it is a busy day in the markets. s&p and dow futures relatively flat and the dax and ftse 100 slipping off the highs of the session, but the action is in the currency market. the dollar index at its highest level since 2003. yields backing up all across the board. rate decision boe coming out right now. expected, the bank of england keeping its rate at 25 basis points come also keeping its purchase plan at 435 billion pounds. the vote was 9-0. it was a unanimous vote. policy can move in either direction in response to the outlook. they do note a sharp pickup in consumer inflation expectation. they say the recent pound gain implies a smaller consumer price index overshoot.

i'm looking at market reaction, you see the pound right around the lows of the session come off by .6% against the dollar. the euro plunging to the lows of the session come off by over 1%. the one hand, they say we think they will have higher inflation. they also expect slower growth. the horns of the dilemma he is on right now. alix: how much inflation overshoot will they tolerate? you want to help growth, so you want more stimulus, but you cannot tolerate that inflation. now, geoffrey us yu. .lso, michael mckee mike, you have an interesting chart you want to show us. mike: they are facing two different dilemmas. the fed has to deal with the stronger, stronger dollar as it raises interest rates. after brexit come everybody got rid of the pound.

the bank of england is dealing with a much weaker pound. they treated for years in parallel. you can see what has happened since the brexit vote. this is an interesting dilemma. the pound is starting to come back a little bit now. that will complicate decision-making for mark carney going forward. dollary, the strong leads to deflation and they will get inflation. david: tell us about the dilemma mr. carney is facing here. just to mike's point about the currency and how it's going to try to contain inflation, the dollar and u.k. are not like germany and switzerland. i think carney will look past it. that are some corners for

-- right now, making sure demand does not fall off the cliff. the headlines coming from saying they expect monthly volatility will continue, but that recent gang mike was talking about does imply a smaller consumer price index overshoot. that's that recent gain mike was talking about. geoffrey: you are facing two very different cycles. the fed trying to prevent the economy from overheating on a gross basis where the boe is more about uncertainty. you think about the management that can drive inflation lower -- if people don't spend anything come it you get some internal disinflation. does not want to tighten financial conditions co. alix: now off by .8%.

what is your call on pound dollar? geoffrey: we think it is going -- over the towards 12 month horizon. we think sterling has stabilized. we think there is a dollar overshoot going on right now. you just mentioned the dollar index and the 13 year highs. i think these are levels where the fed might start to look into. david: the big news after the markets yesterday, the biggest move was the u.s. dollar. that can that go go -- how far cannot go? that's how far can that go? a stronger dollar is sustainable because domestic demand is going to not upset any disinflation headwinds. , thisthe growth forecast

is baked into their inflation view as well, they are being a bit more conservative on how far demand can expand. dollar,l be watching especially dollar-yen. this is the bulk of the u.s. import basket. if that starts to eat into margins, the fed will have a problem. here's what janet yellen had to say about the strength of the labor market yesterday. year, 2.5e past 25 million net new jobs have been created and inflation has moved closer to our longer run goal of 2%. we expect the economy will withnue to perform well the job market strengthening further and inflation rising to 2% over the next couple of years. david: you were down there in washington covering this. one thing that struck me, i'm

not sure she would have said anything different if donald trump not been elected president. this is the economy, not donald trump. mike: the president has proposed all kinds of things on different sides of every issue. nobody knows what they are going to get. they pulled back and said that make a forecast based on the economy we have now. -- let's make a forecast based on the economy we have now. i've got the dot plot here. june, look att in where it was in june and then you go forward and you see they brought it down on this near end in september and then go back up to where they were. they have not change their forecast over the last six months. we are not talking about any faster pace or higher pace of rates at this point. we are just talking about getting rid of that august bump that we had, the little dip in

the economy. alix: how high or low is the bar? nejra: nobody knows -- mike: nobody knows at this point. you have the fed on hold like the rest of us waiting to see what happens with donald trump and capitol hill. if they decide it will be inflationary, the bar will move up. janet yellen is baking in nothing for trump, just looking at the economy the way it's been going. what does that say about what they will have to do if we do have substantial fiscal stimulus and tax cuts? will the path have to be a lot steeper? geoffrey: ultimately, she will focus on wage growth. then, i would start to look at the savings and consumption levels. the supposed oil dividend, the bottom line for u.s. households, that increased, but the money was not spent. if we do get some real reflation

, we have to see if that is spent or not. consumption drives u.s. economy, the fed can afford to be even tighter. i don't think they are holding their breath on that yet. david: i want to say thanks to michael mckee and geoffrey yu. you will be staying with us to talk about what the fed decision means for emerging markets. let's get an update on what's making headlines outside the business world. for that, we turn to emma chandra. they aresia says evacuating 5000 syrian militants from the city of aleppo. russian backed syrian troops have taken control of almost the entire city. thousands of civilians are still waiting to leave. japan is trying to resolve a territorial dispute with russia that has lasted seven decades. prime minister shinzo abe is

hosting president vladimir putin at a hot spring resort. the dispute has kept the two countries from signing a peace treaty formally ending the second world war. president-elect donald trump has told american tech leaders he is -- many of whom supported hillary clinton. >> i am here to help you folks do well. andare doing well right now i'm very honored by the bounce. emma: a trump told the tech leaders there was nobody like them in the world and he wants them to continue with their incredible innovation. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. alix: we have some currency moves we want to update you on. euro-dollar off the lows of the

session, off by 1%. are we inching towards parity? do we get there? 1.04 is the key level to watch. -- aidual movers in europe french utility company down by over 12%. the lower prices in france and the u.k. polling the most on record because it had to forecast a profit slide. the defensive sectors that gets -- deutsche bank, bnp paribas also ring today. -- all sorting today. in terms of commodities, gold gets hit. that means negativity for the gold stocks. gold up by 1%. rand gold up a present. -- 8%.

spot gold bowling to its lowest level since january. totally beaten up when it comes to higher yields, higher real rates. pound dollar off the boe rate decision, up by putting percent. thus .8%. dollar-yen jumping a little bit off the lows of the session. 118. a 120 called no longer seems crazy like it did a week ago. emerging-market assets poised for their biggest drop in a month as the fed points to a tighter financing. more with ubs's geoffrey yu. that is next. this is bloomberg.

alix: the u.s. dollar index at its highest level since 2003. mic emerging market currency index, the white line versus the fed dollar index as the blue line. is geoffrey yu of ubs wealth management. are we looking at a december, january, february scenario? geoffrey: for emi fx, we just prefer to hedge out the dollar risk altogether. from a tax class allocation point of view, we are long a basket of em currencies. like the ruble, rialto marais rand, real.uble,

this is a way to have exposure to em and remove the dollar risk. yum equities still an area we like come actually. em equities.s -- david: are these problems with trade or external debt exposure in u.s. dollars? toffrey: we have to start differentiate. if you want to look at the external debt front, look at the that is a bit worrying. if you want to look at trade come all those currencies we just mentioned, what are the high beat trade currencies? the currencies which have benefited come of the countries which have benefited from globalization over the last two

decades or so, those need to be unwound. alix: we are seeing that reflected in the yuan. usually when you see depreciation, that wreaks havoc in the markets. of we going to see a redux august 2015? geoffrey: i think the market has gotten a bit better at reading what the pbo see is trying to do. is trying to do. ultimately, china still does have the capital flows situation. unless expectations change, it's not that we will have a sudden shock, the directionality is not going to change. alix: what is your favorite currency pair to play? geoffrey: from a stronger dollar point of you, we don't have a particular currency. our house view is it is starting to look a bit rich. the dollar could become a problem for the fed up ahead. we are still advising clients,

don't stand in the way of markets pushing for stronger dollar right now. bedo have a tactical view to long euro -- just hedge out your dollar risk altogether. alix: thank you so much, geoffrey yu of ubs wealth management. much shares ofp eli lilly down more than 19% this year come along with much of the rest of the sector. with a new ceo taking the reins, will the pharma giant see a better year in 2017? an exclusive interview with dave ricks. ♪

alix: this is "bloomberg daybreak." futures relatively flat, the dax up .6%, the ftse .1%.er the boe leaving the bond buying

program unchanged. the u.s. dollar index at a 13 year high. you can see that expressed in 119, inchingp 1%, towards that 120 level, unbelievable move. that jibes with the bond selloff we continue to see, u.k. 10-year gilts -- real yields backing up, gold gets hit come off by over 3%. david: it wasn't that long ago we were talking about less than 100. alix: the 99 on that brexit night. david: let's turn to drew armstrong. drew has an exquisite interview with the incoming president and ceo of eli lilly, dave ricks. drew: david come a nice for you to come on and join us this morning. walk us through a little bit

about what's in the guidance here, where you all see 2017 shaking out and where you will be ahead of the street. dave: today, we are reaffirming our 2016 guidance of 350-360. expecting mid single-digit growth on the top line next year and mid-teen growth on the bottom line for next year, yielding that 405-14 number we are putting out today. this is driven by volume of our newest products. -- 405-415 number we are putting out today. helping patients with cardiovascular risk and glucose, that is a person diabetes. true list he is enjoying great performance globally. along with a new medicine we have four a dermatologic condition called psoriasis. we hope to add to that. we expect regulatory action for

that medicine for rheumatoid arthritis. a new host of medicines coming to market out of our laboratories, driving volume growth globally for us. that allows us to announce this guidance. this is very consistent through --t we said over the summer we expected to grow the top line by at least 5% on average with or without the alzheimer's drug. ask you abouto the all summer's drug, this was one of the treatments for alzheimer's that was further , therehan anything else are no effective treatments out there for alzheimer's. when you announce this trial failed, the stock went down. bad news for patients all around. you will be the ceo officially in 15 days. congrats on that. what will it take for eli lilly to go back in and invest billions of dollars on another of these big programs again?

i know you have stuff early in the pipeline. what will you have to see early on in order to get back in there and spend on alzheimer's? disappointed in the outcome. it was a high risk, high reward program. mostly we are disappointed for patients and that thousands of people who contributed to the study. like all studies and all of science, we need to take and learn from failure. team oft a great scientists, the best in the industry and the broadest alzheimer's portfolio of any major company we are aware of. some of these programs look and act.ike -- we need to do you say when you see data from these early given the lack of understanding about the brain in general, is there anything in particular you will be going

after? dave: it is a complicated condition that we are just still learning about. we have a lot of tools. we've now just conducted the largest well-controlled study of amyloid only patients ever done. we will mine that data in order to look for those insights to help improve a probability of success. we have a base inhibitor in phase three in partnership with after zeneca. along with some other antibodies. -- astrazeneca. we announced another extension of our partnership with astrazeneca for soluble antibodies. i want to take those learnings .nd apply them drew: you announced a 40% cut for cash paying customers. what will we see in 2017 on drug

pricing? we have a new administration with trump who's been jumping on populist issues. will other drugmakers come out and do the steps you guys have taken? are focused on fixing the actual problems in the u.s. health care system which have seen expanding burden on patients to pay for their own medicines over the last few years. the pricing in the industry has not changed much. our net pricing is really pretty flat to low single digits. we are all for competition, but we want to focus our efforts on filling the gaps in the health care system. insuranceth health car companies or directly by patients in that height adjustable go pay good -- high deductible co-pay.

alix: an exclusive interview ceo,eli lilly's incoming dave ricks. drew: we will hear about this for a long time with this incoming and ministration. it will not take much for trump to come in and say drug prices are too high. and start tweeting at drug companies. he already has. la boeing. it is the biggest player in the at and opecin, wh deal and $55 oil means for his plans. ♪

alix: this is "bloomberg daybreak." u.s. equity futures relatively soft, a bit of strength over in europe, the ftse losing its earlier gains, now relatively flat.

the dollar index at its highest level since 2003. the euro down 1%, the yen down .8%. part of that story is the backup .nd yield -- in yields gold continues to get beaten up off by 2.5%. vote of confidence, rising inflation and stronger employment led the fed to raise its benchmark rate 25 basis points for the first time in the year. janet yellen projects three more rate hikes next year. of the dollarme climbs to its highs level since 2003 in response to the fed's decision as the u.s. 10 year yield climbs its highest level in two years. the bank of england keeping its key interest rate at a record low, noting the pound recent appreciation may mean a slower uptake in inflation. oil prices trading around

$51 a barrel this morning. what does and opec deal mean for u.s. shall companies? goldman sachs sees an additional 800,000 barrels a day coming online. i went to texas, the permian basin to visit pioneer natural resources, the top player in the region to see if incoming ceo tim dove is changing his drilling plans next year and whether or not he sees opec compliance. tim: i think compliance is still a question. a lot of the countries involved with this have ratcheted up production significantly. in advance of these decisions regarding compliance for a deal, not the extent that they are reducing that ball in, it's really getting back to where they were. it is more of a freeze than a cut. they will freeze at that level, it would help to burn off inventories. inventories is our problem in the world. we have high inventories of oil.

it will cause a price related issue. to the extent that we can get some demand improves from here, some opec compliance, i don't expect 100%. the russians saying we will do we couldh time -- easily be in a scenario in which 2018, we coulds be somewhat in the range of the 45-55 case. you have demand ratcheted up, supply that has come down somewhat, compliance to the extent there is compliance and all of a sudden, you've got inventory draws happening -- that bodes for a strong 18. 65-70ish.ll be

we tried to be efficient with regard to keeping our costs low. one way to do that is to drill several wells -- we have three wells drilled on a pad. in 130rt the first well days. that is why the u.s. is so important as a short cycle swing producer. alix: what is your hedging strategy? tim: we've been heavy hedgers of both oil and natural gas with the idea of we are more like farmers, we produce a volume of goods, but we cannot control our own price. we get exposure to the upside while giving us production on the downside -- we are 85% hedged on both oil and gas again next year.

a $50sic structure is get 50t, 40-50, we would 50-60, we would get that same price. get 50.uld 50-60 come on would get that same price. would you be hedging abc oil?il -- if you see $70 tim: we want to get some exposure up to 70. alix: short-term, if you do get and opec deal, do you change your strategy at all? tim: we are going to continue our plan to run 17 rigs up to 2017 and stay on this

trajectory of 15% growth. alix: how long is your sub 50 breakeven good for? tim: if you look at it, our company cost structure is so low that some 50 works for us -- 750 works for us. -- sub 50 works for us. of 250, taxess related to production, but corporate burdens on their such as interest, you get to $20 roughly. we will make money anything over $20. we won't make much of a return at $20, but we are at $45, we make pretty excellent return. alix: my big take away is below $20 breakeven, but not changing their business plan due to opec. contrary to what the general

vibe in the market is. are they going to invest more in next duration and develop an -- exploration and development? what about trump? he was backed by the likes of harold hamm a. will it make a difference in his business? alix: the big take away is on the margin, it's not like they did so bad during president obama, either. it takes away the regulatory questions they had. if you pump more, the price goes down. alix: $20 breakeven what does it matter? the fed met for the first time since the election of donald trump yesterday and it raised rates for the first time in your. are the two connected? janet yellen put the emphasis on

the economic data, not the election. she did concede that the change in fiscal policy might have played some small role. yellen: some of the participants did incorporate some assumption of a change in fiscal policy into their projections. but not all participants. that may have been a factor that was one of several that .ccasioned the shift i want to emphasize the ships you see here are really very tiny. is a stephanieus flanders, j.p. morgan asset management chief market strategist for the u.k. and europe. what i would like to tease out here, how much of this is the anticipation of the new trump administration and how much is the fed? clearly, both the currency reacted yesterday and the bond market reacted. they had been moving up already. this was not just the fed. it donald trump?

stephanie: we have a combination of things going on. the market has been catching up to where the fed was in terms of great expectations next year and still come the fed futures are still suggesting the market doesn't quite believe in those three rate rises for next year, but the environment, the fed officials were thinking about the future projections. does include that possibility of more physical action by donald trump. also the animal spirits you've seen in the last few months, the is will feeling that th give an extra reflationary boost to the u.s. we are seeing that move in the dollar. that is the thing that concerns us going forward. if that continues, that will start to cause problems for the rest of the world. as you form your market

strategy at j.p. morgan assets, how do you take these into account? on the one hand, it sounds like janet yellen made her decision, they made their decision regardless of what was going on with the new trump administration. if it comes through with substantial fiscal stimulus and tax cuts, that could change the environment profoundly. stephanie: they are being realistic. her suggestion in the press conference was it was in the air and she felt that had been implicitly or explicitly changing the numbers policymakers were thinking of. about think realistically how soon a fiscal stimulus could really affect the economy in a direct way, you are talking more about 2018, 2019 and realistically, probably only talking about a few fractions of a percentage point of gdp. the animal point is spirits point, will you get more

investors, more businesses investing in the future on the basis of this greater optimism? or will that fizzled somewhat in the face of a stronger dollar? asset management standpoint, we clearly do think the u.s. is still a favorite market. our broader question going into next year, is this trump train going to do the world more good than harm? will it be positive for global growth or raise? about the rest of the world -- question marks about the rest of the world? david: animal spirits in the markets themselves and the bond traders and things like that. how do you incorporate the possibility that the market is overreacting? animal spirits can be fickle. they can go the other way pretty quickly. stephanie: that is certainly the case when you think about how the bond market has reacted to some of this talk that you had

the equities have done well come even if you have higher interest rates, you are discounting those future profits at a higher rate. you will more than offset that with your earnings growth, with your stronger domestic economy. if people start to doubt that and we end up in the good news is bad news world, that could change things and there is a sense among asset managers that we need to not be waiting to see how these first few months of the trump administration pan out rather than getting ahead of ourselves on the exuberance in the market. david: that a stephanie flanders, j.p. morgan asset management chief market strategist for the u.k. and europe. -- 21steaking news century fox and sky have agreed to a merger. fox is buying skype or 10 pounds 75 pence a share. -- buying sky.

over 11 billion pounds for the entire deal. for more, we go to paul sweeney. is this any surprise here in terms of the price and the fact that it happened? paul: this is a deal that the market was expecting to clearly get done here. this is an asset in sky that when he first century fox has wanted for a long time. five years ago, they tried to buy the remainder of the company. -- 21st century fox has wanted for a long time. most investors felt it was a matter of time before they felt confident enough to come back and make a bid for the rest of sky that they don't own. this formalized what the market was expecting. before, didtried it not happen because of various problems.

it is at a fairly low level. valuationooked at the is generally in line with the recent deals we've seen in the marketplace. generally a pretty good multiple relative to where stocks are trading today. that is not to say that in this consolidating environment where we just saw at&t make its deal with time warner, this m&a environment, does not mean there could be another buyer out there. that couldn't be another buyer out there with a higher price. david: next, we will talk about yahoo! shows down after details of its 2013 hack that may have affected more than one billion accounts. -- shares down. ♪

emma: this is "bloomberg daybreak." coming up in the next hour, jim caron. alix: this is "bloomberg daybreak." yahoo! and verizon shares down in premarket trading, yahoo! exposing a second major hack that may have affected more than one billion accounts. joining us is all sweeney. -- paul sweeney. is that enough for verizon to walk away from the deal? paul: it certainly gives him verizon a lot of reasons to really sit down with yahoo! management and get a much tighter handle on this issue. this is the second hack that has

been disclosed, one billion users, that is essentially every one of the yahoo! users. if you are verizon, it calls into question, what is the security around the apps you are buying? is this going to impact the user base? will yahoo! see users flee their servers? what are the chances verizon can get to a comfort level here? right now, it is yahoo!'s problem. once they bought it, it is verizon's problem. watch.n verizon's paul: let's step back. if you are verizon, this is a ,mall deal for you, $4 billion it is strategic, has a lot about you in the context of verizon aol, butired a well -- this is not a material deal for

verizon. you want to assume a material level of risk and liability. i think verizon is absolutely going to sit down with yahoo! and say we need to get a handle on what is the future risk and liability with your security or lack of security around your user base. for a real opportunity verizon to walk away or maybe even to renegotiate the terms of the deal. david: the media landscape has changed fundamentally since this deal was first announced. particularly in the form of at&t time warner which has put the much larger content plays up forward. they're been rumors already that verizon might be interested in taking the tires with cbs. i think it's really possible here. you mentioned the at&t deal, that is a major, major bet on video and content. take a look at verizon and look

at their strategy of a well -- aol and got who, that pales in comparison to at&t and 20% three andand sky -- 21st century fox. we might need to think about a bigger deal out there. alix: what would that wind up meaning for yahoo!? paul: most investors don't care, the real value continues to be its investment in alibaba. it's really a question for about howreholders yahoo! can monetize its investment in alibaba in a tax efficient way for shareholders. this sale of the operating business to verizon was icing on the cake. yahoo! shareholders would like to see this deal done.

thank you so much for joining us. --does raise the question what else don't we know now? david: you are always worried about the things you can find out and they come up and blow up in your face. emma: the swiss biotech and specialty chemicals company has agreed to buy american capital they're owned by the private equity firm kkr. kkr will make a $3 billion profit on its investment. market share in europe has gone up for the first time since the emissions scandal.

vw also did better than the industry as a whole, sales up more than 6%. japan is trying to resolve a territorial dispute with russia that has lasted for seven decades. prime minister shinzo abe met today with president vladimir putin at a japanese resort. japan wants to return the four you will divulge the outcome of the meeting tomorrow. this is bloomberg. investors reducing their cash position, putting it to work. are we ready for a market cause? three charts from bank of america help tell the story. that is next. ♪

alix: welcome to "bloomberg daybreak." investors buying banks, buying the dollar. in bank of america's latest survey, they highlighted some interesting factoids. one is how much cash is being put to work. the blue line is the s&p and the gray bars are the average cash balance percentagewise. that's about 4.8% from 5% in november. down by about 1% in just two months. s&p taking a pause. we are not at peak greed levels yet, a contrarian indicator. a really interesting development as the s&p continues to grind higher. aspect, what fund

managers smiled up thinking about the dollar. the percentage of those who say the u.s. dollar is overvalued, the white line is the trade weighted u.s. dollar index. think the dollar is overvalued at its highest level, three times in the past 10 years. these fund managers think the dollar is the most overcrowded trade out there. what do you do if you are looking at overvaluation? the white light here is that net percentage who say they are now overweight banks and the orange line is the sector performance when it comes to banks. , netay they are overweight overweight banks come a 31% last month. positioning is so extreme. net overweight banks, 31%

from put if i percent last month. -- 25% last month. david: what is driving the recent rise in yields? jim caron is next. alix: we are seeing some big moves in the currency market. the dollar index now at a 13 year high. euro-dollar continuing to grind 121, and dollar-yen at breaking that 120 level. and unbelievable move. -- an unbelievable move. we will discuss over the next few hours, u.s. futures flat, this is bloomberg. ♪

alix: welcome to "bloomberg daybreak" on this thursday.

i am alix steel. a check on the market. equities futures relatively flat. the data off of the highs of the session. the currency market, the dollar is higher. the dollar/yen at 118. we broke the 120 level and we have not gotten there yet. a one point rally. the pivotal one to watch for currency. the u.k. 10 year yield up by 10 basis points. gold getting hammered. to know.at you needed central-bank divergence. the bank of england leaving key rate unchanged while rising inflation with the fed raising benchmark 25 basis points for the first time in a year. forecastst yellen three hikes fear. the dollar at its highest since 2003 westphal said decision --

with the fed decision. hacked. of yahoo! lower after a set of the compromised more than one billion accounts back in 2013. that's what you need to know. turning back to the fed's decision. janet yellen tied it to a rising economy. she was upbeat about how far we have come. new jobsn yellen: net have been created, unemployment have fallen further and inflation has moved closer to our goal of 2%. we expect the economy will continue to perform well, with the job market strengthening further and inflation rising to 2% over the next couple of years. david: joining us now is mr. mckee and jim caron, morgan stanley investment so you're

fixed income portfolio manager. welcome back. michael, let me start with you. janet yellen said of the economy is doing this, thank you very much. expect this performs to continue, what do they expect in the future? expect: and they something, but they do not know what. you can see that in the projections. she says some people incorporated stimulus but we do not get that idea. we have what they are forecasting and the changes. is thereat the numbers and the jobless rate ticked it down in their forecast next euro by 0.1%. nothing else was changed. there's no anticipation of what will happen under a trump fiscal baked into the said's -- the said'-- fed's forecast and they

are only looking at what is happening right now. david: is there a risk to the upside of more rate hikes if trump comes in? i suppose and there is. what's michael was talking about, the fed added in at the hike next year when they do not meet their inflation forecast. andre below the 2% target there is no sign that the economy is overheating. thee is no forecast saying growth will be substantially above 2% yet they hiked anyway. that's probably one of the more confusing aspects. to doht have something with adding and fiscal stimulus into their analysis. i do not know what they base it on. tox: they do not want overheat and more. jenna yelp -- janet yellen is a fed up. anthey do not really add

extra rate increase. they went back to what to the forecast was in june what was even stronger than now. when the looking forward 18 months for the long available leave a you think you will get the 2% -- the long variables and you can you will get 2% and you put that later for 2017. jim: it did not take much. it only took two people to move there -- their dots. it could be the fact we have been an low rates for so long and the fed has been tried to re-normalize, they'll wrote it to normal may not seem that normal. a situation maybe were the fed is telling us the tell risks are not as great as what we previously thought. michael: i think that is right. it is a think we are on much more solid ground. jim: that is a good thing. if there's a more clear path to normalization, that is a good thing. dsok at where real fed fun

are. they are negative by about 130. what are the fed is want them to get to -40 by the end of 2017. still very accommodative levels. i would not say that the fed is very tight, i think they are accommodative. how important is it as opposed to after january 21? jim: it is quite important. the statement which will come out in february and the march fed meeting will be critical. clearly, some neighbors may have to -- a sum of members might look at. we will get more in the weeks ahead. the civic link is what we -- tonaling is what we ought watch. they think the economy is strong enough to absorb it. the markets were prepared.

you have a flattening of the yield curve and a severe strengthening of the dollar. alix was talking about it and that is a drag on growth one year out. we have to be careful. i get the optimism and i understand they want to normalize, but we have to understand the risks of sending the message to soon. alix: the markets betting on the higher rates. this is the percentage of clients from jpmorgan who are in net sure on treasury at 60%, unbelievable move through the bull flatter playing out today. here is the question, if we did not have rate so high, with the fed have hiked a more? did these events deter the fed? you said rates so high and they are looking at rates are too low. we have 4.6% unemployment, basically full employment.

and yet, you are looking at a fed's funding rate between 50 and 75 basis points. that is approaching a more normal level for yields. thoseormal economy, yields would be 4% or more for a 10 year. the fed is maybe sending a message, not to the markets, but to the incoming white house that we are not in a position to absorb a lot of stimulus that the push inflation way up. >> and we are going to lean against that. at the terms of looking markets today, what we have to factor in of them, the fed are hiking and maybe there are limitations, maybe three or four next year. some sectors are absorbing pretty well, for example, high yield. depend on credit

conditions. that is an asset we like. i like the residential housing market at this point. i think home affordability is high. have are assets that still a decent yield. that is the place to go. something else you might want to look at our tips. if we think we will move into inflationary environment and the risk of the fed does more and goals faster, inflationary could be part of your portfolio. david: thank you to michael mckee. jim caron, morgan stanley investment manager senior fits income portfolio manager will stay with us. an update of what is making headlines. emma chandra is here with first word. emma: the evacuation of aleppo has begun. syrian activist say people boarded buses and ambulances for the journey out of the city which has been under siege for months. it amounts to the rebels

surrender of the stronghold and mostan back rebels control of aleppo. british prime minister teresa mayo is in brussels for the meeting of the leaders. she is not divided to dinner. leaders will discover europe's future. theresa may said she is fine with it. >> i welcome the fact the other leaders will discuss the brexit tonight as we are going to invoke article 50 and negotiations by the end of march next year. it is right that the leaders will prepare and we have been preparing. we will be leaving the eu and we wanted to be as orderly as smooth as possible. isa: the prime minister taking talks from security and her relations with ukraine. an american fugitive accused for adult largest hat -- for the largest hack was taken into custody. he and two iranians are accused

of taking info from companies like morgan stanley. he has pleaded not guilty. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra. this is bloomberg. alix: thank you. the move in the currency markets to watch is the euro/dollar is over 1%. the level that many were watching -- we broken below that level. it was pivotal to some who were looking for parity. we are active the lows of the session. this is what the keep your eye on. gold and gold mining stocks getting hit hard. a silver miner off wi-fi percent. royal gold, often by 4%. off by 5%. miner is a couple of stocks. yahoo! is up 3% in premarket,

closing after a second major habitat affecting -- major hacker attack affecting more than one billion. will verizon change it's a bid for yahoo!? -- its bid for yahoo!? heinz is acquiring a bid. in thestocks pause upward march as the fed voted to raise hikes. can trump push dow to the 20,000 mark? that is next. this is bloomberg. ♪

alix: this is "bloomberg daybreak keybank -- daybreak."

the ftse is down. all about theis stronger dollar continuing to grind up higher. over 103. look at the that. the 10 year yield up by eight basis points. been,g question is has will dow reached 20,000? we are way overbought. look at the bloomberg. the bottom panel is the relative index, oversold by the most since 1996. remember that, guys? that is alan greenspan talking about his numerous. jim caron is still with us. the dow is arsi, microcosm for all of the moves we have seen. are we at a rational exuberance? jim: i looked the other access outside of bonds as risky. we need to look at in the

context. there is natural limitations, how high can rates go? how strong can the dollar go? when does it affect other markets? when we see this today, what we have to look at is all connected to each other. can rates rise today? yes, they can arise. can get to 3%. if rates get above that, you start to see destruction towards other assets. a more normal level based on my fair value models of 2%, 3% make sense. beyond that, if things do not fundamentally get better, a negative feedback loop into equities. you have to watch real interest rates. the nominal tenure and subtract inflation and if that rate gets higher, that is where we start to compete against other assets and bond yields can be destructive to other assets.

clearly, if we see much higher than 2% growth which is what is forecasted, other assets do well in that will be a surprise. david: what if inflation rise significantly? not your nominal rate, the real rate, it really affects it? jim: that is right. if inflation goes too high and the dollar gets too strong, what would have to think about, the dollar could go up today and we understand. there is a big diversions from central banks. at some point, there is a drag on growth. nine-12 months later, unless we have global economic conditions getting better, the dollar can get better if the u.s. strengthens. if it is not good for about global economy, the dollar can be detrimental. alix: my favorite quote is from kit digital and he said -- kit juenckes, and he said the dollar gets stronger. that lies the --

>> as opposed to what is going on. playing the person game. many are playing the game. if the u.s. is going forward and the others going the other way, what keeps the dollar for rising? yields from going up? trumpecobelief in nomics. the dollar will get him p did and we may not see that until the second half of the net year. things will turn around. alix: jim, great to have you. jim caron, morgan stanley investment management managing director. thed: donald trump met with leaders of major tech companies. what other conversation could mean for the future of tech companies. that is next in this is bloomberg. ♪

david bank i am david westin. the brazil let met with the ceos of major tech companies. there may have been harsh words and the past, yesterday, all was sweetness. met withesident-elect the ceos of major tech companies. cory johnson met up with one of them. z, better tradet deals are important to us. better trade deals are very much in our interest. now joining us as our colleague cory who did the interview to take us through what they accomplish. what did it do? cory: i spoke to her before she went into the meeting. they talk about trade, they talk

about jobs. it seems very high level. you are probably went to a dinner with a dinner with 25 people and not a lot gets done. i thought it was interesting not just tech executives who were there but the trump family. 4 members representing the trumpet businesses and i thought that was interesting and a vigorous meeting that we know about since the election he fills with his family members. david: it is turning into the family business, government of the united states. as i said in the intro, there were harsh words in the past. cory: there's been a bad history between silicon valley. you could see it in campaigns. even if you look at the tweaks sent out -- tweets sent out especially with amazon's jeff bezos was built one of the biggest businesses in the world. donald trump said they never pay their share taxes and if they

did they would crumble. say about tax laws. bezos said -- david: you did i know if it will be similar to the meeting he had when he came in and read him the riot act. when i read the transcript, it is, boy, we love you. you are so innovative. do not go through my staff. cory: it was rambling comments that were interesting. interestingly very much of an exploiting of business. if you look at some of the biggest companies, you are looking at companies represented. 30%, 40% of sales overseas. like ciscocompanies

and oracle and tesla. look at best. amazon, oracle, facebook, tesla are exporting anywhere from 52%-50 5% to stop these are big numbers. alix: and they use a big number of workforce overseas, a lot of talent from overseas. how did that end up playing out? cory: the long immigration debate is the code word of copper his and immigration. it all means all immigration. -- comprehensive immigration. silicon valley is willing to take a fixed for the visas and getting more technology investors, more technology workers and that is important. emigration is at the heart of silicon valley. was founded by immigrants. a technological think. it is really important.

one of the things that has been at the heart is not paying taxes. getting a parked offshore. where's that likely to play out? donald trump is aggressive with saying we need to get that money back. cory: we have not had any questions about repatriation. there is a massive amount of cash overseas. that done a lot to restructure headquarters and banking headquarters in ireland, which is more tax friendly. we have companies that have created structures whether by borrowing overseas or doing acquisitions overseas to deal with the cash penalties. we know repurchase and holidays do not work in terms of spending and using it for dividends and buying back. alix: they are issuing debt. who was not there? the notable people? not present. was

a story on the medium yesterday pointed out that the truck campaign tried to get twitter to create an emoji every time somebody wrote crooked hillary, and emoji of money out of a money bag would be taken in twitter refused. the storage suggest twitter with -- the story was twitter was kicked out because they were not create an anti-hillary emoji. thiel said these are the biggest and most successful and twitter is very successful for donald trump. you cannot say it is one of the biggest? cory: you can said about the only private company had a personal connection with peter thiel. whether donald trump boards family running it or peter's investment, a lot all sort of

financial nepotism. david: thank you so much. that is cory johnson. great story. alix: on believable how it unfolded. the dollar at the highest level since 2003. -- alix: unbelievable how it unfolded. the strong dollar's impact. the fx market's qs mover. the dollar index at a 2003 high. continuing to get hammered. backing up across the board. up 10.year yield is gold is getting hammered. the fed hike playing out today. this is bloomberg. ♪

alix: this is "bloomberg daybreak." markets of the move. ftse is flat. in thee has been

currency market. tremendous moves happening here. the dollar index over 103, up by over 1%. it is wreaking havoc on across the board. substantially weaker yen. gold continues to get pounded. we have breaking economic data for you. is of the most important consumer price index, year on year, in line with estimates at 1.7% up by 0.2%. in line with as amiss. back out food and energy, 241% for november. -- in line with estimates. -- 2.1% for november. higher inflation moving is what we are seeing reflected in the daytona. initial jobless claims act to enter 54,000 jobs lower than the week before -- initial job claims act 254,000 jobs, lower than the week before.

david: it jumps at you. manufacturing is doing better than we thought. alix: the dollar index around the highs of the session. double by two basis points for all steady. this speaks to the fact of what janet yellen was saying, the underlying growth in the u.s. is getting better. do we need the fiscal stimulus? david: she's adjusting we do not need it for unemployment. we are doing just well, mr. trump. alix: let's get to what key banks are looking at. bell is joining us. do you buy the data we are seeing, growth and jobs are better than we thought? isabelle: good morning. the data that you just cited confirmed the u.s. economy has quite strong momentum and that's

reflationary. has been in the data for several months now for the better part of the year is for real and it is continuing. at the same time, it is important to know there is no indication that things are getting out of hand or the fed may be getting behind the curve. that is been the way of the perfect balance. store momentum but no sign of overheating. alix: dollar index of 103 and the 10 year over 6% per out what level do we wind up seeing the tightening of conditions and the stress filtering into other asset classes? isabelle: so, i think that is a great question. the same with financial markets is they tended to move in a jerky weight. obsolete, you do not want to keep the dollar or interest rate -- office like, you do not want to keep the dollar or interest rate since web seen since the presidential election. we do not expect it to be the case. we expect it that things will

settle down because the fundamentals do not justified further acceleration at the same pace we have inc.. inevitably, there is jerkiness. -- at the same pace we have seen. if we were to concede -- were to see, that will lead to a tightening not only in the u.s., but globally and that will be quite worrisome. that is not our baseline. alix: my favorite is in the form of the u.s./german, that's my favorite. 223 basis points spread, the widest since 1989. is this kind of spread justified? isabelle: yes, i would say that is what you would expect. first, a very different monetary ,olicy and monetary policy past as well, inflation dynamics are growthnt and the

momentum is also different. that not particularly surprising. alix: still calm. you are calm. if you have a strategic outlook for market, where are the pockets of opportunity as you see germanic central-bank divergence? dramatic see central-bank divergence? isabelle: generally reflation financials, which favors value stocks, which favors generally we like emerging markets. the reflationary environment without an overshoot in the dollar or u.s. interest rates, this up every -- this is very favorable especially commodity exporters and high-yield there's . we think they have then up to much since the u.s. election and we see more opportunity there.

as well as a tactical play, we like japanese equities because they obviously benefit significantly from the weaker yen the way expect the weaker yen to continue given the divergence and monetary policy and -- in japan. it was at the structural story favoring japanese stocks for some time but the cyclical part was missing. with the weaker yen, we have the cyclical part. alix: thank you for joining us. isabelle mateos y lago of black rock -- blackrock. thed: let's talk about dollar. it moved up. what it meant in one of the things it meant was em, emerging markets were hit. we can see that graphically in this chart which shows the flows of funds into and out of the merging bond market. big flowhe right, a out, as large as it has been

since last january when the result of this turmoil. joining us now is diego ferro. welcome to the program. it's been to that chart and what is going on with the flows out of emergency market bonds? diego ferro: the flows into emerging markets has been an all-time highs since the time of the elections. some is natural to expect. i think we are at a point in which because of the uncertainty the market was expecting because of the u.s. election and the italian referendum and the fed rate, a lot were holding initial levels of cash. you have not seen as much in price. of you see more outflows, you are more likely to see as set classes. david: in terms of being overbought, there are factors with the truck election doubt --

trump election that would raise concerns, trade. using the dollar strengthening, over 103 in the index which raises issues for countries that had external debt in u.s. dollars. diego ferro: there is a lot of talk about that. i think as everybody refers to in oned taper tantrum big thing that is changing now is that a lot of the countries in emerging markets have adjusted. the thing we look at much more than absolute level of dollars is where the overall emerging market currently because there promotes at adjustments. from that standpoint, what you are seeing, they are in a much better position than they were in 2013. a lot of the currencies are much weaker. the dollar is getting stronger, but even that strength is adjusting a lot of the countries, lowering the adjustments to the currencies. job is to go into emerging markets and find the

most distressed assets that nobody else wants to buy. that leads me to venezuela. where do see the opportunity? : it isgo ferro interesting. it was the best and bond the land. there are still some parts that traded 40% in yields and dollars. it is still a country that is -- but, their willingness to pay at commitment to pay is is there. it is still cheap from that standpoint. david: if i wanted to invest in venezuela, how do i do it? there are reports there are a lot of money going into the spec. especially given the risk of the dollar, how do you do it? puttingrro: the people money in venezuela are mostly venezuelans.

much of that offshore money going back. legalare no, i was say way to do it. the best way to do it is through what is called the black market rate. the way to play venezuela is through a fund, through bonds and that is the only effective way to do it. localsenezuela to money, , are starting to invest in the country and that tells me the expectations of a regime change are much higher than they would be and it will be an incredible opportunity was in the regime change happens. alix: are you buying bonds? diego ferro: we are waiting for additional weakness. but, yes, we like those bonds and we have those bond. david: what kind of discount are they trading that? diego ferro: the curve continues to be inverted curve. but in the short term, bonds maturing trading in the 80's so

that is the yield 40%, something like that in dollars. performing asset trading with that kind of yield. alix: what is your other big of conviction trade in emerging market? diego ferro: i think this year will be volatile in terms of conviction. one area that is getting cheaper is argentina and the gdp is getting very cheap. at the countries since the election we have increased exposure as mexico. we think it is a country that may benefit out of u.s. strength. and we're not entirely convinced of the rhetoric from the election is going to actually become reality in terms of walls and things like that. i think that is a country we may see benefiting from the growth in the u.s.. david: why is argentina getting cheaper? did they borrow too much? diego ferro: that is the reason.

argentina has borrow too much and people have been selling argentina because they own too much for you the fundamental situation is getting better. -- too much. the fundamental situations getting better. david: thank you. diego ferro from greylock. oil heavyweights are poised to take over a good part of washington as they joined the trump administration. pascual joins us. that is next and this is bloomberg. ♪

emma: here in the hewlett-packard enterprise green room. danny blanchflower. alix: i am alix steel. oilman poised to take washington. potentialson as secretary of state. former governor rick perry as energy secretary and scott pruitt as epa nominee. what it does it mean for global energy markets? carlos pascual of ihs and former u.s. ambassador to mexico and the ukraine joins us now. such a pleasure to have you here. the rhetoric is that all of a sudden you will get lands opening up and no regulation for oil, just oil flooding the u.s. market. is that correct story? carlos pascual: no, i do not

think it is. what we have unique is it is driven by markets, supply and demand, if it is profitable as opposed to opec which may cut supplies because i they are national producers and have the ability to control it. in the united states, your thousands that are responsible for specific responding because they commit a profit or not. alix: that echoed when i talked to the shell co in texas and oklahoma. if we do see less regulation, less onerous that they have to comply with, will they change the longer-term business plan and model based on that? carlos: no, over the longer-term, what they are looking at is what kind of profitability do they have for means of production? if it is imposing significant costs that affect competitiveness that could be an issue. but today, for example, the area of production likely to come

back in production is more gas andtional, shale oil. ironically, the decision by opec and none opec producers to cut supplies which will bring the price back down into arranging for the average price of production of unconventional is competitive. david: you have been with the u.s. government a you have a sense of how it works. what are the chances we will get a more sophisticated approach? you have people like rex tillerson that knows energy. the state department has something to do with energy. ,ou have wilbur ross sophisticated investor who knows of the area. you might have a much more sophisticated approach? carlos: there are couple of things that will happen. a clearll be administration on liberty, freedom to export oil and gas and really reinforces that and reinforce that including rick

perry as of the governor of texas. that is especially important for mexico. mexico has reoriented its economy to the import of data from the united states since the coming of fundamental driver of power. it will be important for europe because the assurance of that gas going to international markets even if it is not directly bought in the european markets create a supply balance that is europe the assurance that it is important russian gas. it also has apply alternatives that provide a check and balance on the ability to russia to influence european markets. we will see a recognition that the united states is a major as thein oil and gas united states is in discussion with major oil producers we are not in the relationships. that we are in there as a major, serious player and that change in status for the united states is an important contributing to

our leverage and diplomacy. alix: you brought of mexico. do you foresee the border their trump campaigned coming to fruition with policy? the relationship between the united states and mexico is so intertwined, our production lines are so intertwined, it is hard to imagine you can create a border and a wall that is going to disentangle the economic ties and relationships. and at the end, the intersections have been beneficial for both and have workers morerican competitive. one of the challenges is how to how the integration of the united states and mexico economies have benefited both countries and how is straight is competitiveness. on the energy sector, there's going to be one example where the ties will become very clear and powerful. mexico will open

a many leases. shell will be a big winner. the ceo will be secretary of state. david: mexico is in the middle of how they exploit oil. you know the bilateral relationship. donald trump cannot simply walk away from his pledge to his base that he will do something. wante same time, mr. nieto to keep the relationship good. is there reform that would make sense that would allow the to claim victory and work for mexico? are waysscual: there that one can look at nafta. there are detailed issues of sourcing origin requirements that can be modified and changed . right now, products can be labeled as american or as mexican with 35% source of the individual country. what if he made it that higher? what if you set the north america content had to be higher? there are things that can be reintroduce production.

if there is good willow on both sides, constructive solutions can be found. alix: how much you think oil will lead for policy? carlos: i do not think it will lead our for policy. that we have content and an understanding that we have the supplies that do not make us necessarily dependent on foreign supply in a way we were in the past will allow us to be a more confident and more significant player. if we want to use that strategically, but we have to remember this as well. oil is a global market. when there's instability in any part of the world whether the middle east or in asia, it has an impact on prices and it impacts us at home. we cannot close our eyes and say , "we are insulated from the global markets." we are part of the markets. we are now a significant player

in we do not have to take a foreign-policy stance that makes us, let's say, more differential to others because we're concerned about arab villages for alix: -- more concerned about their abilities. -- alix: thank you, ambassador. carlos pascual. time for other headlines pretty here is emma chandra. emma: rupert has expanded his tv empire. 21st century fox agreed to acquire sky. forprice is $14.6 billion foxholes 39% stake and sky. -- billion. -- fox already holds 39% stake in sky. buy capsugeleed to . capsugel is owned by kkr. be $3ofits will likely

billion. retail sales in the u.k. unexpectedly rose last a month. black friday discounts prompted buying of electronics. froml sales were up 0.2% october. a bloomberg survey forecasted no change. that's your bloomberg business flash. i am emma chandra. out of the risk in the market of china. bond yields surging. isn't this august 2015 all over again? the battle of the charts is next. i have to win. this is bloomberg. ♪

david: is time for battle of the charts. joe is taking on alix steel. the five was the most overbought since 20 -- the -- s&p was the

most overbought. there was a lot of discussion about how little people were hedged and a looking at what happened yesterday with the as it. getting gains and decided to assess if people were starting to hedge and they are. you sit down here in the bottom corner that the three months skew on the s&p 500 rose the most in six months yesterday. people started that i can't maybe they needed to -- start to get they can't maybe they needed to hedge -- hint maybe they needed to hedge. alix: i am looking at china here and the implied volatility, one month of dollar/yen. the redlining is shanghai composite. volatility in god. shanghai composite falling.

right around 100 day moving average. s&p holds up pretty well. the lesson here volatility, you saw stites -- the last time you had volatility, you saw spikes. are we more insulated? chinese markets are really shaken up. david: a little question mark. i will give it to alix. you have to come back joe. -- bank of england losing leaving rates unchanged. alan will be here. this is bloomberg. ♪

welcome to "bloomberg

daybreak." we are 30 minutes until the opening bell here in new york. we are relatively unchanged in terms of dow and spacing futures. the ftse now in positive territory. it has been moving around a lot this morning after the boe left rates unchanged. aboutod in the market is the dollar, the u.s. dollar index now about -- up by 1%. it is now off the highs of the session. the yen and euro getting hammered. yields in the u.k. up white 10 basis points. -- up by 10 basis point spirit u.s. yields up. toid: here is what you need know -- central-bank leverage its weird the bank of england leaves its key rate unchanged while rising inflation and stronger employment leads the

fed to raise its benchmark rate 25 basis points. more yellen suggests three rate hikes to hear. fed fallout -- the dollar climbs to ties level since 2003 in response to the fed decision. 10-year treasury yields rise to the highest levels in years. rupert murdoch and an agreement to type up a $14.6 billion deal, the second run as europe's dominant atv company. and the health, up at 22%, and sanderson farms, up by about 4% -- look at aetna health, up by 22 percent. they expect revenue growth in operating income guidance. sanderson farms is doing better a cousin of stronger poultry

prices. 21st century fox up by .5%. a per-share basis, it represents a 36% premium over the closing price earlier in december. yahoo! is a different story to the downside, off by almost 2.5% in the premarket. they say there was a second major hack in august 2013 that affected one billion users here the question is, what does verizon do about this? do they walk away or demand more money? david: now we are going to talk more about the fed decision. we are joined by our bloomberg international and economics policy correspondent, mike mckee. there was immediate reaction yesterday after the decision in the fx and bond markets. what keeps the dollar from going up? mike: at this point, not a lot. it depends on fiscal policies,

but we could see the dollar go way higher. i put together a chart that suggests that that may not be something that mr. trump wants. if you go back to ronald reagan, and you can over do comparison of the two, but reagan came in, recessions.two the first recession, industrial production goes down and the dollar starts to rise the cause markets start pricing in the reagan tax cuts. coming out of the second recession, the dollar shoots up so high that is just to bring down reduction again and exports fall off. they had to try to weaken the dollar because it got too strong. that is the risk again this time. david: production is going down again here. but some reports show manufacturing going back up. mike: this only goes back to 1990, but we are seeing production rise now. this is from a dip in august.

the philadelphia fed in the empire index came out earlier today, and they show that capex orders are rising within those. be spendings may more money, perhaps only hope they get some tax breaks for it from the trump administration. alix: put this together for us. can we figure the fed has pushed back against the stagnation we were talking about for years? mike: i do not know about pushing back on secular stagnation, because we do not know what we will get from trump. we may not get an idea of thistion, but we are at point stronger growth, and the fed says, yes, we will not be just treading water. whatll be able to handle comes forward in terms of growth. alix: thank you, michael mckee. we're getting more market reaction with the global cohead of fx strategy at deutsche bank and danny blanchflower, dartmouth policy director of economics.

danny comes to us from hanover, new hampshire. your initial thoughts on the fed? danny: well, my thoughts on the fed were -- here we go again. exactly as a year ago, saying we're going to raise rates. and abased on a wing prayer and hope on trump. saying rate rises are coming in 2017, just as they did not in 2016, so we will see. i do not think they were desperately transparent. it looks like they are hoping that trump is going to come to the rescue. i do not think that is how you should run monetary policy. they did not make it really clear, and i think they completely misunderstood what is going on in the labor market. millions of jobs away from full employment, hence why people voted for trump, all

these people who want decent jobs and are out of the labor force voted for trump. so you have the election telling you that you are miles from full employment and the fed as we are at full unemployment and need to raise rates -- i disagree. alix: growth inflation expectations are not where they want it to be. what is your take? >> you can argue that they are highly accommodative. function,ur taylor and it points towards fed funds near 2%. look at the fed funds curve, which is saying we will get to 2% at the end of 2019, something like that. you would say the fed is way behind the curve and they are just really catching up. danny: i disagree completely. the last thing you should do is plug the unemployment rate into the taylor rule. we have far more slack than indicated by the unemployment rate. that is why we have no wage pressure.

precisely the thing you should not do is mechanically put things into the rule. when you do it right, it tells you you should not be raising rates. i disagree with that. if you are right, we should be seeing 4% wage growth, which we are not it so i disagree with that. so do some members of the fed. david: to what extent are the markets during the fed's job for it? obviously, the yield curve matter is that when we were at the bank of england, we did not forecast interest and did not tell people what we thought interest rates would be. they were forecast based on the yield curve. so as the yield curve moves up, that represents monetary tightening. in some sense, you are right, the yield curve moves have actually done the fed's work for it, and a tightening by exchange rates look somewhat worrying. what you have to look at is the fed's projections are actually

of growth rates of 2%. 2% is pretty low, and we may well not get that unless we get this giant trump stimulus. the contrast, if the bank of england tries to strengthen the dollar, weaken the pound, by doing quantitative easing, so the fed raising rates is precisely what the bank of ofland and ecb and the bank switzerland and the japanese central bank would like, so you could see a weakening of their currencies. alix: so danny says don't do it. what is your response? alan: i do not want to get religious about the rule, but there is a huge gap between reality of where the fed funds rate is today and where they suggest it should be. in terms of financial .onditions, that is correct

it is doing some of the job for the fed. it is in anticipation to the fed, as well. keep that in mind. ad you can look at it on 12-month basis. financial conditions have not tightened all that much. as much as we are excited about the dollar, it is just breaking out of a well-established range that was there for 18 months. alix: diesel the dollar and higher rates made the fed a little less hawkish -- do you think the dollar and higher rates may the fed a little less hawkish? danny: what is interesting this time round is that, unlike the start of this year, you saw the strong dollar feedthrough and tighten financial editions in a variety of different ways. it is part of the commodities and oil price story, part of the high-yield credit problems we had. most importantly, perhaps, it was also part of the story related to china's problems and the instability that china was causing. you are not seeing that this time.

david: i do not want to be religious or sacrilegious when it comes to the taylor rule, but a want to come back to the question of unemployment. what is wrong with the model? i do not think we predicted we would be adding 200,000 jobs each and every month. down to 4.6% unemployment growth. danny: the population has been growing. if you look at 2008, what was the employment rate? the proportion of the 16 and older population and jobs. the answer is around 63%. today it is below 60%. if you say, how many jobs would it take to get us back to that level we had before? the answer is about 9 million. so the problem, it turns out, is that the unemployed rate today is not a good indicator of what is going on in the labor market. just think, we have had millions

of people voting for change for trump in many rust belt states in the united states that are outside the labor market. if you take that indicator, the employment rate tells you we are 9 million jobs away from a full employment, and that is why the taylor rule is wrong now and why we have no wage growth. why, because people's at the same thing about the taylor rule in december 2015, and they were wrong then, and that is why we did not get four rate rises in 2016. i am a labor economist. i have been working on this for years, and we think the fed is completely misunderstanding where the labor market is spirit we are 9 million jobs away from full employment. the unemployment rate is no longer a decent indicator. alix: alan? alan: the fed obviously says the long run unemployment rate is in the order of about 4.8%. i think you are seeing some creep up in wages.

that is very slow going. in general, it is very hard for central banks to create inflation. that is a story, whether it be good inflation or behind that wage inflation. policy needs to be seen in a nse.stic se you need to see the policy in its entirety. david: ok, thank you to danny blanchflower, dartmouth college professor and former bank of england monetary policy committee memeber. alan risk and of deutsche bank will be staying with us. of deutsche bank will be staying with us. news, tom wheeler is stepping down to it he said he was deeply grateful for the president giving him his opportunity. trump reconstitutes his regulatory agencies. mr. wheeler is a big advocate of

net neutrality. alix: the seachange continues. update on his outside the business world, we go to him at chandra but first word news emma: in syria, the evacuation of aleppo has begun. syrian activists say people began boarding buses and ambulances for the journey out of the city that has been under siege for months. russian-backed syrian forces control almost all of aleppo now. a u.s. investigation into generic drug price fixing is likely to get bigger. two executives at a small generic from are preparing to plead guilty for price fixing and are expected to cooperate with prosecutors. ceo of heritage pharmaceuticals and an ex-president are the first to be charged. at least one member of the romney family will get a job withelect top -- president-elect trump.

it is the niece of mitt romney and the head of the michigan republican party. she was a strong supporter of trump from the time he won the party's nomination. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. alix: coming up, the stronger dollar -- the bloomberg dollars spot index now at a record high, the highest level against the euro since 2003. will we see euro parity sooner than expected? and we will look at the exchange rate and the incoming trump up administration. does itd of volatility mean for the currency? that is next. this is bloomberg. ♪

david: this is bloomberg. the fed supercharges the dollar.

the dollar spot index is now at a record high, dollar at the strongest level against the euro since 2003. for more, we're joined by the global cohead of fx strategy at deutsche bank. alan, what is going to stop the dollar? it has been marching up. alan: i think it is too early to talk too much about what is going to stop the dollar. a couple of things come to mind. longer-term, the kind of things that happen soon when you see a dollar turn are the current account just blows out really. a deficit in the order of about 5% of gdp is a warning for the dollar being overshot. another one would be policy turning, and that will not happen any time soon. neither signal is pointing strongly towards the turn. the trump administration comes

in and says too stronger dollar is bad for the u.s. economy, and maybe they do some thing more than job owning the dollar down, to then maybe have a shot the downside of it you need something pretty big to happen to really turn the dollar down. alix: your call was for euro-dollar parity by the end of 2017. cents at the end of 2017. it looks like it is coming up much quicker than anticipated. we will take a re-examination of that, for sure. on thewe have a chart divergence between the emerging market currencies and the dollar. the em currencies have really gotten hammered. alan: yeah, although not as much as people might have feared. david: the white line is the mst

i. alan: with the expectation of a fiscal stimulus, you are seeing expectations in terms of growth going up, and global growth is improving, as well. a lot of the pmi's globally are improving. that acts as a buffer. when you have an acceleration in yields moving higher, the moments when you have big moves will be time for the em currencies and assets to be under pressure. alix: china has really gotten hammered. you have bonds falling. composite having its worst week since april. looks ugly, but that ugliness is not spreading. >> the chinese need to focus on the trade-weighted index. i think the other element that will be crucial is the market is

taking a view that china is not losing control of its currency. if we see large dips in the reserve data, for example, then i think the markets will reconsider that. then it will be much more destabilizing for the global markets. david: china might be looking to a basket, but president-elect trump is not. alan: absolutely. hisously, donald trump, in campaign, was pointing towards the chinese currency being much stronger. is, oft we are seeing course, the currency and all the market pressure is for weakness. in some ways, when we're talking about stronger currency fighting yesterday's war, the dangers are towards weakness being disruptive for global markets. alix: dollar-yen, $1.30? alan: that is aggressive. i think we will test the cycle highs, just above one dollar 25

cents now. alix: really appreciate it, alan. coming up, gerard pricing pressures. incomingview with the president and ceo of eli lilly and how he will address rising criticism of drug companies. that is next. this is bloomberg. ♪

david: this is bloomberg. eli lilly and ounce a program this week that had cash paying diabetes patients, allowing them to purchase insulin product said a 40% discount through an online startup. we spoke to the company's incoming president and ceo dave ricks earlier on daybreak america. fixinge are focused on the actual problems in the u.s. health-care system, which unfortunately have seen expanding burdens on patients to pay for their own medicines over the last two years. the pricing behavior of the industry has not changed that much.

our net pricing is really pretty digits,rt of low single particularly on insulin, which is highly competitive. we are all for competition, but we want to focus on filling the gas in the health-care care system, whether it is with insurance companies, or in this case, directly, by offering patients who need help when they are in that height adoptable co-pay. david: drew armstrong, who did that interview, joins us now. it sounds just fine, but i am not sure it is perceived that way. , it is not one of the interesting things we're beginning to see in the drug industry right now is that drug makers are starting to assess, ok, what is our role here? we spent the last you're getting absolutely slammed by everybody for the high cost of our medicines. eli lilly says, ok, if you are

paying cash and you have a $5,000 deductible or something like that come of they are saying that we will give you a big discount. allergan is promising to limit price increases. you are starting to see the industry try to take some steps, kind of self police, a look for solutions on prices. i think they are aware that if they do not do something here, this could easily become a political issue, even under trump. we have talked about this as a populist issue, and he is showing that he is trying to be a populist president. david: the congressman coming in for hhs has wanted to privatize it, turn it back into a free market. will that give reassurance? drew: it is interesting. there is a difference from where trump has been and where republicans have traditionally been on this stuff. republicans have said, hey, let the industry do what it well, do not negotiate prices.

trump is not necessarily in line with those views. so we could see a reset from the traditional political postures on drug prices. david: thanks so much. that is drew armstrong. bell is uppening next on "bloomberg daybreak," about four minutes away. dad and spicy being futures slightly higher. the ftse is positive -- the dow futures slightly higher. yields a relatively flat in the u.s. in the u k, up by 12 basis points. gold gets hit, off by 2%. oil off by 1%. this is bloomberg. ♪

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s&p futures are down, as our nasdaq futures. a mixed story inequities. the real story has to do with currency and bonds. the u.s. dollar up almost $21.18. the u.s. dollar index up. is ups. 10-year yield 2.57%. crude is back off a little bit. aboutg, nymex crude at $50.20 or so. let's look at the actual stock market. alix: a little bit of upside, but stocks really treading water. the dow jones up by .1%, about 170 points away from that dow 20,000. dow 20,000.-- look at asset classes on fed

rate hike day two. the bloomberg dollar spot index now at a record high, up by .6%. euro falling to its lowest level since 2003 against the dollar. sooner than parity analysts had been thinking? dollar-yen, $1.17. $1.20, $1.30s for on dollar-yen. how quickly do we get the? in the treasury market, the .0-year yield up the bull flatten or continues. the front end yields coming up and long end yields moderating. 2.6%. that is affecting the bank stocks. by 1%. america up visa up by .4%. mr. gerd up .7%. bank of america did didn't

upgrade. -- mastercard up .7%. bank of america did get an upgrade. overall markets sold off. upgradesmastercard got from bank of america on a trump outlook, saying these will do better and healthier macro outlook and potential earnings upside from a trump tax reform, as well as deregulation. you spend more, and that will help credit card companies, as well. so much.ank you now we're going to look more closely into relative valuations returns between the stock market and bond market. we talked about the rotation out of bonds and into stocks. will it continue? abramowicz, by lisa bloomberg columnist, who knows the answer. lisa: i would not go that far. i would say one of the biggest organ it's for white people going into u.s. stocks in the past few years is that the value proposition and bonds is just so low.

when you're getting all time record lows on the 10-year year treasury bond, it is not necessarily for the appreciation but for the dividend yield. i want to look at the past few weeks and what has happened to that dividend yield versus u.s. treasury. between thegap earnings yield on the s&p 500 versus yields on the 10-year treasury. we look at the dividends versus general coupon you would be earning for holding on to 10-year treasury. the value proposition for stocks narrowestsed, the amount of yelled over the 10-year treasury since 2010. you had the argument of there is no alternative of it getting flipped on its head. all of the setting, yes, maybe there is an alternative and government bonds that are now

yielding a more substantial amount. david: that is from the point of view of dividends, not reflecting the value of the stock, which has gone up significantly. the underlying value of the shares. lisa: correct, the way it is being valued by traders currently. thealso have to talk about growth prospects for the u.s. given the current rate hike. yesterday you so somewhat of a flattening of the curve, a faster pace of rate hike next year than expected lowered the longer-term expectations for growth in the u.s. to thehat is it doing dollar? you were talking about how much the dollar has strengthened, the strongest against its peers since 2003. this will put pressure on the u.s. economy and will reduce the potential purchasing power of other countries and potentially slow exports. alix: that is one of the arguments you could have made at the rate hike yesterday.

with a move faster if you had not had the move up and yields or that move up in the dollar? or did they want to be a little bit more constructive? lisa: i do not know how much the fed is watching this, but people in the market are watching it closely, the gap between u.s. yields and german yields. that gap, particularly in the 10-year and, the maturity level has widened to the widest on record. this means there is more upward potential pressure on the dollar. if anybody from germany, from europe, wants to come to the u.s. for those extra deals, they will have to be buying dollars. that means stronger dollar, weaker euro. to mention, we have the dollar scarcity issue. i am reading about it all the time. we getting to the end of the year, and there are the fundamental issues. lisa, great job. down astury fox shares

they agree to buy part of sky for 14 point $6 billion. james murdoch says the merger creates a consumer powerhouse. for more on what this means to industry, our guest joins us from london to what was the surprise in this deal? >> there really was not a surprise. it is a transaction the marketplace has been expecting for some time. fox made a move on sky about five years ago, but that was derailed with the hacking issues here in london. it was a question of time when they came back with another deal. it was a question of how much they were going to have to pay to get this. we think it is a reasonable price, about 11.7 times 2017 ibo sky. -- ebitda for it would not be a surprise to see other folks have some interest in this asset. emma: as you say, i

consolidating environment. -- david poppa as you say, consolidating environment. in at&t, we saw distribution buying content. what is going on here? >> the initial deal, comcast buying nbc universal, making a bet on marrying distribution and content, and most recently with at&t and time warner here, i think a lot of the media companies are suggesting that they have to own content and have to have various forms of content,ing that whether it is part of a big cable bundle, or in the case of sky, satellite tv video service. probably going forward, most of these big media companies will need a more direct relationship with customers. theireed to go direct to customers, much like hbo with hbo now. we see directv creating a directv now, which is essentially a skinny bundle of content streaming over the internet.

that is probably the future of video distribution. if you are sky and rupert murdoch and 21st century fox, putting these two assets together put some in a better position. alix: and we want to talk about yahoo! another hack affected about one billion users in august 2013. the stock is down about 3% today. what does that do? >> think verizon, if they needed more of an excuse to go back to the bargaining table, they certainly have it with this news, another shocking piece of news out of yahoo! if i ever come i need to get a very good handle on what i am buying. how many users do they have now? are they losing users because of hacking issues? and what are the controls, the security controls on the user base and around the security around their entire ecosystem? because that is a huge issue now for all of technology. if i verizon and looking to put down $4.8 billion, i want to

know what i am getting. i suspect they will go back to the negotiating table to try to renegotiate some of the terms. one scenario is just walking away. david: the question is, will it be 4.8 billion dollars at this point? is it worth what they thought it was worth when they first made the offer? >> i do not think there are any other bidders, certainly not near the price verizon was looking to pay. you could make an argument here that there has been some type of material adverse change or that would allow verizon to come back to the negotiating table, open up the terms of the transaction, and see them there has been a degradation and the value of the company. if you're concerned about losing users in the future, that would impact revenues, profits, and the value of yahoo! if verizon thinks that is a real risk, they have the capability to come back and renegotiate. david: that is paul sweeney,

bloomberg intelligence director of north american research. coming up, when oilmen take washington. our interview with tim dove, pioneer natural resources incoming ceo, on the future of big oil and the trump up administration. that is next. this is bloomberg. ♪

emma: this is "bloomberg daybreak." coming up later today, the opec secretary-general will speak at 11:00 a.m. eastern time. this is bloomberg.

let's get you caught up on the markets -- david: this is bloomberg. we are up across the board to the dow jones up almost six points. 2.76%. up the nasdaq up almost eight points. let's get to abigail doolittle. abigail: we have the commodity complex getting hit on the fed rate hike, with the dollar index at levels last seen in 2003. the bloomberg dollar index has hit a record high. we look at the metals, and gold and copper are nicely lower, sharply lower, i should say, and this is hitting some of the minors, including freeport-mcmoran and newmont mining. but on the year, freeport-mcmoran is up more than 100%. newmont mining up with and 70%. so strength on the year despite weakness today. in the energy complex, we have oil and natural gas lower on this dollar strength. marathon oil trading lower,

perhaps in some of the with oil, but we also have a downgrade to neutral. whiting petroleum is giving up some of its gains him a but it is up since the elections. what happened to the bloomberg when we look at g #btv 574, an interesting chart of the dollar in white. in blue, oil. orange, gold. gold is the, the the taking a big hit on dollar strength. thesince the election, dollar and oil are trading to some degree in tandem, which may in thethat a fed pop dollar could come back in. or the weakness and oil today could be a brief dip. david: thank you so much. we are staying on oil. oil futures suffering the worst two-day fall off since october. in an exclusive interview, alex still asked tim dove -- alix steel talked to tim dove.

tim: it is hard to make the case that they were true energy promulgatings the rules, whether this is the environmental front, legislative, budgets, and so on. having more energy minds in washington helps the industry. we are positive about this. alix: rex tillerson, secretary of state -- what are your thoughts? tim: he is been the ultimate diplomat at exxon mobil. he has worked in so many countries around the world, and i think it is an outstanding choice. tillersonou think rex s secretary of state means we will see the world pumping a lot more oil in the next four years? tim: we cannot control opec. that has been trooping -- proven. i think what rex will do will be more oriented towards the business approach

internationally. but he is an expert on energy, so we will see what happens. alix: regardless of rex tillerson, do you pump more oil because of a trump presidency? tim: we have a plan already, a multiyear plan of action. i think we will see less regulation that will allow us to do it easier, less costly. it will allow us to make more money and be more profitable without as much intrusion. alix: what was so onerous over the last eight years? pioneer killed it, so it is hard to say president obama killed your industry. is independentry -- that is why they call is independent emp's. it had nothing to do with the federal government. as long as the minds keep generating new ideas to drive ,one costs and increase margins the shell business will be here

for a long time. alix: what was so terrible about the obama administration? tim: we saw a lot of extra costs associated with some of the regulations, some of which were too far-reaching and to onerous from an administrative standpoint. we can deal with it. we are an industry leader, as i believe you know, with regard to environmental stewardship. we're putting on thank you recovery units in the field to prevent methane to be admitted into the atmosphere. we are doing it for the right reasons. but the set of real's and regulations, they are really on top of what we think should be. alix: so you like a scott pruitt heading the epa? tim: we want to have a more balanced approach to development. we are a big proponent of doing things the right way and being an environmental steward.

alix: if you are with donald trump what would you tell him you need for your business in the last four years -- next four years? tim: making sure legislation supports our current investments today. there are certain tax and if it's industry gets. we need to maintain -- maintain those so cash flow is strong. we need an environmental foundation moving forward. all the things that encourage energy development to help us. alix: there is a story that over the next four to 18 years, you guys are going to go crazy and pump like mad, the cowboy world of a few decades ago. ise: that is -- tim: that the craziest thing i have ever heard. we pride ourselves on doing things the right way. environmental standpoint, safety standpoint, operational standpoint. that is craziness. alix: do you think we will see a

lot more p/e money come in, big banks come in now? tim: p/e money has already been in the background for a long time. people would say upwards of $180 billion on the sidelines ready to come in to invest. but these prices, with this $58,000 an acre business, has made that difficult to do, especially in the delaware basin. of have seen quite a number p/e-backed countries in there. no one can compete with our footprint. we can trade interests with them, as well. we encourage that, encourage an industry where we have participation, and these are our friends. basically, goldman sachs will own an oil services company went big banks are divesting themselves of their commodity

holdings. it feels like a new trump era. tim: we are coming out of the downturn right now, so now the feeling is these can be bought in trough mode. i do not know if it is trump up oriented as much as they feel like the economics are right for an increase in opportunities to her david: that was an exclusive bloomberg interview with tim dove, incoming ceo of pioneer natural resources. be speaking with the opec secretary-general at 11:00 a.m. eastern time. before that, we will have bloomberg markets. we look forward to hearing about what you have on your program. mark: the vanguard chief global economist, global head of has seen astrategy, lot in the last 24 hours. he will be taking us through it. and then the chairman of fair

lodging group will be with us, and he served as an advisor to a u.s. republican president. what does he say about trump pose a cabinet? and then we will talk about the bank of england with merrill lynch's chief u.k. economist. inflation might not overshoot as much as anticipated. malek used to be responsible for those presidential debates. ask what happened to this time. allies, the relationship between silicon valley leaders and donald trump have been prickly in the past. is that changing? what does it mean for tech investors? that is next, and this is bloomberg. ♪ thank you. ♪

david pug this is bloomberg. the cash david: this is bloomberg. wordsmay have been harsh yesterday at trump tower, but then it was all sweetness and light it cory johnson spoke with co-ceo about working with the trump administration. better trade deals are tremendously important to us, she says. we are net exporters baird over 60% of our cells are overseas. joining us now is cory johnson to take us through what the meeting accomplished. a new alignment? cory: pragmatism is the rule of the day. trump seems to like the people he has personal interactions with and does not like people he does not have interactions with. so try to get a moment with him. david: what does he think about

contributors? cory: silicon valley does not care for donald trump when he was a presidential candidate. on withthe meeting went catz and tim safra cook, it is interesting to look at the campaign contributions themselves. andlook at tech executives were they gave in this election, and it is dramatic, the numbers. $56 million to the clinton campaign. it shows you where the money is. apple was one of the many companies are pulled out of the republican national convention because they did not like the commentary about immigrants and women coming out of the trump campaign. david: we had one an announcement from ibm about tech jobs.

been cuttingve jobs and the usb or the announced $1 billion in spending, but they spent $1 billion over 15 weeks last year. so that number is ridiculous. wasjeff bezos tweet classic, clever, and self promotional of his rocket, the and critical of donald trump, all in one instance. donald trump suggesting he would like to launch jeff bezos into space. david: many things to cory johnson. alix: 24 minutes into the session. we have a rally for the dow jones industrial average. the s&p up .4%. this is bloomberg. ♪

vonnie: it is 10:00 a.m. in new york, 11:00 p.m. in hong kong. i am vonnie quinn. mark: i am mark barton. welcome to "bloomberg markets."

vonnie: we will take you from new york to brussels and cover stories of london, washington, d.c. and dubai. the dollar climbed to the highest level since 2003 against the euro as the prospect of raising interest rates next year filters through the markets. we have your market outlook. the first and only interest rate hike of the year. mark: key rates are being held at a record low. no news from the bank of england. maybe the slowest pickup in inflation next year. vonnie: rupert murdoch expands his tv empire with a deal to acquire the rest of sky. 24th century fox already held a stake in the london-based company and will pay 10.75 pounds