>> good morning, this is bloomberg "daybreak: europe." i'm dani burger in london and these other stories that set your agenda. risk on, risk off. wall street closes in the red as traders await the fed minutes. bill dudley says a u.s. recession is likely. covid and chips, china says to pause massive spending on semiconductors as the resurgence of the virus strains the nation's finances. plus sam bankman-fried pleads not guilty to criminal charges, setting up the trial in october. we are full on risk buying mode this morning. really fueled by the headlines coming out of china of which there are many. we will try to break those down with you through our bloomberg team. let's look at the impact on markets. hong kong shares leading gains across the equity space this morning. also looking at futures in the s&p 500 and euro stoxx 50.

david inglis will go into the details but it is part reopening, part government support, part u-turn when it comes to china. for the cross asset story, treasuries are off to their best start of the year since 2001 when alan greenspan when markets correctly guessed that he would/rates. 10-year yield lower by 1.5 basis points. the bond rally continues in australia. those yields lower by 10 basis points. japan has seen some massive outflow in that bond market as bets pileup that the boj will be pivoting on their ultra easy policy. the most money ever fell out of japanese bonds from foreign investors last month according to internal data. the yen moving higher versus the dollar despite the fact the boj

has done a fourth round of bond buying. the dollar weaker across the board especially versus the aussie. another story coming out of china that government bureaucrats there are likely to restart the import of some australian goal. the aussie dollar up 1%. tracking the biggest movers out of asia, china pausing its chip investment and we have to talk about the u.s. story. the house adjourning without a speaker and what we can expect from the fed minutes later. let's get to the market session with david inglis. i was given a teaser to the headline moves in the hang seng. walk us through the individual drivers. david: i have seven sector movers here. in the interest of time i will do three of the big ones. i'll start off with tech.

the plan to raise money, without going into details once a headline dropped, the markets ran with it. another sign that beijing is softening its stance on the internet sector and the regulatory story. it's unclear what this actually means for any potential ipo. as far as that is concerned, the markets are running with that. you had the financial stability and development, essentially talking to banking and securities regulators. they are saying we have to do more to shore up the balance sheets of too big to fail property developers. what the final list looks like is still unclear. there's a lot of criteria to be considered part of that list. the list could come out in days or weeks, but details and clarity aside, the markets are running with that. the china coal story, to your

point earlier, the aussie dollar is on the way up. it has dropped at about the close of the cash market in australia. the economic planner in china has essentially been talking to four big buyers about potentially resuming coal imports from australia which could come as soon as april 1. dani: david also anchors china open. this has to have been one of the busiest days for you. david: it has been nuts. dani: thanks for lending us your time and walking us through these markets. we've also learned that china is pausing massive investments aimed at building the chip industry to compete with the u.s. this is happening is the covid resurgence reddens the economy. let's bring in alan from

shanghai. why is china hitting the pause button on investigating its own chip industry? allen: china has pumped billions of dollars into its own chip industry but doesn't have a lot to show for it. people are telling us china is considering getting rid of -- given the fact the economy is slowing dramatically, and looking at other measures such as loot -- lowering the cost of semiconductor materials for its companies. china has pumped billions of dollars in its industry to compete with the u.s.. american sanctions have hobbled some of china's biggest chip companies. you also have allies like japan and the netherlands tightening controls over the sale of chipmaking equipment to china. and where has all the money gone? there are concerns about possible graft.

there have been investigations into executives who run the so-called big fund that has been used to funnel money into these developers. dani: we were just talking to david inglis about how many stories there are to keep track of in china right now. there is the eu story, what steps are the eu nations considering when it comes to passengers from china, and what has been china's reaction to it? allen: upn is considering moving toward masks and preflight testing requirements. europe's equivalent of the cdc saying these testing rules are just a thought, the fact that

the variance floating around in china are the same ones seen in europe. that is one issue. another issue is the fact that spain and italy have imposed testing requirements and others are considering doing so and some others have not. the concern is a uniform approach, given the fact that china -- there were number of deaths and there is always a concern there might be more variants down the line, especially after the chinese new year. for china's part, it has said it will hit back at those nations that impose these requirements, relations -- nations that have political goals in mind. dani: it is a quickly evolving story and everyone is fearful of that new variant becoming story. to the u.s. story where republican representative kevin

mccarthy has become the first major leader in over a century to fail to win a first round of votes as house speaker. he lost all three rounds. that happen yesterday. the house has been in gridlock after two more rounds of votes did not yield a clear winner. joining us with more on this is bruce einhorn. there were expectations that mccarthy would lose the first round of votes, but what does it say that he'd -- he had to go through three embarrassing rounds and he could not secure the votes he needed. bruce: it even gets worse, because by the third round he lost another vote. he started out losing 19 and by around three he lost 20. going into all this, there were a handful of republicans who said they were never kevin voters, they were hard-nosed on this. it turns out there were 19, and

now we are in a situation where it is really unclear whether there will be yet enough votes for him to pull through. there will be another round of voting starting at noon today in washington. if he doesn't win a majority this time, then they keep on going. the big problem for governance is that until there is a speaker of the house, the house just cannot function. they cannot form committees, they cannot consider legislation or even swear in new members. yesterday there were all these members there with their family members who were expecting to see a big show and that never happened. this could keep on going for a long time. one possibility would be perhaps there might be democrats who don't show up for a vote. if there are fewer democrats in

the chamber, then you need fewer republicans to vote for mccarthy to win. democrats have said that will not happen. they will not be throwing a lifeline to republicans. another possibility would be perhaps kevin mccarthy would pull out. he said that's not going to happen. we don't know who would step in if he were to do that. there are possible candidates such as steve scalise from louisiana. they have not in any way indicated they want to be speaker. they have not challenged kevin mccarthy. if you were to withdraw, we might see them and other step forward. for now, though, it is still going back to more voting and we will see if people change their minds. dani: ultimately the question is the balance of power shifting to the right wing.

the minutes from the fomc december meeting art due to be published later today. joining us with what to expect -- it's been a while since we heard from fed officials so this is highly anticipated today. what are we expecting from these minutes? >> a holiday break in between. the big thing we are looking at is why those december projections for inflation were so much higher than fed officials previously thought. 3.1% to end this year is what they are projecting. he was pointing to the persistence and strength of the labor market. how many also share the view that there were strong the prices keeping up that growth. looking at all those things and how much in those views will be

important. also looking at how high the fed tolerance is for unemployment. they already have unemployment as high as 4.6 percent for this year. what would it take for them to reverse course on their strategy if those labor market indicators worse than they currently expect. finally one thing that will be interesting to see is that november saw a few members still talking about the risk of over tightening. she does not see that happening for these minutes. that would point to a clear pivot in the thinking on the fed. dani: michelle, thank you very much. let's take a look at some of the key things we will be watching out for today. i'm sure the fed minutes will feature in that. 7:45 a.m. u.k. time, we will get the latest inflation data out of france. there was a slowdown in some regional states.

9:30 a.m. it's the release of u.k. mortgage approval numbers. u.s. manufacturing data for december is due, which will likely show the factory sector continuing as the fed rate hike bites. coming up, as we were just discussing. we will discuss that next. this is bloomberg.

>> recession is pretty likely but what is different this time is if we have a recession it will be a fed induced recession. the fed can end the recession, the job for them is to not ease too soon. dani: former new york fed president bill dudley discussing his recession forecast for the u.s.. joining us is the deputy chief investment officer, thank you so much for joining us this morning. it's become a cliche at this point to say it's the best and

most well broadcast recession that we've ever had. if we have bill dudley adding to the choir, the bloomberg survey of economists also expect a recession for the u.s., what differences that make for asset pricing if we are already at this point widely expecting a recession? >> first of all, if everyone talks about recession we should expect that to some extent there is a recession priced into asset prices. this is something we can see happening, the so-called relief rally that we've seen before like in october or november that was averted. so there is some recession priced in and there is high uncertainty about it. to what extent are investors realistic about the assumptions and what this session is going

to have, is he going to be a mild recession or much more that -- than is currently priced in by investors? dani: so earnings you expected to be rough. how rough? >> what we should definitely look out for is earnings announcements that will come up in the next couple of weeks and the q1 earnings from those companies that still have a lot of weight in commodities. clearly they have started to correct, so the evaluations have come down quite a bit. these are the names i would look out for the most in terms of those that might have a big impact on market valuations. dani: as you say, big tech is

struggling and apple has yesterday become the latest member of the $2 trillion club to lose its status, the former $2 trillion club. that's a chart we are looking at right here. these have been pretty decent declines. at what point do they become attractive buys again, at what point do these valuations tempt you? >> i think if we look at the p/e ratios of the top 10 stocks in the s&p 500 and compare that to the rest of the market, there is a valuation gap. from our perspective there is still some way to go in terms of correction, if it is true that these companies cannot continue to grow and get a higher rate than the rest of the market. there are positive invested -- positive expectations about future growth that are not justified anymore. that doesn't mean these are bad

companies, it just means they cannot always stay ahead of the curve and at some point they might actually get into different quarters. dani: from equities to bonds, there has been a strong rally for treasuries. the best start to the year since 2001. germany, they are down 10 basis points. how do you distinguish in this market between a short-lived rally and the end of a bear market in this bond market? >> obviously that is very difficult because it depends on something that is very hard for us to control, which is monetary policy. so i would be cautious in calling that a bear market. but clearly we have seen now a lot of correction done that has

been exceptional. what we have seen in that way many years before. so we think the worst is over. dani: how do you square that for example with the eu? we've heard from policy member after policy member, christine lagarde over the past five days saying that rates need to go much higher. how do you distinguish between the worst being over and now what seems like a more hawkish ecb than their other central bank counterparts? >> the ecb to some extent has to act on inflation. because of the mild winter energy prices are clearly coming down now. natural gas dropping and

potentially a slowdown, but also the ecb is under pressure because we have countries like italy are those with a high amount of debt, so that ecb is really in trouble not to put those countries into more trouble. it's a very different situation when the fed can hike, which is more independent of thinking about potentially putting the country into recession or not. dani: thank you so much for your time this morning. the deputy chief investment officer at tovan. we will have the latest on sam bankman-fried's day in court where you faces eight counts of fraud, money laundering and

other crimes. this is bloomberg. ♪

dani: ftx founder sam bankman-fried has pled not guilty to criminal charges and is set to face trial in october. we have this update from the courthouse in manhattan. >> sam bankman-fried appeared at the southern district of new york in a manhattan court in downtown new york city to plead not guilty to eight criminal counts that included wire fraud. remember, sam bankman-fried has been accused of several charges separately but today prosecutors in addition to working with the judge set a court date for a trial ahead. they've also sought to modify his bail terms to include restrictions when it comes to

any potential access of ftx or alameda while it's. it's something he has tweeted about and says he does not have access to. it is something the prosecutors are separately looking into and we will have more details in the coming days. in the coming weeks we will also have prosecutors put forward evidence as it pertains to their charges. they will also seek to hear motions from sam bankman-fried's attorneys. we will hear much more in the coming weeks but we will also be looking forward to any changes as it pertains to a speedy trial set for october 2, 2023. dani: the latest on the ftx founder's court case. let's look at markets because there has been a lot of market moving news coming out of china. i will point out what is moving on it, the aussie dollar up 1% versus the u.s. dollar.

china is weighing importing australian coal. also looking at the aussie 10-year yield coming in, rally across the space, the best start to u.s. treasury 2001. meanwhile there is weakness in the japanese stock market but in hong kong, stocks are much higher, more than 2%. that's being fueled by alibaba after it one approval. will there be more relaxations when it comes to the regulatory crackdown in china? coming up, we will focus on something closer to home, u.k. inflation jumping to historic levels. we will

dani: good morning, this is bloomberg "daybreak: europe." we have the stories as set your agenda. risk on, risk off. hong kong leads stocks higher with traders awaiting today's fed minutes. bill dudley says the u.s. recession is likely. china is set to pause massive spending on semiconductors as the resurgence of the virus strains the nation's finances. ftx founder sam bankman-fried pleads not guilty to criminal charges, setting up a trial in october. there are so many lines coming out of china from relaxing potentially a cold been coming out of australia to develop support when it comes to housing to regulatory changes, all of it turning into a risk on session this morning fueled by the hang seng. let me take you into that because it is by far one of the best-performing indices today,

up 2.5%. the other asset that continues to rally our treasuries, off to the best start since 2001 when the market correctly guessed that greenspan would start to cut rates. yields continue to come in, the same for australia, 10-year gilts coming in by 10 basis points and the rally continues. the boj, yet again another unscheduled round of bond purchases. the market believes the boj will blink and start to tighten. again rising about .2% versus the dollar. finally the dollar weaker across the board for most of its gt and peers. the best performer is australia. the aussie dollar of more than 1% relating to the coal move that china is looking to

partially end the australian coal band. let's concentrate on the u.k. for a moment. inflation moderated slightly in december 2 seven point 3%, following november's record highs. food price gains for the highest since the index was created in 2005. the brc warned the leveling off may not signal an end to rampant inflation adding that store owners might need to raise prices in april government energy support expires. when it comes to the u.k., investor james anderson told me he is down on his outlook for the country in the immediate future. the famed investor known for lifting up baillie gifford and making it into a scottish investment powerhouse. >> i would consider it unlikely,

i think the idea that they shouldn't take responsibility for what is happened over the last 12 years, saying it's a new government and we can start again is rather self-indulgent and to my mind, we made -- we need many less quick fixes and more deep action. >> you are the chair of a company, would you advise international companies to invest more in the u.k.? >> sadly, i don't think i would. when i come to those conclusions , i think first it's one you touched on which is a significant part of the investment seen has to be the deep cooperation of governments. dani: renowned investor james anderson.

we have one investor saying he would not tell companies to invest in the u.k.. is that a problem right now with all the turmoil going on for foreign investment coming into the country? >> i think it is. the outlook for the u.k. economy for the next few weeks is quite weak. even though this recession seems mild compared to recessions we've seen in the past, in the g7 is likely to be the longest and weakest recession we will see in the u.k.. we've had the government who has obviously gotten over the credibility issues they had with the budget but what happened is structural issues for the u.k. economy have been put to the back burner. things like productivity, the workforce that has shrunk over

the pandemic, those big issues are not being addressed yet and that something they need to focus on. dani: how do we view that with the lens of the market, are there any buyers out there for that? >> clearly there is a lot of pressure this coming year. the good thing about this, we know what the issue is, what the boe is likely to do. the bank of england has said its conditions are difficult for them to be able to sell. they will be able to tweak the program. the bank of england is keeping a close eye on the conditions in which they are selling and if there is volatility like we saw a few months ago i think there could be ways to tweak the majority of the different bonds

they're able to sell. dani: they have shown a willingness to be nimble but not caving to political pressure. of the g7 economies, you believe the u.k. is in for a particularly rough recession. among its peers, it is still the only economy with the gdp still below covid levels. how long does it take for the u.k. to get back on track? >> there are a lot of headwinds for the u.k. economy. you have the high inflation, high interest rates and we've not actually seen the impact yet. the impact will be felt more acutely in 20 between three. i think at the end of 23 as inflation normalizes we are expecting a recovery but we expect it to be fairly muted.

we will still have effects from monetary tightening if the budget is materialized. some of the structural problems has meant growth has reduced so unless the government can focus on the issues that are holding back u.k.'s which includes investment in the labor force i think the recovery is likely to be fairly slow and muted. dani: how are you viewing strikes and labor unrest as an input into inflation and continued wage pressure? >> there are definite upside risk to inflation in the u.k. in other parts of the world like the u.s. there are signs that wage growth is moderating but in the u.k. and europe, wage growth continues to pick up quite strongly. labor force participation is

still a big problem and labor shortages are still affecting the economy. now that the strikes are going on, if you look at the wage growth numbers the gap between public and private sector growth is the highest on record. i think as a result our view is that the bank of england is likely to continue to hike rates in the next few months. don't think the job is done yet and we are looking for them to hike rates 4.5%. dani: things like rail strikes, how big of an impact is that on the economy or is it minimal? >> there is a lot of disruption caused by the strikes but i think the macroeconomic impact is fairly small. there is a makeup effect in some

sense of the strikes as they go on. definitely the bigger impact in the thing to watch is how it impacts wage growth numbers. dani: we have all gotten used to working at home. we know how to set up in our kitchen surrounded by pets and partners. thanks so much for joining us. let's get to the bloomberg business flash now. chinese regulators have approved a plan to raise $1.5 billion for the consumer unit. the green light is assigned of the overhaul which will leave ant controlling half the deal. sam bankman-fried has pled not guilty to criminal charges and will face trial in october. the 30-year-old is accused of illegally diverting massive sums of customer moneys to make lavish real estate purchases and

risky trades. the university of california is investing $4 billion in the massive blackstone real estate income trust. the fun has faced higher redemptions in recent months and been forced to limit its draws. it's between the deal with the backdrop for a minimum annualized return of 11.15 percent. that is your bloomberg business flash. coming up china is set to pause its massive investments aimed at building a chip industry to compete with the u.s. as a covid resurgence cretins the economy. that is next. this is bloomberg. ♪ and it's easier than ever to■ get your projects done right. inside, outside, big or small, angi helps you find the right so for whatever you need done. with angi, you can connect with and see ratings and reviews. just search or scroll to see upf on hundreds of projects.

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dani: china is causing massive spending and building a chip industry to compete with the

u.s.. sources say -- for more let's bring back allen wan and shanghai. walk us through the details. allen: china has poured billions of dollars into developing its own chip industry and so far doesn't have a lot to show for it. officials are thinking of getting rid of these costly subsidies at a time when the economy is slowing dramatically. they're considering lowering the cost of semiconductor materials. it is u.s. sanctions that are having a huge effect on china's ability to do so. these sanctions have hobbled some of the areas chipmakers.

there's also the issue of where has all this money gone? they have launched investigations of the so-called big fund that has been used to go out funds to these chip companies. dani: when it comes to the e.u., what are they considering for passengers coming from china? and on the flipside, what has been the reaction from china to those restrictions? >> it includes mask and preflight testing requirements. europe's equivalent of the cdc saying these testing rules are -- these are necessary because the variant floating around in china are the same ones seen in europe.

maybe the e.u. is concerning a more uniform approach like imposing requirements of countries. the biggest concern is the fact that there's a lot of information coming out of china in terms of the number of infections and deaths and concern there might be more variants down the line, especially after the chinese new year. for china's part, it has said it will hit back at those nations impose these requirements on nationals with political goals. dani: also saying they would be restrictive when it comes to chinese fights into japan. can you give us the latest on china's property market, looking at potentially having more steps to assure that up? >> it looks like they will focus

on too big to fail developers, given their influence on the economy. there talking about loans their financing, may spurring acquisitions. in order for these developers to be eligible, they've got to have reliable financial statements, based on auditing. also these developers have not had any kind of major violations such as defaulting on publicly issued debt. supporting biggest developers at a time of stress while unfortunately beating out the smaller players. dani: let me show you what those stocks are doing that he mention. some of the biggest movers in the china session, starting off with the property developers. allen said they have identified

as too big to fail. we are seeing a big rally in alibaba as they are allowed to do a capital injection. coming up, betting of -- against the greenback this year. we will discuss why. this is bloomberg. ♪ smart bed. only smart bed in the world that actively cools, warms and effortlessly responds to both of you. our smart sleepers get 28 minutes more restful sleep per night. proven quality sleep. only from sleep number.

dani: as much as 2022 was about the dollar reigning supreme, this year we've got the yen, the pound, and the euro all dominating the list of winners. that's the view from our fx expert and he joins us now. a fantastic piece on this. walk us through what you are

expecting for the currencies this year. >> last year we called for a stronger dollar and that has served us pretty well because obviously the dollar has increased in price. we think it will give up some of this -- last year's gains and start moving directionally. direction is important, last year it was between 80 and 300 basis points for the dollar. it is best suited to exploit the dollar weakness or the yen for the pound and the euro. dani: can i linger on the pound for a moment? we were talking to the u.k.

economist, saying the u.k. is expected to be the steepest recession in the g7. why do you expect the pound to strengthen as much as you do? >> again, it is a contrary call. u.k. is expected to go into recession but i think it will be a minor recession. and to keep in mind it has been performing as it euro derivative in the past 6-8 months and i can expect that to continue going forward. if you look at the performance of the pound in the last quarter, it outperform the euro even though we knew u.k. economy was going down. so what was the factor that underpinned the 17% rally from its peak of last year? that is the key to understanding the dynamics of the pound. dani: you are nothing if not

humble, so what are you looking at that could potentially go wrong with your outlook that the contrarian themes could end up not winning out? >> there is plenty that could go wrong. for one thing, at the moment inflation is that 7%. the forecast is for inflation to slow to 4% by the end of the year. if that doesn't happen, there's no question, the whole premise of dollar weakness is based on two things, one is inflation going down, and the federal reserve not having to raise rates beyond what it indicated in september. dani: we were just talking about this in the break and i said i would not ask about this but i do want to ask about the aussie dollar, is moving higher this

morning by about 1% on news that china will begin to import australian coal. does that story have legs at all, do you think? >> i think it's got legs in the short-term. it's around $.68 now and that's fully valued for the aussie dollar. the maxim will go to is about $.71. -- the max it will go to is about $.71. dani: thank you so much, really wonderful to get your thoughts this morning. let's get a view on some of the key things we will be watching out for today. at 7:45 a.m. u.k. time, we will get the latest inflation data out of france. regional data from germany yesterday did show a slow down inflation figures. shortly after 8:00 a.m. we will

get an update on u.k. grocery market share figures are inflation has been quite high. and mortgage approval numbers later in the day, u.s. manufacturing data for december is due which is likely to show the sector continued to prepare for week future demand with the fed rate hike spike. and figures on u.s. job openings for december are do and don't forget we also get the all-important fomc minutes later today. it's been since before the holidays that we've heard from the fed, so folks are highly anticipating that to get a view into their thinking. another look at what's happening with the big mover in this market, china tech. the hang seng tech indexes up 4%. alibaba is the biggest mover and that is because all of these gains are off the back of china allowing a capital raise from

jack ma's ant group. this would be for $1.5 billion. the plan would also see some of the liquidity stress ease at some of the nations too big to fail developers. we are also seeing developers move in tandem with the tech shares. that has ignited basically risk on for the entirety of the market. we are seeing u.s. futures move higher by about .10%. european stocks are up .3%, but it really does follow on from a remarkable rally that we have seen in bonds. the bond story has been the main one for this year. i was asking tatiana earlier how do you distinguish between a short-term rally in bonds and the end of a bear market. she said i'm very skeptical that this is the end of a bear

market. we still have central banks who want to keep policy restrictive. the third column, we've seen some bond buying from the japanese government, there are still bets at they will tighten policy. for the rest of the sovereign bond market it's the best start to the year for treasuries since 2001 when the market correctly guessed that alan greenspan would increase interest rates, but can it continue? the market discussion continues, up next is bloomberg markets europe. this is bloomberg. ♪

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