manus: this is a bloomberg daybreak: europe. i'm manus cranny in johannesburg. these are the stories that set your agenda. deal at hand. the u.s. and eu reach an agreement to wean energy -- europe off russian energy.

treasury selloff resumes after yesterday's recovery. global stocks are mixed in crude oil declines. russian equity set to reopen following a shutdown. we are global daybreak. i manus cranny johannesburg. francine lacqua stepping into the breach at hq. i have come to joe berg. we have some cracking conversations. south africa is neutral in the war. will he shift on that? what does it mean in terms of the economy and rates? the rand is flying higher. good to be back together. francine: it is good to be back together. i'm looking forward to the conversations, especially with the president of south africa.

they are hugely commodity rich. taking a look at these raw material markets, it will be interesting to get his take and we follow european gas prices that have really swung incredibly after we understand that the president of russia, putin, has asked to be paid in rubles for any gas and oil exports. manus: that could be the new weaponization in this energy complex. with that in mind, this ramp higher in oil prices, what does that mean for recession risk? i want to show you this is from the dallas fed. if the bulk of russian energy exports is off the market for the remainder of this year, the global economic downturn seems unavoidable. that is not just recession risk in europe, but that is a global

call. the imf warned of the global ramifications of the conflict. francine: absolutely and i was speaking to the italian central bank governor and it is extremely difficult to model because this is not a risk on, risk off event. you don't exactly know what his next move is. it is extremely difficult to try to stabilize the economy. there is a sense in the market that they will focus more on inflation than growth. if oil touches $150, does that mean demand disruption or is this time different? a beautiful piece by dan moss, a thinking piece. he really tries to think about taking a stand against putin, what it means for european economies. hanging tough was never going to be cost free. recession chatter

has started. this goes back to some of the conversations we had with central banks and finance ministers. it is what is the price european citizens economically are ready to pay to stand up to ukraine -- four ukraine? manus: absolutely. it does not come cost free even if you are not in a military face-to-face conflict. there are reverberations and second-round effects. yesterday was a reprieve for the bond market. your friend mr. kuroda, i wonder if he is ready to step in. the last time the bank of japan stepped into this market, you are seeing a reassertion on the upside in the global yield narrative. you are seeing dollar ruble trait again. one of the biggest drops on the ruble, down by nearly 6%. the ruble is going to be back in focus as well. we keep an eye on the oil

markets. what will the news flow be in terms of winning russia off russia oil dependent? just and miniature state of flux. francine: fluid. on ruble, the fact that the russian president pushed on with his plans to demand that they use it for -- the ruble for natural gas purchases, there is worry they won't repay some of the corporate bonds. stocks in asia struggling back from some of the early lows. oil turning lower. if you look at some of the european future contracts, they are pointing to a higher start. it could turn very quickly, manus. manus: ok, let's get to our reporters. they are standing by for us. maria tadeo standing by. what will biden's message be?

aggi on the poland, ukraine border. juliette saly keeping us abreast of all the action in the asian market session. fran? francine: president biden has arrived in brussels where he will be participating in a marathon day of international diplomacy. he is looking to reassure allies and increase economic pressure on russia. maria, this trip is pretty big symbolically. what can the u.s. president get done in practice? >> good morning. it is a marathon day for the u.s. president, but also european officials and nato members. the meeting starts early in the day. there is a lot of the agenda. this is a nato meeting, but it will also be followed i a g7 meeting. on top of this, we know that the ukrainian president, mr. zelinski, will participate in

nato and the european leaders summit. there is a lot on the agenda. we are expecting a conversation at nato about defense spending. potential deals when it comes to weapons sent over to ukraine. i would keep a very specific eye on poland and turkey. at the end of the day, a political discussion that will focus on energy policy. the russians are saying, we want to get paid in rubles. the germans say that is breach of contract. you see european countries scrambling to get alternative sources of energy. the u.s. saying we can help in two years time, but what do we do over the medium term? manus: of course russia handset is going to retaliate to the energy sanctions. they want to be paid in rubles and this is a huge ramification in terms of those people that

russia sees as being hostile globally. maria: russia says they are taking economic unfriendly measures. he referred entirely to the whole of the eu. the feedback we had yesterday is that this is probably not going to work for vladimir putin. the italians have also said, we are not going to pay rubles, the contract does not say that. the germans say we are not going to do it because it is breach of contract. if anything, the europeans argue they will continue to pay in hard currency and it will be up to vladimir putin to decide whether or not he wants to keep the flows going. if he doesn't, that is another breach of contract. manus: ok, and it could be up for renegotiation if you open those contracts with russia. maria, thank you very much. let's get the very latest on the

oil markets. the u.s. and the eu are close to a deal. this can bring an end to the dependence on russian energy. president putin's demanding these rubles for natural gas. stephen has the very latest volatility in the energy markets. this demand for rubles, what has it done to the energy market? it is certainly a major move on the fx market. how did it translate to the gas market? huge move. 1 gas jumped as 30% in europe. it is a huge move. talking to traders in asia, it supplies natural gas. you could say this is a breach of contract that they have to they in ruble.

but at the same time, if they do have to enter renegotiations, that has a big impact. you are going to see prices go up as they try to scramble for alternatives and the market is tight. there is not a lot of natural gas out there. be at a buyer in germany or japan, they will have quite a bit of trouble going forward. francine: thank you so much for joining us. stephen has some great, great lines on our markets live long. as the war enters its second month, three .6 ukrainians have led the country. the u.s. president joe biden is set to meet with the polish president later this week. let's bring in aggi. what is the situation on the ground in ukraine? is it the same amount of refugees coming in every day? aggi: we are actually seeing

fewer and fewer refugees crossing the border from ukraine into poland in the last couple of weeks. there were a huge spike of refugees in the first two weeks of the war, but that has been tapering off. it needs to be said there are still a lot of people crossing the border, but when i was first year, there were waiting times of up to 60 hours to cross the border and those have really cut down. what is important to notice is that the number of people who are internally displaced is still rising as well. for the 3.6 million that have crossed the border, there are still over 6 million that are internally displaced within ukraine and that is a key concern for the ukrainian government especially as there is a focus, a huge amount of people from the east of the country have been moving to the cities in the west that are seen as safer and that is putting a lot of pressure on those regions of the country.

manus: thank you very much. the very latest on the ground in poland-ukraine border. to the treasury market. we noted the moves. they have risen to a level we have not seen since the bank of japan last intervened. juliette is covering all of the action. the global bond market has begun to unwind again. juliette: certainly. we saw the yield up by some five basis points, now up by four. i level we have not seen since february 10. elsewhere what we have been seeing the cross the australian all. specific movement coming through in the two-year. when it comes to the equity market, we had the huge run coming through.

it had been in the red for most of today's session, but we are seeing a turnaround in the afternoon session. you can't forget singapore. this has been the big story. a major reopening of the city state, lifting the stock market, one of the best-performing since october. i want to mention tencent. this is a major story we have been following. they did not announce a share buyback. they announced slowest profit growth on record and this has led to a number of re-ratings. is this going to be a bearish signal for china tech when we thought we were out of the woods? tencent indicating they will embrace the stricter government oversight, saying the reckless era of tech is over. francine: thank you. coming up, president biden and europe to meet with allies and

discuss the war in ukraine. further sanctions and cutting dependency on russian oil. this is bloomberg. ♪

>> we always knew from the beginning that the power of sanctions and export control takes time. yes, we are thinking what is the next piece of escalation, but i think we have to stay strong and vigilant in a tight coalition and focus on enforcement. every week the pain will intensify. manus: that was the u.s. russia sanctions at thehe bloomberg equality summit. it is going to take time.

the power of sections take time. -- sanctions take time. the u.s. and eu are close to a deal to ending the bloc's dependence on russian energy. meanwhile in russia, they are demanding payment for natural gas in rubles. let's get to our guest. thank you for being with us this morning. here we are. an explosion in gas yesterday. is this a new risk, the weaponization of gas and energy, rubles for gas and energy? how prepared are we for this market escalation? >> definitely, this is the main topic for 2022. commodity prices and

cybersecurity. these are the two new topics for this war. we can definitely see commodity prices continuing to push higher not only because of the war, but because of the knock on effects of the supply chain disruption. it is pushing commodity prices sustainably higher. that will probably lead sectors to continue to lead the way in 2022. francine: i don't see how we avoid a recession. all of the forecast are that europe could be at 2%, maybe 3% growth, but do you think we will go into a recession and what does that mean for your investment strategies? >> it is very hard to believe that stagflation is not a risk in europe in particular because when you look at economic indicators, they are not that

high. we are back to pre-pandemic levels, but much higher. it is a different situation from the u.s.. looking at breakevens, even in europe, they are near their peak. it does signal that the market is not really convinced by any success from the ecb to actually fight inflation and inflation is the major risk for the recovery in europe. i think what is very interesting to look at is how the market is pricing more a stagflation scenario into the u.s. with a flattening of the u.s. treasury, whereas in europe, there is no such signal. i think it is probably in mispricing. in the u.s., given the high economic indicators, it looks more like a risk of hyperinflation than stagflation. manus: that is a heck of a call.

more like hyperinflation instead of stagflation. if we were worried, we should give up and go home. what does hyperinflation mean in 2022 and where do you hide in a hyperinflation? is it a weimar republic, something is crazy is that? >> very high inflation scenarios are negatively correlated, but if you look at more defensive strategies especially in these negative real yield environments , you can still look at income for example, if they are using high dividend strategy or looking at options strategies to generate more income. i think in 2022, we are still in kind of a defensive mode. volatility has come down and the

structure looks like the lower volatility is durable and the rebound is durable, but it is still a very uncertain balance. the defensive sectors will probably be leaving this year. but also more like inflation beneficiaries, such as real estate, materials, and energy again. this is about the two angles of investment at the moment. francine: thank you so much. the head of investment strategy at global x etf's. coming up, taking aim at inflation. fed officials chime in on the various options available to the central bank to contain surging prices. this is bloomberg. ♪

>> i will absolutely confirm what chair powell confirmed, which is that i have everything on the table right now. if we need to do 50, 50 is what we will do. the data will help us determine how much is necessary. francine: that was the san francisco fed resident as she told americans they should take the fed at their word. still with us is our guest. thank you so much for staying with us. if you look at the yield curve, there is a big bait -- manus is the master of trying to understand what the yield curve means for jay powell in the fed.

what do you think it means? >> it does mean that markets are pricing in a stagflation scenario because we see a slight inversion on the 10 year segment and at the very long end of the curve. but again, i think the fed is more concerned about inflation right now. it is really wanting to fight inflation at all costs. it is a very hawkish comment. now, the fed has changed. it is no longer just commodity inflation. it is also passing through all consumer good and it is a real threat to the purchasing power of americans.

it could become a real serious economic threat in the months ahead, if not now. the fed is really dealing with a credibility challenge right now and that has been really reflected in the two years. the market is not convinced yet. manus: the bond market just does not seem convinced. i'm only going to use this word because they are so rich. you go to cash. hell no. you go to bonds. hell no. those are the words of mohamed el-erian, not myself. where is the top end of the trajectory in 10 year bonds and a stagflationary environment and rate hikes? >> it is a difficult one.

i think that the outlook for the 10 year is really linked to the commodity outlook. if we see oil prices moderating, then it will probably calm down markets. and therefore the monetary policy would adjust as well. i would say that it is very difficult to look forward more than probably a month or two beyond today because it is changing all the time and the geopolitics has really been involved in this economic outlook. it is extremely hard to predict. it seems like inflation is here to stay. at least it is the shift in the belly of the treasury curve is showing to us. manus: thank you so much.

$150 oil could be on the way. coming up, president biden is in brussels for a marathon day

francine: this is "bloomberg daybreak: europe." these are the stories that set your agenda. the u.s. and the eu convened in europe and talk energy as putin demand payment in rubles. the treasury selloff after yesterday's recovery. global stocks are turning mixed. plus russian equities are set to

reopen after a record shutdown. manus, so nice to be back on air with you. i know you have great interviews coming up in this is on the forefront of all of the raw material concerns, the volatility and what that means for the global crunch. manus: this is a country steeped in exports. it is having a huge boom as a result. it has the resources the world wants and we will catch up with the leader of this country later on. i know they spoke to us about the results, but we have had another doubling down on the commodity explosion and nickel canceled on the lme, so that along with ned bank, we have got to catch up with the ceo. good morning.

francine: it is good to be together and the read across through a lot of the emerging markets are commodity rich, but you see chinese investors are hugely significant. the markets don't really know where to look at and there is quite a lot of volatility that could continue on the forefront until we know what happens for oil and gas exports coming from russia to europe. manus: yes, and that is one of the messages of air force one getting to the european leaders of what america is going to do to facilitate that de-dependence of europe to russian energy. the bond market has begun to unwind again. the last time we saw the bank of japan intervened to stop the move higher.

$150 per barrel of oil is on the way as putin asks for rubles of payment on russian commodities and gas. is that a crutch for the ruble? we saw it rally yesterday and that carries through today. global implications for the weaponization of gas in this conflict. francine: and we have that linkage between the bond rout in the equity stocks. that is why we are speaking with specific attention on tech. we will bring you a chart in a short while and the fact that tech this time has outperformed some of the small caps in this bond rout. it encapsulates and historically feels different this is what equity futures are doing for the moment. we had a wild ride when it comes to asian stocks, extrapolating

back from early lows. there is the market check. it has been a tough session for global equities overall. again, it is the idea that you explained, that investors are trying to set the risks of inflation and the impact of the war in ukraine because there are so many scenarios that it is different -- difficult. that is why we are seeing a lot of volatility. manus: it is the supply-side shock as well in all of these commodities and the lack of investment, i watched your interviews with a lot of the leaders in the commodities seen -- scene. let's talk about the politics and geopolitics in the world because the president of the united states has arrived in brussels where he will be participating in international diplomacy at the nato summit. he is looking to reassure the allies and increase economic pressure on russia.

what is that new level of ratcheting of pressure? maria tadeo has the details from brussels. the trip is very symbolic and important, but what can the u.s. and its allies get done in practice? are we at maxim -- maximum sa nctionability? maria: i would argue no, and if you look at the details, there are a number of countries that tell you the mother of all sanctions, that is how it was phrased when russia invaded ukraine, and that has a lot of loopholes. how do we close those loopholes? and where do we take it next? yesterday you heard from the president himself if vladimir putin uses chemical weapons on the ukrainian population, this would take the war into a much more senior -- serious phase.

the other big conversation that was featured has to do with security and this is not just about ukraine. it is about the eastern european countries. for weeks, we have heard from the baltics, romania, bulgaria, all concerned about what they believe is an increasingly aggressive russia. we could get more on the ground on the eastern flank and more military deployment in those countries for a longer period of time. francine: we had jamie dimon pushing the white house for plans and lng russia wanted to retaliate in paying for rubles in future gas transactions. we spoke to a close advisor to mario draghi and he says it is difficult to pay is in rubles because you are circumventing sanctions. is there anything the europeans can do now to cap gas prices?

maria: yes, and that italian official, the conversation sums up what every other european government tells you. if you pay in rubles, you would breach the sanctions, and the other thing is that that is not what the contract says. it would be a breach of contract and that brings another question, if you don't pay in rubles, is russia going to cut the flow? the only thing that they could do -- it is clear that the european union is not going to re-enter into a negotiation of these contracts. are we going to get a cap today? that is the big question today. the officials i have spoken with tell me that there is no consensus around that. we need 27 countries with

unanimity around this, but we -- what we are going to get is this clear-cut road for the next years and the issue is that is the medium term. what do we do ahead of next winter? francine: and of course stockpiles only go so far. then you so much. joining us to talk about all of this is julie norman, lecturer of politics and international relations at university college london. thank you for joining us. when you look at the escalation of this in gas prices, tell you asian from russia now wanting to be paid in rubles, -- now that you hear from russia wanting to be paid in rubles, what do you have now? julie: those who have been dependent on russian energy have been able to put on awful embargo but as we know for europe, states -- put on an

embargo, but as we know for europe, it is too quick of a pivot for these companies -- economies to absorb. they are trying to put pressure on a state like russia but also trying not to do more damage to their own economy at the same time at the point of actual's opening -- actual suffering for your own people as well. this is the balancing act today in europe. we will see more of this roadmap for how to limit the dependency in the coming weeks and months. we know that biden is looking to shore up liquefied natural gas supplies from the u.s. we know that german chancellor shoals has been trying to get gas from qatar in the middle east. it is going to be a time before we see a complete move off of the russian sources.

manus: good day to you. there have been many moments that a lot of people did not expect. i am in a country whose as they are neutral in the ukraine relation, in the conflict because of their historical ties, so they have not condemned this invasion. when you look at the constant request by zelenskyy for a no-fly zone to every parliament he has been in front of, the canadians, the japanese, etc., what does it take to get a no-fly zone? will it happen? julie: the no-fly zone request, we have heard it from zelenskyy multiple times. there has been support from some allies for that, but most of the allies are not prepared to do that and most importantly, the u.s. and biden have not been willing to make that move.

in practice a no-fly zone would involve actively shooting down russian jets. that necessitates an active conflict and would probably drive the nato allies directly into conflict with russia. that is the one thing that biden and nato allies have been trying to avoid, for that escalation. it is hard to make that call when you see the devastation happening in ukrainian cities. use see entire populations being crumbled, but that is one reason why nato is trying to put in not terry aid through other ways and ways they think would be more effective. this is coming from ground-based missiles, not from the air. some of the air has been stopped by the antiaircraft military equipment that has been given, so trying to look for ways to support ukraine militarily without escalating the conflict is a no-fly zone would. francine: when you look at the

old and new sanctions, what is the endgame? they don't seem at all to be deterring president putin. is it trying to get involved in the country or what are they trying to achieve with the sanctions? julie: it is a great question because the objective of the sanctions has shifted from one of deterrent to one of punishment, but also another level of deterrence to try and keep putin from expanding his offensive further either to other states like georgia or murdered over or targeting state nato convoys -- moldova or targeting state nato convoys. they are trying to keep the conflict as contained as possible. the sanctions are one tool but one that takes a long time at the high levels for putin to feel them. or put an is feeling more

pressure right now is on the battlefield where russia has lost 10,000 troops, they are not having the gains they expected. there are still other tactics they could use and continue to rollout, but i think putin is feeling the military aid as well as the sanctions at the moment. manus: thank you very much for being with us this morning. that is julie norman, lecturer of politics and international relations at university college london. the second great age of globalization is coming to us because close. -- coming to a catastrophic close. that is the debate we discussed today. this is bloomberg. ♪

manus: welcome back to "bloomberg daybreak: europe." i am manus cranny with francine lacqua. the producer of this trip has made an executive decision to go for the interview with the president. it is great to have you back on the show, by the way. yesterday you said i am happier as the show goes on, so i'm going to leave you to drive the bus and change the gears in your capable hands. we join the bloomberg team the conversation with mike brown. and we will talk with the president of south africa in a bit to talk about equities. good morning. francine: i am looking forward

to all of your interviews, especially with the south african president. this is a conversation on raw materials, the economics, but also so far why they have not condemned the war in ukraine. one thing to keep an eye on is the trading index. we are expecting that for 9:15 a.m. russian time. we know we will not be allowed to sell equities. we are looking at pictures where the secretary general of nato -- we have those pictures so let's listen in. all right. we are keeping an eye on what he says, so as soon as he speaks, we will bring you the headlines. in the u.s., we have president biden showing up in europe. do not underestimate the impact

this could have in terms of the cap on gas prices. a lot of countries have pushed back against it because if you look at the energy policy of europe, it is not united. as the u.s. and its allies try to save the situation, the big take today is that the second age of globalization is coming to a catastrophic close. rate peace and great to speak to you about it on tv. when you look at globalization, what you are arguing is that previous partners we relied on are not as reliable as they used to be. how much more introverted could we be if we don't take a stand for globalization? >> you have to start by looking at the first great age of globalization, which was about between 1870 and 1914.

that came to a catastrophic and during the first world war, so you have got serious protectiveness actions and economy shrinking moves and the rise of hitler's and the bolsheviks and the disintegration of europe following the second world war. the great danger now is that we do the same thing. this current war has led to huge contraction in global trade and as we do more to revive global trade at least within the west, then i think we are facing a series of catastrophic decisions which leads to the end of all of this. francine: the inevitable integration of the world economy has slowed and the various servants in our paradise, you talk about ethnic rivalries and

generalized fury with the rich are furthering where they will. overall, capitalism is not all good, so how will it have to in -- how will it have to change if we are going to get him back -- get back on track? >> it was stalling in various ways even before putin's actions in ukraine. nothing is going to reverse but it has certainly slowed. also it has not been a perfect system. it has created a lot of losers and economic disruption. what we need to do is two things at the moment. one is to reinvigorate globalization to give us a new lease of life as soon as we can with the revolution of the war

in the long-term. secondly, make sure it is a more robust form of globalization then we have seen before, do more of this, and make sure the winners play by the rules in not exploiting tax recalls and things like that. two things to address these problems. francine: thank you very much. adrienne woodridge therefrom bloomberg opinion. you can also find it on the website and the terminal. russian stocks reopen now. this is a limited trade. we have an understanding that the visual stocks have a 20% threshold. there is only a four hour trading window. foreigners will not be able to sell equities and only 30 pre-stocks will be active, including gazprom and sberbank.

as we keep and i on any trading from russia, let's also tune into the nato secretary-general. >> than the risk for full-fledged war between nato and russia will be high and that will cause more death. >> you mentioned yesterday that what is happening in ukraine could have a direct impact on nato countries. does this have a direct impact on nato allies? >> i will not speculate but ion -- beyond saying the following, that any use of chemical weapons would change the nature of the conflict. it would be a blatant violation of international law and it will have widespread consequences. the seriousness of using chemical weapons, of course, becomes more -- that chemical

agents are spread over bigger areas. this would be capacity -- catastrophe for the people of ukraine but we can also see the spread of chemical agents also into nato territory. i will not speculate beyond the fact that nato will defend, protect, and react to any type of attack on nato countries. >> how concerned are you about china's role in this? and what does the new military posture of nato mean in terms of national sanctions? -- national defense spending? >> there is a new sense of urgency among allies, so they all understand that sense to do more. we see the biggest crisis in our generation, so they invest more

in security. our allies understand the only way to do that is to allocate more for the national defense budgets. i expect countries to agree to accelerate the moves to invest more in defense and i welcome the decision of germany to spend 2% more of gdp on defense. this makes a difference because germany has a big economy, so increased investments by germany makes a difference for the whole alliance. >> what about china? >> we call and try not to join the rest of the world in clearly condemning -- we call on china to join the rest of the world in clearly condemning the war in ukraine. and not provide any support to the russian invasion of ukraine. >> [indiscernible]

>> i will leave that decision to the 13 leaders to decide. i don't have any further comments. >> what is happening in ukraine now, would you call it a genocide, what kind of -- does nato have to prevent the genocide? >> nato is providing unprecedented support to ukraine helping them to defend themselves. on allies are also presenting unprecedented sanctions on russia to hamper, reduce the capability of russia to finance this war in ukraine. we are also making sure that we are ready to protect and defend all allies. what we have seen our attacks against civilians, civilian

infrastructure. this is a clear violation of international law. therefore the international court has started an investigation and is looking into this. it will decide on issues of violating international law. >> -- it is important to protect other factors as well. the statements about georgia and of the conflict with nato. >> i expect our allies today in the meeting will expect this report to partners which are under pressure from russia. that includes georgia. georgia has the right to choose -- francine: that was the nato secretary-general speaking in brussels.

up next, we are expecting russian stockmarkets to partially the open today. that would end the shut down of the market for the longest time. this is bloomberg. ♪ if you're a small business, there are lots of choices

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tom: good morning and welcome to "bloomberg markets: europe." i am tom mackenzie. mark cudmore joins me today to take us through all of the market action at this hour. the cash trade is less than an hour away and here are your top headlines. the u.s. and eu meet that need agreement to wean europe off russian energy as putin demands payment in rubles. bidens