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.

welcome. this is "the pulse." we have breaking data across the bloomberg terminal. mark, take it away. mark: pmi services, final estimate, 51 point -- 54.2. not as strong as initially forecast. the composite index, the amalgam of manufacturing and services, also weaker than the previous estimate. 54.2. the earlier estimate was 54.4. the survey by markets shows deflationary pressures persisted in november without price is declining for a second month. we did see the composite index rise less than initially reported, but it's the prices that come into focus as the ecb prepares to announce probably more stimulus. inflation pressures to the downside is the big headline

from today. manus: mark, thank you very much. we are waiting to hear what the russian president's annual address will include. we have a close eye on him. we expect him to touch on all the areas, syria, terror, and turkey. let's listen in. president putin: i would like to start my annual message today by expressing my gratitude to our soldiers who are fighting against terrorists. hall, an st. george's historic call of the military glory of russia, we see the military pilots, the representatives of the armed forces, and members of the groups fighting the terrorists.

they are present here. they lost their husbands in the war against terrorists. w in front of you and in front of the parents of our heroes. like to pay respects to the lives lost. i would like to pay respect to our soldiers and to all russian citizens killed by terrorists. thank you. distinguished colleagues, russia in then for a long time

avant-garde of fighting against terrorism. this is a fight for justice, for the future of all of us. we know what the aggression of international terrorism is like. russia encountered it in the middle of the 1990's and our citizens suffered from the terrorist acts. remember what happened in moscow. inremember the explosions the apartment blocks. we also remember what happened in the underground and other places. those tragedies led to the loss of thousands of lives. this is our set this and we will always remember all these innocent victims. we needed about 10 years in order to crush the bandits, and we pushed out the terrorists out

of russia, but nevertheless, we still have two fight those who remain. of course, we still feel it. two years ago, there was a terrorist attack in volgograd, then there was an on a russian plane. it is impossible to fight the international terrorism by the forces of one country, especially when the borders are witness toe world is the wide migration. and of course the terrorists are being fed by that and the threat is becoming more and more stronger. we haven't resolved the situation in afghanistan. the situation in that country is much of a concern to us and does not inspire optimism. the countries of the middle east and africa, iran, iraq, syria, they are all countries which are

in a state of chaos and we know why it happened. wanted who would -- who to overthrow the regime's and impose their own rules, and what ,appened as a result, basically there was a provocation. people were put against each other. then what happened? they just washed off their hands. that helped the terrorists. especially dangerous are the militants concentrated in syria. there are some people who move their from russia and other countries. they receive arms, they receive weapons, and they are trying to get stronger. if they become stronger, then of course they will try to do something in our country to provoke hatred to torture and kill people. them at a destroy

distance. this is why we decided to --duct the operations with the agreement with the legitimate syrian powers. our fighters are fighting for russia, for the independence of the russian citizens, and the army and the navy demonstrated their capacity. of course, the weapons can be very effective. and of course, the use of weapons in military conflicts would be used in order to our systems. we are grateful to all those who are working in the defense industry. manus: that is of course vladimir putin talking about 10 years of terrorism in russia, fighting that, the terrorism of

the 1990's, of course referring to the current terrorism situation as one propagated by open borders with constant financial support and chaos in iran, iraq, and syria. putin is going to be continuing speaking we think for about an hour and a half. as we see marquis headlines from that, we will bring that to you. let's return to my guest in the studio. we've got george with me from ubs. , one ofhave mr. kennedy our main editors at bloomberg. great to have you both in the studio. let's just reflect a little bit. interesting that putin starts .is conversation with terrorism before the turkish situation escalated to the point we are at, there was that movement of reproach from the west, george.

george: i don't think we should be surprised. this is kind of the key motif in the president's speech. time, it wasis just a ramble about everything dominated by the ukraine and why the west is against us and we are justified in doing this and all this kind of thing. on the evehappened of that speech last year, which is certainly going to the manifest in his speech today. there was an explosion, a violent incident in chechnya. there was a report about the severity of the economic dislocation which was coming to russia as a consequence of the decline in the ruble. terrorism andgs, the economic dislocation in russia, have dominated russia this year. they do have very strong

interests to try to reach some kind of arrangement with the west. so many narratives going on between russia and the west. it,s: if we think about putin and erdogan didn't meet. putin did not meet with erdogan. if anything, the tourism sanctions are really going to have quite an impact if and when they come to their. >> absolutely. it is obviously an issue. you wonder whether 2016 is that year which citigroup is talking about that politics replaces economics about the driver of markets. manus: putin said that turkey is making money for syria. any kind of rhetoric stepping back doesn't seem to be on the

agenda. putin said terrorists are using money from turkey. these are quite aggressive headlines. to me, that sounds like a stepping up of rhetoric against turkey. ambivalent, oris equivocal, i should say in the whole of what is going on in the middle east and i guess -- and i.s. quite clearly, the russians are very hacked off, for understandable reasons. i don't know. that is kind of a top level kind of thing. manus: just, we will close on this. putin says that russian pilots were shot in the back. putin says turkey should know -- referring back to that kind of rhetoric.

the story of the day, the european central bank decision. mario draghi is expected to ease policy further. markets might be a bit disappointed. to boost inflation in the eurozone economy. goldman sachs thinks that draghi will deliver a dovish surprise that will drive the euro down by as much as 3%, a level we haven't seen since 2002. never has so much expectation been baked in a cake in the bond markets, in the currency markets. do you think he's got the capacity to knock three cents off the euro today? george: today, i'm not sure. to be honest, if we really believe this story about the , the fed is going to raise rates and draghi is going to remain dovish, parity won't be a stopping point.

manus: where could the bust realistically go to? that is not a singular view. i'm searching to think what the all-time low was. you can certainly imagine the euro dropping by this time next year by another 5% to 10%. that is quite easy to imagine. manus: there's a great line in one of our stories, that traders are already drunk with draghi. i love that. irish man, i love a drink. traders are already drunk with the elixir of draghi but inflation hasn't pumped higher. if anything, i think this is your story, this could be the ecb governor that doesn't make his 2% target in his second tenure. simon: certainly there's a risk. bloomberg surveys asked that question. will they reach their inflation target?

that is four years away. that is quite a good minority that suggests he won't. if inflation still is in at target, you're going to have questions about the ecb's credibility. who knows what policies they will introduce to make that case better? in fairness, look at draghi's favorite measure -- [indiscernible] maybe on the stimulus talk, but we had that in the past. they come back down on the reality. the market has known for a while, you don't really bet against mario draghi. compared to jean-claude trichet a, mario draghi has the experience of wall street, goldman. the lesson has always been, if draghi can add something, usually well. were that powerful in stimulating inflation or

boosting inflation, we wouldn't have a problem. look at the japanese experience. they are doing qe on a scale that even draghi probably won't do. athink this is a bit of coven. they have a mandate that is very specific about inflation. but actually, this is an extraordinarily odd time for the ecb to be doing the policies that are expected today. herenk there's a subplot which is about the transformation of the ecb as an institution. --that sense, i think draghi manus: what is the subplot? george: if you think about the birth of the ecb, it was supposed to be something like the bundesbank in disguise.

i think under draghi, the ecb has become a more european eyes -- europeanized institution. they have done a form of debt neutralization which was for bowden, wasn't going to happen. the idea about fighting been displaced really by deflation prevention, a very different kind of policy for the ecb. so where has all the opposition gone? manus: jens weidmann i'm sure will creep out. one market -- we talked about the euro and i will pull up a chart here and tell you what the low of the lows was, but what about the bond market? two-year government notes around europe, spain, the netherlands, germany, record low after record

low. that is a dislocation by anybody's estimate in terms of to do as anes one asset manager or investor. does that concern you, those deeply negative rates on yield curves? george: yes. it concerns me because in effect it is the only game in europe's town. what ever happened to the juncker plan? what ever happened to the ideas that the debt burden in europe would require something structural, like a restructuring mechanism? nobody's talking about these things anymore. cutting bond yields, borrowing costs. check that box. but to what end? i suppose the other part is that this is also a covert way of

restoring or strengthening banks. we can check that box. we would rather the banks were not in trouble. but the durability of these things in terms of europe's economic health, if that's all we are doing, that is not a good place to be. manus: gentlemen, you are going to stay with me. that is my assumption. simon kennedy and george are going to stay with me for the next 30 minutes. here's what else we are checking out on our radar. the u.k. ministry of defense has confirmed that jets have taken part in airstrikes against islamic state targets in syria. it came just hours after british lawmakers backed the government plan for such attacks. oil has rebounded from its lowest price in more than six years amid speculation that saudi arabia will propose an eventual output cut when opec members meet in vienna. out say they haven't ruled

terrorism as a motive for the shootings in california that left at least 14 people dead. authorities say the attackers opened fire on a banquet at a center for the disabled. police say that two suspects named -- [indiscernible] have now been killed. president obama has once again called for a bipartisan response to the mass shootings. the south african supreme court of appeal has found oscar pistorius guilty of murder for killing his girlfriend, reeva steenkamp. the paralympic gold medalist is currently under house arrest and was previously convicted of manslaughter. next, not to be left out of the global fray, we will hear from the fed chair, janet yellen , who's been speaking in washington. will this be the month that we finally see a rate hike? ♪

ms. yellen: were the fomc to delay the start of policy normalization too long, we would likely have to tighten abruptly to keep the economy from significantly overshooting our goals. manus: that was fed chair janet yellen speaking in washington. her comments come as the latest

sign that the committee are ready to raise interest rates for the first time since 2006. still with us is george and bloomberg's chief international economics correspondent, simon kennedy. are we there yet, george? george: i think we are. time, wasor the first quite clear, i thought, so i think we should expect that they will tighten. manus: dovish forward guidance compounded yesterday, which was the rate rise pace will be down to actual progress on inflation. simon: you are going to see more and that if and when they do hike this month. it is not the hike, but the pace of future hikes next year. quite a disparity in the market and economists about how aggressive the fed will the next year.

forecasters say one more hike, but not until june. manus: what does that say to you about the u.s. economy? -- what, 1.5% by that end of next year? george: i think this idea that the federal reserve is setting out to raise interest rates once or twice and then they are finished, i think that's nonsense. i've never known any central-bank that basically started off changing its monetary policy with a view to say, we are only going to do this and then we're finished. the second thing is, as simon said, the key thing is not really the first move, although that is an important move. it is a change in the regime for funding and finance. is that pace. i've said before, they are going

to tighten like this. they are not totally confident about how robust the economy is. also, the expectation that inflation will rise significantly, however slowly that is, but sufficiently to validate the changes in interest rates, is something which they think is right, but i don't think they have high confidence in. globally,re we are this divergence, it talks about global central banks. let's have a look in terms of where we will be one year hence in terms of 20 central banks. they will ease between now and the end of 2016. 30% will tighten. what we have is a map of the state of play of global central banks. my question to you both, the fed balance sheet is about $4.5

trillion. that is a bigger proportion than the balance sheet of the ecb. the fed has stopped buying bonds. it is going into rate hike mode. the rest of the world has to complement that, hasn't it? simon: it doesn't necessarily have to, but it likely will. , you are going to pass that probably sometime next year. the bank of japan is off to the races. offset?be enough to probably, but the rate of the growth in this balance sheet is going to slow next year. yenhe euro and the extension of the balance sheet as powerful? probably not. manus: george, stay with me. simon, you've got to go

somewhere. be speakingwill about angela merkel's cdu party. european, from syria to refugees. ♪

manus: welcome back to "the pulse" live from bloomberg's european headquarters in london. time to check breaking data. mark, break it down for us. mark: services rising more than economists forecast. new business picked up. the fastest growth in four months. economists had expected a reading of 55. it does suggest the economy is weathering the global headwinds, flanked by the boe and increase

in put prices last month. to 55.8osite index rose from 55.4. services impressing after a slowdown in manufacturing and construction earlier this week. manus: mark, thank you so much. all eyes are on the european central bank meeting later today. mario draghi is expected to ease monetary policy further in a bid to boost inflation. goldman sachs says that draghi will deliver a dovish surprise. stay tuned for our bloomberg ecb coverage throughout the day. we will bring you the rate decision at 12:45 london time. fed chair janet yellen has suggested the pace of future rate increases after liftoff could depend on actual progress

on inflation gains toward the central bank's target. that is a shift from the requirement for the fomc. the language as a reason to expect that rates will rise gradually after a widely anticipated rate increase later this month. the u.k. ministry of defense confirmed that its jets have taken off in air strikes against islamic state targets in syria. it came just hours after british lawmakers backed the government's plans for such attacks. those things, the fallout in the ecb meeting we are waiting for, we are joined on the phone by christian democratic union party deputy leader michael fuchs. great to have you with me this morning. it is quite an important day for europe. let's kick it off with central

banking. i'm just curious. there's so much expectation on super mario, mario draghi, to deliver more quantitative easing. what do you make of it, michael? are you supportive of more stimulus from the european central bank? >> we are always a little bit afraid that he's going to do far with it. , our. weidmann central-bank boss, is already mentioning, it shouldn't be too much. it looks like we are a little bit afraid of having so much money in the market. all of a sudden, it goes the other way around and we come to inflation which nobody can control. while there are certain measures or certain methods draghi could use, i'm afraid he's going to do more for extending the quantitative easing for longer.

as you know, it's coming to an end in 2016. manus: with that in mind, i understand the german position. i understand mr. weidmann's position. weidmann is resistant to that method. manus: i'm being generous about mr. weidmann. what i want to get from you as a politician is, if there is fear of what more draghi will do, why not look towards being supportive fiscally? should europe not consider their fiscal position to actually balance things and take more responsibility for getting growth going? euro inflation is barely above 0.3%. >> yes, but at the moment, we do

not have any problem as far as inflation is concerned. there are even some fears that we will be heading for deflation. the german economy is doing pretty well. some of the european countries are doing also pretty well. i don't think it's necessary to put so much money into the market. look at what we have done so far. eurosalmost 1.2 trillion the lastrket over couple months and i think it is more than enough. see.: michael, let's let's move the agenda along. at eu did ideal with turkey 3 billion euros. some of the stories i'm reading describe it as a prime by europe europe to turkey and that 3 billion is a drop in the ocean compared to what is

needed to deal with turkey and the refugee crisis. what do you make of that proposition, that europe has bribed turkey? dealingl rather tawdry with your own european affair. of course it is necessary that we go to the source of the refugee crisis, which is syria in the meantime, and i'm pretty happy that last night, even the u.k. has joined us in fighting the i.s. people. that's one of the things we need to do. 3 billion is a drop in the ocean, you're right, but the refugees are coming out of syria and iraq, going to turkey and coming to greece and so on. all of a sudden, they are all in germany. we cannot do it all. is a necessary that there

certain kind of european solidarity. be the only net and take all the refugees as well. that is not possible. we need some more european solidarity on this case. i'm happy that some joint forces are fighting the i.s., fighting the problem in syria. on the other hand, we also need to have a certain amount of money into turkey to help turkey to keep these people in turkey as long as they cannot go back to their respective country. say, amichael, as you drop in the ocean, 3 billion -- >> 2 million people in turkey already. manus: absolutely. and you can't do this all on your own. i think there's a great deal of empathy with that position. let me ask you this.

donald tusk himself said the very future is at stake. as a simple irish man that observes what is going on in europe -- >> > no irish man is simple. manus: that is a very kind compliment. what i see here is a selection of countries that are very un- european, that are taking with one hand and not prepared to help with the syrian refugee crisis. why not penalize them? why not make it difficult to be part of europe if you don't play by the rules? >> everybody has to play by the rules. that is what i call european solidarity. it cannot be -- manus: we don't have that. >> we have to push it are we have to penalize them. germany is the biggest net a are into the european community.

we cannot be the biggest net take and at the same time 90% of all the refugees into our country. otherwise, we would have to stop paying to brussels and use this money for the refugees in germany. i want to reflect on putin and his position. we've got mr. putin speaking in st. george's hall this morning. let me read you one or two of this. he says that terrorists are using money from turkey, that turkey is making money from syrian oil, that the single front against terrorism should be under the u.n. when you look at the situation between putin and erdogan, somebody here needs to blink, michael. to get this situation off what is an incredibly dangerous boil.

give me your take. >> first of all, putin and erdogan, the situation has worsened ever since that plane has been shot down last week. putin is soeasons harsh on turkey at the moment. on the other hand, erdogan should really know the situation , that he cannot on one hand subsidize i.s., on the other hand, be a helper in the crisis, and get money from europe. this is something which has to be discussed with erdogan. i'm not very happy with putin anyway. he is subsidizing assad and assad is another part of the problem in syria. it is a difficult situation. , inpe the european leaders particular by chancellor, is going to get him on our side to fight the crisis in syria, which

i.s.,h sides, assad and and kurds and peshmerga. there are four or five parties fighting at the same time. well, michael, i wish you you and your chancellor. leader ofchs, deputy the christian democratic union on the phone for us. george has been listening in to the conversation. -- let's talkt about michael's reaction in terms of the syrian situation. a man that sounds like he's on a bit of a mission to corral help from around europe. george: yeah. we referred to this a little earlier in the program. , theay he described it understatement of the interview was, it is a difficult situation.

it is incredibly complicated. there are so many different narratives and different interests, even amongst those countries that seem to have a common interest, which is to fight i.s. obviously, there are western-russian issues, whether to support assad or oppose assad , or if it can survive. these things are all up for grabs. we have to deal with these things, but we can only deal with one problem at a time. somebly we have to shelve of the concerns in these areas and try and focus with the russians and others on how to deal with the i.s. that is absolutely centerstage. the ecb is a whole other convertion.

george, thank you so much. george magnus from ubs. up next, u.s. oil inventories expand for a 10th week. live in vienna for a preview of tomorrow's opec meeting. ♪

manus: welcome back. we are live on ecb day from our

london headquarters. here are some of our top headlines. all eyes on the european central bank meeting later today. mario draghi expected to ease. draghi sachs says that will deliver a dovish surprise at the meeting that will drive the euro down by as much as 3%. that will give you $1.03. that is a level we haven't seen since 2002. stay tuned. we have the ecb coverage wall-to-wall throughout the y. the rate decision at 12:45. mario draghi's news conference at 1:30. fed chair janet yellen suggests the pace of future rate on actualcould depend progress on inflation gains toward the central bank's target. that is a shift from the requirement the fomc set for an initial move.

oil has rebounded from its lowest price in more than six years amid speculation saudi arabia will propose a cut when opec members meet in vienn tomorrow. let's get more from vienna. ryan chilcote is standing by. obviously, news reports this morning that the saudi's might gather with the rest of opec and non-opec and may possibly look for a slash in terms of output. what credence is there in this, mr. chilcote? ryan: i was just talking to the iranian oil minister. iran says they would be happy to discuss a production ceiling once they fully return to the market. that is probably a nonstarter for the saudi's and its proxies

in opec. i want to talk about demand. we are joined by a bloomberg best forecaster. he has been a bloomberg best forecaster in 12 different categories in the last year. jason, thank you for joining us. manus and i were talking about supply and how maybe there's going to be a production cut from opec, but you are focused on the demand picture. you say you look at china, and that tells us what is going to happen in the future. >> that's right. we are looking at what's going on with prices. pmilook at manufacturing for november and it has been below 50, indicating contraction in 11 of the last 12 months. china has been manufacturing -- has been having a manufacturing recession. the united states is a

leading figure in the oil prices. 48.6, the also at same level the china number was, indicating contraction in u.s. manufacturing. that is also not great. ryan: so the 12 oil ministers are sitting in the room and they will be saying what when they think about these pmi figures? growth overl demand the next several years is going to come from china and emerging asia. they are more concerned about the global economy. they are more concerned about a manufacturing recession in china than they are about crude oil. ryan: we've got a very busy day today. we've got mario draghi in a couple hours. we've got janet yellen of appearing in front of congress. what does that mean foril? >> the ecb is widely anticipated

to do more quantitative easing today. we don't expect more quantitative easing. if it doesn't happen, that would be bad for crude. just a couple hours after you see and ecb announcement, janet yellen is going to testify in front of congress. she is likely to say inflation is a concern, rate hikes are coming, and that is going to strengthen the dollar somewhat. that could be negative for crude. if you get no ecb action, it could be a bad day for crude oil. ryan: we've seen wti testing below $40. how do you rise this if you are trading oil? >> a lot of indicators have been bearish. 40, thatse below would be a bearish confirmation. ryan: you've got a book coming out in january? and it is called? >> "recession proof." working towards this

for more than half a year. ryan: jason, thank you very much. manus, back to you. manus: thank you. ryan chilcote in vienna. our man on the ground chasing everybody. we've got it here first on bloomberg. stay tuned for our ecb coverage throughout the day. this is when the market really matters. the euro, the bond market, the german bond market. time, then mario draghi's news conference at 1:. what will he do with negative interest rates? what will he do with quantitative easing? stay tuned. bloomberg brings you that news first. ♪

manus: all eyes firmly on the ecb today. mario draghi might also be faced with a lack of -- [indiscernible] hans nichols is standing by in berlin. i just caught up with michael cdu. at the he reaffirmed not only his own skepticism over quantitative easing, he was very definite about jens weidmann's position.

hard to divine the german position on this. we heard it last week at the bundesbank in frankfurt. a, don't talk down the economy. inflation may not be an accurate read. finally, there a great deal of concern about risk that may be because of the low interest rate environment. ite's the argument, whether will have sway with mario draghi, i expect it well. it is clear that mario draghi is expecting to do something on the deposit rate and asset purchases. whether the deposit rate goes down to -0.3%, down to -0.4%, we don't know. there is a great deal of german queasiness about it. they think that there's some

risk building up. my advice to you is always, buy real estate in frankfurt. don't worry about the asset bubble. if you buy in frankfurt and the u.k. does leave the eu, you will be sitting on a gold mine. manus: i think it is time to reenter the irish property market. it is not all hot spots. dangersr dynamic is the of not acting. i don't think anybody's going to say that. george magnus was here. the trade is that the euro is going to get sold off, it is not going to stop off at parity. it has a long way to go. it is going to reach historical lows. hans: goldman saying that it is going to be down to 1.03. we will see how much further it goes. have your relatives that live in the states visit and spend big in europe. they are going to feel rich. manus: you bring my family into

everything. where i live, my family. hans nichols, good luck in berlin. up next, tom keene is in london. the ecb decision is at 12:45. bloomberg will have it first. ♪

♪ this morning mario draghi will rescue your from deflation and delays. there will be questions and answers at his press conference. they adjust the euro and sterling as they adapt. the yellen dollar. opec meets to greet amid tense discussions in indiana. good morning. this is blue book surveillance. caroline hyde, good morning.