>> i think we are facing the biggest inflationary challenge we have for several decades. >> the very high energy and food prices means that some households will be hurt. >> the markets are pricing and tighter policy because of the boost to inflation. >> as time goes by and we see if you hikes, the growth aspect will become more real. >> it will be tricky for the fed to follow what is going on. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. jonathan: 60 minutes away from a conversation between the u.s. and china.

from new york this morning, good morning. this is "bloomberg surveillance, " live on tv and radio. futures down on the nasdaq, on the s&p. lisa: important to see where china really lies in this war. can they necessarily continue to get behind russia without deliberately saying they are behind russia, or do they have to be more verbal about the fact that they want to move closer to ukraine in the western allies? jonathan: a warning from secretary blinken earlier this week. kailey: the u.s. will impose costs on china if they support russia and anyway in this conflict. my question is, we have already seen talks between the u.s. and china, not on the presidential level, but as you brought up, brian sullivan was there to talk to them, and nothing seemed to come out of it. my question really is, can something tangible come out of

these talks or any further talks at the governmental level? jonathan: clearly, something happened this week which concerned this administration, or something did not happen which concerned the administration. seven hours of talks reportedly between jake sullivan and his counterpart, and we have not heard a thing. lisa: what we have heard from china is pretty hard-line rhetoric about how nato has escalated the conflict in ukraine by giving arms to ukrainians, so basically putting blame all over the place, which is not really divorcing themselves from russia that much. jonathan: jim bullard once 50 basis points this week. he wants fed funds up more than 3% by year end, and balance sheet reduction already. lisa: i think it comes down to how strong do you think the economy really is. this is some of the disagreement on the federal reserve, and we

see that this agreement in the economic data. if you believe the u.s. economy is very strong, why not go to 3%? you look at inflation, it is at a very high pace. the fed sees it remaining high this year. jonathan: what you said is precisely where morgan stanley is at. they have said, "this time we think grace will likely be higher. should allow for a higher peak and a longer hiking cycle." how much faith do you have in the economy and how much space is there to get fed funds up without damaging? kailey: that is what he indicated, saying the likelihood of recession in the next year is not particularly elevated, but what jay powell and morgan stanley see is very different to what we see in the news conference.

morgan stanley saying the yield curve will probably invert, but that is not going to be indicative of a recession. jonathan: the range of outcomes is really wide. the range of opinions is even wider. when you hear the likes of scott minerd, diane swonk saying fantasyland, looking ahead to the forecast of this fed come of the idea that you can do this without damaging unemployment. lisa: what is the fed's role in this? how do they affect lower inflation and slowing growth? if you are slowing demand, you are slowing growth. how can that not have a material effect on the fun, look on money that's the fundamental economy, which is the labor market. jonathan: on the nasdaq right now, negative zero point 8%. into friday, through thursday's close, the s&p was higher by almost 5%. yields lower by three basis points, and crude, $1.33.

jim paulsen of the leuthold group, my overall guess is that the stock market correction is over. what indicates that? jim: i am nervous like everybody else, and i see the issues we have, which are pretty plentiful. but i kind of think if you just get away from the issues for a moment, we have been through a very conventional, standard correction year. i thicket started about a year ago when yields peaked march of last year. most markets have been flat over that time. now we have had an official correction in the last couple of months, and that is right on time. if you go back in the second year of most expansions, we have a year where the market goes flat and corrects. we did that in 1983, 1984, 2004,

2010, 2011, and they all listed about a year. it has done what corrections do. it took the concentration of leadership out of the market and reduced our dependency on a few handful of companies. it paused the rate rout, which is now coming back. it revalued most parts of the marketplace pretty significantly, and gut check sentiment. i think it left economic and earnings fundamentals fairly strong, and the combination of pessimism which is really elevated and with strong fundamentals, i think it is a buying opportunity for investors.

lisa: what you just said is possibly the most radical thing i've heard all day, that this is normal. that what we are seeing right now is normal behavior in markets. it is hard for me to find the normal here not in the market behavior, but also the exogenous risks, and that the federal reserve not going to perhaps act as a put that they have in the past. how does that factor into your thesis that this is normal? jim: almost every correction i mentioned in the past, those were associated with periods where inflation started to pick up, the fed started to tighten, very similar to what we have today. i've added additional exogenous risks with russia. i think the biggest elephant in the room is inflation. here's how i look at inflation. i look at it is made up of different components. if i look at one component, which is the smallest part of inflation, it is russia.

it is having a small influence, but it is an influence, and it is likely to be transitory. i think it will be largely transitory. the second component is we stimulated demand too much with aggressive economic policies, and that has a chunk of what we are dealing with as well. but there's good news on that because those same aggressive economic policies have turned decidedly restrictive in the last year. real money growth was 25% a euro growth -- 25% a year ago. the tends to's yield curve -- the tens-twos is 25 today. so this policies which should lower the inflation rate as we go through the rest of the year. lastly, we are moving this pandemic to an endemic, and the real problem is the biggest

chunk of inflation has been the supply-side problem due to covid restricting labor supply. if that eases, we are going to see delivery times come down, backlog of orders go back to normal, airlines go back to normal, and we are seeing the labor force move up as omicron has come down, so i still think inflation is going to moderate a fair amount, and that might slow the fed's need to tighten in all those concerns we currently have. kailey: you mentioned the yield curve in the ballpark of 20 to 25 basis points. the view from morgan stanley is that is probably heading to immersion because it is not going to indicate recession. are you in that camp? jim: i will be concerned if the tens-twos inverts. here's what i will say. if you go back to the 1960's, look at the tens-twos and

compare it to the te -- the tens-funds. today we've got 150 basis points on the 10-three months. i think that is telling me the market is way ahead of discounting the actual curve to cash, but it might take the rest of the year to do that. so i think the tens -- the te ns-twos my ketchup. -- might catch up. jonathan: jim paulsen, thank you. we've got the deputy secretary

of state speaking on nbc, saying, "biden will urge influence on put into into the war, and will go on to say the u.s. is collecting evidence on russian war crimes as well." earlier this week, the president calling vladimir putin a war criminal. jonathan: this comes after we saw resident zelenskyy of ukraine showing that incredibly emotional video to congress, highlighting the need for more wa -- need for more sanctions. jonathan: when we get the headlines, we will bring them to you. from new york, this is bloomberg. ♪ ritika: keeping you up to date with news from around the world, with the first word, i'm ritika gupta. president biden will try today to persuade xi jinping into

ratcheting up the pressure on moscow to end the war in ukraine area it will be his first phone call with the chinese president since the invasion began. use officials have avoided -- and offered rhetorical support for ukraine. russia's finance ministry said to con -- the statement confirms those earlier reports that $170 million had been sent, which is the payment agent. still, the s&p says the risk of nonpayment now or in the future, it cut russia's rating once again. st. louis fed president james bullard says he wanted the fed to implement a balance sheet reduction plan and a rate hike. he says he favors raising rates or sharply this year than any

other. oil extending gains after the biggest daily surge in 16 months pushed prices back above $100 a barrel. a tumult was period of trading for wti, a swing of nine dollars in just three sessions. energy secretary jennifer granholm and senator joe manchin will announce a program to develop lithium batteries here in the u.s. lithium-based factories are critical components of the grid storage and a huge coal industry . i'm ritika gupta. this is bloomberg. ♪

>> we are engaged in a conflict here. it is a proxy war with russia, whether we say so or not. that it's effectively what is going on. for that reason, we've got to make sure we are providing as much weaponry as possible to give the ukrainians the ability to continue what is a very courageous fight. jonathan: important comments from the former u.s. secretary of defense. good morning. futures negative on the s&p, on the nasdaq, too. we are lower by 0.75%, 0.8% on the nasdaq.

40 minutes away from a phone call between president xi and president biden. we understand from one member of the administration a little earlier this morning that they choose the right side of history. president biden looking to urge the president of china to use influence on china to end the war that on put into end the war -- on putin to end the war. lisa: what will it take to push china and the corner to actually take a stance on this issue? jonathan: fantastic guest to have that conversation with, robert blackwell of the council on foreign relations and bloomberg opinion columnist. how do you convince a foreign country of the responsibility that comes with great power? robert: i don't think you convince a foreign country or most anybody else by hectoring them or lecturing them. i hope the president will begin the conversation by essentially

saying we have a problem here. we may see the situation in ukraine somewhat differently, but we both want to first have a cease-fire and then find an equitable way to end this war. i hope you will start like that and not start with you are on the wrong side of history or with threats. jonathan: it seems like we have a superpower on the global stage that has a very different interpretation of the responsibility that comes with power. i wonder if this is something you see repeating again and again over time, or whether a situation evolves within china or they start to change their approach. robert: i would not put it quite as you did. china has a different interpretation of its vital national interests then we wish it did, and essentially, i believe the chinese leadership thinks that the united states is

determined to stop its rise, to contain it, and they see everything through that optic. what we have to do is, while remaining strong and resolute in defending our national interest, we have to try to persuade them that is not the case, and that is the context in which this conversation will happen this morning. i would remark that yesterday, the chinese government issued a statement saying they hoped that this conversation which will happen in a little over half an hour between the two leaders will be an opportunity to try to begin the improvement generally of the u.s.-china relationship, so i hope that is in fact the perspective the president has while of course making the points that china will, if it

seeks to support russia to get around the sanctions, will itself have a serious cost. lisa: do you think it is realistic for china to want to send weapons, to want to send military support to russia? robert: again, we don't know whether that is actually happened. we have a leak or perhaps on the record from a u.s. intelligence community that russia asked for such weapons. we don't have a leak of what the chinese response was. but certainly, if it makes a decision to supply russia with weapons in the context of this war, it will be a further very serious blow on u.s.-china relations, the most serious one in many years. kailey: i noticed a line in one

of your recent bloomberg opinion pieces that stuck out to me. "russia will remain a threat so long as putin leads it. china will remain a challenge irrespective of its leader." that is a much longer term view. how do you think the immediate need to focus on eastern europe detracts from longer-term strategic pivot towards china, towards asia? robert: my colleague richard fontaine and i wrote a recent op-ed for bloomberg exactly on this subject. there was a bipartisan agreement in washington, one of the few, one might say, that the united states should reorient its foreign policy toward asia. that, of course, has been turned on its head by the recent events in ukraine and the brutal russian invasion of ukraine. now i think, without any doubt,

we are going to have to moderate that pivot to asia. it will be slower because we have to work with europe, and that will mean more u.s. troops in eastern europe, and we have to i think do more in the middle east, since the obama administration middle east states have been commenced we are leaving the middle east. we have to disabuse them of that notion. it is only if we can have stability in the middle east and in europe to a much greater extent than at present will we be able to make a full-fledged pivot to asia. jonathan: a final question from me looking ahead to next week and the talks. you understand the innerworkings of events like this. do you not to arrive in europe next week with some deliverables for the president to meet with foreign leaders will next week?

what do you think they would be? robert: first of all, we have to see what happens between now and then, and russia seems to be escalating. they attacked lviv for the first time overnight. let's keep in mind the danger of dangerous weapons used. but i think in the absence of that, the primary presidential objective will be to keep this alliance together, and it has been remarkable, most people did not believe the alliance would act as resolutely as it has to this tragedy. can it keep them together and prepare for next steps the russia might take in

order to further the destruction of ukrainian cities? jonathan: they have been incredibly united. robert, lucky to have you with us this morning. robert blackwill there. this is bloomberg. ♪ ♪

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jonathan: the words of the u.s. administration on tv. china needs to stand on the right side of history. 30 minutes away from a conversation between president biden and president xi. futures negative. yields coming in a couple of basis points. on two, very close to breaking 2% earlier this week and then backing away. lisa: there seems to be a lot of disagreement in markets based on the move you are talking about about how much this economy can sustain in terms of an asian. how long -- in terms of inflation and how long inflation starts to persist. jonathan: at the start of the year i sat down with mike schumacher of wells fargo and he

gave me his year ahead forecast and he said 1.50 by the middle of the year on the two year. i said that is high. we almost got to 2% earlier this week. mike schumacher joins us now. have you been surprised by how much weight we have added to the front end of the yield curve? have you been surprised at how easily we've shaken off some of the comments of the fed. mike: i have been surprised. it is amazing to watch the action. so many factors. front end has been incredibly volatile. jonathan: the curve is starting to get messy. seven year yields above 10, saw that with five and three's. threatening to do that yesterday morning. the yield curve is starting to invert. it is flatter.

two 30 down 34 basis points. mike: i think it inverts before then. i am telling clients need to think outside the box. this is an incredibly unusual situation. the inflation backdrop, it is possible 210 inverts to the tune of 50 basis points or more. flatter are more painful for a lot of institutions. lisa: a lot of people are wondering whether an inverted yield curve means a recession hurt -- means a recession. does an inverted yield curve in and of itself cause a recession? what is your view on this? mike: i would say no to both. there was a relationship prior to the financial crisis. since then the central banks have been so active buying bonds

they have broken that link. the ability of the curve to shape gdp growth is no mise. i would not -- is minimized. does a flatter curve help cause a recession? it probably contributes when you think about the financial sector . if your basic business is borrowing and you say what can i do or i want to borrow along or flip it around, you cannot do much when the curve is flat. the mediation function does not work. i think that takes away profitability opportunities for banks. flatter curve is top for financials and the whole system. lisa: there's also yield curve that if you see the fed funds rate get higher than the dose two-year rate that actually hurts the people who need it the most. i am wondering from your point of view, whether you think the

fed should back off from raising rates as much as they are talking about and lead more heavily on the balance sheet? mike: i don't. when you think about the inflation backdrop, it is terrible. most people in the u.s., inflation is everywhere. you cannot avoid it. the fed needs to step up and fight inflation. that is what the fed needs to get past to fight inflation and put the genie back in the bottle. it needs to raise the fund rates. kailey: let's talk further about the balance sheet which jerome powell did not get to do much on wednesday. maybe he will more next week. he equated that runoff to the equivalent of a hike. how do you view it? mike: i think the fed struggles in terms of that equation.

from my perspective it is different. what the balance sheet does is addresses risk appetite very directly. if you think about the trading in quantitative easing it is pretty simple. when the central banks buy more bonds you are supposed to buy more stocks. if you flip it and say if the fed and other central banks are raining and the balance sheet that is a big negative for risk assets. the other thing i suspect the fetid other central banks are trying to accomplish is to limit the yield curve inversion. if the fed backs away from buying 10 year treasuries, 20 year treasuries, you should see those yields go up. that should help limit the downside. kailey: if you say qt could be a sizable negative for risk assets, you think risk assets are appropriately pricing that? pres. biden: i suspect probable

-- mike: i suspect probably not. risk assets have been driven by the idea -- balance sheet is number three. at least from my perspective the risk market is not fully priced in. lisa: which risk market is most underpriced for this potential risk? mike: it is hard to pin it on one. when you think about risk appetite across the board, i would focus on the central banks that are most involved. the fed followed by the central bank of canada. those markets whether high-yield bonds are equities, i would go to dicier parts. within markets you want to focus on where you think risk is more susceptible. i think it is the assets that are typically the higher beta, most likely to be most impacted by the cutback in the balance sheet.

lisa: i ask because there is a lot of disagreement about how much momentum there is. can the economy withstand the potential for rate hikes you and others are saying is absolutely necessary to curtail what you see is dangerous inflationary pressures. at this point, you think the fed can actually orchestrate a soft landing at a time when their diverging viewpoints and diverging data points underpinning the economy? mike: it would be very difficult for a soft landing. it was always going to be a challenge when you think about the massive amount of stimulus in the system, both monetary and fiscal. the rebound in covid on top of that. that is a big ask to talk about a soft landing. it was always going to be tough, i think it has gotten much tougher. 50-50, probably not much better that that. kailey: we have talked about risk assets, we talked about the

bond market. can i get your thoughts on the dollar, which is headed toward its biggest weekly decline since february. mike: we think that is a mistake. if you look back over the last couple of years and over last couple of months, the dollar has emerged as the top safety. that should be a win if ukrainian situation intensifies. if you focus on one of the meat and potatoes kinds of things. at least from our view, there is no potential to increase expectations for hiking in the fed than there is from the ecb. we are very positive on u.s. dollars. jonathan: fantastic call earlier this year on the bond market. mike schumacher of wells fargo. the clip is just me asking questions, really? are we really going to get to

get 1.50? we got there very quickly. 1.15 at the closed last time the fed met before this meeting and close to 2% this week. lisa: remember when we were talking at the beginning of the year, put the 10 year get to 2%? that was a bold call to say by year end it would get to 2%. we are well through that. now the question is what is the cap? that conversation has changed. narrative is we do not know what that cap is. jonathan: only 18 days into march. it is a long month. march madness and i am looking at my past -- my bracket. this is a basketball thing, my least favorite american support -- my least favorite americans sport but i'm trying to participate. kailey leinz, why are you correcting it? kailey: usually indiana is in there.

they are not in it and it made me think more logically about my bracket. jonathan: good you have winning this? kailey: wisconsin. jonathan: i have good saga. kailey: most people do. lisa: i do not participate. i do not know anything about this. jonathan: you think i do? i asked my producer. jamie did this. about 20 minutes time. i could do that. on the nasdaq we are down .6%. we are 20 minutes away from an important phone call between the president of united states and the chinese leader, president xi. it might take time to find out what took place on that call but it starts in 20 minutes. kailey: interesting to see when we get the readouts and if the readout say anything decisive other than that they topped. is the u.s. going to say it indicated what it is already going to say, that it asked

china to put pressure on the kremlin to end the conflict. we already know biden is going to say that. news will likely be on beijing's side if they give any indication on where they are coming down. jonathan: the administration has been open about what they think about this. "every nation must call imprudent to end this war." it is what they -- call on putin to end this war." it is what they want to hear right now. jonathan: you feel more rested at the end of the week when tk is not here? lisa: really. this week, this year has been incredibly long. it is for everyone as we deal with all of the difficult news flow. jonathan: tk texted me his

flight was delayed by five hours. he is an unhappy man. i was not trying at all. kailey, great to have you with us. you will be with us early next week as well. lisa abramowicz and jonathan ferro. lisa shalett of morgan stanley 20 minutes away. futures lower. this is bloomberg. ritika: keeping you up-to-date with news from around the world. a top aide ukraine's president zelenskyy says talks with the russians are going on but the pace is slow. he spoke with bloomberg's maria tadeo. >> any talks should take place in terms of cease-fire, which is not the case currently. ritika: he says a cease-fire should be implemented immediately. u.s. intelligence experts warned

vladimir putin is likely to make threats to use nuclear weapons if russians invasion of ukraine drags on. that is part of a summary from the defense intelligence agency. the report says ukraine's resistance would trade russians traditional military strength. madrona has asked for approval for a second booster -- there is been a debate over whether repeated shots are necessary. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am ritika gupta. this is bloomberg. ♪

>> nato has a responsibility to prevent this conflict from escalating further.

that would be even more dangerous and would cause more suffering, death, and destruction. this is vladimir putin's war. he must withdraw his forces and engage in diplomacy in good faith. lisa: the nato secretary-general on this key moment of talks about talks as well as the talks about 10 minutes away with xi jinping of china and joe biden. lisa abided -- lisa abramowicz and kailey leinz here. a softer tone to markets reflecting the web saw in respect to commodities and a fed that is more hawkish even if the market has not gotten that message. let's turn to russia and the bond payment that has been made, maybe? kriti gupta looking doll things russia with the chart of the day. kriti: we have to talk about these bond payments that seems

to be the highlight when it comes to can russia make the payments? it seems like now they are able to but when the will they the bond total. that is my chart of the day. we are looking at the five years spread. it seems like a very muted timeline the past 10 years and then a massive spike on the back of the invasion. what is most notable about the chart is the fact you are starting to see, even as the spikes come back down, they pair some of the spike. compare that to the volatility in 2014 and 2020. those look like child play. piercing and implied 40 -- you are seeing and implied 40% default risk. can they pay in the long term? jonathan: this is such an -- lisa: this is such an interesting question. they have the money to pay, but will they be allowed to pay because of the sanctions and financial companies moving way

from russia. damian sassower always has answers so he will answer all of our questions. he is chief emerging-market credit strategist at bloomberg intelligence. they can financially. can they on the sanctions and foreign relations level? damian: they can pay. it is clear they are willing. the u.s. treasury might start stepping in the way of the payments 25th may. the key question is why would they pay, why would they pay foreign creditors coupon payments when its economy is crumbling and it is trying to wage war in you reign. there are three arguments. the conspiracy theorist would have you believe there are a lot of russian holders of those bonds. i do not put much stock in that. the optimists would point to the timing. we are perhaps moving into de-escalation yesterday when

they decided to make the payment and perhaps they are looking to avoid a default. i'm a fixed income strategist so i am a bear by trade. i do not believe that. this is my position on the pragmatic position -- it is the pragmatic position. when you look to 2019 -- the third circuit court of appeals upheld the decision, meeting crystal x, of gold mining company in canada was able to lay claim to venezuela's mining assets in the u.s. even though they were owned. does russia, given where we are in the world, one to have angry creditors accelerating the process against it? probably not. to buy a little bit of time is probably in moscow's best interest.

kailey: what about the long-term. we are seeing russia cut off the global financial system. that is not something that unwinds overnight even if you get a resolution. damian: i stand by my call that eventually there will be a default. it will be challenges given all of the blocks in place by the u.s. treasury and russia itself. russia has said you have to come to us for approval before you pay, what if they do not make it a certain time period. they said they do not have access to the bond documents they rate. it is madness. last night people were speculating russia was attempting to make payments from a blocked account to jp morgan, jp morgan realize this. it is hard for me to distinguish. i would agree the credit has not hit bondholders accounts yet. i would assume jamie dimon when

not have allowed this to go through without first talking to the u.s. treasury. i have to believe the money is on the line. lisa: damian sassower, thank you for taking the time. i want to bring breaking news. the federal reserve governor christopher waller is speaking on a competing network talking about how the fed should favor front running -- frontloading rate hikes 70 50 basis point hike at the next couple of meetings and would like the fed to be much closer to a neutral rate. you are seeing a big move on two year yields as they shoot higher in response, at one point at 9.5%. i wonder how much he represents the consensus? kailey: that is an interesting question and how much does he or does nike not run camp -- or does he not run counter to the opinions of chairman powell. the curve getting flatter. he is not talking about 150 basis point hike. he says they should continue a

50 basis point hike at one or multiple meetings, and that would put them closer to what jim bullard wants, potentially 3% year end. obviously christopher waller is raising questions. lisa: what i find interesting is the move in equities. i take a look at the risk aversion. how come equities are not responding as much as bonds? we had this move in the nasdaq. supposedly rate sensitive. not seeing the same knee-jerk response at a point people do not understand the trajectory of the economy. kailey: there is an argument to be made that if the yield curve is indicating the fed will not be able to pull this off, will not be able to move as aggressively as it says, does that turn into a positive scenario for risk assets? either way, it is hard to make sense of s&p 500 with its best three days since november 2020 in the face of this and more in

eastern europe. jonathan: futures down -- lisa: futures down .7%. coming up on "balance of power," former u.s. ambassador to china about the talks about to begin in five minutes. this is bloomberg. ♪ >> this is your bnc para pop open update -- bnc paribas open update. rafael the doll continues his perfect start to the season. his 19th victory of the season. the spaniard is looking for an incredible 92nd crown in the desert. >> one of these players you will have problems. >> on the women's side, the defending champion is does get wins away from retaining her

crown after she blew veronica off the court to make the final four. she will face the great start for a part in the championship match. dennis channels live coverage from indian wells starts at 1:00 eastern.

jonathan: an important conversation moments away. from new york city, good morning. futures -.6%. "the countdown to the open"

starts now. >> everything you need to get set for the start of u.s. trading. this is "bloomberg: the open" with jonathan ferro. jonathan: live from new york city, we begin with the big issue. right now, talks between president biden and president xi. >> this is an opportunity for president biden to assess where president xi stands. there has been rhetorical support. the fact that china has not announced what russia is doing in and of itself speaks volumes. jonathan: as u.s. fears grow china may support russia's invasion, secretary blinken delivering a warning. >> china will bear responsibility for any actions it takes