♪ francine: dollar driven -- the u.s. currency dominates. yellen hawkish enough to justify the confidence. street and the wall washington relationship. and the brexit -- united front on the u.k. exit begins to show crocs. this is "bloomberg surveillance ." i am francine lacqua right here in london. we have a great show lined up for you.

we bring you an exclusive interview with jpmorgan's jamie dimon. set, the former ecb director of operations, and google on whether central banks have learned. later, we bring you a weekly brexit show -- what is next gekko we will talk to the director general about why he concluded that britain would be better outside the eu. first thing is first come in is sebastian with the first word news. politics: mapping out and plans. economists in the bloomberg survey have raised their growth estimates to 6.6% from a month earlier. that is stimulus and a stronger global demand.

asahi is in talks to purchase a telly on -- actelion. representatives did not immediately respond to requests for comments. secretary general has applauded donald trump's choice of secretary of state. "anaid rex tillerson is outstanding oil technocrat." >> high expectations around the world, he is deeply there is ale, and very thin line between oil, geopolitics, so i congratulate president-elect donald trump for making such an excellent choice. sebastian: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am sebastian salek, and this

is bloomberg. francine: driving the market this morning, let's head to nejra cehic of the bloomberg. good morning, francine. european stocks closed at their highest level since january. we were a little more subdued. if you take a look at how the factors are breaking down, we look at energy and health care stocks leading the gains, and on the downside, consumer staples and materials. among the health care stocks, one of the best performers, act telion seeing the biggest junk, up almost 13% after sanofi said it advanced talks to acquire actelion. this is according to people with knowledge of the matter. announced asd be a soon as last week.

actelion was down yesterday but is up today. moving on to see what is happening in the fc space. we are a close eye on the dow jones. it is heading toward 20,000. what is interesting here is the dow is approaching a level that crossed manys times steered you conceiving nikkei in white and the dow jones in blue. finally, of course, it is all about the dollar and all about the treasury. the fed hike for the first time this year. the dollar is pretty much unchanged after jumping the strongest in 2003 versus the euro yesterday, 10 year yield down. we are still above 2.5% on that, basically falling from the two-year high, snapping a six-day rising streak for the 10-year yield, and what we have here is a dollar long position of your dollar gains are at their highest level since january very good question, of

course, is how much further the rally has to go. francine: thanks so much, nehjra. -- nejra. sachs and jpmorgan stock is up over 20% since the election. investors saying that only his business from a policies but names as hiseet cabinet picks. bloomberg spoke with ceo jamie dimon about the trump administration. megan murphy asked first about having been a potential bid for treasury secretary. been quiteve always public about not wanting to be secretary treasury. i love what i do -- i am not ready to do something else, and i think it as a lot of value to america to do what i am doing. megan: there we go her and that is the answer. as recently as september, when whatu were talking about

the next administration would be -- and this was before the outcome of the election -- you said it would be difficult for wall street guys to get confirmed. now we look at the landscape that we have a we have several wall street figures, some of whom you know very well, including gary cohn from goldman sachs, rex tillerson from exxon mobil, steven mnuchin. when you look at that cast of people, what are they going to bring that is different? is this a good thing? obviously i was dead wrong about, "you will not see a wall street person in washington any soon," but you have the republicans in charge, and republicans are not antibusiness the way you have seen democrats be antibusiness for years. if you are going to be president, i think it is a mistake for the american public to think if you work for an oil company, a bank, that automatically makes you bad.

is a goodi think it thing. a lot of these people are very qualified people. we want a patriot who will help the country. these are people with deep knowledge that will hopefully do a great job. megan: do you think now when you look at that shift in terms of wall street that this is a reset moment for the industry more broadly in terms of what the american people are asked acting in what they are likely to see -- expecting and what they are likely to see? --ie: i have always believed 145 million people work in america. 120 5 million work for private enterprise -- 20 million people work for government. we hold them in high regard. fireman, sanitation, teachers -- but if you did not have the 125 million, you could not have the other 20 million, so it's a huge part of society, and they're beaten down but they are terrible people. i think it is a good reset.

his choice is a perfect example that you see where civic society, not-for-profit, government, business working better the lives of the american people. i think this reset have a chance to do the same thing, if you duplicate what you do in detroit around the country, you will have a huge renaissance. interview will be aired in full and featured in "bloomberg businessweek." lets the speak with the ecb director general of operations francesca property of -- franceco papadia. as we were listening to jamie dimon together, if you are a central banker, how do you model with what the economy could look like but could fall short of expectations. franceco: the biggest worry for

me is the risk of protection from the united states. i think it is a cloud, not more than a cloud, and we do not know what it is going to do. think, fromlpful, i that point of view, so that is my top issue. the second issue is fiscal policy. fiscal policy was long invoked by central banks to help monetary policy, and now it is coming in the u.s. or probably coming to the u.s. at the wrong time, i would say, because the is doing fine in terms of unemployment. maybe even a little below that. theation is moving toward target of the fed. there is a momentum. it is not clear that now he would need that, so that is my

second. francine: mario draghi, every press conference, has been asking for it -- francesco: well, the situation in europe is very different from the u.s. we are very far behind in the recovery. 4.8%, ifent is not at it will ever get there in europe , so that is a very different story. and yes, mario draghi has been asking for help. i think he has made that kind of request because he did not ask just for more pressure, more easing from fiscal policy -- he also asked for a different composition, and more growth-friendly, which has not happened. francine: all right, francesco papadia, stay with us for the next 40 minutes. over to taper or not to taper, the big question for 2017. coming up on "bloomberg surveillance," is 2016 the year

that central banks reached their limit? we ask mr. francesco papadia. unlikely alliance, the greek prime minister alexis tsipras and germany's angela merkel. united front on brexit beginning to crumble? this is bloomberg. ♪

♪ francine: "bloomberg surveillance." i am francine lacqua in london. let's get to the bloomberg business flash with sebastian

salek. sebastian: alliance regulators are uncertain about getting approval. spokespeople for alliancz and generali declined to comment. this biggest verdict in u.s. as any, gilead opportunity to appeal against merck. similaraker is making -- gm is making similar tests in detroit. >> going forward, metro detroit is one of the primary areas that gm will be doing test of economist vehicles. this'll be our main location for cold weather been, and we are

demonstrating that today, as well as winter driving conditions. sebastian: that is the bloomberg business flash. francine: thanks. onting to see what happens the political front before changing monetary policy. monitoring be follow from brexit and populism. former ecb director of operations, mr. francesco papadia, thanks for sticking around. they are trying to address a scarcity of funds. tweets about how much they could buy and when. will it work? francesco: in a way, the move was a smart one because they managed to convince the market that they are keeping their help , i think they used the term "substantial easing," and

what is the said point of extending the program, because the ecb has said they will continue that until the government would be convinced that their back toward 2%, but then i understood that they managed to give a sense to the have eased, and until the end of next year, they will not be convinced that inflation is going back, so they gave the minimum length to their program, and it seems to work. francine: so you do not expect by the end of 2017 for the target of the 2% inflation being reached? the ecbo: no, not even expects that. and mario draghi even said, when is it consistent with the 2%?

"not really." evidently, even the downside rate tends to lead to deflation. francine: what measures do you think they can adopt to keep this program alive? francesco: i have been saying funny things for a while, which they evidently did not do. i have been saying for some time why don't they intervene in the market for inflation, why don't , theextend the program equities? i think this is intellectually and in a way, they set the ground for continuing a pace, and iat this think that they also managed to

acquiesce some of the holes in the governing. nielsen: we had eric suggesting that the measures put in place were also to steepen the yield curve, to actually help out the banks a little bit, not only for profit but to make banks a little bit healthier, which is something the ecb needs for a transmission mechanism. is that true? francesco: yes. i think this may be true at the margin. i don't think they have a bank profit as a very clear edge up -- clear objective, and in any case, what they do for the economy is more important for banks than what they do with the yield curve. so i think they have had this thought, but i do not think that would be predominant in their thinking. francine: do think there are concerns that the measures adopted were not for the real economy? francesco: this has been a worry

all through because the ecb, doing things for the money and maybe the most important intense that they had was targeting long-term refinancing operation, reestablishing the length. francine: when will they taper? is it too early to talk about tapering? francesco: yeah. of course, mario draghi was very strong, "no, no, we do not talk about tapering," but he did not talk about tapering, so this issue is becoming a bit normally a stick. me, we that if you ask are not going to keep the pace at 60. and this may be part of the acquiescence i was talking about from the hold because, i mean,

clearly they did not approve, but they did not go out shouting. so there is some sense that the bonus bank is accepting this as a necessary evil. francesco papadia, ecb director of market operations, stay with us. we will be talking about italian reform and the italian banking sector next, this is as monte has a last-ditch effort to raise 5 billion euros. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." i am francine lacqua in london. it has been a tough year for italian banks, not least of which for wanted a posco, trying paschi, -- monte dei trying to raise 5 billion euros. still with us is the former ecb director general of market operations, francesco papadia. if you look at the italian banking sector but in general the economy, we did not get the kind of sellout from the markets that we were expecting. it wasco: yeah, i think better than we could have fe ared, but may be behind it, there is the idea that there are at least two lines of defense.

the first is what they're trying to do with the market, and the second one is, as you said, government money, which in one way or the other will come. it is not in the business of anybody, not in the interest of course of the italian government, not me interest of the european commission, either in the competition or finance area. i think that the idea that eventually something will be done. francine: with or without a veil in -- bail in? francesco: if it is a bail in, then there will be competition -- compensation for retail holders. francine: and the government can do that? francesco: yes. i think there is an agreement. there is proof or evidence that they can do that. i think the competition has

already accepted that. of course for those who have invested, it is not the same to be reimbursed, not to suffer the loss, but maybe be acceptable. papadia, francesco thank you so much, the former ecb director of operations. stay with us because up next, our weekly show -- brexit. what is next? early negotiations begin to show cracks. happy/3 of britain's are with the way the government is handling brexit. we will be talking brussels, brexit, and theresa may. that is next. this is bloomberg. ♪ generosity is its own form of power.

you can handle being a mom for half an hour. i'm in all the way. is that understood? i don't know what she's up to, but it's not good. can't the world be my noodles and butter? get your mind out of the gutter. mornings are for coffee and contemplation. that was a really profound observation. you got a mean case of the detox blues. don't start a war you know you're going to lose. finally you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. francine: welcome to our weekly bloomberg brexit show. i francine lacqua in london. amfor the follow this week, let's is straight to sebastian salek.

sebastian: a record low, the last policy announcement for the year, that came as policymakers walked the line of inflation. cool themy will economy will cool next year as consumer spending weekends. -- weakens. willhile, the weak pound push up prices. hsbc has outlined how the u.k. government could help ease the economic impact of brexit. speaking exclusively to francine lacqua, they outlined the plan for british banks. our customers find things awkward and ugly, then that will affect the economy, so i think it is in everyone's interest to make it as smooth as possible, which i certainly think is necessary. sebastian: you can watch that interview in full at 8:00 p.m. u.k. time today and across the weekend. the potential for disunity on brexit emerges from the brussel

summit. aeresa may and meters voted short final session to their approach to brexit. the discussion included efforts over how the government and eu bodies will be represented in the coming talks. the u.k. opposition labor party laid out the party's position against the hard brexit. they warned that quitting the eu customs union and single market would push the british economy and jobs over. >> it probably does entail an element of pain, and all businesses are concerned with what they want, meaningful access to single markets, so there is an obvious trade-off, and businesses are saying, look, we need to trade successfully with our european partners, whether we are trading in goods or services. sebastian: and new york, rather than the european union, maybe

the new winner. that was the morning this week. sides arens on both pragmatic, and jobs could go to wall street rather than frankfurt, which is far behind. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am sebastian salek, and this is bloomberg. fran? francine: thank you. a poll released yesterday showed 33% of britain's believe the u.k. government is doing a good job handling of withdrawals from the eu. they handle the negotiations, starting to show cracks. for more on the frontlines of the brexit deal, let's bring back francesco papadia, nonresident fellow at bruegel. question, butral

how should central banks in the markets look at polls? the methodology in 2016 was so wrong on every level. will 2017 be any different? i guess in this case, the central bank is mostly trusting their fingers. francine: that sounds very technical. it is the best they can do. they can hope that they can follow and have some bearing rationality. this may be a big requests because some of what you see in the political sphere is not rational from an economic point of view. brexit makes smaller things economically. and i had brexit make even less n -- and a hard

brexit makes even less sense than a soft brexit. so just a set, democratic environment, and they accept whatever comes from the political front. francine: how does it play out? what have you learned about brexit? there was an eu summit yesterday. we heard the eu could not agree on who was doing the negotiating here in the u.k. k we are not sure what ministry is taking these. were you expecting it? i do not know if we are just messy or in the dark. francesco: the british people took a very basic decision -- ok, we do not want to stay in the european union anymore -- but there are 100 ways in which you do not stay in the european union, and now the difficult part is to choose one of these hundreds. continental european, if you want to call them like that, and for the u.k. -- from this point of view, they are straddling

beyond my area of expertise. i think the british parliament has a clear role to play there. francine: right, but we are still waiting for the supreme court to decide on this, right ? in the negotiations, you probably had to go to many meetings to decide something. is it better? does it weaken your position? "this is what i want to hear on my request." arecesco: the negotiations a partial gain, then you keep your cards close to your chest. if it is the attempt to find a solution that is good for both sides, you put your cards on the table. from this point of view, i do not understand why six month after the referendum we are still in the dark. francine: what do we know about the eu's position? the country agrees that there is no cherry picking, and they will

not go back on fundamental rights. francesco: yes. i think they will not impose , putting paink. on the u.k. they may have to come up but they will not do it in order to punish the u.k. the other thing i would say is it is an interest of the european union as well as an interest of the u.k. to keep good, as as smooth, as tight as possible. losing london as a financial center is not only a problem for london, it is a problem for europe as well. in any case, in london, have a terrible good financial system that is working for the europe. this is more difficult going forward. promoting to new

york, frank for, or paris, one would think you would at least have the transition. at least. francine: what is the one thing we will find out in the next six months? will we be any wiser but what kind of brexit we are looking at? francesco: well, we have to. we have to. it would be incredible that one year after the referendum, we are still totally in the dark. it ising that seems i -- slowly moving. i think the idea now that you , an interimperiod period after the u.k. would have left is gaining ground, and as you said, if you follow that poll, only 33% of the brits want a hard brexit, a real break in the relationship. so, yes, i hoping in six months time, we will know a bit more. papadia, francesco

thanks so much for coming on, nonresident fellow at bruegel. stay with us, including more on brexit. we will find out why the director general thinks britain is better off going at it alone. the italian bank monte dei paschi has received approval to extend fund-raising, but will it be enough to help it raise 5 billion euros? later, we talk with citigroup's global head of mergers and acquisitions, peter tague. bloomberg's radio program is live on london. this is bloomberg. ♪

francine: somewhere around the line, the director general of the institute of economic originaland the u.k.'s free market, welcome to the program. our brexitl of coverage, he is actually called simon kennedy. thank you so much for joining us. around when did you decide to commit, and then actually, i want out? liberal, ie-market like smashing down trade barriers. there are a lot of barriers actually going up within the single market, so when the

single market came in in 1992, i thought this would be a force would be and it light touch for the eu to make sure member states were not erecting barriers against each other. some of the liberalizing stuff of the eu was doing, and the european union was increasingly becoming a heavy handing -- heavy-handed regulatory bureaucracy, really imposing name of regulatory uniformity across the single market that i do not think were at all necessary. , theree: regulations would still be subjected to regulation is in agreement with the heel, but is it worth it, if you do not want any regulation, to cut ties? mark: i do not go as far to say i do not want any regulation, but i would rather have britain's interest in mind rather than brussels'. i think we can get better

regulation, hopefully less of it. i'm not so optimistic to think we can get rid of all of it, but i think we can improve the regulatory involvement in the u.k. outside of the eu. brexite: what kind of does the prime minister want, and what within the eu? >> where learning more from her aides. they're talking more favorable about a transitional deal to bridge the gap between leaving and the new relationship, previously skeptical of that. immigration,on the saying the u.k. will not have the plan by february -- until february. so, using sound bites red, white, and blue brexit. in a few years, she will have to start fleshing out that due to

pressure from the parliament. the year has been remarkably united. the 27 countries have been quite united. the four freedoms, the if you wantovement, to say part of the single market. where we did see some fracturing is who gets to sit around the negotiating table. talks in brussels monday and again yesterday, a sign that the european commissioners, the chief negotiator, might have to share some of the room. francine: and you are still convinced that this is the right thing to do, to get out? really none the wiser about where we will end up. mark: i think we are a little the wiser. i do not think we have a full picture yet. i would say the following things look pretty clear -- francine: no colorful and what's

on bloomberg tv. mark: we could make a mess of it, we will be out of the single market for certain because we control british immigration policy. we will be out of the customs union, which means we will have to decide our own trade deals, and we can step up the trade. i think those two bits are pretty clear. and sometimes getting merged in with arguments about -- are we going to have access to the single market? we are definitely going to have access to the single market. the u.s. and china -- francine: that you have to pay for that. everybody has access. k: the question is -- to what extent is that access holy unfettered? to what extent is it going to be mutual recognition of regulatory standards? those are going to be in the deep undergrowth of negotiations. of it ibroad brush

would have thought we could quite quickly agree that there should be no trade barriers, no tariff barriers, whether one or two sectors might be able to stay in, and we will exit the customs union. i am not saying that picture is as clear as day, but i think we are beginning to get some focus on what britain on the outside will look like. it is a bit piecemeal -- brexit.: it is a hard mark: and is no soft brexit possible. it is political. if you want to control immigration, if you want britain and control of the immigration policy, hard brexit or clean brexit is the only way you can go. francine: recent issues in the gulf state to muster of support for trade deals. what do we know about what countries would welcome the u.k.

simon: there is a limit to what liam fox can negotiate in the eu. he is obviously keen to get out of the customs union and start lining things up, but certainly, talks are already underway. to some extent, philip hammond was in seoul this week, argentina, not exactly a long time british ally, the falkland islands, but for the most part, this rhetoric -- we are going to have to wait for it well. but an interesting development in the u.s. last night, talking in the media, larry kudlow, a commentator, speaking earlier in the week, talking about the importance of donald trump striking a free-trade deal with the british early on in his presidency. if that goes, that is a really big win. francine: is it likely? are you in contact with the government?

mark: i know in number of the ministers working around this area. i think the usa-u.k. potential deal is want to really look at. that could be a game changer, right? i suspect there will not be a single day where a new trade deal is set. i suspect it will be a process of negotiations evolving over some years, but looking at the politics of this rather than the economics, i think president-elect trump will want an early win, and this would be an early win if he delivered this. i think it would be useful to the may government, which will actually show we can strike a with south korea, important as they may be, but with the most important trading nation on earth, which makes brexit look like a more benign force rather than one leading u.k. into choppy waters. francine: mark littlewood, director of the institute of economic affairs, and simon

kennedy of bloomberg, thank you very much. up next, we speak extensively to jamie dimon, who rejects conventional wisdom on slow growth. this is bloomberg. ♪

francine: i am francine lacqua in london. this is "brexit: what is next?" here is sebastian salek. sebastian: the last policy announcement of the are came as policymakers walk the line between managing inflation and growth. the economy will call next year as they see suspending -- see spending weaken. meanwhile, the weak pound will push a price. the chairman of the biggest bank, hsbc, has outlined how the u.k. government can easily economic impact of the brexit. francineexclusively to lacqua, douglas flint. douglas: if our customers find things awkward and ugly, that will affect economic activity. that is no good for the economy. it is in our best interest to

ensure things go as smoothly as possible, which i certainly think it's necessary. sebastian: you can watch the full interview at 8:00 p.m. yucatán today. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am sebastian salek, and this is bloomberg. francine: thank you. let's return to my exclusive interview with jamie dimon. bloomberg's megan murphy asked him first about having been a potential pick for treasury secretary. jamie: i have always been quite public about i do not think i am enthused to be treasury secretary. i love what i do, i'm not ready to do something else, and i think i had a lot of value to america to do what i'm doing. megan: there we go. that is the answer. as recently as september, when i look back to when you were talking about what you thought the next administration would be before the outcome of the

election, you said you thought it would be very difficult for a wall street guy to get confirmed and to get in, and now we look at the landscape we have. we have several wall street figures, some of whom you know very well, including gary cohn from goldman sachs, rex tillerson from exxon mobil and steven mnuchin. what do you think they will bring to the administration that is different? what is new that they will bring? is this a good thing? jamie: obviously i was dead wrong that "you will not see a wall street person in washington anytime soon," but you have different people. the republicans are in charge, and the republicans have not been antibusiness as you have seen the democrats be antibusiness largely for years. is a mistake for the american public to constantly be told that if you work for a bank , you work for this, that automatically makes you bad. you want the best thing. it is a good thing to allow these people, very qualified

people, patriots, who want to help the country, and not just help their former companies. that is not what they're going to try to do. these are people with deep knowledge that will hopefully do a great job. megan: when you look at that shift in terms of wall street, do you think this is a reset moment for the industry more broadly in terms of what the american people are expecting a what they are likely to see? jamie: it is a huge moment for how businesses can be treated. there are 145 million people working in america. 125 million in private inner size -- private enterprise, 20 million for the government. firefighters, teachers, honorable positions, but if you did not have the 125 million, you could not pay for the other 20 million. and for years, they have been beaten down that they are terrible people. i think it is good. detroit is a perfect example that you see where civic society, not-for-profit,

government, business working together to improve the lives of american citizens. so, yeah, i think the reset has a chance to do the same thing, if we can duplicate what we are doing in detroit around the country, we are going to have a huge renaissance. francine: that interview will be aired in full and be included in the next "bloomberg businessweek" issue. as we had to the second and third hour, asian stocks rising with gold. "bloomberg surveillance" continues in a next hour. tom keene joins me out of new york. withve a conversation peter tague of citigroup. this is bloomberg. ♪

francine: dollar driven. the u.s. currency dominates the market.

where janet yellen's comments hawkish enough? exclusively to the jpmorgan ceo about the relationship between wall street and washington under trunk. -- trump. this is "bloomberg surveillance." tom keene is in new york. i'm francine lacqua in london. we will be talking a lot of theory. japan's 10 year yield rising to 0.1%. we have a little bit of data. tom: what is so cool right now after all the big moves from yellen and carney is that the road big moves in the market dialogue and within the political dialogue, as well. let's call it new wants friday. friday.e francine: we have had all of

these great moves. we are just getting some cpi data. cpi for the european union. it is pretty much in line with what economists were expecting. tom: very good. headlines. verizonretz reporting said to be waiting more media -- ad deals.ore media summarizing what is going on with verizon and yahoo!, it has been most rocky the last couple days. francine: let's get straight to the bloomberg first word news. >> russian president putin says that is time to end the ping-pong over the islands russia seized from japan at the

end of world war ii. the dispute has kept the two countries from signing a formal peace treaty for seven decades. it may take days to evacuate the syrian rebels and civilians from the city of aleppo according to the international red cross. evacuation's continued through the night. the rebels seized the eastern part of aleppo four years ago. the syrian army has now recaptured the city after a siege that lasted several months. leaders met until almost midnight in brussels over how to negotiate the u.k.'s exit. in number of governments say they want to representative. president obama is promising to act on allegations that russia interfered in the election. the president told npr the u.s. will respond at the time of its own choosing. he said some of the response will be explicit unpublicized and some of it may not be. global news 24 hours per day.

i'm taylor riggs. this is bloomberg. tom: taylor, thanks. let's get to the data. quieter than the last few days, but it is not. it is really nuanced. the euro is stronger than the last 18 hours. oil does nothing for the week. has not moved. it is a more volatile vix given where we are. two-year is much weaker this morning. that will be my chart in the moment. i really noted the elevated again. -- yen. a weaker japanese yen really gets my attention. francine: i think you are right. when you look at japanese yen, toan's 10 year yield rises 0.1%, the highest since january. for the moment, the vix index slightly down.

crude oil unchanged. it is all about the dollar. we saw a pretty significant rally. that is hovering a touch near the 12-year high. tom: let's go to the bloomberg. i want to show the german two-year yield and the 10-year yield. francine, i'm going to let you discuss this and our guests in london. they really go in lockstep. the slopes are pretty good. a little bit of difference. look at this. the 10-year yield is reflate it along with the trump reflation everyone is talking about. does theear yield exact opposite and migrates lower. that is an interesting discontinuity come a let's call it, on a friday. francine: i like that. i like your chart. it is perfect to talk about my charge. in light of the net dollar long positions, in blue is the 10 year treasury yield. if we move away from dollar, it

is all about the treasury yield. this is the moment donald trump became, was elected president, and then you see that blue circle right on the left of the theen, that is basically reaction in the chinese markets. this is a flight to safety. what this tells you basically is that there are bets on dollar gains and they are at the highest level since january. we are joined by the head of europe g 10 at the next strategy -- fx strategy. he is from citi. thank you so much for joining us. when you look at this chart and you put it with tom's chart, all points to dollar strength. richard: correct. francine: and yet markets are causing a touch. where does it go in 2017? richard: 2017 is a stronger dollar. there is not a way for currency markets to get out of that.

tom was showing curves steepening across europe. we are getting steepening in the u.s. in the treasury market, but it is bear steepening. that rates differential, you are going to end up with more dollar strength no matter what. you and up with lower euro-dollar. you end up with higher dollar-yen. for the next month, you still have the boe actively engaged. tom: brilliant. here is the less difference in yield. here is the curve steepening. the difference in yields are greater. francine: yes, and it is a great chart. does that continue into 2017? richard: the reflation and the steepening trade, we are unlikely to get off that anytime soon. there is a lot of expectations of late cyclicality that will have a low impact, but a high

inflationary impact. the data momentum, we talked a little bit about european data. within the u.s., europe, the u.k., even china, the data has been quite strong and that will be driving the long end of the curve. if we are pricing in everything already. from here, the markets can only be disappointed? richard: where is the disappointment going to come in? is it going to be in europe? the u.s.? or asia? markets hate uncertainty. capital flows are going to fly away for greater certainty. that is where you want to be asking the big questions for 2017. where is the next shoe to drop? we think globally it is still in europe. both from an economic and a political perspective. tom: all of these charts look the same. this is japanese yen. we have had a massive return

toward abenomics. this is a chart we have run 472 times. that is the bank of japan in the blue circle. that is where they wanted to go, the green box. they failed, failed, failed, mr. trump to the rescue. is mr. trump the greatest friend to abenomics that we know? richard: i think he has certainly helped. theuld not underestimate boj shifting to yield curve control. this level of pegging 10 year yields a 0% really opened the differentials trade. tom: i know francine wants to talk about asia coming up. what is absolutely critical is the effect of the trump and the trump administration, the knock on effects to all the different stories. is that overplayed by the media or is it legitimate to say that trump reflation is changing the

world financial system? richard: i think it is absolutely changing in the short-term. markets, obviously, have bought into the view that 2017 is going to be radically different than the previous five years. how much actually gets delivered in terms of the fiscal stimulus, how it comes down, how it impacts u.s. growth and inflation remains to be seen. it seems to be a very valid story for now. francine: are we jumping the gun on the death of inflation worldwide? richard: i think we are jumping the gun. we can look it closed economies that have the ability to reflate. that basic effect and that is affecting everybody, as well. once you strip out the based effect, then it is going to come down to the domestic stories. is the output gap widening or shrinking?

that is where you have to look at japan and europe and open some doors as to whether or not it is sustainable. tom: what is your one year out call on euro? richard: it is going to be trading under parity within the first six months of the year. euro-dollar should, by the end of the year, i'm imagining between parity and 95%. tom: fair. it is a friday. we will let you off the hook. on a monday, we would kill you. [laughter] tom: we will speak with michael porter of harvard university. michael porter on the new barriers to entry. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london. tom keene is in new york. let's get straight to the bloomberg business flash. talks to buyced swiss drugmaker teleon are underway. the agreement may be valued at almost $30 billion. sanofi made its bid for a kelly on after johnson & johnson -- actelion after johnson & johnson withdrew its bid. monte dei paschi is still struggling. it is making a last-ditch effort to raise $5.2 billion. if the offering succeeds, they can bundle $30 billion in securities and sell them to investors. that is your bloomberg business flash. francine: for more on the monte dei paschi situation, let's bring in the finance manager for

the bloomberg news. richard is still with us. when you look at monte dei paschi -- think you for coming into the studio -- it will be resolved by the end of the year, right? they have no choice. it looks like it may be a better outcome for the euro. >> it is a little bit premature to call it one way or the other. they are doing everything they possibly can to raise as much as they possibly can privately for a debt equity swap. hopefully, that will give confidence to investors to buy the equity. of that succeeds, that will leave the government not having to come in and provide that backstop, possibly. francine: i was speaking to an ecb official and he was saying if the government had to provide that backstop, they could then ze the family over the proper mis-selling -- improper selling of bonds.

elisa: that is what we are hearing now to provide the compensation. the mechanics of that still have to be determined. it could be that the italian government could provide a preemptory compensation. it also influences the confidence households have. tom: elisa, you look like you are dressed in morning for the italian banks. what is the price of all these transactions. nobody is telling me what the price is to get the new money. yields, cash, ownership? what is the price? elisa: at the moment, the banks ae presenting themselves as great cleanup story. they are going to get rid of all these bad loans.

you are paying for the cleanup basically. the banks will, in theory, start with a clean slate and will be able to deliver not so much growth, because the numbers pointed to slow growth, a steady, but a steady ship. tom: you sound like you are doing a roadshow in front of citigroup to get them to pony up $20 million. i still don't know going into the weekend how they are going to pay for this. preferred shares? do we know? elisa: at the moment, we know that monte dei paschi is trying a debt for equity stock -- swap. qatar is still in play? elisa: that is what we have been hearing, yes. francine: from what we understand. the good thing about the story is that it should all unfold in one way or another in the next

10 days. then they closed for the holiday season. the ecb, they need to figure some thing out in the next six days. point thatnflection unicredit launched the increase in share prices go up? what i keep hearing is that they had done it right and they will get through this and it means the italian banking system. elisa: guess, the extent to which they are trying to put the past behind them, get rid of the , it is not particularly ambitious. the numbers are not particularly ambitious. i think he is presenting a bank that will be able to deliver on that possibility. tom: this has been fabulous. greatly appreciate your attendance this week. elisa has let all our coverage on italian banks and has been upfront on this for years and years. we have a terrific sense of interviews today. john taylor on radio later

today. set the masters, michael porter. , we will talk to him about the animal spirit of wall street given trump realities. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london. tom keene is in new york. we are talking about china. we have not seen chinese lead volatility since january of last

year. changes in 2017? tom: we might. this is dollar-roman be. -- dollar-renminbi. see the blue. that is two standard deviations of backward vol. all you need to know is that it has been quiet, quiet, and we get a little bit more action here in the trunk reflation. francine: relatively quiet and where we wanted to go. , when you assume all of your currency pairs, you assume more volatility for 2017. one of the pairs you look at is dollar-renminbi. richard: it is one of the most important currencies. it is too large and too important to ignore.

it is systemic across the currency markets. we have thought about it as a low volatility currency. reservesre seeing is on a monthly basis. even though the chinese renminbi is weakening, it is weakening at a managed rate. inflection point. you have to start thinking about it as the potential of a low-volume currency to a high volume. that completely changes the structure in asia and it feeds back into the g 10. we are having a reverse of the rebalancing trade. 2000 2007, everybody wasn't -- was accumulating reserves. now, we are seeing the reverse of that happening. when you asked me about the call for euro-dollar, it is actually onow parity -- part of that

the reserves rebalancing trade we are getting the reverse off of. francine: what is the optimal solution for this impossible trinity of reserves going down, as you are saying, renminbi going down, and outflows continuing from china? richard: at a certain point, the renminbi, all currencies have to go to more market managed exchange rates. what china is going to do is basically slow the past and they are going to try to do it in a controlled and consistent manner. they are having to increase the use of capital controls. they are having to put a stronger hand on it. the pressures to get capital out of china or for higher volatility and currencies in general is intensifying. donald trump is part of that effect. tom: he is part of that effect, but it does come down to confidence. is the trump confidence transferable? richard: i think that is a good question. in terms of what is the impact?

how focused will the next administration either be on domestic factors versus international trade factors? within the administration, they will focus more on the domestic factors and less on the international trade factors, so that buys a bit of time for the rebalancing to take place. if we are surprised on that and they tend to be much more focused on trade and u.s. trade policy with our counterparts globally, then that might accelerate that volatility or accelerate that change over a little bit forward. like we said, we tend to focus more on taxes and more on domestic policy within the first 100 days in the first year. francine: i got the queen of charts to make us a chart. this is the china monthly exchange reserves. in blue, you have the china renminbi. in blue -- you can see the correlation. what gives in 2017? richard: the easiest one to go

to is the exchange rate on this. the imf has looked a lot of reserves for policy and currency that china is running now. their expectation is you need about $2.8 trillion. above thebillion reserves needed for an economy the size of china and the exchange rate policy they are running. as you approach that lower bound of reserves, you are going to have to have more currency weakness, more currency volatility. tom: we will come back. on radio, i mentioned this earlier, later today, john taylor of stanford university. taylor on his rule. rules of discretion. this is bloomberg. ♪

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michael porter will be with us in the next hour. we will talk about his concepts of strategy and the challenges facedes -- the challenges by the president of the united states. let's get to the first word news. taylor: we will start with politics. donald trump's choice as u.s. ambassador to israel may shift a major -- mark a major shift. proposed a two state solution with palestinians. in charleston, south carolina, the same federal jury that convicted white supremacist of killing nine black churchgoers will also decide whether he gets the death penalty. they will return for the penalty phase of the trial on january 3. a new study finds that repealing obamacare would result in a tax cut for the wealthiest americans and a tax hike for some of the

lowest earners. that is according to the tax policy center. ending obamacare would give the top 1% and average tax cut of $33,000. in many cases, lower income families would pay more. british lawmakers are warning that brexit make with the u.k.'s safety at risk. a report from the house of lords urges prime minister theresa may to reach an agreement for the closest possible ties with police in the eu global news 24 hours per day powered by more than 2600 journalists and analysts. this is bloomberg. francine: thank you so much. we are just getting some breaking news. the bank of russia saying that its key rate, they are keeping it unchanged. they are leaving the key rate unchanged. we need to spend a little bit of time talking about the russian economy.

we need to talk about what it does, with the growth story is. not -- we did speak to a lot of analysts before. are lookingmarkets for the central bank to drop rates on guidance. we were not expect -- exactly expecting anything in terms of decisions today. we are also looking at the impact on oil. rush of being at discussed at the eu leader summit. the german chancellor angela tsipras willexis meet in -- meets to discuss. from citigroup is here with us. also joining us is the managing

director at redefined. richard, thanks for sticking around. when you look at the eu leaders summit. they were talking about russia. from a sanction perspective, they also talked a little bit about brexit. what do we actually know about the appetite for the eu in talking with one voice? >> there have been to driving forces. on the one hand, the election of president trump and the brexit discussion and the very bizarre tone taken by the u.k. on these negotiations, the eu has been impelled to talk even more with one voice. in terms of the old liberal world order, the eu remains together with canada, the last standing force, as trump abandons all traditions, essentially left, right, and center. on the other hand, the tensions between various eu countries are growing.

the divergence between where the french economy is headed at the german economy, the divergence economic and political between where italy is and where germany between thergence rise of the far right, perhaps particularly in countries like the netherlands, and it is still relatively limited appeal in germany, these are all making it much harder to speak with one voice. francine: let's see it as spreads. the spreads are widening. will it end badly in 2017? if we don't get growth in europe, will we see more populist rising as head of government? is the euro actually in jeopardy in the next 12 months or 18 months? sony: i think that is unlikely. past productions of the euro disintegration have been vastly exaggerated. political goal to keep the eu together with more internal

and external threats emerging is emerging. the eu continue to see go from one crisis to another. , but nothingtion spectacular. tom: that is right where i wanted to go. enough will be done. in america, we call that moving the can down the road. moving the can down the road versus the populism we see vote to boat, help me with that. sony: yes, the populist threat is real, but so far, populist parties peek around 30% of the electorate. seen in sweden, what we have seen in germany, and on most countries of the continent, there is a tradition of the government, they have

succeeded in keeping the far right out of power. it remains highly unlikely that the populists would break through. the immigrant sentiment is hardening. fiscal policy is being loosened. directly as a result of the populist threat. on the whole, populism will be kept at bay, i think. it will be an increasing threat. nothing will break through in the next year or two. tom: will putin be kept at bay? sony: that is a little bit too late for. if you look at how far and how long the arm of the russian influence has been and how they have gone from aiding parties such as marine le pen's nationalists, two dutch nationalists him into president-elect trump in the

united states, russia's influence is increasingly insidious and powerful and that will remain and that will continue the populist trend. tom: that is mably the most and -- maybe the most important banner on the screen. russia gdp below 1%. a lot of us, including me, don't know that. francine: it would be interesting to also look at their forecast for inflation. it is not only a weak economy, you have rampant inflation in certain businesses like food, so you have a discontented population, which is why you reinforce this idea of mother russia being strong overall if you are in power. richard, given what we are seeing overall and in europe, dollar strength or dollar weakness? -- euro weakness? a broad we are seeing dollar move across all markets. as we get deeper into 2017, you have local elections, which we

have already talked about lightly on the show. at the same point in time, i think there was a very important part to the bank of england statement yesterday that has not been fully priced into market yet, which is that the u.k., it is going to be hit with lower levels of consumption in q1 and q2 next year. the non-eurozone trade balance in europe, 40% of that is in the u.k. it is not talked often about how that feeds back into europe, as well. between the political risk and weaker economic growth, that is going to be the euro driver. francine: i want to talk about the implications of foreign policy, but richard, where do ?ou see inflation in the u.k. i had one analyst to said 4% inflation. mark carney could decide to look through that. richard: we won't look through

it. francine: we are seeing huge pressure on wages. richard: that's right. high probably a little bit , but it is going to be heading in that direction. inflation with weaker consumption power. real incomes are decreasing. that is something that is going to end up leaving a mark on u.k. gdp and consumption. it is hard for me to see it as a positive. francine: is brexit and this lack of growth distracting us from having a common policy in the middle east? sony: absolutely. if you just look at the degree of attention that needs to be paid by all sorts of government bodies to issues that are essentially problems created by ourselves, if you look at for the next 10 years, the single biggest priority of the u.k. government is going to be brexit

and brexit-related issues, there is very little scope left to address more important issues. the uk's long productivity declines. not just foreign policy, but domestic policy. tom: let's continue. we have so much to talk about through the morning. seth masters will join us. later on bloomberg markets, as we reset for the weekend, as we reset for the trump reflation, professor siegel will dart in the door. look for that. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london. tom keene is in new york. president-elect trump has picked

a number of wall street executives. we all know this. no jpmorgan ceo and chairman jamie dimon is weighing in. with thephy sat down jpmorgan chief and asked him about having been a potential pick for treasury secretary. >> i've always been quite public about i don't think i'm suited to be secretary of treasury. i love what i do. i cannot a lot of value to america doing what i'm doing. >> that is the answer. when i look as recently as september, when you were talking about what you thought of what the next administration would be and this was before the outcome of election, you said he thought it would be very difficult for wall street guys to get confirmed and to get in. you look at the landscape we have. we have several wall street figures, rex tillerson from exxon mobil, steve nugent.

when you look at the cast of people, what do you think they will bring to the administration that is different? what is new that they will bring? >> i was obviously dead wrong that he would not see a wall street person in washington anytime soon, but you had a complete of evil. the republicans are in charge and they have not been antibusiness the way you have seen other democrats largely be antibusiness for years. if you are going to be a president, you should have the best people sitting around the table. i think it is a mistake for the american public to always be told that if you work for this or that, that automatically makes you bad. you want the best team. i think it is a good thing. people who aret going to help america. they are not going to help their former company. >> when you look at that former shift of wall street, do you

think it is a reset for the industry more broadly in terms of what the american people are expecting or what they are likely to see? 145 million people work in america. 125 million work for private enterprise. 20 million work for government. the 125idn't have million, you could not take the other $20 million. business is a huge part. for years, it hasn't beaten down like they are terrible people or something like that. it is a good reset. detroit is a perfect example. , not forivic society profits, government, business working together to improve the lives of american citizens. i think the reset has a chance to do the same thing. if you can duplicate what you are doing in detroit around the country, you're going to have an exclusive --an incredible

renaissance. francine: an exclusive conversation with jamie dimon. richard, what have we learned about the trump administration so far and who are the people that could influence the dollar to the outside or to the downside? richard: when it comes down to it, it is going to be, the treasury stance is going to be clear and critical. if you think back to several administrations ago, we had a strong dollar policy in the u.s. and they have gotten away from that for a long period of time and it is uncertain what the stance of the next administration is going to be. how markets are treating it, a strong dollar is going to be a good thing. verybusiness focused, energy focused. the strong dollar is also good, as well. are we looking at trade wars? sony: i think it is more likely than now than ever before. there was a very real fear that we were going to enter

protectionist trade war territory. some of that did happen. but not with the magnitude we feared. this is by far the most administration any country has had. far, on the behavior so tearing up the old rulebook, which is so essential to becomeability, it has the one hallmark of this administration. we are in for a roller coaster, markets celebrating prematurely. if we are looking at possible trade wars, have did the markets view this? does it start to be priced in? richard: that is the big uncertainty. where you are long data thinking on the dollar and the u.s. in

terms of global investment, that really comes into a function. we are not going to know more until after january 20. it is hard to make a decision right now. our view is that you can focus right off thelicy bat. that is what we think the administration focuses on right here. his treatment toward global trade will matter a lot for emerging markets. you can have two dollars. dollar buying on strength of the u.s. economy or dollar buying on low levels of growth and flight to quality, basically, the defensive trade. right now, we have the positive dollar. francine: thank you so much. stay with bloomberg for more of that interview with jamie dimon businessweek. that interview will be aired in full and featured in the magazine next thursday.

coming up, we have plenty more on the markets. ♪

surveillance,"

francine and i were going back and forth on christmas shopping. we are so far behind. i'm more behind than francine. francine: always. tom: it is december 16. it is embarrassing, france. taylor did all her shopping in august. here is taylor riggs. taylor: you can count denmark among those countries that will fight against protectionism. the dance nine it -- danish finance minister spoke about the populist sentiment against free trade in an interview. >> denmark is one of the countries proving that you can defend the free, open market and the champion of free trade. denmark is one of those countries that has benefited immensely from open markets. taylor: he says the european markets will have to cap budgets after brexit. there has been a record verdict in the case involving gilead sciences, they have been ordered to pay merck $2 billion for

using a patent for its hepatitis c drug. that is the biggest patent infringement award in u.s. history. gilead says it will appeal. francine: thank you so much. let's look ahead to the boj meeting next week and let's talk yen. richard is still with us. kapoor, the managing director at redefined. richard, when you look at yen, governor kuroda as an easy job, but he does not have to do as much with the dollar strength that will do a lot of the work for him. richard: that's correct, that's correct. francine: what do you see for levels next year? richard: for dollar-yen, it is likely that we will had higher at this stage. as long as you have the reflation trade buying global bond markets. when a little five cents is something that we could see

traded next year. flipside, where we are focused on this, if there becomes a point where people get very concerned about overall risk in aggregate in asia and coming back to the china yen isity earlier, the still one of your key defensive currencies. it is being driven by rate differentials. at the point where global bond markets decide this is enough and we are worried and you start to see a compression in rates, that is the point when dollar-yen does turn south again. for now, it is outside, but it is going to be volatile. talk aboutony, we this great financial experiment in japan. we talk about abenomics. yen it actually spur, if goes the way they wanted to, will he have a setback in terms of structural reforms, which japan needs? sony: i think it has been the most disappointing part of the three arrow strategy.

the signs are not very optimistic. that there is actual deep structural reform. the reaction to the farming lobby, for example, and the retraction of relatively mild reforms have not been very encouraging. inflation,issue of how much government kuroda will have to do, i think he will be even more disappointed. the basic facts don't change. trying to strike a 2% inflation rate in an economy with a declining workforce, in an economy at that particular state of the economic cycle is almost surely an impossible task. in that sense, i think some of the fallen yen will help, but that will only be temporarily. tom: i want to bring up this chart. this is not yen. this is the deflation adjusted -- excuse me -- 10 year yield.

this is the great deflation of japan over the last six years. i fitted this. this is a year-and-a-half moving average. we are back to a flat real yield. this is a story for next year if we see finally a higher real yield in japan. it goes back to wage inflation. we know that governor kuroda try to impact inflation psychologically. tom: this is been a wonderful hour. coming up on "bloomberg surveillance," seth masters on dow 20,000. looking forward to the next hour. ♪

,om: after yellen, after carney and a january 20 trump, the

markets adjust. the dollar finds renewed strength. what is experience worth? on the president-elect and his band of generals -- in this hour, for the entire hour, michael porter, who will join us in a number of minutes. and your dow, 20,000. he got it right -- seth masters. this is "bloomberg surveillance ," live from our world headquarters in new york. -- i am keene in london tom keene. in london, francine lacqua. -- i am tom keene. in london, francine lacqua. after today, you and i do not see each other until davos,] francine: exactly. this is why it is a good day to take stock of what 2016 will be and what 2016 has been. the euro stoxx 50 actually erased its 2015 drop. i do not know whether this is bet.rumponomics

tom: seth masters is with us, michael porter, and peter take. now to first word news with taylor riggs. taylor: vladimir putin says it is time to end the ping-pong -- japan's prime minister, shinzo abe, agreed to start talks on economic corporation in the area. the dispute over the islands has kept the countries from signing formal peace treaty is over seven decades. the international red cross, evacuations continue through the night in aleppo. rebels seized eastern part of aleppo more than cointreau years ago. -- morent forces have than cointreau years ago. european leaders have been caught up in a dispute over how

to negotiate the u.k. exit. how far the e.u. chief negotiator will be of go by himself in talks with the u.k.. in number of government say they, too, what a representative. president obama is promising to act on allegations that russia interfered in the election. -- he says some of the response will be explicit and publicized, and some of it may not be. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. francine? tom? tom: right to the data right now and we have a great chart before we get to mr. masters. the dow 20,000. futures up 23, migrating in the vicinity of dow 20,000. the curve finally pauses. maybe we have a pause in some of our statistics today. yesterday, 1.0456.

with the next screen, it is really simple. the vix at 12.5. it should be 11.5, 11.3, but it is not. there is volatility in the air given where the dow and the s&p r. francine: this is what i am looking at. the dollar has been stalling a little bit. maybe we can call it investors trying to figure out what we heard from janet yellen, euro-dollar -- interesting that citi -- the trade favored by every guest we have had currently at 12.06. -- at 12.6. tom: here is the german two-year off the bloomberg. it is not the chart of the year, but it is in the top 10. here is the two-year yield on germany, september of two years ago, down and goes to two

negative. it is the 10-year german reflate's, as you would expect. , steeping of the yield curve in germany is quite significant, francine. francine: it is. it moves nicely back to my chart, which i would have brought up but i was distracted. this is a picture for long-term dollar. the 10-year treasury yield. what this tells us is you go along -- you go along or you go home. the dollar gains at the highest level since january. tom: very good. did you see how francine got that in? she said she was distracted by my email come as we begin christmas shopping. we thank mohamed el-erian for watching this morning, writing for "bloomberg view" often. here is the surveillance exclusive. mohamed el-erian has not started shopping yet. we wanted to bring that to your

attention this morning. breaking news exclusive. let's get to seth masters, a victory lap in "the wall street journal" last week. masterstalked with seth of bernstein many times about an abiding optimism in the market. journal wasin the wonderful. seth, thank you so much for attending. you speak of the need for a paranoia to drive higher. i thought market advance was about increasing revenues, increasing operating income, and even heaven for bid, increasing dividends. it is about paranoia? seth: in this case it was in 2012 when we published our original piece. with the fundamentals you just mentioned -- earnings supported by strong economic growth and better corporate governments were in place, but sentiment was terrible. back then you could see there was a big gap and that meant a big opportunity. meant buying then stocks. what we are seeing today is that

we are in a different place. lu wishes are no longer as cheap. earnings and margins are already strong. seizing the initial surge in the bull market. tom: slope matters. here is the great bull market. down here is where we went into the cash fund. it has been doing this for decades. it did not need the notoriety of 2012. this is dow 12,000, and up we go to down 20,000. you allude to the idea there is still a paranoia in the market. we are on this bull market trend. what is the paranoia now? seth: there are several forms of it. there has been a certain amount of safety seeking that was driven by the aftershocks of the financial crisis that fed into virtually all markets, including

stocks, and that is why so many high-yielding stocks ended up being overbid. thate wanted to buy stocks are safe, which i understand. but they paid so much for them, those stocks became expensive and therefore quite risky. usually safe, high-yielding stocks trade at a discount normally to the broad market. but the premium has begun to shrink. we think it will shrink further. that is the part of the market that still infuses paranoia and you want to avoid. by contrast, there are some companies that have decent earnings. right now the u.s. domestic versus global mix. if i am an investor in francine's london, do i want to be u.k. or global? seth: that is a great question. what we are doing over the last few months is we have been calibrating that. before the election we were

overweight u.s. equities. since the run-up we have had, we have come back to neutral and we are now slightly overweight in non-us equities, especially non-us developed, but hedging currency exposure for some of the reasons you are mentioning earlier. hi, seth. is that purely on currencies? investors are saying it looks cheap. as soon as the pound devalue's by 20%, then i want to be in there. seth: you're quite right. there will be a lot of crosscurrents, and not all companies will be affected the same way. there is a lot more dispersion between sectors and stocks than there had been when the central were driving primarily. one theme that i say that is probably true in much of europe now is, you want to be buying

the companies that are more sensitive to external demand and global trends as opposed to very focused on domestic economies because many domestic economies in europe will remain weak. even the lower currency will not necessarily bail them out. francine: i am going to bring you to my terminal. -- you seesically the stock market in white. do you see a huge move since the president-elect, donald trump, was chosen november 8? my concern about this is that we've already priced this into i do not know how much more upside you can see in the white line, which is stocks? seth: it is an important question. we will see that over the next few weeks and months. what is going on in the stock market was a recognition of better growth, that had already become evident before the election, starting in the late summer and early fall. we could see that the economy was actually getting better and

sentiment was improving. think, is action, i function of the election. what happened is all of a sudden the possibility of unlocking fiscal policy and having some kind of fiscal stimulus -- although what it might be is still to be determined -- and perhaps having the regulation suddenly created the idea that perhaps there could be more inflation, and of course that changes the game completely. tom: i like the way you mentioned the game. we talked to bond guys yesterday, craig bishop at rbc capital markets was billion. seth masters, tell me if bonds will be competition next year for equities. we show this chart, the chart of the week. we show the 10-year yield. i am doing this in green for mohamed el-erian. these are three new york jets outcomes. the jets continue to be terrible. the jets finally get their act together and make mohamed el-erian coach. and here are the same lousy new

york jets. thisave stability after condition, and then you have this gentle reflation than rise in yields. will this be competition for stocks? seth: let's suppose we look at that scenario where in fact yields drift gently upward. if that were to happen, i think that what you will find is that in the near term bonds will obviously have low absolute return sibley because the higher yields will cause the price to come down. they will still probably be positive and less the yields jump, so you will get very low but positive bond returns. in that environment, i think stocks will do quite well. tom: this is really important, really nuanced, with what mr. masters is talking about. if yields come up, the inflation will not be there, right? seth: as long as yields are going up at a moderate pace, it means that bonds, because they are yielding more, will make up,

in all likelihood, the price decline that they experienced in that process. in that environment, stocks will do very well because the reason yields are rising at a measured pace is probably because the economy is strong. in that environment, corporate profits are good, and one thing about inflation -- the first with of inflation -- the first whiff of inflation smells fantastic. as far as workers care concerned -- as far as workers are concerned, their salaries are rising. until they realize the cost of everything is rising, too. tom: seth masters is here to get us started. that was fabulous. michael porter is coming up. tague will- peter join us. we will talk to him next. inflation linked to m&a. this is bloomberg. ♪

tom: good friday morning, everybody. tom keene in new york, francine lacqua in london. pause,kets somewhat on a but we see some real currency dynamics and follow-on from the festivities this week. seth masters with us, from a be bernstein. his recent claim of being optimistic and long, on many others as well, down towards -- the dow towards 20,000. .oining us now, peter tague better equity prices always assist m&a. let's look back, peter. how was 2016? was it a good year away from the mega warren buffett yields?

peter: it was a good year. year inhe second best terms of volume since the crisis. it will end up being down just under 20% in terms of volume relative to last year. it is still a very strong year by any measure. tom: part of your charm is that you are not doing romantic deals with mr. buffett. you are looking at chemical and industrial companies. forreflation good industrial america in constructive combinations? that: i think the polities the policies that have been laid out by the president-elect could be good for in general m&a. obviously companies that are high taxpayers companies -- that are high taxpayers, copies of a facing reflation could feel more poignant going into next -- could feel more buoyant. seth: is the cost of capital going to cause that is the cost

of capital -- is the cost of capital going up going to cause people to rush into deals? the rates remain quite low by any historical standard, so i do not think a quarter and rise or a 75-basis point rise from here will make a big difference in terms of the overall cost of capital. on the other hand, tax reform and a substantial reduction in tax rates could make a very big impact on the cost of capital. it is difficult to say which way that will go. francine: how are the animal spirits that we are talking about? a lot of these companies are sitting on cash. it is not like they have funding problems. they have cash to spend, they just have not been spending it. you talk about tax cuts. what about repatriation of the money abroad? will that help the big companies in spending through m&a? peter: i think tax cuts in terms of the repatriation is definitely going to be helpful. the amount of cash sitting overseas is significant, but it

is controlled almost entirely by -- at least 50% -- by pharma and tech companies. as a general matter, pharma and tech companies these days are not struggling to find funding for transactions, whether or not they are able to repatriate their cash. thecine: how do you see industry group? do you see it region by region? we were talking about the fact that the u.k. looks cheap because of funding devaluation. is it foreign come is coming into two companies, -- coming to cheap -- is it foreign companies cheap countries? peter: as tom referenced, globally distractions will continue to dominate the high-quality of the types of transactions the market will be responding to. tom: the zeitgeist is the

plutocrat is going to win, the m&a guy is going to win, the gilded age trump -- we know all the stereotypes in the media. will this diminish the new confidence in m&a? will we get back to what we have done for years at citigroup? peter: i would argue that the last couple of years we have seen relatively less of the truer financial engineering. we had a large burst around inversions which got a lot of press. but the real driver of m&a in the last 12 months has been more around strategic combinations than it has been around text ribbon deals or leverage driven deals. tom: let's come back to seth masters on the animal spirit, and the margin on global wall street, mergers and acquisitions as part of that. michael porter coming up later in the hour. "bloomberg markets" today. professor siegel of wharton university. talk about being an optimist. jeremy siegel on where we are

right now. from london, from new york, this is bloomberg. ♪

tom: friday "bloomberg getting you ready for the weekend. we are thrilled. what a great week of guests it has been processed masters with and peter bernstein, tague from citigroup. that citigroup is probably representing both sides

per we do not want to go there. way to run m&a baseball? how do you do business when companies are in the news in such a way? i do not understand how contract and agreement and handshake works? peter: the answer is it is a real challenge. certain industries and certain companies have become such household names that negotiations around them -- and we have seen something recently in the pharma space where the transactions are effectively playing out in the public domain. that can make it very challenging to get smart deals done. wrong, but ii am hate the way the movies portray the world. it is really mean and cynical. these things get discussed? is it by phone, email? whileu guys doing this horseback riding, playing low? peter: champagne and polo.

it is over a table. the business i am in is still very much a human interaction business. almost nothing gets done electronically or in videoconference. the days of doing transactions -- transactions were trier -- transactions require trust. that requires face-to-face contact. francine: we do not do that on "bloomberg surveillance." what is the one thing people misunderstand about m&a in 2017? peter: i would say that the 2017 environment is one which leaves us feeling pretty optimistic, actually. the --our models around all the statistics and the predictive models that suggest the market will be up about 10%. personally, i think there is real opportunity and potential on the upside from that. i think that the recent change

in the administration and some of the messages coming out of washington are potentially quite positive for our business, but i also think there is potentially a moment of pause at the start of the year while the market digests some of these changes and tries to get their head around it. you forer: take, thank the update today with citigroup and mergers and acquisitions. mr. tague will continue with us on bloomberg radio. it is always an interesting time to speak with michael porter, that's each and every american and global wall street considers january 20 and the move into 2017, michael porter on president trump. stay with us. this is bloomberg. ♪

tom: "bloomberg surveillance." let's get right to our first word news with taylor riggs. obama isresident promising to act on the cia

conclusions that russia interfered in the u.s. presidential election. the president spoke to npr. pres. obama: there is no doubt that when any foreign government tries to impact the integrity of our elections, that we need to take action, and we will at a time and place of our choosing. some of it may be explicit and publicized. some of it may not be. says he is president waiting for a report on cyber attacks that he ordered to be finished before he leaves office next month. there is a red alert for air pollution in beijing, the highest warning level. it is the first time it has been issued this year. beijing will cut industrial production, and the number of cars on the road will be limited. schools are allowed to shut down if they want. british lawmakers are warning brexit may put u.k. safety at risk. a report from the house of lords prime minister theresa prime my

to reach an agreement for the closest possible security ties with e.u. donald trump's as u.s. ambassador to israel may shape -- may signal a major shift in u.s. policy. the president will nominate david freeman. last summer -- david friedman. last year he said that israel may seize parts of the west bank. although he backed off that comment. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. seth masters joins us this morning. he will continue with his view of optimism on the american 00.nomy in 200 michael porter on a divided america. lots to talk about with professor porter. right now with all we would

recalibrate washington with martin schenker. what happens between here and january 20, when i see the polarization of the last 24 hours, including the ambassador to israel? marty: it is fascinating to me that we are touting a possible seachange in relations in the mideast. jim mattis, the defense secretary, has been outspoken on his support for a two-state solution in israel. so you have the ambassador on one side, jim mattis on the other side. herehelp marty schenker get to january 20. do you see checks and balances that lead to a successful outcome for all americans after the 20th? well, i think we have a lot of inconsistent, incompatible -- ttis and theng ma

ambassador. michael: this is an era of people wanting to make some major change. me of the trump administration that is positive is progrowth. it is talking about taking some steps that we badly needed to take in terms about our corporate tax rules, our regulatory obligations, and a lot of the other things that have been slowing down and leading to a slow-growth economy now for many years. but there is no strategy. there is no coherency. tom: do you see that? there is no that strategy, or at least none that is apparent to the world. ifwill see after january 20 one emerges, but one gets the sense that it will all be donald ultimately inon the end. he will get policy pronouncements from different

advisors, and he will make the call on what the policy as per no one knows what donald trump's policies are. francine: professor porter, we do not know what the strategies are, but you can break down the retiredration -- generals, millionaires or billionaires, wall street guys, and the far right. how will the three groups play together? michael: probably in a very uneven and sort of constantly evolving way. this is not a coherent view of the world that we see here. this is not a set of people who have a lot of experience turning the dials of economic policy. this is a lot of new people, and that can be good if we see some fresh ideas, we are not stuck on the same old issues, we can break the wrong things. i think what we really need in this country is to create some consensus and some compromise.

we need to come together and get some things done, most of all. what worries me is the president must think that he can do it. but in this modern government, he needs the congress. he needs to get a certain agreement among major people on some of these key steps. is, we arey about going to have a lot of talk and a lot of energy and angst and excitement, but not much is actually going to happen. ultimately, that will be negative. francine: marti, do you think this is what the american people want? you could argue in experience, but there is a line of thought that this will work out because in the election november 8, this is what people wanted, outsiders. marty: they do want outsiders, but when you get right down to it, a number of these cabinet picks are maybe inexperienced in their fields, but they are insiders. they are conservative insiders, but they are definitely inside the beltway kind of people.

it will be interesting to see if donald trump is able to pronounce policy in a cohesive way. when they met with the tech executives, he told them, talk to me, talk to anybody, we have no top-down communication apparatus. if you have disparate voicing policy on -- if you have disparate voices voicing policy on donald trump, it will be difficult to nail down what he stands for. tom: seth masters, help me here. bring up the chart -- excuse me, professor porter. if benson, yale university. the high-lowe is for america. up we go. the yellow circle -- maybe that is mourning in america. we are on track. does the market care about this discussion of marty schenker and

professor porter, or is the market removed from our politics? seth: i think the market does care. a market has priced in a lot of the good news that will happen over the next year with deregulation and tax cuts, and perhaps infrastructure investment plays out. if in fact what ends up getting enacted or it is enacted but not implemented well, because of all this uncertainty -- porter, you're are going over to the tower here. the transition team will talk to michael porter. what will be your counsel to the president-elect given the political cards he and we have been handed? i think we have to get growth going in america. that is our number one issue right now. we have also got to bring

americans together in a positive way on the future. house to house warfare among citizens. the younger people in this country are deeply concerned, deeply scared about what is happening. i think the president -- his number one goal is to communicate that he is actually for all americans. we have a lot of good people, we have a wonderful country, we have got to get some good things done and we are not enemies of each other. we have to find a way to move forward. francine: is he trying to unify the country? when you look at his tweets, you could wonder if that is his priority. michael: i do not think he has understood yet that his fundamental job is to be president for all americans, that he needs to instill confidence, instill calm, he needs to show that he is determined that he has a plan, he is going to stick with it. he has some progrowth ideas that i think are very powerful and

very badly needed, but i think the -- i think so much of good peoplehip is building in a sense that they want to join in on something bigger than their particular little interest, and the question is, can he actually do that? tom: we will have to see when we come back. marty schenker, thank you for your work this morning. we will look for coverage over the weekend of the president-elect's path to inauguration. we will look at this with professor porter and seth masters. coming up on bloomberg radio, john taylor of stanford university. a lot of people talk about him for a position in a trump washington. john taylor on rules and discretion. we will do that later. stay with us. this is bloomberg. ♪

francine: friday morning. pop means a "surveillance" quiz. a beautiful picture. i was going to quiz you and our on what this beautiful picture of washington, d.c., reminded them of. email us. tweet us. i am francine lacqua and london. tom keene is in new york they coming up shortly, "bloomberg daybreak: americas." jon, what are you most looking forward to today? a supporter of donald trump. the market shift of their last 24 hours is significant. the dollar whole lot stronger. look at the curve -- not steepening but rolling over. there is a message in the curve,

and we will be discussing that a little bit later. euphoria,street lighting with 2017? a freezing new york. that is all coming up on "daybreak," in 20 minutes time. we are going up to western new york so that you can personally witness freezing new york style. jon ferro, thank you very much. we are honored that michael is with us today. and seth masters. "the strategy of conflict" was written in 1960. of competitive strategy 1982. michael porter. on thomas schelling. what a loss. michael: he was a wonderful colleague. tom: he was a wonderful colleague, and the strategy of

today. what is the strategy of our nation divided come if we migrate from what tom schelling has done over to what you have done in the real world? michael: we truly do have now a nation that is divided and has not been able to come together around the things that, frankly, we know, tom, have to be done if we are going to create opportunity for our citizens. i was just reflecting on the newest education scores across countries. the u.s. just came out 31st in , falling for years now, after the basic education and skills of our citizens continues to lag. we have not come together to agree on how to improve our education system. we have no systematic approach to raising people's skill. we have dropped out after drop out from the workforce. they tend to be younger. all of them are people who have

no skill. tom: problems unsolved in the nation divided. this is terrific. our failure to make rs reflects an unrealistic and ineffective national discourse on the reality of the challenges facing our economy and the steps needed to restore shared prosperity. there is an absence of progress. prompt washington to find a new discourse? michael: i think the optimism that i would feel today, if i feel optimism, would be that the trump administration is bringing a very different dynamic and a very different approach. there is a lot of energy. isre is a lot of talk, there a lot of ideas, there is a lot of enthusiasm. and fundamentally, i think the president-elect is talking in a is that is progrowth, and it

actually talking about doing something on the blockages that have been holding up our economic progress. course, isge, of that there is not a sense of bringing the country together. there is not a sense of getting solutions which require us to come together and achieve compromise. that is where we have been for 25 years in america. odds.e been at each party has defined success as stopping anything the other party could want to do from getting done, and we are canceling each other out. againstturned one side the other. we are blaming other people for our problems. we have created enemies of other americans as opposed to a sort of common ground. tom: let's bring in francine lacqua in london. francine: professor, it is fascinating. i have been interested in

hearing your views about america. but the problem is the end of -- i do not know if it is globalism or capitalization the way we see it -- is if we have a big trade war. will the u.s. avoid trade wars in 2017? , if i knew that, i would be on wall street doing some kind of sophisticated financial industry -- tom: he is sitting next to you. that themy view is reality of a trade war and what that actually means will sink in as the people involved here are real people. they have been in the real world. they know, most of them come from actually being actors in the economy. i think that pragmatism potentially will set in. i do not anticipate a major trade war. i think there is a lot of talk year, a lot of luster. but the reality -- a lot of bluster. but the reality i hope will be better than what our worst fears might be. but a trade war will not get us

anywhere. thinkne: tell me what you the two priorities of the president-elect will need to get done to show that he needs to -- that he means business and things will get better. michael: we have to get corporate tax reform done. we are shooting ourselves in the foot with the highest corporate taxes in the world. we need to get that done. we need to get it done in a way that the trump administration folks are talking, that is relatively rational. we cannot overdo it, but we can get the corporate tax rate down, we can get investment up in america. we can have companies not having to leave because they cannot really efficiently and effectively do business here because the tax rates are too high. that is the number one objective. start two, behind that,

government investment in the economy on real things, not know, things, you that are sort of separate from the economy. francine: more theoretical. infrastructure. working on these deficits that we have created. if you look at our national budget, we do not invest anymore in anything, from a government point of view. we are doing consumption, not investment. ultimately, it is a lack of government investment in the key things that we need to support economic growth. and it is also the low investment in the private sector because of the very, very high taxes we have in our country. we believe that has been key to the slow growth we have been seeing for a long, long time. the third massive issue in america, the one that scares us all the most, is skills and education. we just keep lagging further and further behind what is going on

in the rest of the world, and the fact that our people cannot find decent jobs and the fact that they cannot improve their incomes. tom: let's come back. michael porter with his from harvard, and seth masters. this is bloomberg. ♪

tom: foreign-exchange this morning -- down at the bottom, the malaysian ringgit. the polarity in asia has changed. the malaysian ringgit getting back to 1997, 1998 weakness. it is going to be an interesting end in foreign exchange. my chart of the year is on real gdp. this is productivity. we have seth masters and michael porter talking of this. morning in america, 25 years of wonderful productivity enhancement. and then seth masters, and rolled over. from where you sit in finance and investment -- capital, labor, and all that other noise --t michael would call toter

would call total productivity -- what happened? seth: clearly we had a slowdown in productivity, and part of that is because there has been less investment post crisis. some of that you can understand. immediately after the crisis, corporate america had to repair its down sheets -- had to repair its sheets. today you are seeing some of the reversing but the trend looks bleak. it is a bit of an illusion. it looks to us like there are some economic measurement problems as our economy shifts. traditional sectors to an informational economy. it is harder to capture that. there is more productivity occurring in the home when you get the news on your ipad as opposed to traditional newspapers. in general, the national income accounts and the national production accounts, like gdp, should move in tandem. but over the last few years, income has been growing at a

couple percentage points faster than production. that probably means that there is some protection we are not capturing. francine: sets, what are you telling me, that we need to measure it differently or we should discount at? -- or we should discount it? seth: we should be working on both. we should be worried about these trends because the skill deficit that michael talks about israel, and -- the skill deficit that michael talks about is real. it will be highly correlated with the human capital, not just quantity. tom: we want to continue this discussion. michael purves, what is the quality of our technological diffusion today in america -- michael purves, what is the quality of our technological diffusion today in america , what -- michael porter is the quality of our technological diffusion today? in a way, the innovation in the economy has

slowed down in a way that is really affecting the way done.sse is we have been in a cost-cutting mode for so long, taking stuff out, globalizing supply chains. there are all kinds of these indicators. there is very slow business formation. not many companies are being generated. a lot of the job generation is moving to the big companies. tom: this is important and we need to continue this discussion. professor porter, thank you so much. seth masters, thank you for single-handedly moving the market to 20,000. this is bloomberg. ♪

jonathan: from new york city, good morning. welcome to bloomberg daybreak on

.his friday, december 16 i am jonathan ferro alongside david westin. futures positive up 34 on the dell, up three on the s&p 500. in theyear it has been fx market defined by king dollar. move somewhatthat today and the bond market continues to move firmer -- trade firmer. david: here is what you need to know at this hour. the dollar and stocks taking a paz as the federal reserve shifted -- after reaching the highs in 13 years, and the yield on 10 year treasuries snaps a six day winning streak after .eaking at its highs since 2014 an exclusive interview with jpmorgan ceo jamie din