dani: this is bloomberg daybreak here. these are the stories that set your agenda. manus: central bank is united jay powell, andrew bailey and christine lagarde all told bloomberg they are ready and willing to ramp up measures to combat price pressures, which the ecb had says -- >> i do not think we are going to go back. there are forces that have been unleashed as a result of the pandemic, of this geopolitical challenge we are facing now. i'm agreeing to change the picture and landscape. manus: chinese manufacturing expands in june for the first time in four months. as covid curbs ease. stocks in asia fluctuate amid ongoing concerns over global

growth. come back stance of nato members commit to a sevenfold increase in battle ready troops. the biggest upgrade since the end of the cold war. paradigm shifts in terms of war alliances, natal alliances, but the paradigm shift from christine lagarde, we ain't going back, the genie is not going back in the bottle. why bother having a 2% target? dani: good morning. i guess what -- i goes to what messner was saying yesterday. going to 4% next year, even if it means recession. the panel yesterday, i love what powell said, we understand better how little we understand about inflation. this admission of the catchup they are trying to play. it -- it may not have spooked markets yesterday except that panel, but it did not much to

help them. it is the last day of the quarter, equities ending basically flat yesterday. the bad first half of the year for equities. the worst start to a year since the 1960's, the worst june since 2008. negative actions except for china. we are going to go into this. going about 50 for the first time since february. that is the one standout region in the brain. manus: we had a spike in the bond market. the breakevens are beginning to roll over. that is the bigger understory in the bond market. the ing bonds will behave like a recession hedge. five-year breakevens to drop yesterday by 14 basis points. the fed is just beginning february trajectory.

you got fruit flat, its first monthly decline this year is to go into the opec meeting, gasoline demand showing signs of softening. we are up by 31%, the worst quarter since 2008. on the global financial crisis and commodities, down 23%. the dollar remains robust, up 6% on the quarter, flat this morning. this quarter because of the best quarter since 2015. the debate between the fed at 4% for the terminal rate in the market. 3% for the end of next year. dani: even willing to price and some cuts for next year. let's get to our reporters. here's the view from frankfurt, and one in hong kong as we discussed china's recovery. manus: juliet in singapore as

always. and from madrid, maria tadeo on nato's massive troop expansion. to the fed stories of jerome powell's is the economy is in strong shape of the central banks can reduce inflation to 2% while maintaining a strong labor market. he spoke to francine along some of the top central bankers in sintra. >> we are strongly committed to using our tools to get inflation to come down. the way to do that is slow down growth, keep a positive, supply and demand get back into balance. is there a risk we go too far? certainly there is. i would not agree it is the biggest risk the economy has taken. the bigger mistake would be to fail to restore price stability. manus: he joins us now. this is -- powell and lagarde

singh inflation is over. >> the u.s. dollar inflation is driven by the red-hot labor market. that means that services now have an outsized proportion in driving inflation. that is the kind of inflation but doesn't slow on its own. it requires that action. that is why we are seeing massive rate hikes. in the euro area, inflation is primarily driven by energy. one of those things central banks cannot really control. that explains why the ecb has waited so long. we had record inflation rates -- all year. the reason why only moving next month, they are worried this will become entrenched. we had readings yesterday from spain and germany, spain on the upside 10% inflation, germany on the downside, the euro area

number we will get tomorrow. that is predicted 8.5%. dani: based on that number, a could get ugly. manufacturing activities in china, rose for the first time in four months following the loosening of covid restrictions in many parts of the country. joining us now as an adult, -- first time about 50 a few months. >> the manufacturing side is pushed into positive territory, over 50 points. people are moving around again, transportation looks better, entertainment, all that remains on the side of pmi's, hit a one year high. it feeds the narrative that china hit bottom and bring recover from here. the point to ongoing weakness in some areas, economists are continuing to warn, there are

still plenty of blockages and supply chains, production hasn't fully recovered where should be. we know service is still -- logistics more now in terms of the rating. pmi back in positive territory, it is a question how sustainable it will be given the ongoing covid zero policy. manus: let's talk about that. xi jinping says china can achieve a final victory lap over covid-19, but we are not going to get there quickly. where do we stand, what is the narrative from him? >> globally, there was word that china was shortening its quarantine, what we did have

yesterday was present xi jinping came out and said we are sticking with covid zero, there more or less codifying the margins, the health dividend is number one for the authorities. he made himself the point, they can take a number of pains, they're not going to put the economy over the protection of their people. they are with it. there is no end in sight. present xi jinping arrives in hong kong today. the covid zero policy has been playing out, it will be interesting to see whether or not -- the big takeaway was china has its covid zero policy, they are sticking with it, no deviation in the near term at least. manus: that's got huge implications all around the world. let's get more market reaction out of china, started easing some of the covid travel rules,

including a report that shanghai will gradually reopen its museums and tourist attractions. jules is in singapore, not sure where my next trip is with that trusty australian passport. >> i am not. the optimism among investors there is going to be an easier way to get either into china without restriction and quarantine, and the fact it is becoming a lot more easy to travel internally is taking center stage along with the pmi data and away from what present she has said about them sticking with the -- presidency she has said about them sticking with the covid zero policy. we are still seeing these global growth worries. adding to its quarterly loss at around 6%, her monthly loss of around 6%. singh some upside and some the asian currencies, the korean has

just turned negative. we did hear from the malayan bank saying that flat rate does give in easing for some of these asian currencies. let's put the board and have a look at my chart. it has been the worst quarter for asian currencies since the financial crisis in 1997 is a sea central banks around the region step up the pressure of having to ask -- ask quicker than they want to to get ahead of inflation and in-line with the aggressive moves from the fed. we already heard from the bank of the philippines, saying they will have more aggressive hikes. the bank of prancing they may be following up in july. the index of asian currencies down 4.5% over the quarter, the worst since 1997. big losses coming through and that philippine peso, korean won and japanese yen, not even into this index. dani: thanks very much.

juliette saly in singapore. u.s. national security council coordinator john kirby says there is no reason russian president vladimir putin should see the bolstering of nato forces as provocative as provocation. >> there is no need he needs to view any of these changes as provocation. nato is, will beat, always has been a defensive alliance. the reason we have to do this is because mr. putin has been destabilizing, he decided to invade a sovereign neighboring state. he is the aggressor. dani: let's get straight to the nato summit in madrid, where maria tadeo is. final day of the summit, nato allies are calling this historic . walk us through what has been achieved. maria: it is historic. they say there is a shift in

nato strategy, going back to that combat mode. a lot of this because of the instability we are seeing in eastern europe. a reality check to european countries by comes to taking them for granted your security when we have country trying by force to redefine the winds of another sovereign state. yesterday, nato allies agreed to label russia is the most significant threat to nato security. i want to reduce some of the language in that new document that was approved yesterday by nato. they say nato allies, russia is looking to reestablish control through aggression and annexation. on top of this, there's a line on china, which is not as aggressive or explicit, it does say that china is a country that could be a challenge to future security. there investing majorly in their military and infrastructure,

nato expressing their disappointment that china has not condemned the war in ukraine yet. manus: significant shift in the size and scale of nato. maria tadeo in madrid. let's take a look at some of the key things the market will be focused on today. at 10:00 you -- u.k. time we are going to get the unemployment number from the euro area. italian ppi will be released. 1:30, more data from the u.s., including consumer income data and initial jobless claims. what else have we got? dani: later we are going to get some earnings reports from the u.s., that includes technology, and walgreens boots. our analysts too optimistic about the earnings picture? i think so. manus: consumer spending, that is coming off the boiler is of

is what the big topics in the s&p market. coming up, we talked global markets of inflation and the risks with kiran ganesh. what to do in the second half of the year as your battered inequities and bruised and commodities. dani: i don't envy him answering that question. later in the program, more from china present xi jinping set to arrive in hong kong for the 25th anniversary of beijing rule. this is bloomberg. ♪

>> i think we now understand better how little we understand. [laughter] honestly, this was unprotected. >> forces have been released as

a result of this massive geopolitical challenges we are facing now. >> if we see greater persistence of inflation, then we will -- >> a path next to -- back to 2% inflation while still sustaining a strong labor market, we believe we can do that. >> the uncertainty will clear on various accounts. we will have to be less gradual. >> is quite clear, we want to have those options on the table. >> bigger mistake to make would be to fail tourist door -- restore price stability. dani: the central bankers on the fight against inflation, speaking to francine lacqua, and in ecb panel in portugal. federal reserve bank cleveland president says central banks

must not be complacent about increases in long-term inflation expectations. she says end of the year, the funds rate could be as high as 3.5%, perhaps 4% next year. manus: indeed. the markets already setting up a bottle there -- battle there. karen -- just listening to the central bankers yesterday, it is interesting how lagarde talks about it being less gradual. or are they saying we are at the beginning of raising rates. you, mark and the whole team, let's start with the second half of the year. the debate is this, how much more forceful do you think the fed will be for the rest of this year? let's contextualize. the market is already pricing rate cuts by the end of next year. kiran: i think it is all about

what is the market going to perceive actions going to look like in 2023. this year, the fed is going to be aggressive. we talked the 75 basis point hike, more to come later in the year. if we start to see some of the cpi surprising to the upside again over the next couple months, the market will start pricing, rates may need to peek at a higher level and may not need those cuts in 2023. then you start to get into those scenarios where you potentially have a repeat of the first half of the year, treasuries affecting growth stock valuations, that is going to be the big question about when rates peek. can we still get a soft landing, base case scenario, a 40% probability to that.

earnings growth around zero for next year's of avoiding a recession, but still pretty significant slowdown. dani: if i could go to the scenario you mentioned where there are pets, and you walk me through why that would happen? even if we get a recession, isn't that what the fed wants to seat, to slow down growth to bring it in line supply? what would change on the supply side that would mean they could cut back on monetary policy? kiran: if you think about islam scenario, a 30% probability there is of that would be where the fed is increasing interest rates this year, the economy slows much more quickly than expected, you start to see an increase in unemployment, we are already starting to see an increase in jobless claims said that puts down the pressure on prices, wages and the economy is contracting. earnings getting cut by around 15% for next year. in that scenario, the fed is not going to be so worried about

inflation, there are going to be worried about trying to pump up the economy, they might feel more comfortable to cut rates. it depends on the severity, the fed will be modest contraction and growth. a larger one than a cut. manus: it is difficult to achieve a soft landing if we look back in history. it is a near impossibility. as you look at the performance and commodities, down 28 percent, 30% since the beginning of the second quarter, equities under pressure, when you look across the asset classes, where do you want to be upping your exposure given that we are in a tightening cycle? kiran: we think to manage that risk, we get this continued stagflation dynamic, things like hedge funds are interesting

areas. portfolios of they can pour dust perform out, even if both equities and bonds are falling. within equities, it varies, things like health care, commodity income stocks, can perform well chip -- relatively well if we get the earnings, thinking longer-term areas like private equity and some select areas of growth. china was mentioned earlier. these are areas we think are interesting for investors to think about over the longer term, even though the next six to 12 months are hard to call with a variety of different outcomes, valuations have come down significantly. those longer-term metrics of proof -- potential performance, we are in a better place now than this time last year. dani: it is easy to get caught up in the current doom and gloom

of the worst start of the year for equities since the 1960's, you're talking about the longer term. what are the benefits of being fully invested versus the optionality of having cash? kiran: it is all about the right balance. cash is an interesting area. interest rates have come up so much and because you've got this dynamic bonds and equities aren't diversifying each other so well. we know the behavior elite, if you invest too heavily in cash, it is easy to miss the rebound when it comes than continually wait for the next drop, then the market is much higher and you are to the next cycle. we tend to think about how much cash flow to investors need to draw from their portfolio the next three to five years. keep that infected in cash, short duration bonds, shorter-term securities. it the right balance between

having the optionality, earnings yield, but also keeping the majority of the portfolio for high net worth individuals invested for the longer term. dani: thanks so much for joining us this morning except laying out all your scenarios. go ahead. manus: not at all. thank you very much. market strategist ubs wealth management. coming up, nato promises to pick up its forces, and can recommit to protecting ukraine. more on the story. ♪

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manus: it is "bloomberg daybreak: europe." we have the stories this set your agenda. dani: central bankers unite. they're all telling bloomberg for a and willing to ramp up measures to combat price increases. >> i don't think we need to go back to that. the forces that have been unleashed as a result are going to change the picture and the landscape. dani: activity recovery, chinese expansion for the first time in four months.

combat stance. nato members commit to a increase in battle ready troops. the biggest since the end of the cold war. maybe not a hurricane on the horizon, maybe it is the worst start to the year. gasoline has been moved to record highs. will the flareup -- will this clear up in the second half? manus: the genie is not going back in the bottle. that is the message from kirsty lagarde. we are not going back to where we were pre-covid, prewar. that narrative that we need to think about, looking at bonds. more inflation angst.

central banks up. i think we are teeing ourselves up. best quarter since 2016. dani: best quarter since 2016, worst quarter for stocks since the 1970's. we are limping into the end of the first half. negative across europe and asia features. perhaps a little windowdressing. the one bright spot is china come up more than 1.5%. pmi is back. they are hoping for travel in

china. hong kong is still committed to covid zero. manus: there on stage for the forum. drone powell, christine lagarde, they are all striking a hawkish tone. >> the economy is in strong shape. if you look back, the u.s. economy grew more than 5%. >> there is this recovery that is very much underway. that is being driven by services. >> looking at the u.k. economy, it is very clear that it is starting to slow. there is a turning point in that respect. >> there still averaging very high job growth per month. >> very low unemployment

numbers, high employment participation. >> u.s. economy is well-positioned to withstand long-term. is there risk we could go to far? certainly. i would not agree that it is the biggest risk. dani: with us now is josie dent, managing economics at centre for economics and business research. spanish inflation comes in at 10%, german is lower, what do you make of it? josie: despite it being lower, inflation is on the rise across europe. this is caused by the geopolitical shock in ukraine. as well as lockdowns in chinese cities which are causing issues in supply chains and driving up prices. there are several risks that

inflation will accelerate even further. including the news of gas supply disruptions. that occurred in the winter, it could cause a very difficult time at the end of this year and early next. potentially double-digit inflation. inflation is only good accelerating this period. inflation data is due tomorrow. it is up from may. it may concede to rise throughout the year. -- continue to rise throughout the year. manus: good morning. let's pick up on this acceleration narrative. we are looking at five-year spots. this is the u.s. and the euro

five-year ford. -- five-year foreword. do you believe that, that that is an authoritative chart to work with? josie: it reflects what i said and we may have seen the biggest acceleration already have happened. we already had big issues with supply chain which me if china -- which might ease if china eases their covid zero policy. we could see potential for supply chain issues to resolve. the war in ukraine is difficult to predict. if we do see a worsening of the conflict, including russia and the gas supply to europe, that would drive up inflation. if it does not get worse and potentially there was a resolution towards the end of the year or improvement in the political situation, we might

see inflation certain slow. it depends on the war in ukraine and energy prices. dani: the gas crisis continues to fold, especially in germany. do you view that it could be a lehman like moment if gas comes down lower? josie: it is a huge risk to the economy. there are different scenarios, in particular to the u.k. and the war in ukraine and how that would impact inflation. gas turning off was part of the downside scenario. it would cause a contraction in gdp. german is dependent on russian oil and gas. we are already forecasting slower growth this year.

that is because of the risk it faces because of we can supply from russia. manus: lagarde talked about them being less gradual in the approach. if you look at inflation prints, yes germany may be getting better do you think we are underpricing the real need for 50 basis points frontloaded, fast acting in july? josie: it is difficult for central bankers of the world -- central bankers at the moment. we are not going to bring inflation to 2% anytime soon. the ecb is worried about recession. it is quite likely.

we are forecasting 3% growth for the whole but it is possible we will have contraction at some point. they have a balance of attacking inflation and also supporting the economy. that is difficult. they have these factors opposing each other. we will see a rate increase. manus: thank you very much. that is the base case. the argument is raising rates, does not fit the supply side problem. thank you very much, josie dent, managing economics at centre for economics and business research. here is our first word news. juliette: the eu says they will

not contemplate -- in an exclusive interview they say the eu cannot accept britain's plans to amend the protocol. the u.k. introduced a bill into parliament earlier this month to allow investors to rip up part of the framework. >> i would not even consider this possibility because it is not in the cards. we are very clear of that. i think that was a huge point in the united states. i had a lot of meetings with senators and congressmen in the white house. under no circumstances would they put that under question marks. juliette: further signs of

improvement with china pmi's as covid outbreaks and restrictions will gradually ease. the nonmanufacturing pmi climbed to 54.7. well above the forecast of 50.5. grayscale says they are suing the u.s. securities and exchange commission after their application to convert bitcoin into etf was rejected. they had a meeting last month where grayscale argued the plan would unlock $80 billion in value for investors. they felt the proposal did not do enough. global news, 24 hours a day, on-air and at bloomberg quicktake, powered by more than 2,700 journalists and analysts in more than 120 countries. this is bloomberg. dani: thank you. coming up, nato has promised to beef up their forces as they recommit to protect ukraine. more, next. this is bloomberg.

♪

>> today we recommitted to the pledge were made in 2014 to suspend at least 2% of gdp. >> there are big and respectable countries, they want to be leaders as well. they must develop empathy and development now. >> nato is, will be and always has been a defensive alliance. >> china has challenged values to interest and security.

dani: voices in the nato summit recommitting to protect ukraine. nato leaders agreed to put more than 300,000 troops on high alert. joining us now is bloomberg's maria tadeo. we are reaching the end of the summit. nato is back in combat mode. what has changed? maria: some of the great voices. we are here at this very busy nato summit. you are right, nato has hinted that they are back to combat mode, being on the defensive. the secretary-general was very clear yesterday. allies if you russia is the most direct and significant threat. some of the language was very

striking. this is a country that wants to reestablish some of their control on neighbors and do so by being aggressive. a country like russia by force trying to redraw alliance. they are back to combat mode. a reality check. i will also mean 2% will be a big priority. they don't want to take security for granted anymore. manus: they do not. new york times leads with a point that they will not bump -- and turkey. how do they respond? maria: the straight we heard

from the president of the united states to tell turkey thank you for facilitating. finland and -- formally invited to join nato. the comes to china, there was a preference in the document that sets it up for the next 10 years. language was not as aggressive as it was in russia but is explicit. china in the future could be a challenge to nato. they do talk about the infrastructure spending. nato repeats that they are disappointed that china has not condemned the war on ukraine. worry about some of the support the chinese could provide to russia, not just financially also military as the war continues. manus: thank you very much, maria tadeo at the nato summit.

full coverage throughout the day. to opec and their allies. they are meeting today and they are expected to ratify the supply increase. traders are likely to bully -- be more focused on after that. president biden will take a trip to 70 arabia next month. -- to saudi arabia next month. >> i think the first step of announcing digital supplies was step one. very hopeful we can have this conversation. manus: that was at nato. we have our energy markets reporter. that is teeing up very nicely for president biden strip. he hopes opec-plus will move to

step two of oil and supply boost. what a step two? -- what is step two? >> we are in that gray area were markets are looking for a little more. we still have those high gasoline prices and concerns that demand is increasing. that is a good sign as he come back from coronavirus and economies are still opening up and moving. there are concerns that supply will peter out and it will not be enough to meet that demand which will keep prices high. that is a real concern. the president is concerned about near-term, midterm elections. he wants to get prices down now, get some of the sentiment going. it will be a lot of sentiment. it is that hope, the step one. dani: what will likely be the reality of today's meeting?

today, we are looking forward to the increase that they agreed to. opec members have been having trouble producing up to their quota. we will not seek them much in the market. analysts have been telling us that will be only about 200,000 barrels. that is dragging in the market. we are expecting them to ratify the decision. that will run out and we will be back to a level basis. and then it will get really interesting after what they decide to do for the rest of the year. thank you. bloomberg's energy markets

reporter, anthony di paola. manus: we are going to round off with xi not returning. the vow to continue their covid zero policy. more on the story, right here. ♪

manus: this is "bloomberg daybreak: europe." president jeezy and ping -- president xi plans to stick with their covid zero policy. the chinese leader is expected to stay in hong kong for the 25th anniversary. let's get to our reporter.

tom, are you bullish on manufacturing and services numbers? no pressure. tom: what we feel is that there is a recovery underway. virus cases have fallen. cities around the country have been able to ease their lockdowns. high-frequency data is telling us that the economy is still not where was at this time. there is still some time to go. dani: that is what you call the answer of an objective journalists. he is traveling and they are hoping more trouble what happened. what are the details? tom: this is a symbolic moment,

the anniversary of hong kong being handed back to china. xi will come and put his stamp on the inauguration of the new leader in hong kong. the message that he will give for the new administration, we don't know if they will say anything. the overall message is that they do not want to see any protests, they are knocking to tolerate dissent. they are going to try and build more houses and make life more affordable. whether or not hong kong people like that, we will have to see. that will be the best metric, whether they stay in the city or leave period manus: the debate will be at what pace they step back. quarantine and zero covid, they

are two different things. one is the international access and the other is about society. what did you take away from it? tom: the virus cases have come down really strongly in china since the lockdown. our strategy works. even against omicron, the thought it would not work but has. he thinks overall it is worth continuing with. things will be adjusted at the margin but that is the message. dani: thank you very much, bloomberg's tom hancock. china outperforming today. risk markets are ugly in the first half of the year. manus: go back to the breakevens in europe. central banks are having --

up next is "bloomberg markets: europe."

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