manus: good morning from our middle east headquarters in dubai. this is "bloomberg daybreak: europe." the fed plans to start selling corporate debt bought during the pandemic. wearing investors may be underestimating the potential for spike in inflation. president biden looks to amend the trump band on u.s. investment and companies linked

to china's military. we will bring you the details. plus benjamin netanyahu is on the brink of defeat. israel's opposition leader announces he has formed a coalition to topple the country's longest-serving prime minister. a warm welcome to the show. it was a week of consternation when the fed stepped into by the bond market. inflation is a whole other debate. we will get to their re-think in just a moment, but the fed are going to reduce the bonds about by small amount, but it's about the signaling because the bond market was imploding last year at the start of the pandemic. we'll get to alan higgins in a moment for his view. then, were thinking about think about tapering. not talking, we are thinking. now we can have larry fink, this

is a generational issue, it is a boomer thing. larry fink says get ready for a big spike. there's an entire generation that do not remember what it is to have inflation, do not remember what it is to have rising interest rates, do not remember what it is to have a bond market implode. it's a boomer thing. most people haven't had a 40 year plus career. declining inflation over the past 30 years plus, it's going to be a pretty big shot. let me show you how much of a shock it was to the market. completely not bothered by the fed reducing its corporate bond buying. there is your bond market for you at 1.59. are they really concerned about inflation spikes? we'll hear more from josh friedman. he is frightened. that says something to me.

larry fink is worried about inflation, josh friedman is fine. should i take a bit of tail risk hedging? will talk about amc. let's talk about the fed. they will wind down a portfolio of corporate debt purchased in the emerging lending facility. policymakers say portfolio sale will be gradual and orderly. additional details provided -- will be provided before the process begins. earlier patrick harker said that the time should be now. >> it is perfect for us to slowly, carefully move back on her purchases at the appropriate time.

when that is, that is something you need to start discussing. we have to be careful removing accommodation so we don't create any kind of taper tantrum. that's why we need to discuss very early and very often what we are going to do. manus: alan higgins. let's check if he's had a 40 year career in finance or not. you can asset question moment in -- mr. higgins. how they dared to buy corporate bond etf's, and then when they bought junk. it's not the size of the bond, but is there any significance in the messaging at all for you? >> not quite 40 years, but i have seen inflation in part of my career. from 1988 to 1989, inflation in

the u.k. went from three to 10 and two years so i've seen high inflation. we will see this higher inflation. going back to last march, it was incredibly dramatic, the fed buying corporate bonds and as you say,? even for the first time. if you remember, the credit etf's had died, they were trading at huge discounts. it was massive news that helped to turn the corporate bond market and the credit markets around. i put on the terminal this morning, surely u.s. futures will be down. no, they are up. equity futures, i mean. i think the simple message is that financial conditions are too loose. i had a look at the bloomberg u.s. financial division on the terminal. i went back the past 15 years and is the loosest they've ever been. manus: but that money is being

parked at the fed. by the way, you cannot throw out that we could get 10% inflation, but let's see -- it the money will be parked at the fed and that tells me perhaps it's a little too excessive. the money to a certain extent is being parked at the bed. alan: that's true. -- parked at the fed. alan: equity markets, lou -- first we get back to the fed. they bought corporate bonds when spreads were very wide and the overall yield level was higher. so message number one, to remind ourselves in times of stress, and that will come again, you want to be a buyer, and the fed

was a buyer. they are getting away with it, i think this is the first part of tapering. manus: i would agree with you. i would also say probably, one could say job well done, it's appropriate to step back. so let's build on this. i want you to answer the question, what is the remote possibility of 10% inflation? 10% inflation, is that even possible? alan: what drove it, bank lending. excessive bank lending. is not qe, and we are not seeing that. however, whole we are seeing -- what we are seeing is a typical strong economic recovery, 10%

has a low probability, but for, five, are relatively entrenched for a while, i could see that. no one really knows, but you do need to be cautious about higher inflation. manus: what does it do to bond yields? give me a price. alan: the first target in 10 year treasuries, the two-year is not going anywhere, in if you look at the yield curve, 200 basis points, it's kind of where we max out. 2% is an initial target. the fed needs to start tapering and i'm just saying higher

rates, that's probably some time off. manus: will come back in a moment because we've got to get to the first word news. longevity is everything, they tell me. annabelle droulers has your first word news. annabelle: less than an hour before midnight deadline, the is ready opposition leader has managed to set aside conflicting ideology and assemble an unlikely coalition. the centrist leader is to share power with a nationalist who is said to be benjamin netanyahu's immediate replacement as prime minister. the coalition is set to include an arab party for the first time ever. the e.u. is planning to make importers of steel, cement, and aluminum paper greenhouse gas emissions in their country of origin. bloomberg understands they will have to buy special certificates

at a price link to the e.u. emission trading system with the proposal due to be unveiled next month. talks with iran in vienna have been adjourned for the week. with the nuclear deal still elusive. foreign policy chief wants the u.s. and around to both make hard decisions that could ruffle domestic constituencies. saying next week's round of talks is likely to be the last. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: coming up, president biden's plan to amend the china blacklisted targets is a bloomberg scoop. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." a bloomberg scoop, president biden plans to amend a u.s. ban on investments and companies linked to china's military possibly by the end of this week. that's after the trump era policy was challenged in court. it left investors confused, about the extent of its reach to comes -- two subsidiary firms. john, it's great to have you with us this morning. one could say this is biden doubling down, or is it clarifying a trump policy? john: it's actually potentially

an expansion of what the trump administration did. the trump administration put in place a ban on u.s. investments chinese companies either controlled or otherwise linked to the chinese military. we are reporting today that the biden administration is planning to redefine the scope of that blacklist to include companies connected to the chinese defense surveillance technology sectors. potentially that can include a larger number of companies on that blacklist. manus: what are the broader implications for u.s.-china relations? we were talking about progress between janet yellen and the vice premier, where they could be constructive but competing. what is the broader context here, john? john: as you mention, we had secretary yellen speaking with the vice premier earlier this week.

and speaking with it new u.s. trade rep yesterday. it seemed things were moving in a more constructive direction. if anything, this underlines how difficult a relationship it is. we've had president biden asking u.s. intelligence to redouble their efforts to investigate whether coronavirus escape from a laboratory in wuhan. so you can see how difficult it will be to rebuild this relationship. manus: john, thank you very much for the latest on the china-u.s. relations. alan higgins is still with us. john just explained to us there, things are getting a little more testy between the biden administration and china. how are you looking at china at the moment? you've got a lot to deal with

with tightening being threatened, technology and crypto, etc.. give me your assessment of china and china exposure at the moment. alan: you're right to highlight the technology aspect. for us, investing in china and markets in general is increasingly a growth asset. with the rotation we are seeing and we expect to continue, we think the cyclical rally has legs and china will be somewhat out of favor because it is dominated by tech and other large market cap growth companies. as for what the biden administration is doing, it shows the tension is structural and is not going away. it's more than just trump, this is u.s. policy regardless of who is in charge now. manus: what are the dynamics?

i just want to try to break down a few things. we've got this attempt to stall the trajectory and strengthening of the yuan. do you agree with that, and if so, is this aligned in the sand with the dollar, which is at a four-month month low, versus this run up in the yuan. how do you see this juxtaposition? alan: i think it is simpler with that. the simple fact is the trade deficit has been there in the background for years and years. the dollar has been able to be strong because of premium interest rates and attractive capital markets. capital markets are still attractive, but the premium interest rates have gone, and in a low interest rate world, before the pandemic they were large indeed, and they have gone. put simply, it's very cheap now

to hedge dollar assets. you can be in the attractive u.s. capital markets, it is possible to hedge those assets back into your base currency. the way we look at it is that we don't have that unhedged flow into dollars, we don't have that speculated flow. you remember the 2% or 3% premium interest rate we had in the u.s., that is gone. u.s. dollar continues to weaken. china still has a huge cash surplus and currently should trend up, all other things being equal. manus: you say that equity markets, i just want a broader perspective from you, you say markets are overdue a

correction. that is a building chorus that i'm hearing. how close are we to a correction, and it's the beginning of thinking about thinking, as opposed to talking about talking about taper, what will it be? alan: maybe not as extreme as the taper tamped term of 2013 -- the taper tantrum of 2013. it's a good job i'm not a day trader. it would sin risk assets down generally. i think once we get to a proper taper -- increasingly the market

will start to taper and then comes rate increases. that is the likely aspect for some sort of correction. but it is only a correction. we don't see a bear market. corporate earnings growth is just too strong and typically we see corporate earnings growth this strong, it's rare to have a bear market. we are way overdue a correction. manus: people say that will give you a better entry point into the market. to the oil market, goldman sachs saying -- i'm a bit obsessed about oil, but i live in the middle east. they say go long and sell the downside protection. when you look at the oil market, some call it a super cycle.

how are you exposed to commodities, and if so, in what way? alan: you may recall we used to beat long russian equities, a correlated by of paying higher oil. we don't have any direct exposure, but we do have exposure via our cyclicals if you like. as i said before, we think the cyclical value rally has legs. manus: does that mean you're taking a little bit more europe into the portfolio? alan: we are picking up these kinds of stocks, we are exposed to cyclical, but i'm with you on oil. strong demand out of china, i always look at oil demand out of china. i think demand really has always

been the right web looking at oil and it looks very strong. we haven't been brave enough to have direct oil exposure, but we've got some. manus: i will leave it to greater minds than mine. the most bullish she's been in more than a year. alan higgins, you're a good man. coming up, to the israeli opposition party, and unlike the coalition. is it the end of the road for prime minister and jeanette yahoo!? will help -- benjamin netanyahu. we will have the details. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." it could be the end of an era in israel. prime minister benjamin netanyahu is on the brink of losing his job. opposition readers have formed an unlikely coalition to topple the controversial leader. simone, an unlikely coalition of the desperate or the willing? simone: probably mostly desperate here. there are eight different groups in this coalition. they have views on everything from far-left to far-right. they agree on two things, one that israel needs to stop its constant cycle of elections. we've seen four elections in two years. also that the prime minister should not be the person to continue running the country.

this coalition agreement was announced last night but still has to be voted on and still has to receive a vote of confidence from the knesset. here's how it has formed, the head of a very right wing party would service prime minister first for two years and would rotate with a centrist who won the second most votes in the election, his party did. he would be foreign minister first and then we would see a bunch of different parties owning a bunch of different cabinet positions which have been carefully and painstakingly mapped out. manus: when do you think we will know? this was at last night 10:00 p.m. u.k. time, but when we will know when this -- if it succeeds in getting benjamin netanyahu out, because he is a man who succeeds at pulling things out of the bag. simone: we probably won't know

for about 12 days. the timing is a bone of contention between the new change government and netanyahu supporters. the speaker of the knesset gets to schedule the boat. the expectation is that he will try and drag this out as long as possible as that yahoo! supporters put pressure on the right wing element of the coalition government to peel off and no longer supported. the coalition leaders would prefer to go ahead with the boat as soon as possible so we will watch this play out as well. manus: simone, thank you very much, tracking the potential for new israeli administration. coming up, thinking about thinking before you talk about talking. patrick harker becoming the latest fed official for weighing in on the timeline of scaling

back on the government's massive bond buying campaign. the details, on "bloomberg daybreak: europe." ♪ wanna help kids get their homework done? well, an internet connection's a good start. but kids also need computers. and sometimes the hardest thing about homework is finding a place to do it. so why not hook community centers up with wifi? for kids like us, and all the amazing things we're gonna learn. over the next 10 years, comcast is committing $1 billion to reach 50 million low-income americans with the tools and resources they need to be ready for anything. i hope you're ready. 'cause we are. (announcer) if you've struggled to lose weight, you might think you were born with a slow metabolism, but what you may have is insulin resistance. fat becomes trapped inside your body and it becomes very difficult to lose weight. now there's golo. golo works to reverse the effects of insulin resistance, increase metabolic efficiency,

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manus: good morning from our middle east headquarters in dubai. this is "bloomberg daybreak: europe." these are the stories that set your agenda. the fed plans to start selling corporate bonds bought during the pandemic. black rocks larry warns investors maybe underestimating the potential for spike in inflation. president biden looks to amend a trump ban on u.s. investments in companies linked to china's

military. we're being you the details. plus benjamin netanyahu is on the brink of defeat. israel's opposition leader announces he has formed a coalition to topple countries longest-serving prime minister. a very good morning, i take you back to a few months ago. yields were spiking and the bond market was saved by the fed. what you have is an announcement overnight that literally has had no impact as the fed are about to sell down some of the corporate debt they bought, albeit a small amount that they bought. today they are preparing to sell those bonds. the bond market more or less doesn't interpret this as any signaling of taper, but patrick harker said we are thinking about thinking about tapering.

my guest in the last 30 minutes said he is surprised by the bar markets reaction. then of course we have larry fink, he says it is actually a bloomberg problem. he says get ready, there is a risk of potential for a big shock in inflation. investors not used to prolonged inflation. it could be a bloomberg phenomenon. in other words, people who haven't had a 40 year plus career have only ever seen declining inflation over the last 30 years. if you thought it was a bloomberg thing about getting back to the office, it's a bloomberg thing about not understanding inflation spikes when they come. my guest in the last hour saw that spike in inflation from 3% to 10% in the u.k. back in the early 1980's.

to the markets, equities unfazed by the fed stepping back from the corporate bond market. oil is on a ripper and trading high this morning. stockpiles are following, ubs saying if you like a better -- bigger risk, get yourself long. 10 year paper just completely not bothered by the fed stepping back from the corporate bond market. this is just like, drive on. to the fed, let's delve a little deeper into what they are doing. they've outline a plan to wind down a portfolio of corporate debt they purchased through the pandemic. it was an emerging -- emergency lending facility. policymakers said portfolio

sales would be gradual and orderly and additional details would be provided as the process begins. look for clues on the start of taper talks. why has the bond market and so utterly dismissive of this overnight? michelle is our senior asia economic reporter. what more have we heard in the past few days from the fed officials? we've got a new phrase, thinking about thinking about tapering, rather than talking. michelle: as if we didn't have enough vagaries of language to deal with in this debate. it's been a chatty period with fed officials, one thing i would add to your mention of the corporate bond facility and winding down of that emergency facility is that the bond market has performed exactly the way the fed wanted them to. the fed spokeswoman did say it has nothing to do with monetary

policy and should be treated separately. whether or not the bond market agrees, this is exactly what the fed wants to do, keep it separate. what we are hearing from fed officials this week, were getting more indication that at least official discussions of a prospective timeline for signaling tapering should start soon. so that thinking about thinking about tapering may be a prevailing view among officials, even if they have different tones about. so you continue to see this balancing act layout on fed officials who are doubling down on the transitory stance. hinting last week that they need to start the tapering discussion in the next few meetings. governor brainard noting risk on both sides of monetary policy right now, police giving a nod to the fact that inflation pressures could percolate that they are already aware of that risk.

nonvoters right now recently pushing harder for those talks. on top of that you have the pressure yesterday of the beige book release that had the fed acknowledging an increase in price pressures and those still loud anecdotes of companies pointing to higher input prices and shortages of workers. all this amounts to the next fed decision in a couple of weeks, we will see how much this is brought up around the table and if any minds will have changed on how to read the inflation data. manus: what about the consensus view on inflation? i was slightly tongue-in-cheek about larry fink. i said it's a bloomberg phenomenon. if you been in the markets for about 40 years, you've seen rates at 14% and inflation at 10%. more importantly to the point from larry is, if you want a green economy and you want this green spending, then maybe you

have to tolerate slightly higher and faster inflation. michelle: that is an important point. i think it plays into this. he's not the only one talking about how maybe we've gotten too used to this inflationary story over the past decade and we've been surprised by how low inflation is and now we could be surprised by how high it is. in recent days we have seen the markets calm a bit on several commodities that have come off the record highs like lumber and copper. notable exceptions being oil, and you've talked about that quite a bit, and semiconductors with high price outlooks. hedge fund seem to be pulling back some bullish bets accordingly. there is some calming of that, but at the same time you have the usual voices still thinking

the fed could be behind. they are still looking at the fed to say something about what the longer-lasting threat is of higher prices. the treasury secretary pointing to higher prices through the year and that's it timeline we've heard from more fed officials. a lot of people like larry fink are pointing to these green infrastructure trends and others that would seem to signal that we will be in for higher inflation for longer and perhaps it should move the fed stance a little bit while they are still prioritizing metrics. manus: thank you very much, michelle. annabelle droulers has been standing by and has your first word news. annabelle: bloomberg has learned president biden plans to amend investments linked to china's

military. were told the treasury department will create a list of come at is that could face financial penalties. the trump era policy was challenged in court left investors confused about the extent of its reach. the u.s. has delayed implement in tariffs of up to 25% on imports from six nations in retaliation for duty slapped on big tech companies like facebook. global talks on a broader solution is ongoing. india has ordered 300 million doses of coronavirus vaccine from local manufacture biological es a company -- government comes under pressure from the supreme court to cover more of the population. phase three trials of the drug

are currently taking place with the firm set to prepare the order between august and september. jbs usa said it will resume production at all facilities today after a week in cyberattack forced it to close operations across north america and australia. separately the fbi has confirmed it believes one ransomware group was responsible for the hack. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you very much, annabelle droulers. coming up, there's a new king of the meme stocks. amc stocks jumped again. will have the details. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." josh friedman has been in the credit markets for three decades. he said one thing, every boom and bust. he spoke to erik schatzker in the latest front row special. >> as i look at the markets today, i think some of the most important characteristics are that there has been a frenzy of acquisition activity, driven in part by these low interest rates. you have private equity in a

dominant presence in the market. venture capital, dominant presidents in the market. spac's, etc. you're in a transaction rich environment, many of which are in business with the sole goal of buying and selling companies. and they are doing this in a hasty way in using aggressive lenders who are dying to get the money, there are always two kinds of opportunities in the market that exist. one is the point where those acquisitions take place. people need capital, and that's not always an efficient or neat process. but it is a process where sometimes there is a lot better risk return than simply buying commodity high-yield product, if you will. the other thing that happens when you get in an aggressive market is people make mistakes. but it takes time for those mistakes to be apparent in the market. so you have to be patient and wait for those mistakes to happen. that is what creates all the

stress and distress and other things. >> is this a recovery play like any other recovery, or is this one different? >> we saw huge outflows right after covid and everything was cheat. now generally people are comfortable, unemployment is low, everyone is trying to put money out, but in a world of very low rates. what is different this time, in my view, is just the magnitude of the governments programs, both treasury and fed, and stimulating an economy that already is on the uptick. so it is procyclical. >> does it appeal to you, or does it frighten you? >> it frightens me. the economy has plenty of momentum to improve even without all the stimulus that is going on. we are entering the land of unknown with the amount of stimulus going on, both fiscal and monetary.

we started to see some awfully bright people pulling the alarm hard. my own concern is not that we necessarily will have rates spiked to the moon. the economy will do some self-correcting and as long as there is money chasing opportunities, that will cause competition for lower rates. maybe that means we do have lower negative real rates for a time because of the inflationary issues which is part and parcel of this. the longer-term thing i worry about is the hangover from all the stimulus. you have this much debt added to the federal debt balance and you project out 10 or 15 or 20 years and you figure out what percentage of the federal budget spending is likely to go toward servicing interests, it doesn't leave a lot of room for other activity. i worry that we are limiting our flexibility in a way that puts a damper on the economy in the medium and long run.

manus: some mornings there from josh friedman at canyon partners on what he is frightened of. strap in, because amc entertainment has become the king of the meme stocks. it is a heavily shorted stock. it's up nearly 3000% year to date. how could bitcoin have missed amc and missed the meme stocks? juliette: what are we doing, we are not listening to what our guests are telling us. it's the lure of special screenings and free popcorn. we saw the wild ride in a trade driven frenzy. amc jumped 95% in the session and it has moved into large cap territory, moving up from

small-cap in just a matter of months. the company is now more valuable that -- valuable than half the companies in that s&p index. it wasn't just amc that sparked a big rally overnight on wall street. we saw bed, bath & beyond and workhorse added another 17% in after-hours trade as well. then the amc phenomena overtaking gamestop which is sitting at a market cap of about $21 billion after reaching a high of 25 billion in january. amc with the market cap of $31 billion. manu a massive reward for those who bought into the meme stock trades. what our analyst saying about the outlook of this? juliette: that's the point, because it does have a big burden and also the fact of is

the model even sustainable. a lot of people not going to the theater during the pandemic, will that substantially change once people are vaccinated? some expecting gamestop will lose $100 million over the next few month. it has been using a lot of the spiked from investors so they are raising some capital. the 12 months price target is about 90% below current levels. one bloomberg opinion column is saying look, it's a mistake to dismiss them as young, irresponsible gamblers. you seen some risk-taking into the market and these implications go well beyond the immediate thought of retail investors. manus: well said. great contacts around amc.

coming up, another blow for the oil giant axon. an activist investor has expanded his presence in the boardroom with a third seat. what does it mean for the industry? that is next. this is bloomberg. ♪

>> this market is long on conviction, short on position. the position in this market is very light. oil is about average. copper positioning is back to last july's level. agriculture is 20% off the highs. those numbers i just quoted are looking at volumes over the last 20 years.

you're not even at the peak of the last 20 years. manus: jeff curry there. activism 2021 is resplendent on axon, as you've seen the activist investor expanding the presence on the oil giant board, according to preliminary votes on a third seat, cementing victory that already reverberates across the energy spectrum. what is the latest on this? it's a latest coup for the virtually unknown activist, seat number three. >> it's really a startling development. engine number one, this activist investor, they're pretty new and kind of unproven and activist investing. they have a minuscule stake, .02%, but they have really

amassed broad support from major institutional shareholders following this six-month proxy fight to secure three board seats. the results still need to be certified, but it is shaping up to be a pretty humiliating loss for exxon. manus: how does it impact exxon? these activist board members, what do we know about them? have they got the wherewithal and knowledge to drive a climate change agenda? aaron: i think one way to think about the shift in exxon's boardroom is that it is potentially a crippling blow to the future leadership of chairman and ceo darren woods. he told shareholders earlier this year that voting for the dissident directors would derail exxons progress and jeopardize its dividend.

i think investor dissatisfaction with exxon has largely centered on two issues, but they are becoming more interlinked. the issues are climate change and financial performance. exxon envisions a long-term profitable future with fossil fuels and is unlike european rivals. manus: we've had a lot of this news from around shell and chevron. how is it impacting the debate in the industry on transformation? aaron: i think we are seeing a couple of things. one difference that is quite interesting is there is really a contrast between american oil titans and their rivals in europe. over the last few years, we've seen shell, bp and total commit to zero emission targets by mid century.

the exxon ceo has dismissed these targets and said they won't do little to halt climate change. what is changing is the climate movement is so mainstream now, you are seeing some of the world's largest institutional investors willing to back small investors like engine number one. blackrock, which is the second largest shareholder in exxon with a 6.6% stake, voted for three of the four directors nominated by engine number one. manus: certainly change is afoot and it quite a pace. our asian energy editor, aaron clark. a quick image from the london office, that's where we gather for coffee and a quick chat.

ftse futures in focus. is it all on track for june 21? everyone on this show is looking forward to it. this is bloomberg. ♪ (announcer) back pain hurts,

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anna: welcome to bloomberg markets "the european open." mark cudmore joins us in singapore. cash trade less than an hour away. larry fink warns investors maybe underestimating potential for a spike in inflation and are in for a big shock president biden looks to