asncine: a draghi surprise the ecb prepares to ramp up stimulus. manus: fed on edge. charles evans says a december left off makes him nervous. we will hear from janet yellen later today. francine: and the u.k. debate on syria. parliament votes on david cameron's call for extending airstrikes against islamic state. live from bloomberg's european headquarters in london, i'm francine lacqua. manus: and i'm manus cranny.

eurozone inflation data set to come out in just over an hour ahead of the ecb decision tomorrow. we expect mario draghi to announce fresh stimulus to get closer to that mark of 2% inflation. francine: let's get straight to hans nichols in berlin. what are we expecting? thed this surprise change way the ecb is thinking? hans: potentially. the expectations are for 0.2% inflation increase. it would have to surprise considerably on the upside for mario draghi to scale back all the signaling he's done that he will expand the size and scope of quantitative easing. you look at the surveys we have. expectmber, about 80% the duration to be lengthened. beyond december 2016, a lot more expect the size of the assets to be purchased.

a greater percent expect it to include other types of bonds. maybe dipping into the state bonds here in germany. certain point, you may run out of bonds to buy. that has been a concern. those are the numbers we have going in. it bears mentioning that 0.2 inflation isn't all that high. manus: certainly not. you touched on some of the aspects of what they could do, hans. in terms of what the market thinks, certainly a more negative deposit rate, they've already used the language to say we will go beyond september next year. what does the market think has the most impact, or the most bang for the draghi book, or euro in this case? hans: nice save. if you did lower the deposit rate right now, the ecb signaled they could get more empowering transitory transmission sort of

bang there if they end up tweaking that a little bit. there's a lot of focus there. andrew balls of pimco has given an interview. he talked about how that would likely be lower. he sees the overall size of asset purchases increasing another half a billion euros. thingsu can maybe tweak or get more torque if you change the deposit rate and that is what a lot of the market expectation seems to be focused at. francine: thank you, hans nichols with the latest on this inflation data out in one hour. joining us is holger schmieg, david powell -- thank you so much for coming in. how nervous are you about that rate being cut further, david? david: i was going to say nervous isn't the right word. francine: what is the right word? david: i think it will probably

be cut only to enlarge the universe of assets eligible for purchase. the real focus is going to be the size of the monthly purchases. manus: holder, let's bring it to you. i've written down here, has qe worked? you talk about money supply. holger: has worked brilliantly. that's a fair way to judge it, isn't it? holger: the task of a central bank is not to drive up global oil prices to make us pay more at the pump. the task of the central bank is to look at domestic fundamentals to get the labor market going and get domestic inflation back to target. the ecb has done quite a bit of that. francine: but it has a mandate and that is inflation near 2%. that is the only mandate. ,olger: but you can't simply

you shall try not to drive the oil prices up. the mandate is not to meddle in the global oil market to drive up inflation that way. it has to look at the domestic fundamentals and get domestic inflationary pressures back on track. manus: which brings us to how the market looks at inflation as we look out in five years time. we've got a nice chart of that. that is rising. there is the view out there that draghi has promised so much for tomorrow that the market is racing ahead of itself because of the point you make, oil prices in this doldrums of $40 a barrel. is this a validation of your point? that looks very nice. you mentioned one issue. the ecb likes to surprise. in all major draghi decisions,

the ecb has delivered a bit more than the market was expecting. over the last few days, with everybody talking about this, it will be difficult for the ecb to deliver the expected surprise. francine: the markets are already pricing a lot in. does mario draghi need to do a little more? does he have the power to do a little more? inid: i agree with holger that that is draghi's style. if you look at the monetary policy reforms he's implemented in his time, when they were unannounced or hinted at with that famous "whatever it takes" speech and qe about a year-and-a-half ago, expectations were quite elevated. tothe end, he still managed surpass a bit of expectations. the ecb is certainly talented enough and can gauge expectations. . wouldn't be surprised

holder, what would surprise you in terms of his delivery? i'm also curious in terms of the unanimity of the ecb. do you expect a unanimous support of draghi tomorrow? run us through what would be over delivery in your opinion? holger: if draghi were able to say that there was hardly any vote against this decision to ease, it would be a surprise. the discussion seems to be more contentious than before. the case for further easing is not clear-cut. what would be a surprise is if the volume of monthly asset purchases were to be raised beyond 80 billion, not just 80, but more. if the deposit rate was to be cut by more than 80 basis

points, that would be a surprise. a real big surprise would be if they include rate corporate bonds. i don't think they will, but that would be a surprise. david laughed it off when we started talking about negative rates. are you nervous? this is something the ecb said they wouldn't do. holger: i'm not nervous. last time i was in switzerland, the mountains were still standing. they are having negative rates and that doesn't seem to hurt the country significantly. the negative rate we talking about is the penalty for banks who find nothing better to do with their cash. you can argue that is something which banks shouldn't do. they should have a better purpose for money. manus: so they don't pass the negativity on to us. holder, stay with us. thank you very much, holger schmieding. david powell, bloomberg intelligence.

those are going to remain with us. francine: here's a look at what else is on our radar. investigators intend to publish a report on iran today. the report plans to answer the question on whether the country's nuclear work at military dimensions. nuclear monitors say iran is moving at a high pace. manus: the u.s. auto industry had its best november ever as sales exceeded an $18 million run rate for a third month in a row. volkswagen sales tumbled 25% amid the diesel emissions crisis. more than two months after the carmaker admitted cheating on its emissions tests. francine: chicago fed president charles evans says the central bank december meeting makes him nervous. evans favors left off later than others and said it could still be appropriate for the fund right to be under 1%.

manus: coming up, we are to focus in on all things u.s., and the mighty dollar as jack lew weighs in on the currency. that is a bloomberg exclusive right here on "the pulse." ♪ ♪ ♪

manus: welcome back. this is "the pulse."

treasury secretary jack lew says that the u.s. will hold china to its commitments when it comes to foreign-exchange intervention. he spoke to bloomberg exclusively a day after the imf elevated the yuan reserve currency status. >> we made clear that we thought it was important that china meet all the standards to be recognized as a currency in the special drawing rights basket. they met those requirements. we've also had long ongoing discussions with china about their currency practices. they've make commitments to us that they will not intervene in ways that are unfair. those are important commitments. also weighed in on the u.s. dollar. he says the government intends to make sure the dollar remains the world's leading reserve currency. u.s. dollar remains the reserve currency of the world for good reason. we are determined to run a u.s.

economy that continues to be secure, that and makes that the case in the future. the u.s.,staying in while markets are pricing in a fed rate hike this month, one voice in the central bank remains uncertain. charles evans reiterated that he favors a later liftoff. >> should we raise rates or not? i admit to some nervousness about our upcoming decision for raising rates. i would prefer to have more confidence than i do today that inflation is beginning to head higher. given the current low level of core inflation, some evidence of true upward momentum in accurate inflation would bolster that confidence. i am concerned that it could be well into next year before the headwinds from lower energy prices and a strong dollar dissipate enough that we begin to see some sustained upward movement in core inflation. francine: we will be on fed

watch all day. janet yellen speaks later today. stay with bloomberg for live coverage of that. manus: let's discuss all of that. ehrenberg chief economist, holger schmieding, and bloomberg intelligence economist, david powell still with us. listening to jack lew, he said the chinese have promised faithfully in terms of intervention. is now part of a special drawing rights. how significant is it in your world? holger: jack lew should be careful what he does wish for. [indiscernible] means isu.s. typically the chinese should revalue, revalue, revalue, which is

different stuff than to say the down whenhould be there are doubts about the long-run trends in china. francine: david? david: i would say the implications are not huge. they are significant in the sense that it brings china more into the international circle. foreality, the sdr is used very little in terms of financial transactions and doesn't have a huge role in financial markets. francine: if we stick with intoncies, are you euro-dollar parity? david: it seems to me that this theme of monetary divergence has been around for a long time. it keeps on giving. the reality is that exchange rates tend to move in multi-year trends. this is what we're seeing here,

with euro continuing to slide versus the dollar. i would say what's knew about that is expectations have been increased in terms of how much monetary easing the ecb would be implementing. to that.something new it is that that is pushing the euro further down. parity does look like the next move. manus: you say, holder, that the dollar is somewhat overvalued, a little too strong. if we listen to charles evans, he says, i'd like to see more evidence of inflation. don't thinkt, i rates are much beyond 1% next year. this is all dovish communication. is that the most important thing, rather than a 25 basis point hike? holger: absolutely right. hike, the 25 basis point just get over with it. the world expects it.

almost everybody is ready for it. what we really want to know is the pace of the following rate hikes. that is where i think the fed will come up with its very clear statement. they will leave at least one, sometimes to meetings, between the various hikes. so we get three hikes next year. i think this emphasis on the fed going gradual in the future could actually mean that the dollar no longer strengthens after the fed, but may lose some ground over the course of next year. we may briefly hit parity. i don't think so. but i think for next year the trend is for euro recovery, dollar correction, rather than continuing the trends of recent months. francine: two rate hikes in 2015 from the fed? holger: probably three rate hikes next year in an economy which continues to grow at roughly 2.5% pace. they do have credit growing and

some inflationary pressures. manus: the fed is in tightening mode. the ecb is in loosening mode. the bank of japan needs to counter all this. chinese manufacturing slowed yesterday. u.s. manufacturing slowed yesterday. will 2015 be a year of tepid global growth? me, it will be pretty much like this year, satisfactory, mediocre growth in the western world, with hopefully the developed world getting out of its crisis. david: i agree. what i would just add to what he said is that if you want to talk about long-term trends that we seeing now, typically speaking, when a hike is priced out, it just gets pushed further into the future. currencies, as long as those expectations remain on the horizon of the

next two years, they probably still like to provide some support for the dollar. francine: thank you so much. manus: next, ministers from the world's oil exporting countries readying themselves for a summit in vienna. cansk the question, if opec still control the price of crude. ♪

francine: welcome back. monitors from the international atomic energy agency are set to publish their final report into iran's past nuclear activities today. for more on the price of oil, opec, and iran, let's bring in bloomberg's managing editor for economy. holger schmieding is also with us. give us a sense of how significant this report is. this is the first step into sanctions. that may mean extra barrels of oil on the market. >> a very important step in the program of measures set out in the july agreement. this will allow the monitors to sort of set things at a new level and say this is what happened in the past and now we will worry about the future. we think they will sort of fudge a little bit, but there were some military applications on

some research. francine: -- manus: we are starting on the eve of opec. we are going to get this new piece in regards to iran. here we are with opec wrapping it and pumping it out above what they are supposed to do. , whathey lost control level of control, they had in pricing? holger: i think they lost control of prices long ago. what remains in opec is saudi arabia deciding on its own rather than deciding as opec what to do about that part of global output. fracking, the oil market is now much more driven by supply and demand rather than by cartel-like structures and supply seems to be fairly sufficient to put it mildly. francine: i always thought they

were still trying to go after market share. they may not have that much influence on the price but they don't want to give up the size of the market they own. holger: there is a longer game here for saudi arabia. price,ring a low [indiscernible] to emerge with a greater share in the global oil market. that might allow them to assert more control. manus: at the start of the program, you said the ecb's job wasn't to keep the price of oil up. when you look at long-term prices of oil, in the 1990's, we made it down to $10.53. we spent time in the 1920's right through to the early 2000's when there was this really lunatic peak at $140. what is your assessment, if we have tepid demand?

where do you look? how do you look at oil? what is fair value? holger: what i simply do is take the oil price, which is something nominal, and set against it overall consumer prices and think about the real price of oil. the real price of oil to me looks close to the longer-term average. changes,mes have big such as the 1970's. withas the rise of china its huge demand for global commodities. but now, as the market has responded with a supply increase, we are back to what i would call roughly normal price of oil, which is good news for the world economy, and can support growth while also meaning that central banks won't be getting up inflation. francine: thank you so much. will kennedy and holger

schmieding with us. next on "the up pulse," as shares fall and sales slump, what is the volkswagen family going to say today on the shop floor? ♪

francine: welcome back to "the pulse." manus: let's bring you a little bit of breaking news on the u.k. construction data. 55.3, that is significantly below the estimate, which was 58.8. that is the slowest pace in almost two years. this is u.k. home-building, the slowest pace in almost two years. francine: this is pound-dollar. what we found out in the last

u.s.e of days is that the is a lot more dovish. we now understand that mark carney will give us more an indication when interest rates will rise. andou put that into context look at how dependent this country is on construction, that very big fall probably means they may delay hikes. at the moment, it is just one piece of data. look at the pound drop. manus: [indiscernible] we are seeing cable drop. there's dollar-sterling. just the other day, we broke through 1.50 because of those dovish comments. cable dropping. francine: here are some more of bloomberg's top headlines. the chicago fed president, charles evans, says the fed december meeting makes him nervous.

he said it could still be appropriate for the fun right to the under 1% at the end of 2016. manus: citigroup intends to leave its bonus pool unchanged from last year. this according to a person familiar with the matter. after saying it intended to keep the bonus pool flat, citi and up cutting total pay for some traders after lackluster performance. francine: the board of yahoo! will consider a sale of the company's main internet business. that is according to reports from "the wall street journal" who say yahoo! will either spin -- its yeley bother stake alibaba steak or do both. manus: folks megan shares are trading lower in frankfurt after the carmaker revealed u.s. sales fell. morning, thes

owner will address thousands of workers at the company's headquarters at a gathering. porsche said he believes vw can weather the storm. manus: hans nichols is standing by in berlin. when we talk about this story, the chief executive, matthias mueller, has been speaking to stern magazine. what did he have to say? we have mr. matthias mueller saying he thinks it's going to take several years to get to the bottom of this. he's given us a schedule on when volkswagen will release its strategy. what we had last night is a bit of a preview. wolfgang porsche, the chairman of the holding company that controls volkswagen, the main spokesman for the porsche family, he said he's going to do whatever it takes. he said, i will certainly do my part, indicating that he wants

to stand with the workers. what the workers council wants is some clear commitment that there won't be job losses. heading into this christmas season, they're going to have two weeks of forced leave for some workers. we saw just exactly why in the u.s., where sales for the month of november were down 25%, in part because they can't sell diesels in the u.s. one thing volkswagen is proud of is they have an assembly line where you can swap out a lot of engines. they are pretty nimble. they cannot just that to demand. when we look at those numbers, 24.10% was the decline in the u.s. audi state flat. audi had a banner year. for most months, they have been in double-digit growth. porsche fell a little bit. you look at a couple brands, beside down 60% and the gulf down 60%.

today, when mr. porsche addresses workers, we will be listening. does he say something specific about job losses or is it going to be more thematic, talking about his commitment to the company? francine: has the company said anything specific about job losses? manus: this morning, there's a report saying there's going to be 300 temporary workers put on leave or let's go. we don't have anything firm yet, in large part because they don't know how big this problem is. maybe we will have another board meeting, get an update potentially on what volkswagen thinks the overall cost will be. they still haven't actually totally figured out what the costs are going to be, in part because authorities have an approved their fixes for the recall. they do think the recall in europe could be a little less expensive. they may just require a software

upgrade. they need approval from germany. they need approval from the states. let's see what the symbolic move delivers today. francine: mark zuckerberg and his wife have announced that they will give away virtually all of their $46 billion in facebook shares. the couple announced the pledge in an open letter to their newborn daughter. manus: caroline hyde joins us on set. what a magnificent announcement. not many people get to get away 99% of their wealth. i'll give you a couple quit later on. christmas is coming. caroline: it is phenomenal. it is not just the sheer size. it is not just the structuring. it is also the age.

all these things make it such a powerful message. their shares is equivalent to $45 billion. that is bigger than the bill and melinda gates foundation. of course this is over their lifetime. facebook is saying, no more than $1 billion per year for the first three years, because mark zuckerberg is still chief executive. in the open letter, he outlines that he wants to remain chief executive for years to come. with that, you need to main control. he remains very much in control of facebook with his voting rights. francine: does this change? we've had a lot of pledges. we've had billionaire saying, i want to give my money away. does this change the game? caroline: i think it does. rockefeller set up foundations. buffett set up foundations. buffett was 75.

bill gates was 45. a 31-year-old? manus: the audience connects with them. that level of younger philanthropy is important. caroline: impact investing. this is really interesting. deep diving great into what is set up. he set up a limited liability company. it doesn't mean that it all goes to charities. he can do some profit investing. we've seen him sign up for bill gates' new clean energy fund. that means you can make for-profit investments. you can also make -- francine: hasn't said much about his interest. bill gates is child health. healthe: he's outlined as a priority, education as a priority. this is interesting, decreasing inequality.

the limitede liability structure can be politically motivated. technology, bringing about change, that goes into clean energy as well. we are seeing it across the board. i love this quote. says, it's all about hacker philanthropy. the new way of thinking about philanthropy. company,ted liability the fact that it can be put to work for inequality as well, it does play into the millennials. francine: fascinating story. what does it mean? thank you so much, caroline hyde. manus: next, prime minister's questions. they've been canceled. often,n't do that very but today is quite significant. u.k. lawmakers have a daylong debate on extending airstrikes in syria. ♪

francine: welcome back to "the pulse." manus: presidential candidate hillary clinton says she wants russia on the same page when it comes to the conflict in syria. >> we are going to put up a no-fly zone where the russians are clearly capped informed. i want them at the table.

they don't have to participate in it, but i want them to understand that there has to be safe areas on the ground. manus: the full interview with hillary clinton with charlie rose will air on bloomberg at 7:00 p.m. new york time, midnight in london. australian growth was driven by the fastest gain in exports since 2000 and supports the central bank decision to keep rates steady. uk's chancellor of the exchequer, george osborne, says the referendum on continued membership of the eu could come as late as the second half of 2017. the chancellor was asked by lawmakers how the eu's presidency could affect the timing of the vote. i don't see that as an obstacle if we have to have a referendum. let's stay with the

u.k. lawmakers will spend more than 10 hours today debating extending british airstrikes against islamic state in syria. labor party leader jeremy corbyn opposes it. manus: how many defections from labor and how many within the tories? to discuss the issues, we've brought in david lee. defection, i'm reading "the telegraph" here. 60 are expected. the tories are expecting 10-15 people to vote against the government on this. this has been quite a british debacle. the with system has effectively broken down on this one. doesn't mean that it has broken down forever. manus: i like a bit of drama. david: both parties have

significant defections. it is an individual moral issue. francine: david cameron tried this in 2013 and lost. today, we're expecting it to pass. david: we are. i think the site of the enemy is clearer. and so close to home. it could easily have been in london as much as paris. manus: over the weekend, there were a lot of press reports. leader,orbyn, the labor appeared on a british program. do you think he has pulled it back from the brink? people were about to challenge n from can't remove corby the leadership, but it looked like there was going to be a mass dissent. i think the unhappiness with him is a much wider issue then syria.

conceding the free vote has bought him a few days of relative peace, as on as it sounds amid the noise and haste of what's going on in parliament at the moment. the internal dispute of syria is perhaps not as frantic as the internal dispute over other issues. francine: does this mean that the u.k. gets closer to russia in any way? is it something they should be working on? the only way to deal with the middle east, we heard from bashar al-assad, is that to find a solution we need russia involved in some way? francine: -- david: that's what hillary clinton said. everybody agrees that russia is involved in the situation. of all the non-middle eastern powers, russia seems to have a much clearer strategic goal in syria than anybody else. francine: which is keeping assad, right?

david: yes. the western powers are not as certain. manus: obama has made that clear, just in the past couple days, absolutely 360 degree polar opposite. bridging that gap is not going to be easy. david: and the game of my enemy's enemy might be my friend or might not is something that is going to play out for a long time yet in syria. francine: david, thank you so much. draghi's next, inflation dilemma. we preview the eurozone inflation figures. we have minutes to go until we find out how much that quantitative easing program impacted inflation in the eurozone. ♪

francine: welcome back. let's look at the biggest market moves. mark barton is here with the charts. the fednet yellen, chair, speaks before the economic club of washington later before testifying before congress tomorrow. she's expected to signal rates will go up in two weeks arian -- two weeks. the path will be gradual. on that note, look at the

spread, the difference between the u.s. two-year and 10-year note. right now, it is the narrowest in months. when rates rise, it should be a gradual path of rate increases. this is the chart since the beginning of june narrowing to 123 basis points. two-year securities yielding the highest in five years, rising 30 basis points since the last fed meeting. not all fed officials are talking up the prospects of action. charles evans admitted to some nervousness about the upcoming decision. he things it may be appropriate for the fed funds rate to the under 2% at the end of next year. have a look at the aussie dollar. look at the weighted currency index. this is the aussie against nine main developed peers. it has risen to the highest level since july. what prompted the move was the strongest data since the third

quarter. the expansion was driven by the fastest gain in exports since 2000. domestic demand contracted by 5%. very quickly, let's have a look at the price of oil. where are you, oil? do stay with me. you know i'm looking at oil because opec meets on friday. ministers are gathering in vienna. it has been a year since the cartel maintained output to defend against market cost. shale producers, opec has driven the cost of oil down by 30%. saudi arabia interestingly has been saying that it will consider all issues and listen to the concerns of other members. 12 opec members calling for a supply reduction. opec continuing to pump above the quota of 30 million barrels a day, as they have done for 18

months. it is expected the group will keep output unchanged. manus: mark, thank you very much. data is outlation in just under eight minutes. decisiond of the ecb's tomorrow. we've got opec and mario draghi. we've brought down richard jones for a discussion. great to have you with us. say 440 billion euros worth of bonds and not a snuff of inflation to be had. holger schmieding was here earlier on saying it is all working steadily. richard: the ecb have said they are disappointed with the stickiness of low inflation. the bloomberg survey is calling for maybe 1/10 better than we were. that is not going to knock the ecb out. they are going to do something tomorrow. i think it will be aggressive

and i think they are a little disappointed with where inflation is. francine: what is the state of the european economy? it is improving somewhat. .t is just creeping up how do you call it, a dovish recovery? richard: sluggish. manus: tepid. richard: yes, tepid is a good one. manus, you and i have discussed this. if you look at the way the fed assesses the external elements outside the u.s. economy, the way mario draghi assesses it, his take is much more -- he has a much bigger concern than the fed seems to. i think they're are really concerned about what's going on outside the eurozone. and the impact on inflation, on growth, and i think the word sluggish is a good one to use. think growth inflation is far

too sluggish for the ecb's liking. manus: let's talk about the u.k. we saw pretty bad data in construction. it was quite a bad drop from what the market were expecting. it really is itchy. tohas an itch in its pants get back below 1.50. this construction data is just below, a little bit more negativity for us to consider. a lot of our recovery was based on construction. francine: -- richard: it also follows very weak manufacturing data. manus: it is coming off a 16 month high. richard: the new services data and the reading tomorrow will be the most important. straight weeks of manufacturing and construction pmi's today, i think it is a cause for concern. i think tomorrow's data is going to be very important to watch.

francine: meaning we may not get a ring interest rate hike next year or it gets pushed back? richard: markets believe that for weeks now and while we won't be hiking before 2017. according to market pricing. the concern for me is, does it show the u.k. economy has peaked? we are not pushing on any further. manus: thank you very much. we packed a lot in there. richard jones from bloomberg. francine: for those listening on bloomberg radio, "the first word" is next. for our viewers, "surveillance" is next live from london with tom keene. it is probably not going to change the way mario draghi looks at it, but it may temper some expectations of what he will do. pound-dollar, 1.50. tom keene has been obsessed with one part of the market.

he has been walking around going "swiss, swiss." francine: this makes the difference on whether he takes me to lunch or not. look at that, london. it is not raining. [laughter] ♪

♪ . the ecb dilemma as mario look at theres to euro area inflation. inflation is unchanged. twice.from janet yellen the u.s. jobs report on friday. nbn, we get the iaea report on iran today. good morning. this is