drop,that's continuing to will be rate fail? we are waiting for the market to open, but we are expecting a downward trend. yesterday in the u.s. we thought stocks drop. we are watching the oil companies this morning as oil rebounds after its losses. we are starting to see a sea of red across the board. this is what happened to the bond prices. the two-year u.s. debt are rising higher, the highest since 2010. at .94% on the two year. on the european side, we are seeing the dollar rally. sachs says at this could go even lower. the say to look out for

surprise from draghi. we were expecting so much andriy the bets are out. onld we see a squeeze higher the back of any disappointment? that is what we were warned about. gold, how low can they go? it is the lowest since february 2010. we are ready for a rate hike in the united states. we see significant rallies in the dollar overall. let's look at the stocks to watch in europe this morning. let's step away from the central banks of focus. there were interesting stories out there. green light in australia for the $70 billion deal for the bg group. yesterday. lower

we have much anticipation of opec's meeting. 4/10 of 1%. by they are selling off the premium brands to get the billion dollars deal through the door. goodbye perrone. meanwhile, ryanair is up 1.38%. traffic is growing 28% for the month of november. guy: thank you, caroline. a lot to think about in asia. what is happening with the oil price and the fed? reporter: we see a bit of a mixed picture in the asian region. that came through just before japan closed. japan has been in the red,

closing pretty flat there. and korea there is some weakness despite encouraging data showing the third quarter came in better than expected. of 1%.e still down 3/4 the oil is way down on australia. /10 ofre closing down 6 1%. the shanghai composite is up 1.35%. we have a session of gains in china. a lot of that occurred in the last 90 minutes of trade. the big story today has been about the oil price. we have been watching oil producers. this is one of the worst performers in the region. closing lower by x percent. nufarm also watching ne in australia. it fell 2.83%. fast retailing in japan is down 1.5%.

the warmer than usual weather in japan has impacted its sales for the beginning part of winter. we do see a weakness coming through on the index. guy: that is the asian session. here in europe, stocks are down by 11 points. that is what happening in markets. first up, draghi decides about auctions and how it will move the bond market. euro a huge move in the against the dollar. later, reports are swirling that saudi arabia is proposing a cut. we are live in vienna as opec decides. ♪

jonathan: we are all about the ecb today. we get the decision 12:45 london time. what options does the ecb have? we expect them to extend. we are largely talking about the deposit rates. for more, we are joined from frankfurt. what are the main arguments? run us through what these guys will be talking about when they get there. what are they going to say to each other? paul: there are two key arguments you would expect. one is that inflation is not picking up fast enough. the other is that there are clouds on the horizon. the first of the arguments is

somewhat undermined. the economic forecast will be revised and released at the meeting. it has barely changed since the last time it was published in november. the current stimulus same to be working as intended. mean there is a good argument for more stimulus. the focus moves to the other angle, the risks ahead. the china slowdown potentially the interest rate rise in the u.s. are things you can point to coming up in the future. that is where they will go. they will say, look, we have barely any room to maneuver. we don't want to overshoot a lot. bit, doe so, a little five. jonathan: the news you broke this morning is important. ammunition,ed some

they could push back at anyone resisting stimulus. what are we expecting? paul: the forecast, the cut off was mid-november. since then, we had november's inflation data. that was bigger mark: that was weaker than expected. what will the markets expect? if you disappoint the markets, that could hurt the economic outlook going forward. the confidence numbers we have seen come through have been pretty strong. you could argue that they bring in the expectation for more stimulus. that is why they are strong. that is something we expect to drahgi delivering on. whether it is longer qe or

broader qe. jonathan: we're looking forward to your coverage. paul gordon out of frankfurt. guy: let's go over to munich now. andrew, the managing director at pimco. it is great to have you on the program. the one that stood out to me was the anticipated cut to the resting rate to zero. guide me around the thinking of that, please. >> good morning. -- the the rate cuts interest rate's understanding, all three of them are up for discussion at the meeting today. mostly, the focus is on the lower bounds. there is nothing special about negative interest rates anymore. there is nothing sacrosanct about them. from my perspective, the interest rate on the refinancing rate is up for discussion and could always be taken down.

me is of the argument to the symmetry. usually the ecb keeps asymmetric symmetric band around the rate on the marginal lending facility. one potential scenario for today is they take the center rate down to zero, the refinancing rate and they lower the interest rate on the deposit facility as well to minus 30 basis points. lesserhey will have minus 30 basis points -- they will have plus or minus 30 basis points. guy: let's talk about mindset here the noise is not that great at the moment. to do morefor them somewhat argue is demonstrated by the data earlier on this

week. what is the mindset going into this meeting? to bey want the markets pushed further than people are thinking about right now? give us a sense of what the thinking is behind this? >> when it you read through the speeches from the various executive board members, particularly those that are on the side, i think their biggest fear is inflation expectations the anchor from their 2% target. happens, it is very difficult to get out of that a societylope down to expecting very low rates of inflation. they don't want to go there. when i look at the balance of risks to what the outcome, the policy outcome could be, i tend

to think that they could do more. part of that is related to the learning experience of what they see howg as they markets deals with negative interest rates. they have seen that in the eurozone. the money market continues to function. yes, we have new challenges to price options and price looking floating rates. markets generally function. the experience out of switzerland is, the lower bound interest rates are a lot below 20 basis points. here is what interests me. we have read your research. the ecb preview promises to behave irresponsibly. what will the surprise be at the ecb today? is there a chance they could do away with the yield of floor limit at the asset purchase program? is that a possibility?

>> that is a possibility. really, i think in this case, they are setting the rules by which they conducted the purchase program. removing the floor is one possibility. or, creating themselves more room to purchase. taking the floor down is an intermediate version as well. i would say at least minus 75 basis points as a probable flo or on the deposit facility rate. the experience in switzerland seems to be, once you hit 0.75, you break even from actually according notes, maybe large notes. this is clearly the downside on the deposit facility rate.

that is a possibility for today as well. do they have to leave something on the table? does he have to have a plan b? or is it go for it with plan a? put all of plan a, these options in the field and see how they work. how should we think about the next few years? the next few years are a big problem for him as well. the economy is not turning around quickly. does he need something else as backup? >> on that front they faced a dilemma. if they want to shock they have got to act quite bold late. at the same time, they don't want to signal that they have done everything and there is no ammunition left. yellen gave us a reminder of what they can do yesterday.

with her interview. leave the purchase programs open ended. she said for the third time when the fed did it, that had a better affect. that is exactly what the ecb has done with q1. see where the theoretical plot is on that. i think they can do a reasonable bit of stimulus today. they can still leave themselves ammunition in case they need it in 2016. jonathan: up next, we continue the conversation on the bond market. this morning.s good morning, from the city of london. ♪

jonathan: that was janet yellen speaking. that would've been the main offend. the ecb decision is a few minutes away. let's cross over to caroline hyde for an update on the markets. caroline: stoxx 600 is trying to push into the green. this is a nice function on the bloomberg terminal. it separates the industry groups and how they perform. 1% at the almost moment. it are clear concerns about what is happening in terms of global growth. we we see a and two stimulus? a rate hike comes from the united states. happening tot is gold. this is the ramifications of that speech you just laid from

janet yellen. she says it is time for a rate hike. down goes gold. it is the lowest since february 2010. that is what feeding into being the worst performers on the stoxx 600. the euro-dollar is lowered the head of that meeting. will we see enough stimulus to make sure that all of those shorts out on the euro are meant to be at that level? we anticipate deposit rate cuts and significant bond buying coming from the eurozone from the ecb. .atch all of those the key take away is, stocks are trying to hold onto their games. gold is lower, euro is lower, and the dollar is higher. guy: thank you, caroline hyde. the you k's ministry of

defense has confirmed that its jet has taken part of state strikes against syria. they backed the government's plan for such an attack. abm has confirmed it is exploring the sale of the premium european brent. the brand is other consideration for sale. abm attemptss as to gain regulatory approval for the biggest ever brewing merger. two high ranking have been arrested as part of fake us-led a us-led corruption case. that is your bloomberg first ward news. for more, go to the bloomberg terminal at bloomberg.com. let's get back to the guest this morning, the managing director at pimco. it is great to have you with us.

we have dealt with what you expect in terms of policy. let's talk about what you expect in terms of bond market. where on the curve would you be positioning if you want to take advantage of stimulus effects? andrew: i think the belly of the care of, maturities of around 5-7. that is the safest part. thes anchored by the low, negative rates by the central bank. the reasonably steep curve is up to that point. it is less correlated with what happens further out. that is more dependent on what will happen in the global economy and the u.s. the belly of the curve is one part which can go down lower in yield simply through the actions of the ecb. as time passes, i think that is the safe bet. germany two. and

yield spread at the moment, with 137 basis points. how is that going? andrew: i think that can go wider. the potential is down on the european leg. we don't how for the fed will go. they are expectations for using in europe and the hikes in the u.s. into that spread. the economic data, momentum we see in the u.s. and europe going into 2016 should enable the central banks to validate those floor prices. what happens thereafter is an open question. near 200-2005 we were basis points. will we get above that this time around? how much more is there still in that trade in terms of the

physical positioning? andrew: no, i don't think we get to those sorts of levels. the markets are discounting two next year the fed and the year after. that will require a lot of very positive things to happen in the u.s. the business cycle is quite old. it has reached its midlife period. tightening will come on top of that as we hit the voltage phase of the business cycle. -- hit the old age phase of the business cycle. if you go back even further to 1994, that was the last time we saw the fed hiking rates. they hiked 250 basis points. that was enough for them to push the external value of the deutsche mark down by 20% in

1994. i don't think we will see the happened with the europe dollar. i think there is enough momentum in the policy responses to push the euro-dollar down a bit more. that will make the spreads wider. jonathan: guy is talking about a u.s. german spread. 90 basis points, the italian euro. how much is left to squeeze from that trade? andrew: not much. i would say 75 aces points is where the equilibrium might be. when we look at that spread, we don't think there is a great deal of compression left in it in terms of capital gains that could come from this spread narrowing. given the stimulus coming from the ecb side and the high yield,

we call it a safe carry. that will have an implication in terms of scaling. jonathan: we have a lot to lose from the decision today, don't you think andrew? andrew: the central banks around europe, which are tied in one way or another through their exchange rates to the euro and ecb, will have to respond to additional stimulus from the ecb. that might mean more currency intervention for the danes and swedes. more action on of their interest rates or bond purchasing programs. the ecb is in a tricky situation. there is a lot of political pressure on, them in terms of the expansion of the balance sheet. they might have to tolerate a stronger frank. guy: a quick question on switzerland. if ecb will start to look like

smb rates, will the german curve start to look like the swiss curve? what is it, -30 basis points? it is hard to imagine, but negative interest rates or a hard to imagine as well a figures ago. -- as well a few years ago. the structural reforms taking place in europe, i don't think the eurozone will go all the way down to the swiss level. we are getting close. hurt to get some recovery going forward. guy: thank you very much, indeed. next on this program, stay with us. hugean sachs is calling a one-day move lower in the euro against the lower. that is the debate next.

decides. good morning. ♪ sure, tv has evolved over the years.

it's gotten squarer. brighter. bigger. it's gotten thinner. even curvier. but what's next?

for all binge watchers. movie geeks. sports freaks. x1 from xfinity will change the way you experience tv. welcome back to an ecb special. jonathan ferro alongside guy johnson this morning. guy: i would argue, not much happening here. the reason for that is fairly obvious. in some ways, a lot has already happened. yellen spoke overnight. that is a big market story. oil is on the move as well. on a normal day, i am not sure you would see a market doing as little as what we are saying. jonathan: it is kind of eight nothina nothing move in stocks.

we will have a look at the euro. 1506.just south of we are virtually there, aren't we guy? have enacted the benefit, maybe not the benefit, but the story on that one is in the market. again, we come back to the question. to getes he need to do this economy going? to get inflation moving in the right direction? up 1.2%.e is we don't a what is happening with commodities. let's get some individual stock movements with caroline hyde. caroline: they are feeding in from other asset classes. mining stocks are under pressure this morning.

this concern is about global growth. are we ready for the united states to step back from stimulus and push rates a bit higher? bhp is one of the worst performers today, down almost 2%. fresnillo is down 1.3%. how much lower can gold go? since februaryt 2010. this is the first rate hike in almost a decade from the federal reserve. stocksactually seeing push into the green ahead of the ecb meeting today. ryanair is up almost 1%. it is all to do with traffic.

back to you. jonathan: thank you, caroline hyde. let's look into the fx market. how will be decision today affect the euro? a changeguest predicts of 15 basis points. we have the head of the european fx strategy. him is the head of fx markets. goldman sachs called today a big three figure move. forget the 12 month move for now. it would be a significant move. i just wonder, what do you have to do to generate that kind of reaction in the fx market? bitirst of all, it is a difficult. the market will gain 15

days points. there is a possibility of a deeper cut. lookinget is probably at expansion. isfar as i'm concerned, it in the prize. this is corroborated by the moves we have seen with the euro so far. and what we saw in the previous round of qe. >> for him to bring it consistently lower in a , i suspect fashion he would have to drop any reference to the end date. strictly speaking, the current program is open ended. daye drops the end altogether he will look at a

bigger open. ye we can get down $1.03. what does he have to do to change the picture, the trajectory of what is happening? more.basis points or now and a promise that they will be more in q1. the hallmark of our dollar view for next year, is the dollar picking in the middle of the next year. if the fed moves early, and they should have moved in september, but they will now more likely move in december. the inflation pressures are low. that will keep interest rates in the long run anchored. datarend in the economic

in the eurozone is much better that it was the last time to the ecb cut the deposit rate. we have a lot of problems believing this view there will be a huge influx of euro capital to the global economy. there are many risks surrounding the 2016 outlook. many central banks are resisting capital inflow. on top of that, the eurozone has 3% of gdp accounts are goals it has to recycle. it is very difficult to do in this type of environment. jonathan: that is fundamental demand for the euro on top of the loosest timing in federal reserve history. you wonder where the euro-dollar will bottom out. there.almost bottom.lmost at the >> i think it is pretty sad to say. i think all of this weakness we

toe seen going from $1.12 $1.05 is largely generated by hedge fund money. we have seen one of the largest widening of speculated positioning. from a fundamental perspective, and i fully prescribed to this, i think it is really hard to come up with the euro evaluations between $1.15, or $1.20. jonathan: i will ask all of my fx guests today, higher or lower? that is after the news conference. guy: i would say higher. largely because i find the fundamental case for draghi to deliver more not that convincing. euroerall, i think the will not deliver big figures today. guy: someone has got to.

thank you very much for joining us. they will stay with us. up next, we will go live to the anna and preview tomorrow's opec meeting. ♪

jonathan: good morning from the

city of london. you do anything this morning when you have a massive decision coming up? we will see what happens. we will tell you what you need to know with the bloomberg business flash. >> jpmorgan, bank of america, and citigroup have cut credit rates by one level. likely toment is less provide help in a crisis. the nigerian communications regulator has reduced the fine on the telecom company by $5.2 billion to $3.4 billion. they failed to disconnect millions of unregistered mobile phone customers. we will see the pound sliding to a level not seen since 1985, they geared the mining strike came to an end and "back to the

future" was dominating. for more news, go to the bloomberg terminal at bloomberg.com. guy: we were bringing up the issue of the cftc data. where are we? we are not all the way down to where we have been? where does this take us? are we below? >> i think one of the main driving forces behind the euro-dollar weakening has been leverage money accounts shorting the euro. that is a dangerous situation to be in. you know many other central banks are having a difficult time managing capital flows and their own currency. draghi at this stage, the reward from forcing speculators aggressively into that trade when we are this far below already is dangerous in terms of the signal it sends to the

markets. but also in terms of what it ability toe ecb's coordinate policy with other central banks. in the next 24 hours, what is the potential for more risk? the ecb will do more today. we know that. we have this really important variable. we will go to vienna and talk about opec. what is it all mean going into 2016? >> i think one of the things that has not been discussed extensively is why the inflation will start surprising in the upside next year. what is important to understand, and this is what i asked all the i ask i see, when people to tell me what the average daily price was in 2014, people usually come up with prices around $60, but it was

$100. the decline in oil prices has been concentrated in the last four months of last year. that means the base effects right now are huge. if they go ahead with a production cut and an output gettingwill see prices pressured higher in the oil markets. that implies that going into q1 and q2, the base effects will push higher. concern for he is looking at right now. what happens if oil stays at $40 for a long time? >> the central bank should not really look at the supply side. it should look at the second round of effects it is having on inflation expectations. that is the main problem to the extent you get postponement of investment. as far as this is concerned, the cb is looking at 1.75%.

prior to the announcement of qe, it was in a freefall, approaching 1.45%. expected?at just or is that genuinely, fundamental reasoning for inflation to rise? bit ofink it is a little both. if you look at the trend in activity you are saying in the i's, it should eventually imply a lower output cut. and therefore, some upset pressure in rices. we are back very shortly. the iranians have been talking. what have they been saying, ryan? ryan: i just spoke with the iranian oil minister myself.

the saudi's may propose a production cut of one million barrels a day. this is coming from energy intelligence. it is a report we have not verified, but it is getting a attention in the enough. it is proposed for 2016. there is a catch. if the set is willing gauge in a production cut, they want it to be a coordinated cut. not one they would unilaterally have to pursue. they would want countries like iran and non-opec countries to participate in it. i asked the iranian oil minister if they would take part in a cut, or at least scale back their ambitions. once they have fully returned to the market, he would be prepared to discuss a production ceiling for the entire group. that is probably not enough for the saudi's.

i will not be pleased with that answer. he also said it seems strange to him that opec would demand participation from non-opec producers. he also told me he thought the saudi strategy of allowing production to rise, to squeeze out high-cost producers to eventually get prices to come back up, was not working. he said we need a long-term strategy. this is causing pain. the iranian oil minister is responding to this idea that we could have a production cut and they would have to be a part of it. he said at least in the short term, that is not happening. guy: that is out of vienna. the inflation story and the oil story, we are trying to come to grips with it. how important is the price of

brent in the forecast for 2016? >> i think the level of coordination amongst policymakers, central banks, governments, oil-producing countries is very high. if we have additional ecb stimulus promise to do more in soothing financial market conditions when they do that, and opec reducing supply a bit, it is an inflationary in polls for the global economy -- inflationary impulse for the global economy. jonathan: is it a fake stimulus? is it real, or not real? >> it prevents policymakers from going too far with monetary stimulus, which contributes. to inflation. guy: legal issue of the underlying economy is still there.

it still needs more monetary stimulus. we have had an inflationary impulse, but is it enough? >> it is difficult to know what will happen in one year's time. there are a number of issues. if oil prices keep pushing inflation higher, this will consumers with the incentive. to that extent, i think i fully agree. if we start seeing oil prices thinkate to the brent, i that sets the stage for an inflationary environment going forward. jonathan: guy, thank you very much indeed. draghi discusses the

first line of defense. whether he likes it or not. it is being called the day of the reckoning. ♪

jonathan: what does the rest of your day look like? the u.k. at 9:30 london time.

the main event of course, is the ecb decision at 12:45 london time. we have the press conference at 1:30. let's bring back the chief correspondent. it is good too happy with us to end this program. out intory is playing u germany. german banks, i need the answer. what does it mean for them? >> this is one of the things morgan stanley was talking about this week. the banks get hurt by ub. threere they do it, courses of savers might be prompted to hold their money. ecb has a bit of a problem. jonathan: we had this

discussion, but i want to see your take. we have come a long way for with the euro-dollar. that? -- are we done with that? >> i think the ecb is comfortable with the euro-dollar rate right now. we have made a big, big move. and monetaryy policy year will be about containing the euro-dollar rate. jonathan: rather than aggressively pushing it lower. >> they don't want it to collapse down in the next few weeks. they also don't want it at 1.15 in the next few weeks. jonathan: everybody has a different point of view. is the fed comfortable? >> if it rejuvenates the economy

elsewhere then perhaps, ok. the gift to the world could be this stronger dollar. it might hurt emerging markets. if the rest of the world can pick up and provide some of the left the u.s. has been doing and synchronize recovery, then perhaps that is what the fed will tolerate. if the dollar keeps going up, they could hurt others. jonathan: today is a big day, but perhaps we are looking in the wrong direction. is that a more critical decision? getting the mechanism functioning? >> you have a stimulus atmosphere. you don't know where the fiscal policy will ease next year in the euro area? the monetarysee

policy. the central bank is twisting toward stimulus, whether it be toward stimulation or the lack thereof. wrap up this conversation. how does the president of the ecb price the markets today? >> i don't think he wants to. i think he wants to meet what the market is pricing, somewhere between 15-20 basis points. simon: he goes all in. all of the rates are on the table. we have not. let's rawrap it all up. the spread between the german two-year and the u.s. to your can grow wider. guy: there are three options on the table. how long will it continue for? stay with bloomberg television.

is coming up very shortly. we get the german angle on the ecb. ecb decision day. from the bloomberg team, good luck. ♪

manus: draghi decision. expectations are high ahead of the ecb announcement. how far will they go to boost inflation? the russian president is set to get his annual speech any moment now. areey, syria, and terror expected to be on his agenda. saudi speculation. opecountry may suggest an production cut in 2016. we're live from vienna ahead of the cartel's meeting.