Bloomberg Markets Full Show (03/07/2022)

Bloomberg Markets Full Show (03/07/2022)

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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 March 7th. Here are the top market stories we're following for you this hour. Escalations and embargoes. War in Ukraine rages on as Putin again says it will continue until his demands are met. Germany says no to an embargo of Russian oil while the U.S. was acting alone to impose one crude awakening. Oil prices skyrocket then fall back to earth. While European natural gas hits a record in nickel surges past forty thousand

dollars the U.S. 10 year break even hits the highest since 2005. And fears of stagflation rise and China enters the check. Beijing declares its ties with Russia are rock solid and that security disputes over Taiwan and Ukraine are not comparable at all. We'll have more on the latest from the National People's Congress. From New York. I'm Kailey Leinz with Guy Johnson in London. Alix Steel is off. Welcome to Bloomberg Markets. Guy it's a new week and it doesn't

really seem the market has anything or has any idea what to do differently than it did on Friday. So you were in early. I was in early. Well we both got in first thing this morning Kelly. What did the markets look like then. European equities smashed lower crude prices sharply higher. Now look where we are. Yeah. It has been such a remarkable turnaround. My question is Guy what changed. I don't think anything changed. I just think so. If you think about it the market's meant to be a weighing mechanism but I'm not sure it's able to operate in these kinds of environments. I think it's really struggling. I think various

markets are really struggling to figure out what is happening here. And as a result of which the price action is absolutely extraordinary. European equities were down 45 percent when they opened this morning. Massive gap lower. Since then we filled that gap. We're back in positive territory. You look at what's happening in the crude market it is all over the place. We don't know. I think what is going to happen next. And as a result of which we're dealing with uncertainty which is unquantifiable rather than risk which is quantifiable. I keep talking about this but I think it's true. And as a result of which the market is really struggling. The oil story though is

definitely front and center. And you are clearly as in the market. I think getting a balancing act sort of becoming more and more real in terms of what I think Europe is wanting to do what the US is wanting to do in terms of the energy market are we going to see a long term move away from Russian crude from Russian gas. I think that probably is becoming increasingly inevitable. Are we going to see that in the short term. I think that's a much more difficult and hard to manage scenario. That certainly is the line coming out of the Germans. But our question of the day is does the potential oil embargo mean stagflation. Remember we're building up to the ECB on Thursday. That's going to be

fascinating. What is the central bank going to do. Joining us to discuss this Julian Lee and Bloomberg's Mark McKay. Julian I want to start with you. Let's kind of bring up the subject the Kailey Leinz I've been wrestling with all morning. And that is is this market capable of accurately pricing the price of energy right now. No I don't think it is. I think is you know I absolutely agree with your view that you know what we have at the moment is not

an attempt to price risk. It's an attempt to price price uncertainty and. Everyone is floundering at the moment. I think everyone is trying to get a grip on what's going to happen is there you know is there an end to this. That is some kind of a negotiated settlement. That means that this is over relatively quickly. Is this going to be a long and grinding conflict perhaps similar to what we've seen of the Russian involvement in Syria. And and people are just I think struggling to to really understand what is going to happen. I really don't think anybody has has a really good idea on that at the moment. Well Jihye Lee and just to follow up with you quickly before we bring my again

what would the actual impact of an official oil embargo be when it doesn't seem that anyone is touching Russian crude in the first place at the moment. Well I think that's a very good question. I mean we have got a very high degree of sort of self sanctioning going on. You know we're seeing unions refusing to unload Russian cargoes from non Russian ships. We've seen governments banning Russian ships from calling at their ports. We've seen companies shying away from buying Russian oil. But I think it's still a relatively limited number of countries where that's happening. I think if we were to get an out and out embargo things would start to look very different very quickly. Clearly what we would

need in that case and what we probably need in any case is a second and probably subsequently more releases of oil both crude and refined products from strategic stockpiles. The release that we've had announced so far this coordinated release of 60 million barrels. That's only about 4 percent of the total. But the countries who are members of the International Energy Agency hold. So there is plenty of scope for more releases over a period of time to offset some of the impact of either an embargo or that this sort of self sanctioning of a Russian oil. Mike let's bring you into the conversation and maybe get to the heart of what we're trying to figure out here which is at what point do we start to see demand destruction. At what point do

these high energy costs actually have a meaningful impact and potentially precipitate a recession either here or in the United States. If you take a look at the curve we have got Brent crude price at one hundred for most of this year. Is that going to be enough. That's hard to say guy. And I think if it comes down to one hundred because we're well over that now it probably doesn't mean as much demand destruction. But of course it depends on where you live because it's not just crude oil in Europe it's natural gas as well. And around the world it's going to be food

prices. You go back to 2008. And at that point oil prices were in the one hundred thirty one hundred and forty dollars a barrel range but they came down relatively quickly when the great financial crisis started. If this war ends quickly we'll have elevated gasoline prices. People will complain but then they will come back down again. The other aspect of it is we've gotten more energy efficient. And you look at where we were. We've got the CPI coming up this week in the United States where

we were in 2008 compared to now. Oil was nine point seven percent of CPI then. Now it's seven point three five percent. Gasoline 5.2 percent. Now it's three and three quarters. And wheat futures show that food prices haven't changed haven't gone down significantly. So I'd keep an eye on food as well. But at this point there are some other things that are going down in price. And so if that continues we're seeing used cars fall off in price and housing prices flatten out. It may not be as bad as it appears from the CPI statistics. OK so we're talking about at what point demand destruction may kick in. Julianne. At what

point could we actually see more of a supply side reaction. OPEC plus changing its calculus. Shale starting to drill once more. I think both of those are possible. I mean I was disappointed. Let's leave it at that. As the IAEA were to see not just to the opaque plus group didn't open the taps more quickly or agree to open the taps more quickly for April but that they seemed more interested in how quickly they could get through the meeting than they did in actually discussing anything important. I mean we are here in the middle of what is a crisis in the energy system and certainly in oil. And they didn't even discuss it. The one attempt to discuss it seems to have been shot down very

very quickly. I know it's difficult that Russia is as I co-chair of OPEC plus but the opaque group has a long history of being able to deal with its members it even being at war with each other and continuing to discuss the oil market and how to deal with it. So I'm very disappointed that they couldn't even bring themselves to raise the subject. I don't think that means that. We may not get the sort of response that perhaps we hoped for out of them anytime soon. And that means that the additional supply has to come from elsewhere. And I think the U.S. shale patch is the the obvious earliest mover. Perhaps we'll see some plant maintenance later in the year being pushed back and

perhaps we will start to see some new oilfield developments being approved or maybe otherwise wouldn't have been. OK. So. But the essence of what you say Julian is that the supply side response is is not happening now i.e. OPEC is not stepping up the supply side out of the United States is still some way away. We need to deal with the idea of discipline and whether or not that can going to go to the one to the wayside at the moment. Mike that. OK. So we we don't have a supply side response. Oil is going to remain high. I want to come back and I hear what you're saying about the fact that other things are going down in

price. But nevertheless consumers see what is happening at the gasoline station. There is a certain amount of sticker shock that happens when you see I don't know what is it over there right now. Four dollars a gallon north of that going higher. There is a certain amount of sticker shock and maybe people stop buying of the things that will be an economic effect. What is what is history. Tell us about that. Economic effects. I understand that supply the the demand shock will happen much later because we're much more energy efficient. But nevertheless how much higher from here do you estimate the prices will need to go before we start to see significant demand destruction. Well we've not ever been able to really quantify

that guy except that when you look at the statistics for when consumers start to pull back a little bit it is when we make new highs in gasoline prices where we went over four dollars the last time that we started to see some significantly less buying in petroleum products. And probably it's a five dollar level now. But of course we have varying prices all across the United States. In California it's been over five dollars for some time. So it's probably going to be somewhere north of five dollars. And then people will cut back on driving and cut back on spending other things. But the money because of the shale industry much more of it stays in the United States. It doesn't go over to Saudi Arabia. And so then the question becomes and Julian's going to know more than I do the oil companies start to put that money to work in terms of GDP in the U.S.. Well another question Mike. We've seen that a lot can happen in a single day. That means even more can

happen in the nine days between now and the Federal Reserve meeting. Is that baked in or could something seriously change before the FOMC makes this decision. Well I wouldn't want to say. Nothing could change because obviously there are some really terrible very long tail of possibilities out there. But the Fed

at this point is probably going to be pretty much on track to start raising rates. It's the how many they do. You know we've come back from 7 now to about 5 and they may come back further if the economy starts to weaken because of this. All right. It's going to come down to the dot plot. I think Bloomberg's Michael McKee and Julian Lee thank you both so much. Now we do want to point out that U.K. Prime Minister Boris Johnson is speaking. He is currently talking about oil and gas from Russia. He says that it cannot be closed down overnight and he says it is key for allies to move in the same direction. Probably a remark

targeted at the U.S. that we understand is considering going it alone in this. We also got a headline out of Canada the prime minister Justin Trudeau speaking to reporters in London saying that they will also sanction ten individuals from Russia. So we will continue to monitor those headlines. Now coming up we'll talk more about the market implications of all of this because despite the slump. Our next guest she is not tempted to bottom fish with certain assets. Ellen Hayes an F Putnam investment management chief market strategist will join us next. This is Bloomberg.

It's about 10 15 a.m. in New York and the picture looks very very different than when I came into the office about seven hours ago. Markets absolutely roiled by each and every headline we are getting when it comes to Russia and Ukraine and a potential oil embargo that the U.S. is considering right now. WTI crude up about three and a half percent one 19 a barrel.

That is well off the highs we saw earlier. And of course the moves we're seeing really across the commodities complex are fueling concerns about stagflation. So that brings us to our Question of the day. Does the potential oil embargo mean stagflation. Ellen Hayes an AFL Putnam Investment Management chief market strategist joins us now. They have four point two billion dollars in assets under management. Ellen before we get to the broader stagflation question just looking at markets which today is not an unusual event that they've swung wildly intraday when it comes to the future recession looking very different than the cash session. How do you approach putting money to work or not putting it to work in this kind of

environment. We try to have a long term focus where we'll take cash that we have on the sidelines and invest it opportunistically and tactically but not to make all our bets at one time. So it's always true that on Sunday nights and Monday mornings the market open can be fairly messy where what we see in the futures market on Sunday night doesn't always play through into Monday. And then similarly the European Open doesn't always play through to

the U.S. Open. So I don't think it makes sense to try to be really tactical and try to do things on a day to day basis but rather have a plan for how we're going to invest money do so when the market gives us opportunities. Ellen how much is that strategic plan changed since the beginning of the year since the beginning of the year. We have massively Bree Price the Fed and we now have war in Europe. In

that kind of environment is it even possible to be strategic about these markets. We always need to watch what the market is telling us and what the market internals are telling us. When we entered the year we were looking for decelerating growth in the US. That is still going to happen. It's probably going to be decelerating potentially even faster by the tail. Higher oil prices. We were looking for inflation to remain high and maybe ease off in the second half of the year. And that's still the case but it's exacerbated. At the same time the US economy looked like it was in pretty strong shape with very low unemployment strong jobs strong corporate profit growth. And that still looks to be the

same too. So as unfortunate and tragic as these events have been that have happened in Europe and are happening now for the most part they have exaggerated or exacerbated the trends that we already saw happening in the US market. While Alan as you say we were already worried about inflation. But that fear seems to have morphed into a fear around stagflation. Do you think that's the kind of world that we're heading towards. And how do you position yourself in that environment.

I think in a higher inflation environment you want to invest in real assets whether it's real estate infrastructure commodities and frankly equities in terms of stagflation. Though we're not seeing a wage price spiral that was one of the big takeaways from last week's jobs number is that wages were flat on a month over month basis. So that's one of the things we'll continue to be watching really closely in terms of the inflation getting out of control.

But in this kind of environment. One thing that we may see crack is profitability. Are we going to continue to see the earnings numbers that we've been seeing produced by US companies as a result of this changing environment. There are certain elements within the data Allen that I'm starting to see maybe suggesting that that profitability is beginning to crack. Absolutely. There is no question if you listen to the Q4 earnings calls and the off quarter earnings calls that have happened since then. And what companies are saying at conferences and other appearances that costs are taking a bite out of their profit structure and I expect earnings estimates to continue to come down throughout the rest of this year. But

they're not going to go negative. They will be lower than they were going to be two months ago. Where do you find the best pricing power. Alan. We're looking in areas of health care in the US. Health care has a fair amount of pricing power. Some areas of technology still have pricing power. And where we're not seeing it so much is in areas that have some of these highest labor costs. And so it's going to be a little bit more of a challenge for them. But some commodities areas have had a tougher time with pricing power. The other place we're really not seeing it is in consumer staples. They are good at taking small price increases but large price increases cause

a lot of demand destruction. And so we're staying away from consumer staples. And then you talk about pricing. Let me drag it back to the markets and talk about market pricing. You talked earlier about the fact that we may be you may see some opportunities as a result of what is happening here. This is a very macro market right now. We've got huge blocks of the market moving together within those blocks. There are going to be mispriced assets at this stage. Is it. Is it possible to detect those mispriced assets. Are you starting to think about ways of playing that as

an opportunity. We're certainly looking at individual companies all the time and with the increased volatility that we've seen in the stock market this year it does provide more opportunity. Some of the correlations although they have increased breakdown from day to day. And then we can find interesting opportunities within some individual stocks. How much dry powder do you want to have at the ready for when those opportunities arise. How much cash do you want to have. Ellen. We think it makes sense to have a modest amount of cash so maybe

two and a half to 5 percent of a portfolio that's balanced between equities and fixed income because it's really difficult to time the market. And of course it is always the case that whenever the market takes an enormous nosedive is the time that it is most difficult to actually put that money to work. From a human behavioral standpoint. And so we want to be measured and disciplined and be largely invested but keeping some guy powder in cash. Having said that fixed income also serves as a source of dry powder and that's a much larger allocation. In terms of how those allocations have changed are you

rethinking what is happening. It just come back to the stagflation question. As you say in theory fixed income should provide a balance. Does that apply. If we end up in a more stagflation free environment I'm not talking about a fully stagflation free environment. But if we're edging in that direction does that's 60 40 structure let's say still work. Yes it does. I think that fixed income returns are going to be lower in the future than they have been in recent years. We are exiting as it appears a 30 year bull market in bonds with

declining interest rates as we all know. So we can't expect the same type of bond returns that we had historically. So bond returns are likely to be low to mid single digits at best and some years negative as many parts of the bond market were last year. But that's still dry powder even if returns are very very modest. That's still much better than the volatility you're going to see in the equity market. And so therefore it provides the opportunity. Really useful update. Alan thanks for spending some time with us today. Really appreciate it. Alan Hazen NFL Putnam Investment

Management chief market strategist. Thank you very much indeed. This is Bloomberg. Justin Trudeau my router in London. A press conference taking place right now with the British Prime Minister Boris Johnson Boris Johnson answering questions laying out what he sees happening in terms of UK energy policy. Clearly there is a debate taking place at the upper echelons of global government about whether or not we should see an energy embargo against Russia. Boris Johnson talking about this talking about the fact that it is key that all allies are basically moving in the same direction on this doesn't talk about peace. They're talking about the fact that you can't close down oil and gas overnight from Russia.

Clearly the market is making a fairly decent stab at that though. He's talking as well about the economic crime bill which is being altered to make it more difficult for oligarchs and billionaires to hide their assets. And talking about the fact that the UK will be laying out its energy supply strategy over the next few days. We'll continue to monitor what is happening

here. Clearly a debate as I say taking place between the United States and its allies. We saw Anthony Blinken over the weekend talking about that oil embargo. Everybody's now making their voices heard on this one including the Germans which are being which who are being very cautious on this understandably. OK. Coming up Jean Violent Temple University political science

assistant professor. That conversation next. This is Bloomberg Daybreak. For about an hour into the US trading session Bloomberg's Abigail Doolittle is tracking the moves. Abigail it's been another one of those days sharply down back up and now we're down again. A real roller coaster ride here. Here the Nasdaq 100 futures really talking about those crazy wild moves that we're really getting used to this year. At session lows overnight the NASDAQ 100 futures down about 2 percent. And then right around the time the open going ever so slightly higher. This of course

as crude oil went from being up 13 percent WTI crude Brent crude up 18 percent to almost down. But now you can see crude oil is going higher as the Nasdaq 100 futures are going lower. Perhaps I should say Nasdaq 100 futures are going lower as crude oil is going higher which we'll be taking a look at in one moment. But when we take a look at some of the other indexes we're going to see that the weakness really extends. Now the S&P 500 in many futures at session lows similar to the Nasdaq 100 futures down 2 percent on the open though down just fractionally now down one point four percent. You can see that the KBW bank index down two

point two percent. This despite the fact that yields are higher as bonds are selling off a little bit. Even with all this volatility the Russell 2000 on the open had been higher now down about six tenths of one percent. The big mover there a standout mover a bed bath and be up 60 percent at the highs up closer to 80 percent the best day ever. This of course as Chewy founder

has taken a 10 percent stake in his recommending a sale. As for the driver for the markets because we go through these time periods where it could be the dollar it could be yields it could be oil. Well right now it's oil. Brent crude now up 4 percent. So as oil has ticked back higher that is pressing on stocks. We can see futures for wheat also higher at this point. On the other hand though you have metals with in the commodity complex trading lower. The big question is what is next. Overall of course nobody has a crystal ball. If we take a look at a chart of the Bloomberg Commodities Edge index we are going to see something that does have a tradeable predictable trend and that is a parabolic uptrend. This is a five year chart of the Bloomberg Commodity Index relative to its

200 day moving average. You can see for a few years there really with trend on the Covid crash well below. Then recovering all of that around oil right now an absolute parabolic uptrend a 90 degree angle physics. It cannot hold at some point. It will probably reverse even. I could say it will reverse up 33 percent on the year the highest level since 2014. You could see all of that reverse and then some guy the volatility is very likely to continue. It wouldn't be surprising to see this reverse relatively soon guy. It's really

hard to get a grip on these markets even the volatility market. I think struggling to get a grip on what is happening here with the volatility. And again thank you very much indeed. Abigail Doolittle on what's happening in the markets. A few headlines I need to update you on. The first one is it looks like the latest round of talks between the Ukrainian officials and the Russian

officials. Those talks are now starting. We're also getting some commentary coming through from EU officials. I assume this is EU officials. Details matter here. Poland and other EU states pushing for a Russian energy ban. Germany facing growing pressure to accept such a ban. We heard from both the German finance minister and the chancellor a little bit earlier on pushing back on this more tepid pushback but still some pushback from Bruce Johnson over the last few minutes within the UK saying basically you can't switch these things on a dime. The US obviously front and center in all of this. We heard from Blinken over the weekend. Congress is now exploring a bill that would effectively ban the impulse

of Russian oil. Bloomberg's Washington correspondent Annmarie Horden at the White House. Joining us now Amari it was made clear over the weekend that the US potentially was prepared to go it alone. Is the expectation though in Washington that that will actually happen or is there an expectation that ultimately the Europeans will side with the US and pursue this ban on Russian energy. Well Secretary of State Anthony Blinken had said that they're in discussions with leaders of the European Union to do this multilaterally as a multilateral approach. The way they've done a number of these sanctions very much so in lockstep. The issue guy which you just really outlined is that these European

economies are not prepared for it. All of Schultz throwing a ton of cold water on this idea saying that yes they are urgently looking for other supplies but this is not something that can be done overnight. And Russians at Russia energy sources are incremental to their own economy. So it does look like the United States would have no choice but to go it alone in this

White House is under an immense amount of political pressure from Capitol Hill to do just that. But we should note that this would just be putting a name on already what is happening in the physical market. This has been a story for days. Refiners have been shutting shutting these assets anyway. There's been an embargo already. Just not name. But this is just the White House that probably just make that a little bit more clear. A lot of self sanctioning already taking place. Thank you so much to Bloomberg's Annmarie Horden at the White House for us. Now for more let's bring in Jane Feinman Jet Temple University assistant professor of political science. Jane let's talk about the political repercussions of a move like this. If the U.S. moves

without its allies. What would the repercussions be internationally and then domestically. Is the U.S. population in support of such a move. I don't know if I would expect the US to move without its allies at this point. The administration's coordination with allies has been very close up through now. So I would expect to see that

continue. If there is going to be public support for it. If the US goes alone or together it's hard to tell. Let's talk about how Russia might respond. Funkhouser which talks about war and business basically being the same thing in so many respects at the moment we have Russia waging raw war. We have the West Europe and the United States waging economic war in terms of escalation. How do the two fit together. How should we think about those two things fitting together. Is this a is this an equivalent military response that we should think about when we think about maybe such an embargo

being put in place. This is a very good question because this is a situation where one side is primarily using economic levers and the other side is clearly using classic military ones. So to what extent does Russia perceive the very severe economic moves that the other states are making as a direct threat. And if Putin has stated already that he finds this very threatening he keeps referring to threatening statements by the other side. But in terms of escalation it's hard to know how he will perceive this. And I think that uncertainty about how Russia will perceive the next

step of economic moves by the West is a reason to evaluate this very closely. Traditionally I would say that economic moves I would not necessarily anticipate a direct military escalation in response to those because as you said they're sort of not very well matched. But this crisis has raised a lot of uncertainty about what Putin intends to do and is capable of doing. So economic moves may not lead to an escalation. Is it possible Jane that they lead to a de-escalation. I mean will this change anything about Putin's current behavior. This is something that I've been thinking a lot about because the traditional kind of way we would think about compelling an adversary would be to say OK we're going to apply this set of punishments until you change what you are doing.

But in this case what we're not seeing is any clear demands or statements like OK these punishments will continue and Russia should do X and Y. Russia doesn't really have a list of what it should do. So without these kind of off ramps Putin could well might as well see that these things will continue regardless of what he does in Ukraine. So one one hand that seem. Oh sorry go ahead. Sorry. Okay just picking up on that point in terms of the duration of the sanctions. Therefore how important is the time that they last. Because the West is now talking about Europe in

particular is now talking about weaning itself off Russian energy. And if that is going to be a long term story then then that changes the calculation in Moscow. If if the West says you know what if you do X we will do Y and that will happen relatively quickly. Then you can see a kind of causality in this whole this whole process. But if there is now a long term sort

of move away from Russian energy economic pain is going to persist in the long. How does that change the calculus. Yeah so I think there's a lot of potential benefits to waiting to make any kind of demand for what Russia could do. The exact size and magnitude of the pain imposed by these sanctions is revealed over time. And it seems that the Russian government has perhaps underestimated how intense this is going to have an effect this is going to have. So we need that time and potentially quite a long time in order to. For them to even fully understand what the cost is going to be. Also the situation on the ground in Ukraine is changing. So there's necessarily not necessarily a logic for right now asking

for Russia to do something where we don't really know what they should do and how the situation will develop. But as soon as it gets further and further and these economic moves become more and more difficult to turn off or remove in some way it becomes more difficult to convince Putin that any of this will go away if he changes his behavior. In some cases turning those off it's not even the governments are not even capable of turning those off as private companies make choices about whether or not they're in the Russian market. You just brought up ISE leaving your discussion self sanctioning a government can't promise to make that all go away if Russia just turns around and leaves Ukraine. OK. So Jane obviously we've been talking a lot about the response we've seen from the U.S. from Europe from the West. If we call it that. What about the response. We haven't seen from places like China is that ultimately going to be the linchpin in

all of this. Is China's perceived at least if not outright allies ship backstop for Russia. I'm not sure it to the extent the extent to which it's a backstop. I think China's position definitely matters here. I've been paying close attention to what China has been saying and not saying. I know others are as well. They've been very hesitant so far to say much of anything but they do have seem to have some support for what Russia is doing. Even though it's limited and they've cautioned that they want to see a resolution to this conflict as soon as possible.

However are they the ultimate linchpin that is somehow going to turn this around where Russia suddenly feels too much pain. I don't know because. There's quite a bit of punishment being placed on Russian pressure being placed on Russia already so I don't think we necessarily essentially need China to play a critical role here. Jane is deterrence theory is mutually assured destruction still operating.

I think so. I think when we're talking about the relationship between Russia and NATO yes. The sort of the basic concepts of mutually assured destruction of mutual nuclear annihilation are still there. I don't I'm not particularly worried about Putin attacking using nuclear weapons against a neato country NATO a nuclear alliance. And I think he is deterred by nuclear retaliation by NATO. Jane believe that really appreciate your time today and your

analysis. Thank you very much Jane Bowman of Temple University. Thank you. What we've got coming up for you. China's foreign minister is warning we'd just be discussing this. The United States against trying to build a Pacific version of NATO and says the issues over Taiwan and Ukraine are quote not comparable at all. We're going to discuss all of this with our Ashton Society Policy Institute senior fellow. Joining us next. This is Bloomberg. This is Bloomberg Markets can get down you're looking at a live shot of the principal room Bloomberg Travel Take debuts at 430 p.m. New York time today. Taylor Riggs Romaine Bostick and Caroline Hyde discuss two angles on one topic. This is Glenn Beck. Let's check in on the greenback first by news farmers can get to

the European Union is calling for fast action to ensure the safety of Ukraine's nuclear power plants two of which have been seized by invading Russian forces. In a letter to the International Atomic Energy Agency the EU Energy Commission urged Moscow to return control to Ukraine. It said missile strikes at Europe's largest plant and its recent takeover are unacceptable. More than five thousand people left Hong Kong Sunday. That's the most since the city was hit with its most severe and far reaching Covid wave. That's more at last week's departures to nearly twenty three thousand. That's up more than 4 percent from the week before. Those considering coming back face long spells

and quarantine. Hong Kong now has the highest Covid-19 death rate in the world. And China has announced a GDP goal of about point five percent for this year. That's at the higher end of many economists forecasts and quicker than the four point eight percent expansion forecast by the IMF. Beijing is expected to stimulate the economy loosening controls

on the housing market and increasing infrastructure investment companies 24 hours a day on air and on Bloomberg Quicktake powered by more than 20 700 journalists and analysts and more than one hundred and twenty countries average CAC Gupta. This is Bloomberg guy. Thanks very much indeed. Let's pick up on that subject. China's foreign minister Wang Yi echoing President Putin's complaints about the US alliance. In his annual news briefing he warned the U.S. against forming a Pacific version of NATO. For more now we're joined by Anna Ashton Society Policy Institute

senior fellow for Trade Investment and innovation in the Asia region. And thank you very much indeed for spending some time with us today. A lot to talk about this sort of big picture. First of all the Chinese targets the Chinese objectives that have been laid out this weekend. To what extent are they premised on old assumptions old assumptions for the price of

crude old assumptions for the price of NIKKEI. Old assumptions for the price of pretty much anything the world has changed over the last few days as a result of the Ukrainian invasion. And I'm wondering whether China is going to be able to deliver what it expected as a result of that. You know I think that we have to assume that to a large extent

these are premised on old assumptions. These numbers because there just hasn't been time for the Chinese bureaucracy to adjust its calculations. And the truth of the matter is that 5.5 percent while it is fast for pretty much any other country is pretty slow for China. So I can't imagine them wanting to go slower than that in their goal. But reaching that goal was was

always going to be ambitious and it's going to be more ambitious. So given the situation with Ukraine. Well let's talk more about the situation in Ukraine and how that ties into China's economy. Does China need Russia as much as Russia needs China right now. I mean I think this depends on how firmly China ends up in Russia's corner and what that what that ends up meaning for China in terms of sanctions secondary sanctions being sort of tied to Russia in the punitive measures that other countries are putting in place in terms of of fundamentals. No I don't think that China needs Russia as much as Russia needs China right now. But but China certainly needs sources of energy especially oil

and natural gas. And Russia is a border country with a significant amount of that. So it'll probably be cheaper right now. So I think they they've got some tough calculating and balancing to do to try to figure out exactly how they want to move forward and what their stand is going to be as this evolves. The lesson learned to many is that the US holds considerable financial clout still and the assets that you hold abroad are not necessarily yours in times of conflict Anna. How will the Chinese be thinking over the next few years. Be thinking about economic plans and how will they be changing those plans as a result of what is happening to Russia right now.

Well you know it's interesting I was listening to a conversation about this this morning and I think somebody pointed out that Swift has the ability to to tie up and complicate all sorts of transactions for any country in the world pretty much. And China doesn't have a system that is equivalently I guess large and it doesn't it doesn't have the ability to sort of separate from swift and not have and not take a pretty big hit. Furthermore I think you know we have to consider the fact that China's economy is not like Russia's economy. Russia's economy is primarily an oil and gas economy.

China whose economy relies on trade and a much more I think all pervasive way. And so I can't really imagine a scenario where China can truly decouple its sell off from the rest of the world and end up succeeding in growing its economy especially when we're looking at consumer demand being down right now. OK. And so when looking at the situation we have seen playing out with Western sanctions on Russia after the invasion of Ukraine. How do you think that has changed China's view of the leeway it does or does not have when it comes to any potential action on Taiwan.

Well I think China doesn't want to see a comparison drawn there and there are major differences but certainly a comparison can be drawn at least to some extent. And I think fundamentally one of the things that must be standing out to China is that they would never want a situation where they're trying to take Taiwan and take control of Taiwan to end up being violent the way that this situation has. So perhaps that gives them pause about how they imagine a scenario like this going. And just one final quick question for me. We were just hearing from Erica about the situation in Hong Kong and the departures we're seeing there. There were hints within the speeches over the weekend that 0 Covid policy is going to be dialed back. My question is what kind of sense do we have in terms of the timing of that. How quickly is that going to happen. Because again this

comes back to the issue of global supply chains. Global supply chains remain increased. It will remain sort of blocked at the moment as a result of 0 0 Covid in China. How quickly do we think that's going to unwind. Yeah I mean I think that there is growing pressure for there to be some sort of loosening of the zero Covid response but I don't think that we're gonna see just ripping the Band-Aid off and everything going back to normal because we do have this outbreak in Hong Kong. We do still have like a significant percentage of the elderly population not just in Hong Kong but as I understand

it in mainland China too. That is somewhat adverse to the vaccines. So sort of the opposite of the situation that we have in the United States. And that makes the society pretty vulnerable when there is an outbreak that starts to pick up steam. I do think that they recognize though that zero Covid is not helping boost consumer demand and it is complicating the

supply chain. Yes. Yeah. And of course that has ripple effects all across across the globe. But it's not just a China issue. Thank you so much to Anna Ashton Asia Society Policy Institute senior fellow. This is Bloomberg. It's been quite the session this Monday when I got in this morning when Kelly got in this morning. European equities were massively on offer. We were down 3 4 5 percent. Pick your index. We come back significantly since then as we head towards the

close in around 30 minutes time. The stock 600 is trading for 17 were down by just nine tenths of one percent. One of the reasons behind that is that we've seen a significant move in the price of crude which has come back down again. Nevertheless we take a look at what is happening with nat gas which was up by 40 per cent sort of earlier. We come down again quite significantly.

That's the Dutch contract were up by 19 per cent. Still the gas prices moving ever higher and higher and higher. Euro Swiss moving through parity. We've got a big week coming up haven't we. The ECB on Thursday. That's certainly something that is going to be a great focus on the same day as we come through with the US inflation data. We'll talk all about that next. Mark Dowding. Blue base chief investment officer is going to be joining us. We'll work our way through what has been as I say an incredible session closes next. This is Bloomberg.

2022-03-09 03:03

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