and i am alix steel. scarlet fu is doing other work. saw itsfalling after it biggest weekly jump of the year last week. joe: the question is, what'd you miss? expected,te hike is and we weigh the odds and what they mean for the market. plus, negative interest rates. europe digs deeper into negative territory. going strong into the holiday season, and our guest whycharts that he says show , but, of course, we have to begin with the markets. it looked like markets were going to be able to sustain that rally we saw, and the best weekly rally that we have seen did not do it, and it ended a

two-date winning streak, but, -- two-day ended a winning streak. joe: we saw some yields heading up, and it looked flat, but still, the momentum is up, and is says fund futures -- it beginning to seem like that rate hike is a lock. alix: we saw that reflected also ollar, soro/d continuing that kind of theme. are saying isle that there would have to be something majorly bad to derail the rate hike. endingnd we saw allergan

down, despite that merger. there were the rumors that started in october, but nonetheless, it seemed like the market got a little tired of the m&a. new it seemed like a market what was going on, and there were also politicians that came out. at this point, not much excitement left for this deal. and commodities. i went to take a look at the bloomberg terminal, -- i want to take a look at the bloomberg terminal. commodities. nickel and zinc. this really has my eye. l hashow hammered nicke gotten, the lowest level since 2003, and i keep saying this, joe, that it is turning into

more of a demand story. pacitti, not enough to help -- not enough to help. demand has to be that much better in order for those supply cuts to matter. joe: we just keep getting worse and worse. out: i am a little bummed right now. joe: i was playing around with some weather data, and this weatherline on my chart deviations from the norms, and where it is going up, it means that day is warmer for that day of the year, and the blue line is natural gas, and one of the biggest stories of the year is that natural gas is cheaper, and there is a correlation. the blue line has been getting slammed.

early 2012, natural gas got slammed. when it was really cold, natural gas picked up. you can visualize the relationship. when it is cold, natural gas goes up. i love this chart, and i also love that it implies that if it gets warmer, we could have a little bit more of a shakeup to the downside. joe: all of these charts are on twitter. alix: joining us is michael feroli, with jpmorgan. -- number of economists are pointing out that we could see higher inflation next year then perhaps people are thinking. i would not say we are concerned about it. we are not looking for it to rise above the 2% numbers that we think are appropriate, but we do think some of these next, particularly as the -- but we do

think some of these effects, particular gas prices -- again, i am not sure i would call it worrying, because, frankly, we have been worrying about inflation being too low. prepared is the market for this kind of return to normalcy -- but is the market prepared for this kind of return to normalcy? the fed committee is describing it as gradual, so i think if we did see inflation ise up faster than the fed looking for, faster than the markets are looking for, obviously, there will have to be an adjustment of rate expectations, at least something like the fed has in their own projections. is the risk of a fed policy mistake? what would that look like? mr. feroli: they are either

going to go too early or too late. now, i thinkight the economy have -- i think lift liftn december -- i think -off in december is appropriate. they are not going to get it right, but it is going to be a long time before we know which direction they might be getting it wrong in. risks,e of the inflation, what if it is not around a 0%? when they are hiking, it might already be way too tight. what do you think? of feroli: i guess i kind

disagree with that. even with zero interest rates, it would suggest that zero is stimulative. would also say that fiscal policy during that. keep her was pulling in a different direction, so i -- that fiscal policy during that period was pulling in a different direction, so i do not think that alone is reason to worry about a mistake. ,bviously, anything can pop up and in terms of overseas development, in hindsight, that might make us conclude it was a mistake. the nominal rate around 0% to me carries a lot. funds rate isow

less negative than it was, though it is in negative territory. we have seen tightening. monetary conditions tightening without the fed doing anything? monetary conditions tightening without the fed doing anything? mr. feroli: the vast majority of the tightening -- that has occurred, and as that has occurred, we have seen some sector suffer, and we have even with that seen the unemployment since the dollar started appreciating in a big way last year. things happen in anticipation of fed action, and fed action happens when you get close to stability. think it is unwarranted, given where we are in the cycle. will janet yellen the full

support of the committee? on theave been some hawkish side, and some on the dovish side, but do you think it will all be ready to go? i suspect so. i think there is a chance that there could be a dovish dissent, but i think they all know what is at stake here, and presenting a unified front probably will be important. i suspect the chair would like to see everyone kind of coalesce around a committee view, so nothing is for certain here, but i suspect they have a pretty unified front that they present to the market. some have said that even the hawks will get in line, and they do not want to get too hawkish, because they do not want to mess up rate hikes in

the future. are going: the hawks to get their way. it is hard to see dissent for more hawkish language, so i think this is a time when the hawks can sit back and be happy .or many years they have had kind of a victory, if you want to put it that way. alix: thank you, michael. michael feroli from jpmorgan. coming up, will the u.s. follow suit? ♪

alix: i am alix steel. what'd you miss? let's go straight to mark crumpton. alix.thanks, another arrest in belgium. a cedi and identified suspect was charged with participation in the activities of a -- an unidentified suspect was charged with participation in the activities. detained sunday were released. meantime, brussels remains on high alert, but officials say schools and subways will reopen. now, in paris, where these terrorist attacks are having a major impact on tourism. 10 days after the attacks, re and sales to the louv other places are down, and there

are also not lines waiting to get to the top of the eiffel tower. they are looking at ways to limit the damage. in thena making a change winner of the election, macri. macri has promised to lift the argentinian currency controls and attract international investors. passengers are stuck on the forac awaiting takeoff longer than any time since they started tracking taxi times. analysisated press with the time at more than 23 and a half minutes during the first nine months of the year. flights increased flying times to account for the delays. on these andore other breaking stories 24 hours

a day on the new bloomberg.com. from the bloomberg "first word" desk, i'm mark crumpton. alix and joe, back to you. are lower,n yields so how long do these negative rate last? a head of fx strategy at deutsche bank joins us. how long can they last? alan: a long time. it will take a long time to drive the unemployment rate down . we could be talking multiple years. in fact, you could even have the peak in european interest rates that are negative. what does this say about monetary policy and policy response? 2016, years since the crisis has

passed, basically, around the world, and we are still in this bizarre situation, where people are giving government's money, paying governments to hold their money -- giving governments money, paying governments to hold their money? getting the economy to liftoff, you can get it to normalize, but if they get it wrong, absolutely, you are right. there is no firepower left when the economy does turn down. what else should they be doing? let's say that the bet is wrong, and qe does not do anything for the economy, does not get rates normalized. lean they certainly could

on fiscal policy, and they should be, but at the same time, i think you can find to monetary and fiscal policy, as well -- i monetary can fine tune and fiscal policy, as well the orey finance tax cuts expenditure increase. i think if you give somebody a tax cut, and eufinance that by printing money, i think they if you give summit a tax cut, and eufinance it by printing money, i think they will spend it -- if you give someone a tax cut, and you finance it by printing money, i think they will spend it. what about the spread with the u.s., the two-year, and then the german bund? alan: it is interesting to see what the forward rates are saying.

if you look at the spread -- joe: walk us through it. alan: you look at the forward curve,d you look at the you take the spread of that, that spread moves in favor of the u.s. dollar for the next five years. short-termthe case, interest rates -- they are going to be helpful for the dollar for the next five years. joe: how high could the dollar go? to $.85.could go it would be a substantial overshoot, but well within the realm of what we have seen in the past. euro?long dollar, short alan: the dollar is certainly in the mix. the markets will frontload a lot of this. the market has frontloaded a lot

of the gains even before the fed has actually tightened. actually, the next two years, you get that front loading of the additional dollar gain. last week, they surveyed fund managers, and they said the long dollar trade is the most traded. a law --iously not novel idea to be long the dollar. alan: i would say this. to break the new low, you are going to need a lot of things going right. you need the fed to deliver on december 17. you have to have draghi delivering, and you need a half decent payroll number. you need all of that to happen i think to break down to new lows, given how crowded the trade is. on the longer term, we need to just chip away, and particularly

if the front end goes up, and the back end is well behaved. but the short term, as you are mentioning right around the said hi, you should be selling the dollar, because -- right d change, you should be selling the dollar. get quiteare going to a squeeze around some of these in equations. people will have to start rate hike. march an upward goes the dollar. alix: and then the ecb goes, maybe i will raise higher. , alan.ou

we will be right back. ♪

♪ alix: i am alix steel. what'd you miss? we are back with the head of global fx strategy. alan. what happens if the fed is the only central bank to raise rates next year? alan: that is an interesting thing. typically within the g 10 world, there are 5, 6, 7, eight banks

-- the fed would be lonely, and i think that is probably the most important thing for the dollar going forward. a lot of people have come on here and talked about supporting a rate hike faster than the u.s., but the market is not even convinced they are going to hike it in 2016. : obviously, the governor's have convinced us later rather governorsr -- the have convinced us of later rather than sooner. you will see a very negative fiscal impulse coming through as they consolidate their fiscal accounts, and that means you will need much easier fiscal policy going forward, and, of course, there are a lot of things. joe, i am your point,

looking at the bloomberg terminal -- and to your point, joe, i am looking at the bloomberg terminal, and the closest you get is 48%, and that until late 2016. there was a speech talking about the world becoming more interconnected, and the u.s. was more effective by the chinese economy -- more affected by the chinese economy than ever before. so much excess capacity. alix: and what you are looking at, china. you say that is actually spend get to look at. alan: it is interesting, the strength of the correlation we have had for the last 20 years or so. atnomists have an looking

global output gap and the amount of spare capacity in the system amount ofgaps and the spare capacity in the system, but one thing we see for sure in the u.s. is the relationship with chinese ppi, as an example. it seems there is a relationship with the global output gap, as well. and there is inertia. nowhere in about the last 15 years. as you look into 2016, what is the single biggest risk that you see? fx story isina massive. if you look at what china has done, we have moved from a rate, two now a

ate around 6.4 t -- to now rate around 6.4. i think they want to move to a market exchange rate. there is a lot of carry trade. calling-- they are at the great divorce between the renminbi. the alan: a managed divorce. alix: alan, from deutsche bank, thank you. one of the world reserve currencies. a decision on november 30.

what are the implications to the chinese economy? ♪

♪ ♪ alix: i am alix steel. what'd you miss? let's go right to mark crumpton. francis says they have launched their first airstrikes france says they have launched their first airstrikes from the charles de gaulle. they say jets were sent from the carrier this afternoon, with two flying over the city. statere targeting islamic in syria.

and the belgian prime minister told reporters the rest of the nation would stay at the second alert. level of schools and subway stations are scheduled to reopen on wednesday. u.s. secretary of state john kerry goes to israel tomorrow. to help with a wave of violence. in jerusalem, two a palestinian teenage girls attacked a -- two ald palestinian palestinian teenage girls attacked a 70-year-old palestinian. and there was a muslim teenager who took a clock to school, and they thought it was a bomb it. he was arrested but never charged. his family a sense -- since

moved to qatar. from the bloomberg "first word" desk, i'm mark crumpton. alix and joe, back over to you. alix: the best weekly rally of the year last week, and markets really could not hold on to those gains, joe, even though it seemed like the december rate hike was on. a holiday type of trading day. two-year, pop in the and the odds of a december rate hike still over 70%. alix: and the same thing with the dollar/euro. it did not sustain the level, but it was the december theme coming in, and then we had pfizer buy it allergan and i

, that ibuying allergan want to take a look at the bloomberg terminal. right now, we are right around 23%, up from 20%. pfizer is paying a premium for beergan, and i have to honest, joe, this reminds me of exxon, and what happened to natural gas after that? it tanked after that. joe: that did not occur to me. alix: 2009. essentially calling -- and then pfizer buys allergan for something extreme. we are just days away from the adding china in the basket where it joins the dollar, pount, and yen.

fora had worked hard inclusion, but what happens to the currency after imf approval? a guest joins us now. aboutst heard joe talking seeing the great divorce coming, and you could see a big depreciation in the yuan. guest: i think we could see pressure in the yuan. talking about a somewhat controlled situation, but the some degree, they were somewhat on best behavior to get ahead of the boat, and the weond fact is, something have spoken about before, that chinese corporations and banks have built up a large dollar short position. been covering that.

once you get these two things out of the way, then i think we are in an area where chinese needsic monetary policy come to the front, and that is really the most important thing. joe: if we see a decline in the renminbi, it would be about allowing the country to have monetary policy flexibility, not to be hooked. karthik: absolutely. i have never believed the competitive devaluation story. it is how much sophistication they picked up in exports. globalve gone from 1% value added. the u.s. is at 10%. joe: so there may be advantages. china is losing. i cannot find the winners. mexico, but itay

does not seem -- i think as they cut rates, you will see pressure , and there will be some opening of the capital account, and the renminbi willhe change. they are looking to smooth the path, but we are in the position where the u.s. is going to be wishing that china intervenes more aggressively after 15 years of telling china not to do so. alix: they do not want the dollar to get too high. lew said they want china to go to a market exchange rate in a responsible fashion. alix: but you're going to have to see some kind of capital inflow to offset any kind of -- what do you expect to look like

-- expect that to look like? interbanklobal lending. sdr,ollar is 40% of the and then 60% of reserves. i think because of the relatively low weight of the u.n., and the financial market not as globalized, i do not expect it to be huge, at least over the short term. joe: looking at the median term, -- medium-term, how big can the yuan get? karthik: i think it can be stable. i think you can have the dollar, the euro, and the yuan. as mentioned before, china needs to lend not just more -- china needs to export not just more

capital to the world but export time, theynd over will do so, but i think that is a slow process. be just a it significant currency in asia? there is a new paper out, questioning whether it would be a global currency or a regional powerhouse current. -- currency. lot sayingere is a that the other currencies shadow the yuan. the canadian and australian dollars -- so you can buy the renminbi right now. the british cycle does not drive the world the way the chinese think for, and i those reasons, you could see some diversification, but, essentially, i would expect

regional anchors. alix: we have much more coming up. thank you, karthik sankara, eurasia group. fears of terrorism. we will discuss it, right after the break. ♪

♪ ♪ alix: i am alix steel. what'd you miss? now for the bloomberg business flash, a at some of the biggest stories. and allergan merging, giving them an irish address for tax reasons. biggest taxo be the

in version. that is an arrangement that lets companies operate in the u.s. that maintain it overseas address to pay lower taxes. -- but maintain an overseas address to pay lower taxes. petco.and says bankers are earning too much money. finesare the deutsche for past misconduct. and that is your bloomberg flash. brussels was on lockdown as belgian police continued their search for those involved in the paris attacks, and what are the

implications from the economic and market perspective when you have a lockdown of a city? >> i think it would be pretty severe, also with sentiment isoss the region, and there a possibility that unlike the very short rebound we saw in hebdo,nt after charlie this could be something that is more prolonged. and that could weigh on sentiment. early on in the segment, you had something about terrorism in paris falling, so i think this be a weight on sentiment and on growth, and an analogy might be what winters in the u.s. due to first quarter growth, and it has an impact, but from a market point of view, i would think one of the areas its monetary policy, because that is the first response to slower growth.

additional stimulus. i would expect that to come from monetary policy, and that divergence is obviously what has been factored into europe, but i would expect that to be something that would play a part here, as well. joe: one country benefiting is russia. u.s., europe, and russia are now perceived to have a clear enemy. people have been buying the ruble. do you buy the bullish story on russia right now? there are two w factors, and one is the russia -- there are two factors, and one is russia. the odds of lifting sanctions goes up at that point. the u.s. probably will not, so i think under those circles as is, -- so i a sense that

think under those circumstances, there is a sense -- any prospect of restoring capital market access to russian corporations at some point next year would help. at the same time -- have we seen that reflected so far? capital like the markets have already priced that into some extent. would you agree? karthik: when you compare the early part of the year, when the currencies were going the same direction, and now seeing it ruble, -- one the of the interesting things here is this is in part because of putin's extra nares popularity. we might not like it over here, but all of the devaluation, that

is not being indexed, so you have a budget that is pretty austere in real terms. joe: another economy under stress right now is egypt. obviously, there was the plane that went down. terrorism. how much stress is the currency going to be under? arehik: their reserves tiny, $14 billion, and they have had a series of devaluations, and we think there is more to come, and part of it is tourism, but another part of the story is we think -- well, one of the interesting market issues is that the oil market is treating this primarily as a demand andk, not a supply shock, they -- saudi arabia, it limits the amount of largess.

they can distribute. and there is a limit to amount -- the amount of aid they can give, and we think this is going to continue into next year. alix: what is the single biggest risk you see? there are -- i would say the biggest one, and the one the markets have not priced for is significant u.s. inflation that is higher than expected. i think that is something that will have very significant knock on effects, and for europe something --dea of of terrorism being something homegrown as to the persistent weight on sentiment -- that is something that also has to be taken into account, because it weighs on inter-european relations. joe: thank you for joining us.

karthik: a pleasure. out andll consumers go spend this black friday? i will be working. we will have the data, coming up next. ♪

♪ ♪ alix: i am alix steel. what'd you miss? black friday is days away. stores open early. everywhere, and retailers want a share of your wallet, but it may not matter. there is a shift away from goods to services. , david.us is an analyst david, what is triggering the

shift in what we buy? david: well, i think it has been one that we, alix, think has been evident in the data, going back at least 50 or 60 years, so i think it is just an ongoing, secular shift away from services and towards goods. in terms of what could be driving it more recently, i think demographics is a big factor. you have got the baby boomers who are now entering their retirement years. done,f the work we have looking at consumption trends lifespans, asl you move towards retirement, you are much more previous served -- use more likely to services. things like health care become more important, and you also have more free time to spend on things like travel and going overseas, so the bottom line

from us, the services trend has been in place for some time, but the secular shift, we take, right now has furthered a run as the baby boomers enter their retirement years. david, wanting to go out to eat as opposed to going to a store -- urban outfitters bought a pizza company a few weeks ago, people saying they should get into food because people do not want to buy as many shirts and stuff. something to look at and be focused on. it is not something we looked at in our recent research, but we have seen that trend towards restaurant spending versus at-home eating, the consumption of food and drink. we think that is one that has been in place for probably 20 or 30 years and also set to antinue, as people put premium on the convenience of eating out, versus having to do

all of the work and preparation and cleaning up at home. for sure, that is a trend that is also evident in the data. have seentheless, we some sales stagnant, but e-commerce sales are booming. is that we are still spending but just spending with amazon? david: some of the things we have looked at is that 2015 has been a year of a bit of inflection in e-commerce sales, so that is one of the things that has been talked about a lot, and it is not known when there is a tipping point. we think 2015 could have been that year. our projections suggest that in terms of the dollar increase in e-commerce sales in 2015, by far and away the larger -- largest dollar increase of any year on record and probably by a large margin, so we could start seeing that affects some of the data, particularly at the company

level, in terms of some of the clothing and apparel retailers that have reported over the past couple of weeks. david, should we ignore black friday? people are saying it is not reflective of anything. should we just ignore it? preference, were my you would, because i do not think it is as important as it was in the past. what one reason to be attention to it is that everyone else is paying attention to it -- but one reason to pay attention to it is that everyone else is paying attention to it. sort of self-fulfilling. couldot know that you extrapolate or that it would be appropriate to extrapolate more broadly to the u.s. consumer -- it is important to say that clothing and apparel is just 3% of consumer spending, so a fraction of the overall spend, and not really the area where we are looking for growth going forward, that being more so in

the services area. another thing, it seems we have built up so much inventory, expecting demand, but the demand to not materialized. how do you interpret that? can see a lot of promotional sales in a lot of subsectors that have that excessive inventory build. think clothing, department stores. those are the areas our research suggests, but we do not think that is something more broadly affecting the consumer space. several areas have actually seen reduced inventories over the past year, so it really depends on the subsector you are focused on, but particularly clothing and apparel stores, that is where you could see aggressive discounting over the next couple of months. alix: great, david.

appreciate it. are you going shopping on black friday? joe: no. shopping on black friday. when we come back, what you need to gear up on this trading -- on the trading. ♪

alix: i am alix steel. what'd you miss? do not miss this interesting read. dollar store, and the luxury consumers and the bargain shopper consumers, how are they doing right now? prices, how that helps their margins, because they have fallen so much. don't forget that consumer confidence is out tomorrow, probably more important than black friday to

determine what is going on with the consumer right now. is it.ll right, that we will see you back your tomorrow. joe: have a great evening.

--k i am mark halperin mark: i am mark halperin. john: and i am john heilemann. we were hoping for a quiet monday. ♪ mark: happy national cashew day, sports fan. donald trump and bernie sanders, but first, ben carson's gaffe. he is no longer sharing front runner status with