>> the countdown is on in europe. this is bloomberg markets: european close with guy johnson and alix steel. guy: let's talk more right now about what is happening in these markets. european stocks off lows but still down. we can't you down to the close. we have banks under pressure. defense stocks are having a great day. utilities are trading higher. what is also trading higher is natural gas in the u.k. and e.u. we will continue to watch what happens in terms of the availability of gas flowing into europe and the ability of europe to pay for it. what is going to happen on that front is a key question yet to be fully answered.

should we expect more dovish central banks? we have seen a move lower today and yields in the united states and in the e.u.. that is the german two year. we are going to continue to watch that carefully. we will hear from powell later this week. >> it will be interesting to see how he manages this messaging. war in eastern europe, not great. we will wait and watch for that. in the meantime, i am looking at a similar picture in the u.s. as you are looking at in europe. that is that stocks are above the lows of the session, now in positive territory on the nasdaq 100. the s&p 500 is still lower. it is more a flight to the havens of those larger cap growth stocks. they are helped by the fact that yields are moving sharply lower. is also true in the u.s. that

you are seeing more of that haven asset. the 10 year yield is down about nine basis points. the dollar is still stronger, up by less than a 10th of 1%. then of course, in addition to natural gas prices moving higher, you are seeing oil prices moving higher as well. crude trading up by about 4.5% and we are back to hundred dollars a barrel. guy: that will have an impact in the inflationary narrative and on growth. is europe going to be hit hard by what is happening in the ukraine? what is the inflationary impact going to be? a ecb governing council member says he cannot rule out stagflation in the euro zone in the wake of russia's invasion. he spoke to bloomberg today. >> a scenario close to

stagflation -- it is not out of the possibility. we need to adjust our policies. guy: let's talk more about this now. a cio joining us to give us his take on this story. we watched with sadness the situation unfolding in ukraine. in terms of the economic impact, how do you think investors should be reacting? steve: first of all, make sure that inflation will stay higher for longer as a basis of all the goes on now, which means we can put aside the concept that inflation will come down during the second and third quarters this year. it is critical to realize we had a paradigm shift. nothing is the same before and after some event happens.

the vent that happens was caused by the german government and germany in terms of the ability for them to actually increase spending. the reason i mention that is that that is an impact from investors. defense stocks will do nicely over the next couple years. on top of that, we have seen the green transformation sector do well. underneath this and in an environment which has huge human cost, this will relieve a massive amount of productivity that will help the world. what we have realized is military spending has a tendency to spill away into the private sector. the lack of focus that we had on productivity over the course of every year means we are at a

different point in terms of productivity. we may have seen lower productivity. the market has not reallocated resources toward sectors that tend to see higher spending from government. kailey: you touch on some sectors that may be a beneficiary here. what about regionally? where does europe fare relative to equities and other places in the world? steen: we have to combine gain -- game theory with war strategy. we know at a bare minimum this is for all the autocrats in the world. i think it will backfire in russia and anyone who wants to step up and use the same model which putin had, the overreach model. i think that reduces the risk of incidents.

national security advisor's around the world sleep a little better than they did two weeks ago. it seems like nato got together, like the e.u. got together and now we have this banking system extending. this is like we have turned out a massive part of the money supply and hard currency. the fact that russian assets are now frozen means there is a gap somewhere in the balance sheet or a large number of balance sheets around the world. reduce the amount of supply capital around the world in these sanctions. guy: european banks certainly suffering significantly today. socgen is one. we will talk about credit suisse later on. give us the way you think

central banks are going to think about this. do you think there is a change in the reaction function as a result of what is happening with ukraine, what is happening with the banking system? steen: it certainly changed the timeline by which a central banks operate. i am thing about the ecb. -- thinking about ecb. the market refuses to accept we are under a monetary regime. an intuition or part of inflation needs to go on. the only way we deal with inflation going forward is to tighten monetary conditions. one aspect everyone is always in wait and see mode, and we are waiting for the next to come through ultimately end up in the same position. everything being equal, we will

have to deal with a higher inflation rate for longer and in terms of energy sourcing and energy security we have to think of an additional spread on top of what we do as a consumer in order to be part of the solution of reducing the overall burden on society. that in itself creates this bump up in valuation of green transformation and other companies. it is not a simple equation. it is complicated. kailey: we were just speaking to the ceo of devon energy about this higher energy prices. he says he does not see demand obstruction kicking in until oil is around $120 a barrel. that is just one factor in economies across the world. do you worry about demand more broadly and what impact that could have on growth if prices stay higher?

steen: i am probably one of the least concerned people in the world in terms of demand destruction overall. one is the starting point is a fed reserve still doing qe, the highest stock valuation and history, the highest housing prices valuation in history. in the u.s., we have 4 million jobs to fill, a tight labor market. i think will happen over the next three, four quarters is the economy will do relatively better and will increase to a large extent certainly in europe but also in the u.s.. for me, i'm not even close to the stagflation concept and certainly guy knows i am not shy of supporting depressions as

stagflation. what is important is how the world is teaching security policy to one where they need to be sourcing and securing energy overall. they need to increase military spending and that will lead to a high inflation rate, which can only be fought by one measure, financial tightening. guy: what does that mean in europe specifically? the fed looks like it is on track to deliver. if inflation is lower, we can go 25 basis points. the fed is definitely on a tightening crack. where does that leave the ecb? you talk about higher rates and what is happening with the removal of some of the liquidity effectively as a result of the sanctions being applied to russia. what kind of course are we on

with the ecb? how aggressive do you think it is going to need to be? steen: you're indirectly making the premise that lower interest rate is better than higher interest rate. the reason we have negative real rates in the world's we have no productivity. going back to the paradigm shift, in terms of germany, germany is behind in terms of digitalization. they are now turning around, investing in infrastructure, which is a huge part of being militarily superior and being agile. we will see a number of unintended consequences that will change the equation along productivity and make europe more productive than it is today. if we want to use germany as an example and italy, germany at

the end of the day is exporting costs to the rest of the world. of course they will have one or two brands of surviving but they will have an ability to lever on that new investment coming through. in terms of italy, they have dependence on gas and everything else. there will have to be a change. there will be a need to reorient itself closer to europe and away from this playing on different routes to secure themselves. for me, i cannot iterate enough that this is one of the single biggest changes to the fundamental of the geopolitical on scape i have seen in my almost 35 years of doing this job. kailey: we are watching history being made for sure. thank you for sharing your insights with us today. that is steen jakobsen.

we will talk more about the fighting in ukraine and how it could lead to spending more on military. shares of defense contractors are rising today. this is bloomberg. ♪

guy: steen jakobsen a moment to go mentioning the pivot we have seen from the german government in berlin, that pivot when it comes to defense spending, when it comes to sending offensive weapons into ukraine, historic and having a meaningful impact in terms of the stock market. we are seeing defense stocks on both sides of the atlantic catching a bit. you have ultra. you have heavy equipment for the german army. all of these stocks catching a significant bid today. kailey: let's get more on the defense sector now. talk to us about how significant this shift is and how much these

companies can stand to benefit. >> you can look at it in one what -- in two ways. one is the economic fallout. if you look at some of the numbers that we see today on the stock market, really huge moves, up almost 50%. all of the shares really going through the roof now. you could think this is what you would expect, but it runs deeper than that. this is where we come to the political element and what happened over the weekend in germany is nothing short of a revolution. behind me, there were 100,000 people demonstrating against what is happening in ukraine, against the attack. there was in parliament a measure introduced that should ramp up defense spending in germany. this is a historic pivot, a

historic change. the question is how that will be received longer-term, how sustainable it is, how well the industry adjusts to the new demand. guy: thank you very much indeed. let's continue the conversation on this historic pivot that we are seeing out of berlin. the german -- german marshall fund office debye director joining us for more perspective. let's talk about the significance and historic significance of this pivot. as one of my colleagues just said, this is about germany rearming in many ways. talk us through the significance of this and long-term implications of what has come out of berlin this weekend. >> german security policy has done a complete about-face in the matter of a week. it does not just encompass events. it also relates to the country's

relationship with russia. suddenly germany is ready to take on a leadership role because it is realizing it is facing a historic moment in europe. putin clearly wants to change the balance of power on the continent and germany is realizing it must act for its own interest and not just because of pressure from ukraine and allies across the atlantic. kailey: is germany in a new era in many ways? we have a new chancellor, olaf scholz. what are we learning about the trajectory he is want to take this country on? >> is interesting that a centerleft chancellor is making this historic break and german foreign security policy because relations with russia have been important for this party over the years. this is the party that had a chancellor reach out to russia during the cold war in terms of

detente. there has always been sympathy for russia because of historical memories about what happened during world war two. i think putin has just changed the calculus. the bombing of ukraine has brought about also historical responsibility for victims there . germany is ready to help, ready to anchor defense spending in the constitution. this is no longer just rhetoric about playing its part and nato. this country is going to actually exceed its spending. guy: germany has looked east. markets there have been significant. a lot of german companies have access to russian markets. a lot of german leaders, political and corporate, have sat on russian boards.

is that now over? >> i think it is at an end. it does not just relate to russia. it has implications for trading relations with china. instruments are trade -- change through trade, which is important when it comes to german foreign policy cannot really on the back burner when it comes to dealing with autocratic regimes and business people are going to think twice about creating import or export dependencies with countries like china and now russia. guy: we have to leave it there. busy day. greatly appreciate your time today. thank you very much. this is bloomberg. ♪

guy: let's talk about what is happening in the oil market. shares of bp under pressure today, investors now weighing the cost of the decision to end his controversial alliance with the russian oil giant rosneft, more than an alliance, huge holding. this has been a stranded asset for some time. we now see the management at bp catalyzed into action. it did not have much choice here. how should investors read this situation? this is a huge right off. >> it is. it could cost them as much as $25 billion. investors have been saying today it did not provide a huge amount of cash or direct oil flows for bp. it was a financial investment. but it did get a huge amount of cash flow. from that perspective, it is a

hit they can probably absorb. you see from the share price it is down 4%, which is not an enormous hit considering the size of the potential right off. this investment predates 2014 and western sanctions on russia. since that time, it is increasingly awkward for bp that they have this partnership with a kremlin-controlled company. that awkwardness just became probably unsustainable with this war. kailey: is it at all likely that bp would be able to find a buyer if it wanted to sell? will: possibly, at a reduced price. it may not be possible. the kremlin could imac shares, but why would they pay for them at this stage when they probably could not get money out of russia if they wanted to? they may try to sell it on the open market. they may have to give up the

shares. we will watch with interest. guy: not the only energy company with exposure and russia. others will certainly feel the pressure as well. let's take a look at where european shares are. we are differently off the lows when it comes to european trading as we head toward the end of the day. clear differentiation here in europe. we have been watching what is happening with the energy story. defense stocks have had a solid day today. utilities have had a solid day today, so a really bifurcated market. we are still down, as you can see, around half of 1%. details to follow. the closes next. this is bloomberg. ♪

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guy: stocks finishing the day

here on monday in europe. it has been an interesting session. we have been climbing out of a hole. real bifurcation between sectors winning today and those that are losing. the banking sector really under significant pressure with key names under pressure. that is why the french market is down as much as it is today. names like socgen really taking a hit. we will get an idea of what is happening with this european banking venture. the dax is down by around .6%. still no trading in russia. let's take a look at what the session looks like in terms of the stoxx 600. we find ourselves with a negative start to the day and a slow climb through most of the morning. this afternoon, u.s. markets have been climbing higher, back into positive territory. that produced a boost for the stoxx 600. in terms of the sector

breakdown, i think this is where it gets interesting. look at some of the names we have been watching and some of the sectors that are on the move , thanks down by 4.73%. utilities catching a bit. travel and leisure coming back now, the second-best performing sector. travel is doing the heavy lifting, certainly a split in terms of the sector story here around europe. the bank is one of the key stories. let's talk about what is happening in that travel and leisure sector. with an airline exposed to eastern europe, assets have been stranded as a result of what is happening with the situation. clearly an aircraft that were in russia are effectively now unable to take off and return back to europe. one of the names is down 5.86%. it is some of the leisure side

that is doing well. we mentioned a few moments ago what is happening in the defense sector. a company that produces heavy vehicles, etc. for the german army, look at its move today, up even more a little earlier on. it is up now by 24%. pa -- polymetal on the others of the spectrum coming under significant pressure, trying to move precious metals out of russia with this aviation ban is really difficult. we are watching what is happening with aluminum come out with all kinds of metals. we are spending so much time focusing as we make this energy transition. the banking sector is under the biggest scrutiny today. it gets around 30% of its profitability out of russia, that stock taking a hit. unicredit out of italy is down. socgen is down.

european banks with any kind of primary or secondary exposure to russia really taking it hard today. kailey: our european banks reporter is joining us from frankfurt. give us a sense of the size and scale of that exposure. is this a risk that is manageable? >> as we just saw on the chart, there are a few banks that are heavily exposed. the russian bank are b.i. does have big operations there. if you take a potential hit to those operations in relation to equities, it could be sizable. most other banks have more limited and secondary exposure. we have seen these sectors under pressure now and of course all these effects will weigh on banks. a few of them have direct exposure. most have secondary. guy: in terms of how quickly these banks -- we were talking a

few moments ago and the break about how quickly the compliance departments will be able to understand and shift policy. presumably they have a good understanding of dealing with iran, with other countries that have been heavily sanctioned. how quickly will that playbook be applied? >> the sanctions playbook will be applied rigorously and quickly. banks have experience applying sanctions. i have been told they are hundreds of pages long, so the legal and compliance units are working through them and will make sure individuals and companies will be switched off. the swift messaging banking system has been switched off for several banks in russia. that is happening fairly quickly. the other question is how quickly you can to vest from russian assets if you have them

and want to get rid of them given that the market is frozen now and you cannot really do anything with them. kailey: the other question is how this influences monetary policy. if the ecb does not ask, what is the ripple effect for these banks? steve: the strong -- strong pressure was have -- had to do with how the ecb will react. they have been performing well before the russian invasion under the assumption that interest rates would increase in the euro area after a decade of negative interest rates come up with a question is now an open one. guy: we will leave it there. thank you. steven arons joining us out of frankfurt. a number of different angles on that, what is potentially happening with monetary policy. let's take a quick look at what is happening with the end of the day, the auction process now

complete. there we go. we do not see much of a shift, a little lower off the session highs. a rally as u.s. markets got into gear, but that is not quite completing a move up toward the green. the ftse is down. the cac 40 really taking it hard. we will carry on the conversation the top of the hour, the cable show taking the air at 5:00 p.m. in london. you can find us on any of your bloomberg devices and find the podcast on spotify. some headlines coming through with russia, russian now saying ukraine has agreed to another round of talks according to a russian news agency.

kailey: we will monitor any progress those talks make on the border of belarus. the ukrainian president did not have a lot confidence that they would yield anything that they would yield anything but we will watch for developments through the week as another round of talks looks to be agreed upon. we will have more on the heavy fighting being reported around several of ukraine's largest cities, the country's president sank next 24 hours are critical. a military analyst will tell us why. this is bloomberg. ♪

ritika: you are looking at a live shot of the principal room. coming up, and episode featuring macy's ceo. this is bloomberg. ♪ kailey: russia says ukraine has agreed to another round of talks on the belarus border according to the russian news agency.

president biden is scheduled to hold a secure call with allies just about now on the latest developments in ukraine. let's get the latest with emily wilkins of bloomberg government. obviously we saw dramatic action from the biden administration as well as western allies over the weekend. how much powder has been deployed from the keg? are we expecting further moves this week? >> some of the biggest things that were on the table are now in play and that is something lawmakers were calling on the biden administration to do. biden administration said they were waiting for europe and now it seems everyone is on board. as far as additional sanctions, i think that is going to be something that will be looked into depending on how talks go between ukraine and russia. there has also been a discussion in washington about what humanitarian aid is needed for ukrainians in the country and those now crossing the border, in the hundreds of thousands

according to sources. those are two things right now. there are continued discussions. now we are seeing russian counter sanctions come out. as president biden pointed out when he gave his speech last week, it might take time for some sanctions to go into effect. that will be something that is being weighed here. has there been enough time for the sanctions to be felt before new ones are needed? guy: emily wilkins reporting from d.c.. let's talk more about developments on the ground in ukraine. a moscow-based defense analyst joins us now. he has published widely on military doctrine. let's talk about your assessment of the situation on the ground. it seems as if russian forces are making fewer gains than may

be authorities in moscow would have anticipated. what do see happening next? -- what do you see happening next? >> the russian forces are off schedule and has -- have achieved less then hoped at the begin of the operation. the plan is modified when you meet the enemy in the field and russia still has the initiative. that is a sure thing. it has air superiority. yes, russia can continue to press his forces forward, but there are problems and increasing problems. the iranians have surprised not only the russians but also western analysts -- ukrainians have surprised not only the russians but also western analysts.

they are still fighting. that is a bit of a problem for russia, especially since the season for fighting is expiring. you see footage from the battlefield. there is going to be a lot of water in the rivers. kailey: let's talk about support ukraine is getting from other western countries. you have germany saying they will send weapons to ukraine. we were just getting headlines out of finland that they will provide rifles and antitank weapons. with the situation on the ground, how easy is it to get that support to ukraine? how quickly can that make a difference in this fight? pavel: ukraine has some weapons supplied before the outbreak of russian invasion. of course before the russians

were there there were transport planes coming in from the west from the united states, canada, other places bringing in supplies. now that is not working, but over the polish border weapons can come in. what is important is the change of habit in the west. the ukrainian military command structure is still intact. before, mostly they were supplying javelins and so on. now there are being announced plans in europe that they will send in jets, helicopters, guns, missiles. those are supplies for a fighting army and that will be a problem for russia. guy: russian forces have been making less progress. what does that tell us about the ultimate objective and whether

that needs to change? it is regime change still possible? is holding the country possible? what is the more medium-term picture evolving into? pavel: today let her putin -- vladimir putin talked to the french president and the kremlin announced russian objectives are the same. that means taking over ukraine and d militarizing -- destroying the ukrainian military as a resisting force, replacing it most likely with russian forces that will be there and may be some kind of police force for ukraine. the new ukrainian government has to recognize crimea as russian and agree to other territorial concessions, so russia is still pursuing its maximum plan. kailey: in terms of what rushes

thinking about pursuing cannot president putin over the weekend setting his arsenal on high alert. do you see any real probability that nuclear force starts to be used? pavel: the threat is there. the american president going to another notch of the devcon level of readiness. russia does not publish its levels. america has five. they announced it. that is a threat of use of nuclear weapons and not against ukraine come against the united states primarily. -- against ukraine, against the united states primarily. the threat is there. it seems remote. putin does not have that many arguments. he does not have that many aces up his sleeve, especially with his war chest.

the returns of the central bank, most of them have been frozen. he may revert to nuclear weapons as a demonstration. exploding a nuclear device over the atlantic in a way that will not make any casualties which demonstrate that russia is dead serious and ready to use bombs. kailey: it is a frightening proposition for sure. coming up, finland planning to send ukraine 25 hundred assault rifles and antitank weapons. we will talk to finland's ambassador to the u.s. next. this is bloomberg. bloomberg. ♪

guy: it looks like the call between president biden and allies is starting to take place. you have justin trudeau and ursula von der leyen joining the call as the allies continue to act in concert. the level of unity has been quite clear. that german pivot we saw over the weekend, absolutely enormous and historic. kailey: in terms of upping the defense budget that olaf scholz announced and the total shift in policy and supply of weapons. they will send weapons to ukraine. finland is promising similar moves. guy: finland obviously on the front line in some ways of what is happening here. sweden obviously joining the alliance. we are watching whether finland

and sweden will join the alliance, norway already effectively the northern flank of nato. joining us now from washington, finland's ambassador to the united states. thank you for your time. in terms of the finished government position -- finish government, it is providing weapons to ukrainian forces and antitank weapons. is there a bigger shift taking place in terms of finland's position? nato membership has been talked about. given what is happening on the ground, how big a discussion is taking place in finland about the opportunity to shift foreign policy toward nato? >> it is clear that a russian attack is a violation of international law. that is why it is only natural

that finland helps ukraine defend its own independence. that is the reason but -- behind the material aid. the situation was for recent developments. there was no real active debate on nato membership in finland and that has now started. it started in december when russia started to make these demands. it has become active and seems to be the case also that there is far more public support for joining. i see it as a consequence of these russian actions, which clearly shows in this discussion. kailey: a lot of the conversation is about this idea of the potential finland-ization of ukraine. i wonder what parallels you see between what is happening now on what happened in the cold war. >> it is a different situation now. in the cold war, we retained

independence and were never occupied. we always had our own policies and also some other steps. this was a historic situation which cannot really be repeated in ukraine. i think we have seen it in the last many days. ukraine is a european country. they have shown they are capable of defending their own and they are a fully fledged country in europe. they have a right to decide their own foreign policy. guy: in terms of what is happening on the ground now, there is increasing concern in the baltics, your neighbors, that we may see russia pushing further. what is helsinki's perception of what is happening? how near do you see the threat being to finland's borders now? >> our borders are quiet at the

moment. most of the russian forces are now in or around ukraine, so we do not see any immediate threats against finland. our armed forces are monitoring the situation carefully. we do not see any direct threat. we see a conflict in europe and ukraine and we have to really take seriously the consequences not only in ukraine but bradley. kailey: we have about 30 seconds left. do you think vladimir putin's ambitions end with ukraine? >> i think he has been pretty open. they want to have ukraine as they see it as a kind of dependent country on russia which could not have a full right to decide their own fate. kailey: we have to leave it

there, but thank you for joining us. that is finland's ambassador to the u.s.. we will continue this conversation on geopolitics between russia and ukraine. a former u.s. ambassador to china will join balance of power on bloomberg television and radio. that is coming up in the u.s. we will also have a great program on london dab digital. guy: we will discuss that as the cable progresses. we will take to the air over here on europe on digital radio. you can also find us on your bloomberg devices and the podcast on spotify and itunes. this is bloomberg. ♪

>> from the world of politics into the world of business, this

is "balance of power," with david westin. >> from bloomberg world headquarters in new york to tv and radio audiences worldwide, welcome to open balance," i'm joe mathieu in for david westin. we begin with the latest from ukraine where heavy fighting is ongoing even as the countries meet for talks. president zelensky saying the next 24 hours will be key to the fate of the country. for more we have our washington correspondent who is with us at the white house. thank you for being here. we are on day five now and in some cases the fighting has grown intense and there is a large concentration of russian troops 15 to 20 miles north of the capital city of kyiv. ukraine could be in for