francine: the prime minister of japan travels to new york today to become the first foreign leader to meet the president-elect. the businessman versus the president. donald trump navigates more potential conflicts of interest than any other president in u.s. history. and the boj takes on the bond markets. intoentral-bank steps halt the surgeon yields for the first time since kuroda announced his plan to up the curve. this is "bloomberg surveillance ." we have a packed show today. the japanese prime minister

becomes the first world leader to meet u.s. president-elect donald trump since his election win. back in japan the boj fires a warning shot at the bond market, announcing its first offer to buy an unlimited amount of securities to maintain its yield curve target. we also look to a rate decision from a country whose currency has been battered by trump's election. will mexico hike rates? anddoes president obama germany's angela merkel meet for farewell talks, what will trump's policy mean for europe? plus, trump versus trump. how donald trump's business interest could see the president-elect face more conflicts of interest than any other administration in u.s. history. first let's get the bloomberg first word news. here's nejra cehic. nejra: a key member of donald says the incoming

administration is exploring ways to fund fixing roads and bridges , including an option proposed by hillary clinton. steve talked to the so-called infrastructure bank, something trump's team had slated as being controlled by washington and funded by a tax increase on business. >> regulatory changes, looking at the creation of an infrastructure bank, there's a lot of things to do. the economic priorities are clear. president obama and german chancellor angela merkel have pushed back against donald a jointagenda, making call for free trade and a socially responsible economy. writing in the german weekly, the two leaders say, we are stronger when we work together. we are standing at the crossroads. the future is already here. saudi billionaire prince our

lead has told bloomberg that all his stakes in public companies are potentially for sale. that reverses his long-standing policy that some holdings are forever. his investment firm has owned periodares since 1991, a that includes its plunge the ring the financial crisis, and a 436% rise since then. it also owns about 5% of twitter. >> everything is on the table. everything is on the table. everything is on the table. yft,re invested in l twitter, four seasons. requiresf our interest to divest from any country, we will do it. nejra: global news 24 hours a day powered by more than 2600 journalists and analysts in more

than 120 countries. i'm nejra cehic. francine: thank you so much. let's head straight to the terminal for your asset check with mark barton. mark: this is my favorite chart of the day. hold 10-yearand to treasuries over similar yielding , rising to the highest since 1989. we've seen a selloff in both but u.s.german bunds, bonds have sold off more in anticipation of infrastructure spending. german yields have risen about 10 basis points since trump's victory. chair yellen speaks to congress today. her first big appearance since trump's election victory last week. she will be quizzed about infrastructure spending. she will be quizzed about her future as well. looking forward to that. wereoday said no bids

placed at its first operations when it offered to buy bonds at a fixed rate, the boj announcing today it would carry out two operations, one to buy securities, another for debt of three to five years. the fact that they announced it still had the effect of bringing down the yield on the 10-year, the white line, the five-year, the blue line, and the two-year, which is the purple line. the euro's losing run has come to an end. it is rising against the dollar. the losing stretch was the longest since may 2012. the euro fell 4%. the median forecast for end of year is 1.05. saxo is forecasting parity. rsi is 31. it is time to buy the euro according to technical analysts.

they said earlier it is time to sell copper because it fell through 70. it is back above that level now. trump'sained 4.4% since victory and reached its highest level in 16 months. like iron ore, copper did give a sell signal earlier, falling through that 70 overbought fine, but it has bounced back above that. francine: thank you. the japanese prime minister becomes the first world leader to meet the president-elect, donald trump. the boj announces its first offer to buy an unlimited amount of securities in the wake of a global selloff. japan's topix closed on the brink of a bull market. stocks in europe are broadly flat. let's get more analysis from jim hurley. i'm going to call in the crisis editor. also, marcus ashworth.

marcus spent three decades in the banking industry. thank you both. i'm so delighted to kick off this thursday morning markets conversation. ,arcus, there's an expectation but inflation is back. the dollar will be strong because donald trump will deliver on infrastructure spending. how much do we know that is true? marcus: we don't. i'm sure you janet yellen will bat that one away. he's kicking some tires. ans looking at potentially infrastructure bank. it is an interesting idea. i think they will look at doing things like that. the bond market have had the move and they are calming back down again. it is not a straight line. francine: was it a trend that

started before trump and accelerated? this is only on the trump infrastructure plan, then it can back away quickly. marcus: it was clearly poised, and trump was a catalyst, but if you look at all the big money market firms, everyone expected this. everyone was waiting for the election results. trump, bang, off it went. francine: just doesn't feel like a crisis at all, and yet when you look at the bond market reaction, jim, we are craving detail. that will come when we have a new treasury secretary. jim: it is a crisis for a lot of people. it is not a market crisis. but in that way. -- put it that way. but in terms of detail, we are not having a lot of clarity on who the personnel is going to be, let alone the policy. you've got republicans on

capitol hill who are going to policies that they rubbished obama about, like infrastructure spending. they've been all about austerity and keeping the lid on debt. francine: you've covered politics for decades. you've covered foreign policy, european politics, but there's a link. we see the primaries in front, the possible resurgence of marine le pen close to becoming president. are the markets focusing so much on domestic policy, reflationary policy in the states, that they are discounting what happens in foreign policy? jim: the markets reflect conventional wisdom. we know conventional wisdom has been wrong at every turn in the past year. that is my take away. francine: marcus, the markets will give donald trump as much time as he needs to come up with

a treasury secretary, but are you expecting a lot of volatility from now until his inauguration? marcus: if he makes a misstep here, i think they will be brutal. we've had a big rally off the back of essentially -- everyone waited, everyone expected clinton. we got trump. he was very clever in saying he would spend, aiming for 4% gdp, which is a huge lift, but if he says something positive about trade, then we may have a more sustained rally. but if we see signs of infighting, i don't think the market is going to be that trusting. francine: he's promised, and this was his campaign, he was promising $1 trillion in spending in infrastructure. even 10% of that is not bad. marcus: i do think there is a

lot of expectation built into this and we will have -- we've got a nice, easy rally. probably he's staying positive entree. everyone's keeping a very close eye. francine: thank you so much. marcus ashworth and jim hertling. stay with "surveillance." plenty coming up. what will the economic policies of the incoming u.s. administration look like? and as president barack obama and angela merkel meet for farewell talks, what will trump's foreign policy mean for europe? plus, trump versus trump. we will analyze how donald trump's business interest could see the president-elect face more conflicts of interest than any administration in u.s. history. this is bloomberg. ♪

francine: "bloomberg surveillance this is "bloomberg surveillance "bloomberg surveillance --this is "bloomberg surveillance." let's get the bloomberg business flash with nejra cehic. nejra: volkswagen has lost market share in europe. the german company accounts for 24.9% of the region's car sales in october, compared with 25.3% a year earlier. zurich insurance says it will cut cost from 2015 through 2019. the new plan replaces a previous goal to save $1 billion by the end of 2018. the company will target a dividend payout ratio of 75% of net income after tax. third-quarter earnings slightly below analyst estimates, underlying operating income

rose. the figures of the dutch grocers first consolidated earnings since completing a merger with its belgian rival in july. that is the bloomberg business flash. francine: thank you so much, nejra cehic. what exactly will the economic policies of the incoming administration look like? markets intend to decipher what trumponomics really means. a key member of trump's team has said the incoming administration is considering an infrastructure bank, a concept suggested by hillary clinton. fit great odds for december are at 94%. let's introduce our guests. the studzinski with us for hour. ashworthing and marcus also still with us. john, just to say you are from blackstone says about 1% of what you actually do. you are a philanthropist.

you meet world leaders. you know donald trump. what have you learned over the last eight days since he has become president-elect? john: thank you for having me. first of all i don't know donald trump. i think i know a lot about the cult around him. i do know enough about him, having seen him in the business community in new york for 30 much --hat he is very he bases a lot of his business oneationships on one to relationships. what we're seeing now with respect to abe going to new york and having a one to one meeting is people wanting to understand who donald trump is, meet him personally, and i think importantly, establish long-term relationship. i do think we're going to have to balance the institutional

relationships of america with japan, the american government with the japanese government, american trade with japanese trade, with donald trump and abe. they are both in some respects very similar. they have very clear views. they are very decisive. obviously very different. we talked a little bit about infrastructure and donald trump's spending plan. do you think he will reflate the american economy? do you give him the benefit of the doubt? john: i think we have to give him the benefit of the doubt. he's got some very interesting people in his economic team. some people have a lot of experience. the team is not in place yet. the policies are not in place. the focus is going to be on infrastructure, fiscal stimulation, and a big focus on

trade and job creation. francine: on the back of that, jim, because you've covered european politics for such a long time, who does europe send? who should be the first politician or the person you would send to meet donald trump? jim: which european politician would i send? the one who would be most simpatico with him is nicolas sarkozy. sarkozy eight or nine years ago called obama his buddy. francine: he's not in charge yet. jim: you asked for a european politician. obviously you want to send probably merkel because he was out there on the campaign trail calling her a disaster. as trump pointed out, everything is so personal with him. and he sees that she's an impressive figure, his

impressions will evolve. you made an interesting comment, john. with the republicans in washington, they have such an ideological agenda, and you suggest donald is something of a pragmatist. how do you think that is going to play out? john: the rubber will hit the road. his very astute vice president, who i think we see now is playing a major role in the transition team, and is going to have a very important seat at the table, he's effectively going to be the conduit. he's a very ideological politician as well. dinncine: we have two bo alumni here. marcus ashworth of bloomberg gadfly, thank you. jim hertling of bloomberg news and john studzinski stays with us for the hour. trump's what will

foreign policy mean for europe? we speak to a key ally of the german chancellor, dr. michael fuchs. this is bloomberg. ♪

francine: this is "bloomberg surveillance." president barack obama, germany's angela merkel, have made a joint call for free trade and socially responsible economy. the opinion piece in a german publication ahead of obama's farewell talks in berlin is seen as pushing back on the agenda of donald trump. let's speak to a key ally of angela merkel.

i'm very pleased to welcome michael fuchs, who joins us on the phone from germany. michael, great to speak to you. what did you learn about how donald trump will govern in the last week? michael: of course it's always like this. if there is an election campaign, things are going to be said which are not really what is going to be done later. things are going to be a little different. i have a feeling that mr. trump is already pushing back a little ng down themi situation, which is good. i hope we will have a good contact with him like we did with mr. obama. keep it slowly and down. francine: do you worry about trade? this weekend, there's a big .eeting of your cdu party how much are you expecting to

discuss trump? michael: we are very much depending on international trade. almost 40% of the german jobs are depending on international trade. who is is really a party pushing for international trade. that is something which scares us a lot. in obama mentioned already his speech in essence that international trade has to be a topic for the american business and it is very important for all of us. i guess we will find solutions with mr. trump on that case. the cdu is really standing behind ttip and we want to push it forward. it is a pity that we don't have it. , because it is even more important to do with the

americans, and we should find solutions. the quicker the better. francine: michael, what are you expecting to come out of this meeting of the cdu? michael: this weekend's meeting is the board of the party sitting together and we are planning our election campaign for next year. we're considering what to do and with whom to do it and what kind of planning. we are describing the program which we want to have for the party. that is quite something. it is a difficult job. we are sitting together for almost two days. it is important that we are now coming up with a program. this is going to be proposed to the party convention, fifth and sixth of december. i think there is the key point. we will promote our program,

show what we are going to plan for the election, what we are going to offer for the people. francine: do you also expect angela merkel to say she will run again as party leader and chancellor? michael:s it is up to her. she will use the right moment to tell us what she wants to do. it could be that she's going to make an announcement on the fifth or sixth of december. as far as right now is concerned, she's running for leader of the party again. we have election of the party leaders again on the same event. francine: michael fuchs, we also spoke, or i was going through with some of our reporters in berlin, one of angela merkel's speeches that she gave to a lot of employers two days ago where she appeared to offer a brexit opening to the u.k.

toyou see her tone shifting her demands of the u.k. as we get into negotiation phases? michael: in the bundestag, she gave a speech and she was clear and said, there ain't no free lunch. there's no cherry picking. four freedoms which has to be fulfilled and you can't say, i want this and i don't want this. we had a discussion on the banking passport. banking passport is only possible if you are a full you member. the u.k. cannot have the banking passport for free. that is something which is going to be negotiated. we always said we don't want to start negotiations before article 50 is triggered by the u.k. government. we have to wait until mrs. may is coming up with a final decision. i have a feeling there's a lot of ongoing discussion at the

moment. the brits have to make up their mind. it is going to be very tough. we have to make it tough. i'm really backing it. we have to make it tough because if you don't make it tough, then each and everybody is just picking up something what he likes and the other things he doesn't want to make. no. it is either or. francine: michael fuchs, thank you so much. very clear as always. joining us on the phone from germany. we are back with john studzinski and tina fordham, chief global economist at citigroup. we need to talk foreign policy. this is something, john, that we talked a little bit about. tina, welcome to the program. will it work for markets? tina: will what work for markets? francine: the donald trump land. tina: markets are loving the

donald trump plan that we've seen so far. emerging markets less so the cause they are so much exposed. also i would say, more exposed to global trade countries are worried about this as well. for now, the patterns in trading and this expectation of fiscal stimulus in the united states for the first time in a long time, that has got markets flying. francine: tina fordham, thank you so much. bloomberg first word news. here's nejra cehic. nejra: a member of donald trump's team says the incoming administration is exploring ways to fund fixing roads and bridges, including an option proposed by hillary clinton. trump's team slated as being controlled by washington and funded a tax increase on business. >> the focus is regulatory

changes, looking at infrastructure bank, there's a lot of things to do. nejra: president obama and german chancellor angela merkel have pushed back against donald trump's agenda, making a joint call for free trade and socially responsible economy. the two leaders say, simply put, we are stronger when we work together. we standing at a crossroads. the future is already here and a return to the world before globalization won't happen. a saudi billionaire has told bloomberg that all his stakes in public companies are potentially for sale. that reverses his long-standing policy that some shareholdings are forever. his investment firm has owned city shares since 1991, a period that includes its plunge during

the financial crisis. it also owns about 5% of twitter. >> everything is on the table. everything is on the table. everything is on the table. twitter,vested in lyft four seasons, tens of companies. toour interest requires divest from any company, we will do it. nejra: global news 24 hours a day powered by more than 2600 journalists and analysts in more white house remains incomplete. scott, the pentagon, state and justice departments all report no outreach yet from trump and there are a lot of them. as the president sense the cause weakness in bound. we're going to show you a longer-term chart for british pound.

15%fall has been about since that brexit referendum. a lot of travelers have been coming to london. the number of foreigners shopping here has increased. economists'ew out expectations. let's reset to politics. japan's prime minister is set to become the first world leader to meet the new u.s. president-elect face-to-face as j.p. morgan shares fell yesterday on the talk that jamie dimon could be offered the job of treasury secretary. let's get the latest with stephanie baker. still with us for the hour, john studzinski and tina fordham. stephanie, great to have you on the program. the trump transition looks messy , but the key role is basically who he will put in place as treasury secretary. stephanie: absolutely.

what we're seeing is, trump's victory surprised many people, including himself. he doesn't have the deep bench of policy experts and people that can staff his administration. he is reaching out to people he wasn't close to doing the campaign. jamie dimon being mentioned as one of them. we're getting conflicting reports that he's been asked but he doesn't want it. j.p. morgan shares reacting nonetheless. i think he's a key appointment. he needs a heavyweight to steady the ship, given the uncertainty the markets are experiencing. francine: it seems there are two people in the running, right? we don't really have confirmation. ing about trump's transition team. stephanie: the other name in the mix was the chairman of his campaign.

i'm not sure if he's considered as a heavyweight as jamie dimon would be in terms of policy experience. those are the two names that have been most prominent in the next. we don't know. francine: tina, we've never seen this before in the u.s. tina: we haven't seen a lot of what has happened this year and there's more to come. trump's initial appointments have been to his loyalists. that is a fairly small pool. the treasury secretary is the one markets will be watching closely, much more than commerce. secretary of state is quite important when we think of geopolitical risks. reassurance with some sensible adult supervision. francine: what will he put first? the appointments so far -- tina: they've been loyalists. i would have thought someone like jamie dimon would be a real

prize if he could be had. it is perhaps a poisoned chalice to take this job. francine: john, when you look around the world, and i want to ask about the significance of shinzo abe being the first foreign leader to meet donald trump -- we know that he's a businessman. how important is it for him to meet world leaders that have a lot of credibility, to show the world and the markets that he can be more team? -- tame? i think he will meet a lot of world leaders one-on-one. i think he will try to establish personal rapport. i think he's a good listener. he wants to hear what people have to say about how he's perceived and how this whole issue of trade and some other geopolitical issues are perceived. three, he'snumber

curious about the whole interaction of these various international personalities. i think for those reasons there will be a lot of people going to the mountain, to trump tower, over the next eight weeks. ring.ne: to kiss the tina: don't forget that abe need something out of this too. what shinzo abe will be most concerned about is the u.s.-japan security relationship. he will be looking for trump to roll back -- because of the china rivalry more generally, he will want trump to soften what he's suggested him a that south korea and japan should develop nuclear weapons. francine: it is significant and we focus so much on economics, but there is a huge question over nato and security in general.

a lot of these leaders may want to come to trump towers for this reassurance, stephanie. stephanie: i think defense will be a huge issue during their meeting. having said that japan should be paying more for its own defense, that will come up. transpacific partnership, the deal which abe has pushed very hard, that will also come up. i don't think we should read too much into the fact that he is the first foreign leader to be meeting trump. look at the list of foreign leaders he's spoken with and it has been very haphazard. he hasn't followed protocol. it has been all over the map. tina: nigel farage not being on the shortlist normally. francine: but he tweets about it. john: to your point, he's not necessarily going to follow protocol. that is one of the reasons people are responding and the markets are responding positively. they see there's an element of leadership here and strength of

conviction. markets are perceiving that in a positive way, that he's going to use a certain amount of intuition and judgment. i do think abe needs to come away with something, not just some element of having a meeting , and i do think it's about the south china sea, about north korea, about that whole stability factor in the pacific. francine: thank you so much. john studzinski, we will talk more about donald trump's resolve or conviction. stephanie baker, john studzinski, and tina fordham. up next, trump versus trump. how donald trump's business interest could see the president-elect face more conflicts of interest than any other administration in u.s. history. this is bloomberg. ♪

francine: this is "bloomberg surveillance." donald trump the businessman is about to run headlong into donald trump the president. let's analyze how the president-elect will deal with potential conflicts of interest. stephanie baker has written about this for bloomberg. where might president trump's power clash with his business interest? they are interlinked. think you'vedon't ever had a president with such a sprawling business empire. it is throwing up whole new issues. there aren't any real rules that force the president to dispose of his assets or put them in a blind trust. it is purely based on recommendation. no one is going to force him necessarily to do this according to the law. he has said that he would put

his interest in a blind trust run by his children. that is not really a blind trust. given the level of involvement of his children in the transition, it has raised other questions. francine: has he said how he will handle these conflicts, or has he not said anything? stephanie: he's kind of dismissed it as, "it won't be a problem, trust me." empire, allk at his his licensing agreements, he's got licensing agreements with developers in turkey, in manila, in the philippines. he's got a deal in dubai. panama. the list is endless. if you think about how he may have to make foreign policy decisions that could impact those businesses he's got links with, it gets very messy. francine: who keeps the checks and balances? are there rules?

is it written down? is it congress? stephanie: you've seen the oversight committee in congress, the leading democrat saying that he wants the oversight committee to look at it, but of course the republicans controlled congress and the ranking republican has not said anything about this. that is the only possible him ince that could rein and force him to create a firmer wall between the presidency and his business interest run by his children. francine: great article by stephanie baker. i urge everyone to check it out. now we're back with john studzinski and tina fordham. up next, we'll get some final thoughts with our guests. also joined by tom keene. we will be talking more about the markets and yields. spreads in german 10-year and u.s. treasuries the widest since 1989.

this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london with tom keene.

let's get the bloomberg's miss flash with nejra cehic. nejra: volkswagen has lost market share in europe for the 14th straight month since september last year. the german company accounted for 24.9% of the region's car sales in november. zurich insurance said it will cut costs by $1.5 billion from 2015 through 2019. the new plan replaces a previous goal to save $1 billion by the end of 2018. the company will target a dividend payout ratio of 75% of net income after-tax. reported third-quarter earnings slightly below analyst estimates. operating income rose to 513 million euros. the figures are the first consolidated earnings since completing a merger with its belgian rival in july.

the netherlands has sold 65 million shares for 1.3 billion euros after an 18% rise in the stock price during the year since the bank was returned to the market. has said it plans to sell the rest over time. rio tinto has fired two of its top executives after a probe. energy and minerals boss alan davis and legal executive deborah valentine are leaving the miner. davis says rio has no grounds to fire him and he will take legal action. representatives for a company where valentine is the director have not replied to a request for comment. francine: thank you so much. let's get some final thoughts with john studzinski and tina fordham. also, special guest surprise

host, michael anchor, tom keene. they got you on. tom: way too early. francine: it is like 9:50. tom: it is new york. it is way too zulily. francine: this is so typically american. we talked about emerging markets, foreign policy. there's a lot of talk that the election victory may have given theresa may so much more leverage in the brexit talks. as moreat e.u. sees us valuable on things like security. she may be a key to negotiating trade deals with the u.s. tina: i think that might be a bit of wishful thinking on the part of the u.k. to my mind, theresa may has overestimated how much leverage the u.k. has in these discussions. i was at the conservative party conference. they were talking about global britain. support for free trade is plummeting around the world.

it seems to me that it is going to be difficult. nigel farage appears to have got president-elect trump to put winston churchill's bust back in the oval office, but i don't think that means the special relationship got a lot special-er. francine: you like that, tom? we are quoting history. tom: one of the things she's got to deal with is the timeline. chartnd tina, here's a which to me is the britain chart of all economics. this is nothing more than the current account deficit of britain. what i look at is the chronic nature of this chart. the yellow box is the presumption of a continued and sustained current account deficit. is that your vision, that they the current-account account and that drives forward sterling dynamics and growth dynamics? john: wow. go.cine: there you

and he said it was too early. john: it is a fabulous question. francine: i think what is so important about trump and brexit is the x axis. everybody is looking at the emotion of the moment. you couldn't even get dessert. the chronic nature of that dialogue of those two candidates was extraordinary. what is the chronic nature of this current account deficit and of what we see for prime minister may? francine: it is a currency problem that they have. john: i'm not going to go there. this is not my long suit. -- what: do you worry you are very good at is, you travel the world. do you worry about the soft power? yesterday we had a wonderful conversation about soft power. joseph saying the u.s. is losing soft power. does brexit mean the u.k. loses soft power? is that significant? become a reduced

global power. that has been on a downward trajectory. john: i think the world order is changing quickly. a series of big economic blocs to a series of very strong leaders and strong personalities. we've got president xi, prime minister abe, modi, the gentleman in the philippines, angela merkel, now president-elect trump. there's going to be a lot of strong leadership. morethink actually a lot negotiation is going to be done one-on-one. i do think personal relationships are going to become much more important. tom: within the personal relationships, is it a reaffirmation of the system or an "every nation for itself" view? "hn: i think much more of the

every nation for itself," which is why i think every leader is going to have to focus on their relationships with the key economies in the world, the united states, china, and germany. francine: that could spell disaster. this is a race to the bottom. john: let's not be overly dramatic. it is going to require us to rethink a lot of things. francine: if you have every world order, or every powerful nation looking inward, then you can't create the common good. tina: that has been the case for some time. i think what we have now, and steve waltz at harvard wrote a piece on what trump can do on foreign policy, to talk about sovereignty -- tom: where do you think i got the question from? [laughter] tina: great minds think alike. that might be a way of going forward. that would be to focus on sovereignty and interest.

these are the terms we would use in foreign policy. talk about more personalized relations, which can be alarming if institutions don't have a role. if you are unlucky enough to have a bad relationship with the so-called leader of the free world, that is bad news for your country. tom: john, you've got a great commitment to one benjamin franklin. [laughter] francine: -- tom: i love benjamin franklin and i love you. benjamin franklin and john adams showed the flag. they had to go across the ocean. how does president trump show the flag where his core constituency would just as soon stay at home? how does the u.s. project in a trump administration? john: benjamin franklin actually spent 17 years in the u.k. trying to understand what was going on. he also spent a lot of time in paris.

i think what you're going to see donald trump doing is doing a lot of listening to people in new york and i think he will travel. francine: thank you so much. john studzinski and tina fordham. this is what we're looking at next. we talk finance. we talk trumponomics and the markets with tom keene. this is bloomberg. ♪

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a surgeon yield. this is "surveillance." i'm francine lacqua in london, with tom keene for the week. we're giving a close eye on pounds -- dollar, what have we learned? tom: what i have learned is that a lot of people are telling me to move out of london. a surgeon yield.here's a step to the city that there was not on june 24, no question. francine: you're right. we have some great retail sales. new data, really strong retail sales. tom: what i noticed here this week is the global nature of "surveillance" wins, because this is a global story. it's truly a global story. francine: this is what we are trying to look at, the trends of populism across the globe. let's talk more about the president-elect and get straight to the first word news with taylor riggs. taylor: japan's prime minister shinzo abe becomes the first

global leader to meet with donald trump. he is stopping off in new york on his way to peru. he praised his talent and said he will try to work hand-in-hand with him. he wants to keep him from pursuing the trade and security policy campaigned on. and japan's central bank is restarting its control over the world's second-largest bond market. the bank of japan is offering an unlimited amount of bonds at a fixed rate. the boj is concerned over a recent rise in yields, which turned positive this week for the first time since september. congress may have federal reserve chair janet yellen on how it might affect the economic but don't expect a clear answer when yellen testifies before the joint economic committee today. this week, a number of fed officials have an asked the same question, and they have said they are unsure about anything under trump. testimonytch her

today here on bloomberg tv at 10:00 a.m. eastern time. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. taylor: thanks so much. equities, bonds, currencies, commodities. quiet today. it's the first subdued a day in ages. futures are flat, 2.2%. i'm bored with the first screen, not much going on. vix, beginning to catch up with a big bull market. two-year yields, 103 is the p eak. the dollar index is below the breakout highs. let me put up euro-dollar again -- we do you have? francine: there is that parity call that keeps happening. i know it's a significant, but i wish -- i wanted to put the

japanese yen, and got distracted on gold. jgbs are significant because it is the first time we see governor kuroda trying to control the boj yield. whether it works is another story. ok, will there it is. let me do this -- inflation in the united states. inflationrvice sector up top, producing inflation down below. our audience of the united states feels that high 3%+ service sector inflation. this is the whole point, francine, of a desire to overshoot, the fed based on their inflation, not our viewers' inflation, nowhere near what they needed to be. francine: a great chart, especially because we would hear and janet yellen later. this is my chart.

i brought it back to 1989. this is the spread between treasuries and german debt. u.s. 10 year yields and the spreads with the german 10 year yields. what this means is that, basically, investors demand surged this week. we are seeing a lot of spreads widen, and expectations in the markets are that donald trump will expand fiscal stimulus. there's huge difference between the german and italian 10 year yield. tom: there is nuance this year. there's some real nuance in the dynamics. francine: let's talk about the nuance and dynamics of the market. let's get more with mike o'brien, the j.p. morgan asset management ceo. he joins us now. i love that. what's going on in the markets? >> ultimately you have to take a step back. high, but we have a

lot of clients from the world, and the trans data is low. we do a study of long-term capital market assumptions. we try to step back from the geopolitical noise, the economic stories, and say what are the fundamental interrelationships between equities and bonds? ultimately, if you look at 10 years out, our view is everything is low, and the challenges where to find return. right now, with the trump administration incoming, expectations are that gdp will grow. yield could pick up, and that is positive for investors. francine: how much does this have to do with real expectations, and how much does it have to do with the trend of going up before the president-elect wa electeds, and the fact that this given a boost? >> i think this started before he was elected. are that wectations

are on the path toward normalization. we'll see rates in the u.s. and around the world progressively rise. we'd expect that u.s. rates would get to 2.25 by 2020. but that train left the station. i think what the trump administration has done is accelerate the pace of yield. tom: within your asset allocation in dealing with clients, the bottom line is we are setting ourselves up for disappointment off of the certitude of where mr. trump will take us. there is this whole belief construct of what a trump administration means. you and i have seen this before, and you undershoot. >> that is a major concern. how much expectation has been built into where the rates have gone? tom: what is your weighing of and under shoot right now? is it likely? a certain outcome that we undershoot, the effervescence of the last 10 days? >> we think it will be a

question of time. we think it will come through in gdp growth; the question is how long it will take to get there. one of the challenges we face is that we expect a curve in treasuries to be very flat. it will ultimately be a question of when, not if. francine: when, not if? is this big infrastructure spending? the $1 trillion he has offered to spend on infrastructure? >> things were getting better anyway. i'd say our expectation, looking out 10 years, that gdp growth in developed markets will be up about 1.5%. there are constraints of productivity, the amount of capital investment over the last five years, the demographics when the u.s. population, even with immigration,

is down per annum. it will still deliver a pretty low level of economic growth, which we dragged down around the world. francine: to what level? >> our expectations are that across the developed markets, equities over the next 10 years -- we will be looking at 6% return. emerging markets, maybe 9%. if you look at your typical portfolio, go back 10 years. the expectation was you and i would expect a percent per annum. it's 6% now. you're looking at a 5.5% return, and -- tom: i want to look at the latest paper. when i was in school we had the stress test, with the little bottles with a litmus paper. here's the litmus paper -- dxy, bring it up. this is intraday.

the blue circle is the election. the shock, the rebound, the strong dollar, blended with china, our traditional major trading partner. i have a leveling out here. if the dollar is the litmus paper, what do you look at within the mix to give you the best judgment? visit sterling? euro-dollar? a blended index? >> it's a blended index. the dollar is an interesting conundrum. if you go back to the 10 year forecast, we expect the dollar to weaken. but if you look over the next medium-term, obviously, the dollar is strengthening. right now, across a basket of currencies, 10 year is out. tom: francine, let me get this chart. talk about euro parity. francine: i want to get to euro parity in the second, the what i want to ask is when you look at yield, it's not only a turn for investors, its pension funds. you need to make sure people have enough money to retire.

much do you get asked about real concernis it a that we will have a huge demographic problem? we're seeing it -- >> yes, i think people are going to have to reset return expectations. the historical normal of a percent or 9% -- if i asked you, the reality is 6%. it'slll challenge insurance companies and their ability to generate returns. pension funds, they are harder to squeeze. itthe individual investor, could be a reset of expectations as to what one can expect going forward. then it will be lower by 300 basis points. tom: let's do this for francine, i want to dazzle her with synthetic euro. it's deutsche mark inverted. she'll love this. synthetic deutsche mark, back in

1960. that blue circle in the middle is the advent of the euro. down we go, up we go. particularly for european four, is this a time when we least expect it, blowing through under one per dollar? >> it's a function of the strength of the dollar. again, the challenge we have got next year -- there is a lot of risk attached to the euro right now. our own view -- we do think that europe, when it gets through this current uncertainty, we will get back to an environment of trade surplus, back to stability. dollar, probably closer to 1.30. tom: 1.30, really? >> 10 years out. francine: one or two things.

>> 10 years -- we think -- for 10e: we can talk years that we don't have time. we don't have 10 years, but we do have another 50 minutes with him. stay with bloomberg for full coverage of janet yellen as she testifies before the congressional joint economic committee. that starts at 10:00 a.m. in new york, 3:00 p.m. in london. this is bloomberg. ♪

francine: this is bloomberg "surveillance." i'm with tom keene in london, i'm francine lacqua. let's get to the bloomberg business flash, with some corporate stories. taylor: there was a surprising

jump in retail sales in the u.k. last month. it increased 1.9%, far more than economists expected. cooler weather led to more spending on winter fashion. clothing and shoe sales rose the most in more than 2.5 years. plans to cutnce costs by $1.5 billion through 2019. they also plan a dividend payout ratio of 75% of income. they are struggling to increase profits after record low interest rates, lackluster growth hurt investment income. the ceo has been selling assets and changing the firm's organization. that's your bloomberg business flash. francine: thank you. today, the bank of japan announced it will buy a limited amount of securities to maintain its yield curve targets. this comes in the wake of a global bond selloff in response to trump's. election shinzo abe will meet with the president-elect in the first face-to-face meeting between him and a foreign later.

brendan greeley joins us now from new york. you did a great piece. this was for "business week," how the white house could justify a debt driven keynesian stimulus. >> its macroeconomic modeling, what's not to like? the republicans in an pushing for the last 20 years. this goes back to newt gingrich. they have been pushing the congressional budget office to use what they called dynamic scoring. you take everything you do, seeded into a macroeconomic model, and you see what the results will be for next year. you take your dgp and feedback into the model. this is a fancy way of saying we will make tax cuts look cheaper. trump, and itnald looks like he will do that in a way that is completely unprecedented. they will take not just tax plans, but the regulatory plans, energy plans, trade plans. they will push these all into a

macroeconomic model and push the results back into their plans for the next year, right? so the trunk team is saying, we can give you everything. we can give you $4.4 trillion in tax cuts that will pay for itself. francine: right. are they the first to come up with this, or is it just because you have less fiscal hawks? >> you know, you have in congress this constant push and pull the between the cbo, the congressional budget office, and congressional staffers. what are your assumptions? what he has done is wiped all that off the table and said, look, here's our model, take a look at it, and by the way, we get absolutely everything and it is offering. tom: congratulations. this is the single best and most important article on what is to come in washington on fiscal policy that i have seen. you know the static dynamics that they. -- at bay. i want you to stay the arch criticism democrats.

that others have about greenspan like dynamic scoring. what did david malpass get wrong? what does peter navarro get wrong? >> i can't really say that david not pass is at fault. if you have to predict the future, do use the best model you can. the question that democrats should, as best we can, not just scored tax cuts, but spending. suspect that the multipliers for government spending are better on infrastructure and they are on tax cuts. but the question is, how good are the models? tom: i'm doing this just for you. i'm doing it like mr. trump. this is what he would be doing and that we can be asymmetric and only look at tax cuts. is there any indication that the trumpthis is what he would be ae responsible and dynamically score spending?

>> no. there isn't. they have talked about a different way to look at infrastructure spending. they haven't really talked about making a dynamic. i do know how they will justify their infrastructure spending. as we know, the trump transition team wants more infrastructure spending. but here's what came out of it for me. we have this quote, i think, from alan greenspan. in 1995 he told congress, "i'm skeptical. i don't know if the models are good enough." i e-mailed his office and here's what they said -- he hasn't changed his mind. alan greenspan is still skeptical about whether the models are good enough to do this. tom: i agree. this is a fabulous story. thank you so much, you have been too much a stranger. it took in eight months to research this. francine: it's a great article. the problem -- he makes this point clearly -- is that the method only works if congress

balances the budget. he's right, it's just that things move. tom: david malpass, who i'm sure you will hear from in the trump transition team -- he is adamant this is the way to go. he needs a very balanced treatment over static and dynamic scoring. you can transition from mark halperin and john heilemann, "with all due respect," 5:00 p.m. new york time. rumor is, the will get through the traffic on fifth avenue. this is bloomberg. ♪

tom: good morning, everyone. a beautiful new york. an autumnal new york. a massive change on fifth avenue. thank you, oliver chen. on bloomberg surveillance radio yesterday, he had stunning comments on the profound impact of fifth avenue's retailing of mr. trump being the president-elect. i'd like to go back to that. francine: this was a great conversation, a great article. this is -- we are going through looking at models, how you can justify spending so much and infrastructure while also cutting taxes. will it work? >> the point we make is that monetary policy and quantitative easing has limitations of what it can do. it can stabilize economies, but

i can't just grow. our view is that combining fiscal policy and monetary policy is a positive -- we have written papers about this to get them combined. our view -- th coste of borrowing is low. it ties in with the qe program to create economic growth. and infrastructure around the world, the demand for infrastructure investing from pension funds, is substantial, and right now he is missing the opportunity to find the investments . sovereign wealth funds will want to invest. tom: the backdrop is that jpmorgan are optimists. wey quickly, what if undershoot and change the dynamic? >> the expectations are that this will underpin growth, and i think a lot of what we have seen has been building in -- tom: mike o'brien with jpmorgan asset management.

we have much to talk about. in our next hour, one of my most anticipated interviews of the week. stephen major of hsbc. yields higher, and then they will revert to lower for longer. that's must watch. this is bloomberg. ♪

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tom: london, and the weather has been absolutely perfect. it's a boy into and bustling london. fighting off the splurge of brexit. i'm going to the churchill war museum today. tom: our producer called it right. this is why retail was surging, you were in town. [laughter] tom, spending, helping the economy. u.k. retail sales surged more than any economists had expected. tom: thank you, thank you. francine: a good note. especially for those talking

doom and gloom. tom: it has been great. come to london. sterling is going to .89. let's go to our first word news with taylor riggs in new york. report saysw immigration is good for the u.k., and the country should preserve the so-called free movement, even if it leads to the european single market. the report comes from the think tank that backs the free market like a few margaret thatcher's. it urges any foreigner to work in the u.k. as long as they have been offered a job. iran expects donald trump to display what it called "more rationality" once he becomes president. a senior iranian economic official says his comments before they election were for campaigning purposes. he says the nuclear agreement with iran was a bad deal and wants to renegotiate. an economic environment wants congress to overhaul business taxes and postpone moves on individual taxes.

among the proposes is a rate cut for companies overseas earnings. senate democrats might go for short-term revenue gains, because it would help pay for nationwide infrastructure improvements. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much. chair yellen will speak today, the first chat after the momentous election we have seen. look for that across bloomberg, 10:00 a.m. the question is, is she central banker to the united states, to president trump, or to the world? this next guest -- if you were to get on eleanor right now, if you sailed around emerging markets, what would you see? what would be their response to president-elect trump? >> i think the response in

emerging markets is that we are looking at an amazing investment opportunity. trump has essentially had two effects -- want to create uncertainty, and the other yield curve steepening. the uncertainty is almost certainly going to abate over the next couple years, the next couple months, as we get to know his team,'s policies, how he works of congress. that is the primary negative effect, and that has given us a beautiful look into em currencies. they are still marginally averse for the dollar this year, so this is a great entry point. tom: on the basic economic standpoint, give me the partial differentials, the dynamics of exports. we all know what it means for america and the united kingdom. this is going to be an export boom for e.m. >> that is what it looks like. the real effective exchange rate, which measure the competitiveness of young countries, are back to the levels we last saw in 2003,

which was really the start of the last major currency bond rally in e.m. they have shorter durations, em countries have much less debt, and the yield of local markets in particular are higher than when the fed had interest rates at 5.25%. tom: do you want to buy brazilian bonds today? >> absolutely, they are in the region of 600 basis points. we have seen falling inflation and they are doing the biggest fiscal reforms we have seen for years. francine: talk to me about china. what i'm interested in -- we had this story, the chinese holdings of u.s. treasuries declined the most since 2012. again, does a donald trump presidency accelerate that quite to graphic and we? -- quite significantly? >> i think it should. he thinks we will have more demand into the u.s. economy at a time when we have reached full employment, and never before in

u.s. history have we reached full employment with better than 25 basis points. just to get the fed back to neutral we need to hike nine times, and there a snowball's chance that can happen. francine: what things we were talking about when it comes to janet yellen is dollar strength. i know we will talk about dollar, but if the dollar strengthens, it is doing a lot of tightening already. so how many fed hikes are you expecting? >> we would expect two next year. by 2020 we are around 2%. i do think on the emerging market story, as the yield curve steepen the u.s., a lot of the institutional money out there, which is currently being invested in em, we could see that revert back. tom: that is what we like, two different opinions. help him with how he manages em. do you have to manage your enthusiasm, or do you hedge the currency?

is the price a weaker currency in e.m.? >> currencies and e.m. have suffered under the rising dollar, but so has the euro and the japanese yen. tom: so you pile in? >> no, you need to have a strategic and tactical view. occasionally you get christmas presents, when the market over react to certain global events. francine: like last week. >> absolutely. it's interesting -- i have done quite a lot of analysis on this. if you have a simple rule that you are only allocated to emerging markets when the index spikes by 10 points in one month, you would have outperformed the index consistently. all asset classes since the inception of the industry. there is a tendency in the markets to overreact and oversell e.m. during periods. of risk aversion. we just had a 10 point move. francine: they get a quick question -- if trade deals are in question, 2016 feels

different because he can do a lot of damage and foreign policy or trade relationships? >> he could, but all u.s. presidents enter into office with one single objective, to get a second term in order to get a second term, you have to do all your domestic stuff in the first term while you still have political capital. you save all the foreign policy stuff until the second term. that is lacking the risks of an imminent trade war -- tom: let's show what john is talking about. on the bloomberg terminal, your terminal fact for the day, ggr go will save you every time. it's a great inventory of international paper. i just picked out the brazil 10 year, in u.s. dollars. look at the pop. that's a high-yield, lower bond price in brazil. you come in and buy it looking for lower yield. >> absolutely. we have to bear in mind that the brazilian congress is in the

process of passing structural reform that will limit spending for the next 20 years. tom: do you have the same enthusiasm about e.m.? structural demographics work in favor of emerging markets. economic growth -- tom: you mentioned flows. >> on emd, flows are influential. tom: massive jargon alert. >> ok, the emerging market debt. practical to have the feel to it in terms of investment. emerging market equities are becoming much were strategic, and i think a lot of it is around the demographics that favor economic growth. leverage is an issue in the emerging markets. the only thing we do see, emerging markets are performing developed markets by about 300 basis points. attempt jargon free in the next section, maybe.

50-50 shot. it's a fed day today. this is the most interesting -- chair yellen speaking. also scheduled, neil cache kari. the exceptionally controversial president of the minneapolis fed. from london, this is bloomberg. stay with us. ♪

francine: tom at francine from london for the week. let's go to abu dhabi, because we need to talk about dynamics. strategists say a global shortage of u.s. dollars could happen with donald trump takes the white house. tracy alloway joins us -- she

wrote a great piece on this. is it premature for deutsche bank to be concerned about this, given that we don't have that many details on his policies yet? certainly argue that trump's policy stances on many issues at the moment remain relatively unclear, but the reason why deutsche bank and other analysts from the financial community are picking up on this so early is because it has been a really pervasive problem in financial markets for some time now. we have had diverging monetary policies, banking regulation, all coming together to create a headache, a dollar shortage, that you can see if you look at things like cross currency basis swaps. the cost of converting euros and yen into u.s. dollars right now is that it is the lowest in three years, and that is despite abundant global liquidity in those areas, which means that if we do get a further shortage of dollars it could be even more painful. francine: what about repatriation? 10% initially?

does that help, with the availability of dollars? tracy: this is deutsche bank's rump'snt, that t nomination will exacerbate the dollar shortage trend, because you could see cross-border flows curtailed. you can see this repatriation of corporate profits. there's some debate about the exact amount of profits being u.s. and what impact it would have in terms of strengthening it, but at minimum you would imagine that bringing those profits home would take a chunk of u.s. dollars out of circulation in places like europe in particular. that is painful at a time when banks already seem to be struggling to intermediate between currencies. tom: tracy, the politics of this -- a president-elect working u, then american millioie dynamics of other countries. the key coefficient is a strong

dollar. what happens to the dollar, and what happens for president trump if we get a 2014 dollar strength? tracy: i think that's a really interesting question. the consensus at this moment in time seems to be that trump will be good for the dollar in some way. the knock on effects of a stronger dollar are, of course, emerging-market pain, a tightening of financial conditions, which we have seen already, quite dramatically. that is heading emerging market assets. traditionally when we get things like the dollar shortage, we have seen the federal reserve step in with swap lines. they exchange dollars for other currencies, and that eases some of the pressure on the plumbing of the global system. one point that deutsche bank made is that with trump in office, these the central bank currency swaps might not be a given.

linesn 2008, the fed swap were very unpopular with domestic populations, and neck it happen again. big changes for money off the back of politics, which is something that i never thought i'd say. tom: thank you so much. amazing, the linkages here. the vote in pennsylvania, the international economic. let's start on this idea -- to me, this is really esoteric. there is a real complexity here. but the simple answer is how your em adapts to a first or second derivative movement in the dollar. if we get a tree shea dollar that is not good. >> of course not. initially, the effect on the capital markets are such that people pour money out of the markets. later on, you start seeing the improvements in competitiveness, and that improves the current account. with the interesting state that e.m. is at, they have had their

capital outflows -- tom: do you see a gumming up of the liquidity of the global 2017, if wer in the get this complex dynamic move he spoke about? it's like the old days of commercial paper -- does the system lose trust? >> i think it's pretty predictable that the dollar will get stronger in the near-term. there's repatriation, there's the amount of foreign assets and investment looking for opportunities, and the yield curve may attract non-us investments into the u.s. i think the safe haven is the u.s.. everything points to a stronger dollar. francine: does it? does that not constrict funding, for one? that makes it harder. it seems that the market has repositioned losses. they were only two weeks ago, a lot of the banks were pointing to a trump presidency with

dollar weakening. >> we say dollar strengthen the immediate short-term. again, if you unfold, if you look out five, ten years, you get the fundamentals replaying. we see the dollar weakening as a long-term trend, but right now, for the for seeable future, it is strength. >> i tend to agree with the timeline. i think what is pushing the dollar up, particularly against the euro, is that we are in the fourth quarter. people have position square, they take risk off. but i think even as we go into next year, i think we will see currencies outperform the dollar significantly. the u.s. dollar is already overvalued in exchange rate terms. the u.s. is struggling with two consecutive quarters of negative growth. thet prices are high, and u.s. is simply not going to be able to bring policy rates into real territory -- tom: this goes to the heart of the matter. you have a more optimistic view -- bring up the chart.

this is trade weighted major. i was talking about this chart this morning here in london. i said, we'd need a plaza accord dollar, a ruben dollar. i bring those arrows to the right side to show the percent change. mike, to be honest, we are nowhere near dollar crisis. k of dollarris crisis that the naive have? >> i don't think so. there's still a substantial monetary policy divergence. i think that is going to reinforce the strengthen the dollar. tom: will the flows coming to the united states? that is what we are hearing is a consensus. >> the whole purpose of macro policies has been to derive flows back into the u.s. banking system. the first dollars that came back in were in qe, providing liquidity to the banking system, but started driving up the dollar.

we have reached the point where the dollar is overvalued, and the banking system has too many dollars creating bubble risks. there is no real desire for a higher dollar. francine: right, but when you look -- how can you even talk about plaza accord unless you sold in china? and china -- if you don't have china, it's no courted all. tom: you hang out at the grand hyatt. francine: is there any appetite from beijing to get involved? >> china has been pushing aggressively just to join the ba sket. china clearly has aspirations to become a major global reserve currency, and they are just about to open their cabinet. nobody has gotten any exposure you. i think the technicals are strongly in favor -- tom: we have got to go. a bonus "surveillance" round -- euro parity, will euro break parity? >> no. >> no, i don't think so. tom: it's a boring moment.

we're rooting for parity. it's exciting. francine: post-truth. thank you. love post-truth, because it talks about trump and brexit. this is the picture. this is the truth of the cross asset check. up a touch this is bloomberg.. ♪

francine: this is bloomberg "surveillance." berlin, the shot that we can see from our office. germany is where angela merkel will meet with obama -- our new correspondent is in berlin. they are offering some sound advice to the european union. that is my morning must-read. the bloomberg editorial board wrote this. presidenteurope, obama urged leaders of the eu to

be more forgiving of greece and its debt." what he should also say -- with the elections of france and germany approaching and the animus difficulties running well, they're reluctant to force explicit losses onto the taxpayers. one day, they might have to go to bow to the inevitability, but the inevitable can be delayed. tom: i think that is one view. i'm struck by this as well, from "the daily express," which i know nothing about. britain's total eu exit. francine: it's a tabloid, very much like "the daily mail," coming under fire for creating extreme views. that brings us to the word of t he year. a word that oxford dictionary picked, post truth. this is a word that they picked -- this year, what does post truth mean? it encapsulates 2016.

circumstances in which objective fans are less o influential than emotion and personal belief; brexit, trump. this is the world we live in. >> it is not new. i took a random walk down wall street. the markets in the short-term are a voting machine, and in long-term they are a weighing machine. emotion is what dictates the short-term, and fundamentals play out long-term. i think you are right -- there's a lot of emotion of some pretty seismic decisions. tom: can you explain it nicely? stephen major looks for higher yields, and then we go back to lower for longer. do you agree? >> lower for longer on yields and returns, if you were to go back a year, i think inflation has gone away. but i think lower for longer on the normalized interest rates -- tom: the actuarial assumption

doesn't move with trump economics? >> long-term>>, something will have to come down in terms of the long-term yield and -- tom: that's an important thing. francine: it is. do you look at populism is something inevitable for the rest of western nations? does that impact your investment? >> one of the topics we are discussing at jpmorgan is how that populism transcends into an economic -- i think it is a factor of life. we have seen some pretty big changes we hadn't expected. i think we are resetting our expectations in many ways based on two big changes. a lot of us are just trying to work through what the consequences have been. tom: mike o'brien, thank you. j.p. morgan asset management. a quiet day in the markets, but you wouldn't know it if you looked at the change. major next hour, steven

of hsbc on the most interesting idea, of when the facts change, he changes. this is bloomberg "surveillance." good morning. ♪

tom: this morning, markets transition quiet as the president-elect transitions to choosing his cabinet. finalists have been selected. there will be inflation then back to lower for longer. speaking of inflation, the will let janet yellen overshoot. we are live from london. i am tom keene. new york city in the

backdrop here is the turmoil of fifth avenue, where the president-elect lives. seeant you will reduced earnings adjacent to mr. trump's about. -- abode. francine: here in the u.k., welcome to my town. we have weakness. .etail sales surging we see a lot more traveling. it is confounding economists who ugly.rexit would be very welcome to london where it is cheaper and colder. tom: it has been good. steven meijer will join us in a bit. right now, you need a news update on the president-elect. ministerapan's prime becomes the first global leader to meet with the lo donald trump today.

he praised trump's extraordinary talents and says he will try to work hand-in-hand with him. speaking with japan, the central bank's recent his control over the world's second-largest bond market. the bank of japan is offering to buy a big amount of bonds. the japanese 10 year yield trends positive this week since the third week of september. trump'sllen, how donald fiscal policies may affect, but don't expect it clear statement when she testifies today. a number of federal officials have been asked this same question is that they are unsure what impact tax cuts or stimulus would have. you can watch her testimony today on bloomberg tv at 10:00 a.m. eastern time.

president obama will talk about solidarity with a close ally on his final trip to germany. the president meets with angela ricker, and they are expected to discuss a number of issues including the islamic state, hiding in ukraine, and trade -- .ighting in ukraine, and trade global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. this is bloomberg. tom: breaking news right now out of san antonio, texas. equation.uble-digit that is what you do when you have cheap money. 6000 employees. they will take out western refinance. i want to race through this to get to mr. stephen meijer. a boring screen today.

13.34. 1.00 dollar weakness after a number of days up on dollar strength. francine: look at the vix. we have a talking about when it spikes what it means for emerging markets. this is about boj offering unlimited amount of debt buying. xau 1229. tom: we will get to a different of a chart i made the other day stephen majors's amendment and what he suggested for lower for longer and low yields. mr. trump has shifted the market and there will be higher yields,

but to get to the point you and i talked about the other day is we revert to lower for longer then. how do we get from a trump yield, inflation, strong dollar, and revert to the land of stephen major? : the yield would go up and at some point it bites and grows into expectations. i can imagine if we got to the point where treasuries were 2.5 over 10 years, the is the --peo. francine: the funding is part of this. they are keeping you in check on how much you can spend. steven: a lot of this infrastructure is supposed of a public-private. what kind of funding rates are they talking about? 6%?4%,

you are talking about a completely different kind of outlook for the profitability of his projects. are just don't get the idea that you can solve a debt problem by increasing debt. i will go back to the core in my beliefs on this in that there is too much debt. it is one of the symptoms of the imbalances in the global economy. it makes it difficult to solve the world's problems. francine: unless you repatriate. let's say $1 trillion in spending. 10% of that and 10% of the offshore. steven: a dollar move is a wa sh. this is what i think people are missing. on international trade and repatriation threats and

promises, we don't know about the sequencing. my guess is it will take a long time to get these fiscal measures there anyways. it is easier to do some of the other promises.are they going to be good for the u.s. economy , global economy? i've not convinced. one step at a time. tom: the idea of expectations and varied expectations. i got a huge response to this chart. i hope i can close. 1.37%. the dreamliner is the adjustment to 2.5%. redmigrate to the arrow over time. we had strong sterling the last couple of days. do you get the same effect in currency that you get in your

fixed-income market where you get a shock, then we revert to what david bloom suggests with a weaker sterling? steven: you know i work closely i with them. i sent in new york these guys shoot first and ask questions later. on this occasion, i shot first. i told him i think yields are going to go up in the u.s. that may have had some influence on the dollar. versus thegoes up euro and yen. tom: do you capitulate on your weak sterling call? steven: the weak sterling call is a very strong structural one. it is based on the brexit outcome. we have not changed that. it was a something for david to change. anything company sterling strength recently is now tightening of financial conditions again. was looking at the outlook, it

is thinking hold on. they want a reflation. the expectations in the forwards of three and three quarters or 4%. francine: has a donald trump win change anything in terms of rags and in terms of trade deals or are we over thinking it? steven: you're not overthinking it because it is a paradigm shift. i think of things in three. maybe it was greece and then the u.k. and in the u.s. there is a paradigm shift. in terms of the bonds market, it'll take more than that to change the long-term growth path of the u.s. economy. we are flat on our forecast number as we speak. 1.35 for the end of this year. we previously had 1%. forget, what i like about

the market is it is behaving classically because the cheapening of guilt is on inflation expectations. inflation went from three to 3.3775. it is starting to look a better value. i am wondering globally whether the guilt are looking like a good safe haven at these levels. tom: the arch theory. we have a copy here 20 feet offset about that fixed-income theory. in the coming year, the advent mics, are going to be focusing on capital flows or inflation or deflation adjusted rates? steven: there is a really good question. i think flows is the most important one. tom: almost 19th-century. steven: flows will outweigh trade here.

sense,that rolling in a there is a bit under the dollar here, and i think that is one of the most important dynamics. fixed-income, people are trying to remodel the economy and the bond yields. give me a break. it is difficult with trumponomics because it will be very unpredictable. we have one thing at a time to deal with. francine: he says it straight. that is why we love having him on. tom: everyone disagrees, which is great. francine: janet yellen testifies at 10:00 a.m. in new york at 3:00 p.m. in london. we will be talking more about treasuries and spreads. this is bloomberg. ♪

hill, there'stol been summons time talking about washington as the trump transition is in place. a lot of controversy. a lot of controversy. about thegreat story conflict of interest and we will delve a little deeper. let's get to the bloomberg business flash with taylor. energy ministers optimistic they will cut production in opec. ae cartel wants to impose ceiling on each of its members to improve prices. opec tried to influence russia and others to join the cut.

the increase in the u.k.: .9% was far more than economists expected in october. cooler weather led to more spending on winter fashion. concerns to cut costs by $1.5 billion through 2019. a payout ratio of 75% of net income. they struggle to increase profits. zürich ceo has been selling assets and changing the formation. that is your bloomberg business flash. tom: it is not an ordinary meeting. the president-elect today will meet with mr. abe of japan. all will be watching every moment of minutia, everybody language, every second -- every body language, every second. no one will be watching more

closely than our own martin. what is our team watching today trump?be, martin: the question is what kind of access we are going to have to that meeting? 'sis is the first time trump meeting with a world leader and we do not know what to expect. we do not know. tom: we do not know the press access as well. one of the access is we have is the wisdom of al hunt. my morning must-read from albert hunt, which is always a good and beautiful thing to see. on pennsylvania, the secretary won pittsburgh and philadelphia by the margins expected, but in philadelphia, there were almost 100,000 fewer voters.

this is really transient about not what did happen, what did not happen. nobody showed up for the secretary, did they? ,arty: not enough people did especially young people and blacks. pennsylvania is al hunt's home state. he knows it better than probably anybody and he was apprised that voters did not come out in numbers that she needed to take the state. francine: tom is going through the politics and the states. i want to know about the family. what do we know about trump's family and the role he will play in the white house in managing his business? marty: trump said he will pass along his businesses to his family. his kids will run the business. meanwhile, they are very involved in the transition team

deliberations. that has raised a lot of concern about potential conflicts of interest. they say there is not any. we will have to see how it plays out. it is unprecedented like a lot of other things in this trump presidency. francine: tom disagrees. tom: robert kennedy. bobby kennedy came in. there was a massive uproar when bobby kennedy showed up at the door, knocking over everything in sight and he measured to get something done for the nation. don't tell me this is unprecedented. marty: there are three family members who are deeply involved. more than just one. there was nancy reagan, who had a big influence on ronald reagan's appointments. --a it is not appropriate. am not saying it is not appropriate. francine: you need to put a line.

at some point, a line to assure there are no conflicts of interest. if there was not that line, do people in america care? do people realize there is a conflict of interest? the press carewe and a lot of commentators care, but you are right. maybe the general population does want to see a grenade thrown in washington. unconventional stuff is what they want. that is what they are certainly getting. tom: tell me about secretary dimon. that will be a newsmaker if we see it. will be do with jamie dimon here? -- what will we do with jamie dimon here? marty: we make of lifting reports that he is not interested in the job and other reports that he is actively pursuing a job. [laughter] marty: and cannot be solved if they come out and say either he or jp morgan, and the shares are moving on this stuff.

is a completely confusing situation. tom: i just want to say i do secretary diamond watches every morning. we would love to have you come on "bloomberg surveillance." francine: does it make a difference to your yields? let's say in the secretary diamond. how much do we know he can do? steven: straight answer is no. an often depends on the numbers, doesn't it? and what hand the secretary is given to play. it is a very difficult one. i don't think it matters that much. tom: thank you so much for your perspective this morning from washington, marty. later this afternoon 5:00 p.m. thatork time, you can see as they transition to a further discussion of the trump transition. we transition it will come back with steven major.

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francine: this is "bloomberg surveillance." we are looking at charts, yields come over that means one thing and one thing only. steven major is with us. when you look at european yields, we are seeing right now the spread between the french and german yield, the yellow line on the right hand of your screen is where donald trump gets elected.

are we pricing and more risk? going into the selection, we thought france was sitting a little bit rich compared to spain. we were looking at the spreads -- europe.you are. there is a colander of events. they are looking at the italian referendum. i have not going to say anything is going to happen but i think there are concerns about the project. that is what tends to happen. tom: what we like to do is get smart people from different banks and we are honored you are collegial about agreeing to disagree. work. adamant it can spain faces south, germany fixed itself, italy can fix it if they want to do it. one from deutsche bank

disagrees. they find an emerging and early with meet help from imf. which is it? steven: there will be some friction between the two. unfortunately, there is not a straight answer.you cannot have black or white here . for the euro to survive and prosper, there inevitably has three steps to fiscal union at ebt mutuaization. there has to be some conflict or disagreement and then we move forward again. the market is from the correct to focus on the risk of volatility and uncertainty. tom: let's come back. i cannot say enough about how this is what "bloomberg surveillance" is about, the best voices on the street in conversation of the debates of the moment. without question, the most

controversial fed president in the 7:00 hour today on television on radio. stay with us. ♪

francine: a picture of london. retail sales purging. tom: really? francine: it did. tom: over there on the other side of st. paul's is rachel riley. all there. francine: a lot corner is coming to london to spend their hard-earned cash -- a lot of foreigners coming to london to spend their hard-earned cash. steven: we will stick with -- taylor: we listed wit was that e immigration thing. a report comes from the dictate that backs the legacy of margaret thatcher and urges the

government to allow homeowners of any skill level -- allow foreigners of any skill level. a final trip to germany for the president. he meets angela merkel and they are expected to discuss a number of issues including the islamic, the fighting in syria and the ukraine, and the transatlantic trade. they have had a close relationship over the last 8 years. iran expects trump to display more rationality when he takes over. they say his comments before the election will work campaigning purposes. he said the new agreement with iran was a good deal and wants to -- bad deal and wants to renegotiate. amongst even more proposals is the rate cut for company overseas earnings. they would help pay for nationwide infrastructure improvement.

global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. tom: chart of the day. this sets us up with steve major. the yellow line down below is goods, inflation, and deflation in the u.s.. the white line above is what you are living, the service sector inflation. the dots in the middle are what we will see this morning at 8:30 new york time. the money inflations of donald trump. which inflation matters to the president-elect? ian: there is a lot to choose from. the key story is that the headline race is going to jump very sharply because the declines from last year are dropping out of the comparison.

a year ago, it was exactly zero. is now about 1.5. my primary or march, it will be 2.5 -- by february or march, it will be 2.5. that raises expectations and we end up with an environment before the trump stimulus kicks in that we have inflation rising broadly and that would be a problem. tom: we talk about rockefeller republicans. they went to overshoot on inflation. let's assume president trump wants to overshoot on inflation but the economists in charge want to overshoot not 60's inflation but inflation we have not seen in decades. ian: this is a really live debate about whether we should or overshoot. if you overshoot the inflation target a little bit and can argue they will level off and will not become too alarming,

maybe argue it will come back down again, that is fine. the problem is if you breach the a flatlinearget in or a rock below where it is rocketing upwards, you have a much bigger problem and janet yellen cannot go in front of congress and say it is not a problem. that is a very different policy description. tom: parabola. it is euclidean thursday. francine: there is a lot of modeling going on. tom: modeling. geometry. francine: on overshooting, should they or shouldn't they? ian: a little bit would not cost me any loss of sleep but if we overshoot, it will come next year in the first half. and when i come back on without more significant action and that is with the difficulty comes. can have a little bit of

inflation overshoot but it will be more than that and require a bigger policy was once because there is pressure for overshoot building before we get any stimulus. if they do administration does anything like it said it would do before the election, we looking at potentially much more inflation pressure in the second half of next year on top of what we already have. francine: by the end of next year, what level are you expecting u.s. interest rates to be? to risk high enough possible recession in the u.s.? does the trumponomics plan make that an impossibility? ian: i think we will get a strong year next year, especially the second half because that is when the stimulus will come through. rates will be near 2% at the end of the year. they will be nervous about the process of 2018. we could have a trump boom followed by a trump recession. very quick and aggressive end to

the cycle. front ratee two economists as strategists. steve majors says lower longer. have we given up lower for longer from the pantheon camp? ian: yes. i have given that a. -- that up. the speed of the hikes will depend on how quickly the inflation reaches the target and how quickly the new administration implicates stimulus. tom: brilliant. why is he a bit off the mark? steven: i agree they will hike. the financial conditions are tightening. it is the dollar. it might be credit spread and equities for all i know. as he just said, looking ahead too018, if they tighten up

quickly, the economy is slowing down again. a look at the bond market. they have to factor in a long-term growth. meansp and down again nothing ultimately and bond yields will look straight through it. if you want some proof of this, look at the u.k. seeing close to 4% in the forwards. the bond yields have a one handle. francine: right. steven: the market is good looking through these things. the question is whether the inflation will overshoot and be a sustained overshoot. tom: sustained the keyword. steven: yes. francine: if you renegotiate trade deals and enforce a sticky inflation, the bull market should left onto that. steven: it is difficult for anyone to forecast and we have to be honest about it. it is about sequencing as well.

imagine you could forecast the fiscal outlook and international trade developments, what comes first? it has to be defended as well. one step at a time. for me, the yields go up. let's see if the economy can take it. i doubt it. francine: you doubt it because? steven: it yields go up, financial conditions are tightened. francine: to take it into a recession like something ugly or just not as good as it could be otherwise? steven: the simple facts are we are six or seven years into the upturn. the probability of the next recession is getting higher every year. francine: right. steven: the new hawks that arrive at the fed. tom: that is what i wanted to go. perfect. two empty seats. who knows who will pick? is it a new hawkish fed, not

now, one year, two years, three years out? do you buy that? ian: absolutely. those two seats will be felt by our money guys. i don't know who the names will be, but it is clear trump has surrounded himself with people -- do not like the 08 policy zero rate policy. they will be felt by hard money guys, and that will make life more uncomfortable for janet yellen. they will not be the majority, but there is a substantial minority already on the fed which takes that view as well. those who are opposed to zero race will get a substantial figure. with inflation rising and wages, and will be interesting. fed,ian, if we see a new

is it going to be a battle of rules versus discretion? ian: well, the house financial services committee is very keen on rules. an act life itd would start in the senate which would impose a rule on the fed. i hope they don't go down as road -- this road. cooler heads will prevail, and that is what will happen but it will be very uncomfortable. there will be a fight over the way the fed operates. francine: will cooler heads prevail, steven? steven: yes and at the end of the day it depends what hand they are dealt. there will have to look at economic data and i am not convinced you will have an economy that is steaming ahead. markets will whatever the feds are doing as they have been for the last two years. francine: thank you so much. we will be talking a little more about the emerging-market debt and the dynamics in yields. ian, thank you.

coming up next, we will hear from janet yellen, the chair of the federal reserve. she talks to the congressional joint economic committee starting at 10:00 a.m. in new york, 3:00 p.m. in london. this is bloomberg. ♪

president obama currently meeting angela merkel. they will talk about many things i imagine. trade relationships, foreign policy. this is the view from our office in berlin. a little earlier we talked to the pity leaders and asked -- to deputy leaders and asked if you would like a fourth term.

to some other news , the bloomberg business flash. taylor: a big transaction in the oil industry. western refining bought. the deal valued at $6.4 billion. western refining produces oil, gasoline, and diesel fuels and tells primarily in the southwest u.s. a scandal in the volkswagen sales. the automaker underperformed rivals. sales were down almost 2%. vw has agreed to pay billions for the problem. it faces criminal investigations. jp morgan is expected to settle allegations that have higher children of chinese decision-makers to win business. jp morgan will have to pay $200

million. regulators are prepared to announce the settlement as soon as today that would end an investigation into whether the hires violated bribery laws. francine: gone from the businessman is about to run headlong into donald trump, the president. to analyze how he will do with a host of potential conflict of interest over the white house in january, stephanie baker has written about this. she joins us now. major is also with us. what have we learned in the last eight days of what trump plans to do to avoid any conflict of interest? >> he has not spelled it out yet. what we know is what he said during the campaign, with his he will set up a blind trust that is not a blind trust because it puts business interest and is

not give him an a distance from his business operations to provide a truly blind trust. it is up to him how he handles it and how he sets up his business interests. there are no ethics rules that applies to the president only for the rest of the administration, and so far, the oversight committee in congress has not said anything about whatever structure he comes up with. tom: i thought your story was incredibly fair and balanced. to me, it is the distraction. buried in your story is the question i can constantly, which is, what happens to the president who has different arguments in court going on at any given time? do you know yet if they will be delayed until after his presidency? do they race to get through different court proceedings before the inoculatio

inauguration? stephanie: he is also being audited by the irs. tom: i want to point out to our audience worldwide that tim o'brien is without question the expert on mr. trump's taxes, but these are separate issues. what happens to the court cases with trump education and the rest of it? stephanie: that is unclear. depending on who he picks for attorney general, that could have influenced over how the cases are managed and held. tom: attorney general giuliani will say you have to do this, this, this would this case? we don't know. stephanie: this is where it gets tricky and where you would expect the oversight committee of congress to step in to provide some degree of checks and balances, but it is unclear given the republican-controlled congress will that will happen. francine: be nice.

can we say with certainty that this is a transition like no other in history? stephanie: absolutely. absolutely. i am fascinated by the foreign policy implications because he has licensing agreements with developers in countries around the world. tom: also istanbul. stephanie: istanbul is one where he has a licensing agreement that pays him as much as $5 million a year according to his financial disclosures with a developer there. turkey is incredibly important to u.s. foreign policy in the fight against isis. whatever decisions he takes their could have ramifications for trump tower, istanbul, and it is the issue of the philippines, where he has a license for a trump tower in manila with a man who happens to be in the envoy for the u.s. tom: i get it. are we going to see a presidential shot of president trump looking out the west wing

window on the phone and we think he is talking to putin, and he's really talking to his lawyer about a transaction in copenhagen? stephanie: 80's to appoint someone other than his children but itide that degree will be a question mark hanging over him whether or not it is a conflict. there will be a perceived conflict. america. is his family is supposed to support him. stephanie: of course. absolutely. it is great if you have a close family. you need to look at the implications. we have never been through this before. tom: absolutely. the son-in-law is really in line to be some form of government official. stephanie: it is unclear whether he will get a security clearance that was asked for, but he is a very important figure in the family. is question mark over trump

will his presidency enrich him somehow? that will be the main question. tom: we need access to the gucci store on fifth avenue. stephanie talking about the lease gucci has gone which is cratering as we speak. a data check here. commodities finally a quiet day. 1%.have the yield at the yen 10734. ♪

foreign-exchange finally quiet today. sterling 12477. the dollar index still about 100 but not what it was 24 hours ago . wencine: coming up shortly, will talk more about currencies. bloomberg daybreak americas is next. i know you have a very exciting show coming up. david: we will be talking about currencies and central-bank and the trump transition. kari in thel kash wake of his speech yesterday.

just before janet yellen's testimony, which will be one hour into our program, we will have bill daley, who was secretary of commerce. we will talk to him about what is going on behind the scenes, the process, the urgency, the timetable they need to be uncertain about running coming up on the program. tom: david westin, thank you so much. many different ways to go with steve major. thewere talking about turmoil in europe, but we have to go to japan today. francine: for two reasons. abe the first one. tom: to show up. francine: right. this is the first foreign leader meeting with donald trump today in new york, and the bank of japan this morning firing a warning shot over the bar markets and offering to buy a limited amount of securities to maintain the yield curve. work?nwill it

steven: it is and it has since the 21st of september so nearly two months now. they say they will buy 10 year and 20 year gjdp when it spikes above zero.they did not say they would sell . it is controversial, but i think it is a cap. they have shown today they need it. they have 80 trillion yen per year to spend to keep that cap in place. this really matters because this to free up cash to go abroad or into equities or whatever. with treasuries yielding what they are now, they are much more attractive than where they were a couple years ago. i understand they found treasuries interesting 18190. presumably more interesting at

22230. tom: how they could are we in the system now? how open are we to the shocks? the uv light here is integrity to the system or are we fragile now? steven: in a book on the end of alchemy, stuff happens. in balance has built up over decades and you cannot predict when the next one will come. it could be japan, china, greece, u.k., switzerland, italy. you cannot forecast these things. we are very vulnerable. there is too much debt. tom: thank you so much for joining us today. very valuable a very controversial as well. speaking of controversial, he has been a voice for sanity some would say. lord turner will stop by tomorrow. services authority chairman. we will be looking forward to speaking with lauren turner. stay with "bloomberg surveillance."

chair yellen later this morning. ♪

jon: a very warm welcome to "bloomberg daybreak." good morning to you. we count you down to janet yellen, future stable, dow futures up five points come as five points come s&p appeared wetoo trade at 220. a softer dollar session in the jew 10 space. david: two big stories today. a softer dollar session in the g 10 space.

as donald trump narrows his cabinet picks, we speak with someone who has dealt with those decisions before. bill daley, a member of the transition team. it big story for markets, janet yellen's much anticipated testimony to congress. the first time we hear