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tv   Bloomberg Daybreak Europe  Bloomberg  January 27, 2022 1:00am-2:00am EST

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manus: good morning from our middle east headquarters in dubai. i'm manus cranny. this is "daybreak: europe." these are the stories that set your agenda. it fed chair powell rags in a march rate hike, global stocks
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sour, to uriel spike. i'll speak to the deutsche bank cfo. breaking news across the bloomberg terminal, we're waiting for deutsche bank but let me give you the numbers, just a slight delay in me getting my news flow up on as a b, here we go. confirming the preliminary results we got just 10 days ago. they are to acquire a majority stake in one company, that's the breaking news coming from sap. there confirming that revenue of 7.98 billion. let me tidy up the screen.
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they are to acquire a stake, no terms have been disclosed on that deal, and we also have deutsche bank. let me give you the top line on deutsche bank. dani, are you with me? come in. dani: results from deutsche bank , closing out their most profitable year in a decade. looks like they're fixed income trading is falling for the fourth quarter, not surprising, falling 14%. that compares with the 15% decline on wall street and perhaps a little bit better there. trading revenue of 1.2 billion. a slight miss, up 1.28. manus: in terms of the rest of
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the narrative from deutsche bank, i know you just caught up with the cfo and we will have that conversation. dani: yes, we certainly are. will hear from the deutsche bank cfo around 6:30 london time. things like global inflation, all of that in just about a half-hour. manus: i'm dying to listen into that. i want to get back to s.a.p., the deal they've done. it's a financial technology company that's going to expand software offerings. the san francisco-based company was launched in 2009. it's all about payment in the supply chain. this is the holy grail for every bank, for every institution. it's going to be less than a billion dollars, and we'll catch up with the ceo in just a short time.
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we know chips and ships are the bane of every producer out there from rolex watches to others. st micro, the estimate was for 3.75 so they're coming in strong there. they confirmed the fourth-quarter revenue at 3.56 billion dollars. that's the state of play, a deal for s.a.p.. i'm dying to hear what the remuneration is over at deutsche bank. we were having that conversation this morning. but it is literally the hounds have been unleashed. never mind the bears in the bull market. the hounds have been quite literally released all across.
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it could be a rerun of 1994, we're in the midst of our very own tantrum. were looking at possibly five hikes or maybe even seven. dani: we are looking what is priced in for 2022. march we are pricing in 30 basis points, the fed only puts in factors of 10. i thought we were on the front end of the curve, but to yields exploding over the past few hours. manus: absolutely. we are in a bear market for bonds. 2022 will be the second consecutive year of losses and the market has already doubled the hikes, they have already driven hikes through fort powell. so some big moments in the bond market. never mind the bears, it's the hounds of hell on these bond markets. dani: let me take us through the
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bond markets, it is ugly for risk assets. s&p futures down 1.3%, to be exact. that would be their lowest level since july of last year. also looking at a stronger dolly -- stronger dollar, 10 year yields moving lower but to uriel still marching higher by 3.5 basis points. brent crude, down .7%. the hawkish fed is wiping out global stocks and a number of indexes in asia with a correction in the bear market. juliet, where overseeing the most pain right now? juliette: it's pretty much world based across a number of indexes. the worst day on the msci asia pacific index since february of last year, holding at november 2020 lows. china csi 300, 19 .9% down,
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close to entering that bear market territory. the kospi erased when he percent from its peak so it is holding an bear market territory. the asx 200 joining the likes of the topics, down 10% from its august peak. pain across all the sectors, and another big move in asia, china is said to be asking evergrande to sell off a number of key assets to help that troubled developer. down 4.4%. were also seeing similar in the bond market here in asia, yields up seven basis points and the 10 year yield in new zealand holding at its highest level since november 2018, helped out by very hot inflation rate in new zealand, the fastest pace in 31 years. adding to these bets that the rbnz is going to hike again,
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sending kiwi down .7%, the worst-performing g10 currencies today. not a lot of places for investors to hide in asia. manus: these markets really do look rather frisky this morning. putin and ukraine, it's the 80's again. there's a lot at play here. risk parity is the byword. let's talk about jay powell, the fed ready to raise rates, ready to tackled the highest inflation in generations. >> we will make a decision whether to raise the federal funds rate. i would say that the committee is of a mind to raise the federal funds rate at the march meeting, assuming conditions are appropriate for doing so. manus: let's get to our chief
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asia economics correspondent, into current. i said that the hounds of hell have been leased -- released into the bond market, never mind the bears. enda: just listening to economists, they are seizing on this commentary by chairman powell that inflation might be higher and last longer. nomura came out this morning with the first basis hike in march, economists at every meeting -- the point is that most economists are sending a hawkish message maybe for four rate hikes. the chatter today, maybe five or
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six. we seen the selloff in asia, they'll have to move somewhat in step with the big takeaway today is another hawkish message. the markets are bracing for what is ahead. dani: the low down on powell's humble and nimble testimony yesterday. let's get a big update on the corporate stories overnight with tesla posting a record profit. warning that supply chain issues will stop at introducing models this year. a pretty iffy session for tesla after hours. what do you hear from elon musk? >> we heard that supply chain disruptions will last throughout 2020 two. that's what spooked the market
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in after hours trading and it's why tesla was selling off, in spite of a record profit, in spite of a beat on revenue. we knew heading into this quarter that it was a record for delivery for tesla because the engineers had been agile, managing to rework whatever semiconductors they could get their hands on. but it is a sign of the times. this earnings season is so high for those tech bellwethers. analyst investors want to see expensive technology company such as tesla. tesla is maintaining its goal of achieving 50% delivery annually. the cyber truck, something a lot of us have been excited about, that official delivery has been pushed back to 2020 three. elon musk wants to produce 250,000 a year. he's been tweeting that he has been testing out the prototype
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from that awesome, texas plant. that particular factory is almost online. that should help tesla to meet the demand they are seeing right now in the market. they've also been scouting out locations or new factories and that again will help them boost supply. in classic elon musk style, he talked about the optimist robot. that in fact is going to be the primary production focus for tesla in 2022. manus: i'm waiting for the cyber truck. i'm going to go all in. let's get the first word news with juliet in singapore. juliette: the u.s. has delivered russia a written response rejecting most of its demands over ukraine. roscoe wants nato to redraw its borders and close the door to ukraine possibly joining the organization, but that's been
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refused by washington. anthony blinken says the u.s. is still open to talks and is expecting talks with the russian foreign minister in the coming days. in england, face coverings and covert passes are no longer legally required from today as plan b rules introduced in december are relaxed. they will read close of -- reclassify covid-19 as a disease that no longer poses a threat to society. u.s. supreme court justice stephen breyer is retiring at the end of his term, giving president biden a chance to fill his first vacancy on the court. breyer was appointed by president clinton in 1994 and is the court's oldest justice at 83. ayden has stated his intention to nominate the first black woman to the post. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you very much,
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juliette saly singapore. coming up, we have more reaction from the u.s. fed chair jay powell. dani: and later, stay tuned for interview on the deutsche bank results with the cfo at 6:30 a.m. london time. this is bloomberg. ♪
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>> the notion of a 50 basis point rate hike is highly unlikely. manus: the former u.s. fed -- new york fed president there. our top story, fed chair jerome powell thinking march rates may rise.
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he open the door for faster and more aggressive rate hikes. the markets have had quite a dramatic reaction. bond yields are climbing, the dollar is rallying this morning. the risk off narrative continues. when you look at three standard deviation moves, the curves are flattening. how hawkish a pivot was it in your mind, the fact that he has opened pandora's box to the risk of a rate hike at every meeting this year? is that a risk too far? >> yesterday definitely opened up further risk in terms of previously expecting quarterly rate hikes in march but now there is further risk. on the one hand, with the fact
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that they want to normalize policy, and economy that does not need further stimulus. on the other hand the reference a cap making to the previous rate hike cycle makes us think that they risk overdoing it, overreacting. and the narrative and comparison and narrative around the strong labor market in our view should be incorporating the fact that participation rates in labor markets have yet to recover and it will be hard to justify if they push through the rate hikes , all of that to say the risk of the fed overreacting has
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increased from last night's meeting and markets are reacting accordingly. dani: this is so important and so interesting, saying if you would assign a great it would be not good because of the modeled message of really committing to this hawkish pivot, despite the potential risk out there of acting really aggressively. if that's the environment we find ourselves in, how do you position? >> is possible that it includes a walk back from this hawkish view. the path to getting there has become more volatile. this is somewhat in line with the expectation that this year is going to be the most volatile year compared with last year, even know we do expect equities to push higher and bonds to post
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negative returns. the magnitude needs to be moderated from equities last year. we still think the fundamental story around growth and earnings will stay positive for risk assets, but we are hesitating to buy the dip at this moment because of the risk around confusion of the central banks reaction at this juncture. even though equities have become cheaper from one perspective, which is a relative term for bond valuation, we don't see erp risk cheapening a lot. as a result we are keeping a modestly strong risk view because the fundamental story
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has not -- because of the risk we just talked about. manus: so what needs to happen for you to buy the dip? there is a great chart, the 40 year relationship with nasdaq and 10 year yields. you don't scare me anymore. everybody came on the show and said were dumping growth because of the height duration, and yet this chart tells me that nasdaq growth stocks don't fear the higher yields. does that make sense for you? do you look for quality, big growth stocks in this drawdown? >> as we think about getting back and buying the dip, increasing the monist wrist that
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we currently have, looking at some of the exposures, it would make sense to increase opportunities with strong fundamentals going beyond the current earnings cycle. so thinking about the typical asset allocation process, you have your risk budget, the level of risk you want to take on an the optimization process. either we see -- we won't take risks on a level that needs to be supported by our confidence that the risk own quality
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confusion has decreased and right now we don't think we are there. are we say that equities have become so much cheaper that we would want to get in, even though markets have corrected quite a bit from the beginning of the year. and our preferred way of gauging asset allocations, they have not cheapened as much as you would expect on the price move as well. dani: thanks so much for joining us. you will stick around with us, much more to cover. coming up, stocks and bonds slumped
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dani: welcome back to bloomberg "daybreak: europe." a day after the fed looking at her rough session in asia, stocks sliding, sovereign you'll surging. across the region we had the fed meeting, our guest is not buying the dip when it comes to equities in the u.s.. are you tempted by any of the losses we are seeing stack up in chinese equity markets and more broadly, asian equity markets right now? wei: currently we have a modestly constructive view in chinese government bonds as
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well. it's important to contextualize the overall global risk environment. it sets the tone, the market reaction, it would be hard to hide from that given the current nature of global financial markets. as global risk sentiment stabilizes and calms down, clarity emerges in terms of the path forward. you talked about china, if you think about this year the central banks moves, china really stands out and pboc really stands out as the only central bank in a major economy that has the ability and the willingness to cut rates in order to shore up growth from slower economic impact from
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omicron as well as the shutdown of the economy. all of that just to say as the global risk sentiment in the environment comes down it's important to think about selective opportunities that can present themselves and china market being one example in sharp contrast with the broader policy normalization that were seeing this year. manus: briefly, i know you've reduced your underweight on u.s. treasuries -- treasuries. what does it do to your bond exposure in china? wei: we're keeping a modestly constructive view.
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the degree of modest overweight we have, we're keeping that. it has already outperformed so far this year, but were not increasing the overweight also because of the strong synchronized nature of global financial markets. we want to think about what that means for overall risk-taking and our whole portfolio basis. manus: thank you very much. some pretty strong views on where we are. we just have the deutsche bank numbers, they expect the 22 revenue guidance to exceed -- the -- to exceed its 2022 revenue guidance. so bullish all around. dani: bloomberg reporting
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earlier in the weeks that they will pay out 15% more. deutsche bank has not confirmed that, but to be clear, does seem that will set aside extra money, so they have confirmed that they will be paying more. i spoke with the deutsche bank cfo just moments ago and i ask him about that as well as the results for the quarter. take a listen. >> we've been slowly recapturing market share across both origination advisory and our business. origination advisory was up 29% for the quarter. both of those results are in line or perhaps a little better than some of the peer averages. so we continue to at least hold if not gain market share against what was for us a relatively strong fourth quarter of 2020. going into 2022, were seeing a bit more momentum. the markets have been disrupted in the first few weeks of the
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year. we feel we have navigated that reasonably well. we are doing a little better than where we were last year and we continue to see the kind of momentum we had late last year. there may be a bit of a pullback in the corporate finance area as ceos and issuers adjust to the volatile markets, but our senses that we will navigate through that as well. dani: definitely feeling the volatility throughout the market. you announced the first buyback of dividends as part of your 5 billion euro plan. can you give us more of a sense of the timeline for that plan? what could future announcements look like? >> it's too early to offer more of the forward guidance. we will talk more about it at investor day on march 10. we feel like the 700 million
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capital return that brings in 400 million dividends is an important first step in delivering on our promise to return five billing of capital to shareholders over time. it's an important milestone in the transformation of our bank that we commenced back in july of 2019. dani: if i can push of that -- a bit on that. >> we certainly would want to grow the dividend for here and therefore, that's important part of our return profile. we think share repurchases are an important part of that overall return, given the powerful corporate finance benefits of being able to repurchase shares have relatively low multiples of book value and earnings. so we think that's a very powerful combination. dani: we also had a fed decision yesterday, you and your peers
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are very sensitive to rates as well. some of your peers said they expect the fed to hike seven times this year. jay powell yesterday left the door open to it. of course this affects your business greatly with global yields do. what are your expectations for how the fed ask, how tight we should expect monetary policy to be? >> are economists do excellent work. our view has been for some time that the central banks were behind the inflation wave and it would not be quite as transitory. so you're seeing a reasonably dramatic shift in the monetary policy environment. we may see more of that in europe than had initially been anticipated. we do therefore expect rate hikes and qualitative tightening this year. as you say, it's beneficial by large to the banks. we obviously need to work through the volatility that
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arises when there is a monetary policy shift, but there is significant interest rate and possibly upside beyond that in our business going forward. dani: you mentioned europe. could we see surprise tightening and surprise moves from the ecb? >> are economists on monday called for the first move before the end of the year on the deposit rate. which is ahead of where the market is by far. in their judgment, it simply a recognition of the likely persistence of inflation, although it will moderate this year relative to 2021 as conditions normalize somewhat. the fact that that inflation will have lasted longer and it will give the ecb an opportunity to begin to normalize the monetary policy environment. that is the call of are economists, certainly something that would benefit our business. we also think it is healthy for
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an economy to end what has been a relatively long-standing condition of negative interest rates. i think we would all see that essen a natural condition and one we would look for a normalization in respect of. dani: i did ask him about pay as well. he said they are taking it on when it comes to cost, it is hurting them. and you know i had to ask about the fed and the ecb. i found it interesting that he thinks the ecb is going to move before the year end. manus: the accusation that there's too much belief in returning to the 2% level. let's -- great interview, by the way. good to hear his views. we will get more ceos through the door over the next couple of days. europe down over 3%. what can europe deal with if
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you're going to get a? the market is pricing in that we could get even the risk of seven rate hikes in the united states of america, so you're just seeing this bloodletting on the equity market. blackrock, it's still not time for them to step in and buy the dip, not at this moment. dani: let's continue in the banking conversation as we monitor these markets continue to selloff. joining us is the head of european bank research at morgan stanley. it's wonderful to speak with you. we spoke with james of deutsche bank earlier. cost continue to come up for the industry as a whole. of course the macro outlook for banks is a positive one, given what manus and i have been discussing about yields. but how much do we expect that cost in this competition or talent will weigh on the global banking sector? >> it is one of the biggest
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topics coming out, but i have to say there's a very uneven cost pressure in europe. we talked about it a couple of months ago, whereas you are saying the competition is very high and particularly the salaries are increasing quite significantly. but there are parts in europe when you look at universal banking in particular when those pressures are lower and they come from a different angle, much more from the investment in technology angle, but they are offset by banks cutting branches and cutting people. in europe the situation is slightly different than the u.s.
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we are looking for costs to actually be kind of flat between 22 and 21, effectively with some of those restructurings offsetting inflation in places. manus: good to have you with us this morning, thanks for giving us the time. why do you find investors reluctant to price in rate hikes from the ecb? we just heard james talking about the risk of a hike before the end of the year. everybody seems to have their head in the sand in regard to inflation and inflation risk. do you think bank analysts are sticking their head in the sand about rate hikes in europe? >> a very interesting question. a topic we are discussing so much. i agree there is a huge disconnect between the rate
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market and the equity markets in europe. just to give you a sense, we got about 70 basis points of ecb interest-rate hikes price between now and the end of 2023. and is quite extraordinary that if you price the forward curve into the banks earnings next year, we would then have earnings higher by about 16% on average. and banks are much more sensitive than that. so what is stopping the market from pricing in the rates? i think it's just a general reluctance. we've been there before, where the ecb just tended to be quite dovish in comparison to the other central banks. an interesting thing with bank of england, we expected rates to go up and only when they really went up in december did the equity market catch-up.
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so the more entrenched the expectation that were going to get that rate upside price to the equity of the banks. i have to say this is the biggest optionality in my mind for the sector on the public side of course. dani: given that, until we see movement from the ecb, should we expect to see outperformance from the u.s. versus europe? >> i think that in terms of just the confidence in the interest rate cycle, i think in the u.s. the positioning of the central bank is much clearer and i think the market feels much more confident in pricing the hikes, and of course the hikes are coming much earlier.
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i think morgan stanley's interest rate expectations for europe offer ecb to start hiking in the second half of 2023. i think there is still this kind of economic discussion from a perspective of expectations. so i think they might consolidate and we will see it being priced in. manus: i don't know whether it's where i am in my personal investment cycle, but i'm almost drawn to -- more dividends, more buybacks, but supercharge capital returns, i like that. where am i going to get supercharged returns in banks? >> i have to say the entire sector yields, when you look at 21 and 22 is on average about
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12%, which is literally double what we thought precrisis. it's a dividend but it's also share buybacks, multibillion share buybacks out of quite a lot of banks, u.k. banks, eurozone banks. i think it became very much a sector topic as well and literally banks overall are kind of becoming a double-digit yield or on a sustainable almost three year view. manus: do you think the market is positioned deeply long? we look at the index, do you think the market is long on banks, or is there more to go? >> i think there is more to go. think in europe the positioning in banks can become much more constructive over the last year.
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but when i speak particularly to my global investors, europe is still a little bit of a minority sport. so i think there is more to go. manus: what a line, europe is a bit of a minority sport. you are always a good sport with that. i'm on the phone as we speak. no more crypto for me. our guest this morning on banks at morgan stanley. europe's largest tech company, sap, plans to buy a majority stake in a fintech firm. why not? we will asset very question. this is bloomberg. ♪
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manus: this is "daybreak: europe." dani burger is in london. europe's largest tech company sap plans to obtain a majority stake in a leading supplier in capital management solutions. let's talk to the sap ceo, he joins us now. you guided on the numbers, you talked about accelerating cloud revenue in 2022. where is the strongest growth in the cloud? is it incorporate, hq, or the evolution of work from home? what is driving the cloud narrative? >> first of all, the last quarter, we've seen double-digit growth in each product category.
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we see also when it comes to new pricing models, and supply chain disruption. this is what our portfolio provides. dani: you mention supply chain i can help but notice your tipping your hat for taulia. are you expecting or attempting to grow even more in the space after this acquisition? i know you've already announced one, but could we expect more in this area from sap? >> 2021 has shown that we are
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growing organically. this is what we did in 2021 and then again, organically. we are also searching the market, and taulia is the leading fintech company, focusing on workforce and supply chain financing. we have thousands of procurement customers who generate billions of transactions every day. now we have taulia with which we can connect. we have the platform to do transactions for the cash flow of our customers. this is always what we said, we do acquisitions, but only if it is also to the benefit of our customers, and taulia is a great act -- great addition to our portfolio. manus: you're putting your house
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in order there, wiley you are going deeper into financial services. what would you say to that perhaps criticism? >> i see only upside. in the past we have so many customers joining the business network who actually ask us to improve their cash flow. on the other site, we have many banks asking to join such a platform to offer them financial services. so it's an upside for customers by having taulia in our portfolio. dani: spending margins are in focus throughout corporate global companies. in the last quarter when you announced earlier, we saw operating margins up slightly due to expenses from staff and from the spinoff as well. how do you plan to keep costs in check in this very difficult environment? >> you always have a high focus
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on productivity but as we also announced 15 months ago with our new strategy, when are going full steam into the cloud and our strategy is working. we increased our cloud backlog in a substantial way. we are offsetting that and let's not forget, we also have our commitment that from 2023 onwards, we will have operating profit in double digits. manus: on this subject of margins, we talk about microsoft, amazon, we talk about you. all trying to be this insatiable need for the cloud, which then brings me to a very simple
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question. explain to the global audience where we are in the evolution of margins? have we seen the peak of margins in cloud because it is so competitive, or do you expect it to grow? >> first of all, sap, we still have 30,000 sap customers and they all want to move to the cloud. this is why we are so bullish with our outlook for 2022. now of course we are partnering with them, complementing their offering with our offering. that already gives us an even stronger position in the market. dani: christian, one of the
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things that's been deeply disrupted by the pandemic has been business travel. you have a travel expense management unit, and what point do you expect that to normalize, to get back to pre-pandemic levels? >> we've already seen in our business in north america, and were expecting in 2022 for the recovery in the rest of the world. we're staying really optimistic we've close some significant deals in the midst of the pandemic. we have the market leading solutions, we've seen it in north america and the rest of the world will follow. dani: christian, thank you very much for joining us for an exclusive interview. coming up, deutsche bank's most profitable year in a decade. we will recap the numbers from the german lender. all of that next. this is bloomberg. ♪
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dani: welcome back to bloomberg "daybreak: europe." i'm dani burger in london alongside manus cranny in dubai. jay powell indicating he will stay humble and nimble. the markets not looking so humble today. the hang seng on track for record low, falling as much as 4.9%. something is moving three standard deviations or more. it is yet again another volatile day. manus: the renminbi is certainly on the move, down by .4%, the dollar rising. it's in the rates market when you begin to see what is happening. morning the usa and going
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global, quite literally. we are in a bear market. hang seng, tech at a record low. in four weeks, rates have gone to 1.2. the market has doubled its rate hike. this is asian stock performance at the moment and the hang seng tech index down 4.8%. this is a brutal repricing of all things equity and a slow down. dani: it's remarkable to see what the two year yield is doing. we were talking not that long ago and now were looking at a two year yield at its highest since 2020. you continue to see the curve flattening with all the action on the front end here. manus: this is the real rate we chatted about this morning. this is a break for zero.
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on 30 year real yield. dani: they are taken off that underweight, or adding to it. that's it for us at "daybreak: europe." ♪
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♪ francine: good morning. welcome to "bloomberg markets: europe." i'm anna edwards live in london. mark cudmore joins us from singapore to take us through the market action. the cash trade. is less than an hour away. fed left off. jay powell bakes in a march hike and does not rule out tightening at every meeting this year. equity wipeout. global stocks sour on the fed. bridgewater sees a much bigger
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