Skip to main content

tv   Bloomberg Daybreak Americas  Bloomberg  December 19, 2016 7:00am-10:01am EST

7:00 am
"bloomberg daybreak," on monday, december 19. davidnathan ferro with westin to alex pharaoh is -- alix steel is off today. just hours away from janet yellen's latest remarks, .reasuries david: here is what you need to know. the china-trump dance. donald trump says it can keep the u.s. drone, and maybe the u.s. will keep the one china policy after all. fired." barclays is about to tell 7000 clients they do not do enough business with the bank to remain. big oil on the march. bp does a $2.2 billion deal with abu dhabi, giving the emirates
7:01 am
one of theompany in longest -- one of the largest onshore oil concessions. we will focus on the increasingly kabul relationship between the trump administration and china. joining us -- increasingly complicated relationship between the trump administration and china. john, let's start with you about what is going on over the weekend about this drone. how did china sees this drone that how did china -- how did drone, and whys did it think it had the right to? john: china said it was in the way during shipping lanes. whether or not the u.s. and other countries believe that, that is what china's going with right now. they have also said -- mr. trump said in his tweet that the chinese stole the drone, and the
7:02 am
chinese foreign ministry came out and said they did not like and they areal," in the discussions with the pentagon to return it now. it was seized was closer to the philippines than it was to china. why did china think this was not an international waters? thatat part of its claim it had possession of all the south china sea? john: the chinese foreign ministry, the defense department have not said anything about why they took the drone or why that ship was in the south china sea. they have only said that they picked it up because they felt it was disturbing shipping lanes. they were quite disturbed by the fact that the chinese were in the south china sea and they picked up the drone. i want to bring up a stock
7:03 am
price, marine harvest. it is trading by over two percentage points. companiesks, these after a six-year hiatus -- the awarding of a nobel peace prize to a chinese dissident six years ago -- that is how trade relations broke down between china and norway six years ago. so when we talk about seeing tweets like this, how quickly can that escalate? >> anything can escalate in a quick fashion. you have to understand the importance of the use -- of the u.s. to china and china to the u.s. jon: we do not have to go there. areen: the problem is these two big countries that are starting to play games with each other. is a big player, and china has to start playing by international rules.
7:04 am
it does not want to. it has never had to before, and now it is saying i want respect and people are pushing back and saying if you want respect, act like an adult. in the meantime, there is a bumpy road, a lot of ups and downs. what does this mean when we have seen the dollar in the gold react in response? are seeing volatility go up everywhere, and we should see that because not only in the political arena, we have vladimir putin lying around as well as well as a potential port fiscal policy move. markets have rushed to judgment that everything is going to be fantastic, and this is part of the problem. be fantasticy not him and his contact that animal spirits will drive the market to higher valuations -- that is the trigger for people looking at that. jon: volatility seems to be coming off a twitter account in
7:05 am
the name of donald trump. we are getting used to a new reality where a president-elect voices his opinions on a twitter account at a time when four years ago, eight years ago, president obama at the time that he was president-elect did not make these kinds of comments. we are not used to this. as you sit in beijing, or authorities getting used to this yet? john: they are not. i think what we ought to be ready for is for everything that trump does, china is going to respond. that is the history of this government. any trade or currency manipulation designation, or anything the trump administration does, we have to expect the chinese will retaliate. as for now, for today, the chinese said we are worried about the current administration, and they are not worried about what donald trump says. lots of people have commented, so they will not commented that they will not comment on mr.
7:06 am
trump's tweets. they will not comment on mr. trump's tweets. one of the crazy things that erik nielsen would say he has flirted with is things like trade tariffs. steven: there is a risk that he will do things like declare china to be a currency manipulator. i would not be terribly surprised by it. the immediate impact on china is minimal. the process he has to go through to get implications of putting on tariffs is very long and complicated. he is likely to say let's renegotiate nafta. people forget that nafta was started under ronald reagan, signed under bill clinton. it was a heck of a long time between starting and ending. we may just abrogate the whole process. the reality is people have to look at these things with a sense of realism and stop overreacting. we have to get used to him and
7:07 am
we will because it is not going to -- david: "get used to it." that is what is coming. u.ny thanks to john li in the chandra has first word news. electors are set together in every u.s. state to formally elect donald trump president, but some anti-trump forces are trying one last time to deny him the right house -- tonight him the white house. they are unlikely to persuade electors to dump trump. a joint session of congress is scheduled for january 6 to certify the electoral college vote. in paris, it is judgment day for christine lagarde per she will hear a verdict in a decade old negligence case that goes back to her time as the french finance minister. .he has denied wrongdoing in china, it is a national red
7:08 am
alert brought on by a choking smog. some cities are limiting the number of cars on the roads and temporarily shutting down factories to reduce pollution. in beijing, state media is saying more than 700 companies stopped production and traffic police are restricting drivers by monitoring license plate numbers. the smog is not expected to lift until monday. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra. this is bloomberg. jon? jon: as we kick off a new trading week, stocks are trading in europe. >> we have lots of bank movers in europe, starting out with monte dei paschi, shares of the italian bank lower as they say a major capital fund has serious doubts about its bridge loan. italian bank is trying to sell shares in the open market, and the italian government is planning to eject $15.7 billion into the ailing bank. the capital shares continue. turning next, barclays shares
7:09 am
planswer after the bank to sever ties up to 7000 clients, those who do not trade enough for deutsche bank -- excuse me, barclays, to create a 10% return on capital. deutsche bank shares are lower, .n a downgrade at citi a potential capital shortfall is simply not priced into these shares, down 2.5%. david: thank you, abigail. coming up, the president-elect's economic team could take shape with his appointment of the office of management and budget coming over the weekend. what does it tell us about where he is headed for his economic plan, and especially on tax reform. that is next. this is bloomberg. ♪
7:10 am
7:11 am
david: this is bloomberg.
7:12 am
i'm david westin heard over the weekend we learned president-elect trump would be naming congressman mulvaney as his director of the office of management and budget. for those of us who may not know, explain to us the significance. i understand he is something of a deficit hawk. kevin: he is also one of the founding members of the house freedom caucus. that is the chief stronghold, the more ultraconservative wing of the republican party. this is someone who has repeatedly opposed increasing the federal amount of money deficito calculate the and who has opposed infrastructure spending, something president-elect trump has said repeatedly he would like to guide through in the new congress. so a very interesting choice, definitely someone who will please the more economically
7:13 am
conservative crowd, and also the heritage foundation crowd coming from president-elect trump. david: put those two things together, his past policy positions and his new job as he becomes director. how much of a role will he have in determining things like if they will have infrastructure spending, if they will have to pay for it without raising the deficit? kevin: a lot. many in the tea party and the tea party spot leaders that i am speaking with our already uneasy with having this infrastructure plan. i think it will be one of the first potential clashes of republican ideology infighting between the administration and the tea party. not only will he have to do with infrastructure, he will have to guide through a repeal of the affordable care act. that is another thing that trump has said he wants to get rid of, obamacare. theill also have a seat at
7:14 am
table with regard to tax reform. so a very interesting choice. i think it caught many people a little bit by surprise. mix of thein the broader economic choices that we have seen from trump -- this pic in mick mulvaney is the most conservative in terms of the economic picks that we have seen so far. david: kevin, thanks so much. kevin cirilli reporting from washington. it ishere finding if really political. this is a true test. steven ricchiuto is still with us. the fiscal plan, the stimulus historically,cle, not many places to go to, are there? isven: that is why there worry and a reflation trade happening at the bond market at this juncture. bringing in somebody like mulvaney is important because deficit financing is a big problem. we have $600 billion in
7:15 am
structural deficit. you are talking about $300 billion in tax adjustments for 2018. that is where bond markets get upset. david: what does mulvaney mean for the reflation trade? steven: markets are ahead of themselves in every single aspect in this environment. again, there has been this rush to do something because people have been underperforming their bogies, they need to get something going. there was a definitive change, let's run with it. we are done with every -- we have done with every change whatsoever all the way through the financial crisis. we have said it is going to work, we ask questions afterwards, and then we sit back and realize a lot of it did not work. bit, thet a little less you know, the is here it is to take everything you know and put it into one coherent strategy. we know enough to say this will all come together beautifully
7:16 am
and this is how we should trade. how worrying is that? where will the upset be? steven: it is very worrying to me. the upset is where with the markets push? if you go back and look at where the 10-year note has moved from where growth is going to be for 2016 -- and arguably for 2017 -- we are not looking for anything to pick up until 2018. you get into an environment that that a lot early on -- that we have bedt a lot early on. david: when it is income tax reform, that could happen sooner. to go back to mr. mulvaney, i wonder if there is a lot of talk about cutting the rates. mr. mulvaney says that is fine but you have to pay for all of that. deductions for individuals. reasons theof the structural deficit has moved up so much is because of the impact of obamacare.
7:17 am
on the deficits. you may be getting a trade-off. we are going through one thing as we cut back something else. if you remember the reagan tax cut, that was a fundamental driver behind the reagan tax cut to do we were supposed to cut taxes and spending. government cut the taxes but they never cut the spending. that may be part of the process we're looking at from mulvaney let's go after some of the things that we do not like that obama has been spending money on a used them for what we want to spend money for. program,ng up on this a bold message from barclays? go big or go somewhere else. that is coming up next. from new york city, as we begin a new trading week, up to six weeks of gains on the dow. futures positive. good morning. ♪
7:18 am
7:19 am
jon: go big or go somewhere
7:20 am
else. barclays is prepared to -- the latest move in industrywide trend of producing customer lists to the ones that produce significant profits. stephan morse joins us from london. stephan: barclays is trying to trim down its client list so i can focus on the egg is, most profitable -- so it can focus on the biggest, most profitable ones. in the last three years they have managed to move 17,000 clients from its markets division, the division that does currency, currency trading and hedging products. and now they are looking to use a new computer system called jet bridge to get rid of a further 7500. they will have a corner of the clients they had three years ago. they are ranking them by returns. the biggest clients that do lots
7:21 am
of business with them. the smaller ones that do not do quite so much, in a new regulatory regime are causing -- are proving too costly. 1995,his is a list from let's say. client is down there. is there a risk that they start getting rid of the next google, say? steven co of course, -- steven stephen: ultimately, until the companies start to grow unless they can show a clear path to it, barclays going to call them in or go visit them and have a tough conversation. they did say, when i spoke to the executives, that there would be extenuating circumstances. yous not the case that if do not make a 10% return on capital you are gone. but as a general rule, that will be the case. you will see a lot of small
7:22 am
clients have to find new banks to do business with. jon: let's talk about the growth of the actual bank. if you are going to focus on profit, away from revenue growth and volume, where does the growth come from if you whittle down your client list to your top guys that may not grow? stephen: the revenue growth -- that is a good question. it will not start again in europe until we see better economic data and a return to more normal monetary rates. their cost is the site of their interest structure. the less people they have to pay to manage these relationships. the more profit they will get, by taking the cost side of the equation down. but that is a big question facing the european banking system, whether they can actually grow enough in terms of revenue to become proximal and large on the same scale as their u.s. competitors. stephen morris, thank you
7:23 am
for joining us and it will be man versus machine to some extent. if you have a client at the front office and you identify them by saying this is a good client, but the flight deck says no, what happens? david: the algorithm says you are out of here. that is a difficult conversation to have. joining us on the phone is bloomberg tv contributing editor bill cohen -- bill cohan. we have been talking about barclays firing 7000 clients. ?hat are the ramifications if you have a small company coming along, you might miss google or a big company right now that is not doing much business with the bank. this is gut tells me going to be a public relations nightmare. , sorry, we0 clients do not want you anymore, we have like you in the past but we do not like you anymore?
7:24 am
the business environment forces force you to become more profitable or get gone? that does not sound like a very banker friendly relationship. i would not want to be in barclays' position to do that right now. be concernedve to about the reserve requirements, the ratio, and it is getting to bank perspective not just in terms of the sg and a cost, but also in the reserves you have to hold. bill: it reflects the growing bank -- the growing relationship between the u.s. banks, which have been on a tear in the last five weeks in the equities markets. and the european banks, which are still struggling to deal with the new regulatory retirement requirements, the new capital requirements, the new environment that is forcing barclays, one of the leaders in europe, to do these things with
7:25 am
their clients. jon: "the sunday times" in the u.k. said that bonuses are being staffs.for senior think, again, it highlights the incredible , nootomy that is going on one in the u.s. is really talking about -- this is kind of unprecedented. all of the u.s. banks have gone through being find by the -- by the justice department, billions of dollars by jpmorgan, $13 billion. now deutsche bank -- no one in the u.s. is talking about bonuses being frozen at the u.s. banks, and here at deutsche bank
7:26 am
they are talking about bonuses being frozen. again, from a public relations point of view, it is a very nice thing, a smart thing to show that you are participating in the pain that your shareholders facing, but it does show the dichotomy. it is a growing gap, and i do not know how they are going to come together and compete at the moment. david: bill, thanks so much for being with us today on the phone. there are a lot of difficult conversations coming up. companyp, bp -- the oil investing $2 billion in a state in another dobby oil field. we will speak with bp ceo bob dudley. this is bloomberg. ♪
7:27 am
7:28 am
7:29 am
this is bloomberg. i'm jonathan ferro. the longest weekly winning streak since november 2015.
7:30 am
janet yellen set to make remarks on the labor market. on dollar index last week thursday hit a 14-year high. dollar strength in most of the g10 space. david: the china-trump dance. donald trump says the undersea drone can keep it. -- china can keep the undersea drone. berkeley's about to tell up to 7000 clients they don't do about to telllays a to 7000 clients they don't knew enough business. big oil on the march. bp does a $2.2 billion deal with abu dhabi.
7:31 am
bp shares rally on the news and that is what you need to know. substantial investments in onshore abu dhabi oil is one of the lead stories and our morning must watch comes to an interview our colleague had with the bp ceo in dubai earlier today. >> we have been working here 75 years. ,t is an important work that bp a strategic relationship for a long time. given our discipline financial framework and meeting our obligations in the u.s., it took us a while to work to the point where we could make this great investment with abu dhabi and the key element -- abu dhabi will be a 2% owner of bp. it will mean another 160,000 barrels per day.
7:32 am
a continuing a very long-term relationship. the economics are good for us. good for shareholders. for bp, it brings in a strategic owner of the company, which am very pleased about. bp has worked here a long time and i'm -- i'd like to believe that we have shown what we can do technically and and management capability. we will work with them as a company and we will bring our best people and resources to help maximize the future of abu dhabi's resources. we have a lot of experience ,anaging late life oil fields water flooding, and the technical things we will bring. as well as the privilege of working with the natural resources of our dobby, in many ways the crown doors of abu dhabi. >> is this a sign that this is
7:33 am
the time for oil majors to ramp up investment? >> one has to have confidence in the price. we have really retooled bp, getting ourselves down to efficient levels. a year ago, we were saying $60 and now we can do it at $55. i think we are going to remain very, very disciplined about the capital we spend, the projects we select, but it is time for bp to start growing. we have worked through some of the difficulties in the u.s. that a think the company is now well positioned for growth toward the end of the decade. >> we saw a historic deal by opec for the production cut and a potentially more historic deal by non-opec producers to join in with some of those production cuts. how do you feel about opec and the future of oil at the moment? >> i think it is very significant about what happened
7:34 am
on november 30. you have non-opec countries seriously talking about reducing their output. some people have said that opec is not a real organization anymore, it does not actually bring things together, and i think opec is an important organization. this agreement is significant. you can already see it in the curtailment notices going out from the middle east. i know, since we work in russia, there is a schedule of reducing output from russia. i think it is very serious. $60prices between $55 and seems very realistic. growth continues in china and north america. >> donald trump has nominated rex tillerson as a potential secretary of state. do you think he is the right man for the job? >> he is a neck's a live person that knows the world, he knows leadership around the world, he knows up to get things done, he is a very serious person. a great job,ll do
7:35 am
not just because i'm in the oil and gas industry. he is a man that knows the world. basis, were broad know that donald trump is potentially more friendly to the oil and gas industry than his predecessors. what does that mean for you and other oil companies? >> well, surprises are happening all over the world. a lot of the world has been surprised by what is happening in the u.k. even the referendum in columbia, which has gone back in another direction, was a surprise. i think we are in for moore inprises -- moore surprises 2017. we will navigate and work through this. bp has its financial framework and discipline back and we will adapt to whatever the circumstances will be. david: that was the bp ceo bob dudley speaking with our colleague in adobe.
7:36 am
-- abu dhabi. jonathan: our next guest has worked on three of credit suisse deals. including the schlumberger merger and the range resources' $3.3 billion purchase of memorial. the cohead of the credit suisse global energy group. >> good morning, gentlemen. jonathan: crude had a $60 handle. we discussed the monster deal with bg. is this the start of something to come? it never came, did it? the big deals in the energy space. why not? on a veryement shell strategic move. i think the reason you did not see more strategic activity following, although we have seen oiluple of deals, is that has had quite a bit of volatility since that point.
7:37 am
it is hard to get deals done when you have that much volatility and when people are the long-termss industry and it is hard to make long-term investments when you have short-term gyrations. alix: does the opec deal --jonathan: does the opec deal grease the wheels for m&a in 2017? osmar: it should. it is a pretty dynamic industry with lots of decision-makers and players. assuming that they all stick together with the agreement, that should translate into stability and that would accelerate and monday activity -- m&a activity? -- whathere we should areas should we be looking at for m&a activity? osmar: for every deal announced,
7:38 am
there are countless others in consideration. there are always discussions going on. i would suggest that there is m& a that should be coming from upstream, the biggest part of the business, to midstream, and downstream. expectationsre are of talking to clients through the entire value chain. jonathan: there could be a monster ipo in just over 12 months. how does that feature into your thoughts on the space? osmar: it is certainly a favorite topic among lots of people. made adi government number of public statements about it. apparently, if it goes forward, which i would believe it would, could be the largest ipo ever. it is the largest oil producer in the world. everybody will be paying attention to that. i think there are a lot of steps
7:39 am
between now and when that actually happens. there are a lot of different structural issues that i think the government and the company need to sort out. forthan: is there a window you to get equity offerings away before the monster comes that many investors would prefer to buy into? osmar: most of the equity offerings we have been working on have been for the shale companies in the u.s. those are not ipo's, although we are now starting a number of ipos and they have gone fairly well. that is a fundamentally different type of business than ipo.pcoming saudi ramco we still have a very healthy flow of business. that will continue regardless. they are just different types of deals. i would probably not price my ipo the same, but we expect to have a robust calendar all the way through. low borrowing costs.
7:40 am
we are starting to see costs rise. at what point is that interfere with the deals? osmar: the companies that are pretty active have spent the last two years really improving capital structure, for both organic growth, investment, and m&a. i don't think a rise in interest rates is going to have a dramatic effect on m&a activity. debts companies are set to grow organically and in organically. companiesountries -- are set to grow organically and in-organically. did two big equity offerings last week that were m&a related. jonathan: earlier this year, we
7:41 am
talked about china going after companies in the western world. is the demand still there for the same kind of transactions we saw much more broadly? osmar: i returned friday night. that was one of the reasons i went to china last week, to try to get a better answer to that question. oil is still a very strategic product for the chinese government, the chinese oil industry. we do believe that they will become more active going forward . it is important for them to continue to access additional reserves. it is not just through m&a. there are lots of structures they can pursue. we do expect them to be a vigorous participant in the growth of the industry. david: the chinese government has also claimed they will crack down on chinese acquisitions in the west due to capital flow issues. do you get any sense that that will curtail these deals? osmar: i think oil is pretty strategic for china, so for the right deals, it will continue to
7:42 am
be active. jonathan: great to get your insight for a pretty decent year for you guys. coming up on the program, italy's monte dei paschi begins its share offering today. from new york, this is bloomberg. ♪
7:43 am
7:44 am
this is "bloomberg daybreak." coming up in the next hour --
7:45 am
ceo.ormer hewlett-packard david: the italian bank monte dei paschi initiated its plan today. this, as it tries to meet the deadline set for the end of the year. joining us now from the end of milan is the managing editor. give us a sense of this capital equity issue. how does it fit with the overall recapitalization plan? why would anybody buy stock in this bank right now? >> this is the key component of the plan, to raise equity. the bank is trying to alter flows. billions of bad debt. once it does so, it needs to bolster capital. this is what it is trying to do this week. offering bondholders to swap some of the debt into equities to reduce the burden on new investors. it comes as we hear that another
7:46 am
part of the plan is potentially under threat with one of the backers of the securitization of the bad debt indicating that it has reservations on another part of the deal. there are many interlocking parts. it all needs to get together by december 31. david: focus on that bad debt. isn't that a key issue in the recapitalization? there has been a lot of capital flowing into the bank at some point, but how do you get the bad debt off your balance sheets? thees, well i think indications that we are having is that for the bad debt it self , there is going to be demand. the government put in guarantees earlier this year that makes it easier for the buyers to match. from a pricing perspective. demand seems to be available. what it will force the banks to do is move equity.
7:47 am
sharesll have to buy that are higher than the market average. you are taking bets on the future of the bank to be clean and remain clean from further bad loans in the future and that relies on the business turning itself around and adopting a new lending policy throughout the group. jonathan: can you talk to me about the timeline and the potential endgame? have until the end of the month to find a private sector solution for this. as the government got a backup plan ready case they don't meet that deadline? >> yes, that's right, that is what we are hearing, there are preparations to line up funds, that could be as much is 15 billion euros. there will be bonds that might be deployed to help other banks. we understand those preparations and negotiations are happening as we speak. we get here more and the next day. it could go down to december 31,
7:48 am
the deadline that the european central bank are set. what regulators will also be concerned about is that any turnover in confidence on italian households, they will be monitoring that very closely because the longer we get -- the closer we get to december 31, this bank and other banks. david: thank you so much. bloomberg's managing editor for finance investing joining us from the long today. -- milan today. time for other stories at this hour. >> thank you, david. another blow to the a 380 program. iran says it dropped the model as part of a wider upgrade. ceo says they have reduced the order to 100 planes. the deal will no longer include
7:49 am
a380's. the deal reduces the agreement. targeting more hong kong listed companies as the prominent short seller takes aim at china with reports alleging the $4.9 billion company was close to zero. suggested the prices of the stocks can be manipulated because of the free float requirement. could still decide to sell shares of aramco in new york. that is despite the law passed by the u.s. allowing victims of the 9/11 attacks to sue the countries -- country. it could be one of the biggest share sales in history. that is your bloomberg business flash. this is bloomberg. jonathan: a little bit later
7:50 am
today, there will be very happy students at the university of baltimore, as the fed chair janet yellen delivers a keynote address at the university of baltimore's midyear commencement on the state of the job market. we will discuss that next. ♪
7:51 am
7:52 am
jonathan: this is bloomberg. as we switch up the board very quickly. we had more strength to the dollar. the dollar britt -- gets briefly. better.sury market,
7:53 am
that takes us nicely to the trading diary. this one.the focus on 1:30 p.m. eastern, venture janet yellen speaking at the university of baltimore commencement on the subject of the state of the job market. here with us to look ahead is the bloomberg intelligence chief economist. what a to -- coup. >> pretty good commencement speaker. jonathan: we don't care about the students graduating. we just care about what is in the speech. >> reading the tea leaves every as this is probably a congratulations, good luck in the labor force type of speech, however, there could be kernels of interest to the financial market. in the postmeeting press conference, she is usually giving the broader views of the committee. today, she may tilt her hand and give a little bit more cover
7:54 am
dust color on her personal views on the amount of slack remaining give alabor markets -- little bit more color on her personal views on the amount of slack remaining in the labor markets. jonathan: when she took over the fed, the headline was that the fed has more work to do. here we are two years later, does the fed have more work to do? >> i think they have less work to do, but the major theme of her tenure ship has been don't trust the unemployment rate. i don't see any reason to believe she has backed away from that approach to policy. at other measures like the unemployment rate or part-time workers, some of these other measures, they tell you that there still is some slack. it is diminishing, without a doubt, but it signals there is more slack remaining in the labor market than the official unemployment rate otherwise
7:55 am
stated. jonathan: i have been to enough of these news conferences, they read off their statement to answer questions they do not want to answer. going back to the news conference from last week, what are the questions that were not answered that you think might be answered today, at least in some way, shape, or form? jonathan: the toughest questions the toughest> questions asked were asked by bloomberg news folks. one question was does she have any interest in serving longer at the fed? another was about the high-pressure economy. ofy talked about the merits maintaining a high-pressure economic environment that would draw marginalized workers back
7:56 am
into the labor force and secure some of the systemic problems in the economy. when she was push on that last week, she kind of bristled at the notion that she was pursuing a high-pressure economy and said that was just a topic worthy of additional research, but not necessarily that she is actually pursuing that. jonathan: they do a lot of that at the federal reserve. carl, great to have you with us. you can catch the coverage of janet yellen's speech later today on this channel right here at 1:30 eastern. david: all eyes glued on baltimore. coming up, who is on the shortlist for treasury secretary? john allison will be here to talk about how the trump economic plan is shaping up. this is bloomberg. ♪
7:57 am
7:58 am
7:59 am
jonathan: from new york, good morning.
8:00 am
daybreak" onmberg monday, december 19. alix steel is off today. in the markets, the penultimate trading week of 2016. the dow is positive 3. treasuries lower. some dollar strength. the euro down 0.2. david: here is what we all need to know at this hour. the china-trump dance. china's snatches a u.s. undersea drone and trump says china can keep it and his new chief of staff says they will keep the one china policy after all. to geopolitical uncertainty between the two largest economies in the world. barclays is about to tell 7000 clients they do not do enough business to remain.
8:01 am
big oil on the march. bp does a $2.2 billion deal with abu dhabi, giving the emirates 2% of the company in exchange for one of its largest concessions. that is what you need to know. jonathan: twitter diplomacy. we are going to focus in on extremely complicated relationships tween the new trump administration and the world's second-largest economy. president-elect trump tweeting over the weekend. i've got to say, there was a correction. there was a typo in the original tweet. he goes on to say, we should tell china we don't want the drone they stole back, let them keep it. joining us now is our political reporter. let's start with you, kevin. it is confusing enough for us to keep up. i was beijing -- how is beijing
8:02 am
with what is coming out of the twitter account? >> they are taking issue with the word "unprecedented" in the word "stolen." they said it was akin to finding . piece of trash in the street they found the drone in their waters. world powers are trying to figure out how exactly they will factor into a trumpet administration. me thatp sources tell president-elect trump likes the idea of having an element of unpredictability to his presidency. of course, this is coming on the heels of senator john mccain said that president obama's foreign policy has led to an of world powers since world war ii. foreign policy at a fewer to transition.
8:03 am
there is some debate as to whose street it actually is. who is the message for from president-elect trump? is it for china specifically? or is it a bigger planet play? >> i think it is a little bit of both. i think the broader policy debate we are having is whose street it is. this is aat fascinating time. when you put it in the context of president-elect trump's seemingly more warm approach to russia, but a more sharper tone to china, i think what you are seeing is a shifting u.s. foreign-policy that will have global implications when trump takes office on january 20. jonathan: it is going to have implications for financial markets, as well.
8:04 am
we talk about these uncomfortable convictions in financial markets. "i worry about the number of investors who seem to think trump will do the policies they like and none of the crazy hings he has flirted with." do you worry about the same kind of thing? >> i think the markets worry about it and we all worry about it. it is also early to get a handle on this thing. it does not actually surprise you, you are getting very used to this over the last four or five weeks and, frankly, in the whole election cycle. i don't think the market is getting that concerned now. theink once he is actually president, the market will pay a lot more attention. we will be watching very closely. david: this is the point jonathan has been making about the twitter diplomacy. we traditionally have had a president that wanted to express certainty. they want allies and rivals to know where we are headed. this president appears to want opposite. to want the
8:05 am
of the day, i think we know based on the election cycle that we are dealing with a whole new resident. -- president. it is something that we are never going to find very predictable. i think we will get used to it, but this could take a year or two before we understand what he is. got a handlee we over how communication will be driven out of the white house in the coming months? will he still be using the twitter account in this way? should investors be paying attention to it a lot more in the months to come? >> absolutely. i put that question to the transition sources and they said that twitter is definitely going to be part of the way that trump communicates, not only with americans, but also with a global audience. we have seen that with taiwan, china, carrier. , to the personally
8:06 am
broader point that the markets are adjusting to this, that is going to continue. year andred him for a a half and i'm sort of used to this now, but i think the global economy is catching up. world leaders, mind you, and this is important, do communicate with twitter, we just haven't seen this from a u.s. president. i think that he is just fitting into a broader trend of global leaders communicating on twitter. you've got to remember it just was not until 2015 that president obama got an official president of the united states twitter account. jonathan: the fragility playing out the same time the snp trades at -- snp trades at -- s&p 500 index trades at 21 times. something breaks at some point, doesn't it? >> we are very close.
8:07 am
yellen looked notably uncomfortable delivering her press conference. i'm really going to be looking at what she says in baltimore this afternoon. she probably won't say a lot more, but she has said things in baltimore before that have got markets moving. jonathan: if you are china, are you worried about the twitter account with the dollar? >> you are worried about the dollar. i think they know exactly what they are dealing with with the political side in the future. the dollar has caused them major issues. we got tightening liquidity conditions because of capital flight. they are 100% focused on the dollar. david: as they face the ever strengthening dollar, are they limited in how much they can do? they have been using up the reserves to support the one -- yuan. are we looking at a further devaluation? isthe advantage of china
8:08 am
that they can use capital controls and they still have a lot of reserves. that is an advantage over other emerging markets. they are the barometer of emerging markets going into 2017. i think they are looking at this thing saying we've got this thing under control. they tend to devalue the currency when the dollar is appreciating. that will be the trend. at the economic conference on friday, they say they are looking for stability, slightly calm her markets. i think they have got this under control. i think we will see a steady depreciation if the dollar rallies. jonathan: great to have you with us on the program, paul. of course, kevin joining us out of d.c. let's get an update on what is making headlines. morning.d in syria, a tiny glimmer of hope after years of unimaginable devastation. evacuations from the city of aleppo have resumed.
8:09 am
turkey-based humanitarian aid group says they were taken to areas west of the beleaguered city. fragilee, the city's cease-fire is said to be holding at this hour after days of uncertainty. scotland will hold another referendum on independence from the u.k. unless it can stay in the eu single market. that is the warning coming from scotland. the move will turn up the heat on theresa may. in a financial times commentary, sturgeon says voters chose to stay in the eu in the brexit referendum and now face being pulled out by votes cast in england. in the u.s., electors will formally elect donald trump today. some anti-trump forces still aren't ready to give up. they are trying one last time to deny him the white house. protests are unlikely to persuade electors to dump trump.
8:10 am
a joint session of congress is scheduled for january 6 to certify the electoral college results. global news and more than 120 countries. this is bloomberg. jonathan: one hour and 20 minutes away from the cash open in new york. futures positive, european equities pretty flat. let's get you some movers. >> we do have lots of energy shares trading higher in the premarket. multiple upgrades on the street. transocean has been reinstated with a buy over at ever court. we also have the shares of williams trading higher as morgan stanley has raised its rating to overweight. morgan stanley sees a 10% upside. gulfport energy has been raised to a buy over at guggenheim. the scoop acquisition should be a positive. when we take a look at a year to ,ate chart of the energy etf
8:11 am
the top performing sector this year with gulfport on the year, we see a big divergence. the drop, just last week, on the scoop acquisition, so guggenheim is saying this is a knife opportunity -- nice opportunity for investors. carnival shares are trading lower in the premarket. analysts reporting that multiple headwinds are ahead, including a rising dollar, rising fuel costs , and rising interest rates on a stock that is down more than 5% this year. david: thanks so much. coming up, one of the people that has been part of president-elect trump's plan. john allison will be joining us next. this is bloomberg. ♪
8:12 am
8:13 am
8:14 am
from new york, this is bloomberg daybreak." the dow is positive 2-3 points. college euro .1% across the board. yields are down on the u.s. 10-year. we cap you don't to the speech from the fed chair. david: looking forward to it. all eyes in the business and financial world remain on the trunk transition in new york and where it is leading -- trump transition and where it is leading. the former head of the cato institute and is now a professor at the business school at wake forest. welcome back to the program. john: good morning. thank you, david. david: quite a lot has happened since we last talked on the program, particularly in appointments. i want to start with the one we
8:15 am
heard over the weekend, apparently that congressman mulvaney from south carolina will be named as director of omb. mr. mulvaney has been something awk. hot -- hq well.i know nick he is clearly focused on deficits. that is an interesting balancing act. president-elect trump is also committed to cutting taxes. he is really committed to cutting expenses, if you look at what mick wants to do. david: what are the key positions left on the economic team? there are positions on treasury and there are two openings on the fed with may be more to come. think you willi see certainly on the fed an
8:16 am
effort to put in someone that likes less regulation. in my conversation with president-elect trump, he believes the regulatory environment has been very destructive to economic growth. his focus is on economic growth. i think you will see individuals that have a much stronger commitment to deregulating the banking industry than the current fed. david: one of those open positions would specifically regulate the banks. if you have someone for deregulation, how does that fit? what would you do with that job? john: it is interesting. a lot of people don't understand this. we don't have rule of law and the united states, we have rule of regulators. in dodd-frank, there is a huge range they can interpret it. in my banking career. they have a big effect on what implemented.re you can deregulate a lot without
8:17 am
changing the law. the fed has chosen to be at the tight end of what dodd-frank provides. jonathan: if you got a call that you were nominated to the federal reserve board, what would you say? john: i don't know. i would have to think about it. i spent time in washington dc running the cato institute -- it was a very interesting place. how much influence can an individual have as long as janet yellen is there? i'm not trying to criticize her, she just really leads the process. david: you raise a very interesting point. we have already had governor rick perry who is going to be the energy secretary nominee, who said he would just as soon eliminate the department of energy. you have been skeptical about the role of the fed at all. if you were to go on the fed, how would that work about a fed member who is skeptical about
8:18 am
action the fed should be taking? has donehink the fed much more damage than it has done good. i'm one that advocates some kind of rule, so that we are not debating what janet yellen is going to say in baltimore. that should not impact markets, right? if we had some kind of rule, that would be a huge improvement because at least it would be predictable. -- and i'me myself not saying i would take the job -- but someone like myself would at least try to nudge the fed toward a much more predictable systematic process, instead of a random discretion that the fed has now. think about it. if the department of agriculture could set the price of oranges, i think they would always be wrong. that is exactly what happens with the fed. jonathan: the president-elect is discussing options, talk to you -- to me about what you think will have the biggest impact for
8:19 am
change. the federal reserve wants to be boring, i'm sure they do. could you make more impact on the fed or at the treasury? john: i think the treasury could have a bigger impact, unless you could really change a lot at the fed. if you had a new leader at the fed and you got a majority of people that had a very different perspective of the fed -- i don't think the fed, at this point of the economic cycle, does much good. i think there was a lot of argument that it is not really helping the economy that much because it has had a combination of loose money and tighter regulation, which the effect of that has been very slow growth rate in money and the economy, which is why we have not had inflation. 90% of the money is created by private institutions, by banks. if you tighten lending standards, you offset your base money increase. jonathan: john allison does not want to set the price of oranges.
8:20 am
staying with us. coming up on the program, one of donald trump's priorities is reforming the u.s. tax code. we will debate what that will look like. this is bloomberg. ♪
8:21 am
8:22 am
david: this is bloomberg. i'm david weston. donald trump has made it clear that one of his top priorities is reforming the u.s. tax code. he shares that priority with house speaker paul ryan. would say tax reform is going to be a very big component of this. .egulatory reform the 12 major cabinet positions confirmed. that is a process we are working on. david: still with us is john allison joining us from wake
8:23 am
forest. we talked about mr. mulvaney before. at the same time, both speaker ryan and the president-elect said it want to cut rates. what is the solution? john: i'm not sure. i think president-elect trump is committed to cutting taxes. mick mulvaneyme, will try to move toward reducing deficits. it will be an interesting balancing act. i think the taxes have the priority. when i talked to the president-elect, they are not cutting taxes for high income people, but they wanted to lower the tax raise, but eliminate a lot of the deductions and other factors that ally you to reduce taxes.
8:24 am
have it gets through congress and balances with deficits will be a political process, i think. i do think that president trump is focused on the tax side more than the cost cut side. david: put your bb&t hat back on. what happens if you start cutting interest rate deductions? what does that do as a practical matter in the real economy? john: i think it shifts assets around. at the probably reduces asset risk in the economy because people probably do a lot of leverage because of the interest rates. i think it could have an impact on the allocation of assets. i don't think it really impacts the growth rate of the economy. we do subsidize a lot of things like housing. that is a really interesting question. should we be subsidizing housing?
8:25 am
housing, not subsidize some of us would probably have smaller houses and more money would going to manufacturing and technology and we would probably have a faster growth rate. a lot of these deductions are politically driven versus economically driven. david: at the same time, housing and real estate is important in growth. what would he do in terms of lending? john: it could change some of the lending market. make money versus money going into housing. i believe that lower, flatter, less complicated tax rates produces better economic growth. i don't think your text ejections are driven by economic factors. they are driven by economic factors. one at up subsidizing
8:26 am
the expense of the other. marketould slow down the that is dominated by the government, franey mac and frannie mae control the mortgage markets. but you get more activity and those are better job creators. david: thank you so much for being with us. that is john allison, the former bb&t chairman and ceo. jonathan: coming up, the european commission president for jobs joins us on the outlook for europe's relationship with the world. president-elect and donald trump -- resident elect donald trump and china, as well. this is bloomberg. ♪
8:27 am
.
8:28 am
8:29 am
jonathan: this is "bloomberg daybreak." a check of the markets. futures are up. the s&p 500 as well.
8:30 am
banks underperforming in today's session in outperforming for the month. the decemberor loans. the fx market, the euro is weaker. a stronger dollar across much of the g 10 space. yields are down by 4 basis points at 255. david: what you needed to know. the china-trump dance. american atan drone. trump said they can keep it. markets react to the geopolitical uncertainty. you are fired. barclays about the tech 5000 clients to say they do not do enough business to stay. big oil on the march. dhabi. a deal with abu
8:31 am
on the news.ly that is what you need to know. now, u.s.-china relations lead the nose. while president-elect trump source out how he is going to confront china, brussels is looking for closer ties to the middle kingdom especially with trade. let's go to berlin with a matt miller when he is with vice-president for jobs, growth, investment and competitiveness, jyrki katainen. matt: thank you for joining us. trump'sirst ask, donald move toward protectionism. doesn't that open doors for the european union? tpp, wants to think the can you credit your own european tpp? jyrki katainen: actually, it is the biggest trading bloc in the world and we said we would be open trading for the future.
8:32 am
international trade is a way to finance our system and attract foreign investment. we have 19 negotiations going on between date you -- eu and other countries. this is clearly whatever happens in the united states under the president, the eu will continue to be open trading partner and we are willing to have trade agreements and investment agreements with other countries. matt: do you expect any big once soon? i know you have a negotiator on a plane, as we speak, on his way to japan to talk with shinzo abe's government. ted with expect an eu-japanese still? jyrki katainen: we are very close, that would have a big impact to japan. -- can we expect an eu-japanese still? >> it is good for agricultural
8:33 am
production and it would increase production. trade and in free that is the way we understand the healthy way to cover globalization to have rule-based agreements on how to trade within the eu and other countries. matt: how does the eu commission see china as a trading partner? even before trump, some were accusing china of dumping products and other accusing them of stealing intellectual property, is it difficult to deal with? jyrki katainen: the pictures quite diverse. trading important partner with the eu countries and our companies. after the same time, looking at all of the problems especially in forex, we have
8:34 am
to make sure that trade is fair. that is the reason we want to have a very open discussion with the chinese authorities to weress the rules because cannot accept a dumping or state subsidies. we want to open trade to be more open in both directions. and negotiating with the chinese on investment agreements. matt: is it possible, some german politicians are concerned about chinese investment in germany? the chinese use in state aid or state run companies to buy german industry, is it possible to defend against that in the united european way? this kind ofn: assessments are in the hands of national authorities. if there is some strategically important areas which the
8:35 am
governments want to keep in their own hands, it is already possible after the moment. as the eu does not have the power to restrict foreign investments to some particular is why wed at that just want to keep trade channels open and we want to encourage a member states to stay on the understanding there may be some areas. it is important member states can choose to keep it in their own hands. matt: let me ask you about defense spending. the isolationist the banter grows in america, there's a lot of talk about the eu and member states putting more money toward nato in their own defense. is it important to you? jyrki katainen: it is important that europeans can a protective role citizens. an area of challenges. i think no country, including
8:36 am
the united states or even russia, no country in europe is sufficiently prepared for a new type of threats from cyber security or cyber issues. commissioneuropean has encouraged member states to act together to invest jointly to have better cyber security strategies. supporting each other. we want to get rid of the current state of play where all of the countries are investing in capabilities because nobody can afford to do sufficient amount of investment. that is why the eu can create opportunities. matt: multiple u.s. intelligence agencies have accused russia of hacking democratic national emailsion and podesta's to influence the u.s. election. are you concerned the russians would have the same ability to influence european elections? jyrki katainen: our member states have raised these issues.
8:37 am
there are many elections coming in a big economies and countries like germany and france and the netherlands in coming years. many countries are concerned if russia or someone else tries to influence the wrong way the election results. it is unacceptable and that's all well to cooperate much better in order to have our member states address these threats. matt: a final question on a brexit. the last time we spoke was before the brexit vote. shocking outcome, of course, it looks like the u.k. is set to leave in a couple of years. banking jobsngs that are in london primarily, the european headquarters of banking, intercontinental europe? jyrki katainen: to some extent, it may happen. many banks and other financial institutions are concerned what will happen and what kind of relations will the eu have?
8:38 am
we do not know what kind of arrangement we will have. the fact is it that at the u.k. in the futureant in many, many areas. the economy, banking, finance and insecurities and we want to relationship in a as possible. if you belong, you have better deal in 27 member states and will have more opportunities than those who are outside. nobody knows to what extent jobs will be removed from london to other european capitals. matt: vice president jyrki for joining us. david westin and jonathan ferro, back to you. david: thank you. he has a lot on his platter. jonathan: just a little bit. later today, all eyes on the
8:39 am
university of baltimore's commencement. the u.s. federal reserve chair janet yellen will deliver a keynote address on the university on the state of the job market a little bit later after the fed rate hike last week. joining us now where we hear what cubans are looking at is mark cabana. of baltimore, what are you looking to get out of that commencement speech? moore: that is where it sure yellen will talk about the labor market. i think she will reiterate mainmast seems last week with -- main themes where she talked about the market improving. and we will hear the general assessment. yellen will talk about how the market has improved and some still lingering elements of slack but overwrought she is
8:40 am
happy of the labor market. richt said to me earlier in this program that is the view of the committee represented by the chair yellen and that news conference, her own view represented in speeches like best. another guest said she looked uncomfortable saying they were sent to hike three times next year as captured by the summary of economic projections. what are we likely to hear from the fed chair but when her and the media of the committee? moore: that is a great point. sure yellen is a bit more biased to be more dovish and more cautious. as a result of that, she may end up emphasizing the degree to which she perceives slack in the labor market. i think it will be undeniable for her to suggest that the labor market has not improved. it certainly has. she will be pressed to acknowledge that in her marks. in terms of whether the fed
8:41 am
goals two times or three times next year, i would imagine she would be more on the cautious side. she might emphasize elements of the outlook where she thinks the committee should take more caution approach. she do not release that tone as much as we thought she would have a last week's press conference. jonathan: to wrap this up, stimulus, did not a handle on what the fed chair would do if we got a bit about of it. wall street racing to try something. the federal reserve going at a much slower pace. what is the risk they fall behind the curve next year? mark: you are right, she do not pick -- push back on the notion. she's at our comments problems -- princely or more academic reference and not something the fed is trying to engineer. the fed would like to see inflation moving closer to their 2% objective and the forecasts
8:42 am
indicate they are expecting that to some degree. i do not yet think the fed has fallen behind the curve. we're not seeing a material increase and not seeing hard data really notably improve, q4, tracking estimates, she is a bit on the soft side in relation to what we saw in q3 which was positive. i do not believe she is going to fill is too much pressure the fed is behind the curve. tothey see measures begin move up faster than she was in principle -- anticipating, the fed might grow more worried. on the fiscal stimulus side, chair yellen indicated some foldedpants have elements of fiscal stimulus into the forecast. by and large, i do not think most in the committee have. i think yellen wants to take a wait and see approach to make sure we see meaningful stimulus with longer run productive before she is comfortable
8:43 am
changing her assessment of the economic outlook and growth going forward. jonathan: mark cabana, head of u.s. sure rate strategy. and not academic point policy prescription, can they do the academic behind closed doors? david: then they would not have all of the speeches to give. jonathan: you as bank stocks -- u.s. bank stocks leading. climbing more than 20%. is the rally coming to an end? we will ask that question next. this is bloomberg.
8:44 am
8:45 am
emma: i am emma chandra in the hewlett-packard enterprise green room. coming up -- goldman sachs asset
8:46 am
manager. david: i am david westin. banks are the hottest since donald trump's election. do they have more room to grow? we are joined by eric wasserstrom. we had quite a run-up. isn't there any indication it is starting to peak? they came off a little bit on a friday. two dynamics. one is the fundamental dynamic and the outlook for higher rates and those sort of things being discounted. and a more technical dynamic which is the rotation into an incredible under own sector across the complex. fundamentally, we would say if do not have more room to grow. the buying power is significant.
8:47 am
even before the election, we saw the curve start to steepen and the idea is jonathan explained, it is good for banks. you borrow on the short end and loan out on the longer end. do we see the curve flattening their realize that the higher rates do not mean steeper yield curve? error: that may be the case -- eric: that may be the case. it may come off a bit. that we end up with more sure to hikes, the curve will flatten. jonathan: one commentator ,peaking, the financial stocks the forces behind the rally is strong. nobody will debate at that. how much stronger can they get to before things roll over? eric: our stance -- stance is that the benefits of every positive outcome you can
8:48 am
imagine under a trump administration are in the price right now. it does not mean the flow will not flow into the state. our stance is we can be selective on stock selections and probably more celebrated than a buyer. david: one is deregulation for the banks. what do you expect under a trump administration under dodd-frank going away,? eric: oneric: on dodd-frank, wek the chances of reform are zero. none. i think you will get target a reform toward smaller community and regional banks. actual changes to dodd-frank, we see little happening. jonathan: will they get more favors from the federal reserve in more bank friendly fomc? eric: potentially. among thef spots open governors that have to be field including head of regulation. there will be change. david?
8:49 am
-- david: let's listen to what our guest had to say. we do believe they have been too accommodating and that has hurting the main street america. we want to governors that reflect main street america, the small towns, small businesses, small banks and have that view heard on the board of governors. voice sayingr maybe we should be favoring smaller regional community banks more, is it in the cards? have the dichotomy you seen in regulation is likely to continue. increase rigor around the significant banks in relief for the smaller ones. jonathan: great to have you with us. financials to call in the price according to guggenheim. time for other stories. let's go to emma chandra. is crating a
8:50 am
service for air travel, according to people familiar who said at the project development is an early stages. a moving to the space cut but home rental and greater competition with priceline and expedia. airways and cabin crew representatives meeting in london in hopes of preventing strikes that could cause christmas chaos. the carrier are fighting over pay and work conditions. there try to resolve things up before as many as four 500 huge role-based workers walked out on christmas day. powersetition exceeded in a probe that ended in the record 13 was his billion dollar tax bill for apple. government is assisting that apple got no sweetheart deal and the eu does not understand irish tax law. that is your bloomberg business flash.
8:51 am
battle ofing up in a the chart -- all about inflation and welcome be driving prices higher. that is next. this is bloomberg. ♪
8:52 am
8:53 am
jonathan: this is "bloomberg daybreak." i am jonathan ferro. 9:45 a.m., u.s. december services pmi. at 1:30 p.m., chair yellen speaking on the jobs market at the university of baltimore. david: time for battle of the chart. are -- matt, you will go first. all guys. it is almost new for us. go for it. matt: today, we are looking at breakeven inflation rates which
8:54 am
is the white line versus the s&p 500 which is the blue line. ,ou can see since the election breakeven inflation in the bond market have been going on. stocks have been going up as see betterestors growth prospects with the incoming trump administration. i want to draw your attention to this correlation on the lower panel. what it shows in the post -- crisis period, with had a much higher correlation between stock returns and break even inflation rates. what it tells us is financial conditions have become much more important than inflation outlook before in the precrisis period and probably because monetary policy does not have as much space to offset shots. if you know -- if you want to know what my brings it back down again, maybe a good street falld wall
8:55 am
off. david: companies think they will make more money and it tends to bring it up. matt: that is why it runs both ways. david: is up to you. u.s. dollar and where we are exporting inflation. one of the things mac is talking about as how to get inflation down as the dollar goes down. rising,ollar has been we have been exporting to g7 markets which is the white line. the dollar has jumped sharply this year and inflation falls. what we can expect if the dollar stays, we will see inflation pickup for his g7 partners. it will create winners and losers. europe, probably a big loser and the you cave. their growth is just beginning to take up. -- kick up. david: as the u.s. dollar goes
8:56 am
up, it could hurt u.s. companies. two really good chart and i will go with matt. sorry, vince. really good chart. jonathan? jonathan: thank you. managersachs asset chief investment officer of physical income and rich clarida on their investment outlook for 2017. that is next. the outlook for the next 34 minutes. the stages like this. futures roll over. treasuries and we are down for basis points. this is bloomberg. ♪
8:57 am
8:58 am
8:59 am
jonathan: welcome to "bloomberg daybreak" on this monday.
9:00 am
i am jonathan ferro. we county down to the catch open. futures marginally up. of the s&p 500. in the bond market, head of chair yellen's speech, treasuries, yields are lower. crude is lower. david: thank you. what you need to know. the china-trump dance. dronesnatches an american and trump said they can keep it. markets react to the geopolitical uncertainty but when tensions between the two largest economies. you are fired from barclays about to tell 7000 clients they do not do enough business to remain. this is based on a monthly ranking of each return the client makes. big oil on the march pretty ep does a $2 billion deal with abu dhabi give the emirate 2% of the
9:01 am
company for a stake in one of the largest offshore concessions. bp shares rally on the news. that is what you needed to know. abigail? abigail: the u.s. futures are basically flat, ever so slightly higher. is ine are seeing risk the commodity complex. both oil and copper are lower. copper is down for the 30 day in a row. we will see families into equities and if you are record watch or not. we will know when stocks open. we had disney trading higher as the company was added to the u.s. number one list of bank of america-merrill lynch. including increased consumer confidence, they have raised price to $125 per share suggesting disney could rise. trading at ar better fourth quarter, home demand was strong while the form
9:02 am
a giant, bristol-myers is higher on an upgrade to buy at jefferies. a potential for the shares of bristol-myers squibb around a partnership with astrazeneca. jonathan: what a year for 2016 as we wind it seems down. it look ahead to 2017. joining us is rich clarida and jonathan beinner. gents, great have you with us. erikeekend a note from nilsson who wrote i worry about the number of investors and he seems to believe trump will do the favorites they like and none of the crazy things he flirted with. 2017, defined by surprises? are you surprised by the conviction? jonathan beinner: it is interesting, i guess, as a margin, yes.
9:03 am
one of the things we are hearing is saying is potentially good for growth and things that might be offset by that. a lot of optimism right now and you see that in the business surveys. consumers are feeling pretty good and markets are reacting. we seemed at the end of the day, cooler heads will prevail and that is what we will see is that the rhetoric on some of the things that are a little bit more inwardly focused, put a constraint on trade would be growth a negative, we might see some of that but probably less on the positive side. things that will make it easier to do business and reduce taxes and make people feel better about the future. david: how much of this is trump and how much and under like economy? we tend to focus on all on donald trump. he will be different. there were indications already in the marketplace the u.s. economy was on a good path before the election? rich clarida: unemployment has
9:04 am
been falling. a lot of investors with what can go wrong, china and brexit. we got through it. now let's reprice. a lot of of it is one time repricing. i think it is both. jonathan: what has been priced in? we has somebody who said everything. everything good in the world has been priced in. knowhan beinner: i do not about that. it depends on what market you are talking about. andook at the bond market interest rates have repriced in a significant way as you heard. this started before the election, we saw interest rate going up and unemployment going down and labor markets are tight. we have seen a big move. we think it is not all price in. you heard from the fed that the first time that dots moved in
9:05 am
and the markets have not priced of those dots in. jonathan: one adult finding moves of last week, we do not get a steeper curve ball flatter. what is the message? rich clarida: we saw a more hawkish fed that many, including me, expected. yellen took off the table, something she hinted at in october that she wants to run the economy on. she distant herself. next year,hing about next year will be in your legislation but i do not think we will get a lot of fiscal kick until 2018. there is a timing issue. it will take time to do tax code and infrastructure, even more. be pricing in 2018 into 2017. david: let's talk about the verges. we're talking about the verges in central bank debt divergence in central banks. divergence in central banks.
9:06 am
how big of a factor do think it is? jonathan beinner: i think at will be a major factor. we expected it this year. the u.s. has been outperforming from a growth perspective. slack andas limited we can debate how much it is as opposed if you look at europe where you have big parts of europe with a fair amount of slack. there will be divergence and so much talk if u.s. interest rates, can there be a spread between interest rate level and the rest of the world? we felt of the u.s., if the economics anfundamentals demanded, those spreads can continue to widen and we expected. jonathan: it has gotten pretty wide, rich. this collateral issue and scarcity in german. -18 basis points. where are we on trade? how much water can it go? rich clarida: by some metrics,
9:07 am
we are near metric record wide in germany and u.s. the mechanism is with the flows and divergent monetary policy. stronger dollar and it will lower inflation and slower growth. that will build limit about what you dollar depreciation we can get and have the fed on three hikes next year message. jonathan: the verdict from a french court, madame lagarde was not negligent in a decision on arbitration according to the court. accused story is direct of negligence and an arbitration case that resulted in the french state paying 400 million euros to the french tycoon. lagarde apparently according to the court was not negligent in a 2007 decision on arbitration. huge: it is not a surprise. it would've been a bigger story if it went the other way. the prosecutor would -- was
9:08 am
saying she should not have been prosecuted. why are they prosecuted when should?s saying she should? jonathan: she was and the court decided she was not negligent in 2007 in a case on arbitration to end. that wraps of that story. we will bring you the update in the next hour. back to the markets, you set up your portfolio. with all of this in mind, sovereign income, equity, how much do get the mix right now? level, we do think everything going on particularly in the u.s. could extend to the cycle even more and we could get an acceleration and growth. will been waiting for 3% forever and we kept ratcheting down. we are starting to see it go up again. that is a backdrop, equities still make sense in the fixed income market. waiting interest rates could
9:09 am
push higher. we do not love the treasury markets right now and we sing interest rate could go higher and prices could fall again. we are a little cautious on credit because we're relatively close to the end of the cycle so we are not calling for a recession in the near tour -- near-term. we do think with a real celebration and a growth and rick celebration -- three acceleration. with him taking various amounts of credit makes sense. david: what about you emerging markets? we had a guest who say china is the barometer of all of em? is that how you see it? rich clarida: probably the single most important factor but there are others. it looks like stabilization and commodities and that's important for e.m.. you have a better political like we sawome em impeachment in brazil. from a depressed debates, and upside.
9:10 am
when the fed is raising rates and giving concerns about trade restrictions, that's a headwind for a lot of em economies. jonathan: great to have you with us. rich clarida with pimco and jonathan beinner with goldman sachs, you will stick with us. an update on the lagarde story. according to the court, lagarde was not negligent. she was negligent in a decision not to appeal the award. the court reading doubt -- reading it out as i speak. for an update out to the business world, over to emma chandra. senator johncan mccain is joining democrats in calling for special select committee to investigate foreign cyber attacks. it puts him at auto with donald trump -- it puts them at all with the donald trump who has said moscow do not interfere.
9:11 am
south korean president denied on the first-ever trial that she use her presidential power to extort money from big companies. today's hour-long hearing was the first public appearance in weeks. the scandal led to the presidential and pitchman as millions to the streets. ,n china, national bread alert choking smog. some are trying to limit factories to reduce it. in beijing, state media said more than 700 companies stop production and travel polys restricting drivers by monitoring license plate numbers. it is not expected to live until global news 24 hours a day, wednesday. powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra. this is bloomberg. david? david: shares of bp moving more thaner swapping
9:12 am
2 million of shares in a state of abu dhabi's largest concessions. our concession -- our conversation is next. this is bloomberg. ♪
9:13 am
9:14 am
david: where putting oil in the focus. bp cementing his relationship with abu dhabi for a stake of one of the largest concessions. with what the bob dudley. : it will mean additional barrels per day. clutching a very long-term relationship -- continue will cover remote relationship, that's good that continuing a
9:15 am
very long-term relationship, that is important for us. for bp, it brings in the strategic owner. us is thejoining acoustic group. great have you with us area typically, a message and deals for price. what is the message for price and for signal out of this one? guest: up. the market iss doing. it is manufacturing it because when you see these types of activities, it means it is consolidating and more control over use and they can let this grind up to the upside. that's what we're seeing. opec putting a price on. what is the risk of the floor next ripped out? guest: i do not think it is a risk into the end of the year. it challenges, we conceive
9:16 am
$46, back into play. there are pundits calling $48. i do not think the probability is their right now. probably less than 20% we will challenge the floor. jonathan: great have you with us. breaking news. david: breaking news. beentine lagarde has convicted of criminal negligence in connection with the arbitration over in france. we reported she was acquitted and referring arbitration and the court went on to say it was ok to go for a bowl once you got the award, you should have appealed it. but once you've got to the award commute should've appealed to. wasas a dispute when she finance minister, and ongoing dispute about individual sold a company. she came in and said i do not want to take it to court, let's go to arbitration. arbitration and
9:17 am
a big award. i do not remember the number. they paid the money. it appears what the court has said, is said it was ok to go to arbitration both once been you should've appealed it. joined the main 400 million euros. jonathan: it was 40 million euros. some were sent it was no need to convict her. what is her future as the head of the imf? she was given another term. david: what does it mean for her? they knew about the case when they gave her the term area they were aware. jonathan: much more on that story on the other side of the commercial break as we counting down to the cash open. futures are trading water. yields are lower. this is bloomberg. ♪
9:18 am
9:19 am
9:20 am
jonathan: breaking news out of paris and imf chief medical lagarde committed a workout in a negligence case. negligent in the 2000 a decision not to appeal in arbitration. she is cleared of a second count to take the dispute to arbitration. she will not face a fine or a jail sentence according to the judge. for our viewers, the question is what does it mean for future as the chief of the international monetary fund? david: the board will have to get together and decided that. jonathan: lagarde will not face prison time or a fine but she is convicted on one count in the negligence case. 20 minutes ago. david: over the weekend, we learned print electro will desperate electro what a name mick mulvaney -- president-elect trump would name mick mulvaney for chief of budget.
9:21 am
that is an interesting balancing act because president-elect trump is committed to cutting taxes. how it works that is interesting. he is really committed to cutting these big expenses if you look at what mick wants to do. david: still with us is jonathan global physical come. if we listen to what mr. allison ofd, an irresistible force ideological. we want to cut taxes but no greater deficits. tot does it say as you look how you price in a trump administration? jonathan beinner: there is still a lot of uncertainty. think about, you the insurgency. volatility in a lot of market has not picked up and markets going up in volatility has been priced in high. there are opportunities to think about it. and what is the potential outcomes? a lot of different outcomes.
9:22 am
when we think about the implications of the administration, a big one is around sentiment. we think the focus on deregulation, which i think is more likely to have legs and see some change in 2017 and beyond, that's what have an impact on growth, inflation, earnings outlook and so on. we have been a bit skeptical on whether to get a huge still -- fiscal stimulus and it goes along the lines, there will be constrained. on at the other hand come a focus on the spending side rather than the deficit. there will likely be something on taxes which will likely be production overall, it will give some positive growth in the near term. i think to pick up and spending, a much bigger challenge. you look at investment decisions, how does the uncertainty and possibilities express themselves? a u.s. dollar strength issue?
9:23 am
how do you look for opportunities in the marketplace where it might be mispriced? jonathan beinner: i think what you want to do and what we look at is what is the outlook for growth and inflation? and we also not only do we do a point estimate but what are the potential outcomes. after this point, the outcomes are skewed to the upside. this is a huge shift. everybody was the best case we will get is a continuation of just ok. there's is a possibility of a downside risk. now it a shift in a significant way. you want to build a portfolio that will benefit from growth and not get killed if in fact we got the pickup in inflation. cautious/bearish on interest rates. we do not think, yes, we may not get as much growth but we do nothing inflation rates will come down. ine of a pro growth buy
9:24 am
portfolio, credit, equities, also the dollar. we think the dollars were the action will be. if you look at the ecb and bank of japan, there are not anywhere near where the fed is. they are tightening. conditionsfinancial because they want financial conditions tighter. ecb and baker japan wanted him easier. they will struggle. jonathan: you talked on it a little bit, progrowth buy, quite clearly, we are expressing a pro growth buy. where is optimism not quite there? where else are you looking for pockets of value? jonathan beinner: i think emerging markets is interesting on the debt side. there is a concern around protectionism, obviously, president-elect trump has talked china, mexico.n
9:25 am
with the mexican assets have price in a huge risk premium. we think on the one hand what we will get is less than our rhetoric. and second, priced for the bad outcomes. you think about mexican assets, interest rates, credit spreads or currency, we think it is an attractive opportunity. where would stay away from is china and related to china. we would make that comment even before the election. this adds fuel to the fire. e.m., generally loads on growth. if we are better growth outlook, a positive. protectionism canopy in offside. david: the strength in the u.s. dollar a you expected to keep strengthening. how do price of that in? think theyinner: i have. e.m. has done ok but it has lagged other markets. there is a bit of a risk premium. back to the taper tantrum when
9:26 am
interest rates went up, emerged the markets was a big underperformer. statek at the fragile other countries and that changed quite a bit. the deficits have been reduced significantly at in some cases, turned to surpluses. we are in a much a different world. if it is added to a better growth environment, they could do well. jonathan: junta, great to have you with us. jonathan beinner. coming up next -- on the opening bell, futures pretty much unchanged on the day. now up six. arebond market, treasuries up. this is bloomberg. ♪
9:27 am
9:28 am
9:29 am
jonathan: let's get you up to on whether the stage is set. .utures up six points
9:30 am
after six weeks of gains on the dow, will we get close to 20 k. this is how the other asset classes look. the 123 handle, treasury bids you well. still 2% -- let's get the market this monday morning. downil: we have the dow ever so slightly but the s&p and the nasdaq up ever so slightly. we will be watching to see if the dow can turn those declines.
9:31 am
this is weighing on lots of the iron stocks, including u.s. steel. we see some weakness here. iron had initially done well on the election. with this weakness be a signal that we are starting to see a reversal on that. we have shares actually trading lower. $2.5 billion in both stock and the cash. >> breaking this hour, imf head christine lagarde convicted in a french negligence trial.
9:32 am
take us first exactly what the court decided as we understand it. >> christine lagarde was not present here today. not after ordering the initial arbitration but for failing to in 2008, whenter she had the possibility. the president highlighted the fact that christine lagarde was -- as you know she was a partner at baker mckenzie in chicago. she would have known she had the option to overturn those initial payouts. end christine lagarde was found guilty of negligence. ofever given the context
9:33 am
the financial crisis, she will receive no sentence, noted -- no jail time, and no fine. >> is there any appeal for this decision? >> she has one appeal possible. we will see whether she does so in the next few days. she hasn't received any sentence. >> she was a partner at baker mckenzie. she knew there was a possibility of setting decide -- setting aside the decision paid lawyers are not required to pursue every evidence.
9:34 am
>> even though she was aware of the fresh investment agency was andnst the arbitration advised to overturn the arbitration. the chances of success of overturning the arbitration was very little. >> a lot of people will be wondering what this means for her and her future at the top of the imf. is itre the implications? anything more than a reputational issue? >> we go back five years or so it would have been a different story. of testing talk
9:35 am
lagarde being a french presidential candidate. she didn't show much interest in this position. there is a lot of interest in this case, but more because of the amount of money involved. she had that many french political projects or plans. >> joining us both from paris, a statement coming from the international monetary fund, issuing a statement stating that the board will make sure that -- probably not the outcome or they expected. lagarde in two very different situations.
9:36 am
i wonder whether they would be able to get that voice to the top of the imf again. we will bring you up to speed when we get news on their stories. themore we are joined by chief market strategist. we priced 21 times on the earnings. we know the tailwinds. when does the reality kick in that some of this doesn't actually, want to our doorstep in the next couple of months. >> it is difficult to see something that would derail this rally. after six weeks we have a market that is pretty impervious of anything we throw at it. whether it is the fed raising
9:37 am
rates are a multitude of companies that blamed the strong dollar. i think we are looking forward to a lot of positive pro growth pro-business, and the regulated -- the regulated environments. perhaps we have gotten ahead of .urselves things still take time in washington to get past. this will really be based on a couple of things. that probably kicks in in the first quarter. through our first hundred days of the administration we will see what low hanging fruit they go after in terms of wins, in terms of regulatory or taxes right away. a lot of it is still in the cards. over the last six weeks, that's not similar -- that's not
9:38 am
dissimilar to the last two january's. pullback -- be the when will the bowl back -- when will the pullback be more aggressive? financials?ee the guest: and look at the financials as a group that until last week having gone back to -- after a market that has moved significantly higher with the anticipation of margins that will be better for the business models, and certainly the prospect of capital coming from overseas back to the u.s. with repatriation. i think the right away as much longer for the financials. is really the first bump we have seen in quite some time.
9:39 am
the financials over the last 10 change to 2250, flirting with 2300, which are down 3% from that time frame. i think some of the moves we see in industrials probably got ahead to some of the special industrials that have more global facing. it won't be large participants in terms of the percentage. we favor more industrials. and the third thing is the bond surrogate, that selloff is pretty pronounced. i think that space slows down a little bit in the first half of next year.
9:40 am
85% on that acid value. markets down 9/10 of 1%. to get you up to speed, equities about 1% on the dow. the ftse treading water. it has been that kind of day so far. the u.s. drone in the south china sea. for foreign diplomacy at least, that is next, this is bloomberg.
9:41 am
9:42 am
>> to a with bloomberg for the
9:43 am
president of the new york stock exchange at 10 a.m. eastern time . >> let's get the markets. abigail doolittle. looking at a modestly higher open. the down the s&p 500 are all higher. the dow opened ever so slightly lower. on pace for its seventh weekly gain in a row and the longest winning streak in two years. plus has investors week to see if the dow can crossed out 20,000. this is an extension of the rally over the election. the trump trade is starting to weigh on the chinese stock market. this is a three month chart of the chinese composite. we see that divergence for the shanghai composite. it is down for its worst week since april.
9:44 am
the question is what is next for chinese stocks? will the trump election way on that stock market? this is a shares -- a six month chart of the composite. on the year the shanghai composite is down 10%. out of february lows we see a nice uptrend. started to move down from an area of congestion, suggesting this beautiful uptrend could break and there could be at least a 5% the klein a head for the shanghai deposit. isid bank we could ask what -- david: we could ask what is happening with the chinese. trump tweeted that chinese steals u.s. research thrown in international waters, takes it to china in an unprecedented act. leader goes on to say we don't want the strong -- want the
9:45 am
drone they stole. a perfect day to have a china expert like you. give us a sense, those of us who don't follow china as closely, is this serious business or a minor kerfuffle? >> this is serious business in the sense that president-elect trump has said a whole host of things that china doesn't like. done things that many nations in the world don't like. i don't think he is going to act abruptly. no big tear up on inbound products for china. this will all pass. to that point over the weekend, reince previous took the airwaves in new york and
9:46 am
said we may not pursue the to china policy right away, that is not on the front burner. solace?at give some guest: that won't. the new team with respect to , with all kinds of unusual , but the u.s. tech sector is heavily dependent on the taiwan supply chain, where something serious -- supply chain. where something serious to happen to that chain, the tech sector would be brought to its knees in weeks. : is it realistic to think there could be a rupture there, just because of the
9:47 am
economics. clerics who knows what is going who knows-- guest: what is going to happen. i think they will realize they have more in common than they do in conflict. taiwan is important to china like texas is important to the u.s.. can't break that texas-mexico relationship and you can take the taiwan-china relationship. david: is this business or is this personal? this was an existential issue for them. they believe taiwan must be part of their country. guest: i don't think they will back down from that at all.
9:48 am
if the president elect really pushes this matter, china will make the taiwan and u.s. economy hurt in a big way. this is damaging to both sides. back to geopolitics, there has been a steady decline. they have been interviewing the pbo see in the marketplace. is there a limit on how far they can go and profit up. >> people need to realize they have fallen 2.3% since the election. a gets a whole basket of other currencies and countries.
9:49 am
fallen againsty a broad basket. i'm not worried about a massive decline in china's foreign exchange reserves. >> he is the isi head of research. up? >> we areing going to get the latest on this news. christine lagarde has been convicted. she won't face any jail term. he is among the most bullish out there. then we are going to speak to the nyc president to discuss his output.
9:50 am
and then he is a portfolio manager. .utperforming of high-yielding big show up in 11 minutes. >> coming up, more on the breaking news out of paris. christine lagarde convicted of negligence. that is next from new york. this is bloomberg.
9:51 am
9:52 am
david: a court convicted christine lagarde over one count of negligence over her handling of a multimillion dollar dispute when she was france's finance minister. she will not face a fine or jail sentence. the question is what does this mean for her future? --ning us from washington dc the imf, the future of christine
9:53 am
lagarde, what are the implications for the future of the top of the imf? this: there is no question is a serious blow to her to cash to her, to the fund. -- to her, to the fund. she has not been sentenced to a prison term. the indications i was receiving going in was the executive board will continue to support her as long a she was able to continue doing her job. --long a she is not in and not in an orange jumpsuit -- a couple of comments from mohamed el-erian, who wrote on facebook she should remain as managing director of the imf, what it shouldn't be about that.
9:54 am
here, this issue the third managing director to face legal issues. in his words, there is an urgent --d to modernize them modernize the director selection process. is there something wrong with process and is it to political? guest: that is a fair point. it does sound to me like it is a separate issue. the issue of whether the managing director of the imf should no longer be a european and the fund should widen the pool of candidates it considers and should finally have somebody from a major emerging market, that is a valid point. a question of her leadership at the head of the imf. the executive board has a lot of faith in christine lagarde. she is a politically step --
9:55 am
politically savvy person. the question is if christine lagarde is not the head of the imf, who would be a co-you bring a trump administration to play. it's a scenario that the board may be worried about. she does have a contract. she was renewed for five years and under the terms of at theirt she serves pleasure, she serves at their discretion. >> christine lagarde is convicted of negligence. the question is whether she will remain the managing director of the imf.
9:56 am
>> and will it undermine her authority? david: full coverage on as the are progresses. 25 minutes into the session, let's get you up to speed. after six weeks of gains on the dow, we are up 2/10 of 1% as we kick off the ultimate -- the penultimate trading week of 2016. -- ahead ofmarket janet yellen's speech later. and the dollar stronger. from new york, this is bloomberg.
9:57 am
9:58 am
9:59 am
julie: nine julie hyman injured tony gwynn.
10:00 am
-- vonnie quinn. mark: and i'm mark. welcome to bloomberg markets. ♪ julie: we will take you from new next hour.don in the here's what we're watching. international monetary fund chief chris the lagarde convicted of one count of negligence by a paris court. we are live at the courthouse over her handling of a multimillion dollar dispute. mark: barclays is narrowing its customer list to focus on relationships that produce bigger profits. prepares to tell 700 clients to do more trading with the firm or take a hike. lie: and could oil giant aramco -- we ar

13 Views

info Stream Only

Uploaded by TV Archive on