♪ [clapping] rising, dataocks showing that the u.s. economy stands at a 2% growth rate driven by higher consumer spending. joe: the question is, "what'd you miss?" alix: global markets getting jumpy or with volatility jumping up in surprising ways. joe: will the bank raised rates more quickly now that the fed has hiked? we speak to mark carney about his plan for the u.k. economy. alix: more pressure on saudi arabia as oil falls further. will the gulf have to abandon it dollar peg? we begin with the overall stock market and a relative come back in the stocks. yes, we close off the highs of the session but it was pretty much a banner day. materials, consumer staples, they really led the way.

got really ugly last week and then there was that surprising rally late in the day yesterday. again, very quiet, not a ton of volume or volatility or anything like that, but another triple digit gain in the dow. yes, existing home sales were disappointing, but that was a volatile and jumping number anyways. joe: people attributed that to regulations that went into effect that probably delayed a lot of closings. not the busiest day, but you did see that santa claus rally, they say, that maybe you this week. alix: caterpillar really caught my eye today. upgrading to mixed versus neutral. bad, declines as are slowing and moderating and heavy equipment. you basically want to see some

stabilization in the industrial sector. they won't go to the races but that is what you're looking for. joe: the industry of moving big stuff, constructing things, digging things, it's been so dismal. any sign of stabilization there, you could see a lot of turnaround on not getting worse alone. alix: stabilization comes in the form of oil prices, which my mind today. let's take a deep dive into the bloomberg terminal. six cents more expensive than bread. look at where we are and where we come from. when that spread goes into positive territory, wti is more expensive than brent. taking down the house with a huge rally. sincee not seen his level 2010. a big part of the show is exports.

the u.s. can export its own oil, more demand, out of the u.s. and into the international markets. the irony is that as the spread weakens, as wti becomes more expensive for brent, it's no longer economical to export u.s. oil. no one will want to buy it. if you are in the u.s. you might import brent. generally this idea means that it will be closer to a single, unified global market with smaller spreads between the major benchmarks? alix: yes. look at the refiners and what they are going to do. a really big rally today. these are the ancillary factors, wti and said tightening. talking about the richmond fed manufacturing index, when will we see a bottom ? no surprise, the richmond fed is back in positive territory. that yellow line is the headline index the jump from negative to positive.

manufacturing growing in the region. of white line, a lot internals. labor market data was very strong. lots of companies in the area have more employees. this is just one data point, but we are looking for that sign of a manufacturing recovery or stabilization. they could wind up needing services. and the whole economy ideally firing on all engines. you can see all of these charts and more on twitter. alix: 2015, the year of isolated market volatility. increasing from the 2014 average, it was so far below the longer-term averages. hedge fund performance relative to risk has been at work since 2008. how to that make any sense? tracy joins us to tell us more. what is going on?

tracy: they want certain types of volatility, right? too high is too bad, to lowe's too bad too. with these weird peaks and troughs, that's probably the worst case scenario. what we are talking about here is a stuff of a note in which they argue that the markets have become more fragile and more prone to sort of localized -- i guess you would call them tantrums in asset classes. instead of getting a whole market meltdown across asset classes, nowadays you tend to treasuries suddenly falling or rising or a big day in stocks or a big day in one particular sort of cross currency pair. makes it moreat difficult for asset managers and hedge funds guys, who make money in that environment. you have lots of many tantrums and markets. -- miniature tantrums in

markets. -- joe: is this a simple thing, or is this a tremor before an earthquake? tracy: that is of a question. i don't have an answer. i'm happy to discuss it with you, obviously. there is an argument to be made here that what regulators have done in moving risks onto asset managers on the supply side is they have taken risk out of the financial system as a whole. but the offsetting factor of that is that you have is out. but don't get the big storm, right? you get these miniature storms and teapots instead. -- in teapots instead. this is the bank of america fragility index, volatility in the financial stress index. that is almost at its peak. hedge fund drawdown, the amount of money that they are basically

losing, has been going up at the same time that the fragility index is going up as well. so, they argue that this is a chat thing i think a lot of regulators would say that this is ok to have these flareups along as we don't have a situation where the world comes to an end. joe: i was going to say, better to have a panic at the 3rd avenue credit fund rather than a thankful of deposits. tracy: i think that's right, but again there could be a point where those little things that come systemic. so far it seems to be going all right. we have had some dramatic days this year. theswiss franc early on in year, we had weird things happening with german government bond yields in the spring. we have had dramatic events, people losing money. it's not 2008, so that's great, but there are some people who think that we are on that trajectory.

alix: deutsche bank had something similar. it's not going to stay there. it's really more of a wide range . that's not what we are supposed to see in the safety of treasuries. i think that the lesson is that investors have to get used to wider range of volatility and you have to figure out how to deal with that. bank of america has some suggestions -- don't ask me to repeat them, i've forgotten them all. but you need to spread the risk across the portfolio. a chip -- a 10 year treasury might not at the way that it used to. joe: i think you had a headline on a headline on the story once -- moves that are only supposed to happen every 10,000 years keep happening. is there going to be a systemic and broad faced we think about keeping seen this? is there a sense of formulas that aren't exactly right?

tracy: people will start to build it into the risk models. as much as they go back about five years, the more moves that we get the better it is. the big question from a isulatory perspective whether regulators are happy with 100 standard deviation moves in the year in lieu of having the one 100 standard deviation moves in the year. it's worth a to point out that that doesn't matter anymore. volatility is well below the historical average, even though elevated. why bother? another huge trend in markets is that volatility trading has become its own asset class, causing a feedback loop in the volatility index. basically, volatility has been very low relative to the long-term average, even as the volatility has reached records this year.

you are trading on the actual index, so it's complicated. but the nature of volatility has certainly changed. joe: if you were a regulator, would you prefer the current system? tracy: wow, way to put me on the spot. [laughter] iwould be happy with it but think my mind would be swiftly changed if we ever got a very large mutual fund, say, and a faced unhappy taxpayers with big losses on their investments. tracy, good to have you. [laughter] all right, thank you. bloombergway of markets. coming up, do higher interest rates mean higher bank rockets? do will look at the relationship between the tightening cycle and banks, next. ♪

alix: i'm alex deal. "what'd you miss?' hi, mark. mark: the city has received what is called a credible threat, citing unidentified people really are with the decimal your with the matter, police officials, include -- including discussbratton, met to the threat. the tv station cited an unidentified law is source who said the threat was not specific and could take place in several major u.s. cities. monitor theinue to story as it develops. the governor of kentucky is on

his state to include the marriage licenses that don't include the names of county clerk's. protect thempt to religious beliefs of elected officials. the order comes after kim davis spent five days in jail for refusing to issue marriage licenses to same-sex couples after the u.s. supreme court legalized same-sex nationwide. 8.3 million people signed up for obamacare, surpassing last year's total, signaling good news for hospitals and health insurance companies. at about the same time last year , 6.4 million people had signed up. prosecutors in the charged a woman with murder, child abuse, and felony hit and run after she allegedly plowed her vehicle into crowds on the las vegas strip. lakisha holloway is due in court tomorrow, held in court tomorrow -- without they'll.

police say that her three-year-old daughter was with her but wasn't hurt. global news, 24 hours per day, powered by our 2400 journalists and more than 115 or -- news bureaus around the world. common beliefthe is that a rising interest rate environment in the u.s. will help things to make -- help banks make more profits when they lend money. you might be surprised to learn that profits and rates are not as linked as you thought. our next guest has some charts that might help to dispel that believe. j joe b -- jw mason is a fellow at the roosevelt institute, joining us now from los angeles. joe: thank you for joining us. what is the gist of the research that you did on this topic of the connection between rising rates and bank profits? >> i was motivated by the same puzzle. why is the fed raising rates

now? we knew that standard target price stability would not support this. it's 1.4% over the last year, so why are they doing this? one theory that people have proposed is that this is a measure that is intended -- the goal in some sense is to support the possibility of the banking system. we obviously do know that a lot of bank executives and people associated with the sector have supported an increase in rates. it might make sense that there was a narrow interest there. banks are lenders, so it should be possible for them to lend money at higher interest rates. i was curious about the situation and decided to dig into it a bit more. looking at the historical evidence of how lending rates on the one hand and borrowing costs on the other responded to changes in the federal funds rate. we think of banks as lenders, but obviously it's not so simple

. they are also really large borrowers. the profit comes from the spread between those rates. the reality is that the simple story of banks with higher rates doesn't really make sense. banks sort of in their nature as borrow short rates, which are much more sensitive to the federal funds rate than long rates. the fed, there is an interesting question of whether the fed is effectively able to move those long rates at all today. whether they still have the capacity to move those long rates. they still do influence short rates on the interbank markets. you might as -- you might expect it to affect funding costs more than lending rates with a negative affect. anyway, so -- yes, go ahead. alix: hang on, i have some breaking news i want to get out and then we can chat about more banks. mikey earnings crossing, quite

frankly it looks like a blowout order across the board. in terms of specifics the company made $.90 per share. the revenue came in lighter, $7.7 billion. the really big news is all about the future order numbers. if you strip out currency they are seeing a 20% rise in the estimate for 13%. it was pretty much across the board. it's gangbusters there, they were relying on china for a lot of growth potential. there was a lot of interest in what they saw in the country. 34%, estimates were for 21%. a similar story across the globe. eastern european and central orders, 13%. across the emerging markets, 14%. killer, doing well in china.

they were like -- thank you very much, this is exactly what we want. back your point, we did the research and crunch the numbers, looking at the spread between the lending rate and the funding rate. taking a look at that chart right now, the line at the bank, it's above the line. the banks are more profitable than usual. below the line it's less profitable than usual. that just had approves your point, you don't need higher rates to be more profitable. can you explain why that is the case and why people get that wrong? i think that people are more focused on the roles of banks as lenders than borrowers, but they are intermediaries for a reason. as i said, not surprisingly the borrowing rate, the rate that they borrow at is more sensitive to monetary policy than the rate that they lend that. the market interaction is

direct. so, if you look at this you can see -- the interesting thing that bankssed me, are not often hurt more by higher rates, the reality is that the two rates are almost in lockstep. whether we are talking about low or high interest rate environments, the average lending rate is three points higher. we've got good historical data going back a long way that's very consistent. joe: you look into this question because you are trying to figure out an explanation for why so many people like higher rates. why do ceos and rich hedge fund to want highernt rates? one. was that it would be good for the banks. as your research shows, that's not necessarily the case. do you have a satisfactory theory for why tightening is generally a popular idea among the upper classes?

j.w.: i think that there's a second, more cynical explanation , the relationship between interest rates and wages. central banks, certainly the fed, but central banks in general have always focused a lot on labor market indicators. famously excessive collective bargaining outcomes, he said the best thing that ever happened in the flight -- the fight against inflation was when reagan broke the air traffic controllers union. greenspan talked about -- why can we keep rates low? because workers are traumatized by the fear of job loss. so, this sort of language has always been there about the importance of holding back wage demands. in the past they have engaged on ideas that there is a close link between wages and inflation. the problem is today if you look at the numbers there is no link at all.

seek centralill banks focusing on keeping wage growth down. that is where i suggest that that in itself, wage inflation itself is a target of the central bank. in fact you can see this, if you look at the european central bank you see this more clearly where they have replaced the non-accelerating inflation rate as the basic standard for macroeconomic balance. this is now the test of where the year -- where the year ended -- where the year in inflation goes. sorry, we have to leave it there, but it's an interesting case for rising banks being good for banks, not being good forget banks, and why people think that. the fed has raised rates. will the bank of england be next? coming up we will discuss mark carney's plan.

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joe: "what'd you miss?" after the fed raised interest rates, the question became -- is the fed going to move next? the probability of a hike and next year.l joining us now is tony yates, professor of economics at birmingham. tony, thank you for joining us. that on them surface if anything the bank of england could move sooner than that. the labor market seems to be higher in the u.k. rather than the u.s.. why such a long wait for the bank of england?

tony coleman headline -- told me: -- tony: the bank will be looking for solid evidence of , that the effects of commodity prices and the exchange rate will wash out and that core inflation will pick up smartly towards target. that's not happening yet. i guess they are in no rush at all. joe: we recently spoke with paul died of it -- paul donovan. i want to play some audio that him and get your take on it. >> i think he came in thinking it was the bank of canada, but the bank of england is that the bank of canada. he came from a dictatorship, but in the committee that's not how it works.

do you -- joe: do you think that mark carney has had a culture shock issue? tony: i think that's too strong. i don't know him personally, but from what i understand he is a clever, energetic, forceful personality, but you would expect that in the leader of a large organization like this. the way that he has handled the bank is that remarkable. withs certainly set about a lot of determination, but in the arena of the policy committee i didn't feel that that infringed on the institution, particularly. i certainly have my differences with the way he's gone about planning communications. we aree are -- joe: going to continue this after the break. stay with us. up, central-bank

inflation targets keeping a lid on economic growth. we will discuss.

i'm alex deal. "what'd you miss?" let's get to mark crumpton. mark: kentucky is ordering his marriageprepare new licenses that do not include the names of county clerks, an attempt to protect religious beliefs of kim davis and other elected officials. the order comes after davis spent five days in jail for refusing to issue marriage licenses to same-sex couples after the u.s. supreme court legalized same-sex marriage nationwide. washington state officials admitted today that more than

3000 prisoners have been mistakenly released early since 2002 because of an error by the state department of corrections. the software mistake gave prisoners to many good behavior credits. officials say that the program that multifunction or malfunction should be fixed by early january. the situation was called mapping . no plea yet for both -- four bowe bergdahl, the army sergeant inked away from his post 2000 nine. arranged today in fort bragg, north carolina, on charges of desertion. he was held by the taliban for five years before being freed in a pop -- in a controversial prisoner swap. the families of more than one dozen victims of the 2012 newtown school shooting in connecticut will split a $1.5 million settlement with money coming from the estate of the government's mother, who was shot to death by her son, who also killed 20 first-graders and

six educators at sandy hook before committing suicide. global news, 24 hours per day from our 2400 journalists in more than 150 news bureaus around the world. i mark crumpton. alix: thank you so much. a quick recap on the market close, it was a rally day across the board, lowe's off the high of the session, it really helped with outliers, like materials such as caterpillar, the dow on the upgrade with those stocks getting some love at the end of the year. joe: two days in a row, solid gains. things were looking grim at the end of last week. but we are now getting that end of the year rally people were hoping for. nike earnings are out, to

numbers i wanted to highlight, future orders out of china stripping out currency fluctuations, the orders in china were up 34% against the estimates of 21%. growth in china have been at? , nike clearly delivered on that front. gross margins higher than estimated, the idea was that you had to discount your product so much to get people to buy them. nike's gross mark it -- markets were still higher. tony yates is with us, he worked at the bank of england for 20 years. you mentioned with joe that the bank of england still has a long way to go before it hits its inflation target. you could say the same thing about the fed. do you think of the fed inflation target acts like more of the ceiling? know that acts like a ceiling, but there are questions as to whether it's being treated

as such. if i were there i would be consciously trying to overshoot so that i wouldn't hit it. the risks of losing control of the economy and the downside of much greater, basically because we know how to tighten policy. a weakening column a, a weakening inflation is tricky in this spot. central-bank balance sheets feel can a bloated. do you think the reason i wanted to move was because inflation works with long lag? your blog is called long invariable, a reference to the lags with which policy works. is that a bad idea? is there a reason she should try to get ahead of the curve? tony: no, that logic is completely sound.

it's a question of -- how you cope with the risks of things happening on either side? the logic of a central case is completely sound. the issue is -- what are the risks? if the economy turns out weaker, what could they do about it? perhaps not a lot, whereas if inflation picks up more smartly than they thought in their is the risk of inflation of using the target a lot, they know they have deal with that. they can raise rates sharply, quickly, scaling down as quickly as they want. there might be an overshoot of the target, but it will not be the end of the world. then what is the relationship between oil and inflation? stabilized, ises

that going away. tony: she's a tricky one to answer. i guess it would depend on what's causing the price weakness at the moment. my guess is that the way they weaker thanat it they thought. on the other hand, for some it will be higher, factoring in the and is a significant imagine they will be forecasting some positive down the road. one of the, obviously, the fed has worked a long time and moved before the bank of england, but the bank of england stopped growing its balance sheet earlier. they basically leveled off for a while while the fed was still buying more assets. it de facto early tightening from the bank of england? first that'smove

the right way that i would put it. but i don't think that they would have ever -- in fact if i was involved while reordering course. to what and of both central banks are responding to global events. i would not be surprised if over tendong run interest rates to be correlated. be correlated by saying -- ok, they've gone. the u.k. -- alix: the u.k. seems to beating so much better on many levels in the u.s.. wire they son

pessimistic of a rate hike in england rather than the u.s.? that is a puzzle to me, too. and that is this huge debate about how much of the output lost in the crisis would be recoverable. that's the long-term and short-term, the right fiscal policy. the high employment rate has not all been good news. some of the news of the b qe this week, it sounds like mark carney will be staying for a full eight or term. initially he looked up late -- you look like you would come in for five years.

now it's just a minor thing for three years. and in the coalition government they decided to move from room -- renewable terms to a single, nonrenewable term. the first term, this may be suspicion that the government does with the government wants just to get higher terms reappointed. having an eight-year term got rid of that possibility. unfortunately for them the preferred calendar did not want to do the job for five years. for whatever reason they are much more willing to stay .eautiful course tony, thank you very much for joining us. coming up, with the price of oil plunge and force saudi arabia

the dollarto abandon pay? this could be the black swan of 2015, according to "the bank of

alix: i'm alix steel. "what'd you miss?" a look at some of the biggest business stories in the news right now. nike posting profits with continued strong demands for shoes and apparel. the world's largest sporting put up $.90 per share. estimated earnings per share of $.86. it defied concerns about

$938mic growth in china, million. the stock is higher in late trading. gasoline prices falling at the billion dollars in u.s. drivers wallets this holiday season. that is how much consumers will save during the year and travel compared to last year according to gas buddy. the average nationwide pump sunday, thed on lowest in more than six years. the faa says that boeing will pay $12 billion for failing to with abed -- deadline reduced risk of fuel tank explosions. they will also have to take a series of actions to show improved safety certification of for quality control. part of an effort to address problems that cause the fuel tech to explode over long island, new york in 1996.

that is your bloomberg business flash. oil throughout the year create -- claiming another casualty. almost 10 countries have weakened their currencies against the dollar to try to preserve their assets reserve. the big question is -- is saudi arabia next? with more, the associate general has more on that. thank you for joining us. i know it's very late where you are. at what point would saudi arabia be forced to deep pan from the dollar? eg from the dollar. >> the problem is that they will deplete reserves pretty quickly over the course of the next few years unless they start coming back on -- cutting back on their government spending. with theplaying poker

world on the oil price, keeping production high and letting it fall. the assumption that the exports of u.s. output will slow down, you have to ask in terms of -- at what point does the pressure start increasing? does capital start to flow out of saudi arabia? do they start getting nervous at some stage? preservebe better to the foreign-exchange reserve rather than fritter it away, if you like? , it'sfects of devaluation really just a wage cut for most thate population, given you consider what they consume important. we stayed down to $30 per barrel for months and months more, the pressure having a tendency to grow. ast happens with these banks you think that they will never break but then one day you wake up.

i can promise you that they will be expecting it. joe: if it does happen, what with the ramifications be? >> it will boost of the dollar all around. something else that supports that. it's not the oil experts -- exports, but when it falls in price in queues that domestic itenue from gold higher, would be something that wouldn't help oil prices bounce. would haveg that people like me scouring the world for what's next. it would generate a dollar that moved higher. we have noticed a strong correlation between currencies and oil prices. oil really is the driver in some of these respects.

do you expect that to be the trend next year? or will some other correlation take its place? >> the bank of international settlements broke a section in their annual report this year saying that the correlation has in theally higher 2000's. you don't have to be a genius to notice that it's been higher than since 2000. pricek that until the oil stabilizes, it's a big deal. i'm waiting for us to the couple oil price from the industrial metals that have been more directly affected by what's going on in china rather than the collapse and demand in china. i mean, i wouldn't -- every now and then i keep saying the canadian dollar cannot fall anymore, even as the oil price goes down. i usually wind up with egg on my face. you stole my next

question, asking about the loony getting clobbered. at parity, now it's at 1:40. what do you see for canada? a long border with -- >> is a long border with an economy waiting to move jobs. if i get a starbucks coffee on either side of the border, i've done that this year, it strange .ate should be 111 -- 1.11. head north if you want to go skiing. andt there every morning say -- we cannot sustain levels above 140, but if the oil price stand -- stays here the loonie will be one of the big winners and if the oil price goes on falling, we are better off. it's a bit like that, it's too cheap if the oil price stabilizes. alix: great stuff, thank you so

on ther joining us there phone. joe, interesting, bank of america said that if saudi arabia de pegs its currency, you can see oil going to $25 per burial in that -- per barrel in that year. weaker global demand in 2016, we will discuss industry leaders in the headwinds. ♪

alix: i'm alix steel. "what'd you miss?" not just oil and copper. check out steel, global steel with ain hot and cold

monthly chart and prices now at 2009 levels. has started, but it just has so much more to go. joining us now is the bank of america metal lid -- merrill lynch metals analyst. at what point do we see this rolling over? >> you are starting to see a supply response. this is the time of year with less demand, but as we start to see restocking and construction coming back globally, we think the prices are starting to recover. stability,, utilization rates have been at 64%, which is terrible. last year it was at 74%, 75%, but this year is just awful. we see recovery without so much discipline as it is demand

coming back and hopefully, fewer imports. interesting. normally it is supplied, but you are talking about demand. she price hikes in december. that's a good thing. hiking it because you can see the demand. doesn't that happen all the time? alix: it's been inept -- timna: it's been an absolute nosedive, but we are talking about seasonal recovery with 64% utilization in the fund. and we have these trade cases that are beginning to file, results today and in the next several months. leading us to believe that these price hikes will stick. we are not talking about 40% coming back anytime soon. maybe 10%. can you tell me why the

trade cases coming up are so significant? timna: sure. some of it may have been dumped, but the real problem is the strong dollar that you were just discussing. it's difficult for commodities, as you imagine. consuming less has been a huge change in what -- in what we've seen over the last decade. the u.s. government is now being asked to decide whether or not they will support the mills and support duties on countries exporting into the u.s.. 80% on a flat world side are under this dumping review. today we are supposed to go back to galvanize one of the products under a vehicle. be: -- alix: which could good for the u.s., obviously. taking a look at the stocks versus the commodity prices, people feeling that, they have gone and lost that over the last year. as prices go, so go the stocks.

do you expect that trend to continue in 2016? timna: if we were expecting a huge recovery, i would say yes, areks together, but we expecting the recovery of prices to maybe go flat year-over-year. the current prices maybe $370 per 10, right -- per ton, right? the average for the past year is probably something about 460 to 500. we are not expecting a massive recovery. small recoveries for once that are plot focused, they will get that bounce. but if they are more compact focused they sell to the auto industry and there will be much of a bounce because contracts rollover. they will be flat in an innovative steel will category. those companies tend to have more difficult balance sheets.

we've written a lot about that, right? so i think there will be a difference. needed price some recovery with others having other challenges. sogail: alix: -- alix: optimistic, they will be happier in 2016. thank you from -- thank you so .uch for joining us, timna coming up, john kasich joins " with all due respect." you don't want to miss it. ♪

alix: you missed the sentiment due out tomorrow. let cfp inflation -- let's see

the expectations. preferred the fed measure missing by a long

megan: i'm megan murphy. mark: with all due respect the donald trump, oy vey. on the show tonight, cruz's polls and kasich's goals. first, trump's role. since we last discussed trump versus clinton, he escalated his hits on clinton last night in walker, michigan. he had choice words for the democratic front runner that has been the talk of the political world all day. mr. trump: she is