haidi: welcome to "daybreak: australia." shery: the top stories this hour. eu sanctions target russian revenues for the first time.

u.s. stocks rebound as traders way commentary from the fed. futures at the moment muted in the early trading session in asia. we have seen more stability in the markets and traders digesting the fed minutes yesterday. a lot of fed speak today, that cast a shower -- shadow over the market the 10-year and 30 year yield rising. crude prices at the moment in asia rebounding still below the $100 level. given the strategic release of oil not to mention the covid outbreak in china. look at the dollar because this chart is now showing how it has

been gaining ground for the past six sessions. we are seeing leverage funds increasing their bets that the dollar will continue to rise. haidi: the dollar strength is weighing on the aussie dollar as well. it has been trading so strongly the past few sessions. the dollar strength is pushing it down below 75 u.s. cents. we are also sing the weakness when it comes to the kiwi dollar. we are seeing are pretty flat start to trading this morning. we're looking at a potential rebound from two days of losses. chicago nikkei futures are unchanged at the moment. we are seeing a little bit of alleviation when it comes to upside pressure for australian bond yields. shery: it was really about fed

speak today when it came to the wall street session. we are watching closely what every official is saying. jim bullock -- jim bullard coming out saying he expects the rate to be around 3% to 3.2 5% in the second half of 2022 after the 50% -- 50 point hike in may. the concern right now is how hawkish the fed will turn and what the market applications are. we have seen the fed minutes yesterday talking about reducing the bond holdings by as much as $95 billion per month and we saw the reaction across global markets. haidi: the inflation picture remains to be seen as to what happens with eu and u.s. energy sanctions to russia. at the moment, you look at the data that bloomberg has access to. it looks like russia is managing to sidestep the fact that it is

still finding buyers for energy. we have seen several chinese firms using local currency to buy russian coal in the month of march and cargoes of russian crude from the far east have sold out for the next month. bloomberg economics is expecting that russia will earn $320 billion from energy exports this year which is up one third from last year. we saw a remarkable rebound in the ruble. shery: let's discuss the latest developments. the war in ukraine could last for weeks or even years. to discuss the outlook and the impact on the eu's ban of russian coal, we are joined by jodi schneider. what are the implications of that nato and u.s. morning?

>> the warning is sobering because this war could last weeks or even years saying that russia is not likely to give up even though it suffered some setbacks so far. it comes amid several things. number one, the ukrainian foreign minister pleading with u.s. and allies to give an urgent emergency nil at terry aid saying if it doesn't get the aid, there will not be much point in getting it later because they won't be able to withstand the russian forces. also, the u.n. general assembly voted today to suspend russia from the human rights council. that came amid a lot of defections which is interesting. the real question for the u.s. and allies is how much longer will sanctions, how many more

sanctions can they try to apply and what else can i try to do to stop russia even as russia changes its strategy for moving against kyiv in the capital to the donbass region were it has been trying to gain a foothold in recent weeks. >> how much coal does the eu get from russia? how much does this affect europe? we are seeing russian energy exports still well supported. >> in 2020, europe got about 57 million tons of thermal coal. that's about 17% of all the coal that they used. it's going to be a significant effect on europe. as you said, russia has been getting over $300 billion this year for selling energy. the west and its allies have been reluctant to put sanctions

on it because it's going to inflict pain on themselves. it's going to be difficult for europe to find a replacement source of the coal. there's not another 50 million tons laying around. haidi: we are just getting reporting that japan is considering a ban on russian coal imports. fed officials -- remarks from three presidents say they are not unanimous on how fast and how high the hikes need to go. kathleen hays is here with more. at a time when there is so much concern about a policy misstep, where are we the top of the fed? >> all three agree that the fed needs to hike rates, it needs to do so expeditiously.

they are not in agreement on again and assumption about how high they have to go because of this concern about being cautious on the economy. jim bullard, he is -- he said the fed has to move forthrightly to get the key rate to the right level to deal with inflation which is as he said 3.25% by the end of the year. if you look at the chart, he is much more hawkish and the consensus right now on wall street. they have already raised their forecasted rate hikes. with jim king at 3.2 5%, that is a big difference. he said it's clear we need to get the policy rate higher sooner. the president of the atlanta fed, and the chicago fed, they

want to raise rates to neutral but they want to keep an eye on the economy. one was saying there's going to be fed rate hikes, less fiscal stimulus. that's went to cool off demands. we need to do our rate hikes in a measured way. charles evans doesn't want to presume anything too much in advance. he thinks the fed makes it to neutral and the consensus on neutral is 2.4%. then find it's not far from where we need to go. one more voice, the former chief economist at the imf. he is pretty worried about the fed's fight against inflation. let's listen. >> i'm not as optimistic as most people. i still think it's good to be very tough. i think inflation has a lot of momentum. wage growth, it's a tight labor market. wage growth is strong.

we don't want to recession. >> underscoring the tightness of the labor market and the week ended april 2, u.s. jobless claims fell to 166,000. that is the lowest level in 50 years. this is well below 225 per week average well below the pandemic which everyone thought was a tight neighbor market. that's why they agreed to have to go in the same direction. how you get there is the question. shery: talking about some of those divisions, we are seeing the split between the hawks and doves at the european central bank as well. what do we know? >> it boils down to focusing on inflation and how high it is in europe versus the war in ukraine. all the uncertainty that creates around marty prices.

-- commodity prices. the fact that everyone thinks this will hit europe the hardest. 7.5% year-over-year is four times the target. the hawks are afraid it's getting entrenched. the take from our team is that the hawks may force a rate hike in the third quarter after the bond purchases and in june. -- end in june. again, a debate such big questions and so many factors central bankers are having to look at this very closely. yes, there are some disagreements. shery: let's get over to su keenan with first word headlines. >> pakistan supreme court has rejected a parliamentary ruling.

the vote will be held on saturday effectively halting the former cricket stars bid to hold a new election. pakistan's central banks raise rates in an emergency meeting. the key rate is now at 12.25%. shanghai is transforming conference centers and constricting neighboring promises -- provinces. as it goes through a second week of lockdowns. 100,000 people are being closely monitored amid a record number of covid cases. in tel aviv, another shooting marching -- marking the fourth attack in two weeks. officials say two people were killed and several wounded in the incident on thursday evening.

concern has been high among israeli officials that violence could escalate as ramadan approaches. ketanji brown jackson has been confirmed to the supreme court. she will join the high court when justice breyer retires in june or july. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. i'm su keenan. this is bloomberg. shery: still ahead, we speak with a guest about the likely scenarios in the ukraine war. up next, a look at the fed's policy roadmap. this is bloomberg.

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>> the policies of the sanctions continue until president putin is no longer there. >> there is a lot of support for equity markets right now. >> when we look at the historical model, it is challenged going forward. >> we see all agility starting to abate.

>> we think that inflation is peaking right about now. >> asset classes tend to perform well equities, alternative assets, real estate. >> looking to alternatives as a tool is critical. >> one of the highest returns i have seen is invested -- investing distressed in china specifically. what the china capital market is completely open. >> there geographies that will stand out. the u.s. is going to be the best backdrop. >> some guests there at the bloomberg wealth summit. our next guest says the fed is going to have a hard time managing soft landing. always good to have you with us. is the fed behind the curve, what assets are the most exposed and how do you protect yourself?

>> the fed started out hind of the curve as late as last fall. what is happened ever since they stopped using the word transitory, they have gotten more and more serious about inflation. i would argue the minutes that came out earlier this week are going to be remembered as the moment in time of maximum hawkish and us for the current fed. perhaps the most hawkish since 1980. this is a big deal. they are committing to withdrawing the balance sheet at a fast-paced. there also signaling is not all table to height 50 basis points more than once. is this going to work quickly? no. a lot of what is happening in inflation is not under the fed's control. a lot of inflation is energy driven.

with the fed can start to impact is the price of assets that are being fueled by cheap borrowing costs. this we felt in real estate. one of the most notable data points of the last week is the 30 year mortgage is now above 5%. >> how do you protect yourself when traditional say pavements don't necessarily work when prices are surging? >> traditional say patient -- safe havens are going to be challenged. at 30 year treasury bond is not going to be an ideal safe haven. what is better? i would consider cyclical stocks. generally not considered a safe haven. not something you would reach for in a risky environment. why are they better today? one has to do with where they are, materials and energy. after a decade of under investing, materials and energy stocks are now cash cows.

they are now under pressure to redeploy. other things like financials and heavy industry stand to benefit from this environment. you might see investors continue a rotation away from tech stocks which would be challenged in any environment or capital is no logo cheap. >> talk about watching out for the effects and energy costs. we are saying that everywhere. is that something that investors have sufficiently prepared for? >> i don't think so. we look at russia's invasion of ukraine, what we are seeing investors respond to is the first order of impact. how is the price of wheat going to respond? where not yet an king about the second order impact which is the price of wheat is going to hit hard certain parts of the world that are major importers. particularly egypt and the

middle east. much of south asia lies on those imports. the u.s. had withdrawn from iraq and afghanistan last year in part as a pivot toward east asia. that pivot is going to be delayed potentially denied by the need to shore up defenses in europe. >> does the re-rotation into tech and growth names continue? >> i think there will be a lot of reversion in the market. falls within a given industry and asset class and investors looking to satisfy themselves by plumbing those lows. i do not think there will be a rotation back into tech because tech stocks are going to struggle in this environment. we're going to see again an

environment where capital is cheap for those companies to attract investment. >> always great to hth us. you can get around up of the stories you need to know in today's addition of daybreak. you can get that at your terminal for subscribers. coming up, rio tinto taking control of a refinery. we have the details next. this is bloomberg. ♪

>> when it comes to australia's central bank, it is set to release its stability review. home prices are beginning to

fall in some of the most expensive cities including sydney. new zealand is set to release 483,000 barrels from its emergency oil stocks. energy security concerns from the war in ukraine. rio tinto has taken full control of an aluminum refinery in queensland that is jointly owned further constraining russia's ability to produce aluminum. what are the implications of this? paul: for rio tinto, the company says it is acting on orders from the government to sanction aluminum suppliers. in a statement, it says it has taken on 100% of the capacity and governance of queensland aluminum until further notice. this is the plant that rio tinto jointly operates. it is signaled and intention to

restart the agreement when sanctions are lifted. rio tinto is trying to do the same with similar agreements. for russia, aluminum supply continues to be a growing problem. aluminum is not officially sanctioned, but it is another economic pressure point for russia. supplies from the refinery in ukraine are severely impacted by the war. prices hit $4000 per ton last month. they are still hovering around record highs and australia is making it as difficult as possible for russia to replace the lost supply. >> paul allen joining us from sydney. the next hour, we are speaking to former australian senator about the state of equality in the country and what needs to be done to empower more women in politics. here's a quick check of the

latest business flash headlines. tencent is shutting down its game streaming service. the platform will terminate all services on june 7. tencent has proposed a combination of two streaming services in 2020. regulators rejected the deal. hp surged to a record after berkshire hathaway purchased nearly $4 billion wort stock. the found -- firm now holds a share buying in multiple transactions. berkshire has been expanding its equity portfolio in recent months. coming up next, neil ferguson from stanford university and a columnist for bloomberg opinion says the current sanctions against russia won't stop the war. more on that next. this is bloomberg.

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>> what we do is to really watch carefully what would take to maintain the effect of these sanctions. because the russians are trying to find a way around it. we do what it takes to maintain the effect of the sanction on ground and looking at currencies been used as a way to escape. >> european commission executive vice president there. our next guest says the russian economy has not been hit hard enough.

a senior fellow at the hoover institution also a bloomberg opinion columnist. great to have you with us. in terms of economic impact, we are starting to see that albeit energy side is still being supported quite nicely. as a deterrent for the war, can we say that the sanctions have been effectual customer >> sanctions have failed. as a run-up to the war, president biden repeatedly threatened the toughest sanctions of all time. that did not deter president vladimir putin from invading ukraine. no sanctions have become a tool or weapon designed to cripple the war efforts. that is not happening. you can see that if you just look at the ruble exchange rate which has been on a round-trip rather to the dollar got back last week to word had been on

the eve of the war. more important, what that reflects the fact that russia continues to sell oil and gas to europe ander parts of the world. as long as the german government holds out against an oil embargo stopping purchases of oil from russia, vladimir putin's government is earning about $1 billion per day from its energy sales. that's why the russian economy is far from crippled and the war goes on. >> your theory is that this combination of the war of attrition continuing in ukraine, the sanctions and pressure on moscow and the white house is hoping to bring about -- helping to bring about political instability and potentially a regime change. how destabilizing is this and does it throw open the range of outcomes going forward? >> as far as i can tell, there is a conscious strategy in washington of using the ongoing

war which is inflicting heavy casualties on the russian army and the sanctions to try to undermine the position of president putin. in his speech in warsaw nearly two weeks ago, joe biden made it clear that he wanted to see vladimir putin gone. my sense is that the probability of that happening is pretty low. vladimir putin 3g has had an iron like grip on russian society for years now. crushed by repressive tactics and the propaganda is pretty effective in persuading people across the russian federation that somehow this war is ukraine's fault or the west fault. the probability of regime change in russia is low. what worries me is that if you say is the u.s. and its allies have said that he is a war criminal and you explicitly call for his removal from power, i

think that creates a dangerous situation. right now in the next few weeks, there is going to be an attempt by the russians to win this war at least in the east of ukraine. they are betting everything on a final offensive designed to circle ukrainian forces in dundas. if that fails, vitamin prudent does not have many options. you're presenting him with a choice between humiliating defeat or the use of weapons of mass destruction and let's not forget, he has the biggest arsenal of nuclear warheads of anyone in the world. >> that's a very scary proposition. if economic sanctions are not working, you are not very optimistic about regime change. can we at least expect the ukrainian resistance to push them back? we have seen an adjustment of expectations from russian generals. is that a possibility at this point when as you say more dangerous weapons are on the table as well? >> plan eight was going to be

the six-day war that felt -- led to the fall of kyiv. then plan b was what if we encircle kyiv, then launch amphibious landings, that has been scrapped. now we are plan c which is the donbass region then declare victory in the east of the country by may 9. there is some risk that fails, russia has taken huge casualties in six weeks of war and it is not clear they are in a position to launch a successful offensive in the east of ukraine right now. if it fails, the better things go for ukraine, the higher the risk that the russians resort to using chemical weapons or in a worst-case scenario, they use tactical nuclear weapon saying in the west of ukraine to send a signal back this is a war they are not prepared to lose.

i worry that they are not attaching a high enough probability to that risk. it's not like we are dealing with saddam hussein. we're dealing with vladimir putin and his arsenal. >> how do you stop vladimir putin with less severe repercussions we can see out of this? >> my view is a better strategy would be to use the leverage u.s. has to bring about a cease-fire soon as possible. the u.s. has leverage over both sides. i don't see antony blinken making the kind of efforts that say henry kissinger would have made in 1973. a somewhat similar situation arose when the arab states attacked israel. the u.s. has calculated that the longer the war goes on the better.

i think that's too risky of a strategy given that vladimir putin the ability to escalate with a tactical nuclear weapon. i don't know what the by demonstration would do if that happened. it's not clear to me how that would react how -- how they would react. he has shown himself capable of inflicting atrocities on civilians. i don't know why he would rule out using a tactical nuclear it was his only way of avoiding a humiliating defeat. >> we have already seen inflation and supply-side pressures exacerbated by the pandemic and the war create these political crises. how much time is there before these domestic political concerns trump the support for the ukrainian cause? >> this is a problem.

we tend to lose interest in a foreign crisis after about four weeks. the number one issue in the french presidential election coming up is inflation. again i think there is a strong argument for trying harder than we are trying to get a cease-fire, stop the fighting and try to achieve some kind of peace however fragile in ukraine. very large numbers of countries rely on ukraine and russia for food. they are exporters of wheat, fertilizer. farmers are noticing that fertilizer is very expensive or barely available. people have to remember in the

1970's, it wasn't just the price of oil that drove the global inflation surge, the price of food was just as important. when food prices go up in developing countries, there is often political instability. we've only just seen the beginning of this cascade of trouble. watch countries like egypt. >> always good talking to you. we have an alert on the bloomberg, the nikkei reports mulling restrictions on russian coal imports after the eu agreed to ban coal imports from russia. yesterday we saw reports from media and japan that the government did not plan to include an outright ban of russian coal imports as part of their latest round of sanctions. we are hearing from the nikkei that japan is mulling restrictions. let's get to first word news.

>> we're going to start with those restrictions. the eu banning coal imports from russia in a concerted effort with the u.s.. the package also bans most russian trucks from entering the eu. sources say eu members have agreed to start discussions on another round of sanctions that could include curbs on oil. the u.n. general assembly has voted to suspend russia from the human rights counsel over its conduct in ukraine. the move was backed by 93 nations and opposed by 24. other countries abstained from voting. saying they first want an independent investigation into the alleged atrocities. the st. louis fed president's backing a 50 basis point rate hike and make. he says he favors raising rates

sharply to take the rate to 3.25% in the second half of the year. the u.s. treasury secretary janet yellen says the digital dollar take years to develop. regulators are now engaged in a six-month review aimed at coming up with recommendations on a raft of issues including a digital version of the u.s. sovereign currency. the initiative was launched by executive order from president biden. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in over 120 countries. >> coming up next, china sticks to a covid zero strategy. we will get next -- news on the

shanghai lockdown. that's next on bloomberg. ♪

the longer shanghai stays in lockdown, the louder the frustrations voiced by residents have become. reports are mounting of food shortages for the 25 million people cooped up at home or in isolation. it is one of the biggest crises

facing xi jinping since he came to office 10 years ago. let's bring in stephen engle. how is shanghai going to be able to contain this outbreak? is it sustainable? how are we seeing the popular reaction or unpopular reaction? >> shanghai is similar to what we saw in hong kong on a larger scale. shanghai was unscathed for the first couple of years of the pandemic. then omicron hit and it has spread unlike hong kong which has so far avoided a lockdown. shanghai has seen phased lockdowns of the two sides of which were supposed to be ended the last week of march then the larger population on the western side of the shanghai was supposed to end on the fifth. shanghai is finding or and more cases, 19,900 plus just

wednesday alone. they have been adding several thousand every day. they are also adding tens if not hundreds of thousands of isolation beds conscripting neighborhood convention centers and gyms and halls to add more and more beds because they are doubling down on zero covid. what is happening is the longer the lockdown goes, the longer you are trying to keep 25 million people locked up in their homes, the more pressure is put on the logistics, the food, medical supplies and peoples patients. bloomberg news has reported people shouting from their windows slogans such as we want to eat. we want freedom. this is the biggest prices xi jinping has faced domestically

since taking office in 2012. the communist party i will guarantee is feeling the heat already a couple of officials at one airport unit as well as a hospital unit, they have been sacked for not implementing opera controls. the pressure is on. >> for the rest of the world, the question is about supply chains. what's the situation at the ports? 6 >> the ports are probably stacking the. containers are stacking up. trucks and truck drivers, there aren't enough of them being able to come in and get the goods from the ships. that is having a chain reaction to the offshore where the container ships are stacking up. it's a logistics bottleneck right now at the world's biggest port, shanghai. then across the bay are to others. these are two of the three

biggest shipping container ports in the world. they are feeling the stress right now. ocean network express estimates congestion at chinese ports is grid locking 10% of the global container ship fleet and that's going to have a spillover effect. >> stephen engle the latest on china. time now for morning calls. jp morgan says commodities could surge by as much as 40%. now should investors -- goldman sachs expecting u.s. inflation to come in below 4% this year according to the bank. inflation in the country speaking right about now and the probability of a recession is increasing in 2023. it's also predicting growth in equities to be relatively flat and recommending names that

carry pricing power because of strong margins. >> we continue to watch the yield curve. it has had a lot of investors wondering about whether a recession might be around the corner. we have really seen the reese deepening over the past four days. also seen in the twos and tends above zero. we started the week out at minus eight basis points now back to 19 basis points. we typically see through history that the flattening happens going into a tightening cycle then steepen's. it goes into this idea of whether we are at peak hawkish and us or everything we are hearing from the fed and all of that has been priced in. we are seeing companies selling more short-term bonds as investors have found it doesn't pay to buy more longer-term

debt. we continue to watch that aspect of the market closely. we have been discussing debt investment. our guest was speaking to david rubenstein at the bloomberg wealth summit. >> we do venture debt. firms are happy to invest in companies and invest hundreds of billions of dollars on a story or an idea. a bank will never lend against that because there is no cash flow. we will end up landing at 5% loan deny. a company is going to raise $50 million at $250 million valuation. we will lead $10 million and charge 12%. >> you are not lending at senior debt level, the secured level? asked in that situation, we are. there is no other debt.

the other businesses, the real reason we are able to charge that is if you can go to a bank, you are. you know that, i know that. if you can borrow money from a bank, you will because that is 2% or 3%. then there's another group where you can go to direct lenders and they will charge you 5% or 6%. people come to me, they have issues. they can't borrow. or they have assets no cash flow. what we do is we will lend against the assets. >> so distressed bet investor transforms himself into a private debt lender. is that hard to do? >> it was. we hired more folks. it was something we were always doing, but i would say it was 10% or 20% of what we were doing. >> as someone who has raised money, i consume the pitch might be.

but if you say there's a lot of distressed debt, give me some money, now you have to go say there's a lot of lending opportunities they won't be distressed. >> that's exactly it, you're switching. >> and investors saying now you're telling me it's not good to be distressed. >> i will say to people we have to wait. we hope there is, but you're right. >> you expect because interest rates are going up and inflation is up and the economy may be slowing down, that there is going to be more distressed debt in the next one to three years then you have seen. >> absolutely. with rates rising, that is actually good for us because the more issues there are in the economy or more issues there are with people, that's beneficial for what we try to do. >> when you make a loan to somebody, you assume it's went to come back and you will be paid. when you have distressed debt, expertise, do you make your loans more carefully than normal

because you know what it's like when something doesn't work out? >> when you're making your loans as a distressed player, you want to be always at the operating company. you want to make sure that in essence, the company or other creditors can't with assets. you know the game so you're trying to be more careful against that. >> plenty more ahead. this is bloomberg. ♪

>> let's take a look at live pictures out of peru where protests are taken to the streets. we are continuing to see inflation accelerating at the fastest since 1998. people are not happy. we have seen the president already lower taxes and increased subsidies but it seems it is not appeasing protesters. we have the largest workers union protesting. demanding a whole new constitution. perhaps something similar has happened in she late. -- chile. we continue to see the dissatisfaction over things that are happening in peru especially when it comes to a higher cost

for fuel and fertilizers. we have seen farmers and truckers blocking the highways today. we are hearing the largest workers unions are demanding a whole new constitution as protesters had to the streets. haidi: we have seen the popular dissatisfaction over rising prices take place here in asia as well pakistan and sri lanka. rio tinto taking full control of an australian aluminum refinery removing access to a key source of raw materials. it owns 20% of queensland aluminum. last month australian band aluminum exports to russia. the company is aiming to start

delivering cars later this year. coming up in the next hour, pimco managing director will be joining us. more market analysis ahead of the start of trading in asia. this is bloomberg. ♪

♪ >> very good morning. i am haidi stroud-watts. shery: i am shery and in new york. welcome to daybreak: asia. our top stories, sanctions on russian revenues for the first time as the eu warns that the war in ukraine could last years. fed officials held fast and high.