2021. china's car maker announces plans to push further into francine: let's get the futures. bonds and stocks struggling this morning. dax down 1%. ftse down by a similar amount. the fed is trying to decide whether to cut by 25 basis points. tom: on the back of that forecast, c.p.i., the special meeting for the fed, saying he wants to see 100 basis points by july and that reworking of market expectations on this back of that c.p.i. the highest since 1982. the highest level since the

1990's the spanish ibex is down. the ftse low. many economists looking at the struggles and challenges of the u.k. economy given brexit and the cost of living crisis. we want to look at currencies and at prif rel yields. -- peripheral yields. lower by .4%. the dollar has been on the back of that higher expectation of a more hawkish fed. currently the two-year german is gaining at .2 basis points. brent, there has been some traction around negotiations with iran and vienna.

in which case you get more supply on the market. we scare up to the u.s. open and what it will mean. that grim selloff that we saw yesterday. the u.s. two-year 1.58. the 10-year up .2%. francine? francine: tom, definitely a down day for all of the european stocks. healthcare on the downside. the industry that is losing the most is technology. technology down between is.5% and 1.6%. they are losing less of the others. telecom and healthcare .2% lower. when you look at financials, this is interesting for me. you have a bigger move from the

fed. seems like to markets radior-trying to find their feet on exactly what this means. tom: we'll speak with a guest shortly who is more cautious on banks. that runup ins and the view that the blanks benefit. -- banks will benefit. volvo cars putting emphasis on the strains when it comes to supply chains and chips. last quarter sales disappointed. british american tobacco, one of those sin stocks. it is faring less badly than the broader markets. the top line growth is looking

positive for 2022. beat in the last quarter. let's talk about inflation then. this is the story of the moment. we touched on it and discussed it. the come opponent was broad based. that is what stood out for a lot of the economists watching this. it is worth highlighting again. the blue bars point to this. the services component. not just about energy. services inflation is starting to pick up and will become more pronounced. it is no longer the case about secondhand car sales. francine: you look at energy prices, there is a lot of concern about what's happening in ukraine and the flow of gas going into europe. a lot of companies making sure there is enough investment in some of the older energy products and so this transition

could be more painful than we thought and last longer which is why we could see energy leaving the c.p.i. and spikes and continuing to leave that spike for quite sometime. let's get to the first bloomberg business flash. hi, lawyer ea. >> a $13 billion offer for its italian unit. the british carrier said the offer is not in the best interest of its shareholders but sources tell us it cease it as too low. they suggested they won't increase their bid. a buy new pay later fund with partial financial results. just hours earlier, investors were given a snapshot of what u.s. companies called another great quarter by an accidental tweet. tesla paving the way for

a launch of starship this year. musk said confident starship will make it into orbit this year. francine: thanks so much. laura wright in london. investors are betting on faster rate hikes. here is what some of our leading voices have been telling us on bloomberg tv. >> inflation is going to stay high for a while. >> the highest inflation that i have seen. >> companies feel like they have to and can raise prices. >> there is a lot pressure on the fed with the higher inflation numbers. >> the market says six hikes. i think that is fair. >> there is a strong argument for a 60 basis point mover. >> very clearly, expectations

that we're moving 50 with a march fed liftoff. >> if they don't do it, inflation will continue to -- francine: let's get into the key markets drivers. thank you both for joining us. there seems to be a selloff that is undiscriminatory. do markets become more sophisticatedded on what should be selling off? >> yes, it is going to be about differentiation. we're not really seeing that echoing of higher yields in europe like we saw in the u.s. overnight and that has probably been held by lagarde restressing that gradualism, the same message that she delivered to the european parliament earlier

this week. in the aftermath, i think that has a lot more impact and helping to keep the lid on those european yields. it is going to be more about that yield spread and who is moving faster and who is going to stay with that gradual message. tom: maria, how do you think the markets are faring? repricing on what the fed will have to do on inflation? >> it is very challenging there. what is really, really interesting to me is that we're having -- every time we get -- like we had yesterday or any kind of recent exhibition numbers, we are getting indications that the hiking cycle starts sooner. the market is really bringing forward the hikes. it is not really giving us more hikes in general in the overall

psych. it is sooner but still fairly shallow. francine: maria degrees, christina was talking about emphasizing gradualism. this is probably the main worry on the markets. there is group think at the moment. you look at the fed and inflation and you think globally the world will start hiking more aggressively than expected. is that wrong? >> i don't think it is very wrong. i think that we're getting a lot of -- this global inflation trend. that is the truth. we'll get get a lot of hikes. what i worry about is that the market is telling us that we'll have a worry shallow hiking cycle. what is that from?

that is a big risk. when the fed starts hiking we all expect inflation to come down. long-term inflation is at a historical level. that to me is a big concern. tom: concerned about the yield curve and the terminal rates. christine, i want to bring you back in at this point. is there an asset that you're looking at this terms of the point as we reprice? >> for me it is going to be about the real yields everywhere. when does the pain in bond markets end? you were talking about the bond bear market. it is really something that investors will start to consider is whether these bonds are finally compensating them more than the inflation rate and especially important for these investors with long-term liabilities, talking particularly about japan nee knees investors. they are going to start thinking

about rethinking their allegations. real rates are going to be assets to watch for me. francine: how do you explain these inflation figures. a viewer who watches us and is a friend of the show says the energy contribution on u.s. c.p.i. was falling p month on month. that is one of the main things we need to watch out for because of open ex. this doesn't have to do with transition. you have goldman sachs. we're out of everything. what is your prediction for inflation going forward? >> the inflation gauge i'm watching very closely is long-term inflation. what's happening to five-year -- 10-year inflation expectation. that to me is a big point.

very much debate about the terminal rate. very much debate whether the post covid world will look similar to precovid. to me, the real key indicator whether we can break out into higher inflation of the steeper yield curve is cap. i talked about the need to invest. investments in technology. that is something that can push the terminal rate higher. that is something that can push long-term inflation higher and a steeper yield curve. that is something i'm looking for. the temporary supply chain and we need to normalize some -- tom: part of the complexity is

the makeup inflation is different here in europe than the inflation we see in the u.s. or u.k. in terms of what we heard the from the e.c.b. and christine lagarde, the idea that she is softening, what should the markets be reading into this? >> looking into what they are going to be doing for their sequencing for starters and what the asset purchase program is going to look like. in a way it shields the e.c.b. from getting dragged into this rate hiking fray. they have every sized they are not going to do anything on rate hiking in they decide what to do with the asset purchase program. i think her message emphasizing that gradualism drives that point home. watch out for the a.p.p., what

they are going to with that and when that is going to end when we're talking about rate hikes. tom: maria stays with us. francine: coming up later this hour, the energy crunch and opportunities and alternatives to energy. we'll speak the head of energy research. tom: and we'll speak with the c.e.o. as they announce plans. stick around for that one. this is bloomberg.

francine: welcome back to the open, everyone. 16 minutes into the start of the european trading day. a big selloff whether it be bonds or equities. the stoxx 600 down .5%. we'll hear from various fed speakers today. stocks and bonds both struggling. in australia the three-year yields hit the lowest since 2019. tom: let's dig into some of the key market things. state street global market. push it forward to what it means

around consumption maria. what is the level of concern where in many jurisdictions, the u.k. and elsewhere real wages are still underwater. how does that challenge the consumer going forward? >> very good question. i think what is really interesting to they can't is the consumer is very broad right now. if we look at different demographics and the kind of aggregate level, incredibly surprising. kind of unusual is that overall consumer -- kind of comes out of recession now in a much stronger position. portions of disposable income. what we're seeing is that benefiting from higher asset prices.

overall, there are some demographics that are really struggling. it is interesting to see what it does. for me it is a way to think about the consumer and what it does to corporate profits. they are seeing some -- there are quite a lot of consumer -- that showed fairly strong numbers. beat analyst expectations top line, bottom line. higher margins were protect. there is some underlying strength there. francine: how do you build a portfolio in this kind of environment? with questions on inventories. what are the top picks you would have right now? >> again, very interesting. markets are selling off. normally you would say i should be for defensive and worry about a recession but that is really not what's happening now.

commodities, energy materials, financials have done well. they haven't performed as strong as one would expect if you worry about recession and a big slowdown. drawing parallels with earnings season. where we have seen the best beats. i think that is that probably one interesting takeafrom what's happening now. it is not defensive. commodities is our favorite -- a bit of a consensus trade. all the good things. i'm a big fan of tech stocks for a long time. it has ban hard month for me but we're seeing underlying strength there.

stability earnings which i think will come really, really important. i know tom mentioned briefly not liking banks. tom: let me jump in at that point. so the case for banks. evaluations, yields of course going higher. the earnings being solid broadly for this sector. hauck you not like the banking sector? >> can level of the interest rate. what matters more is the yield curve. that is really, really challenging. another thing, earnings have been very solid. the big drive res, trading revenue and investment banking revenue. that's what we heard from many banks is the struggle to lend and the other thing that worries me a lot thinking about long-term multiples for banks. pretty much every single bank

that reported has continued to see decline. that to me is a real important factor thinking about longevity of profitability in the core business. whether trading revenue will continue. whether investment banking revenue will continue. they really struggle. that is the main concern. one of the consensus rates. francine: thanks so much. maria, of state street global markets. coming up, we'll bring you details on the g.d.p. numbers next. this is bloomberg.

francine: welcome back to the open everyone. the u.k. economy grew 7.45% in 2021. the fastest annual pace since world war ii. in the first year to have pandemic the economy dropped 9.4%. those are pretty incredible figures. lizzie, it is amazing the swing. break it down for us. >> it is the fastest growth

since world war ii but before we pat boris johnson on the back it is a huge climb from 2020. the economy proved more resilient than expected even though you have tight restrictions and consumer caution. you have the impact lesson because of the boost from the vaccine drive. across q4, you still had a 1% expansion. it leaves the door wide open to a rate rise in march. it would be the third back-to-back increase. up to 2% by november. that is probably more reaction to the u.s. news overnight. tom: thank you for breaking down that u.k. g.d.p. number. the cost of living crisis. currently markets across europe are down .7%. coming up, we'll have the outlook on the energy markets with goldman sachs, head of energy research.

that conversation is next. we'll check in with the markets again. the ftse 100 currently down .5%. this is bloomberg. ♪ ♪

francine: welcome back to the open, everyone. 30 minutes into the european trading day. here are your top stories. markets sell off as u.s. inflation hits a 40-year high. u.k. g.d.p. rises at the fastest annual pace since world war ii. the british economy hits a milder hit than december. plans to push further into europe. we'lling speak to the company's.

i don't know whether we'll settle by the end of the day in the u.s. but the markets are at the present timetive at the moment. tom: they performed fairly well. the futures are pointing higher than the he or she we're getting now. across the bench mark losses down three points on the stoxx 600. the dax down. the ftse 100 in similar territory. pairing similar losses. goldman sachs now looking at seven hikes from the federal reserve this year. 50 basis points in march. the markets calling it 50/50. they are split in whether you get 50 basis points in march.

there are challenges ahead for the u.k. christine lagarde gave an interview and capping the yield story to some extent, relatively modest moves after the strong pickup yesterday. technology is down near the bottom. travel and leisure also down. three sectors in the green now. telecoms, food and beverage. pretty mediocre. we'll see how it plays out in the u.s. session. the question for markets is what do you do? how do you adjust? is it still a case there is no alit weretive where you put your money. certainly, you still need to be buying stocks within this environment. volatility remain ascii theme. the chart here shows what's happening in terms of the equity risk premium and the fact that

that could continue to support stocks. the white sideline the stoxx 600 and the blue sideline the s&p 500 minus that treasury yield. that continuing arguably to give something of a flaw to these equity markets. francine: i love that chart. it really brings us back to what jpmorgan morgan was reading a couple days ago. helping to aleaveuate some of the concerns in terms of margins. you have a less forgiving macro economic brack drop. i wonder if the investors change what they think on equity markets. some say it is time to buy stocks and others saying we'll see how this all plays out. austria. legal action against e. towrvetion fight issue of green

nuke power. >> we are focusing on green in general to support the transition which is in our focus beside the tax reform, green bonds, we're going issue green bonds in the first half and now we're in london to get some expertise about that. we are focusing in general on green finance and on these green bonds. francine: is it technical? expertise or the way you issue it or who you sell it to? >> we have jpmorgan as our -- who supports us in issuing the bonds. so we had talks with them. talks with other experts. it is on the technical need. what the market gets. those are the questions we have at the moment.

francine: austria has taken the challenge saying nuke should be included in this -- nuclear should be included in this. >> nuclear energy doesn't fit into a green texonomy. you can take gas and nuclear power in it, talking about green, it is definitely not nuclear power. that's for sure. that is absurd actually. i don't know why the discussion is going in that direction. that is quite absurd. if you talk about transition texonomy, you can talk about everything. it is about the credibility in the european union. if you have green on one hand and the texonomy. francine: i understand you say you're concerned but this will probably go to court. >> it can go to court. it is obviously -- my colleague in the government, who is in

choonch that. she is taking the action. -- in charge of that. she is taking the action. francine: the latest energy research from goldman sachs says clean hydrogen critical to achieving netzero. converging to create unprecedented momentum. joining us now to dishus is goldman sachs head of industry and research. thank you so much for joining us. i guess price is first of all critical. if it is still a lot more expensive than oil nothing really will be done at the government level. when do you see it being competitive on the price level? >> by 2030. we think by 2030 hydrogen will be competitive with these heavy tracks. by then, we think this with really help. including shipping by the way. whether it is the only credible

netzero solution and alongside that, it will be used in industry, especially steel. it will be used in managing power generation. we think it will become 15% of the global energy market. tom: 15% of the global energy market. just fill out that picture then in terms of demand and underscore for us where we are terms of maturity of this sector and the need for additional spending. >> i think we are at ground zero on it. we are just starting now. we started to see supporting the first green hydrogen plants in several countries in the world. and we think there is going to lead to a kick start which can then lead to financial innovation and the improvement and then i think we need -- so the next 10 years really are about making sure we have the

right regulatory infrastructure to kick start the process and then i think this will become one of the biggest energy markets. francine: do you see actually getting power prices changing exhibition and accelerating the transition? many people as you were saying expect hydrogen to be cheaper in 2030. i think hydrocar bons at 90, we're at 90 now. will it speed up the process now? >> absolutely. the way we look at it is the best way to decarbonize is to -- carbo pricing is without a doubt the most efficient way to get there. living in europe we feel like we're getting there but the reality is we are nowhere on the path of the global coordination perspective. if you take global carbon prices, what it achieves ultimately hydrocarbon prices

need to achieve. higher oil and higher corn prices are absolutely necessary to get to netzero because ultimately the way to charge the carbon -- the consumer and we need to be aware and conscious of that but it is very difficult to achieve netzero without charging carbon. tom: let's talk gio application. russia-ukraine, galaxy the implications there. how will this change the geo-political landscape when it comes to energy? >> i think it would be the consuming countries that get the tax revenue from it. if we get there, we'll have higher carbon prices. the extra revenue would go to saudi, russia, iran. i think it is a policy failure from the side of some of the

countries involved but it certainly does mean these countries would get an exceptional windfall probably that could last last throughout the decade something that is quite count intuitive for a lot of the of observers. francine: very quickly. what do people misunderstand about the transition? is it going to be painful when you look at the energy industry until get to the transition and is that going to actually make it fall further? >> first of all i think what is misunderstood is the fact that right now the capital markets are driverring netzero. because of this, we are rationing away hydrocarbon supply well before the consumer is forced to change its demand patterns. the first phase which could take place throughout this entire decade is likely to lead to higher oil and gas prices and

for the energy transition it would be extremely cash flow generative for the oil and gas industry. we are getting to netzero and we need to focus on the low carbon technologies but it is going through higher energy prices. it is not deflationry. tom: the challenges for that transition just fan tact insights into what could happen. w.t.i. still holding above $90 a barrel. that is goldman sachs head of energy re-research. thank you for those insights. coming up china ease electric car maker. we'll speak with the president next. this is bloomberg. ♪

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francine: along with the cheers and glory from some of the world's top athletes came more scrutiny at the beijing olympics. to avoid covid there have been tight and uncomfortable restrictions. athletes were placed in isolation facilities where there were complaipts about the food

and dirty rooms. there have been a number of controversies about china's human rights scandals. nbc ratings are at historic lows. for opening day, the network averaged 16 million viewers. down significantly from 28 million in the previous winter olympics. team u.s.a. also had a slow start when it comes to winning medals. there could be fatigue with the tokyo summer games just six months prior. all of this combined another headache for nbc paying $8 billion to blast the games through 2032. bloomberg news, beijing. tom: that was at the beijing olympics. the end of the first week. doping scandals and some

incredible sporting achievements as well. just bringing you closer to home from the mainland what's happening in hong kong. over 1,500 preliminary positive covid cases. we know in comparison to the u.k., within the context of covid zero in hong kong, this is really significant and we know that the frustrations amongst the population of hong kong is how they are handling this now. francine: because of course the measures have been heavy handed compared to what we're seeing here. for example, the u.k. that was statement saying they are holding meeting to discuss health, and the airport and how to get food in and out in a less disruptive way. tom: meetings with no more than two families in a household is controversial. chinese electric car maker which

is one of the most important ones within that community is pushing further into europe 14 months after the delivery of its g3 sport utility vehicles to customers in norway. brian, always good to talk to you. the expansion into europe. we start in norway and now pushing into the netherlands and sweden. stepping up a center in stockholm. what are the priority markets for you going forward in europe? how much demand are you seeing? >> very glad to be back on the show. yes, you know, we have just announced that we are expanding our european presence. in the european and northern part of europe and i think given our experience in norway, we're very confident in our products and vehicles appeal to customers there.

the important thing right now is to focus on these new markets where we believe there are high rates for e.v. and well established infrastructure to use e.v. i think this is something that we are going to be focused on in the coming year or two. tom: who do you see as your main rivals in europe? >> given we just started to sell our product, we don't believe that we are counting any particular brand as our direct competitors or rivals. our product in china has been compared to other e.v. makers like tesla. i think we'll be compared to similar more capable electric vehicles in europe. also in europe there is a very high focus on design as well as the range and the capability of performance which i think our product will compare well to the

existing products on the market. tom: unlike some of your competitors you have your own batteries. do you look at building a factory in europe? are you going to give a boost to europe and start to build factories over here? >> if we actually achieve the goal in the long run then we must think about a local manufacturing strategy but at the moment, given that we're targeting the next couple of years, we'll probably still rely on the export method first but again obviously we have high hopes for this european region so manufacturing will be part of our thinking going forward. francine: brian, are you concerned that because you're a chinese company, it will take longer for europeans to adopt some of what you make? to become the number two best telecom center in europe? >> as a new brand coming into a new market, it is always going

to be challenging. you will always require consistent long-term commitment to make it successful. we actually and obviously are prepared the make that commitment and also the investment as well. but i think e.v. -- what we found in china at least, our experience is that actually people are more accepting to technology brands, especially new brands in the smart e.v. world. i don't think the legacy metropolitan as much incumbent power in the consumer mind in the e.v. sector. there is a chance that we can be able to build our brand and really convince the consumers in europe that a smart e.v. product from china is a really attractive product. tom: we had a remind they are morning over the supply chain challenges from volume ko cars. they are predicting those

challenges to continue throughout 2022. what is the update for you when it comes to semiconductor supply and the costs and how you are managing margins? >> i think we'll continue to see a very tight supply chain situation in this sector. obviously chips is obviously one of the foremost topics that people focus on. it is still challenging to have a good chip supply. as companies we have to be very nimble as we did last year. this shortage situation is not related to one particular chip but is more industry-wide phenomenon and will probably last until later this year. we need to be prepared that this will be impacting on business most of this year. also on the material costs, i think the challenges that we see, the costs will rise across

the board, the battery, material and also for other auto component materials. that is something the automaker has to manage very, very actively or proactively to make sure the margin doesn't get eroded too much. treavor: ok, brian. we always appreciate the insight. the challenge is still around supply chains. chairman and president of xpeng. we have plenty more coming up on the markets. currently across europe. looking at the downside of .9% for the losses becoming heavier here in europe. this is bloomberg. ♪ ♪

francine: welcome back the open everyone. let's get back to the markets. currency and rates strategist. first of all a victory lap. back in november you wrote that two-year yields had a potential to reach 7.5%. now we're there. what happens to the two-year and 10-year? >> it will come down to where we go on the fed pricing. if you are going to get seven hikes this year. the markets, seven rate hikes.

if we are going to get seven rate hikes i think we go to 2% on the two-year. no question about that. the 10-year, about 2.21. i think that may be the top for the market this year. i don't think we're going to get more than seven hikes. that would mean that the curve is going to flatten. 38 basis points. 26 basis points and level off there. tom: 23 basis points. that is tight in terms of what we're seeing in the yield curve. e.c.b. guidance. we have run out of time. it is a friday. we packed a lot in. it is great getting your views on the yield curve. francine: he is back in half an hour. tom: stay tuned everyone. we'll unpack his thoughts.

francine: that's it for the european market open. we'll have full market moves. we'll grill him on the e.c.b. and of course what it means for guilds overall. this is bloomberg. ♪

>> we will come through the bond market. right now, it is unpleasant. >> i can tell you that there was unanimous concern around the table of the governing council about inflation numbers. >> i sent in email out saying we think 10 year bonds would go positive. three of my largest contacts in the industry laughed at me. >> this is bloomberg surveillance early edition with francine lacqua. francine: good morning and welcome to bloomberg surveillance early edition. here is