tv Bloomberg Surveillance Bloomberg November 30, 2016 4:00am-7:01am EST
francine: salvaging a deal. opec climbs as iran says will reach an agreement today. the cartel remains divided. we are live for the meeting. testing times for rbs. it fails the toughest ever stress test. mark carney ones that profitability is a long-term problem. carney says the biggest risks are global, underlining the italian referendum, european elections, and china as key threats. is "bloomberg
surveillance," with francine lacqua in london. a great show today. it is decision day in vienna, the crucial opec oil meeting. we bring you the best analysis on the prospects for the first agreement in eight years, and what it means for the world economy. as well as the scotland fails multiple hurdles in the bank of england's latest stress test, we break down the implications. whatever the outcome from opec, what are the prospects for world energy markets? we have a great interview with someone from the international energy agency in 30 minutes. first, let's get straight to first word news with sebastian salek. seb: the royal bank of scotland failed multiple levels in the bank of england's toughest-ever stress test. capital inadequacies were revealed at barclays and standard chartered, neither was required to make a revised capital plan. the test also covered lloyds, santander, and other banks. former goldman sachs partner
a formeronition -- goldman sachs partner is being considered for secretary of the treasury. they also say trump plans to nominate wilbur ross. an announcement could come as soon as today. , donald template -- meanwhile, donald trump continues to audition secretaries of state. he will bring back kelly for an interview at trump tower in new york today. another candidate's former massachusetts governor mitt romney. he had a second meeting with the president-elect at a dinner last night. european capital president donald tusk has flatly rejected a call from british lawmakers for him to protect the right of expatriates after brexit. he hit back after being urged to broker a deal guaranteeing that british nationals in you countries and european nationals in the u.k. would not be forced to leave after brexit. , causingsed the claim
anxiety and uncertainty. people have rallied in south korea's capital to 'smonstrate against park presidency after she yesterday offered to resign after an influence-peddling scandal. a fraction of her ruling party that previously supported her impeachment says it would ask -- accept her resignation at the end of april. they have given her nine days to make a proposal. global news 24 hours a day, powered by journalists and analysts in more than 120 countries. i am sebastian salek on bloomberg. francine: this is the picture for your markets. there are three main stories. risk is having an impact on stocks around the world, especially hitting banking stocks in italy, as we look at the referendum. there is an austrian election on sunday. the banks -- i will spend time on the banks, because we had rbs failing the british stress test. a little bit of caution on standard chartered and barclays.
overall, the banking sector is flat. oil probably the other big aory, gaining 3.4% after weekend of tense negotiations. opec ministers are in vienna today to try to salvage the deal to prop up global prices. we do not know whether they will succeed. more in a second. 196 -- 100.96.x, all of this comes together. you have the risks on the markets. this is what we will talk about for the rest of the hour. as you were seeing on my screen, crude trading higher as iran's oil minister says the cartel is close to agreement. marketst is the global strategist at j.p. morgan asset management. great to have you on the program. you have to look at the banks. but let's look at oil and general market sentiment. how much of a relief would it be for the oil markets and the economy in general if we get an agreement by opec? >> it would put to bed a lot of
uncertainty about where the price is going to be. the deal or something of communication that is eight years in the making, right? it has been a supply-driven market. have seen a glut, $28 a barrel prices with oversupply and overproduction. if we have a message about a potential coordinated cut, it will be well received in the markets. the price should go up in the next year and half, adjusting to the supply chains. francine: is it a concern? we have not really felt the benefits of low oil prices relative to consumption. it has had an impact on inflation. the worry that a dollar hike actually hurts the consumer? nandini: it is interesting. the windfall has supported u.s. consumers. you are saving a couple dollars at the barrel every time you fill up. but the sector, the downstream users, have not seen that upgrade in the s&p 500 we have been hoping to see.
petrochemicals and other users of crude oil have not seen earnings boosts. if the oil price does come through, you are seeing a slight benefit to oil producers, raw oil producers who are a large part of the s&p 500, losing u.s. earnings. i think that will somewhat counterbalance the consumer in the u.s. who has enjoyed a little oil price. it is still strong. francine: opec still has the power to move the price of oil? we have shale gas producers in the u.s.. russia does not want to be part of this agreement. it is a lot more complex, looking at opec, then when i used to cover it 10 years ago. nandini: there are other producers online. the north sea producers around here. players- these are all in the big mix. but look at our bloomberg screens the past few days. opec and the meeting has the power to move the price, at least in the short term, with market fluctuations. francine: does the price of oil dropped $20 if we do not get anything today? nandini: that is a bit extreme. regardless, there is a sense of
even a communication -- whether it is social media from the meeting, or general observers -- there is going to be some adjustment that has to happen. the break evens, regardless of how you want to calculate -- there is always a bit of drama -- at the break saudi and iran is higher than the current oil price. productiono adjust to have a revenue stream that makes sense for the size of their economies. francine: i think it is crucial what you are saying. it is a problem of price. the oversupply is not really there. you are looking at a market that is coming into balance. nandini: exactly, and that knocks out higher cost producers. once the price inches upward, the higher cost once get back -- $20and keep the price off, $20 down is improbable because of the movers in the market that add to the regional cost up and down. francine: thank you for now. nandini ramakrishnan, global market strategist. we will be live throughout the day from the opec meeting. i believe ministers are meeting
if not now, then in the next couple of hours. if you are a bloomberg user, with a terminal, you can follow those twists and turns on tliv . just bring up your terminal and type that in. rbs posts capital plans after failing multiple hurdles in the bank of england stress test. we will analyze what it means for the u.k. banking industry. as opec ministers try to cut a the, someone from international energy agency gives us his first interview of the day. the predictions for 2017 energy markets, and all you want or need to know about the trump white house administration. a former goldman sachs partner is said to be chosen for u.s. treasury secretary. ♪
francine: this is "bloomberg surveillance." here is sebastian salek. seb: a deal to create the world's biggest supplier of industrial gases could be approved. germany is looking at a proposal to restart talks after they stalled two months ago. declined to provide details, but said it would be a merger of equals. a deal would further fuel consolidation in the industry, and attract scrutiny from regulators. monte dei paschi's ceo says he may not seek straight -- state aid if they fail to raise capital, according to people familiar with the matter. they say he made the comments during a call yesterday with investors, which include plans to turn that into equity. air conditioner manufacturer
carrier agreed to keep a thousand jobs at an indiana factory that had been set to move to mexico. this marks a victory for president-elect donald trump on an issue that had become a rallying cry during his campaign. trump tweeted he would travel to indiana tomorrow. that is the bloomberg business flash. francine: thanks so much. rbs shares lower this morning after the linder failed the bank of england's toughest-ever stress test. the test also found capital inadequacies and barclays and standard chartered, but those banks are not required to actually submit plans. joining me now is stephen morris, who has been covering this story for many, many months , and joining us shortly on the phone is christopher wheeler of atlantic equities, a banks analyst. and still with us is nandini ramakrishnan. thank you for sticking around. how much of a surprise is it that rbs failed? stephen: not that much of a surprise, to be honest.
rbs has been capital-challenged for a long time. what we are seeing is that there is still a lot of skeletons in the bank's closet. it has to pay billions of fines and settlements in the u.s., selling mortgage bonds. it has to spin off a large portion of its branches in the u.k. and clearly what we are seeing, until these problems are cleared in the two or three years, rbs will continue to dip under on these tests. francine: it was only a couple months ago we were talking about possible dividends we were trying to quiz the ceo about. the taxpayers are going to have to own it. are we surprised it is taking this long and is anyone's job on the line? stephen: i do not think anyone's job is on the line. obviously, the management team is trying to clear up problems from the past. talk about reinstating dividends and capital to investors even as recently as six months ago is looking a little naive, considering what the management must have known was going to
come out of these stress tests. they have had to spin a new plan with an ominous promise of cost cuts. they could be looking at further business reductions, more job losses, at what was the world's largest bank. francine: barclays and standard chartered capital inadequacies -- what does that mean? stephen: both scraped through the bare minimum required in a crisis. but in the higher new level which has been introduced this year, they either just made it or shot underneath. however, the bank of england has said the actions management are taking, which is primarily selling off assets to reduce the size of their balance sheet, should be enough to get them over these capital hurdles in the future. this stock under the radar. they fail but have not had to change strategy. francine: we are also hearing from mark carney about business models. he is worried about the possibility of a lot of these longer-term. this is a problem across europe. how do you fix that? nandini: it is tough.
we call it three challenges facing the banks. low or negative interest rates with a flat yield curve. you borrow on the short end and lend on that the long end. how do you make profit? there is regulation, which is fair after 2008. quite strict for banks to make money in this booming, profitable way. finally, over banking. adjustment? to be talking about supply and demand for the oil, maybe supply and demand in financial, particularly on the continental european side, where there are more institutions than perhaps the economy is able to absorb. do there have to be changes? does there have to be consolidation or something to adjust these issues? probably. one thing that is like he is that the yield curve steepen significantly. -- has steepen significantly in the u.s. and u.k., making profitability more manageable in the next few quarters. let's get another expert on this, chris wheeler,
on the phone. first of all, if you have capital inadequacies, and they were revealed at barclays and standard chartered, will they feel under pressure to rectify this? chris: i do not think they will. data and ahis is stress test based on the end of 2015. what has happened since then is quite a few things, and it is clear that the fact the bank of england did not ask barclays or standard chartered to resubmit capital plan suggests they have made changes in terms of their capital structure, reducing the risk-weighted assets. which means they feel they are in pretty good shape. even some of the aspects of the stress test, which we have to remember was very tough indeed -- i think people forget that we are building in global declining gdp of 2%, and looking at a 31% decline in u.k. house prices. i could go on. banks, respective, those
business as usual. they have already dealt with the concerns that the bank of england has got. francine: hold that thought. we are getting breaking news out of opec in vienna. the ministers are meeting. we understand from the iraqi oil minister that there will be a cut. our team on the ground are trying to get into the scrum to speak to the various ministers. it is almost like a u.n. if you go back to star wars, where you have the 12 ministers with their aides there, and the reporters go around the room trying to figure out whether we have to cut or not. upelieve the price of oil is on the back of the opec comments from the iraqi oil minister. we will get back to vienna and opec in just a couple of seconds. i know our team are trying to get to the ministers. as soon as they speak to other ministers, they will let us know. i do not know whether this will be a real agreement on a production cut or a phrase, -- ze, but it is clear
the saudi's and iranians hardens their position, so any agreement will be seen as a good thing. let's go back to the banks. chris, you were saying that barclays and standard have not been asked to raise capital. how long will it take to get rbs back on their feet? it has been postponed, postponed, postponed. 12 months, 18 months -- how long? chris: how long? they have 50% on equity tier one ratio, which looks high. but when you stress them, that comes down sharply. as he talked about a few moments ago, the issue still hangs over, in line with deutsche bank, is going to do around the mortgage backed securities business, which was bigger than deutsche bank? if that gets dealt with, there is a clear pathway to where the royal bank of scotland is going. let's be honest. they have done a fantastic job over the last few years. they have fixed the balance
sheet. they have managed to maintain strong profitability in court businesses, particularly u.k. retail. there is no doubt they are still , unfortunately, a lot of unknowns which have to be dealt with. i do not think that will be done quickly. you cannot just raise more capital. that will perhaps make the department of justice a little more greedy in what it chooses to go after on this mortgage-backed deal. francine: thank you so much. chris wheeler, atlantic equities bank analyst. now we need to focus on this opec deal. we had a guest earlier saying this could be the most significant thing that has happened since 1973 within the cartel. we have managed to get a hold of a number of ministers. this is what they told us. the iraq oil minister said opec has an agreement for six months. we also spoke to the saudi minister. he said the market could still recover without a deal, but they have been in direct contact with russia's novak. wasas we let -- venezuela one of the countries that cannot
really pump more or cut anything, but they have been pushing for opec to do something. they say opec and non-opec -- which includes russia -- would like to produce as many 2 million barrels a day. the iraqi oil minister said the country would continue to monitor. it is unclear whether they have longer-term agreements than six months, but on the news, the price of oil is up 5.2%. ♪
francine: we are live in indiana. we will get to our reporters in a couple of minutes. this is what happens. there is a huge scrum where the oil ministers are around a table and reporters try to get him to get the latest headlines. we have been speaking to three or four of these ministers. i think the bigger story is that the oil price is ramping up, which means we are looking at some kind of reassurance or agreement or something. , gaining 6%.p this is what we know so far. the iranian oil minister has said opec is close to an output agreement. the saudi oil minister keeps saying there is a risk of a supply crunch in the coming years, that the oil market will rebalance itself, that that they are still monitoring. or is a committee monitoring what the price of oil will be.
have is a feeling they may reached something for the next six months. this is what we seem to understand. i know it is a very fluid -- i have covered opec many times. you try to grab at strings. you speak to the oil ministers. the market seems to believe we have something in place. nandini: i think the iranian comments are pertinent. for this year, the past year or so, the iran production was about regaining market share after sanctions were lifted. having the comment about perhaps showing some kind of coordinated communication is, again, moving markets. it looks to be lifting the price at the moment. francine: we are getting more news out of there. venezuela saying that nigeria, iran, and libya will be exempt from cuts. video would be exempt because of the war. iran, i imagine, because the sanctions were lifted a short time ago. iraq -- the iraqi oil minister said they are here to
collaborate and cooperate. we may see a freeze from iraq. nigeria said the nation will cut production. saudi politically wanted iran to take a stand by freezing. it seemed it did not go their way. but iraq is. like, take seems what you can get in this situation. a lot of countries are dependent on oil prices at a certain level. with those break even? there does appear to be some negotiation going forward. francine: thank you so much will get back to vienna. gain,ude is extending its to a day high of 47.84 after the iraq comment. as is the picture we are seeing overall. live pictures from vienna. ♪
>> do we have a deal? >> i hope we have a deal but we will not know until the end. the sticking point has been is that each country has to agree to the principles that production constraint agreement bringing us close or at the 32.5 that was adopted in algiers would have to be distributed , andparently, equitably that there will be a mechanism to monitor and ensure full compliance. and then to ensure that opec will join in a substantial amount of cut that will add to offering and the 32.5 will be about 1.2 million,
1.4 based on the latest production volumes, we are hoping for 600,000 from non-opec, substantial volume that would bring health into the market. >> the problems with iran and iraq. clear that wee it will cut percentagewise equal to everybody else, the exceptions have been three countries, two countries that will be allowed to increase back to the normal production level, libya and nigeria and one country that has suffered from sanctions for some time here that has been offered to freeze their pre-sanction level. ofare discussing the details how to set those all humans --
volumes and we are hoping -- and relatively optimistic but the no agreement scenario is not a bad scenario, the markets will recover on their own despite all globalps, macroeconomic, , surprise production coming from certain quarters but overall the fundamentals are on point and in the right direction. i will not discuss specific members for any specific country. iran, the principal that they do not have to cut and that they would be allowed to produce pre-section levels. specific numbers will be discussed at the meeting based on secondary sources and the
reports of the opec secretariat and the consensus of other countries. the time to discuss specific countries is not here. >> what about iran? >> a 50-50 chance? the spirit iss, good, we have an informal consultations among members and i can tell you, although i came late last night that my colleagues are very optimistic and i go in helping that i can reinforce this by showing both saudi commitment to the welfare, not only of opec but the global energy industry and also the global economy because we , reducethat stability volatility, and clarity about where the oil markets are going is healthy for consumers and producers.
this is a primary interest of saudi arabia. we think it will take all of 2017 to get to where we want. we have been offering a one-year as a framework, many other countries prefer six-month renewable but do not be surprised that during our meeting today the parameters of the late and how it is .dministered may change i am in rate of a contact with minister novak -- regular contact with minister novak and they are willing to work with us specifically about what they will offer.they are waiting for opec to offer an agreement and russia will reciprocate. many non-opec countries are willing to cooperate. week toeave it to a
bring them together hopefully in a meeting and announced what non-opec will do. the saudi oil minister optimistic heading into the meeting and said he will be a contact with the russians and other nations willing to do a deal alongside opec wants they decide what and how they will cut. francine: thank you, we will keep on continuing. ministersbout 12 around a table and you try to grab them to see if i have a deal. sayingdi oil minister russia remains willing to work with us and good chances for an open deal and says he is optimistic. not as optimistic as some of his counterparts but saudi has the most to lose from cuts and they are hoping for 600,000 barrels a day, that would be be cut from non-opec, talking about russia.
plenty more from vienna and let's get an update on other world news. scotlandyal bank of failed multiple hurdles in the bank of england's tough first stress tests. -- toughest stress test. hsbc, lloydsred banking group and nationwide building society. former goldman sachs partner stephen manage and is donald trump's choice to begin next u.s. treasury secretary according to people from a year with the plan, he lands to nominate wilbur ross as commerce secretary. a comment could come today. donald trump plans to continue his audition for secretary of state here he will bring back john kelly for a follow-up interview in new york. other candidates are mitt romney
-- who had a second dinner with donald trump last night. they rejected a call to protect the rights -- he hit back after -- he dismissed a claim that the european commission is obstructing efforts to reach an agreement, causing anxiety and adversity. thousands of people have rallied in south korea's capital to demonstrate against the president. she offered to resign yesterday over a scandal. a faction of her ruling party that previously supported her impeachment said it would accept her resignation at the end of april and given her nine days to make a proposal. global news 24 hours a day powered by 2600 journalists and analysts and 120 countries. this is bloomberg.
francine: we are sticking with oil and oil spiking as saudi arabia said there is a good chance for an open deal on stabilized the crude market but what is the outlook for the world's energy market. joining us now is the executive director of the international energy agency. great to have you with some unique insight into the role of oil. how important is it to you that opec reach an agreement, even if it is a soft agreement, it would give the markets much needed order in saying they are back in charge. >> thank you. of course it is very difficult to know whether or not there will be an agreement. if there is agreement, it should be a cut or a freeze or a different solution. i do not know debt. what i know is if there is
agreement and if it does push the price up, this will have implications. prices reachf the towards $60 we will see within nine months a substantial amount of oil company markets, especially from the united states. number two, there are some major countries, important oil producers such as china, oil production from their declined for the first time. .t may well increase therefore, those countries much input much more oil. thirdly, we expect global oil demand growth at about 1.2 million barrels per day. environment, this may
november 30 is december, but january, february, important days ahead. francine: every day -- i looked at how long it takes to -- you show gas producers how long to get a rigged online anytime is getting shorter and shorter, even if we have an agreement and it could go to $60 does it go in the range of $45 to $55 no matter what happens with opec? >> i do not know which price it will go. $60, a bigtowards chunk of a huge amount of u.s. shale oil will be profitable. ahead makes3 steps the decision. my colleagues in vienna, the
opec colleagues will make a decision taste on their own member countries interest but i am sure that they will consider the head of the global economic growth. francine: i know you have outlined your world energy outlook for 2016, does it have to change because of donald trump being elected? >> in terms of oil, our outlook, we expect global oil demand to grow in the next year. not totally driven by cars but petrochemicalips, industry, it will grow less stronger than in the past but we
will see decent growth in the oil demand. when it comes to the united states, governors come and go in democracies, new energy policies , and we will see what kind of new decisions this administration will make, the sheer size of the u.s. economy, those decisions will not only affect the u.s. energy system but the entire global energy system and in my view it is too early to tell into conclusions. -- jump into conclusions. francine: you are saying it is too early to jump to conclusions. stay with us, goldman sachs, donald trump has made his treasury secretary. that is up next. inflation figures as a slight acceleration predicted. more on the bank of england's stress test and we go back to vienna for more from the opec
♪ francine: welcome back. the breaking news happening in vienna where opec ministers have been meeting and we spoke to a couple of them where there is a scrum. of reportersdreds from around the world try to figure out whether they have a decision or not. negotiations.k of opec ministers reviewed optimism about a deal and we spoke at length with the saudi oil minister saying that he is willing or hoping that russia will join. this is the price of oil
currently, $48.98. let's welcome our executive energy for energy and commodities. opec is messy, what do we know? heitions were hardened and is not saying i want a deal, he is saying we could get a deal as long as russia joins in and we are speaking to russia. >> they all want a deal and fundamentally they realize that overnight. very hard positions coming into the meeting and negotiating tactics, they all caps and think we better be friends again. have seen some indication they are moving towards a deal but i would caution we are up 5%, 6% on the oil price and that may be premature. we have not seen details on the deal if there is one and how they will implement it and verify it and have not seen
whatnot opec will do. -- what non-opec will do. maybe mexico and norway. francine: the iranian oil minister is not joining in. and any production cut or freeze but iraq is. >> we will see on iran, you have to be careful with them, he is saying we will not cut and the argument after the meeting has been about what number do we cut gap and there is a huge between what the country say they are producing and what the rest of the world these. -- world sees. francine: they say we are pumping this much but the fact they get more money in the coffers, they pump a little bit more. difficult but we have not talked about shale gas, that in no way is part of any kind of non-opec agreement, or are they? why not? >> they are run by private
companies in a capitalist economy. francine: what does it mean for the price of oil? -- a real production production freeze, not a cut, do we stay at these levels, $40, $45 or do we go lower? >> we are nudging towards $50 and that is extraordinary. can we go higher, i think so, $60 may be the new range. the keyword's credibility, i think the opec ministers have been on about this because they have to believe when they say they will rein in production and that is helping. francine: what did we get today, an upbeat tone, when do we have hard figures? >> maybe at the end of the day. it depends on whether they can
get them together in time. we have hard numbers in algiers and that is what they are talking about, that is still the framework, so we have a good idea of who will do what. francine: is it a short-term agreement? >> this is something they will discuss today, either six months or a year. francine: is this disappointing? better than nothing but at the same time, we said this was the host important meeting since 1973, is it? >> it has the potential to somewhat deliver but if the market is responding in this way , $50, 60 dollars a barrel for this year or next year that changes dynamics in the market, s&p 500 energy companies earn more and the emerging markets which rely on these exports will do better and rush is a great example. we had some changes -- russia is a great example. francine: talking about donald
♪ francine: that it was on the move white house --steven mnuchin is the choice for u.s. treasury secretary according to people familiar and they say trump plans to nominate wilbur ross. we have been looking at the transition closely. that -- wew is understand you may want steven mnuchin, how sure are we that he will be appointed? >> it looks likely, he has gone over different possibilities for this appointment and it looks like he settled on mnuchin. it is a pattern of him appointing loyalists during the campaign and a series of wealthy individuals who supported him financially during the campaign. francine: he is credible?
>> ps the third goldman sachs partner to be named treasurer secretary. we had hank paulson and robert ruben. -- he was oneed of the youngest to get partnership at goldman at the age of 31. he does not have government experience and he has been campaigners that he will disappoint donald trump loyalists who had been expecting him to be tougher on wall street. he comes from wall street and now as treasury secretary, in charge of regulation and i think many people are expecting that under donald trump he will roll back regulatory push that we have seen under president obama. francine: what does he need to ,o, the next treasury secretary
the market believes that donald trump can spend and reflate the u.s. economy? >> a couple things the markets will take from this, you have a ande of cabinet members secretaries who are very important for the market to understand and the big question is -- is there going to be spending? you have seen in the 10 year treasuries that markets do expect that to be the case with a jump from 1.8 22.3 percent on the 10 year, that is a lot of inflation, thinking about a high demand for treasuries. we see this as a potential support for that inflation trade. francine: what about mitt romney? >> donald trump have dinner with mitt romney last night and mitt romney said incredibly positive things. if he does go -- with mitt romney, this is a divisive appointment, people have spoken out against him, including donald trump's own
staff members, the most prominent kellyanne conway who has criticized the possibility of romney joining, that he has not apologized for what he said about donald trump during the campaign and a lot of his supporters would be very disappointed if mitt romney were appointed. we will see how that goes. he would provide a bit of balance to the administration in terms of everything from policy towardsa to u.s. policy combating isis. it could prove to be divisive within the republican party. find out,when do we do we feel like it is later than other administrations? >> i do not think that is an issue. i would imagine we would hear something by the end of the week , he cannot let this drag on too much longer. with hisbe in keeping trend of trying to reach out to people that did not support him.
he allegedly wanted jamie dimon to fill the treasury post but jamie dimon was not interested. he does seem to want to broaden his picks for his administration. francine: do you change your models on either stocks or investments? you obviously need more policy but two months, three months, or do you give him six months from inauguration? >> as each information and policy gets more clear, we do change, the biggest thing for us is inflation is picking up, gdp growth getting a big boost in the next few quarters and readjusting our models to that. liking the financials and industrials. the market has rallied quite a bit on those. how much further is the question. francine: treasuries up. my chart of the hour when tom joins me.
it has been quite an hour, we had the scrum where we spoke to oil ministers in vienna. the saudi arabia oil minister who said that the opec meeting is relatively optimistic that they can't reach a deal. he said that the sticking points remain distribution of production cost, he is in contact with non-opec producer russia and that they are willing to work. for saudi arabia this is important. the town is quite optimistic. oil is gaining 5%. this is bloomberg. ♪
of -- thefail because data bank of england stress test. mark carney said the biggest referendum at sign -- the italian referendum. this is "bloomberg surveillance." we need to look at the u.k. banks, political risk, the opec and oil. tom: looking forward to italy. and the trump transition team but there are different news items this morning. and you areere is glued to your terminal to figure out what you are trading at what time. let's get to the first word news. >> make or break for opec in vienna. the oil cartel has been trying
to come up with a deal of production cuts to stabilize the price of crude. saudi arabia, iraq, and iran have been the stomach block. we spoke with the nigerian oil minister. >> every member of opec wants a resolution. resolutionis not a come it affects the saudi's, iraq, and other members of opec -- it putsat pressure on everybody to come up with a solution. >> the iranian oil ministry says opec will reach an agreement but iran will not freeze or cut its own oil production. donald trump resumed his audition for secretary of state today. last night, he had dinner with mitt romney. mitt romney was harshly critical of donald trump during the campaign but now is full of praise. he did something
i've tried to do, we need general election. he continues -- win the general election. he continues with a message to bring people together. weeks he has been carrying out a transition effort that i have been impressed with. >> today, john kelly returns to trump tower for a second interview. donald trump has chosen former goldman sachs banker steven mnuchin to the secretary of the treasury according to people familiar with the plan. mnuchin he was a hollywood financier. donald trump has selected wilbur ross to be secretary of commerce, the announcement could come today. european council president is rejecting calls by british lawmakers to protect a patriot writes after -- patriot writes after brexit.
he says if the u.k. wants a deal, it just for normal exit talks now. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: taylor, taylor, taylor riggs. currency, euro, a bit of strength in oil with a surge, a 5% move. markets, odd markets. spread comes in -- i time spread comscore -- italian spread. francine: i had a treasury chart i need to change now with oil.
the banks, i want to show you them because news on rbs with the stress test. not a good capital but it is fine because they can go ahead with what they have with barclays. european stocks flat and the dollar 101.07. tom: i want to get some background. this is the most interesting emotional chart of italy. the unemployment rate which is unimaginable, of those under 25, the blue circle is the advent of the euro and the green is the massive improvement from 30% down to 20% unemployment and it unravels. -- ially under 25 are set cannot believe i am saying that. francine: and europe, something we talk about a lot.
the only -- one of two countries that have an higher unemployment figure for the youth is spain and greece. it is important because when you , you almost have to make a choice on whether you think renzi has been good for you or not. this is my chart. do you like it? tom: i think i like it. francine: $45, $55 the price ande for oil, brent and wt -- wti and purple and blue. how much production will be cut when it comes to opec and non-opec? the shale gas producers, they may be the swing producers, how much of an impact cap opec cap on the price of oil? here is the executive editor for energy and commodities.
we are joined by james. thank you both for coming to give us an update. we do not have an agreement yet for opec and non-opec a good tune, they all want an agreement. >> it will be mostly a cut. we have a long way to go. we have to the finish of the day to see what it looks like an going into the meeting, a change of tone from yesterday, negotiating positions have softened and they are moving towards a consensus and the key will be tonight and when the market looks of the deal and does it have credibility? opec has a long history of cheating on quotas and misleading the market about what it is producing. can they can its oil traders they mean business this time? francine: what do they need to do to do that come how much do they have to cut by and visit saudi cutting? >> almost a separate question,
talking about 1.1 million barrels, about maybe another half million barrels from the non-opec which is a big problem later on. it comes down to come up when the numbers come down each month, what the country said they are producing and what the rest of the growth says they are producing, the secondary sources that the oil traders will look at to determine what should be the price of oil. tom: tell me about the power politics in vienna. you are good at carving out the bs from the rest of it, who has the power in vienna? iraq,ould say iran and that is the big surprise, saudi arabia has ruled for decades and now you have a resurgent iran and iraq. quitetively, they are not but almost as big a saudi arabia and may have put their foot down. they said they will not change
from their position and i run saying they will not cut or freeze. -- iran saying they will not cut or freeze. james, do you reposition hydrocarbon stocks over algiers, the --vienna, how do you take opec macroeconomics and take it to buy, hold, sell on exxon? >> i look at what i believe to be the long-term quality companies and which companies can cope well with a low oil price because it seems to me that even if there is a deal in vienna that we have the shale players that will keep the price relatively low. i look at oil companies, they are to point fresh capital, destroying share value, those are the names we need to avoid. sticking with chevron and i saw looks like the way to play this.
francine: will we find out how much they will cut or freeze by? >> if they get a final agreement today we should note today. exercise but in theory they will have their press conference at 4:00 in vienna. francine: thank you so much. we will be back with james. we will talk about the banks and the italian referendum. coming up on daybreak, a conversation with the goldman sachs global head of commodities research at 8:30 a.m. in new york. they will be talking opec. this is bloomberg. ♪
francine: this is a bloomberg "surveillance." they bank stress test in london. we will get to opec in the second but let's get to the bloomberg business flash. >> samsung will probably split as soon as next year. the company says it is looking at a plan to turn itself into a holding company. an activist investor has pushed the idea of splitting samsung into a holding company and an operating company. shares surged to a record today. for president elect donald trump who campaigned on the promise to bring factory jobs back to america. carrier has agreed to keep 1000 jobs at its indian a factory that had been set to move to mexico. he tweeted that he was making progress in talks with the company on thanksgiving.
royal bank of failed multiple hurdles in the back of england's toughest stretch tests that led rbs to bolster its capital plan. the bank of england said to other banks showed what were called capital and adequacy's desk in adequacy's. eqacies. you have more on the stress test. francine: rbs shares are down today. was it that much of a surprise that rbs failed the stress test? they have pushed back restructuring for six months after six months after six months? >> there was limited surprise, they were expected to do that leak in the stress test. -- to do badly on the stress test. performed badly is because they have a large
regulatory segment looming in the united states over the mis-selling of mortgage backed securities leading up to the crisis. we do not know what number they put into the stress tests calculations but it must be significant because they saw a huge hit in this test. francine: what does that mean for dividends? government selling back there stake or giving back there stake privately, is that completely off the table for the next couple of years? >> yes and the u.k. chancellor philip hammond has said that the sale of the government stake in the royal bank of scotland is 73% owned after a 45 billion pound dale out during the financial -- bailout during the financial crisis eight years ago is delayed. chiefars ago the executive was talking about capital repatriation returns, dividends, buybacks to investors and that has evaporated. failing: we have rbs
this stress test which was tough. you have two capital inadequacy's that were unveiled at barclays, what does it mean? >> that none of these companies can generate the returns one might expect in comparison to u.s. banks. look atencourage you to the bank of america, jp morgan, goldman sachs, these are banks that took the medicine early and restructured their balance sheet and benefit from rising interest rates and should have a much better share price. if you think about who else may benefit from the news today, it may be the u.k. their hand in negotiating with rbs must be stronger. the mergers and
acquisitions potential, and understanding in the united states that the two big to fail big banks cannot merge anymore, up to deposit limits, can we see a combination of the united kingdom banks? >> that is next to impossible for the large banks at this moment. the not think we have restructuring that is required for some of the institutions and you have a regular which is probably a verse two combinations between the -- the fear of blows to the institutions. yet but it could be a sensible solution to some of the banks. tom: richard, thank you. a stressful day for the royal bank of scotland. james will continue with us. a lot to talk about in the markets. we need to talk about one of the -- to one of the top labor economist in the world of dartmouth college on the labor
efforts falter or prove insufficiently serious, or should it fail to materialize altogether, the private sector would likely retrench, raising the risk that low growth yields to recession as artificial financial stability gives way too unsettling volatility. onsays that there is hope challenger politicians, donald .rump or the brexit people should it fail, it will bring the economy to a uglier place. that is why we need to watch the italian referendum on sunday. james, how do you look at the italian referendum? some people say it could spell and thef the eurozone other saying apart from the banks, we are not worried. ,> the later stance is mine
this is about constitutional reform. allies put in place politics where it was difficult for a single party to dominate and deliver the outcomes brought about by the private side before the war. italy now has a perfect balance between two houses and it is difficult to make decisions. it does is a no vote, not meet mr. renzi will not remain in charge and italy has a long history of selecting caretaker prime ministers and i do not think there will be a significant move to the eu. francine: there is a long line of technocratic governments. tom has charts. they point to the fact that italy is broken. absolutely, but this is the
heart of the problem of the eu, we have a situation where we have a single monetary policy very different with regard to physical arrangements -- fiscal arrangements and you correctly identify the challenge of youth unemployment and italy. tom: i want to give a shout out to deborah and the wall street journal, they go city to city in italy talking about how renzi has no chance. it is an angled article about labor and the upset of the middle class. francine: we cannot talk about polls, we are in a blackout. tom: fair, i do not think i was the glad you mentioned it. i want to look at the bloomberg, this is nominal gdp, the animal spirit of italy which says it all. the absolute heart of mr.
grillo's theory is to have an italian lira, can you envision a separate italian lira off this horrific economic growth? >> i cannot say our best cases the exit of italy -- case is the exit of italy. we view the referendum for the euro and italy and the eu at large is a double-edged sword. if renzi loses which is what the tols suggest, it is a blow his credibility and strength within italy. constitutional reforms do not change the underlying picture which is been a gradual movement over the course of 2016 towards antiestablishment parties. unlikely to fix the growth picture. tom: a big debate when i was in
london, the idea of day two of an italian lira, what would happen to italy if they went back to the italian lira? >> one of the good things for italy is it is running a current account surplus, it puts it in a more favorable position than otherwise. given the growth trajectory of the country, given the nonperforming loans, given the fundamentals, there would be a devaluation. for the rest of the eurozone, most of the debt is held domestically. to theage overall financial sector outside of italy may be more limited than if it were france. of the day, it would raise questions about the survivability of the rest of the block. francine: this would be admitting defeat.
they would be companies that would benefit from a lower currency, but you can get through this with reforming it. >> you can. leaving the euro would be the crisis we have talked about for many years. italy is just one of the icebergs reflecting the fundamental challenge. we have a single monetary policy. ,om: thank you so much, james appreciate your attendance this morning. ianng up, stephen gallo, will join us on the american economy. ♪
hour from the president-elect. to our first word news on vienna . taylor: opec ministers meeting optimism expressing about a deal to cut oil production and prop up prices. among the first to speak was the oil minister from the uae. >> to reach an agreement around the algerian levels of production. we are optimistic from what we have seen so far, the commitment from opec members. seeing thatard to -- the decision. opec needs to see differences between iraq, iran, and saudi arabia, the cartel has not agree to cut production since 2000 he. --teo renzi appeal devoted appeal to voters who have not made up their minds by the constitutional referendum.
he is urging voters to back reforms and says he will stop parliament and bureaucracy from blocking the country's progress. donald trump resumed his audition for secretary of state today. he had dinner in new york last night with former republican presidential candidate mitt romney. that romney was critical of donald trump during the campaign but now full of praise. mr. romney: he won the general election. message tos with a bring people together. this is connecting with the american people in a powerful way. ps in carrying out a transition effort that i have been impressed with. john kelly returns to trump tower today for a second interview. donald trump has chosen former goldman sachs banker steven mnuchin to be secretary of the
treasury according to people familiar with the plan. mnuchin was a well-known hollywood finance year bankrolling "avatar" and the x-men franchise. trump wilbur ross to be secretary of commerce, the announcements could come today. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. nobody gotyou, behind donald trump early like wilbur ross. this for a global audience, how two different newspapers show our new secretary of the treasury, donald trump picks fax banker for treasury says the conservative wall street journal. the new york times takes a different view. i love this, the new york times said -- financier is movie financier is set to pick
for treasury secretary. a lowlife hollywood movie financier, throw it out, there goes the new york times. say, x is the biggest secret you need to know for toys 17 -- gadfly is the biggest secret you need to know for this -- nextnext year here year. our new secretary of the treasury steven mnuchin an former bank or or movie financier? >> he is both, i think the new york times hit me on the head after you threw it over your shoulder but i am recovering. he is somebody that will have a lot on his plate. will be trump administration favors the strong dollar?
what will happen if they undertake a massive $100 billion a year infrastructure spending plan? what impact will that have on the federal debt and deficit? what are their tax policies? they won a major tax cut, how will not line up with a major infrastructure spending plan? mnuchin will have a run with the financial stability oversight committee and a role on global trade. it will be a big agenda. enough about him to know whether this is a good marriage to those things. tom: when i look to the opinions since we have seen since the tuesday evening, the summary is that none of these people have government experience, you have a lot of experience looking at donald trump and washington. of these that many people have never worked a single day in government? >> i do not think people should be discounted because they have
not worked in government. on the other hand, knowing how to work around a global massive bureaucracy is a plus. he has tilted toward people for that reason. here is whatnknown the policy program is going to be. donald trump has said contradictory things on the campaign trail, a lot of his picks do not have explicit viewpoints on domestic policy. that has become clear. it looks like a obamacare will get dismantled and national security policies will be extremely hawkish. we do not have a good handle on treasury yet. francine: you wrote trump nation so you know about him, where does mitt romney fit? we have a picture of him having dinner with donald trump, first at trump tower and they are still talking. >> that romney to me is
emblematic -- mitt romney to me emblematic on -- the balance between people wanting to serve and turning their backs on past criticisms. they have had of donald trump. clearly wants the job and people inside the donald trump team that do not want him around. he is not considered a good soldier. the dinner last night, david petraeus was sitting there, they were not alone. donald trump likes to get attention. there is one. that this thing is being done to embarrass mitt romney. it is hard to say. ,rancine: going back to mnuchin he was the youngest partner ever to have a partner at goldman sachs. doesn't mean that donald trump with disappointment loses a little bit of credibility with his base? it is not wall street bashing
him it is deregulating, favoring wall street? massiveill see deregulation in the energy sector and the financial services sector. companies in these industries will be quite happy to have him. rhetoric on the campaign -- he went after lloyd blankfein at goldman sachs in a full frontal assault now he is put two former goldman people as senior positions. trying to discern whether donald trump is being honest or consistent is hard. tom: please give me the video of the dinner. i want to editorialize that i think governor romney started with dessert. that is very desserty. .> it looks to me like s'mores francine: this is what i have. >> it looks better than you or me.
francine: that is true, you and i have never eaten with linen tablecloth. is true, you and i have never eaten with linen tablecloth. will mr. trump clarify and clear the tax issues that you are the world authority on? >> donald trump should release his tax returns, people should be encouraging him to do this in his team. it would not cure the conflict of interests but i think voters in the american public generally need to know what kind of business and financial interests their president has. donald trump has been elusive on this. tom: can you summarize the what mr. trump is possibly doing is taking many business to the actions and bringing them over -- deductions and bringing them to his private income to reduce taxes on his the private income, is that the
clear? that will become i do not think that is >> the mystery >>, he can be as aggressive as he wants to be within the parameters of the tax code, nothing wrong with him as a real estate developer using the tax codes if the laws are there, the issues which i think will open up a window onto the real help of his businesses, how big a business he actually runs. the global scope of it, how generous he is as a philanthropist, a lot of these things he has made claims for but has never substantiated. tom: help with the dollar dynamics of the early proper administration, do you call for a stronger dollar and will it be able to move -- will it be a brutal move? >> you are focusing on the right thing. in terms of the team to visit move between now and the end of the first half, we think the broad trade rate of dollar goes 5% higher. francine: there you go. thank you.
whether they are of the or downbeat on a deal. oil rallying come opec -- optimism that opec ministers will reach a deal. stephen gallo is still with us. are we going to get a deal? we heard from the saudi oil minister who is confident that opec will reach a deal as long as russia is involved. >> is a game of brinksmanship. they could walk away from this meeting if nothing came forward. i say it is 50-50 at the moment. announced, a cut because so many members of opec excluded from having to cut, the remaining countries are struggling and i do not think it will produce a cut meaningful which means that will draw down stocks and therefore form the
basis of a sustained fear of higher prices. francine: talk to me about prices, does oil have a floor at $40 and can it go significant above $55? >> it can go down to $40. that is possible if there is not a successful outcome of the meeting or if it has a cut that is not meaningful, prices could go down to $40. in terms of the upside, anything $55, $50, never mind encourages u.s. shale producers to hedge their production and go and produce their initial oil. , prices will year be in the range. francine: stephen gallo, is this a make or break meeting? it has been branded as the most important meeting since 1973, if they say they will freeze but still overproducing, what does
it really mean for the oil markets? >> if there is a deal you have to factor in donald trump's oil policy was oil bearish, negative for canada. deal, the big question for the broader markets is us this change things for the fed? .he answer i think is no the reason is that even with oil and the low $40, the energy component of the u.s. consumer price index was to be growing because of base effects 10% to 20% year-over-year starting in the november data and heading into the first half of next year, the first quarter of next year. the fed will have accelerating inflation to deal with and look at the data. it is good. tom: help me with your wonderful note where you say non-opec will be not forthcoming, does not opec have a voice in vienna? necessarily at this
meeting but there has been previous meetings, russia, azerbaijan, oman, mexico, they offered to talk. we do not believe these countries will provide any meaningful cuts. some might say they are cutting but their production was set to fall anyway. it is not really contributing to the big picture. as for russia, then a cut from the expected production level next year, which means a net gain. it is not critical to the mess, it is all around, the key opec members, whether they will cut significantly and i do not think they will. tom: are we in such a sensitive market where the move to $40 or 39 print on brent really changes the supply responsiveness? how will supply dynamics change with a $40 or $39 handle on brent? >> if prices were too, because of an unsuccessful outcome, at that price levels, a loss of
proposed of shale oil projects in the u.s. become uneconomic, you have hedge these projects but new projects will not. that forms the base at which prices will not fall below because with less supply then the market -- the markets tighten. the downside is $40 and the upside is on the basis that you turn on the u.s. shale opening a sheer and prices move up. francine: i have a chart which i will get in a second looking at canadian dollar and the ruble which has an impact on these currencies. >> at the moment candidate is getting a tail wind, the currency is getting into when because of expected benefits to the canadian economy from donald trump's fiscal stimulus. i would lean against extrapolating that out too much. canada, nonenergy exports intended around 10% below their precrisis peak.
even outside of oil, canada has a balance of payments, external deficit problem. it will not defect anytime soon -- it will not get fixed anytime soon. looked at oil in correlation to the u.s. dollar, which is the worse and cart right now -- horse and cart right now? >> it will remain the case that positive oil has a negative impact on the dollar. themee the fed on fed off is key right now for the bond market and for the long dollar positions, higher oil means a higher chance of fed moves in 2017. we are comfortable on a review right now they moved in june of next year and december of this year, then in december of 2017. even if opec does not reach an thereent, i still think
is a risk that the june hike gets brought forward to march. the organict performance of the u.s. economy and the performance of the dollar as a result of how the u.s. economy is doing. do not forget that the more pro-u.s. trade that donald trump is and the stronger the u.s. economy becomes, the less dollars there are in supply outside of the united states. dollar shortage is something that will rear its head again in 2017. tom: this is a huge deal. with any foreign-exchange research, coming, this coming dollar shortage. thank you very much on the idea of oil migrating south. we continue the conversation on oil in the 8:00 hour on radio. this is bloomberg, this is donald trump's new york.
i am in london and tom keene is in new york. tom keene was here overlooking the millennium bridge leslie. -- last week. still trying to figure out the ramifications of brexit. let's think about sterling. back with stephen gallo. todayrd from mark carney talking about stability come his concerns for this economy and what struck me is that he mentioned a lot of global concerns, where does sterling go from here? >> we think it will go down to the low one 20's over the next one month to three months and we are buyers of people in the lower 20's. largely because the type which has exhilarated as a result of the trunk when -- donald trump went raises the chance of the u.k. and eu coming to a favorable agreement. francine: because suddenly the u.k. is more favorable or more useful because of security
spending? >> i think the time for upholding the three pillars of the eu which is what many politicians seem to be doing now, the time for that was 10, 11, 12 years ago, not now. at the moment, most people care about jobs security, care for the elderly, a good future for their children, money in the bank, credit card to use some having nice things in life come of that is what people are concerned about. the donald trump win in the united states makes those cries to up hold the three pillars of the eu less important in the grand scheme of things. francine: mark carney said that the risk to financial stability may be elevated. are we going to see pound strength if the eu crumbles? much our opinion that rallies and eurosterling about 86 or in the 86-87 range
should be sold for the time being. tom: i like what you say about the president-elect changing media electric within london and over in the euro, i want to put where mr. gallo just put in the sold. eurosterling in this range, he is saying you want to go euro.er sterling, weaker is that a tradable event or do ?ou cable -- do cable instead this is the key thing and i think crucial to our view, the weaker the u.k. becomes as a result of the negotiations because of aggressive push is negatively by eu politicians, the weaker the eurozone becomes. vice versa. it works both ways. we have seen this with trade gravity, there have been
evidence in the past of co-integration, the relation between euro-dollar and cable. the eurozone is struggling which we will believe is doing for six months which is not good for cable, if you are looking to buy cable, wait until below 120. the better play is on an rv basis, eurosterling would be the better play at the moment. tom: thank you very much, stephen gallo. in our next hour, ian shepherdson and blanchflower. this is bloomberg. ♪
secretary of the treasury. steven mnuchin did not get up for dinner. governor romney does. it is wednesday, it must be italy. there is unmeasured uncertainty over how the people of italy will vote. good morning, everyone. this is "bloomberg surveillance ," live from new york. i am tom keene. in london, francine lacqua. i'm sorry, your italy is front and center as we go to sunday. francine: there are three main stories. political risk, and i would include the referendum on that. it --s sounding much more opec is something much more upbeat, oil up 5%. the u.k. banks and rbs filled the stress tests that week. tom: we begin indiana with taylor riggs. opec ministers are
meeting in vienna, putting a positive spin on things today. cutting oil production to prop up prices, they say a deal is close. iran's oil ministry is optimistic, but he is defiant when it comes to cutting production or keeping it at current levels. >> for iran, no reduction. arrangement -- it is not a freeze. forget the concept of freeze. agreed on a has not production cutback since 2008. donald trump resumes his auditions for secretary of state today. night he had dinner with mitt romney. romney was harshly critical of trump during the campaign, but now he is full of praise.
mitt romney: he won the general election, and he continues with a message of bringing people together. whichs something obviously connected with the american people in a very positive way. the last few weeks has been a transition effort. taylor: today, retired marine general returns to donald trump for a second interview. steven mnuchin is a well-known hollywood financier. trump is said to have selected billionaire investor wilbur ross to be secretary of commerce. the announcement could come today. finally, european council president donald tusk is rejecting calls by british lawmakers.
members of parliament asked him to broker a deal gary king u.k. nationals living in other you make -- a deal guaranteeing u.k. nationals living in other european countries -- global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. tom: right to the data. equities, bonds, currencies, commodities. we want to get to a couple of killer charts. euro-dollar, 1.0649. there is a momentary surge in oil. second board. the german two-year yield gets my attention. the italian germany spread is pretty good from 24 hours ago. brent migrates near 50. francine: inflation has -- this is the one thing that we need to watch, oil.
up 1.6%. we spoke with the saudi oil minister. the dollar is significant at 101. italian banks, because of the referendum, and also u.k. banks because of the stress test. tom: david blanchflower will join us. i want to talk to him about dynamicsamics -- about in italy. down we go. with employment, unemployment of under 25-year-olds. it is a good green line. down we go from a stunning 30% unemployment to 20% unemployment. it just flat out unraveled. there is no way to put it. -- there is no other way to put it. francine: last i heard, spain is
slightly above, which is terrifying, but it is slightly above. i picked out something for you. treasuries are having their worst month since 2009. it is interesting to see the dynamic on the month. that is my chart way back. this is what we are seeing now. this has to do with trump's victory in the election and what it means for increased fiscal stimulus. we will get back to treasuries, but now we can focus on oil. back toing the focus the ministers who say they are close to the deal. great to speak to you. today was huge, and we are expecting great things from opec , if you believe the oil price. it looks like we may get not a freeze but a production cut. there is no doubt that oil ministers struck a different tone than in recent days. most of the ministers came out
saying that the stumbling blocks we have open talking about are close to a solution. we got news out of russia where mightar that the russians consider their own production cuts rather than a freeze, which means we have a farther reaching deal than we expected. it does seem pretty material that the market is pretty excited. francine: what happens if they say that they -- this has happened in the past. can they materially change the price of oil? will: it is going to be the crucial point if we get a deal today, which is, yes, they will make lots of promises, taking one point one million barrels out of the market. that is not going to be easy. cut.audis are likely to it is very hard to see other
countries cutting. tom: will kennedy, you were great yesterday. here is one of my most famous charts. this is oil, back in million years, adjusted for inflation, and it has an approximation of the world's rising wealth. it is a squishy chart, all you need to know is that we had opec 1, opec 2, a great decline in oil, and we rolled over back to richard nixon prices. the red circle in the middle is when opec failed in 1986. today they have a -- do they have a risk of failing again? will: there is that risk. the real change to the oil markets has been in the u.s. industry. oil has surged this morning. you know that when people wake up in america, shale producers are going to be hedging board production, which guarantees there will be more oil from outside opec. deals,the talk, all the
that is a strong tied for opec. tom: will kennedy, thank you so much. dynamicvery, very market right now. i am playing here with the bloomberg, which is what you do when ian shepherd is on the set dad when in -- when ian shepherdson is on the set. ian shepherdson is with us on the american economy. theave ignored you on american economy recently. give us an update. i want to show the pce, janet yellen inflation at 1.7%. nobody watching believes the double red circle up top is the pain of american service sector inflation. why chairexplain yellen's inflation is different than my inflation or jose's inflation in the control room? ian: the inflation rate is not designed to capture everyday
experiences. the bce -- bpce is a broad index. roughly as% of it rent. most people own homes rather than rent. numbers,look at the you say that it does not bear any resemble is my personal experience. it does not work that way. whatever we might think of in terms of reliability, that is the number that they have a 2% target for, and that is driving policy. tom: vice chairman fisher is watching this morning. good morning. how many rate rises do we need to move away from the accommodation? ian: we are ultra accommodative and that is why inflation is beginning to rise, and why rate -- and why wage inflation is rising as well. here we are a 2.8 in october, the latest number.
we are getting close to that. the problem is, to know how many times we are going to hike rates, we have to know what they are going to do. with noble consequences for inflation and noble consequences for growth, it is difficult for the fed to deal with. my guess is that when they meet in a couple of weeks prior to december, they will not come out with a detailed assessment on what they think will happen to the economy under the trunk administration. they will say that we have to wait and see. we are talking about and oil rally on the back of that. i do not know if it is $10 or $15. will that hurt consumption in the u.s.? ian: it would in the short term. it would need to be a $10 hike.
up $2.50 today, that is not a big deal. that is normal trading range. but if we were to push up into with wti, wes would be looking at a meaningful squeeze on consumers for a while. remember, it would make a massive difference to shale producers in the u.s., and we would see a faster return on capital spending. after the horrendous downshift that we saw in late 2014 through the middle of this year, it is supersensitive to oil prices. it is very different now. there would be an offset to the consumer hit because we would see a quicker rebound in the business,tic oil which is up by a half from lowe's back in may. lows back in may. francine: thank you so much.
scotland has scaled multiple hurdles in the bank of england stress test. that is why rbs will bolster its capital plan. two other banks also showed what they call capital in adequacy's. was required to submit a new capital plan. some workers are siding with management in the strike by lufthansa pilots. pilots is amended by what they make in a month. -- the raise demanded by pilots is what they make in a month. it is a victory for president elect donald trump campaigned on the promise to bring factory jobs back to america. carrier has agreed to keep 1000 jobs at an indiana factory that had been set to move to mexico. on thanksgiving, trump tweeted he was making progress with the company to keep the jobs in the u.s.. that is your "bloomberg business flash." a twisted perspective when
benjamin brodie -- thrilled to be with us -- what i love about you is that you cornered advertising age a few years ago. how is the trump message going in terms of what he has done for 4, 5, and six years? ben: he is basically doing a transition and he has installed some key people. we are starting to see what treasury and commerce is going to look like. he has put together some of the obama team -- health and human services. from a marketing perspective, things are coming together. tom: what is the response to your washington -- what is the response of your washington to what we see on fifth avenue in new york? are starting to see trump bringing in some of these wall street people, who were not necessarily the people he was courting on the campaign trail. steven mnuchin, wilbur ross --
these are people who would not necessarily be described as the core base of donald trump. francine: where does mitt romney fit in all of this? ben: that is the big question. there is obviously a lot of internal deliberation. kellyanne conway, donald trump's campaign manager, came out and said she could not support mitt romney. newt gingrich said it would be a betrayal to the base. on the other hand, a lot of republicans want to see him in that position, want to see trump expanding his cabinet a little bit there. francine: what is the one thing that surprises you the most in this transition? a lot of things are surprising. trumps different, donald is different. what is the one thing you would to that gives us more of a clue we are seeing with donald trump's appointments? ben: it is the fact that donald trump is going out on this thank-you two are -- they do not tour,o call it a victory
but it is a victory tour. they want to keep that crowd intensity, the stadium rally thing that brought him to the presidency. he wants to push that as far as he can. maybe he cannot do it in the white house, but he wants to do the stadium rally thing for a long time into his presidency. tom: then brodie, thank you so much, from washington this morning. who knows what we will see today. ian shepherdson is with us as well. give us an update on the likelihood of the past to trump gdp. i believe 4% was the model. in ae idea of hyperbole campaign. can we see 3.2% sustained? with stimulus, absolutely. i think the economy has probably stepped up a bit. nothing to do with trump or
expectations of stimulus. just because we lost the horrible drag from falling capital spending in the oil business. we are heading into this stimulus, into this new world, with growth probably already backed up -- tom: the second derivative, the acceleration, the complex deal of inflation really gets going. is that the surprise for next year? ben: i would not be surprised by it -- ian: i would not be surprised by it, but it is already built into the system. before trump spends any money or cuts taxes, we are sitting with a 4.9% unemployment rate and accelerating wage growth. so we already have the base for an inflation shock. intop of that, we will pile tax cuts and spending increases, which is not the standard prescription for the economy at this stage of the cycle. but we are getting it for political reasons. on: we have a jobs report
this is a superb one-off on the italian referendum. for those of us removed, project syndicate -- excuse me, i am rgiocco -- mario ma tom: francine, this is the domestic tension that we do not talk enough about, isn't it? francine: it is the domestic tension, and the way italy has informed over the last 20 or 30 years, there are 100 parties. this is the problem with the referendum, which would basically give more power to the
prime minister. you have over the years coalitions and unstable governments. why? because there are votes in motion. because you have 6, 7, 8 large parties, you are mentioning some of the populist party's there, but there were 3, 4, others like that. ian shepherdson is still with us. i hear that if the referendum were to be a no, it would be the end of the world for the banks on monday. they vote on sunday. others say it would not make a difference. because italy has been unstable for 15 years and they do not need to change anything. ian: there is going to be a a no vote.e of i think it will be rejected. renzi said he would leave if he lost the referendum, but he is a politician and talk is cheap. my guess is that he would hang around. i think ultimately -- the thing
about italy is that a lot of places are very politically dysfunctional, and this goes back to the postwar constitution. this is a long-running story of unstable government in italy, but they try to get to the right answer more or less at the end of the process. of uncertainty, absolutely. but is it the end of the world? will this be the triggering event for the end of the euro and the end of the eurozone? i do not think so. tom: ian shepherdson with us. we will continue to talk on the italian lira. david flange flour -- david blanchflower is next. this is bloomberg. ♪
and upapore, in china, to tokyo as well. lots to talk about. ian shepherdson is with us. danny blanchflower in a moment. here is taylor riggs. taylor: we are starting with opec. ministers meeting in vienna are expressing optimism about reaching a deal to cut oil production and prop up prices. among the first district today, the oil minister from the uae. aroundhing an agreement level to production, and we are optimistic with what we have seen so far with members outside of this are positive. and we want to see that in the decision that we make. taylor: opec needs to resolve differences between its three biggest producers, saudi arabia, iraq, and iran.
italy's prime minister, matteo renzi, went on the internet to appeal to voters who have not made up their minds about sunday's constitutional referendum. renzi held a facebook live session last night, urging voters to back reforms that he says will stop parliament and bureaucracy from blocking the country's progress. president-elect donald trump resumes his audition for secretary of state today. last night he had dinner in new york with former republican presidential candidate mitt romney, who was harshly critical of trump during the campaign but now is full of praise. mitt romney: he did something i tried to do but was unsuccessful. he won the general election and continues with a message that brings people together. this has connected with the american people in a very positive way. , he has beenweeks carrying out a transition effort. taylor: today retired marine general john kelly returns to
trump tower for a second interview. donald trump has chosen steven mnuchin to be secretary of the treasury, according to people familiar with the plan. he is also a well-known hollywood financier, financing "avatar" and the x-men franchise. wilbur ross has been selected to be secretary of commerce. the announcement could come today. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine? tom? tom: it is always a good time to speak with david blanchflower of dartmouth college. he is someone we can talk to on austerity, on the fed, about the mysteries of economic growth. what we can really talk to him about is the labor economics of italy. from assic wage curve good 20 years ago this controversial. also with its is ian shepherdson
. i would suggest they wage curve for italy is detroit -- the wage curve from italy is destroyed. is the chart. danny blind flowerpots labor economics does not working italy, does it? >> not technically. when unemployment is really high, the labor markets stop working. the move to 18 does not change things very much. this is a labor market that has not been working, isn't working, and obviously that has implications. the big thing you see actually, in britain there are a lot of italian academics. they come out of the labor market and moved to the u.k. young italians do the same.
this is clearly a labor marketing crisis. tom: what are the incentives to the people that the italian government must initiate? not macroeconomic mumbo-jumbo, but how do you incentivize these people under 25 to go get a job? are twobviously there parts to it. you want to make sure on the supply side that they they have the skills. on the demand side, you have to offer adequate numbers of jobs. you said talk to blanchflower about wages and growth and austerity, and blanchflower would come back and say fiscal policy is overly tight and has been throughout the european union, and we have very little incentive on the part of italian employers to hire young italians. that is the problem. so they are not moving to italy. francine: that is exactly where i wanted to go.
when you look at youth unemployment, it is huge. 42% of people between 25 and 42 are unemployed. how do you do reforms that actually make employers want to -- but also fire. a lot of people avoid hiring because then you are stuck with people for 20 years. danny: give them the incentives to hire young people. you can do it through the tax code. you give firm incentives. you say if you hire a young person, we will give you this tax credit. we are not seeing any credible government in italy focus on those kinds of issues. the one thing you would say is that these young people have been pretty compliant. you would have thought they would have been on the street. high levels of youth unemployment like that generally
generate social disorder. they have not. to be a bigght puzzle. you need to break this youth unemployment problem. what we know, the famous line is, youth unemployment generates a permanent scar rather than a blemish on people. it is not just an individual problem. down the road society is going to be hurt because these people have not gotten into the labor market. tom: this is so critical. this is what olivier blanchard hard and lawrence summers talk about. let's start talking mumbo-jumbo. what needs to happen? matteo renzi was in power. he is 41 years old, and the focus was meant to get people back into jobs. he has been unable to do that. danny: i do not know about mumbo-jumbo. the reality is that this labor market has been in trouble for two or three decades. the government does not seem to have any ability to do that.
the fiscal framework is too tight. you need to give firm incentives get the labority, market working, the capital market working, and the housing market working, and loosen the levels of aggregate demand. give incentives for employers to hire the young. tom: we have ian shepherdson and david white flour with us. this is what "surveillance" is all about. bring up the chart. this is from folkerts-landau. i am not speaking from david folkerts-landau from deutsche bank. does code to happen days or week after an independently or after the wealth destruction? ian: there would be an extended period of total chaos. you could not have italy leaving the eurozone without the rest of italy falling apart.
1, 2, 3, six years down the line, that is a different question. a sovereignof pain, italian currency may put it into a better position. but the transition from where we are now to that would be horrendous. ,rancine: tom keeps saying talking about the switch to lira. this is extremely unlikely. do we just need to have a prime minister with more power that has a much more aggressive mandate in reforms? you want a critical -- you want a credible market going forward that they can invest and hire. what you have been talking about is a country in chaos. we have seen similar problems in the u.k. where brexit has come.
you cannot form a government or get a policy -- we do not know where this country is going. why would firms go in and hire young italians? so you have to break that first. this is great chicken-and-egg. the i want to get this on record, professor blanche our. -- professor blanche flour. what would be the pain of a separate lira? the idea here, ian shepherdson says there would be massive .nstability into lira do you agree? danny: he is completely right that if suddenly you go to the lira that would cause the collapse. he is right in that what you have here is a currency that is overvalued for the italians. the point of saying you would go
to a lira would be at least that would make the country competitive. so that is in some way attractive. so he is completely right that a lower valued currency could help. it is hard to see how you get to the benefits of that lower this terribleut collapse that he has talked about. it is hard to know where you go from here, but this threatens the entire euro zone. francine: there are people out there saying the market is a little too complacent ahead of that referendum. getting the lira back is humongous. very few people are doing that leap at the moment. compared to brexit, you cannot put a referendum on whether to leave the eurozone or not to the italians. tom: this is fabulous. ian shepherdson, we will continue with you. professor blanche flour, thank
he also says he will do it with to which i do not know what that -- with his "kids," which i do not know what that means. with his kids? what are they going to do? francine: we don't know. that is the whole point why you tune in. we will have to follow it very closely. let's get to the "bloomberg business flash." taylor: a deal to create the world's largest supplier of gases may be -- there were no details. the royal bank of scotland has failed multiple hurdles in england's toughest stress test yet. two other banks also showed what were called capital in adequacy's. .- capital in adequacies
that is your "bloomberg business flash." francine: thank you so much. rbs shares today are down. richard.ng in ian shepherdson is still with us in new york. richard, we have a stress test from the boe. expected or not? some degree, yes. the royal bank has looming over it a large settlement from the united states. it could be a significant bill for the bank. it is included in the stress tests productions -- stress test projections. i do not think people thought it was going to be as bad as it is today from the share price projection. that inroads -- investors were looking for some dividends in the stock a couple of years ago. that seems to be out the window for some time yet. francine: tom?
tom, stop looking at twitter. richard, let me take you back. in terms of standard charter, what would have -- what have we learned? richard: the asia focus in particular had an effect on that bank. the majority of their profits in that part of the world. they were not required to take any actions because during this year they had already sold some bonds, which can add to their financial resilience. with barclays, it is a similar story. they were one of the lightest utilized capital banks under the stress test. they are looking to sell their african banking business, and that should add to their resilience in the future. tom: let's go to some news, and the new distribution of presidential messaging by mr. trump three this, of course, through twitter.
two tweets, and they are linked. we mentioned a news conference december 15 with his children. the reason for that is that he is going to turn over all his business interests, it appears, to his children. it is a little obscure, which is what you get with 140 characters. serious. stay tuned. he will give his business to his children, and they will discuss it in a december 15 news conference. point, weon a serious are on a donald trump tweet watch. he does seem to wake up around 6:20 or 6:30. in order to make america great again, he says, he will leave his businesses. i wonder if this addresses conflicts of interest that we are trying to explore, or if he thinks he does not have time for
it. tom: ian shepherdson, the president-elect wants to make america great again. suits and ties like you tell me that america is pretty great right now. how did this guy get elected? if the economy is that good, why is mr. trump our president-elect? ian: because we tend to focus on gdp had levels, and the election focused on distribution. the distribution has been uneven since the financial crash. the people who've not achieved the gains voted for mr. trump. it is a classic difference between a macro number and a micro story. those two always coalesce, crash together. they did so in november. tom: beautifully explained as we go to jobs day with ian shepherdson. richard partington, thank you so much, with bloomberg news, with bank analysis, particularly on
tom: foreign -- let's get right to it. not much going on. yen, 113.27. a weaker yen than in a number of days. francine? francine: coming up shortly, it is "bloomberg daybreak: americas," with david westin and alix steel. i know you will focus on trump, but also oil and opec with jeff currie. david: you got it in 2 -- oil and trump. pgim -- they have almost a trillion dollars in assets. he will talk about what the trump election has meant to him. we also have john allison, who did not get the treasury secretary nomination. he will also be on radio
afterwards with tom and with david gura. as we speak right now, we are blessed to have jeff currie from goldman sachs with us, who will talk about what is going on with opec, what it means for oil and other commodities. that is a taste. francine: thank you so much, david westin. let's get back -- let's get back to breaking news on donald trump, who has been tweeting. stephanie, when you look at what donald trump has just announced, a news conference december 15 is he trying to put the concerns about a conflict of interest to rest? stephanie: yes, he is looking at what the best structure is. a note from his tweet, he says he will be leaving his businesses, but he does not say what kind of structure he will put in place. he said he will hand his business over to his children, but the real issue that former white house ethics lawyers have
raised is that if continues to own these assets, it will remain a continuing conflict of interest for him. officialsnistration have taken posts to put this issue to rest. tom: stephanie, i look at the day-to-day messaging of this president. it seems to be absolutely original. can he sustained his unique messaging? stephanie: i am really curious as to what he comes up with him december. does he do something old and actually give the businesses to his children, and really step back, create a real wall between the presidency and the trump organization? i think that would be a real shift in his messaging and would put to rest a lot of the concerns that have been raised over the last couple of weeks. suggest that he
move forward with his tax issues and his conflict of interest issues? we had tim o'brien on earlier, we are thrilled to have you on now. you are the grizzled veteran on this. does he clear this with a news conference december 15, or will there be debris afterwards? stephanie: whatever he decides to do, it will not be an easy solution. if he goes with what he said he would do in the campaign, which is hand management over the trump organization to his -- if he decides to go further and sell or gift some or all of his businesses to his children, that will take some time. that is not going to happen overnight. francine: we are talking about political stability. if he does lay to rest these conflict of interest and concerns, does that give a leg up to the economy? ian: --the discount and
ian:everybody wants -- ian: everybody wants him focused on completely running the country. running ae time, business conglomerate, that does not make any sense at all. it is by definition the biggest full-on job in the world that leaves no time for anything else. the conflict of interest is potentially huge, but everybody needs him focusing 20 47 on the job to which he has just been elected. en, thank you so much. tweet by tweet, it is in no way to have a conflict of interest with my various businesses. this is bloomberg. ♪
steel. we have to get to breaking news. brentoil prices at touching over $58 a barrel and this is why. you have a delegate saying opec is close to securing a 600,000 barrel a day non-opec cut. very close to cut supply by 4 million barrels day. he said she said scenario over the last 48 hours. . ying oil couldsa move six dollars today. -- a 1.4 million barrel a day cut. a look at where markets are trading. s&p futures up by .2%.