pres. biden: this is the beginning of a russian inva sion of ukraine. this is far beyond the steps we and our allies did in 2014. manus: this is "bloomberg daybreak: europe." i manus cranny. president biden says russia is invading ukraine. talks canceled, and the white

house says no summits with putin. a whimper, not a bang, bidens first round of sanctions underwhelmed. the u.s. and allies threaten more if russia does not change course. stocks climb, s&p 500 falls to a technical correction. oil gains and the dollar is unchanged. welcome to the show. in the words of antony blinken, it is a wholesale rejection of diplomacy. the sanctions are live but limited, and they have been taken -- this is the beginning of the beginning of the beginning of the end, that is the essence of where we are in the potential escalation of sanctions and impact on the world. the s&p 500 falls to a correction. the nasdaq is challenged fundamentally by higher interest rates from the federal reserve rather than the specter from the

invasion. a target of 5000 on the s&p 500 by the end of the year. the dow drops by seven and rallies by 10. on the rejection of diplomacy, the world is unsure where the escalation goes to. a personification of risk to the bond market, to the equity market, and we talk more about where we are with commodities in a while. aluminum at a 13 year high. you are seeing money go into the futures, prices lower, higher on yields, inflation expectations hit record highs. s&p has bounced. markets will be resilient, earnings will win through. wti pauses. is it pausing on a journey to $110?

nord stream 2 is benched and frozen. a wonderful line from medvedev, europeans, welcome to a brave new world of what he says will be higher energy costs. stocks got a bounce. the ruble's open-end trading, it rallied in the face of these sanctions. the valuations are the lowest. are you brave enough to buy russian stocks? etb left out of the sanctions round at this juncture. let's quantify the sanctions, because they are live now. those are the messages coming from the u.s. they and the west ramp-up measures against russia, the president of the united states says the russian invasion of ukraine has begun. let's go around the world and assess where we are.

oil and commodities team leader. let's start with maria in terms of the sanctions that the west are targeting. are they really going to cause pain? the brits have gone to banks in high-profile people. the financial sanctions people are saying are not punitive. maria: we will have to wait and see. the message was clear when you look at the united states and the u.k. the european union says this is the very beginning. this will be incremental and overtime it will do damage to the russian economy. when you look at the details of the new sanctions, we see that they are going after the financing operations of the russian federation. when you look at the banks, they left out etb, and have gone for

three banks very connected. they are going after people, the money around vladimir putin and the members of the duma. it is interesting to see, having said that, vladimir putin, the men who signed this decree has been left out, but the focus at this point, this is very much the message on the record but also off the record yesterday from a number of officials, this is the very beginning. this is incremental. if we see more action in eastern ukraine, the sanctions will go up. we are seeing the diplomatic channels are over for the time being. there was a meeting that was supposed to take place in geneva. manus: if we can get to the russian sanctions move on nord stream 2, because this is where there was a lot of criticism against the germans, perhaps they were not showing enough strength, but they have benched nord stream 2. what is the response to that? maria: this is a huge change in

tone from germany. nord stream 2 was not certified, we knew it would not be certified, but the fact that olaf scholz goes on the record changes completely from the merkel administration, and says we are not in a position to certify this, and this is not ok. that is a huge change in tone in germany, and it triggered a huge reaction from the russians yesterday. europeans are going to pay a lot of money on this. yesterday the chancellor said, at this point, it is peace at stake, and that is a bigger deal than cheap gas. manus: you are right, that sweet from medvedev was quite something. let's get the market reaction. some say the sanctions landed with a thud on the market. what is your assessment? juliette: absolutely, traders assessing the fact that we have

avoided some of the harshest restrictions from the united states. some pickup in the s&p 500 futures after it entered correction territory yesterday, and a positive rebound in asian stocks, rising for the first time in four sessions. we are focusing on the aluminum producer, 25% of its revenues from russia, it was down 19% yesterday, the biggest slump in four years. a rebound is helping that stock insensitive players. this is reflected in the bond market. yields in australia reaching a three-year high. we have geopolitical tensions escalating, you are still seeing hawkish rhetoric from a number of central banks, and none more so than the rba, ahead of the curve as we know. it indicated it could have had a more aggressive rate hike than the 25 basis points it delivered. traders are trying to reassess

these risks as we continue to see hawkish central banks and the likelihood they will hike further, pushing the quibi up -- kiwi up. manus: i walked away from that thinking it was a hawkish hike. we will see you through the morning, juliette saly in singapore. it is interesting when you listen to the nigerians in qatar, they are not comfortable with these prices. sanctions come around one, it has not taken us over $100. what are people saying about the oil market this morning? paul: it is all most the opposite, that the sanctions have led to the market taking a bit of a breather. energy prices paring some of the gains early yesterday. we were on the brink of $100 oil, brent got to $99 a barrel,

and now it is down to slightly over $97. for now the markets feel that there is not enough on the table sanctions wise for them to get ultra bullish, but there are plenty of traders and analysts who think it is a matter of time before oil hits $100. it is a sign that physical traders are try to get their hands on barrels right now today. there is a lot of geopolitical premium price in the energy markets, no doubt about that. if there is some de-escalation, that could weigh on prices, but the fundamentals point to a tight market. manus: a lot of money is in the back end of the spreads. thank you very much, paul wallace in dubai. let's get back to juliette saly

in singapore with your first word news. juliette: increasing tensions with russia, the british prime minister is calling -- [indiscernible] johnson said there is no chance of holding football tournaments in russia if it invades sovereign countries. they are closely monitoring the situation. hong kong will test its entire population, over 7 million people, three times in march as the government employees a strategy used by mainland china. april will have to take daily rapid tests -- people will have to take daily rapid tests. chicago plans to lift its indoor mask mandate. canadian banks -- emergency powers meant to end protests in

ottawa. prime minister to joe and his mr. say the measures are to cut off funding to protest leaders. ottawa downtown was cleared out over the weekend, but dozens of trucks remain outside the city. france has removed australia from its list of key partners, instead paris says it will pursue bilateral cooperation on a case-by-case basis. it is five months after the submarine debacle were australia abandoned the major submarine contract with france. france is reducing partnerships with other countries in the region, like india. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is blue. -- this is bloomberg. manus: sanctions hit the market. equities and futures rise. traders are underwhelmed with the approach of sanctions.

this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." i'm manus cranny in dubai. the equity markets with a mini bounce back. are you tempted by the bounces? you should be wary of these relief rallies. fight the temptation. i should remind you that you broke the 200 moving day average. we are living on the edge. you are going to demolish this equity.

stage of sanctions, there is an assumed escalation of sanctions on an escalation of incursion, or as the americans call it, and invasion in ukraine. global stocks are unchanged. this is ground zero for the squeeze in the calendar spreads. aluminum off its 2008 high. nickel is off its 2011 high. nickel has one inclusion on the u.s. official tally of 50 commodities deemed most critical to the economy. $25,000 is not to be sniffed at, we are just off that level. inventories tight since 2019. markets are reacting pretty much with a shrug on the equity side of the equation. and to the sanctions that have been leveled and taken by the u.s. and its allies against russia.

the measures will impede russia's access to global markets, sovereign debt sales, and punish the country's elite. they stopped short of crippling top banks were personally singling out president putin himself. i'm reading headlines like underwhelmed, etc., but we are reminded that this is step one, stay dry of a series -- step one, stage one of a series of sanctions. esty: good morning, i think they were intentionally not overly aggressive. the reality for now anyway is that russia has basically crystallized what was already a reality on the ground for a number of years. while sanctions were necessary, and the recognition of the region could not be ignored, the

countries do not want to step up sanctions too quickly because they do not know what russia's next actions will be. there needs to be some room. they are clearly worried about energy for europe and global oil prices because we have seen opec-plus not want to increase production, and not able to increase production so much. a first step intended to show a signal but not have as much pain as could have been the case. manus: this could escalate, in which case you need to have natural hedges which can do well in volatile times of angst. what are they for you? esty: it could escalate if russia moves past the conb -- donbas region. hedges, oil for sure. we are close to the $100 per barrel. depending on the headlines, we could hit it. gold for the short-term, it

should benefit from this safe haven bid. the rate hike conversation is not very supportive for the medium-term. some currencies like the swiss franc continue to act as a safe haven. it is difficult to go into the bond market and look at the sovereigns that have retreated. the central bank tightening overhang means it is not our favorite hedge right now. a slightly trickier situation than usual because bond market have at the start of the year been part of the problem. manus: let's dig deeper into the bond market story. one of my guest this morning said the prospect of five rate hikes, seven rate hikes, nine rate hikes from j.p. morgan have not had a demonstrable effect. our chart has ever so slightly begun to tighten. do you think it demonstrably

shifts if balance sheet runoff is active and not aggressively priced in at the moment? esty: i think that is what is not yes priced in the financial conditions. there are so many questions about what the balance sheet runoff will look like. will it be a runoff, or will there be outright sales? how quickly will this be done? what is the target level for the central bank? at the moment there is a big focus on rate hikes. i think the market is pricing in too many rate hikes for 2022 at this point. the balance sheet question could have a bigger impact on sentiment and financial conditions. manus: how many hikes you think we will get, and why not join the chorus, because we will be cutting them up in soundbites? the risk of 50 basis points in march. esty: 50 basis points in march

is unlikely at this point, especially given geopolitical tensions, and some concern that higher oil prices can impact growth. we have seen a number of speakers not looking so much for that 50 basis point hike. i'm still for 25 for march. at this point, closer to four for the year than seven. manus: ooh. i can trade the spread and have a bid from flow. stay with me, esty dwek, cio, flowbank. somebody will take her out of that market. geopolitical risks add to inflationary pressures. we discussed central-bank policy. be calm. this is bloomberg.

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manus: this is "bloomberg daybreak: europe." i'm manus cranny in dubai. existential angst over conflict. an escalation of conflict is no more pervasive than in the commodity market. the biggest component part, gold at 14% of the complex. we are showing you three moments of existential angst. did you know what a mortgage backed security was then? many people did not either. the european debt crisis, and now we are in the eye of a very existential moment post omicron,

and a supply chain crunch where gold is the biggest part. wti and brent are the alpha, and they are under squeezed pressure. let's see what esty dwek makes of that, she is the cio, flowbank. there are many market showing existential angst. let's start with commodities. you are long on oil. when you see those moments of great existential angst, i want you to benchmark now the debt crisis in europe to the gfc. esty: i think we are in a very different situation that we already had higher commodity prices, and we have a number of different factors that are leading to higher commodity prices that are now being exacerbated by the tensions with russia and the ukraine.

if we have a swift resolution, a diplomatic resolution, will we see oil prices retreat? absolutely. how far back, i am not sure. we do not have the same inflation problem as 2021 with basic facts, but it is unlikely oil would retreat to $70 a barrel if the situation -- we had a coal situation in china, a gas situation in europe, we clearly are having a challenge with getting enough oil globally. we have an energy transition that is impacted, the price of a lot of commodities. i feel there are slightly more structural drivers than the existential angst you are talking about when you look where the commodity levels are today. manus: there is a piece this morning talking about the technicalities of the s&p market, down three days in a row , and breaking that trend.

i was drawn to what people said from a technical point of view, we are living on the edge, but i am drawn to evercore. ephemeral relief rallies, the temptation to buy them, do you? esty: it feels like it is a bit early at the moment, given the overhang from the russia-ukraine situation. if i'm thinking three months, six months, nine months out for the whole of 2022, i do think the january lows are going to hold. we are not very far off. unless the situation deteriorates, all bets are off. for now it should hold, therefore if you are medium-term, these are starting to look like more attractive entry points. acknowledging the next couple of weeks are likely to to be volatile, and shorter relief rallies could prove short.

manus: based on four rate hikes, a little less than the market is pricing in a we are back to pricing 25 basis points in march, with four hikes in mind, is that part of the justification for why you still like tech? when a look at nasdaq, down just under 15% so far this year, what bit of tech do you like? esty: i think you have to be a lot more selective than used to be. rate hikes are a challenge. we are pricing in so many with the consensus expecting seven, it suggests there is the potential for a slightly more dovish surprise. we had seen that in the last couple of days with the safe haven bid. rum the tech perspective, i think the strength and sustainability of the earnings to support the markets.

you have demand for the big names. you have to be a little more selective. you are not seeing a change in the long-term trend, -- manus: we have to leave if you're a small business, there are lots of choices when it comes to your internet and technology needs. but when you choose comcast business internet, you choose the largest, fastest reliable network. you choose advanced security for total peace of mind. and you choose fiber solutions with speeds up to 10 gigs to the most small businesses. that's virtually everywhere we serve. the choice is clear: make your business future ready with the network from the most innovative company. comcast business. powering possibilities™. pres. biden: this is the

beginning of a russian invasion of ukraine, so i will begin to impose sanctions in response. it will be far beyond the steps we and our allies implemented in 2014. manus: this is "bloomberg daybreak: europe." i'm manus cranny. president biden says russia is invading ukraine. talks between antony blinken and lavrov canceled.

no summit with putin. a whimper and not a bang, the first round of sanctions underwhelm as u.s. and allies threatened more if the russian government does not change course. stocks and futures climb after the s&p 500 falls into correction. oil gains in the dollar is unchanged. there is a moment of relief in the markets. do not be fooled by ephemeral rallies. a technical correction, will it endure? there is too much political angst. globally stocks are flat, and stoxx 50 rallied by 0.5%. blackrock institute are adding on a global horizon to equities. money is going into and coming

out of bonds. the focus back on the risk. bond future prices falling, yields are rising. the market is focused on the risk of a 50 basis point hike in march. gold comes off its high, but there is an underbelly of momentum. oil back from $100. to russia, it is about access to bond markets for russia. the ruble rallies on the back of tranche one. it looks the lowest since 2009. a bit of breaking news, some top

lines, telefonica deutschland in line with what the market expected. let's see what the strength of these markets was with the ceo. markus haas joins me now. thank you for making time. you made $2 billion in the fourth quarter, where was the strength? good morning, how are you? markus: good morning. we are outperforming the market and saw strong business in the fourth quarter. overall 1.5 million joined our network last year, so the business has momentum in consumer. manus: in the business of fixed network, could you see yourself

working with rivals in some of the rural areas? markus: absolutely. we have a technology agnostic strategy so we can buying cable and fiber so we can offer every home in germany a solution, and this is our strategy in our mobile customer base. manus: competition is rising, there is a fourth competitor in this space in the german market. how do you deal with that? how will you compete with that? is it on price? markus: first of all, it is on quality. we caught up in the last three years, so we equalized equality with the other two players in the market. and we cooperate with the new player. we signed a long-term roaming

agreement where the new player uses our network in the rural areas, and that allows us to reinvest these funds to improve our network further. manus: there are two pieces to your title, and telefonica, have they raised their stake? would it embolden the strategy for you from a capacity or balance sheet point of view to scale up their position in your company? markus: an investment currently with the dividend we proposed, a very attractive investment. we see our major shareholder has increased their share in recent months. manus: what percentage by? markus: roughly 1%. manus: 1%, well done. are they more active? do you

talk to them more? are they involved in strategy with you? markus: we clearly cooperate on procurement, on big i.t., and technology decisions. we leverage the global scale of telefonica, and also on roaming conditions, so we operate at arm's-length principal, and have a win-win relationship when it comes to scale. manus: what happens in your market? a lot talk about european consolidation. do you think there will be consolidation? could this year bring some kind of consolidation? markus: from our perspective, we have a clear strategy for growth. we will outline this later in our guidance that we give for 2022. we grow in revenue,

significantly less investment than in past years. we are well-positioned mauer perspective. i think as long as we are able to grow in this market, everybody has an opportunity to benefit. manus: the only story that anybody is talking about at the moment is the prospect of an invasion into ukraine, and the responses by various governments , water leaders around you saying of olaf scholz's response on the global stage? markus: first of all, europe needs a strong answer, including the u.k. we need to stand firm to our principles and values, and we clearly can fully understand the position of the german government. in order to block nord stream 2. we hope the diplomatic channels,

there will be an appeasement soon. from our perspective, as a european based company, we need to stand firm. manus: do you think benching nord stream 2 at the moment is a strong statement by olaf scholz in germany? markus: from our perspective, it has been a long-term project between germany and russia. from that perspective, it looks like it was an important project for the russian side. it is important we get independent energy delivery, that we achieve our target of 85% renewable by 2030 as the german government has announced. we have a climate neutral target by the end of 2025, so we need more independent. it is a very clear signal. manus: thank you very much for

being with me. that is markus haas, chairman / ceo, telefonica deutschland. let's get to your first word news. juliette: president biden has announced sanctions targeting russia in response to what he calls the start of president vladimir putin's invasion of ukraine. biden says the sanctions will target the sale of sovereign debt, and could be escalated if moscow continues its aggression. biden is sending additional troops to the baltics to defend nato countries. pres. biden: this is the beginning of a russian invasion of ukraine. i'm going to begin to impose sanctions in response far beyond the steps we and our allies lamented in 2014. -- our allies implemented in 2014. juliette: france removed australia from its key partners.

tensions still linger five months after the submarine debacle. since then, boosting partnerships with other countries in the region like india. hong kong is set to test its entire population of over 7 million people three times in march as the government deploys a containment strategy used by mainland china. people will have to take daily rapid tests. covid infections in the u.s. fell to the lowest level since the arrival of the omicron variant. chicago plans to lift its indoor mask mandate. global news, 24 hours a day, on air and at bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you very much, juliette saly in singapore. how would a worsening of the

russia-ukraine crisis impact markets? we will speak to jordan rochester, strategist g10 foreign exchange, nomura international. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." i'm manus cranny in dubai. ukraine is at the top of the mine for many currency traders today. how should the fx market position itself? let's look at the ruble. on the specter of phase one, tranche one, step one sanctions, the ruble has strengthened. let's put it into perspective. dr. christoph jurecka, cfo, muenchener rueckversicherungs, showing the two day chart does not tell the bigger story of

what has happened to the ruble. it is an interesting first reaction to step one sanctions. your assessment of the sanctions as the american administration calls them? good morning. jordan: it is tranche one, and russia has gone beyond into the ukraine to kiev, when we get to that level of the conflict, we will escalate to the most severe sanctions. because that scenario has not played out, this is step one of a long line of steps of a russian incursion into ukraine, that is why markets have not overreacted. in the g10 space, dollar weakness, but the ruble has been moving, weaker overall in the past week. manus: part of your role is to assess and tell clients what you think the worst case

worst-case scenario, going into key avenue -- going into kiev, in terms of risk? jordan: indeed it is geopolitically and for markets, the uncertainty would be huge as to what happened. there are so many ways to look at it. from a foreign-exchange perspective, we have to look at the macro and what it means for inflation expectations. from a growth side, it leads to higher oil and gas prices as western countries try to avoid buying russian exports of oil products, but russia might hold back that supply anyway, as we see them doing in the gas market, even though they say the opposite. that will weigh on real yields. if you have an environment where perhaps the central banks turned more dovish, but the markets would have to deal with the conflict in ukraine.

that is risk off, equities lower, safe havens and demand. manus: you talk about a localized conflict versus reflecting back on moments of great angst in this region in the gulf. differentiate for me, we are dealing with a localized conflict and not the worst case scenario, the reason why the market is slightly long -- and i find that interesting -- investors are net long ruble futures. talk to me about localized conflict and what that means for risk? jordan: risk has been priced into the russian markets. if you look at the ruble overnight, the fx markets are hedging itself removes in the currency. the price of that assurance has gone through the roof. you can compare it to 2014 of the global financial crash in terms of volatility. the fx market is not ignoring

the risk. the credit market is not either. you can only compare it to 2014 when they invaded crimea. there are localized pricing of this risk. is it the same in the rest of the world? not particularly. at the moment the market says it is a russian story, but as you rightly noted, investors are long ruble, and we look at real money positioning, how they are compared to the benchmark. real money positioning is long russia, overweight russia versus the global benchmarks and what they say. that is why the price of these hedges are going up. but is not selling off the currency as you would expect. that is because of russia's fx reserves. we might see interventions from the central bank to stop the currency depreciating weekly,

and that is why we are scratching our heads. manus: there has been a huge swap of dollars into yuan. i'm focusing on the wrong train, people are saying to me. the great fx swap has left and that has already left. this shows you how old i have gotten, you want a euro-yen two week general put. is there is something different from the normal put? take an old man through a digital put? jordan: it is a bit more exotic than a normal put. if you are below that strike, you will pay out 100%. the payoff is more aggressive, close to zero for quite some time. as you get close to a strike, it accelerates to reaching the max payout. it is a good hedge because if you have a risk off event, you

have a quick move in the market, and the digital will go from cheap, close to zero, and that is why we have that hedge. let's talk more about the macro. russia has the problem right now but one of the reasons orchids are not selling off as much as you would expect given the conflict is because we are expecting in the second quarter grows to pick up. we see china easing their credit cycle. the credit impulse in china is picking up in a way that should leave orders higher. countries are moving away from covid policies that held back the consumer, and at some point this year or next year, china might relax the zero covid policy. because of these catalysts in the pipeline, that is why the markets are not selling risk as quickly as you would think. manus: the natural corollary to that, that is a levelheaded view

on where risk goes later in the year. what does that do to the fed? what is it do -- what does it do to the dollar with that macro backdrop? i need to understand what the fed does in the consequence of the dollar for you. jordan: since june of last year, we have had month after month after month after month of positive inflation surprises. in the euro area and in the u.s. and elsewhere. the trade has been priced in more rate hikes from central banks. as we get to the second quarter, that is when we think we might see the peak in the dollar strength. it has been range bound since december, but the first rate hike of this cycle by the fed in march will be the peak of the dollar. do we get 50 basis points? our view is yes. the market is not pricing 50 basis points, but it is close.

after that, we start to see inflation surprises, not necessarily to the negative, but the analysis is we will start to see base effects weigh on inflation unless oil goes to $120. that is the caveat there. six or seven rate hikes year, the market is pricing that in. the focus will turn to the ecb and the euro zone. we sell one of the hawks this morning calling for two rate hikes from the ecb this year. the trade will be the dollar weaker and the euro stronger as we see a regime change in the euro area with positive yields in the pipeline. manus: maybe that is the more underpriced risk in the market. great to have you with us this morning. jordan rochester, strategist g10 foreign exchange, nomura international.

coming up, the rio tinto ceo joins us. do not miss that interview. rio tinto's numbers hit the tape in the past 40 minutes, and you are looking at rio tinto, an underlined miss. it is still up 72% year on year. this is bloomberg. ♪

manus: it is "bloomberg daybreak: europe." i'm manus cranny in dubai. oil prices relatively stable. some say the sanctions have landed with a thud with no dramatic impact on the energy market. nord stream 2 has been benched by the germans. do we have ourselves in a

frenzy? sanctions thud, nord stream 2 benched, crude off of its spike higher. have we hit a temporary exhaustion point? >> that is the big question, is this a breather before we hit $100 a barrel, or is it more significant that leads to a longer-term fall in oil? it seems in the market as if it is as you are saying, sanctions are softer than expected, and that is a reason why oil pared yesterday morning steep gains, but there are plenty of traders out there saying $100 oil is still insight. it is a question of when, not if. manus: biden calls it tranche one, we are calling it the beginning of the beginning.

the risk off and them going for kiev is an all-out escalation, and the worst case scenario for global risk. on escalation, do you expect there to be a quid pro quo in the price response in the oil market? paul: that is what most people are saying, if there is an escalation on the scale you're talking about, yes. manus: i do not think that is anybody's base case. it should be said again and again that russia has said there base case is not to go for an all-out invasion. paul: absolutely, but nonetheless, if that comes about, there is a good chance of a high price spike. one thing oil traders will be looking to, where are the extra suppliers going to come from if there is any disruption? it is hard to see those. manus: you see the tightness in

the gas markets from qatar. thank you for being with us, my colleague, paul wallace. up next, "bloomberg europe: markets" with anna. this is bloomberg. ♪

anna: good morning, welcome to "bloomberg markets: europe." i'm anna edwards. the cash trade is less than an hour away. here are your headlines. pres. biden: this is the beginning of a russian invasion in ukraine, so i will impose sanctions in response far beyond the steps we and our allies implemented in 2014. anna: a whimper and not a bang, biden's first round of s