tom: it is five :00 in new york, 10:00 in london. i am tom mackenzie. u.s. markets are closed for the presidents' day holiday. europe working to ramp up its support for kyiv as president trump pushes for a hasty end to the war in ukraine. president emmanuel macron calls for an emergency meeting with eu leaders. benjamin netanyahu warrants the gates of hell open if hostages

are not released. and in china deepseek optimism along with presidencies beating with -- along with president xi's meeting with business leaders sent asian stocks to their highest level since november. optimism in the asian session on bets around chinese ai. currently european stocks up .4% , still close to record highs and defense stocks are one of the catalysts. we will break that down in just a second. euro-dollar up 1.04. the german 10 year bund in focus with expectations these european nations will have to step up spending. yields up in germany. brent trading at a $74 a barrel

come up .2% on oil. let's flip the board and have a look at the defense stocks. that is where the strength has been. on bets building out amongst investors european nations will come together possibly with some form of collective debt issuance to fund a spend on defense given the u.s. appears to be walking away. some up 10%. leonardo in france at 5.3%. bae systems gaining 5.6%. defense stocks rallying strongly on that story. european leaders heading to paris for emergency summit later today to discuss security and support for tf which ties into what we are seeing -- for kyiv which ties into what we are seeing as trump pushes for a quick end to the conflict in ukraine. oliver crook caught up with the deputy head of the ukraine

president's office earlier. >> we can say the united states is involved in the process and we are looking forward to meeting with president trump to ensure the piece that is reliable and stable so this war will not recur in any form in one year or two years. tom: oliver crook joins us now from berlin. he is covering the munich security conference throughout the weekend. talk to us about the weekend -- about the meeting taking place this weekend in france and what it tells us about the urgency rippling through the corridors of power in europe. oliver: absolutely. let's do the tale of two meetings. they are also getting high-level meetings by the russian delegation and the american delegation to prepare for a potential summit between donald trump and vladimir putin by the end of this month and the

dawning realization that the writing has been on the wall for some time it is something we've been pursuing when we speak to european leaders in our coverage the last few months. europeans have been saying since the beginning, no deal about ukraine without ukraine involved. increasingly it looks like there could be a deal about ukraine without the europeans involved and that is the reality they are facing in paris after that jd vance speech that happened over the weekend in munich. all this news flow we had from the trump administration into the munich security conference and the reality of the situation is without that news flow, without that wrecking ball speech by jd vance attacking the european mainstream politics at the very center, i doubt you would've had troop commitments from the united kingdom as we have had from keir starmer talking about what a post cease fire peace agreement looks like. the possibility of troops as peacekeeping forces in ukraine.

these are things that were not have happened as quickly work not for the absolutely catalyzing effect of the trump presidency, which increasingly european leaders cannot ignore. tom: and maybe that was partly the point. what comes from the debate right now around joint debt issuance to find the build out of defense. how much closer are we to that becoming a reality. oliver: we are still in the foothills of that discussion. it is something i've been pursuing with a number of the people we speak to. i remember speaking to the danish prime minister in september and asking her about this idea of joint debt for defense spending. she has been one of the more hawkish voices in defense of the ukrainians and very outspoken about it. even that conversation in september she said denmark is a traditionally frugal nation. they are not generally in favor of taking on the debts of other european nations but she said

all things need to be on the table. we have not advanced to that point with the germans, we have not advanced to that point with the dutch. the question is for that shift? we had conversations at the munich security conference that even frederick marks, the leader of the cdu, the party of the debt break, the party of fiscal rigor, thinking potentially about softening their stance in this idea of potentially getting out joint borrowing in order to build out that military defense spending because the dawning realization is you only have a voice at the table if you are backed by a strong military. the europeans do not have that. we spoke to the top general of germany on thursday ahead of the munich security conference. he is the one responsible for executing military policy for germany. he is talking about having to more than double the number of people in the german military. there is a huge undertaking.

potentially of transcription -- potentially talking of conscription. these are the conversations happening in european capitals that have to wake up to the new security reality. tom: oliver crook joining us out of berlin. let's get the market take in terms of how to read these geopolitical shifts and changes in the landscape and bring in the head of fx and em strategy at morgan stanley. james, good morning. let's start with the geopolitics and what the readthrough is to the fx space. you want to be building haven builds around fx in an environment where the landscape seems to be shifting so dramatically? james: we have not billed in a tremendous amount of geopolitical strategy around our currency forecast. the conversations you reporter were just talking about will be relevant for the euro in the short-term.

if we get some inching towards some common issuance that would be seen as a positive, that would be the way of unlocking defense spending without putting various countries that have stable fiscal positions in the crosshairs of the market. i think that kind of response would be seen as a positive. clearly the overall turns of a cease fire remain to be seen. i don't think anyone can be confidently buying the euro on that story alone but we do like euro-dollar higher from here. it is also related to upside risks coming from the german elections this weekend and also negative elements we see on the u.s. side where would you like to be short dollar here and it is not just on the euro, but also we like short dollar yen as well. i think we are little bit out of consensus on that call. most of the street is still on

the more optimistic side of the dollar. tom: we liked out of consensus. there are voices who, on our show and talk about euro-dollar parity and pushback on that strongly. explain this. your team has to expect that yield and the spread to widen in terms of what we see u.s. versus europe. that differentiation between the moves coming through from the fed versus ecb. yet you are still long euro versus dollar. unpack that view for us. james: this is an element of which part of the yield curve do we think euro-dollar will be most sensitive to. we think because the ecb is further along in the easing cycle and as they cut towards neutral we think the market will start to think about the positive elements of that even if they cut below neutral the market will start to be thinking about the growth of positive elements and that will be

reflected further out the yield curve whereas in the u.s. side the fed is unlikely to be cutting any time soon. that is already reflected in the market pricing. given our expectation on u.s. growth, where we are expecting to see consumption for this year , the negative effects of tariff hikes, potential restraints around spending, these things will dampen u.s. growth this year and will cause the market to price and a bigger easing cycle, certainly into 2026. we think as the macro data comes through, ultimately we will see the euro-dollar start to move up because of how far along the ecb is in the cycle but also how much more the u.s. as to run. tom: that is interesting in terms of the narrative for the trajectory for the u.s. economy versus europe. if you get some of that stimulus starting to build out green shoots in the european economy. on the tariff story, what are some of the haven trades that

are favored if things start to ratchet up as seemingly they could from april 1? james: we liked dollar-yen lower. in japan you have bank of japan in a different direction in terms of monetary policy. that is good for hikes this year. the data has been good. wage growth has been strong. gdp data was pretty positive. we like the japan story itself. we are not so sure japan will be on the front line of countries on the receiving end of tariffs. if we do see a substantial pickup in tariffs being implemented, certainly apple or -- certainly after april 1 and it does cause concern for growth and we start to see retaliation we move into a risk off environment, the yen should be one of the better ways -- one of the better currencies to own in

that environment. it is a trade that works well now because of the boj. it works well going into april 1 given all of the uncertainties we just talked about on tariffs. it also works more medium-term because of the slow down we are expecting to see in the u.s. economy. tom: that leads us to how the japanese yen is playing out with the yen up .3% versus the dollar at 151.78. a bearish call on the u.s. dollar, favors the japanese yen as well. james, thank you very much. germans had to the polls this weekend. we bring you our interview with the german chancellor. that is next. this is bloomberg. ♪

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tom: welcome back to bloomberg markets. european stocks putting any decent performance so far. the benchmark stoxx 600 is up .3%. the dax up .7%. euro-dollar at 1.04. a little softer. the german bund is on focus with yields up on expectations of increased defense spending. let's look at defense stocks. yields are higher in the equity market story is all about those defense stocks on expectation european nations will have to step up their defense. double-digit gains for the likes of some. german chancellor olaf scholz

says the european union is strong enough to counter any tariff threats from president trump white house. he spoke to bloomberg stephanie flanders at the munich security conference over the weekend ahead of a general election in just six days. your some of that conversation. chan. scholz: i have to admit i am in favor of free trade. i think this is a big advantage we have in the world and many of the growth we have in the world is because of free trade. it must be fair free-trade and free-trade is better than tariffs and protectionism. i don't think this will work. when it comes to the european union i think everyone knows we are a thick economic area with a lot of strength. policy about tariffs is something that is our common policy so we are strong enough to react to everything. we should react always but in a

way that is always offering the chance for an agreement because it is better for all parties involved, especially on both sides of the atlantic. stephanie: is the european union considering cutting terrace before any announcement? chan. scholz: united states can discuss with responsible authorities about what we can do for better progress that serves all of us. there is a willingness. i am sure it is better if we agreed to something that helps all of us and it is good to know europe is strong enough to act and react. stephanie: you talk about it being a common project but donald trump has made it clear he wants to do reciprocal tariffs, he does not want a wto

approach, and even with the european union he might one have a different tariff regime for france and italy and germany. what would you do? stephanie: the european -- chan. scholz: the european union is unified economy and has come in tariffs and we act together. we will stick together which is also important. i am quite confident a good solution is feasible and everyone should work to make it happen. stephanie: you spoke this morning very clearly about what you need to do to increased defense spending above 2% of gdp and suspending the debt break just for that additional defense spending. for many countries it will want to have joint debt issuance for europe to invest enough in defense. would you consider that giving everything that has happened? chan. scholz: there are three things we can do.

the first is we agree in germany that supporting ukraine is something of an extra effort so we should have extra room for maneuver. also supporting ukraine -- when it comes to the figures germany is doing the most. we have the biggest support of ukraine in europe, the second-biggest in the world and this has to continue. we cannot pay for it with cutting and the pension schemes or the health sector or cuttings in the investment industry and so on. i think it is clear we have to do this. the second is we have to agree how we will continue with spending of more than 2% of our gdp for defense, which we achieved because of an extra fund i managed to get from the parliament. for the future we need a new decision about this and this is

for continuing with this 2% plus already $30 billion a year. also this may not work with tax increases or cuttings and spending and the different areas of the german budget. when it comes to do more, which will be necessary when we look at what nato is discussing, then it especially means we do something for this activities, which gives us in germany the opportunity to spend more and this has also to do with the reform of debt regulation in germany. when it comes to europe i think we should help every country if it spends more than 2% to be not hindered by the european regulation.

we have to change agreements so this is feasible for a country to do. tom: german chancellor olaf scholz speaking to bloomberg's stephanie flanders on the work needed to be done by the eu to enable higher defense spending. headline crossing the bloomberg terminal from opec-plus, this is reporting from bloomberg speaking to delegates suggesting opec-plus is considering delaying its increase of supplies. it had been looking to start increasing supplies in april. there is discussion about pushing that back. that is despite the fact that u.s. president donald trump has urged lower prices. we are hearing from our reporting that delegates have started this conversation. they say the oil markets remain too fragile. no decision has been made in the group is split on how to proceed from bloomberg's own reporting. you see brent trading at $75 a barrel.

up .4% so far. we will stay on germany ahead of this weekend's general election. more on the campaigns, next. this is bloomberg. ♪ carin's heading into retirement. [screams] with a lifetime of savings. but that's not the only thing she's taking into retirement. hi! ♪♪

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tom: welcome back to bloomberg markets. germans are headed to the polls on sunday amid trade risks and a stubborn war in ukraine. joining me is bloomberg's executive editor for europe chad thomas. it does feel that the importance of this election, this vote in germany becomes more acute day by day as we'd up to this election february 23. another debate over the weekend. where did the leading candidates stand? chad: it was an interesting debate because this is the first time we had all four main candidates on stage and it shows how fragmented german politics has become. to participate in this debate

you need to reach a certain threshold of support and the fact that four care its have qualified shows how split the german electorate is currently. the main takeaway is that three of the cabinets, chancellor olaf scholz, friedrich mertz, and the green leader really attacked the leader of the afd, accusing her in many ways of nazi propaganda. this was the language they were using there and they also talked about the fact she was full of hot air. tom: bloomberg executive editor for europe chad thomas on the debate as we lead up to that vote on sunday. plenty more coming up. this is bloomberg. ♪ wait, can we afford a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment... ...on a ranch

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tom: welcome back to bloomberg markets. let's check in how the markets

are looking and bring in bloomberg's valerie tytel. valerie: a holiday in the u.s. for presidents' day but we are still on firm footing. not a lot of action in the u.s. dollar. gold is rebounding from friday's slide. up .6%. no cash treasuries trade but that is ok because a lot of the action is in your. those yields are climbing on the back of -- debt issuance to fund event -- to fund dispensed spending. -- to fund defense spending. this is more of a supply driven story. defense spending impacting equity markets. we are seeing european defense names some of the big leaders. a big one up 8.5%. not far behind is bae systems on the back of further defense spending out of europe to come. tom: thank you very much.

let's bring in tina fordham, global strategist. fantastic to get your views on the back of what has transpired in munich. you are framing this in comparison to 1938. this is a betrayal when it comes to the u.s. relationship with europe and its partners. tina: this is a very important signpost. munich is a beautiful city but it has become a byword for the abandonment of the transatlantic relationship. we have been saying to prepare for this for some time. that nail went into the coffin this weekend. tom: to be clear, there are some views that this is the trump administration simply trying to catalyze a response from europe in terms of stepping up on defense and that relationship remains intact. you push back against that and you make the case that this relationship is now

fundamentally reshaped or broken to some extent. tina: the hope might be for a reset but i want to push back on this narrative going around the world that is now time for europe to step up on defense. the trump -- this is the trump administration's narrative. some european countries do not meet the nato target, that is for sure. this is the u.s. withdrawing from its commitments as well. i think we should refrain from repeating those talking points. europe needs to do more on defense than it has been, it has been slow to respond. brussels has been talking about trump proving europe for years now. the signal is now very apparent. tom: what are the vulnerabilities for europe in this moment? tina: i will be clear because i want to make sure viewers understand what has happened.

and what is happening next. the trump administration has been very clear in what it wants to happen. there is a market narrative that says a cease-fire is called, russian gas reserves get turned back on, that is welcome to all of us paying higher prices for energy at home because of this, but we are talking about something else, something much more profound which is potentially carving up the world into american, chinese, and russian spheres of influence. tom: what does china gain from this? how should we think about the way beijing is looking at what has transpired? tina: the russia china friendship without limits. what was that about? very clearly and in their own world -- and in their own words it was about remaking the world and moving away from the u.s.

and european and japan led post-world war ii order. they are hastening that and the consequences are unknown. tom: we were talking earlier about german elections and we had jd vance standing up in music -- tina: hectoring -- tom: hectoring and lecturing european leaders about this political firewall to keep out far-right extremist groups. is this a trump administration that wants to align with the far right in europe? tina: that may be a byproduct of what is happening. pot meet kettle on democratic norms. the u.s. has been bending democratic norms at home for some time. the firewall jd vance was complaining about, what that means is agreements between mainstream parties not to work with extra parties.

europe has been following this protocol for some time and this does not sit well with america, which does not have a parliamentary system whereby parties work together in coalition. they know not of what they speak. my point is february 23, the election is coming soon. i have done a lot of work about how and when elections may be influenced by changes in the geopolitical context. it is still a little bit far away to understand how the afd might perform, but one of the possible consequences is that german voters say no thanks, washington, interfering in our elections and rally around mainstream parties. there is a possibility the afd does better than expected. we have a little bit of time. we still have more than a week before we see this.

it may not be appreciated by the mainstream parties and the public, this kind of intervention. tom: we want to get your views on the middle east and at this point we will bring in dan williams who is standing by in israel. the story around what we've been hearing from benjamin netanyahu and the u.s. secretary of state landing in saudi arabia earlier as leaders prepare for discussions on ending the war between russia and ukraine. this after marco rubio visited benjamin netanyahu in jerusalem and at that meeting benjamin netanyahu threaten to open the gates of hell on hamas if hostages are not released. dan williams joins us from jerusalem. the key question now when it comes to the cease-fire between hamas and israel seems to be to we get to stage two and onto stage three. how precarious is that cease fire right now and can the u.s. keep it on track? dan: it is very precarious.

it is do or die because the current phase, this six-week truce with a number of defined hostage releases and a greater number of palestinian prisoner releases by israel ends and it recognizes israel and hamas are suspending hostilities. israel with quite vocal support from this administration and the previous administration has said any long-term suspension of hostilities -- the defective end of this war would require the end of hamas rule in the gaza strip. hamas has not given any indication it is interested. at most it said it could cede political power, not its arsenal. it is difficult to see how that phase could be entered given an apparently unbridgeable gap between the warring sides. tom: to saudi arabia, which has pushed back on -- which has

pushed back along with most states in the middle east on this trump plan to take over gaza and shift the population to other nations. what do we expect marco rubio's message to be to the saudis on this visit? dan: i suspect the talks on a potential resolution in ukraine may eclipse the gaza situation. to the extent marco rubio will bring a message to the saudis from israel it is that the trump administration would like to see a normalization deal between israel and saudi arabia. such a deal might serve benjamin netanyahu if he does decide to relent, at least for the time being on israel's demand for the ouster of hamas if he can bring his right-wing constituents, a deal with saudi arabia might go some way to mollifying them for the time being. it is possible rubio is trying

to close that gap between israel and saudi arabia. it is also possible he is trying to muster some kind of support for the saudis for the trump relocation plan. a plan that may have even surprise the israelis in its level of detail and ambition that most gazans be sent elsewhere by attentive 15 year rehabilitation plan in the gaza strip be undertaken. so far there are no takers in terms of intake countries that might absorb hundreds of millions of palestinians. it is possible marco rubio will raise that with the salaries. it is worth -- with the saudis. it is worth noting the saudis were fast and intense with their criticism of this plan. i think it is a dead letter. tom: dan williams from jerusalem. tina, what is your expectation the cease-fire can progress to

stage two and stage iii and is the policy that has been announced by president trump and his team around gaza, is that something that will have to be walked back at some point given the reception it has received globally? tina: the ethnic cleansing and relocation of gaza? tom: the suggestion they move a vast number of population? tina: i think it is more than a suggestion. it has been a proposal that has not been yet been backed up with force, although force has been suggested. the fact that the neighboring countries do not want to take the palestinians may or may not interfere with u.s. objectives. remember president trump has threatened to stop the aid that goes to egypt and jordan, two of the largest recipients of u.s. aid and it is a question of whether reason as the regional

governments will see it can prevail. the mentioned of even israelis being surprised -- there is probably more than one agenda going on. one of them is the strategy toward iran. and whether or not attacks on iran's nuclear facilities are what happens next. the trump administration has promised all along to change the rules of the game, to avoid what it saw as the kind of to and fro of diplomatic choreography. why we expect the next days and weeks to follow what we are used to it is surprising to me. there used to be a sign in shops that said you break it, you buy it. we are about to see how that plays out in the middle east and in ukraine. tom: keep an eye on iran as well and how the trump administration response to the challenges there. tina fordham, thank you very

much indeed. coming up, our interview with the irish michael martin at the munich security conference. this is bloomberg. ♪ only servicenow connects every corner of your business, putting ai to work for people. pfft ... every corner? every corner, nick. ow! so kate in hr ... hey kate. can focus on people, not process. oh actually, i have a question ... keep up, nick. do you have to be sick to take a sick day? patty in it is using ai agents to deal with the small stuff, so she can work on the big stuff. agents like secret agents? secret agents i control. with your mind? you know ... i played a secret agent once. - we know. - oh gosh ... i liked it. over here, ai gives tina the info she needs to get the job done. nick, what did we say about touching? no touching. good. ai helps jim solve customer problems before they're problems. for reals? for reals. for reals.

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tom: welcome black -- welcome back to bloomberg markets. the munich security conference wrapped up, leaders confronting a number of issues from free speech to tariffs to defense spending. france between -- francine lacqua spoke with the irish taoiseach michael martin about how his regime is bracing for a new regime of transatlantic trade. mr. martin: patient ship between united states and ireland is very strong. -- the relationship between united states and ireland is very strong. likewise u.s. companies create jobs in island and access to the single market. we signed up to an agreement. president trump is holding back. with the european union we

engage constructively with u.s. administration to see how these things evolved. francine: do you feel vulnerable to tariffs from the u.s.? mr. martin: we're a small economy and free trade for ireland has been a tide that has lifted all boats and we believe free trade generally has led to the greatest increase in living standards throughout the world. we understand the issues and if you look at services and goods together the deficit in europe is quite small. i think we need to be careful we do not upset the rhythm. francine: president's pick for commerce secretary howard lutnick has talked about island. is there anything you can do it -- about ireland. is there anything you'd can do to mitigate the threat? mr. martin: to give greater profile to the irish america. ryanair for example is the biggest purchaser of boeing third -- the biggest purchaser

of boeing 737 in the world. irish impacts in america are significant. our companies are gritting a lot of jobs in america and we want to continue that expansion. it is not just a one-way street. tom: -- francine: you've also talked about putting together a u.s.-based panel to understand policy shifts from the u.s.. how is that going? mr. martin: is going very well. we have a lot of companies that are investing in companies and factories in america and then we have the irish people in america as well. it is always important to keep a weathervane open to pick up some of these dynamics in any given market. we have a very good diplomatic network in the united states. we have expanded it over the last five years and so we are right across the u.s.. we have a good understanding of the dynamic of politics and we

understand the context and issues that are coming to the u.s. and ireland. we are entrepreneurial people big on innovation. i was impressed with the approach emphasizing the innovation side of ai that came in paris. ireland is of a similar mindset. francine: there is a lot of talk about europe having to choose. we had the jd vance speech going into democracies of europe. what you think the state of european diplomacy is? mr. martin: i think europe needs to be more self-confident. the european union is a strong entity. it has a lot of strengths. i think we are looking at the regulatory framework governing the european economy. leaders are now looking more at simplification -- others might use more radical language. there is an understanding we

need to pivot more to the innovation side as opposed to the regulatory side. i think emmanuel macron is correct when he says the sense of europe is to regulate and the sense of the u.s. is to innovate. europe needs to pivot more to the novation side but the eu has great strengths, scientific strength. i think europe is well-positioned for the ai revolution. francine: does that mean we will see less regulation? mr. martin: hopefully we will see slower regulatory impulses. so we do not tie companies up in knots and do not over regulate to the extent we paralyze certain sectors of the economy. there is a sense, vertically among european entrepreneurs or entrepreneurs coming into europe, there is that sense. there is also what we can do in terms of strengthening relations between the u.s. and europe

economically. lng for example. tom: that was the irish taoiseach michael martin speaking with francine lacqua in europe. shares of tencent get a boost after deepseek to abuse on we chat. more on that next. this is bloomberg. ♪

tom: welcome back to bloomberg markets. european stocks still posting gains in the monday session, up .3%. defense stocks leading the upside, you see that in the dax in germany, that up close to .8%. the ftse gaining .2%. euro-dollar at 1.04. yields are up close to six basis points. there is expectation the european governments left to spend more on defense so you are seeing yields jumping across european sovereign debt and brent crude trading at 74.92. suggestions opec-plus may delay

in increase in output beyond april. turning to china where tencent shares jumped to their highest level since 2021 after deepseek debuted on the social media platform we chat. bloomberg's justina lee joins us now. it is the meeting between president xi jinping and some of these tech ceos. deepseek is becoming embedded in some of the biggest tech players in china. we know alibaba has partnered with apple and alley of deepseek embedded into we chat. what does this tell us about ai and tech giants in china? justina: a lot of these chinese tech companies are happy to have a big source of national pride on their platform and you can see a similar pattern play out in chinese tech stocks where there is a lot of optimism this will bring widespread earnings boost across the tech sector and that is coming at a time where

there has been a lot of pessimism over other parts of the economy. tencent has been a beneficiary of this enthusiasm and it has already rallied a lot over the past year. that is not only about deepseek, it is the popularity of something games. tom: is there an upside now that xi jinping has given his blessing to some of these tech entrepreneurs? xi jinping thinks there will be more support for the tech sector going forward? justina: i think that is why we are seeing a bit of a rotation now because chinese stocks have been cheap for a long time. a lot of investors interested in e.m. went to india so we are still seeing that rotation. other than tech stocks what investors will be looking at is whether there will be more stimulus from the chinese government. that is still a focus there. at the end of the day there is a strong signal from the chinese government, especially with alibaba's jack ma at this

meeting given he was kind of the poster child of the private sector crackdown earlier. tom: he was that pivotal moment, that speech he gave in shanghai in 2020 and then frozen now the financial ipo. you talk about additional fiscal stimulus. what could that look like? justina: i think the focus is whether we will see more on the consumption side. a lot of people are asking will china rebalance the economy, and especially with a lot of external pressure on the engine it has relied on over the last few years which is to actually amp up the export side of things. that is one source. if you look at the monetary side we have seen generally lower interest rates and easier liquidity. i think that has been another boost to the market. tom: justina lee. thank you very much on the tech rally in china and the potential for potential fiscal stimulus.

coming up, we will catch up with chris watling, the founder and ceo of longview economics. european stocks up .3% in the session. stay with us. this is bloomberg. ♪ some research. ya know, that's backed by j.p. morgan's leading strategists like us. when you want to invest with more confidence... the answer is j.p. morgan wealth management

>> welcome to bloomberg markets. the u.s. markets are closed for the presidents' day holiday. europe working to ramp up support in kyiv as president trump pushes for a hasty end to the war in ukraine. president macron in france calling for an emergency meeting with eu leaders. benjamin netanyahu warns the gates of hell will open if remaining hostages in houma -- if remaining hostages held by

hamas are not released. president xi jinping's leaders -- meeting with business leaders send stocks moving. the markets are closed at the moment. futures are in the positive territory about 2/10 of 1% on the s&p 500. i would put more focus on the currency picture. we will see more liquidity than the equity market spread the u.k. story is interesting. gold seeing quite the bid higher , geopolitical risk being priced into the precious metal. let's go check those european markets as well. the stoxx 600 is in positive territory, of the ftse 100 right on its heels, this is interesting even the geopolitical environment we are in and the spending promises out of the u.k..

still seeing higher 2/10 of 1%. you are serious outperformer is the dax pride a lot of that has to do with the defense story. a lot of the defense companies in this region are based in germany enlisted on the dax pride that outperformance is a direct reflection of what you're seeing in the geopolitical space. european leaders heading to paris for an emergency summit to discuss security and support for kyiv. all as president trump pushes for an end of the war in ukraine. caught up with the debbie head of the office earlier. >> we can say the united states is involved deeply in the process as was said to ensure the piece, that it is reliable and stable so this will not recur in any form in any time just in one or two years. >> kriti: oliver crook joins us

from berlin. fresh from the munich security conference. walk through what's at stake here for a global audience that may be is just catching up to the headlines. oliver: i can barely keep up with the headlines of the weekend and going into the weekend. i think it's fair to say very simply that in the very last week of activity from the trumpet administration taking a call with vladimir putin, pete hegseth over, marco rubio jd vance coming to europe. moore has progressed on the question of ukraine and russia in the last week then probably in the last year where we are now effectively the train has left the station and negotiations are now beginning between the u.s. and russia and we have high emissaries from the united states, from russia reportedly meeting this week in saudi arabia to pave the path for a meeting between vladimir putin and donald trump as early as this month. if you think back three woman's time -- three months time, this could have been basically

inconceivable and now it is basically on its way pride i spoke to the deputy head of zelenskyy's office and asked could zelenskyy be participating in conversations with donald trump and prudent by the end. could the conditions be there for that and he said everything is on the table. that for european leaders is very concerning because of these negotiations have been going the train leaving the station they are not on it. kriti: one of the key kind of foreign policy mistakes in retrospect a lot of critics have said is back in 2014 when you did see the crimea conversation there really being taken over by russia there wasn't that red line from the white house in particular. a lot of folks are saying this is a repeat of that moment. what happens next, what is the next level should we see a ukrainian deal that does not have europeans involved in it? oliver: that's what the european leaders are trying to figure out as they meet in paris today. bigot called thereby emmanuel macron with a number of leaders going there to basically try to

figure out how to respond to the u.s. administration. you've been hearing it from official since november, this is a wake-up call for europe. has europe finally woken up with that wrecking ball speech made by the vice president of the united states jd vance in munich over the weekend. all this wishful thinking that there is been by the europeans that they can negotiate and do this and that has sort of evaporated at this point and they need to openly confront the reality, one where the united states has zero interest in multilateralism. has an interesting unilateralism in dictating what comes next. i would go further back in terms of the foreign policy mistakes made by the europeans. and basically not spending on military in order to basically not be able to have a seat at the table. trump says if you want to sit at the table you need to put the money up and show this is relevant and that's now with the europeans will be confronted by. will there be a more open

discussion about the question of trade debt for european defense spending in europe. that is something i think will be coming up in this meeting today in france. but security guarantees after a cease-fire and peace agreement will the europeans now openly talk about sending troops to ukraine to keep the peace as the united kingdom has done today which frankly they probably would not have have been not been a speech by jd vance and the action by the trump administration over the last week. >> bloomberg's oliver crook keeping us apprised of all the defense and the conversation happening in continental europe. we thank you so much. a little bit more insight into how you treat this and what this looks like for the economic picture. founder and ceo of longview economics joins the program. a pleasure to have you on the program. a slew of headlines, all he was walking us through. from the fund mental economic perspective what does that change? >> a few things.

one could debate about the idea of the piece, but in terms of the economics of markets in the near term, it has confidence in june of european economics, and so on at the margin. it means inflation probably is going to be a bit lower because you will probably get more commodities coming up so this market may be near or longer-term. maybe part of that deal is some clever access of russian energy back into europe. we access if you'd like that energy and downside on the inflation. so that's all positive. and we hear over the last few days that europe might be up against defense spending. we kind of knew there would be push to do more to meet their 3% or 5% gdp. and it looks like that's gathering some momentum. it is just -- we like europe in

general. europe cyclically is starting to recover. we like southern europe in particular. all of this news flow in the near term the next few quarters, i think adds to that story. from that perspective from a markets perspective and an economic perspective it adds to upside in the next six to 12 months. kriti: we are seeing that priced in, this risk evident this overhang for about two years or so. we are dealing with a lot of fiscal handcuffs in the u.k. in france even the southern part of europe. spain outperforming but can't seem to get a budget across the finish line. how do the fiscal handcuffs create a bigger hurdle for these countries that are looking to invest in a bigger way into the defense picture. >> i think over the weekend they declared the defense spending is

sort of an emergency pray to forget the specific term but it means you can excluded from the ministry of criteria when you are going through your budgeting process. it may well be a couple of things. it's excluded so that governments have their own notional defense budgets including that criteria. all of it -- you have common european wide debt issues in order to fund defense spending. there's a couple of routes to get to this. different and separate from all of this budget wrangling that's going on in germany and france and the countries you mentioned. so that's how you would do it. that sort of mechanism looks like it's been triggered over the last few days. that's my understanding of what we heard from ventolin -- ursula von der leyen. >> let's talk about going on in the states then because we are. all these tariff headlines. something that hasn't been talked about as much is a hard

line on immigration. certainly a key voting topic in the german election this weekend. it's also something that's driving the conversation in the state sprayed there is a view the economic resilience out of the united states even in the southern part of europe has largely been driven i immigration. what's that -- what is your view on that. does the hard-line stump the growth of the united states. >> i think it's been driven by a few things. a lot of fiscal over the last few years with that actually accelerating in the fourth quarter of last year. as biden finished his last month in office in december. there's also been a i capex out of the states and i guess immigration in terms of a lot of people coming in in terms of adding to spending. and you're absolutely right. three of those are changing. president trump's first actions fiscally with elon musk was

stopping spending. so there's a very fiscal tightening that's going on relative to where we've been over the last couple of years but may be temporary just for this year but it is certainly already impacting pray it will be interesting on the macro data plays getting into february and march data coming out. then there's? 's about the usefulness of ai capex. it's no longer a land grab for ai. you need to show there's a bit of return on the investment so maybe that will change with dynamics of the mag seven. and maybe that won't be as strong and certainly the way to change -- the rate of change is not as strong as last year anyway. immigration, this is a tough one because you can argue this both ways. less immigrants, more wage inflation pressure. margin squeezes on businesses. obviously you've to spend money to live. so kind of works both ways. but i think the optimism about

the u.s. coming into the offices over done on the back end of last year. i think you'll find the economies strong in the first half of the u.s. as people expect. i think the bond market to a degree is starting to sniff that out. i think watch february and march data closely. it will be fascinating. kriti: there is also a concern about foreign direct investment as we look at the tariff stories. and donald trump targeting countries that have larger trade deficits. we both know trade deficits mean there's more foreign direct investment from those countries. i hear you on the ai capex story. is that enough to outweigh perhaps a loss of direct investment from the tariff story? oliver: -- chris: arguing these is very difficult but clearly the principle is putting terms on things you say is no good for

global growth, it's not good for global investment flows. it causes all sorts of issues and encourages we've seen with the canadians and europeans there's a domestic link rather than investor seeing were the best return might be. it sort of nationalistic pride it doesn't help my point on ai capex is simply the rate of growth is slowing and it will be questioned more significant this year because it does the return needs to be demonstrated. i think the principal clues been a lot of problems with china as well. i think it's going to d globalized world. multilateralism. so fdi flows will become harder to come by. there's risks on the rules and policy risk so we know there's volatility and uncertainty on

policy. all that makes it harder to see the higher fdi flows in the last 20 to 25 years. kriti: we will leave the conversation there but we thank you for joining the program talking us through a series of ranges of topics in the weeks ahead. coming up on the program we will shift our focus over to germany. germany is deciding the fate of the country. the election coming up this saturday. we bring you the latest on what it means for the markets. this is bloomberg. ♪

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>> welcome to bloomberg markets. ahead of the election, speaking to stephanie flanders, take a listen to some of the conversation. >> i have to admit that i'm in favor of free trade. i think this is a big advantage we have in the world many of the growth we have in the world is because of free trade. so it must be fair free trade yes and free trade is better than tariffs and protectionism. >> lower tariffs. >> when it comes to the european

union i think everyone knows we are a big economic area with a lot of strength. and the policy about tariffs is common but we are strong enough to react with everything that's harming in the economy but we should react always. but in a way that is always offering the chance for an agreement because it's better for all parties involved especially on both sides of the atlantic. >> is the european union considering cutting tariffs before any announcement on cars. >> to discuss with the responsible authorities about what we can do for a better progress. so i'm sure it's better if we agree to something that helps

all of us. and it is good to know that europe is strong enough. >> you talk about it being a common project and donald trump is made clear he wants to do reciprocal tariffs. he does not want to wto approach world rules on the same countries. and even with the european union he might want to have a different tariff regime for france and italy and germany. what would you do then? >> but there's nothing to stop the u.s. doing that. >> we act together and we will stick together which having is also important. so i'm quite confident the solution is feasible and john a bunch of work to make that happen. >> you spoke clearly about what you need to do to increase defense spending above 2% of gdp. and suspending the debt break

just for that additional defense spending. but for many countries to also have debt issuance for europe as a whole would you consider that given everything that's happened. >> i think there are three things we can do in this very moment. in germany we believe supporting ukraine is something of an extra effort so we should have extra room for maneuver and financing this support of ukraine which when it comes to the figures germany is doing the most. the second biggest in the world. this has to continue. we cannot pay for it with cutting in pension schemes or in the health sector and cuttings in the investment on streets and railways and so on. i think it is clear we have to do this. we have to agree how we will

continue with the spending of more than 2% of our gdp for defense we achieved because of a mixed fund which we managed to get through the parliament. for the future we need a new decision about this. this is for continuing with this 2% plus already 30 billion a year. also this will not work with tax increases or cutting spending and different arrears of the german budget. and when it comes to the war which will be obviously necessary looking at what nato is discussing, especially means we do something for this activities which gives us in germany an opportunity to spend more and to do with the reform

of debt regulation germany. when it comes to europe i think we should help every country spending more than 2% to be hindered by the european regulation. >> we have to change this agreement so it is feasible for a country to do. kriti: german chancellor awful speaking on the need to be done to enable higher defense spending in a time of greater geopolitical risk. in the meantime germans are heading to the polls this weekend. the four main candidates engaging in a debate ahead of the final few days before the country decides on the future leadership. let's unpack the details of what we heard over the weekend and get bloomberg's executive editor for europe chad thomas. -- christoph ronald. christoph is our friend for germany bureau cheaper thank you

so much for joining us. walk us through what we've heard over the weekend from this debate. >> it was all to some degree of course dominated by the consequences and the repercussions of the munich security conference. to some degree with some pretty strong language and narrative in this case from u.s. officials. and europeans reacting to that. it also spilled over into the political debate. which we saw on sunday. there was a pretty closely watched tv special on sunday evening with the four leading candidates and the four top candidates of the leading parties and it turned into quite a cognitive -- what we seen the last few weeks was a pretty sort of well organized not overly controversial sort of campaign, the big parties in germany laid out their specific proposals of

how to fix germany's economy. how to deal with migration, going for the key policy areas. yesterday we could see the town has changed and a lot more combative and controversial with some of the candidates attacking each other pretty hard. kriti: let's talk about this from the ripple effects of the financial perspective. you are sitting in frankfurt, the heart of one of the major financial capitals in europe. there is a big question about the debt break. we know frederick who looks to be the leader in the polls at the moment starting to play a little hot and cold weather or not the debt break should or should not be removed. it happens to the markets, what are the ripple effects. >> this is definitely one of the sort of key areas that any new german government will have to look into and frederick, who is currently leading the polls has worked to some degree some mixed signals sent on that.

he sees more or less like a fiscal hawk. he's unlikely to sort of open the floodgates and spend or basically make way for spending across the board. we also did point out was if there are strategically important investments into for example key areas like defense, critical infrastructure, which has been crumbling in germany for quite some time, if investments aren't refinanced with those instrument's then he did signal some openness to at least look at the matter of using the debt break. it is baked into germany's constitution which is a you can just change it when you are the next government with a simple majority in parliament. you need two thirds of the vote so that hurdle to really revise or modernize or make it more flexible is going to be very high.

>> a fascinating one. do we get more issuance of the end of the day. of course german debt is still the safest debt in europe. christoph walking us through the german election. in the meantime, let's talk about the markets spread the german indexes are flying this morning. when you look at the bond market, a little bit of a different story. yields higher across the board. bond markets getting a little bit of a bid. this will be crucial because defense stocks are actually rallying across the board in europe so a little bit of a catch-22 for the german markets. u.s. and russian officials landing in saudi arabia for the next talks on the war in ukraine. that conve the way i approach work post fatherhood, has really trying to understand the generation that we're building devices for. here in the comcast family, we're building an integrated in-home wifi solution for millions of families like my own. in the average household,

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>> welcome to bloomberg markets. i'm kriti gupta. let's enter in the geopolitics. marco rubio arriving in saudi arabia ahead of meetings with russian officials on what's next for the war in ukraine. this follows the visit from israel with benjamin netanyahu threatening to open the gates of hell on hamas if all remaining hostages are not released. roz matheson has the job of following all of this tick by tick. walk us through the messaging coming out of the united states right now. marco rubio has had a world tour from latin america to the middle east.

not really stopping by much in europe. what message are you reading from the priorities of the american administration right now. >> very much in lockstep with donald trump and echoing which is to get that cease fire in the middle east to have them move towards a more permanent arrangement itches the next big thing coming up is a major release of hostages and prisoners that exchange the first and then the cease-fire has to move towards different conversation which is the future of gaza where it gets even more complicated but it's clear donald trump has a view himself of what he wants that to look like. and very much wanting the u.s. to be a voice in the room on it. as you say going on to saudi because the other complete priority for donald trump is to get a cease-fire in ukraine, to have that wrapped up as he says sooner rather than later. >> less than 100 days into that administration.

the lottery zelenskyy the president of ukraine currently saying ukraine will not participate in those u.s. russia talks in riyadh on february 18. kind of expected their board kind of deal in terms of sustainability and the implementation of that deal is really viable if the europeans aren't at the table. what does that look like. >> that's the concern for the europeans as you have this luminary meeting in saudi arabia with the u.s. and russia, although the ukrainian president is due in saudi arabia the day after very much separated from that conversation. what kind of arrangements do you get bilaterally between the u.s. and russia. how is that then what we are going to do to europe and how much can that be a voice in the room on the cease-fire especially as europe is very much ukraine is on you russia's doorstep but they're also going to have to continue to supply weapons potentially to ukraine. going to have to speed up its own defense spending.

its own resilience very much the message from the u.s. is that europe will have to do more for carrying itself. does that include troops on the ground inside ukraine and some soda peacekeeping capacity, does it include fundraising of debt to pay for all of this. so you can see from the europeans arising level of concern. this will get done as a sideline deal. >> let's say the europeans get a seat at the table in these negotiations alongside a lot of her zelenskyy. walk us through the priority might be given the circumstances and challenges you just highlighted. >> it seems to be of anything to slow this down. u.s. is in a timeline of getting a cease-fire by easter the european saying there's a lot of steps we have to go through to get there and there's a lot perhaps the donald trump is depreciating in the way these are very complicated discussions and negotiations that have to happen. so all those things you talked about, the land russia is

currently occupying, what happens to that land. what happens to the line of control we currently have. which is that shift and is russia essentially get frozen in place in the land it's occupying. what about the idea of security guarantees for ukraine. who is on the hook for those pray does it involve european soldiers in ukraine behind the lines, near the lines of cease fire. there is a lot of complexity here. the priority for europe seems to be primarily first of all slow this down. >> you slow it down but there are ripple effect in terms of energy and joint debt as you're talking about. fascinating conversation pray thank you so much for joining the program. she was there talking about the joint debt as one option. the markets very much pricing this end. valerie tytel. >> that's been one of the key themes in fixed income. we are seeing arising european bond yields. most pronounced in germany where we are seeing the curve bear

steepen showing the market is very much expecting bond supply to finance this defense spending out of europe. it's also boosting defense stocks in europe. digging a quick check of how they have before. rheinmetall again jumping very strongly as they open up another 9%. this is now the second best stock in the euro six stocks 600 year-to-date risen over 40% just in the last few weeks since the beginning of the year. keep in nine european defense stocks. one thing that's not moving his the euro. the euro breached 105 in the asia trade earlier today. it is very much trading around the levels where we were on friday. maybe some raising an eyebrow. on why we are not seeing a more positive bounce to the euro. the deficit spending could boost private investment back into europe. kriti: valerie tytel walking us through those. thank you so much. let's ask an expert on why this

is not moving. i will put that question to you. a lot of geopolitical headlines, a question this debt and investment. euro-dollar not really blinking an eye. what is it doing? >> it's been a tough time for foreign exchange. you have this mega theme. equities have a brand-new bag. every buddy wants to have a bit of european stocks outperforming u.s.. there is an equity flow that's pushed us into the 105 level. we get there in euro-dollar. we know tariffs are still coming down the line. the european economy is still in a tough spot. talking about this ukraine rebuilding story. 9% of eu gdp is in construction so you can get optimistic about ukraine cease fire implications. the growth angle is quite mixed. you've growth better for hire. people want to look at poland for that and germany.

you got lower inflation as they already have come off the ball. the ecb has been looking a wash for that inflation forecast. germany's dutch infrastructure still too expensive when it comes to manufacturing, lecturers -- electric prices higher than the u.s.. a new theme emerging with mega in european stocks. >> >> it sounds are using the terms of trade are driving the fx story more than monetary policy or even the fundamental growth picture. it's coming down to deficit spread -- deficits. jordan: it is all mixed in. we had a very strong nfp and cpi. very strong ppi. we can argue about these components paid overall the u.s. data means no fed cuts. still some fed cuts to take out the curve. that's why for the euro is a cell here.

would you be testing 103 or one or two levels. donald trump keeps changing his mind week on week so who knows what comes next. kriti: we are about to hit an auction a couple of days time. the debt break removal has been a key issue to fund some of the investment to deal with the issues you were talking about. what happens if the debt break is removed. jordan: germany isn't suddenly going to become a big spender. it will be cautious but the debt break has to be suspended because it is too tight of a margin. you've also got the possibility of the cdu meeting with the spd so there will be social spending concerns. let's say we have a debt break suspension bridge that's the kind of negative scenario. we actually could be here on monday morning talking about bonds rallying once again. it's a tight margin of error

around that 5% margin to get into the bundestag. if we have debt break suspension, we are talking a good story for europe and that's why in q2 or q3 we're the euro recovering quite substantially. so the mega theme has moved towards it. and i'm hopeful that mario draghi and his column of the week is a fantastic read along with the euro crisis in growth trigger some movement. >> he said forget the united states, i'm paraphrasing here but it is ingrained in my memory. europe at 45 to 100% tariffs on itself through regulation. for a market perspective is that how you trade it now? do trade deregulation headlines. defense headlines paid how do you do it on a day by day basis. >> reconstruction and defense way easier. potential cease fire in april.

you could talk about may with victory day in europe. those are things political analysts think that cease fire will be agreed to. reform when i was in luxembourg seeing official institutions is still pretty glum from policymakers about the upside. but i think with mario draghi's momentum and the u.s. attacking europe on tariffs and defense, it will trigger european leaders to come together. when you at covid and the nexgen eu you would very pro-eu leadership in italy, france, spain and germany. we are shifting more conservative stances. and that leads to less reform than it could have been. >> this is i think the u.k. is such a great example of this. your seeing u.k. assets just fly in the equity market, strengthen the pound. even the gilts rally as well. so much of the narrative is being tied to spend on defense and on becoming the new maybe a

little bit more of a leadership voice in nato as well. it's the same question spain. the same question in germany and france. why is the market reacting this way when the factor doesn't exist. >> defense will probably not be cut by the u.k. but that means off to cut elsewhere as we get to march and it comes to the budget. let's look to friday we a flash pmi in europe. it will be weird if european pmi's do not go up. we should have positive season add in q1. we have front of tariffs as well. when you have u.s. importers buying as much as they can from u.s. -- from mexico and canada and europe. the u.k. as well. i think the risks are the u.k. has the budget impact play out in the pmi. rachel reeves will be looking at higher defense spending and so forth but still dealing with weak growth. >> how do you stimulate that

growth. i ask in the context of maybe the american playbook. so much of it is driven by the fiscal spend. we certainly seeing this under the trump administration terms of attracting ai investment or even investment from other countries in terms of buying agricultural goods or oil exports. is that the playbook that france for example needs to use to stimulate that growth. jordan: we have two levers to work with. spend money and the other is reform. they are trying to deregulate where they can. they spoke to heads of financial services watchdog to try and boost reform agenda. it will be difficult for the eu. they're good at creating regulations, you saw that awkward sort of speech with jd vance and ursula von der leyen both agreeing deregulation is the way but the markets don't really believe the eu on that. as we got excessive deficit

procedure risks and france, they have to look at it. kriti: one of the things donald trump has talked about in reciprocal tariffs is not just percentage on goods but he called it nontariff barriers. so let these as well as the regulation pretty talked about in europe as a way of including or quantifying those reciprocal tariffs. >> the quote did the imf which used a sort of model approach and regression. numbers are pretty punchy. donald trump pointing out of the 50 states 48 of them cannot export shellfish to the eu. we know all about nontariff barriers. there will be a vet at the border looking to make sure it's safe. all of these scenes are odd considering we are hearing to most of their food standards. they detached from that using

different food standards. there's even ft articles banning all imports of nonconforming sort of food standards. anyway i digress. the eu needs to sort them out. within the regions that truck drivers can get across from one region to the other. >> it is wild. a complete 180 in the last couple of days. joining us from mizuho this morning. thank you so much. i believe he is sticking with us. china xi jinping with top tech leaders a really interesting dynamic showing up in the market spread we will dive into the details next. this is bloomberg. ♪

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kriti: welcome to bloomberg markets. let's get a quick check of the markets. it is presidents' day in the united states. we are getting a read on the futures picture. when you look at the s&p 500, euro-dollar on the other hand we will keep an eye on the fx base. 1.25 on cable. the equity markets in europe very much flying. a lot of it do it -- having to do with the events in dutch over the weekend. the other piece of it is the defense sector. using that show up with the outperformance of the dax. there's also plenty going on out of the asia region as well. over in china president xi jinping has met with several prominent business leaders including jack ma and dust tom mackenzie joins us.

you follow this quite closely, walk us through it. tom: pretty symbolic he gathered together some of the biggest and important technology companies today including alibaba whose frozen out towards the end of 2020 after he gave that stirring speech at the shanghai summit where he gave a tongue lashing to regulators and then china turned around and scrapped the financial ipo and went ahead with a severe cracked on the tech sector. xi jinping is bringing them back into the fold. the fact that jack ma's around the table with the chinese president is symbolic where chinese leadership thinks they need to be focused. the private sector foot -- factoring that paired the tech sector leading the innovations around ai we seen the run-up in chinese stocks. we seen the impact of catalysts deepseek has had. xi jinping knows he needs to have some adage of what follows. a nice rhetorical support for the tech sector today and

support for leaders like jack ma. in terms of actually implementing talking about reducing fees. and they need to go further to support that tech sector. kriti: talk about more of the tech sector. we talk about this deepseek story. china is getting so much love off of that headline where's the rest of the u.s. and arguably europe has been sounding off on that fear. how sustainable is that kind of risk sentiment change in china when you are also dealing with this tariffs story. tom: the sustainability of the upside is a real question. one guest described it as like a chatgpt moment for the nasdaq 100 if that's the way to frame it we are still in the early beginnings of how this story will filter through to the upside potentially and efficiencies and gains for chinese tech stocks into the future. we know companies like alibaba and baidu benefit by partnering with apple. we will have that.

alibaba is up about 48% year-to-date. it's dust is too much priced in? they will have their earnings in the few days. baidu is tomorrow. are they actually can start to see that across some of the different business leadings. and they do have a touch point on the wider chinese economy. all of that still remains in question international investors are waking up to this raising their forecast for the china index. >> this is something we seen as the valuations on chinese stocks. the european stocks of hidden all-time -- recent low as well as the added incentive. at a fixed strategy over at mizuho. how does that all factor into the currency and the fx space. >> this is china trying to boost the economy without spending much money. it's funding the private sector but why are we are because of china slowdown. it's from the housing sector.

we got some small moves there but would markets were waiting for for four years now is a big fiscal bazooka. somebody fix the housing markets problems. we've had these rumors and all sorts of things but we have not had the big moment where we go that solves the problem. i thing do well at that. we still tariffs on china but it's broadly weakened. moving toward 750. so where do we go from here? for me, once we get the tariff the market will fully price them in and we will have a chinese response. we'll get an early response out of china and then you have dollar weakness from q2 and q3. >> how much is there a constraint on how far china can go given the potential outflow story when it comes to china. we know they are concerned about that dynamic as well. that they are constrained in the response that could come through. >> they are trying to boost the

economy via low interest rates and that's the carry trade which make it difficult for them in that regard so there is a limit to how far we can go. >> there is a reassuring element here as well. i'm having a little bit of deja vu because we talked about this with the first trump administration bread suddenly you play a bigger plan mexico on canada on south america and vietnam. is there any evidence that that's how people are thinking. >> donald trump distracts us with the art of the deal. canada and mexico 25% forever but he worried wasn't very fun. and then china tariffs we kind of just forgot about even though that's really important in the canadian stuff is still a month away or less. in answer to your question, we have these different themes to trade on. we should take a step back and she the trades that have higher shock ratios. >> the tariffs story you kind of by the rumor sell the news. what number is priced into these markets right now in terms of

tariffs on china. >> we have to look at the betting odds to give us the concrete 25%. at one stage with the 40 to 50% range more like the 15 to 20. the market is price to perfection. very little tariffs and everything going right. as a risk here on monday, of the ftp might sneak in unwind. >> you are now the second person which is well respected of course. you have to look at the betting markets to figure out what the financial markets are pricing in which is crazy because you think the markets would be pricing in the tariffs nonetheless. does that strike anything crazy to you. tom: there is so much uncertainty around what the tariffs will look like, the timeframe in the sequencing and the size and scale whether this is just about extracting some concessions. is it actually about reordering the global trade landscape. which brings me to a question before we let you go.

what happens -- is the dollar looking too rich in this environment or is it still the obvious haven. >> it is the haven with terror spread if they weren't here. the sort of story in europe is so pessimistic the consensus positioning is along the dollar. however the tariffs are coming. it only they will be as soft as the local headline suggest and you have to pricing a deterioration to trade and then take the other side. kriti: sell it on what though? despite the fact we have economic resilience, fiscal spend, why would you sell the dollar? >> markets don't move in straight lines. we have had a good run in the dollar since september driven by higher u.s. data surprises. even though we have strong data the u.s. data surprises are in decline. the market follows this and when you have 3 billion net long in

fx futures for the dollar it's a level which is hard to sustain and any good news out of europe will be judged on that. positioning is a big part of that. >> jordan rochester of mizuho joining us around the table. a little bit of the heavy lifting today as well. a check on the markets. let's see how this shows up in some of the fx. the only market we are seeing over in the states open is the futures picture higher by 2/10 of 1%. euro-dollar on the 104 and that 126. the u.k. story in just a moment. your outperformer this morning higher by six tense of 1%. 2900 on the precious metal. over in europe i am still focusing on the dax. the defense story geopolitical risk story driving the markets. the stocks as a whole, higher by three tens of 1% on what should be a fairly electric day. we will see if that -- this

changes after the summit in paris. plenty more coming up, this is bloomberg.

>> it is 7:00 a.m. in new york. welcome to bloomberg markets. i'm kriti gupta. don't fret, we will have plenty of it for you. coming up euro force to ramp up its support for tfs president trump pushes for a hasty end to war in the ukraine.

president macron calling for emergency meeting of eu leaders in france. but officials say the plans will not be announced until after the german election. that coming up on february 23 this sunday in order to avoid stirring up controversy ahead of that. the threat of trade tensions looms large. overshadowing up the earnings season. corporate america on the other hand striking a cautionary great let's get a quick check on the markets and see what's priced and what isn't. futures moving in the u.s.. higher by 2/10 of 1%. to me all the action is in the fx market. euro-dollar at a 104 handle. it did have that 105 level early in the session. still comes back and pair some of those gains. lower by 1/10 of 1%. we will dive into the u.k. story as keir starmer make some big promises on the defense story and moving higher by six cents of 1% with geopolitical risk showing up in the precious metals trading.

a quick check on the european markets. i am in london so i have to do those markets a little bit of justice. stocks higher by 3/10 of 1%. ftse 100 on the back foot. lagging a little bit per we will talk to the details. the cac around unchanged at a moment. divergence putting france and germany. germany higher on the dax. a lot of that driven by the defense story bright let's get to the geopolitics driving that trade. emmanuel macron set to host an emergency meeting with eu members today. focused on ukraine's security as u.s. president trump pushes for the war to end. oliver crook has had a busy weekend catching up with the deputy had of ukraine president's office. >> we can say the united states is involved deeply in the process for president trump to ensure the piece that is reliable and stable so this will

not recur in one or two years after its completion now. kriti: oliver crook joins us now. you had a busy weekend over in munich. i want to get a sense from you what is the feeling on the ground. you are seeing these european leaders say now is the time to act. how believable is that? oliver: unfortunately it is what they have been saying since november when donald trump was elected president of the united states preyed everybody has been calling it a wake-up call for europe rate if this isn't europe woken up i don't know what it looks like when it is asleep. after this weekend, there has been a dispelling of this idea of weight in see. you might be able to work with trump or get optimistic and put a brave face on things. this is a turning point particular after the wrecking ball speech not even directed at the ideas of rebalancing the trade deficit in these economic

extraction ideas that the united states has been presenting to try and rebalance the economic relationship with europe. it was a direct attack in european mainstream politicians and that is something again for many of these leaders really concerns them about the idea about whether or not they still have the fundamental shared values with the administration in the united states. this is now again provoke the conversations for a number of months about if europe will be left on its own. it needs to get serious about it sort of defense and military. and if trump effectively none sony words if he wanted a seat of the table then you to have a military. until you don't -- until you have that you don't have a voice. they are now in paris have those discussions. i think you'll hear more in the abstract much more concretely from leaders about the possibility of joint borrowing for defense spending to try to get those numbers up because as it stands right now the

negotiation train is leaving the station and europe is stuck on the platform. kriti: it's a fabulous way to put it and an apt analogy. the u.s. is asking europe how peacekeepers should react, these are according to documents seen. the trump administration seeing what the security guarantees look like. what levers can they pull here. what does europe have to offer? oliver: we talked about these debts this trump debt question. seeing fiscal rules of the eu so you can potentially carve out military spending is not being subject to some of the stringent eu spending rules which is one of the things. the other is basically this idea of peacekeeping troops in ukraine. we heard from the defense secretary for the united states who was in brussels and a number of other countries saying basically the united states has zero appetite for peacekeeping troops in ukraine after either cease fire or peace agreement saying europe this is your show

you need to be serious about taking it over. the question will be will these european countries be willing to commit troops. we heard from the u.k., the first and the french have also talked about putting potentially troops in ukraine as part of the cease fire agreement. these would be peacekeeping troops parade, the germans get on board. the german officials i spoke to have been reticent to say anything about that but that was before this weekend where we had the wrecking ball speech in which it is impressing upon the europeans how alone they are. and how they need to get serious about these. i think this conversation will evolve. let's not forget the fact we also have an election in germany on sunday we will have a chancellor who is slightly more hawkish when it comes to the military efforts. the end likely next chancellor's talk of the delivery of his long-range missiles to ukraine saying they should be able to strike russia. it breaks from olaf scholz in a more dovish policy is concerned about escalation.

kriti: oliver crook following that geopolitical story. we thank you so much for the insight. it's talk about how the geopolitics reflects on markets. ben laidler head of equity strategy joins me. a pleasure to have you on the program. the market reaction is interesting because if we are going by the first trump administration playbook, geopolitical volatility equals caution, it equals selling off. in the few weeks we have had donald trump as president, it has meant the exact opposite. when you pull back on geopolitical volatility, sometimes -- somehow it means investment from governments in these regions. is that the right read or is it setting up for a market dislocation? >> i think markets priced in the trump trade and what they thought they were going to get back in the fourth quarter of last year.

seeing this big rotation out of tech in the u.s. out of last year's winners into the sort of smaller cheaper forgotten markets like emerging markets. that has needed just a little bit of relief. it's exactly what you've got so far this year. the trump bark has been louder than the bite. the bond yields of, down. the dollar has weakened off a little bit and that's given room for these markets to rally. so those are the top three performers this year and the sort of juggernauts of the u.s. in big tech rxo some of the worst performers. kriti: you use that word rotation. is this simply a kind of valuation trade. how sustainable is it. >> certainly six weeks into the year we've come off basically a decade of underperformance. it looks like a blip on the chart but i would not count it

out. we've been waiting for this for a long time. i think the fundamentals are there. we've come through the european earnings season where could be double that by the end of the year. the ecb still has a lot more to cut interest rates. maybe we've got a dividend coming out of ukraine. so you can deftly make the case that this does have legs. for europe you can also say for emerging markets earnings are fine, valuations are very cheap and they just got very small. and little bit of love goes a long way. >> how much does the currency impact the story. we've also seen strength, back. i'm curious about that narrative europe is cheap right now, of the euro is dropping to parity. that narrative, it is fading just a little bit. how much is a currency played to that case of europe right now.

>> i think that's right. as you know the weaker currency traditionally helps european corporate spread outside europe. stronger euro absolute does not help that. more broadly this international rally has been partly equity valuations are cheap but also the double discount because currencies have been very cheap as well print and we've seen this across the world we've also seen the euro rally as well. more route to run emerging markets. but this rally so far to your point has been at least as much about currencies it has about equities. >> that's on the broad index level as well. i want to get to the nitty-gritty of the currency level as well. we saw something in the trade that threw me for a little bit of a loop specifically some of the defense stocks. just stick with me here. were some of the stocks that had

american exposure traded at a higher rate than the ones that had just european exposure pacifically to defend space and in light of some of the conversations from the munich security conference and in advance. is exposure to the u.s. a good thing right now as a multinational company or a bad thing? ben: i don't think we want to be too hard on either side but this is a goldilocks scenario. i think the u.s. is fine. corporate's are growing 10%. maybe valuations are a bit high, but u.s. stocks are up, big tech is up. this is more about the rebalancing of this rally. and i think this is fundamentally healthy. really this has been a bit of a one leg in stool for the last two or three years. it's been about big tech. is now broadening out and this is fundamentally driven. the earnings are backing it up. i don't think this is europe

against the u.s. paid a thing every thing will go up. i think the e.m. in europe may well just leave this. -- lead this. kriti: you are tempting me here, you're so bullish on europe i think you might be the only one. what are you worried about then? >> the list is very long. this always remains a worry. we're worried about geopolitics, volatility is growing high. you may get complacent about the trump trade and tariffs. i do think ultimately this comes back to earnings. earnings are delivering trade valuations are very cheap. i do think you don't necessarily need good news you just need a low bit less bad news. i think that's what we will keep seeing. kriti: how much of the earnings though -- and they are delivering, but so much of that is coming out across two her for years post-pandemic of margin pressure.

see you are seeing that stabilize for a lot of these european companies. in the face of higher electricity costs. we had guests talk about how expensive it is to do business in germany and other parts of europe. there is now a risk with tariffs and the risk of russia that energy costs are about to get higher. where is the worry about that in terms of price into the market? ben: i would maybe take the other side of that. earnings are incredibly depressed in europe. that some of the lowest in the world. a little bit of relief goes a long way. european corporate's of a lot of debt. ecb is continuing to cut interest rates. we get a dividend out of ukraine. at the end of it i still think it's half full not half empty. given these very depressed valuations and margins, i do think the risk is on the upside. european earnings could be growing twice more than they did

by the end of the year. kriti: a final question on some of the bond markets because the can has been kicked down the road with the u.s. fiscal deficit and the ripple effect we may see in the treasury department. those same concerns are showing up in the u.k., france and germany. is the bond market more subject to volatility than the stock markets? ben: it certainly has been. even though equity volatility has certainly moved up. equity markets are still taking that in their stride, maybe because we have seen this rotation away from very long durations, which is at least hypothetically quite sensitive to the rising bond yields to the sort of cheaper goods in the world where the duration is shorter. you had lessons to what he to that. maybe not pushing that too far. i do think the bond market could ultimately pull us all to heal.

right now equities have shown that they've been more than able to put up with this increase in bond market volatility. kriti: we will see if those get close or far apart. we thank you so much. we will continue the conversation on geopolitics. i'm pleased to say angela stan and author joined the program. stick with us, this is bloomberg. ♪

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>> i will meet with russians, with only one russian guy, who is putin only after we have common plan with trump and we will sit with putin. only in this case i am ready to meet not in other compromises platforms. kriti: that was ukrainian president volodymyr zelenskyy speaking at the munich security conference. president trump confirming zelenskyy will be involved in preliminary talks to end the war. secretary of state marco rubio is in saudi arabia preparing for

those discussions. joining us is the senior fellow at the brookings institution. angela we can see your book on the screen at the moment. angela is one of the foremost voices on literally how putin foods the world so thank you for your time today. the narrative out of the munich security conference this weekend has simply been especially for the defense secretary of the u.s., that ukraine's prewar borders may not be in tact after these conversations. how credible is that pitch? angela: what you have the trump administration doing is adopting the plan for peace vladimir putin has. to tell the ukrainians they will have to accept the loss of all these territories and agree never to join nato and to say the u.s. will not support europeans if there is a follow-up on peacekeeping force

-- follow-up peacekeeping force is essentially to give in to everything russia wants. and ukraine gets nothing for this. it emerges as vulnerable as it was before the war began. kriti: there is a question here about where european stands in this. we got headlines on the bloomberg terminal to the trump administration is looking for ways the europeans can perhaps pick up some burdens shouldered by the u.s. and nato. what levers to the europeans have to pull here? angela: they do not have many, they have been excluded from these peace talks. general kellogg made that clear. on the other hand if the trump administration really wants them to police post cease fire border, i think they can -- they will have to demand more from the trump administration in terms of support without american support of the soldiers

this isn't going to work. kriti: let's lean into that idea here. it feels like as you say donald trump is putting forward a peace plan of dust that vladimir putin has carved out. does this pave the way for some sort of rehabilitation of russia in the global economy in the coming years? angela: of course it does. who has he been able to meet with? xi jinping, the north korean leader, the iranian leader. now the u.s. is telling him this is the end of your isolation. for anyone -- surely they understand concede the other side's maximum position before you even sit down with them. this legitimizes putin without him having to lift -- give anything up. i have not heard from the trump administration anything the russians will have to give up if they are indeed interested in coming to an agreement on this.

i personally believe they aren't. putin wants to meet with trump, this will be great for him. the stock market will probably do better. it doesn't mean he wants a peace deal. kriti: where then if we are talking about the rehabilitation of russia coming down the pipeline, where does europe fall into that at a time when we know the energy crisis is still kind of lingering in this part of the world and on top of that dealing with some fiscal handcuffs with defense spending. are there certain countries perhaps more vulnerable to that rehabilitation than others? angela: you already have the germans and other european countries talking about resuming imports of russian gas and russia hydrocarbons if there is a peace deal to make themselves less vulnerable to this. what we have to understand is the munich security conference is the beginning of the trump administration saying the u.s. is withdrawing from europe.

we are not interested in supporting europe anymore. for 80 years there's been a strong transatlantic alliance which is kept the soviet union and russia at bay. that does make europe very vulnerable to future russian designs of taking over other countries. kriti: before we get into perhaps the taking over of other countries. i want to zero into the germany aspect. this election this weekend in terms of the future leadership of germany on the fiscal basis. there is a mistake growth and some of the polls for the support for the afd which is -- which has long pushed for some rehabilitation of russia certainly not part of the country as well. how viable is that. are there other parts of the german economy that remain vulnerable to russia? angela: the german economy isn't doing well anyway at the moment. it was remarkable our vice president jd vance lectured the munich security conference and told the germans that they should have invited the afd

which is a neo-nazi party. they are the inheritors of the nazi party. they are anti-semitic, they are racist and they are very pro-russian. we think they will probably come second in these elections but they will not be in the government coalition. but still they have a rather important voice there. so i think we will see a germany after these elections hopefully with a coalition probably led by the christian democratic party if it is able to deal more effectively with the economy and with russia. kriti: you made a comment earlier which is there is potentially a plan to rehabilitate putin and russia coming down the pipeline. perhaps laying the groundwork for other countries to be taken over. looking back into history, some of the people criticize barack obama for mistake in 2014 with

the annexation of crimea and not cleaning a hard line on that. i've seen parallels this is that moment again when it comes to ukraine. let's say this peace deal goes through or the cease fire that of course i'll trump and is a nutritional putting forward. what happens next? are we looking at the baltics, the scandinavians, would we look next for those pressure points? angela: it depends on how much support the u.s. and europeans are able to give ukraine after this to deter russia. the key point is how do you deter russia from attacking ukraine again and then the russian army can recoup and attack ukraine again. we know putin wants to create a slavic state that consists of ukraine, belarus and russia. maybe even north because extend. if you look at -- north kazakhstan. if you look at what was seen a

couple months before the invasion began the talk about nato rolling back to where it was in 1997 before it began its eastern enlargement. i think we have to be very wary of that. what putin wants to do with president trump is have a bargain to agree russia has its sphere of influence and not only in the post-soviet space but also the former warsaw pact countries which includes poland. that's what he wants. kriti: certainly something we will keep a close eye on. thank you so much for joining the program. still ahead we will talk of the geopolitics in the economics and markets as well. a conversation with bill lee next. this is bloomberg. ♪

kriti: welcome back to bloomberg markets. i'm kriti gupta. let's get a quick check on the markets. president's day in the united states but futures are still trading. a little bit of movement in the currency market. 1.0476 dollar euro. gold is a outperforming asset, higher by half a percent, just shy of 2900. the stoxx 600 is actually in positive territory given all the geopolitics, risks we are

seeing, actually seeing outperformance in europe today. some of that may be light liquidity. the dax higher by almost 1%, perhaps the prospect of some investment from not only europe but the united states as well. in the meantime, europe and the u.s. trade dispute escalating. president trump saying that he will treat the european vat system like a terrorist. -- tariff. brendan murray joins us on the program. it was a very scary opinion column in the ft over the weekend from mario draghi himself saying forget about the united states, europe has put tariffs on themselves from 45% to 110% citing models from the imf.

these are things we have heard from donald trump as well, not just the tariff some of the nontariff barriers. what is the market needing to price and with reciprocal tariffs? >> it is really a rabbit hole when you go down trying to grasp what he is trying to talk about. the metric system is a tariff barrier if you are an american company trying to export to europe. it really opens up a pandora's box of trade measures that one country could consider to be a barrier, the other one considers it to be a standard or regulation. what we have seen in trump's first month in office is this rapidfire succession of tree announcements. if you are keeping track, 10% on china, 25% on canada and mexico come into effect march 4, steel and aluminum tariffs coming into effect march 12, auto tariffs,

april 2, and then the view in how he can have a reciprocal tariff regime. kriti: we often bring you want to talk about things like shipping costs, specifically around the red sea and other parts as well. in the first trump administration, we saw shipping costs reflect the tariff war. i feel like we are not seeing that to the same extent we did the last time around, what is the reason, complacency? brendan: it will take some time, it is the slow season for shipping right now, just got through the holidays. it is not clear whether we will see a pickup in demand tied to concern about tariffs stockpiling, reordering goods, parts, things like that. it is hard to tell right now whether the actual supply chain

system of shipping and trucks and trains, whether that is being disrupted, but that is what happened the first time around. we often forget because of the pandemic. 2018-2019 was a pretty disruptive period for american companies trying to avoid tariffs, get orders ahead of them. it is too early to say it we will see the same thing, but once more clarity comes on things like the steel tariffs, we will begin to see some of those disruptions. kriti: what is fascinating, we are talking about this at a time when the american economy is very resilient. the last trump administration, we were dealing with hikes from the federal reserve, a different economy. does the resilience you are seeing out of the consumer in the u.s. cushion the impact, is the timing perfect? brendan: there could be some of

that, and as you started your questions, there is some weakness in europe. there is a bit of a play there that you can see trump finds he has some leverage with europe. the american consumer seems to be on pretty good footing, the labor market is pretty solid, but there are very short memories back to the time when inflation was flaring up during the pandemic. it will not take much for companies to say, it is back, our supply networks are tight again, and we have to raise prices. we saw that before the pandemic. yet to see if it will happen again, but the pressure exists for it to happen. kriti: brendan murray, making sense of all the headlines. thank you. let's continue the conversation on the global economy story. william lee of the milken institute joins us now.

a pleasure to have you. we were talking about how this time might be different from the last time but the consensus seems to be the same for most of the economic community, the idea of this deglobalization will ultimately be inflationary and a pain for the american consumer. do you agree? bill: i don't actually. the natural reaction when you talk about tariffs, natural discussed, it will be the end of the world. we have to realize president trump is approaching tariffs very differently than before. in the first administration he was talking about bilateral trade deficits, getting trade imbalances in order. now he sees them as a very powerful tool for inducing people to come to the bargaining table and be serious about things. he put on tariffs to our closest trading partners, canada and mexico, steel and aluminum, and

said we need you to help shut down the border, the illegal immigration, illicit drugs coming through, and let's deal with the issues we have at hand. i want to produce more steel and aluminum in the united states, but i will do it by encouraging global investment. at davos, he gave a talk that invited every ceo to invest in the united states. he is telling everyone the united states is a great place to invest. let's invest in the sectors that we think are really important. and we are going to give you a tariff barrier to protect your investments here. if you want to compete with us and produce steel and aluminum abroad, you have to face a 25% tariff. but if you come here and produce, you will avoid those tariffs and you will have some tax subsidies as well. it's a negotiating tool to get a lot more done, including foreign

policy. kriti: let me push you on two fronts. on the investment front, we saw in the first trump administration, the example of softbank. they have promised investment into ai infrastructure. those promises were made in the first trump administration, not necessarily executed. what assurances do you have, that the promises of investments being made will actually be seen through from companies around the world doing so? bill: great point. one of the things we have to be careful about, it is very easy for ceos to develop a lot of promises and no execution. even when they execute, only part of what they promise. what president trump has done in the first administration is show that he is serious about the regulation. that is the biggest barrier to investment in the united states.

it is the regulations. this administration, he is going through a huge change in government. the biden administration put on more regulation and may government a more prominent factor in people's decision-making, but now president trump is making clear, he is trying to get rid of that source of interruption, the bureaucracy. with doge working to reduce the size of government, anti-regulatory pitch from the first era, ceos abroad will see that he is very serious about providing investors with a platform where the innovation is encouraged. kriti: i want to bring it back to joe biden. this idea of attracting investment to the united states, i agree with you that there is more emphasis on regulation under the biden administration,

but in every area other than the chip sector -- and they put an emphasis on that specifically because we know they gave out grants and subsidies to the folks that will invest and produce in the united states. until took advantage of that and the stock treated accordingly. why is that different from this? are subsidization's or grants more or less effective? bill: i think the use of grants are a dangerous way of doing industrial policy. that is essentially the government picking winners and losers. you want to create an environment where the rates of return are high by changing the environment itself. one of the things that people learn about is one thing called the lucas paradox. r rich countries are environments where the returns are the highest. that is only possible when you get the government out of the way.

i think the biden administration, that interruption really put a dent into the view that the united states is a source of high rates of return. the subsidies are a way of picking winners and losers. more often than not, governments pick losers rather than winners. not just the united states but singapore is a good example of a country that tried to build tsmc, failed, try to become a chemical hub, failed there. governments picking is not the right way to go. you have to create that environment of less regulation and lower taxes in order to encourage markets to find where the high investment opportunities are. kriti: i hear you on all of that, and you bring up the lucas paradox specifically. it makes me wonder, is the era of outsourcing, front-shoring

over, and can the american consumer up for that to be over? bill: i think we learned some of the vulnerabilities of globalization. you cannot have single sources of what a materials, whether pharmaceuticals or mass. the stuff you need in the united states to really bolster national defense, make life easier here, is to diversify supply chains. that has been the key to what is going on now. the use of tariffs is a way of diverting trade away from single sources to having multiple sources. the use of trade tariffs is a way of allowing diversification of supply chains. that is the thing that most economists are ignoring. we are trying to correct the distortions that are already there. you just had a segment talking about the huge number of tariff

and non-tariff distortions with europe. you can argue how large that amount is, but no one will say there is no distortion. by putting reciprocal tariffs, it's a way of leveling the playing field, or even better, getting people to come to the bargaining table and discuss what needs to change in order to have a more effective flow of capital to the right places. kriti: final question on the consumer then. then narrative around all of this is, no matter how good or game changing this is, ultimately the american consumer will face the brunt of this. in the face of some really strong economic resilience here, what is the straw that breaks the consumers back? bill: you touched on a very important point, something i have talked on bloomberg a number of times, the dual america. 60% of the population is living

paycheck-to-paycheck. the people who own stock market assets, pension assets, 20% of the population, they own 80% of the assets out there. that stratification of wealth is really a vulnerability in the u.s. economy that has to be addressed. the election of donald trump was a way of people expressing their discontent that life is not as good as the aggregate numbers show, that more and more people are saying i am barely making ends meet. having the industrial policy of diversifying supply chains is one way of saying i will try to improve the employment situation for americans, maximize the income and employment of american residents. that is a way of addressing the split and vulnerability in the consumer sector. kriti: bill lee of the milken

institute, thank you for your time. providing a bit of a contrarian perspective. coming up, we will talk about several of the factors that bill has talked about in regard to the trump administration, this time in the context of the german election. sitting down with german chancellor olaf scholz on trade regulations. this is bloomberg. ♪

kriti: this is bloomberg markets. i'm kriti gupta. europe is bracing for president trump's reciprocal tariffs. we spoke with chancellor olaf scholz on trade relations. >> i have to admit that i'm in

favor of free trade. i think this is a big advantage we have in the world. many of the world, is because of free trade. there must be free trade. free-trade is better than tariffs and protectionism. when it comes to the european union, everyone knows that we are a big economic area with a lot of strength. policy about tariffs is something that is common policy, so we have to be strong enough to everything that is harming the european economy. we should react always, but in a way that is offering the chance for an agreement. it is better for all parties involved, especially on both sides of the atlantic. >> is the european union considering cutting tariffs

before any announcement? >> we invite the united states to discuss with responsible authorities on what we can do for a better progress that serves all of us. there is a willingness. i am sure it is better if we agree to something that helps all of us. it is good to know that europe is strong enough to act and react. >> you talk about it being a common project but donald trump has made it clear he wants to do reciprocal tariffs, not a wto approach were all the rules are the same for all countries, and even with the european union, he may want a different tariff regime or france, italy, germany. what will you do then? there is nothing to stop the u.s. from doing that. >> it has common tariffs, we act

together, and we will stick together, which is also important. i am quite confident that a good solution is feasible, and everyone should work to make it happen. >> you spoke this morning very clearly about the need to increase defense spending to about 2% of gdp, suspending the debt break for that additional defense spending. but for many countries, it will also want to have joint debt issuance for europe as a whole enough to invest in defense. would you consider that? >> there are three things we can do in this very moment. the first is that we agree in germany that support of ukraine is something of an extra effort, so we should have extra room for maneuver, finding support for ukraine. when it comes to the figures, germany is doing the most, we are the biggest supporter of

ukraine in europe, second in the world, but we cannot pay for it with cutting of pension schemes, in the health sector, cuttings of investment into the streets, and so on. it is clear we have to do this. the second is, we have to agree how we will continue with the spending of more than 2% of our gdp for defense, which we achieved, because of an extra fund that i managed to get through the parliament. for the future, we need a new decision about this. continuing with this 2% plus, already 30 billion a year. also this will not work with tax increases or cuttings, spendings, different areas of

the german budget. when it comes to do more, which will obviously be necessary when we look at what nato is discussing, that especially means that we do something for these activities which gives germany the opportunity to spend more. this also has to do more with the reform of the debt regulation in germany. when it comes to europe, we should have every country, if it spends more than 2%, to not be hindered by the european regulation. we have a peace agreement, so this is feasible for a country to do it. kriti: german chancellor olaf scholz speaking to our own stephanie flanders. we are a week away from the german election. christopher wald joins us now.

there is so much at stake here and the polling has gone back and forth. in terms of the prospect of a coalition, who are we looking at to be the key players? christopher: the key players will probably be the front runners in the polls, the conservative opposition leader. since we just had olaf scholz on the program, the future role of the social democratic party will also be closely watched since the conservative leader, the block will need one more party to form a coalition and have a proper, robust voting majority in parliament. still remains to be seen, depends on the outcome of the election which we will find out more about on sunday evening. soon thereafter we will see some pretty intense talks to find out

who would actually be able to form a coalition and run germany as part of the next government. kriti: before speaking to you, we heard from olaf scholz talking about what the european response may actually be to the trade from the united states but also with the german response would be from this support offered to ukraine, missiles specifically. could you walk us through the policy changes in play for whoever murders the winner of the election? christoph: this will probably be one of the key talking points after the elections, since although schulz has been very reluctant, for example, to supply long-range missiles to ukraine. that is something that ukraine and quite a few of the european countries who also support ukraine have been calling for. schulz has been reluctant, the

opposition leader, and when you look at the polls, the front runner to become the next german chancellor have been much more open to consider. having said that, he said he would be willing in theory to provide missiles but also made it clear that any weapons delivery would be done in close contact with european allies. kriti: christoph rawald are joining us with the latest. thank you for joining us. looking forward to the german election, seeing you in a couple of days. talking about the policy changes on the geopolitical front. the debt break is also crucial, so keep your eyes on the german market. yields higher across the board, a reversal from what we saw earlier. some of that is the geopolitical readthrough. i would keep an eye on defense stocks. the reaction function is that

is where you will see some action. that does it for this hour. much more coming up next on bloomberg. ♪ eryaded? susan: where am i headed? am i just gonna take what the markets gives me? no. i can do some research. ya know, that's backed by j.p. morgan's leading strategists like us. when you want to invest with more confidence... the answer is j.p. morgan wealth management

kriti: it is 8:00 in new york, 1:00 in london. welcome to bloomberg markets. i'm kriti gupta in london. we have plenty to work through in the show. europe working to ramp up its support for kyiv as president trump pushes for a hasty end to the war in ukraine. president calling for an emergency meeting with eu leaders. trade tensions overshadowing and earnings season in europe. corporate america striking a cautionary tone. an xi jinping meeting with entrepreneurs including jack ma after deepseek debuts on wechat pay when the u.s. is closed at the moment. but futures are very much open, higher by .2%. 6144 is where we are on those contracts. euro-dollar at a 1.04 handle.

gold is the outperformer, higher by half a percent. trading around 2900 on precious metal. looking for geopolitical risk to be priced in, that is where you want to look at. let's take a look at the stoxx 600. quite a bit of movement there. the outperformer right now in europe is the dax, higher by 1%. a lot of this has to do with the defense story. where that actually comes from, fiscal restraints that comes from it, that is to be determined. for now, the market pricing this in as a good thing. let's go to the corporate striving the trade. french president emmanuel macron will be hosting leaders in an emergency meeting, focusing on support for kyiv as president trump pushes to an end to the war in ukraine. the french minister spoke with bloomberg earlier today. >> you have the european

stability mechanism where you have potential funds that could be redirected toward defense. we are also continuing our effort at the national level. in the face of this emergency, i think it is time to take historic decisions. the question of euro bonds is one of the mechanisms that we should be talking about i think in the coming days. kriti: joining us now for more is kevin whitelaw, our bureau chief in brussels. a pleasure to have you on the program. how believable are the steps being taken from european leaders? kevin: we are still getting a sense of it but the amount of confusion and drama it has really amped up. european leaders are reeling a little bit, i wake up call of what happened in munich, significant shifts of where the u.s. is under donald trump.

i think there is this recognition that even though they've been talking about the need to spend more on defense, really invest, it is not a year or two or three conversation, it is why are we doing it already conversation? the meeting in paris is the beginning of that, saying we need to take this not just from the theoretical to the real. that is where you are getting more conversations about joint spending, borrowing that will be necessary if the eu is going to make any kind of effort to replace some of what the u.s. may not be willing to do in the future. kriti: you read my mind, how much of this moves the needle on joint debt specifically in germany which has been long opposed to it, not to mention the country voting and elections this week, touch and go relationship of providing defense to ukraine? how much of this changes with all of this in mind? kevin: one of the reasons this

paris gathering today with leaders -- france has invited seven leaders including the u.k. -- will not be a particularly public event, not expecting any pronouncements out of it, because they need to get past the german election before they get there. some of that is understanding who will be in charge and also getting past this issue as an election issue. you have seen some german officials, the foreign minister talking about the possible need for this, which is quite the shift. we think there's a decent chance the conservative leader, who is likely to emerge in pole position to be chancellor, he may be more sympathetic to the idea than the current chancellor olaf scholz. kriti: there is a schism forming

perhaps more starkly in terms of some of the core european leaders like emmanuel macron, whoever takes olaf scholz's place, and some of the european leaders. comments from the slovenian president saying that this sends the wrong message. the hungarian foreign minister saying this is basically a gathering of pro-war, antidrug frustrated european leaders. we in stark contrast are supporting donald trump's efforts. much power and negotiating power do either side have, european leaders and also western leaders? kevin: the political situation in france and germany has been delicate and complicated for a while, part of why europe has been slow to deal with this. a number of decisions in the block require unanimity which gives hungary some leverage, so

there may be a need to come up with a coalition of the willingness, in particular with ukraine, defense spending more broadly. certainly some amount of frustration with some of the country left out of this configuration. front line closest to russia, some of who are spending on defense. paul it will be -- poland will be there but others will not be. there will be a formal eu summit in march where we do expect, if decisions have not been made, that will be a pivotal moment for the block in figuring out a way forward on this and just how seriously they will transform under pressure from the u.s., which has now made it clear that europe cannot take for granted

the full amount of protection that the u.s. has basically provided to the continent since the end of world war ii. kriti: a pivotal moment. kevin, i have lived here for two years, and i feel like you have felt like that for your tenure in germany. it is very much a part of the market trade this morning despite it being a holiday in the united states. european bond market, yields higher across the board. that was not the narrative this morning. a complete reversal in how that is being monitored, and what the readthrough may be. to make sense of the market movement, let's bring in james athey. what should the reaction function be in the bond market as we talk about more investment from european countries, potentially the united states on the back of this geopolitical

risk? james: good afternoon. you hit the nail on the head. it feels like we are in a very similar situation with respect to europe, it's fiscal rules, desire to spend more money than it has got. specifics change but reality is always the same. that is to say there are limitations at the european and national level, and it is politically expedient to ignore those in the short term. unfortunately, no credible efforts to resolve that challenge in the medium-term. i suspect that is what we will see again here. the bond market reaction is not surprising, led by germany, because they have had much more fiscal restraint than other countries largely because they have legislation that requires that. the cdu leader seems to be opening to a softening of the debt break temporarily.

the market thinks that higher spending, particularly higher defense spending, is likely to increase. kriti: talk about that reaction function from germany specifically, this removal of the debt break. the consensus is that is long overdue, but what does that do to issuance, yields, and what does that do to safety from the bund market to perhaps other places? james: i just think the nature of politics and the electorate there, predominant sense of conservatism with a small c, so while we see some move away from a hard limit, it will not suddenly munich abandoning fiscal restraint. they have constitutional restrictions that date back many years, we know why they exist. try to change that constitution

to allow for european issue was to become a permanent feature is very difficult indeed. of course, there is talk about moving in that direction but i don't think we will suddenly see germany lose its status as the benchmark, reference within the euro zone. kriti: perhaps not lose its status, but it is a slippery slope. you can understand where i'm coming from. european nations, perhaps a germany aside, have a track record of not being able to pass budgets, not being able to close their deficit, deal with those investment concerns. germany, because of the debt break, has been christian from some of those pressures. there is a slippery slope to keep in mind, especially given that germany only gets that safety status in the last 20 years, may be less than. but that in the context of the

outperformer that you are seeing in the periphery of europe, italy, spain, but what does that trade look like in the coming months? james: what we have seen is a germany has once again become the sick man of europe in terms of its cyclical performance. to a lesser degree, spain, although i would argue it is because of expansionary policy and population growth. but spain has been growing much more consistently, germany has been struggling, and that is why we see this continual narrowing, along with credit spreads. you get to an important point in all of this which is the long-term nature, the inherent paradox here. there are fiscal rules in place at the european level because this is a monetary union without fiscal union, which means it is inherently fragile. of course, northern european

nations, did not want, nor is it allowed to be on the hook of the debts of other nations. so you have these policies in place to prevent that from happening. the paradox here, in order to keep the euro zone together, to keep everyone happy, they have to do things that ultimately weaken it over the long-term. from an investment perspective, political perspective, often the case that we see the softening of those rules in the short-term but nobody really wants to deal with the challenges and fragility's that presents in the long term. this is just another step in that process which has been ongoing for some time. kriti: let's zoom out further, talking about the different countries in continental europe. talk about how all of this falls into the relative trade of europe and the u.k., specifically taking the u.k. out of europe. the currency readthrough of

euro-sterling, how does that show up in the assets you are dealing with? james: they are quite closely related, the volatility of euro-sterling is closer to sterling versus the dollar. our fortunes are inherently tied together even though we are outside the european union. ultimately, we have had a bearish of on both currencies relative to the dollar, but we have been lightening up that dollar position because there is some good news. we just felt there were some increasing risks to a clear out of the dollar, particularly around all the noise and volatility of president trump's policymaking. when push comes to shove, the european cyclical weaknesses on top of a fiscally weak situation, something inherently

different for them to deal with. that will always give us a bias toward preferment sterling versus the euro. kriti: that makes me think the opera performance we have seen in european equities, also seeing it in the euro as well, is a blip when it comes to the year to date performance. is that fair to say? james: that european versus u.s. equity trade, the dog that didn't bark. we had one year in 2017 when the european economy saw the upper performance generally versus the u.s., huge run-up in euro-dollar. being an export economy, that collapsed on the weight of its own predictions, and that it came back. ultimately this fits into a similar category. equity investors are looking to value, quite happy to play that divergence theme. i am sure european equities

looked very under owned coming into 2025. that is not the same as saying there is a lasting underperformance there. annualized performance looks rather technically driven and i struggle to see that being sustained for any length of time. kriti: james athey, a pleasure to have you on the program. doing a little tour around europe. coming up, continuing our tour around the world. china taking a big step to lawyer in the private sector -- lure in the private sector. this is bloomberg. ♪

♪ three little birds ♪ ♪ (steel drums playing lightly) ♪ (♪♪) (♪♪) (♪♪) (♪♪) (♪♪) (♪♪) kriti: this is bloomberg

markets. i'm kriti gupta in london. singapore defense minister says there is a level of unpredictability in geopolitics that he has not seen before. he sat down with francine lacqua at the sidelines of the munich security conference. >> talking with european leaders, everyone agrees that the peace process needs to begin. peace is a good idea for everyone. what is unsettled is the security guarantees for ukraine, how to make sure the aggression that russia showed is not repeated after the peace ensues. the impact on china, american policy has always been quote unquote china is a facing threat. in terms of this position of forces, the u.s. already pre-positioned more troops and

assets into asia, so that is really not different. >> can you give me a sense of how you are interpreting the latest comments, what we have heard about taiwan, the south china sea? >> i think neither u.s. nor china want to go to war over taiwan. the u.s. recognizes taiwan is a deep redline for china. we are in a better position i think compared to one or two years ago. the south china sea, you have to be careful. i think if heads hold on study, we agree on accommodation, hope that time will you the passage of both big powers, that is not a bad position. >> are you more optimistic or more pessimistic than you were three weeks ago after all the

current developments? >> it is certainly unpredictable. the biggest question on everyone's mind -- and these are from conversations i had with european leaders -- is how the u.s. has changed. in the 1960's, 1970's, even for europe and asia, the u.s. was portrayed as a liberator. whether it was against the nazi party, communism, other forces. now the u.s. is seen as a great disruptor. how do you come to terms with new conditions? there is certainly a level of unpredictability that has not been seen before, but one hopes that does not lead to instability. kriti: that was the singapore defense minister speaking at the munich security conference,

walking us through some of the red lines coming from china in the context of this geopolitical volatility. president xi jinping has met with several prominent business leaders including alibaba's jack ma, signaling more support for the private sector. joining us now is justina lee who have been following the story. who was at this private meeting? >> it really was a who's who of the chinese tech sector. you have the deepseek founder, executives from all the big chinese tech ceos. of course the focus is on jack ma from alibaba. he was kind of the poster child for china's private sector and tech crackdown. the fact that he is coming out of the woodwork's now, even appearing at this meeting, is a very strong sign that china has ended the chapter a

private-sector crackdown. now they feeling the need these entrepreneurs again in this period of slower economic growth. kriti: coming right off the heels of deepseek creating this phenomenon of china really is ahead of the game, not a this is a new phenomenon, but certainly a wake-up call for so many people. it has also been a bit of a catalyst to invest in china. how sustainable is that catalyst? justina: it feels like deepseek kind of came out of nowhere, and it's been a great story of a national champion for china, especially given the u.s. restrictions on chinese tech. it was the case that chinese innovation is still happening. that explains the degree of the tech rebound we are seeing in chinese stocks. i have been trying to coin the phrase, buy the deepseek, because chinese equities are so cheap at this point, investors

who may not have thought about chinese equities for a while are seeing this as a value story. kriti: the argument to by china is similar to that of europe, the valuations are so low, it is too cheap not to own in the face of this almost global equity rally we are seeing. what is interesting to me is the bid into china has almost thrown out the context, the idea that there are still geopolitical tensions, export controls. that is the concern around deepseek. are those concerned going to be priced into this, terrace from the united states, export controls on nvidia, what have you? justina: the great thing about the chinese tech story, it is relatively immune to all of those factors especially given deepseek's perceived efficiency, use of resources. you are right, when it comes to demographic concerns in china,

property market slow, those concerns have not been allayed. we could see a divert between those cyclical sectors and more of these growth names. kriti: how does that translate to europe? you and i are based in london. when we think about the fiscal crisis, the readthrough to european stocks, is this one area where the chinese tech sector doesn't have a clear readthrough into europe? justina: for europe, it is kind of tough. we talked about how europe doesn't have those big growth names, and i think that remains true. europe is a lot more cyclical and externally dependent. what people will be looking at is the macro indicators in china. we did see from january, the data in financing to pick up a little bit, so is that a sign that the demand for business

investment is improving in china? are we going to see more stimulus measures coming from china? kriti: something that we will be keeping a close eye on. justina lee with the china story and the readthrough into europe as well. coming up, we will dive into the politics a little bit more. lindsay galbreath from aberdeen will be joining the program. of course as we talk about this geopolitical environment and what needs to be priced in and out. you are seeing green across the screen in europe. futures in the u.s. higher by .2%. euro-dollar at 1.04. gold around 2900. this is bloomberg. ♪ the way i approach work post fatherhood, has really trying to understand the generation that we're building devices for. here in the comcast family, we're building an integrated in-home wifi solution for millions of families like my own. in the average household,

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kriti: welcome back to bloomberg markets. i'm kriti gupta in london.

let's get a quick check on markets. president's day in the united states, so markets are closed there, except for the futures picture. future contracts higher by .2%. euro-dollar seeing some weakness. 1.04. just shy of 2900 on the precious metal. looking for geopolitical risk, there it is in the gold price. stoxx 600 green on the screen but the outperformer is in germany where all the defense stocks are listed. the dax is higher by .9%. we also need to be pricing in the trade tariffs as well, and overhang despite the strong earnings picture. i want to go there next, as we are bracing for those reciprocal tariffs after president trump signed a directive to issue levies by a country by country basis.

a pleasure to have you on the program. for the global audience struggling to keep track of the news, what has been announced so far? >> so far, what we have implemented from the trump administration is 10% tariffs on all imports from china. and that goes on top of the existing 10% already in place on chinese imports. aside from that, several executive orders but these are for tariffs to come into enforcement later. for example, potentially 25% on all imports from mexico, imports from canada excluding energy, 10% on canadian energy imports. that could come back into play after being delayed by a month, could come back into play in early march. we also have an executive order on steel and aluminum, all

imports coming into enforcement in mid-march. potentially further down the line to be expanded to include even more products. aside from that, we have this big announcement from last week of potentially reciprocal tariffs. for now, that is in order, investigation into what that could look like, what can be targeted. kriti: these are some scary numbers. you just listed areas where those tariffs are. walk us through the repercussions of it, first on the american sumer, and then where else the -- consumer, and then where else the uncertainty shows up. rana: when we think about import terrace, we think about stagflationary risks, reductions in output and on the real side. that depends on what tariffs actually look like, how the trade partners will retaliate. so far in terms of china's

tariffs, the impact seems to be manageable. even higher tariffs were on the table until a month ago. also because this is the second wave of tariffs targeting china, so businesses are more able to adjust now. the other side of the impact also on the u.s. is the impact of the tariff uncertainty. even before we see the scale of tariffs potentially on the table, the uncertainty around tariff policy and the future tariff policy does have an impact, and we expect that to be potentially contractionary on output and trade, not just in the u.s. but globally. kriti: we will see what levers we can see from the europeans, china, india as well. thank you so much, rana.

let's continue the conversation on the global economy. lizzy galbraith from aberdeen joins us on the program. i am sure that you are having the same reaction that we had around these reciprocal tariffs, struggling to wrap our heads around what these numbers actually mean. your initial take on the situation? lizzy: i think what we are seeing so far, and it has only been four weeks of the trump presidency, so the volume and the speed with which the u.s. is changing policy on such a high number of areas is something in and of itself. what we are seeing at the moment is the u.s. administration trying to pursue multiple different names with its trade policy. some of those appeared to be more highly developed than others. there is still a high degree of uncertainty particularly in how this tariff policy will work, particularly with that nontariff

barrier element, how we will see that calculated. how is the u.s. going to try to rectify any issues that it identifies of that nature. particular questions on how that will function for the eu, for example, we are nontariff areas that trump has spoken about, his issues with vat, issues in the past. we have a lot of questions about how this will work. it certainly raises the risk, short-term uncertainty, until we start to get clarification after the first of april. kriti: fascinating as well because there was an interesting reaction over the weekend from mario draghi in the ft, saying that europe has basically put tariffs on itself, citing some models out of the imf. i am curious if the solution is indeed deregulation. is that when you are hearing from clients?

lizzy: it would be something nice to have, we have seen a level of frustration with the regulatory barriers over the last few years. even with this tariff announcement, it was something that was being brought up by eu leaders at davos this year, as well, so the idea that you need to look at improving competitiveness, try to focus more on growth, may be these regulatory hurdles come into that, i think i started to creep into the conversation even more. but there is the potential now with these nontariff elements coming into play, that you could have a greater incentive to look at some of those policy elements. kriti: walk us through the levers. we were talking about it with our own bloomberg economics analyst. the levers that china, india, europe can pull to deal with

these reciprocal tariffs. in the past we have seen levels of protectionism, export bans. what can other countries do in response? lizzy: we think most countries will operate on a wait and see policy, in part because they are not entirely sure how this will work on a case-by-case basis. we are not necessarily anticipating a huge amount of preemptive action, unless there are areas where countries have a high confidence level that they may be operating policies that are going to draw some attention. for example, we saw india take steps to signal its willingness to lower some tariff barriers. also quite keen to signal its cooperation with the u.s. administration on immigration as well. important to note that some of these issues may not be trade related but are nonetheless important signals.

one thing important to note, there will be on some of these issues a domestic trade-off to make. some of these tariff and nontariff barriers are in place because domestic interest groups political reasons plane to the domestic audience. so there will be a trade-off to some of these issues around, for example, agricultural access when it comes to india, food access when it comes to the eu. whether countries will be willing and able to make the concessions that the u.s. administration is looking for. i think it will probably be done on an issue by issue basis going forward. we absolutely are expecting concessions to be made but they may not be the full expectation that the u.s. administration currently has. kriti: that is what is happening certainly in the west. let's talk about what is happening east of london. a focus not just on regulation,

response from europe, but policy changes coming out of germany specifically. can you give us your read on the elections this weekend, the consequences on europe and the world? lizzy: but i think europe will certainly be looking for a return to a leadership role for germany going forward. he will be looking on to take on that role as everyone expects, if he takes on the role of chancellor following the selection. it will come down to the stability of this future coalition after next week. one thing that we are really focused on is how well the smaller parties do going into next week, whether or not you see one of those parties enter the bundestag or more. we think that will have an impact on the stability of the future coalition, therefore how much they can focus on

addressing the issues within the german economy and also european stability, as well, or liked his previous coalition has, focus on coalition management, keeping things together. we are watching what happens from those smaller parties as much as we are the headline numbers, as we see the results come through on sunday. kriti: you nailed it on that analysis. what is interesting about the german election, those smaller parties and coalitions as well, but the smaller parties are talking about a reframe in terms of the disposition to russia, almost three years out from the war in ukraine. i'm curious how much of that subject to energy policy, how much is related to the inflationary costs that europe is risking at the moment? lizzy: some of these parties are absolutely looking to really try

and take some political momentum from the cost of living increases in germany. looking to really signal some solutions they can see from looking at cheaper gas, for example, that they did get from russia in the past. we are skeptical, even if he saw a peace agreement in ukraine, that you would see the restoration of significant russian gas flows to europe. one option on the table that would have the ability of lowering gas prices and also improving u.s. ties, is to accept trump's suggestion that they import more lng from the u.s. there are alternatives on the table that don't necessarily hinge on going back to reliance on russia, but we are not necessarily anticipating that we see a restoration of significant reliance on russia. even in the event that you have

a stable restoration of peace in ukraine going forward. kriti: lizzy galbraith, political economist at abrdn, thank you for joining the program. she is talking about the defense story, investment story. it is being reflected in the markets. let's get a quick picture on european bonds. this morning, you saw a bid in bonds across the curve. seeing the opposite at the moment. this is interesting as we talk about the german election, removal of that that break, possibility of joint debt issuance from the european union, this will all show up. this is all as the ecb still may be cutting down the line. another place it will show up is in defense stocks. that will be crucial because the geopolitical risk is being interpreted as a positive for some of these defense companies. saab railing 13%.

bae systems here in the u.k. higher by 7.2%. green on the screen driving the dax, stoxx 600 outperformance this morning. i want to look at the cross accept picture -- asset picture. it is presidents' day in the u.s., but futures are trading. showing up in s&p futures as well. euro-dollar at 1.04. pound at 1.26. the strength is interesting given the weakness and volatility in europe. gold, speaking of safety, just about at 2900. diving into yet another place where germany's underperformance may be showing up, and that is in the car sector.

renaud reporting this week. talking about the fallout from the honda and nissan failed merger deal. this is bloomberg. ♪

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kriti: welcome to bloomberg markets. i'm kriti gupta in london. happy presidents' day to the folks in the states.

starbucks ceo brian nichols says the coffee john is well prepared for any changes due to coffee prices and tariffs. >> we have a presence all around the world, and the opportunity for growth around the world is really exciting. as i mentioned, in this region, talking about adding 500 stores over the next five years, which creates 5000 more jobs. that is true around the world. a couple weeks ago, i had the opportunity to be in asia, spent some time in our china market, japan market, south korean market, and the same thing i saw. terrific partners executing great customer experiences and tremendous opportunity to add more stores and get starbucks to more people. that is what we will continue to focus on. i'm excited about what the opportunity looks like you're in the middle east region, as well. >> a spanner being thrown into

the works, companies having to think about the possibility of tariffs. a lot of the components that you use, aluminum and coffee makers, those may be subject to tariffs. how are you think about the possibility, what are you doing to reinforce the supply chain in case these terrorists are imposed? >> truly a global operation, and the same is true for our supply chain. as environments change, laws change, our job is to figure out how to navigate success through all of that change. i think we have demonstrated over the history of starbucks we are pretty resilient when it comes to dealing with change. that will continue to be the case going forward. we have great people doing the right thing locally and we will continue to operate that way. however it changes, we don't make those decisions. all we have to figure out is how

to operate within the changing environment. i am confident in our brand that we will figure out how to do the navigating. >> i want to ask you about what the future looks like for your china business. cognizant you are in the middle east right now but we reported that starbucks was considering selling a stake in their china business. can you give us an update on how you see the outlook there? >> i had the opportunity to visit the market for the first time a couple weeks ago. what i was delighted to see was really terrific organization with great people focused on getting that business back on its front foot. providing people with the experiences that we know we are capable of. the competitive environment has changed dramatically over the last couple years. we have to figure out how to innovate accordingly, fix our architecture both from a product and price standpoint, but also stay on the front end of digital. and then how we go about growing.

the reality is, that market will keep on growing. 7000 stores. there will be many thousand more stores in china in the future. we have to find out the best way to grow in that market as well as funding the way to get the business back on its front foot, be a market leader in a new competitive environment. kriti: starbucks ceo brian niccol joining us. let's focus on renault, the french carmaker reporting earnings this week, one of the few european carmakers not to give a profit warning last year. joining us now is stefan nicola. never been more interested in renault than the last couple of weeks. i want to start with the news around the honda-nissan merger. we know that renault has a stake. there was a hope that consolidation in the auto sector was just one renault needed. now what happens, now that the

merger has fallen apart? what do you think renault's response to that actually is? >> that is the big question, of course. we have to keep in mind, renault was not all that pleased with the potential deal between honda and nissan. we reported at bloomberg, the way this potential deal was structured was not really to renault's liking, too much control for honda, and renault wanted a premium for giving up control in nissan, a long time partner. what we know from inside renault, they really want nissan to be a stronger company, wants that alliance that they still have to be strong. with which partner that will happen, that is the big question. it is clear that nissan needs a partner and needs to scale to really be successful in the

business down the road. kriti: we are not just seeing this in honda and nissan in terms of the auto sector basically falling apart, not able to find the consumer. you see that in the states with ford and gm, here in europe with bmw and mercedes and others. walk me through the idea of what the cure is to this almost locked sustaining ground in profits, what does the european auto sector need? stefan: first and foremost, they need good products. they need some stimulus for growth. the european car market is still not back to where it was before the pandemic, so sales are just not there. ev sales are faltering as well. subsidies in some countries have disappeared, which is why a lot of european carmakers are struggling. on top of that, really tough

competition from chinese carmakers in china, but also coming into europe slowly. also the cost base for european automakers is still high. lots of changes needed for european carmakers. in the end, if you have good cars, people will buy it. kriti: a couple days away from the german election. the struggling auto industry has not only been the achilles heel of the german economy but a voting issue, as well. any policy changes expected for the car sector? stefan: the car sector certainly wants help to get out of the doldrums. auto executives here in germany have complained that ev subsidies have been removed unexpectedly, that happened at the end of 2023, and the german ev market has cratered as a result. the industry hopes for ev

subsidies, a return for economic stimulus. they want more spending so that the economy can grow as a whole. and they want the removal of redtape, bureaucracy. that is a lot of the pain points. also energy prices. in germany, europe as a whole, energy prices are three to four times higher than in the u.s., for example. a lot of things the government can address but we will have to wait and see what kind of government we will get after the elections. kriti: i have heard the german auto sector basically compared to detroit in the 1970's, not the exact comparison of people are shooting for. stephan nicola, thank you for joining the program. futures are of course higher. green on the screen in terms of europe.

gold continuing to rally. that does it for me. program coinues. this is bloomberg. ♪

>> welcome to "bloomberg markets ." i'm lizzy burden. we are watching several major news stories unfolding across the united states kingdom and europe -- united kingdom and europe. emmanuel macron is hosting a meeting today with multiple countries on the fence and security. several other leaders not invited from nato and the european union. we have an interview with the

bank governor, andrew bailey, warning today that the u.k. economy is still static, pouring cold water over those strong figures from 2024. it's presidents' day, so equity and bond markets are closed in the u.s., but we are taking you all the way to the european close and what a session it has been. a rally for european defense stocks after the opec transatlantic relations over the weekend, the u.s. pushing europe to step up on defense. really on a tear today. pushing yields higher across european bonds, pushing european banks higher, the benchmark 10 year bond yield at 2.48%. euro-dollar, a touch weaker. after a beat on japanese gdp, it kept the boj on track for more

height. we are not short on catalysts in here to make it all down for me is ben from invesco. good to have you back. it's not like there's nothing happening today, right? [laughter] european defense stocks are an absolute tear today. do you see that continuing when the u.s. really puts the pressure on europe to defend itself? ben: it's another one of those sort of incidents where in hindsight it seems to make a lot of sense and seems to be well trailed. that this is the direction of travel for them. what happens, obviously the markets have a reaction that is priced in and ultimately we think that the collection of the events are a positive news story for europe. anything that moves us closer towards energy security,

suppliers, or indeed antagonism here that would encourage them to deal with the u.s. in terms of energy supply, these are the things we think could support european equities. defense stocks, i think, that's a reasonable reaction. in terms of that persistent outperformance, you know, i think that on a longer-term view , we see things like financials being the better trade at this moment. lizzy: that's interesting. european socks acting better today, with u.s. equities seeming complacent about the tariff story. do you agree with that analysis? is that it, they are not taking them seriously? oh ben: complacent might be generous, they are up this year. but i think, again, own is not

necessarily a surprise. in the moment it all seemed quite dramatic. we did talk firmly about applying the tariffs. as they were applied you got reactions on the day, but because the market was somewhat prepared for this, we are also seeing confusion over the purpose of the tariffs. is it a shield to put a wall up or are they trying to negotiate something? on balance it looks like they are trying to negotiate trade deals with other political border type security deals. people or illegal drugs. trump, bluffing? hard to bluff if you've got such a good hand. i think the motivation is to get deals done in the u.s. had a strong hand, so maybe the market isn't being so complacent to

this news flow. perhaps the market reaction has been reasonable. lizzy: on the other end of his negotiations is europe. here in germany of course there is the election coming up. i wonder if you are worried that the dax is going to fall off of a cliff, if they don't get the coalition to deliver market friendly reforms, or if that coalition isn't able to be formed immediately? ben: probably not as worried about falling off a cliff, but i think the market is hopeful of a coalition. lizzy: too hopeful, maybe? ben: well, no, well, could be, given the results, fiscal generosity in the debt burden being where it is, i think the markets could be disappointed, but there are other positives out there for europe. a deal between europe in the u.s. is quite achievable given a

commitment to defense spending and the energy supply that europe needs from the europe. -- the u.s., and i think there are other positives of draw upon. lizzy: is that the thinking, that if europe gives on defense, trump will get back on tariffs? ben: yes, i think so. i don't think that is too alien from his strategy so far. as i say, i think the u.s. has quite a strong hand and could therefore achieve some deals, but it isn't actually obvious how much they need to achieve in the deals for trump to sort of spin it as a fabulous win, you know? not to be cynical about it, i'm sure he wants to get good deals, but any sort of commitment to increased defense spending and buying more u.s. energy, i think, could be laid out is a fabulous victory for his administration. lizzy: i also want to get your

take on china. goldman, re-rating it today. part of what's boosting the european stocks in general is this meeting between president xi and jack ma. do you take it as a symbol that the official chinese crackdown has come to an end or is that too optimistic? ben: it seemed to me that there was a sort of regulatory certainty in the tech sector. a constant sort of wave of types of regulation hitting that part of the market. then this sort of commitment that this was it now, we had done timing the regulation, yet the sector came under a reasonable amount of pressure, not least of which given the lack of confidence in the chinese consumer as it related to their weak housing market. but with valuations under such strain, you know, signals like

that are really, really helpful and can generate sort of positive reaction. but really, just sort of still cautious. this hasn't resolved the chinese consumer confidence issue based on investor nervousness without a chinese consumer willing to really unleash their savings. it's hard to get very positive there and what you need is a greater commitment to supporting the real estate sector. you might be seeing something of a bottoming there, but not throughout. so, alert to it, but not banging on the table about that, shall we say. lizzy: we like the new table. [laughter] the thanks for coming in and sitting next to me around it, then, from invesco, always good to talk to you. coming up, we will get to the emmanuel macron emergency meeting that he is hosting this afternoon with european leaders, talking about ukraine and

regional security. some nations did not get the invite. how offended are they and what does it mean for unity on the continent? donald trump this weekend having spoken about ukraine and zielinski's role in the talks. we will discuss all of that, next. this is bloomberg. ♪ >> we are working hard. trying to get peace. it's a war that should never have started. >> do you expect volodymyr zelenskyy to be involved in the conversations? >> he will be. yes.

lizzy: welcome back to "bloomberg markets." the french president, emmanuel macron, will be hosting a meeting in paris this afternoon to discuss defense for ukraine. we can go now to brussels, where kevin has been covering it all for us. our brussels euro chief. hello, kevin. what do these leaders need to agree on in order to keep trump on side? or is that even the aim at this point? do they just need to do agree on a figure for defense spending meaning that they can defend

themselves without the help of the u.s.? kevin: i think it's a bit of both and as the events of the past few days of make clear, they need to not only increased defense spending, but they have to do it fast and in the big way and up until now they were not talking about mechanisms to move the needle any time soon. the conversation turns quickly to whether or not europe is ready to support joint spending and debt following to make a fundamental difference on their ability to, you know, help ukraine and defend themselves. that is where the conversation is, but it's still in the early days. this meeting in paris is macron inviting seven other leaders, including the u.k., it's not all the european union leaders by any stretch. it's a preliminary conversation with no conclusions coming from it and one of the main reasons

is germany, arguably one of the most important decision-makers on this, has an election on sunday. lizzy: does the fact that these leaders have been excluded show that trump and putin have already managed to break up european unity? kevin: i wouldn't go that far. we aren't there yet. there is definitely some frustration because of the imagery being a little awkward. but for the most part, you have most of the european union eager to figure out how to do this. they understand they need to spend more money on defense, both because they need it for themselves and as they now understand, the u.s., it may not be something that they can count on in the long run to defend europe. i do think that there is some understanding that these bigger countries have to get on board. to the degree that some decisions in the european union

require unanimity, you have outliers, particularly hungary, that are in a very different position. you have seen strong words from the hungarians coming out today where they say they are with trump on this one and we think he has got the right policy. so, they may need to come up with some creative approaches where they don't necessarily have to get the full unanimous support of the european union, but work within coalitions of the willing within europe to go and try to pursue something that can help both defend the continent itself but also potentially ukraine, if there is some kind of a peace deal that does materialize. lizzy: nothing happens fast in europe, as you alluded to, kevin, in such contrast to what's coming out of the white house day by day. kevin, thank you for the analysis. kevin mentioned that a part of the delay is of course we are waiting for the german election. there is so much political

uncertainty ahead of that boat, isn't there? the german chancellor weighed in on the challenges facing his nation, he spoke exclusively to stephanie flanders, her head of economics and government. >> first, i have to admit that i'm am in favor of free trade. i think that this is a big advantage that we have in the world, that many in the world, much of what we have in the world is because of free trade, so it must be fair and free, but it is better than tariffs and protectionism. i don't think that this will work. when it comes to the european union, i think everyone knows we are a big economic area with a lot of strength where policy around tariffs is something that is common and we are strong enough to react to everything that is harming the european economy.

but we should, we should react always, but in a way that is always offering the chance for an agreement, because it is better for all, for all parties involved. especially on both sides of the atlantic. >> is there consideration for cutting terrace before any announcement on cars? >> i would like the united states to discuss with the united states to discuss with responsible authorities about a better progress for all of us. there is a willingness. so, i'm sure. it's better if we agree to something that helps all of us. and it is good to know that europe is strong enough to act and react. >> you talk about it being a common project, but donald trump has made it clear that he wants reciprocal tariffs, not a wto approach with the same rules for

the same countries, and even with the european union he might want a different tariff regime for france, italy, and germany. what would you do there? >> the european union is a unified economy. >> there is nothing to stop the u.s. from doing that. >> we may act together and stick together, which i think is also important. so, i am quite confident that a good solution is feasible and that everyone should work to make it happen. >> this motoring you spoke clearly about what you need to do to increase defense spending above 2% of gdp, suspending the debt break for that additional defense spending. but for many countries, they will want to have joint debt -- a joint debt issuance for europe as a whole. would you consider that, given everything that has happened? >> i think that there are three things we can do in this moment.

first, in germany we agree that supporting ukraine is something of an extraordinary effort, so we should have extra room for financing the support to ukraine , which when it comes to the figures, germany is doing at the most. we are their biggest supporter in europe, second biggest in the world. this has to continue. but we cannot pay for it with the cuttings in the pension schemes or the health sector, cuttings in the investment into streets and railways and so on. so, i think it's clear that we have to do this. second, we have to agree how we would continue with the spending of more than 2% of our gdp for defense, which we achieved because of an extra fund that i managed to get from the parliament. but for the future, we need a

new decision about this. this is for continuing with the 2%, plus already 30 billion a year. so also, this will not work with tax increases or cuttings and spendings in those different areas of the german budget. and when it comes to do more, which obviously would be necessary when we look at what nato is discussing, it especially means that we do something for this, these activities that give germany the opportunity to spend even more. it also has to do with debt regulation and germany. when it comes to europe, i think we should have every country, if it spends more than 2%, to be not hindered by the european regulations. >> changing stability?

>> we have had disagreements about whether it's feasible for a country to do. lizzy: that was stephanie flanders speaking to olaf scholz, who may not be the chancellor by this time next week if the polls are correct. we will be discussing the german election implications for the market and ukraine on tariffs. our bloomberg opinion columnist is next, don't miss that conversation. this is bloomberg. ♪

lizzy: welcome back to "bloomberg markets," i'm lizzy burden here in london. european stocks this afternoon really had a solid start to the year, but is it going to hold up in mid -- amid the ukraine talks and tariff threats? mark joins me now 2 -- marcus joins me now to discuss. european stocks are clawing back a gap with american equities. how much does the prospect of peace and ukraine help that? marcus: they can look at it two ways. surely a big negative over

europe, the crimean war, so it's got to be good. with a lot of underperforming european stocks. however, there are two chips that are just as overpriced as u.s. tech stocks, so it's tricky. if you look at the chart between the stoxx 600 in the s&p 500, what's been going on since the summer, when the u.s. massively outperformed, that's not really ukraine driven like why didn't europe follow, it's much more of a tech outperformance story, really. nonetheless, broadly you have to look at european stocks, particularly at the big swing factor of u.s. funds suddenly getting bored of being overweight in their own domestic market and they look for alternatives that could be much happier in europe than other places. lizzy: in terms of infrastructure, is it really safe to bet on that, yet?

many criticized trump for capitulating to putin, so maybe we see an expansion of this war? marcus: yeah, this isn't going to be straightforward. nonetheless, clearing those cash flows if you get some form of proper cease fire leading to a rebuilding of ukraine, in world bank records that would be close to half of a trillion dollars, probably more. yes, there is a lot of very happy looking expectant companies in the u.s., clearly the military manufacturers would be helpful. and in the u.k. but europe will take as much as they can. lizzy: i do recommend a reading of marcus' call him today, find it by going to opi and go on the terminal. the likes of multiples are up this morning.

rheinmetall is at 9.7 percent, currently, and we continue the geopolitical conversation, next, with tariffs around the globe from jennifer early. stay tuned with us for that. this is bloomberg. ♪

lizzy: welcome back to "bloomberg markets." i'm lizzy burden in london. let's get a check on these markets. it is president's day, i should mention, it's a holiday when it comes to u.s. cash equity bond markets. energy and metals as well are trading until 2:30 p.m. eastern time with an early close, and it doesn't matter, we have got all of the action happening on european equities. stoxx 600 boosted higher by defense stocks, .4 percent, pushing european yields higher

because of the expectation that european governments are going to have to respond to the trump pressure and spend more on their own defense. the yield move pushed european banks higher. you have got the 10 year benchmark bond yield higher at 2.4 8%. the euro-dollar is a touch weaker. we have seen some strength in the yen off of the back of the beat on japanese gdp, keeping hopes alive that the bank of japan is going to do more hikes. we could just have a look more closely at defense stocks, as i say. many benefiting from all of the action at the munich security conference and its aftermath. rheinmetall up 9.9 percent. saab, 15.2% off of these moves. we knew that it would happen at some stage, but still, this reaction in these stocks, we have leaders in europe discussing the path ahead for

ukraine and what they could do for defense spending. we won't get the numbers until after the german election, but the sentiment is very much there. one major market risk that has remained consistent since trump took office is the threat of tariffs. michael martin spoke to bloomberg this weekend on how important free-trade is for the nation and how tariffs could have consequences to really long-standing trade relations. >> free-trade for ireland is a tide that has lifted all boats and we believe that free-trade generally has led to the greatest victories in the world in the last 50 years. we have concerns. we understand the issues. services are quite small and we need to be careful not to upset the rhythm of what's in the relationship. lizzy: let's get some contacts

now, from jennifer lee, over at bmo. good to have you back. i want to talk about tariffs and really the checks and balances on the trump tariff policy. is it that inflation in his eye on the markets? his eye on the 10-year yield? does that mean that trump won't go as far as some fear when it comes to the tariff threats? jennifer: good afternoon, thank you so much again for having me on. i don't know what the endgame is, it's the big question about what he ultimately wants besides bringing production and jobs back into the u.s., even though they are all -- already at practically full employment. it's all a big question coming at a time by the way where we have had roughly two full years of almost 3% growth in the u.s., even with the fed tightening. now things are slowing down a bit, consumer confidence is

slowing down over fear of higher prices. we saw that in the january cpi last week, which was a bit of an eyebrow raiser. growth will start to slow a bit over the course of this year. we have roughly two perp -- 2.5% growth penciled in for 2025 and the fed will be of course sitting on the sidelines waiting to see how things will play out. so, we don't look for that until september or so. lizzy: are you sure the next move is going to be a cut? with all of the mixed signals from the data, can you be confident of it? jennifer: i'm never 100% confident, i will tell you that much. i was half joking in our group, are we talking about a cut or a hike? but that was of course just one figure, we saw this last year as well. the fed is not going to look at only one cpi report, they will

have to look at a series and usually the numbers are three or four months and data. might be too much at this point, but it will depend on if the tariffs are really going to kick in, at what level and on who, which countries, and how long will they be staying there before they are finally lifted and what will it take to have them lifted? it's a huge question. every bank around the world is going to be super cautious about what they do going forward. lizzy: central banks, on the receiving end of the trump threats are europe. there was animosity at the security conference over the weekend. are you expecting the ecb to have to be more dovish to respond to that threat to growth because of those tariffs? oh jennifer: we had three more rate cuts coming, four in total this year with the language being very cautious. we don't see them moving every single meeting.

we do have a march 6 rate cut penciled in. everything will be, to use that tiring phrase, it's still very data-dependent right now and will be a meeting by meeting basis. even the central banker from moscow questioned the tariffs raising and heating up inflation. oh there are a lot of mixed views on the tariffs playing out effect. we do look for the ecb to continue cutting rates this year . probably a couple more times. they have their own issues with the revisions coming from the budget. we will see how that plays out. broadly speaking we are looking at getting probably more cutting than hiking, i guess, unless you look at the bank of japan, around the world this year. lizzy: i am curious how you

interpret the u.k. economy. we've got the data coming in this weekend it seems like we've got week growth in the euro zone, but not the low rates like the ecb. yet you have the likes of megan greene warning that inflation is not going to go away on its own and do you think that the rates of the bank of england are too restrictive? jennifer: there are quite restrictive right now, they were slower on cutting versus everybody else. that was because of sticky wages and we are still seeing that. that q4 increase was an eyebrow razor for everyone, including myself. again, we are already seeing some of the impact on the moves from the budget with the higher income taxes at national insurance contributions. businesses have cut back not only on their jobs, but i think there was a survey this morning saying that a quarter of this,

they say they will start producing jobs. at some point it will start to have two great lower rates move quicker. but again, everything is going to depend on how things play out with tariffs. lizzy: interesting, because we have a report that says we won't see that avalanche of reductions . do you think it's in the pipeline, it's going to come but hasn't happened yet? or maybe ceos were just too loud in their warnings about tax hikes aimed at them? jennifer: neck to be correct as well, that's a good point. for any business, when your costs start to ramp up, you have to cut back at some point. depending on the employment levels. but we have to see all the surveys, right? obviously current stats are being questioned for their

accuracy as well if you have to look at every survey and whether they are going to talk their walk with their threats of cutting back on employment levels. we will probably see that playing out in the next few months. lizzy: going back to the discussion of peace in ukraine, jennifer, european leaders are speaking today in paris. where does it leave europe? would you expect a stronger euro, even if the piece isn't what volodymyr zelenskyy would have hoped for? jennifer: any kind of peace will be good news and a positive for the euro and as you pointed out, it depends on how it comes about, what kinds of deals are made, whether or not europe will be brought into the discussions. that's been the interesting development around the business guideline right now. with these discussions today, we will see more about whether or

not they will be stepping up and included in those peace talks. i think that any kind of peace, it's a positive for the euro. lizzy: ok, jennifer lee, thank you as we keep an eye on those talks happening in paris on the future of the war in ukraine. coming up, heading to washington and more on what's coming out of the white house with regards to tariffs. do stay with us, this is bloomberg. ♪ i'm thinking... (speaking to self) about our honeymoon. what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment... ...on a ranch ...in montana ...with horses let's take a look at those scenarios. j.p. morgan wealth management has advisors in chase branches and tools, like wealth plan to keep you on track. when you're planning for it all... the answer is j.p. morgan wealth management.

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lizzy: welcome back to "bloomberg markets." it's 2:43 p.m. here in london and global markets are bracing for the trump reciprocal tariffs after

signing a directive to them on a country by country basis. tyler, so much to unpack with you. i really want to get the washington perspective on how the tariffs story lines up with the defense story we are hearing here in paris, as we have european leaders meeting. do you think that trump is going to ease off on his terrorist threats if they concede on defense spending in ukraine? tyler: that's one of the biggest questions as trump has said not to expect allies or adversaries to be treated differently. when it comes to the european union he was asked about the potential for retaliatory tariffs and he told reporters that he doesn't mind, that ultimately if there are retaliatory impacts or threats, the u.s. will take this into account when they make their calculations. when we talk about those

calculations, what's critical for europe as he said when it comes to reciprocal tariffs, they won't take into effect standard rates and schedules, but what the right house -- white house calls nontariff barriers, ip protections, and of course value-added tax. trump has really singled that out and blamed it for what has become a growing deficit between the u.s. and eu, last year census data showed that it hit 200 $36 billion. where we go from here remains to be seen, what sorts of negotiations can get done. as we have been covering all morning, the german chancellor olaf scholz sat down with stephanie flanders, saying that the u.s. has been invited to the table to avert a trade war but at this point we have not gotten any indications from the white house that they have accepted or started a negotiation process. lizzy: i'm curious, what is the reaction to the policy on europe -- on ukraine?

is it a capitulation to boudin or a relief that he is focusing on domestic issues in the u.s.? tyler: of course, trump had that phone call with vladimir putin last weekend it sent reverberations around washington, it is considered a reversal in u.s. policy compared to the last administration that often opted against direct u.s. russia contact in favor of letting ukraine take the lead. trump over the weekend did confirm this verbal affirmation that we heard from the administration that ukraine will be involved in the peace talks going forward. but it really is, when we talk about increased supplemental security assistance to ukraine, an issue that has often divided particularly the republican conference in washington with trump confirming over the weekend that he would be open to europe buying additional weapons from the u.s. to send them to ukraine if we get to a place where the u.s. is no longer supplying the country. that is critical and there is an

important context of that because often one of the bipartisan areas when it comes to domestic and foreign policy angles coming together is that a need for weapons from ukraine has helped to boost the u.s. domestic ukraine industrial base, spurring the country's manufacturing, giving us insight into how they are still thinking about this additional supplemental security that could take the bulk of buying those weapons from the u.s. to do so. lizzy: briefly, as we have the u.s. russia meeting happening, what are the goals going into that? we have allies in europe saying that an eastern sea phot -- cease fire is too ambitious. tyler: we know that the u.s. has put forward key envoys for discussing these negotiations, including marco rubio and steven witkoff. we will have to ultimately see how the negotiations play out.

this is considered to be the first phase of what will ultimately be a broader discussion as we learn more about what trump gleaned from his conversation with vladimir putin. lizzy: ok, that's tyler kendall with the view from d.c. thank you for the update on the tariff threats, on the ukraine story, fast developing as it is. in the last few minutes we heard from the philadelphia fed president, patrick harker, who said policy is well-positioned. we will stay with the central banking story and bring it closer to home with andrew bailey saying the u.k. economy has been quite static since last year, so we are bringing you all the central banks, coming up next. this is bloomberg. ♪

lizzy: welcome back to "bloomberg markets." i'm lizzy burden. u.s. markets are taking a break for presidents' day, but we can dive into the u.k. story now, it's a busy week when it comes to economic data. we just had word from the bank of england governor, saying it still static despite stronger-than-expected gdp numbers for the end of 2024. for more analysis, i'm joined by philip, or senior reporter covering the u.k. economy. andrew bailey has been pouring water on those exciting gdp numbers. is that him showing sympathy with catherine mann, the arch hawk turned arch dove on the committee who wanted that jumbo cut in the decision?

>> i'm not sure, her stance was quite unusual from being such a hawk to joining the doves. but yeah, the break was expecting a contraction in the fourth quarter. we got slight growth. the fact that he is basically talking it down is striking. i mean, descriptively it's pretty accurate. if you look at what has happened to the economy since the second quarter, where we basically went nowhere. if you dove into the data on a gdp per hit basis, that's still completely flatlined, it's not doing anything. the private sector, the market economy on its own is technically in recession. that's done the heavy lifting since labour came to power and the private sector struggled. it fits the narrative of the

poor sentiment since the tax rises. they've been picking up the strain, pay rises for example, earlier. how do you expect that to fit into the bank of england feeling? they had talked about a softening labor market? the forecasts had been on higher employment and prices and this was related to the increase in the national living wage and the tax on employers. the jobs data is not entirely reliable. actually, every time it's brought up, andrew bailey has something miserable to say about it or suggest about it. yeah, i think the wage numbers are going to be quite important, that is obviously going to be

critical to the stickiness of inflation and actually, the bank agents and decision-making on those reports that they produce in-house show that they think that wages are going to be remarkably, you know, much higher than they had hoped, causing more inflationary push. yeah, the unemployment numbers are what people will be looking at, but i think because of the unreliability of these data points it's going to be more about the wage stuff. you know, those ring doorbells are stopping people from answering the survey questions. i was just speaking with jennifer lee, your team has a story on the terminal about a spike in redundancies happening after the october budget. when you speak to economists who say it's coming, but it hasn't happened yet, or ceos were exaggerating when they warned about it?

we have had same beat -- sainsbury's and retailers say that they were laying off quite a lot of jobs. remember, the knicks hasn't taken effect yet. the payroll tax rise started in april, right? obviously, people are anticipating things getting worse. it's really interesting, that piece, people should have a look at it on the terminal. it basically shows that compared to the same time in the previous year, we had less redundancy. these are notifications of redundancy. 20 people, if you have to get rid of 20 or more for the notification of redundancy to be made, it may be that the smaller companies will feel it more acutely and will be sacking less than or making it redundant less than 20, showing up in the data, there is that caveat and it's intriguing that there has been more noise about redundancy

regarding that activity. really interesting, philip, covering the u.k. economy as we look ahead to those labor market figures coming out tomorrow at 7 a.m. london time continuing the conversation next with a credit check, mark doubting has plenty of news on the u.k., sprinting to remain near historic type. possible stress ahead? we discuss that with mark, next, as we look at the stoxx 600 higher half of 1% -- higher by half of 1%. rheinmetall is still up more than 10%. saab is up 15.1%. that conversation, coming up next.

lizzy: welcome to "bloomberg markets." good morning if you are stateside, good afternoon here in europe. several major stories unfolding across the globe. first, european leaders right now are arriving in paris for an emergency meeting to devote -- discuss defense and security across the region. you can see them there. oil markets remaining too

fragile to revive production now. those are just some of the headlines today. first, let's check in on these markets. president's day, stateside. cash equity markets are closed, rates are open until 1 p.m. eastern with energy and metals trading until 2:30 p.m. eastern here in europe we can take you to the close of the trade. we have a real session on our hands here, shall we say. the stoxx 600 is higher, european defense stocks are on a tear. we can go to the latest in europe now with kevin whitelaw. european leaders are meeting in paris for this emergency meeting on security and defense. kevin whitelaw joins us with more in just a moment. let's dive more deeply into the markets with mark, our chief investment officer over at rbc global asset management. really good to have you with me on the program. i feel like there was a world

before the munich security conference in a world after the munich security conference, the excoriating speech from jd vance. as an investor, how are you thinking about the transatlantic relationship after this weekend? mark: look, the relationship is sorely tested at this time. it's certainly clear, has been for some time, we will end up needing europe to up its game in terms of defense spending. so, we are likely to see higher deficits on the back of this. i think the difficult thing for european investors is really sort of understanding what the deliveries going to be. for someone who overstates europe and has had a track record being a day late and a dollar short in terms of these commitments, when it comes to upping the spending in the area of defense, obviously europe is coming from that point where

effectively the defense industry is sort of weak. we don't have a lot of defense production and capacity in europe. so in the short term there may be more of a need to spend more money on u.s. weaponry, for example, the non-european sort of goods in this particular space. certainly from a european point of view, i think that you have a kind of shock therapy, as macron has referred to those speeches, something creating a bit of a seminal moment for european leadership. we just had the stoxx 600 extending its gains, -- lizzy: we just had the stoxx 600 reaching its level gains, with macron speaking to trump ahead of the meeting in paris and the zelinski aid calling for a quick decision on the talks, ukraine wanting europe to nominate an envoy for peace talks.

all of these developments happening in the past few minutes. we have also seen the reaction in the bond space, the 10 year bond yield is higher, two .8% on this anticipation of more defense spending across the continent. do you expect that guilt spike to last? mark: inasmuch as we are seeing higher fiscal spending, it's likely more could be added back into yields, though from a european bond perspective the difficult thing is yes, you have this particular item of news flow pushing yields higher, but by perspective you have news on tariffs pushing yields and the other direction. so, from that point of view, i think that in a way you looking at european fixed income markets, you are looking at cross currency and there isn't a clear trade towards higher or lower yields in europe at the

moment. i think that sort of looking at those markets like japan makes it more straightforward in terms of benefiting from the short duration stance. lizzy: i want to come back to tariffs, but in terms of the peace talks is it more about what trumpian input and one in terms of what you're wants around how you would position defense and infrastructure socks in europe? mark: i think it matters massively. some of these u.s. plans would infer deployment in private sector capital in terms of the construction in ukraine, but the question there is not about where the private capital comes from if there are not sufficient security guarantees. that's a big question here in terms of peace and lasting peace . is this just going to be a bad piece that trump wants to herald

as a great deal he's managed to engineer? does it actually lead to any kind of -- a better outcome in the medium term? in the short-term of course we all want to see the end of fighting, but are we in a situation here where this is going to be something that is going to be tangibly good over the medium to long-term or is it something that will lead to further problems down the line? the idea of having more defense spending is a given. it's always a surprise to me seeing the european defense stocks leaping as much as they are. all of that said, i don't think you want to get too far ahead of yourself. the reality is that europe is presented as a day late and a dollar short when it comes to these initiatives in the past? lizzy: donald trump eying it in

the same way that he's turning gaza into the riviera. do you think the u.s. is going to end up benefiting economically from peace in ukraine and a big way? mark: i think there are some ways that the trump agenda is there to wind up others and create some chaos that he is then in a position to be able to negotiate against. we have seen that since the art of the deal, right? his book. some of it shouldn't be a surprise. some of it you take at face value. that said, i think that there is, the most profound thing here is that the u.s. does not want to be paying for peace in ukraine and they expected europe to dig deep when it comes to paying for peace in ukraine. and also, you would say trump is a businessman and looking at the situation, saying -- what can the u.s. get from this, given

the amount of support already being given to date? how can u.s. interests be best served? everything comes back to this lens of -- what does it take you make america great again? what ends up benefiting u.s. jobs, benefiting the u.s. economy? this is what is pulling his popularity and sort of helping to enhance his approval ratings domestically. lizzy: mark, thank you for your insights. getting back to paris, world leaders are meeting to do discuss defense and security among the ukraine russia war. macron confirming that he spoke to trump ahead of the meeting as one of the macron -- one of the zelenskyy aids confirms the discussed peace talks. what's the latest happening in paris, kevin? what do we know?

kevin: the leaders are just arriving for their talks, macron plus seven. we are not really expecting any decision-making out of this, but they are under strong pressure to try to figure out how to come together to agree to boost defense spending in a significant and fast way. lizzy: kevin, thank you, we are keeping an eye on that meeting. macron setting on the steps, waiting to greet those leaders. coming up on the program we hear from another person with a stake in this. the lithuania minister of national defense, they are holding an emergency meeting in paris. this is bloomberg. ♪ the way i approach work post fatherhood, has really trying to understand the generation that we're building devices for. here in the comcast family, we're building an integrated in-home wifi solution for millions of families like my own.

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lizzy: welcome back to "bloomberg markets." 3:11 it is, coming up on 3:12 with emmanuel macron hosting an emergency meeting, greeting leaders in the past few moments with talks focused on european security as trump pushes for the end of the war in ukraine.

earlier the lithuanian minister for national defense, here's what she had to say about her main message that she sending to europe and allies in paris. >> denmark will represent the baltic, significantly. in probably an hour we will have a meeting to align positions. you know, i'm going to go to our president's office and we are going to decide what the details of the message are going to be. but the main message isn't going to change. we will not be leaving ukraine alone, that would be detrimental not only for ukraine and an absolute betrayal, but it would also be a betrayal for the future of europe. we all understand this perfectly , what will happen in ukraine will reflect directly not only on the next steps of russia, but also on the next steps of china

in those imperial plans that they are now successfully moving along. >> lithuania is playing its role this year, looking at 5% to 6% of gdp being spent on defense next year. we are hearing from the germans, the foreign minister, suggesting that there is a plan being built out in europe now to defend and spend heavily on defense. what are the details of that? what would that look like? are we talking about aid or military hardware? >> first of all, the details of this plan are still in action. as we understand now, we are building the ship we are already sailing on. specifically, the last four days in brussels. first, we need to us spend on defense first and a lot. hundreds of millions will need to be spent if we want to meet

military targets as soon as possible. as we all understand, russia is not only successfully moving around with army reform and the size of its army having expanded three times compared to february of 2022, they are going even further with the defense industry, the capacity and russia is moving even faster than that of europe and therefore we need to invest in our defense industry, or military personnel, and infrastructure. so, the most likely instruments will be in combination. one of them probably being borrowing, where we will need certain mechanisms to ensure a good flow of finances with conditions that would ensure that it will not hit our economies, that it will not hit our borrowing ratings as well. but also may some other

instruments that would be rated to do certain aid related to acquisitions, joint acquisitions, and the development of the european defense industry, because we also see that we must strengthen ourselves. for the americans, this was the main requirement, europe needs to cover its own gaps. >> does that mean joint debt in the euro zone or europe more widely? >> i cannot answer that so far, this is now in process. this is now being decided and discussed. what we already know is that a little less than half of the european union was pushing for this criteria with relation to defense spending. so, after these four days, i think we are all on board.

secondly, regarding joint european instruments, solidarity instruments used during pandemic or like we use previously, these need to be set up immediately. now, also, i think everybody, almost everybody, is on board as well. lizzy: that was the lithuanian minister for national defense speaking there. interesting to hear them happy to have denmark speaking on their behalf at this summit in paris, this emergency meeting to discuss the future of the war in ukraine among european leaders. speaking of spokespeople, we've heard the development across the terminal in the last few minutes that one of volodymyr zelenskyy's advisors said ukraine wanted europe to nominate a representative for these potential peace negotiations with the u.s. and russia. they have declined to name a

specific person, but they have indicated that this envoy should be at leader level and perhaps this goes back to a problem that europe faces. that there isn't one strong leader to sit at the table on their behalf alongside trump, putin, thrashing out a deal to end the war. this will be a discussion that they will be having in paris today and it will also be centered around defense spending and the push from the u.s. that europe should raise more money to defend itself with a push out of the security conference that does appear to have been enough to push defense stocks. pull them up, you can see them on a tear today, up 10% still in the afternoon session. sob, 15 point 1%. leonardo, up 7.7%. same move for the bae systems. it's really a surprise to some of the names we have been speaking to on "bloomberg

markets" these last couple of hours. ben got fridge, marked out aid, saying that we kind of knew that there was going to be more spending on european defense, but this acknowledgment perhaps of the inevitable seeming to have a need in boosting these names. that index is up half of 1% as we head towards the close. coming up on the program, still ahead, top u.s. and russian officials holding talks in saudi arabia to try to resolve the ongoing war. the parallel conversation happening as leaders meet in paris. we will bring you all of the details, next. this is

(♪♪) ♪ three little birds ♪ ♪ (steel drums playing lightly) ♪ (♪♪) (♪♪) (♪♪) (♪♪)

(♪♪) (♪♪) lizzy: welcome back to "bloomberg markets." in london, in for you as it is presidents' day stateside. the u.s. secretary of state, marco rubio, arrived in riyadh earlier today as a part of his middle east tour as u.s. and russian officials are due to hold talks in saudi arabia this week following the phone call between donald trump and pruden on how to resolve the ukraine more. -- putin to resolve the ukraine more. >> our job is to explain to the

new american administration that the endgame, if it is to be solved at the whim of pruden, it will weaken the security of europe and the security of the united states of america, because everyone in the world will interpret it as a sign of weakness and a troubling alliance between europe and the united states of america. lizzy: let's get worn now from tyler kendall in d.c., can you give us the washington perspective on this? will we see concessions on trump tariffs if u.s. gives up -- if you're gives a little on defense? tyler: that is one of the predictions, particularly as we saw last week with jd vance and the newly minted defense secretary talk about this idea of a shifting burden for europe to ultimately have to wind up picking up more when it comes to

defense of the continent. the bill could be upwards of $3 trillion if europe assumes the full security of ukraine. tariffs looming in the background, we've often heard the trump administration speak about these tariffs, this idea that they are a revenue raiser and as a negotiation tactic it could come into play here, particularly as we wait for the april 1 deadline for reciprocal tariffs to come into play as these leaders start to meet and get these negotiations going. after that he said the negotiations would start "immediately." lizzy: likely exposing more asian economies to these tariffs. and then we have these u.s. and russian officials. what are you hearing about the goals when it comes to that? many saying that it makes a

cease-fire in ukraine pretty much impossible. tyler: the first big agenda item will be of potential leaders summit. we got the first affirmation from the administration that ukraine will have a seat at the table when it comes to the negotiations, though that remains to be seen at this moment, as to whether zelinski will be at the talks this week. ultimately, an official familiar with the discussions told us that most european leaders were not clued into these discussions happening and as he broke earlier in the hour, ukraine demanded that a peace envoy from europe be involved in the talks as they try to gain more leverage moving forward as this criticism comes against the trump administration for reversing what had been long-standing u.s. policy against direct u.s. russian talks as we learn more details about how the trump administration is negotiating on the front of ukraine last week. scott bessent became the first

administration official to travel to ukraine where he presented what the white house called an economic cooperation agreement that could ultimately see the u.s. being able to access more of the ukrainian critical minerals in exchange for additional supplemental security assistance from the u.s. with all of these different factors coming into play as these negotiations start to ramp up over in saudi arabia. lizzy: tyler, thank you for bringing together the tariff and ukraine stories for us as meetings continue to discuss the future of the war in ukraine. coming up in the program, a countdown to the german election with the head of economics over at eurasia group. the stoxx 600, higher. the ftse 100, higher. the dax in frankfurt powering ahead, a boost to defense stocks with all of these developments

in the conference. we dive into all of it, next. this is bloomberg. ♪ so, what are you thinking? i'm thinking... (speaking to self) about our honeymoon. what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment... ...on a ranch ...in montana ...with horses let's take a look at those scenarios. j.p. morgan wealth management has advisors in chase branches and tools, like wealth plan to keep you on track. when you're planning for it all... the answer is j.p. morgan wealth management.

lizzy: welcome back to bloomberg markets. i'm lizzy burden in london. just coming up to 3:30 p.m. here. it is presidents' day stateside but we can take you all the way to the european close. stoxx 600 higher by have a percent. ftse 100 by a third of a percent. dax is higher by more than 1%, boosted by defense stocks. because of this expectation that europe will have to spend more on defense, you have a boost to bond yields, and that is pushing

european banks higher as well. euro-dollar a touch weaker at 1.04 handle. the bank of japan on track for more hikes potentially. let's get back to the defense stocks, we can dive into those. a lot of our guests expressing surprise they have been so boosted by all the geopolitical news. rheinmetall up 10%, saab nearly 15%, leonardo and bae up as well. significant moves on the back of the call for europe to spend more to defend itself. european leaders gathering in paris to discuss defense spending and security for security. we get more from kevin whitelaw, our brussels euro chief. we are getting news that ukraine

is calling for a nomination of a peace envoy for the negotiations. they see there is not a name there to sit with trump and putin. who is it likely to be? kevin: i don't know that we know and it is not clear that europe is fully engaged on this but this is something that ukraine has spoken about. we spoke to an aide of volodymyr zelenskyy who told us as much. they want to make sure europe and ukraine are both represented in any peace conversations that take place between the u.s. and russia. obviously, that means they need to have somebody at a later level, somebody who can sit at the same table with those other leaders. it is not clear who that is going to be. lizzy: the last time you and i saw each other was in brussels, where the nato secretary-general at this press conference with keir starmer, defending the

alliance, saying even if trump is threatening tariffs on canada, the alliance is not breaking down. after the munich security conference, upending of the transatlantic relationship, is that reliance still safe? kevin: it has definitely been shaken. what this has done is bring back some of the questions we saw in trump's first term but brought them back sharper and safer, can europe rely long-term on the u.s.? this security arrangement that has been in place since the end of world war ii, is it really as strong as it looks? now there is a new recognition in europe that this may be another bargaining chip which means they cannot assume it is there, which raises the urgency for these conversations on how to handle this defense spending question. europe has known it is behind for a while, as know that it needed to find ways to boost it,

and now they need to do it really fast and in a big way. that would quickly get into the conversation of whether they need to raise joint debt so they can have a massive influx of money into the sector. lizzy: you mention the defense spending conversation but what else do you expect to come out of these paris talks, how much can they move the conversation on? noting it is not all the european leaders. some like lithuania depending on denmark to speak for them. kevin: it really is only seven leaders along with france and one of them is not in the european union because it is the u.k. preliminary conversation, but it is the countries with the biggest militaries, so they have questions that they need to answer on military spending but also what any role post peace deal would even look like, what europe has to contribute to that, particularly if the u.s.

is not a part of it. these are big conversations that need to happen but we are still early stages. no one wants to get ahead of the german election on sunday. they don't want this to get tied up in that. you will not see any formal statements until after that. lizzy: we are watching president greeting the european leaders, although schultz there, nato secretary general there. kevin whitelaw, we thank you for all the latest there. another topic on the mind of world leaders is oil. opec-plus considering pushing back a series of monthly supply increases due to begin in april, this according to delegates. we put the tariffs and the ukraine story on pause for just a little bit, julian. does this leave prices where they are? what can donald trump do about

it when this is something he wanted to happen? not the pause but the change in prices. julian: he has asked opec for lower prices. i think opec is doing what is in their interest, not the u.s. president. they have been burnt by him before, during his first presidency, he asked them to increase output ahead of his sanctions on iran. they did. he then issued a whole bunch of waivers allowing all sorts of people to continue to buy iranian oil. the price went down, opec felt very betrayed maybe. maybe that's a little bit strong. but certainly they have learned that lesson. they are not going to react very quickly to donald trump's request. they are looking at the oil market from their own perspective. they are worried that even if

they don't increase output, there will still be a surplus this year. maybe a smaller surplus than we thought a month or two ago, but a surplus nonetheless, looking increasingly likely they will delay this increase yet again. lizzy: if you'll forgive me for asking a stupid question, i thought trump and crown prince mohammad bin salman were buddies. mbs has talked about putting all of this investment toward trump's america but when it comes to opec-plus, not the cooperation that trump would like? julian: perhaps not. opec-plus is 23, 24 countries at the moment. i lose track these days. it is a big group of countries. yes, saudi arabia is very important, russia is very important, but they have to bring everybody else along, too.

this is not a done deal, this delay. certainly voices within the opec-plus group that would like to see oil on the market for their own domestic reasons. the united arab emirates has wanted to use some of its increased capacity for many months. kazakhstan has just brought on 260,000 barrels a day of new capacity. that has been put in place by chevron. there are voices who would like to see more oil. but at the end of the day, what really drives these countries is the oil revenue, and that is very heavily determined by the oil price. i think they recognize putting more oil into the market right now -- and this would be the start of a process. so once they start this process, they are intending to add more barrels every month. perhaps that sets the oil market on a different trajectory, sets

people believing there is more oil to come, and that can only undermine prices if there is indeed a surplus this year. i think they'll be waiting for a much clearer signs that the world needs much more of the oil before they act. lizzy: julian lee, we thank you. brenda trading higher, pushing 75 after what has been a choppy session today. let's turn to germany. less than a week away until the election. our next guest says it is overwhelmingly likely a german elections will lead to a government led by friedrich mers. joining us is jens larsen from the eurasia group. i suppose we should start by asking you, is there any hope for olaf scholz? jens: i don't think there is much hope for olaf scholz, there is hope that the spd will be a

part of the coalition. a coalition government with the spd is the most likely outcome. i'm not sure that scholz will be a part of that himself but there will be a total between those that want to do reforms, growth enhancing, lower corporate taxes, deregulation, and those focused more on maintaining social spending. lizzy: i saw a stat that scholz 's party had been in power for the past 27 years. how much economic change do you anticipate with the reliance on china, analog industries, actually change under a new government? jens: it is in that context of what we see over the weekend that is significant. if you were going to ask me, with these two parties agree

something radical, transform the trajectory? i might say the past history suggest they won't, but there is a lot of pressure. we have seen pressure over the weekend, the foreign policy situation, the need to raise defense spending, become involved in ukraine more sickening whitley -- significantly. there is a much broader need to position the german economy to perform in a much more challenging geo economic environment. it's about tariffs, responding to the u.s., but also responding to the industrial policies of china that are putting a lot of pressure on germany. the higher prices that german industry is now paying as a constraint of growth. you have to have a stronger microeconomic strategy. so far, the german political parties have been focused more on fiscal spending and achieving a binding debt break, rather

than addressing these underlying issues. if you ease up the debt break, that is where you can see some responses. lizzy: we can come back to the debt break, but you mentioned the geopolitical situation. we have the news that ukraine is calling for europe to nominate an envoy to sit at the table alongside with trump and putin. do you think that metz has the clout to be that person? jens: i don't know how the european union wants to do this. the most important contribution that he can make is a line the german government with the european commission, strengthen the european cohesion. if you want a voice at the table, it has to be a strong european voice. he has a better shot of that than scholz who has not been able to demonstrate strong leadership. who will be the envoy, i don't

have a view on that yet. lizzy: do you think his approach to trump tariffs would differs significantly to that of scholz's? jens: we have to wait to see with the terrace will be, but i think he would take a more proactive approach to microeconomic strategy. i think he will be more on the front foot when it comes to responding, the support for germany that is necessary to respond. he will lead a coalition with a clear mandate, refreshed coalition agreement that will be able to respond better to this new reality. lizzy: on that point, what is worrying for the german bull market is that you don't get a strong enough majority with the coalition to pass these market friendly reforms. you referred to the debt break earlier. how likely is that given your predictions for the majority's we will see after this boat? jens: there is an important tail

risk if the hard right or hard left wins significant seats in the chambers to prevent the government from working around the debt break. they can get that if they win more than a third of the seats in the parliament. that is an important tail risk, 20%. that might be too much, too little. certainly, there is a tail risk on that front. the broader risk is one, the priorities of finding growth enhancing reforms, pushing a fresh agenda, finding new ways of funding and industrial strategy will be lost in the negotiations with the two parties try to protect their interests. that is what i'll be watching for when i watch the coalition negotiations. are we going to get to a place where the fiscal constraints have eased where the priorities of both parties can be accommodated and we could see stronger growth in the near term

in germany, more importantly that the structural issues can be addressed. lizzy: does that wrangling prolong the pain for the markets? jens larsen at the eurasia group, always good to talk to you. i'll be following your analysis as we get the german election result. coming up, more of our interview from the munich security conference. stay with us for that conversation. this is bloomberg. ♪

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lizzy: welcome back to bloomberg markets. i'm lizzy burden in london. it is 3:40 eight.

the stoxx 600 higher half a percent, lifted by defense spending. bond yields higher, too. our concessions on ukraine going to buy some leeway when it comes to the tariff story? the munich security conference wrapping up over the weekend, leaders confronting these issues, free speech, as well. francine lacqua spoke to the irish taoiseach micheal martin. >> free-trade for ireland has been a tireless left of all boats. we believe free-trade generally has led to the greatest increase in living standards in the world over that 50 years. we have concerns. we understand the issues. if you look at services and goods together, the deficit in europe is quite small actually. we need to be careful that we don't upset the rhythm of what is a good relationship. >> president trump's pick for,

secretary howard lutnick has already talked about ireland. anything you can do to mitigate the threat? >> to emphasize and give greater profile to the irish investor than to the american, ryanair, for example, the biggest purchaser of boeing 747's in the world, largest airline in europe. irish impacts in america are significant. our companies are creating lots of jobs in america and we want to continue that expansion. it is a two-way street, and that's important. >> you have also talked about putting together a u.s.-based panel to understand policy shifts from the u.s. how is that going? >> going well. as i said, we have a lot of companies that are investing in factories and so on in america. irish people working in america

as well. it's always important to understand the dynamics in any given market. we have a very good diplomatic network in the united states. we have expanded it over the last five years, so we are right across the u.s.. we have an understanding of the dynamic of politics. we understand many issues that are common to the u.s. and ireland. we are entrepreneurial people, big on innovation. i was impressed with the approach emphasizing the innovation side of ai that came in paris. ireland is of a similar mindset. lizzy: the irish taoiseach michael martin speaking to francine lacqua at the munich security conference emphasizing the need not to rock the boat when it comes to what is fundamentally a good relationship he says with the u.s..

we are diving into the terror threat on europe next. president trump promising to treat the european vat system as a tariff. we will have the ramifications on trade next. this is bloomberg. ♪

lizzy: welcome back to bloomberg markets. let's continue the tariff conversation. donald trump's administration laying the groundwork for what it calls reciprocal tariffs, calling the european vat system a tariff. brendan, we have this wto meeting tomorrow. we were talking about the weakness of international institutions under the trump administration. doesn't even matter when you have trump threatening reciprocal tariffs like these? >> china has put the u.s.

tariffs on the agenda for the meeting tomorrow. we will find out if the u.s. defends its actions so far. so far we have seen donald trump come in rapidfire succession with 10% tariffs on china and china want to ticket issued to the wto. you have a reversal of, china claiming the u.s. is violating the wto, whereas the u.s. has done that for many years, blaming china for breaking the rules of global trade. lizzy: wonder if the wto is toothless at this point. as we look to paris, can we expect that trump will give concessions on tariffs, if european leaders agreed to do more in ukraine? brendan: another thing we have learned in the four weeks since donald trump has been inaugurated, geopolitics is all intertwined with his trade strategy. it is no secret, he announced

those before the munich conference, the trade barriers. it is all wrapped up in the equation for donald trump. whether that comes to the negotiating table specifically with ukraine, those tariffs, is another question but that is hanging over the heads of european leaders. they could be facing not only a real war on their eastern flank but also a trade flick on the western one. lizzy: we had the bundesbank president saying germany would be particularly hit hard by these new u.s. tariffs. would mertz have a similar response to scholz? brendan: it is the auto tariffs that germany is really worried about. automakers are struggling anyway, and that would really hurt them. lizzy: brendan murray, as we

await what that trump tariff threat will look like, then the retaliation, and then the results of the german election. plenty to watch. coming up, we will have a check on the markets with janet mui. stay with us. this is bloomberg. ♪ what about africa? safari? hot air balloon ride? swim with elephants? wait, can we afford a safari? great question. like everything, it takes a little planning. or, put the money towards a down-payment... ...on a ranch ...in montana ...with horses let's take a look at those scenarios. j.p. morgan wealth management has advisors in chase branches and tools, like wealth plan to keep you on track. when you're planning for it all... the answer is j.p. morgan wealth management.

lizzy: good afternoon and welcome to bloomberg markets. we are watching major news around the world. in paris, a meeting with european leaders as official discuss ukraine and defense. in china, xi jinping weenie with prominent entrepreneurs including jack. first, let's check in on the markets as we had to wear the european close. it is presidents' day, so stateside on holiday in terms of

stock markets. the dax and frankfurt higher by more than 1.2%. that is pushing the stoxx 600 higher by half a percent. rheinmetall, saab really on a tear after the u.s. pushed europe to spend on defense. higher across european bonds. 10-year bund higher by .4%. the young a bit stronger there after this beat on japanese gdp. -- yen a bit stronger there after this beat on japanese gdp. let's go to paris, joined by kevin whitelaw, off the back of the munich security conference. what are we expecting to come out as we have these european leaders talking about what they want to do next when it comes to ukraine? kevin: this is a meeting that

involves, obviously hosted by the french, involves seven european countries, so some of the major military powers in europe but not the entire european union. it is an informal meeting, and no formal conclusions, no formal decision-making expected, but i do think, and the market is reacting to this, that something has shifted very significantly after weeks and weeks of talking about the general need to boost defense spending, talking about ways of tinkering around the edges. the conversation seems to be shifting very squarely to this question of joint debt, joint spending, a way to more urgently and significantly boost the block's ability to spend on defense, both to protect ukraine but also the possibility that the u.s. security umbrella that has been in place since the end of world war ii may not be something europe can

entirely count on in the long term going forward. lizzy: we also have u.s. and russian officials meeting in saudi to talk about the outcome of the russian-ukraine war. is a cease fire by easter too ambitious, is that what you are hearing from analysts? kevin: i don't think anyone knows what to make of this quite yet. trump is obviously pushing very hard to make something happen. these conversations seem to be going on at early levels but they don't involve ukraine yet, don't involve europe. both ukraine and europe say they have to be involved for this to have any chance of being fair and lasting. we have a story on the bloomberg terminal right now making it very clear that ukraine believes that an envoy needs to be appointed by europe to represent europe at the stocks, someone who can connect and operate on the level of putin and trump.

so a leader of sorts. lizzy: kevin whitelaw, thank you as we keep our eyes on that conference happening in paris. let's turn to the market reaction. janet moye of rbc brewin dolphin is with us. we have seen this rise in the european defense stocks. looking at rheinmetall and saab on a tear. a lot of voices i've been speaking to this afternoon say that is kind of surprising given that we always knew that europe would have to spend more at some point to defend itself. are you surprised by these moves? janet: thanks for having me. actually the rally in defense stocks have been ongoing since the war started in ukraine. i guess markets believe there is a lot more to go, even though europe would have to spend more over the next decade or so.

particularly with the u.s. -- german elections coming, there is potential for fiscal policy could be loosening their. i'm not entirely surprised. i guess this is a secular theme. lizzy: when it comes to the german election, you have this german bull market really expecting, christ for the perfect outcome. if you don't have as much of a majority as is expected, is the dax going to fall off a cliff? janet: i believe the rally year to date of german stocks including the whole continental europe stocks is quite stunning. if you look at the technical indicators, it signals that it is overbought at the moment. i believe markets are tactically thinking there could be more stimulus from europe. the euro is cheap, valuations are attractive.

we still don't know the election outcome for germany, so there is potential. i think that will probably help to rotate the investor flow back into the u.s. stocks. when you think about tariffs -- lizzy: when you think about tariffs, they are a negotiating ploy, eventually will become a revenue raiser. how do you think about that when you think about positioning? janet: some parts of the tariffs will be implemented because the u.s. wants to address this trade deficit perspective, and they also needed for revenue. i believe for most jurisdictions, it is working out , like mexico and canada. the prime target will still be

china, not just because of addressing the trade deficit, which actually has been narrowing. it is more about the rivalry between the two countries. the target will be china but i think this time around, china will be in a better position than the first time, because its reliance on the u.s. in terms of exports has declined quite meaningfully. lizzy: we have the wto meeting tomorrow, as brendan murray was talking about, when it comes to the china-u.s. relationship. i wonder if you see inflation as a check and balance when it comes to trump's tariff policy? scott bessent says he is closely watching the 10-year yield. will that limit how far trump is willing to go when it comes to tariffs? janet: potentially. it depends on the extent of the inflation revival.

for the most part, markets don't have a big worry about that from the latest inflation data. if we see further sustained increases, that could be a problem. already seeing consumer inflation expectation popping up sharply and that is primarily tariff concerns. that could act as a limiting factor for more aggressive forms of tariffs coming in, and that is what the market is thinking at this point. we didn't see too much in terms of the tariff threats, inflation print last week. markets are still doing ok. lizzy: where is it possible for the s&p 500 to get to this year when you have so much uncertainty, volatility around tariffs, geopolitics in general? janet: you are right there is a lot of uncertainty. we think generally the s&p 500 will be up a healthy pace.

i think we have to contend with volatility throughout the year. the base case is growth continues, inflation is contained and you have more news on the progrowth policy and the worst case on the tariffs don't materialize. and ai continues to drive the enthusiasm of the mega cap companies in the u.s. that is the base case and it is likely to play out. of course, the risk is that growth disappoints. that is the biggest risk potentially more so than inflation. if you look at the tariff threat, bond yields in the u.s. actually go down. that reflects that markets are worried about growth more than inflation. we definitely need growth to remain for the year to date gains to further sustained from here. lizzy: seems to be a common theme, locus of growth over inflation. janet mui over at rbc brewin

dolphin, thank you. it is presidents' day, so u.s. equities taking a break today. coming up on the program, german chancellor olaf scholz says europe is strong enough to react to the u.s. tariffs. we will bring you more of our exclusive interview with him. that is next. this is bloomberg. ♪

lizzy: welcome back to bloomberg markets. i'm lizzy burden in london. we are heading toward that all-important german election. germany really facing political uncertainty ahead of it. german chancellor olaf scholz weighed in on the economic

challenges facing his country. he was speaking to stephanie flanders, our head of government and economics at bloomberg news. >> i have to admit i'm in favor of free trade. i think this is a big advantage we have in the world. many of the world and the growth that we have is because of free trade. so it must be fair, free trade, but free-trade is better than tariffs and protectionism. i don't think this will work. when it comes to the european union, everyone knows that we are a big economic area with a lot of strength. policy about tariffs is something that is a common policy, so we are strong enough to react to everything that is harming the european economy, we should act always put in a way that is offering the chance for an agreement. it is better for all parties

involved, especially on both sides of the atlantic. >> is the european union considering cutting tariffs before any announcement on cars? >> we are speaking with the responsible authorities on what we can do for a better progress for all of us. there is a willingness. i am sure it is better if we agree to something that helps all of us. it is good to know that europe is strong enough to act and react. >> you talk about being a common project but donald trump has made clear he want to do reciprocal tariffs, doesn't want a wto approach were all the same rules are on the same countries. even with the european union, he may want a different tariff regime for france, italy, germany. what would you do then?

>> the european union is a unified economy. >> nothing to stop the u.s. from doing that. >> we have common tariffs together and we will stick together which is also important. i am quite confident that a good solution is feasible and everyone should work to make it happen. >> you spoke this morning very clearly about what you need to do to increase defense spending about 2% of gdp. suspending the debt break just for that additional defense spending. but for many countries it will also want to have joint debt issuance for europe as a whole to be able to invest enough in defense. would you consider that given everything that has happened? >> there are three things we can do in this very moment. the first is that we agree in germany that supporting ukraine is something of an extra effort so we should have extra room for

maneuver, also for financing the support of ukraine which, when it comes to the figures that germany is doing the most, the biggest supporter of ukraine in europe, second in the world. this has to continue. but we cannot continue to pay for it with cuttings in pension schemes, in the health sector, cutting some of the investment in the streets, railways, and so on. it is clear we have to do this. the second is we have to agree how we will continue with the spending of more than 2% of our gdp for defense, which we achieved, because of an extra fund that i managed to get through the parliament. but for the future, we need a new decision about this. this is for continuing with this 2% plus, already 30 billion a year.

also this will not work with tax increases or cuttings, spending in different areas of the german budget. and when it comes to do more, which will be obviously necessary when we look at what nato is discussing, and then it especially means that we do something for these activities which gives germany the opportunity to spend even more. this also has to do with the reform of the debt regulation in germany. when it comes to europe, i think we should help every country if it spends more than 2% to be not hindered by the european regulation. stephanie: so changing the stability. chancellor scholz: we have peace agreement so that this is feasible for a country to do. lizzy: that was stephanie flanders speaking exclusively

with the german chancellor olaf scholz, who will go to the polls in six days time. the polls suggesting that he isn't going to win. in fact, his social democrats look like they will be behind the cdu and afd if the polls are correct. let's get more with alan crawford, senior editor in germany. i wonder when we think about all of the strands we've been talking about over the past couple hours, tariff store me, how different olaf scholz and friedrich merz's policies would be after the selection? alan: that is the million-dollar question. it is hard to say for a couple reasons. first of all, the situation is moving so rapidly. like most political parties these days, they have not been entirely concrete in terms of their policies. secondly in germany, like a lot

of european countries, it relies on a form a coalition government. a lot of these policies are up for grabs after the election result comes in. that said, there are certain red lines. we can safely say there will be increased defense spending, some changes to the debt break. beyond that, it is hard to say. lizzy: you can see the white, the cdu currently leading in the polls, but it's really about the coalition makeup, the size of the voting majority. do you think actually there will be a majority that can pass the market friendly reforms that markets want? for example, on the debt break. alan: i do. frankly, the polls in germany tend to be pretty accurate. i was actually referring back to the last election, and the polls were all pretty on the nail when it came to support for the afd.

i thought perhaps voters were not telling pollsters they would not vote afd but that does not seem to be the case. i don't think there will be an upset in terms of them getting more support. i think the polls are very clear, you will see a mainstream coalition that will probably be fairly stable, able to achieve things. lizzy: interesting nugget of information, alan. i didn't know that was the case with german polling, but i didn't know that germans were honest. alan crawford, thank you for that analysis ahead of the german election. still ahead, back to the u.k.. bank of england governor andrew bailey says that the u.k. has been quite static since last year. we will talk about what that means for the rate cutting path ahead. this is bloomberg. ♪ you think those phone guys will ever figure out

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lizzy: welcome back to bloomberg markets. i'm lizzy burden in london. we are watching shares of lloyd's, currently down 2.7 percent. they were down as much as 4%, this off the back of the news that the u.k. supreme court has refused to let the treasury intervene in a landmark court case over controversial car financing. this deals a blow to rachel reeves who argued the suit was hindering britain's regulatory environment. joining me now for more on this and the rest of the u.k. economy is philip aldrich, bloomberg senior u.k. reporter who covered the story. i wonder how much of a blow this is to rachel reeves. we have seen the stagnant growth numbers and now we see this. is this a blow to her growth agenda? philip: the regulator, i think that claim is still progressing.

it may not be a complete disaster in terms of the agenda, which they were keen on. may still be able to be pushed through. the idea is unlimited potential fines on the banks would not be good for future investment, for the banking shares. it appears she was trying to contain that potential risk of this exploding, like with the ppi claims which went on for years, costa banks over 10 billion quid. it is not clear. it is an evolving story but the fta's similar case has been approved. lizzy: the other store you are reporting on, public services in the u.k. bracing for up to 11% cuts to fund the defense. that is austerity, isn't it? philip: that would be, yes.

there are two sets of cuts that are being modeled. it predates the latest discussion, the munich meeting last week, about defense. the treasury looking at a 5% cut, flat cash for the unprotected departments, at the same time looking for a worst-case scenario. 11% is what we understand. lizzy: this is before munich, so it could be even more? philip: not that it will be bigger but that just it becomes more realistic. the ambition was always to get to two point 5% but the treasury was indicating that you wouldn't get there until after 2030, so it wouldn't show up in these numbers, so it means less austerity on the departments because you wouldn't have to do the cuts to support that defense spending today. you do them in the next parliament effectively. with the pressure on the defense spending to go up now, it makes

it more likely that these tougher spending cuts will come through. 11% was always the worst case scenario. i don't think that will be the base case, but it gives you an indication, the scale of demand that is being made on certain departments. obviously, we have education, health, defense, aid budgets which are protected at the moment. everything else is on the table. lizzy: looking ahead to the cpi and jobs numbers coming out this week. we heard from janet mui about how central banks are looking past inflation towards growth. do you expect that is what the boe he will do, look past cpi? philip: i think they are looking more toward the 2-year horizon, but if it is a big shot, hard to ignore it. lizzy: expecting a potential uptick from that cpi number. philip aldrich, thank you for that as we look at the latest u.k. data.

back to the china story next. xi jinping meeting with prominent entrepreneurs including the e-commerce legend jack ma, as beijing looks to revive that economy. stay with us. this is bloomberg. ♪

lizzy: welcome back to bloomberg markets. i'm in london and we are heading toward 4:30 p.m. let's check on these markets as we get towards the close. the stock 600 higher .6%. the dax really the outperformer across europe. that index up 1.3%. outperforming the footsy 100, up .4%. but the reason for this outperformance out of germany is defense and the pressure from the u.s. on europe to step up its defense spending. leaders meeting in paris and we have, if we break it down by sector, across the stock 600,

most sectors in positive territory. 3/4 of the basket in fact, but industrial goods and services leading the gains. 1.4% higher and this comes down to the defense stocks. so the likes really ecoing out the gains today. 14% of rheinmetall. and 8% or on leonardo. really being gains here. surprised some of the names we've been speaking to over the past few hours, didn't we know that at some point europe was going to have to cough up more for its own defense? but, look, it has been a real boost to those names and the whole broader continent of equities this afternoon. just flipping over to the bond story as well. the idea that there is going to have to be more spending on defense, also pushing yields higher across the continent, across the curve. but in particular if we look at the 10-year bunt yield higher, five basis points at 2.48%. and that indeed had been pushing european banks higher as well.

so that, a check on the markets at the close of play. but let's get more into one of the themes that had been boosting european stocks and that is china. we had president xi jinping meeting today with several prominent business leaders, including alibaba and b.y.d. and that really signals stronger support for the private sector, which has been marginalized by china for years. we can get more now with justina lee who joins me around the table. justina, would you put into context for us why it's such a big signal to have jack marr and xi xi sitting down together? >> yeah, i think it really is because jack ma was a poster child for the crackdown a few years ago. there was a period where you hardly ever saw jack machado, the tech darling of china anywhere in public. so i think it's very telling that kinds of the chinese authorities made sure he was at this meeting and also if you look at what xi, according to

state media, kind of talked about at this meeting, he very much was telling these tech entrepreneurs to stay competitive, to stay confident in chinese -- in china's future and also he even talked a little bit about kind of practical steps to maybe get rid of some unnecessary fees and to kind of really encourage private sector growth at a time when i think china really needs that. lizzy: we have goldman raising its china target because of the deepseek optimism, really improving the outlook there. but then -- and we're going to get into later our big take. which is really all about wall street's retreat from china. so how do the two add up? is it kind of good if you're in china domestically, bad if you're international investing in china? >> i think that's definitely partly true and i think the deepseek story kind of surprised everyone. it felt -- it came out of nowhere and i think for a lot of vifnters that are now turning a bit more bull initial china, another reason is just that the

valuations are way lower than what you're seeing even in other merging markets like india and obviously compared to, you know, u.s. markets. and so if you're looking for a value play it seems like china could be a good place to find that, especially at a time when it seems like despite the u.s. restrictions and kind of despite the economic slowdown, there's still a lot of innovation happening there. but of course deepseek doesn't really change the story about u.s.-chinese relations and i think that will continue to be a concern. lizzy: the geopolitics versus the fundamentals. justina lee taking us through all of that. we thank you. i want to pick up on that tech theme and continue to what has been one of our top interviews. sam altman, the open a.i. c.e.o. speaking to bloomberg's tom mackenzie at the paris action a.i. summit. get your popcorn out. take a listen. >> look, open a.i. is not for sale. elon tries all sorts of things for a long time.

this is this week's episode. >> you take it seriously at all? what do you think he's trying to drive out with this? >> i think he's probably trying to slow us down. he obviously is a competitor. he's working hard to raise a lot of money for x a.i. and they're trying to compete with us from a technological perspective, from getting the product into the market. and i wish he would just compete by building a better product but i think there's been a lot of tactics, many, many lawsuit, all sorts of other crazy stuff, now this. and we'll try to just put our head down and keep working. >> does it make it more difficult to move from that nonprofit mod toll that for-profit model for openai? >> we're not moving to a for-profit model. we're not sure what we're going to do at all but no matter what the nonprofit will be extremely important and drive the mission and continue to exist. the board is looking at lots of options about how to best structure for this next phase. but the nonprofit is not changing or going anywhere.

whether they did or didn't they built a good model. many people will distill from many other models. again, i feel so confident about our research and also our product road map that deepseek will do whatever they're going to do. other people are going to do whatever they're going to do and we're just going to try to build the best technology we can and get it in people's hands and i think that's mostly going pretty well. >> do you think musk's approach is from a position of insecurity about xai? >> probably his whole life is from a position of insecurity. i feel for the guy. >> you do? >> i do. i don't think he's a happy person. i feel for him. >> do you worry he has this proximity to the president and he can influence the decision making of the u.s. presidency and policies around this agenda on a.i.? >> not particularly. maybe i should. but not particularly. i try to just wake up and think about how we're going to make our technology better. lizzy: since that interview with altman, openan i's board has formally rejected the offer from that group of investors led by elon musk. the unsolicited bid of $97 billion.

but continuing on the tech theme, more more on the a.i. landscape, former science and technology advisor to president obama joins me now. really good to talk to you, cue mar. we've got so much to digest after that a.i. action sum. i you heard from sam altman there speaking to our colleague. how significant is it that the u.s. and the u.k. declined to sign macron's declaration on international governance for a.i.? >> i think a number of your interviews have touched on this which is we're in a period of fireworks as it comes to a.i. progress. i think there's a global race happening between the leading nations, the u.s., europe, u.k., china, i think france is part of that. in these rice dynamics -- in these race dynamics, i think people don't want to fall

behind. what you saw in this current action summit is they removed the word safety because there's a whole question around is safety going to be a hindrance to a.i. progress and innovation. i think the u.s. explicitly went there with vice president vance to say, you know, we explicitly want to focus more on staying on the capability edge and we're opting out. i think the u.k. followed suit but i think the interesting thing to follow will be where are we on this capability edge, which countries are investing? whether it comes to compute, talent or other factors, to stay on that capability edge and how are we building out the deployment of these technologies so we can actually get the productivity gains that we were promiseed? lizzy: a.i., j.d. vance's warning of excessive regulation in europe, ironically seeming to get more attention than president macron's speech. i wonder how should policymakers then be regulating a.i.? >> i think right now this idea of a.i. regulation is mostly an

idea of a future conversation. even in the biden administration, the a.i. executive order was quite voluntary and industry-led. so i don't think there's actually that much a.i. regulation happening today. the big question that i think there was a lot of back and forth on was, is a.i. regulation coming? and is that a.i. regulation going to have impact on how the a.i. market progresses? i think we have to be able to have an attitude towards doing both, which is how do we actually fuel a.i. innovation and invest in safety? but i think it was very clear the new administration in the u.s. clearly believes that this talk of safety is not the primary goal of u.s. policy, and they want to focus on capability. they want to focus on how do we build the relevant data centers, how do we actually build the relevant compute to be able to advance these technologies. and then to think about safety as a secondary concern, when problems actually happen. i think that's always been a divide between the u.s. and europe, which is do you fix the

problem afterwards or engage in pre-regulation? lizzy: exactly. so is it going to take calamity to force the u.s. to take regulation more seriously? i think about seat belts of the 1960's and how it took thousands of deaths to bring that to being mandatory. >> i think this is the big question. which is are -- is the u.s. policy going to ultimately require there to be a big wait a minute moment where then we actually get regulation on top of, you know, some sort of problem that actually pops up? versus something that happens beforehand. i think that we're currently, you know, there's a number of different scenarios of things that people worry about when it comes to advanced a.i. i think the u.s. posture right now is, let's see if those things actually happen and then we can always add more regulation. i think on net that has been useful for the way we have regulated technology in the united states. but i think as you saw with the

airline crash that happened in d.c., that's easier said than done. ultimately safety and regulation ends up being a really important part of how we actually invest in science and technology. so i think this has to be a balance. but the u.s. balance almost always is on innovation first and regulate later. lizzy: i'm interesting as well with your former government advisory perspective, kumar. with elon musk running doge, surely the real opportunity for efficiency in the u.s. government isn't shutting down government departments, but actually the application of artificial intelligence when it comes to federal agencies. do you think that that is something that is an opportunity or something that really we should be quite worried about? >> i think there's a huge opportunity on applications of a.i. in government. i think the hard part right now is, you know, a number of the doge actions are actually causing a number of technologists in working government to be let go.

the very people who would be implementing smart uses of a.i. in government are also being let go. so i think the question is more about execution. but i think this idea that a.i. can actually help improve government services is a really powerful idea. and i think one that we should definitely be investing in. i think my big question is, are they actually putting a team on the field to actually do it? lizzy: a.i., or are they stacking the field before they can score the goal? kumar garg, we thank you for those insights. we're going to get more into this china story next. it is the subject of today's big take. it focuses on how wall street handles this dynamic between president trump and china. stay with us. this is bloomberg. this is bloomberg. ♪ at morgan stanley,

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lizzy: welcome back to bloomberg markets. in london it is quarter to 5:00. let's go to our big take story on the terminal now. wall street banks are struggling to navigate new u.s. rules for investing in chinese companies. which has led to confusion and caution among bankers. for more, we can speak to bloomberg's david scanlon. this is a really fascinating read and it brings to mind jpmorgan c.e.o. jamie dimon a while ago talking about bringing the full force to china. what a turn of events this is. how is it that you've had such a retreat of wall street from china? >> it is quite amazing when you think back, it's almost five years ago to the date, to today, that china opened its markets to the world. and there was really unbridled optimism. goldman was going to double their head coach. jpmorgan was going to bring the full force of the bank to china.

there was talk of $9 billion in combined profits up for grabs. almost none of that has happened and kudos to my colleague, kathy chan, who crunched the numbers on this. if you look at the most recent data available, the combined earnings for the biggest four banks in china, u.s. banks, is $33 million. it's just a pittance. these are banks that make tens of billions of dollars a year. china has contributed almost nob nothing to their profit over the last four or five years, despite this opening which came with such fanfare. it really has been a disappointment for them. lizzy: so which banks didn't make the china bet and are feeling pretty smug now? >> well, they're all there in one degree or another. i think some, particularly bank of america, morgan stanley, were a bit more cautious and really built up their beach head in hong kong as opposed to going more full-on into the mainland china. that's been a little bit easier, there have been some signs of

activity really in hong kong but the mainland has been -- really has been quite a disappointment. there's been reasons for this. of course covid, the timing was bad because covid was just getting started. the chinese economy really hasn't recovered from that. we've got a housing crisis and now of course you're getting all kinds of pressure from washington, a lot of scrutiny on any kind of deal that's related to national security, they're concerned about data and of course now we've got a trade war looming. trump has already imposed 10% tariffs on china. china has responded. how bad can it get? we don't know. but certainly not a great environment for investment banking right now. lizzy: ok. so it's a combination of the domestic and international factors then. but if you are trying to fill the china void, how far can opportunities in japan and india go to doing that? >> it's limited and really what's i think most amazing, we've discovered recently that

china's really fallen off the map. so a lot of these regional meetings of senior executives in asia, they are talking a lot about japan, they're talking about india, they see some opportunities there. but they've sunk a lot of money into china, their combined exposure is about $45 billion. so it's hard to just walk away from all that. they've really sunk a lot of money in here. they're playing the long game. they're hoping another five, 10 years things will turn around but it's been a very slow, disappointing start for sure for these wall street banks. lizzy: ok. bloomberg's david scanlon bringing us the big take which is on the terminal. i recommend a read on wall street's retreat from china. but coming up, european leaders are meeting right now in paris with top u.s. and russia officials due to hold talks this week in saudi. the latest on those negotiations centered on ukraine and defense coming up next. we'll bring you the view from washington. this is bloomberg. this is bloomberg. ♪ so, what are you thinking?

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lizzy: welcome back to bloomberg markets. i'm in london and the u.s. secretary of state marco rubio has arrived in riyadh earlier today as part of his middle east tour. it comes as senior officials from the u.s. and russia are expected to hold talks this week in saudi arabia. to pave the way for a summit between presidents donald trump and vladimir putin. here to share more on this subject is bloomberg's tyler

kendall joining us out of d.c. tyler, what do you expect is the goal heading into this summit? saudi? of course they want a ceasefire but what sort of date do you think trump and putin will be looking at? >> right, well, we know that the white house would like to see a leader summit put on the books by the end of this month. and it's important to note that today actually marks exactly four weeks since president trump took office. and things have moved rather quickly. so quickly in fact that as we've been discussing most of the morning, many european leaders have criticized the fact that the trump administration has reversed rather quickly a longstanding policy when it comes to direct negotiations between the u.s. and russia. now, these negotiations are well under way, we know as you showed the video just there. marco rubio already in saudi arabia. he's already met with the saudi foreign minister, as well as the crowned prince. and according to a report which is a dispatch from the reporters in the room, they told us that the crown prince did tell rubio

that saudi arabia is looking forward to working with the u.s. later this week president trump is set to attend a saudi-backed investment conference happening in miami. so many of these factors coming together as these principals try to get a date on the books for this potential leader summit to get under way. lizzy: and we've seen european defense stocks on a tear today. as we see trump pushing for more european defense spending in ukraine, do you expect that he'll be looking for a bigger role for american defense companies in the last end of the war? >> president trump actually did tell reporters over the weekend that he would be interested in europe buying u.s.-made weapons and this is an important point and just for context, that's often had bipartisan support within the u.s., considering that a demand for weapons abroad has helped bolster the u.s. domestic defense manufacturing base. so as these conversations continue, particularly as europe and ukraine demand seats at this table, that's going to be one of

the factors that we're closely watching for as economic policy and foreign policy start to intertwine. lizzy: and i just want to take you finally to the fed because we've seen trump's top economic advisor saying that he's going to have regular meetings with fed chair jae powell. i wonder how you interpret that. is it actually healthy that they're going to have this line of communication or is this donald trump saying, i'm watching you, jae powell, and i'm going to try and influence you? >> well, this resumes a policy that we saw under the first trump administration and it's interesting because jae powell has of course been a target of criticism by president trump who has said that he believes that the executive should have decisions when it comes to monetary policy. i was at a fed chair powell's testimony on capitol hill a couple weeks ago before the senate banking committee and house financial services committee and he was broadly asked about how trump policies could impact monetary policy and he said that it remains to be seen, they're going to just wait and look at the data. but i did have the chance to catch up with republicans and

democrats alike and one thing is for sure. at least members on capitol hill say that it is critically important that the affluency remains independent. lizzy: ok, we thank you for bringing us the latest from washington, d.c. before we go, let's check in on these markets as they close. the stock 600 higher .5%. boosted by that u.s. call for more defense spending out of europe. we've seen the defense stocks, the likes of s.b.a. really on a tear throughout the session. and that pushing bond yields higher across the continent, across the curve, but particularly in terms of the 10-year bunt yield. higher six basis points. we have seen the yen stronger on this beat on japanese g.d.p. keeping the b.o.j. on track for more hikes. and of course it has been a holiday stateside for presidents day. cash equities and bond markets closed but we have futures the pointing higher on wall street.

that's all from me but thanks for joining me these past three hours on bloomberg markets. it's been a pleasure. happy monday. enjoy your holiday. this is bloomberg. ♪