pickens starts his broadcast, his very first guest is carl icahn. what is worst, results shrinking economy or political system, the president facing impeachment. ♪ stephanie: so much news i am most got the day wrong. i will not get the show or my name, welcome to bloomberg , i am stephanie ruhle. it is thursday. david: i am david westin. it is a big day. the global head of jpmorgan fixed income. stephanie: no shortage of things to talk about. how about some news. ? vonnie: police in southern

california will not rule out terrorism as motive for the shooting that left 14 people dead. not far from the center for the disabled, the city's police chief spoke last night. >> we initially put out that we have information that there were now,ds of three shooters, when we get the witness statements it looks like we have two shooters. we are comparable with the two shooters we believe went into the buildings are the two shooters that are deceased. vonnie: the suspects are identified as syed farook and tashfeen malike. they were described as being dressed for battle. british warplanes have carried out the first rights on the islamic state in syria, the planes took off from cyprus not long after the british parliament approved the actions. the defense ministry said it was

going to release details later. in south africa, and appeals court has found guilty of murder -- oscar pistorius lt of murder. hisuilty of murder, he shot girlfriend to death and faces a minimum of 15 years in prison. more on these and other breaking stories at bloomberg.com. rise as we futures await the ecb decision. key for u.s. markets. an 11 point game for the s&p. a most 100 for the hour -- dow. stocktures versus the 600, as soon as the stock 600 open we got a lift in u.s. futures. --you type on your criminal, you can see this chart and follow it along.

stocks, there are up. you can look at the stock 600. the dax up more than 100 points, 11,301, the euro down. goldman sachs predicting it will drop to $1.03. the euro trading at one dollar 536, the biggest drop we have seen in two weeks. volatility for the euro has picked up. on expectations for this meeting. itatility up, the highest has been in three or four years. 2015 so youberg have to go back to 2008 for this kind of volatility for the euro. stephanie: a big spike in investors just when like going into the season. tom keene has been covering big

news later this hour, the european central bank decision on monetary policy. expecting further cuts to go below zero deposit rate but some analysts predicting the ecb president mario draghi may further increase quantitative easing by expanding asset purchases. let's bring in jon ferro from london. point "ighi, the man will do whatever it takes." -- the more say it you say the less impact it has. >> expectations, he over delivers, expectations taken a step further and we expect more. floor if he on the does not pull the stimulus trigger. what does he do? -.2%, he has said we have an asset purchase

program, duration, we can change all of those, a believer in how big -- we traded a seven month low on the euro -- big moves ahead of a big decision and 45 minutes. stephanie: if jaws will be dropping and pray for, what will happen in new york? >> game day for the ecb. historically, mario draghi as over delivered. when you look at the capital markets this morning that is what they are expecting. the whisper number to be higher than what is priced into the market. if we look at the volume of qb that is going on, it is 60 billion euros one month, the market thinks it will do 70 billion, 70 5 billion, i think he will come in at 85 billion. everyone expects he will extend the term of qb from september 27

-- i think he will do that. the deposit rate is the big one. 10 orng the deposit rate 15 basis point -3435 basis points in the market will go to -40 -- will he go to -40 or -50? youzerland and denmark and are already at -75 basis points, what do you do? david: we have heard about what would surprise people on the dollar side, it is not up to mario draghi himself, there are 25 people that get together. what -- to what extent does he need this to be unanimous? jon: he needs consensus. the -- on the deposit rate, this is interesting.

we can have the academic debate about whether the effective lower bound is. -2%, thet it would be experience of the other central banks as bob riley mentioned, switzerland, denmark, sweden, shows us that the deposit rate can go much deeper and that is where he could surprise. the new wants around the deposit rate that could surprise the market. introduce they could a two-tiered deposit rate. you go two -.5, the nuances later that signals the future moves that could move the market. david: show us what the markets are saying. matt: the market implied policy rates. of countriesa list as far as rates. the eurozone for this morning.

the implied policy curve is lower. the divergence from the historic implied policy curve is more than i have ever seen. negative 2/10 of a percent at the one year level. it is amazing how much lower this goes at the front end. stephanie: what is your take? bill: the ecb is anxious and flashes -- inflation moving back towards target and are concerned about deflation. talk about the types of assets they purchase, will they expand the types to also include government sponsored, effectively, if they go up to 85 billion euros a month and expand the asset types they buy they are cleaning us out of bonds. thehanie: my disappointment ecb being anxious, what is more -- what is more asset purchases

going to do for their fundamental economy? it is the street a waiting to see, without fundamental changes, their asset prices will go up. : a transition mechanism into the real economy is what is frustrating. what we do about qe, inflate asset prices. it actually also makes debt burden sisters -- sustainable by driving down the funding cost to negative real levels, so that should allow a heavily leveraged europe to deleverage more efficiently. that is one of the things on the horizon. have a transmits into extending credit into the system, i think most of the european central bankers are frustrated. stephanie: a lot of americans frustrated, what does quantitative easing to hear, it has been great to investors but not the economy. janet yellen around the timing of raising rates.

it theellen: to deliver start of policy normalization for too long, we would likely end up having to tighten policy relative abruptly to keep the economy from significantly overshooting both of our goals. such an abrupt tightening would disrupt financial markets and perhaps inadvertently push the economy into recession. david: we have heard from more than one person, including the head of credit squeeze, people are concerned about the possible quick rise in interest rates into 2016, how big a risk is that? bob: not a realistic risk, the fed understands that the normalization process is getting off the leak -- zero lower bound. yellen,isten to janet how they have shifted to better dependence to path dependent and

now she is living date dependent actin that by saying we do not want to wait too long. they are anxious to get off at zero lower bound. the path will be very shallow and she has thrown out as euro zero real rate as a target. stephanie: the fact that we are concerned about the timing makes me think -- are investors acting like weenies. the fed has given us a safety net since the financial crisis and welcome back to free markets, there is volatility. shouldn't we operate in a free market system where there is not just the safety net and janet yellen does not have to time it absolutely perfectly to make sure every boy and girl is ok? bob: in the developed markets we are doing just great but we are not living in the emerging markets which has this poisonous cocktail of fallen commodity prices and re-trenching china.

now the fed draining liquidity from the system. it is true that the developed markets are doing quite well. you are starting to see cracks in the structure of the emerging markets. aleant cominge v under pressure. a lot of the company's are a creature of the low-cost financing. stephanie: financial engineering, i am so glad you are here. jon ferro, thank you, you will be back with us later and we continue the full coverage on bloomberg tv around the ecb rate decision happening now in about 40 minutes. pressl have that and his conference at 8:30 p.m. eastern time, mario draghi, but next week take you to rush in where vladimir putin raises the temperature in a bitter dispute with turkey and we talk oil in the state of the nation address. stay with us. ♪

♪ stephanie: welcome back to bloomberg . vonnie: the credit rating has been cut to a large u.s. banks. jp morgan and goldman sachs included. it has to do with the prospect the u.s. government is less likely to provide aid in a crisis. deutsche bank among the biggest skeptics when it comes to the pound sterling, they predict it will fall 15% i the end of next year, that would see it at its lowest level since 1985, trading at less than $1.50 earlier today. russian billionaire will become the sole owner -- agreement --d an

he owns 80% of a pro basketball team and 45% of berkeley center. david: time for global go. vladimir putin delivered his state of the nation address earlier this morning. let's bring in ryan chilcote in vienna. what did he say about the strategy to fight the islamic state and the challenges it has posed for him? and the -- and about the recent with with turkey -- riffs turkey? completed -- compared been islamic state do not see is him. naziism. he saved his most fears comments for the turkish leadership, upping the rhetoric, calling the turkish leadership "a ruling again -- gang."and said god

deprived them of common sense and reason. the only reason he could think of they stabbed russia in the back by shooting down the russian jet. he said if turkey thinks russia will stop at these sanctions, things like banning imports of tomatoes from russia, turkey is mistaken and russia will up the .anctions against turkey he had a moment of silence for the russian pilot killed in syria by the turkish. taking things up to another notch. one day after he accused the turkish president's family of personally profiting by buying oil from the islamic state. david: he is not trying to take down the temperature. a lot of his discussion was about the economy. and what they have to look forward to. ryan: he would be remiss not to do that.

the country's own central bank says the economy will contract i more than 4% this year, the ruble has been in freefall, moving towards 72 the dollar. -- 70 two the dollar. refrain to retreat the -- repeat the refrain that the worst is behind him. i will continue to say that it is not a critical situation. we see that manufacturing and the exchange rate has stabilized. inflation is lower compared to 2014. we see a net reduction in capital outflow. restes not mean we should on our laurels and wait for prices to stabilize. this is unacceptable. : most commentators agree

with him that the russian economy will improve if oil prices stay where they are but they are horrified happening what is happening with the oil price. he is concerned that he needs to get investment back in the economy. i was talking to a central bank are, what worries her more than the oil price in russia is the lack of investment. he needs to get that back. he made comments about how he will improve the business climate. the problem is people have heard it before and they want to see him follow it through. david: thank you. stephanie: we will take you from a vienna down to texas. has beenpickens: putting out his insights through a podcast. the formerwith defense secretary robert gates and james wellesley, his latest test was carl icahn -- guest was carl icahn.

--boone pickens: i hope you are right. it would help me a lot. hedged out of that. i have made a few bucks there. you have to be right. sooner or later. i am not sure how soon. bucks.ie: made a few what is your take? carl icahn was that you are going to be right. the nicest way he could say you are wrong and you will lose money. pickens,sten to boone he has been in the oil patch as

long as there has been one, but i do not see it going to $70 a barrel soon. you see more stress in the system which tells you that oil is going to stay low for a long time. what is going on with the sovereign wealth funds where they are liquidating investment portfolios to repatriate that capital for social spending programs. stephanie: does that scare you? because it tells you most opec nation does not believe oil will return to $60 a barrel anytime soon so they are taking capital back from overseas and spending it on these programs. the emerging markets are another story. with china retrenching a lot of the energy exports you see go into china have declined. tossing a slowdown in the other emerging markets. in the high-yield market, the third-place it is happening in outsized impact, we estimate 13%

of high-yield issuers are energy-related. they are suffering. this is not what we would have expected with lower energy prices, we would have expected a tear when to the economy and instead it is created stress and lots of the financial system. david: that is what i find it challenging, so many things not coming out the way we thought they would. we thought lower oil would be stimulative. bob: it is upside down. david: our imports are cheaper. it is going the other way around. what is causing this? bob: there are many unconventional tools in the system. we are talking about the ecb dropping rate from -20 basis points to being -30, -50, it is crazy that that is except the ball but it is. is.cceptable, but it

the u.s. did a good job of developing alternative energy sources. it created a lot of jobs. when it is taken oil down to half of where it used to be, it is not clear that the shale producers could survive. the pressure on opec, the pressure on the emerging markets, it is everywhere. stephanie: one of my favorite parts of my podcast where they talk about retirement. i believe neither will never retire. carl will take activist takes on the grave. >> you have all these companies you are working on, so i am busy all the time, what am i going to do, play shuffleboard? >> as long as you make money. stephanie: he plays chess. ashas the same chess teacher my children, luckily he does not

play against them. i did not know carl was a great tennis player. i do not think they will ever retire. bob: you do not want to play shuffleboard against them. david: they have powerful engines and they have to be engaged in something. stephanie: carl would probably hit you with the stick if you played shuffleboard with them. we have that podcast on our website. you do not see that often, carl icahn and boone pickens. we are covering this ecb decision, we will hear from mario draghi and just about 30 minutes. we will take you back to london. what this means to global fixed incomes markets. we will be back. ♪

david: welcome back. michele is what does. -- is with us. stephanie: ecb decision coming

soon. let's get you news. poisons of the california want to know why a heavily armed couple opened fire, killing 14. police killed two suspects in a shootout. the man had been taking part in a celebration at the center, then he left and came back shooting. police are not ruling out terrorism did australian authorities have now narrowed the search for the missing malaysia and jet. the plane disappeared in march of 2014 with 239 people on board. moreerland police made arrest any soccer corruption case, to fifa executives were arrested in zürich. the organization is talking about expanding the number of teams playing in the world cup from 32 to 40.

get these stories and more at bloomberg.com. david: in europe a lot going on. anxiously awaiting the ecb decision. or teen minutes. -- 14 minutes. tom, what is going on? tom: round two for mario talk to, he said europe months ago greatd what many consider economic courage. i just spoke with the treasurer -- treasury -- treasury secretary, mr. snow. he comes to our london news bureau for an editorial meeting. john snow said it all, that the courage ofs europe, leading with his words, leading with his economics and

substituting for a system that has not had the courage to solve the many challenges. next 10ng said, the minutes or so is a follow-up to a historic headline and onto an important press conference. of your teams at jpmorgan are closely following this announcement. theis it going to affect weight you are investing or the way you make change in investing? b: if you delivers at least what is expected or even a bit more, he is clearly trying to underwrite a recovery. it is underwriting the capital markets, underwriting the banking system and he is creating a bigger and bigger safety net under europe. the problem we are having is what is the transmission mechanism interview beall --nomy and why haven't we interview beall economy and why haven't we seen that yet?

about $1 trillion in bad loans across the banking system in europe, those have to be worked out. you need a favorable backdrop from the ecb to allow that to happen. tom: some of the challenges is further negative interest rates come after janet yellen's speech, i saw ex -- significant accelerated moves in the market. if we have negative interest rates and new negative interest rates, how will mario draghi adapt to that? bob: he will be fine with that. he is trying to encourage that. we talked about debt sustainability earlier, that creates debt sustainability because, on one hand, they bring rates down so low you have a negative real funding rate. then they are printing money every month so you can roll over your debt. that is the one mechanism working, how it transmits

through to credit extension is the one thing we are not seeing just yet. that is one of the things we need to see. i will take the ben bernanke viewpoint, the counterfactual, if he had not done all of that, maybe europe would be in depression. stephanie: do you think they would be? bob: no. stephanie: if he had not, what position do you think europe would be in? bob: he would have a much longer workout of the debt burdens in place. he would be hovering around zero gdp for a longer time. you would be putting more pressure on fiscal policy. monetary policy, at some point in time, we have to realize it has reached its be limit. -- it's the limit. we can -- it's speed limit. we cannot keep going into negative territory.

stephanie: should we limit on the weather -- blame it on the weather? matt: that was a good excuse for retailers. chart, this shows the five year breakeven. inflation expectation. the blue line is the ecb balance sheet. even without changing the quantitative easing, without expanding the program, since we last showed the chart a couple of months ago, mario draghi has job owned these inflation expectations up to 1.7%, where they want to be. he has achieved quite a feat setting this expectation up and now he has to meet with the market -- what the market is expecting. stephanie: what is the word on the street, you have spent the last week in london. has been positive

from investors as far as the u.s. economy, but those on the ground in london, what are they saying? number one female every conversation is the future of european banking. andunited kingdom banking all of that wrapped around the single word brexit and. importancemated the of this debate about the future of the united kingdom within europe and it folds right over to the financial system. it is something to walk by the deutsche bank headquarters on the wall in london and wonder where will that london frankfurt bank, where will they be in five years? that is front and center for the city. david: is that how you see this, bob? : i do, there are much broader issues across europe. the immigration and the migration is one of the reasons it has become so popular.

it all comes back to mario draghi's role in trying to hold europe together. takesing that force that a policy and drives it through the system. and hopes that it works. he is the one person that is doing it across the broader europe right now. stephanie: tom keene, we will let you get back. i do not believe that is the number one conversation while you are in london, i would get the number one topic is i cannot believe how tall you are. thank you for joining us, tom keene, we will hopefully check in with you later as we get this announcement. we will take you down south, brazil, the rapidfire succession of financial and political blows has been unbelievable. the president is fighting for her job. superstar as a

investor concerns about an economic slump. let's bring in michael moore. we have to go through what is happening in roselle. politically, financially, shaky times, what does this mean in times of the global financial system? causing people to take a step back from the immersion -- emerging markets, brazil is one of the biggest. it seems to be one thing after another and one of the national champions, -- fighting off a crisis. stephanie: they have been a standout superstar come of what is your take, bob? bob: brazil has a lot of problems. it goes back years to win the currency appreciated wildly in 2009 21.5 versus the dollar. 5 versus the dollar.

they have a recession now that is very large i recent history. they have high inflation. they have a president that could be on the way out and there is corruption. this is why people have worried about investing in the emerging markets. david: they had a plan they thought when they brought in the new finance minister who was going to bring some austerity to the party but the politics undermined his ability to move. michael: there is not just financial risk but with this corruption probe, we talked to investors who said it is very difficult to price that risk. difficult to hedge the risk of a corruption probe which seemed to sweep up a number of the large entities in brazil. that is a wildcard that is top for investors that are not on the ground to wrap their heads around. it positive for

investors because as people grow uncomfortable with the potential for more bad news, prices go down, is it a buy opportunity? bob: a lot of of debt and overinvestment, they will try to hold it together until the olympics has through but i wonder if we will not see a restructuring of the debt burden shortly thereafter. stephanie: i think matt miller is telling us ecb is out. ecb leaves rate unchanged in surprise decision. this is from the "financial times." this to theaked "financial times." according to claire jones, they have not confirmed this -- we have not confirmed this, they have let rates unchanged. there are key rates we need to separate. there is the ecb benchmark rate,

now only a five basis points. people are not so concerned with whether or not a change that. we are looking at the deposit rate, the key rate to watch. , it forecastnow for a resumption -- reduction of 10 basis points, 100%, according to our survey, and 80 1% chance they will reduce it by 15 basis point and some people saying they will go as far to reduce it by 20 basis points. stephanie: amazing we are only five minutes ago go, mario draghi wants to control the conversation and here we have already leaked. : this will be breaking the embargo, the financial times will receive a lot of heat from the ecb over this. when you do this kind of thing, you get in trouble with central knows,as michael moore when you break these embargoes you are in a lot of trouble. the financial times is saying

the ecb is leaving rates dashingd and says that expectations for a cut to the deposit rate. >> we have not confirmed this. it may be true. we do not know. stephanie: we are going to have the news in under four minutes when this is officially released. we are monitoring this, we have not confirmed it. we will get market reactions to this unconfirmed news when we return. we are not going to take a quick break yet. my bloomberg, the spike in the euro. we expected the euro to continue its fall, down about a two week low versus the dollar, i should say it drop the most in two weeks against the dollar, it is spiking up. gaining about 4/10 of 1%. it has been down to one dollar 540.

serious reaction as far as the euro is concerned. if i pull up a chart to see what is happening to european stocks, the stocks 600 is up 3/10 of 1% and the dax up 1/10 of 1%. these are on their way down. see it has, you can dropped substantially on this report. consider the fact that it is just a report early. the "financial times" is saying mario draghi is leaving rates, include -- unchanged. we are not sure that is the case but the market -- stephanie: the market has reacted. we do not have this confirmed. let's take you do jon ferro in london. we do not have this confirmed. the market is listening. we are seeing a sharp reaction already with less than five minutes. can you hear us?

started, jaws are on the floor. take a deep breath. look at the bond market. i am seeing yields up maybe a basis point ahead of the decision, the move and euro ok but we are still at $1.06. let's have patients and wait for the rates to be confirmed. let's look to see what they do with the asset purchase program because maybe they went big bear. a lot of unanswered questions. i would not be dancing too much. david: you did exactly save the jaws would be dropping you also said there are other aspects to the decision, more new ones that just the single number. compositione of the and the size of the program from the ecb and the qe, we will not get that in 30 seconds but we might get a signal they won't change things in 45 minutes.

patientlye and wait for the rate decision and to see what happens with the asset purchase program. stephanie: many investors say we do not watch these numbers that closely and that it does not affect them overall but it does. everyone is a traitor at the end of the day. -- prater at the end of the day. -- trader at the end of the day. matt: for any currency or any as a class, you can see -- stephanie: it is out, ecb -- matt: opposite. the ecb is cutting is deposit. two minus three tenths of a percent -- two -3/10 of a percent. it was in line with market expectations. a live look at the euro. the euro is still up. maybe investors need time to

sort out what is going on. oneeuro trading up at dollar 650. keep in mind, jon ferro can back me up, the market, this sounds weird, the market expected mario draghi to surprise. the market expected him to do more than what the market was expecting if you can follow my logic. with what are in line we expected, i am waiting to see what happens with the asset purchase program. when we got the line from the financial times, the bond market was not buying it, it barely moved. the shorts are so sensitive. the financial times were dead wrong, the rates change, -.3%, let's wait to see what happens with the asset purchase program appeared a little bit of patience required. stephanie: the financial times caught on the wrong side. bob: the bond market probably

did not move because they were in shock. with the initial report that he did not cut rates. 10 basis points is lighter than i would have liked to have seen but considering that five minutes earlier we were talking about nothing, i will take it. i think it is the right thing to do, he has prepped the markets for two months that this is something they were going to do. you do not want to lose credibility at this stage in the economic cycle. stephanie: he will make a formal announcement of further measures today. he will break down the thesis, we are getting the overall message, the official headline has crossed. people will be hoping that the incorrect news had leaked because those who have traded on that are kicking themselves. david: a lot of people at the financial times during around trying to figure out -- careening around trying to figure out what happened. : it does not look like a

broken embargo, look like a fast finger. maybe an accidental release of a template, the wrong template. david: that has been known to happen. stephanie: we are not in a position to speculate, at least not on tv because it does affect markets. let's take you back to jon ferro. do we think we will have a high volume training -- do we think the audience will be up today or will we look at this decision and suggested before we see a spike? bobo: you will see by himself, when you look at the euro it is a bit stronger, that is the right level because the whisper number for the program out of the ecb would be to over deliver and i think they delivered as expected. you will take some of the steam a bit out of the euro and out of the market. i think there is a lot of trading to be done. when we see the broader program underway, there would be some relief across the markets that the ecb is on the right path.

jon ferro, take me through this, we know the number, -.3, did they also announce the vote or does that come in 40 minutes when we hear the press conference? jon: the most important my from the sport releases the ecb says mario draghi will announce further measures later today, the exact same headline they produced in june 2014 when they followed up in the news conference with an asset purchase program. that for a lot of investors and traders is a strong signal that in about 40 minutes he will unveil a shift on the asset purchase program. that means a shift in competition, extension of duration, rate of purchases, i do not know, that headline is a strong suggestion that the qe program is about to change and we will get the details in 40 minutes, that is the key line for this market and the key unanswered question that will be answered shortly. stephanie: will this push more flow of money into the strong u.s. dollar?

as we see rates cut and a ,icture in europe is positive but will it fly that more cash into the u.s.? as thesolutely, as long fed does not back away from raising rates this month. they back away twice before come in june, in september. there is still a healthy degree of skepticism in the markets appeared if they delivered that first rate increase in 9.5 years, in the ecb delivers the broader program that we are expecting, you are going to see the dollar go up and you will see u.s. financial assets attract flows. stephanie: how affective by this decision is janet yellen? in july, august, christine lagarde made a public plea to janet yellen, saying things are bad globally, please do not look at the u.s. market in a vacuum, how effective is janet yellen by mario draghi's decision?

bob: she a probably expected and will not be affected. her speech yesterday telegraphed that the fed is still on track to normalize rates in a couple of weeks. we will hear more of her today. i expect that she will continue to confirm that they will get off the zero lower bound. stephanie: michael, what do you think, for you, banks are watching, joss dropping on trading floors, what kind of actions are we going to see, act as agents.- this year has been driven by central banks and that is what you are seeing macro trading doing a lot better on the trading floors than the credit side of things. credit has had a rough year but macro options has been fairly active. it is because that everyone is driven by all the central banks. by the swiss national bank early in january surprising everyone, by the ecb, by the fed,

everything about the central banks this year and you are seeing that on the wall street results. stephanie: central banks affecting worldwide but be strong dollar, what will that do for u.s. corporate's, u.s. corporate to ask for, what that means for their business, it has a huge impact beyond the rates market, you have to think about how this affects corporate. if you are a corporate in an emerging market today, things are only getting down further. take about all of these investors pushed into the fixed income market, the credit market looking for years -- yields. tough times. marketsrging corporate's have their own set of circumstances, slowing demand domestically, and they have funded themselves largely in dollars, most of them did not hedge it so the convertible the rest destined credibility risk is there in a big way. i can june, janet yellen singled out the strength in the dollar as one of the reasons that the fed it backed away from a

normalizing at that point. the stronger dollar tightened financial conditions for them and we were seeing it come through in second-quarter corporate earnings. moore,thank you michael jon ferro, thank you, when we come back, much more about the decision from the ecb on bloomberg . ♪

♪ stephanie: welcome back. an exciting morning. david: thank you bob michele. global head of thick securities, jpmorgan. stephanie: we will let you get back to your office. we will hear from mario draghi in 30 minutes. >> with 190 offices in 35 countries.

david: european central bank cuts its rays to get prices rising, the impact it is having on financial markets. mario draghi is not done, he will announce further measures today, both -- we will hear from the ecb president in this hour.

♪ david: welcome to the second hour of bloomberg , i david westin. stephanie: i am stephanie ruhle, we have been covering the ecb rate decision over the last hour and will be hearing from mario draghi in less than 30 minutes. a roller coaster ride already . david: we are joined by bill rudin. stephanie: let's get you some first news. police in southern california will not rule out terrorism as a motive for a mass shooting that left 14 people dead. the suspects died in a shootout with police, not far from where the killings took place.

they were identified and -- as syed farook. and tashfeen malik. farook took part in a celebration at the center then returned and took fire -- a warning from john kerry who says a beating the islamic state will not be possible without troops on the ground. for a political situation in syria that would allow all nations to fight the islamic state together. in south africa, and appeals court has found oscar pistorius guilty of murder, a judge overturned a lower court manslaughter conviction. he faces a minimum of 15 years in prison. more on these and other stories 24 hours a day at the new bloomberg.com. amazing 10, 15, 20 minutes for markets, it the euro has moved unbelievable, shot up

after a wrong report that says the ecb left rates unchanged, they actually did drop the deposit rates by 10 basis points, seems like it was good as unchanged because then the market does not change his mind, .86 on a euro06 that was on 105.24 before the first headline and first bbc -- the ecb report. the german two-year looks the same in a huge reaction. theoes not turn around, german two-year yielding negative 14th of 1%. it was down earlier. as far as german markets, they are open. they were up half a percent or more before the ecb decision came out. now looking at a dax that is down. the u.s. futures, u.s. futures

traded up, they are coming back down but we are still looking at that are at least positive compared to yesterday's close. gold shot up and it continues to rise. it does not pay interest so that is better than negative interest. 5970 -- the most important headline seems to be that the ecb purposely said, hang on, mario draghi will come out and give you further measures when he speaks at 8:30. tophanie: deposit rate cut minus point -- excuse me, to -.3%, mario draghi to announce new measures within the hour, let's bring in jeff rosenberg on blackrock -- from a blackrock. and jon ferro. what are we going to expect? jon: they have the asset

purchase program and they can alter the size and composition and duration of it. around those three things, the composition, we know what they are buying. the duration, said two men september 2016, how much longer -- set to end september 2016, most people think it will go way beyond their. when you get the squeeze of the shorts but stay there below -- approaching 107, very interesting, the front end of the boom curve, arguably -- thehe headline itself that rate has just been cut to -.3% and no more. a five basis point move on the german two-year. it will be interesting to see what happens in the news conference. stephanie: the financial times has made a correction. they said the week that they put

out four minutes before the release was incorrect and a mistake. they have made that correction. there is a full-screen correction. please ignore earlier tweet. error.s published an -- in error. we did see a market reaction to the incorrect tweet. jawshan ferro has said would be dropping on trading floors, is that the case at blackrock? it was disappointing, the headline, in terms of the coverage. what you are seeing in terms of the market reaction is that there was a lot of expectations built up around today's news. as you have correctly reported, we are in the interim, we have to wait till the further policy

measures are announced but so far the initial reaction is clearly disappointment on -10. a market was somewhere between -15 and maybe -20. it is telling you that there was so much expectations built up around this ecb announcement. so far, in the market reaction from the euro, from the boom curve, you see disappointment. into the press conference, the bar is pretty high as to whether or not the policy measure extension, which are also pretty high in terms of market expectations, either the ecb will be able to make good on those expectations. david: if you look at the options that seems to be open for that press conference, extending the time of the asset purchase plan, extending the nature of the securities that could be purchased, or extend the amount that could be purchased per month, which are the markets most likely to react

favorably to? >> time and amount, in terms of extending outside of the area, there is less clarity about the efficacy of that, much more in terms of the headline will be the time and amount. david: there is a chance that mario draghi could make it up to the markets as it were? >> absolutely, they could come in much bigger in terms of size or time, but there are some limitations in terms of that. there are some issues when you are talking about ecb, quantitative easing, different than what you have in the fed case where the pull of assets, their ability to be as unlimited as some of the other developed markets central banks is not as much. imposed some self-imposed rules that limits the scope of what they can buy. that is the other area, the soft floor in terms of what bonds they would purchase, not

purchasing bonds below this deposit rate. other aspect, if they loosen some of the self-imposed constraints, it would open up a broader range of securities for them to purchase, that would potentially be surprising to the market in a positive way. stephanie: could we look at this as mario draghi did not want to do too much ahead of the janet rises butsumed rate it is expected. >> the ecb policy transition mechanism has been mainly through the currency. from october 22 two today, they had gotten a lot of that already. much,o not have to do so they have to keep the euro from rallying significantly. they are getting a little bit of a disappointment but they got a lot of improvement already so your point is well taken, with what the fed will do, they do not have to do as much as here

but they did raise a a lot of expectations, in terms of maintaining those gains, in terms of weakening the euro, they need to come to close enough to market expectations. stephanie: the media loves to overinflated thing so i will try to bring it down. i am hearing from investors who are saying we are watching this but until we have mario draghi break it down for us, our pencils are down. would you agree with that? >> yes, we are in the limbo. period. it is pure speculation to try to guess what they will do. that makes a lot of sense. everybody will wait until after we hear what he has to say. that is when you will see the bigger market moves and bigger market positioning moves after we get that information. stephanie: matt miller you love

the perversion. qe.le want to see more those people are investors, they want the safety net. when he says i will do whatever it takes, they can do whatever it takes. pushest that more qe into the system means that the fundamental economies are still broken. matt: what i was about to show -- i havean do this it on the united states but if i change it to euro area, he has jawboned the financial conditions expectations back up almost to a level keel. the market wants to see actual moves so they can make money. the main concern being inflation. i showed you german expectations earlier. if you look at the ecb survey of a whole bunch of professionals

inside the eurozone to see what kind of inflation to expect, the concern is you get a deflationary situation. this is 2015 expectations down at 0.1, way too close to nothing. they want to get up to two. this is 2016 expectations. you can see this chart on your bloomberg. -- on bloomberg . as long as things go how mario draghi is assuring the market stable go we can get back to even keel eventually. my question for you, jeffrey, i'm looking at the front end of the german curve, -.4%, for the traders, 20 minutes away from this news conference, what are you looking for, what action would you

expect to get repriced the other way, how does he over deliver in 20 minutes? >> it is size and duration. extent, much more of a smaller probability as to whether they talk anything about the floor in terms of their purchases. that would be a very big thing. i do not expect that. the focus will be on the size and duration. stephanie: seems like there is a 1, 2, 3, in terms of next vacation, a rate cut, 10 basis points, extending qe, we have to wait, and if you will increase thsize of it, we are waiting for a: 30 -- 8:30. if the day -- if they do not come through we will have a pullback in the market. >> you talked about in terms of how investors are positioning around the ecb expectations, not just ecb come all central banks expectations for the last 5, 6,

7 years, ever since quantitative easing, has all been about anticipating what central bankers will do and positioning your portfolios around those expectations. that is what we are seeing play out. .n terms of the ecb because expectations have been high you have the rally in european curves, 80 -- european rate curves. a lot of positioning older ability to that disappointment -- vulnerability to that potential disappointment in terms of right now in the interim time we are sitting at right now. initial market reaction is a little bit of a disappointment to the -10. stephanie: if we get a pullback this would mean if the euro would strengthen versus the u.s. dollar and jeff, if the euro strengthens versus the u.s. dollar could not that help oil a little bit? jeffrey: and terms of the sentiment around the value of the dollar versus the oil.

but we can agree oil is a bout a demand,hings, supply, iranian supply, many different factors. the dollar will be one of those factors. but a lot of the issues around oil has been as much around the supply and demand factors. it is a mixed bag when it comes to the impact of the euro and the ecb on the outlook for oil. stephanie: friday's jobs numbers will be impacted. jeff rosenberg, thank you for joining us. jonathan ferro, thank you. i am quite sure you will be back with us in a few minutes. when we return, we will talk about luxury in new york city, 26 main dollars for an apartment, what some people will pay to live in new york city. we will talk real estate with

bill rudin. that is next, 16 -- 15 minutes away from mario draghi's press conference. ♪

♪ david: welcome back to bloomberg . we hosted the loews corporation president earlier this week who said the current interest rate environment made him worry about new york real estate. >> the one thing we haven't new york city, hundreds of story residential buildings going up, each one looking to sell 100 million dollar apartments, how many people are out there looking to buy $100 million apartments? that is something going on in the markets i think is as close to a bubble as there can be. rudin joining us, you only go up to $26 million

for department, a low-rent guy. [laughter] i am very good friends with jim and his family, but you have to put it in perspective, the high-end market, we had almost 40,000 apartments, homes, single-family homes, condominiums, sold year to date. , about 1000 are about $4 million, a small percentage in terms of the volume of sales. in terms of dollars, a bigger percentage. a building boom all over the city, in queens, an article in the post about thousands of rental units being built. stephanie: he was going on and on about all the homes out there. bill: we had these $50 million to $100 million apartments, but

you also have smaller priced apartments throughout the whole city. that creates the diversity and brings thousands of people coming into new york city to live and work. david: that gives you a special vantage point economy of new york how is demand and what does it tell you about employment? bill: increased jobs and tremendous growth in commercial leasing activity. a record year over 30 million square feet of office space least including by financial .ervice terms -- firms the technology world, health care will come education world, we are diversifying our economy and that is important. we are seeing total neighborhoods change, whether it is commercial or residential development. stephanie: the super high-end world that trade at $26 million, who is buying them, is a global

economy story? bill: and the west village, we just opened last month, and started moving buyers and. only 70% of our buyers -- 70% of our buyers are new yorkers. are from around the country and the rest are foreigners. a small percentage of foreign buyers. 199 apartments, less than 20 available, great apartment still if you want to come down, stephanie, to take a look. , in the westnt village, is a domestic new york based buyer. there are foreign buyers coming throughout the entire city looking to buy. stephanie: we have to talk wall street and the financial industry, when you look at the west village and tribeca, a high concentration of investment bankers, traders, we have seen more get laid off in the last few years and more announcements

about trader bonuses being frozen. will that affect the market? bill: i was watching the other day when you were talking about jpmorgan and other banks are flat, their bonuses. that is good as opposed to going down. they drive the markets to some degree but the city is -- the city's diversity in terms of who is living and working here is not driven by the financial service industry 100%. a small percentage of buyers from the financial service sector. from fashion, real estate, health care. stephanie: when did fashion start paying that much money to buy $10 million apartments? bill: it depends on who the buyer is and if they are the owner of the company. city, aut the tremendous urbanization, people want to be here and companies are deciding to be in new york

because the employees are here and we are starting another development in brooklyn which is totally geared to the technology world. it will be the first ground of development in brooklyn over the last three decades. stephanie: you see no tech bubble. ? .ill: we do not see that you see strong company like facebook and google and a whole host of companies that are expanding and putting divisions in new york city. and the small startups. a company like vice media that is exploding. they have their own building in williamsburg, i think they're up to 700 or 800 employees. throughout the whole city, not just manhattan, brooklyn, queens, long island city, that gives us the diversity and the comfort, obviously the companies will be a net inflow of and flow of eb

companies but a drive of companies to want to be here because the young people want to be here. david: on the demand side, people buying and renting, what about the financing side? when you look at the ecb and the stimulus, extraordinary stimulus, is that all good news for you, because it is more funds? bill: there is a tremendous amount of capital flowing into the united states, particularly new york. there was an article about chinese investors looking throughout the whole country, instead of the gateway cities. a lot -- having low interest rates, the 10 year treasury to 20, that is very helpful, we refinanced a building recently. low interest rate environment is helpful. we still have to have the fundamentals. a good building, a good plan, good tenants, a good design. jim tisch said, are

you worried that the availability of really cheap capital will cause others, not you, to make foolish investments in real estate? bill: that always happens and there could be too much supply appeared at the moment, in new york city, there is not enough supply for middle income housing and that needs to be looked at. stephanie: how is that going to change, let's be honest? the used to be a hospital where you are building. bill: part of the diversification. the mayor has a aggressive plan to create several hundred thousand of affordable units to -- through a tax incentive plan that needs to be extended. together needs to come and work through to make sure that plan gets done because we need to have that kind of affordable housing. as i said in this article, it is happening right article, the outer boroughs, price points at much lower levels.

if there is too much supply, that will bring prices down. i do not think that will happen in the long run basis because new york continues to be an economic engine and drive demand. stephanie: one of the drivers to but you do the outer boroughs, you have a property in times square, you did not -- people do go thereto go to sometimes and make it safer in an outer borough. bill: we think it has to do with the perceived demand of location. security is a big issue. the city is working on it. stephanie: we will be back with more. ♪

♪ stephanie: welcome back. you are watching bloomberg go. we are giving you full coverage as we approach this ecb press conference beginning moments from now. president mario draghi will be

speaking. whether or not he will the extending qe. we will be getting that and how big it will be. we have seen quite a market reaction. we have seen the euro growth weaker versus the u.s. dollar. some have said that trade is overdone and we are seeing the effects of that. a slight reversal beginning around 15 minutes ago. we saw a reversal. the euro would gain versus the u.s. dollar if he doesn't deliver. more qe around 8:30. draghi asen mario always in his skinny black tie approaching the podium. all eyes on mario draghi. we are waiting to hear

specifically details behind the rate cut. if we are going to beginning qe. the extent of how big it is. this is somewhat of a scene setter as we wait for a potential rate cut later this month from janet yellen. mario draghi taking his seat at the podium. it has been quite a morning already. there's a very cool w rip function which we always show for fed futures. if you change it to eurozone, you can see a cool chart for european benchmark rates. it's not so much the benchmark rate we are focused on for the ecb but the deposit rate. take a look at this chart. you can see the chances of the deposit rate being between 4/10 of a percent negative and 1/10

of a percent negative. the more important thing is what mario draghi says right now. stephanie:. he is. -- economicregular analysis, we have conducted a total assessment of the strength and persistence of the factors currently slowing the return of inflation two levels below but close to 2% in the medium term. and re-examined the degree of monetary accommodations. the council took the following decisions and it's price stability objective. ecb intereste rates, we decided to lower the interest rate on the deposit points to -.30%.

remaint rates will unchanged at their current and 0.3%.0.05% the standard monetary policy measures, we have decided -- purchasee program. the monthly purchases of 60 billion euros under the purchase program are now intended to run until the end of march 2017 or beyond if necessary. and in any case until the governing council sees a sustained -- sustained a adjustment consistent with its aim of achieving inflation rate below but close to 2% over the medium term.

third, we decided to reinvest the principal payments on the securities purchased under the purchase program as they mature for as long as necessary. both tol contribute favorable liquidity conditions and to an appropriate monetary policy stance. the technical details will be communicated in due time. we decided to include in the public sector purchase --gram euro denominated instruments issued by regional and local governments. fifth, we decided to continue conducting the main refinancing operations and the three-month longer-term refinancing

procedures with full allotment for as long as necessary and at least until the end of the last reserve period of 2017. were taken inons order to secure a return on inflation rate towards levels that are below but close to 2% and thereby to anchor medium-term inflation expectations. projections incorporate the favorable financial market developments following our last monetary policy meeting. indicate continued downside risks to the inflation slightly weaker inflation dynamics than previously expected. this follows downward revisions in earlier projections exercises.

the persistence of low inflation economiclect sizable slack weighing on domestic price pressures and headwinds from the external environment. ar new measures will ensure -- accommodating financial conditions and further strengthen the substantial impact of the measures taken since june 2014. which have had significant positive effect on financial conditions, credit, and on the real economy. today's decisions also reinforce the momentum of the euro area's economic recovery and strengthen its resilience against recent global economic shocks. the governing council will closely monitor the evolution and the outlook of price isbility and if warranted, willing and able to act by using

all the instruments available in order toandate maintain an appropriate degree of monetary accommodation. the councilr, recalls that the asset purchase program provides sufficient flexibility in terms of adjusting its size, composition, and duration. explain our assessment in greater detail starting with economic analysis. byo area real gdp increased .3% quarter on quarter in the third quarter of 2015. following a rise of .4% in the previous quarter. most likely on account of a continued positive contribution from consumption alongside more muted developments in investment and exports. the most recent survey indicators going -- point to an

ongoing real gdp growth in the final quarter of the year. looking ahead, we expect economic recovery to proceed. should beemand further supported by our monetary policy measures and their favorable impact on financial conditions as well as by the earlier progress made with fiscal consolidation and structural reforms. moreover, new oil prices should provide support for households real disposable income and corporate profitability. and therefore private consumption and investment. government, expenditure is likely to increase and parts of the euro area are reflecting measures in support of refugees. however, the economic recovery in the euro area continues to be dampened by subdued growth

prospects in emerging markets and moderate global trade. the necessary balance sheet adjustments in a number of sectors and by the sluggish pace of implementation of structural reforms. this outlook is broadly reflected in the december 2015 euro systems macroeconomic projections for the euro area which forced the real gdp 2015, 1.7%by 1.5% in in 2016, 1 .9% in 2017. compared with september 2015, ecb staff macroeconomic projections the prospect for real gdp growth are broadly unchanged. -- the outlook relating particular to the

heightened uncertainties regarding developments in the global economy as well as broader geopolitical risks. these risks have the potential to way on global growth and foreign demand for euro exports and on confidence more widely. to an estimate, the euro area annual inflation was .1% in november 2015. unchanged from october. both lower than expected. -- but lower than expected. this reflected weaker pricing in services and industrial goods. compensated by a less negative contribution from energy prices. availableinformation in current oil futures prices, annual inflation rates are expected to rise at the turn of

bassear on account of effects associated with the falling oil prices in late 2014. 2017, 2016 and inflation rates are expected to pick up further. by the expected economic recovery and -- past declines in the euro exchange rate. the council will closely monitor the evolution of inflation rates over the period ahead. broad pattern is also reflected in the december 2015 euros systems macroeconomic projections for the euro area hicbh forced the annual 1% inion at .1% in 2015,

2016, and 1.6% in 2017. in comparison with the september 2015 macroeconomic projections, hicp inflation has been revised down slightly. turning to the monetary analysis, recent data confirms solid growth in broad money with the annual rate of growth of m3 octoberng to 5.3% in point 9% inur september. annual growth in m3 continues to be supported by its most liquid components with a narrow monetary aggregate and one growing at an annual rate of 11.8% in october after 11.7% in september.

-- continue the path of gradual recovery observed since the beginning of 2014. the annual rate of change of corporationsncial -- nonfinancial corporations increased in october of from .1% in september. despite these improvements, developments in loans to enterprises continue to reflect the lagged relationship with the business icicle -- cycle, credit risks, and the ongoing adjustment of financial and nonfinancial sector balance sheet spirit the annual growth rate of loans to households in october increased to 1.2% compared with 1.1% in september. overall, the monetary policy from june 20lace 14 have clearly proved borrowing conditions for both firms and household across the euro area.

a cross check of the outcome of the economic analysis with the signals coming from the monetary analysis confirms the need for further monetary stimulus in order to secure the return of inflation rates towards levels that are below but close to 2%. policy is focused on maintaining price stability over the medium term. commodative stance supports -- given continued high structural unemployment and low potential of growth in the euro area, the ongoing cyclical recovery should be supported by effective structural policies, in particular actions to improve

the business environment including the provision of an adequate public infrastructure are vital to increase productive investment, boost job creation, and raise productivity. effective implementation of structural reforms in an environment of monetary policy will not only lead to higher sustainable economic growth in the euro area but will also raise expectations of permanently higher income. and accelerate the beneficial effects of reforms thereby making the euro area more resilient to global shocks. supportolicies should economic recovery while remaining in compliance with the fiscal rules of the european union. full and consistent implementation of the stability and growth is crucial for confidence in our fiscal framework. at the same time, all countries

should strive for a more growth friendly fiscal consolidation. growth friendly composition of fiscal policies. we are now at your disposal for questions. thank you. >> brian blackstone with the wall street journal. with your deposit rate cut today, are you at the lower bound or is there more room to cut that rate? is, itsecond question seems like what you've done is a little bit on the low end of the range of what the financial markets had expected in terms of your stimulus package today. it seems like the initial reaction in the financial markets there's this point. why didn't you do more given how

much you have warned about the risks of low inflation? why didn't you raise the monthly purchase amount? why didn't you cut the deposit rate more? thank you. >> let me tell you how we came to take the steps we've taken. ,n the last governing council we decided to assess whether the degree of monetary accommodation that we had achieved until then was adequate or needed to be recalibrated. this exercise should three conclusions. the first is that we are witnessing a continuing recovery, gradual but continuing recovery driven mostly as i said a minute ago by consumption. rates have been .4% and .3% over the last three quarters.

aredrivers to this recovery accommodating monetary policy, less headwind to our fiscal policy, and the oil prices of course which are supporting real disposable income. but also our policies have been effective on the inflation front because if you observe especially in the last month we -- after a long time, the correlation between our inflation expectation measures and they oil prices has decreased or just disappeared. overall the conclusion about our policies was that they have been effective.

can dwell on that later to give you a few figures of how effective these policies have been in improving the credit the financial markets conditions, and supporting what we have seen so far happening in the real economy. the question was, have they been effective enough? for us to be confident that we would reach our objectives about inflation within the horizon that we have planned. and the answer we gave ourselves was, not enough. so we have to do more. so let me say this very clearly. we are doing more because it works, not because it fails. we want to consolidate something

that's been a success. and why did we come to this conclusion? we said that the last macroeconomic projections imply -- this downward revision comes after a long series of downward revisions in inflation. also the projections contained the effect of our policy communications in the last month already. and in spite of that they had a downward revision. also after the cutoff date we had another -- inflation which was likely lower than expected. so for a variety of reasons, we decided that our monetary policy accommodation needed to be acalibrated so as to have

faster conversion so our 2017tion objective to horizon. what did we do? we took several decisions. one of them is pretty new. namely the reinvestment of principal payments. that is a quite in portions measure because it basically maintain we intend to the degree of monetary accommodation and favorable conditions for the liquidity thanr, for longer horizon we have been saying so far. which means that the conditions ora white abundant liquidity in high excess liquidity will continue for a long time.

discountouldn't another fact that we have not been discussing so far. that there are a series of what we call autonomous factors coming into play. in the years ahead. which tend to reduce the excess liquidity. so there are several of these. -- is the repayment of the another one is the banknotes notes. another one of the bonds purchased under the s&p program. we counteract this reduction and we actually may do even more than offset these reductions. which means that the conditions for this liquidity will ensure that the bonds we purchase -- and we are purchasing and will be purchasing -- will stay on our balance sheet for a long time. so these are very significant decisions.

we are confident that these decisions actually are adequate to achieve our objectives. we decided this cut in the deposit rate, we think it's adequate. >> you just explain your reasoning. but nevertheless, financial markets appeared to be disappointed. what is the reason? do you think that something went wrong in your communication in the run-up to the decision? did you perhaps overestimate your ability to convince fellow policymakers to decide something even more aggressive? or do financial markets just not understand yet how powerful these measures actually are y?

the second question, could you perhaps give us an idea of the the discussion on the governing council and whether the decision today was unanimous? thank you. . they were not unanimous but there was a very large majority in favor of this package. very large. on the first question, i don't think so. i don't think our communication was wrong. i think these measures need time to be fully appreciated. we will see. >> mr. president, you have said many times and today that cutie is working -- qe is working better than expected.

at the same time you have also said that inflation is getting back to where you want it to be. it's lower than you thought. how do these two things square up? is this because the euro economy works different than you thought? my second question is -- last month, you said that you want to bring inflation back to close to 2%. can this be read as a sign that you would tolerate some overshoot to avoid the risks of two low inflation for too long? thank you. >> the answer to the second question is that our inflation rate ought to go close to 2%. but the low 2% over the medium term. we should take into account the

fact that it was well below 2% for a long time. sayhe second point, we do and we just said that our qe has been quite effective. let me give you a few figures. the market-based financing conditions showed a fairly significant success of our policies. -- fell by 2000 points between june 2014 and now we had the same decline in bonds issued by firms, by banks. , the cutsthe declines enhanced thehave power of our transmission channels. thing isost important the fall and the cost of credit. the cost of credit for the euro , bank lending rates fell by

approximately 80 business points. that under normal circumstances, one needs a reduction in interest rates by 100 points. and the transmission channel of this reduction to a lower lending rate has been faster. states,erable member the reduction was 140 points. credit has become much cheaper. credit volumes have become much broader. and more significant for both households and firms all across the euro area. -- have been going down between large boards and small borrowers in the vulnerable countries stand in the non-vulnerable countries. had anse measures have

effect on the economy. let me give you a figure. produced by our staff. in absence of our measures, inflation would be at least half a percentage point lower next year, and about a third of a percentage point lower in 2017. the impact on gdp is very sizable. to measures are continuing raise gdp by almost 1% in the years 2015, 2017. i think we rightly claim that our policies have been effective. >> [inaudible] in january 2015, we calibrated qe on the basis of

certain conditions and these inditions have changed and particular during the summertime because of changes in the external factors, the weakening of emerging market economies, the appreciation of the exchange rate. all of these produce lower inflation and so we had to recalibrate. and we are going to do this on and on as the external conditions will put at risk the achievement of our objectives. >> julia chatterley, cnbc international. i think some of the disappointment we are seeing in the market can be tied to the lack of movement on the size of monthly purchases. can i ask you if you would talk about increasing that size, and whether somewhere in there we can tie the decision not to to the prospect of diminishing returns given how low sovereign bond deals already are?

and you did talk about the deposit rate. you said it was adequate at this moment. can i ask again, are we at the lower bound of the deposit rate please? we have a menu of options. our monetary policy has many tools. our asset purchase program is flexible. we can always adjust its horizon, it's size. it's designe. we are not going to be hampered in doing this by technical issues. we are going to be visiting or review some of the technical parameters of our program in the spring. this time we decided that the extension of the horizon and especially the introduction of the reinvestment would be the right thing to do. and the new calibration that was

achieved after that would tell that we would be able -- we are confident to reach our objectives within the horizon as the planned. noth means basically we are excluding the use of all other instruments if we were to decide that they were the right wants to do. >> [inaudible] >> i said before that the cap we decided today is adequate. period. >> claire jones. financial times. you have noted on many occasions that qe has had a big impact on leading conditions and credit markets, yet we have seen very little change in core inflation since january.

is that what you would have expected when you first announced qe and if not, why do you think it's happened? why what you've announced today the contrastss between the effective qe on credit markets and only real economy? there are many factors that affected the core inflation projections since january 2015. the most important ones i've just mentioned is the oil prices and the situation in the emerging market economies. what we've done since then is to create a very favorable financial condition and credit markets condition so that firms and households even though burdened by these factors could

find credit easier to access and more abundant. this, have seen especially through higher consumption and higher real disposable income. the interesting thing to see is that for the first time this year, the recovery is becoming driven and is actually mostly by consumption rather than exports. and the other interesting thing to see is that consumption and real disposable income move together. namely the savings rate is flat. which is also a good sign. qewe see they gradually our is translating itself into improvement, into improvement economic conditions in the euro area.

>> at the last meeting you told us that the export groups were analyzing the function of app. can you tell us something on the outcome? especially what channel works best? the measures that the council decided today had been discussed in a quite detailed fashion by all of the relevant committees. and basically our decisions to reflect their discussions. different -- why have we chosen to widen the horizon? i have we chosen to introduce this reinvestment factor -- why have we chosen to introduce this

this wasent factor? decided by the committees and we followed their views in taking this decision. could you quantify the impact of your purchases in the municipal bond market, just hoping this market conventionally -- potentially is? there are many other securities in the future which are potentially there to be bought. could you shed some light on other potential areas where the asset purchase program could be extended to, for example in the area of nonperforming loans would be the possibility of extending asset-backed security purchases to instruments that would include at least some element of nonperforming loans in the future perhaps? sayirst, it's too early to what the extent of our purchases but i justonal bonds

stated in the introductory statement. early to stay but it's also too early to say in which direction we are going to extend or if we will ever need to extend gr. because so far, we don't have to. it's been said several times that we wouldn't be able to buy the bonds. and bonds are there to be bought in good supply. it is just too early to project further extensions. it would be premature. question is on the deposit rate. what is the main tension behind

this lowering. the experience seems to be quite mixed in countries like switzerland. is it supposed to push down the exchange rate of the euro? and my second question is on the agreement between ecb and national central banks. some national central banks seem to have bought quite large thents of assets during past years, while others have not. is that a cause for concern for you? question, theyd decide their investment policy incomplete independence. often it's very hard to understand what are the purposes why they buy certain bonds. often for example, for their pension fund. --ould exclude completely

you didn't say that but you may have thought about this in your mind, i would exclude completely any possibility of monetary financing. they are not buying from the primary market and their investment policies are broad-based. think youstion that i should ask them. on the first point, we simply observed that cuts in the rate on the deposit facility vastly improves the transmission of our monetary policy. the transmission of our monetary policy. for example, some of you asked why we left the mro unchanged. the mro unchanged mainly because all the short-term interest rates now follow the rate on the deposit facility. which has become really the driver of our monetary policy.

and this will have consequences of course positive consequences on the real economy. >> the level of ecb accommodation for the last year or so has put some pressure on the central banks in other countries. switzerland, denmark, sweden. i'm wondering the extent to which the ecb considers the plight of its neighbors when it's doing monetary policy. and what if any communicate -- >> this is actually a very important question that we ask ourselves all the time. not only with respect to other countries here in europe but also with respect to the monetary policy in the central banks of emerging markets.

we really have to think and to reflect that we are bound by our mandates. our mandates are national mandates. our mandates are based on our own national jurisdictions. ecb, the fed, the bank of england. all central banks. the ecb, theor fed, the bank of england. all central banks. does this mean we do not talk to our colleagues? certainly not. extensive fairly habit of consultation, discussion, explanation. of the reasons why we do certain things. so we have what we call the spillovers and the effects of the spillovers in mind certainly. but as i said we are bound by our mandates.

>> by increasing the asset purchase until 2017, we must have in mind that the balance sheet of the ecb could reach roughly 40% of the global eurozone and gdp. is it not a burden that at one level could be too heavy to bear and play a role in the discussion when you decide to expand or not the amount of this program? and can you explain the rationale behind the answer you to the ombudsman of the european parliament imposing a quiet room to for all -- quiet period. point, theirst balance sheet of a central bank

is an instrument. as such, it should be used to reach the objective. which is price stability. as we have defined here. there isn't a size that is better than another size. gauge is to reach the objective of price stability. the other part of your question is if need be, would we be able to drain this liquidity in? do we have the instruments? the answer is yes, we have the instruments. we have the instruments. on the other question about the -- it's not the on button of the european -- there is an ombudsman and then there is a question.

we have updated our guiding principles for communications to clarify and amplify what is already practiced. during the quiet period, there will be no discussion of monetary policy with representatives from financial institutions. which wasct text updated on the third of december the members of the executive board reaffirm their appearance to the quiet period speeches andreby public remarks given in the seven days prior to each scheduled monetary policy meeting of the governing council should not be such as to influence expectations about forthcoming monetary policy decisions. similarly, the members of the executive board will not meet or

talk to the media market participants or outside interests on monetary policy matters during that window. we greatly appreciate the constructive dialogue we had on alle ombudsman aspects of transparency which we value highly. and by the way we just received a letter from the ombudsman highly congratulatory letter. >> you said that the public asset purchase program would go on until march 2017 or further if necessary. how close is this commitment to basically open ended as purchases? how close is this commitment to actually doing open-ended asset purchases as long as necessary?

this could go on and on, right? >> not really. no. there is a date, but there's also a condition. is that untilion we see a sustained convergence towards our objective of our rate of inflation which is below but close to 2%. then weve a date and say, if that is not enough, we can continue. today, we say that we are going to reinvest the principles of the bonds that we purchased. it's quite important to understand that this beforetment may start march 2017. both will certainly continue after march 2017.

bonds will stay on our .alance sheet after march 27 last year in jackson hole, you -- today you have emphasized the role of fiscal policy. -- more a similar countries with margins like theany and he consider that neutral fiscal stance that the european is advocating for the isozone as a whole antiquated in a liquidity trap? >> we had a brief exchange on this issue. our conclusion now is that first of all the first answer should

be given by the commission. the second point is that we will continue reflecting on this and we will have a view on whether -- the degree of appropriateness of the fiscal stance. whether we have a view about the aggregate fiscal stance. what is the degree of compliance with existing rules? whether the flexibility which has been exercised before all the terrible happenings of this recento before the terrorist attacks but also events, withfugee the flexibility be justified? there are a lot of factors playing altogether. how do we assess the fiscal stance today in presence of the previous flexibility, the

refugees, the need for security of the euro area, it's a very complicated question. so we're going to reflect on that. i would like to come back to the securities purchased by national central banks. you just mentioned there have been some healthy relations published in the german sunday newspaper that the italian central bank bought up to 100 billion. you mentioned yourself it's very hard to understand these purchases. how can you be so sure that they -- not ordered to refinancing of the stake if they are so hard to understand? and my second question, why don't you publish these documents of the on far -- on ts to make it more clear to

everyone? >> you should ask them. they would be compelled to communicate to ecb. there is no monetary financing in these purchases other than the the national central banks decided policies based on their needs and it is there competence in their autonomy. --some of them communicate some of them don't. you have central banks that don't tell anything so you wouldn't be able to know how many bonds they purchased. so the question that you may have should be asked the national central banks. it's very hard to understand, i'm sorry, i don't want to be misunderstood. it's very hard to understand what is the investment policy of the national central banks because each one of them has an investment policy. it's not that we are -- we had a say in their investment policy. we don't have a say in their pension fund for example.

>> is the conclusion of the first review the only precondition for the reinstatement of a waiver and the inclusion of greece and the qe?he some politicians in greece say that the shareholdings of the great -- greek state have become worthless because of methods .mposed by institution what is your view? discuss with the

government as part of the review in january and i have nothing else to add. on the recapitalization of the banks, let me give the floor to the vice president. but let me say that all those decisions have been by the banks the and the government expense. -- to some extent. -- public investments in the banks created may have been done in the previous round of recapitalization with the shares -- voting rights with full economic rights. meaning the same rights to dividend as any other. so there is in that respect not a problem of valuation of those public shares. they participate in the economic results of the banks. limited in terms of their voting powers.

time, too banks were able to fill all the short private investors money and there are two that were not able to do so. they were able to do so for the baseline stress test. but not for the adverse scenario. money -- and for that they will require some money which will be public money. so that's the situation. the statement that those public investments are worth is not correct -- is is not --

worthless is not correct. have you said everything you wanted to say? >> not really. >> because it's well-known by the way is the policy that we have regarding these things. so in regards to waiver, the main condition is that the governing council will be satisfied that the country and their program is complying with the program. and that could even happen of thethe conclusion review if we would be close enough to the end of the review and would be convinced that the review would become successful.

it's an assessment of compliance with the program. regarding the participation in qe, it does not depend only on the successful completion of the review. >> you said the majority of the members -- new ventures. did you discuss this time the side effects or risks of the additional measures and the governing council? what kind and how can you avoid those risks? this time i wouldn't say that we've discussed the side effects and risks. but it's a discussion that we have ongoing anyway.

we are closely monitoring these risks. we are aware these risks may be there. much as one can about these risk second that we have evidence about these side effects. evidence.don't have the growth in credit accompanied by leverage -- the phenomenon that we've seen precrisis -- we don't see that. i've just given to figures about credit. credit is picking up. it is coming back. it is very subdued. risks, we systemic may have localized risks in different parts of the financial system and they should be addressed by macro prudential policy mellowed -- measures, not

changes in monetary policy. >> you have alluded to the recent terrorist attacks. the possible effect if there are any of the terrorist attacks on the economy were included in your macroeconomic projections or what is your assessment of that? this is, we to don't know. we have in mind that the situation ahead is full of geopolitical risks. and that's why we have to be alert, that's why we have to be continuing our effort to pursue and achieve the price stability objective, well aware that the

surrounding conditions may actually get worse because of these geopolitical risks. so in the present measures, there is confidence but there is no complacency. jack ewing, new york times. one of the side effects from your measures has been that the euro has lost value against the dollar. i know that the currency rate is not a policy goal but it does seem to have been in effect. -- an effect. is there a point where the euro gets so low against the dollar that the negative effects start to become a concern? is there a point where the euro

would lose so much value they start to worry about it? thank you. for us, the exchange rate is not a policy target. but of course it's important. for price stability and for growth. so when we decide our monetary policy measures, we have in mind and thet the inflation path to our objective. at the same time, it's quite clear that whatever we do, whatever everybody does in the world, every central bank, affect the exchange rate. this in turn will have effects on price stability and growth. so it's very difficult to respond to your question when we have in mind a level of the exchange rate. we have in mind only our objectives on inflation and growth.

thank you. dallas was european central bank president mario draghi speaking after that key rate decision. erik schatzker joins us and alessio de longis. posen, president of the peterson institute for international economics. i want to take you to london where jonathan ferro is. love looking at this. the euro was stronger versus the u.s. dollar. people were disappointed. we got cuts, we got the extension, we didn't get the expansion. we need to add in market technical because we saw a rally leading into this in the u.s. dollar. a lot of that is profit taking and we have to take that out because the expectations around mario draghi are no different from the expectations we often see from the fomc and they often

disappoint. we have to factor in the trading happening, not necessarily the long-term impact. jonathan: we also have to factor in the ecb's credibility. remember mario draghi guided these markets to expect something big. he told us to look at three things on the asset purchase program. the size, competition, and duration. they've extended the duration and competition. but on the size, the monthly rate, they did nothing. for the market, that's a big disappointment. the euro is backing back. a 10 basis point move on a german two-year is significant and you see that in the equity market as well. people this is overpromised, under delivered.

stephanie: this happened over a number of rounds. is,with gdp being where it we could see the first half of 2016 a lot happening for mario draghi, just not all of it today. we expected he was going to give us some big shock and all that this could happen over time -- awe but this could happen over time. jonathan: i don't think anybody really believes that in march 2017 qe is going to end at the ecb. he didn't disappoint janet yellen. she will be very happy. jordan happy boy, thomas at the smb. this takes pressure off the swiss. adam posen is a former member of the bank of england's monetary policy committee. you know we live in the age of

central-bank transparency. the ecb itself says it is essential to the credibility and predictability of its monetary policy. given what we saw happen in the euro today, the biggest single day move in the euro since march 2009, is there any way to describe what mario draghi did as something other than a bad surprise, a communication failure, possibly even a mistake? >> oh dear, no. i completely disagree with that. i think you're absolutely right to talk about transparency. unusual to see you buy on the news and sell on the announcement. or whatever terms you want. stephanie: you buy on the run up and then once you get it you're going to sell it. they are taking profits. >> i completely agree with that interpretation here. and i also think you have to see what's going to happen with

yellen next week or today. the amount of uncertainty about these decisions and the discussion of disappointment is really very small. we always knew it was going to be open ended. the stuff about dates is really just a marker for the hawks. it's a marker for saying, we have pushed the hawks back a little bit more. but it's going to be open ended. which druggie emphasized -- draghi emphasized. they are not going to roll of the expiring bills in their portfolios. disappointment shouldn't be confused with policy disappointment and a surprise shouldn't be confused with a lack of transparency. ofphanie: people made a lot money off of this. >> and they continue to lose money office. stephanie: is it because they

are -- the tone of mario draghi's voice -- he's leaving it open ended. he can continue to do this. it's not stopping. i want to strongly agree. the only substantive place where you could say there was something of a deviation from expectation was they didn't raise the monthly number. they didn't raise how much on a running basis and that actually does matter. but in the scheme of things, this is not a huge change in policy in a bad way. it's not even a huge change in projected policy. i agree. let's not get too much into the tea leaves here. erik: jonathan says there's a question of credibility at ecb. aghi said the reason we are doing this is because it is succeeding so well. does anyone believe that? i believe everyone believes

it is because if you look at -- since he first preannounced it in the middle of last year, we are obviously on all market metrics, where he would like us to be. a lot of it is counterfactual evidence. imagine where we would be if we have done so. the economic recovery is picking up. europe is the only one showing an upswing at the moment. it's where the growth prospects are the best in terms of increased menstrual -- in terms of improvements. the ecbo you agree with analysis that absent unconventional policy and negative interest rate inflation one half point lower next year, a third of a point lower in 2017, gdp growth would

be wonderful percentage point lower than it is now? >> i agree with the order of magnitude and the sign. it's quite clear when you see the change from when he gave his whatever it takes speech and then the announcement in implementation of the program, how much difference it has made. the exchange rate is one. but importantly is the spread of credit availability. hugeno longer these interest rate spreads representing imperfections in the euro area where because of similarn problems borrowers across borders couldn't get access to credit. so i think there is no question it has made a difference. there's no question the counterfactual would be worse. we saw that in europe in the years until then and we saw that in japan. it's pretty straightforward. i agree that we are not that is fine with where inflation is.

he's right to emphasize that in the mandate. that is something we are seeing is a global issue. in japan, in europe, in the u.s. effects working immediately on financial markets, a stop having as big an effect on inflation as we would have expected. stephanie: the fact that we don't have to be as concerned about that the virgins between monetary policy really makes it easier for janet to step in and raise rates. yeah, but i wouldn't overemphasize that. there is a divergence. we are talking about where the fed is likely to raise rates three times between december and the election in november versus the ecb is going to keep doing what it's doing and possibly expanded further. -- expand it further. matt: basically anyone who has gone dollar long since november

5 is losing money here. but if you look at the bigger picture, it's pretty amazing. stephanie: versus the euro. everybody in this period from 2003 until now is just taking profits off the table. i had a quick question and i want to illustrate it with a great chart. you may have heard a reporter say during the ecb press conference that if the bond buying program does extend until march 2017, the ecb balance sheet will be 40% of total eurozone gdp. right now it's about 20%. i love this chart. it shows that the fed balance sheet as a percentage of u.s. gdp has gone up to about 25%. is it bad if the ecb balance sheet in deed goes up to 40% of gdp or do you just assumed that gdp also gains a lot more as the

ecb balance sheet expands? : president draghi had it exactly right. the balance sheet is a tool. there is nothing inherently right or wrong about the eyes of the balance sheet. -- about the size of the balance sheet. they are going to pay attention to the cost. but the point is they need more to get where they are legally required to go and you shouldn't focus on the balance sheet. you should focus on the goal. the other thing they announced today was that they have expanded it now that they can buy subnational government bonds in various countries. since germany doesn't issue enough bonds at a national level to keep the full share in the amount they are going to be buying that they have to make this technical adjustment and allow them to buy some lender level bonds in germany and other entities.

that's a means to a goal. the size of the balance sheet doesn't represent a danger by itself. let's talk about credibility. let's talk about the goal. the goal is inflation. of 2%.t we haven't been there since 2013. when do we really start talking about credibility? >> that's a fair question. that's the part were there is legitimate grounds for worry. it is not specifically and ecb issue anymore although it is to be. -- use to be. are you sufficiently credible about raising it up when you are below'? do you treat deviations below the way you used to treat deviations of overshooting? and questions of capability. even these extreme measures of qe and large movements in

exchange rates don't seem to be enough to push it up. i hate the word credibility because he gets into this whole achismo stuff, but it is a legitimate question. jonathan: that's why want to focus on the word credibility. this is a president that said we would look at the size, competition, and duration. they looked at two out of three. and a lot of market participants were question whether they can actually increase the size. that's a problem, isn't it? >> i think you're right. i would be thinking about the fundamentals of the economy and trying to figure out how much of a decision not to increase the size was about push back committee dynamics from hawks. how much it was that actually forecast on inflation is looking

up. they wanted to keep some powder and see what happens after the fed much. i don't think it's evident which of those it is. my guess is that getting the committee on board was the real limit on them not increasing size at this point. , inhanie: jonathan ferro terms of credibility, i don't necessarily think that mario -- if we are taking in her day trading out of the picture, he is saying it's working. they are likely going to extend this into 2016. look where gdp is. very slow in europe. for the time being it looks like the euro is going to continue to weaken. how did he truly disappoint? ifathan: two months a coke you had told me they were going to increase qe i really would have debated whether that was going to happen. then came the october ecb policy

statement and the news conference. he pretty much told us what he wanted to do in december and that's when expectations started to be guarded -- guided higher. the president did that. a couple weeks later, he delivered a speech in frankfurt echoing almost exactly what he said months ago. we will do whatever it takes to get inflation back towards target as quickly as possible. he knew where markets and expectations were and he guided us to something more. the market didn't take itself there. that's why a lot of people will look at this as a guidance misstep. stephanie: i'm going to argue that it's not tanking, it's profit-taking. longis is here. >> i think there is a time dimension we need to clarify. erik: was this a disappointment? >> did he disappoint with

respect to his buildup over this and the ecb members? over the last two months, yes. no question. however in the big scheme of things, where our spreads today? where is the euro? where's the economic recovery? this is a resounding success. no question about it. what's coming next? i think the success of the policies will continue over time so what defines credibility and credibility to whom? players that have he's doing what he said they would do. there's no question. there was a marked change in

tone from draghi. it seems the language he was using today, the success of the policies, versus where he was last meeting and the meeting before when it was just can't after hint -- hint after hint about the bazooka to come. stephanie: he has the euro area people to worry about, not just traders. i completely agree -- i think you and jonathan have made the right point. it is unfair to pretend that the markets made a big mistake here. this was a case of where his repeated statements in recent months have set up this expectation. but i think the way to -- forward guidance as a general idea among central bankers is stupid. can't guide things that narrowly.

you can't find to that well. live meetingse and live data that gets adjusted at the last minute on these more things which are still important but are smaller. we saw this happen between fishers speech and jackson hole pressmmer and yellen's conference. it's fine for the traders to say that we were misled. andin a sense it's fair they should tell their bosses they shouldn't be fired because the losses want their fault. but that's not the point. erik: we thank you very much for joining us. adam posen is now the president of the peterson institute for international economics. and jonathan ferro, thank you for being with us from london. alessio de longis of oppenheimer is staying with us. we will be right back here on go.

stephanie: welcome back. you are watching bloomberg go. we are breaking down the ecb rate cut decision. at wheree a quick look stocks in the u.s. have opened for trading. matt: most important right now is the euro. we are looking at -- we almost touched $1.09. it got there like a half hour ago. that is because of mario draghi -- you could see it as a disappointment if you expected him to expand his qe program. just a huge jump.

the germans also putting on 15 basis points in the span of two hours. this is an insane chart. 0.46 in theing at negative before this decision came out. now 0.3224. take a look at european stocks. stephanie calls this profit-taking. a lot of people would say they got crushed. the stoxx 600 down 2.5%. the dax down almost 3%. the ftse down 1.5%. just an amazing move on this. mario draghi disappointment. maybe he is succeeding. read it how you like. obviously the big picture looks a lot better than this. we don't have a lot of reaction in the u.s. markets. you could call u.s. indexes unchanged.

the s&p and the dow are down about .2%. we don't see much action compared to the carnage we see over in europe. the 10 year yield at 2.27. higherd price is going as well this morning. take a look at oil. this could all have long-term ramifications for the price of oil. $40.41 a trading at barrel. pickens says it's going to 70. stephanie: i don't disagree with

you in terms of the messaging we got from mario draghi. we expected this shock. hawks pushedthe him and said, stay the course. which from a long-term perspective is what it looks like he's doing here. matt: i agree with your point. it just depends on how you look at it. it's a lot different than it looks over the span of eight years. stephanie: we talked about credibility. we talked about bravado. erik: i love the fact that adam posen introduced machismo into the conversation about credibility. i want to talk to alessio de longis of oppenheimer. we want a sense of what the market and analysts think is

going to happen to the euro. if we can go up to one year. you can see what the expectations are for the euro a year from now. and the diversions -- this is not standard distribution. the estimates are all over the place and they range from 97 to 121. does that make any sense to you? >> having been in currency markets for a while, it does. [laughter] erik: in other words, nobody knows what's going to happen. >> one of the quotes in my dissertation back in school was from alan greenspan when he said , understanding the moves in the euro the dollar and the yen is very difficult even -- erik: so those little green bars are levels of euro-dollar. we get this nice histogram.

it's not standard distribution. are you closer to the lower end. where do you think the euro will think we arel going to be at parity or through parity a year from now. what has changed for the euro today is the speed of the move. think in order after today's events which first isves will act equities. the one that will probably go last is the euro. let me explain. i think the drop in the equity markets really is the one that makes least sense to me. erik: that's going to rephrase. >> from a cyclical perspective, europe is doing well. better than in a long time especially if you think about european versus u.s. equities. from aative value cyclical divergent standpoint and from a stance of monetary condition and passed currency depreciation, this will provide

an enormous boost to european earnings. erik: but the fx movie stickier. fx is on a much shorter horizon and terms of the new speed that is necessary to keep the momentum going is much faster. and today we just got a big setback on that speed. so i wouldn't be surprised at all if we are seeing the lows in the euro for six months. erik: wow. >> do we have a -- hike from the fed. stephanie: we have to leave it there. i'm sorry. alessio de longis from oppenheimer. thank you from bloomberg go. ♪

betty: it is 10:00 in new york, and 11:00 in hong kong, welcome to bloomberg markets. ♪

from bloomberg world headquarters in the york, good morning, here is what we are watching at this hour. we are watching the fed right now, ready for left off. minutes from now, janet yellen will testify before congress as the fed appears to be on the verge of raising interest rates for the first time in almost a decade. draghir it takes, mario extending the program by six months. he says the ecb is willing to do more if the economy needs it. labor market tightening up as employers hold onto workers because they are so tough to find. you will get the jobs report tomorrow. we have some breaking economic news. a slew of economic numbers.