yeah. [music playing] [dramatic music playing] good morning happy friday welcome to "street signs." i'm julianna tatelbaum and these are your headlines european markets look to close on the high end. china services sector grows at its fastest pace in six months and the npc is looking to key institutions.

and secretary of state blinken meets lavrov in person we will meet from josep borrel shortly. and weekly gains over china's reopening, but the saudi aramco ceo says under investment is a big worry. >> with china opening up, it is a concern in the long term in making sure there is adequate supplies in the market good morning warm welcome to the program. we have final pmi data for eurozone coming through right now. let me bring you the figures composite pmi for february is 52 that was weaker than the flashes estimate of 52.3 the surprise to the down side

has come in the services sector. the final services pmi at 52.7 against 53 in the initial estimate the expansion not quite as strong as initially expected chris williamson from s&p global said an expansion helps allay worries of recession for now so it seems as though the recovery is continuing in the eurozone again, not as strong as initial estimates. you see the euro has been gaining ground against the dollar a bit of a story of dollar weakness because we are seeing similar strength in sterling versus the dollar.

let's look at equities and see how things are shaping up. we have strong start stoxx 600 is up 0.7% i would say a very strong start. we are dealing with a positive hando over from wall street and asia moving higher overnight after the china services sector. in terms of the breakdown by indivisib indices, strong gains for italy. ftse mib up 1% in the first hour dax up .90%. the swiss market, smi, flat on the morning. in terms of sectors, basic resources up 1.6%. again, that strong services print in china providing a boost to sentiment

basic resources is key to that technology catching a bid up 1.3% telecom up 1.3%. on the down side, two sectors are lower. media and oil and gas. oil and gas down 10 basis points or so. on the monetary policy front, we got interesting signals from europe and the u.s. in the last 24 hours ecb council member says the bank could raise the key interest rate as high as 4% if inflation in the eurozone doesn't come down core inflation print hit 5.6% on the year and he said the ecb may need to do more. in contrast, across the pond, u.s. stocks rallied on the back of some fairly dovish comments from atlanta fed president bostic driving the dow to the best day in weeks.

bostic is in favor of 25 point hikes fueling expectation the fed may not go for a bigger half point move fed governor chris waller said if inflation stays hot, it may move higher he let's bring in the chief european economist from morgan stanley to talk about the pmi data and comments from central b bankers. let's kickoff with the latest inflation data from the eurozone looking at the prints this week, the country level and the euro area level it seems pretty fair to say that the inflation picture is a bit broader than expected and proving a little more consistent or persistent. how is the ecb likely to respond? >> first of all, thanks a lot

for having me. it is great to be here particularly after a day like yesterday. we had two important things in here that speak to your question one is, of course, the inflation release itself i highlight the strong corporate and our forecasts carry to the middle of the year before we can actually expect to see the peak we have revised upwards expectation for core inflation from 2023 to 5%. that is a 70 basis points upward revision we also have revised upward headline that is at this stage not the most important part here headline, everybody an fgrees is falling on the back of the energy prices. the other important piece is the accounts released yesterday of the february meeting of the ecb. and you could say -- there was a

change risk assessment conveyed with the risk in the short-term which was seen as broadly balanced yesterday's figures could add to that assessment. that means that discussion will flare up in the ecb and essentially a process they are looking at which is not balanced upside with inflation means higher rates and, of course, bigger hikes that is why we have 50 which was previously 25 and additional two hikes in june and july ending at 4% bringing us to what you said before if this inflation story is going to hold up, according to our forecast, then 4% doesn't look dramatic it looks realistic. >> let's go with that scenario that we see rates rise to 4% what does that mean for growth will the eurozone avoid recession if rates hit that level? >> so, i think there are two

elements here. one is monetary policy just was already in market price, of course, so we revise our expectation to 4% and that is where the market is currently pricing the ecb to stop. of course, that is additional tightening policy. we had one big one in december last year where we went up from terminal rate of 2.85 to 3.85. we have another one that gets us to 4 that is against the back drop of overall better dynamics. you were mentioned the pmis before you were able to avoid the short-term recession the overall external environment looks better depending on the region china in particular. to some extent, that balances that we have enormous amount of fiscal stimulus on the road. i think close to 3% gdp estimate

for 2023 and we see growth being very much subdued and we see potential growth in 2024 that prospect does improve we say it is a tug-of-war and stays there. the risk is there for the outlook for the longer-term outlook for growth. >> just to be clear, how long do you see the ecb keeping rates at the 4% level >> we currently think that the first opportunity for the ecb to come in june next year that essentially means they are almost a year. now, that, of course, is all subject to data coming in with forecasts. we see growth below potential in 2024 we don't have a forecast for 20 2025 if you look at the ecb forecast,

they have that potential forecast in 2024 and 2025. you can take issue with that and that also means that we don't see very long period in which rates stay at that high level. the four quarters we have in there are pretty much in keeping what we have been hearing from the ecb. there is still the interview this week saying that. a fair amount of quarters. >> jens, let me ask about the impact of china you look at the china pmi this week and they have blown past expectation. my question to you is whether the china recovery, extent of the recovery coming through now is factored into european forecasts or whether there is upside potential from the stronger china figures >> our's was ahead of the curve.

our chief china economist had the reopening before many others had it we were already in a good position for strong growth in the november forecast. it is true that relative to november, growth has been upgraded further now there is one element here which is different maybe from sort of typical ways to see china. it is probably more domestically oriented growth we are looking at and there is not so much of investment cycle coming which is the one that stimulates a lot with german exports because of the machinery going to china less of a positive one, but if the margin is contributing positive outlook as i said before whatever is positive on that side is canceled out by the additional monetary tightening >> clear and interesting point about the recovery being

somewhat led by the domestic economy in china just sticking with the europe and scenario where we see ecb move to 4%, we have been watching bond yields in the secondary markets to multi-year highs this week. do you have concerns for the key, you know, consistently worrisome names if we see rates move to that level any sovereign debt concerns in focus for you? >> at this stage, not. it is clearly not something to be dismissed this is a general question for europe so there was a need in terms of the perspective of the ability with the framework governing fiscal affairs in the eu you have, of course, the element here with 60% gdp inflation and

target rate. there is a new necessitgotiatio ongoing on what basis? in the meantime, we had the covid and energy shortage. that has undone a lot since the sovereign debt crisis. we have gdp ratios that look high to many market participants of course, increasing rates don't help particularly in the back drop of weak real growth. so far, high nominal growth because we have the rebound from covid plus the inflation that has led in all member states to improving the gdp ratios despite huge fiscal deficits that's going to end.

at the very least, inflation is coming down now and growth is going to be lackluster at best yes, this is perspectively an issue that needs to be dealt with for the time being, i would say there is an umbrella that the ecb provides for the cp i and as long as the hiking cycle is going, it is hard to the tolerate as not sustainable. perspectively, yes, the growth is key and we will have to see some disecisive action here. >> good reminder of the key ecb tool over the last year or so. you know, one of the big reasons, if not the biggest reason that eurozone growth held up better than expected and the economic picture is brighter than expected is the energy crisis hasn't materialized the

way many have feared we don't have the worst c-case scenario europe is not out of the woods yesterday. th -- yet. there are risks on the horizon and the ability to secure supplies how do you characterize the risk on the 6-to-12 month view? >> this is a fair point. we have seen, let's take natural gas, we have seen these prices coming down. still significantly so at the level observed in some sense in the middle of 2021 when the prices started rising of course, that is against the back drop of the higher level and higher volatility. that brings back china this is a big concern now whereas five years ago parts of china growth would be positive

now you have at least to consider the potential risk to natural gas prices given the marginal unit is lng and that is in competition with demand in china. generally, there is an element here probably with the inhouse forecast don't see a problem for the next winter, but it is clearly the case the times are over where you can rely to calculate on the firm that puts energy or natural gas on the ground in europe as investment that you can calculate that natural gas will always be there and low prices these times are over that is a fundamental challenge to the euro economy which is why we have a subdued investment outlook in our figures that can only be changed by a clear and decisive action on the policy front in terms of guiding

energy transition to, of course, more renewables which is clear we need more certainty with regulations going and what will be the technologies favored. this is missing and as long as we are missing that, capital allocation won't be as it needs to be for the enormous task. yes, i agree, this is the biggest issue for the euro area. >> very clear. jens, thank you very much for sharing your view. chief european economist for morgan stanley. u.s. secretary of state blinken has spoken with russian counterpart sergei lavrov for the first time since the war began a year ago they spoke on the sidelines of the g20 summit in india

> our colleague tambir joins us with more. >> reporter: good morning, julianna thank you very much for that i have a special guest with me here as we wrapped up the proceedings of the g20 ministers meeting. i have with me the high representative of the foreign affairs and vice president of the european commission josep borrell. thank you for joining us i want to start with your reaction on secretary blinken meeting with sergei lavrov >> they talked >> do you think this was better than the bali summit where minister lavrov stormed out of the meeting in. >> he was not very nice. he came, he spoke, he left >> from that pecurspective, thee

is improvement >> it was communication which was much better. he remained. he stands in the room to listen. >> what was your take from the g20 foreign ministers meeting? >> that there is a big divide and russia will continue the war. they need to be careful to reach agreement. it was not possible in bali. it was not possible here >> i believe the european union is drawing up plans for a new sanctions package against russia i wonder what areas do you look to target? there is talk of targeting military hardware and technology. >> we have already done a lot of sanctions to the technology sector russia is very much dependent on

our technology we have been cutting supplies of technology to russia there are ten packages we are looking for someone else that can be sanctioned that sanction is for the experts. if we find something, we will also do it russian economy has already suffered a lot from our sanctions. >> they are still fighting the war. >> certainly >> they are still getting the money to fight the war. >> much less money compare the figures of the money they have been getting this year with last year last year was a good year for russia in terms of prices being high we were still depending on russian gas. today? no more. we don't buy more russian gas or oil or coal. prices are going down. >> what about sanction in asia

how do you tackle that problem >> what we don't supply to russia, all the other countries can try to do. sanctions are not like united states sanctions we don't say what do they have to do. our sanctions are related to activity of our firms. we don't punish an indian firm of something we don't like to do we try to avoid. we respect others. >> supporting the u.s. and it is trying to figure out if the u.s. intelligence is trying to figure out whether they can find enough evidence against china supporting russian militarily in the war. if they come up with more sanctions against china, especially addressing the chips industry, would you follow the

u.s. >> look, by the time being, russia and china and china has always told us they are not providing arms to russia and they don't plan to do it very much explicitly the foreign counselor and foreign minister and in new york, clearly stated that china is not providing and not planning to provide. certainly, we have to remain vigilant >> what if they are providing military aid would you find yourself stuck in the middle >> at the time being, it hasn't happened >> right i want to talk about the situation with the european economy. right now, the big issue is what is happening with the inflation reduction act in the u.s. and protection policies. the race to the bottom in

driving investment i was reading up on cnbc.com on not just that, but other companies are looking at european investments what is your response to that? >> yes, we are very much worried because the inflation reduction act has to do a lot with something that is not related with the inflation, but with subsidies. subsidies can produce unfair competition. we have expressed our concerns to our american friends and with negotiations with the eu and u.s. treasury. certainly, yes, this inflation reduction act presents problems of first against the rules of the world trade organization >> right >> we consider this decision >> you address concern are you going to take any

concrete steps >> it will depend how negotiations go. >> when do you decide that when will you see negotiations end for you to take hold finally before i wrap up, you are suggesting that people in the uk are not happy with the brexit decision? they are regretting? your reaction? >> it is up to the british to decide >> broke away from the eu. >> i always felt brexit was a big mistake. nevertheless, they decided to do that they are a free democratic country. now they have to deal with the consequences >> right vice president, thank you very much for speaking to cnbc. julianna, back to you. >> tambir, thank you for that interview. coming up on the program, chinese services activity picpicked up in february we will take a look at how the

chinese economy is recovering post covid as beijing gears up for the national people's congress this weekend. it's hard to run a business on your own. make it easier on yourself. with shopify, you have everything you need to sell online and in person. you can have your inventory, payments, and customers in sync across all the places you sell. it doesn't have to be lonely at the top. join the millions to finding success on their own terms. start your journey with a free trial today.

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welcome back to the program. chinese president xi jinping is expected to expand the communist party when the national's people congress begins the session this weekend. the npc is expected to approve a wind wide ranging overhaul of the financial sectors. expect between 5% and 66%. the country is looking to boost demand and inward investment following years of lockdown pressures. defense spending is key with taiwan and washington's actions in the south china sea li qiang is poised to be named the new chinese premier. he is widely credited with the

exit from zero covid chinese services activity in february accelerated at the fastest pace in fsix months the services pmi expanded to 55 last month up from 52.9 in january. china exit from zero covid brought on demand and export orders look at asian trade overnight. picking up from the positive hand over stateside, but the data out of chwhchina providing boost to sentiment nikkei is up 2.5%. in hong kong, up 0.7%. the manufacturing data came out of china this week and the official and the s&p global pmi coming in stronger than expected and we saw the hang seng benefit rallying at 4% in one session. it had a strong run at the start

of the week. we are just building on the gains now. in the mainland, shanghai is up 0.1% in korea, up 0.17% strong session overall and setting the stage for the strong session in europe this morning as well. really a global markets moving in lockstep. we are awaiting data from the uk crossing now the final services pmi for services figure at 53.5. that was better than 53.3. the composite of 53.1 was better than expected at 53. we are firmly in expansion territory in the uk in february. recovery similar to what we have seen in europe the better than expected energy picture is providing a lot of the optimism come through.

in terms of the commentary, tim moore with the global markets, who puts together the surveys says there were signs inflation peaked in the uk helped by lower gas prices and shipping rates and cost pressures eased to the lowest level of june 2021. a lot of progress on the input side of things tight labor conditions and squeezed margins limited the degree while cost pressure passed on to customers that is interesting. that is really the dilemma that corporates are facing now. how do they pass through to consumers with the continued uncertainty and they have had to absorb a lot of the higher input costs to date. the take away is the uk pmi is strong and suggests the recovery is continuing in the services se

sector coming up on the program, saudi aramaco is worried about the chinese supplies as they re open we will have more after the break.

welcome back to "street signs. i'm julianna tatelbaum and these are your headlines european markets look to close on a high note as pmi ends at an eight-month high china sector with a boost ahead of the national people's congress. u.s. secretary of state blinken condemns the moscow war in ukraine as he meets sergei lavrov for the first time since the invasion more sanctions could be coming soon >> we have already done a lot of sanctions to the sector. russia is very much dependent on technology we have been cutting our

technology supplies to russia. oil prices on track for weekly gains spurred by optimism of the china reopening demand returns and under in investment is a big worry. >> china opening up and the lack of investment and it is a concern in the long term in making sure there is adequate supplies in the market fr we've got interesting lin coming out from the uk house of lords. the uk house of lords economic committee is launching an inquiry into how the bank of england independence is looking. it will not look at individual policy decisions it has taken, but focus on the bank role and remit and if the government structures of the bank is

appropriate. you will remember back in the time when liz truss was in the running for prime minister, there were questions if she intended to keep the bank of england as an independent institution or make changes to its structure. now the house of lords launching this inquiry into the boe and assessing how its independence is working w we don't have a lot of detail to launch the inquiry or how long it will last we have news that the inquiry has been launched. obviously huge implications if the remit were to change or whether the independence of the bank of england would change this is not looking into individual policy decisions, but the remit and structure and independence of the bank of england overall. fascinating. we will look at more details should they come through. sticking with the uk,

softbank arm will pursue a u.s. only listing this year not a uk list bing. it is the best way forward the uk government pushed the chip maker for a dual liftsting. it remains committed to keeping headquarters in the uk and expand presence in the country karen spoke to dominic johnson at the mobile world congress and asked if they would list here. >> if we get our trade deals real, it is more of a funnel for india if we get our alliance right. i hope every company in the world will see london as a primary listing or a secondary or dual listing. we have the investment management talent. we have an extraordinary ecosystem of hedge funds conflict, i came from, but not

uninvol more involved in that. the u.s. is the biggest capital market in the world, but the international market in the world is london. that is where the people are and liquidity. i call everyone to come to the uk and list and benefit from our financial services ecosystem >> also speaking to cnbc is david schwimmer. he is confident they can keep the pop place among the european financial markets. >> london continues to play that role we see that across different asset classes. that was a statistic cal aberration for a short period of time f if you look at the metrics and measures like broader liquidity, there is no question that london is certainly europe's leading financial center and i expect it to continue to be that way. >> now arm joins a list of european companies choosing to pursue u.s. listings

building material giant crh saw a bounce after the listing in the states british gambling company flutter has a second u.s. listing with the view of moving its primary listing there in the future. in an interview this morning, andy byrd said the cost of moving to the u.s. has not turned the company's head. >> we haven't had active conversations about changing our listing. we are very proud to be part of the ftse we are a strong member of the ftse. >> what is a benefit from being here >> if you are a technology company, you get a premium valuation in the states? >> i do. also, i have seen recently seen valuations come down. >> fascinating to get real-time answer from the pearson ceo.

sounds like it is not out of the cards for them. let's look at european equities and where we stand an hour into the final session of the week down about 13 points for the swiss market still green on the board we have come off the highs of the day across the european market dax up .80 ftse mib up about 1% in italy. in terms of single stocks, lufthansa with net revenue doubled to 33 billion euro that was weaker than expected. operating profit lower compared to the loss in 2021. lufthansa sees capacity growing to 85% in 2019 numbers this year annette will speak to ceo carsten spohr later today.

a rebound in china factory output with saudi aramco says there is a concern with the long term we have dan here with more dan, it is unusual to think about the under investment i'm curious about the ceo and what he had to say about the supply in the future >> reporter: julianna, really doubling down on the concerns about persistent under investment in the energy sector. it is not a new concern, but executives have been talking about it as the industry looks to find ways to shield against future shocks and ensure adequate supply to meet growing energy demand. we spoke about aramco program which is critical on the ground. this is an initiative that aims to increase investment in the saudi economy through

public/private partnerships and government incentives with the goal of boosting gdp. i asked how much capital does aramco want to deploy to the program and what is the end goal listen in. >> what is important for us is to localocalize our supply chain create reliability some of the project that were approved by sheik and what we are casting and forging and plates and indian manufacturing and google cloud of the thprogr. in reality, some of the projects are important for our supply

chain to increase our r reliability as a company at the same time, they will satisfy our business as they are aiming to add 4 million barrels by 2050. >> one other key questions that investors have is what does all of this mean for aramco financials critics say the funds could be better used if they were reinvested back into the business rather than on more public/private projects. what do you say? >> this project has a huge impact on reliability. we have been through many crises remember the attacks on the facility and we find out our supply chain was not fully ready in terms of metal plates were available. casting and forging is important because we ensure manufacturing can allow us to transport and

platforms to be close by we went through the covid for two years and supply chain was interrupted. localization of materials is critical for aramco is important. we are looking to diversify and increase our view from other sectors. >> reporter: these questions are really critical, julianna, when you look at the role that aramco plays as a state developer the government is relying on aramco to produce profits in order to execute on the crown prince vision of 2030 agenda a quick look at oil prices, julianna, ticking lower. the weaker usd and data from china helped to drive gains.

we are looking to finish the week slightly higher back to you. >> dan, thank you for the interview. really interesting coming up on the show, a mixed picture from u.s. retail earnings as top executives look at uncer uncertainty. we'll break it down right after this yourself. with shopify, you can have everything you need to streamline your shipping, returns, and product storage, so you can focus on growing your business. because when we work together, the future is bright. it doesn't have to be lonely at the top. join the millions at finding success on their own terms. start your journey with a free trial today. ah, these bills are crazy. she has no idea she's sitting on a goldmine. well she doesn't know that if she owns a life

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welcome back to "street signs. u.s. retailers with mixed earnings macy's with a beat for the quarter and forecast higher than expected profit for the year with lower excess inventory helping margins. macy's got a double digit boost in shares on the back of the report kroger delivered an upbeat forecast best buy shares took a hit in the session yesterday despite the holiday beat as the retailer warned of the down year in the consumer electronics industry. nordstrom and costco warpened of

weakness in the discretionary items. let's bring in the partner at simon james. thank you so much for being with us based on the earnings reports, how would you categorize the health of the u.s. consumer? >> i think what is interesting is retailers reported of the 6% to 8% top line increase last year, only about two-thirds hit the bottom line. what is worse for this year is cost insurcreases from labor and wages will persist and grow. the same retailers are predicting half of revenue will flow to profits. given the inflation fatigue, many have run out of pricing runway if they make increases, they are risking volumes which will degrade margins further. the way forward is primarily to

stabilize and return to baseline earnings this is going to mean operational and financial efficiency that may mean closing less productive stores. that is what best buy is planning to do and ensure markets costs are spent wisely and finding cost efficiencies to boost back the stock price. >> to what extent are we seeing a volume response to higher prices do you think that we have seen peak pricing >> i think retailers will continue to squeeze where they can just because of this massive impact to the bottom line. however, if you look at some of the numbers coming out of the u.s., you know, january u.s. cpi was consistent with december at 6.4% although cost is easing compared to the highs in 2022, they still

have not come down to the normal levels we would like the fed is continuing to raise rates. that might have an impact further. the labor market is experiencing slow wage growth as fewer companies are planning to pay for raises this year all of these negative signals are creates headwinds for retailers and consumers are fatigued they are stretching their wallets as much as they can buying household goods and grocery and food items either postponing or not purchasingdiscretionary items. retailers have to be surgical about it or they will continue to lose demand that will have a negative long-term impact >> which types of stores are poised to do well in the

environment you described, whereby consumers are purchasing necessityies and less willing t purchase discretionary goods. >> budget retailers are doing well walmart and target and tj maxx discounters are doing okay they are seeing a flux of higher income consumers returning to the value retailers so they can get better deals grocery. you mentioned kroger will stay healthy because that is where consumers will put dollars to food and household essentials. what is interesting is within grocery, there are changes observed in spending patterns. consumers are purchasing more private label to stretch their budgets further. you know, maybe in some areas, they continue to splurge, but in general, they are being cost conscious with how they are spending what is interesting is luxury

and ultra luxury is insulated that is a protected sector retailers are able to sustain and drive increases and pass them on due to cost increases which are going to see success in 2023 in q1 and beyond >> that is clear it makes sense when it comes to consumer behavior patterns, one change during covid was a move to online shopping and quick delivery and those companies pivoting were able to benefit strongly now we are several months out from essentially reopening, is that trend sticking? are we seeing the consumer behavior changes stick are people still buying online >> yeah, i think what was very interesting was the holiday shopping period is very telling

in the u.s. how retailers aring go -- are going to do and what to expect in 2022, we saw a return to in-store shopping. people were tired of doing everything online. there is a benefit in store. you get to browse and you get to touch and feel over that online experience some of that will stick and per persist. what they are looking for is best value and also tired of having to deal with inflation in daily lives. any time retailers can offer a less expensive alternative or find ways to pass cost efficiencies on to the consumer, i know it will be a more loyal consumer base. >> thank you for sharing with us. looking at european equity markets before we go to the u.s. colleagues we have green. swiss market below the flat

line ftse mib up 1% dax up 0.9%. ftse 100 is up 0.2%. overall, strong session and start to the trading day after a strong hand over from asia after the pmi from china and a sharp recovery in the services sector. adding to the positive picture we started to see earlier in the week with the manufacturing surprise out of china a also bund yields are the highest since 2011 with that, we leave with a picture of the u.s. futures and say good-bye that is it for "street signs." i'm julianna tatelbaum "worldwide exchange" is up next.

it is 5:00 a.m. at cnbc global headquarters. here is your top "five@5." stocks trying to snap a multi-week losing streak despite treasury yields surging to the highest level in decades futures are in the green. duelling fed heads putting investors in a tough spot. why wall street will have to brace for more jumbo hikes. and looking for the veto pen. the fight is still not