Bloomberg Markets (02/07/2022)
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 minutes into the US trading day on Monday February 7th. Here are the top markets stories we're following for you at this hour. Sovereign sell off the global bond rout continues on both sides of the Atlantic as traders brace for more aggressive central bank tightening. We'll hear from the ECB as Christine Lagarde later this hour. Deterrence and diplomacy. Ukraine is front and center as President Biden meets with Germany's a lot. Schulz at the White House today. Well France's Emmanuel Mark
Gurman is in Moscow for talks with Vladimir Putin. And pedal to the metal peloton. Shares surging on reports the company has attracted takeover interests. It's 80 percent drop from record highs may make the price attractive. But analysts are skeptical about a potential deal. From New York. I'm Kailey Leinz with Guy Johnson in London. Alix Steel is off today.
Welcome to Bloomberg Markets. Guy it's a new week. Let's hope it's a little less crazy than the previous two. I'm not sure it started that way. Hayley It feels very much like a continuation of what we were talking about Friday. We can hear from Christine Legarde a little bit later on. We've got as you say sovereign bond markets firmly in focus. The question of the
day is a fairly straightforward one. Who's in charge. Who's driving this narrative. Is it the central banks or is it the markets. But I think it needs to be a little bit more nuanced than that. I think it needs to be which markets and then which jurisdictions because I think if you look at Europe for instance I think the governing market is more important certainly when you look at what is happening on the peripheral markets. But credit on both sides of the Atlantic I think is absolutely front and center here and now starting to react. And I think the
credit channel is certainly going to be very important for the Fed less so maybe over here in Europe where the bank channel certainly dominates. Let's kick this around a little bit. Let's try and figure out exactly what's going to happen and maybe set ourselves up for another interesting week. Christina Keno joining us as is Bloomberg Surveillance Signorile. Christine let me start with you. Let me pose that question to you. Central banks in charge or markets are in charge. And if we're talking about markets which markets. Well I think it's very much markets and charge. And specifically the short end of the market is the part of the market that's pricing in all these rate hikes. We've seen this time and time again push central banks into a corner and getting them to respond to it.
We definitely got that from the ECB and Beazley last week definitely more in line with the markets when it comes to a more hawkish sort of path for policy moving forward. And you know that's filtering through to the rest of the money markets today particularly in the periphery where we're seeing Italy and Greece under fire specifically today because of the aftermath of the ECB shift to a more hawkish regime for instance. All right Vince do you agree with that take. And if so where else are you seeing it other than the bond market guy. I totally agree with what Christine is saying. And thankfully it is the markets
leading central banks when central banks lead. We tend to see mistakes because their forecasts are unfortunately not very good. And we've seen this before with the Fed with a raised four times only months later to have to have cut four times because they anticipated too much inflation and then growth slowed and they had to come back and ease again. I think this is really positive that the markets are leading. What I would hate to see is march the Fed rate by 50 basis points to try to take back control of the market. They don't really need to do that. They they can follow along
nicely. And I think as you said where we're seeing it is mostly as Christine said the front end of the curve. We're seeing some flattening. I'd expect to see flattening continue. We're only seeing about 45 basis points in five thirties. I think that can shrink even a little bit more as the shorter end really needs to price in the Fed the back end. Right now it doesn't need to be that aggressive. That's the critical channel for the Fed to watch as the credit
channel. Thus far we haven't seen that much impact into the credit channel. We're starting to see it show up now. Is that something the Fed to your point is going to have to lean in on. You say you'd hate to see them have to go 50 just to try to regain the narrative. But if the credit market starts to crack does that fit it. Will the Fed be in a position where it needs to take a different course of action. Well I mean hopefully the crack will be a small crack. You know I mean it's there there's obviously would be some expectation that the credit markets will suffer a touch as rates go higher and people step back looking for higher yields more attractive more attractive maturities et cetera to step in. But I think I think the credit market is going to hold up just fine. I think there's you know even even a rates back up a little bit put a little pressure on credit.
There are gonna be some very attractive yields in that market to attract investors especially as we see treasuries I think lagging a little bit at this point. You know we've had a huge move in 10 years up above one one point nine percent. I don't feel like that has a lot lot more to go at this point. You know two to 10 perhaps. But when you start to see you know taxable munis start to rates show a very attractive credit. The corporate bond market shows some
attractive credit. I think that will will bring investors to the market and keep the credit markets in balance. All right Christine on that point of relative attractiveness how much higher can yields go before they actually start to spell trouble for the equity market and maybe call Tina into question. Well Kelly that is the big question isn't it. I mean we have seen for instance earlier this year being thrown around levels around 2 percent for 10 year Treasury yield as a potential pain point for tech stocks in particular which which we saw did bear the brunt of the earlier sell off in the equity markets. But you know we're heading towards levels that could get past that 2 percent mark. And so I think it is a question of what's the tradeoff. You know in terms of how much further yields could go and above for instance earnings yield or other metrics that
equity investors tend to look at when trying to make that decision between whether they're going to go for equity still or whether they're going to go for bonds. And so that's going to be definitely one to watch out for and potentially something that we could see as soon as the next couple of weeks if this sort of price action continues. OK. Christine the other Christine Christine the the president of the ECB is going to be talking at the top of this hour. She's going to be delivering testimony to the European Parliament taking Q and A. Does she push back. Does she change the narrative. Does she try and push the markets off
to today's price. Actually beekeepers and Greek bonds. Does she try and push back this idea that the pivot at the ECB is now underway. Does she talk about spreads IBEX. She's on really dangerous ground here. Do you think she goes that well guy. I think that's what markets are going to be watching out for for sure. I mean we have seen a tendency from the ECB to especially
in the aftermath of a big rate decision such as the one that we saw last week to add some new ones to the messaging in the weeks after that. And so that's certainly what we're going to be watching out for. How much of a pushback is she going to mount against the price action that we're seeing in markets and whether she will acknowledge the spreads. We have seen her time and time again do this to some mixed degrees of success. So you say it is quite a tricky communication challenge especially when bets at the moment are at these levels. All right. Well we'll wait and see how she handles this in less than 40 minutes time. Thank you so much to Bloomberg's Christine Aquino as well as Vincent Signorile. Now coming up we'll continue this
conversation talk about treasuries joining this global bond market route. We'll discuss what Katrina Dudley an investment strategist and portfolio manager at Franklin Mutual Advisors. This is no. Let's check in on the Bloomberg Markets could get to Russia's Vladimir Putin and France's president Emmanuel Macron are meeting today in Moscow. The Kremlin says the talks will be substantive but it doesn't expect a breakthrough. Russia has repeatedly denied that it plans to attack Ukraine. The U.S. and the U.K. say they are now almost one hundred and thirty thousand Russian troops close to the Ukrainian border. A state of emergency has been declared in Canada's capital over
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Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than a hundred and twenty countries and Russia could get 10. This is Bloomberg Caylee. Thank you. Let's get back to the markets now because that worldwide rout in the bond market is expanding today. And now treasuries are among the bond bonds that are falling. That brings us to our question of the Day. We basically want to know who is in charge here. Is it central banks that are leading or are they just following the markets that are actually in the lead. Joining us now to hopefully help us answer that question is Christina Dudley. Katrina Dudley Franklin mutual advisors
investment strategist and portfolio manager. Katrina is this a market that is front running. What central banks are doing and central banks are basically just adapting to it. What do you think. There's a feedback mechanism that exists between the markets and the bond markets equity and bonds. And I think what you've got is a couple of things going on. First of all Christine the Guard is responding to the fact that she's going to be very careful in her hawkish comments because they don't want to have another tantrum like we did about a year ago when your comments about rising yields in Europe caused the Italian markets to blow out and you have a nascent kind of government there and a recovery. So I think that they're focusing on that transmission mechanism as opposed to looking at how bond markets and equity markets are linked. The second thing though I think is going to be very interesting is that the typical link that we see between your
treasury and bond yields and inflation we're a little concerned that that may not actually come into play this time given the fact that he's got a fed a federal government that really wants to spend money. And normally you get deflation or a tightening of inflation conditions when the federal government tightens. And this time the US is really trying to spend its way out of this. So we may not necessarily have the transmission mechanisms that the Fed is hoping for. You just sort of expand on that a little bit. What are the implications for the various asset classes if that's the case. Well the first thing is is that we're looking at inflation in the US and we have been very very surprised at how high it is. And it's now not just high is noticed by equity markets. It's high inflation as noticed by people on the streets. How does
that impact equity markets. It makes products more expensive. Normally when you have expectations of products being more expensive people tend to buy today instead of deferring consumption. But at this stage because people really don't have a lot of pent up demand particularly for home goods and capital goods. I think that this is not necessarily going to see that acceleration. So we're a little cautious in some of the areas of the market where you need demand to continue to be strong and
inflation could actually would top that. Where does that put U.S. equities relative to say European ones. Katrina. I've been a European fund manager for my entire career. I now do global as well and I think I've always had a positive bias on Europe and I think this time I'm actually really confident in that positive bias. First of all let's take a look at valuations. The European market is cheaper. We can go into specific sectors where there's even better opportunities in the European market than say the US market. Secondly you have that recovery fund that was passed well over a year ago and it's finally going to come into GDP. And then on the inflation front the real drivers of inflation that exist in the United States
are just not present in Europe. So you don't have such wage pressure that you have in the United States. You don't have the same pressure from the owner occupied housing which isn't actually in European inflation markets. And the bump in energy prices which is in inflation is really a transitory impact. So I think the set up for Europe this year is really good. Katrina the outperformance thus far this year certainly include the banks. I got the names on the screen right now Saba Dow 43 percent to the upside Keisha Banks 33 percent Bank of Ireland 30 percent. Commerzbank is up 28 percent. These are big moves that have to be made already. And I'm also wondering whether some of the peripheral banks in particular are going to be able to
manage higher yields. The Italian banks in particular own an awful lot of beekeepers I think circa 800 billion if we do see yields gapping higher. Do you really want to own those institutions. You talk about the bounces off the bottom but I think some of those bottoms were artificially low. So you've really kind of got to look at where the stocks are on an average basis. So I think that that upside isn't quite so great. The second thing is
a setup for European banks is really positive this year. They're actually going to be in the market now paying dividends and potentially buying back shares. That's very different to what they've been in the past. They've also upgraded the quality of the balance sheet. So while you talk about the Italians which have some issues with their balance sheet a lot of the other banks have really high quality balance sheets. Finally if you look at valuations the stocks traded near 9 10 times earnings which is a significant discount to the U.S. peers. U.S. peers are reflecting the returns in the multiples of earnings that
they're trading at. The Europeans are not. And you're getting these assets at discounts to book value and with returns that are going to be greater than the cost of capital. I think the set up despite the moves off the bottom is really positive on the subject of valuations. Katrina how high a multiple are you willing to pay to own a stock in this environment. I'm a value investor so I like cheap multiples. We don't tend to need to buy companies that are trading at 100 times earnings 100 or 10 times revenues. I think in terms of looking at that multiple the bond yields to come into play here and that is the pressure that you're seeing on growth stocks. The question is you really need to take that long term look and have a look at
what the cash flow of these businesses are going to be because that takes out the multiple equation. Multiples are very very sensitive. Cash flow is something you can elongate and look at and you can test those sensitivities. And finally a lot of these tech companies are not levied. So they're not going to see a high high cost in terms of high interest rates from rising rates. They're just seeing it as I said in terms of the discounting of those future cash flows. Katrina. Do I need to include some geopolitical risk into my European positions when I think about them. We don't know what's going to happen in Ukraine but if things take a turn for a worse we could see significant energy price escalation even from here.
We've already seen one bout of this. We could get another. European industrials are very exposed to this. Yes they are exposed to it. I think that you've got a lot of geopolitical tension and trying to predict what Putin is going to do is is a it's just a quandary that we don't really know what's going to happen. The fact is however is a lot of these European companies don't just sell their products into Europe. They sell their products into the United States. They're also very exposed to China which has just stimulated its economy. So even though you have some of these headwinds I think that they've got some very good growth prospects. The second thing if they do see rising
energy costs you just want to be in those industrials that can pass it on through pricing power because it's the same way when we look at the U.S. industrials we're looking for companies that have got strong market position. You know mom mom mom monopolies which basically give them that pricing power because that is the ability to cope with any type of inflation and costs be it energy wages or the like. Katrina we just had a viewer writing in on IAB on the Bloomberg terminal asking about those European banks. What kind of risk premium do you incorporate on the corporate governance governance side given that there's always a
constant barrage of headlines about turmoil in the C suites and at the high levels of some of these banks. Yes you've seen it at Credit Suisse. Obviously you've seen it at Deutsche Bank and everything. The fact is you can look at it negatively. The way that you're talking about needing to incorporate a higher risk premium or you could take a positive stance is that they are now realizing that governance is very important to the investor base not just in the US but also in Europe. And this is a real call to action. I think in the Credit Suisse case you could potentially say that they've taken the Covid violations seriously and they've implemented their policy probably in the past. You may have had some of these type of things swept under the carpet but now the banks are acting positively. So I think if I look at it versus even 10 years ago that risk premium
should be lower because there are a lot more proactive particular on the governance front. Really useful insight Katrina. Thank you so much for joining us today. We greatly appreciate it. Katrina Dudley a Franklin Mutual Advisers thank you. Right. What are we gonna be doing next year in peloton up sharply today. The fitness company is said to be exploring takeover options. A couple of big names being mentioned as potential acquirers. Nike is one of them. I'm hearing Apple being talked about. Amazon may be in the mix as well. We'll talk about all of this next. This is Bloomberg. It's time for the Bloomberg Businessweek. Look at some of the biggest business stories in the news right now. Frontier
Airlines has agreed to buy Spirit and the takeover that combines two of the US's bargain carriers. The price two point nine billion dollars in cash and stock. The private equity firm Indigo Partners owns a majority stake in Frontier and is the largest shareholder in Hungary's was air. Shares of Palatine are soaring today. The company is said to be exploring takeover options. There are also reports that Amazon and Nike are both considering making authors. Before today peloton stock had fallen more than 80 percent from the high a year ago. And that two business flash
guy. Okay okay. Let's pick up and talk about that last story is what we were focusing a little bit more on given the share price move that we're seeing. I mean Bedside who covers the company for Bloomberg Intelligence joins us now to give us a take. I mean the share price is down so much at some point we were definitely going to be talking about potential takeovers. I've got the journal talking about Amazon. I think I wrote the FTSE talking about Nike. I think Wedbush is talking about Apple. How credible is this idea that we could see a takeover here. Actually I mean it's a really good question because when we look at Palatine show structure first of all if Billiton doesn't want to be sold it's not going to happen because when you look at the share ownership class B shares are have around 66 per cent ownership for the whole for the voting rights basically. But to your point it looks like you know maybe fitness upper
levels or companies will want to have this premium fitness experience could be better fit. It's hard to say at this point of time if tech players could you know could be a good fit. But we'll have to see how that you know how that extends Emma Chandra. OK. But on the subject of those tech players I mean we know that they are subject to a certain degree of regulatory scrutiny as well. How much could that be an issue here if someone were to pursue an acquisition.
It's too early to say but since better times market cap has wrenchingly you know as you guys mentioned earlier significantly declined since the height of the pandemics. In addition to that a lot of the tech players their fitness platforms are still relatively small and even acquiring parrots. It doesn't look like it would put them to a level where you could raise some regulatory issues there. But again it's too early to say. So far it doesn't look like it may be a significant change. I mean let's just talk about kind of where pellets on ISE in its journey. Clearly it was a locked down darling and the stock price maybe got ahead of itself. We're now getting a kind of opposite and equal reaction to that. The shares are down very hard. But how big could this space be. What is the opportunity if this business stays as a standalone.
Yeah. So are the U.S. fitness revenue is around 30 billion has been growing relatively stable. Of course pandemic. Looking at more specifically that is the focus or that is where the term could be. The issue that they have is of course as you mentioned they benefited from the pandemic. They had significant pull forward. But now they have
more supply than demand unfortunately. So car deal of platforms there's the win predictably. Well especially you know with treadmills and bikes. But when you go outside of that there is not then many other fitness verticals or other products. They have so many strength or things of that sort could help them you know boost temporal firms. All right. Thank you so much for your
input on this. I mean Ben said a Bloomberg intelligence. Appreciate your time. Palatine shares up 22 percent within about an hour into the U.S. trading session. Now coming up we'll get back to geopolitics because the new chancellor of Germany Olaf Schultz has started a round of diplomacy in the midst of crisis talks over Ukraine. His first stop is the White House. And we'll talk with the former U.S. ambassador to Germany Jon Emmerson next. This is Bloomberg. We're an hour into the U.S. trading session and Bloomberg's Abigail Doolittle is tracking the move. So Abigail it's a new
week. I don't want to speak too soon but it looks a little calmer out there than it did last week. It does look a little calmer but I wanted to set the stage and show what we're coming out of because of course this year has been all about volatility big moves up and down on the days and on an intraday basis. Net net at this point you have the S&P 500 basically down about 5 percent down in a big way up that intraday volatility. But to Kelly's point today this move the moves are much smaller. The Dow the last time I looked was slightly lower. The S&P 500 slightly higher. As for the NASDAQ 100 and some of those tech
indexes the last time I looked we saw gains. Yes but the Nasdaq 100 up about four tenths of one percent. The stocks the chip index up a little bit more. But there are some divergences because you can see the 90 plus bang index. It is down about six tenths of one percent. That has everything to do with its roughly 20 percent weighting to China Tech 80 hours. Ali Baba in particular is down sharply. This divergence is true too for U.S. mega caps out for BET and Apple Amazon excuse me both actually
Amazon and Tesla higher Tesla off of its highs. Earlier it had been up about one more than one percent. But you can see Amazon still in that strong quarter glo up two and a half percent. To the downside though we still have better platforms down after the not so great quarter follow through and Netflix down two point one percent. So we have this divergence of haves and have
nots within mega cap. But the big macro influence of course that has to do with rates. Guy if we take a look at the 10 year yield recently at its highest level since late twenty nineteen early 2020 overall it's a choppy uptrend but it is an uptrend. Higher higher higher. It looks like 2 percent is not so far away. If that should happen again it looks like it will. How will big tech digest those that big round number. Perhaps we'll find out sooner rather than later. Guy.
Absolutely the right to change really impressive right now but certainly the story over here in Europe. Remember can't take you down to Christine Lagarde the president the ECB talking in front of the European Parliament at the top of the hour. Let's stay with the European focus. Germany's chancellor Angela Schulz very much under pressure. The idea is he needs to take a position on Russia and its military buildup on the border of Ukraine. He gets a chance today maybe to do that. He is going to be meeting President Biden at the White House. Joining us now playbooks Joe Matthew from D.C.. Joe what is the White House hoping for expecting from this meeting with the German chancellor. It's all about unity today. Guy presenting a unified front. The White
House has scheduled just under two hours for the two leaders to meet in the Oval Office. That will be followed by a news conference a joint news conference in the East ROOM. A lot of questions to be asked here. Guy we're going to be looking for answers and Bloomberg will be in the room specifically to Nord Stream too and how Schultz comes down on this with regards to any potential sanctions that could be imposed. Look you know as well that there have been a lot of questions about Germany's
resolve when it comes to protecting Ukraine in dealing with Russia. Schultz sat for an interview with The Washington Post ahead of this visit today pledging a united and decisive response to any invasion by Russia. Happening at the same time as French President Emmanuel Macron meets today in Moscow with Vladimir Putin. As these conversations continue guy a series of talks underway at defusing tensions and avoiding an invasion that we should note. Russia to this day claims it is not
planning. Guy Joe is the U.S. and France on the same page. Obviously there's some issues in particular with Germany in regard to energy flows. But we know President Biden spoke with Macron yesterday on the phone before that meeting in Moscow. How much are they aligned. They seem to be for the most part. But we have to remember that these talks are happening against the backdrop of the U.S. trying to locate more gas liquefied natural gas from our allies. That could be sent as an alternative if you will to to Europe in the midst of this winter if Russia decided to shut this off. But this is you know an interesting decentralization of talks. The U.S. has decided to let Micron go ahead with his own tact with Schultz in his own tack. The EU and
NATO with their own. So not all of the burden is on this White House. All right. Thank you so much to Bloomberg's Joe Matthew in D.C. covering what is happening at the White House today for us. And we also want to pay attention to what is happening in Moscow which Joe mentioned. French President Manama Crown is meeting with Vladimir Putin. We actually have some images of that. That meeting has just begun. And we are expecting these two to hold a joint news conference later on today. Again
Vladimir Putin and Emmanuel Macron meeting in Moscow. But we want to focus more on the particular conversation when it comes to the US and Germany. And joining us now is John Emmerson chairman of the American Council on Germany and a former U.S. ambassador to Germany. Ambassador thank you so much for your time. Germany obviously is in a very vulnerable place when it comes to Russia in particular given its reliance on the energy Nord Stream to et cetera. Can it be a reliable partner in the Western alliance given that. Oh no question about it and in fact Germany has been a reliable
partner for literally decades including through least the western part of Germany and including through the entire Cold War period. Know there's probably no more important relationship for Germany than that with the United States. They talk about the trans-Atlantic relationship. That means their relationship with the United States while Germany and certainly Chancellor Salt Schultz has his own politics to deal with internally. There are certainly differences within Germany Germany in terms of attitude towards Russia. There is obviously the energy concerns at the end of the day. I have no doubt that Germany will do everything it can to make sure that the European response to Russian aggression is very close to and consistent with the American response. Ambassador as we watch this playback of the meeting between
Emanuel McCraw and Vladimir Putin who is leading that European diplomatic charge who is in charge of the charge. Is it Schultz or is it Emanuel Macro. Well you know it's interesting. I perked up when I heard your your reporter talk about the fact that you got multiple fronts going here because I think that is what what happened. Look I was ambassador in 2013 2014 2015 when the whole Ukrainian Russia Ukraine war started actually back in 2014. And it was pretty clear it was on Bill America who was in charge. I mean she's the one who's sort of traveled around Europe pulling together the member states of the EU making sure they were consistent in terms of the imposition of sanctions. She led the Normandy process which was France Germany
Poroshenko from Ukraine and of course Putin from Russia to try to you know just try to find a diplomatic solution to this crisis. Obviously you know we don't have Angela Merkel anymore. And you know Macron has his presence. He's up for re-election himself this year. All of Schultz has come in relatively new. He's not wet behind the ears. He was vice chancellor in the last four years of the Merkel government and he was finance minister which is in many views the second most powerful position in the German government. So he is certainly someone with a lot of experience but it's a different thing than than what we had
before. So yeah I think the United States is being smart in allowing multiple points of contact with Vladimir Putin and multiple pressure points to try to get this thing to not move on to an invasion. Other than Angela Merkel not being involved this time around I'm wondering what else is critically different than in 2014 and why now eight years later you think Vladimir Putin thinks that's a time where he might be able to make a move like this. Well I mean I think he's looking at the I guess there several things. Number one is obvious. You're looking at a changing
government of Germany macron running for re-election. And there's a lot of there's been a lot of change and transition. And so maybe there's an opportunity there. Secondly well Putin probably wants more than anything else is for Ukraine to be unstable and not to move closer to the west. And President Selenski has been you know sort of flirting with the idea of moving to the West. Remember when this first started in 2014. It was you know it was with Yanukovich fled Ukraine. You had the protests on the Maidan. And Putin was afraid that in fact there'd be a populist revolt within Ukraine and that they would move closer to the West and to Europe and the EU. And that's
what he came in and seized Crimea and went into the Donbas. So there is a fear I think that Ukraine again is moving farther away from Russia in part because Ukrainians are angry with the policy. Russia is pursued. These would be Ukraine in the last seven eight years. And he wants that to stop. So so this this sort of threatening behavior
if coupled with a change in governments I think provides him an opportunity to try to put his foot down. We started this conversation with you reiterating the idea Ambassador that Germany is a reliable partner but there are certain things that speak against that maybe from a US point of view the Germans and there's a historical context here are very wary of providing kinetic weaponry to the Ukrainians to deal with this threat. We also have German businessmen carrying on conversations with Vladimir Putin. We saw a meeting only a few days ago. Germany is shutting down its nuclear reactors. Therefore it is more exposed to German gas maybe to Russian gas more than maybe more than it's ever been. This is Germany really capable of picking sides said the US clearly has. Is Germany capable of making that decision as well.
Well of course they are but Germany's interests are broader and different views of Russia than the than the US. There's no question about it. Let's not forget that a third of the country geographically and about 25 percent of the country from a population standpoint instead of growing up learning English becoming friends with the sons and daughters of American servicemen and women had the same experience with Russia. They learned Russia's kids Angela Merkel learned Russia as a school. It's still a girl. And so there is obviously a connection to Russia. I don't necessarily buy this. Oh they're completely dependent upon Russia for their oil and gas. They're dependent upon Russia for a cheap oil and gas. It would obviously be more
expensive for them to move in another direction. But don't forget I'll tell you something else that's changed is you have the Greens and the government now. And the Green Party is pretty tough on Russia. And they certainly are not in favor of Nord Stream too in part because of its reliance on and continue it allows for continued reliance on fossil fuels. So and historically Germany has always been reticent to provide lethal aid to anyone. They broke that when they provided lethal aid to the Peshmerga the Kurdish Peshmerga in the effort to go after ISIS which we were very grateful to see happening. But the fact
that they aren't providing lethal aid which I think we accept our government accepts is different from not from only providing 5000 helmets. I think that's a little light if you will and there's plenty of aid and assistance they can give to Ukraine above and beyond that. That doesn't amount to you know sending in tanks or Javelin missiles. Well Ambassador we actually are getting some headlines from online Barry Bach the German foreign minister who is meeting with her Ukrainian counterpart. And she
says she will do everything to prevent earlier further escalation and that Russia will pay a high economic price with escalation saying the ball is in Moscow's court on the Ukraine conflict. We actually were speaking earlier on Bloomberg Television with Geoff Curry of Goldman Sachs about the prospect of energy flows being entirely disrupted. And he says that's unlikely because it's mutually assured destruction and that Germany needs the energy flows on the supply side. Russia needs it on the demand side. If this conflict were to escalate and you did see those energy flows disrupt swept it. Is it ultimately more of a problem for Germany on the receiving end or for Russia. No. Germany is a has a multifaceted economy. They have the capability to go out and energy markets and supply there or meet their energy needs. Russia is a one trick pony.
You know if they sell an oil and gas there is not a whole lot they can sell that the rest of the world wants to buy. And so maybe they become more reliant on China much more reliant than they would want to the last time this happened. China cut a pretty good deal from China's standpoint for oil and gas from Russia. So no I would actually say of course it would be painful for everyone but I would say that the odds are a bit more and certainly maybe a lot more in Germany's favor in terms of being able to weather the economic consequences of something like this. We will continue to monitor the Emily Chang Babcock press conference which is happening in Kiev right now. You can see those pictures on the screen in front of you. Bring you the headlines from them John.
Greatly appreciate your time today. Thank you very much indeed. John Everson former U.S. ambassador to Germany. Thank you sir. What are we gonna be doing next. We're awaiting for we're awaiting ECB President Christine Lagarde. She is delivering testimony and answering questions before the European Parliament today. It's the first time we've heard from her of course since last week. That press comments that now famous press conference in Frankfurt where she refused to rule out a rate hike this year plus not from the Netherlands over the weekend certainly augmenting that argument. Will she push back on the pricing we're seeing in the Greek bonds today. We'll find out very shortly.
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come as soon as this week. A minimum at 54 conservative members of parliament would have to support a vote. And the Sunday Times reports that some predict the total is approaching. That one conservative lawmaker tells him Zorba quote It is going to end in him going over the weekend. Johnson failed to key positions after senior aides quit president violence. Top advisers are repackaging his economic message to the American public.
That comes at a time when his approval ratings are sinking and his legislative agenda stalls in Congress. In the last week the president has put more emphasis on growth in wages union jobs and domestic manufacturing. And he's giving less weight to those areas which just so points with voters which are inflation and the pots and strike over Covid and the pandemic and China's restrictions to control it on damaging domestic spending travel and consumption. Join the just ended Lunar New Year break was down from twenty twenty one's already low level people in China made 251 million trips during the seven day holiday that is down 2 percent from last year and a 26 percent drop from twenty nineteen. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries and could get to. This is Glenn Beck. Guy really good. Thank you very much indeed. I'm just looking slightly off camera because there's a live shot that's just come off of Christine Lagarde. While the European Parliament where Christine Legarde will be
appearing very very shortly we'll take her testimony. We'll give you an idea of what is happening here. But in terms of coming into this they get this a shot. But in terms of coming into this this morning what we saw was this huge pick up in yields particularly peripherals particularly at the front end of the curve that is now starting to roll off as potentially we approach this testimony here. So the shots Germany's 2 year is now negative by one point six basis points. Beekeepers the Italian 2 year still up by two point six basis point to point seven basis points but well off the highs. So
coming back to the question of the day that Caylee was posing a little bit earlier on who's in charge. Is it the markets or the central banks. I think we're about to see potentially this big tested. Let's bring back into the conversation. Bloomberg's Christine Aquino. Christy we're waiting. Madam Lagarde she's going to be
speaking very very shortly. We did see this big move higher and yields earlier on that is now fading. Do you think that is people just kind of backing off those positions waiting to see exactly what she has to say. I think that's exactly it guy. I mean it makes sense for Marcus to kind of stall here a little bit in anticipation of what Lagarde is going to say and specifically in anticipation of the possibility that she pushes back against these very very feverish rate hike best that we've seen in the aftermath of the ECB last week. And this is very much the ECB playbook in a lot of ways you know deliver quite a punchy message at the rate decision and press conference and then see how that plays through markets and then adjust the message and provide the new ones in opportunities that to speak eventually following the meeting. Well Christine obviously the message from Christine Lagarde in the past has been that it's not her and the ECB whose job to close spreads. How much more can we see spreads widen out before they start to get really uncomfortable.
Well Kelly you know in the context of the Covid era sort of levels you know we're still below those levels. We haven't taken out the March 20 20 highs for instance in terms of the Italy and Greek yield spreads compared with Germany. And so that's certainly the first marker there. And then beyond that you know we're nowhere near levels that we saw during the key crisis periods in Europe. That would be around 27 2018 and 2015 2016. So there is the context there in terms of the history. It's
still quite far from where we are now versus how far it got during those key crisis periods is something to remember. But definitely you know with the ECB potentially embarking on this regime change. And if they do in fact deliver a rate hike this year which would be very very different from the messaging that we got from them could potentially be a game changer. But the rate hike is just part of the story. The other part of the story is in order to get to that rate hike they have to start rolling off the QE program. AP I various different programs but ultimately with the same end which is buying up huge quantities of Greek bonds when it comes to pet let's say with AP but buying up vast quantities of of the Italian bonds it just in terms of what the market had priced and what the market could be pricing if we get to that let's call it class notes key for sort of end of this core end of this year rate hike. What is the trajectory look like in terms of rolling off that those purchases and kind
of how quickly could that be felt. Well I think it significantly speeds up the time line when it comes to the ECB these various bond buying programs. We know already that they are meant to be ending pep in March. But the AP program which is the regular asset purchase program originally I think the expectation for that was not until December. So that's going to have to change massively given their sequencing mandate. If if that if they will deliver a rate hike this year then the messaging on AP will have to start very very soon. Regular bond buying program how far we have come now that we talk about these bond buying
programs as being regular. Christine thank you very much indeed as ever. Bloomberg's Christine Aquino perfectly setting us up as we head into this testimony by Christine Lagarde. We will bring you that as soon as she starts speaking. This is Bloomberg. So we're waiting we're watching. We are desperate to find out. Well Christine Legarde is going to say today she speaks before the European Parliament. We'll bring you her testimony very shortly. But we're also counting you down to the European clothes as well. So let's give you a quick update on where we sit with the price action right now. European stocks fairly
well. Bear Travel and Leisure are actually having a fairly solid day today. We're up by three three and a half percent 465. The current price some of the biggest push so far this year sort of coming out of the banks the basic resources energy. But you also want to keep an eye on the bond market. Now the earlier move is definitely fading. BGP yields are still higher but they are well off their highs. We're also seeing gas prices pushing low lower here in Europe. Part of that is a reaction to what's happening in state parliament. Of course a reaction as well. More gas coming through Ukraine. I wonder if that is significant. The
bond story front and center. Christine Legarde about to speak. This is Bloomberg Daybreak.