russians and iranians about the situation in war-torn syria. they sent a message loud and clear during a press conference saying they will not let this incident ruin relations. turkey says it grieves with russia and they will continue to work together. you may remember that back in 2015 a diplomatic row erupted >> a suspected terror attack between ankara and moscow when in germany. at least 12 people are dead, turkey shut down a russian jet 40 are injured after a truck on the syrian border. what followed were trade and rams a christmas market in erlin. travel sanctions. they have been under a road to reconciliation. mark: this is the last thing that turkey needs is another a russian ambassador killed in urkey. economic flashpoint with russia. the economy shrank in the fourth quarter, didn't it? this is bloomberg "surveillance." i'm mark barton in for it damages business confidence and consumer confidence. francine lacqua today.

have a look at what's happening in markets today >> yes, thearlt. in the third quarter, we saw despite those three incidents, that the third quarter g.d.p. separate incidents in ankara shrank 1.8%. this was the first time we saw and zurich and berlin. it has seen some resilience. a contraction in seven years. later today we have the bank the stoxx 6 noon europe is decision. gaining. according to a bloomberg it is up by 1/3 of 1%. we have the german 10 jori survey, economists expect the central bank to raise rates by yield creeping up by three 25 basis points bringing it to basis points. the dollar is raising after 8.75%. the b.o.j. decision. last month they also raised for the first time since january 2014. that's what's happening to investors feel monetary policy golede. is still too loose. -- gold. less of an allure for the the president doesn't precious metal. nejra: angela merkel is set to agree. make a statement today about a over the past three months it debt lynn incident at a berlin has depreciated 15% against market.

clues in the terror attacks dollar. influences such as the u.s. that killed 12 and injured 48 elections and also turkey's others. a suspect was arrested near the scene who they believe to political instability. be the driver of the truck mark: thank you. hat rammed into crowds let's get over to matt miller in berlin. yesterday evening. angela merkel, the chancellor speaks in under an hour. andre karlov was attacked at how much does this factor into next year's election? ankara. hibition in >> you have her right wing opponents saying blood is on the chancellor's hands here. the assassin shouted out don't forget aleppo. the a.f.d. party doesn't have police identified the person any -- in the federal who shot people in a mosque government. they surprise people by yesterday. they are due to hold a press winning 20% in merkel's own conference today. three men were hospitalized home state. after the attack. the dead body of another otherwise not as imposing a person was found a few minutes threat as you might think from walk from the scene although it is unclear if the two all the coverage. episodes are linked. she has been taking a tack the bank of japan has upgraded back to the right as has the its assessment of the world's

rest of the c.d.u. after largest economy. allowing a million refugees the b.o.j. forecast the mod into germany and trying to outflank or get towards the rat recovery trend. right hand flank of the party. an improvement in business it is questionable whether or not she continues that sentiment and private strategy today at her press consumption. global news 24 hours a day conference. it is very likely she says germans need to stick together powered by more than 120 and make sure this kind of incident doesn't allow analysts. extremists to try and change mark: a suspected terror their way of life, their free, attack in germany and liberal, tolerant way of assassination in turkey. thinking and put up a what do we know about this continued strong, pro european attacker? front. mark: this has been called a >> that's right. probably terrorist attack. so the attack happened late what do we have we know about last night where the russian this driver that rammed into ambassador dor to turkey was crowds in this west berlin ankara. xhibition in market? >> well, german police are very careful not to allow the shooter was a police details like nanlt or full officer. however what we do know is names out -- nationality or that he was shouting about full names out into the public until all of these things are

aleppo and russia's involvement in the syrian war. confirmed. they want these people to remain -- their identities to the president phoned president remain confidential until they can confirm they are definitely suspects in a case. putin and they both sent a they have not said this is a message loud and clear saying they won'to the pakistani refugee that they are holding now although newspapers have said that is the case. we do know that the german place have raided a refugee camp in the old german berlin airport that has been converted into refugee holdings center. we don't know what they found in that. we know also that the federal police have opened up a criminal investigation here and they are saying it is an alleged terrorist attack but they are just very conservative with these details. mark thank you. joining us now is the strategist at blackrock.

i.e.a. ts proving zingly restill yent to another terrorist attack. gold is down. stocks are rising. euro is down. that's restill yent. -- resilient. >> the markets during the last year have learned economic fundamentals. the big drivers are going to continue through these events unless they are of a scale that is likely to change consumer confidence. we saw a little selloff in the turkish lira yesterday that has largely come back. mark: it could change or influence voting patterns. another one of your big risks for 2017 is the number of key

elections taking place in europe in 2017. it is early days. we don't want to speculate but it does add to the possibility of popularism. >> that's right. this is now the backdrop for all of the elections in europe in 2017. i think what we just heard is right. you need to differentiate ountry by country. it might complicate if it gets into -- it may talk about some of the coalition mathematics facing angela merkel if she wins the election next year. riding this through a populist wave. this is not like trump. there is a long way to go. she has a big uphill battle

before she can win in france. u.s. reflation, growth around the world, probably, you know, exrealings in lobal trade. mark: stay with "surveillance." coming up, the economy keeping its asset purchase program unchanged. 2016 was about brexit and the rise of popularism. what can we expect for 2017? turkey and germany drill down into the geopolitical implications with a terrorism expert. this is bloomberg. ♪

mark; welcome back to bloomberg "surveillance". i'm mark barton in for francine lacqua. here is nejra nejra: the german chancellor's address set for 10:00 a.m. u.k. time will look into clues over the terror attacks that killed 12 and injured 48 others. a person was arrested at the scene who they believe to be the driver of the truck that ran into the truck. president putin has called for a crackdown on terrorism after the ambassador to turkey was shot dead. shouted don't

forget aleppo. zurich police said they have identified the person shot praying in a mosque yesterday. three men were hospitalized which took place near the city's main train station. another body was found a few minutes from the scene. it is unclear if the two incidents are linked. mark? mark; thank you. the yen weakening after the b.o.j. upgraded its outlook. kuroda reiterating the central bank's opinion to reinforce the widening gap with treasuries. >> i think it has been working quite well. appropriate yield curve has been achieved so far.

we don't consider raising the long-term yield target. it is too soon to discuss raising the tarpt. mark; rupert is still here. they will eventually have to raise the long-term yield target because of the pressure from bond markets overseas. >> the key word is eventually. they are happy with the way things are going. benefiting hugely from replay the. -- reflation. inflation expectations and i think for as long as inflation expectations remain relatively w i can see it remaining elatively low. they are ain course of stability for the next three to six months at least.

it creates a downward drag on a yields around the world. mark; on the fed's three rate hikes, if you look at the forecast for 2017, the market not quite there. but they are as close as they have been for quite a while. hich way to we lean? two or three or more? >> we had a slightly hawkish reception to the fed a few days ago. i think you know, i would be surprised if we were to see a series of hawkicness from the fed now. this is the same federal reserve we have had for the last couple of years. all of the asymmetry and risk, they are much more worried about downside risk than

upside risk. speculation about trump's economic remains just that for now. i would be surprised if the path became significantly more aggressive. 2018 may be another factor as composition to have board starts to change. for now, i think we have seen a lot of hawkish surprises that we're going to get. ark: up next, brexit and political recovery. how much did the government handle the looming divorce talks? rupert is out with the 2017 bid. here -- this is bloomberg. ♪ s

mark: welcome back to loomberg "surveillance." greater turbulence the result of brexit. the result of popularism in the e.u. our guest was in a former life the chief of staff to jornl osbourne. just getting out at the right time after the election victory in 2015. -- e hearing today that with regards to brexit. is theresa may playing this

cleverly? bloomberg has spoken to a umber of people who are used to gambles and terrorist activities. what do you do? they say keep your cards close to your chest. which is what she is doing. >> i don't think she has any other choice. we are in this phony war period, up until article , a you're going to get a fair amount of -- from both sides. i don't think we'll have proper negotiations until after the general elections in almost a year's time. the scottish scenario, this is uch more about the choreography and position. i don't think scotland will be able to stay in the single market if the rest of the u.k. is not. it is more about setting up grievance and a set of positions to hold against u.k.

government. is she going to call another independence referendum? mark: how will it look after two years? say we trigger it at the end of march, which seems to be the plan. what will it look like in two years, do you think? >> there is much less uncertainty now about the end point. i think we are headed for a hard brexit. we are not going to remain in the e.e.a. or members of the single market. mainly because over the two red lines the government has set down on immigration. so we're going to end up out of the single market and out of the european union with a detailed bilateral agreement. mark: sort of a turkey arrangement. >> on the custom union, we might end up with a non-binary

solution where you find some ways to remain in particular industries like auto or aero space. the big uncertainty we face over the next six to nine months is how are we going to get there? are we going to drop out and come back via a trade deal? are we going to get some kind of transition? this is the big discussion at the moment. can you get a tradition deal that is worth the price? -- transition deal that is worth the price? people on the european side say we're not ready to talk about transition until we know where the end point is. you get there with no transition end point in place. a lot of costs have been incurred. the benefits will be significant lower.

for the u.k., we would like to get some agreement to that transition early on. mark: great to talk to you. thank you for joining us today. "surveillance" continues. more on events in germany and turkey. this is "surveillance." ♪

mark: welcome back to bloomberg surveillance. let's get to bloomberg first word news. here is nejra cehic. >> angela merkel is set to make a statement about an incident at a berlin christmas market. the address is scheduled for 10:00 a.m. u.k. time. it precludes to possible terror attacks. police are questioning a suspect who they believed to be the driver of a truck that rammed into crowds yesterday evening. president putin has called for a crackdown on terrorism after the russian ambassador to turkey was shot dead. he was attacked in ankara.

-- gunman was killed by come by security forces. waslin said the attack meant to undermine russia-turkey ties. police have identified the person who shot people praying in a mosque yesterday. they will hold a news conference at 1:00 p.m. u.k. time today. three men were hospitalized. the dead body of another person was found a few minutes walk from the scene but it is unclear if the two incidents are linked. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. mark: let's get more on the suspected terrorist attacks. ,oining us now is otso iho global terrorism expert. thank you for joining us today. is it likely the german incident is a terrorist attack? >> we are still finding out the

key details from police but what police have said is that it is looking like the vehicle was driven deliberately into the market and based on that kind of precedent, in nice and other cities in france, it does look like a terrorist attack. mark: one of the parallels we might be able to draw between what happened in nice in july and what happened yesterday? isi think the key parallel that both attacks have seen the use of a very large vehicle or heavy vehicle that is difficult to stop, that is capable of crushing through both small people, ofas well as

course. there seems to be a kind of understanding that in these kinds of larger vehicles, it has a larger impact, which is, of course, does. mark: also, the changing nature of the incident that have taken place on the european continent in the last year or year and a half, how does -- how do adoptment and businesses their own strategies given the changing nature of these attacks. >> it is a very difficult thing to respond to something that is so low capability and can be conducted by just a single individual. and it doesn't have the same kind of technology or complex processes that are required for a tax that involve explosives. so the procurement of weapons --

really, this is very difficult. there are ways these attacks can be prevented or mitigated, for instance the installation of various stronger barriers and measures around high-profile targets. mark: also, it came on the same day as this incident in turkey with the russian ambassador. and in zero as well. zurich as well. is it wrong to try for a parallel between the incidents? >> it is way too early at this stage to do any kind of actual connections between these three incidents. it could well be that they have nothing to do with one another. europe, for instance, has seen a number of not just islamist

attacks but also attacks by right-wing extremists. so at this point it is still too early to make any concrete connections. >> does it mean because of the difficulty and isolation -- in isolating and neutralizing the correct threats that we will continue to see similar minded activity on european soil in the future? >> what we have seen in this past year has been an uptick in attacks by what we would describe as loan actors who don't always have an organizational affiliation with the islamic state or other islamist militant groups. with the moment, islamic state's fortunes waning in iraq and syria, they are looking to project their

influence by conducting and inspiring attacks in europe. there remains a heightened and elevated risk of further attacks like this on the european continent, unfortunately. mark: we have discussed the similarity in the attacks between nice and berlin yesterday. be aell do you expect to tax to evolve in the coming years, then? it is not necessarily that theses will simply become types of simpler attacks but is awe will see more of combination of different tactics. we are likely to continue to see more complex attacks that involve things like hostagetaking and the use of military grade assault rifles and weapons and that takes place , and arele locations

looking to stretch the response capability of law enforcement. i think we will see a mixture of small cells that are receiving organizational support from groups like the islamic state as who areloan actors inspired by the propaganda and the encouragement to carry out attacks but don't actually have any funding or organizational support. >> thank you for joining us today. expert., terrorism up next we will drill down into the boj boosting with brexit. in 2016, it was a tough year for hedge funds but some surprise victory helped bolster the return. the winners and the losers and we will bring you the latest on the suspected terror attack in germany and the assassination in turkey with eurasia group's charles lichfield. this is bloomberg.

mark: welcome back to bloomberg surveillance. i am mark mark: welcome back to bloomberg surveillance. i am mark barton. let's get over to nejra cehic. >> we are seeing some resilience in european and in markets to these geopolitical concerns. asiann't see, in the session, but in europe the stoxx 600 has risen to its highest level this year today. look at industry groups. and even distribution between gainers and losers. health care and telecommunication stocks are leading the rally on the imap function. we are keeping a close eye on fx today, one of the best emerging markets is the lira.

it is the worst performing currency against the dollar in the past month but today it has regained most of what it has lost overnight after the russian ambassador was shot and killed in ankara. spoke over thean phone and talked about how they didn't want to turn the attack into another flashpoint. analysts are expecting a 25 basis point rate hike from turkey today. this is ahead of that central-bank decision. the worst-performing major currency against the dollar today is the end. yen. the kuroda had a glass half-full view of the economy, where he broke through the euro on dollar-yen. are seeing face we yields take higher across europe, tracking the 10 year treasury yield.

this is how we are looking into a curve with japan's yield curve mostly going higher after that decision from the boj. steepened theally most among major economies on a normalized basis since the u.s. election. and shows the u.s. in white germany in blue and the u.k. in purple and japan powering ahead in pink. mark: the boj upgrades its outlook for the economy today, keeping its yield curve unchanged. the announcement extending declines since donald trump's election victory but governor kuroda says the currency is waning. >> foreign-exchange market reflects a strong dollar, not weaker yen. the dollar is strong against other currencies. i don't think the current level of the yen is extremely weak. it is similar to where we were in february. mark: executive director brendan

brown joins us next. is the yen week? is the dollar strong? yenmuch further has the moved downwards? >> the yen has weakened overall, but so has the euro. the key in looking into next year is going to be the geopolitics, the u.s. japan relationship is absolutely fundamental from japan's point of view and you have to get on the right side of trump given the competitions from china -- the computations from china. the government is not going to be trying to inflame relations with the u.s. facing a currency manipulator? bojeanwhile, the doj -- the do anything about brexit. the economists we have surveyed -- what more can we expect

from the boj? >> the boj is in a difficult spot because it tried a few months ago to launch a tapering operation by itself. but at the same time it has just paid for long-term interest rates. the markets don't believe that they can have long-term interest rates at zero with long-term yields not as much without intervening more in the bond markets. i don't see anything today from the boj announcements. mark: they have long-term yield targets? is going to happen in the short run next year, the boj will probably raise its target on the long-term bond. but that will encourage markets to see potential that it could be raised again. i think this is going to be towards tapering for the u.s.

relationship. they will have to scrap that long-term interest rate policy. mark: and the tapering itself, does that happen next year? >> i would say qe tapering next year. it is going to come onto the radar screens next year and it is going to be whether the fed is actually going to be shrinking its balance sheet, or perhaps under a new fed chair. >> are you suggesting it could come into play earlier? >> if you listen to market opinion there is some degree of speculation about early hisrement, and trump and new fed chair would get ahead with sending the balance sheet down. pressure todd something towards getting the boj to adjust its policies. mark: how does that not want to other central banks, which is the ecb? >> the ecb is not in a position to normalize because it has all

of these stock loans two-week sovereigns. to weak-- stock loans sovereigns. that is not open to the ecb. i see the euro as structurally weak in this environment. it is onlythat mean a matter of time? we are down to 2003 levels right now. euro is going to be going into next year. mark: was the taper a taper or not? was the taper that took place by the ecb -- was it a taper that you have to extend from april, from 80 to 60 million?

>> remember, the fed stopped its balance sheet expansion within the space of 12 months, not just going down steps in 20%. draghi says he can handle any financial crisis. effectively there is no taper. mark: in one of your papers you say the emergence of a great inflation before the next recession is implausible, more likely an outbreak of inflation in europe. elaborate. >> we had a great inflation that in the 60's and 70's in the united states led by a collapse in the dollar. i really don't see in the u.s.. we might see a recession at some point in the u.s. 18 months before we get any inflation pickup. the euro is falling sharply. germany is at full employment. i can imagine a situation where

this weakness of the euro does feed right through, and most of all in the central or the had him on in europe and german economy. brown, executive director at mitsubishi ufj. we are going to look at winners and losers. tuning today break. -- tune in today break. this is bloomberg. ♪

mark: welcome back to bloomberg surveillance. i am mark barton. let's get the bloomberg business flash. here is nejra cehic. >> angela merkel is set to make a statement today at a deadly incident at a berlin christmas market. the address comes as authorities sift for clues into the probable terror attack that killed 12 people and injured 48 others. police are questioning a suspect who may be the driver of the truck. called for ain has crackdown on terrorism after the russian ambassador to turkey was shot dead.

was killed by a who shouted-- "don't forget aleppo" after the shooting. it was an attempt to undermine russia-turkey ties. -- group has the 1.9 billion pound all-cash deal comes as the british lender seeks to expand. add 650 million pounds in revenue in equivalent to a 4% increase on sales. even as uber exited china, the company's financial loss as remained eye-popping. the right hailing company lost. a personccording to familiar with the matter. it must $800 million in the fourth quarter due to its china operation. the italian government has cleared the way for the potential rescue of lenders.

that is a mission from parliament to increase the public debt to 20 billion euros. an attempt to find investors. the prime minister has led the groundwork for a state-sponsored cash injection. that is a bloomberg business flash. mark: it has been a tough year for hedge funds. managers like ray delly oh and john paulson saw business losses . the industry received an unexpected pick me up. donald trump's election victory bolstering returns. joining me now for the winners and losers is -- was a year for winners and losers, wasn't it? >> donald trump changed a lot of things.

on a related bases, it is better. mark: trump saves a lot of bacon, didn't he? howard struggled with performance. it was down until october but then they made five-and-a-half more percent. mark: that is the macro trend. >> that is one of the largest in europe. mark: others that pursue the macro route, how did they fare? fundst of the macro hedge seemed to have made money. another example is rubicon. they were down roughly about 18% until october. again, another fund saved by trumps rally. mark: another big name, crispin

odie. he was in the news because of post-brexit. he was a long-short equity hedge man. talk us through his year. , as thewn 48% >> world's worst performing hedge fund. he sees his worst performance ever since he started in 1992. it is not great and he is a different kind of fund manager. and any value doesn't help him. mark: what about distressed debt at the scene? >> if you go into subcategories of hedge funds, they are the best performing hedge funds by far. they are in the event driven

hedge fund category. they are doing very well. up 12% on an average this year. mark: what is going to be the big theme for 2017? expectedock makers are to have a chance to shine, smaller specialized over larger funds. >> if you look at what are the factors that lead to poor performance by hedge funds in are low interest rates, lack of volatility, divergence was not there to extort. a this trump election changed lot of these things. all of a sudden there is divergence in monetary policy. ine of it did come back number and the coalition is falling apart a little bit. so all of these factors should help macro hedge funds to come back. mark: thanks for joining us.

surveillance is next today. tom keene bringing you more news angela merkel and the deadly christmas market incident. this is bloomberg. ♪ ,l

tom: a horrific 24 hours of tara -- terror in ankara, zurich and -- terror in ankara, zurich and berlin. the president-elect continues to transition. foreign policy is first. this morning in the markets, due dollars strengthen all adjust? can emerging markets survived a trump reflation? i am tom keene in new york, guy johnson in london. a terrible 24 hours in europe

and turkey. guy: the reaction is once again fascinating, the market looking through this. 2017 is going to be a year in which these incidents will resonate. what is happening in germany, what is happening in france, it is going to be fascinating what angela merkel says. tom: we are waiting for the chance to speak right now. -- for the chancellor to speak right now. currencies come out of these. the big story is dollar strength and euro weakness. news, almost waiting on but that is a big move over the last 48 hours. oil with a little bit of a churn. next screen, please. the next made a big move. we have been waiting, 11.69.

there is the dollar strain. but swiss,lipino, 1.08, 1.06 86. that is a big technical move in strong swiss franc. guy: look at the dax. again, the markets has learned its lesson. the big knee-jerk reactions no longer with us. the dax trading 11,000 north of. the euro dollar weaker as you talk about that dollar strength. zinc on the move as leverage continues to withdraw by the chinese authorities, rippling into the chinese bond market and metals market. whatll talk a lot about happened yesterday in ankara so that is where the lira is await the interest rate decision, 3.5.

tom: chancellor merkel is speaking to the nation. this has been widely anticipated. , thepeaks this morning chancellor speaking again in german. let's listen for a moment. here we are with chancellor merkel speaking. we can speak in english to our matthew miller who lives in berlin. outside one of the great landmarks of western civilization, the kaiser wilhelm church, bombed in 1943 and left as a symbol of the terror of world war ii. matt, it has been a challenging 24 hours. >> absolutely. a truck barreling through the christmas market here last night. it is a very popular place, not only because of the kaiser wilhelm memorial church but because we are right at the top

of the most famous shopping street in all of germany. a huge symbol of western capitalism. this tragedy taking place here, affecting not only locals but a number of tourists who are normally gathered here to drink blue vine and celebrate christmas. am: the tradition of christmas market is almost from medieval times. is a tradition from the 15th century spread out across continental europe and the united kingdom now. isn't it? guy: absolutely. shop,ple setting up people selling their wares, people drinking the blue vine, it has been happening for centuries. it is very popular for tourists and germans alike which makes the tragedy all the worst. i am being put forward by police who are trying to investigate the situation.

i should point out that the police have raided, early this morning, a refugee camp at the temple half airport because one of the suspects in this crime may have lived in that refugee camp. they are not giving us a lot of information as far as his name or nationality. german police are very conservative when it comes to giving out that information. but the newspapers are all reporting on this suspect being a refugee from the nation of pakistan. that is a real problem for angela merkel and her political position. guy: let me pick up on that very point as you are moved forward, away from where the incident took place. angela merkel addressing the incident now. she is saying that this is a terror attack. she is also saying that it would be especially despicable if it

was an asylum seeker that perpetrated the act. she is indicating that german security cabinets will meet today so we are going to have a german security meeting taking place. she will visit the scene of the attack. i suspect many germans will be asking this question. we were warned in europe. the christmas markets were likely a target. why wasn't more done to protect this one? all fairness to the german police there was a large police presence at this market last night. i've been going to christmas markets the last couple of weeks. you see, typically, a number of police officers. they have side arms and automatic rifles so there is a police presence.

we expect to hear from the german police later today and around 1:00 local time, when the mayor of berlin addresses the people of the city and then from the national to federal prosecutor at 2:30 p.m. local time, they are handling the investigation. reportedly they have already taken the suspect for questioning but we will hear more about the police presen ce. they are going to continue the market, they will have a beefed-up presence. tom: one final question. help me with the linkage within the german quest -- german press of this tragedy and migration. that seems to be the sensitive scene. give us this december moment of the migration debate within germany before this event and now after this event. debatee was a large because of the problems that corrupted in cologne on new

year's eve and the day after cd useout whether the policy, open-door policy to refugees was a good one. ,he right-wing populist party the fraternity for deutsche land, had grabbed the press won state and has elections but they haven't won any federal elections. they are taking advantage of this to fight against the cdu but they are not a political threat federally yet. guy: matt miller on the scene of last night attack. thank you very much. for more analysis, let's bring , with uss lichfield here on set in london. will the german people blame angela merkel? >> not a majority of them. her popularity levels are quite high, and obviously they will

understand that this might be related to the migration crisis but if you look at the details of german public opinion, many understand the position angela merkel took. i think there will be a very loud minority saying -- >> after bataclan, french authorities put soldiers on the steep -- on the streets. can we expect a different response in the way germans look at this? >> i think it will be quite similar. germany has already taken preemptive measures to deal with the terror threat, especially due to surveillance. i don't think they will go any further so the policy response you will see is quite mild and a kin to what you describe. perhaps, more checks on the border. i don't think much more. guy: how will that play into 2017? the french election is the major

political mark stone and then we have the german elections. >> the french elections are sooner and you could argue the right-wing populist party that exists in france is closer to winning power than is equivalent in germany. i don't think they will win in france. it is a closer one, though. in germany, it is a question of what coalition. i don't think the opponents of deutsche land will be there next year. it could be a worrying situation for anglo merkel. merkel.a tom: in the united states and europe, i believe migration affects all. is brussels even part of this debate or is it every nation for

itself? >> brussels is part of this debate. germany is one of the countries that wants to uphold what should be achieved in the european project. it has advocated for a holistic solution to the migration crisis , not with much success, but i don't think that suddenly brussels is shut out of the conversation. the problem is that germany has tarnished some of the credibility it had in central and eastern europe, especially in advancing a collaborative message about what we should do next. so yes, brussels will not be in the have more powers near future but i don't think necessarily germany will be shutting it out. guy: does germany have a trump equivalent? we were just mentioning >> -- were mentioning the esd, who has a similar way of

criticizing elites. they have a somewhat different style. they are run by a woman who is but shebtle in style can use rather aggressive language. they don't have a direct equivalent. tom: let's come back. on thisor being with us difficult morning. we will focus on turkey and zurich as well. in our next hour, robert performance will join us. he is back from china. expect theantly, unexpected. from london to new york, this is bloomberg. ♪

guy: i'm guy johnson in london.

tom keene in new york. let's get a first word news update with nejra cehic. putin promising a forceful offensive on terrorism after the assassination of moscow's ambassador in ankara. a gunman fatally shot andrei karlov, exclaiming "don't forget aleppo." that city suffered a long backed assault. won't letent said he it suffer -- let the relationship suffer with turkey. >> the crime is undoubtedly a provocation aimed at derailing the ties between russia and turkey as well as the peace which isn syria actively promoted by russia, turkey, iran and other countries interested in the regulation of interest syrian conflict. there is only one possible response to this. the strengthening of the fight against terror. is the first envoy

to be killed at his post in almost 90 years. the active-duty police officer who shot was killed by police officers. seaizure in the south china in growing protests from the white house and angry tweets from donald trump. the chinese ministry of national defense says the drone was returned in the waters where the unmanned summer civil was picked up last week. -- unmanned submersible was picked up last week. japan is the world's third-largest economy. monetary policy was unchanged in the first decision since donald trump's victory. the boj sees a moderate recovery trend and improvement in business estimates and resilience in private consumption. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries.

i am nejra cehic. this is bloomberg. --: thank you very much nara we are joined now by carl schama, director of bank of america merrill lynch. also, still with us on set. good morning. i want to start off talking about what has been going on with the yen. it has been a turbulent year for the yet. -- yen. it was moving down on an aggressive channel and then popping. is there anything the boj told you today? is the yen going to continue to weaken? >> this is classic divergence of action. raisedction of trump has spirits, the fed has raised the dot plot since 2013, and the att that the japanese curves

0% for the for siebel future has given rise to not only a strengthening dollar gained against the yen but also against the euro. are related to accommodation versus the central bank in the fed. kuroda, i watched him this morning, i don't think i've seen him this happy in quite some time. the body language was good yesterday morning. he must be really happy. the dollar yen rate is going to be probably one of the more pivotal factors for him in 2017 that does he actually have any control of it? we talked about it yesterday. passengersdraghi our on the train driven by janet yellen. >> there is a global dynamic to this view. the yen is the risk on risk off

currency right now. markets have been buoyant. our target for next year is 120. commentsthe important today, he was reluctant to criticize or intervene in the yen's weakness. we are now back to those levels back in february and the key is that they don't see this as an excessive move. reversion back to levels we saw at the beginning of the year and the miscommunication of the bank of japan heading into q1 back towards that 1.05 area. tom: let me bring up the chart again. this is the bloomberg dxy. it is different than dxy. you have 2014 is a green arc and the idea of mr. trump's election right here with a new surge up. what have you and your team noticed about the distinction

between larger currency g7 pairs versus e.m. pairs as we have seen this dollar surge? is it a normal dichotomy or is there something different? thate broader dynamic is the fed is on a timing cycle. the rise in u.s. yields trigger more meaningful outflow from e.m.? this has been a story since the second half of the year where the fed was pinning interest rate hike expectations and that was triggering a flight into notably inmarkets, asia and australia. thequestion here is does spirit we are seeing trigger a reverse? we are not seeing a significant amount of change. indeed 10 there are a couple of

idiosyncratic stories going on here, particularly with the euro. we've got brexit and article 50 in sterling, but the overall force is against improving and expectations of positive growth into next year. tom: let's continue. in our next hour, anthony dwyer has been -- mr. dwyer says enough and goes to new troll looking for applause. we have an important conversation on the equity markets. this is bloomberg. ♪

guy: i'm guy johnson in london, tom keene in new york. on bloomberg view, arguably the biggest disruption on the currency horizon, he says is china. the biggest annual decline in 20 years. outflows meet a net 69 $.2 billion exited late in november from a monthly place -- monthly pace of 50 billion since made year. china, front and center, will it be front and center at the beginning of next year? how do i work this into my portfolio? >> china is going to be one of the main stories for next year but we are going to see proxy trades again. -- the view from

bank of america has been that we can't ignore the fact that trump brings a lot of volatility on the political front and it could be set for more diplomatic maneuvers which could obviously undermine the volatility in the markets. perspective, if china is front and center for trump, one of the trades that we have been looking at is to be looking at a higher dollar career as a proxy if it starts to inject some of that geopolitical risk that we have been concerned about. chinese chart i want to look at. talking about this idea of china as manipulator as well, maybe we will touch on that with kim schoenholtz. work, theyoughtful have been thinking a lot about bank of japan at the frontier.

coming up, kim schoenholtz of nyu stern. dollar strengthens today with 11.69 euros, this is stronger. this is bloomberg. good morning. ♪

tom: we welcome all of the worldwide, particularly across europe and over in the middle east. guy johnson in london and tom keene in new york. more on the set of terror attacks. tracy alloway will join us from abu dhabi in the next hour. and we will speak of a change. we have seen that in the last 24 hours. i want to go back to dollar strength right now, a few minutes. this is log you on this this is log ty== -- log yuan.

this is the massive renminbi strength. like a nationook manipulating its currency to affect trade. what is the why behind this chart? why is china managing the renminbi weaker. >> there is a broader story, we've got the weaker agent complex,- weaker agent we are headed to the end of the year where we tend to see capital outflows in the form of deposits into dollars. we have a story yesterday about the onshore dollar deposits. the demand for high-yield assets abroad as we approach the seenning of the year, we do a higher dollar. we have recently published -- i isk -- the economy

still very vulnerable. in terms of transition economies, it is still trying to reinvent itself. tom: do you agree with professor prasadc -- professor that if they we can it, it will go further through seven. >> they are looking at broader use -- broader views in the currency. they are focusing on whether they are manipulating. it remains to be seen. there is a case that we still have currencies, so there will be looking at it from a standpoint where that is the mantra of many central bankers. tom: we greatly appreciated. we will have him back for extended time here on a different day. it is a day of international

relations, a day of terror. let's bring you up-to-date with first word news in london. >> german chancellor angela theel is working on assumption that yesterday's fatal incident involving a truck at a berlin christmas market was an act of terror. speaking today, merkel said the full force of the law will be .sed to learn what transpired a dozen people were killed and another for doesn't hurt. police questioned the suspect, reportedly a pakistani refugee. he was the driver. president barack obama has pledged u.s. assistance. russian president vladimir putin is promising a forceful offensive on terrorism after the assassination of moscow's ambassador in ankara. a gunman fatally shot andrei karlov in an art exhibit, explaining "don't forget

aleppo." switzerland, zurich police suspect the attacker who opened fire on people praying at an islamic center is dead and their manhunt is over. police say the gunman has been identified. three people were injured, all hospitalized. scotland's first minister will governmentsd on her involvement in brexit. staying in the eu market is key to her country's economy. outline maker is set to how scotland once the u.k. to see control on policy. she has promised to revive a new independence call if her demands aren't met. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am there are tickets. this is bloomberg. guy: thank you very much. the dollar is largely

round-tripping. we saw the dollar spike after the shooting in ankara. we have largely retraced some of those gains. let's figure out how the market is viewing the situation between russia and turkey. tracy alloway joins us now out of abu dhabi. we have seen a short-term knee-jerk reaction that has been unwound. market seeing that allows it to calm down? >> as you point out, the lira has potentially done a round-trip over the last 24 hours. it is now back where it was before the news of the shooting began. there are two ways to interpret that. the markets are getting so used to geopolitical uncertainty, especially in turkey that these events just don't have the reaction that one might have expected. the second way of looking at it is that we do have an interest

rate decision coming up from the central bank in turkey and the expectation, at the moment, is for 25 basis points to rise. if you are betting on that, you might see some strengthening of the lira. tom mentioned it was a day of international relations. spare a thought for the central bank of turkey. they have had fewer than 24 hours right now to digest the events that happened yesterday and figure out how those are going to play out. tom: help me with your reading. you've done such a good job of the geopolitics. help me with the relationship of russia to turkey. i've been showing for days -- this is what you can do on the bloomberg -- this is the russian ruble compared to the turkish lira and this is a massively strong russian ruble, really getting back to post ukraine trend. to the a relationship

north for ankara and istanbul. >> sure. i think one way that we are seeing people look at it at the moment is that even though we have had this event just take place it is prop lee -- it is probably not enough to derail the recent that we have seen between russia and turkey. i have seen some analysts say this could become a new linchpin for turkey and russia to work more together. they could consolidate around the need to fight terrorism. there are also some interesting conspiracy theories about iran's involvement in this. of course, this assassination has come just a day ahead of the summit in moscow between russia, iran, and turkey. many interesting -- in the british sense of the word -- conspiracy theories out there.

tom: how will the united arab emirates and other oil powers in the middle east react to three sets of terror within 24 hours? it is an excellent question. we know that the uae is very sensitive to terrorism. that said, they have kept away from the conflict in syria. oil, you andon of i remember a time where we used to see tomato reacts -- we used to see it react to political events. we have not seen that reaction. when i came in this morning i thought wti was actually up. sprint was down $.32 when i came in. that is interesting, given that russia and turkey are cooperating on that egg natural gas pipeline. who knows if that is going to go ahead? you have seen that markets are just looking through these geopolitical events. whether that is because people are so elated with the return of inflation, the prospect for

fiscal stimulus, further economic growth going forward, that they ignore the stuff happening in the world, that is an open question. there is a school of thought that thinks this assassination isn't going to be enough to really derail relations between turkey and russia. we will have to see how it plays out. guy: tracy, thank you very much. let's get back to charles lichfield of the eurasia group. can we bring up tracy's point? does it divide russia and turkey or bring them closer together? tracy kindly quoted my colleague, james sawyer, that that turkeystify and russia have agreed to operate in recent months. they had a bit of a spat earlier this year but that is one side and they want to cooperate, even on syria where they have a key disagreement on assad.

they have shared interests in energy. they have shared interests in fighting terrorism in the broader scheme of things. they have shared interests in terms of tourism. i think turkey will be very keen to show that there is a secure situation and it isn't that bad. is one potential problem which is that the assassin of the russian ambassador was part of the turkish police. guy: what was the objective? if these two countries see themselves on the same path the objective has to have been to tell them apart. would the enemies of these two countries, if they do see them coming closer together, break them apart. you mentioned syria. you talked about the fact that this was a policeman.

implying that there is within the state some sort of mechanism of work here. what is going on? >> i think i am not sure whether the a session had any grand intention -- whether the assassin had a grand intention. there was a strong intention to express some sort of revenge in aleppo, which is what he said when he killed the ambassador. it will be used by the turkish authorities to justify their crackdown in the police and other parts of the state against these perceived enemies from within. evenpoliticians are blaming the movement -- the gulenist movement for this, but if anything, it helps erdogan's agenda. tom: tell me about belgium. i had a conversation with a senior investment type and i

asked him about what are the lessons we have learned since belgium? boleyn --rich, berlin, and there will be others. what will we learn from our security efforts in the continent of europe? those efforts that came out of france and paris and over into belgium? >> we have learned that europe is very vulnerable. belgium quite rightly because it has been seen as the linchpin of a lot of the operations that isis has conducted. i think the belgian authorities have cracked down in you won't see any attacks since then. they have managed to thwart some attempts recently. i think europe is very much under threat. obviously, there is an effort by the countries interested in bolstering in europe's external borders but more and more you see citizens criticizing the fact that there is open borders between these

countries and why shouldn't we consider dealing with terrorism on our own? for the moment, there isn't enough of a critical mass to stop that from happening. remains andzone there is a gray zone where there are spotchecks in some places on the french borders and belgian borders and german borders in the next few months but not a situation where we move on to there being no zone. also, states themselves understand that it is actually helpful to share all the policing information that comes with the databases and infrastructures instead of doing this international way. tom: we will continue this discussion on the inter-border transfer of information. we will continue with charles of the eurasia group as well. in our next hour is kissinger associates. decidedly, we ripped up the script.

robert hormats on ankara and zurich. from new york, this is bloomberg. ♪

guy: we have to assume that this was a terrorist attack. the words of the german chancellor angela merkel a few minutes ago. we are looking at live pictures of the scene left behind by the truck that drove through a christmas market in germany last night. in the capital. within the last few minutes, charles, theield, central theme running through this is that angela merkel is vulnerable at the next cycle, politically is going to be very different from the one we just

had. and this will push us further towards that. >> we think that the afd will be stronger and they don't actually have a presence in the current parliament. restrains the number of mainstream seats in the parliament. she will have more of a majority and the -- and an unhappy marriage. others are impatient about her refugee policy and bailing out various countries. it is going to be much harder for her to take policy. tom: help me here with angela merkel and the germans. is she a liberal of the center-right or is she really a center-right liberal within a mix of their domestic policies? i can't figure it out? >> she is in the center. she has been chancellor for a very long time. you had two words, that is what she once colonized. that is what she has done so

well. it also means that conservative elements in that party field, she no longer represents what the true value of the christian democratic union should be and that the combination of that has been her handling of the crisis. but she is just a centrist. tom: it is too philosophical for a tuesday. i've been a summit christmas parties are can't pronounce the word. coming up from new york university, it is truncated but important to speak. to kim schoenholtz on japan. stay with us worldwide. this is bloomberg television. ♪

tom: good morning. guy johnson in london, tom keene in new york. three terror attacks. robert hormats joining us in the next hour. are.ow, what a duo they this time it is on the bank of japan. i want to show the charts right now. let's bring this up here.

we show the fed funds target rate but it is for japan. here's the collapse of the japanese experiment. here they are, battling inflation. here's 2008. but this is the behavioral construct of all of japan. they tried to raise rates and this is huge remorse. that is the collective memory. >> the bank of japan used to have a very core policy arrangement. they did not aim at keeping prices stable. they encouraged states deflation. -- stayed deflation. they have been doing more than virtually any other central bank to restore inflation expectations about 2%. that hasn't worked well. tom:tom: michael lewis has this wonderful book out, on the behavior. -- what do youk

observe in their behavior and their actions given the history of the bank of japan? >> i believe there was a huge change several years ago when the current governor took his role. he announced they were going to aim at 2% inflation expectations. he has expanded the balancing more than any other central bank and that has been a big statement in recent years. this year they announced that they are going to reduce negative interest rates early in the year and just in september they are announcing that they are going to cap the 10 year bond yield at zero. no central bank has done that since the u.s. fed in the 1930's and 40's. tom: this is amazing. this is the chart that kim was just talking about. this is truly extraordinary. here is the acb and the u.s. down here. their balance sheet is a percent of gdp.

this mode shot is on the frontier, the boj is a total outlier. we need to ask, where does this end? they are nationalizing the private market. they are working their way through the bond market and the equity market. where does it end? >> their goal is to try to hit 2%. in order to achieve that goal they have to be resolute. they are getting help right now. took inons they september, while extraordinarily aggressive, had remarkably little impact directly but since the u.s. election the yen has depreciated more than 2% and the equity market is up by more than 2%. i give them credit because by keeping that aggressive policy in place, the policymaking abroad is playing a positive role for them. it is not in easy job to offset more than a decade of deflationary expectations.

guy: the one thing we are learning is that the markets appreciate a fiscal push or talk of a fiscal push. what message do you think mr. abe will be learning about what is going on in the united states? >> it is a great question because one of the things holding back the boj policies has been fiscal tightening in japan. rather than fiscal stimulus over the past few years, the fiscal authorities have raised taxes and tighten fiscal stance is substantially. japan has such a seriously high death problem that they don't have a lot of fiscal flexibility. the message for prime minister abe ought to be that there is a third arrow, supply-side reforms. tom:.

-- i get the idea. benomics?he next a >> there is always political opposition to supply reforms. the only ones that would help are those that would encourage people to expect future growth and invest. tom: but is the answer demographics? am i wrong? >> if they were to allow much more flexible immigration it would boost economic growth. tom: not going to happen. >> i agree with that but there are other things they could do that would be helpful. relaxing restraints on agricultural imports. relaxing restraints on imports generally. encouraging greater investment by foreign companies. all of those things are feasible. tom: jim, thank you so much. kim schoenholtz.

he will be here for longer with new york university stern school . in our next hour, on the international relations of a europe of terror. robert hormats joins us of kissinger associates. and on markets of change, tony dwyer. this is bloomberg. ♪ ways wins.

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and terrific 24 hours of terror in ankara, and berlin. the president-elect continues to transition. robert hormats in this hour. and this morning, new dollar strength adjusts to a dollar reset. good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. economics, finance, and

investment. guy, what an ugly 24 hours. guy: in the words of the chancellor in germany, "horrific and unimaginable," tom. she is assuming we have to work with the idea this was a terrorist attack in germany. that is the one i am referring to. but the incidence in ankara and zurich as well are front and center. europe is back where it is been -- where it has been through much of 2016, having to do with terrorism. how does it affect next year's votes? tom: turkey plus central-bank, their overnight -- turkey's central-bank, their overnight -- here is abigail with first word news. abigail: angela merkel says authorities are working on the ascension that yesterday's fatal incident involving a truck at a berlin christmas market is an act of terror.

she said the full force of the law would be used to learn what transpired. a dozen people were killed, and another four doesn't hurt when that and another four dozen were hurt -- and another four dozen were hurt. obama hasbarack pledged u.s. assistance to investigate. russian president vladimir putin is promising a forceful offensive on terrorism after the assassination of moscow's ambassador in ankara. yesterday a gunman fatally shot on adrei karlov in the back, screaming "don't forget aleppo." he is the first ambassador killed in his post in over 50 years. has beeny the gunman identified. three people were injured in zurich,y's violence in

all hospitalized. it was conference is scheduled for later today. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am abigailtries, doolittle. this is bloomberg. tom? guy? gears and talkt about what is happening in the corporate landscape. facebook has, it has been announced, and e.u. antitrust e.u. antitrust complaint. merger approval is not risked as a result of the complaint, but facebook risks fines as much as 1% of revenue as a result of this paid more to follow. we are watching the story develop out of brussels. tom: let's get to the data check right now. i want to get to it quickly before we get to ambassador formats. -- ambassador formats. -- ambassador hormats.

the turkish lira has spiked clear off that has spiked weaker. it was weak lire, then strongly era. the lire now plunges, not reverses. the liver and not plunges but reverses. finally, 11.68, a lower statistic. i noticed the swiss franc bears some quiet watching. turkey acrossy, the board had placed in a 25% hike overnight. we are seeing the turkish lira bit result losing a little of ground versus the greenback. you can see that at the bottom , at thecreen, 3.5414 moment. the dax is absolutely flat, euro-dollar giving background

over the last few minutes. we have been watching what is happening with china. after theeen a mover moves the chinese authorities have made. as i say and as tom has said, the center of attention is firmly focused on berlin. angela merkel says that they are working off the assumption that the truck that rammed into a berlin christmas market and has to bepeople considered a terrorist attack. matt miller is in berlin. the german chancellor is coming out making it very clear that she hopes this is not a terrorist incident, but we have to work on the is something that it was. give us a sense of the town that she delivered the statement with this morning. she, as youi think said, was horrified and did not want to believe that it was a terror attack, but they are working under that assumption and they have in fact taken a

suspect into custody, allegedly the driver of this truck. also, german media is reporting there are two polish bodies found, one in the truck and one at the mart that had been shot. apparently the truck could have been stolen and used in the terror attack. it is being investigated by federal authorities. and also by police. and two hours, angela merkel will come here and visit this christmas market at the kaiser wilhelm memorial church and see the damage for herself. because of police barricades come you cannot make it out, but many of the wooden sheds put up sell trinkets and arts and crafts have been crushed by this truck barreling through. matt miller, help us where you are in berlin. i know the acclaimed kaiser

wilhelm church is behind you, the debris from the bombing in 1943. for the international audience, what part of berlin are you in? matt: this is not just the west part of plan, this is the capital of west berlin, the capital of west germany. when berlin was divided, the up with someas put of the most luxurious shops, some of the most capitalistic symbols you could possibly imagine as sort of a jewel of the west. it really is still the most famous shopping street in all of germany. when a tourist comes here who wants to spend any money to buy any goods, this is the number one place to go. and then of course the christmas market was an attraction for locals. it is really an international gathering of people who were hoping to celebrate and shop,

which turned last night into a tragedy, obviously. tom: matt miller, thank you so much. it is always a joy to speak with robert hormats, with kissinger associates. with many political of services across party lines in the united states. he writes for the atlantic council and also of course has been with us through the years. bob, let me bring up this wonderful quote from your incredibly important atlantic council article from earlier this year. tom: the opportunity here, away from economics and toward what we have witnessed in the last 24 hours -- how can the u.s. help europe with zurich, berlin, and

ankara in the space of the day? bob: this is the challenge. when i said there are more players -- tom: more actors, yes. bob: which means you have not only the major actors of the riod and its pe major allies, now you have a lot of emerging economies. i think what needs to be done is the united states really needs to refocus on the common values it shares with europe. europe is in a position now where it could fragment, where there are parties to the right, populist parties. the russians are clearly trying to undermine cohesion within european countries. tom: that is the broader view. but how can we object a strategic view on terror?

whenever somebody feels like doing a terror attack, it gets done in europe. bob: it is more vulnerable. first of all, we are more distant from the sources of terror. second, the europeans have not devoted as much time and effort to dealing with terror, and they muslims muslims in particular as well as we have. we have to do a lot more intelligent sharing, which is critically important. new york city is great at intelligence sharing. it doesn't with all major european cap -- it does it with all of the major european capitals. others workfbi and closely with allies. information is critical. having the police forces across the atlantic work together. guy,and this is important, with what we have just witnessed in the last 24 hours and heard from robert hormats -- in the

last 10 days we have had a president-elect go after our cia . that is the tension that you see in america as we go to the inauguration. guy: absolutely. the security services are fighting on a number of fronts. to bob's point, some are saying this morning the german security services in particular are behind the curve, that the french and british are much more understanding of the nature of the threat. would you agree with that? bob: the british and the french are probably ahead. the french in particular because of the events they have had in the last couple of years, the brits because of the problems they have had decades ago with the irish situation. that was a big issue in northern ireland. the germans, i think, have not been as robust as they ought to be. chancellor merkel is doing her very best, but the key is now to have a collective effort between our cia and their intelligence

services, our fbi and our local police and their local police. undermining the cia is a very destructive thing for the president-elect to do. and vladimir has a very clear vladimir has a very clear goal of weakening, but the russians are undermining a lot of the cohesion in europe, and you need a cohesive europe to deal with terrorism. . it will not work if individual countries try to do this individually. that is the problem. is a little less robustness. but overall in germany, they need a tougher line. i think they will get it. merkel is a great leader and she will make it happen, but they have been a little bit behind the curve. tom: bob hormats with us this morning. coming up later in the hour, our

guest has been one of the great bowls pit has made out the, alpha, alpha. goes neutral. stay with us. this is bloomberg. ♪

guy: guy johnson in london, tom keene in new york. let's get a bloomberg business flash with abigail doolittle. abigail: hsbc has completed a $2.5 billion share buyback that began in august and lifted lender stock prices. the bank bought 325.3 million shares. 36.3%hares have gone trading in london. since a buyback. japan is upgrading the third-largest economy.

the boj's a moderate recovery -- theo continue after a boj sees a moderate recovery trend to continue. that is the bloomberg business flash. guy: thank you very much indeed, abigail. let's stick with the bank of japan, abenomics, etc. bob hormats, is the boj on cruise control? bob: i think for the moment it is. as we have seen, they have not made any new judgments or decisions at this point. they seem to believe the economy is picking up. i do think that kim in the last half-hour made the point that fiscal policy now is the most important driver of expectations. certainly it is here, not fed policy but fiscal policy, if you look at the way the market is performing. the problem with japan as they have such a large amount of debt

they have accumulated, it is very hard for them to use an additional fiscal policy. so they are really more or less ,rapped in monetary policies probably the only thing they have got. they could do more structural reforms, but opening up to more integration is not an easy thing to do. i think tpp would have helped them expand trade with not only the united states but other countries that are in tpp. that would have stimulated the economy, but we do not have that now. a bilateral u.s.-japan trade agreement somewhere down the road might have been useful. but it is awfully hard to get out of this period of substantial weakness. guy: as you look back on 2016, a lot of monetary acrobatics from the boj. what has worked and what has not? certainly has tried pretty as the most ambitious monetary policy of anyone,

including yellen and draghi. very little of it has worked. it is better than it would have been. you can certainly say that. there have been times when inflation has picked up a little up and growth has picked little bit. but they want to get inflation above 2%. the weakening of the yen we have seen over the last couple of months should help somewhat. it will stimulate exports and it will be mildly inflationary. getting to 2% is going to be very difficult, despite the fact that corona is doing the best he can -- despite the fact that kuroda is doing the best he can. tom: strong dollar. that is what we are going to talk about next. it is the elephant in the international room. on the trunk transition, where will the dollar b january 20? every street in your view there has been blocked.

betsy mccoy will join us next. this is bloomberg. ♪

tom: "bloomberg surveillance." morning, everyone. guy johnson in london. i am tom keene in new york. we will continue on the news out of europe. bob hormats is with us. from kissinger associates. we dragged out of trump tower betsy mccoy, former lieutenant governor of new york, an early supporter for mr. trump.

maybe she can migrate you over to state department again to do the good work you have done in the last couple of years. i want to go right to this chart, the trump promise of economic growth. we are going to look at what we knew in the 1990's. it is good news of a four-year moving average. this is where we are now, which is why your guy got elected. what is going to be the rate of change of policy to migrate us back to a 3% economy? betsy: rapid. the tax cuts will come sooner than later. the house and the senate are on the same page about the need and the size of these tax cuts and the importance of getting them done quickly. secondly, deregulation. tom: will that happen quickly? very quickly because it is coming out of the executive branch, and those cabinet

members are committed on day one with sweeping the way regulation. number three, cheap energy. that will have a tremendous impact on manufacturing. tom: i want to know what we are going to get done by valentine's day. i would suggest we are in an odd place after the election and before the inauguration. what do you observe about filling the next 200 jobs? betsy: they will be filled quickly with people who are agents of change. -- can see already tom: robert hormats. hormats in for bob any position anywhere. you can see that the trump transition is already ahead of schedule in terms of naming cabinet and subcabinet people. tom: that is true, bob, isn't it? was even a little

slower i would not criticize them. i think some people try to rush it, but i think he is ahead, and these people are all come as he says, stimulus, progrowth. betsy: and many of them are coming from outside washington. their biggest obstacle is 3 million strong army of bureaucrats in washington who will dig in their heels and resist change. let me ask a question. as a toosuch a thing strong u.s. dollar? betsy: that is always a problem because it makes it harder for exporters and of course cheaper for consumers. so it is a two sides of the same coin. it is ultimately in the long run a problem if you want to boost manufacturing. but we want a strong dollar. it is one more sign of optimism. that i think it is a real contrast between what

donald trump is projecting in terms of growth, what the oecd has now adjusted its proof that -- it's growth jurrjens to be by 2018. and janet yellen, who keeps saying our economy is not capable of more than 1.8% growth , and she says it is because of a lack of innovation. that is like saying we have the light bulb we cannot have anything more. of course there will be more innovation. how many more key jobs will come from wall street? there will bect more from wall street, but there has probably been too much emphasis on drawing people from wall street. donald trump's drawing people from all kinds of corporate sectors. that is really important. he is taking people who have run major international businesses and saying you have the skills to be in government. what a refreshing change from putting the same old political

hacks back into office. thank you so much. -o-r-m-a-t-s. this is bloomberg. ♪

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wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. guy: a disunited kingdom. nicola sturgeon, the first minister of scotland, laying out plans that her party are putting through the u.k. government in london. she is saying that these plans represent a compromise, and she expects the u.k. to consider scotland's brexit proposal. the part of the u.k. staying within the single market benefits the you -- the e.u. astland benefits the e.u.

england apart. it represents one of the big issues we are dealing with right now with ireland. let's catch up on the other news today. it has been a busy news cycle. here his first word news with abigail doolittle. chancellor angela merkel is addressing the german people today in the aftermath of yesterday's fatal truck incident at a berlin christmas market. she pledged the full force of the law would be deployed to clarify "every detail." >> there is so much about this deed that we do not know yet with required certitude, but based on current evidence we need to assume this was a terrorist attack. i know it would be difficult for all of us to bear if it was concern that indeed it is and who committed this crime who came to germany to ask for section and asylum. the suspect was reportedly a pakistani refugee or he was arrested at the scene.

it is believed he was the driver. vladimir putin is promising a forceful advance on terrorism. yesterday a gunman shot adrei karlov in the back, exclaiming "allahu akbar, don't forget aleppo." in hishe first envoy position to be killed in almost 90 years. in switzerland, an attacker opened fire at people praying at an islamic center yesterday's debt. the gunman has been identified. the people were injured in yesterday's violence. it is scheduled later today. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am abigailtries, doolittle. this is bloomberg. is with us hormats as we look at international relations and europe's fractured

terror relations this morning. but we pause. tony dwyer has been one of the of ingenuity. like bob hormats, tony dwyer said there will be no recession. now the facts have changed. we have a new president. tony, after a big bowl run -- after a big bull run goes to neutral. this is not connected equity market chart. it is a dollar chart. it is a bloomberg dollar index, and this move shot appear off the trunk election, the blue circle, is the election. aresay the equity markets about credit. i would say credit is about the dollar paid link them together. tony: i would say the most controversial call i have right now is that the dollar is not going to strengthen like everyone thinks it is going to strengthen. the reason -- i know bob could weigh in on this -- the dollar

does not have a significant and sustainable surge higher when the global economy is getting better, especially emerging currencies and commodity prices. if you think about times like the late 1990's, think about this cycle, the dollar index surges when american economies are in trouble in currencies are getting hit. analysis fromul tony dwyer. we come up and we come right back down. bob: that's right. i think the global economy is getting better. that is a point a lot of americans are not paying much attention to, including emerging markets. this probably will some limit on the dollar as some money will go back into these economies that have been beaten down badly. tom: your neutral call on the market -- is it to go to cash call, or is it a readjustment?

tony: we are making these esoteric calls. it is a tactical call. the fundamental backdrop of credit remains terrific. if you look at agency spreads, mortgage spreads, they're getting better, not worse. we are nowhere near a recession, in our opinion. this is a call to, if you are equities, weht have turned bullish right before the election, having nothing to do with donald trump winning but the global economy getting better. that has become widely accepted. the fed has become more hawkish. a historic amount of time, you it only has happened to this degree in the 1960's. it is kind of a pause in the upside. take profit off the table and get ready to be more offensive again. guy: one of the reasons the market has done what it has done

is that the financials have gotten into gear. been heavily overweight on financials for the bulk of the year. i cannot imagine why anybody would want to get short or negative on the financials as a backdrop. however, i would say that as you take a little bit off the table -- i would say that you should take a little bit off the table. tom: so you are not selling banks? tony: not a chance. tom: i have bob hormats with me, so we had to do this great chart. this is a chart out of yale university. ofs is really the ugliest 1942. i did this for john glenn, bob hormats. remarkably on a capitalistic trend of equity performance over half a century. do you see any end to that with the politics of washington? tony: politics does not drive the market. what drives the market

historically is earnings. what drives earnings is economic activity. what drives that is fed policy and what drives that is core inflation. you have a 1970's style spike in inflation. inflation fear will create an over hawkish fear that will create a recession. the declines come from real spikes in inflation that bring on a really negative fed. bob: we have to keep our i on -- we have to keep our eye on a trade war. if there is to be a trade war tradehina or lots of confrontations with china and other countries, that will hurt emerging countries -- emerging economies and china. the markets will be vulnerable to that. those external factors that we cannot quite anticipate yet but could be around the corner could be very negative for the market, up from tony's very positive

judgment, which i agree with. tony: here is an interesting perspective when you look at eisenhower, a republican who came in with tax cuts and fiscal stimulus following two truman administrations. if you look at the first year reagan came in following eight years of a democrat and doing the same thing -- the fear is that trump is going to suffer the same consequences. but there may be a market correction. we just went neutral, but not because of recession. had of those presidents recessions because of restrictive and tightening monetary policy going into their first year. that is not the case today. tom: guy johnson, jump in here, please. europe, me talk about tony. we are trading at one of the biggest spreads that we have seen for quite some time. i have a chart that shows this. if the u.s. is looking europelly expensive, is

looking tactically cheap? tony: i would not say that. the u.s. is not expensive when you look at the level of inflation and interest rates. it is fair, not expensive. but to answer the question directly -- our call would be, given the global economic activity, e.m. over dm emerging markets and europe over the u.s., based partially on evaluation discrepancy -- the monitor that -- the monetary stimulus that is happening out of the ecb and the bank of england by buying corporate debt -- is not like you are buying 10 basis points -- you are directly injecting money into the private sector by these two central banks buying corporate debt. it has had a very stimulating effect that most people did not expect. i think that is the reason you want to be looking at europe versus the u.s. bob: if the u.s. does proceed to

deregulate, perhaps that will give europe a greater incentive to do the same thing. that will be a plus as well. guy: that will be interesting, given the political landscape, whether that is feasible. bob, do you think that is feasible, given the way the u.s. -- and to tony past week about the financials and possible deregulation there -- is that something europe is going to psychologically set up to be able to follow? in many ways we are still dealing with the fallout of the financial crisis. italy is still living with this. it is still living with this. it feels like a different world here than in the united states. bob: it does, and we saw the failure of the italian referendum here it there does not seem to be the -- and we saw the failure of the italian referendum. there does not seem to be the economic deregulation. it will incentivize some europeans to say let's give it another look or at least pieces

of it another look. the one where he that i do have is that a lot of the improvement in the growth in the economy here will not lead to the kind of improvement in jobs that a lot of people anticipate. a lot of the improvement in the economy here will create new economic activity, new technologies. technologies are going to do very well, but the rate of job creation may not keep pace with the rate of economic growth or the rate of growth of the stock market. job creation is still the big challenge for the united states, even though other parts of the macroeconomy look very good. guy: let's bring up that. tony, and -- tony, how will companies spend money in the united states if they can repatriate it from the external bank accounts that they have? will they invest in people? will they invest in equipment? tony: it is a great question.

historically, the number one use of cash for technology companies has been to buy back shares. so a very large portion of money that is held overseas that would be repatriated is in technology. and of course technology and health care buy back shares. we have been still early in the economic cycle up until the fed started to move the real fed funds rate upward. believe it or not, seven years in, you would have normally been considered early in the economic cycle. that is transitioning now. as interest rates go up, companies spend less on buying back stock and more on capital and acquisition. tom: i want to come back with ambassador hormats on china, and talk to tony about the idea of the export strength of the united states. morning,00 hour this gerard cassidy of rbc capital markets. this is bloomberg. ♪

guy: 44 past the hour. i am guy johnson in london. tom keene is in new york. here is abigail doolittle. -- europeanebook regulators say the company may have misled them when it came to buying the whatsapp messaging service. they have been fined for providing "misleading information." it has until the end of january to respond. the e.u. says approval for the merger is not at risk. a move intensifies a fight for control of the broadcaster founded by the former italian prime minister.

nobody says -- will buyays it bankshares depending on market conditions. in italy, the government has cleared the way for the potential rescue of the nation's banks. this is a try to get parliament's permission to get control of the troubled debt. monte dei paschi is seeking investors back from a $5.2 million capital increase. italy prime minister has laid the groundwork for a state-sponsored cash injection with the possible bond sale per that is the "bloomberg business flash." guy: coming up shortly, it is "bloomberg daybreak: americas." jonathan ferro is here now. jon: good to see you, guy. it is easy to forget what a defining year 2016 was, specifically for the bank of japan as they ventured into

negative interest rate territory. we will debate 2016 and the outlook for 2017 with two porton -- with two in conversations. mohamed el-erian will join us. those conversations are coming up, tom. tom: tony dwyer is with us, and robert hormats. bob hormats, i made this chart for you earlier this morning. this is our merchandise trade added together, our exports and our imports, both the animal spirits of merchandise trade. here is the giant exceptionalism of america over a good 20 years. we go from there and we migrate up to the financial crisis. if you extrapolate out what we thought we would do, there is this gap, and it is a huge gap in our trade. agreementsd of trade

, of multilateralism -- is it over? everything you study and you were a part of -- is it over? the time being, the answer is yes, in so far as it involves the united states. the u.s., the new administration is not supportive of the wto. it is anti-nafta for sure. against tpp as well as donald trump. going anywhereot at this point. on the other hand, some countries are moving ahead. china has a regional cooperation recep.c partnership rese tom: you were there. with your access, is this a new beijing, or is it a beijing adapting to the new slope from

america? bob: it is both. it is a more proactive, internationally nationalistic beijing. the united states will be an active trader with asia. but in terms of a trade agreement, like tpp, we are not going to have one. the rules about international inde, particularly trade asia, will be written by the chinese. the chinese will be the leading factor. the chinese have their own issues. , so aave wages going up lot of the manufactured goods that have been made in china are now going to shift to myanmar or vietnam or bangladesh, for instance. but the chinese now, in terms of the ability to influence the constructs, the institutionalization of trade in asia -- they are going to be in the leaderless the u.s. finds some way of getting back in the game. -- only way i see is a few

they are going to be in the lead unless the u.s. find some way of getting back in the game. guy: how the view of trade changes? bob: it will not be as dependent on exports, but it will still be heavily dependent on exports to the united states and the rest of the world. it is moving toward a more service-oriented economy, in part because it wants to increase employment. there are still a number of people in central and western china who need jobs. exports will not move as well. moreces will be a effective jobs absorber. bring up the chart again, if you would if we are going to migrate back to the trends that we knew for years, does that mean you can believe in multinationals as a proxy for trade improvement? tony: easily with global

activity economic improvement. less of ancoming influence in terms of manufacturing. it is obviously the second-largest economy, so it is a very large influence, but not to the degree that people used to trade. in my opinion, to expect china to go back to double-digit growth rate, with the size of an economic backdrop, it seems inappropriate. what you see in that chart -- i am a big fan of until it is improvement -- until it is proven otherwise, you go with history. with that gap we see there, it fails. tom: tony dwyer, thank you so much. it is the first look at banking. jeffries is out with their earnings today. they are just single numbers. they are not really giving me much of a compare and contrast, jeffries with a first look. we will have much more on that through the morning. from new york and from london,

this is bloomberg. ♪

tom: all are focused on

international relations, terror this morning, with chancellor merkel speaking. away from that, it is continued dollar strength. 0379. the philippines peso, 50.03 is a big deal. some final thoughts with robert hormats of kissinger associates p you have to help me with this relationship with russia and turkey. i read robert lacey, i read a route -- i read about peter the great. what is your take from your work over the years of the changing relationship between russia and turkey? bob: you are quite right. it varies from decade to decade. tom: and century to century. bob: at this put the russians are strongly supportive of bush are al-assad. the erdogan government has a lot

of reservations per they are trying to cozy up to the russians somewhat to figure out how to deal with this and how to deal with the kurds. it is a murky situation. they are neighbors. they want -- one wants bush are al-assad to go. one wants him to stay. both want to deal -- one wants bush are al-assad to go. one wants him to stay. they are trying to work on certain things. does 10 plus influence extend at this point? bob: vladimir putin's influence in turkey or in general? guy: how far does it extend? bob: it is in or miss. various groups in russia are supporting right-wing populist groups all over europe -- it is enormous. groups in russia are supporting right-wing populist groups all over europe.

period tousing this try to undermine the cohesion. on radio. continue ambassador hormats will join us on radio worldwide. tomorrow, yet compels of pimco. this is bloomberg. ♪ . .

♪ jonathan: good morning, and welcome to "bloomberg daybreak," on tuesday, december 20. features are positive of 28 on the dow on positive for on the s&p 500. in the fx market, the dollar index getting back to a 14 year high, the dollar-yen claimed the and and market treasuries

are off, yields high by about two basis points. david: here's what you need to know at this hour. a truck plows into a christmas market in the heart of berlin, killing at least 12 people. chancellor angela merkel says it must be assumed to be terrorism. we are live in berlin with the latest, on what it means for germany and chancellor. the bank of england -- make japan capping a momentous year with an outlet -- an updated outlook on the economy.