tv Bloomberg Daybreak Americas Bloomberg November 30, 2016 7:00am-10:01am EST
steel. we have to get to breaking news. brentoil prices at touching over $58 a barrel and this is why. you have a delegate saying opec is close to securing a 600,000 barrel a day non-opec cut. very close to cut supply by 4 million barrels day. he said she said scenario over the last 48 hours. . ying oil couldsa move six dollars today. -- a 1.4 million barrel a day cut. a look at where markets are trading. s&p futures up by .2%.
the ftse 100 up by 1%. the dax also climbing higher. board and look at other asset classes here. dollar-yen, dollar continuing to grind higher once again. the south african rand, it has been a wild roller coaster ride. u.s. 10 year backing up by five basis points as the selling continues all across the curve. david: the rand committee talk about political risk. opec ministers say a deal is close with meetings right now underway in vienna. ministers areec unanimous in favor of a cut as the group works to resolve differences among the three biggest producers, saudi arabia, iran and iraq. in november to remember. the trump rally dominated the month in markets.
treasuries had their worst month since 2009. will the rally continuing to december? donald trump continues his auditions for secretary of state . it second round of interviews for mitt romney and john kelly. said to be the pick for treasury secretary. nuecen.e miniatur of supplyverall cut of 1.4 million barrels a day for opec. many ministers weighing in over the last 24 hours. >> i'm optimistic. i cannot speak about a cut. we should wait some hours and receive the final resolution.
>> we are just discussing the details of how to set those volumes. we go into this meeting hoping and relatively optimistic. >> we are optimistic. there have been a few gray areas , but i believe we will also video. >> to reach an agreement around the edge area and dust we are optimistic -- around the , we are optimistic. see the mechanism of how we cut. we will agree to the mechanism of doing that. >> if it goes towards 60, a big huge amount of u.s.
shale oil will be profitable. i should also think the next two , iran will make a decision. on the basis of their own member thatries -- i'm also sure they will consider the heads of the global economic growth. viennaoining us now from is annmarie hordern. it has been a wild roller coaster ride. are we close to a deal? is this it? annmarie: good morning. we're definitely closer to a deal. delegates have been discussing a 1.4 million barrel a day cut, a major breakthrough from saudi arabia saying they will accept that iran can pump near pre-sanction levels.
this is one of the major sticking points, where we seem to have a breakthrough amongst the major gulf rivals. the market is loving this. we have brent hitting through $50 a barrel. wti closer to where you guys are, the contracts on those call options are surging on the volume of $60. the market is liking this deal. situation,on-opec russia now saying today it would consider a cut. that would be enormous. signifyd a freeze could a significant downturn for their production. annmarie: another massive breakthrough on the side of non-opec members. opec wants non-opec members to cut 600,000 barrels a day. nosia for months have said
come a we will just freeze, but it looks like they will join . will just freeze, but it looks like they will join. it will be interesting to see the details of the deal and how russia response to that. the iran oil minister told us this morning this breakthrough iranianer the the rai president spoke to let her put in that's vladimir putin. vladimirto the avenu putin. >> we were expecting some my 2ility, seasonally million barrel cut puts us in a
different territory. is a way for opec to look forward and say we put this overhang behind us. it is a six month agreement. it gives them time to see what happens to the u.s., do the russians adhere to any cut? it's harder to get them to implement a cut. it's even harder to get non-opec members to agree to a cut. also easier to get an overall level of cut agreed to. could this still falter on the question of how that gets allocated? rt: absolutely. this is saudi arabia giving in. iraq,t saudi arabia and budget deficits that are 20% of gdp, put that in context, that is twice as bad as the financial crisis in 2009. they have to get out of their own way and say we have to at least try to help ourselves. control what the
russians do, but we can do our best to get an agreement. alix: you know what will improve is the prospect of shale in the u.s. take a look at the curbs of commodity prices. the green line is where we were just a month ago. the orange line is where we are now. you are seeing december 2017 futures at $53. 2018 prices at $53. this is what saudi's are scared of. rt: absolutely. first movers are happy. the world that have assets that look really good and a $50 range, they will hedge more volume. coming out of the third quarter, hedge.a lisess we would rather be able to rise that -- realize that higher oil price.
are protecting the gas inside, looking for something positive to happen on the oil side. david: before we know exactly does it doed -- what to the price of oil and u.s. producers? does that encourage people to bring rigs back online? rt: absolutely. i'm not so sure $50-53 is enough. we need confidence in our prices are not. that's higher than that. operators want stability. give me a price. what is the price? i can plan for the price you give me. this helps u.s. producers a lot because it add stability to the markets because the volatility is hard to plan. alix: the question is how much
this opec cut really makes a difference. david: it's interesting, the stability is important to the overall level. , thank you very much for being with us. to follow the latest on the opec meeting, go to the terminal for life updates from vienna. that's life updates from vienna. live updates from vienna. ane emma: trump has chosen goldman banker steve mnuecen to
lead the treasury. donald tusk is rejecting calls by british lawmakers to protect x patriot rights after brexit. members of u.k. parliament asked deal sobroker a members -- global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. alix: the move in the markets today really belongs to brent. up for dollars as opec potentially inches closer to a deal. goldman saw a six dollar move today. -- four dollars as opec potentially inches closer to a deal.
day oil has had since february. the highest price since the end of october. in a totally different realm, we did want to focus on world bank of scotland. it did fail the bank of england's stress test. they will need to divest more assets and cut costs, even deeper. carter also had some capital and inadequacies. but they did not feel like rbs that's fail like rbs. -- but they did not fail like rbs. ross havechin and said yes, they have been chosen. plans up, donald trump's for fiscal stimulus and expectations for a december rate
hadpeople put in place, some sort of idea for how to repeal and replace obamacare. now, we get an idea of how we will be treating trade deals -- that is the kind of thing that steve mnuchin and ross will be in charge of. -- rossetting a sense in particular has been a big advocate for trump's position on trade. trump is moving forward on his commitments. david: let's go to policy now. fix --re the does go two picks. steve mnuchin is largely a
banker and businessmen. one thing it tells us is goldman has a lock on the treasury. he's been more of a chameleon on policy, a little bit more tightlipped. going to be doing this expensive infrastructure program, it will be steve mnuchin who's is in charge of issuing that that could -- that debt. he will be issuing trump's marching orders. he was trump's national finance -- david: terribly important is not just the secretary but also the deputy secretary, the assistant secretaries. who will be surrounding mr.
mnuchin? ben: absolutely. it can be difficult to say exactly who is being brought in for a job interview and who is being looked at to get policy advice. people whoist of were looked at for these top jobs. they might be going into jobs at treasury, might be going into jobs at the office of management and budget. be watching them closely to figure out how exactly the rest of his team is going to fill up. david: thank you so much for being with us. coming up, a november to forget if you are long the yen. could the referendum spark a return to the safe haven?
alix: it was a november to remember if you were long the dollar. take a look at this chart here. you can see the monster rally we have seen in the dollar. that blue line is the premium you will get for u.s. treasury yield spreads. as that climbs, so did the bloomberg dollar index. how much leeway do we have? steven ricchiuto joins us now. how much momentum is there left? >> we have had quite a large
move already. if you want to see dollar-yen go up a lot more, you need to see more in the way of hikes from the fed. we have two hikes priced by the end of next year. still some question how much more we can price there. the expectation of fed rate hikes is lagging behind the expectation on the long end of the curve. which will catch up with which? the thing with fed expectations is they are not immune to the dollar. a huge dollar rally, it will be difficult for the fed to continue to delivery hikes -- deliver rate hikes. alix: how much more can the economy tolerate? elsa: we saw with the gdp data yesterday that u.s. economy is
doing pretty well. the u.s. economy can sustain if you hikes. we've looked at the impact of the u.s. dollar on the u.s. economy. it's a lot smaller than some people might think. exports will depend on what's going on in the rest of the world. just been thenot fed, it's also been the treasury secretary who talks up the dollar. we have steve mnuchin is the next treasury secretary. elsa: historically, that was definitely the case. more recently with the g-20 secretary'sreasury have tended to steer away -- we expect that to remain the case. the big move of the month has been the end, the worst month for the yen since 2009. we need to see dollar upside. what about for the yen? elsa: one of the things people
are focusing on is the risk of shock. we have the italian referendum on sunday. i don't think it will be the catalyst for market movement. the no vote is not a surprise. and a of big risk upshot -- david: come back to oil for a moment. if this holds up, that would be a risk on move. does that affect the end versus the dollar -- the yen versus the dollar? elsa: be careful to distinguish -- when oil is rallying because global demand is better, that is a fantastic environment for risk. move,s is a supply led there's less of a link. russia saying it is considering a 200,000 barrel a day oil cut it there is an opec deal.
russia said to increase production next year by 300,000 barrels a day. if they cut for next year, that could be a big cut of 500,000 barrels a day. let them air pollutant -- hugeadimir putin with a move. risk what is the potential if there's no deal? there's the perception that with trump as president, the nation of russia will be better. it has a little bit further to run if we get an opec deal confirmed. alix: are there other oil related currencies we have to watch in the next two hours? elsa: the canadian dollar. --ong-term deal remains
with meetings right now underway in vienna. iraq saying opec ministers are unanimous in favor of a cut as the group works to resolve differences among its three biggest producers saudi arabia, iran and iraq. in november to remember commit the trump rally dominated the month. the u.s. dollar at a 13 year high while treasuries had their worst month since 2009. with a rally continue into december? said donald trump plans to nominate him as the next u.s. treasury secretary. wilbur ross confirms he will be trump's pick for commerce secretary. dow jones futures up by .2%. s&p futures around the highs of the session. up, led by energy shares.
in other asset classes, the huge move we have seen in oil. $3.50.ces up by the stronger dollar reigns trumping the south african rand by 1% and up against the yen by a similar amount. david: the growing strength of the dollar, 13 year highs. is it possible for the dollar to go too far? our morning must reads as it certainly could go too far. read read says it certainly could go too far. joining us now to talk about
whether such an accord is needed or even plausible is richard jones. richard comes to us today from london. for someone to talk the dollar down? richard: we've had a pretty presidentnt since trump won the election earlier this month. it depends on the pace of dollar strength. it's becoming a bit of a consensus u.s. yields will push higher. that interest rate differential will lead to stronger dollar. how quickly ito appreciates and how orderly it is. it has a lot of officials outside the united states pondering what the future is going to hold. david: we tend to focus on what the strong dollar goes to companies.
abouts a bigger issue fund flows, investment flows across borders at the dollar gets richer and richer. is that right? richard: i think it does put pressure. given we expect higher rates from the fed -- there is not a lot priced into next year. part of the reason is because if strengthens substantially, we could get a tightening of financial conditions that will do some of the fed work for it. might not see as many rate hikes as people are anticipating it the dollar appreciates as expectedas many a alix. alix: this has a material affect on the yuan. that will cause significant
damage to the global economy. talk us through the linkage. richard: from a chinese perspective, they are very concerned about the capital outflows. more concerned about maintaining their level of reserves at the levels they are now rather than yuanactual dollar- exchange rate. end $75 billion about flows from china. outflows fromn of china. ,rom the chinese perspective the strength of the dollar and the outflows from china to the dollar are something that concern china. david: you are now steve mnuchin , what do you advise the president-elect? richard: it's one of the things on the campaign
trail but is more complicated when you're in office. integrated global financial economy. china is part of that. there has to be a bit of give and take their. -- give and take there. alix: thank you so much, richard jones. the dollar was not the only thing moving higher over the last four weeks. also, 10 year treasury yields and fed rate hike expectations. the blue line is the 10 year yield and the orange line, the implied number of rate hikes through the end of 2017. there is a divergence. how does that make sense? need to start pricing and more fed hikes into the economy? joining us now is steven ricchiuto.
that chart is a little puzzling. you would think if we had this huge reflationary trade, that would impact the fed hiking cycle. stephen: you are seeing the concept that we do live in a world of deflationary pressures globally. live in a world of excess supply. you run the risk of importing some of those inflationary pressures as the currency gets stronger. you may not get the real reinstallation that people are looking for. that is one of the critical pieces of this equation. especially with regard to where the fed goes. the backdrop of this, you have the situation where normally you will get these fiscal stemless programs, there is excess slack in the economy. you have high unemployment rates , an economy in a recession. we have an economy that has been growing for seven plus years. the federal reserve says we are at full employment.
the markets are anticipating a little more than they probably need to. david: this market anticipation has been the long end of the curve going up. the short end has not gone up that much. you have a steepening curve. in the old days before the election, you say i like to run it a little hot. steven: she would like to run it a little hot. the question is whether the other members of the committee will give her the slack to do it, especially against the backdrop of what we've seen. i would be a bit more preemptive. you look at the fed statement at the end of next week's meeting, you will be looking to see what they tell us about 2017. alix: we've seen financial conditions tighten, you've seen the dollar move higher.
the ducks could say the market has already done our tightening for us. -- the doves could say. dots will lead -- send the market a message. if they are ahead of expectations, watch for an even stronger currency and watch for the curve to begin to flatten from the front end. david: now, it's what donald trump is going to do, going to don whe is and what congress is going to do. i'm also worried about what we are going to get in terms of additional things that will get tacked onto a truck legislative bill. we look at the reagan programming, you looked at how much was tacked onto that bill to get it done. it substantially magnified the effect of the bill and it
created a lot more deficit financing and a lot more structural deficit problems. of the day,he end what we are going to wind up with is a much higher interest rate environment. we will wind up with a substantially higher currency and it will choke up a lot of the growth. david: where are the fiscal hawks figuring into that countless? -- that calculus? steven: this is where the trade-offs come in. donald trump is uniquely positioned to do this. he is beholden to know side of the aisle. he is going to be looking to horse trade one against the other. which is why i get concerned about the magnify of this bill as we get things going to get legislation passed. he likes to do a deal. this is a deal. alix: do we wind up seeing the
yield rally too much? what is that level? we are reaching those levels, 3% in the next four years. that will be unsustainable for the market. theen: we will test 3% on one year note -- to hold below 110 on dxy because of what the fed reads and the equation, maybe we can hold it for a while longer. i think 3% given the global pressures we are dealing with are closer to the upper end. david: donald trump likes leverage in his deals. he likes to borrow. at cheaper costs. costs are going up. trumpappens when donald comes up against the tea party or the remnants of the tea party in the congress? this becomes the
question as to whether he can reach across the aisle and give the democrats something they want to pass it. he owes nothing to the republican party or democratic party. he really wants to get this deal done. alix: what does that wind up doing to consumer confidence? the purple bars are personal consumption. the white line is gdp. that was the killer in the upper revision in the third quarter. when our consumers going to start to level out? steven: a lot of what we are a lot ofnsumers -- that financing is done at the front end of the curve. if we start getting the pressures and commercial paper
and we get it filtered through in terms of the fed funds rate, you begin choking up one of the areas where we have seen growth. david: the autos were not doing off.great -- leveling .teven: correcte david: that is steven ricchiuto. coming up, the royal bank of scotland oldsters it capital -- bolsters its capital plan. is the problem too much risk, too little capital? innt oil having its best day nine months after opec says they are close to an agreement on production cuts. we will head back to be enough for the latest details on this big day for oil. -- we will head back to vienna. this is bloomberg. ♪
emma: this is "bloomberg daybreak." coming up, we talk opec with jeff currie. david: this is bloomberg. royal bank of scotland shares down today 4% after the bank fails multiple hurdles in the toughest u.s.k. stress test ever. for more on what's gone wrong and what it means for the bank , jonathan tyce. to hurdleswo stages, and rbs is the only bank that managed to plunk both of them.
-- two hurdles and rbs is the only bank that managed to flunk both of them. jonathan: there haven't been many surprises in the stress test. world bank is mired in reconstruction. -- royal bank. we know they've got tens of billions of risk assets to run off. and they had a fine hanging over them. no real surprises. rbs still has a lot of work ahead. david: they've known this for some time. it seems like the check is in the mail. rbs, quarter, we hear from it's coming, it's never here. why is the government so patient? jonathan: they don't have a great deal of choice. we know the work has taken a long time.
one of the interesting things -- we haveress test protection miss selling, costing tens of billions of pounds. they could be up to 40 billion pounds of further conduct costs. of capital. the government is now recognizing what rbs has set aside was not enough. bankther issue with royal is if they are forced into a fire sale, how much does this cost them? they are sitting on a healthy capital surplus. they are eking through because
of the length of time it takes them to resolve their problems. david: how much of that liability is baked in here or could this be even worse than we know right now? nearly 6 rbs set aside billion. 18 billion of provisions remaining. rnbs what epi and the we are talking another 10-15,000,000,000. 10-15 billion. bank lender is airing on the side of caution. david: with respect to the u.s. side, is there some hope on the horizon in the form of the trump administration? , they arecertainly suggesting they will work through the fines were quickly.
in the quiz of deutsche bank and expectations -- in the case of deutsche bank, there were expectations that it would be less painful. .avid: that is jonathan tyce emma: it appears as though samsung may split as soon as next year. they're looking at a plan to turn itself into a holding company. paul singer's elliott management has pushed the idea. shares of samsung surged to a record today. british consumers are increasingly gloomy about their economic prospects. the confidence index has dropped to the lowest since july. and banksh government
of england have said they expect the economy to slow next year. for donald trump who campaigned on the promise to bring factory jobs back to america. carrier has agreed to keep 1000 jobs in an indiana factory that mexico.to move to alix: coming up, it was a november to remember. a slew of asset classes making money mental moves this month. 1.10 --ook at brent at now off the highs of the session as opec inches closer to a deal. they are close to cut a supply by 1.4 million barrels a day. we will break it all down. this is bloomberg. ♪
alix: it was a november to remember in all asset classes. we will break down three of them in today's off the charts. kicking off with what have been in the bond market was truly the highlight of the month. the 10 year yield, the biggest monthly increase since the taper tantrum of 2013. 2013, it was about the fed backing off its monetary stimulus program. no, it's about the potential of more stimulus and growth here in the u.s. treasuries had their worst month since 2009, lost 2.5%. out in manyplayed different asset classes from the dollar as well as the banks. is the 10 year yield, the blue line is the 10 year real yield and the purple line is s&p financials. you see the huge jump we saw in bankshares.
, potentially at issue is the moderating the 10 year yield. that's where you get the real yield. , whatdoesn't move higher does that do to bank stocks? do they wind up rolling over just a touch? deutsche bank upgrading shares. just how long is it sustainable? these banks have fixed income commodities and currency trading as well. the treasuries wind up getting hit, so does their portfolio. this also filters into what we saw within the u.s. stocks and the divergence between large-caps and small-caps. you can see the huge outperformance in small cap stocks over the s&p. you have small-cap stocks weighted towards domesticated --
the s&p has a bigger waiting in tech. helps to create the divergence as well. is how the huge rise we saw in yields filters through to bank stocks. classes oversset the last few weeks. on the small-cap versus large-cap mothers also some trade uncertainty coming out of the trump administration. the small caps are less likely to be vulnerable to that. alix: part of the story of the 10 year yield has been a stronger dollar. -- it will beff harder for the companies that export. next: coming up in the hour, jeff currie joins us to talk opec from and all things
last day of november. i am david weston along with alix steel. jonathan ferro is off today. s&p futures clawing higher, up 2/10 of 1%. the dow jones clawing higher as well. it is led by energy shares. it has been a monumental day when it comes to energy. brent crude up by 7.7%. off the highs of the session, but a huge move. we continue to see the stronger dollar move higher against the south african rand. trading higher against the yen. the entire yield curve continuing to selloff. our top story in the market has to be that move in oil. enter date -- intraday chart of brent.
off the highs of the session, but you are looking at $53 in 2017 and 2018. huge ramifications for the entire market, and oil producers. david: there is what you need to know at this hour with that top story. to cutnisters say a deal supply by 1.4 million barrels to prop up prices is close. the meeting is underway in vienna. you -- opec ministers are unanimous in the cut. a november to remember. -- donald trump rally treasuries have their worst month since 2009. will the rally continue into december? beltran's transition, goldman sachs partner -- says about trump plans to nominate him as treasury secretary. wilbur ross confirms he will be trump's pick for commerce
secretary. after weeks of tensed negotiation's, opec ministers say a deal is close and they could be looking at a joint cut of 9 -- 1.9 million barrels of oil. >> i am optimistic. -- we should wait some hours and received the final resolution. >> i think we are discussing the details of how to set those volumes. hoping,to this meeting and relatively optimistic. a few gray areas, but i would like to go in, believing --
will reach an agreement about the -- around the algerian levels of production, and we are optimistic about what we have seen, so far. and wenvolves a cut, will see the mechanism of how we do that. if it goes to our 60, a big chunk of the huge amount of u.s. shale oil will be profitable. russia also thinks the next two or three steps ahead will make decisions. my colleagues in vienna, the opec minister colleagues are going to make the decisions on the base of their own member countries, economic interest, that i am sure they will consider the head of the global economic growth.
ministers are paying attention, but federal reserve officials as well. robert kaplan says the global oil balance could be accelerated with an opec deal and reach rough balance in the first half of 2017, with an opec deal. joining us for more from vienna's bloomberg's and marie horton. we could see a 2 billion barrel a day cut. could you break down the specifics of the deal? are looking to cut 1.4 million barrels a day within 600,000 non-opec members and russia says they are willing to take on 200,000 of that, which is a big breakthrough considering the last through -- last few months, they said they would just freeze. russia says they would be
willing to do a deal, and actually cut production, but as long as opec also cut production and as long as other members signal what they will be cutting. david: that is good, but in the meantime, we heard that a ron has been allowed to increase. where does that come from? saying is thats from their october -- what iran is saying is that -- sutter -- saudi arabia is said to be excepting a deal that would allow iran to pump 3.9 million is justa day which under what the number they wanted to make sure they would be able to pump. they wanted to sell back home, politically, to hardliners that they will be able to pump at pre-sanction levels. acceptrabia is set to that they will be looked to pump 3.9 million barrels a day. iran is actually up from their
october numbers. alix: the details are still critical. thank you so much from vienna. oil futures rallying big-time with growing optimism. brent and crude, best day in nine months. what that means to the risk on market, we are joined by david hunt. thank you. david: thank you for having me. alix: you get brent, 50, maybe 55. you have risk on. is that sustainable? david: i think not. for us to our long-term investors, we look at the group of people gathering in vienna and say they are fighting against history. history has spoken and that is in technology. the cost of producing crude, largely due to fracking technology has dramatically changed the marginal economics of oil, and it is not going back. the real question for those of
us who are investing for 10 or 15 years is what does this do to the way to put money to work? if you believe that we have oil dramatically lower, then it has been for the last decade, and it is likely to stay that way, what does that do to your view of japan, as a huge oil importer or india or industries that are big users like airlines were some chemical plants? this is more important of whether we get a balance of a couple of dollars on brent. the fundamental economics of oil have changed and we have to work that through how different industries are pricing and how commodities are price on the basis of that. david: you say you're a long-term investor and you need to make sure you have the money to pay off pensioners and responsibilities. we talked about november being quite a month in the markets.
as that charged two changed your approach to that investing? david: i would say not really. there is reason to believe that there is room for rates to rise. we would say that risk assets have become more attractive than they were, before. our view is that the market may have priced a lot of this in, quickly. the markets want to focus on the pro growth and pro-business aspects of a donald trump agenda , but not necessarily as much some of the risks. some of the immigration risks, risk from trade embargoes, tariffs, etc. we think that the lower for longer prediction that we have been out with for a number of years will continue. returns himhat the a balanced portion of assets over the next couple of years will be lower than they have been over the next decade.
alix: the big question has not been whether the 10 year goes to 2% or 3%, but what that does to the search for yield. is that still in play, and if so, is this a buying opportunity? is in we do believe it play and we do believe there is a buying opportunity. we have been putting money to work against that. alix: not even risk in safety. the search for yield is still intact. are those stocks still good? david: on the stock side, there will be a rotation, away from some of the bond money that was in the equity markets for the last couple of years. that will rotate out, and you will see the tilt back into growth. as you were talking earlier, toward growth, toward value. we do see a rotation happening in the equity markets, which we have been waiting for, for a while. alix: in terms of the rotation
out of bonds and into stocks, do you believe that there is still juice in stocks? david: we have tactically moved our equities over to where the last six weeks, but for most of our long-term investors, they will have a disproportionate amount of their assets in a variety of fixed income futures. alix: what is the biggest risk you see in the market? david: this has been true for the last couple of years, and that is the lack of volatility. what is strange to us is despite brexit, despite the unexpected election, we have had remarkably little true volatility, whether you want to measure that in the bond market. markets have been very
optimistic in their interpretation of political risk and to some extent, currency risk. we would say those two are yet to play out in a big way over the next year and half. david: david hunt, p gim ceo. he will stay with us. the president-elect is set to pick wilbur ross for commerce secretary. details on that, next and a monumental day for opec. brent oil having its best day in nine months. more on this big day for oil, i had. ♪ -- for oil, ahead. ♪
it is a little bit of a risk on rally, s&p futures up by 2/10 of 1%, the ftse up by 8/10. the dax grinding higher, helped by energy names and industrial names. the market, let's take a look at individual asset classes. the dollar grinding higher against the south african rand. to climbr continuing on the yen, up by about 8/10 of 1%. up by aboutyield five basis points. a bad month, you are looking at the worst month for treasuries since 2009. the story on the market continues to be brent, up by 7.5%. point, -- it was, at one point, up over $50.
opec could reach an agreement to day. 1.4 million barrel a will they be able to follow through on that cutting, when the deal happens? we are about to an half hours away from any official announcement. the market much more optimistic. adp employment coming in much better than estimated, 216,000 jobs added through adp in november. the expectation for was -- the expectation was for 117,000. october was revised slightly lower. those numbers coming in at 119,000 jobs. november looks like a pretty solid month. we are building toward that all-important jobs number on friday and what it means for a fed hike in december as well as for 2017. the dollar index right around the highs of the session as well
as s&p futures holding at 2/10 of 1%. 10 year yield up by about five basis points and the two year yield grinding higher on those numbers. talk about pensions, the pension system has been criticized with some saying it is overcommitted to civil servants and maintaining unrealistic goals and assumptions. for more on how money management can join that can fix the blood system, we are joined by the ceo of pgim. i want to take a specific example, which is the dallas instance, with the police and the firefighter pension which has been in the news, a great deal. the new york times said the city of dallas may go bankrupt because the o's so much to these retired firefighters and they owe -- because so much to these retired firefighters and policemen. corporate defined-benefit
bench -- pensions, which are really structured differently from the public plans and for many of the municipals, which dallas would fall into, are in a different state. have, overate plans the last couple of years, been more realistic about the returns they can earn. they have also value their liabilities anymore realistic way. i would say with the kind of seen, therewe have is reason for optimism that some of those funding levels we have seen in the corporate plan will actually rise. this is a great opportunity for many corporate pension plans to continue with their d risking plans. most of these plans are trying to minimize their funding gap and the fact that they should get a little bit of headway from the higher rates mean that they can continue with that d risking plan. alix: that is on the -- david:
that is on the corporate side. on the public side, these ideas might not be so realistic. , andve a dallas by chart there is a fair amount of private equity and other things blue,in, you can see that which is largely private equities real estate. david: that is a great point. what we have seen is that while the corporate plans have moved to be more realistic, we have not seen that happen in many of the public plans. they still have unrealistically high expectations for returns, and what that has done is to say for the cios there, how do we reach that and the way we reach that is more risk. david: we go to breaking news from vienna. alix: opec does reach an agreement to cut oil output by as much as 1.2 million barrels
of oil a day. that would take it to 32.5 million barrels a day. that was the year -- original plan the algerian government proposed. to cut production by 1.2 million barrels a day. higher,ming its climb brent firmly over $50 a barrel, up by over 8%. the details still need to be sorted out, and if that cut is enough to sustain the balance market -- sustained -- to sustain a balanced market in 2017. david: we want to come back to pensions. there have been risky assumptions made by some of the public people. have some people done it right? i have heard about rhode island, and what does it mean to do it right? david: some of the funds that have taken a more pragmatic approach have done better. they have actually lowered the
expected rate of return they are trying to hit. as they have done that, it has enabled them to take risk out of their portfolio and do a better job of trying to match their assets in their liabilities, so they have less volatility that happens in their funding status. david: can you lower expected returns without lowering benefits paid? do these retirees had to take a pay cut? david: you can absolutely lower these assumptions and that has nothing to do with what benefits are paid out. it is how you construct a portfolio with that assumption in mind. for the most part, the restructuring that will need to happen, it is our belief it will happen by keeping the sanctity of what has been promised to workers. we see our role in this as seeing to it that that happens. there was a lot of room to drive between assumptions that have been made and what is actually earned on those assets. many me disabilities are in a deep hole that they will need --
many disabilities are in a deep hole that they will need -- many municipalities are in a deep hole that they will need to build out of. david: thank you so much. up, the donald -- the president-elect nine's with mitt romney. we look at how the cabinet is shaping up, next and we are taking a look at oil, as well. brent up 6 -- 8% as opec does agree to cut output by 1.2 million barrels of oil a day. what will it mean for the market and rebalancing question mark we will discuss as jeff currie joins us to talk all things opec. ♪
president-elect donald trump's economic team is taking shape as former goldman sachs partner steven mnuchin is set to take the role of secretary of the treasury and over ross is set to take the role of secretary of commerce. what took so long? jeff: that'll trump is having a lot of people coming and going from trump towers. some of those people are cap -- there to offer a device and some people are there to interview for things. i'm not sure that it took this long, the cabinet is basically shaping up a lot. we have had a number of appointments, a number -- a couple planned, today. donald trump looking at the various candidates and making appointments in the amount of time that a lot of employers in this country do. policy wise, people are bringing
a lot of things to the table. steven mnuchin is a bit of a question mark. david: we are getting a pattern, here. is it basically loyalty? steven mnuchin was there from the beginning as his finance chief. wilbur ross was there, very loyal to him. you can go through all these candidates and there seems to be a consistency. >> loyalty is definitely a key determiner on those two. not only did they come on board early, they are both vocal proponents of the donald trump trade policy, and his message on economics and the working class. that definitely is something that is going on. the way we can answer that question is seeing whether or not he appoints mitt romney. mitt romney was not loyal, he was a big credit and jump is getting a lot of pushback from his inner circle as he considers romney. the question of whether loyalty will win the day or whether
expanding the base of little bit will be more important to him will be answered when we see whether or not it is romney or people like david trias or senator bob corker -- david patraeus or senator bob corker. him, the day with before. do we have a report on what it looks like he is heading toward? >> we do know there was a lot of pushback from romney and that suggest to me as of this weekend when that was coming back, that he was definitely in consideration. we heard his statement after the dinner, praising donald trump. what he said was sort of inclusive rhetoric, after calling him a con man and a fraud and a liar. they are certainly discussing geopolitics and had a very interesting discussion.
who exactly is in the lead from moment to moment, it can be difficult to tell. david: thank you so much, then brodie -- ben brody. alix: opec reaching an agreement to cut oil production by 1.2 million barrels a day. joining us now from vienna is anne-marie horton. cut? --know about the what do we know about the cut? >> that is basically what we know, that they will cut the 1.2 million barrels. an incredible bloomberg news team here, getting information from the delegate who did not want to be named, close to the matter. the ministers are still in the meeting. what we need to know is who is cutting what. i ran will be a book to pump 3.9 million barrels, but how much
will it rock and saudi arabia cut? -- will iraq and saudi arabia cut? the ministers talking hardball going into this meeting. alix: what is the biggest question? what is the biggest question the market has to have answered for oil prices to continue their climb? the biggest question going forward is the 600,000 barrels a day that they want non-opec members to cut. who is going to pick up the remainder. russia is willing to cut 200,000. what other countries are going to cut as well, to make up for that. how are they going to implement this? they say they want to cut and had this agreement, but how are they going to implement and monitor that these countries are sticking to this agreement? alix: joining us from vienna. the only man you want to hear
from his jeff currie of goldman sachs who happens to be sitting right next to me. you said a 30% chance of a deal, and now we get it. is this the take away? jeff: our point was not be 30% chance of a deal, our view was we expected a deal and one of the key reasons is that the economics of a deal were incredibly compelling. aside from the fact that the risk was in credibly asymmetric for them to begin with, the other point is they had a rebalanced market in the line of sight. what they had to do was that production and pulled forward and already balanced market. why do they want to do that? the main reason is inventory normalization, not price. why do they want inventory normalization? they want backwardation. david: well done. jeff: let's go over why that is
so important. when you look at the shape of the -- you had 45 on the front end and 55 on the back end of that forward curve. what does that allow usb mp's to do? hedge forward their production. if they can rotate back curve into a backwardation are you have 55 on the front end and 45 on the back end, it takes away that ability to hedge. david: breaking news, we have personal spending numbers just out. personal income is up 6/10 of 1%, personal spending up 3/10 of 1%. personal income is better than estimated, personal spending is down a little bit. pce, if you look at core that is key to what the fed is looking at. deal, back topec jeff currie.
have the bright one month on the chart. this is what we are talking about with that backwardation. what does the curve need to look like array saudi deal or opec deal to be successful -- for a saudi deal or opec deal to be successful? jeff: it is arbitrage between today and tomorrow, so they have to draw those inventories to ship that curve into backwardation. spot prices sit below forward because you can buy a barrel of oil today, put it in storage and pay for that cost of storage. when you get a backwardation curve, it means there is a premium for prompt delivery. you no longer have surplus in the market. when we think about that curve shape, the only possible way is to draw inventory.
let's bring this idea about compliance and implementation. because there is tolerance in terms of the contract with -- they have with refineries, they can drop into the lower end of tolerance. implementation is not difficult. the question is compliance. they have an incentive right now to take it to conclusion, bring those inventories down and shift that curve into backwardation. alix: fire on calculations, inventories will draw on the third quarter of 2017. why this urgency? jeff: the downside risk is tremendous. our expectations was that the market would trade down into the $40 range and spend most of the first half of next year around $45 a barrel. by speeding up this process, they take that $43 and $45 price and turn it into a $50 or $55 price environment. it speeds up that process of going into backwardation, which allows them to pursue that market share strategy that takes away the ability for producers to hedge. david: you have to think about
the saudi budget. they have been running a deficit and running down their reserves. some pressure on them. at what point is this a nafta fix that problem? jeff: it is enough for temporary relief but goes back to what alix was saying. it takes away the pain they would have had otherwise over the first six months of 2017. is a rock going to agree and will iran agree -- is iraq going to agree and will iran agree? if they are cutting at today levels, i could be a net cut of 500,000 barrels a day. that seems extreme. historically, the only time you have seen compliance out of russia was in the midst of the emerging market crisis in 1998, the latter part of it.
not a lot of history for compliance. our base case is that russia is a freeze. we are not needing heavy lifting out of those three players. additional cuts from that group would just reinforce this dynamic. expect to cute we production and create that inventory normalization. david: how much would production becoming down, anyway? it is a natural decline. how much is natural? low: given that we have had prices over the course of the last two years, that was another reason why the market was going to rebalance. mexico, cost players, canada, you were seeing significant decline rates. going back to the economics of a deal, there were big drivers while we have a deal like this. significant a stronger economic
backdrop, decline rates from the high cost players, that we had a delineation of the cost curve. we knew that line was drawn in the sand, given the behavior of u.s. emts. it is an important part of the rebalancing process. alix: it part of the cut is not opec cutting and russia maybe 200,000 barrels, where does the other non-opec cutting come from? russia is going to cut, presumably as much as they say. where is it coming from? jeff: when you think about non-opec, they are referring to , or you havehina significant reductions in the u.s. and places like the eagle for. decline, thatl was the economic forces creating decline does prices came in
below $50 a barrel. david: the real issue is the 1.4 million. alix: when you take a look at the 1.2 million barrel a day cut, what is your biggest question? you will write a report and see oil prices over $50, what do you need answered? which country is the most important? jeff: the core opec, the gulf states. this is what the algerian ministers wanted for a long time. the is still above what market needs from opec, short-term, so is it enough? jeff: if you got an announcement of 1.2 million, that would mean 32.5 million, between 70%, gets you 33 million barrels a day. 33 million barrels a day is enough to normalize inventories by the end of the first half of next year.
in the contextk of your demand assumptions and what is going on with non-opec. one of the key points was because we expect that acceleration in the underlying economy to continue in 2017, we have data this morning on a strong u.s. labor market that reinforces their ability to cut. that was really the core of our upgrade -- on economy -- on commodities, last week. drama, how much of it was real and how much of it was theater? alix: remove the last two months. how much of this was just theater? jeff: they are probably extracting other benefits that we are unaware of, but there is a point. you will try to take as much as you can, all the way up to the line where you have to make a decision.
of this deal made so much sense for everybody involved. there was a high probability they would go through with it. alix: the saudi's yesterday said they would not do anything unless iran and iraq came around. who is doing the happier dance? is it the saudi crown prince or the president of iran? jeff: i think all parties involved should view this as successful in terms of thinking about what it means to the revenue. all those gulf states were in a situation where they had to avoid the environment in which they were going to stay in that $45 a barrel range. i view it as a success for all the gulf states. david: are we sure that iran can make it up to the number that they want? something like 3.7 million is probably much more reasonable. how much more upside do
you see in the short-term and the medium-term for oil prices? jeff: our base k's was that we would go to $55 in the first quarter of next year. i think the next big milepost is going to be what happens mid-january? do we see actual reduction? these are relatively easy to watch in terms of the tolerance that these producers provide the refiners. we can see most likely by late december, early january, how successful the implementation will be. david: and you are looking forward to every minute of it. alix: jeff currie a sticking with us. up next, we look at the base metals on pace for the biggest monthly gain in four years. the news of the morning, opec reaching -- reaching an agreement to cut oil production by 1.2 million barrels a day.
2017, for the first time in four years. metals do agree, we have seen a strong rally in copper, zinc, iron ore, since the election. a lot see that rally as speculation. of commodity head research, jeff currie is with us. why is it so much more about fundamentals? jeff: i don't want to dismiss the speculators, the chinese speculators. they have had tremendous impact on the metals. they have put a situation where they clamp down on capital control, so capital can't go out. they devalued rmb and turned it into a domestic pressure cooker. when you have inflationary pressures, you want to own part assets -- hard assets, copper, zinc, iron ore.
i don't want to dismiss it, there is a real reason for that, but let's talk about why we upgraded our -- our outlook and that has to do with where we are on the business cycle. is certainwhy china to have these domestic pressures is because they are pushing up against capacity. the output gap is going across zero. we are seeing that happen in the u.s. as well. that is typically a buy signal for commodities. you are in an environment where the level of demand starts to stress the level of supply. we are seeing that in zinc and aluminum. that is the core of why we shifted to an overweight. alix: how much of that is due to the fact that the economics have seen producers care back there level of supply as countries there ready to pull back supply. jeff: the -- this apply curtailment we saw in basil and ---based metals, some of these go back to 2011.
you need to have the underlying demand growth to push demand levels above supply levels to create a much tighter market. we see the evidence of that. iron ore and copper have overshot, given what is going on in china, but you look at commodities like zinc, nickel, these are two mod -- these commodities are tight, not any growth and supply, demand growing and catching up with those supply levels. alix: does supply come back online? jeff: that is what we have witnessed over the course of the , we year, is that in zinc got those higher levels and the answer was no. we will find that out, but the thing about commodities is that once demand gets above supply, they are playing catch-up. once you close that output gap and you have growth above capacity, supply is playing catch-up and that is why
commodities outperform bonds, equities and that is why it is a buy signal. alix: take a look at global pm eyes as they continue to rise. how much is reflected in commodity prices, now? jeff: if you look at it historically, every little at this point. where you capture where it we prices is in the shape of the forward curve. what we have seen with his recent rally is a curve going to a relatively flat level. we talked about this briefly with oil. that backwardation is your signal that the market is starting to price this in. alix: what returns are you looking for, next year? returns in thehe base complex as relatively mixed. to the upside, the potential in commodities like zinc and nickel is relatively limited because of our price forecast.
why we expect to see positive returns going forward has to do with the curve shape. altogether,egate it we see returns somewhere in that 12% range. driving returns is that curve shape and we expect that to occur sometime in the second half of next year. alix: when you have the reflation thesis, what does that end up doing to gold? on the other side, you have inflation and wanting to buy gold. of our near-term bearish outlook on gold was driven by the fact that a stronger cyclical backdrop means you don't want to own gold. we have seen it selloff and the key is liquidation. over the course of the last several weeks, we have seen 5 million ounces exit. we expect to see even more exit. near-term downside risk, where do we put the longer-term price? it is agnostic. how doese reasons is the central bank respond to an environment which has the potential for a donald trump
fiscal stimulus to provide a tailwind to an already cyclically stronger environment? alix: we do wind up getting a faster paced fed rate hike. what does that do to your industrial-based metal thesis? jeff: that is the reason we like being long commodities. if you get an environment where the central bank starts to aggressively nip inflation in the bud, one thing is the reason why is you have demand pressure. demand pressure still gives you backwardation. we saw this in the 90's were you had aggressive central-bank action, but you still got backwardation. that is the reason why we expect positive returns. you still have a situation where demand is up here, supply is down there, and that tightness creates that promptness. alix: you also get a stronger dollar and typically they tend to move inversely. jeff: if you look at returns
relative to the dollar, there is no correlation between returns of the dollars. in the 90's, you had relatively flat commodity prices, rising, stronger dollar, but the backwardation is what gave you the return. rita situation with positive returns associated with a much stronger dollar. we think we are going back to an environment similar to that. alix: if president-elect donald trump does not deliver on the stimulus he is outlying that outlining, does that disrupt your thesis? jeff: it is on the tail end. alix: a favorite commodity? jeff: right now it is think -- it is zinc. demand is up here, supply is down there, that is the one that has the most difficult supply meeting demand, going forward. once you are in an environment in which you are out of inventory, you start to get that spiking price.
the words landmen slaughter come to mind -- the words lamb and slaughter come to mind. it is a given that oil currencies are some of the biggest energy producers -- and some of the biggest energy producers are going to take a hit if the price falls on opec, but some are more vulnerable than others. this chart shows wti and white, the russian ruble in blue, canadian dollar in purple and the malaysian ringgit in pink. the ruble's correlation with crude, you can see at the start of 2016 it was negatively correlated. correlation is now not only positive, but among eight crude linked currencies tracked by bloomberg. at 40 day and at the highest 0.75, followed by the canadian dollar and the brazilian reality and in asia, it is the malaysian ringgit that treats the most in line with crude out of those asian currencies, not surprising
it is the region's only get oil exporter. -- only net oil exports. david: that explains why the russians are willing to have a cut. alix steel, it is your turn. alix: this might be too deep, but the question is, where will we see the cut when it comes to oil? this is the difference between heavy and light crude. this is dubai crude minus malaysian crude. you can see -- here is the zero line, so anything above it, you see the dubai heavy crude coming in stronger. rally, heavy crude coming off the lows of the year. the reason why that is significant, the opec cut, anyone we get will be in the heavy market, so the probability
is you will see heavy crude rally more than light crude and that is important because of differentials and markets and who will buy from whom. theoes nothing to help print market or the wti market. any opec cut will help a certain slice of the oil market. you are still dealing with a oversupply. david: what in the real world changes the differential? alix: we have a lot more -- 69% of world production is in light, so you don't have that much heavy to begin with. a cut will make the market even tighter. a lot of refiners are set up to process heavy crude and the demand is there. david: that is truly fascinating. cehic.vote with nejra congratulations. it was just over my head, alix. breaking news we had this hour,
daybreak." davidlix steel near westin. we have 30 minutes ago until the opening bell. as an be futures around the highs of the session. up .3%. energy fueling a rally in europe. this story in the market continues to be crude oil. brent crude up nearly four dollars, up over 8% as opec appears to have reached a deal to cut 1.2 million barrels a day. the 10 year yield backing up by eight basis points. the dollar is grinding higher. need toere is what you know. let's make a deal. opec has agreed to cut output by 1.2 million barrels a day. this would be slightly under the target of 1.4 million barrels under the terms that were being discussed. a november to remember. stocks set records. year high is at a 13
while treasuries had the worst month since 2009. rally continue? donald trump's. steven mnuchin says that donald trump plans to nominate him as the next u.s. treasury secretary and wilbur ross confirms he will be the pick for commerce secretary. that is what you need to know. alix: i want to did deeper into the move we are seeing in the market. the gasoline futures are up almost 6%. this is the biggest one-day rally since every four crude, the highest level since the end of october and no end in sight to the rally. pricing in a swing in the market and we are halfway there. individual names here, take a look at the secondary effects. california resources up and ensco up by about 11% as well. the s&p energy sector is the
best sector so far as well. by 15%. we have breaking news. more on opec. david: first, we have to say officially trump has announced that steven mnuchin will be the nomination for treasury secretary and wilbur ross will be the nominee for the secretary of commerce. now, donald trump made it official. and now, we want to go to opec in vienna. annmarie hordern joins us now. bring us up to speed. we have these delegates that we are not naming. tell us what is going on. are we learning anything new? what we have learned now is that delegates are still discussing iraq. they're questioning the sources and that seems to be a sticking point but delegates close to the matter have told delegates that we do have a deal. incredible for the market.
it isn't just the last 48 hours but opec has been trying to do this since april when it talks collapsed. taboo dobby,n in and have met in his symbol meeting in vienna, countless hours from hotel to hotel, getting stocked by journalists, and they finally are getting a deal done. the question remains -- how much will each country cut? we silly to know how much saudi arabia is cutting. that thet 3.9 means saudi's will have to take the brunt of the cut. they have softened their position on iran. alix: we will be digging deeper into the headlines through the next hour. that was annmarie hordern joining us. the international agency energy director says if there is a cut, you would have u.s. shale producers going back to work. the hugechunk of
amount of the u.s. shale oil will be profitable. but some shale players disagree. what heto -- about would do with $60 oil. independent producers in the u.s., they have shown tremendous discipline in the last two years. with the downturn. alix: do you think shale will thatn that downturn -- disciplined? harold: i do. i speak for me. i speak for continental and our company and we have no intention and employing more rakes beyond $60 oil. alix: joining us now is lee boothby. his company is one of the pioneers in oklahoma. attracting a lot of money and
rigs even when oil was at $45 a barrel. a big pleasure to see you, thank you for joining us today. lee: good morning, thank you. alix: what are you doing? says he will be more restrained. what are you doing? always good tos hear from harold. i think the strategy will remain very much focused on being in tune with the market. the announcement this morning with the opec cut is a near-term positive and we will wait and see how it plays out. we are in a great position. basin has a lot of economic resiliency and good returns. at $50 in below. so as you move up the rice curve and get more confident of the outlook, we will be able to add activity. big part of that is what it does to the curve. i have charted the wti curve.
the orange line is the current curve and the green is what it was a month ago. at the front end of the curve, $54 oil in 2017-2018. what do you do with that information? how does that change how many rigs you are adding and how you are hedging? we are this point, already adding rig activity in preparation for 2017 programming. we will continue to watch and monitor the actual actions that opec takes and the impact on the market. when we look at the type of the returns that we generate in the antarctica basin at $50, you ofe strong 40%-50% rates return. clearly, as the product price moves up, 60 dollars, those returns improved. additional cash flow will ultimately translate to incremental activity. we will wait to see that
developing. with regard to hedging, we are pretty open at this point, relative to the backside of 2017 and 2018. we remain constructive on the time frame of 2018 and forward, with regard to supply and demand and the impact on the marketplace. alix: so not a lot of hedging because you want to take full advantage so you are bullish. what is your bullish call for the next few years? 34 yearsknow, i think in the business causes us to be a little bit cautious with regard to protecting actual price, so we will take the positive move by opec today with regard to reducing the supply side. there is still a lot of oil in storage around the world that needs to be worked down. ultimately, we need strong positive economic activity on the global macro to drive the
demand side of the equation. frankly, i think what has been proven with the downturn is the wonderful, great gift of unconventional oil in north america, followed by the ofvious efforts, in terms conventional gas resources. it puts the u.s. in a strong, competitive position with regard to produce and compete in the world energy market. we are excited about that. and i think 55 dollar-$60 environment, there will be a lot of activity in the u.s. and you will see supply start to grow again. the saudi gain is worst nightmare. you have five rigs currently, how many are you planning to add in 2017? lee: well, we are looking to start the year with a rate count that will probably be about double that number.
the nice thing about these unconventional plays is that they are short cycle plays so you can add rakes and speed up when it is appropriate and slow down if it were the appropriate answer. we will start the year with something approaching double the activity levels that we currently have. get $60 oil, how does that change the equation? lee: we will continue to monitor that. we expect the markets to remain volatile in 2017. au see demand growth and strong economy, then we will expect to be able to add additional activity as the cash flow grows and the return space improves, with regard to plays that are being explored in the scoop- notably for us the and sack plays in the antarctica basin. alix: how much of that will be new production and how much will that offset your decline? lee: well, i think the first
thing we will do is, when we think about capital spending, our maintenance capital efficiencies that our teams have captured over the last couple of years with drilling completion $700iencies, levels are at million-$750 million a year. so what that means is that the investment levels, our production would be flat year-over-year. investment levels above that, we would be delivering growth. what is really exciting is that we transition into development in 2017 and it sets us up for an exciting 2018-2019 timeframe as we get the leverage off the development program. alix: to further and get more aggressive with your development, you have to get cash. you have been offloading other assets. can you talk about how you will structure that, going forward?
how much more do you feel like you need to sell and how you scale up? i think our team has done a good job over the last several years. 3.5 billion about dollars of assets and we used the asset equity to invest in plays in the future. plays like scoop and sack. we have done a good job of getting them assessed and helping production and we are moving into development mode. -- on the development sheet that came from asset sales this year, notably sales in texas. so we are in a good cash position going into the year and in a great position to accelerate activity as a result of that. and beyond that, we will just our finger on the poles of the our finger on the poles of the market. we will adjust our activity up or down as appropriate. alix: talking to you, you are
very measured and your approach, which is different to some of the other shale ceos that i've spoken to. what do you find to be your biggest constraint when you put lots of money to work in shale? lee: a great question. i will just say simply that we have the organizational capacity to go faster. we have the desire to go faster. but it is important to go faster at the right time. and we have worked hard as a team to put our company in this great position. we have wonderful options with regard to the assets. we don't feel any stress with regard to market conditions. and frankly, no need to get really boy and guns a blazing just for sport. rightk we will make the decisions at the right time and we will drive significant production growth over the next several years out of these assets. we are fortunate to have them and i think it is a great story leaders and wed
will do our part in the industry. learning fromyou the downturn over the last few years? is it a cash flow issue? a leverage issue? why not just go full out now? lee: well, i think if anybody would tell you in this industry that they haven't learned a few lessons over the last couple of as to i would go so far say that over the last 3.5 decades, we have had four major events. commodity cycle downturns -- they happen every eight years so you know that this is not the last cycle that you have to work through. we find ourselves in a very strong financial position. we have worked hard to get to that position. to putwould be imprudent that financial strength at risk. ahead, see in the road
which is really exciting, and i expect some of the other ceos that you are referencing c as well, with the quality of assets that we are exploiting today in north america, we see a future where we are able to deliver double-digit growth over multiple years inside a cash flow. that is a healthy place to be. we are in a reprising commodity .arket rising tide's flood all boats. we want to make sure we are making smart decisions and work hard for the investors. we think the way to do that is to be prudent. great stuff. we appreciate your insight on this historic day for opec. lee boothby. an update, we go to the first word news. emma: donald trump has officially nominated his treasury and commerce secretaries. that is steven mnuchin and wilbur ross. he is still looking for the next
secretary of state. last night, he had dinner with mitt romney. who was harshly critical of donald trump during the 2016 campaign but now, he is full of praise. >> he did something i tried to do and was unsuccessful. he won. and he continues to bring people together. and this is something that obviously connected with the american people. over the last few weeks, he has been carrying out the transition effort. i have been impressed with what i've seen. today, john kelly returns to trump tower for a second interview. dismissing calls by british lawmakers to protect expatriate rights after exit. members of parliament are trying to broker a deal with other eu countries and eu nationals living in the u.k., so they would not be forced to leave.
-- says if they want a deal, they should start formal talks now. fidel castro hot ashes have begun a journey across the nation to their final resting place in santiago. crowds chanted as the convoy passed by. traces in reverse the victory tour he took after seizing power. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. this is bloomberg. david: thank you. , steven mnuchin will be the treasury secretary. we discuss what this nomination means for financial institutions and the markets, next. this is bloomberg. ♪
david: this is bloomberg. officialuchin is the nominee of donald trump for the next u.s. treasury secretary. , if confirmed, he will join other prominent goldman sachs employees. george w.on under bush. for more on what this means for donald trump policies, we are joined by neil borofsky. welcome to the program, great to have you here. neil: thank you for having me. david: you have a particular whenective having come in things were bleak in terms of financial institutions. it was a mess. and to try to help sort that out. what do you make of this appointment and what can be read into it? hel: it signifies potential a big break from what donald trump was saying on the campaign trail, when he was anti-wall street and anti-big bank and
anti-goldman sachs. david: he had ads that named lloyd blankfein. he talked about breaking up the big banks on wall street. a very populist message. but now, he seems to be turning back to -- turning back the clock in some ways of bringing back a senior executive from goldman sachs. it seems like a lot of the campaign promises, probably not so much right now and going back to what we saw when -- became secretary. to europe ofring deregulation, which could ultimately be profitable in the short-term but harmful for the united states in the long-term. secret of the no fact that he was against regulation when he was campaigning. neil: that's true. he did talk about bringing back glass-steagall. so the regulatory theme, with solid rules, it would help
protect the financial system from the excesses of large, too big to fail institutions. that is what he campaigned on. the deregulatory side? and the breaking up of the banks or changing the nature of the banks? be a fieldgoing to day for the big banks? david: what did we learn or what should we have learned from 2008-2009? someone say we miss learned the lesson and in fact, we overregulated. that the government got way too involved. people making decisions -- neil: this was a conscious decision made by the obama administration about what to do with too big to fail banks. one option on the table, an option that could have been executed, do something simple. break them up. whether it is bringing back last eagle, higher capital
requirements or something like that and shrugging them down to size. if they did that, you wouldn't have the incredibly complex regulatory scene that we have now. it is too complex and complicated. but what they decided to do was to make the banks even bigger through regulation and then micromanage through this complex patchwork of regulations that is dodd-frank. look, at the time i thought that was a mistake. it assumed that the regulators would be able to do things they had not done before. and second, it trusted that whoever the successors would be would have the same mindset. they would use the regulations, and believe in them, to rein in the risk of too big to fail. we are going to have an administration that may very well take away the protections and be left with, frankly, where we were in 2008 but even more so. with bigger banks and with a
market presumption that they will be bailed out if there is a problem. stevenso advice to mnuchin as he comes into the job -- last eagle, it will be awfully hard to reimpose. the minneapolis that president has been talking about ramping up. could there be a package that would take care of a lot of the behavioral requirements, really dialing them back, but on the other hand, regulating with substantially higher capital requirements? we canhat is the most hope for in the current regime. ishink the idea of a breakup now gone by the wayside. but there are a lot of people who donald trump was talking to who are advocates for much higher capital requirements, which can blunt some of the dangers of reduced regulation. but we will have to see. i think some of the comments by steven mnuchin this morning when
he talked about getting banks lending again and removing the restrictions on lending, it is often a dog whistle on the regulatory world. this might be viewed as a rejection of those advocating for higher capital. david: we are all trying to read the tea leaves. if you go back to the website, it drew a distinction between the local regional banks and the big banks, on the other hand. he could be talking about the smaller ones. politically, is that something that would be attractive? that isthink inevitable. strong support from day one from the independent community banks and there are favors to pay back. and one of the problems with dodd-frank is the way it treats smaller and regional banks. they get swept into the regulations. so i think that is a rational
place where you will see that. but my fear is that too much regulation on the smaller banks and pull back will lessen the regulatory load on large banks in a way that is potentially dangerous. david: stay tuned, much more to come. that was neil borofsky. alix: thank you. here are the three charts you need to know as we head into the opening bell, five minutes away. the first has to do with oil. brent crude up over 7% on the report that opec will initiate a production cut of 1.2 million barrels a day. there are still a lot of , holding steady around $50 a barrel. currencies are moving. u.s. dollarat the index, jumping higher after better than expected date of that came out with personal spending and consumption. adp employment data.
moving significantly higher today. the highest level against the yen since march. rates are no surprise. take a look at the 10 year yield. the highest jump since july 2015, the two year yield jumping just as much at the highest level since 2010. yes, you have higher oil prices but you also have utter economic data here in the united states and you have the adp employment data coming in higher than estimated. we head into the opening bell in a few minutes, futures are modestly higher. s&p 500 up by eight points. the dow of by 67 points on this historic opec cut day. ♪
you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. david: this is "bloomberg daybreak." we are moments away from the opening bell in new york. we will take a look at the premarket before the open. across the board, up in futures
for equities, the dow is posed for record numbers. the second board, in many ways that is the more important board. you can see it there with the brent crude up almost 7%, this is on the reported news of an opec deal. you can see the reaction there. the dollar goes up and also the ,0 year yield is up once again up nine basis points up to 2.38, who would have thought that before donald trump was elected president? quite a development. a new record high for the dow jones industrial average. it has beat out its previous closing high. the s&p is still light. the nasdaq is also inching towards a record close. so those are the key levels that you want to pay attention to in the market. the big boost has to do with oil wti helping to
lead the industry higher. you also have a stronger dollar and a big selloff. in bonds and the buying of stocks continues. and out of oil data opec isn't good for all stocks. in particular, airline stocks are getting hit hard. american down by 2% as well as delta. ofled makes up 16% of all the cost last quarter and united airlines had the highest fuel costs and percentage among all 2015.jors in so higher crude prices end up hurting. watch the airlines today through the market. continues in the theme of today is selling bonds and buying stocks. this chart illustrates that clearly. this is the 10 year yield in the blue line and the white line is s&p s&p index.
earlier, the s&p was yielding more than the 10 year yield. why would you not buy stocks when you are getting more bank for your buck? but now it has shifted and the 10 year yield is rising above the s&p for the first time since march, 2016. that raises the question -- yes, the rotation from bonds to stocks is continuing but for how much longer? at what point does it get so appealing that you have to get in and buy? for more on the rotation you have been talking about, we are joined by the western asset manager senior portfolio manager. they have over $400 billion. welcome to the program. let's address her question. can this keep going? the divergence between returns and bonds? are up over 50 basis points.
but in reality, it is probably not unwarranted. donald trump's policies will add the between 50-70 five basis points to gdp. we probably bearing -- we probably bring the market into reacting rationally. we have gone from one said tightening to two. again, that seems fair. but at these levels, i think that is pretty fair. i would think that it is about over. i think it is pretty close to the time to come back in. remember, the u.s. market versus the rest of the world is a bargain. you have the second biggest bond market in the world. armany yielding less than quarter of 1%. so to the rest of the world, it seems like a party. part: does this depend on in what the fed does? carl: sure.
the bond market likes it when the fed tightens, that means they are being vigilant. inflation is close to 2%, that it is not out of control. we are not a believer in the thought that inflation is running away from us. alix: only 33 basis points on the two year. do you expect a deeper selloff in the front end of the curve? carl: a traditional environment is a flattening of the curve, that seems fair to me. the yield curve should flatten from this point. alix: would you be a buyer on the long and and a seller on the short end? carl: yes. alix: is there a different play to be made? is this your opportunity? carl: a no-brainer is buying bank bonds. you have an environment of the regulation coming down the road. the only negative was net interest margin and that has been taken care of with a said in play. so u.s. banks and spreads are a
bargain. the other issue is that at what point does this eight into financial conditions? i have a chart that calculates financial conditions versus the s&p. you can really see how closely it tracks u.s. equities, they make up a quarter of the index. this is a huge divergence. financial conditions are tightening but you have s&p rallying. how long does that sustain? carl: it makes sense because the will addump policies to inflationary pressures so you need somewhere else to have the pressure taken off and that is with the fed raising rates. david: going into bonds, not all bonds are created equal. what do you like? inl: i think mortgage credit general is a good place to be. u.s. households are in good shape. u.s. residential mortgages and commercial mortgages as well.
alix: so where are the risks? -- are youing is saying it is a buying opportunity? where is the risk? all ofhat he cannot pull these off at the same time. it is hard to have fiscal stimulus with trade policies that potentially could slow down global gdp. i'm of the feeling that he can pull it off but it is certainly not a no-brainer. david: the u.s. government is back in issuing lots of bonds, what does it do to the bond market? carl: it puts pressure on rates. we believe fundamentals win the war. so global growth, inflation levels over the medium and long term. i think negative rates are holding a beach ball under a water, it is not a natural state of affairs. the jury is out on the
effectiveness of this, it is causing cash hoarding. so i would avoid the rest of the developed world. bond markets is a fair and some of the emerging markets -- this is the most controversial. i think select local currency much higher yield advantages -- russia, poland, resilient -- they could certainly offer good returns. david: but then you have a lot of fx risk? carl: certainly, but you have such a high rate differential, russia is at 9%, so you could be wrong on the currency and still be ok. alix: so that brings us to the news of the day. opec and the rally in oil. how do you play this? carl: it is a game changer to to come together. the supply-demand in balance in the world -- oil was very small
and the number i saw this morning is about that so we are now more in balance. we are bullish on energy bonds, particularly low-cost producers and the more conservative balance sheets. oilidn't buy them on jumping today but it is the icing on the cake. david: are you worried about stagflation? that weat all concerned will get inflation going up but the money won't be spent in a way that we will have actual growth? a lowi would say that is probability event. it isn't one we consider to be very probable. it is certainly a tail risk. david: ok, that was carl eichstaedt. great to have you here. coming up, what steven mnuchin's nomination could mean for the markets with john allison. this is bloomberg. ♪
to cut 1.2 million barrels a day , abigailg deeper doolittle joins us now. abigail: the nasdaq is shy of its record high but let's look at two stocks that could help the index into record territory. wind resorts trading up higher as deutsche bank has upgraded them to a buy. the vip gambling segment could help the resorts and it could help increase growth revenue. been upgraded to 15%. while this stock is up more than 40% this year, she believes the the ip segment could help them go higher. higherhares are trading on the day after the company announced it is cutting 15% of the workforce and shuttering its entertainment division. action camera maker. they say this could help them
move back towards profitability on a non-gap asus. and we going to the bloomberg 5191, thee a look at bottoming along. so it is catching support. reversal mesa just that gopro could trade back to the top of the range for 40% upside. it will be interesting to see if that happens into the holiday season. david: big news out of donald trump tower. donald trump officially announcing he will be nominating steven mnuchin to be the next treasury secretary. he had this to say this morning. steven mnuchin: our number one priority will be the economy, getting back to 3%-4% growth. we believe that is sustainable. that is absolutely our priority.
is a: john allison iv board member of the cato institute. coincidentally, someone who talked to donald trump about a position in the administration. he was among the names, thank you for joining us now. great to have you here. job, ouridn't get the constellations but there were other jobs available. i'm not going to ask you exactly what you talked about but i am going to ask you -- what are questions you came away with about where his priorities are when it comes to the economy? we just heard from steven mnuchin that it is all about growth. definitely, that is true. that is the focal point. he believes we have been underperforming and it has had negative consequences for the working class. , butinks we can grow 4%-5% settling at a 3% rate.
he has focused on significant tax reform, not just cutting tax rates but structural reform with flatter taxes. and he very focused on regulatory reform. obamacareo get rid of with significant rollback. like to repeal dodd-frank but mostly, he talked about radical reforms to dodd-frank. david: tax reform and regulatory reform. questions is, how do you pay for that? and how do you pay for that without substantial deficits coming in? are you have a sense of how that might be done? i think they are willing to incur an increase in deficits in the short-term, because they believe the only solution to our long-term deficit problem is much faster growth rates.
and they are convinced, donald trump is convinced, that we can sustain a much more rapid growth rate. so i think that dealing with the deficit problem is secondary to accelerating the growth rate. david: there have been instances in history where that has worked well but there have also been incidents where it wasn't good. what is the difference between those two and how can we make sure it would be directed to true growth? question.eat i don't think anyone knows the answer to that. i'm not a big fan of ink ofucture -- big fan infrastructure investments unless they are needed. it isn't necessarily the best allocation of capital. at this point in the cycle, the psychology of focusing on growth is helpfully -- is healthy. we should be putting a focus on flat cutting government
spending. i actually think that is a bigger issue than a deficit. i think that may become a priority in a few years but today, they are focused on growth and they are willing to take the risk. because they think it is a necessary risk to take. talk about regulatory reform. donald trump has talked about that extends of lay. how do you actually get that done? well, they believe they can get it through congress, i'm not a politician so i don't have an answer to that. obamacare hasthat clearly failed. they believe that was a huge issue with donald trump getting elected and the democrats, at some level, have to know that. they will be willing to negotiate on that issue because millstone around the democratic party. so whether that is accurate, i don't know. happenedok at what has
to the cost, going out the roof. people are very unhappy with it. all it has really done is load up medicare and medicaid -- medicaid, really. that on some level most democrats know it and they know it is a political millstone. david: you can argue whether it has been efficient or not, but when you talk about growth, economy has been growing in the health care employment -- health care industry. especially employment. the question is, how efficient is the expansion of medical care being? you can pay people to dig kohl's in the ground but it doesn't necessarily increase productivity. might that feeling is that it has misallocated a lot of resources and it has taken away whichice pressure
increases productivity. what we ought to be worried rate andthe growth productivity and at the end of the day, you can't consume more than you can produce. so obamacare likely misallocated capital and reduced real productivity and we can have a better allocation and put more price pressure on the medical industry, which will raise productivity in the industry. you have been a proponent of cutting back on regulation. would you be open to a position on the regulatory side of this administration? it's something i would consider. it would depend on the job and the role. i am really opposed to dodd-frank. i think it has done a lot of damage to the economy. what it has really done is kill small businesses, a big producer of growth. that wasn't the intent but it has been a practical effect. so anyway i could participate in
that process -- there is a bill in congress today called the choice act which would be a radical improvement. it says that if a bank have a lot of capital than it is out of regulation which is fair. banks can't have a lot of capital and have the regulatory cost, it won't work. david: thank you so much. that was john allison. the top ofg up at the hour is "bloomberg markets." joining us now is vonnie quinn. in vienna in itself, talking with some top analysts. we will talk about exactly what you've mentioned. and we will talk with the senator blumenthal, he has a letter to the attorney general the president-elect's conflict of interest. we have just heard from the president-elect that he will be giving a news conference to
address this issue but we will ask senator blumenthal what he intends to you in the meantime and where exactly the main conflicts of interest are. we will also speak with alice rivlin. any corporate tax overhaul that might be in the works. alix: thank you so much, "bloomberg markets" up next. around $50 a barrel, up around 7% as reportedly a delegate says that opec has reached a deal to cut production of 1.2 million barrels of oil a day. a monumental moment for opec. the first cut in it years. this is bloomberg. the first cut in 8 years. this is bloomberg. ♪
eight years. we spoke to jeff currie after the news broke from the n up. take a listen. jeff currie: our view -- the economics of a deal were incredibly compelling. they had a rebound's market in the line of sight. so what they had to do was cut production and pull forward and already balanced market. why do they want to do that? the main reason is inventory normalization and not price. david: for more, we are joined by annmarie hordern. what do we know about the deal as of now? annmarie: as of right now, we know that they have come to an agreement and they say they will 1.2 million barrels a day. we are still waiting on how much each country will cut. we know iran will be 3.7-3.9
million barrels a day. so basically they want is a 4.5% of the opec cut. internal strife in the country means they would not be able to handle it so it puts the saudi's at over 10 million barrels a day. we are still waiting on confirmation for each country but ready impressive that they were able to get this deal done. the whole year has been intense. april and now to be a will to come to find a consensus within this. ,nd now all of these meeting up it is about hammering down the details. david: dallas annmarie hordern who is reporting for us from the nl. we have a press conference coming from opec. alix: we continue to get headlines.
opec is likely to meet with non-opec producers next week and the third prong is that indonesia will be removed from opec and it does not affect the size of the cut. is a bigss, that significance with iraq agreeing to a cut. to russia -- what are you going to do? david: a big story but it is not over yet. we stand ons where this momentous day. a record rally in the dow jones and crude approaching $50 a barrel. that does it for "bloomberg daybreak." this is bloomberg. ♪
vonnie: we are going to take you from new york to vienna and cover stories from anchor, led -- frankfurt, london, and washington, d c. first, the latest economic data in the u.s. julie hyman is that the markets desk. julie: pending home sales rose more than estimated. it is in line with what was estimated slowdown from the prior month. a bit of a misread from my part. down from 1.4% increase the prior month, revised downward a little bit. in terms of the other economic data, it has been largely positive. the adp jobs report coming in better the next amended -- better than estimated. personal incomes rising even as personal spending