♪ >> the markets are starting to play huge catch up to the fact that there is a real big moment of truth the bond market. >> it is the inversion. >> it is getting a lot harder and harder to imagine that we are going to have a truly soft landing. announcer: this is bloomberg surveillance with john keene, jonathan ferro and lisa abramowicz. jonathan: live from new york city for our audience worldwide, good morning, good morning.

this is bloomberg surveillance on tv and radio. i'm jonathan ferro, futures down 4/10 of 1% on the s&p. lisa, the bank of russia to allow training in 33 stocks tomorrow. lisa: will it be only domestic traders? there are so many sanctions prohibiting trading from foreigners, prohibiting money from coming in in dollars. how much is their incentive? it is pushing harder and harder. they had eased a bit over the past week. >> how does the fed lower inflation if they are seeing that ongoing easing of natural conditions, seeing stocks continue to rally, and how much is it -- i won't use the t -word. how much is this a belief in base effects coming and allowing inflation to go back down, even

to 4%? is that enough for the fed to say we are making some progress? jonathan: i think even that phrase wound you up. lisa: it doesn't take much to want me up. jonathan: a major supply type response this year and on the covid front, perhaps maybe they get it. kailey: from moderna, which is one of the vaccine-makers. it is releasing the results of its testing in children under six, finding that the vaccine does deliver an immune response to boost antibody levels in those children. of course, this is still a segment of the population that has not yet been able to be served fully by vaccines. the efficacy rate, 43 per -- 43.7%. that is really consistent with the advocacy level with the omicron variant.

this is obviously a conversation all the more important as we are forced to have a conversation none of us really want to have about the va-2 variant. jonathan: should we talk about the subvariant right now? >> i think that was enough, i mentioned it. jonathan: you pushing my buttons for sure. futures down on the s&p. we are down about 7/10 of 1% on the nasdaq. basically unchanged after seeing the big move, but yields were lower. down three basis points. this month and the month of march, your two year yield of 70 basis points. lisa, that advances by 2.7%. lisa: there is a consensus that

seems to be moving. if that is the consensus among many, why are we not there yet? some people say it is because people cannot post enough margin, enough collateral as monthly big clearinghouse is important -- in order to prevent trade on, and i find that fascinating. jonathan: 119, up 3% or so. guy johnson will pick up on this later on bloomberg tv and on bloomberg radio, i'm sure. the economic outlook is "challenging." understatement of the year, i think. >> that is one where you can use, but does it go far enough to describe the real cost of living crisis that the u.k. is facing, only to be exacerbated by the ongoing session in russia?

what is he going to do today to try to ease those pressures? we talked so much about monetary policy. fiscal policy will be in the spotlight now as well. jonathan: richard, good to catch up. some holdings of years we want to get our teeth into in just a moment, let's start more broadly. inflation is going to sent different to what our audience hears quite often on this program. >> sure. we believe that the global winds of inflation are blowing through global financial markets and we are expecting even more turbulence coming up. investors need to find some safe havens to basically protect themselves from that and still make money into 2022. lisa: do you think that the base effects are not going to kick in, or do you think that basically we have priced in a lot of the supply constraints and that frankly, things can get better from here?

>> we believe there are two key structural factors which the market is not really talking about too much, which are actually quite important in terms of inflation and how it is going to be moving forward. number one, most manufacturing goods were made in the usa. now, almost one third of all manufacturing goods are made in china. along comes decarbonization and a bit of a shipping cert -- shipping shortage. normally when that happens in the soybean market, soybean prices move 500%. next year, the farmers make five times as much soybeans and the price mediates back to normal. with global shipping, you can

only at the moment on a cost-effective basis put a diesel engine in it, nobody wants to build any ships. there is a whole issue of the cost of shipping the global manufacturing from china to end markets, principally, the usa is going to become a continual cost factor going forward. lisa: this is continual, for some time perpetual. how do you make money? >> you have to be invested in stocks which have basically high dividends, particularly low debt levels because we expect long and yields to continue rising. it is going to be important to have a low debt levels and strong cash flows. if you are looking at financials, normally people moved to banks when yields are rising. we think banks have too much debt and banks haven't gone well because all the potential risers. insurance companies seem to be a

lot more sound from a value basis for investors. lisa: do you buy the argument that stocks are the best inflation hedge? >> well, stocks are a great inflation hedge. if you look at the s&p 500, it has a dividend yield of 1.4%. then you have the 10 year u.s. yield which is roughly 2.35. then you can put your stocks together, commodity stocks, insurance financials, which are yielding around 6%. there are certain stocks to move to, but you need to look to the value stocks and safe havens and protect yourself as an investor. jonathan: why china? your commodity players have gone through them and i am seeing bhp, mining companies, exposure to the commodities story. why do you want that additional layer of geopolitical risk? why that name? >> steinbeck is the largest

energy producer in asia. it is 70% owned by the chinese government. it has not got itself and the issues the same way alibaba has. long-term gas contract with the usa last year at much lower prices. the metrics are just phenomenal. three times better metrics than shale. why not move because it is three times cheaper? jonathan: they are going to face some political problems themselves in the next few months, i'm sure. richard of peer value metrics. great audiences, here is one to think about.

on twitter, you are watching the early-season. don't forget the super majors profits will surely be reduced by positions -- provisions for russian assets. profits, you get these provisions on russian assets that maybe they are able to address these up in a different way. lisa: maybe they can say that they are type -- taking such a big hit that it justifies how much they are charging for the price of oil and should people be parsing through and trying to figure out what the consequences should be? jonathan: something he supports, may be taxing the profits of these energy companies, the additional profits they make because of the crude price spike associated with the war in ukraine. >> i understand why he feels this way and frankly i think a lot of people arson pathetic because energy policy is something that becomes national and something that is in the interests of every consumer.

it has to do with how quickly the economy can revive after a shock like this and i wonder how much support this will get and how companies get around that by some of these exercises. jonathan: do we want to tax the profits or incentivize them to invest? kailey: that is exactly the question. why you have gotten to the supply-side challenge of not having adequate supply, adequate capacity to make up for your energy needs, just taxing them on the excess profits encourage them to make those investments when they are all about, for a lot of these companies, capital discipline? jonathan: i think this is the most interesting sector for your head without a doubt. i think a lot of people would agree. crude pushing 119 at 118.60. this is "bloomberg." >> keeping you up-to-date with news from around the world, here is the first word. president biden is heading to

europe where he will try to rally allies around tougher sanctions to punish russia for invading ukraine. the president will join back-to-back summits with nato and the european union. the stake seven raised by the fear that russia could resort to deploying weapons of mass destruction. one of the two flight recorders from the chinese crash monday has been found according to china's official news agency. the black boxes are key to figuring out why the boeing plunged out of the sky at close to the speed of sound before crashing. and a tornado ripped through new orleans last night, causing severe damage and killing at least one person. thousands of people were left without power. the tornado is part of an outbreak of thunderstorms that struck from the deep south. on average, less than one in three u.s. records is still making less -- democrats in

congress are pushing to raise the federal minimum wage to $15. in china, tencent has declared that the reckless era of tech is over, pledging to embrace the new model of stricter oversight after reporting the lowest growth on record. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries. this is "bloomberg."

♪ >> i think 50 basis point moves could definitely be in the mix and then get to a level that we could be neutral. from there, we could decide if we want to be restrictive and put further downward pressure on hedges but right now we are putting upward pressure. it is the wrong place to be given where inflation is. jonathan: james bullard sitting down with mark mckee yesterday, a fantastic exchange between the two of them. they've got some work to do. futures down 4/10 on the s&p. yields coming almost a basis point on the 10 year, much more on a two-year. we will call it 62 on crude, by

more than 3%. we come back in by a few basis points. typically, when a president goes abroad in a moment like this one, he goes with some deliverables. anyone with any kind of interest in foreign diplomacy knows that a lot of this is orchestrated. presidential trips are usually planned months in advance and are orchestrated down to the final detail, but this one, there is a bit more uncertainty. the director of policy research, how strange is this to go to europe in a moment like this one without deliverables? >> abnormal, to say the least. these things as you know are normally planned and the most minute detail. where the little flags go, the months of negotiations. but this time is different and the president is going in without as much normal planning as we seen in the past.

we had some uncertainty and i think the biggest issue, at least for me, what is this actually going to do to the overall negotiation, overall landscape whether it is with russia or the conversation regarding energy? at the moment, there is no foreshadowing of what is coming out of here. i think there is some question in the investment community. there might be something happening that we just haven't heard about. they might be planning for something. what we have seen over the last few weeks is when the vice president has gone on these trips to europe, a lot of people have considered them to be a total failure because she has gone with no deliverables. often when we had events like this, we talk about what success looks like. what is success for this president on this trip? >> this is statecraft at the highest level and it is diplomacy in the purest form. the way that i think about that is diplomacy is the art of letting someone else have your way.

i think that the president is going to europe in the hopes of getting european countries to band together and show a unified front and i think that that will come in three forms. number one, the reaffirmation of the commitment. i think that is one of the easier parts of the whole trip. that could come in the form of other commitments that i think we will see right away. the second part is a european-usa statement on china. can they find key similar language regarding the stance on china's support of russia, and can they warn china against actually supporting russia militarily or economically in a way that doesn't push china further into russia's hands? the biggest and most difficult one that i don't think we are going to have an easy answer for his energy. i don't think there is a clean, clear win given some of the

differing views over russian energy >> how important the red lines are the cross and what the potential nato response would be to those? i'm thinking about chemical or biological weapons or as some people postulate down the line, nukes. >> at least from this summit, they are going to avoid using redline commentary. this is about building a multilateral, unified front, saying that nato-sovereign countries will have the support of all other nato members. frankly, i think they are going to avoid some of the more redlined-esque rhetoric regarding certain levels of even cyber warfare because there hasn't been enough ground work done yet on the diplomacy side to have definitive redlines for that. that is part of the problem going into meetings like this.

>> how much leverage has the u.s. and the broader alliances lost when they are trying to get the kremlin to change behavior from the beginning, saying we will not be putting boots on the ground, the use of force is not on the table. is it so much about what the west is willing to do or what it is not willing to do? >> one of the storylines here is that our limitations are going to be on display as well. we are going to hear a lot about unity and the nato alliance and article five, and that is going to be very important. i also think we are going to see clear and stark proponents of some of our limitations. i am talking a reaffirmation that we are not going to be part of a no-fly zone, that we are going to remain cautious about transferring soviet-era fighter

jets. the fear of escalation is part of the west's calculus here. president biden anti-europe and everyone in a position of power in the western alliance seems deeply concerned that if they go one step too far, there would be an escalation will lead to world war iii, and that has been part of the calculus from the beginning, a main part of the calculus especially during this trip. jonathan: wonderful to catch up with you as always. a couple of headlines thanking russian president vladimir putin, speaking on gas supplies. russia to demand ruble gas payments from hostile states. lisa: how are they going to pay in rubles when their financial system is banned from transacting in rubles? it sort of is a catch 22 that frankly i would suspect that vladimir putin is trying to play into by saying you can't have your cake and eat it, too. you can't penalize us but still

need us for these commodities. jonathan: that is important diplomacy this week between the europeans and the united states. one thing this president has been very candid about doing is embarrassing his european allies. what he has done is allowed his european allies to embarrass themselves. if you think about the massive sanctions package for the europeans, we had all these stories that italy wanted a luxury copout, all these things. it was embarrassing for the europeans and i think that is been a strategic effort by this administration to allow them to embarrass themselves. the longer this invasion goes on, the worse the pictures we see on the ground in ukraine become, the more pressure there is on the europeans to do something on the offside. not necessarily on the gas side, but on the crude side of russian crude. and do they start to embarrass themselves even more every time they say we can't do anything about it?

lisa: frankly, the prudent plan of trying to make them pay in rubles accelerate their exit, transacting and buying those assets. i do wonder how much will be called. jonathan: futures down on the s&p and on the nasdaq. from new york, on radio, on tv, this is "berg surveillance." -- bloomberg surveillance

>> a really big rally in the equity market since wednesday, this does not continue this morning, it pulls back. 4/10 of 1% on the s&p. we are down 7/10 of 1%. yields look like this. let's call it 70, 80. up 3.22%. a couple of headlines, the bank of russia to allow trading tomorrow. you won't be allowed to short sell. they will ban shortselling and russian shares for tomorrow but they will allow trading in 33 shares. what that market actually looks like, we will have a look tomorrow. then we have this headline. interfax out of russia citing vladimir putin saying this week that hostile countries should pay rubles for russian gas.

lisa: how much does this really: to question the fact that russian banks have been taken off of it? how much of the removal of certain aspects of the russian bank, how much does that actually make it difficult for european agents to obtain the gas that they rely on? how do they pay in rubles if they have been prohibited from transacting in rubles? jonathan: the president of the united states leaves in about an hour to land in brussels later this evening. obviously tomorrow, nato. the big issue for commodities, and it just plays into the inflation story that dominated the conversation for the last 18 months. the chief economic a visor of bring capital. so many people talk about the concept of a policy mistake. you saying the mistake is already been made. >> the mistake was made last year and if the fed is not

explicitly recognizing it is a mistake, treating inflation more as a series of unfortunate events rising out of the ukraine war, the origins of inflation with the fed continuing to ease as the economy recovers, continuing to stay inflation was just reopening the house of commodities, they took a big step last week on monday with the chairman speech to the national association of business economists, and now they are saying they will do what they have to do. the problem is they are going to have to do a lot more than they would have had to do had they not teased so much that the economy was getting better. jonathan: can you give me an idea of the kind of tightening

cycle you are expecting and what informs that view? >> i think this is quite difficult because the fed shifted to this target with russian metrics for adjusting interest rates. we have way overshot any backward looking inflation average, way over shot the 2%. the current inflation rates in cpi terms is almost 8% and will go higher, in all likelihood, in march. we don't have the framework from the fed as to how they are going to calibrate the policy response to the inflation problem. the fact of the matter is inflation is so much higher than the level of interest rates that real interest rates are more negative than they have been. soweto know how much of the inflation is transitory, to use that banned word now.

and how much is underlying? we have inflation rates somewhere between 3% and 4% looking at various measures. how does the fed get there? the logic now is making one or two bigger moves. i think that logic is there since the market is essentially moving to pricing cap. then the question is the balance sheet. i think they have to move fairly decisively on the balance sheet, and that is going to be the next thing. lisa: i'm going to ask a really basic question because we have been talking about how financial conditions have actually been loosening after jay powell's

speech last week. how does tightening fed policy actually bring down inflation? >> first of all, you have to say if financial conditions are using, and this is a point you discussed with my comment -- cali, if financial conditions are using, how is policy being tightened? right now we are not even close to beginning to tighten policy. now, i will say that the inflation process is a difficult one to understand. after all, the federal reserve didn't even see this coming. they said inflation dynamics don't change on a dime, but they have. but if we don't do something, these inflation expectations become embedded. the more embedded they are, the harder it is to get inflation down. there is a signaling effect, a

simple effect starting to take liquidity out of the financial system. and there is the effect of making the cost of money actually something other than zero. and all of those things are part of the process, somewhat mysterious. part of the process of bringing inflation down. it is not about what companies are doing in terms of refining the oil, it is not about that. it targets those conditions that are far, far too loose. lisa: to be more blunt, do you have faith that the fed based on the market response will be able to control inflation, or do you think that it is unavoidable that we are going to get a hard landing based on the fact that they are going to have to tighten vastly more than some people are expecting? >> i think there is a significant risk of hard landing. since we are being blunt, i would say we are in recession.

i don't think this year, i don't think next year, but at some point, the managing conditions are going to be inconsistent with the public expectations. if you're going to get underlying inflation down to 2% and everyone is transacting on the assumption that it is between 3% and 4%, then it is that misalignment of the fed objective and the public expectations that result in the hard landing. the more decisive they are early , the better the risk that we avoid the hard landing. the fed historically, and even in the case of 1994, ended up doing too much too late. that is one of the histories of monetary policy expansions. we've got the backwards-looking framework the fed used.

we are looking at the inflation rate. and the inflation forecasts are probably too low. does the fed than continue to raise rates? much better to move more decisively sooner. even better to have not used so much in the first place. lisa: effectively, what you're saying is that there is not a binary outcome here of the fed tightening so aggressively that it ultimately does cause a recession or not tightening aggressively enough and letting inflation run too hot for longer. there is some form of middle ground. >> there might be, but that is like trying to land the aircraft carrier with all your navigation systems out. you could pull it off, maybe. the greater risk in the short run is hotter inflation and more of a monetary policy response. the fed has taken an enormous shift in the monetary policy response through december and

pivoted to pre-rate hikes. tomorrow -- to march, when they indicated that rate hikes would be appropriate for this year. get interest rates effectively back to 2% by the end of the year. the problem is inflation rates running at 8%. that's not even beginning to get policy tightened, and that is the problem here. so it is not a fed rate hike issue, it is the fed easing so much last year that it allowed inflation expectations to build up. the problem is to get down to 2% inflation, you have to bring those inflation expectations down. and that is very difficult. but if you let it go out of hand too far, you end up with a federal reserve doing really whatever it takes, and that ended up in a very deep recession in 1981 and a very

strong dollar. jonathan: back to where we started, the mistake already made. thank you, fantastic to catch up with you. want to go back to the story out of russia about 10 minutes ago from the russian president calling to interfax. more detail on this, pressure will demand countries it has labeled unfriendly, that they must pay in rubles for russian gas. the russian president has ordered the central bank in a weeks time to determine the scheme of ruble payments for russian gas. russia, lisa, what apparently continue supplying volumes but will only change the payment currency. lisa: how much does this try to call the hand of a lot of the officials in the western world that are trying to cut russia off and undermine the ruble? how much are they saying, ok, you need us. and how much are they trying to use that as leverage to push

back against these sanctions and say you cannot strong-arm us this way and you're not going to hamper our economy? this is actually putting the floor under the price of rubles. how do they effectuate this given that so many banks cannot transact in that currency? jonathan: europe needs some help to go back for russian gas if that is what they want to do. they write the following. the u.s. and the you are working on an agreement that would aim to boost supplies of american financial gas to europe as they work toward ending their alliance -- reliance on russian energy. the president of the united states expecting to depart the white house any minute now on his way to joint base andrews. then he departs joint base andrews to brussels at about 9:00 a.m., so in about 20 minutes time. big meeting tomorrow with nato members. big few days ahead for

diplomacy. from new york city, "this is bloomberg." >> keeping you up-to-date with the first word. volodymyr zelenskyy says about 100,000 people remain in the deceased city of -- besieged city of mariupol and are under constant russian bombardment. russia's climate envoy has become the highest level official to break with the kremlin over the invasion of ukraine. he has stepped down from his position and left the country. he is one of the few economic reformists who remained in vladimir putin's government. she coronavirus vaccine produces a strong immune response in children under the age of six years old. it shows modest effectiveness in reducing omicron infections.

clearance will be asked for as soon as possible. and it is one of the biggest transactions yet in the cannabis industry. the transaction will expand to 17 states and the district of columbia. the top ranked player in women's tennis is calling it quits. australia's ash party has decided to -- ash barty has decided to call it quits. she says she no longer has the physical and emotional drive needed to play at the top level anymore. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries. this is "bloomberg." loomberg."

>> if i'm investing over the next 12 month horizon i would reduce equities at this.

i would take some money off the table. i think the market is giving you a wonderful opportunity to come out. >> he was speaking yesterday with jonathan ferro. fascinating conversation as you just listened to his reasoning as to why things probably get worse before they get better. we have, of course, someone who has very strong opinions also who may not agree. barry, if your timeframe is a 12 month horizon, why do you think that the best course of action is not to cash out? >> just look at people's behavior anytime there is a major market dislocation? the sell button is one of the easiest buttons in the world to push. there is always a reason to sell.

the challenge is once you get out of that, how do you get back in? and the problem is we are terrible as a species at putting our emotions aside and buying back in anywhere near the bottom. the market is always way ahead of where the actual expectations are. and so if you sell here, tell me how you're going to get back. we have lots of evidence from 2008-2009, from 2020. people will sell at 10, the market will go to seven, and they will get back in at 15. it is a terrible trade. lisa: this is perhaps why a lot of people are saying to invest. we keep getting headlines from some of the meetings and the speeches being taken over in europe, saying that the invasion of ukraine threatens the u.k. economic recovery. we see this stagflationary

headwind again and again in europe. some say the u.s. can avoid it, but some are getting increasingly worried. what about for bonds? are nonfd still -- bonds still inappropriate hedge? >> remember, bonds come in a lot of different flavors. if you want treasury inflation protection securities, they have been a spectacular hedge. if you own high-grade corporate's, they have been horrific. you are getting so little additional yield for so much more risk. treasuries are having one of their worst years, but keep in mind a bad year for treasuries is a bad week for stocks. you have to put it into a little context. the purpose of having bonds is to give a little balance to a portfolio, and a mix of tips, treasuries and high-quality, not high yields. high-quality is typically a good

offset to market volatility. >> but looking at what is going on in bonds, a yield curve that increasingly looks like it is signaling a recession, is the equity market not seeing things clearly? is it too resilient in the face of a fed that may be more aggressive and a war in ukraine that still has a giant question mark? >> let's take you to those in turns. the first is a yield curve inversion signaling recession when they are deeply inverted for an extended time. every recession has been preceded by the yield inversion, but not every yield curve inversion precedes a recession. in other words, if we briefly inverted, typically that doesn't mean there is a yield curve. number two, when we look through history versions that lead to recession, they typically are taking place from much higher levels of yields, not from going

from zero to 25 to 50 basis points. yields are still historically cheap, and keep in mind, the reason yield curve inversion signal recession is historically because the fed has tightened so much that the lack of credit slows the economy. i don't think even 100 basis points is going to prove credit to the point where it causes a recession, especially as we are still dealing with the remnants of $3 trillion of fiscal stimulus working its way through the system. >> thank you so much for your reviews, as always, for a calm, rational mind and that some of the push-pull that we keep hearing. i do want to bring you some breaking news. we are parsing through all of the headlines, richie soon act -- sunak has been saying they are cutting the expected growth in the united kingdom to 3.8%

for gdp, from 6%. that is a material cut. kailey: and at the same time, you have to couple that with the inflation outlook. also saying inflation is going to average 7.4% this year, so then what are they going to do on the fiscal side to counter that cost-of-living crisis that citizens of the u.k. are facing? he does say that the u.k. will cut fuel duties until march of next year, but he also says it is too early to know the impact of the war in ukraine and what that kind of question mark, how do you respond when you don't have all of the fact? >> central banks are sort of feeling like their hands are tied, and this does bring up what we are going to hear from the oil majors from the u.s., from europe. how much pressure will there be on taxing the profit or taking some and using it to support consumers? there is another headline that also caught my attention, president biden speaking to reporters ahead of getting on

the aircraft over to europe, saying there is a real threat of vladimir putin using chemical weapons, and you can see real concern to this shift, and that is the reason why even if there isn't necessarily a deliverable, i wonder how much the discussion will be around what happens to vladimir putin crossing some of these red lines? >> is that the redline, some kind of weapon of mass destruction? potentially a tactical nuclear weapon? what will the western response be when we know they are committed to not putting troops on the ground, not even instituting a no-fly zone over ukraine, and when you still have germany and hungary to a certain extent saying we are not going to put an embargo on russian oil and natural gas, how many moves still the west have left, and does it have to change its calculus if we do see a move on that scale coming from moscow? >> we are seeing shares deteriorating as we get some of these headlines, now down now to 9/10 of 1%.

you can see a bit of a dollar gain, a slight haven amidst some of these headlines. coming up on bloomberg television and radio, the retired brigadier general and assistant secretary of state. this is "bloomberg."

>> the president getting ready for a four. morning.

the countdown to the open starts right now. >> everything you need to get set for the start of u.s. trading. this is bloomberg, the open with jonathan ferro. jonathan: we begin with the big issue. president biden gearing up for a big weekend in europe. any moment now, heading to brussels. coverage begins right now. down in europe as well. let's start with you, maria. on the way out, the real threat of chemical weapons. >> it really reflects what is the real concern.