i have to admit it is fascinating. we need to see more data. retail sales tomorrow is the big deal. i am transfixed by where we are at year end. critically we do not know now that i'm not sure by the fourth of july we can guess it. jonathan: my issue is whether we can keep these margins in corporate america. for a long time we have passed this on to the consumer with

very little pushback whatsoever. i wonder if that story continues at this point? lisa: gina martin adams and wendy song of bloomberg intelligence put out a note where they said the guidance for the first quarter earnings is falling dramatically and by one measure falling by the most back to 2014. it is because of this point. jonathan: lisa abramowicz and tom keene with jonathan ferro. coming up at 9:00 a.m. we will catch up with jonathan golub of credit suisse and why this man still thinks is equity market goes north of 5000 on the s&p. jonathan: he has been resilient and constructive. looking forward to catching up with him. this is bloomberg. ritika: keeping you up-to-date

with the news from around the world. russia has announced some of those troops involved in drills have started returning to their base. the military exercises had raised u.s. and european concerns about a possible attack on ukraine. the problem has did -- has denied it is planning attack. atop diplomat leaves the nuclear agreement with iran is "in sight." i ran once western powers to remove sections on the economy. -- there are no plans for a citywide lockdown to bring the number of cases back to zero. hong kong is said to use more hotels is isolated facilities. elon musk has said he gave about $5.7 million of tesla shares to charity. the donation was one of the biggest ever.

a large charitable donation would help reduce what elon musk claims is the biggest tax bill in u.s. history. the pentagon plans to -- authorities say consolidation among the suppliers poses a threat to national security. according to the defense department, three decades of m&a have left the pentagon reliant on a handful of companies. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

>> i think we're getting closer to the top of the dollar in broad terms.

what is interesting is there still dollar resiliency ahead. every central bank around the world is looking for stronger currency. they are not telling you that but you can see it based on their actions and the preferences for stronger currency, helping to work off some of the inflationary pressures. mark mccormick of td securities, very informative on the swiss franc. a little bit weaker swissie this morning futures up 57. the vix much better in the last 24 hours, but a little bit off the enthusiasm of 45 minutes ago. we are waiting for any form of headlines from moscow. with that said, we will try to combine the threads of the week with damian sassower, cheap emerging markets credit strategist for bloomberg. i simply want to say if i move west of kyiv like the u.s.

embassy and i go 40 miles from the polish border and i go north by northwest up to warsaw, 200 miles away, the answer is poland is there. how does the polish economy and polish financial markets react to all that is going on in kyiv. damian: central and eastern europe are filling the inflation pressures and it is touted -- it is accelerating. it is not just romania. last week poland height by 50 basis points but it was dovish because it was not 75. they are scaling down the pace of their tightening which is interesting because we are getting to a point where is the terminal rate? mark mccormick was talking about that earlier. where is the terminal rate for many of these countries? poland was one of the first to start scaling back. tom: you studied this and you know the market dynamics. how beholden is eastern europe to what madame lagarde does in frankfurt? damian: very much so.

the eastern european currency block tracks the euro very closely. i that we are pricing induced go rate hikes by the ecb, but i expect more to be priced in, certainly to the central eastern european block in places like romania that have been behind the curve. that is where the u.s. military base is. that is where our forward action will take place. certainly for me that is where my eyes are focused. what you have to start doing is looking at those economies that hiked earliest and may be trying to fade that would steepening in the curve. lisa: the idea to fade that because that has already been priced in. this goes to the conundrum, central banks want a stronger currency. the currency war is for a different reason. how you affect that, with more rate hikes or fewer to strengthen the economy? damian: you are hitting the nail

on the head. emerging market local currency debt is up here to date, the best start since 2019. the reality is it is currency driven, it is not just any currency come it is those currencies with central banks moved early, it is brazil, it is chilly, it is proved. their currencies have appreciated relative to the dollar. the markets are rewarding hawkish policy regimes while allowing the country to appreciate, that is a new dynamic and something markets need to take note of. lisa: on the flipside i was surprised at remember the strength on the heels of more easing. there is no real consistency to these measures the way there used to be. how much does that make sense to you versus not, considering the easing going on? damian: i would expect the yuan to depreciate. the three yellow -- the three year yield differential from china to the u.s. fell by 38

points since november. there is a huge move. the yuan is a managed currency, but i will give you does tote statistics -- i will give you two commodity statistics. the bloomberg commodity index is up to the best since 1993. on the flipside of that the bloomberg global aggregate bond index down 3.5% year to date, worst on record. tom: is that a bond bear market? damian: i guess that would be. [laughter] tom: yield up, price down. i have to stay on this. i've been looking at romania all day. luh? damian: it is the "lay ow." tom: sass our focused on --

damian sassower focused on the romanian leu. how does -- how does em get a bid with the likes of the romanian leu. damian: you need to seal -- you need to see real rates start to improve. inflation is still running hot. as it is that starts to happen that is a perfect environment for offshore investors to begin taking advantage of what you are seeing, the risk premium come the real yields embedded with a lot of these markets. that is going to happen but inflation needs to come first. tom: thank you so much for a briefing from damian sassower. where else we learn about the romanian leu? i think michael mckee has 10 in his pocket. lisa: i think you pronounced it

about 50 different ways in your 14 tries. you saw the hundred been expected ppi print. the fed is data dependent, what data are they looking at? still very much the focus is on easing tensions and the appearance of that. that has led to a more constructive environment. the nasdaq is not outperforming as much as it was earlier. how much will it be the most sensitive one to inflation as we go forward? tom: i like your analysis, but i on a hyper basis will move to the discussions out of russia. the headline moments ago, prudent and -- vladimir putin and olaf scholz talks over after three hours. that means you need to pay attention to bloomberg radio and bloomberg television through the morning. we will see a set of headlines that could actually shift the moment.

lisa: what is the most interesting thing you've learned on this conflict that seems to be building with russia? tom: i am learning of migrants of the black seat. i have to watch james bond from russia with love which is the best james bondattention to blod bloomberg television through the movie about the dardanelles and the straits there. this 18 mile stretch through turkey, past istanbul, past constantinople into the black seat, what is the nato presence going to be in the black sea? lisa: i was struck by what peter to her wits said that this is the distraction for u.s. foreign policy when they want to turn to china. how do they get back to that narrative with a deep shift in the globalization of the pre-trump era? that is going to be fascinating to see that navigate. tom: at 12:00 balance of power it will drive forward those conversations.

joe mathieu today at 5:00 on bloomberg radio. leon panetta last night. i believe he had leon panetta last night. futures up 53, stay with us. with headlines from moscow, this is bloomberg. good morning. ♪

jonathan: the optics versus the

substance. the perception improves. equities up 1% on thethe percep. equities up 1% on the s&p. "the countdown to the open" starts right now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. jonathan: we begin with the big issue. de-escalation hopes. >> we are seeing a sentiment impact. >> the huge diplomatic effort going on. >> we are seeing a lot of uncertainty. >> when i am looking as an investor. >> where de-escalation is happening on the ground. >> we are in someone of a hot mess. >> we have been cautious in general to start the year. >>