i am jonathan ferro, alongside david westin and alix steel. in italy, it is political drama but without the market turmoil. futures positive. equities gaining across much of europe. if you look at the bond market, the ecb is lower than expected. but the euro stronger. up against the dollar by a third of 1%. alix: the crushing defeat. renzi-- italy's matteo announcing his resignation. muted markets, the european stock gained after coming back from a 20 month high despite renzi'. and trump accused china of currency manipulation on twitter. david: let's go back to the italian referendum. we are going to milan. dan, the first question -- we know what happened. the referendum went down. what is next?

dan: what is next is that we have reported that mr. renzi, according to one italian news agency, has already met with the italian president. he has to formally submit his resignation and then resolve this political crisis, turning it over to the italian president, who will hold probably two days of political consultations with the leaders parties's political before deciding on a mandate government for the country. david: a lot of focus was on the italian banks and what this would mean for the italian banks. do we have any sense of the answer to that question? there aretle bit, but still a lot of unanswered questions so far. , the world's oldest bank is in the midst of a 5 billion euro capital raising

plan. it has started the first leg of that. the board is probably meeting today. they are likely to put out a statement to find out what happens next. are they going to proceed with this plan or perhaps postpone it, given that while markets are not as volatile as people expected today, who knows what will happen down the road? unicredit is also planning a big capital increase. anywhere between 10 billion euros and 13 billion euros. what are they going to do? they have already set a date of december 13 to unveil those plans, but perhaps that will change. we hear from the ceo later on. david: give us a sense of how urgent the issue is with italian banks, in the sense that -- will the new government need to address the question of how to deal with italian banks? dan: absolutely. most dei paschi is in the critical shape, needing to get

past -- get back on its feet. if this does not happen, it will impact the rest of the banking industry. one of the scenarios, one of the names that has been mentioned in having this caretaker government is the current finance minister. he probably would be well received by the market. he has already dealt with the industry situation, it knows the story. that he knows the story. that would be greeted well five markets. , thank youliefgreen so much. jon: you wonder whether a conservative caretaker government can actually this through easier than someone who would be more sensitive to political pressure. david: i had not thought about that. they may have more leeway to deal with that thorny issue. jon: so many unknowns out there. let's go to francine lacqua, who recchi.giuseppe

good morning. francine: there are so many unknowns because there is a backlash. we had a guest early on saying it does not seem very democratic. -- italianfigure out politics are messy. the only thing is that the markets seem to be ignoring it. we speak to a man who has been looking at italian markets for many decades, giuseppe recchi. great to have you on the program. the market reaction is pretty muted. does that fill you with hope that market reforms will continue no matter who becomes the next prime minister? giuseppe: i think so. the vote does not mean that italian people do not want reform. vote on a, it was a

government procedure, but still, especially from the business community, there is a high need and high demand of getting any easier system to work on. david: so you do not believe this is a populist vote? you have the head of the five-star movement who campaigned so strong for this referendum. he won. giuseppe: there are a lot of that --nstituencies, the result was kind of scene in advance. it is quite different from brexit, happening in reversal from the expectation. same.ason might be the it is a compensated matter to discuss at to press on to referendum. onbecame highly personalized a pro-government, against current government, which is a typical situation. francine: there is obviously no reversal on italian banking

stocks. they were lower when the markets first opened, now they are higher. are you worried about the fragility of the italian banking system? giuseppe: luckily we are seeing the stock market maintaining its position, not dropping down. the spread is good. this means that international investors were at the window, ready for a long time, so there is no pullout at this moment. today is too early to say what is going to happen. let's remember, the status quo remains. this is not a disruptive result. the institutions are there. italy is used to institutional changes. there is a parliamentary majority that is established. francine: the parliamentary majority you are talking about for the pd could change. a code if people move

around, which is something that is possible under our governance -- it could if people move around, which is something that is possible under our governments, and in a new election. that is the key reform. systemng the election should be the same for the senate and the lower chamber. francine: you are great and looking at the linkage between the central banks and the macro economy. what does this mean for mario draghi? is it even possible that he talked about tapering? giuseppe: again, i cannot comment on this. i will say that probably the spread is resisting, also because the ecb is acting massively. up, probably. but we will see the day after tomorrow. the main fear was about the spread moving and increasing, affected ourd have

economic reform in the balance sheet because of all the plans that have been put into place being based currently on a spread. that would have created a correction for the coming year. italy is a strong economy. are climbingators up finally. confidencensumer which is building up. people are waiting for what would have been a problem with the eventual new taxes, with financial reforms that they could not understand. we are a telecom company, so we are pretty short cycle third we see all the indicators going up. there was a turnaround in due course for the economy -- in due course for the company. investors are looking at us with great attention. francine: what is your great concern?

i imagine for your business is that it is growth, so the markets need to get pushed through at a faster pace than we have seen so far. and you need healthy backs -- and you need healthy banks. giuseppe: there is confidence in italy. -- the the problems flexibility of the lending sometimes is crucial to their survival. inhave a huge cash flow companies investing in its own resources. the market is saturated particularly in italy, so we are growing in the stock market. -- this is where the core of the risk will stay, and we will see if banks can stay after these people. francine: thank you so much for joining us today. we will have plenty more interviews right here throughout the day. we are live from rome on the back of this referendum.

jon: francine, great work. francine lacqua sitting down with giuseppe recchi. diplomacy, foreign taking place let's get headlines outside the world of business and catch up with emma chandra. emma: u.s. president-elect donald trump took on china in a series of tweets. he rejected criticism of his decision to take a phone call and taiwan's president reiterated some of his complaints about china, including devaluation of its currency and taxing u.s. imports, and the military buildup in the south china sea. trump will nominate former republican presidential nomination ben carson to be the secretary of housing and urban development. carson is a new york surgeon who grew up in detroit. in london, the supreme court is hearing a crucial case on brexit. prime minister theresa may's looking against a

vote in parliament. a win would allow her to keep her negotiating plans under wraps. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am emmaountries, chandra. this is bloomberg. alix: u.s. equity futures are right around the highs of the session, but in europe you had the italian banks hitting quite hard. monte dei paschi hitting up 5%. at one point it was up 7.5%. question we have been talking about already is what this means for recapitalization. paschi wants to recapitalize 1.5 billion euros of bad loans. will they be up to follow through on that that will they be able to follow through on that? the euro was lower by 1.5% versus the dollar, and you saw a rebound in the international sellers in europe.

nestle gets 82% of its revenue outside europe. europe gets 44% of its -- of its revenue overseas. these guys get a little bit of a rebound today. -- and are very -- rejected office from coach. david: coming up, the italian referendum does not look too much like brexit, at least so far. bets on volatility are down. is the year it it -- is the euro still headed for parity? that is next. this is bloomberg. ♪

jon: for once the polls seemed to get this one right. european equities gained. suggesting the market was not caught offguard like the u.k. referendum earlier this year. is vassili serebriakov. it took about three minutes to get over what happened in italy. why? sili: i think the italian politics are extremely complicated. i think the chances of a next the election in 2017,

chances are relatively low and that is what the market would be most worried about. some of the details around the -- mics jon: we have heard those calls around the table several times. how will populism affect the fx market? the dues say that the doomsday -- it is a lot more simplistic and alum were difficult than it sounds. for the markets, how do politics infiltrate the fx market in the years to come? vassili: for the record, parity was not our call. the euro and the eurozone bark market -- the eurozone bond market are not the same as in 2010. we heard from the ecb last week in terms of stories of potentially supporting the higher bond markets, 60% of the italian bond market is owned by domestic residence at this

point, so there is a lot less international pressure. eurozone as a eurozone as a wh- europe looks very different. that is why political events affect the euro differently. if you get the point where you have this massive contagion and where asking essential questions again, the euro weakens. paribasis is the bnp political risk index. the white line is volatility for european stocks. a weaker euro,ee what kind of volatility do you expect? vassili: i think you should still be a buyer for the medium and long-term. the french election represents another chance for this sort of toestablishment movement show itself. the political risk is there, but also let's not kind of overplay political risk as well. we have big movements happening

in the bond market anyway. we have a steepening in the yield curve, rising global bond yields. it is a complex process and politics is a part of it. we have seen many times over the last couple years it does not generate sustained volatility. the market is certainly not overplaying it. equities are resilient. we go into next year with the lessons of trump and brexit and italy, and we underplay political risk because there is a lot of research out there, but the market and the price actions say something different. vassili: that is the nature of the market. you swing one way too much and then the other way. we spend a lot of time thinking about, are the markets being too optimistic about fiscal stimulus? there is clearly a a lot of enthusiasm about the new state of the u.s. economy. perhaps fiscal spending, infrastructure spending, and all of this has given us quite a bit of support to the equity

markets, even as the bond yields are rising. i think there is a danger that through the middle of next year, maybe in reality -- maybe reality sets in that there is not that much change happening in the u.s. economy, and with some of the trade tensions coming through. we could see more of a risk up sentiment next year. david: we are going to hear from them later this week on thursday. if you are mario draghi this morning, what are your options considering italian bonds specifically to minimize the spread, but overall the strength of the euro? vassili: i think we heard from theecb last week, there is possibility of some flex ability on qe, buying more italian bonds, for example. let's not dismiss a verbal intervention. they support of bond market quite effectively.

i think inflation, low inflation remains a concern for the ecb. they extend qe until the third quarter of next year, so that should help support sentiment as well. there is a tricky spot because they have to think about how they are going to get out of qe eventually. we might hear more of that. i think mario draghi's point will be confidence in the eurozone, confidence in the bond market, and the way the markets are trading, they will think it is credible. great to have you with us. coming up on this program, tough tweets from mr. trump. he comes under fire over a phone call with taiwan's president. time, thetes unicredit ceo joins us exclusively to discuss the impact of fallout from italy's political limbo. this is bloomberg. ♪

alix: donald trump goes after china yet again, this time on twitter. he wrote, "did china ask us if them to devalue their currency? u.s. does not tax them for them to build a military complex in the south china sea. mckeet think so." michael joins us. there are two prongs to this. foreign policye come and the other has to do with currency manipulation for it is more significant? that it it is exactly is hard to tell exactly what he is trying to get across. if you look at the south china sea aspect of it, remember, this is a guy who said during the campaign that maybe japan and

south korea should defend themselves and the u.s. should loud of that area. so is he being -- and the u.s. should blowout of that area. so is he being belligerent? he does not even have a secretary of state in place, so we do not know what his policy will be. the other question on currency -- i have a chart that shows the dollar has been appreciating against the chinese currency for years, and all of a sudden the chinese devalue and start letting -- they revalue because yuan's is let the thousand five strengthened. the chinese have been experiencing capital flight out of the country into the united states. they have been spending money to prop their currency up, so mr. trump does not seem to know what he is talking about in that case. it is hard to know what he is trying to get at. jon: there is mr. miniature and -- there is mr. mnuchin. i wonder what the objective

actually is. are you telling me that steven mnuchin does not understand what is happening in this fx market? i would understand that he does. i want to understand with the real objective is. stating something you may well know isn't true. michael: this is a man who campaigned throughout the last two years by saying lots of things that were not true. they play well, and it goes over politically well to say the chinese are manipulating currency for trade reasons. i have another charge here. you can see that the chinese yuan, the white line has been going down, getting lower. chinese exports to the united states have been falling. if they are devaluing their currency for trade reasons, it is not working. is not helping. alix: -- david: how much of it is atmospherics? there,issinger went over certainly with mr. trump knowing it, to try to mend fences.

how much of it is a high-low game? michael: with trump, you cannot really tell. he has refused security briefings. that is keeping markets on edge, which is maybe what he wants to do up to where he is inaugurated. alix: we do not really know. thanks so much, michael mckee. coming up, italian banks get another hurdle. what the prospect of political uncertainty means for banks next. this is bloomberg. ♪

alix: this is bloomberg "daybreak." 7:30 a.m. on wall street. here's what you need to now. a crushing defeat. matteo renzi announcing resignation after voters rejected a constitutional referendum, sending the country

into political limbo. you did markets. after a stocks gaining 20 month low despite his defeat. and trump's twitter tactics. the president-elect is taking a fresh sweat that china, accusing the country of currency manipulation. and that is what you need to know. jonathan: let's get you up to speed. the biggest one-day pop on the stoxx 600 in about a month, futures positive in the united states, up seven or eight points on the s&p 500. 18 out of 19 industry groups in europe gaining in today's session. btp standing off, italian yields go higher. we're still short of where we were, up 15 basis points to 190. euro strength, there is the story. overnight.ne point%, shrugging it off very quickly. david: for more on the italian referendum and what it means for italian banks, we go to our

colleague francine lacqua in rome, who has an exclusive interview with the ceo of unicredit. francine: thank you so much. i'm very pleased to welcome him onto the program, his first interview since he became ceo of unicredit. thank you for joining us. the reaction for the banks was muted. unicredit is currently down some 5% -- what are your shareholders worried about right now? afternoon. i think as we saw today, a classic fact for the market, and clearly for unicredit, but we are a strong european commercial bank with a unique central, eastern, and western european network. strategy,unce our new based on the long-term view of a

buyback for more than 300 years. strategyot change our and the plan for the long-term. if you were to raise capital -- i know you have confirmed it, but you have said this is an option -- if there is market turmoil, will you try and limit the amount you ask shareholders to buy into? said, we will announce our strategy, but the event won't change at all our plan. worried: so you are not about market volatility on the banks going forward? >> we are not worried about market volatility. italy's a strong country. our bank is a strong pan-european commission bank, and we plan for the medium to long-term. so let's separate until december 13 when lee will announce a new strategy.

monsieur, how much i do looking at monte dei paschi's capital raising exercise to give you a look at what the market is like in any eventuality? >> we do not comment about other banks. as i said, i feel that unicredit is a strong bank, and italy is a country with a lot of potential. let's focus on the medium to long-term, and let's not be too bothered by the events overnight. it's important to take the medium to long-term perspective, and this is what we are doing. we will plan on december 13 two announce a clear and strong strategy. can you talk to me a little bit about the business model? you will lose revenue because you are selling off. you lose those sales -- how you make up for them? well, we are very pleased that we announced this morning

that we are starting to enter negotiations with amundi, and we are very pleased for unicredit . they are the ideal partner. going forward, our strategy relies on our business model, which is unique -- we have unique networks in eastern and central europe, and you will see and with strong development all the business segments in the country. do -- wille have to you have to do deep cost cuts? >> you are too impatient. our strategy on december 13 will show that one side will work on the development of our activity. on the other side, we will of course transform our network to serve our client. monsieur, i get told a

lot that i am way too impatient. one of your board members was writing, suggesting that italy ought to fund a state backed bank. is this how things bad are? i think italy is a very good country. if you look at what has happened in italy in the past, italy has a very strong, positive primary surplus. it is well implemented on pension reform. we need to be positive and look at the development of the country in a positive way. for the banks, as i said, let's plan for the medium term. let's not be impacted by short-term events. francine: do you rule out a merger with a competitor? oure are very focused on

organic development. monsieur, i know we have to wait for your business plan, and i thank you for the time you gave us. a final question on what surprised you the most since you took the ceo job. well, i have not been surprised because i knew unicredit quite well. since i came back to the bank i can only say that, on one side our clients, on the other side are the team, and we have a very bright future. jean-pierre mustier, the ceo ofstier, the ceo of unicredit, an exclusive interview. it was also the first time he actually spoke to the international presence. david: such an important date to hear from him, thank you so much. i think there's a strategy on december 13. francine: [laughter] the real issue with

italian banks is what happens when it spreads -- you see 10 year yields in italy back up by about 12 basis points. italy and germany now winding, well off the high we have seen in just the past five years. we are nowhere near the levels we saw in 2012. so what kind of level of stress does this imply? the u.s. trust bank of america ceo joins us now -- this is key. their collateral would be cut in that would reverberate in the bond community. is the risk appropriate leaving priced? >> i think it is. this is still hot off the presses, obviously, so we need to wrap our minds around it. the result wasn't a big surprise, which is what the markets are telling us right now, although i think it will be sometime to understand the ramifications. we have to watch the spreads. we don't think we will get to a

point of being overly problematic. i think the ecb has a lot of ability to step in, even purchase italian bonds, if that is the right thing to help them through this period. i think with the tools that the ecb has at its disposal -- in fact, the markets are telling you this is not an overly big deal -- i think we will get through that. alix: unicredit ceo says we haven't changed our plans for december 13, everything will be great. do you buy that when it comes to italian banks? >> i think one of the questions coming from this vote is will it be more difficult for the italian banks to recapitalize? i don't know the is it that question, but it certainly raises some issues and we will have to wait and see what place from there. jonathan: the famous front page of "the economist," a 20 euro note made into a sinking boat. at the back is president draghi with a bucket. how much water can he throw out the back of a sinking boat, given how much the ecb has already done?

we aren't pricing in anything, because the market has been completely insulated. but he can't recapitalize the italian banks, so what's going to happen? >> he can't recapitalize the italian banks, but one of the things that is being speculated an is will draghi announce additional six months of quantitative easing? we are going at 80 billion euros per month through march, 2017. he could announce another six months on top of that. we are expecting this in the u.s. -- fiscal policy. if we were to see not only the u.s. under the new administration, fiscal policy being used as a tool, if we see is in europe in general, in italy in particular, that certainly would have helped as well. they have to delve a new government in may be an election, arguing against a lot of fiscal stimulus coming on board right away. they aren't going to have the political wherewithal.

how do you play out this tension between brussels saying you can't bail in, and the real political problem with the investors who have the bombs? >> it's a good point. i think that is why we need to continue to see the monetary side of the equation smooth things out. i am talking behind that, once they get this settled down, and it's clear who is going to come in and be the new prime minister. then i think you could cease some fiscal policy coming in globally, which would be a big left for global growth, and we think we will also be contributing at some point nicely to u.s. growth as well. alix: part of the trade into the referendum was buy. the uctf saw inflows last week -- what is your trade now out of the referendum? >> we have been concerned for this reason, among others, about europe. let me step back. number one, we feel good about the u.s. we do think we will see an uptick in economic growth. you can see real growth up to maybe 2.5%.

we think inflation will rise. nominal growth in the u.s., in fairly short order, could be approaching 5%, which is a good thing. we think rates will rise, but we also think, again, that you will see some fiscal action drive some of that growth. overall, we are expecting a lift in global growth, and we think the u.s. will continue to be a driver of that. our view has been stay long in u.s. equities. we have been concerned about europe because of this note, plus the fact that you have a very important election coming up in france, and in germany, in the netherlands. is still the work through for brexit. even though economic activity in europe is continuing to do ok, and we think we will stay on that path, these overarching issues could be a problem for european equity prices.

jonathan: he took us to the united states so let's wrap up their. we are talking about this seamless transition from monetary to fiscal, after seven or eight years of aggressive, aggressive monetary policy. the question i would be asking, if we are waiting for something to break, something is breaking. the treasury market. what's that going to do to the economy? >> we don't think that rates will back up to a point of causing an issue with economic growth. we think economic growth is going to begin to accelerate in the u.s. we are going to start to finally move toward normalization of interest rates in the u.s., which comes with the later phases of the economic cycle, which we think we are starting to move into. workers told us that we have been in a mid cycle phase; when you go into the late cycle phase you see two things. you see typically acceleration of economic growth and you see rates normalize.

we don't think it will move to appoint where it will begin to print, economic activity, that we do think by the end of next year we would not be surprised if the u.s. 10 year is at 3% or higher. but we think that is manageable, when you look at the underlying growth dynamics in the u.s. and you overlay on top of that some fiscal health as well. >> you mentioned where we are on the cycle. we are getting into the late stages of the cycle. have we ever had substantial fiscal intervention in this country, when you have had a fairly tight labor market and growing economy? normally you have fiscal stimulus when the reverse happens. are we have a new phase of history question mark that makes me nervous. >> this whole phase has been different. we have had a record low level of growth at 2%, so you could argue we have been in secular stagnation. we have had below inflation, below interest rates. nothing about this cycle has been typical. you typically do see fiscal coming in much earlier.

one of the things people are being critical of is that monetary has not had the oomph that it typically has, because it is normally monetary and fiscal. fiscal is coming in much later than typical, but we think it is coming and it will be a big benefit for the economy. alix: all right, great to see you. u.s. trust bank of america private wealth management. john? jonathan: breaking news -- a statement from serge ibaka rally -- the referendum, according to the president, a testimony of strong democracy. we will keep you up-to-date on the statements coming throughout the program. alix: coming up, a prost referendum reversal. the euro turning higher after hitting a 21 flow. -- a 20 month low. this is bloomberg. ♪

: coming up -- joins us to discuss europe. ♪ david: this is bloomberg. it's now time for bloomberg trends, when we take a look at the top stories terminal users are reading. you can find these for yourself on your bloomberg. mine was something that surprised me. when you think about republicans coming in, you have less government. turns out that a very early trump backer, representative tom reed, has come in with a serious proposal that says for new

colleges getting all these chair donations, we are going to require that you get when he 5% of those to subsidize lower and middle income students. in other words, we will tax you. you will lose your tax exempt status. this is a way of addressing, ironically, what has been proposed from the left, to make colleges more affordable. jonathan: the big question is if we actually have a republican in the white house. you've got a republican congress, fine,?but what is in the white house we will continue to have the debate about that. alix: you have republicans coming in and saying, that was done under president obama? there was a call a theory to that point. i'm taking a look at what it means for the fx market. a huge dollar rally, but what does it want it meeting when you look at the reagan presidency, bush presidency, trump presidency? the trump dollar rallied like a reagan rally, but in reality

they were quite different. you had an economy that was just coming out of a recession, the stimulus had a lot more juice. you also have balked cutting rates instead of the fed raising rates. there are some big differences. david: it's also a very different ratio of debt to gdp when ronald reagan came in. you think about borrowing to fund the fiscal stimulus. and some countries on the other side of the trade allowed it to happen. i don't see that happening this time around. my story today is euro parity in play for traders as italy succumbs to populism. obviously the other side of the trade, the ecb would love the euro to drop to parity, but the difficulty of that happening -- when people talk about politics being the new economics market, the euro and the eurozone is a very different construct. it is not the current account deficit in the u.k., which gives it some fundamental support. the ability of politics to drive

the euro much weaker from here, maybe it is going to be constrained in more significant ways. david: absolutely, and it raises the question -- was this really a rejection of populism? it's been suggested that it was the reverse, that people were concerned about giving too much control to the prime minister. it might have been a conservative move on the voter'' part. alix: with the euro at a two-week high, breaking news -- unicredit shares are halted after the limit down when they milan, a starkhe long difference of the ceos saying he is not worried about market volatility and is very focused on his business plan. december 13 has not been changed but it looks like investors currently disagree, the stock now halted. jonathan: we should emphasize that this happens a lot in italy, maybe without the need or the catalyst for it. we'll keep you up to speed. time now for other stories making headlines.

here's emma chandra. emma: the army corps of engineers handed a victory to protesters wanted to stop an oil pipeline in north dakota. the engineers refused to ground an easement. the standing rock sioux tribe and its supporters have argued that it threatens water sources and cultural sites. leaders called it a serious mistake and developers will still seek an alternative route. executive has like an hired criminal defense attorneys. they have ramped up meetings that may lead to charges against the executives. vw admitted last year it rigged diesel engines to lower emissions during testing. and bmw doesn't see in a quick way to increase profits from electric cars, but will make its executives in charge of electric

development. battery capacity and cost will weigh on the technology for the for seeable future. bmw estimates it will take about seven years to double the energy stored in a battery. and that's your bloomberg business flash. on emma chandra. this is bloomberg. david: coming up, italy falls into political limbo as prime minister matteo renzi announces his resignation. how global markets are reacting thus far. that's next. this is bloomberg. ♪

alix: we have been talking all morning about the lack of market reaction when it comes to the italian referendum, and here are three charts that really illustrate the story. we want to start with the currency market. this is where you can truly see the difference. the white line here is implied volatility of the euro, and the blue line is euro-yen. this is what happens around brexit. volatility just picked up before falling, as well as your-yen falling to about 112. there was an immediate reaction,

a rush to safety. while we have seen today has been nothing. volatility wound up coming down to under 15%, and you wound up seeing the euro rallied to about 122 against the yen. a totally different world then we saw a few months ago when it comes to brexit. it's a similar story when you take a look at global stocks. this measures the 10 day volatility of global equities, the msci all country world index, the brexit vote -- look at the surgeon volatility, crashing down significantly, but nonetheless there was that big surge. here is the u.s. election, a tiny surge but nowhere near where we saw brexit. now, nothing. volatility is actually flatlining. you can see the huge change in major geopolitical events that we have seen in the last few months. investors are really positioned for that as well. this is what tracks italian shares -- it got the most money in the year in november.

a huge bet on italian stocks here in the u.s. they gathered money for five straight days, and the question is why. is it the draghi put, or complacency? jonathan: a conversation for sure. a senior fellow will be joining us to discuss political uncertainty in europe and beyond. from new york city, the political trauma very much in rome. turmoil and markets waiting to be seen,. futures positive in the s&p 500, european equities see their biggest one-day pop in about a month. from new york, this is bloomberg. ♪

a

jonathan: good morning and welcome to this monday, december 5.

we are live in new york. attention to global markets very much on rome. futures are up eight points in the s&p 500, equities gaining in europe at 1.4% on the dax, and the bond market -- yields are higher by 15 basis points. bucking a trend. it's a stronger euro. alix: here's what you need to know -- matteo renzi announcing his resignation after voters rejected a constitutional referendum, sending the country into political limbo, but markets are muted. european stocks climbing back through two-month lows despite his defeat. and trump's twitter tactics, the president-elect to taking a fresh sweat that china on social media, accusing the country of currency manipulation. and that's what you need to know. jonathan: over the next couple hours, all attention on rome as the prime is preparing to hand in his resignation this afternoon, having signaled that

he won't stay on to help stabilize the caretaker government. i expect for this caretaker ministration, whoever may leave it, they have a lot of things on the agenda. they have to do elect oral law and reform it before they can have an election, and then think about what happens of the italian banks. david: you also have to think about a caretaker government -- as you pointed out, maybe they have more flexibility because they are not as politically sensitive. alix: right, but the real question is about the electoral law. that is key to who will be governing. will it be a winner take all to get the majority of the vote, or will it be a coalition system? what does that mean for the populist faction? jonathan: exactly. let's bring in david coates of cumberland advisors. david, there's a cliche in markets -- i heard it last week battles,cals win fundamentals win wars. deliverimaginations

overshoots in either direction. the runaway imagination right now is the populism theme that will break up the eurozone. this got to know -- i don't see the market reaction that suggest we will get a break up in the eurozone. >> well, markets look at brexit, turnaround, and rally. they look at trump's win, turnaround, and rally. they are playing it out again, except i think this time it is different. and a dangerous thing to say in this business. italy, third-largest debtor in rating, atriple b- banking system in shambles -- what do we know? it is the third biggest weight in the eurozone. it records shifting moneys in the eurozone, and they are plummeting. we will see the next one from the ecb. realve an ecb that has got hamstrung policy issues now.

at a think this is the same as brexit. i think markets may be setting themselves up for disappointment. david: take us beyond today and talk about the fundamentals the italian economy,. not the banks, not the stocks, but the economy. is there a sort of pension reform that can drive long-term growth? >> well, can they get it? will the politics permit the reforms? that has been a question. there has been a new leader of italy on average once a year since world war ii; the political system is dysfunctional. so i'm not sanguine about italy, and i believe we are seeing threats to any cohesion that can come to the eurozone. there's an accelerator here in risk. i think risk is rising in europe. jonathan: i want to bring in tom phrase from london. great to have you with us. the electoral law reform that will happen between now and,

we'll assume, the next election -- how will that take shape? >> i think what you will see in italy is that the establishment, the president is going to use it as any excuse to back off against the possibility of the five-star coming into power. longill see a delay for as as possible between now and the new elections coming in. the one thing people are worried about is this prospect of getting a referendum on the euro. as everything is in italy, getting actual reforms there will be a long and torturous process, but that's not a bad thing for the political establishment. david: how does this referendum read against the possibility of five star? what he was trying to do was take the senate out as a speed bump to get things done. a five-star got in effect, when you want them to be a speed bump? >> that is certainly one way of looking at it. but what is also important is that we don't know what five-star's proponents are.

you talk to five different next for 10 to get five different answers in terms of what they are looking for. one of the big issues is the referendum, and what they actively push for italy to leave the euro or reform it from within? it's a little bit like donald trump's twitter, all things to all people. alix: anti-establishment, anti-europe parties total 40% of the vote in italy. so david, if the uncertainty john is outlining comes to pass, if you look for more cracks in the system, what asset classes do you look for? >> i like the u.s., i like the u.s. dollar, u.s. stocks. i like selections within u.s. stocks. i am worried about the stock market in europe. i believe they are going to confront sequential shocks, and we are only beginning to see those results. jonathan: there's a picture circulating on twitter, a picture of four world leaders -- obama, david cameron, hollande,

mr. renzi. a lot of those people have now disappeared. thereforward, for merkel, has been this back and forth with germany and italy i have to deal with the banking system. are we going to see a softer stance from germany, or with the election on the horizon, will make them do something they would want to do? >> i think with germany, the way to look at germany and all of this -- you are right. by the end of next year, most of the european members of the g7 will be gone. but the way to look at merkel is that she is the bedrock, the strain of continuity that we are seeing. merkel was the backstop of the euro into the last crisis. and of everything we know right now, she is the one who is still firmly believing in the system. we know from our track record that she will do almost anything, eventually, to shore up that system. with merkel, when it comes to the banks, when it comes to the

euro, she will need all the power she has to twist arms -- whether it is in rome or anywhere else -- to shore up confidence, not only in the euro but in the banking system. david: bungalow merkel has been nothing if not -- angela merkel has been nothing if not steadfast. she has people in other countries in the eurozone, as -- see renzi, hollande go it has been going right.kenji sustain her position ? >> if you look at general politics -- i may regret say ing this -- she is the only show in town. the alternatives are doing well, but they are still only pulling at about 15%. they aren't going to come into power, and it is hard to imagine an environment in which her party is not the largest after the election. it is looking like she will -- she has a very good chance of being the next chancellor. david: is there any case you could make for an opposition

that would help her last for her fourth term? and if that question comes into markets in some way, you really ratchet up risk pricing? >> nothing -- i would necessarily rule anything out, but if you look at where the polls are right now, that would probably involve opposition parties making in a deal. right now they are pretty much a pariah; no party would want to do a deal with them. it's an interesting scenario, but right now it's unlikely. david: thank you so much. that is our international government executive editor, coming to us from london. welcome to the side of the hellenic. cumberland advisors will be staying with us. jonathan: we can trust the polls again, that's exciting. francine: for this one time. [laughter] onid: let's get an update the business world with emma chandra, here with first word news. emma: thank you.

president-elect on will nominate former republican presidential candidate ben carson to be the secretary of housing and urban development. carson is a neurosurgeon who grew up in detroit. he endorsed trump last march. in london, the supreme court is hearing a crucial case on brexit today. prime minister theresa may's government is arguing against having to hold the vote in parliament before beginning the uk's exit from the european union. a win for the prime minister would allow her to keep her negotiating plan under wraps. and shinzo abe will become the first sitting japanese prime minister to visit pearl harbor. he will visit the hawaiian naval base with president obama at the end of the month. wednesday as the 75th anniversary of japan's attack on pearl harbor, which led the u.s. to enter the second world war. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. alix: thank you. u.s. equity futures grinding higher in the u.s., but only

action happening over in europe. italian carmakers in particular -- fiat chrysler and ferrari -- both of those countries up. -- companies up. the de l dollar is helping exporters over in europe. the euro is turning higher, as these stocks continue to hang on to the gains. a very interesting divergence between the currency and major exporters. also here in the u.s. we are focusing on mcdonald's. this stock upgraded from neutral to buy at number of. -- nomura. they see the rollout of mobile order and pay helping them. and gold getting hit. no prettier way to say this -- gold companies are being taken out to the woodshed. gold at a 10 month low. etf lost about 100 tons of gold in november, a through month. david: thanks. coming up, donald trump is on twitter again.

this time he is calling out the chinese government. look at it mean for the future of u.s.-china relations? and wall street meets the white house. we explore how trump bringing in goldman sachs could affect his economic agenda, and what it might mean for goldman. this is bloomberg. ♪

jonathan: from new york city, this is bloomberg "daybreak." west get a check of the markets. some resilience -- futures positive, equities gain across much of europe, with the exception of italy, as the

italians vote no on prime minister renzi. as we switch of the board, taman yields higher by 15 basis points. surprise surprise -- a no vote. euro is up by .4%. david: mr. renzi having struggles politically, but donald trump has done all right, and markets have taken that abrupt turn as the election. no asset classes reacted more strongly than bonds. sovereign yields up sharply over the past month, and trillions of dollars flowing out of debt worldwide. the question is whether it is time to take a second look. to answer that is david from cumberland advisors and michael mckee of bloomberg, joining us now. david, has a gone too far? >> yes. we are at 130%, 140% of treasury yields. we were a 85% or 90% for.

high-grade immunities are now a gift to an investor in the u.s. who has a high tax bracket, even if the tax brackets go down under trump. david: what is your reaction to what's going on with the bond rout? >> well, it is based on hope that donald trump will be able to stimulate the economy enough, particularly through infrastructure, which is where you are getting the effect. the problem is his plan, at least the campaign plane, was not to spend $1 trillion -- it was to give tax credits to companies, who would then come in and spend the money to build things. and the question is, yes, maybe you would get a toll road from new york to connecticut that somebody might be willing to pay for because it would get a lot of usage, but who's going to pay for a bridge in indiana that's falling apart, because not enough people will drive across it to make money? the plan doesn't really hold, it doesn't go as far as most are hoping. david: there is some suggestion that we might have bonds that with the federal government

subsidizing, they wouldn't be tax-free, but there would be a tax subsidy. >> well we had it for trump bonds. build america with trump, a new mantra. years, 200for two billion were issued, used for various infrastructure, and the federal government paid a part of the interest to the issuer. in congress would renew the program, they played around with changing the subsidy rates, and they got nowhere. it was a successful program. maybe that is a model of the trump. alix: so the broader question is, in it or not a model, with higher yields in the u.s. -- and what point does it hurt financial commissions, and you have to rethink your entire portfolio? what is the threshold you are hearing? i am hearing 3% and over. >> i am of the expert on your portfolio, that would be david. but for the united states it is starting to get there, but not quite yet. you have some offsets to it, and

faster growth will bring in additional tax revenue that will offset some of that. the question is how fast can the economy grow? potential growth hasn't really changed. david: maybe we could put up that maybe we could put up that chart? alix: yeah, come inside the bloomberg. david: what we did is we took two etf's. one is the cap waited s&p 500, and the other is the equal weighted same stocks. alix: that's the blue line. david: yes. and we also put in the strengthening of the dollar, and what did you see? when the dollar is getting stronger, equal weight outperforms cap weight. the big cap way companies are the most exposed. and the difference this year is 4% above the benchmark spy. if you took the dollar trade,

that trade is still good. >> maybe donald trump loves it. he says u.s. companies, domestic companies, are doing better. and 20% of the national income and product profits are overseas, and if you flatten the s&p to equal weight, you reduce the exposure to the big companies who are earning it. you raise the exposure to the u.s. and mexico. >> you mentioned the rest of companies -- that flies in the face of what donald trump says he is trying to do. you want to help the exporters and bring the manufacturing jobs back, but those companies will be hurt by this. >> you are tweeting too much. [laughter] jonathan: big question -- if you are a big s&p 500 company, and a lot of people are sitting around laughing at the tweets, if you read them, and you met in the boardroom today, and you are thinking about moving out of the united states, would this affect your behavior? >> not at this point.

you don't know how it will work. let's take the commerce secretary, wilbur ross. he owns an auto parts company that has plants in mexico that bring stuff into the united states. is he going to advocate that they should lose money because of the president? alix: know. no. ok, there you go. thanks so much, guys. david, michael. coming up, leaving wall street for the white house. it's nothing new for employees of goldman sachs. the current president iand coo could be the next one to land a spot on fixing hundred pennsylvania avenue. lumbere this is bloomberg. ♪

david: this is bloomberg. are morning must-read today comes by way of london, but it is all about the drama being played out in new york city over trump tower. "the london times" writes about

the real possibility that mr. trump will be relying heavily on the advice of goldman sachs as he moves his economic agenda forward. "with three goldman sachs now destined for top jobs under donald trump, the wall street giant is getting back into the political game on both sides of the atlantic." joining us now is a student of goldman sachs over the years, bill cohen. welcome back. this seems a little strong. they have had some conversations, it's a possibility. but tell us about the significance of this heavy reliance on goldman. what is so striking to me is that the tone is totally shifted since the election. bothk before the election, senators warren and sanders were basically saying, don't even try to get someone from goldman sachs or wall street into an administration in washington under the presumed president

hillary clinton. well, with donald trump's victory, he threw that game plan completely out the window, and thoughonically, even firms like goldman sachs would never do business with donald trump, he is surrounding himself with people from goldman sachs. whether gary gohn will shift remains to be seen. david: we shouldn't forget that donald trump blamed the campaign -- he named lloyd blankfein as part of the problem. that this is a long tradition. does this mainly tell us that donald trump will be more mainstream than we thought? hard to know exactly if donald trump could ever be described as mainstream. but it is somewhat comforting, if you thought donald trump is going to be blowing up the world. it is somewhat comforting that he has people from goldman sachs around him, who have, let's face it, fortunes to protect, who are much more sober, who understand capital markets. these are deal guys.

wilbur sachs is a deal guy, steve edition is a deal guy. these are not the traditional wall street ceos; it's not like having an old line bank or. steve minutia is a deal guy. that is what donald trump wants to surround himself with. the goldman sachs is back, whether gary cohn ends up and be a ministration were not. david: what they both echoed some time ago -- cohn is the ceo today. what would it mean to goldman if he came out? who runs it? >> look, like has been there for 10 years, and gary has been waiting for 10 years. goldman famously always has a deep bench. i wouldn't worry about the future of goldman sachs if he decides to go into the trump administration. of this might be a way for him to say, hey, i am still here,

remember me, it is my turn to take over the leadership role in goldman sachs. they could be a power play on gary's part, and if it is legitimate, if he really wants to go to work for donald trump, he could go to the office of management and budget, to the national economics council -- those are two top job still available -- they have a deep bench, people like david sullivan, one of the co-heads of the investment bank, he is one name. but lloyd is not going anywhere soon, so it will be a long way for the next understudy. david: finally, you said working for mr. trump -- what about mr. minuchin? >> i don't see gary going to treasury to work for him. enunciate. if -- i don't see it. it would be his own thing and the white house. david: thanks so much. bill cohan. jonathan: thank you.

getting somewhere european reaction to the italian referendum, this time from angela merkel, commenting to reporters in the northwest of the country saying she works well with prime minister renzi and has respect for the result. coming up, we will discuss that -- another one down. matteo renzi is the second european leader to leave this year on anti-establishment sentiment. let his resignation will mean for europe's political future, as we look ahead to some egg political events on the horizon. from new york city, this is bloomberg. ♪

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strong and secure. good for a door. and a network. comcast business. built for security. built for business. hey, drop a beat.flix? ♪ show me orange is the new black ♪ ♪ wait, no, bloodline ♪ how about bojack, luke cage ♪ oh, dj tanner maybe show me lilyhammer ♪ ♪ stranger things, marseille, the fall ♪ ♪ in the same place as my basketball? ♪ ♪ narcos, fearless, cooked ♪ 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. alix: this is bloomberg "daybreak." it is 8:30 a.m. on wall street and here's what you need to know at this hour. crushing defeat. renzi announcing his resignation after voters

rejected a constitutional referendum, sending the country into political limbo. euro stocks gaming and the euro climbing back from a 20 month low despite wednesday's defeat. trump twitter tactics. swipe at china on social media, accusing the country of currency manipulation. jonathan: nothing crushing for the bulls out there. the ftse 100 up a 10th of 1%. for the euro bears, maybe they did not get what they wanted. the euro strengthened in today's session north of a dollar seven and now up a third of 1%. yields are up about 15 basis points. you've got to say that the pain is isolated in the italian bond market. alix: we hear what key banks are looking at. a key economist from bank of america merrill lynch joins us from his office in london. let's talk about yields back up

in italy up 15 basis points. the chart for me is the spread. it's the italian and german tenure spread. seeing a little bit of widening but relatively tight compared to other geopolitical risk. why? >> well, may be very simply because for once, the polls actually predicted what was going to happen. no margin of victory for the was a bit in the higher regions of the range. this is what most investors were expecting. a lot of it had argued in price. meet onis due to thursday and widely expected to extend qe. the market also expects them to step in, if in the next few days, there is widening. they have said that very clearly that it could take the pace of buying depending on

liquidity conditions. they did that just after brexit. all this helps keeping things in control. alix: how much of that is going to be realistic buying and how much is the rhetoric? what do we get on thursday? i don't think that we can get whatever it takes because the whatever it takes of 2012 was about monetary policy in also about stimulation the euro area and deal with crises directly. it has to be thinner this week. it is going to be about monetary policy. it's going to be about the continuation of the policy that is defined and in line with the aggregate years on need. them is that from the economy is doing better and yes, it's getting easier for the

ecb to deliver on its price division targets, but all this is conditional on the continuation of the fiscal stimulus. it is something that ecb has been talking about for months now. continuing cutie is about making sure -- qe is about making sure favorable conditions remain and that is not necessarily the same thing with inflation improving by 2%. what is going to be key is the sense that none of this happened without the continuation of cutie. qe. alix: it's a dovish taper talked, the opposite of what the fed wants to do. if we look at the logistics of what the ecb might do on thursday and how they might support the market despite better growth and inflation, what can they do when you look t the q any deposit rates -- and the deposit rates?

it can be done by simply pushing the rolls around to the current configuration of qe . there is already flexibility embedded in the system. buy more supers for instance. that would be fairly easy to deal with certain issues. that would actually be quite compliant with the spirit of qe. they would be buying less than a quarter of the total. you just move things around what the total is. what i expect on thursday is a lot of additional peaks and not the big growth that the market was wishing in the past. alix: when you look at the issue going forward, you mentioned the italian german yield spread was not the crisis level. the blowout was 500 basis points. what would be the next crisis? what would that wind up looking like? gilles: i think the market has become more prepared for

political risk with the legacy of brags it and the u.s. election -- brexit and u.s. election. any new moment will trigger pockets of volatility, so maybe the french election in the spring. down the road, what is really at of the the capacity eurozone economy to bring core inflation back to something that looks like 2%. and we are very far from that. i get all the at talk about the economy doing better and the ecb can afford to do that, but i did agree on substance on the last point. even if our economy is doing better, core inflation remains stuck. hwe have the same core inflation then the beginning of 2015. quote the to ecb, we're not seen a trend in inflation. we need more monetary policy support. alix: gilles, thank you so much.

it raises the question why you have the populist movement spreading inning europe -- in europe as well. jonathan: its youth unemployment tremendously high in italy. the rise in some of those parties is some of the reasons. minister matteo renzi announcing his resignation after voters rejected a constitutional referendum, sending the country into a political limbo. , ah us now is dr. jacob senior economics fellow. how do the dominoes fall politically from here? as you guys sit at the peterson institute, how to the dominoes fall in italy? >> we need to take a step back and realize that this was actually a case where the polls were wrong. yes, they predicted a no, but they did not predict the scale of the no nor did they predict

the size of the participation, which is almost very high. what you end up with here is a late groundswell for no. i interpret actually ironically and perhaps somewhat counterintuitively as a swing against populism. i think you had a lot of centrist and left-wing voters that basically said no, we are not going to change the constitution to potentially give the prime minister more power at this point in time. we are going to state with what we know, even if it means gridlock. ironically the scale of this victory in my opinion goes a little bit in the same direction as the goal and austria, which was to reject populism. jonathan: if i could disentangle that for our audience worldwide, basically what you are saying is for yes andvote was you have an election next year, you have the chance of a five-star party getting a lot more power that otherwise we would.

it takes the form of electoral law from here. how will take that shape? jacob: i cannot imagine a scenario where the italian president is going to allow early elections. he is going to try to cobble together another majority in parliament for a caretaker government that will be tasked with two things. one is to change the electoral law. the second is to oversee the banking restructuring and recapitalization. what i think we will see is a new electoral law that essentially will more or less require that you have a coalition government. the reason for that is that you have two big populist movements in italy -- the five-star movement and the northern league. they basically don't see eye to eye on anything. they are on opposite sides of the political aisle. it is very unlikely that either of them will get a majority on their own. if you have a law that basically requires a coalition, you have a firewall against populism and i

think that is where italy is heading. jonathan: i would be asking the question who the last elected prime minister of italy was.. you have to go to bellus coni. for the caretaker government in the coming year, what are they going to be able to achieve? jacob: not very much. i think they will have basically two major targets and objectives. one is the change in the electoral law and the other is to try to deal with the italian banking crisis. i do think that one of the short-term fallouts from this crisis or this no vote is that i think it is now highly unlikely recapitalization of smaller banks can go ahead as planned. therefore, we will be looking at very tough negotiations between the italian government and the european authorities about how a

potential bailout might look like. for prime minister renzi, he may not have been elected the prime minister of italy, but he had a sensitivity toward the electorate over what would happen with the italian banks given so much debt of the households and retail base. i wonder if there's an opportunity for a caretaker government to come in who may be does not have that same sensitivity and can do something in a significantly? does that opportunity exist? jacob: i think the opportunity exists. that there is a regular technocratic looking government. they would not have the same allegiance to the italian retail partners as an elected politician might have. they could be tougher on that. even ironically, you could have a situation where this is actually in the long run politically good news for matteo renzi if he manages to stay

ahead of the centerleft party. he will be able to basically say , look, i told you so that this was going to happen if you voted no. he may even have a point on which to mount a political comeback. jonathan: just to wrap things up where we started, you are the first guest to come on this program and give the pollsters a bit of a kicking on a day they felt quite good about themselves. what is the significance of the pollsters actually underestimating the no vote and how does that shape things for the next year? jacob: i think we need to be fair to the pollsters. there is a two-week blackout. the polls that i'm referring to that failed to predict either participation levels or the scale of the victory are about two weeks old. i would not be too harsh on them, but they clearly failed to reach this last-minute groundswell for a no. where does this lead us? i think this is actually a consensus status quo oriented swing that actually goes against

the movement toward populist parties. these were people who basically said, look, if we run the risk of a five-star movement government, thank you very much, but we will stay with the constitutional order that we know, even if it means prolonged gridlock. kierkegaard. jacob from the institution -- peterson institute of international economics. alix: liberty mutual is buying aren't sure for $3 billion value. it's basically a huge concerns firm -- insurance firm and i'm ron sure will operate on libertywith iin mutual. jonathan: coming up on this program, banking on financials. u.s. banks have led the trump field rally, touching an eight year high. we will discuss if there's still room to run next.

this is bloomberg. ♪

emma: i'm here in the enterprise green room. coming up in the next hour, david kelly joins us. ♪ this is bloomberg. i am david westin. no one has benefited more from the election of donald trump so far than u.s. financials. since the election, u.s. bank stocks are up 17% while the s&p overall is up 2.4%. what has happened is the yield curve. what it shows is basically the white number is the 10 year yield going up. the light purple number is the s&p financials. the blue is the real yield.

joining us now to take us through the story of what a trump presidency may mean for u.s. banks is paul miller, managing director and banking analyst. welcome back to the program. we are showing this chart that you cannot see unfortunately, but it's a story that you know well, which is what is going on with the yield curve. is this all good news four financials? paul: yes, it is. we have said that rates will remain lower longer than people think, but we did not see any path for higher rates. under the trump policies now where you have gdp growth and fiscal policy that is going to be really impactful, now we can sit there and say that there is a path for higher rates. there is a path for a steeper yield curve. it has to get there and maintain it. the global situation is still unknown. is a situation or

backdrop,economic political backdrop where we could get a steeper yield curve and that is why banks are reacting the way they have. david: you also have the process of perhaps less regulation could hous. how significant is that? paul: very significant. it will be difficult to unwind the regulation we have put in there. yep talked about one of the biggest business issues is regulation. what we were concerned about was not unwinding what we got, but keep on adding on to it. for all the regulators, it seemed like there was a battle to regulate per se. that is going to go away now. he is also going to neuter the regulatory arena. the new regulation stuff will go away really quickly and that's a positive. like theegulation dodd-frank stuff, we will have to see how it plays out. a lot of bank management teams are not excited about the cost savings for the regulations already there, but we will see how it all plays out. alix: maybe you are big bank and

sitting on a huge treasury position now at 2.4%. you saw a selloff of 50 plus basis points moving higher in the 10 year. this that offset the benefits that we are going to see if you are looking at some of these big financial companies? paul: they are going to be willing to take the hit today to get economic growth and higher loan growth and higher yields down the road. the net interest margins and the spread for these bigger banks will last and they have been really coming in. now we have a situation where the net interest margins of what they make on their loans and books is going to go up. these guys don't want to hold treasuries. that's not a bank but hedge fund. they want real yields. when you're not looking in the rearview mirror, you are looking forward. the market is saying higher rates, higher gdp growth, higher loan growth, and that is why these banks have grown. david: to which extent do they translate across the atlantic? is there increasing divergence across the atlantic or do european banks benefit from the

same phenomenon? paul: i think the european banks will benefit if we get solid gdp growth in the united states, but this all has to come with gdp growth in the 5%-7% range. if we do not get gdp growth, the yield curve will not remain steep and it all comes back down and these banks will give up all their games. it comes with economic growth. if united states is the economic engine of global growth, it will help european banks. if it's not and we don't get that growth, we would be back. alix: what is your biggest trade right now? paul: we like bank of america. they have gotten beaten up the last eight years. they are trading a little relative overbooked. we think bank of america is going to be of big winner with a trumpet election. david: he is paul miller, banking analyst at sbr miller. now we're going to emma chandra. emma: morgan stanley will come

the hey of brokers next year unless they generate more revenue. the bank will raise the confidenc compensation thresholy 10%. it's part of morgan stanley's deal to cut annual cost. the german automaker hopes to add aliens in revenue from right hailing autonomous electric cars. vw's brand will focus on right hailing and car sharing. it will roll out into european cities next year. british american tobacco is planning to increase its takeover for reynolds american as early as this week. that is according to people familiar with the matter. the u.s. cigarette maker rejected british-american americans first offer, saying it was too low. the british company already owns a 42% stake in reynolds. that is your bloomberg business flash. i'm emma chandra and this is bloomberg. is thecoming up, italy

most indebted country in europe and the third-biggest sovereign bal borrower in the world. what it means for the bond market next. this is bloomberg. ♪

jonathan: from new york, this is bloomberg "daybreak." some dates in the diary for today. 11:00 a.m. eastern time, matteo renzi scheduled to meet with italy's present. the eurozone prime ministers are meeting in brussels. and the u.k.'s up in court reviewing the november 3 ruling on whether prime minister needs to go to parliament to trigger that. david: i think it will be january before we get a decision. time now for our global battle of the charts. taylor riggs is taking on alix steel today. you can go first.

taylor: i'm going to stick with my wheelhouse and the bond markets. we have been talking all morning about the italian referendum, surely the story of the morning. i wanted to talk a little bit about the conversation. yield spreads between the italian and the german tenure have copped in a bit. about 20 basisin points from things giving when they widened out to really the highest they have been in 2.5 years. if we put this into perspective, way lower than the 500 basis point spread we saw during the eu selloff in the summer of 2012. really what this means, i want to drive the conversation forward, taking a note from tom keene's playbook on thursday when the ecb meets. what does this mean? economists are really helping this means the ecb will extend their asset purchasing program. that is good news for the bond market. one thing we have seen as bad news is that it's good news when it comes to monetary policy. david: mario draghi may be

limiting that spread a little bit. alix steel, over to you. alix: i don't think david is going to vote for me, but i'm looking at backwardation. it was so significant that i had to bring it to you again. wti contracts that were barrel and $1.35 a now, it's positive $.26. it basically means the prices are much more expensive in 2017 than they are in 2018. why? you had a lot of u.s. producers coming in and selling their production. we are hedging that production once we saw oil prices hit $50 a barrel. most analysts at backwardation was going to happen, but it was going to take a while and it was very rare it happened this quickly. the question is -- does it hold? david: that's exactly what saudi

arabia wanted. alix: when inventories drop, backward is asiaation happens. taylor is looking forward/ . alix: coming up in the next hour, chief global strategies of funds david kelly joins us on set. as we count down to the cash open, futures positive eight points. after a week of losses since the first week of november 4. in the fx market, it's a political shock. this is bloomberg. ♪

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i'm jonathan ferro alongside david weston and alix steel. we are 30 minutes and 10 seconds away from the market open. equities rallying in europe. another prime minister in europe bites the dust. this time it's matteo renzi. the euro showing some signs of resiliency. it bounces back up a quarter of 1%. crude flying today at a 20 month high on the vti. david: here's what you need to know at this hour. crushing defeat. announcestteo renzi his resignation after voters rejected a constitutional referendum, sending the country into political limbo. neutered markets. the euro climbs back from a 20 month low despite renzi's defeat. trumps twitter tactics. the president-elect taking a fresh like that china on social media, accusing the country of currency manipulation. that is what you need to know at this hour. alix: we are taking a look at some of the big movers and that has to do with commodities.

you're looking at oil, copper, zinc all grinding higher. part of that story is an upgrade over at citigroup. zincys that oil, copper, have the best time horizon and they're looking for more global trade. they're looking for china intervention. more volatility will rain. the other part of the story has to deal with the energy stocks. chesapeake energy and transfer energy partners -- two different stories here. chesapeake is up by over 3%. of itspany selling some shale properties in louisiana for about $450 million. their total asset sales totaling $2 billion. they have a ton of debt they are trying to offload. partners ander sunoco logistics were partners in the dakota pipeline and the obama administration denied the permit to complete the pipeline. i should point out that president trump is a supporter of allowing the pipeline to be

finished, but this delay hurting those companies today. david: now we want to turn back to the italian referendum and we will bring in francine lacqua in rome, who has been reporting from the beginning. we know that mr. renzi will be formally resigning this afternoon. what comes next? what is the timeline for the government? francine: it could come very quickly. it could take a little bit of time. the latest we hear is that he is meeting with a cabinet 6:30 a.m. local time. that has been pushed back. matteo renzi meets with his cabinet and then he tenders his official resignation by handing that letter to the president of the republic. how quickly will the president move? not sure at this point. he may wait until tomorrow morning. what we know is that matteo

renzi is the prime minister still and they talked off. the record this morning certainly there is a plan that the markets may not know about. everything seems muted in terms of the market and one or two banks. they were very quick to recoup some of the losses they had earlier this morning. it seems a lot of good scourging -- the discouraging news or the political turmoil has seemed to be priced in. david: earlier today you had an exclusive interview with the ceo of unicredit. let's hear a little what he had to say the. to you. >> as i said, i feel that unicredit is a strong bank and there's a lot of potential. let's increase on long-term and let's not be bothered by the event of the night. words, but soon after you talk with him, unicredit stocks stop trading because it was down so far. what's going on there?

francine: the reasoning is that if you are in an international investor and that is why the ceo wanted to talk to us is to draw basically a line between what is happening with unicredit. we understand that unicredit is thinking of raising capital. nothing confirmed, but the ceo said that is one the possibilities. they are speaking to investors in london december 13. he said this is when i will announce to the markets what they plan to do. when i try to get from him was his thinking. schi is thinking about whether to go ahead with this capital enterprise. if that does not go great, does it mean that unicredit, if they were thinking of raising capital for real, would it make them shy away? we heard that interview together. sean pierre saying many times that it doesn't change his plan.

he says the referendum doesn't change much for unicredit. david: we will keep watching this story as it unfolds over in rome. coming back to francine lacqua and keep december 13 in our datebook. thank you, francine lacqua. alix: it may not change things for unicredit. jonathan: it may change things for the investors who buy an initial stock offering. david: the question is the recapitalization in light of this. jonathan: for global investors, you have got to keep an eye on italy and an eye on twitter. donald trump has gone off on china, this time on the social media platform. the u.s. president wrote, "did china ask us when devaluing their currency, heavily tax our products going into our country ? i don't think so." we are joined by michael mckee. great to have you around the table.

a phone call to taiwan it was how we kicked off the weekend. not sure who made the phone call, but there are several distinctions we need to walk through that are important to china but maybe not so to the president-elect. michael: the first thing that every chinese government asks is policy on taiwan. that is one of the touchstone issues for beijing. clearly the fact that the present elect in one of his first major dealings with the china story is taking a phone call from the president of taiwan is not really going to go over well in beijing. having said that, an important point to bear in mind is that if you look at the reaction from beijing and the ministry of foreign affairs, it's a very measured and restrained approach. jonathan: a sensible restrained approach from china, but quite clearly there is a big difference between calling the

president of taiwan and the president of the republic of china. one addresses china's concerns because to them it's a rogue province. the other is a little bit of an escalation that to your i may not sound like a big deal, but how significant will this be for china going forward? john talks about a restrained response, but you want to know what is going on behind closed doors. michael: clearly they are not happy about this, but they are in the same situation as us. no one knows clearly what donald trump thanks. inks. maybe he's going to be tough on china. maybe he's not going to be as tough as his campaign rhetoric suggested. for now they are taking a cautious approach to it. they are going to wait and see before they make any moves one way or the other. alix: i saw the tweets happen over the last 48 hours. do i change what my investment decision may be when it comes to china?

john: not for now. the executives are in the same position as the chinese government. we don't know whether trump will act on what he says. . was in china two weeks ago when you speak with officials and policymakers there, the is that behind all the rhetoric, trump is a deal maker and a pragmatist and it's not in america's self-interest to provoke a trade war with china. until he is actually president and pushing through policy divisions, that will most likely be the prevailing position of chinese policymakers and maybe a reasonable us option -- reasonable sums in. david: he does like to negotiate. what does it say about him starting off negotiation? this is not any president of taiwan. this is a woman who is taken serious positions on defecting from china.

strong: maybe it's a opening move or maybe he doesn't know what he's talking about. some of his advisers that maybe it's important to play the taiwan card to try to put some pressure on china to back off and some of the areas in trade and others in national security that they have taken. take a look at the chart i've got here. the you want dollar -- the chinese did not have our permission to devalue. they did not devalue. they raised the value of their currency. they went up for years to a much stronger youan. now people are tried to adjust to new developments in china that have weakened the currency a little bit. it is still much stronger than it was. trump doesn't seem to realize that. john: 1.i would make that's also quite important. this is not unprecedented for u.s. president. richard nixon had a madman theory.

the art of diplomacy is not just about protocol. the art of negotiation is about confusing your opponents and then making sure they're not really fully aware of your intentions. that could be part of this as well. david: people who have may not read richard's memoir, there was a 10% chance that he was crazy and it would make khrushchev back off. john: it is not unknown for u.s. presidents. michael: the hard part is that he has two audiences. one is plain to china and the other is playing to the u.s. base. they are the ones that he promised he would impose sections on china. how far can he go to satisfy or dissatisfy both sides? alix: who has the upper hand at the end of the day? hard onarted twitter, but who has the upper hand? michael: the chinese do not need us as mr. trump thinks they do and we don't need the chinese as

much as they think we do. alix: john and michael mckee, thanks for joining us. emma chandra with our first word is. the: shinzo abe will be first sitting president to visit pearl harbor. wednesday is the 75th anniversary of japan's attack on pearl harbor, which led the u.s. to enter world war ii. a supreme court case over the terms of brexit is underway. the case will determine whether prime minister theresa may may need to go through parliament before beginning talks to leave the european union. the u.k. attorney general says that may has a compelling need to control the terms of the brexit negotiations. voters in austria have endorsed a pro-european union party. mandeville and defeated the candidate from the far right freedom party. hoffer ran on an anti-immigration platform and

advocated limits on eu power. global news 20 for hours a day powered by journalists and analysts in more than 120 countries, i'm emma chandra. this is bloomberg. david: oil continues to climb. what is behind crude trading at a 16 month high? later this hour, a former chief economy weighs in on what is next for italy and the eu. this is bloomberg. ♪

>> today we're putting oil as the future and focus. this chart blows my mind. alix: this is december 2017

versus 2018 wti spread. around twoeep as dollars in early september. it means prices in 2017 are cheaper than in 2018, but that reversed very starkly at the end of last week. we are now in backwardation. prices are more expensive than further out on the curve. backwardation up by $.23. this is what the saudi's really wanted to see, but it happened quite early. what is the trade for that? joining us now is al investment -- alan messman. backwardation is what they were looking for in the back half, but does it reverse? inn: my focus is is the top not in crude oil, but the dollar index. the pace of rate hikes in the future has been a little too fast and furious from the dollar's response.

i think that could give the crude oil market a little bit of a boost. technically speaking, we have been sideways for about six months in a $10 range between 42 and 52. alix: sure we did have a range, but now we could see a 50-55. what will take for to vti to continue to break out a little higher? alan: that is the path of least resistance. we've been talking about that months and months and now that is factored in. the inflation perception in the future and i think economic growth, infrastructure growth, i think that's all positive from the demand-side. from the perception standpoint. we will have to wait and see, but 62 is the next upside target. i still think there is more in crude. let's remember the halfway point for an all-time high of these lows was that we doubled in price since february. it is still far up above. there's more upside in the crude market. alix: do you think we could see

backwardation in the forward part of the curve near-term? alan: anything is possible, but in the big picture, i'm still very optimistic on prices of crude continuing to rise. alix: the bullish trade on this monday. nuckman, thank you very much. election play a role in mario draghi's decision? that's next on bloomberg. ♪

jonathan: from new york city, this is bloomberg. italy rejected prime minister matteo renzi's referendum, it is what the ecb will do when they announced their next policy decision on thursday. economists are pricing an extension of asset purchases at the pace of 18 billion euros a month. say wee, i'm pleased to can head over to jeff black. he joins us from frankfurt and he has sat in on many news

conferences on those ecb thursdays. great to have you with us on the program. let's talk about how the events of the last 24 hours may or may not shape that governing council meeting over the next couple days. jeff: good morning. the situation is simply that nothing very much has happened since yesterday. apart from being a little bit of an increase in the yields on italian that. it's not a major crisis situation for the ecb at all and nothing for them to do straight away. however, the vote does not help italy's long-term growth and that obviously feeds into the argument for the euro area. italy is the euro area's third-biggest economy and that is not great news for the ecb. what they're planning to do this week for the continuation of qe is a lot more than just italy. jonathan: the conversation that they will have, from the officials we heard from the last couple of months, six months ago it was a discussion about

scarcity and whether they would run out of bonds to buy and whether they would have to widen the eligible pool of assets. now it seems to be about tapering and whether they will reduce the asset purchase rates because the economy has improved. where is that discussion now? jeff: regarding the scarcity, obviously the turn in the global money market -- bond market has helped the ecb a little bit in terms of fomenting their program. in terms of tapering, we're going to have to get there eventually. the longer a head that we have that discussion and prepare the market probably better, it would be in a normal shock if that was that wasormal shock if announced this week. it would be quite a surprise if it was signaled in a strong way. certainly what people are expecting is a continuation at the current pace, so the status quo until the third quarter of next year. jonathan: great to have you with us for your insight. thank you very much, jeff black.

we got used to surprises from the ecb this time last year. that was a big surprise and a vicious market reaction as well. david: joining us now to take us through the reaction of european markets to the develop mitts of italy is david kelly. welcome back to the program. european markets reaction and the main news is that there isn't much. david k.: it seems like markets are getting faster and faster in terms of regeneration. markets were generally shocked by brexit. then you had a much faster turnaround after the surprise trump victory in the united states. out seems like it doesn't get us to a trading day in terms of the market recovery from the snow vote. it was expected, but what is going on is markets basically don't believe the populace are going to change the economic backdrop that much. david: how much is because the ecb is so interventionist?

is there a collar around the risk? david k.: that's right. what has changed over the years is that it's what's like in the u.s. banking system. what has changed over the years is that the ecb has become much more interventional list. there's always good to be a problem somewhere in europe, but they can move in and ways to protect the fundamentals of the financial system. i think that is giving people some confidence in your. interest rates are too low globally in the global economy is warming up. alix: this has become my favorite chart of the last couple hours. it is the mp part of us political risk index. i just want to point out the divergence. is this complacency? clinical risk is elevated and volatility goes nowhere. our investors setting themselves up for disappointment and pain? david k.: the thing about populist movements is that it does not add up in the long run, but in the short run, it could

be pretty good. you getnited states, if fiscal stimulus, it does help the u.s. equity markets. you have lower corporate taxes and more spending. it's positive in the short run and that may be generating complacency. jonathan: it implies downside, but does not have to mean downside. is that the lesson going into 2017? david k.: i think risk is about the downside. i think there is the potential for global economies to do better. with changes in policies, we may see equity markets do better also. i think the really important thing here is valuations are so out of whack with cash paying nothing and bonds paying nothing in real terms. i think that's really overwhelming the uncertainty argument right now. alix: italian banks -- what do you do with them? unicredit was halted in trading

because it felt so much. you say the risk isn't there in the medium-term. what do you do with them? david k.: the better banking play is what do you have to do in a general sense to make italian banks hold? think about how nice you have to be to every other bank in europe to do that. general changea in ecb policy, i would not necessarily be making a bet on italian banks but betting on what the ecbs on does to try to bolster the banking sector. jonathan: what can the ecb do to bolster the banking sector? david k.: the first is to get away from the idea that low term interest rates help anything. they're are going to be continuing this quantitative easing. tohink they need to try inject some stability in the currency. jonathan: we talk about the net interest margin and what it means to banks, but ecb looks at their qe program and say we are

supporting the economy more generally and that offsets this. do you not agree with that? david k.: no, because i do not believe that interest rates this low stimulate. they perpetuate uncertainty. they give people reason to vote off and to waste. i think the policy of normalizing rates in europe is in the united states will encourage to borrow ahead of higher rates/ i think it will work in the u.s.. and in europe. jonathan: we kick off a new trading week and futures up. equities rallying in europe with the dax up by 1.28%. the euro stronger after kissing a 20 month low. from new york, this is bloomberg. ♪

♪ jonathan: moments away from the opening bell in new york. kicking off a new trading week with future positive up 15%.

as well by 24ning points. the story comes from europe. a political surprise. didn't expect the euro strength off the back of it. the euro stronger up one half of 1%. treasury.her on and you go back to july 2015. a 16 month high of $52.21. >> and we are looking at a record closing. for the industrial average, a whopping 80 points, up four/10 of 1%. 1%.p 4/10 of thatworry in asia, but worry did not follow through to europe.

1%.ari up over the idea here is these guys are big exporters. when you had a weaker euro they are going to do better. the euro was off by 1.5% pay it but now these companies are able to hold on to their games. the biggest loser has to be a tally and stocks, much lower by italian banks. and the sovereign bond market are the only real stresses you are seeing today among asset classes. and the story in the u.s. market continues to be the selloff in u.s. treasuries. how high can yield go before it changes the story? the blue line is the 10 year yield and the white line is the s&p earnings deal. the earnings deal was much higher than this 10 year yield, which makes the case for owning u.s. equities. since the election that has

reversed. what does that mean? at what point does a high-yield affect s&p earnings? that is the question i have yet to find an answer to. chief global strategist to try to answer that question, a difficult one to answer, when does the bond damaged the risk equities? when does something break? it is the bond market, so we may be should be talking about that. guest: we have seen rates go up 50 basis points since the election. they still have a long way to go. if you look at the 10 year treasury yield and the core u.s. -- that is a 2% gap. a real yield of 10 years, up to 2/10 of 1%.

i think that will help the equity market keep going. why when the yield curve was flat were people saying don't look at the domestic data, look at the international bond markets to understand what is going on? than it has steep and come untold, a domestic forces. does a domestic pitch mean -- : there some downward momentum but once you go close to see her best close to zero there is no more downward momentum. it is clear the ecb and doj recognize -- once you take away the capital gains, then the global bond market is acting as less of an anchor. the rulebook has changed here or is changing. if we have fiscal stimulus pushing up the deficit, more haveuries on offer, if you an economy that is improving

because a fiscal stimulus heating up, then you are going to have a more aggressive federal reserve. if you are going to have lower tax rates that push-up earnings, overall the rulebook is changing relative to fixed income since the election. jonathan: at what point do the bond market situations feed -- does the bond market situation feedback into the economy? there would be a lot of company -- love companies and governments that would service the debt. lot of companies and governments that would service the debt. : remember, nobody today is not getting a mortgage because they can't make the payment, they can make the credit score and down payment. we will see some increase in interest costs and that will get

worse over time. the first few rate hikes jonathan -- rate hikes -- jonathan: for the federal reserve you are saying we could get a more aggressive federal reserve. their chad yellen has talked about the financial markets. work thehow much markets do for her before they get to me. david bank the markets aren't disputing she is going to move. : the markets aren't disputing she is going to move. advantage oftake this good economic weather to get rates back to normal so they are there. the deficit again we are not going to be able to use fiscal policy. we're going to have to rely on monetary policy. anchor: earnings seem to not have to matter -- burning seem

to not matter in the last few years. at what point do we shift to a world where earnings matter for evaluation? it really wasn't a recession because it was a narrow basis. the oil drag has gone away. substantially year over year it is going to improve. the real question is how much? anchor: you have a lot of valuation baked in because of cheap credit. if you take that away you really have to have the growth. david: i wouldn't necessarily agree with that. they are still at average levels. you think they would have to be above average. i am a little bit more worried eventuallypansion is going to end and if we overheat it may end sooner. i think there will be a risk building in. i think there are is room for evaluations to go higher. i don't think long-term rates are going to get back to 2.4% anytime soon.

jonathan: is this is have to respond. animal spirits are going to stir and things are going to get better. if you look at the u.s. comfort by the party they back, quite clearly on this chart, if you are a republican you feel good. that blue line right there, that's the democrats. that is half the country. you are not going to see the same response consumer to consumer, are you? david: consumer confidence is an interesting thing in america. if you look at the vehicle sales numbers, they are excellent. i think online shopping will be good for this retail season. i think consumers are going to hang in there. kelley: what is your strong as conviction trade for the next few months? david: i think we need to look

at growth outside of the united states. unless we do some thing to bring more immigrants in and get productivity growing, we are going to run into a brick wall. -- emerging markets are cheap. i'm confident emerging market equities will beat u.s. equities. kelly, good to see you. coming up, the former chief imf economist discussing the future of the eu after a renzi referendum failure. we have a record level on the dow, record level intraday. you have markets on the move higher. the dax over 1%. this is bloomberg.

♪ emma: later today david westin speaks with the chairman and ceo of -- that is at 2 p.m. eastern time. kelly: italy votes in no and renzi meets with the italian .resident today renzi's to feed is the latest in the succession of global antiestablishment victories we have seen this year. and eu breakup is the long-term fear, so is that less or more likely than it was on friday? here with us is olivier blanchard hard, senior fellow at the institute for international economics. you have the dow at a record

intraday closing high. what does that tell you about how the markets are interpreting what happened in italy over the last 24 hours? olivier: my sense is they are optimistic. it is probably why in the short run nothing is going to happen to italy. there is going to be some government banks that are going to go under and so on. it seems to me the signal from the results, not the fact that the no won, it was a 60-40 outcome -- my sense is less optimistic than the market this morning. kelly: the market is nowhere ofr where it was the stress 2012. where do we see a repeat of the european debt crisis we saw in 12?

olivier: a lot of unhappiness is what we saw in the referendum. it is not only in italy. for slightly different reasons it is there, which means there is a good chance you get populist governments elected. these governments may well policies which don't make much sense, which worry markets. putting larged threats on sovereign bonds. the issue is how is it resolved? is it resolved through an exit from the euro? is -- es -- sense what you refer to is an exit from the euro. is the eu itself from an -- eu itself in an existential

situation? i think you have to distinguish the european union, which is a fundamentally sound construction. it has to work out how it operates. the euro is a technical construction where the restraint is the current currency. this is what may disappear or at least apply to a smaller group of countries in the future. jonathan: how can we celebrate the two? union remains intact. how will those two things happen? i see no logical problem with it. somean get rid of technical arrangements and keep the rest. clearly an exit from the euro, even if it is done altogether, is going to be complex and --

going to be a complex and messy process, but you can keep all a single which is market freedom to move country to country. can keep.ou getting out of the euro individually or together is an incredibly complex task. jonathan: that is the destination, let's talk about the potential journey. the bond market has been heavily insulated. let's take italy for instance, it is not in the constitution to allow them to have that referendum. how do you see the eurozone exit taking? what is the point trading, if not the bond market? olivier: i think the institutions can be adapted to the circumstances. the most likely scenario is in some country, the fiscal

situation is not under control, the government doesn't seem to be ready to do what it takes, you get those price to increase. that means the country has to go into a program. maybe the imf program is put into place. maybe it doesn't work. at some point they have a discussion that took -- that takes place. is the program going to work? if not maybe there should be a plan b. which countries will be affected by it? i'm not sure it will be italy. it will be some of these countries, which are really struggling to go back. they have done enormous efforts. we see very low growth. the potential for populist governments to come to power is there. i think this is the kind of scenario.

germanylet's talk about for a moment, a key linchpin. theou did have a breakup in eurozone, which are many be hurt the worse, because they have benefited from a relatively cheap currency? there would be major effects on countries going in different ways and people have argued it would be better if it was germany exiting from the top . basically they could appreciate and reestablish their current account balance and they would benefit from the strong deutsche mark. i don't think that is the way it is going to happen. it is going to be the week countries under pressure. countries under pressure. this is all hypothetical, maybe it never happens. i think the week countries -- the weak countries will be in trouble. too far in the future

and too difficult to think about. kelly: what is not too far in the future is the central bank meeting that is going to take place on thursday. you are not seeing that spread blowout. do you feel like the ecb has whatever it takes to prevent a crisis from blowing out later? olivier: we can do a bit more. they can help. if the investors get worried about fiscal for no good reason, they can help. if the investors start being worried about fiscal for good reasons, then the ecb cannot help. case the ecb couldn't do it. in the short run it was clear more of the burden should be put on fiscal policy in a number of countries and the ecb have a bit more there.

jonathan: we really appreciate your time and insight on the situation in the eurozone. from the peterson institute for international economics. -- commenting that global markets is shedding 300,400 clients --300,400 3400 clients. the number largely circulated in the press late last week, the confirmation in that memo. becomingfor 2020 is more complex as markets are shedding 3400 clients. let's move over to abigail doolittle for some movers. : a stock that has been over the map, now up

slightly. all of this as the company has announced it has extended its agreement with mentor graphics. is up nearly 200% year to date on big hope that the ceo -- on big hope under the ceo. we will see how trading finishes out on the day. well -- goldman cut its rating to a cell. .nalysts marked delaney he thinks all the catalysts are priced at this point. he cut his price target to $12 per share. here, 50.41, showing the stock has been up this year but now bouncing low, suggesting goldman sachs could have a pretty good call here. cutting technology to a sell rating. inid: mark barton is back

the saddle, what do you have on your program? mark: i'm raring to go. strategist ofty wells fargo funds management joins us. why are equities rising today? for we will ask john in the italian referendum. chaim katzman, a global operator of shopping centers. the country hosted the last football world cup. asset management, head of fixed income, he sees relative opportunities in emerging markets, especially for high-yield cheaper commodity linked markets. mark barton is back in the saddle. david: coming up, we wrap up the news from italy and look at prime minister matteo renzi's next move and tell you key events to watch out for today.

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♪ today, imfoming up manufacturing at 10 a.m. eastern paid the attention on europe as prime minister matteo renzi is expected to officially resign around 11 a.m. eastern time. alix: we will be watching that. the dow at a record high. action -- the action over in italy. here's what they had to say on the strength of the country and its economy post-referendum. >> italy is a strong economy. all indicators are climbing up, finally. there is consumer confidence, which is building up. >> italy is a country with a lot of potential.

let's not be bothered by the events of the night. >> international investors were at the window. we will probably be wait and see for the next few weeks. today's too early to see what will happen. the status quo remains, this is not a disruptive result. the institutions are there. is used to institutional changes. there is a parliamentary majority, which is established. >> what you end up here -- and up with here is a late groundswell for no. a swing against populism, because you had a lot of centrist and left-wing voters that said no, we are not going to change the constitution to potentially give the prime minister more power. with whatng to stay

we know, even if it means gridlock. jonathan: political risk dominates the conversation. equities in the dow on an all-time high. chair greenspan -- that speech was known for rational exuberance. irrationalknow when exuberance has escalated asset values, which then become -- an all-time high. david: we have exuberance. the question is is it a rational? jonathan: as we kick off the news trading week, from new york this is bloomberg. ♪

julie: from new york i am julie hyman in from vonnie quinn. in for vonnie quinn. mark: welcome to bloomberg markets.

♪ youe: we are going to take from washington to rome and cover stories out of the u.k., china, and south africa does next hour. italy's prime minister matteo renzi plans to quit after suffering a heavy defeat in his referendum for constitutional reform. we will look at whether a nude stability gives the ecb a new cause to expand this week. mark: the euro shook off earlier losses, equities climbed as contagion was muted. our investors getting better -- are investors getting better at establishing the mood sweeping around the world? julie: concerns china