Bloomberg Markets Full Show (03/04/2022)
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 Friday March 4th. Here are the top markets stories we're following for you at this hour. States they're getting higher. Nine days into the war Ukraine says Russian forces attacked a nuclear power plant
responsible for 20 percent of Ukraine's electricity and Europe's largest atomic generator. The NATO foreign ministers condemn the attack and markets. They're not letting up. Investors taking their cue from the geopolitical risk with stocks under pressure and bonds catching a bet even the face of a hawkish Fed. While the rush to commodities heightened and some good news finally a payroll surprise in the headlines of the American recovery story continues. Non-farm payrolls increased by six hundred seventy eight thousand last month as hiring booms across America. From New York. I'm Peter Gupta with Guy Johnson in London. Alix Steel is off. Welcome to Bloomberg Markets Guy. A lot of bad headlines and
really risk off headlines. I should say. But there is some good news nestled in there. And that of course is that payroll surprise. These markets make sense but they don't make sense Kristie. And it's amazing. You just got to look at it and figure out which way you want to look at these markets. You've got an amazing payroll number 678 as you say the figure. Really strong details below the line. Then you look at what is happening with the U.S. 2 year down by 6 nearly 7 basis points today. You look at what is happening in Europe all seems slightly
counterintuitive. Then you of course Roland what is happening in Ukraine and it all makes sense. But you do have to wonder with CPI coming out next week expected to be circa 8 percent with the Fed sounding very very hawkish whether or not actually what we're seeing in the bond market right now is a misrepresentation of the reality of the trajectory the central banks at least in the United States and elsewhere or maybe less so here in Europe. So that kind of comes to our question of the day. Will the war effectively derail the recovery. And is that's what's being priced in to these markets right now. Joining us now to discuss it Heidi Shell's Economic Policy Institute president the former Labor Department chief
economist and Bloomberg's Mike McKee. Mike let me start with you. The data that we got today just kind of give us some perspective on it. The headline number look very strong. I appreciate the wages didn't go up very much but nevertheless still remain elevated. This looks like a very strong number and a representation that the U.S. economy continues to power on and on. I think you take the actual level number and you don't have to really pay a lot of attention to that. The idea that it is strong is what matters because the Fed's theory has been and
we've heard this from Jay Powell that Omicron was a big problem in January and that kept people from going back to work. And now as the disease fades more people would come out and look for employment. And that's apparently what happened. We saw a big rise over 300000 in the labor force and we saw six hundred and seventy eight thousand jobs restored. So at this point it looks like this the Fed has the narrative that they've been looking for. And J. Paul's already said that qualifies for a 25 basis point increase. What's going to happen after the CPI report next week is everybody's going to start asking Pollard in his news
conference after the Fed decision. What about 50 inmates. Mike let's talk a little bit about very quickly what actually isn't in the jobs report and that seems to be some more improvement essentially. And when it comes to a government state jobs you're seeing improvement wide variety of sectors but not particularly when it comes to government jobs. Your thoughts. You know it's probably a bit of a statistical anomaly in being caught up a little bit in the seasonal adjustment factors that they use because a lot of people who are employed by state and local governments in education not teachers but contract employees are off for much of December. And so we saw some big re some big adjustments to the January numbers too as well. And so
that may be the reason I don't think it's A that there's a big pullback from states although they're not getting as much money from Washington as they were. Heidi let's get your take on this data. What does it tell you about where we are in terms of the economic recovery. Are we now. Post Covid. What does it mean for the Fed. This was a an extraordinarily strong report. I mean I slapped my colleagues immediately when I saw the numbers. This is just an astonishingly strong recovery. We have now regained more than nine out of every 10 jobs that were lost. This is it's just we there's still there's still a gap to fill in. You know depending on how you measure that counterfactual the total gap in the labor market right now is somewhere between 4.5 and six point five million jobs. So we're not done yet. But the gap is closing
astonishingly fast. I just wanted to make one comment about the state and local government jobs. That actually is one area where we are not seeing the strong improvement that we're seeing elsewhere. We have you know state and local government jobs like in the private sector saw a big decline when Covid hit but have not seen the same kind of recovery that we've seen in the private sector. What. It's a little bit of lake state and local government jobs. Got a lot of recovery dollars in the American
Relief and Recovery Plan that was passed one year ago. They should be spending that money to hire back those state and local government jobs that were lost in particular. I mean we are down hundreds of thousands of jobs in K through 12 public sector jobs K through 12 public education. It's just these kinds of losses are incredibly damaging not just right now but sort of to our
long run productivity when we're thinking about not having the kinds of resources that are going to our kids. So it's really important that state governments do what they can to hire back the jobs that were lost. And we're not seeing that yet. I really I really hope where it is growing but at a very slow pace. I hope we do see that the increase of those jobs going forward. Heidi we just heard about from the Fed but Mike let's bring you in here because this is going to be a really important conversation right. We heard Heidi talk about the Fed. It's really blow out payrolls report. Let's bring it back to the question of the day. Right. Will war derail the recovery. It seems like for now. It's taken 50 basis points off the table in March. But is that going to be a longer term issue for the Fed when you perhaps see pricing. Well I would say two things. One
is that we don't know longer term because we don't know what's going to happen. Suppose we did have a nuclear reactor go down over there that would frighten Americans and might cause people to pull back on spending. So that's an unknown. But if we continue on the same path that we're on I don't think it derails the U.S. recovery at all. It's a different kind of recovery because we're not coming back from some problem with the economy. We're coming back from a pandemic where we just shut down the economy and are trying to reopen it again. So it isn't going to follow the same trajectory we've seen in the past and
it could come back a lot faster as it's doing. Europe though is a totally different subject and the worse it gets the worse their recovery looks and they could seriously face problems going forward. Stagflation definitely on the table here. We're going to talk about that next week with the ECB Haidi Lun sticking with the United States though for now the wage price spiral fears. We didn't see wages going up significantly today. Can we park that for now. Or do you think today's data doesn't really resolve the debate. It definitely gives us a lot of information about the date about the debate. Wage growth is decelerating and this question of the
wage price spiral is super interesting. When you dig into the data you don't see a relationship by industry between wage growth and price growth. Like if you do a scatter plot where the individual observations are industries looking at comparing wage growth to price growth there is no correlation. So we are not seeing that feedback between wages and prices to any really even visually available sense. So one thing that we know is when you step back and you think about what's going on you know restaurant restaurant wages are growing or growing strongly but we don't see restaurant prices increasing. We no used car prices
have gone up a lot but those by definition were made by workers years ago. So that's not about wage growth. We just are not seeing this wage price spiral. And that makes it it makes it easier for what we think what we know the impact of this inflation will be going forward in another. In other words that's good news for the U.S. economy. Well good news for the US economy Heidi. But let's broaden this out. How much of the conversation is simply about the uneven recovery. We were
talking about this even before the war broke out between Russia and Ukraine. It seems like that issue in particular the idea that China Europe and the United States are all really on different paths when it comes to monetary policy. How much of that is a problem. Yeah I do think that we're just focusing on the US. I do think
that the war in Ukraine is going to have some impact. It will increase our gas prices for sure. It will have an impact on inflation. Not much the Fed can do about the increased gas prices as a result of the of what's going on in Ukraine. We may see some you know some impact with people pulling back because of an effect on consumer confidence. But but I I really don't
expect to have it to have it have a huge impact here. I don't at all expect it to derail the economy. May slow things down a little bit. This economy is this or this recovery is incredibly fast and can actually weather this storm. I think I think pretty solidly. Let's just pick up on that point. The height is made by. This is an incredibly strong economy. It is powering ahead in the United States. The data certainly support that. We're gonna get a strong inflation proof next week ahead of the Fed.
Does it make sense to you that yields are going lower in this environment. It does Guy and I'll tell you why. It's not about the economy. It's about the uncertainty at this point. I think we're seeing a lot of flight to safety in the United States and that really accelerated last night with those nuclear reports. And so that's what's driving things down. Absent Ukraine we would see probably 10 year yields over 2 percent. And you know looking for some sort of ceiling. So I think you just have to look beyond that at this point. Obviously it complicates the Fed's job in terms of
slowing the economy because financial conditions don't tighten as much as they anticipated. But not much they can do about it at this point. Well Michael McKee Bloomberg International Economics and policy correspondent and Heidi Shareholders Economic Policy Institute president we thank you so much for your time. This is Bloomberg. It's time for the Bloomberg Businessweek. Look at some of the biggest business stories in the news right now. Let's bring in Redican Gupta. Thanks Christine. J.P. Morgan is warning that Russia's economy could be headed for a major collapse. The bank's analysts say with increasing
disruptions to the country's exports Russia could see that situation comparable to the fallout from the country's deep fall back in 1998. J.P. Morgan is predicting a peak to trough crash in Russian GDP about 11 percent. Bond traders are delivering a swift punishing verdict on the expected hit to Russian corporations from the Ukraine war. It is basically turning the country into a nation of junk bonds. More than three quarters of bonds issued by still investment
grade non-financial corporations in Russia are now trading at distressed levels carry risk in line with junk rated debt. That's according to Bloomberg's market based default risk model. And Microsoft is the latest company to limit business in Russia. The U.S. tech giant says it is holding only sales of products and services in Russia as it condemning the country's invasion in Ukraine. Microsoft says it will also help cyber security officials in Ukraine defend against Russian attacks. And that is
your latest business flash guy. Thank you very much indeed. We need to talk about what is happening in these markets right now. You've had an incredibly strong payroll number today. Equity markets though are coming under pressure. Bond yields are catching a bed. Commodities obviously continue to surge ever higher. Europe is taking it hard. The United States is the US now a safe haven. I think that's the question that we need to be asking. We'll be doing that next. Greece capitals. Kate Faddis is going
to be joining us. We're looking see exactly how she is repositioning in the life of these Ukraine risks. That conversation next. This is Bloomberg. Ukraine a hawkish Fed simply decelerating growth story where do you position when you have essentially a wall of worry right now but right now it seems like defense names in particular are crashing quite the buzz. Let's talk about ETF because of course it is ETF Friday. So let's do it. I brought up this terminal here to really show you the flows that are going into the defense stocks. We know this has always been not to put a pun on it guy but a sense of just a defensive sector to begin with. But take a look at this. When you actually have a war on Europe's doorstep. You do see this massive bed going into some of the
most popular ETF. So it really speaks to the fact that not only is commodities the way to play this particular geopolitical risk but defense names also getting a bit of a bit of a bet. Excuse me. Let's take a deeper dive into that. We're joined now by Kate Faddis Grace Capital president and CIO. Grace thank you so much for joining us. Let's start off with that topic. Let's talk about the defense sector because we never talk about the defense sector. We talk about tech. We talk about commodities. But right now this is a sector that's really getting its time in the spotlight.
Yeah the defense is the place to be. Look even if this turns out to be a short term conflict. Defense is going to be a net beneficiary. Germany has announced 100 billion euro defense spending. I think other countries are going to continue. So if you look at some of the defense names in the U.S. CCI Lockheed Martin Raytheon Booz Allen these companies are doing extremely well in talking about defense. Don't forget about cybersecurity because along with physical defense you have CEOs worried about cyber criminals state sponsored cyber terrorism. So Proud Strike
Fournette Palo Alto are doing very well in this environment. Kate good morning it's guy. What about the energy sector. This is another area that people have been using to play the situation in Ukraine to try and get some protection from what is happening as commodity prices rise. Just talk to me a little bit about though the risks of putting fresh money to work that we've obviously seen a lot of money flooding in. Is there a danger that if you put money in too late that you could actually see a
huge reaction going in the other direction say we get the Iranian talks working out this weekend. We get progress there. More crude comes onto the market. If we do see a cease fire in Ukraine that would be fantastic but it would have a meaningful impact on the energy sector. How volatile do you think that area is going to be. I think a guy you have nailed it at the energy
sector is cyclical. So you buy low sell high. This is a classic buy low sell high situation. We are more inclined to be selling energy here. Don't overthink it. It's a very simple factor. Right now we own names like Cheniere Energy. Cheniere is at all time highs because gas prices in Europe are up something like doubled. So Cheniere which exports gas from the U.S. is trading at all time highs. This is where you sell or cut back. You buy low and sell high. So you said it's already at a record shinier in particular but energy broadly has this kind of non-stop bid and yet you have so many people calling for oil as high as one hundred eighty five. I believe JP Morgan was out with a note this morning. I'm curious though what happens if you do start to see some of these shale producers some of these American energy producers add on supply to the market. Does. Do you continue to invest in companies like that when he's potentially see oil prices perhaps
coming back down to earth. You do not. Because there's always a lag. So right now there's insatiable demand for energy. So oil companies are going to be adding supply by the time they finish adding supply. There's going to be an oversupply on the market at that point. Prices are going to go down again. This this conflict isn't going to go on forever. So I think you have to be very careful right now. Energy oil is up triple digits. Gas prices in Europe are up tremendously. Now is not the time. Now's
the time to be circumspect about energy prices. Okay you bring up Europe so let's talk about it. Europe has had a terrible terrible week. Equities have been under really significant pressure. The banks have been hit hard. There was this narrative case at the beginning of the year that you wanted to put money to work here. Has that now been completely upended. Is the United States now the safe haven when it comes to equities despite the relative drops that we've seen there. Absolutely. But the U.S. is the place to be and frankly I would for I would avoid the financials of financials. There was a
narrative around the financials that you're going to have a rising rate environment and these banks are asset sensitive and therefore they're going to do well in a rising rate environment because deposits are going to be held and they're gonna make incremental profit. I think that you're not going to see that happening. I think the Fed is going to be very cautious now about the number of hikes you're going to have. And then if you look at the European banks I think the European banks are in trouble. You look at exposure to Russia you look at counterparty risk. Even on the asset management side the Goldman Sachs the JP Morgan's if we have this continued downdraft in the equities market is going to affect bank earnings. It's going to affect fee income. So US is a better place to be than Europe frankly. There's nowhere to hide. There's nowhere to hide in this market. I think this is a very tough situation. Energy. Maybe that
story's been played out. Maybe it hasn't. Commodities. We're gonna be in an inflationary environment. It's gonna be very tough. Let's talk about the currency impact here if we can. You mentioned the euro. Much of the European banking sector. But we all we also talked about commodities largely priced in the dollar. And yet you're seeing the dollar climb and climb get stronger and stronger simply as perhaps removing that exposure
from Europe but also that classic haven bet. Talk to us a little bit about the currency impact how much more dollar strength. Can we really expect and how does that ripple across some of the other investments. I think the dollar's going to continue to strengthen and paradoxically paradoxically there are going to be other currencies that are going to do well. Look at something like the Canadian dollar. The Canadian dollar is a beneficiary of commodity price price increases. So the Canadian dollar is doing well. Look at the Aussie dollar. The Australian dollar is also
doing well because again these are commodity based economies. So as you're seeing people move away from Russia people move away from Ukraine. It's not just a matter of the commodities. It's who's who's going to the fore. It's to get these commodities from these countries and their major commodity exporters their major commodity exporters with certain food wheat things like palladium which are used in catalytic converters with cars. So I'm gonna be looking for strength in the US dollar and I'm going to be looking for strength in some of the other countries that aren't commodity led. OK. Final quick question in terms of what we should be expecting in terms of rates of return this year. What are you looking at. Do you want to be fully invested. How should people be thinking about their
portfolios right now. Should they be being defensive. Should they be looking for opportunities. I'm just wanting for a sort of psychological point of view of how you're approaching investing and whether or not that's changed. It's a very good question. Here's the bottom line. Short term price movements are random.
I've stated that over and over again 90 percent of the move happens in 5 10 percent of the time. So I do believe you have to be fully invested. This situation isn't going to go on forever. If you have a well diversified portfolio you are going to be fine long term. Yeah. So I'm not overly concerned if you are in it for the long term. In the short term we're going to be OK. Thank you very much Kate Faddis of Grace Capital Discipline. But.
For an hour into the U.S. trading session a risk off mood it seems Bloomberg's Abigail Doolittle is tracking the moves. Abigail. A lot going on right now. There is certainly a lot going on right now. Create for sure a real risk off tone to your point as the strong jobs report here in the U.S. overshadowed by the geopolitical tensions and the Russia Ukraine war. You can see the S&P 500 near session lows and one point four percent. You all said that Russell 2000 small cap stocks down sharply down one and a half percent in the Nasdaq 100 down about the same amount. Now we're looking at the worst week for the S&P 500 and the Russell 2000 since late January. That's the degree of the selling pressure we're seeing
in the VIX that quote unquote fear index now at a thirty three handle. And there are reasons continuing reasons to think that it will go higher as we just have this what somebody was yesterday calling this move higher for volatility not so much a spike but more of a slow move off a slow grind now where we're seeing a big spike higher. That of course is the commodity complex as you all were just talking about. And we put into perspective on the week. This is stunning. New York crude WTI up 24 percent. You have wheat up forty one percent on the week. Simply an
incredible move there. You also have corn sharply higher up about 19 percent. Of course Ukraine considered to be the breadbasket of Europe. So these supply fears on the Russia Ukraine war really causing this spike you up here for commodity commodities. Lumber is along for the ride up about 11. Eleven percent on the idea that perhaps there is going to be this supply shortage and traders gobbling these up at least for right now. In fact Guy as I'm sure you've heard many times at this point the Bloomberg Commodity Index when we go into the Bloomberg terminal and take a look at where we're at the Bloomberg Commodities Edge index on the week week is headed to its best week ever. Going all the way back to 1960 right now
we're looking at a nine point four percent rise. I think it's actually higher than that at this point. I think that the rise is in the double digits. Again the biggest rise for commodities on record going back to 1960. That's the degree of the buying power that we're seeing in the commodity space on supply fears. Here's guy. Miguel thank you
very much indeed. I should point out the CAC is now down by 4.5 percent in Paris. The DAX is down by the selling in Europe on big volume is epic. As we come into the close the end of the week here in Europe crude is trading 115 Brent 115 spot 43 T ISE trading hundred and thirteen twenty nine. Is that a fair reflection of the risk that we see in the crude market right now. What would an Iran deal do. What's the story going forward. How big is the tail to the upside to the right hand side. Damien Covid Goldman Sachs head of energy research joining us now to give us his take his short term forecast. Brent. Hundred fifteen a barrel. But what's the upside. Damian how high could we go.
Guy I think the key here is that the upside is actually significant. In normal times the oil market has three buffers. We have inventories we have supply elasticity and demand elasticity. We have no buffer in terms of inventories left. And what shale producers have just told us once again is that elasticity is quite small. So we're down to the last buffer which is demand destruction. And it's one that requires big price moves. Right. So if you look at the move from one hundred two hundred and fifteen that we've seen over one week that on our mapping would be pretty much a one month disruption to Russian flows. But those flows are enormous right there 5 percent of the entire oil market. In terms of what goes on a
boat out of Russia. So if that persists for three months now we're talking a hundred and fifty dollar oil prices. Right. And I think that's really the core of where we stand in the oil market today. No buffers outside of demand destruction. The potential upside as a result becomes significant. Well me there's calls for even further than one hundred and
fifty I think we have one hundred eighty five in some shops. But they're looking at. Let's talk about what can actually make up some of the Russian supply. We see a little bit of an open resistance to amp up their supply. More than four hundred thousand dollars a barrel is the only option here. Coming down to shale producers what do you think. Yeah let's break it down. Right. So you know Saudi you a young paper half capacity to do more realistically if we look at what they've done in recent years could perhaps add a million and a half. It has to be a unanimous decision within OPEC's press of which Russia is a member. Iran is a member of. So that's not an easy decision. But contemporary dance there. I ran potentially
coming back on line half a million initially a million over a year. So that's already two if you want million barrels per day. She doesn't respond instantaneously. Right. Despite being a short cycle you know it needs the cash flow to spend. You have bottlenecks on services seem labor issues that we see everywhere else in the US. Maybe that's a million over another year. Right. So that's two maybe in the next few months three potentially over a year year and a half. That can help. But again Russia puts 5 million barrels per day on boats. So we do need to see a normalization a recovery at least inflows. Second if you bring
that supply on line OK you can match the lost molecules but you have zero. Nothing. Left. Right. That's the core point. The oil market is inherently volatile. Yesterday we lost some Libya output over the weekend. We lost some Iraq output. If I'm bringing on those barrels there is nothing in that right. So it is still bullish even if you can find the supply to meet
consumption needs. It sounds like you're saying that there's really very little buffer in terms of where else you can get the supply if not for the Middle East even if you do get those barrels at a lag. Talk to us a little bit about when they would perhaps have to pull out though the more extreme option which of course is the Saudi spare capacity in particular. My
understanding is that if that is a level that's ever breached you start to see the oil market panic even further. But is this a situation that might justify that you potentially get it. It goes back to you know the enormity of the flaws that come out of Russia. So you know if those are persistently disrupted to some extent then it creates a significant call on that spare capacity. And you know we know like we look at April 2020 we know. Do you maybe UAE those coral egg producers can flex production. But as you said the flipside of that is that there's really nothing left. Then in Dutch Gas UK gas doubling this week. How sustainable are these current prices. When do we get
significant demand destruction. What is the economic impact of that kind of move. So the move so far is enormous. As you point out if you look at just the last six months where we already had extremely high European gas prices they're effectively now pricing in nearly complete halt in Russian gas growth. Right. You just take your demand elasticity you extrapolate to current prices and it's saying the market is significantly worried about it outcome. Now that's mostly a problem for industry right. You know governments of course would go ahead and cap prices for consumers at the
retail level but that's what the market is pricing given again this significant uncertainty now to be clear. Right. The sanctions put in place exempt energy. Right. So energy flows. Our base case is that eventually would come back and normalize. The problem is with the conflict unresolved. The fear is of potential additional sanctions. And that's really what the market is seeing today is a halt of flow or concern that flows would completely stop because there is no clear path going forward to how sanctions may not eventually include energy. That's really the fear today in moving molecules outside of the region. Mean you've talked about the idea of demand destruction. Let's
talk about how that affects people in the United States in particular especially coming up to the summer where we do have that driving season. What are you watching for when it comes to the American gasoline market. So I mean it goes back to the price elasticity of consumers. You know if we look back in 2008 it would be the case study where gasoline increases sufficiently that you know on the margins consumers start to reduce their consumption. Now you know the world has changed in 2008 when I could get you know U.S. consumers are wealthier their cars are more efficient. So you
know that suggests that that point of demand destruction is not here. It's definitely at a higher price. Again not our base case. You know we would expect flows to normalize. But if you had to resort to that then you see why the price the oil price level required is definitely above one hundred and fifteen dollars where we are now. Damian Green to get an update. Fascinating insight into what is happening here. Always appreciate your time. Damian Coughlin Goldman Sachs head of Energy Research thank you very much indeed. I just want to show you what is happening in European equity markets as we come
towards the end of the day. Were around an hour away from the close Kristie. We are down and down hard. The CAC has been down north of 4 percent. We are watching very carefully to see what's happening in Italy. It's down circa 5 percent. These are huge drawdowns that we're seeing here in Europe. We'll have more on what is happening.
Coming up next we'll be discussing what Moscow's tactics in Ukraine clearly drawing international condemnation. We will talk about that next with Andrew Lawson Center for Strategic and International Studies. He's a fellow there. He's up next. This is Bloomberg. This is Bloomberg Markets I'm Rich Kid Gupta. You're looking at a live shot and the principal room. Tune in to Bloomberg's monthly series Cheap Food Drops said this episode featuring Macy's CFO Adrian Mitchell is out now with the dot com and YouTube. This is Bloomberg. Overnight Ukraine says Russia attacked a nuclear plant that accounts for 20 percent of Ukraine's electricity bloomers murdered today is in Brussels outside the EU Council. Maria. Give us the latest. What are you hearing.
Well not outside. Luckily we're inside but of course this is where a meeting is taking place and we've heard now from every major official that's attended this meeting of Europeans and also the U.S. Secretary of State Tony Blinken here. And of course the big question is what do we do after the pictures that we saw last night of a fire breaking out near a nuclear plant in Ukraine. What we know right now of course is that the reactors were not affected. There has been no radioactive leakage on this. Two people were injured. But the big question is what is Russia going to do with this site and who is controlling the premises. Now for a lot of officials here this is a major sign of escalation. They believe that in many ways for three days now
Russia has been trying to actively pursue this path of nuclear tactics to say we're going to put our nuclear deterrent on a high alert. We've heard it from my pudding. Yesterday we heard it from Sergei Lavrov. And today we have this fire breaking out at a nuclear plant for many. They argue this is now a clear sign of escalation for the Russians and we need further sanctions. Right now there is a very active discussion as to whether the European Union should cut fully oil and gas from Russia.
Remember Gazprom still continues to supply to the European Union and spur back. The Russian bank continues to process some of those deals. I have heard from a number of Eastern European countries particularly concerned by the way about the situation in Belarus saying this is a time to fully ban everything. You know whether or not that happens. It remains to be seen. But of course for the Ukrainians this is also equally concerning. And NATO today repeating and insisting that they won't put boots on the ground. They're not going to go for a no fly area either on the country. They believe this could lead to an even bigger escalation. Well let's talk a little bit about bats as you got towards NATO headquarters and towards the airports. Maria there
is a definite sense of nervousness at the moment. The secretary general earlier on making it clear there would be no no fly zone. The risk of escalation just too great given that. What can NATO. What can Europe do. I think what they feel and the reason by the way why this was so concerning for them and we know there was an active discussion today as to whether or not there's no fly area should be installed. And we know that the Ukrainian government has been essentially begging for days to say we need to have the skies clear because right now the big advantage that Russia has over Ukraine is on the skies are battling from the air to the ground pretty much every day hammering the country now for NATO. The
concern was of course if you have a no fly area you need someone to enforce it. And that means NATO planes patrolling the skies. Now you see and you can see the potential for an accident to happen with a Russian flag or a Russian plane. And at that point this would take a much bigger dimension. Now what I've heard from a number of European officials again some in Eastern Europe
particularly concern is that we need to see more NATO troops in those countries that do belong to NATO. And then secondly if you're not going to close the skies for Ukraine then you need major weapons. They have to be able to stay competitive on the air and they need to have systems on the ground to be able to repel the bombs that we're seeing from Russia. And by the way guy yesterday Vladimir Putin was a Russian TV saying Russia has a strategic mission to meet and comply with in Ukraine and they're going to fulfill those objectives. He said quote This mission remember Russia's ban to use the word war in Ukraine. This mission is going according to plan and will continue. Fantastic work we're here as ever. Thank you very much indeed.
Bloomberg's Maria today are joining us from the European Council building. Thank you very much indeed. Let's bring into the conversation Andrew Lawson Center for Strategic and International Studies in Europe. He's a fellow there and the Eurasia program. Andrew Maria talking about Vladimir Putin's objectives in Ukraine. I have yet to hear anybody articulating those objectives clearly. What do you think they are. We we heard from President Putin himself on the 24th of February that what he was trying to do was detoxify and demilitarizing credit that the Nazi trope has been one that Russia's use to malign Ukraine for a long time. It's absolutely baseless and it's just a code word for regime change. So he wants to remove the Zaleski replace him with a more appliance leader and he wants to get the Ukrainian military to stand on their arms and accept a enforced neutrality. They simply don't want to have a country that might eventually move toward NATO on their borders.
And you can talk to us a little bit about the ramifications of these actions within Russia itself. Talk to us a little bit about the picture of stability in terms of domestic politics. What does it look like. Well for years Putin has assembled this so-called vertical of power whereby he has absolute authority over pretty much any consequential decision that might affect Russia's domestic or foreign affairs. The challenge here is that he's launched a war that is essentially unwinnable. His objectives are unachievable and the Western response is a lot more united and difficult than
I think he would have expected at this point. The economy is melting down. Russian forces are facing some setbacks on the battlefield even though they are still pushing forward. So I think that's going to raise pressure on him both from the streets and also among his his advisers among the top political lobbies. That's going to put him in a position where he's been
more vulnerable than ever before. Although he's certainly still has plenty of tools at his disposal disposal to to keep the lid on discontent and dissatisfaction in Russia. Many military strategists tacticians will talk about the fact that you don't want to push an enemy into a corner with no way out. Are we pushing with the ferocity of the response to this Ukrainian invasion. Vladimir Putin into a position where he has no way out other than to escalate. That is certainly a risk. What we've seen here is that A apparently really perceives his country to be at risk. I think that the fact that he's brought up this potential for raising the readiness of nuclear forces does up the ante a little bit.
And I think that just shows how he perceives the Western response to Russia's aggression and Russia's aggression as a strategic threat. So right now we understand that the nuclear forces are and have gone from the lowest to second lowest level of readiness. And this is something that I think is reflective of Russia's long held military job doctrine of escalating to de-escalate. You raised the potential for the use of nuclear weapons on the assumption that your adversary will perceive that that's too much of a risk and build back down. I think that's what we're seeing here. Putin is is really running out of options in terms of trying to control the narrative to keep a lid on things and so to counteract some very difficult sanctions and punitive measures that the West have brought against him.
Andrew let's talk about you. You talk about escalation of sight right de-escalation. One of the major issues in terms of this conflict when it comes to simply the read through into international markets is of course the oil supply. A lot of the assumption here is that Russian barrels are going to be completely taken off the market. When you talk to oil strategists and we just did this earlier in our show we do actually really need those barrels. So is there any situation or any near-term situation or scenario I should say that actually means that those Russian barrels can actually get back on the market perhaps in a in a scenario of de-escalation and just getting on better terms between both countries.
Well I think now that the effect of sanctions is being felt there. There might be some pressure on the Russians to actually comment and find some sort of pathways for de-escalation to have some sort of negotiations open up. I haven't seen or heard too many conversations in Washington lately about giving that de-escalation pathway. I think we're still so early and the application of these sanctions that they're still kind of taking their effect. We want to still feel that
pain politically and economically. In order to protect the flow of oil and gas for Russia I mean there has been an effort to ensure that sanctions aren't targeting those sectors again. However as the situation escalates that might have to come on the table. But if Putin really needs to keep those flows flows going forward for his own regime's stability that he might be compelled to consider changing certain tactics maybe you know refraining from the use of certain weapons some sort of limitation to to to be met with in response by a reduction in pressure from the west. Fascinating stuff. Of course we'll bring you those live headlines when we get them on Bloomberg Television Radio. Andrew
Lawson thank you so much for your time. He joins us from the Center for Strategic and International Studies. Of course as a fellow there. Thank you for your time. This is Bloomberg. So we are wrapping up the session we're wrapping up the week here in Europe and wow what a week it has been. European assets have been smashed lower. Well at least equities have commodities have been rising bond yields obviously pushing
lower bond prices going sharply to the upside. It is a very strong risk off narrative here in Europe. So today this is day with today. We'll talk about the week that has been in just a moment on the other side of the break. But the stock 600 today is down by 3 percent. The CAC is down by over 4 percent today. You've got the Italian market down by over 5 percent today. Equities with any kind of exposure to the Russia story the Ukrainian story being pushed sharply to the downside. The other factor that is worth bearing in mind and you want to think about this board and this board in tandem Eurodollar now with a 1 0 9 handle. The ECB meeting comes up next week. Every time the euro takes lower this becomes more expensive. Obviously most commodities continue to be priced in dollars as the euro gets weaker.
The inflationary narrative in Europe gets more tricky for the ECB to handle Dutch natural gas today. Trading up by 21 per cent on the week. It's doubled. We're up by 100 percent plus. It has been an amazing week in terms of the shifting that we have seen. We've got to discuss all of this next. We're going to be joined by Bill Jaffe's Macro Hai founder and CEO. He's gonna be coming up very shortly. We'll talk to him about how much of this is sustainable. What a big pivot we are seeing here in Europe. Whether European assets go next Bill out if EADS is coming up next the countdown to the close is about to begin. This is Bloomberg.