manus: this is "bloomberg daybreak: europe," i am manus cranny in zürich. the french president defeats marine le pen. the euro shrugs. a show of solidarity. secretary of state antony blinken and defense secretary lloyd austin in kyiv, the highest level u.s. visitation since the war began.

plus, china's covert outbreak spreads. paging ordering testing in the capital. stocks, oil and iron or slump. to breaking news headlines from phillips. we have a first quarter effort of 233 million, way below the estimates of 270 three. some analysts asking if this was the low point for phillips in terms of the ships and blockages they had. 3.9 billion euro's worth of sales. ebita, the consensus was 236. keep an eye on the margins as well. you are looking at first quarter comparable sales dropping about 4%. ebita 243 million. obviously breaking news late on

friday in regards to some of the respirator machines and the news flow around that. frans will join me in just over 30 minutes times. ebita has missed by some 30 million euros on the estimate. frans joins me in just over 50 minutes. it is about you and, you on -- yen and yuan and currencies good no defense mechanisms from the central banks but it is about a depth charge of explosion in the market last week. there is a rest bite -- respite this morning, but our bonds now haven? did someone switch on a light and say you want to belong on twos and tens? this is libor swaps one year

forward. this is the depth charge in the market. you are redefining the world of jumbo. before christmas, 35 basis point hikes, then we were obsessed with 50 basis point hikes. now the market like a tornado a quarter to ameritrade. you are looking at one year forwards. martin malone was with me earlier and this is a market getting away from the fed. it is becoming on more -- u nmoored. trading for september put options. 475 basis point hikes. is that the definition of un mooring? money is washing out of equity markets. 10 weeks of money flooding out of these markets. everyone is bearish according to bank of america. redemptions are barely starting. extreme inflation, rate shocks just beginning.

17 billion out of u.s. equities. is it really just the start? that's the question we need to ask ourselves, or is there a deeper on picking -- unpicking to come? we have some breaking news from rush. the top lines are they see covid product sales down 2 to 5 billion that is a very initial response. in terms of first-quarter sales, 15.4 5 billion. the market had penciled in 16.1. you are seeing a comfortable beat on the headline. when it comes to the sales, they are comfortably ahead. some of the key names, the market had penciled in 603 for this company. a couple of lines coming through. we will break the numbers down

in more detail but it will be about covid the market focuses on. covid products down 2 to 5 billion for this year. we will come back to that in a couple of minutes. across the assets, this is what we've got in terms of -- i talked about yyy, it is about dollar-yen and the yuan lower. the dollar is where the flow is. the dollar remains strong even though yields are dark -- are dropping slightly this morning. asian stocks on covid lockdowns, crude down on the china demand story likewise. look at iron ore, down nearly 9%. you are looking at the crushing of the chinese economy in the near term. this is what we need to define, when will we pass through the eye of the covid needle?

let's get to our reporters. francine lacqua and maria tadeo and michelle cortez. juliette saly in sydney. the euro is dropping slightly since emmanuel macron won the election. good morning, francine. shrug goes the euro. what does france say? francine: it is clear the market had priced in a real possibility of marine le pen becoming president, which is why we are seeing little reaction. a bit of a bounce off with the 58% for emmanuel macron yesterday. now starts the tougher job of trying to get a majority in parliament. you have parliamentary elections in june. after a short victory speech in front of a dj and singer, about

3000 people at the feet of the eiffel tower, emmanuel macron and his team are now regrouping and trying to see first of all with whom he can do an alliance in june for the parliament reelection, but also what he can do right now to be what he called the president of the people. yesterday he again acknowledged not a lot of people voted for him because they supported his reforms in the last what he called five tough years, but they did not want marine le pen because of what she representatives -- represented. he said he would try to be a president to all, but it will be a tough job of trying to get popularity to go up. manus: francine, thank you. great work overnight, you and the team. let's get the latest on the war in ukraine, the u.s. secretary of state antony blinken and

defense secretary lloyd often -- alstom have been in -- lloyd austin have been in kyiv. russia moving to the east and south, trying to take the capital. maria, a powerful display from the americans, a very high level delegation. what is the latest? maria: yes, and a lot of it was a show of support for ukraine particularly, the context in which the country is asking for more money and more weapons in order to fight. it is not a secret, zelenskyy has said i don't need men or troops, i need weapons and we will do the fighting. the other thing is yesterday was sunday, the biggest religious festivity for ukraine and russia. it is easter. the bombings continued. this could be the new war plan

for russia, essentially a landgrab in the east and south of the country to create that bridge into crimea. remember the ukrainian president had a warning in that regard, he said if there is any referendum to take away some of these pieces of territory from ukraine, remember russia has done this in crimea, it would put an end to peace talks. he said if the men in the steel factory are killed, that would also put an end to the peace talks. manus: maria, thank you. china has ordered mandatory covid tests in a district of beijing and locked down parts of the capital as policymakers race to event a repeat of the outbreak that hobbled shanghai. joining me is michelle cortez. michelle, how worrying are these assigns out of beijing and what is the latest? what is the scale of restriction?

michelle: the situation in beijing is the number of cases are still actually quite low. only about 20 cases. what we are hearing from the authorities there is it is a complex situation, and it harkens back to shanghai. that is what they are trying to avoid in beijing, the kind of lockdown we have seen the past month in shanghai. we are starting to see some of that happening in beijing. they are asking people in some neighborhoods to test three times a week, monday, wednesday and friday. they are doing some targeted lockdowns. that did not work in shanghai and we have seen tens of thousands of cases every day in shanghai with of the past month. they are putting up additional barricades, closing people into their complexes, taking away the option of even trying to sneak out a little bit. in beijing, they are trying to avoid a full-scale lockdown, the kind of outbreak where thousands of cases every day like in shanghai.

in shanghai, cases coming down a little but not under control, with some local community spread as well. things are not under control in china at this point and they are looking to avoid more catastrophic infections with this more verlander -- virulent outbreak. manus: thank you, michelle. let's get a sense of how the outbreak in china is affecting market sentiment. juliette saly has the latest from sydney. jules, these lockdowns are building, they are rolling, they are spreading, they are building momentum in terms of sentiment. how is it impacting -- is it more the stock or yuan? juliette: it is everywhere. we know the impact of the lockdowns on the shanghai economy and global economy. if we see this in a capital, investors running for the hills. the csi 300 hit may 2020 lows,

wiping out all of the support we have seen from authorities following the march pledge. we have seen the onshore you on -- yuan the lowest in a year on concerns about capital outflows. and that contract in singapore down by as much as 12% in morning trade. concern about the impact for oil , wti below $100. the pboc calling for some support coming through from authorities and that is what market participants really want to see, some action. manus: we have covered it several times, the tech wreck, the regulation, the nuances in terms of chinese administration's view of tech. you have one major hedge fund saying this pain trade is not done yet. who are they and why are they so bearish? juliette: absolutely. this fund is called shanghai

bank, and topped local rankings in 2020. they manage about 75 -- 785 million dollars. they say it is difficult for money managers to make money in this environment. they are trimming their short positions and commodities as well. we sell rising prices lead to losses here. they are saying these unpredictable events not only from the lockdowns in china but the war in ukraine, the rapid spread of omicron line siding money managers. they say holding government bonds could still be a winning strategy and they will hold short duration bonds on bets they will see a rate cut from authorities in the coming weeks. as we mentioned, that is what investors are looking for too. manus: absolutely. thank you, good to see you, looking happy in sydney. coming up, we will hear from christine lagarde about a very

european style of inflation. we have reaction next with our guest right here on "daybreak: europe." ♪

>> i believe that we share the same resolve, which is to tame inflation, which is to use all of the tools we have to do so. but we are facing a different beast. we have to use the tools and the sequence, which is appropriate depending on the sources of inflation. if i raise interest rates today, it will not bring the price of energy down. manus: christine lagarde on the

european style of inflation, the nuances of the difference between her inflation and the u.s. i want to give you a snapshot of risk, you are seeing a real drop in commodities, major moves on the yuan. i told you it was about yields, yuan and yen, but if you look at the global map, you begin to understand the scale of moves. three standard moves on aluminum, copper down by 1.5%. focus in on the fx band and you see the yuan moving aggressively lower and the dollar higher. likewise on the aussie rates, a lot of it to do with beijing residents concerned about the scale of lockdowns winter to come and the rise in covid cases. there is concern again about overall mobility in china. and shanghai bank's saying you

should jump and cut china stocks exposure to zero. o. my guest is here this morning. you listened to christine lagarde talking about her inflation being double what the target was paid in the u.s., -- the target was. in the u.s., it is three times. when you see the explosive move in the bond market we have last week, first of all, is the fed losing control of the narrative completely? >> know, we don't think the fed is completely using control of the narrative. the fed is of a mind to fight against inflation. the u.s. economy is also really booming. the labor market is extremely tight and inflation continues to be broad-based. we expect the fed to remain

really of -- really aggressive in its fight against inflation. we expect one rate hike at each meeting this year. no, we don't think the fed is losing control, the fed is really firm in its determination, but the u.s. economy is really running hot with a very tight u.s. labor market. job openings remain on a record high. as i say, the demand for workers is extremely hot. we could expect the fed to remain very aggressive. manus: you are going for a multiple of 50 basis point hikes. i was listening to rick rieder over the weekend, we are pretty far from a recessionary construct, we need to be careful at the top of his investment pyramid at the moment. the nasdaq down 9% this month,

3% last week and continuing. is patients part of the narrative for you? do you expect deeper drops on perhaps multiple hikes as an opportunity to reenter? valentine: we remain so far cautious on risky assets for two reasons. the first is the overall economy risk -- economic risk, and the second is we are definitely entering a new interest rate regime and we think we are just at the beginning. interest rates are not rising because of economic activities, but central banks are raising support. that makes a big difference. our concern is economies are pulling back at the same time. we have after years of very accommodating monetary policy and balance sheet expansion, we

have very little experience of this kind of tightening. high level of energy and tightening could weigh on growth. it's why we are cautious on risky assets. but the u.s. remains i think the best place to be because we are really comfortable with the prospect of the u.s. economy and we don't believe we will have a recession soon in the u.s.. the u.s. economy is solid, they have a solid balance sheet, excess savings, benefit from the positive, the corporate side is good. companies are emerging from the corp. -- the covid crisis with a stronger balance sheet, and it is manageable. we are cautious on risky assets but the u.s. is the best place to be. manus: we have a note of caution.

valentine, thank you for being with me this morning. coming up, janet yellen says the white house could be open to scaling back imports from china. we will have our interview the treasury secretary next. ♪

manus: it is "daybreak: europe," i am in zurich at the next couple of days. u.s. treasury secretary janet yellen says the white house could be open to scaling back tariffs on imports from china. she told us it is worth examining the duties to provide the u.s. consumers relief. >> judging by the unemployment rate now and other measures of the performance of the labor market, it has been decades

since we have seen such a strong job market with such excellent employment opportunities for people. you can see that in the high quit rate and the enormous level of job openings. the fed is concerned about inflation, they have made clear they will be removing accommodation to try to get it under control, but i know they will try to achieve a soft landing. with some skill and some luck, we will have a very good year for the u.s. economy in terms of the job market this coming year. >> let's talk about china, you refer to that last week in front of the atlantic council, saying you want to china to help the united states bring pressure to bear on russia to stop the travesty going on in ukraine. what can the u.s. to two more than just persuade and get

things done? what about secondary sanctions, could that urge the chinese to move in our direction? >> look, i don't see china as undermining the impact of our sanctions. as far as i can tell, chinese financial institutions are avoiding -- they very much value their access to the u.s. financial system, to their economic relations with the united states and europe, and i am not seeing them as taking steps to undermine sanctions. we have made clear that would be unacceptable to us. and we have made clear it would be unacceptable to help russia add to its stock of arms to conduct this war. we would like to see them do more to take advantage of the

relationship with russia to try to bring about a diplomatic end to this war. nothing would be better for the outlook for real growth throughout the global economy or for inflation, other than stopping this war. manus: the u.s. treasury secretary, janet yellen, speaking to david westin. on a slightly longer term perspective of dollar-yen, a stronger yen have to be tolerated to push back against inflation. a higher dollar is a way of managing that. look at this explosion higher in the dollar and the drop in the yen. you have kuroda over the weekend nicking the comment the bank of japan must keep aggressive easing with the current aggressive money. maybe he and the finance

minister should have a chat. there were hints of the g2 intervention just before the weekend. coming up, emmanuel macron defeats marine le pen in the french presidential election. the analysis on bloomberg.

manus: it is "daybreak: europe" on tour, manus cranny in zero. emmanuel macron defeats marine le pen. the euro shrugs. secretary of state antony blinken and defense secretary lloyd austin visit kyiv, the highest level u.s. visit since the war began. china's covert outbreak spreads

and beijing orders mandatory testing in the -- covid outbreak spreads and beijing orders mandatory testing in the capital. it is you, yuan and you want. an implosion in -- and yuan. an implosion in those currencies. some are saying bonds can act as a haven now. let me show you what a baying for blood looks like and upon market. -- in a bond market. already pricing in 300 basis pikes from the fed. what is a jumbo hike? no longer 50 basis points, it is now 75. a methodical approach to rate hikes is not what the market is prepared for. 300 basis points in six months. this is a market that will test the very mettle of the fed in the eye of a strong economy, hot

jobs market and a rampant inflation. as rates rise on the short end and the longer and, depending on the day, you see material reappraisal with equity risk. bank of america, the flow show is quite monstrous, the largest outflows this year. 17.5 billion dollars have been ripped out of the market. the nasdaq is now down 9%, almost in correction territory this month alone. you need patience according to blackrock. everyone is bearish but the redemptions are just starting. maybe i should call the pension fund advisor and join the redemption train. let me show you across assets this warning. emmanuel macron is back at the palace. the dollar is rising. the euro under a little

pressure, down 1/8 of 1%. asian stocks down on the covid-19 situation and shut down and testing in shanghai. oil down -- there is deep-seated concern over the demand position from china. iron ore implodes because of a slowdown in chinese growth, the very edifice of the growth is in iron ore and then currencies come under pressure like the australian dollar. iron ore implodes by 9% pure emmanuel macron has if he did marine le pen in the french presidential election. he ran a pro-business, pro-eu platform, and the win is seen as a boost to the eu and missed the wharton ukraine -- amidst the war in ukraine could this get to france on -- in ukraine.

let's get to francine in paris. good morning. francine: the market is not effusive because we did not believe in marine le pen becoming president. what emmanuel macron needs to do is get back to work, to make sure they will be able to win a majority in parliament, meaning macron can govern. i am joined by my guest. professor, thank you for joining us. he won 58%. he said in his speech, it wasn't because of him, it was because a lot of people do not like his opponent and what she stood for. what does he have to do now? >> he has to maintain the campaign and continue to nurse his image. he was perceived as being arrogant and distant, so he spent two weeks visiting people,

shaking hands. he needs to continue doing that. he has to maintain an image of proximity. i also think he has to avoid his extremely unpopular reforms until after the legislative elections. francine: especially the pension reform. he said the last five years were painful. i'm sure he was talking in some of those reforms. structural reforms the french or not you stupid i was surprised -- the french are not used to. i was surprised that he walks into the european national anthem. will that be his focus? douglas: i think the danger is foreign policy is easy for him, or in leaders like him, he is good at diplomacy and speak several languages but he has to maintain a domestic focus or he will lose big in legislative elections. i think that temptation is he is obviously not a real politician. he was never a politician before he ran for president. the danger is he will prefer

doing foreign policy and i think you should wait. francine: what do the french want? there was an angry vote, over 50% in the first round. a lot of people decided to vote for emmanuel macron possibly if they didn't like him. but inflation is still over most european countries. the cost of living is to lower than most european countries. douglas: they are not perceiving this in a relative fashion in part because they have been stirred by anti-emmanuel macron campaigning that says everything is bad, but also because after covid, polls show people are worried and towered, so they want pump priming, they would like him to do some spending and reduce some of the fiscal taxes on things like gasoline. they would like him to give them something. i think if he manages to do that, if he is smart and for two or three months he spends and

gives, he will win the legislative and then we will see. francine: what if he doesn't? europe is fractured coming even more with some of the older political parties being dissolved. what if he doesn't get a parliament dream majority in june -- parliamentary majority in june? douglas: the question is will it be the extreme left or the extreme right that is his main opposition? he will have to compensate and change reforms. if the extreme left manages to form an alliance with the traditional left parties and emmanuel macron finds himself against the left, finish with reform. francine: i think the far left candidate did not make a secret he would like to be under emmanuel macron. is that a possibility? douglas: only if they rally together.

remember he was a socialist them up but the more likely outcome in the legislative is marine le pen and her party will pick up seats in the regions where they are strong. the south and east of france, and in the north, where she has been doing a lot of local constituency work. if she becomes the main force in the opposition, emmanuel macron will have to two, and has shown he is willing to, play to the extreme right. francine: what does that mean in terms of policies? i had an interesting debate last night, is this a big win for marine le pen? she conceded defeat in 20 minutes, but over 40% is a huge win. but this is an even worse performance for her and her party than 2017. douglas: i think it is a win for her because there is a storm on the horizon. if you draw a line between the different points in her elections, the line is going up into the right.

it will take a close to 50% five years from now. it is a major victory because they have become the largest political formation. on the other hand, what she would like to accomplish, she has to mask it. she says i want to take us out of europe, i want to take trains exporting romanians. but what she does and what public opinion will do is different, they are masking their policies. francine: thank you so much for joining us, douglas yates. manus, that to you in zero, on the road again. i will be here with you with updates. manus: francine lacqua on the road in paris with the latest on the election results with douglas yates. coming up, phillips reports its first quarter missed estimates

for why -- estimates. why? we ask the ceo. this is bloomberg. ♪

manus: it is "daybreak: europe." it is never going to be pretty, but the sri lankan stock exchange closed after a two-week halt, it dropped by 6.7% in early trade and then closed -- it has been a hard time in sri lanka. the central bank hiking rates by a record, the government halting payments on foreign debt and ratings agencies slashing the nation's credit rating along

with civil protests. we will keep an eye on that, but at the moment the market has closed again. phillips reported a quarterly operating profit that missed estimates. they warned some -- supply chain challenges, inflation and the impact of the ukraine war are hitting them. the ceo joins me now. good to see you. i look at the numbers, year on year, down from 362 to 243, and the margins are also under pressure. where are the greatest pressure points in the phillips family? where is the greatest point of pain? >> let me first point out the first quarter actually came in in line with what we said in january. even slightly better. the revenue lower than last year

relates to stoppage of the respiratory and sleep business, which we still have sales last year but not this year as we were focused on the recall. and the ebita comes with that. we are in line with industry analysts and consensus. if i take the picture wider, i am lease with ongoing, strong customer demand. we saw 1.5% growth in the quarter and products ranging from mri scanners, health care informatics, personal health, oral care, all are tracking very well. of course we are challenged by supply chain shortages and have worked very hard to overcome that in the first quarter. i think we did a reasonably good job and that's why revenue came in a little ahead of what we said in january.

manus: challenging times, and you coined the phrase for every other ceo, problems with chips and ships. are they still at maximum tension or is there any reprieve? frans: this is still number one in the list. as i mentioned, we have been working very hard to overcome supply chain giant -- supply chain challenges. it is an everyday battle. i expect this to continue in the second quarter and third quarter and even the fourth quarter. visibility is low. i am pleased the u.s. government and european commission both have said semiconductor makers should prioritize health care because this is about humanitarian needs. i hope semiconductor suppliers will heed that advice because it is really important. if we can get the supplies in,

we are able to plan a very good growth this year. manus: news on friday evening, investigating the potential death of someone in regards to potentially using v60. how soon will you know if the death was caused by these machines? frans: this concerns a hospital ventilator and it is an issue we already flagged in january. it was one of the quality issues we are dealing with. there are in rare circumstances situations where harm can occur. this is of course something we take very much to heart and we are investigating that. we are in the meantime providing a solution for the alarming

situation and we anticipate to provide a permanent fix to the hospitals in due course. manus: you have 100 these devices as i understand -- 105,000 of these devices as i understand. in the worst-case scenario, the very worst case scenario, if you had to take those 105,000 devices off the market were recalled them, what would your market exposure be? frans: that is not going to happen because this is a very popular device. with the recall notice, there is a perfectly safe contingency to be put in place so this alarm, the miss of such an alarm would not happen and we are working on a permanent fix. i don't think anybody needs to worry that we need those machines back.

manus: you and i have talked about the sleep apnea machine. now we are talking about the v60 . at the heart of a ceo, we need to ask you, are there fundamental problems in checking , processes, production, safety? do you have, are you concerned you have some deep-seated issues around processes and robust processes within philips? frans: i could not completely understand the question. -- i can completely understand the question. we asked ourselves the question. looking back we believe we've made tremendous process over the last 10 years on the topic of putting patient safety first and assuring quality. over those 10 years we have certainly found issues and dealt with them forthrightly.

on the back of the sleep recall, we have again started the whole investigation. did we miss any signals, is there anything else out there? i spoke about that to the analysts in january. meantime we have completed most of that revisiting of patient signals and we feel good there are no other issues materializing. we are dealing with these issues from the respiratory business as quickly as we can. it really is something that goes deeply to our values and our heart. manus: we await the results of those investigations and the subsequent changes you may make. the price rises i am feeling when i go to the shop, i feel it when i book an airline ticket. when it comes to health, price

rises are there too. how permanent and what price rises are you putting across the business, and are they becoming a more permanent feature in your view? frans: yeah, we definitely see higher inflation than last year. getting toward the 2.5% at the moment. we are putting in price rises, it has a faster effect in the consumer health business versus the health care and hospital business, where you work with longer lead times and an order book that came in largely last year. i think it is important to realize that inflation may stay with the global market for the next few years, and we will see further price rises as we go. meantime, we are also taking cost measures. for some of those effects, we

can do some belt tightening and be frugal. that way we can mitigate the impact for philips, and we are working hard to realize our forecast as we laid it out in january. manus: before i let you go, to get those costs a little more under control, to expected to close any businesses, exit businesses or make job losses? frans: we are not planning to close any businesses. we are working hard to stay focused on the businesses that drive a lot of demand. i already mentioned how strong a demand we are seeing for health, image guided therapy, oral care. philips has a lot of traction in the market. as we overcome supply chain challenges, i looked with confidence to the future that we can deliver a result in line

with the guidance we gave in january. manus: we will catch up very soon, thank you for your time as always. the ceo of philips, my guest this morning. coming up, elon musk and twitter executives reportedly meet. the social media giant more receptive to a takeover. that is next. this is bloomberg. ♪

manus: it is "daybreak: europe." onto the ubs and credit suisse results. if you look at global risk this morning, is squarely around the risk of protracted shutdowns in china. you are looking at three standard deviation moves on steel and aluminum. if the growth numbers do implode

in china, what will that mean for basic resource stocks? also a currency under pressure. if you look at the renminbi, continuing to climb by nearly 1%. a real focus on yield this week with both of the yuan and yen under pressure. the lowest this year. you are looking at pd security sing a lack of intervention is going on. elon musk and twitter executives are said to be meeting as the social media turns more receptive to its $43 million -- 43 billion-dollar takeover. has a the million and the intention. katrina, it seems there are more open discussions. katrina: the company is more receptive to this $43 billion takeover. we heard that musk has met

privately with several shareholders to pitch his proposal and he has told others he won't be adjusting his share offer for the company. we are also hearing this deal could be finalized as soon this week, moving quite quickly. musk on friday also made a pitch to a select group of shareholders in a number of video calls and we are hearing he has a focus on active managed funds. things are moving along quite quickly it would seem. manus: katrina, let's see if they can meet in the middle somewhere. thank you very much. a great story on the bloomberg this morning, the back-and-forth between elon musk and the head of the pif. what you say on whatsapp and text can be used in a court of law, be careful out there, be careful what you type. this is bloomberg on the road. ubs results tomorrow morning

with the ceo and on wednesday, we will catch up with the credit suisse ceo. swiss banks in focus this week, from zero. -- from zero. this is bloomberg. ♪

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anna: good morning and welcome to "bloomberg markets: europe." i am anna edwards in london. mark cudmore joins us to take us through the market action this hour. here are your top headlines. the french president defeats right-wing challenger marine le pen. china's covid outbreak spreads. aging orders