manus: investors prepare for a week that will bring great decisions from the fed, blink of england, and the boj, with concerns about inflation running high. janet yellen says the risk is small and manageable. new data shows the extent of china's economic resurgence year after the coronavirus lockdown.

investment sore more than 30%. astrazeneca insists its vaccine is safe. this despite more countries banning the shot. there are concerns about blood clotting and adverse reactions. and rent has risen to around $70 per barrel -- brent has risen to around $70 per barrel. is this the last year -- boom year for oil? many people have called the demise of oil before. a risk on tone to the week. central bank announcements abound. a trillion dollars has flowed into equities in the last months and will the wash of money continue? the nasdaq has topped out relative to the s&p 500. we are in an epic reversal.

deflationary nasdaq, topping out, and an inflationary russell. this employee says 2020 marks an inflationary low point. i show you the rates market because some would say it is a wonderfully rich page. $15 billion flowed out of the bond market last week. that is the most in a year, as it yields still encroach in the highs from 2020. is there a benign neglect on the communication from the fed as opposed to the explicit and exacting nature of the rba? we talk about inflation, we talk about wages and full employment near 3%. i love that phrase -- benign neglect. look at the aussie 10 year,

catching up magnificently. keep an eye on the rba and kiwis as well, they set the pace. the bite back that comes from australia and new zealand is probably what other central bank need to follow. juliette saly is tracking the latest from singapore. juliette: rates rising, equities a little flat in asia. we continue to assess the economic data to the strong recovery. a patchy recovery and you're seeing the csi 300 down. volatility doubling since reaching 13 year highs next month. we are seeing hong kong stocks doing well, other tenants and has been falling for a second session, with traders worrying the chinese government could step up oversight of their business, including fintech and games. the nikkei higher in the afternoon trade. we are watching this search come through in airline stocks in the

region. we have the oil story on the one hand, talk of a trouble bubble, and air passenger volume in china for february. the airline index at a january 2020 hi, rising the most since november. manus: thank you, juliette saly. let's get up to speed. simone? simone: thank you. astrazeneca insists is covid vaccine is safe despite more countries banning the shot on fears of blood clotting and other adverse reactions. the company's careful review of the data shows no evidence of increased risk of pulmonary embolism or clotting, but at least 13 countries have halted vaccinations. 17 million people have been given the jab in the u.k. in europe. reluctance among republicans for receiving a vaccine is one of

the guest risks of coronavirus control efforts, according to dr. anthony fauci if you'd he said he would like former president trump to urge supporters to get the vaccine. >> i think it would make all of the difference in the world. he is a very widely popular person among republicans. if he came out and said get vaccinated, it is really important for the health of your family and the country, it seems inevitable that the vast majority of people who are his close followers would listen to him. simone: german chancellor angela merkel has suffered her worst election defeat as voters in two states attacked the government handling of the coronavirus. support for her party fell four points to just 23% compared to 2016, with the greens and social democrats consolidating a hold on power. the elections of the first time voters have been able to express

a view on merkel's virus strategy. police in london under fire after arresting mourners at a vigil for a woman of ducted and killed. officers moved in after hundreds of people gathered at an unofficial memorial to honor the woman, who was kidnapped. a police officer has been charged with her abduction and murder. the metropolitan police service says the mourners were preaching covid-19 restrictions. 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. i am simone foxman. this is bloomberg. manus? manus: thank you very much. a huge week for central banks. we are going to get rate decisions from the fed, boe and boj. policymakers will have to confront investors betting on a return of inflation amid extent to should's of a stronger rebound. treasury secretary janet yellen

is once again playing down fears. >> is there a risk of inflation? i think there is a small risk, and i think it is manageable. i don't think it is a significant risk, and if it materializes, we will certainly monitor for it we have tools to address it. manus: my guest from aberdeen standard investments. janet yellen says it is small, manageable and not a significant risk, inflation. you say we are reaching into an unstable equilibrium. what do you mean by that? good morning. james: good morning. it relates to financial markets in the u.s., but other facets as well. we came into the year with markets embracing a very high degree of consensus.

2021 was going to be a good year, a cyclical year, a reflationary year. we were going to see strength in risk assets. weakness particularly in u.s. treasuries. weakness in the u.s. dollar would assist the strength in emerging markets and commodity prices. and unfortunately, what we are seeing is that equilibrium is not stable. the costs are the role of the u.s. dollar, treasury yields are rising and underperforming compared to other yields, it is a tailwind for the dollar, and when the dollar begins to really, it becomes a headwind for emerging markets. something you mentioned this morning, rising treasury yields

is also really driving this right rotation underneath the hood of the equity market we are seeing. which is to say, spelling growth and buying value. manus: let's just dig into some of the narrative. from the moment you, from my reading, you are uncomfortably dating the growth game, which allows you to buy the dollar and continue to go up that road. how comfortable are you being long the dollar and where are you most comfortable being long on the dollar if you believe the growth story? james: not particularly comfortable with most anything because of this notion of unstable equilibrium. the potential for things to turn around and reverse quickly.

i think we are seeing that, the market is struggling to find clearance for a lot of assets when it looks of the price of other assets. i am holding the u.s. dollar particularly against countries that are incredibly cyclical or have idiosyncratic weaknesses. i think the idiosyncratic stories are more procedural positions and the cyclical ones are more from the fact that we overshot in the short term. and china is at the leading edge of the post lockdown recovery. it is starting to show signs both from a data perspective and policy perspective of slowing, shall we say, managing the economy in a different way, which is likely to lead to less positive global impulse and less positive growth impulse. the south african rand is particularly weak, brazil, these are currencies where we see

procedural and structural shorts, and the australian dollar is one where we express sequela to -- cyclicality. manus: we will dig into the china story in a moment. one thing that caught my this morning was reflecting back as we go into a huge week for central banks. i look at the rba from last week, a gutsy call, wages above 3%, a substantial rise in inflation between 2%-3% gains. what is the risk -- i love this phrase so i will spank it to death -- benign neglect.

james: it has been around a while, irresponsible has been used in the past. there has not been anybody who can credibly prove the opposite. understanding inflation, the macro frameworks for understanding inflation are not particularly good, i don't think they've ever been particularly robust. because of changes in the way many things operate and the way people shop, first and foremost, and the way companies conduct their businesses, there is so much going on. is there potential for inflation to be higher in the next few years than we have become accustomed to? absolutely yes. first and foremost, technically, but secondly, the magnitude of the system.

operating together at the same time. it raises the potential for prices to be rising to a greater degree than we have been accustomed to. absolutely that is true. to central bank have tools to deal with that? yes they do. whether they have the will to deal with that is the question. unfortunately, when it comes to that decision, they are probably going to have to make a decision between financial markets in the real economy. inflation will come at the cost of disruption to the financial markets. and by that i mean dramatic weakness most likely. financial markets at the moment are priced on the assumption that rates will stay low forever. if central banks decide the rate has to go up, it could go up more aggressively than anyone expected. manus: just to get a little guidance, just very briefly, the

rates market is already beginning to price more aggressively than the dot plot and the guidance. what is the risk of a sharp response from the fed that leads to a chaotic response and unwinding? the markets are going to test the fed, aren't they? james: they really are and i don't know where the line will be drawn. i think the central bank is going to err on the nine neglect you talk about and that's why the market is so uncomfortable. they see the potential for the fed to once again prioritize financial markets over the economy, and in this circumstance, that would allow inflation to run hot or than would otherwise be the case. if inflation can run hot, we don't want to be in government bonds. manus: we will all have to grapple with what is average

inflation targeting. james, staying with me. james athey my guest. plenty more to come on "daybreak: middle east." this is bloomberg. ♪

manus: we have the latest data this morning out of china, the economic activity surging the first two months of the year. retail sales and industrial production beating estimates with an eye-popping rebound. it underscores the continued strength of the v-shaped recovery a year after the first virus lockdown. james athey is an investment director at aberdeen standard. splendid this and exceptionalism can be manifest in the data and is industrial production the market will hang its hat on. for you, when you look at these growth levels, that china is

putting on the table and we may get from the u.s., how do you divine where you allocate more, and into which basket? james: i think producing growth of an acceptable magnitude is not china's problem. china's challenge is producing growth of an acceptable magnitude that is sustainable and that is not once again being demonstrated by these numbers. china recognizes this. we hear this from the last few days. growth has relied on exports and debt to funding to increase capacity, which is not required. these are not sustainable trends. china needs a greater share of consumption in its growth, and unfortunately the data is still showing that is unlikely to be the case in the immediate future

and it is a real challenge in the long term. for example, if i did expect china to continue driving investment led growth using debt, countries which take things out of the ground and sell them to china, or countries which are part of supply chains for the production process would be places to allocate capital, so that would be australia or germany. china is telling us that's not likely to be the case in the second half of the year. i think you can see the best of those trades and it's one of the reasons commodity prices may face more headwinds than the markets currently have. manus: we will have to leave it there. that is the headwinds for china. we will see you again. james athey from aberdeen standard investments. plenty more to come on "daybreak: middle east." this is bloomberg. ♪

manus: gulf sovereigns raised about $60 billion in bonds last year, an all-time record. the goldman sachs economists say the party could be over. simone foxman has been watching the headlines and went me from doha. goldman sachs culling atop on the issuance -- why? -- goldman sachs calling a stop on the issuance, why? simone: if you look at physical breakevens, it's roughly $67.85 per barrel and we are at 69.70, and that's why we are getting these projections from goldman essentially saying look, these countries would have needed the

issue, about $270 billion worth of debt over the next three years if oil prices stayed at $45 per barrel, but if they go up to 65 barrel -- a $65 per barrel, on average, the number comes down to $10 billion of debt that needs to be raised. we are essentially seeing oil prices completely change the economic outlook that a lot of these bcc countries went into the year with. i'm sure there are folks like bahrain who still have physical challenges but there are others like qatar, saudi, the uae, that will find it easier to bridge the fiscal deficits. karen young adding to the commentary around the issue that is going back and forth, she said these government's better take advantage because this could be the last hurrah for oil. manus: the last hurrah. i've had a lot of people call the death of oil in the last 32

years and sometimes they have been wrong. the uae, it is reported it may soon become compulsory for liquor companies to have women on the board. what are the details? simone: a big shift here. the uae central bank, kind of a cross industry organization that seeks to further women in the workforce, they signed an mou yesterday, and after that, the head of the securities and commodities association came out and said what they want to do is get a woman on every board of a publicly traded uae listed company. if you look at the numbers, this has been a keyway to involve women more in the workforce. 20 and -- 28 out of 110 listed companies have a woman on their board but when you look at the actual composition of the board

members, board of directors, the board of directors, just 29, or roughly 3.5%, are women. trying to get women in more roles of power is the key. it looks like this will be something played out at the heads up. and we look at the board of directors, we will have to see the deadline to get the women on these boards. manus: a ship -- after washington seized an oil tanker, they claim it is from iran. have they stood that up and what is the potential for an escalation of conflict? simone: this is an incredibly convoluted and complicated story. essentially what happened is a company that was controlled by

the ruler of an inner it -- em irate sold this to a chinese a company -- company in october. the owner said the oil might be from iran. the ship went to houston and unloaded its oil and now it is in the u.s. system. this underscores the difficulty with which the united states is trying to enforce its sanctions on iranian crude. those have ramped up a bit in the last few weeks. reports out about crude, iranian crude clogging up chinese ports. again, sort of a real-life nitty-gritty demonstration of the challenges that are here. also, the ruler, on uae

executive committee. there is probably a level of geopolitical angst that will go back and forth between the uae and the united states, both of which are close allies. manus: ok, thank you very much. simone foxman in doha. it has spun above $61,000, over the weekend, bitcoin has come back slightly. in the last five days, this breathless rush. let me show you the relationship to gold. here we go. the relationship between bitcoin and gold has reached another record. we blew through the $61,000. this is the kind of symbiotic -- not symbiotic, the kind of relationship where we see the explosion in bitcoin as a defense perhaps relative to the traditional haven, which is

gold, swiss franc, etc. the modern-day store of value. because there is no such thing as a safe haven. there are only havens. this is bloomberg. ♪

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(announcer) do planks for maximum core and total body conditioning. (woman) aerotrainer makes me want to work out. look at me. it works, 100%. (announcer) find out more at aerotrainer.com. that's aerotrainer.com. manus: this is bloomberg "daybreak: middle east. a week that will bring decisions from the fed, the bank of england, and the doj. janet yellen says risk remains small and manageable. new data showing the extent of china's economic resurgence. industrial production. retail sales, fixed asset investments all sword more than 30%.

astrazeneca says its covid vaccine is safe despite more countries -- there are fears of other adverse reactions. brent rises to around $70 per barrel. is it the last boom year for oil? let's check in on the rest of these markets. juliette saly in asia. it is the china data which has held some of the momentum. what is your take across the assets this morning? >> we still have those liquidity concerns. otherwise upbeat session across asia even though that data out of china was impressive. the csi extending its decline now down over 2%.

we are watching bonds tumbling in australia, new zealand. treasuries in the u.s. on friday. when you look at the japan 10-year note, there is upside there. the 10-20 year range with how perform. the airline stocks, the reopening potential of a bubble between singapore and australia. the bloomberg airline asia-pacific index at highs. upsides in the chinese airline as we see faster volumes in china rise up by some 187% year on year. manus: city about how much further the rotation trade. what are the details? >> 20% upside to the value rotation.

saying that the value on performance is really rising. they say the rotation will be capped by the 10 year, preventing treasuries from selling off further. they say there are two scenarios that could reverse this trend. a central bank in prevention perhaps not stabilizing in the bond market. they are saying that value investors should be enjoying this rotation while it lasts. fiscal policy means there will be some natural caps on real yield. manus: thank you very much. necessary or extractive fiscal policy, that is a big debate. a strong recovery from covid-19 recession. likely prompting fed chair jerome powell and colleagues to lift interest rates in 2023.

but that will not just show up in the forecast. according to the bloomberg survey of economists. let's look at the implication for the markets, for our region. abdul, great to have you with me this morning. you warned on drawing comparatives between this taper less tantrum that we are in the midst of and the taper tantrum that was very real. you make the differential through the extra premium that is required. >> i think if you look at what we looked at, the reaction of credit spreads on the jp morgan emerging-market bond index. to the taper tantrum in may 2013.

basically, we saw that when fed chairman bernanke used the word taper, you had obviously the sharp selloff in yields. the initial reaction was very sharp. the spreads widened from about 280 basis points to almost 400 basis points. you have not seen anything like that this time around. that has basically been flat. you had maybe four or five basis points above volatility even though the 10 year has moved in percentage terms almost the same, but 80% between 90 basis points at year end and 1.6% now. i think one of the big reasons is because the market is pretty clear about where the fed stands, what the fed is going to do. they understand there is no

longer a hard to percent inflation target, they are targeting average inflation. i think the market expects the fed to let the economy run hot, to let young -- to let long-term yields move. they are not panicked about the fed to stepping in and either tapering or starting to raise rates. that is why you had a much more orderly moved this time than in the taper tantrum. manus: these moments where we have seen perhaps a backup in yields allows for you to, what, and duration and stepped more into high-yield at a better level? >> the sharp move has already happened. what that has done, if you look at the returns in the emerging-market bond space, they are pretty much negative year to

date across the board. obviously, much more in high-grade versus high-yield. i think what the lack of spread widening means, the move has been entirely on interest rates. if you believe like we do that a lot of the move as happened and we expect some form of stability on the interest rate side over the next few months, we think it will be relatively range bound between 1.5 and 1.6. we think that, at that level, the spreads should start stabilizing and the total return opportunity in emerging-market bonds is fairly good over the next few months, particularly on the high-yield side. manus: ok. perhaps just digging into some

of the market here, we saw the imf shift in terms of the budget deficit that they expect, one third of what it was in 2020. we have seen quite a significant move in the spread over the rest of the market from distressed territory, compressed quite aggressively. do you think the market might trade fully valued with no bailouts, just showing the oman 2048 bond spread at the moment on the screen. >> i think that oman has obviously been a pretty good performer, particularly in spread terms. i think the main thing to keep in mind, the deficit has come down, the higher oil prices will

continue to help, the fiscal austerity measures will also help. most importantly, i think they have done most of their funding, the bank loans that they have done. i think a large part of that funding gap has been filled for this year. i think the market does feel that the need for any gcc support in the near term, and given the fact that oil prices are likely to stay around these prices if not higher as growth continues to rebound, will mean that oman will have the breathing space to try to work this out on their own. in the spreads have clearly shown that. in terms of whether there is more to go in spread terms, you had a pretty strong rally. but, within the region, we still favor oman primarily because of

the spread protection it gives you. countries like saudi, abu dhabi, some of the other issuers. i think the market has rightly seen that oman is headed in the right direction. the spreads have performed. at these levels, we like oman. manus: ok. the head of fixed income on the markets. thank you very much. let's get a little bit more on the inflation debate. janet yellen says -- one of her predecessors disagrees. larry summers thinks there is a substantial risk of rapid inflation ahead. neil ferguson, senior fellow at stanford's hoover institution, spoke to the balance of power and david westin.

>> a simple view, i think there is a one third chance the fed will stay behind the curve, inflation expectations will ratchet upwards, and we will become an inflationary country for at least a time above the 2% target. a second risk is that the fed will respond, that given all the things they have been saying, their sharp response will be unexpected by markets. as has been the case in the past when the fed has had to step in to stop incipient inflation, it will be a chaotic process. i think there is a one third chance that somehow the needle will be threaded and we will enjoy a period of very rapid growth and there will be a smooth exit act to reasonably

rapid, reasonable, ok growth. but i think that we are taking very substantial risks, both on the inflation side and on the fiscal monetary collision side. that is why, if things continue on trend, interest rate in the first quarter of this year will have gone up faster than in any year in the last century. except for 1980. that is why you see increasing numbers of indicators pointing to more rapid inflation, pointing to the development of possible labor shortage. so, i think there are very substantial risks. on the path that we are on.

>> you roadie terrific piece for bluebird opinion on the subject of the history of inflation going back to milton friedman. i must say, i have youngsters in the newsroom who come up to me and say, i was not around for inflation last time. how does it work? is it in anywhere parallel to the 1960's and 1970's? >> i think it is worth looking at the 1960's because i suspect younger people have a hazy idea of what happened with inflation before they were born. the typical view is that it is something that happened in the 1970's because of the oil shock. that is not quite right. in the 1960's, in the first half of the decade, inflation was low. in the mid-1960's, it took two big jobs. first 3%, then up to 6%.

that is the moment that inflation expectations begin unanchored. i think the key is what we can learn from that experience. that predated the 1973 events that caused the oil shock. it is largely blamed on the states -- and indeed people at the fed at the time acknowledged by 1968 that they got it wrong. the view was that monetary aggregates had been growing too fast and that was the reason things went wrong. my view is that is kind of a simplistic view. it is kind of tautological to say that inflation is always and everywhere a monetary phenomenon. it is partly a physical phenomenon. if you do really large fiscal deficits, that has potential inflationary consequences. the key is expectations. manus: debate and debate as they

did there. the u.s. treasury secretary -- the former u.s. treasury secretary larry summers and hoover institution's niall ferguson. quite unsettled despite industrial production data this morning down to end one third percent at the moment. -- down 2 and 1/3 percent at the moment. $15 billion going into this market. something very unsettling here wendy csi is dropping at this rate on the back of what was moderately ok economic data even though the unemployment numbers were a little bit upsetting. the nasdaq goes negative through the morning session on the futures. this is bloomberg. ♪

manus: equity index -- the dubai equity index led the gains yesterday. let's look deeper in the market. oil flirting above $70. what do you think will drive us today? >> good morning. as you mentioned, dubai was the best performer here in the middle east yesterday where we looked at the equity gauges. we have to pay attention in the

upcoming sessions. developers that are listed here in the uae, including -- the stock was up 2% yesterday and 1.7% higher, 3.4% so far this year. this stock has a lot of catch-up to do. plan in dubai just released in the past few days. we expect it to surge around 76% in the next two decades. capacity by 400%. of course, this is a very long-term plan. trying to understand and question what could be controlling the near term. if this is a trigger, this could

be a post for those investors trying to take advantage of the real estate names. manus: expansion in egypt, we understand. >> that is right. very interesting deal with could see some reaction in the market. the market, abu dhabi is the biggest in the uae as we speak within those listed names. gaining to buy 51% on october 6. cairo, the answer is we can already see a quite positive reaction to those views. the stock was up 7%. 4-7 percent higher, the biggest increase since november. basically, offering to purchase

the shares at between 18 and 19 egyptian pound. that is a premium of what the stock is trading right now. this is part of a broader plan to expand outside of the uae. it is an upscale property developer in egypt, and many analysts and people we spoke to said this is a quite interesting move at this moment. so, -- manus: thank you very much. more ahead on "daybreak: middle east." this is bloomberg. ♪

manus: astrazeneca is under increasing pressure as more countries say the shot has caused blood clots and other issues. the company issued reassurance that the shots are safe. a safety advisory board agreed. he told bloomberg the data says continued use of the shot. >> there have been people with blood clots and other conditions following the vaccine. this is not an -- not

unanticipated. there will be a raft of conditions after vaccination just by chance because they are happening all the time in the background anyway. >> do you think it is appropriate that vaccinations with the astrazeneca vaccine are halted when some of the inquiries are happening? or do you think, given how much the virus is circulating in some of these countries, that they should proceed with vaccinating people and using that particular vaccine? >> what we are seeing here is an abundance of precaution. nobody at the moment thinks that this is caused by the vaccine. but they wanted to be very cautious anyway. some of these countries have a lot of covid. covid itself causes blood clots. i think you have to be very careful because it is also sending a message that there

could be something very wrong with the vaccine when in fact it is very unlikely. >> we have to remember that these vaccines have largely been given emergency use authorization. they are not fully registered. do you think that -- while they by and large have shown to be safe and effective, developing our understanding of these vaccines? >> the processes, and they have undergone appropriate trials. the -- also, an enormous number of people who have received the vaccine. tens of millions of people. so we also have quite a lot of data already. i think that we are way beyond

the experimental phase. we are at a stage when we need to appreciate that these things are going to keep coming up. we are doing massive vaccination campaigns and people get sick all the time. we can panic every time it happens but we also need to take percussions. -- take precautions. manus: let's show you a live shot of beijing. we are looking at air pollution, which is at a fairly critical level. an origin sandstorm is bringing the worst air pollution since 2017. it originated in mongolia, sweeping across most of northern china. this is what is bringing the air quality index to 500. that is well above health emergency levels. you have limited visibility, cannot see more than about 1000 meters in front of you.

social media is rife with pictures of this dust enveloping this city. it is the worst sandstorm in years. children and elderly people are advised to stay indoors. air quality is expected to improve tomorrow. let's stay with the china theme. good industrial production, retail sales, and production. the unemployment numbers were not phenomenal. the csi down 2.5%. there is some discussion about tight in the repo market. short-term money market rates. take your mind back to january when there was a constriction. china down 4.5%. cyclicality bearing down on the nasdaq, down by 0.8%. it is hardly a huge move. it sets up the european

narrative, as we go into the next hour, for the narrative. china comes under pressure. cyclicality versus growth will be a debate. let's see what happens to the technology. annmarie hordern is locking and loading. this is bloomberg. ♪

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