dani: this is "bloomberg daybreak: europe." i am dani burger. these are the stories that set your agenda. manus: shanghai and crisis. the u.s. pulls out non-essential

consulate staff amidst widespread covid lockdowns. a third warning in less than a week. pessimistic about peace. austria's chancellor warns of a spiral of violence in the east of ukraine after meeting vladimir putin in moscow. and it is u.s. inflation day. stocks and bonds selloff and the u.s. treasury yield is at its highest since 2018. in 1980 two the song lives in everybody's head, joan jett and the blackhearts, i love rock ''' roll -- that is when inflation was last at these levels. but i tell you what, this bond market is gearing up for a hectic day. dani: and that concludes your tuesday edition of daybreak's greatest hits. it has been a wild few days in

this bond market with intense selling. the flattening trend is starting to reverse. manus: absolutely. the question we will debate in the next early minutes is with timothy graf. 40 basis points -- six sessions in a row. the curve is trying to get readjusted to the top of inflation or fast acuity. dani: at the same time, an ecb edging closer to normalization, and amazon deal to treasury auctioning as well -- yesterday european bond markets were on fire. german 10-year gilts were at a 2015 height and the moves continued today with a 10 year the u.s., 2.8% and an aussie above 3%. manus: it is the brute force of rate hikes and the collateral

damage -- those are the words of waller. the dollar rallies for day nine. the bloomberg survey shows the dollar up and will continue to act as a haven currency. recession is a word used at the peterson institute globally. bitcoin plopped below $40,000. if you are brave, ship it in, easter is coming. dani: it is another ugly day for stocks. the pain in european equities which follows the ugly u.s. session down more than 1.3% in the euro stoxx 50 session. a lift from oil and material prices. the s&p 500 prices down another 0.5%. the superlatives is that in the

last five sessions the nasdaq 100 has wiped more than $1 trillion in market cap off the table. manus: let's get to the team. rachel has the latest update in shanghai on the lockdown. juliette saly joins us and others. our senior reporter mark champion has the latest on the war in ukraine and the escalation there. dani: i don't think you are going to get many people to sing joan jetta today but we will see. the u.s. has told non-essential console her -- consular staff have their families leave shanghai with the majority of the residence under strict covid lockdown. let's get the latest with our bloomberg reporter, rachel. how much of a departure is this from prior lockdowns in china? >> it is quite a new move from

the u.s. many will look at it as a symbolic act of aggression. it is still quite dire in china but there are trends emerging that the situation has turned the corner. we are seeing some people now being allowed to leave their compounds and their homes. these people are coming out onto the streets. at the same time, it is a bit of light at the end of the tunnel in shanghai. manus: rachel, thank you very much. rachel in hong kong reporting on the latest shutdowns in shanghai. let's get to the markets. quite a turbulent time in tech.

some earlier gains have been erased. let's see how optimistic we are on videogames. juliette saly: the gaming freeze had been in place for eight months. china approving licenses was giving a bit of a reprieve in the morning session. they continue to play investor sentiment along with rising yields. the hang seng tech index is down though it had been rising in the morning session. tencent one of the only gainers on this reprieve from beijing that was supposed to give a little bit of a breather to this index that is been hit so hard. investors are worried about warnings outlooks following heavily -- earnings outlooks followin -- falling heavily. we know that even though we are starting to see some signs of

stability coming through from the markets, we heard talk in march from authorities about the concern regarding the hang seng tech index. given all of the headwinds that investors in china are facing, the ongoing crackdown in the property sector and covid. unfortunately, the reprieve from authorities today not giving too much of a boost in the overall tech space. dani: that is a lot of red for one charge. investors in the u.s. globally are waiting for the march u.s. cpi report which is expected to cement view that aggressive rate hikes are needed to fight inflation at 40 year highs. we are joined by enda curran. how important are these numbers going to be? will they signal a peak in u.s.

inflation? >> there is some expectation that there will be a peak in the numbers that come out today. the big ticket purchases have been made -- used car sales could come off the board and that will flow through. energy costs have continued to remain elevated on the back of russia's invasion of the ukraine. we have high rents in the u.s. on top of the ongoing supply chain issues and the china story may feed into that. there is the potential for significant supply chain disruptions. there is a feeling that this might be the high point or inflation in the u.s. but it has a long way to go before it gets back to the fed to percent target and that is why everyone is expecting the fed to stay on the aggressive hiking cycle. manus: charlie evans pivoting to

a 50 basis point discussion yesterday is very much a pivotal moment for me. thank you for wrapping up the latest expect patients. the austrian chancellor felt rather pessimistic about the prospects of peace in ukraine following his meeting with vladimir putin. ukraine's allies in europe are now moving beyond diplomacy and sanctions in a response to the invasion shifting their focus urgently to arming kyiv. let's get to the diplomatic developments with marc champion. we know there has been a delivery of arms from a variety of european neighbors and the u.k. is this an escalation on speed and scale of delivery for arming ukraine? >> yes, it is. until now, the west as in europe and the u.s., have been arming

ukraine with light weapons for infantry. shoulder held weapons and antiaircraft weapons. but they have recognized that the war is moving to a different phase. russia is concentrating its forces in the east. we are now talking about a tank battle. they are starting to understand that they have days and not weeks to get quantities of tanks and armored vehicles to ukraine. there is a sense of urgency because they understand that this will happen in days and this is a completely different level of weaponry that is needed.

dani: that is bloomberg's marc champion on the latest in ukraine. let's take a look at the key things that markets are watching out for today. 10:00 u.k. time, a survey is released. we will see if that changes. we have u.s. data at 1:30 p.m. u.k. time including the eagerly awaited cpi data. and at 3:30 p.m., boeing will announce first-quarter delivery figures. and opec oil will release its monthly report. manus: coming up, timothy graf will talk fed, markets, and cpi. that interview is next. dani: we will also be discussing the red-hot inflation ahead of ecb's decision on thursday. all of that to come. this is the bird. ♪ -- this is bloomberg. ♪

>> we do not have a policy role for every segment of the population. we do not have one for every industry. we have one. it is called the interest rate. that is really it. it is a brute force hammer we use on the economy and when you have to use a brute force tool, sometimes there is some collateral damage that happens. we are trying to do this in a way that there is not much of it but we cannot tailor policy. dani: christopher waller saying some damage is hard to avoid from raising interest rates. joining us for the market conversation is timothy graf. great to have you on the program. we listen to what waller said

and we heard charlie evans yesterday. is this a fed willing to risk economic damage in order to go after inflation? tim: i don't know if they are willing to risk economic damage. they are probably willing to risk financial conditions getting tighter. stocks going down. i think they are very much willing to risk that given where stocks are pure it is hard to believe what we have come through in the last few months. i think they are willing to live with that a little lower if that is the consequence, certainly. manus: good to have you back in the studio. if the stock market has not repriced as aggressively as the bond market, a guest yesterday is calling the bear market in stocks by the end of the third quarter.

do you expect a significant repricing of stocks? is that your call? tim: i think we still do favor them and it is hard to say it in absolute terms but it is more of a relative term and terms of what you just said about bonds and the expected underperformance that we still do have for bonds. particularly u.s. stocks i feel can whether a tightened cycle better than the rest of the world because there is earnings growth and earnings stability in what is becoming a potentially unstable world with tighter policy. they are still probably the best that. i think it is more a story of a relative equity performance as opposed to -- which we have been able to leverage in the last five years. that era is over. dani: i want to challenge the earnings picture. this is bank of america. i can feel manus grabbing the

table. his argument is that the first quarter is peak earnings. essentially we are overestimating margins and expectations are unrealistically high. this is the globe or earnings revision index turning negative. what would you say to this saying earnings will not be as good? tim: in certain sectors that is almost certainly going to be true. on a sector by sector basis, that will happen. u.s. equity market being so tech heavy where financials and energy and materials are important components, though sector still have that stability and growth potential because these are balance sheets of corporate that are cash rich. dani: do they still have stability? tim: we are still talking about

low discount rates particularly in real terms. there are wobbles along the way. this is a brute force move will be making and there will be hiccups. no question about that. but what you are left with is still a very low or negative real rate structure which is quite supportive for a lot of those companies particularly those with global exposure. in the u.s. consumer as well with the hearing they have. low real rates will still be supported. manus: how high do you think the real rates will go? they have a position that real rates above zero are not high enough to materially challenge equities. let's extrapolate that forward. where do you become worried on real rates?

is there a trigger point? what is the trigger point? tim: i don't know if there is a specific point but if you start to see the forward projections of real rates above 1%, you have to start to worry about conditions heading tight. especially if the direction of travel is blowing through a level like that. i don't think we are there yet. and i don't know if the fed especially given inflation will probably start to cool towards a second half of the year if the fed needs to be that aggressive. dani: cpi later today. does this number matter to you? tim: it always matters. we have underestimated the importance of cpi for the last year. but it is not too surprising. we have our own gauges of inflation that we tracked online and it is basically bang in line

with the consensus. i'm not thinking there is room for an upside surprise. but there is a sense that a lot of the headline effects are pretty well-known. manus: are you gearing portfolios for a continuation of a high inflation environment rather than -- bloomberg things it gets back to 4% next year, a 50% drop in inflation -- and then you have to get ready for --. can you square that? tim: commodity sensitive stocks have performed a lot better but they have not kept pace with the rise in commodities. in terms of trade for commodity producers, they have rocketed higher and their currencies have performed better including the

norwegian krone. they have not kept pace with the gains in terms of trade. there is still some inflationary insulation you can have in a portfolio because we don't think they reflected the fullness of the price rises particularly in the commodity complex. manus: i am a believer. i am all out of blackrock and state -- and straight into state street. i want to help your bonus. tim graf stays with us. the dangers of an economic slowdown balanced with inflation, the task of every central banker. christine lagarde her fellow policymakers look ahead. this is bloomberg. ♪

manus: it is your daily daybreak with manus cranny in dubai and dani burger in london. tim graf is our guest. we are going into the ecb. the bund market yields are the highest since 2015. there is a fundamental repricing. we have government bonds, we have two-year paper and bobble purée you talk about what is overpriced and underpriced from central banks. you say the ecb is underpriced. how underpriced is the ecb? tim: they are not as underpriced as they were a few months ago but the market is underestimating further

rhetoric from this week's meeting. we could have some scaling down of qe. i think we get revisions on language around asset purchases to come and the potential bringing forward of first rate hike which markets are pricing for to be fair. a lot has been put into the money market curve but there is still a consensus belief that the first realistic line will be september or october. i am more cautious on that thinking it could be as soon july insofar as the inflation problem is not going away. it is not just headline or supply chain inflation. dani: would you go along euro in that scenario? tim: i think so. we quite like the euro on the valuation basis. the fed in our view is not fully priced for the cycle of for the next nine months or year.

the dollar, especially once the fed gets going, the dollar rallies in those cycles and then disappoints as the cycle wears on and it is not disappointing right now. there is a potential. that is when i would start to be thinking about scaling into the euro-dollar long. manus: there are a lot of trades that are consensus right now. long dollar come along commodity and short duration. let me give you a scenario for the rest of the year. china comes out of zero covid. god willing there is some sort of peace in the war in ukraine. and a hard landing is avoided in the united states. i don't think those are outlandish calls. with those three calls, how do position going forward? tim: that is a fairly goldilocks

scenario. what i was saying before about relative performance of equities versus bonds are u.s. equities versus europe, those may become more absolute stories. in that environment, inflation coming down, if you are avoiding a hard landing and everything is working, this disruptive picture we talked about in the last segment, the probability of that goes down. and then you talk about risky assets being attractive. we have weathered a lot of significant risk in the last quarter. or headline risks we were not expecting what the war in ukraine. if you remove or minimize its damage, that is a strong signal for risk. dani: you also are feeding the yen -- fading the yen.

tim: it is cheap. it is not likely to lose a lot more rate support in our view. and you might start to see repatriation. dani: at xfinity, we live and work in the same neighborhood as you. we're always working to keep you connected to what you love. and now, we're working to bring you the next generation of wifi. it's ultra-fast. faster than a gig. supersonic wifi. only from xfinity. it can power hundreds of devices with three times the bandwidth. so your growing wifi needs will be met. supersonic wifi only from us... xfinity.

manus: it is "bloomberg daybreak: europe." dani: shanghai in crisis. the u.s. pulls out nonessential consulate staff amid covid lockdowns. beijing issues its third growth warning that less than a week. austria's chancellor warns of a spiral of violence in ukraine's east after meeting vladimir putin in moscow.

it is u.s. inflation day. stocks and bonds selloff with 10. the highest since 2018. is the first quarter as good as it gets? that is the latest warning at bank of america, who says this is going to be the peak in earnings. we challenged tim graff of state street and he said i like the u.s. stocks specifically because of the earnings potential with the tech concentration manner of it. manus: perhaps more importantly when we talk about this set of notes we have this morning, kalina bench saying he is not worried about -- jp morgan not worried about a positive real rate. state street saying we are not worried about a positive real rate until you see something monumental like maybe 100 basis points. on that bank of america notes, the hard data remains solid. there are downside risks and it is about the guidance. it will be all about the

guidance these corporate give us. dani: are we overestimating margins and resilience? this is a guy who is perennially bullish and he still is, but he thinks it might be time to take some profits. your ears perk up when somebody who has been long stocks is still long stocks. maybe it is time to sell a little bit. manus: let's have a look at a monumental bear steepening. there is a breathlessness to the bond markets. the question is how far are bond raters frontloading their view on inflation? there is your steepener for everybody. it turned around quite quickly, didn't it? dani: i am certainly in awe of any chart you bring to us.

euro stoxx 50 futures are up -- down, rather 1% off the back of a more than 1% decline in the u.s.. europe did not fare as poorly as the u.s.. maybe a little bit of catch-up. not as far in ftse 100 futures and not as bad in s&p 100 futures -- s&p 500 futures. the cpi print is expected to be over 8%. nasdaq futures basically than line with the s&p after wiping $1 trillion off the past five sessions. manus: it has been hectic. the other side of the trade is money flowing into the dollar nine days in a row. we are back to flat. it starts to print red when i start to talk about it. bloomberg survey says -- 60 percent of the survey say it

will continue to gain. we have this morning from the opec secretary-general saying look, you are looking at russian oil being taken off the market. it is going to be hard for us to put that back on. nomura saying china's gdp is now under partial lockdown, full or partial lockdown. bitcoin back above $40,000. we saw pressure yesterday, down 7.5%. the global economy is set to step back by the end of the year. recession risks are elevated against the backdrop of russian invasion of ukraine. covid-19 shut down in china and according to the peterson institute of international economics. less than a goldilocks scenario. i was trying to get tim graff to go with me and go for a dance with goldilocks. he was not really having it.

here we are, good to see you. lots of talk of recession from the peterson institute, from nomura. are you ready to call time and say we will have a hard landing and the global recession? are just a tough landing? good morning. >> i don't think we are going to get a recession. in the u.s., the fed president bullard -- we would have a recession but we are not going to get one. why not? because there's a lot of momentum left over from the reopening story, particularly in europe, but also the united states. remember, unemployment is low, household income is there. the cost of living is not as high as consumer price inflation. the lived experience of most people -- the negative real income story -- it is still real. it is not as bad.

all of that taken together means we are going to see a slowdown in growth, in inflation, there is certainly an increase in recession risk. there is whenever you start tightening policy. dani: some of the brilliance of your work comes from the nuance you have on the impact of high prices in commodities when it comes to growth. when it comes to inflation. as we wait for cpi figures, how do commodity prices factor into your outputs? what does the conversation tend to miss? >> be careful about commodities. we all have this romantic view that somehow the miller grinds the great and makes our bread. that is not what happens. we look at food prices, in a developed country, and it is different for an emerging

market, in a developed country about 20% of what consumers pay for food is actually going to a farmer. the rest are the labor costs and other factors. even with something like oil, though crude oil prices are more associated, there is an awful lot of tax and labor elements. crude oil goes up 100%, it is about 2.3% of the global inflation market, that is going to add 2.3%. that is where we are. we have to remember the relationship is not one-for-one. china has food price deflation at the moment at a time when global commodity prices for agriculture are rising. mark: -- manus: do you think we are

already seeing demand destruction across the world? is there any evidence of that? >> there is. this is the first stage of a demand destruction cycle. as you start to see an energy crisis in particular rising, this is something consumers are sensitive to, you are seeing a change in consumer behavior. we had this is an the u.k. with the british retail consortium. not demand instructions and the sense of negative retail sales, but the speed of the slowdown. if i am paying more to put diesel into my land rover, i'm going to be less inclined to go out and spend money in the village pub for example. that change in the household budget. however, there is uncertainty about how much demand destruction we get because people can change their

behavior, particularly post-pandemic. particularly with all the structural changes going on. so why am i putting diesel in my land rover? i don't need to be in the office. i can carry on working from home. if i am working from home i have cut back on my spending on fuel quite significantly and that means the demand destruction elsewhere in the economy is more muted. dani: let me take you to the cpi numbers we are expecting. if we get this monster figure today, bloomberg economics is forecasting 4% by the end of next year. this is a pretty big cut when it comes to inflation. are you seeing a similar sapping of this inflationary story and what does that mean going forward if these numbers are indeed the peak? >> the sensible investor today is not going to look at the headline number.

they are going to look at the detail. what is going on with the monthly changes over the last few months with certain goods and services. we had the strongest demand in 75 years, phenomenal. that demand surge drove up prices. that has dissipated now. the savings accumulated in the pandemic. what we have been seeing when you look at the change in prices is a lot of the prices are really being ramped up. they are coming down now. that is what we want to see continuing. that is what is going to push inflation down once we get over the shock of the oil price and other commodity prices. so what we are going to be looking at is what is happening to the monthly change in car prices. new car prices, tv's, phones.

jewelry prices had the biggest ever monthly decline. i don't know what people were doing for valentine's day but they certainly were not buying jewelry. if that carries on that is going to dictate a lower inflation rate as we go through the second half of the year. that is where we need to focus the attention today. the headline number is going to be shocking and lead to alarm bells. manus: you have vicariously made a call on tiffany. what you are preoccupied about and we are trying to understand second-round effects from various actions from supply chains, from central-bank. action, etc.. . you hone in on the wages. it is important to know that wage costs are not the same as

wages. this is about the evolution of the wage narrative and whether that endures. can you break that down for us? >> one of the things we have seen coming out of the pandemic is a change in practices, lower participation rates, and increased wages. we have also seen changes in how we consume. online food retail for example. the fact that if you go into a fast food restaurant nowadays, nobody serves you. you serve yourself. you are your own cashier. the only thing the employee is going to do is cook your food. you will be doing that yourself, too. no doubt. we have seen a reduction, so what does this mean? if you look at what is going on broadly, most economies have got back to our close to pre-pandemic levels of economic activity.

there are fewer workers. we are paying more money but they are paying fewer people more money and they are working harder. if you pay an economist more money because they are working harder, that is not inflationary. that is not a problem. that is a valid thing to be doing. dani:dani: i am not prepared to say the same thing to my boss but tv anchor. paul, talk to me about the risk in china. when you have so much of shanghai closed and you have issues at the ports, does that mean we have this underlying inflation pressure that perhaps we are not factoring in coming back into force? >> i am not too concerned. we hear a lot about lockdowns. that is the wrong word. you hear lockdown, you think 2020 and that is not exactly what is happening. it is restrictions, and quite

severe restrictions, but factories are still producing. what is really happening as we are seeing is the import economy is more affected than the export space. there is this distinction that we are seeing. so what that means is that china is a source of global demand, probably a more important story than china as a source of global supply. the other thing to bear and mind -- bear in mind, inventories. there has been a build up in inventories, record global supply. demands have been moderating. if there is destruction from china it is not so disruptive to global supply chains. dani: really great to catch up with you this morning.

paul donovan, global chief economist at ubs. now let's get the first word news. >> the mayor of mariupol says more than 10,000 civilians have died in the city since the russian invasion. the countries finance minister said destruction to infrastructure across ukraine now totaled some $270 billion. in talks between president biden and prime minister narendra modi, the white house said it made it clear that the u.s. stands ready to help india diversify energy imports away from russia. pakistan's new prime minister has laid out his vision for the country in his first policy speech. sharif said he wants to turn pakistan into a paradise for investment but he also unveiled a range of populist measures including an increase to the minimum wage. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries.

manus: shanghai's lockdown at its economic and human cost. we break it down on bloomberg. ♪

manus: this is "bloomberg daybreak: europe." breaking news from sri lanka. they will suspend normal servicing on some of their debt. they have they say approached the imf along with other institutions for bilateral measures. we are showing footage from the streets. food prices according to the

u.n. hitting record levels as these protests are at the government and the state of affairs on the streets century longer. this is the breaking news. dani: to give you an idea they have $36 billion interest due on a dollar bond and $42 million on a note due april 18. the u.s. has told nonessential consular staff and their families to leave shanghai and says the vast majority of the city's residents remain under strict covid lockdowns. there is this real human implication of people who are restricted, maybe have trouble accessing food, but in terms of the wider economic implications, what are we expecting with data coming up for the area? >> i just want to take issue

with something before the show. paul was saying it is not lockdowns and factories are still able to work. gm's plant in shanghai is still working because they are able to get staff in the factory and lock them in the factory and continue work. but you have tesla in shanghai, the factory is shut because staff could not get into the factory before the lockdown happened. shanghai is in a very strict lockdown. people cannot move around the city at all. there are places where you have less severe lockdowns like shenzhen last month. the city was under restrictions for five days. but there is a real lockdown happening in shanghai. there is a lockdown and this is stopping production. it is also stopping food supply to some people. the supply is getting better for some people in shanghai but

people are complaining they cannot get enough food, they are not able to get enough supplies. some people in the city are at least able to leave the house and walk around the neighborhood. they can walk around the neighborhood but nothing is open. restaurants are all shut. there is nowhere to go in shanghai if you can get out. you cannot go to a supermarket. they are all shut. the city is on lockdown. it is getting better but it is not anymore back to normal. manus: i suppose everyone is trying to benchmark what is restriction relative to 2020. one could say that was locked down. i think everyone is trying to grapple with the language and context around. james, the restrictions in terms of the supply chain, this is what dani was getting out with paul. how real is that supply chain --

is that worse than it was in 2020? >> compared to 2020, the restrictions now are not as serious. in 2020, in china, provisional borders were shut down. food cannot get from the countryside to the city. the effect of what is going on now is nowhere near what it was in the first quarter of 2020 when you had economic contraction for the first time in decades. exports slumped. production slumped. retail sales slumped. we are nowhere near that level. but you are seeing supply chain effects at shanghai ports. there is a localized effect around the world's largest port

in the city of shanghai. manus: thank you for being with us this morning. coming up on the show, the latest on the u.k. economic data. that is next on bloomberg. ♪

dani: welcome back to "bloomberg daybreak europe." u.k. retailers worn of clouds on the horizon after a sharp slowdown in sales last month as higher prices cut into consumer spending power. we are going to get a lot of economic data from the u.k.. how do these figures factor into

what ultimately happens with the boe? tim graff says he thinks too much has been priced into an aggressive boe. i just want to say we get this unemployment data out later today and bloomberg economists are really saying and forecasting this could hold steady at 3.9%. which could possibly give the boe ammunition for a rate hike next month. also we are seeing that there are lots of jobs in the economy at the moment. this could be the ammunition to go forward with it. but also on other data we did get out, retail sales right here is an the u.k. surged 3.1% and that was last month. that was really in line with pre-pandemic levels that we are seeing. when the whole country was in lockdown last year, it was 2021 figures, and this shows u.k. consumers are struggling with cost-of-living prices as we see

inflation at a three decade high. manus: let's see what the data comes in. bloomberg markets europe is up next with anna and mark. ♪

anna: welcome to "bloomberg markets europe." the cash trade is less than an hour away. u.s. inflation day. stocks and bonds selloff with the 10-year treasury yield at its highest since 2018. shanghai is crisis. the u.s. pulls out consulate