>> it is 11:00 a.m. in london -- 10:00 a.m. i am anna edwards. welcome to bloomberg markets. a policy shift from the boj. negotiators from the e.u. and u.k. look to end the disputes over northern ireland as exit talks wrap up today and china reporting 60,000 co-related deaths in the last five weeks. experts say that may be just a fraction of the true toll. welcome to the special edition of bloomberg markets. it is martin luther king day stateside, which means no trading there. a focus on gas prices again, and once again they are dropping, so

this has been a big success story for european growth narratives in recent weeks that the natural gas price down 58 euros. it was in the mid 300s and the height of the summer crisis. what is next winter have in store? i climbed down by the chinese authorities is having an impact and brent crude, a little more downside on commodities today. we seem to lack conviction as to whether we are risk on or risk off. we have big events taking place this week, particularly in japan with the boj meeting. we see the yen coming down from recent highs and the dollar resurgent this morning. the yen on the back foot a little and we have seen expectation built in ahead of the boj meeting.

will we see something more substantial? there are some in markets who believe we could. others say that will come later in the spring. a g10 fx strategies head is with me in london and can talk us through his views on fx markets. it has just gone 10:00 this morning in london. i think i spooked some by saying it was 11:00 earlier. let's get to the boj conversation. do you think the market has run away with itself in terms of expectations of the meeting? >> that is the case. we have seen markets try to pressure the boj. we have seen the boj having difficulty maintaining the yield coal -- yield control target. i think it is -- the market has got ahead of itself. the boj is in a transitory process. we did see that surprise

adjustment in december before christmas, but i think the bank would like to see how the market is reacting to the change first and we have that small matter of the transition. that is the time when we are seeing more substantial policy changes, so i think the market is getting ahead of itself, so there may be an opportunity to look for better levels. anna: some people point to the transition at the top and say that means change needs to happen soon, and others say that means changing's to happen after he is gone. how do we view the politics behind that? >> there is an issue with personalities. his terms have been characterized by that policy between government and the boj in terms of trying to attain the policy target, but there is an opportunity as we see this transition to have a monetary

policy review but also to look fresh at the policy narrative. one of the big things we will keep a close eye on is the upcoming or ongoing -- if we are going to see wages moving up there are some signs that give the new leadership at the boj an opportunity to transition away from this negative interest rate policy and yield curve control. that is a story for the second quarter. i think those factors dovetail together, so that is where we would -- particular focus. anna: how do you look back on happened in december? there has not been much talk about it being an imminent thing that the japanese would do and people were saying if you are going to get out of yield curve control you have to do it with a big bang. you cannot take baby steps because the markets will test

you and that will not be something the boj can hold back, yet we saw them tweak yield curve control policy and allow the conversation to move without actually changing. how do you look back on what happened there? jeremy: we went into the meeting with little expectation in terms of the policy narrative. the argument was looked toward boj policy normalization rather than starting in december. that is where there was a surprise because there was no precursor or suggestion that there was a change or narrative coming. it was about tweaking the policy and market coronation from the boj perspective, not necessarily a signal. they were viewing the inflation profiles change or more aggressive than anticipated, but they have started the ball rolling. when you look at one of the leading candidates for the

governorship of the bank of japan, he put out a policy suggesting you row from yield contrary -- yield control. i think they are taking a leaf out of that process and we are seeing the market try to pressure the boj. if we look back to september or october, the market was pressing. there was no signal ahead of the event, so that was the policy surprise before christmas. anna: the fed narrative had been in flux as well. let's talk but the other side of the pair and lower expectations around the dollar. we have seen a drop in the dollar from october, november, certainly the autumn of last year into this year. does that continue? jeremy: we have seen the market paring back expectations for the

immediate policy outlook from the fed in terms of the next meeting, so now we are just over 25 basis points. there is still some degree of residual case that the fed could surprise on the top side but also the market is anticipating or pricing an aggressive process of policy easing in the second half of this year. that to me feels ambitious, so it is the case that powell is keen to not repeat mistakes and get rates up to make sure inflation is out of the system. the market is pricing in not only a lesser risk reaction but that easing in the second half of the year. in both instances, there is a risk that the market has gone ahead of itself. anna: what do you make of the mismatch in terms of expectations this year? does that end badly or peacefully? jeremy: that will be the

interesting question. we need to understand how we get there first and whether we actually get the higher fed peak than perhaps powell would like to see in the market, so that is where they will be an important narrative. into the second half of the year, it will be more about what is going on externally outside the u.s. that will be more of the story rather than purely focusing on the fed because as we get through the middle part of the year and focus more on 2024 we start to look for and improving growth narrative, and i think that plays positively. anna: what do you make of the debate about whether a recession is avoided or delayed in parts of europe? we got better data out of germany and the u.k. that started this conversations again. jeremy: you highlighted the being the show natural gas

prices in the euro zone. that is a change from late last year, when we were fearing there could be gas rationing and pressures. those fears have dissipated for this winter. we have had relatively benign weather, so the gas story is not the risk factor. that is adding to the flow of gas flow avoiding the russian dynamic. from the eurozone perspective, when you overlay that it is good news for german exports and then recession risks in the euro zone have dissipated. from the u.k. perspective, there are plenty of headwinds. we did have that better gdp number from november, which was slightly a function of the unusual time of the world cup, does that take away the recessionary narrative? i do not think it does.

it forestalls the risk of recession even if we do not meet the technical definition. anna: there's only so much that football can do as hard as it might try. thanks for coming to spend time with us. keeping you up-to-date with news from around the world is leigh-ann gerrans. >> the death toll from russia's missile attack on an apartment building has risen to 36. ukrainian forces say the building was hit by a russian missile designed for use against aircraft carriers. they say they have no air defense system capable of shooting down that type of missile. the u.k. and european union are close to a deal on post-brexit trading arrangements in northern ireland, nearing an agreement on customs designed to reduce frictions between great britain and northern ireland since the u.k. did leave the block. in china, the government

announced almost 60,000 people have died of covid in the last month, leading to calls for authorities to provide more data about the wave of infection sweeping the country. the virus has been spreading at a faster pace since beijing abandoned its covid zero policy. more problems for president joe biden in the investigation of classified material. additional document have been found at his house in delaware. the republican chair of the house oversight committee wants the white house to release visitor logs from the home. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. anna: coming up this week, bloomberg editor-in-chief sits down with the german chancellor

at 10:30 a.m. new york time, 3:30 london time tuesday, so that conversation with the chancellor of germany got really interesting in the context of the news we have had this morning about changes in leadership and germany, some things at the top shifting. this is bloomberg. ♪

anna: this is bloomberg markets,

a special edition of the program because it is martin luther king day in the united states, which means no trading stateside. european equity markets are trading up by a 10th of a percent this morning. joining us now, simon white to take us through some of the market thinking. a lot of talk around the fed and whether we see a pause from the fed on interest rates, certainly a step down and interest rate hikes is the expectation in markets from as soon as next month. you have written a piece talking about how inflation data comes in. what are you getting at? >> we had cpi numbers last thursday. real rates naturally tighten as the inflation rate comes down. what is happening is the market is pushing back. if you look at what the fed expects real rates to do and what the market expects real

rates to do, the market is trying to bring rates back to nonrestricted territory faster than the fed. the fed wants a higher for longer and the market is saying, we will take the medicine with a spoonful of sugar of rate cuts sooner rather than later. anna: that is where we get this disconnect, where the market is expecting rate cuts and the fed keeps trying to pour cold water on that but the market does not listen. why is the market taking a different view? simon: the view is in the fact that they do not believe that market can handle restricted rates for that long, so the fed says basically over two years if you look at when rates become nonrestrictive again -- the market is saying we are giving you a year, so there is a disconnect between what the market and fed believes the economy can handle. that also means, as far as markets go, that is where the risk lies. if we get a rise in the pace of

the fall, decreases, that is where the risk lies and you could see a bond selloff and starting to steepen the yield curve and equities are vulnerable. anna: what is your assessment of how long the fed can pause? there does not seem to be much disagreement about the fact that the fed is going to downshift and there will be a pause but it is the length of time they stay static versus the elevated level in question. what is your assessment? simon: when recessions happen, they can happen quickly, so there is a belief that economies go in a smooth way from non-recessionary state or a recessionary state. it tends to happen abruptly. things change fast, and the data we are seeing today is often revised lower, so when you are at major economic hurting point

-- turning points, not only does the data now start to look worse but you are looking at data three or four months ago that is worse. the biggest revisions are seen at these turning points. anna: thanks were talking about a soft lining for the u.s. economy. simon: a soft landing requires inflation to keep coming down and to avoid a recession. how do you get inflation to come down will not restrain the economy and with the equity market going up? get that situation, which is like betting on a coin landing on its side. the stock market will keep rallying and financial conditions are loosening. the fed will not like that, so i do not see how we can navigate through. anna: simon white with the latest on markets. we will get a perspective from the fixed income sector shortly. a lot of people talking about

opportunities with slowing economies in fixed income. this is bloomberg. ♪

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anna: will come back. this is bloomberg markets. u.s. markets closed for martin luther king day, the stoxx 600 up an eighth of a percent or so, gas prices once again falling.

let's talk about what is in store in fixed income. nicola mai joins us. a lot of people talking to us about opportunities in fixed income in 2023 on the assumption of may be regional recessions or at least global slowdowns. where are you looking to see those opportunities? >> fixed income is attractive at this point. it has not been this attractive for 15, 20 years. higher yields and we have a recession coming and we think the recession will be shallow it could be deeper, so you have downside protection with bonds. we have been talking about concentric circles of risk, where the lowest risk asset you can have a short term government bonds and the further you go out you have longer government bonds

. you have investment grade high-yield and eventually you get to equity and real estate. these days, staying close to the center makes sense for a couple reasons. first, there's economic uncertainty. in the center of the circles of risk, you have more juice than you used to. these days, you have attractive alternatives in relatively low risk assets with good returns. anna: where does that leave you with european software debt markets -- sovereign debt markets? data suggested recessions would not be as deep as anticipated in parts of europe. is that in line with your view? >> the resilience has been impressive, barely a contraction in activity.

ip has been supported, so it is not inconceivable that we will get away without a recession or with a mild recession, with core inflation on the more sticky side. that will put pressure on the ecb. the market is pricing in a peak rate of 3.5%, which is restrictive in our mind, so that should be enough to quell inflation but it is not inconceivable that the ecb will have to go beyond that. in general, u.s. duration looks more attractive than european duration partially because of the inflation cycle. anna: a lot more talk about rate cuts, although i saw a piece this morning talking about the ecb cutting rates in the second half of next year. who cuts first, the fed or ecb?

>> the fed will cut first. if you look at inflation data in the u.s. inflation data you see a turn in core goods prices, which is substantial. you are seeing moderation in wage growth, so on the inflation cycle it is more clear we are beyond the turn. and in europe, you have been lagging for different reasons. the currency weakening has been supporting the pricing and high increases in raw materials prices are feeding into core numbers. this will fade, but it is a little behind, so i think there is a lag, so that is why the fed will probably be the first to talk about cuts. anna: coming up, philipp hildebrand at blackrock has been speaking to bloomberg. we will get his thoughts on 2023 and beyond shortly. this is bloomberg. ♪

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anna: welcome back to a special edition of bloomberg markets. martin luther king day, no trading stateside today. we have european equity stocks. european stocks up .2%. dax up by 2%. a focus on gas prices through the summer, we were up in the 300 megawatt hour mark. now, down to 56 as the weather has turned out to be not as cold as had been feared. coping mechanisms adopted by europeans have done anticipated -- done better than anticipated. chinese -- talk of chinese intervention weighing on that, down 2.8% grade oil prices reflecting a little weakness, undecided on whether we are risk

on or risk off broadly across the number of assets. dollar flat, stocks gain a fraction of a percent. let's get to one of the big stories of the day around ongoing brexit conversations. this, to do with the northern ireland protocol which remains largely unresolved. a number of years since we had the brexit vote and subsequently -- lizzy burden joins me in london. berea taddeo is in brussels we understand a meeting is to take place today that could move us closer to a resolution. lizzie, good morning. what is going to be discussed? this is the northern ireland protocol and how it operates, the relationship between the u.k., northern ireland and the republic. >> this video call is set to take place any moment now. late morning is when we are expecting it. the idea is to take stock to find out whether there is enough common ground between the two sides to enter a tunnel again of

secret, intensive talks. last week, there was this technical breakthrough where, by both sides agreed to use this real-time database to track the flow of goods across the irish sea. that could lead to a broader customs deal, but you've still got plenty of sticking points that need to resolve. on the european: justice, safety checks on agro food products, vat. there is a lot of room to go. even if london can get brussels on side, even if the opposition labor has said he is going to help steer a deal through parliament, richie sunak would need to get the euro skeptics in his own party on side and the unionists in northern ireland. anna: given the sticking points, that will still exist even if they get a deal on trade, that downplays the significance of what we could get today. it is significant, given the bad

move that has existed across the channel. >> the relationship has been icy not just since the brexit divorce, but the referendum and beyond. specifically for northern ireland, there needs to be an end to this political stalemate. for the markets, it is not really rocking them yet. perhaps because they have seen this movie before. if we get a crumb creek deal, perhaps that will excite them. anna: trying to navigate both of those. take us through the brussels perspective. maria: yes, you and i have done this many years now. i would go a step further. in fact, i would point to the irish press, which has taken this a step further this morning suggesting that we could get a joint statement, not a deal, but a joint statement that would set out a framework with possible solutions and ultimately leads to this deal.

in many ways, the big question is what sticking points are well documented? we have talked about this for a year. the european union, the two conditions are clear. the republic of ireland has to agree or be in agreement with it and the integrity of the single market, the crown jewel, the moneymaker for the you, has to be protected. beyond that, it is worth stressing that across the channel on the side of the world for the european union, it has been well digested now u.k. has left the eu. there is a since they have left, but if they can have a working relationship, that is a good thing. if you look at countries like france where emmanuel macron played the role of the at cop, he is going to have a bilateral meeting with the u.k. prime minister next month in paris. there is symbolic nature to this, probably more on practicalities with the u.k. when it comes to the you, it is

-- the eu, it is about moving through the big issues. there is a war in ukraine, bidens inflation reduction act. anna: the latter one of those, topical as well to date. a lot of tension across the atlantic. thanks maria tadeo and lizzy burden, keeping across the brexit story and beyond. stay tuned to bloomberg television. rings program, maria will be bringing us an interview with pascal donahue coming up in less than an hour. keeping you up-to-date with news from around the world, here is the first word news update. >> in the u.k., teachers may join hundreds of thousands of employees who have gone on strike for higher pay or the national education union will announce the results of a strike vote later today. meanwhile, the house of commons will debate anti-strike

legislation. in germany, defense minister christine lambert has stepped down after a series of mishaps andyt her future. as a blow to chancellor olaf scholz's government, her departure comes as berlin is debating whether to supply ukraine with tanks to fight russia. now, a deadly plane crash in nepal over the weekend has put a spotlight on the country's bad safety record. at least 68 people were killed when a yeti airlines turbo crashed in the city of the kara. nepal has nearly a dozen fatal plane crashes over the past 11 years. in china, the government's announced that almost 60,000 people have died of covid in the last month. that has led for authorities to provide more data about the wave of infections that is sweeping the country. the virus has been spreading at a faster pace since beijing

abandoned its covid zero policy. global news 24 hours a day, on air and on "bloomberg quicktake." powered by more than 2,700 journalists and analysts in more than 120 countries. i am leigh-ann gerrans. this is bloomberg. anna: thank you very much. coming up, we bring you one of the great interviews of this morning. philipp hildebrand, talking about his expectation for central banks this year and the mismatch between market and central-bank expectations. we will bring you that conversation shortly. this is bloomberg. ♪

all anna: this is bloomberg

markets. welcome to a special dish and of the program. it is martin luther king day, so no trading in the united states. bloomberg tv is live in switzerland. francine lacqua spoke with philipp hildebrand and ask about his inflation outlook. philipp: i think inflation will drop quickly. i think any of us will be surprised at how quickly we will fall. the problem is, it will fall quickly. so it will be the easy part, then it will get difficult to get inflation back to price stability. at the moment, i think the initial phase will be a rapid decline in inflation. >> what does it mean for central banks? you laid it out beautifully in your world outlook. if you are the ecb or the fed, do you have to be more careful how you manage this from now until the summer? philipp: i think central banks will continue their tightening path. they will be careful, focused on not losing the long-term

inflation expectation anchor. i think we -- i do not see any chances frankly of easing, this year. i think the market has that role. they are going to make sure we can really, not just get from 9:00 to 4:00, but limit the risks that inflation expectations become unanchored. because this is driven by labor market constraints, it is a supply-side story, it is going to be difficult to get inflation below 4%, let alone below 3%. we are in the easy phase in the sense now of this tightening cycle. >> so we have had fed officials saying, do not expect a fed pivot soon. the markets keep on testing it. philipp: that is right. i think this notion there could be easing this year seems to me to be far too optimistic. if you are a central-bank, you want to make sure you can get this done. that you do not risk researching suddenly if inflation

expectations further down the road. i think we will see it best -- at best some sort of pot, but not quite yet. the market may need readjusting ela to to these expectations we could be seeing some easing. this is what we call a new regime, the great moderation is over. this notion of when the economy struggles, central banks will ease was true in the past. i do not think it will be true this time. >> it is incredible to see the leverage of interest rates going from 0% to 1% now without more bankruptcies. are you expecting zombie companies to crop up? philipp: it depends on how much damage will have to be inflicted on the real economy to get this last phase of inflation to get squeezed back to 2%. that will be the trade-off. this will not come with a cost. i suspect at some point, the central banks will cut it back off. and not drive inflation all the

way back to 2%, that might be a moment where the market can recalibrate. for now, i see the tightening process continue to ensure we do not go from 9% to 4%, but bring inflation back under control. >> when is crunch time? if we try to put inflation back to 2%, could that be in the later year? philipp: i see it dropping to 4%, that will be the easy part. the question will become second half of the year, midyear, what do central banks do at that point? do they continue and tighten far beyond what is currently expected to drive inflation back to 2%? i think that would entail significant recessionary tendencies in the real economy. a lot of damage to the real economy. or, do they adapt and say, we have done enough. let's see what happens if we let inflation persist for a bit above the 2% target. >> what does this mean for markets overall? volatility or pain?

philipp: there will be opportunities at least in credit and short-term bonds. we have a different outlook when you look at where interest rates are. for long-term investors, many opportunities in that space for equities, i expect until we know what the central banks are going to do with that residual piece of the inflation adjustment from 4% to 2%, there are going to be some challenges around equity markets. some of the enthusiasm right now with this notion that the central banks could ease again imminently, i suspect that is premature. i still see some volatility going forward until we know how the "mlb central"'s are going to handle this difficult trade-off that they -- anna: that was philipp hildebrand, speaking with francine lacqua in switzerland at the world economic forum meeting. i was led to believe we would not see much snow this year. year-end earnings at some of the

biggest u.s. banks have been reported at the end of last week. we will get more of that this week. they let -- met with a less than enthusiastic reaction on wall street. by the end of the day, though -- some of those banks managed. johnny, good morning. what have been the messages you have taken away from the key earnings season so far? it seems the market took time to make up its mind. >> that indicated there are two stories. one that we knew well, and one story we are waiting to get more information on. the story we knew well was that these wall street racing divisions, investment banking, mna, those are hurting and were down. when you look at revenue from investment banking at jp morgan, citigroup, that was down 60% in the fourth quarter. the story we are waiting to hear more about was the story of the american consumer of main street. it looks like the american

consumer is faring well. ceo's talked about that. when you look at credit card balances that say jp morgan, those were back at pre-pandemic levels. it looks like consumers are taking on debt. once it can be told as, they are concerned and under pressure. it can be taken as confidence, they are willing to spend. they are willing to use that credit card and they can pay it back. anna: the wall street story, there is the main street story. what is the messaging the ceos are attaching to these? charlie: they were trying to yoga on tetris blocks. anna: sounds dangerous. charlie: they had to talk about why in based -- investment banking wasn't performing well and why the american consumer was taking on more debt but was still able to repay that. we heard from brian moynihan at bank of america saying american consumers have a cushion left. one executive at citigroup, mark mason, made this interesting point about the potential for a

soft landing. in these earnings calls, the elephant in the room was a potential recession. the point this could have, the potential we could have the soft landing. glimmers of optimism. anna: a lot of market voices say the landing ground for a soft landing keeps getting smaller and smaller and they cannot see it happening. have these ceos with great his ability telling us they see it being possible. we have heard from a number of big banks on friday at the same time. we get another two this week. what are we left to hear? charlie: we are left to hear from goldman and morgan stanley. when you hear those, you think of investment baking. the story is going to be on the wall street story. recently, we heard about goldman's layoffs, 3002 hundred staffers last week. that seems to indicate the pinnacle of investment baking is potentially -- banking is under pressure. looking at morgan stanley, a lot of investment focus.

an interesting note from jeffries, their wealth management unit could be a brightpoint. we will hear more nuance going forward, but there is going to be less emphasis on the consumer. we have picked a lot of that up already. anna: more yoga on tetris blocks, or that was the story of last week? charlie: we will probably do more damage control on tuesday. anna: it sounds risky. thanks you very much, charlie wells, with the latest on the banking sector. tomorrow, bloomberg entergy sitting down with the german chancellor olaf scholz. the role that germany plays with ukraine, that conversation very topical. talking about the german economy, as well. this is bloomberg. ♪

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anna: welcome back to this special edition of bloomberg markets. we have european markets trading and we are up by .2% on the

stoxx 600. u.s. futures pointing a little lower. nasdaq futures down. we will have to wait until tuesday to see if that comes to pass. let's talk about what is going on in china. one story is around the death toll from covid-19 following the sudden emergence from covid zero we have seen there, regulatory use flow driving markets into china. tom mackenzie joins us to talk about the china situation let's start with covid. we have had data about the death toll. the world health organization calling on china to share more information. >> to that point, the world health organization and governments around the world have been critical up until this point about the ability or the desire by china to share statistics and data on not just the spread of infections, but the death rate. they have finally come out with

a number for the first five weeks of the spread of omicron. after that, drastic you turn on covid zero. the numbers are a little under 60,000 deaths. that on its own, 60,000 deaths, is the largest account we have seen for this first wave of omicron comparable to other countries. epidemiologists, scientists are skeptical that is the number. this could be the tip of the iceberg. the reason is, if you compare it to other countries, the death rate with 60,000 suggests a little under two debts per one million in countries like australia. south korea, seven deaths per one million. the numbers being reported and the experience of other countries, that is suggesting maybe they are not taking into account deaths in care homes. california coming out and saying, they believe it is 900,000 people that have died. university of washington sink

the total number by the end of this year could be 1.2 million. everyone has agreed the death number is likely to increase into chinese new year. anna: the main story is about the humanitarian story and being able to get a sense of how big and devastating it is. in terms of what this does to the economy, we are going to get a load of data from china tomorrow. one of those data points will be gdp. the gdp forecast for the final quarter likely slowing to 1.6%. the full year gdp numeral -- number group. this is a far cry from the 5.5% china wants. tom: not just a pivot on covid zero, but a pivot when it comes to technology in real estate. multiple different pivots. the data coming through, officials have been looking at this in beijing and you can be

certain it is the weakness around the economy on multiple different sectors that has led to these drastic changes. talking technology, one of the flag bearers --it is easy to forget that edie, the company was a flag bearer in the chinese tech space. listed in the u.s. in 2021. chinese officials were not happy. they were delisted and their app was banned. anna: this started the firing gun on the chinese clampdown on big tech. tom: they clampdown on alibaba, tencent, the list goes on. this is key, they have been allowed to get that app back into google stores android stores and other platforms. you can start known black -- downloading that. china saying this is a pivotal moment, this underscores the fact regulators are easing back on the tech crackdown. we have seen gaining approvals

from companies like tencent. bloomberg intelligence saying it is unlikely companies like tencent and alibaba both face anywhere near the headwinds they have faced this year, it is a better picture for these tech companies and this is another example of that. anna: there is also real estate. we had news where the property sector is going easier there, that is also word from tom mackenzie joining us with the latest on what is happening in china. coming up, we get a market perspective. rebecca's head of multi-asset strategies how is he looking ahead to 2023? some of the big events on debt this week. the boj, what is at stake if we see a may see -- messy exit? what are the possibilities on his radar for 2023? we will talk about some of those potential black swans. this is oomberg. ♪

anna: it is 11:00 a.m. in london. i'm anna edwards. welcome to "bloomberg markets." the ecb could cut rates as soon july in an fight against inflation. rated leaders from the eu and u.k. the two disputes over northern ireland as post-brexit talks ramp up. the world economic forum back in davos. welcome to the program. european equity markets are open. modest gains for european stocks. let's get an update. what are we likely to be the

catalyst coming out of the u.s. and elsewhere? >> three key catalysts, morgan stanley and goldman earnings due tomorrow and highlight with u.s. retail sales, the last key data print before the fed meets in february it is probably not consequential that the key fed to speakers we hear from later this week are one of the most influential out there, the new york fed president john williams and a vice chair, both due to speak on thursday. there will be moved q and a at those events. the key is what is there assessment of the moderation in wage data and payroll data and the assessment in court cpi we saw last week? john williams himself mentioned that is the core of the inflation onion. there is a bit of a reversal on the theme. s&p futures are .3% lower after

the index closed above the 200 day moving average. german tenure, i have as a proxy, showing a bit of softening in the fixed income space. the dollar index trading roughly flat today, but this has been the key mover so far today. it has weakened 2.5% since the p road data earlier this month -- since the data earlier this month. dollar strength was the theme of 2022 and it is turning out to be the theme of this year. anna: something we will be watching closely is the boj meeting. the bank of japan meets early wednesday. how have the markets been stepping up? valerie: it happened overnight in the fixed income. the japan 10 year yield trading above the bank of japan's target of .5% for the second day in a

row. softening in dollar-yen, not surprising. in fixed income, the 10 year trading at around 1%, 50 basis points above the bake of japan's bond yield target, showing us desperation for a hedge for what possibly could come on wednesday and possibly a full termination of yield curve control. we know the last meeting they widened out 25 basis points in the small-market pricing in 50 basis points move, which is substantial. this is showing what is the risk and why is the bank of japan so eager to pull back on yield curve control, because the balance sheet is at risk. the boj last friday bond buying jumped to a record. they only -- already own spent -- they already own 50%.

anna: thank you for the briefing. colin graham, head of asset strategies at robeco. i am not sure if dropping yield curve control is a black swan as people are already talking and it has a been -- and it has been a big talking point. are you factoring in a big surprise from the boj this week. colin: i think there will be a calm around this wholesale, because they need to be measured in what they do and change messaging gradually, otherwise you get a disorderly disruption

to the bond market. the yen strength is also telling you that. they will try to calm orchids first but continue -- calm markets first but then move away from market control. anna: he saw tweaking of a policy in december and now you think the focus should be on calling markets. -- calling -- calming markets. there is a messy exit, which is that mean for markets? colin: it reads into other bond market as well. it is very difficult to say which way it will fall. we try to take a longer term view and think about where bond yields should be even where the economy is and our view is that

risks to the longer end not just in japan but in terms of the u.s. as well. anna: let's think about 2023 more broadly and what you expect to see for the fed, for example. we have seen inflation moderating in the u.s. and that has people excited over a downshift from the federal reserve. are you seeing 25 basis points for february and then how long can we stay at those relative to recent history elevated rates before cuts have to start? colin: i think we are and a period of goldilocks revenge, where inflation data is softening but reasonably high. our view is that the fed will stay higher for longer, so taking that view, you want to have a more contrarian view on

the current market rising for bond yields. anna: and so higher for longer, what does that look like? does that mean you are in the camp that backs the fed that we will see rate cuts or will we see rate cuts? colin: i think the fed will remain on hold until they are clear that inflation is coming down. what that might lead to is more pain in the real economy, and if the recession does hit this year rather than year, then your concerns about deflation will raise their had as we go into 2024 because the fed has done too much. i think the fed needs to keep rates high in order to do that, because if you look at money multiplier, the money is getting into the system and been growing. it has only been in the last few

months it has started to tail off and it is higher than the first of the year. the amount of money stimulating the economy is still quite strong. anna: let's dive into some of the potential black swans for 2023. one of those is the possibility of a deflation disaster, seems difficult to imagine a deflationary environment given what we see with inflation at very elevated levels, above 10% and 9% in winnie mastered -- west -- in many western markets. colin: these are left field events and would have a big effect. these events could derail your central case for 2023. if i rewind the clock two years, very few people could see inflation at 9%.

that is just something we have to bear in mind. once it starts it can continue to move further than you think it will. that is why we are not saying in the next recession there might very well be a deflationary scare as we have seen in previous recessions since late 2000's. anna: in the era of low interest rates we have gotten used to talking about esg as a priority for investors. we are focused on esg in many ways, but a little older and wiser about the claims made by businesses and investment firms. will that get further scrutiny this year? colin: i think so. we talked about greenwashing and impact washing, but we are focused on collecting the data that makes the investment case the hind these claims.

if we look at valuations -- case behind these claims. if we look at valuations in the climate change spectrum, they are lower have changed in norma's sleep since last year. the case for climate transition is much clearer and more necessary, especially in europe. anna: talking about big tech as one category seems a little naive, focusing in on one part, that is social media. there has been a lot written about the regulatory challenges. will 2023 be the year where we see financial change on that front? colin: it is hard getting into the head of government and policymakers, a difficult task. i would step back and think about, where is tech aligned

with government spending, and that is where we will look to be investing. you have seen the change, 180 degree change in china in terms of allowing big tech companies to run businesses more so than they were a year ago or two years ago. so we would say, yes, there is the chance some of the large tech companies come under scrutiny from the regulators, we would be focused on tech companies investing aligned with what regular terry and government -- regulatory and governments want. anna: what is aroma possibility for the situation -- what is the realm of possibility in the ukraine? colin: we can't diminish what is going on in ukraine.

we said we want going to invest in commodities. we use multi assets and other assets to hedge. we could see if things improve, a dividend and that would be potent for europe. however, the consensus is that it will continue the way it is at the moment. and that is what is baked into most people's 2023 outlooks. anna: thanks for joining us, colin graham of robeco and his view on 2023 and things could happen. let's get a first word news update. leigh-ann: in ukraine, the death toll from a missile attack on an apartment building has risen to 36. ukrainian forces said the building was hit by a russian

missile designed for use against aircraft carriers. they said they have no air defense system capable of taking down that kind of missile. the u.k. and eu are close to an agreement on trade. it is designed to reduce frictions between great britain and northern ireland since the u.k. left. janet yellen will hold her first face-to-face meeting with the chinese premier in zurich. the surprise announcement follows a november meeting between president joe biden and president xi jinping talking about relationships between the two governments. more problems for president joe biden in the education -- investigation into classified materials. the republican chair of the house oversight committee once the white house to release the

visitor logs from the home. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm leigh-ann gerrans. this is bloomberg. anna: coming up, a lot to talk about with paschal donohoe. this is bloomberg. ♪ this is ge vernova, helping generate and move the energy that our world needs. ♪♪ welcome to a new era of energy.

anna: welcome back to a special

edition of "bloomberg markets. no trading in the u.s. because it is martin luther king day. european equity markets training and stocks up by .25%. the dax up by around that amount. the ftse 100 up by .2%. u.s. teachers, appoint -- features a point lower. in fx argus, it focused on the yen with the boj meeting -- in fx markets, a focus on the end with the boj meeting. we watch volatility in euro-dollar, 128.35 is where we are with strength in the yen. let's focus on matters european. maria tadeo joins us.

maria: let's get straight to it. we are joined by mr. donahue -- donahoe. you are back for round two at the eurogroup. it is a new year and it seems like there may be a new mood. goldman sachs dropped the recession call. also deutsche bank suggesting the data looks better than initially predicted and gas prices massively down. the simple question is, would you say the worst is over now? paschal: this is what the euro group has been saying which is don't underestimate the resilience of the euro. in 2022, the growth of the euro area has been more than expected and employment levels have been

far better than many would have expected while inflation has been higher. i believe we are in a resilient place and expected to be in a low level of growth as a closed -- as opposed to a recession. it is early to say the worst is over because we are dealing with the war. maria: you say it is still hard to navigate because of the war and we think about the people of ukraine, especially this weekend that was particularly brutal. you say from the economic perspective you rule out a recession this year for the euro area? paschal: you are right to acknowledge the human consequence of the war which is first and or most. just to emphasize a moment ago, we can't be in a position can

rule out definitively what could happen across the euro zone but we finished off 2022 with economic indicators with regard to growth and employment that were very resilient and positive and far rather than what would have been better -- far better than what would have been expected at the start of the war. i am saying we could be gavin gate -- we could navigate our way through the economic uncertainty because of the war and principally i believe we will able to protect high levels of employment we still have in our economies. maria: gas prices, energy bills have gone down massively, at least in the wholesale market. gas prices down 80% from the peak we had in august. in your view, when will we see inflation go past peak and a stabilize? paschal: the forecasts we have

indicates we will see inflation move from the euro area between 8% and 9% in 2022 to somewhere between 6% and 7% as we move through 2023. we expect to see a reduction in inflation levels we saw last year, but even with that reduction, it is still going to be a level of inflation that is clearly too high, which is why the issue of how we coordinate policies will be a key area of focus in the euro group today because we need to have fiscal policies that support employment but not at to inflationary faculties. maria: is there a place where you say ok, that is the peak? and we will not see the big flows from last year? paschal: i am very wary about

calling out a specific date by which we expect to see a change, i do expect to see that if you look at 2023 overall, if the political and energy environment we are in were to continue, it is a reasonable expectation we would see inflation decline versus where we were last year, but still on a level that is too high. maria: everyone talks to me about the inflation reduction act. how worried are you about the idea of the industry in this continent that you cannot have a powerful industry or europe without a powerful industry? paschal: i am very confident about the short and medium-term prospects of european industry. i am because of the policy stability have within europe and the quality of innovation we have, and the strength of manufacturing in many economies.

of course we acknowledge that the development of the inflation reduction act in america could have consequences in europe. there are two things we need to do. we need to ensure our own recovery fund which we created during the pandemic is executed well promptly in 2023, because that is a source of how we can strengthen the euro and employment within the year -- the european union. the second thing we need to do is reviewing what we could believe the economic consequences of that act and i expect the analysis to be shared with finance ministers soon and we would evaluate what kind of action is needed while engagement with the united states, who after all are the great partners in what is happening in dealing with this war. maria: you make it clear that no

one wants to see an open trade war but want to see waivers in some areas infected by the inflation reduction act. germany and france could get the bigger and it could be a distortion. i want to ask about a conversation today in brussels. there is a call between the u.k. and e.u. finally a deal close. tell me about the implications for this. how do you see it from your perspective? paschal: it is close to our heart because dealing with the political and economic consequent as of brexit has been one of the great projects of irish governments over the last number of years. we strongly believe irish interests in european interest of the same, which is why the european commission has acted on our half. -- on our behalf.

the sharing of data between the united kingdom and the european union, i hope further progress can be made. the first thing it could be due is finally bring shape and clarity to how we can reconcile the consequences of brexit with the ireland membership of the european union. secondly, i hope progress in this area of this -- is an omen of a better relationship between the united kingdom and european union for decades to come. maria: the tone is changing. is that because they need to have a good relationship because they get a bad economic deal or is it a wake-up to the repercussions brexit has had on the u.k.? paschal: i live at two the british government to explain. from a european point of view, a good economic relationship with the united kingdom as we deal with brexit is clearly the

economic political interests of the european union, u.k., and i believe ireland. we have far more in common even in dealing with brexit and the war in ukraine reminds us of that. maria: paschal donohoe, thank you for that. anna, back to you. anna: more on the markets shortly. this is bloomberg. ♪ transaction fees and keep more of what you make. with a partner that always puts you first. godaddy. tools and support for every small business first.

anna: welcome back. note markets are trading in the united states due to martin 13. markets are closed -- merton luther king date. -- martin luther king day. valerie: the key data point coming out on wednesday, u.s. retail sales, the last key data point before the fed meets in february. we will hear from the new york fed president, john williams, and the vice chair, on thursday afternoon. there will be live q and a at those events and the attention will be on what is their assessment of the moderation of wage inflation we got from payroll data and core cpi? the s&p futures down .3%.

i have a german 10 year yield in four proxy. 10 year is higher by three basis points. the dollar index flat today, but the theme is intact for dollar weakness. the dollar index is nearly 2.5% since the payroll data at the beginning of the month and retraced nearly 10% since the peak light -- late last year. anna: another potential catalyst could come from the bank of japan meeting on wednesday. how have been markets stepping up pressure on the boj? valerie: it has been in the fixed income space. 10 year yields trading above the 50 basis point ceiling for the second day in a row. i want to show you what has been going on. 10-year swaps trading at 1%, 50

basis points above where the 10 year ceiling is. that is telling us how desperate investors are for a hedge for what might come on wednesday, further widening of the ban. we know the bank of japan has moved on this. why might they be in such a rush? because the balance sheet is at risk. they own 50% of the jb g markets. anna: more on the boe j as we look ahead to the meeting and the important event taking place. there is a farragut have an affect on other markets -- there is a fear it may have an effect

on other markets. valerie: it depends on how messy it becomes. the general narrative is the bank of japan becoming more hawkish will strengthen the yen and cause yields to rise. we might actually see the opposite because of the extent of the risk off move. anna: a tweet from the boj and now the stage is set for something similar or nothing at all from the boj on wednesday. big change could be ahead for the boj in the months ahead. there will be a change of leadership at the boj. jennifer mcewan joins us from capital economics and former bank of england economist. i want to start our conversation on the eurozone. it seems as if some of the data has been coming through happier

than anticipated. are we going to see the euro zone recover substantially enough or be resilient enough in the fourth quarter that we are going to not be in a recession or is this just recession delayed? jennifer: i think it is more of the latter. the fourth quarter data has been looking better. it looks like the german economy has stagnated and based on retail sales, we will see it something similar from the eurozone. that is better than people had expected just weeks ago. going into this year though, things are still likely to get worse, unfortunately. there is a lag between interest rates affecting the economy and household concerns feeling the pinch as well as continued high inflation. anna: four of the dynamics you are watching in the euro zone

economy to watch how bad this gets or how resilient it remains? i suppose as prices is a key driver. jennifer: it is crucial at the moment. what we have seen has been encouraging. we think that takes a boeing .5 percentage points -- we think that takes off .5 percentage points. with inflation as high as it is, it just scratches the surface. it is not enough to turn things around. the other thing is consumer credit late -- rates and lending and how they respond to the increases. so far, the market rates have only really edged up. we expect to see them come up further as more mortgages are refinanced. anna: can the ecb have any hope of bringing down inflation in the way it wants we don't see rates being picked up more

broadly in markets? jennifer: it depends partly on what happens to gas prices and wages respond. in the euro zone, we haven't seen the wage pickup like we have in the u.s. and u.k. we are looking to see how wage negotiations can out -- pan out. we could see this due to the resilience of the labor market. we expect it to be peaking at 3%, but the minutes this week will be quite important in monitoring just how worried the hawks are about recent science of persistence in core inflation. anna: we were talking to paschal donohoe in brussels and he said inflation in the euro zone had been a percent and 9% in 2022 and thinks it will moderate to

6% to 7%. that is not much of eight moderation by global standards, given the expectations for inflation in the u.s. and u.k. jennifer: that is right. it is encouraging that things are going in the right direction. you would much rather see headline inflation is clearly coming down and set to fall further, but it will be well above target. the key is where core inflation goes and whether we see insistence in that rate. the most worrying development will be if it heads in the wrong direction and there is a clear effect on wage growth. anna: there is interest that inflation could stay well about target this year, and certainly at the eurozone level they expected to do so. we have seen better data out from various european economies and i see headlines that say a

survey said the ecb will start cutting rates from july. do you share that expectation? jennifer: no, i really don't. i think the ecb pivot is off here we expect the peak at 3%, but i think it will be a while before the ecb can feel comfortable, well into next year and even later before the ecb starts to pivot. we think it will come some way after the fed. you're just not seeing the turnaround in inflation to the extent you are in the u.s. the big? is the -- the big question mark is the gas prices. you have china reopening and could have a positive effect on eurozone inflation and downward effect the following gas price. anna: we have talked about the euro zone and we see data in the u.k. as well.

when is your expectation for when inflation bites? recent information seems that could be. is it just recession delayed? jennifer: the u.k. economy just keeps surprising us. it was around q2 last year that people started calling a recession and it has been put back and put back due to various factors. government handouts have had a positive impact in the u.k. in november there was a cost of benefit payment and that supported spending. we will see more spending data this week. the world cup had a positive impact on spending at the end of last year. so yeah, pretty resilient in q4. like in the euro zone, i think there is worse to come the first quarter and unfortunately some of the pain has been delayed and

hit hard by higher energy prices and you have a lag from honesty policy -- monetary policy and tightening. two year it fixes and some will be refinanced and you will start seeing a drag. anna: fixed rates typically quite short fixes on a global context and longer in the united states. i read research that said 800,000 households could see substantial increases in mortgage payments in the next couple of years. i suppose that gives us a sense of how slowly the pressure is on the u.k. economy. that is right. when encouraging point is we did see something of a buildup in savings during the pandemic so maybe there is a cushion and why you may be seeing resilience. it seems sensible given the

wake-up call households have had in the form of higher energy prices and uncertainly -- uncertainty about the outlook. i think it is unlikely spending will be fully resilient this year. anna: i remember at the beginning of the pandemic, the extent to which households would seek piles of cash accumulate which isn't everyone's but the assumption you made was one of the big unknowns according to the bank of england. it is unknown what people did to the money accumulating. jennifer: it is still an unknown, but less so. we can now see people could spend as they normally do and that has not really happened and there has not been a surge in spending as people have run down

savings. they want to retain that cautionary buffer. perhaps a prevented the spending , partly because of the distribution of savings, a lot falls to wealthier households. anna: thanks so much for your time. keeping you up-to-date with news from around the world. here is leigh-ann gerrans. leigh-ann: italy, the mafia's most wanted boss has been caught after 30 years on the run. italian military police arrested him at a private clinic. he has been convicted for dozens of murders, including those of two judges. in the u.k., teachers may join those who have gone on strike for higher pay.

the union will announce the results of a strike vote later today. the house of commons will talk about and distract legislation. the german defense minister has stepped down after days of speculation about the future. her departure comes as berlin is debating whether to supply ukraine with attacks to fight russia. janet yellen will hold the first face-to-face meeting with the chinese vice minister liu he. it follows the meeting between president joe biden and president xi jinping talking about relations with the two governments. global news 24 hours a day, online and at quicktake on bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i'm leigh-ann gerrans.

this is bloomberg. anna: thanks very much. european equity markets up by .3% this morning. we are three hours into the trading. no trading in the united states because of the martin luther king holiday. u.s. futures pointing a little lower for tuesday. this is bloomberg. ♪

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investing in tech. >> in the whole area of technologies, digitalization is a very important theme we are taking. we are investing in software application that would play a role in the digitalization. we are long-term investors, so we always take a view into the sector. any correction in the market doesn't mean that we need to but overall we are long-term investors and we take a long-term view. francine: what about banks? it feels like it is almost a juncture because of higher interest rates for banks. >> the financial institution is very important pillar in the

portfolio and the markets. any exposure in any particular market we would like to have a balance in the under portfolio we always aim to have this. investing in a financial institution will always be a theme for us. we are also moving to fintech financial institution that is becoming popular and a very important theme in our investment. francine: this was the only mobile -- this would be only mobile banking or online? mansoor: it could be only online banking. it could be anything. this is very important. it lines up with our important theme which is digitalization

that is becoming important for the humankind. francine: how much do you like football? i know there is speculation on the back of the world cup that they are interested in buying a sizable stake. mansoor: the football clubs in sport becoming very commercialized. they would like to go and experience and entertain themselves. at the same time, digitalization is becoming important. the business model of these institutions are becoming very commercialized and investment friendly. you will not be surprised if we

invest in this but a very fundamental process in making sure that if we invest it is commercially driven for the future generation. francine: we know that the spurs are looking to be sold as well or have a stake. would you have a stake or by a club? how do you choose? mansoor: it is a process we go through and a discussion we engage in with management. this is a very commercially driven decision that we go through. people are engaged in sports and digitalization is making it more attractive to investors.

francine: you saying it change? mansoor: the leak is becoming something investors are into. this is a theme you will see it very active. francine: is there anything else we should be looking at? you are going after things people love, so trophy assets, it could be football, technology, putter was talking about it. is there anything else you want to be in? mansoor: it is the same thing as before, we are not interested in cryptocurrency but the blockchain, anything using a blockchain would be of interest. this is sustainability that is another theme we are interested

in and theme that come to stay for a long time. we would like to play a role in the transition the globe is going through. we are investing in all aspects whether playing a role in sustainability and renewables, the latest investment we had with a german company that invests ticks all of the boxes. it is renewable and it is also in the u.s. market. this is an important theme. francine: what is the ultimate trophy? is the one thing that if it came up at the right price you would absolutely no doubt try to buy? mansoor: i don't have a name in my mind, but definitely again it

is always about how fundamentally it makes sense for future generations. we manage the fund for them. anna: he was speaking with francine lacqua, that interview one of the earliest interviews from davos at the world economic forum gathering of the wealthy and powerful, and they have a lot to say on the prospects for 2023. time for a bloomberg business flash. credit suisse plans to cut 10% of investment bankers this year, according to the financial times. last year the bank announced it would cut 9000 jobs globally by 2025. the ceo of the qatar says they

support elon musk. they spoke to bloomberg tv in davos. the fund helped finance musk's financing of the social media site. didi got assigned to sign up new users. the crackdown signal as beijing's way to crackdown on industry. those are some of the top corporate stories we are tracking at bloomberg. this special edition of "bloomberg markets," because martin luther king day shows no trading in the u.s.. stocks in europe up .3%, modest gains. up .2% on the ftse 100. the dax up also.

modest gains across europe. u.s. futures, no trading, but futures pointing down with trading tomorrow, .3%. this is the picture across the european equity space also commodities. natural gas prices down once again. this is the european benchmark, down 11%. so much of the eurozone economy has centered and how it will manage with skyhigh energy prices. we have seen them come down, partly to do with weather but successful efforts to try to replace russian supply. we are seeing germany and finland and others talking about new installations, lng to fill the gap weather was russian gas. the chinese increasing weight looking at the market and talking about a regulatory clampdown. rent crude -- brent crude also

down. dollar-yen, on the move as we work our way towards a boj meeting that could be important or might not be, depending on what they decide to do. we have seen tweets around some policy involving control during december. will we see something more drastic? some have that take and what it has on the 10 year yield. will we see substantial change or maybe nothing or a stabilization before we see the changing governor at the central bank? coming up, alberto gallo joins us. this is bloomberg. ♪ i know the markets have gone up and down, but you're right on track to reach your goals. my ameriprise advisor helps me feel confident about my financial future. he knows me and my goals. it's not the first uncertain environment he's helped me navigate. probably won't be the last.

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bloomberg market. let's check in on these markets. kicking off the week on the front foot across european equities, aldean anna a record start to the year. gains of 3/10 of 1%. the european central bank of keep hiking and then cut by the end of the year. there is a divergence between the bank officials and economist. markets are closed in the u.s. it's a national holiday. the context being that last friday you ended up up across

wall street, the highest gains for u.s. equities in a month. if we assess applications for the federal reserve. the yen is the focus for us. we look at the rio j meeting, investors are betting that there will be some change from the boj around its loose monetary policy. we are seeing some softness for the end. they are down 0.3%. when it comes to -- pressure is down 4.6%. this is on officials in china scrutinizing the market after a strong run-up in iron ore prices. there will be more demand from the world's second largest economy as they continue opening up after having dropped covid zero. again it, it's a national holiday stateside. keeping you up-to-date, here is the first word with angel.

angel: the most wanted mafia boss is caught after 30 years on the run. police arrested him at a private clinic in palermo. he has been convicted for dozens of murders, including those of two judges. the u.k. and eu are close to a deal on trading arrangements in northern ireland. they are nearing an agreement on customs. that is the sign it to reduce friction between great britain and northern ireland. janet yellen will hold her first face-to-face meeting with the chinese premier tomorrow. they will meet in zurich. the announcement follows the november meeting between president biden and xi jinping. that led to a modest online it between the two nations. an investigation of classified material, additional documents of been found at his house in delaware. republican share of the

oversight committee wants the white house to release logs from home. global news 24 hours a day, on air and on bloomberg quicktake, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you very much indeed. let's get back to the markets. what is driving the markets on a day when the u.s. is closed, we look add to that central bank, question marks about yield curve control. morgan stanley is saying european structs can extend their lead over the u.s.. monetary policy will be tighter. value stocks will no longer play second fiddle to their growth peers. this should be more favorable for the equity market. european equities have added about 6.5% year to date. let's bring in alberto. it's good to have you on.

is the optimism around the european market justified? alberto: we came from 2022, which was pessimistic. there was a base case of recession in europe. we know that recession risk is much lower. gas reserves are high. governments continue to spend. we have very high deficits this year. there is one factor that was completely unpredictable last year, the reopening of china. it is finally happening. europe is a beneficiary. there is a lot of optimism on demand. demand is stronger. central banks are still there and inflation is still persistent. the optimism was there. it is also being priced. there is a little bit too much complacency on what central

banks are going to do. tom: let's start with the central banks. the bloomberg survey suggests the ecb gets from 2% to 3.2 5% before cutting in the summer of this year. is there a disconnect with the way that they are looking at the project tree and what we're hearing from officials. what does that portend to the rate of increase we will get? alberto: the ecb is behind the curve. we have a very high level of inflation. eurozone inflation is going to peak around the middle of this year. we do think it's going to go above 3%. equally, the federal reserve is expected to cut rates in the middle of the year. without a recession, we think that's optimistic.

there is still a lot of liquidity in the system. the bond markets are very optimistic. we see another round of surprise when central banks will -- there is currently a conflict. central banks are saying that the markets are calling the bluff. we think they are going to keep the hawkish stance. that might create volatility later on. that is the most important question for investors, are we going back for low information -- inflation? the world has changed. we have higher commodity prices. we have populism. tom: those changes you highlight for us in your note, the

geopolitics and the relationship between china and its major trading partners. you talked about the reopening of china. are you enthusiastic about the impact? how do you want to play that reopening story? do you play it via equities? alberto: in general, in the world we are seeing a shift from pure democracy and free markets toward state capitalists. the extreme version is pro spending. sometimes, it is anti-capital. china reopening will improve. let's not forget that china has a recession. it has a lot of debt due to housing. that problem isn't going away quickly. europe is unlikely to run a deeper session this year. the value is in equities.

there are a lot of companies in europe that are giving investors double digit yields. that is higher than government bonds. governments are spending 5% deficits. there are a lot more bailouts. there are -- is also less probably of bankruptcy. we like corporate bonds in europe. we like credit. investors can lock in and get a big advantage above inflation. there is a lot of value in eurozone credit today. tom: it's almost a consensus call that you will get bowsher to u.s. credit. is that a consensus call? is that becoming overcrowded? alberto: last year was a terrible year for fixed income investors.

everyone this year is saying this is the year of bonds. we are going to have a good year. it's not always the case. perhaps in our view, there is a little bit too much optimism that the fed is going to stop that 5%. we see signs of persistent wage rises in the u.s. the u.k. is -- it's unlikely central banks will throw in the towel and say mission accomplished at 5%. there might be a slowdown. as a result, we are selective about where we go. the u.s. market is very tight both in rates and credit. we need wider rates. in the u.k., we like to hide in the euro zone. there is a lot of negativity. the risk premium is higher.

valuations are much tighter. there will be entry points during the year. tom: you like to hide out in the euro zone for now. i am assuming that the view you take, you are in the camp of higher for long. does that mean you have no appetite for value, particularly at this point? alberto: this is the goldilocks trait. you need to answer this question, are we going back to goldilocks? we don't think that's the case. there is a lot of structural shifts. there is a shift in demographics. lineal's are going against the oldest rule, people would become more conservative as they age.

lineal's are remaining left wing as they age. essentially, this means they are more pro spending across the u.s.. that means persistent inflation. the other thing is the u.s. china conflict. the taiwan tensions are a focal point. there is also china encouraging sales of oil. the challenge u.s. financial dominance is there. this means more localized reduction. there are a lot of reasons why we think there is persistent inflation. we will not be long investment grade, but be more tactical. tom: alberto gallo, always appreciated.

the need to consider the structural changes have led to the end of the goldilocks era. unit to be focused on those opportunities. thank you. finance ministers are meeting in brussels. things are turning more positive on the european economy. goldman sachs says no recession in 2023. still major issues to remain for governments to tackle competitiveness compared to the u.s. and china. we have the details. what are they wrestling with on the ground today? maria: tom, the bigger question is has the mood changed? has the zeitgeist changed for europe? does the worst over for the economy? that is going to be the top question today. what is the real diagnosis of the economy?

this was supposed to be the winter from hell. the temperatures have really helped the european continent. the measures they took themselves today, gas prices are trading 80% below the peak we saw in august. that has tremendous repercussions for the growth outlook. that is going to be another point of debate. beyond that, there is a topic that comes up time and time again in every discussion i have in brussels. that his protected the european industry. that is what to do with the sectors. they could be mostly affected by the inflation reduction act. there are talks that are still ongoing. they hope to get more waivers come march. as you know, that is a very controversial topic. germany and the french could be

the biggest winners. it could turn into a two-tier economy again. tom: maybe some of the economic clouds have listed. geopolitical tensions have not. thank you very much indeed. briefly checking in on the markets, european stocks are up 0.3%. coming up our interview with the ceo. that is next. ♪ welcome to a new era of flight.

(upbeat music) there's more to business than the business you're in. (robot whirring) want smarter factories? that's the internet of things business. accelerating r and d? data science business. hey. have a look. managing global supply chains? shrink our carbon footprint business. thank you. (in foreign language) that's where deloitte comes in. with a potent blend of acumen and technology to help advance and connect all that it takes to excel in business ... to the business i'm in. deloitte. tom: welcome to bloomberg

markets. this week is the start of the world economic forum in davos. francine has been speaking to a number of executives, including the qatar investment authority ceo. what to expect in 2023. >> it's a challenging time.

inflation is the main topic for the global economy. the central banks are trying to contain it. this means they have to raise interest rates, which will slow the economies. europe is in a very difficult situation right now. the u.s. will be in recession. china is just opening up. definitely, it's a challenging time. challenging time will continue on this year as well the good news we have seen some numbers, which is promising. i hope by the end of this year and next year, things will turn back to normal. francine: valuations are depressed, certain assets are cheap, are you adding to your investments? >> absolutely.

we see this as an opportunity to reposition our portfolio. we highlight the weaknesses we have in our portfolio and we rate these corrections in the market to fulfill the weaknesses that we have. definitely, this is a time of reposition and a time to look at the weaknesses in our portfolio. we will continue investing. francine: how are you repositioning that? has that changed? are you adding to that? >> this is not technology only. technology is something that we will chase our exposure in that market. we are investing even in europe. even in some other sectors.

we are adding more exposure. it is deftly a time to redeploy some investments in the right valuation. francine: what companies are you looking for? crown jewel like harrods? is it bigger companies? >> not really. we are not focusing on the profit assets. we have a very fundamental process in evaluating opportunities. we are very connected to the market. we know what's going on. we evaluate opportunities based on the fundamental aspects. whether this is a trophy asset or not, we always deploy investment. if we find a trophy asset, that is fine. lisa: we talked about twitter.

you are a big investor in twitter. it's gone up and it's gone down. we talk about it everyday. >> you always ask this question. we are investors. we are financial investors. we engage with management and the plan he has for the company. we trust his leadership. we are committed to the plan we have. francine: francine: have you asked him to tweet less? do you get involved in those calls? >> not really. he has our trust.

we are sure he would manage it proficiently. francine: is there another tech company that looks good at the moment? we have seen a lot of cost savings. i do you can't get involved in softbank, is there something you would be looking at? >> in the area of technology, we are interested. it's a very important theme. that would play a role in the digitalization. again, we are investors. we take a fundamental view into the sector. any correction in the market doesn't mean we need to replay the tactic unless we would like to close a gap in our portfolio. overall, we take a long-term view. francine: what about banks?

you have been invested in banks. it's a juncture because of high interest rates. >> financial institutions are very important and the mix of the portfolio that we have. ideally, we would like to have a balance in the portfolio. we always aim to have this. investing in a financial institution will always be for us. we are moving to digital and financial institutions. that's becoming very popular. francine: with this be online only or a company with a big presence online?

>> it could be anything. this is digitalization. it's becoming very important for humankind. francine: how much do you like football? there is speculation on the back of the world cup that you are interested in buying a sizable stake in one of the big u.k. football teams. >> football is the club and the sport is becoming very commercialized. especially now, fans are looking into this as an experience. they would like to experience and entertain themselves. at the same time, digitalization is becoming very important. the business model of these

institutions are becoming very commercialized and very investment friendly. we are becoming investors with some of the clubs. you will not be surprised if we invest in this. we are making sure that if we invest, this is a very commercially driven generation. francine: would this be chosen on paper? manchester united are up for sale. is this estate? would you buy a whole club? >> it's a process that we go through. it's a discussion we engage with management. we have not made up our mind yet. this is a very commercially driven decision that we go through. tom: joining us with more is

francine. braving the temperature, what a fantastic interview. you covered so many topics with him. how much do you think their portfolio will change? francine: i think when we talk about the poindexter capital, they talk about some of the tactically changing portfolios, when you look at the long-term investment, they haven't really held or given up huge positions. it's interesting to get the view on if they're looking for opportunities. he said this is for longer-term investment. this is basically the sovereign welfare fund for their people. they won't make any rash decisions. tom: he didn't push back on the

idea that they are interested. francine lacqua on the ground in dvos, she will bring us a string of big-name interviews. still had, an interviw with philipp hildebrand. that is next. this is bloomberg. ♪

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markets. we are taking on european markets, continuing to build on a record start to the year, up 0.2%. on the moderating views, gas prices have come off. you see that continuing to play out. energy costs are coming off. inflation concerns are starting to ease. the assessment from goldman sachs is the eurozone avoids a recession this year. the u.s. is closed for a national holiday. futures are pointing lower. the japanese yen is the focus for us this week and today, down 0.4% against the u.s. dollar. the japanese currency is near

the highest level since may last year. we are looking for the boj meeting on wednesday, they might step from their e-zine policy. that is a check on your check. let's bring in angel. angel: teachers may join hundreds of thousands of employees who have gone on strike for higher pay. the national education unit will announce the results of a strike quote today. the house of commons will debate anti-strike legislation. the defense minister has stepped down after a series of missteps and speculation about her future. it is a blow to the chancellor's government. her departure comes as berlin is debating other to supply ukraine with tanks to fight russia. in china, 60,000 people have died of covid in the last month. that is led to calls to provide more data about the wave of

inflections -- infections. it is been spreading faster since they abandoned their covid zero policy. global news 24 hours a day, on air and on bloomberg quicktake, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you very much indeed. bloomberg tv is live at the world economic forum in switzerland. earlier, francine spoke with philipp hildebrand, blackrock's vice chairman and asked for his take on the inflation outlook. >> i think there could be a risk that we get into pessimism judging by what we have been through. francine: do you think inflation is peaked? >> it will drop very quickly. many of us will be surprised how

quickly it will fall. it will fall very quickly, it's going to get very difficult to get inflation back to price stability. at the moment, the initial phase will be a very rapid decline. francine: what does it mean for central banks? if you are the ecb or the fed it, do you have to be more careful in how you manage this? >> they are going to continue their tightening path. they are going to be very focused on not losing long-term expectations. i think we will see -- i don't see any chances of easing this year. the market has that wrong. they are going to make sure we can get from nine to four and limit any risk it expectations become unanchored. this is driven by the labor

market. it is going to be difficult to get inflation below 4%, let alone below 3%. we are in the e-zine phase. francine: we have fed officials same don't expect a pivot anytime soon. philipp: that's right. i think this notion that there could be easing this year seems to be far too optimistic. you are going to want to make sure you can get this done, that you don't risk researching if and tatian's down the road. the market may need some readjusting. this is what we call the new regime, the great moderation is over. the notion that when the economy struggles, central banks will

ease, that was true in the past. francine: it is quite incredible to see the leverage going from zero to where we are now without more bankruptcies. are you expecting zombie companies to crop up? philipp: it depends on how much damage will have to be inflected to get this last inflation squeezed out acted 2%. that will be the big trade-off. this will not come without cost. i do suspect the central banks will back off. they will not drive inflation all the way back to 2%. that may be a moment when the market can recalibrate. to the tightening process ensuring that we don't go from 9% to 4% but we bring it back under control. francine: if we try to put inflation back to 2%, could that be later in the year? philipp: we will see it dropping

quickly to 4%. that's the easy part. the question will be, midyear what do the banks do at that point? do they tighten beyond what is expected to drive inflation back to 2%? that would entail significant tendencies in the real economy. there would be a lot of damage to the real economy. do they say we've done enough, let's see what happens if we late -- let inflation persist above the 2% target. francine: what does this mean overall? philipp: there will be opportunities. we now have a very different outlook. i suspect until we know with the central banks are going to do with that residual piece, they

are going to be challenges around equity markets. the central banks could ease again. i suspect that is premature. i can see some volatility going forward. francine: the talk was all about the lack of liquidity in the markets and what that could do in terms of schisms or things going wrong. we don't talk about that anymore? philipp: if you think about what has happened in the bitcoin space, many other areas, the market has adjusted reasonably well. the banking system seems to be in pretty good shape. we don't see the leverage the system. this is one of the positive aspects, that we haven't seen major disruptions in the financial markets as a result of

these adjustments. 2022 has been a year of amazing transition. it could just be delayed. it depends on how damaging the recession is going to be. philipp: there is the covid component. does that change consumer behavior? when we say consumer behavior has stayed strong, are we looking at a distorted reality? philipp: this is one of the reasons i believe we will have a mild recession in europe. the savings have been accumulated as a result of covid. they will run off by midyear. that is going to be the time when the tightening -- this is been the most aggressive tightening cycle in history. that is going to be a difficult

moment. they think the rate cycle, the increases in the rate. francine: when you look at the ecb and the u.k. and the fed and the bank of japan. philipp: the bank of england has the worst of both worlds. the labor market, the supply-side constraints we see elsewhere, it also has the energy shock. europe has most of the energy shock. the u.s. has the labor market constraints. the bank of england is hit with both challenges at the same time. the trade-off, the cost of bringing inflation under control will be the highest in the u.k. as result of the consolation of being hit by these forces at the same time.

francine: is there anything they can do to calibrated? how does he do it? philipp: you have to be honest about it. this is a new world. in the old world, you could get deflation under control. there is no way around it. this is why we aren't in a new regime and why investment has become more difficult. it is much more complicated. the best thing central banks can do is to be open and acknowledge that bringing inflation back under control, ringing price stability back into the game entails recessions. if you think about it in this way, central banks always came to the rescue to get you out of recession. now we have the opposite.

they have to engineer recessions or contract the economy. francine: how do you see china opening with great difficulty? the vice president of china is here. we do have the vice president of china. philipp: this week is important. no one has been to china and several years. there has been very limited interaction. to actually meet the chinese leadership, this will be an important part. i think that should lead to more easing of the supply-side constraints. there are elements of good news in terms of bringing inflation

rapidly down from these high levels. the reopening of china is a big part of it. the health dimension of this, that's very difficult to judge. francine: are you expecting less regulation? philipp: the main question today will be where are they in the calibration between control and markets? we have seen an extreme move toward control. the question is are we seeing some recalibration in order to get growth in order to reopen and address the world supply chain problems? tom: that was philipp hildebrand with francine lacqua, speaking at the world economic forum in switzerland. the markets over in china, the session was positive today.

that fed into what we've seen in europe. the optimism around european equities continues. the context that year to date you had a record rally, games -- gains of over 6.5 percent. there is more upside for these markets. futures are lower by 3%. the yen is the focus, that's a little bit softer. european gas futures, this plays into the optimism around potential for europe to take the recession. they are falling again today, down as you can see 12%. coming up, we will have a fresh dose of optimism. gas prices are dropping to a 16 month low.

we can get more details and context on that conversation. the euro zone will avoid recession. stay with us. this is bloomberg. ♪ get refunds.com powered by innovation refunds can help your business get a payroll tax refund, even if you got ppp

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within the organization, for example, by using it for training. and the third one is to generate revenue, for example, by offering payment and lending services to buy virtual land. these are early experiments, but we believe that the business case will continue to strengthen as the technology matures. ♪ tom: welcome to bloomberg markets, let's get to what's happening in the energy space. the cold winter failing to materialize in europe. mild temperatures are driving gas prices down to a 16 month low. the region is not in the clear yet. the executive chairman of spain's largest utility company

said: for more, let's bring in rachel who joins us from davos. give us the context around what we are seeing in the gas market. a further move lower of 12%. what is the role china is playing? rachel: we've seen a big selloff in gas prices. that has been because of mild weather, europe using less gas when -- than we thought we would. storage levels are still full. we have estimates for how much stories we might have left by the end of the winter. what we are trying to way out is

whether the crisis is over, whether there could still be a shock. everybody's been looking to see when demand from china will rebound. it hasn't happened yet. those of the factors people are looking at. as the chairman said, he wouldn't put money on it being older -- over. we are hearing from policymakers that europe is ok this winter for sure. next winter is looking good. some people have a slightly different view. tom: it's really interesting. we don't want to take too much relief in terms of the prices. it ties into the assessment of whether or not the euro zone ends up in recession this year. just drill down on what the key factors you are looking for in the months ahead to give us more

clarity on where gas pricing goes from here. rachel: one of the things we know is there isn't going to be any change in how much gas there is in the market until about 2026. it really depends on demand and how that plays out, whether people are actively using less gas or if that comes from mild weather and people feel the need to have less heat. both of those factors are really important. when it comes to energy cargoes, where they are going. there is a premium to asia. cargoes are still coming to year. if you have a cargo to sell, you have more chance of selling it in europe. we don't know what prices will do. an event could mean prices spike again. with energy, with flammable liquids and gases, there are

accidents. friday evening, we saw an event. things like that happen. those do add an element of risk. we are not just on a downward track for the rest of the winter. tom: great context, as ever. thank you very much for the update on the gas situation. let's bring in anthony. good morning. thank you for joining us. give us a sense. there was the outperformance of utilities last year. could that continue into 2023? anthony: it's going to be hard. we had a great 2022. if you think about it, we started seeing interest rates rise. the utility sector kept grinding through it. i think one big push back is

rates double in 2022. we did not comment at all. our price stayed robust all year. we think it is going to catch up to us. historically, we've traded 75% of the bond index. right now, we are only at 50%. stock prices need to come down to get us to that average. it's been a long time since we had back-to-back years of outperformance. we did have some outperformance when the sector was less of a commodity driven story. a lot of the utility stocks had natural gas prices. at that time, we have not

outperfomer back to back since 1990. we think 2023 will not be a year of outperformance. tom: how much of that is back to evaluations not looking as attractive after that 17% performance for the sector? what is the state of valuations at this point? >> a look at the yield basis, we traded 75% of the bond index. i think we are more in line with trading the discount. everyone is predicting a short narrow recession or everything that is short in duration or not that deep is going to impact us. we will see a transition to growth stories. earnings growth is still intact.

we are providing 6% earnings growth. you are getting 10% or less total return when you add in the yield and the earnings growth. valuations are stretched, especially on the yield basis. tom: where are you finding the earnings resilience? anthony: they earn off of the rate base. they regulator sets them. when you multiply those three items, you get the utility sector. that's just the investments of wires and pipes we see utilities making. so far, regulators have not stopped allowing utilities to reinvest in the grid.

they are spending record levels of cap elite to -- capital to reinforce the storms. -- grid. the utilities did a great job restoring customers. that spending is still in place. i continue to look for earnings to grow. if you see regular start tapping the brakes on that, we have not seen that yet. everything on the margin, so far plans are still intact. how does the inflation reduction act price into that? the inflation reduction act was

tradition -- great for nubile's. that created earnings for the nuclear plants. the ira revises that equity. they are a huge fleet of renewables. attic provides more clarity. that is helping out. for the regulated guys, that is looking to invest. it allows them to transfer the tax credits, which is something new. that was something they could not do. that will make it more attractive to the transition story. the biggest for shary is unrated nuclear plants. tom: really interesting insight

into the utility space with a focus on what's happening in the u.s. and the overlay of that inflation reduction act. anthony, thank you very much indeed. let's check in on the markets area we are under five hours into the european trading session. gains are 0.3% across european equities. futures are lower by 2%. here in the u.k., you see gains of about 10 points. the dollar index is just up 0.1%. we are looking ahead to the bank of japan policy meeting. stay with us. this is bloomberg. ♪

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♪ tom: welcome to bloomberg markets. a national holiday in the u.s. 3/10 of 1% building on a record start to the year. on expectations, there may be

inflation and maybe the eurozone will avoid inflation. friday you ended up with the highest levels in about a month. it is pointing lower by four tens of 1%. of course, in focus, the decision on wednesday, whether or not they adjust the monetary policy. gas prices, dutch gas futures in europe, further losses. maybe inflation is starting to edge off for europe and possibly the euro zone as well. let's get you up to speed with some of the news from around the world and angel feliciano.

angel: the mafia's most wanted boss has been caught after 30 years on the run. italian military police arrested him in palermo. he has been convicted for thousands of murders including those of two judges. the u.k. in the european union are close to a deal in northern ireland. they are nearing an agreement on customs to reduce version between great britain and northern ireland. u.s. treasury secretary janet yellen walder first aced to face meeting with chinese vice premier liu he tomorrow. the surprise announcement follows the meeting between president biden and president xi xinping that led to relationships between the two governments. and the foreign film star gina lollobrigida has died. she shared the screen with leading men such as humphrey bogart, burt lancaster and frank

sinatra. she was 95. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank, indeed. european stocks kicking off the year with the biggest advance on record. as i mentioned, that continues today. declining energy prices fueling our performance over the u.s. laura gilbert weighing in on how the euro has strengthened considerably since september. we believe this has been and will continue to be constructed for european equities in 2023. before we get to the earnings picture, let's get that view, let's unpack that view.

just unpack that view for us, what you are seeing in terms of the catalyst for this european market. >> with europe, they were struggling quite a bit. the war with ukraine. now, there's more tailwinds there with the dollar beginning, the euro strengthening. just looking at this winter hasn't been the devastating winter that many were expecting as far as what is going on -- prices. amidst all about, we see that europe is rebounding and most likely, much stronger than the united states. so weaved increase the waiting to international securities including europe starting to look at asian-pacific as well in all emerging markets.

tom: how defensive do you want to be or not within the european equity space? is it cyclical? how are you positioning within that space? >> overall, we do like value overgrowth just being a slow growth environment right now. we said last year was going to be more of a value play than it was and this year as well, we think value across the board, across international and domestic in the united states. tom: what is the china catalyst? how much further do you think it has to run? >> one of the things we are doing is waiting to make sure the reopening is real. it certainly seems like it is and if it is, that is going to do well with the consumers spending out and about. as we continue to watch, we think that is the catalyst that will drive things forward as they start to grow their economy

again. tom: what was your assessment of the bank earnings that the gap grew on friday? you think that maybe lost permissions are overly conservative for jp morgan? was that one of the key standouts for you and what that tells about the defensiveness or a caution within those banks? >> we always look at the bank earnings at that sign of what is going on with earnings and that last quarter. they did come out quite strong and beat expectations. that is the overall thing, that they did beat expectations. keeping those high, what that tells us that that future orders are probably going to get that go. the areas that did well so far are the areas like jvm which our interest rate-sensitive.

as those companies released those lost reserves, that will go to the bottom line. so far, so good overall and we are going to hear from goldman. tom: you need investment banking to come back with force to have real conviction around the banking space? >> the banking space is diversified, so certainly with interest rates on the rise that is helpful. as far as the business cycle is concerned, certainly we want to see the investment banking happening and we think that will start happening again in 20. tom: this is the focus for you as well after the calling of the week. places like the u.k., australia, canada as well. what is the picture look like for housing market?

>> there's no way to ignore the fact that rates are twice as high as they were a year ago. that has competed and is going to continue to dampen housing prices and sales. however, there are many areas where sales are still strong just based on supply and demand. there are not enough houses that demand is still going to be there. whenever we see housing prices not be affordable, there was a rollover in price. we do think housing prices are on the way down and for people to be very cognizant of that, for a lot of people, they are just waiting to sell. so much so that wells fargo has pulled out mortgages for now. we are going to continue to see that kind of behavior by companies but it is a difficult environment in the home mortgage

space. tom: how does consumer discretionary play? how vulnerable is that within this environment? >> consumer discretionary is very vulnerable because of the economy slows, most of us think that we are going into some kind of recession. maybe not a severe recession, but a recession nonetheless. anything to do with the consumer is going to be sought. that is an area we are steering away from for now. i do not think it is going to be one of the biggest sectors this year. tom: ok. loreen gilbert, thank you very much indeed, joining that this monday morning. shift the central banks, as i mentioned, that decision is on wednesday. investors remain on high alert

for any further policy tweaks with the decision failing to significantly improve market liquidity. joining us now for the big dive, bloomberg's --. flag for us why it is so important, why we should care about the boj decision this week and what you think the likelihood is that they will actually back from control. ven: they have to see control on the yield curve sooner later. i think it is important in the context of what is happening in japan because it will mean the end of --, super accommodated in hold of monetary policy. the yield curves in interest rates. tom: i was speaking to an

economist over the weekend who said is an easy trade. as an obvious trade. you don't think it happened this week, you think it happens at some point relatively close to this timeframe. what does it do? >> i think there is going to be a big shift probably away from equities. what we saw last year in terms of japanese equities benefiting from low rates is not only as easy a trait. in terms of the yen, walking away from curve control, of course, a fortnite alone, i

don't think in the short-term it is sustainable. it could easily connect to one hundred 30, 131 if the boj refuses to see control. they need to see how inflation -- over the longer term. 17 out of 19 have already flagged. 25 basis points. the smaller part can keep going. tom: and if the doj does not abandon this policy this week,

it is inevitable of a step into the markets again. >> they will have to continue buying. but i think that there is a very high chance they may actually see control of the curve. tom: the vultures are circling. it is not going to be this week, that is the call from ven. excellent analysis as ever. thank you very much. let's start with the japanese yen, down 5/10 of 1%. still, the rally has been closest to the highs of may of last year. 3/10 of 1%, futures up by 2/10 of 1%. those european natural gases continue their much lower, down

30%. modest optimism. european markets as well. the technicals at this point giving the view that maybe there is further upside for the zero in equities. the outperformer's will continue this year. stay with us. this is bloomberg.

tom: happy monday, welcome back to "bloomberg markets." u.s. markets closed for martin luther king day, a national holiday, nasdaq features down by 3/10 of 1%. not taking much for spite, these u.s. futures from what is a pretty decent session here in europe, halfway through the day. gains of 3/10 of 1% building on

the record start the year for european equities. the technical suggests there is further upside for european stocks. natural gas is moving down 12.5%. maybe some shipments will move from asia to the european space, helping to further ease the constraints around energy. it has also been a mild winter. futures in the u.s. down to tens of 1%. the japanese yen 1.28. the story over the last few weeks has been strength of the japanese currency. he does not think that the boj will abandon its yield curve control policy's ultra-loose

monetary policy this wednesday at the meeting. others take a different stance including citibank. that debate continues and of course, consequential for the yield curve in japan and their currency. let's get to the fiscal policy and the politics of the united states. janet yellen raised a warning flag last week saying that the federate will begin taking special accounting maneuvers from this thursday to avoid breaching the u.s. debt limit. the context, the details, the implications and whether or not markets have been overly relaxed about the potential for that with this debt ceiling. thank you for joining us. the importance of what we heard from the treasury secretary taking special measures. is it unusual? what does it tell us about the depth of concern within treasury? >> it is not unusual for the treasury secretary to engage in these extraordinary measures. it is the beginning of a run-up

to frankly feeling with the possibility of defaults by summertime, in this case. what is different this time is that some elements of the republican party are really pushing the idea that what they need to do is have a debt ceiling raise and combine that with some sort of fiscal discipline, either slightly lower spending, potentially something else. this is a real political problem that is rapidly going to turn into a real market overhang fairly soon. i've been banging on for a while that i think the default risk goes up by summertime and i stick to that today. tom: and that is a pretty gold -- bold call, 40%. the markets, there is market

complacency around this risk. terry: something is going to happen in june. great, i've got five or six months. this is going to be increasing overhang of the political figures out this is not a bluff that is going to be easily resolved. think that mean a lot politically but don't mean a lot in market terms. this time is a little different, i think. tom: it is going to come down to getting lawmakers to put their vote behind this. one of the ability for democrats, for biden to rally the democrat? is biden willing to make any concessions and ken mccarthy rein in the extremists on the

right of his party? terry: it will shock you to learn that both sides are politicizing this to some extent. on the one hand, republicans want to use whatever leverage they can. on the others, the president says he is not going to negotiate at all. in the end, there is going to have to be some accommodation. the way i look at washington, there are cointreau factions. -- four factions. three out of the four of those with the exception of the true conservative republicans are going to want to put a solution into place that makes sure that default doesn't happen. i'm remain relatively bullish even though the call is the risk

will be very high. but this is going to take an awful lot of --. there is no incentive for any of these people to back down anytime soon. one of the reasons why i think the default risk is so high. tom: what is the role of former president trump now? a leverage that he has over this republican party as they position themselves for the next elections, 2024, of force. is trump still the fourth that he once was? terry: waning by the day, i think. i've started updating because it is the gift that keeps on giving. trump has jumped the shark politically. it is sort of an entertainment world idea when you're calling attention to yourself, a desperate attempt to keep your ratings up. he has been jumping the shark again and again and again with a

variety of antics of the thing that is really beyond the pale was right after the election when he suggested that suspension of the constitution might be in order to get him what he wants. you combine that sort of lack of understanding or reverence for constitutional checks and balances with the co-political fact of the loser having lost in 2020, having lost the midterms. [audio distorting] tom: terry, unfortunately we are having some technical issues, it happens sometimes in live tv, but we got some really important points there in terms of the political risks of this debt

ceiling and the 40% chance of a default. again, to stress the terry haynes does not believe ultimately that that will happen , and lastly ending on his views as to the waning influence of former president trump on that republican already. thank you very much indeed, and apologizing to our viewers and those technical issues. let's check in on the markets. gains of three tens of 1% across europe for equities. some of this is real estate. financial sector is also gaining a tenths of 1%. we continue to impact the earnings for the u.s. banking state. we have goldman sachs reporting tomorrow. european banks reporting to the end of the month and of course they will give us a date as well in terms of how concerned those banks are about a potential recession. goldman sachs thanks the

eurozone will just about avoid a recession. you are seeing some barely positive momentum in terms of gas prices that will at least give some ballast to the view that inflation will it started to peak and maybe that recession will be averted because the crisis is becoming less acute. there is a number of caveats through that, but that is the pitch as it stands. that is down by 5/10 of 1%. the bank of japan, that is speculation to see whether they blank on yield curve control after that surprise decision to increase the cap from 0.5 to 0.5 in the month of december. some speculating may they will abandon that policy altogether as soon this week. that is not the view of ven.

the currency space, the dollar index needing to tenths of 1%. sterling at 1.21. still ahead, a conversation with the saudi arabia economic and planning minister. stay tuned for that interview and the context. this is bloomberg.

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tom: welcome to "bloomberg markets." the rally continues across european equities. a little bit more caution seeping into the future. of course, markets close for that national holiday. the yen under pressure. the gas tour in europe continues to evolve in a positive direction. prices down 12%. let's get you all from around the world with the first word news. angel: and the u.k., teachers may join hundreds of thousands of employees who have gone on strike for higher pay. national education union will announce the default of a strike vote today. the house of commons will debate anti-strike legislation. in germany, the defense minister has stepped down after a series of missteps and days of speculation about her future.

the departure comes as berlin has debated whether to supply ukraine with tanks and by russia. and more problems for joe biden in the investigation of classified material. additional documents have been found in delaware. now the republican chair of the house oversight committee wants the white house to release visitor logs from the home. global news 24 hours a day on air and on bloomberg quicktake. powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom? tom: thank you very much indeed. let's go out the dallas where we've been speaking with saudi arabia about growth in the saudi kingdom. >> saudi arabia is without a doubt the global growth story. and when we look beyond the actual gdp numbers, we were expecting 8.5, 31. world bank is expecting 3.7%.

what we care about is actually our nonoil growth, nonoil activities and how much we detach from oil. we are steadfast in our transformation. we have the economic transformation tools and we are moving forward. >> those are very worthy headlines but with interest rates careening toward 5%, we've got larry summers telling us get ready for a tumultuous year. are you ready for a volatile year? could be a year of two halves, almost. >> we know that the banks, they are trying to increase interest rates and control event of inflation. we see that inflation hasn't gone as far as people are expecting. we think there might be more hikes, so we are keeping an eye on that. still, and saudi arabia, we are very much focused on delivering the transformation.

for the g20, we had the largest. >> you have the strongest job growth in six years. can we expect the same kind of growth in the other sector? >> unemployment has gone down to 9.9. we see even in unemployment rates, is the lowest ever recorded. that said, we still want to create more jobs. we want to reach even higher levels, about 2 million jobs this year, the highest ever created. >> let's talk more about the private sector because you've rolled the dice from where i sit massive moments for you in ev and tech.

is that the key focus, or does it have to be another foxconn deal size? >> we need to keep in mind that we're doing these deals because it is important for our economic transformation, to export more competitively. these are just examples of what is going on and they are about the whole system that comes with ev's and technology. we are making bets for the future. >> any more news? >> to continue our discussions with these partners and other partners. >> who are the others? you can't throw that in. >> i can tell you we are very serious about our diversification efforts. we are talking to all partners interested in the saudi story. >> and our global audience is tuned in saying what exactly is that for foxconn? hundreds -- how much more

incentive are you prepared to offer to global names? >> we have the right kind of incentive structures and governance to attract the right kind of investors the right kind of returns for them as partners, but also for the saudi economy and society. >> some major ceos, but i've got to say, there were no major deals done. what role will metals and mining play in the nonoil economy? >> mining in general is one of the sectors growing in the kingdom. we are still at the very start of this massive unlock, if you will. if discussions are going on in order to make sure that this sector and all the players in it will see a brighter future. >> the you expect --? >> i can't comment on that.

>> the other dynamic is how much do you think saudi benefits from this on ensuring, this movement of supply chains away from china? >> i think the kingdom is always seeking, leveraging its unique position. whenever there's opportunities for the kingdom and having operations and investments can be beneficial. as they are evaluating their position, we will take that seriously. the kingdom has access to natural resource but also the carbon moving technology. many enablers that can attract a lot of partners. >> one of the pieces is this narrative that is shifting in the oil space. what does saudi first mean for

you? his royal highness made the point you were with us that you are either with us or against us. >> we need to stop thinking in short-term. we need to think more long-term. what is good for saudi arabia and its economic transformation is good for the region and the world. as i said, the story is a global one and there's room for a lot of partners to partake in this. >> when i look at the gap, it hasn't gone according to plan. the vision 2030 target. >> that is our targeted we are moving forward. growth over the last year has been 250%, which is around -- about the global average. we are moving in the right direction.

we are focusing on this institutional clarity that will make saudi arabia and its economy and long-term reliable partner. >> what is it that you want to deliver here over these five days to the institute? >> we are very focused on ensuring that collaboration at a time of crisis and what we saw from that kind of collaboration will continue. we are very focused on what is good for the saudi story but we believe it will have a trickle-down effect. pretty much focused on finding new patch for the global economy to go. i think the more institutional capabilities belt -- built is something that we failed to give attention to.

there is no other choice. >> joining us now with more, focus on the middle east space in that region, a great interview, of course. some tantalizing details. and of course, reiterating, emphasizing that they are not stepping away from the efforts to diversify this economy. >> not at all. the journey is a tremendous journey. they rolled the dice. they went all in on a major deal. and of course, with lucid, which will produce electric vehicles, we know that the industry is in its infancy. the infancy of growth and the rest of the world. both are two fake temples of the dice but it is very obvious that

the diversification in the nonoil sector in saudi arabia is going to be something much further along from just electric vehicles. often time, something that may the world beyond here and at home, 60% of that population is sub-30. you got to deliver change. it is not optional. you have got to deliver technology change, social change, infrastructure change, and opportunity because otherwise, you run some pretty major risks in the social space and indeed, from the intellectual space. tom:tom: of course, saudi arabia has not been new to that. really interesting in the region. what are you hearing from your contacts on the ground? what is the mood from your middle eastern contacts as they get involved in these discussions?

>> they are coming here a serious players. liquidity is training out of the system. liquidity landscape of the world is in revocably changing. tighter central bank policy with quantitative tightening means less in 2023. the qatari's will deploy capital. i'm going to sit down with other asset owners over the next couple of days. but i've got some pretty big exclusives with one of the other asset owners herein terms of what they are doing in technology, where they are going to deploy their capital. in saudi arabia, think of the pif. in qatar, you have the qatar investment authority. how much opportunity do they have to fill the void of the

capital which is drained away from the central banks? i would say that the number of presentations is tremendous. we will catch up with a little bit more information and indeed deploy and fill the void. >> i think he just found yourself any special series. fantastic stuff, really interesting. on the ground in davos, thank you. european equity space holding up around 4/10 of 1%, building on a record start to the year for european equities and the technical suggesting that there could be more upside. recession risks starting to ease modestly. s&p futures down just a little under 1/10 of 1%.

the japanese yen trading low by 4/10 of 1%. futures in europe down, adding to the view that inflation has started to lose its bite, at least if this trend continues around falling gas prices. the dynamics of china will be crucial for what happens across the commodity world, many being redirected to europe. of course, the weather has been relatively mild. the bloomberg dollar index is up to tenths of a percent. the sterling pound, 1.22. much on the back of dollar strength. of course, it is a bit of a

mixed picture. 30.43 here in the u.k.. about 40 minutes into the european trading session. coming up, the big tech players. this is bloomberg.

tom: welcome to "bloomberg markets." nauta technology and of course, what is happening in the ai spaces fascinating. the most exciting technology development in years. thank you for joining us this

morning. talk to me about the implications of this technology and the risks, the concern that are starting from mountain now as the user numbers increase and people become a bit more familiar with the potential. >> i think we are just starting to wrap our hands around how broad the communications are going to be. in early december, everybody who has used it is really impressed with the capabilities. almost like having a conversation with a thoughtful, well-informed, intelligent person. and i don't use that word lightly. we are just starting to wrap our heads around. one of the really early impressions that people have come up ourselves included, is that search as we know it today is not going to stay the same. domestic question about

anything, it is you an answer. when you ask google search a question, it will give you several links that may help you find the answer, but when you ask a question, it gives you the answer. and that is one of the early impact that we are going to see. there are many more, we're just starting to wrap our heads around it. tom: it is transformative, significant at the first iphone, the first tesla. maybe the first time you type something into a search engine, whether that was google or bing or askjeeves. is that significant? concern to ralph and you don't always get an accurate response. >> no, you don't. that is something that happens when you google something or ask a person a question. you will sometimes get inaccurate responses.

it is a very advanced technology that is used very large amounts of data, and trained the system. the next generation will train the system on a couple of orders of magnitude more data, but there's always going to be inaccuracies and there's always going to have to be some human thinking about what is there and what is not there. i would say in terms of the biggest concerns right now that i've think about, some of those folks should be asking themselves, we know what automation did to blue-collar jobs, the impact that has had. what do we do when we have a lot of people that we don't need anymore to be productive because generally, ai can replace so many white-collar jobs? then you start getting into the south of the questions about

what is an accurate answer, how do we see what the bias is? it is a black box which ai often is. you don't know the process for how would comes up with an answer to how you treat bias, how you filter for bias. tom: when we move it from those big fillable -- philosophical questions, which tech companies are most vulnerable to the disruption that this could unleash? >> the beneficiary in our mind is microsoft. they are going to lightly incorporate which would make it competitive with google search. competitions are being done on azure, which is their business.

companies that provide technology, that leverages artificial intelligence. that is what we're going to see played out over the next weeks and months. the development of this technology right now. tom: focused on words, essentially script. you can tell me with the pronunciation is, which is around images. and that you say is consequential advertising all the way through to the creative arts. marketing consulting firms, there is a lot of people at those firms sitting down, writing copy, generating images, the image around and you can ask them to just do that, to give you a full campaign.

there are no biases or something offensive or something that we would think is inappropriate, but they wouldn't have to do the initial work. we are talking about white-collar jobs that we have to rethink their role in society, how much we need them. a lot of those creative roles are going to narrow very significantly to reviewing ai output as opposed to creating that output. tom: that disruption is coming, and it is time to wake up to it. really fascinating. maybe google is vulnerable, but microsoft could be seeing some upside and the people behind it, the team behind it. european bank earnings are

around the corner. mixed results amid a wave of job cuts across the industry. credit suisse gearing up for another round of layoffs. the pound to cut more than 10% of the investment bankers this year. for more, let's bring in charlie. what is your assessment, first of all, of the u.s. banking earnings that have come through, where it leads us? >> sometimes there is a disconnect between the financial world and the real world. i think we are sort of seeing that play out in earnings this fourth quarter. in that financial world, we are seeing a lot of stress with investment banking decisions. but then these banks, they had a miss on the revenue, and we saw a similar figure in citigroup. as a real struggle. it is a little bit confusing,

you see credit card balances slowly start to live up. but it could also mean that consumers are desperate, they are confident. they are barring money, tom: because they feel confident. there is that mixed picture, the disconnect from wall street and main street. you're starting to see maybe a bit of caution. when it comes to the european banking space, what are you looking for when it comes to those european bank earnings, when credit suisse prevails? >> it is going to be really tricky, have such a different economy. we are thinking about inflation slightly different. we are thinking about ukraine in the u.s. might be, but i do think it is really hard to look away from credit suisse. there was that story of the

weekend about 10% of investment bankers being laid off in the coming year, 80 think about a number of investment bankers, that is 17,000. although largely new york and london, there are some smaller outposts right your and some of those, that could be a reduction of maybe one third of investment banking staff, so this is significant. it is sort of the part of the credit suisse story, they had that major restructuring. really staggering in the month of october. but then there that larger investment banking problem and that is the theme that unites both sides. wherever you turn, no one wants to do deals. there are hints of optimism that we are nowhere near that dealmaking frenzy. tom: hints of optimism but nowhere near dealmaking. certainly investment bankers will be watching for that trend. always excellent.

give me a little that of a preview as what we can expect in europe. some similarities but also some major differences. european equities continuing to hold onto their gains. currently four tens of 1% and building on what has been a record year for european equities. each is u.s. low budgets just 4/10 of a percent. building better view that maybe inflation is starting to be a slightly easier situation in europe. plenty more coming up including larry summers live from dallas. this is bloomberg.

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guy: welcome to bloomberg markets. u.s. markets are closed. here are the top stories we are following from around the world. don't bet on a rate cut this year. that is the message from blackrock's philipp hildebrand. he is warning central bankers will need to deliver recessions to get inflation under control. elon musk gets a vote of confidence from the cap target investment -- from qatar. how much damage has china's abrupt exit from covid zero caused? we are about to find out. beijing will deliver retail sales and gdp overnight.

we do not know a lot about what is happening in china. this data it will give us a big clue. let's talk about the data we have now. let's talk about the markets and how they are performing. mlk in the united states, that takes a big chunk out. you have a more cautious picture when it comes to futures in the united states. you have a bit of a drag from the basic resources sector. the chinese authorities are looking carefully at the acceleration we are seeing in things like iron ore and warning the market not to go too far. iron ore has been rolling over as well. the feature of this week will be watching carefully is what is happening with the yen. boj meeting on wednesday. then kuroda coming to davos to

speak. euro-dollar trading higher. critical to what happens with the european economy going forward. the other event we are watching carefully is taking place in brussels. you have a euro group meeting taking place. eurozone finance ministers are gathering. the warm weather's giving them some reprieve and making the european economy look more robust limited a few weeks ago. maria tadeo spoke exclusively with your group president earlier today. >> we strongly believe irish interests and european interests are the same. it is the case a really important agreement was made in relation to the sharing of data between the united kingdom and the european union and i hope further progress can be made. the first thing it can do is

bring shape and clarity to how we can reconcile the consequences of brexit with the good friday agreement and ireland's membership of the eu and secondly i hope progress in this area is an omen of a better and more positive relationship between the united kingdom and the european union for decades. maria: it is a new year and it seems to me there may be a new mood. we have had goldman sachs dropped its recession call for the euro area. also deutsche bank suggesting the data looks better than initially predicted and gas prices down. the question for you is what you say the worst is over? >> this backs up with your group has been saying for most of last year, which is don't underestimate the resilience of the euro area and the euro at this moment of economic crisis. if you look at where we were in 2022, the growth of the euro area has been better than many

would've expected and our employment levels have been far better than many would've expected while inflation has also been higher. i believe the euro area is in a resilient place. we are expected to be in a position of a low level of growth as opposed to a recession or a contraction. it is very early to be able to say the worst is over given we are dealing with a war, but the economic indications backup the resilience of the currency and the economies. maria: just to make it clear, you say it is still hard to navigate because of the war, and we think about the people of ukraine all the time, especially this weekend, but what you say from the economic perspective you rule out there will be a recession this year in 2023? >> you are right to acknowledge the human consequences of the war which is first and foremost where the tragedy is, but to emphasize what i said a moment ago, we cannot be in a position

we can rule out definitively what could happen across the year. what i can say into 2023 is we finished off 2022 with economic indicators with regard to growth and employment that were very resilient, even positive, and far better than would've been expected when the war broke out. i believe that lays the foundation for the euro area and our economy to continue to navigate our way through the economic uncertainty that is caused by this war and i do believe we will be able to secure and protect the high levels of employment we still have within our economies. guy: the euro group president speaking to bloomberg's maria tadeo in brussels. let's go back to brussels. maria joins us. european equity markets, european bond markets, european foreign exchange markets. suddenly loving europe.

suddenly the world loves europe. strong markets, the since the european economy will do better than into submitted. is there a sense of surprise in brussels at this turn of events? maria: no. to me they want to play that card up and they want to stress and highlight that point. everyone here, and we have seen a string of finance ministers walk this red carpet today have insisted and they are saying the measures we put in place, this idea of storage, this idea of telling our population you have to be energy efficient, the cap on gas prices, market intervention from everything we are told would backfire in europe in reality did not. secondly we had a weather factor you cannot have predicted help europe over the weekend. not just the weekend but the christmas holidays.

you have the goldman sachs call that has changed the zeitgeist. you drop the recession and now you see many names follow that suggesting if you put together the storage, if you put together where consumption has been, if you put together the weather come and put together the fact the european industry may have blinked i just an inch. the mess -- the message is you're proved to be much more resilient than many anticipated at the end of last year. guy: there is another view and jp morgan is articulating this, that is europe seems to be topping and trading like the worst is behind us, like we are early cycle, we are in a new economic cycle and things will be improving from here. is that a risk -- is there a risk european politicians go too far in fixating on the positive rather than the risks? maria: i think it is a very good

question. i have put that question, what are the risks, they say when there is a war that plays out it is difficult to have visibility and make it clear. they say we will not see fireworks this year, we will not see tremendous growth, what we are talking about is avoiding a recession and not a deep contraction. that is where the bar in the benchmark is. for the time being the impression they get is europe has been stronger, the idea of gas prices dropping significantly, almost 80% from august. going to the future and going to the medium to long-term, you have a lot of issues still pending when you look at the inflation reduction act. this is something that worries a lot of people. this is not about a recession or not in q1, this is about the future of european industry and there is a lot of anxiety about whether can hold in the medium to long-term.

guy: you been talking to a lot of people about the latest on brexit. what have you been hearing? maria: for the time being, not a lot, but this morning we left in the tunnel, which if you strip away the diplomatic talk, it means now you get serious to hopefully get a deal. these are not talks for more talks, these are talks for a deal. the irish press also suggesting there could be a joint statement with a framework of possible solutions. from the european perspective. we focus on the pending issues which for the eu is the war in ukraine, what to do with that country and the inflation reduction act, the industrial anxiety that cuts through the entire continent. guy: how far could this go?

the french finance minister is speaking in the building behind you. he is talking about the fact he wants more state aid for some sectors. he is talking about the idea that state aid could include tax credits. he wants industrial aid to be simplified. the eu has no time to lose to create a new industrial policy. how quickly can brussels move? maria: he said that for weeks and the french president has said it for weeks. the commissioner for the european internal market has also set it for weeks and you see opposites flourish across the european press saying this is not a matter of months, we have to get it done in weeks and have something on paper. there are a number of things going on. the talks between the eu and the united states continue. we need to see the conclusion. some are optimistic we could get more waivers in march.

if you do not get everything from the european perspective and the u.s. to stop move far enough the eu will move to a plan b about accelerated permitting, about state aid, about changing the rules. that is also controversial within the eu because not everyone will have the same capacity to deploy state aid and we go back to the perennial debate of the euro area, which is can you have a well-functioning economy that works on two speeds, meaning germany and france get state aid and a lot of it, the rest, not so much. guy: controversial as ever. maria, fantastic work, as ever. rhea taddeo joining us from brussels. this is bloomberg. ♪

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guy: let's get you up to speed with what you need to know from around the world. in germany the defense minister has stepped down after a series of missteps and days of speculation about her future. it is a blow to chancellor olaf scholz's government.

the departure comes as berlin is debating whether to supply ukraine with tanks to fight russia. more problems for president biden in the investigation of classified material. additional documents have been found at his home in delaware. the republican share of the house oversight committee once the white house to release visitor logs from the home. there was more severe weather in california over the weekend. more flooding was followed by another atmospheric river storm. three feet of snow is expected in the sierra nevada. the storms are blamed for the deaths of at least 19 people. the u.k. and european union are close to a deal on post exit trading agreements in northern ireland and also the argued agreement on customs designed to reduce friction between great britain and northern ireland since the u.k. left the eu

global news 24 hours a day and on bloomberg quicktake powered by more than 2400 journalists and analysts in over 120 countries. let's talk about one of our top stories. blackrock's vice chair says inflation will drop very quickly. however, it will be difficult to get it below 4%. philipp hildebrand further states central banks will continue tightening and the markets are getting wrong in anticipating and using from central banks. he spoke with francine lacqua on the sidelines of the world economic forum in switzerland. phillip: i think inflation will drop very quickly. i think many of us will be surprised how quickly it will fall. the problem it will fall very quickly. 9% to 4% will be the easy part and then will be difficult to get inflation back to price stability.

the initial phase will be a very rapid decline in inflation. francine: what does it mean for central banks? if you are the ecb or the fed you have to be careful how you manage this from now to the summer? phillip: the central banks will continue on their tightening path. they will be very careful and very focused on not losing long-term inflation expectation anchor. i do not see any chances of easing this year. the market has that wrong. we will not get from 9% to 4% but limit inflation expectations becoming unanchored. since all of this is driven by labor market constraints, it'll be very difficult to get inflation below 4%, let alone below 3%. we are in the easy phase of this tightening cycle. francine: the problem is markets

do not understand that. we have fed officials saying do not expect a fed pivot. the markets keep on testing it. phillip: this notion there could be easing seems to me to be too optimistic. if you're the central bank you want to make sure you can get this done, you do not risk a research and inflation expectations further down the road. i think we will see some sort of pause, but not quite yet. the market may need readjusting relative to these expectations that we could be seeing some easing. this is what we call the new regime, the great moderation is over. this notion when the economy struggles central banks will ease, that was true in the past, i do not think it will be true this time. francine: it is incredible to see the leverage for companies that are leveraged going from 0% to 1% to where we are now without more bankruptcies.

are you expecting zombie companies? phillip: it depends how much damage will have to be inflicted on the real economy. to get the last phase of inflation being squeezed out from 4% to 2%, that will be the big trade-off. this will not come without cost. i expected some point the central banks will back off and not drive inflation all the way back to 2%. that might be a moment where the market can recalibrate. for now i see the tightening process continuing to ensure we do not go just from 9% to 4% but bring inflation under control. francine: went is crunch time? if we try to put inflation to 2%, will that be the beginning of the summer months? phillip: i think we will see quickly a drop to 4%. then the question will become the second half of the year, what to the central banks to at that point? do they tighten for beyond what is expected to drive inflation

back to 2%? that would entail significant recessionary tendencies in the real economy, a lot of damage to the real economy. two they say we have done enough , let's see what happens if we let inflation persist for a bit above the 2% target? francine: what does this mean for markets overall? more volatility? phillip: there will be opportunities, not least in credit and short-term bonds. we have a different outlook when we look at where interest rates are. many opportunities and that space for equities. until we know with the central banks will do with that piece of the inflation adjustment from 4% back to 2%, there are going to be some challenges around equity markets. some of the enthusiasm right now with this notion the central banks could ease imminently, i suspect that is premature. i still see volatility going

forward until we know how the central banks will handle this difficult trade-off they face. guy: that was blackrock's vice chair philipp hildebrand speaking exclusively to francine lacqua at the world economic forum. more on this next. this is bloomberg. ♪ - i ended up spending less money my entire time at snhu than i did in just one year at my other university. - my time at snhu has given me more confidence. now i can go for that promotion. - if you're ready to go back to school, you can do it. southern new hampshire university has changed my life and it can change yours too. - [narrator] visit snhu.edu.

guy: welcome back. 23 minutes past the hour. you are just hearing from philipp hildebrand. he is of the view markets are getting ahead of themselves when we will be seen central bank cuts. showing us to continue the conversation is simon white. you kind of agree with that hilderbrand starting point. at some point central banks are going to be cutting but it may not be as early as markets are pricing.

simon: actually, no. i think they could be going earlier. when economies deteriorate the deteriorate quickly. we are seeing the data of a few months ago and often that data can be -- the real-time data could start to decline and on top of that you start to get worse revisions. three months before starts to look worse, and that is how things been change quickly. recessions do not happen smoothly. they have been a shift manner. if you do not go from a recession -- guy: how does that present itself in terms of policymaking? at the moment the signaling is -- there is a gap between markets and central banks and as hilderbrand was saying he thinks central banks are on the side of caution. how does that communication shift happen?

we are about to see the boj delivering one of their shifts over the next week. i was happened with the fed, how does it happen with the ecb. simon: already we are having a pushback between the market and what the fed would like to happen. the market said we do not think the economy can handle restrictive policy as long as you think. as much as the fed once higher, the market is saying we will looks of the medicine will use spoonful of sort -- of sugar. we look at how long the fed expects rates to be restricted for comment is about two years versus only a for the markets. there is dissidence between what the market thinks the fed can handle the economy can do. guy: central banks want to go back to a more normal regime of positive rates they can then use

to the economy. when cuts come, how far do they go? simon: historically speaking the yield curve is what to look at. it is as inverted as it has been since the 1980's. there is a strong inversion between the peak with version and the subsequent rate cuts the fed does. into history we are looking at 450 to 500 points of cuts. that would take us back to zero. even without direction of travel, you can go by what you think is good to happen or with history tells you. guy: great stuff. coming up, precious metals under little bit of pressure. full still wholly north of 1900. james steel joins us next. this is bloomberg.

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guy: welcome back. you are watching bloomberg markets. let's talk about the precious metals complex. the weaker dollar, the higher china demand keeping precious metals on track. take a look at the screen. gold still north of $1900, silver at 2400. the increasing relationship between the bold miners and popper miners, increasingly one and the same. james steel, that you precious metals analyst at hsbc joins us on the phone. let's talk about bold. we have seen a move up through 1900. how far does this take us? can we get through 2000? james: is possible to get through 2000 but the rally is looking overstretched. a number of things have been very supportive of bold,

specifically in the last few months. we have had to -- dollar weakness, the idea the fed may reverse course later in 2023, and all of those things have helped goldfield higher. as we get up here, we are going to see increasing demand destruction, probably from the most price-sensitive elements of the market, which are jewelry. also this bar important demand we have had recently, that could also take a bit of a look at the higher prices. guy: would you be a seller, the refore? james: i do not traded recommendations myself, but i would say the upper end of our forecast range for this year is

just over $2000. it does look to me as if there is much more downside than upside. guy: what about silver? james: silver has been doing very well. it was quite week for much of 2022. for many of the same reasons as gold, a weaker dollar -- that is not for certain. as well as very good cory demand as well as jewelry has propelled silver higher. it has more upside think it should go well above $25 because it does tend to be thinner than that gold and react more to retail. guy: let me ask you a portfolio question.

i am watching hedge fund managers increase their positions. i am watching portfolio managers increase their positions in gold. what is the case for holding gold a portfolio? what purpose is it serving? what is the central investment case for gold. there are two. one is the most obvious one. the market will go up. interest rates might -- might lead you to think gold is going higher. the other reason, which i think has much more longevity and is useful no matter what market conditions one faces as a safe

haven and a portfolio diversifier. fold ended the year a few dollars lower than where it started -- while it did not rally, it did better than paper markets. now it is the true value holding gold to see -- is the insurance policy element. if the market rallies, that is an added benefit. it does look to me as if -- portfolio development has played a key role in central bank demand. guy: let's talk more about the central bank story. to what extent do you think the russian invasion of ukraine and

the subsequent financial tariffs and penalties that have been imposed on russia has changed investment case for gold, particularly central banks in companies like china. to what extent has that dropped multiyear story to play out with? james: the best way to look at it is as the elevation of geopolitical risk. obviously geopolitical risks are higher as a result of events in ukraine and may remain a high. even before ukraine, geopolitical risks were rising according to the mf and the world bank. every year they've been highlighting send me the year before and this triggers the safe haven demand for gold. given that central banks are

rather limited in what they can buy. they cannot buy equities they are limited to the type of fixed income products and currencies that can hurl -- they can order. gold is a safe place if one wants to divest a little bit out of the dollar but does not want to go into one particular currency. bold allows you to be out of the dollar without committing to another currency. guy: and i guess that is the point that china is paying attention to now. it gives them the flexibility to be able to avoid the dollar. bank of japan this week, probably the last of the major banks. if we do see that happening, is there read across into bold? james: a looser monetary policy

is positive for the bold market. having said that, policies around the world remain tight. our view is another rate hike at the end of q1 and then steady rates thereafter. if some of this rally has been predicated on rate cuts by the fed -- guy: thank you very much for joining us. james steel. coming up, saudi arabia's economic transformation. highlights from our interview from davos with the saudi arabia economy and planning minister. that is next. this is bloomberg. ♪

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guy: welcome to bloomberg markets. let's keep you up to speed with what you need to know around the world. in italy the mafia's most wanted boss has been caught after 30 years on the run. italian police arrested him at a private clinic in palermo. he has been convicted for dozens of murders, including those of two judges. a deadly plane crash in nepal over the weekend has put the spotlight on the country's bad safety record. at least 68 people were killed when an airline crashed while

coming into land at the city. nepal has had more than a dozen fatal plane crashes over the last 11 years. the u.s. treasury secretary janet yellen will hold her first face-to-face meeting with the chinese vice premier on wednesday. they will be in zurich. the surprise announcement follows the november meeting between president biden and president xi jinping. that led to a modest thawing of relations between those governments. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. now, throughout most of this week bloomberg television is live at the world economic forum in davos, switzerland. manus cranny sat down with the saudi planning minister. minister alibrahim: saudi arabia is the global growth story.

when we are looking at growth numbers, the world bank is expecting 3.7%. gdp growth or nonoil activity and how much we detach from oil. we are steadfast in our transformation. we have the fiscal discipline and we are moving forward. manus: those are very worthy headlines, but with interest rates going towards 5%, we have larry summers telling us get ready for a tumultuous year. are you ready for a volatile year? minister alibrahim: we know the banks, especially in the u.s., they are trying to increase interest rates in order to control inflation. we have seen inflation has not gone as far as people were expecting and we think there might be more hikes so we are keeping an eye on that. in saudi arabia we are pate to the dollar, but we are focused on delivering the transformation. we do not see that impacting the

private sector. the pmi's score for saudi arabia it was above 56. for the g20 we are the highest for the year. manus: and you had the strongest jobs growth in the nonoil sector. the question that goes through my mind is how sustainable is that? could we expect the same kind of growth? minister alibrahim: we have had good numbers in terms of unemployment. unemployment has gone down to 9.9%. labor parts has gone up, surpassing our target. we see the male unemployment rates are the lowest ever recorded. with that said we still want to create more jobs and reach higher levels. the private sector is witnessing to million jobs, the highest ever created. minister alibrahim: let's do it -- manus: let's talk more about the private sector. you have rolled the dice on

lucid and foxconn, massive moments in ev and tech. is that the key focus or does it have to be another lucid deal, another foxconn sized deal? minister alibrahim: we need to keep in mind we are doing these deals because they are important for our economic transformation. they will help us diversify the economy and export more competitively. these deals are examples. there about the ecosystem that comes with ev, making bets for the future and the green future. anymore news with foxconn? minister alibrahim: we continue our discussion with these partners and any partners and other news will be announced. manus: you cannot throw others in and not elaborate. minister alibrahim: we are very serious about our diversification. we are talking to all partners. the birth story is a global one. manus: our global audience are

tuned in and they may say what is there for lucid and foxconn -- how much more incentive are you prepared to offer to global names to come to saudi? minister alibrahim: we have the right kind of incentive structures and processes to attract the right kind of investors for the right kind of returns for them as partners, for us as partners, but also for the saudi economy and society. manus: in terms of the metals and minors we have seen in the last 10 days, you've major ceos, but i have to say there was not a major amount of deals done. what role will metals and mining play in the nonoil economy? minister alibrahim: mining in general is one of the sectors that is growing. we are at the very start of this massive unlock. there was a deal room and a lot of discussions are going on in order to make sure this sector and all of the players in it, whether in saudi or beyond will

see a brighter future. manus: do expect to announce a deal soon? minister alibrahim: i cannot comment. manus: the other dynamic is how much you think sally benefits from this on shoring, this movement of supply chains away from china? minister alibrahim: the kingdom is always seeking, leveraging its unique position. the kingdom is an intersection of the world. whenever there opportunities in the kingdom, and having operations and investments can be beneficial for these partners as they are reevaluating their position and for the kingdom we will take that seriously. the kingdom has access to natural resources but also carbon removal technology. access to young population, 60% of which is below 30. many enablers can attract a lot of partners. manus: a narrative is shifting.

more so in the oil space. what does saudi first mean for you? bin salman made the point that you are either with us or against us. what does saudi first mean? minister alibrahim: we need to stop thinking in short-term and think more long-term. what is good for saudi arabia and its economic transformation is good for the region and the world. the saudi growth story is a global one and there is room for a lot of partners to partake in the shared future. manus: i will catch up with the minister later in the week, but when i look at the gap between fbi at .7%, what is the biggest obstacle to getting to 5.7%, which is the vision in 2030? minister alibrahim: that is our target and we are moving forward. growth has been 250%, which is above the global average.

we are moving into the right direction. we have established the right regulatory reforms. we are establishing a social environment and we are focused on institutional clarity that will make saudi arabia and its economy a long-term reliable partner. manus: as we look out at davos, what is it you want to deliver over these five days to your audience? what will be your agenda? minister alibrahim: we are focused on reinventing multilateralism and ensuring collaboration at a time of crisis such as covid would continue moving forward. we are very focused on what is good for the saudi story, but we believe it will have a trickle-down effect on the region and the public on me. focused on finding new paths for the global economy to the. i think the more institutional

capability built in these partners and stakeholders, something we have failed to give attention to, the more multilateralism will get a chance at being more impactful. there is no other choice. guy: the saudi economy and planning minister speaking to manus cranny at the world economic forum in davus. manus cranny us from the swiss alps. the minister talking a great deal about diversification, moving this economy away from oil and gas. it is a conversation that has been going on for a long time. how far have the saudi's actually got? manus: i think they've achieved good headlines. to get lucid to build a factory, to get foxconn on the ground. the data is not very generous to him. fti has risen but you're looking at trying to close the gap between below 1% flow of fdi

into the economy. the target is just under 6%. there is a definite sense -- it has been a couple years since covid. there is this palpable sense of change, social change. with the social chance many brands are buying properties and doing deals and on the tech side or on these mining ventures. the difficulty is getting global companies to commit their capital on the ground. that is the bridge they need to cross. guy: absolutely. the oil and gas economy has been performing quite well. oil prices have been high. aramco has been making lots of money. we find ourselves at a situation where we do have inflation to factor into the equation. what does inflation look like relative to the rest of the region?

manus: you've probably seen christine lagarde take her handbag and emigrate. 3.3%. that is nascent compared to the average in the g20. it is under 9.8%. inflation as you and i experienced it. 3.3% is the highest in 18 months. here is the point. that tail wind of inflation from the rest of the world comes to root later. that lag effect, that lag effect between one heavens globally and it arrives on the shores in the kingdom and in the emirates. to that extent inflation is on the up, they have done subsidy moves, as have european nations. it is an 18 month high.

everybody is asking the same question. guy: we're just getting going with great interviews. congratulations on those. looking forward to the rest of the week. manus cranny at the world economic forum. this week will be hearing from a range of speakers. the ubs ceo. we have the imf managing director joining us as well. a fantastic lineup coming out of the world economic forum. stay tuned for much more coverage. this is bloomberg. ♪

lomita feed is 101 years old. when covid hit, we had some challenges. i heard about the payroll tax refund that allowed us to keep the people that have been here taking care of us. learn more at getrefunds.com. guy: a lot of the news this week will come out of asia. overnight chinese data. the boj later on this week. then corona at the world

economic forum in davps/ os. the euro is on the fright -- on the front foot right now. we are trading euro again just shy of 1.40. basic resources lagging a little bit. european equities are tracking higher today, continuing a run that has really caught a lot of people on the hop. suddenly everybody is buzzing about european equities. jp morgan talking about the idea we could hidden air pocket. talking about the idea people are trading european equities as if we are early cycle, not late cycle. see biz investment strategy will be joining us next to give us a take on what is happening. her picture on whether or not you want to own united states or whether you want to focus on europe. that is next. this is bloomberg. ♪

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guy: from london, guy johnson. welcome to bloomberg markets. u.s. markets close for martin luther king junior day, the holiday in the u.s. let's get you up to speed with what you need to know. don't bet on a rate cut this year. that is the message from philipp hildebrand. he is mourning banks will need to deliver to get things under control. elon musk getting a post of confidence from the qatari's sovereign wealth fund, telling bloomberg that it still trusts musk's leadership how much damage has china's abrupt exit from covid zero caused? beijing will deliver retail

sales, gdp, industrial sales overnight. we don't know much about what is happening in china right now. all of this information will be incredibly valuable this reopening trade is having a meaningful impact on markets right now the stoxx 600 tracking up another .4%. the outperformance of european equities down to two factors, the warm weather protecting europe right now from a natural gas crisis. the other one has been the china reopening trade. this data so important to the continuation of this trade. european stocks up by another .4%. u.s. futures painting a more cautious future going into the rest of the week. tuesday, we continue with u.s. banks reporting. we have already heard from j.p. morgan, citi. that is where u.s. futures are right now.

the other thing we are watching carefully is what is happening with the bank of japan. dollar-yen trading cautiously, up another .4%. but it has been the japanese yen trade that is fascinating, the other side of that pair. we have seen one stock from the boj, will we see another one? we will get some more analysis later on this week. i want to take you to what is happening in europe, this outperformance from the european economy. a lot of banks withdrawing their recession calls for the euro zone. deutsche bank one of the latest to do that. this tallies from what we've been hearing from european finance ministers meeting in brussels today. countries making up the block could ever a recession. he spoke exclusively to maria tadeo. >> i believe the euro area is in a resilient place.

we expect to be in a position of a low level of growth this year as opposed to recession or contraction. it is early to say that the worst is over dealing that we are -- given we are dealing with the war. guy: european equities have been outperforming. take a look in your bloomberg to appreciate what's going on. it is only january 16, but the s&p to date is up 4.6%. the dax and the cac up nearly 9%. is europe going to remain the flavor of this month and the rest of the year? an investment advisor joins us now to give us her take. what do you think about this rest of the world trade, this european trade that is delivering so far significantly

better returns, can it continue? anna: good morning. there is definitely some upside relief being delivered by mother nature, and that is the mild winter you talked about. that is helping to buy some time for our friends in europe to figure out these energy issues. the other thing is the largest sum of last year, and the valuations were more attractive on the international side, so there is some relative value action here. but this is sort of kicking the can down the road. energy issues are not fixed overnight, or just because we go from 2022 to 2023. we have to wait to see until the spring or summer time with the energy issues look like. the other thing is the ecb. there is a huge disconnect in the ppi versus the cpi. the rate hikes for the european

continent may be coming at the heels of the fed hikes. they are a little bit delayed, and there is uncertainty. you mentioned the chinese economy, as well. what is going on there is a big question. we cannot say that we are out of the woods yet. guy: nevertheless, for the last 10 years, as an investor, you have wanted to focus on the u.s. that has delivered better returns and you have seen elsewhere. are we going back to that world or do you think you want to have a more geographically diversified portfolio going forward from here? anna: we have always espoused geographically diverse portfolios because of moments like this, where you have an upward surprise of what is priced in. absolutely, diversification into europe, china, emerging markets, is something we recommend. guy: do you think we are

sounding the all clear a little early on china? if europe is facing headwinds, china is potentially facing more. anna: we have to remember, even if europe is looking better, we still live in a globalized economy. the weakness in china, definitely an early call. there is an over excitement in the market. we don't know what it looks like. reopening has been a disaster. i think we have to wait to see what the data looks like. certainly, weakness in the u.s., as well, will impact europe. even though we are globally diversified, we are also globalized. i think they are thinking about a third of the global economy may be going into recession. that will have an impact on europe, as well. guy: let's talk about central banks. we were hearing from philipp hildebrand talking about the

idea that rate cuts this year, which are priced in for the fed, are not going to materialize. the market is banking on those rate cuts to deliver the valuations currently being priced. do you think we are getting overly optimistic that the fed will deliver those rate cuts? anna: let me give you a scenario. let's say in the middle of the year we enter a recession. what the market is thinking, just like in the recent past, the fed will come to the rescue. but one of inflation still has a 4 handle? do we expect the fed to lower rates? i doubt it. what is a concern is not necessarily a concern for a recession but potential stagflation. recession may be collateral damage just to get the inflation under control. guy: how do you invest for that stagflation scenario you are talking about? anna: you want to be diversified. i preach that, and i will stick

to it. [laughter] guy: let's talk about that diversification. traditionally a 60-40 portfolio. 60 and equities, higher risk, 40 into bonds. is that the way you want to think about it? some are saying that you should flip that around, 60 in bonds, 40 inequities. anna: it depends on what your goals are. 60-40, 40-60, it is true that bonds have become more attractive than in the past. 60-40 work before rates were at zero. that has been a mainstay since the 1980's and 1990's when bond yields were high. it is not necessarily that you need to flip them, but recognize that bonds have become more attractive in terms of yield profile. i would still be careful not getting too long in duration because of the rate uncertainty

coming from monetary policy uncertainty. the long end of the curve navy in for a volatile ride. guy: walk me through that in more detail. the idea that stagflation is the problem, inflation will remain elevated. you look at the economy in the u.s., and it looks like a soft landing is potentially on the cards. the labor market is still holding up. you have inflation coming down. that looks good, but you are flipping that on its head, saying, the economy will slow down but inflation will remain elevated. anna: it is coming down, as we have seen in the data, and that was always the case -- it is the dirty word, transitory. the question is, is it going to come down enough or the fed? the fed is looking for a 2 handle, and i think they are ready to stay higher for longer,

even if we get to 2%, just to make sure they take care of the momentum, inflationary momentum. i do think the fed will continue to be hawkish. i agree with the statement earlier from davos, that the market may be mispricing this. guy: great to catch up, particularly on the holiday. thank you for your time this morning. what do we have coming up? back to the world economic forum in davos. the head of the guitar investment authority fund. more on that next. this is bloomberg. ♪

guy: welcome back. you are watching bloomberg markets. i want to take you back to the stories beginning to emerge from the world economic forum in davos. the head of the qatari sovereign wealth fund says he will use the economic opportunities to rebalance the portfolio. mansoor al-mahmoud

join francine lacqua earlier in the snow. >> it is a challenging time. inflation is the main topic for the global economy. central banks are trying to contain it. this means they have to raise interest rates, which will slow the economies. europe is in a difficult situation right now. the u.s. will be in recession. china is just opening up, but they need momentum. definitely a challenging time. that challenging time will continue on this year, as well. the good news is we have seen numbers which are promising that we are on the right path in terms of containing inflation. i hope that by the end of the year, by next year, things will be back to normal. francine: does this create

opportunities for the qia, because certain assets are cheap? are you adding to your valuations? mansoor: absolutely. we see this as an opportunity to reposition our portfolio. we always i like weaknesses and wait for this sort of correction in the market to fulfill those weaknesses that we have. definitely this is a time repositioning, a time to fulfill a gap. we will always continue investing. francine: how were you repositioning? i know you were invested in technology companies. mansoor: absolutely. this is not technology only but asia, u.s. market. technologies is something that we say we need to chase our exposure in that market, so we

are investing, even in europe. even in some other sectors, venture capital, for example, where we are adding more exposure. definitely a time to redeploy some investment. francine: what kind of companies are you looking for? things like harrod's that you are looking to acquire? >> we are not only focusing on trophy assets. we have a fundamental process in terms of evaluating opportunities. we are very connected to the market, we know what is going on. we evaluate opportunities based on the fundamental aspect. whether this is a trophy asset or not trophy asset, we always deploy investment.

if we find a trophy asset, that's fine. there my evaluation, we will acquire it for our future generation. francine: you are one of the big investors in twitter. in the last eight months, it has gone up and down. we talked about twitter and elon musk every day. where are we on that? francine: we are an investor -- mansoor: we are an investor. we engage with the management, elon, the plan that he has for the company. we trust his leadership in terms of turning around the company. we are committed to the plan that we have made to the management. francine: have you asked him to tweet less? there has been so much volatility. do you get involved in those

calls? mansoor: we are not involved to that extent. again, he has our trust. we are sure that he will manage it very professionally. guy: mansoor al-mahmoud speaking with francine lacqua at the world economic forum in davos. francine joins us now from the alps. given the volatility we have seen in global financial markets, in twitter, he still sounds very cautious. he talks about the fact that he will make small changes here and there. i am not surprised he is not see more opportunity in this volatility to maybe shift his portfolio around. francine: he is cautious, and also by nature, because he has to justify any changes. he was at pains to repeat that this was long-term investments and had to benefit the owners of the sovereign wealth fund.

at the end of the day, it's for the people of his country. he was careful talking about valuations. when i asked about football, his eyes twinkled a little bit, saying they are looking at it but have not made a decision yet. he went back to the fact that it is about finances, not having petro see asset -- trophy asset like harrod's, but it's about creating long-term shareholder return. guy: liverpool is potentially on the block, manchester. there are some assets out there. did you sent an opportunity there? francine: i think they are probably looking at something. he was very cautious. he said he was not really a sportsman himself, it was about looking at the numbers, but it was interesting in general. he says there is more money coming into the u.k., talking a little bit about the premier

league. being a chelsea fan myself, i asked who he is supporting. i googled it, there is no sense that they prefer one team or another on a personal level. guy: i suspect every qatari is now a football fan after the world cup. he did seem reassured that elon musk will still deliver for them. is there some trepidation now? as you highlighted, such volatility with twitter over the last few months. francine: i was surprised that he stuck in with elon musk. the first time we talked about him was at the qatari world economic forum. the chief executive said that they fully trusted elon musk. i also tried to get him to talk about the plans of elon musk, asking cheekily if he had asked elon to stop tweeting.

he reminded us that they are part of a consortium and are trusting the long-term vision. it is not data daytrading or on a 12-month horizon. i wonder if he bought into the idea of elon musk turning this into a super app. that takes a few years, and it doesn't matter how much china you break along the way. guy: i guess that is an interesting approach. fantastic coverage. we look forward to you working through it. we have great coverage coming up from the world economic forum in the next few days. stay tuned for that. also interesting coverage coming out of germany. mercedes-benz in transition. we will go to stood guard for a look at one of their most modern manufacturing facilities. this is bloomberg. ♪

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guy: let's talk about the global supply chain story, which has been breaking down ever since the pandemic. china being isolated. all of these are key factors into what is happening in germany. broken supply chains, an energy crisis to factor in, you have the fear of recession. now you have to think about the biden inflation reduction act, which could have a really big impact on whether we continue to see so many cars being made in europe. the european industry is adapting quickly. mercedes-benz is one company trying to accelerate that process. we have sent a team to one of the most advanced auto factories in europe. this is just outside of stuttgart. ollie joins us now.

you are next to the production line. paint a picture for us, what is this facility, how advanced is it, how is it solving some of the problems that european carmakers are facing right now? >> this facility is massive, 3 million square meters. that is equivalent to 420 soccer pitches. critically, it employs 34,000 people. the question of industry is not a small thing in germany. 20% of the economy is still industrial manufacturing. you have a factory that employs a great number of people, trying to adapt to the long list of issues that you talked about. we just spoke to the had of production about all the different ways they are trying to do that. guy: walk us through what he said, what germany can do to adapt to these scenarios.

you talk about the size and scale, but how will that change in this new world? >> one of the hardest things to do in a factory is to solve a problem going on outside of the factory. in the case of supply chains, that is the problem that needs to be solved. on this assembly line here, they can produce ev's on the same line as hybrids and combustion engines. they can change what they are manufacturing basically overnight. some call it the most complex assembly line, some call it the most intelligent, it may be a bit about. one thing for sure, it is expensive. they have been able to experiment, and this is a blueprint for their factories going forward. guy: tune into our exclusive interviews with the mercedes had a production tomorrow --

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guy: let me take you back to the world economic forum taking place in the swiss alps in davos. it will start in earnest tomorrow. we have some fantastic interviews for you today. francine lacqua is back with the south african finance minister. francine: delighted to be talking to the minister of south africa. thank you for joining us. so much to talk about with scom, the blackouts. are you involved in those conversations with the government? >> yes, i am. francine: what firepower does the government have two try and settle this once and for all? >> there are a couple of issues

that need to be dealt with. the first is to get scom to improve its operation and efficiency, improve their existing plants. the second issue is for us to move with speed to major emergencies like electricity. the third issue is to deal with crime and vandalism. fourth, two work with the treasury, make sure that we can reduce the strain on the grid. francine: how difficult is this? the treasury has also said they will not give more money to scom to buy diesel. at the same time, if you don't buy diesel, the prices go up. >> that is a different matter.

if scom needed money to buy diesel, it would be a different problem at the moment. francine: what is the timing dealing with these outages? >> from where we sit, we will take a chunk of scom's debt. scom should be able to find ways to raise money to pay for diesel. that is not a major problem in my view. one of the key points is not only diesel but to focus on the 8000 megawatts capacity. francine: how much of the debt will you assume? >> we released a statement in october, there are a lot of things that will influence how much of the debt we will take.

one of them was a pronouncement wondering how much we would increase to scom. that has happened. now we are working on the figure that we are financing. francine: two thirds? >> i said between one third and two thirds then, but now we are working on the exact figure that we will announce next month. francine: can you give us any indication, below two thirds? >> no. francine: a range that is wide enough not to get you in trouble -- >> between 130 and two thirds, beginning to narrow the range. i cannot narrow it at the moment. francine: at the high-end? >> next month. francine: after you announce,

how quickly then can you deal with it? >> even those modalities will be a part of that announcement. francine: can you tell me if it is brief or if we need to wait longer? broadly, two months, longer? >> i will take a number of factors into account, what implications it would do to the debt to gdp ratio. how i stabilize that ratio over the long term. those of the factors i will take into account. francine: talking about the grid, there were talks to get private companies to look with that. that has fallen short of expectations. >> the private sector is already involved in the program. that has generated electricity. francine: could they do more? why have they not done more? >> that is why i am saying we need to do an emergency procurement, so we can do more. francine: you are confident that in five months you'll be in a

better place, that most of this will be resolved? >> i think it will be. we may have load sharing at stage two or something, but not stage six. francine: i know you don't want to give a range of the dead -- >> it will be big enough to assist scom to have a healthy balance sheet in order to finance this operation moving forward. francine: i am sure you'll get questions from institutional, private investors about the future of south africa. what do you tell them? how do you entice them to come now? >> south africa is one of the most exciting countries in the continent. we have one or two minor challenges which we are dealing with. once we deal with this issue, it is the best investment

destination. the economy has proved to be resilient. i think on average of 34 economists, south africa is the top for 15 of those. francine: what is the top issue for you? >> electricity, logistics, and to some extent, crime. francine: are you going to see a lot of investments coming in once those are fixed? >> we are seeing a lot of investment now. you see a lot of investment coming to the african continent, among the top destinations on the african continent. francine: you have a priority list. how far along are you on that list, 50%? your priority list of what you want to get done when you got the job. >> when i got into the job, there were a couple things.

one of them was the service departments, making sure they can get the resources to provide health, education, police. as we speak now, over 10,000 police. next year, another 5000 to deal with these issues. francine: what about the automotive industry? what kind of support can you give to the automotive industry? this is contributing about 4% of gdp, 12% of exports. >> we are working with industry to achieve those objectives. one of the discussions we are having with them is we have to move from the current situation to electric. what that transition is is the details that we are crafting out. francine: what kind of support? how do you learn manufacturers into the country? >> we have the automotive develop program. we currently have that program,

but we have to move that program with the changing technological needs of the industry. francine: how much do you want the automotive industry to be there? how much are you asking manufacturers to increase reduction by? >> we have bmw, mercedes, ford, nissan. all of those plants want to remain in south africa. we are discussing to what extent they will continue to manufacture in south africa. francine: some of that business is moving away from china because of covid zero. >> we were boasting in south africa, we were the only ones that could penetrate the asian markets, as opposed to europe and other counterparts. we are providing an incentive for that industry to be competitive, incentivize them to

export. we are doing well. francine: with china reopening, does it change anything? >> it does not. we have had those plans for years. we have had those plans and they have not been changed by the developer it's in china. francine: i know you have to go and you will not tell me about the debt for eskom, but it investors be disappointed? >> no. francine: so it is closer to the two thirds? >> i have been warned by lawyers and other advisors that i can create tension once i get to that level. francine: we don't want you in trouble, especially as you have the best head gear of the davos ministers. back to you. 20 more interviews throughout the day. guy: it does make you wonder

what else he has under that hat. francine, fantastic. the south african finance minister. coming up, how the easing of the supply chain pressure is open businesses. gxo had an analyst day. the investor communities seem to like what they heard. the cio will be joining us next. this is bloomberg. ♪

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guy: gxo logistics recently had an investor day last thursday. laying out what 2023 would look

like and setting some financial targets all the way out to around 2027. the market seems to have liked what it heard, at least analyst community. you have upgrades from deutsche bank, setting a price target of $62. 52.52 right now. morgan stanley saying the same thing, going from 60 to 66 in terms of their price target. both sides talking about the upside of the share price and what they can deliver. other analysts were saying similar things. let's get some insight into what is happening not only at gxo but also in the logistics industry. we are joined by mark manduca, gxo's chief investment officer. what is the analyst community missing that you updated them on in that investor meeting? mark: they want to see the 55 in

your targets. it is hard to say as a company, trust us. but when you lay out the bottom up forecast that we gave to the market, 8% to 12% revenue growth , 70% growth in ebitda between now and 2027, that is what they wanted to see, a bottom up forecast giving people that strength of $17 billion of revenue. the biggest thing for me was the excess cash generation. $2 billion of cash for a company that has a $6 billion market cap. we are at the foothills of greatness in my view. guy: how can you have the visibility that you can deliver that greatness, given the past 24 months. a lot of volatility. your targets are fairly confident in a world that is increasingly uncertain. mark: similar to what you saw at nestle, this is a business that has an average of five years

duration to its contracts. that is why it is easier to make a forecast. in a typical business in the industrial space, these are transactional models that rely on supply and demand. what you see is what you get. i can see five years out because i'm signing contracts at the facilities where you are at. we can see those compounding natures over time. guy: let's talk about what that is premised on. we have spoken many times about the journey that we are on toward a much more detailed and all-encompassing e-commerce environment. the world i'm seeing right now, amazon is shutting warehouses. there seems to be a migration back to brick-and-mortar. did we get over our skis on e-commerce? mark: i think part of us did in

many ways. if you look at the sector in the last three years, there have been trials and tribulations post-pandemic people having to refit where they want to grow going forward. you cannot just expect everything to stick at once. it was a strange time. but here is the message, one in five items are being bought right now online. we are seeing growth on the ground. naysayers are saying that it is done, but i'm seeing strong growth in e-commerce in europe and also in reverse logistics. the journey is not just five years but 30 years. guy: my wife calls it unshop ping. in terms of what we have seen from retailers posting numbers so far, quite solid. test go, margaret spencer, all of these numbers look solid. do we have a pre-christmas

blowout that will be reversed in january? what is your sense of how the retail environment looks right now? mark: i think it is better than most are saying. i see all of these macro strategists giving a 2022 narrative for 2023. in the u.s., i'm seeing a strong consumer. in the u.k., as well, fashion and beauty are doing well. in europe, a strong e-commerce unit as well. holiday was slightly better than expected. we saw that on thursday in the guidance that we gave. on top of that, one in three items are being returned, so on the back of a strong holiday season, you have a strong january, february, and march. guy: in terms of the rest of the year, challenges still exist. heating bills may not be as onerous as once thought, but risks have risen on both sides of the atlantic, the labor market is holding up.

what are your expectations for the rest of the year? mark: derivatives have gone up but where are they going out? gas prices have come down. that is more money in the wallet of the consumer. you have an interest rate environment where we are not talking 75 basis points anymore. that is good for mortgage rates. is the consumer as bad as people think? for me, the answer is no. guy: the labor market is part and parcel of that. wages remain elevated, you can see that in the states, europe, as well. when you are hiring, are you seeing any signs of the environment easing? are we having a more balanced labor market? mark: already happening. the tightness is gone. if you think about the markets where we are focused -- u.s., u.k., continental europe.

in the u.s., we are seeing wage rates anywhere from 2% to 5%. three years ago, you were looking at rates at 10% to 30% in some jurisdictions. no longer the case. low single digits in many regions. we just came out of the holiday where we hired tens of thousands of people and had to pay peak incentives. u.k., europe, about six months behind the u.s. to some degree, but it is easing there, too. guy: this does not feel like a recessionary environment. mark: not at all. more consumer money to be spent going forward. i feel there is an environment where the second derivative of things are getting better for the consumer. guy: how does china reopening change things? mark: we have talked about the shipping market, which is not what we do, we are in the warehouse.

for me it is more about the freight rate. that has been going down, down about 70% as we have gone through this issue with china and zero covid. as we get a reopening, we probably get a bump up in freight rates. but the damage that's been done for a lot of these global customers would no longer want to outsource 100% to asia, therefore that trade lane is under pressure, no matter what happens with freight rates. guy: you talk about customers and their sourcing. how are they changing? sourcing from china, other asian countries, is it all coming back to mexico? how is the picture developing? mark: i don't think it will be all of anything. it will be balanced. roughly $3.5 trillion of goods are likely to be moved out of

asia into north america and europe over the next 10 years. represents roughly 1/7 of global trade in total. you will see there will be a glide path of goods coming home to some degree. it is not just china into north america. there will be an element of china into vietnam, eastern europe. there will be a shift. i was a massacre recently. amazing things going on there. they have the proximity to the u.s.. there is a labor arbitrage to some degree. they are into automation as you saw at nestle. a lot to say about places like mexico. i think they'll be the big winners over the next 10 years because of that trend. guy: nice to see you. the chief investment officer at gxo. this is bloomberg. ♪

guy: coming up toward the end of the day in your. the equity market closed in the next hour. european equity is tracking higher albeit on light volume. holiday in the u.s., no trading as of which. the narrative continues. equities on the front foot, continuing strong performance that we have seen since the start of the year. significant on performance versus the u.s. where we are seeing a lag is the basic resources area. chinese authorities are pushing back on elevated iron ore prices. they don't want to see some of the commodity prices spiking sharply higher, which will only dent that recovery. there is a note from goldman sachs talking about how aluminum prices could go up from here.

the other story that i'm watching for is what will happen with the boj. wednesday, the boj meeting, then the world economic forum in davos. the yen on the front foot versus the dollar. i am sure larry summers will have a view on this. we will be speaking to him in the next hour. david westin will be joining him in davos. one of our fantastic guests that we have lined up from the world economic forum. we will get his take on what is happening at the fed, bank of england, as well. the world economic forum getting into full swing. today was kind of the warm up day, getting an idea of what is going on. larry summers is the perfect person to talk to. this is bloomberg. ♪

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guy: european equities continue to power higher and higher. jp morgan is warning we could hit an air pocket. what will cause that? the countdown to the close starts right now. >> the countdown is on in europe. this is bloomberg markets: european close, with guy johnson and alix steel. guy european equities trading unlike volume but still higher. we are up by about half a percent. you are seeing light volume. the u.s. is out. miners aaron exception. chinese authorities are pushing back on elevated commodities prices, particularly the iron ore market,