Host good morning and welcome to bloomberg daybreak europe. Lets get to the top stories. Yields sinking on dovish fed speak. Netanyahu vows retaliation against hamas has only started as militants worn they are prepared to kill hostages. In europe leaders are going to hold an emergency meeting. A lot going on geopolitically. Lets see how it is being priced into the markets. We are going to see a potential turnaround from yesterdays price action. Futures action is crucial. You are seeing a complete reversal. The idea here is that if you have war on the horizon and breaking out your gut reaction is to sell everything. Today it is the opposite. Looking at it from a sectorial basis. The defense bid is being actively priced into the market. Some might view it as an overreaction in the market which is why we are seeing futurists outperform. Futures outperform. Some of that is going to be a function of the yield picture. What is lacking is what is going on in the u. S. Markets and that has a lot to do with the wartime story. The u. S. Wartime strategy is going to be coinciding with what you see end of the middle east. That is not a positive for global investors. The cross asset story is going to be a function of what you see in the bond market. You see a bid into the treasury market. 2 year yields dropping by a margin. The japanese markets are back online today. A lot of this is playing catchup. Some flight to safety and some reaction to the fed speak. 2 year yields, 496. What that it is what that is doing is creating weakness in the dollar. It speaks to the idea that perhaps risk sentiment is positive which is why you are seeing a bid into the mexican peso. The safety trade is pulling away. The swiss franc is a great example. That is just part of the cross asset picture. Our reporter in singapore, walk us through the morning trade. We are seeing asia stocks gaining ground today on the back of those dovish messages from some of the fed officials. The japanese and south korean benchmarks are getting support from the gains among the Energy Related counters as traders get their first chance to react to events over the weekend as well as the surge in oil prices. Commodities are playing out or geopolitics playing out for dealmakers. The eu is planning to announce these antisubsidy investigations into chinese dealmakers according to the financial times. They could announce those as soon later this month. A summit with the u. S. , for context this is part of joint efforts to protect him tick industries. We are seeing moves with the chinese dealmakers. Chinese steel makers. Taking you to Country Garden as well where we are seeing it ramping up warnings that it could be headed to its first ever default. It is saying it will likely not meet payment of all of its offshore obligations and it has hired advisors. We are watching this closely. If there is any fallout from the financial market, it could be worse than what we saw in 2021. Host the crucial market update, thank you for pulling it all together. At the core, the move you are seeing in terms of japan and south korea pricing in what they heard over the weekend. And on top of that they have to deal with the fed speak. We heard a lot of commentary about what asked weeks bond volatility what last weeks bond volatility means. What i think about is the real rate that is required to bring aggregate supply back into balance with aggregate demand. I think current policy is restrictive and putting downward pressure on the inflation rate. And that is really what my concern is. Higher term premiums result in higher Interest Rates are the same setting. If term premiums rise they could do some of the work of cooling the economy for us leaving less need for additional tightening to achieve the fomcs objectives. Host lets bring in our reporter for more analysis. Maybe some of the feds work was done by the bond market itself and was before you had the geopolitical volatility to consider. Is this 16 or 17 basis point move justified . I think it is worth paying a lot of attention to to what policymakers are saying. What they are not saying is also important. They are not saying the big selloff in the bond market looked spooky to us and is worrying. They want to get that back under control to a certain extent. They are saying the high yields we are seeing across the curve are putting us into more restrictive territory and doing some of the work for us. I dont think this is the big moment where the fed will indicate a pivot. If bond yields stay at this level we dont need to do that much more. That is why the market reacted so violently in pricing out rate cuts the rest of the year but dont get carried away. Continuing to factor in the longer trend. Host the fact that the i think that is pretty significant. Paul dobson walking us through that bond market move. There is the geopolitical volatility as well. Benjamin netanyahu says military retaliation against hamas has only started. This as a militant Group Threatens to kill hostages it captured during the weekend attacks. Our allies are ready to join the fight. They will not sit with their hands tied. The government of israel knows they will open the gates of hell if they try to destroy gaza. Host lets bring in our own yousef gamal eldin. You heard from the leader over palestine. Talk to us about the international reaction. What are the odds of peacemaking right now . Quite a few dominoes have fallen on the diplomatic side of things. We heard from the u. N. Secretary general who made a passionate plea for violence to stop. Qataris have been taking the lead in terms of talks around the hostage swap which would affect women and children on the is really side being held there and on the gaza side. It is unclear if they have made any breakthroughs but it would affect about 36 palestinian women and children and qataris have been doing negotiations. I was talking to an official from the intelligence shop saying they are not going to make much progress on the diplomatic side. Host we talk about the prisoner swap. Historically there is precedent. Hamas once had 1000 israelis swap for one president. Hostages working politically in their favor. Talk to us about the market reaction. We talked about the oil surge yesterday and this time it is natural gas. There are huge moves in european natural gas. You have a field close in israel based on security concerns. This is actually a really big deal because they had ambitions to become a regional gas exporter. An egyptian official said the israelis are on track to export their gas a week ago. Although that gets put into question and you see the aggressive repricing. Host and then whether people want exposure sometimes they pull out of the market because they dont want to deal with the volatility. Thank you for that crucial insights. There are several different sides to the conflict especially when you look at the broader region. Iran is a big part of it. And is really minister said iran may have known about the attack but the u. S. Says there is no direct evidence. Iran is known as a key sponsor of hamas. What have they come out and said . Yesterday the mission to the u. N. Came out denying the wall street journal reported that they were involved in this latest particular operation. But in the same message they were reiterating support for hamas as a movement and its aims in particular and the state media yesterday said that it was celebrating this unprecedented, deadly attack from hamas. Iran trying to distance themselves from a particular operation as an operational sponsor but at the same time ideologically clearly aligning themselves with it and framing it as a success. Host certainly something that has international ramifications. If the u. S. Had a big stance on it right out of the gates. Patrick, thank you for that insight and analysis. Lets get a check on what you will see ahead. The bank of england will be in focus on that front breaking away from the hamas coverage. Those minutes are due later today. The consensus is that this will not be as earth shattering as the fed. Raphael bostic, the atlanta fed president speaks as well and that is coming up at about 2 30 p. M. U. K. Time. Will he follow in the footsteps of lori logan or jefferson . And lastly, we are getting some earnings. Slowly creeping into the session. Lvmh has numbers coming out later. Is the la grippe story as dominant in the european session or have is the story is the luxury story as dominant in the european session or has it moved . Get full analysis from our team around the world. Coming up we will speak with ayham kamel for the crucial geopolitical insights. And we speak later to Schneider Electrics executive vp of european operations on all things sustainability and how much it costs ahead of the bloomberg summit. Stick with us, this is bloomberg. Host welcome back to bloomberg daybreak europe. Our coverage of the geopolitics in the middle east continues. The saudi media says the crown prince told abas that he was working on an expansion. He has also been in touch with the king of jordan and president of egypt trying to use a little diplomacy it feels like. Lets bring in a true expert on the saudi view. Matthew, a pleasure to have you. Talk to us about the normalization efforts. It feels like the more United States pushes normalization, the more turmoil it creates. Your take. The saudis have been reaching out to the contacts they have in the region. They have good relations with the Palestinian Authority and egyptians and there has been a normalization track going on with israel. The challenge has been that the events of the last few days shows as far as hamas is concerned it is a repudiation of the vision for the middle east that the crown prince has. He has been looking to lower the temperature in region and create new alliances and sure relations. There was a spot with qatar a spat with qatar. That has been resolved. There was a disagreement with iran as well. There were demands that the palestinians had for a political state and this vision was that the more you create Economic Prosperity that some of these conflicts and demands this has all been thrown out by what has happened over the weekend and by hamas. I think that means that normalization with israel will have to be on the back burner for quite some time. It is always it is already a policy that was unpopular among saudi youth. Trying to push ahead on it right now will be very difficult. They will see themselves as the diplomatic power of the middle east. They will be wanting to have a role in trying to resolve this conflict and stop the fighting but the challenge is going to be that they probably dont have the diplomatic clout with hamas as they do with others. Host to your point, the alliance is being redrawn even within the arab league. This throws, i think the british term is a spanner in the works. I want to get a little more analysis and bring in ayham kamel. Good morning. Lets talk about what our reporter was just hinting at. The idea that saudi arabia is the broker of peace in the area. Is that going to happen . Ayham i think the saudis are likely to play a role in some form but the parameters of the conflict means that the egyptians or the qataris will play a role in the short term. Riyadh could coalesce other partners and i think that is what the crown prince is going to do. But it is a difficult time. I think getting to a place where diplomacy plays a role is not now. I think israel will be focused on rebuilding in the gaza strip. It is unmanageable at this stage for the israelis to take a step back and engage in diplomacy before showing hamas that there is a heavy price to pay for the attacks they conducted over the weekend. Host where does qatar fall in this . It feels like reports that qatar is going to organize a prisoner swap what is the reliability of that kind of thinking . Ayham i think whatever discussions are happening regarding a prisoner swap or hostage swap is narrowly focused on a set of parameters. Not really a grand deal aimed at getting a large number of hostages that hamas has captured in the last 48 hours. Hamas is unlikely to agree to anything of that sort. They wont use all the leverage they have. Qatar will try to derisk from something more bloody happening in the gaza strip. A narrow set of parameters but i doubt you will see a big deal. Host so then if you have these kind of crosscurrents and the middle east, lets talk about the role of the west. You are joining us from morocco where the imf meetings are happening this year. What is the take from the west . How reasonable are they . It was not long ago that you could have the United States come in and make a call and that is something a lot of other middle Eastern Countries would not push back as aggressively for. It feels like we are in a different era. What is the sentiment . Ayham there are two challenges. One, the u. S. Will not be focused on diplomacy as it was in the past because of the scale of what has happened. This is one of the largest attacks you can imagine on israel in the last 50 years. It is a very difficult time for the u. S. To try to push. In terms of the mood, geopolitics is front and center because of the gods events and the crisis a merging their of the gaza events and the crisis emerging there. There are risks we have not thought about. Host what is the timeline . You are speaking to a financial audience. Everyone wants to know how long this is going to last. Is this weeks, months, years . Ayham at least weeks. This is not a traditional limited scale operation. You have already had a call up to all reservists in israel. The preparation is for months. I would not say years. One of the most important factors is the immediate israeli reaction. You are seeing some recalibration from the first 1224 hours where there was a big fear that this was going to potentially be a regional conflict. Our viewpoint is in the immediate term, israel is focused on restoring order in the gaza strip rather than expanding the confrontation elsewhere. Iran is a supporter of hamas and has been for years but for now i think he is really focus is on the gaza strip. Host a lot going to be changing in the next weeks and months. We will be excited to have you back for your analysis. Ayham kamel joining us from rocco where the imf meetings are happening. Kevin mccarthy hence at a return hints at a return calling out extreme members from both parties while israel is under attack. To this is bloomberg. That host welcome back to bloomberg daybreak europe. Lets get a quick check of the stories we are following. Delta, united and american shares fell as though three carriers halted flights to tel aviv. Multiple Airlines Across europe have also suspended flights to israel. The faa is advising airlines to expect delays and exercise caution. Kevin mccarthy says he is willing to return as House Speaker calling out extreme members of both parties are focusing on petty politics while israel is under attack. He is the first speaker in u. S. History to be ousted when republicans voted with democrats to remove him. He tied the attack on israel to policies by biden. And speaking of the geopolitical turmoil there is a chart i want to bring to your attention in terms of market trade. When we think of a europe, we think of the edge that la grippe stocks luxury stocks have had. Add on the geopolitical volatility youre seeing in israel and defense stocks are looking good. That is the take of analysts across wall street. On a normalized basis the European Defense stocks specifically have outperformed the s p 500 index and the Broader Market and that will be an interesting dynamic that plays out for the next few months. Coming up on the program we discussed the worlds reaction to what is going on in the israelhamas aidyl hi, im aidyl, and i lost 90 pounds on golo. I struggled with weight loss and weight gain my entire life. With all the yoyo dieting i did in the past, i would lose 20, 30, 50 pounds just to gain them over and over again. Thanks to golo, ive been able to steadily go down the sizes in my closet and keep the weight off. For the first time in forever, i feel in control. announcer change your life at golo. Com. Thats golo. Com. Host good morning and welcome back to bloomberg daybreak europe. These are the stories that set your agenda. Yields sinking on dovish fed speak. Feeling the debate as to whether it is at the right time to hike. Netanyahu vows retaliation against hamas and that it has only started as militants warned they are prepared to kill hostages. European leaders hold an emergency meeting. A lot of crosscurrents when it comes to the geopolitics and the Monetary Policy as well. Lets dive into the markets because we are seeing a reversal of what we saw yesterday. The idea of sell everything. Some traders and investors deemed as an overreaction by the global market. You are seeing a major bid into the european session. Euro stoxx 50 futures up. You are looking at s p 500 lagging. There seems to be a hesitance to the exposure of the u. S. Stock market. A lot of the Israeli Defense companies and Corporate Culture structure has exposure to the United States advisor versa. There is a hesitance in terms of having that exposure. It is the equity picture. Cross asset, the core is the move you are seeing in the bond market specifically real guilt. You are seeing a massive bid in treasuries pulling back on yields. Coming off the comments from the likes of lori logan and jefferson talking about that the bond of volatility did some of the work for the fed. Add in geopolitical risk and markets are pricing in a more dovish federal reserve. Are they right . We dont know. The currency picture. That is your cross as a picture. A look at the asian markets. Forcing a lot of movement. The green is a result of the asian session. Japan and south korea are back online. You see them make a bid in the nikkei and the hang seng. Samsung electronics which makes a third of the korean index higher after trade restrictions set by the United States are going to be pulled back. South korea does not have the same restrictions as china when it comes to some of their memory output. We will dive into that. Risk appetite, you can see it in the aussie. That is just one part of the story. Back to the geopolitics. Netanyahu making strong comments in the last 24 hours about the latest in israel. Take a listen to what he had to say. I know we want immediate results. It will take time but i promise you at the end of this campaign all of our enemies will know it was a grave mistake to attack israel. But we will do to our enemies will reverberate with them what we will do to our enemies will reverberate with them for decades. Joining me now is