>> this is "bloomberg daybreak: europe." i'm danny -- i'm dani burger in london alongside many credits in dubai. manas: strength begets weakness. unexpectedly strong services data sense stocks tumbling on concern the fed will need to keep hiking rates. asian stocks fall. not done yet, the reserve bank of australia raises its benchmark for the eighth consecutive month and warns of more to come. the aussie climes. plus, u.s. and the eu are set to way joint tariffs on chinese steel and aluminum to fight emissions and global overcapacity. good morning, dani burger! i'm going to steal michael metcalf's line. the equity market took its rose tinted sunglasses off yesterday and reconsidered what happened at the short end of the yield curve. it was a drive-by and a spike. good morning. dani: good morning to you, man

us. it was a market reacting to u.s. data stronger than many folks expected, but i take you to the yield curve. its most inverted since 1981. this is just the wagging effect, but there is still a recession on its way according to an analyst. manus: it is just a question of how brutal that recession might be. another story is that a soft landing is on the way. it depends whose story want to buy. dani: in that survey, they point out that folks are buying lots of cyclical shares. yesterday, it was the most cyclical shares that got hit the most. you are seeing some steadiness when it comes to u.s. equity futures. just that bit of consolidation after a brutal session, a drop of over 2% for the russell 2000,

about 2% for the s&p 500, so those are hanging steady. futures are down .25%. i'm going to steal the story you pointed out this morning -- goldman says we have not even halfway priced in china reopening. even so, asian equities struggling a bit this morning. manus: that is up 38% from its nadir in october. another hike on the way in the aussie. we will take another look into that. the two have in your paper this morning is rising. oil goes of it after crashing because there is a juxtaposition between the risk off from china and risk off in terms of oh, goodness me, we might need a higher terminal rate. bitcoin can take another bath,

down 70% to $5,000. multiple failures have got to be delivered in crypto land for that call to take place. that is a very important health morning with that call. dani: we'll have to talk about that, what a bold call. let's get to our top stories and reporters around the world. we will talk in that jump in the u.s. services gauge and also the latest news from the rba and more on goldman's call on china news. manus: the services data, what is the bet now? how high will the fed have to go? let's get to our markets editor. what stands out? we got the actual number, but put the scale of the jump in context for us. valerie: this falls off a strong nfp payroll print last friday, but i guess it took the market two strong economic prince to believe it. the market finally reacted. we had the strong ism beat

yesterday. we are still in expansionary territory. it was a beat on the headline number as well, but if you look at my next chart, the whole discussion coming to your end is where is the fed going to guide that, how much higher than 5% will it be? we are seeing the terminal rate had a bit higher which again is pummeling stocks. this is the third time this narrative has taken place this year, and it begs the question, is this what we will be dealing with next year as well? we have an equity market rally, but some strong data. the terminal rate has higher and the equity market turns around again. it has definitely dented risk sentiment in asia. it is also strengthening the dollar. dollar korea sinking in nearly 2%. this is a really high beat of currency, one to watch whenever we get some strong data out of

the u.s., seeing the strong dollar really ripped through asian currencies. again, you take a step back, the dollar has weakened a huge amount in november but we are starting to see signs of this reversing. manus: i'll pick it up from here. thank you very much. the latest repercussions of the pmi and the ramifications for the dollar and the cost currencies. let's dig a little deeper into the aussie story. i spike and i hike to 3.1%, the highest level since november 2012. kriti gupta is with the team all week. walk us through the significance of this decision today. the question many people try to divine is if this was a hawkish titan or not. it has certainly got all the hallmarks of quite a thumbscrew. kriti: interpreted as extreme we hawkish. going into this decision, economists widely consensus said they would actually hike by 25 basis points, but the market was

actually pricing in only about 19 basis points. you are also seeing yield on the front end rise as well, even though the curve was flattening. what is tough for the rba is they are kind of stuck between a rock and hard place, the idea the housing market is actually really tumbling and they are dealing with adjustable-rate mortgages, one that could slow the entire economy far faster than any other housing market in the entire world, and that will be the crucial story while they are also balancing still high inflation. we are looking at 6.9% cpi data year over year. we are really looking at a long-term target of 2% to 3%, so they are nowhere near that. what do you do when you have this extremely hawkish inflation that just will not quit at a time when many people are saying maybe this is the last hike on the docket for the rba? >> it does feel like many people are looking to the rba for clues, considering they were the ones to start this hiking cycle. kriti: the rba has been an early

mover for a lot of consensus decisions. the problem here is that they have a different situation because of the housing market. however, you are already seeing that divergence. you are seeing that story we have seen around the world that fed swaps and over-the-counter pricing is going to suggest the fed is taking a very different path than other central banks around the world. dani: thanks so much as always. the ecb is speaking, saying they are confident we are likely near the inflation peaked, also saying that more hikes are likely needed but a lot has been done. manus: i think if you put this in context in terms of what everybody else has intimated, they are so fond of hiding, the

fed, that they are going to have to do a great deal more on how to be more aggressive, but this might be trying to avoid the ghosts, confident that we are likely at the peak of inflation. euro-dollar certainly is not taking anything terribly dovish. it has actually traded higher. let's reflect back on those chinese markets. it was the big conversation we had yesterday. they were on fire. assets sensitive to the nation's growth. beijing is easing covid restrictions, and goldman sachs, as you said at the start of the show, estimates 40% of that reopening narrative. you can look at this as either glass half-full or glass half-empty. there's another 60% to go or do i have to be a little bit more tempered? dani: that's the million-dollar

question or maybe a billion dollars, depending on what you see from it. absolutely after 2, 2 .5 years of traumatic selloffs across the chinese equity space, people seem to finally say this is the time to get in. many saying you have not luster chance for the upside. it seems like more people we talk to these days have an increasingly bullish stance on chinese equities. dani: foxconn reporting a big sales drop. how do we take that into account in terms of this economic picture? >> right. what is happening with foxconn i think is a tale of how stringent covid zero was, has been, and how it has really weighed on the economy and the fact that, you know, this company where the majority of apple's sort of

pro-iphone handsets were made, you know, was just going through the difficulty with covid zero and had to work in a closed loop system where workers were not allowed to roam free hour whatever. they had to go back and forth to a specific spot so covid cases would not pick up, and that really dampened sales figures. i think the estimates are that we will likely see some lower figures for december as well, but even the city where they were operating, they have now eased a lot of restrictions. pcr tests are for the majority of places no longer needed. this is not a complete listing of all restrictions, but this is a big step towards it. it is a slow rebound, but that is kind of how things are trending, especially with this broader reopening news. dani: thank you very much.

let's look at some of the key things we will be watching out for. today at 1:30 p.m. u.k., we will get some u.s. trade figures. later, more ecb speak. the vice president will be speaking in an eagle fed meeting in brussels. manus: let's see what comes out of that. today, we get the eu western balkan summit. it will be held in toronto, in albania. rusher's war in ukraine is the major topic. also today, democrat raphael warnock and republican herschel walker face off in georgia's u.s. senate runoff, so keep and i on politics as we go. coming up, it is the world's worst performing major currency. could it rally 9% in wendy 23? that's according to barclays. yes, of course, we are talking about yen.

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manus: day two of "bloomberg daybreak: europe" of this weekend the worst performing currency of the year is of course yen, but it looks poised for an impressive turnaround going into 2023. what does state street make of that? let's bring in the global head of microstrategy, michael metcalf. we have already had a nice rolling off of the dollar, risk, and topping out of rates has been the narrative. you would go the extra mile. you would say yield curve control will be abundant, and yen looks like pretty good value. what is it that takes the bank

of japan to dump yield curve control? >> i think it is fairly simple. it is inflation. i think we have been waiting for inflation in japan for the best part of two decades, but i think right now, the breadth of prices going up is at a 20-year high. even inflation expectations are at a 15-year high. when we look at some of the tracking of online prices in japan and get a real-time read on it, the monthly inflation rate right now across developed market countries is highest in japan, so we are really just waiting for the bank of japan to acknowledge that inflation is back and start to lift rates. dani: the market is already headed that way. we saw one of the best months for the young versus the dollar in quite some time. the dollar itself had dropped 5% over the past month. 10-year yields are down nearly

60 basis points. equities are up. cannot momentum continue into the new year? >> yeah, and you're right. i think at the moment we are in the midst of a quite dramatic dollar unwind which yen has certainly benefited from but certainly, we are not at a point where the yen in any sense is crowded. i look from a valuation point of view at various points this year, the yen valuation was quite simply ridiculous. by our real-time ppp metrics, i think it was more than 60% of the bank at one point. it is now 50%. there is still a long way to go. the next catalyst the yen needs looking into 2023 is from the boj's movement. manus: nejra: --manus: that yield curve control comes off. i love what you say about risk. equity markets have rediscovered their rose-tinted glasses. i don't know what they look like.

with that in mind, yes, yes, yes, you know i'm the arch grinch. the data is not helping the fed. the data has just been jobs, wages, services, etc. good news at the moment can be good news or good news is bad news for the fed, but will that endure in 2023? what is the biggest tail risk to equity bonds we have seen? >> i think the concern is a fundamental one primarily which is the whole point about growth and the glasses is right now we have had this assumption that the peak in u.s. rates can be above 5% and the equity market has kind taken that on the chin and continued to rally. the question now, i think, though is earnings relative to the macro outlook. the macro outlook is very clearly stagflation, but we have not seen in earnings recession. earnings have not really

declined yet and i think that is the key source of risk. it is a micro fundamental risk for equities that earnings are going to roll over what we expect. dani: the demise of corporate earnings feels like it has been greatly exaggerated this year. many big banks thought by this point we would finally see that deterioration, but as we know, all of this policy operates on a lag. when does it finally filtered through into corporate earnings? >> you're absolutely right. i think the thing that surprised everyone is how resilient the consumer is being. as we know, there's a massive squeeze on real incomes going. inflation has not been a strongest in most countries. the consumer has been winding down savings, but you got to assume that stops at some point quite early next year simply because the squeeze on real incomes is happening every single month, and it's drawing down savings. i think that has been the

surprise, the lab. in other countries, you mentioned the australian report. housing markets are going to be a key downside risk for consumers as well. manus: finish me off. where's the biggest risk in housing and if you say at home in london, i will never forgive you. >> actually, i think it is probably somewhere between australia, canada, sweden, and the u.k.. there's no moral for their that probably will be the most vulnerable. manus: you just put that in at number four to try to soften the blow. >> it has to be on the list. dani: things could always be worse. that is my take away. we both have a place to sell you, michael, if you are interested. let's say we finally see those play out. the housing market takes its toll. the consumer finally slows spending. this has been the question for

2022, and it feels like it will be the question for 2023 as rate risk starts to dissipate. how bad does the global downturn get? >> i think this is where actually we don't have to be too pessimistic. going into the recession or going into the slowdown, balance sheets are actually in pretty good shape. because of that, consumers and corporate have been quite cash-rich. yes, they are drawing those cash levels down, but i think soda because of that, you can assume the recession might be relatively mild. we have raised rates aggressively already, so you could hope that there would not be much more needed to come. balance sheets are very different to what we saw 2008 through 2009, which was a very slow recovery from the

recession. this time around, i think we can be somewhat optimistic because of the shape of balance sheet's. manus: one of the conversation we are going to have is about 65 trillion dollars. it is so big i cannot even deal with it. it is twice the size of the u.s. treasury market. it is a world that is mired in risk and volatility. when you see the vis talking about off-balance-sheet risk of six $5 trillion and we got to hope the dollar is not there to back it up, is that a red flag for just a great reading point on bloomberg? >> it is always a great reading point. i think the size of derivative markets have always been a concern. i think the one thing that i would just note, though, is that regulation has come long way. i think particularly regulation toward the banks has come an awful long way in the last

decade or so. the interesting thing, for all the violence we have seen in the shortness of central bank moves and the sharpness of some of the moves we have seen in currency markets, so far, the gilt market aside -- i have to do a u.k. caveat here -- the guilt market aside -- the gilt market aside, markets have functioned reasonably quite well. some of the functions we have which look for a symptom of systematic risk rather than a bottom up one -- dani: can't we look at what happened with guilds and say that's a possibility of what could happen elsewhere -- what happened with gilts? you say regulation has cut up, but has it really caught up to nonbanking financial institutions? >> yes, i think that is fair. i'm sure you will see the guidance from u.k. regulators which is bringing in a much stricter stress testing regime

for pension funds, so, yes, i think there will be regulatory responses outside. the banks themselves seem to have done quite well, but the risk has shifted elsewhere, so there will be a regulatory response there. but the interesting thing i guess you would say on the gilt market is the quiddity remains impaired, but it's interesting to me that the bank was able to go back in and it was able to do quantitative tightening now, which should tell you something about the resilience of the market. dani: thank you very much. we will have to leave it on that high note, some resilience, and maybe we can sell our homes. manus: like british football. strong, resilient. they are bringing it home, apparently. dani: has someone been watching the world cup? i am very impressed. coming up in the show, bloomberg understands the eu and eu are

discussing climate-based tariffs on polluting countries. ♪

simone: this is your first word news. beijing is scrapping covid test requirements to enter supermarkets and most public venues from today. the move marks a retreat from strict policies that at one point saw a testing booth on every corner in major cities. -48 hour test results will still be required to enter bars, restaurants, and schools. the u.k. is said to be planning to be announcing measures this friday and a boosting growth in the city of london. sources tell bloomberg the treasury will sweep away unnecessary regulations on financial services in a bid to secure new post-brexit

opportunities and boost competitiveness. two policies floated so far all their -- are the repeal of the anchor bonus cap and adjustments to the ring fencing regime. south africa's governing anc says it will tell lawmakers to reject an independent panel's report that the president may be guilty of violating the constitution. lawyers for the president are planning a court challenge against the report. that said, there may be grounds for impeachment over the handling of allegedly stolen money. a spokesperson says he will not quit and will seek a second term as party leader. that's your first word news from simone foxman in doha

manus: it is "daybreak europe" and i'm manus cranny in dubai with dani burger in london. dani: unexpected lease strong u.s. servicesata since stocks tumbling on concern the fed will need to keep hiking rates. asian shares fall. the reserve bank of australia raises its benchmark for an eighth consecutive month. plus, the u.s. and eu are said to be weighing joint tariffs on chinese steel and aluminum to fight admissions and global overcapacity. we have, as michael metcalf put it, rose tinted glasses on this market. some of this coming back at higher currencies like the korean won -- the korean won falling 2% in this session against the dollar. manus: that's because you had a shock and a jolt from the ism services data, but where is the

terminal rate? those em currencies and asian currencies are reacting probably the most. there you go, there is your korean won against the dollar today, and of course, it's going to become aware is that terminal rate on the back of jobs data, ism data, and the wages? quick snapshot overall around the markets, michael metcalf with state street saying the valuation was ridiculous and it would still to him be one of the good value rate traits. had the monday blues down 4%. societies are cutting their crude to asia by over two dollars. the short end of the curve is still continuing higher. there has been a jolt at the short end, which is a re-discussion of where the terminal rate is in the u.s. as the data is not helping the fed with a terminal rate of 5%, and

the aussie is up, as we see. dani: that ism was also enough to send but slower by about 2%. they are faring better today, but again, michael metcalf morning that at some point, that earnings recession is going to start to bite. that consumer holding up. will that continue to last? s&p 500 futures are little changed, as are the nasdaq. mst i asia-pacific is down more than 1%. goldman saying only 40% of the china reopening story is currently in this equity market. equities have rallied quite significantly since those significant steps of less testing, more things opening in beijing. manus: yep, it depends the scale and the pace of that reopening, doesn't it? to another major story we are tracking this morning.

bloomberg learning the united states and european union are considering using tariffs on polluting countries as part of a bid to fight carbon emissions. the move would hit the chinese metal producers and would be a novel approach to tackling climate issues. i only wait to see what the retaliation might be. our industrial commodities reported in shanghai joins us. we have heard a lot about aluminum and steel tariffs. that was the trade war under trump or indeed even earlier. what is tier really different here? this is for the good of the planet? is that the hospices? martin: yeah, you're right. this adds to a long history of measures targeting steel -- chinese steel and aluminum. we have seen measures in the past targeting unfair subsidies in chinese industry, targeting dumping by surplus steel overseas, and under trump, we had the reason national security to try to limit china's exports

or chinese imports into the u.s. the latest twist on the long story is looking at putting some kind of carbon tax, carbon tariffs on chinese imports into the eu and u.s. and steel and aluminum. this is a sort of meshing together of trade policy and climate policy. it is still a long way off. it is still under discussion and there are certain things like what would be the legal justification, if other countries will be involved, and many other questions. dani: perhaps a long way off from getting all the details, but what will the likely impact be on these markets and on chinese suppliers? martin: it is a good question. i think some years ago, the impact would have been much greater because first of all, china was exporting a lot more steel. more of it was going to the u.s. and eu. now the situation is steel

exports are much smaller than they were -- like, significantly smaller than they were five or six years ago when there was a real international trade crisis because of that issue. high bit any of it goes to the u.s. and eu. more than 80% of chinese steel does not go to those regions, so i think you could make the argument that there would not be that much impact for steel. aluminum is a bit different because the high cost of aluminum producers in the u.s. and eu have been struggling. you could see the need in future for more exports, but that could be difficult if they put more tariffs in place. dani: thank you very much, ending with that macro impact. let's talk more about the world of investing and investing in the transition. our next guest says russia's invasion of ukraine highlights a fund early -- fundamentally broken system. he says this is the point where

everything changes forever. jonathan maxwell of -- is ceo of an investment firm that focuses on financing and developing clean energy. good to see you in the flesh. our reporter was just talking about these tariffs that china and the u.s. is looking at putting on china when it comes to steal and manufacturing, but it remains that most of the clean energy and raw materials comes from china, something that von der leyen has called a monopoly. in your investments in working with companies, can the u.s., can europe get toward their green transition goals without china on the side? >> it exposes something very big here. in order to make that electricity, we need the minerals, metals, resources coming after china and other places around the world.

that supply chain is going to be constrained. there are many reasons why the energy transition going from fossil fuels, which is still 82% to clear energy will be challenging. as well as the other supplies coming out of china. manus: very good morning to you. we've covered initiatives for financing the transition, etc., but i'm drawn to what manasseh -- what almond nasser -- what amin nasser had to say. when we hit the next cycle of substantial, how much of that needs to be towards energy efficient capitalist -- capital expenditure projects for renewables, for lack of a better word.

>> over the last 20 years, we have seen some 3.5 trillion dollars. the big challenge is a lot of that energy -- rather capital, has been invested in adding new energy into the system. one of the critical problems is that so much energy -- in fact, maybe even most of it -- is actually wasted. about 82% of the world energy system is all gas and coal. if you track the journey of a molecule coming from gas to the end energy system, about 70% of it in the united states is lost through the process of conversion, generation, transmission, and distribution, so even by the time the energy has been used, we've wasted it. chileans were invested in new clean energy generation, particularly to try to replace

the fossil fuels in the system, but just as big a problem is that we start investing in what we are calling energy efficiency. that is reducing the amount of energy to play -- amount of energy to place the same economic output. dani: what do those companies, what do those tools look like? >> we have centralized energy systems, bring energy generation to the point of use. by doing that, if it's generating from cogeneration with turbines, solar, storage, many new technologies which are available today to generate energy exactly where it's needed, so most of it is not wasted before it gets there, so the first point is decentralized energy. the second point is energy conservation inside of buildings. while i set about 70% of energy being lost, another term, 10%, 20% of energy.

replace it and it reduces the amount of energy being used. we are in a global energy crisis. the question is how we come out of it. if we can start investing in decentralized energy and energy efficiency at least as much as we are focusing on adding new generation, we can come out of this problem stronger. manus: you talk about energy policy tailwinds and break it down beautifully in terms of what the u.s. is spending on the inflation reduction act, and you look at the targets i have set, but the house less financial muscularity to the eu and u.k. obviously, the autumn statement is very much a first step and that's how you define it. for investing, our viewers are tuning in that 740 in zurich, 740 in berlin. must a look at investment opportunities and energy

efficiency in the united states of america for the most immediate return and return on equity? is that the ground zero for returns? >> actually, the inflation reduction act developed pretty percent of the 369 billion dollar program, has, as you say, been designated for energy-efficient projects, which is really exciting. we think it should be more, but it is a fantastic start. i have a new policy called energy efficiency first. the last time russia invaded ukraine on the annexation of crimea in 2014, the european commission came out and said for every unit of natural gas we don't use, there's 2.6 units we don't need to buy from russia. the reason is that they recognize that so much energy is lost from the conversion generation -- conversion, generation, and transmission process. there are actually very large

programs that have been set up in post-covid stimulus packages to support energy efficiency, and the new autumn statement has identified energy efficiency as critical. also recognize that energy efficiency is going to be critical to managing energy and carbon neutrality. dani: liv-ex looking temperatures to go below freezing in the u.k. and the nordics, as we wait for more infrastructure, more investments to pay off, what does the meantime look like? is it more coal, a dirtier world until then? >> during the course of the year, unfortunately, we saw a very substantial investment of coal per generation in germany, ireland, and other markets around the european union, even the u.k. what we have seen since then is

a slightly milder winter, therefore substantial gas reserves of storage built up. 95%, down to 93% over the past couple of weeks. those storage levels as we go through winter will run down. what do we do in the meantime? the initial language coming out of the european commission in march was let to double down on renewables. we will build new nuclear, extract more gas, but the recognition was that will take 10, 15 years to build to scale. you can do energy efficiency, change light bulbs, and you can generate energy on site using solar and other forms of generation. it does not take the 10, 15 years it's going to take and that we need to take to transform the centralized energy

system. manus: thank you for being with us. yes, some exciting projects for you. you've got a broad church of investments. we wish you well. come back again. that is our best this morning. coming up china's foxconn results a big sales drop after protests at the world's largest iphone plant. we have the story next on bloomberg. ♪

manus: it is "daybreak europe." we have foxconn reporting a huge sales drop following the protests around their assembly factory. we've also got reports that tesla is looking to cut production in shanghai by as much as 20%, and that could hit

as soon as this week, so a lot happening on the supply chains and production. our asia team leaders there. it is katrina nicholas. for foxconn, this is a double digit drop in sales. short-term or long-term? katrina: as you mentioned, it is a pretty lackluster month there sales wise. sales are down 11.4% after some shipments were affected by a covid outbreak where it has a really massive iphone assembly complex. apple has said it expects deliveries to be delayed this year because of the destruction, and analysts are offering a series of increasingly downbeat forecasts. ubs, for example, is saying the entire iphone 14 generation may fall short of citations by about 16 million units. foxconn, for its part, is

offering reassurances, saying the situation has been brought under control and that production will improve throughout the rest of the year, perhaps as covid prevention measures in china start to normalize. dani: elsewhere, in terms of demand, in terms of china production, we had tesla shares clobbered down more than 6.3% on the story that they will cut production at a shanghai plant. how much are they planning to scale back? katrina: we are hearing tesla might be planning to scale back production by as much as 20%. we also heard that tesla had a really strong month in november in terms of output. this is topping 100,000 units coming off the production line for the first time ever. most model y and model 3 cars are going to the chinese market.

tesla upgraded the shanghai plant in august to double capacity to about one million cars a year, but at the same time, and this is what we are getting to with production cuts, we are seeing leadtimes really shorten, so it is a sign the factory is pumping out more cars than it can sell. at the moment, if you go to tesla's website in china, it shows that any model y hour model 3 car ordered today should be delivered within the month. that is down from as long as about four weeks in october and up to 22 weeks earlier this year. cognizant of that, we are hearing tesla is planning to lower production at the facility so that what the factory is actually producing more closely matches consumer demand. dani: thank you very much for the update. let's get to the bloomberg business flash.

simone: bloomberg has learned the u.s. and eu are weighing new tariffs on chinese steel and aluminum as part of a bid to fight carbon emissions. the move would mark a novel approach as the u.s. and eu would seek to use tariffs, which are usually employed in trade disputes, to further their climate agenda. the idea, which originated with former president biden's administration, has -- is still in early stages and has not been proposed. sources tell bloomberg the treasury will sweep away unnecessary regulations on financial services in a bid to secure new post-brexit opportunities and boost competitiveness. two policies floated so far are the repeal of the bank or cap and adjustments to the fencing regime. pepsico is reported to be laying

off hundreds of workers at its various headquarters in north america. dow jones sets the jobs will go in its beverage business based in new york and that it's snacks and packaged food units in texas. pepsico employs around 100,000 people in the u.s. and 300,000 worldwide. that is your bloomberg business flash. manus: thank you very much. coming up, could $65 trillion of derivatives debt we hidden risk for the global financial system? we did per on bloomberg. -- we dig deeper on bloomberg. ♪

dani: welcome back to "bloomberg daybreak: europe." $65 trillion is the size of the off-balance-sheet debt that is

piled up and that the bank of international settlements has started to warn about, calling it a global -- calling it a blind spot in global finance. let's get the details. this is not really the first time the bas has warned about this. what exactly is this pile of debt that they are warning about? valerie: the u.s. dollar is the reserve currency, so a lot of companies and what we call non-financial institutions including life insurance companies, pension funds, have a lot of dollar obligations, and they use fx forwards, fx forwards, fx swaps, currency swaps in order to hedge that and the bank of international settlements is warning this off-balance-sheet debt pile is growing and lot faster than on balance sheet debt pile, and it poses challenges, one of which we don't know where this debt is. we don't know the scale and we don't know the leverage. this really came to a point in the u.k. over the pensions debacle that the bank of england

recently dealt with. they did not know the scale of the leverage that was hidden in the pensions industry, and they point out some shocking things. the scale of this debt is 2.5 times the u.s. treasury market. of the fx swaps, 70% of them they think mature in one week. 30% overnight, which means if we have a big run-up in u.s. borrowing costs, even overnight we are seeing big asian fx currency reserves. that kind of dollar funding squeeze could easily turn into a spiral of a problem in just one day. it poses many -- manus: the question lies what kind of regulation will be brought to bear on it? in 2008, banks were stepping back in terms of taking primary risk in many ways and deconstructed the trading arms within banks. what is the regulatory risk here? it is hard to do, isn't it? valerie: the way the fed kind of

put a band-aid over it, it started in the global financial crisis in 2008. they established these emergency swap lines that go to many central banks around the world, but these international central banks go and used to help to aid dollar funding within their own country. these again were leaned on in march 2020, but again, the fed is really just putting a band-aid over this problem. we really do not know where the liabilities fall. manus: comes down to disclosure really in terms of what denomination you put in the system. thank you very much. $65 trillion is the number. the dollar is repricing. the repercussions in the korean won. ♪ and it's easier than ever to■ get your projects done right.

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