francine: european stocks fall. the yen gains. saudi arabia cuts ties with iran. the expelled diplomats after an mcn terror on was attacked. on wasembassy in terror attacked. good morning. bloomberg surveillance. tom keene is in your. happy new year. tom: i'm going to get my bowtie straightened to begin 2016.

i thought it might he boring day. it's not, is it? china is the biggest unknown. in --.et to the stocks tom: ian bremmer is coming up with us. francine: here's vonnie. vonnie: good morning. the big crisis between saudi arabia and iran. the settings have cut the automatic relations with iran. they have ordered the iranian ambassadors to leave within 48 hours. demonstrators protesting the saudi execution of a prominent shiite. rockedhquake has northern india it had a 67 magnitude it struck a remote area. it may take a while to get through the damage.

fighting is broken up again at an airbase in northern india. the attackers a been described as terrorists. four of them have dan killed in the gunman crossed over the border from pakistan. armed antigovernment group is occupying the building on a federal wildlife refuge in oregon. it will stay in the building for my takes. they are supporting a rancher and his son who were sent to the prison for arson on federal land. president obama plans to carry out his promise to restrain gun violence. he meets with the attorney general today to discuss executive action he can take. he will hold a town hall meeting on guns on thursday. i'm vonnie quinn. tom: we are getting the year started.

let's forget the 2015. maybe let's forget about january 4. this is the mixed correlation between the markets. the euro dollar is 10934. i'm not going to oversell oil today. i know there is a lot going on with saudi arabia. screen,n to the second what a difference months ago. they are up fractionally. the dollar yen is a major story. this is our stronger yen. francine: that was on my data port as well. let's get a kick off with dollar yen. this is all about risk aversion. look at the stocks. the taxes down 3%. this is after china.

look, 3750. i don't know if that's a great call --. tom: they nailed the call in the strong yen. let's go to the bloomberg terminal and get smarter on a monday morning. at $100 a barrel two years ago. this is outrageous. remember the interviews? at 100.hat we get that at 80 and we got that at 60. we are down here at 37. i have no clue where we are 12 once without. -- months from now. there is oil. radiotalking on bloomberg a couple of days ago. what a day in humility it has

been. francine: yes. it looks like it may be brutal. about this year altogether. china has seen his first ever start to a year shares are down beijingoined by our bureau chief. when you look at the turmoil, a lot has to do with thanks good that does not explain the 7% toughn net: it's always to define the intentions of the chinese stock market investors. they tend to be a jittery punch. the big thing we are looking at is the government is set to lift a ban on major stakeholders selling their shares. they said six months ago it can major shareholders from selling shares. that was part of the effort to

arrest the stock market like good that dan will lifted at the end of the week. this is an anticipatory selloff ahead of what's expected to be another big selloff. tom: let's take a look at the chart of this chinese roulette wheel is out there. this is the recovery from september. months ago, aipac here we had a move. how much of this was expected? did you make of december essence a point to have a selloff at the getting of the year? nick: it's difficult to track what happens on the chinese stock market did the ups and downs of and so wild of the last six month. anyone who says they know where it's going is line. if you look at what the government did, they have a circuit aussie.

day when the first markets slid 7% and i stopped trading. they were anticipating these swings. right on the first day, they had the circuit breaker go into effect. we are anticipating what tomorrow will bring. we are expecting another slide. francine: thank you from beijing. bank of america. it's great to have you on the program can -- but it how much does this big drop, how does this affect the chinese markets? >> probably a lot. as an economist, we look at the data. it was not great. the probably have with china is even if there is the beginning a

-- of a success, the trade sector continues to shrink. disproportionate impact on the demand from china. as long as we get these sorts of figures, he will have a slide in chinese imports. we are talking about a 15% drop in chinese imports. 15 world trade that we have lost. if a lot of it is market baders, what it reflects is news for the world economy in general. chinane: when you look at and you look get 10%, how much will they do? revert to what the fed has done? >> i'm not saying it will trigger a world recession.

as long as the rest of the world is doing ok, we need to see for the end of the year the stiffness we're getting from beijing authorities beyond showing up the sector. it's doing that very nicely right now. , this is a sign that things are going to get her. are focusedchinese on the trade-off. we have seen that time and time again. if you are in a situation where banks are dealing with a lot of complicated assets, you can run a military policy without -- monetary policy. buteed to see some stimulus we are starting to see that. tom: that the that thunderstorm me over the time i was off was

the observation that italy is or 2002. gdp of 2000 i like the need for improvement. had to expect the major central banks to adjust through the month of january? >> i don't think we can expect that much from central banks. clearly, the fed has signaled its willingness to be predictable. they would not get back into that operation. whatwould not take back was augmented. turning to europe, after the ecb has failed to trigger a boost in theye, i don't think that would be willing to go back to the drawing board.

the best we can expect from the inflation. it will turn negative again. .e could get more tom: we are talking about inflation turning negative. we get your morning started worldwide. next hour, in grammar will join us. ♪

tom: good morning. it's a gorgeous new york area i'm still not used to thousand 16. i wasn't used to 2015. they --: how many resolutions have you broken? ? that is according to people with the matter. a deal may be announced this week. scheier is based in ireland. offerurned down a lower last summer tesla is at the low end of the target to ship 2000 vehicles per. iran says increasing oil production won't hurt the market.

they will boost reduction by one million euros a day within six months. open has increased out. all caps oil has forced down the price of crude by 35% last year. you have more on iran. iranine: saudi arabia and are facing the biggest meltdown in relations in three decades. a clash in the movie largest oil producers is sending arise the oil price. we have huge implications for the region. how does the escalation affect the rest of the middle east? >> that remains to be seen. the tension between iran and saudi arabia, they of inviting proxy wars in yemen. support, the

settings of supported opposition forces. the fault line runs from lebanon and iraq. the cleric who was executed is a member. tom: all you need to do is fly out of the dubai airport. iran.d up flying over it is amazing how those iran is to uae and beyond. what do people of iran want when they look at this new? iranians have expressed the deal. the lifting of sanctions is to happen in the next week.

it depends who you ask. there are elementary elections. those who are supportive of the deal are looking to de-escalate the tensions between the west and they are not so keen to see this happen. reactinginers are typically did the visit is very thatg language saying divine hand of revenge will strike at the saudi's the execution. word diviner the fiorina is not going to react it's going to be more an act of god. they are trying to de-escalate tensions are --. it's not his interest to have a conflict right now at this moment with the saudi's. francine: thank you so much.

at these tensions, how much of an impact will it have on oil? sign this revival of tension is going to trigger that much. disentangling this. i am still working on the assumption that we are going to live through this time. that one ofurope the very few strong engines of growth we have had lately. continues, that will force more action. the difference in this and

tension from what we had at the 70's and 80's, it does not trigger any upside pressure on oil. years,.ast 30 is: very well said. oil higher. the russian ruble is crushed this morning. that is an amazing sadistic are it -- statistic. we getting your year going on economics. stay with us. ♪

francine: welcome back. you are looking at live pictures. look at that. you expecting a quiet day. not so. european stocks are down. now it's time for the morning must listen. this is support raising interest rates. if prices are too high, the economy is in a reasonable situation where it --. we may try to use the interest rate to deal with it. not address the

overheating of the financial markets. that is the first of the year grade it's a jobs fair for phd's in the united states. even vonnie should go. it is so deadly with the academics. with ultra accommodative. he does not agree with the vice chairman of the fed. >> know he has other issues. economyo deal with the did --. being too hawkish would create a cost for him very quickly. he is more sensitive to what is taking place in the eurozone.

that is not something that's going to make him happy or pull the trigger. powers that allow situation ass any far as it's concerned. he has time and clearly was to use that time as much as possible. he will probably choose not to focus. since we don't know the timing 2016, thatrendum in makes his job harder. if we start seeing some adversity feeding into the economy, that would be a good reason to wait. francine: rates will probably eventually be lower than they have been in the past. >> that's consistent with what the fed has been saying.

they've been preparing the markets for a rate hike. we expect hikes from the fed this year. tom: futures are negative. brendan greeley is on the watch we have a conversation with cleveland. this is an important conversation. she is a centrist at your federal reserve. stay with us. ♪

tom: you could do a five screen did a check this morning, let's keep it to one. futures absolutely crushed to begin the year. doubt futures are down 271

points. dow futures are down 271 points. oil is elevated, we do not want to lay it up too much. -- play it up too much. that is a remarkable week symbol of the oil market right now. vonnie: saudi arabia has given iranian diplomats 48 hours to leave the country. the saudi's cut to ties after protesters in iran attacked the saudi embassy and set it on fire. afghan police say a suicide and kabul missed his target.

the man was killed in the explosion, but there were no other casualties -- a suicide bomber in kabul missed his target. the man was killed in the explosion, but there were no other casualties. -- antigovernment group antigovernment group says they will stay in a federal wildlife reserve as long as it takes. so far, police are staying away. mississippi river and its tributaries are now receding by inches ofcaused rain over the christmas holiday. tom: international relations are so much of what we do and for 2016 we are committed to it. it starts with smart guests. is angust on egypt

blair. he joins us this morning on sectarian tensions that we see in the arab world. what did he saudi arabia and/ iranian tensions mean for the rest of the islamic world? angus: meanwhile, issues we talked about before, regional proxy wars are going on in yemen and now itnd iraq has been ratcheted up by the killing of the creature in saudi arabia last week -- of the preacher in saudi arabia, last week.

it is still a little early before anyone could show their own hand. tom: explain to our western audience the makeup of the religion of tehran and the iranian government. what is the makeup of the government that has this tension with saudi arabia and much of the middle east. angus: in terms of iran and saudi arabia and most of the rest of the gulf with the exception of bar end, saudi arabia has a shia minority in the east of the country which has been the cause of much problems. across the rest of the region, there is a mix of shia and sunni. some context for the people who don't know the region very well, if you look at the medieval

times, it would've been like the fighting between protestants and catholics. it is not dissimilar, but it is much more complex for people who want to sit back and discuss it. will this affect the fight against isis? was a frankly, there priest -- a peace conference or they tried to discuss syria and what happened and it brought together a number of groups. they tried to come to some form of agreement. thosevery likely that discussions will be taken forward in the short-term. given the major disagreement that is still growing between iran and saudi arabia, it could mean that the fight against isis and other groups in syria may be put -- it was looking to be

hopeful, but less hopeful now given what's happening. francine: how big of a mishap is this saudi arabia -- or saudi for saudi arabia? angus: i don't think this is right to call it a mishap. it might be that it was a deliberate step two register up relations, knowing the consequences of what would happen, both of the domestic shia minority and with ratcheting up tension with to run. look at thelair, i charts that we can show on this, but distinction between saudi arabia and iran -- the memory of this chart. this is normalized oil production of saudi arabia and life -- in white and iran in green.

you can see saudi arabia building supply and crushing the price, why a wrong falls off a cliff and comes back, with that graphical tension, angus blair, what do you expect to be the response of the obama administration and secretary john kerry? john kerry has already been on the phone with regional with to wrong,so trying to see if there is a way to diffuse tension. it is a little of it too early for this to happen because both are working on their next steps and what they should be. we heard already on the way out looked ready. frankly, they may look for some -- to come and find

ways to work, but the problem is -- francine: thank you so much. charles anger is with us and our guest toes for the hour, welcome to the program. -- guest host for the hour, welcome to the program. is a going to be a more muddled -- is this going to be a more muddled middle east? charles: that has set back the process because russia and turkey were major players and now we have this proxy war that has been going on between saudi and they haven kicked up the heat of it -- a

bit. i think this will be a setback to the peace process to any sort of attempt to get parties around a table to sort out what is happening in syria. what is interesting is what's going on with the oil price and also seeing a quick uptake there . , at we've always had sectarian element to what's happening in the middle east and what we have seen is countries are falling along sectarian lines, affleck -- ethnic lines and here is the fault line, the shia/sunni divide that will pull in other countries as they fall in a long religious and sectarian lines. tom: from your studies, what is the news international relations? are we just moving deck chairs on the titanic?

is there something new about this tension? charles: there is nothing new under the sun, everything that we see follows some sort of paradigm that we know about already. ofstudies at the university pennsylvania were many years ago and at one of the peaks in the cold war. all of the geopolitical activity that we've seen up until the collapse of the soviet union could one way or another, be reasonably act into a cold war narrative with very few exceptions around the periphery. of the new, although it has been a couple of decades now is that new,old war -- the new although it has been a couple of decades now is that the call -- everything is coming at us from places that we never thought about before, there is a velocity of events and a

multiplicity of what is happening. tom: let's come back, charles hecker will continue with us. ourbremmer ever never -- in next outward as we focus on international relations. onl weinberg will be around china and asia as well. -265 -- doubt futures -265 ♪

vonnie: a lot of these equities are actually being hammered. it is not looking pretty, this is after the chinese cfi 300 was halted. it is risk aversion.

now for today's morning movers and it is a nice, red ferrari. we are joined from milan. look at the red behind you, you have been speaking to the main players. this means that fiat can focus on the mass markets. that what theyay managed to do with fiat and ferrari, he managed to attract value. in 2000, hearation won't -- tonight, -- today, that value is almost 90 million euros. their shares have more than doubled in a year or little bit

more than a year, this is an achievement for the family. what is going to happen now, you now have essentially does go separate countries, ferrari can focus on building a lerach sure re--- a lecture xury brand. he confirmed his targets and boost sales to 7 million cars. to execute the plan, then fiat chrysler will be stronger for an eventual m&a. from doing ack deal very soon and says now they have to concentrate to exit plan. francine: he did speak to them while ago, the ceo of chrysler, let's have a listen. >> there is a limit to the

usefulness of the application of the plan in areas that do not reflect a specifically. -- reflect the specificity. value.se, it loses its thecine: talk to me about pitfalls of ferrari being a luxury sector, it is not a handbag, how will it be valued in the next couple of months? to the need to come out with more vehicles or put out more merchandise -- do they need to come up with more vehicles or put out more merchandise? >> the deal is to let them be valued as a luxury carmaker. he said today that they want to develop a brand outside the car, but this is not easy. thecity cannot just stick

ferrari brand on a toaster -- they said that you cannot just stick the ferrari brand on a toaster. this does not necessarily mean that it's going to be ferrari t-shirts. francine: he is the most colorful ceo we have in europe, by far. coming up, carl weinberg joins us. we will talk about japan and the higher yen as we see risk aversion. this is bloomberg surveillance. ♪

tom: if you are just joining us, markets decidedly on the move, -267.s -30, dow futures let's get to the bloomberg monday business flash. evere: it is the worst start to the year for china's stock market, trading hal after .he cfi 300 fell 7%

investors are against selling after chinese manufacturing fell for the straight month -- for the fifth straight month. were mostly higher in asia and beat most expectations. no surprise for the third week in the world, the winner any box office is star wars, the a force -- the winner in the box office is star wars, the force awakens. $20 million behind the box office champ, avatar. tom: we get everybody together for christmas and it was amazing how everybody agreed it was a great movie, i cannot remember the last time that happened.

francine: i will go see star wars by friday. it is like mission impossible. star wars, a little bit about what life -- what did -- if you are the jedi, janet draghi, youario have a bumpy 2016 going because there is so much unknown, inflation, new politics, we are still looking at the possibility of a recession. to be on thehas dashboard, but i think from a policy point of view, the last thing is to load when the bear's

exit running at you. complacency or waiting is probably going to be quite misleading. i think they -- there are ammunitions. they have been telling us since the beginning of 2015, the crews at anything to the tree program, listed as, they could also increase the pay, they could change the assets that they buy, there is a lot they can do and they are sometimes -- they have been doing a lot the last six to seven years. larry summers has been on he has written three or four exceptionally intelligent efforts. the latest one is on how economists underestimate

confidence in their models. what is the confidence within the european system right now? the people of europe, are they confident moving forward or not? gilles: one of the reasons why we endure it is because we cannot really quick to fight it and when you try to with new indices, it does not normally work. confidence atf -- the moment really high, not really. the refugee crisis is not helping. the is a sense that even on some of the reforms that we implemented, princeton, the banking union backtracking from some of the states in particular, germany with all the talks, this is clearly creating this very negative atmosphere around europe. francine: given this negative atmosphere and we see it today

with risk aversion, charles, what is your biggest concern given the real crisis we are facing right now? --rles: we have a longer long list of potential risks we are seeing for 2016. talking about the eurozone, one of the top right is the amount of assure the european union has come under right now -- is the amount of pressure the european union has come under right now. one of the main pressure points we see is showing in -- is schengen. risk thatwhat is the we come dangerously close to it unraveling? charles: the danger is you come close to it unraveling, temporary suspensions and what that does is it increases uncertainty and points toward instability.

this is about supply chains and the flow of goods and trucks and cargo crossing borders and the european union is built on that moving smoothly. tom: what do you expect out of the fed january meeting? it could be some stock making from the fed. if you announce back to that movements, you have to keep the market happy and the best way to do it in this market -- in this market environment is to be a little bit dull. tom: thank you so much for getting our 2016 started. us,les hecker also with giving us perspective on saudi arabia and iran.

in our next hour, ian bremmer joins us. he is out with his annual risks of the year. dr. bremmer were joins it -- will join us and we will try to speak about the genuine sectarian tensions with the middle east world. carl weinberg will join us as japans we look on the yen. what a great way to get your year started. they join us next, futures, -30 and markets on the move. we do extensive data check at the top of the hour. you are listening to bloomberg surveillance. ♪

♪ ♪ china economic and data

disappointing we begin 2016 with american futures down sharply. saudi arabia and iran severed diplomatic ties. mer on your international relations for the new year and interdependency of asia and a japanarl weinberg on going nowhere. good morning, everyone, this is ."loomberg surveillance forget about a boring beginning to the year. these stocks are getting hammered and when you look at the psyche of investors, they were hoping for a quieter ride and you look at how much debt one of the big economies face and it's a $7 trillion in debt refinancing for 2016 so it will be a bumpy day. tom: we will get to an extensive data check. in a moment. right now first word news. areie: iranian diplomats

being told to leave saudi arabia within 48 hours. they severed relations after demonstrators set the saudi embassy on fire. the concert was attacked and they were protesting the execution of a prominent shiite cleric. diplomaticusly cut ties with peers in 1988. a new islamic state video shows the executions of five bri tons. the video is not yet authenticated. there are strike photos mary's targeting the islamic state. government troops are removing the last militant fighters from ramadi. a man was killed in explosion but there were no other casualties in afghanistan. conroy to attack a co

near the couple airport president obama will reduce some violence by meeting with attorney general loretta alleged to discuss executive action he could take. he will hold a nationally televised town hall thursday to discuss the issue. new picture show the wreckage of wentunken cargo ship that down during a hurricane near the bahamas in october killing 33 crew members. threetten -- it's nearly miles down in their thinking of a second attempt. day,l news 24 hours a we've got to look at this and there is some real nuance. futures and equities are taking a hammer and china is somewhat an effect that you have to wonder what is going on. there is a genuine move in futures.

dollar-yen $1.19. the strong yen call was mailed. upnt crude is elevated, $.72. you wonder if it should have been more. francine: very similar to your data check, in london ubs said that all with brent at $30 per barrel. they say that helps rebalance global markets. european stocks are down 2.2%. let's take a quick terminal shot. brent crude is back and francine is looking at european oil.

you can begin to take positions here to down we go to $38 per barrel. i don't have a clue. vonnie: there is the bigger picture and the immediacy of the saudi arabia intentions. tom: there it is, let's get you started. we will do international relations and folded into economics. carl weinberg will join us later in the hour. , thereign affairs magazine other must read is from eurasia group. this -- it's copyright protected the report these are the top risks of 2016. we will get to that in detail later in the hour. right now, we need to speak to about the new sectarian war in the middle east.

my reading is this is everyone in the middle east against iran, isn't that juvenile? to we putort is like this out. tom: i was going to make money on this. i was going to e-mail this out secretly. >> it's not everybody against iran. the issue is that iranians are gaining incredible momentum. we were talking about this the biggo when i said loser from the iran deal was not the republicans in the u.s. or benjamin netanyahu, it was saudi arabia could because the iranians are fighting their everywhere there is a fight and the iranians will have another 1.5 million barrels per day on the market this year. the saudi's will take it on the chin. the problem is not that iran is resurgent, the problem is saudi arabia is increasingly isolated. they are feeling most aggrieved

and most unsettled and destabilized and they are escalating the most. over the weekend, were you surprised by the executions in riyandh? >> i was not surprised once the executions hit that we saw the vigorous escalation on both sides. the saudi's new it they were doing. the reason you have to worry is precisely because the iranian foreign minister and government had warned the saudi's in very uncertain terms. certain terms that if they went ahead with the clericon of thisshia who was well-known and supported by the iranian government that there would be hell to pay. that is precisely where we are today. is a set -- is it a setback for the islamist state? over the coming years, i increasingly do not that legitimizes

the saudi kingdom and what it is that keeps the kingdom together. it's clearly not going to be cash which is what they relied on for decades, low oil prices and the spiraling population. they have reserves they have to spend very quickly. that is one side of the problem in the second side is if saudi arabia and iran have broken diplomatic relations and have the potential of direct conflict between the two, you cannot resolve any other issue in the region. will intensify. this not only has a knock on effect in instability across the middle east but also expands the refugee crisis which flows back to you in europe. were these executions

and this cleric execution necessary to satisfy the conservative sunni base? think it was necessary. in the same way when the chinese to anticorruption, they went after a bunch of american firms to show their nationalist credibility. the saudi's did the same thing. they executed for seven people. they are now in the lead of executions and 46 of them were s seem to be connected to al qaeda and isis and other terrorist activities. the united states and i complain about that or complain about when they rounded these guys up a few months ago. clearly, there was overreach and many of them are probably not guilty. iran, if they are going to hit these sunnis they don't want to say this is an internal issue.

they want to focus on someone else. trying toeir way of say we have both sides and complaint arrow nationalist card. there might be an intermediate? that the saudi's will not have a constellation of sunni-arab regimes lining up behind them. rain and maybe some of the uae but they are basically isolated including from the united states. this could not come at a worse time. has been goodlvin on the modern middle east that we don't know. am i correct that iran, tehran, persia has the only developed reale-class, developed a economy in the middle east? >> egypt would fall under that caddick gori and turkey too.

in this part of the world come in the oral producing part of, the only ones that have successfully diversified are the iranians and the emirates. is a real economy and there is no question and the next 5-10 years, the was relations with iran will be better than that of saudi arabia. tom: bring up the oil chart. this is the normalized oil chart for saudi arabia and opec. we are out one standard deviation. this is the total opec supply showing the upset applecart of oil economics around this issue can francine: it rings me back bighat we heard from the oil group in europe. the fact that the saudi's to increase production is because they want to try to make sure iran does not become powerful

when the sanctions are lifted. iran, willitics in this incident spiral into some kind of fight between the hardliners in iran on the more moderate factions? there isis no question a not so bad cop, very bad cop dynamic playing out between the iranian president and they iranian supreme leader. sides tod for both have an enemy and saudi arabia. the theo kratz in general are concerned that after the iranian deal with all of the money coming in on the opening of their economy that there is a potential risk for them. the saudi's and the iranians have reasons to play nationalism which creates greater possibility for things escalating in the saudi's are in greater concern and have greater insecurity. this week, the eurasia group looks of the top risks of

2016 and we will speak about the interesting alliance between germany and the united states as well. stay with us, it is "bloomberg surveillance." ♪

francine: welcome back. vonnie: the sun is out and we have met cement for about 10 days but stocks are down .5%. a ninth death is being blamed on takata airbags.

another blockbuster drug dealers in the works. char of ireland will buy bacsal be worth 30 2 billion dollars. iran says its planned increase in oil production will not hurt the market. iran can export one million more barrels of oil per day. cuts brentoil glut crude by 35% last year. president obama is checking his list twice. has to doto do list with this quotation -- he says this is a typical lame-duck final year.

he has a meeting with the attorney general today. whether obama can deliver will be very tough. he's got a congress that has its own agenda led by paul ryan. up to a hugeng challenge with iran and saudi arabia we will see how that develops. what we need to see his action. speak onry today to gun control in what he can do to lift restrictions on background checks and bringing more people into the net of what we can and cannot see but it will be tough. in my was thunderstruck recent days in europe about the many questions from people about donald trump. i look at him and you're too barryto remember this but goldwater in 1964, the thislican party next year, year going to do a barry

goldwater? came back from 10 days in europe as well as that was the only thing on everybody's lips. that is the only thing i got asked about is how realistic it was that we see a dump truck presidency. we are getting to the crux of the matter. are these polls were votes? say people do what they with donald trump are they just responding to the things he is saying? always been a big believer that what he is talking about and what he is doing israel that has not been addressed for almost a decade now. if the establishment cannot coalesce behind the candidate, we say possibility of him gaining traction. it will be all about iowa. tom: thank you so much.

focus on the u.s. domestic politics. how unsettling will the presidential race before markets this year? >> very little. you see that u.s. elections are a red herring. we will talk about it a lot and wring our hands. tom: you give it an asterisk. singlennot think of a ceo around the world who will his or her position on the united states investment plan on the basis of what the outcome of the presidential election will be. is it assumed the democrats will provide a candidate that will trounce the emotion the republican candidates show? >> it is presumed that anyone you elect is going to get into office and not do very much given where congresses. action in thethe u.s. legislative chamber is really at the state and

municipal level and not in washington anymore. it is also presume that as excited as people are about donald trump that he doesn't get the nomination. mr. give us an update on corbin in the united kingdom. francine: we will have a great ease we will bring to our viewers. the greatook at unknown, you talked about donald trump and this is the main worry for europe. chance. always a 20% people put these together and it makes for an -- a very uncertain world this year. markets,ing it to the markets are down 30. tomorrow, we continue to look at the risk in her international relations from the eurasia group. the russian ruble is weaker this

morning which is a important indicator of oil going nowhere. stay with us," bloomberg surveillance co ♪ co ♪ ." ♪

it's our route across the board as the european stocks are getting hammered. classic risk of version. -- of version.

aversion. it's time for the morning must-read. tom: the yen has new strength this morning. our editor cheap begins area with a smart essay on the view r forward. it has always been 18%-20 3%. all of a sudden it's more, can we gain a new momentum lowrise candidates? >> i think this is primarily a

europe and. it is becoming more of an american problem. the phenomenon speaks to that. now whenad six months he has been leading the polls. it's a two-year circus, this american presidential campaign, up to $10 billion being spent. donald trump can do that. you know there are moments within our history that frame where mr. trump is versus these other fringe candidates. peewee lewis and huey long -- she we lewis and huey long were part of this. they were probably closer to the huey lewis crowd. tom: they were so dam good. i meant huey long. that's my first scrub for the

beginning of the year. why do i think donald trump is happening? i believe the hollowing out middle class is playing a significant role but that is in europe.e it is just starting in the united states. that piece about which i think is on point, the 20%, i am concerned about a likelihood greater than that. i am more concerned about where the french election is going. bremmer on huey lewis and huey long. ♪

francine: welcome back, these are live pictures from hong kong and it's the worst ever start to

the year for chinese shares triggering a trading halt. let's get to the first word news. bahrain has followed saudi arabia, cutting diplomatic relations with iran. they recalled their envoys. the move comes after iranian demonstrators set the saudi embassy on fire and damaged the consulate protesting the execution of a prominent shiite cleric. relations have never been close and a previously cut diplomatic ties for three years in 1988. at least eight people are dead after an earthquake at a remote region in northeast india today. more than 100 were hurt. it was a magnitude of 6.7. months of cleaning up our ahead and towns damaged by flooding in missouri and illinois. the mississippi river is receiving.

water levels rose and 25 people were killed. police art taking a wait-and-see approach to an armed antigovernment group after the group took over an unoccupied building in oregon and are protesting prison sense to his given to a pair of ranchers. dayave news 24 hours per powered by our 150 journalists. tom: this is important, their asia group annual wonderful and readable always thought-provoking treatise on the risk of 2016. us.bremmer joins weaned on a relationship coming out of 1947 and 1952 that has always been there. you say the transatlantic allies is at risk. >> i think we have never seen

the relationship between the united states and europe, the most important and foundational alliance for the economic system, so week since the end of world war ii. the united states is unilateral in the way we think about our interests in the way we project them. the europeans are going their own way not as europe but individually. you look at the relationship between great britain and china established on the basis of economics. or germany and turkey because the germans are concerned they have to do something to respond to the lack of refugee support, reaching out to them politically or the french and the russians reaching out because the russians are doing more than anyone else militarily in syria. that's what they are most concerned about given their own muslim population. this is not a relationship that we have seen. to maintainl stability for global markets but also for the hot spots we are looking at.

you have a 2016 presidential election which is increasingly about foreign policy because everyone knows is going badly, this relationship is not being discussed precisely because it's not really there. europe has so many problems internally on its own pimp >> there is no question britain today in you see one country in the world writing big checks and it's not -- liketates after world war ii, today is china. the british will tell you we want a piece of that. they have big infrastructure needs so thereafter as the chinese for support. if you look at the middle east, it's not the americans and europeans playing the big economic role. the chinese need the energy increasingly in the chinese are writing the checks. is not being driven by the americans and the europeans

and not being driven by them together and that creates conflict. tom: i want to notice that about severingago, bahrain ties with iran. they are from two different factions. on this, what's the chance of an accident that leads to brexit? >> i think that's a larger likelihood the most consider. ons in part because you have the left in great britain, a labour party that is basically taking itself out of relevance which means the backbenchers in the conservative party are more likely to express the european skeptic views since i don't have to be loyal to david cameron. you really need support from angela merkel. been able tohave

count on for the last eight years since the financial crisis, it's been a strong angela merkel as the leader of germany but europe as well. tom: is she now? >> she was person of the year last year. even in the fourth quarter, she was already eroding and this year, she is not as credible. distracted byis not only domestic problem's but by shanghai tensions. you hear of them imposing these official border checks and the foundation of europe is at risk >>. that's right and she has taken an incredible position in the notion that we will accept as many refugees as you can handle. is one thing that saudi arabia versus iran tells you, it's that you will see more refugees coming to europe irrespective of what angela merkel wants to work out with the turks.

that will undermine her and the british need germany to be strong and focused. tom: you have a killer chart in your report on the populism of europe. is that polarity growing this year or will it temper? >> it will grow. it's the highest of the national front ever received but they did not pick up a single regional seat. tom: is it real? because theyl cannot win but they can affect the politics in all of these countries. they are an enormous distraction and can polarize what were center parties. the tea party stopped. if you are center-right running for the brett -- french presidency of 2017, you better take those votes. mmer is with us

and his team will be with us through the week. next, carl weinberg, high frequency economics. s.e yen goes anti- abenomic ♪

tom: good morning, a new low for the markets. s&p futures are negative as well as dow futures. onre is a flight to quality the 10 year yield and oil is not moving that much. let's get or business flash. it's the worst start of the year ever chinese stocks. the benchmark index fell 7%. that tests the new chinese

circuit breakers. ina showed a market drop manufacturing. shares are now trading in milan. sergio markey on he has tried to invest this convince investors that are already is a goodbye. tesla has hit the low end of his target to ship 50,000 vehicles. the company sold more than 17000 and the -- first -- fourth quarter. very good, it's time for the single best chart. carl weinberg joins us as well as ian bremmer. yen - remembyi cross pair. it shows the asian attention and there is a 20 year trading range

of china by the currency proxying is broken down. we have a much stronger chinese yuan and weaker yen with a little bit of reversal in the last couple of days. carl weinberg, tell me about asia and abenomics and the tensions ahead. i when i think about asia, think more about china and less about japan. the japanese problems are chronic. the setting sun. when i look at china, china is the growing center of power. in the world. abroad.t $1.25 trillion china is what i think of and i don't worry about japan much anymore. we learned that we guess wrong on our intelligence on the soviet union. do you have good economic and political intelligence on the people's republic of china? >> we all do the best weekend.

do i have reason to think china will go the way of japan? i think not. i think china is on a strong road path of modernization and has decades to go behalf -- before we have to worry about the maturity problems. it has a different demographic. it's having his population problem now. it's not a problem for it at this stage. china for allish on few decades more. tom: do you want to jump in? >> i am absolutely bullish on china in the sense that they have greater ability to stimulate their economy and maintain political stability more than any other country in the world. the problem is that the steps that are taken to do that in the reaction to the chinese a stock market crash in 2015 frequently overshoot. if the world is going to see

fewer recessions going forward because the soon-to-be largest economy in the world a state to control, that when recessions happen, they will be larger. i thinks that's the cycle we should be thinking about. especially this morning, we want to take a deep breath and remember that the chinese stock market is decoupled from the real economy. the big crash this morning does not tell us anything out about the economy. it just tells as people are nervous. >> it tells about the political system. they don't want to have an open market. tom: do they understand we never take a deep breath on "bloomberg surveillance?" vonnie: we will send another memo to francine: there is a case that the pboc could do with the fed it did. couple ofstill a

percentage points away to that and we will cross that bridge when the get there. on pboc has been running foreign policy for the last decade. they raised the reserve requirement and that's unconventional which takes us back to the 1930's. as the money is flowing out again and they are investing more broadly, they are using unconventional policy, gradually lowering the banks required reserve ratio. you cannot really compare what with what the fed or the bank of england are doing. their policy is unique to the chinese unique situation. i think they are doing a good job managing it. if you look at the balance sheet it's dropping like a stone because the foreign exchange reserves are going down and money is flowing out of of a trillion dollars per quarter. it's a massive domestic monetary policy challenge for the pboc.

francine: and you say you are bullish for china. how concerned are you? >> my concern is not that there are bad loans and it will be hard for the chinese government to fill that gap. as they see various pieces of the financial architecture take bumps because of the reform and transformation process, the government is the key actor of the chinese economy and they will overreact as they get to the marketplace. asna should not be viewed any other economy in the world. they are dominated by the state. therefore you have to think about what drives in terms of political stabilization. the numbers they say they want to hit, what do they need to do to ensure that? >> i will put on my economics professor had. four majorstates had financial failures.

there was one caused by us of the world three caused by property booms. the country still managed to modernize it as an economist, i i back to modernization and don't really care. we will have a bump -- from the financial sector along the way but it will not start modernization. 0 tom: i love your modernization -- optimization. you have been good at balancing. should i be a euro optimist this year? >> lift your eyes from the pmi and look at the real economic data and look at the economies. untestede criteria. the real hard economic data shows economic production and data in europe is flat.

it was a years ago when the economic crisis began. i don't really see things in europe as being appreciably better than what anybody is talking about. tom: i carl weinberg is with us as well asan bremmer. there is an interview coming up with the federal reserve president of cleveland, an important interview with this century it's -- with this centrist on the fomc. ♪

surveillance," when need to inform you on an date has the markets move itour fourex report is simple, the yen is stronger. lots of nuances there and we have been talking to carl weinberg about that. the german two-year gets my attention. goal but does not pop as much you would think. not pop as much as you would think.

the wanting we have not talked about is where russia stands. i just read about how we deal with vladimir putin. how do we deal with vladimir putin? >> the news he is made and the last 20 proud of that he considers america to be a principal national security threat for russia. tom: do you buy that idea? >> of course i don't. at the end of the day, we are part of the problem? we don't have a cold war because you need to parties willing to fight it. the americans are not willing to give vladimir putin that stage. he wants to be in syria. he embarrassed the americans and he wants to cut the cost politically and economically. my observation is that the

florida panthers play hockey better than vladimir putin. on the economics of vladimir putin, is he oblivious to a russian recession in a frontier economy? >> historically, wars are a great way to get out of a recession or depression but russia has a problem that many people are glossing over which is the foreign-exchange reserves are threatened by the client oil prices. tom: you think the reserves and russia are a big of deal for vladimir putin? he still has $500 billion worth of foreign debt he has to pay off. as the reserves go down, his capacity to repay becomes impaired. if russia defaults either by accident or a specific overt , we will have to pay attention. happens, if the reserves go down, it may become inevitable. >> vladimir putin is a

longer-term issue. he wants to split the americans and the europeans and get sanctions off the table and stabilize ukraine. from the french president trying to bring in vladimir putin and saying it's only with him that we can find a solution for the middle east that in a world that needs more cooperation and 2016, is vladimir putin going to be a good guy or a bad guy? >> at the end of the day, he is on the side of vladimir putin. the news in the past 24 hours have made it clear that he is in a polarized place to be so he has to pick sides. the side he has picked up at him squarely in the middle east but most people want to run away from it. the fact that he is one of your principal players and is fairly unfettered with a lousy economy at home but he can do it he wants.

if he wants to bring up the military, he's capable of doing that. in 2016, some of the most important leaders in the region are pretty unfettered and what they can do like the turkish president or vladimir putin or the deputy prime minister to the saudi throne. we need to watch those leaders in 2016 because they are the ones -- while the americans and europeans are being cautious and urgent diplomacy and restraint, they are the ones that will move the needle and can make the news this year. francine: what is your biggest concern given what we are talking about? the falling world commodity prices is a disaster waiting to happen. it sets of use losses of incomes in countries that reduces this stuff and destabilizes government finances around the world.

economically, we have seen a 14.5% in world exports so far in the last year and that will continue to get worse. that is now reverberating back in the commodity producers to the developed countries that import stuff from them. we can now sell less stuff to the developing world. it's shaping up to be a year that's prone to risk from declining commodity prices. politics are important and the new developments in the middle east are upsetting. that's where i see the trouble. is this going to be a first quarter were central banks learn to delay? >> we are already over the edge. mariota druggie is committed to quantitative easing which is not much longer. other central bankers around the world are primas done with monetary policy. messaget's the single in the eurasia risk? >> it's global. it's the absence of coordination

and the most important alliance in the world plays badly into every scenario. 2016, geopolitics will be more headlines than we have ever seen. we will continue on bloomberg radio and "surveillance." all week, we will look to the eurasia group analysis of the international relations. we are looking forward to remmer's team.n b you need to stay with us and we will do an enhanced the data check. ♪

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iran after an attack on the saudi embassy and we will see what this means for the price of oil. life in the fastlink a new team that will have to do without fat profits from ferrari who just went public in europe. you thought you were going to ease into it he 16. we are here to help you, a "bloomberg ." the markets are all over the place. colleaguehave a joining us from london. >> what