>> from the financial centers of the world, this is bloomberg markets with alix steel and guy johnson. ♪ alix: it is 30 minutes into the use -- into the u.s. trading day. a shot in the arm for j&j as they shake off the dark days of covid and paging a positive picture and we will talk to their cfo. the u.s. slowdown slows, pmi

still contracted at a slower rate -- pace. it's the big tech test, microsoft reports after the bell and its cloud revenue wrote this expected to slow we will see if the stock is recession resilient. welcome to bloomberg markets. the nyse is reporting that all systems are operational and it halted due to unusual volatility. these were stocks like walmart. guy: we will keep and i on this but there is much more to take away other than all systems are go. in some ways, this is emblematic of an earnings season which will be bumpy and volatile. the market has pushed a lot of stocks a long way but have they

taken the stocks too far? alix: it's going to be interesting to see where the upside actually is. do you have the fear of missing out and getting turbo boosted after that pmi's come out from europe? we will be judging the margins on a different kind of metric. guy: arguably, the pmi data points to a larger problem so that is something we will discuss with chris williamson in a moment. in isolation, these data are not great and even the european numbers are not great. it's the direction of travel that i think is important. you need to break it out and figure out it is happening with the individual component parts. inflation is a major part of the narrative we are watching. let's work our way through the numbers and the analysis. let's start with the data and michael mckee is here to break

it down. what have we learned? michael: we learned that things are not as bad as anticipated they would be. we seem to be going in the right direction even if we are still seeing signs of contraction. let's start with the united states -- the latest number is the richmond fed manufacturing index, not part of the s&p global one but people follow it -- that one is not so good, down to -11 from a positive 1. in the mid area, things are not eight but the u.s. as a whole, the s&p manufacturing index goes up to 46.8 from 46 .2, the services index, 46.6 and the composite also the same. sequential improvements and we saw much the same and most of europe with a couple of countries in a couple of areas going over 50 due to expansion with french manufacturing and

german services and the eurozone as a whole. it's beginning to look like europe is dodging the bullet. the u.k. is the laggard. is the only one that saw a significant decline across the board and that's understandable given their economic outlook area alix: great roundup, thank you. let's get more analysis with crease williamson from s&p 500 global intelligence. what did you make of the input prices? that was the first time we saw them up and growing since may. >> it's a worrying time and we anticipated they would be a cooling of price pressures. this is pretty broad based. his feeding through to the selling price inflation and it seems that while there is a lot of prices that were falling, we are now seeing wage pressures

feeding through to hire costs and that's with the central banks want to see. we've had the big deflationary impact on industrial prices cooling and that's left us in a situation where we've got the second round wage pressures kicking in. a lot of the prices historically are very high. we are waiting to see when they can pass on those historically hike cost to customers and it looks like they took the opportunity in january. guy: if i'm an equity analyst watching this data, what is the signal? is it that there is margin pressure are you can pass on this pressure and the top line will outperform the margin line? as an average company in the united states, what is the picture? >> they are trying to up their

prices now so what will be interesting is how do sales and orders hold up in the base of those additional selling price inflation rates. they are testing the market, if you like with the buildup of costs they want to push on to their customers. this will be an interesting time in the coming months to see how they will succeed. alix: how will the fed read the data? if prices are still high, what are people paying and the demand is there and it feels like the fed will have to do more to crush demand. >> i think this is a pretty hawkish survey despite that the output numbers are in decline. the rates of contraction have moderated. you look at new order inflows in business confidence, it's pretty smart across the board. as companies look at the latest news flow, it looks like there

will not be a hard landing here, it looks soft and maybe no recession at all. they are picking the ball up and running again. i think the policymakers will look at that and say it doesn't look like we've derailed too much. can we afford to hike a bit more? guy: let's talk about the european dates. the january numbers are significantly better than what we saw in december and the rate of change is quite significant. eurozone composite number is going to 50 .2 and that's still a fairly depressed number but the direction of travel is really impressive and europe got lucky. china has reopened and gas prices have come down. is this a eurozone economy that is early cycle? >> you captured it nicely, we

seem to be celebrating the fact that we are stalled. that reflects how grim things were a couple of months ago. the fact that there is a soft landing if no recession hit is a good picture compared to what we saw back in tober especially in the euro zone. in the u.k., numbers are coming down further and there is a risk of a q1 downturn in the u.k. but even there, you have forward indicators coming up. is the biggest jump upward and confidence about the year ahead that we've had since the reopening of the connie and 2020. even in the u.k. where they have more pressures, you are seeing the turnaround he could be a shift but i want to stress that there are so many headwinds that persist that i don't really see how we will generate any significant noteworthy growth in europe.

if you got policy tightening from the ecb, governments are looking to withdraw their subsidies from the energy crisis. the grasp right -- the gas prices have come down but were -- what does this leave demand looking like? alix: for the u.k. and europe, if the u.s. is looking at a stickier situation and a pass-through, is that the story for the u.k. and europe as far as pricing? >> yeah, on the service sector side, things look stickier than what we want to see at this stage. we would expect inflation to come down as industrial prices feet through lower into things like food and transportation. they are looking stickier and this is predominantly wage influence.

this includes costs. that's where the stickiness seems to be. guy: china reopening seems to be taken as a good thing for europe. what are you seeing and supply chains and does that story continued to improve with the china reopening? >> broadly speaking, yeah, the supply chain situation alleviates significantly across the globe. the whole supply situation, we've got the demand situation much collapsing as companies are running down their inventory levels. they accumulated a lot so this is helping ease the situation area we had a little wobble in some countries which is perhaps

linked to the additional restrictions in china that were in place be or but that seems to be alleviating now so the reopening i think is on balance and having a disinflationary impact for management globally. guy: always great to catch up. thank you very much indeed. coming up, we will turn to the markets and earnings season will start and we will discuss what we are seeing next, this is bloomberg. ♪

>> it looks so much in the analyst earnings estimates that the fourth quarter was the recession and here we are sitting in the recovery. it actually looks a little like that in financial markets. it would be wonderful if that were really the truth if it weren't just on the leading edge of a hit we will have in

profits. of course, how markets traded last year, we are not anticipating this to be some kind of profit nirvana. alix: that was stephen whiting earlier. the question of the day is -- is this the start of an earnings recession? you can look at the pmi data that continues to slow but less slow and you can take a look at the actual earnings which you can get hammered. 3m is really suffering so let's get insight from the goldman sachs investment strategist. are we facing an earnings recession? >> i think we will see pressure on earnings for sure. this might look like a 2008 were a 2020 we see negative earnings revisions going forward but i don't think that's a giant

surprise. many of us anticipated earnings usher going into the holiday season with the amount of discounting and sales in the retail side and i think that will continue. we will see companies struggle passing through the margin and it will translate into more difficult earnings. alix: especially if you are exposed to the consumer. equity markets have done really well. there's been a lot of money going into europe as well. is there afomo thing happening? >> that's an interesting way to put it. i have trouble the last couple of nixon the one thing i've noticed is that there seems to be a different risk at the site -- risk appetite. there seems to be some who are looking to put money back in but staying more defensive in the u.s. not a lot of public flows into the equity markets.

one anecdote is that we are seeing lots of flows into em equities but i'm not hearing that from our u.s. institutional markets. i don't think they have that feeling quite yet. guy: what would it take for them to get that feeling? european equities are surging and emerging markets are having a good run. at some point, will they be pulled off their hands? >> i don't think there's anyone trigger but one way to get people to get back into a market that's been out of favor is to not have another alternative. a reverse of what we saw last decade. when the risk reward becomes less compelling and fixed income markets, maybe people will look back to the equity markets. that goldman sachs, we assume a good case this year will be flat on the s&p at the end of the year. that's not a super compelling reason to get your toe back into the water in the u.s. alix: based on that, if

investors are de-and for investors are dipping their toes into europe, what will it take for u.s. investors to get more constructive? >> on the institutional side, it might be strategic asset allocations. if there is some bumps in the fixed income or credit markets, there will be next year. we've had a goldilocks scenario and there will be certain companies that have a difficult time with the higher cost of capital and the same thing on the equity side. in the fixed income markets, i think there has been a lot of on buying lately and it's been an interesting month. i don't think the whole story has played out on the fed. that looks like we will get three increases and a pause but we cannot be certain. we still not have's the seat -- we haven't seen the trust and the equity market to be sure that inflation has cool. guy: let's talk about that from

a tech perspective. tech got beaten up earlier on. one of the factors was what we saw on rates being raised higher. since the beginning of this year, it has been on fire. tech stocks are surging. can you walk me through your thinking around that and whether that something people should involved with? >> for now, we believe there is still value to be had in value stocks and long-duration stocks like the tech sector have been shells but it doesn't mean that will happen forever. they will be an opportunity to get back into those markets. we are more focused on the type of stocks to take advantage of this new on me and these new trends that came out of covid versus the old economy and what we knew were the popular new hot things five or 10 years ago. if you have an edge in those markets and you think you have something to play, by all means, but we would tilt toward the

value site. alix: at what point does tech become value? is energy still a value stock or a value play? >> if you are thinking about it from an asset allocation perspective and you have those buckets to fill, that might be more of the question i would be asking but for now, i would think about what sort of stocks can really pass through these increases to the consumers. i think energy can and some parts of the tech sector should be able to do that, those with sticky customer bases and tools we cannot live without every day and there are other parts of the spectrum we have seen, a lot of headwinds that may play out but i don't know that reclassifying any stock from one to the other makes it a buy case. alix: how much do you anticipate

interest picking back up into europe? how sticky will the flow be considering we have had so much interest in the u.s. in the past decade? >> i think the dollar might play into that. we could see if peak later this year that could provide a tailwind for u.s. assets. europe is tricky because with china coming back online and some of the energy pressures, it might be difficult but there will be opportunities there on the value side in different parts of europe, i think with china coming back online, you want to look for countries that are commodity exporters. maybe that takes you to other regions of the world but i think this might be a major inflection point for country diversions. i think you have to look at the u.s. which is not a situation we been in for the last decade. alix: and not all e.m. is like china, thank you very much.

we appreciate your time today. guy: breaking news -- huge pressure on berlin. we been given a heads up and it looks like germany will give poland the ok to reexport the leopard tanks that poland originally bought from germany that were made in germany and export them to poland. poland looks like it will get the green light from berlin to export those tanks to ukraine. obviously, these are the tanks the ukraine wants. they are reasonably well used across europe. if they want the heavy tanks, the u.k. has gone down this road and we are about to see roland doing it as well. next, we will look at the earning story. we are waiting for microsoft to

kick off the earnings season after the bell. we will discuss what we should be watching next. this is bloomberg. ♪ thanks to avalara, we can calculate sales tax automatically. avalarahhhhhh what if tax rates change?

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guy: 24 minutes past seven on the west coast but is still time for the startup. the tech world it's holding its breath, waiting for microsoft after the bell this evening. what should we be looking for ed ludlow? ed" microsoft goes first. the forecast is for eps to drop for 9% which is the biggest drop since 2016 microsoft fares a little better at 7.5%. you have to go back 20 two quarters for the first time that microsoft had top line growth

below 10%. it's expected to be around 2%. we will just we want to know how they will fare from this pandemic gary to the recessionary environment in the late of 10,000 people last week. they have a one point $2 billion charge off. a lot to look out for this evening but we are bracing. alix: we got elon musk in court yesterday so how did he do? ed: he kept his cool but he said unequivocally, the saudi arabia public -- public fund was private and there was little documentary evidence of that. he also recalled several dinners and tried to paint a picture of this being in the works for some time despite being any concrete binding agreement. he doubled down on what we talked about, the doubt -- that

you should not take his tweets as it relates to volatility. alix: we will get all the details there. thank you for joining us. j&j is seeing higher full-year earnings and we will talk to the cfo coming up. this is bloomberg. ♪

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alix: we are trading in little heavy here, but a lot of earnings to show. priced pressers -- pressures still remain in the u.s.. >> the s&p 500 still above 4000 but down 4/10 of 1%. this as of those earnings are waning to some degree. it is not about technology. we have microsoft and tesla coming up. we have three him down -- 3m

down. union pacific down 3.3%. a disappointing profit. the outlook for profits, disappointing. we will be digging into that. the s&p 500 is above 4000 and above its 200 day moving average. it could go higher or this cloud or collaboration suggest that it is going to stabilize into some sort of sideways trend. if it is above 4000, the longer, probably the less chance of drastic drop layer that some folks are calling for. not saying it could happen, but there may be reason to think. for johnson & johnson, last time i looked the stats were higher.

the range is higher than with the street is looking for. guy? guy: my set up. -- nice set up. let's get into johnson & johnson and the results that have just been delivered to the company cfo. great to talk to you as ever. thank you for spending time with us today. let's talk about where you are taking this business and where you are going. joseph: you talk about responsibly cautious. guy: that was your summary of the guidance going forward. if i am analyst and i'm looking forward you are saying, can i ask you all of the bad news is in what you told us today and from here all of the things are going to get better. joseph: pleasure to be here with you and alex today.

what were trying to do is strike the right balance. we are trying to take the risks and opportunities and say this is a unfair prediction of where our -- projection of where our business is. we cannot be more excited in addition to the initial performance we have had. we made a number of significant enhancements, progressions with our pharmaceutical pop line -- pipeline. our tech business acquisition to put us in a high-growth cardiovascular markets. the consumer business had a second have, which positions them well for the separations. while we are using words like prudence and responsibly cautious, it is a balanced assessment over risk and opportunities that we know today. alix: for the margin pressure that you see, when do you feel that it bottoms? joseph: in terms of our guidance, we experienced a lot

more inflation then we were speaking last year throughout the course of 2022. some of that gets caught up in the balance sheet inventory. maybe this is one of those responsibly cautious elements. we are not assuming any deflationary relief. it with a get is here to stay. i lease for the balance of 2023 were we will believe costs will remain -- at least for the balance of 2023. that is always our goal to have the aspirations that are above the expectations of the current today. i will come back to --. if you look at the macroeconomic uncertainties, you are just speaking with your previous guests about a earnings recession. we are certainly trying to avoid that. we feel very good about the 4% plus we are offering today in

terms of aps outlook as well as a topline outlook. some geopolitical uncertainty as well. alix: where do you see the stickiest cost pressure? businesses are starting to pass on the higher prices in the services sector. where are you seeing it and is it hard to pass through? joseph: in 2023 we saw in some materials, mostly packaging materials, manufacturing and the wages associated with those services. those are the areas we see. in terms of pass-through, the space of health care really does not give us of the opportunity to pass those along. we are very limited overall into what we can take in price. our growth is largely volume.

guy: in europe there feels like considerable pressures to reduce health care costs. our europeans pushing back? -- our europeans pushing back? joseph: we saw some of that in the fourth quarter in the major countries in respect to our pharmaceutical performance. we think some of that will continue on. we also see value-based pricing in china in our med tech business. we are the largest player of meditech in china. the has a disproportionate impact to some of the competition. alix: i am focused on pricing and margins and guide its focus on topline spirit when it comes to china, how do you view the reopening lay terms of your device units? -- reopening in terms of your device units? joseph: we expect the second

half to be better than the first half and the second quarter to be better than the -- third quarter to be better than the second quarter. we think that will linger into the early part of 2023 but then get better. we are hearing some things in terms of verse on your network that china is opening up a little faster than we expect. that may be one of the balance of sides. we will have to see how that plays out. alix: let's talk about the consumer spend that is coming up. guy: do you think you got your arms fully around the cost structure? why are you doing it now? do you think if you waited you make it better value for the business? joseph: you are always going to

be subject to what capital markets will do. we feel really good about where we are. the first year was spent developing a company within a company. this business is ready to run on its own. on january 4, we filed a form s-1 which enables us the opportunity to go with a initial public offering. we will need capital markets to cooperate. the brands in the strength of this business we think sets up a well. there's a not a lot we can say due to regulations being in registration. we are on track for what we conveyed in november of 2021, that is to separate the business through the course of this year. alix: is there anything you think you need to do in the consumer brand to help the case?

joseph: i want to be mindful of the registration process and the regulations around that. maybe go back to why we made this announcement to begin with. a very different business model and criteria for success in the future. if you think about how it used to advertise our products were consumer health care, nine out of 10 dermatologist. today it is likely that a kardashian social media post or jennifer aniston has a lot more influence. if you look at the heavily regulated heavy invested landscape of meditech and pharmaceuticals, it is very different than what is required in consumer products. these are very important products. it is very different laying terms of how you will be successful in the long run. guy: you're working for the revelatory process as we speak.

when do you think that process comes to conclusion? the capital market says when are you going to be able guy voltage? joseph: we plan to separate the majority of this business by the end of 2023 based on our current timelines. alix: we appreciate you. cfo of johnson & johnson. another hawk for the ecb continuing with half a point rate hike increase. you are looking at a governor commenting on a interview with another 15 basis point hike. guy: there are a lots of members on the government councils. you certainly see the data is

moving in their favor. today's cpi data, inflation is in their. this should allow the consumer to fill more positive about what is happening. all of this is pointing in the direction of two more 50's. that certainly seems to be the guide coming from the ecb. alix: right back to earnings. ge, cells are up-to-date. we will also talk about 3m. this is bloomberg.

kriti: the union pacific's ceo joining bloomberg tv 12:30 p.m. new york time. this is bloomberg.

keeping you up-to-date with news all around the world. germany is expected to give poland it's ok to send its leopard tanks to ukraine appeared the approval can come as soon as wednesday. the hundreds of tanks in europe can only be sent to ukraine. in half moon bay, california police arrested a suspect in another mass killing. the 67-year-old suspect was believed to been a worker at one of the locations. and 11 the person has now died from the shooting in los angeles. the suspect in the shooting killed himself. in the u.k. there's more evidence that the economy has shifted into a recession. meanwhile, the government budget

deficits rose to a soaring interest rates. global news, 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. alix: get to earnings updates. two major industrial names out with the results. 3m, they are cutting jobs. ge, seeing profits below estimates. they are trying to spend off by getting its next year. running is now, rbc capital markets analysts. the price target of 113. the renewable energy business down 19% in terms of revenue, that is not great. do you think they will be able to turn this around? how does it do that? >> the pressure on renewables is

not a new development. this has been a work in progress since the day larry arrived at ge. they are resizing the business. there are still a lot of cleanup to the portfolio to do. the expectation is, renewables. despite all of the command everyone sees on the energy transition, the renewables business, wind in particular will be money-losing through 2023 and a even in 24. that is the reality of what the set up is for the year. it was not a big shock to anyone. that is the outlook. guy: ge is rapidly becoming a jets engine business. it has come a long way. it has doodled itself down to that. i think about the business, i am looking at a current recovery in aviation. airlines bringing back three

40's, which i thought was a long gone to the desert. i am assuming old engines need more servicing. as this recovery continues, that is great for ge. it >> there's a unprecedented rant going on in aviation. we are seeing it everywhere, takeoffs, landings, about 90% aware we were in 2019, airlines are struggling to meet this demand. you are seeing old airlines come into use, which is all good news for ge. it makes higher margins on the surface inside. that is the equation, this is the upside we are seeing in ge. alix: the renewable business has been in tough time before. this is supposed to be the moment.

you will get hundreds of billions of dollars into the government. europe is looking to put more money into it as well. this should be the moment for these guys. what is so hard about booking new revenue? deane: this is the biggest frustration. this act between the economic outlook, climate change outlook, all of this demand for renewables. why can't ge being able to manufacture? these are structural issues that have been inherited. we are seeing this elsewhere in the industry. the big problem, aircraft engines burned at hundreds of degrees and in need servicing. the wind turbines do not have the cadence of service. you have to make your money on the scale, it has to be priced right. these are all basic bumps that

ge had structurally in the business. it is going to take another year to get it right. everyone shares your frustration . this should be the time. the demand is going to be a multi-year for wind turbines. guy: to be fair, there have been plenty of bumps down the road. let's prevent to 3m. there are big similarities. these are two huge conglomerates . these are going to go down the same roast, which is breaking themselves apart to an extent we are to see. the ceo talking about the fact that this is a business that they are going to re-examine close everything we do. if you were to add up the parts for 3m, what would it be

worth? deane: that is a great question. you touched on a important theme , the urge to emerge weir you demerge. 3m are spending off their health care business. we think there's so much more they can do. we think there's a downside on some of the parts. we have a underperform rating on 3m. they are facing all sorts of structural issues, litigation. the reality is, we think a number of their portfolio moves might be limited because there is not really value one locking opportunity at this time. alix: when do you have to revise

it down? how much do you have to do that? deane: they just reported earnings. it was in the outlook that this was pretty grim news. they missed for q. we will be re-examining that here appeared the good news is, they gave lots of details, the assumptions on fx. they are so far exposed to consumer and electronics, that is where the weakest part is. we will be taking a closer look for the outlook of 23. guy: if the dollar depreciates further from here, do i buy u.s. industrials? deane: it is giving a lift. it is kind of like retracing the steps that we saw six months

ago. there is some relief. it is not so much upsides to earnings, but it is the absence to the headwind they had for the past couple of quarters. fx usually sorts itself out. it is never competitively upon an impact. we do not think businesses benefit or hurt very much in the case of orders. it is just math. 3m is one of the most exposed companies. the depreciate in dollar will help them versus where we were a couple of years ago. guy: it seems to be a very busy day to you. thank you so much for all of the time. later today, ge aviation ceo will be speaking with david westin. we look forward to the conversation on balance of power a little later on today.

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guy: stocks running up a little bit as we come to the end of day here. you do fill to a certain extent we are going to wait for the earnings season to come through and what it is going to tell us about the global economy. i think it is going to be really urgent. important. euro-dollar not really pushing on that too hard today. 10877. we went through 109 yesterday. the u.k. data i thought was very

interesting today. we need to talk about the credit market as well. chief investment officer is going to be joining us next to have that conversation. i am looking forward to his take this year. it's official, america.

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guy: european stocks go sideways. we are awaiting the earnings season. it is starting to kick in. it is all about margin. at countdown to the close starts right now -- the countdown to the close starts right now. >> this is bloomberg markets european close, with guy johnson and alix steel. 29 minutes to go until the close in ee.