mark: barclays prepares to tell 7000 clients to trade more or find another bank. will this strategy help boost returns? china's lenders pledge to rein in risk next year. we will break down china's outlook for 2017. ll dudley deliver? the bp boss plans to start seven to eight projects next year. we will get the outlook on opec and trump on the market in 2017. this is "bloomberg surveillance

." i'm mark barton. francine lacqua is off today. great show lined up today. joining us on set for the hour, simon french. we look ahead to the boj decision tomorrow. we will get his reaction to last week's central-bank decision. pressure is on for theresa may. scotland threatens to hold another referendum unless the u.k. stays in the single market. later, we will get to hong kong for the latest on china's seizure of a u.s. drone. what does this mean for the countries' relationship just weeks before trump takes office? let's get to the bloomberg first word news. here's sebastian salek. sebastian: "the china daily" warned that donald trump's inexperience in diplomacy might lead to confrontations between the two nations. the communist party mocked his demeanor as lacking far behind

the white house spokesperson. the comments come after trump lashed out at china, saying on twitter that it stole an underwater drone from the u.s. navy in an unprecedented act. barclays is preparing to tell 7000 clients to do more trading or find another bank. a new system ranks trading unit customers by the returns they generate. it has allowed barclays to prioritize its most lucrative relationships. it is the latest move in an industrywide trend of whittling down customer lists to the ones that produce significant profits. scotland will hold a referendum unless it can stay in the european union single market. that is the warning scotland's first minister will issue this week, adding on pressure to theresa may. nicola sturgeon will detail proposals for a new arrangement to help her country remain in the single market after brexit even if the london government pulls the rest of britain out.

bp has cemented its relationship with abu dhabi by swapping about $2.2 billion of its own shares for a stake in one of the emirates' largest onshore oil concessions. ceo bob dudley told bloomberg he sees signs of growth next year. conditions have turned around this month after opec and 11 other nations agreed to cut oil production for the first time in 15 years. mainehink we're going to -- to remain very disciplined about the capital we spend, the projects we select, but it is time for bp to start growing. we have had so many difficulties in the u.s. i think the company is positioned for growth in the next decade. sebastian: china's property market continued to cool in november. new home prices excluding government-subsidized housing gained in 55 of 70 cities tracked by the government. that is compared with 62 in

october. this as authorities rolled out homebuying curves to deflate the housing bubble. global news 24 hours a day. this is bloomberg. mark: just getting some breaking news out of germany. looks like it is ahead of expectations. from is the figure, up 110.4. i just checked the bloomberg. that is the highest since february 2014, confirming the resilience of the german economy after a fairly weak third-quarter. looks to be gathering momentum again in the fourth order. beating estimates of 110.6, highest since february 2014. just want to take you through some of the data today. we are one hour into the monday european equity session.

stoxx 600 in europe is down by about 0.2% after rising for a second week last week. falling.dollar is just a couple days ago, it rose to its highest level on record. the bloomberg dollar spot index down about 0.1%. u.s. yields rising today. they reached their highest levels since 2014 after the fed meeting. the price of crude is up 0.5% as a planned production boost from libya stalled amid continuing contention in the opec member exempt from the agreed output cuts. now the state of the u.s. job market will be in focus later in a speech by the fed chair, janet yellen. she's delivering a keynote address at the university of baltimore commencement ceremony. give any hint on future policy decisions? let's bring in our guest, simon

french. we had her last week. she can't really add to much, can she? simon: she can't, but i think she will potentially focus on her area of interest, the labor market. we will start to see whether some of the rhetoric that suggested she wasn't prepared to let the economy run hot on inflation, which was the take away from the fed's decision last week. will she start to roll back on that given there's some significant latent capacity in the u.s. labor market, still underutilization, still a lot of workers out of employment or not taking on sufficient employment compared to the economic conditions they want? mark: why aren't they? let it run hot, ring in those ones were disenfranchised, why aren't they joining the labor market? simon: there's still a structural problem not unique to the u.s. economy. the structural problems of a lot

of restructuring and we are probably growing through a third or fourth, depending on how many industrial revolutions you think we've had since the first one, and that is creating a lot of structural unemployment. it may be that economic conditions are picking up in indications, but there are much more problems in the labor market. mark: the big news from the fed was three in 2017 rather than two. three in 2018 as well. will they fulfill three? so much depends on data, on external factors, and what president trump is going to introduce. year: time in for one next , below market consensus. it has been hard for the u.s. federal reserve to push tighter monetary conditions into the u.s. economy.

i don't think things get easier in 2017. i think you have to look at the headlines out of china, the geopolitical headlines. what is the policy response function from the chinese were government regarding the yuan, the currency manipulator? will we see a weakening of the yuan? what does that do for inflation dynamics in the u.s.? i think that will be an interesting element we may see in janet yellen's speech, where she talks about inflation dynamics. mark: which we will talk about with diana choyleva in just a few minutes time. boj tomorrow, nothing on the cards. looking ahead, the economists we've surveyed think tapering is the next big issue. could the boj start to taper its bond purchasing program? april is the figure that economists have penciled in.

is that in line with your thinking or not? forn: i think they will go longer than that before starting to taper. the inflation dynamics are much less certain. there are structural demographic reasons why japan faces inflationary problems. what was quite interesting in the last few days, forward guidance surrounded by the long end of the yield curve on jgb, -- let's respond to call it a trump trade, but it is longer data than that, trying to snuff that out fairly early. that is going to be the key take away, rather than looking at inflation dynamics six months out and singling -- signaling to the market that it is going to pull back. mark: simon french, chief economist, stay with us. stay with "surveillance." barclays preparing to tell 7000 clients to either trade more or find another bank. it is the latest attempt to try

to boost returns. will the strategy work? china's leaders pledge to rain in risk next year. we will break down the 2017 outlook as well as fresh data today on new home prices. i'm going to speak to bp chief executive bob dudley. his views on opec, president trump, and the oil outlook next year. this is bloomberg. ♪

mark: welcome back to "surveillance." let's get the bloomberg business flash. sebastian: nintendo has taken a tumble as the debut of "super mario run" earned lukewarm reviews. the title is currently available

to apple devices. it has gained an average rating of just 2.5 stars out of five. nintendo has been criticized for the cost of the game, which is free to download and play the first three levels, but costs $10 for the full version. apple has filed an appeal asking the e.u. general court to overturn the order for it to repay back taxes of $13 billion -- 13 billion euros to ireland. that is after the irish government said european union competition investigators exceeded towers in the probe. the e.u. ordered the country to collect over its tax arrangements. the government in dublin has insisted the company got no sweetheart deal and the e.u. misunderstands irish tax law. monte dei paschi will begin taking orders for shares today. the struggling lender will sell stocks. in the worldnk

aims to complete raising 5 billion euros by the end of the year. that is the bloomberg business flash. pick up on the banking sector, barclays preparing to go 7000 clients to do more trading. french is still with us, as is bloomberg's stephen morris, who is also here. it is part of a broader industry trend, isn't it? stephen: yes. we've seen banks all over the world, really, especially in london and new york, drawing up lists of who they think are their most important clients. we had a story which showed citigroup at five hedge funds that make the majority of their money. it is incredible how much the flow monsters divide to these banks. no barclays are following suit by premiering a new computer system they call flight deck. they've already got rid of 17,000 clients since 2014.

they are using the system to identify another 7000 they don't think are profitable enough, which will leave them with 8000. you can really see how the capital pressures and regulatory changes have forced them to focus on just the biggest clients. mark: if you are a smaller client, don't you feel slighted by this move? stephen: if you have one of these difficult conversations, you may feel a little slighted that your bank is essentially telling you to go do business with somebody else. ofo think after eight years a pretty disastrous eight years for the banking industry, most of these people will be cognizant of the problems that banks are faking -- are facing. the question is where they go. do they go to their local banking system? the small clients still need banking services. it will be interesting to see when this all shakes out where these extra 7000 clients --

mark: does barclays have a specific goal on return on capital per individual customer? stephen: 10% is the cost of equity that investors are demanding. they are usually doing it by return on capital, return on balance sheet, which the new system does allow them to rank. above 10%, you are probably ok. 8%, you might be able to do a little more business. if you are 3% or 4%, i'm afraid you are off. mark: the trading business is entering the momentum, isn't it, after quite a long period of declining revenues? it's a good time, or a better time for it, isn't it? stephen: it is. they are saying part of the reason is they have got rid of 17,000 clients already. they are kind of focused. but we mustn't forget that it hasbeen a volatile few months with brexit and the u.s. elections and things like that.

a lot of the trade, especially in the macro section which does hedging and positioning, they really are seeing a lot more uptick in volume. mark: citigroup, hsbc, deutsche, morgan stanley, they are all doing this in some degree. stephen: the reason this was so interesting is that we managed to get some information about this new system. it almost bolsters barclays' argument. they can go to the client and say we've put it all into our computer system and it is saying you don't make the threshold. mark: thanks for joining us. simon is still here. we end the year with all eyes on emily, on -- on italy, on monte dei paschi. will it push through this capital raising plan? are european banks in a better shape than they started the year? most of them got through the stress test. monte dei paschi was the worst graded by the ecb. where are we? simon: really good question.

there's two answers. cyclically, they are in a decent position. you see eurozone growth starting to accelerate. we expect probably the imf will upgrade growth in the next estimate. the problem is structural. problemsthe structural we talk about the whole time, but it's the challenge potential he coming from the u.s. over the next couple years. if we see the u.s. administration start to deregulate, rollback dodd-frank, the volcker rule being spoken about, that firmly parks the tanks in terms of profitability and the location of business, which is highly mobile, on european banks' lawns. i think that is the coming story in the banking sector. do we get in a situation where the currency wars that we've been used to start to get replaced by regulatory arbitrage wars? mark: back to you in a second.

stephen morris, thank you. simon french. up next, referendum redux. scottish first minister nicola sturgeon is said to warn it will hold another independence vote if the u.k. leaves the e.u. single market. we will get back to brexit. for more, tune into radio "daybreak europe." this is bloomberg. ♪

mark: this is "bloomberg surveillance." scotland's first minister is threatening to hold a referendum to lead the u.k. unless they can stay in the e.u. single market, writing in "the financial times," nicola sturgeon says, it is the best option for scotland remains full membership of the e.u. as an independent member state. the ultimatum as pressure on theresa may as she draws up plans for brexit. still with us, simon french. pressure from all sides, within her party, within the remainders, within scotland, within the e.u. it is real pressure for theresa may as we approach the triggering of article 50. simon: looking at the 2017 timeline, that end and of march triggering of article 50, everyone is positioning themselves for how the government is going to lay out its preferred negotiating stance. nicola sturgeon in charge of the

government in a country that voted in favor of remain. she wants the softest version of brexit. despite strong rhetoric, she is recognized the u.k. is going to leave the european union, but will he leave the single market? she's trying to position for the problems that may be yielded if we go for a hard brexit in terms of a second referendum. second referendum in scotland that is. worth noting she doesn't have any power to call a legally binding referendum, but it may be that the public opinion being on her side, she makes it very difficult. mark: still not clear whether if it was called today, she would win. simon: absolutely. actually, the polls have moved against her since the referendum vote, partly because the fiscal position in scotland will be

very dire in a world of $40, $50, $60 barrels of oil. the first time around, when oil was at those numbers, she could make the arithmetic stack up. much harder to do. most estimates suggest a percent to 10%, were they to go it alone. mark: the economy has weathered brexit so far. to what extent will it continue to do so in 2017? simon: i'll pick you up on the fact brexit hasn't happened. has navigated the post-referendum uncertainty well. areg into 2017, indicators a little softer. labor market was a little softer india last week. nothing suggests a real collapse in sentiment. the timing of article 50 being in march. the government, i think, will come forward with a big fiscal package which will, i think, try

and offset any real nervousness is for realhat this and the government is going to go through with it. very much >> it is a slow deterioration in the u.k. competitiveness, but not a seismic point. mark: back to you in a second, simon french. up next, trump takes on china on twitter. we look at the president-elect's latest spat, and the market implications. that is next and this is bloomberg. ♪

mark: this is "bloomberg surveillance." i'm mark barton. let's get the bloomberg first word news. sebastian: john mccain and three other u.s. senators have called for a congressional inquiry into

allegations of russian interference in the presidential election. saysvisor to donald trump there's no consensus among the intelligence agencies over moscow's role. mccain also told cnn that president obama has no strategy for dealing with russian cyber attacks. our clays is preparing to tell 7000 clients to do more trading with the firm or find another bank. tradingstem ranks customers by the return they generate on capital. it a lot barclays to prioritize its most lucrative relationships. it is the latest move in an industrywide trend of whittling down customer lists to produce ones that give significant profits. scotland will hold a new referendum unless it can stay in the european union single market. that is the warning scotland's first minister will issue this week, adding on pressure as the u.k. prime minister draws up fans for leaving the e.u. nicola sturgeon go draw up plans

for a new arrangement to stay in the single market even if london government pulls the rest of britain out. bp has cemented its relationship with abu dhabi by swapping $2.2 billion of shares for a stake in one of the emirates' largest onshore oil concessions. ceo bob dudley told bloomberg he sees signs of growth next year following more than two years of an oil slump that hammered earnings. opec and 11 other nations agreed to cut oil production for the first time in 15 years. >> i think we're going to remain very disciplined about the capital we spend, the capital -- the projects we select. it is time for bp to start growing. we've worked through so many difficulties in the u.s. that i think the country is well positioned for growth. sebastian: china's property market continued to cool in november. new home prices excluding government-subsidized housing gained in 55 of 70 cities

tracked by the government compared with 62 in october. this as authorities rolled out homebuying curves to deflate the housing bubble. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. mark: president-elect donald trump has lashed out at america's biggest trading partner after he claimed china stole an underwater u.s. navy drone. from calling it, "unprecedented," before suggesting china should keep it. china said it seized the drone to protect shipping safety in the region. the dollar lost ground against some of its major peers. bloomberg's east asia government team leader, daniel 10 kate, joins us now. was taking the drone a reaction to trumps comments about taiwan? daniel: that is one theory. there's a couple reasons. certainly trump has been using his twitter account to go after

china in recent weeks. the taiwan phone call, then he questioned the one china policy. china has been very sensitive to u.s. efforts to conduct surveillance activities in the south china sea. it is possible they are pushing back against u.s. surveillance. mark: what about that tweet, keep the drone, from president-elect trump? how much damage is he doing to relations with china? daniel: china is basically taking a wait-and-see approach. they are kind of sitting back, trying to figure out what exactly policy will be under trump. today at the foreign ministry briefing, china did dispute the notion that they stole the drone. they also said they are going to deal with the current administration, which signals that a lot of this probably won't escalate until trump takes office. mark: thanks for joining us.

daniel joining us, our bloomberg east asia government team leader, daniel ten kate. let's get out to china again. the property market continuing to cool. let's introduced our new guest, diana choyleva, and simon french is still here. overheatedhe property market in china continuing to cool? the data today on new home prices confirm that view? diana: they confirm that the to reinies are starting in the property market, but the really important story here is the fact that china no longer has the option to just throw money at the economy and try and grow it in the same way it used to in the past. earlier this year, when they

tried to stimulate, all they got was one quarter of bed growth, then both the second and third quarter saw a real gdp growth. now, numbers go below trend. inflation started to again rear its ugly head. first in house prices, but then we saw the very swift price deflation yearthe course of this and now producer prices are rising. it will be very quick, the transition to consumer price inflation. the last two years saw corporate profits decimated. the lesson for china, which was very much also the lesson after the global financial crisis, when they threw a huge amount of money at the economy and got inflation for it, is that they must reform the economy. appetite to their

see that through? diana: yes, there is. under the leadership of xi jinping, we've seen china liberalize its financial system at the fastest pace, certainly, compared to the 10 years during the previous leadership. the issue is that it's a very difficult challenge, and first of all, even though that economic slowdown has hurt corporate profits, it hasn't really yet shown up in deteriorating labor markets. it is when the labor market starts showing the strains that will really test beijing's resolve to push through with what will be very difficult and painful reforms. mark: diana, simon has some big themes for next year. one of them is, beijing will have little choice but to engineer a sharper yuan depreciation. this is correct, isn't it? 10% over the next 12 to 18

months. diane opposes this question. to ask you first. how is china going to go about this currency depreciation and how is the rest of the world going to react? simon: they may stop protecting the yuan. they have been keeping the yuan at a more elevated level of them free market conditions would dictate. they've burned through almost $1 trillion worth of foreign exchange reserve. say, $3 trillion to defend the yuan, but i don't think that is sustainable. at the start of the year, they sink at thetchen chinese economy. those are starting to slow. bmis are starting to take up. startubg ti tucj uo. -- to tick up.

side you geton one the global economy rebalancing. on the other, you get stagflation. what will the reality be? diana: hopefully somewhere in between. first of all, my argument is that the yuan is the only major currency that is overvalued. given how difficult china's adjustment is going to be, it is highly unlikely that they won't need the help of at least a fairly valued currency. how they go about achieving this weaker currency will determine the outcome, as well as how the rest of the world will react to it. if china purely goes down the route of letting the currency go down, even maybe intervening beyond what market forces are currently trying to set the yuan

at, and having sharp depreciation, but then close the capital account, this is very which thenoutcome leads further down the line to stagflation. outcomes, trump versus china, what is the worst-case outcome here? we're just seeing the beginnings of this spat between china and trump. economically, globally, what is the worst-case scenario? diana: i think it is my main case at the moment for the next 10 years, that globalization is set to unravel. it is difficult to see how globalization will survive given the political makeup we have of the world right now. mark: simon, worst case, globalization unraveling? simon: worst case scenario is i think where you get a material tariff war that spreads

multilaterally. think the potential for capital flight out of china and what that does regarding global imbalances. , think that is a material risk particularly as we've seen the chinese 10-year push higher. what is that going to do for the chinese corporate sector? there's a whole basket of risks which make that a dangerous melting pot. mark: final word, diana? diana: if the chinese allow the yuan to depreciate by allowing capital outflows, my argument is that is very good for the global rebalancing. it is what china and the rest of the world need. mark: diana, good to see you. we will follow that. diana choyleva, thank you. simon continues to stay with us from panmure gordon. stay with "surveillance." the bp boss weighing in on

everything from opec to trump. we will bring you our interview with bob dudley, and the guards big day in court. the imf chief awaits a verdict in her decade-old negligence case. talke next hour, we will china and u.s. relations ahead of trump's inauguration with black rocks richard turnill. this is bloomberg. ♪

mark: this is "bloomberg surveillance." i'm mark barton. let's check in on the markets. nejra: good morning, mark. we're seeing thin trading in the last full week of trading before the christmas holidays. european stocks off after they hit their highest level this

year on friday. this is how different industry groups are performing. telecoms leading the gains. on the downside, financials and material stocks. one of the big themes in the market today is a little dollar weakness to start the week. the dollar weaker against most of its major peers. biggest loss is against the yen. 117.35. the increasing geopolitical tensions between the u.s. and china playing a little into this dollar weakness. the dollar is on track for its strongest quarterly rally since 2008. hedge funds have been building those net long as asians also in the -- net long positions also in the dollar trade. looking at what's happening in gold, this is in the doldrums. prices have been falling for six straight weeks. although gold is up today, investors don't seem optimistic

about the outlook for 2017. hedge funds have cut their bets on a gold rally to the list since february. different picture again in wti. while extending its advance above $52 a barrel as a plant production boost from libya stalled. investors are the most optimistic on oil since the slump began 2.5 years ago. mark: thanks. let's stick with oil, bp cementing its relationship with abu dhabi by swapping $2.2 billion of its own shares for a stake in one of the emirates' largest onshore oil concessions. tracy alloway sat down with bob dudley in bob dudley and ask if this deal is a sign it is time for oil companies ramping up investment. one has to have some confidence in the price. we're getting down to an efficient level. we've been saying we will

balance our funds in 2017. a year ago, we were saying $60. now we can do it at $55. i think we're going to remain very disciplined about the capital we spend, the projects we select. it is time for bp to start growing now. we've worked through so many difficulties. i think the company is well positioned for growth. >> we recently saw a historic deal for opec. we saw a potentially more historic deal by non-opec producers to join in with production cuts. how do you feel about opec and the future of oil? think it is very significant. countries non-opec seriously talking about reducing their output. some people have said that opec is not a real organization anymore, doesn't actually bring things together, and i think opec is an important

organization. this agreement is significant. you can already see it in the notices going out from the middle east. i know, because we work in russia, there's a schedule of reducing output. i think it is serious. $60prices between $55 and seems realistic for 2017. and growth continues in china and america for the demand. >> donald trump has nominated rex tillerson as a potential secretary of state. do you think he's the right man for the job? bob: he's an excellent person who knows leadership around the world. he knows how to get things done. he's a very serious person. i think he will do a great job, not just because i'm in the oil and gas industry. this is a man who really knows the world. >> on a more broad basis, we know that donald trump is potentially more friendly to the oil and gas industry than his

predecessors. what does that mean for you and other oil companies? bob: surprises are happening all over the world. a lot of the world is surprised at what is happening in the u.k. even the referendum in colombia was a surprise. the election in the u.s. is a surprise. i think we're in for moore surprises in 2017. we are a long-term industry. we have to think 7, 10, 20, 50 years out. we will navigate and work through this. bp has got its financial framework and discipline back. we will adapt. mark: simon french, i've got to talk about oil. 2017, what are the big potential ones for next year? simon: politically, the elections in europe starting with the netherlands, france, germany, and quite possibly

italy as well, those are probably the political events he's concerned about. he will also be looking at what we were talking about ahead of the break, the china-u.s. relationship. i think for him and for big oil in general, the conditions have moved in their favor. expect the imf to start upgrading growth estimates. that will be good for the pulldown of non-opec and opec supply. and to keep prices at the kind of target he's talking about. those political risks that he notes could derail that. some of the support we've seen for the oil price has been a response of libyan supply. define what the supply side of the equation looks alike. mark: is $50 to $60 next year realistic? simon: you've got the chart behind you, the u.s. rig count,

and how elastic the supply of u.s. shale oil to a higher prices, and the degree to which rigs are reopening, locking in these higher prices. i think that will keep the lid on oil prices. i could see it moving back below 50 if you start to get some of those demand-side stimulus expectations starting to roll off. be below going to expectations in 2017. on the supply side, you've got to look at -- he talks about the 10, 20-year horizon. there's a good story on the bloomberg this morning about the cost competitiveness of solar energy and what that does to the calculus of opec and non-opec members. i think we've got to get it out of the ground while there is still a ready supply of it, which makes the deal that we heard in vienna, that starts to call that into question. us,: thanks for joining

simon french. christine lagarde will learn her fate today when a french court delivers its verdict on her alleged role in a decade old negligence case. we are in paris next. this is bloomberg. ♪

mark: welcome back to "bloomberg surveillance." the verdict in christine lagarde's negligence case will be issued today. lagarde denying any wrongdoing in the deal that linda state to compensate a businessman. caroline connan joins us just outside the court. caroline, how likely is it that christine lagarde will be found guilty? caroline: it is not impossible, mark, but it does seem very unlikely. we will hear from the court in paris in about four hours. last week, the french prosecutor said that christine lagarde has been accused of things that relate not to criminal law, but to politics. the judges of this court do not necessarily have to follow the prosecutor's recommendations.

they could also rule in the opposite direction. and of course christine lagarde has been a lawyer before she went into politics for 20 years. she knows that she remains very serious when the prosecutors talk and on friday she made her final plea to the judges, saying that she acted in the public interest. mark: we will see you throughout the day. final thoughts from simon french. we can trump, china, brexit, boj , targeted yield curves, extension, tapering from the ecb, the bank of england cutting rates, going neutral -- what is the big global takeaway from all that? simon: great question. it is the next module of this protectionist push back that has come from the financial crisis. we spoke about it earlier in the program. it is regulatory arbitrage, particularly in the u.s.

does the trumpet administration rollback on environmental regulation, financial market regulation, and start to be more protectionist in its trade rhetoric, and you start to be a battle to attract business, and you see that kind of regulatory consensus which has held since the financial crisis in financial markets start to be picked apart. mark: great to see you. thanks for joining us, simon french. coming up, "surveillance." guy johnson and tom keene will be speaking to richard turnill. this is bloomberg. ♪

tom: it is monday, the last working monday of 2016. prime minister may nudges

discussion of brexit into 2017 and beyond. the dollar causes in its ascent. tot is the linkage of yield foreign exchange and to the stock market? come on, united kingdom. royal male workers threatened to strike. guy johnson's christmas cards will be late. and british air may not fly christmas day, stranding me and the bride at jfk. good morning. this is "bloomberg surveillance ." i'm tom keene in new york, guy johnson in london. labor unrest in the united kingdom. guy: it is 1979 all over again. not really, but it could be. theconcern is administration is so focused on brexit it is taking its eye off the ball on the day-to-day mechanics. that is something people will focus on if the strikes turn into something more serious. the big one right now is southern rail.

this disaffected london commuters. that is a big deal. tom: this is the train caroline hyde takes, right? guy: not at the moment, but yeah. tom: like south of london? guy: it goes down into temperate wells, that kind of area. the big commuter belt is in the city of london. they've been on strike and it is horrendous. tom: i've heard about this. i do think it signals something for 2017. right now we need to signal to our first word news. backtian: china is pushing on an accusation by u.s. president-elect donald trump that it stole a u.s. naval drown last week. a foreign ministry spokeswoman says the submersible was seized to protect shipping safety in the region, adding that beijing l"esn't like the word "stea to describe its actions. republican senator john mccain

of arizona is joining democrats in calling for a special committee to investigate foreign cyber attacks. it puts him at odds with donald trump, who dismissed u.s. intelligence findings that moscow aligned hackers interfered in the election. mccain warns that this questions -- threatens to destroy democracy. scotland will hold a referendum on separation from the u.k. unless it can stay in the e.u. single market. that warning soon to be delivered by nicola sturgeon, a move that will turn up the heat on theresa may. sturgeon says scotland's voters chose to stay in the e.u. in june and now face being pulled out votes cast in england. in paris, judgment day for imf chief christine lagarde. she will hear the verdict in a negligence case that dates back to her time as french finance minister. she is denied any wrongdoing in connection to a big payout to a

businessman. in britain, thousands of workers are set to strike. the bbc reports about 3000 staffers are expected to walk off the job. there's already a rail strike at south southern in progress and british airways cabin crew will hold talks today. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm sebastian salek. this is bloomberg. equities, get to bonds, currencies, commodities. it is a quieter monday as we stagger into a holiday. green on the screen ever so slightly. euro not near parity but under a 1.05. nymex crude elevated slightly. that is important. that has come down over the last 48 hours of trading. there's the dow watch as well. philippine peso now solidly sustained in 50's.

that is different from last week. that is one indication of that dollar strength and e.m. weakness and everybody watching dollar renminbi at 6.95. let's talk about the fact that the financial markets are focusing on what is going to happen tomorrow. we are inching our way through monday, but tomorrow we learn what the boj is doing. a big shrug of the shoulders. we were hearing about what the scottish first minister is proposing in "the financial times" this morning. financial markets, really big yawn on that story. print continues to climb a bit higher. i've got a great chart for you in just a moment. take a look at the ifo. the ifo really signaling that the german economy is getting back in gear. the german bund flat at 0.32. tom: diverging to a wider spread

within germany. over to the bloomberg, this is my chart of the year on u.s. gdp. what is important here is the into grand. call it calculus monday. i can 1990's, the four-year moving average was this optimism above 3%. the yellow line is 3%. .ere's where we are we just can't get back. maybe that shows the challenge within trump rhetoric on economic growth. 2007.ak under 3% in guy: use of the rig count go up friday. there seems to be this idea in the market where opec takes one barrel off, the u.s. shale guys but another barrel on. this is a chart that shows why they have problems with that. this is the brent curve.

the green line is the brent curve six months ago. the orange line is where it is now. what opec has done has flattened the curve massively. maybe one of the reasons they've done this is to prevent the shale teams from selling forward. if they can't hedge in the way they were able to with a steep curve, that may make their ability to come back online a little harder. tom: very good, guy johnson. why don't you bring in richard right now? guy: let's bring in richard turnill, blackrock global chief investment strategist. let's start off with what we're looking at this week. tom and i are kind of saying, monday morning, not exactly a great story, but the dollar seems to be front and center. we got the yen story coming tomorrow. as this dollar run run out of steam now? richard: the big event is the bank of japan meeting.

people will be focusing not so much on a change in policy, but any hint they give that potentially they could move further down the line. our expectation is the boj is going to stick with its current policy well into 2017. when they first moved to that zero yield target, many interpreted that as some sort of tapering. with what we've seen in u.s. yield overtime, that zero target looks increasingly like a loose monetary policy. it is driving the yen lower and reflate the japanese economy. reflate the japanese economy. guy: what did you make of what china said on friday? china talked about neutral policy. i'm wondering whether that signals a tightening. i wonder what the story is going to look like in 2017 in asia. we've got the chinese potentially talking about a neutral policy. richard: i think what we're

seeing is an extension of what we're seeing around the world, a shift away from loose monetary conditions that we've had for a long time. it has been china that focuses on the property market but we're seeing this around the world. we are seeing a shift away from loose monetary policy towards less loose monetary policy and greater focus on fiscal policies to support the global economy. i think lovably it means steeper yield curves. i think it also supports the u.s. dollar. tom: let's bring up the kit juckes quote right now. kit juckes over at socgen sort of as a monday morning, last monday of the year, summary, kit juckes linking the markets and critically linking them in sequence. as the three wise men follow their star across the world, the bond market leads, the fx market

follows, and the equity market decides. the big drivers from here are yields and politics. fxce in the continuum how signals what bonds will do. key driverthink the of markets now is what is happening in global growth and interpreting what that means for monetary policy going forward. looking at the bond markets, very important that the selloff in bonds you've seen over the last few weeks and months, that has been reflecting expectations of higher u.s. interest rates. equity markets i think are struggling. it is good news for part of the equity market. it is good news for cyclicals, for value stocks which benefit from a steeper yield curve, from expectations of global reflation, but bad news for large parts of the market which we consider the bond proxies, which have benefited from the interest rates for a long time.

that includes areas like utilities. even on a day-to-day basis, you see the stock market struggling with whether higher bond yields are good or bad news. i think that is going to be an ongoing theme. guy: bonds, we're not even at 3% yet. some of these bond proxies kick out really good returns, and you may get a bit of wiggle on the capital story, but nevertheless we are still some way away from the point where they are going to overtake that story. is the market getting ahead of itself? richard: i think that is the right issue. two points there. one is how rapidly yields rise from here will be critical. we see that being relatively gradual. in that gradual move higher for yields, equities still look attractively priced. what we know is when yields move very quickly, the bond proxies

typically struggle. when you look at what is happening, i think real focus going forward on those companies that can grow their dividends. what we think of as dividend growth stocks. the stocks which have got high growth,ut low dividend those are the most vulnerable right now. the market is starting to focus on companies where the earnings and dividends can grow. tom: this is so important, folks, the idea of, yeah, this is that, the other thing -- it is also about the first and second derivatives, particularly the acceleration and the linkage of the series as well. great way to get started for the week. we will go through much more of this. into the equity markets and the politics of the united states. and is there any more value in the market? i have no clue.

this is bloomberg. ♪

guy: i'm guy johnson in london. tom keene manning the desk in new york. let's get a bloomberg business flash. sebastian: barclays is getting ready to tell 7000 clients to do more trading with the firm or take a hike. it is the latest move in an industrywide trend of narrowing customer lists to focus on relationships that produce bigger profits. the bank has booted 17,000 clients as tougher rules dealing with smaller firms is profitable. goldman sachs is sounding the alarm on china's capital outflows. the bank says they are accelerating and the pboc is selling larger amounts of

foreign exchange is the yuan heads for its biggest annual decline in more than two decades. goldman says $69.2 billion exited china in november. in italy, troubled lender monte dei paschi hopes a share sale will allow it to stave off a state rescue. the world's oldest bank will sell stocks to investors through tuesday. the offer for retail investors ends the day before. monte dei paschi hopes to raise 5.2 billion dollars to avoid a government bailout. chancellorgerman angela merkel is warning against a rescue. guy: things very much indeed. let's get back to the top story, bloomberg u.k. banking reporter stephen morris with more on the barclays story. good morning. barclays has been doing this for a while. g clients, butllin

now it is getting more ruthless in the way it is doing it. stephen: three years ago, they had 32,000 clients in their markets division. withare aiming to end up 8000. what they are bringing in now is a new computer system called flight deck which will rank their clients by their return on capital. they are easily able to see who is earning the most return and who is lagging a bit. in an age where european banks are facing huge questions about their business models and profitability and sustainability, they are having to be ruthless. in addition to 17,000 clients they've already got rid of, they are looking to eliminate another 7000. guy: is this down to financial repression, to the fact that volatility has been incredibly low, therefore people are acting differently than they did traditionally?

if the central banks step away and markets get back to normal, how different will the world look? volatility increases in the markets division, revenue will increase as well, which will give them a bit more leeway with their own return on equity to take on more clients. once they stop attracting billions in fines from misconduct, they have the final clarity on regulatory capital rules across the world, then maybe they will be able to shift this stringent stance and bring people back on board. at the moment, they don't have the space for it. they have to go to their clients, hopefully none of whom will grow massively in the future. tom: let me ask the ugly question. let me ask the ugly

question. if they're going to fire this client, where do these clients go? stephen: that is the big issue. 7000 clients taken out. they have to go, if they are european, perhaps to more local banking markets. that is where i heard a lot of these clients would be going in germany or france. in the u.k., there aren't many big investment banks left. barclays is sort of the last man standing. what we are going to see is perhaps the u.s. banks have more clarity around capital rules and a far more profitable than europeans, picking up some business from these. it might not be a bad strategy for jpmorgan to bring them on board. or we might see them going to the non-bank sector. it is not clear yet. tom: what is your vision when you sit around and have a beverage of your choice with our banking team? what is your vision of synergy in the u.k. banking space next year? is 2017 going to be a year of combination m&a and cost control

or is that all behind us? stephen: we're definitely going to see more m&a in the u.k. banking sector. rbs, as a condition of taking its bailout, is trying to sell a branch network and there have been several bids for that. it is on the rocks, but it will still happen. as i spoke to the chairman of hsbc, he said there does need to be consolidation in europe. at the moment, there are too many banks, too much competition, and margins are too seen. -- thin. guy: stephen morris joining us from our u.k. banking team. richard turnill is going to stay with us. coming up, "bloomberg daybreak americas" is in conversation with the goldman sachs cio. this is bloomberg.

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guy: i'm guy johnson in london. tom keene in new york. let's turn to the morning must-read. edward luce writing in "the financial times" the u.s. electorate appears to have opened the gates to a new cold war in which america's hand will be far less strong than it was the first time around. apparently plans to do

the reverse. richard turnill still with us from blackrock. the markets are pricing in the reflation trade, not the protectionist risk, or are they, and should they be pricing this in greater? edward talks about a cold war influence kind of world. richard: the market is pricing in the reflation trade when you look at u.s. equities, small cap domestic u.s. equities, they've rallied very strongly since the election. the markets interpret this as the best possible outcome. reflationfied the trade that was already in place before the election. where i disagree is, if you look at emerging markets, where the market is pricing in very significant risk premiums around protectionism, around trade -- guy: around protectionism or around the dollar? where does the risk lie? richard: i think they all go together. protectionism leads to capital flows back into the u.s.

that all goes together. i look at the risk premium. as an investor buying into emerging-market equities, emerging-market bonds, and currencies, that risk premium, that additional premium, is now back to attractive levels. many people forget have geared emerging markets are into a recovery in global growth and u.s. growth, particularly those markets exposed to higher oil prices. i think that creates a big opportunity. is thee of the things sub tier industries. let's go to the bloomberg. turnout will know this. this is the curve steepening in china. the spread has gone out to new wide -- we've seen it three other times, active 2011. richard turnill, curve steepening for china is different than curve steepening

for jamie dimon, isn't it? richard: one thing to be cautious about is, there is a seasonal element to that. as you come to year-end, you often get this move. people will be looking at whether that continues into 2017 and whether we start to see any material tightening in financial conditions. when i think about some of the risks to the global economy, the global markets, i think china is high on the list. tom: ok. let's come back. richard turnill with us this morning. coming up, germany, better than good numbers for germany. stay with us. this is bloomberg. ♪

tom: new york city, a bull market new york city. all sorts of people talking up equities, but some reticence. not andrewner is

verbal -- is not an uber bull. guys, it's a tea leaf we a major bowl steps aside. guy: yeah. nothing goes in a straight line forever, except for the 30 year bond market. it has been such an aggressive move. story since the election -- you and i were both there, and it was such a sight to see. after such a run, may be some pragmatism. tom: let's go over to the bloomberg. i'm circling the spikes you see when things are challenging. we are down here with the complacency on the vix, 12.39, the trumpian migration. this part here is the trump effect. there we are with the pause. i don't want to make too much about it, but when you see someone like tony dwyer move, that gets your attention. our first word news in london,

here's said selleck. electors will be gathering to formally select donald trump as president. antitrust forces are trying to deny him the white house. protests are planned for state capitals, trying to dissuade electors to dump-in. -- dump-in. gunmen left saieven daead, and at least 34 others wounded. had lastedly several hours and four gunmen were killed. there was no immediate claim of response ability. in south korea, the jailed confidant of the president was denied on the first area for trial that she used her presidential ties to extort money. today's hour-long hearing was

the first public appearance in weeks for her. the scandal of the president's impeachment after millions to the street in protest. -- the celebrity ho stess appeared in movies and of roadways, as well as nine marriages. she was 99 years old. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. i'm sebastian salek, and this is bloomberg. guy: thanks. german business sentiment rose to its highest level in almost three years in december, according to the data from the business climate index. the report is the latest indication that the german economy might be back in the fast lane. this follows a temporary slowdown in the summer months. this is the president to joins us from munich,. germany good morning to you, sir.

how good a year's germany going to have in terms of economics next year? the last quarter was strong, so it looks like the german economy is getting get good stuff next year. will we expect -- what we expect is like 2016. there are a few working days left but apart from that we expect the same growth rate, something around 1.5% or even more. it is looking solid. guy: are interest rates where they are with the ecb appropriate for germany right now? germany, they are certainly too low. we feel this in the construction industry, where we have a real boom. people are investing in real estate because they don't get returns anywhere, and the interest rates are clearly too low. whole becausebe a

inflation will be coming back next year, so we expect something like 1.5% next year, and eventually the ecb will have to react. tom: congratulations on your series, which i think has been such a good indicator over the years. here's the current assessment. is a boom of precrisis, the recovery boom, as germany figured out how to keep bodies employed. movementis remarkable up here in the current assessment. this is not due to mr. trump, it is due to a weak euro. how much is the weak euro playing into germany, the export juggernaut? is as big a deal as the academics say? >> it does play a significant role. the euro is too low over the german export industry, which is booming. this is partly and other official boom. -- an artificial boom.

it's divided within the eurozone; southern european countries need the low euro, but for germany it is clearly too low. the german economy does get a little bit distorted towards excessive exports. tom: the distortion you mentioned comes back to the domestic economy. i know you do business in all that. abouto your series say the animal spirit of the domestic german economy? boom in is clearly a the construction sector, as people are rushing into investment prices are increasing. the people still continue to invest. returns are very low almost anywhere else. in consumption, we also see growth, but it is a lot slower, and it mostly reflects the glowing population, the influx of refugees. apart from that, consumption is really growing relatively

slowly. the boom is going on in construction. guy: we were talking to reporters in berlin, and they are saying that germany expects a protectionist u.s. policy under donald trump. would you agree with him? >> no, i'm skeptical. that is correct that donald trump has announced more protectionism with regard to the pacific free trade agreement, that he hasn't said anything about germany so far, so i think we should give him a chance to talk to the europeans and understand, hopefully, that there are mutual interests at stake. enduldn't expect him in the to turn toward protectionism as far as europe is concerned. guy: can you talk about the strength of the growth we are likely to see in exports? if we do see the united states delivering a significantly

reflationary economic outlook, how much hotter can the german economy get? i am looking at the story right now, exports are running strongly. if you get a reflationary u.s. economy, what is the plot on that? the u.s. is, germany's most important export market, but there is still potential. if we get reflation and increasing interest rate, this will push up the dollar. trump will have to see how he reacts. the current account deficit is u.s., androw in the the question is how will he react. it is not quite clear to me whether this happens in the next '18.or maybe into they will be sometime before he can cut taxes or boost spending. tom: thank you so much. congratulations on durable series.

richard, what i find interesting is that we are seeing the d-word , distortion. how much does the euro distort not germany, but mario draghi? the distortion is tangible between germany and italy, with draghi caught in the middle, right? >> when he has done is pushed out any discussion on a shift in monetary policy, and importantly beyond the german election. that continue in an environment of relatively easy policy within europe for some time. with interesting at the moment is that we are getting positive economic surprises, not just in the u.s., that everybody has been very focused. what you are seeing with the data in germany, we have talked about the data out of asia. that is going to see positive economic surprises. all major regions around the world at the same time. what we know is it will ultimately sent central

banks to shift policy. tom: critically, can you say that mr. trump and the enthusiasm of mr. trump will pull us out of global recession or is he a follow-on to that event? >> the deflationary trends which have been dragging the markets recently were in place going back to the beginning of the summer, and those were around positive surprises. i think a lot of people got overly pessimistic about the outlook for growth, particularly around the time of brexit. signs of inflationary pressure are picking up and they have been in place for a couple years now, that they have started to broaden out, not just within the u.s. ball within the international community. finally the shift of policy, away from monetary and toward fiscal. what donald trump's victory did is really amplify all three of those trends over time. it is very important to recognize that these trends will place will before, and i think

that's important because it suggests they will be sustained. this isn't just a knee-jerk, sentiment driven market reaction. this is a market reacting, i think, to a very important inflection point. we have been in a 35 year period of following global bond yields, going back to paul volcker. we think that came to an end at the beginning of the summer. guy: can i come back to a point -- we talked at the beginning of the program about china and donald trump's reaction to china. and i were talking a few days back to the former boss of the ecb, jean-claude trichet. he describe the current account surplus as enormous. it's only going to get bigger going forward from here. is that become a political problem for germany in 2017? >> not in 2017, i think. the pressures in europe will build over time. if you look at the electoral calendar in 2017, we don't see

any big events triggering stress around the current account surplus. i think the issues you have, when you look beyond 2017, the pressures which have led to a rise in populist politics, not only within europe but in the u.s. around the world, those pressures are not going away. we have seen some improvement in global growth, and you still expect european growth to remain lackluster for a number of years to come. headwinds remain significant, the demographic headwinds, the productivity headwinds remain very significant. the results of those pressures is going to continue to build. i suspect we will still be talking about germany's surplus, about the imbalance in the european economy, for many years into the future. tom: richard with blackrock, we will continue here. moving forward, a confrontation with the libertarian. john allison, a former cato institute president and has a

working knowledge of the banking system with bb&t. john allison on the president-elect. this is bloomberg. ♪

guy: we started the show talking about the fact that we will see strikes at ba. the problem is facing travelers in and out of london, the fog. problems this morning at heathrow. that's the issue. it started already, and i hope the british weather will be the biggest contributor factor. tom keene in new york, i'm guy johnson, here's the bloomberg business flash. that and it is a record $13.6 billion tax bill.

in august, they ordered to collect over apple's tax arrangement, that ireland says they did i get a sweetheart deal and the eu doesn't understand proper application of irish tax law. saudi arabia could still decide of a rank --res to sell shares of aramco. saudi authorities plan to sell less than 5% by 2018, and it could be one of the biggest share sales in history. wars" moviest "star has posted the second biggest december opening weekend ever. it's a prequel to the original 1977 "star wars," and made $155 million. last year, "the force awakens" held the record for the largest opening weekend at $248 million. and as the bloomberg business flash. tom: thanks. this is a huge deal.

aofailed scott called it medioc, but two family members saw it this weekend and raged about it. the middle child said shut up and go see it. she totally disagreed with him. she thought it was a real move back to the empire strikes back, that second wonderful movie. i think i might be forced to see it. guy: i would see it. i have children who will probably watch addressed in star will havems, and we to do that at home because they may need to hide behind the sofa. do you think "the empire strikes back" was the watermark? tom: i am in the camp with the second movie, lawrence caston and the rest. that was the darkest, but everybody has a different opinion. guy: i love the first one. i remember seeing it as a kid when it came out, fantastic.

generational. i have been told we have to move on. i know matt miller is excited. bp as amended at 77 year relationship with abu dhabi by selling its shares for a stake in its largest onshore oil concession. ceo bob dudley said he sees signs of growth next year following more than two years of slump that has hammered the earnings. >> i think we are going to remain very, very disciplined about the b spend, the projects we slump that has hammered the earnings. collect. it is time for bp to start growing now. we have worked through so many difficulties in the u.s. that i think the company is well positioned for growth. collect. guy: let's bring in tracy alloway, who got that interview. talk to me about his view on the market. he sounded upbeat -- was he has upbeat as he sounded in that clip? y: perhaps surprisingly

arrived in but he abu dhabi feeling pretty good about not only the outlook for oil prices, but the outlook for his company in the face of lower oil prices. of particular interest is the can that he said bp maintain spending and can maintain spending and dividend without having to borrow from capital markets, with oil at $50 to $55 per barrel. that was down from the previous estimate of $60 per barrel. speaks to a lot of the financialng and discipline the oil majors have undergone to grapple in the new environment. that said, the other big factor in his outlook is opec, the fact that opec reached a production agreement, not just with themselves but also with non-opec members. it really gives a list to market sentiment that you are starting to see come through to the majors, which have suffered in recent months. guy: what does bp get out of this? what is abu dhabi get out of this? tracy: money walk you through

some of the history, because it is interesting. stake with the a onshore oil concession owned by at knock. that expired in 2014. there was a disagreement over price. bp had some idiosyncratic problems at that moment in time -- oil prices were low and i couldn't come together. fast forward two years later. what they have done is bp has agreed to swap $2.22 billion worth of its own shares in exchange for this state. what bp gets out of it is access to a lot more oil coming from abu dhabi, as well as a long-term, deep-pocketed new shareholder. if you look at the hts function on the bloomberg terminal, you can see that abu dhabi is probably going to be in the top 10, if not the top 5, major shareholders of bp going forward. tom: tracy alloway, from abu

dhabi. conversation with mr. farley of the new york stock exchange. we will do that at 10:00. from london, from new york, stay with us. this is bloomberg. ♪

tom: bloomberg "surveillance," the final monday the 2016. guy johnson in for francine. blackrock's global chief investment strategist. draghi, yellen, carney, yellen, carney, oh yeah, the bank of japan. we will at some interesting follow-on from the bank of japan. richard, how do they set the boj tone as they look into next year? >> i suspect the tone they will set is one of continued stability in policy going forward. you will get some signs of reflation, not just globally but coming through in japan, and the risks are still heavily asymmetric. i think it will move through

2017 as people continue to see growth and inflation, even in japan where they have signs of picking up. i think the pressure on the bank of japan to change and move away from this zero interest rate target is only going to increase. i suspect we won't get any big shocks this week, but i think we will be looking at the rhetoric coming out, and as we move into 2007, i want to focus on the fat target can be sustained. tom: let's look at the witness. healthy with the balance sheet. how much yield gain or rise does japan need to have before you see real concern with the doj? is a little bit of basis points, or do they have a healthy move? >> they can sustain a rising yield, but i think the key on the balance sheet is that they are buying assets today at a rate which means that in six or seven years time, they own the entire jgb market. they know they have to slow down the pace of purchasing at some point. when they initially moved to the zero yield target, targeting

price drop and quantity, many thought that would mean a tapering, backing off from the number of bonds they are buying. but if you look at the data, you haven't seen any slow down in a number of bonds, and arguably as u.s. yields rise, as european yields rise, the boj has to buy more to anchor yields close to zero. that is what they will be focusing on. the ultimately know that path is unsustainable, so when rather than if they shift away, we think it will come sometime over the next year, but it really pushed into well in the 2017. guy: the boj is just a passenger now, like the ecb. >> to the extent that it will be looking at the fed. the movement in the yen will be critical to the boj policy. but for the first time in a while, you have a commendation of reflationary effects taking place. the bank of japan will be very pleased to see that again weaker overtime.

weakness is a function of what has happened in the u.s., although i think their decision to go to is your yield target might very well be timed and is helping to support the economy. many investors in japan after waiting for yen weakness for a very long period of time. tom: as we migrate toward 120. thank you. ll.hard turni in the next hour, we do the same thing but we till to the u.s. markets. we will be joined on the search for value. stay with us. this is bloomberg. ♪

tom: it is monday, the last working monday of 2016. the dollar policy is in its ascent.

that there is drone on about the trump melt. electors meet in their respective state capitals. critic stroh and about the unpopular electoral system. your 401(k) is directly linked to the nation's politics. otherskremlin and je droning on about the courage to stay in stocks. this is bloomberg "surveillance," live from new york. with me, guy johnson in london. and the drone angle, that's a u.s. drone in the south china sea that chinese picked up. guy: yet, and donald trump got very upset about. the ongoing narrative of the president-elect, looking to pick a fight with china via twitter. lasti liked your mmr the hour. a scathing critique that he published last night. on china, we have the bloomberg

first word news. sebastian: more on that story -- china is pushing back on the accusation by the u.s. president-elect that it stole a u.s. naval drone last week. a chinese foreign ministry spokeswoman says the submersible protected shipping safety in the region, adding that beijing doesn't like the word failed to describe its action. they say they are still in talks with the u.s. over the drone. republican senator john mccain of arizona is joining democrats in calling for a special select committee to investigate foreign cyber attacks. this is at odds with donald trump, who dismissed u.s. intelligence findings. warns that it threatens to "destroy democracy." scotland will hold a new referendum on separation from the u.k. unless it can stay in the eu single market. that is the news soon to be delivered by nicola sturgeon, a

move that will turn up the heat on theresa may. the financial times commentary says that they chose to stay in the eu back in the june referendum, and now phase of take pullout. thousands of british workers are set to strike on christmas week. to bbc reports about 3000 staffers at hundreds of crown post offices are expected to walk off the job. of british airways cabin crew will host talks today, in dispute over pay. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. i'm sebastian salek, and this is bloomberg. tom: thanks. let me get you the data check, equities, bonds, currencies, commodities. green on the screen, euro 104.45, not on parity, but that could change. next screen. thearkets churning as well, six at 12.38.

proxy,ines peso, the em it varies day today around 50. renminbi at 6.95, that gets my attention. guy: ready for that 20,000. let's talk about japan. we are watching dollar-yen in advance of the boj. may be something of a passenger in this whole story, but a happy hour. markets are shrugging shoulders at the nicola sturgeon story, the scottish first minister talking about another referendum, the market not believing it will have much of an influence over policy. brent crude trading at $55.48. the dollar and crew have been rising, but nevertheless, that correlation seems to be working. tom: let's take my chart of the year on gdp and move forward. chris like at the range,

here is a booming america in the 1990's, and here is the under performance after the crisis. mr. trump is trying to do this up to 3% gdp, which shows the challenge with the four year moving average. what do you have on the bloomberg? guy: we're going to talk about oil, and i have changed the color. bulue is the current market color. line -- maybe that was the wrong color -- the green line is six months ago. this is what opec has done. it has made the brent curve flat. count, but maybe what they have done is flattened the curve out. it will make it incredibly hard for the shale guy to go forward and that is maybe a new strategy for keeping them in the box.

tom: i'm going over to my notes. with us, the u.s. trust chief man whotrategist, and a puts his money where his mouth is. he's looking for value in capital management. with up the script immediately with joe quinlan -- you always have one twisted thing in your notes. i don't know how you got booked on this show, but i have to lose a few, or the president-elect has to lose a few. >> i am talking about myself and everything. tom: oh, come on. >> don't patronize us. tom: tell us about global obesity. >> it's a great play on health care, particularly in emerging markets is. more processed foods, working in factories as opposed to farms. diabetes, dementia heart disease,.

it's a great play on health care. not buying it? tom: the preholiday landscape. let's go on to christmas now. tell me about the obesity of our deflation. >> i have to admit, we were surprised by the severity of the increasing rate so quickly. and ik it can continue, think the reason for that is confidence is booming both on the business side and consumer side, and you have people going out and spending, interest rates going up, refinancing mortgages and running to the bank. that's all good for lending -- tom: we have all seen this before. can it be sustained? >> for maybe 12 months. but really ceos have to step up and start spending. i think consumers want to spend.

capital expenditures are a key component. tom: let me ask you a question from london -- if the reflation trade is on, why is the market down on emerging markets? is it just the dollar, because they have geared these emerging markets to a reflate in u.s. economy. >> i think the $64 trillion question here is whether interest rates are going up because we are just having inflation or because there is growth ahead. we won't answer that i think until the spring or the summer. emerging markets are dependent on the answer. is there real growth? is it a 2017 answer to that question re: 2018 answer? >> well you might not see the economics come in for a year or 18 months, the markets will foreshadow it. 2017. guy: what are your thoughts?

it looks like we are getting a tightening of financial conditions, the dollar going up, two or three rate rises next year. i am wondering whether we get a tightening first and then the growth comes later. i wondering what the sequencing looks like. >> it will depend on china and their demand for commodities. they will also depend on other countries stepping up and doing more fiscal spending. the biggest issue is the dollar denominated debt in emerging markets. that is something we watch very carefully. that can create an outflow, and that will be key over the next couple months. the global obesity thing -- here is what we used to do. we used to invest, two or three decades ago, in a solid 5% level. this is gross private domestic investment. we are at an anemic 2.1%. policy needst mean to accentuate investment?

can we do that? >> i think we can. i don't think we will but it is possible. they expected what we have seen to happen -- we are subpar because of the financial break, but now it is 10 years in the rearview mirror. you would expect policy and lower tax rates -- tom: why can't we do in investment tax credit, and lbj, we -- you have the money, will give you an incentive to build a little switzerland. >> if it doesn't happen in the next 12 months -- tom: not going to happen. -- we talk about markets -- are you fully invested? >> much more than last time, and more cautious, coming into an election where we thought there would be a third obama term. now we are playing catch-up. what we are doing is doubling up our investment in financials,

which have been terrific. we only own about 18 stock. we have made a lot of money with wells fargo. financials.ore with now we are looking at industrials. tom: this is fabulous. we will ask joe quinlan about , which is notnd to own too many stocks. is a heated debate. classy a view to mention -- some people missed the trump. that would be me. coming up later today on bloomberg radio and television, he is the former cato president , john allison. we will wax philosophical on mr. trump. this is bloomberg. ♪

tom: that's london. if you go further west you will get to heathrow. i am looking at the arrivals for heathrow this morning, flights delayed, -- three four, five hours. it is foggy in london. tom: it was quite a long weekend, not fun. congratulations to your air traffic controllers. it is sort of like one big o'hare in chicago. tom: it'guy: it's probably quit. let's find out what's going on. sebastian salek with the business flash. layoffs recently began and could ultimately total as many as 3000 lost jobs across several units.

the airlines as it is restructuring to reduce costs and increase revenue. carriers in the persian gulf are under pressure to adapt to slowing growth after years of aggressive expansion. saudi arabia could still decide to sell shares of aramco in new york, according to the country's foreign minister, and despite their law passed by the u.s. allowing citizens to see the kingdom. they planned to sell less than 5% by 2018, and it could be one of the biggest share sales in history. and that is the bloomberg business flash. tom: great video, thanks. with us, joe quinlan and chris but first, we elect to go to washington. kevin is giving us terrific coverage on mr. trump, back when he wasn't going to win. he joins us this morning. let me go to a history lesson. i will put this out on twitter. george will gives you the dose

of history you need on the electoral college, it barely touches the majesty of his op-ed. california, where democrats effortlessly harvest 55 electoral votes, more than 1/5 of the 270 needed, this year's presidential winner was never in doubt. 48 elections since 1824 have produced 18 presidents who received less than 50% of the popular vote, the greatest of 39.9% inaham lincoln, 1860." he did a great job of putting this in perspective. that to the chase. is there any tension today or is it just the media, everybody mouthing off? >> look, we had the same question in 2000 during the bush and gore election, and it's a question we have now. the bottom line is we didn't have the electoral college, the

candidates would not have an incentive to travel the country, reach out to a lot of other americans who live not in the coastal cities, to get them involved in the process. that said, where this matters is that it calls into question whether or not trump has a mandate, and of course by losing the popular vote, it gives democrats an argument to hammer him on. tom: the have to move on to the news flow, and the news flow is china. i was making jokes about it, but this is no joke. a drone -- is a drone a hunk of military hardware? is it like an airplane or is it like they dropped a mac computer off the back of the boat? >> there's a great story on the bloomberg about this. we are now at an age where we have things like cyber attacks and things like drums. this is a new element in national defense security.

response to that is truthfully going to be perhaps one of the president-elect's first tests when he assumes the commander-in-chief position on january 20. there is some speculation about whether or not the president-elect cost wheat regarding taiwan was perhaps some of the impetus for the chinese to take this action, but either way it will be a fascinating and somewhat complex relationship on january 20. guy: how would you describe this from an historical point of view? are we back to spheres of influence? is that no the game we are playing? this feels very cold warlike in some ways. is that the direction of travel here? >> i would politely refute that just a little bit. when you look at when president obama took office, when president bush took office, there were some examples of the chinese and russians trying to see where exactly these new

presidents would align. that being said, there is quite a large unpredictability factor that trump himself has embraced and has said he likes to hone in as part of his political brand. i would anticipate that to continue, and i think fulks all around the world are trying to figure out just what exactly that means for their relationship with the united states. tom: thank you so much, we greatly appreciate it. good, the bad, the ugly. else anday everybody the president-elect are overcome by events. does it begin with china? >> they could. they areo be careful, a huge export market for u.s. goods. if there are any nationalist problems it could come back to u.s. companies. i am concerned about taiwan --

it's a very important part of the global state chain. tom: let's interesting here -- foreign politics is the driver, his politics a driver of your world? >> i can't recall a time where looking out to next year in the political realm we had as wide a variety of potential outcomes as we do. tom: does it affect what we are doing with our retirement plans? >> sure, it does several things. is of the things it does make us reduce our target prices because of the uncertainty. you might like financials that you don't know what will happen with the trade for. you like industrials but you don't know if the package look pass congress. there are things that are tough to put into financial modeling. guy: one thing people are trying to figure out -- in terms of the relative performance, the u.s.

is a relatively closed market compared with europe, which is a relatively closed market compared with bits of asia. worse,s of who comes off is that the world we are going into? how does it fit together? >> i think that the markets we are dealing with are all looking toward the white house post january 20. i think they will all see whether this trade, protectionist, wall building image is really going to come to fruition. hopeful that it is a first negotiation bluff to try to get the best trade deals possible. but we really don't know. tom: we will continue. trump when hewith was a nobody, and he has a terrific perspective about the path of the president-elect. thomas farley, president of the

new york stock exchange. we will talk to him about derivatives in the equity markets. worldwide, this is bloomberg. ♪

tom: guy johnson in tom keene, quickly, see if a moment -- joe quinlan, chris, you mentioned you have 18 stocks. maybe you years ago, were undiversified and at 120.

then there was a fidelity 50 fund. have you gone with less stock holdings in your portfolio? what has it meant a today? >> it's a great luxury to have clients that let us do that. we have been able to double the market return since we started 17 years ago. that is notave done just what we own, but what we don't. tom: exactly. learn, here -- we all it's precisely that, what you don't own. >> and you also have to look at the asset classes. i think that's important as well. tom: where are you on large cap, small cap? are only going to own 18 you can't afford the volatility of a small-cap portfolio. they are very, multinational, with the all trade in the united states. guy: how was your reaction to the massive increase in passive money? well, that is part of the

reason we stick with a small number of stocking states undiversified. is that theor that closer you get to homogenous market like funds, in order to justify are considerably higher than passive management, we need to outperform the market by a lot. you can't do that if you oh 200 or 300 stocks. fewer, diversified stocks. we will continue this discussion with rbc capital markets. york, this, from new is bloomberg. ♪

morning, everyone pretty guy johnson in london, in for francine. i'm tom keene, in new york. let's get to first word news with sebastian salek. sebastian: electors are set

together in every u.s. state today to formally select donald trump for president. protests are planned for state capitals but are unlikely to persuade electors to dump trump. the human security council is expected to vote on a resolution aimed at the point you in military and aleppo. france says the move is to stop mass atrocities by rebel forces. it will be put to a vote today. evacuations from the beleaguered city are said to have resumed. in jordan, gunmen assaulted a police in a series of attacks yesterday, leaving seven officers dead. two local civilians and a visitor from canada were also killed.

officials said the standoff lasted several hours and ended with four gunmen killed here there are no immediate claims of responsibility. in south korean, the jailed degen south korea, the jailed companion -- scandal led to the president's in pitchman after millions took to the streets in protest. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am sebastian salek. this is bloomberg. tom: thank you so much. this is important. at the end of the year, everyone of international relations trots out their worries and concerns and fears for the following year, the follow on year, in this case 2017. forsters is senior fellow prevention and joins us from , with a short

in-depth report on what we need to line up for the next year. with us as well, joe quinlan and chris grisanti. they knew and you knew a different nato. what will nato be like next year ? to me it is a complete mystery of what nato will do what will they do? >> i don't think there is going to be much different from what you see native today as. they are obviously going to be very concerned about russia, about increasing concern over the last year or so about russians' assertiveness in eastern europe, upper areas. jordon. i do not think nato will change in any radical way. tom? -- tom: you just mentioned the differences this year. will russia be the same as the

state of nato next year? paul: again, i cannot imagine there being any major change in the political system inside russia. putin has control of the system there. we will not see anything really change. it is going to be very interesting to see how the u.s.-russia relationship evolves over the coming year, given president-elect trump's somewhat sympathetic view and friendship toward russia. how much of what we will see in 2017 will be dictated i what happens in european politics? paul: there are some major votes coming up, and people are going to be looking to france in the short-term. and then germany later in the year to see whether this populist movement or sentiment growing in europe continues to gain momentum.

these are two big elections that transform the future of the e.u. and determine whether this will stay a viable regional organization. guy: i am just wondering whether or not we are missing the important one. italy looks like it could be the real fracture point. is that where things start to get interesting. -- thece, the gain is game is stacked against marine le pen. in germany, it looks like angela merkel is going to win again. where is the interesting stuff coming out in 2017? paul: i expected more of a reaction following the recent referendum, but it seems like the markets discounted the results of that there has been changes in the government in ,taly almost on a yearly basis so i think italy will hang in there. a serious change

there. threadt see it being the or the persuader in the e.u. tom: we greatly appreciate it, with the council on foreign relations this morning. , and i keep going back to overcome by events. yet we heard more of the same. i do not know which way to go. joe: that is going to be the hard issue here. what are we going to do with china? we have taiwan and do not forget turkey, the middle east. geopolitically, you have to be on your toes next year. u.s.does that mean you buy multinationals, or can you buy foreign shares, chris grisanti? you can buy foreign nationals. tom: is there a greater weighting in financials?

chris: a bank like citibank is 1.3, 1.4 timest book. guy: i'm interested to get your take on -- if you are a u.s. investor, how does the world look at how different does the world look if you are a european investor in 2017? you have currency to think about, politics to think about. are the pages completely different next year? chris: we are looking at some big german, dutch multinationals that do very well in the united states. the banks i think are going to be an issue. the u.k. multinationals, we are looking to put money to work in european multinationals. if the united states did not have problems with china, then maybe the european banks benefit from it. a lot of the european multinationals are inside the u.s. market and will have a good year based on good growth in the united states and foreign exchange. guy: how are they priced now?

joe: i think there is more upside. when you look at the big capital machinery companies, the carmakers, drug companies in germany, there is a lot of upside. the banks left because of regulatory issues. boeing you talk about industrials, materials, chemicals, they are going to do well. tom: what is the big rookie mistake when someone falls behind in performance? a lot of people right now -- not that they have missed the vote -- missed the boat -- but a lot of people are underperformed by number of the spirit what is the rookie mistake? chris: the rookie mistake is to say even though the facts have changed, i am sticking by my guns, i was right in september, or whatever it is. i changed my of facts, what do you do, our

portfolio on to be different to reflect that. we we will come back and dive into equities as well. chair yellen speaking today in baltimore -- richard clarida of pimco -- the last time he was on, he was exceptionally informative. .ichard clarida monday, 9:00 a.m. hours. this is bloomberg. ♪

guy: i am guy johnson in a foggy london, with tom keene new york. let's get a "bloomberg is the/." e.u. investigators exceeded the powers, it is said,

in the $36 billion tax bill for apple. to collect arrears over the tax arrangement, but the government insists apple got no sweetheart deal and that the e.u. does not understand proper application of irish law. arabia, despite a law passed after the -- saudi -- it to be one of the biggest share sales in history. the latest star wars movie have second-biggest opening december weekend in history. estimated $155 million in the u.s. and canada. last year "the force awakens" posted largest opening weekend at $248 million. that is the "bloomberg business

flash." tom: what an interesting, interesting movie. i got a rave review from two family members. but the critics have been less than kind. it is a great split between the public and the critics. expectations, star wars movies, they are going to behind, aren't they yak l i think some people are going in with extremely elevated expectations. i read one review that talked about it was crushed under the expectations of history. given where we have come from, -- i would not say it with the best, but it was up there. tom: we have bank of japan coming up this week. the us talk about whether force allies with the boj right now. chief,nlan, u.s. trust

tomorrow. we have gone through 100 and september, now treading 1.17. -- now treading 117. is that aggressive? but havingink so, said that the direction is appropriate. maybe with a pause here and there, the direction continues and we may go higher. guy: global macro -- these are the kinds of moves that are wiping out global macro. it is so hard in this world where everything is so wimpy at the moment, to make the big trades work. do you expect to see a 117 handle? boj expectedk the to see that at the end of the year? joe: i don't think anyone expected that. but directionally, yes, going in that direction. what i don't like to hear is that it will help the big japanese exporters. i have heard that story over and over again. japan is not a big exporter when it comes to gdp, so it will not

help growth relatively speaking. tom: this is dollar-yen. this is a zoo man, a blowup. the big boj decision a year ago. this is what abenomics wanted. they did not get it. they got massively strong yen, joe quinlan. here is the trump effect. i am going to put the election right there. up we go, 120. donald trump is the force that has helped abenomics to the rescue. but japan itself, structural reform or labor force , participation among women, they have to do a lot more. there are aging demographics. tom: i am trying to imagine the president-elect with the old fao schwarz by the apple store, in their going -- the question is, is he the force or wrote one?

tom: is he rogue one in terms of sustaining the joy we saw in the market? aside, he isism certainly experienced in business. we shall see going forward whether they all sale of the same direction and they control gue one and ro they do the same. guy: what does the boj have to do next year, and is it in command of its own destiny? i am sure there is a star wars line on this one as well. is the boj anything other than a passenger? back, does the boj strike is what you want to know. it is there that trajectory? chris: the u.s. is in the driver's seat, leading the flotilla of central banks. stimulus fromess europe and you will see the boj

get in line last. this,ut the banner up on the rebel alliance. joe quinlan, here is the famous chart from yell university, a long chart back to this -- the depression in to the united states. up we go if i zoom in on this chart, anthony stay with me on the chart. i'm sorry, we are smack dab on trend appeared in the upper right-hand corner. does this signal value in the it a market that has gone too far, too fast? joe: i think there is value yet to come. the market is telling you we are still competitive. we are going to unleash the animal spirit, with more capital expenditures. the consumer is ready to spend. i think we are valued and we are grinding higher. tom: chris grisanti, we were way overvalued to 99, and here we

are coming back from the big drop as well. it is extraordinary, isn't it? chris: it is. there are still groups -- health care, for example, was down 15% this year, even with the market up double digits. there are pockets of value -- financials are still way below the trend line. you would see a chart that is way below that. tom: there is my homework assignment. guy? guy: what we are standing with the markets right now -- an american flight was due to 10:50 and just departed at 11:27, so it is not too bad. 117.20 six is what we would be looking at tomorrow, and the boj decision coming up. this is what london looks like right now. you want to know why there are problems at airports and why tom keene is paying so much attention? it is because london is living

up to its invested -- is living up to its reputation. it is foggy out there, folks. this is bloomberg. ♪

tom: foreign exchange -- let's

do that right now. chair yellen will migrate from washington to baltimore to give a speech today. we will talk about that in a bit. the yen was 118, a little stronger over the last hour. i would note parity is fragile over euro, 1.0438. not up on the screen is 1.2418 has myh at attention this monday morning. does, tomure it keene. coming up shortly, "daybreak america's -- "daybreak: as." david: china is very much in the news with the interception of the undersea drone. ,e have with us, don straszheim chief of china research to go through our relations with

china. and we will look at the trump administration as it takes shape. news is that maldini will be running the office of budget. also talking about a possible fed. it will be interesting to see his role. that is coming up shortly. tom: david westin, thank you so much. joseph quinlan is with us. chair yellen will speak today. what is interesting here -- joe, let me start with you -- this is just a bloomberg screen called fomc go. all of a sudden, maybe we start looking at these first three meetings of next year, and people will hang on the job's speech in baltimore, trying to clean where we are by the end of january. joe: i think probably it will go by march. the economy is getting a head of steam. there is a good vibe. tom: they have to get more data. joe: but the policy backdrop

will be important. how quickly will the 100 days of president trump really kick in? tom: are you optimistic about that, chris grisanti? chris: i think so, tom. you will have a new tax bill introduced, not yet passed. you will be talking you will be talking about infrastructure, but that will all move animal spirits even more. guy: a question from london. does wage growth exceeding inflation in america next year? joe: i think so, yes. janet would like to see wage growth pick up, run a little hot here. you have already seen it, whether it is construction or other parts of the job market, where year over year the inflation weight pressure is growing. janet yellen will lean in and tighten while we have fiscal expansion. guy: so this idea that there is still kind of an output gap

there, because we have a participation rate that does not really reflect what we are seeing in terms of the story on the ground -- is the participation rate -- what is going on? are the people who want to work more or could work more? joe: i think there is a little bit of everything when it comes work,ple wanting to keeping women in the workforce. immigration will be important. i speak to clients all over the country, and they say if they could find more workers to come into work and stay at work, they could do more business. the labor force shortage at all ends is very real and will lead to higher wages in 2017 and 2018. tom: this is the bloomberg dollar index. this is good math. slope matters. i'm sorry, chris grisanti, this is called log quadratic -- this is the dollar on a tear.

how the audience. with a stronger dollar, what does that mean for chair yellen? is it a fed rate increase without it being a real rate increase? chris: mathematically it is, but i do not think she looks at this chart primarily. she is looking at how tight is the labor market. no pun intended, i think that is job one. if that is getting tight, i think we'll see more hikes ahead. guy: final question to joe. hawkish fed become more by the people who are going to come on to it next year? joe: perhaps. we will have to see. the big issue for next year will be chair yellen's job prospects in 2018. we are going to have that debate theer rather than later, as fed is run from a more dovish or hawkish point of view. tom: i will not lay off the

bloomberg dollar index print from this moving average point, in the late summer, it is a 7% dollar appreciation. that affects the fed dialogue. joe: it does, but in particular it creates instability or more outflows from the emerging market. tom: china is not an instability right now? philippines peso 50? joe: that is what janet yellen has to watch. if she is leaning toward more money tightening, that creates instability. chris: but if you see wages go up .4, .5% -- tom: gentle man, a great monday morning hour here. tomorrow, robert hormats of kissinger associates. ♪

jon: good morning and welcome to

"bloomberg daybreak," on monday, december 19. davidnathan ferro with westin to alex pharaoh is -- alix steel is off today. just hours away from janet yellen's latest remarks, .reasuries david: here is what you need to know. the china-trump dance. donald trump says it can keep the u.s. drone, and maybe the u.s. will keep the one china policy after all. fired." barclays is about to tell 7000 clients they do not do enough business with the bank to remain. big oil on the march. bp does a $2.2 billion deal with abu dhabi, giving the