manus: this is "bloomberg daybreak: europe." i manus cranny in dubai with dani burger alongside mia at london hq. president biden and xi discuss ukraine today. china tech stocks snap a two day

surge after posting the biggest three-day rally since 2020. jp morgan processed russian bond payments. the s&p still sees risks of the defaults as he cuts the nation's rating as the bank of russia meets today. dani, good to have you with me this morning. what will happen? what is the readout that the world wants from xi and biotin today -- biden today? dani: good morning. happy friday to you. it continues to be a market that trades on headlines from talks coming from russia and ukraine or lack there of so it is a big risk on the horizon. manus: i'm going to say this is the most magnificent. this is volatility, disbelieving

the fed. this is the five-year breakeven. you have not got a handle on this inflation narrative. this is a spike. i love it. this is the breakevens, breaking higher, the biggest one-day move since 2009. this is the bond market basically saying it potentially is unanchored, unmoored, and they are not convinced that the narrative from the fed will anchor inflation. i love it. dani: every day, we get closer to releasing "now that's what i call music!" the daybreak europe edition. it is throughout the bond market. they are challenging the fed if you look at what euro-dollar is pricing, what fed fund futures are pricing. have started to creep ever so closely from frontloading hikes from the fed. we are looking at a july where 40 basis points is baked into the picture.

may only has 20 basis points. might not have a hike there. it is a bond market that is challenging the said to get more aggressive -- fed to get more aggressive, manus. manus: absolutely. the bank of japan is warning about growth. the imf are warning about growth. let me show you what happens when you start talking about a 50 basis point hike. in the very first instance, it dropped. the market sees 2% by the end this year. a quarter percent by the end of the year. the bank of japan is warning about growth. bitcoin up by .25 percent. five-year yield, i showed you the volatility. i'm rounding up. i'm sure somebody will complain.

you know what? send it to me. dani: open season. manus, we are flat on the euro stoxx 50 and those did barely push into the green and it was in the red earlier, catching some of the negative mood music coming from chinese equities which are falling after the rally. i want to point out ftse futures. you have cable taking the impact from the boe yesterday but we are looking at .25% higher ftse futures likely because of oil back about $100. a lot of the oil majors and material companies live here in the u.k. .4 for u.s. stocks. it's just on the back of the biggest gain since 2020. manus: let's get the reporters from around the world to put

context on the narrative. what a breathless week for chinese stocks. our europe correspondent, maria, has the pulse from brussels. let's start with equities. dani: that tech rally is starting to fizzle. beijing vowed to support to stabilize markets. u.s. futures as i just showed you are slightly slipping and it comes off the back of the s&p 500, best three-day run since november 2020. let's get to juliette saly little bit of the wind taken out of that -- juliette saly in singapore. a little bit of the wind taken out of that. juliette: things have turned a little. you are seeing the hang seng down by .5 percent. the regional benchmark index is on track for its first weekly gain.

the boj sounding the alarm about the war in ukraine. you have a weaker yen. when it comes to the hang seng tech index, it is similar to what we saw in the adrs and we have this bloomberg scoop that perhaps that pay business may be forced into the financial holding company. are we going to see more of a crackdown coming through from regulators just at the time earlier this week we thought we had got outside of relief for the nearly two year long -- it is still a long way to go from the peak of february 2021 despite the impressive rally we had coming through wednesday and thursdays session. we are down by almost 60% from the february peak and a lot of nervousness in these markets. manus: that is a monster chart. juliette saly in singapore. the geopolitics in the world, xi

jinping signaling a looser covid policy could be on the horizon. speaking at the politburo, xi pledged to reduce the impact of measures which have weighed heavily on the world's second-largest economy. even as they minimize the fatalities. we are joined by bruce einhorn. what could this mean for the economy? bruce: i think we need to be cautious and say that this is unlikely to mean that this is a significant move away from china's covid zero policy. what we do know is that president xi did speak to the politburo standing committee which was the highest level of the chinese communist party and talked about that china will strive to achieve the maximum prevention at the least cost and minimize the impact of the pandemic. a lot of work. it is the first time that president xi has talked like

this at such a meeting, talked about minimizing the economic cost of china's control mechanisms. it is in keeping with other comments we heard from chinese officials recently about the need to stimulate the economy. that said, we need to be cautious. it's highly unlikely that there's going to be a real major move away from covid zero this year. there is too much at stake for president xi later this year. he is expected to get his third term as leader of china and it is -- and is highly unlikely to want to risk any major instability. dani: it's not just the politburo. he is set to speak with president biden. the u.s. becoming more concerned that china is leaning towards helping russia. what are we expecting from this meeting? bruce: well, it's hard to say.

just what is going to come out of this meeting, we know the biden administration is concerned. they don't have a good sense of what china's intentions are. on the one hand, we know that china has received or at least the u.s. says that china has received requests from russia for assistance and there is a possibility that china sees opportunities perhaps for chinese companies to be making investments, getting deals with russia. on the other hand, we heard that -- from the pentagon report that said china is not fully likely to back russia so mixed signals that the biden administration is seeing here. dani: thank you very much. that is bruce einhorn. sticking with the war in ukraine, more talks between moscow and kyiv have yielded little progress.

the u.s. warned that vladimir putin could make nuclear threats if the war drags on. joining us is maria tadeo. to what extent are talks stalled at this point? maria: they continue on paper but in reality, not a lot has changed. ukraine is a country that continues to get bombed every night. this is day 23 and we are paying very close attention to mariupol, a city that -- it is where the heavy fighting is happening. the russians have made it clear. we talked about china but i would stress another country that we should keep an eye on is turkey. the turks would offer to hold a bilateral meeting between the russians and the ukrainians. yesterday, the turkish foreign minister -- it is clear now that vladimir putin and volodymyr zelenskyy have to meet in person to put an end to this war.

the ukrainians have said for weeks that there needs to be a face-to-face meeting between zelenskyy and putin to come with a peace deal. when is this going to happen? the timing of it is very much up in the air. it is becoming clear that at one point, the climax to the story will have to be a meeting between the two sides. manus: great reporting. we will pick up your side. maria tadeo and brussels. -- in brussels. let's take a look at what is coming up today. the u.k. time for the bank of russia. they will review their latest rate decision as the economy struggles to -- sanctions. data from the united states of america. mortgage in america, 4%. over 4%. that is an impact. dani: it absolutely is.

we will be keeping a close eye on all of that as the day unfolds. at the same time, we will continue to watch the impact in the economy when it comes to ukraine and more. coming up, we will discuss just that with our next guest, from northern trust. manus: from credit suisse, our guest joins the team with her equity outlook. this is bloomberg. ♪

>> owing to the war, europeans will in the short term confront higher inflation and lower economic growth. accordingly, the challenges facing monetary policy are changing.

we are unlikely to return to the same dynamics we saw before the pandemic. >> fiscal policy makers -- what we are seeing now is a hit to consumers of energy and those of food and that needs to be addressed with fiscal measures. >> we have begun adjusting policy so that when the necessary conditions are satisfied, we can take additional steps toward policy normalization. >> the horrible war in ukraine has made one thing clear, the need to accelerate the transition towards renewable energy as much as possible. we recommend means targeted measure -- lower income and lower middle income people. a large share of our energy demand can be met with renewables.

households will benefit from lower prices. dani: discussing the impact of the war in ukraine on inflation and growth outlook. the imf is sounding the alarm, calling the war a major blow to the global economy that will hurt growth and raise prices. joining manus and me is carl tennenbaum, chief economist at northern trust. thank you for joining this morning. we are in this mode where we are trying to digest through the fed's announcement earlier this week. you have a rate hike that on their forecast surpassed the long-term rate but you have unemployment that is set to stay steady. if the fed is faced where the sick -- with a situation where they had to go into combat mode or keep unemployment at reasonable levels, which do they choose? >> unfortunately, i think they will prioritize inflation. dave uses -- they view this as the ones -- price stability.

it's important. they don't think employment can stay positive if we have high inflation because it does not provide the context for creating good jobs. i think that they are very serious when they show us dots that are going up close to 3%. manus: great to have you with us. it's interesting when somebody flies in, they have a very different perspective. they are talking about the lack of belief by the bond market. when i see a verlyn move in breakevens, it says to me that the bond market mistrusts the narrative that the fed will re-anchor inflation. when you see the biggest one-day move in breakevens and the belly of the curve, it is 2009. what does that say to you? carl: as you know, the implied inflation is heavily influenced by energy prices. the correlation is very tight. they have been up and down.

the two-year expectations are much higher than the five-year expectations so there is a belief that central banks will get inflation under control and i think that the yield curve is believing the fed. from three months all the way out to two years, you have positioned along the path that the fed described in dot charts so i think they are taking the fed at their word and equity markets with all of that as well as what is going on on the eastern frontier of europe is going fairly well. dani: in other words, you have a rich knowledge of the history of the federal reserve in this market. rarely are they able to get this rate combating inflation without hurting growth. carl: soft landings are rare and the last time they really had to do this was the early 1980's and we had a terrible recession in the united rates and globally as a result of that. the other thing that is different between now and then is markets deliver much more of the credit to investors and to borrowers and they did back

then. the fed will be closely watching financial conditions. every 25 basis points that. every utterance is going to affect volatility, equity prices, credit brides, and other things that make the composite. they will be cautious about pushing too far, too fast. manus: that's interesting because it's one of the things we touched on this week. they tightened so aggressively and have not become the tightening cycle. it is because of the wars, because of a number of things. they had to stop hiking rates in 2018. can we move forward to the projections on the terminal rate? this is where against interesting. -- where it gets interesting. larry summers is at 5% to quell inflation. adam pozen is somewhere south of that, probably on the three. where is the magic number, the new neutral rate that northern trust things we are going to get

to? carl: i will take the under from what larry summers said. the things that make up the neutral rate, things like demographics, a supply of savings in the economy, have all been pushing that down for the last couple of decades really and the forces of the pandemic which have damaged global demographics and have probably not done anything to reverse that trend. i think the federal get into the 2% range and it's going to find as you have hinted that liquidity conditions are getting tighter earlier than they might have thought so that is why i would say they are not on a preset course. they will want to check every stair step to make sure that the markets are taking this the appropriate way and they are not going further than they need to go. dani: -- -- let's manus: let's see -- manus: let's see. they want that flexibility. stay with us. we are going to get value out of

view, increase the productivity curve. carl tennenbaum stays with the team. coming up, we will continue the conversation with carl on some of the nuances of the shifts in the potential for the china covid policy. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." i am manus cranny in dubai. xi jinping signaling a loser covid policy could be on the horizon. the measures have weighed heavily on the world's second-largest economy even as they have minimized fatality spirit our guests this morning is carl tennenbaum, chief economist -- minimize fatalities .

our guest this morning is carl tennenbaum. biden and xi are in talks today. there is deep mistrust about whether xi will support biotin -- biotin. -- biden. how important is it to get a constructive readout on the line that would give us confidence that they are not going to go outside with russia? -- onside with russia? what is important to you? carl: china played this situation beautifully. vladimir putin visited president xi at the winter olympics and afterwards he said in the relationship had no limits but it does. china is looking at its own self-interest in all of this and has seen the impact that the sanctions have had against russia and do not want to be subject to the same kinds of things. they understand the sensitivity not only of the western governments but also western corporations to any pledge of allegiance to russia so they

have allegedly held off selling additional material to russia which russia desperately needs an president xi's positioning himself to be potentially the peacemaker in which case he might get relief from sanctions or tariffs from the united states and maintain a relationship with russia. it's a delicate balancing act but they are playing it well so far. dani: that's interesting because almost we have seen that reaction take hold and markets. chinese equities have been hit really hard. concern about exposure to russia. do you think that is a risk scenario that investors need to keep in mind, that china gets exposed to russia sanctions or considering as you say as china has handled this that you can kind of take that off the table at this moment? carl: anything is still possible. it is a dynamic situation. russia and china have historically viewed each other more warily. they are not natural allies. they are dealing with the consequences of zero covid. the property sector looks

uneasy. we have a long list of concerns. president xi would like the picture to be as bright as possible for his declaration as president for life in october. manus: to what extent have we missed traced our trust in stepping back in china, being the, you know, the solution to all our supply chain woes in the world? everybody writes about china, the bottlenecks, zero covid policy. is that possible to monitor? is that going to be the turning point in the supply chain of the world? carl: i wish i could say yes but it has been proven over and over again that lockdowns are among the least effective ways of dealing with the pandemic. vaccination has proven to be the most durable way of quelling it. china has two products of its own that don't have the same efficacy as the ones that are available in the west and as a result, they have continued to

go back to lockdowns which put people in a very bad position. the ports, the roads, the manufacturers, all dealing with absenteeism. just in time doesn't have a lot of room for just in case. the implications are significant so we are creating more supply chain problems this morning and as all of this happened, multinational companies are giving careful thought to how and where else they might recover some of the things they are reliant on china for. dani: really fascinating conversation. please come back anytime. that is carl tennenbaum, chief economist at northern trust. we close out this half an hour taking a look at asian markets and seeing some recovery in hong kong's stocks. they start out negative, now up .5%. they had been down more than 1% and it is now down .75%. manus: we need to put in context

on some of these moves, chinese stocks, you know, coming off the biggest two day rallies since 1998. hang seng taking a breather. this is bloomberg. ♪

manus: "bloomberg daybreak: europe." dani: president biden and xi jinping discuss war in ukraine. china tech stocks snap a two day surge after the s&p 500 posts its biggest three-day rally since 2020. jp morgan processed russian bond

payments but s&p still sees risk of default as it cuts the nation's rating again. the bank of russia meets today. happy friday to you. it is a bond market that is still digesting the fed moves. amid the digestion, you have breakevens powering higher. carl tennenbaum says the bond market is pricing that the fed will get this right, but there are other elements that say breakevens are highly tied to the energy picture as well with oil going back above $100 a barrel. mark: -- manus: when we challenged carl and we put this chart to him, there is something that could have been a monumental trade that went through the sometimes we do not get a disclosure of. this is spectacular volatility. a 22 basis point rise, breakevens moving the most in one day since 2009.

to a certain extent, i would say, and it is only me and i am not the chief economist of northern trust, not the chief economist of anywhere for that matter, that is spectacular volatility. it does say to me there is somewhat of a mistrust. dani: it is a fascinating back and her than you have a bond market that is challenging the fed to go with 50 basis to start the year -- a 50 basis point hike to start the year. we have had equities power higher. bridgewater called it a magical scenario. looking at breakevens, five-year, 10 year, those are moving ever so slightly higher. it did slightly steepen earlier today. before i babble forever, your equity market sure, futures are performing because oil is doing better. you have the reaction to the

bank of england s&p nasdaq this morning. manus: you never babble. jeffrey gundlach has a cash word. he is wondering if $200 of oil -- $200 per barrel of oil. cable up. nobody voted for 50 basis points. the pound tanked and then recovered. what will kuroda do to take the yen lower? the dollar higher. the belly of the curve. i will not be rounding up. dani: you did have some ids. well, you asked for it. on a more serious note, let's return to our top story today and for the past few weeks. the war in ukraine. president biden is set to tell xi jinping that the u.s. will,

quote, imposed costs if beijing backs russia. the call is due to to take place this morning. let's bring in bruce einhorn. what does the u.s. think china is doing regarding willingness to help russia? >> when president biden speaks with president xi, he's going to try to get president xi to back away from support for russia. antony blinken said yesterday the u.s. is concerned that china is considering directly assisting russia with military assistance in ukraine. u.s. officials also think china may be looking for economic opportunities as russia increasingly becomes dependent on china, as sanctions cut russia off from the rest of the world economy. that's going to create a buying opportunity for chinese companies, americans are

concerned. the u.s. is also worried about what it sees as china's willingness to spread russian disinformation about things like alleged bio labs in ukraine. the concern is that vladimir putin might be using that kind of allegation as a pretext for action involving chemical or other biological weapons. manus: what are the chinese saying in terms of preparation for this meeting? i'll be at -- albeit virtual. >> a good point. the chinese are dismissing a lot of this. they are saying that the course they knew in advance about prudence plans to invade -- putin's plans to invade, they dismissed it as a rumor.

they have also dismissed it as a rumor that russia asks for military assistance. we have been hearing china want to's -- wants to see a diplomatic solution. yesterday the chinese foreign ministry spokesperson supported a statement that the chinese investor of ukraine had issued previously -- ambassador of ukraine had issued in which china suggested its willingness to stand with the ukrainian people. it praised the strength and unity of the ukrainian people. the message we are getting from china is that, no, china is not onboard with what russia is doing. the americans have doubts about that. manus: thank you. bruce einhorn on the latest. a couple of lines coming across the bloomberg terminal on kuroda. the governor of the bank of japan saying he will not hesitate to add easing if needed. uncertainties are extremely high

due to the war. i know there's another couple of lines, i leave those to you, but will not hesitate to add to easing. this just shows you how central banks are diverging. dani: exactly, and that is having an impact on the u.s. currency. they are likely to seek cpi -- likely to see cpi. the yen against the dollar continues to trade at a 2016 high. all about those yield differentials. and by six year high, i mean low. manus: dollar higher, yen lower. people are saying on a technical level you're going to retest the 2018 level. it may affect the economy. the economy is picking up to trend overall. bloomberg customers, hop on their.

-- on there. that is the line. they are not going to hesitate to deliver more assistance if it is needed. there is the trajectory of dollar-yen. dollar higher, yen lower. the day after the bond market indicator flashed concern about the economy, it could buckle under the weight of the fed's rate hiking campaign. some investors say it is a magical moment. dani: economic expansion continues even while rate rise is unlikely. take a listen. >> the bond market and the stock market together are pricing a magical scenario where the fed tightens not that much, it does not kill the expansion because you still have equity prices doing what they are doing, and inflation comes down. if you look at history, that looks unlikely. it echoes what happened in 1973.

manus: a big warning. so there you go. we are all banking on magical moments and actually we should be perhaps a little bit more fearful. it is a warning and it is one person's interpretation that we are perhaps overly enthusiastic about the growth narrative in the u.s. and we should be more sanguine. your take? good to have you back. >> good morning. we have taken a more optimistic stance. we think that the fed has largely confirmed what the market had been expecting a long. -- all along.

it has indicated the fed will be on autopilot to maintain price stability, and frankly, the messaging of price stability being a precondition for growth and therefore also for a good equity market is one of the positive sides of this week. dani: just yesterday, your team met and decided to move to overweight on stocks. you had been underway starting in late december. -- underweight starting in late december. i was reading here, glimmers of hope of positive developments on ukraine, part of your reasoning. how do you handle market that the long-term picture might look more optimistic? just so volatile and headlines. -- on headlines. >> it is true, moments like those we are living as we speak our moments of great volatility.

the way to mitigate them and at the same time look at the big picture, one which is determined by fundamentals, growth, inflation, consists including in the overall strategy, a number of elements that help mitigate the downside, the volatility. just one example, at the same time as we think it is a good moment, remember when we are in interest-rate rising cycles, there are two things that are important in equity investing. one is to be selective and focus on those equities that can actually be resilient in this move higher, and two, that we also sees tactical moments -- seize tactical moments. the way to include mitigating

effects of short-term volatility is for us to include energy stocks for example. decent exposure to financials. all of these are supported by the higher inflation environment and increasing rates environment that we are facing for the months to come. manus: you have me convinced. i would shift the work folio to credit suisse if i had the money. -- portfolio to credit suisse if i had the money. the biggest moves in chinese stocks -- i do not want to misquote. the hang seng tech rose 21%, the most since 1998. going to be a bit unfair. you tactically have moved to overweight on china. did you get in before this huge move? did you begin to take risks before the move?

were you convinced by the policy to add? >> we have a number of criteria on a checklist, on what would make us move into the market. it started already since the beginning of the year with just china adopting a completely different monetary policy then the rest of the world. china is indeed embarking on a monetary easing course, witches standing in contrast to the rest of the world. china is not having the type of inflation problems the rest of the world is having. that is a very important first step for us to start becoming much more positive in our thinking about china. what we wanted to wait for is the regulatory signals. a stop on the regulatory crackdown that has such a crippling effect on the equity

markets in the last year. this is what we got this week. we entered into what the market already started to price in because we think there is much more room to the upside from here. dani: i'm going to ask you a question out of left field, kind of admitting my bias, it has to do with when i was an etf reporter. one of the volatility etf's made by barclays, stocks creating new shares, the premium has gotten way out of whack between the etf and what volatility markets are doing. it is similar to 2018. this is a long-winded way of saying there are continually these products, these metals, these etf's, different assets where extreme stress is being put onto them. there is potential for them to break. how much of a threat do you think there is from strange

happenings to spill over wider markets? -- over into wider markets? >> it is important to have less -- in that tension. we have concerned on commodities trading on things like, what are spreads doing on commodities traders for example. we do know from previous instances, 2008, that financial stability is really the toxic -- the financial instability would be a toxic thing to evolve. for investors, very important to have an ion these quiet indicators. we have been reassured so far in the movement of the market that is undergoing quite meaningful

ships at the moment. dani: really great to have you on especially as we are discussing that overweight on china and u.s. stocks. thank you for joining us. coming up, sources say jp morgan has processed funds that were earmarked for interest payment due on russian government debt. we discuss russian default fears, the russian economy, all of that next. this is bloomberg. ♪

dani: welcome back to "bloomberg daybreak: europe."

at this moment, kuroda from the boj is talking about inflation cpi potentially pushing past 2%. we are looking at a young versus the dollar that is at a session low. sticking to this narrative that a weaker yen is ok, downplaying the impact that has on rising value of imports. manus: and will not hesitate to add to stimulus. the rise in the cost of imports is due to commodities. rapid import cost jump is not favorable and they will monitor that. actually, mentioned fx, need to be mindful of uneven impact on fx rates. that is when it begins to get frisky in the fx markets. let's talk about the sources. dani: where did you go, manus? manus: i am here. dani: bring him back. manus: i'm with you.

. why don't you take it away? we are back. dani: let me just dive back in before you disappear again. go ahead. manus: we are not doing very well here. i will continue reading. sources say jp morgan has processed funds -- here we go. funds earmarked for interest rate payments on government debt. that is the correspondent bank that bondholders are waiting for a second day to receive their $117 million. catherine bowes lee is with us. what more do we know about this processing of the payments? have the bondholders got their money yet? >> bloomberg has not been able to find any holders who have received their money. it seems the money is stuck in the international financial system. people familiar are saying jp

morgan sent the money to citi. dani: does this indicate the risk of russian default has receded? >> the cost of insuring the russian debt against default has been reduced. in that sense it is looking good. however, the 30 day grace period on the debt payment is still taking. s&p has said if they are -- if these technical difficulties are increasing the likelihood of default, they could -- this could indeed become problematic. dani: thank you for the update. that is bloomberg's catherine bosley on all things russia and potential bond payments.

coming up, nickel. that discussion next. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." breaking news from the bank of japan. corroded does not see stagflation risk. -- kuroda does not see stagflation risk. it is on the tliv blog. dani: i'm also looking at kuroda talking about giving the green light to the yen bears. session high on dollar-yen. let's move to london where i am

in the london metal exchange which said it would allow price moves of up to 12% in nickel. it was 8%, 5% before that, but that was before futures plunged by the maximum amount allowed for a second day. the market recess in fits and starts after last week's historic short squeeze. andrew, it seems like every morning we attempts to open nickel, something goes wrong. what has been happening? what is the lme doing? >> well that is right. it has been continually expanding this daily trading limit. they will be hoping things go smoother today than on wednesday and thursday when there was a whole series of glitches, halts to electronic trading, not a lot of contracts trading hands. a lot of frustrated brokers and

traders. so yes, they will be looking for a big improvement today. the whole thing is really threatening to engulf the lme. it is proving very embarrassing. it will have investors threatening to walk away from the exchange. manus: do you think the credibility has been taking a smack and will it hit liquidity? >> it could well do. interesting that in china, where nickel has been trading in shanghai through this whole period, this has been reducing nickel positions since china. it has dropped to the lowest since 2015. they are exhausted and fearing more wild moves. so yes, it could. manus: thank you for joining us.

that is it for this week. "bloomberg markets europe" is up next. ♪

anna: good morning. welcome to "bloomberg markets: europe." the cash trade is less than an hour away. here are your headlines. presidents biden and xi address ukraine today. the u.s. warns russia could threaten to use nuclear weapons of the war drags on. the pboc may ease policy soon. the oil