>> good morning from bloomberg's middle east headquarters in dubai. it is bloomberg markets. these are your top stories. under control, china reports diffuse new covid cases since march. authorities relax curves -- curves and ally new stimulus measures.

european stocks climb, wall street post its best week since november 2020. u.s. cash markets are closed for memorial day. plus embargo stalemate. you nations failed to agree a new energy sanctions against russia. the leaders summit kicks off today. the first let's set the tone for risk started in china within easing of restrictions in shanghai and beijing. that gave boost to the equity session in asia. higher-than-expected spanish inflation has irked the bond market. 1.05 is where we trade on the german government bond yield so you're looking at a rise of eight basis points. on the role higher youth chief economist coming out as benchmark pace rises.

doing 50 would just trash the reputation of lagarde in the ecb. volatility is the byline according to james, extrapolating what she means by that in just a moment. crude is up as europe procrastinates over a deal to cut off russian oil and china reopens. so the bid is china reopening. the offer is something completely different. let's take a look at the week ahead for you. eu leaders kickoff today in a meeting with brussels for the war -- with the war in ukraine at the top of the agenda. the pmi's from china on tuesday. we also get a read on the u.s. consumer confidence. rolling forward there's a virtual opec meeting on thursday which is expected to remain unchanged from opec but no saving grace from them. friday tishman to the jobs number and were in the four 30's

as the average estimate for that. a lot to unpack for risk. head of fx strategy, let's get straight to the rub of the issue. i will start with the ecb. i would love to go to the dollar but i'm drawn to labor costs. in july and september reaffirming madam lagarde, we are not for panicking. the state of the fx market. is parity just a bygone allusion on the euro-dollar? >> good morning. i think what we have to remember is we are entering into a different phase. if we look back at the year, perhaps the global financial crisis policy such as aggressive easing or quantitative easing, that's breaking down volatility. that suggests we are going into this environment where we have quantitative tightening coming up in the fed into the central banks hiking interest rates.

volatility will rise. i think it would be foolhardy to say we've moved towards parity, that's not to happen. we are in a different environment. the equity markets may or may not be in the green right now but i think we have to stay on our toes. i think there is still risks to the euro and still risks that could drive safe haven appeal into the dollar. our forecasted 103. i think we could see more volatility, it makes more difficult but i think the risks are still there for the euro in terms of possible recession if that oil embargo assigned by the e.u. in the next couple of months. there is that recession risk that the year -- that that window of opportunity for hiking rates could be quite small. manus: there is a lot there. they are trying to get to close

off russian oil. perhaps via the pipes but it would be closed on the seaborne narratives. how quickly can that situation evolve because that's the consequences for currencies as well in terms of we extrapolate the geopolitical situation. session risk in europe but also perhaps the oil currencies. do you think there's a real risk they close it off. where does that take oil and what does that do? jane: there is a real risk that embargo gets added. hungary saying this will be an issue for our economy. if they compromise and managed to find some other energy supply, a bear in mind doesn't have any ports. it is landlocked. this is still our central scenario and that in terms of

some of the other markets, for oil in the euro zone economy, it does set up a different set of parameters. more risk getting euro -- to the euro when that scenario. at the same time, the dollar is weaker because the speculation the fed could take a breather from its rate hiking cycle. but if recession risks in the euro zone raises perhaps this safe haven bid and we see the dollar could see stronger for longer on that bid, perhaps irrespective of what's going on in the u.s. economy. there is plenty of the possibility for volatility to come. so many questions still unanswered. for euro-dollar, we argan a see a lot of volatility and we -- are going to see a lot of volatility. manus: let's pivot to the dollar. we caught up last week part of a

narrative was the dollar was very full. long dollar was a full trade and rich trade. a little of what santos through on twitter. talking about the real rate in the united states of america. here is the conundrum because this is the canary in the recession call mine. mortgage rates of 5%. a generation is never suffered that. if we look at the explosion in mortgage rates in 2015 we are way ahead of that on the 13 year level. how is this kind of chart to drive the narrative of the reality of a slowdown in the united states of america? jane: a mild recession in 2023. i would agree that the fed is pulling out the stops to get its credibility back in because the

policy is such a blunt tool that's what they have to avoid a recession. i think it's a real risk. for the dollar, it doesn't naturally or necessarily follow the fundamentals of its own economy, of the u.s. economy in the same way many currencies would. perhaps because of its safe haven appeal. if you have bad dynamics, if china is still growing slowly, don't forget that most economists are anticipating chinese growth will be below the official forecast. if we have that recession in the euro zone, we are looking at establishing a fundamentals that could support the dollar because it's safe haven almost irrespective of the fact we have these slowdown risks in the u.s.. over the last few months i've perhaps changed my forecast for the dollar. the dollars can a week and because the u.s. is in a week

and. but the safe haven could keep the dollar despite some of those forecasts. manus: i'm trying to think what that narrative comes up. he was the most injured. the u.k., overall the uk's vulnerable. of seen many people pop this to me, more pressure on the pound? jane: it's been quite interesting if we go back maybe a month or two when we had a lot of concern about the back of rishi sunak's budget. of they were not doing enough to help growth. the study reacted quite badly and came out after the bank of england meeting. they were very bearish on the growth forecast and sterling was reacting to the growth. after that we had pretty firm and fleming data.

in attention flipped back to inflation. the -- saying the bank has to do more. this is where we are with sterling leumi of the growth forecast, sterling is very vulnerable but it can still pick up a little bit of ground when the market begins to fear that inflation is too strong. manus: jane, thank you very much. let's keep you up to date with news from around the world. leigh-ann gerrans is with the team. >> china has reported the fewest cases of the coronavirus and almost three months. the easing of outbreaks in beijing and shanghai has led officials to relax some of the strictest virus controls. shanghai rolls out a raft of measures to support its lockdown hit economy. in ukraine, president volodymyr zelenskyy has visited troops in the kharkiv region in a show of confidence for the nation's defenses. it was his first publicly known

trip outside of the kyiv area since before russia's invasion. he handed out metals to soldiers and was appraised on the military situation. european union nations are not broken the stalemate over a russian oil embargo. so far hungary is refusing to back a compromise on sanctions despite proposals aimed at ensuring the country keeps receiving russian oil. eu sanctions require the backing of all the member states. residence joe biden has placed -- at 76 elementary school -- place flowers outside a texas elementary school. he met with grieving parents, relatives and also survivors. people in the crowd outside a service shouted do something to the president to shout -- who responded we will. global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries.

i'm leigh-ann gerrans, this is bloomberg. manus: thank you very much. as china's covid outbreak wanes. we find out what it means for an intensifying global supply chain crisis. in the efforts to fight inflation on bloomberg. ♪

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>> many people calling it uninve stable. >> they will start with the biggest in human history. >> we turned the corner in terms of policy action. >> there's also the possibility

they reopen and stimulate the economy. >> probably a part of the world where you will see economic activity resume more quickly. >> attractive long-term growth drivers are still back. we will be cautious and prudent in the environment but are optimistic about china as a country. >> we are expected to increase our exposure in china. >> a deepening of a relationship in china. manus: that was this week's pulse survey focused on the chinese economy and how investors anticipated covid zero policy and the impact on markets. they will provide the indicators as to whether or not growth is going to be typed or as these restrictions were seen in major cities continue. eddie van der walt is with me. driving risks this morning is a little bit of an easing in shanghai and beijing in the

covid cases. the question is what is the mother of all stimulus that can put a floor under growth. what are you go look for in the covid story first of all? eddie: this, seeing a better situation in china is obviously positive not just from a market perspective, but a human perspective, all of it. at the same time when we asked our respondents in that survey talking about do you think china will move away from its covid zero policy, almost nobody thought that they would. most people think china will stick with the covid zero policy. that means if we see further out rates we go back into lockdowns and that has implications for the economy and a think that's why businesses are saying china will be largely a positive force for growth, but it will continue -- continue to be inflationary.

because we will see these lumpy supply chains. manus: absolutely. can i caffe out one thing and that survey? -- caveat one thing and that survey? when you're living in a bad situation in that country you tend to have negativity bias. it is just human nature. one thing which has negatively bias in it, the spanish inflation this morning and some of the german prints. looking at the bandh setting, a german 10 year real view the 22 month high. you've had spain, you are now looking at some of these inflation risks coming through. it's not looking good for the ecb. i'm looking down here at bavaria and saxony. 8.1% and previously 7.7%.

should they be panicking at the ecb? madam lagarde is not. >> they certainly should be doing something. but the ecb, you could argue higher rates in the euro zone at least somewhere in positive territory would not be a bad thing. you could argue this could be a good thing for the long term so really, 80's hard to see what the ecb is waiting for. growth is slowing, we are looking at some sort of --. inflation is running hot and that gives you an opportunity to start pushing up rates and start normalizing the situation in the euro zone that has been battered by negative rates for a decade now. manus: i am not the one to carry the panic card. i'm just giving you the facts. we are up since the start of the year.

nobody should decry getting beyond negative rates, i could just never get my head around it. thank you very much, eddie. coming up later in the show, we have stalled russian sanctions package looming large across the meeting in the markets. we are live in brussels with the latest per this is bloomberg. ♪ another crazy day? of course—you're a cio in 2022. but you're ready. because you've got the next generation

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manus: this is bloomberg

markets. european leaders are gathering for a first day of the summit in brussels. over the weekend, nations agreed on a deal for a revised sanctions package but the talks will continue during the week. korea has the latest. as -- a sixth round of packages was stalled. does it show a fracturing of europe by over reading is it urgent one nation holding it up. maria: the more you tap into energy, the harder the sanctions fight, the more divisions that emerge and we are seeing this with not just hungary, but also asking for concessions. when you open the door to

exemptions, it usually means everyone will jump for a better chance for a deal for the domestic audience. what may be the commission perhaps, the mother of all sanctions against russia. the technical details, you've the political situation it's unclear what europe's needs when they say they want ukraine to win, what's victory entail and what do they need to provide. manus: what is in your mind, you've spoken to ministers -- ministers on many occasions, what is an elegant compromise on this? maria: nothing is agreed until everything is agreed. and that's usually -- paid one

of the technical concerns about a lot of these countries been heavily on russian oil potentially an exception through the pipeline. the issue is hungry is pushing for extra concessions that could go into seaborne oil imports from russia. at that point you could argue this is an embargo in name. it won't have the big impact they are hoping initially. the other thing is there is a technical meeting happening, the mood music i hear from that event is not optimistic. the chances of a deal one official said it best or 50-50. to perhaps infuse some political momentum into this. manus: let's see with the compromise looks and sounds like. leigh-ann gerrans is at london

hq. >> norwegian air shuttle has agreed in principle to buy 50 boeing 737 max jets. no word on the deal yet. the airline will take delivery of the planes between 2025 and 2028. norwegian is focused on rebuilding its operations as a regional carrier and is turned away from discount long-haul flights after emerging from insolvency. goldman sachs says the bull market in battery metals is finished for now. they expect the price of three key metals will drop over the next three years. they say investors wanting exposure to the green energy piled into quickly. bitcoin is finally showing some signs of life. the largest cryptocurrency climbed for a third day. did coin has been stymied in recent months and other central

banks have pivoted towards rate hiking cycles. that your bloomberg business flash. manus: thank you very much. coming up on the show, inflation shockwaves. we discussed the methods governments are taking across. right here on bloomberg. ♪

manus: this is "bloomberg markets." quick snapshot of risks driven by covid in china, even the equity market of the debate because in terms of european narrative. furious rally in the u.s. last week, breaking seven. we saw the biggest inflows and equity in 10 weeks across the

globe. the narrative from bank of america is the brr rally. taking yields higher. where does it stop up? -- where does it go? europe prevaricate over cutting off russian oil. they won't be any huge amount of supply added to that but certainly emboldened. looking at the first month of gains across the bond markets since november. by the way, positioning on oil, net long on brent and debbie ti at -- wti at the 12 week high. principal economist, good to

have you with this. how big of a risk is a new cycle in oil prices and how much risk does that bear on the peak inflation narrative? good morning. >> good morning. we were hoping in the space of the energy shock, behind us and markets and their economies across the world, especially europe, digesting that painful shock but of course, any additional increase in oil prices will add to both inflation and economic pain for economies. as we have already seen, to increase in oil prices and natural gas prices as well, a

fiscal response that adds to train public finances after covid. it just paid to more potentially challenging picture across europe and across the world with quite mixed for developed markets but also emerging market economies. manus: the debate we are trying to have is if europe does cut off oil and energy from russia, take me to the worst case scenario for inflation and recession risk if that is the road we travel. >> particularly risk for europe as you can see europe is preparing for that loss of russian supply. hungary and other landlocked countries shows there running the risk of just losing their supplies.

what would be the worst case scenario? let's go to maybe two groups of countries. western european companies where the oil shock comes into a warm but rather tepid economy, so the shock hits real incomes as inflation but it doesn't yet -- wages, inflation, supply shock. it is a challenging picture for the central bank which at the same time tries to normalize -- these countries where growth is not yet as hot economies are not as hot as elsewhere, this paints a picture of more gloom and doom on economic. now if you look more toward the east of europe where economies

have recovered after covid quite rapidly, consumption -- above covid levels. that adds to the risk of classic supply and demand inflation spiral and hikes but at the same time, if you think about the worst case scenario, adds to the political picture in the region -- manus: of course. >>: for more support and that calls for even more fiscal support which thins complicates -- which then complicates inflation and fiscal outlook. we're talking about fairly challenging political situation. add to that -- manus: is a geographic bifurcation terms of the impact of higher energy prices. just very quickly, to close off, i want to get your opinion, talking about the measure rate

of increases of 25 basis points. we are seeing the euro travel quite quickly from term -- do you think the ecb will welcome a reprieve in the currency or they will never acknowledge it. >> i think the currency is an important picture but got only the ecb here, but other countries as well because -- he translates neatly into additional inflation shock. it would welcome stabilization of the currency a positive development. communication that you mention, it is going to be so important. central banks try to avoid -- so communication measure the pace of hikes both by the ecb and other central banks in the region and the currency will be key to tackling that shock and

avoiding the worst case scenario. manus: just briefly, one thing that did catch my eye is the breakeven. the break even in the united states of america rolling over. i know we're trying to grapple with what happens in your, but when you see the rollover in the u.s. and it has been quite an accelerated repricing on the forward basis, is that a moment of hope? >> yes, so we were talking about this as the peak inflation moment and the markets having priced in their extent of rate hikes a central banks both in the u.s. and europe and elsewhere. but that is a moment of hope, yes, that the markets will not react let's say in a disorderly manner. manus: what i want to know, if that continues, will that give the fed the ability, the window, to pause?

> i think it gives the chance to communicate well and to communicate the extent of rate hikes. i don't know -- i think our u.s. economist for probably be best -- yes, not only fed but other central banks read this as an opportunity to communicate on the pace of those hikes and see how these rate hikes have so far affected the economy, how they affected elation expectations, maybe just communication and the pace of rate hikes in an environment that is still negative interest rates. manus: thank you very much. plausible pause-ability. that is my new headline. magdalena polan, fixed income

strategist on the markets. mohamed el-erian says the fed faces a decision between two policy mistakes as he tries to tame inflation. he spoke to tom keene and lisa bromwich about fed policy as well as china and the risk of a global recession. >> what happens in china impacts both global aggregate demand and supply. we forget china is a major consumer of product also made elsewhere. we saw with the retail numbers look like. they were pretty horrible. we also are reminded how important china still is in the supply chain. i look at this very carefully. lisa, the concern we have, and i know you are attuned to this, the three major areas of the global economy are slowing at the same time. there is no compensating locomotive anywhere in the global economy right now.

we have to be careful we don't get the self-feeding process. this is important because the marketplace has embraced the possibility of a pause in september. be careful because the only reason that fed will pause is because demand has come down really fast. that is not going to be good for risk assets. tom: what is a feasible set right now for the american central bank? >> i think at best it is what chair powell calls a soft-ish landing. i think the time has passed for a soft landing. we could have done it, but that would have applied the fed moving nine months ago. it should have and it didn't. so instead of tightening into a growing and dynamic economy, it is tightening to a slowing economy. so it is very difficult to get a soft landing. the best you could hope for

right now is a soft-ish landing. what is the probability of that happening? not as high as i would like it to be. i think the fed will have to decide between two policy mistakes, hit hard and risk recession or tap the brakes and a stop-go pattern. and risk having inflation well into 2023. manus: mohamed el-erian. let's keep you up-to-date with news from around the world. leigh-ann gerrans is with me. leigh-ann: the european central bank's debate over how aggressively to tighten monetary policy is likely to intensify this week. data is likely to show a new record for inflation. strong readings vapors the central bank to boost interest rates faster. here in the u.k., according to reports the government has been

worn 6 million households could base power because this winter -- could face power because this winter. there could be widespread gas shortages if russia further cut supplies to the european union that could lead to electricity rationing at the start of the year. over on capitol hill, lawmakers are setting a tight timetable for gun laws. democrats signaling they would accept the but it progress in exchange for some action that would reduce gun violence in the nation. some republicans are indicating interest in gun control legislation following the elementary school massacre in texas. in columbia, construction mogul little known at the start of the year has won a place in the presidential runoff. rodolfo hernandez has a real chance at winning the presidency . he got 28% of the vote compared to 40% for the former guerrilla gestapo.

the runoff is that for the june 19. 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. this is bloomberg. manus: thank you for the roundup . as energy shortages triggered by the russian invasion of ukraine grip europe, we find out what the options really are for the e.u. leaders. what is on the table, what is ahead at the summit in brussels. this is "bloomberg." ♪

>> we can't really think about energy without thinking about

energy security. >> to have a world with 100 million barrels or more with basically -- >> the real reform is to go out from dependency of fossil fuels. >> i think individual countries will cut back. >> it is appropriate to have a gas transition for short period -- for some period of time while you bring technology to scale. >> transition in energy takes probably three decades. please don't slow down. >> number one, not building -- >> hydrocarbon will always be part of the mix. >> have gone from a one-dimensional equation to bring carbon down to three-dimensional, handle energy security the same time. manus: executives and leaders speaking to bloomberg at the world economic forum in davos

about energy supplies while moving away from fossil fuels. eu ambassadors are scheduled to meet again today ahead of the leaders summit to discuss a revised package of russian sanctions after the block failed to reach a compromise yesterday in the face of hi and resistance. let's bring in our bloomberg senior editor, executive editor for government. thank you for being with us. we seem to have hit a small but really quite important and past. the hunt gary and once more compromise -- the hungarians what more compromise. how much pressure can they really bring to bear and will open other major fissures within europe? >> certainly come everyone in the eu has to agree something to take effect and yet four weeks after the european commissioner said there would be another package of sanctions, they still have not agreed on what that package of sanctions will be. hungary, the may hold out here

on oil, saying it was a pipeline to get exemptions for an extended period but also other conditions they seem to be wanting behind the scenes. that is creating ripple effects with other countries saying, hang on, we also want more out of this. if you soften this package, doesn't really have any affect on the russian economy? is it going to be a deterrent for the russian president at all at this point? manus: but that is the risk, isn't it, if europe does not hold together, stand together, fight together, they embolden putin's stance. when does the conversation about compromise and really putting pressure on ukraine maybe to negotiate more substantially with putin than what we are told is happening right now? >> it seems like on the eu side probably has to go to leaders to sort out. he had ambassadors meeting for

several days -- you had ambassadors meeting for several days and failing to get something to hold together. leaders meeting this evening to get the hungarian leaders in a room and say we have got to find some way through here because as you say, it is honest 100 days since russia invaded ukraine -- almost 100 day since russia invaded ukraine. they have certainly not deterred them in the ground. now behind the scenes saying at some point does the ukrainian administration need to sit down properly with the russian government -- negotiate territory as part of that? ukraine says that is something they will never do. they want to fight on. but as this war goes on and on, does it have to become the reality? that is the uncomfortable truth of where we are possibly heading with this conflict is, do you have to cede territory to get a

piece till and does that stop the russian president for the long term? then he just comes back again? manus: leaders of russia. who is the leader of russia?merkel is gone, as is her care. is it draghi, macron, or scholz? >> that is the question. ursula von der leyen front and center in all of this so she's want to keep an eye on as well. the main condo to russia is up for grabs. manus: thank you so much. let's see how the day devolves in the negotiations of the next 48 hours. roslyn matheson most of coming up, after last week's shooting at a texas elementary school which left 19 children and two

teachers dead, former u.s. treasury secretary larry summers says now is the time for change on gun laws. that interview next. this is "bloomberg." ♪

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manus: this is "bloomberg markets." following last week's shooting in taxes in an elementary school, the former u.s. treasury secretary larry summers address the need for change around the gun laws. he spoke to david westin. >> horror, rage, frustration. we can do better. we need to think through what the right solution is. some limits on access to guns that don't threaten any real second amendment right. some red flag set of procedures that catch signs of trouble in people and take actions.

we just can't accept this as the regular order of business in america. i think it reflects may be something broader, kind of new callousness on our country. we're are probably only in the fifth inning with respect to covid. there are going to be hundreds of people dying each day as far as the eye can see, and we are not as a country making the investments, whether it is vaccines you can take through your nose, whether it is new therapeutics, whether it is a war on long covid and clinical trials that we need. we have let the covid controversy become a green eye shades thing about pay force and a culture thing about masks when

they are the highest return investments available in our society for here and for leadership around the world, and we just can't seem to get there. i just don't understand why we can't all come together on the proposition americans should not be dying and it is government's first obligation in the name of security to prevent that from happening. manus: former u.s. treasury secretary larry summers speaking on the wall street week. it is time to get you up to speed with business flash and the biggest race from around the world. leigh-ann: bloomberg has learned brookfield asset management has agreed to sell one of the uk's largest student housing businesses to gic and grace to real estate partners. the price, roughly $4.2 billion. student housing continues to be popular among investors in the u.k. the number of students vastly

out numbers the rooms available. u.s. retailers such as walmart, target, gap has $45 billion in extra products to sell. last year they -- the glut has dented profits at some retailers and customer preferences shift, that could lead to a round of discounts. that is your bloomberg business flash. manus: thank you. if you wake up thinking about the market and want to make the right moves fast...

get decision tech. for insights on when to buy and sell. and proactive alerts on market events. that's decision tech. only from fidelity.

>> good morning. welcome. these are today's top stories. under control, china reports the fewest covid cases since march. markets go risk on post of

european stocks climb after wall street posted its best week since november 20 20. cash markets are closed for memorial day. embarq a stalemate eu nations fell to agree on new sanctions against russia. the leader summit kicks off today. first things first, to all of our american viewers, happy memorial day. the markets seem to be taking it in stride. traders pondering whether the bottom of a selloff is near as investors have been buying the after one of the worst starts. still, hawkish central banks underscoring fears of recession including food inflation, the war in ukraine, china's logjams, spending economic activity. european stocks of u.s. futures, they won't open today, but this is a look at it what could happen tomorrow. they were all up on the back of chinese and some of the curbs and wall street having its best week since 2020. now look at this week. eu leaders kick off a two-day meeting in brussels with the war in ukraine on the agenda and pmi

data from china on tuesday. also tuesday, the latest read on u.s. consumer confidence in the virtual open -- opec-plus meeting on thursday. friday, u.s. jobs day. you don't want to miss that. to go to all of the markets, john vale. great to speak to you. happy memorial day to you. always working. when you look at some of the things the market are focusing on, have they done the correction to a point where now we can see some dip buying or do they have further to go? >> well, it is certainly a relief rally of some sorts. it is hard to get to bullish given all of the troubles you mentioned around the world, but some things are improving. even despite pretty good data on friday, the bond market was very much under controlled which was very helpful for equity

sentiment. francine: i understand there are countless moving markets but what is your strategy going forward? you need to make sure you call the bottom or is it just about not catching a falling knife? >> we have been cautious since mid-march given all the troubles in the world, accelerating inflation and whatnot, and we are still cautious i would say. we are not trying to market time too much but on a quarterly basis we meet and decide where we are going in the next year or so. right now it seems like it's have stabilized to some degree -- markets have stabilized to some degree. it is hard to be too positive. francine: is that on some of the macro news? we have some data on consumer

spending and thinking of trade for april and they were not too bad at all. >> exactly. this week will be important, too, a lot of important data, including the federal reserve created index and powell and other fed members are looking at job openings and not just the unemployment rate but the number of unemployed people. hopefully, we will see some lessening like expected for the job openings. this week. and that would be good for the market as well. francine: i know you don't want to be bullish on global equities, but has there been too much pessimism priced there? i know you think that markets misunderstand japan. do you see value their? >> yes. the u.s. has been in serious de-rating situation but japan is

already quite cheap. 11, 12, 13 times range, low by historic standards. safe haven area right now, facing some significant problems. the u.s. is having a d- rating. japan with the weak yen helping earnings is looking good and earnings frexit -- and earnings expectations are still quite solid in japan. francine: i know you're looking at the multiples. is there a victory japan that seems undervalued than others? >> i don't concentrate too much on sectors but in the financial sector, very low single-digit pe's, auto sectors low pe's. and the tech sectors, not as cheap, but certainly a broad swath of japanese market is very

low by international pe standards. francine: what is your take on earnings going forward? we -- are you expecting earnings to validate your call or could they be derailed? >> in japan come they look like they will remain quite healthy. in the u.s., there is some concern, obviously. a lot of guidance has been very cautious for the rest of the year. the first quarter was not so bad but mostly guidance is pretty cautious now. that said, is how the u.s. earnings going to actually turned negative year on year? very unlikely. but certainly the case for upward rewriting of the earnings profile for this year is very muted. francine: nico asset management has around 160 and assets under management. what is the question you get most from your client? >> well, i japan, a lot of

people ask about demographics. certainly, japan is facing that wall for a long time. and if the stock market, 10 tremendously well -- and the stock market, done tremendously well. despite the working age population following for a decade or more here. technology and good efficiency of the workers and good corporate governance, which japan has definitely improved that area, then the stock market is going to do quite well. that is important because most of europe and china and south korea are all facing a cliff, a demographic cliff. it does prove countries can do well despite demographics. francine: do you expect europe to be a lot more concerning in terms of what the ecb can do to cushion the impact of energy coming to russia? >> yes, i mean, it is a tough

situation but europe it is even worse. they have to raise interest rates and yet the economic profile is pretty worrisome in europe. could easily go into recession this year. we haven't really seen the macro data come out to really reflect the pain it is going to be put on the european economy, and so it is quite concerning. francine: john, thank you. john vail of nico asset management. mohamed el-erian says the fed faces a decision between two policy mistakes as it tries to tame inflation. he spoke with tom keene and lisa bromwich. >> what happens in china impacts

both global aggregate demand and supply. we forget that china is a major consumer of products also made elsewhere. we saw with the retail numbers looks like. they were pretty horrible. we also are reminded how important china still is in the supply chain. i look at this very carefully. lisa, the grants are -- the concern we have come the three major areas of the global economy are slowing at the same time. there is no compensating locomotive anywhere and at the global economy right now, so we have to be careful we don't get the self speeding process. this is important because the marketplace has embraced the possibility of a pause in september. be careful because the only reason that fed will pause is because demand has come down really fast and that is not good for risk assets.

tom: what is the feasible set right now for the american central bank? >> i think at best the feasible set is what chair powell calls-a softish landing. i think the time has passed for a soft landing. we could have done it but that would have implied the fed moving nine months ago. it should have and didn't. so instead of tightening into a growing and dynamic economy, it is tightening to a slowing economy. so it is very difficult to get a soft landing. the best you can hope for right now is a soft-ish landing. what is the probability of that happening? not as high as i would like you to be. i think the fed will have to decide between two policy mistakes, hit the brakes too hard and risk a recession or tap the brakes in a stop-go pattern, including -- risk having

inflation well into 2023. francine: not what joint to hear -- not what you want to hear. keeping you up-to-date with news from around the world, here is leigh-ann gerrans. leigh-ann: european union nations have still not broken the stalemate over russian oil embargo. so far hungry is refusing to back a compromise on the sanctions despite proposals and at ensuring the country keeps receiving russian oil. eu sanctions require the backing of all the member states. russia is planning a bond payment mechanism to sidestep u.s. sanctions and the potential default. the proposal would allow foreign investors to open accounts in russian banks in rubles and hard currency. russia's finance minister told the newspaper unlike the previous payment system, investors would be able to access the funds without restriction.

china has reported that fused cases of coronavirus and i was three months. the easing of outbreaks in beijing and shanghai has let officials to relax some of the strictest virus controls. shanghai has rolled out a raft of measures to supported lucked out hit economy. president biden has placed flowers outside a texas elementary school where a gunman killed 19 students and two teachers. he also met in private with grieving parents, relatives, and survivors. people in the crowd outside a memorial service shouted "do something" to the president who responded, "we will." 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. this is bloomberg. francine: thank you. a check on the markets and let's focus on the currency. we did see quite a lot of volatility in the last couple of

quarters. the dollar dominating every conversation that we have in the studio but also in davos as what this dollar rally could mean for emerging markets exposed to it. first day of gains for european equities. currencies are pretty much stable. the dollar slipping for the third day. cash treasuries not trading today because of the u.s. memorial holiday. looking at vicks, not elevated. we had a good conversation on yen and the opportunities in japan with john vail. just a word of what some of the data look like this morning. i know we had spanish inflation unexpectedly higher. record price surge has peaked, piling more pressure on the ecb. turning bullish on chinese stocks. what does that mean for what

your portfolio is exposed to china? plenty more shortly. coming up, with no end in sight with china's covered policy, intensifying global supply chain and efforts to revive inflation. we heard from monday saying it is more of a question of when it will happen, not if he was interviewed about being overweight chinese equities. this is "bloomberg." ♪

>> i like china. >> there is very wide margin of safety. >> one of the biggest fiscal impulses in human history. >> turned the corner in terms of policy action. >> plausibility they reopened and they seem like the economy. >> you will see economic activity resume or quickly.

>> attractive, long-term growth drivers still back, we will be cautious and prudent in a this environment but are optimistic about china as a country. >> we are expecting to increase in china. >> a deepening of relationships into china. francine: that was this week's focus on the chinese economy. what investors anticipate uncovered policy and the impact on the markets. pmi due on tuesday will provide indications of whether or not growth is bottoming out. for more on this and some of the great work, and i urge everyone to check out exactly what our team are focusing on, bloomberg markets five editor joins us. eddie, it is memorial day the u.s. the jubilee of the queen. ever so british. in the meantime, and between these festivities, we focus on

the markets and china. >> absolutely. china is really the wildcard will stop today is happy because everybody is seeing an easing of restrictions in china and so on. what is interesting, the survey on china. when we ask investors what to they think could happen in china, they say on the one hand we expect china to underperform to the rest of the world and at the same time we expect chinese stock markets to end the year down. are they going to increase exposure to china? most say yes, they're going to increase exposure to china. they're looking at this as a buying opportunity. i think what this tells us is people remain very long-term bullish even as they are aware of the short-term risks for china and for the world economy. francine: did you have any insight on how they increase our exposure and whether -- i hear a

lot of i am priest by exposure to china but have to play the longer-term -- i increased by exposure to china but that have to play the longer-term. >> i think when you're looking at china now, you want to look at particular sectors. i don't think find the basket generally is a great idea. i think investors will probably look less toward the tech companies, which will still face a lot of government restrictions. i think they were probably more toward china manufacturing base which has been particularly hard-hit throughout the covid crisis. i think that is probably where investors will look. francine: eddie, what else is on your radar? i know you're always looking at bitcoin, treasuries or cash trading not happening today, the debate we can terms of data from the u.s. >> absolutely. the china pmi coming in i think will be interesting.

the inflation numbers we have had from europe already today, that spanish number, i think that is really significant. it tells us something about the world economy. it tells as what we have seen, the tightening of conditions, isn't really -- i think that leaves the ecb a lot of room to be hawkish. i think this is something the markets will be taking into account and i think that is something that could perhaps boost the euro a little more because the euro as you say has been struggling against the dollar. the last couple of days, the euro has been catching up but i think there is probably more -- that is what we will be hearing from investors. francine: i know you're great part of this wonderful, is there anything you see underlying -- i know we talked about the dollar rally, lot of treasury moves longer-term -- that you think the market is not paying enough attention to? >> you know, i think the market

is a very fixated on a recession at the moment. i think there's probably a lot of upside risk here. if we do not see that recession narrative come through or if we -- it emerges it is very shallow recession we're headed for, particularly in the u.s., that i think the market is not fully pricing for that. i think the market is pricing very bearish scenario here. there's a lot of bearish news. we have house prices, a lot of other factors that just make people nervous. but i think the upside here at the moment is quite substantial if we see stronger data at the same time as inflation starts coming down. that will take a couple of months to play out. i think we will probably be looking at september before we see that narrative fully forming, but i think the

greatest risk for being here is the upside. francine: is there a policy mistake in the making? we had this wonderful rotation with lisa and tom with mohamed el-erian who says it depends on which mistake is the less ugly for the fed. >> you know, i think my biggest worry at the moment is the ecb missing its window -- i would like to see the ecb normalize policy, give thanks -- banks a little bit of breathing room so when the economy stabilizes or even if they need another round of cuts but they don't start from base of zero, i think for me, that is the biggest risk. yes, there is a risk that the fed and other central banks over tighten, but i think for me the biggest risk in the global economy is the ecb does somewhat

behind the curve. saying she is not panicking, maybe she doesn't need to panic. maybe sees this as an opportunity to get ahead of the game. francine: i have to say the hawks did not like what you're saying in terms of the ecb. eddie van der walt, have a listen and read through and give us feedback. now time for the bloomberg business flash. here's leigh-ann gerrans. leigh-ann: norwegian air shuttle has agreed in principle to buy 50 boeing 737 max jets. no word on terms of the deal just yet. the airline will take delivery of the planes between 2025 and 2028. norwegian has focused on rebuilding its operations as a regional carrier. it has turned away from long-haul flights since emerging from insolvency. goldman sachs says the bull

market and battery missiles is finished for now. predicting the three key metals will drop over the next two years. goldman says investors want exposure to green energy transition piled into quickly and bitcoin is finally showing some signs of life. the largest cryptocurrency climbed for a third day, breaking above $30,000. bitcoin has been stymied in recent months as the federal reserve and other central banks have pivoted toward rate hiking cycle. and that is your bloomberg business flash. francine: coming up, eu leaders gather while a stalled sanctions package. we talked about an oil embargo and what it is so difficult for them to agree and actually step it up. we are live in brussels with the latest, next. this is "bloomberg." ♪

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francine: this is "bloomberg markets." there is quite a lot going on in the markets. i mean the european markets

because the u.s. closed for memorial day. the one thing we need to keep an eye on, oil is climbing in response to the easing of china's lockdown and european union working on a plan to ban imports of russian crude and that is really feeding through some of the equity markets as we look at the ftse, pretty much unchanged. european stocks gained. this is really an optimism that china will ease from the virus curbs and some pretty encouraging signs of what we're hearing from the u.n. you can see in madrid, down. european leaders are gathered for the first to have a summit in brussels. over the weekend, agreeing on a deal on a revised package of sanctions. talks continue during the week. let's get straight to maria who joins us from brussels. first of all, good morning. the fixed section package

remains a stalled. where is the holdup? maria: yes, francine. we are talking about a package that is delayed by almost four weeks. the head of european commission promised the mother of all sanctions, promised there would be a full embargo of russian oil. the reality is, at this point in time, this time of day, there is no deal on this. what we see is an increasing number of countries looking to get extensions from the oil embargo. the major hold out here is hungary, victor or von. -- victororban. they say unplug on the pipeline could have a detrimental impact but they're not happy with an exemption on the pipeline. there presumably also pushing for an exemption in a transportation by sea. the risk is if we do not get a deal this week, this is huge

damage to the reputation of the institutions. we're starting to see the european union makes big announcements but they have no teeth or if we do get a deal, it is very water down package that would be an oil embargo by name only, not a reality. francine: maria, any hope for breakthrough? if there is a breakthrough, anything they need to do, for example, hungary, in exchange for support? maria: francine, this thing has overshadowed this meeting. it is really about victor orban. orban says there is no point debating this at the summit today with the other leaders because it would only highlight divisions and he does not see anything at the technical level deck and move the needle for hungary. it is a must understood there has to be some reassurance for victor orban. the issue is that politics get mixed up. we talked about many of the rule of law issues that orban has had

with the rest of the european union. they don't want to give him a political victory on that post in terms of what happens today, there was a technical meeting this morning. it seems that a lot has changed and now it is up to european leaders who will gather here in a few hours to perhaps infuse some political momentum into this. francine: maria, thank you so much, in brussels for the meeting positive joining is now is the deputy chief european economist at citi. before we get under the ecb -- good morning to you. i would ask about the leader summit. if we have an oil embargo coupled with russia and you won't have access to gas, what happens to this economy? >> you oil embargo -- the oil embargo technically would not have a huge impact on the economy as it is laid out because it won't be until the end of the year anyway. the larger economies russian oil imports have plans to get out to

replace it. gas is a different problem because gas infrastructures -- we know germany is planning to win his have fresh and gas and 2024. they may be a bit wicker, some signs by 2023. -- it may be a bit quicker, some signs by 2023. there still the big risk for next winter and households need to heat their homes again and if they do and have priority over companies, the companies may have to shut production which could put the economy into recession. but not now, more in the winter. francine: what is the downfall? the ecb, they don't have an easy task and clear that christine lagarde and the ecb blog and with us in davos was trying to take hold of the governing council and say this is the direction and start talking all over the place. first of all, with this communication that is down on the same page, is this harmful for the transmission of monetary

policy? >> the discussion the governor council the meeting, and probably too much time between the two meetings, had this incredible dynamic where position was an outlier a few weeks ago became consensus, hawkish position within a few weeks only for the hawks to then add another hawkish outlier position such as moving rates already into, moving by 50 basis points. i believe there is still a contingent within the governing council that isn't happy with tightening at all. doesn't see why tightening raising interest rates will help with the current circumstances because it does not bring down supply-let inflation but it does mean the coverage won't be complete. there still that contingent. they have to be reassured as some point, which is what christine lagarde will try to

assert her position. it seems the heavyweights in the council are behind her. the executive board, the main governors have supported her but it seems she hasn't got everybody on board, which means the discussion isn't fully settled yet and really will depend on the data that we are seeing this week. francine: how would you prepare for ecb liftoff right now? >> we think the most likely scenario is the one that could be christine lagarde outlined, purchase at the end of june, first rate hike at the end of july, then another one right after the summer break in september which takes us -- i think so far, even though the doves would agree with that, getting out of zero or negative interest rates is if anything positive on the economy because of the argument for banks. beyond that, we think it is going to be much more controversial.

we think the resistance and the council will be stronger, in particular if inflation starts to level off as growth continues to be revised down which is our main scenario at the moment. we think the ecb will pause and september, raised by 25 basis points in december, then again maybe in march next year after a pause in january. then we think they will stop. by that point -- francine: you really think there's a chance inflation somehow levels off? i just does it. i know it is a narrative people believe, i understand a lot of inflation we saw from europe comes from airlines, but i don't feel it trailing off in the near future. >> he is true he keeps -- it is true. at the moment we conference can september just under 9%. energy prices can't double every 3, 4, 6 months. it will stop at some point so

that will give us some base pix and when they can september that will be the case. food inflation is the thing that is to watch of the moment. germany and spain it has been strong. core inflation with the weak euro and everything also has upset surprises in store. at the same time, the economy is weakening we are saying confidence measures coming down. we see what the wage deals will bring later. we do think inflation will come down because that cap between where the economy is and where it should be pre-pandemic is just too big for us to be sustained. francine: if there is a fought light in inflation suddenly comes down, where do you see it first? >> well, the energy inflation are going to come down but the main thing to watch is the labor market. the labor market looks tight but because it is very strong --

implement sector will not continue forever. whether the private sector can offset the setback the public sector -- watch public sector employment and energy inflation. francine: as always, thank you. but heavy bank holiday. as volatility in the wall market continues, saying the market is running short of spare capacity. we spoke to him exclusively at the world economic forum in davos. >> after the pandemic come as economies start to recover, we have seen a pickup in demand. alight with -- that much demand pick up after of it as economies start open. we are seeing now in certain different countries, different demand patterns. in the u.s., more pick up on the transport fuels.

some areas where there is some lockdowns or still by terms in terms of demand but in general, the market is well supplied. >> could you foresee a situation where there is so much demand that actually there's just not enough supply in the price oil shoots up to 150? >> i don't want to talk about prices by today we don't have a lot spare capacity. spare capacity is 2% or lower. in the market, that is very low spare capacity. usually, spare capacity gives us confidence to the market that in case of any type of disruptions, interruptions anywhere in the world, that spare capacity will kick in and supply the markets. right now it is going down and it is quickly. very soon, you have 100 million

barrels or more with basically no spare capacity. francine: that was the executive officer amin nesser. here is leigh-ann gerrans with the first word. leigh-ann: in ukraine, president zelenskyy has visited troops in the kharkiv region and a show of confidence for the nation's defenders. it was his first publicly known trip outside of the kyiv area since before russia's invasion. he handed outmedals and was briefed on the military situation. the british government reportedly has been warned to 6 million households could face power cuts this winter. the worst case scenario drawn up by officials says there could be widespread gas shortages fresher further cut supply to the european union. that could lead to electricity rationing at the start of the year.

over on capitol hill, lawmakers are setting a timetable to negotiate new gun laws. democrats are signaling that would accept limited progress in exchange for some action that would reduce gun violence in the nation. some republicans are indicating interest in gun-control legislation following the elementary school massacre in texas. in australia, the new prime minister's labour party has reportedly won a majority in parliament. the party has 76 out of 151 seats needed. he plans to push through bills ranging from climate change to anticorruption measures will step 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. i am leigh-ann gerrans. this is bloomberg. francine: thank you so much. this is what the markets are looking at. let's switch it up a bit.

i know equities are doing quite well on the back of encouraging news from china but let's also look at what the etf has been doing. look at currencies. the other way of looking at it is euro sterling. bitcoin, we will get on that in a second. it doesn't seem to be ranged back at the moment. coming up, covered 19 cases surging as summer approaches. -- covid-19 cases surging as summer approaches.

don't like surprises? [ watch vibrates ] proactive notifications from fidelity keep you tuned in all day long. so when something happens that could affect your portfolio, you can act quickly. that's decision tech, only from fidelity. francine: this is "bloomberg markets." china has reported the fewest cases of covid-19 in almost three months. the easing of outbreaks as let officials to relax some of the strictest virus controls. joining us now, doctor, thank you for enlightening us on some of the things we should be

worried about are not worried about. where are we on covid in china? >> covid in china, it is been a very difficult period of lockdowns they have had. they are still trying for zero covid. they have been able to reduce the number of cases so they're opening up slowly. we are talking about very highly infectious strains of covid and not enough effective vaccines to prevent the spread. i would expect they will continue to be at risk for outbreaks. it is incredibly hard to maintain zero covid posture, and that is yc countries like australia and new zealand moving away from it. francine: what are you most concerned about covid right now? is it mutations or no mask wearing, which have led some in the medicine world is that we are too complacent about it? >> well, in the united states, we are seeing cases go up,

hospitalizations go up. with that, you expect to see at least some rise in deaths. we are still at hundreds of deaths a day. i think covid is still around. it is completely reasonable and most of the united states for people to be wearing masks indoors to protect themselves from getting covid. particularly, a high-quality mask. this is an illness that can put you in the hospital but more like they could get you quite sick and potentially leave you with long-standing symptoms. francine: would this be for the foreseeable future? a lot of people say if we don't stop it now, a lot of people have been vaccinated, then this could last five to 10 years. what do you say to those critics? >> i think whether or not the virus continues to circulate have a lot to do with whether there are new mutations that can evade the immunity we have.

so far, the new mutations do. even with omicron, the new mutations are affecting people that were sick with the old mutations. the virus has gotten to particular part of its lineage where it can be evasive. it is not totally evading our immune system because we are much less likely to get severely ill or die, so there is some good news. but in terms of the spread of the virus, i think we'll have a lot to do with the virus itself. i do think the more you can control a virus, the more you can control it but it is still the case the virus has a lot to say about that. francine: does it make sense to move to omicron-specific shots to broaden the immunity? >> i think it certainly makes sense to explore that. i think the challenge is that even with the incredible speed we can develop vaccines, we may be making vaccines for the last variant and there could be a whole new variant that is able

to infect us. i don't think it is a bad idea to get started. hopefully, we will have great insights about the ways to make an omicron vaccine that could broadly be protected. that could be quite positive. but we will have to see what the evidences and we will have to hope the virus is susceptible when we wind up -- it is kind of like what we do the flu vaccine. we make it for a strain of the flu that is prevalent or we think will be prevalent in the fall and then we hope that it is prevalent in the fall. francine: is the biggest fight that dr. should run the world, vaccine hesitancy? >> i think this points to a bigger question. we have to sustain our focus on covid-19 even if it doesn't rule every detail of our lives. but we also have to sustain our

public health response. not just doctors think about vaccine hesitancy, all of us have to think about vaccine hesitancy because we want our friends, our family members come everyone to be vaccinated so over all the impact of covid and our society is much less. we don't want people dying in hospitals. now is a moment for us to invest in a public health structure that we haven't had in this country before. i am hopeful we are going to start to see in the cdc is putting out something soon that we will start to see a reinvigoration of public health in order to do that. francine: we have seen another virus are emerging in the last couple of weeks and this is monkeypox. what is it an is the world better prepared to deal with the next pandemic than two years ago? >> this is a very different kind of virus.

it is not a brand-new virus, but it might be a virus that carries few mutations that possibly makes it more transmissible which is why we are seeing the spread in europe. diversion spreading is not particularly -- you can make people quite ill with a rash and swelling and fever that go on for weeks. it is apparently not -- it is transmissible monkeypox, which is not as transmissible as coronavirus of the cases we are seeing five here, two here, not 100,000 here like the coronavirus. but it represents a new infectious disease threat for this part of the world, at least, and it emphasizes we cannot just hope our lives return to a place where we can't think about public health. we need systems to identify viruses, to track them, to

understand them, and on the other hand, to go out and help people take action whether it is vaccination or treatment or seeking care in order to protect all of us. that is what the public health system is supposed to do and it really needs to be enforced so we can be strong against all these different kinds of threats. francine: thank you, joshua sharstein. it is time for the business flash with a look at some of the biggest business stories in the news right now. here's leigh-ann gerrans. leigh-ann: bloomberg has learned brookfield asset management has agreed to sell one of the uk's largest student housing businesses. the prize, roughly $4.2 billion. student housing continues to be popular among investors here in the u.k. the number of students vastly outnumbers the number of rooms available. some signs the u.k. home price boom is beginning to cool off

according to property website since the second half of april, one in 20 public listed on the firms on then real estate portal saw price reduction. it says the average cost of a home to record 360,000 pounds last month. the new top movie was top of the box office in both u.s. and canada over the weekend. paramount pictures says "top gun: maverick" brought in estimated $124 million in friday through sunday ticket sales. the movie will be released in china, which will hurt its global revenue. that is sure bloomberg business flash. francine: have you seen it? that is the only question we need answered. >> i haven't, but the original was released in 1986, the year was born.

francine: well, good afternoon, everyone, and welcome to "bloomberg markets." these are today's top stories.

under control, china wrote its its fewest covid cases since march and they relax curve. markets are risk on, european sums climb after wall street does its best week since 2020 with cash markets closed for memorial day. embargoes russia. first thing is first. first of all, good morning. happy memorial day to all of those celebrating it. looking at the focus of the markets, they are up on china easing virus curbs. then you also have your area, bonds coming up from inflation risks with surprise on the upside. there was a very interesting blog post on the bloomberg terminal and on the website talking about bitcoin and how it would be now range bound. looking at what's ahead this week, today eu leaders kick off

a two-week meeting in brussels with the war on ukraine on the agenda. also tuesday we get the latest messaging on consumer confidence in a virtual opec meeting on thursday and u.s. jobs day on friday. let's get more on the markets with danielle morris. -- daniel morris. thanks for joining us. a lot going on with opec plus and the price of oil with u.s. jobs data. the markets are a little bit optimistic right now in china. two optimistic? dan: we like to be optimistic after everything we have gone through over the last six months and we are probably still a bit cautious. it's good news and we still think we will get to a living with covid situation in china but not right away. the big concern that we have is that even though infection rates have been paul -- falling, if you look at the vaccination rates they are still pretty low and you have this fear that if

they do reduce restrictions, infection rates go back up and we have to see how that plays out first. francine: last week in davos it was incredible to have two different conversations around earnings and it's fine and then people in the real world with supply chain issues and they are tearing their hair out. >> there are two potential negative consequences. on the production side it doesn't help if you are a manufacturer in germany waiting bits and bobs from china, if they do, it will probably continue to cause a lot, those pressures are still there. on the retail side looking at retail sales it was 8%, 9% the last few months and that should improve but if you are looking to china for products to sell, that's going to be a bit of a dilemma. francine: is there a consensus

that central banks are behind the curve? dan: if you look at the forecast the market currently has four gdp growth and the forecast for inflation and the forecast for central bank policy and you try to square it, you get the point, they don't really seem to line up, necessarily, that gdp growth is supposed to be quite strong. no forecast of a recession but at the same time the fed is only going to hike to around 3% where inflation numbers actually get back down to target. one of those three has to move and what we are trying to assess is which. francine: is the market over to a recession, is it priced in or will they be pricing and growth slowdowns? dan: i think it's more of the latter. valuation matters a lot but typically if it is market reaction ahead of a recession its earnings that fall and ices

follow and clearly we haven't seen that and if anything earnings expectations have risen. the risk would certainly be if a recession really were approaching you could have a significant write down and we don't think that's going to happen now, it's a rate of the adjustment and you see the same thing in credit that it is assessing to which degree those temporary factors turn out to be temporary for inflation. the sustainable ones, are they less sustainable? francine: your prediction? dan: wait and see. we think it may be more than the market has priced in. we know how that plays out. francine: the valuation gap in u.s. stocks between growth and value has narrowed to what does that tell us?0 dan: allocations between growth and value are different discussions than they were over the last year. they are reasonably valued now, one to the other.

we do not currently have a call on growth risk value but it will be assessed in a way that wasn't before and over the medium-term it will come back to growth having higher growth, mattering a lot more now that you don't have to worry about valuations going from 30 to 20, which they have already done. francine: how do you play china right now, if at all? dan: we appreciate challenges in our overweight chinese equities. valuations are attractive, and we appreciate that when you are in lock down the stimulus doesn't have the same effect, but the commitment is there, the valuations are attractive and don't forget, we have been through these lockdowns, we have been through covid. we are counting on that. francine: how long? is it like 12 months, 14 months? dan: medium-term, not expecting it to turn around tomorrow, but about a month ago when we made the allocation change, that's when you had the peak of the

underperformance for chinese equities and since then they have gone from moving in line and that is a big improvement. francine: cloud? dan: on the one hand we should see commodity prices come off when the situation improves in ukraine, that's when we are optimistic but at the same time we have that will back in terms of weaker demand from china and they may offset each other. still a bit cautious on the six months to a year. francine: what to do with earnings? i like this, it's around the world in seven minutes. dan: expectations have been rising in the u.s. and europe that is almost all commodities. even with a commodities boost it has basically -- basically been priced in and oil prices are likely going to be lower a year from now, two years from now, with a bit of a drag being priced in on the commodities sides and it's pretty flat.

there is always optimism about earnings next year, but now through the end of the year its modest expectations and there is a concern particularly in europe and the u.k. that those earnings could still be too optimistic because of those headwinds. francine: i like that, europe, when you look at it, it's just tossed, this was supposed to be the year where valuations go up and capture that momentum from the lost decade. not so? dan: you would hope that the fundamental that you had to be overweight europe prior to ukraine should come back. it has clearly been delayed yet again, but we think that valuations are still attractive but we need catalyst on the growth front. francine: where would that catalyst to be? is it a "top gun" market view? dan: i haven't gotten my top gun yet. [laughter] a negative capitalist, covid

disappearing in china. the war in ukraine, inflation going away in the u.s., all great but not likely in the near term. we really need to get rid of one of those negative catalysts, but that might not be enough. francine: let's go see "top gun" together." so, the fed facing a decision between two policies and inflation. mohamed el-erian spoke to tom on fed policy, china, and the risk of global recession. >> what happens in china impacts demand and supply. we forget that china's a major consumer of products also made elsewhere. we saw what the retail numbers looked like. they were pretty horrible. we are also reminded how important china is in the supply chain.

i look at this carefully. the concern that we have, and i know that you are attuned to this, the three major areas of the global economy are slowing at the same time and there is no compensating locomotive anywhere in the global economy right now. we have got to be careful that we don't get this tail feeding process. this is important because the marketplace has embraced the possibility of a pause in september. be careful. the only reason the fed would cause is because demand has come down really fast and that won't be good. >> what is the feasible set right now for the american central bank? >> i think that at best it is what they call the sawfish -- softish landing. the time has passed for a soft landing. we could have done it but that would have implied the fed

moving nine months ago. it should have, it didn't. instead of tightening into a growing and dynamic economy, it is tightening into a slowing economy. it's very difficult to get a soft landing. the best you can hope for right now is a softish landing. and that possibility is not as high as i would like it to be. the fed will have to decide between two policy mistakes. hit the brakes too hard and risk recession or cap the break and a stop go pattern and risk having inflation well into 2023. francine: that was mohamed el-erian. keeping up-to-date with news around the world, alice has the first word. alice: european union nations have not broken the stalemate over a russian oil embargo. hungary is refusing to

compromise on sanctions despite proposals aimed at ensuring the company keep receiving russian oil. russia is planning its own payment mechanism to sidestep sanctions and potential default. this would allow for investors to open accounts in roche -- russian banks in rubles and hard currency and the finance ministry told a newspaper that unlike the previous system, investors would be able to access firms without restriction . china has reported the fewest cases of coronavirus in almost three months. officials have been led to relax some of the strictest virus controls. shanghai has rolled out a raft of measures to support the lockdown economy. president joe biden has placed flowers outside a texas elementary school where a gunman killed 19 students and two teachers. he met in private with grieving parents, relatives, and survivors. people in the crowd vowed to do

something -- vowed the president do something to which he responded, we will. global news 24 hours a day on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. francine: alice, thank you so much. checking on the markets, when it comes to equities, reminder, it's a -- it's memorial day in the u.s., we are seeing a bit of a lift off and its filtering through to some of the things we are seeing in currencies. you can see the europe sterling at 8521 with stability for sterling when you look at dollar , cable, 120 649, and the other thing that is extremely interesting, the rating when it comes to it going on the live blog is that things are range bound, going on between 27,000 and 32,000 for the last couple of weeks. coming up, still at an impasse,

european gas slips as investors wait for the eu to resolve a gridlock for banning russian oil. the crux of the matter is if hungary is on side. we will discuss the latest on that, next. this is bloomberg. ♪ and it's easier than ever to■ get your projects done right. inside, outside, big or small, angi helps you find the right so for whatever you need done. with angi, you can connect with and see ratings and reviews. just search or scroll to see upf on hundreds of projects.

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francine: this is bloomberg.com ," -- this is "bloomberg markets ," and following the shooting at a texas elementary school larry summers address to the need for change around gun laws, david westin on wall street week. >> horror, rage, frustration, we can do better, we can do better.

we need to think through what the right solution is. some limits on access to guns that don't threaten any real second amendment right. some red flag set of procedures that catch signs of trouble in people and take actions. we just can't accept this as the regular order of business in america. and david i think it reflects something broader. a new kind of callousness in our country. we are probably only in the fifth inning with respect to covid. there are going to be hundreds of people dying each day as far as the eye can see and we are not as a country making the

investments, whether it is vaccines that you can take through your nose, whether it is new therapeutics or a war on long covid and clinical trials, that we need to. we have let the covid controversy become a green eye shade thing about paid for's and a culture thing about masks when they are the highest return investments available in our society for here and for leadership around the world. we just can't seem to get there. i just don't understand why we can't all come together on the proposition that innocent americans shouldn't be dying and it is the first obligation of government in the name of security to prevent that from happening. francine: that was larry summers speaking to david westin on wall street week.

an eu leader summit today to discuss sanctions after the block failed to root -- reach a compromise yesterday around hungarian resistance. let's get more with our -- where are we on the eu leader summit if they cannot break on sides to make sure that the oil embargo goes through, do they go at it a lot? >> it has been a month since ursula von der leyen said that we had -- we would have a sixpack of this but even ambassadors have had compromises on the table saying you don't look act of the end of something that is so watered down effect in any sort of. of time, so ambassadors are

meeting again today, as you say, the meeting is this evening and the question is will the hungarian leader remained dug in for will he come with even more demands and is there a point where the rest of the eu says that there must be a way to do this ourselves, but that's not the way that the eu's -- eu functions, everything needs to be consensus, so it would be a really big step for brussels to say right, we can't get it done with hungary so we will do it somehow anyway without hungary. francine: why is hungry refusing to back this compromise? >> that's the question because what was on the table was quite good for hungary in terms of life without russian oil and many concessions. but the hungarian leader is

someone who likes to seize the moment and he has gotten the rest of the eu where he needs them and he can ask for anything if he wants to, really, and he seems to be choosing to do so so the question really is how much of this is about the hungarian economy and the states having access to russian oil and the impact on the hungarian economy and how much of it is the hungarian leader trying to make a point about what can get. francine: we heard from denmark, saying they can be the next to be cut off from russian gas because they are refusing to cave in on paying rubles. what are you expecting from that? >> that's the real question, right now perhaps it's easiest for vladimir putin just to sit back and let europe argue amongst itself, giving him more time on the ground in ukraine to the east of the country. building barriers around his

economy with sanctions as a whole. how much do you need to poke the bear by cutting off gas to europe? he may do it with the smaller economies just to show that he can. anyway it makes the point that he still has that leverage and it would be quite a thing to do it again, so perhaps he may make a ointment denmark, but either way he will be sitting back to let europe do his work for him at this point. francine: we know the ukrainian president went to the front line this weekend in kharkiv, his first trip away from kyiv. >> we are really seeing signs of intensification in the east of the country as russian forces now command about 95% of that area to the east towards some key cities, with one of them remaining in ukraine and russia has had a lot of difficulties so

far crossing rivers in ukraine. that said, as time goes on and this settles into a much more traditional kind of war, they are much better at fighting and can they just choose the territories? the u.k. prime minister sent to us last week in an interview that they are entrenched. does it force the hand of the ukrainian president at some point having to negotiate with the russian president about territory, something he says he will never do, but at some point will the reality of that simply change and will he have to agree to give territory to russia? francine: the million dollar question, of course. nothing that we are talking about is apart from this. now a look at some of the biggest business stories in the news right now, here is alice atkins with the bloomberg is this flash. hello, alice. alice: bitcoin, for a third day

breaking about $30,000. bitcoin has struggled in recent months as the federal reserve and central-bank pivoted towards rate hikes. norwegian air agree in principle to purchase 50 boeing 767 max jets. the airline will take delivery of the planes between 2025 and 2028. they have focused on rebuilding their operations as a regional carrier, turning away from discount long-haul flights. companies in the u.s. reporting the rushing to cash in on numeral -- new rules around methane emissions where they are wired to reduce methane leaks. according to "the wall street journal," it could boost the bottom line for companies who need to be in compliance. that is your bloomberg business flash, francine. francine: alice, thank you very

much. stocks advancing -- ♪

francine: well, this is "bloomberg markets," i'm francine lacqua and this is what the numbers are doing, gaining

momentum on the news in china, but also on wall street having its best week since november of 2020 with area bonds tumbling after inflation prices were on the upside and european stocks holding onto gains with the ftse flat. things are a touch lower than bitcoin with 30,600 64. european leaders are gathering for the first day of a summit in brussels and over the weekend eu nations are still to agree on a deal over the moscow invasion of ukraine but talks will continue during the week. let's get more now with our european correspondent joining us from brussels. good morning six sanctions packages remaining stalled, where's the hold up? maria: francine, it has been for weeks now since ursula von der leyen and announced to the full ban on oil and in reality we see unity is beginning to show >>.

they tried to downplay all of this saying that the issues are technical, not political, but the reality is that neither seem to be working. looking at the major holdout it is still hungary and victor or bond, who says that he doesn't want to talk about it today over dinner with the rest of european leaders because it won't get to a solution and only highlight decisions. looking at the actual details, hungarians you remember were offered more time to move away from russian oil and were provided an exemption from pipeline oil transported from russia into hungary, but they are now pushing for more concessions that presumably look at more money but also even an exemption on seaborne transportation of oil and if anything this would be an embargo in name but not real terms, highlighting francine the tensions we have seen among the eu 27 and the way they have viewed the conflict in ukraine and how best to finish it. francine: it seems the

commonality and resolve that we had is no longer there. any hopes for a breakthrough today? 5 i'm being -- maria: i'm being told there was not a major shift from either side, that they are hoping to get a deal and we have heard this for weeks but the best hope for many at this stage is that european leaders meeting and if hours time, and we are about to hear from the german chancellor in about 45 minutes they will be fusing political momentum into this to provide assurance for hungry but the question is at what costs and briefly, will we be getting a watered-down version of a watered-down plan? the damage done to european institutions could really take a hit. francine: thank you, maria. following that action from brussels, then we will see the leaders arrive, looking for any

breakthroughs for a push through. turning to the economic impact on all of this, we have the founder of [indiscernible] economics. what can the eu do to try to get hungary on board so that the package in terms of the oil embargo is united? >> hi, good afternoon, francine. prime minister or bond is a pregnant pits. sooner or later he will agree. it's not just the embargo, but the total envelope in terms of topped up money for power in the recovery fund. as you know, prices have been going up everywhere in terms of cpi and production costs and i wouldn't be surprised if the prime minister is looking for greater reassurances going forward. to be honest, i'm not sure that this week is the week, it might

take another month but i am confident in saying the prime minister will eventually back the eu deal, but it may take just a few more weeks. francine: a few more weeks is a long time but in the meanwhile i guess it is good for vladimir putin grappling to -- grappling with a resolve to punish russia. will the other members go at it alone by freezing out hungary? >> well, i mean, two weeks to three weeks is a long time for markets but not a long time for the economy. consider the scale of the challenges we are facing here in terms of energy transition and the effective implementation of all of this transition. i wouldn't say that two weeks, three weeks, even more than a month is too much of a price to pay to have the plan properly implemented. i don't think the eu will break

away. i think that if hungary is still blocking the other member states, they will wait. at the end of the day it's true that they are putting up a bigger fight than others, but all the member states are facing exactly the same challenges to some extent. i don't, i don't think it is too much of a price to pay for a good deal. francine: talk to me a little bit about what economic growth in europe looks like right now. no headwind from the fed but we have the war in ukraine. >> this morning we had a mayday from the european commission business consumers and i had to say there was some good news in there. there was slightly less price usher coming from businesses then what we are seeing so far and it may be that april was a peak month in terms of pricing intention.

so consumers also feeling i would dare say relax, but not worsening anymore after many months of steady worsening. activity in the industrial sector is but generally holding up. construction services, doing well. services in general still doing well even though there was some easing. the economy is still strong. there is a mild deceleration taking place. the recession risk is there and it is largely coming from external conditions but primarily for europe it is coming from the very real risk that energy will be not coming at some point. that there will be a shortage of supply this year. that could tip european growth into recession later in the year. generally urgency in dealing

with russia. the economy does feel that there is fiscal stimulus being gradually unwound and there will be more still. more importantly i would say -- yes? francine: finish your thought and then i was going to ask about inflation. >> lending, lending activity is the other, the final piece of the ingredient. lending growth especially for households is still coming to reflect as accelerated. that is what is really helping with the inflation. francine: you are expecting inflation to take hold secondarily and you think the market is mispricing this? there is a belief in certain parts of the ecb that this is pent-up demand for pandemic. can you lay it out methodically how you are expecting inflation in the eurozone to proceed in the next couple of quarters? >> we have seen animal -- and

enormous costs push forcing all sectors to increase pricing intentions. and now pricing intentions are no longer rising but they are very high. you have to expect for the next three quarters, as soon as demand allows, it will be passed on through costs. now the other element that you had was food inflation, which as you know is also worsening generally and is also linked to weather conditions. i think you will see food inflation accelerating in the eurozone more going forward as well. and then we have wages. which, you know, in, so this is the final part of the second round linked to the shock that will come through, as well as housing, which in european inflation is not directly measured but clearly is coming

through because we see it in pricing. so, i think that it is a lock if we see the peak on inflation on the euro zone in the near term with inflation still accelerating and it is very, very sticky. francine: talk to me about that, the most interesting in terms of monetary policy readjustment. >> absolutely. we know interest rates are rising pretty soon. whether it is july or september, we will need to see. the interest rate has been communicated well but to me it is the quantity of money that will make it different for european growth. as they said, right now consumers are feeling more relaxed because they are borrowing more on their credit card. this is what history tells you should happen and it is unfolding now. for me it is that evolution of

the next few years that makes the difference and is a necessary ingredient. for me it is find that these options will become more expensive but in 2000 203i think it is absolutely necessary that the ecb will hold more of these options because what you want is to make sure that lending activity for households remains brisk. it doesn't have to be out of control. but the last thing you want is to create a credit crunch, essentially. moving against russia, that is exactly it. francine: good point. thank you very much. keeping you up to date with news from around the world, here's alice atkins. alice: in ukraine, volodymyr zelenskyy has visited the kharkiv region in a show of public support. his first known trip there since

before the russian invasion, handing out metals to soldiers and briefed on the military situation. the british government has been warned that 6 million households could face power cuts this winter with a worst-case scenario from officials saying there could be widespread gap shortages if russia further cuts supplies leading to electricity rationing at the start of next year. on capitol hill lawmakers are setting a tight timetable to negotiate new gun laws with democrats saying they would accept limited progress in exchange for action that would reduce gun violence in the nation with republicans indicating interest in gun-control legislation following the elementary school massacre in texas. in australia the new prime minister's labour party has reportedly one a majority in parliament -- wona a majority in parliament and he plans to push through bills blanking from -- ranging from climate change to

anticorruption measures. global news -- global news 24 hours a day on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm alice atkins, this is bloomberg. francine? francine: looking at currency, bitcoin, we put in the currency swing but there are a lot of questions as to whether it has stored value or if it hedges against inflation, with u.s. futures also advancing. wall street having its best week since november of 2020. looking at the currencies, dollars slipping for a third day with havens definitely losing in this kind of market. a reminder that cash treasuries are not trading because of the u.s. memorial day holiday. looking at the yen, 127.38, with euro sterling at 85.15. now the other thing we need to

watch out for of course is any currency linked to oil, oil climbing in response to the easing chinese lockdowns. china reports its fewest new covid cases in 14 months and looking to boost a faltering economy but they could also have fresh inflation. we will discuss that, next. this is bloomberg. ♪

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francine: this is "bloomberg markets," bitcoin showing signs of life as far as cryptocurrency climbing for a third day. scott minerd sat down last week with tom in davos to discuss the state of crypto markets. >> i was an early believer in

crypto. i remember looking into it going when it was at hundred dollars. they did a presentation at the nantucket project on crypto, you know, how to deal with it, how to invest with it. i really thought that, you know, this is a viable investment vehicle. but one of my big concerns is that no one has cracked a paradigm of crypto. and when i say cracked the paradigm, it is used as a currency, right? as you know, the definition of currency is medium of exchange, store of value. >> not the last 90 days. >> not at all. we have learned that none of this stuff, everything is suspect. >> you are a really, really bright guy. i want you to explain the divide at the bank of international settlements with the high ground there on that study of bitcoin and of the entire scarcity, the

derived scarcity of it, with the community of bitcoin that just seems miles apart and they world read alan. >> look, because bitcoin and any cryptocurrency at this point has not really established itself as a credible institutional investment, right, it's, it's really become the market is a bunch of yahoos, backwaters. i know i will already be plastered on twitter right now for what i just said. >> i was going to say. >> lisa's cell phone just melted down. [laughter] >> consider that we have 19,000 digital currencies, crypto's, whatever we want to call them, most of them are junk. they don't make any sense whatsoever. we had bitcoin, we bought it around 20,000, we sold around 40,000 and i really thought we

were going to correct after we got to 60 that we would correct to 30, that we got there, but then i began to look at it and say why are we stopping here? my latest work, which is entirely technical, because there is nothing else to look out here, we're probably going to hit $8,000 until we are totally flush. if i were holding, i would be short. francine: that was scott minerd. what was that number, 8000? yes, bitcoin may have fallen but stocks are gaining with china easing and wall street having its best week since november of 2020. joining us now is mark. first of all, congratulations to your team and the always great logged even when there isn't much going on in the markets and there are things that we can look at with more time on our hands. bitcoin is holding up 30,000.

it does seem to have found -- mark: it does seem to have found some temporary support thanks to what we have seen generally but i think that ultimately it is one of the best the stock market on drugs. it's higher to react first. i normally can't do this for valuation but it will be preceded by bitcoin crypto cracking first. francine: you kind of wonder though, 8000, hold onto your seats, the ultimate believer in what happens next. >> i think that the psychology around it might get a bit mocon and i read -- worry that too many people have been burned with a flood of people not wanting to rush back in. people over the last year have had these egg names where they are so -- deciding to get in but they say they don't understand it. francine: the bear market

bounce, is that just growth slipping? mark: people are focusing on the large draw in for non-recessionary times with an incredible rally that came before. this is not a stock market close to pricing in recession. francine: how much does it have to correct with a possible recession in the u.s.? mark: what that could mean for earnings is you could have another 20% down again from here , with an overall drawdown at the exact level playing for time but the numbers aren't crazy. francine: we had a great live survey on china, i was telling my pursuit -- producer, you had better ask the china question, people are quite bullish on china longer term. >> so much negativity where they have to buy, underweight, overexposed, they are still worried about the covid

situation and the stagflation around the world and generally saying that they are underexposed and causing an increase in exposure. they think that the negativity is priced and the next catalyst could be positive rather than negative but it's hard to tell. francine: so many concerns in other asset classes, what about where to find deals? mark: there are loads of opportunities. i do remain quite negative on u.s. assets, but the rest of the world has quite discounted it and at the end a lot of it is very good to latin america performing well. i think that if we get a sign of optimism on russia or ukraine, it's quite discounted and even in asia there are some good stories as well with a lot of it tailored to the china narrative.

assets around china being so discounted i don't know when the upside will come, but there isn't much downside and it's much better value to look for that next. francine: mark, thank you. alice? alice: bloomberg has learned that brookfield asset management has agreed to sell one of the largest student housing businesses in the u.k. to dic gray star. the price, roughly 4.2 billion dollars with student housing continuing to be the most popular among investors in the u.k.. the number of students vastly outnumbering the rooms available with some signs that things are cooling off according to price zoo clerk with one and 20 properties listed in their online real estate portal seeing price reduction compared with ones in 2022 in the previous 28 days and the average costs of a

home hitting a record 316,000 pounds last month. that is your bloomberg business flash, francine. francine: thank you, alice. with china easing restrictions, could they drive global outbreaks higher? we look at the dollar, we look at emerging markets, and we look at fair market bounce questions with the growth slipping and what price is in on that bear market bounce and earnings hedging with growth slowing. the other story we have been talking about is china, which may counterbalance that pessimism around renewed a policy resolve and inflation risks being very much alive underpinning those price gains this week and the other thing we need to watch out for, yields rising emphatically across the board following inflation out of spain and germany. this is bloomberg.

francine: good afternoon, welcome to "bloomberg markets," everyone. today's top stories, under control, the fewest covid cases since march in china, relaxing measures. markets risk on with european stocks climbing after wall street posting its best week since november of 2020 with cash markets in the u.s. closed with new energy sanctions against russia and the new leaders summit kicks off today. first let's check in on the markets, u.s. closed for memorial day but looking at european stocks they are holding on to gains, coming back to china easing some of the virus curbs with wall street having its best week since november of

2020 and euro area bonds, probably the nicest and most interesting part of the market today is the tumbling after the inflation prices on the upside and a couple of the other things to watch out or is inflation crossing the terminal. pretty much in line with expectations, in touch higher for the month of may with the inflation rate rising to 8.7%. this is a similar pattern to what we have seen in france, spain, and other parts of europe , ecb saying they will have to adjust with belief from the governing council that a lot of that inflation was ordered by airlines in pent-up demand of the pandemic with every print that comes it seems to be more entrenched and more difficult to get through. the dollar, slipping for a third day, it's a haven, but a haven that is losing the appeal. looking at what else is ahead this week, eu leaders kicking off a two day meeting in

brussels with war and the ukraine at the top of the agenda. tuesday, we get the latest read on u.s. consumer confidence and then there is the virtual opec meeting on thursday with the big one, u.s. jobs on friday. for more on that we have the chief investment officer at sachsen bank. higher-than-expected with similar countries in europe dealing with inflationary pressure, what can the ecb do? >> only what they have already transmitted they would do. moving support up, than they are moving and indicating that they will move in total 100 basis points over the course of the year starting in june of 25 with 25 basis points. as most central banks in the world they are so behind the curve it's not even fun to talk about. francine: what does that mean overall for asset classes in

europe and then i wanted to talk about the u.s. with moving parts and dislocation there. >> for the asset classes means we have to go into a new paradigm with high inflation and , in my opinion, relatively normal growth. when we get to the entry point where people start to realize that inflation in 2023 is not coming down, but in the case of the year will probably be 400 basis points, then we need to adjust the complexity that kicks in. i think that for the market right now, may and june is sort of the positive months for the base effect, but as we look into this year, freight rates are through the roof already in terms of the window, energy prices are through the roof and spot markets on energy are moving higher. none of the components that took inflation to the level we are at today, which is coming down except for a little bit of

slowdown in consumer demand but that isn't enough to mitigate demand with strong private sectors. francine: are you telling me that the buoyancy in the market could be short if there is a bounce back for any of those prices with traders once again fearing inflation in their eyes? i think the -- >> i think the market got overinflated over the hawkish 75 points that were killed by powell. the others on friday said that they had to trade into september with a rate hike all the way down to 25 and now they are back at 37.5 and as we come closer to september we will be trading at 50 again based on what we just talked about in the market is just trying to find an inflection point for the nonmarket with people coming up with all of these counter

stories, the market having never been up. but francine, look at the chart, it's always been going up. it's not like it is brain surgery, those kinds of things, but the market did become oversold where we were at a point early last week with soros that we were probably 101% negative next week in the commonwealth. francine: i hadn't been expecting it to be so buzzing. talk about the pain threshold in certain parts of the markets with want to take of tightening from the fed. are these the prices or the should they be ignored? >> one group saying that the quantitative tightening is preannounced and as such shouldn't be a big deal, but i think that the timing of the fed in particular, the excess deposits that we have, the reverse repo size considers this

central and we talked about this last time as well. i'm a simple man. look at the major four central banks in the world. pboc, ecb, the fed is tight, adding tighter, pboc with very little room, baggage on full action mode. liquidity is coming down. one thing, if i may add that i find interesting, the essig -- up-and-coming s&p unlike the other central banks meeting once a quarter, now talking about tightening policy despite the fact that there inflation risk only runs at two point 7%. if you have one of the most hawkish central banks in the world in terms of mandates and currency policies, that comes on top of a week where we see bank of canada doing 50. yes, it's definitely going to negatively hurt sentiment, but i

don't think you need to be overall aggressively negative on the markets. you just need to respect the fact that income comes from commodities, logistics, and other things. francine: i love that the crux of that, if you believe that, you will believe anything. where do you see the breakdown going? >> i think it's going to steepen , ultimately, in the short term, with an eu wide story and a number of the investors i've talked to are trying to reprice the fact that a company like italy -- country like italy isn't on its own anymore as we activate a fiscal union right now that is taking shape through the military spending that we see and the mandate given to the eu commission. i think that the german bund needs to be priced higher relative to the peripheral european enterprise.

i say a continued steep rise in the german interest rate. making it a more equal playing field where europe is moving towards this fiscal union, whether we want it or not politically. francine: thank you as always for that insight. mohamed el-erian saying that the fed faces a decision between two policy mistakes as they try to take inflation. he spoke with tom and lisa on fed policy, china, and the risk of global recession. >> what happens in china affects global aggregate demand and supply. we forget that china is a major consumer of products also made elsewhere. we saw what the retail numbers look like. they were pretty horrible. we were also reminded how important china still is in the

supply chain. i look at this carefully. lisa, the concern that we have, and i know that you are very attuned to this, three major areas of the global economy are slowing at the same time and there is no compensating locomotive anywhere in the global economy right now, so we have to be careful that we don't get this tale feeding process, which is important because the marketplace has embraced the possibility of a pause in september. be careful, the only reason the fed would pause is because demand has come down really fast and that will be good. >> what is the feasible set right now for the american central bank? >> i think at best it is what we called a softish landing and the ish is really importing -- important. the time has passed for a soft landing. we could have done it but that

would imply the fed having moved nine months ago. it should have and didn't. instead of tightening towards a growing dynamic economy, it is tightening into a slowing economy and it is very difficult to get a soft landing, so the best you can hope for is a softish landing and the possibility of that happening is not as high as i would like it to be. there are two policy mistakes, hit the brakes too hard to risk recession or tap the brakes in a stop go pattern. and risk having inflation well into 2023. francine: tom called me and said that softish is the three-level, so mohamed el-erian is there with queens college. keeping you up to date with news from around the world, here is alice atkins with the first word.

alice: the stalemate over a russian oil embargo has still not been broken. hungry refusing to back sanctions despite proposals. eu sanctions requiring the backing of all member states and russia planning a bond payment mechanism to sidestep sanctions and potential default, allowing for investors to open accounts in russian banks in rubles and hard currency with the russian finance minister telling the newspaper that unlike the previous payment system, investors would be able to access funds without restrictions. a wreckage of the plane in the himalayas discovered, bodies of the 17 of the people on board recovered. they lost contact with the airport control tower sunday after a 20 minute flight. joe biden has placed flowers outside of a texas elementary school where a gunman killed and teens to two teachers, meeting

and private with survivors and grieving parents. people in the crowd shouted do something to the president, who responded that we will. global news 24 hours a day on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm alice atkins, this is bloomberg. francine? francine: we were expecting 8% for the may reading of german inflation, but coming in at 8.7% , seeing it on paper makes you sit up and listen. in the race between declining expectations, we have a great entry there on the blog where they argue that something has to give for fixed income traders speaking on economic hooks. however peak inflation numbers are not translating into the data. the case on rising oil costs is

mounting and economies dealing with a demand for oil against the backdrop where the strong dollar might start to dwindle and coming up we hear from larry summers on his thoughts on gun control and the tragedy in texas. that is coming up shortly. this is bloomberg. ♪

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francine: following last week's shooting at a texas elementary school, larry summers addressed the need for change around gun laws. he spoke to david westin on wall street week. >> horror. rage, frustration. we can do better.

we can do better. we need to think through what the right solution is. some limits on access to guns that don't really threaten secondment rights. signs of troubling people, taking actions, we just cannot accept this as the regular order of business in america. and i think, david, it reflects something broader. a kind of new callousness in our country. we are probably only in the fifth inning with respect to covid. there will be hundreds of people dying each day as far as the eye can see and we are not as a

country making the investments, whether it is vaccines that you can take through your nose, whether it is new therapeutics or a war on long covid and clinical trials, that we need to. we have let the covid controversy become a green eyes shade thing about pay for and a culture thing about masks when they are the highest return investments available in our society for here and for leadership around the world and we just can't seem to get there. i just don't understand why we can't all come together on the proposition that innocent americans shouldn't be dying and it is the first obligation of the government in the name of security to prevent that from happening. francine: that was larry summers speaking to david westin on wall

street week. eu ambassadors are meeting again today to discuss a revised package of russian sanctions after they failed to reach a compromise yesterday in the face of hungarian resistance. john, what exactly is holding up the deal? >> we are less than two hours away from the start of the summit and we heard that the aim is to reach political agreement on the packages of sanctions, with provisions for banning russian oil. but the problem is the exemption. agreement is a hazy phrase and it seems to me that means technical work with several days or weeks of work to put the finishing touches towards what the deal could look like. francine: what i don't understand, and it is probably the million dollar west and, these reassurances going to hungry for the oil embargo, are

their chances for breakthrough? what does hungary want at this point? >> it's all very much of the air and we have been for weeks waiting for this. the package was suggested for weeks ago and we seem to be moving towards a ban on russian oil with an exemption for pipeline oil for hungry and possibly some other countries because they are landlocked, but there are all sorts of technical issues, tensions between the countries in which we saw the ambassadors meeting that is likely to be reflected today when leaders sit at the table. francine: i know it's behind closed doors, difficult to see that body language, but is there this idea of something happening sooner than three weeks? you are an expert, how do you see it evolving? >> [laughter] i think even the experts are

bewildered. the officials are telling us that there has been progress and they are trying to address the concerns of various countries, but as soon as you give an exemption to one country, a typical mechanism here is other countries asking for exemptions, looking at level playing fields and solidarity. how they managed to square the circle isn't certain yet that there does seem to be progress towards, as a phrase it, political agreement. francine: if the eu actually goes at it without hungry, is this a turning point for eu relations? >> that would be a turning point but for sanctions you need unanimity and and hungry they have had fueled calls from several countries that the growing support for the idea of getting rid of the clause in terms of foreign policy would include sanctions, but we don't

have a majority for that, yet, it's a complex system that could involve treaty change and there is patience around seeing the whole of the eu basically stuck for four weeks on what should be a very strong package. francine: yeah, you just wonder what vladimir putin is making of all of this. division is of course what he wants in the eu. now a look at some of the biggest business stories in the news right now, here is alice atkins. alice: in the u.s., gasoline prices rising to another record just before summer vacation driving season is about to begin with the average price at 4.6 two dollars per gallon and the american automobile association saying that about 52% higher than a year ago with bit when finally showing signs of life, the largest cryptocurrency climbing for a third day, breaking about $30,000,

struggling in recent months as the federal reserve and other central banks pivoted towards rate hiking cycles with norwegian air agreeing in principle to purchase 350 -- three boeing 757 max jets. the airline will take delivery between 2025 in 2028 and they are dedicated to rebuilding their operations as a regional area, turning away from long-haul flights as they emerge from insolvency. francine? francine: a check on the markets. the story here is one of inflation. we know it needs to be normalized if you look at inflation numbers and fresh records, the timing is on the ecb with european stocks holding onto gains and the ftse changed. but if you think about it, german inflation hit another all-time high, really adding urgency to the european central bank crisis on stimulus after

these numbers topped economist estimates and i know it's driven by soaring energy and food costs but the data released today shows that consumer prices in germany are 8.7% higher, dodging in your tracks, you wonder how much more the ecb has to be. the report of course comes days before officials were set to announce the conclusion of this large-scale review over what they can and cannot do. looking at gold, i know it's controversial, looking at gold in bitcoin, where is that value? where is a haven right now? certainly not in yen or in the swiss franc. coming up, china, headed for a recession despite efforts to boost the economy? we will discuss that coming up next. this is bloomberg. ♪

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francine: this is bloomberg markets. i have francine lacqua in london. very little volume compared to

previous days because it is memorial day in the u.s.. the million-dollar question is the inflation report. we had some punchy inflation figures from germany. german inflation hitting a fresh record. this is piling on pressure to the ecb and piling on pressure to exit from this crisis after numbers from spain also topped economist estimates. if you look at the stoxx 600, getting .4%. bitcoin, is it range bound? this week's survey focused on the chinese economy and here's what a few investors are anticipating for the countries covid zero policy and its impact on markets. >> i like china. >> many people calling it on investable but there is a wide -- >> we have turned the corner in terms of policy action.

>> there is also the possibility they reopen and they stimulate the economy. >> you will see economic activity resume more quickly. >> one of the attractive long-term growth drivers are still stacked. we will be cautious and prudent but are optimistic about china. >> we are expected to increase our exposure in china. >> a deepening of our relationship into china. francine: joining us is the fred -- the head of macro research -- the issue a lot of market participants have with china is they want more exposure but they do not have to deal with that. >> there is a policy shift going on in terms of the politics and in terms of the actual economic policy. the politics is probably more important for anyone hoping to

get a bit bullish on china at this stage because they are trying to walk back from the common prosperity themes which have been so damaging to the notion of investing in china. that is the positive at the moment. where it can be a lot more circumspect is the macro economic policy and the efficacy of the policy. they are doing their best to try to turn this thing around. the policy put in china is weaker than it has been historically. francine: what does that mean for renminbi and if you're speaking to the market participant what is the right way to get in and in what timeline? freya: in terms of the big picture for the renminbi we have started a long-term depreciation , which judging by the japanese president correlates with the peak in private debt to gdp.

prior to that peak the liquidity in the economy has been created as a result of demand for credit and has a natural home within the domestic economy and does not have such propensity to go abroad. once you are on the others of that peak, money is being created as a result of the authorities pushing liquidity out there rather than a counterpart to demand and demand for credit in the economy. therefore that money tends to go abroad, that is what happens in china in 2015 when money starts to flow abroad before you get the turnaround in nominal gdp growth which tends to lag three quarters. at the moment we have not even had the pick up in liquidity growth because the authorities of only just started easing. we do get a big infrastructure spend coming through. the problem is it is not created liquidity, is not creating

growth because a lot of the funds are getting diverted to omicron and preventing the spread of omicron. there is an overinvestment, legacy of overinvestment. stimulus is undermined. francine: i guess it will test their resolve, how much more creative could they be to make sure liquidity is there? i don't know if there is a percentage chance china goes into recession, i do not know if that is 20% or 30%. what does that mean for the rest of the world? freya: how much more creative can they get, they are already getting creative, so we are basing our forecast on an increase in liquidity growth but we think there will be a recession by chinese dander, which we judge as growth in reality below 4%. our forecast is for 3.3%. the risks are to the downside when we look at the high-frequency data,

high-frequency labor market, they speak to a more serious contraction then we have penciled in so far in q2 and the continuing zero covid policy for the rest of the year means our forecast for the year is at the bottom of consensus, anyway. for the rest of the world it is renminbi and deflation which runs in the same channel as our theory there will be transitory deflation into the rest of the world. francine: talk to me a little bit about, i love your notes, they are short and to the point. watch u.s. credit like a hawk and commodities like a dove. you worry about where commodities go? freya: we have to worry on both sides. the old adage that the best cure for high commodity prices is

high commodity prices, and we have the leading indicators of demand within china and just looking at change in treasury yields as a leading indicator, the rapidity of the change tends to be a leading indicator as well. that all points to demand-side weakness for commodities. i am constantly reminded by my colleagues on the geopolitical side, we cannot discount the supply threats coming through in the sanction response to the russian aggression as well. there is going to be volatility from the supply side. our base case forecast is for deflation in terms of the commodity prices themselves but also consumer durable prices where we lost two decades worth of the benefits of productivity growth in china in the economy and we have lost that price and terms of low level of prices over the course of the pandemic.

francine: what does that mean for earnings? freya: earnings are what we need to focus on. we come down in terms of valuations and some people think we are of a more comfortable position, but almost the decline in p necessitates a decline in the e further along when you look at the second route impacts on the real economy and therefore the p has to go down and you get a negative spiral until valuations recalibrate. you get two or three different perspectives, the rising yields which damages the real economy directly, you get the end of the covid cycle, which is the ripple effects, that comes up directly into the labor market. high-frequency data we are seeing suggesting labor demand is coming off sharply depending

on which set of high-frequency data you are looking at. and then the second round effect of all of those things through the equity market added to which you have the deflationary forces from eurasia. we do start to turn towards a period in which deflation and growth concerns are dominating, given that should help out bonds subject to the geopolitical risk , but given the main thread for the equity market now is the fed has to continue to get more and more hawkish. the deflationary portion should help out in the short-term but keeping our eye on the longer term gains where equity yields are rising therefore valuations are in this multistage period of downward reversion. we are only in the first stage of that. maybe you get the bear market rally but the bigger picture is

valuations are in a long-term reevaluation. francine: thank you so much. freya beamish, great insights. cryptocurrency breaking above $30,000. scott minerd sat down last week in davos to discuss the crypto market. scott: i was an early believer in crypto. i remember looking into big floyd when it was $100. i did a presentation at the nantucket project on crib though, how to deal with it, how to invest in it. i thought this is a viable investment vehicle. one of my big concerns is no one has cracked the paradigm in crypto, when i say cracked the paradigm, it is used as a currency. as you know the definition of a currency is it is a meaningful

exchange, store of value. tom: not the last 90 days. scott: not at all. everything is suspect. tom: i want you to explain the divide between the bank of international settlements who owns the high ground with ken rogoff at harvard on the study of bitcoin, and the entire to scarcity of it with the community of bitcoin that seems miles apart. scott: because bitcoin any cryptocurrency has not really established itself as a credible institutional investment, it has become the mark of a bunch of yahoos and backwaters. i know i will be plastered on twitter for what i just said.

lisa: good luck when you get back to your desk. tom: lisa cell phone just melted down. scott: when you consider we have 19,000 digital currencies, most of them are jump. they do not make any sense. lisa: you have any crypto investments? scott: we did. we had bitcoin. we bought it at 20,000 and sold at about 40,000. after we got to 60 i thought we would convert to 30,000 and we got there, then i said why are we stopping here? my latest work is entirely technical is we are probably going to hit $8,000 until we totally flush. lisa: you have no more holdings? scott: if i were, i would be short. francine: $8,000. that is pretty punchy. scott minerd with tom keene and

lisa abramowicz. there is alice actions with the first word. alice: in germany inflation has hit another all-time high that adds urgency to the exit from stimulus. inflation rose eight point -- 8% from a year ago inmate. in ukraine president zelenskyy has visited troops in the kharkiv region in a slow of confidence. it was his first trip outside the kyiv area since before russia's invasion. he handed out metals to soldiers and was briefed on the military situation. in australia the new prime ministers labour party has won a majority in parliament. according to abc the party has 76 of the 151 seats needed. albany is -- albanese plans to address issues like climate

change. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am alice atkins. this is bloomberg. francine: coming up, as china reports the fewest new covid cases in almost three months it looks to lift its faltering economy but also produce fresh inflation turmoil. will discuss chinese and world inflation, next. this is bloomberg. ♪

francine: this is "bloomberg markets." i am francine lacqua in london. volatility in the oil market continues. the saudi aramco chief executive set the market is running short on capacity. i spoke with him at the world economic forum. amin: we have seen a strong pickup in demand.

a lot were surprised to see that much demand pickup after covid as economy started to open. we are seeing in different countries, different demand patterns. receiving more pickup on transport fuels -- we are seeing more pickup on transport fuels. some areas where there are lockdowns there is still an effect on demand but the market in general is well supplied. francine: could you see a situation where there is so much demand there is not enough supply and the price of oil shoots up to $150? amin: i do not want to talk about prices, but today we do not have a lot of spare capacity. spare capacity is 2% or lower. in a market of 100 million barrels, that is very low spare

capacity. usually spare capacity gives comfort to the market that in case of any disruptions or interruptions, that spare capacity would kick in and would supply the market. right now it is going down and quickly. very soon you have a world where 100 million barrels or more with basically no spare capacity. that was the saudi -- francine: that was the saudi aramco chief executive m&s air. -- amin nasser. maria tadeo speaking in german. breaking news from the chancellor. the chancellor saying the eu sanctions are constructive.

great reporting from earlier today on the ground. everything revolves around hungary. seem to understand the eu is ready to go in terms of extra sanctions, but hungary has been trying to negotiate. they have had assurances the eu will support them economically. olaf scholz saying talks of the sanctions are constructive but no breakthrough yet. we will see today how the ambassadors get on. china easing virus curbs. wall street has its biggest week since november 2020. joining us is mark cudmore. you always energize our market chats. how much of the focuses on china and how much on german inflation? mark: loads on china. it is probably the biggest story because that will decide how bad the inflation problem gets. that is the stagflation decider.

because of the holiday inn u.s. we are getting very excited for the print. we are seeing the euro stronger. because the euro is stronger the dollar is weaker. francine: talk to me about the mliv survey. you speak to all of the people who read your blog and you asked what their exposure to china is. mark: we got 140 responses. 55 percent think they will increase their exposure to china in the next year, and despite that there is general negativity. do not expect covid posit -- covid policy to change. these are under owned assets. people do not have enough exposure to china because it has performed so poorly. ultimately people know i do not particularly like the story but i cannot afford to stay up forever. francine: i will front runner what you are focusing on next

week, which is qt, this is the one thing that can move markets. mark: i think it is the big story that is not fully priced and people are uncertain how long it can continue. the direct connections to markets this little bit complex and convoluted and people ate an opening to have conspiracy theories about what the impact is. overall in april we saw the fastest decline in balance sheets ever before the fed qt started. because the ecb and the doj and the bank of china, part of that is currency affect. we are single-mindedly focused on the fed. these other banks are seeing the balance sheets climb. if you like japan and you have loads of equity etf, you are seeing losses as well. francine: i asked you what is priced in. what is priced in the market in equities? mark: i think we are pricing in slower growth, but in u.s.

equities we are not pricing into be negative. we have priced out the euphoria and a bully in's. i do not think you have stocks that are still expensive but they are not cheap. they are overvalued to what i expect to be the economic outcome of the next year but they are no longer blaring? francine: are they priced to perfection? mark: i did not buy into the official market hypothesis. they'd overall u.s. stocks have more later this year. francine: what you think of crypto? mark: i think crypto is like tech stocks on drugs. i have no idea how any of the short-term trading of that -- i think ultimately crypto has more downside later this world -- later this year. francine: mark cudmore of bloomberg markets live. let me bring you up-to-date with the headlines from the german sampler -- from the german

chancellor olaf scholz. you know ambassadors will sit down at the table and try to negotiate a way forward in trying to put this oil embargo on russia. olaf scholz saying it sounds like we may find a sanction solution. he did not go into the details and say how the eu will get hungary on board. he says eu talks are constructive and it means he is optimistic. it could take three days, it could take three to four weeks. vladimir putin must be looking at this united eu and that could have an impact on his foreign policy strategy going forward. the other german news, inflation 8.7% from eight. plenty more on that for what that means for the bloomberg yield curve. more bloomberg markets is next. this is bloomberg. >> welcome back to another

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>> from the financial centers of the world, this is "bloomberg markets" with alix steel and guy johnson. guy: monday the 30th, this is bloomberg markets. 2:00 in london.

u.s. markets are closed for memorial day. light volume in europe. big stories dominating the agenda. pressure mounting on the ecb has inflation data out of's reign and germany jumped again. european bond yields spiking sharply. the eu struggling to find unity on how to halt the purchase of russian oil. we will be live in brussels for a two day summit. brent crude up $120 a barrel. china signaling covid lockdowns in beijing and shanghai will be gradually lifted. let's talk about the price action. this is the picture in europe. luxuries bouncing on the china story but we are seeing light volume. look at where we are with brent, $120 a barrel. that is a lot to do with china, little to do with the problems the eu is having with russian crude.

the german 10 year, we are up nearly 10 basis points. peripheral yields are up even more. the price is being suppressed. a huge print out of spain. 8.7 out of germany. that is the highest number since records began in the 1960's for this data serious. obviously germany has had higher inflation. the euro with the 1.07 handle. the dollar a little bit weaker. two big stories dominating the agenda. one is the inflation story out of europe. the other is china. the two are connected. let's start with the china element. china reporting the fewest cases of covid-19 in three months. we will see restrictions starting to be eased in shanghai and beijing as a result. taxis will be available again. the real question is is this a false dawn?

the zero covid policy continues? are we going to see numbers everywhere and china playing a game of whack a mole. sam fazeli joining us now. we are starting to see the numbers coming down in china. our they going to stay down? sam: we know that lockdowns, when they are done properly, stop people interacting, case counts go down. that is what is happening here and that is great to see because every time cases go down in china the world breeds society for leave. i cannot believe this to be sustained unless the country remains absolutely vigilant with local lockdowns, high levels of testing, and being very tough on people coming and going from outside the country because

there are lots of subvariants of omicron that will be wanting to shatter this piece. francine: hold that thought -- guy: hold that thought for a moment. ursula von der leyen is speaking in brussels, referencing that she thinks there is a very low expectation we will see some sort of resolution on the issue of how to walk away from russian crude over the next 48 hours. you see the ambassadors talking about this. i'm not sure we can listen in. i'm not sure what language she is speaking. >> the discussions are still ongoing. i have not too high expectations for the next 48 hours, but thereafter. my call is on the member states -- solidarity with ukraine and unity in the european union. guy: ursula von der leyen,

president of the european commission speaking as the leaders gather in brussels in the council building. we will go to that story in just a few minutes. maria tadeo will be joining us to update us on what is happening. let's get back to sam fazeli to give him more time talking about what is happening in china. sam, there is also this concern we are seeing new variants, more verlander versions of omicron. what indication do we have the disease is becoming more problematic for the chinese? sam: the data from south africa, portugal, and the u.s., which are basically looking at the subvariants in south africa, portugal -- it is pretty clear

when you get one of these viruses so quickly and so easily to take over from another one, that is to do with a higher transmission. i have to tell you, i have done a recent analysis of icu per case for portugal and the united states. i do not think the data has ever looked better. it is continuing to look at that perspective. francine: on that positive piece of news we will leave it. thank you very much, indeed. bloomberg sam fazeli. let's bring in a voice to analyze the implications for the markets as a result of what is happening in china. if china can ease up on its covid restrictions, if china can

start to become an engine of consumption again and and export engine again, what impact will that have on global markets? we have seen a huge focus on inflation, some of that is supply-side driven, some of that as a result of what is happening in china. >> last week markets wanted to see at the positive way. i.e. this is bringing demand back, this is bringing supply back, this is good for the economy. we will not go into an immediate or as much of a recession. what it also does is it further flares up the other headwind which is prices on energy. oil prices have gone up as a result and therefore it what is currently good for the global economy may not be so good for the valuation headwind from higher prices and therefore the inflation pressure that forced the central banks and. francine: what you do as an but -- guy: what you do as an

investor? lothar: tread carefully. at the moment we have gone to neutral. we are watching the situation longer before we decide if this will be another short blip, may be a short-term recession as we had in the previous 10 years leading up to the pandemic or whether this is something more serious because we are now missing one of the major tailwinds going forward, which is the federal central bank put always being behind the markets. francine: when you -- guy: when you talk about a recession, where are we talking about a recession? is this a global recession? a recession in europe or the united states? a recession out of china? lothar: that is the problem. is the whole world going to fall into a recession, probably not. we have not seen negative rate growth -- negative growth rates

around the world. it is u.s., europe, perhaps china. the jury is still out whether it will happen at all. guy: china reopening, is that a net positive for a net negative? on the positive side we see supply chain starting to ease and factories restarting, we see the chips starting to turn up or the component parts starting to turn up. on the negative side you have a higher energy story. on balance? lothar: it is good. on balance it is good. it is better for the global economy if china is there. we need -- they are big. we need them to be there. guy: the impact that is going to have -- as an investor how do you play that? you play that through reduced investment, or getting back in the chinese stocks, they have obviously cratered, is there any

sign those will bounce back? lothar: they are offering much better value than they did in the past. that is one of the options you have. going into the broader emerging markets is another one because of china is humming along than broad emerging markets may not be doing too badly. that is very much hinging on the dollar, where the dollar is heading. at the moment, that turned last week was a positive for the market we saw the dxy down from its highs and trading below. guy: we need to talk about the inflation side of the coin. the data in europe is looking quite grim. lothar mentel will be sticking with us. we go back to the inflation data. spain and germany both hot. let's keep you up-to-date with everything else you need to know. angel: and germany inflation has hit another all-time high.

that adds urgency to the european central banks access to pandemic their a stimulus. consumer prices rose .7% in may. -- rose 8.7% in may. european union nations have still not broken the stalemate over a russian oil embargo. so far hungry is refusing to back a compromise on sanctions despite proposals aimed at ensuring the country keeps receiving russian oil. eu sanctions require the backing of all member states. china and the u.s. are reportedly arranging a face-to-face meeting between their top defense officials. it will come at a time tensions are rising over taiwan. the meeting between lloyd austin and china could take place on the sidelines of a conference in singapore next month. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg.

guy: thank you very much. coming up, pressure on the ecb mounting as regional inflation data and germany and spain continue to run hot. lothar will be back to analyze the data. what does it mean for europe and where should we be going next? this is bloomberg. ♪

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guy: germany edits inflation number today is subject of much discussion. the headline number hitting an all-time high for the current data series, 8.7%. a harmonized 8.5% from spain. those will be the headlines.

this is adding extra urgency to the ecb's exit from crisis era stimulus. we have seen pressure mounting, we have seen cracks appearing. at the moment you have a -50 depot rate and you have an 8.7 headline number out of germany. that is hugely problematic. where will that leave the ecb at how much faster will the ecb have to go. bloomberg's lizzie burden joining us to give an assessment. philip lane was talking about being gradual. it strikes beat when you have a depot rate of -50, you are massively behind the curve. lizzie: this is beating expectations again driven by food and energy costs because of the war in ukraine. yet the german finance minister

saying fighting inflation is now germany's top priority. it comes on the heels of the spanish print also beating expectations and that is despite government help. the euro areas inflation surge is peaking. tomorrow we will get france and italy estimates. our economists expect another record for the euro area. it is not as fast of inflation as in the u.s. but we are getting there. guy: in terms of the counterpoint, what are we expecting? it looks like we have superhigh inflation but also a significant growth rest. how will the ecb balance those? it has a single mandate. it's mandate is inflation. it looks like the peak of inflation is further ahead. what will the ecb have to do?

lothar: exactly -- lizzy: exactly. it is the same stories for all of the central banks. we have 10 days until the next ecb meeting and it does look like liftoff is july. these figures will strengthen officials resolve and it will be the first hike in more than a decade. the question is whether they will hike and how much by. some policymakers have floated 50 basis points, following the footsteps of the fed. christine lagarde has not ruled that out. we will get a few more ecb speakers in the coming days before the blackout period starts on thursday. 25 basis points in july and september and december at the neutral rate being 1.5%. our economists say if you move any faster than that you will jeopardize financial stability. guy: can i get your take on a bank of america note that has

just been published with regards to the pound? pretty apocalyptic. this is the quote. "we sent something is changing in the u.k.. with the bank of england increasingly hard to decipher and less transparent, failure to acknowledge brexit had been a significant headwind to the supply side and a sense the boe is losing control over its mandate." we are focusing on annexes dental prices. we are not talking about an end of days, but we are concerned things will deteriorate. that is the line from bank of america on the bank of england. they are talking about the pound becoming a quasi-em currency. what you make of that? lothar: it -- lizzy: it is fair to say the bank of england has been reluctant to separate out the effects of brexit and covid on the u.k. economy, which is somewhat convenient for the government. in terms of the bank of england

being behind the curve on inflation, i've listened to numerous bank of england speakers defending the fact they did not know how unemployment would react after the end of the furlough steam last year. they were waiting for clear data. in economist agrees it is not strategic error, it is a tactical misstep. they could have hiked a little earlier but overall if they had hiked too aggressively they would've only risked a recession. on balance there may have been communication issues about the path for tightening, but the bank of england did not get it that wrong in most economists view. this is an outlandish one from the bank of america. guy: investors should "hedge for annexes dental sterling crisis -- hedge for an existential

sterling crisis." that is the line from bank of america and a fairly punchy one. bloomberg's lizzy burden. inflation sharply higher. bank of america warning the u.k. could face annexes dental sterling crisis. p there is a lot to discussl biraj borkhataria in europe. -- there's a lot to discuss in europe. lothar mentel is still with us. how much trouble is europe in? how far behind the curve is the ecb? lothar: they will have to fire a warning shot to the labor markets so that -- for the moment i think there quite a few dynamics at play which are a bit different with the u.k. and the u.s.. the labor market and europe is not quite as tight and at the moment we have to look at this inflation more as the cost of sanctions, the cost of

solidarity with the ukraine, that is what has driven prices so high. it is not the overheating of the economy, a huge demand. can you fight inflation by killing demand and causing recession? what the central banks are here for is to prevented becoming structural, not just pushing through but finding its way into the labor market. this is where it is a bit different and that is why i will expect less urgency from the ecb than what we have seen in at u.k. and the u.s.. guy: a lot of investors are looking at the u.k. as a safe haven. a lot of the factors is what has been going on with the pound. bank of america is saying investors should hedge for an existential currency crisis. how big do you think the risk is? lothar: i am not quite with bank of america. we need to recognize the u.k. stock market is not the u.k.

economy. it is commodity driven. i would not be going as gloomy as that and i am happy that the u.k. is actually one of the leading stockmarkets this year. that has helped our portfolios and the holdings we have. there are problems. our labor market tightness is homemade and the government needs to do something to bring more labor resource into the country, otherwise we have a problem. on the other hand the inflation problems from gas, we have much bigger terminals than we need, then the continent has. if we can bring in as much gas as we are at the moment -- that should carve out a separate market for the u.k. which may well break down the prices from what they expected to be at the moment for the autumn. guy: great to see you.

thank you very much. lothar mentel. still ahead, more on the markets. we will speak to the ceo at blank shine wealth management coming up a little bit later on in this hour. this is bloomberg. ♪ another crazy day? of course—you're a cio in 2022. but you're ready. because you've got the next generation in global secure networking from comcast business. with fully integrated security solutions all in one place. so you're covered.

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guy: let's keep you up-to-date with the news from around the world. here is the first word. angel: i'm for the bloomberg business flash. toyota it looks poised to repeat of the world's largest automaker for a third straight year. by the end of april the japanese company had outsold volkswagen by more than one million vehicles. chinese operations of been hamstrung by lockdown measures but toyota has better managed to limit the damage.

in the u.s. gasoline prices have risen to another record just as the summer vacation driving season is about to begin. the average price for a gallon of gas is dell $4.62 a gallon. the american automobile association says this is about 52% higher than a year ago. the russian aristotle has agreed in principle to buy 50 -- the airline will take delivery of the planes between 2025 and 2028. the airline has turned away from discount long-haul flights since emerging from solvency. that is your bloomberg business flash. guy: a quick market check to show you where the price action is. low-volume today. memorial day in the united states. european equities getting a live tire the news out of china we are going to be seeing the lockdowns in beijing and in shanghai lifted.

that will help the stock stories. brent is rising sharply and you have a massive lift in yields as we see inflation data surging in germany and in spain. eu leaders gathering in brussels. here with latest developments, and we are trying to figure out some sort of steam to cut off russian oil. we are working very hard towards that, we just heard from ursula von der leyen. maria tadeo joins us with the prime minister of estonia. over to you. maria: she is joining us from the red carpet at this meeting. prime minister, thank you for taking the time. i know it is a busy day. we just saw victor or bond walk to the carpet with a huge commotion and saying hungry is not to blame. it does seem there are big tensions out of the european union. how united is europe? >> we are trying to find a

solution. trying to negotiate to get everybody on board. it seems like we will not reach an agreement today. maybe there is a positive outcome. i know there's a lot of work going on. maria: the reality is it has been almost a month since the head of the commission announces the european union promised the mother ball sanctions. if you are russia and you look at the situations perhaps you saw weakness. is that a problem? p.m. kallas: russia does not believe in multilateralism. so far we have been very united which has been a huge exercise considering we had 27 different countries and 27 different internal politics going on. we are still trying to keep unity and sometimes it was clear

-- there were sanctions that only hurt russia. there were sanctions that also hurt european countries. therefore we have different sensitivities. maria: all of this has to do with the victory in ukraine. what does it mean in your eyes? what does it look like? p.m. kallas: it is to the ukrainians. when russia goes back to its borders and the war crimes are being punished, prosecuted internationally so that aggression does not pay off. that is a players sign and signal to everybody that we cannot work like this. we have a peace agreement and everybody stays where they are because there might still be atrocities for the people of

those territories and there will be a positive one year, or two years, and everything will continue on a much broader scale. maria: that carries a cost, and economic cost on europe, is it worth paying the price? are we talking about something that has a much bigger value than an economic distraction this year? p.m. kallas: it has economic costs when it is a long period. it also has a very high cost. what the previous mistakes have taught us, crimea, donbass, georgia, if we leave it like this the future costs will be higher. we have to stop here and be very firm. maria: when you look at the perspective of ukraine and russia it seems like this is an existential question for the two of them.

ukrainians are now pushing for membership in the european union. is that something you see to reassure them? p.m. kallas: it is a matter of discussion for the council meeting. i think they should get the candidates safety when they resume the criteria. during the reforms, the rule of law, anticorruption, all of these things that are important for the european union. it is also beneficial for ukraine to do those things so that everybody can be confident and on their way. maria: a final question. you have been outspoken from day one. this is aggression and russia cannot be appeased in history shows it cannot be appeased. back home there have been some domestic troubles. are you confident you still have a hold on your government, that you will continue to push this line that you've pushed from day one?

p.m. kallas: even before the war started. the politics is so one day you are in power and the next you are not, that is democracy. i cannot be sure of that. maria: we wish you the best of luck. thank you for joining us on bloomberg television today. that was the estonian prime minister in this european leader summit that is taking place, and a lot of this conversation completely eclipsed by this oil embargo, the lack of it, the positions taken by victor orban. guy: it is amazing to hear leader after leader say we will not get a deal. signs of unity beginning to show up on the european union, but how much further can the sanction process go if this is the case. thank you very much. maria will be joining us as we analyze what is happening in the leaders continued to arrive. let's pivot and talk about the

implications of all this for markets. let's think about the stories we have had through today. china, there would be some evidence will start to see easing of the lockdowns in shanghai and beijing. we just had a series of superhigh inflation print out of the euro zone impacted by china's lockdown and the energy crisis maria was just talking about there. how should we be thinking about investing outside the united states, or do you look at the united states and say here is an economy that continues to do well, why do i want to invest outside of those borders? robert schein joining us now. great to speak with you today and thank you for joining us. we just spent the last half-hour talking about what is happening in china and the difficulty in containing covid. we talked about europe and the issues with ukraine and the inflationary impact it is having. what impact is that having on your thought process. do you keep that money in the

united states were put to work elsewhere? robert: thank you for having us. is a pleasure to be with you today. for all of those memorial day in the u.s., we thank you for all of your service, for the friends and family, we appreciate that. as we allocate capital, it has been a challenging year. we have had some cash and put it to work. as we look at the global landscape, we have to consider everything you just discussed. the russia/ukraine, the geopolitical concerns, we also have high energy prices which are working into the balance sheets of corporate america and around the world. that and wage inflation is the challenge right now we are seeing when we are allocating capital and investing for our client. there is always the opportunity we are seeing. over the last seven weeks markets were selling off, and so there is seller exhaustion.

we gotta welcome a bid to the market this last week because we close the weekend. guy: you think yields have peaked in the united states? do you think inflation has to eat? it looks like in europe inflation peak is in front of us. and you think that is just a temporary respite when it comes to the equity market? do think there'll be a better entry point further down the road? robert: if you look at yields at the 320 levels, kind of the peak we have seen. it seems to be just that. it seems to be a good entry point for fixed income because fixed income has not been your friend this year. right now we believe it has been the 10 year story. we do believe we have seen 320 is the top end of the fixed

income range right now. there is opportunity in the fixed income markets because the 10 is telling the fed exactly where it needs to be. we all of the fed is behind the curve and we were seeing that play out. guy: what does that mean in terms of the way we are investing? we continue with the value? if yields have a way to go back up, that would seem logical. if they may have peaked, do i want to rotate back towards growth? robert: we do not believe the market bottom is in just yet. we are experiencing what you see is a bear market rally, so there is a potential that the lower lows will ultimately play out later in the summer and that being said we do believe from this point forward that the equity market will be hired by year end, so there is an opportunity to put capital to

work. we like energy sector and we know energy is still being embedded in terms of every corporate balance sheet, but at the same time it is an opportunity for clients if you want to be sector specific as an opportunity going forward. guy: how much hired you think equity markets could be into year end? robert: even a bear market rally we can see an easy 10% rally from here, but like i said before you have to be careful going anywhere from august to october. historically speaking we look at research that came across our desk. it shows that from january through september in a midterm election cycle that we are in, if you take out 2008, 1998 all the way through, you are seeing from january through october the market trades flat to down. then when you get closer to the

midterms come as we are in a midterm cycle right now, markets seem to continue to go higher from that point forward. what that tells us is it is all about certainty. markets do not like certainty. we are getting certainty from the fed. we are getting passed some of that information. the transitory conversations for what the fed will do and then we will get back to your end. markets like uncertainty. be cautious, wait for markets to provide opportunities, and i think between now and year end, we could see higher markets. guy: to come back to the question, we are trading at 4158, that is where we closed friday on the s&p. a decent bounce off the lows. are we going back up to the 40 800s? a much higher could this bounce take us?

robert: there is some resistance around the 4500 level. it is also technical driven. you have to be careful. as the markets grind higher and technical programs kick in we could see a quick selloff as soon as we get to some of these levels. guy: if inflation turns out to be stickier in the fed has to be more aggressive, you think the equity market can deliver that kind of sustained rally? robert: at the end of the day corporations and the c-suite executives will preserve the bottom line. ultimately what that means is we will see corporations going from a wage inflation embedded in the corporate balance sheets to laying off late cycle. there are signs of recessionary pressures. we do not believe there'll be

recession. that being said, the markets have not priced in any good news. as we get closer to year end we will see more good news play out. as corporations want to preserve the bottom line come the top line revenue is growing. we have seen all topline revenues growing. it is the bottom line everyone is concerned about. corporations could start laying off if the need to preserve the bottom line and that will preserve revenues going forward. guy: robert schein of blanke schein wealth management. coming up, european gas slips as investors wait for the eu to solve the gridlock over banning russian oil. we will discuss the latest next. this is bloomberg. ♪

guy: the dutch prime minister currently speaking to the dutch press at the council building in brussels. the live shot there. we are hoping he will take the question from our maria tadeo in just a moment. this as we ceu ambassadors struggling again to deliver on a revised package of russian sanctions. they have failed to reach a compromise. they did so yesterday in the face of hungarian resistance to an oil embargo. we do not know whether there will be progress made. it looks unlikely. we heard from ursula von der leyen indicating they will not see that happening over the next 48 hours. it looks like he might now be

taking a question in english from rio taddeo. let's see if we can listen in to what he is saying -- from maria tadeo. let's see if we can listen to what he is saying. nope. i was a bit optimistic. looks like he is still speaking in dutch. hopefully will get an update from him on what is happening. maria will be watching the situation very carefully. bringing in ross matheson, bloomberg's senior executive editor for government. the hungarians are saying it is not on us, everybody else is saying it is. we see no progress on the oil sanctions. when should we expect some? rosalind: we just had the hungarian prime minister coming into the meeting saying he sees

no compromise at the moment, but he has laid out two parameters, the key one seems to be he needs oil coming either way. he needs an exemption on the pipeline that runs through hungary, and at some reason russian oil stops flowing through that, he needs an exemption to allow him to get oil by see. maritime supply instead. there are clear steps that need to be addressed for him to get over the line. he is being very cautious about saying whether he believes they can get there. the question is whether eu leaders are willing to do that. at some point the concern is do you give away too much, and that makes it feel really not that sing of get at all in the end. guy: are we reaching the limits of what can be achieved when it comes to sanctions? have we reached the limits of common ground in europe?

rosalind: the big one would be gas. that is where you could see significant impact on the russian economy. if oil is this difficult to get done, think how long it could take to get gas. that could be an economic hit to big economies like germany. that will have some impact on the russian economy. other than that what we have seen since russia's invasion of ukraine is unprecedented sanctions put on from the u.s. and european nations in so on and the blizzard of stuff that is happening, including the payment system and everything like that and the russian economy seems to be showing some resilience to that affecting the war on the ground, not just the russian president. with all of these things so far, what is left that would cause some kind of change from the russian president? perhaps gas would be that. we are many weeks away from any kind of agreement on that front. guy: i am starting to hear

increasing commentary around the idea we need to allow food to exit from ukraine. this is not necessarily on the eu plate right now. we are in a position where we start to see real pain being felt around the world. is it possible -- i will go back to brussels right now. mark ruda is speaking to maria tadeo. maria: at this point isn't it best to find another solution? >> i do not think we are watering down. if we would agree, hopefully today or tomorrow -- and this would implicate about two thirds of -- germany announces they

will have -- it will lead to a 90% effectiveness of the oil embargo. you are right it takes time. in the european union things always take time. let's take the thing step-by-step. now we are discussing oil. it is possible to get there, if not today then as soon as possible. thank you so much. later this week or next week. i think we can get there. maybe even in this meeting. first of all, eastern european countries are saying we are highly dependent on russian oil, particularly pipelines. we understand. it is difficult and takes time to rebuild refineries and make

them work on different types of oil. that is understandable. the issue is how do we maintain a level playing field, and if you deal with those issues come at the same time we would risk greece or belgium or netherlands or other countries having big boards importing russian oil and also refining russian oil that it would lead to a disadvantage for those countries. this is solvable. i am sure. thank you. guy: the dutch prime minister speaking to bloomberg's maria tadeo at the council building in brussels. ros, let's come back to the issue mark ruda was talking about. we have refineries told to take other types of crude. how much of this is political from the hungarians in a number of others, and how much is technical? we cannot take other types of crude. you have to let us continue to

buy the stuff. it will take a long time for our refineries to repurpose the way they work in order to accept different grades. rosalind: some of it is technical. you're talking about soon of get adjustments. it was so reliant from energy from one place and has to act very quickly. it is disruption to get away from that kind of reliance. for the years the eu has been talking about transitioning from different kinds of energy but also lessening its reliance on russia in general. it has taken the war to force that the happen. there are technical aspects. there are critical moments being played out in this crisis. the impact on the hungarian economy, that is something victor orban is talking about repeatedly. is it as significant --

guy: great stuff. thank you very much, indeed. we will talk commodity prices next. this is bloomberg. ♪

guy: brent crude trading $120 as china starts to reopen beijing and shanghai. you also have the unfolding situation in brussels. joining us is bloomberg oil strategist julian lee. if china reopens, if beijing and shanghai open up, what does that mean for brent? julian: we will certainly see brent staying above $120 a barrel. we have china coming back into a market that is already pretty tight. we are not seeing any follow-up

in russian oil experts. we are seeing the diverging of crude away from europe towards predominantly india. china is already taking everything coming out of the russian pacific. it is going to start looking for more oil to fuel its economy as refiners come back, it will be pulling more out of the middle east and that is going to put up with pressure on prices unless we get more oil coming out of the opec-plus contracts there do to meet later this week anyway. francine: -- guy: could china consume more russian crude and allow the markets to balance that way? julian: it could if there were more russian export available. russia is still exporting what there is not a huge amount of russian crude that could be put on the market for china to soak up. in terms of what is happening with brussels, we are trying to

reach a compromise on the eu to reach a compromise. give us a sense of the scale of what is happening in the technical versus political story developing. hungry says our refineries cannot take other grades. talk me through what the implications of that are. it is a big technical switch for these refineries to go to other types of crude. julian: it is the switch. i am not entirely convinced it is a switch they cannot make. these refineries along the pipelines from russia were built specifically to process russian crude and that is where they operate most efficiently and most economically. if you transition to other grades of crude, you will probably undermine the economics of the refinery but making -- there is scope for some flexibility.

there is an awful lot of into european politics, inter eu politics. guy: let's go back to that. julian, i want to take everyone back to brussels and maria tadeo. maria: thank you. we are now joined by the head of the european parliament who is dueling us for the favor to be standing in the middle of this chaos. as the head of the european parliament, i know you are cleared to say there needs to be a full embargo on everything. russia is making billions on this. are you disappointed at the state of affairs? it has been a month since the permission announcement. >> progress has been made. it has not been easily. i look forward to the conclusions. would i have like them to go further? of course i would've liked them to go further.

the european parliament has long asked for zero dependence on russian oil and gas and we continue to push for that to be in the next steps because the war has not ended. russia did not stop with crimea, they did not stop in mariupol, they will not stop unless we send the strongest message back. maria: are you confident by the end of today, that by the end of the week the package will finally be approved. quite a lot of progress has been made and we have different countries -- pres. metsola: a lot of progress has been made. the reality is there are limitations to how much flexibility we hope for and our flexibility to allow all of the member states to come together. unity remains keep and i am cautiously optimistic we can find that the next few hours. maria: the state of the war, it does seem the narrative has

changed and ukrainians are concerned about potentially losing the east. how can you help ukraine and make sure they do not get the defeat in the donbass, which for them the fed is clear they would get the upper hand if they win at. pres. metsola: help needs to continue to be given to ukraine. the speed at which help arrives, nothing can be off the table. the spirit of ukraine and the purge of ukraine and the unity of the european union pushing back against any attempts to "liberate" cities in ukraine. this is about an autocratic regime that invaded a sovereign country. is this acceptable? definitely not. maria: you said ukraine has to win. it is unclear what victory means for europe. if you look at victory, what

does that entail? pres. metsola: it means the war ends on ukraine's terms. this is a country that has been invaded and today we work towards the end of the war and when we see ukraine is on the table, then we will accept it. maria: thank, president. appreciate it. that was the president of the european parliament joining us on bloomberg. the summit is still underway. potentially a very long one, i should say. guy: it will be interesting to see how much progress comes out of it. a lot of talk about victory and not many mechanisms for getting us there, especially on the sanctions front. it looks like we'll have to wait a while for some sort of deal when it comes to finding a solution to the oil embargo and a workaround to that. thank you very much indeed. we will continue to monitor events in

guy: the united states is out today, it is memorial day. equities, higher in europe. stoxx 600 up .4%. brent, impacted by two situations, one is china, the other is the situation in brussels. we had a big surprise out of europe on the inflation front. 8.7% out of germany, one that will shake the ecb. let's welcome in the chief investment officer -- ethan, nice to see you. thanks for joining us. we have seen an inflation print out of germany that is way above expectations. 8.7%. the ecb has negative deposit rates, -50 basis points. a peak of inflation is in front of us, not behind us in europe.

what are the investment implications of that? ethan: there is a lagging indicator in what we are seeing in this inflation number. aoifinn: whether or not we are going to see it from here, is the question. as for what that means for investments, we can see interest rates starting to rise in the european area, that is going to be lagging, central banks around the world seeing that in june and july, potentially. investment will take note, whether they want to stay exposed to fixed income, which traditionally does not do too well in a rising rate environment. given the fact this news is not new news, i wonder how much of a shock factor it has. guy: ok. it is the highest number on record for germany in the current data series. 8.7%. the ecb has a -50 basis point

position at the moment, for hikes priced this year, it takes us about 50 basis points. inflation has got to come down a long way. to close that real rate cap. how quickly could that happen? aoifinn: we are seeing indications in the u.s., inflation is moderating somewhat. we have seen some of -- the good sides on services, certainly the way the fed is taking this stamp, the u.k. and england has taken a certain stamp. we see the two employed to try and reduce that, consumer behavior is following suit. we have seen consumers trading down in terms of wanting to purchase cheaper goods. ultimately, i believe these rates are related to a height basis effect. we will see it moderating, not to the low level we saw in our goldilocks economy, but lower

levels. it is real, and it is here. guy: what kind of break do you think the fed would tolerate? do you think it is ok with 3%, 4% inflation? aoifinn: up to 4%, 3.5% would be ideal. that is what they are targeting. given what we have seen, fixed near 6%, that would be quite a modest number for investors. that would seem to work well. investors are factoring so much of the sin. i would surprised if germany -- hi, if it comes to a shock as investors, given the -- we have seen four months around prices rising, and the ecb having to do something about it. guy: what do you make of the price action? today, stocks higher in europe. it is memorial day in the united states. do you think we are bottoming out on equities? do you think it is a bear market bounce?

how long could it last? aoifinn: there is so much cash on the sidelines. we have seen the corrections to be quite short-lived. from an evaluation standpoint, the numbers are fairly pedestrian coming out of companies. we are seeing federally rising earnings, nothing disastrous in terms of manned destruction. ultimately, there haven't been that many negative sides when it comes to earnings. there have been dramatic corrections. given how much pe multiples have adjusted, especially around tech stocks, overall, the cost to market, these evaluations look like interesting entry points. we talked about inflation at length. in an inflationary environment, one of the best assets in a portfolio is equities. over time, it does keep pace with inflation, and is essential as an ingredient to a portfolio.

hopefully, it will keep better than bonds in the current environment. investors know they are reaching for yields. you mentioned nominal and real yields, how much real yields have come down. investors need to make a return, they need to be exposed to equities. anyone who is long-term is preparing to wait out the short-term drama. guy: if you had cash, would you put it to work or wait? aoifinn: i would do a dollar cost averaging approach. absolutely, no question that equity exposure is an extensional -- essential component. guy: the season has been what about happening on the top when, more about what is happening in the p&l. he talked about the fact you think inflation is going to start to come down. only tough 3%. in terms of the hit to margins

and the hit to margins and the bottom line, how long do you think it is going to last? how -- if we are going to have higher inflation for longer, presumably, are we going to have to rerate that discount into these businesses, and potentially, producing lower profit going forward? are you convinced the market has done enough of the heavy lifting to start thinking about reinvesting? aoifinn: they have done enough to think about reinvesting. we see more core and broad-based allocations across the value and growth spectrum. we are likely to see a focus on these margins, on companies who have pricing power, perhaps a vertically integrated supply chain. you have the ability to offer a range of products to consumers, so that they can modulate up and down the spectrum as their purse dictates. that is a return to the fundamentals.

given that we have seen some of the air come out of the momentum of investing, a return to -- investing is a welcome return. equally, some companies have not tried asserting their pricing powers at this point. they have been able to absorb increased -- we are seeing an increased cost likely to be sustained when it comes to enter a -- energy. we do not know how that is going to pan out in six months time, but natural gas supply looks like what energy supply is going to look like. it is going to be better -- that is, the focus on fundamentals, for sure. guy: you do not see a recession from what i have heard so far? aoifinn: i do not see a recession. i see growth moderating, inflation continuing, but not at the same rate. the reason i do not see a recession, employment numbers

are at a stark hike. we really see this, nation of higher inflation with a high employment picture. that is likely to support consumers. that is going to be our hidden weapon against recession owing forward, at least in the near term. guy: companies are going to have to manage the p&l, margins. labor, you do not see them doing that this time? aoifinn: it is going to be a little bit of that across the board. as far as labor, many companies have been having positions unfilled for some time. over the long-term, they could shift to automation for some of these positions. that is a medium to long-term phenomenon. it seems there is more pressure to get positions filled, to return productivity to the level it could be asked. this shortage seems to be pressing on numbers right now. the shortage and ability to be productive, perhaps open those new stores and the lever on the -- deliver on the supply chain,

that is causing a strain in any numbers. we do not -- i do not see them reacting at this point, the only reaction would be in the tech area, which has been overextended. guy: always great to catch up. let's get you up-to-date once again on the first world news. >> in germany, inflation has hit another all-time high. at as -- adds urgency to the european central bank. consumer prices in europe's biggest economy rose a .7% from a year ago in may. inflation was driven by soaring dude and energy costs. european nations have still not rogan the stalemate over a russian oil embargo. hungary is refusing to back a compromise on sanctions, despite proposals in ensuring the company keeps receiving russian oil. these sanctions required backing of all member states.

ukraine's president zelenskyy visited troops in kharkiv region, and a show of confidence for the nation's defenders. it was zelenskyy's first publicly known trip outside kyiv before russia's invasion. he handed metals out to soldiers and was briefed on the military situation. global news 24 hours a day, on air and bloombergquint take. powered by more than 2,700 journalists and analysts in more than 120 countries. i am angel feliciano. guy: german inflation hits another all-time high, bringing pressure on the ecb. we speak to a manual -- emma nuel cau, barclays european equity strategist, next. this is bloomberg. ♪

guy: german inflation pushing ever hire, 8.7% today, adding to the urgency for the ecb in terms of its exit from the crisis era stimulus that we have had the last few years. going us now, that is a high number. inflation is a difficult subject in germany. how much pressure do you think the lagarde is under, not just to get back to neutral, not to get a calm walk higher, but to run higher and do it quickly? >> certainly, the inflation rating is reason for concern in germany. at the central bank, among the public, and the ecb has a meeting that is coming up, which is important, policymakers have -- that they are watching to

warrant withdrawing stimulus as purchases are about to end at the start of july, a rate hike is on the agenda. or the july meeting. i think the debate will seriously focus on how high that rate hike, that first rate hike in a decade, will be. guy: you think the 25 or 50 could be on the table for discussion? jana: there is always data -- they have always said they are data-dependent. inflation came higher than expected. germany, it was stronger than expected. spain earlier this morning, we will get data for the euro zone for france, italy tomorrow. we will see what those hold. the direction of travel is clear, inflation is stronger than expected. ecb forecasts will show that. if they are true to their words, they will seriously consider raising rates faster -- by more

than expected, whether they will do that in the end depend on a lot of things, it will depend on how the economy is doing. certainly, it is something the hawks are pushing for. guy: let's talk about the balance on the governing council. chief economist at the ecb talking to one of the papers, sounding calm. he was basically talking about a measured move to the up slide, is -- if that is the case, what we see today, is appropriate to move out of negative rates by the end of the third quarter, that process should be gradual." that sounds dovish. that sounds like a measured move. is he in the minority now? jana: it is difficult to say, has the talent of holding his

opinions to himself, speaking more about expectations and the general consensus. i think you are right there, he is one of the more cautious officials. he is also one who is constantly or persistently highlighted, the nature in europe is different than the one in u.s. driven by the fact that the ecb in monetary policy and rate hikes cannot really -- it is driven by food prices, energy prices. that is something that monetary policy doesn't have a handle, they are looking carefully at wage growth and second round effects. they expect some of that to materialize in the second half of the year. data this morning showed that real negotiated wages were declining in germany at the start of the year. there is not a lot of that to see here. that is feeding the cautiousness you can see with the lib lane. guy: always great to catch up. joining us now, emmanuel cau.

if the ecb were at 50, how would that change your calculation when it comes to european equities? emmanuel: i think some of that is getting priced in, the focus on the market the last couple of days has shift away from the fed from the u.s. and towards europe, we have seen a bit of disconnect between the german -- and u.s. treasuries, i think the market is -- to the fact that the ecb has to -- by high inflation. i think that could benefit for part of the equity market, for banks as a way to hike potential for a more hawkish ecb outcome. it could be impacted, benefiting

from a -- more challenge forward. guy: let's break down -- break that down. the banks are a fascinating story. do you think the more positive rate environment could offset the potentially more challenging crediting environment going forward? there is a possibility we do start to see the consumer being more stressed, and businesses being more stressed. do you think potentially the better environment, when it comes to rates, would offset that? emmanuel: i think so. the window for a rate hike -- policy mistakes would be difficult, the conflict in ukraine, pmi in the mid-50's, we have seen data not collapsing, the margin -- the ecb scenario,

central banks to avoid taking us to a hard landing. i think the market should get above cycle, will not go away. for now, -- given the higher inflation, -- guy: trading circling 107 at the euro-dollar, what level do you think it starts to become problematic? when does he start to have a problem with a stronger euro? emmanuel: i do not think this is a big issue for the ecb right now. to some extent, a sharp weakening of euro earlier in the year was a bit of a concern.

it would be helpful for the ecb. i think -- more important, difficult for the industrial, chemicals, which are we going to see a demand and destruction in the u.s.? i do not think it would make a massive difference. as the margin, it might move a small tailwind as we see toward earnings. guy: emmanuel, is europe still the value trade? emmanuel: you are talking -- in terms of valuation, it is. europe is cheap, it has noise been cheap to some extent.

the long-duration, what we have seen so far, in fair resilience for the volatility markets. it is done more -- no more than the u.s., the u.s. is more -- valuation adjustment. we benefit to some extent to that. moving toward midmonth growth, i.e., recession withdrawing, to be more defensive in our location, i think europe may be more pressured overall. in terms of growth, policy, europe is not looking that bad compared to the u.s. europe -- more on the europe. guy: is europe the technical trade, as well? a lot of people are spending

money, everybody wants to go on holiday. come the winter, we are going to be dealing with an energy crutch. is europe the tactical trade there? emmanuel: europe is not something i think a lot of global investors would consider as a buying hold, as an investment. over the last 15 years, europe has been suffering from a lack of exciting growth stories like u.s., that is where you want to be invested. europe is much more ethical type of market. right now, the crisis in ukraine, china as well, maybe we could see similar in terms of reopening what we have been waiting for, helping out to an extent on top of the reopening and china, or stimulus, helping from the market. down the road, -- we have seen

the policy trade-offs, won't get much better. we can hold this front, for the next couple of months. by the limited growth side to some extent, on a political front. guy: great to catch up. emmanuel cao, barclays equity strategist. this is bloomberg. ♪

guy: local markets, the u.s. closed memorial day, low volumes therefore a feature in your. stoxx 600 is tracking higher, up i .6%. we've got a higher price of brent today as china starts to

reopen. we have seen super high inflation prints, lifting as you can see. germany yields prices when down, the euro dollar starting at a 107 handle. talking about what is happening with the -- committee, rules regarding european order risk we talk about the retail story, next. this is bloomberg. ♪

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guy: has been a quiet session with the u.s. out for memorial day. china reopening, seeing a positive side. european equities arising by .5%. some luxury names having a good day. lmh having a good day. we are seeing some banks starting to pick up. we come back and talk about the

basel committee, a fascinating story breaking on bloomberg. brent crude rising, 120 right now, up .4%. china starts to reopen, there are hints beijing and shanghai will reopen this week. that will bring in more demand at a time when supply already remains quite short. let's talk about the consumer around this, it is a key part of the investment case. major shipping delays, big read taylor's -- retailers, a new problem. circa $45 billion worth of extra stuff floating around in warehouses. as we heard from walmart, from target, consumer behavior is changing superfast right now. these retailers probably have to hold more inventory as we see supply chains remaining largely messed up as a result of the

china story. where are we in this process, what does it mean for the retailers? let's go to half of the logistics story, cio mark -- giving us an update. we saw what came out of walmart, we saw what came out of target. both knees talking about this idea that we are seeing consumer behavior changing quickly, it is hard to manage. they are getting things wrong, they are given costs wrong, there is a whole bunch of things coming to together -- coming together to produce this inventory. what are you seeing, what do you think the implications are? mark: this is the quintessential case of just in case versus just in time. retailers have gone from products for today's -- product shortages from last year, and to ordering goods that consumers do not even want. inventories have spiked, particularly in the u.s.

a number of retail because last week saying exactly what you described. the aim of most retailers is to get down to roughly six weeks of inventory. you will find at the moment a lot of retailers are running north of three months. this presents a problem, which you described. normally, 30% of your stock as a retailer gets discounted. as we see those inventory spikes , you are running the risk of having to discount in the second half of this year by as much as 60% of your inventory. i would say to you, the negative, this is clearly a margin risk for some retailers in the second half of the year as we see continued inflating input costs. if i had to pinpoint an area that is the most worrisome, i would point towards the fashion segment, given past fashion, changes in trends quarter by quarter. customers are coming to us for more tech, more ai, they want to lower their inventories, but also lower their costs by

robotics what i am seeing on the ground is, customers want to outsource more, and move their wares towards us. guy: which is a long-term story. in the short-term, they are going to have to figure out how to manage this. how does that process work? if these guys are sitting on inventory, they say they are going to discount it, is the consumer going to be there to buy that discounted set of goods? how strong is consumer demand right now? mark: what you said to emmanuel in the previous segment, consumer is spending, the consumer wants to go on holiday. the new wants is simple, there is definitely consumer good softening at the moment. we have seen a shift from ecom to brick and mortar. the numbers are still showing the consumer is up. you see it in a number of different forces, like walmart last week. the death of the consumer has

been exaggerated, there is a nuanced approach to this. i am seeing a shift towards consumer experience versus consumer goods, but i am not seeing a negative outlook overall in absolute terms. guy: this recession risk people are becoming concerned about, the growth risk, you are not seeing that in the nuts impulse of the supply chain? mark: you say people, but you are talking about wall street. let's not confuse wall street with main street. wall street is adamant a recession is happening in the second half of the year. main street, it is not as bad as some of my wall street brethren are making up at the moment. we are seeing a mixed bag, and signs of hope in the second half of this year. the thing i think wall street is missing is freefall. consumer demand is ok. on the labor side, there are plenty of jobs, although i think we are past the worst in terms of labor availability. really, you are seeing, the u.k. in particular, consumer demand is being stimulated by a

government shifting its priorities from wall street, inflating assets to the last 10 years, to giving stimulus, direct to the consumer. that is the post-covid phenomenon. we have shifted from wall street help into main street help, that is going to help the consumer the second half of the year, that is why it is not as bearish as some. guy: in theory, that could be inflationary. mark: inflation is an issue. there are a couple of things to think about. the fed clearly has a dual mandate. the price stability is one of them, that is inflation. also, full employment is another. the goal is not to keep stock market higher in a hasten to add. the debate they are using to tackle inflation is a blunt one. i think you are going to see rates overshoot on the upside to tackle this inflation problem. it is going to be an issue, not just in the second half, but into 2023. the point i would make on inflation, they are trying to handle a real asset supply issue with financial -- a financial

and stomach. you have long-term underinvestment in refining capacity, how does change solve that? how does interest rates soften that inflation? you've got a structural shift in labor availability, how does interest rates soften that? the fed has a problem, inflation. they are using a very blunt solution for a very sharp problem, raising interest rates does not create more oil, more food. it does not create more people. every simple. if you had an electrical issue in your house and called a plumber, that is the way i am thinking about this. guy: ok. probably done that at some point. let's talk about china. reopening, what kind of impact should we expect there? mark: there are a few things going on in supply chains right now. if you look at the picture from a chinese perspective, between

the chinese ports, a russian war, and a chronic lack of capex , supply chains are stressed and will remain stressed for the remainder of this year, at least. i think we are past the worst, but it is a mixed bag. the policy business is that shanghai is getting better, we are beginning to see signs of easing there. that has gone up. if you look at the shanghai port, running around 95%. do not doubt the lockdowns we have all seen pictures of the ships outside of shanghai, the lockdowns from prior months could last until year end. on the russia side of things, that is where i see it or pinching. more than 600,000 businesses worldwide rely on some form of russia or ukraine supplier, everything from oil, gas, wheat, you name it. those will remain under strain the rest of the year. it is getting a bit better, but will take a long time to clear those logjams. in the meantime, you've got a

proficiently -- warehouse monitor, like us. guy: let's talk about warehousing and what happens next. you mentioned any, slowdown. we got a european economy struggling right now, u.k. economy struggling, the consumer is being supported by government. if ecom is going to slow down, do we need to continue to build all of these massive shares that we are seeing up and down nature highway's? are we going to continue to see rates of expansion that we have seen over the last few years? mark: you are talking about a real asset, which takes anywhere between six months to two years to put in place, building the land, buying the asset. take about what promoters are saying about the lack of near-term availability of warehousing close to the last mile. think about the reality of the starting point. what are we talking about? a transient few months, where ecom rose slower but still grows, versus brick and mortar as

people return to the high street? potentially. the reality is, the starting point is a good one. we have got 20% right now. if you look at most ocr, 20% of their makes is only in ecom right now. are you really in 10 years time only going to be buying one in five items online? i would say that northstar potentially is 3, 4 x is high. you could be buying four x than what you are buying online. the demand for warehousing is going to go up, it is good for real estate and land providers. this theme has only gotten started. this is a big northstar. do not let a bit of a few months through you off the vent, this is a big story ahead. guy: always great to catch up and hear the message. thank you very much. let's get you back up-to-date with what you need to know, the first word news.

angel: china has reported the newest cases of coronavirus in three months. the easing of outbreaks in shanghai and beijing have led officials to restrict some of the -- relax some of the strictest controls. the british government reportedly has been warned that 6 million households could face power cuts this winter. according to the times, the worst case scenario drawn up by official says there could be widespread gas shortages if russia further cuts supplies to the european union. that could lead to electricity rationing at the start of the year. european banks led by -- stand to benefit from a change. global regulators have a great to start treating the euro area is one market, and determining capital requirements for its top lenders. banks headquarters in banking union would see more exposures within the block, treated as domestic ones. those are considered less risky.

global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am angel feliciano. this is bloomberg. ♪

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guy: brent crude trading circle 120, watching developments in china carefully. they are reopening shanghai and beijing, looks like it is going to progress. we are going to see taxi rides being possible, transport reopening, aviation start to begin to come back. a whole load of factors that are likely to boost crude demand, that is why we see the stick up

towards 120. billion lee did it -- julian lee joins us. give us a sense, if we were to see these two major cities reopening in china, if we were to see other cities opening, how depressed has demand been, and how much is the price now and how much could be put in the price to where we see this stick? >> the price is starting to reflect the expectations of a reopening in china. we have a lot of buying, of quite heavily subsidized russian crude going into china. it looks like a lot of that hasn't been processed and turned into refined products yet. there is clearly oil in stockpiles there, whether the chinese are rebuilding their strategic stockpiles, or whether oil will come out of that start adding processed. at the moment, is unclear. that makes it difficult to judge

just how much chinese buying is going to rise. one thing is clear, as cities unlock, you get more travel between them. that is an important part of the process, as well. the oil demand in china is only going to go in one direction from here, and that is upwards. that is going to put more pressure on a supply balance, and is already pretty tight. guy: let's talk from a different angle, a european point of view. a lot of debate in brussels today about whether or not we get to see the sanctions, how we are going to be dealing with russian crude going forward. a lot of people have made their minds up, a lot of people deal with russian cargoes have made their mind up, they are not touching it. what is the reality? if the eu goes back together today and says, we are done, how much of a difference to what we are seeing today with their the question mark -- would there be?

julian: it is going to be whatever they agree, not an immediate cut off of russian supplies. it is going to get phased in over time. the biggest impact in volume terms is going to be on supplies delivered by pipeline. principally, into germany and poland, it looks like the southern leg of the pipeline might get exempted from these. poland and germany may look to be ending their reliance on russian crude. really, what we are looking at, over time, a cut above -- a cut off of pipeline flows into northern europe. we are seeing most of those being self sanction, seeing some bids going into rotterdam, a quite a bit going into italy, that is largely because of the russian oil company lukoil, has a refinery there.

because that refinery has been sanctioned, they cannot it credit to buy anything other than russia's crude. that russian crude is going, that might stop. the big impact is going to be about half a million barrels a day of russian crude, piped into german and -- poland and germany. guy: is that in the price now? julian: a lot of that is in the price. you are seeing slight movements in the price as the likelihood of eu sanctions ebbs and flows. we are not seeing very dramatic moves in the prices as this debate goes on. that suggests, timmy, this has largely been baited. people think those sanctions will come. whether they come in the next two days, whether it takes more time, the feeling seems to be they will come. they will take time to get imposed. we will not see a sudden and

dramatic change in flows. guy: in terms of what is happening with the transport story, all i hear about -- the pictures over the weekend, everybody wants to go on holiday at the moment. yet fuel has gone through the roof. diesel shortages exist at the moment. what is happening in the refined market, give us a sense of the disconnect between crude and refined products, and whether or not that spread is going to continue to widen. julian: there are real areas of shortages, part of this is that russia doesn't only export crude oil, it exports a significant amount of diesel. that is important in the european market, that means europe is sucking in diesel from elsewhere, that is putting rusher everywhere. one of the things that is happening, rather than trying to cut back or encourage people to cut back on oil use, government seems to be doing everything

they can to support it, cutting taxes, paying money to consumers . very little support for encouraging additional public transport use, we may well see airlines starting to impose fuel surcharges, that may have the impact we need. guy: thank you very much, indeed. what is happening in the crude market. let's turn to our top stories here on bloomberg, european banks led by -- stand to benefit, this after global regulators have agreed the euro area as one market. in determining capital requirements for these top lenders, these -- systemically imported top lenders. let's bring in nicholas, bloomberg's european finance reporter from frankfurt. let's talk about this. let's go through the details of what is being proposed, why it could be significant for banks like bmp. >> what we are talking about, the so-called chiefs and

buffers, have the megabanks of the world. given so big and so important to the world economy, they have to have a cap on top of the other things that they have. the way that is calculated is, the bigger you are, the more complex you are, the higher the buffer. how many markets operate, a couple handful of countries, or is it global. for the longest time, the euro area, the banking union, has been treated as a series of free markets. the banks argue, hey, we share a currency, we have a common supervisor, we have a common resolution framework for when banks go bust. they look at us as one market. it seems like that advent asian t--appears out of the world,

allows to be one market, which makes these banks appear less complex, capital requirement, also, other banks, it will allow them to grow to get bigger, maybe crossover into yields. guy: we have been struggling with the banking union, struggling to make it work, struggling to understand why we haven't seen those cross border emerges. is this the break in the dam that could potentially generate that move? nicholas: this certainly helps banks plan for big merges. it is one of the top concerns for the bank executives when thinking about buying a competitor in another euro area country. if i was sitting at the table, i would be saying, look. you are not making that much progress on banking union. if we look at the plans for a

common deposit protection system in europe, bogged down and probably going nowhere. i think, while the victory for the banks, it is only half of the battle. if i was a bank executive, i would be waiting for other progress to feel comfortable about buying a competitor in the euro area. guy: we are nearly there. thank you very much, indeed. quick look at the markets. u.s. closed, light volume in europe, down about a third in terms of falling stoxx 600 trading higher, china news helping out. luxury names catching a bit, brent up on that china story, up by .3%. this is bloomberg. ♪

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guy: u.s. close, memorial day. stoxx 600 up .1%. rent, one 20 is where we are trading. we need to focus on what is going to happen in your. next, we do that after the inflation print today. this is bloomberg. ♪

guy: european stocks higher, the countdown to bang the clouds start right now. >> the countdown is on in europe . this is bloomberg markets: european close with guy johnson and alix steel.