francine: this that goes live, the u.s. central bank begins its two-day meeting as larry summers warns against hike. emerging-market stocks rebound from a six-year low. european equities gain in the dollar weakens. thatio tinto's ceo says the rout has left some producers hanging on by their fingernails. welcome to "the pulse," live from london. time for a quick look at what the markets are doing. it is the day before the fed. to mark barton.

mark: emerging-market stocks are rising for the first day in 10. the fed starts its two-day policy meeting, and the stoxx 600 in europe is rebounding from a five-day losing streak. that is the worst in over four months. the dollar is falling as well, so there is a bit of rest bite. respite. this is a one-year chart, by the way, falling for the first day in four. the gauge has risen 8% this year. 1.3% below the record set on november 10. only the swiss franc has outperformed the dollar this year, rising 1.4%. let's get to the commodities market, because commodities continued to sink. they are falling again. index,omberg commodities

which measures 22 materials, is down to its lowest level since march, 1999. coming declines could be to do a former executive for morgan stanley. "china has been the most commodities intensive story that the world economy has seen. now china is shifting the model to a more commodity light services let economy," which leads him to believe that they continue to decline. this index is down by 25% this year, its fifth consecutive annual drop, the worst streak of decline on record since the index was formed. a big decline are today with the ftse company aviva falling as much as 37%. i'm showing you the period from june to today. today's decline is done as much as 37%, a record decline after

the software company ended merger talks with the french manufacturer schneider electric. shares of soared 32% in july. when the talks were first announced, what was given was taken away. francine: very true. he said finally begins its december meeting today as investors get ready for tomorrow's long expected rates left off. one big name is urging caution. >> i believe that it is, in the world where it is always that are to make easily reversed errors than to make difficult to reverse errors, i believe that a decision to delay rates runs risks that are easily reversed by subsequently raising rates, whereas a decision to raise rates, if it proves to have been the wrong decision, is a much more difficult decision to

correct. he went on to tell us that he would prefer to wait for the emergence of more inflationary pressures. >> my instinct would have been to place less reliance on phillips curve theories, and therefore to have waited until there was clearer evidence that we were in danger of significantly exceeding the 2% acting.n target o before francine: let's introduce our shah. shocashok thank you for joining us. do you believe that we should wait to see a little more robust inflation? >> i think that inflation is a lagging indicator, so that means that waiting too long is going to continue to fall way below

the rate of 4.8%, 4.9%. flexion will pick up down the line once the rates begin to pick up. you have to do something in advance, normally six months to a year. francine: so tomorrow is the day. >> i suspect so. we have had a very accommodating policy for long period of time and it has done a good job of putting us on a self-sustaining pass. we had robust growth and in a way we have benefited because of the strong economy. storyne: we had a great by sam kennedy on the terminal about the global output gap. he estimates that even if u.s. strengthens, the output gap is quite wide. we have a chart for you -- we love charts. for a long time the ecb had to reverse its policy.

what is your concern about the fed. is there a chance that they will have to do the same? but theyk it is likely would have to reduce any interest rates. the reason is because as the interest rates begin to rise that basically comes out to reduce the potential growth allowing others to export to the u.s.. at the same time, stronger growth will import stronger dollar, import lower prices. inflation will begin. lowerear from now, inflation trajectory needs to be lower. in a way, emphasis may need to be cut. and this longer-term, is the argument janet yellen was making, they will calculate the

dollar's rise in 2014 which means that there are four percentage points of rate hikes. >> indeed. i think it is a form of tightening, estimated between .8% at 1.2%, effectively increasing the fed rate it increasing the dollar. to an extent already the stronger dollar is doing the job for the fed. but policies remain very accommodating, and it is time to reduce a little bit of accommodation. if we get into a problem two years from now, we need to have some ammunition to give it a bit more boost. francine: is that not a credibility problem? what if it happens in eight months? >> it is difficult to estimate the time when the policies will be reversed in times of interest , but a lot has to do

with what happens to the rest of the world. to eurozone is recovering very nicely, and it will hopefully gain some good traction. we are waiting for china to stabilize whatever rate, 6% to to a more domestic economy. i think eventually it will be a much better trajectory. i think world growth will be relatively stable rather than below 3% which is the anticipated rate. francine: thank you so much. he stays with us. we will talk a little bit more about china, next. here's a look at what else is on our radar. accounted for 24.5%

of new car registrations in december, down from a year earlier. the central bank held its key lending today. they are betting that a surgeon growth will compel the economy out of inflation. we will be talking to the governor of sweden's central bank at 10:45 london time, 5:45 a.m. in new york. bloomberg sources say apple has opened a production laboratory where engineers are developing new display technology. they have at least 50 people creating new devices for the iphone and ipad. up next, an exclusive interview with sam walsh, who weighs in with the current price of iron ore. >> we are still looking at fantasyland simply because the sustainable price of $30 -- it

just one physically work. they have at least 50 people creating new devices for the iphone and ipad. up $15 from brazil, which basically means you are talking about a price of $25 from australia or $15 from brazil. are a lot of high-cost producers that just aren't going to pass muster. it's not sustainable. it is fantasyland at that level. francine: we bring you more on that exclusive interview, next. ♪

>> we are still looking at fantasyland. $30,sustainable price of it just one physically work. from $30 you need to take five dollars from australia, $15 from brazil. which basically means you are talking about an fob price of 25 dollars from australia or $15 from brazil. there are a lot of high-cost producers that just aren't going to pass muster that sort of price range. it's not sustainable. it is fantasyland at that level. jonathan: is that what needs to happen to wash out the excess supplies? >> this is what happens in every

cycle, and i suspect that right arethere are people that suffering pretty loudly. jonathan: it is still looking pretty crowded in many ways. crowded, and there are a lot of producers that are hanging on by their fingers. tough love. they are burning up their cash reserves and that is a decision for them, not for me. the rio tinto ceo spoke to jonathan ferro in an exclusive interview. let's continue the conversation on commodities with the investment director at london and capital. you say it will get worse from here. if you think about the reduction in the capital spending cycle we have seen, we have only barely started. we have capital spending down by 35% from peak levels and we are

still putting in new capital to create new capacity. something very similar is happening to a number of commodities and iron ore. you will have increasing supply for the next few years and the demand will have an input of commodity resources to china, going relatively stable. that means access continues to build with tremendous downward pressure. what we are seeing right now is a downward cycle for number of miners. francine: what i am trying the euro is the systemic risk and there must come a point when the said normalizes and you have too much supply. all these companies will have to go bust. >> it will go through a phase of consolidation which is inevitable simply because they are not viable so they will be

we need to wait for the leverage placed to go to the downward cycle and the reorganization of the balance sheet. when the debt is difficult, that is when the m&a activity will begin. those who have a strong balance sheet will find an effort to pick up some of the competition. i think that could easily be another year before we get to that point. this cycle is only barely starting in the energy sector. francine: are we looking at a crash? >> the have already had a crash but not significantly. if you look at the copper price of oil it is still 40% above where it should be. prices could come back still further a long way. francine: so your main concern is what question mark copper or oil? >> the whole of the commodities spectrum is very similar and

with regards to energy and copper, iron ore -- energy is the extento the ache that they will stabilize the price i whatever they want, the right now they want to maintain the market share. energy will behave like any other commodity for now. we could see it going down further. longer-term, the problems of the euro commodity producers, too much supply, so you start cutting back investment. you do less research, you open less mines. is there a danger that five years from now it will be the contrary? prices shoot up? >> it is much longer than five years. any investor now will take a few years to increase supply. we still have an increase of supply in a few years to come,

and the demand will take some time to take out the excess supply. in essence, it is much later and the demand is much more robust, and you realize that you can get new supply to come in. it is much longer than what most people think, it is more like 10 years. francine: thank you so much for now. hits $100, and banks are florida by major cyberattacks. we will be examining those, the pessimist's guide to 2016. coming up next. ♪

francine: welcome back to "the pulse," live on bloomberg tv and radio. 2015 was the year in which we so whatrd refugees, surprising events could 2016 have in store? we are joined by a pessimist's guide to 2016. ashok is still with us. we have to look at the extremes, so that is why we brought in our expert. this could range from cyberattacks to attacks on oil to angela merkel resigning. interestinge most scenarios that has emerged from

various conversations we've had was what people had to say about oil. obviously right now there is a lot of momentum in the oil price. people are talking about $30, $20. take a number and you will find someone who will make that prediction. one thing that people talk about, especially if you talk to intelligence strategists, their secret concern is that if the islamic state figures out how to tom ano target iraqi and saudi oil. instead of a massive downward momentum, you could see a huge spike upwards. opec is at maximum capacity. if you take production off the table, you could see prices going very high. $100 oil was one number that people mentioned. impossible now, but -- francine: how do you prepare for these extremes? we are talking about $100 for oil. f this happened it would be --

as an investor you have to look at extremes because we are at the end of the year. how do you model them? or do you model them? >> one has to be aware of the outcomes. you need to then assess the probability of how likely is it. then when you construct a portfolio, you have to allow for it in some manner. in other words you need to make sure that you have enough exposure. you are protecting the portfolio in that manner. there is a very low probability event, which you would be aware of but not necessarily take any portfolio action. francine: john? >> fiber is something else people talk about. obviously what's interesting is when western intelligence managed to download that virus into the arabian nuclear

facility -- the iranian nuclear facility. but what if certain rogue hackers from iran, russia figure out a way to target wall street? the banking executives, one thing people talk about is that we are very aware of the risk of extremists causing huge damage. but what if you had extremists figuring out how to download viruses into the vault? a cyber attack on wall street is one of the big concerns. francine: and that would be more than systemic. securities ine cyberspace have become a big topic in the last year. pentagon hasthe been penetrated, so the expectation is that the cash flow is that will go into protecting computers and networks are going to be rising over the next five, ten years, and in all sectors of the economy. i think therefore that the

companies that help protect this kind of attacks are the ones that will do extremely well. big investments in terms of cyber security, you need to concentrate in different areas. difference,re is a financial sector related, commercial related. there are specialists in each of these areas, and down the line there will be a lot more consolidation in terms of what they can do for the world security. francine: john, politics. you also have posited angela merkel resigning. do we have anything on vladimir putin, or is he considered a live wire? >> an interesting scenario we discussed with people. in the west we like to talk about putin as this malevolent figure, expanding and projecting russian territory, but let's just imagine a world where you

can be a peace program in syria, the only major world leader who has a direct line to bashar al-assad. ,learly they will involve syria so perhaps putin is the guy who helps the west management transition. instead of being a disruptive figure, putin could turn out to be a slightly more benevolent figure. francine: talking about disruptive figures, donald trump . [laughter] francine: how do you model that? >> you can't. at the end of the day, he is not mainstream america. francine: he is leading in the polls. >> well, i don't think it is the mainstream american view. there are people who are politically very active that seem to be supporting him for now, but i think it is inconceivable for him to be in a position of power with the views he has. it just doesn't seem right. >> we did talk a lot about

putting putin into this scenario. trump, sorry. the rest of the world underestimating the chance that he could have a serious go the white house. francine: john, ashok.

francine: welcome back. rising.sumer prices mark: inflation edging above 0 in november for the first time in four months. the banky still leaves of england a long way before it raises rates. in november. .1% core inflation that mark carney

told her editor-in-chief -- he important to him. it excludes volatile food and energy prices. core inflation because it doesn't include imported disinflation, energy prices are pushing down on the headline rate. warningres follow a from a bank of england this month. weak inflation could be affecting wage growth. the central bank expect price growth to be below 1% until the second half of next year. market expectations are for the first rate hike at least in january 2017. economists are a bit more hawkish. we are aation at .1% long way before that right hike. usencine: news we can

following the markets. let's get to bloomberg's first word news. nejra: australia's treasurer has confirmed a budget blowout blamed on falling commodity prices and weaker global and domestic growth. scott morrison says this financial year's underlying cash deficit will expand to $27 billion while gdp has been revised down from 2.75% to 2.5%. the federal reserve begins its highlyeeting ahead of a anticipated right decision. larry summers warns of a premature hike. larry summers: i believe that isis in a world where error inevitable much better to make easily reversed errors than difficult to reverse errors. a decision to delay rights runs risks that are easily diverse -- reversed by subsequently raising right. whereas a decision to raise

rates, if it proves to have been the wrong decision, is a much more difficult decision to correct. spain holds a general election on sunday and current polls suggest that mariano's rajoy's party will, on top. the economy minister told bloomberg he is confident of a solid win. >> i am totally sure that the outcome of the election -- and totally sure that the spanish thele will -- part of situation we had only four years ago. and especially i think that it will take into consideration it will bear in the mind the future. in 2012, our future was dark. lighter. much i think that also these elements will be taken into consideration, the spanish population will have an important say in the final outcome. so, to summarize, i'm fully

convinced that we'll have a stable government that will continue with the policies -- that are taking the spanish economy out of the woods. these for more on stories, head to the bloomberg terminal and bloomberg.com. francine: let's talk oil. international monitors are expected to close their probe into nuclear activities today. the move will pave the way for the wrapping up of crude by the islamic republic. ryan chilcote has the latest. run us through the timetable. the cousin even if the sanctions are lifted it will take months before some of the crude gets onto the market. ryan: there are still a few steps to the removal of the sanctions. the iranians have to get rid of their centrifuges, some their enriched uranium. then you get with the removal of the sages. people tell us they are working hard on the technicals. we could see that in january.

what you want to watch if you're looking at the first thing which is the -- which is to release their stockpiles. look at an island 25 kilometers off the coast of iran. that is where they have almost all the exports stored. many of their exports also stored on tankers next to it. we can look on the terminal using data from ihs. this is what people like julian lee does. you can see there are four tankers. each one you see, by the way i have to tell you they are called dan dover devon and happines. i call these the for reindeer's for the oil consumer in your christmas and new year. -- the four reindeers. that each got 2 million barrels of oil. that is enough to get us through two hours of global consumption of oil. we looked in july and there were 10 tankers. so, the stockpile of iranian oil is declining. say they willns

start rationing of production. then you have got to get the international all companies involved. in february you're going to have big conference where you will have.the big oil companies . they will be talking to the iranians. they are hoping to get another $70 billion -- francine: the u.s. is closer to removing its 40 year ban. rayan: the horsetrading looks like it might be coming to an end. the house democrats have removed some of the resistance to the idea. and you could have what is now the world's largest producer of oil and gas becoming one of the world's largest exporters which is a title that belongs to saudi arabia now. some people out there say they could prop of wti prices. is know the u.s. belend cheaper than brent by not by a

lot. if you look in the difference in pricing, it is not huge. three years ago it was a much larger spread. francine: let's bring in a portfolio manager at aberdeen asset management. we have charged for everything. -- charts for everything. opec lost control of the oil market because saudi arabia does not want to do too much. if you look at the chart, no one else can step in to do the job saudi arabia has been doing. there will be over supplies for the next two years. >> that is evident by how the market is reacting to a disappointment. the opec meeting last week where production numbers were not cut. but having looked at the situation in saudi arabia where there are facing a lot of fiscal pressures, growth collapsing, alsohey don't want to enrich their neighbor, the iran

now going to be potentially exporting a lot more oil. so, i think there are issues going on there in terms of the opec. there's no consensus within opec y appetite to, an cut production. i think the market is taking that cue. francine: we have the great story on the bloomberg terminal this morning, which basically reads never mind $35 for the world's cheapest oil is close to $20. this is if you look at the western canadian producer. some of them are selling it for less than $22 a barrel. i want to show that chart. we need to remind ourselves that there are very screwed -- v arious crudes. it is difficult to predict where the price of oil goes next. not havelike if we do any geopolitics involved it will continue sliding further. is that right? >> i guess you can look at it

that way. another indication to look for is where the next oil price forecast is coming from the street. we saw the market were everybody cut their numbers at the beginning of the year. oil rally in q2. then everybody started increasing their forecast and then oil starts to soften again. having said where oil is today, brent is at 38, 36, the average this year is much higher. 54. in the scheme of things, $54 oil is not the worst thing. next year that is going to be a big concern for the emerging market countries who are dependent on oil exports. iaea report, if we theshow a crude chart, problem is it is a slow, steady decline. i don't see what would change the conundrum because no one is cutting any production. oil expert -- nan

ryan: you get a change of tack from the saudis. what you're saying about the saudis being reluctant to allow availanians to sort of themselves of this treasure trove that they have not been able to export to markets is very true. i was at the opec eating. in fact that was one of the reasons cited by the secretary-general for not having a production target at this meeting, which was almost unprecedented because they said we have to wait to see what happens with the iranians, which is another way of saying we do not want the saudis, the most dominant member of the group, do not want to give the iranians th e room they need to increase production. francine: thank you very much. stay with us. we will talk about emerging markets next. up next, we also have an interview with south africa's third finance minister in five days as emerging markets rebound after hitting a six-year low. ♪

francine: welcome back to "the pulse." let's get straight to the first word news. -and: french drugmaker - their anger hingle line are in talks to swap assets worth more than 18 billion euros. the deal would give sanofi the

number two rank int he world. research labg up a in germany. the division will build an application using its supercomputer watson to create web connected devices to further m's push into the internet of things. harriet green explained why her company's best place to navigate the challenges of that market. >> ibm's history when you have the world's banks who use secure environments, major utilities, we are known for security. and so, the internet of things, which you rightly say opens up a wide set of -- ibm and how it secures that data physically as well as within the regulations of any country is a very important differentiator for us. nejra: shares in london lifted slumpedndon's -- group

after merger talks ended after the two companies were unable to reach an agreement. that is your bloomberg business flash. for more on these stories, head to the bloomberg terminal and bloomberg.com. francine: south africa's new finance minister has attempted to reassure investors in an interview with bloomberg. he was reappointed by the president in a u-turn. gordon was finance minister until may this year. in the interview, gordon tells us he would keep the south african economy ion its current fiscal course. >> we have made it very clear that we firstly have a long and since 1990 four of good macro economic management which we will reinforce. secondly that the -- consolidations will continues and the revenue situation allows us to accelerated.

thirdly, we will manage our debt ceiling in the right kind of way. and so overall, our aim is to manage all of our expenditure demands and pressures in a way in which our current fiscal trajectory is not compromised. francine: let's bring in kevin daly from aberdeen asset management. the south africa story. i want to talk about emerging markets in general but the south africa's story seems incredible. ministers and six days. on friday we were saying, this is a watershed moment for jacob zuma. kevin: market reaction so far has been positive but it has not -- the damage it has still been done in terms of the reputation hit south africa has taken. if you look at where the rand, it's recovered some of its losses from prior to the minister being removed. rates move down 150 basis points. they have halved those losses.

south africa is close to 10%. stillin, the market is regain the confidence will take time. the other issue is over the medium to long-term. this is a credit story. that is the other issue at hand. gordhan can only do so much coming back in. reputation damage and the fact that it is a deteriorating story. yeah, things will, you know, rates remain high, the rand will remain under pressure. you have to be much more country selector. we are looking at tightening from the fed. yellen know what chair will say for 2016. we have to choose one that put structural reforms through. brazil looks like a basket case. kevin: i was on this program three or four months ago and at that time brazil was really getting hit pretty hard.

my comment was things will get worse before they get better. and they are certainly getting worse. i think we still could get worse. the reason why say this is because this is a crucial week for brazil -- every week is a crucial week for brazil right now. we have got the 2016 budget. there is talk the government may revise down its primary surplus forecast. orthey go from 0.7% to 0% throw in the towel, levi probably leaves which would be a big risk. the other issue is this waiting for the supreme court to come back. and, with the rules -- francine: on the impeachment. the economy before the impeachment process? kevin: no. the economy still doomed. next year you would can still see -3% growth. the physicals were remained under pressure. debt gdp will still be l

rising. the pressure for brazil is going to be immense. the question is from an investor standpoint is all the bad news priced in? rightnow you're getting yields of 16% on rates . has been more stable the last couple markers because the market likes impeachment. if it looks like she is going to be impeached, you could see a lot more optimism. where the currency does ok. francine: when you look at the imf and the financial stability reports, everyone is warning this corporate debt basically issued in dollars by a lot of emerging markets, companies, mainly energy. how worried are you that a lot of them will go bust once the fed starts hiking. i know there is lagging time. kevin: there have been a lot of studies about the impact of rising corporate debt. we are pretty involved in

investing in corporate bonds. a lot of the debt was issued to quasi-sovereign's. these are state-owned entities which have the support of the governments to support them if necessary. secondly, yes, there are a lot of companies which are still heavily dependent on external markets. their costs are going to go up. will there be a waiver default? no, but there will be some casualties. there will be casualties in a high-yield market. we are seeing that right now with some of the volatility in the u.s. high-yield market. it's a never the ball we will see rise in default next year. but we are not expecting to see the significant debt impact on emerging market corporates, because the real pressure is on bank lending. a lot of corporates who are borrowing from domestic banks, that is where we might see some pressure building. in terms of corporate bonds, we do not expect to see this huge negative impact on emerging market corporates. francine: think you so much for coming in today. kevin daly there.

up next, anxiety runs the markets ahead of an unexpected fed hike -- or expected to hike. we look at the path ahead for credit. more on that next. ♪

francine: welcome back to "the ande" live on bloomberg tv

radio and streaming on your tablet of phone and bloomberg.com. the fed begins its meeting among market futures. our credited by strategist. on thegreat to have you program. when you look at high-yield, it seems that there is tripling of ad news. how bad can it get? has got fairly bad over the last 48 hours. we have seen a capitulation in terms of risk off. a huge widening of spreads. we are consolidating as we digest and take stock. we have got this perfect storm of retail investors that are being chased further and further down the quality curve. which they had been told have intraday liquidity. don't.e finding they that had an impact on prices against a federal reserve is going to start lifting rates as of tomorrow. and people will migrate up the quality curve. it has an unwinding of some of those higher risk assets. it's looking fairly sort of

nervous for the time being. you are looking to catch the following knife at a time of falling liquidity going into year end. cash is king for the four term -- for the short term. francine: are buyers coming back? simon: i do not see many people stepping forward. you have to be pretty brave. given the lack of liquidity over the year end, that would support taking a net defensive stance. come near year, cash allocations will be high. there will be some better buying but it will be issue specific. francine: we are back to 2011 levels. the high-yield bonds -- if you look at high-yield energy oil price has been in the eye of the storm. you see the doubling of the spread since may. 700 basis points. 1300 basis points now.

everything has been concentrated in specific sectors as oil trading down $36 a barrel wti estimatee risk off's -- sentiment. francine: the fed meets tomorrow. -035.cs bank are at this is more to the ecb. lift. assuming they there will be a negative reaction in the market if they don't. thethe language as to how for the pace of tightening comes will dictate sentiment. the ecb did them a favor with no sledgehammer. no surprises there. francine: thank you so much. for those listening on bloomberg radio, the first word is up next. for our viewers, "surveillance"

is omcin -- is coming up. tom keene spoke with larry summers who is warning against the fed hike tomorrow. we also have a reading of german business confidence. the zew is out in a couple of minutes. ♪

francine: the fed goes live. begins itsntral bank meeting as larry summers warns against the hike. the dollar weakens. fantasyland prices get -- sam walsh warns that the iron ore rout has left for deuce on by their fingernails. pretty vivid image. good morning. this is boomer "surveillance" michael mckee is in new york. we are expecting a first rate hike from the fed. it is all abt