francine: welcome to "the poulse." countdown to the fed. an expected rate hike this week. return to profit in exclusive interview. a restructuring of the investment bank will turn a profit within four years. and the south african currency surges as the president bows to the market and reverses course on his finance minister appointment. the fed decides. welcome to "the pulse" in

london. this is what we are talking about today and tomorrow, when the fed decision comes. how are the markets starting the week? let's get straight to mark barton. mark: not as bad as they were on friday. slidll country world index on friday, $1 trillion of value disappeared on friday. it's looking better today, look at the index. this is the msci, it has risen for the first day i ann nine. we had some better than forecast data from china over the weekend, industrial output retail sales, all beating forecast, signaling the world's's second-biggest economy is stabilizing. emerging-market stocks are rebounding, crude is falling for a second consecutive day. in that period, as you can see,

oil is down by 14%, iran pledging to boost crude exports despite the global glut. speculators have increased bets on falling oil prices to an all-time high after opec essentially scrapped production quotas. this is the big currency move of the day, just a one-day chart coming close. the rand has risen the most since 2008 against the dollar after a massive u-turn from the country's president, jacob zuma, naming a second finance minister in four days. on wednesday he replaced him with a little-known lawmaker. that provokes outrage within markets, within the business community, and now we have an old hand at the steering wheel. he held the position in 2009-2014. stocks are rising in the bond market yields, the bench market

yields rose to the highest level in seven years on friday, falling today. what a turnaround in the fortunes of south african assets after the mother of all u-turns from president zuma. francine: aftermarket pressure he had to reset. it was a little too violent. thank you so much, mark barton. let's bring in our guest for the next half hour, the former imf economist and our chief eurozone economist. great to have you on the program. we are expecting the fed to hike on wednesday, and we have been talking about divergence between the fed and the european central bank for so long. has that ship sailed? >> i think it is right. i think the market is clearly's expecting no surprises. at the end of the day, the fed dictate interest rates for all global assets, all geographies.

much, you is not could see some moves. we expect the divergence to continue. francine: are you expecting unexpected moves? >> i think probably not. maybe a bit of flattening in the curve, maybe a bit of correlation with the bund. but this time around with monetary policy it should be less, but nonetheless with the bund, they could move a little bit in terms of repricing. francine: you don't think there is complacence in the market. when you look at risk appetite, the financial stability of the imf, these companies and energy companies having borrowed so much in dollars -- >> sure. those are clearly the issues. that is one of the corporate side. obviously they want the fed to

initiate the hike, but this time they will lack current account deficits with political weakness, fiscal weakness will suffer the most. you are seeing countries like brazil. not everything will be priced in. francine: at the moment there is a 74% chance, or we expect a 74% hike.what about the other 26% ? are they concerned about the price of oil dampening inflation expectations? at the european side, central banks are focusing on inflation. the reality is that inflation is very weak. because of oil prices. just looking at that, you would think, let's wait and see, there is no rush, there are no risks of inflation getting out of control. you can look at how the central banks will have a strong case to make. at the other end, with the labor market already fully recovered

without slack, with financial the bond for international settlements makes a very strong case for hikes. the more unproductive investments take place, that tends to self-feed too low for too long. 75-25 soundsnk reasonable. francine: so you are expecting a hike. if we don't get hike, doesn't mean they missed the boat? they mayikely that actually be without a high for -- exactly. the yuan has been weak traditionally. then you get too close to the political cycle on the fed, like any other central bank. hard pressed do

anything to dramatic before the elections. it would be perceived as a political move. a gradual approach, everything in the wording, everything in terms of market reaction would be the statement, the movement, the change in the forecast. that will set the pace of future hikes. francine: what are you expecting for next year? very gradual hikes, one or two in the second quarter? >> first of all, what does gradual mean in terms of chair yellen? interpret.left to we believe about three hikes would be it for next year. for those markets that are resilient, it shouldn't be any type of shock. francine: not the ones we are worried about. >> that's right. andill discuss the yen,

certainly every single asset class will be in some way affected. but we should see some unexpected moves. it's. such a key rate that it has to be francine: we haven't seen it for a while. thank you so much. he stays with us. we will be talking about commodities next. here is a look at what else is on our radar. france's far right national front has filled the regional assemblies despite the strong performance. pen has tried to build on an historic first round vote. corporate credit markets sold off and it concerns that investors may face more losses after management rose at a high-yield fund. help thenues decision junk bond market on friday in the biggest one-day selloff since august, 2011. plunged the most in five

months after resumed trading in hong kong today. shares were suspended on friday after a report that the chairman had gone missing. he is said to be back at work today. the company's president confirmed over the weekend that he had been assisting with the investigation of the shanghai vice mayor. up next, a bloomberg exclusive. rbf ceo says they will return to profit within four years. we bring you that interview next. ♪

francine: welcome back to "the pulse," live on bloomberg. the royal bank of scotland's new ceo says the restructuring of the investment bank is very well advanced, and it will return to profit within four years. manus cranny spoke to the ceo. of 2016,e another year mainly for the countries we said we would come out of. back to somewhere around 13 or 14 countries, that is the shape we think will be right for our customers but it could be in the u.k. with a source and we think we have strategic strengths. ,he three primary product areas including capital markets, is

where our strategic strengths are and that is the area we are staying in. the rest we have moved away from. manus: the natural question -- and we have touched on this you can't to give me full-service, i have to go to hsbc, i have got to go to another institution to get the full gamut. where are we on that? the likes of the oil producers. >> the thing that is important to understand is that they have a panel of banks. manus: are you losing more? >> if you take some of the large companies, the fact that we come out of global transactions means that we are losing that share of the market, but are we losing that share in the three core areas i talked about? the answer is no.

we can work at a corporate institutional bank and will be finished by the end of this year on the structuring. we will be done by the end of the year, which is a very good outcome given the amount. manus: over at deutsche bank -- i love this -- i hear what you say about it but many in the sector still believe they should be paid entrepreneurial wages were turning up to work with the salary and pension and playing with other people's money. do we and banking, does the industry need to really look deeply at itself? i think that is rather sanctimonious. >> i think what you have to realize is changing. you see all of these countries changing, downsizing, and that will have an impact in the

long-term. think it will become very pragmatic quite quickly. you need the right people in the enough.bs, to pay them the thing that has been important for our business is a culture of organization, it is not about money it is about doing the right thing. n but that is about -- manus: but you need to retain enough to get you through this. you have to pay. >> that is that we have to pay but the structure for us is down dramatically from where it was five years ago, dramatically down. it is a much smaller part overall. i think we are in pretty good shape now. the question is how do you remunerate people for doing the right job in getting the right results, getting the results of the overall business. one has to be somewhat

pragmatic. cranny joins us now for more on that great exclusive chat, and we are still joined by antonio. manus, you had quite a lot of time. it was a very rare interview. he said he could turn it around and he talked about bonuses. manus: he sees a turnaround in profitability in three to four years. what i heard was that the long-term immune or ration trend is changing. that is the critical part. willyou will be left with be for the customers within his bank. that is what the investment bank will be. that is what the long-term is and it is certainly not on an upward swing. we ran a number -- we ran a story on the number of jobs lost over the last few months in

banking as a whole. francine: what about real estate ? manus: there was a story that said the real threat was a commercial real estate exposure. they had about 11% exposure. you go to do a stress text next year, one of the stress tests his property exposure and that could put at risk the dividends of 2017. he said we have 11% of the u.k. market and we would like to see a couple percent lower. the one message that i took away is this, that they are so far ahead in terms of their asset disposal scheme and their plan that they can afford to take their foot off the gas going into 2016. all the world is trying to

reduce their outlook exposure. francine: overall -- and i want to bring in antonio -- banks have a very tough time when interest rates are very low. when interest rates are rising they need to start making money. manus: exactly. and they all base their models off a much steeper yield, that rates will be higher now than where they were. it will be interesting to see how the morning goes on as you go into "surveillance. are going to have to delay our return on equity. they don't see a rate hike next year in the united kingdom. it would be nice is the term he but het would be nice does not make business predicated on that. it's not all pr, because it makes huge difference

of the bottom line, but we are going to see an interest rate hike this year before at least the second quarter in the u.k.. >> we are expecting it for may, but clearly there is risk that has to be postponed. francine: the lack of inflation. >> exactly. the balance of risk is there, likelearly they do environments with the steve kerr. to hike tooafford quickly, because they will come back to credit risk, fixing the balance sheet. francine: they would have to reverse if they hike too quickly? >> that is the risk, and that is why they will go slowly. is the credit risk of going too quickly and how they will manage that. conversatione that

and we talk about the energy component and commodities and looking at commodity risk, what happens in terms of their ability to lend to the commodities sector? you are seeing high-yield sector r back to 2009 levels. you are seeing real concern that 12% of the high-yield market is made up of energy and commodity lending and bonds, and that is the critical issue for these banks. francine: manus, thank you so much. manus cranny with that great interview. you can check it out on bloomberg.com. we have more later on in the program. we will bring you his thoughts on a brexit later. you can watch the exclusive conversation in full on thursday night. antonio, also here. we will be talking about china next. coming up, the best retail sales numbers this year.

china's economic rebalancing and what it means for the rest of the world. ♪

francine: welcome back to "the pulse." streaming on your tablet, your phone, and bloomberg.com. let's get more on the positive data we have had out of china, including the reading of retail sales. the u.n. fell -- the one fell.

joining us is malcom scott. what does the latest data tell us? those newll us that drivers are still popping up in the world's second-biggest economy. retail sales are growing 11.2% ism a year earlier, and that going to offset some of the weakness we have seen in the old growth drivers. but even those old drivers snapped back a little bit. we saw better than expected figures on surgical output in investment. thank you so much. malcom scott, our china economy team leader. let's bring back antonio pascual. , it seemsook at china that we have to get used to quite a lot of volatility, but even if they grow at 5% it will still be a problem.

>> no doubt. much like the yen. we do see that structural weakness to continue through that. it is good to see that domestic demand is sustained by private consumption but if you look at industrial production you can see some weakness coming up. we do believe that it will continue with pressure on the currency so we will see some further weakness going forward. francine: what does that mean for commodity prices? we are expecting them to go lower but when you look at oil -- will ago to 30? >> there is an issue in all of this and when you look at commodities, it is critical for

oil. it is not such a huge percentage of the market. on oil we need to look at oil and how it is doing, but that is very hard, almost an equal chance to be honest. there does seem to be a bit of a cohesive view on what we will do next and downward pressures. francine: thank you so much. antonio pascual. up next, we talk south africa and south africa's second finance minister in just four days. jacob zuma changes his mind and we look at what the future holds for south africa's economy. this is jacob zuma vowing to invest into market pressure, but if you look at some of the top moves today, there is confidence around the world that is surging with stocks, bonds are also

arriving. the rand strengthened so much it was as much a 6.5%, the most since october, 2008. follow me on twitter. ♪

francine: >> what elected post. i'm francine lacqua. let's get to bloomberg first word news. >> the latest data out of china stabilization causing a clearing hurdle for the federal reserve this week. bloomberg's gdp tracker in china rose to 6.5% estimated growth rate for november, the best reading since june. meanwhile, investable -- all figures exceeded forecast.

meanwhile, the yuan has fallen to a four-year low after the people's bank of china sets the -- said the currency shouldn't be set against the dollar alone. that move is being interpreted as a movie federal bank will allow. among large manufacturers unexpectedly held up. record corporate profits are compensating for uncertainty u.s. the expectation of it rate increase and slowdowns in china. oil sinks to its lowest in almost seven years as iran vows to increase supply in the biggest jump in iran since 2008. that is bloomberg first word. thank you so much. let's chart the markets. we are two days away from the fed. we also have breaking news on commodities. ark: a trillion dollars was white up the value of global equities.

look at the emerging markets index which is finish at the moment -- it is losing nine days of the clients. earlier, it fell for the ninth day. this is the nine day chart. weak china data. data over the weekend was stronger than expected. two factors are slumping commodity prices over that period. the emerging market index is down by 6.24%. crude oil falling, natural gas in the u.s. fell to the lowest level since 2002. crude, this is the seven-day chart. down for the second -- seventh consecutive day. worst run since july last year. in this period, oil has suffered by 14%. iran is threatening to boost oil exports despite the global glut. opec has scrapped production

scotus -- quotas. reiterate, u.s. natural gas, you can see it there, according to the lowest intra-data, 2002. the commodity index which is a measure 22 measures is down to its lowest. all sorts of lows for the commodity space, all sorts of for the rent. rising the most since 2008. what a day, what a weekend it has been for the african currency after the president named his second finance minister in four days. he replaced them with the , promotingn lawmaker a massive selloff in stocks and stocks for it outrage among business leaders and amc leadership.

he did what many say was a great job in 2009 to 2014. he held the entry together for its first recession in 17 years. that is why government bonds have risen for the first time since the vendor 24th after yields rose to the highest level since seven years on friday. rising for the most since you and i could what a day for south africa. francine: let's get more on that story. south africa's second finance minister in four days. as mark was saying, the biggest jump in the rand since 2008. early on, the former central bank governors didn't hold back. the president has handled the situation badly. whoever advised him needs to be fired immediately. inneed to restore confidence the african economy, and the african market. to president has moved

reappointing gordon as the prime minister of finance. francine: let's bring in our guest. great have you on the program. he was not holding back. do we need a reset? courts in a sense of what is happening internally in the anc bety, for markets, this will the key question. the statement that was released on sunday night from the presidency basically said that andh africa is a democracy the opinions of many are taken on board. what is unclear is exactly what role the party itself may have played. it emerged by friday, the decision to replace the minister as finance minister was perhaps a decision taken without the consensus among the top leadership of the party. the key question for investors, observers of south africa is what does this mean for the leadership dynamic within the anc? what should we be expecting next wise and in terms of

the policy itself? francine: if you are an investor, do you take comfort in zuma appointing someone who is well-liked? or do you wait and see what is going on? razia: i think it is the positive news that is what is overwhelming for it we have seen it we have seen in the way that south african efforts have traded across the board. gordon is well known to markets, is a trusted pair of hands. he is seen as a person who will bring great institutional strength to the treasury. there is a lot of reassurances that should not be dismissed. however, for a more sustained rally in south african assets, markets will need greater reassurances inexact they wish direction south africa is likely to take in the longer term. what is the nature of the consensus within the ruling party? does the consensus to hold? will we see roughly the same sort of policies we have seen,

the fiscal conservatism for which the treasury is relatively well-known. establishing a base which allows south africa to fulfill some of its social ambitions. if you are an investor, and we talked about it being a watershed moment on friday, there you think that the president has learned lessons if there are any which learn? razia: i don't think looking at the leadership of zuma that we have seen anything comparable to this since december, 2007. this, most likely, poses the biggest test of the zuma presidency and a very interesting reaction in terms of that decision to bring about more change at the treasury. francine: the fact that he will actually tried more cautiously? he will listen to the markets more anything has to do with the finance minister? razia: the hope is there will be greater clarity and transparency around the decision-making. .he markets are very important

if any president of south africa is thinking about how they fulfill some of those longer-term aims, what the have promised to the people of south africa, they can't do that in isolation from what the markets are telling them. if we look at a gdp chart of south africa, two days away from the fed potentially hiking interest rates, are they in a turkey situation -- tricky situation? razia: a lot of this, prior to last week's events, is catching up with emerging more generally. some degree of nervousness around the tightening. it is unclear how much of that has been fully priced in. south africa's own economic backdrop has been week. no question about it. also having only achieved growth of 1.5% last year, it looks as though south africa will achieve growth that isn't meaningfully different this year. how long can the economy stutter along without seeing greater momentum?

without there being greater cause for change? quite a lot of hurdles domestically as well as the international factors that are not necessarily helping. francine: is it one of the most honorable countries to the fed vulnerable? razia: there is the five civility we have seen. effectively in the currency markets that has taken on some role in acting as a buffer. has an incredible amount of market volatility in the past. it is not necessarily new to that volatility. the question is can it use anymore favorable way, a more advantageous way? kenseth -- south africa against these difficult market conditions put in policies to achieve faster growth? francine: thank you for all of that. head of africa researcher at up next, the high yield meltdown

continues with the selloff of asian corporate credit markets. we look at the impact on wednesdays fed decision coming up next. ♪

francine: let's get straight to

the lumber business flash. -- bloomberg business flash. wase $70 billion deal cleared by the chinese antitrust authority, paving the way for votes for shareholders. that marks the final pre-conditional approval required for the merger between brazil, the eu, and australia. deal -- exploring a deal that would give the u.k. maker potential -- they were hunting for new medicines after turning down a deal with pfizer last year. fought english slang with pledging to maintain editorial freedom. the 206 he $6 million deal includes the south china morning post and other magazines. that is your bloomberg business flash. for more on these stories and others, had to the bloomberg terminal at bloomberg.com. francine: asian corporate credit markets sold off today with the

concern that investors may face more losses. i comes after 3rd avenue management throws redemptions at a high-yield fund and amid concern among top investors. simon, we basically saw the assets being froze during a lot of people are concerned that this brings us back to 2008. the canary in the coal mine. the bear stearns fund was also frozen. >> you headstone stolen capital over the weekend freezing similar redemptions. you have a fear that we are back in this 2008 moment one effectively the money market int down, you have a spike risk aversion. the global financial crisis was kicked off. i think we have had interesting development over the weekend in terms of what these ovens tell us. there are three things in my view. the first is that it shows that within the bts, they have been moved further down the quality curve in terms of outsized

returns which you get i size risks. -- outsized risks. the second is the potential fed impact. we go into the potential liftoff on wednesday evening. for theications of that back end of the quality curve for high yields of assets and how that might get unwound. thirdly, the regulatory environment. if we get into the riskier assets, the street can take that again? we now know that they can't. they are not deploying the amount of capital they were previously. all of this is feeding into a negative spiral this morning in terms of use of risk. francine: how that cannot get? -- how bad can that get? a factor.ould be people have been asking what could delay the fed from wednesday evening? macro data, something out of china, something drastically? this, as it stands, will not delay the fed.

it certainly raises those questions. longer-term, the unwind you get in the high yields you are going to start -- your belly opportunities into next year. what people are expecting for dutchst couple of the last couple of weeks of the year into we get to the fmc -- it could be what yellen says, assuming she raises rates, it will be how she us washes that with her comments. if she remains dovish, with a measured pace, the markets take that positively because the macro fundamental us are allowing her to raise rates. francine: are there any buying opportunities among these risky assets? simon: all of the cash they get the community, people will look at those idiosyncratically on him by name basis. i think you find few investors looking to jump in at this juncture. capital preservation will be key for many going into the end of the year. francine: thank you so much or all of that. it is a huge story for them that

we will watch closely. ceo is what we had, the shares about the management event coming up next. ♪

let's see what comes out of that. , at the moment,

we don't know what will happen from a number of those areas. but we have to do from a banking perspective is create a strong bank. let's see what happens under brexit, via certain, be it out. >> we have seen the government chip away. the press made a big deal about it. he government position is still more than 70%. their objective is to be a minority shareholder in the parliament. you have been in the state for a year. ross: i think it is realistic. my job is to create good banks so they get a good asset to sell . each quarter that goes by you see us progressing toward the bank that we choose to be. in the u k and the republic, mainly. every quarter that goes by, ucs

taking off of the -- you see us taking off the balance sheet. that is happening faster than anyone anticipated. with a strong concentration of people who are focusing on those areas. they do an amazing job. a lot of this is around timing. also, very good people. bankre seeing a merger, a that we said we would be, a lot quicker than people anticipated. there is a lot of change going on in this organization. with the, it matters bank of england does to talk me through your thinking as you look at the risk of the fed and the return. ross: ceos of banks have wrongly thought that interest rates would go up and base their businesses around the income that comes up from that. since i have been in the job, my view has been to not take any account of interest rates going up. i think the interest rates in the u.k. will stay low for

longer. >> high low is low for longer. ross: i don't think they will move into thousand 16. we have built around the effect that that won't move. if they do, that is nice to see. i think you have to build your business around not the worst case scenarios, but the scenarios that don't leave you hoping that something will happen. that is what we have done with planning of this business. francine: that was the rbs ceo speaking exclusively to bloomberg. in other news, the german chancellor will announce her conference in just out under an hours time. party over her opened a refugee party. that is an issue that is expected to dominate the annual event are a joining us from berlin to talk more about that and what to expect from her speech is our european government leader, alan crawford. criticism atot of

home over her refugee policies. how much backlash will she have today? that germand viewers were be taken. they were so happy that they had effectively diverted, headed off this at the pass. she gave some television interviews to german tv yesterday evening. while she stressed the fact that she obviously wants to reduce the number of people coming to germany and is resisting the word,f inserting the putting a cap on refugees, there will be no limit. she effectively, she won the backing of the board in a meeting yesterday. they were all very content with the outcome. i would expect her to stress measures that she is taking to try and curb the number of

people claiming asylum in germany. at the same time, i wouldn't expect her to back down in any way. francine: what is she likely to tell delegates in her keynote speech? fighting talk? lan: very much so. i think it will be very much based on foreign policy. diplomacyepped up her , if you like, both in terms of european ringuch engagement with turkey. thate today in brussels the eu's opening a new chapter of negotiations with turkey. in bothbeen involved encouraging diplomacy to help the war in syria which is a long haul and not just germany, but also, she is committed german and military hardware to back up those fighting in syria. that she focuses

on those elements, as well. her pleas to the rest of europe which have largely fallen on deaf ears to help and take in some of these refugees. francine: thank you so much, alan crawford, the european government leader. it is going to be a very busy wednesday, oiln at the lowest in seven years, and the biggest jump in the rand since 2008. mark is turning the markets. mark: seven days of decline for crude oil. this is the chart that matters. it is down by 14%, the worst run since july, 2014. what i want to do is tell you possibly where oil is heading. we are doing technical analysis, something i haven't done for a while on charging the markets. a simple chart. daygreen line is the 200

moving average. the purple line is the 50 day moving average. all of you chart heads out there will no one thing for a short-term history positive should be above longer-term history. the fact that the 200 day moving average is above the 50 day moving average is not good for momentum. look below here. this isn't so bad. this is the rsi. this tells you whether an asset is oversold or overbought. any figure below 30 shows an asset is oversold. it is at 26. the relative strength index is telling us that oil, francine, is oversold, but the momentum, 200 day versus the 50 day moving average isn't so good. which one do you look at? i let you decide. francine: thank you so much. mark barton with the charts that matter. for those of us listening on bloomberg radio, boomer first word is up next. for viewers in the second hour of the pulse -- it is not the second hour because surveillance

is up next. towill look at oil sinking the lowest in almost seven years. a reminder, you can follow me on twitter. i will see you in a couple of minutes. we will be talking said oil fed, oiles -- talking commodities, and china. ♪

>> countdown to the front, investors retreat from commodities ahead of an expected rate out from the central bank. prudence and divergence. rbs has returned to profit with an exclusive interview, -- ross mcewan says the restructuring of the investment bank has been well advanced. they will return a profit within four years. the marketries, surges as summa house in the markets. -- as zum