dani: this is accurate. manus: as long as it takes. a chorus of fed speakers vowing to do whatever is needed to beat inflation. next up, lagarde. the ecb is on the brink of a 75 basis point hike even as recession risks rise. eu leaders ready to merge with energy measures. most likely outcome. andrew bailey reiterates a recession is probable. sterling hits a low. trust enters 10 downing street. good to see you this morning and have you back. stephen majors shifting gears. maybe calling time for mr. lau

on those jumbo rate hikes. good morning. how are you? dani: good morning. relief in the bond market. someone seems like they are slowing down. 75 basis points instead of 100. i don't think that's what we can assign the equity market rally to necessarily. let me take you into what the futures are doing. europe starting to rally this morning. we saw a rally of nearly 2% for u.s. stocks. that's what we are seeing on the euro stoxx 50 futures. s&p, nasdaq are higher. they were unchanged. we have aussie news coming out that helped support stocks and bonds. in terms of my argument while yesterday wasn't about the fundamentals, it's because of the goldman sacs index. that rally to nearly four point 5% yesterday, double the index. that would suggest that the fed was short covering.

we will continue to see that around the 39 hundred level. we are near max short. i put it to you yesterday. just a little bit of short covering. manus: desperation to write up a narrative. two spac's failing is not enough to call the bottom. cross asset, it's all about currency and propensity to see the lows. whether 1985 is the low. they added back 100 bits yesterday. that was more dollar softness than serling strength. of course, i want to know what love is. that was number one when sterling trafton 1985. city good stays short. state street warns on twin deficits. he wants opportunities to buy sterling.

nymex has turned it around by 6% yesterday on china's slowdown gloom and doom. rates have repriced aggressively this morning on this narrative from the rba. you are seeing tenure paper drop. dollar-yen, you know what, wants to take a break. this intervention is probably the only thing. it was 1998 and that's when you saw monster intervention in the middle of the asian country crisis and a russian default. that moved to then. let's get to the team. in asia, juliette saly standing chi with the latest -- standing by with the very latest. juliette: asian stocks rebounding from two-year loads. quite a hefty load of losses. we are still looking at the weakness in the currency market. the pboc efforts to stem the decline in the yuan.

they had a 12 straight day of intervention. you are still seeing the offshore decline in getting close to the seven line. low westpac saying, they could see the 67 level on the aussie which is leading declines in the g10 space. we have been seeing a big surge coming through in bonds. traders start to suggest that perhaps we are done with the supersize hikes from the rba. what does that mean for the global central bank situation? the 10 year yields down 14 basis points the three year yield has been down by as much as 23 basis points. before the hike we saw on tuesday, you are still suggesting that you could see hikes out into august next year. now you are looking at the fact that the tightness in april -- the market taking these comments from the r.b.i. governor as a fact. these jumbo hikes are potentially over. they are talking to the impact

to households. rate hikes lag. we are only starting to see the effect of the third interest rate hike of the cycle. dani: slight bid for u.s. 10 year yields. thank you so much. let's get to our other reporters from around the world. not just the rba. it's a big day for central banks. maria tadeo is in frankfurt ahead of the ecb decision. lizzy burden is here with us in london. the latest from the prime minister in the bank of england. manus: richard chang gives us the latest on the lockdown in china. let's think about that. top fed officials continuing to pledge aggressive rate hikes. it's the vice chair lael brainard who spoke about the central bank having to raise rates and keep them there for some time. >> we are in this for as long as it takes to get inflation down.

so far, we've raised the policy rate to the peak of the previous cycle. the policy rate will need to rise further. manus: let's get to enda curran in hong kong. there's no doubt about it. the vice chair making it very clear and tagging loretta mester in terms of the trajectory. we've got higr to go in more work to do. -- and more work to do. enda: very direct message. no ambiguity there. making the point that she wants to see rights -- rates go into restrictive territory. that's jargon for when interest rates fight economic activity around the u.s.. she did give a nod to two-sided risks in terms of what happens when you are raising borrowing costs. at some point, all of it will start to create pain in the economy. she doesn't seem to be there yet. she didn't give a nod to whether it is 75.

that debate will continue. we will have u.s. inflation data . interestingly though, they increase their forecast this month. they are expecting 75 basis points hike. 50 in november when they were thinking about a 25 basis point move there. when you consider it altogether, it's a pretty hawkish outlook for the fed. interest rates going in one direction. dani: all right. thank you very much. of course, all of that impacting what the ecb does as well. it will be holding its first monetary policy meeting today. officials raised the key rate for the first time in 2011. we are joined by maria tadeo in frankfurt. great to have you back. the ecb on track for another rate hike. the question now is how aggressive that rate hike will be.

maria: i'm not sure if this is an omen but it's terrible weather today in frankfurt. the european central bank has to hike rates. that's not a surprise to anyone. this is a central bank closing below 2%. when you look at the inflation picture across the euro area, inflation is now more than tripled in some countries. they have to hike. the question is, how big of a hike are we going to get. when you look at the 75 camp, they say, we have a window. in that window, we should take decisive action. the credibility of the central bank is on the line. when you look at the 50 basis point cap, they argue that you could find yourself in a situation where you hike very aggressively. that's a real wildcard now for

the european economy. which way it will fall, we will find out very soon i 2:15 frank for time. manus: good to have you back. no better place to be than outside the ecb, hopefully making news and history. good to have you back. we will speak to you later on in the show. we will have conference of coverage. maria is there outside of the ecb for the rate decision. the news conference kicks off at 1:15 p.m. stay with the bloomberg team for that. the uk prime minister will sell out her plan to tackle soaring energy bills. the bank of england governor andrew bailey says the rise in energy prices is likely to contribute to the u.k. going into a recession. >> a recession. i hope it doesn't happen. we have forecasted it. it is the most likely outcome. overwhelmingly caused by the actions of russia and the impact

on energy prices. manus: let's bring in lizzy burden. she was watching that news conference. good to see you. the big question is, a lot of channels talking about the caps yesterday. it's the debate about who pays for this in terms of the energy intervention. isn't it? lizzy: indeed. this is her first big act as the new prime minister. dealing with the energy prices which is at the heart of the cost of the cost-of-living crisis. documents suggest it will cost 200 billion pounds in terms of helping consumers and businesses. as we heard from the boe officials yesterday, it could help to bring down inflation in the short term. the big question is how you will pay for this. she seemed to rule out a windfall tax. later on, it seemed that she would increase or extend it.

that means it's going to require a huge amount of borrowing. what we heard as well from andrew bailey at the treasury select committee was that perhaps they are going to have to put the brakes on active quantitative tightening which brings us back to what the former chancellor told liz trust on bloomberg tv. the markets are watching. dani: huge hurdles to tighten policy when all of this is going on at the moment. thank you so much. now to china where a city has extended a weeklong lockdown. most downtown areas after covid-19 cases increase. we are joined by rachel chang. what is the latest on the lockdown? rachel: right. the city has 21 million people. they just extended the lockdown. it was very significant. they haven't set an end date on the lockdown. that's the biggest jack -- drag

on chinese growth. as we look at the numbers, 120 local cases today. 90 yesterday. the numbers are so low, so much lower than anything else going on around the world. just reflecting how much the presser has gone up ahead of that really important congress that we will see next month. the president is very much going to want to come out on the stage and a clear over covid. this is status quo in china right now. manus: ok. let's see how much longer that zero covid policy is held onto. thank you very much. coming up, we speak to frederique carrier. dani: as the greenback strengthens and dark clouds gather over the global economy, we discussed the benjamin's with

viraj patel. stay with us for that. this is bloomberg. ♪

>> inflation is far too high. we are not close to the target for inflation. i'm quite focused in the fed is quite focused on making sure we do the steps necessary to bring inflation back down to its target. i'm committed to doing that and my colleagues at the fed are committed to that. we understand that in doing that, there may be of further slowdown in the economy. dani: michael bar on inflation being far too high. he was speaking at the brookings institute in washington. manus: and then you have goldman

sachs. they shifted gears as well. they lifted their forecast. they say that you will get 75 basis points this month, 60 basis points in november. no end of a jumbo rate hike insight from the fed. frederique carrier. do you concur? i think much more expeditious action from the fed. is that part of your narrative? how quickly do we get to 4% on rates? that richness and yields, that seems to entice you at the moment because you've gone from neutral to underweight on bonds. a two-pronged question. good morning. frederique: good morning. we went from under rate to neutral in the u.s.. exceeded the 3%. we thought it would send some

opportunities with respect to how we see fed action. we are expecting 50 basis points at the next meeting. it is starting to weaken a little bit. that's one factor that the fed would be focused on. 25 basis points subsequently. 25 and 25 until the end of the year. we think september may mark an inflection point. the central bank has been very aggressive and increasing interest rates. we think that this might be the last month where we have this consorted, synchronized action. the fed will start to decrease the pace of interest rates while the bank of england and the ecb will have to continue to be

aggressively hiking. dani: great timing for that viewpoint concerning the rba just did exactly what you are describing, saying that they are looking at slowing the pace of rate hikes here on out. i think that unemployment point is very fascinating. we had a paper come out presented at a fed conference saying that unemployment will need to be significantly higher for the fed to reach its inflation target. in your strategy, what sort of levels are you looking at to see that change, to see that inflection point? how do you address and what do you invest in? frederique: the central banks have all been very clear that in order to reduce inflation, we may need to have recession. this will mean higher unemployment. it will likely mean a decrease in gdp of 1.8%. as we see, it's a sign of the

impact of higher interest rates on the economy. i think we will decrease the pace of interest rate hikes. manus: did the break in the equity market oversell equities? the upside is capped. i'm just curious. near 20% rally in u.s. equities. given back 8% on that pretty stunning rally. your assessment of the equity narrative? one guest told me, let's go to 50% cash. frederique: for our clients, we think that is a very drastic strategy. sentiment is very depressed at the moment. the markets are oversold. it's possible that there's a rally. the fed is increasing interest rates. it's very difficult for the

upside to be very strong. the upside is capped. to have a sustainable upside in markets, you need the fed. it's policy. you need a decisive move down for inflation. they are unlikely to be there until well into q1 next year. however, the downside is quite steep. our lead indicator indicates a recession next year. by the end of the first half of next year. these are always accompanied by bear markets. five to seven months before the start of a recession. that makes is very cautious and therefore it's possible. we don't want to take very big risks. we want to ensure we have

quality in our portfolios. dani: if you don't want to be in 50% cash, what risks are you willing to take? are you fleeing to all of the defensive's right now? frederique: there are some pockets of opportunities. we can think of u.s. biotech for instance. we can think of companies which are involved in data in europe. potentially energy companies in the u.k.. alternative strategies are trading strategies. these strategies can really take advantage of the much higher productivity that we have seen across asset classes. manus: let's just get a quick line from you in terms of fx. it is the biggest talked about zeitgeist and markets on -- at

the market. -- markets on the moment. how much weaker does the pound go? are you fiscally worried? frederique: we are. we are very concerned. we balance it with our building up in the u.k.. particularly if we have this energy risk package. in addition to lower taxes, the current accounts deficit is very large. we think that the pound will continue to trade below 120 to the dollar. the technical picture is very bearish. until the structural problems are dealt with, with a cohesive, comprehensive policy, we think the path will continue to weaken and we haven't even talked about the relationship with the eu and what will be the new repose --

new approach to rates. that will be another factor in the medium-term. dani: ok. great to get your thoughts this morning. thank you so much for joining us. coming up, the uk's new prime minister liz truss appears to roll out funner -- funding with windfall cash on companies. this is bloomberg. ♪

juliette: you're watching daybreak europe. u.s. national security advisor jake sullivan is warning that a chinese invasion of taiwan remains a distinct threat. he's assisting the white house position. he spoke to bloomberg.

>> i think it remains a distinct threat that there could be a military contingency around taiwan. the people's republic of china has actually stated it as official policy. it hasn't taken the invasion of taiwan off of the table. juliette: in the u.k., the new prime ministers set out her plan -- sets out her plan to tackle soaring energy bills. it will be her first significant active leader. she's been trying to avoid memories of margaret thatcher. the pound falling to the lowest against the dollar since 1985. in the u.s., joe biden is holding back on a decision to scrap trump era tariffs on china imports. the ministration studies ways to help businesses seek bring relief. any decision before the u.s. midterm elections in november poses domestic and international risks for biden and his fellow democrats.

the federal reserve's battle to bring inflation under control will likely cause more harm to the u.s. than anticipated. this according to a pair of papers set for presentation at a bookings institution conference this week. the fed will have to push on employee at higher to get its inflation target. the other warns of the dangers in developing nations. global news 24 hours a day on air and at bloomberg quicktake, powered by 2700 journalists and analysts in 120 countries. this is bloomberg. dani: thank you so much. coming up, it's all about the benjamin's. the greenback strengthens in dark clouds gather over the global economy. we wil hi, i'm denise. i've lost over 22 pounds with golo in six months and i've kept it off for over a year. i was skeptical about golo in the beginning because i've tried so many different types of diet products before. i've tried detox, i've tried teas, i've tried all different types of pills, so i was skeptical about anything working

because it never did. but look what golo has done. look what it has done. i'm in a size 4 pair of pants. go golo. (soft music)

manus: this is "bloomberg daybreak: europe." these are the stories that set your agenda. >> lael brainard joins a chorus of fed voices -- a 75 basis point hike even as recession risks rise as eu leaders ready emergency energy measures. most likely outcome, andrew bailey reiterates and when it comes to this market it is all about fx, all about currencies. continued superlatives dating back to the 1980's. manus: absolutely. it's going to be on dollar-yen. that will be the focus. fourth day in a row, traders taking another punt on where

dollar-yen will be. you are seeing some of the strongest dollar levels since 1998. they are itching to get to that level of 145. that was the low in 1988 when we had intervention. dani: if we are worried about the end we also have to have on our agenda the pound. wednesday sliding to the lowest level since 1995. mark: varus patel loves a pond on the old chart. i want to know what love is. that is when sterling took a bath. that was january of 1985. a few other good songs that year. but foreigner, i want to know what love is. dani: they want to know what love is, we want to know what the low is. do you like that? i'm going to bring that to viraj

patel. we have heard just after guest saying the pound can go lower. we are going to face this crisis in the u.k.. you don't think so. what do you think? >> this consensus of how low can you go over sterling is starting to get a bit tired. on one hand yes, the fundamentals do not look great. there is a twin deficit that is widening. one has to face the move we have seen so far and the has priced in a lot of these. we are talking about refunding prices for the u.k. economy and the pound which is still a reserve currency. that's getting to excessive. there are a lot of things that have to go wrong before we get to that point and i think in the short-term it is really simple. the one thing driving sterling weakness your today is the inflation crisis. anything that eases that on the

margin, we are likely to get some policies that could be quite constructive and could see a contrarian corrective bout for sterling. a twin deficit is a factor but it is not an anchoring point at least in the short term. we are getting to this point, not pushing for a massive sterling rally here. the further weakness is equally if not less convincing than a corrective rally from here. manus: good to have you back on the early show. inflation at 5% on the back of the energy intervention. the risk is this. the bank of england still needs to be aggressive in rate hikes. how aggressive do you think they can be?

this narrative that inflation would top out. how many more rate hikes? >> it is worth remembering currency differentials or even rates for any driven fx markets this year, you look at sterling, inflation trade, the market is short bonds, short currency. you see higher rates, weaker currency. fx will be with confidence coming back, easing the inflation crisis, something positive happening from a policy perspective that pushes out potential recession risk, pushes out the need for the bank of england to be frontloaded with its rate hike. if it is a more gentle hiking cycle, sterling can do well. we are hoping for very different

paths. one reason is because it has been a theme that could start to unwind. dani: can i throw another risk possibly into the equation? i'm going to focus on the u.k. but this extends to all central banks. this mismatch of politicians trying to deal with the energy crisis, fiscal loosening, and banks trying to tighten. are you concerned at all about central bank independence in this current environment we are dealing with? >> it is tricky. we did hear from the bank of england this idea there might be a slowdown or a question on tightening as a result of this new attentional fiscal spending coming through.

this idea of monetary independence is being challenged, but to some extent we are almost back to the covid state of coordinated monetary fiscal policy in a time of crisis. i think the markets can be more lenient given the length of what we have seen in this crisis, the magnitude has escalated in what we have seen in energy prices. in a crisis you can be more lenient as long as when you get out you return to some sort of normal central bank independence. that is what the markets will be looking for. manus: the lady was called janet yellen and her words were intervention is something which should be rare and exceptional. like you turning up on daybreak europe it is rare and it is exceptional. the year was 1998. dollar-yen licked 145. there was monster intervention.

i want to get a sense from you, what is the risk of real g2 japan and the united states? what is the risk of g2 intervention in yen? >> less than 10%. nobody wants a weak currency right now, not least the u.s. officials. the bank of japan would love that. the ecb would love that. this is a zero-sum game when it comes to fx. but we are getting to the point where you look at the swiss franc, you look at the dollar, both of them up year on year, maybe the time to do that has been in the sun. to some extent the focus might shift to the ecb and the bank of japan when it can do stuff from a policy perspective to at least put a floor on how much this currency can go lower.

we have a really important boj meeting coming. one could imagine that just being short dollar-yen here and holding short jgb's on the risk the ecb throws in the towel into year-end could be quite interesting given how crowded the dovish consensus trade is. dani: what you are talking about is the historical corollaries don't matter, whether it be the yen or the dollar. i wonder how you actually find fair value in these crosses if it feels like we cannot look at prior valuation metrics as our grounding. >> tough fair value in this market is really tough because you see structural changes, anything from current account deficit to surplus is to trade balances because of this result. there has to be some perspective. some mark of what fair value is.

even just the dollar and the 10-year treasury yield, there's a lot of disconnect even in the recent sessions which suggests to me that what we are seeing is more momentum setting rather than fundamental. we are looking at short-term and long-term metrics but a combination of these factors, a lot of this in terms of the trade shock has emanated -- it is priced quite fairly into a lot of these currencies. it was not a great trade for march. one has to think about what this next week to six months will look like. mark: -- manus: i quite like with the rbi has had to say. the case for hikes may build. yesterday our guest wanted to hide out in bunds. where do you want to hide out in currency? if you do not believe the yen is going to materially run, where

do you hide in the fx world? >> it is a great question. a bit of yearling -- of euro strength, sterling correction. the swiss franc is going to start to awaken those fx dealers on the s&p desk. equally looking to add yen risk is important. tail risk, just a position, everyone was wrong on how hawkish the fed would be. recession will lock on to things like yen just because that is the classic recession signal. dani: our resident contrarian, always a pleasure to have you on, viraj patel fx and macro

strategist at vanda research. coming up, european leaders discuss energy profits as the crisis deepens. this is bloomberg. ♪

>> it is time for the consumers to benefit from the low cost of low carbon sources like for example the renewables. we propose to re-channel unexpected profits. >> production costs are far lower than market prices. >> oil and gas companies have

made massive profits. therefore we will propose there is a solidarity contribution for fossil fuel companies. >> this is the most coherent program to fight at the eu level. >> i'm against the windfall tax. i believe it is the wrong thing to be putting companies off investing in the united kingdom when we need to be growing the economy. manus: european leaders commenting on whether they believe profits should be subject to windfall taxes or rebranded to solidarity contributions. interesting differential. maria tadeo is in frankfurt, tracking the ecb.

we expect a rate hike. the question is how big a rate hike can they do in the eye of an energy crisis? what is the market position on that? >> the market was very well positioned to a 75 basis points, that was always seen as consensus. there is now to date precisely because of the energy story here -- it is very difficult to separate the geopolitics from the monetary policy and the energy. just the fact that today we are here tomorrow we will be in brussels, the monetary story tells you how intertwined it has become. this question is 50 or 75. the 75 camp will tell you we have a window and you have to hike decisively. inflation in some parts of the yuri -- the euro area more than tripled. you have to show you are serious

about bringing it back. when you look at 50, they cite the energy story and potentially the recession that may be to come if the worst-case scenario, a full rupture of gas supplies into the european union does not materialize. dani: you mentioned how prominent the energy discussion will be for this decision. in the u.k. we are seeing some coordination when it comes to the loosening that will bring. what is tomorrow? what does the energy meeting mean for the european economy as a whole? >> this is on everybody's mind and will be on everybody's mind here in frankfurt and in brussels. it already is when you look at central banks, but also the commission. they speak using very similar terms. this is about the energy crash we could see in europe. i will point to ursula von der leyen who gave a very defiant speech. she said this is the end of

russia as an energy market to the european union. some of the ideas floated tomorrow may include the gas cap on russian gas. she doubled down on that. she also talked about limiting profits for companies that produce energy, mostly electricity, but do not use gas. she talked about demand destruction. it would now become mandatory, it could be about 10% as a target for the eu as a whole. then of course liquidity for european companies. the margin calls. dani: thank you very much. bloomberg's maria tadeo. we will have comprehensive coverage of the ecb rate decision and christine lagarde's news conference today at 1:15 p.m. u.k. time, stay with us for that. in the u.k., liz truss is revisiting calls to fund energy support for a windfall tax on companies.

truss was grilled during prime minister's questions yesterday. she seemed to change her tune when it comes to windfall tax after the p.m. cues. what should be our take away? >> we were all scratching our heads. opposition leader cure starmer -- kier starmer went in on that saying if the windfall tax continues at its current rate the treasury could rake in tens of billions of pounds that could be used to fund policies like this. later in the day truss seemed to go back on her opposition to the windfall tax. perhaps what she meant was she would not be open to increasing it or extending it to include the power generators. it does raise a number of political issues. even some of her closest allies have warned that it was amateurish to be ruling out tax rises during the campaign. on top of that, a 200 billion

pound package as documents seen by bloomberg's adjusted is going to cost looks a lot like a handout, which she ruled out during the campaign. but on top of that, even with this package, energy bills could triple. it is still going to be painful. there is a question, will it be targeted enough? and what if this is the new normal? if putin could shut off the gas. the other thing the former chancellor said to us on bloomberg is the government cannot continue to -- people through this. mark: those numbers are interesting. the questions were fascinating to watch as truss was defending her taxcutting grow the economy route she is taking. the energy bailout or intervention, the question for the bank of england is does it cap inflation? very quickly, how much would this cap inflation?

>> according to bloomberg economics analysis, it would mean inflation already peaked and recession could be avoided. the warning is inflation is going to be controlled in the short-term but the risk of the economy overheating is that rates stay higher for longer. the chief economist of the bank of england alluded to that yesterday by distinguishing between the short-term and the long-term inflation impact. dani: thank you very much. a breaking line, the japan ministry of finance, boj, and financial services agency are going to hold a three-way meeting, the first since june. they will be holding it at 4:45 japanese time. we are seeing strengthening coming through the yen. this might be unilateral

intervention, but will that be enough or do they need coordination? mark: we have just had viraj patel with us very reluctant to commit to any intervention. this goes to the confluence of monetary policy and fiscal policy code joining as you just discussed -- co-joining. you are going to have the bank of england and the treasury sitting down very regularly. so the ministry of finance, the bank of japan, a three-way meeting for the first time since june. the last time there was major intervention this size and scale was 1998, when they intervened and moved the market by six big figures. is that a game anyone wants to get into at the moment? there you go. that little bit of strengthening in yen and a drop in the dollar. coming up we are going to talk

more about oil. that 6% drop that it took yesterday as chengdu extends its lockdown. there is relief in brent this morning. more on bloomberg. ♪

>> apple has unveiled a above devices without raising its u.s. prices in one of the worst years for inflation in decades. the iphone 14, fresh airpods, and an apple watch upgrade which includes the first ever ultra model. mixed results for elon musk in his fight to cancel his buyout

of twitter. a judge is allowing him to add the claims of a recent whistleblower to his case but is not letting him push back the october trial date to give him more time. the judge is also slamming musk for not properly handing over text that could be evidence in the suit. reality tv star and entrepreneur kim kardashian has a new business venture. she and a former partner at carlyle group are launching a private equity firm that will focus on consumer and media businesses. the apparel business kardashian started in 2019 has been valued at $3.2 billion. that is your bloomberg business flash. mark: thank you very much. we could not -- we could go a country mile with that. i think we need a reality tv show. do you think we could have a kardashian moment? what do you reckon? dani: i do not know if the world is ready for that, manus.

that is all i will say. manus: i tell you what the world was not ready for. it was not ready for mr. lowe of the rba hiking. they spanked those aussie rates. look at that. the aussie yield down by 14 bits. dani: i should say, light bid -- well, not anymore. the yen has reversed. there will be a meeting between the boj -- will be's unilateral intervention? certainly something we are looking out for. this is bloomberg. ♪