♪ annmarie: good morning. it's 6:00 in the city of london. m -- manus cranny is off this week. here's what you need to know. jay powell expects a bump in inflation. yields dropped for third-rate -- a third day. eu is set to tighten export rules. severe disruptions to shipments could be on the way.

we have the latest from brussels. plus, the chips are up. intel will spend $20 billion to revive manufacturing and take on tsmc. intel shares jump. we will speak to the ceo later today. very good morning to you. it's wednesday, midway through the week. we are seeing a risk off tone in the market and demand for haven's coming into play. down day on wall street, bleeding into the asian trading session. msci asia pacific down 1.5% along the euro stoxx 50. one outlier is the nasdaq. potentially a reprieve in tech earlier today. we have a strengthening of the dollar. vaccines and the virus very much in play on the content. that's not happening any strength to the euro. the 10 year yield raking below 1.6%. the yield is down for a third straight day.

we are closing in on the 20 day moving average. strong demand on the 2-year note. today will be five years on the chopping block. we heard from jerome powell yesterday. he sees prices rising this year but played down the risk that would spur unwanted inflation. he said that pent-up demand and a low base will cause a temporary bump in prices. he testified along with janet yellen on the government's response to the pandemic. >> are best for you -- our best view is that the effect on inflation will not be large or persistent. >> we are seeing signs on recovery. the country is still down nearly 10 million jobs from its pre-pandemic peak. >> indicators of economic activity have turned up recently. household spending on goods has risen notably. spending on services remains

low. especially in sectors that typically require in person gatherings. >> with the passage of the rescue plan, i'm confident that people will reach the other side of the pandemic with the foundations of their lives intact. i believe they will be lifted by a growing economy. i think we may see a return to full employment next year. annmarie: those were the highlights from day one. less get more on the reaction from dani burger. >> we know market started the day pretty ugly and they did not get a lifeline from powell or yellen. they are sticking to an idea that inflation might words had -- might not rear its head. price will pick up but it will be fleeting. that will give investors the opportunity to scramble for umbrellas in the storm. we saw the u.s. 10 year yield cooling for a third day.

even the dollar got a bit in this environment. one thing that the markets really turned their attention to instead was the fact that we are not out of the woods yet. there's a quote from powell that emphasized what the overarching trait of the day was yesterday. he said sectors of the economy most adversely affected by the resurgence of the virus remain week and the unemployed meant rate underestimates the shortfall. let me show you what small caps did yesterday. this is where the pain was. that reflation trade. falling more than 3.5% yesterday. we went from a goldilocks idea of, forget about the economy running too hot with major economies closing, with the u.s. itself in the recovery. perhaps it's time to sell these more cyclical stocks. 3 thanks to -- annmarie: thanks to dani burger for the recap. joining us now is christine farquhar.

very good morning to you. thanks for joining us. you focus on credit so i want to start off with what we saw yesterday in terms of the treasury market. the 10 year low below one point said percents. -- 1.6%. does that set the tone? are we seeing a revival of money going back into treasuries? christine: i think those inflation hawks that wanted to make hay out of inflation fears have been set back a bit. the two-year, fine. it's the seven-year that we need to look out for. they didn't do so last time. that could be a slower option. annmarie: yeah. the seven-year had one of the biggest bid to call ratios we have seen. demand in the seven-year was low. given europe dealing with its vaccine crisis, what's going on in turkey, do you think we could

see more foreign demand coming to the market? christine: there could be more of a general pitch for the dollar. people were saying earlier, the risk off this week. that will come and go. the dollar had a bit of a setback. we think it will fluctuate rather than take a new direction. annmarie: that's our mliv question of the day. let's stay on the dollar. it is serving to strengthen even as treasury yields fall. could this actually maintain hold? christine: no reason why not, short-term. longer-term, the balance of where the growth is. europe won't stay down forever. we are likely to see some further improvement in other

currencies. right now, slight risk off. not sure where europe is going. a bit of trade tension. that will all be good for the dollar. annmarie: we are likely going to hear more about inflation today since it is day to of janet yellen in d.c.. do you agree with powell when he says it's a blip but it's not going to get out of hand? christine: yes we do. remember, it's the fed's duty to keep stable prices. they really matters. what we see in commodity prices and consumer prices picking up a little bit, coming off a very little base. we don't see this as a big turning point. cabbage associates, we are looking at it as a positive sign of growth but not a big risk

markets. annmarie: how hard do you think the fed's job in june will be if what we are seeing is optimistic growth coming out of the united states? kaplan was one of those dots calling for a hike earlier than 2023. christine: it's good to have a balance of opinion. remembering what the fed's other objective is, full employment, i think that is on his mind. politically, that still has the balance. no rush. annmarie: we have a question coming in this morning from one of our viewers asking if we can expect a major bull run on the dollar. if yes, what could be the reason for the catalyst behind that. christine: you can always point to circumstances that can do that, a shortage of dollars. demand, growth picking up faster in the u.s..

but the balance of probability is that it's not going to be a major alert. there is no longer -- i guess what i'm saying that there is no longer a catastrophe story saying, we have to get into the risk-free -- the yields on treasury bronze look great. you can build a picture which will support a bull run in the dollar. it's not the most likely scenario. annmarie: it's not the crisis that we saw exactly this time last year with money absently falling into king dollar. thank you so much. global head of credit investment group at cambridge associates. let's get a recap of the other news with laura wright. laura: a giant ship container is blocking the suez canal. it ran aground yesterday,

halting traffic in both directions down one of the world's biggest waterways affecting over 100 vessels. local tugboats are reportedly trying to reach the ship. no response yet from its operator. israel's fourth election in two years looks to have resulted in deadlock again. according to early results, the prime minister nor his opponent have a clear path to forming a government. if the numbers are right, the two sides will spend the coming days looking at possible alliances. if that fails, israel could face for the election. it's a blow to the reopening of cinemas across the world. disney says two of its most anticipated new movies will be on disney plus the same day they had theaters. lack without and cruella will be available to subscribers for an extra $30 even as cinemas reopen. moviegoers seem reluctant to return with the box office down 90% this year. global news 24 hours a day on air and at bloomberg quicktake,

powered by 2700 journalists and analysts in 120 countries. this is bloomberg. annmarie: thank you so much. just ahead, the eu is set to unveil a new vaccine export rule today, potentially hitting supplies to the united kingdom. we go live to brussels next. this is bloomberg. ♪

annmarie: good morning. manus cranny off today. just want to check in on the hang seng. we are nearing a technical

correction. we are down more than 2% this morning. this comes as the city is temporarily suspending the beyond tech vaccination. this is feeling worries in macau about the pace of the recovery that has hit their economies. the vaccine is incredibly needed to revive the economies. hang seng getting hit very hard, nearing a potential technical correction. on the vaccine front, european union vaccine exports could face disruption under tougher rules set to be unveiled later today. the eu is threatening to block shipments of vaccines to the united kingdom unless it can reach an agreement on sharing output from a new plant in the netherlands. after talks with eu leaders, boris johnson says he's hopeful for a deal. >> in this country, we don't believe in blockades of any kind , of vaccines or vaccine materials.

it is not something that this country would dream of engaging in. i'm encouraged by the things i've heard from the continent in the same sense. annmarie: boris johnson speaking last night. let's get more with our reporter in brussels maria tadeo. are we heading for more restrictions in the near-term? maria: yes. we are hearing flexing from the european union. we are looking at tighter rules when it comes to exports. not just the vaccines but also the ingredients to make vaccines. it can affect 19 countries. the united kingdom is one of them. the european union says the move is about proportionality and reciprocity of vaccines that are supposed to come into the eu. the timing is also crucial. it's coming prior to a european summit where european leaders will debate whether or not they want to enforce even tougher

measures on the vaccines. it's happening while the united kingdom and the european union fight over what to do with production of vaccines in the netherlands. we are headed to at least more muscle flexing in the european union. insisting that they want to see reciprocity and this needs to be a two side street. frustration is that the rollout of the european union has been impacted by delays now, in particular from astrazeneca. the mood here is very tense. annmarie: is it a case of whether or not its actual vaccines or ingredients to the vaccine, is it a case of you scratch my back, i'll scratch yours? maria: that's a good way to put it. it's with the european union will put it. we don't agree with the narrative that we have become an evil, bureaucratic machine that is snatching away vaccines. we are the number two producer,

the biggest exporter to other countries in the world. they say that they don't see the reciprocity. that's when you make the ingredients, that's key. the global supply chain is very complicated. they want to make this a two way street and make sure it's not just the european union export in vaccines but also receiving some of those ingredients. they blame this on companies that are promising too much and under delivering. they believe that they have been the damaged party, when you look at some of those contracts. that's exactly what they want to do. the problem is that escalating anything on that front could really risk severe delays in the global supply chain. this is a very complicated story on a global scale. annmarie: it certainly is, as you say. we will get more details later today. maria tadeo all over that. still with us is christine farquhar.

looking through your notes, you say what's going on in europe does not mean that you don't want to avoid investing in europe, but you want to be selective. walk us through that selection in terms of industries and assets to you -- you want to be exposed to. christine: absolutely. the vaccine rollout, a lot of uncertainty. the speed of that and also the take-up. it's bad for the consumer and markets. they don't like uncertainty. for investments, if the markets are happy, they are cheaper. there are opportunities, pockets of value. if you look around europe, the sectors that were in trouble before covid are still struggling. retail, where does that go? uncertainties around real estate markets. also, never forget how amazing

it has been in the progress on the vaccine. the whole health care sector, we see as getting a real boost in real terms. it's an opportunity to invest. not just in companies and equity, also on the debt side. markets are expensive. onto markets are ridiculously expensive. you can't see much else beyond european government bonds. private credit, where private companies have stepped in, there's a lot of opportunity. annmarie: i know you like credit -- private credit as well. are you worried about default risks? christine: we were getting worried. last year, we didn't know what was happening or what countries would be able to service those private loans. the experience has been absolutely excellent. the managers we work with and

the investments we put into our clients portfolios, cambridge has been focused very much on the senior rent. if you will lend money, you want good collateral, you want the person making the loan to get lots of covenants to protect you. remarkably, through last year, and we know what the trouble has been in the real economy, but the experience with the diversified portfolios that we are invested in has been default losses, less than a 10th of a percent. this didn't change. good underwriting. good managers. will diversified. senior debt done well. on the other, because the markets were very dislocated, and i think we will see this again, when the markets get dislocated, stuff comes up. people are distressed sellers. cambridge put a lot of money to

work very quickly, march and april of last year. committed to the new strategies. saw that money put to work. both the u.s. and europe. to a smaller extent, we have seen movement in asia pacific as well. liquidity coming through in the private credit side has been rewarded. senior debt, 2% more than public markets. you are getting double-digit returns. we are very pleased. annmarie: when we spoke about the fed -- i want to get your thoughts on the european central bank. we saw that they are boosting purchases. do you think what they are doing is enough? christine: it's an infinite story of having to keep things

moving, keep it together, do whatever it takes. interest rates, negative interest rates, lower for longer. it's looking like lower forever. that will change. market perceptions will change. as long as things are complicated, the vaccine rollout much more in certain in europe, it's a drag on growth expectations. it's a drag on the markets. ecb will still be there buying and supporting. annmarie: thank you so much for your time this wednesday morning. just ahead on the program, a giant container ship is blocking the suez canal. one of the world's busiest waterways. we get the latest. this is bloomberg. ♪

♪ annmarie: risk off wednesday morning. very good morning to you. let's look at traits this morning. more than 90 minutes away from the start of european equity trading. we are moving to the downside. we are seeing a flight to havens and safeties in asia. that's extending into the futures market in europe. euro stoxx 50 use -- extending losses. a giant container ship is blocking the suez canal, one of the world's busiest waterways. it is vital for the movement of everything from oil to consumer

goods. we will get an update from hall wallace who joins us from dubai. paul, how important is it for energy flows? what does this mean for the oil markets? paul: hi. it's a crucial artery for world trade. obviously, container ships, as we have seen from this incident, a million barrels a day go through the canal. it's crucial for gas and petroleum products. if this last for more than a day, it could cause major headaches for global shipping and energy markets. annmarie: the picture is just stunning. it is completely blocking anyone from getting through the waterway.

has this ever happened before, that we can learn from? paul: not really. there have been a few incidents where the canal has been blocked for a few hours because of container ships getting stuck such as in 2016 and 17. you have to really go all the way back to the late 60's and early 70's for the last major blockage of the canal. that was around the time of the six-day arab-israeli war. the waterway has been more or less open the whole time. if this goes on for a few days, we are into unprecedented territory. annmarie: this is certainly one to watch. inc. you so much for the update. this morning, oil markets are getting a reprieve now.

$61 and $.28. no clear winner, no surprise. israel's forced election in two years and once again in an apparent deadlock. we go to jerusalem next. this is bloomberg. ♪

>> good morning from bloomberg's european headquarters. this is "daybreak europe. here is what you need to know. jay powell expects a bump in inflation but says it will not get out of hand. powell and janet yellen had back to the hill for day to. the u.s. set to tighten vaccine export rules as fears -- we have

the latest out of brussels. the chips are up. intel will spend $20 billion to revive any fracturing and take on tsmc. we are going to speak to the ceo later on today. very good morning to you. a risk off wednesday morning. we are seeing money wanting to move into the safe havens. msci i asia-pacific down, leading down to the european equity futures. the s&p 500 futures as well. we are seeing a bid into the dollar as well as the treasury market. the vaccine story in europe front and center. a third day of declines on the yields as jerome powell sees prices rising, but he played down the risk it would spur unwanted inflation he says it will knock it out of

hand and he told the house financial services committee that bottlenecks will cause a bump in prices. powell testified along with janet yellen on the pandemic. take a listen. >> our best view is that the effect on inflation will be neither particularly large, nor persistent. >> we should be clear eyed. the country is still down nearly 10 million jobs from its pre-pandemic peak. >> indicators of economic activity and employment have turned up. household spending on goods has risen. spending on services remains low , especially in sectors that require in person gatherings. >> i am confident people will reach the other side of this pandemic with the foundation of their lives intact.

i believe they will be met by a growing economy. we may see a return to full employment next year. annmarie: joining us is the head of credit fx and strategy at credit agricole. we are seeing strength in the dollar across g10. we have seen this trend across the past few weeks and months. is this a paradigm shift? >> it does feel like a paradigm shift for the dollar with investors once again rediscovering the high-yielding safe haven appeal of the currency. it feels like that is something that will have staying power. the bandwagon, the bullish dollar bandwagon feels relatively empty. what is interesting here is the appeal of the dollar is enduring

despite the cautious powell yesterday and the consciousness coming from the treasury secretary janet yellen. annmarie: i want to know what you think in terms of the dollar and rates. do we have a chicken and egg scenario? is the next dollar move lower to keep up with yields, or will bond rates bounce to catch up to the currency? which will move first? >> they are connected clearly, and i think on our side the idea is the dollar will follow yields we are not seeing the yield down yet. treasury yields could head toward 185, 2% going into the second quarter of the year. that will boost the appeal of the currency. expect further gains for the dollar across the board. the emphasis is different from different episodes.

that is how much more dovish -- fed chair powell has indicated. we believe the fed could be forced into action, trying to flatten the curve, contain the fixed income market around june time. this is why we think the bump in yields could come to an end. the downtrend could resume in the second half of the year. the timing is about the appeal of the dollar as a high-yielding currency. the dollar could benefit from superior liquidity. annmarie: i want to move on to

what is happening in europe. we have manufacturing and services data coming out. are you expecting any improvement? >> it is a good question. part of the survey was taken at a time when concerns about the third wave of this pandemic were not evident. if anything, the data may show improvement, but the risks may be on the downside. indeed, threats are materializing now in member states like germany, france, someone -- so on. part of the global economy that may underperform because of vaccine rollouts, but also the return of the pandemic. a cautious outlook on the euro

in particular is very much warranted. not only the euro, but other currencies. the pound could suffer. annmarie: if you are cautious on the euro, how do you want to express that? >> a correction down could be in the cards, especially if the u.s. continues to power ahead thanks to control of the pandemic, thanks to the fiscal stimulus, and at the same time, europe mired in that sluggish post-covid recovery. i also think overall, the euro could be attractive as a hedge against further escalation in risk aversion.

the euro and the yen have decoupled in recent months. strength in the euro-yen could be if we see the risk aversion escalating. annmarie: euro-yen this morning a little bit weaker. thank you for your time this morning. let's get a recap of the other news you need to know. >> the eu is set to unveil tougher new rules on vaccine exports that could disrupt shipments to the rest of the world. currently, there are guarantees supplies to 90 countries will not be interrupted. protections are also offered to companies like pfizer and moderna. sources tell us both of those exemptions could be removed. hong kong and macau have suspended the beyond tech vaccine because of a packaging

defect. there is no information on how long the suspension will last. trading up robinhood said it filed for an ipo. it could go public as soon late in the second quarter. it is still early days and the timing could change, but has selected mastec as the venue. -- nasdaq as the venue. global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. annmarie: israel's election is heading for another deadlock. the country's fourth election in two years has not produced a clear winner. if the numbers are accurate, benjamin and rivals will spend the coming days exploring possible alliances. joining us from jerusalem is

bloomberg's breaking news editor. how are the numbers looking at the moment? >> good morning. netanyahu is far ahead. however, that is not enough for him to actually make a coalition. annmarie: how do we get there? what would require netanyahu to get to form a government? >> he has now, including his partners who have already pledged support, he has 56 seats . this is of course only according to the votes that have been counted. this is quite fragile. everything can change. if we are just looking at the situation we know of now, he has

56 seats and he needs at least 61. he has a potential partner, but he has to convince him to support him and bring him over the top. annmarie: it is the fourth election in two years. could we see a fifth? >> it is entirely possible. first of all, if the numbers change during the counting and netanyahu, even with the outside support, is unable to get 61 seats, it is entirely possible we will see a fifth election, as unbelievable as that sounds. annmarie: do you think the vaccine rollout in israel, which has been best in the world, will help netanyahu over the line?

>> it has helped support for him. in any case he has tried to use it as a pain point. he has used it over and over again. he was able to bring israel vaccines, over 50% of the country is already vaccinated. the economy is reopening. however, it is not clear if that actually helped him. we will see in the coming days, there will be days and days of negotiations and we will see if he is able to form an alliance and finally form a coalition. annmarie: thank you for joining us from jerusalem.

just ahead, intel's manufacturing revival. the tech giant unveiled plan to spend billions of dollars to break into the foundry business. ♪

>> tencent is china's most valuable company. to understand how it got here, a

glance at its past. founded in 1998, it turned profitable within three years and by its ipo had amassed more than 290 million europe -- 290 million users of its messaging service and online gaming platforms. the turning point was the introduction of wechat pay years ago, which coincided with the explosion of smartphone adoption across the country. this thrust the app into the hands of hundreds of millions of chinese people. since listing, shares are up over 80,000% and revenues have grown a staggering 400 times. the third quarter of 2020 delivered profits of 6.8 billion on sales of just under $19.5 billion, profit margin of 35%. this cash has allowed the company to place bets on many

horses, some that don't align with its core businesses. tencent has put over 23 billion into more than 800 companies, 160 of which have reached unicorn status with valuations over one billion u.s. dollars. and some have themselves listed and now command multibillion-dollar valuations. together tencent backed companies are currently worth a combined $850 billion. but with chinese authorities stepping up scrutiny on the internet sector and cracking down on monopolies, it is not clear if the company will still have the same freedom to expand. what does tencent's future look like? the company could find itself at another crossroads. analysts are overwhelmingly bullish on the company's future. annmarie: tencent do to report its 2020 result after markets close in hong kong.

we want to talk about intel, which is planning to spend $20 billion on new factories in a bid for supremacy in the chipmaking equipment business. the tech giant aims to create a foundry business that will make chips for other companies. the move puts intel into competition with taiwan's tsmc. shares surging off this news. bloomberg's equity editor joins us now. why is intel spending this to enter the business when actually the ceo, the former predecessor thought of abandoning in-house manufacturing completely at one point? >> that's right. intel's lead in the industry has slipped in recent years due to some problems at its own factories. meanwhile it's rivals started outsourcing production of their own processor design to these

boundaries, like tsmc and samsung. intel was as you said considering abandoning its own production as well and following that route. the new ceo is instead deciding to go the other way. he has decided to push the company into that outsourcer foundry model itself, taking on tsmc and samsung. this is going to require an awful lot of money. 20 billion to start and certainly more after. the outlook for success is anything but certain. annmarie: what is the impact for tsmc and samsung off this news? >> tsmc stocks slumped today. it is down 3%.

the stock is still up 8% this year after 60% surge last year. with all the demand for chips we have spent seeing in the past year with all the electronic sales booming because of the pandemic and the increasing use of chips in automobiles as well. samsung, their stock is only down 1% today. according to bloomberg intelligence analysts, neither of these companies have much to worry about intel right now. there is such a high level of technology required, it is going to take intel a good bit of time to ramp up these new factories. meanwhile these clients of these boundaries like apple and amd and qualcomm are probably going to be reluctant to shift their orders to intel, which has been their longtime competitor.

annmarie: this is not about -- it is about overtaking those rivals. astrazeneca running into more trouble. that story and an update next. ♪

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sam, what is next for astrazeneca? they are the ones that provide the data. how does this happen? >> good morning. what has happened is you can have an interim read. you have a predefined timeframe that has when we have this many cases, we can have a look at the data. that is what happened already. that was done on the 17th of february, a long time ago. the past five weeks, more cases have accrued into the trial. a more substantial data set to be able to draw conclusions on. what it sounds like is, the press release on monday has evolved. this group of independent experts are saying the company

should have waited until we could have the full data. that's what happened. annmarie: when you are looking at vaccine news, it is sometimes overwhelming. what is the most important news we are waiting for next? >> obviously this data set, what i am interested in is not the upfront number of cases, but more the data on severe critical disease. then we have novavax which has an interim read, only 60 some odd cases. that is a trial we are expecting to hear extra data from the u.k.. then of course they have the u.s. trial ongoing.

annmarie: we are getting a note from italy saying astrazeneca may hold in italy 29 million doses for the u.k.. we are going to be looking to see what the european union decides on the export today. thanks for joining us this morning. that is one to watch out for. bloomberg intelligence, sam fazeli. we are just over an hour from the start of european equity trading. move to the downside. euro stoxx 50 futures down alongside ftse 100 futures. mark cudmore will be up next talking about the treasury and the dollar, the safe havens moving in tandem. another thing to watch for coming out in just moments, top of the hour, u.k. cpi. anna and mark will be all over that. that does it for me. next, the european open. this is bloomberg.

anna: good morning. welcome to bloomberg markets. i am live in london. our market live managing editor joins us in singapore. the cash trade is less than an hour away. powell expects a bump in inflation but says it will not get out of hand. yields drop for a third day. powell and janet yellen had back

to the hill today.