toidjon: good morning and welce "bloomberg daybreak." the markets, after two weeks of games -- of nine point on the dow, four points on the s&p 500. a rally in the commodity market. .rude advances after 10 days of dollar strength, we take a breather in the fx market. alix: markets take a pause. the dollar weakens. commodities getting that boosts. opec will agree to cut output. copper up 2%. francoisime minister fillon is a new front runner after -- after knocking out nicolas sarkozy in a surprise victory in the first run of primaries. angela merkel announces she will run for a fourth term in germany. donald trump interviewed wall street veterans for the role of

treasury secretary sunday at the trump national golf club in new jersey. three potential candidates included investor wilbur ross, jonathan gray of the blackstone group. that is what you need to know. david? met withnald trump some pretty prominent wall street executives over the weekend for the role of treasury secretary rejoining us from washington is marty schencker, executives senior editor for government and politics and economics. a week ago we thought we knew this was -- it was steven mnuchin, it was all done. now history is widening the field. what is going on? marty: we really do not know. it is a question of whether he is putting these names out to show that he is widening his search or whether or not these people have other economic jobs in their future. we still think that miniature -- that steven mnuchin is the front runner. but one never knows with this president elect.

david: what might this tell us about possible policy direction? steven mnuchin has not spent a lot of time in washington. he has been producing movies in los angeles and things like that. does it indicate sort of donald trump debating with himself which direction he is going? marty: i think that is probably right, but the important point is that donald trump as an outsider to washington is going to be picking people for this administration who really he does not know very well or does not have a long personal relationship. that will be unlike any other president that has come before him, so he will have a cabinet of people he is relatively unfamiliar with. that is going to be really interesting to watch how that works. david: the other thing unlike any other president is this spectacle. normally there are private meetings are this looks a little bit like an episode of "the apprentice." marty: i do not think anybody got fired when they walked out of there, but one never can

expect anything different from donald trump. in anmeeting these people open atmosphere. people come in and out, and if you are not invited to see donald trump, you are sort of, what is wrong with you? it will be interesting to see which people actually show up at his door going forward. david: it makes for great television. that is marty schencker, bloomberg senior executive editor for government and economics in washington. jon: also making a big shakeup in the bond market, sounding the alarm on inflation. income, theixed worst in 15 years in the treasury market. two-week spike since 2001, and made speculation that donald trump -- amid speculation that donald trump will boost deficit spending. ray to have you with us. -- great to have you with us.

there is a lot of co-believers out there that trump is going to do what he said he would do on spending and the bond market will be selling off. are you one of the believers? >> this market was ready for a selloff, tremendously overvalued. you have had a couple of years now where central banks around the world are buying up assets. it looks like that process is pretty much over. ecbecb may buy more, the will eventually want to back away. i think you have an overvalued market. you had a big buyer in the central banks, which are now no longer doing that. if you look athe major central banks, instead of accumulating assets because their currencies are strengthening, they are having to sell some assets because their currencies are weakening. if you look at emerging market economies, they are no longer accumulating government debt.

the big support to the market to keep it that overvalued levels is gone. inflation pressures are picking up a little bit, not dramatically. but i think this is a major repricing of the markets and i think it is trying to find its footing as to where the next level of bond yields will be. alix: as we illustrate that, what happened to the 10 year bond premium? the 20-yearthere is average that comes in at 1.2%. let me update the price. we have a flip in positive territory. if we get that through that average, that would be an enormous repricing. robert: it would be. the fundamentals, the demographics probably suggest we do not get back to those same levels. we will not get back to the same level of real growth potential going forward. i think the supply-demand balance in terms of the individual sector -- individuals, baby boomers, as we have aged, are much more savers than we are borrowers.

that keeps the level of rates below the longer-term equilibrium, but nonetheless, we have very low and negative real rates, and that is abnormal for a long period of time. the repricing has further to go. david: a lot of people are getting out of bonds. when is the time to get back in? you have just unlock making productions -- you have jeff ofdlach making predictions 5%, 6%. robert: there is a lot going on about what policy will be, big fiscal stimulus, what the response will be from the fed here at we might be getting ahead of ourselves in the short run. things may calm down a little bit in the bond markets and may be in the dollar market as we go forward into the end of the year and see what actually transpires next year. but i do think that we have further to go with repricing, and you certainly could see -- i think 10 year yields coming

closer to growth in nominal gdp, which has been an historic relationship. if nominal gdp growth is running along at 4%, 4.5%, you would think that 10-year yields eventually would move up toward that level, although eventually it could take a couple of years. jon: i wonder how you express it in the equity market. the russell 2000 has gone on an incredible run. well.x-cut story as what isthat is really driving this, is the tax-cut story rather than the fiscal stimulus story. we have certainly seen -- that is one of the key tenets of the incoming administration, major tax reform, which will have an impact on smaller companies. and probably work to a certain extent in the opposite for large companies that have been the beneficiaries of low interest

rates, borrowing and leveraging their balance sheets. again, there is this repricing taking place in a whole set of different assets. the risk is that we overshoot in the short run before we begin to settle things down as we go through next year. robert sinche will be staying with us. now let's get an update on what is going on outside the business world with emma chandra. emma: in san antonio, texas, a police officer was shot to death in his car outside police headquarters. ticketwriting a traffic when another driver pulled up from behind, got out, and shot him. police are searching for a suspect. president obama says he intends to give donald trump space to set his own agenda. he says he reserves the right to reinsert himself into the public debate if he thinks core american values are at stake. the president spoke in lima, peru, to asian-pacific leaders

-- to asian-pacific leaders. theresa may said in a speech today that she would not force appoint workers from union representatives to corporate boards. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am emmaountries, chandra. this is bloomberg. alix: u.s. equity futures are calling -- are clawing their way higher this morning. headwaters being bought by an aussie firm. it is basically siding for the u.s. housing residential market. this is a bet on infrastructure, on growth in the u.s. lifelock is being bought by symantec, a cyber security play. it was the target of several pe firms that had looked to goldman sachs for strategic options. now that tie up is happening as well. that deal number, $2.3 billion.

the story in europe, a tremendous rally as the dollar takes a pause. there is more optimism on what is happening at opec. a lot of positivity lifting the majors over the weekend. big oil has a 30% weighting in the market. facebook, this news broke friday, announcing his first ever buy back, $6 billion in stocks. facebook is up 12% this year and moving higher premarket. david: coming next, a big weekend in european politics with a surprise in the french primary while germany stays the course. we will look at what it means for the markets. later, bloomberg's commodities index is set for its first act to back gain. -- its first back-to-back daily gain. that is all ahead. this is bloomberg. ♪

jon: this is "bloomberg daybreak." i'm jonathan ferro. we continue with futures positive, up 12 on the dow. almost up five points on the s&p 500. gains across europe driven by the commodity producers. switch up and i will get to the other asset classes. yields lower. at 110.54. it is a stronger yen story as the dollar reach races some of the monster moves we have seen over the last couple of weeks. a big shift in politics in europe. francois fillon winning a

primary over nicolas sarkozy. the big story over the weekend is, if you think about it, we have run against the traditional candidates in europe. the brexit decision was a vote against the establishment for many people are in the united states, a vote against the establishment. and then merkel going for a fourth term. david: part of the story was president obama evidently really made a pitch to her saying you have to stay. alix: he endorsed her. the interesting thing is in lonnch politics, is fil antiestablishment, or is he part of the establishment? joining us is bob sinche. you take at euro-dollar here, 1.06. where are we in terms of pricing in political risk? robert: we have priced in a lot in the foreign exchange markets in the last couple of weeks. we have priced in major fiscal

stimulus in the u.s., the interest rate response to that fiscal stimulus. we are pricing in some political risk across the eurozone, particularly with the italian referendum coming up. we have priced in a lot. we have had some pretty big moves in the dollar. my guess is we are going to quiet down as we head into december and into the end of the year, and things will stabilize a little bit. i doubt we will get much more move in the dollar with current levels. has come fillon from almost nowhere in the polls. how does an investor gauge what is happening politically in europe, from the outside looking in? robert: i think what you have to think about is whether the leadership in europe matters all that much. i think one of the disappointments about europe is how little progress there really has been in terms of reform.

and i do not see any of the candidates really stepping up. who is the one person you thought might bring about some reform across the eurozone? renzi in italy. it looks like he will not get through that constitutional reform. the more things change, the more they stay the same rid i do not think there is a lot of reform coming in europe, and that is probably a problem for europe and the euro because clearly more structural reform is something they desperately need. taxooks like we may get reform in the u.s. before we get structural reform in europe. are the moves we are seeing in the market related to trump or the political risk in europe? this is the jump in the french 10-year yield over comparable german debt. you can see the huge spike after the election, but there is an election coming up in france as well. the two wonder whether come together, political risk here and there. we have been talking about the

need from monetary to fiscal. things are not as political as presidents and parliaments. do we have a lot of volatility coming up? robert: i think we will get some volatility because central banks are smaller players in the markets. big supplier of liquidity in the market. a big purchaser of assets in these markets. huge bond market buyers, which has spread to other asset markets. i think it is healthy that we are going to get the central banks out of those asset markets. what theever find out political system really can achieve because the main actor in the last 5, 6, 7, 8 years have been the central banks, and we have seen very little in terms of fiscal stimulus and structural reform. so now as the baton is being passed, we will see if anything can be accomplished. the fed still runs a $4.5 trillion balance sheet.

they reinvest maturing assets on that balance sheet. ecb -- come on -- ptp still trading at two full percentage points. fed balance sheet peaked about a year ago. it is not coming down fast, but it has been drifting lower. the ecb finally got its balance sheet back to its previous peak, and that is one of its objectives. i think there will be a real debate earlier next year as to how much the ecb continues to accumulate assets. the boj, realizing their balance sheet has a loaded, has not accomplished much. -- realizing their balance sheet has exploded, has not a cop was much. , and thee futility rate of change having gone from very aggressive to being relatively flat, i think that is an issue for financial markets,

and that is playing out in bond markets. to seeob sinche, good you. as the yield backs up, it gives them more opportunity to buy bonds. coming up, the rise of populism has an impact on the president-elect's foreign policies. up next, nick burns. this is bloomberg. ♪

david: this is bloomberg. i'm david westin. there was a major supplies -- there was a major surprise over the weekend with francois fillon knocking out nicolas sarkozy. angela merkel surprised no one when she said she would seek another term. our guest joins us now from rhode island. welcome back to the program, nicholas burns. start with france and explain,

if you can, what is going on. is this part of a populist wave? mr. fillon distinguished himself by saying he is for less government. nick: france is gripped by populism. a contending is leader in the polls come and there was a major surprise over the weekend with nicolas sarkozy defeated in the first round of the voting for the candidate to run against her. pe, who was supposed to win, did not. , who has taken a market oriented approach, ,anting to extend the work week introduce more market reforms in the economy. it looks like there will be an election between fillon and le pen? has been thought that

marine le pen was -- you can see that fillon is more marine le pen like. i think she did fear sarkozy. sarkozy had the ability in seveevioral pr elections to win the french elections, so i think that she would rather run against fillon. a lot will of course depend on what happens with donald trump there it will donald trump decide that he is going to in effect back a populist candidate in france? that was unthinkable for any american president over the last 70 years. i wonder now, because trump has launched his own populist revolution in the united states. alix: if you look at the market betting, it shows a marine le victory, odds at 25%.

she is right around the area where trump was before the election. can you talk more about that relationship? nick: i do not think they have a relationship. i am not sure they have ever met. fortrump's repeated support strong, far right people in europe, leads one to believe that there is the possibility. it would be a mistake for the united states to put its weight behind populism. there are elections in austria, the netherlands, france, and germany in 2017. so the whole direction of the continent will be set by these elections. it would behoove mr. trump to be conservative about this and not to try to think that he can engineer these elections in france. it is too easy to make simple if i, sweeping statements about gerny, france, italy. it is a lot more nuanced tween what is happening in france and germany and italy.

nick: the problem in europe is that the crisis shows centrifugal forces are pulling apart the european union. the certainty of a future under e.u. leadership because you have a populist movement. you have britain leaving by 2019, the continuing greek debt crisis. is dividinge refuge the western and eastern europeans, the western europeans willing to take in some refugees after 2015. the east european shutting their doors. and vladimir's dividing europe because -- and vladimir is dividing europe. is dividingputin europe. needs -- it needs the certainty of support from the united states both militarily and politically. there is a question whether donald trump will supply that given what he said on the campaign trail. jon: that is nicholas burns of the kennedy school of harvard. hows another example of

difficult it is to get a read on european politics. it was meant to be a la japan -- alan juppe all along. they got it dead wrong. david: the one thing you can predict is the polls are wrong. but angela merkel is trying to be the ballast, the study one, as she has been throughout her career. vote againstis a the establishment, she is very much the establishment in germany. school -- aess columbia business school professor joins us next. in the markets, about two hours and four minutes away. this is bloomberg. ♪

alix: this is "bloomberg daybreak." i'm alix steel. here's what you need to know.

the dollar weakens. commodities get a boost. opec will agree to cut output. political risk in europe. the former prime minister is the new front-runner for france's conservative party after knocking out nicolas sarkozy in a surprise victory. merkelchancellor angela announces she will run for a fourth term. donald trump interviews wall street veterans for a role of treasury secretary at the trump national golf club in new jersey. meetings took place with donald trump and mike pence, with potential candidates. that is what you need to know. alix: the commodity rally -- jon: the commodity rally has given europe a lift. the dow up. s&p futures up ahead of the open.

what a move we have seen in the bond market. bid today. three basis points lower. the dollar, after a 10-day winning streak, we give some of that up, the dollar against the yen. david. inid: more than anytime recent history, a foreign leader played a prominent role in a u.s. general election and that leader was t back of russia. -- putin of russia. our morning must listen today. country. a global our next president has got to pay attention to all parts of the world. the issue where we can be most active is helping to contain putin. following the invasion and annexation of crimea in 2014, the division of ukraine, his earlier invasion of georgia in

2008, putin is trying to redefine the european continent to the south and west of the russian federation. nato is going to be moving battalions of troops into estonia, latvia, lithuania, as well as to poland, firming up that position, and also rebuilding u.s. military capacity in europe, i would hope that would happen under a new president. that is the best way to contain putin and give the europeans some stability so that they can deal with these other problems that you rightly say need european solutions. david: still with us is ambassador burns, now professor burns. we now know the next president is going to be. what advice do you have for him about what he should do with respect to russia. nicholas: i think donald trump needs to rethink and recalibrate what he said about russia on the campaign trail. trump is going to be at least

experienced president in american history. him thata team around can help the europeans to hold the line against putin in ukraine and the baltic states. this is an existential crisis. putin has been taking territory over the last eight years. he has his eyes on the baltic states and we need to firm up nato's military position. you can't disregard putin because on iran, north korea, afghanistan, syria, you have to talk to them. he is an opportunist, he is strong. he will want to deal with someone who is firm. i think you will respect a leader who opposes him, where we have to oppose him. i think that is the better relationship. this pic of secretary of state and secretary of defense, it is very important that trump bring in serious, experienced people who have a track record in government. if he doesn't, if he goes hard right and chooses people who

have not had serious positions in government before, i think that is a difficult place to start for him. david: let's talk about the team. one member of the team already is national security advisor in general flynn. what does it tell us about his candidates for secretary of state? does that indicate mitt romney might be a good choice? i think mitt romney would be a reassuring choice for many in the republican party in the united states, but also for the europeans. the europeans rely on the united states to be militarily strong and present in nato. number two, to identify them as they seek to negotiate these very difficult crises from refugees to brexit. they need the constancy of american political and militarily -- military leadership going forward with

putin. if merkel is returned in germany and if we can get a moderate and experienced secretary of state and secretary of defense, then you have the makings of an american foreign policies that can succeed perhaps under donald trump. trump has to understand this is a team he is molding and the early picks have been quite conservative and people not with a lot of experience in international politics. i think you needs to think hard about someone like mitt romney. david: retired general mattis from the marine corps seems to be a very possible candidate for secretary of defense. what do you know about him and what would he do a secretary of defense? nicholas: he is a very impressive individual. an effective commander of the central command that has purview over iraq and the middle east and afghanistan. he is someone who is clear eyed, conservative, a man of great

principal and great integrity. i was encouraged when i heard his name floated over the weekend. i heard the positive things trump said about him. national security, you have to have your power centers in state and defense. treasury is going to be important, as well. our economic power is the enabling power for what we can do militarily and diplomatically. those three appointments will tell us about the future direction of this administration. david: thank you so much for being with us. jonathan: let's continue the conversation. donald trump has been critical of hedge funds in the past. some finalists for key cabinet positions are finalists -- have worked in the industry for years. joining us now is fabiano salvo delli. changes to the taxation of carried interest will be important for this community.

when the likes of david mccormick walks up to meet donald trump talking about several positions in the cabinet , with the hedge funds be a little bit more optimistic about what is coming down the pike? fabio: if you are having a beer or riding your bicycle far away from the city, people have long said we've gotten away with this for quite a while, i'm just going to keep going with it, but they know it is on the way. the end is coming for the special interests. trump said we want to end the current tax state for speculative partnerships that do not grow businesses or create jobs or put their own capital at risk, so it seems like he is exempting private equity and focusing in on those people he described as "getting away with murder," which is hedge funds. stark,he quote is very

but then you see hedge fund guys going to meet with him for cabinet positions. can you talk us through how that works? fabio: i think the message is why he has also had the lobbyists on that he does not want to have. if you want expertise in certain areas, we can go the route of practical people and, what you have seen missing, not every secretary is going to be robert reich, an academic who has never actually had a job. of whove got the choice is going to make the long drive out to new jersey to meet him, i think he is going to be leaning toward people with experience. he said, i know more about the tax code than anybody else because i'm an insider. basically, yeah, i've been avoiding taxes my entire career, so that's why i'm the one to fix it. someone to turn state's evidence. [laughter] jonathan: for the markets, you

have the potential policy coming down for the hedge funds. , for them andook their strategies, is that the most important for --point for them, cutting the corporate tax? fabio: vastly, vastly important. cut the corporate strategy and infrastructure spending. think about what a different world that is. you are building bridges versus cleantech funding. it is an entirely upside down metric relative to the kind of stimulus you might have seen under hillary. this is probably old school, concrete, bricks, mortar. versus where you would have positioned your portfolio under a hillary approach, assuming you can get the building done, which it is not instantly shot already. david: over and above the policies that might be implemented is can they get something done in washington? that is a different point.

stephen newton does not have a lot of experience in washington. dave mccormick was in the white house and in the treasury in addition to graduating from west point. is that something that could be important to hedge funds, whether they can get things done like corporate tax reform? careful tohave to be look at it through the lens of the current situation. you have the presidency, the house, the senate, and you have a guy who is willing to go to your area and destroy you if you vote against him. he will do that. he is a tough dealing guy. i think what they will be is consistencye and understanding and practical, real-world experience. if they were to criticize the obama administration part of it would be that there are lots of , but lessries successful in its implementation. get think it is going to

done, something is going to get done, versus gridlock. alix: what does that mean for strategies of hedge funds? million was withdrawn from hedge funds in the quarter. does that help this issue? fabio: vastly. alix: which strategies might be helped the most? fabio: one interesting place is the macro space. previously, the macro, the computers had been doing better than the human beings. if we look at the volatility chart i pulled up, when we look at volatility overall, the vix index was down even going into the night of the election. guys like me were sitting there going who is insane enough to sell if the market goes full hillary? who is selling this stuff? vix had been going down for five days. what we saw was that it was trading down in the 15's before the election and still come of

the machines cap selling because it is a downtrend. the human beings are saying, i might lose one point, i might make 10, that's what i was doing that night. reached 24,nce it the human beings are saying, he has won the presidency, the house, the senate, this volatility is going to go back down. it's over. there is no further question. there is no great volatility question in front of you now. i think you see the rise of human beings in macro and you have seen cta's down about two points. you have seen small managers, midsized managers doing really well because they were able to trade -- it was a tuesday night, it was a wednesday morning, what's to worry about? alix: smooth out those returns. savio, thank you very much -- fabio, thank you very much.

prices touching a three-week high on oil. we will look deeper into the big commodities rally next. this is bloomberg. ♪

daybreak.""bloomberg joins us with his market outlook. alix: brent over 2%. bullish on the likelihood that opec is going to reach a deal. here is what they said. "with greater confidence the global oil market can shift the

deficit, we now believe there is a strong rationale for low cost and swift production cuts to normalize inventories." with us now is will kennedy. talk us through the positive rhetoric that we heard out of opec over the weekend. will: the big sticking point for opec has been iraq and iran. for saudi arabia to agree to cut production, they want to see iran freeze production. it is not clear whether either of those things will happen, but we did see some softening from the iraqi oil minister, who did seem willing to talk about entertaining small cuts to production. alix: he said, we have a proposal to cut the deal. pential downsid if we do not get any kind of deal or we get a lip seice deal, an agreement with no specifics. will: i think the downside could

be huge. see the chances of a deal growing and people are positioning for a deal. we could see a very big selloff indeed if the deal does fall apart at the last moment. what the goldman notes make clear is that there is a lot of new oil over the last few months in the market. from algeria and libya and that means opec has to act. it has to act because we will see oversupply through the winter. david: does that mean saudi arabia has to act really? is saudi arabia willing to endure the pain? otherwise, how are they going to get a deal? will: i think there is a lot of truth in that, david. the goldman note made clear that saudi arabia will have to do the vast majority of the heavy

lifting. they will get some support from allies in the united arab emirates, qatar. the saudi's have to do the heavy lifting. what is important for them is that they get more than lip service from other people. that they get a freeze from iran and a small cut from iraq. alix: they are financing u.s. producers. this takes a look at producer merchant short positions. they have been climbing. barclays front and center with us over the weekend saying, you've got geopolitics, why does saudi arabia want to help finance u.s. producers when trump is saying, we are going to block your imports to the united states? will: that is true. the problem for saudi arabia is that they are under acute financial pressure. they will see a growing budget deficit. they really need higher oil prices. they will do a huge amount to

help the u.s. oil industry, the benefitle industry will hugely. i don't think the saudi labor feels like it has much of a choice. alix: thank you very much. rhetoric over the weekend, as well, was like, why are you going to cut and help u.s. producers? i asked about flooding the market and he says he is going $65. disciplined at $60, the producers saying something different than the market is anticipating. david: as a big donald trump supported through the election, he wanted to be able to produce more. that was the whole gain. alix: energy independence. definitely a big discussion going forward. time for other stories making headlines. symantecsecurity giant has agreed to by lifelock for $2.3 billion. lifelock provides a range of

identity theft protection assurances for consumers and small businesses. step has taken another toward sharpening its focus on consumer products, given they provide the ball covets revenue. ,ccording to people familiar apple has disbanded the division that develops wireless routers. the company had not updated routers since 2013. shares of the japanese auto airbag maker takata have fallen today. that is your bloomberg business flash. david. david: time for a bloomberg trend. this is when we look at the top stories terminal users are reading on the bloomberg. .ou can find these yourself dark days for the euro 08 in trump's plans. the euro is going to weaken substantially against the

dollar. it goes back to a janet yellen said and mario draghi, last week. janet yellen said, we are going to raise and mario draghi said, we need a lot more stimulus. finally, you have repatriation of all that money overseas. jonathan: it is a very consensus view right now. bnp paribas, citigroup, credit suisse. i called over to ubs wealth management and the note to them is that we are overestimating the potential for u.s. growth, underestimating eurozone growth and they are taking the other side of the trade. david: that is interesting. alix: coming up, what president-elect trump means for the fed and its plans to raise rates. this is bloomberg. ♪

alix: part of what we have seen in the market has been a re-rating of fed hike

expectations. the markets see the like of 2017 aste hikes to late higher than ever. the purple line is the fed futures implied yield curve. the white line is what it was on november 9. a huge re-rating very quickly. you see a 100 basis point increase through the end of 2009. you see the markets pricing in a faster rate hike schedule from the fed. five-year treasury yields. you can see that jumped to over 100 basis points over the last few days as the short end starts to price in the fed rate hike. the deeper question is what happens when the neutral rate? do we see in neutral -- re-rating of the neutral rate? yes, a fed hike will be part of

it, but the neutral rate could move higher, as well. this blue line is the neutral rate. the lower it is, the less the fed has to do to tighten monetary policy. the hire it moves, the more can -- the fed can hike to tighten monetary policy. this will be pivotal to just how fast the fed will really go in their rate hike cycle. deutsche bank says this good re-rate 10 basis points higher through 2017. the white line that i wanted to focus on is the natural range. minusthe fed rate inflation. if inflation goes off the real rate actually goes down, so policy could be looser than what we thought. policy looser than you think implies the fed could hike more and faster to make policy tighter. there are a lot of nuances happening in the market and this is definitely one of them. there are lots of plays in the bond market.

anyway you slice it, a faster fed hike cycle is currently being priced into the market. jonathan: great work, thank you very much. a lot money, a lot of supply coming into the market. twice $6 billion worth of 2-year note's coming into the market -- $26 billion of 2-year note's coming into the market. the euro snaps a 10-day losing streak. we will talk with the head of strategy at hsbc. the markets counting down to the cash open. after two weeks of gains, potentially another day of gains. europe supported by a rally in the commodity market. from new york, this is bloomberg. ♪

jonathan: good morning and welcome to "bloomberg daybreak." i'm jonathan ferro along side david weston and alix steel. the postelection rebound continues. in europe, the rally continues as well. 10 straight days of dollar strength, we snapped that. treasuries big, yields down three basis points. alix: commodities climbing. crude oil jumping on optimism opec will agree to cut output. copper up 2.5%. political risk in europe. the former prime minister is the new front runner for france's conservative party after knocking out nicolas sarkozy in a surprise victory of first -- in the first round of primaries. angela merkel announces she will run for a third -- fourth term. donald trump interviewed hedge

fund managers for the treasury secretary. that is what you need to know. david: we want to go back to donald trump talking to prominent wall streeters for a prominent position. we bring in might -- mike mckee. whatif you take us through is going on. there is a public drama being played out. what is it telling us about where this might end up in terms of policy? mike: interesting cattle show. the jober profile interview, the more disappointment there might be if you don't get the job. what donald trump seems to be doing is trying to show people that he is more inclusive, more broad-based in the advice he is seeking. he went with insiders and loyalists for his national security jobs, but for the

treasury job, the state department job, he does seem to be broadening the searcher little bit. we don't know how serious it is because it is a public spectacle, but if he is looking at people like david mccormick coming he served in the white house -- mccormick, he served in the white house. this is a complete change from democratic to republican minute -- republican administrations, so they have to completely staff up and trump knows nothing about government so it makes sense that he would seek the advice of people who have been there and done it. addition inust be a for jobs, but looking for advice. david: another interesting theme or coincidence is that he seems to like military people. david mccormick is a west point graduate. what about steve nugent -- mnuchin? is he getting put to the side?

mike: not that anybody has heard. he seems close to the top of the list. trump looked at a number of people over the last week and then went to the people that he knew. jeff sessions for the attorney general job. he could easily go back to the loyalist. mnuchin has not been particularly controversial, like rudy giuliani, he has been fairly straightforward. the only thing is we are clear how loyalty is to the trump then we policies, but are not sure how loyalty donald trump is to his own economic policies. [laughter] alix: how easily will they get approved? mike: easily. democrats change the rules because the republicans were blocking everybody. somebodyneed 51 to get approved. there is almost no way for the democrats to stop his

appointees. what will slow them down as if they get a very late start getting through all of the clearance process. you have to fill out a 127-page form, you have to provide years of tax returns and things like that and that takes time and the fbi has to do the background check on you. if they get a late start, it could take time to get everybody in place. david: mike, thank you very much. alix: we do have some breaking news for you. the fed vice chair stanley fischer is speaking at the council on foreign relations. he said that growth has picked up and inflation is firming toward 2%. he says there is no sign that u.s. financial positions are not being eroded. this is continuing the conversation of fed officials saying a certain type of stimulus may impact how we manage. david: if you get to 100% on w.a.r. p, do they have no meeting? alix: wouldn't that be nice.

[laughter] jonathan: the words economic potential play into the chart earlier. this is something that stanley fischer has beaten the drum about a couple of times. the debateto be happening between the central banks not only in the united states, but also in the eurozone. if you ask john cryan what this means for deutsche bank, he will to you one thing, and that he will tell you another. david: that is exactly my question. is he really think the big banks? you need to have strong banks to have a strong economy and they have not seen evidence that it is hurting them. alix: the question in the short-term basis, what does that

do to monetary conditions? we have seen monetary conditions start to tighten a touch. that is the next question. imagine some chief executives are a little bit happier, but it has got to continue, it has got to last. we are now sitting at an all-time high. joining us now is bob doll. i believe, we have not seen a rally like this since 2003. can you talk to me about the importance, the significance of the corporate tax cut to small caps in the country? bob: there is no question that the tax reduction, which is probably in front of us, is better for small-cap company. for more of them pay a full tax rate. they are primarily domestic companies. we are in an environment where, as the dollar moves up and the

trump administration favors things domestic, small companies get another wind in their sales. is this all good for small companies? compared to big companie yes. since money is moving into the equity market for the first time in some time, where are you going to go? expensive compared to big cap names is another reason they are doing well. there is hope that this repatriation money will be brought home and used for buybacks. let's talk about the difference between buying back stock and buying back debt. many of these companies have been raising debt to do it they would otherwise have done with the cash. are they going to bring the cash home and by the debt and disappoint people? bob: i suspect there will be some of that.

back to what you said about interest rates, if they are near zero, you cannot blame a corporate ceo for going out and borrowing money to buy back stock. it is going to be a problem with low interest rates, they cause distortions. if we normalize rates, it is a little less interesting to buy back stock and maybe i will make investments. alix: looking at your model for 2017, how do you do it? what kind of corporate tax rate do you include? what does it mean for earnings? bob: i think it is a little too soon to know. we don't know what house republicans are going to permit the trump administration to get away with. 15 is a pretty low number. my guess is that it will be more like 20 or 25 because somehow these things are going to have to get paid for. , thater the rate is brings earnings and expectations up some. kind ofnot been in a

world for some time despite the economy starting to do a little bit better. based on earnings growth, we still looking at 13%. if you get the corporate tax rate, how much does that need to re-rate lower? bob: maybe we will need to get to those kind of numbers. thed on a flat tax rate, rate was not believed by portfolio managers. it was believed to be too high. with the dollar moving back up, that begins to put a little bit of a? -- little bit of a question mark on the financials. jonathan: let's talk about what is happening with the bond market. the shape of the curve cups the banks. the overall yields, the overall levels is a tightening of financial conditions. when we start to see that

reflected in the broader risk rally? bob: look, i think the stock market and the bond market compared to one another, you still have the yield on the s&p 500 similar to a 10 year treasury. i think that is the case. rates begin to impede progress? i think it is about pace rather than level. if we continue with this vicious pace upward and rates, the stock market will begin to struggle and if it is a slow, steady rise from these low levels, we will be fine. will be staying with us. now, let's get an update on what is making headlines outside the business world. first word news. >> thank you, david. angela merkel has put an end to speculation about her future and concerns that she will run for a

fourth term. she is positioning herself as the stable one in exceptionally difficult times. she said she plans to serve a healthrm at her front -- allows it. the surprise leader for the conservative party in france. the runoff next sunday. meanwhile, french police say they thwarted a potential terrorist attack. they arrested seven people in strasburg and marseille. the arrests come five days before the opening of the christmas market. global news. this is bloomberg. u.s. equity futures right

around the highest of the session. earnings and revenue missed estimates and the chicken operating margins slumped to 7.8%. last year, chicken prices soared because of the avian flu and now the margins are getting hurt. also taking a look at international game technology. this company beat by a penny on earnings. the revenue was slightly better as well. bottom line was up 30% over the last year. lottery machines and slot machines helped to move -- boost sales. abercrombie & fitch got cut to underperform. its price target is $12. rbc sees sizable risks for earnings estimates. can i get a break. abercrombie was pummeled on friday. it is off by two .5% in premarket. david: coming up is your

favorite, oil, it rallies for a second day. iran signals optimism over and opec agreement. later, the euro trying to snap its worst run of losses since it debuted in 1999. could euro-dollar parity be around the corner? that is all ahead. this is bloomberg. ♪

alix: let's get a check of the markets. jonathan: we are one hour and 15 minutes away from the cash open in new york. driven by what is happening in the commodity markets, switch up the board. goldman sachs gets an upgrade. wti, alix. on alix: oil volatility, take a

look at the bloomberg. really captures what could happen in the opec meeting next week. .ob doll rhetoric abounds, volatility picks up, how do you deal with that when it comes to investing? bob: well, the track record on those deals coming together and staying in place is very weak. my best guess, our best guess, the way we are positioning is even if we get a deal, we still have access supply on the market and therefore opec does not have a strong hand. oil: will you want to short rises and by producers in the u.s. at the same time? how do you hedge that? in our equity portfolios, we maintain underweight positions in equity stocks and try to trade around when the

news looks dark. you can buy little something when it looks like an opec deal. the stocks are up, you let a little bit ago. oil is still trading in these 40's at pretty low levels, we have to agree. david: what about energy stocks that are not particularly pumping oil out of the ground, but are providing equipment. bob: everybody kind of knows that and those stocks have been in price.bid up the whole infrastructure area, the stocks have really run. alix: four years, in fact. the confusing macrolevel part is oil's relationship to the dollar. you thought oil would get pummeled. take a look at the bloomberg. it shows this correlation. typically dollar and oil are correlated negatively.

sort of summa what is happening in the market. all normal correlations are totally off their head? to putat is a great way it. the correlations we have experienced the last several years are coming apart. the temporary postelection break, you see the stocks-bonds relationship breakdown, i wonder how temporary that is? first ofeems to me all, the economy is doing a bit better. initial unemployment games -- claims, the last -- lowest in a decade. the prior two months, revised upward. prior to the election, the economy is doing of it better. then you bring the election and the possibility of some more growth, more real growth, a little more inflation, more nominal growth. it tends to be good news for stocks and not so good news for bonds. that divergence is not a

surprise. the backup and yields has been very vicious and we could get some resting before that moves. i think the next noticeable move will be up again for yields. copper is a good example of that. rally a monster copper with trump, but in all actuality, it started before the election. talk about the underlying fundamentals regardless of what infrastructure package gets passed next year. bob: the fact that the u.s. economy is doing a bit better. mixed results, but not uniformly negative out of europe and china. there is more going on. you go around the cities in the united states, you see cranes everywhere. they use copper. i think economic growth picking up from very slow to more moderate is more of the use of copper. as you point out, layer some more infrastructure spending in the years to come, copper is going to move up. alix: how do you express that

view if we see no opec deal but we do see stronger growth, what is the best conviction trade for that? an equitynk within portfolio, you just run more cyclicals and fewer defenses. the popular story for the last few years has been, give me yield, give me perceived safety, give me low volatility. those things got up to crazy prices. now, they are struggling compared to the opposites. that is the trade. alix: bob doll, great to have you with us. jonathan: coming up on this program, testing demand. the u.s. government plans to sell $18 billion in treasuries this week. that is next. from new york city, as we count you down to the open, after two straight weeks of gains, we could resume the postelection rally. we are up 23 points on the dow. 5 points on the s&p 500. we have been talking about the bid in the oil market.

yields lower by 4 basis points. we will break down the bond market and some of the supply coming into it next. from new york, this is bloomberg. ♪

jonathan: from new york, this is bloomberg. it is all about treasury auctions this week. beginning with a sale of $26 billion of two-year debt. the u.s. plans to sell five-year debt on tuesday. seven-year debt on wednesday. joining us now is the bloomberg credit strategist. a lot of supply coming into the market this week. talk to me about the significance of the front end of the curve right now. simon: absolutely. we have $88 billion in total expected on tuesday and wednesday, plus floating paper to come as well. it is the front end of the curve

that is going to be particularly interesting. the front part of the credit curve, most rate sensitive in terms of those three auctions. some traders in london expecting demand to be a little less exuberant than what one might have expected had the fed not been expected to raise rates next month. jonathan: we had a backup the last time the united states came to market with debt. 1.4ow are north of percentage point in going back to levels we have not seen since 2010, 2011. we are talking about these levels, what are we talking about for the front-end? , there wereront-end expectations that it could hit 1.25%. certainly upside potential given the fed is expected to go in december. it depends on your expectations

on the level of monetary tightening thereafter, plus the backdrop of incremental growth going forward in the early stages of mr. trump's administration. jonathan: just quickly, how the rate story informs credit more broadly, high yield and investment grade. if the issue is the expression in the bond market over to credit a little bit different than some might expect? simon: absolutely. there is a really interesting story in credit. as rates go higher, there was an argument that, by definition, if you have something you are trying to hit, you don't have to go quite so far down the quality curve. being able to maintain and hit that yield. at the same time, interest rate sensitivity through duration is reflected in a shorter duration profile at the high-yield index. from a total perform return

performance expected, high-yield outperforms ig and a volatile rising rate environment. you have seen a little bit of unwinding in ig over the last couple weeks and a relatively firm performance within high-yield. you have a little bit of a paradox. really interesting stuff. great to have you with us, simon. some of the treasury options and what it means to credit more generally. coming up on the program, dollar dominant. the greenback recorded its best rally against the yen since 16-17 years ago. its longest winning streak against the euro since its debut. from new york, this is bloomberg. ♪

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opec will agree to cut out lead and copper over 2%. political risk in europe. german chancellor merkel ends speculation that she will run for a fourth term. interviewed for his. featured three potential candidates. discussing the commodity rally. futures up 19 point. europe, the bond market, to biggest spike on the two-year yield, treasuries are big today.

the dollar coming off a 10 day winning streak. dollar-yen retracing some of the move. looking at what key banks are looking at. today is retail. analyst joins us. the impact of trump's victory has been felt across many sectors. retail has gotten a big boost. if we get a trade war? >> that is one of the biggest risks around trump. we have seen the market rally around expectations and higher wages. down the road, the real question is what happens with apparel imports because if trump were to wake a trade war, we would see significant tariffs.

be able toill not pass that on to the consumer. alix: are there retailers that can pass those -- has on those higher terrorists -- higher tariffs? seeaine: in 2012, we did the higher brands passed through smaller increases. the lower end had a much harder time and cell growth margins decline. that is what we are worried about is the lower and middle income. the other side is it is about the retail trade advantage. thatlers have not managed part well. going into the holiday season, how are they managing it? lorraine: that is good news for

this holiday season. last year, it was warm and made for a very difficult holiday season for apparel. sales were down and margins were horrible. the good news is they learned their lesson. seeing -- we are retailers cut back on the inventory. we are expecting to see much higher margins. we are expecting a 1% increase in sales and much higher gross margins even if weather marginalizes. alix: taking a look at the potential risk of tariffs. convention biggest for trade on retail stores? lorraine: burlington has significant growth potential as a catch up on margins for their competitors. they struggled last year with the warm weather. we think they can continue to

post high-growth earnings. alix: thank you so much for your perspective. talking about your winter weather. jon: president-elect donald trump has pledged to boost spending. coming up, the biggest two-week advancing the past 10 trading sessions. derek, great to have you with us. the dollar strength story. the shift away from economics to politics. walk us through it. >> currencies are determined by three things -- cyclical structure and political factors. has become an entirely trump story. the markets have latched onto one aspect of the political

agenda, which is the fiscal story and trump inflation. it has driven inflation on the dollar. how do you factor the political story into what you are thinking with the sterling? >> it is slipping from being too political. the euro, the anticipation is that politics will get much more traction. dollar has become a middle ground in the transition globally towards politics being so dominant in fx. it david: talk about the politics of the euro and angela merkel. for the a real desire german people to have a stronger currency. merkelissue for angela

is one for continuity. benefited frome having a weaker currency instead of being in a deutsche market environment. angela merkel by saying she would stay for a fourth term has benefited. that reduces the probability of the euro-dollar going to parity. alix: we have been talking about the dollar. this is the u.s. trade weighted dollar during different presidencies. that big red area is reagan. we saw a big rally as he unleashed his massive stimulus. when bush released his stimulus, it did not have as much of an impact. >> this will be more of the

reagan aspect. fiscal policy is having a positive influence on currency. hypersensitive to small changes in interest rates. rates are just so low. to get a tiny change in interest rates, it feels like a big move. fiscal delivery, 10 year bond year -- 10 year bond yields have gone up and have had much more of an influence on the dollar. jon: you get into work at hsbc andget on the phones discuss what is happening in london. mr. david bloom hates to be mr. consensus, but dollar strength is the consensus right now. we had a gut feeling around cable. selling cable was one of our big calls. sometimes the consensus is right

and sometimes you have to recognize that the fundamentals have changed. a trump presidency is a game changer. you can try to look for something outlandish. instance, defensible response until we get more clarity is anticipated. protection, immigration, homeland investigation act. jon: when you have this discussion over the fx market, what is the big headwind that came out? internally. and the euro-dollar. how low does that take us? we came around to the idea they the euro will not break up. election andnch the german election, what we realized is growing skepticism.

spend just a moment on the yen. where would that be oversold? take for example the brazilian riyal. is -- you look at a number like a level and think it is a pretty horrific number. you get there bit by bit by bit. for the yen, that is what is happening. i don't know a few have seen the stories about the civil unrest this morning. deal withrying to reform in brazilas more of that to come, and that raises a red flag. alix: what confuses me is a selloff makes sense for a stronger dollar, but the yen got hammered down by 8% since the election.

why would we see so much selling why --again -- why will why would we see so much selling in the again? >> that was the obvious take away. it seems to be trading on yield. u.s. deals are free to move. japanese yields are not. clean-yen represents a expectation. japanese yields are being cut. view, youave a dollar can express it clearly. jon: how your world straddles the world with commodities and gold is in the middle. buy gold? walk me through it. >> initial reaction at this

trump victory is to focus the risk borrowing on e.m. rise in inflation. we are bullish gold. they are talking about gold gettingwhen you think about the ingredients that trump could bring in a goal perspective is mostly bullish. good to see you. minister, former prime francois lond leaves the field and france. what could it mean for president-elect trump? this is bloomberg.

♪ >> this is "bloomberg daybreak." coming up, please head of strategy with his outlook for the market. head ofg up, barclays strategy with his outlook for the market. the french presidential election took an unexpected turn with a surprising strong showing from france law in the republican primary. joining us on the telephone from washington is jacob kierkegaard from the institute of -- let's start with france and what

is going on in france? obvious exhibitionist populism coming back to the floor. is that in your view? seen.s is what we have cois is the most reformed candidate in the primary. he is out of the mainstream enduse he is advocating an to layoffs of large numbers of public employees. he may have been able to cap into resentment -- been able to tap the into resentment. david: having heard him, he is calling an end to the federal movement in europe. he is against big government and more for privatization which

feels like it is a rebellion against the establishment. >> it is true. he has opposed federalism in europe. he is not opposed to more integration in the eurozone. he is in favor of privatizing additional parts of the french government, which is something most economists would advocate and something i would say combined with his labor market reforms should have a chance to revitalize the french economy. alix: what is his back to the presidency now? most: because he is the antistatist candidate, you could have a scenario where a socialist candidate sitting hollande, orancois the prime minister runs against him in the first round of the general presidential election on andry pro-statist platform,

the competition is who gets into the second round these are the -- who gets into the second round? we will have to see. seeing how unpopular the socialist government is, he is the favorite now. david: take us into germany because the other news was angela merkel saying she would run for a fourth term. him?e more aligned with how with that work between germany and france? if he is serious about his labor market reforms in the state sector in france making the french economy more competitive, yeah, that is an agenda that angela merkel could sign up to quiet easily -- angela merkel could sign up quite easily. and he talks a lot about the

debt that france has incurred recently. that is an agenda that angela merkel is quite accustomed to. he is from the central right which angela merkel is too. in many ways, the potential election of both of them with --a fair degree of continuity and a day deal a partnership between france and germany. angelaf we do get a merkel reelection, that is different from the election we got in the u.k. and in the u.s. what happens to the world dynamic when you have a protectionist rhetoric out of the u.k. and u.s., at a different unity in europe? think there is a firewall to a certain extent in that scenario against intectionism and populism continental europe. it changes -- we will see

e.u. 27 will be able to maintain a general platform of open trade with the rest of the world. but i certainly think you have a better opportunity to do so arguably been the previous leaders such as the united states right now. how much of what we are seeing in germany and france is driven by the immigration issue and the refugees coming out of the middle east? is that drive and the divisions at this point, or is it a larger dissatisfaction with the economic state of things? jacob: it is mostly the latter. if you look at angela merkel's approval ratings, they have rebounded significantly afr taken a beating because of the refugee inflows. haveuropean leaders managed to materially reduce the

info refugees. -- reduce the inflow of refugees. the votes here, the fact that angela merkel is the outright favorite in germany is therstandable looking at economics. the german economy is at full employment and doing very, very well. you almost expect her to be reelected on that front. francois saysr there is a chase for a different direction and france much less a line on taxes and a new front. kierkegaard coming to us from washington, a senior fellow from the peterson institute. here's emma chandra your bloomberg business flash.

global banks present a bigger risk to the financial system this year than last. citigroup, bank of america, and wells fargo face higher capital surcharges. chicago'sf workers at o'hare airport may go on strike this week. i get hammers, cabinet keep leaders -- coming up, trump's affect the markets. but the president-elect has the smallgains for caps. that is in battle of the charts. that ♪ is next. and this is bloomberg.

♪

from new york city, this is bloomberg. i'm jonathan ferro and we are 37 minutes away from the cash open. futures up this morning, up 21 points on the positive. equities rally in europe driven by some commodity produced. switch up the board -- session highs. we traded $46. dollar strengthened we have seen over the 10 days, we give up some of that with the dollar-yen and the cable rate pushing back. david? for -- we arew starting to make sure we get -- time now for battle of the charts. ali we are going to start with you. when the blue line rises

, it means financial conditions are tightening. financial conditions are tightening, but the s&p continues to ral. would see itnk you looser at the rally, so things could be a lot worse. david: mike, this is your debut. go for it. mike: huge rally in small caps. s&p blue cap has rallied for the last eight days. strongaps benefit from a dollar. there is speculation that the small construction, materials companies will benefit from a trump stimulus plans. clinton'sllary

regulations are helping. thanks her rallying across the board. huge rally in small caps. these are two great charts. i am going to give it to mike. alix: whatever. david: you did well, too. [laughter] alix: coming up in the next hour, barclays head of u.s. strategy breaks down the big rally in small caps, an 11 day winning streak. counting down to the opening bell from global headquarters in new york city. it futures positive, up 20 points on the dow. this is bloomberg. ♪

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jon: good morning to you. this is "bloomberg daybreak." i'm jonathan ferro along with david westin and alix steel. positive, 5, 6 points on the session driven by the prospect of a trump presidency. wti, session highs at the moment, up by two percentage points. the big dollar rally over the preceding 10 days, we give some of that up. what weonathan, this is need to know -- commodities get a boost, crude oil jumping on optimism and opec will agree to cut output. copper is up over 2.5%. the former prime minister in france is the front runner of the 2017 election after knocking out nicolas and surprise victory

in the first on a primaries. and german chancellor angela merkel and he does months of speculation -- angela merkel ends much speculation say she will run for a fourth term. more ofp interviewed his potential cabinet members as his golf course. that is what you need to know. alix: two big stories in the market, the raleigh and commodities -- the raleigh -- two big stories in the market -- the rally and commodities. pop andetting a big lead up. this is copper's best gain. investorsare much -- are bullish on copper. global inventories were down 34% since the end of september.

these moving on fundamental data, not just on trump's expectations. bought foris being $24.25 a share. this is a play on trump and housing market into the u.s. lifelock is being bought by $2.3 billion. micro circuits is bidding for micron. enterprise cloud data play. alix: thank you. the dollar posting 10 days straight gains.

the lock as we have seen since 2012. joining us from london is the head of your's fx strategy. -- is ahead of europe's fx strategy. has been buying from where you are sitting? walk us through it all. richard: when you look at fx market, there are multiple ways to look at it. we have had a very strong couple .f weeks of the euro selling over the short-term positioning aspect, we have seen it somewhat stretched, and there will be consolidation. for the u.s. holiday, it does not lead traders and high-frequency marketing participants that confident. if you look beyond the one because verizon to the end of a big changeere is going through markets, and this

is the beginning of the dollar divan. jon: the beginning of the dollar demand. team isout by your being the story of equilibrium. have we broken out of that story? have the right potential to break. we have not broken on the technical side at this stage. but what kept the euro and equilibrium? was it the idf capital lows or ? e surplus that europe has next year, those surpluses will decrease. part of that will be the economic effect of the u.k. you have a fiscal impulse in the u.s. that will be a big magnet, and that is what we think will try to break that equilibrium. david: the biggest regulators of the dollars are not going along

the way you expected. it is the analysts against the hedge funds. if you see that in the markets, why would that be? richard: you have to keep in mind there is a calendar year and effect. the are in the middle of november. how much trading is left? for your hedge fund community in particular, that is a big deterrent that if you had a very good up year, you don't want to lose it within the last month. at the same point in time, it is a matter of horizon. what we have seen is a shock that has come through markets. part of that, they were not positioned for. an unwind of market participants and traders being on the other side of the trade. -- nowy are taking it they are taking a deeper look on what the potential is and how long they want to go. that take some time, but it should be the direction we are heading. jon: it feels like this runaway freight train that no one wants

to stand in the way of. once we get out of the shakeup in the unwind and come out the other side, i want to think about the headwinds. the headwinds are about expectations. we are overestimating, may become a u.s. growth, and perhaps underestimating the potential of the eurozone economy and the political shock. what you say back to that? richard: well, with the look at it, if i try to think about it, it is a long cycle. you're looking at the expectation of fiscal stimulus getting added in at the end of the cycle. this is what we expected much earlier. an expectation that will be delivered next year. the other part, at least in currency markets, is a lot of the dollar demand has come from rate differentials. how much global fixed income

curves are allowed to allow -- are allowed to either sell off, like in japan with the boj? it will determine how far the currency market can go. if you don't see those rate differentials open up between the u.s. and europe for the u.s. and japan, you are going to be disappointed by how the currency market shift. -- : goldman sachs how much of that is in dollars or needs to be converted? what is he a click potential on the dollar? is not: the exact amount really known. the important point is for any type of a reverse capital flow back any door a to the u.s., -- of a reverse flow back into the

u.s., it will drive a lot of dollar demand from converting back into the dollar. it is broadly expected that part of that will be siphoned off through taxes or some type of investments. you have a second quarter of fact that becomes an action layer of stimulus on the u.s.. a lot of the expectations driving people's interests is not a conversion in fx markets, but what with that flow back into the u.s. navy u.s. growth? and how is it invested? thank you so much for being with us from london today. for nothing on his outside the business world, we go to emma chandra. emma: thank you, david. olivea may is offering an branch to business in a speech, she said she will not force companies to appoint union representatives. she urged the executives not to miss the opportunity presented

by brexit. >> the decision of the british people gives us a want and a generation chance to shape any future for our nation. a chance to build a stronger, favor country. that is the kind change people voted for. not just to leave the european union, but to change the way our country works and the people for whom it works for ever. at an annualke conference. authorities say lec police officers were ambushed in three separate cities over the weekend. a shooting in san antonio, texas proved fatal. authorities are searching for suspects. a fourth officer was shot in kansas city. president obama says he intends to give president-elect donald trump space to lead the u.s. and said his own agenda, but mr. obama reserves the right to insert himself into the public debate if he thinks core american values are at stake. the president made his remarks

in peru. dayal news 24 hours a powered by more than 2600 journalists and analysts and more than 120 countries. i'm emma chandra. david: thank you very much. aming up, optimism about possible opec production freeze has oil climbing. and one of our guests, jonathan glionna of barclays said the s&p 500 will get a 700% boost. we will give you the details. this is bloomberg. ♪

on theil moving higher potential that opec will be to deal to cut production. positive rhetoric over the weekend. this is a truck and make it opec

path. -- may give opec pause produces are responding to higher oil prices. prices has a cut in all pop, u.s. producers were russian to the market flood the market with oil. trader? ou do as a -- why would opec want to refinancing get oil back on the market? seeing this talk about the deal. it has always fallen apart in the past. indicated they would

consider halting production curving some of the production. that is why we have this dragged going on. we had this rally despite all the head when. another count. another positive momentum for the upside. i do think what prices will reach $50 coming into the meeting. that will be a year-end target. pricesson i don't see going up much higher is that i strongly believe the fed will raise rates december 14. that will curb some of the optimism. buyingt see producers inputs and trying to hedge the production going forward into that first quarter. is your bottom call 45? out, and 50reak will be the new norm where 45

was. 45 being theo into bottom of 50 being more likely. 55 to the upside. of 2016 because an inflationary pressures, we will see oil push into $60. it is that out of the question to see oil having momentum upwards. alix: what is crazy is the dollar and oil are moving together. they are positively correlated. does that actually last? >> that was a big concern. you always get those big headwinds that we are seeing. we are not seeing that with crude oil. but continues to go up when you have all of these bearish headwinds, it tells you there's something behind it and some in a capital inflow. alix: thank you so much.

david? david: it is been nearly two weeks since the u.s. election and markets have responded to donald trump's victory. gilbert -- getting a positive outlook on the president-elect. -- weneeded a built needed a bit more yield. this is good. he said very little is pertinent. it does show that the rhetoric in the election is not the real donald trump. he is thoughtful and i think he will change his rhetoric, and change what he is going to do now that he has won the presidency. >> one thing that struck me is that ireland issued 100 year bonds. that they are

expected to borrow more. i don't know about the u.s., but i do think central banks should be issuing long-term debt. there are people wanting to buy them to match liabilities. if i was a central banker, i would be issuing them as long as i possibly could. you thought that some of these flows were coming back in. part of it has been this relentless dollar ascent that we have seen. as part of that protection the , are youward looking , and constructive on atms if so, she would be looking at markets that have more internal demand?

starting with your last question first. we still like india because of the internal story. again, there are some good companies there there we have invested any delay. -- there are some good companies that we have invested in. if he does go for a tax cut, that is going to suck imports into the u.s., which should theoretically be good for emerging markets. i am not as negative as a lot of people. i have to be positive on emerging markets. if i am not, no one is going to be. no, i think they are fine and the growth is still there. david: that was martin gilbert. barons,nt page of

issuing 100 year debt. it makes sense when yields are this low. investors got a lesson on duration risks. the treasury will have to pay up for it at a level that something i will anticipate. alix: these are defenders of president-elect trump saying don't worry. what the campaign shows is not who he is. we do not know who he is except as a real estate investor. my to refill better about that? alix: if you wanted to issue longer-term debt, you should have done that before. jon: maybe june or july? bond investors in the era of cheap money may be winners in the wake of the trump win. details from new york as we count down to the open. this is bloomberg. ♪

>> this is "bloomberg daybreak." i'm david westin. much has said about the market since beltran's win. -- market since donald trump's win. it we are joined by jonathan glionna. he has a piece on the bloomberg about winners and losers. let's start with the treasury itself because they have options coming up. loser?treasury a jonathan: it is the complete opposite from borrows and savers. you look at the options coming up this week and it is a big persif the selloff will , or if people will say this has

gone far enough in the world of low interest rates. alix: who may be buying? those indirect bidders are key to this. you will have foreign investors come in and buy because we had the better yields. does that thesis cold water? jonathan: the indirect bidders will be the ones to look for because the u.s. has been relying on these foreign buyers of the last several years. banks are big for foreign as well. what i like to look at is the hedge yield you have on u.s. bonds. out has really widened quiet a bit. u.s. treasuries look really attractive on a foreign basis. it will be interesting to see that foreign bid. jon: how attractive is all of

this for the pension fund to master liabilities? jonathan: very significant. they have been waiting for a long time. liabilities and the go down fighting bit -- the liabilities go down quite a bit. does this have a potential of bringing funds back into the bond market? idea is a have had to go into stocks to match their yield bogeys. now that interest rates are going up, they are able to immunize themselves by locking andonger and higher rates match the liabilities. jon: we have had a weekend of talk over 100 year bonds.

traditionally, the treasuries to what wall street wants. why would they change things? jonathan: the idea was to do with a long-term bond sales or you could see all of these countries locking in with the low interest rates. are backing yields up, is there a demand for this long duration debt because the 30 year has gone up half a percentage point. david: explain to me exactly what the bond market will be likely to do? yield -- the yield on the 30 year has gone up. what with the yield look back on 100 years? jonathan: the way that bond math works, it is not apples to apples where it will be triple the yield on the 30 year. the yield curve will flatten out. you are looking at higher yields than 3%.

maybe 5%, 6%. who knows. david: thank you so much. that is jonathan glionna from bloomberg news. alix: global logistics will by energy transfer partners and kelsi worrell will be the ceo of the combined partnership. inking for more details terms of what the price went for. this is a tie up of the infrastructure plan. it is a pipeline is a consolidation in that area. jon: the opening bell up next and futures firmer after two weeks of gains. from new york, this is bloomberg. ♪ wow, x1 has netflix?

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♪ the crown, marco polo, lost and found ♪ ♪ grace and frankie, hemlock grove, season one of...! ♪ show me house of cards. finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. ways wins. especially in my business. with slow internet from the phone company, you can't keep up. you're stuck, watching spinning wheels and progress bars until someone else scoops your story. switch to comcast business. with high-speed internet up to 10 gigabits per second. you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. jon: this is bloomberg daybreak. moments away from the opening bell. futures positive across the

board at the moment. we are up by 15 points on the dow positive by five six points on the s&p 500. 10 straight days of games. 1% or itar, a third of dollar weakness comes into this market after 10 days of strength. 10 year treasuries, yields lower by three basis points after the biggest two weeks bike in yields on that security since 2001. alix steel. alix: crude being up and that is helping boost overall indices. dow jones up by -- s&p up by 5.5 points. s&p is four points under its record close and about seven point under its intraday highs. watching record levels as we head into trading today. the nasdaq slipping into positive territory up 3/10 of 1%. not only the small caps moving since the election, a commodity

market having a huge boost when it comes to stocks. conoco up 2%. freeport-mcmoran is up by about 5%. oil at the highest price so far this month. copper at its highest level in two weeks helping all across the board. you had that dollar which is weaker today but fundamentals were also firming. copper inventories have been drawn by about 34%. that fundamentally helping some of the copper names. late breaking news on some eminent a that came in the last few minutes. energy transfer partners will be teaming up three at this will combine a natural gas pipeline, mitch green operator in an oil-rich cream operator. about moving natural gas and oil about the united states. a unit for you transaction. it's hard to suss out the number . if you look on a unit basis it's about 10% premium. sunoco will be buying energy transfer partners. in terms of what the markets are

looking at, the s&p and what winds up meaning for overall financial conditions. this is a chart of the day for me. i'm going to go ahead and explain it. the whe line is the s&p record levels and the blue line is the goldman sachs bloomberg financial conditions index inverted so you can see how the two move in lockstep. as you have an equity selloff, as everything warns of hurting financial conditions, conditions tighten. that is not happening this time. equities continue to rally but financial conditions are tightening and equities are about 25% of the financial conditions index so this is puzzling and raises the question how much worse our financial conditions it equities aligned up rolling over. in: i will -- let's bring jonathan glionna. tighter financial conditions.

equities keep breaking higher. walk me through it. jonathan: if you relate it to earnings-per-share growth, you are getting tighter financial conditions in the strength of the dire holler -- higher interest rates. we think there are other offsets that make the outlook for 17 really good. our base case assumption is that you are a -- you are going to get -- this will jump probably up to 7%. the things that are driving it are rebound in sales because we are getting more inflation, more nominal gdp growth, with a little bit of an offset from some things like higher wages, which we think are going to weigh on it into your question, tighter financial conditions. we think the strength of the dollar is going to hurt eps growth next year. overall you are looking at a better environment. jon: s&p 500 pushing back to closing record highs.

the eps growth you guys predict which would be the strongest since 2014 put that against where the market is trading for me. jonathan: as you mentioned, the market is close to a record high . if we get the eps growth we are forecasting next year you are going to drive eps to a record high also. the market is moving along side improvements and earnings were getting from the s&p 500. andd: give me the over under. what could make it higher than 7% and what could make it lower? jonathan: the biggest sensitivity is to the plans presented by president-elect trump. what we did for our clients was lay out the different pieces of his plan and what it might mean for eps growth next year. i will tell you the net result is if president-elect trump's plans are implemented eps growth goes from 7% of the 12%. it's actually upside. let me give you sensitivities around it. the biggest piece of it that

moves it the most is the proposed tax cut. president-elect trump has proposed reducing the corporate tax rate down to 15%. andou assume that happens s&p 500 companies do get a tax break on u.s. earnings we think that can add 10% earnings-per-share growth in 2017. there are sensitivities to president-elect trump's plans but we think it is upside sensitivity. jon: the research you have done, how do you get a clean look at what this means for the company by company when the affected tax rate of these companies can be different for the domestic small caps, i get it. for the big caps, isn't it more difficult to do that? jonathan: it is the way we approached it was setting our base case eps forecast at 7% and provide sensitivities. as we get more clarity around the plans and specifics we can adopt those sensitivities into

our base case. the effective tax rate for s&p 500 companies is more like 26%. it varies widely by company, by sector, industry. we need more information as we adopt these policies into our base case plan. i think the sensitivity is noteworthy that it is mostly up, not down. alix: not only do we have s&p trading above record closing high but the dow trading above record close. thething that confuses me, backup in yields, what comes to the corporate bond market we did not see those credit spreads widen. is that a risk going forward for equities? jonathan: i don't think so. we often see a buffer. when yields go up credit spreads go down, buffering the overall move in yield to the corporate bond market. i think the corporate bond market remains what of the strong positives for the s&p 500

. companies can finance cheaply. they can finance ongoing operations, buybacks, ma day. we started about financial conditions getting tighter. thencial conditions in corporate bond market remain generous for the s&p 500. david: we talked about a wish picture -- a bullish picture. if you had significant curtailment of foreign trade, what does that do to earnings-per-share estimate? jonathan: i don't want to come off as too bullish. in our motto, the imposition of tariffs does increase inflation. -- inflation causes are eps estimate to come down. not nearly as big as the proposed tax-cut. what you do see is a number of things in our assumption. you have a little bit of slower real gdp growth. more inflation due to the potential for tariffs.

the tax cut outweighs all a when it comes to predicting earnings-per-share. alix: what about sales estimates? jonathan: sales estimates are going to look better. we've seen no growth of the s&p 500 -- no sales growth in the s&p 500 for two years now. a lot of that is driven by higher nominal gdp growth we are that just in the u.s. but also internationally. we think there's going to be a sales recovery for the s&p 500. , a 12 dayussell index in a row of games. the nasdaq had an intraday record. tell me when you start getting worried this is getting to one way, too euphoric. the discussions about for resident electrode two weeks ago before he was elected would have been so different. when do you get concerned this is getting to one way? jonathan: we are not much higher than we were a couple months ago in the s&p 500. acta basically the record. i think what is maybe more interesting are the trades

within sectors and within industries, as opposed to outright market directional calls. we agree with some of the moves you've seen in the market recently. health-care stocks, they are doing well. financial stocks, we think they should have done well. there are others we don't agree with as much. infrastructure stocks have had a tremendous rally. less enthusiastic about that continuing. i think the overall market direction is perhaps more uncertain. our price target for the s&p 500 continues to be 2200 so we are not seeing a tremendous amount of upside and we think the more interesting piece in the market is these sector-based and industry based trades. jon: jonathan glionna. coming up, donald trump has tough words for china and trade during his campaign. at the aipac meeting over the weekend, china jockeys to be the champion of free trade.

more record highs. on the nasdaqgh and potentially closing day high on the s&p 500. we break through the august level on the s&p. ♪

next owner of the tampa bay lightning. jon: as we kick off a new trading week potentially we close with record highs. high on a closing

basis of both of those markets. the nasdaq up by 6/10 of 1%. the s&p 500 up by one half of 1% in the dow up by one third of 1% . about 13 minutes into the session on this monday. for more, but skipped a few movers and get across to abigail doolittle. abigail: good morning. we have some merger movers. headwater. shares of the building materials company are higher. soaring on the news that australian tell peralta is buying a headters. u.s.will double row costs operations. as for another winner on some and and a action we are at lifelock. shares of the identity theft protection company are higher on the news that symantec has bought lifelock for about $2.3 billion.

this is going to combine the identity theft product with symantec postmortem antivirus. as for what it means for the stock, we going to the bloomberg and take a look at btv 5073. it could come down to a recovery in revenue. in white we have the stock over the long-term. lots of trading action volatility. uncertainty on the part of investors. and blue we have revenue which recently took a slide. if this deal can help revenue recovery along with bluecoat security it could help the stock break at about long-term trading range. david: the asia-pacific economic cooperation leaders gathered in lima, peru. the big discussion being china's efforts to be the world champion in global trade. michael mckee just returned from the summit. go?was the piece

what came out of the summit? michael: given that they had 21 liters it was not so much china as donald trump and what it means for china that was at the top of everybody's agenda. the idea that the u.s. would pull out of the transpacific partnership and sees leadership in pacific -- seed leadership the china. thatdoes not mean the idea trait among all the other countries it is. china has been working on a trade deal announced wants to full that into something called the free trade area of the pacific. another acronym we won't go into. that does not include the united states right now. we could be pushed out of it. it's china could be setting trade rules for the pacific rim for the next 30 years if this were to go through. jon: in the meantime you have an

equity market at an all-time high. a certain irony that the one thing trump can almost do so low as the president is something on trade and probably the one thing the market is not really paying much attention to. a big thing the market is paying attention to is one of the things they need congress to get through. put those things together for me and why the markets and all-time high based on the prospect of what's coming. michael: i can tell you what the market is at an all-time high. if i could, i would be trading and a multimillionaire. , people arering is betting on some of the things that may happen under trump. might as well get in early. if you think you can get out to my -- it is also getting to the end of the year and people are starting to make their portfolios look at her. it may be a combination of those things. trump can do a lot of damage to the economy on trade if he wants to buy pulling out of these trade deals almost unilaterally. people seem to think that he won't. that he will moderate.

they think there is a good opportunity for tax cuts of some sort. we will see how far he's allowed to go. david, you have been talking .bout the idea he's bringing along the republicans who don't want to raise the deficit to get that done. the infrastructure program, which is really all about -- there are countries would benefit. if you're trying to get out in , you can see why people would want to do this. alix: the dow jones volume for this time of day is down by the 40%. put that into perspective also. what i'm interested in an action on this chart over the last hour . financial conditions versus the s&p. the blue line is goldman sachs financial index inverted. even see how it tracks the s&p. you see financial conditions tighten. now you see financial conditions tighten in the s&p rallies. is that ok? how does that work? michael: if you were to into training to that what you think

is financial conditions have gotten tighter because the dollar has gotten stronger and interest rates have gone up. when this has happened in the past, when the financial index has tightened the fed has held off on raising interest rates. that may be a little bit of the bet. david: i saw one report that perhaps donald trump is taking zar.t appointing a trade c michael: he has talked about somebody who would file cases against unfair traders. he has mentioned china a bit so that is a possibility. you could put somebody at the ustr or national economic council. they are more symbolic because these cases have to be developed but rather than suspend the treaties he could go to the wto and file trade cases. he could impose unilateral sanctions if the u.s. determines there's unfair trade. jon: great to have you with us.

about 19 minutes into the session, stock markets getting back to all-time highs. energy leading gains in the united states and europe. at the top of the hour is bloomberg markets as we come -- as we count you down. vonnie: can't wait to get the show started. we will speak with -- money coming out of em in droves. the head ofsk emerging markets for blackrock where opportunities might lie now. several em central banks meeting this week to consider their options. we will be hearing from jeremy -- donald trump's speech. they are all on the agenda. it is proposal season according to xl group. it will be talking to us from the new york stock exchange about the $100 billion wedding

business. david: i did not know there was a proposal season. alix: holidays. jon: thank you very much. coming up, in about an hour, mario draghi fleeces european parliament frustrated with lackluster economics while keeping and i on elections in france and germany. we look at key things to watch. equity market sitting near all-time high, this is bloomberg. ♪

jon: from new york city, this is bloomberg. i'm jonathan ferro. the s&p 500 and the nasdaq closed right here right now that would be in all-timeigh on a closing basis. the s&p 500 up one half of 1%. the dax up by 0.4%. driven by big gains in the a lotity market area it to discuss. a big weekend in european

politics. former prime it -- former prime minister francois fillon, knocking out nicolas sarkozy in the primary election. announcing she will run for a fourth term. mario draghi watching it all. the european parliament today. -- great toatching have you with us on the program, paul. we have seen janet yellen go in front of congress. walk me through the process, the atmosphere that will come up against mr. president draghi later on. >> this is nominally about the ecb's annual report. it is likely not to be about that at all. what it's going to mean in the european parliament and draghirg is that

will give an opening statement and policymakers will give their opinions and he will do a final wrapup toward the end which amounts in some ways to a closing statement as well. the issue, one of the issues will be what does the ecb do in the current geopolitical and economic environments. alix: mario draghi has been burned by this in the past. the market expects to much and want of getting burned. how careful is he going to be looking ahead to the next ecb meeting? paul: very careful you would imagine the message from the ecb has been pretty consistent. the message that the euro area prospect and him at the best economic recovery is continued support. that does suggest there will be extension of the current qe program past march, the currently scheduled end date.

it will be decided until december 8. the market does expect something like that. therefore the ecb has to take that into account jon:. great to get your insight head of this event. paul gordon joining us out of the frankfurt bureau. temptation would be to start talking about president-elect trump and what it means and why we are here. certainly is why we got here but there rally is very much an energy story divorce perhaps but from what is happening in d.c.. alix: brent up almost 3%. volume is actually higher than the average for this time of day for oil prices. this is the s&p oil index. up 2%. highest level since july 2015. dragging up freeport, pioneer, marathon. that is more fundamental thing. jon: talk to us about the potential for disappointment

here. opec coming up -- david: it is a talking the price play. feel me changes i have seen are iran and russia saying we might get a deal. alix: you have iran, iraq, and russia -- maybe the markets are starting to believe it. 45 to 50 not going anywhere. this is nearing the top of that range. you don't get it, what do you do, wipeout potential. david: the markets are making a lot of moves based on people talking. alix: that's the market cost job. jon: wti crude up 2.5%. that does it for bloomberg daybreak. up next, bloomberg markets. ♪

vonnie: 10:00 in a.m., 3 p.m. -- i'm vonnie quinn. mark: i mark barton, what the

bloomberg markets -- welcome to bloomberg markets. vonnie: we are going to take you from washington to tokyo and cover stories out of london, wall street and berlin. federal reserve vice chair stanley fischer says the economy has moved back to the vicinity of the central bank's targets on unemployment and inflation. we'll get a market strategist's take. mark: paul: prime minister theresa may hence the government will seek a transitional brexit deal when negotiations with the eu begin to avoid the "cliff edge that businesses fear. vonnie: incoming senate minority leader chuck schumer says he has donald trumpstop from repealing the dodd frank act. hammering home that these rules were put in place to limit wall street.