manus: good morning from our middle east had ordered. -- headquarters. optimism returns. futures rebound. the prospect of talks between russia and the united states take hold. the president warns risk of ukraine invasion remain very high.

the faster and further. james bullard says the fed may need to overshoot the neutral right to conflating -- to contain inflation. allianz with a charge for its head fund -- hedge fund implosion. we speak to the ceo this hour. breaking news through from renault. they are lifting their profit margin and issuance for them. they raise their margin, they see 4% for this year. the guidance is strong for them. the full year operating profit i should say, last week 3.6%, the estimate was 2.7%. there was no dividend for 2021. the cash flows and the company is $1.27 billion. what else are they telling us? free cash flow will be one

billion. that is the top line you need to know. chip shortages are cutting output by 300,000. profit margin to 4% this year. we have not seen this since the 1990's. a lot of this is around the chip shortage. constraining production by 300,000 compared to 500,000 in 2021. your keeping an eye on that. the supply costs will come in the first half. that is the state of play from renault and the top headline. let's get you to how we are reassessing the possibility, lavrov and blinken will meet next week. the risk is this. do you need a shock as in 1920

when rates went to 20% to get a hold of inflation? this is what is being said at credit suisse. it may be a 50 basis point hike by the end of march is what you need to put an end to the press conferences. sell 50,000,000,010 year notes the next day. this is about -- $50 billion of 10-year note's the next day. it is about getting people back to work. do we need a volker shockey? i would say the probability of a 50 basis point hike has imploded to 30% this week. there is a matrix of risks to keep an eye on. we are more risk on. lavrov and blinken will meet at the end of next week. you have that very initial move

off the gold from an month time -- eight-month high. let's understand what is happening with markets. gold comes off its eight-month high. treasury markets off their lows. the s&p futures again just trading a little bit higher. the dollar is higher and the yen is lower on the day. the risk is what we keep an eye on. the state department says sergei lavrov has agreed to meet secretary of state antony blinken in europe next week. this comes at the same time as biden says the probability of a russian invasion in ukraine is made very high. moscow denies it has plans to attack its neighbor. maria, the breaking news came a couple hours ago. this is about all of branches and opportunities.

i suppose we should be grateful diplomacy lives. >> it does. but the reality is, over the past 24 hours, every official i have spoken with is growing very pessimistic about the situation. what they say is right now there are two paths happening at the same time. one is escalation and de-escalation. they worry about the school that was shelled in eastern ukraine. they worry you could see tensions flare in those provinces in ukraine. at the same time they say we are still debating, we are at the talking table. we are putting on this meeting between blinken and lavrov. the reality is many officials are worried what you see in the actions from europe in eastern ukraine but also belarus do not match with de-escalation. the other thing i would point to, yesterday, european leaders were meeting here in brussels.

the estonian prime minister has been an incredible hawkish voice on russia and told me if russia were to invade, we are not talking about a major invasion. just the mobilization would be seen as an attack on ukraine. it would be hit, quote, by the mother of all sanctions. the kremlin needs to be aware, the sanctions are not going to be 2014 crimea. this is going to hurt the russian economy. manus: thank. maria tadeo with the latest news flow on russia and ukraine and the risks therein. the news flow from ukraine is frightening market sentiment. turned everything around. stocks turned a little bit higher. we are still set for a second week of losses. let's see what jules is going to say about asia. >> certainly a repricing. the lines did break about the confirmation of the date for talks between the u.s. and russia next week. that could turn things around and you have started to see

weakness in the yen and paring of losses in asian equity markets which had been seeing steeper losses as they tried to play catch up to what we saw on global markets overnight. we still have these concerns about sanctions. it is off by 7% in the hong kong session. depend petroleum gets 19% of its revenue from russia. also off the lows of the day. this is an oil related story. let's have a look at the other key focus for investors here in asia. you have the u.s. once again cracking down on some of these china tech companies. that has seen weakness coming through in tech players in the region. tencent saying it strongly disagrees with the u.s. market label and the other important factor is that humble and meta- have seen it out of the top 10 most valuable companies in the world replaced by tencent which

has risen 8% this year. manus: we love the top 10 billboard on this show. thank you. the st. louis fed chief jim bullard says the central bank may need to overshoot the neutral rates to bring down inflation. he is pulling again for the 100 basis point hike by july. let's bring in our chief asia economics correspondent enda curran. we know the rhetoric from bullard, but this time he is doubling down. not just on 100 basis points, but go beyond neutral. if you can define neutral, that would be a good starting point. >> exactly. he is saying neutral is around 2%. it is a hawkish call. in the near time he's pushing for at least 100 basis points of hikes by july. we also have comments from the

cleveland fed president, in the hawkish camp. not in the same terms as bullard, but she is saying yes, we need to hike rates. comments were backed up by minutes from the fed which noted in january they are locked in for march. they will have to work quite hard. another day, another round of hawkish pressure from the fed. >> and the red a master adding fuel to that narrative. thank you very much. great contribution. our chief asia economics correspondent. reportedly investigating morgan stanley over bond trading activity. according to people with knowledge of this, the probe is looking into what the bank staff improperly tipped off investors on large stock sales. let's get to tom metcalf, our finance coverage lead in the u.k.. thank you for being with me.

what more do we know about the probe into morgan stanley? >> more and more details are starting to emerge. morgan stanley is definitely the focus in some way of these justice department investigators. the sense is that the company, the biggest bank in the sector for block trading has been asked to hand over communication. we understand one employer in particular at the center of this is being put on leave. i would say the probe does go beyond morgan stanley to other banks. barclays, goldman, hit with requests for information. it is a very broad investigation. the question for me is where these questions go. does it lead to legal cases and finds or penalties -- fines or penalties, etc. manus: if we talk about the

culture on wall street, how has it allowed subjectivity to slip through the net? and what is morgan stanley -- what does morgan stanley say? >> apparently there is a term in the market for when the share prices fall before you make a big block trade. the morgan stanley fade, which to me was fascinating. what that does imply is there has been some kind of trading before the block trade, information has leaked. that gives a sense of why investigators are looking at that. on the culture thing, i guess it is another blow for wall street reputation in the wider economy. manus: absolutely. it goes back to the investigations in libor etc. and how we communicate with one

another in the marketplace. thank you. let's get to juliette saly, she has your first word news. >> alianza taking a charge -- allianz taking a charge and connection to the hedge fund that collapsed the start of the pandemic. europe's largest insurer expects to settle with investors in an awful fund. more expenses are coming from lawsuits and regulatory probes. the u.s. has added chinese messaging platform we chat and online marketplace alley express to its list of notorious markets for piracy. the u.s. trade representative says the platforms facilitate trademark counterfeiting, putting them on a register that includes more than 70 online and physical markets. tencent says it strongly disagrees with the position. alibaba says it is committed to working out the issue. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than

2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you. coming up, a deeper dive into the markets. risk in these markets at the moment. we speak to the alley on cfo -- allianz cfo. that conversation is a must. ♪

>> if you wanted to put downward pressure on inflation, you have to get to neutral or beyond neutral. that is a major concern of mine. we are not really in a position to do that right now, but we have to get in a position to do that at some point in case

inflation does not moderate. manus: james bullard there. calling for faster tightening going beyond neutral. you have a bearish bullard. 100 basis points by the summer. he's talking about going beyond neutral. mester joins that chorus. how hawkish do you expect the federal reserve to be? the specter of conflict risk in ukraine is a hard juxtaposition, isn't it? >> it is a tight position. you have high inflation and the u.s. is doing everything it can to try to tame that inflation. at the same time, you don't want

the fed hiking into a market that is seeing rising political risk. there is still plenty of opportunity within the commodities space and within the equities space that an investor can seek. manus: this is the chart we are showing in the gtv library. it is u.s.-russia tensions. the probability of a 50 basis point hike in march is less than 30%. do you agree -- do you think the risk of a 50 basis point hike in march is off the table? >> our view is we expect to see a gradual increase in rate hikes the course of 2022. clearly bullard's comments have changed rhetoric to quite a strong degree. given the fact the fed has a mandate, that is what they are

going to be sticking to. if you look back in time a history, the last time we saw the fed being as aggressive was back in 2000. the situation then was quite different in terms of inflation numbers. i think the rate hike in march would kick off at 25 basis points. manus: all of this has got to be mixed into where you go in the growth to value trade. i like the way you proposed it area my last guest has gone underweight u.s. -- sorry come along on u.s. relative to their overweight. i trade duration perhaps by trimming back my exposure on growth in the u.s.. take me through whether i have joined the dots correctly or read too fast?

>> you have joined the dots correctly. we have identified this fastest pace since 2008 out of growth into value. what you really see if the sectors have higher duration are the ones that are getting more impacted because of sensitivity to interest rates. they have been at the epicenter of the selloff. those essentially are the technology sector. if you look at the opposite of that, the value based sector such as energy, financials, materials, you have shorter duration and they have been benefiting in the current price environment. that is where we see the divide. if you look geographically, it is interesting. you see japan, when you look at the benchmark index, having one of the lowest durations and in

contrast if you look at the u.s. , that market has one of the highest durations. it is an environment where investors filter through the value investors growth trade and another very interesting thing we have seen has been dividends. the outperforming factor, which has not been the case. it has been value purely outperforming growth. this has been a very interesting year where i think it is going to be the amalgamation of dividends and value that perform very strongly. >> which sector are you more drawn to? oil is literally turning off cash. the pre-cash flow is the highest since 2008. the minors are -- miners are literally just shoveling this into trucks. so where do you go? >> that is true, that is what we

have seen in the q4 2021 earnings announcements. the energy sector, the financial volatility, the mining sector, they are returning cash to investors with dividend yields of a high debt. the other very important factor is they are trying to do -- essentially, given the low esg rating, they are trying to do everything in their power to bring back that cash to investors and reduce their carbon footprint. this is one way they are doing it. that is making them even more attractive in this current environment. manus: we are going to talk commodities in just a moment. i think our guest. -- thank our guest. fundamentals suggest there could be more upside. this is bloomberg.

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manus: it is daybreak europe. oil prices headed for their first weekly loss since december. there are plenty of signs oil's upward momentum remains intact. my guest this morning is aneeka gupta at wisdom tree. backwardation like we have not seen since the gulf war. we are seeing this extreme backwardation in the markets. oftentimes we reach these extremities on spec positions as opposed to real tightening.

i'm drawn to the drawdown at cushing, lowest inventories on record. with that fundamental backdrop, what does it do to your perspective for oil and risk? >> as you have identified, 25 commodities on the commodity index, more than half in backwardation right now. it is purely due to tightness in supply. a lot of that has been dominated in the energy sector with brent and crude oil. you have also seen that spillover in industrial metals as well as agricultural commodities. so you know, it is across the spectrum within commodities that we are seeing this backwardation. that tightness -- these curves are making commodities a lot more attractive. typically you would get your return from the spot. now you are also seeing return being generated from these

yields which make it more attractive to roll into the forward contracts. manus: when we look at the overall commodity complex, you very clearly go through what happens with palladium. i want to break down a few of these. on palladium -- rush are the biggest palladium producer. i just wonder, do we need now to begin to consider sanctions risk and where that may go to? is that part of your thinking? you say palladium for 2021 was weak owing to demand destruction and week oil production. what next for palladium? >> palladium is already up 24% in 2022. clearly there is a lot of geopolitical risk being priced into palladium currently. you know, the other factor is

our view is we expect this strength to continue. as i mentioned, russia is one of the largest suppliers. if we do see escalation in conflict, that will lead to a very strong sanctions. we mentioned previously sanctions are going to be critical this time around. if that does take place, it will lead to extremely tight markets and palladium. hence the outlook is a lot more positive. we are seeing bottlenecks in the supply situation starting to ease. as that takes place, demand should also pick up for lady him -- palladium. manus: thank you for your thoughts and your calls. that is aneeka gupta at wisdom tree. rising prices are hurting many

people, but luxury retail seems quite impervious. we bring you the story on bloomberg. this is bloomberg. ♪

manus: it is daybreak middle east. it is not. it is "daybreak europe." i am an hour out of sync. optimism returns. u.s. futures rebound. prospects for talks with russia. president biden warns the risk for ukraine remain very high. faster and further. james bullard says the fed may need to overshoot the neutral

rates to contain inflation. loretta mester backs faster hikes. allianz books a 4.2 billion dollar charge from its hedge fund implosion. we speak to the ceo this hour. warm welcome to the show. breaking news from edf. they have a 2.5 billion euro rights issue. so that is on top of 3 billion euros of additional disposal. we have a rights issue raising capital, a 3 billion euro disposal program. they do not give an abbott. -- ebitda forecast. prices have gone through the roof and edf say you're going to get a boost to the full year

ebitda on pricing improvement. you will get paper. you will get stock rather than cash. that is what a script dividend is for 2022 and 2023. the topline earnings growth at the company for the full year was up 11% at just over 18 billion euros. there has been a big boost on the ebola -- ebitda. ok, if you want to understand what is going on with risk, sergei lavrov and antony blinken are proposed to meet next week. you see this reappraisal of where we are. you have gold coming off its eight-month high. dollar is up, yen is down, s&p futures recover from a good battering yesterday.

the president talked about that. the risks really are from ukraine. you saw the cash market come down by 2.8% on the nasdaq. you are just seeing a moment of reprieve today on the de-escalation, the risk of diplomacy, yen, the leverage funds cut their long positions. the bond market will revert to the narrative of bullard, which is a more aggressive move. loretta mester is ready to go faster. credit suisse says we need a volcker shock. what would a volcker shock 2022 really look like? let's look at equity futures. asia finishing off this friday session. a bounceback in u.s. equity futures. my guess from the bank of singapore, bonds are neutral on u.s. equity exposure. let's have a look. we have a host of other narratives to come. the nasdaq bouncing back from a

near 3% drop yesterday. we just had a conversation about the move of where you go for duration. the eu and the u.k. relative to the u.s.. let's get to the inflation debate, speaking to a number of our leading executives we have interviewed about rising prices and reducing personal disposable income. what is that doing to spending? >> inflationary pressures continue to rise. >> it's going to be harder in 2022. >> everyone is facing the same input cost pressures. >> we are trying to pass on only the costs that have to go up. >> the input cost increase we try to pass on in pricing. >> have to resort to responsible pricing. >> pricing is easier at the premium end of the segment. at the value and of the segment. >> we are starting to see

consumers move toward private label and that is a place we can really drive we believe incremental value for consumers in terms of good products at good prices. >> disposable incomes will be affected by energy cost and the general inflation. manus: one sector which is growing steadily and seems immune to inflation on the earnings as luxuries, sparking fears of further widening of the wealth gap. we are joined by bloomberg's deirdre hipwell, luxury analyst. when you hear the narrative, the expensive end of the market can take the price rises. what is the key take away in this earnings season for luxury? >> nobody is immune from inflation, including luxury, but they are better able to manage it because obviously they have higher margins on their products

and a consumer base that is more resilient to price rises. we saw that yesterday with gucci , which did incredibly well. it has increased prices twice in the last year and in 2020 and thinks there could be further price increases to come. that is helping luxury retailers to whether the inflation storm. manus: what about the high streets? how are the other retailers doing? >> it is very difficult. we had a host of companies reporting from heineken, the brewer, to nestle yesterday. they are all talking about this being possibly some of the worst inflation they have seen in a decade. if you are a big retailer, you have got to manage that and you have to think how much do you pass on to the consumer? how much do you absorb yourself? companies have been doing a lot to reduce waste in their own supply chains and reduce cost. the one thing it is clear is

they are passing on prices to the consumers. that is going to happen even more in the coming months. we had heineken earlier this week saying they are to be courageous in how they priced. i think where we have not really seen that starting to impact consumer spending patterns, it is only beginning, that could definitely accelerate. whether we see some trading down, or when they go to the shop they are putting fewer items in their baskets, that is what everybody is going to be watching. manus: the best line has been sent through to me by the producer. one small bag boosted by 60% to $8,200. there you go. that is aspirational. thank you very much. the very latest on the luxury and the high street as well. let's get the first word news. juliette saly has that from

singapore. >> russian foreign minister sergei lavrov has agreed to meet u.s. secretary of state antony blinken next week. this is the west continues to warn over the threat of a u.k. invasion. president biden saying the probability is still, quote, great high. the white house is concerned the u.s. president will -- later today. britain's office has issued a red weather warning for parts of the u.k.. hurricane strength gusts of 90 miles per hour are set to hit the country. weather service says the most dangerous winds are like they to affect london and parts of the southeast and southwest of england. global news 24 hours a day global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you very much.

coming up, allianz set to pay for $.2 billion to cover the cost of a hedge fund. this is bloomberg. ♪

manus: it is "bloomberg daybreak: europe." allianz is taking charge of more than $4 billion tied to the hedge fund that collapsed the start of the pandemic. the charge lead to a losses and the fourth quarter with allianz expects to settle with major investors in a so-called structure also fund. -- structured alpha fund. let's get to the cfo.

he joins me now. thank you very much for joining us. you have called this 3.7 billion euro charge a first step. an important first step on resolution. how much bigger can discharge be and are there multiple steps to come? >> well thank you. that was an important step toward the resolution of the structured alpha measure. we achieve an agreement with the majority of the investors, clearly we are seeing ongoing conversation with the plaintiffs. we are also in conversation with the doj. they have been constructive. clearly there is still uncertainty around the issue. what is important today, they are major steps toward resolution.

i cannot add much. it has been a major step with the majority of investors. manus: i understand that. i understand the difficulty when one is in active negotiations. the market has put in numbers of needing -- nearly $6 billion this could cost you. is that a fair estimate by the market, or just too extreme? >> it would not be appropriate to speculate on any number. the situation is going to evolve. we are going to provide any update we can provide. manus: when you look at the lawsuit, the language around the

lawsuit, have you now initiated a root and branch overhaul of risk control at allianz as a business? >> first of all, we think it's our system of control is very strong. we are looking very carefully at what did not go as it was supposed to into the operation of the agi. we are taking all steps we need to take in order to make sure these situations are not going to happen. manus: let's talk about the rest of the business operationally at the top line. fourth-quarter operating profit, 3.5 one billion. we have this provision reducing the overall. where is the strength at an operational level? where is the alpha in the quarter?

>> the alpha of allianz was across the franchise. all segments have really had some performance. all of our segments were able to be the outlook. we achieved 5.7 billion with profit. it was very high when you look at the segment, operating profit, business margin, business value, a very impressive performance. we did also fuel -- and $110 billion of inflows. the agi achieved over a new operating profit this year.

very strong performance across the segments. manus: what is going on in pimco? we have a bond market that is imploding. what can you tell me? what is happening at pimco in terms of business, in terms of flow? >> for the month of january, flows have been positive. we need to see out the situation is going to evolve in the course of 2022. my view on rising interest rates is to follow in clearly the short-term is going to create volatility. flows might be choppy. a fundamentally higher rate deposited for the franchise. if you look at expected profit, it is positive for pimco. we are looking at higher rates as a positive labor for us and clearly there could be price and

volatility at the beginning. definitely positive for us. manus: people out there are quaking in their boots worried about a volcker style move from the federal reserve. do we need a volcker style move? 50 basis points? $50 billion of treasuries the day after? do we need that to

communication. also to see clearly -- i would say a clear message that rates are moving up and an indication rates might go up faster if inflation does not subside. there is this fear that inflation could spiral, so i think clear communication is going to help definitely to keep the situation under control. >> you do not fear a bond market crash, implosion? where do you think 10-year yields will climb to? >> i would say they could be 50 basis points higher than where they are now. may be close would be 100 basis points higher compared to what they are now. they would have an impact on the short-term performance. we do not see this as a negative. when you think about the prospect for the bond market to be following that increase, they are not getting worse. manus: i want to close off where

we started because your response surprised me. 3.7 billion euros charge on a hedge fund which imploded which was supposed to cover people's risk. i said to you how you had done a root and branch changed, you responded you thought it was good risk management. i do not think that is going to work for the shareholders because you are taking a near 4 billion euro hit. where have you identified as being the gap in the risk management process to avoid something like this happening again? >> my comment was the control of allianz group is strong, it worked as expected. we are going to be able to speak about what the consequences are after we have the resolution of the proceeding. manus: thank you for joining me

today. that is the cfo of allianz and his outlook. he does not fear the bond markets. italian energy company, an adjusted profit, comfortably beating on rising oil and gas markets. production a little bit ahead of what we expected. operating level, comfortable beat. now a little bit more breaking news on the french side of the news flow. we talked about edf just a moment ago being bolstered by 6 billion euros in terms of the operating side of their business on price rises. well, france is to keep energy prices under control through 2023 according to the story we

have on the bloomberg terminal. france will keep its energy prices under control. this is in the publication le maire. france will buy 2.1 billion of new edf shares. the french minister of finance bruno le maire is speaking on rtl radio. they're going to keep energy prices under control, pick up 2 billion euros worth of new etf shares -- edf shares the rights issue i told you about. that is tying it all together there. next week we are going to take a closer look at the up-and-coming french presidential election. very special guest, the french minister bruno le maire and former ecb president jean-claude vta. it is a special on monday. coming up, the u.s. says sergei

lavrov has agreed to meet antony blake and for talks -- blinken for talks. this is bloomberg. ♪

manus: it is "daybreak europe." the u.s. and russia are set to meet next week to discuss the ukraine situation. the news comes after president biden warned there is a significant risk of russian invasion. how do you assess that risk? bruce einhorn does it on a daily basis. this is the americans reaching out to the russians we understand with the proposition for talks. what happens next? >> it is significant because u.s. secretary of state antony blinken proposed this meeting. now the russians have accepted.

he will be meeting with the russian foreign minister sergei lavrov sometime late next week, we have heard from the white house. that could mean there is a fairly good window of opportunity to keep diplomacy going to avert a crisis in ukraine. we also know president biden will be speaking today with transatlantic leaders. the other news that came out of washington overnight is that the u.s. senate passed a nonbinding resolution. probably a disappointment for ukrainians and others because senators had been negotiating for quite a while about a sanctions bill, but it seems the democrats and republicans could not agree, so they passed this nonbinding resolution. manus: those are all the messages the kremlin will be keeping an eye on. you and i were talking about

what was happening on the ground. the president of the united states has said these are false flags. the prime minister of the united kingdom has said there will be more false flags underway, which -- translate that for our audience. i call it a white flag, my apologies, it is false flag. my apologies for the misnomer. >> so -- there is an ongoing military conflict in eastern ukraine between russian backed separatists and the ukrainian government. there is supposed to be a cease-fire that was negotiated years ago. both sides regularly accuse the other side of violating that. what we have heard yesterday is the latest tit-for-tat accusations here. the ukrainian government has said russia's backed separatists increased their shelling of the ukrainian army. they said there were violations,

russian backed separatists say they are responding. . manus: we leave it there. thank you for being with us on the russia story. ♪

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anna: good morning. welcome to "bloomberg markets: europe." here are your top headlines. optimism returns. u.s. futures stage a partial rebound on prospect of talks with russia. biden warns the risks for ukraine remain high. james bullard says the fed may need to overshoot his estimate of the neutral