climbed then slide as the central bank announces changes to the asset person program. progress towards a reform deal. european leaders meet to discuss terrorism. awakens" a the force force to be reckoned with. good morning. a diverse day. this is "bloomberg surveillance." force, it is the force of

the fed this week. tom: the fed awakens. throughof commodities surveillance today. something to see the lack of bid on oil in the united states. there is no bid on oil. you look at the report out of goldman sachs, saying $20 is a possibility for oil in 2016, this is something we should keep an eye on. david cameron says his push to change the u.k.'s relationship with the eu is gaining momentum. signaledn brussels they are willing to sign compromises for eu citizens. cameron has promised to hold a referendum by the end of 2017.

u.s. and russia lead an international conference on syria in new york. the agreement said nothing about bashar al-assad's future. wants him out. israel and turkey have reached an agreement to restore diplomatic relations. the ties were ruptured in 2010. the israeli navy rated a turkish ship. israel has agreed to compensate the families. smog alert.issued a for hazardousalls smog through december 22. the warning came hours after officials told bloomberg the's model or will not go away anytime soon. smog alert will not go away anytime soon.

you can get more on these and other breaking stories at bloomberg.com. tom: let's do a data check. japan, front and center. weight to a little futures. the euro weaker. nymex crude has been 34 print through the early morning. 35.01. on to the next screen. the german two-year, no one has talked about. from a 0.33 negative down to -0.36. european and asian stocks, we saw these tweaks to the bank of japan.

monetary stimulus, this is not what the doj wants. copper rebounding from a one-month low. you are mentioning below $35, crude oil. always good to keep an eye on it. i want to look at 40,000 feet. we go with japan's miracle in the 1980's. it stopped. this is nominal animal spirit for capital gdp in japan. this is 20 years. what happened? up we go, we come down. these lows per capita, seen about 2000 and 2003. suddenly, demographics and other things -- tom: we talk about a lot of this

today. up.ael mckee is ramped there is the view from 60,000 feet. francine:'s on japan, jodi schneider joins us. the doj has extended the duration of jgb's. jodi: we heard from governor himself, after the change was made. what he said is the queue qe program continues. change,s a technical saying this did not change the nature of the program and it will allow them to do more to continue the program in the future as needed. he was viewing it as a technical change. it was said people can find it

confusing. yen rose on the back of that and that is the last thing they want. toi: traders tried determine what was happening. the target for the asset purchase had not changed. was the tweaks, then the market changed. we saw a roller coaster ride in this. battle over to inflation is japan winning the battle against deflation? signsthere have been since the last meeting between the november meeting and this meeting, there were signs the economy was picking up. we saw capital spending numbers come in stronger, we saw gdp revised stronger. we avoid a recession because we

did not have the avoiders of contraction. this buys time. boj.ys time for the workingsee is the qe is for they do more. these tweaks allow that. thank you. francine, all i can think is rodgers with his call of a stronger yen. vamp this all they want. the move is a stronger yen, for it to drive down to a 1.20 yen is anti-abenomics. francine: this is the biggest financial experiment. we do not know whether the experiment will work. in more on this, let's bring

richard lewis. thank you for coming. 2015 was a year where i had a lot of people sitting in the chair where you are, saying go equities.ese it is looking more uncertain. was this a policy shift we heard today or a communication mistake? richard: we come back to the long-term implications. fors a pretty good view 2016. judging on what is going on in --,markets in response to it is a position of over saving. if there going to telegraph these moves and holding market's hands, the markets are going to get leverage in long going into announcements. a goes back to

communication. ofy do not have a clear view what they are thinking. i disagree with you. the markets have far too much of you of what the central banks are inking. positioning around these announcements. , if you want to down the volatility, you provide less information. you provide less guidance and more uncertainty. you would not get the crowding of these positions. equityen i look at markets and preparation for 2016, we see carnage in the stay as you is it a go mentality and equities or are you going to have a higher portfolio turnover rate next year?

portfolios and fidelity and portfolios elsewhere have not turned for a considerable leadership ofhe the markets has been in place for a long time. it is about intellectual property, development markets, not commodity prices and emerging markets. at 2016, is there anything in the narrative that looks like it might cause a rotation? happened andwhat say maybe that is a harbinger of 2016. i cannot see it. 2016 looks like more 2015. tom: very good. richard low us -- richard lewis with us, with fidelity. joiningp, james sweeney from credit squeeze. good morning, everyone.

it is "bloomberg surveillance." ♪

tom: good morning. "bloomberg surveillance." myis about time i started christmas shopping. economic conditions in china have gotten worse in the fourth quarter. a survey published in new york weakerina sales were than in the third quarter. her has been some stabilization in the country's slowdown. expects the down

industry to recover next year. casino operators expecting revenues to fall by a third this year. movie ofanticipated the year has opened around the world. "star wars: the force awakens" is thrilling viewers. the movie may bring in $2.4 billion globally. that is our bloomberg business flash. francine, are you going to go see it? francine: we will. cameron was at the premier.

osborne helped fund it. this is where david cameron is saying he wants to change britain's relationship with the european union. that momentum gathering peace after others say they are willing to find compromises. hans nichols joins us. they talked about renegotiation. hasn't been accomplished? -- has it been accomplished? they think they have a roadmap. they are going to need jedi magic to get this across the line. there is no agreement, no real way you can change what david cameron was saying. newcomers from the eu do not get benefits for four years. the only thing cameron really succeeded and aided and abetted by other leaders here, they

raised expectations for the february meeting. you cannot see the sky and brussels because it is always raining. maybe that is the wrong analogy. bit like it is a london, probably a little worse. they are also talking about terrorism today. ofs: this is the second part the agenda. talk on terrorism and syria. they will try to figure out how to get the $3 billion they , how they will apportion that and transfer that money. there will be a little on banking union, the normal things that put people to sleep. -- are you going to need treaty changes -- on july merkel -- angela merkel seems to hit you need a treaty change. in my book, it does not really count as an eu summit because it did not go past midnight. francine: they got sleep.

that is not fair. european jedi knight, hans nichols, in brussels. cameron awakens. greg's it model a --. movingould be a currency event. the market consensus is that brexit is not going to occur. there will be an exercise in conservative party backbench management and it will be business as normal. that is where fidelity is. francine: when you look at what did two days ago, are

you closer to raising rates? not in the next six months, but possibly seven? it opens the door to raise rates. rises weren't on the agenda until 2016. carney isor mr. raising rates, what it would do for the sterling. gives mr. carney more elbow room. francine: thank you. coming up later, president obama will be speaking. the year andto with a press conference. look for that in the vicinity of 2:00 this afternoon. good morning, everyone. ♪

francine: welcome back. this is the view of the city of london. seeing no son. -- no sun. is: your architecture hideous. those are the two ugliest buildings on the planet. francine: i don't disagree with you. tom: i'm sorry. prince charles is right. vonnie: they are stunning. but they are stunning,

look like a star wars movie. a right to congress to lift the ban on crude oil exports. in global oil prices below $40 a barrel. not a magicban is wand for the beleaguered u.s. oil industry. the actual impact will be fairly limited. tom: price matters. it is remarkable when you see what oil has done. i noticed gold off of the bloomberg terminal. look at stock gold. the commodity and implosion continues.

you need analysis about where is the bid. within that, you have the policy mix on exports. francine: you are right. lewis from fidelity is still with us. when you look at how difficult the price ofict oil, there is a consensus the trajectory is downward. the $20 oil scenario is based on the world running out of storage capacity for the excess oil being produced, sometime in the first quarter of next year. the failure of the opec meeting to come up with any sort of , it is bringing that doomsday scenario for that

price closer and closer. does investment get pulled back to a point where it shoots up? there are long lags here. the recount is way down. it takes a long time for production to respond. assetst think financial are priced for $20. francine: what does it mean for equities? a lot of emerging markets company borrowed. richard: there will be a lot of high stress in oil. you might see some failures. what does it mean for bigger oil companies?

richard: there is exposure about some of the bigger oils. you have to start believing what the managers are saying, oil prices are going up to $60 or $70. who would have thought that? in our next hour, richard claret and dreams -- and james a sweeney will join us. stay with us. ♪

japan and commodities the focus in hong kong this evening. japan with a stunning announcement. bank of japan acts on abenomics.

you can rationalize commodities. to find agold trying bid after a horrific afternoon yesterday. good morning, everyone. let's get to our first word at news. united nations security council has agreed to choke off islamic state's finances. their moneyt of from extortion and the sale of oil and antiquities. who bought the rifles in the san bernardino attack has been accused of conspiring to help terrorists. he is accused of helping site farook plan other attacks that he never carried out.

ash carter has ordered then navy to send best to spend more money on planes. carter rejects the navy's approach. he wants to buy more muscles and improve electronic or capability. spain's prime minister will win, but will fail to get a majority. mother theresa is on the path to sainthood, less than two decades after her death. pope francis has credit her credited herher -- with a second miracle, needed for sainthood. you can get these and more at bloomberg.com. talking about the fed

and the global policy action. richard lewis is with us. great to have you on the program. -- some of the adjustments would be hard for people to understand. yen. of fluctuation in people were interpreting what he said and realized the balance sheet was not going anywhere. two key points to focus on. politics within the bank of japan is changing. pressure on them from the government to ease further. the government has decided they do not want to target a weaker yen. secondly, they take on more risk. if you look at the details of what they have done, longer

duration with purchases, they add more risk to the balance sheet. they're sending a message to the market that they are not out of ammunition. there is more for them to do if need be. the first decent analysis i have seen this morning. i am thunderstruck at how everyone is rationalizing away this transaction. will you explain how purchasing -- onto a central bank balance sheet is good finance? thank you for the compliment. thepoint i would say here, bank of japan is doing a lot, areng a lot as far as jgb's concerned. the next step for a central bank is to buy riskier assets. they could buy equities. could argue bank of japan

did this during the banking crisis already. reads is and buy a signaling to the market they are willing to take on more risks, but they do not want to go that far. desperation they have. why are they desperate now? i would back away from using the word desperate. this 2% do with inflation target they are trying to reach. we saw the dollar yen went higher. this is why they are looking for alternatives, but they do not want to target the yen as the main weapon. is it deflation through the

commodity impulse going the wrong way? yellen did not address this. francine: she is in a different situation. at the end of the day, this is a battle against deflation. steven: it's a long way off. the dollar yen may continue to move higher. what people in the market forget in thee are two drivers dollar yen. the yen side and the dollar side. to think we are going into an environment with a stronger dollar across the board. to be a purends interpretation of dollar strength because we know what is going on in japan. dollar yen will continue to rise. add 2%k that will

inflation. tom: did i just hear you say 130? steven: you did. i remember this paragraph from early new vet the -- from early november. japan faces demographic problems with population projected to shrink from 127 million to below 100 million. the current birth rate is 1.4. the japanese are resistant to accepting large number of immigrants. inflation and unemployment are low, but growth is flat. that is not a prescription for animals. . the key point we would make here, the implications here

are unemployment in japan. we think we are at full employment in japan. they cannot find new workers. francine: no new workers. there is the little bit of the are qualified. tom: this is important. q up the moment of the week with mr. gross. terms of whate in is happening with japan and , the influencect of monetary policy on the continent of europe. she is an old-fashioned central banker and needs to modernize her amherst half's thinking area tom: there is a lot of people with less passion and may more

control of agreeing with mr. gross' comments. people alsolot of disagree with bill gross. let's ask our guest. do you agree with bill gross that janet yellen is an old-fashioned banker? steven richard: some of the statement made suggested qe would support assets where the underlying entity was encouraging growth. that includes support for the japanese atf 400. this comes down to a key point about qe.

qe has not proven itself as a policy which stimulates economies. in those currencies around, but does not do much for economies. maybe mr. kuroda is fishing around for a way to get investments going. mrs. yellen has a big elephant in the room, the u.s. financial system, she has to be careful about what she does. if you're going to give me what does it mean for the chinese room and me -- the chinese . is a going to weaken further than that? steven: i don't think so. the key difference here is we withtill dealing

controlled currency in china. dollar yen as important as is the trend in other asian currencies. the key thing is dollar appreciation. dollarnd will be for higher. we think the chinese will allow that to happen. that is the direction we are going. what is interesting is the basket we are talking about, the fact that the euro comes into that. what that will mean is the chinese may be able to tolerate more actual dollar appreciation, as a basketat perspective, it will be relatively strong. this.e will talk about richard lewis with us from fidelity. we will come back and go to

china with neck. nick.h ♪

welcome back. this is "bloomberg surveillance." conditionsnomic deteriorating in the fourth quarter according to a survey. in contrast with indicators signaling some stabilization in the country's slowdown. let's get more with nick. age book highlights

disturbing trends in the economy. how worried should we be about it? is difficult to get accurate numbers out of the chinese government. we are interested in third-party sources. this is so universally bad. at companies's profits, revenue, everything is bad. it provides a counter argument to what the government is saying. we saw property dated today that was less gloomy. that being listed into her one cities? signs -- youre have to take those numbers with a grain of salt. the government has focused on trying to get rid of that and they have introduced stimulus measures to get people in

smaller cities to buy homes. this indicates those measures are working. it does not say much about the broader side of the economy. where is the china deterioration now? a lack of kurds to invest, a out,of real estate work or tepid consumption? are not seeing the transition from old growth drivers. companies are spooked and consumers are spooked. that is the deal we are getting. tom: thank you. with us, stephen. i look at what is going on in china, commodities, commodities, commodities.

steven: this is a very willing. the key point we would say is is ininese economy transition. shifting towards more service-based economy. that is not good news for commodity demand. , a lotmodity exporters of the emerging world image he 10 world, the likes of australia, canada, they are going to suffer. we are bearish on those currencies. we have a lot to talk about. up, we are going to look at the canadian dollar. richard will join us from pimco with james sweeney of credit suisse. it is "bloomberg surveillance." on a friday.

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, the chryslercity building. timeless as well. a beautiful view from our world headquarters at lexington avenue

, next to bloomingdale's, which is bustling and hopefully bustling this weekend. it is "bloomberg surveillance." let's get to our business flash with vonnie quinn. warned the u.s. has alibaba to do a better job of fighting the sale of counterfeit goods. the company had been on the notorious markets list but what is removed in 2012. the carrier will stop flying to heathrow and london and jfk in new york. the decision came after u.s. authorities warned kuwait airways was discriminating. and goldman sachs says we were wrong when it came to microsoft. after rating microsoft stock a years,er the last

goldman says that it failed to appreciate the impact cloud computing would have. that is our bloomberg business flash. tom: that is a tough thing always to do. that is a tough thing to do. it is sort of called recants in the business. goldman sachs adjusting on microsoft. breaking news on ukraine. i will let you decide what to do with this. , a bond, on $3 billion to russia. i looked at the currency. not moving. francine, that is one of those challenges. francine: we spoke many times to the ukraine finance minister. that puts him in a more difficult position. but at the end of the day, it is because ukraine and russia are at odds over how to deal with this. they have the support of the

imf, and they were saying basically the debt qualifies as an official claim. comesl see basically what out of it. this is russia digging in their heels. let's get back to our guest host for the hour. -- our guest hosts for the hour. we spoke about china, we spoke of course about the fed and the implications of that on central banks around the world. how do you view commodities? we spoke about oil, but this is a larger implication with copper, zinc, linked to a china is doing. it is not growing as much as we think it is. >> the bear trend in commodities is well-established in people's minds, and it is based on a change in the profile of economic activity in china, away from the heavy manufacturing of industrials and toward the consumer area. and also toward the internet-based consumer area. we are picking up signals from the corporate sector that a

similar trend is in place in the u.s., where industrial activity is very soft currently, and that is weighing on these commodities , pricing on the commodity currency also. tom: you can pick any victim you want -- turkish lira, mexican peso, and the real. there is the massive canadian weakness over another time and the canada/china boom. and then we come back. the yellow circles are basically the 140 level, which is exceptionally important technicals. says we are there perry does that signal wealth destruction for the people of canada? >> this is the real theme that

we would focus on here. our view of bnp paribas is that the market went into that fed decision only modestly positioned long on dollars. and i think we got the decision that was expected, maybe a little more hawkish than the market was flirting with, given dots had not changed, and i think the market scrambled to buy dollars. you have the commodity weakness playing in there, too. francine: what does it mean? steven: the aussie is very tolerable. the key thing my would look at iron ore is very relevant for us, falling sharply as well. we would argue it is lagging. the aussie is still trading around $.71.

we think it goes around $.67 into the next year. top three calls for 2016? >> for me is the japanese equities markets. it is the only situation this year where dollar profits have been rising, and we can go again. for me it is japanese equities. shortd: i would say the euro versus the dollar, and the -- francine: i am still thinking about the yen. the layout cost. tom: thank you so much, particularly for the perspective on the bank of japan. we have a special treat. rachel, tell me if i am wrong on this. joining richard clarida and jim sweeney at the top of our next hour, will be someone who has been way out front on the challenges for the japanese

people. .arl weinberg what a roundtable this is going to be. richard clarida, james sweeney, and carl weinberg. there is nowhere where global wall street can get that kind of conversation. oil thiskness and -- goldand gold that at 1055 an ounce. stay with us on "bloomberg surveillance." ♪

tom: per rhoda is the anti-yellen. there is no forward giants as --

for the -- this hour, richard clarida, james sweeney, and carl weinberg on the pan's actual progress against deflation. oil cannot find a bid. disney awakened spirit robert eiger listens to harrison ford. jar jar is toast. disney -- will they have the courage to go adult? this is "bloomberg surveillance ," live from our world headquarters in new york at i'm tom keene. the photo will be like a pre-christmas friday. a lot is going on. francine: he admitted in his own news conference that people might find what he has just announced confusing. they announced a new program for exchange traded fund purchases on extended securities. tom: we will see what commodities does as well. 34.80 on west texas.

u.s. and russia are leading an international conference in new you monarch -- in new york. russia wants to keep him in power, the west wants him out. reporting victories over islamic state in the air and on the ground in iraq. iraq's defense minister says planes in flick of major damage. -- inflicted major damage. forces claim they killed 100 militants in a counterattack near basel. -- near mosul. the israeli navy rated turkish ships five years ago carrying ai d. israel says it will compensate families. the national data director for bernie sanders' presidential

campaign is out of a job. he was fired after a computer breach was discovered. a vendor was blamed for the glitch. mother teresa is on the path to sainthood. less than two decades after her death of the vatican said that pope francis credited her with a second marable. a requirement for sainthood in the roman catholic church. she won a nobel prize for her work caring for the poor. you can get more on these and other breaking stories from bloomberg.com. tom: there it is. you are next, saint vonnie. getting through this show will be it. to dispense with a data check in the terminal view because we have three esteemed guests with us. indid not know they would be japan action as commodities

continue to implode. richard clarida joins us again from pimco. james sweeney is with us from an incredibly important 2015 call that we should not fear deflation. joining us by telephone is carl weinberg of ifrequency economics. carl, explain what happened this morning and why it is important for abenomics. carl: i can explain what happened but i cannot make it imported what they did, they say white upfront -- they say right up front in a statement that the monetary race of increased is it ¥80 trillion per year, so there is no increase in the balance sheet. the microeconomics is that they will buy longer-term bonds and of furtheraturity purchases out. so you should expect to see about a six-basis point drop in

the bond yield this morning, a drop on the 20 year and the 15 year. i am sure you can pull that up. this means that there is a rally , the curve is flattening. tom: was this, james sweeney, in your textbook at london economics? carl says it is non-news, but stephen say well -- steven saywell says it is news. evidence innk the the world has not been great, and no one has been obviously successful, driving inflation trends higher, 2%. clarida, what does this mean for us in america? richard: in the case of japan, they have an aggressive policy, holding 60% of gdp right now.

toy could be on the road 100%. japan is an extreme case of the reality that qe programs perhaps prevent deflation but they are not reflate. also in the case of japan, monetary fiscal policy are part of the same policy. there are people who are concerned about that. tom: is it ron paul economics? doing a they are coordinated policy, a helicopter drop on large-scale. mean we: carl, does it will not see an easing in january? carl: i think they are running out of bonds to buy. as far as doing it again in january, they are in a tough spot. the qe is futile. they are trying to fight inflation occurring because of the population. they have to keep up the program

that they have already started, so this is a face-saving operation for them. they will not achieve their goal and this will be ugly when it ends. tom: what i love best about this the comments of our guests have pushed oil down $.10 since the start of this program. jump in here. francine: the boj is probably trying to fight deflation at the worst time possible, and, richard clarida, i know he started answering this. at the end of the day, this needs to work, or what happens to japan? an ambitious target was set in 2013 to get from minus one to 2. there almost there. i would not argue that it has not worked. i would argue that he set an ambitious target, and he almost certainly will not meet it. as long as kuroda is in there,

to me the risk in japan is the transition. tom: that is the fiscal side that everybody has talked about. the maroon book, the brown book, that is front and center. vonnie: what i would ask richard is, you talked about the fiscal policy being combined. you can see that with the etf, where they will buy etf's. is there any point in having full employment if it is just sort of taking a box. if there is no demand that underlies that employment? richard: one of the challenges in japan is that they have a low unemployment rate, they just do not have a lot of workers. the demography is a longer-term challenge. this is just tinkering around the edges. it is a small program. it is more useful politically then it will be economically to the japan economy.

the icon ofnye, international relations on japan customer graphic relations -- i will cut this short. "japa-- shop isr credits we legendary in tokyo p are you have written about this for years, right, james? james: even with inflation, what is the structural -- japan has had zero inflation basically since the 1990's. now they have a little bit of credit growth recently. the fact that they are at full employment suggests maybe they can do better. his policies are difficult to get working, and currency depreciation drives short-term inflation. it is not real sustained

inflation. carl weinberg, steve saywell just said -- clarida was teaching this to columbia four decades ago. changing the exchange rate gives you a relative price change third none of this has to do with the true underlying deflation. i will disagree with the other people on the program this morning. what japan is experiencing is not a long-term depopulation. it is very now, and that the population has with it a natural tendency to deflation just as a growing population has a natural tendency to inflation. they need people, a population policy. they can use monetary -- monetary policy until the cows come home. francine: to carl's point, they do have a demographic. they have women. this is one of the focuses of abenomics.

richard: i do disagree. being strict about population growth and inflation is not quite right. surely there are things that keep inflation lower if you have an amman problem related to the composition of your labor force theyh, etc., but right now are using stimulus. they are at full employment. the currency moves only give you should -- give you a short-term wobble. no country has really successfully demonstrated that once you have an inflation trend for years inrom 2% a row, it is hard to get it back and stay there. , dr. clarida of pimco, then bernanke flew to ago and lecture them on reflation. it has not worked, has it?

richard: as i said, i think there is positive inflation in japan. there was deflation. we can talk about how long this will persist. i am in the cap that they did what they had to do. i think they are trying to shift -- i am in the camp that they did what they had to do. i think they are trying to shift. there,e expectations are but i just wonder about currency adjustment. carl weinberg, thank you so much, on short notice, for joining sp spirit we will continue with richard clarida and james sweeney, particularly after what we saw from the fed. $34.74 is jaw-dropping. brent under 37. president obama will not speak about the bank of japan, not speak about commodities, but he will have an important end-of-year's conference. ."loomberg surveillance ♪

francine: this is "bloomberg surveillance." london,cine lacqua in joining tom keene in new york. this is one of our main highlights in london. deal talkinghe about terrorism, he was at the star wars premiere wednesday to are here is vonnie quinn with the business flash. vonnie: the central bank of japan caught investors offguard. it is starting an exchange traded funds purchase program. japanese stocks are down and the yen is up on the news. the new security company must to customers. to protectiled

consumer information. it is the largest settlement won in this type of case. the year's biggest movie is now open worldwide. prescreening ticket sales in north america for "star wars: the force awakens" reached a record $100 million. the movie could gross $2.4 billion. that is our bloomberg business flash. i am excited that jj abrams directed this. tom: it is getting rave reviews. theme with paul sweeney coming up later on is that it is the result star wars. francine, i never got the jar jar thing and the ewoks. did you? francine: i think it is the first time that a finance minister gets a mention in the credits at the end of the film. have we ever seen that before? tom: i have never seen that. only you would know that. that is great. we are only doing this to run the video for you, folks. that is all it is.

we will do that here in a bit we are thrilled to bring you richard clarida, giving us great perspective through a janet yellen week, with james sweeney on one of the most important research notes of the year on deflation. we have a president who will get up at the podium today and talk about the united states of america. i am thunderstruck at how we have not taken a victory lap on our improved fiscal situation and our improved unemployment rate. why can't the president take a victory lap? richard: i will let his advisers answer that. the fiscal situation has improved dramatically from the depths of the great recession. a lot more fiscal adjustment than any country in europe. part of the reason we had qe2, qe3, and twist is that the fed the badean against -- news is that the deficit is starting to widen we saw a

budget deal in washington that will widen and next year. you look out three to five years, and those lines started to verge. so pat ourselves on the back. looking good again in 2016. your colleague in crime, neil sauce, give us a term i had never heard before. i think u.s. consumer spending is important for the rest of the world. global growth matters for the u.s., but less than for a lot of other countries. that is just the structure of the world economy. we spoke to geraldine of pimco and she was saying that you guys like european bonds, daily periphery but you are underweight treasuries. and you run us through what kind of returns you are selecting for each -- you are expecting for each in 2016? richard: we are in a low return

world. the returns we saw three or four years ago, in some sense, we are bringing forward future returns as a result of qe, so we are in a low return world. the reason we like the european periphery is we think we have gotten the greece psychodrama behind them. there is opportunity in the financials. we are in a low return world, no doubt about it, for equities and bonds. tom: part of the victory lap is the unemployment rate has been good. jenna yelling gave us the word "slack." is there slack in the economy? james: there is a bit, but i do not think it is a lot. the fed has been wrong about the unemployment rate for a while. if you look at their forecast, they saw another quarter of decline. it has been going down by 85

basis points he year for six or seven years a row -- six or seven years in a row. if it does not continue that way, that will the dramatic for the market. for is there a dot-plot unemployment? james: yes, they have projections. richard: there is a range of estimates for the structural unemployment rate. tom: that is fascinating. richard clarida and james sweeney on the state of your economy. the president is speaking roughly at about 1:50 p.m. coming up on bloomberg radio, you look at the shrinking adult middle-class. a research report from december from p research, as they look at the american middle class. -- from pew research as they look at the middle class of america. stay with us. "bloomberg surveillance." ♪

francine: welcome back. francine lacqua in london, tom keene in new york. more pictures of the city of london. it is empty. no one is working today because they are all lining up to see "star wars." it is time for the "morning must-read." vonnie: it is a bit of a continuation of our previous discussion. it is the federal reserve and janet yellen's decision. richard writing and "the telegraph" --

pritchard evans writing in "the telegraph." vonnie: he is warning that this impossible toely imagine in the u.s. richard and james, let me turn to both of you. are you concerned that manufacturing is below 50, and that the consumer is lackluster and there are some warnings out there? our pimcoe just had for him last week and discussed this. the u.s. economy is basically a 2% economy. we wish it were 3%, but because of low productivity growth and because of a soft global economy, the u.s. is growing at 2%.

i am not overly concerned, but the strong dollar and the slowdown globally has hit manufacturing. the service economy is doing well. you add those up and you are at about 2.2%. , with: if we got one shot that end the recession? james: it depends on the shock. china probably offers the most dangerous asymmetric shock, but oil,t markets via possible. you have shocks both ways. aside,'s article inflation can go up, too. or the market could just think that it needs to happen. that could cause rates to go up. that could tighten financial conditions, and that can slow the economy. it is a little less sensational and more everyday, but that is how it works out quarter to quarter. francine: mexico, chile has hiked. so the fed has lifted its rates

without a hitch. richard: the mexican rate hike was expected to follow the fed. i did account raising -- i did a neck -- i did an account recently using the bloomberg screen -- other than the fed, there may be five or six that are hiking this year. everybody else is either on hold or cutting or easing. tom: some of the tensions that are out there, we will continue this discussion. we do that with oil. -- 34.48 ont down west texas intermediate, brent well under 37 at 36.83. coming up, robert profuse sec on american law. ♪

tom: is required friday, the president will speak at 1:50 this afternoon. the backdrop will be many themes

-- you know after the republican debate they will speak of the safety and the fears that american have that's that americans have and economics may slip into the discussion as well. from london and new york, we say good morning. this is "bloomberg surveillance ." let's get to an first word news with vonnie quinn. vonnie: a barrel hearing is set monday for the man who bought the rifles used in the san bernardino attack. ofrique marquez is accused helping the terrorists. farouk and his wife killed 14 people and were killed with a shut in a shootout with police. the u.s. security council -- finance ministers voted to impose travel bans and asset freezes on companies and individuals that fund the terror group. carter orders the navy to spend more money on planes and

fewer navy ships. carter also wants more missiles and improved warfare capability. some monuments to the confederacy will be taken down in new orleans. the city council voted to remove civil war statues, including one of robert e lee that has stood for over 131 years. the mayor signed the order. you can get more on these and other breaking stories at bloomberg.com. it was extremely talked about down there. tom: how was the food? it is to die for. vonnie: it is amazing. pecan or pe-con? a price change. i will let them explain this. oil cannot find a bit. this is the reset this morning, well under 35 on west texas intermediate.

this has real ramifications from the desks of credit suisse and for pimco as well. you wonder, is it the horse or the cart? james sweeney, is this about donner -- about dollar dynamics getting in front of janet yellen, or is it about oil dynamics? james: it is about oil dynamics. there is an oversupply, and now it is getting crunchy on the way down. is it overshooting? that is the hard question. tom: how does he do that? james sweeney knows right wire i am going. ? commodities can overshoot the richard: absolutely. it is a classic example of the durham bush insight. i completely agree. the perfect storm for commodities -- is demand soft? yes. 100 to 30 infrom

15 months. i agree, i think oil has overshot. that is a view that we have a pimco. we have overshot on oil. vonnie: we also have -- francine: we also have a great bloomberg story on the terminal that says if this was, let's not forget the warmest year on record. that also has an impact on energy prices. richard: all that is true. commodities are tricky. i would think we would ratify the forward curve, which is a gradual increase on oil next year and we could probably go above the forward curve. the thing about supply in the u.s. is that there was less of a cutback in supply in the u.s. and many people thought. the evidence in the second half of the year is we are starting to see the impact of oil prices on exploration and the rest. we will get a pop in oil next year. structurally, the commodities super cycle that experts talk about, which ran from late 1998,

1999 until a year ago, that clearly has popped. francine: do you see a pop in oil in 2016, and that is -- and is that only after the productions come true? james: if oil production picks up a little bit, that is true. if you look at oil demand, it is not so bad. even in china it is growing nicely. to the creditd markets, to the general stress going on, and it feels like it could go lower first. tom: i might have to research reports from june or may. it was classic on deflation. are we in good or bad deflation? something gary shilling makes a lot about -- you say stop with the fear of deflation. james: we are not in any deflation or europe is not in deflation either. it has low core deflation.

i know a number of deflationistas, and they say there is global realized deflation. rather than saying what is happening is you have deflationary pressures in the world, which are evident, policies have adjusted to that. markets sometimes get very bearish in that kind of atmosphere, and that creates risk aversion, lowers investment. but things can change across the business cycle. richard: one point is that the focuses onterature the pathologies of the deflation spirals. we have not seen a deflation spiral in seven years. japan, the textbook poster child for deflation, the deflation is -.5%. deflation spirals can happen theoretically. tom: i want to rip up the script. willem buiter says the fed should not have acted unless there is instability.

you just said on price there is no instability. do you lean toward william bauder and -- toward willem buiter and rogoff? is this ammunition to wait? richard: absolutely not. i completely disagree with that. my gut is that had we not acted we would certainly be in deflation, not a deflation spiral. if deflation occurs after inflation, they are costly because credit markets are nominally based. going from 2% to minus one in that transition is a killer, but once you get to minus one it is not necessarily the end of the world. i think that is the key. deflating after inflation is in or mostly costly. francine: richard and james, what is the probability of a fed rate cut next year? richard: next year -- oh, my goodness. i personal opinion, i would say

20%. maybe 15%. tom: james? james: i would be similar, maybe a little lower, the 10%, 5% area. tom: so we will all stay employed in the media. vonnie: janet yellin is expecting inflation to crawl its way up. james: you mean the hats -- you mean the second hike, right? you said cut. vonnie: hike, right. richard: we would like to see that. the dotsly, we think did not shift down because the four dots are a free option. lowerld be very costly to it then have to hike. we expect two or three hikes next year. vonnie: james? james: we expect three.

tom: james sweeney and richard clarida. we can all agree "the force awakens" gets rave reviews. let's call it "disney awakens." come out on will set and he will not spoil the movie. i love the woman from "game of thrones" who is in the movie. "surveillance." ♪

francine: welcome back. francie laquan mcdonald team. let's get you to the bloomberg business flash. u.s. is warning alibaba to crack down on the sale of counterfeit goods. they are back on the

government's notorious markets list. tobaba says it is committed fighting counterfeiting. kuwait airways is ending service to heathrow in london and jfk in new yorker the addition came after the u.s. -- the decision ame after -- reportedlyeople will lose their jobs at morgan stanley's equities trading unit. the bank will cut up to 5% of stock traders and sales staffers. that is our latest bloomberg business flash. it is episode 7, creative massive hype. records on opening day. paul sweeney is the head of research at global intelligence. disney really hitting it out of the park in all areas except perhaps espn, but it has found this market now with those movie

characters. paul: if you look at disney's film output, it has locked in and driven off the franchises they have at pixar, and all the franchises they developed off of marvel. five-year starting a run of star wars movies. for the studio at disney, everything looks in great shape going forward. vonnie: and it is not just star wars. they are also going to be doing some indiana jones movies. about would suggest it is courage. did you like the movie? let's cut to the chase. paul: i liked the movie. i had my seven-year-old with me. i was there to comfort him. actually, he was there to comfort me. tom: paul sweeney, i want to go back to 1937. snow white is rocking. they go to pinocchio and it was almost a total disaster.

they almost went down in flames. it took a lot of courage to stay with pinocchio back then. this took a lot of courage this time around to stay adult, right? >> they spent $4 billion buying lucasfilm. they are buying some great franchises, but the franchises had not been in the theaters for many years, so the question was, have you lost the audience? there was risk associated with it, but nobody can promote a movie like disney. tom: where was the courage this time around? they got bit of all the kids stuff, jar jar this and jar jar. they spent $4 billion buying the company, another hundred million dollars marketing the movie, and this movie has to play will globally. it does. they will get 70% of their box office receipts outside of north america. this has to be a global phenomenon for them to make money, and the early returns suggest it will be. francine: how much does it have

to do with the movies, light sabers, and how does it -- how much does it have to do with disney's marketing machine? paul: nobody ties it in better than disney. they tie it into their merchandising and the theme parks. the promotional capability that disney has is unrivaled in hollywood. it really has to be because it made such a big investment in this company. but we have seen their success time and time again with other big franchises such as a marvel studio franchises. that the would argue content has to be there, too. -- every critic that i have seen has given it top marks. it is the jj a result effect, isn't it? paul: it is. they went out and they got arguably the hottest director out there, someone who could bring it to life.

they have had success with jj abrams before. they also did a good job mixing in the older characters, introducing new characters that could take the franchise forward. they did with "empire strikes back," they brought in sdan and he wrote an adult film. this is one of our great exports. will there be a lot of star wars theft? paul: there always is. piracy is a huge issue. that is why they were very tight with previews. it will not be released in china for another week or so. globalas a simultaneous opening where they feel comfortable from a piracy perspective. vonnie: we are only watching the trailer here. what about the next project? star wars has always been -- tom: they are going to do another one?

there are already indiana jones attractions at theme parks. they revive that franchise? i suspect they will introduce new characters, but that is clearly one that has been a great moneymaker for lucasfilm's over the past years. it is investing in new characters and new stories. it is important to remind ourselves that this is a because for the u.k. its pilot studios are just outside london. go anywhere they need to go to get the talent, and they will go to the best studios, invest in the best talent, the best writers and directors. so this is a global franchise for them. mentioned, it will have to play everywhere. tom: can i ask a dumb question? worthy, ordemy award

is this beneath the elites in islywood? paul: the culture no. you take a look at the academy -- tom: even the new tom hanks vehicle, which i saw, even that is beneath them, right? paul: that one might make it. typically, the academy does not look at the big lock buster franchise films as academy-worthy area day go in the other direction. when it is studios, really big for the films -- disney does not needed. the stock has outperformed the big media. the bulls will tell you that this is a diverse a fight company. it has theme parks, cable networks, and a great film studio, and the diversification is valued by investors this year. also need to talk

about disney princesses. muchmillion -- that is how tom keene's spending on disney princesses over the holiday. tom: you have no idea. paul: the merchandise is big. the rate cover story about the arguablyse -- it can be $5 million of merchandise just for star wars. was telling clarida me the new treatment for the next star wars movie is two emperors lead the death star? two of the leaders leave the death star, and the death star continues outflows as well. excuse me. paul sweeney, thank you so much, on star wars. when are we going to see it? this weekend? tomorrow morning down at regal 11. research -- p research on america's -- good morning.

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tom: good morning, everyone. the forex report is simple.

34.50 two per barrel. the yen moving off the kuroda bombshell. euro-dollar, 1.0825. canadian dollar absolutely crushed over the last three days. he is acclaimed as well. david westin joins us from "bloomberg ." david: we have .he head of bbdo we have can find berg as well. f has been -- we have ken einberg. and just for you, tom, we have the admiral, david robinson. the acclaimed center for the san antonio spurs are talk about the ment he hasw invest

made. he is the only guess we have ever had who is taller than you are. tom: and a little more skilled, to say the least. let's jump to our single best chart. let's get right back to japan. we do that with james sweeney of credit suisse. it is a japan deflator. it shows success, which james sweeney has talked about all morning. james, to the right there is abenomics personified, isn't it? james: to the right is a currency depreciation. abenomics personified is if it stays there at 2. i think the chances it will stay there have gone up because credit growth in japan is picking up. i think the level of the currency makes it a little more profitable. the odds have gone up, but we have to be careful. do not declare success. tom: richard, are we becoming

like japan with our tepid nominal gdp, our sub growth? richard: i do not think so. i think it was a risk but i do not think so. we are in a world of slow growth because of productivity in terms of real growth, and we are clearly in a world where getting to 2% inflation is a heavy lift. that is essentially all the rich countries in the real world in that boat now. the u.s. is not becoming japan, and essentially bernanke's job job oner the crisis -- after the crisis was to do whatever it takes to stay out of an inflationary scenario, and he succeeded. francine: if the euro doesn't strengthen and if mario draghi does not -- richard: i think mario draghi is trying to avoid -- i think they have the right program in place.

that is his objective, to keep the eurozone out of deflation. james: japan means a prosperous, growing economy with low inflation trend, and europe looks like that. it is definitely a potential path. tom: richard, i want to give you the final word. lawrence summers made headlines this week with a continued statement on secular stagnation that secular stagflation. where is our -- with secular stagflation. have enormous regard for larry, and it is a provocative idea. my personal take is that the u.s. will avoid a secular stagnation outcome. the fed will raise rates. rates will be higher in a couple of years than where they are today. by i agree -- but i agree with larry that we will not go back

to the rates that we saw 10 years ago. is zero, orcase negative real rates. the u.s. will avoid that. tom: thank you so much. clarida,, from your pimco offices per james sweeney, thank you as well. rinsing, what a week, to say the least. -- francine, what a week, to say the least. francine: we have. 34 point 50, that is a wow statistic. on monday, robert profusek will join us. we hope you have a wonderful weekend. stay with us on bloomberg radio with "bloomberg surveillance." ♪

david: why can't japan get its prices rising again? the central bank takes more steps to boost inflation. -- wegain, ken feinberg

will hear from him in a moment on the volkswagen emission scandal. and what the economy looks like from the view of the ceo's of bbdo and bacardi. david: welcome to "bloomberg ." it is friday. stephanie: it is almost christmas. i have this guy next to us, so excited to andrew robinson in his tv uniform of pinstripes. of bbdo. bacardi andof former ceo of ing, mike dolan is here. welcome, welcome, welcome.