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tv   Bloomberg Daybreak Americas  Bloomberg  December 1, 2016 7:00am-10:01am EST

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steel. jonathan ferro is off today. we are getting started with the markets printed alix: the rally we saw overseas in asia -- the s&p and dow futures on the first day of december relatively flat. you have the stronger pound commanded you sector is the only sector higher. we have global bmis coming in better than estimated -- pmi's coming in better than estimated. the global bonds a lot continuing. the 10 year yield backing up by three basis points. the dollar takes a pause, retreating to a nine-month high versus the end. -- versus the yen. david: after weeks of tense negotiations, opec agrees to its first oil production cuts in eight years. put aside their differences and russia agreed to an unprecedented cut to its own
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production. global bond meltdown. the bull market in bonds is ending with a bank. as global bonds suffered their worst slump last month. investors look to dump their debt after donald trump won the election. bracing for swings. it euro volatility is the highest since brexit. the european central policy decision coming up next week. you have burned up 13% in just two days. brent up 13% in just two days. the big surprise come iraq cutting 210,000 barrels of a day.
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as the focus in vienna moves from the deal into specifics. marty schenker joins us now in london. what is the biggest question as traders wake up this morning ? >> firstly, you mentioned iraq. iraq had been the biggest stumbling block. they have a quota again and they agreed to cut production. many will be interesting to see if they are willing and able to do that. secondly, russia. russia pledging an actual cut of 300,000 barrels a day. one of the reasons we saw oil rally so strongly. will russia really deliver? this never done anything like this before. they've never done anything like this before. david: even if russia does step
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up, there's another 300,000. where is that going to come from? will: there are a couple of -- itec countries possible, opec may cheat and claim that as a cut. there will be other real cuts. oman has said it will join in and cut reduction by 50,000 euros today. there will be some real non-opec battles. question isbsequent what does this wind up for shale production and how quickly this biggest can turn on -- the spit ckets can turn on. will: the two-year slump was an
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opportunity to get a lot leaner and meaner. as we go up through the 50's and people see the deal is working and we go higher, how many barrels will come back and how much forward production will these companies hedge? we saw how the equity market reacted yesterday. at oneum was up 13% point. continental was up more than 25%. investors clearly believe this was a huge moment for the u.s. shale industry. will kennedy, thank you very much. , somee some breaking news m&a on this thursday. parker will be buying clarcor f. clarcor is a filtration company. that is $4.3 billion in cash.
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a 17% premium. that is what parker hannifin is buying again of the day. -- at the end of the day. is parker --w >> it was a cliffhanger to get there. economic reality one out. if they look down for mother was -- economic reality won out. put this in the larger perspective. this is the first deal in eight years. saudi arabia has taken a u-turn. does this say that the saudi strategy was wrong to keep pumping? dan: their strategy was they were not going to do the cuts by themselves. which they felt was the
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situation in 2014. the surprised everybody by saying opec is out of business. now, opec is back in business. eugene u.s. production down a million barrels a day. you've also seen all these projects around the world stop. -- you've seen u.s. production down one million barrels a day. the saudi's like everybody else need the money now. face-saving?it seag . the dark green line is 2015. if we get to even the average of the last five years, they were already going to have to cut 400,000 barrels a day. downthey had already come 500,000 barrels a day.
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from the saudi point of view, these will be real cuts. iraq is really interesting because iraq was on a suicidal by not going along with an agreement since they get 95% of their government revenues from oil. it really came down toan agreem% of their government revenues the antagonism between tehran and riyadh. with russia was resolved with a phone call after the opec meeting. russia will be cutting from a very high level. alix: i have the chart up here as well. it shows where we are, where they wanted to be next year. it will be a cut from a very high level. compliance not so great when it comes to russia in other cuts.
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dan: there was a lot of skepticism going back to the late 1990's when russia said they were going to cut and did not cut at all. when you look at the russian deficit, the into pressures on their own finances and the fact that even as early as six or seven months ago, president putin had endorsed a freeze, they are serious about it. there is a deal here for everybody to maneuver around it. we'verainy and can say agreed to this, the saudi's consent we've agreed to this and the russians will say we are cutting. less likely from a very high level. there's even controversy in moscow. opec, weicking with will bring you an exclusive interview with venezuela's oil minister from vienna.
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now, let's get an update on what's making headlines from outside the business world. emma: vladimir putin says russia is willing to work with the incoming u.s. president on an equal footing. made hisan president annual address to the federal assembly in moscow. said the attempts to disrupt the strategic balance are dangerous. president-elect donald trump is claiming victory as he travels to indiana today. keep 1000s agreed to trumpt a u.s. factory -- had pledged to keep the company from sending jobs out of the u.s. the plane carrying the brazilian soccer team that ran out of fuel --ore crashing in columbia
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an air traffic controller made the plane circled for seven askeds after the pilot around because of fuel problems. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. alix: u.s. equity futures relatively flat. we want to highlight the movers in europe. first up is glencore. it was higher earlier in trading but has given up some of those gains. it is bringing back its dividend with a $1 billion distribution in 2017. just last year, they were asking investors forecast. now the they are giving cash back to investors. shows just how quickly the commodities fortune has changed -- unilever sees margins rising at the low end. growth will be half the volume and half higher prices.
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there is very little global growth to be had. that stock down to present. -- 2%. there is less risk about a high debt load after opec's actions, meaning that distressed players are no longer distressed. david will be talking about this later in the program. david: coming up, after more than two years of bankruptcies and credit downgrades, is the u.s. shale industry poised to bounce back from the brink? putin and the president-elect. reset of turn to try a the russo u.s. relationship? this is bloomberg. ♪
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alix: this week, we are focusing on energy. an iranian oil minister says he thinks the price will be firmly above $50 after the opec cut. what will this mean for sale players? it is one of the top shale drillers in the u.s. -- >> 55 dollar, $65 environment, there will be a lot of activity in the u.s. and you will see you supply start to grow again. -- u.s. supply start to grow
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again. david: still with us is dan yergin. you expect the show response to be that ferocious? dan: we have liftoff in the permian and the boken. between 50 dollars and $55 a barrel, we would think by the end of the year we would add 500,000 barrels a day. has acclimated itself to the fact that the u.s. is shale -- a different perspective from 2014. 300,000 tonumber 500,000. alix: money was already being put to work in the permian. what about the bromfield
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projects? what about deepwater? do they change the game now? dan: those will be much more cautious. companies have prioritized those projects. that 2014,e surprise there was this view that this would be the end of shale and we saw the u.s. was very resilient. it's had an impact on the big deepwater, the big complex projects, megaprojects. this will be much lower to come back. david: it costs money to increase production. it has been rough for shale producers. they've been helped by low interest rate costs. those costs seem to be going up. dan: that is a good point. it was almost free money that facilitated that traumatic -- dramatic growth in shale. what kind of increase will we see in interest rates?
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that is a factor. with some increases in interest rates, we will see an increase in production. these companies have become so much more efficient. the other thing to watch is what happens to service costs. those companies will say we cannot take it. we will see some upward movement and cost as well. -- great efficiencies there alix: if we do see shale production coming online, is new production or will that make up the decline rates we've seen in shale? dan: people will be drilling and bringing production on. in the shale business, you have to keep investing to maintain production. i think the two will come together in that. alix: what does this mean for prices?
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what happens in the back half of 2017? dan: that is a year away. the point you all have made about people will start to hedge against the were prices and you will get more activity come i think the producers, the exporters want to see prices going into the 60's a year from now. this will be affected by not only production but by the world economy. alix: how much more upside the you see? -- do you see? dan: the deal does not start until january. people have every incentive to produce as much as they can right now. then it will be the judgment that you were talking about in the first part of the show about compliance. it will permeate out.
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i'm inclined to think the deal will work. not perfectly, by any means. after a few months, you will see people going their own way. this is trying to get through a winter period where you would be building inventory. if they can get into the second quarter, third quarter where you start to see a market in tighter balance -- alix: great perspective, then you can. -- great perspective, dan yergin. year bond market running out of steam. what a no vote would mean for investors and europe's political future. this is bloomberg. ♪
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david: the 30 year old bond market is going out with a bang. for more, we are joined by oliver renick. good for stocks, not so good for bonds. what is causing this? it's tending say it's all about donald trump. but the started before donald trump was elected. taken: the election has the spotlight in terms of the lens through which we view the bond rout.
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this started happening around the midpoint of the year. if you look back to around july or so, that is when you can see the bond replacement trade in the stock market turning over. trump, we have to think about what is going on than. me and staples to dividends getting to very high valuations, in the 20's in some cases. no, they are in the bottom tier of the stock market. valuations were a big part of it. a lot of people put in money and then trump was the icing on the cake where you are talking inflationary policy. david: at what point do you talk about the reverse here? at some point, if yields go up, s back around. when you have the s&p earnings yields now yielding
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less, it causes a shift. all of her: that big chunk of green is what we've been used to for the last six months or so. -- oliver: that big chunk of green is what we've been used to for the last six months or so. we have talked about this before. the fact that the market has still floated upwards and you've shift shift to different parts of the market where the value is determined to be -- people look at financials and tech companies and said i can get some of these pretty cheap. it has not broken the back of the bull market yet. people are starting to question whether or not it will. alix: this could be the first step towards market euphoria. that could signal the end of the bull market.
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oliver: if you look at euphoria, it goes across a wide spectrum of companies and stocks. wheret think the market you are split right down the middle with the type of dispersion we had where since the election we've had some stock going up a lot and some stock going down a lot -- that seems hard to paint as euphoria. if it goes more and more into stocks, it will bring up some of those sectors that have been lagging. euphoria is scary if it happens. david: this is a global phenomenon. you are seeing this across the board. oliver: look at his victim look at the day before when you had yields popping. it is all across the board. -- look at yesterday, look at the day before when you had yields popping. it is all across the board.
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the s&p is actually fairly cheap compared to the expense of peers around the world. portugal areand the only ones that have yields in slightly positive territory. up, as latimer putin makes his annual address, we will take a look at what a new u.s. president, rebounding oil prices and political division in europe could mean for russia. makes hisr putin annual address. ♪
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alix: this is "bloomberg daybreak." lower over in europe, the ftse picking up a bit of steam. relatively flat in the u.s. yes, we got better global pmi
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out of the eurozone as well as china, but you are still seeing weakness and oil keeps surging. brent up by $.70. 13% in the last two days. the story continues to be the massive selloff in the bond market. the dollar takes a positive mud down slightly from the nine-month high against the yen. david: houston, we have liftoff. after weeks of tensed negotiation's come opec agrees to its first oil production cut in eight years. the three largest oil producers put aside differences and non-opec russia agreed to unprecedented cuts to its own output. global bond meltdown. the 30-year-old bond bull market looks like it is ending with a bang. as global bonds suffered their worst slump ever last month.
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$1.7 trillion were lost. debt --rs look to dump tha bracing for swings. euro volatility is the highest since brexit ahead of austria's presidential election and the european central bank's policy positions coming up next week. this is euro-dollar volatility right now at the highest level we have seen since brexit. huge jump we have seen in the past week alone with so much more uncertainty coming down the pipe. there is a no vote now priced into the italian referendum over the weekend. what happens if there is a yes vote? david: might see a big market swing. you don't have the look too far to find the cause of all that volatility in europe. in the next week, we had the referendum in italy, the
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elections in austria -- joining us now is nicholas burns. he served as u.s. a master to greece and u.s. investor to nato and under secretary of state. welcome to the set. great to have you here. us into what exactly do is determining this volatility. this uncertainty in europe. nick: europe is at its weakest point in 25 years. 25 years ago, the soviet union crashed and europe changed. challenging parties the established order. this sunday, italy this sunday, french presidential elections in the spring and german elections in september. we will know if europe will be stable or not politically and that is having an impact on the euro. italy in some ways is different from austria or france
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or even germany -- that is a government structure issue. he is trying to reduce the power of the senate. that is what the referendum is all about. they think a no vote is probably what's going to happen. italy come a --lessness is declining rings are slowly improving. why all the anxiety now? lananh: you have a lot of uncertainty. britain will leave. problems. grexit putin assaulting the borders in eastern europe. more than one million refugees. you have these crises that have combined to make europe the weakest and most unstable politically and economically it has been in more than a quarter of a century. renzi has staked his
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political fortune on this vote. if it goes against him and he steps down, does that open up the door to a populist movement? nick: it could. the movement is very powerful. renzi is beginning to pull back a little bit. it looks like it is going to be a no vote. alix: it also has to do with the elect oral law. oral law. ral law. nick: that is what he is betting on. he will have an ability to win this election. i don't think it's going to happen. he will probably stay in power. the president-elect still has not picked his secretary of state. as you look at his possible selection and possible policies,
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how could they affect the uncertainty we are seeing politically in europe? jon: there's a lot of nervousness right now in markets and in governments overseas about what is this team going to look like and will the secretary be someone of moderation who will balance the --xperience of donald trump no prior government experience. will this person have a depth of character and expense that will reassure governments? mitt romney would. bob corker would. he has some good choices here. david: i want to turn now to mr. putin. spoke,en talking -- he gave his annual state of the union address in moscow. he talked about the possible new relationship with the united states. here is part of what he had to
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say. russia and the u.s., we are interested in resolving the problems,ernational insuring global and national independence and security. attempts to break strategic parity are extremely dangerous and could lead to global catastrophe. that is latin america and giving his annual address. putin givingadimir his annual address. got president-elect trump -- what does it look like from his point of view right now? nick: he is much less embattled
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and much less isolated now than he was a year ago. donald trump has to be careful here. putin wants a deal in eastern europe, canada and the unite states lift the sanctions. the eu has to decide in the next 10 days whether to continue them. these were the sanctions that penalized put in for going into ukraine. seeing a lot of voices -- coalescing to say we need to return to business as usual. we want to invest in the energy sector. that is dangerous. then putin gets away with the theft of crime a and the division of ukraine. david: you raise a critical point about the european sanctions. given all that's going on with europe right now, aren't they going to be inclined to say we
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have enough problems, we don't need to continue a fight with mr. putin? isn't that a more easy road for europe right now? nick: it is an easy road, but the wrong road. let bygones be bygones, let's return to normal trade and investment with russia, but there is huge foreign policy and russia is nots -- fighting the islamic state. russia is bombing innocent civilians. ken merkel stand on her own -- can merkel stand on her own? nick: she is the strongest leader in europe.
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whether or not she and her party are returned to power in september is the key event to look at. it is a long way off but we are already seeing indicators of of the establishment in europe. david: the wrong signals can be sent to foreign adversaries or allies. who isn't on the trump team who will be sending those signals at this point? nick: this is time for the trump team to get ready to govern and listen. president obama is still president. it would be a mistake if donald limitedth such experience and knowledge without a secretary of state in place right now tried to begin to lay down the elements of his policy towards russia.
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be very careful here. the one thing put in response to is strength. -- putin responds to his strength. we may be able to get a better deal down the road. he will respond to strength. david: the one thing donald trump likes to telegraph is personal strength. nick: he took 70 years of american foreign-policy and s head by being ivefriendly to an aggressi russian president. joins us to bessant talk about what all the people at bank of america are doing and how the reinvesting their business through technology. that is next. this is bloomberg. ♪
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emma: this is "bloomberg daybreak." next hour,n the blackstone energy partners and ceo david fully joins us to talk opec, oil, and lps and more -- mlp's and more. david: this is bloomberg. like it's doing to the rest of the world, digital technology is
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transforming banks. on the forefront of that transformation are people like cathy bessant. is in new york today to celebrate her number one ranking among institutional investors top tech 50. of bank of america's 200-9000 employees, 100,000 report up to kathy. what are those 100,000 people doing? they are doing everything from designing great technology to processing manual checks to cash are inints and atm machines, not just in the u.s., but around the world. david: give me a rough sense, how much is defensive and how much is offensive? we have some systems as opposed to we are really changing the business. cathy: technology and operations do th both at the same time.
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we should be using regulation to produce great customer service. if we are moving the business forward, that should in turn reduce risk. i see them as totally interrelated. david: let's talk about b2c first. what exactly are your 100,000 people doing with the individual depositors? cathy: three things. they are trying to make us ubiquitous to customers. depositors? cathy:customers in the digital a want everything they can get from us when they want us and where they want us. beber one, try to ubiquitous. never to come we have to be flawless in our execution. they expect perfection today. two, we have to be flawless in our execution. and third, they expect speed.
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they expect incredible speed and we work every day to take latency out of every part of the system. david: you are in a special position to see into the future and try to see into the future -- will be have branch is five years from now -- branches five years from now? cathy: we will have branches. people will still use currency and still process manual checks. andchallenge for banking many industries is to say how do these together? technology into the financial centers so they are as ubiquitous as the mobile device and had we make the mobile device capable of being the branch in your hand? one thing technology has done in various industries is
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break down some of the walls. easier for people to move into your business and makes it easier for you to move into other people's businesses. what is your competitive set? how is that changing now? you've got apple pay, lending club come all these other competitors. competition and the threat of disruption is nothing but good for clients and customers. it produces better capabilities at lower prices and causes us to be better. we sort of think about it three ways. our competitors are not digital companies. them, either buy from which we do extensively and many cases, we help them grow, or we can partner with them. apple pay is a great example. or in places where we feel like it's absolutely core to our competitive advantage, we will compete like heck. david: you have a lot of data.
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big data is a favorite thing for people to talk about. what are you doing with that big data? what can you do with that big data? cathy: we can do a lot. the future of the firm depends on us doing more. today, we do simple things like amazon, try to anticipate what we might need next. try to ensure the operating we have is right in front of you when you wanted. -- the offering we have. the large corporations, we can amass data and research in a way that gives our corporate clients a competitive advantage. we are trying to be better at that. the uses of the future will go way beyond that. david: does this expand the top line or save costs? cathy: it should do both. it should produce revenue opportunities which are very important in a business like ours. that thin margin and heavy capital we all carry has to be patient.
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and the side of things cost take-out opportunity that comes from technology and productivity is the way i think about it. the cost take-out capability helps us bring tough to get revenue to the bottom line to create shareholder proposition that actually works. david: give us an example or two where you could be creating new business. where does the money come from? cathy: in our wealth management space, we worked very hard on of our offerings so a financial advisor can communicate with a client not just at a desk but anywhere that client wants to be communicated with. at the moment a client is making , we have financial advisors with deep information and the ability to give excellent advice face-to-face or electronically with customers at the moment of decision and that creates revenue. david: we cannot talk about
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technology and banks without talking about cyber security. brian moynihan has been on this program talking about that. give us a sense of the state of play right now -- iran perhaps attacked saudi arabia's governmental systems. what do you do to defend against those attacks? cathy: the attacks across all industry are increasing at exponential rates. it is not as simple as a defensive posture. we have to take an aggressive offensive posture and forward-looking posture as well. it is a very strange space. you are only judged up to the second that you are in. the next 10 seconds, something could happen. constrain ourg to company by resources or by great talent. this is a place where resources and talent really matter. we work to have a world-class
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team. they care a lot about defending the firm and we ensure that every element of how we design our business reduces cyber risk rather than increases it. the counterintuitive thing is electronic banking is much easier to defend than the old manual way of doing business. david: that is cathy bessant, bank of america chief operations at technology officer. alix: we will show you three related to rising political risk, especially in italy. big moves happening in the market when it comes to ponds. a huge move in 10 year guilt. 10 year yields backing up five basis points in the attack. for the u.s., the selloff continues. -- five basis points in u.k.
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the pound up 1% against the dollar. speculation the u.k. can reach a -- ar single market deal major move in the u.k. markets. this is bloomberg. ♪
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alix: with the u.s. presidential election out of the way and opec out of the way, the focus turns to italy with a referendum on sunday with the markets pricing and the likelihood of a no vote. this is the euro volatility. at the highest level since brexit. the huge spike up as we head into the referendum. a yes vote, you could see a 1% move higher in the euro because there is so much market pessimism priced
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into into the currency market. a different story when it comes to yields. the spread had surged 187 basis points. it has since come down to 171. there was strong demand is survey from italian sovereign options. not a lot of risk necessarily priced into the italian german spread. potentially some risk headed into the market as well. -- have italian yields italian notes are significantly cheaper. there could be some buying happening if you get a yes vote. equity traders not taking any risk care. they are hedging big-time. most in moreng the than two years to hedge against swings in italian stocks versus european stocks. if there is a no vote, will you get investors being able to upload those loans -- offload those loans?
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if you have so much risk priced into the market, a no vote factored into the market, what happens if there is a yes vote? david: blame it on donald trump. a new donald trump rally in italy. foley. talk with david he will join us to talk oil, opec and much more. this is bloomberg. ♪
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david: welcome to bloomberg daybreak on this thursday,
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december 1. i am david westin alongside alix steel. live from bloomberg headquarters in new york city, jonathan ferro is off today. alix steel will start is with the markets. alix: the story overseas has to do with the you. over 1%.100 is off by the big story is the pound. you see the surge in the pound versus the dollar, now up over 1%. theyrexit secretary saying would consider a contribution to the eu in order to get access to the single market, having a profound effect on the pound, as tsll as the bloomber -- gil market. david: here is what you need to know at this hour -- houston, we have liftoff. after weeks of intense negotiations, opec agrees to the first cuts in eight years. the oil producers put aside
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their differences, and non-opec russia agree to unprecedented cuts to its own outlook. bracing for swings -- european volatility is the highest since the italyad of decision on sunday. bull market isd looking like it is ending with a a bang.ith investors are looking to dump debt, after donald come -- election,mp won the saying he would cut taxes alix:. you can see the decline. we have not seen that in decades, although index of 1990. a huge change. david: we have paul richards, president of melding -- medley
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advisors. there is a tendency to say there is a global bond rally because of donald trump, but this started before donald trump was elected. paul: absolutely. if you go back a month ago, the market was devoid of themes, and the one thing we were getting worried about was inflation, the fed getting behind the curve, and i had global -- and that had global applications. then trump came in with proposed fiscal stimulus. the way i look at this, this is a real global move. now you get the news out of the u.k. today. the wayld not stand in of momentum when it feels like a steam train like this, and i think it is very real. alix: nominal yields have been rising, but real yields not rising as fast. we saw the 10-year real yields rising to 40 basis points, not an enormous move. at what point does risk appetite start to get affected?
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risk appetite was affected a year ago. -- a week ago. now we are going into the ecb, the fed. the market is not quite there yet. i have been focused on opec, they are incredibly focused on italy. you have the ecb next week, the fomc a week later. i think that is when the discussion will come into play and it could affect markets into year end. stocks have stalled looking at what happens to rates. we are very close. you cannot of the dollar, rates, and stocks continuing in a linear pattern, and that is what we have had for the last quattro months. david: is the market being smart, or getting ahead of itself? we have nothing the whites of the eyes of inflation party much anywhere. core inflation is not up that much. which is it? you get one-off
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events where markets have to adjust in price. brexit. we saw is what we see now with markets, including the bond market, is a one-off affect based on anticipation around trump's policies. think it is right. now you think evidence to take it to the next step. this is what the market is missing. financial conditions just got tight. mortgage rates are approaching 4%. the dollar is up 8% this year, 3% in the last month. the fomc will not be lost on that point. i think the market is forgetting it. alix: and they consider market is doing our job for us. the two-year yield is at a six-day high. intraday charts, a big move. it is interesting because the two-year yield did not move as much as the 10-year. now it is playing catch up. is that factoring in? paul: algorithms start to chase momentum and fundamentals lag behind. it is december. markets are very liquid at this time, so things get pushed in
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every thing on the curve starts to get affected. my sense is that give it another two weeks with yellen, she may remind you that two hikes are on the equation next year. legislation of trump will not be passed until early summer, enacted in late-false. we will not -- late fall. we will not see the market making the adjustment. before we take the next step, let's listen to what the fed has to say, that will be a real focus. the jobet's assume numbers, out and they are in line with what we have been saying -- not much better, not much worse. the fed meets and decides we will raise it this time, but signals two raises next week. does the bond market come back at that point? that is a dovish hike. the market is not looking at that. i think she will say we are on plan. be at her to three would
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big move. at that point, the market says hold on. maybe they will not be as hawkish as we think they should be. the market likes to push the fed, but the fed is in control. alix: i love that you bring that up. -- from deutsche bank was talking about this. the orange line is the number of end ofd fed before the 2017. the blue line is 10-year yields. two-yearw line is yields. the 10-year yield should not be moving this much if we are pricing and more rate hikes. as a 10-year yield fall to meet the rate hikes that are implied? paul: a lot will depend -- we talked about a global market --what does draghi do next week? alix: nobody is talking about draghi. paul: any to talk about drug. you look at the u.s. bond yield at 210 points, we did not see that move until -- since 1989. the japanese are sitting back and loving this. they finally got the break they needed.
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i think we need to be very careful and say what does draghi do? in this my point is there is too much baked into that move right now. david: to answer your question, what does draghi do? has ii think drug use will push tapering for another three markets, but no longer -- will pushaghi tapering for another three markets, but no longer. then he will say i will keep it lower for longer, and that will be a delicate balance because the market has the thought of tapering. the u.s. a few years ago. when you are looking at the euro, the pmi's in europe, and the optimism around the u.k., europe is starting to look better, and he knows it. alix: great stuff. instant perspective. david: it always is when paul comes. thank you so much, paul richards. now what is making headlines outside of the business world. president-elect donald
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trump heads out on what is being called his thank you tour. the first up, the carrier factor -- factor in. he had made saving those jobs a part of his presidential campaign. later, he will hold a rattle in cincinnati. the death toll has lifted to seven from the wildfires that devastated a resort town in eastern tennessee. it is estimated the fires destroyed more than 300 homes and other buildings in the city of gatlinburg. or than 14,000 people were evacuated. heavy rain started -- helps to put out the fires. hackers havended launched several attacks on saudi arabia in the last two weeks, wreaking havoc on computers of the saudi agency in charge of the country's airport. digital evidence suggests the attacks came from iran. global news 24 hours a day powered by more than 2600 journalists and analysts in more
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than 120 countries. alix: thank you so much. u.s. equity futures go nowhere, but individual movers -- it is bought -- it is being an 18% premium to last night's close. yetrally premarket is not near the offer price of $83. that makes filter for pollutants. credit suisse is freezing dozens of accounts to see of clients are hiding assets from the irs. the stock is up 3% in europe. this comes on the heels of the doj stepping of investigation on one credit suisse client who did hide some assets. wrapping it up with earnings in retail -- guess and express getting hit hard in the premarket. guess slashing his full-year estimates and express comp falling 8%.
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you have the haves and have-nots of the retail season. behindcoming up, we go the scenes for a rare look at what happened at opec's big meetings with an exclusive interview with venezuela's oil minister from vienna. the ruble advance the most amongst emerging-market currencies wednesday, but why did it not go up as much as oil did? the connection between opec and em currencies is ahead. this is bloomberg. ♪
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big move or the currency market today -- the pound up 1% against the dollar. here is the why. the u.k. says it could contribute to the eu to keep access to a trade in a single market. for more and what that means, we are by michael mckee. is this paid to play -- we pay,
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we get to play? michael: the key question is could. it is not clear if the u.k. would even let them. it came up in a policy gary when the brexit secretary was asked what would you do to maintain single access -- will you pay more money to them, and he said the goal is to keep market access. if that were part of the deal, it is something we would consider. waiver a real, sort of, on whether you would do it or not, but it was enough to spark a rally in the pound today because that is the key for british businesses. it is not want to negotiate a new trade deal, leave the european union, and not have one in place when tariffs go up. alix: doesn't it make -- david: doesn't it make good sense -- it would cost britain a lot of money, so if they could write them a check for less what they would lose, isn't it a good deal? michael: it depends on how it is structured. they pay in money, get some back in conservation of everything
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that kind of vision of 8.5 billion pounds, about $10 billion a year. if they can structure that -- they will i receive not get anything back -- if they can structure that that the benefit to british companies is enough that it is worthwhile, it might be something to do. we do not know that the europeans will go along with it. the europeans have been very firm insane britain has to come in from the outside, and this is not the only question. it is not just a question a free market access. it is the free movement of people. if the british does not allow that, -- do not allow that, they might not on the flip side. alix: the dutch finance -- finance ministers said the british remaining tied to the single market will cover at a cost, but it is important. does the eu have the leverage we think it does? michael: the eu has the leverage , but how much do they want to use it? whatever termst
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they want because the eu trade is much more important to britain. do they want to remain --maintain good relationships? can something be crafted? the real issue is how they finessed the movement of people. that has been the line in the sand for europeans all along. they have to find a way to let people move to the united kingdom and work, or there may not be any kind of deal. david: it is not my deal to make, but it makes sense in the sense that we did not let them off scott free we charge them money. if other countries want to leave, we are to charge the money, and if britain leads, they still have the big price in brussels. they have a lot of people to pay. michael: indeed. there will probably be the grounds for some sort of deal. whether this is the way they do it or not is not clear. it suggests maybe the court decision -- they are back in court over the next few days,
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the supreme court of the united kingdom, on the case of whether or not parliament gets a say in this -- but the decision by the lower court on whether parliament should have a say might because the people to back off a little bit is set to talk about copper must because the hard brexit theresa may was talking about does not seem to be part of this. david: that is michael mckee, bluebird's international that bloomberg's international --bloomberg's international policy analyst. with now to the end anne-marie fresh off the opec agreement. anne-marie: i am joined by fellow he'll dump enough. -- eulogio del pino. the q4 joining us. where do we see the price going from here? eulogio: it is very close to related to the available
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inventories. if you correlate the available inventories of oil the last five years with respect to the price, as long as inventories increase -- now we have on the order of 300 million barrels. you can see how the price falls on the order of 40 or $50 for the brent. every time in the last 10 years when it happens, when it leaves equilibrium, it can be on the order of $60 to $70. we estimate that we will take over the market 1.2 million opec,s and 300,000 from and i will mean on the order of 1.8 million to -- barrels a day we will take out of the market. then last -- in the next nine months, or something like that, we will establish inventories,
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and probably the price will be in the order of $60 $70. anne-marie: you were crucial in getting russia on board. how did you get the russians on board? that was a long time conversation, long-time discussion. we started early this year. if you remember, last year, when we have the same opec meeting in december, like this here, and we did not take any decision. i mentioned at the time that was falling price down after it, and eventually, almostary, it fell to $29. at that time, we started conversations with the russian minister. it was the first time when we started to talk about freezing the production at that time. that was the first time we started talking about freezing
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the production. then i moved to saudi arabia, -- the president of opec and the minister of qatar decided to go to go and propose to freeze the production from oil producers and to have a meeting afterwards. we were able to meet -- 18 countries, and at the time we had the sanctions on iran just lifted, and there was a sanction with iran that could not be handled at the time because it was not fair for iran to freeze the production when they were lifting sanctions. the minister with i haveia, he always said not been able to do something since early this year, and i have been waiting for opec to
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get to a limit. we started to talk about the agreement in general. we were able to do that after so many conversations. then we were able to permit a principal agreement that we finalized -- implement a principal agreement that we finalized yesterday. the russians, basically, we're waiting for our decision, and the decision comes from freezing the production to cut the production. anne-marie: where was the change, from a freeze to a cut towas it when putin spoke rouhani, or before that? eulogio: it was a lot of discussion. freezing the production will take two two years. two years more with his level of prices below the equilibrium. combined that the only
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solution was to cut the production. we are talking about seasonal change in not only the middle east, but in russia, too. so, when we are talking about cutting production, we are establishing a level we had in the last season. if the russians are taking 300,000, and you are trying to reach 600,000, who will pick up the remainder? eulogio: the remainders are countries like you baskets than oman.e pakistan, i have been in talks with the minister of all men from the
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beginning. inwas one of the most active saying we had to cut the production, and he was right. we have been talking and similar countries -- south american -- he is, columbia heartened by the low price and he has much in he is able to evaluate a proposal. anne-marie: we have seen and ramp up. -- dan cut up rational ramp up. do you think they will cut? started fory have more than 10 years invested -- investing in that field. we have been talking to the opec ministers and we want to treat that case as a special case in the same circumstance we were talking about in doha. so, we cannot, you know, compare
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the production. so, this is going to be treated separately. anne-marie: i want to ask about another non-opec producer, u.s. shell -- if the price goes to $70, will that not incentivize them? eulogio: we have monitor that situation. regarding the price of the shell oil, we have to talk about many different scenarios. it is not the same. the green fields of the shale to ongoingave prices field with a large decline in the reservoirs -- also, they s, the unconnected wells. have more than 3000 unconnected wells with a relatively low fields,pared to green
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fracking. same.not the it is interesting to see they have -- you cannot talk about one price of the oil that can start the ramp of production in the united states. -- need to talk about between a minimum we estimate of competitive, to a maximum of $80. anne-marie: thank you so much. was eulogio del pino. ♪
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plus, when you call now, you'll get this magnifier with led light absolutely free! when you call the experts at one reverse mortgage today, you'll learn the benefits of a government-insured reverse mortgage. it will eliminate your monthly mortgage payments and give you tax-free cash from the equity in your home and here's the best part... you still own your home. take control of your retirement today! alix: this is bloomberg daybreak. i am alix steel. a quick check in on the markets one hour before the opening new york. equity futures are relatively high -- flat. the big story in the u.k., the
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ftse off by 1%. the story there is the stronger pound. you can see the pound up by 1% against the dollar. you had the brexit secretary coming out saying the u.k. could pay to play to get single market access to the eu. you have the selloff in bonds continuing as yields back up. we do have some jobless claims coming out in the u.s. -- initial jobless claims rising to 260 8000 last week, slightly higher than estimated, and about 17,000 more than the week before. nonetheless, steady as she goes. from the hours away all-important jobs number here in the u.s.. not much movement in bond yields. the two-year yield still backing up by about 2, 3 basis points. david: we get the jobs number 24 hours from right now. right on the nose. right now we will talk about emerging markets. emerging market currencies had their second largest monthly
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decline of the year, facing headlines with a president-elect expected to boost inflation. what happens next? off dennis is the ubs head global emerging-market strategy. he joins us to explain it all. we are talking about currencies. they are facing headwinds because of the donald trump investment, -- election, it appears. jeff: that is true. we have lost on the equity markets, but we are somewhat skeptical about how far the so-called reflation trade will go over the long-term. it will be quite hard to get a significant stimulus going to boost economic growth significantly, therefore we wonder whether a lot of the rotation you have seen out of em , we wonder if a lot of it is happening now. you have the opec news that has helped currencies.
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to what extent is that a timing issue? it may take time to get through congress, but if that happens, it will reflect in values at some point. it is a timing -- geoff: it is a timing issue. we expect the u.s. economy to be stronger next year, but it does not signal the long-term move the markets are hoping for, 4% growth. if that were to happen, it puts bond yields on more upward pressure, possibly the dollar on more upward pressure, and that would be challenging for the market. alix: oil is front and center for the reflation trade. how much more could it go -- ubs has a $60 call for oil. take a look at the bloomberg. the white line is the dollar/ ruble. we have seen the ruble come back. i have inverted it so you can see the rally. we have not seen the ruble rally as much with oil as we would have thought. does that mean we have emerging markets looking to price in and
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opec deal, or are they moving on something totally different? geoff: they are two separate questions. one of the reasons we like russian equities is partly because of the oil price call. what the oil price call will do in printable is feedthrough a better economy through an improved budget situation, provide more fiscal stability. i guess the markets are saying let's see if that comes through, and let's see if they opec deal holds. we like russia a lot. ultimately, the ruble goes 360, $60,d 85, -- through toward 85. david: how much of this is geopolitics, how much is fundamentals? is there competition between the head winds the rising dollar, for example, and on the other hand, improving fundamentals? before the election we heard about improving fundamentals and some of the em markets. geoff: there are all sorts of things going on and we have had
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a big rotation into emerging markets and we feel it is not particularly because the growth story has been good -- not any better than we thought it would be. it is more because you have seen the dollar go down in the big bond market rally until, rbc, a few weeks ago. if the bond market selloff goes -- obviously, a few weeks ago. if the bond market selloff goes -- we are waiting for a sign the markets grow more rapidly than expected. it does not stop us been somewhat positive with respect to equities. alix: can you distinguish between the good and the bad? we had a potential treasury secretary mentioning mexico more times than china. that makes you think about where to invest. we think the mexican market is overpriced and we are not recommending it to investors because, of course, they are right on the frontline of what could happen. one supposes that trump pre-election rhetoric might be more dramatic than what happens. watching theal,
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chinese economy --does it grow stronger the next occasions because of the credit impulse? what is happening to india? there is not a big global pick up yet until -- that would underpin sharper em growth. david: how deeply do you discount a real trade war? geoff: we do not discount that at all. we just do not think that will happen. we would be very surprised. if there were a full-scale trade work, tariffs on mexican auto exports in the u.s., you would end up with a full-fledged trade war and a global recession. that is in nobody's interest. we simply do not assume that will happen. not to do the markets. if that were to happen, that is a problem. alix: you see more cautious than i would have thought, but we have pmi's coming out today that were pretty good, particularly in china. how do you square that? geoff: we call ourselves cautiously optimistic. we need to see the follow throw
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on -- followthrough on the growth. emerging market growth over the last several years has been 4%, and we will get an uptick primarily because russia has emerged from recession. china will grow. there is nothing stunning going on, but at the end of the day there is a modest pickup, and that makes us modestly bullish for the asset class in 2017. , ubs head ofennis global emerging-market strategy. continuing our focus on energy -- the bread 13% rally has led ata huge surge in oil assets oil services up 6%. the energy index up 4%. companieshe s&p enp up about 11%. david foley is in charge of one of the biggest energy dedicated private equity funds in the u.s.. he has $6 billion he would still like to put to work.
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he joins us now. total pleasure to have you. david f.: great to be here. alix: opec, what did they do to your ability to put money to work over the last 24 hours? david f.: i think the fact the market went up after this agreement that was telegraphed two months ago -- usually that was telegraphed, you would not have a significant reaction. i think it shows surprise at the resolve the saudis had in putting this together because it was like herding cats, and the degree of specificity, the actual cuts allocated by country, and the monitoring system, with a five-member monitor. it was not just the spot price going up yesterday 9%, up again today. it is a couple of bucks several years out. that impacts -- indicates longer-term impacts. when you look more closely, it is a 14-player game of prisoners dilemma. they have to adhere to it.
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you are things that would give you concern. if you are a skeptic. opec itself is saying it is going to cut 1.2 million barrels a day, but there are another 600,000 that is supposed to be non-opec. most of that is russia. russia has not indicated what benchmark the cuts will be measured against and the oil history is not entirely state-owned. it is not clear if opec and non-opec will be able to follow through on these cuts. 2008, when they had production quotas, the average price -- bell production was -- if history with any guide, perhaps that will not be any -- adhered to. investor, we feel great we were able to invest 2.5 billion this year, 80% in oil. we bought two different businesses in the permian and we made a sizable investment in the u.k. north sea, which i think
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was viewed as contrarian at the time. it will change the nature of how we are investing going forward, and that is the reason -- one of the reasons why with an energy we are a broad investor. we're not just oil in the u.s.. we are doing power. we are doing transmission. we are doing midstream tight investments to transport oil and oil.- transport cycles are different in different countries. that gives us opportunities to always both be investing and selling. we sold $1.5 billion of mostly contracted asset -- power assets that we thought one year ago interest rates are low. let's monetize those, and we did. david w.: let's go back to opec. about the non-opec and the russia treaty. that is a real issue. i am focused on -- and around. they are historical rivals.
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how dodgy is the agreement given the tension between those two capitals? david f.: the cut is disproportionate to saudi. half a million coming from saudi, and typically good, most of the rest is coming from neighbor states -- kuwait, qatar. the iranians are not cutting anything at all, it ended is off of relatively high october production. is off of relatively high october production. that seem to be necessary to get them to but is a pit in the deal. the fact they do not have to cut above the makes it easier for them to comply. when you think about the benefit to these guys of jawboning the market, or corroborating, look at how elastic the commodity is. the opec guys took a million barrels off the market. they will lose -- the old price was $46. they will lose $55 million a day, but the game, over $10 on
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the $32.5 million if they produce it, much higher. the net is much higher. that encourages corporation. you will definitely have cheating. it is bound to happen. it is hard enough in a duopoly to have the members participate. you have 14 folks who all on the market -- margin will have an incentive. david w.: on the bills you're producing within the limits -- every value produced outside the limits is also worth $55. it is gravy. alix: great stuff. we will much more with you, david foley. if we do get to $55, $60 a barrel in oil, what investments might david foley be buying, what might he be selling? we will break that down. this is bloomberg. ♪
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emma: this is bloomberg daybreak. i am emma chandra in the hewlett-packard enterprise greenroom. coming up in the next hour -- russell goldsmith, citibank -- city national bank chairman and ceo. alix: we're back with david foley. you have goldman sachs seeing the potential of $55 oil on the compliance of an opec deal. what does that do to your investment? you are in the north sea where your distressed property was. what now? david f.: in terms of going
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in terms of going forward, we are looking more -- if you think values are going to go up, there might be a reopening of the bid spread. it makes it harder as a buyer to buy oil-producing assets. we are shifting a bit to focus more on transportation processing. volumes are going up. that needs to move through pipes and it needs to be process. with what we went through the presidential election, there was not much those two candidates agreed on, but the one thing the country agreed on was infrastructure spending, and that place to our strength. we do investment to build business. if there is a more conducive regulatory environment to constructing energy infrastructure -- and there is some risk, too, in greenfield developer -- that combination of risk plays to our strength. alix: you are talking about nlp's, master limited partnership. they are a little more distressed, which opens up the opportunity. david f.: the immediate, kind of, relief rally after the opec-induced price increase is some of the more levered, higher
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break-even oil producers saw their price appreciate the most of the ones that were less levered, perhaps less -- appreciate the most. the ones that were less levered, perhaps less. credit ratings -- they mostly may be investment grade, but just barely hanging on. there is a lot of capital needed. the combination of having to pay a current dividend yet finance growth projects that are significant and it might be years before the generate cash flow, created challenges for pipeline company, most of which are held in mastered limited partnership form. we want to part with corporations, either carving out assets, like we did in the north sea with the big austrian oil company. we were able to do a confidential, vast billion-dollar acquisition of their north sea assets, and i think we could do similar things with u.s. mlp's that have
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significant capital needs but need to pay dividends. alix: a few months ago, you are open for business. now it is a different story -- are you looking to sell some investments? david f.: it is always a nice, reassuring thing as an investor to have a near-term, positive mark. i guess for example, a couple of the investment we have made in the permanent -- permian shale early this year and in the gulf of mexico are worth more today. prices in the permian in orticular have gone up two three fold, friendly, since our investments were made. it is a natural tension. our inclination is to build scale businesses for the long term. the returns on capital are very good. the tension is higher irr with an earlier -- earlier sale, versus a multiple -- higher
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multiple on money and more dollars created if you hold it for longer. alix: are you taking the latter approach? david f.: we are generally taking the latter approach because a sale -- it is a little too quick. we think -- and also, if we had bought marginal assets, i think we would be more inclined to flip because people feel good about opec today. something could happen tomorrow and the deal falls apart, or there is rampant cheating. there could be a reverse incentive. it is boom or bust, and in the last couple of years, we have at $60, $30, and backup. -- back up. we do not feel the pressure to have to sell. we did start to put on hedges for 2017. we did sell some oil -- not our oil fields, but future production for the next couple of years because we view that as
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very prudent to lock in cash flow to maintain our drilling budget, pay our expense, and not the distrust of the opec deal falls apart. alix: you have assets in the permian, you mentioned. valuations are extremely high. are we in a bubble? david f.: bubbles are easier to determine in hindsight, and i think since the land price -- lease acreage price is a relatively small component of the overall cost of developing, drilling, producing oil, you could have that go on for a little bit longer before it corrects. so, i would say -- also, it is not all created equal. it is hard to love it together. it is like real estate in new york city. you could be a few blocks away, and it is a big difference. it is the same thing in the permian. alix: what would you not touch right now because of valuations? generallyyou know, we do not like touching things that everybody likes.
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well-managed asset, it is very much in favor, it is a competitive process. we have value by fixing things that are broken, taking risks, and building discrete assets into something that makes sense as a real company, and then we could sell it to the public at a premium. those are the things we naturally gravitate towards. so, i guess, in response to your question, it would be higher-cost oil right now because of the euphoria. if that goes down -- look at where share prices went yesterday in individual companies. the companies that went up 30%, 40%, are probably the ones that could go right back down 30%, 40% tomorrow commit the deal falls apart. both of the kind of companies that which i away from today. that i would shy away from today. alix: david, t y for joining us.
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david foley, blackstone energy partners ceo. here is emma chandra with your bloomberg business flash. emma: credit suisse has frozen dozen of accounts trying to figure out who is hiding money from the irs. last week, the justice department stepped up an investigation into why the swiss bank failed to tally assets held by an american client who has pleaded guilty to conspiring to defraud the irs. euro areant in the has unexpectedly fallen to its lowest level in more than seven years. the jobless rate declined .10% in october. european bank officials have encouraged makes to boost assets to encourage job creation. hollywood studios are trying to combat stagnant movie viewing, so they might offer fans high-priced movie rental at home
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as little as two weeks after they debut in the theater. it might cost as much as $50. i am emma chandra. this is bloomberg. david: oil with a rally -- what does it mean to hedge funds? we will find out next. this is bloomberg. ♪
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david: this is bloomberg. i am david weston. time for the battle of the charts with the dani burger taking on alix steel. watch out. : i am looking at hedge fund earnings that have been bearish on energy. on the blueline, i am looking specifically at the spider etf for s&p 500 energy. look at what has happened to this line throughout this year.
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right here, it has fallen to a five-year low since 2011. up here is the two-year average. if the opec deal falls apart, honestly, not too much to worry about with hedge funds sending these shares down. if it does well, and energy continues to rally, hedge funds could add 17 percentage points to get back to the two-year average, which will be a big one for hedge fund public. i am looking at volatility and liquidity in the treasury markets. the purple line is a move index that tracks volatilities on treasuries. the white line is the liquidity index for treasuries as well. the higher it goes, the less liquid the market is. usa in both hit at the same time. less liquidity, more volatility. what does that mean going forward? this is really pivotal when it comes to the bond selloff, and when you have event risk in the market. david: when you have less liquidity, you almost always have more volatility, don't you?
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it is always bumping around. that is a really good chart, that i like this one better. dani wins pit i told you she was tough. david: live with us in the next hour, we'll be talking to -- secretary-general of opec. we'll also have a regional banker on to talk about what is going on in the trunk administration with regional banks -- trump administration with regional banks. this is bloomberg. ♪
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♪ alix: welcome to bloomberg
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daybreak. jonathan is off today. it is where we stand in new york. s&p futures grinding slightly higher, up by 1/10 of 1%. the ftse down by 1%. the reason is the stronger pound, rally as much as 1% against the dollar. euy could pay to play to the to retain a single market access, that key in the currency market. the bond selloff continues all the less severe than it was this morning. the u.k. tenured yield backup a three basis points. up 2.5%, a 14% rally in today's. days. david: accrued in anza. near $50 after weeks of negotiations in a historic deal. opec's three largest countries put aside differences for the first time in eight years.
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bracing for swings. euro volatility is the highest since brexit ahead of italy's referendum and austria's election on sunday and the european central bank's policy decisions netsuite. global bond meltdown. the 30-year-old bond market looks like it is ending with a bang, not a whimper. global bonds saw the worst slip ever last month. $1.7 trillion were lost. investors looked to don't that after donald trump won the election, promising to cut taxes and invest in infrastructure. alix: talk about the rally in oil. wti over $50, a 2% rally when it comes to brent. it has an impact on all the shale players in the u.s. leverage ande most beaten up so far are seeing the biggest rally. up another 8%. bp energy up 6.7%. nicholas upgrading some of the biggest names, boosting oil
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price targets $55 versus $50. it helps the s&p and futures have grinded slightly higher. kroger and dollar general both getting hit hard. kroger missing third-quarter estimates. likely the low end of its previous target. best it is -- it is hurt by foodstamp issuance. david: baby so much. we will turn to politics now, the next presidential administration. donald trump and mike pence traveling to indiana to discuss a broker-deal to retain jobs at a carrier plant. kicking up the president-elect's promises to keep jobs at major u.s. corporations in the united states. we are joined by senior executive at her for global martyics and government,
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shanker. marty: i have to figure out my title too. david: this is a big trip for the president-elect and mike pence. it was like he is delivering. it is more symbolic than impactful but it is true, he is saving 1000 jobs. for those thousands who are staying it is quite welcome. david: do we have any sense of what carrier might've gotten out of this deal? marty: we are trying to figure it out. it may be taxpayers are not saving much from this deal, but clearly the 1000 workers keeping their jobs and continue to pay taxes and be productive members of society, it has got to be a good thing. david: the president-elect will not be a trump tower much today. but come back to this selection of the cabinet. looking at what we know so far there are big of claimants left. -- big appointment slept.
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these event pretty mainstream appointments. these have not been the so-called all right for the most part. marty: that is absolutely true. that is in contrast to the national security deployments. those are hardliners. his advisers like steve bannon who are considered somewhat out there. his cabinet picks up in mainstream. some cases like will the ross, he's being criticized for being a democrat most of his life. it is pretty adjusting. david: the economic team, which is terribly important to people who want to bloomberg, these are people known to wall street. marty: yeah, but like stephen it uchin, is not in the jamie dimon category. he is not purely to show wall street type, but he is familiar with the way wall street works in venture wall street is greeting it with a cheer. david: thank you so much.
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that is senior executive at her for global economics and internationalthat is senior exer for global economics and international government, marty shanker. stay tuned for full coverage of president-elect donald trump's job announcements in indianapolis. let's look at the so-called trump trade. bloomberg fornicator porter lisa -- how much ofte this is larger forces? lisa: a lot of it is trump. there is certainty going forward of who will become the next president. markets are very cheered by the fact that there is at least one point of certainty, the election is behind us. alix: looking towards the fed, i want to encapsulate what we saw over the last four weeks and it comes to bonds. the 30 year bond coming to an end. the monthly change when it comes to bloomberg barclays global
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aggregate. the lowest we have seen back to 1990, the biggest selloff of the 10 year yield. the big question is how long as i continue? >> i think you have a perfect storm of events. you had the election of donald trump which has come up with aggressive infrastructure spending plans. this is inspected to increase the deficit, possibly increase inflation and growth. you also have inflation starting to show signs of life over in europe. do you are seeing oil prices rebounded it. i know you cover extensively. these are things on a global level contribute to a feeling of growth and the fact that central banks around the world are coming to the end of what they can do with central-bank policy. it is a perfect storm. it will put pressure on the ecb to talk about tapering or other central banks taking the cue from the u.s. and possibly add to the selloff. david: we have jobs numbers
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coming up tomorrow, the last before the december fed meeting. issuech of the inflation depends upon whether the fed runs the economy hot? in the past janet yellen has been willing to keep interest rates down, what happens? be quite a bit of political pressure on her to keep that down because of the dollar. you can talk extensively about that. you have the dollar near its highest levels in more than a decade. people speculate this will contribute to a tightening of credit conditions in the u.s. and hamper growth. people want to see that hot growth. they are worried about deflation instead of inflation. people are expecting the fed to get behind the curve and move into the background which is a relief to a lot of traders. they are not parsing anymore, they are looking at data. >> we're seeing the dollar taking a pause. they want to look at the relationship between yield and
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the dollar. you look at the bloomberg. this is the dollar index, the blue line. the two-year real yield has not moved as much as the two-year and the tenured nominal yield. does this signal to you that the rally is overdone? >> is possible is overdone if you look at dollar positioning. they are at the highest since february. after the election everyone has piled into this long dollar trade. there is a stunning rally the dollar has had against the yen. 9% last month. we are seeing a lot of people piling into this trade income december in the fed rate is a lock, they will be selling thereafter. david: the question also is what to the telegraph about 2017? if they have a dovish hike, and some people have been predicting that, what does that do? >> it's an open question right now. a lot of people are trying to figure out what everything means
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in terms of fed policy and the new administration's policy. a little bit of wishful thinking and happy speculation now that the election is over. chopped andot of volatility to come as people try to read the tea leaves. >> one thing people are interested about is the citigroup surprise index. surprisese the upside have been increasing at a pretty steady pace. this indicates economists have a more bearish outlook than the data is proving to be correct. the economy is better than economists are saying. if the continues, economic surprises continue to overwhelm the estimates of economists, it could indicate the fed will be on a faster pace of rate hiking next year. that could be something that factors in as well. >> we had a stronger dollar and the backup in yields. you can make the argument that the market has done our job for us. >> but there is a big debate over whether financial
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conditions are really tightening or not. yields are coming off a very low base. you are seeing flows in the higher bonds this week alone. billions more than $1 in the bond etf. you see a little bit more of the risk in the environment. that will be supported to a certain extent of borrowing conditions. it's a delicate dance. >> it does raise the question of how much is too much? >> still an open question. some analysts are very keen about that divergence straight. fedp has been elected, the has clear room to run and that a virgin straight will come back and the u.s. will hike rates in contrast to many of its peers. david: ecb, next week, what happens if they start tapering? >> it is like the hint. >> a slight suggestion. i still think people are looking, very much of sass for the u.s. side of this trade.
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while the ecb has been important in terms of whether we will change policy or extend or taper, i think everyone is focused on what is going to happen in the u.s., with u.s. policy. -- if there will be more stimulus programs or inflation will come back. >> adhesive much -- thank you so much for breaking it down. news outside of the business world, emma chandra. emma: president-elect donald trump is heading out on his thank you tour. the first stop, indianapolis and the carrier factory that agreed to spare 800 workers those jobs were heading to mexico. trump made saving those jobs part of his campaign. he will hold a campaign-style rally in cincinnati. vladimir putin says they are willing to work on the incoming u.s. president on equal footing.
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he made the remarks in an annual address to the federal assembly in moscow. some of it sounded like a warning for donald trump. he said attempts to disrupt the strategic balance is dangerous and russia will not allow it interest to be infringed upon. migration to the u.k. almost set a record in the year leading up to the brexit vote. the government says coming to britain to live or study for at least a year outnumbered those leaving by 335,000. prime minister theresa may was to reduce migration below 100,000. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. alix: thank you so much. opec's historic deal. it's best since january. mohammed barkindo will join us next from the anna. this is bloomberg. take a look at some of the
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market moves we have been seeing over the past few minutes. the s&p futures up by about 2/10 of 1%. the real action is happening in the bond market as well. the u.s. 10 year yield spiking by four or five basis points, and the vix getting totally hammered at s&p futures are around the highs of the session. it is off by 1% to 2%. unbelievable moves in the last few minutes. we will keep you posted. this is bloomberg. ♪
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♪ alix: oil is the future. frank and wti up over $50 a barrel, the best rally since january. q to illustrate what is happening. the white line is oil volatility and the blue line is a debbie ti aggregate call option.
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did traded at a record high yesterday. volatility also spiked. it has now come down but the momentum and the oil price continues. what is the trade? joining us is joke you sick -- joe kusic. looking at the oil price, with the you do for the next 24 hours? joe: looking at the volatility and then seeing what the next binary component is going to be to really keep this up. right now i am not getting the opec news as far as seeing oil move 50%, and five dollars in the last 48 hours. -- they have cut, but they have record production. most of the nations we are discussing the month before. i am scratching my head on this one. i am looking at the futures in the are telling me the range will be about $3.80 for the next
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14 days. alix: would you be selling this rally are holding on before you sell? joe: i will watch it at $51.45. if it breaks through their, you can see another challenge and see it is challenging $52 but i think that is where it will run out of gas. $47,oint will be $40 and if it breaks there we could see $45 quickly. people could look at these cuts and say it doesn't matter. alix: is the new floor perhaps $50? joe: i don't think so. i think it is right around the $45, $46 level. a lot of volatility, a lot of speculation going into this announcement. the first time in eight years. i don't see the consumption, even though we have positive chinese data last week, it is not -- i don't see the supply and demand factor changing so
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dramatically in the next 24 hours. alix: thank you so much, joe. spectacle on the oil rally. counterintuitive. david: the incoming administration was the rollback bank regulations. after what we have seen for the financial crisis, without be helpful for regional and smaller banks? we will speak with russell goldsmith and get his take. surging after are november auto sales topped estimates. they came in at 5.1%, a big surprise. this is bloomberg. ♪
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♪ alix: 10 minutes from the opening bell in new york. markets on the move. s&p futures around the highs of the session. oil continuing to claw its way higher, up by 3%. 15% over the last two days. the vix sliding hard, now over
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1%. the real movement we have seen in the last 15 minutes has been with the u.s. 10 year yield. yields backing up by five basis points. a big selloff continuing a horrible month for treasuries, the worst months since 2009. david: if you go back before the election, the increase in the yields is extraordinary. alix: and really whipsawed in the last few minutes. david: we're going to turn regional banks. rolling backsays dodd-frank is one of his priorities. we spoke about how the regulations have affected smaller banks. >> i think it's that a lot of damage to the economy. it is really doing is killing venture capital, which is a big producer of growth. david: joining us now is russell
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goldsmith, chairman and ceo of city national bank. good to have you. pick up on what he was saying. he was apparently a candidate for treasury secretary himself in the new administration. how big a problem has regulation been for the regional banks? you had a very large regional bank. russell: we are still with city national operating like a regional bank although we are backed up by the rbc two-minute strength. -- tremendous strength. i would not go as far as he did. i think dodd-frank as many good features and it. i don't think we are in a situation or we should just abolish dodd-frank. when you write a 400 page piece of legislature, you make mistakes. i think the pendulum has swung too far as a reaction to the financial crisis. what i am hoping is we will get some thoughtful for reform. -- reform. we need the pendulum to swing
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back somewhat, not all the way, but it is hurting the ability of banks to lend. david: beyond that, they were looking at the 10 year yield, since donald trump selection has it been good news for banks like yours? russell: there is a lot of euphoria and hope out there. nothing has really happened. the republicans by taking control of the white house and congress, i think you will see a shift. republicans are very strong believers in fighting the deficit and having gridlock when you're out of power. when they are in power, suddenly they don't care about the deficit and they can break into gridlock that the create. i think there is a sense we will get some legislation through. part of what investors want is some sense of certainty. just having the election over and all the negative rhetoric, at city national i wrote a letter to our clients saying this economy is headed and people perceive.
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you see the gdp data come out positive 3.2%. there are a lot of good things happening. jobless claims, you have that on, they are under 300,000 for records number of months. there is a recognition that things are better now than people had in believing. david: going beyond regulation, what about the yield curve? we were told the steeper the curve, the better for banks. you can make more money. --vy cnet in your business? have you seen that in your business? russell: we have tremendous deposits. york. growing in new york. as a private bank in business bank we are not borrowing short-term. we are serving clients putting deposits in their banks but we do a lot of mortgages, which is longer-term financing. as rates go up we are asset sensitive. this will be good for banks.
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the fed does not do this based on profitability. banks do it based on their perception of the economy. the truth is we are at record levels of economy -- accommodative rates. when you look at the economy growing 2% or 3%, rates are too low. now that the election is behind us the fed will be free to take steps in december. david: take us to banking in california, your homepage. there has been some consolidation among the regional banks. even expect that to continue? russell: absolutely. rbc is in canada. canada has six banks. the u.s. has over 6000 banks. it is the way we have grown up in our country. because of things like technology and the heavy cost of regulation we are adding hundreds of people to deal with compliance and regulatory requirements. technology, we invest millions in technology. think it's impossible for a
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small bank to keep up with a bank like city national that has the resources to meet the needs -- requirements -- clients meet the needs of our clients. unless you want to run a really tiny operation. i think long-term that is not a good trend. david: take us into the rbc boardroom. are they interested in expanding further in the united states? russell: rbc, the notes to some people, has the 10th largest bank in new york and also rbc wealth management which i am involved with, the seventh largest broker-dealer. a year on november to that we merged. rbc has a terrific platform with the three businesses. would we add on another bank or something else? stay tuned, we will see. i think everyone in the boardroom feels good about what rbc has in the u.s. they call it their second home
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market and i think we can build from there. david: come back and tell us what happens. russell goldsmith, chairman and ceo of city national bank. alix: energy is the key focus. she said thatthat with mohammed barkindo in vienna. >> we are here at the opec headquarters in vienna. thanks so much for joining bloomberg with the six was of interview. congratulations on this deal. the first cut in eight years, the first joint accords with nonmembers since the turn of the latium. getting -- turn of the millennium. how did you bring everyone together? muhammed: thank you very much for having me. i think i agree with you. it is a landmark decision. we have come a long way. stopped overvoyage
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in algiers and finally docked in vienna yesterday. by all standards is a successful voyage. at a of consultations high political level. very productive, constructive dialogue that went into it. we can say it was largely responsible for this historic moment. --one of the most challenges biggest challenges was getting iraq at the table. muhammed: for obvious practical reasons iraq largely was not part of this applied management arrangement and had not been for quite some time. they accepted in december 2011 to be a part of supply management arrangements.
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but you recall since 2008 when we met, we have not had this type of decision that would barrels withllion our friends in the market. this is the first time a rack -- iraq really stepped into the supply management arrangement within opec. i must give credit to the badiership, prime minister a that i met personally in baghdad and who assured me iraq is the best place for opec, as a founding member of opec was going to continue to be committed to the ideas of opec. despite the huge deficit with iraq now, he assured me they
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would not only join the consensus in vienna but they would work for it. yesterday we saw the fulfillment of that. onwho will be attending december 9 from opec and non-opec? muhammed: a number of member countries will be represented. consultations with the president of the conference. released 18 opec not never countries that are withntly consorting russia. hopefully by the end of today we onl get feedback from him their own side. he has been leading the consultations within the non-opec group.
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>> can you name any of these members that have signed up tonight this 600,000? muhammed: the whole idea of having this joint meeting on 9, is to meeter with them to get concrete numbers from each one of them. and what is significant in this agreement, making it still work, is for the first time in the history of our collaboration with non-opec we are going to have a joint agreement that is jointly binding in which both opec and non-opec would serve in the monetary community to ensure the compliance to this agreement. this is the first time it has happened. our relationship with non-opec is really evolved and developed to a real partnership going
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forward. >> i have opec does not target price. muhammed: neither does opec. >> where do you go after this deal? muhammed: we have seen from yesterday to today, prices have responded by nearly 15%. more than in london. price.t normally target our objective has been since algiers to stimulate jointly with non-opec and accelerated drawdown of the inventories that have continued to weigh down prices. to rebalance the market the variable -- will have to be addressed. this has to be addressed jointly with non-opec. opec controls only 40% of the market. the rest is non-opec. we all agree the relationship
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theeen stocks and prices, inverse relationship is scientifically proven. so for us to restore equilibrium price would have to address the variable of stocks. it is only by with joint supplies we will be able to do that. that equilibrium price is yet to be achieved. until we are able to bring forward this rebalancing process we will not be able to achieve that price. >> but opec wants higher prices? muhammed: we all want higher prices. >> do you have a number? muhammed: it is a hard business to focus price at this stage. you can see the trend. this agreement will come into force on january 1, 2017. we are joined with our not
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affect partners, 1.8 million barrels with trenton the market. that would significantly drawdown the stocks to a manageable level. >> $60, $70? muhammed: from their wicked to the equally -- equilibrium price gradually coming into being. >> thank you so much. arkindo.mohammed b 5 we do have the markets open. equity in the u.s. not doing too much. the dow jones up by 2/10 of 1%. the s&p relatively flat. the real moves are coming in other asset classes. it is look at the dollar, grinding higher off the lows of the session. it is still off 2/10 of 1%. the pound is seeing is best three-day it is grinding higher off the lows of the rally since the beginning of 2016. the dollar trying to make some kind of come back as other asset
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assets ca -- asset classes see a tremendous move. take a look at the intraday chart of the 10 year yield. this is an unbelievable move. the selloff deepening in the last few minutes. you have the 10 year yield of by six basis points. i have not seen a headline that explains why. it's front and center on this historic day. brand seeing a monster move -- brent seeing and monster move, up over 2%. brent -- wti and brent are up. this is unbelievable. jessica recalled this from goldman sachs. this is what you pay attention to. this is 2018price, oil prices. they have slipped into backwardadation.
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this is more expensive than a year out. this is what many wind up saying opec wanted to target. it was inventories and backwardation. rs thats the hedge one of the forward. unbelievable market move for this oil trackers. grounding it out with what this is all me for volatility? vix,at the effects, the -- the intraday. you saw a huge spike down without rallied in a positive territory. david: i don't think you are the only one. there is a lot more to talk about. we will bring it jonathan, chief u.s. market strategist for rbc capital markets. welcome back to the program. why is this happening? jonathan: the first is interest rates. the market is coming around to the view it is policies we're
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seeing on the back of what was already a very tight labor market. up 4.9% unemployment rate. you had juice to that in interest rates spike on that. we have seen that since july, more since the election. the market is telling you are heading towards 3% on a 10 year bond yield. while people assume higher interest rates are problem, the market is telling you this is all good news because the economy after a slow environment is finally kind of getting some arab back in the tires. -- air back in the tires. david: we've been talking about the job numbers tomorrow, the fed decision in december. how much attention the have to pay this bond rout? jonathan: on the jobs members, it will not reflect what is coming. the market is going to ignore it a little bit. the fed will absolutely be more engaged in the market effects.
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the market expects something in december and maybe one or two next year. there is no way they will have to do more if the bond market is moving this much. the yield curve is getting very steep on the fed. the federal getting gauged. the market will look at that as a good thing. why? central markets have this crazy ultralow interest rate environment that isn't really troubling to banks and the overall environment. maybe this growth rally we're seeing bailed out the central banks from this absurd central-bank policy we've been experiencing and it is actually a positive thing. selloff, have the bond a lot of it moving it equities, the dollar higher, oil higher. something does not make sense. what will wind up giving? jonathan: and the near term it's all positive. the risk is the growth you are seeing -- if you look the 10 years bond or the equivalent in
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german or japanese bonds, this is not a global growth issue. it's an american growth issue which means the dollar gets strong on this. if the dollar gets strong, it will take away some of this benefit we are seeing. alix: had you change your investment in the last four weeks? jonathan: here is what we are telling clients. everybody is trying to figure out exactly what this means. will forward relocate a plant? don't over think it. it is a reflection trade. buy the bank, buy small caps. broken business models get bailed out by a better economy. brick-and-mortar retailers are soaring on this. buy companies that have high tax rates. they will get the biggest benefits. a variety of big themes don't get caught in the details.
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david: one thing i question his health care. you think that not is a buy, anthem is a buy. what are the consequences of obamacare coming off? jonathan: if you said to me where you have higher conviction in? it is hard to know. we are looking for the companies that have very high tax rates, that have -- are undervalued. an example is drug description companies, they are low margin, domestic orientation, high tax rate. they don't need to have obamacare turned over to prove the list all tied in the u.s. theme will benefit those. david: you are a busy man these days. jonathan: there is a lot to talk about. david: chief u.s. market strategist. thank's semester being here. coming up, bloomberg hosts
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mexico. erik schatzker has in its was a very with the mexican finance minister at that event. this is bloomberg. ♪
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♪ tomorrow is job state you have a great lineup. we will be joined by mohamed el-erian. ♪
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alix: 13 minutes into the trade on thursday in new york. we have a record closing high for the dow. it would be another closing record it closed now, up 2/10 of 1%. the nasdaq happily participating in this rally, off by two tens of 1%. the movement is in the bond market. the selloff intensifies. let's good abigail doolittle. stories one of the big this week is a huge movement oil. we have oil higher against david 2.5%. the best today move since the end of january, up about 4% over that time period. this is clearly a positive for the energy complex. one sector getting hit on this move and oil is the airline
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sector. oil is the airline sector. we had jetblue really exemplifying this move down, more than 3.5% over the last few days. it's worse five-day move over the last month. this is the inverse relationship between oil and the airline, rising oil translates to higher jet fuel according to george ferguson. that weighs on expensive and eaten to the bottom line for the airlines. there is reason to think the pain could continue. we go to the bloomberg. this is a 16 year chart in white, the airline index in blue. we see this in verse relationship nicely. in 2015, and this year as oil traded lower, the airline index traded higher. as oil trades higher, as something will happen, this could cause the airline sector to underperform in the week and month ahead. david: thank you so much. we've been talking about big moves across asset classes
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taking place today. volatility surging on pace for a two-week closing high. the dow rising above a record high. -- its is jonathan dollar is a bite 2.7% today. this is a market euphoria. is it real? how you take advantage of this and not get overextended? jonathan: i think it is real. you take a look at the discussion on taxes. if you cut back on the corporate tax rate from dirty 5% to 25%, that is something in the ballpark of a 7% increase in the s&p, just that alone. if you will back regulation, that gives you profits. in the financial sector, a move up of 100 basis points in interest rates has an enormous impact on the profitability of banks.
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banks are almost one out of every five dollars in the s&p profit is in the financial sector. a market up about 3% postelection, that's a baby step. i don't know if it's the second inning, but there is room for this to grow. alix: s&p financials have the best month since 2011. at what point is there too much euphoria? when you have protectionist trade policies on the horizon. jonathan: that's a good point. what we are assuming is we take all the things we like that we heard from donald trump, these policies of less regulation, lower taxes and more stimulus, and we ignore those anti-immigration and anti-trade, anti-globalization comments that the market would not like it all. the thing we are focused on is what is the priority of what he says. we will not know what he actually does for another six
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months. we are trying to figure out is this -- the markets really clear that the progrowth trump is the guy we're going to get. alix: the s&p financial index at an eight year high. that statistic blows my mind. jonathan: this group was a massive laggard. and what we are going to -- the stocks of been pummeled with all kinds of fines and issues related to financial crisis that are now in the past. they have been burdened in a way that should not be the case going forward. david: one of the things -- i will try anyway. one thing i learned early is you don't want to wish yourself to success. i feel many people are wishing himself -- themselves to success. if you look at what the new donald trump president can do, he does not need congress for trade. you have over ross -- wilbur
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ross it was making noises saying we are doing too much trade. we have to do smart trade. taking the wind out of the sails of the market? jonathan: it could be. i will tell you with the initial response is. the interest rates we have seen move, the 10 year bond yield up by 100 basis points since july, that immediately hits the market. you don't need to wait for a trade deal. that is -- think about it. if you were thinking about retirement, maybe like myself or alixelf, and you think -- will never think about retirement. more or able to get 40% 50% more income in retirement because that rate went up and maybe i don't need to say this much. maybe i can go and spend a little bit more.
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that is the number one thing hitting behavior mediately. the second thing is what can you do with executive order? you don't need to go to congress are doing else, regulation, and there was a lot the president can choose to implement or not the way he interprets the law and regulation. that is an area where we will see something. if it has to go to congress, like major tax reform, a much tougher road. we will see those changes probably in the 2018. alix: thanks again, jonathan. rbc capital markets. let's good erik schatzker in mexico city at the bloomberg the year ahead summit for he is joined by mexico's finance minister. erik: thank you very much. i here with jose meade. mr. secretary, thank you. meade: thank you.
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erik: donald trump made a number that made real threats the mexican economy. the uncertainty is still there but mexico has always believed that the north american idea makes sense. we are prepared to engage and to talk about what we think together mexico will be doing. it is your job to finance that as the finance secretary to its is a basin areas. secretary meade: all of this lead to levels of uncertainty. what we can try to do is generate certainty here in mexico with the elements we can control. ,e can control public finances our congress approves a budget that takes us back to having a primary surplus and allows us to
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stabilize our debt. we need to try to generate certainty on the basis of having good and solid public finances, which we will continue to have. erik: that makes a lot of sense. controlling the things you can control and not worrying about the things you can't control. how much can you control? it is selling the economic fundamentals in this country without strong before the election. secretary meade: if you look at mexico's debt, 60% of gdp, that is not a bad number. generally relatively sound level of debt. mexico -- is about eight years, which is high. most of it is in pesos. almost all of it is long-term and fixed. our finances are quite sound. erik: let's say mr. trump and
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his administration took a hostile attitude towards mexico and did as he promised, rip up nafta or demand renegotiation and a poster controls at the border, what would happen to economic growth? theetary meade: mexico is largest market. we trade $1 million every seven minutes. we have a better relationship with the u.s. and the whole of europe. there is no single bilateral relationship the u.s. has with any european country that is larger than the relationship that mexico has just with texas. there is a lot happening every single day that does not just happen between the administration. it is going to be an interesting dialogue. if you look at mexico from the
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perspective, we are the largest emerging market investor in the u.s. we are the largest source of trade for importers in the world in terms of tourism. erik: mr. secretary, it sounds to me as though you don't expect that much to change. secretary meade: we think there is going to be an interesting and broad dialogue on many issues. it always happens when there is a change in the administration. as for the economics and public finances, the fundamentals are there. it is hard to disregard this fundamentals. erik: what is available to you to defend the peso and support the economy? secretary meade: to have to go back to fundamentals, we have to do a we are doing now. we have to reduce government spending. we have to have good monetary policy. the markets are well behaved. we are doing a lot of talk some reforms that will strengthen our domestic market.
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there has not been a lot of growth in terms of exports. in mexico today it's a high level of job creation that are not trade related. 1.2 jobs every minute. erik: what about market tools? are you willing to intervene more quickly? secretary meade: we have asked of -- access to the flexible credit line. we are ready and prepared. we have the achievements and can deploy them as we see. at this stage we have to be careful and we have to choose battles and the consequences with which to use them. erik: that is the finance secretary here in mexico, jose antonio meade. david: that was a great interview. alix: the markets are moving.
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it's really unbelievable. look at the intraday chart of the s&p now flipping of the negative territory. off by 1/10 of percent. the unbelievable selloff we are seeing in the intraday 10 year yield a by about seven basis points now, beating out the selloff in the u.k.. the bond selloff continues. $1.7 trillion erased on sovereigns in november alone. david: and the question is why because i don't know. alix: is of the trunk trade? trumpll be -- is it trade? this is bloomberg. ♪
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vonnie: it is 10:00 in new york, 3:00 in london. i am vonnie quinn. >> and i am mayor church -- and i am nejra cehic.
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this is bloomberg markets. ♪ vonnie: we are taking you from new york to vienna and cover stories out of the u.k., washington and mexico city. more economic data out of the u.s.. manufacturing data around the world, it looks like the u.s. is following suit with isn and supply management read at 53.2 for the month of november. 52.5 is what analysts had been anticipating. isn prices paid at 54.5, that is steady and new orders coming in, it looks like also steady at 53. we saw inion manufacturing was the fastest pace in five months, and it is almost a two-year high. improvent

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