europe. this is "bloomberg markets: european close," with guy johnson and alix steel. ♪ guy: 30 minutes to go. let's talk about the price action in europe. european equities now negative on the stoxx 600. it is more mixed when it comes to the individual forces because energy is a huge factor in the mix today in terms of the downside moves we are seeing. the bond market also front and center. these are the really important asset classes that i am watching here in europe. we continue to see yields marching higher, particularly on the periphery. the italian 10 year now yielding 1.866%. still below where we are in the united states. the big story from an equity point of view is this rollover we are seeing in brent prices.

energy prices have gone up very sharply. we are seeing may be a little bit of consolidation, but down by 2.5%, and that is enough to drag some of the energy names a little bit lower. we also have bp reporting. we will talk about that little bit later. kailey: a similar story in the u.s. energy your laggard on a sector basis in the s&p 500, down hard. the s&p 500 as a whole is in positive territory, up about 0.3%. there is an outside movie i have to .2, peloton -- i have to point to, peloton. it's ceo is stepping down. they are also going to put into place some cost cuts. all of it may be potentially raises the odds of a potential sale of that company. as a result, that stock is up another 20% after a 20% move yesterday, but it really comes down to the bond market. we are seeing very close to 2% yields for the first time going all the way back to 2020.

right now the 10 year yield is up five basis points to 1.9632%, getting very close to that round number. guy: let's talk about it little bit more. does 2% really mean anything? does how fast we get there mean anything? caroline simmons, i -- caroline simmons, u.k. cio, is with us. we are seeing big bond jumps in italy, and france, and germany, and the united kingdom. how should investors be thinking about these? what advice are you giving about these moves? everything is happening very carefully. what do investors do with that? caroline: i think the markets are trying to price the expectations around not only the rate rises, which we have seen increasingly more hawkish pivots in greater numbers of central

banks, but also quantitative tightening when asset purchases stop or run off and/or get unwound. i think the level of bond yields itself at these sorts of levels is not that material. it is more about the speed of the change, but obviously the higher bond yields go, the more derating you get of equities, long-duration equities, so you get an impact on equity markets from the bond yields in terms of rotation. so we think it is worth sticking with value trades as long as we go further up from the bond yields, which we see from here. those types of parts of the market that tend to do well when yields are rising. kailey: let's talk about the value trade regionally. goldman sachs put out some research saying that hawkish pivot from the ecb is a good thing for european equities because it indicates that some of the problems that have plagued the rep for so long, lower number growth,

disinflation, no earnings, that is starting to turn around. that is what is evidenced by the hawkish pivot from christine lagarde and co. do you agree with that? do you like your appear? -- do you like europe here? caroline: we've got it as a preferred region. we see close to good double-digit upside. the region is cheap versus global equities, but at a historical discount. cyclical market has got looser monetary policy, despite the fact that they will also be tightening at some stage, and it's got strong earnings growth, so very much a preferred region for us. guy: what about the u.k.? i am looking down the numbers year to date. euro stoxx 50 down by 4%. ftse 100 up by 2%. cac 40 down by 1.8%. dax down by 4.2%. does that outperformance continue? caroline: it might continue a little bit, as long as the value trade is running, because obviously u.k. has got higher exposure to energy and

financials. it is not going to probably last forever, though. it is just as long as these bond yields are moving. if we look at where u.k. yields have got to come up people's expedition for the bank of england raising rates started before even the fed or the ecb expectations of the ecb raising, so the trade is probably a little more progressed in the u.k. than some of the other regions. kailey: obviously we are talking about bond yields, the influence of macro policy. on a micro level, i noticed one of your colleagues mark haefele was putting up research talking about how research is showing that market fundament was are quite strong. how much does this matter in this kind of environment? caroline: it does matter, but obviously if you're going to get a big move in the bond yields for a derating of assets, that will initially outweigh, but what we have seen is that the move in the ratings happen very

quickly, and earnings take sequential quarters to really get a strong performance. so some of these are feeding on the day, which on average, they are bad about 5% in the u.s., by about 9% in the moment. then you could get some positive share price reaction. but really, it is sequential quarters of strong growth that will allow them to move higher over the course of the year and follow the drag down of the last month from the rate hikes. guy: in order for those earnings to continue, we need the economy to continue to remain strong. clearly, central banks are stepping in to reduce some of the manned are currently seeing -- the demand we are currently seeing. i wonder at what point we start to worry about growth and start to see that gross concern feeding back into concern around earnings. how far away are you to think, from investors getting really nervous and starting to price in some sort of growth shock?

caroline: i think we are still a way away from that. we are running well above trend in most regions on the gdp growth. the first half a stronger than second half, but on average for the year, we still could be above the long-run averages. i think the global gdp forecast for this year trends somewhere around 3%, three point 5%, so we've still got a lot of capacity there. as we get into next year, we will continue with the normalizations, the growth rate will come down again, and rates will go up again, and then we will be getting closer to normal. for the moment, we are still at any crib lehigh growth rate, and the fact that the central banks are raising rates let's the fact that the economy is strong. guy: disc -- kailey: does cash have any role to play in the environment you are describing? caroline: we have a preference for equities, so we think equities will be outperforming.

cash compliance needs a level of illiquidity, but other than that, with the best returns will be achieved from the equity market rather than from the fixed income or from cash. guy: in terms of managing this process, what are you hearing from clients? i sure that is the advice you give them, that they want to stay invested. what are they saying to you about what they see in front of them? these equity markets have had a phenomenal run driven by huge amounts of liquidity coming out of central banks. the largess from central banks has been amazing. now have most major central banks bar the boj stepping away from that. is it some than that makes them nervous? are they worried we are going into this cycle with equities incredibly elevated vis-a-vis where we would normally be historically? caroline: i think the majority are not that worried.

some people are, but when we talk them through the fundamentals, equities have performed very strongly, but you can match that to the earnings growth we see. equities did not dislocate from fundamentals. equities went up because earnings went up, and that is a very logical thing to have happened. at the beginning of year we were talking to our clients even more frequently than normal to explain we thought was going on and what our views were, and we did actually see quite a few plants who had been perhaps waiting for an entry point, putting some of their liquidity into the markets. so there's always a bit of a variety of what is going on to pending on people's personal risk tolerances, but most people understand that they are investing for a slightly longer time horizon. we have between 5% and 15% upside on equity markets this year, depending on the particular region, so that is pretty exciting. kailey: caroline simmons, u.k. cio at ubs global wealth management, thank you for giving

insight into your thinking as we see this narrative moving towards more hawkish this of central banks. i have to give a shout out to michael purves at tallbacken. the subject line is, "the changing of lagarde." i'm a little bummed i did not think about that first because that is in a tv headline. guy: absolutely. we could steal it. we could use it. [laughter] i appreciate that we are going to have to name check michael in this, but nevertheless, that is great work. we're deftly going to steal that. i want to come back as well to the neil young thing. i think that is worth a little bit more of a shout out as well. basically saying sell banks and financials, which is every conversation we seem to have at the moment, buy financials and energy. kailey: neil young apparently not into the value trade, guy. guy: that is kind of where i was going. i think there's got to be some kind of joke along these lines. i need to go back through his

musical compilations. this got to be a song or something in there about the value trade. we will find it. kailey: you do that in the break. we will come back to it. coming up on the other side of this commercial break, we will be talking about the european union and its ambitious plans to prevent another global semiconductor shortage. we spoke about it with the eu competition chief, and we will have some of that next. this is bloomberg. ♪

guy: i'm going through the neil young songs, trying to find one that relates to the investment advice that he's giving on oil stocks and financials. nothing yet that really stands out. answers on twitter or on ib. we should probably move on before anybody shouts at us. european union apparently wants to take care of its own destiny when it comes to semiconductors. the proposed chips act calling for a quadrupling in the eu. they are looking at a number around circa hundred percent. bloomberg's maria tadeo spoke about this to the european union's -- >> prevent chokepoints, prevent

new shortages, and enable parts of designing, producing, and migrating into cutting edge chips for production. >> how important is it to establish urine footprint? there's always concerns in asia, parts of china, that strategic rivals have too much of a footprint in europe. is this about reclaiming some of our own industry? >> it is. it is also about preventing future crisis because we can be a much better partner for the u.s., south korea, singapore, japan. a much better partner if we have not only production capacity, but also invest in the strength of europe, so our research capacity, all of the equipment for producing chips that you find in europe. i think if we can click in better in the european system, we can also better prevent

shortages like the ones we have already. >> it may sound like this is something -- but it is in every part of life. we are talking about how much money is invested in this and for how long a period? >> it remains to be seen because member states play a crucial role here. kailey: that was the commissioner for come petition for the european commission speaking earlier with bloomberg's maria tadeo. let's get more on the eu chips act with mandeep singh. she was talking about the amount being invested, 43 billion euros. there's a lot of money. but i think we know if you throw money at it, it does not necessarily fix the problem quickly, or else we probably would not be where we are right now still. how much and how fast can that make a difference? mandeep: we know they talked about capacity going up by 2030, so this is really a long-term

five to 10 year kind of plan. when it comes to chip shortages, but we have figured out is it is not just the leading nodes. it is also the lagging nodes that automakers need. europe in general has a lot of companies that rely on these auto chips. so i think it makes sense, but when you are building a fab or thinking about long-term, you have to think about talent. you have to think about sourcing. the good thing for europe is they have all of the companies based in the netherlands and europe, so it kind of makes sense that they are trying to do something there in terms of capacity. guy: if i take the model we see in taiwan, there is financial assistance in terms of the aid coming from government. it is also zoning, water, land. the list goes on and on in terms of the support that the chips sector has been given in that

country. is that something that the united states and europe are capable of replicating, given the current regulatory environment around such huge investments? mandeep: clearly i think there has been a change in attitude, and you see this with the u.s., the competes act and what they are trying to do with opening up fabs here. it is not going to be any new companies. it is going to be the existing companies, the likes of samsung, intel, tsmc. what they are really trying to do is encourage all of these companies to spend capex, and then the government can subsidize capex spending in terms of opening these fabs, but nothing is going to make a difference in terms of capacity for the next five years when it comes to these regions. kailey: speaking of these regions, let's talk about one region in particular. the u.k. is where arm is housed, softbank planning to ipo that company potentially next year

after the deal with nvidia fell through. i wonder what you make of that plan, especially considering the reason the nvidia deal fell through was because of a lot of concern from regulators, but also their customers about what this deal would do. mandeep: i think nvidia is at a disadvantage here, and it would have been a good deal even for arm. i think an ipo won't be easy as you think. at the end of the day, but it would have done to nvidia is allowed them to expand into different end markets. the semiconductors, the broader end market exposure you have, the better off you are. right now nvidia is focused on ai. they do not have much exposure on that side. what we have seen is there were too many regulatory hurdles, and it is good that they called it off at this point in time. guy: huge blow to the u.k. that

it is not going to be listing here. don't know that yet, but the expectation certainly is that it will list in the states, where you have a deeper pool maybe of investors. nvidia was looking at about $40 billion. as a standalone, what do you think arm could be worth? mandeep: we know they are around a $3 billion revenue run rate. i think the growth has been decelerating, but it is proportional to the number of chips being sold in the year. so even if you apply 10 to 15 times sales multiples, you get to around $40 billion to $50 billion valuation, and given the kind of volatility we have seen, i don't think any ipo is going to get that kind of high multiples that we were getting in the last two years. guy:guy: we will leave it there. great stuff, as ever. mandeep singh of bloomberg intelligence on europe's chips act, the u.s. chips act. everybody getting in on the

action, and also what is happening with arm. "after the gold rush." that is what i'm going to settle on for a neil young song in terms of how to relate to the market. bp posting its highest profit in almost a decade, and it is promising more share buybacks. we spoke to the company's ceo, bernard looney. that conversation is next. this is bloomberg. ♪

kailey: bp ceo bernard looney spoke about bumper earnings and further buybacks. he foresees further tightening of the market because of geopolitical uncertainty. take a listen. bernard: actually it was a good year for trading in 2021. we have a great organization.

i am very proud of them. as we look to the future, oil prices, it is always difficult to tell. i think we have learned early in our career that making predictions isn't always the smartest thing to do, but there's a lot of uncertainty i think today. we've got what is going to happen with iran, what is going to happen with the shale response in north america. we've got concerns in libya. we've got questions about demand, what happens if there's another variant. so a lot of uncertainty. but i will say is that demand is strong, and you can easily see a further tightening market throughout this year. but more than anything, i think we should expect some volatility, and at the end of the day, we don't know what the price of oil is going to be, and that is why we are running our company to focus on the breakeven of around $40 so that we are resilient to a range of price outcomes.

we don't control it, but we do control how we run our business. that is why we are taking out $2.5 billion of cost. that is why we are doubling down on convenience sales, of 20% over the last couple of years. guy: bernard looney, the ceo of bp, talking to the team a little earlier on. ep and sh -- bp and shell the two biggest drags by some margin today. bp, earlier up, now starting to fade, down by 2.29%. i really struggle with these companies and how you understand what they are and what they are going to become. bp is looking basically to cut oil and gas production significant by 2030, looking at 50 gigawatts of her noble capacity. it trades at a discount to the oil

sector. so it is trying to make this transition, but i think trying to understand as an investor what you are getting here is really difficult. i think a lot of people simply own it because it is giving back dividend and buying back stock. kailey: do you think neil young would own it? not so much fossil fuels anymore? guy: no. he's "after the gold rush." and is the gold rush about to infer the oil sector? neil young telling people they should be getting out of the banks, getting out of the oil stocks. nothing best investment trade so far this year. shell, i don't know what has done -- what it has done your to date, but just amazing in terms of some of the performance as we are seeing. credit suisse, maybe a little less. ♪

guy: they are wrapping up the session in europe. let's talk about the day we have

seen. started off strongly. started to fade as we come through the end of the day. the ftse 100 emblematic of this. what we are seeing is energy coming under pressure. brent coming down, despite the fact that the numbers were fairly good. the market, not rewarding because the bigger macro story is the overarching theme we are watching. you see rates going higher in europe. that is an ongoing theme. making comments about chris taylor got's pivot. deutsche's talking about this huge shift we are seeing in the narrative in europe. banks and oil, the two big trades we are watching carefully. the ftse down by .2%. the ftse continues to outperform year to date. this is the trajectory of the session, early day is fading fast. into a narrow channel, as i think everyone is focusing on other asset classes.

coming through the end of the day, barely changed. 460 five is where we come to the end of the day. the narrative is elsewhere. it is in a euro-dollar, certainly in brent. brent down by 2.6%. watching euro-dollar fading a little bit, still with a 114 handle. building up to that cpi number out of the united states. approaching 2% on a u.s. 10 year. maybe not important in the big scheme of thingss, but nevertheless, a psychological marker of where we have come through -- come from. 1.844 with a rise continuing to pick up and yield. post that press conference from christine lagarde. let's talk about where we are with the sector story, you will get an idea of the narrative developing. . we are seeing energy coming on stock. that sector down by 1.72%. technology down, the luxury sector down, health care after pressure on the back of those pfizer numbers. . where are we seeing the strength? the miners are continuing to have a good time.

look at what is happening with aluminum, we will talk about that. banks continue to rise, up by 1.81%. insurance sector makes gains. telecom in the mix, up .6%. despite the fact that we see weight on vodafone. looking at picking up vodafone. italy making an offer for that business. we will see where we track with that. vodafone may be looking to offload its u.k. business as well. ok auto under pressure. bnp, a big pressure. a kado in the mix as well. this is a company that is investing for growth but the top line is struggling here as we see, problems as a result of what is happening. in terms of the availability of labor, and kits, inventory, in terms of making the robot work. all of that is putting pressure on ocado. the market really is concerned about the level of investment,

both the profit generation we are seeing out of the company and ocado down by 14% as a result. the banks continue to perform. we have those comments coming through from christine lagarde. bnp out with numbers. we will talk about credit suisse in a moment. bnp out with numbers. i think there was some concern around these numbers. we have not seen that big of a reaction in terms of bnp today. under a little bit of pressure. the stock trading 65.97. the macro picture, very solid. kailey: absolutely. we got more color on the bnp paribas result. caroline connan spoke with the cfo earlier today. take a listen to that conversation. >> over the entire year, they should do this, you will see bnp paribas has increased its revenues in 2021 versus a high base in 2020. >> you are raising your dividend to 60% payout ratio.

doesn't mean you are confident that the performance for the equity business will continue? >> listen, if you look overall, you will clearly see we have a very diversified activity. it is flow business. it is following the client's needs. we are grabbing market share. so we are steadily growing. that is basically what we do. that is why we feel confident to step up the payout ratio. >> you are talking about the flow. we are two months away from the french presidential elections. do you see any interest from french clients, international clients, do they inquire about the selection? and is it having an impact on flows? >> you are talking to the cfo of bnp paribas, so i do not have a crystal ball to predict the outcome in the likes. however, we do see that the pickup in the economic architecture, in the sectors that we are serving particularly, has been very

solid. this is basically what you see in our results in 2021. >> what concerns you most at the european level? is it the future interest rates, spikes, or political tensions at the moment? >> if you look at the uncertainty that hangs over, it is indeed the interest rates. there you see different positions unfolding. in the end, if you look at bnp paribas, what is important is that we can accompany the growth in europe. therefore even if the rates go up, that is what we will do. intrinsically, we have taken a very conservative stance when we may -- when we made our objectives. if the rates go up, showing even a faster growth, then of course that will be the cherry on the cake. guy: the ever optimistic cfo of bnp paribas. lara mesh and no talking after the numbers were released. credit suisse also in focus,

coming off its worse year since the financial crisis. regulators are about to make life tougher in terms of staff retention. regulators believe the bank is being too generous when it comes to the bonus pool. let's bring in sonali basak to talk about this and everything else. great to see you on the show. credit suisse has got problems in terms of talent retention. we see huge turbulence within the business. changes at the top, forced by covid rules being broken. now we have regulators coming in and saying actually, bonuses may need to come down a little bit. how does credit suisse hang onto talent at this point? sonali: it has been a difficult year. we have seen a pit -- a fair bit of attrition last year, including in businesses that credit suisse had been doing well. that includes in the advisory business where they have long been a top 10 m&a advisor. and also in their prime roque

ridge business where we have seen people step down in the wake of archegos. they were fighting down and equities. where does the future businesses go when talent is strained and the bonuses are likely to be down 10% because finra is concerned? as you know, suisse regulators are the toughest in the world. they want to keep his capital buffers really tight. it does leave a lot of questions for talent. it was a great scoop led by marion which says that already the bonus structure was causing dissatisfaction among bankers. that includes the clawback revisions being discussed. they were wondering why stay if we are going to have to pay back money to begin with? this idea of bonuses and cash is another big question mark. while that would have been a good thing to retain some talent, there is going to be a limited amount of that cash to go around. we have heard of others on wall street doing a similar thing as

bonuses rise quickly. kailey: when we think about talent retention with banks, compensation is a huge part of it. in the post-pandemic area, part of it is flexibility with your work schedule. being able to be at home or in the office. that is our big story. looking at goldman, people are not back five days a week sitting at their desk. sonali: it is so interesting. this discusses more than one third of people surveyed say that they want more flexibility with work. and you do have certain banks discussing it, particularly the big global banks like standard chartered, hsbc, taking a hybrid approach. citigroup has been talking about it as a talent retention strategy. even at goldman sachs, before this segment, i went and listened to a conversation i had with david solomon about that aberration comment he had. interestingly, he went back and said listen, i said 98% of traders will not be working from home every day. that will be an aberration. but there will be flexibility for the people working hard for us.

even now, as you think about the way that this year has progressed, many bankers, many ceos did not think they would be sending staff home in january. goldman started this year with 20% occupancy before the pandemic. i have heard it was around 80% or so. let's see what the new normal will bring for return to office work. guy: certainly walking around, people are heading back into the office in greater numbers in london, even over the last few days, trains are filling up. it's amazing. maybe london gets back to work earlier. sonali: i'm enjoying it. guy: yeah, a lot of people are. i talked to a buddy of mine last night. . he worked for an asset management -- manager. he said we are back in the office four days a week, it is great. a lot of people starting to feel that maybe this is the time, finally. sonali: by the way, the goldman apollo have a fan -- have come

to chubb. they are doing a lot of things to get people excited about being back in the office. kailey: you think guy drinks kom bucha? sonali: i do. kailey: i think we will leave it there. guy: i don't know where to go with this. i don't. i'm not sure i would be attracted back to the office based on that. [laughter] guy: you never know. you never know. each to their own. thank you very much. smiley best nick, thank you very much. talking about how important the pivot is for european banks that it been -- has been developed by christine lagarde. not much. still negative on the ftse 100. coming back up to the flatline. basically a flat close for the ftse. we started off very strongly, and then we faded as the close came toward this. we will carry on the coverage at the top of the hour on bloomberg radio. a lot to digest in europe. we will do that on the cable at 5:00 p.m. in london, 12:00 p.m.

in new york. you can find us on all of your bloomberg devices. the podcast on spotify and itunes. kailey: one of the stories europe is digesting and the rest of the world is the situation in ukraine. a mixed messaging we are getting out of world leaders. french president emmanuel macron told reporters he has received assurances from vladimir putin on ukraine. at the same time, the kremlin is casting doubt on the. we will try to get clarity next. this is bloomberg. ♪

> this is "bloomberg markets: european open." tune into bloomberg's monthly series, the latest episode featuring adrian mitchell is now on bloomberg.com and youtube. this ioomberg.

guy: ok, it says in front of me that that is the french president, man u micron. we appears to have lost emmanuel macron. he has been in moscow. he has moved to kiev, he has been having a meeting with president zelensky. akron told reporters he had received assurances yesterday with that six hour meeting with flood near putin that moscow will not escalate tensions with ukraine. the kremlin spokesperson saying that is not quite so clear. let's get more on this crisis, where we are in the process of maybe finding a way out of the escalation we have seen thus far. amory holden joining us from washington. bring it all together, we have olaf scholz in yesterday, emmanuel macron in moscow, now in ukraine as well. in terms of the washington that -- the progress we have made, where are we? >> i think what is interesting

is the meeting this evening between emmanuel macron and olaf scholz in berlin. micron has been on a european tour while schulz is in washington. these two are going to swap notes on what is going on, as they try to be the in lockers between the united states and russia. i think yesterday, in washington, d.c., it was very firm where the united states stood in terms of harsh sanctions on russia. even if that would mean some tough -- a tough road ahead for the europeans, especially germany when it comes to nord stream 2 bank. i would say all offshoots was more direct -- i would say olaf scholz was more direct, but not as direct as some people would want him to be. this is also something he is dealing with, difficulties on domestic front. when it comes to the assurances president putin may or may not have given emmanuel macron, a french official has said putin's commitment on military

initiatives was not firm, but rather conditional on where putin views the evolving situation. guy: yeah, i think we heard -- have not heard the last of what happened within that meeting. i'm not sure we have had the full read yet. anne-marie, thank you very much. joining us from washington, d.c. let's talk about the impact this is having into the markets. any conflict involving russia would be felt immediately within the metals market. we have seen aluminum, it it -- at its highest price since 2008. russia is one of the world's biggest producers of aluminum. we saw what happened when rousseau was sanctioned a few years back. could we see repetition of that? and you have to factor in a fold in of the impact of energy prices, which obviously is going into aluminum. let's bring in christoph bernhard eibl. great to see you. christoph: good to see you. guy: i have known you for a long

time. you pivoted in and out of various businesses. you are firmly in the metals market now and looking at what is happening with aluminum on the physical side. let's talk about your assessment of the market that we see in front of us. why is aluminum as high as it is? what is priced within it? is it a higher energy price now? is there a russia risk factored into that market? christoph: i couple good points. first and foremost, at the moment, what we see priced in the energy system, the crisis, the energy prices will remain high. we have seen shutdown of production in europe. this is reflected in the price and the physical premium. what we don't think is priced into the market is an escalation of the ukrainian-russian situation. this brings us back to what we saw in 2018 window fact decided to sanction the biggest aluminum producer, russo, and there was no more aluminum available. if you remember, the price back

then, flat price as well as on the premiums, and what it meant for the construction industry, for the aerospace industry, for the packaging industry and automotive industry, i don't want to revisit that, if escalations happen. kailey: to that point, do you think history could repeat itself? chris: you know, there is a military truth and reality and there is a political reality. the political reality is being stamped out in the media now. i think the military situation, and this is what we pay more attention to, is crystal clear to us. if you look at the numbers and ask yourself the question, how much has russia spent so far in its engagement in ukraine since 2014? the answer -- the answer is $150 billion. how much has do must set aside in terms of the ukrainian conflict? the number is more like $550 billion. if you look at the dimension of military year and manpower being moved to the border, this has

nothing to do with an exercise or maneuvering in any form. the question to us as traders, what is the cost of pulling out of the situation, just retreating with its troops? as a consequence, we steer that the escalation israel. as an aluminum trader, every element you trade, or every company dependent on aluminum, you have certain ties to russia because of the size of the market. that is a consequence. we need to think about delivery risk, what it means for a value added product, we need to understand what it means for the real economy. and this is not necessarily positive, any scenario in that context. guy: let's talk about the impact of an invasion and subsequent sanctions. how high can aluminum go? it is not just aluminum, talk me through the other metals. chris: the first point is what happened in 2018? in some form, it you can take it as a prototype. you have had sanctions, no

export possible. it was restricted. the thing here was very quickly, oh fact realized we are sanctioning our own aerospace and defense industry. they issued waivers. in this situation, we cannot imagine that if there were sanctions in russia or worse case, a cut off of swiss system that oh fact would issue a wave. there is not enough metal around. you look at a storage capacity, look at stocks around the world, and they are at all-time lows. that is particularly true for aluminum, nickel, other grains as well as energy commodities. we don't have enough spare capacity to supply the market. kailey: obviously in the metals market, it is not just russia that is an issue. there is also the china issue, pursuing covid zero policy in which covid outbreaks can seriously impact production.

how do you factor the child -- the china wildcard? chris: that has been one of the big wildcards in general. not necessarily for aluminum, but other metals. or raw materials and products that need to be shipped to the european market because of bottlenecks on logistics, bottlenecks in ports. we have a covid shutdown today in one of the bigger aluminum plants in china. as a consequence, if you look at all of the factors that would mean a bullish prices in aluminum, nickel, copper, and other metals, you cannot be short in these markets. that is reflected, if you look at volatility, the skew in itself, how it is priced, and i think that is what people do position themselves on an escalation, eventually. guy: if energy prices stay this elevated, what happens with aluminum? hand consumer -- will consumers take it at this price for a long

period of time if we see energy prices staying this high? chris: let's look at the facts. because of high energy prices, a shutdown of 800 tons in europe, that is gone. we don't see that coming back anytime soon. most of the energy hedges that were in place by the european manufacturing industry, they were off eventually. when you really -- when you reestablish your hedges for cal 23 and cal 24, you will hedge at higher prices. logically, the price level in itself will remain higher. are we coming back to two and have thousand dollars in aluminum? i cannot foresee that. guy: thank you very much, indeed. great to see you back. a reminder, at the moment, russia has no plans to invade ukraine. but as chris says, certainly everyone is watching the situation carefully. we are trying to figure out what could happen. chris eibl, thank you, sir. this is bloomberg. ♪

kailey: that is going to wrap it up for guy and i. i think probably everyone has had enough of us talking about neil young. coming up, david goodland will be joining balance with david westin on bloomberg television and radio. that is here in the u.s. a great lineup coming up on radio in the u.k. guy: they are counting down to the end of the week. that means we will get kaylee's take on what is happening in the super bowl. we will do that by thursday. the cable is next. i will go to bloomberg radio. looking forward to that at the top of the hour, you will find us on dab digital radio. from kaylee and me, this is bloomberg. this is bloomberg. ♪ ♪

>> from the world of politics -- >> one of the things president putin is trying to do is drive a

wedge between allies. >> to the world of business -- >> the fourth quarter of 2021 was a lot stronger than we thought it was. >> this is balance of power westin. -- balance of power westin. -- balance of power with david westin. david: welcome to balance of power. the house of representatives is due to vote today and yet another continued resolution to keep the government spending money until at least march 11. having failed to come to an agreement on an overall budget once again. we turn now to an expert on the budget process, doug is holy can, president of the american action forum and served as the congressional budget office. let's talk about this budget process. are we losing something by congress's inability to come