francine: making america-again. , withmc meets anticipation for its first rate hike of the year. oil declines as investors await the fed decision. is its banking industry own biggest risk, says the hsbc chairman. we bring you that exclusive interview. this is "bloomberg surveillance." i am francine lacqua in london. as the fed finally hikes -- or so the market expects, fully priced in -- we have guests to inform your investment strategy

over the next 12 months. hildebrand is former president of the swiss national bank. we will get his investment outlook for 2017. after a year of sluggish growth, low interest rates and mounting regulatory pressure. could the worst be over for the banking industry? we asked the president of the bank -- of the institute of international finance. and we will interview the chairman of europe's largest bank, hsbc. at your markets. this is a picture of european stocks retreating a touch before the fed decision later this afternoon. it seems that caution is prevailing on the markets. this is what we are seeing, european stocks dropping. crude also retreating on industry data showing stockpiles actually increased. let's get to the first word news. here is nejra cehic. nejra: goldman trading at a 10 year low ahead of the hotly anticipated interest rate decision. investors are expecting policy

makers led by janet yellen the central banks first type -- hike of the year, with records for the dow close to the 20,000 mark. speaking of bloomberg, former chairman alan greenspan spoke of deflating a bubble. allen: we have a bubble which is now in the process of deflating. it is got a way to go and going to affect the outlook quite significantly. so this is different. ,e have had so few stagflations we do not have enough models to go on to see what could happen. nejra:: sax plans to appoint harvey schwartz and david solomon to succeed gary cohen, to take a job in the trumpet ministration. the newspaper also said goldman is likely to name a technology chief to replace schwartz as chief financial office. jeffrey goodlett has said

interest rates naquin 23% on u.s. treasuries by next year as deficit and inflation rise under a donald trump presidency, a move that would hurt markets. whochief investment officer has called the policies "bond unfriendly" says the effects will be felt across the u.s. economy. benchmarks are currently trading at close to 2.5%. confidence among japan's large manufacturers improved for the first time since june last year as the weaker yen improves prospects for earnings. to an outlook up to eight from six. however, a five point 8% increase in plant business investment for the current fiscal year was below estimates. global news powered by more than 2600 journalists and analysts in more than 120 countries. today is the day. european stocks a little lower ahead of what is widely expected

to be the fifth first and only rate hike of the year, only because we are in december. my guest, as well as being vice chair of blackrock, is the former chair of the swiss national bank. as always, thank you for coming on bloomberg and coming on surveillance. give me a sense of whether this is a little too late. we started the year by saying three or four hikes. we are in december and this is priced in. what comes next year? philip: i think it will depend a lot on how these policy initiatives get articulated. this is an economy that is now close or perhaps at full employment. there is not much of an output gap left. and likely, you are going to have a number of stimulus measures to come in from tax cuts, fiscal policy, deregulation. i'm sure that on the one hand, the fed is pleased that finally this recovery that was initiated long or donald trump was elected is now in place.

it looks like it might get accelerated. on the other hand, they have to worry that they do not fall behind the curve. you take it one step at a time and see how the measures francine: involved. i guess they were waiting for the whites of the eyes of inflation, especially in wages. philipp: with monetary policy, you never know whether you are right or wrong until many years after the fact. it will depend on how policy evolves. it is no longer just data dependent. we are in a world where much of it is also policy-dependent. especially the tax cut side and the fiscal interests. francine: the last six months, we had a lot of theories whether the fed is too transparent, whether it should become a little more like the mpc in the u.k. do we care about the dots? how should monetary policy be communicated not only to the markets, but to the person on the street that has a mortgage? philipp: i never particularly liked the dots, but they are there.

they are an indication of how individual members see the world. they are not a collective forecast. that is what is important. sometimes, perhaps, they have been misinterpreted. they are what individual members think. as you can see very nicely, when the data evolves, when policy evolves, they move. it, quitesee on nicely, is that we have been in this kind of inflation trend for quite some time before donald trump was elected. i think that is an important backdrop to what is going to happen in the future. francine: have you ever met a politician who wants higher rates? donald trump keeps saying he would like higher rates, but we have heard from one of your colleagues, when you are in charge, the last thing you want is an interest rate that goes up against you. philipp: i think what you want -- you want this recovery to be sustainable. remember, this is a recovery that is in place.

remember, this is a recovery that is in place. it is going to get fueled, most likely, from policy measures. you want to make sure it does not run away from you. it seems to me that one of the most important elements of this strategy, to the extent that there is one, is to make sure monetary policy is allowed to respond appropriately, so that you do not end up in a kind of paradigm which would be very bad news. shoes,, if i were in his the one thing i would really pay attention to is, you let the fed do the normalization that is required based on the amount of stimulus that comes into the system. francine: do you think we are at the end of monetary policy in terms of how much is left in europe and the world? if you speak to any central banker, they say we have a lot left. philipp: there is always more you can do at the margins, but i think what is also clear is that you have the kind of cost-benefit analysis that looks increasingly problematic. and the key is to get growth back. and frankly, the key is to get higher rates in a sustainable way, because our entire financial system really does not operate if, in the long-term, we

end up having this very low nominal rates. you think about pension funds, insurance companies. we need higher rates, but they need to be driven by better growth prospects. that is the key objective. when we say monetary policy has come to an end, that is good news, in a sense. francine: i am not necessarily thinking about the european central bank, that if we think there is a wave of populism, or people feel the inequality, what role do central banks need to play in this? you target unemployment instead of inflation. philipp: first of all, you do not want to target too many things. that is the key. francine: that is fair. philipp: monetary policy, the way it had to be conducted, because of the extent of the shock, has brought a number of unpleasant consequences. the rich got richer. those that hold assets benefited from quantitative easing strategies. that is one obvious one. there are others that have been unpleasant.

but i think you always have to look at this in the context of what would have happened had the central banks not been decisive. i think the outcome for populations as a whole would have been much worse. that is a hard thing to communicate, which is why i think it is very important that central bankers continued to explain that they did not cause the low rate environment. they reacted to a very deep shock that led to this low rate problem. the way to get out of it is by boosting growth. that, frankly, is the job of the politicians, not of central banks. hildebrand,ilipp vice chairman of black rock, stays with us. we will have special coverage of the fed starting at 6:00 p.m. london time. you can follow the news and analysis on your bloomberg if you are able to use it. we have more great guests throughout the show. we will continue the conversation with philipp hildebrand from blackrock. we will get his investment calls and economic forecast for 2017. you will also bring you more of

our exclusive interviews with the chairman of europe's largest bank, hsbc. douglas claimed ways in destin was ways in -- douglas quint weighs in. >> the essential point of a continental europe is that 80% of lending and continental europe is backs, the inverse of the u.s.. there is a real sense of resolve, particularly in italy, to solve the banking issues. francine: that was the morgan stanley president for international affairs. it was not douglas went. flint.las i interviewed him. he did not say that all of like that. we also asked him about china, about regulation, about the impact of possible less regulation in the states, and what it means for european banks. we will also be talking with tim adams, the international institute -- the institute of

international finance director. he will be joining us in about 20 minutes. ♪

francine: this is "bloomberg surveillance." with the business flash, here is nejra cehic. nejra: french pharmaceutical giant sanofi is in discussions lion, after johnson & johnson abandoned talks for the drugmaker. the u.s. company said it pulled out after failing to arrive at an agreement which would create "adequate value for its shareholders." emma --th earnings left analyst estimates. the clothing retailer said operating profit increased 9%. that was helped by the zara

into same-store sales and growth in the u.s. morgan stanley has offered as much as 5.5 billion u.s. dollars for an australian lotteries business. the move sets off a potential bidding war with capital holdings. ed in sydneytts soar trading. that is the bloomberg business flash. francine: 12 months ago, few would have predicted the momentous event, political and financial, that we have seen in 2016. but what does next year hold for the markets? blackrock has just published its global investment outlook for 2017. with me is philipp hildebrand, the chairman. thank you for sticking around. we talked a little bit about monetary policy before. is the only thing we can say with certainty that we will see [indiscernible] recoverywe are in a phase coming from extreme interest rate levels. we have a lot of policy uncertainty.

all of that combined sets you up for surprises. and therefore volatility. francine: are we looking at trade wars? philipp: i don't think so. that is obviously one of the big risks. that could offset some of the stimulus measures that are likely going to come into the system. but one has to hope that can be avoided, as that would in a sense neutralize any positive effects. francine: we have seen a huge rotation from bonds into equities over the last month and a half. this is largely on the expectation of donald trump being able to reflate the economy. we were looking at a trend that started a little bit before. but does that continue in 2017? philipp: i think it does. i think it is important to remember it is not entirely links to the election. in july, we think we saw the low in yields in july. the shift from monetary to fiscal, the emphasis that monetary can no longer do much

more -- all of that was put into place earlier in the year. a furthery getting acceleration of a trend that was already in place. it is happening against a backdrop of a cyclical recovery that is pretty much in place in all the major regions. there is a lot of good news there. a lot of it has been priced in. obviously, we have seen big shifts in prices. absent bighink that negative surprises around policy or political risk, we should have some upside left, particularly in the equity market strength receipt. -- strength we see. francine: do you worry about liquidity? philipp: we have seen big moves in the bond market, but it is not -- if you look at the level of 10 years, for instance, it is not inconsistent with the idea of, let's say, a 2% potential growth rate in the u.s., and a half percent neutral rate.

that would get you to somewhere between 2.5%, 3% nominal rate. we have seen a rapid move that has to do with some of the surprises. but so far, the market has behaved very well. francine: yesterday, we caught up with the hsbc chairman, douglas flint. this is what he had to say. douglas: which in many respects is good for banking business. this is -- people think carefully about what they need to hedge and how they should position themselves. on the other hand, it is bad for economics, to the extent that it slows down people making investment decisions, holding back on strategic options, wonder what do not will happen next. francine: the hsbc chair saying a lot of market participants have to have contingency plans. various portfolios. i spoke to douglas at length

about china. china was the big unknown last january, and it has gone quiet. the you believe that chinese problems on debt or outflows come back in 2017? longer-term,ink china remains probably the most important kind of risk factor for the global economy as a whole. that we expect things to be reasonably stable, from a chinese perspective, through most of 2017. you probably see further currency weakness. but the credit side will be there to kind of sustained growth rates. china will be less of a concern in 2017. francine: are commodities back? philipp: i think commodities are back, and it is part of the reflation story. it is part of higher growth, part of the repricing. anything that is linked to an improved growth outlook is what you are seeing coming back. and commodities, energy prices, are very much part of that

story. so much foranks now. philipp hildebrand, vice-chairman of blackrock, stays with us. is europe overbanked? we get a take from hsbc's douglas flint and continue the conversation with blackrock's bill of hildebrand. ♪

francine: this is "bloomberg surveillance." italian banks have dominated the headlines over the last few weeks. moody's downgraded its outlook of the countries financial

sector from stable to negative. is your overbanked as a whole? hsbc's chairman douglas flint that question in our exclusive interview. douglas: yes, looking at it, you would say, why do you need as many banks as you have got? the business of making has become less profitable because of low interest rates and lower has -- thewhich it only thing you can't attack, assuming you are not going to go into risky places, where we will not go, you need to attack growth. -- you need to attack the cost base. that means technology or consolidation. hass-border consolidation not been particularly successful. let's continue our conversation with blackrock's philipp hildebrand. not all european banks are created equal. blackrock invests in a lot of them. does it feel like it is starting

to be a little bit better? or do you still have doubts? philipp: i was very encouraged by the unicredit announcement yesterday. frankly, this is the first case where we really see a radical reshaping of the business model to proactive and bold behavior. and that, to me, is a positive sign. we will see how to market rates head over the next couple of weeks. i think it is really the case now that we have been very thetrated in a sense at step-by-step change, rather than the significant change. this is a very significant moment, i think, in the kind of repositioning of the european banking landscape. a long way to go, but that is certainly good news. francine: it is quite brave, asking for 13 billion in this kind of environment. the share price was up. would he -- would they have done it if they had not thought they could get away with it? philipp: i think you have to do it. what the story shows -- the idea that you do not want to sell that asset because the prices

are bad -- that is a very poor strategy, right? this is -- we have seen a radical change as a result of the crisis. change theou need to model radically. you need to act boldly and proactively. we will see how things evolve. but this, to me, is a promising sign. francine: what will happen to italian banks? we are looking at monte dei paschi, but if unicredit is close to being sorted, do we care what happens to monte dei paschi, if it were to be nationalized? philipp: i think the key is there are a number of banks that need to be recapitalized. hsbc -- we saw a big, bold move. others will have to follow. it is complicated. you probably need some form of public money. we will have to see that emerge. somehow, a compromise has to be reached at the commission. i suspect that will happen. it will hopefully disappear off the center of the radar screen. francine: will we have light

touch regulation in the united states, and does it mean european banks will be on the back of trade? are justnot if they the business model appropriately. i believe there will be a trend away from investment banking that has to continue. that is the key. i think the unicredit example is a very good one. i do not think europe has to be caught on the back foot, but it has to find its own business model and not replicate the u.s. in a suboptimal way. francine: thank you so much. time flew by. philipp hildebrand, vice-chairman of blackrock. up next, ultralow interest rates and regulation. iiftalked to the iaf -- director. i will leave you in the capable hands of mark barton. ♪

,l

♪ alltanding in for friends -- francine lacqua. let's get the first word news. >> gold is traded near a 10 month low.

makers --expecting policy makers to deliver the --r just as u.s. equities the dow close to the 20,000 mark. a former fed chairman alan greenspan discussed bond levels. >> bond market bubble, now in the process of deflating. it has a way to go and it is going to reflect the outlook quite significantly. this is different. few -- models to see what they do. electdman sachs plans to schwartz and solomon. that is according to the wall street journal. the newspaper also said goldman is likely to name chavez as

schwartz chief financial officer. onerest rates may climb ten-year treasuries by next year as deficits and inflation rise under a donald trump presidency. a move that would hurt markets. the chief officer, who has called the president-elect's policies bond unfriendly, said the effects would be felt across the u.s. economy. the benchmark treasuries are currently trading at close to 2.5%. global news, 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. u.k. just breaking unemployment numbers. employment falling for the first time in more than a year in three months. the labor market showing some signs of weakness. falling by 6000 231.7 million people. the jobless rate was unchanged at 4.8%.

the labor market, according to the statistics office, appears to have flattened off in recent months. good news for consumers facing the prospect of accelerating inflation. the fastest rate since 26 -- august. the latest data comes ahead of the boe meeting tomorrow. rates expected to be unchanged at 2.5%. neutraling near true -- after easing measures post-referendum in august. in august, declining for the first time in more than a year in the u.k.. ultra rates, mounting regulatory pressures, some of the major headwinds. could 2017 be eight better year for the sector? president, tim adams, of the institute of international finance.

the industry's global trade association, representing nearly 500 members from over 70 countries. welcome to surveillance. so much to chat about. straight to trump. strict regulation. we are expecting lighter regulation. what does that mean for policy? not clear.k that is the pendulum has swung as far it is going to go. i think we will see regulatory relief for smaller, regional institutions. rules going to change? maybe? tim: it requires 60 votes in the senate, the president won't have that. you will see some change, it is a sentiment shift that is most significant. mark: is it sustainable? tim: what makes the big difference is his -- the

regulatory bodies. i think we will see a very different perspective than we have seen. mark: any names? tim: these are all surprises. mark: steve many russian, secretary of treasury elect. stevemnuchin, a great thinker. gary also moving, tillerson -- separate to that. insiders. the swamp he was meant to be draining. why is he nominating swamp inhabitants? don't think areas from that vein. he has been on my board for seven years. one of the smartest thinkers in the industry. i am excited for him and he is a big positive. mark: who will replace gary at goldman sachs?

harvey schwartz? tim: those are all great names. i know harvey schwartz from the old days. goldman sachs will make a great choice. --k: other names, governors >> and vice chairman for regulatory, which is a key position. we will see those names surface in q1 or two to. -- q2. i think it is catch up time and rates. let's get to normalization. i know janet is a short-termer, they want to get where they should have been prior to this. trump do? does what does the reinflation seen do to rates? expansionary fiscal policy in 2017? tim: how fast they get there, remains to be seen. so many details to be worked out. we are going to see faster growth in the united states.

mark: european banks. discuss. at unicredit, raising a whole lot of money. monte dei paschi is desperate to raise a whole lot of money. ahead of a possible state rescue. what state is the european banking sector in? and getting better. the news we saw yesterday was profound. they are going to eliminate mpl's eliminate cost, changing the cost structure. raising capital, shows a real shift in a -- italian bank. monte dei paschi is still a big question here in -- question. challenges in 2017? faster economic growth, an upward sloping yield curve, technology investment has to happen. we need to have a business model

and get there quickly without disrupting economic activity. mark: biggest challenges for -- full stop? tim: elections in france, germany. political risk has been the huge headline. mark: 10 year yield around 2.5% in the u.s.. we could climb to 3% next year. a move that could hurt markets, at what stage does the tightening -- the yield curve ing financial markets. tim: we have a more positive outlook for growth and inflation. probably a signal of good things to come. a stronger dollar is going to be great as well. those will be moderating factors on what will likely be 3% growth in 2018. mark: the dollar could push down

on inflation. help it do some of its job, maybe? tim: i prefer they not talk about the dollar, it sends confusing signals. it will be a moderating factor. it also hurts on the earning side. 40% of earnings are earned abroad. when you translate that to dollars, there is a downside. mark: what is the general sentiment? tim: curious. a lot of questions about where this administration is going on economic and foreign policy. mark: rex tillerson, know much about him? tim: i've never met him, but he is the ceo of the largest company in the world, knows the world, knows russia. mark: is being close to putin -- >> it certainly seems to be an issue for the incoming president. he wants to strengthen ties in russia. hard to say. i suspect tillerson will be confirmed. mark: we covered a lot of ground today.

tim adams, president of the institute of international finance. will trump deregulate wall street? we will bring you more with our exclusive interview with douglas flint. extend montees to dei paschi's deadline for its capital increase. what do europe banks really need? is the fed ready for what is widely expected to be the first height of the year? we talk monetary policy with former ecb heads. for more, tune into radios daybreak live in london. this is bloomberg. ♪

♪ mark: i mark barton in london.

douglas flint helping guide europe's biggest bank through a -- new regulations over two decades as he prepares to step down next year. much to contend with, including the u.k. exit from the eu, president-elect donald trump's policies. francine lacqua sat down with douglas flint for an exclusive interview and asked if trump would deregulate wall street. i don't think there is any chance anywhere in the world of regulation going back to a light touch. no. that was not a good period. our biggest risk is our industry. you do not want a part of the world where people are able to do things with much less capital as is economically advisable. andt touch regulation competing who can have the lowest standards is bad for banking. i don't think it would happen. what we might see is some moderation of the reporting

rules, which are onerous in of systems andty so on. there are multiple ways of reporting around the world. we haven't harmonized that yet. we might see some reliczation. on his mind -- he has a lot of things to think about. ,rancine: if it is on his mind does it impact european banks? much worse you in a position and do you think regulators in europe would actually look at what is happening in the u.s. and soften douglas: i don't think they would soften and i don't think they should. europe has to make a decision as to what kind of an investment banking capability it wants, or whether it wants to import the scales that will exist in lost -- wall street and say, that is fine. we would rather not have the risk, if that is the way it is

judged. issues one of the other that is interesting, particularly in the context of brexit, is that we are entering -- in the u.s. and european union, they have agreed -- which is important to doing business. you could have a scenario where the u.k. -- the u.k. has left europe and overtime, moves away .rom european regulation the u.s. could change its regulation and no longer be equivalent. the three systems. that would be a pity. the fragmentation of the global framework would be expensive for our customers and systemically riskier than bringing everything together in the way that hit -- it has been done successfully

since 2008. chairman douglas flint weighing in on what worries him about brexit in this period of uncertainty. 28% climb this year, beating its rivals. douglas: you saw the markets react very well to individual institution events in 2016. one of the extraordinary features of the referendum in june was, people went to bed that night with markets, the commentators, the posters, the pundits, predicting one result and woke up in the morning and it was a different outcome. market volumes were six times normal, huge volatility, banking stocks predominantly based in suffered 20-30%

declines. commodity prices all over the place. and everything worked. every thing settled. all the trades could be acute -- executed, there was liquidity to do everything. you step back and say, the bleak assessment that has been built, withstanding -- capable of withstanding from something. that gives you confidence that the system and aggregate is more resilient than it was. francine: what worries you now about brexit? douglas: the period of uncertainty. you could model an option you .hink might happen the sooner there is some clarity and direction of travel and what you canon is, means discard some of the options and get on with prosecuting the other ones to make sure, for our clients and staff, they can begin to plan their affairs and it can be business as usual. the sooner we can get to some relative clarity. francine: what kind of clarity?

working on has been modeling a buffer or transitional agreement? would that be most helpful for banks? if that is in the planning. we think it needs to be. if that is in the planning. we think it needs to be. in the sense that when you think of regulatory forms we have been through, when the reforms are year.zed, a two of implementation. so people can collect information in a way that is not being required. it is difficult to think something as significant as changing the relationship with europe, that you can say they zero, we are moving from that system and a one you can accommodate everything that has changed. that has to be some period of transition and again, in terms of the planning, if there isn't a belief there will be some period of transition, you have to be prepared for none. noncine: and you've gotten

insurance is from the bank of england or government that it is the case they have a transition or a phase they are planning for? nobody has clarified that. everyone recognizes the thereance of making sure are arrangements on both side of the equation and are smooth for customers on both side of the transaction. customers find things awkward and ugly, that will affect economic volatility. that is not good. to make sure it is as smooth as possible, one way is some element of transition, which we think is necessary. francine: what does the government need to do today? give assurances to eu workers they can stay in the u.k.? douglas: that is something that has been talked about. all of these things are known. it is the question of at what point do you finalize your approach and negotiated position . all the factors you want to take

into account. i agree, you don't do it piecemeal, he worked out what your underlying framework is going to be an something you can talk about. francine: are you will -- moving workers abroad? how many bankers would be moved to paris? douglas: we are planning for contingency. we bought a very big french bank , which has given us more option than many others. we have the opportunity if we need to take it. if the young going arrangements require us to have more of the base in europe, we can transfer some of our people in london to paris. in many cases, back to paris because we operate in paris and london, trading rooms a pair. many from london came from france. mark: breaking news from sberbank, russia's biggest bank.

planning to cut 8% of staff. the bank's press office not commenting, just prospective lender. 329,000 people employed. get back to that exclusive interview with douglas flint. the hsbc chairman. to redeploy as much as 150 million dollars and higher 4000 people in the region, he weighed in on what worries him about china. china is,he issue in an economy of that size and complexity, can you make the transitional change from a heavy industry infrastructure economy to axport, consumer driven technology savvy , research and development

economy smoothly? the transition is underway. big steps are being taken. heavy restructuring is under way. the population is supporting the transition. that is reflected in political risk -- support. it is a massive undertaking to transition the economy. , the researche side, the consumer side, the tech side, is going very strongly. and the chinese are beginning to economieslower wage in the same way that other businesses use to invest in china. they are going into vietnam, myanmar, africa and replicating what they went through in other countries. voting infrastructure to create trade flows, trade corridors.

when you are trying to do something ambitious, you worry something interrupts it. i think china has managed it extraordinarily so far. mark: you can catch that exclusive interview with douglas flint in full friday, eight -- 8:00 p.m. monday -- london time. this is bloomberg. ♪

mark: mark barton in london. business flash. --pharma cuticle giant pharmaceutical giant in talks to purchase actelion. the drug company said it pulled out after failing to arrive at an agreement that would create adequate value for its shareholders. the consortium including kkr and morgan stanley offered as much as 5.5 million u.s. dollars. the move set a potential bidding war withholdings. the bid opened the fields to others. mark: thanks. markets, it is all about the fed. a number of hours to go.

but let's see how equities are faring. a little lower. 4% rise since the trumpet election victory. the u.s. tenured yield rising yesterday, higher since you -- june last year. gold low ahead of a possible rate hike. fed day, bloomberg will have special coverage starting 6 p.m.. bloomberg surveillance continues in the next hour. guy johnson picks up in london. tom keene once him in new york. his is bloomberg. ♪

♪ tom: is the first that of 2017. can trump reflation be sustained or is it a one-off event?

call it a rate rise fed day. yellen will held a press conference, possibly suspending -- sis rain -- sustaining a reflation. will theyope's banks, move from the you -- unicredit restructuring? this is bloomberg surveillance. guy johnson,e and not as good-looking as francine lacqua, he is in london. a lot going on, but first, eu data. on the looks front. let's talk about the data at the moment. a little weaker than expected. ip data for the eurozone in october. -0.1. on a month by month basis. feels like 82 step forward, one step back story. maybe a half step forward. progress is being made, but it feels slow. tom: we will touch on that.

jean-claude joining us in the next half hour. to talk about the greater europe. to the greater first word news now. taylor: the last remaining syrian rebels in aleppo are getting ready to evacuate. government troops have taken control of the city that was once his -- a rebel stronghold. the russian airport started bombing rebel positions there. russia denies reports that civilians have been murdered there. weapons is halting sales to saudi arabia because of the fighting in yemen. the saudi led coalition is fighting an iranian-based rebels there. there are concerns the saudi's have targeted housing, hospitals and schools leading to civilian deaths. a new survey shows one third of workers will hurt -- brexit will hurt their career prospects. 1/5 of workers have started

looking for a new job because of the uk's decision to leave the european union. in the u.s., president-elect donald trump's pick for secretary of state has a potential multibillion-dollar conflict of interest. thatillerson has a company contracts all over the world. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i'm taylorntries, riggs. this is bloomberg. so much.ks equities, bonds, currencies, commodities. s&p takes a rest. the yield curve, the spread is flattered. -- flatter. michael mckee will come to us in this hour from -- maybe he is here. he is in washington this afternoon. i know that for sure.

american oil a little lighter. bigs 12.84. vix 12.84. guy: employment data coming through at the moment. wages are holding in the u.k.. watch the ppi number creep up. that is the story going forward into 2017. , we arean 10 year seeing yields going down a little bit. prices coming up. fairly firm. johnson & johnson walking away from a bid from actelion. down 9%. tom: deutsche bank with us. here is the great reflation of the last year. down we go in yield back 20 years.

here is the trump reflation. here is the choices we are going to have. a true reflation with a real pickup and yields, may be right where we are we continue forward. a lot of people looking for a rollover from here on down at some point. one of our things today. that will come up at the yellen prep -- press conference. guy: it certainly will. possibly this as well. boones, --asuries to bunds. do we see good yields come up? or yields down? this is the spike i am focusing on. 2.1168 him a year record highs now in terms of that spread. which way does it go? one of the questions europe

needs to answer and what that means for the single currency. joined by dominic in the studio. good morning. coming up aspread little later on -- the fed coming up. today,s of the ability where does that lie? given the lack of information, should be saying anything? >> the market this time around is easily icing at a hike. the question more on the dots, where did they go? i think the market at the moment wants to believe the higher rate story. that is the juggernaut coming through it the moment, inspired by donald trump. the idea of a reflation trade, fiscal splinting -- spending infrastructure, when the market believes something like that, you don't want to stand in the way. that will continue in the near term. how long?

pretty tricky in an economy with such massive amounts of debt as the u.s.. the tricky question further into u.s. 17. -- 2017. -- concerns of three. what is the trajectory here? most of that move has happened now. fundamentally, can the u.s. sustain higher interest rates and a stronger dollar? for the last three years, it hasn't been able to do that. whenever you see signs of dollar strength and interest rates picking up, u.s. recovery has stooped. tom: i love your research know where you talk about the new reality of foreign exchange, the global witness paper. that is, politics is the driver. i don't buy it for a minute. we are going to go back to a real rate analysis, capital flows analysis.

how does this dance of politics, how long does it go into next year? dominic: i say continues for a long period of time. politics lost its impact in the bond market because bonds are still being bought by central banks. the bond market can't react in the same way. we have seen with equity markets, they have lost their traditional anger. loose quiddity policy. effects has to respond to politics. you can talk about the rate story driving it. but what is happening with u.s. rates is driven from a political starting point. we wouldn't be talking about higher u.s. rates, reflation, if it wasn't happening on the eighth of november. tom: this is important. 2% yield. reflation. 10 year this is the trump reflation. your colleague, steve major, is going, we are going to have higher yields and rollover to a lower yield.

what will that do to the u.s. dollar? dominic: absolutely. it is going to make a harder for the dollar rally to be sustained. that is in our forecast. euro-dollar a little softer for now. through 2017. same with dollar-yen, for us -- i wouldn't want to stand away -- in the way of the dollar bull run at the moment. it is hard to see it sustained, even the underlying story. tom: this is critical and the year, when we interview people, we see outlier calls that don't agree with the zeitgeist. that's all there is to it. guy: and to come back and talk about the other things that could be driving the dollar. a bunch of guys have started rowing across the atlantic. the atlantic feels massive at the moment.

the difference between yields over there and on our side of the atlantic feel -- it feels like a different world right now. planner is on another -- planet as far as european bond markets. i showed you the difference between what is happening with u.s. treasuries and bunds. that spread is greater when it comes to the european story, btp's -- it is an amazing story. --d markets are fairly for focused on politics. tom: an extended day for bloomberg television and radio. the fed meeting. we will go through bloomberg surveillance this morning on radio and on television. ourthe fed decides -- coverage with michael mckee in washington. the rate rise is soon. the press conference, a mystery. stay with us. ♪

♪ the people of london are confused. they are looking up to the sky am a not the normal color. blue sky up there. we are shocked as we work towards christmas. i am guy johnson with tom keene in new york. let's get a business flash now. taylor: santa fee is now in telion after ac johnson & johnson walked away. it wasn't able to come up with a deal that would create adequate value for shareholders. at 21 billion dollars. for the first time in more than a year, employment in the u.k. has dropped. the number of people in the three months towards october fell.

the number remained 4.8%. consumers facing the prospect of higher inflation. which is rose 2.6%. the ecb has rejected a request by monte dei paschi to extend the capital increase into january. that raises the possibility the bank may need a government bailout. wanted to until the end of the year to find private investors for reorganization plans. the bank is trying to dispose of $30 billion in bad loans. that is your bloomberg business flash. day, let's look at some charts. a lot to do. back a milliono years. deutsche mark all over here. strong dollar, strong dollar here. this is the euro. weak euro. strong dollar, all the way to a strong euro. here are the choices.

weak euro down here, strong up here. hbc looks for a low yield environment. what is your euro call out when your? -- one year? dominic: we are looking slightly stronger euro. it is not a particularly interesting story. 1.10 or soro-dollar, next year. that reflects the dollar side, the stronger -- struggle for the dollar to continue its run. a lot of risks are political. once you get to the first half of next year, if we don't see a further rise in populism, marine le pen come to power in france. maybe it isn't bad and we can end the year without political risk. ultimately, a pretty flat forecast. not looking for a massive move here. tom: what will you listen for from chairman yellen? the trump address

reflation? that has to be front and center, right? comeic: i think it will into the equation, but there is so much uncertainty. how can anyone -- the fed or in be market -- how can you certain about what president-elect trump is going to do and how successful it will be. it will be hard for them to change their forecast based on a few tweets here and there. that's the tricky thing. they'll pay lip service to it, but it won't come towards their future forecasts. still looking for a pretty flat projection from our side and that also means it is hard for the dollar to keep drawing forward in the long-term. guy: interesting to see if the dollar-euro breaks out of that range. ecb chairman douglas flint says he doesn't expect president-elect trump to read -- deregulate. --

douglas: i think the risk is our industry. you don't want a part of the world where people are able to thand's with less capital is economically advisable. we are all exposed to each other. competing on who can have the lowest standards is a bad form of banking. guy: douglas flint. for more on the regulation, let's bring in michael moore. we're not looking at a wholesale dismantling of the financial regulation put in place in 2008. let me stop in terms of the regulatory -- thicker and thicker. what is the market pricing in? >> i think banks would like to see a halt and this be a steady-state. maybe a few things tweaked at the edges that they don't like.

but have another massive overhaul after the banks have spent so much money adapting to wouldn't beronment, that great. especially if in a few years down the line, the pendulum swings back. guy: when you think about the arbitrage across the atlantic, the european banks are still fighting the last war. still dealing with the financial crisis. the u.s. has moved on. in some ways, the psychology is a little different. they have been on a tight leash understandably. but is the psychology different than over here? >> certainly. questions here are about the rules and where you need to be. the u.s. goldplated their capital roles, are already ahead of those blue banks. they are onto business. what does the economy look like. what does loan growth look like? in europe, the capital questions are more dominant. tom: let's review the chart from

yesterday. u.s. banking that mr. moore is talking about. well.oing quite deutsche bank and unicredit with restructuring. michael moore, you are the conduit to the research on the street. has anyone figured out what the value of this restructuring is to unicredit and does anyone have a clue what they are going to sell those mpl's to pimco and fortress, what those values will go out at? >> you saw they are going to take a big hit as part of the sales, and that is what the capital raise is funding. totainly, the markets seem have liked the plan. they saw it as realistic. part of it is they are not relying on revenue growth. they arefew years, modeling in revenue growth at .6%.

it is a cost-cutting story and the market can get behind that. because it is more in the banks control. tom: is this the start of a trend? more unicredit's into the first quarter of next year? >> that is the playbook. address the capital question and start cutting costs. that seems to be across the board. you saw it as burbank in russia today announced it is cutting 8% of its staff. certainly, there is more to come on that. guy: when we find out about deutsche bank? we're coming up to the inauguration. every day i wake up, when is this news going to drop? >> we have been waiting for a long time. we will see. guy: does it come before the inauguration? both sides have incentive to get it done before the inauguration. if there is some kind of changeover in some of the people

at the negotiating people, that will slow things down again. deutsche bank wants to get this out of the way. their --an ascent of incentive there. difference. the michael moore, you wake up and are worried about duke basketball worth -- versus north carolina. i wake up and think the red sox don't have enough start pitching. and worrieswakes up about deutsche bank. he needs to get a life. i wonder if dylan is going to be the captain of the rugby team. tom: there you go. michael moore. thank you very much. coming up, an important conversation with a former president of the european central bank, a perfect day. a fed day. this is bloomberg. ♪

♪ wages are moving and the money supply is accelerating, those are the critical issues which engender inflation. they are on the move at the moment. i see no evidence -- evident in denver on either republicans or democrats park or anybody else for that part. it is politically a hot potato. guy: that was the federal reserve chairman alan greenspan speaking to bloomberg about the u.s. economy. ,et's bring back in dominic

senior strategist at hsbc. what is going on in the u.s. labor market? whether or not we are a full like,ment, which it looks or the participation rate an incredibly low number there is real. explain certain bits, but i still don't know yet whether or not we are at full employment or whether the curve will start working. dominic: the proof is in the pudding. the fact that wages threatened to push off that come back again with the inflation of wages, suggests there is still capacity. forecast,ook at our we are not looking at a big squeeze in inflation. productivity to be squeezed. ultimately, there is probably a bit of slack in the labor market. really, your view of the u.s.

economy is through a political lens. donnave to stop with what -- you think donald trump is going to do and only then can you make a big call with the u.s.. after the fedur decision, we will speak on the linkages into the bond market, the trump deflation. bring me up a data board. the fed data board, not much going on. look at the dow. 19,911 -- 19,009. 11. from new york, fed day. stay with us all day. this is bloomberg.

♪ in the distance, staten island. we applied the electricity to the christmas tree last night at our house.

staten island survived. the marriage survived. the lighting of the christmas tree. a beautiful new york this morning. many people fall into the holiday spirit. us.johnson in london with i am tom keene in new york on fed day. the middle east is more than inficult, particularly syria. with our first word news, here is taylor. in syria.arting immediate reports that a truce between government troops and rebels in aleppo have collapsed. the fighting has ended in aleppo and rebels agreed to turn over their positions to russian backed syrian troops. they were going to take -- civilians out of the city, but those buses have returned to depots. only handful of for -- rebels are still in aleppo. the prime minister of italy survived a confidence vote in the lower house of parliament. now another one today in the senate. the democratic party has not

announced majority in the upper house. -- he has to rely on senate to change his mind. donaldics office says trump's plans for his empire would not satisfy conflict of interest laws. they say that -- though he is exempt from those exemptions, his cap members are not. he plans for his sons to run his business while in office. the obama ministration making the final this -- of its health care law. amongred rates dropped all 50 states. at the same time, insurance premium hikes in employer-based plans slow down. president-elect trump has promised to repeal obama care. global news 24 hours a day, powered by more than 2600 journalists and analysts in more , i'm taylorntries riggs. this is bloomberg. guy: thanks, taylor.

stocks, before the federal reserve's expected interest rate increase later today. more on the impact of this height. -- hike. both gentlemen are very qualified to talk about this subject. who is the most nervous central bank out there? rarely rusher on emerging-market central banks because of the fall back in many emerging-market currencies ahead of the fed decision. the fed is taking the view this time around, any spillover effects from a rate hike is manageable on the part of the m central banks. -- e.m. central banks. some have done ok. there is a worry going forward. it would be a massive surprise if the fed didn't move today. i think the fed watchers are

trying to figure out what happens in 2017. and the fed futures market is clearly discussing two rate hikes. i think the big question is whether the dollar continues strengthening, whether we get trade protectionism under the president-elect trump's trade policy, or pressure from china and elsewhere. guy: where's the pain most acute? the dollar, the fed, downside in fed rates -- is in turkey? south africa? fragile five. the .he original taper a lot depends on the fundamentals in terms of funding. -- the the problem is stronger dollar works through

finance channels. we have already seen an increase in funding and liquidity pressures for dollars dollars -- borrowers. the point has been made by the dollar is stronger effectively a global rate hike. the dots of 2017 move more hawkish, i would be surprised if they did -- didn't -- but if they did, that to be a problem going forward. fragile five. history can repeat itself, but some economies have changed. india less vulnerable than in 2013. malaysia much more vulnerable. some that remain vulnerable, but others have shifted. tom: the battle for me in foreign exchange and international economics -- bring

up the chart. i have shown as before. this is a dramatist -- jumbotron -- drama chart. here is mr. putin's challenges up top. two spikes way up high. down we go. massive strong ruble, weekly era. you defend your currency with higher yields at the expense of gross. are these guys going to defend their currencies, e.m. to e.m., put themselves in an outright recession in 2017? >> that is a good question. a lot of emerging-market respondedrs have through raising interest rates. there are episodes in history where that sort of response can actually backfire because international investors take the view that it can create a

recession. that creates less incentive for currency.y the it can be self-defeating. what is happening now is the interest rate cycle for many emerging-market economies is changing to a degree we have seen brazil russia reduce interest rates. the firmness we are seeing in many commodities, including oil is good for e.m.. let me go with you again, neil. reflationf a trump , these johannes berg emerging markets are affected by the trump reflation, right? neil: absolutely. the elevation we are seeing in u.s. equity markets is also part of this trump reflation trade. what reality turns out to be like his yet to be known. but as far as markets are concerned at the moment,

factoring in some degree of fiscal stimulus. it may not be until 2018 that we seesee the full impact of that coming through. there is no doubt we can -- compared to a year ago, when markets slumped at the beginning of the year after the first fed rate hike. the big concern was china and a d deflationary global recession. markets are now looking at reflation, fiscal activism is much more in vogue. with that -- inflation expectations turning around, markets are priced for this reflationary theme. the proof is in the pudding. -- willually happens mr. trump be able to get his fiscal plan through, or will they be tempted to some agree? guy: i want to come back to a point. what is happening with the shortage of dollars around the world. .his is three-month u.s. libor

we saw this as a money market phenomenon, but it has carried on. there is a shortage of dollars. we have seen in europe, but the e.m. really feels this. there's this most acute and how serious will it be in terms of the ability to lay your hands on the greenback? dominic: it becomes difficult for currencies and those market, big account deficits, short-term financing needs. those are the currencies that look vulnerable in this environment. places like turkey, malaysia, south africa to a degree. what canlly about these central banks due to stop their currencies weakening? russia sold a vast amount of 400rves, hiked rates i basis points or so. they did the adjustment. they squeezed the economy. they saw imports come down and created that environment.

ruble is benefiting from that. turkey hasn't seen that adjustment that hasn't got the reserves to sell and may be getting to the point where they need to go down that route of squeezing liquidity onshore to push gets higher. tom: to that point, i think the reserve mystery will be one of the issues of 2017. how much reserves are out there and usable. thank you so much. local macro strategist. of course today, fed day. all of our coverage of circling on 1:00 p.m. this afternoon. his decadese with of experience in washington. stay with us. this is bloomberg. ♪

♪

guy: 21 minutes past the hour. i am guy johnson in london. tom keene in new york. stateside to exxon mobil's ceo and rick perry, governor of texas. a new energy era for the united states. let's get to will kennedy. managing editor of commodities at ema. still with us. there are two things going on here. --.s. oil man now in math now the most senior u.s. diplomat. people will wonder what that means. other appointments, mostly from texas, oil-rich states going to washington. perry, you have an oil friendly guy in a interior. people wonder what that means for the oil and gas industry.

a lot less regulation, frankly. -- is that what it means? these guys know their way around. are we going to get a more finessed policy? in terms of the way it is put in place? we've got some problems we need to fix and these guys understand those problems. while you can talk about rolling back regulation, what about changed regulation? >> a lot of regulatory change. these people have made clear that they back coproduction -- production.- coal i think it will be a much more friendly market to the oil and gas industry. is, will his experience in exxon, translate to a change relationship with russia. me, it is about

responses and -- responsiveness or elasticity of supply. what is the tone of the research in terms of the mystery of supply coming on next year? your right to say that is going to be the most important oil market question in 2017. we have seen some really firm, surprisingly firm action from opec and russia. how does the u.s. oil industry respond? we're seeing differing opinions. the saudi's said they don't think there will be much production coming back. goldman sachs was overly optimistic on the part of the saudi's. backed upgly, the iea your opinion yesterday. im: six or seven years ago, have a memory of everyone getting a russian call wrong because of the mystery of what they were doing. does our oil desk know what the supply dynamics are of non-opec

and particularly, russia? >> the consensus a few weeks ago would have been that russia is unlikely to deliver. they have never done so in the past. they have made promises they haven't followed through. but there does seem a tone from the energy administrator that he is going to work with saudi arabia. his alliance seems strong. two ministers side-by-side, they were clear they were going to cut production. interesting to see. but we have probably changed our minds on that one. guy: with got mr. novak. no change in russia oil. russia will cut 2000 barrels of a -- day. i'm trying to rationalize those things. form aistry will monitoring group for voluntary cuts. the devil will be in the details. towhat he's trying to point in the last week or so is this

is a six month agreement they have made with the saudi's. they said they won't cut 100,000 barrels in the first quarter, down another couple thousand in may. he may be saying the average will work out. we do expect there may be some reduction in the first half of the year. guy: all output cuts will be portion of to each company. let me bring you into this conversation, dominic. what we have seen as the oil prices collapsed has been a significant shift of reserves. in terms ofverse qe the way things have been happening. oil-rich suppliers of the gulf had to change gear massively in terms of the way they use the reserves. whether they bought, sold -- what are the fx implications? barrel price. dominic: the example of what is happening in russia and the

middle east. the middle east has used their currency an anchor of stability for the rest of the economy. that has been a policy that has served them well in number of years. in russia, they allowed the currency to float, to weaken aggressively, then a hike to stabilize the currency. then they got the economy to just -- adjust. in some ways, you could argue that although russia has fewer reserves than before, maybe has rebalanced better because it has a lot the currents -- allowed the currency to become more flexible. good idea. this is exactly what we do. will kennedy, headlines coming right novak in russia now. this is the ambiguity. oil companies in russia will cut . the next headline, will kennedy says no change to russian oil output for next year.

textbook what we give with that bloomberg. this is why will kennedy has aged in 2016. which way is it for russian output? i can't tell from the headline. >> post truth reporting of oil numbers. tom: it is fake news. >> one thing i would say about russian numbers is they are transparent about what they produce. a lot of opec countries, we are counting tankers. russia per -- reports every day. we don't know, but it will become clear in the first quarter if russia is following through on its promises. and i will make a huge difference. if they are, you see the oil market get squeezed fast. if they don't, it will be incentive for other opec countries to cheat and this whole thing to unravel. we will be watching day by day exactly how much oil they are pumping. tom: i don't mean to disrupt your real news, you guys are

killing it. the bring up these charts. these three headlines, perfectly encapsulate the madness of the oil market. oil companies will cut. no change to russian oil output. this is unbelievable. is a bityes it strange. but they may well cut and then raise again. their commitments to the first half of the year. in the second half of the year, they may feel they can bring production back. we will see. tom: will kennedy. --nk you for the commit continued commodity coverage in the madness of oil dynamics of opec and non-opec as well. coming up, we move forward here today. our fed coverage, unimportant conversation. -- an important conversation. stay with us, this is bloomberg. ♪

♪ tom: fed day, we welcome all of you worldwide. it is washington.

chairman yellen, her widely anticipated press conference this afternoon. michael mckee is in washington. you are looking at the economic data as we work towards a presumed rate rise. michael: every time in 2014 at 2015 that the fed talked about raising rates, markets went haywire and the fed act off. now markets have priced this in because they see the same thing as the fed. we are a full employment and inflation is continuing to rise. oil prices are going to help push that up even faster. everybody has accepted the idea that the federal reserve can raise rates and probably will buy a quarter percentage point today to half to 75 basis points. the trumpet ministration is coming in, are they going to be behind the curve and not driving the markets? not reacting fast enough? tom: do the dots move today?

michael: they could. reason they could is because the fed is looking at the economy as it exists now. it is growing at a faster pace. 3.2%. unemployment at 1.6%, according to the phillips curve, that should push inflation up. based on what they see now, they could move the dots up a little bit. any kind of reaction to the fiscal plans that are being talked about by the incoming administration, will have to wait. no one knows what form that will take or when it will hit the economy. moves quickly on things. it could be late 2017 or 2018 before you have the fiscal impact. questionme ask you a and we will get don's take on this. gravity goingof to shift towards a more hawkish bias. as we see new members role in, impact players coming in from the trump administration.

is that the question we should be asking janet yellen today? how is the makeup of the federal reserve going to change and how will that impact policy? isn't going to change much in 2017. there are two open spots on the board of governors that the president-elect has vowed to fill quickly. normally, people who are new to the fed not make a big impact right away. the question comes late in 2017 when the president is going to have to make a decision on whether to reappoint janet yellen and stanley fischer. given everything he said in the campaign, the betting is he will replace them and the parlor game became's -- becomes, what do we think the new person will do? do you think we are looking at a situation where the makeup of the fed is going to change and as a result, which policy starts to change as a result? dominic: there is an element of that to consider. you have to ask the question about fed rate hikes. 's successful in driving

a much stronger rate of growth and inflation picks up, the fed will need to be more hawkish. at the numbers you have seen in q3, growth is stronger, but u.s. rates were lower. in q4, we have a big pickup and rates, a rise in the dollar. how the economy copes with that going forward is the big question. whether they can continue to height. only two hikes next year. a pretty's -- pretty solid path for us. tom: thank you for the brief with us this morning. we will see you this afternoon in washington. in our next hour, jean-claude. from london to new york, this is bloomberg. stay with us. ♪

tom: it is the first that of

2017. is it trump reflation, or a one-off is an? chair yellen will hold a conference. possibly the sustaining of reflation. the president-elect will come up. and brutal moves of the dollar, portal moves for the italian bank. in this hour, jean-claude trichet. it morning, everyone. this is "bloomberg surveillance." live from a world headquarters in new york, i am tom keene. francine lacqua is in london. does mark carney care about what chair yellen says today? mark: i think they have exactly the same problem -- y: i think i have exactly the same problem. mark carney does not know exactly how to store brexit. they have to stick with what they do know and make policy on that basis. politics is the driver of

foreign exchange and economics into the new year. right now, to first word news with taylor riggs. cease-fire in the embattled syrian city of aleppo was supposed to start today, but activists say warplanes have resumed the bombing. that syrianports forces are firing rockets. all of this threatens an rebels and if civilians are stuck in aleppo. vehicles that were supposed to carry civilians away have left with no passengers. the saudi led coalition is fighting iranian-based rebels in yemen, and there are concerns that the saudis could target hospitals and houses and schools, leading to civilian deaths. a third of the workers in the u.k. believe brexit will hurt their career prospects. workersdown with

that started looking for a new job because of the u.k.'s decision to leave the european union. and donald trump's secretary of state has a potential billion dollars conflict of interest. rex tillerson hits a company that has 1.69 billion dollars of government contracts in the last again. almost all of that went for petroleum products. tom, you have some breaking news. tom: we have been talking about this this morning. rick perry, the governor of texas, former governor of texas, will be our new energy secretary. the trump transition team has put out a statement. he makes really clear this is about job creation -- the job creation machine that was texas. "mr. perryays, created a business climate that produce millions of new jobs and lowered energy prices in his state." that is a tone perhaps of a new

u.s. energy policy. rick perry will be energy secretary. let's go to data right now. equities, bonds, currencies, commodities. it is a fed day, not much going on. the curve flattening this morning with a little risk off. i mentioned the dow. we are on the 20,000 watch. we will see how that goes .hrough the day let me go to the bloomberg. this is the great theme for the morning. the 10-year yield -- down we go, many people looking for a lower yield. we get to trump reflation. up it goes, and this is the reflation outcome. sustained higher yields, maybe flattening here. we have seen most of them move, and a lot of people looking for a migration back toward lower interest rates. that will be the debate this morning. guy johnson? let's show you the board and get into what is happening on our side of the atlantic.

that is what is happening with 1.2657.e rate, the markets have callemed. nothing -- sanofi makes their bid. people are saying would have to thatrth of 250 to make successful. it feels pretty wide if you are in the bond market right now. let's show you my board. this is the spread between treasuries and the german bund. look at the spike we have seen. i have to jim and on that to show you what is happening. an incredible story -- i have to zoom in on that and show you what is happening. so: guy johnson, thank you much. we are honored to begin our fed coverage today with peter hooper of deutsche bank, with his years

at the imf. peter hooper writing more than thoughtful, larger, bigger picture views. it janet yellen central-bank to the world? thejust showed that with convergence with u.s. and germany, we have never seen that before. peter: we are waiting today to see how much of a hit we get about fed policy going forward. markettion the treasury is reflecting not just with the fed is going to be doing, but what is happening on the other side of washington. tom: how do you as a frontline macroeconomists economist use the markets to interpret and adjust your future vision? what have you learned from the market since november 8. -- what have you learned from the market since november 8? peter: we decided there is a good case for the economy doing significantly better. we think the market is on the right track. tom: torsten slok always making any, saying yesterday under

deutsche bank scenario, equities up, equities up, equities up. deutscheut him in the bank equities time-out shery echo peter: all fundamentals seem to be in that direction right now. tom: guy johnson? guy: i want to come back to this position in energy costs. we have a new energy secretary come into place. saudi trying to boost the price. what do thendering, next few years look like for corporate america? what will they look like in terms of energy input? input, yes, i think prices gradually are going up there. there will be limits depending on what happens in the energy production sector in the u.s. shale has not gone to sleep and its price is rising.

you will see more production limiting some price increases down the road. at the same time you have the dollar going up. that will be working the other way, and the cost to capitalize interest rates go up. cost to capital is going to be less important than tax cuts. other factors will affect the overall corporate revenue seen here. -- the corporate revenue scene here. revenue is in for a boom given the whole picture. guy: peter:, is corporate america going to invest? peter: corporate america has been doing anything but for the last five years. we are way behind in terms of growth of business capital relative to labor. productivity is at historic lows. i think there is an awful lot has potential to

get investment up. not just the tax cuts, but i think some regulatory easing. what is not in our models -- and our models to show the tax cuts in the regulatory easing having a positive impact -- but what is not there is animal spirits. , think we are beginning to see certainly in the confidence measures -- business conference, small business, large business -- as well as consumer confidence. this is maybe a replay of the kind of boom that you had started off by some of the reagan policies in the 1980's. tom: we will see on the animal spirits. we will show a chart on that. peter hooper with deutsche bank with us this morning. martin schenker will join us. all of this off the back of another cabinet appointment to be nominated, rick perry, the governor of texas. there is the trump tower this morning.

more news from a transitioning president-elect. from london, from new york, this fed day, this is bloomberg. ♪

guy: i am guy johnson in london. tom keene, of course, manning the fleet in new york. here is taylor riggs. taylor: hsbc chairman -- the hsbc chairman does not expect donald to dismantle the regulatory framework in place since the financial crisis. he spoke to francine lacqua. you do not want a part of the world where people are able to do things with much less capital then is economically advisable because we are all exposed to each other. is --ouch regulation

light-touch regulation is bad for banking. interest rates may climb to 3% on 10-year treasury's next year as deficits and inflation rise. the glock has called donald trump us presidency bond unfriendly. trumpent-elect donald tried to retaliate against -- three newdone clients have put their plans on hold while they wait to see what donald trump will do. trump has proposed a 35 percent tariff for companies that move jobs from the u.s. and export products back. that is your bloomberg business flash. tom: thank you so much. what a set of weeks it has been what a set of days it has been. we had the distraction of fed

day today. martin schenker of bloomberg news is in washington. he does not have that luxury. what does not give a damn janet does today. he is looking to the trump transition team. help me here, marty. how unusual with this cabinet be -- how unusual will this cabinet be? marty: it is already quite unusual. it is packed with business executives, people who have very little experience in government. it is an unconventional president, and it will be an unconventional cabinet. tom: gauge for us the nominating process. rick perry has served the republican party. i assumed that he will breeze through. ,ut is it just about tillerson or could the surprise be more contentious discussion? already co. the -- marty: the discussion will center around russia, and this

cabinet is already packed with people with links to energy, tillerson being the poster child. there will be questioning about what exactly donald trump a outtegy is, and i will put that tillerson as secretary of state is really not an independent voice for american policy. that policy is set by the president, and he just executes it. guy: who is more worried now, the people coming in who sit on the cabinet, or the people they are going to be giving the orders to execute? civil-service feel about what is happening yeah cap these are guys who have -- what will civil-service feel about what is happening? not feels will anything like that with the systems that they operate. how significantly will the machine of government change under this cabinet? marty: that is something that donald trump will learn quite quickly. there is an establishment of

d.c.,ment in washington, that views the president as sort of transitory, and they are going to date their heels in and protect their turf. a battleship you have to turn, and it does not turn quickly or easily like it does in corporate america. tom: i want to rip up the script. mr. blankfein is speaking in london, at a bloomberg event, and he is celebrating the fact that his entire staff office will move to washington. what is the push back from the beltway and from washington to a goldman sachs administration? is surprisingly quiet. i'm in, obviously, you have people like bernie sanders -- i mean, obviously, you have people like bernie sanders and elizabeth warren, who will rail against the bankers dominating the team and team trump. it is amazingly quiet on that

front. tom: here is a very noisy op-ed. marty, this really goes to the possible pushback we will see. tom: i mean, this really cuts to the polarity of the nation, marty. what will be the concerted push back to core trump is him -- to core trumpism in january, february, and march? i am sure there will

people -- i am sure there will be people in core trump that whatcall this elite, with this election bore out, that a vast number of people feel disenfranchised from government. those that appeal to those people will be elected. that is what is going to happen. tom: thank you so much, marty schenker in washington, d.c., today. we have much more to talk about with peter hooper on this fed day. coming up later on bloomberg television, the former vice chairman of the fed, alan blinder of princeton university. alan blinder on trump reflation. from london, from new york, this is bloomberg. ♪

decides, 1:00 p.m. this afternoon. scarlet fu leads our coverage. mckee will be in washington with the important release, and of course the press conference, absolutely critical. look for that through most of the afternoon. i'm tom keene in new york. guy johnson in london. right now to peter hooper of deutsche bank. before we get to jean-claude trichet in our next half hour. dr. hooper, what i notice here is a reflation option nobody. we have a 10-year yield and a real move up. what is the deutsche bank pass to lower rates here, to some stability after this big move, or do we go out to new higher rates? peter: we are to new higher

rates, tom. our rates strategist recently had a significant shift in view from lower chopper. we see the labor market -- from lower to upper. we see the labor market tightening, indicating that inflation prices are rising. we think private spending, particularly in the business sector, will be jiving inflation spending. -- will be driving inflation spending. tom: as mr. khan stem makes a shift in rates, will it be done with stability, or the instability that dominique is worried at -- is worried about? dominic has in moving up into the threes in the following year. there are some uncertainties,

lots of risks that could unset things -- that could upset things. our view is that it will be sustained. -- howter, does that high does europe go, and does the ecb need to lean in on that? what does it mean for the mechanics across the atlantic? peter: there has to be some , no question.s at the same time, the dollar will be rising. that will offset some of that. certainly, you have had, despite the run-up in yields here, despite the rise in the dollar overall, financial conditions have not changed that much in the u.s. i expect a similar outcome in europe. guy: i am curious. there has to be some effect from , but currencies

have to offset that. where does the dollar, the euro need to go for that to happen? peter: we see euro-dollar going to parity over the next six to nine months. at all of this today , and to me it comes down to the press conference. the last press conference seems an eternity ago, and the election was a chaos almost of time continuum, of guessing what the fed will do. do you look for a clearer message from chair yellen today at go -- from chair yellen today? peter: no, she is going to ask .hat the fed is going to do as guy mentioned earlier, it will be too soon to say with certainty what we are going to get. but there is no question the risks have shifted pretty dramatically here, given the makeup of congress, given the

administration, given what they both say they are going to do. i think you are going to see movement in that direction. it will be interesting to see just how many dots do move. i expect some of the upper dots to me moving further. ,om: are we at a regime change as james bullard has talked about of st. louis? is it a regime change right now? peter: it sure feels like one. a pretty dramatic shift in the markets, general expectations about the risks facing the u.s. economy. we have gone from the next turn is going to be down, inflation weakening again, to inflation is headed upwards. guy: tom, we have great coverage coming up later in the day, as we go toward the fed announcement and the press conference. this is not something that happens every time. we will have some great coverage. if you are on your bloomberg

service, you can go live. this is a fantastic function. the top live blog on the federal reserve interest rate decision. all of the smart people at bloomberg will be contributing with one of those things, tom. bloomberg tv, bloomberg radio, or the top live. we have some great teams out there. tom: we are thrilled to have peter hooper with us this morning. could he be a governor of the fed? we will talk with him about that in a bit. mr. cooper will be with jean-claude trichet. -- mr. hooper will be with jean-claude trichet. we will talk with jean-claude trichet about these brutal economic times. this is bloomberg. ♪

tom: good morning, everyone. good fed day. guy johnson in london. i am tom keene in new york. lots to talk about on economics, finance, and investment. we have done this before.

this is the most important question of the day for any and all, including peter hooper of deutsche bank. dr. vivian lee is truly one of the jewels in medicine out of radcliffe, a rhodes scholar. she has done duty at new york university and now runs the university of utah health care system as the chief executive officer. she greets us on doctors and nurses. i want to know, with the shift from the affordable care act and obamacare to whatever is coming in our trumpian future, what does it mean for doctors and nurses? vivian: that is a really great question because there is so much conversation about what we will repeal, what will we replace it with, i am worried about missing the big picture, which means we need to get our health care costs down, that we need to improve quality and access, and make sure that we looking after our health care providers by empowering them to do the things they know how to do.

tom: can we get health care costs --n by cutting can we get health care costs down and keep labor happy? vivian: i think those two are very connected ideas. what we are thinking about in terms of getting health care costs down is eliminating the waste and the inefficiency. the national academy of medicine, a very honorific society which i am proud to be a 30%, about ated trillion dollars come is wasted every year through inefficiency. we need to empower physicians to do what they know how to do best and reward and incentivize them for doing the right things. tom: i would bet that you are near or at the top on the list

of people that the president wants to speak to about medicine, health care, hospitals. which part of obamacare would you get rid of? think the most important thing is to keep the momentum of change. you can give obamacare credit or big industry credit for pushing back and saying we cannot sustain these higher costs of care, regardless of who you give credit to. -- industry as a whole knows we know that we can get the cost and by reducing waste improving quality. those things go hand-in-hand. if you have higher-quality, shorter length of stay, fewer -- tom: does that mean fewer hospitals? you are in a very different society and culture at the university of utah. does it mean fewer hospitals in utah or in new york? vivian: we still have tens of millions of people not getting access to health care in this country, so there is -- the

issue of trying to shut down next to hospitals i think needs to be balanced against, are we providing health care to those people not getting health care now? we need to cut the trillion dollars of waste out of the system and redeployed at least some of that -- maybe not all but some of it -- tom: we are dressed in fancy suits this morning. all we care about is the health of our families. you are talking about the chief of surgery at the university of utah. you are having a cup of coffee over obamacare and trump care. what is your message to the chief of surgery? vivian: our chief of surgery has embraced -- he is the perfect example of what you are talking about. they have created tools to measure quality and cost for every surgeon. he knows the cost of every single device in his operating room, and he and all of his surgeons, competitive people, are racing to get the costs down while keeping quality high.

he knows how to solve the problem. he needs to be rewarded and incentivized for that, not to be beaten down with more bureaucracy, paperwork, and restrictions. tom: my shoulder hurts this morning. can you look at it in the next break? vivian: do you have a little mri machine? dr. vivian leigh of the university of utah health care. she is giving is wonderful perspective on doctors, nurses, and the nations medicine. guy johnson in london. what we's talk about are watching in terms of news coming out of washington. we need to talk about what is happening with the fed, with regulation. jean-claude trichet, former ecb president, is one of the people you really want to have around this conversation. peter hooper from deutsche bank is still with us. jean-claude trichet, good morning. we are going to talk about financial regulation. the fed is looking at an economy

that has full employment. the wages are rising. reserve behind the curve? an-claude: i don't think so. the fed took the right decision. we will see what they do, but they have prepared the market very well for a long period of time. i do not want to pronounce myself that we know what they will decide in a few hours or minutes, but in any case my sentiment is that they are doing a good job, they did a good job. again, i have full confidence in the open market committee. that weld you expect will get one hike this december, and that 2017 will generate a more aggressive timing cycle? again, it is certainly the very important

message that we sent because, again, they have prepared the market for an increase of rates since a long period of time. what would be important is the exact way they will formulate what they envision in the future. in my opinion, there will continue to be -- in my opinion, they will continue to be data dependent, as they have said very clearly. whether it gives the sentiment to the market that they are accelerating, the base of the increases or not, again, it is up to them. i would say myself, in any case, it will be data dependent. tom: i want to congratulate you on your g 30 report on shadow banking. it is an extraordinary set of minds that this report together. it is an important report. do we have shadow banking challenges now as we right size unit credit -- as we right size

unicredit and figure out what to do with deutsche bank, etc. link in the shadow report with european banking as we enter the new year. are-claude: i think these two questions that are complementary, of course, but still different. the work in the g-30 has been to concentrate on the global issues of shadow banking. both, i would say, in the advanced economy on both sides of the atlantic, and the world as a whole. they are incorporating the problem of the overall emerging economies. our conclusion, if i sum it up, are first, in the advanced economy, we have made progress and we succeeded in diminishing those very dangerous instruments that proved catastrophic in the crisis. cdo pass, the structure

-- all of this has diminished quite a lot. this is reassuring in a way. on the other hand, when you look at the global picture, you see that the overall leverage in the global economy has augmented since 2008 -- we know that the crisis came out of excessive leverage, public and private. we have to remain very vigilant. we have to remain very vigilant at the global level. tom: what i want to know -- and you live this -- european banks that would not merge because the culture and borders -- you and i talked about this years ago at our london headquarters -- are the borders and nations of europe more together now, more coalesced, so we can have mergers, acquisitions, indeed,

troubled combinations of banks? jean-claude: i think you are absolutely right, and we discussed that already together. we have a necessity for restructuring and concentrating in many, many areas in europe, the banking sector. we have too many banks, obviously, too many banks that are too national for many of them. i understand the banking union, which is one of the major, major , should helpforms normally. but it is true that it is still laborious, too slow, and we have domain, asn, in that active as possible. of course, this is a problem for the euro area. the single market and the single currency as a whole. but you have more issues at in a certain number of

countries, including italy. guy: jean-claude trichet, can i link these issues? how much are we seeing in europe and the inability to create better institutions is down to overregulation? you talked about the shadow banking sector and what is going on in the shadow banking sector. i am wondering whether the unintended consequences is that europe is still in a mess with its banks because the regulatory burden is sibley too great for them to make money -- is simply too great for them to make money. i do not think so. the main problem is that they have to restructure, to be able to be more profitable, and one of the difficulties which has nothing to do, i have to say, with overregulation, is simply that the banks in europe in comparison with the united states of america, the final

thing -- the bulk of the economy. economynow, 20% of the or something of that -- in europe we are up to 60% or 70%. bitas diminished a little since the crisis. the task of the banks is heavier in europe. they can less concentrate on what is highly profitable, as they do in the u.s., held by freddie mac and fannie mae. with the importance of freddie mac and fannie mae in the u.s. and we are in a different universe. tohave to work actively reinforce the profitability of our banks. tom: let's come back to mr. ichet in-- to mr. tris paris, and peter hooper. the fed decides. we will decide the idea restrictive -- is the r -- it is the r word from years ago.

this is bloomberg. ♪

tom: what we do best on "bloomberg surveillance" in our coverage -- we want to hear from .uests, hear a conversation alan blinder to join us this afternoon. when hubbard will join us this afternoon. right now, jean-claude trichet, and in new york, dr. peter hooper of deutsche bank. peter, let me start with you and with this chart before we go to jean-claude trichet. the idea of the ultra as vice-chairman fisher has spoken of -- how rare

it is that we have been restrictive moving above the great moderation. it is a rare event, isn't it? peter: it certainly is. this is a trend that is about to reverse, and this notion of restrictive -- i would call it becoming less accommodative, normalizing. i do not think of us as becoming really restrictive until the fed has moved above neutral on fed funds. the neutral rate has come down quite a bit. . think it is headed back up if indeed mr. trump is able to get the supply side of the economy going again, the long-term neutral level of the fed funds rate is going to be rising. that allows you to see more increased before you become respective. i do not think you become really restrictive until you have the economy back to full employment. to the that inflation has risen significantly above the fed's target. tom: this is so delicate, mr.

trichet, how politics full did to central-bank policy. we you ever told by the bundesbank, come on, get with it? did the germans ever tell you what to do? no.anjean-claude: as you know, the president of the bundesbank is with the governing council of the ecb. so we discussed all the matters together and the decisions were all taken and still are taken collectively. ofneed the collective wisdom each and every of our colleagues, i have to say. but to go back, i would very much share the views which you have just expressed on what is probably the position of the fed now. you mentioned stan fischer. it is clear that we are still very accommodating in the u.s.,

not only because the interest rates are very low, even if they are likely to augment in a few hours. on top of that, you have the $4 trillion that are in the overall balance sheet of the fed. things are, when falling do, they reinvest to maintain this amount. the portfolio of $4 trillion is also part of the accommodating policy. the quantitative aspect of it, lengthening the $4 trillion. so we are in the presence of the central bank, which sees what happens in the u.s. economy. look at the facts and the figures, and it has of course elements to be less accommodative from now on. we will see again what they will signal. it is up to them. and we have full confidence in the open market committee. jean-claude trichet, how big of an impact do you think ecb policy and boj policy is

having on the u.s. bond market right now? how much of a gravitational force do they impose upon that rates, i.e., where will be without that gravitational force? the ecb will continue buying bonds at 60. the boj investing even more. how big an impact will they have stateside? jean-claude: we are all living in the same world. intertwinedlly universe, not only with economies but in the world of finance. you are absolutely right, there is, i would say, interdependence . i could see some moves, of course, in the u.s. having a consequence on the markets in europe or in japan, and the rivers. so i will not embark on giving you -- and the reverse. so i will not embark and giving you assumptions that gravitation operates between all economies

and the big financial sphere in the world. both for the advanced economy and also for the emerging economy is absolutely clear -- we are living in one world. tom: we are living in one world, and that world is paris, new york, and london. we will continue with jean-claude trichet and peter hooper in new york. one of our perspectives from a gentleman arguably who founded richmond economics, the former president of the richmond fed. stay with us. this is bloomberg. ♪

,om: pre-janet yellen markets foreign exchange no exception. very quiet, some strength in the yen over the last 24 hours as well. david westin gets ready for "daybreak." david: we are all looking forward to the fed we have bill daley, the former chief of staff at the white house for president obama. we will talk about what it is looking like for the cabinet for trump. we will hear some tweets out of

the president-elect today after the fed. we will also talk with alan greenspan in anticipation of the fed meeting. he will talk about why he is concerned that we are seeing inflation but no underlying growth. manipulator,rrency and he is very concerned about the future of the euro. guy: thank you very much. i want to take you to my terminal and show you the bloomberg. this is target 2. this is germany up on the net side of the balance sheet. this is the rest of europe on the other. the spread between the two is as wide as it was during the peak of the financial crisis. there is a slow bank run happening in italy. jean-claude trichet, former ecb president. still with us. how concerned should we be that the target 2 imbalances are beginning to look as they were

back in the height of the financial crisis in europe? i do not think it is exactly the same interpretation. economy withingle a single market, a single currency, and of course capital can move from the one part of the single market to the other. it is the free move of capital. second, germany is posting a current account some plus -- a current account surplus of 8.5% to 9% of the gdp. to give you an example, the u.s. is posting a deficit of -2.5% of gdp. it is huge. it is not abnormal, it seems to me, that you see some kind of phenomenon associated with the are thet macro policies same, as we all know. at all the idea

that we are in a situation which is in any way equivalent to what we had before the crisis, which in 2007, 2008, and 2010 for us. tom: jean-claude trichet, thank you so much. we will continue with jean-claude trichet on bloomberg radio. peter hooper with us from deutsche bank. peter, to bring up the chart of charts here -- i will let you answer. here are the balance sheets to gdp of the banks. this is japan as a total outlier. what is interesting here, with the courage of the fed early on, and with europe sort of meandering over the prices, where up to a larger balance sheet in europe. do these fadeaway over time, or should we have a framework that chair yellen and future chairs will retire the debt on their balance sheets? peter: if the fed has its way,

it will wait until it raises rates before it allows the balance sheet to run down. i expect a substantial run down over time. certainly if a republican congress has its way, or at least some members, you will see an excel limited process of balance sheet run down in the u.s. my expectation is, yes, it will not stay where it is. tom: will it come in? peter: it will come in. whether it comes back to the zero baseline is another question. that is an issue to be resolved by congress and by the new fed leader. the next fed leadership, if there is one. you soter hooper, thank much. we will continue on radio. don't forget, the fed decides this afternoon. ♪

.

>> good morning and welcome to "bloomberg daybreak."

i am jonathan ferro. in the markets, fed decision day. winning seven-day streak. almost 20,000. futures are negative. the stage is set for a federal reserve rate hike. the bond market, the action looks like this. the yields on the 10 year down by 10 of -- three basis points. david: here is what you need to know. decision day. the federal reserve gets ready to raise rates for the first time in a year. investors looking for signs from janet yellen up off the fed's rate hike path. the danger of high yields. a 10 year treasury yield above 3% will punish the markets. feeling his cabinet. donald trump announcing his intent to name secretary -- goveor