this is bloomberg daybreak: europe, i'm dani burger in london. manus: china boosts a key loan rate. new sympathy from the fed. the kansas city president says rough markets won't deter the fomc's plans. president biden is said to be weighing a meeting with the saudi arabian mohammad bin salman mom in a possible following o -- thawing of relatoins.

blackrock say they are not seeing a liquidity crisis yet. dani: that optimism giving us that friday feeling. we're seeing a pretty strong rebound in equity markets this morning. china up more than 1%, or that is that loan prime rate cut. we will get to that in just a moment. up more than 1% on both europe and nasdaq futures. i would remind everyone this is a pattern we have seen, one step forward, two back. one point $1 trillion wiped from u.s. stocks over the past four days. the worst week since 2001 as the concern shifts from inflation. i love a little bit of triple witching. nearly $2 trillion worth of stocks expired today, adding to the wrinkles. manus: mohamed el-erian says

perhaps we are moving to the next phase, which is the second drug effects. -- round effects. yields are rising again this morning, oil is down at the prospect of mohammad bin salman and president biden meeting. that puts the possibility of opec adding more oil at over 15%. mr. yen was with bloomberg today, and he said the bank of japan would only become concerned if dollar-yen moves above 1.50. you are seeing the dollar up by an eighth of a percent, this is one of those moments when the dollar is on post to deliver the biggest loss since 2020. faith in king dollar might be shaken, but it is starring higher this morning. dani: certainly faith in a lot

of markets shaken this week. kicking things off with the long-term interest rate cut in china we have chang shu in hong kong and juliette saly with the market moves. manus: yousef gamal el-din, my cohost is covering biden's possible meeting with the saudi crown prince. the chinese have got the five year long prime rate by a record amount in a hope it will boost the country's economy. it could drive up low demand hit by lockdowns. we are joined now by chang shu, our chief asia economist for hong kong. good to have you with this. you need people to get out and move around to be bullish about demand, do you think this is a key to unlocking the event in the system? chang: the move is very big and

i expect it is going to be helpful to support the economy. on its own, i don't think this will turn the economy around. we have been looking at ugly figures for april and are up two thirds into may, and china is only taking tentative steps. we are very likely to see pretty ugly numbers for the second quarter. and i and the second half of the year, whether the economy can turn around will depend on the covid zero policy. i'm pretty sure the government will continue to provide support. our projection has come down significantly to 2% this year as

a whole. our assumption is there will be no major outbreak lockdown in the second half. dani: bloomberg's chief asia economist in hong kong. following that interest rate cut, stocks are on the rise in china. juliette saly in singapore joins us with the latest our connection. -- market action. juliette: it has given a boon to investor appetite, we've had so much rhetoric about supporting the economy, now following that up with action after chinese banks made this bigger than expected cut. the csi 300 jumping the most in a month, continuing outperformance of u.s. and european equities. the regional benchmark index on track for a weekly gain of two and a quarter percent, very different to global stocks that are on track for a seventh weekly loss.

you have seen weakness in the onshore yuan, it has continued to weaken, setting it up to remain asia's worst-performing economy in may. this cat was bigger than what the market was looking for, does that suggest what is happening in china is similar to what chang was talking about, is bigger than what we feared. china is the biggest buyer of australian commodities. this is positive for chinese assets, giving some reprieve do markets that there will be more support. manus: jules, thank you very much. it could be the beginning of a bigger move. juliette saly on the latest move from the pboc. let's go to japan and the yen with the potential to drop you levels not seen since 1990, as the policy divergence with the u.s. defense. he is known as mr. yen, japan's former finance vice minister. >> it will probably go to dollar

1.50, if it goes beyond that it would be [indiscernible] dani: let's now turn to the u.s. don't count on jerome powell to route to the rescue -- ride to the rescue of the stock market. the kansas fed president said the fomc will continue raising interest rates to cool be hottest inflation in a decade. let's go to our chief correspondent for rates, garfield, this is the theme i keep coming back to you. ultimately, does this not reached the fed's goals of tightening financial conditions? >> it would be hard to see how you would tightening financial conditions and yet have the stock market take a percent

higher. -- tick 15% higher. which has usually been the expectation. powell has been more circumstance, focusing on the idea that you will hike and hike until inflation comes under control. but what they kansas fed president matches with comments from other speakers, that equities move lower as asset prices come down, otherwise how can you expect people to rein in spending? manus: a strategy lesson, maybe they will when rates are 5.5% or your mortgage and a gallon at the pump is $4.70. our chief correspondent for rates in sydney. president biden is said to be weighing a meeting with saudi

arabia's mohammad bin salman after avoiding contact with the crown over the murder of journalist jamal khashoggi. we've talked about this for the past hour, it's got many ramifications. give us your take. >> there are times when the opportunity set shifts. after the murder in 2018, the biden administration decides to distance itself from mohammad bin salman, the crown prince. they are saying he is a pariah, and focused on dealing with the king of saudi arabia instead. now with americans being charged for dollars $.60 a gallon for gasoline, the u.s. motivations are much more urgent heading into the elections. for the saudi's, there is the broader conversation of security assurances, and they are going to try to use their leverage to reach a deal. there is a differing backdrop,

but we have not had comment either from the saudi's or united states. the meeting could happen as soon as next month. it's not the first month we hit a bump in the road in what has been an almost 80 relationship. manus: in the uae and saudi arabia there is a schism in defense and security. there is this lack of belief by the saudi's and emiratis in the backstop of america. what does it do to the broader relationship, it is a definite shift by biden given the rhetoric. yousef: this is unimportant point you laid out. this goes all the way back to valentine's day 1945, king abdul is sitting down with franklin d roosevelt, they make a deal for

affordable energy in return for security guarantees. in the 70's, the u.s. administration asked the leaders of saudi arabia to inject more barrels into the global economy. vietnam was underway, inflation was rampant. it is almost straight out of the history books, exact same scenario. whether these outings will be as graceful as they were back then remains to be seen. manus: yousef, my cohost and resident in dubai, dani? dani: let's also -- that's also a great reminder of why it is great to watch daybreak middle east. let's take a look at some key things market participants will be watching out for. at 3 p.m. u.k. time is the euro area consumer confidence survey. we get the publication of norges bank's infrastructure report.

manus: biden begins a four-day trip to south korea and japan. boeing launches its second uncrewed test flight for the starliner in cape canaveral. what is the mood, where the recession risks? dani: i fear the mood is a grim one. also we have the geopolitics conversation we need to have, possibly talking about president biden beginning his asian tour trying to reassure allies of the administration's focus on china. this is bloomberg. ♪

>> it has been a valuation

re-rating. >> we are long on duration assets, that bubble is now deep. >> what we are seeing is a rotation from growth stocks toward stocks that are much more value. >> we see a lot of opportunities, especially with the higher quality investments. >> it is less about the directional trade and more about the relative value. >> everything on the fundamental front seems intact. >> we have to wait a little to see what the fed is doing is the right thing. >> everybody is afraid they will get it wrong, chances are, they will. >> we are talking about 2024, maybe later. >> we don't think a recession is going to happen in the next couple quarters. dani: i love that bit of

humidity, -- humility, everybody worry they will get it wrong. credit this year, i have to say has not been too volatile. though there have been immense losses when it comes to treasuries. 10 year, those are more down -- down more than 20 and a half percent. that is the picture looking at bond market returns. the worst year on record for u.s. bonds in aggregate, a has been about the duration and rates risk. the concerns about growth have come to the four, high yield is relative outperformance, 11%, can that last? let's bring in viktor hjort, global head of credit strategy at bnp paribas, what are you worried about, is it rate risk or default risk? viktor: it's clearly about default risk. you are right. value has been a relative outperformer.

you have 520 15 levels, these were historically periods when the fed turned more damage. it feels like we are exhausting the ability of credit markets to go lower purely on the back of fed and ecb hawkishness. to go lower from here, but i think it can happen at some point. you need to see default risk and recession risks become much more evident. i think it's a bit too early for that. manus: the lateness of that recession as you say, and peak hawkishness, you say don't sell credit here. i have had a conversation with blackrock, global investment

grade is around 4%, there is no reason to be short at 4%, and they have upgraded their credit to neutral. so if it is too soon to sell, don't sell here, is it time to buy? viktor: that's a little bit on your time horizon. i think the set up suggests that over the summer it could be a buy in may and go away, short-term rally. corporate's have too much funding really for us to start pricing in a default cycle right now. if you look at their liquidity ratios for the first quarter, they are pretty strong. one reason is they were in recession just a few years ago, so there has not been time for complacency yet. the other shock absorber is

[indiscernible] are as far from complacent as you can get. positioning indicators suggest asset managers are very underweight, very high cash balances. these are not the kind of conditions that proceed big market sellouts. -- selloffs. if we get some visibility on p eak hawkishness i think we are in for at minimum, a summer rally. dani: if we have those shock absorbers that will not hit credit that hard, what does that say about the fed's ability to push hard in terms of raising fed funds rates until something breaks in credit? viktor: i definitely think the fed put as much further out today than it has been at any point in the last 10 years. u.s. investment grade spreads

today, 145 basis points. this is the territory were historically you would see the fed not turned out this but certainly less hawkish. that number today can be as high as 200 basis points because they are also fighting inflation. you are right, we are much further away from a turning point in the fed, but we are coming at this with much stronger fundamentals than we normally have just ahead of a recession. we can have a consumer recession, or something more specific, but that does not have to be the same as a classical recession with extremely high unemployment and default rates. manus: that's an interesting differential, a consumer recession which might be short and sharp, rather than the

protracted ones we are used to. the fed put is the furthest away then you have seen in 10 years. retail bonds are the worst performing in the high-yielding sector, and if you lead into the consumer narrative, you can see a more stressed consumer relative to corporate balance sheets. what does that mean for consumer oriented bonds, is that the canary in the coal mines, is there a more dramatic unwinding to come? viktor: so, i think the consumer and consumer spending is the canary in the coal mine. you saw the u.s. retailer reports, they are already talking about changing consumer behavior, moving away from high-margin type of products towards lower margin products, in light of higher prices.

and the consumer is also the most obvious victim of any stagflationary shock, and higher interest rates, and so forth. they consumer is the canary in the coal mine for any kind of downturn. if you are worried about a slowdown, i would argue you are not supposed to sell the market outright. but you are supposed to hedge yourself by being underweight the most exposed center, and that is consumer retail. manus: we got the message, we will put that back to goldman sachs when they sit in the seat next week. viktor hjort, global head of credit strategy at bnp paribas. president biden makes his way to korea for the first leg of his asian tour. the latest on the pavement -- p ivot. this is bloomberg. ♪

manus: it's friday, it's daybreak europe with manus in dubai. dani burger in london. the national security advisor jake sullivan says he would not be surprised if president biden and xi jinping speak in the coming weeks. it comes as the u.s. leader makes his way to south korea for the first leg of the asian tour. joining us is our east asia government editor, john, why is biden starting the trip with a visit to the samsung semiconductor complex? it's the personification of global angst, isn't it? >> yet, and he is choosing this because it fits into the agenda of his administration in terms of supply chain initiatives. and getting more chips to

industries to ease the crunch. biden has been pushing the china competition bill, it is a $52 billion bill which includes the semiconductor industry. samsung is responsible for about a third of global memory chip production. the new president in south korea , this puts the new president on the same track with joe biden, and they are working with one of the most crucial producers of these chips. dani: this is on the background of the war in ukraine, how much will that be hanging over his first visit to south korea and japan as president? >> is going to be in all facets of the visit. south korea and japan are both energy poor countries that rely

on russian energy sources. both countries have said they are going to cut back on this. but it is going to be difficult for both. also, biden has a meeting of the quad grouping, it includes australia, india and japan later in japan. he is trying to get more cooperation for u.s. efforts in ukraine. just as an aside, north korea is looking at what is going on in ukraine and seeing its two partners over the years, russia and china, are not all that keen on more sanctions on north korea which may spur more testing. dani: our east asia government editor, john herskovitz. happy entered what is called

♪ manus: this is bloomberg daybreak europe. i'm manus in dubai. these are the story that set your agenda. dani: global stocks pushed higher on the surprised reduction. no sympathy from the fed. rough markets won't deter the f1c's tightening plan. president biden is weighing a meeting with mohammed ben salman in a possible find of relation. we've got a little bit of that happy friday feeling today. manus: will it last? or is it just a bear market rally? we've seen it pretty much every day this week the question is if there's a

recession, with the size, the scale and the timing, and will it be a consumer orientated recession or something much more malevolent. stocks are on track for the longest losing streak since 1988. that puts it in context. she annihilated the message from as or the george. they ain't going to break until dollar yen trades 150. the dollar rises by .010 of 1%. i'm going to slip in one breaking news line for you. i know you possibly bought me a beautiful gift. dani: it's in the mail. manus: you can't get a watch on in the male for me $3.79 million is what we're

expect. i shouldn't laugh. this is a myth. dain. dani: a miss for a luxury good second torment it would be interesting to see how much they talk about china. speak of china let let me get into the stock market action. china, the five-year, the one that is closely tied to mortgages. that rippling through the m. european stocks are down more than 1%. we're looking at a comeback in knocks the u.s. but not nearly enough to undo what we've seen over the past two days. 1.1 trillion wiped off the seventh consistent week of declines in the u.s. well, to that point, mohammed al of-arian says the insays tense led to the economy falling into stagflation. he thinks that andrew bailey was

the banker handling the situation the best. here's what he had to say. >> what is unavoidable is stagflation. i would take the approach of andrew bailey. i will be brutally honest. >> i'm afraid that i'm going to sound rather apocalyptic about is food. >> the fed is finally catch up to developments on the ground. >> it's been very difficult for households obviously. gas prices have been extremely high. food prices are high. >> it was avoidable had the fed not stuck to its inflationary character zation. >> it's very difficult to think about trying to give guidance out into the future. inflation is coming down. that's what we really need to see. >> as inflation comes down hopefully some of those prices will revert and they'll come down. manus: goldman sachs analysts remain pro risk over a 12-month horizon. but equities will stay pretty flat. and earnings will be fat and

flat, i think is the phrase. the war on ukraine, covid in china have resulted in a equity selloff along with bonds something they describe as a balance bear market living the traditional 60/40 fund portfolio taking a pummeling. it is christian molar, portfolio strategy welcome. good to have you in our region. but what i want to understand -- you look like a god in that you down grade. you down graded on a 12-month basis. how deep a conviction is this downgrade is it? >> it's a key question. right no, the uncertainty is incredibly high. i think on the momentum side there is no reason for joy. like inflation momentum. policy moment thank you no good news. it feels very uncertain. but the only good news is that

we all know that i think people are bearish. septemberment is low. valuations are coming down. and that means usually in the long run the asymmetry in the downside it's getting better. that's why we are reluctant to be bearish now with everything we know because everybody is a bit like that manus: dani jump in. dani: it continues to get worse, christian i seeing what markets have done this week, are you not tempted to say it's not going to be fat and florida it might be fat and pretty painfully down? >> you make a good point there. one thing that we worry about is the recession risk which everybody is talking about. if you look at our economist view and our internal models for recession risk we put that at 20%, 25%. that's not that high. but if that goes up, you could

definitely see the market get a bit more worried. you also see that credit year date has been incredibly resilient and is starting to catch down now. and that worries us a by maybe the fundamental deteriorates enough to feed into second round effects and causes more issue. manus: blackrock said there's no tron be short. credit has underperformed but not as bad as sovereigns. what kind of recession? this is the debate, isn't it? i could be a consumer oriented recession or a full blown one that was we know has the whole marks of hell on et. which version of recession is most likely? >> the key question. there's a bit of survivorship bias the companies that are here will have to spend through a very tough time the balance sheets are quite

strong. average would increase increase, increase and then you have a big unwind of imbalances. they're difficult to pinpoint. like, right now, you can say this is a big bubble. i think at the margin, it feels like the private sector is in good health. the recession should be mild. but what i'm worried about is always risk premium. there's always the cash flow and the risk premium. i don't think the accuracy are discaptains large of a recession or a mild recession to the full extent. dani: this is a really interesting thing, christian because there seems to be a lot of disagreement to this point they're currently price 17% of reception. u.b.s. said 40% in your mind, we're not there yet. what would pricing in a

recession look like? >> it's a really interesting debate. if you look underneath the surface within industries, they're price 60% to 70% probability over recession. i agree with that it's very bearishly priced. but if you look at the headline index like the draw down, the level of the six and the risk premium, we don't see as high of a probability being priced. but that's the conundrum you have under beneath the surface, it's bearish. but on the headline surface it's hard to rule it out because the premium is low. don't forget bond year has increased a lot at the margin that lowers the premium. manus: you say that the premium, the risk premium is not fully priced in there. the question is in the bond market we've had this depate that bonds are nice suddenly the edge to beat all hedges. it's amazing how we turn on a

dime, isn't it? some of the analysts turn on a dime. you talk about hedging the portfolio. my question to you is in the balance bear scenario. what is the hedge? is it bond? is that the overlay? how do you hedge in this as they talk about stagflation almost an unavoidable situation? >> the sad story is that i don't think bonds will come back as the ultimate hedge which they've been in the last 10 years. we've had the consolidation period for bond yields. we think there will be more upward pressure on bopped yields. the question is not how much they can hedge you but what will they they do after the recession? and can they time that perfectly if it's a soft recession. the inflation might linger this time. because like -- if we have a recession it might way on inflation temporary but some of the inflationary issues are

structural that means they might come back quickly and bonds will cost you heavily. so to answer your question, i think the dollar has been off course the only place where you can hide dollar short i think has been a key hiding place. it's for the obvious reason. you go for the place where the central bank fighting inflation, the most vigorously and credibly and that's currently the fed. dani: i want to get back to this point that you make about bonds not coming back. what would you say to folks whose retirement money is into 60-40. are you telling them that these types of investments are dead? that's for the next decade? >> well, the investment industry while we're talking about 60-40, it's much more sophisticated than 60-40. what i would say is there are plenty of things that you should do which include risk premium,

tactical overlays of course that will help you whether this storm, this balance bear. and a lot of the acid funds have done much better than 60-40. it's not as bad it sounds. you have to come up with a few tweaks what we found very useful here today is to allocate to real assets. higher inflation makes the bonds less good hedges. and why not buy something that has a positive link to inflation? manus: let me just say to you that when you reached the point in life when you received a letter from your pension fund provider it gladdens my heart to hear from christian that maybe the one i've got has been more sophisticated. dani: you're not allowed to live us. i refuse -- manus: i've got the 60-40 portfolio. i'm a walking 60-40 portfolio. it's a nightmare. christian, let's finish off --

you've got black rock in time. we've got goldman's in time suddenly we're popular. what's been the biggest issue? it's very obviously you're all going to go insane what are the biggest issues? what what are the biggs risks? and what's the defining moment with these clients? >> listen, i think they're doing really well. the stock market has been a bit of a hiding place. it's a key concern because everybody is feeling it. they're dollar earners and dollar investors that puts them in a competitive advantage. euro has collapse. yen has collapsed. that creates investment opportunities but there are a lot of concerns if the oil price continues to stay at these levels possibly going higher, and the other concern is, of course, how that volatility in the equity market going spill over to me now? >> do you think the fund flows are done into orrery jones?

s that big global debate which we have with regional fund management? >> very tough to say. at the margin, it's a the key hiding place if you're a front manager, minah has been your safe haven talk about where do you hide? if fundamentals continue, this is important thing, positions can remain and continue to attract flows. what we're hearing a lot with the oil dollars and being put to good work in the infrastructure so it if it creates a cycle, of course, it could create more investment opportunities. >> manus: never too low for a little bit of a flow. he's the managing director for portfolio strategy over at goldman sachs. let's get to jules. jewel cigarret -- juliet?

juliet: he welcomed $40 until aid for ukraine. canada has beena we and z.t. equipment from the wireless equipment. businesses that had already installed gear from the two chinese companys will need to remove it by the end of 2027. the long-awaited decision brings canada in line with the similar bands we've mean? it's and uk. relations between ottowa and ukraine has been worsening. especially with can's arrest of huawei's c.f.o. boris johnson will not be fined for breaking coronavirus. they conclude into gathers that broke covid lockdown rules the decision has been seen as a boost for the prime minister after months of turmoil. global news 24 hours a day and

on bloomberg quicktake powered with more than 120 analysts. dani: china cuts its long-term interest rate in terms of boosting theirmen economy. that's next. this is bloomberg.

♪ dani: it's your friday edition

of bloomberg daybreak europe. i'm dain burger with manus cranny. it's been a tough for the worst selloff in four years. but we have this five-year l.p.r. cut finally making some headway against the dollar. manus: yeah, that's the strength in two weeks it really begins to kick in. goldman sachs remains dollar -- is it right to say quasi bull? they want to hide in the dollar even to though the dollar is on track for a pretty big bruising this week. but you are looking at a shift in that yuan. i think it's size of the cut, dani which is the actual move. the move could reduce mortgage cost and lope demand and a property slump. is it a form of helicopter money? vicarious helicopter money?

phil dobson can answer that question for us. mortgage rates, open up the floodgates for money. it's a form of helicopter money, paul, isn't it? paul: it's definitely another way that the pboc are trying to push some cash into the economy. we've been worried that the transmission mechanism hasn't been working all that well, manus pushing on a string that kind of an analogy. but things are taken more seriously by the market. you know action little less conversation, a little bit more action. [laughter] getting us. the market has been itching for something to get ahold of here to get that rally going in chinese markets. today, they seem to be taking it pretty positively. we're seeing 100,000 cases. things are starting to shift a

little bit into the favor of chinese markets. let's say that the world needs somewhere that's god got a good news story because it's looking so gloomy. this is what traders will be pouncing on. dani: you can join as an author on the album of drae break's greatest hits. you definitelyered that today. there has been divide among exists whether this would happen. there are questions around the one year loan prime rate. walk us through the markets's reaction to this and being the longer one tied to mortgages versus the cons es tray tracing on the shorter dated. >> it's a good signaling effect as much as everything else. it's a big cut. more than we've seen previously. it is slightly unusual to live it unchanged, you know? is pboc doesn't want to create a wash of liquidity that leads to

kind of too much fast money pouring into assets. they want to try to keep things steady and stable. but at the same time once you stabilize things a little bit and once you stabilize that market market, we've seep price falling. they fell again surprisingly last month. that's been making the economy feel weaker as well. i think they're want to have a little bit more life and certainty. it has been one of the kind of loose screws from the economic complex. over recent weeks and months. you see the reaction is taking a positively for the currency as well as for the stocks. but i would take it more as a signaling effect, you know, than any -- any kind of earn it huge change that the -- the -- the -- the change it to the rate that's going to encourage. >> paul, thank you very much as always. that's paul dobson our music editor apparently and executive

editor for asia markets. come up, it's been a volatile week for stocks, crypto, bonds. we'll get you you ready for the next week and look back at the weak that was. this is bloomberg.

♪ manus: it's daybreak europe, i'm manus cany dani burger. dani, it depends on what happens: whether there's a short rally but we could be on track for one of the largest losing streaks since the dot com bust. nobody's calling that. the question is whether this equity market is further tore run. we're not stopping. we just had goldman sachs. they've done great, as you know

for the next three months. but it was a hard core, according to christian. >> there you go. s&p almost down 18%. manus, for me one of the most instructive things this week has been while markets have been selling off break evens have been taking a breather that is markets backing off from inflation expectation. to some degree, manus, i have to wonder is this them listening to the fed that they do think perhaps the fed will be able to choke off inflation faster than expected. it but if we are able to get inflation under control. what does that mean for growth? >> manus: what type of inflation -- what type of reception do you have. they talked about more risk in this consumer perhaps.

rather than a balance sheet implosion. because companies have said, they built up their balanced sheet. they're more worried than a major implosion. where it reflected? you made it until you take it. this is about the risk. well, maybe i made it there you go >> i can pretent i made. i'll take credit. >> i was just kidding. we do. we do. it's a fantastic chart. we are seeing to see that. but it's pretty much so far this career. >> black rock said global i.g. graded. and there's no reason to not look at next week. bloomberg market in europe is up next.

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