tv Bloomberg Daybreak Americas Bloomberg January 4, 2017 7:00am-10:01am EST
from the u.s. worldwide, a font warm and welcome to "bloomberg daybreak." futures and equities across europe are unchanged and stable. the bond market was a little choppy yesterday at the treasury. economic data is decent. the treasury is stable this morning in the u.s., as well. euro, welook at the are changing on -- trading on the cable rate. tries to slow down the flight of capital as the dollar continues to climb. it affects everything from chinese company debt payments to the value of a bitcoin. european economic data shows encouraging signs of growth raising questions about possible tightening policy from hocks in 2017. donald trump gets his way. mexico andbout gm, ford abandons a plan.
he talks about congress changing ethics rules, and congress backs down. is he on a roll? that is what you need to know at this hour. first, our top story on china. we are joined now by in expert from beijing. john, welcome to the program. out us a consensus right that there is a substantial element in the chinese government saying we should take new steps to curtail the capital flight. what are the steps being considered? >> we had some recent steps on january 1 that increase the amount of reporting and paperwork that everyone has to do to convert their annual quota. what we are reporting today are that -- is that government officials are trying to do some field research to determine what will happen with outflows in the depreciating currency, and what sort of contingency plans they can come up with.
what kind of policies they can undertake to offset some of those moves. the two things we have heard is that they could order state owned enterprises to convert some of their foreign currency yuenngs into u.n. -- temporarily. david: they've been selling off treasuries and eight rapid pace -- at a rapid pace in 2016. how much pressure is there on the chinese government and chinese companies that have dollar nominated debt? of pressure onot the government to maintain stability. this time a year ago was a time of great turbulence as a result of the yuen and chinese stock market. that is not something the government wants to see happen again. of pressure on a policy makers to take steps to keep that from repeating. david: what are the means by which chinese citizens can get currency offshore?
bitcoin has gone up over a thousand dollars now reportedly in part because of this desire. you also have huge exports into hong kong. >> exactly. bitcoin has always been seen as an avenue that some chinese might use to get their money out of the country. it is something that the central bank has crackdown on. they had been very tight about controlling it. commercial banks are not allowed to handle it. the central bank has come out to say they support digital currencies, but only those that are under the control of the central banks. other than that, you sort of mentioned going through hong kong and getting money out in the disguise of payments and goods that are not actually shipped in. there are various underground banks that people can turn to. david: john, thank you.
editoromberg executive for greater china. john, thank you. jonathan: you have $50,000. that is your annual allocation to convert into foreign policy. you going to do it quicker now are you? >> as i mentioned a year ago, this is a different situation. we have a very sort of the recalled after the fed hike. after january 1, we hit a lull. the yuen went down and volatility seized up. the dollar went up. is a more orderly process even though it is only a few days in. the question is are they going wo reopen a 50,000 yuen windo or close it? but they going to put some any restrictions around it so it cannot really be executed on? down, and itoming
probably should come down, but they don't want it to be too much of an effect on the tightening of financial conditions. that is what took things off track last year. jonathan: i imagine at the end of this -- at the end of this table is a long big chart here. role andee the yuen go. they are trying to support it on the way down. the regulatorsng can do? >> hope that the dollar stops going up. last year from around march to the fall, the yuan continued to decline. the dollar stopped going up, so the dollar is a very critical component here. david: is there anything that is going to keep the dollar from continuing it upward climb? -- this hasis that
really been a cigarette global story, and china is a big part of that. they are running fiscal, monetary, currency stimulus all at the same time. the u.s. stock market is about half of the world stockmarket at 54%. however, u.s. economy is only about a quarter of global gdp. i think we're getting to that point with her is a little bit of a mismatch about where the dollar is and where it might go. i think the ultimate consensus going into this here is belong on dollar and be short on equities. i think the long dollar party is the most foldable. jonathan: david was talking to john about the prospect of state-owned enterprises bringing money home. they talk about patriotism is the last refuge of a scandal. patriotism right now seems like the last refuge of failed economic policy.
last month, they were talking about citizens eating to bring the money back home into the turkish lira. is there anything different in the society about what they can and cannot do with their money? >> yes. as far as currency in independent monetary policy, i think the chinese government is just tried to keep things orderly. they recognize that the yuan has to come down. it is overvalued. when the dollar is going up at the same time, it puts a lot of pressure on it. you remember what happened to the shanghai composite a year ago. they do not want to have to go into overtime -- overdrive and try to put the whole thing together. it is a very delicate balance. they be there is a price to be paid if the central bank is directly funding the commercial banks. with the yuan's lighting, it is only going to work for so long. it is working right now. the global economic picture has brightened because of it.
will be staying with us. in the meantime, let's take a look at the updates outside the business world with ms chandra -- emma chandra in the first word news. -- on twitter, donald trump wrote that the intelligence briefing on the so-called russian hacking has been delayed until friday. more time needed to build a case. very strange. when u.s. officials said that the intelligence briefing was set for the next few days, and had not been scheduled for yesterday. the fight over obamacare begins today in the new congress. president obama goes to congress on how to fight the republicans on the affordable care act. in well, mike pence will discuss strategy with republicans who plan to appeal obamacare but have not yet said whether they will replace it with. in tel aviv, an israeli military court has found a soldier guilty of manslaughter in the killing
of a wounded palestinian attacker. the trial had been going on for months and had divided the country. a judge said the soldier shot the palestinian because he thought he should die after attacking other soldiers. global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i can emma chandra. this is bloomberg. at ahan: we are looking record high from yesterday, and now the uk's retail has cost it in it movement. retail,arting with u.k. we see the company cut its annual profit forecast for this year as well as the next fiscal year. competitorsa lot of were discounting early in the holiday season. now, they are not discounting until after christmas. that sale did not do as well as typical. ego said that this year's christmas was moderately disappointing.
-- the ceo said that this year's christmas was moderately disappointing. tesla delivering more cars. the production was 25,000. it is going to be about 76 thousand. this has been must -- this has been elon mus'' s playbook of overpromising and under delivering. berkeley promising that there is a high probability the company will announce a delay of its model three. microelectronics, the french semiconductor maker has fallen after morgan stanley downgraded the stock to underweight. they say yes there has been sales strength, but it is not exclusive to the country that has been priced into the stock. the stock has doubled over the past six months. david? david: coming up next, economic data out of europe indicates that a brighter future might be
♪ jonathan: from new york, this is bloomberg. i am jonathan ferro. eurozone inflation accelerated in the month of december. it reached its highest level since 2013. this is fueled by the appropriate degree of testing list from the ecb about the central bank decision to prolong levitated easing. we turn out to economist from london. we were just looking at the inflation numbers to come out from this. you just look at the contribution that comes from energy -- just wanted to show that.
>> there is nothing really good about today's inflation numbers towards the central bank. you are seeing three things. one, there is a pickup in inflation. that is telling you something about what happened next year. they are saying the oil prices have picked up a little bit this year and that is bad for the outlook. there is no sign of any underlying inflation pressure picking up. that is what they need to see to unwind the stimulus. say it is picking up very quickly, there is really no good news for the european central bank. jonathan: crude in the 20's this time last year and now in the 60's. that trend is set to accelerate to the early months of this year. is that going to change anything for the ecb? or without just be a french debate? -- fringe debate? >> i think this will last for a year potentially. what it does is that it just
gives the hawks, particularly in germany, a bit more fodder to hit the ecb with. inflation germany the rate picked up by a whole percentage point. it just makes mario draghi's job harder to explain to the german people about why this is. stable, unmoved, well below target. ecb's policy released just a month ago to prolong easing. is it just steady as a goes for the ecb for 2017? >> we will see a pickup in court inflation over the next few courses. that should be sourced primarily in germany where the market is particularly tight. i think it is steady as it goes. the ecb is expecting court inflation to pick up. if for some reason it does not, the debate could ship back to
where it was last year. jonathan: jamie, think you for joining us. david? david: let's talk about your more with jurrien timmer. what is your view on the longer perspective? >> to me, the european is the cycle is about three years behind the u.s. is the cycle. 2008, andrashed in europe had its debt problems in 2011 with greece. now, after any year expansion, we are reaching into a sort of late cycle. higher inflation, and we are getting this fiscal adrenaline shot for immature economy. europe is not there yet. i would imagine that if inflation in your is rising, it is purely because of oil -- i would imagine the european bank would see through that a little bit. my sense is that you're still has that perspective of moderate goldilocks growth.
dollar and to the oil priced in dollars, it is more expensive for europeans that it is americans. the dollar does play into that outlook, as well. saidhan: most of what you relates to european assets. every time we talk about europe, it is usually negative. we talk about risks on the horizon. take a listen to this. >> when you look at the french situation in particular, if you do gain that forward and get a centralized premier -- center-right premier, that is an upside scenario that their review have contemplated. why because they -- why? because they are all focused on the downsides. most investor concerns for folks in europe -- most of the concern for folks in europe is how can i hedge and participate in the upside? comesan: whatever anyone
onto the program, they talk about how they can capitalize on the upside in the united states. very rarely can you talk about europe like that in the moment. >> it was all about if you years ago how bad things get? when will we ever get growth or reach escape velocity? when will we reach the fed inflation target from down below? the central banks are fighting deflation these days, and that is why i am not so word that the inflation will suddenly put the ecb on guard. what we saw with the election in the u.s., it unleashed an animal spirit. that has not happened yet in europe. and that is coming. -- maybe that is coming? david: is there any indication that they are going? in that direction -- going in that direction?
is that on the horizon in europe? >> it is hard to tell. as you know, mario draghi four years has said they have done heavy lifting with monetary policy. how about some physical? -- fiscal? the fiscalre getting but maybe a little later than they wanted. in europe, with the way everything is structured, it is hard to see a more unified approach. it means the ecb is the only institution that could do this in a unified way. if the u.s. is growing and china is on a better footing, no matter how temporary that might be, it has created a more synchronized come local momentum. -- sigrid eyes, global momentum. globalhronized, momentum. --athan: the last thing i the last time i heard about escape velocity was use ago.
what you say back to your clients when they say i have heard that before? the fed was is that always talking about escape velocity. we never really escape that 1.5% 2% growth mode. it did allow the in best the --loyment rate to grow from the unemployment rate to go from 10% to 5%. once we get into the sausage making process in washington with the tax reform, who knows if it will be as bold and dramatic as people expect? it is entirely possible the reality does not match up to the expectation. rrien, it is great to have you with us. talking about how the sausage is made. let's get to exit next. is it a -- brexit next. more on the impact on that coming up. from new york, this is bloomberg. ♪
♪ jonathan: this is "bloomberg daybreak." i am jonathan ferro. we are about a few hours away from the cash open in new york. futures are up. snappingy, the s&p 500 a winning streak in europe. fx market for the dollar has been strongest sense december 2002. today, it is a weaker dollar story captured against the euro and pound. 122 71.e rate at earlier today, we saw some u.k. data showing households continuing in their spending spree in the wake of last year's brexit -- in the wake of the brexit post. joining us now from london is
simon kennedy. he is bloomberg's own brexit editor. simon, i will be honest -- i spoke to so many people about this. so many people have not even heard of ivan rogers, and not everyone is talking about him and the significance of this resignation. can you walk me through it? >> if you are going to go, go with a bank. he is a well respected, long-term british diplomat. beenast few years, he has the u.k. ambassador to the european union. you that he would've been a key figure in the upcoming talks as brexit got underway. but no, he resigned yesterday on his holiday home in dorchester in south england. doing so in a 1400 word letter that listed many criticisms of the government and calling for those he left behind in brussels to stand up to power and
suggesting that the brexit plans are not good. jonathan: the expertise on where they come from -- who replaces this guy? how do you build up a team in europe? >> it is still a rather appealing job if you have worked in the european civil service for a few years. beot of civil servants will climbing for it. the question is if a politician is put in that job. it has happened in the past. they have been very sensitive about hiring someone to the position from outside the civil service. she wants someone who understands and is behind brexit. the application being that ivan rodriguez was not. jonathan: for those out there still clinging to the hope that maybe they can do something feel to the- is it
fire to say the prime minister does not have a clue? the data remains ok though. the only thing i can pick up on the morning about the negative rise for the u.k. is what is happening with the u.k. retailers. , the economict data has been ok. what you make of that? of --y are a good example it is a sort of canary in the mine. it certainly portrays the economy -- as long as the high street holds up, she has some strength in negotiating. jonathan: simon kennedy, thank you for joining us. up next is president elect donald trump. ♪ wow, x1 has netflix?
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looks up, european economic data showing encouraging signs of growth and raising questions about whether european central bank hawks will press for taking in what he 17. -- tightening in what he 17. donald trump gets his way. he tweets about gm and mexico, and ford abandons a plant south of the border. he tweets about congress ethics rules, in congress backs down. is he on a roll? jonathan: futures are up. the dow positive four points. it could snap three days of gains for europe on the stoxx 600. littletch up the board a bit. some stabilization in the treasury market today. they -- the fx market is fascinating. yesterday, the dollar strength was the strongest sense december 2002. it is a big upside for eurozone
inflation. the euro now is at a dollar four cents. i do interview with ford ceo mark fields yesterday after announcing that ford would not be going ford with a plane to invest in a new plant in mexico. given the fact that donald trump gm just tweeted about importing cars from mexico, i asked about the possible connection? >> we would make the same decision. the main reason for canceling the plant is that our next generation of ford focus would be built in that plant. we are seeing a market decline for small vehicles in north america. we do not need the capacity. we're going to take the ford vocus that was going to be the -- ford focus that was going to and we will produce it in a different plant in exeter. david: -- in mexico. call. tell us about the
>> we wanted to let them know about the announcements we were making this morning. they were pleased that we were making the announcement of investing $7 million in our plant in flat rock, michigan to build a high-tech taunus vehicle in a fully electric suv. they are pleased we are going to be adding 700 jobs over the next few years. it will build on the 28,000 jobs we have built on the last five years. they were pleased on our part about computing to economic deponent in the u.s.. david: you say it was a ford decision. it is not something to president-elect should go out and say he did it for america. >> it is what was best for our business. we look at all factors when we make these kind of decisions. we see a more positive u.s. manufacturing business environment under president-elect trump. we see the progrowth policies he is outlying in the -- outlining in the tax regulation reforms.
this is part of a vote of confidence that he can deliver on those. michigan. new jobs in if you look at the overall ford level of implement, with a go up by 700? go up, over all we will by 700 jobs which as to the 28,000 we have treated in the last five years. as you know, even today, we are the largest employer of hourly automotive workers. we are the largest producer of vehicles in the united states. we are one of the top exporters. we are proud of that. david: when you talk about exports and imports, we are reminded of the tweets that came out from the president-elect having to do with another car company -- gm. it has to do with the florida tax adjustment. wouldwent forward, it require congressional approval. with that due to business across
the mexico border? >> we would have to look at it in total. obviously, the congress that is about to take office will debate that. we will stay very close to that to understand what it means our business. to put it into perspective, 80% of our sales in the u.s. comes from vehicles that are produced here in the u.s. less than 15% of our sales comes from imports from mexico. we are also one of the top exporters. it is not just looking at will there be -- for example, some kind of border adjustment tax on imports and we also have to look at exports. that is what we will look at on the impact on our business. david: have you run the numbers? you have said you are a major exporter and not just in importer. i understand that you get a credit for exporting as you get a tax for coming in. >> we are running the numbers right now.
as i mentioned, we are one of the top exporters. we are going through the numbers right now to understand what it might mean for our business. david: that was ford ceo mark fields. we are joined now by brendan greeley. brendan, i think we got a bit of a glimpse into what many ceos are dealing with across the country. yourare trying to manage business and accommodate the incoming administration. brendan: they say this is only decision, butness we gave the administration a heads up and they were pleased. that is odd. it is not really how we think about business in america -- that we give the administration a heads up so that everyone is happy. this is kind of shocking to watch. however, states have been doing this for ever. for peoplemagazine that are looking for places to build plants in america. they held every year what they cup"a "governor scott --
to see which governor has done the best job each year to bring plants and. they are very good at identifying potential companies that would move in. david: so that is great for politics. does it make a difference for the economy? brennan: in answer, yes and no. we know that most of the new jobs that are created are made -- created by new businesses that are opening a new hairdressing shop. that is where the jobs are. it is not about 500 jobs showing up in one fell swoop in dallas. voters understanding of how the economy works -- it is not operating on that level. it is good for politicians to stand up there and say we have done this, here is the shovel ceremony, here is the signature. jonathan: i have heard so much potential is them in the past couple of hours.
-- potentialism in the next -- over the past couple of hours. i look at this situation with this company right now. he gets to say that they have done these things. has he actually made them do it? brandon: here is what i think economist ford -- think of it as a bundle of parts, but it is a consumer decision you are making with $40,000 once every five years. that is a huge part of your household wealth. in the 1980's, if you worked for aford plant and you drove toyota, they would slash your tires in the parking lot. brandon doesn't matter. one thing that has changed in this -- brand does matter. one thing that we have seen in this election, brand matters. now isn: joining us
james tierney. great happy with us, jim. -- great to have you with us, jim. we were concerned we would not get the terrorists and protectionism. you still -- tarifs and protectionism. you still have that hope? what have talked about might happen, but someone has to pay that bill. i do not think people have done the math that -- math on how this is going to turn out. it is not going to be as smooth as everyone projects. jonathan: the optimism is 17 times earnings. what has to change? >> i am not so concerned about 17 times earnings. -- we need back to to see earnings start growing again. we saw that in the third quarter , and we are starting to see in the fourth quarter, but we need
stronger growth in 2017 and 2018 to justify those levels. david: at some point, you have to have a real growth. it cannot just be financial markets. what in the donald trump plan would generate those kind of real earnings? >> i think that is a great question. for investors, i think you want to give it to those companies that are making their own fortune. those great secular growth companies. we saw that secure growers did well on a growth trade. however, if you find a secular grower that is growing by 10% or 15%, they are driving a lot of earnings growth over time. those are the companies we are trying to find. jonathan: that rotation got talked about a whole lot at the end of last year. you're talking about health care and tech who have been laggards at the back end of last year. tell me why? >> first of all, the people who
have obamacare are not going to lose it. they're going to get from somewhere else. think that is a fundamentally good business. with tech, you look at companies like google and apple, the still growing their businesses nicely. david: talk about the business cycle. if you are trying to great -- get the growth you are talking about, you may have done whatever mergers and acquisitions make sense. at some point, it gets harder and harder to get blood out of that turn up. >> it absolutely gets harder. so, if you can find those companies with secular topline growth, they are going to be the winners. jonathan: i love the way you put it, but had you do that? that? do you do >> i think there are good business practices that we can look at. the countries that are not exactly employee friendly -- you want to find the companies that have good as this is in charge a fair price for what they do. maybe companies that are even
little more u.s. focused giving the tilt we have had. i think they will be the winners in the marketplace. david: if you are going to get that kind of pricing power, you need companies with a motor on them. -- >> we are always looking for those companies that are going with an intriguing. david: and they are not afraid to cut costs. >> not afraid to cut costs, but they are paying their employees a fair wage. the is an issue that will continue to bubble up in the u.s. what are the wages you are paying? can people live off of what you are paying them for our? -- per hour? david: jim, they do for joining us. yearil keep up in the new with that act of terror from last year? we will find out. this is bloomberg. ♪
and they are staying at the are not sustainable in 2017. here to explain to us why is can hoffman, senior analyst for bloomberg. great happy with us. we are going to show a chart here to see how much iron ore has outstripped the price for other commodities. the white line is iron ore, in the blue line is other commodities. it seems to be at a kilter. 10: maybe. they understood the iron ore and prices, then they are lying to you. everyone thought it would be cut in half a year ago. it is ordered, and they thought it was going to 20. it was at 80, and they thought it was going to 40. analysts are saying that there is a mind that will cost lanes of dollars but at huge supply to the marketplace. this year, there is one in brazil. what they do not understand is chinese demand and what is going on inside china. what happened last year?
those a lot of new supply, and the price doubled. the chinese produce a lot of iron ore. he came up and said they are going to produce a lot less iron ore. last year, they cut their supply and demand notably flat. demandar, it looks like will probably be flat. if they continue to cut their internal iron ore supply, the price could go higher. jonathan: we talked about gina rinehart in australia bringing on more suppliers there. the change in attitude is about value, but when they see that price do they change that attitude? >> not yet. they have been very dumb last time around. last time, the were a bunch of new mind starting up in africa. they wanted to knock this out the marketplace forever. they did that. this time around, they are think they will be more capital
constrained and they keep pushing back the new start production. it keeps things higher for longer. what analysts need to understand -- the problem is that the chinese probably do not even know what is going to go on with their own production. that is a problem at the end of the day. david: we talk about china as far as the supply side, but what about the demand side? >> it might not happen. this is a new year for china. they want to show they are doing something to the people. do they want the market to collapse? or are you going to do what happened in january of last year with a put in the biggest flood of new loans into the economy? they can throw money into the economy anytime they want to keep things from falling. this is a year you think they would want to be fairly stable. jonathan: we've had a rally in a commodities, and a stronger dollar story. it is hard to reconcile historically.
>> it does not make any sense at all. what you normally see in this kind of work in place -- the donald trump election should have said -- sent commodities lower, but that did not happen. about $55 per to metric time. gold is turning to move up strongly. is having problems. maybe it is just want to take time to work out. david: what does donald trump due to all this involving -- particularly regarding trade? >> it only at about 2% of u.s. field demand and iron ore demand. let's get that out of the way. do not worry about that. it is going to be nothing at all. as far as trade, we have seen global trade decline. that is not good for monti's. he might bottle things up here, but that is not going to help global expansion. jonathan: ken hoffman, it is
great have you on the program. time to get you up to speed on some other stories making headlines at this hour. let's say good morning to emma chandra. emma: but you caught up with a bloomberg business flash good shares on tech limited are lower. usk fell short of test -- and tesla fell short of their own forecast. this continues his playbook of ambitious goals and all in short of them. shares including king next fell after the company cut its annual profit forecast, and they predict a difficult year ahead. plus, the slump in the pound makes production more expensive. an era of overpricing in manhattan real estate might be over. prices fell for the first time in more than four years. todropped from 6% a year ago
jonathan: from new york, this is bloomberg. let's get you updated on markets. we see futures up 31. the dow up four or five points. the s&p 500 up. the fx market is the big story from yesterday. the strong dollar getting back to that december 2002 strength. the euro at $1.04 now. touch.are up just a
it is up a basis point for the u.s. tenure. about up, we will talk the fed releasing minutes from the december meeting today. take a look out for that. good to talk about us with that is carl riccadonna. how do make the forecast for 2017? carl: we have her member where we stood back at the time for the december meeting with all the uncertainty over the school policy other it be stimulus, deregulation, or operating income tax reform. there was much greater uncertainty around the growth projections. if they are less certain, then your policy reaction is less certain, as well. the fed shifted toward a three hike scheduled for 2017. they did not give much clarity on when that next hike is coming. are sayingicipants
that will happen at the june meeting. i will say that if the fed is taking their next that in june, it might be too much of a compressed timeline in the back half of the year for them to execute the three rate hike. jonathan: i remember the decision. it was only a month ago. everyone said they would drop it. however, the economic data came out, and it was not worth the paper. no one knows what is going to happen this year. >> the minutes will provide a little more clarity. the were mild upgrades to gdp projections. we have to see how that relates to the expectations with trump -anomics. we have get a better sense of how policymakers are seeing slack in the labor market. it will tell us a lot about the timing and the speed of
subsequent moves. jonathan: the backdrop to all this is that the data is still standing up. manufacturing numbers were decent yesterday. is that going to continue? still -- we are seeing a real pop in a confidence metrics. yesterday, the readings should be a measure of underlying activity. often, when there are dramatic such asin the economy election outcomes, it can take on an element of being a sentiment indicator. what we need to see is that the improvement in the sentiment ages actually translates to hard economic activity. today's motor vehicle sales will be key. industrial production later this month. if they are putting their money where their mouth is, it will be the hiring figures coming up on friday. jonathan: as far as employment
specifically, what does it indicate for friday? carl: the employment improved. however, it has been saying that for about three months running out. we have seen continued job losses in that sector. jonathan: carl, great to have you with us on the program. on friday -- coming up, we have contingency plans -- contingency plans that china will use to curb outflows. we catch up on an important conversation with john ryding. in new york, the stocks are rolling over in your. this is bloomberg. ♪
welcome to bloomberg daybreak. i'm jonathan ferro. the markets, for the second full day of trading here in the u.s., futures up 34 on a doubt. up about five on the s&p 500. the dollar is the story. treasuries are a bit more stable than yesterday. 2.45 on the u.s. 10-year. david: chinese wall for currency. china tries to slow down the flight of capital as the dollar continues to climb, affecting everything from the valley of debt payments, to the bitcoin. european economic data shows growth, raising questions whether hawks will push for tightening policy in 2017. trump gets his way. he tweets about gm and mexico cancels its plan to
build a plant in mexico. is he on a roll? to help us understand what is going on with the yuan and how it fits with the markets, let's bring in john riding from rdq economics. also with us is mike mckee. john, there is a big story in the bloomberg today about possible steps the chinese government could be taking to further restrict capital leaving the country. how serious is this? >> on a macro picture, not that serious. when you look at the total move in the currency since august of 2015, when we first started to see the currency weakened, not a at thee, but if you look reduction in their foreign exchange reserves, they have reduced and have spent about a trillion dollars to support
their currency. they have been trying to support their currency, and why? they are afraid a weakening currency could lead to china being accused of being a currency manipulator. they are trying to intervene in the markets. the big issue for china is not just about trade but capital. we have had capital flight. you mentioned bitcoin, the biggest players in the bitcoin market. to get theirying currency out of the country. china's point of view, they need to keep the growth going, not only for themselves, but for the world. and to need to rise, going into the 19th party congress for the end of the year, about how they are doing
domestically. >> nobody has ever faced a crisis with 3 trillion in foreign exchange reserves. let's remember the magnitude of currency resources. we go back to when china was trying to hold their currency unchanged against the dollar, 10 from $400 it has gone billion to $4 trillion. china can intervene if it likes, but the currency is not part of the imf basket. as part of that, one needs to move toward a more convertible currency. meansertible currency willing to sell your currency, although it to be traded freely in the market. jonathan: so that begs the question, what are they doing then? >> i think there are trying to
prevent their currency from falling, if they go ahead with this, too try to maintain stability. that is a reaction to fear of political pressures. jonathan: there has always been the situation in china on how they handle the situation. it feels like panicking when you start leaning on your citizens, and what they can and cannot do with their quotas. do they have a communication problem? they have more than a communication problem, they have a problem with people having faith in their currency. when you look at the yuan's decline in value and the decline in reserves, it is the speed of the decline that is concerning. the reserves go down, that puts more pressure on the yuan because people are word about its stability. the chinese want it a little weaker to help trade, but they don't want it so weak so that
people lose faith and continue to try to sell it and buy dollars. they have a huge problem with dollar denominated loans. a lot of companies, particularly airlines, buying in dollars. a lot are trying to move currency out of the country to take advantage of higher rates in the united states. they have companies that are also trying to borrow to finance. so there is a mixture going on that is causing them to struggle with the currency's value right now. chinese, theyare created this basket last year to take the pressure off of the yuan. why hasn't that succeeded? >> part of the problems they had, going up against a currency market that is used to trading dollar-yuan. there is a psychological factor where the markets do not pay as much attention to the basket. the basket has now been expanded
so even more currencies will make it more stable, but it's not working to get somewhere to they want to be. jonathan: this is having an effect on emerging markets. the bank of international settlements pointed out 10% of that dollar dominated debt matures this year. is that going to be a story? >> it depends if it gets rolled over or not. it could be. currencies move. currency, starting in 2005, began to appreciate, quite a long way, primarily on pressures not only from the current account, but also because people were seeing the appreciating currency, trying to get it into china. so it was a capital inflow story. but you also have a capital outflow story. in england we used to have a 50 pound limit, about $65 right now
, on foreign exchange you could take out of the country. , countriesremember put restrictions on their citizens on what they can do with the currency, until they get a fully convertible currency. when capital controls when in in the u.k., we had a fairly convertible currency. china is going through this. david: dollar continued to go up in 2017? >> i think it will. you have a combination of less accommodative monetary policy and tax cuts. that policy was bullish for the dollar under the reagan administration. have had some movement in anticipation of that story, we have not had the tax cuts or the interest rate increases yet. thanks to john ryding from rdq economics, and our own mike mckee.
now let's get an update from what is making headlines outside with emma chandra. the fight over obamacare begins today in the new congress. the president goes to the capital to get democratic lawmakers advice on how to fight republican lawmakers. mike pence will discuss strategy with republicans. republicans want to repeal obama care but have not said what they want to replace it with. in south carolina, dylann roof will begin arguing for his life. a jury will decide whether he will get a death sentence. is representing himself and says he will not call any witnesses or introduce evidence. turkey says it has identified a gun man who shot up in a club new year's eve but officials are not releasing his name. state run media have been showing a video of the suspect walking around istanbul.
police have detained 20 people described as islamic state militants. global news 24 hours a day powered by more than 2600 journalists and analysts in over 120 countries. i am emma chandra. this is bloomberg. 190 points away from dell 20,000. we have not talked about that in a while. let's get to julie hyman. johnson and johnson is where we are starting this morning, chairs are not changed at the moment. earlier they were up 1%, after a judge/their punitive damages in a case involving defective hip implants. meantime, j&j says it will proceed with an appeal over a
guilty verdict. it is citing legal errors in the case. we are also watching to connor, the japanese -- takata, the japanese auto parts maker. were up by the daily limit on each of the three sessions. the settlement with the justice department has not been announced over the defective airbags, but part of this has been attributed to short covering, which has been dropping. finally, back to retail in the u.k., next, down 11% as the company slashes its forecast for this year and next year, citing a moderately disappointing christmas season. 0.4%.tore sales dropped analysts were looking for a gain of 2.2%, so definitely this appointing. david: thank you.
jonathan: from new york, this is bloomberg daybreak. i'm jonathan ferro. in the equity markets, futures are up slightly. futures up 37 on the snp. in europe, a little softer session. yesterday, dollar strength. today, dollar weakness against pretty much every currency in the d10 space. the cable rate at 1.2287.
acceleratingation in december, reaching its highest level since 2013. today's numbers could add fuel to the appropriate degree of stimulus coming from the central bank. debate the conversation, our economist jamie murray. it is hard to see what is good in these numbers for the ecb . can you pick out the individual points? >> two things to think about here. the debate affect dropping out from oil price movement last year. at best, a distraction, not really interesting, and no bearing on the outlook of inflation. that you can write off. the other part is oil prices picking up this year. that affects consumer spending power, will push down on it.
that is bad news for the ecb. the third piece of information is the underlying it inflation, which is what the ecb is most worried about, is going nowhere. a modest pickup in core inflation that may have something to do with package holidays in germany, so we are not really seeing anything exciting in the underlying picture of europe's inflationary outlook. jonathan: the easiest way to capture the story is looking at 120 lastt year, at year, now in the 50's. this theme is expected to continue. how much does this embolden the hawks on the ecb and whether they can change the debate? >> there are some of us out there that do not care about the head on inflation. they will pick up on the fact that inflation is higher, making it difficult in germany, where the pickup was not half a
percentage point, but one percentage point. that is where the argument needs to be won for the ecb to keep policy loose. i think it will keep policy loose, we will see some movement on headline inflation, but the ecb will be focusing on core and underlying. john ryding, spare capacity is the big issue. the inflation pressures in europe, how different are they to the pressures we see in the united dates -- states? you have to ask what monetary policy can do in europe in terms of further stimulating the economy. the economy is not being stimulated by monetary policy. unlike the u.s. where there is no action on the fiscal front, the ecb had to do something. when rates got slightly negative, they interviewed on the qe path.
but the oil story is common to both countries. law oil prices is not bad for inflation. you cannot have it both ways, you cannot worry about the way -- when oil prices were down at $25 a barrel and then you say, $50 a barrel, we don't need it. in the concrete terms of the fed, when they meet at the march meeting, they will have inflation close to 2.5% on the cpi. they already have core inflation near 2. that is the difference. u.s. inflation is more pervasive. europe has a big relative value problem. prices in the production cost are still too high relative to germany. how can you fix that with monetary policy when they have the same currency? david: to what extent is their
divergence between the u.s. and europe in this case? does the divergence make it more difficult for the ecb? >> we have relatively full employment in the u.s. if we are facing massive fiscal stimulus, as may be likely within the administration, where is that stimulus going to flow? unless we have a very significant pickup in productivity growth, and u.s. proximity growth has languished below 1%, unless we have that growth, that stimulus on the demand side will be substantially transmitted through the balance of permits to overseas economies. europe will be a beneficiary of that. jonathan: the theme for early 2017 for inflation pressure will and influence it has on conversations around the world. i wonder how many ecb managers
-- they tell us low oil prices were the problem. now they are going to tell us high oil prices should be ignored. how will you reconcile those two things? >> the thing they were worried about was underlying inflation was very low, about a percentage point lower than it should be. it's been that way for the last couple of years. they were responding mostly to underlying inflation not picking up, while mentioning low headline inflation is a risk. now, as prices rise, they will still emphasize the fact that underlying inflation is low, not worried about the impact on weight setting. david: jamie murray and the john ryding, thank you both for being with us. coming up, it is the biggest investment fraud since bernie madoff, and it's been in the work for years, so why didn't the sec see it coming? turnout in athis
david: this is bloomberg. breaking news here. donald trump tweeting, he says thank you to ford for scrapping the plan in mexico and creating 700 jobs in the u.s.. we will be coming back and a half hour to talk about this with ford. we interviewed mark fields, the ceo, about whether this is really donald trump or ford's decision. let's turn back to the new york investment community and how it was rocked just before christmas when prosecutors arrested a
traitor and charged platinum partners with securities rod. it was the biggest scheme of its kind since bernie madoff, and that he cheated his investors out of $1 million. so how did the government miss it for so many years? the close.now is how did they miss it for so many years? say, they were reporting 17% returns for years. the measure of their smoothness was almost as good as madoff. if the government was looking for, as they claim, the next madoff, they should've been at the top of the list. david: so you have these returns for 17 years in a row. beyond that, there were some pretty questionable practices and people surrounding the firm. bythe firm was cofounded
someone who was sanctioned by regulators three times. then platinum itself, there were so many red flags, back as far as 2007, involved in a row trader scandal at the bank of montreal. the seco came up when was investigating a scheme to profit from the deaths of terminally ill patients. you could go on. david: i really don't understand, i would assume the sec would be monitoring -- put a google search and and you can find this. how could they miss this, particularly after madoff? >> they say they do these risk-based examinations but did not do a thorough on-site exam until last year, i'm told. examiners help them bring the case that they finally brought last month. david: how many people work in the enforcement division, don't they have a lot of resources to put toward this sort of issue? >> you would think so.
they only have the resources to examine a hedge fund every few years but presumably they are picking their targets. ,onathan: the underlying assets if they had gone down to california and looked at the underlying oil patch, you could have figured it out pretty quickly, and you touched on that. why wasn't not done? these consultants who would put out the stats for them, they said we had these independent consultants, and this was our performance. why wasn't not done? >> some may have had some comfort because it was audited by a pretty reputable firm. however, the audit depended on valuations by this consultant, so once i looked into it, it turns out this valuation consultant was not actually doing any independent research. so the hedge fund has a private -- portfolio,r basically making it the numbers are what the assets were worth. clearly, holes have
been exposed by your research. how do they close them? >> that is a great question. i would start by doing more examinations of top-performing funds, but that is a tough one to answer. thank you very much, zeke. ford cancels plans to build a plant in mexico but instead decides to invest in michigan. is this a result of trump policy? this is bloomberg. ♪
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private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. hey, drop a beat.flix? ♪ show me orange is the new black ♪ ♪ wait, no, bloodline ♪ how about bojack, luke cage ♪ oh, dj tanner maybe show me lilyhammer ♪ ♪ stranger things, marseille, the fall ♪ ♪ in the same place as my basketball? ♪ ♪ narcos, fearless, cooked ♪ the crown, marco polo, lost and found ♪ ♪ grace and frankie, hemlock grove, season one of...! ♪ show me house of cards. finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. jonathan: from new york, this is bloomberg daybreak. i'm jonathan ferro. futures are up 45 on the down.
in the bond market, choppy session yesterday. some decent data in the u.s. 2.46 on the 10-year today. stronger dollar story yesterday, now a weaker dollar against pretty much every other currency in the g 10 space. here is what you need to know at this hour. chinese wall for currency. china try to slow down the flight of capital as the dollar continues to climb. europe looks up. european economic data shows encouraging signs of growth, raising questions of whether the central bangkok's will press for tightening policy in 2017. trump gets his way. and mexico,out gm and the company cancels a plan to build a factory south of the border. is he on a roll? jonathan: let's go back to the
markets. how far can the equity rally go? are in an ages bull market, according to ubs. volatility is set to rise. to debate, joining us now is michael fredericks. he oversees $21.6 billion in assets under management. the story always comes up, the idea that aging bull market's die of old age. can you weigh in? >> we look at the outlook for 2017 in equities and i would say we have some measured enthusiasm for stocks globally. the economic growth backdrop is growth hastive, so been accelerating in most of the markets, really good ism numbers, including new orders, strong pmi out of europe today.
this is all supportive, but we fear some of the returns that we saw in 2016 cannibalized expected returns in 2017. ,here is a bit of euphoria which is almost a welcome change after years of skepticism around this equity rally. i would characterize the viewpoint as a solid year for stocks but it was a pretty good year in 2016. you cannibalize some of 2017 already. rotation on the back end of last year, you are part of it. bond proxies get beat up. are they coming back in favor of a little bit? i think they are. there was a massive sector rotation, whereas in the first half of last year, the defensives did well.
we were putting more into the .yclicals the dispersion returns between the defenses versus cyclicals was really pretty impressive. we have been looking more closely at some of these defensive parts of the market. , wouldn't say they are cheap but they are well on their way. you are probably paid to be a little bit patient. would not be surprised if they would overshoot and you would find that levels again where they are cheap before you rush into the market. the timing of the trade, depends on your view of the 10-year, and where interest rates are headed. jonathan: you run a multi-asset fund. last year, you could have performed -- outperformed on the equity side, beat up on the stock side. youou go into 2017, how are
shifting your assets? satisfied withty our total return, up 6.7%, the majority coming from income. 2017, over the course of the last six months or so, we have been moving more out yield andonal high the other fixed duration assets come into more floating-rate securities like bank loans, clo's, doing more hedging. .50we have gotten close to 2 on the 10-year, we have been adding duration. some of the hedging properties that come from having duration were not particularly attractive at 1.50 on the 10-year up. at 2.50, there is more risk and therd having to counteract spread we have in the portfolio.
this sets up a pretty constructive backdrop for income market or the year. i don't think you will make a huge amount of money but i think you can control volatility, limit drawdowns and still generate pretty strong income in the five percent range for 2017. jonathan: michael, a privilege to have you on the program, thank you. apparent win an for president-elect donald trump . ford canceled its plans to build a plant in mexico and announced it would instead invest $700 million in flat rock, michigan. the ford ceo spoke on bloomberg television yesterday. a morerly, we see positive u.s. manufacturing environment under president-elect trump. policies herogram is outlining, the tax and regulatory reforms. david: with us now is marty and andrea navarro, our
bloomberg news reporter from mexico city. andrea, we have not heard much about the mexican reaction. how did mexico city take the news? >> good morning. the mexican government yesterday , through the economy ministry, sent out a statement saying that they regretted ford's decision to cancel the plant, and they said that ford had assured them that they would reimburse the state government for any financial expenses they had incurred in the process. they also reiterated their desire to work with nafta and perhaps modernize it to better strengthen the competitive capabilities of north america. thesome analysts have said response should have been a bit stronger. the question here is whether or not they are in a position to do anything about it. to keep ford here, they would
have to offer maybe tax incentives, financial incentives , to make it attractive to stay here. but the state government and federal government are not really in a strong financial position to do so. david: it's very interesting that you say, as part of this response, they said we are open to talking about nafta. some of the things the president-elect is talking about would require changes in that stuff. the mexican government is saying we are open to that. >> yes, they are open to that but have not been specific about what they are willing to give up for what they would negotiate, but they have been saying for a couple of weeks now that they are open to talking about it, to maybe modernizing it so that it better fits the time and age we live in, the conditions that affect the block of north america. marty shanker, let's go
north of the border. the president-elect tweeted again this morning thinking ford. for scrapping the plant in mexico and creating 700 jobs in the u.s.. this is just the beginning. ityou are donald trump, seems to be all good. everything he to eat something out, he declares a victory. a roll.ems to be on of course, it ignores the fact on importsng tariffs from mexico would violate nafta and is probably illegal, but it doesn't matter. of course, ford also said that they were going to take this decision regardless of what donald trump tweeted. is what the ceo of ford said. he said that the demand for the ford focus, which was where it was meant to be built, is going down. if you are the ceo of a company
like mark fields, you have a difficult line to tread, accommodating the new president, and looking at the best interest of your shareholders. >> like everything else, this is completely unprecedented in presidential politics. you have a president-elect who has not even been sworn in yet affecting corporate policy, where their primary interest should be to the shareholders. -- you are notca hearing from the business council, you are not hearing from the people who represent corporate america, but it is a very confusing place to operate until we see what president donald trump actually does. david: at the same time, this is symbolically very important, but a number of jobs we are talking about in each individual instance is very modest, 700 jobs. let's assume that that is what we are looking at. we are looking at a jobs number on friday where people are looking at 170,000 in one month.
at some point, does donald trump need to start delivering at a larger scale? indeed, what the democrats in congress are saying. 5% gdpalking about growth, which would translate into significantly higher employment numbers. they are going to hold him accountable if he fails to deliver. it is not clear how he is going to do that. david: marty shanker, thank you very much. andrea navarro, joining us from mexico city, thank you. coming up, drug prices remain in the news. as the trump administration faces fundamental changes to obamacare, can technology solve some of the problems with prescription drugs costing too much? this is bloomberg. ♪
emma: mrs. bloomberg daybreak: europe in any coming up in the next hour, pimco cio of global credit marquees on why he is de-risking his portfolio -- mark l on why he is de-risking his portfolio. david: one of the industry set to see the biggest change under the trap administration is the health care industry. sure to figure into what is coming are the prices of prescription medicines being too high. one company trying to get ahead of that is blank health, a tech that part that allows consumers to ask his medications at lower prices. announced a deal with eli lilly to offer it to drugs at a 40% discount, which is something the ceo spoke about last month. >> our pricing is pretty flat, low single digits, particularly
on insulin, highly competitive. we are all about competition but we want to focus on filling the gaps in health care system, whether that is with insurance companies, or with this partnership that we announce this week, by offering directly to patients when they are in that high deductible code pay. today, blank is announcing that it will work with arbor pharmaceuticals as well as lily to offer up to 50% discount on certain medications. the blank ceo jeffrey chaikin joins me right now. it sounds almost too good to be true, saving 50% on for medication. how does that work? pharmaceutical supply chain is incredibly complicated, which is when you hear from industry participants. high retailese prices out there for both generic and branded medications. insurance companies are negotiating down the prices of
medications for those who are insured. there are about 70 million americans who are either uninsured, 30 million of those, or underinsured, about 45 million. those patients either have high deductible plans oh don't have insurance at all, so they end up paying that high retail price. david: are they don't get the prescription at all because they cannot afford it. >> at the end of the day, that ends up happening. 50 prescript -- percent of the prescriptions that are made are not filled. the reason is cost. we areegate numbers, like a fusion union on the one hand. we can go shoot on behalf of our members with pharmacies for generic medications, to make them more affordable, and now with braided manufacturers, to make the prices of those medications less expensive. david: where does that money come from, if you are paying 40% less for your prescription drugs
, that means the drug company is not getting that much money, so why are they willing to go along, why did armor sign up? >> there is no retail price for these medications. in the case of insulin, it may cost $500 retail. that is what really gets paid by the pharmacy to stock the medication. but there are a whole host of rebates and other discounts that lilly pays to insurance companies and others, where there are no revenue, which is with the ceo was referring to, could be something like $250. so the company does not make $500. way tolink, there was no share those discounts with consumers. consumers were stuck with the $500 price. insurance companies and other large employers were paying less after all of that money shifted hands. david: if they are getting a
discount to an increased number of people, the underinsured, they are getting less money per draw. are they making it up in volume on the top line? >> exactly. about 50% of medications are not taken as prescribed. there are multiple reasons for that but the biggest is cost. if you are charging $500 for insulin, there is a good chance that patient will not take it. it is in everyone's interest, from the health-care system to the companies involved, to find an affordable price for patients so they will take their medication. david: in the news today is a fast-track approach to fundamentally reform obamacare in the congress. as you understand the proposals being pursued, how would that affect our business? >> we benefit either way. what has happened other -- under obamacare, you have a dramatic increase in out-of-pocket expenses for all americans. void in thosee
out-of-pocket expenses. if you have a fundamental shift, you may have a larger uninsured population that has more out-of-pocket expenses, and we can fill that void as well. are not0 million under insured. how many does blink need to be successful? but thell percentage, reality is, every american is a potential customer. 70% of the population takes medications. we find, even if you are the wealthiest ceos, if you are taking more than two medications, at least one of them will be cheaper on blink. we encourage everyone to check blink for their medication, and if it is cheaper, they should use it. if not, use their insurance. david: thank you, jeffrey chaikin. let's go to emma chandra and your business lash. last year where the most expensive natural disaster since
2012. two earthquakes in japan led to $31 billion in losses. only $6 billion of that was covered by insurance. the most expensive disaster in the u.s. last year was hurricane matthew, which incurred $10 billion in losses. shares of tesla motors are lower in premarket trading. they reported fourth-quarter deliveries falling short of their own forecast. tesla blamed short-term production issues. musk has a history of setting ambitious goals for the company and then missing then. pilots and british airways plan a two-day strike. the airline says it offered a pay hike worth 7% over three years. this would be the first strike by flight attendants since 2010. that is your business flash. coming up, euro zone inflation accelerated in december, at the fastest pace
jonathan: from new york, this is bloomberg. i'm jonathan ferro. 38 minutes away from the cash open, uterus up 37 points on the dow. in europe, the potential to snap three days of gains. the dax down marginally. if you switch up the boards, let me walk you through the other asset classes. 55 on the btr for the first time in months. right now, up a quarter percent. the bond market on offer. more signs of inflation coming from the eurozone with inflation numbers coming in at the highest since 2013. yesterday was dollar strength,
today, dollar weakness. , the cable rate. david: time for battle of the charts. joe weisenthal is battling mark barton. i think the big story of the day is what is going on with the chinese yuan. a chart of every single one-day move in the yuan -dollar exchange rate over the last year. i made this earlier in the morning. the move has gone up even more dramatic since then, but this is the biggest one-day move upward in the yuan since last january. talking a lot about the yuan weakening but there are reports about china looking for new ways to stem capital control. here we see a big reversal to what we are seeing, something that we want to look at, dramatic strengthening. talking about the
chinese economy, strong pmi, but the capital outflows, the other half of that equation, also important to pay attention to. the biggest one-day strengthening of the chinese currency since last january. david: this goes all the way back to january. the other time it spiked up? also in january. started in 2016, a lot of currency volatility, concerns about a disorderly collapse. starting the year on a different note so far this year. david: mark? data does today's eurozone embolden those on the ecb, those who are eager to roll back qe if price growth accelerates? let's start with euro zone cpi, 1% higher since 2013. ghi'slook at dra
inflation rate. at 1.32%,ven rate is highest since july 2015. you will notice i left that one until last, core cpi. it rose to .9, but let's be frank. been .8, .9 since may last year, headlines driven by energy prices, excluding volatile measures. no real pickup. until we see a real pickup, will we see real action from the hawks on the ecb? in december, mario draghi said prices remain weak. say the ecb may want to consider ending asset purchases as early as march. food for thought for those ecb hocks. -- hawks. david: a special chart just for the germans. you are making me choose between china and europe.
ons is a wonderful chart china, wonderful chart on europe. this is tough, but, joe, i'm going to go with europe. mark, congratulations. happy new year. hour,an: coming up in an with so much more energy than he would have had otherwise. the world's biggest bond managers are all backing. ofspeak to mark keyes all pimco. the last time we spoke to him he was de-risking his portfolio and shifting to cash. this is bloomberg. ♪
worldwide, a warm welcome on this wednesday, january 4. alix steel is off today. -- 30 minutes until the markets open. fromrday, 119 points away 20,000 not the close. switch up the board. the bond market looks like this. we are on target with the basis point. the dollar is weak or against every single currency with the euro at $1.04. toid: here's what you need know. the chinese wall for currency. the dollar continues to climb. europe looks up. economic data showing encouraging signs of growth raising questions as to whether the european central bank talks will press for policy 2017. trump gets his way. mexicots about gm and
and ford abandons a plant south of the border. he tweets about congress changing ethics rules and congress backs down. is he on a role? now you go to julie hyman for the movers. julie: i'm taking a look at the metal. we have had quite a bounce for prices of gold and other precious metals. ind up for the six-day seven. there was actually an early lunar new year this year which is helping seasonal demand. we also continue to see a decline in the dollar. that is helping to boost metal as well. portfolioee the balancing here at the beginning of the year. so it is silver and platinum also getting a leg up. and we pointed out what is going on in oil prices. we will start to get the opec
to cut-opec start production after opec made the agreement to cut production. we also get the weekly inventory number here in the u.s. which is happening tomorrow. even though prices are higher, stocks are not necessarily higher. that is because we have downgrades to talk about. it is it to notch downgrade. the company is highly dependent on the build out which is facing regulatory hurdles. valero energy is cut at deutsche bank and then we have aes which was lowered to outperform, a cut over the headwind for the sector and possible project delays here. so some declines here for the energy complex. david: we turn from stocks to bonds. unconstrained funds saw the
balloon. the nontraditional bond funds have stumbled at the last two years as investors voted with their money in favor of the low cost alternatives. but is 2017 the year unconstrained funds could finally live up to their hype? joining us now is brian .happatta what do they see in these funds that last year, investors didn't see? brian: the idea that duration is no longer the way to go. the treasury bonds outperformed but then rates sold off and as a result, the best results work for some of the funds that had with credittions like the unconstrained funds which can go anywhere. in emerging markets and they are not constrained by geography or maturity or credit quality. -- ais what is interesting
lot of these managers are banking on the look at the final year-end statements and see that unconstrained funds returned 5.15% whereas the barclays dag delivered 1.2%. so you see the performance, inflows will follow. what about compared to the etf's? how much are you paying for the investment? you are definitely paying more but in this era of rising interest rates, you may do better if you have an active manager. you are paying more but it is better than simply buying a treasury and hoping that rates go down again. jonathan: brian chappatta, thank you for joining us. kiesel, let's get down to it. he joins us from newport beach, california. with us.at to have you
we started the show earlier with us talking about how to reconcile the optimism in the price with the massive range of outcomes for 2017. we started the showhow do you d? mark: a great point. athink the market today faces two way risk as never before. and we actually have been de-risking portfolios. if you look at 2016, it was a year where investors that did test were those who could capitalize on the key moment. the energy crisis, exit and trump. 2017 has positive potential with trump, pro-business and pro-growth. policies which could lead to toer taxes and cause the fed be more aggressive. it also has negative consequences -- the u.s.-china trade relationship, the strong dollar, higher rates and the cause for protectionism. so clearly investors now will face to weigh risks in the market. we think this is the best time
to do you risk a portfolio. sit on a bit jonathan: more cash right now. for the:you petition left side -- outside of cash, tell me how well the rates fit into the strategy? basically, we think rates will trend modestly higher. our highest conviction blues -- highest conviction for use are protected securities. we want to hedge for entire inflation. secondly, we want to own higher quality corporate bonds. we want to own consumer related and some energy related plays. and we actually think that mortgages, nonagency and agency mortgages, they look attractive relative to treasuries. three are high quality investment solutions in a market which does face two weigh risks.
david: all of that describes a strategy that is somewhat conservative. let's protect ourselves from things we can be sure of. does that automatically say that you are not interested in bonds in the emerging markets because they are riskier? puts morehink trump risk with emerging markets so we have dialed down our exposure a bit. there is some idiosyncratic thatcal opportunities in such as brazil. it is a closed economy with rates that are very high, unlike the u.s., where we see modestly higher inflation -- brazil will actually see inflation come down so the prospect for that country to turn and recover from a low base improves as they are able to control inflation. so that would be one economy. but there is probably a better risk reward in the developed markets right now simply because there is the wild threat with trump of protectionism which
could be negative for emerging markets. up inan: you make california and the story is that china is set to consider options to back the u.n. -- that continues and they have paired down the reserves. you expectthat, do to see more pressure, on treasuries through that channel? i think there is some modest pressure. if you look over the last 12 months, china has sold on a to -- china has sold 153 billion in treasuries. rise in u.s. rates is a function of cyclicality. the labor market in the u.s. is tighter and the fed is reacting to that. december, wed in will get the minutes today at 2:00 p.m. eastern, the fed went from september pricing in two hikes from 2017 to three hikes
in december so now they are starting to act more pro cyclical. so i think what is driving rates is not so much the forward flow but more domestically, what is going on, and the prospects for trump. will he be more progrowth and business? or more protectionist? that will drive treasury markets. david: where do you see the spreads beyond where it is ticking out? for example, last month we saw the spread between the bund and the u.s. treasury beyond what is normal. if you think about it, last year was the year of credit. year where high yields were the top performing sector. they even beat equities. it is best to rotate into higher quality options with better downside risk protection. the top of the list would be nonagency mortgages and agency mortgages.
and one sector that really underperformed high yields has been bank capital. we are gradually becoming more positive while going down the capital structure. thank equities, as you have noted, have been one of the top performing sectors post trump. the biggest beneficiary of the steeper curve and higher rates as well as deregulation. so the bank capital security looks like a good opportunity now. david: i do so much. ust was mark kiesel joining from the west coast. for an update on news outside the business world we go to taylor riggs. taylor: president obama invited president obama and mike pence will be at the capitol. the president will give democratic lawmakers advise on how to fight the republican effort against the affordable care act. discuss strategy with republicans. they plan to repeal obama care but haven't said what they will
replace it with. in new york city, emergency crews are on the scene of a commuter train derailment. long island railroad said the train went off the tracks in brooklyn. there are reports that at least a dozen people have been injured. heavy smog is covering a third of the city in china. is almost 20tion times the recommended limit. hundreds of flights have been delayed or canceled. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. david? david: coming up, the boom in nonbanking lenders. it is one of the largest capital companies in the industry. this is bloomberg. ♪
david: this is bloomberg. non-bank lending is a booming business and one of the largest companies in the industry got larger. ares capital incorporation with more thanny $12 billion in assets and the capacity to write bigger checks. kipp deveer is with erik schatzker for an exclusive interview. am here with kipp deveer. good morning to you. deal tolk about this begin with in consolidation, more broadly, what is the rationale? is it a matter of bigger being better? kipp: deal to begin that is part of it. we believe the advantages of scale in terms of capital and resources, which really means
our people, is a critical element of what we are doing. over the last 10-15 years we have seen banks retreat from lending. we saw the alternative credit business to a dress that years ago in 2004 and we have been building this organically and this acquisition is the latest new assetsbring on and capabilities. erik: how hungry are you for more? affectt is difficult to in this industry. the company is an investment company at the end of the day and it has a distinct board of directors that needs to understand how this company is performing. most of the substantial acquisitions you have seen in this space, we have accomplished and we have brought two underperforming companies. you have to have real underperformance for an acquisition to come forward. erik: there has been underperformance. gotten involved.
do you expect we will see more of that? kipp: i'm not sure. a lot of the companies have performed well but it is an interesting emerging industry. there are probably about 50 public and they have a wide range of investment strategies. $5.5 billionghly market cap and $12 billion of assets but on the other hand there are small companies in this space that i wouldn't expect to be part of any meaningful consolidation trend. it are a coat you offered a sweetener to get the deal done. waving as much as $100 million in performance fees over 2.5 years. to the degree that you are willing, does that become a template? kipp: i think it does. we have done two deals in the space. we bought a company in 2010 called allied capital which was a different situation. it was a company under significant pressure from its
lenders. they were selling for the benefit of his lenders and we were able to do something and negotiate a transaction where they had bankers but it was a proprietary transaction. this that you reference with american capital is very different. for better or for worse there was a frustrated shareholder group there that had seen years of what they deemed to be underperformance which led to a formal sale, or bankers came in so it is a competitive process. the hardest part of getting the deal done was getting the merger agreement signed. everything since then has been easier than that. erik: i want to talk about the credit environment and pricing. you oversee $62 billion in fixed income credit. fixed and variable rates? investmentve 250 professionals with roughly $60 billion in assets that in companies everything from leverage the owns -- from leverage loans in both the u.s.
and europe. erik: how are they affected by what we have seen, albeit small, with future increases in the benchmark rates and more importantly, the dramatic steepening of the yield curve over the past couple of months? all of what we do today are the sub investment grade credit. we are less sensitive than the high-grade guys. the government is looking at the way that works. about 80% of our assets in credit today come to a libor plus situation. the base in europe. so for us, the short-term increase or on growing increase in short-term is benefits for us. the only thing that obviously should make you worry is the high yield and how to respond to that. and we have been defensively positioned on the high-yield
side for a while to try to get into the better credit names. and we think that will work for us. in highdoes the pricing yield make sense to you now? basisield spreads are 400 points? 70 basis points off the post crisis. the lowest they have been in months. kipp: you are asking a non-high-yield guy a high-yield question? [laughter] kipp: we need to be very careful and be credit select. erik: and help of the pricing on a very a bull rate instruments? loans are trading at or above? worse, webetter or are in a low rate environment. and we have the fed policy in place to try to reverse the issues from 2008-2009. all of the asset pricing we have seen has become expensive. we have talked in all of our
businesses about credit or private equity elsewhere that we are definitely opportunistic. we think it is one of the most compelling things where we are actually able to buy something large, three point $5 billion in assets. that is the something you see in this market. able tod you won't be do it by buying credit after credit on individual basis? kipp: we employ 100 folks in the u.s. to go out and source assets for the benefit of our investors and we have another 40 in europe. so we are originally at 96 or 97 in terms of what we are able to charge a new fees. are buying above par. erik: what can the trumpet ministration due to hurt your business? the question we get is
that we have built our business on the backs of banks. that even ifw there is a rollback of regulation and easier life for the banks out there that they are unlikely to come back into our core middle market. erik: why? kipp: their business has changed a lot. access thee to market has been the regulatory oversight and the cost of compliance with the fed and occ and what others are trying to do hashat also, their business changed. if you think about what jpmorgan once you do for a living, they don't want the types of transactions we are working on. erik: what about -- i'm going to not play policy expert today and not hypothesize about things that haven't happened yet but i do think that donald trump coming have a president will
lot of changes. erik: it will change the calculus for sponsors? it would change private equity completely. completely. we will have to wait and see. erik: thank you very much. that was kipp deveer. he oversees credit at ares management. next, we talk about a commodity market with a big swing and oil. snapping a three-day losing streak. we talk commodities next. this is bloomberg. ♪
then we rolled over, what did you make of that? scott: let's talk about what we have going up until now. this isn't a demand driven rally. and like the equity markets, this, just like opec manufacturing a rally, it doesn't take much to pop the bubble. yes, it looks like oil would be strong all day in the face of a this inollar but we had the pipeline which was producing oil than they thought. so those two things were enough to pop the bubble. shrink back around that level and we have to wait and see jonathan: if the opec deal has any teeth. we had a remarkable situation how do those reconcile?
how do you think it will? scott: i think the dollar could be a black card on all and i think it could be on oil. if you are excited about oil and you think it will go to $60 a barrel. that isn't really that big of a deal. and oil is still not that expensive. so the dollar will keep a cap on it and three, it isn't a demand driven rally. this is a manufactured rally. so here is what my big worry is. things tailto see off, equity and oil traded side-by-side last year. jonathan: that was scott shellady, think of a joining us. futures are up on the dow. this is bloomberg. ♪
call this 2/10 on the s&p 500. thee cannot you down to cache open, switch up the board. bellan hear the opening for equities. the dollar yesterday really was strong. weaker today against every single g 10 currency. from the high coming down for tenths of 1%. crude, a vicious swing yesterday. we are finding this a little bit of stabilization at 52 and 42. let's get you to your open and cross over to julie hyman. all three major averages higher out of the gate but not by much. we still make it a little bit more progress to the magical level -- that is what a lot of people are calling that. [laughter] julie: so the dow is 100 points away from that.
about 12 here.p good for gains of a quarter of 1%. the nasdaq, not huge gains. calls sayingtheir the global rally could last until midyear. remember that we have the fed minutes due out later today. and we also have a job report coming out on friday. so we may have traders sitting on their hands until we get some of that data. we look at individual movers. we auto sales for the major u.s. automakers. they seem to be slow to trickle out today. only major automaker that is predicted to show a gain in the sales last month. 4.4% is what we are looking at there. it looks like gm sales come in even better than estimated, up 10%. general motors sales and in the u.s. up better.
up tesla turns it around, .4% coming in with a delivery of 22,000. tesla is now unchanged and we will be watching that through the day. we will get into that further in a few minutes. two minutes into the session. at about 1.25% on the dow. remains positive coming into the new year's. the former treasury secretary larry summers warned investors shouldn't be optimistic. larry summers: i think it is a moment of and stored in area uncertainty to the extent that markets seem not to appreciate their prospects. things could work out well, at least for some but there are enormous risks to the global economy. us now isjoining
brian belski, chief strategist. great to have you with us. at the optimism is in the price. lawrence summers warned about the downside. what is your response? my response is, happy, first off. i think we have not credibility back to owning equities again. it has been a lost asset class. and that has been since the recession. also with the decoupling of other asset classes. i'm not going to dispel all of these. but what people are thisderstanding is that isn't the last cycle in the rally. and the new cycle is about the united states. it is about global markets. if you look at china, they are in trouble. especially with the lack of structural reform.
this is about kickstarting growth. it isn't about the policies that larry summers and others were advertising. jonathan: many investors have been climbing this wall of worry while stocks remain record high in the s&p 500. can you really think of the bull from the just a catch previous 6-7 years and say now that it is something else? brian: it is a bit of a fresh start. 2016 was an excessively volatile year. think about the swings we had in january and february when the world was ending and everyone was talking about contagion in energy and then everyone got the brexit trade round, they were not going to get the trump trade wrong and that is why the momentum kicked in. we think the momentum continues to carry through for the next 3-5 years. keep in mind, mom and pop america have not been buying stocks all the way up.
it has been an institution driven rally. we haven't even seen it start yet which is why we are all wish on a long-term rally. we think the pullback will be after two to great taken advantage of. use the magic word of growth. but it also is growth for the fundamentals of the company. charming -- what true growth?e growth in productivity, demand and building up excess capacity? brian: a great question. at the end of the day we haven't seen in some of the important industries in our country and remember, in 2015 and 2016, we really worried about in earnings recession in several industrial countries that focus more on the international side. we are more focused on the companies that will benefit from a domestic revival.
the rally has of been driven by the multiple expanding. and for those of you who don't understand fundamental and alice says, we have a numerator and denominator. the denominator is what will drive prices for the next three have in five years. corporate america will start to spend again. investors are so afraid to be to be wrong. so stocks go up in america in the last 10 years because they have been cutting costs and we think that day is over now. and we will start growing again. david: but the denominator has to go up, because you are cutting costs? option because a lot of costs have been cut. brian: your top line will be coming from the demand. i like to call this the beach ball effect. when you are a kid and you push
down the beach ball, it comes out of the water really fast and that is what will end up happening when corporate america sees the new platform and the new tax cut. the lack of regulation with less regulation upon this in america, it will let them feel good about investing in business again. and don't be surprised if we see a massive m&a price will -- massive m&a cycle. is my the cap exide is so important going forward, to drive the earnings in sales growth. bullhan: you were a study when many people said the economy would roll over and a recession in the united states was imminent. you nailed the rally for canadian equities. what is the spillover going to be north of the border? from what you see in this country? an excellent question.
goes, so goes canada. many investors are focused on emerging markets and we need to that.ok at kennedy used to be excessively correlated as to what happened in the united states. canada's number one trading partner is america. and we think that canada will do well, especially with respect to the cross-border relationship with companies and industrial companies like railroads. david: so trade. you concerned are about trade difficulties under the trump administration getting in the way of growth opportunity? iian: at the end of the day, think we will worry about comments on trade versus policies on trade. isause i think the rhetoric going to drive a reaction. our official call is that we believe trump needs a friend in the region and that friend comes from canada. we think you potentially will u.s.-mexico as a leverage against china. and at the end of the day, we do
think this is about driving growth back into the united states. moree think it will be noise. what we know about the president-elect? we know that he wants to kickstart growth. and he is not going to try to hurt america, he is going to try to help america. belski.: brian it is a classic situation of watch what he does and not what he says. maybe we should nix the twitter account? would wet then what report? we all sorts of news. [laughter] up, trump and nafta. he has threatened to punish gm with a tariff on cars made in mexico, a move that would violate nafta rules. the other make any difference? this is bloomberg. ♪
emma: i am here at the hewlett-packard enterprise greenroom. coming up, jeff jacobson live from the new york stock exchange. ♪ from new york, this is bloomberg. we are 12 minutes into the session. let's get a look at stocks. we are up .3% across the board on the dow. let's get you some movers. a lot of auto sale numbers are states.ut in the united let's get across to abigail doolittle. abigail: we have a lot of action for the auto sector. yesterday, the auto index had the best index since the middle of december.
these numbers for the month of december just came out and vehicle sales are up better than the estimate of the downed 2.2%. so we do have a beat they are. g.m. beat estimates with sales .p 10% tesla surprisingly, despite a pre-announcement to the downside, another preannouncement to the downside, relative to the 2016 vehicle deliveries, stocks are up. some are focusing on the big story here. when we take a look at the one year chart of tesla, we see it has been a bumpy ride. they created an estimate around this time last year for 2015. they put it out in july saying they would not meet the target for the delivery of 90,000 vehicles. to 80 thousandn vehicles and now elon musk is talking about 70,000 vehicles but investors are focused on growth. if we going to the bloomberg, this is a five-year chart.
in orange we have the s&p 500 55% overx of about that time. over the same time, a little bit longer than five years ago, we see that tesla is up even though they have a big cash burn. bloomberg intelligence officer told our team that the difference here is that investors are focused now on technologies and the growth of tesla. he says that despite the fact that auto sales are expected to plateau through the end of the decade at record highs, he thinks that ford and gm can catch up is focusing on technology in the same way that tesla has. to be more than just an automaker but an overall transportation solutions company. david: we stand the subject of cars although a slightly different version of this by going south of the border to mexico. donald trump is that repeatedly he wants to impose a tariffs on goods coming in from mexico signaling he may be ready to raise the nafta agreement.
a tweet yesterday "general motors is sending mexican made models of the chevy cruz to u.s. carmakers tax-free across the border. make in usa or pay big border tax!" critics say that would be illegal under the nafta deal. with us now is shannon pettypiece. shannon, welcome. explain to us why this would be a violation of nafta and whether it makes a difference? i'm not hearing anything? i have no audio. david: ok, we will try to get back. she is all their crosstown so it is hard to get hooked up. let's go to detroit with david welch. there is news out of gm. the sales rose 10%. estimates headed raising around
4.4% and forward is up over estimates and are nissan. to david welch. joining us from the bureau in detroit. these numbers. and particularly the dow number. we don't talk about the possible record in auto sales but are we flirting with that? that welch: general motors they think the year will end up with a record and a lot of estimates thought it would be down a little used to last year. the big thing about this is that the november finish was very strong. g.m. was up 10%. nissan beat estimates. .1% that theyp were expected to be down so that was a good look for them. dated: any sense of what is driving the auto sales? that welch: i do think there is some residual strength of the economy here. we had strong housing starts
here and that picks up sales. and there are a lot of suvs that keep moving. once the incentive numbers come out you will see there are deals that were able to plan. like the chevy equinox. bringing in a new one out soon. so they are clearing out the old stocks. so some of that is going on. and with the seasonally adjusted rate of over 18 million vehicles which is what g.m. was saying, that is a very strong months, regardless. had the fiatjust chrysler numbers out as well. so a comparative at side. usually that you come on and talk about the numbers and i say, why is it not been reflected in the stock prices? but the conversation over the past year is that a lot of people think this is it and it will rollover but things are not
rolling over, are they? david welch: no. analysts have said there is residual strength in the economy among bar criers -- among car buyers. particularly in the case of gm, they have been able to grow profits, even as sales in places like china have leveled off. and things have stabilized here. and that is mainly because sales continue to do very well. some investors may be looking at these sales as well because google and apple have said that they are not going to make cars. since some of the threat from the tech companies is ebbing a bit. and the fundamentals of the companies look pretty good at the moment. welch,that was david coming into us today from detroit. now we go back to shannon pettypiece at trump tower. we were talking about nafta and donald trump imposing a tariff. i'm sorry you couldn't hear us.
but the question is, why would does itlate nafta and make a difference? shannon: well, yes. another question is, can trump get rid of nafta? yes, he can. he can withdraw and put tariffs on companies importing products. what difference would it make? all, it would probably ignite trade war with mexico. because we don't how they would respond exactly. but they would probably retaliate with their own tariffs and that impacts all the --panies in working companies importing products from mexico. a manufacturer in the u.s. with , weu.s. and components would see that go up in price. so it would really have a ripple u.s. manufacturers. and not necessarily in a good way. haven't presidents
violated trade agreements before? shannon: we haven't had a president pull out of a trade treaty since the 1800 so it would be very unorthodox for donald trump to completely pull out of nafta. and what he has said is that he plans to renegotiate nafta to get as a better deal. that it is a terrible deal. so if they do not agree to the terms, they would withdraw from nafta entirely. david: that was shannon pettypiece coming to us from the trump tower. we have entered the end of this. i find it fascinating that we hear more about mexico than china 1135% import tax tariffs -- mexico than china, which has a 35% import tariff. right.totally
and they're doing a version of this already. they are just trying to get a level playing field. coming up, we have "bloomberg markets" with vonnie quinn and mark barton. up, -- up 22% and we will be talking to the ceo of at what comes next for the hardware maker and whether it is a great outlook for the printer business. we will also speak with one of thefriends on all of platforms and chose here on bloomberg about the brexit process and about inflation in the eurozone and about the trump presidency upcoming and what it might mean in terms of regulatory and tax changes. will talkom the kbw about similar issues and over the corporate bond issue. jonathan: looking for to the program. that is coming up with "bloomberg markets" in nine minutes. coming up, the key takeaways from today show. this is bloomberg. ♪
jonathan: this is "bloomberg daybreak." the session.to stocks up across the board. i want to get to the key takeaways. we spoke with mark kiesel a moment ago. his outlook for 2017 and why investors should maybe be wary. take a listen. tok: the market today faces weigh risks as never before. and we have actually been the risking portfolios. if you look at 2016, a year
where investors who did test where those who could capitalize on the key moment. the energy crisis, brexit and donald trump. so there is potential with trump for pro-business and progrowth. and that could lead to lower taxes and call the fed to be more aggressive. it also has negative consequences. the u.s., china trade deficit with a higher rate and protectionism. we think it is the best time to de-risk portfolios. sit on more cash right now. together when we put three hours of these questions we have a massive range of outcomes. for the downside and the upside. and what he is pointed out is that much of the positioning is the position to capture the upside. the locationset
later this year, that is where you see the crash. and people are over anticipating the good part and under anticipating the bad part. the question is, how do you protect the good part without missing the bad part. jonathan: and listen to what donald trump says. ignore it and then watch what he does. are 26 minutes into the sessions so let's get you up to speed on the markets. the s&p 500, stocks up across the board. the dow up 36 points. for myself and david westin and the daybreak team, thank you. this is bloomberg. ♪
♪ vonnie:vonnie: shortly on capit, vice president-elect by -- mike pence will join paul ryan for a news conference. a meeting with house republicans on the future of the affordable care act. you are watching live pictures there as we await the vice president-elect. there is the president and chuck schumer. we are following that as well. president obama holding similar meetings right now at the capital with democrats from both the house and the senate to discuss the hindering obamacare repeal. upwill see what they come with. president-elect donald trump has been tweeting about the act, saying republicans must be careful in that the democrats owned the failed obamacare disaster. he said to let