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dani: good morning, this is bloomberg "daybreak: europe." i'm dani burger in london. annas cranny is in dubai, with the stories that set your agenda. manus: mixed messages as the bed minutes signal a likely fed rate hike next month. chinese exports unexpectedly search in march for the first time in six months. another sign the economy is gaining strength. plus, lvmh shares in the u.s. hit a record high as chinese consumers propel the gains of luxury sales at almost twice the analyst predictions. a very good morning, i'm open to any louis vuitton bag or bottle of champagne that you may wish to send my way. luxury is pumping up prices and the cpi, we got warnings of recession and credit crunches,

and yet -- announcer: markets, dani: it feels inappropriate to be popping bottles of champagne when we are talking about a recession, but just for you, i will get you a bottle of bubbly in the mail. it is too early here, it is 6:00 a.m.. but this is the divide, is not just a recession call but it's how much has the credit environment actually tighten. manus: mike nova writz talks about the regional banks, the scale of the downsizing, it's down to like single-digit landing, and i thought that narrative really caught my mind. talking about the risk on credit, she basically said banks

are now showing some signs of pulling back in there in lies the point. there's two different voices at the treasury, one is yellen and one is brainerd. dani: let me just throw something out there, this might be a rare time when it comes to trying to figure out fed policy and where they go from here. bank earnings tomorrow and the next week, there's expect to be a decade high of deposit withdrawals. are they still lending to the small economy? that might be more important and overshadow the cpi numbers we got yesterday. manus: i can't top that, take it away. dani: i will indeed. we know inflation is important but what is driving this asian market trade? it is alibaba. at one point it was down 5%. his softbank continuing to sell shares of alibaba? according to analysts, we knew

that this was happening so some of the losses here might be short-lived. european stocks able to eke out again this morning, up .2%. american equity higher after ending the day flat. goldman sachs is more volatility to come in american equities, given all the macro uncertainty we have ahead of us. some

so going forward if that is sustained, is going to be great for commodity exporting companies like -- countries like australia. for things like louis vuitton handbags like you were talking about earlier. >> pick your poison this early in the morning. the truth is there is pressure for companies to move away from china, are these types of trade figures likely to be sustained? >> on the margins, those kind of moves, when people are moving production to india or vietnam

are bears things is obviously going to affect chinese trade numbers. chinese companies are shifting production to mexico to take advantage of the nafta trade agreement or to get around u.s. tariffs. there will be some effect on -- it takes years to set up a supply chain for iphones and some of the initial reporting, they are saying they're having a lot of trouble getting the levels of accuracy and quality that manufacturing in china has. so it will not affected in three months or six months, it will take a longer time but then there will be real change in what you see in the chinese export data. dani: james, thank you very much. as we been talking about, apple assembled more than $7 billion worth of iphones in india the last fiscal year. that's tripling their production in the world's fastest-growing smartphone arena.

joining us is bloomberg's india tech reporter. why is apple moving away from china exactly? >> apple understood that it cannot just be in china, and at this point in time is offering massive incentives to companies including apple to boost local manufacturing. that has helped happel -- apple reach the milestone in the last fiscal year. manus: certainly it's going to be a tough one in terms of moving apple production from china to india. thanks to our reporter on the ground in india. uscp i showed hints of moderating from last month's fed meeting. dialing back the rate hike expect asians, but analysts

think there is now enough to suggest another hike in the may meeting. michelle, the fed, how do you rate the reaction to the latest data out of the u.s.? michelle: the minutes really did outline as mention the sort of dichotomy, the fed staffers are looking at a mild recession, i think the cpi report yesterday help feed that narrative. what we saw in the minutes is officials agreed and the key statement being some additional policy -- they did bring down the peak rate expectation. they did say that optionality and flexibility will be needed going forward on that front, leaving them a little bit of room to deal with growth risks there. all in all, the message has been the same. it's been the same with the minutes and the same in between,

that more work needs to be done. what you saw after that plunge in yield after the cpi report initially, one thing that turned around by the end of the day was thomas parkin from the fed saying more work needs to be done, repeating the tagline talking about more hikes and leading many to believe that even if they don't want it to happen that the fed will hike it again before they hit pause. dani: saying there's no clear signs of credit tightening, they can keep hiking, but as manus said, even leaving the door open for no more hikes if there is continued weakening. let's take a look at some of the key things were going to be watching out for to get you set for the trading day. we will get the update on industrial production, at 10:00 a.m. its euro area reduction data for february. manus: then we kick into the

lunchtime at 1:30 and we will get an update on the labor market from the u.s., nonfarm payrolls from last friday. at 1:30, u.s. ppi for march is out. we will watch closely for any influence he could have on the feds rate decisions. 2:00 p.m. u.k. time, a conference on development in the u.k. economy and monetary policy. do you know what i did see last night on the tally? it was liz truss, still talking about her economic views from her time in office. it was surrealism, really. dani: you have to hand it to liz truss, trying to stay relevant.

coming up, we've got to talk about these markets with the divide among central banks. and the next steps for inflation target. this is bloomberg. ♪ and effortlessly responds to both of you. our smart sleepers get 28 minutes more restful sleep per night. proven quality sleep. only from sleep number. seems high. seriously? it's just a bike. wait. they make a treadmill with an intuitive speed knob? yeah. want to try? 92% stick with it, so can you. start a 30-day home trial today. terms apply.

>> the market was pricing in before the report 3% on funds for next year. if the economy is heading into a slowdown, i think -- i think 3% is highly optimistic. >> we are moving into a new period of a pause of inflection from the fed whether they hike in may or not. >> we have a soft landing in the economy, i could see the inflation rate here getting

stuck at 3-3.5 percent. what does the fed do at that point? >> if there's any negative sign whatsoever on the economy between now and the may 3 report , the may 3 meeting, i think that is done. dani: some of our bloomberg best responding to the cpi print yesterday. great to speak with you this morning. we've had maybe 12 or so hours now to digest the latest cpi numbers that came in. but i can't help but wonder, what is more important for divining where the fed goes next, the path of inflation, or understanding how much the credit environment has tightened? >> i think it's a great question, because when these reports come out, the market becomes obsessed with dissecting every source of inflationary presser with what's happening.

your point about credit conditions, ultimately the fed has its dual mandate about pricing pressure and about the labor markets. if you look at what is happened to the marketplace which is quite different from the last 10 years, oxidant is waning from the markets. why? there is money supply growth, easing credit supply growth and obviously the trickle-down effect of higher rates and the credit supply growth is quite key because that's where we see the engines of households being able to attract lending, etc. . the key question is, is at just the beginning, the tip of the iceberg, or is there more? and will tighter balance sheets really start causing weakness in the economy? manus: they are beginning to talk about recession.

you talk about the risk, the oxygen supply for markets is waning. what i'm curious to get your assessment on as we talk about the credit crunch and recession, does that reduce the proclivity for equity and increase my appetite for bonds and duration in this kind of unknown knowns for the back half of the year? >> it's a fascinating time for bonds. fixed income, we've been using fixed income for the last 10 years as a further hedge, and unfortunately the hedge failed to work last year. but fixed income is becoming an asset class that is generating income. look at short duration yields on the treasury, etc. . it's amazingly high number given where does come from. in general the role of fixed income in an asset allocation is changing. the risk reward of bonds versus

equities has changed white significantly. look at the equity risk premium. it is simply not high enough if you look mathematically to have a strong enough risk-reward to go further in equities right now. that's what all strategists are debating at the moment. that is definitely the point. ultimately the equity markets have this amazing run because of an incredibly competitive monetary regime. as long as inflation does not appear to be under control close to 2%, it's hard to see that. dani: can i throw out a possible scenario to you? this is one that bloomberg economics themselves has flagged, so let me be clear it is not for me, it's coming from people much smarter than me. the idea that a credit contraction is not necessarily disinflationary.

what happens is companies who use banks for financing also can get that financing, so the supply actually drops. is that a high risk that in this current scenario that we get more sticky inflation because of what is happened in the banking crisis? >> it's a fair point, and then there's the other point, the nonbank lending part of the market is actually very significant and very large. that means the impact of a tighter balance environment in banks this time around is not going to be exactly the same as what happened last time around. let's also remember it's not that the balance sheets were exaggerated in the first place, given asset controls, etc. . that is one part of the story, but more directly, yes, the complex thing is, besides what you just mentioned, there are structural factors going on in the world, whether it is consumer behavior, labor market

behavior, which makes the world a bit more structurally and inflationary, what we come back from in the first place. that's why people are asking if the 2% number is correct. that is the big question right now. manus: the other question driving differentials is of course at home in europe where you are based, which is whether the ecb is finished, or if there are some variation with that later on. again, are we under assuming what the ecb needs to do could -- to contain their sticky inflation? >> to keep it simple, the ecb is lagging the fed. the ecb began this rate hike but let go of the transitory talk

and the ecb began the rate hike talk, so there is no surprise the ecb is one step behind. everyone is talking about bout a potential 25 basis point and another 15%. to your point, the ecb is really struggling with stickiness and core inflation. the energy crisis hopefully is behind us but the labor market stickiness, in europe we've got a lot more labor unions to deal with which should help with the stickiness. it feels like a more complicated problem in europe and obviously the u.s. economy has held up much stronger than expected. europe is not exactly in the same boat. manus: good to get those perspectives this morning. coming up, today's big take is on the terminal now, a

fracturing relationship between the u.s. and saudi, the oil packed, how does that play out and tenant play into vladimir putin's hand? what does it mean for the bid for reelection? ♪

dani: a correction on some earlier headlines we broke regarding an abortion pill in the u.s. a federal appeals court partially granted the biden administration's request to put on hold a texas court ruling that overturned fda approval of the abortion pill. but allowed restrictions that were lifted in 2016 on the distribution of the drug to be reinstated. manus: three years ago in this region, opec plus members are

there and the u.s. found themselves playing the role of peacemaker in the oil market. now the u.s. looks more like they are the target, the russian oil alliance has the potential to cause all kinds of trouble for the american economy. present bidens reelection campaign could come into a bit of trouble. this month's opec-plus decision to cut crude output maybe just the start. that is the analysis in today's bloomberg big take. the author of that, is in the studio. i quite like this idea, the saudi's never want to talk about politics when i sit down with them, but u.s.-saudi oil security is wobbling, why? >> let's start with where the pact was. it was a guarantee in return for

saudi arabia security. that is been in place since 1945, maybe even earlier. that is where we see some stability in the energy market. we have had two opec plus cuts since, one in october, when in april. last july demanding exactly the opposite. we've seen recently that saudi arabia wanted extensions with iran and china brokered the deal, not the u.s.. saudi arabia joining the shanghai corporation organization, so all these things are showing there a fracture in the saudi happen u.s. relationship and that matters for the oil market and for the global economy. dani: you write that high oil prices tend to sow the seeds of their own demise. why is that? >> because typically high oil

prices generate profits for companies in states that produce them. they lead to higher supply and eventually lower prices. we've seen that historically, we've seen in the 1970's that lead to a 1980's glut in the oil market. it led to the collapse in oil prices after that. and we have other factors at play right now. dani: thank you so much, definitely not enough time to discuss this. discus- [announcer] imagine having fuller, thicker, more voluminous hair instantly. all it takes is just one session at hairclub. introducing xtrands. xtrands adds hundreds or even thousands of hair strands to your existing hair at the root. they're personalized to match your own natural hair color and texture, so they'll blend right in

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manus: this is bloomberg "daybreak: europe." we have the story setting your agenda. dani: mixed messages, stocks he saw as the fed minutes signal a rate hike next month. chinese exports unexpectedly surge in march, the first increase in six months, another sign the economy is gaining strength. plus, lvmh shares in the u.s. hit record high as chinese consumers propel gains in luxury sales for almost twice what analyst predicted. good morning to you, manus. i made this argument at the top of the show and i'm going to do it again. we love to make a point and repeat things here. i honestly think the bank earnings that come out on friday are going to be more important for this market then cpi, because the debate right now is not whether inflation is coming in, it's how much have credit conditions tightening, and i think things will give us a sign of that. manus: i think in the guidance,

in the polls and interviews, that is when we will get a hit of whether that -- a hint of whether that contraction on access to credit and lending in march is something they see as an onerous sign. i think there's a triptych of narrative in regards to credit. one comes from the fed minutes, one comes from goldman sachs, and one comes from reynard who is concerned about the banks -- from brainerd. bitcoin, mike nova rhett says $40,000. it looks like it is one and done from the fed and oil is down by .3%. don't fade at the drop in the dollar. dollar weakness is not a fade. dani: your triptych didn't have

any alliteration in that and for that i'm extremely disappointed. manus: well, you can have everything. dani: asian equities being led lower by alibaba. something selling morbid stake, shares down as much as 5%, about 3%. we are moving higher on both european and u.s. futures. goldman sachs says expect more volatility to come, but at the moment, little change, manus. manus: the ecb has completed most of its interest rate hikes that it needs to combat sticky underlying inflation, according to the governing council member. >> the defective are past rate hikes will be more significant than the one of our future decisions. it will then be key to stay the course from those -- to put it

differently, the sprint is over, giving way to a more long distance run. dani: on the others of the atlantic, san francisco fed president mary daly says inflation can cool enough on its own without further rate hikes. >> looking ahead, there are good reasons to think the policy may have to tighten more to bring inflation down. there are also good reasons to think that the economy may continue to slow, even without additional policy adjustments. dani: of course inflation is historically more sticky in europe. how are triggers reacting to the european voices, the cpi data, with the fed considering its rate path of hikes. let's bring in michelle. these fed minutes grant a lot of headlines with the chances of a

recession. is the window of a soft landing now closed? michelle: janet yellen wouldn't say so but i know manus doesn't want me siding janet yellen these days. we're looking at austan goolsbee earlier this week, kind of emphasizing more on the growth side, more on a tightening cycle coming to an end. both things can be true. those messages are coming in loud and clear. they are rattling people thinking about recession and that sort of thing. at the same time we're hearing the message from some of the same people that the job is not finished, they are not quite done yet. the data over the next few weeks, and thankfully for the fed and the ecb both, they have a couple more weeks to do just the stuff, but the data over the next couple of weeks will determine how the scale is going to be tipped. there's plenty of evidence on both sides and that was for the

problem yesterday with the cpi report showing crosscurrents. it was a case of investors will see what they want to see. depending on what gauge you're looking at, that will narrow your view on what inflation is going to do and whether that is impacting your thinking on policy more so than the growth risk in the future. manus: never let it be said that i stopped you from saying anything. i'm civilly saying janet yellen has jumped over that fence. don't get me in trouble. she's got to be a lot more political. >> it is hard to kind of grasp this of thinking and peel back the onion and see what the economists in her would've said or what she would've said if she were still fed chair. but i take your point. her comments have rattled a lot of people, a lot of people disagreeing with the tone and

nature of it, obscuring some of that credit data, and outlast body from the fed. -- coming out last friday from the fed. manus: i just leave it there. i don't need to say anything more than that. that's a much more intelligent person than me. are we at the top of the hill, or is there further to climb? >> a lot of ecb policy are talking about nearing the end, not so much being at the finish are promising no more hikes, which is not the case at all, but they are talking more about let's see the end of this fight. not so much the inflation fighting mantra that they've had before. manus: thank you very much.

it's always good to have imagination on this show. let's bring in our markets reporter, in terms of the market reaction, very much on the short end but we saw some violence and drive-by shooting, hello, valerie. >> the knee-jerk reaction was that it was a week number, equities and treasuries rally. the two year yield rallied and the dollar soften. a lot of that was quickly reversed, the fed saying that policymakers still have a lot of work to do to tame prices. this encapsulates what the market is doing right now. the weaker inflation data makes it easier for the fed to justify a pause and perhaps cuts later in the year if the economy were to weaken. the market is still called on the fact that what data

specifically kid they used to justify this pause as early as may. the pricing for the may hike didn't really budge that must -- that much yesterday after these numbers. perhaps they will use the may meeting to telegraph the pause in the meeting coming after that in june. i think that's what the market is pricing in at the moment. goldman sachs released a note yesterday that they have taken out their expectation for a may hike in june because of the contraction. the pickle really is that there is not a lot of data between now and when the fed meets in may, in order to really justify the market pricing for may is wrong. dani: valerie coming in hot with the metaphors.

speaking of pickles, let's talk about the u.k.. chancellor jeremy hunt has push back against the imf's gloomy outlook for the u.k. economy. he spoke during the imf spring meetings in washington. hunt said he expects the u.k. to extreme the -- exceed the gdp forecasts. >> we will do better than that. our forecasts are significantly better than the imf or cas. last year we were the fastest growing economy in the g7. it's not just me, the german finance minister says he's much more optimistic about germany's prospects. janet yellen has had the same about the united states. we are very comforted about the u.k.'s -- we don't pretend we are not going through a difficult period.

we are dealing with very high inflation which we have to bring down. that means interest rates are higher. when you look at an economy and say what are the sectors that are going to make the biggest difference and shape the 21st century and its technology, it's life-sciences, it's entertainment industries. those are the industries where the u.k. has the biggest sector in europe and that gives us great hope for the future. >> you list a number of areas where you feel you can do better than expected. you also have of dental -- a potential trade deal, with the windsor framework, i do wonder when is this going to be fully clarified for investors? >> the windsor framework has been agreed. >> but in northern ireland you don't still have confirmation this is going through. >> we are committed to the

windsor framework. it will go through. what we don't have a northern ireland, the president is also trying very hard to get back is power-sharing by the fiscal parties in northern ireland. but in terms of the trade relationship with the eu, the trading that will happen between the rest of the u.k. and northern ireland, that is settled with the windsor framework. that will remove some major irritants in our relations with the e.u.. manus: jeremy hunt at the imf spring meetings. coming up, we will have more conversations, the euro group president and the spanish economy minister, all on bloomberg. of next, has the energy crisis

had record high? unemployment strikes? from the south africa investment conference, next. this is bloomberg. ♪

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manus: it is "daybreak: europe." the governor of south africa's central bank told bloomberg television it doesn't follow the fed on rate moves. as rolling blackouts and record high unemployment continues to cripple the country's economy. all things investors are keen to discuss. we are on the ground there with a special guest.

>> i'm here with ceo mike brown. thank you so much for being here with us, very early in the morning for us. south africa's dealing with high employment, power outages and a slow growth trajectory. we talk about south africa as an investment destination. how would you assess it, is it still attractive for investors? >> we know as a country we've got material challenges in the short to medium-term, centered on infrastructure in general but within that, energy, electricity and logistics, and also crime and corruption. however, if we are able to successfully deal with those, and there are plans underway and we are making progress, i see south africa as a country with enormous potential. it has some of the top 10 mineral deposits and those minerals that are so necessary

for growth around the world. we are a gateway to africa. we have world-class infrastructure in the form of lawyers, accountants, the financial services sector and the stock exchange. we do have short-term challenges but i'm extremely bullish about the long-term potential of our country. >> how does the government communicate that to investors? how do you get over the hurdles you were just mentioning? what does the government need to say? >> we need to be much clearer about the progress we are making in these areas. in the electricity environment in particular, there are strong pipelines currently in our business and across the country for private-sector generation. it is going to take probably 2-3 years before it connects to the grid and fixes the problem.

>> do you think there are more milestones or headwinds that the government is going to communicate? >> i think there are milestones, certainly on the energy side. small steps, but they are certainly milestones. we are hoping for bigger milestones that are not able to be communicated today, particularly around logistics and how we can work together to solve the problem our country is facing. >> the governor was still hawkish about rate hikes. how does that affect the growth outlook here, because if rate hikes are going to continue, does that potentially get in the way of any sort of growth? >> we think we've probably got another 25 basis point rate hike in this cycle and then rates will have peaked and begin to move down again during the course of next year. that's off and inflation outlook

we think will average 5.5% this year. you can definitely see that downward trajectory for inflation. i certainly believe our growth headwinds in her country are much more to do with those three areas i spoke about then they are to do with the interest rate environment. >> so what else in addition to what the government is going to communicate today, what does the private sector need to be doing to support the public sector? >> i think it's more about working together. take the energy environment, there's an enormous amount the private sector is doing to support the national energy crisis committee. the private sectors helping to support that with project management skills, our ability to aggregate all the projects that are actually underway in the country, our ability to report bottlenecks quickly and help both the government --

enable the only long-term solution to the issues we have currently. our country does have many challenges that i've just spoken about, in particular at the moment, energy generation and green energy generation is a long-term growth opportunity for investors and for our country. i certainly think that has attracted significant investments. for example, our business has a pipeline of more than 10 billion rand of lending to private companies that are in some stage of their own generation process and i would imagine you could multiply that by five or six across the entire economy. that is a very large growth vector in an otherwise challenging growth environment. >> they really do have some challenges ahead of them.

they've been doing a bit of flip-flopping when it comes to the messaging at this time. are you hopeful, are you bullish about them remaining consistent? >> i am hopeful. our messaging has been poor as a country, and we can newman's better than that. that will emerge in time as we communicate more of the milestones we are able to achieve on our journey to energy security. >> are you anticipating they will be able to grow, given the macroenvironment and the challenges with the energy situation? how is it they can be boosted and supported a little better? >> small to medium enterprises are extraordinarily resilient. it's difficult to forecast or measure how well many of them have adapted to the energy shortages that we currently see. if we look at the performance of our lending book into that environment, it continues to be

good. the biggest headwind is the difficulty in starting a new small business in this environment, and that is the headwind to longer-term growth. we need to start many more new small businesses to boost growth and employment creation over the longer-term. >> i will send it back to you guys in the studio. dani: she will continue to bring us conversations from johannesburg. despite the fact that i'm waiting for manus to send me a dior bag, they are bouncing back from the world's strictest lockdowns. more on that next. this is bloomberg. ♪

dani: welcome back to bloomberg "daybreak: europe." we've got to talk about luxury goods. lvmh bounceback, joining us is our luxury correspondent. what were your main takeaways from these earnings yesterday? >> it's hard to believe how they can actually keep this pace. organic sales up 18%, that is twice expectations. this is mainly due to the reopening in china in the first quarter. it was a tough quarter in the fourth quarter last year. they had double-digit growth, very strong spinning domestically during the lunar new year holidays -- lunar year holidays in china.

in europe you have a lot of u.s. tour is shopping luxury goods due to the strong dollar. japan had quite a strong performance and of course all this coming from the fashion and leather goods division. these brands are really the cash cows of lvmh in the fashion and leather goods actually represent half of the sales of lvmh. even selective retail, where you have a sector that is quite sensitive to the u.s. consumer. we have softer demand at the moment, even the selective retail unit had very strong sales growth of 28%. there was only one week spot which was the wines and spirits division. perhaps a bit more moderation when it comes to drinking champagne and cognac, especially

sales of cognac in the u.s.. we will see if it means lvmh shares will keep climbing. they have been up more than 20% since the beginning of the year. the company valuation could soon reach $500 billion, that would be the first time for a european company. manus: perfectly wrapped up like a louis vuitton gift. that is "daybreak: europe." . ♪

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anna: