manus: a very good morning from our middle east headquarters in dubai. i am manus cranny end dani burger is alongside me on "daybreak: europe." the russian president blame nato for rising tensions. and stocks climb after the

biggest rally in nine months. plus a changing of the guard, germany's first new chancellor in 16 years. we will explore what a post merkel era might look like. jeffrey gundlach, new curve flattening, be worried. high yields. good morning. it's the canary in the market coal mine. how are you doing? dani: i'm pretty excited about these markets, as you know. i spammed manus with about a million emails about the markets. a stark contrast to what we saw yesterday. i put it to you, was it all driven by the -- before heading into yesterday's monster rally we had good volume at the

second-highest of all time. was yesterday simply a little bit of rallying made even stronger? manus: you're the queen of the skew. i'm not even going to try to combat that. but i will see you, raise you, and offer you the vix. we can debate this through the next hour. when you see the vix ratchet like that, with value implosion, that's when you see people come in and take in the premium and say, they wouldn't have it in them to raise rates three times next year. dani: fair enough. was yesterday sustainable or was it a dead cat bounce? we're seeing it continue ever so

slightly, s&p 500 futures up about .3%. we are still seeing that outperformance from the nasdaq that we saw yesterday, up 3%. you mentioned the front end of the curve, not a lot of action this morning but we are doing a round-trip since before those three thanksgiving nerves. we will get into this more this morning but we are looking at the strongest level of the yuan since 2018. manus: we will get into that and volatility in a moment. we heard from president biden morning vladimir putin the u.s. and its allies will take strong economic measures to respond to any attack on ukraine. bruce, develop your thoughts for me in terms of how the two sides are describing what happened. are we aligned?

bruce: the u.s. is saying that president biden warned president putin that there would be a harsh response to any russian military invasion of ukraine that would include crippling sanctions, that would, for instance, make it impossible for russian banks to convert rubles into dollars and other foreign exchange. it would also potentially involve germany cutting off the nord stream 2 gas pipeline which is not yet operational between russia and germany, and that would be a major blow to russia and potentially could be a major blow to germany too. so that would be something that maybe president putin would perhaps not be as concerned about. for his part, putin talked with biden about his concerns about nato expansion, warning that

nato should not continue expanding eastward toward russia. he also warned the u.s. about putting offensive weapons in ukraine. where this all will end is still unclear. the u.s. has intelligence that it has spoken about with allies that russia is preparing for a possible invasion in ukraine. dani: bruce, thanks so much on all things geopolitics. a new study has revealed that the pfizer vaccine provides less immunities to the omicron variant than other strains of 2019. researchers say a third dose of the vaccine still offers a degree of protection against the highly we traded variant. rachel, what does this initial data tell us about omicron? rachel: i think it is important to know that these are the earliest studies and we do need

more information. but they're telling us, cautiously optimistic, it's not a total loss which would require a whole new round of vaccine. we do still see a good reaction and a booster shot or third dose of vaccine should provide a sufficient shield. manus: rachel, thank you very much. that is more detail -- more detail to, that. asia is grappling with the housing sector and omicron, which is the dark -- which is the dominant force this morning? rishaad: it's part of the equation bringing things down. we've got optimism about the new variant of the coronavirus,

causing some relief out there. the nikkei to 25, sony leading the advance and that propelling the nikkei to the upside. csi 300, a positive close. hang seng has a bit of a way to go. having a look at some of the movers, evergrande continues once again, 3.8% down. the yuan is the latest company to come out and say it may have difficulty meeting its financial obligations and it cannot guarantee it. the words they use are almost exactly what evergrande said before. a clampdown taking place on the chinese mainland, it will be shutting its gaming tables for vips from december 20 and what

and are able -- horrible ipo taking place. 6.9% down, the latest homecoming if you will. let's have a look at the big story on the currency markets, it is the yuan at levels not seen since march of 2018. we don't know at the moment if they want the currency to appreciate more. if you look at outs been performing, not a single one of them are up. that is in dollar terms. while we have is a currency which has been buoyed up by bond inflows. we seen confidence at the economy is going to be weathering the storm. that something that is helped to propel it but the bond market is doing very well there and mutual funds moving in propelling what is going on. but it is about housing and what

is the state going to do about it, what about the developers themselves? that is the space to watch. back to you guys. manus: thank you so much. good to have you with us this morning. a lot to grapple with. some have said the biggest grey swan is the risk of war in europe next year. should we even be talking about that? >> the u.s. president is having direct conversations with the russian prime minister. that conversation that was had yesterday, the fact that open dialogue is occurring, economic sanctions, now that the conversation is started, 175,000

russian troops amassing. he likes to show power first and then negotiate later. dani: in the words of manus cranny, don't hang up the zoom, we have much more to cover with you. let's get over to the first word news from london. >> australia says it won't send government officials to the beijing winter olympic. the u.s. has announced a diplomatic boycott of the game citing human rights abuses. earlier china said the u.s. will pay a price, warning the world's two largest economies may suffer. the u.s. overtook the european union as the largest buyer of british -- despite brexit and the pandemic. exports to the u.s. rose more than 34% of the total, up from

30% a year earlier. the u.k. financial services industry continues to enjoy the world's largest trade surplus. 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. coming up, risk on mood roles on after the u.s. seizes best day in nine months unfading omicron beers. this is bloomberg. ♪

dani: welcome back to bloomberg "daybreak: europe."

the risk on mood roles on after u.s. stocks saw their best day in nine months as we had some of those omicron fears fading, but a more hawkish fed still looms large. think of america ceo brian moynihan is the latest to see or rate hikes in the new year. >> our view is interest rates will rise next year multiple times, beginning midyear are maybe a little bit earlier. they have to normalize the environment, given everything going on. dani: we have seen these markets get absolutely whipsawed in risk assets. it's not the first time it's happened and previously we've been able to keep climbing higher. is this time different, given the fed is starting to pull back on that liquidity? >> with the new variant, what is

so positive to see is the fact that the buyer is now is following a familiar pattern. the news from south africa is that it does offer some protection. couple that with the fact that china is now beginning to support its economy with the bank reserve rate cut, they also say things can get better and we've seen president biden and putin speak about trying to avoid a confrontation. all of those things combined in the fact that were coming into the end of the year haslett liquidity go down. companies now, their outlook continues to improve. profitability continues to go up. as we just saw from the french

data, omicron is not having a huge effect as the economy continues to grow. we are going to see that. manus: i'm just devastated that the next four weeks i cannot go to a disco. what does dani burger do when she comes into the office at 4:00 a.m.? she prepares a chart. she sent me this chart overnight, look what i've made for you. $1.5 billion, they gorged on tech. are you as driven to gorge on tech when you see these drawdowns? >> you have a huge growth in tech. it continues to do well and disrupt other industries. if you looking at long-term,

there are two areas that still have -- one will be tech and the other is the green economy. incredibly strong yesterday. it was up nearly 7%. investors say guard us of what the fed does or what the ecb does makes sure, these two areas will continue to provide strong growth above and beyond what the market is doing. dani: nothing warms my heart more than when manus uses my charts. this is a volatile market, we saw the vix spike above 30. it has come down since then. how are you hedging yourself in this sort of environment? >> strong growth, companies that provide that i think will be the key to this. the other way to look at this is

, yes, the fed might pull back a little bit when it comes to its bond buying program and rates may rise. it's not what the markets are anticipating. it's basically back to where it was in march 2020. i don't think it's going to be overly burdensome. janet yellen continues to believe that inflation is transitory. the slight change compared to what the fed is saying. inflation will come down and i think that is going to be the key. manus: and going on to talk about the conundrum in terms of the labor market. dani does a lot of work on low labor surprised -- supply.

she gets a gold star. your paper has gone back to pre-covered levels, fine. but the euro essence of the curve is still a huge monster flattened her. this is something jeffrey gundlach has warned us on. he has warned you cannot leave the canary in the coal mine. he says that the curve flattening is a doubly powerful sign. is the curve flattening a warning sign to you? >> i am and equity managers so i would be thinking of high-yield in the bond market. it's something to be wary of as well. how do you materially change what had been a two or three decade trend, you could just as

easily make the argument that covid is a long-term inflationary fact her, working from home, less travel requirements, these questions still haven't been answered. that's why the market keeps whipsaw in the way it is. manus: as you say, there are some huge questions, not least the potential medium and long-term inflationary impact. evergrande on the brink of reform, stocks trading in hong kong as the stress in chinese property sector spreads. that's the story, here on bloomberg. ♪

manus: "daybreak: europe." i'm manus cranny in dubai with dani burger alongside me. kaiser group has suspended their stock trading in hong kong amid growth concerns over the chinese developer possibility to service their debt. the principal here is of contagion and confidence. if you have come up to us and said they feel this is contained and the chinese have done a good job in terms of managing evergrande and the housing slowdown. would you agree, and has it shifted your proclivity for risk in china in any way? >> there's a few ways to look at

china now. first of all, you mentioned evergrande. the chinese government was quick in shutting the economy down and making sure it didn't spread. and injecting capital into the economy. but they didn't have to inject very much. it was tiny but they did back in 2008. they have kept their powder dry that gives them the option now, the construction sector is huge in china, but they had the ability to go in there, they cut the reserve requirement. to ensure there is not contagion. at the moment it does seem to be working. the biggest concern with china of course is the government's look at the rest of the economy. before they had let companies flourish. we've seen the tech sector

hugely come off. the second part will be much more of a concern. the biggest concern is taiwan where we've seen the u.s. will have a boycott of the olympics. dani: that's a lot of potential risk you are pointing out, from geopolitical to regulatory as well. to what degree are any of those already priced in. >> chinese intervention into the market is clearly priced in. i think the chinese government is trying to roll that back now. the chinese market, chinese tech stocks certainly haven't performed that well. it's one of these issues, the government can pretty much do anything it wants.

manus: to deliver a robust return, the biggest risk of all is being underexposed to big turnaround and risk in china 2022 and onwards. >> the risk here was to the upside in china, quite clearly. we saw elon musk say it won't be long before try to overtake the u.s.. the economy needs to mature to be the biggest guy on the block. there has to be more of a positive influence globally. it's just taking a lot of time. that has meant the stock market has pushed back. i still think the risk to china is to the upside, not to the down. dani: i wonder what the catalyst for that will be as we get these influential voices saying they still don't like china. what is going to be the thing

that allows you to jump back in and capture that upside? >> the concerns have been ever since the present -- the president said he would be in power forever. i think we need to see an improvement in the political process as china goes forward. how long that takes is a little bit of a question. dani: really fantastic to have you on with us this morning, i really appreciate your time and your thoughts. of course we continue to see equities rally, the s&p up .3%. and a major changing of the guard in germany. we will talk to someone who's very influential when it comes to german monetary policy. all of that is next.

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dani: good morning, i'm dani burger alongside manus cranny, live in dubai. this is bloomberg "daybreak: europe." president biden warns putin not to invade ukraine, promising heavy sanctions. russian president blames nato for rising tension. mounting vaccine optimism, wall street stages the biggest rally

in nine months. plus a changing of the guard. olaf scholz set to become germany's new -- first you chancellor and 16 years. our last test saying that covid is a big risk. some of that easing yesterday, allowing for the biggest rally in u.s. equity since march, but i still the question, how much of that big 2% plus rally was just hedges being unwound? we seen the second-highest put volume on record heading into this week. was it simply investors taking that off the table? manus: i would also put forward that what you see here is a mass explosion in volatility. people have come in and said i want to sell the vol here.

jeffrey gundlach is not sure about commodities. the one thing he is sure about when it's a rubber market and high-yield is going to be the canary in the risk call mine. this chart is one that i have prepared. let's have a look. it's about the flow out of high-yield and junk. there is the flow from high-yield, it depends on how you use the default scenario of 2022. dani: surprisingly, not one of the million charts i created this morning. let's talk about germany and geopolitics. the new government is due to be sworn in today after the coalition agreement was signed after being approved by each of the three parties.

maria joins us now. a page turner for german politics. what will be the immediate focus of the new government? >> it is a page turner. we're coming to the end of the merkel cycle. every single major european crisis, and now we have schulz being sworn in an hour and 30 minutes. he has made it clear this is the number one thing they need to deal with. once you move away from that and go into all the big issues, what to do with foreign policy and so on. the other thing i would note here is that this coalition is coming together in about three months of negotiations. he's been able to bridge what seems like an impossible coalition, the greens and the liberals. on paper they should not work, but he's found -- he is found

creative ways to get them together. this is a very interesting economical and political experiment, i would say. manus: government coalition talked a lot about progress. in what way is it going to be a departure from the merkel era? she was quite a globalist, very much in international states woman. >> there's two things that could possibly change, perhaps you want to point out, there's always two things that come up. one is china. angela merkel was known for being perhaps soft on china. the perennial criticism is that they did not really have a foreign policy. angela merkel pursued trade deals for germany. when it comes to foreign policy,

there wasn't anything major that would guide them in terms of principles. the second issue is what to do with government spending. we know that germany has been a very fiscally conservative country. modernizing the economy, and going greener. when you do the math, a lot of this means there has to be a spending plan that is way bigger than anything we've seen from the cdu. the question is whether or not it's going to translate into real spending or if it is just tricks. manus: we will see what the implications are. thanks so much, maria. thank you for joining us this morning.

we begin to understand his tenure. i want to get straight to russia. we know angela merkel's relationship with russia, it was good, they spoke often. where will sholz come down on russia, on putin on day one. >> good morning. i think we will see a lot of continuity with the new government, on russia and also china. probably a little bit tougher position because the green party has been emphasizing the issue of the pipeline that goes through the baltic sea which is a very contentious issue with the u.s. government and many other european governments. i expect a conflict between

russia and germany. my hunch at the moment is that this will not take off, it will be blocked better than we have been, obviously. getting it to work -- here i see a big issue. it is because of the big economic factor. dani: the u.s. calling on not going through with it nord stream 2. as we witnessed this winter of europe in the middle of the energy crisis to not have that pipeline. >> currently of that did not make a big difference because there are other pipelines through which russia is delivering gas to germany and europe. but clearly russia has the ability to blackmail germany and europe. at the moment we have low levels

of supply of gas. the price is actually quite high and could rise further. russia knows full well that germany is dependent on importing all of its fossil fuels, gas and oil. so this could lead to substantial conflict because prices are rising in the german population is extremely unhappy about higher prices at the gas station. i expected difficult couple of months ahead of us. manus: in terms of the fiscal story, we were just touching on that with maria before we came to you. what does it mean for germany and this grand transition that we understand that he wants to

embark on. >> the big challenge on the fiscal policy sought is to overcome an impossible triangle. on the one hand, the german government needs respect, a lot of -- what the government needs to spend money on investment a good infrastructure and climate protection, and the digital transformation. we have the german federal government cannot spend any additional money, and third the new coalition has promised not to raise taxes, but to lower taxes. you see the impossibility of all the three. now they are trying to find a way around the next break, but apart from the money, which for

germany it is easy to organize, long-term interest rates and germany aren't negative, so the government can find itself very easily. the biggest challenge is to -- the implementation. you need the capacity to use that money, and that is the biggest challenge it has. dani: the other potential problem this brings and is inflation. we are already looking at inflation in germany compared to 4.9% for the rest of your. he has said if it doesn't get under control he will have to do something. as we look at potential new spending, are you concerned about inflation and what could aloft schulz end up ultimately doing about it? >> the government certainly does

not want to lower taxes on gasoline. that is exactly the opposite of what you want to do in terms of climate protection policy. i'm quite relaxed at the moment because we know the tax on falling prices, temporary cuts, back one year ago. my hunch is for the full year 2021 that germany will have an increase of 3.5%, which is much above the 2% for the year but still not that dramatic. our expectation is that the crisis will start -- prices will start coming down that -- next year. only between 2% and 3%. so inflation could stay hi. we don't know if the supply chain problems continue, but at

the moment the much bigger risk is the pandemic. germany is a lot more dependent on supply chains than most. so the big -- biggest challenges tackling the pandemic and getting over that. manus: i want to lean into your ecb credentials, your narrative there. the ecb committed to not raise rates until it stops its asset purchases. we don't think that will be before 2023. do you think that still really holds, given the overall inflation narrative? >> yes, i think it still holds, and it holds more than probably three months ago because the german and european economy are

slowing down massively. we expect the shrinking german economy in the fourth quarter due to the fourth wave of the pandemic. the ecb is facing the difficulty of a slowing economy with implications that long-term prices over the medium term will slow down a lot because of lower demand. at the same time, energy prices are going up substantially. if the ecb now raised rates it would have a double impact. on the one hand, do nothing to inflation. on the other hand, it means more. the ecb cannot really effectively ring down inflation if we have such temporary shocks. whether it is permanent, we

don't know. but we will have to act quickly should that happen. dani: before we let you go, i have to ask who is likely to be the next president. who is the right person for this position? is it a position that you are interested in? >> i would not comment on your second part, but the buddhist bank -- is part of the european system of central banks. he has been doing a very good job in bringing in the german position. the big challenge will be to bridge the gap between, i would say more stability or a conservative journal position and taking into account the your

-- u.k. needs. that's why it is so important that countries like italy are doing the reform that it is currently doing. i think they are doing the right thing. then we will make monetary policy a lot easier because you no longer can say you have one monetary policy that is long. we need to have more conversions. an important influential german voice is important. dani: very diplomatic, so great to have you on with us on this very important day. coming up, biden warns putin that the u.s. and its allies will take strong economic measures to respond to any attack on ukraine. this is bloomberg. ♪

>> president biden was direct and straightforward with president putin, as he always is. he reiterated america's support for ukraine sovereignty and territory. the u.s. would respond with strong economic measures. we would provide additional defensive material above and beyond that which we are already providing. manus: jake sullivan with the main points coming out of the meeting between president biden and putin. bruce, good day to you. we've talked several times through the morning and i want to lean into perhaps the west and the u.s. side.

how is the american side describing the meeting? the language sounded quite forceful. bruce: we just heard national security advisor jake sullivan talk about some of the sanctions that the u.s. would impose on russia if it were to invade, according to what president biden told president putin. u.s. also is talking about having germany suspend the nord stream 2 pipeline, which would be a big problem for russia but also potentially a big problem for germany, that would be sending gas from russia into germany. germany really depends on gas from russia as does much of the rest of western europe. dani: he had just told us he doesn't think nord stream 2 will go along.

what would be the consequences of a suspension of nord stream 2? bruce: if it is suspended it would be because russia had invaded ukraine. for germany and for russia, nord stream 2 2 is an important project. germany relies heavily on russian gas. both sides have an interest in seeing this project succeed. dani: tony, thank you very much. i don't want to let you go just yet because i do want to ask about another political happening in the u.s., a house vote over the debt ceiling and an agreement was reached. >> this one is very tricky. the u.s. is getting very close

to the debt limit. if the u.s. did not raise to debt limit, that would mean some default. in the past we have seen the democratic presidents that republicans threatened to not raise the debt ceiling and demand various things. this time what we are seeing is the has passed something that would allow the senate essentially a get out of the filibuster free card, one time only where they could raise the debt ceiling on a simple majority vote. they wouldn't have to have the 60 votes super majority. that would then allow democrats only to vote on increasing the debt ceiling, so republicans can say, it wasn't us. on the other hand, republicans would have to vote to approve this one time only fix. so it is a way for both sides to be able to get past this issue. manus: it is a heck of an issue

for them to deal with. thank you so much for your contributions. coming up, here's what we've got for you. apple rallies, putting it close to $3 trillion over market cap. we will talk tech. this is bloomberg. ♪

manus: this is "daybreak: europe." apple stocks flying high, jumping to new record. laura wright joins us with london. flying high on apple. good morning. >> reaching a new record, rallying 3% yesterday, closing at $101. why did this happen?

morgan stanley updated -- upgraded their price target. they see upside in apples give it toward virtual reality. also autonomous vehicles. my next chart shows you the core options are rising through apple. you can see the yellow line, the rise in call options. yesterday the most traded option for apple, with a strike price of over $170. in order to reach that heralded $3 trillion valuation, the price point needs to be around $182. there is still some room to run, but we are getting closer. dani: it was not just apple yesterday, it was all of tech. 3% rally in the nasdaq. just a voracious appetite to buy

up the big tech stocks yesterday. manus: there is still a huge secular tech story. you put the chart together, the nasdaq had this monster flow in, the buyer of the dip. i know you track the risk appetite at goldman. dani: but you want to put them against bank of america. bank of america saying all the clients work buying tech as well. are these just argan hunters or is this catching a falling knife at this point? -- manus: that's the canary in the market mine for him.

we have another ipo here in the region. bloomberg markets europe is up next. this is bloomberg. ♪ so, i started listening to audible about two years ago.

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anna: good morning. welcome to bloomberg markets europe. i'm anna edwards in london. mark cudmore joins us from singapore to take us through the market action this hour. the cash trade is just less than an hour away. the pfizer shop provides less immunity against omicron against an early study. boosters may still help. we will get the latest. beauty deal.