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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: DAYBAQ podcast, available every morning on Apple, Spotify, or wherever

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Speaker 1: you listen. It's Wednesday, the fourteenth of February. I'm Caroline Hepcare.

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Speaker 2: And I'm Stephen Carroll. Coming up today.

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Speaker 3: A surprise jump in US inflation leads to a Marcus

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Speaker 3: rethink of FED rate cuts.

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Speaker 1: Global bonds erase all their gains since jerown Pal's Dubvish

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Speaker 1: pivot in December.

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Speaker 3: Plus Russia's migrant workforce in Ukraine, how the Kremlin is

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Speaker 3: luring people for construction jobs, only to put many on

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Speaker 3: the front line.

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Speaker 1: Let's start with a roundup of our top stories.

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Speaker 3: US inflation rose across the board in January and a

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Speaker 3: shock that spooked markets. Monthly, annual, and core CPI readings

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Speaker 3: all came in higher than forecast, with Core rising by

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Speaker 3: three point nine percent year on year. Wells Fargo chief

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Speaker 3: economist Jay Brison says it's a warning to anyone expecting

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Speaker 3: imminent central bank cuts.

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Speaker 4: The FED is not going to make a decision based

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Speaker 4: on one data point. They're going to take the totality

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Speaker 4: of the data and they're going to look at it

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Speaker 4: when they when they make a decision now, is March?

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Speaker 4: Is a breakak going to happen in March? Knowing what

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Speaker 4: I know right now, probably not. But you May is

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Speaker 4: still a long way away. We still have a long

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Speaker 4: data between now and May, and we'll see how the

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Speaker 4: whole totality of the data pan out between now and then.

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Speaker 3: Others say that Bryson's view that May is the next

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Speaker 3: possible data is still too optimistic Double lines Jeffrey gunlacktalks CNBC.

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Speaker 3: Markets have tremendously overpriced the amount of FED rate cuts

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Speaker 3: this year.

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Speaker 5: Well.

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Speaker 1: The S and P five hundred felt one point four

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Speaker 1: percent and it's worst CPI day since September twenty twenty two.

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Speaker 1: As trade has reacted to that inflation data, Global bonds

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Speaker 1: and global bond markets have lost all gains now since

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Speaker 1: FED chaired your Own Pals pivot in December. That is

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Speaker 1: dropping three and a half percent this year. But black

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Speaker 1: Hawk Investments head Jean Boiva says that the long term

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Speaker 1: story hasn't changed.

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Speaker 6: The market is overreacting. I mean that has been the

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Speaker 6: story for the last eighteen months. We've seen that in

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Speaker 6: December with the shocker REFUMC massive rally right and now

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Speaker 6: stick Scott expected in twenty twenty four that was overextended.

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Speaker 6: I think that's getting corrected as we speak. But I

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Speaker 6: think the broader story will be one where in fish

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Speaker 6: is going to continue to trend down over the next

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Speaker 6: few months, We're going to see cuts.

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Speaker 1: Despite Bourvan's long term view, the stock market's FAG gauge,

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Speaker 1: the VICS surged the most since October.

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Speaker 3: UK inflation data out this morning is expected to also accelerate.

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Speaker 2: In January.

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Speaker 3: Bloomberg Economics estimates uk CPI will rise by ten bases

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Speaker 3: points from December's four percent figure. Traders paired bets on

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Speaker 3: Bank of England cuts after wage deity yesterday, pushing the

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Speaker 3: timing of the first expected reduction to September.

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Speaker 1: Now onto some corporate news data, Charted is considering breaking

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Speaker 1: up its corporate and investment banking arms. The move would

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Speaker 1: leave to job cuts similar to those seen at Peers

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Speaker 1: City Group and Goldman Sachs recently, according to people familiar

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Speaker 1: with the matter, The lender has been considering options to

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Speaker 1: boost returns after souring loans tied to Chinese real estate

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Speaker 1: affected profitability.

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Speaker 3: Lift mistakenly predicted a five hundred basis point expansion in

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Speaker 3: margins this year, but had to acknowledge it was a

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Speaker 3: clerical error. The figure was eventually corrected to a fifty

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Speaker 3: basis point uplift, but not before shares in the right

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Speaker 3: hailing provider surged by sixty seven percent. The inaccuracy overshadowed

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Speaker 3: what was a solid beat on profits and bookings as

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Speaker 3: the company continues to challenge competitor Uber, Bloomberg's Natalie Lung

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Speaker 3: says catching up with the market leader will prove difficult.

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Speaker 5: They're kind of in a tough spot in comparison to Uber,

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Speaker 5: who has scale of international markets and as well as

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Speaker 5: scale in other verticals like delivery and advertising. So for Lift,

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Speaker 5: the concern is also how much can they balance in

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Speaker 5: terms of offering incentives to get more drivers over from

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Speaker 5: Uber and how much subsidies in that sense, especially because

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Speaker 5: they announced like a seventy percent pay guarantee last week

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Speaker 5: sort of attract more drivers on the book platform.

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Speaker 3: Bloombergs Tech Reporter and Nashley Lung there despite the oversight,

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Speaker 3: Lift CEO CFO Aaron Brewers said the company entered twenty

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Speaker 3: twenty four with a lot of momentum.

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Speaker 1: And finally Democrat Tom Swazi has won the special election

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Speaker 1: for New York's third Congressional district. That's according to the

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Speaker 1: Associated Press. The race, sparked by George Santos' expulsion from Congress,

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Speaker 1: was seen as a bellweather head of the presidential vote

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Speaker 1: later this year. Bloomberg's Laura Naimas says that national politics

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Speaker 1: played a big role in voters' minds.

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Speaker 7: We did talk to some voters out in the district

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Speaker 7: who said that they were casting their ballots for Swazi

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Speaker 7: because they wanted Democrats to retake control of the House.

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Speaker 7: Less because of any personal attachment to Tom Swazi, although

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Speaker 7: people seem to like him fine in US, than because

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Speaker 7: they wanted control of the House of Representatives to switch

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Speaker 7: back to the Democrats.

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Speaker 1: That was Bloomberg's law Animias. Now Swazi's win narrows the

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Speaker 1: Republican's raise a thin majority in the US House of Representatives. Now,

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Speaker 1: in just say moment, we are going to dig into

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Speaker 1: the brewing crisis in the commercial property sector. Also going

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Speaker 1: to bring you details of how migrant workers who are

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Speaker 1: looking to move to Russia are ending up digging trenches

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Speaker 1: in occupied territories in Ukraine. That's some of our special

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Speaker 1: reporting here on Bloomberg this morning. But firstly, a word

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Speaker 1: on the issue that we raised yesterday about two E

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Speaker 1: investors whether or not shareholders were going to vote in

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Speaker 1: favor of delisting away from the London Stock Exchange. That

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Speaker 1: vote came through last night and more than ninety eight

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Speaker 1: percent of shareholders present at the AGM on Tuesday voted

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Speaker 1: in favor of the resolution. It is really another blow

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Speaker 1: to the London Stock Exchange. Quite miserable to know that,

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Speaker 1: but the German travel giant has a big business in

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Speaker 1: Germany and yeah, voters, certainly shareholders saw the advantage.

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Speaker 3: Yeah, I mean, look, they've talked about it being simpler

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Speaker 3: for trading structure, better for liquidity, and support for EU

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Speaker 3: airline ownership being part of the reasons that the German

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Speaker 3: firm decided to delist from London. Of course, they're not

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Speaker 3: the only ones that have done so in recent years.

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Speaker 3: Ryan Air, for example, delisted in twenty twenty one from

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Speaker 3: the London Stock Exchange blaming Brexit compliant compliance issues. And

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Speaker 3: then of course we've had the Floria firms moving to

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Speaker 3: the US or change in their primary listing to the

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Speaker 3: USA as well. Ce r H, the Irish buildings from

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Speaker 3: among them, arm of course famously choosing to hold its

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Speaker 3: IPO in the US as well.

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Speaker 1: Yeah, although I've heard the flip side argument, you know

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Speaker 1: that perhaps this will be the year of better deals,

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Speaker 1: more IPOs for London, you know, Can the London Sock

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Speaker 1: Exchange and the UK sort of turned things around this year?

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Speaker 1: Will this be the golden near We shall see anyway.

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Speaker 1: One of the stories that interested us this morning.

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Speaker 3: Let's get more in er though in the market reaction

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Speaker 3: to that hotter than expected inflation print in the US

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Speaker 3: so rethink of the path ahead for fate fed rates

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Speaker 3: has led to global bards raising all gains since JR.

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Speaker 3: Own Pal's Dubvish pivot in December. Our executive editor for

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Speaker 3: Asian Markets, Paul Dobson is with us for more and

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Speaker 3: now Paul talkers through what's been happening then on bond

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Speaker 3: markets since that CPI brain yesterday.

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Speaker 8: Yeah, well, and it's been pretty clear cut. There was

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Speaker 8: a pretty terrific sull off in US treasuries that came

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Speaker 8: through in the immediate aftermath of the CPI number, and

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Speaker 8: that's filtered through to Asian markets as well. With high

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Speaker 8: guilds in Australia and New zeal in particular, but also

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Speaker 8: Japan and across the region. The basic idea being that,

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Speaker 8: you know, if the FED is going to keep interest

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Speaker 8: rates higher for longer than that's going to have implications

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Speaker 8: for what central banks all around the rest of the

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Speaker 8: world are going to be doing as well. And the Fed,

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Speaker 8: you know, to be fair to them, has been telling

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Speaker 8: us for a long time that they need to see

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Speaker 8: more evidence than inflation is calling before they're willing to

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Speaker 8: countenance our cuts to interest rates. This figure that we

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Speaker 8: had in the CPI certainly did not give us much

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Speaker 8: evidence of that at all. Yes, it was slow eight

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Speaker 8: month or month, but it fell less than analysts had forecast.

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Speaker 8: And particularly when you dug into the details and looked

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Speaker 8: at the core number, which flatlined and the supercore number

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Speaker 8: people like to point to, which actually increased, then there's

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Speaker 8: penty for people to worry about the idea that inflation

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Speaker 8: hasn't yet been vanquished and is still needing to be

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Speaker 8: dealt with by the Fed.

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Speaker 1: Okay, how much further away then does a rake hut

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Speaker 1: look now compared to where we were yesterday?

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Speaker 8: Yeah, so, well, if you go by market pricing, then

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Speaker 8: traders are before yesterday have been pricing in KT still

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Speaker 8: probably at the main meeting maybe June. Now we're not

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Speaker 8: seeing any full move until July being priced in, and

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Speaker 8: the market has more or less come back into line

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Speaker 8: with what the Fed has been telling us in this

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Speaker 8: dot plot for a while, pricing in just a little

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Speaker 8: bit more than three cuts for the whole of the

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Speaker 8: year now as opposed to if you think back to

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Speaker 8: December time, pricing in six or so cuts. So there's

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Speaker 8: been quite a big repricing of that, and that is

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Speaker 8: the reason why the bond market has been pushing those

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Speaker 8: yields higher.

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Speaker 3: This is the story, Paul. That's also playing out on

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Speaker 3: currency markets. We've seen the Japanese yend weakening past one

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Speaker 3: hundred and fifty per dollars for the first time since November,

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Speaker 3: and this has provoked some reaction from Japanese officials.

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Speaker 1: Yeah.

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Speaker 8: Absolutely so. One of the consequences of the higher US

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Speaker 8: Treasury yields is that it makes the dollar look a

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Speaker 8: more appealing place for you to park your cash, because

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Speaker 8: the idea being that you're going to get paid higher

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Speaker 8: intro so only deposits in that currency. On the flip

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Speaker 8: side of that, it weakens all the rest of the

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Speaker 8: world's currencies, and so in particular in our region that's

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Speaker 8: been marked by a big move in the end again,

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Speaker 8: particularly as it pushed through the one hundred and fifty level,

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Speaker 8: which isn't you know, significant other than the fact that

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Speaker 8: psychologically it's a big round number. But it's more the

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Speaker 8: pace of the moves that Japanese officials don't like, and

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Speaker 8: that tends to get them complaining. Right at the start

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Speaker 8: of the Asia morning, we had the comments first of

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Speaker 8: all from Kanada who's the currency chief, and then backed

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Speaker 8: up by Suzuki, the finance minister, saying they're paying a

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Speaker 8: lot of attention to these FX moves too. Rapid moves

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Speaker 8: is something that can destabilize markets and that they don't

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Speaker 8: want to see that happen. So normally what we get

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Speaker 8: in terms of the sort of scale and rhetoric from

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Speaker 8: Japanese government would be these kind of throw clearing and

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Speaker 8: warning signs, and then they sort of step up the

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Speaker 8: verban intervention before they would get to a level where

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Speaker 8: they would actually physically intervene in the currency market. But

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Speaker 8: the fact that they're starting to talk a little bit

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Speaker 8: more aggressively now does have traders on edge and was

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Speaker 8: sufficient at least stabilize the end in today's trading session.

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Speaker 1: Okay, Paul, thank you so much for your time this morning.

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Speaker 1: That is Bloomberg's executive editor for Asia Markets, Paul Dobson.

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Speaker 3: Of course, another factor of the high interest rate story

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Speaker 3: is the effect that it's having on commercial real estate,

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Speaker 3: Tumbling prices for office buildings from New York to Tokyo

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Speaker 3: causing waves in parts of the financial world. Their concerns

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Speaker 3: the contagion could spread to Bloomberg's Neil Callenan joins us

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Speaker 3: now for more details on today's Bloomberg Big Take report

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Speaker 3: on this issue. Neil, great to have you with us.

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Speaker 3: We have been hearing warnings about problems in commercial real

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Speaker 3: estate for months now.

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Speaker 2: Remind us how we got to this point.

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Speaker 9: Good marries Steven. It's simply that central banks raised interest

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Speaker 9: rate and after years of pushing people into alternative investments

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Speaker 9: like commercial real estate, prices there have become very high,

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Speaker 9: the equivalent in offices of in some cases of forty

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Speaker 9: years rent. And once interest rates began to rise, prices

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Speaker 9: automatically began to fall. Also, importantly, the banks began to

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Speaker 9: pull back from lending to commercial state becauser prices were falling,

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Speaker 9: so that kind of added to the mixture that risks

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Speaker 9: becoming toxic now around commercial readA state and in particularly

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Speaker 9: the office market.

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Speaker 1: How big are the losses then in the sector, and

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Speaker 1: also how widespread is this an issue?

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Speaker 9: This is a very much a global issue, but so

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Speaker 9: far there is no big number on top of it.

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Speaker 9: Probably the closest we've had is Barry Sterner from Starwood

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Speaker 9: last week estimated that the trillion dollars has been wiped

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Speaker 9: out the value of the office market alone. The mass

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Speaker 9: had already been falling for ten years because of online shopping,

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Speaker 9: but the office sector was viewed as very safe as

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Speaker 9: recently as twenty twenty one. It's literally the rise of

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Speaker 9: work from home has changed that. So, aside from a

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Speaker 9: couple of examples like maybe Korea and Japan, office values

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Speaker 9: are falling globally. I'm falling quite quickly. And in fact,

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Speaker 9: there is a school of taught that the appraised values,

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Speaker 9: which is the official values of which properties are held,

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Speaker 9: has a habit quite a way to go before the

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Speaker 9: reach where the market is at. And Sterner, interest to me,

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Speaker 9: was speaking about that he's bidding up buildings at the

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Speaker 9: moment in the US set up to seventy five percent

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Speaker 9: discount to what did so previously.

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Speaker 3: We have started to see lenders finally starting to acknowledge

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Speaker 3: this crisis by provisioning for losses. What comes next in

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Speaker 3: this LEO.

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Speaker 9: Yeah, that's the beginning really of the next phase. I

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Speaker 9: would describe what's happening as being at the end of

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Speaker 9: the beginning, because it's going to move from commercial readers

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Speaker 9: there being a landlord problem to partially becoming a lender

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Speaker 9: problem now. And that's because there's so much debt starting

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Speaker 9: to mature that it's harder for the banks just to

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Speaker 9: amend let's called amend and extend the loans, which is

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Speaker 9: what they've been doing so far. Because the banks don't

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Speaker 9: want to take to repossess properties, they're not going to

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Speaker 9: managing them, so they always want to find an easy solution.

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Speaker 9: And the mantra was let's use a survive until twenty

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Speaker 9: five strategy the landlords and going until then. But interest

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Speaker 9: rates obviously are very high. About one trillion of debt

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Speaker 9: matures this year, and now with the inflation prints, it's

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Speaker 9: looking less and less likely we will get as many

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Speaker 9: interest rate cuts as the market was pricing in and

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Speaker 9: that all adds up to making it very very difficult

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Speaker 9: for people to continue to ignore these things. Regulators are

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Speaker 9: also worried. We saw at NYCB that there was regulator

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Speaker 9: involvement in some of the announcements Day made. The ECB

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Speaker 9: has also been very active in Europe in this regard,

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Speaker 9: and so those are kind of points of tension that

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Speaker 9: will help bring clarity to the market this year. The

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Speaker 9: other key point is to watch for when private equity

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Speaker 9: actually starts buying these assets. They are sitting on huge

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Speaker 9: amounts of dry powder, but so far they don't think

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Speaker 9: values have fallen to the point where they're willing to

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Speaker 9: do lots and lots of deals. So there's still going

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Speaker 9: to be some tension between those two factors over the

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Speaker 9: next few months. But eventually prices we'll get marked down

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Speaker 9: and bid more deals will start coming true.

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Speaker 1: Okay, Neil, thank you so much for being with US's

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Speaker 1: been both corporate finance are Neil Callanan a very interesting

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Speaker 1: story then putting some sort of size and scope and

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Speaker 1: time frame around what could be the commercial office issue

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Speaker 1: with very high interest rates.

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Speaker 3: Yeah, particularly in focus this morning as we're considering how

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Speaker 3: much longer we may have to wait before we start

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Speaker 3: to get interest rate cuts. So great to put that

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Speaker 3: in focus today too, we want to take you to

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Speaker 3: a story next linked to Russia's war in Ukraine. Russia's

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Speaker 3: relying on thousands of workers from neighboring countries to undertake

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Speaker 3: multi billion dollar reconstruction efforts in the occupied territories it

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Speaker 3: holds in Ukraine. Job seekers coming to Russia are being

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Speaker 3: sent to Ukraine to work on construction projects, but have

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Speaker 3: at times wound up digging trenches and fighting on the battlefield.

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Speaker 3: Bloombergs Bragg Sullivan joins us Now for more on this story. Greg,

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Speaker 3: Where are these workers coming from and how are they

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Speaker 3: ending up in Ukraine?

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Speaker 10: That's right, there are thousands of these migrant workers. They're

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Speaker 10: largely coming from areas like former Soviet Union states or

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Speaker 10: CIS states like Uzbekistan, Tajikistan, Belarus. A lot of laborers

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Speaker 10: come to Russia from Armenia. They often come to Russia.

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Speaker 10: So this is not necessarily a new trend in that.

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Speaker 10: In December Putin said there were some ten million migrant

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Speaker 10: workers working in Russia. But what is new is that

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Speaker 10: they're ending up going to Ukraine for work. There's construction

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Speaker 10: jobs being posted, like one ad that we saw that

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Speaker 10: had wages for construction in occupied Ukraine for nearly twice

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Speaker 10: what a worker could make in a factory in Moscow.

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Speaker 10: And that's even as wages have risen in Russia due

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Speaker 10: to a labor shortage fueled by the war. The problem

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Speaker 10: is that now that they're going to Ukraine for work,

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Speaker 10: but they end up digging trenches or even end up

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Speaker 10: being persuaded or compelled to fight in some cases, according

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Speaker 10: to our report. So it's a really complicated situation.

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Speaker 1: Yeah, tell us about the reconstruction effort, though, how important

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Speaker 1: is that to the Kremlin? How does it relate to

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Speaker 1: the occupation of these territories.

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Speaker 10: Well, it does appear to be quite important to Putin

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Speaker 10: and to the Kremlin. Putin recently said that the reconstruction

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Speaker 10: in these areas was a key priority for him. A

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Speaker 10: lot of these areas were damaged very badly. They've been

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Speaker 10: at the center of some heavy of some of the

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Speaker 10: heaviest fighting. Occupied Mariopol, which we talk about in the story,

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Speaker 10: was pretty much destroyed after a Russian siege. So the

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Speaker 10: reconstruction efforts are part of the strategy by the Kremlin

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Speaker 10: to sort of solidify control over these areas. Alongside that,

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Speaker 10: they've been trying to turn these areas into Russia, sometimes

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Speaker 10: changing street names, incorporating Russian curriculum in the schools. Only

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Speaker 10: a fraction of the pre war population remains, but these

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Speaker 10: do seem like big efforts, and the size and scope

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Speaker 10: of these construction does seem to be quite large.

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Speaker 3: Greg These are, of course, people to say, who are

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Speaker 3: migrant workers, What happens to them when they return home?

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Speaker 10: Well, a lot of things. According to our reporting, we've

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Speaker 10: found scenarios ranging from them being almost trapped or deported

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Speaker 10: to recruited to fight in Ukraine. If these workers do

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Speaker 10: end up fighting, they do risk being tried for mercenary

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Speaker 10: activities in places like Kazakhstan, Belarus, Uzbekistan and Kyrgyzstan, and

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Speaker 10: just last year there were cases of people being sentenced

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Speaker 10: to jail for fighting for Russia. Just working in these

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Speaker 10: countries is considered criminal by Ukraine and potentially some of

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Speaker 10: those home countries. We were told by a human rights

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Speaker 10: lawyer of cases where workers who ended up in Ukraine

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Speaker 10: voluntarily for work didn't have their salaries paid, and then

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Speaker 10: when they tried to leave to re enter Russia. They

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Speaker 10: weren't allowed, so a lot of things can happen to

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Speaker 10: these workers.

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Speaker 3: This is Bloomberg Daybreak Europe, your morning brief on the

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