francine: a divided cartel. after 10 hours of talks, differences over the details of an opec freeze remain. scandal in south korea. president hart says she is willing to step down over corruption allegations as a controversy rattles asia's fourth-largest economy. renzi risk. the office of the italian prime minister denies he is resignation based

on the referendum. i am francine lacqua in london. brexit, trump, sunday's italian referendum -- despite the political risk, my guest says the underlying economic trends are positive. london's mayor says he is received assurances that u.k. citizens living in the u.k. capital will not be required -- compelled to leave after brexit. opec ministers meet to try to finalize the first oil production cut in eight years. we bring you the latest from vienna. here is sebastian salek. korea's president says she is willing to resign after an influence-peddling scandal. on television, park apologized .or the controversy opposition lawmakers and some politicians from her own party have been pushing for her impeachment. parliament says it has not yet set a specific plan for her

future. a plane carrying 81 people has crashed close to colombia's second-largest airport. there are apparently some survivors. passengers included players from a brazilian football team. south korean president jacob zuma -- south africa president survived after top officials failed to force him from office during a meeting of the national executive committee, according to members at the meeting. zuma's presidency has been marred by scandals and policy missteps that wait on the rims and put the nation's credit rating at -- that weighed on the rand and put the nation's credit rating at risk. francine: these are your markets. the story is in opec, with oil retreating below $47 before opec has its formal meeting on wednesday. we know that one of the

ministers has already talked. we know there is resistance from saudi arabia to cut production. we are seeing a rally in metals run out of steam. developed asian stocks slipping as investors try to figure out whether donald trump will theulate enough to reflect economy. you see a little bit of pressure on some of the banks in italy, this because of the referendum on sunday. you can see the dollar index, 101.42. from brexit to trump, the italian referendum to elections across europe, politics appeared to be driving the markets as we despite investor concerns about how populist and anti-globalization impulses will play out. my next guest argues underlying economic times are relatively positive once we peel back political risk. running as for the hour is unicredit group chief economist eric nielsen. great to have you in the program as always. you have been the eternal optimist on europe. sometimes you say you are

worried about political risk. give me the underlying cause of why the economy, you think, is a little better than people feel. it is consumption. >> we talk about policy, but if you look at where we are now -- member, economies are quite robust. the eurozone is cruising by about 1.5%. a bit more than america. it is about the same in per capita terms. it is not what we would like it to be, but it is not bad. it is driven by private consumption. the have a little more fiscal expansion. a bit of a push. it is not great. but it is better. we see the first sign of some investment picking up. double trade is not going anywhere, so exports are muted. of this isow much thanks to the ecb being there? how much is it a sign that

growth is they are? -- growth is there? once the ecb starts normalizing, we are on the same path? francine: the ecb has been the only game in town, for sure. wasthe real effective one the big drop in oil prices a couple years ago that took inflation down and opened up the real income growth. that has been the single most important thing, i think. but the ecb has been very helpful. point you make is really important, that we have to trust. if we do not trust, we have a problem. we have to trust the ecb will keep the pedal to the metal, keep going at this pace, until they see inflation around the target, somewhat on the rise. if they were to start to taper because they cannot find stuff they want to buy at the risk appetite they have, we have a problem. francine: i have a billion charts to show you. this is my first one, on inflation. are many in blue, purple is france, and italy in yellow. orange and red is the zero mark.

we are becoming, in certain countries -- and i am thinking of italy -- some would say on reform a bull, or like japan, from an economic point of view. erik: i am not so worried. these numbers are very important. these are consumer prices. they are about zero, a little bit negative. that is good for real income in italy. francine: talk to me about how you price risk. see the difference between the german 10 year spread and the italian. italy.are nervous about and yet the spread is so much smaller than we had in 2012. is that good or bad, to give politicians this room for

reform? erik: it is good it is not as wide as it was before, because it destroys the transmission mechanism. wide, you havery the problem that the private sector in italy would have de facto tight monetary policy. is obviously related to the referendum. that has to settle down with him not too long. otherwise, we have a problem on our hands. this is the spread. i brought it back to 2010. the spread seems very wide. the blue circle, you can see, is when mario draghi gave the famous speech in july in london, when he said he would do whatever it takes. red is when we had berlusconi stepping down. the austerity measures he did not want to push through, and mario monti coming to power. what does this tell us? we forget what we have been through in the last few years in europe. erik: these were good times. the pink out there is a concern,

but it puts it in perspective. one reason is qe. sell throughally the btp's, the italian debt. the bonds are in negative territory. is not as, it dramatic as this picture shows. terms in italy, it is not the spread that matters. it is the aftermarket borrowing costs. as it seems,bad but it is worth worrying. we have to get through the referendum and get a solution. three three years ago, would you at that time have thought it would have been a very different picture now? i'm thinking of the oil price. we have the all-important opec meeting. it is amazing how low the oil prices have been. they have not filtered how much people have been consuming. erik: i would not have had any

chance to predicted a couple of years ago. i think you are definitely right. with the strength of hindsight, what we have seen is turbocharged chinese production, from 10% to 5%. general demand has come down. energy markets in europe and the states have become more .fficient. the demand story and we have the supply of shale gas also. francine: it is chart tuesday. have i impressed you? erik: i am impressed. francine: it takes a lot to impress erik nielsen, with unicredit. what a coming up. london's mayor said he as received assurances that you -- e.u. citizens living

in london will not be compelled to leave after brexit. opec ministers still set to be split over the first production cut. the president-elect meets with retired general david trias, we will discuss the choices for u.s. secretary of state.

francine: this is "bloomberg surveillance." let's get the bloomberg business flash. willsamsung electronics allocate cash flow to shareholder returns this year and the next, and conduct a major buy back through the end of january. that looks to complete a holding company structure.

an activist investor, elliott management, has been urging samsung to restructure and return were cash to shareholders. lost the latest bid to avert more strikes. german courts denied the injunction. short-haul pilots have stopped work today. all pilots will walk out tomorrow. you can say is headed for its longest ever industrial action, which has caused almost 400,000 flight cancellations this month and might cost the airline 45 million euros. a ceo has said politicians should resist calls to regulate facebook as a media company, despite concerns of fake news spread on the network that affected election results. the comments were made in an exclusive interview with bloomberg. the only restriction for facebook, i think, should be the rule of law. it is against the constitution, what brings people into jail. ont cannot be published facebook. i think the whole idea that they , atld have a super editor

would turn facebook into a global media monopoly. that is really going the wrong direction, from various points of view. the u.k. telecoms regulator is forging ahead with its plans to legally separate bt's network division. it will become an distinct company with its own board after the proposal. the board said the former monopoly failed to offer voluntary proposals to address competition. that is the bloomberg business flash. thanks, sebastian salek. italy goes to the polls on sunday for a constitutional referendum. matthew renzi is weighing a resignation after the vote, even ,f voters pass returns according to this morning's newspapers. renzi already said he would quit if the measures do not pass. we heard news from matteo renzi 's office saying he is not stepping down even if the yes vote wins. let's talk about some of the economic consequences of the

poll, according to analysts in our bloomberg survey. banking sector is most liquid to be affected. we are seeing pressure on medio banca, unicredit. monte dei paschi, a delusion because of the credit -- eight lution because of the credit rating. we do not know what happens, because it depends on the referendum, whether it is a majority, a very small -- you could see italian politics being italian politics, almost anything happening. erik: that is right. nobody would probably expect a yes vote. so the question is how close it will be, and whether the opinion polls -- we do not have any new ones anymore -- if they are right or wrong. we do not really know. and then, what will renzi do and

what will the president do? as you alluded to, the big --stion is, can italy whichever scenario comes through -- can they actually address the issue of these medium-sized banks, which everybody in the market are worried about, and which they have been dragging their feet on for too long? francine: can they? worst case scenario for the markets, because markets like certainty -- let us say there is a no referendum. renzi is out. a coalition.m we have a technocratic government. how would they govern the banks? erik: that is the right question, and we do not know that. it depends on what mandate the president instructs the caretaker governor would be. he would say, go fix the italian electoral law tot is, since july, back something more reasonable. we wait for the courts to say what is legal. it is being challenged, as you know. and then, we call elections once that is done.

bullish,which would be is he says, at the same time, fix those banks. we are talking about four banks, really. you naturalize them, or whatever you want to do. or whatever.ssels and then you are done. if that is done -- it is not big money. that is the big thing. francine: it is not, but you have rules in place. even if this government has fixed it -- could this be a lehman brothers moment? possiblyould not believe it would. these banks are too small. you have the ecb involved. and all the rest of it. do theel is that you same as you did last year, with the small banks under guidance. other banks have to help the retailers who may have been bailed him, or there is flexibility in the system. everything you hear from brussels and berlin -- they have a lot of flexibility. francine: even berlin?

erik: even berlin. i suspect it is because they have a few banks they have to deal with themselves. change thehy not rules already? i mean, you are talking about a small amount of money. we have a lot of italian ceo's, and this is what they keep saying. the amount of money could be easily found if the rules were changed. actually right. the problem is the rules came into effect only at the beginning of this year, and i don't know why in the world you put these rules into place at a time when you still have not sorted out the banks. out, for theoint whole system like this, we are probably talking 10 billion, maximum 15 billion euros. that is less than 1% of italian gdp. the spending package was 40 billion, which was 6% of gdp. this is really just the politics of the retailers. in italy, there has been -- we have this prediction -- this

tradition that retailers do not do deposits that are insured. this should have been taken into account. francine: very quickly, we had mario monti sitting in your seat, and he said we should vote no to the referendum because matthew menzie has not done enough -- because renzi has not done enough. do you agree? erik: i love mario monti. i love -- i think the world of him. but on this he is wrong. he says that renzi has diverted from what he should have done with the banks. that is correct. but it does not take away that this reform, we are better off if it gets a yes. francine: think you very much. erik nielsen at unicredit stays with us. up next, can you have your cake and eat it too? the mayor of london talks about brexit and that you -- about brexit and the capital. ♪

londone: the future of as a financial and political center is one of the major questions hanging over brexit negotiations. i discussed these uncertainties with london mayor sadiq khan. he has received private assurances from the u.k. government that e.u. citizens living in london will not be compelled to leave the country. he expressed concerns about how prime minister theresa may has been handling brexit negotiations. : my interpretation of the british public vote was to leave the e.u., its structures, and they leave institutions. it is important to disentangle that from jobs and prosperity.

yet we have on our doorstep 500 million people. we have got a situation where there are lots of uncertainties around the world. we had, recently, u.s. presidential elections. the referendum in italy in december. elections in france in march and may. german elections, dutch elections. we have to provide clarity that we do intend to have access to a single market. we do intend to be open-minded but it comes to attracting talent. francine: what easy see as a blueprint for brexit? message is confused. do they know what they are looking for? mayor khan: i hope when theresa may says she is keeping her cards close to the chest that she knows what is behind those cards. to chieflarity leads executives, innovators, business people wondering, worried whether there is a plan. what we need to do over the next weeks and months is to reassure people there is a plan.

what i said during my speech was, i can understand why, when you go to buy a car, you do not want to disclose to the salesman youaleswoman the maximum would pay. i understand that. but you have to give the idea of what sort of car you want. if we could telegraph to the e.u. what our intentions are once we left the european union, the access to the single market, the ability to attract talent, access to services -- my worry is there is confusion, which leads to the worst thing for a businessman or woman. francine: that was city con speak -- that was sadiq khan speaking to me earlier. careless folder left once again for the press to see. but how are the negotiations going? do we even know what the government is thinking? erik: not very much.

no negotiations have started. there is a report that theresa may in berlin said, let us agree that brits living in other countries can stay. that was in the interview. apparently, merkel said no. you have to trigger article 50. we are not starting to peel off things. that is where we stand. europe said, the ball is in your court. and the brits have not really done anything so far. maybe they have prepared themselves, as that note suggested. i hope they have more than those notes, though. francine: i know. it would not take us very far. erik nielsen from unicredit. up next, there is one day left before opec ministers meet. they could finalize the first oil production cut in eight years. ♪

francine: this is bloomberg surveillance, i am francine lacqua in london. koreanan: the south

president says she is willing to resign after a scandal. she apologized for a third time over the controversy. and somen lawmakers from her own party have been pushing for her impeachment but parliament has not yet set specific plans. a plane carrying 81 people has crashed is to columbia's second-largest airport. there are apparently some survivors. passengers on board included players from the football team. south african president has survived the most serious challenge of his leadership yet. during a meeting of the ruling party's national executive there were members of the committee at the meeting. he has put the nation's credit rating at risk. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120

countries. i'm sebastian salek and this is bloomberg. francine: opec officials have so far failed to bridge their differences to cut production. russia says it is not planning to attend crucial talks tomorrow . let's talk about the oil markets and speak to an oil market analyst who is in vienna this week. great to have you on the program thank you for joining us. give us a sense of whether it is 50/50 at the moment. can they surprise us or is it dead in the water? the news flow is not really clear, but i think moore is pointing towards cuts. if you look at the situation and the oversupply market, the thought is probably -- the

saudi's are better off to cut production. in terms of non-opec corporations, i think we have to wait for the outcome tomorrow and then they will have some further talks on non-opec operations. thecine: at the same time, oil minister from saudi arabia seems to think markets, whatever happens will clear themselves in 2017. is this just a negotiating tactic to try to get back at iran? definitely, there is a lot of negotiation tactics going on. if you look in the second half of 2017, it is really correct ,hat toward the end of the year provided that opec countries are not increasing production even more, the market should turn into a deficit. even beong-term it may

better if there is no production cuts, but in the short term and the medium-term, definitely cuts will shift the deficit, the market into deficit in the first half of 2017. francine: what happens if we do not have a production agreement tomorrow? does the price of oil drop by $20? hannes: definitely, it will be very bearish -- sentiment will be very bearish. -- wehough it is not that think oil prices will cut to $40 a barrel, and there is a high probability that for a very short time we even go below $40 a barrel, definitely. francine: if i bring you over to my bloomberg terminal, i know you cannot see it so i will describe it. i have a range between 45 and 55

rig out inand this the u.s. that is fracking or shale gas has been going up. are they the real swing producers? hannes: what is definitely the case is that above $40 u.s. shale oil count is going up. this is what we have seen since summer, and if there is a production cut and oil prices are going above $50, activity in the u.s. with the shale oil producers will take pace and we will definitely see more u.s. shale oil production for the end of the year. that is the negative point of this meeting them. francine: do you believe that russia will actually show up at the last minute to talk in cutna, or can opec find a

production agreement without russia? so thatit does not seem they are participating in the meeting, so in my view they have to agree on a cut without russia, and then later on have to discuss with russia. but the best outcome i see is that russia agrees to a freeze of his production because a freeze is in effect a cut for russia since they plan to increase their production in 2017 by 200,000 to 300,000 barrels a day. if they agree i think that is the best outcome opec can get from russia. francine: thank you so much for the insight. joining us from vienna. vote on a constitutional reform this sunday and it has been a volatile run for italian stocks. nejra cehic joins us. nejra: yesterday we saw italian

600, weighing on the stoxx dating it halted a three-week rally but we are seeing a bit of a turnaround. although italian shares have outperformed the stoxx 600 in november we are seeing them rebound. than 1%, italian banks rebounding after hitting the three-month low yesterday. we are seeing green limits across the board. this was looking quite different earlier, a lot of it in the red. spain higher, and italy too. at the fx you are seeing sterling up 1/10 of 1%. offeuro is a little weaker, 2/10 of 1%, 1.0593. we are seeing the bloomberg dollar index rebounding a little and in the bond space we are seeing yields definitely come down -- generally come down.

the one exception is with the u.k. gilt market. looking at the stoxx 600, a turnaround from earlier. it is rebounding. most industry groups in the green except for energy stocks jar down 7/10 of 1%, no surprise given that oil is retreating below $47 a barrel after opec leaders failed to bridge divisions after 10 hours of talks. also, puttingdown them on core for them best month and more than seven years. ,ou see the lme index of metals the highest since may 2015. yesterday cop lead and zinc ended at 80 or higher. you are seeing them come down, copper and zinc down 1% today. where metals have rallied on the trump trade, the yen has weekend , and is resuming at slide today.

it is the worst performing g 10 currency versus the dollar today , heading for its worst month since 2009. yesterday it had its biggest one-day rebound in two months but rarely made a dent. you can see from the white line, the blue line showing that hedge funds speculators have trimmed. francine: thank you so much, nejra cehic with your asset check. plenty coming up, including ronnie versus petraeus. -- romney versus petraeus. and fighting over who to pick for secretary of state. making america great again, what does that campaign slogan mean for u.s. policy? oil sinks for 47 dollars a barrel. we bring you the market moves that matter. more of bloomberg surveillance on bloomberg tv and bloomberg radio now on london digital. ♪

francine: this is bloomberg "surveillance." i am francine lacqua in london. let's get the latest from resident elect donald trump. he met with the tray us yesterday and the former cia director is being considered for secretary of state. house democrats have called for a review of trump's financial arrangements to protect against conflicts of interest. nielsen.h us is erik

fame. claim to when we look at the appointment of donald trump, or how he is making that work, a tweet you put out caught my eye. he is doing this like in terms of a reality show. are we any wiser about what kind of team he wants? think one of the animating forecast in his actions is getting attention, and he has been able to parade a number of officials through a golf course that he owns so he is getting free publicity for his business. if mitt romney is not end up as part of this administration, trump has humiliated him. now, giuliani has gone through this, petraeus is going through this now and there is a certain reality tv element. he likes to put on a show.

he keeps people guessing. as i mentioned yesterday, you cannot really write the script for what is going to happen with this white house because he is doing it on the fly. francine: is this a good thing or a bad thing? does he still have the support of his party and for how long? tim: i think you will have a honeymoon period. the congress will want to cooperate with him in the early stages. i think there will be policy battles around infrastructure spending. it probably will not go as cleanly as he anticipates. i think for anybody who cares about a methodical approach for governance, you are not going to get that from donald trump. he is not about method. he is wildly ignorant about foreign affairs and he is reveling in the process now. i think for people who love the trump show, they are getting the trump show. for people who want to see a more disciplined approach to

policy, that is a question to be answered. francine: the trump show, we are not sure what it delivers and what it means for growth forecast. how difficult is your job trying to figure out what happens to inflation or how much he will spend in infrastructure? erik: it is practically impossible. it is so uncertain. as you talked about earlier on in the show, we can look at the economic trend and they look ok-ish given everything. now you super impose this enormous and certainty, i'm surprised -- you have this enormous uncertainty, i'm surprised. you still have congress, they may give him a honeymoon but if i had to make a guess, i would love to hear your thoughts, i would have thought something included in the orion fiscal

plan would get approved. -- ryan fiscal plan would get approved. he is proposing a fiscal stimulus that was shot down by the same congress. it has not been part of any traditional republican platform and certainly not part of paul ryan's thinking, and trump will need those people. francine: have we seen three donald trump's, when campaigning, one for the interview with the new york times, and now it is back to his old self? how much damage can he inflict? i was always told, do not worry about anything because the u.s. has the right checks and balances. do you? tim: there are probably 3000 donald trump's to be exact. he plays to audience how he is a very short-term thinker. it is affection -- important to win the affection of the

audience. it will be dependent on the people he surrounds himself with. we know pretty much now what his foreign-policy will look like. he has brought in very hawkish national security folks. the domestic policy is still up in the air. overnight there is a new head of health and human services, and looks like they will try to dismantle obamacare but we do not know really about a lot of the other things. emigration, i think there will be a big battle around immigration. he will want to make a bold gesture. he will try to deport 2 million to 3 million undocumented immigrants. francine: but then he went back on that in the new york times. tim: originally he wanted to do significantly more than that. he threw 2 million to 3 million out on the top of his head and i do not think he knows the practicalities on trying to do that from a constitutional and

logistical standpoint. when we try to look for method from trump, it is too early because he is right now just reveling in the attention and the show. francine: does this hurt global growth? does china automatically fill the trade vacuum or someone else, or is this a recessionary risk? seen,it all remains to be but i think it is possible that 's big as theng fall of the berlin wall. the kissinger line of separating the world and we may be free now, and maybe europe even will be looser on this. it is conceivable. it is potentially huge. i was quite worried when i saw the foreign-policy appointments because it seemed like we need one enemy, just one enemy, that is radical islam.

anyone who did not like these guys, they are our friends. it is very black and white. tim: he also has policies that are self contradicting. he believes, he says in global economic growth but he is bringing us back to a pre-free-trade era of isolationism, both on foreign and economic policy. it is counterproductive. francine: timothy o'brien, erik nielsen, both stay with us. u.s.d tussle over the next secretary of state, what do we really know about the future of foreign policy in trumps white house? this is bloomberg. ♪

francine: this is bloomberg "surveillance." live from london . timothy o'brien and erik nielsen are with me. we were talking a little bit before about foreign-policy. we discussed some of the appointments he maker may not do, but on foreign-policy, you say he does not care that much

and yet he has business interests in a lot of these countries. how will it shape his thinking, does he become more of a businessman question mark does he stop insulting china? the two,e mishmash showing conflict of interest? tim: he has licensing arrangements globally. one of the interesting myths around trump, is he has a vast real estate empire. he really does not have an empire and it is not vast. he is a licensing machine and he essentially lends his brand out to developers around the globe. he has relationships in the philippines, saudi arabia, india, turkey. any time he takes a position globally over the next four years, it is going to get infected with this question of how much is he doing it for policy sake and how much to feather his own financials? francine: you're not expecting

him to suddenly become more open to trade or at least to try to have some of these allies connected back? tim: i think it would be very hard for him to suddenly become pro-free trade after he campaigned on the notion that china is the evil empire. i think it would be healthy for everyone if he did try to expand and mature and become more sophisticated in his thinking, but i do not think we should hope for that. francine: we had his advisers on this program and i think you were on it. , anyonerro kept saying that has a surplus is cheating america so this is china and germany. it will make for some interesting foreign-policy between angela merkel and donald trump. erik: it is mind blowing. my big fear in that area is that he cannot deliver enough on the domestic agenda that he promised.

jobs, getting the illegal immigrants out, and suddenly he sees his domestic base in the opinion polls or approval rating not very good, and he needs an extra in a enemy must. china,ts to mess with manipulating the exchange rate and that is where it is starting down this road. francine: is it a putin style? are you concerned he has become like vladimir putin? to get his approval rating up he gets more -- erik: it is not only putin. the chinese, when the growth dropped from 10% to 6% they were missing very much in the media. it is a very common thing to see , and here is a guy who is actually already said, i do not really like foreign nations and they are all cheating us. it is my fear, and not for six months or 12 months but his

policies are crazy fundamentally they are not consistent or coherent. he has promised so many things and depending on how he plays this medium, my fear will be that he turns his attention to these bad foreigners who are cheating them. we know about allies that he has? are there countries that will come out winners because of personal ties? tim: i think his business relationships in russia have been overblown as an issue. never really developed anything of significance in russia but he has played into -- ins hands and turns terms of giving him the signal that he would have free reign and eastern europe. he has signaled nato might turn its back on the baltic states. how much of that is campaigning and how much is thought through? really knows.

national security is something people will have to pay attention to. there were indications that he acquired about the use of tactical nuclear dust inquired about the use of technical -- tactical nuclear weapons. the administration wanting to make a bold foreign-policy gesture early on to prove they acho, we saw it-m with thatcher in the falklands. what will trump do? francine: bloomberg surveillance continues in the next hour. tom keene joins me out of new york and we bring you a great line up of interviews. we will look at how the u.s. election is impacting france and germany. ♪

francine: the divided cartel, after 10 hours of talks,

differences over the deal of opec, and russia will not be heading to the anna. president park is willing to step down as the controversy rattles the asian -- asia's fourth-largest economy. we talk european political risk. this is bloomberg "surveillance ." i am francine lacqua in london with tom keene in new york. watch out for the italian banks and the price of oil. tom: i would watch oil and opec, and the market is quiet. rose'sht charlie interview with mr. renzi was extraordinary about the total uncertainty that italy faces as they go to sunday. francine: the total uncertainty, so we cannot talk polls because we are in a blackout but we know

nothing is certain. the repercussions could be huge. tom: you are going to have to educate me on this. i am the ugly american. i cannot talk about the polls? francine: you cannot talk about the polls. we also have some euro area economic confidence rising a touch at 106.5, a little below what forecasts -- what economists forecast. if you look at the composition of the european economy it is clear that political risk outraised -- outweighs the risk on the economy. plenty more on the markets but let's get to bloomberg first word news here -- news. say five oforities 81 people survived a plane crash in columbia. it declared an emergency because of an electrical failure.

it was carrying the brazilian first division team. theas occupied but -- embattled president of south korea has offered to resign if parliament decides she should. influenceght up in an peddling scale and her approval ratings have fallen to single digits. she apologized for the third time since the scandal broke. opposition lawmakers and some of her own party say she should be impeached. investigators are looking into whether an attack at ohio state university was an act of terrorism. emigrant drove a car through a crowd and slashed people with a knife. police shot and killed the suspect. identified himself in a newspaper article as a muslim. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg.

tom: let's get a recalibration on the markets. equities, bonds, currencies, commodities, 10 year yield turning 2.33%. crude oil really front and forer with opec tomorrow, 6.41. that could go either way -- 46.41. that could go either way. the dollar resilient. i put in there quickly, euro-yen is stronger, euro stronger, yen weaker. francine: you are killing me, that is my chart of the hour. that is the key thing we are looking at, the german -- italian sprint. -- spread. what is going on with italy and the risk surrounding opec. as promised, this is my chart of

the hour. it is my chart of the week but you mentioned it in your data tech -- check. we are both worried about what happens and european politics. this is the spread he trained german and italian 10 year. toanted to bring it back 2010 because people are concerned the spread has been widening. to blue, this brings us back 2012 when mario draghi in london said he will do whatever it takes. he started the bond purchase program so you can see the risk came down, which is why we see the spread tightening. the red is when we had the first technocratic government under mario monti. tom: this is why you watch "surveillance." here it is on the bloomberg, here is francine start, brilliant with that

explanation. i take it back to, this is the quiet of italy. this is the confidence of italy post bureau. the euro -- post euro. the euro is right there. how did italy get from here to here? francine: political risk. 2000, there is the euro and a pretty easy period. there was the.com bubble. reforms were not talk about because everything was smooth. when you speak to former commissioners they say they will lulled in a false sense of security. let's get more on the markets and what happened in the last 15 years, christian shulz from citigroup. tom's's chart, as there where everything

was it fine, or was it just we were not pricing in risk at all? christian: at the time people were pricing the ecb as the lender of last resort, unconditional across the eurozone irrespective of growth potential or government debt or deficit. but a much all countries where the same because there was the lender of last resort. it turns out that lender, eventually was there when mario draghi said he would do whatever it takes but it came with conditions and there were doubts whether it would be there. we are still sort of wondering whether it is under all certain circumstances, and that is why now spreads are higher than before lehman. toncine: i'm going to turn tom keene because i have missed him so much. that's when you back to my terminal -- let's bring you back to my terminal.

spread betweenhe italian and german 10 year, had the ecb not put its qe program? would we be above that 2011 risk? christian: the coupons reflected, what those be paid in euros or some other currency? been thell have eurozone would have fractured, but they did and pose it and it is still there and legally approved so hopefully it will remain. tom: i look at the currency. about the need for a depreciation, a devaluation of the italian currency. it is clearly linked to the euro. helping with this. mark italianche lira. they were like depreciation of

italy on the left. the blue circle is the advent of the euro, and deutsche mark and italy are joined at the hip. don't they need a depreciation of the italian lira to begin the structural reform? christian: that is a really big argument i think that you can have. the depreciation is very often viewed as a kind of easy way out. it immediately solves your competitiveness problems and then investment kicks in, and in the long run domestic demand kicks in. more difficult but there are more sustainable ways out. wage restraint over a long period of time, as we have seen in germany since 2004 and in much of the periphery. it has developed quite well

since 2012. italy had some positive signs of since renzi well and before that mario monti. question, thethe you need an easy way out or is it better to do the long-term sustainable but tough thing? tom: i want to show you the size of the depreciation, that green line on the right is the huge depreciation you would get at of one guesstimate. changes in italy way to get them to this better place? to me, they are all small and additive. what would be a big structural change that would give the growth needed? christian: the same as we have seen in spain. a decline in nominal unit labor costs. germany has had a big decline in

relative terms and nominal unit labor costs since 2004. spain since 2011 has almost converged with germany and italy has not. it requires a shakeup of the labor market which renzi has started. wage restraint. it requires persistence but ultimately it takes a unit labor cost reduction. that would reflect this exchange rate depreciation. tom: that is brilliant. i'm going to steal that. francine: do that. .'m giving you permission it brings us back to one of the most explosive conversations we have had with david folk are of deutsche bank says if you are going to push the reforms and pushed them hard, italy is better in the eurozone. italian politicians calling and

saying that was a communist comment. the imf should step in if we do not get the reforms through to the -- to devalue and go back to where a. -- go back to layer a. -- lira. tom: he will vote for the need for technology and our adapting to american technology. .ob -- robert greifeld ♪

francine: this is bloomberg isrveillance." tom readjusting his glasses and i am having a look at the new stories. francine lacqua in london, tom

keene in new york. let's get to the bloomberg business flash. taylor: pilot at lufthansa reduce -- resumed their strike, forcing them to cancel more than 1700 flights over the next two days, or than one quarter of its schedule. -- lost a court battle to keep pilots on the job. a tally on fell the most in almost those go years. a complex transaction being discussed with johnson and johnson would allow them to remain independent. the two companies have confirmed they are in talks. that is your bloomberg business flash. francine: thank you so much, taylor riggs. let's focus on energy and get more on opec. members have failed to bridge their differences on production cuts in talks ahead of their

main meeting tomorrow. we get more from kevin norrish. christian shulz is still with us. kevin, how do you view the oil market? the saudi's saying the market will rebalance itself by 2017 and russia saying they do not want to show up in vienna. are these negotiation tactics? kevin: it is difficult to tell. there is clearly lots of brinksmanship going on. thatave got to remember opec is trying to do something that is extraordinary difficult -- extraordinarily difficult. they have not coordinated a production cut since 2008. we have different members which are a long from their production potential. non-opec is not giving a huge amount of support. russia has said they might freeze but not that they will

cut. even if they do come up with an agreement, there is the question of how successful it will be or will we see an increase in title production? if opec manages to come up with something credible, that would be snatching victory from the jaws of defeat. the best that we can probably expect that the state is some sort of face-saving measure which commits the group as a whole to restraining production, but probably not something that is very specific in terms of who does what. francine: you think best case scenario some kind of agreement within opec without russia. what if we do not get an agreement within opec, does the price of oil drop $15 to $20? volatile andl be if it is a very bad meeting like we had in doha, i think the price will fall quite a long way . i think there is something in what saudi arabia says, that a

cut is not absolutely essential. there are signs the oil market is starting to rebalance. in october wason down about half a million barrels a day. title production in the u.s. is falling as well. if you look at oac be stocks, the have fallen in october -- they have fallen in october. that sounds like an oil market that is rebalancing. we have global gdp growth looking better, manufacturing confidence picking up. potential financial stimulus coming through, and chinese oil demand looking better as well. china, which has been building inventories, started to draw them down in october. i think the underlying oil market is looking a lot healthier and one could argue that opec does not have to do a cut. tom: this is brent crude, daily

chart, 200 day moving average. 100 down to 29. sell me about the elasticity' responsiveness of opec. what is the reaction function that you are going to try to observe out of this vote? what is the elasticity that matters? i think we have seen people pulling back a little bit in terms of risk. in the run-up to this meeting, certainly after algiers where it that isvery positive, being pared back and we have seen prices fall from the mid-50's to the mid-40's. if there is not a deal, if it works out badly rices will fall. i think fundamentals are looking better, global gdp looking better. i think the other important well as bear in mind as

we are well as we are starting to see investors interested in investing in commodities. the fiscal spending fame, commodities -- seem, commodities are a good well -- way of hedging. if we doarly next year see the fundamentals continue to improve in the way they seem to be at the moment, even without an opec cut, plus better gdp growth and a better global atmosphere in the economy, it is quite possible we get price risk moving to the upside, especially if investors continue to allocate into commodities. averagingprices to be in the low 60's by q2. tom: very quickly, bring up the chart. here is inflation adjusted copper. are you calling for a breakout of commodities, a bottoming and

a breakout back to a bull market? happenedok at what has to commodities this year. this will be the first year that commodityenchmark industries have posted an increase. oil is definitely not going back down to the 20's even if we do not get an oil -- opec agreement. the positivity and enthusiasm investors are showing for commodities persuades me we are starting to move back into a space where we will see persistent games across a wide range of commodities, copper included. tom: kevin norrish, thank you. coming up we are going to get an actuarial assumption briefing on the challenges of making money within the market, making money within the pond -- bond market. look for that on bloomberg

daybreak. this is bloomberg. ♪

francine: this is bloomberg "surveillance." francine and tom from london and new york. this is my morning must-read. i wanted to see on the mario draghi side how he would handle political risk. marcus ashworth wrote this in a bloomberg gadfly piece. learned one thing from lehman brothers it is how

important it is to keep money markets functioning in times of tumult. draghi may already be planning to relax current procedures -- the simple solution would be to accept cash -- but he is at risk of being too late. are you worried about the technicalities? that their man of -- may not be enough bonds. are you worrying that they are talking of tapering to soon and risk comes back on? first of all, if ecb is aware of the scarcity problems. the problems that marcus seems to be referring to as collateral. the brexit period where the period right after it, european markets were very resilient so it seemed to work well at that point but that does not mean that next time around like in the italian banking crisis, it well.

it will. the big question is december and when will they perhaps announced that they will reduce purchases? with unemployment falling and falling, inflation is starting to pick up. economic indicators pointing to stronger growth at least in the short you -- short run, the ecb will have to reduce their purchases. tom: i want to come back and look at that unit labor costs discussion he was mentioning earlier, showing the massive divide the train italy and germany. the complacency of the dow versus the banks. dean curnutt in our next hour, 12.99. from new york and london, this is bloomberg. ♪

tom: good morning,. from london and new york, tom keene and francine lacqua. a chartered plane

carrying a brazilian soccer team has crashed in columbia. at least 76 of the 81 on board were killed. the jet was on its way to the city of medellin when it reported electrical problems and declared an emergency. it was cleared to land before air traffic controllers lost contact. the team was on its way to play a match. hasident-elect donald trump appointed one of the leading tea to be theers secretary of health and human services. africasident of south has survived the most serious challenge to his leadership yet. a group of top officials from his congress failed to force him from office.

his seven years in office has been marred by a series of scandals and policy mishaps. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. tom: thrilled you are with us again, folks. there is a lot going on in international relations and with the opec meetings. then there is that down 19,000. -- dow 19,000. christian shulz of citigroup with us. dow 19,000 or 20,000 mean? i think they are numbers that fall out of an index equation, but the buy side is hopelessly indexed to everyone

is paying attention to the s&p 500. as it goes up, you have got to participate. back 20s is the vix years, the blue line is the average just above 20. here is where we are right now, and what is so subtle is right here before the crisis we had a lower vix at a lot lower price point. vixhere room to move in the to get back to the middle part of that chart or does that just signal higher prices? dean: the situation 10 years ago was quite a bit different in that there was a lot of leverage in the financial system. you had massive credit market and derivatives outstanding, and this incredible competition to sell insurance. off another period or the markets have been stable for a long time, and it draws in the insurance sellers who play

they carry game that benefit from stasis. those are carry trades. post election, we are embarking on a new risk taking regime which can be potentially very additive to volatility. folks are moving capital more quickly. tom: every friday the doom and gloom crews come out with their articles. how do you respond to people predicting excessive volatility? bring up the chart again. they have been wrong here forever. all along here they have been wrong, wrong, wrong. how do you respond to that over the beverage of your choice? dean: on november 20, 2006 the vix dipped below 10. on november 20, 2008, it hit an all-time high of 81.

we just passed this november 20 date. to diverge between nine and a half and 81 illustrates the degree to which markets go one way or another. post election, there is a lot of argument we could be in this new risk taking paradigm and powered post,invigorated fiscal borrowing more. word paradigm,e and we have the paradigm trapdoor under anyone who uses the word? francine: that means i need to turn to christian shulz. risk-taking, we talk about risk-taking but let's talk about risk. if you see all of this volatility or liquidity trap or not showing up it is because central banks have been the only game in town, but have been hugely important. what happens when we start normalizing? and volatility is back. beginning,that is

hats around the corner. we forecast the fed to continue hiking rates at an accelerating pace in the next few years. we think the ecb will reduce asset purchases. the bank of japan may not be buying as much as it was anymore , so central banks are perhaps retreating a little bit out of asset markets, not because they feel like it but because fiscal policy is taking over stabilizing growth to some degree. global growth looks a little bit stronger as well, and that so thisthe environment calming effect of the central bank stepping in, may recede somewhat. or lessightening loosening of monetary policy turns out to be a bad mistake, i think they will be back on the market. francine: let's assume

everything goes to plan. kind of world are we looking at in two years when central banks recovered from the monetary policy. christian: it will still be there may but we will be taking it away. central banks will be less so. it depends on why they are doing it. if they are doing it because they are giving up because they do not think these measures they have taken deliver higher inflation, that would be bad news. if they do it because they slack in the economy is being eroded, ,nemployment is falling domestic inflationary pressure is taking in, fiscal policy is taking over, if that is the case may be volatility will be higher but for a good reason because growth is picking up. chart andis a dots

the red line is migrating upward. are the market vigilantes in front of chair yellen, are they catching up or are they behind? dean: i think there has been a .ertain degree of catching up the bond market has moved well in anticipation of anything that yellen has done. a done deal at least in terms of the probability. largein 2017 that looms for asset prices. the big question for investors, rates will go up as growth goes up and that can be positive for stocks at the same time as for the economy. if rates overshoot and go to far too fast, the linkage to the stock market we should pay attention to. tom: give us an update on the citigroup call of slow global growth. onp brief chair yellen

global growth. where is it? christian: for this year we think it is about two and a half percent. that means the first half of the year was a bit worse and the second half was a bit better. we do think that for next year it is going to stay around the 2.7% level. it is sort of in between year because the new u.s. policies, if they are legislated next year, they only kick in to affect growth perhaps 2018 and beyond. next year is a bit of a year where we expect things to get much better in advanced economies perhaps because of u.s. policy changes. at least in the short-term, higher dollar will drive down growth innovation in the u.s. and there is still some uncertainty, and political risk in europe. it may be an in between year on the road to something significantly better. francine: i do not know what is

going on, we have not even mentioned your president elect. christian, talking about new policies, how much do we think reflate?dent elect can how much can he spend? he promised one trillion. christian: i think we should be skeptical about the ability for a president to deliver wholeheartedly on campaign promises they inevitably make and being pursued of being elected. what winds up is the sausage making of bills going through congress, considerably more water down. the ultimatecal of impact but at the same time we affect the markets front running of the anticipation. it is the degree to which markets have to get out in front of a rising s&p. there is an indexation effect

that forces people to buy the market on the way up. as a gets richer folks are forced to participate for fear of falling behind and underperforming. there is a momentum effect that you have got to respect that i think we should be skeptical that the market has got it entirely right. there has been a lot of inventory buying. much,ne: thank you so dean curnutt and christian shulz back with us. live later from the robin hood investors conference. airships down -- erik schatzker sits down with very sternly. this is bloomberg. ♪

francine: article 50 has not

been triggered which means negotiations have not started with the e.u. when you speak to ceos us is a city that is 50.ing for an article . sunny but cold day late last night i sat down with the london mayor and we talked about brexit and what it means for the business community. >> i think it is important to recognize the british public did vote to leave the e.u. they voted to leave the structures of the e.u. and legal institutions. what they did not do was vote to lose jobs, have less growth and prosperity. the crucial thing for the government is to have a plan to make sure we do not lose jobs, growth, and prosperity. you got to make sure when it comes to doing a deal with the european union, you listen to

what london's needs are. there are many businesses in london who think we have a future out side the fee you but we need access to the single market and the ability to attack -- attract talent. the government needs to take on board those concerns, but also the deal is important but the means that you get to the deal are also important. we need certainty and clarity. francine: how would you rate the communication we have had from the government so far? >> i have said this publicly to the media before. and directly to the government. during the conservative party conference and the days following, a number of things that were said by the government led to businesses around the world being concerned. hard brexit is not good for our .ountry, nor for europe it will mean business is potentially leaving london to go to new york, singapore, hong

kong. love those cities as i do i do not want them going there. we need to address the concerns of businesses. francine: has the government done that? >> it depends who you speak to. david davis, the secretary of state charged with brexit, he has reassured me he understands what the needs of london are. he is reaching out. i will meet with him at least once a month which is very important. i worry about the members of government who are loose lipped and say things that are slightly cautious.us -- un- you have to reassure as this is an people in the e.u. -- ofncine: the possibility

passports or work permits for londoners, do you think you will get your way? >> if you look at the visas that are given out, a large number are given to businesses in london. for more than 1000 years london has been a city that attracted people, and the key is we have got to carry on being able to do that if we will carry on being a positive influence to our country. i'm optimistic the government will recognize for us to continue to attract talent to run -- to london. francine: that was the london mayor. we are back with christian shulz and dean curnutt. i spoke to him yesterday and he kept saying, we are concerned, i am worried. there is a media frenzy surrounding the note. this is what happened. yesterday there was an aide to

theresa may saying, coming into downing street or out with his notebook. the media is trying to figure , andhat their strategy is basically the negotiating plan for brexit on this piece of paper, but i know is only an year cake ande eat it too. they go on to say a deal on many fracturing would be easy. christian is a better man than i am because he says he can decipher it. it goes to the desperation of ceos and the media trying to understand what the plan is. christian: this is an unprecedented negotiation. not only don't we know what the government wants, because they need to keep their bargaining chips and keep the cards close to their chest, we do not even know when it will start, what

time we actually really have giving the ratification processes at the end, and the most important thing is we do not really have a fallback option where everybody could say , we are relaxed because even if the negotiations fail we are going to some sort of fallback option which is be nine and means that things will carry on as they have. we do not have that fallback option and the government does not seem to be pursuing it so far. that is a risk because at the end of this article 50 process we will have the binary choice of some agreement or nothing at createich is likely to major uncertainty. tom: christian shulz and dean curnutt with us. let's look at the data as we go to break. equities, bonds, currencies, commodities, the vix at 12.99. the dollar index stable here it

stronger euro, weaker yen. ♪

tom: bloomberg "surveillance."

we like to keep you happy with charts and even better we like charts based around our important guests' great observations. this is christian shulz of citigroup and this is a great chart. the line below is the good line, the line above is the bad line. below is german unit labor costs and up above is the italian labor cost boom. what is the how to get out of this? how do they bring that up her line down to a german like level? christian: it is a ratio. it is output divided by costs -- the other way around cost divided by output. either you restrict wage growth or you can improve productivity to get this down. , ifink the experience shows you look at germany and spain recently, it is easier to cut

them, or at least sustain for a while then hope for some innovation to happen that makes you more productive. tom: francine, i know you want to get to banks, but this chart is amazing how italy fell apart in the early part of last decade . the german labor unit cost flat and then up on italy. francine: labor costs just show the output of an economy and how much it receives relative to wages, so i wonder if it is the wage issue. this is part of the productivity . in italy we have almost no wage growth, and this goes back to the fact that inflation -- let a bring it to my chart -- inflation in italy is minus 0.2. italy is a basket case when you look at the rest of europe. , france's at 0.8% 0.5 percent.

this is difficult to see the labor cost go up if inflation is here. christian: that chart shows precisely what needs to happen. ofly was at the higher end the ratio for a longer period of time, and now is it at -- it is at the lower end. the difference between the german and italian inflation rate is not big enough. if it were bigger it would happen more quickly and italy would become more competitive. it is not happening quick enough but it is happening. surplus --taly has a germany has a surplus. that reflects some underlying weaknesses in germany itself but also some strength. i would note that the surplus within the euro area has actually decreased quite a lot since the global financial crisis in particular. relative to the euro area

becomees, german and has -- germany has become less competitive. germany still becoming more competitive. tom: help me with foreign exchange in this market. you look at the equities and derivatives. does the gaming of the euro interest you? absolutely. we focus on risk themes and one has been the potential that european sovereign fears reawaken. it has been a dormant same as draghi has enforced do whatever it takes, so we have been hanging out and waiting. i would say this populist agenda, the u.s. election, a very heavy calendar next year for europe in terms of potential election turnover. italy i think sits at the heart of it. we are watching sovereign cds widen and selloff in italy.

the bank stocks have done terribly the last couple of days and we think it is an area that investors should be focused on from a hedging standpoint. tom: christian shulz, thank you so much. greatly appreciated. this is fascinating. francine, what is the number one thing you want to observe in italy on friday? francine: i want to look at the banks. they need to push in key reforms. if you have a technical government in the place of renzi it has to be a priority. tom: we will continue from london, 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. tom: this morning, key announcements from the trump transition team.

-- adam posented joins us on the president -elect's debt and deficit. sunday beckons. italy confronts past, present, and the unknown unknowns of its future. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. francine, you go to italy on friday. it is up in the air, isn't it? francine: it is. when you look at stocks, investors are trying to figure out what the fallout from the referendum is. remember, on sunday is the italian vote. let's remember that the ecb review asset purchase program is coming up. investors are worrying about that, and then they have opec. tom: it will be fascinating. we have lots to talk about. on thernutt will join us

volatility of the markets. here's taylor riggs. carrying aharter jet brazilian soccer team has crashed in columbia. -- in colombia. the plane was on its way to the city -- to a city when it declared an electrical failure. the plane was carrying the brazilian first division team. it was operated by oblivion charter airline -- by a bolivian charter airlines are the embattled president of south korea has offered to resign of parliament decides she should. she is caught up in an influence-peddling scandal. europe will ratings have fallen to single digits per she apologized for the third time since the scandal broke. opposition lawmakers from her own party say she should be impeached. investigators are looking into whether an attack at ohio state university was an act of terrorism. a somali born student drove a crowdng car into a campus

and then got out and slashed people with a knife. 11 people were wounded. an officer shot and killed the suspect. in an identified himself article as a muslim. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine? tom? tom: thank you so much. equities, bonds, currencies, commodities. the euro stronger over the last hour. nymex churns. opec front and center. a 2% move. on to the next screen. the vix, 12.97. euro stronger, yen weaker. there is the italian spread. francine: i have a similar data check. oil, 46.10 at the moment. we do not know whether opec will

agree on something. let me bring you to my chart of the week. this is the key spread you were talking about -- german versus italian 10-year spread. the spread has been widening significantly. you can see it coming up in the last six to seven months. this is where we are now, the green circle. the blue circle is when mario draghi in the key speech in london in 2012 said he will do what ever it takes to miss price risk or give a safety blanket to governments. then the red circle is when silvio berlusconi had to step down and we had the first technocratic government. we are worried about the referendum, but it is different than what it was five years ago because of the ecb asset purchase program. curnutt,ing us, dean who looks at really esoteric derivative structures and tries

to speaking wish with us this morning. euro backhis chart of a million years. the idea is that there is some new volatility in foreign exchange. how do you hold politics and economics, international relations -- how do you fold all that into what that -- into what market dynamics can be. dean: the speed with which are growingntries relative to one another -- the euro is selling off maybe not on the same euro francine was talking about in 2011-2012, but this is a dollar rally. the market anticipating -- ationary campaigns reflationary campaign from a trump administration is fiscally oriented. on: adam posen joining us omics here.pon

has it on too far? dean: i think it has gone far. the market has been out in front of the view that trump's fiscal programs will cause inflation. there is a lot that needs to be done between now and the implementation of policy. we would think that at this point the dollar has gone a little bit too far. itncine: does that mean that has done a lot of tightening for the fed, and therefore the fed only needs to tighten twice barely next year? yellenarlier this year, re-oriented the fed policy to be more global in terms of what it considers in making its policy changes. it was focused on the dollar. the dollar rally self arrests the rally in this market like equities are it is hard to say where that occurs.

i will say that the dollar rally that it hasng in implications for the asset classes from a style standpoint. the asset classes are long dollar. some asset classes like e.m. are short the dollar. one of the spread relationships we have been paying a lot of attention to postelection is the incredible, unprecedented outperformance of the small cap index in the s&p versus the e.m. these things sit on different sides of the interest rate and dollar ledger. our view would be that one of the things you want to pay attention to is a spread from a momentum standpoint. we would actually suggest that it is time for that a 16%, 70%ch has had outperformance to reverse a little bit. francine: i am looking at my w

iop -- at my wiop function. deal?a done is it 100% or 105% of the goes above 100? if they do not do it, does it put into question their credibility? dean: it will be difficult for the fed to undo the strength of the handshake that these probabilities suggest that the market and the fed have acted on. it is as close to a done deal as you can imagine. we could get a massive geopolitical event and the fed would maintain the flexibility. it citing pickup in inflationary pressures and expectations that suggest that it is going to be moving at a quicker pace for next year? that is the sort of thing that we will -- that is the sort of

thing that will trouble the market. forceg the fed as a nine -- as a benign force for market risk. tom: dean curnutt with us. macro risk advisors. vix has been good to me. that is what robert greifeld says. more importantly, bob greifeld on america and our technology for what it means for the president-elect. this is bloomberg. and a beautiful new york. ♪

tom: "bloomberg surveillance" from london and from new york. from a distance, a clogged fifth avenue, almost as clogged as it

is by nasdaq headquarters in times square. quickly, to bring you up-to-date on a "business flash," here is taylor riggs. has resumedhansa its strike over pay today. more than one fourth of its schedule has been delayed today. the funds a has a court battle to keep pilots on the job. according to "the financial times," a complex transaction being discussed with johnson & johnson would remain at kelly on to be independent. that is your "bloomberg business flash." been atert greifeld has nasdaq for 13 years. 4712 market

openings, market closes. it has become an american institution. what is really cool about bob greifeld is that he remembers burroughs corporation, unisys. it is from a long time ago. you lived it. what was it like it burroughs corporation, unisys? bob: i think you're clapping is wonderful. very talented. about beingg involved with technology since 1979 is that it changes in a rapid fashion. you have to always be preparing for that. product inhave a production, in development, and in research. if you do not have that kind of pipeline, you will get whipped. tom: digital equipment is dominant. bob: exactly. i think about that frequently, how dominant they were. and then they went away.

mr. trump need to know about creative destruction? are he has to understand we coming to the age of machine intelligence, the sheen learning, and big data that has machineity to -- learning, and big data that has the ability to change things in profound raise -- in profound ways we have not seen since the industrial resolution. francine: is it back to what we saw 60 years ago, or does it have to be what we saw in terms of manufacturing, but the 2.0 version? bob: a lot of publicity about globalization and should we become more nationalistic or not, that is a topic to discuss and debate. but the changes in technology are becoming the most important thing. mr. trump and the rest of the administration will realize and focus on that. francine: we talk about the

globalization displacing a lot of people, and this leading to the election of donald trump. argue that technology has displaced people because jobs have moved on, and if you do not retrain people, you do not create jobs. have moved to other jurisdictions because of lower rage -- because of lower wage. forhave the ability machines to represent the lowest wage possible. we are going to have to deal with that reality. the clear and obvious example is self driving cars. that will happen. what will that mean for jobs? francine: what will that mean for jobs, bob? you are trying to make a circle out of the square. donald trump is trying to bring

back american jobs creation to the glory days, but you're dealing with advanced technology. how do you marry the two so that you create jobs? bringing jobs back to america is a good pass and we will see progress there -- is a we will seend progress there. but that path alone will not be submission -- will not be sufficient. that change in the nature of jobs is going to be the biggest change we have seen since the industrial revolution. tom: from my childhood it was the mohawk valley and the new york state thruway, schenectady, carrier, syracuse. , whenu, iona college international business machines reigned supreme. what do you observe at nasdaq about job creation from all these startup companies? bob: the one thing i think we see is there is a shortage of

highrs today for technology companies. as much as we are talking about machines replacing people, today if you have a higher education degree in a stem field, you have more job offers. tom: is mr. ross, secretary ross of commerce going to initiate a smart immigration strategy to meet those job vacancies? bob: when you look at what the president-elect has said, he says that if we have the need we will bring the people in. president trump would be good for technology companies. we would have an lightened -- in silicon valley, there are literally thousands of job openings that cannot be filled by americans. the skills are not there. i think we will have an lightened policy to bring those workers in. francine: what can the president-elect do? can he help or hinder the tech

world? bob: i think it is a help. you will see a refinement to regulation. i do not believe you will see wholesale replacement of major pieces of regulation. we need to improve the regulation that is in place today. there are good things with dodd-frank, many bad things with dodd-frank, and hopefully there will be an intelligent way of refining those regulations. tom: help me with the rap on wall street about the museum of the stock exchange or the museum of nasdaq. where are you guys in five years? bob: i think we are in a very good place in that we represent the most efficient way for buyers and sellers to come together. when you look at the transaction costs, the fiction costs to the market, it is down by 90% in the last 19 years. that is impressive. we have to continue to deliver our product in the most cost-efficient way possible. we have used technology to the

best of our ability, and investors have benefited. what are the best practices of u.s. market meeting -- tom: what are the best practices of u.s. market making versus the way they do things in europe? bob: with respect to market making, and i think the evil or rule, if we eliminate major parts of it, that will help -- and i think if we eliminate the folder rule, parts of it -- we have a lot of computers behind it, out of the rhythms behind it, and we are providing the right liquidity at the right time that ensures continuous trading in the market in the most orderly fashion possible. is their consolidation among european exchanges? does that make europeans more of a heavyweight? bob: we have to see if the consolidation gets up.

globalization the -- if you look at the financial world, it is still new york and london. one final question -- help me with enough nostalgia here of morgan stanley. , 200-1025.hs 210 .25. fractions were based on spanish pieces of eight. we are able to express the market in decimal spreads, and many times in sub decimal spreads. citigroup, 55 3/8 . francine: are people going to move from london to new york, or his london here to stay? bob: i do not have a crystal

ball, but we have to understand london in the primacy of the physical world. policy will ensure that london remains in the global system. tom: thank you so much. 7/8cine, ford motor, 11 this morning. bob greifeld talking about the president-elect and technology. we will speak with adam posen of the pearson institute on trumponomics. this is bloomberg. stay with us. ♪

francine: i am francine lacqua in london. we have to look at vienna and the opec members so far having failed to bridge their differences on any kind of production cuts or a freeze even. this ahead of the meeting tomorrow. our guest joins us now. i am confused. russia is meeting, russia is not meeting, the saudis are playing games. will we have an agreement? i think it is probably less than 50/50 right now. says there is the first chance of an agreement, and that feels about right. will it agree to cut?

possibilityediate looks out of the window. it is looking pretty bad, but it may be that when the ministers arrive, they pull something out of the hat. tell us: the saudis that the market will rebalance next year. are they right, or are they trying to play games with iraq and iran? be, but there is a lot -- when you look at physical --icators and the amount of when you look at out from places like nigeria and libya, there are huge challenges getting the market to balance anytime soon. tom: help me here with the cartel of opec? how much of a cartel is this thing? will: one of the things we are seeing at the moment is that its market power is not what used to be. that really is down to the u.s.

shale revolution, something we have been talking about for years. the problem opec has is that even if it cuts production this week, it risks reawakening its ,ld problems, it's old rivals as production is being put back into the market, hedging forward sales. that is the real issue. tom: it is going to be fascinating. will kennedy, thank you so much. we are going to the probability of opec success, which is always a dangerous sport. speaking of dangerous sports, how about fiscal economics in america? we are thrilled to bring you adam posen of the peterson it is to -- of the peterson institute. this is bloomberg. ♪

tom: they are getting used to it. washington getting used to a next-door election.

mr. trump as the president-elect. i walked by trump tower yesterday. i tried to stand around the gucci store for 10 minutes hoping to transition. i did not. meone paid attention to except security, secret service. there is washington, and there is new york city this morning. fifth avenue, extraordinary to see the adjacent blocks around the trump tower shut down this morning. right now, with francine lacqua and london, i am tom keene. here is taylor riggs. taylor: first, authorities in peoplea say only five survived the crash of a charter plane carrying a brazilian stock -- a brazilian soccer team. it declared an emergency after electrical problems. it had been cleared to land and then lost contact with air traffic.

businesses could leave london if there is a hard brexit. mark carney has called for a two-year transition deal for businesses. we speak on a regular basis. that if a frustration it is the case that the government wants to exit swiftly, there needs to be a transition because we cannot afford to go to the cliff edge. also provide an certain -- also provide certainty. the lack of certainty can cause a problem. helor: khan also said received assurances from the government that you nationals living in london will not be forced to leave the country after brexit. donald trump has picked one of the original tea party members of congress to be secretary of health and human services, according to a person family

with the matter. .e is an orthopedic surgeon he has been part of the legislation to repeal and replace over mccain. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: thanks so much. i had a great conversation last night with glenn hubbard of the columbia business school. we were talking about the value of experts. as we look at the new president, maybe some experts should play in. here is olivia blanche are -- olivier blanchard. tom: a brilliant essay by

olivier blanchard. it is a great introduction to adam posen, professor blanche -- whatible colleague is needed within the politics of washington? adam: i cannot say because it depends on how much backbone the supposedly conservatives in the congress have. if trump is part of a dialectic between him and the openly conservative people in congress to get the kind of mainstream infrastructure investment that blanchard was talking about, and tax cuts are really about tax reform, then we have got something. is, as i haves spoken about and others have spoken about, subsidizing infrastructure projects that are more glamorous but would have taken place anyway, and open-ended tax cuts that will

last forever, then we have a budget problem and nothing to show for it. tom: i love the idea of talking about karl marx. help me here with the realities of fiscal and monetary and market movements that will make this president-elect adapt and adjust. what will the market tell him, and what will the budget process tell him so car marks can get his revenge? adam: i do not know about marx 's revenge, but if you run an excessively loose fiscal policy, the market will bite you. if you run a solid fiscal policy, it can reward you. this is about fundamentals. the other fundamental that mr. trump needs to think about is he is so obsessed with trade deficits.

but just as reagan 30 years ago -- if there are huge fiscal deficits, he will cause bigger trade deficits. tom: the first derivative is adjusted. , theys the fiscal deficit clinton surplus in the middle, and then down we go to a precrisis deficit. we crash and we come back. adam, we rolled over as well. how will mr. ryan and senator schumer a gap budget realities under trumponomics? adam: it is going to be tough. mr. ryan seems to be intent on getting his wish list, which he has the votes potentially to do, especially if the republicans in the senate try to push a budget through with what is called reconciliation, which only needs 51 votes. they may try to peel off some democratic votes by offering changes in the corporate tax

code for multinationals and infrastructure spending. but mr. ryan's numbers do not add up either. , thewith medicare cuts kinds of tax cuts he is talking about are going to lead to huge rises in deficits, even before you get to trump spending. better to do tax reform rather than tax cuts. why we loveis is having you on, because you go through the numbers. how much of the $1 trillion that donald trump has promised so far does he need to do to create jobs? it is only through job creation that he can fulfill the mandate he was elected on. adam: francine, i cannot give it to you on numbers. sorry to disappoint. he needs probably on the order year in reala infrastructure spending. that would be large enough to move the needle and responsible enough not to bankrupt anybody. nobody is going to bankrupt and

make things worse. but the key thing is, it is also the composition. sit in therehard as well. if he spends on things that build up our infrastructure and our human capital, there will be more jobs in the future. if he spends it on tax cuts that get saved or blown, it will not affect jobs in the future. francine: what can he do to encourage ceo's to spend? we may get some kind of tax break so that they repatriate, but he does not want dividends paid out. he wants job creation. adam: you are absolutely right. there are a few things. dealirst is, if you do a that the profit is being repatriated from abroad, you get a tax holiday. that is tied to some meaningful form of the corporate tax code. everybody keeps saying, reduce the rates, reduce the loopholes, broaden the base, and you can

make things happen. then there will be one less excuse for companies not to invest. you can also try to crowd in investment. this is the larry summers argument. if you do a full percent on gdp for something useful two or three years in a row, that is enough confidence that should drive businesses forward. francine: thank you so much, adam posen, of the peterson institute. tom and i are fighting it out, who gets the next question. schatzker sits down with a chairman and ceo. that is at 10:30 a.m. in new york, 3:30 p.m. in london. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. tom keene is in new york. here is taylor riggs. says it hashansa run out of legal options to stop the pilot strike that led to 5000 flights being canceled. analysts are suggesting -- pilots are striking in a pay dispute for the fifth time in seven days. -- omists northwestern university press david drawn of his testifying for the government in the trial over whether the merger should be arrive to take place. the company could raise prices up to 10% without losing business because of lack of competition. biggestthe world's automakers will join forces to set up the european network of fast charging stations for electric cars.

the partnership includes volkswagen, bmw, ford, and were cities ben's -- amber cedi's ben's -- and mercedes-benz parent daimler. in on thelet's check italian banks. we know about political risks. -- itcus now switches to is very clear that the ftse is under pressure, and the italian banks are today gaining. another story because of dilution and capital raising. investors are worried of what a no-referendum vote means for matteo renzi and the government, and therefore some of the bank recapitalizations. we are bad with death we are with adam posen. figure out ifto

investors are jumping at shadows or if there is a concern that italy is the next crisis. have i think it is fair to your worry about shadows. there is a difference with emerging markets between countries or particular sectors in particular countries that are vulnerable versus countries and issues that create systemic shocks. been right now has all priced in. the largest italian banks are well monitored and seemingly well-capitalized. the italian situation has been stable economically in a very bad state, but stable for quite some time. and finally, the e.u., with the italian government -- they are concerned about making sure that the banks get their proper balancing. there is some debate over who pays for the recap, as there always is. but i think this is more shadow than substance. the referendum is something

different, but it will not be italian banks. francine: you are not worried that a referendum would lead to the fall of the government, leading to some kind of technocratic government? it is amazing to see how slow we have been at rescuing these banks. the amount of money is not huge. it has been slow for a particular reason. previous italian governments made the mistake of policy wise and ethically of letting these banks sell bonds to small savers. bank bonds. this gets to the whole e.u. they'll of, do you have in a bondholders? if you have bailey and of bondholders in italy, it will affect small savers. if mr. renzi continues at prime minister, they can afford to annoy the small savers by if they haveail-in

to. i am more worried about mr. renzi falling instead of getting a decent technocratic government , and we get another right wing nut. tom: help us with your talent at the peterson institute. what do mr. kierkegaard and the others say? adam: my colleague jacob kierkegaard, who had the right calls on greece among other things, will tell you you will not make money on the italian banks, but you do not need to panic over italy as a whole. that is the right deal. you do not need -- you do not need to fantasize about the next government being far more reformist than this one, or if renzi wins he gets a huge mandate to realize that the bottom is still pretty solid under italy and under europe right now. posen, thank you so

much, of the peterson institute. i am sure we will speak to you in the coming days and weeks. this is important. tiffany's has just reported their earnings. they are pretty good, the usual story -- lousy sales, which i guess we expected everywhere but japan. this is the first i have seen of the president-elect's victory, the effect on tiffany's fifth avenue. this is a direct quote -- "some diverse effect on traffic." the fifth avenue store is less than 10% of total sales. we should go in and buy something. schlumbergers the bracelets. it is fifth avenue. it is mr. trump's new york. this is bloomberg. ♪

tom: he took his medical degree at the university of michigan, migrated to atlanta, and now migrates to washington. this will be the secretary

for health and human this will y for health and human services in mr. trump's cabinet. he is an orthopedic surgeon. always good to see someone from the medical establishment in a higher office in washington. francine? francine: i am looking at what we heard from the transition team of donald trump. we are also checking his tweets. he is talking a lot, not so much about his actual appointments. but tom price represents one of the original tea party caucus members. tom: let's bring in donald , with evercore. it is wonderful to have you here. ofi bring up a chart renminbi, what does it mean to you to see almost seven yuan per u.s. dollar? donald: the most important thing is that the yuan is down versus the dollar, but every currency is down versus the dollar.

if you look at the other currencies in china's own currency basket, you will see last month that down versus the dollar, up against the others on balance to roughly flat. that is why they talk about the currency now near some general equilibrium level. it is not dangerous. tom: mr. trump, in the brief time we have got, what would you suggest should be his projection, his pivot to asia? donald: i think he is going to shuffle his feet, but not take any abrupt actions. this 45% tariff coming in from china, this is crazy. ourould just then buy t-shirts from bangladesh or someplace else. a winning strategy. the currency manipulator, similarly, he can call them a currency manipulator. it is technical, a label. it is not an event.

he wants to do things that will help the u.s. economy. china wants a win on their side. they can figure this out. francine: will they figure it out? one of the other things we have been trying to explore is if donald trump retreats from asia, it gives a very nice in for china to take center stage. --s is something that may this is something they may like and relish in. donald: this has already happened. we have basically given to china a wonderful gift by backing away from our global economic leadership for the last 50 years. now it is china lost turn -- now it is china's turn. tpp is dead and china will have an opportunity to do a free trade agreement with russia, mexico, and, canada. this is a big plus for them and a minus for us. can you be sure

that donald trump will be a disaster with china? everyone close to him tells me he is a businessman. if you are a businessman, there is a case to be close to china. can he turn around and get closer to china? donald: if you are a businessman, you want a win. most business people know that most wins do not come about by the other side being a loser. i think he knows that as well. china knows that as well. none of us know exactly what the president elect is going to do when he becomes president, but he surely want something that will complement the big things he has planned here domestically. francine: what is the biggest risk? if he aggravates china, will they retaliate by making life very difficult for big american corporations in china? donald: i am confident that if he slaps china, china will slap

us back. that is a bad outcome which nobody wants. everybody has to read "the search for modern china" if you want to get into the donald straszheim game. should journal -- should donald trump read jonathan spence and other great offers, or does he just need a quick briefing over cocktails? all thise has spent time seemingly on his business for a long time. understandably, he is a businessman. he needs to get up to speed on a whole host of -- tom: you are going to the transition team. we know that. to speed witht up one example of your foreign policy, china? donald: he needs to read everything he can get his hands on, and he needs experts around him that know something about these topics. i do not see too many experts among the people that i have

seen on television coming in first significant positions in the new administration. francine: who would you nominate for secretary of state? donald: say again? francine: who would you nominate as secretary of state? donald: francine, above my pay grade. i do not want some kid from new who is really outspoken. i want somebody who knows global ,conomies, markets, policy society, and structure. i have not seen that person yet walking into trump tower. francine: i do not want to get you in trouble, but if you had to pick between secretary of state and taking care of finances, treasury secretary, what is the most important job right now? donald: which of my two kids is most important to me? these are questions you cannot answer.

he needs somebody at treasury and dod and at state. a fabulous overview of mr. duterte last week. how interesting to you is this tension in the philippines and a new relationship with china? donald: that is just one example, tom. we have given over to china the opportunity to really be the center, the focus of the other countries in china, and asia to china, not us. tom: thank you so much. donald straszheim will continue with us on bloomberg radio. how about foreign-exchange here? looking at yen, 112.66. stay with us. worldwide, this is bloomberg. ♪

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david: "welcome to -- welcome to "bloomberg daybreak." alix steel.ere at reversing losses from yesterday, the goods a slightly weaker and relatively soft, although off the lows of the session. the currency market with the dollar continuing to be range bound. you are looking at dollar-yen at its worst month since 2009. the pound is about .5 of 1% off the dollar and you have -- excuse me, you have a little buy coming into the 10 year yield, reversed. i story of the day will be oil. you have wpi of 2% as the opec game continues. david: we will start with their story, opec split. officials