♪ francine: all they want for christmas is qe. the ecb mates -- meets. a tapered timeline. and longer buy. the crimea tries to quit again. how long before the italian job is someone else's. forces to my and $11 million stake. surveillance,erg i am francine lacqua in london. we have a great show today. we bring you an exclusive interview with the chief men

boston -- investment officer. he joins me for the first half hour of the show. later in the hour, we speak with the ceo of luxury property company north acre. thursday. this is what your markets are doing. stocks advancing, global shares rallying before the ecb decision. extensionsome kind of or soothing words from mr. mario draghi. beforeng gains with gold that meeting. there is one more speculation that he will have to say he is prolonging his purchase. a couple other currencies, new zealand dollar, all strengthening oil. oil holding below $50 a barrel after search in u.s. stock. the vix index pretty flat. let's get to the first word news. premieran crime area --

renzi formally resigned yesterday. but the president still won't let him leave. he will delay accepting the resignation as he talks with the fiscal parties this afternoon. renzi is stepping down after a defeat in the referendum on constitutional reform. we obviously have to go through an internal transition that i think will be hard. it will be very hard as we have to be transparent, which is needed for a great democratic already to stand out. but that, that will need to come after we tackle the crisis of government that is about to formally begin. the u.k. prime minister has one lawmakers backing to trigger the start of britain's exit from the european union by march next year. after theresa may promised to give parliament the chance to scrutinize the plan first. the fourth and final day of the supreme court hearing as the government's handling of brexit.

authorities in indonesia say more than 100 people have died and around 700 injured following an earthquake. the 6.5 magnitude tremor struck yesterday morning. a state of emergency has been declared until december 20. proof that lenders including ubs, hsbc and bank at the nova scotia rigged the market. that is amidst filings yesterday afteranhattan court claims it manipulated gold and silver prices. representatives of the banks didn't immediately respond to emails. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am sebastian sarlacc, this is bloomberg. francine: it is decision day for draghi. investors anticipate the ecb president will assent -- extend prices.

his final policy announcement of the year will be scrutinized for any signals as to when he will start tapering uv. we are joined by that -- matt miller in frankfurt. --are expecting mario draghi saying there will be a blanket of qe. yeah, the consensus is a six extension of qe at 80 million euros a month. it will be exciting to see whether he varies from that at all. people are talking about the possibility of a skinnier, longer extension. maybe 60 billion euros a month for more than half a year. it will also be interesting to see whether he changes the rules. right now there is a scarcity of bonds that the ecb can buy. a lot of rules that it has imposed on itself as far as p, as far as duration that it is allowed to dip into.

it will be interesting to see whether or not the ecb decides to change that. and then there is the idea of tapering. the market obviously knows tapering will come at some point. but if he starts to talk about tapering, investors may start to bid up the euro a little and that could change the whole ballgame. so it is a difficult balancing act for mario draghi here at the ecb. eventse: matt, how are playing into draghi's strategy? matt: it is interesting. he has said over the past week that the ecb really counts on what he calls the extraordinary for hisof government monetary policy. and something like the no vote ,n italy, earlier this week doesn't really lend to that support. however, the populist movement

that swept across the u.s., the u.k. and the european continent has focused more on immigration and monetary policy. so for now, draghi has that support and markets are expecting him to use it. thank you, matt miller on the ground in frankfurt. cheapring in the executive -- chief executive a general. thank you for joining us miguel. when you look at the ecb, to taper are not to taper. the main challenges, inflation. welcome to bloomberg. this is area inflation, a headline figure. he needs to keep on giving. >> he has to keep on giving. tapir sounds like a cool word to use on television. i don't think we are anywhere near that. the question is, does he do more or less? less,announces something

there will probably be an increase in duration. there will also probably change some of the rules. expect think you should too much. if it is a bit hawkish, euro will go up at the, but come back down again. the old range was north of 110 -- now 105. francine: possibility of parity? nikhil: near-term, it is all about the fed. we need to see what they say alongside the rate increase next time around. if they are more aggressive, perhaps we go lower in the euro. parity sounds nice. taper,ed about terror -- parity, it is about new ranges for currencies. francine: but this is not only about finding new words. at some point, you have to's -- to scale back from this monetary

experiment we have seen the last seven years. nikhil: the u.s. has scaled back already. people are talking about meeting qe four of course. in europe, it is too early. it will happen. -- some say it will be 2019 for the first rate increase, but i don't know. francine: let's bring you back to this chart. 2% inflation target. did they achieve it with qe? you could argue the first round of tv works. then you have the soft economy, everything goes down, qe does not work anymore. they don't have to achieve it before this starts to get more hawkish. that is the first thing. they can start to assume based on modeled at inflation is coming back, we need to step back. get off the pedal. i don't think that chart needs to reach somewhere around 2%.

this trend is good. they can start to become a little more hawkish than. we are not there yet. francine: what about growth? italy is in deflationary mode. it is -05. how do they deal with political risk? nikhil: political risk across the eurozone is real. you have elections coming up next year. the big problem for italy is growth. growth is everything. it has been too many years without growth. you need growth at some point. that is the big issue. reform, for europe it means giving italians more flexibility and helping them clean up the banking system. politicians say italy has been too slow. can we see in the next 10 years the eurozone staying intact when you have such different opinions

looking structurally what needs to be done. nikhil: it depends on what happens in the next 18 months. a stump policies, you can get an answer to that question. francine: what you think will happen? nikhil: they will have a new government and their needs to be a hard look at reform and countries that mean reform and support at the center. the more rigid you are, the more brutal you are. -- riddle you are. francine: answer me this. fire to you risk giving populist movements. nikhil: that is true. point, what is the national movement you are talking about? there is a shift to the right, creating nationalism based on an insecurity of employment. that is what we have in the eurozone, particular southern europe where unemployment is high. three types of people. people who have no jobs and immigrate to get jobs.

people who lost their jobs and want new jobs. people who have their jobs and want better jobs. some of this has to be addressed. when you have a situation where people feel your policies work. if you don't take her medic steps, you'll never know and all you do is keep going to decide you don't want to go. you need support from the euro to be more flexible. you also need to reform your own country. francine: thank you so much now -- for now. he stays with us and we will talk about the huge rotation elected.ald trump got about $2 trillion rotating to stocks from bonds. and full coverage of the ecb decision. you can follow if you have the bloomberg terminal. the meeting on the bloomberg. coming up on surveillance, plenty. trump rotates the world. global markets see $2 trillion to stock.

renzi's longer buy. the italian premier tendered his recognition, but is asked to stay. can london luxury property ice -- sidestep brexit? this is bloomberg. ♪

♪ francine: welcome back. here is sebastian sarlacc. sebastian: glencore is in final .alks with qatar to buy stake the announcement comes after russian president vladimir putin announced the $11 bill on state television last night. ofeminder that the chairman bloomberg lp, the parents of bloomberg news, is a senior

independent nonexecutive director at glencore. haveche bank may manipulated internal index as part of a fraudulent screen to help bank and the monte dei paschi. a spokesman for deutsche bank declined to comment beyond an october statement that said the lender intended to put forward in court. starbucks is accepting -- at about 2000 of its cafes across china. customers will be able to complete purchases with a scan of their phone. there and embracing the cashless mobile pace. that is the business flash. francine: now, the trump transition is not just the administration that is shifting, it is asset allocation. trillioneen a $2 rotation into equities. dowrd highs on the

yesterday. this is the chart that really shows this massive rotation we saw from november 9. this is the dotted redline when donald trump got elected. you can see bonds, this is blue. this is what we are seeing in equities. does this trend exacerbate because of trump? or did he start it? was the natural rotation anyway? nikhil: that's a good question. i am not sure. i would say be careful because bond prices going down, bond yields go up. that means it is more expensive to buy a car, a house in a leveraged society like the euro's. leverage is commonly used. in a while, you have stocks going up. stocks at all-time highs. my point is it is a bit overdone in the near term. toould expect bonds stabilize and stocks to stabilize and the dollar to stabilize or come down.

it is coming down. you have that move. i am not suggesting the move is totally over. i'd say you have another in eu one. what you are reaching the top of the side. francine: treasuries as well? if i should do a treasury chart, it would be similar in terms of yield move. but it makes it more expensive for donald trump to fund his big infrastructure plan, right? nikhil: absolutely. $1.4 trillion in infrastructure this year and growth is drawing down. ,e careful about infrastructure that people make. infrastructure is a bit like communism, it is good in. . francine: meaning it is difficult to find projects? nikhil: you have giant projects, lots of congress, costs more than you expect. infrastructure is a good idea. a very good idea. but crowds out the real economy

or non-infrastructure economy. there is a lot of confidence in infrastructure, but it creates an incentive for people to buy risk. and that is what has happened. if people feel good about it, it is another boost to economic growth which is running at a high level for the u.s.. and this is good. near-term movements do not move could, but this slow economies down. francine: when you say equities, have a plateaued? it is not real earnings, is it? cheap money. francine: cheap money. in the u.s., ceos have used cheap money to buy back stock. more --es things a lot you have to be more cautious about that when you are buying back stock. that is an issue for the u.s. market. at the same time, the big correction has not really come. to buyre going

protection in 2000 17, i think volatility is very cheap in the u.s. right now for the u.s. market. i would buy exposure there. beginningthis is the -- another leg up in the u.s. stock market beyond maybe a few percentage points, i would say no. i'd say the movement in bonds is pre-staging are giving you an indication of a slowdown in equities. francine: does it mean we are mispricing? how many rate cuts, this is the w rip function. hikebility of a rate wednesday. we are expecting to look at pimco and bondholders, and the markets in general are pricing in three hikes next year. nikhil: i wouldn't disagree with the people making these predictions. next year isikes reasonable to see at a time like this. unemployment is extremely low. close to full employment.

europe good gdp growth, inflation touching where they want to. good gdp growth, inflation touching where they want to. having another one after another one with the right. francine: thank you so much. he stays with us. up next, more than 25 billion yuan left china. this is bloomberg. ♪

♪ this is bloomberg surveillance, i am francine lacqua in london. seen unprecedented outflows leaving the country will total more than $9 billion this year. the much a threat is this to global growth? you for sticking around. we were talking about some of the rotation of bonds into equities. what is the biggest risk for 2017? nikhil: china is a risk. china is interesting because the years,, shorter stock market lost money. a lot of people were technically having an aggressive view of china are not visible today. the china situation is serious in that there is money flowing out of china. we can never tell how much.

you don't know how much the government has used to forward purchases. we don't really know, but the point is this. you cannnouncement, tell they are taking it seriously. you have got to think about that is a risk for 2017. francine: are you worried about a financial crisis? nikhil: i am always cynical crisesredicting these because the minute you start to talk about them, you lower the probability of them happening. i would say it is severe in china. it affects chinese liquidity, the world, emerging markets in particular because the giants -- chinese currency will affect other currencies. it is a risk. one of the risks of 2017 i highlight. francine: #she had three and we come back to it? is the number two dollar.

a cookie -- it could keep strengthening. number three is turkey. francine: great, that is what we will be talking about next. up next, no roman holiday. renzi refused again. we go live to italy for the latest. and biggest risks. we talked turkey and dollar strength. these are your markets. fresh equity records bolstered european stock. on yields were -- declining before policy decision from the world's biggest central banks. ecb day. , smart smartations smart. this is bloomberg. ♪

♪ " i amberg: surveillance francine lacqua. here is sebastian sarlacc. sebastian: the prime minister

has won backing to triggered the start of britain's exit from the eu by the end of march next year. theresa may promised to give parliament the chance to scrutinize her planet first. the fourth and final day of the u.k. supreme court hearing of the government's handling of bridget. authorities in indonesia save more than 100 people have died and around 700 injured following an earthquake. the 6.5 magnitude tremor struck yesterday morning. a state of emergency has been declared. the u.k. house process to a seven-month high in november. royal institutions in step -- index hit 30. properties themselves failed to keep up with moderate increase in demand. a lack of confidence about the outlook for london prices. mainly because of the tax change and brexit fears. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm sebastian sarlacc, and this is bloomberg. francine: the prime minister

renzi resigned, but the president won't let him later -- leave. renzi is stepping down after suffering defeat in sunday's referendum on constitutional reform. let's get more with our chief. great to have you on the program, as always. great to have you on the program, as always. what is the next step? guest: it is complicated in italian politics. now, the president will meet with political parties for several days in consultation to see if government can be formed and who can be the next premier. the president is worried about stability, continuity. he would rather have renzi stay on. but renzi is a politician and knows that after such it -- suffering a crushing defeat, he really can't politically stay on. decisionmake the

worse. there is a delay in time as the president tries to figure out what to decision worse. do and we will be covering it for you all weekend. francine: i know you will. she hasn't slept for about 10 days. monte dei paschi asked the ecb itsmore time to increase capital raising time. the deadline is december 31. do we know anything about the extension? guest: they have asked for an extension -- only a few weeks. january 20. it is related to what we said about the concerns the president has about stability in the markets. monte dei paschi wants to wait until the crisis is resolved to see who is the next premier. what government italy will have. it is only a three-week delay. we are still wondering what the bank will do, how they will manage this situation. and we have to see if they have their big investor. for now, it is a mystery. francine: thank you so much.

now, you work for an italian company. your assets are global. mostsurprises you the since the referendum? nikhil: the referendum surprised me. there are serious issues in italy related to potential for jobs to get ahead in life. i don't have an issue on that. i think having the prime minister stay on for the time being is a good thing. it has stability in an unstable situation. francine: but the markets ignore it. you could also say it was the same case for brexit. are there parallels? our markets going to ignore a lyrical risks in 2017? theil: no, they can ignore situation in italy because it is not uncommon to see political change in italy. you cannot ignore the risks that come up in europe in 2017. rather than -- the best thing i

want to think about volatility in 2017. french elections, italian election, when and how. volatility is the name of the game. are you invested in u.k. assets? nikhil: the for brexit. --s is access rating exacerbating that. i think the u.k. will have a slow cycle for the next two years. francine: you mentioned dollar strength and turkey. on dollar strength, do you think it will be as rapid -- >> people are overestimating dollar strength. high-yield, you will have the potential slowdown in u.s. consumption. this is a country that is running its trade deficit, don't get carried away with dollar strength. more, but this

leads to gdp -- turkey, you have a lot of people better are on your program than me on turkey. currency that keeps going down, debt, political clarity is not there yet, and you have a prime minister who has come out and said he doesn't like interest rates. francine: and he has also said that all of the movements were pure speculation. doesn't point anything fundamental. we have seen this before. nikhil: it reminds me of 1997, the asian crisis, the prime minister of malaysia came out and said the same thing. then he clamped down on capital outflow. i'm not saying they are the same person i'm just saying, when leaders start to speak like this, you have to listen to what they are saying. they want to be heard. and you can't just assume he is just talking because he wants to talk. he is a strong leader today and he has a view.

and his view is interest rates are too high, foreign debts are too high. is he going to let the market do its job? i don't know. francine: overall, emerging markets, we seem to be far away concerned about emerging markets if the fed were to hike. nikhil: they have moved away from that for now. credit impulse is much lower in emerging markets. leverage is higher. if emerging markets continue to band, youin a narrow want to buy emerging markets. emerging markets offer the best value for the next two years. francine: depict countries? into a chinese currency down move, i would buy china. i would buy india depending on what they do. i buy those markets. those are my favorite markets to buy into in the next few months. francine: thank you so much.

a great conversation. you have to promise to come back. nikhil: i promise. francine: we have it on tape. plenty coming up, including property problems that tax increases and brexit weighing on the housing market. clueswill we get any about tapering at the ecb final policy announcement of the year. where airlines fly high in 2017. this is bloomberg. ♪

♪ this is bloomberg surveillance. francine lacqua in london. european stocks high this morning. let's get to mark at your bloomberg for what is moving. mark: stocks up for the fourth

day. highest since september 8. one month to do they since the u.s. election. $2 trillion election. global stocks,is bloomberg world stockmarket capitalization by $2 trillion. the blue line is the bloomberg barclays global aggregate market value index down by $2 trillion. the $2 trillion stock, that was trump election. this is a wonderful chart. ahead of the ecb, that is the story of the day. this is the second highest volatility ahead of an ecb meeting this year. highest was in march. look at the overnight volatility . what is interesting is it shows investors taking positions ahead of the ecb. an extension is widely expected. dropped his preferred inflation taste, highest level since

december last year. the ecb releases three-year projections through 2019. will the projection tell us that the ecb will be close to its just below 2% target? that is a refreshing gauge for mario draghi. the corporate story today. russian selling and $11 billion its biggest oil producer to commodities trading. core shares up. state --prise deal on he announced the deal on state tv. it is the biggest foreign investment in russia since the ukraine crisis. in march the turnaround for glencoe, only a year ago raised cash from shareholders. glencoe up three quarters of 1%. it is all about ecb, though. francine: also the rotation from bonds to equities. a gauge of u.k. highs practice

house prices rose. the surveyors index hit 30, the strongest index since april. latest survey showed a lack of confidence about the outlook for london prices, mainly because of tax changes and brexit years. i'm pleased to say we are joined a propertyof developer. thank you for coming up. has brexit been good or a disaster? >> we don't know yet. we should look at longer-term. we can see the price action has been weaker since 2014. brexit has created opportunities for us because with the strong dollar, a lot of our guys are dollar-denominated and hence, greater activity on the high-end side thanks to that. >> are your buyers european?

are they from the gulf, the your -- asian countries? we are time to figure out where there's strong demand. there was at the time, a lot of european market coming in. matt: you are not seeing that at the moment. they have problems of their own. niccolo: it depends on what part of the market you are looking at. there are some american buyers starting to look at it because they have seen in comparison to new york it is showing value. francine: and this is on pound dropped? niccolo: absolutely. francine: do you believe -- do they believe the councils -- will fall -- the pound will fall next year. are they saying, i will buy something but give me six months? niccolo: i think you have to give them a reason to buy. we have to create the best properties -- product in the market. if you are, the demand comes.

its less than two years ago. but you are selling and emotion in the end. they are looking at what the pound is doing. francine: the emotion is for houses they use as a hotel? what is it that people want? would you rather be in mayfair than chelsea? niccolo: you have to sell them a destination and lifestyle. once you are able to create that, you create a sense of emotion. then they want to own it and see themselves living there, be it one week or full-time. it is a variety of reasons. francine: how much do you do that? how much do boris and johnson do that? at the end of the day, you are limited in how you can influence where people want to live i imagine. niccolo: we have to take a step back. it is obvious we are selling london first and foremost. all the efforts the mayors are doing when they do fantastic roadshows and say how fantastic

london is, it is important to us. we tried to sell fantastic apartments and fantastic buildings and great locations. destinations. they come for london and come to see us because hopefully we are keeping -- catering their needs. francine: it is already finish. -- finished? say, i am looking for this and you buy it and develop for them? niccolo: we sell a plan and if it is finished -- when it is finished there are any left, we sell them that, completely done. francine: as article 50 gets triggered, do you think it will impact demand for some of your luxury homes? niccolo: we are talking about uncertainty and the protraction of the uncertainty. uncertainty is relative. if you ask an italian about uncertainty, they laugh in a certain way. there isve terms,

great uncertainty than there was before. it in the world, there is. london is still a safe haven. francine: you worry about the prices of material or access to talent you need? it in the world, there is. to build your properties, or not so much? niccolo: i worry all the time. francine: you are italian. niccolo: yes. there are many worries. the construction market in london is very tight. it is difficult to find skilled labor. the cost of materials is going up. the cost of kitchens, bathrooms is going up because the pound is weaker against the euro. absolutely. mark -- margins are squeezed. francine: how many properties are you looking to get -- develop next year? niccolo: it won't be disgraced -- decreasing. of grossillion pounds development value in the next five years. this is work we have already

started. hopefully a larger number than that. francine: thank you for now. about the talking super nets. they are a bit like hotels. this is one of the things he is good about. plenty more with the ceo of north acre. this is bloomberg. ♪

♪ francine: mrs. "bloomberg: surveillance." plenty more luxury homes in london, but first the business flash. in final: glencoe stage talks with qatar to buy 19 per -- 19.5% stake. this after vladimir putin announced the deal on state television last night. chairman of bloomberg lp, the parent of bloomberg news, is a senior independent nonexecutive director echlin car. provide smoking gun -- helped lenders are banks rigged the market.

eight months after the german banks settled the lawsuit saying it manipulated gold and silver prices. representatives of ubs, and deutsche bank didn't respond to females. deutsche bank may have been -- taken part in a fraudulent scheme. that is according to an audit commission by german regulators and seen by bloomberg news. a spokesperson for deutsche bank declined to comment beyond in october statement that it it intended to put forth a depend -- defense in court. -- the $2.6 billion deal is part of the italian lenders plan to boost capital. the purchase will make it the , holding about one third of the stock, which will allow it to control his supervisory board and make changes in management. that is the bloomberg business flash. francine: thank you.

now, the ceo of property developer north acre is with us. we are talking about super nets. your job is different from what people imagine. you are a developer. you sell luxury homes. but you also have accessories that go with it. a butler or fitness instructor. --colo: when one looks at with matrices like pounds per square foot, but they are not in theng is buyers market of these new developments, they are buying much more than a day -- square footage within their four walls. 10,000 squareng feet of leisure facilities, services they can control from and at. from the butler to the concierge, getting food from the restaurant next door. anything you can think of. you are creating and lifestyle. francine: you manage this?

do you develop the software? niccolo: there is an apt they get when the exchange. they followed the development until it is completed. then they are able to get any service through the app as well. francine: and people care about that? niccolo: hugely. -- you are selling a lifestyle. they want to be part of it and wanted to be seamless. we have to create seamless services and they have to delivered in a seamless way. francine: you have become the , before that you are hedge funds manager. have been developed -- a developer for 10 years and was a hedge fund trader for 10 years. night and day. night and day. absolutely. one is by taking the short term. this, you have to create a long-term vision. francine: do you miss the other? niccolo: no, it is refreshing to

have a vision and be able to not look at it on a day by day or week by week and executed in the long-term. and hopefully create trends and not just follow them. francine: when i speak to a lot , the clientos definedor wants -- yourself doing a lot of deals yourself? niccolo: i do a lot of deals myself. the types of clients we have our of the highest level and they expect to be -- deal at the highest level. francine: how many competitors do you have out there? niccolo: london is interesting. gdp, of high-end developments, we are the largest . our competitor would be someone like qatari br, people like that. it is al developers,

fraction market, there are not nominal players. francine: what is the -- which is where? niccolo: overlooking the garden of buckingham palace. francine: before used to be knightsbridge. how often do the more established areas change around? niccolo: quite a bit. the rise of mayfair for example. ago, it was a 25% discount to chelsea. now mayfair has gone back to work was in 1850. most high-end place to live in london. change and the cool people move around and create new areas. francine: thank you so much. "ow, "bloomberg: surveillance continues in the next hour.

we move towards the crucial ecb announcement. these are your markets. european stocks following asia higher before the ecb policy decision. when markets are expecting from central banks meeting is basically the fact they look longer at the buyback program. new zealand dollar, south korea strengthening. oil holding 50 dial -- dollars a barrel. qatari story, that is significant. and maybe tied back to opec. a little bit of euro movement. this is bloomberg. ♪ seeing is believing, and that's why

we're opening more xfinity stores closer to you. visit us today and learn how to get the most out of all your services, like xfinity x1. we'll put the power in your hands, so you can see how x1 is changing the way you experience tv with features like voice remote, making it easier and more fun than ever. there's more in store than you imagine. visit an xfinity store today and see for yourself. xfinity, the future of awesome. francine: all they want for christmas is qe.

a taper timeline. -- ramses long by -- guitars southern wealth fund fundtar's sovereign wealth -- i am francine lacqua in london, tom keene in new york. we have to talk about the rotation of bonds into equities that it is ecb day. frankfurt.iller in when i want to know, are you on the short list to be the next leader of italy? what is the near-term on what happens after renzi? francine: no matter how much he resigns, the president says he needs him so you cannot become prime minister either. it looks like he might stick around. an interesting political italian

story, i.e. it is different than any other country. let's get to the bloomberg first word news. taylor: it is the long goodbye for italy's prime minister matteo renzi. butubmitted his resignation the president has delayed himpting it, instead asking to stay on as a caretaker prime minister. the president will meet with political leaders to see if a snap election as possible. the house of commons overwhelmingly approved mays plans to start leaving the european union by march. the legislation is not binding. tosident-elect donald trump have the environmental agency might cause a spark in the senate. nominatedtt will be

to run the epa, one of the chief opponents of the climate agenda and a backer of the energy injured -- industry. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. tom: right to the data this morning, equities, ions, currencies, commodities -- bonds, currencies, commodities. as we move through the day, the euro 1.08 showing the risk on feel. american oil $50 a barrel. 11.94, you would think that would be an 11.30. the vix with some oddities over the last few days. we are now on the dow, 20,000

watch is what we are getting. the 30 year bond, 3.05%. the dislocations are tangible. it is an odd tape. francine: it is an odd day. we are closing in on the end of december and i think markets are trying to figure out the positions. european stocks extending their gains a fourth day ahead of its meeting with the ecb. if you look at the individual stock gains, i wanted to go to glencore because of this massive deal with rosneft. glencore gaining some 1%. the vix, 11.94. i had the chief investment officer of generali on an hour theand he was saying if only thing he would buy next year would be more volatility. tom: let's go to a bloomberg,

and i want you to jump in on this chart. as is the balance sheet as compared to gdp of three nations, japan, europe, and the united states. here is back to normal wear with -- where they are putting much cluster together, and here is the courage of the u.s. to act, the courage of japan to act. and all along it has been a struggle for euro. the elephant in the room for mr. , ecbi is actually european assets to gdp are higher than the united states. i think a lot of people in the market do not know that. that is some of the tension we see for today. francine: this is exactly the story. a lot of people in europe, i would say especially in germany are trying to figure out whether

all of this balance sheet expansion from the ecb actually lead anywhere. qe3, and people said maybe the first worked but not the second and third. on the back of your chart to my inflation chart. tom: show us. francine: this is a euro area inflation headline. 2%,ecb is targeting around that is the blue line. this is euro area inflation currently at 0.6. it is bumbling along but nowhere near that 2% you would i had to chart italy it would be at -0.5%. italy would be here and you could see the euro aggregate. it is a catch-22. tom: it is, which was a great book and movie. francine: it is widely anticipated the ecb president will extend asset purchases.

matt miller joins us from frankfurt. what we are expecting hopefully is that the markets want some sort of open qe plan to see when he is ready. matt: the market i think is expecting six months, 80 billion euros a month. a lot of people are talking .bout a skinnier, longer qe the possibility that he says maybe 60 billion euros a month for more than half a year. i think the important part from all the investors i have spoken to and economists, i have spoken to a number of chief economist this morning, all of whom say the important thing is going to be that he does not give us too much on tapering. wordnot even mention the t or you will see a bid up in the euro and blowouts on the periphery. francine: will he be talking

about monte paschi? i'm not sure if he will have to mention the italian referendum. matt: surely he will be asked about monte dei paschi. there is a press conference 45 minutes after the release comes out, and we can count on some reporter to ask him about it. it has got little to do with this monetary policy situation, actually nothing to do with it and nothing to do with the bank profitability issues that monetary policy is causing for banks like deutsche and commerzbank. tom: i just want to suggest germany is pounding the ohio out of you. you look so euro right now, you are styling europe. the ohio lad we know is just gone. help me with what the german papers are saying about italy, matt miller. what is germany on the street, what are they saying about

italy? matt: germany here was focused a little more on the austrian elections at the time of the italian referendum, however they were saying, i sure what you are hearing in new york as well, it was more of a referendum about matteo renzi. the italians wanted to vote him out rather than the referendum on the issue itself, on the constitution itself. germans were kind of focused on the austrian elections in which a pro-europe candidate was able to beat a right-wing populist. they thought that was maybe a turning point for a little more optimism. francine: thank you so much, matt miller. joining us is reinhard cluse. thank you for joining us. when you look at the ecb, what would you want to hear from mario draghi today? allhard: i think first of

the new stock market forecast which the ecb would present today which will include the forecast for 2019 will certainly be very important. the ecb has to benchmark against these medium-term growth and inflation forecast. the governing council would have to take a much broader view, take a few steps back and ask what is the broader balance of the right is this time to signal a reduction in monetary stimulus? we at ubs think it is not the right time to do that and we would get a six-month extension of qe for eight months. does it work or has it reached -- francine: does it work or has it reached the limit? sayhard: it is difficult to . i think qe has been very important in stabilizing market confidence and economic confidence. of course it is clear that the effectiveness of qe has worn off

overtime, so you could argue that we need to run just a standstill. -- just to stand still. i think the extension is likely priced in and anything that is a diversion -- mr. draghi has a wide set of constraints including he is running out of stuff to put on the balance sheet. when you listen to the press conference, what will you listen for in terms of mr. draghi defining his constraints? reinhard: there is a lot of things that cannot be said in public. obviously there is a lot of discussion, political discussion on the ecb governing council. the issue here is due central banks want to be the only game in town? they are currently kind of the only game in town but many of

the ecb governing consulate members on the hawkish side are uncomfortable. these people would like to set the first step toward an eventual normalization in monetary policy, but i think mr. draghi cannot give away too much from that discussion. tom: what is the relationship of mr. draghi with this bank? -- bundesbank? reinhard: it is well known that one of the governing council members is concerned about the negative effect of sticking with super accommodative monetary policy for too long. francine: i would like to go back to that because the germans , because of inflation they have had in the past are terrified to inflate and other countries in europe are more loose about it. coming up, we discussed airlines. juniata, that is

coming up. ♪

francine: this is bloomberg surveillance. i am francine lacqua in london, tom keene in new york. taylor: russia has sold and $11 billion stake in its largest oil producer. it is the biggest foreign investment in russia since the dissent with the ukraine began. will reduce spending on oil exploration and other projects by about 15%. the world's third-largest oil

explorer has been abandoning its high risk projects. an audit shows that deutsche bank attorneys may have rigged indexes in order to help the struggling italian bank monte dei paschi. the audit cited benchmarks that were used in trade. in 2013 bloomberg revealed how the trade allowed monte dei hide hundreds of losses. francine: glover airline earnings are said to decline after reaching record levels in pricesnd higher oil could -- that is just out from the industries main trade group. joins us de juniac now from geneva with more. thank you so much for joining us. you seek another strong year for airline profits in 2017 but not

as good as this year? alexandre: good morning. outlookdisclosed our for 2017. 2016, theorecast for two years will be good years for air transport. they will make a reference -- record profit in 2017. -- 2016. we expect to have a soft landing in strong, profitable territory or 2017 with a $30 billion profit. francine: talk a little bit about the cost of fuel. talk about the price of oil going up impacting airlines. alexandre: we have been undoubtedly helped by the oil price in 2016, but we must be

aware of the ability of the airlines to very well and efficiently restructure and manage their business. we have significantly increased the resilience of the industry, so we are able to face or resist many shocks. based on thepect forecasts of the international energy agency, an increase by $10 in jet fuel. the jet fuel in 2017 will not be as helpful as it has been this year. tom: i want to congratulate you, sir, on a stunningly clear report. it is rare from industry organizations that we get a report that is so clear. the massive message from your report is this transatlantic divide of american profitability in the airlines versus european

profitability in airlines. the poster child in america is alaska air, and i picked air france as a random idea. the chart is stunning, difference in performance going back three or four years. what are the european airlines going to have to do in best practices to close the profit gap? general, north america has done much better than the rest of the world. the profit of north carolina -- north american airlines represent more than half of the profit of all of the industry. the europeans have done better but they are still lagging behind american competitors. they are catching up. they are in a restructuring process, reducing costs, improving their revenues, but there is still a long way to go to be able to match the american

performances that in fact started a few years before. the american airlines started to restructure massively in the mid-2000s where is the europeans have started some years after. and secondly, the europeans are operating in a more costly environment in terms of taxes, charges, cost of sky. the main reasons why. tom: thank you so much, and s on a reportn written in english, alexandre de juniac, looking at the summarization of air plan -- airplane profit. double-digit growth we see out of the middle east. what we try to do at "surveillance" worldwide is

bring you the smartest people we can find on the ecb and an ultra accommodative fed. that must mean we are speaking with richard clarida of pimco. stay with us, this is bloomberg. ♪

tom: new york city transitioning to getting used to the traffic on 5th avenue. street,th street, 57th and 56 street and creeping over to madison gavin -- madison

avenue. this is from marcus ashworth of bloomberg gadfly. if you do one thing, subscribe to bloomberg gadfly. here's the disinflation of europe, the five-year forward swap. go on five years to inflation, and there's a trump hockey stick, the bet on reflation coming back to 2016. we are nowhere near that 2% line that this is the inflation train mr. draghi has to consider. ubs believes this is something that will continue to pick up but this is gradual. is it a structural shift? reinhard: it is a cyclical strafed -- shift because inflation is going to go a lot higher because of statistical base effects related to oil prices. a year ago oil prices came down very hard and this led to a strong dose of disinflation.

that headline inflation at 0.6 in november is likely to be at 0.9 in december and we could be at 0.5 by the end of spring. statistical effects will be very strong. core inflation is going to creep up as well but a lot more slowly. francine: if you are mario draghi, how do you set economies for vastly different countries? minus 0.3 three weeks ago. reinhard: the monetary union requires the ecb to do one-size-fits-all monetary policy. i think overall it means mario draghi will try to keep monetary policy very accommodative, and make sure that particularly the stronger countries such as germany see higher rates of inflation and pull up everyone

else. mario draghi has made it clear that the signs of a sustained and self sustained pickup in inflation in the eurozone is still too week, and hence more accommodative monetary policy will be needed. tom: we will continue our discussion on this day of the ecb meetings. richard clarida of pimco coming up, and we are honored to bring anasios orphanides in our 6:00 hour. from london and new york, this is bloomberg. ♪

tom: good morning, everyone. francine lacqua in london, tom keene in new york. markets to the moon, we will discuss that in a moment. taylor: syrian troops are

pushing deeper into rebel held aleppo. they say that civilians who want to leave should be given safe passage and they have asked for a five day cease-fire to evacuate the wounded. syrian troops say they will not back off. lawmakers and south korea are expected to vote tomorrow on whether they should impeach president park, who was caught up in an influence peddling scandal that center approval lunging. will be approved she removed. endede has effectively the recount of ballots in to aylvania, coming conclusion that jill stein was not qualified to initiate the process because she had no chance of winning. on what donaldrt trump intends to do with his business once he becomes president.

times,ng to the new york he may turn over the operational responsibility to his two adult sons, but intends to keep a stake in the business. the times says his daughter would take a leave of absence from the company and may move to washington to advocate for various issues. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. much.aylor, thank you so now i do something i have never done. ecbre talking about the with richard clarida, francine guest in london but i'm going to talk about 2017.2017 -- dow fred lane has to hold my hand. long ago and far away he read

tried toe books, and stay in the market. that is what we all are doing right now, aren't we? fred: we are. tom: this is a true melt up. fred: those of us who have been around decades are a be used to seeing this but not to this extent and out so quickly. there is a tremendous injection of optimism -- whether it is well-founded is another issue -- so much so that there has been a huge rotation sector with the financials are being rewarded greatly because of an expectation. tom: the moonshot move. fred: likewise interior -- materials and industrials. tom: you are going to go into a fancy house and have a fancy cup of coffee and they will turn to you and say, should we go to

cash? how do you respond. fred: a lot of my clients have a substantial net worth that not all of them. the ones who are wondering about going to cash in some cases have already gone to cash. they went to cash in the fall and now they are regretting it, of course. the truth is you need to be invested. it is very difficult to replace the timing. chart out ofthe yale university, the equity markets back from the depression, the red arrow. the yellow circle is the 1960's and up we go. we are right on trend of a 70 year trend. this on the 75th anniversary of pearl harbor. francine: and lucky fred got to hold your hand. the thing is, what our markets optimistic about?

earnings are not great and political risk is increasing so are we do a correction in these markets? fred: the lines never go straight up and to the right, but on the other hand, i would say that we have a better economy and better investment climate than much of the rest of the world, at least that is my view. if a look at our fundamentals in terms of new entrants to the labor force, the so-called producers as opposed to the population as a whole. our ratio is very strong. it is the growth in that metric that is as great as it was almost as for reagan's second term. a huge increase from where obama has been operating, and that phenomenon in and of itself is going to be helpful. obviously we are going to have fiscal stimulus. monetary stimulus cannot carry the day so when you add those figures together, i think the

outlook for the united states is relatively strong. --ncine: this is the thing when you look at the fiscal opportunities thanks to the donald trump presidency, i understand he is looking to reflate but it is also my feeling that donald trump could actually force or heavily encourage companies to invest more. a lot of your companies in the u.s. are sitting on cash so they give back to shareholders putting the share price up instead of reinvesting. if that is what he is going to do, that does not mean the share price will keep going up. that and iee with believe that some substantial portion of what we are hearing from our president-elect is rhetoric. it is not in fact, there is a .ot of public posturing you cannot force companies to invest. you can give them the opportunity to invest.

you can eliminate their excuses, but you cannot force them to invest. i continue to believe that we have an excess of capacity globally. and so until that capacity is consumed people are not going to be, companies are not going to be investing more and more just because somebody tells them to do or gives them the bully pulpit. tom: i want to fold in draghi and the ecb. this is too busy of a chart. this is the famed bloomberg dividend chart. colgate-palmolive, no, i do not own shares. i want you to focus on the $.39 dividend a year. now i'm going to go back in time , now i have got to get out of this. we are crushing the lunar module into the moon right now. a $.39 dividend and 20 years ago it was a seven cent dividend. the leaf inold in

dividend growth moving from seven cents a share to $.39 a share with all the daily back-and-forth of draghi and yellen? fred: i think you have to look at the fundamentals of the company. you cannot take a company like colgate -- tom: we all buy toothpaste. fred: the problem with the consumer groups is that those companies by and large have significant shares of market, significant cash flow and relatively pedestrian organic growth and that is the reason they will not make strategic act -- acquisitions. you cannot force growth when you have a population that is growing modestly. you cannot have consumer product growth across the board that is going to be substantially higher. cluse, topless with ubs as you look at the market. you looks with ubs as

at the market. you just assume that yellen has an ability to help trump over or overheateinflate the u.s. and global economy, is that a risk? reinhard: we have been pointing out that over u.s. monetary policy there are quite some question mark because it would change. we do expect in december in a couple of days the fed will come with the next interest rate hike . we expect another 50 over the course of next year, but the composition of the federal reserve vote is going to change. we think overall there is a case for the normalization in u.s. monetary policy to continue in a way that will not create massive challenges for the u.s. economy. francine: do you think fiscal spending in the u.s. will force europe's hand in delivering fiscal spending? reinhard: we get that question very often now where we see a

game changing fiscal push in europe. on the one hand, we should expect that fiscal policy is likely to stay moderately accommodative because the heavy lifting lies behind, because the ecb helps governments with lower interest rates. the political cycle in europe would suggest government spending will be more accommodative, and also the jean claude juncker plan. and yet there are strong reasons to not expect miracles because in europe, essentially there is only one country that has substantial fiscal space, germany, but the government is reluctant to reduce this fiscal space. when it comes to defense new u.s. the administration might ask the europeans to do more, so there are pockets or sectors where we should expect more spending. a big push out of europe i think

is not justified. tom: is the financial repression over? , is it finally all clear and they get a real return? fred: we are heading in that direction. we do not have it yet. tom: i agree. fred: if things play out the way the market is suggesting they will we will over time have higher interest rates and a much better opportunity for the retirees to put money to work. tom: but we are not there yet. fred: not yet. francine: fred lane of lane generational. we will be back with reinhard june. stay with bloomberg for all of the -- reinhard cluse. mario draghi will hold a news conference and we will bring you that live at 8:30 a.m. in new york. his is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london, tom keene in new york. glencore has agreed to buy and brushesion stake in largest oil producer josh russia's largest -- russia's largest oil producer. the chairman of bloomberg lp is the executive director at glencore. we have to disclose that here it when you look at glencore and the qoa a, this came as a huge surprise. what does it mean that glencore thanks oil will rebound, or is

it an agreement with the russians? >> their stake is quite small. but theirn is right share is only 3 million. if you think about the origins of this company, they were huge and russia across all commodities, and then they started losing out on that position, so this takes them back to poll position. margins in oil trading have been shrinking and it is not a profitable business relative to some of their other businesses. if you look at the forward curve in oil post opec deal, those will get more narrow. there will be a loss of volume in terms of russian barrels. do you know about who brokered the deal and is that significant? stuart: obviously glencore has a big relationship with qatar and

existing relationships with russia. who called who and who made the deal happen we cannot tell you yet. so glad you told me to buy glencore under what is it a pence per share? glencore, down it goes. francine lost her net worth. and what a rebound it has been. just within the zeitgeist of the for theis it all clear train wreck glencore has gone through the last three years? stuart: i think so, and if you look at the share price it backs me up on that point of view. they have sold assets faster than other companies. they asked investors for money at exactly the right time and exactly the right amount, and they reinstated their dividends for next year. and they are doing this deal. i thought all of the good things

they have done have been unwound because of the size of this deal , but actually it is pretty small so it should not affect their guarantee value. does that change if you are an investor looking into the oil trading business? this is an oil trading company. here,e showed the video and it is wonderful video. we thank our video team for showing manly men doing manly mining. this is not a mining company, is it? stuart: this was a big selling point for the company prior to ipo, we are fundamentally a trading company but now we have physical assets. that did not work out so well. have been very disciplined about closing the mines that are unprofitable, if you look at their margins. they are phenomenal traders. although wenly men,

want to get 30% of their employees to be women in the next five years, but that is another discussion. the oil price we expect to go higher. does it impact adversely consumer spending in europe? reinhard: at ubs we focus on the oil price as well. our average next year is $60, $70 in 2018 to slightly higher than the curve. lower prices have definitely helped the economy in europe. consumer households have seen their purchase power strengthen. it is a bit of a mixed blessing. it might help raise inflation rates a bit so it mike -- might make the ecb drop easier, but for the consumer it would take away some of the tailwind we have enjoyed. us fromnhard cluse with

ubs, thank you. he is on the vienna watch at bloomberg news. we had a wonderful conversation with the head of the iata running the spell -- spin of a profitable north american airline business. he has provided leadership to southwest, and to the industry. everybody loves gary kelly. this is bloomberg. ♪

francine: bloomberg surveillance, we are looking at the pound and looking at brexit. pound-dollar, 1.2699. we are trying to figure out exactly what brexit will mean for this country over the next six months. francine lacqua in london, tom keene in new york. let's get to the bloomberg business flash. taylor: a new york a court filing shows a number of banks rigged the silver market. the documents were disclosed when deutsche bank settled a lawsuit naming it manipulated silver and gold prices.

ubs, hsbc, and others also illegally fixed the price of silver. ships have become collateral damage in opec's quest to reduce the global oil glut. the largest oil tankers will anaren an average of $25,000 a day next year, 12% last than the estimate before opec agreed to cut output. tom: let's do a euro chart in honor of francine lacqua. this is synthetic euro including deutsche mark back a ways. here is the ribbon dollar of the late 1990's. here is the role over in euros and here -- rollover in euros and here is we -- where we are now. i would suggest our guest and ubs have a respect for that

territory at euro where it is now or even a bit lower. it is a great euro parity debate. francine: which reinhardt does not believe in. we talk about it and it never happens. this time you believe is no different? exquisite, --e explicit, we do not share the consent that we will go through parity and stay there as the chart suggested. we are reasonably constructive on the euro. we think over the last few weeks after the election in the u.s. the dollar has been strong, and a lot of news is in the price. for what it is worth at ubs, who work with the forecast of 1.13 and 1.17 for the end of next year and 2018. as europe continues to move forward and probably by the fall ecb movesar, the

toward tapering and a normalization and monetary policy. over the course of the second half of next year we think the tightening in financial conditions will help the euro. francine: despite political risks? we have the german election, france, probably the weakest link if you have marine le pen coming in power. saying theyam not yen forecast for next year will materialize over the next few weeks or so. it is something we are likely to see over the course of the second half of next year after some of the uncertainty is out of the way. tom: let me bring up the chart to show what we just heard. the red line is the ubs outlier 1.17.t 1.13, down below is where the massive consensus call is.

for to paint that picture you, i am in a very arts and crafts mood. francine: very picturesque. what is the one thing that could go wrong that would change tom start question mark -- tom's chart? reinhard: the risks in europe could certainly change the outlook. the one thing is you are expecting mario draghi to say today in the news conference? spreadt brings back the between german and italian years. it brings it back to 2011. the first spike is when berlusconi had to step down in the second one is when mario monti took over, and mario draghi said he would do whatever it takes. this is where we are now, the safety blanket. how long will we see the ecb buying bonds so you do not price that risk? issue i thinkkey

is that mario draghi wants to maintain flexibility, so i think he will try to resist hawkish guidance for the future. month extension of qe in its former -- in its current form. tohough the hawks might try push him i think after that they will move towards -- i think after that they will must -- move toward tapering. tom: reinhard cluse with ubs. the fed on december 14, a perfect time to speak with richard clarida of pimco. ♪ seeing is believing, and that's why

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there's more in store than you imagine. visit an xfinity store today and see for yourself. xfinity, the future of awesome. speed always wins. especially in my business. with slow internet from the phone company, you can't keep up. you're stuck, watching spinning wheels and progress bars until someone else scoops your story. switch to comcast business. with high-speed internet up to 10 gigabits per second. you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. tom: this morning, mario draghi will and then speak as germany

and mr. trump consider american reflation. in this hour, richard clarida of pimco. stocks surge. what a move yesterday as market discount. think it is the language as he tries to resign and italy considers a most uncertain future. from our world headquarters in london, francine lacqua, help me here. he tendered his resignation? francine: he wrote this on a piece of paper. i want to resign. tom: you don't let go. francine: stick around and we will talk about it in a couple of days or weeks. tom: how close are we to a snap election next year? francine: may. it may happen. it could be very. w-- february.

we really don't know. they need to go to the two houses and get a vote of confidence. , we the only way to move on get to a good old american poll with taylor. taylor: back here in the u.s. on politics. more americans are optimistic about their finances and especially the u.s. stock market according to a new bloomberg national poll. it shows going optimism about the u.s. economy following the election of donald trump. 38% say they expect a better financial year. about the same anticipate higher household income. meanwhile, have those surveyed see the federal reserve favorably, up from 42% the last time they were asked in 2010. the environmental protection agency head may spark a fight in the senate.

oklahoma attorney general will be nominated to run the epa. he is one of the chief opponents of obama's administration's climate agenda. a billionaire thinks the loop is good for the energy industry. so, but i want to make it clear that what i am talking about are some of the regulations that are literally insane that the epa has done. taylor: he says the epa has run amok. in indonesia, more than 100 people died from the offshore earthquake. they expect the death toll to rise. instruct the same place where more than 100,000 were killed in an earthquake and should not be in 2004. and tusnami global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. i am taylor riggs. this is bloomberg.

tom: thanks so much. we have two important bloombergs. a big afternoon yesterday. .27 a barrel. vix ought to be 11.40. it is not. 11.78. talked, the first time i down 20,000 was in our thread lane. francine: of course it is all about draghi. his stimulus message or lack of will be scanned for what his ultimate qe plan is. we saw a little reversal in the markets. bonds fell on the concern that draghi may fail to deliver. stocks a little bit subdued when you have the vix at 11.78. tom: here is the bloomberg. we show this last hour.

we will do it again. japan, europe, the u.s. here we are precrisis. we have to shift to the b lue. here is the u.s. acting. here is japan finally acting. europe here. the gdp is a higher number than yellen as a percentage gdp. francine: you wonder what it has been because growth is gradually coming back, but it is so shy. thatarkets would argue what the balance he has done is or pressure on the german has put pressure on the spread between german and italian 10 year yield. this is a plain-vanilla inflation chart, but thank you for adding the zero mark for me, the blue line. that is the target of the ecb. i brought it back to 2012.

we hit that 2%2, target for inflation. since it has gone down, you can see a little bit of movement. 0.6 over. italy is way over here. you can see the distance between germany and italy. it is nowhere near what the ecb wants. tom: thank you yesterday to our huge response to our interview with michael spence. we continue that conversation this morning. richard clarida is truly one of our original monetary theorists at columbia university, holding court at pimco as global strategic advisor. transitioning over to fifth avenue for discussions with the trump administration? that they dial one 800 richard clarida? richard: they did not. tom: i have to ask.

what is mario draghi's largest headache as he begins his press conference this morning? richard: i think what he will do is extend the kind of program. i think the italian elections limited that, but he will get questions on tapering. he will have to navigate at a little bit because eventually they will have to, so he does not want to completely. it, but he does not want people to think it is imminent -- dodge it, but he does not want people to think it is a minute. -- is imminent. tom: isn't the same dialogue now as it was when you were holding court with an administration? richard: it is a different dialogue. you go back before the euro, the bundesbank was holding monetary policy for the euro. i think it is a different dynamic. the larger issue here is

one-size-fits-all monetary policy. the german economy is humming a long and booming. the rest of europe is not. europe, draghi has recognized that challenge. francine: the italian and german spread, which we were seeing a couple minutes ago, was struck me when i was in rome was for people to ask germany to be kicked out. what that makes sense? -- would that makes sense? richard: no. the challenge with italy is fundamentally that there have not been economic growth in a dozen years. the level of gdp in italy is now 10ere it was in a dozen years. francine: when you look at the

ecb. germany is different totally to france. it is a three speed europe. do we give enough credit to how mario draghi has navigated this? he is the ultimate european politician. richard: he has gone credit and it is largely well-deserved. the challenge he got is there is no last resort in the european financial system as the role that the fed place. draghi had to clarify that legally and put in place the qualitative easily which has the effect of limiting credit spreads in europe. deserves a lot of credit for that. tom: you are one of the inventors of dynamics general equilibrium theory, which has been not criticized, what has been a real sense of amendment and change to that. this chart, let's bring this up if we would, is a way from dfg

theory.- dsge clarida insertd a lot betterme than i can do business in italy? richard: absolutely. really illustrates the point i'm a moment ago that you are running one monetary policy for different economies. it creates excesses, and others lag behind. tom: how do you get to the needed lima depreciation? everybody says no, no. simon writes about it. how do we get to the accommodation of currency depreciation within the politics we are living? richard: within the eurozone framework, you can't.

if there was no uranium, it would have gone down 50% to 70%. comedjustment has to through deflation, which is very painful, or by getting more growth. they try deflation in greece. it did not work. italians are trying to go from our growth, but now politics is getting in the way. drop you can only do so much with one monetary policy. tom: exactly. it is not like douglas north is saying. as an institution, it cannot affect that change. richard: no. monetaryi can do, policy can build a bridge, but there has to be a bridge to somewhere, not know where. it make: richard, does sense talking about the mandate? they need that 2% target for inflation, but why not growth? richard: i don't think the

mandate is the problem for the ecb because they are falling below on their inflation objectives. i think the ecb and others say they really does need to be a focus on growth. is easier said than done. tom: this is great. michael spence one day. you the next day. richard clarida of pimco. this is really really wonderful. you know the word toolbox i use? i suggest he invented it. stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine likewise in

indon -- francine lacqua london. glencore.er, it is the biggest foreign investment in russia since the crisis in ukraine began and a return to dealmaking for glencore little more than a year after company was forced to raise cast from shareholders.deutsche bank employees may have rigged indexes to help the struggling italian bank. the report cited abnormalities in the benchmark that were used in trade. in 2013, bloomberg revealed how it helped hundreds of millions of dollars of losses on a transaction with deutsche bank. that is your bloomberg business flash. tom: thank you so much. is official now. the president-elect appoints scott pruitt as chief of epa.

raving about the oklahoma sooners who are doing well in football, but the controversy of an oil guy, call it the fox in is.whatever it the uproar is unreal. trumpll this go for mr. and mr. pruitt? richard: it is not just that he is an oil and gas guy. there is a real climate change denial there. this is a guy who brags about having sued the organization he may now be taking over to stop them from enforcing some of the regulations that they have been putting out there. of course, trump has talked about rolling back regulations, but this has really gotten democrats. this is a story you and i have been talking about for a couple weeks now. new appointee, democrats are

angry, people come out. they say they will block it. what happens? tom: what can they do, or is it a lot of handwringing? it may be a case lot of handwringing, but they need to go to people who are skeptical about donald trump or who are always side of climate change. they need to bring them along and get those votes over 50 to stop these potential appointments or at least get them to say we will not be doing this or that. tom: thank you so much with the update now. here is a morning must-read. the washington post waiting in inh a scathing -- weighing with a scathing note on carrier and the indianapolis deal. we had to read him in school at gunpoint.

the republican party did not read the books. richard clarida has taught at columbia university for decades. he required burke and hayek within his courses. translate this for us. he said let the markets decide. that is not happening here. richard: that it is not happening here. my perspective here is states do this. they offer incentives for stay or leave in the case of connecticut.

this is being put in the context of the overall national policy. i view this as something that the state of indiana was working on anyway. in the context of our current system, it is not that great. tom: the overlay of political industrial policy with the japan malaise we saw for 20 years. richard: obviously it can be taken to extremes and you can screw it up as well as doing well. again, i see this in the context of existing programs. francine: what you are talking about, what do you think will be the transform authority policy or decision that the president will take when he gets into office. let's give him three months from january 20. administrations come in, they talk about the first 100 days. given the control of the house in the senate, there will be a focus on doing tax reform.

trump is serious about wanting to renegotiate nafta. the key thing globally is how the u.s.-china relationship, what dialogue does that get off start does that dialogue get off to. francine: what is priced in? a lot has been already. is there a concern markets will be underwhelmed? richard: i think it is a risk for the following reason that doing tax or, it is hard to do -- tax reform, it is hard to do because there is a lot of moving parts. i think we will get that reform next year, but will take several months and not take effect until 2018 when we start to see the impact. the infrastructure piece, if we get a big infrastructure piece, that will come back loaded. some of the markets got ahead of themselves in terms of stimulus.

tom: we will continue with a focus on the fed with dr. clarida. coming up later today on bloomberg radio and television, it is not the big short. i do know if it will win academy awards for the project, but michael lewis on his new effort, the undoing project. stay with us. this is bloomberg. ♪

york,rom london, from new

it is breathtakingly quiet. comparatively quiet versus what we have seen in the last week or so. and her back from rome terrific coverage of a tenet resignation -- a tendered resignation of ramsey. this is the best math i have on the u.s. dollar. the bloomberg dxy is a new index and really good math about the dynamics of the dollar. richard clarida with us of pimco . -- twoo to years ago years ago. i guess this goes back to the brutal move. are we due for another brutal move? richard: i think it is a risk. he was referring to the strength of the euro. at oneto 161 point. there are similarities. the u.s. economy is doing well.

capital is flowing in. as the swiss found out, you can have too much of a good thing. you could have an overshoot of your exchange rate. which is why we get a gradual lift off from the fed next year even with probably stronger growth. they are concerned with how a strong dollar would hit the economy and inflation. francine: how much more strength are we seeing in dollar, richard? richard: we had a substantial move the last year. mostly it was in a holding pattern as the fed the late rate hikes that people thought would be in place this year. now, you had another bid for the dollar. andelection of donald trump a few you that we will get more stimulus next year. at the same time, pedal to the metal qualitative easing in the rest of the world. there is room to move on the dollar. tom: this is a key question and what you are paid for at pimco. he mentions euro swiss.

this is the ultimate job conditions of a financial crisis. you have to advise pimco on this. what are you advising them on junk conditions -- ju conditions. do you ignore them? richard: you do not ignore them. you try to figure out how much of this is fundamentals. that is the job. tom: richard clarida with us. we could go on for hours with richard clarida. we will do that. he of cyprus, he of the ecb, he of the massachusetts institute of technology. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom king is in new york. let's get straight to the bloomberg first word news. taylor: syrian troops are

pushing deeper into rebel held parts of the city of aleppo. who want tovilians leave to get safe passage. they want a cease-fire to evacuate wounded. lawmakers in south korea are expected to go tomorrow. park hasn't caught up in a scandal that has said approval ratings plunging. she would be suspended while a court reviews the move enough votes are received. a move and the recount of presidential ballots. the judge deferred to a state court ruling that joel stein was not qualified to initiate the process because she had no chance of winning. that as a report on what donald trump intends to do with his business when he becomes president. according to the "new york times," a major over the

operational responsibility of his company to his two adult sons. he intends to keep his stake in his business. ivanka would take a leave of absence from the company. she may move to washington to advocate for various issues. global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thanks so much. this is why we do "bloomberg surveillance." it is the quality of the guests. we do that in london and new york. richard clarida with us from pimco today. years of work at the columbia university. athanasios orphanides, he is a which ecb official, merely describes his research contribution to economics and his timely work with cyprus during their crisis. wonderful to have you with us,

professor. i want to talk about what i consider your word, toolbox. what is a toolbox that mario draghi has if he has the constraint of a german philosophy, german economics, and the cacophony known as italy? athanasios: the toolbox he should start with is the european union treaty that gives supreme independence and a mandate which the ecb has been missing. the ecb has not been easing monetary policy sufficiently to reach inflation of just under 2%, which is their objective. they can use the power of their balance sheet to get there. you mentioned german and political constraint. this is what the ecb should have been ignoring while they made their mandate. if mario draghi will marketse today like the

believe, what are the implications of tapering? does it make it that much harder to then withdraw? athanasios: frankly, i think talk of tapering was premature in the euro area. let's go back to the basics. inflation in the euro area has been at or below 1% for almost four years running just to understand how severe the undershoot of inflation is. monetary inflation should have thismore especially me and is what should have been done by expanding the balance sheet. they started way too late. they started qe in march of 2015. they did not do it at a pace that is sufficient to make up for the previous misses. right now in my view, they should continue throughout 2017.

frankly, they may need to do much more of that. the fact that they delayed initiating the program is what creates the difficulty they haven't now where they have to do much more than they otherwise would have to. francine: this is extremely significant. when did you think tapering should start? if you believe that there is more qe coming, are we talking tapering in 2018 even 2019? 201 would: frankly, be a reasonable guess i know but only if they do8 the appropriate monetary policy in the coming months. the longer they have too tight conditions, the longer we have inflation that is too low, and as long as it is too low, it is premature to talk about tapering. in my view, they should have increased the pace of asset purchases over the next year. then they could be talking about tapering in 2018.

if they keep under delivering, that may have to come even later. tom: in the last weeks or so, any number of times i have cited cyprus as an example of clearing markets, of facing crisis and making tough decisions. you lived that way your cyprus -- with your cyprus years back. europe learn? what is really need to learn and do? athanasios: to tell you the truth, i hope that cyprus is not comparable to italy. what we have seen in cyprus in 2013 is unnecessary distraction. i remember watching that from boston in dismay. this was an example of the gratuitous destruction of the real economy that has been going on during the crisis. i hope we do not see something

like that in italy. what we need in italy is well-known. first of all, the government should implement more structural reforms so growth can rise. second, we need a boost in aggregate demand, which is where the ecb comes in by maintaining monetary policy, nominal growth in italy is too low. this makes fair profitability lower. it raises npl's. this is policy made. this is not about banks. wasbanking system in italy a very good shape at the beginning of the crisis, but if you have a five-year recession, we have problems with the banks as well. tom: my question to richard clarida does not matter. would you ask a question to your colleague? , there hashanasios

been some discussion increased in recent years all the fat and other central banks -- fed and other central banks. the ecb is not the only central bank that has fallen short. fed has fallen short of its inflation target for four years. without getting into whether or not central banks should do that, do you think we will see a major central-bank redefine inflation targeting as price level targeting? athanasios: that is a very good question. might betto see one, would be starting with the bank of canada. bank of canada has a history of considering what is best practice over the years and trying to do this. when i thinking about the federal reserve, even though it came late, it has actually crossed over beyond full employment. i wouldase of the ecb,

have been so happy if they could just do what their mandate has been over the last several years before we start talking about the price level targeting. i have to agree with you. if we have price level targeting, things would have been easier. tom: i need to go to both of you. this is crucial. john taylor's name has been vetted as we move on from yellen if we have a trump administration. is that an appropriate stance of the u.s. federal reserve system? johnasios: in my view, taylor is an excellent candidate for the federal reserve. i think we need to hold central mexico to their mandate. same thing i have been saying about the ecb i could say about the fed. still, being more systematic and accountable would be an improvement for the next 10 to 20 years.

francine: athanasios orphanides, how would you view were you still in ecb member the referendum? does it push and press mario draghi to do more? or will you say he needs to do more even though we have 60% of no votes? athanasios: the rise of populism is a concern in the euro area. what is the best way to find populism? deliver growth. frankly, i go back to my basic recipe. if the ecb has been doing its job, growth h would have been faster. i worry about political factors. we have elections coming up in netherlands, france, germany. frankly, the establishment recipe is not working. we do need to deliver more growth with easier policy.

we have been talking about the ecb. i should give praise to you th e european commissio. for the first time in their history, they took a stance on fiscal policy. francine: thank you so much. will be back with athanasios orphanides an richard clarida. stay with bloomberg because we have full coverage from the ecb. that decision coming up at 7:45 a.m. in new york, 12:45 p.m. in london. mario draghi will hold a conference later on. we will bring that to you live. this is bloomberg. ♪

tom: conversation on what

matters. francine in london. i am in new york. international relations. francine has been killing it on politics. right now, athanasios orphanides with us from boston. he is with m.i.t.. with colombia and pimco, richard clarida. and share yellen are finally on the same page. richard: that is why i love this show. you nailed it. for the last three years, the dots have been detached. havee last five weeks, we seen market pricing moving to the dots so it can go both ways. tom: here are the thoughts. , i meanos orphanides your greatreat research research, does the toolbox include dots? athanasios: no, it does not.

i don't think having the dots out there is a good idea. it creates this disconnect. i would much rather that the fed says we will do our job and deliver full employment without trying to guess what it will be three years out. london and of in emc is different from what the fed used to be. you have different views, they argue, not openly, but you hear different things. is it more confusing for a central bank to be transparent or not? athanasios: i think there are limits to how useful transparency can be. in the case of the fed, those limits have been crossed. the dots were a very useful device given the crisis when the fed was trying to communicate it would keep interest rates low for much longer than the markets thought at the time. it was a useful tool.

when you are in the business of providing guesses for the things this isot know about, where you cross the limits of transparency. you end up risking misinforming investors rather than providing useful information. francine: to you agree with that, richard? it wasbasis of it, basically to give the market a glimpse of how people were thinking, even if they were wrong. think the dots are very precise answer to an uninteresting question. that being said, there is some information there. i would not get rid of the dots. i would refine and improve them, but i agree that they greeted as many headaches as they have solved the last couple years. tom: let me run up the script here. this is important. st. louis, part of his latest theory, and he was a this is a small non-vetted paper, and i am

dealing with heavyweights, but he talks about do not move until it is a regime change. is he getting his regime change right now? richard: that is to be determined. he was very thoughtful. he was makingt is you need to think of a rules-based policy as a guidepost. i call it a forward-looking rule and what he is saying is the proper right now is it is very hard to look into the future because you can either be stuck in a low interest rate or we go back to a better where we will be hiking less. since i will not know, i will not be giving a podcast. we have to wait until the fed, which is it given dr. bullard's great interest in a

regime change before you act? athanasios orphanides i would not -- athanasios: i would not put so much emphasis on the regime change. we do not know where the fed have too much uncertainty. there has been discussion on what is equilibrium for the past several years. this is why you should not think ratean tell what the fed should be. what is the distribution of risks for inflation and economic activity imagery you are guiding policy so risks are balanced going forward. this is why in my view the fed should have been acting much faster. employment rate going solo and now crossing the reasonable threshold of unemployment. they should have already been moving up.

you do not need to know what it is three years out. francine: because you need to look at the data. athanasios: you look at the data influencingdata is your forecasts and the risk to the forecast a year or two at. that is all you need to do. tom: very good. thank you so much. athanasios orphanides of the massachusetts institute of technology. will you will continue -- we will continue. cullen coming up on bloomberg radio. what a perfect time to speak about your rationalization. dow, 20,000. look for that in the 7:00 hour. from new york and london, this is bloomberg. ♪

equities. i mentioned down 20,000 for the first time today. never done that. sterling 127. stronger yen. turkish lira up top gets my

attention. francine and i watching the unraveling of turkey maybe something for 2017. francine: coming up shortly is "bloomberg daybreak." what are you excited about today? alix: many things. obviously the ecb front and center today. that.l be discussing breaking into euro volatility. lots of spread talk. we will sprinkle in the italian talk as well. we are following closely this glencore deal. qatar.take with what it means for the geopolitical community and what it says about western sanctions on russia. you will want to hear everything oil and geopolitics so looking forward to that conversation. tom: thank you so much.

here is the chart. i mentioned the certitude is second rate. the lollipop chart. i will not spent a lot of time on this today, but all you need to know is way up in the right, you have this trump bet up higher and higher inflation. richard clarida, you have talked heatedly about if the bet is not pay off, if we do not get reflation. frame the probability of that. richard: i have been saying the markets have been too relaxed for too long and too pessimistic about the fed's ability to deliver 2% inflation. the markets have been reflecting that.

the change in psychology was two factors. have had the prospect of more fiscal expansion in the u.s. the two together have pushed the inflation expectations up, and i think that is entirely sensible. francine: what would you be buying in terms of treasuries? richard: our focus was on the inflation market, so we will continue. also probably in terms of the way reallocate them we focus more on investment grade credit. within the fundamentals are credit. for you earn some of that credit spread as a christian against a possible rise in rates. tom: here is the moonshot. we showed the hockey sticks

earlier for the ecb. here is that five years forward. we are halfway back. do you assume we get back to normal, or is there a new level, or do we reverse with physical disappointment? -- fiscal disappointment? richard: i think you break evens will move about 2%, which is where they were until 2012. we could get some disappointment next year. tom: jp morgan among others talks about it. you know the drill. can we get back to where we were? or is a new level? are we here or at a new level? richard: i think we get most of the way back to the old level. there is a global component to u.s. inflation. if the global economy continues to sag, we may not get exactly back, but i will continue to move on. tom: help me round out as one of

our experts. the bundesbank, are they all on the same page or is tha? richard: i think the bundesbank has a very important role to europe asrmany and having a hot guy focus on inflation and been skeptical of other interventions. i think bundesbank continues to play that role. tom: richard clarida, thank you so much particularly with athanasios orphanides today. much more coming up on radio and television, my conversation with michael lewis. stay with us on all our platforms. this is bloomberg. ♪

>> welcome to "bloomberg daybreak," i'm alix steel, alongside david weston. we are less than one hour away from that all-important ecb rate decision. the dax is over 11,000. european stocks looking at the longest rally in two months. it will be a story of euro-dollar at a three-week high . heavy into that ecb decision. the board, thess italian 10 year yield is backing up by six basis points. david? david: here's what you need to know this hour. draghi's decision. everyone is counting on an extension of the quantitative the italianam as lender, monte dei paschi, is said to be asking for more time. we are expecting the news conference at 8:30 a.m. eastern time. china, lift. chinese imports surging on strong demand for