manus: this is bloomberg daybreak: europe. these are the stories that set your agenda. embargo breakthrough. eu members plan to ban most russian oil, paving the way for fresh sanctions on putin. brent jumps for the ninth straight day. signs of daylight. china's economic contraction eases. signaling the worst of the lockdown may be behind us. mainland stocks climbed. plus, half-point hikes. chris wallace says he favors consecutive 50 basis point rate increases until inflation comes down.

there is a sense of unease in these equity markets this morning as plausible possibility is decried by waller. oil is higher, recession risk percolating in the mind of the european investor. to the equity markets, you see the narrative, piling into cash rich balance sheet orientated stocks. nasdaq up 6/10 of 1%. it is inflation angst and narrative and the rising price of oil that could be the spoiler of recession risk for the equity market. asia hanging on by a thread into the green. let me show you across the assets. the bond markets, waller's language, do it now, be upfront. not prepared to take 50 basis points of the table.

inflation tops 8% in germany. do you really believe european inflation is the tail wagging the u.s. rate dog? the oil market is at a two-month high as the eu curbs the russian flow. there are carved out -- carveouts for landlocked countries. bitcoin up nicely, comfortably above 31,000. trading with existential crisis risk. let's get everybody together. maria tadeo is in brussels and will track the eu's important ban of most of russian oil. stephen is in singapore and will talk us through market moves. dan moss joins me with the

latest on the fed comments and juliette saly has the latest on china data and the reaction. let's start the conversation with the lead story, on european union leaders. they have back to ban halting the import of most russian oil. this paves the way for the sixth package of sanctions the -- to punish russia. we heard from the commission president on the measures. >> should be able to finalize a ban on almost 90% of all russian oil imports by the end of the year. this is an important step forward. the remaining 10% we will soon return to the issuer. yousef: let's get to maria tadeo in brussels. this was a hard won victory. the hungarian prime minister was

fairly resolute. how did we get to this agreement? maria: yes, we have a deal and quite frankly it is a bigger deal than what many expected. at the same time, it is yesterday in brussels where the mood was pessimistic. we look at what is on the table, the european union says by the end of this year on the best case scenario, they will reduce by 90 percent oil imports from the russian federation into the european union. this will go in crescendo. there is a big distinction, seaborne oil, and exemptions for pipeline oil. a lot of this is an exception for hungry. -- hungary. really the german and polish of the big buyers a pipeline crude and they say they will move this year to cut it down.

were looking at potentially 90% of purchases going down from russian imports. flow -- for vladimir putin, it will be a big issue, not only is he losing the money that comes with this but he has defined new buyers. you know that russian oil is difficult to sell. you could argue in many ways they will ask for a discount. so he is losing money in two ways. manus: great framing of the narrative. what does this mean for markets? we are seeing brent climbing, headed for the longest run of gains since 2011, up nine days in a row. stephen, there is a material difference between wti and brent this morning. i want to focus on the reality of the supply that will be removed as a result of this them. -- this ban. bernstein talking about $150 oil.

stephen: the idea of $150 oil is probably more of a reality now than perhaps yesterday or a few days ago. you still have a long way to go, and removing the oil from the market will take time. it will not happen overnight. there's also the idea, yes, they will find other buyers, perhaps in south asia or china. yes, those buyers will ask for a discount. but those barrels will continue to be moving. it really is a question of how much will europe clamp down on their commitment? willie actually stop buying? while that result in russia reducing output and exports? that is something the market will be watching closely, especially as china eases some of these covid curbs and demand bounces back. you have to remember, the chinese covid zero policies were, the last several weeks, one of the big errors factors in the market.

one of the things opec-plus said , one of the reasons to not add more barrels to the market. as china comes back and the world stops buying russian crude in europe and other regions, you will see a bullish reaction to the market. will we hit $150? that is not 100% clear at this moment but it is something that folks will be watching closely. manus: it's interesting how we now have more premium, to severe supply constriction premium. it is not just russia, it is also the u.s. as well. stephen, thank you. let's see what happens. the fed, governor christopher waller has weighed in and said he wants to keep 50 basis points hikes on the table until inflation is nearer to target. >> i support tightening policy

by another 50 basis points for several meetings. manus: let's get to dan. waller going out on a limb, a little more hawkish than the others. do them now, upfront, frontload. he sounds like a politician. dan: in terms of internal fed politics, he is getting ahead of the boss. let's go back to what jay powell last said about the magnitude, that's what we are talking about, of hikes. he said on national public radio that 50 basis points is on the table for june and july. the fomc is not meeting in august.

when wallace says several, he means through the end of september. a lot can happen between now and the end of september. you have to get back from your holiday, for example. the global economy is decelerating quickly. i would not necessarily take several to the bank. he is a governor, that is true. he's also one of the more hawkish governors. i always say and i stick by it, listen to the chair, vice chair, and head of the new york fed. the rest are backbenchers. manus: i hope you don't run into them on your travels. [laughter] what is the risk from this hawkish approach? one thing we were looking at, breakevens rolling over, pce, breakevens begin to roll over. the bond market in some ways is

perhaps frontloaded, front running, overzealous? what is your take? the dichotomy. dan: the big risk is when jay powell says he wants to see -- his word, not project, what see -- clear evidence that inflation is running close to 2%. that is 2% on pce, not the labor department broader measure. if you wait until there is unambiguous evidence you can see, you may have missed the turn in the economy and have to cut too quickly to catch up. that is the risk. they didn't pick the terms that well late last year coming into this year and as a result they've had to hike aggressively. do they risk committing the same error on the way down? manus: it is all about policy mistakes. we will never be done chucking eggs at central bankers, willie?

-- will we? to china, factories struggled in may but at a slower pace. contraction suggests the worst of the economic fallout may be coming to an end. juliette saly has the assessment from singapore. the cost between growth and contraction. give me your take on the pace of contraction. juliette: it really was coming up this terrible base in april. so when you saw it still contract in may, coming off that low base in april, is a positive sign. we are starting to have some analysts suggest perhaps china's economy is showing signs of bottoming out. also in the construction and services index as well. nonmanufacturing also a beat.

will we get back above 50 in the month of june? we are seeing fewer covert cases reported in china, less than 100 on monday, the first time since march 2. we are also seeing signs of reopening and shanghai. let's look at how this has played through in market action. csi 300 leading gains in the region today. it is the final day of the month and we are on track for a slight gain on the index for may. we are focusing very much in on the energy space. you were talking to stephen about that. bernstein saying $150 a barrel for brent is potentially insight. energy sector slightly higher. some big gains. some with their best today since 2010. manus: juliette saly with the latest on the tinge of green.

we have a number of cpi prints to get through this morning, including the euro area. 7:30 a.m. u.k. time. we will watch gdp figures for france, denmark, switzerland, and then the hungary rate decision. finally, salesforce will give us their earnings release after the u.s. market closes. there was a warning about supply chain issues. one space that could move the european market, dfm agreeing to merge with a firm with a cash and stock deal. 423 million euros of the dividend payable to you. ultimately they will close this in the first half of 2023.

firmenich is a specialized chemicals company, perfumes and flavors. keep an eye on that through the morning rotation in europe. coming up, 50 basis, several meetings, that is the call from the fed's waller as europe awaits another inflation reading. what will the markets make of it? plus, european union leaders come together to back a ban on imports of most russian oil imports. we will have the story here on 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. and when you book and pay throug you're covered by our happiness it's easy to make your home an a check out angi.com today. angi... and done.

manus: it is "daybreak: europe."

fresh inflation fears barking a huge selloff and treasuries across the curve. in europe, consumer inflation coming in at a percent for the year to date from a for germany. chris waller says he backs for -- 50 basis point hikes for several meetings. bond markets on fire. two's and tends ratcheting higher. let's see how it plays out u.s. liquidity comes back into the cash market. good to have you with me. i like what dan had to say, we've gotten too excited about waller. it is not -- if it is not the chair, vice chair or new york fed, the rest are backbencher. we all got a little too excited,

would you agree? >> i would agree with the analysis be we have to understand the fed is not on the business of causing a recession. that is not the mandate. the mandate is clearly to have growth and a high degree of employment. if we were having this conversation a year ago and you had asked me if inflation was a .5%, -- 8.5%, we would say the rate would be under 3%, but the fed is only had to rate hikes. i think chairman powell is doing an excellent job of managing expectations and he's not going to crush the economy because he knows there are a lot of factors playing into inflation and this is still a measure that will come down quickly just as it has gone up quickly. manus: you don't buy the view that they are prepared to tolerate a level of recession, a

consumer orientated dip that stymies inflation? manish: any central bigger would not like to have 10% inflation on their watch. if it gets high enough, of course the fed will raise rates more aggressively and we will have a recession. given the factors in play we are seeing, there is nothing the fed can do. think about it, if there is a problem on the supply side, how does it help? inflation at 10%. that would be a disaster, a massive amount of unemployment doesn't structural damage to the economy and nothing is happening with inflation. manus: in terms of markets, we have seen some substantial moves across markets. i want to get your since --

sense, we have a small opening in shanghai and beijing. we have some saying it is folly if you don't have some chinese exposure. some are saying the market may be bottoming it out. is it press he and -- prescient to take limited exposure to china with the mother of all stimulus to come? manish: i would agree to those comments and i would add my comment, if you are being underweight china at this stage, i think you're being ideological and not doing investments. given the valuation you've seen for china, given the configuration of the market we are seeing in terms of where the growth will be -- and a lot of people have beaten down china tech stock on the faces of regulation risk. one thing you have to bear in mind is the lockdown in shanghai and beijing in other places has proven that the health -- that

the delivery companies have delivered. this is a golden goose they need to control but not kill. i'm of the strong opinion you have to increase china if you are underweight, the valuations are very attractive. you are seeing comparative in the u.s. at 22 or 25 compared to eight or nine. china is a great economy, large economy, and you cannot be underweight at these levels. manus: let's finish off with the other main driving stories this morning. brent up nine days in a row, the longest winning streak since 2018. we seem to be moving into a new paradigm for oil. first of all, your take on the eu banning the two thirds of russian oil into europe, is that a recession nail? manish: i think it's a very

ambitious and risky plan. i will not make a political comment. oil needs to go higher. if it goes to 140 or something like we saw in 2008, the euro-dollar is close to parity. in real terms, the price is much higher for the european union. it is an ambitious plan in a political decision. but also, bear in mind, there was an article i read that said the eu is still getting a lot of import from russia. is there complete detachment going on? the headline's anti-russia but they are still getting product from russia. i don't know how to square that. a complete ban would be a problem for the eu. manus: thank you for being with

us this morning. manish singh on the value propositions. cross bridge capital. coming up, european leaders have come back together as we just discussed, to ban imports of most russian oil. more on the story later in the show. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." let's get the first word headlines. juliette saly is standing by in singapore. juliette: russia is planning a bond payment mechanism despite u.s. sanctions and potential default. it would allow foreign investors to open accounts in russian banks in rubles and hard currency.

russia is back in default countdown. effectively triggering a 30 day grace. business confidence in the u.k. rose for the first time in three months in may. the business barometer rose to 38%, the highest reading since february. it suggests more companies plan to increase prices. a strong economic recovery could strengthen the bank of england's conviction to aggressively tackle inflation. china's factory activity continued to shrink in may but at a slower pace, as many of the tightest covid restrictions began lifting gradually in some areas. official manufacturing pmi rose to 49.6 from 47.4 in april. that compares with the median estimate of 49 in a bloomberg survey of economists. the nonmanufacturing gauge increased. china's virus cases fell below

100 since early march. 97 new cases for monday. some feel the reprieve may be temporary given the contagiousness of the omicron variant. shanghai, recently the epicenter of the outbreak. 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. this is bloomberg. manus? manus: jules, thank you. a lot of people have written that the pound has traded like an emerging market currency, especially after brexit. intraday, we have a classic note from back of america. there is the risk of an existential crisis the parallels they draw to emerging market, they say there is politicization of policy that undermines the pound. we don't want to

manus: this is "bloomberg daybreak: europe." these are the stories that set your agenda. embargo breakthrough. eu leaders agree to ban most russian oil, paving the way for fresh sanctions on putin. brenton jumps for a ninth straight day. signs of daylight. china's economic contraction eases, signaling the worst of the lockdowns may be passed. mainland stocks climb. fed governor chris waller says he favors consecutive this the -- 50 basis point rate increases until inflation comes down. that warning shot on top of toxic inflation from germany unseated the bond markets.

they had a bit of a negative effect in the first instance on stocks. this morning, studying -- steadying of the nerves. european stocks down as oil ramps higher for the ninth straight day in europe. how much of a risk to the european economy is weaning europe off of russian oil, closing off see born fuel? two thirds of europe's imports come by the sea. the ftse is flat. we are waiting for inflation data to come in. over 8% in germany. this is what were grappling within the bond market, and a percent flash rating and germany to what the european reading on inflation will bp as we grapple with inflation in the u.s. yields are rising in the u.s., crude ramping on this band. nymex is up, constriction from

the eu from russian flow. 2 million barrels of supply coming out of the market as a result of these new sanctions, and $150 oil. bitcoin in recovery mode with risk. the fall from grace has been epi c. that is the plunge in sterling. four rate hikes alone will not save the pound. european union leaders have come together, they are backing a band halting the import of most russian oil. that paves the way for a sixth package of sanctions to punish russia and vladimir putin for the invasion of ukraine. we heard from the commission president on the measures. >> should now be able to finalize a ban on almost 90% of all russian oil imports by the end of the year.

this is an important step forward. the remaining 10% we will soon return to the issuer. manus: for more, let's bring in maria tadeo from brussels. this sounds like it was a hard-fought out of negotiations. how did we get to this agreement? maria: it took four weeks to get here. i have to be very frank and honest, at the same time yesterday morning, the mood was very negative and pessimistic. a lot of the fear perhaps kicked in yesterday when european leaders realized this was not a good look for the union, they had to get to an agreement. they had political momentum with the leaders. if you look at the deal now on the table, the europeans say on the best case scenario, 90% of purchases of russian oil coming into the european union will be cut by the end of the year. there is a distinction made

between seaborne oil and the pipeline. that is what the hungarians were looking for, and they got some concessions. if you look at the picture on a bigger scale, the hungarian market is a small fraction of the market. what really matters is big buyers like germany, and they repeated again, even on the pipeline, we want to cut it down drastically. you're looking at a potential scenario that by the end of the year, 90% of those purchases will be brought down. what does vladimir putin do next? is he going to find new buyers to replace the european union as a single massive buyer? manus: a lot of that oil we understand has gone to china. if you listened to viktor orban yesterday, it was sanctions, sanctions, sanctions without solutions. now it is about solutions to an evolution of sanctions. shifting narrative. great work on rounding it up for

us. discuss what will dominate, what else dominated discussion. maria: manus, it really is about ukraine. there are two big questions on everyone's mind, what does the endgame look like for the war? what is a victory for ukraine? i put this question yesterday to a number of officials and they all tell me something different. there isn't a clear definition of what victory would entail for ukraine. the other big question is the food, the grain. yesterday, zelenskyy jumped on a call with european leaders and repeated have to help him on block some of the ports in ukraine, where russians have sequestered and robbed 22 million tons of grain. it is about the food conversation and the repercussions it could have on the global crisis when it comes to agriculture. manus: ok, thank you very much.

we are looking at a new breaking point for the food crisis as well. maria tadeo, thank you. let's stick with the european inflation narrative, blowing through estimates. german cpi hitting an all-time high, spain nearing a four decade high. pressure on the ecb to begin the exit from crisis era stimulus. german bunds yields the most in 10 months. that ignited a global bond rout. in the eyes of these inflation prints, are we at the top in your estimate for european inflation? >> good morning. not at all. i think you are still looking at continuing rises in the coming months. bearing in mind we have the food

inflation coming through in the euro zone numbers very clearly. you still feel upside risk to energy. our forecast for the year on average is 10%, that gives you an idea of how much more upside you still have. also continuing pressure in 2023 where we see average inflation at 6% in the euro zone. plenty of pressure still in the pipeline. manus: what does that mean for the ecb? on looking at probability being speculated. with this kind of reading from spain and germany, and today we get the rest, there is a 30% probability of needing to do a 50 basis point hike in one go. do you see that as a real and growing probability? raffaella: it is definitely growing. i think 50 basis points is still

too aggressive for the ecb. but it cannot be discounted completely. i think the bulk of the tightening is coming through the bond market. especially for the euro zone, including bunds, still another 50 basis points needs to happen. and of course, the other leg of tightening will be over time, qe, in the next few months. unfortunate, the ecb is even more constrained than the fed because of the war with russia. if the ecb goes and triggers a credit crunch, it would be a massive loss for the european union and it will even flow down to transition. i am afraid you have to live with higher inflation. this is also why it will be a reinforcing mechanism, because the wage pressures in the euro zone are largely still muted.

with inflation that isn't coming down, of course public sector wages -- manus: but if you listen, we reflect back, you have very clearly defining a study -- a steady pace of 25 basis points and fairly intractable if you listened to christine lagarde last week. then you have clouse on the number of others quite hawkish. what is the tolerable level that you suggest they may have to tolerate to avoid a credit crunch, the worst case of all, in your eyes? raffaella: i mean, i think if the trajectory of inflation is one that it comes down next year, but instead of having double-digit inflation this year, we have single-digit inflation fixed or below, that is tolerable.

the maximum amount of interest rate i think the ecb is ready to do within a 12 month horizon is maximum 200 basis points. i don't think it can go any higher than that. with inflation running this high , you can see real rates are heavily negative anyway. manus: what does this do -- what is your greatest fear or economic fear? a spread blowout? italy, greece, etc.? the traditional mediterranean spreads that vexxed us so in the european debt crisis. i know they've been well anchored by qe, but is there a risk around the spread that is perhaps under issued? raffaella: no, to be honest, that is not my greatest fear. my greatest fear is that because we are throwing so much money at the problem, and there will be

more fiscal stimulus coming in in the next few months to facilitate the transition, my concern is we waste that money. then we have a debt sustainability problem 3, 5, 7 years down the line. the other concern is there is a level of interest rates where european households will switch more clearly into savings and go back to buy bonds. this is especially important for italy. my concern is, if this avenue isn't sufficiently pushed by the authorities, you may begin to have a funding problem once the 10 year reese's --reaches that. a plausible scenario. manus: thank you very much.

thoughts on the european inflation narrative let's get the first word news. juliette: a taiwan-based iphone maker expects supply chain issues to ease up. the chairman told shareholders the company is now more up beat about is 2020 outlook. pimco has emerged as a keep later -- key player that will decide where the russian credit default swaps will pay out. they sold more than $100 million of securities to banks, including barclays and jp morgan in the first quarter. that added to almost $1 billion in bets on russia by credit default swap. a u.s. credit investor has completed his $5.4 billion takeover of chelsea football club. it ends almost 20 years of ownership under roman

abramovich, forced to sell over sanctions because of the wharton ukraine. more than half the teams in the u.s. premier league are now owned by american money. a decision not to complete a deal until antitrust problems are dealt with. the company is working to negotiate a solution. toronto-based rogers has been trying to acquire shot in what would be one of the largest mergers in canadian history. telecom italia seeking evaluation for the landline network it plans to sell. sources say the proceeds would allow the former phone monopoly to cut its multibillion-dollar debt pile. on sunday, they announced plans to sell off the network, shifting control to the italian

state. 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. this is bloomberg. manus? manus: thank you very much. juliette saly in singapore. coming up, european banks. the benefits will come in. global regulators agreed to start treating euro area as one market. determining the capital requirement. what is it mean for lenders? this is bloomberg. ♪

manus: it is "bloomberg daybreak: europe." the basel committee on banking supervision looks set to pass a rule to change what effectively treat the euro area's mainland ers as one market.

according to the documents, the banks headquartered in the continent would have external risks as domestic one. big european banks closed higher on the news. that's get more with our senior finance editor. david, we've asked probably every ceo in the last 12 years, do you expect cross-border murders and are you looking at any? -- mergers and are you looking at any? this could be a significant shift. david: sometimes these basel ru ns can bedull but this is significant. kudos to our team in london for breaking this. basically what they are saying is the eurozone should be treated almost as one nation. a similar currency, the same central bank, why can't ian be parabolic doing a deal in germany -- bnp parabas doing a

deal in germany do the same elsewhere? it can do more deals. we may see more of these cross-border european deals we've been talking about for a long time. manus: one of the banks we have covered extensively recently was credit suisse. we have a reuters story, there is a risk. i was looking at the stock holding. harris associates, qataris. what is next for credit suisse? do they need capital? david: this is the story that never seems to end. they are saying they do not need to do an equity raise, that does not rule out selling assets to raise more money. this is a bank that has had

nothing but problems the last two years. no bank was harder hit from the archegos breakdown. it goes on and on. we reported there may be a move to move the ceo. he denied that last week. in davos he said he has the full support of the board. certainly tremendous losses. it would be understandable if shareholders are frustrated with the bank right now. manus: i'm just looking back, 2017, they raised -- they had the rights issued, raised over $4 billion. there are questions with francine when i caught up with him, he thanked everybody he had just let go that have been with him over 10 years. do you think at the heart, he can survive these major institutional shareholders? what do we need to hear from them to can vent -- convince the

market that he can remain? david: a good question. if you are a holder, the last thing you want to see is an equity raise, it dilutes your stake. he has said he has the full support of the chairman, so we shall see. does that mean the entire board and investors? not clear. they will have to do some fixing very quickly to turn the ship around. manus: yep, it certainly looks like that. david, thank you for joining me. that is a david scanlon, our editor. coming up, china's factory activity is still contracting but at a slower pace. lockdowns begin to ease bid we have more on the story right here on bloomberg. ♪

manus: it is "daybreak: europe." in china, the pmi rose in may, contracting at a slower pace, adjusting to economic follows from tough lockdowns coming to an end. i'm joined by enda curran. a glimmer of light and the pace of contraction is slowing. is it material or something more malevolent? enda: it does suggest may be the bottom has been hit and that reflects what is a covert case count has collapsed. shanghai slowly moving out of lockdown. it looks like beijing will not have to go into a lockdown after all. by the way, when you look at the pmi data that came out today, there were some positive readings on new export orders.

employment is starting to improve again. delivery times are getting better. the manufacturing and services story is headed in the right direction. as you say, they remain in contractionary territory, still some 50, that shows you the depth. there is a feeling among a lot of economists that even if this is the bottom, it doesn't mean china is on track for a v-shaped rebound. manus: what is next for the economy? we heard a series of voices in the last 24 hours saying it ready for the mother of all stimulus. is that what is next? enda: we haven't seen that yet. we saw the 33 steps covering a gambit of areas, rebates, measures to push car and

property buying. the feeling is that is more about putting a floor under the economy, not necessarily stimulus. haven't seen the broad-based plans we might have seen. a lot hangs on the obvious, the covid outbreaks, the news is getting better, case counts are falling. everybody will question how sustainable that will be given what we know globally. that will question how quickly china's economy can recover if it is caught in a cycle of stop and start restrictions to keep the virus under control. manus: ok, thank you so much. enda curran with the latest on china data. one of the monster ipos in our region, the joint venture between borealis and adnoc seeking to raise $20 billion. on a 2 billion-dollar books, the demand was $83.4 billion. 42 times oversubscribed.

this is on the chemicals company. major cornerstone investors along with some sovereign wealth funds. just a note on that. markets are on tenterhooks, we have a final reading coming through on european inflation as we go into the jobs data. let's home in on the sovereign level of yields. that's where you want to focus on what is going on. aussie rates up by 11 basis points. chris waller makes it very clear he is not taking 50 basis points off the table, he wants to frontload and go early, though often. that narrative has double spooked the bond market. but as one of our opinion columnists set, and less it is the chair, vice chair or the new york fed, you are a backbenchers on the fed. ♪

so many people are overweight now and asking themselves, "why can't i lose weight?" for most, the reason is insulin resistance, and they don't even know they have it. conventional starvation diets don't address insulin resistance. that's why they don't work. now, there's golo. golo helps with insulin resistance, getting rid of sugar cravings, helps control stress and emotional eating,

and losing weight. go to golo.com and see how golo can change your life. that's g-o-l-o.com.