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tv   Bloomberg Daybreak Americas  Bloomberg  December 8, 2016 7:00am-10:01am EST

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"bloomberg daybreak," i'm alix steel, alongside david weston. we are less than one hour away from that all-important ecb rate decision. the dax is over 11,000. european stocks looking at the longest rally in two months. it will be a story of euro-dollar at a three-week high . heavy into that ecb decision. the board, thess italian 10 year yield is backing up by six basis points. david? david: here's what you need to know this hour. draghi's decision. everyone is counting on an extension of the quantitative the italianam as lender, monte dei paschi, is said to be asking for more time. we are expecting the news conference at 8:30 a.m. eastern time. china, lift. chinese imports surging on strong demand for raw materials,
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snapping a seven-month losing streak. deal maker, russia selling an $11 billion stake in its largest oil producer to glencore and the sovereign wealth fund. the russian president went on national tv to tout the deal as one of the largest acquisitions in the oil and gas sector in the world and -- in the world in 2016. that's what you need to know at this hour. let's turn back to our main story, the upcoming ecb decision. we turn to our bloomberg team in europe, with our colleague, matt miller. looking rather cold over there. and paul gorton, who leads the coverage overall of the western european central banks, in a somewhat warmer situation. matt, let's go to you. what do we need year from the ecb and mario draghi today? matt: what we want to hear, david -- by the way, it's great to hear your voice -- is that there will be an extension of
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the quantitative easing program. the consensus is six months past the march deadline and about 80 billion euros a month, a continuation essentially of the program as it is now. what investors are concerned about, and correct me if i'm wrong, paul, is that he willed -- failed to deliver -- he will fail to deliver the consensus, tapering the end of qe, which is why we see a take-up a bit of italian yields. david: what about that, paul? we get nervous when there is consensus because there is disappointment possible. paul: right, there's a possibility, non-negligible, i would say. withake him up -- come out something that is neither this or that. tapering is somewhat unlikely, although you can't rule it out. the extension of six months, 80 billion euros a month, is
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largely what is expected. what if he comes out at nine months, 60 million, or some other contribution. published only one week ago, the interview was one week before that, saying that there were different, nations. we could do different sizes, so you got to rule that into the equation. matt, take us inside the politics. we know they have their own internal politics here. mario draghi has to be somewhat concerned that he doesn't go too hard, right? matt: they do. and draghi, of course, is very supportive of the program. he wants this program to be successful. but maybe he doesn't want to end it so quickly. i think some of the economic data that we've gotten as far as expectations has been positive and that might lead you to believe that it's time to wind this to an end. i'm not sure if he wants to do that, but others on the
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governing council want to. is that right, paul? there's a very good chance that the ecb will say, when it unveils the 2019 forecast today, that inflation in the year will be in the region of 1.8%. just under the goal of 2%. the key thing is that it has to be sustainable. it's no good falling back again from 1.8. that's probably where he lies. he wants to go as far as possible to make sure that that is fully entrenched. the risk now is that that will not be fully entrenched without good structural reform to the economies of europe. given the access we have had in bigger economies like germany and france, those reports are probably not in the cards. it really raises the logistical question of how they do buy more bonds. matt, take us through the three kinds of scenarios that we might hear mario draghi layout at the press conference. well, it's a very good
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.oint, alex -- alix they only buy bonds that have durations between two years in 30 years. there's a scarcity, since they purchase a many. if we get to the next nine months, say, or a year, they could be other threshold for bonds. they could have artie bought 33% of all the new issues and because of their own rules, they have to stop there. the question is -- will they change the rules? allowing themselves to buy more or a different duration that would change the ratio? paul, give us a sense of how much mario draghi and the ecb need to react to what happening on this side with the election of donald trump. it's a different world that they are looking at from a month ago. paul: ironically it has helped a bond yields,sing
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reasoning more bonds falling into the eligibility pool for qe. but that's the chief concern, you are right, what happens of this comes off the rails? we have had trump, brexit, the italian referendum, german, french, netherlands, all coming up. establishment coming into power holding a referendum on the euro. out.s pointed that it hasn't manifested itself that strongly yet, but it could in that's a good reason to keep some powder in the keg. alix: the other question, the elephant in the room -- the stronge ask you, dollar, because of the trump policies, is that affecting mario draghi's decision-making at all? of course, a stronger dollar helps the euro in terms of its exports. ,he euro pound, rather strong
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ever since brexit. therefore, that can weigh on trade, but i think the bigger issue in the euro area economy is what happens to yields. it's ok they rise a bit, but it's not ok is the rise a lot or spreads blowout. thanks to paul gordon and matt miller. we will be coming back to you, matt, so get some place warm for that. alix? to a global getting fixed income strategist joining us from london. can see, it's the overnight anxiety in the euro. volatility over the last two days. you can see the big spike that we have seen. what are traitors most anxious about. kit: at the moment i think they are anxious in a bunch of ways. my sense is that the vast majority of people in the market expect extension and the ecb
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bond buying program, 80 billion euros per month for some time. the anxiety is -- what if he doesn't quite deliver that? a lot of people were caught up by the speed of it in the italian bond market this week. for a while.rexit trump, pretty quickly. the italian referendum in a couple of hours. people are being caught out quite regularly. sure, but now we hear that the bank might go to ecb executives for the potential of recapitalization. how is mario draghi going to address this and the potential volatility? kit: this is his task today. his problem is the economic environment not getting worse, core inflation picking up, there is pressure to start slowing down the pace of bond buying and
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start tapering bond purchases. get annot be able to agreement just to carry on with this 80 billion euros per month rate. but he really is going to be trying to be as noncommittal as possible, give himself as much flexibility as possible, because he doesn't want an adverse bond market reaction to something the ecb is doing while he has so many other things to worry about. take us to the geopolitical risk issues. seems like mario draghi has to take this into account, that to the spreads and peripherals if a signal that they will start backing off? >> i would be concerned that the narrowing we would see over the cap -- the last two or three days could be reversed quite quickly with peripheral spreads moving and potentially reacting negatively to that, despite it being a good thing in the long run.
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remember, we have crowded european investors out of european bond markets. by creating a shortage of managers,onds to bond weakening the currency and driving the spread for the best part of two years. ,f we start to go the other way it could have a significant impact. just remember the taper tantrum when the fed even mentioned the mere idea of tapering bond purchases back in 2013. you know, navigating this in terms of what it means for peripheral spreads and what it means for the currencies requires, you know, tight rope walking, if you like, from the ecb. that theyother prong have to address, take a look at the repo fund rate in germany. the down move here indicating a stretch on the market, it the end of november you saw that moving lower. the idea being that they use bonds as collateral, the ecb buys them all and there's nothing left to lend.
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how does the ecb address that? it's another of these indications where they can start to lend them out themselves and help with liquidity in the system, but it is an indication of the difficulty you have when you own more and more of the market. going by $80 billion per month extending beyond march, they are already going to have to increase the share of each of the bond issues they buy. buying maybe lower yields than they had before. various amount a of tinkering around. if nothing else you get the sense that we are scraping the bottom of the barrel with what we can do in terms of qe in europe. time, the original rationale for doing it, the exceptional circumstances in the economy don't really add up to some of the members and the council. this policy is coming to an end and the unintended consequences of it are becoming clear, but they don't want to end it quite
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yet because it is too much else going on. will beit juckes staying with us and we are waiting for the key policy decision coming out today, followed by mario draghi paz news conference at 8:30 a.m. eastern. alix: right, so we are looking at that really big deal. glencore and cutter by at a 98% stake. hitting a record all-time high over in moscow, this deal prevents them from doing a massive share buyback that was putting a lot of pressure on rosneft. it is their second largest deal by 2%. in london, bank of america put the annual market on rocketing from -- marketing from the deal at $80 billion. next fivever the years is going to see 400 million barrels. a few for them. really makes them even a bigger
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in oil trading as profitability continues to come lower. the other start of -- part of the story is the banking and the financing. , they arefinancing putting up $320 million in cash. thatest comes from banks, stuff up by 1%. the interesting part, and beetle be talking about this later in the show, does that violate the spirit of the western sanctions against russia? david: it's a really big, really important question. coming up, more with kit juckes. the yuan has fallen more than 10% against the dollar. chinese exports are up for the first time in seven months. is donald trump right about china being a currency manipulator? that's next. this is bloomberg. ♪
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alix: this is "bloomberg daybreak," i'm alix steel. the other big story this morning was the increase in chinese of 1%., but by 1/10 you can see the increase there on the white line. why? take a look at the purple line. that is dollar u.n., -- dollar exportelping the scenario. the question is, does that continue? do we have a lower yuan and do exports continue to advance? is that fuel donald trump us concern that china is a currency manipulator, david? david: thanks so much. to talk aboutckes that very question. we had these numbers coming out overnight from china. numbers,e i get these it's an entirely different result if i'm asking about dollars versus yuan. how much of it israel economic
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activity and how much of it is just currency? there has been a pickup in economic activity just globally inside the second half of this year, but in china as well. a year ago we were all worried about continued economic slowdown in china, but those fears have somewhat eased. there is a real story here that does help them. that is much more of a story the currency becoming a big boost exports at this time. that good news for the yuan, which is come under a lot of pressure in the last year. kit: it is still likely to come under pressure. the other data that you saw yesterday was another big fall in the chinese foreign exchange reserves. if they are manipulating the currency, they are intervening to stop it falling as fast as we the financial markets would make it fall.
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they still have significant capital outflows at this point in time coming out of the country they would like to weaken the currency and i think with the chinese authorities are trying to do is manage a steady pace of depreciation to get the dollar yuan rate from a little bit under seven at the moment to yearsing like 7.3 in a time. so, a slow pace at the same time they are controlling this capital outflow of reserve reduction. >> you took is exactly to the currency manipulation question that is on our minds right now. yesterday we sat down with tom barrett, a very close confident -- confidante of donald trump, and this is what he had to say about declaring china a currency manipulator. a currencya is manipulator? what's the final at that is. that is if the chinese are using u.s. bonds or securities, they can avenue and flow the value of their own currency and also evan and flow the value of our currency.
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so, on the one hand where we have trade regulations, which by the way are thousands of thousands of pages, and mostly unenforceable. i think there have been two of the enforcement acts in the last 10 years. david: take us into the currency manipulation question. does it make sense for the new president to call china a currency manipulator? they will come, back and say -- if we let it flow free, will you be happy? we all know that it will get weaker and that won't make anything better. i don't think it serves a useful purpose except in so far as perhaps mr. trump will want to send out a message to them to say -- look, we are not happy with the fact that the currency is weaker. particularly we are not happy with the size of our bilateral trade deficit with you. we would like to send the message that an ever stronger dollar to something that we are not going to tolerate. that message, i think, makes some sense.
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david: all right, kit, think you some much for joining us today. that's kit juckes, of societe generale. alix: a stunning reversal of fortune from glencore. what is behind the deal? next. this is bloomberg. ♪
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david: this is bloomberg. i'm david westin. we thought it was all about opec. turns out vladimir putin had his own ideas when it comes to what to do with the major deal to sell a large chunk of rosneft to glencore and the cutter investment authority. that gives us our morning must-read. he proudly claimed on television that this is "one of the largest acquisitions of the oil and gas sector in the world in 2016." the head of rosneft gave mr. putin all the credit, saying " the deal became possible only --nks to your personable
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personal contribution." to make sense of this, we are joined by ken hoffman and our government editor for russia, tony. tony, start with the russian angle. how important is this to him that he is back in the business now? tony: it is very much an indication for putin and for russia, because it very much demonstrates that it makes a mockery of the international sanctions that the european union has imposed for the last two years on russia. rosneft, a sanctioned entity, has managed to do this deal with it isre and, by the way, their biggest deal with an arab nation. putin has managed to make everybody look rather foolish if they try to isolate russia economically. they are very pleased. david: briefly, how much of it is the money? he's got problems with his budget, but how much of it is -- them back in business,
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these sanctions are not going to hobble me. it's a twofold -- tony: as you say, it's a twofold message. internationally it is putin flying a flag as the moment that trump comes in, but he's here and you have to deal with him on his terms. alix: my question has to do with glencore. they have a huge position in oil, but the profitability is not so great. why would they want to take such a big stake in a less profitable business? ken: for them this is a home run. the rest of it is all going to be nonrecourse financing. meaning that if they go down, they don't care, it's all the bank's problem. they have struck a master course deal on their end. does this signal a shift? ken: i think that like a great trader, they took advantage of it. they will take any trade like this any day of the week.
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going gold, going platinum, this is a great deal for them. great point. how do they insulate themselves from that? technically they don't actually own that much of it. is interesting. they haven't really put out their own press release, it will be interesting to see the details of this. david: going back to moscow for the president has announced a deal, but that -- glencore is saying is not finalized yet. >> they are in the final stages according to them, but all the music from russia is that this is a deal whose teas have been crossed and eyes dotted. they think the deal is there on the table and there will be nothing to stop it happening. from the russian point of view, i think, it's very important to demonstrate that they have this international reach.
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david: thank you so much to ken hoffman on the phone. and tony helfman, our moscow bureau chief. no, he's our government editor in russia. we will get this straight sooner or later. but one thing i will get straight, the chairman of bloomberg lp, peter brower, is a senior in dependent nonexecutive director at glencore. lifting volume 10% for them when it comes to oil from the current level. these are huge numbers. david: might expand my they were so willing to go along with that opec deal. alix: good call. i like it. coming up, a special envoy on the glencore rosneft deal. ♪
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alix: this is "bloomberg daybreak," i'm alix steel. trade. where we s&p futures riding slightly higher. the dax, over 11,000. the dollar, trading heavy into
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the meeting. the euro, if you look at the boards, you can see it moving at a three week high. 107 is how we trade into the meeting. yields climbing higher across the board. the italian yield, up six basis points. david? david: here's what you need to know at this hour. draghi's decision. the european central bank releases its decision just minutes from now. everyone is counting on an extension of the quantitative easing program as the italian lender reportedly told the ecb that they needed more time to recapitalize. we will bring you that decision live, followed by the news onference at 8:30 a.m. china, lift. imports surging on strong demand for raw materials. exports snapping a seven-month long losing streak. vladimir putin, dealmaker, selling a huge stake in its tosian oil maker, rosneft,
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glencore. it was touted as one of the largest acquisitions in the oil and gas sector in the world in 2016. that is what you need to know in this hour. alix: this was the biggest deal after the western sanctions were imposed on russia. with us now is the u.s. department of state bureau of energy resources special envoy who oversees global u.s. energy foreign policy engagement, advising the secretary on diplomacy. so great to have you here. you're the person we should talk to about this today. does this deal by late the western sanctions on russia? ken: we just learned about the deal -- amos: we just learned about the deal in the last 24 hours or so. we are looking at it and what the implications are, as well as speaking with our friends in brussels for the details. i think we will need a few days
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to look at this, to figure out what it is and what it is not. alix: what has been striking, though, is the provision of the financing there, implying that they either don't care about sanctions or they don't see it as a violation. can you talk about that aspect? is a as you said, rosneft sanctioned entity. we have to look at how they are going to provide financing. that's exactly the point we have to look at to understand if this is a violation of sanctions. it may look like it and not be, it's too early to tell. alix: for someone who is not as knowledgeable on the specifics of sanctions as i am, technically what will constitute a violation from either side? amos: it will be more on the financing side on how the financing is provided. it gets to be very detailed. i don't want to say anything at a time. we are looking at it, we will review it, and we will have to wait and see what culpability there is or isn't. alix: if there were to be some
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sort of violation of sanctions, do you feel like the western powers have the juice to retaliate? amos: irrespective of this deal or not, things that violate sanctions we take very seriously. we have taken action to the united states when they violate u.s. actions and the europeans have already taken action when europeans violate sanctions. i have no doubt that if there is a violation, it will be handled and done in an aggressive manner. the question, again, we have to review the deal to see if it is. on the live just six side, i get that. from the spirit side, does it violate the sanctions, in spirit? amos: clearly this is not what we were hoping for when we implement it sanctions. but again, i think it's dangerous to get to the territory of what we wanted from the spirit side. clearly it's not the direction that we saw. but you have to look at what this deal means not only from a
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sanctions perspective, but this is a pride assets of the russian government. it's used as a major revenue generator for the budget. it relies on oil more and more for its annual budget. they are selling this partly because of the gas crunch. you can look at it as the sanctions actually working. the pressure is working in, nation with low oil prices. thelower for longer sustained crunch in moscow on the budget perspective, it worked. this sale is not necessarily -- i wouldn't look at it as the greatest deal of the year as much as it is them admitting that we need the money and we are willing to sell a 20% stake in our number one revenue generator for the budget. that is how tough times have come to russia. i think you have to look at it from that perspective as well. alix: it's a great point. it would have been hard to imagine this deal even eight months ago, for example.
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even the rhetoric from donald trump other leaders in europe as well, they have changed the landscape when it comes to russia. what do you think the relationship will be for the western government and russia in the next four years? alix: obviously -- amos: obviously, i don't know, but -- without president obama, what will the next four years of president trump amos: look like? we started out -- look like? amos: we started out in a tentative reset with the russian government. that obviously hadn't worked. the relationship is clearly important. president obama and president putin have met before. even in these difficult times. but we fundamentally see the in certainrently places. whether it is syria, ukraine, or other parts of the world. especially around democracy and the freedom agenda. and see howto wait this develops, what russia does differently.
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i think that the crunch that russia feels is very painful. i think they understand the need to come out from under it. rhetorically, there has clearly been some softening and what we are hearing out of europe. but fundamentally there hasn't been. sanctions are still in place. there hasn't been a change in the sanctions regime that europe has placed on russia yet. i think we have to take a deep wrath and see that we have a lot of new political figures coming onto the scene saying different things, but that actions haven't been taken yet. i would say that we wait and see in thee a look at deals overall atmospherics, whether or not this will last beyond the few weeks of the election in the united states. alix: terms of answering the particulars of the deal, you spoke to everyone in europe about it as well. logistically, what can the west do? can the west actually block a deal like this? is it more punishment against the bank? what recourse do you feel like you have, sitting in
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your seat, secretary of department of state? amos: mostly i think this will be the eu reviewing the deal, just looking at the eu sanction perspective. they will have to make a policynation and make based on the violation. i'm not looking at this is something that we want to block, necessarily. we want to make sure that the sanctions and the laws that are put in place and the architectures put in place are cap. i'm more concerned about more what this means overall for the russian economy. for the energy -- from the energy perspective. and how this ties into the overall oil markets and what that means over there. especially coming on the heels of the much celebrated opec deal with, in my opinion, less meaning on the substance side. alix: do you feel that this is why agreed to an opec deal?
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talk about oil prices and suddenly everyone wants to buy your stake in rosneft? amos: that would obviously shocked me, if there was some kind of deal like that. but i think that there is a lot more talking of the deal. i'm not sure that there has been an edema -- an agreement. and whether a deal to cut deal -- these two increases in the future. therefore, you have to ask the question on the glencore side, if there is a cut in production or a freeze long-term, why are you interested in a company about to cut production in a low-cost environment? alix: excellent question. great to see you, thank you very much. amos hochstein, special envoy. peter brower, the disclosure, the chairman of bloomberg news, a nonexecutive director at glencore. david: thanks, alex. -- alix.
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we want to turn to erik nielsen for a preview here. first, give me a look at the dashboard. the mario draghi dashboard, what are the factors he is going to be looking to for the next decision? good question. i think it is a waiting on two things. obviously since the trump election, it's the push up in deals and the spread widening in europe on the sovereign side that has put some monetary tightening on the economy. euro ingotten a weaker return. put in the index as we all try to do, it shakes out to be a very small tightening, he's not too worried about the net effect of it. a little bit of tightening. the not good enough to see spread widening, because it is comparing the transition mechanism of monetary policy in the peripheral.
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david: if you look at that factor, they might want to just keep up quantitative easing, but if you look at expectations or even unemployment, that part of the dashboard looks good from his point of view, doesn't it? erik: absolutely. unemployment is not part of the mandate. one would think it should be in some way and it is, implicitly, but they have to look at the inflation and specifically the headline on inflation, the theyt, is the one thing look at. and of course the five-year, which gives you an indication. there is no conceivable forecast i'm aware of or that he would be aware of the takes the inflation that they are targeting that close to the target within the forecast, so strict the speaking, you could even argue that they should accelerate further. they aren't going to do that, but they are possibly, we think they will, keep the present
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amount of easing in place. the five-year moved higher. carefulone should be not to run monetary policy on that. it has behaved in funny ways in the last year as we look at the coalitions for oil prices. but of course, it means that if you were hawkish and you said that the only reason why we agreed to expand the balance was to stave off the risk of deflation, if you look at that picture, the need for balance sheet expansion continues and is not so big anymore. that would be a narrow way of interpreting monetary policy. david: there might be an argument for increasing the monetary policy inflation, but you also said that that is never going to happen. is that because of the hawks on the committee? what does he need to do to keep them on board in terms of extending the program? it is the weighting of the
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different factors. it's uncomfortable to be in this space of monetary policy easing. the stock is risky, they don't really like it. we all know that the effect of the monetary policy at this level where they are, the effect is not so, so good, so high anymore. you have the negative sides of on ainancial system, rates flat curve. there is a lot of waiting back-and-forth to be made. i think the financial stability is also something they have to worry about. it's all about inflation. that's a good sign, that maybe he's more fixable than he is sometimes portrayed to be. -- david: coming back to the dashboard, to what extent have they signaled broadly or geopolitically in
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europe? specifically looking at the spreads with peripherals? italy is the most notable, but it's not just italy. a spread been expansion. to what extent does he have to try to hold this union to you? erik: -- union together? erik: that's a good insight. there has been a referendum in italy. the ecb cannot deal with that. this is a vertical issue, it is a concern and the ecb has no real role in that. it not coming down now, we have seen the amazing increase since monday. even though it was a no vote. maybe this comes down. concern if you look at the risk picture is donald trump. the uncertainty -- not saying
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it's bad for europe, but i am saying he's a very unknown entity and his policies are completely unknown. if i were running anything in terms of monetary policy in europe, i would be very concerned about what, exactly happens on that side and i would be keeping my fingers on t trigger to respond politically to whatever comes. david: less than one minute to decision. within that time, taking into account trump, does that mean intore -- are you more keeping your options open? yeah, i would think it argues for keeping a steady hand, keep doing what you are doing right now and get ready to do more or less as you kind of feel it's needed. ok, erik nielsen is going to be staying with us. the decision coming up in about 24 seconds. alix: quick check on the markets, the euro is on a three-week high on the dollar,
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trading heavier into the markets. but european stock with its biggest rally in about two months. the german dax is over 11,000 for the first time in about a year. we are moments away from that ecb rate decision. the euro dollar trading at 107 98. i don't see it yet. we don't have it yet. oh, there we go. the ecb is leaving its deposit rate unchanged at -4/10 of one percent. no surprise. leaving its main refinancing rate unchanged at 0%. what is moving is the euro, moving higher around session highs. 6/10 of 1%, 7/10 of 1%. widely expected by the economists surveyed by bloomberg. by extending the bond buying begram until march, it will 80 billion euro assets in march
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to december of 2017 as well. extending it, but less. david: the way that i'm reading this, they will keep going at $80 billion until april, keeping going at 60 until december. more than i anticipated, taking us through december of 2017, the way that i read this. alix: the ecb says that the outlook, as a becomes less favorable, they will increase the programs running longer as needed. 1% against the dollar. frankfurt, matt miller is outside the ecb. it's a little bit of both, matt. the extension of what we are expecting, but then a smaller extension through december. the: yeah, this is exactly sort of skinnier but longer situation that a lot of people hee talking about and that had intimated in his interview a couple of weeks ago. that isbe an extension
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until december. it will basically be a nine-month extension, but it will be a reduction of the bond buying program to 60 billion from 80 billion. hence they call it the skinnier but longer, that is what economists who have been watching this and forecasting this up and calling it, and extension. it will be interesting to see how he talks this through in the press conference. because this sort of points to tapering. even though it isn't going to be called tapering five probably mario draghi, he won't use the t word, in a sense, he is tapering off the purchases they are making, which could spook markets, driving the euro up, and blowing spreads out a little bit on the periphery. it is the bond market that is a big mover right now. the selloff continues across the board.
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off by about nine points, italian 10 year yields off i took -- 12 basis points. a huge selloff happening as the dollar continues to grind higher . let's go for reaction to eric at unicredit global, chief economist from london. what is that say about what the market interprets as this move? you can dance around this as much as you want. the market doesn't really care. because the length of what you do can always -- and will always dependent on circumstances. the fact of the matter is that he is saying that in april we are cutting it down to 60 and that's called tapering, there's no way around that. david: in fairness, they said that if conditions worsened, they might expanded again, that the seem to be a nod in the direction of some german points of view saying that this has been going on long enough, we
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want to slow down the accommodation. for sure, this is the conclusion you have to draw. the real question i would ask is a journalist in the press conference later today would be what is it that makes you decide that we are firmly on track to reaching your target? i find it difficult to see. if the issue here is that they have started to taper because of political pressure or because they don't go comfortable buying enough of what needs to be bought given the risk, then you are tapering for the wrong reasons and then there should be a word about this. i'm surprised that they are going already now, but we will see. more details are do, those of the words they used, so we will learn more at the press , but it takes us back to that dashboard question. what are we seeing on the -- ordered in the expectation of
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inflation question marks something else, gdp growth, something saying that it's time to start pulling back on the gas a little bit? erik: the only thing i can think the purchaset of program was to prevent or reduce the risk of deflation and that is not so pronounced anymore because of exactly what you pointed out, the five-year five-year. then you have to ask yourself, how are they intending to get inflation back to the target? italian yields, now backing up 15 basis points. mario draghi, you just did this announcement, going to the press conference, looking at the when youhat do you do see a selloff exacerbating and yields flying? >> he is not going to be happy about it, but he's not going to tell you that he's worried. it's not going to be the moving around all the time or worry that it's the right thing, but i
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can understand why the market is selling off in the euro is strengthening. we are getting a good degree of monetary tightening coming through because of this decision. is ary that this noneconomic forecast that they are playing in. david: not sure the bond market needs another reason to selloff, but it appears to have found one. thank you so much for being with us here today, eric nielsen. coming up, they need more time. europe's weakest lender, monte dei paschi, looking for an extension of capital. will super mario and the ecb step in? that's next. this is bloomberg. ♪
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alix: the ecb, tapered. that is what the markets see. take a look at this intraday chart on the 10 year yield for italian bonds. extending the bond buying
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program by 80 billion euros through march. in december it will taper to 6 billion. this will puts the italian bank in a difficult situation. our global chief economist, eric nielsen, still with us here he get take a look at this today, going to the ecb officials and trying to extend recapitalization. did this make their life harder? ofi think that the problems monte dei paschi are ones of capital. coming to the market to try to raise multiple times what it's worth at a difficult time, because the italian government is in a vacuum. the political situation is uncertain and what they are seeking is they are hopeful it will get them enough to provide a backdrop of more certainty for investors to come in. i think the news for the ecb will be supportive of that. hear onyou want to
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italian banks -- alix: what do you want to hear on italian banks? what will be the question or answer? erik: it's not a good question to ask, he won't answer it. nothing is more sensitive, in a sense, for mario draghi, particularly. what's onfinitely not his card. if anything you could say that what he did today is complicating life for his own country and that gets him hopefully some credibility with a part of europe. i happen to disagree with the decision, but we are still waiting on different factors, but he's not going to talk about individual banks or banks in one country. in the longer term, might it help them? could they start earning their way out of a hole? in a very strict way, a steeper curve is good for the banks. it has been suffering tremendously from a flat curve.
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it has lifted through this long. of poor probability. of poorperiod probability. that's a good part of it. monte dei paschi a number of banks, -- a number of banks, monte dei paschi being the prime one now, need to raise capital. again, the ecb should not -- they should keep this in mind. andd: thanks, now, to elisa eric nielsen, who has been with us for quite a while. coming up, more on the policy decision. and we are 30 minutes away from mario draghi's ecb news conference. this is -- ♪
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alix: welcome to "bloomberg
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daybreak." markets on the mode. the ecb comic down with rate decisions. buying 80 billion euros and tapering through the end of december. -- the ecb coming down with a rate decisions. say your role, fafsa leading story, jumping to the highs. euro, the leading story, jumping to highs. 10 year of italian bonds are up. a huge selloff in the european bond market. crude holding on. david: all you need to know. draw the's -- mario draghis at aion and extends but lower level. you will hear from mario draghi at 8:30 a.m. eastern time. running out of time. italian banks third-largest lender, asking that the ecb for
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more time to recapitalize. the board is said to me today and may talk about the future, according to people familiar with the matter. putin, the decision-maker. they are selling rosneft to glencore. the russian president called it one of the largest acquisitions in the world and that is what you need to know after this hour. we will turn to matt miller who holdtside where they will the meeting in less than 30 minutes. i must say, this is more interesting than i thought it would be. take us with what we know with what the ecb is doing? note, anre's a editorial note that said mario draghi will look for new ways and exciting ways to disappoint the market. a sense.s done that in
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i cannot wait to go to the meeting, the ecb said it will give more details about this extension of quantitative easing so will will hear him more granular detail about the fact as they will be able to adjust as they want. take some of the pressure off of the market and say, look, if the outlook change, we reserve the right to increase again at the amount of money we are spending. startingy reduced it in april, they have left some wiggle room for themselves to buy more bonds if necessary. david: matt, they did use of the 60 number. they could have said after march, we will be more flexible, of two 80, but they did not -- up to 80, but they did not. mat: what they may be doing and what we're hearing from an amazing tool for
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journalists and investment, t they may be getting the market used to tapering. at some point, they have to taper, right? they cannot do quantitative easing forever. something that will jar the market whenever they start doing get, as they may as well get it over with and now. they will start tapering as 60 billion and it will go for a longer period of time. it has taken pressure off of the riksbank and some of the other banks to cut rates and although it does cause a bit of a stir in the market, not an incredible spike. it seems like markets have been getting ready for this. i am torn, i miss you appear but i am glad you are covering this. that is matt miller.
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outings bank more of what we can expect -- alix: from war of what we can spare for mario draghi, our guest. a great day to talk to you. -- for more on what we can expect from mario draghi, our guest. you have the euro, a selloff in the bond market, your takeaway? guest: they can extend by $80 billion for six months or something at a lower pace as they have done a smaller pace from longer and it adds up to a curative amount. forhey had done $80 billion six months, it would've been lesser. you have to look at the kulik of amount.cumulative alix: you see the euro pop, now we are down by 0.1% and that seems like what the market is
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interpreting. is it a fundamental issue, they did not have the bonds or to appease the ahhawks? : we have learned a lot from the bank of japan. you cannot just extrapolate into the future forever. they are being proactive and saying we have to get the programs to scale we can sustain and that is what they have done. notd: the bond market does seem to be getting your point that it is more money all those stores over a longer period of time. why is that? jens nordvig: it is early days and now early reaction into the italian market with higher yields and they are coming back. in at end, you will see that policy is sufficient accommodation to keep stock markets ok and the periphery markets ok. lesshappens to the bond is
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important for the ecb. they do not mind if the ecb bond is a little higher. the key is overall risk is kept intact and periphery bonds do not go in a higher. alix: of italian 10 year trading over 2%? that seems to imply, mario draghi could not be liking get. jens nordvig: we will have to see where we end of the day. obviously, ups and downs on the back of concerns about italian politics. , they do noto 2.5% want it to happen, we will probably stay in the range we have had in the last couple of weeks. david: talk about the losers and winners. they were already on their way down, what about banks? italian banks a european banks, overall? is it good news? overnordvig: we have seen
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the last couple of weeks, the steepening yield curve is something the banks and financials really like. one thing that was remarkable about the way the market kind have behaved around italian news -- kind of behaved around italian news, the prices rallied significantly on the back of the ups and downs we have seen. initially, we went down on the referendum on monday and then we started to really come back. it shows the bank stocks are more sensitive to the shape of the curve yield. alix: what we needed to hear about is what does the repo market? it is eating your collateral. what do expect mario draghi to do? jens nordvig: we will learn what they do inbound terms of the technical adjustments, is the limit going to be changed?
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and that is going to sort of determine what that plumbing looks like. i think they will show more flexibility but there are two reasons why they may not do -- may 90 quite as much. yields have already risen so they have more to choose from. giveducing the pays, they themselves more room. for those reasons, they do not need to go quite as aggressive that they will show they are willing to be flexible. david: we will have a better sense and the news conference for mario draghi. to what extent does the ecb feel more leeway to make the move? donald trump and what is happening with the markets and a new robustness but also, the reaction that the chinese referendum was not that strong. maybe more stable and maybe more flexibility. jens nordvig: i think when you look at the political events,
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you have to be absolutely careful about what are the expectations in the event. brexit was a clear surprise and the truck them's it trump victory was a surprise. victory was a surprise. the price action was not so dramatic, we are in a gray zone in a italian politics rather than heading to the abyss. data ceons nordvig, and founder and he will be staying with us. mario draghi will speak at 8:30 a.m. eastern and an update on what is making headlines, emma chandra is here. emma: president-elect the made it official, he has picked scott pruitt to head the environmental protection agency. he is a key proponent of the climate agenda. several democrats admittedly vowed to fight the nomination.
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more americans are about their finances and the u.s. dollar market, according to a new bloomberg poll that shows growing optimism about the u.s. economy following the election. of americans 54% are bullish about american stocks and 38% say they expect a better financial year and roughly the same number anticipate higher incomes. half of those surveyed viewed the federal reserve favorably. and russia have sold $11 billion stake in the largest oil producer, rosneft. it is traded to glencore and he is the biggest foreign investment in russia since the crisis in ukraine. vladimir putin announced the deal on tv with the ceo of rosneft. i hope the arrival of large international company glencore
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into the company's management will increase the level of transparency while at the same time patrol remain in the hands of their russian state at more than 50%. virtualization marks a return to dealmaking by glencore. a year ago, they were forced to raise cash. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra, this is bloomberg. alix: let's look at how glencore and rosneft are trading. glencore is over 3%. it gives the 100 million barrels over the next five years. a huge surge training unit. rosneft up almost 7% and a record high earlier in moscow. that can avoid buying back a massive amount of shares to help their companies. a win-win. we want to check out chevron,
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cutting its cap. 15%, it was cut 2.6% during this year. the theme continues for the big oil companies. those story off the ecb meeting is what is happening in banks. inc.'s are flying in europe. it is up by 5%. -- banks are flying in europe. yields are backing up. banks hit the upper limit because a moved so hard and fast. .hey are lower, bouncing back we will dig into market's reaction. david: we certainly will. more with jens nordvig. leaves rates unchanged and extend bond buying until the end of 20 of a team. more that 2017.
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mario draghi will speak and we will bring it to you live. -- the end of 2017. ♪
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alix: this is bloomberg daybreak. we are half an hour away from ecbecb does mention -- the decision and this is where we trade. u.s. equities surging. the dax is firmly over 11,000. the banks flying in europe. the world will in the fx. -- is a real move in the fx.
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comes in the bond market. the selloff not as bad as you would of thought. the intraday chart. at one point, they were backed up by 14 or 15 basis points. a little bit of buying. we werehat is what talking about, why mario draghi made the decision. inflation expectations hit a one-year high, as you see on the chart. is jens nordvig , a data ceo and founder. take us into the decision and the possible reasons. does it make sense? mario draghi said he likes to look at the expectations. jens nordvig: i think, central banks think about the stock of qe rather than the flow of qe. what i mean, they think about
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how much extra they are adding. enough, -- adding more than 500 billion and will add extra from april of next year. they really focus on died as opposed to how quickly they are buying it. -- they really focus on that as a host to how quickly they are buying get. that has been very much draw 'se them'-- draghi them message. but's what they are doing it is smart with to they are doing and they are scaling a little bit back. they did say that the qe will run until inflation is consistent with the goal. that makes the projection and what they see for 2018 more important. jens nordvig: that is where there had been a lot of debate, how confident they can get close
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to 2% over the horizon. i do not think they have great reasons to scale up their forecast. core inflation has been really sticky, would you look at the chart you show where expectations are in play, that is a function of the bond market. when you look at core inflation, not much movement yet. not much to balance progress on the rail inflation with a technical difficulties and that is what did they are doing. david: core inflation is about 0.8%, which is a long way from 2%. should they have kept going at the 80 billion euro level? irk burgess -- jens nordvig: want to raise the bank of japan, again, not that the central bank has an option to do more and more and more, there is eventually a constraint on how much bonds they can buy. they have to balance what is
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feasible with at the same time delivering what is maximum. alix: do you see in underlying signs of cost building up? jens nordvig: not much in ways growth on core inflation, but you are seeing some of the leading indicators are looking better on growth. if as a clue what through, you would expect it will move the direction that will generate more inflation over time. there are some small reasons to be slightly more optimistic, but i do not think the ecb is reacting to it yet. they may further down the line. i think they did the right to thing. looking at the five-year inflation, the break even is at the white line. the surprise is at the blue line. economic have been beating analysts' projections. the break even climbing and maybe meaning the analysts are so pessimistic.
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david: the question goes to the output gap. .xpectations and surprises how do we measure the output gap and why is there such a difference between europe and the united states? jens nordvig: the difference, and the u.s., the global financial crisis. in europe, they had a euro crisis. slack forulated a big andcrisis reasons recovering very, very slowly. now.are recovering i think we're headed a torpedo were growth potential he -- a period where growth potential will be higher and in the face of political difficulties in europe for brexit, the accounting situation, probably growth will be relatively resilient. it will be interesting and to how it sees at the core
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inflation. alix: why will he not cause contagion? jens nordvig: in the euro crisis, i just mentioned, we have all kinds of facilities built, european stability mechanisms and so forth. if we need a bailout of the institution, there is a framework. it will be part -- painful but there is a mechanism. david: how will donald trump affect? will it hurt or help? i sure as they talk about a fair amount. for european policy makers, a source of uncertainty. u.s. markets,bout we think about stimulus that might come. in europe, they think about uncertainty', from the ecbs perspective, a reason to be delivering more, something they need to do more.
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alix: do not look at the numbers per month, it is curative late -- cumulatively. the ecb leaving rates unchanged and extending bond buying. less than 10 minutes away from mario draghi's meeting. a lot of different interpretations of this move. stay with us. this is bloomberg. ♪
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alix: six minutes away from mario draghi beginning his press conference. the futures unchanged.
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they were soaring earlier. the dax over 11,000. take a look at what is happening. german tenure yield -- 10 year yields turning negative against the dollar. crude is up by 0.6%. a reversal. dollar surging other the news mario draghi would extend qe3 march at 80 billion euros but at a slower rate, now you see coming off negative on the day. in euro stocks, initially negative and then popping higher. european banks leading the way. around the highs of the session. the bond market, this is staggering. backing off10 year, as 14 basis points and now up by eight basis points. the market digesting what it means. we will hear how key banks are
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digesting the news from the ecb. we are joined by a black rock senior adviser in london. the market had their reaction, what is yours? guest: mine is i will see what mario draghi will say. what's we're seeing is a combination of politics and economics in terms of what we know inside of the governing council to qe. draghi has run because the european fundamentals are slowly improving. david: take us through. take us what you anticipate, things like bank lending on the euro, body yields, what do think the biggest market effects will be? cameron watt: they will probably be felt more in the yields and secondly and the euro. i do not think they will be felt in bank lending.
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what we are seeing is it has been very depressed and a lot less depressed now, but not exactly bouncing with the joy. the reflections are more to what extent the european central bank is a unified institution in its decision-making and what are the pressures inside of the governing council? before we get to pessimistic from the end of qe, let's add on back to the 60 billion euros, the 15 billion euros of reinvestment of bonds which will start march 12. when you add it back in them, not much different from where we were. david: will it have a title defect with credit or not? cameron watt: not having as much of a leasing defect. i think you can hardly see the differences between 5 billion euros and 10 billion euros.
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i am and adjusting. david: when you are looking at what mr. draghi is saying in 2.5 minutes, what will be the most important thing you are listening for? cameron watt: the traders will ,e looking at the wider changing the modality of what he is buying, what they are buying. will be listening carefully to get any sense of division or change of the political buyers within the governing council. he will be press, i am sure, on the reasons for the lower mount and will point out it is going on for a year. people will be listening to the response to see if it is the hawks beginning to gain ground. david: there is governing within the council and within europe.
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putting aside within the council, what about more broadly , can it help bring the european union closer together? cameron watt: i think the european union over the next year will be consumed by domestic politics with a range of elections that are taking place with the brexit issue. as we know, as we have seen this year when you get into domestic issues, they take the frontline relative to greater international cooperation. david: we are seeing mario draghi entering the room. thank you very much for joining us. cameron watt. mario draghi ready to make the statement and take questions and be prepared to address the possible taper the ecb. by 60 billion euros through the end of december market -- december, markets on the move.
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what might he address on scarcity and how many bones will they be able to buy? many questions. what will italy do, officials meeting today in order to delay their recapitalization. reportraghi: we will not -- we will now report, which was attended by the commission vice president. analyses,ur economic today we conducted a comprehensive assessment of the economic inflation outlook and our monetary policy stance. result, the council took the following decisions in the person of stability objective. measures, we will continue to make purchases out of the asset purchase program at
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the current monthly pace of 80 billion euros until it the end of march 2017. from april 2017, our net asset purchases are intended to continue at a monthly pace of 60 billion euros until at the end of december 2017 or beyond, if necessary. in any case, the governing council sees a sustained and adjustment in the path of inflation consistent with its inflation aim. if in the meantime, the outlook becomes less favorable or if financial conditions become inconsistent with further progress towards a sustained and adjustment of the part of inflation, the governing council intends to increase the program in terms of size and or
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duration. the net purchases will be made alongside reinvestment of the principal payments through maturing security purchased on the ap peak. -- ppp. the -- to ensure implementation, the governing council decided to adjust the parameters of the asset purchase program as of january 2017 as follows. range of theturity public sector purchase program will be broadened by decreasing the maturity for eligible securities from two years to one year. purchases of securities under the asset purchase program with a yield to maturity below the interest rate on the ecb will be
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permitted to the extent necessary. wereey ecb interest rate kept unchanged and will continue to expect that to remain at present or lower levels for an extended period of time. and well past the horizon of asset purchases. today, extension of the asset purchase program has been calibrated to preserve the very substantial degree of monetary accommodations necessary to secure a sustained convergence of inflation rates towards level below but close to 2% over the medium-term. together with a sizable volume of past purchases and forthcoming reinvestment, it ensures that financial conditions in the euro area will remain very favorable which
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continues to be crucial to achieve our objectives. in particular, the extension of our purchases over a longer horizon allows for a more andained market presence therefore, a more lasting transmission of our stimulus measures. reflects theion moderate but firm and recovery of the euro area economy and still subdued underlying inflationary pressures. willoverning council closely monitor the evolution of the outlook of price stability and if warranted to achieve its objective will act by using all of the instruments available within its mandate. let me now explain our assessment in greater detail, starting with the economic analysis.
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really gdp in a bound the euro increased by 0.3% quarter on quarter in the third quarter of 2016 following similar growth in the second quarter. results pointta to a continuation of the growth trend in the fourth quarter of 2016. looking further ahead, we expect the economic expansion to proceed at a moderate pace. the monetary policy measures to the real economy is supporting domestic demand and has facilitated the leveraging improvements and the corporate profitability a very favorable conditions continued to promote a recovery in investment. whicher, sustaining gains
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are also benefiting from past structural reforms provide support for households, real disposable income and private consumption. at the same time, there are indications of a somewhat stronger global recovery. however, economic growth in the euro area is expected to be deafened by is sluggish pace of implementation of structural reforms and remaining balance sheets and adjustments -- adjustments in a number of sectors. this assessment is broadly reflected in the december 2016 stock market and projections for the euro area, which first see and real gdp increasing by 1.7% 1.6% inand 2017 and by
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2018 and 2019. compared with the september 2016 ecb macroeconomic projections, the outlook for real gdp growth is broadly unchanged. the risk surrounded the euro growth outlook remains tilted to the downside. according to two euros stock estimates, euro area and you will inflation in november 2016 further from 0.5% inoctober and 0.4% september. this reflect it to a large extent an increase in annual energy inflation wallet there are no signs yet of the convincing the upward trend in underlying inflation -- while there are knows signs yet of the
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convincing upward trend in under flying inflation. mainly owing to the facts and the annual rate of change of energy prices. supported by our monetary policy measures, the expected economic recovery and corresponding gradual absorption of slack, inflation rates should increase further in 2018 and 2019. this is also reflected in the december 2016 euro systems stop projections -- stock projections for the euro area which first at 0.6ual inflation 2016 and 1.3% in 2017
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in 2018.in 28% -- by comparison with the september 2016 ecb stock market projections, the outlook for headline hi pc inflation is broadly unchanged. turning to the monetary analysis, broad money and growth moderated in october 26 staying with annual rate of growth 4.4% after 5.1% in september. as in previous months, growth was mainly supported by most liquid components with a narrow monetary aggregate expanding at an annual rate of 7.9% in
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october after 8.2% in september. loan dynamics followed the path of gradual recovery since the beginning of 2014. the annual rate of change of loans to nonfinancial corporations increased to 2.1% in october 20% from 2% in the previous months. that he will growth of loans to households remained at 1.8%. loans tonual growth of households remained at 1.8%. it reflected relationship with the business cycle, credit risk and the ongoing adjustments of financial sector balance sheets, the monetary policy measures put in place since june 2014 are significantly supporting borrowing conditions for firms
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and households and thereby credit flows across the eurozone area. check the, a cross outcome of economic analysis with signals from the monetary tolysis confirmed the need take today's the monetary to preserve the very substantial amount of isetary support that necessary in order to secure a return of inflation rates toward levels that are below but close to 2% without undue delay. is focused ony maintaining price stability over the medium-term and a common stance supports economic activity. italy by the rip -- repeatedly by the governing council to reap the full benefits of monetary policy measures, other policy areas
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must contribute much more sizable he both affect -- y at the stay in national level. it needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. structural reforms are necessary euro countries and the focus should be on actions to raise productivity and improve the business environment, including the provision of an ,dequate public infrastructure which are vital to increase investment and boost job creation. the enhancement of current investment initiatives progress of the capital market union and reforms that will improve the resolution of no performing
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loans and will also be attribute positively to this objective. in an environment of accommodative monetary policy, the effective implementation of structural reforms will also make the euro area more resilient to global shop -- shocks. fiscal policies should support while remaining in compliance of the fiscal rules of the european union. full and consistent implementation of the stability and growth over time and across countries remains crucial to the fiscalidence in framework. at the same time, it is essential all countries intensify efforts towards achieving a more growth friendly composition of fiscal policies. we are not a your disposal for questions.
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-- at your disposal for questions. >> could you tell us if any other options were presented in today's meeting and what they were? and if the decision today on the qe extension and the changes to the design were unanimous? thank you. mr. draghi: thank you. the two options that are presented were the ones have been studied by the cap -- committees in the preceding months. one for the option of continuing per monthllion euros for six months and the other is ae one that was received very, very bold consensus by the governing council is -- council. thank you.
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>> reuters. when you decided to buy bonds in a majority of two years, how do you plan to deal with criticism that the ecb is getting involved with short-term needs? and the other question in regards buying below the deposit rate. you said the chief said any change would make economic sense, so what does the economic benefit of buying arms they yield less -- a buying bonds they yield less than below zero? thank you. first of all, let me say what i said in the introductory statements, it does need some emphasis. underrchase of securities
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the asset purchase below the interest rate on the ecb deposits will be permitted to the extent necessary. if at the option is not a necessity -- the option is not a necessity. the relative meetings will look in january and when it could become a necessity. it is more an option for continuing to move implementation of the program than for any other reason. the general involvement of the ecb with financing needs of the government is frankly not any difference here. we operate on the secondary market, nothing changes. we change the maturity but nothing else. thank you.
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>> bloomberg. mr. president, first of all, a question or reduction of the pace of purchases from 80 billion to 60 billion. could you tell us why you felt a necessary to ensure the second option, the more sustained market presence? what was the rationale for the decision? as second one -- you said -- if you just said, to the extent necessary to purchase below the deposit rate, do you have to study this? does it mean it is not immediately an option and what may be the conditions to make the necessary? are there going to be caveats or limitations in doing that? what sort of instructions would you give? thank you very much. mario draghi: on the first that we, let me say have to go back to march 2016
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when we upsized our program from 60 to 80. after that time, the outlook for a return for a sustained return to our inflation objective was a much darker. -- much darker. deflation risks were not immaterial at that time. and to this point in time, we judged the outlook as far as the returns to the sustainable return to our objective is not a very different from where it was at the beginning of the program when it was scaled to 60. and more specifically, the risk of deflation has largely disappeared. prevails.ncertainty
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uncertainty prevails everywhere. of we assessed the progress the whole situation at the end uncertainty since prevails everywhere, that is the in thefor this sentence introductory statement that said if in the meantime, in the meantime, the outlook becomes less favorable or if financial conditions above, inconsistent with further progress towards a sustained adjustment of inflation, the governing council intends to increase the program in terms of size and/oe duration. this means two things. the governing council is acting in a flexible way to cope with the risks that may materialize in this period of time. secondly, no question about tapering.
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tapering has been discussed today. point, i havecond to refer to the committee's work on that point. and as they said it is an option, not a necessity and the committees will assess when it should become so, when and if. as you know, the amounts of purchases and the maturing of purchases do depend on the current constellation of rates. if it is changes, so it changes the necessity to buy them certain maturities than others. thank you. >> thank you. mr. draghi, you said tapering has not been discussed today. do you think it will be until that discussion needs to be had in the governing
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council? how much pressure to hold that discussion on a possible exit? my second question is on italy. , callwas a no vote honorable is at the conch -- how vulnerable is the country to removal of the stimulus measures, in your view? mr. draghi: thank you. on your first question, the underlying narrative of our monetary policy decision was exactly to maintain the extraordinary degree of monetary accommodation we have in plays full -- place, we will concede to exert pressure on a market prices to deliver -- market prices to deliver our
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accommodations that we want. the second purpose is to transmit a sense that the presence of the ecb on the markets will of the there for a long time. sustained presence is also the message of today, of today's decision and that is why tapering was not discussed. , you askecond question me about a vulnerability. thatnk the vulnerabilities both the banking system in italy have been there for a long time and so, they ought to be coped with and i'm confident the government knows what to do. and they will be dealt with.
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>> mr. president, you have underlined the ecb can increase the volume and duration of the change.if developments does it also made by contrast if developments are better than expected, they ecb could slow purchases or cut the duration? ecbot, why not given the said -- thank you very much. we have not discussed that it all today. we seem to be fairly far away from any such high-class problem. thank you. >> if i could go back to the
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word tapering, although you said it was not discussed. the markets are taking get otherwise. maybe you can explain what is the difference between what you did today and what people generally considered to be tapering. thank you. mr. draghi: the word has several meanings depending on who is using it. the way one would look in the natural way to look at a word like that is to have a policy where buying purchases would gradually go to zero as that has not been discussed. matter of fact, it is not been on the table. thank you. >> mr. draghi, this is again about italian banks. we know today that the supervision council is meeting and probably you will not be
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able to discuss italian banks. my question is, in your view, do you rank italian banks could be -- do you think a tyra banks could be facilitated -- do you think of italian banks could be facilitated by given more time or must be dealt with very quickly? that draghi: did you know on a the basis -- you know that on the basis of the separation answerles, i have to your question saying ask of the supervisory board for a answer. thank you. >> thank you. option toone, another
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tightening the qe program is to raise the issue and what was the reason not to do it? in 2019, is it in line with the 2%? draghi: the answer to the second question is -- [laughter] not really. and we knowersist there is a gradual convergence. so, that is the answer to the second question. the answer to the first question is it was actually, as you know, andcommittee looked at that there was an increased awareness of the legal and institutional constraints that would make such a change difficult. and that is why it was the -- thatof the so-called
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is why it was preferred. >> thank you. two questions, mr. president. you quantify how much inflation and growth will benefit from your eurozone given the decision of today? in other words, how many qe's embedded? can you say this for the coming two years? inflation is expected to be well years.% in the coming willey interest rate remain as the road so we will remain as so we will have negative. will it trigger a lot of criticism in this country especially? how will you go along with this
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situation? mr. draghi: on your first question, i do not have the for if that embodies today's decision in a measuring and sizing the impact of gdp growth and inflation. of the pastimpact decisions, which account for a cumulative growth over the three-year horizon and 1.5% inflation over three-year horizon. question, assecond inflation expectations -- if inflation expectations will continue to recovery, that will mean falling real rates. which on one hand will have a powerful stimulative effect on the economy. on the other hand, it will have an impact on the real return on
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savings. we will assess the situation in the coming months and see which one was the net balance of all of these different effects. this is the situation in a sense, the situation that shows an improvement in the overall. in of meantime, also yields on a bonds are going up -- in the meantime, also yields on bonds are going up. we have to see what happens on nominal rates and expectations. you have been listening to mario draghi speaking in frankfurt on the ecb decision. they ecb will now be buying and buy one-30 years bonds below deposit rate of negative at 0.4% as necessary as
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an option, not necessary. mario draghi saying tapering has not been discussed today but a risk to euro area to zero area growth is tilted to the downside. of 1%ro is down 8/10 against the dollar, around the record lows of the session. we listen back to mario draghi answering questions from the press on a decision among the extending a bond buying program through march. let's listen back into mario draghi speaking to the press in frankfurt. the european court of justice has confirmed the locality of the ecb's monetary measures, provided that the self-imposed exist.ies now, if you change some of the self-imposed boundaries. you not fearing that this
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would again, raise legal issues? thank you. mario draghi: the answer to the second question is no. because the self-imposed boundaries to which you refer to are not be self-imposed boundaries that we have removed today. so they are different things. the answer to the first question is, it is very difficult to assess what the effects of these the radicallyke administration, new in the way that we look at the world in the united states or, for this matter, even brexit. matter, even the outcome of the italian referendum a few days ago. all three events were expected to have major effects in the world. , then all three cases
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markets, the financial intermediaries, they proved much more resilient than people had expected. expected them to be. we know one all, thing. andets are more resilient there are probably many reasons and causes for this. one is certainly the good cause -- the good work that regulators have done in the last 7-8 years, to strengthen the intermediaries and markets. but there are also other good reasons. we have better macroeconomic policies. is, all of these events, especially brexit and
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the new administration in the united states, they have effects that are, by their very nature, going to develop their full dimensions in the medium-long-term. so we will certainly see consequences of these changes in the medium-long-term. not necessarily in the short term. but the consequences are very difficult to assess now. and so it is very difficult to assess what is the long, medium long terms of the possible change in the administration and policy. becausey are possible we are still in the very early stages. : you alluded in the last answer and in the last week in an interview to the fact
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that political uncertainty is high. you defined it as "dominant." referendum, isar this concern heightened for you beyond market response? i'm thinking in particularly of the need to stress repeatedly of that the country needs? and it is possible and probable that it would not be forthcoming in a country without a government and without possible elections over the next several months? when i refer to dominant political uncertainty, i was not saying something extravagant or difficult or unforeseen. just look at the election calendar for the year to come. that is, for myself, a source of uncertainty.
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the rest of the world. look at the emerging market economies. look at what is happening also with some segments of the financial markets. so there is a big uncertainty and much of it is political. and whether we can do something about that or not is an open question. canink what central banks do is to keep a steady hand. monetarywith the accommodation that is necessary to achieve the objectives. having said that. countries that need reforms have to undertake them regardless of the general political uncertainty. egg is the best way for countries to cope with the uncertainty is to restore growth and employment and job creation.
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reporter: thank you. you said that the governing increase the program again, in terms of size and beation, if conditions would making that necessary. does that mean that the monthly amount can again be raised from 60 billion up to 80 billion? criticscond question -- this basically means, for the central banks, the national central banks that through the purchases, that this means that they immediately
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incur an interest rate loss. do you share that assessment? thank you. yeah.draghi: the answer to the first question is, yes. certainly. tocould increase and go back 80 billion, it is a range of options. and we will see. message underlying if the outlook- becomes unfavorable -- the key message is to show that there is no tapering on the site. to show that the ecb is going to stay in the markets. to show that the ecb will continue to exert pressures on market prices. we don't want to distort them, of course. but that would be the meaning of
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that. is yes, indeed. it will be a loss. but our mandate is to pursue price ability. it isn't to maximize the central bank profits. reporter: the euro group has said clearly not to the plan of the european commission of a stimulus of 0.5% gdp. do you have the feeling that you direction,nto one which is stimulus, because of this? and the ministers are choosing the exact opposite direction? which is no stimulus on the fiscal side? mario draghi: well, concerning
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the physical aspect. what we have said on and on, our policy,hat fiscal policy, it should complement the action of the monetary policy to its full effect. emphasis, allt the time, on the composition of the budget. in this sense of making it more growth family. which basically means lower taxes, lower incurring government expenditures, higher investment expenditures targeted , productivity enhancement investments. as far as size is concerned, it really depends on whether countries have this or not. and we stress the fact that
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fiscal policy should respect the stability and growth. , "in the use the word anchor" of the stability in the euro area and the reason for this is because if you look, there are well-designed rules, if they are complied with, they are essential for two reasons. they give credibility to the governments that comply with the and perhaps more importantly, they increase trust between governments. and why's it so important that the trust should be there? it is very important. because what we talk about further steps towards the deeper integration in our monetary union, these steps are based on trust.
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and these further steps are necessary to complete a monetary union. so therefore we could make the union stronger, only if there is trust between governments. therter: you hinted at turnout of many elections in and we still don't know what will happen in italy. the direction of the bank is very difficult. so do you think there are still some risks for the euro in the next months and next year? how wouldquestion is, you respond to people from some countries who say that you are, in subway, biased? that you are helping, especially, the countries in
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southern europe, including italy, with qe and the extension of qe? mario draghi: well, the answer to the second question is no, of course i'm not biased. and i think we have given plenty of evidence to the policy of the ecb. first of all, it is decided by the governing council. and there are representatives from every country. are there in our personal capacity and our mandate is not to ensure that there is some sort of national objective, and to ensure the price ability objective for the whole of the eu area and that is what we have done. incidentally, our policies are not very different from the policies that are being put in place by ally central banks in
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the world. i all the central banks in the world. no, at this point, we don't see that for the euro area. different countries have different full abilities. as i said before, the macroeconomic context is better than it was five years ago, when we had contagion. but also, financial markets and intermediaries are strong, they are stronger. so these problems, although very important and urgent to be addressed with effectiveness and speed, they remain contained. within the single individual countries. that, since iid mentioned before that trust is one condition for our union to
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proceed and to progress towards -- one couldte say, more perfect -- monetary union, there is another condition that is essential and that is convergence. countries need to converge. and they need to undertake structural reforms that would enhance convergence. reforms in these some country -- each country has their own agenda for the reforms. so the fact that structural reforms and convergence are being pursued in various countries is important, not necessarily because it poses risks for the euro, but it strengthens our monetary union.
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reporter: good afternoon. how would you counter the argument that the ecb intervention in monetary policy somewhat stifled momentum in the eurozone? mean, we havei been discussing this for a long time now. our view is different. easingw is actually that monetary conditions should help undertaking monetary reforms. -- there arening several reasons for this. first of all, the structural reforms that have been undertaken in the euro area after the sovereign crisis were actually undertaken when interest rates were low. they had already been low for a while. second, we should ask ourselves,
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what sort of structural reforms in a sense, related, to the level of interest rates prevailing in the markets? and there are certainly some reforms that are related. the reforms that have to do likey with budgetary needs pension reform. it is quite clear that if market conditions are overstressed and countries have or are about to lose market access, unless they make their debt profile theainable -- in that case, level of interest rate certainly produces a pressure to change to reform in the direction of making that more sustainable. other sortse many of reforms, equally, if not more reform of anke the educational system, the reform of the judiciary, the reform of
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the electoral system. a reform of the constitution -- that had nothing to do with the level of interest rates. so even logically, there isn't such a tight link between the level of interest rates. also, we have internal research that shows that no such link between the level of interest rates, and therefore the degree of accommodation of our monetary byicy and the willingness governments to undertake the needed structural reforms. reporter: among the options that the government is starting to solve, there is a european loan. could you tell us, just in general, if you think this could be a good solution to solve those problems?
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over the months? i must confess that i know very little about loan to italy for the banking system. but let me just give you the the s mnumber three of says the following criteria and hierarchy of prior actions should be met in order for a request for financial assistance for the purpose of recapitalizing financial institutions to be considered eligible. the beneficiaries said demonstrate a lack of alternatives for recapitalizing financial institutions that are concerned. this should reveal an inability by a privatefalls sector solution. and secondary, the benefit of a beneficiary as a member to
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recapitalize the institutions without incurring very adverse effect on its own financial stability and fiscal sustainability. second, the financial institutions should have a systemic relevance or pose serious threat to the financial security of the eu as a whole, and the beneficiary as a member should show the ability to reimburse the loan grand. i mean, i don't want to read the whole thing but it basically shows that it is a complex bank and that i very know -- and that i know very little about that. [laughter] sorry. mr. president, i have to refer to -- if you weeks ago where it was hinted that the possibility of tapering may be being discussed on today's discovering council meeting.
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you say it was not on the agenda and the new measurement has not interpreted it in such a way. could you tell us please how we have to interpret these different signals coming out of the institution? have it today.ou it was not discussed. reporter: thank you. tapering -- you said that tapering was not discussed and is not on the table. does this mean that not one member of the council expressed opinions of being in favor of tapering? mario draghi: exactly. reporter: again, coming to the
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two options that you presented at the meeting, one is six billion -- what were the arguments in favor of the second option? why is it better to reduce the amount and run the program longer? mario draghi: well, to some extent, we went through these arguments before. we went back when we increase the size in march. and we asked ourselves, what were the conditions of the economy at that time, what were the prospects for a sustained return to the objective of inflation? what were the risks of potential deflation? and at that time, we thought that raising 280 billion would the way of the concerns that we shared with the governing council, what they had
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at that time. of in deciding the new scale 60 billion, we simply went back. analysis, the same and account given during the introductory statement in various parts of this. and we also saw that the risks of deflation and inflation, the deflation distribution was much more skewed towards the out of deflation. so that was the reason. the second reason is the length of time. where we wanted to assure sustained presence in the economy, in the markets. we wanted to assure that the ecb would continue to exert priceses on market though, as i said, we don't want to distort them. we want to assure that a reduction in size doesn't mean, at all, any tapering.
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so that is the logic behind the choice of 60 billion. say, the program remains flexible. and the flexibility, as stated by the sentence i read before, if in the meantime, the outlook becomes less favorable. reporter: looking to the future, what do you read in the rising price of oil? only as artant statistical element? or do you think it can have structural importance? in inflation? it is anghi: well,
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important change after many years the oil price has gone down to an unprecedented extent. now, with it rising again, the explanations are, in a sense, symmetric to what were the explanations for the downfall. namely, a better demand of conditions. better supply conditions. extent, i think a significant extent, the reestablishment of some international agreements. theseis no question that higher prices will feed into higher headlining inflation though, we have to see how this -- exactly same considerations i remember us doing in the other direction years ago -- we had to see to what extent it was a one-off event. to what extent it would have a
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secondary effect. and to what extent this will affect inflation excluding energy, which we are not seeing yet. an effect on that. so when i said there is no sign of affecting the underlying inflation. >> the final question. two questions for you. a qeaven't you opted for extension without an end date, if, you know, you want to show continued presence in the markets? was that a compromise among governing council members? this second question is, another question with the scarcity of assets. not only for your program but for the markets itself. are you confident that with the
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reduced amount of purchases, withthose tengion since -- those tensions are lessened now? are you quizzing market participants about creating mortgage backed securities that could get a high rating through the correlation effect? of thethat, getting rid safe asset program? thank you. on your first question, as a matter of fact, our program says it goes to the end of 2017 or beyond, if necessary, and in many cases, until we see the sustained readjustment consistent with inflation. so it is, in a sense, open ended. it is contingent rather than open-ended. now, on the market, we do take important decisions on the
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security program. and we decided that cash will be accepted as collateral for the securities lending program of 50 billion. and as far as this is concerned, details will be announced at 3:30 today. as the repo market is concerned, we are aware of the ongoing developments and we will continue monitoring their developments. but the securities lending framework is sufficiently robust continued smooth functioning of the repo market. so we are aware that our program has contributed to increase the repo rate used to obtain collateral of the best credit quality. but despite these price increases, the repo market
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volumes continue to signal functioning repo markets and price discovery. we don't have any indication that higher prices for some specific types of collateral are hampering the transmission of the monetary policy, we have, nevertheless, discussed what the ecb could do, and i just announce, one of the things we will be detailing in the 3:30 announcement. enhanceave decided to our securities lending program. thank you very much. >> you have been listening to mario draghi in his news conference in frankfurt answering a series of questions about the change in ecb policy. here is where markets stand. a fascinating day. markets digest, is it a dovish taper or hawkish keys? initially a higher response against the dollar but now lower
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off by 1% at a one-week low. one of the worst major common sees today. the bond market is where we have seen a lot of the price action. as 10 year yield was as high 16 basis points and now the yield is up by about nine basis points as the market is buying into the selloff that we saw earlier. in the 5-30 year bund spread. to sell the long and by the short as the ecb with aes to buy bonds 1-2 year maturity, up by 14 basis points. it was up by 20 earlier. and it is reverberating through the banking sector. bank stocks are at the highest level since january 6 of this year. no surprise, it is italian banks that are leading the way. the three top moving banks in
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the sector. up by 7%, a big market reaction here on this, i want to say his story, ecb day. david: it didn't need much more reason to be despondent. now, we want to go to matt miller, our colleague in frankfurt. matt, what are your primary takeaways? i was in there listening to mario draghi and i think a couple of the things he said at the very beginning of his speech in the press conference where the keys. the mostchart to me is fascinating. the euro-dollar chart. the euro has been at a one-month high and it spiked after the initial announcement and then dropped. and i think that is a case of buying the rumor and sell the news. the market thought it was getting an extension of qe and it that it was getting more
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money from the ecb in the market. initially it did seem like that wasn't happening with the reduction of monthly purchases from 80-60 but that does bring your grand total in their two 500 40 billion euros of extension rather than 400 80 billion euros, which would have been the case had we only been at 80 46 months. listen to what mario draghi said at the beginning of the conference which turned the euro around. mario draghi: purchases of securities under the asset purchase program with a yield to maturity below the interest rate on the ecb's deposit facility will be permitted to the extent necessary. matt: so i think that comment, coupled with the fact that he will buy a shorter duration than two years and longer than one year really magnified the dovish stance that mario draghi is market started --
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at least the foreign exchange markets, they started to buy into that stands as soon as he said those words. david: you actually took us right to where we should be. right at the top. him, is this ag taper, is this a taper, is this . taper -- and he said no we didn't even talk about a taper. really sending a powerful message that said look, we are going all the way to december and we think we are not close yet on the inflation targets we have and we will go past december if we need to. and he certainly signaled that in the way the world looks right now, it is certainly likely. so this felt dovish to me. how about you? i tweeted that exact comment about tapering as he was saying it. he said look, there are many definitions but the way we see it, that means slowing purchases and not only did we not discuss that, it wasn't even on the
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table. he said the point of extending the qe beyond the first choice, six months up to nine months for the whole year is to keep the ecb in the market for longer. he really took a dovish tone and i think that is what the market is showing you with the euro against the dollar. david: thank you so much for being there in europe with us. that was matt miller. alix: here is where we are stacking up right now. dow jones industrial average is now at another intraday -- almost -- intraday high, a record closing high. the s&p is right around record levels as well. you have s&p relatively flat but nonetheless, holding the records with the doubt up i not even 1/10 the 1% but around the highs. nasdaq is unchanged on the day. in individual names, we are looking at tech, which is making some interesting headway here.
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microsoft is unveiling windows 10, an operating system that is run by qualcomm chips. also, an upgrade over bank of america but that is not enough to really help the nasdaq, the weaker of the three on the day. david: so tech is coming back some. alix: for more, we have the pimco head of management now. he comes to us from newport beach in california. is this the dovish taper or a hawkish ease? can you hear us? alix: oh, we are not quite there yet. say overall, a good day for stocks but a bad day for bonds? to oversimplify. they come out and the market reacts as though this is a taper. and he spends the entire press conference trying to walk that
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back. saying we are not going to zero. he did see a reversal in the markets but is that sustainable? i think in fairness to mario draghi, when he issued the initial statement, we did say there would be more details coming in the news conference. we were telegraphing to you that we have to talk about this because you might not get it from the paper. alix: and the other news is that they will buy maturities of one-two years. so 1-30 is what they can buy. and they can buy below the deposit rates so how many bonds is that actually free up? and what countries can they buy from? david: that is terrific. we will come back with more reaction from the ecb. this is bloomberg. ♪
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>> this is bloomberg daybreak. kelly, the ceoy of southwest airlines at 12:30 p.m. eastern time. for more investor reaction to the ecb decision, andrew bosomworth is here. he is joining us now from newport beach, california. to see you. so is this a dovish taper or a hawkish ease by mario draghi? andrew: 60 is less than 80, i see this as tapering to the extent that it is open ended if there are some dovish elements to it, that is putting language in there to increase the run rate or increase the duration if the situation deteriorates. but clearly, mario draghi has
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qened the supertanker of the by cutting down towards the run rate. so i see this more as a hawkish move. confidence on their side that they are reaching their goals. although, when you look at the average inflation rates that they are forecasting out to 2019, it is only 1.5%. so i do see this as backing away a little bit from the 2% target. 1.5% is the new 2%. why is it that the euro has, off so sharply while mario draghi was talking? it actually spikes up but the more he talked, the more it went down against the dollar? andrew: it is a self rate cut. they are cutting rates without actually cutting rates. areing rates because they expanding the eligible universe for bonds down into the one-year area. and they are giving themselves
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the option to buy bonds at interest rates below the deposit facility rate. so to the extent that they do that, they would become the marginal price setter of those bonds in that one year area. and if they are buying bonds at minus 0.8% then that is where the market is going to trade. and therefore, they have withouted a rate cut actually cutting policy rates. alix: does that mean it is buying the long and going forward? andrew: these will put a deepening bias onto the yield curve. that is the immediate price action that we have seen. banks,ositive for the actually. in the steeper yield curve helps the net interest margins and it enables them to finance in the money market and the repo market at interest rates below the deposit facility rate and then they can reinvest their qe liquidity at 0.4%. so it helps the banks.
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it puts a steepening bias to the curve. david: i'm critical on what this means for investors. we aresame time, anticipating a fed meeting next week where they will be raising rates. and there is anticipation that there will be multiple raise rates next year. so increasing divergence. othere a rate cut on the side of the atlantic and an increase here. what does that mean for investors? andrew: well, it is going to mean that the u.s. is the locomotive of growth in the world and therefore assets that are sensitive to growth, the ones that will be attractive are the ones that are more located in the u.s. area. you know, the economic area of the u.s. but from a bond perspective, it puts a bias towards a wider spread between the u.s. and continental europe.
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those spreads, however, they already are at wide levels. and to the extent that the rest of the world take japan and the euro area as examples are lagging behind and they don't act, it as a bit of a break on the u.s. economy and how far the fed can go. because if the fed out delivers the forwards on the policy rates than the dollar will get aronger and it will initiate feedback loop via the financial conditions in the rest of the world's onto the u.s. economy and fed policy. alix: to your point in central-bank divergence, even today we saw the u.s. premium over the german bund yield -- that was up by seven basis points, how much steeper cannot get? what does that wind up doing to the euro-dollar? andrew: the differentials in the front end are really going to be driven by the policy differentials of the policy
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rates of the central banks. and i think the ecb on its side is done on rate cutting. they are limited to the extent that they can do additional self cuts. the fednus is really on and therefore, the strength on the u.s. economy. and that is what will drive spreads in the front-end of these u.s. curves. david: bonds have taken a beating since donald trump was elected president. we see bonds sailing off today rather substantially. does this officially end the bull market for bonds? andrew: that is a good question. we are in the middle of that with our foreign deliberations and one of the questions we are posing to ourselves is, it is this the new paradigm? fiscal policythat in the u.s. is going to be
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reflationary and the ecb is now heading gradually towards the door. i think very few long-term phenomena that are still in place. societies are getting older. productivity is not exactly accelerating towards higher boost growth.uld income differentials between wide and poor are wide and could get wider. and these are all factors, without even factoring in the potential trade implications on are long-term factors that will keep growth at a more subdued level to what we have seen in previous decades. so i think the jury is still out as to whether this is a paradigm shift away from what pimco coined as "the new normal. " i tend to be in the camp that this is still the new normal. david: thank you, that was andy was andy bosomworth.
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have all hitting record intraday highs on the ecb day. let's peel this back now with abigail doolittle. abigail: beyond the record highs , shares are nicely higher on the fact that glencoe is joining with the guitar sovereign wealth fund to buy a stake. this is the kremlin run oil producer, one that pumped out more oil per day than exxon mobil. this will effectively boost glencore's oil trading business. looking to take this higher by 10%. this deal will give glencore the ability to market to hundred 20,000 barrels a day. this may suggest the timing
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is quite good. we see the strong downtrend. it took crude below the moving average. telling us that this has absolutely disappeared. it has been testing the support. telling us now that buyers are very interested and they may just take the range and top oil higher over the coming months and perhaps right into 2017. david: that is what glencore is hoping. coming up at the top of the hour is "bloomberg markets." we will have much more on the market reaction to the ecb. one of the folks who will be talking to is sir christopher , a nobel prize winner who has done work on the economics of markets that are having a tension within them.
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friction within them. so his perspective should be quite interesting on this day. in addition, we will also be theing from michael lewis, author. he will be talking with our tom keene, an interesting conversation. and coming up at 11:00, doug on the a longtime bear market has come over to the bullish side recently. we will see what he makes on the market action since the election and whether he thinks this run will continue. so we have a packed show here. forward to that, julie hyman. coming up, taking a look at glencore. that stock up over 2%. does this acquisition with the stake violate any western sanctions against russia? we debate that hot topic next. this is bloomberg. ♪
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alix: putin, the dealmaker. russia sells a stake in the largest oil producer to glencore. vladimir putin went on national tv to tout the deal as one of the largest acquisitions in the oil and gas sector in the world in 2016. earlier in the program, we spoke with a u.s. department of state bureau of energy resources special envoy and got his thoughts on the deal on whether violated sanctions. >> it is a scented entity and we have to look at how they will provide the financing. that is what we have to look at to understand whether or not this is a sanctions violation. it may look like it will not be. it is too early to tell. we have to review it. alix: with us now is stewart wallace. obviously, didn't want to highlight yes or no if this violated the actual sanctions
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but does this violate the spirit of the sanctions? i would reiterate the comments you just heard. it is too early to tell. you would think companies operating at this size would have had a careful think about it. they would presumably have gotten good legal advice on that. and we will wait for the regulators before we make that decision. avid: tell us, this is complicated deal. what is in it for russia and glencore? stewart: what is important to her member here is that for glencore, this was a company founded on this kind of trading. trading russian oil was a big forte for it. it has lost out for other companies so this is a big signal that it now owns the international trading of russian oil. for russia itself, it is obviously a huge win for them in big, of getting
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international names back into the sector. it gives them an injection of foreign exchange. big, international names back into the sector. awayt is starting to chip at this notion that russia is isolated. these are really big names to have on your side. david: how did you manage to walk away with a big chunk for 300 billion euros? i understand his actual cash in is 300 million? that work? stewart: we don't have the details yet so i can't give you those details but what i will say is that as far as glencore is concerned, it does have some equity exposure but what it is really after is the russian barrel and it as a huge amount to their marketing value. the thing you have to think about is, look at what has happened to the forward curve in oil. the marginal trade will grow for next year. you need to bulk up. go for volume and this deal gives them volume. why: you make the argument, would they want to buy into the russian oil producer that may
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have to cut production to it here to an opec deal? stewart: this really is the size of saudi arabia or thereabouts. the size of the cut is 300,000 barrels. so it won't have a huge impact across all of russia's production. and again, we haven't yet seen the details of how this will be split up company to company. opec and non-opec will be meeting on saturday and we will get more details from that but until then it is hard to say what is the impact itself. alix: thank you, stewart wallace who is joining us from london. of -- senior independent nonexecutive at glencore. we came in this morning, we were not expecting this. and the way the deal was done and so many questions and what it means for western and russia relations going forward. mean glencore stock was
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on death store. this is a real turnaround. alix: they were correctly trying to get more money from shareholders and now they are saying, we will buy more stuff. so it turnaround. packed agenda for donald trump today. he will meet with former supreme allied commander of nato here in new york. columbus,en visit ohio to meet with victims that first responders at the recent attack of the university. and tonight, he will attend a rally in iowa with mike pence and terry branstad, who is donald trump spit for the u.s. ambassador for china. so a lot coming up. alix: and the uncertainty of donald trump's policy feeding into the news conference with mario draghi. he couldn't give any specifics. an earlier today we did get the monument it ecb decision to extend the qe decision and reduce bond purchases by april but extend the whole buy through
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december. here is what mario draghi had to say. mario draghi: purchases of securities under the act of the program with a yield to maturity below the interest rate on the 's deposit facility will be permitted to the extent necessary. david: we have these news conference every month but this is one of the more fascinated ones. he really had to lay out what was done and why it was done. and what they didn't discuss, tapering, he said. alix: he said they did not discuss it. but nonetheless, the market reaction was stunning. its is the german curve and has statement. this is the 5-30 year yield. at one point it was up i 20 basis points and now it is up by 15 basis points. so you sell the long end and you by the short and because the ecb is going to be in their of the duration of one-30 years. a real change for the market to
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try to digest that. david: you know who is benefiting. it is the banks. the european banks. they have wanted that steel curve. not touch that. he will not talk about banks. david: he said they have complete confidence they would take care of it. alix: we are 25 minutes into the session. let's get a check on the markets. the dow, s&p and the nasdaq are around record highs. soaring in the fx market. a stunning reversal for the euro. now down 1% against the dollar and a selloff in bonds continues in europe. this is bloomberg. ♪
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alix: 10:00 a.m. in new york, 3:00 p.m. in london, and 11:00 p.m. in hong kong. i am julie hyman. mark: imf am mark barton. welcome to "bloomberg markets." ♪
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julie: we take you from new york to frankfurt and cover stories from washington, germany and china. the have to check on stocks. in the u.s., all-time highs. in europe, the ecb just dropped up a lot of action there. mark: what a day. initially, getting for a fourth consecutive day, highest since january's four-day winning run, best run since october 4. matt miller will tell us the details and highlights of today. the initial decline, the reason is the ecb will reduce their bond buying program to 60 billion euros. it has been extended to the end of this year, so we saw an initial jolt in the markets. then the ecb expanded on its

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