>> today, president putin has torn the minsk agreement to shreds. we have been clear that we do not believe he will stop at that. manus: good morning from our middle east headquarters in dubai. it is "daybreak: europe," the story setting the agenda. president putin recognizes two breakaway republics in eastern ukraine and says russia will

deploy peacekeeping forces to the region. the white house condemned the move, promising sanctions. emmanuel macron decries a breach of ukraine's sovereignty. president zelensky urges:. global stocks tumble. the ruble slumps. as putin recognizes two separatist regions in eastern ukraine, he has essentially torpedoed peace. in the words of the u.s. ambassador to the u.n., torn the minsk agreement to shreds. goldman sachs assess the risk of a russia/ukraine conflict and they think 50% is priced into the market. is it? havens are big and equities located my guest said a fierce fed and escalation of risk could take you to a bear market in equities. let's look the four-way dynamics of risks in the market. what could happen to equity markets and treasuries?

the market still believes there is a 25 basis point hike to come down the pike from the fed. s&p 500 lower. outright conflict and punitive sanctions according to goldman could cause these equity markets to fall probably another three or 4% from the last call, which was down 6%. gold just off $1900. you are going to see momentum. and crude up 24% this year. if russia crude is sanctioned, and nobody is putting that as a base case, but it could put another $10 on oil. russia exports 7 million barrels. let me show you what is going on with risk and russia, the ruble on a 15 month low. this is about positioning for the severity and the breath of sanctions of which we don't know the details yet. the molex is down and suffered an implosion in value yesterday.

cbs blowing up. we will come back to the risk in a moment. vladimir putin announced he is recognizing these proclaimed separatist republics in eastern ukraine and it is a dramatic escalation. the west and u.s. allies continuing to warn. there could soon be an invasion. the decrease include in order to send what putin calls peacekeeping forces into the regions. let's get to our reporters to assess the story. in moscow, we have our eastern european and russia managing editor. in hong kong, we have our stalwart for the u.s. reaction. and juliette saly is on the markets. what did putin say and what was the latest on the deployment of the so-called peacekeepers? >> as you said, putin last

areas in eastern ukraine controlled by separatists, which russia has supported since 2014 both financially and militarily. and he ordered the russian a rmy to act as peacekeepers in area. it is not clear how money soldiers might already be there and how many might be sent and. the other important question is what orders will be. the-controlled territory or a greater area. that is of great concern. in addition, putin last night questioned the right of former soviet republics to exist as an independent state. that is of great concern among those countries, which include eu and nato members. manus: absolutely. the language and the nuances of the language we have to keep an

eye on. we will be with you through the morning. bruce, the reaction from the u.s., we are awaiting details from sanctions. what is the language the white house has used? the u.s. ambassador, putin has torn the minsk agreement to shreds. >> yeah, so we know president biden is going to issue an executive order that would include new sanctions that would ban investment trade and financing by americans in these separatist back to controlled areas of ukraine, according to press secretary jen psaki. she said they would announce additional measures and these would be separate from the sanctions the u.s. has been considering with allies that would apply if there were further russian incursion into ukraine. we also know secretary of state blinken spoke to his counterpart on the phone and they are

scheduled to meet today in washington. we also know there was action from congress. a bipartisan delegation, including senator lindsey graham from south carolina, a republican, dick durbin from illinois, a democrat. they pledged support. we also know house speaker nancy pelosi had a meeting with u.k. prime minister boris johnson in which they also discussed possible sanctions which would include possibly preventing russian access to u.s. dollars and the british pound. we are likely to hear more from the president today. manus: ok, we will track the story, and you can jump on your bloomberg. we have a full blog, everything happening in markets. let's get to maria come on the ground. you've been tracking the ministers yesterday.

the reaction from europe. emmanuel macron, the man who brokered the potential détente just 24 hours ago. what are we hearing on the latest on sanctions? maria: as you say, yesterday we heard from the french president, emmanuel macron, his voice matters. he was a leader in europe trying to broker a de-escalation until the last minute. as you know, the french are holding the rotating presidency of the european union. we heard from the major european institutions yesterday, that they will go after those responsible. today at 9:30, european ambassadors will meet in brussels to discuss who gets sanctioned and for what. there is a big distinction i am being told we need to make for the time being. this is front on paper to crimea in 2015. the difference is the terms

being used. the russian federation is not annexing anyone. they say they recognize the two regions, breakaway regions, but that is it for the time being. the other thing i would point to is the european commission says it will go after those legally responsible for this. the big question is who is legally responsible? the world yesterday watched vladimir putin signed the decree. how far you go and who do you talk out -- target in moscow? there's a lot to talk about, and also to show the european union is not going to be silent this time and will be tough on the russians. manus: indeed and we need to understand what comes from the u.k. as well in terms of sanctions. i've spoken with hsbc, they have no material risk if you go back and listen to the conversation about the material risk impact to the world and he doesn't see it as being systemic at the moment. jules is tracking the markets in asia. you have a lot on your plate,

you have tech and china and geopolitical risk. good day. juliette: yes, indeed. we are seeing a lot of risk appetite being wiped off the table, as you would expect. futures in germany and the u.s. pointing to losses of around 1.5% following on from similar losses in the asian region. the asia-pacific at a three week low. you mentioned domestic issues in china. we are seeing some companies plunge as much as 22%. it gets about 25% of revenue from russia. then you have commodity currencies and bonds. a big boost in the commodity space. wti around $94 a barrel. will brent get to $100 if we see these escalations continue? watching wheat as well, russia and ukraine both big shivers of wheat. -- shippers of wheat. let's see how markets are

pricing the fed hikes. yesterday we had michelle bowman saying 50 basis points is still on the table. geopolitics is front and center as we see markets reprice these risks and trade on these headlines. manus: absolutely. that is a call for forceful action. to the team, well done bringing it home. thank you to you all. let's get a snapshot of risk at the moment. tense moments in futures trading, s&p down as much as 3% at one juncture. you saw the s&p down 1.5%. a little lower. nasdaq off lows of the day, down 3%. europe on form of low-speed --

europe on a four month lows. wheat, corn, oil, gas, all of these futures will be tracked across global markets. we will come back to that in a moment. jules has the first were headline, she is busy. juliette: prime minister johnson has confirmed covid rules will come to an end in england. it is a move that has drawn criticism from opposition lawmakers and health experts. people infected with the virus will not be legally required to self-isolate or inform employers. free testing will end in april. prime minister justin trudeau says they will retain emergency powers for a few days because of emergency threads even after police cleared blockades across the country. speaking at a press conference in ottawa, he said it is too early to lift measures at border crossings because of concerns about protesters. he says he is reflecting on the

timing of when to drop the powers, which include freezing financial accounts of demonstrators. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus? manus: thank you very much, juliette saly in singapore. coming up, the conflict in ukraine could push the s&p down another 6% from last friday's close. about another 3% from here. according to goldman sachs on all out escalation of tensions paid we will discuss that next, plus we are live in doha for the largest gathering of natural gas exporters for their view on the energy markets. this is bloomberg. ♪

manus: it is "daybreak: europe."

the commodities sector, oil is ramping higher, as the oil minister of iraq is in doha, saying we don't need to pump anymore oil. they really want to focus on the commodity block. going down the list of commodities, yet to understand the ramifications of an escalation and sanctions risk. wheat, i want to give you fast facts. one month hike. russia produces a quarter of the world's grains, 20% of corn comes from russia. brent trued -- crude. does opec-plus need to do more? iraq is more. what are the risks of sanctions? russia exports 7 million barrels of oil per day. just putting it out there. what is the weaponization of energy? don't really understand what the

weaponization of energy could be from russia. or the specter on the market vladimir putin saying he is rep recognizing to separatist regions of ukraine. the s&p could fall 6% lower from friday's close. already 3% of that. my guest is global head of credit at royal london management. goldman say 50% of a dramatic escalation is in these markets. do you share that, i was a level of optimism -- what do you say? >> good morning. i think the reality is this is an unknown. we have expected this for some weeks. war is ugly and unpredictable. russia is a superior power.

you look at russia cvs, two thirds of the level it got to last year, the crimea incident. a large part of it is priced in, yet. manus: one has got to say, the dependence of russia on international funding, they have the fx reserves. are you assessing like with like? it is not like crimea, the annexation of crimea. >> in some ways, the region -- the reason this has happened is because of consequences post crimea. there are definitely analogies.

the likelihood of sanctions, particularly on energy, which really hurt russia, are insignificant i think. the sanctions we are talking about, whether they are to russia's banking sector, those will be relatively limited in terms of impact on russia. manus: goldman has a call, we've done almost half the work from that, that stocks could fall another 6%. when you look at the retracement year to date, let me just full up -- pull up your today. nasdaq down 6% year today. i think down 17% from its high in late autumn. do you think the worst is passed? if i paraphrase correctly, you're not concerned about an outright escalation from russia from a market perspective, but would a more aggressive said

rerate risk lower for you? >> i think the greater risk in this instance in particular, the fed already has a really difficult job this year to realize what the inflation impacts are and what the pace of rate hikes is going to bp this will make that job -- are going to be. this is going to make that job so much more difficult. the risk is the fed hikes too aggressively. even a smaller escalation means commodity prices go to a level which impacts growth ultimately. so yeah, i do think that is the concern more than the direct impact, is the indirect impact. manus: how concerned are you

about oil? we are three dollars away from $100 in the futures market. when you talk about energy and oil and gas, etc., around europe and the world, how does that play into your thinking? how do you prepare for that, what are the ramifications of that in asset allocation? azhar: it's definitely attacks on consumers. it will definitely squeeze margins for certain companies. the bigger impact is really on demand. and the consumer frankly has done very well, much better than expected during a pandemic with the support central banks unleashed and governments unleashed. that support is already ebbing

away. certainly in some economies. this is the danger, i am sitting in london and as an example, this is really going to be an extra tax on the consumer. it reduces demand at a time when the economy is not fully recovered at all. and that's before you go across to emerging markets, where apart from the emerging world, that's where you've got a lot more concern. manus: ok, hold those thoughts. we are going to dip into the credit calls in a moment. they have been reasonably well behaved. a bit of a wiggle last week. we will talk about those in a moment. my guest, azhar hussain from royal london asset management. coming up, we hear from the hsbc cfo about wage pressures.

don't miss that interview. this is bloomberg. ♪

manus: it is "daybreak: europe." credit markets are not frothy. private markets have the risk. my guest is back with me. you have destroyed valerie and me and our chart. this is what we use last week. european and u.s. and japanese high-yield i want to take you to task. you said not frothy. i just had a conversation with the cfo of you -- of ages bc -- hsbc. are you that brave to say credit is not frothy on the prospect of

five to seven rate hikes and a slowing u.s. economy? azhar: indeed. there are three important reasons. one is cash flow. the most important part. the amount of cash is at all-time lows because global interest rates have come down so much. you can pull that spread chart back and it still wouldn't give you that information, you have to look at yields. yields are still at a very low level. secondly, composition the credit quality of those high-yield indices you just showed are much higher in quality than previously. there are a lot more bb companies now. private markets have taken the burden of the weaker companies. and in terms of the hsbc point,

chinese credit in particular and chinese property is in trouble, but we are talking about 1.5% of global high-yield markets. it is very small. in terms of direct impact, it doesn't have any direct impact on overall credit markets. the final point is equity cushions. this time around, because rates have fallen so much and discount rates have fallen so much and equity markets have grown so much, it means your equity cushions are much more significant than ever. manus: that is a very robust defense, and valerie and i stand with our tails between our legs. the cash flow is mighty. where are the sweet spots for you in credit?

azhar: i think in reality, you've got to go down -- you got to go down to single b's is probably the sweet spot at the moment. the reason is this is a market where the real risk is about interest rate duration. that's what will hurt you. it has already hurt you. the shorter duration parts of the market, you can't be too far down. absolutely credit markets can turn into the economy could slow and the fed could over hike, but that mill part of the market i think is the sweet spot. -- middle part of the market i think is the sweet spot. manus: all right, we will leave it there. we will continue that conversation maybe in march when we have started the rate hiking

cycle everybody's waiting for. we might get adult. might jolt your risk. azhar hussain from london asset management. we will speak with the hsbc cf at xfinity, we live and work in the same neighborhood as you. we're always working to keep you connected to what you love. and now, we're working to bring you the next generation of wifi. it's ultra-fast. faster than a gig. supersonic wifi. only from xfinity. it can power hundreds of devices with three times the bandwidth. so your growing wifi needs will be met. supersonic wifi only from us... xfinity.

>> today, president putin has torn the minsk agreement to shreds. we have been clear that you do not believe he will stop at that. -- we have been clear that we do not believe he will stop at that. manus: good morning, i am manus cranny and this is "daybreak: europe." president putin recognizes two breakaway republics in eastern ukraine and says russia will

deploy peacekeeping forces to the region. the white house condemns the move, promising sanctions, and emmanuel macron discusses ukraine's sovereignty. treasuries and dollar are big and the russian ruble slums. putin recognizes the two separatist region's of eastern ukraine and one can say he torpedoed the peace process in the word of the u.s. ambassador to the u.n., torn the minsk agreement to shreds. goldman says the conflict risks are already in the market. 50% priced into the markets. are they? do you believe an escalation or potentially an invasion is already priced into equities? my guest this morning says not in equities. let's look the risk, going into havens, coming out of risk on assets. s&p futures down this morning. the nasdaq collapse by nearly 3%

bid -- 3%. u.s. bond prices dropping. s&p futures are declining. as i say, goldman sachs say it is a risk of outright conflict punitive sanctions, we will hear from the u.s. today what we might get. that could take stocks lower. the currency, goldman say you could see a 10% decline in the russian currency that could push oil up 13%. credit swaps flying at the highest level since 2016, pushing yield on bonds. my guest this morning with an interesting line on ukrainian assets, he is a buying 20/40 bonds on ukrainian assets. he says it is about the restriction that could come to bear on the currency in russia.

-- on the currency. russia declining again. hsbc plan to initiate a share buyback of a billion and says business momentum picking up as economies recover from the pandemic. earlier, the cfo joined me and said the bank is facing wage pressures. here's what he had to say including the interest rate environment outlook. ewen: our exposure to china real estate is about 20 billion, about half of that on the offshore book. we take an incremental provisions today. i think this follows policy tightening that happened at the back end of last year, which has forced quiddity issues for the sector. i would keep it in perspective. $10 billion is about 1% of our overall property exposure. we are managing through, and expect recent policy measures to ease some of the liquidity

pressures we've seen in the sector. manus: you see policy response as being the ballast. a lot of people are saying when zero covid ends and the opportunity is there for people to leave hong kong, the property market could face big headwinds. do you agree with that? ewen: no. i think hong kong has shown itself to be remarkably resilient. it is going for a bit of a covid wave at the moment, as we know with omicron. it passes through most economies in a three-month period. we are not having any issues attracting staff into our business. we are seeing continued tight supply in the hong kong property market. our coverage is very good. we are and remain a long-term goals on the --bulls on the hong kong market. manus: the market is looking at the china story, but when we caught up at the end of q3, we

were talking about 3 billion. it is a billion. why much less than the end of q3? ewen: we are still in the middle of our 2 billion-dollar buyback program. we think the dividend per share is up two thirds of what it was last year. we are trying to do a mix of both dividends and buybacks. overall we think we are in line with expectations on the buyback. i don't think many people expected us to top it up at this point. we are trying to manage our capital base down. this should be seen as one measure that's part of that. manus: we are trying to understand how many rate hikes will come down the pike from the fed. ap morgan saying there's a possibility of nine, 25 at a time. do you see that kind of risk?

do you see a position where we could get up to nine rate hikes of 25 basis points at a time? ewen: i would say we don't see it as a risk to our business. actually the reverse. we are very rate sensitive as a stock, more rate sensitive than most banks. you will see in today's results that on the back of that we brought forward our return on tangible equity ambition of getting to 10% plus returns by year. when we were having this chat three months ago, i think we thought that wasn't going to happen until 2024. on the back of a big shift in rates we are predicting that a year early. manus: you are pulling that forward a year early, what do you think you will get from the fed? ewen: we certainly agree with the consensus view that we will see a considerable number of rate rises happening over 2022 and into 2023.

both in the u.s. and in the u.k. manus: what can we get in the u.k.? do you think we will get 50 basis points in march? where you see rates by the end of the year in the u.k.? ewen: i think we see rates going up materially from where they are today, whether we see 25 or 50 basis points at the next meeting. we are on a progressive set of rate rises. manus: the hsbc cfo, a broad ranging conversation on rates, exposure, to property markets, assessing the impact of this morning's news. my guest is with me. hsbc is down this morning, concerned about property exposure in china and u.k.. to what extent is that a drag on the numbers this morning? good day. >> good morning.

that was a little bit unexpected but at the same time, they did have the latitude. i would consider -- concur that we need to put things in perspective. there exposure to china is limited. offshore is only $10 million. in the grand scheme, it is small. there is a question with rates rising. we needed to not be fearful but there could be a risk. manus: let's talk about that because ewen was clear, he said i welcome the rising rate environment, i don't fear the rising rate. they brought forward their

outlook as a result. how many hikes do you think we are going to get. i think what he said was considerable rate rises this year. he did not give me the five i was wanting. what does that do to your valuation of hbc? filippo: it is difficult, i agree. whether it is 25 next month, or they deliver nine hikes over the year and the next. it is important to say that -- we know rates will be higher by the end of the year in america and the u.k. and potentially even europe. there is not just a possibility of a hike. i don't know if we will have five or six hikes from the fed, but in the u.k. we will see

higher rates by the end of the year. we are seeing an increase with every rate hike that is significant. and the cherry on the cake would be a -- that means central banks hike a short-term rate. the markets take the long rate. [indiscernible] manus: you would say european bikes -- banks have the narrative of rising rates. we've seen a big move higher in

terms of the market actually pricing a more positive trajectory on rates. what do you expect this year going into next year? filippo: i think we could have a hike after the summer, and as you said, it could be positive especially for european banks. paradoxically, the weaker the banks, the more they could benefit from potential hiking in europe. essentially, in continental europe, the banks are traditional. they are very asset heavy. it could be very positive to see a hiking cycle in europe. i think it will come over time. when we have the march meeting, it is important because of the

fed. assuming there is not an oil price induced recession, i think they can start hiking rates. manus: does $100 oil induced recession for you? filippo: i don't think at all. i don't think it automatically triggers a recession. but it does put more pressure on. manus: where do you want to be in credit on the banks? what part of the structure are you happy to hold a set of equity? filippo: considering the rate cycle is actually fundamentally very positive, i think probably, and considering the valuation has come down since the beginning of the year mostly on rates, good banks are a good place to be in the credit market. manus: ok, thank you for joining

us. fresh off the hsbc numbers and assessing financials. coming up, dramatic escalation. president putin recognizes two sulfur claimed separatist republics in eastern ukraine. we have the latest and we await sanctions from london, paris and washington. this is bloomberg. ♪

manus: it is "daybreak: europe." financials will be the ground zero if there are robust sanctions, that is what we are given to believe. here is a reflection of where we

are in risk off mode on russian assets. the msci russia down over 6%. the mo x crumbling again today. russian stocks dropping the most in eight years, the biggest since the crimea annexation. if you have financial sanctions, it could hit the quiddity access for -- hit the liquidity access for some but we don't know what the sanctions might be or how it might play out. that is a case of risk this morning as vladimir putin announces he is recognizing to self-proclaimed eastern ukrainian provinces. these are the eastern ukraine, a dramatic escalation in russia standoff with the west. there has been an order for putin to send what he is calling a peacekeeping force to the regions.

torrey, what is the latest? he calls them peacekeepers, a different shade of language being used by those on the un security council. torrey: president putin yesterday recognized to areas of eastern ukraine as independent, offering them financial and military support, saying the russian army would serve as peacekeepers. he has not given the numbers of troops as far as we have seen. there may be troops already there, ukraine said this might be a recognition of that. what we are looking for still is what the borders will be of these recognized territories. that hasn't been announced yet. there is some concern the regions will be recognized, the

greater region on the borders of the separatist controlled areas. manus: and we are trying to understand what the west's level of sanctions going to be, and how that might come to pass for russian billionaires, for state owned entities and banks. when do you think the core -- where do you think the core of these sanctions will be? torrey: the u.s. has said it will announce sanctions today. initially it appears they will target the separatist regions, perhaps a similar to the sanctions put in place against the crimean annexation in 2014. that would be officials, people deemed responsible. it is not clear yet who that would be. and perhaps further sanctions. the u.k. has said it will apply sanctions today, and the eu is going to start the process. the allies have said they are looking at severe economic

sanctions if russia invades. it is not yet clear if they will apply those in this case. they have kept a lot of details to themselves. as you were mentioning, it could affect state banks and potential exports. manus: it is very interesting because we have a very regular viewer and participant on the show saying what we need to consider is how much u.s. dollars have been converted into yuan by russia, by the billionaires and the system the last five years. that's another angle, the flow of money may have already gone and the impact of sanctions perhaps less aggressive than we think. thank you very much. next, we go to doha with a meeting of natural gas exporters. what is causing tensions.

this is bloomberg. ♪

manus: it is "daybreak: europe." markets are buckling under the prospect of what sanctions will be on the escalation of russia's move to acknowledge eastern ukraine states. some people say diplomacy is dead but it is manifest in the commodity markets. at the moment, you are seeing a ratchet higher in the crude market. spreads are very tight. keep an eye on the softer commodities, the likes of wheat. soybeans and aluminum. russia produces nearly a quarter of the world's wheat. corn, 20% of the world's corn. aluminum up. more pressure coming to bear potentially on the gas complexes

later today in europe. these energy markets on fire. if russian crude is sanctioned, and nobody is saying that is the base case, it is predicted that could put $10 on the price of oil. if there is an outright aggressive conflict of any description, some say oil could get to $130. if tanks roll across the border, which is not the base case for most people. oil and natural gas markets, you have -- markets. you have vladimir putin recognizing the separatist regions in ukraine. simone foxman is live on the ground in doha. paul is with me. simone, the top risk for the gas markets as the ukraine crisis

begins to take a new step? simone: clearly the concern that russia may respond to sanctions by cutting off supplies of energy to europe, particularly natural gas, which would be hard to replace. that is not top of the agenda here in doha, but it raises concerns among producers behind closed doors as well as frankly threatening the gas exporting countries. high prices threaten those objectives. the folks on the ground here really pushing natural gas as a long-term alternative to coal and helping the world get to a cleaner energy future. potentially high prices could push toward renewables faster. also, this conference is set up to try and encourage cooperation between the largest natural gas producing countries. qatar has been asked by the u.s.

to help it figure out ways to maybe get more natural gas to europe. so reportedly has egypt, libya and nigeria. those folks are here, but russia is here too. the energy minister is here. their goals are very different if they were to cut off natural gas to europe. that russian energy minister did say in a closed door meeting yesterday that natural gas should not be subject to political restriction. at the moment, no concern the supply will be cut off immediately but obviously a long-term one for the market. manus: absolutely. that is about potentially the weaponization of these energy assets, although it did flow during the annexation of crimea, and that is something that many analysts have told me. paul is with me. the iraqi oil minister saying

opec-plus doesn't have to do anything here. paul: that is the key thing. oil jumped late yesterday and today, brent less than three dollars away from $100 per barrel. a lot of traders and analysts are wondering where the extra supplies could come from if there is an escalation of ukraine, and that leads to less russian oil on the market. and the answer is it is difficult to see where any extra barrels might be. opec-plus, as you said, is making it clear to the market that it doesn't think it needs to be more aggressive than what it is doing right now, which is gradually increasing production. the alliance meets on march the second, it includes russia, and they have said they will look at the data than to make a final decision, but as it stands, they don't see any need to pump more oil. manus: ok, thank you very much.

we will keep an eye on that opec meeting next week. simone foxman and paul wallace. leaving you with a snapshot of risk across the markets. this is bloomberg. ♪ bloomberg. ♪ switching wireless carriers is easy with xfinity.

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anna: good morning. welcome to "bloomberg markets: europe." here are your top headlines. escalation. president putin recognizes two areas to break away from ukraine. u.s. leaders contend the mood -- move and talk sanctions. gl