manus: good morning from bloomberg's middle east headquarters in dubai. it is "daybreak europe." raphael warnock edges ahead of the republican incumbent in one of the two senate runoffs. both a little too close to call. equities fluctuate. boris johnson says one person in every 50 in england has covid-19

as chancellor merkel tightens germany's lockdown to contain the outbreak. hong kong authorities arrest another 50 people in the national security law's biggest week. the incoming u.s. secretary of state denounces the move. london,e 6:00 a.m. in 7:00 a.m. in paris. i was torn between oil ripping it up and the bond market, but the bond market -- the meat-eating bond traders have made the decision above 0.1%. i know you like a breakeven these days. jp morgan is positioning the shortest since 2019. it will hang on georgia. anne-marie: it certainly does. if the democrats are able to pull off these seeds, it's going to meet a flood of stimulus. i would say the oil price moving higher of course also tracks

what we are seeing in breakevens. morning?we trade this relatively flat across the asian equities. s&p 500 futures extending lower more than 0.5%. the dollar unchanged at the moment. since drop the most february 2018. we want to move alongside. that brent price, saudi's delivering this really epic surprise of one million barrels per day cutting from february and march. everyone was caught on the back foot. his royal highness the energy minister just saying it as a preemptive measure potentially. yearhere you have the 10 yield. below 1%, though we did breach it. 0.998%. you see the steepening in the

fives and 30's. this is the widest we have seen on the 5-30 spread since november 2016. that was reflation trade. where exactly back today. everything is in play for georgia, where the senate runoffs determine control of the u.s. senate and the fate of joe biden's agenda. the races are still too close to call. for the latest, let's get to derek wallbank. too close to call at the moment, but we did have some thing from the decision desk in terms of one of those seats. decision desk hq and other people have said they think raphael warnock is going to win in his race. the ap has not called any of those races. certainly if you are looking at the totals right now, you're doing a little bit of math, you would rather be warnock then kelly loeffler.

warnock has claimed victory and said he is going to the senate. leffler says she has a path. jon ossoff versus david perdue is a little bit closer. you would still probably rather be the democrat jon ossoff. but that race is very close and the nominal account we have, the republican is just slightly ahead, but also off -- jon ossoff votes are still out. to come in, there is a lot more democrats than there is republican territory. where is the biggest battle going to be? senate,n't take the where are biden and harris most compromise? >> whoever takes the senate gets the agenda. the simple act of getting your things on the floor for an up or down vote.

i think you start with nominees. you start with biden's cabinet. basically mitch mcconnell has to agree to even put them up for a vote. he said he would do that, but it's a lot easier if you have a democrat. lastu think back to that supreme court nomination that president obama made, merrick garland, he did not even get a vote in the senate. happen -- that does not if democrats run the chamber. at the very least, biden is allowed to get a vote on whatever he wants. if democrats run the place. manus: thank. derek wallbank. senior editor on the political front. street's head of emea macro strategy, good to have you with us to set the stage. we are on a knife edge. what do you fear the most if biden does not get the senate

and we don't have a blue sweep? what is my risk? >> the biggest risk was just mentioned. the inability to govern. not just to set the agenda, but the appointees, to get them cleared quickly. it is still too close to call, but assuming the trends in the late vote go the democrats' way, they can wrap this up quickly, get their appointees cleared, have the up or down vote and have them approved. not have to fight a lot of very small battles in the early stages of the administration that derail any other plans they might have had. risk.ould be the biggest spending the next six months to a year in gridlock over names as opposed to actual governance. annmarie: if you are just waking up, we did have the 10 year yield going through 1% for the first time since march. tim, does clarity in u.s.

politics coupled with rising commodity prices open up the bond market to more declines from here? tim: over the long-term, it does not stop in my view. over the short term there is so much spare capacity in labor markets. economies are heading back into lockdown. i don't see it short-term simply because of those factors. demand is likely to take a big hit in q1 yet again. economies in europe likely to have small double-dip recession's. those are going to end very quickly as vaccination rollouts proceed, but for the time being, that does temper the inflation outlook. at the same time, long-term, we have all this stimulus now. a very easy monetary policy backdrop. the second half of this coming year, that will be a very reasonable expectation. + -- you set the stage as

being overweight equities and bonds and moderately constructive on risk. what would it take for you to shift from the moderately constructive stance and where would that deployment go to? the shift from moderately to more pro-risk, you would theably have to see excessive stimulus that was predicted as part of a broader blue wave scenario prior to the u.s. general election. toch i think is still likely be more on a knife edge because the democrats may well when the senate, it does not mean that a green new deal or medicare for all is likely to see the light of day. you still have enough centrists who might push back a little bit against that. that would create a positive risk scenario. the opposite would be inflation perhaps rising a little faster or earlier than anticipated. that cuts into financial conditions somewhat via higher

rates. that would be the risk to the downside. annmarie: you took me to what i wanted to talk about, breakevens piercing 2%, following commodity prices higher. is this a perfect storm for inflation to finally come back into the fray in 2021? tim: it is building. i would not yet characterized it as a perfect storm. breakevens are just getting back, as your chart shows, to levels we were seeing 12 months ago. there is room looking over without indications of an inflationary problem. the potential is there because of all the stimulus that has been enacted and especially because of new mandates from central banks like the fed who are willing to let inflation run hot. i see this more as returning to normalcy. as opposed to nascent now.tionary booms right

my guestt --manus: said inflationary markets are fully priced, we may see more in corporate bond yields. i'll be returning to pre-covid levels? he's just we have further compression to go. would you skew more toward the bond side and if so, where? tim: with a view for the next three to six months, it is like that to be more subdued. i think that is the central scenario. there is room for spread tightening. as corporate bonds and high yields especially become more ith, you have to wonder, if is the proverbial nickels and front of the steamroller trade. i think there is still room for positivity given what we see as a benign volatility environment and certainly a benign policy backdrop.

a supportive policy backdrop. stay with us this morning. coming up next, the race to vaccinate. the u.k. stepping up its vaccine drive is more than one in 50 people now have covid-19 in england. one in 30 in london. ♪

manus: let's talk about the virus. an ever worsening situation in many parts of the world. boris johnson says one in 50 people in england have covid as the nation steps up

vaccination plans. over have now vaccinated 1.1 million people in england and over 1.3 million across the u.k. than 650,000 more people over 80. one in four of one of the most vulnerable groups has in two to three weeks all of them a significant degree of immunity. in europe's biggest economy, the lockdown has been extended and tightened. angela merkel and state leaders agreed to limit movements and sharpen restrictions on private gatherings. maria tadeo is a reporter in brussels. give us a sense of how bad the situation is in germany.

maria: the number of cases and new infections have doubled since november. germany has been hit bad by the third wave, more so than the second and first. that was the message from angela merkel yesterday when she extended lockdown restrictions until the end of the month. the issue happening here is almost a double whammy. you are badly hit by coronavirus, but the vaccine rule out -- rollout is not fast enough to keep up with new infections. if they do not manage to break even on those fronts, also i would add to the political moment in germany is very delicate. there is an election happening. angela merkel will not be running. you see tensions between the spd and the other side of the coalition in terms of how to go forward. the cdu is trying to replace angela merkel. there is a lot happening on the political front. you have the economic aspect of this, the biggest economy in

europe. clearly when you look at the numbers in terms of infections, but also the vaccine rule out, that is not going to happen until spring. annmarie: where do we stand with ?odernity -- with moderna maria: we only have one vaccine that has been approved for public use, pfizer. that has been the criticism toward the european union. today the medicines agency should put out an update on moderna which should see that being approved. we should have two by the end of the day. the question is how quickly can you roll it out once it is given the green light by the regulator? we are expecting it will happen later today. still with us, tim from state street. what struck me was chris whitty giving a dose of realism saying this does not just end this

year, this winter. potentially as in november, december of 2021, we could see restrictions still. do you think the market is getting ahead of itself in terms of pricing in the timeline of the reopening of economies? so. i would not say when you look at the affordable -- economist forecasts for major economies, other than china, which seems to be performing very well, expectations have ramped backup, there is not really an expectation the pre-covid level of output will be attained for any economy other than maybe the u.s. by next year. you are talking about the euro zone, the u.k., japan especially. output is going to remain below pre-covid levels in real terms for at least another year and a half, two years. it is a shock to the system to hear that as someone who wants to get school back open and wants to get back to a level of normality, but at the same time,

expectations are still pretty modest for a recovery. manus: i know you have some homeschooling challenges. good luck today. good luck today. transition into how you manage money and risk this year. u.k. we are told, if things are not going to get much better before march, my question is back on negative rates, i look the market isper, still setting itself up for negative rates. doubt wethat lingering won't go there. do you think they will have to go there? tim: we discussed this yesterday. i would have thought -- a new deal scenario on brexit was a certainty. given there will be some vaccination rollout and output should start to return at some point later this year, it is

much more of a 50-50 call. i would probably have pushed to say they will go to negative rates because they have talked about it so much over the next 12 months or so. they have converted themselves and seeingg in it more benefits. i think it is very much a knife edge without that overhang of a no deal brexit. it makes it a much more, katie decision. annmarie: what about -- a much more complicated decision. is arie: they say this marathon not a sprint, this is a band-aid, they need more money. do you agree? how much more money? tim: this is why i think the monetary policy angle is so complicated. this is more of a fiscal issue. where i live, you look around and you see a lot of shops permanently closing.

you is theells support that has been received so far has not been substantial. i don't know the right amount, but i would say the fiscal variable is the far more important one to look at right now. that's why i suspect negative rates may be more of a complicated decision. at least you getting something on the fiscal front. the longer this proceeds, i imagine given how supportive the treasury has been so far, they will up those efforts if it looks as though the economy is headed for a double-dip rather than the more shallow double-dip. manus: what does that do to the pound? for ave had this moment politicians, but you have had it in the pound. is it capped out? tim: i don't see potential upside. there was good news priced into the market as far as positioning metrics. we have some fair value metrics

that basically show at fair value against the euro, the reaction following the brexit deal i think was very telling. there was very little upside. with the notion being the u.k. is about to experience a sharp lockdown, i would be more inclined to be a seller here. annmarie: very quickly, what do you make about the vaccine rollout across the u.k. and europe? one opinion columnist at bloomberg said it is botched. being on the ground and having expertise, i don't know. compared to other countries the u.k. looks to be doing just fine. i would love for them to be doing better, but relative to other countries, the u.k. seems to be doing ok relative to most countries in the world. manus: thank you for your time.

thisis lesson one for kids morning at homeschool? tim: the five-year-old has been very interested in commodity currencies against the dollar. he is kind of a momentum guy. we will be talking about that as part of his maths lesson. annmarie: it is a good day with opec. manus: annmarie is all up on the bribery on the schooling front. good luck with school today. tim, a multifaceted gentleman from state street. coming up, let's check on hong kong. again we are seeing major stories breaking. police have arrested 50 people on controversial national security law in the biggest sweep yet. ♪ are you frustrated with your weight and health?

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."nus: it is "daybreak europe hong kong police have arrested 50 people in the city's biggest sweep yet. this has been described by a variety of people as a big move. what were we expecting? were we shocked? click the hong kong government primary challenge over the summer was going to run afoul of the law. at the time no one thought those were serious warnings, but it turns out basically everyone who was involved in the primary come into lots of

democracies around the world, has been arrested. academics, lawmakers, former politicians. it totals about 50 people which basically doubled the amount of people who have been arrested under this controversial national security law since it was enacted in june. kong inable day in hong the sense there have been more people arrested in one day than over the last six months, basically. annmarie: we heard from the incoming secretary of state. what does this mean for the biden administration and their relationship with china and hong kong? >> mass arrests are coming at a time when the u.k. and the u.s. which have led the charge against china on hong kong, both withs are totally involved handling the virus and political

concerns. in the same way the national security law came about, the world was grappling with covid, kong,had pounced on hong china is biden's main diplomatic challenge when he takes control. people are telling us this is china sending a clear message to biden, the incoming and china thatn, warning they are keeping an eye on things. annmarie: thank you so much for your time this afternoon. coming, treasuries selloff. the 10 year touches 1%. yield curve steepen to the widest since 2016. ♪

annmarie: good morning, from bloomberg's european headquarters in london, i'm annmarie hordern with manus cranny live from dubai. this is "bloomberg market: the european open." raphael warnock ahead of a republican incumbent in a senate runoff. u.s. equity futures fluctuate. boris johnson says one person in every 50 in england has covid-19. it comes as angela merkel

tightens germany's lockdown. hong kong authorities arrest around 50 people in the national security law's biggest sweep. the incoming secretary of state denounces the move. i'm not sure where we begin on this third trading day of the new year. we have the surprise from opec giving a boost to brent, 10 year yield piercing 1%, breakevens above 2%. inflation coming back to 2021, all coupled with clarity potentially on the makeup of the u.s. congress, which is so pivotal in terms of how a biden administration will be able to lead and get their agenda done or not. absolutely, and that is potentially the biggest risk. tim saidflation front, there is enough slack in the economy, benign inflation through the front half of the

year, but it may reassert itself in the back. line, you were at the press conference, well done, salman, wem -- are the guardians of the oil industry. they ripped it up at a million barrels. annmarie: i was quickly going to it is theid responsibility and this is a preemptive measure. oneou are taking off million barrels a day, how bad do you think demand looks if you are going to do that surprise cut? ouchinge's keeping them like hell. watching, so he can commit to do the interview with you later on. we are on a knife edge, are we in bubble territory?

see people like jeremy grantham saying we are in an epic bubble. we are careening away from fair market value. let's have a look at brent, because ten-month high in the u.s., we are ouching like hell. brent, the breakevens also trading higher and the curb steepening to the steepest level since 2016 when we saw mr. trump come to power. presser oncting a the arrests we saw in hong kong, 51 people were arrested. let me show you the pictures of the news conference because the red headline was 50 people had been arrested in hong kong. has called it an assault on the city's democracy.

this is the hong kong police briefing at the moment. u.s. citizens were arrested. it is all under the new security law. annmarie: this controversial security law has come under pressure from the united states in anhers and unprecedented crackdown, it included an american lawyer and that is probably telling why we heard from the incoming secretary of state, tony blin ken. marlow said this is what he is hearing, a clear sign from china to the incoming administration. manus: the police arrested the lawyer who served at the treasury, the primary organizers. we will keep an eye on the headlines from that briefing and keep you appraised through the morning. investors weret

awaiting the outcome of the georgia runoff. stimulus, in more the wake of president trump's into theset's get markets. dani burger has been digging under the yield curves, fives, 30's, twos, tens. what grabs your eye this morning? dani: i've been a slave to the charts all day today. over the lastear couple of days, traders were waiting for this risk event to make their moves and they are doing that. they are positioning themselves. what we have seen so far for a democrat led senate. we see -- wanting to see more stimulus, more deficits. piercing 1%,yields but the pain is in the long. the 1% is a psychological

level, but we've got to keep our eyes at the long end of the curve. a pretty steep selloff, and that is when we get to the yield curve that hits its steepest since 2016 but the other election barometer is what is happening in nasdaq futures come off their lows. it was 1.4% a couple of hours ago, now down over 1%. traders say the fear here is increased capital gains tax as well as more cap ash corporate taxes so if you want to know how traders are positioning, don't just look at the yield curve, look at nasdaq futures as well. volatilitythe markets, traders are anticipating it is not just going to be today. this might be an event that takes a couple of months to wash out and we look at the vix arve, this jump is up to february contract, so this contract captures january 20, which is around the inauguration, so the fear seems at the moment for positioning that the stress is in the next

month, that we might not get the georgia results for some time and they're still will be a contested election, trump making different calls to position himself here. that might still have an impact on markets and volatility for the weeks to come. our thanks to dani burger. we will stick with georgia, the runoffs are too close to call but democrat raphael warnock has edged ahead of kelly loeffler in one of the races. democrats need both seats to control the senate. joining us, a former diplomat in the united kingdom. i have to start with your december 29 note. you say the georgia election down to the wire, but we expect republican incumbents to win. do you maintain that? good morning. well, no. i don't. it seems clear raphael warnock has won his race and the other is too close to call.

up 1300 votes,is but there are 90,000 votes left to count and they are primarily from counties we expect jon ossoff to pull ahead. past coupled in the of days is donald trump sabotage and republican strategists say if donald trump would have kept his mouth shut, the republicans would have quite , but the doubt's own about the process in georgia scared off some of his supporters and suppressed republican turnout. manus: good morning to you. with that in mind, if that is don'tse and democrats have a blue suite, where are the most compromised in terms of appointees? i ask not so much from the name, but policy implication? lew: if mitch mcconnell controls the senate, he will have a fair

amount of power over the confirmation process for joe biden's nominees, and he's been fairly clear he understands the president gets leeway in who he picks for key cabinet positions, but the republicans will be watching, looking closely at the nominees'cast policy positions and not so much on foreign policy, but domestic policy, secretary of labor, treasury, they will want to make sure the nominees joe biden puts forward are not seen as too progressive or liberal in their views. ends upd, if jon ossoff winning, if democrats win both these races, and we'll have more clarity in the next couple of hours i think, chuck schumer becomes the senate majority leader and joe biden has a much easier time getting his nominees to the senate. what does the race

tell us about trump's hold on the republican party going forward? well, it is an interesting question and if republicans lose both these races, that we can strum's hold on the part he going forward. not just these -- trump's hold on the party going forward. when they meet in washington to certify the results of the electoral college, do the object to joe biden's win in certain states were not? we've seen prominent republican senators say they will object. we've also seen republican senators say no, that is not the way it works, and we will not object. what we are seeing now is the future split in the party, and a split we will see over the next couple of years as upcoming leaders jockey for position of the next leader of the party between people who want to stay in the trump camp and those want to have a break with trump. what we are seeing from the races in georgia is if democrats win both races, the trump camp will be weakened and the people

who turn their back on trump i think will be in the ascendancy. manus: i just want to pivot to foreign policy as i'm sitting in the middle of the middle east. we've got saudi, uae, and egypt coming in from the cold with qatar in the past 24 hours. some say this is a coalescing of power against iran as biden comes into power. it will be a little more difficult for biden, let's say, with iran. does that make sense for you? lew: if does. always been fairly close to iran in the sense they share oil fields and work together when they need to. i think joe biden clearly has an interest and his team around him, many of whom were involved ofnegotiating the joint plan action, have an interest in revitalizing that plan in a different format.

i think that's going to be a project themt people anticipate and will take forer, but the main impetus saudi arabia trying to end the blockade and put this chapter behind them is to be able to start their relationship with ion with aadministrat clean slate. annmarie: we've heard from anthony blinken about the sweeping arrest of 50 people, including an american lawyer, in hong kong. and signalhis signal is china sending to the administration? do you think this is a signal to the biden-harris administration? and a fairlyit is, dangerous game. the biden administration will be more focused on questions around human rights than the trump administration has been and will look more closely at the human rights situation, not just

xinjiang, but especially hong kong. sure what china's endgame is here. i'm sure there will be some reset of relationship between the united states and china and joe biden and the crowd around him on the foreign policy front are pragmatists and understand the challenges of dealing with china. they will look to have a multifaceted relationship, whereas trump was really just focused on trade. they will want to focus on trade, but also look at human rights and more geopolitical issues and working with allies to do that. fors an interesting timing china to have this crackdown two weeks before joe is inaugurated. manus: it certainly is a strong message. great to have you with us discussing the machinations of policy. lew lukens, partner at signum global advisors. i want to show you live shots, the breaking news over the past hour.

message,nding a clear a series of arrests. 50 people arrested in an operation wednesday. this is the news briefing. a u.s. citizen has been included in that. dozens under this security law, the new security law. anthony blinken, former diplomat, has said the biden -harris administration will stand with the people of hong kong against beijing's crackdown on democracy. live foreign policy in the making for the new administration, biting at harris -- biden and harris, right here on bloomberg. ♪

manus: from london and dubai, it's "daybreak: europe with manus cranny and annmarie hordern.

david solomon spoke to bloomberg about support for small businesses. they need to get more people vaccinated quickly and the growth prospects for his company. david: small businesses are such an important part of our economy and they are so important in terms of how they employee, take care of families, contribute to communities we live and operate in and they have been so badly affected by the pandemic, and they need help. some help has come, but more help is needed. one of the things we are trying to do by picketing here on the congress know there are a number of things small businesses still need support on to get to the other side. they can see the light at the end of the tunnel, but they need help to get through the tunnel to the other side. >> a lot of this is about stimulus and joe biden has called the package down payments. what is the david solomon plan? what is needed in the amount

needed to save the economy? david: one of the things we've done over the last few months, given we have over 10,000 businesses, small businesses that have been through our program over the last decade, we surveyed them and talked to them and created 10,000 small businesses voices, and advocacy platform and asked what do you need help with? if you look at these placards on the lawn, they raise a number of issues of small businesses saying we need help with this. i would highlight three i think are important. the first, access to capital. capital to bridge them through this challenging period, something like the rishaad -- restart act. second, the need to support the people who need for wor -- who work for them, especially around health care. often, they are not in the position to take care of the health care issues of their employees and they need better incentives to provide health care support for their employees.

third, because people are working harder, given the challenges they face, they need more help with childcare and basic support so they can be present at work and make sure their children are taken care of while they are working. >> all of this as unemployment remains elevated and it is worse for black americans, hispanic americans, and asian americans. what did you think on day one is going to be joe biden's toughest task in fixing that? david: the toughest task is continuing to march forward to make progress on getting the vaccine distributed so we can get to the other side of the virus. there's going to be a lot of discussion about what additional stimulus is needed. we've raised issues this morning, but we are trying to get people focused on things we think need to be included in additional stimulus brought forward, but i think the big focus now is we've got to get people vaccinated, to get to the other side. >> a lot of the market had been reacting to vaccine hope, but

the rollout has been slow and it has brought concerns. how is that impacting your plans and the plans of your clients? >> there is still a lot of uncertainty and there is no question the supply of vaccine is growing. we are encouraged by the amount of vaccine out there, but we have to find more flexible, efficient ways to get the vaccine distributed and i'm hopeful in addition to the state actions taken around the country, it will allow the private sector to help with plans to get this vaccine distributed. there is plenty of vaccine. we need increased speed and efficiency to get that to people in need, especially front workers who need the support right now. >> is it moving fast enough you'll be able to bring goldman sachs employees back by the end of the year? david: i expect we will have employees back in full by the end of the year. we will get through this and i'm hopeful over the next six months, we see real improvement, but there is still work to be

done and once we deal with the people and the virus, feel safe, we are still going to have to deal with the economic consequence of the shutdowns and the impact on our economy this pandemic has had and that, i think, will be a bumpier, longer period of time. annmarie: that was ceo david solomon, goldman sachs chairman and to add a disclaimer, michael bloomberg, founder and majority owner of bloomberg lp is cochair of the goldman sachs 10,000 small businesses advisory council. we had breaking news in georgia. nbc is projecting raphael warnock is going to defeat incumbent kelly loeffler in the georgia senate special runoff, one of the two seats up for grabs. that, he would make history as the first black senator from georgia. this is coming from nbc news.

networksaiting other to come with their projections but for now, nbc is projecting that seat will go to warnock, the democrat. take charge,udis the kingdom announcing a cut in crude production. a bold move which sent crude prices surging. that story next. this is bloomberg. ♪

manus: it's "daybreak: europe." i'm manus cranny in dubai. saudi arabia has stunned the market by announcing a crude oil production cut of a million barrels a day in february and march. it was a sovereign decision. what does that mean? energy ando our commodities editor for north africa and the middle east paul wallace. they stepped forward, looked

large, did the big thing. why did they take the action? paul: yeah, the interesting thing about this apart from the size of the cuts was the saudi arabia and energy minister presented this as a political gesture. he mentioned the kingdom's crown prince and de facto leader mohammed bin salman as being the one people should thank for this gesture as he called it. the saudis made out this is not thechnical decision made by oil experts in the kingdom, but very much something that came from the very top of the country's leadership. interestingd an press conference, his highness calling about twinging the market.

they have been interesting, these pressures. paul wallace for bloomberg news. up there about to wrap show, the european open is next and with that, we have this breaking projection from nbc news that raphael warnock looks to unseat the incumbent kelly loeffler. it will be historic. this would be the first black senator from georgia, and we haven't had democrats controlling the senate in 20 years of georgia. a seismic shift. manus: the question is on the other side. is it going to come down to that one win for the democrats and will the other seat go in georgia toss off -- jon ossoff or purdue? it is so close on those numbers. as we0 votes to count came into this. fundamentally, the market is pricing a weaker dollar and what

is your favorite this week? the breakevens. than 2% onff more the breakevens, 10 year yield piercing through 1%. stay with us. this is bloomberg. ♪

anna: welcome to "bloomberg market: the european open." i am anna edwards live in london aside matt miller in berlin. matt: good morning. today, political risk drives the day. treasuries fall with u.s. futures as investors watched senate races in georgia, but european futures point to a positive open. the cash trade, an hour