♪ francine: the south korean power.nt has suspended that has shaken asia's economy. opec prepares to meet with nonmembers. can they convince russia to comply? and less is more. the ecb cut bond purchases, but draghi says it is not a taper. this is "bloomberg surveillance ." francine lacqua in london. we have a great show lined up. ceo, anne mg's

richards. chief goldman sachs' european economist huw pill. other let's check on major producers, industrial metals gaining, a lot of european stocks were climbing about 2% a couple of minutes ago, now they are pretty much flat, 352.25. however, because of the turmoil that we could see in asia, after the move in south korea, watch out for some of the asian markets, the bond churning for the most in the last two months, and the euro $1.0620. let's get straight to nejra cehic. head hasuth korean's been impeached.

the motion was approved by 234 lawmakers. news brings in the prime minister and interim leader. the vote came after some of the since the nation became a democracy in 1987. the producer price index in china jumped 3.3%, beating economists' expectations, meanwhile, consumer prices rose. u.s. president-elect donald trump has vowed that china will soon have to "play by the rules." the comments came at an election wasory rally where trump introducing terry branstad. meanwhile, a state-run chinese daily newspaper has issued its clearest warning yet on its

relationship with taiwan. in the u k, the conserved party has held in a by election. the vote was after one of 's resigned.s mp global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. itncine: don't call tapering. that is the message from mario draghi as he announced and this ofsion -- an extension qualitative easing. he said marjorie purchases will be reduced to -- he said monetary purchases will be reduced. aghi: the lowest rate will be permitted to the extent necessary.

the outlook for real gdp growth is broadly unchanged. the risks surrounding the euro area growth outlook remained to the downside. in december 2016, euro systems stopped macroeconomic projections for the euro area, which foresee annual inflation in 2016, 1 .3% in 2017, in 2019.018, and 1.7% francine: the message sent investors in different directions with some focused on withear term, the others the injection of liquidity. let's bring in anne richards, great to have you on the program, as always. is it tapering? do we care that much?

need to care. mr. draghi used to have a great reputation for great clarity. thinking about his "we will do whatever it takes," this was a masterful all caps location -- obsfucation. i think the confused reaction in the market is a testament to the very muddleds is a set of messages that we got from the central bank. francine: did mario do it on purpose? he is trying to adapt to a reality that he does not really know how to do yet. anne: what you are seeing is the absolute limit now to the extent of which monetary policy can really come in isolation, benefit the economy that we do not think it could 5, 6, 7, 8 years. he is trying to do as much as he can with the limited tools he has.

the way they are adjusting what can be bought, taking away the limitation that he had in terms of negative yields, that has obviously helped. we have fewer bonds globally than we had a few go back to august. but we are still at a net zero some -- no zero-sum game. real economic stimulus is doesed because the more he in terms of quantitative easing, the harder it is for the banks and insurance companies. it really is not working anymore. back to: this goes december toy 15. in blow you have bonds, and white, you stocks, and you continue that rotation you were talking about very clearly. election, before the but the gains are reluctant, accentuating.

will this continue? the world is looking at in terms of economic policy is whether the rhetoric of trump can be brought to reality, in a world will react the debt ceiling conversations a couple of years ago, can he really spend? spend in aannot way he has indicated he wants to, he will have a rude awakening. we will move into a "show me the beef" kind of conversation. when we look back at 2016, we pivot point. it will be the year that inernment and fiscal policy some shape or form has to pick up the slack. francine: you had dollar strength, the fed hike maybe 2, 3 times that year. does it actually make the job of mario draghi a lot easier? of the margin,

eventually it does because the currency -- pure interest differentials will help european exports, will help the larger european companies. so it probably does, but we are still waiting in europe on to tiey that will spark -- that was spun to tighten earlier in the cycle. crept back in.e we may start to see some of that come through, but it is a pretty tough call. francine: i have an inflation chart to show you, th 2% mark that mario draghi and the ecb want. this is at the 0 level. the headline inflation, which is the blue one, the white lower, two thousand 12, and it is nowhere near the 2%. will it ever go back to the 2%, or should we focus on growth? one: you have hit the nail

the head. the fact that it is the only mandate is one of the problems. the fact that central banks need to have a broader mandate, and the ecb has been fighting the war. if you go back to the early period, they were the only central bank in the world that was really concerned with the risk. the phantom risk is not materialized. the problem is the other way around -- we have a huge unemployment program. when you look at the situation, you see a lot of policy mistakes, but to be fair to the central bank, you have failure consistence is as if not more important. talk morewe will next. coming up, park out of power. the south korean parliament suspends the president. celebrates a month as

president-elect. we get the investors' take. and goldman sachs' 2017 outlook and political risk. we also speak to the chief european economist of goldman sachs, huw pill. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i am francine lacqua in london. let's get straight to the bloomberg business flash with nejra cehic. cash, the2 billion in biggest miner in south african will pay 18th -- nintendo shares have hit the

highest level in four months. plans have been -- fans of been given a chance to try out the game ahead of its release at apple stores. flurry of its release. china's holders have been limited to a hold in macau. annual limits will remain unchanged. casino stocks slumped after word cut.china was imposing a that is the bloomberg business flash, francine. francine: thank you so much, nejra cehic. theident park was impeached moment it was announced. were 299 total votes, 234 for, 56 were against. i announced that president par s

fast.eachment case was francine: what does this mean for the presidency? guest: what this means is that isk junie -- park geun-hye suspended, and the prime minister will take control. a he meeting will be held at 7:00 p.m. seoul time. that is the latest we have heard so far. we are having technical difficulties, as you can imagine, with satellites, we have about a million satellites to then go to seoul. announced, there was a cheer in the crowd. this comes less than two months apology for a

frenzied state of affairs. more than 2/3 of members in the national assembly voted for impeaching her. just to put everything into context, it came after some of the biggest street protests since the nation became a democracy back in 1987. we are still with anne richards. looking at south korea, at brexit, donald trump, i was covering the referendum in italy earlier this week, it is very clear that politics now are much more uncertain than last year or the year before. does it change your view? anne: i think we are seeing a real shift in the whole political landscape, and you koreanith the situation, you've got to say park,al costs, missed whose parents were assassinated, who herself was a victim of an attack, there was a personal cost in the profile that

politicians have now, the intense scrutiny. my goodness, it is a pretty challenging role that we are in. when you look at asia, for example, and the consequences of what is going on in korea more widely, we can see a really big shift going on there. it is partly to do with trump, as you mentioned, that trump closeness to mr. putin, who is in negotiations with japan at the moment. you can see a bit of a shift in the dynamics there, and then we have got china where we have the for thecoming to davos first time this year. it has just been announced. we are potentially seeing the world's stage shift in who is dominating that conversation. and some are interpreting the davos gesture from chinese saying that they are shifting into the shoes that trump no longer wants to wear with the u.s. being the policeman of the world and taking that central stage in terms of coordinating and bringing the world together.

he is saying, "no, it is america first, and we will do more for america." francine: what does it mean for an investment perspective? debt,'schina was a huge high that markets are largely ignoring. how will it end? anne: goodness knows. nobody knows that. just as the u.s. seems to be stepping back from globalization, china is actually stepping in to globalization of your it will we see the global trade, the slack be taken up bunch more by, for example, intra-asia trade? china solutions rather than u.s.-led solutions? there are probably some negatives and that, but if it works out well, i think that is ultimately a positive for global trade and ultimately for markets. francine: as far as emerging markets come are you still bullish? fundamental at the

growth story that we have in many emerging markets, and i think that that moment them is still absolutely there. there will always be cyclical peaks in trust. francine: do you worry about europe if you look at the political risks in europe where we had french elections? i was amazed, the political referendum in italy was brushoff in pretty much two days. in three minutes. anne: the political establishment is still being challenged. i'm am not even sure i like the term "pop you list -- "populist." people use it as a negative term. politicians always want to be popular, so we should not use that as a negative term. i think the lack of political cohesion, as you were saying earlier, the fact that the fiscal and monetary policies are

starting to get aligned, we are facing a very challenging year in europe, and we still have to get to the recapitalization of the italian banking sector, we have the dutch elections, the french elections, so politics in europe will dominate. if we are not careful, europe will start to be the economic has been in compared with other parts of the world, asia and the u.s., to drive economic growth, much more ranked up there. we are shuffling our own debt here -- deck here. francine: anne, he was so much, anne richards of imaging &g investments.m trump's election set a trillion dollar shockwaves through the global markets. we break down the information. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i am francine lacqua in london. it has been exactly one month since a donald trump gave his presidential speech since winning the election. his election sent shockwaves through the markets. where should investors be looking in 2017? anne richards is ceo of m&g investments. stickingnks for around. where do you want to put your money in 2017?

anne: it is pretty tough when you've seen markets rise to the extent that they have. everyone had that kind of visceral feeling, goodness, is all good news priced in as well as bad news? there,have the fear out but we also have to put our money to work. what do we do with it? we have to be quite smart. is not just you buy bonds and equities, you have to be smarter to ferret out where the opportunities are. a lot of it has got to be about what i call investing across the crocs. can you trade off disappointments in the capital structure to see whether there is a price differential or something else in the capital structure? by which i mean looking at the bonds of an individual company, for example. i think it is looking within markets. we know that we saw a little bit proxyurn in terms of how stocks have performed. i think that is going to continue in 2017. i think that is the kind of thing you need to be looking for.

i think just the fact that prices everywhere have been inflated, everything is priced for perfection. people are pricing in stronger economic growth for next year, people are pricing in tax cuts. so the risks are that we do not see the tax cuts coming through, that we do not see that resurgence in economic activity. francine: how should i think it?t if there is not better news than what we have at the moment because a lot of it is priced in, will we go to correction? anne: i think there is a risk of that, and one of the areas we have not talked about where you get a better trade-off in that perspective, if you are able to give up some liquidity, go into things which are must less liquid, like infrastructure would be a classic example, and you could be selective about what you get. you cannot just use -- you can

use equity markets as in a pm. you cannot do that with -- as an you cannot do that with infrastructure. you have to be smarter about how you put your money to work. francine: are you expecting volatility? anne: yes. all right, one word, anne richards, m&g investments ceo. up next, we will be talking about inflation, volatility. we have some great guests coming up, but we stay with anne richards, and we will be joined by the goldman chief european economist, huw pill. this is bloomberg. ♪

welcome to our weekly brexit show. i'm francine lacqua. for a roundup, let's get straight to nejra cehic. nejra: there were protests at the u.k. supreme court, the

government's appeal against a lawsuit, forcing it to pass a new law before officially starting britain's exit from the european union. the government, which loss and a lower court, once to avoid that as it starts a protest by the end of march. a ruling is expected in january. wonwhile, theresa may backing after the pm promised to give parliament a chance to scrutinize her plan first. and another victory for the conservatives party. the vote was force after one of s resign.ay's mp' caroline johnson, a local doctor, fought off competition by the independence party. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: thank you. we're back with anne richards. every time you come on come i

ask you "what have we learned about brexit?" our: we do not know that policy is to have a cake and eat it, but we have accepted that we may have to pay for that cake at european cafés. i think really that is what we have learned since the last and we spoke two months ago. francine: what does it mean for your business? anne: for businesses, everybody is slowly coming around to the realization that we are going to get very little clarity on ,nything, not just the hedgers but a hedge at the final stage of the negotiation. apart from anything else, it is not at all obvious to me who we will be negotiating with given we have got so many elections in europe coming up. i do not think the german position or the french position in itself will be locked down at least until the anne of this year. it will be a long time -- the end of this year.

it will be a long time. we have got to think of the steps that we would need to take in the event that we do lose it. it is all about options. francine: what is the option now the in the event that we lose it, right? what are people looking at in terms of options? is it too early to say? are you looking at paris, france for? -- frankfurt? varies from business to business. you need to have the legal structures within a european union continuing country, so you will see a lot of setting up of those legal structures. people are taking some of the space to make sure we have the capacity and the ability. you are seeing some companies already starting to move down the line. that will continue. we have a lot of forecasters saying sterling will fall. anne: i think sterling is kind of interesting because it's

inflation starts to rise, then we will have more scope for interest-rate policy to rise a little bit, which i think the margin will be a strong underpinning for sterling. i cannot see that sterling should weaken dramatically from here. as we see the effect of the recent weakening come through. it has been a very long time since we had inflation within the u.k. economy. we do not know how u.k. consumers will react to inflation. there have been a lot of headlines protesting of up increase in food prices, but we have only seen the beginning of that. at the margin, it gives the scope for interest-rate policy to gently rise again in 2017. policy should underpin sterling, i think. francine: is it priced in? we have been trying to figure out in the newsroom for the last two days, it is unclear what people are -- what is priced in, right? brexit,it is a hard

inflation -- knows.obody i think rapid inflation, given the deflationary pressures that you still see out there in europe, it is pretty difficult. it is difficult to see rampant inflation. francine: you don't see prices going up? anne: we will definitely see more inflation. if you look at the move in sterling so far, we will see something like 4% to 6% of an increase in cpi going into next year. i think we will definitely see rising inflation, but that will give some possibility for interest rates to start to gently rise, which will benefit. we do not know how the interplay between the borrowers and the sabres will see through. -- savers will start to see through. it is a complicated picture out there. but there is so much because we have so little clarity on what brexit is going to mean. francine: is volatility the

ultimate thing? volatility,re remember that the conservative party has a very narrow majority. there are a lot of things that could potentially derail this. are the risks, if people start to understand what it means for business if we don't get some sort of negotiation settlement and having to fall back onto the way we used to trade with europe, which is individual rules country by country, governing how you export and import, i think that might prove to be quite a lot of friction in the system, but we are some way away yet. francine: as the head of a business, what is the one thing you would be asking of your prime minister today? more clarity, more transpare ncy, an interim agreement? we need a transitional

arrangement to make sure that the mechanisms are in place to allow trades to flow, to allow people to go on holidays they want to, to work in this country if they come from another you country, all of these really simple, basic things feared we need to get clarity on those, and that will benefit other european countries as well as ourselves. 10% of my business in the u.k. is from eu nationals who are not u.k. nationals. we have got u.k. nationals who live in other countries. we should be giving clarity to those people. let's say what we actually mean. we have a great skills cap in the u.k. that we have been fortunate has been filled by some fantastic colleagues from other european countries. francine: let's see if the government agrees to it anne richards, thank you. coming up on "surveillance," oil gains ans opec and non-opec

members meet in vienna. and a recovery. we at the goldman sachs 2017 outlook for the european economy. italian financials. this is bloomberg. ♪

francine: this is "bloomberg surveillance." brexit -- what is next? i am francine lacqua in london. let'sma head to mark at the bloomberg. rk -- let's head to mark at the bloomberg. the besttrack for weekly gang, the stoxx 600, since february. .2% euros today,

the german 10-year yield was up to a january high earlier. .36%. the average, by the way, let's put it in perspective, is 3.4%, morgan stanley strategists 5%.mmend seeing the continuation of ecb weaken inflation. the big beat is data in china, inflation rising to the highest level since 2011, helping to sustain prices around the world. consumer prices picked up on rising food costs, the producer price index up 3.3%, exceeding spoken analysts we have with. epi gaining faster than cgi for the first time since 2011. that is significant. fifthn heading for its week against the dollar, highest u.s. treasury yield increasing

the appeal of the currency ahead of the fed meeting next week. the yield on the u.s. 10-year is approaching 18, the dollar is 9% against the yen since the trump election victory. the white line is dollar-yen, the blue line is the u.s.-japan 10-year yield gap. look at that lovely convergence, francine. francine: all right, mark barton, see why so much. some of the predictions from goldman sachs, austerity, for more is the chief european economist, huw pill, and also still with us is anne richards of m&g investments. to the program. i will ask you both, how do you rate 2016? anne: how do you rate it? francine: yes. was it a b year. anne: from a market sense, it

was kind of an a everything else, kind of a. b-. huw: from a european point of view, it is hard to get above a b. francine: what is 2017 going to be like? huw: i think moore the same, unfortunately. we continue the forecast growth of a little bit below 1.5%. it is hard to get people excited about that. it to continue in the next 18 months or so, and that is the pace for most parts of the world seems pretty anemic, and certainly it is not a pace that will be transformational in terms of addressing some of the problems we have in europe. --, fortunately, unfortunately, our view of potential growth in europe is even lower. thoughelow 1%, so even it is hard to get excited about 1.5% yield growth, that is

sufficient in the continental europe context. it is lacking in the euro area, bringing down, as we have seen recently, headline unemployment rate, and slowly to reduce the disinflationary pressures in the euro area, even though we expect or inflation to remain very subdued, and that is continuing the accommodation from the ecb. and what we heard from mr. draghi yesterday, i think at the same time, is also the case that deflationary risks have diminished. we are not expecting to see a revival back toward the ecb's target anytime soon. francine: i speak to a lot of investors, and the more, let's say, unsophisticated, europe is a mess. it will have to breakout. there will be at some point a break of the eurozone. other say look at italy. it is a mess. they might have to go back to the lira. is this nonsense? i hesitate to say it is

nonsense because one of the things we learned politically over the last year is never say never. lots of surprises occur, once we had not anticipated. we certainly do not anticipate what looks like a breakup of the , ao area or any breakdown semi-cataclysmic attitude. this is the foreign perspective, and it is useful for europeans to be aware of this effective. it has been this change. quite an unsustainable environment. things have to change in some direction come otherwise we will face difficultly. but i think the ability, given the efforts of mr. draghi and the efforts of the politicians to contain some of the populist forces, at least in germany, i think that needs to erode the current situation. it is unsustainable in a

long-term economic sense. francine: how do you fix it?ann anne, you said winning to say goodbye to austerity, and we need to start building stuff, infrastructure. anne: what we learned from the unexpected elections and results we have had over the last few months, democracy is government of the people, by the people, for the people. we tend to look at democratic solutions. we have not thought about what the impact is at an individual level. through i think, moved peak central bank independence, so the opportunity for europe is to say we need to listen to what the concerns are of people on the ground. we need to take people with us on this. we need to get monetary and fiscal policy closer together. it is not just the system saying, "we need to spend on infrastructure. " but we need to bring people together on this conversation,

otherwise the risk of fragmentation will start to emerge. francine: this is what you expect as well, extra fiscal spending or a stimulus that could lead to a half basis point? percentage point. quite a difference. i think that is right. while that will not be headline news, we have seen more of that in 2016 p are and when you back out from our numbers, as i said a moment ago, we are forecasting roughly .5 percentage point. crucial to head off the populist threat and sort of give some self-sustaining momentum to the economy. people that .5% is coming from uneven fiscal policy. has contributed proportionately. i'm in, spain has actually contributed more. but i think the crucial thing is that this will policy is an important driver. in our view, fiscal and monetary

policy -- people talk about passing back to fiscal policy makers. we see them much more complement rate, and the ability, particularly of the heavily indebted southern european countries, to deliver the fiscal easing, which is so crucial to them having above trend growth, that is wholly dependent on the fact that mr. draghi is standing on the sovereign markets. francine: he has been standing there for a long time. we all listen to the press conference of mario draghi every single time. .he politicians ignore him why is 2017 different? huw: they have not been ignoring him as much. we have seen a fiscal easing in 26, maybe not for the best reasons. to your point about germany, germany is consistent on fiscal easing, nasa much by choice, but because they had 1.2 million refugees -- not so much by choice, but because they had 1.2 million refugees show up. aheadhave fiscal easing of elections.

mr. draghi is looking for better tax structures, better infrastructure, things that lead to better growth. that is not the form of fiscal easing we are seeing. definitely, efforts could be made, and this is what mr. draghi is asking for, to improve the composition of fiscal evening -- easing. francine: huw: any numbers. you need -- francine: and the numbers? or: whether you are right wrong, i do not think we should expect to see a germanic fiscal easing in germany. in fact, now that the flow of refugees has ceased or slow down significantly, we are not expecting germany to contribute proportionately to the fiscal easing we will see next year, meaning that the heavily indebted, lower fiscally credibility countries need to proportionately do more to maintain the momentum, and if anything, that makes you even more dependent on the ecb support and the complementarity of both. francine: how do you see europe?

do you break it down into countries that are doing better than others, or do you see it as a region? anne: it is interesting, you think about the contrast between spain and ireland, who took a lot of pain early on, suffered for it, but on the other hand, fell back on a growth engine, versus italy where the banking is serious in italy. the consolidation has not happened. the banking sector is still -- you have got to separate country by country. fiscalhink part of the -- it is not just about the quantity of spending, it is also about the do regulations, the willingness to tackle these structural impediments. it is very different in different countries, but it is there. we have to got to tackle those at the same time so that the

leveraging to spend is increased. structural reform and deregulation as much as it is about spending. francine: it sounds like trumponomics. anne richards, ceo of m&g investments, and goldman sachs chief european economist huw pill. both stay with us. up next, we talk central bank. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. joining us with more conversations about europe is anne richards, ceo of m&g investments, and huw pill, chief and europeans -- chief european st at goldman sachs. what is your forecast for next year? we hadven the experience in 2016, we continue to think risk.cal mr. draghi has built up a whole machinery, which i think he has a willingness and ability to

use, to contain the sort of market dynamics that threaten to disrupt the euro area back in 2011, 2012, but what could constrain him in the operation of those types of back stops is if he faced political impediments and the populist government, a referendum on one of the large european economies. of course him the other side, maybe containing his ability to contain the northern countries, pushing back against his easing policy. francine: are you worried more about france or italy? huw: i think we worry more about italy. think the, i institutions and economic setups in italy are a bit more vulnerable. there is a lot of focus on the banks at the moment, although to might bent, that overstated. there are clearly weaknesses in the italian banking system, which are not so extensive and friends. france.hink -- in

i also think there are uncertainties about how the election will be run, the timing, and so forth, create uncertainty because of the political set up. francine: what do you worry about? if you look at italy, is there a risk that if the bank is not dealt with, that it could be something systemic for the industry? anne: the reason the italian banks are such an issue is that has not restructured since the post crisis, and they have got a situation where they have 40,000 households who have exposures to bonds, because of the way the rules are rewritten post-2008 crisis, they would have to be bailed, they would have to take some of the pace -- francine: that would be a revolution. anne: whether it would be quite a revolution come i do not know, but it would be certainly very painful. he would have the swiss run at the banks and the effect of that. europe has not gotten through swift you would have the

run at the banks and the effect of that. europe has not gotten through the banking crisis. anne and huw, thanks for joining us, anne richards, m&g investments ceo, and huw pill, chief european economist at goldman sachs. we will kick off the conversation with more on italian banks. we are joined by davide serra from algebris investments. he is one of the best-known italian financiers. we will also be talking about south korea with the and the of president park with ubs' jeffrey eoffrey yu. this is bloomberg. ♪

♪ francine: park in peach. the south korean president is

suspended for power. crew confidence -- oil extends gains. opec prepares to meet with non-opec members. can they convince russia to comply? qe the ecb extends the timeline, but draghi insists it is not a taper. this is "bloomberg surveillance." i am francine lacqua in london. tom keene is in new york. what an interesting day. tom, happy friday, happy birthday. did i say that out loud? happy birthday. tom: we will do the birthday thing later. the korean thing really catches my attention. the correlations and non-correlations -- i would really focus on the 30-year bond, the new high yields in the united states. francine: a lot to focus on the spreads between german and italian yields. before we get onto the markets, let's get straight to the bloomberg first word news with

taylor riggs. taylor: the president of south korea has been impeached. lawmakers voted overwhelmingly to remove hard geun-hye -- park geun-hye. it has rocked the fourth-largest economy in asia and sparkly the largest protest in three decades. park's presidential power has been suspended. the court will rule on the engagement within 180 days. president-elect donald trump is talking tough on china against your he said china is not a market economy and did not play by the rules, but it will have to start. mr. trump: china has been so tough and so competitive, and frankly, dealing with people that did not get it, but i tell you what, we are going to have mutual respect. benefit, is going to and we are going to benefit. taylor: meanwhile, chinese government media called trump's

phone call with taiwan's president "ill-advised." there is growing support for a trade deal backed by china. deal say they have agreed on assistance to small and medium-sized companies so far. the u.s. decision to lead a massive asia-pacific deal has renewed pressure to get this approved your university of cambridge says student applications from the european union have plunged since the brexit vote. eu applications at fallen 14%, even though the total number of students applying rose. cambridge is the second oldest university in the u.k. it has produced more nobel prize winners than any other institution. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg francine, tom? tom: taylor, thank you so much. equities, bonds, currencies, commodities. futures down after two days.

steven wieting in our next hour with citibank to give us market perspective. i noticed crude oil with a bid, a barrel.il, $51.18 there is the dow, yesterday i mentioned, 20,000 for the first time ever on air. 30-year bond at 3.13% gets my attention. the 10-year bond in japan higher as well, francine. oilcine: i want to show you rising for the second day, opec and non-opec meeting in vienna. european stocks climbed a touch, not great, but a little bit. bonds and the korean won declined. this is my snapshot with euro-dollar, $1.0626. i stumbled in today looking at the university of michigan expectations forward. this is the confidence of you forward. ago, the reagan

morning in america, that green box and the average through the reagan administration, the average through the obama administration overthrew the terrific -- over to the right, but the terrific recovery, expectations are back to the reagan average. i did not expect to see this in this chart. right now, we are exceeding the average of mourning in america that president reagan so identified. that is a plot to get everybody thinking. my fridaythis is chart. i should have written "happy birthday" over it. i will do it in the next hour. waiting for inflation. i brought over a chart that is very simple. it is a lot more simple than it looks to her this is the headline inflation in blue. you have mario draghi with his tapering yesterday. we are nowhere near the 2% target.

this is in yellow. can you guess what this white thing is? it is margins. there is more of a direct correlation now, so a pickup in inflation next year. good news for european companies because they seem to be able to pass on some of these costs. there you go. happy friday chart. for more on this, let's get to the head of u.k. investment office, davide serra, where he helps manage $4 billion in assets at algebris. geoffrey yu from ubs. thank you both for coming on. geoff, you will say i buy less bonds but i will buy them for longer. dovishy: there must be a component in that it into it, and the conclusion is it supports a risk, and normally you would not associate given the effective tapering with something that supports risk. francine: markets were a bit wobbly yesterday.

theme trying to figure out. sure we focus on political risk? davide: i think we need the combination of the three. i think the ecb, in short, is genius because on the one side, is still giving another nine months of basically central-bank easing, which is important given the political risks, but at the -- how caneducing giving you less than $100 in 10 years time the deflationary. thane will have less money you have today, and as a result, they save more than they invest. i think what he has achieved is balance, which is, in my view, perfect. tom: i want to look at the ambiguities that we saw yesterday, and this has been caught by a lot of people. mark gilbert wrote this up.

geoffrey yu, we talked yesterday about the ubs outlier call. bring up the chart, if you would come of zero dollar. geoff, you mentioned this. here is where extremist, and here is where geoffrey yu is. does not by a zero to parity. which of the ambiguity did we draghiterday as druggie struggled, which is euro stable or higher? geoffrey: one of the biggest ambiguities in the past, if you want to do something conducive to rest in the eurozone, especially on at we markets, you want to do it in a way that is not supported for the euro, the currency itself, because the two do not go hand in hand. european equities expose the exchange rate at the end of the day. but it is a conference story at the anne of it -- end of it. there could be reflation in

eurozone next year as well, and if that changes policy expectations, you can get to the sweet spot where asset prices are rising, but the euro can rise accordingly without hurting expectations. that is what happens, a key component of that happening. davide serra, with your expertise on the bank, if we get a compromise, as we saw yesterday, in some form of a vector, a taper, if you would, what does it mean for the bankruptcy balance sheet -- the banks' balance sheet, away from italy, what does it mean? de: for the strong banks, 145 or so, 95% of the european strong, what are draghi achieved is very important because basically ecb central policy reduced margins to a level, which is an all-time low in history. sometually provided

margins, which are very key. to remember, the zero five-year in germany is zero, the zero to five-year in the u.s. is positive. it is as simple as that. so anyway, the ecb needs to allow banks to make more money so that they can lend more. francine: but that would be on the regulation side. they can either go to monetary and have an impact or they look at donald trump and say, well, he is due wall street. i need to make sure i have a healthy banking system. geoffrey: when it comes to looking at the banking system globally, how much of a process, at this point, clearly, expectations have run. the u.s. markets might be at a head. you need to get that inflation impulse coming, which results in steepening. that is half way of changing the markets' perception or changing perceptions of a perpetual low profitability.

yesterday, what happened? it actually broke the cycle. tom: thrilled to have both of you on, davide serra and getting into the weekend, sorting out where to we go into december and into 2017. helping out, steven wieting of city private bank will assist in the next hour. a meltdown of the start market, what does it mean for the american economy? this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i am francine lacqua in london. as ever, tom keene is in new york. let's get to the bloomberg business flash with taylor riggs. inflation atina, the wholesale level rose by the most in five years. chinese factory prices raised

3.23% in november, exiting all estimates in the bloomberg survey. meanwhile, china's consumer price index rose 2.3%. the air insurance companies -- as insurance company rose investors are in the middle of the market reign of the ipo aice, the value of ethene -- thene is that $1 billion. president-elect donald trump shaking up u.s. energy policy according to an internal document circulated by the energy department. trump advisors want to keep nuclear power plants online. they also want to identify staff members who helped promote president obama's climate agenda. that is your bloomberg business flash. tom: taylor, thank you so much feared we have two wonderful guests. geoff, i cannot say enough, we will cut him some slack here,

unlike davide serra. bring up the chart here. banks, american jpmorgan and the trump hockey stick as well. this goes back to the crisis, the lehman low down here. this is b&b parable, -- this is bnp parable, the poster child for european banking, but nothing like what we see with ubs and with deutsche bank as well. i think that sets up, francine, the tension as we go into 2017 and davide's expertise. francine: yeah, and tom, it is a great chart. you have that for line spirit that is breaking the rules! that goes to the crux of what we need to see. concept,y with another the share price has been rising. what is the kind of model that investors want from european banks? is it just cost cut after cost cuts after cost cuts? davide: first of all, there is

not a european bank. you have business model by business model. retail, commercial, consumer, the santander. and you have the wholesale bank, a jpmorgan, compared to bnp parabas. then you have the equivalent of the morgan stanley, goldman sachs, and the credit suisse. then you have the specialized specializers. they want growth, they want to stop the basil for risk. that is not going to happen because the only guy really pushing for basil for is to get on credible -- credit risk. they do not apply it to themselves.

change, remember, and investor has come in my view, misunderstood it. the new chairman is the former head of the central bank of mexico. he is a terrific central banker. he is not a wall street man, he is a main street man. he will finally bring basel to basel, common sense. that is important. francine: negative rates are looking like they could use a little bit. yields go up a touch. doesn't make it easier, or will we see another rough year for european banks? davide: i think european banks next year will see a clear .arning first, margins will go up, and that is fantastic because they do not need to do anything. they just need to be able to make more money with the existing balance she. remember, gdp is growing by 1.6% in europe. months, gdp has been

higher in europe than it has in the u.s. that is just numbers. that will lead to lending growth. third, they are restructuring. that is what u.s. banks have been very good at. u.s. banksing about in 2009, they gave them a choice. for example, the people at morgan stanley came out and focused on wealth management, what ubs did. credits we's suisse and others were late to the party. see steeper we yield curves. a wide appreciation. can we see the same? can we say the same about europe? the dynamics of a steeper yield curve over to the eu bank, is that going to happen? i think,t will happen,

assuming that you do not have, what do we call -- political chaos next year in europe. key electionswo provide stability in europe, and at that point, i think he will see an upside in financials because it is up 3, 4 -- 3%, 4%. basically europe, jpmorgan is behind. you will see the european banks, where jpmorgan was 3, 4 years ago. in our view, a 30% upside in our financials, the yield curve will normalize for the u.s. the chart up again. francine, jump in here. here is jpmorgan, bringing you a sense of jpmorgan. what davide is saying is right here in 2013 is where bnp paribas is right now. that would be the safest. i'm trying to use my fancy pen

because i'm going into a big football weekend. francine: very fancy. we have not talked about the italian bank, tom. when you look at italy, is it a systemic risk? let's say it is a concentrated risk. europe has $25 trillion in loans, 1.3 trillion in american banks -- a tiny banks. -- inhe italian bank italian banker with the italian banks, they did not use the european facility, the same that greece and you portugal did in 2011. in portugal, 200 billion, likely to pay 360, net nonperforming loans. the number is about a billion -- francine: you are saying no. davide: i do not think it is

systemic. then there are two issues to deal with. monetary policy and the capitalist small banks. we are talking about an absolute billion euro to 15 billion euro. tom: particularly when you look at the manufacturing gdp wealth of italy, i will go with you on that. davide serra with us and a silent geoffrey yu at ubs. thank you, geoffrey yu for your contributions at that part. when we come back, she is the expert on venezuela. shannon o'neill will join us, the council on foreign relations committee i will be direct -- it is not a pretty picture. stay with us. this is bloomberg. ♪

tom: one of the "bloomberg surveillance" advantages is the bloomberg terminal. francine in london, i am tom keene in new york. the bloomberg dollar index features better math than the other indices. i will say it again. it is better math. chart.he same damn it looks just like the others, but it is better math. here is the strong dollar move from 2011 and of course the big leg up is the total move a few years ago. francine, that sends us to a strong dollar policy. francine: the problem is that a

lot of everything is already priced in. this is what anne richards of m&g investments was saying. geoffrey yu, will be dollar go stronger from here, or because we have priced in the $1 trillion that donald trump promised, 20% of that, does it go back up? geoffrey: you get the infraction between monetary policy and fiscal policy. the fed will be worried about the strong dollar. a poster saying germany, switzerland, risking exposure, but fiscal policy can actually reduce potential growth in a way such that we have to revisit inflation expectations in the u.s. spending depends on fendin policies. francine: parity or not you feel geoffrey: -- parity or not? geoffrey: i think valuations are still a concern. in, of the risks are priced

so you really have to worry about politics for now, where is the discount coming from, right? tom: jeffrey, renminbi gives way. we have a $6.90. do we see seven dollars soon? geoffrey that is the $300 question. is a classic case of nothing to see here when there is everything to see here, so they are worried. tom: ok. geoffrey yu with us. we will continue the discussion and dive into the international economics of geoffrey's world hero in a little bit with davide serra. coming up, she was the secretary of commerce in illinois, penny pritzker. look for that in the 5:00 hour. taylor: -- this is bloomberg. ♪ ways wins.

especially in my business. with slow internet from the phone company, you can't keep up. you're stuck, watching spinning wheels and progress bars until someone else scoops your story. switch to comcast business. with high-speed internet up to 10 gigabits per second.

you wouldn't pick a slow race car. then why settle for slow internet? comcast business. built for speed. built for business. francine: this is "bloomberg surveillance." we are getting breaking news the netherlands.

the next potential risk to europe, a netherlands exit. we have into europe and euro politician who is just been but hasilty in court not been defined yet. this is significant. he has been found guilty but we do not think this will have an impact on the popularity back home. and of course, he is leading in the polls. elections in the netherlands are in march. so this is extremely significant as we look at the next potential victim of populism in europe. election is in march. let's get to the first word news. we start in south korea by the first female leader there has been impeached over a corruption scandal. the president has been suspended. the constitutional court will

decide in 180 days whether to remove her from office. of protesters protested against her outside the national assembly in se oul. the house has approved a spending bill that would keep the government running through april 28. democrats want the final version benefits ofealth retired minors. if they block it, some offices may be forced to close. who becamea war hero the first american to orbit the earth. john glenn has died. in 1962, his orbital flight revitalized the american space program. he spent years in the senate and ran for the democratic nomination for president in 1984. he became the oldest person ever

to go into space. john glenn was 95. david westin was great about this earlier this morning. you can do no better than the obituary in the new york times today. glenn't just about john but it is about the time that he identified with. yesterday, the supreme court wrapped up a four-day hearing on the case with a diverse group. their goal is to force the government to pass a new law that would require parliament to vote on president before the u.k. prime minister can trigger article 50. and -- withfrey yu us. when you look at the different scenarios, what have we actually learned?

that it is complicated and nothing is certain? it beingthe chances of overturned? slimthink the chances are that it will overturn the high court. although i should say that it will be very different from the high court. the high court was about a certain group of individuals who are bringing a challenge. but the supreme court case was heard about the rights of children and ex-pats in britain. scotland, wales and northern ireland. so it is completely different. francine: when we say this is not political, do we believe them? jo: absolutely. this case will be decided on the correct procedure. that is the only issue at stake.

francine: let's talk what we about the markets. earlier we spoke with anne richards. meanswe know that brexit brexit. we have accepted that we may have to pay for the cape -- the cake, if we want to have it and eat it too. francine: to eat the cake? that matters less. if you look at sterling, as we go towards a hard exit, the are expecting more twists and turns to come. francine: as an investment professional, how do you deal with this? can you just be certain of one thing? that more volatility is to come? >> i think the question is

whether we will be in the single market. everything else is irrelevant. that will be positive for sterling. and it would be a big political issue because we end up having tom: i love the photograph in the financial times of the prime minister. how is the prime minister doing? francine: we think she is still in the gulf to do trade deals? well, in relation to brexit, she has a couple of concerns. ago, sheew months

controlled the narrative but works it was not hers. a month ago that changed with the high court decision and i think it is likely to change again when the u.k. supreme court rules. so there is a counter narrative building up. up -- we may have the question where it can't be the status quo. i also don't think that a hard brexit is possible. some will have to be shifting of grounds and some compromise. and we don't, as of yet, know what that looks like. tom: ian bremmer suggested the big mistake is to look at brexit as a next year view. is it really a 2018 story? i think it could run for the next decade and a half.

if and when article 50 is triggered, there are two your windows where negotiations need to be concluded which would take us into 2019. and the consequences will take is way beyond that. francine: what is the one thing that the markets underestimated? trade? banking, manufacturers leading the u.k.? geoffrey: out of all of those, trade is the issue. as we mentioned earlier, there is a risk because if you look at it is down so in that context, we do run the risk of a more insular america which is as of no benefit to the rest of the world. and then financial risks come through as well. leavene: will bankers

london? one day they are all leaving and the have signed leases and next day -- we can't find good schools for our employees, so we are staying? davide: it has to do with the framework. the ecb will require tougher capital, it is inevitable. secondly, i think you will see lots of activity with the passporting which will have to migrate on short in europe. -- if she keeps going with a hard brexit, it will be inevitable. see what happens. the bank of england has only 6% of reserves and we're running a current account deficit of 5-6.

the pound could keep on falling and that will lead to inflation. and that doesn't look good. tom: some of the u.k. dynamics are where we get into the path for sterling. professor, thanksion you so much. next week, a mystery. on wednesday. special coverage and our team is working on a wonderful set of guests's right now. and the certitude of a rate hike. this is bloomberg. ♪

francine: this is "bloomberg surveillance."

let's go to south korea. south korea's parliament has voted in favor of impeaching the president. let's go straight to the national assembly. what does this exactly mean for the president? well, it means that the president will be suspended or has been suspended and the prime minister takes over as the interim leader. minister said he will ensure the government runs normally and they will take steps to stabilize markets if necessary. he will hold a national address in about 15-20 minutes. meanwhile, the president or suspended president, has to accept the voice of the president and apologize for causing national confusion. what will happen next is that goes to because usual court to be looked at and six out of the nine judges in that

need to approve the motion to go forward. if that happens and they have 180 days to do so -- if that happens, presidential elections will be held in 60 days. --s whole process could pick could take as long as it will be a much shorter process. we could see her come back and we could see a big flooding of public anger against the president, and also against what is at the heart of this matter -- what they see as the close ties between big business and government, and the anger that has fueled in the country. francine: that was rosalind chin. thank you. and you look at the political turmoil, how much of an impact will this have on markets? the bigger move, it is my chart here. the premium over south korea. we are back at 2004 levels. this is not linked to the president? is about ultimately it

the economic trajectory of the country. if you go back to the hours and when it became clear that -- was going to win the presidency and it reacted,t how mexican peso is the big loser and south korea won. why? because fears of de-globalization with u.s. leading the charts, south korea is the currency to globalization. you have that discount in there which is a big discount. u.s. rates going up. important much more right now. if anything, it is the new governments responsibility to manage the relationship with the government and the corporate sector. francine: could this be seen as a positive for the one? has actually been

priced in for the export economy. still, the weaker it is, the better it would be for the economy. tom: here is the charge, speaking of the international relations people that we speak to on "bloomberg surveillance." this is world bank korean gdp. gdpaverage line of korean is a stunning 7% through the korean miracle. and geoffrey yu, there is the recent rollover we have seen. some of this tension comes over to the north with north korea. let me ask you how president trump will deal with south korea and the turmoil there, but particularly, does mr. trump understand the dynamics of north korea within the northern asian sphere? that is oneght now, of the countries that he hasn't really commented on. i know it was mentioned during the campaign but ultimately, from south korea's point of

view, their biggest fear in the north korean context is -- will the u.s. pullout troops of the region? that is the most important. active u.s. in trench met on both a trade level and a defense level from the regent then that upped the stakes. that might embolden north korea to advance its intentions. it remains to be seen. us, geoffrey yu is with ra ased sara -- davide ser well. we have the chief executive officer of mgm. and the future of mgm. this is bloomberg. ♪

tom: we're thrilled you are with us on a friday. what a couple of weeks it has francine's trip to rome. we are getting ready for a weekend of reading to try to frame the year. all of this after the drama of italy early this year -- earlier

this week. the elections in the netherlands in march is just one idea. over to the corporate world, in the bloomberg business flash, here is taylor riggs. taylor: opec will discuss production cuts with nonmembers of the cartel tomorrow. -- russia hasan pledged to actually lower the output but some other non-opec countries may portray in voluntary production declines as cuts. u.s. regulators investigating the volkswagen scandal want to know if evidence was destroyed. they want to question executives in the u.s.. 23 mobile phones linked to the cases were lost or wiped clean. volkswagen has repeatedly said top management was unaware of the issue. and donald trump will only become president of the united states next month and will also be an executive producer on the

new "celebrity apprentice." the new program begins 18 days before donald trump is sworn in. the publication "variety" will probably paid in the low five figures per episode. presidentthe italian is holding talks with political parties to try and find a solution and form a new government. he may announce the minister for the new government on monday. this is on the back of renzi who had campaigned on trying to tender his resignation twice because he lost that vote. yu's get back to geoffrey serra.ide -- will he stay or will he go? he keeps them guessing because the new president might choose

him to form the new government? the reality is that italy needs to keep on performing and needs a clear-cut clear-cut election oh law. other country has in europe. and most importantly, we need an election law that has different majority so it is impossible to govern. they need a new law. francine: we were trying to figure out whether the electoral law is seen as a direct movement , it is actually in the next 6-12 months, there is a chance movementeurosceptic could get into power? said, for the banks, it really resolves around him. the risk of nationalization, the 500 billion -- so

worst-case scenario, it is a forced conversion. and that will happen in the next couple of weeks. the ecb deadline is by year end. government, of the they want a representative that is proportional, and with a proportional law, with 35% of today,es and no more -- people, if you ask, do you want to stay in the europe, 65 percent of people say yes. so, you know, these are the facts. tom: i'm looking at the bloomberg screen. what do these italian people think about a minority ownership the banks? and what will be the response of the people of italy? think the majority of

italians over the last 80 years have been depositing 5% new deposits each year into the banking system. so this is very different from greece where people were taking money out. secondly, the issues are concentrated. you have 10-15,000,000,000 euros issued. 30%, they will find plenty of capital. and then i think the banking crisis goes down. march, you'red not in the italian banking crisis any longer. tom: geoffrey yu, i will do this as delicately as possible. any kind of lire depreciation, can there be a middle ground? or is it a toggle switch between

the euro and lire or can there be some form of middle ground on depreciation to assist italy? geoffrey: greece has gone through the middle ground. do domestic and internal devaluations, that is the middle ground. however, not to the extent that greece underwent. because you run the risk of doing too much and then you can never recover. iswith a 5-20%, that acceptable. that is the middle ground but it has not been tried yet. francine: many italian politicians have taken an objection to talking about the lire. happy birthday. it is a gift made in italy, and it is a tie. , a real time?

you come tohen when london, you can actually wear it. [laughter] francine: it is actually the same tie as davide serra. tom: you know, i haven't worn a tie since the first time john lennon was in space. first time john glenn went to space. send it over. thank you so much. greatly appreciated. [laughter] tom: geoffrey yu, bring a gift next time. [laughter] tom: stay with us. this is bloomberg. ♪

tom:: at a global adjustment. this morning, the trump reflation continues. the 30 year bond breaks out into

a yield. continues.melt up we dare not speak the name. dow, 20,000. a complete and total collapse. in this hour, shannon o'neill on the council of foreign relations -- an update on venezuela. world live from a headquarters in new york. i am tom keene to with me, francine lacqua in london. into the weekend, and there was just the news out of the netherlands that shows the tumult as we go into next year. francine: it speaks to a lot of the banks. they are coming out with a 2015 outlook. it is clear that what they are putting up there is populism. we just saw one of the most popular politicians in the netherlands -- remember, they vote on march 15 -- saying he has been found guilty of abusive name-calling. but he still remains popular.

we will see what that means. day, something on the populism that we see in 2016. right now, on south korea, here is taylor riggs. taylor: the president of south korea has been impeached. lawmakers voted overwhelmingly park june hey -- geun-hye park from office. powers have been suspended. a constitutional court will rule on the impeachment with in 180 days. as you were mentioning, francine come in the netherlands, the court has convicted anti-islamic official in hate speech case. his party for freedom has been rising in popularity. president-elect donald trump is talking tough on china again. he spoke at a rally in iowa,

saying that china is not a market economy and does not play by the rules, but it will have to start. trump: china has been so tough and so competitive, and frankly people who did not get it. but i tell you what, we will have mutual respect. china is going to benefit, and we are going to benefit. taylor: chinese government media called trump's phone call with taiwan's president ill-advised. for a 16-nation deal on ahey had agreed decision with small and medium-sized companies so far. there is new urgency to get this agreement approved. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine? tom? into friday, into the

weekend, it is the oddest noncall related data check. there are strange things going on. row, and it is fascinating. up two basis points. nymex crude up 51.26. vix, the chip and 10-year yield is up. it does not have convexity yet, but you wonder where the japanese tenure -- with a japanese 10 year is going to be. francine: a lot of things are disconnected because there is a lot of news going on, but it is not always correlated. oil rising for the second day. a lot of the financial markets also are pausing after the rally we saw this week with european stocks the much unchanged, euro-dollar 1.06. i had to show you the korean won.

because president park of south korea has been impeached. we have seen hundreds of thousands of protesters on the -- we have seen many thousands of protesters on the streets rily protesting. tom: let's go back to the united states of america. this has been an amazing chart that i stumbled on. michigan confidence and expectations. morning in america is on the left. that is ronald reagan in the 1980's, and the peak of confidence in the 80's or then we go through a number of decades. the reda 10-year is line. look at the lift in confidence and where we are over on the right actually is in excess of mourning in america back in the 1980's. confidence spiking up, of course, with the changes that we see coming to washington. it is a good time on a friday to

speak with steven wieting of city private bank. many more than any of our guests, he links corporate profits into the greater economy citiow does that again for private bank. once again, people confounded by corporations and mint money. n: for a start, there may be more of it going forward. expectations are higher, and on the corporate tax front it is going to be a very interesting story. we have to consider if some taxes go up, if some taxes go down. what we really know, what we guess. in general, we have been starting the period here in particular were the only big industry in the world, the point -- that people admired, the petroleum industry, has been coming out. production has been picking up drastically.

we had an investment collapse, and this is all about reduction in future supply. that makes higher profits. tom: from your view, which is a twisted view versus security analysis, will we continue to ?ee margins come down is that going to continue? isven: as long as there growth, you can actually pay more. you can have higher labor costs. but if you are recycling that in the economy and that money gets spent and you get a faster growth rate, then you persist at high margins. billing some headwinds, and interest costs are no longer declining. -- building some headwinds, are not costs longer declining. if you can achieve a stronger growth rate, you can persist at higher margins. francine: steve, what is priced in?

we look at the scenarios for 2017. is all the good news already placed in? up untile have been this election pricing in slow growth, but tremendous stability . that going into the year, all you seemed to need was low interest rates, persistent slow growth. now you have tremendous policy uncertainty. a great deal of the expectations are positive for growth stimulus, large tax cuts, possibly spending declines in the regulation. but great uncertainty as to whether there will be more turmoil around this. there are risks. there are trade disruptions, these sorts of things. right now the expectation is of greater volatility. you can see this in the outside markets besides equities, where you can see expected interest-rate volatility has surged. but you also have at the same time, trying to outdistance any of that with expectations of stronger growth. francine: what does that mean?

is your best bet for 2017 volatility? steven: it certainly is volatility, but i would say this. in the united states, i think you have a high-risk strategy of stimulating late in an economic recovery, but i think there is a very high chance of working. there have been lots of things that have held back the american economy, and this year even before the election we were seeing optimistic signs about the endurance of the economy. so i think we have a good chance. we have stayed fully invested in u.s. stocks. we have taken down our readings outside the united states, where this big massive surge in u.s. borrowing is going to come in at the expense of borrowers and currency a broad. tom: i'm glad you are here. john glenn died at 95 years old. bring up the chart, if you would. we have shown this chart before.

we have john glenn prospered here. we have him flying combat here,ns in world war ii flying combat missions in korea. friendship 7. then he waits forever because jfk was afraid he would be killed in space, and he gets back up into space about right here. and of course the senate service at 24 years. the whole death of john glenn is american exceptionalism and american capitalism. do you and the citigroup team have an optimism on the resiliency of that, given the political dynamic we are in now? we have an optimistic view on the resiliency of the american economy. i think you will see political risks outside the united states first. you were just commenting on europe. the fact that the political cohesion between countries is more important in the eurozone than it is in countries where there are currencies, whether it is the u.s. or the u.k., for

example. if you pull the pendulum in one direction, expect it to swing back and the other direction. this moderation, getting a candidate and policies that hold everybody to the center, that is out the window. tom: are you fully invested right now? steven: yes, we are fully invested in stocks. we are overweight on cash, and some underweight positions in the eurozone. tom: very important with the 30-year yield breaking out. we are going to come back with steven wieting. we will have some terrific coverage. david myers has come up with a great set of guests for the fed meeting. i believe scarlet fu will let me appear on camera rid the fed decides at 1:00 p.m. on wednesday. from london, from new york, this is bloomberg. ♪

say,ine: i was going to the beautiful london, for your birthday. not so much. it is a little bit gray and a little bit miserable. it is december 9. we are expecting an inflation pickup in the next year. this is probably one of the things we have not seen but that economists are worried about. let's get straight to the "bloomberg business flash." taylor: we are sticking with inflation now that you mentioned it. at thea, inflation wholesale level rose by the most in five years. it exceeded all estimates in the bloomberg survey. china's consumer price index rose 2.3%. the insurance company is holding a little within a billion dollars in the u.s. ipo of the

year. it is valuedice, thene.4 billion, a president-elect donald trump plus team plans to shakeup energy policy. keep 18visors want to nuclear power plants online and identify staff members who helped promote president's climate agenda. tom: we have to start getting ready for the fed meeting. i know, it is boring. percent a 142 likelihood that they will raise rates. steven wieting is with us from -- the dots are the same as they were. up, down,be amended sideways, whatever.

what has changed is this redline. this is the lift up of the vigilantes. with a vengeance here since november 8. steven: the market going to the fed versus the fed going to the market. tom: we are doing orchestration here. the ventilation -- the vigilantes are bought up. is that good or bad for chair yellen? steven: i do not think the fed wants to be speculating on what congress might pass when in terms of stimulus for the u.s. economy. they will take a fairly cautious approach and react to the incoming data with some expectation in mind, and they will certainly have an outlook that will change as fiscal policy changes in the united states, but they cannot be certain to say let's tighten -- the presse bombshell is the bombshell

that she will be defraying new rate hikes at the beginning of the year? steven: look at what happened in december of last year. the fed in the past often did not do december rate hikes. that was the question last year, when they started to talk about very traditional interest rate hiking cycles, and getting up toward the normality, and the world was not ready for it. this time i think the world was much more ready for it. we are not having another collapse in the petrodollar investors set. at the moment it does not seem we have as much volatility. but there is still some. tom: the two-year yield has it. the acclaimed lollipop chart. francine demanded i do this for my birthday. we have not seen the two-year yield make a new leg higher. that would be a huge deal. francine: you make me sound so mean.

i make you do my chart on your birthday, tom. we will talk about that later. looking at the w.a.r. p -- at rp function -- if you look at global central-bank monetary policy but you have the fed normalizing and the rest of the world is not, this goes against what the u.s. needs right now, even if you are having strong footing. steven: in many respects the dollar will help. streamings inflows upward pressure on inflation. if the dollar continues to outdistance any rise that we get in inflation, it will mean that we will link or leak stimulus outside. that happens to be bullish for many others. take a look at mexico, where the currency has collapsed but they

still trade with the united states under the same terms. they will improve their terms of trade. it will help exports to the united states. it will limit the effect of but it will also limit the inflationary impulse in the united states, which could be destabilizing. tom: steven wieting is with us from citigroup. next hour, weour will spend some time with shannon o'neill of the council on foreign relations. that is always a good thing. it could be on cuba, but we will really focus on the struggles of venezuela. from new york and london, a on myful new york birthday -- what can i say? this is bloomberg. ♪

lacqua in london. i'm tom keene in new york. it is a friday. we want to look at what is going on with the fed meeting but also the bigger picture as well. there was a terrific volume on populism a couple weeks ago. i read fareed zakaria's lead story, and then i turned to shannon o'neill, definitive on mexico and forceful on the rest with latin america. we will talk about mr. trump in a minute. wonderful to have you here, shannon. where are we in the fallout with a collapse in venezuela?

shannon: we are still collapsing and it is hard to see it going further, but i think it can. we are seeing the currency spike up for it is triple digit inflation and we are seeing in the free fall, the black market take new york from the official exchange rate. the real challenges you have a government firmly in place that has control of all the guns, so it is hard to see a political solution to this economic robin. tom: this chart is painful. bring it up right now. i want you to notice the red circle on the left. i did this this morning. steveas in honor of hankey of johns hopkins university. the red circle is zimbabwe inflation of 2008. it is worse than zimbabwe. how did this guy stay in power? is aon: the short answer military dictatorship. he has the guns. the other side is many of his government have become true klepto kratz. if they get kicked out, they go

to trail -- they go to jail. francine: what do you mean by intervention? i was trying to figure out what questions i was going to ask you. about actually talking humanitarian aid now. does the country needed? shannon: the country does needed. we saw a dialogue led by pope francis. we had some members of the government coming to the table. one issue was with a let humanitarian aid in? even though made duress -- even sough madura promised to do he led the opposition away from the table this week. francine: so what happens? are we going to see revolt? how do you get out of this mess? shannon: this is the big question. one way would be some sort of consensus. you find some people within the government that would join with others in the opposition.

but i think that is really unlikely at this point. do is hangduro can on until the next set of elections. with your expertise on mexico and of course venezuela, is it oil to the rescue? oil to the is rescue. prices are picking up, so that will give him more of a lifeline than six months ago. tom: where is citibank on oil now? $60 on average. you look at some countries, there is no oil price that is high enough -- enough to pay for food. tom: where are the adjacent nations. we will talk about mr. trump when we come back, but where are the adjacencies for venezuela. assisting? is mexico assisting? shannon: all of those are much more hardline against maduro

than in the past. but they need a galvanizing force. is a trump administration someone who is going to put pressure on maduro or not? tom: i did not have to say anything from my script. she just said it for me. we are going to come back and look at the president-elect and the idea of -- we are not going to pivot to china or look at the disaster that is europe. we are going to look at latin america and donald trump. the 30-year bond has my attention. 3.13%. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. tom keene, in, ton new york. taylor: the south korean leader

has been impeached due to a corruption scandal. she has been suspended. fueled public anger over ties to politicians and business. thousands of protesters protested against park outside the national assembly in seoul, korea. democrats are considering whether to risk a partial shutdown of the government this weekend. houses approved a spending bill -- the house has approved a spending bill that will keep the government running until april 28. democrats want to protect the health benefits of retired miners. president, xi jinping, says he is certain the country will bring together his economic and social goals this year. the communist party says the

next year china will further open the economy and try to attract more foreign investment. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. francine? tom? tom: her book is "two nations individuals -- "two nations indivisible." shannon o'neil is with us with the council on foreign relations. steven wieting is with us from citibank as well. shannon, as we see the president aect come in, there has to be development of foreign policy if we can ever find the secretary of state. ok. what is your recommendation of the new new policy that a president should take? some of the recommendations, particularly in the region i look at, in latin america, is continue many of the

things the obama administration has been doing. reaching out to these countries, finding commercial agreements and partnerships on the global stage, bringing these countries into the overall dialogue because they had not changed over the last 20 or 30 years. most of latin america are democracies, stronger stronger -- - you and in wieting, know that when everybody is wrong in this racket, you try to go back and remember and study it. there is tom, way wrong. over thei get wrong brazilian real. i did everything wrong right here. there is the strong brazilian and for years and years years. that is how latin america can surprise you. can, and the external side is still powerful. spending lots and lots of savings, lowering their interest rates, and the opposite can

still happen. even with a better government. me aske: shannon, let you overall about south america. there is a wave of populism we are seeing in our western democracies. let's call it populism. with the election of donald trump. is it the reversal in south , that there were populists in charge for the last 60 years, and they are now becoming more like western democracies? shannon: it is almost as if latin america was leading this wave. their populists came in in the late 1990's, early 2000's. not unlike the rhetoric we heard in the last campaign in the united states, and that brought them in. the other thing best support the populists was a huge commodity boom at the beginning of the 21st century. that information you put up there, tom, shows that benefited brazil andat argentina really benefited.

with the profligate spending of these governments, they are having to retrench and be more pragmatic with more market friendly leaders coming in. for right now, this really is perhaps the most stable political area, with some exceptions, in the world today. francine: are all countries reform of? -- are all countries reformable? a more stable brazil in 2017? in 2017 i am not sure you will see this, but you will see it in the next five years. we saw just this week a standoff between the court system and the head of the senate as the court system tried to remove the head of the senate on corruption charges. that is still playing out. brazil has presidential elections in 2018 -- in 2017. tom: remember the day where

shannon ascension -- member the day when china essentially bought cobalt, a percentage of the cobalt that they used? china and your latin america -- i do not know if mr. trump is aware of that, but that is one of those exotic and us realities -- of one of those xi jenness -- shannon: china has been moving in, pledging to invest $250 billion in foreign and direct investment over the next several years. they have also been instrumental inpropping up governments venezuela. they come in, write a check, and ask for oil in return. role there.ig --na may come the lender china may become the lender of last resort. francine: stephen, are these emerging markets investable? steven: they are.

over weights are in latin america. that chart above which show that currencies were crushed, but the commodity collapsed and interest rates and spreads rose. it would be the opposite of a german chart, for example. only this year did we moved to overweight in latin america with fixed income. and start to take a more positive view of emerging markets. we also think that substantial risks have been priced in latin america, but not necessarily in asia. so we shifted toward latin america. when you think about the , withped markets politics latin america leading, part of this issue is that politics in the developed markets in europe and the united states and elsewhere are becoming less protectable. there is less of a premium of politics for developed markets. francine: you have absolutely no doubt that even if the fed were

to tighten by two or three times next year, in emerging markets in this part of the world, but also asia, would also withstand it? steven: they are already set back of it. this is not a challenge to emerging markets at all. there are some sensitive emerging markets with extremely low u.s. rates and a stable dollar are necessary. vulnerability is not quite as bad as we were looking back over all. would be remiss not to mention the history of cuba over the last few weeks. just very quickly here -- what do we need to do to assist cuba to a better prosperity? shannon: we have opened up to cuba, and that has been -- there are questions whether the next government will keep that opening and extended or not. cuba's prosperity depends on cuba. this is what they had to do internally. castro, the last cast --

growl castro -- raul castro, the last castro standing that she has taken steps, but it is really up to the cubans. 30-year bond out to higher yields today. in any discussion on the nations technology, bloomberg technology this afternoon. the secretary of commerce on the view forward for our innovation and entrepreneurship. comell be a new washington january. this is bloomberg. ♪

francine: this is "bloomberg surveillance."

as always, francine and tom from london and new york. let's get to the "bloomberg business flash." taylor: opec will discuss oil production cuts with nonmembers of the cartel tomorrow in vienna. among those attending, russia, sicko, has asked on, -- russia, mexico, has expand, azerbaijan. investigatings the volkswagen emissions scandal want to know is evidence was destroyed. questionants to executives in the u.s. 23 mobile phones involved in the havehave been found to been lost or white screen. donald trump will be the executive research on the new celebrity up this per the tv program begins 18 days before he is sworn in. he was once the star of the

reality show. "variety" says he will probably in low-price figures for the episodes. shortly, coming up "bloomberg daybreak: americas," with david westin and jonathan ferro. it is friday, the friday before said. the story is the virgin monetary policy. we will discuss that with ellen zentner. she is with morgan stanley. on tom keene's birthday, joining ceo.day, mgm resorts macau toly to celebrate the weekend. you are missing out. tom: it is amazing. i got this lovely birthday gift from my team, and these are jon

ferro roche chocolates. i have not had any yet because they are 90 proof. sending you toe be chinese ambassador, tom? that is your birthday present? tom: therefrom the ferro heartland. sendingld you imagine tom to beijing? tom: it would be frightening. joining us now, someone with his sowerby.wed on, david theerday, david, for first time ever on air, i framed at 20,000. we are at a new place in this bull market, archway? david: we certainly are, but i am tilted offense -- overweight stocks, overweight credit for balance for folios, generate

high single-digit returns. there will be a time not to be bullish but i think will markets do not die of old age, they die of mistakes. big you are great at the cap, mid-cap, small cap mix. how has mr. trump change that makes? do you go trump multinational, or mid-cap/small cap? david: you want a healthy overweight small admit cap stocks. in theove the needle right direction for animal spirits and growth, that should be more beneficial to small cap earnings that will outperform large cap earnings. i am still finding plenty of small and mid-cap stocks that are generating above average free cash flow, and that makes you want to stay in the small caps healthy. can you not see the small or medium caps that are a lot more volatile than the

bigger cap's? in the u.k. they are much more sensitive to currency swings and things like that. they could go higher, but there is a bigger risk. david: always a bigger risk, all the way back to the data from the 1920's. more volatility. if you pay heed to the cash flow generation from those companies and look at the ability of the companies to be good generators of capital, good stewards of capital, and you lean to the value side within the small cap area, that is where you will find the sweet spot, even though value stocks have had a tremendous move since spring of this year. francine: this is what you're focusing on, small caps. david: we focus on everything, but small caps are a great place to be. francine: stocks or corporate bonds? sorry, tom. tom: go ahead, francine. francine: stocks or bonds? david: stocks. tom: i am going to guess citi

has a much more multinational view. steven: we are equal at the moment on small caps and large caps in the united states market. abouto you think corporate tax reform and how much expectations for domestically focused stocks have risen, including wall building stocks? david: sure. the needle is moving in the right direction for fiscal policy and tax policy. maybe curb your enthusiasm, as it is going to take a while to happen. but when it does happen, we know the market as a discounting mechanism should be better for small caps relative to large caps. tom: i am going to rip up the script. we have -- i think of meredith whitney and her call on pension plans -- the shock of dallas. dallas has fallen apart. they are limiting withdrawals from pension plans. what will be see from our public sector pension plans with new actuarial assumptions next year?

publicthe average pension probably has an actuarial assumption rate between 7.5 and 7.75. 6.75, you have to stretch offense. tom: that 7% number is a fiction, right? steven: it is certainly taking a lot of risk and a good chance that you do not make it. at boston university is down here at 2.3%. steven: i hope we are talking about inflation-adjusted. where is the actuarial assumption, gentleman? david: short-term it is going to be tough given the low yielding bonds. you have to tilt offense to get 6.75 range.

if you look at the rolling rate of return of the s&p 500, it usually does not go below 8. tom: thank you so much. david sowerby will continue with us on bloomberg radio. getting fired up about the actuarial assumption. the actuarial flightpath of my birthday. i think i am at the point where the actuarial tables -- there is a kink, if you would, where i am. francine: 25 again, tom. tom: please. how about 49? i will take it. we will look to december 14, wednesday, and our special fed coverage. that will be an important press conference with chair yellen. this friday. stay with us. this is bloomberg. ♪

tom: bond market on the move. foreign exchange -- it is there this morning. the yen weaker. , mid range.gth here thank you, geoffrey yu of ubs.

francine? francine: it has been a next ordinary week, tom, and the "bloomberg surveillance" team would like to wish you an extraordinary birthday. -- forgett about the about the corporate tax rate. ambassador haass, it was extraordinary the other day. francine, this is an extraordinary chart. thank you so much. that will be asked ordinary visit. we are extraordinary on the five-star movement it is extraordinary. extraordinary, extraordinary, extraordinary week. francine: tom, happy birthday. we are not going to get -- bowties, right? absolutely extraordinary. tom, we thank you for your enthusiasm, all year round.

we also found the next ordinary photo. tom: oh, no. that is mikey myers out front. i have my head cut off a little bit. i was 19 years old. there we go. i was 19 years old in that photo. francine: happy birthday, tom. tom: morning in america. forget about morning and my birthday. steven wieting is here. we looked at this chart. steven wieting, you're good at this. mr. trump is selling a message. it is a new america, we are going to make america great again. we know a certain part of america is doing great. what do we do about income inequality when we look at where productivity is? i do not get how we get there. steven: i think unfortunately a lot is missed in terms of what technology does to employment. this is not just manufacturing

jobs. you go back and remember when you had telephone operators that had to connect you from one person to another. that is another birthday reference, i guess. but itogy destroys jobs, basically frees up resources to do something else. we have to be able to do something else when technology gives us that chance. tom: here is the proxy for it. this is apple computer back a decade versus the s&p 500. the s&p 500 is that itty-bitty yellow line there with some nice gains. but apple is a proxy for technology. steven: that is the winner. you can find computers, companies that went to zero because of apple's success. this is how it is done, and that is going to happen to individuals. that is why we have a social safety net if people make mistakes and try experiments

that do not work. in the aggregate, we are making improvements in technology that destroy jobs. can print manufactured goods, you have to say i am not going to do that by hand anymore. francine: is there a danger in saying that this is not a globalization problem but a technology problem? of u.s. is at the forefront every technological advancement for 60 years. can a trump administration slow backdown to get the people to higher income levels? steven: i do nothing that is something that they are focused on or are trying to do or will do. people have hopes that you can bring back some simpler function that they used to do. that is a falsehood. tom: steven wieting, thank you so much, from citigroup. i have to thank francine in london, the team in london, and particularly a thank-you to our

surveillance executive chef. his name is chris. i would like to thank all the team in the control room. anymore,control myself but the control room -- francine: tom, we wish you an extraordinary birthday weekend. back on monday. tom: willem buiter would allow you to have that. >> happy birthday, tom! >> happy birthday. ♪

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jon: good morning, and welcome to bloomberg daybreak. in the equity markets, all time highs across the board. there futures up 32 points. market, confusion yesterday. the euro weakness is the story now. here is what you need to know at this hour. u.s. stocksagi, at record highs in mario draghi announced the extension of the central banks bond buying program until the end of 2017 but at a reduced paste. he trump administration taking form. attacking china vowing that of a laugh to play by the rules. the same time his appointment points towards his promise towards deregulating much of american business. even if opec convinces nonmembers to cut their rates the group may not be e