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. keeps it sealed purchase an

asset programs unchanged. -- what will it mean to have one of their own running the treasury department. we have the scorecard, and that's what you need to know. jonathan: as we begin our coverage with the fx market and the bank of japan, the dollar index reclaiming a 14 year high. , dollar-yeneak justices 118, we trade of about .7%. bit of a venture as the negative interest rates yield curve control. at one point, again was strongest since 2013. strongest since 2013. joining us is kazuo momma. there was some speculation that may be they would have to adjust the yield target on the 10 year away from zero because the backup we had in jgb's. what do you make of this decision? mr. momma: it makes to me

[indiscernible] favorable, and even with inflation picking up, there's a long way to go. i don't think there's any need for the bank of japan to even think about [indiscernible] there is possible to be a discussion of [indiscernible] they are really sticking to the current yield curve. [indiscernible] going to be the persistent stance of boj for quite some time.

changen: they may not their mind, but the policy is set to be tested throughout much of next year as we continue to get back up and bond yields. do you think it will be difficult for the boj to sustain a target of 2%. it's a mistake saying that the boj will succumb to external pressure in terms of the higher interest rate. because boj is so powerful and capable of controlling the 10 year bond yield right now, i have strong commitment. they can increase or decrease their market on policies, they are pretty much flexible on-demand great they say they will continue to buy bonds entered 82 million pace. conflict, they

will pick interest rates. there's no question the bank of japan is very powerful. how much of what we are seeing in terms of improved economic conditions is really because of genuine growth in the japanese economy as opposed to a weakening yen? support japanese economy to grow faster. at the same time, there is a long way to go to 2%. boj's new commitment [indiscernible] it puts boj in the position that they are intentionally behind the curve before they see inflation will be 2%. i think this will be a very strong commitment by boj to see tangible signs that inflation is picking up to 2%. jonathan: we began the segment

by talking what a year it's been for the bank of japan, venturing into negative interest rate territory in establishing what they call yield rate control. kurodar what governor has learned from 2016 that he can apply to 2017? it was a: this year very energizing year. at the beginning of this year, there was a risk off move. chinese and other emerging andet economies decelerated a sharp decline in the dollar against other currencies put japan and other currencies in a relatively difficult situation. brexit and other political situations [indiscernible] fortunately, things are moving up.

hopes that the momentum will be speeding over to next year. even with the positive dollar and the growth economy, japan inflation is persistently low. it's going to take a lot to create omentum for inflation. jonathan: consumer, -- kazuo to be fair, the dollar keeps doing much of the heavy lifting for governor kuroda. let's get you some of the headlines outside the world of business. we take it over to emma chandra. merkelhancellor angela addressing the people after the market. she pledged the full force of the law would be deployed to clarify every detail.

merkel: there is so much of this we don't know certainty. but we need to assume this was a terrorist attack. i know it would be difficult for all of us to bear if it was confirmed that indeed a person committed this crime who came to germany to ask for protection and asylum. she says authorities are working on the assumption that the death of 12 people after the truck rammed into a crowded market was the result of a terrorist attack. another four dozen people were injured. russian president vladimir promising a forceful ascent on terrorism after the assassination of moscow's ambassador in turkey. the assassinated in a reference to aleppo. the 22-year-old assailants, and active-duty police officer, was killed by security forces.

president-elect donald trump has secured the needed 270 electoral votes to claim the presidency. the electoral college affirmed trump as president, despite a bid for democrats to spark a rebellion and overturn the results. announceds will be january 6 in washington. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. jonathan: in the united states, features are firmer. in europe, the stoxx 600 trading at 2016 high and yield flow in europe across the continent. here's abigail. have shares of media set, the italian broadcast company, soaring higher as the band he will say they will increase their shares. -- vivendi says they will

increase their shares. the stock is up 86%, a huge move. it may be a bit of brutal battle between the country -- between the companies. as for lloyd's of london, we do of the banking company trading higher on the news that lloyd's of london has agreed to by b of a's credit business. firsts the company's major deal after being rescued by british taxpayers. facebook shares are mostly lower after the company did receive an antitrust complaint from the eu. the eu is saying facebook may have provided incorrect and misleading information around its whatsapp takeover bid. up the year,p 14% at one point, they were up 30%. that news and facebook more recently. , with mountingp uncertainty about when and how theresa may will trigger the uk's exit process, strategist

have different views for the euro in 2017. we hear from one expert, that's next. this is bloomberg. ♪

from new york, this is "bloomberg daybreak." of 30 on the dow, yesterday's close, we were about 130 points away from that milestone. in the fx market, the dollar index the reclaims a 14 year high, the dollar-yen the gets back to a 118 handle. the euro the gets down to 103. higher by three basis points at 257 on the u.s. tenured. its first agenda got

minister, addressing the next step for the country and theresa may will be questioned by the house of commons liaison committee at 9:00 a.m. eastern time. what does that mean for the fx market? it means considerable divergence in terms of what the view is for where euro sterling ends next year. in terms of estimates down toward 17 -- 70, potentially 73. joining us now is vasileios gkionakis, it's great to have you with us. for euro real market sterling in 2017. where do you sit on the spread for next year? mr. momma: i'm some --mr. gkionakis: i'm somewhere in the middle.

politics is in the driver seat right now. areway i see it, politics the biggest concern for the u.k. relative to the eurozone right now. largely because of what's already in the price of the euro relative to that of sterling. sense, it can be a bit of a binary. if the markets starts sniffing early on the teacher transitional -- that the transitional agreement is on the horizon, it will be sterling higher. as we move into early 2017 and we approach that deadline that may have set us up for triggering the article 50, there's going to be an increas d political noise. sterling is going to come under renewed pressure. jonathan: listen to the politics. i want to understand how the politics of the eurozone next year actually shape the fx way,t in considerable

given the price action around the italian referendum, it wasn't drastic. why would that change next year? mr. gkionakis: i agree. you have on presidential political uncertainty -- unprecedented political uncertainty, but if i'm to look at the three different reasons for the u.s., the u.k., and the eurozone, i would say that certainly political uncertainty is less of an issue in the eurozone compared to the uncertainty that surrounds the outlook for the u.s. and the u.k. that make sense, but what about the attack yesterday in berlin and what that might mean for angela merkel? if she was under siege politically, what would that do to europe? mr. gkionakis: i would certainly be an issue for europe and the fx market in general. however, the best case scenario is this is not going to happen. we are not going to go down this road. the problem right now is at

least for the uncertainty about politics in the eurozone, we have some priors. we know where things are moving, we know there's an increase in populism, we know that these outside threats from terrorists. the issues i'm having with the u.s. and the uk's that we have no prior. we don't really know where things are going to pan out. that's why i'm saying politics in the u.s. and the u.k. our own bigger concern compared to the eurozone. let's get to the driver's seat in the g 10 space, is the dollar, the dollar index back to a 14 year high. there is just this monster consensus going into next year that the dollar stays big, it's going to be strong, strong, strong. do you take the other side of the trade on the margin? mr. gkionakis: i am taking the other side of the trade, although i would say there is considerable uncertainty. now, there's a type

of war between fundamentals and momentum. from a fundamental perspective, the dollar has had real rate differentials from fundamentals in general. here talking about a monstrous increase, 30% since the summer of 2014. on the other hand, is no point in standing in front of a runaway train, at least in the short term. meeting the momentum is there. towardsve forward year-end and liquidity gets thinner, we may see some new highs in the dollar. in 2017, it will be a story policiest the trump mean for the u.s., and by extrapolation, the dollar. my main concern from a fundamental perspective is now the u.s. is running at near full capacity. it's near full employment right now, which means if a trump stimulus goes ahead like the way it's being outlined, i think

that it runs a danger for the dollar to compress real rate differentials. meaning compress u.s. relates. vasileios gkionakis, i momentum, it's like a freight train to this market. david: you have to have real growth, not just inflation. it's a practical matter. coming up on this program, more on our top story -- german police are holding a news conference in berlin updating on an attack on the christmas market yesterday. the berlin mayor saying quote, we are stunned. one of angela merkel's political allies speaks of the repercussions next, on this program. this is bloomberg. ♪

in europe, german

police are holding a news conference in berlin following yesterday's attack on a christmas market. this after german chancellor angela merkel spoke in berlin this morning. merkel: there are so much about this deed we don't know yet with required certainty, but based on current evidence, we need to assume this was a terrorist attack. jonathan: for more now, we are joined by bloomberg's matt miller, who joins us now. heard through what we've from authorities over the last 24 hours since this tragic event. we haven't heard very much specific information from authorities. the germance and governments are incredibly conservative when it comes to releasing information about suspects. what we do know is they have one suspect right now in custody. in the federal prosecutors taking over this investigation. merkelrd chancellor talking about this horrifying and unimaginable act, but they

are going to assume for now that it was a terrorist attack. david: give us a sense of the scene. we see some awnings over your shoulder. where are you in relation to the actual market? matt: i'm standing right in front of the christmas market here. me, thesee this behind kaiser wilhelm memorial church where they have this christmas market right at the top. this is the most famous shopping street in germany. it was really a symbol of the west when berlin was divided. it is decorated with the most , high-end shops. it also has a lot of mass-market shop here. everyone comes here to go shopping, everyone comes here when the tourists visit berlin. it was a very busy, populated seen last night and jonathan: bloomberg's matt miller joining us from berlin. david: joining us also from

berlin is almagro -- elmar brock. thank you for joining us today, mr. brock. what can you tell us about what you know about these incidents and who is behind them? mr. brock: we do not know that. it toave not even found be terrorism. we do not know exactly what has happened. , we doa terrorist act not know which nationality and so on. we have to wait for that. we need a change of information between television sources in europe and the united states. in order to prevent such acts. david: they have not yet upgraded the driver of the

vehicle, but there was a passenger who perhaps was killed. what we know about that person? knowrock: we don't exactly, but the man was obviously a polish citizen. the truck was polish. terroristshat the has killed the driver of that truck in order to get hold of the truck. we have no proof of that. it sounds logically that this is the case. jonathan: if it is terrorism, it raises a security issue and it will also raise questions about chancellor angela merkel's refugee policy. is this a time to change course in a significant way? mr. brock: we have to fight terrorists, not migrants. we have much less migrants in germany last month than we had last year. up --ease, let's not make mix up terrorism and migrants. jonathan: that's not the

intention of this program to do so. mr. brock: i know that. jonathan: do you need to secure the borders of germany more significantly -- mr. brock: it's not border control. these people are here. always find ways to come here. we need better cooperation of the intelligence service both in germany and between germany and european neighbors and the united states. this is the way to fight terrorism. in the proper way. i think closing borders in wemany would not mean that can get hold of terrorists. you have terrorists everywhere in the world. you had them in united states, even after 9/11, with the boston bombings. we have in london and in france. i think here, we are in a global battle against terrorism. we have to cooperate in that way

and not close national borders. thanks, very much. that is elmar brock, chair of the foreign affairs committee. high fees and low returns. hedge funds are under pressure. who were the winners and losers of the past year, and who will come out on top under a trump administration? this is bloomberg. ♪

david: this is bloomberg, i am david weston. christmas attack. truck blows into a christmas market at the heart of berlin, killing at least 12 people.

two is allowable of merkel must assume it is terrorism. kuroda stands back. has an updatepan on the economy but keeps the yield curve an asset for such -- and asset or just programs unchanged. who were the winners and losers in the hedge fund world in 2016, and what will it mean to have one of their own running the treasury department? we have the scorecard. that's what you need to know in this hour. jonathan: the euro and the stoxx 600 getting to a 2016 hi, positive for the s&p 500. in the fx market, we catch a 14 year high on the dollar index back on thursday, we are back there today with dollar-yen up .8%. treasuries up three basis points to dollars $.57 is your 10 year yield. 2016 was a tumultuous year for hedge funds.

who did well, who did less than well, and how much of it was because of the election of donald trump? a bloomberg report card on hedge funds is out today. a ripple across the markets from the surprise victory of donald trump was reversing the fortune of some, and may prove to be a boon going forward. joining us now is one of the authors of the report, katia porzencaski and obvious that alley -- fabio savodelli. who were the winners and losers? katia: it's been in on what strategy you are in. names didhe marquis not perform well. we saw a lot of double-digit losses like john paulson, down 16% this year in his event driven fund.

he's down 27% in his merger arp fun. ray dalio is flat and his flagship fund. map and hard the to follow the data. it is such an opaque industry. you can't map everything out like a good with other types of industries. but it feels like we have a lot losers thanners and people concentrated in the middle. categories there any that tended to do better? macro was a bad year and has been disappointing strategy, because you haven't had that dispersion interest rates and currencies that you wouldn't want to. that could be turning around now. was in distressed debt, because we had that rally in energy prices. while last year was disappointing for distressed debt, this year was a great

year. we had double-digit returns for marathon, kenyon was up, it was a good year for them. 2016han: this is how cap -- how tough 2016 has been. i could have told you that we were going to get president trump and brexit, and people would have lost money. you can equities have been tough. even make the right call and then make the wrong trade. in a lot of macro fund cases, you have $100 of capital and $10 at this desk and $10 is at that desk in each one has a different view of brexit. and what we've seen at the end .s much, -- mush it's not what people were into. when we look at somewhere like a rubicon, where it's at a smaller single manager making the decisions, it is a much more

successful and much more -- dispersion, they are taking of you and getting paid for it. is goinghat dispersion to be the big topic going forward. the difference between the winners and the losers within the stock market is at a high. i think that is going to be something that, over time, is really going to make a difference. it is put up or shut up for a lot of hedge funds. david: overall, how to the hedge fund industry do? we have a graphic to show this is a tale of two directions. on the one hand, the overall value of the asset center management group. rew. but there was a net outflow of funds. what does that say about the health of the into industry? katia: it's the first time for net withdrawals in several years. it's not great. but for all of the to do that there has been this year about

how miserable the hedge fund industry is and how everyone had something to say about how bad it is what a waste of money it is, 2% of assets is what was withdrawn. that's not a ton. at the end of the day, i'm not sure you can say it was a horrific year. by the headlines, you would save the industry was dying horrendously. mr. savodelli: you would think maybe people don't like us. a subtle undertone. it's down about 2% for the year. the guys in the mutual fund business would cut their left arm off for 2% decline this year. they are seeing active management is seeing massive declines in multiples of what we are saying in the hedge fund space. in reality, the investors are

getting the joke better than many of the critics. jonathan: let's talk about what might get better next year. we talk about the transfer or focus from fiscal policy away from monetary policy. is that good news for these guys? mr. savodelli: you have this series that's going to differentiate good stocks from bad stocks in the equity long health care is in play, 16% of the u.s. economy. is monetary policy going to offset fiscal? give these questions right, get the immigration question right, yet any number of questions that are facing trump, and no one knows what he is going to do. get those right and you will have a next regular year. get him roman numeral hurt. jonathan: is that your sense? katia: it could be a turnaround year. we will have dispersion in health care, stocks, mining,

steel. you will have financial combinations, small and midsize banks and the push for macro funds. it could be the year of the come back with currencies, rates, global wrote -- global growth differing. all of that. but you have to be nimble. you can't be a monster. it's going to be benefiting the smaller guys who are more focused, more nuanced. they can really pick. china arm is funded, you will have the same problems you have with crowding this year. ,- if you are an enormous fund you will have the same problems you had with crowding this year. david: donald has been in hedge funds. what difference will that make? not justhave sympathizers, but people who participate in the marketplace running the government. greatvodelli: i feel comfort in that, it's good to

have people with experience. one of the big questions is what do you do with freddie mac, fannie mae, all of those questions. this guy has run one of those banks. he has a pretty good feeling for what is the right thing to do and he has expressed his views on that. i think it's worth doing. people say it's not running a hedge fund. you are right. he ran the arbitrage desk at goldman sachs. it is somewhat the same thing done in a different way. we've had people there for some considerable time that are experts in that space. we can't talk about hedge funds without mentioning platinum. it was a big announcement in brooklyn yesterday, indicting the people who run platinum. down --oven allegations sound like a ponzi scheme. mr. savodelli: initially it was

a fraud in the mark to market and then devolves into we received these 10 redemptions, how do we pay this guy off without all of these coming down, which is what happens when your mark to market is bogus. when we look at that track record, we have a fund with almost no declines. it's an arbitrage fund. arbitrage is not latin for free money and no risk. returny is claiming the about six time the s&p during a time when the s&p has had some of the greatest returns ever. jonathan: the line is they are, it's the s&p. you also look at -- the single most important thing in any manager is the character of the manager. these people were indicted for paying off rabbis to give them the names of dying people, and then taking out semi-bogus insurance policies on these dying people, they give the dying people $100 and

afterwards, the guy says 30% annualized returns just proved too tempting. no, you have no moral compass whatsoever. no, you have no moral compass whatsoever. you are investing with sleazy people. david: it's not like it's a boiler room operation buried somewhere in brooklyn. this is a prominent member of the financial community. mr. savodelli: the second-largest after bernie madoff. is a guyide is this who has an indictment for having ripped off dying people through a corrupt rabbi is also public opinion. you may want to take that into consideration before you get in the bed with a guy and give him your money. just a thought. katia thank you to porzencaski and fabio savodelli. jonathan: i want to update our viewers on the headlines, german police wrapped up giving an update on yesterday's attack on the christmas market in the city. police say they are not yet clear whether the suspect was

the driver in the attack. that news conference in german, you can follow the latest on the bloomberg at life go. we'll keep you updated on this developing story. david: coming up, citigroup says opec cuts should send oil to $17 a barrel in 2017. we discuss how realistic that really is. this is bloomberg. ♪

emma: this is bloomberg daybreak, i am emma chandra. coming up, mohamed el-erian. ♪ david: this is bloomberg, i'm david weston. citigroup said that the most recent opec supply cuts could send oil past $70 a barrel next year. for more on how realistic that number is, we are with bob yawger. what they said was mid-sixties and could go as high as $70. do you think that's right?

ger: i would like to point to the forward curve. get, the price is $55 in wti, it has quite a long ways to go until he got there. they are headwinds and tailwinds, obviously, the opec deal was larger than expected in a very supportive market. but you still have the threat of cheating. you have an oversupply situation in the united states, especially at the nymex delivery point at cushing, and you have a shrinking dollar serving as headwind for a banishing market. first, the possibility of cheating. we do seem to have an alignment of interest, not just within opec, but also places like russia seem to want to get the price up. does that reduce the traditional risk of cheating? as i recall, opec never had 100% compliance. mr. yawger: no one expects 100%

compliance at this time either. you have russian cooperation also. i think that it's a shaky situation. what's going to have been moving forward is you have monthly reports on if they are cutting were not cutting. you have the international energy agency and a opec folks, everyone will have a report whether they are cheating or not, and to what degree production is moving forward. how close it is for 32.5 for the opec folks? that will cause volatility in the market. we will see peaks and valleys. the also have a weekly energy port in the u.s. that will add to the volatility in the market. david: you have the ipo of aramco that should be coming up any that gives the saudi's incentive to take a lot of the cuts on their own. does it make it more likely you will get real compliance? mr. yawger: as far as the saudi's are concerned, it does. they are the first ones out of the gate to announce they've

contacted their customers and made cuts. interestingly, they made this cuts mostly north american customers. we are the source of the largest oversupply. the nymex contract as well oversupply to cushing. they would like to supply less screwed to the united states and watch that supply burn off -- they would like to supply less crude to the united states and watch that supply burn off. changed? what has mr. yawger: there was the opec situation. when we were at $27, the day we traded $26.50, the oil minister came out is that we are going to me down the road and try and turn the situation around. day he made that comments, that comment lifted the market. to simplify the situation, it steamrollerc's public relations bonanza at all

times. david: thank you, bob. bob yawger, director of futures. jonathan: let's turn to the fx market, the dollar index cases a 14 year high. .5%, the euro with a 103 handle, 2003 low and the dollar-yen trading up $1.18, up about .9% in today's session alone. the bank of japan decided to maintain its stimulus plan. we spoke with kissinger associates vice-chairman about his biggest concern for the country. >> it's hard for them to use additional fiscal policy. they are really more or less crafting monetary policies, that's probably the only thing they've got. they could do more structural reforms, but as tom pointed out, opening up to more immigration is not such an easy thing to do. i think that tpp would have helped them expand trade with

not only the united states, but the other countries that are in tpp. but we don't have that now. i do think a bilateral u.s. trade agreement summary down the road should be useful. they are now in a position where it's awfully hard to get out after this substantial weakness. 2016, andlook back on monetary acrobatics from the boj. what has worked and what has not yet come dr. hormats: corona has definitely tried, he has the ,ost aggressive monetary policy but very little of it has worked. it's better that it would have been, you can say that. there have been times when inflation has picked up a little bit and growth has picked up a little bit. they want to get inflation above 2%. this is the problem. the weakening of the yen that we've seen over the last couple

months actually should help somewhat. it will stimulate exports and it will be mildly inflationary. they can rely on that bit getting to 2% is going to be difficult, despite the fact that corona is doing the very best -- kuroda is doing the best he can. jonathan: that was bob hormats. now for the other stories making headlines at this hour. here's a much younger. good morning. emma: facebook has been sent in antitrust complaint by european union regulators, to say the social network may have misled them when it sought approval to buy the whatsapp messaging service. facebook faces fines up to 1% of annual sales for providing quote incorrect or misleading information during the 2014 eu review. it has until the end of january to respond to the european commission. the use says approval of the merger is not at risk.

blackberry is raising its fiscal 2017 profit outlook imposing a slight profit in the third fiscal quarter. is movings suggest further into software and away from handsets is paying off. blackberry expects to post a four-year profit from a prior range of breaking into a five cent loss. excluding some items was to sense of had a better than estimates. nts a penny better than estimates. less, this is the right sharing company lost $800 million, not including the chinese operation. but this in revenue is still growing, on track to exceed $5.5 billion this year. that is your bloomberg business flash. i am emma chandra. this is bloomberg. jonathan: nike, the worst performer on the dow, reporting earnings after the close today. how is it stacking up against the competition?

that is next in the numbers don't lie. from new york, this is bloomberg. ♪

david: this is bloomberg, i am david westin. the s&p has gained more than 10%, but nike is falling with an 18%. the united states is nike's largest market and analysts and investors worry it is losing market share to adidas and under armour. let's look at the day's numbers don't lie.

nike had been on a roll come averaging annual gains of 26%. as you can see in 2016, it's been a different story. analysts aren't showing much optimism for the future. taking the 12 month price target down since the beginning of the year. on halloween, bank of america downgraded nike, you see the trail off at the end of the earnings expectation. they can america took the earnings down about halloween time for nike. one of the things analysts are focusing on his future orders. upers and united states were only 1% in the fiscal first quarter. even see the contrast of what it been there before. nike future orders are growing much more strongly outside united states, led by china are generating profit margins over 30%. of nike'srates .25% operating income and is the biggest growth driver. looking at individual segments, it's showing consistent growth for shoes and running, trading -- training, the basketball was down.

that's driven by endorsements from big-name celebrities and kevin durant. we will be following nike's results when they released after today's u.s. closing bell, but that is the numbers don't lie. jonathan: more on the top story of bloomberg. the berlin attack, the assailant may still be a large. the latest from berlin up next on this program. plus, mohamed el-erian joins us to discuss what is happening in the equity market and beyond. stocks look like this, futures firmer, in the fx market, what a session. the dollar strength. dollar-yen, a 2002 low on the euro. this is bloomberg. ♪

jonathan: good morning and welcome to bloomberg daybreak.

i am jonathan ferro along with david westin. 117 points for the close, yesterday, away from the dow 20 k. s&p 500 futures in the positive. dollar index back towards 14 year high -- towards a 14 year high and the euro-dollar drops back. david: here is what you need to know. christmas attack. a truck plows into a christmas market in the heart of berlin, killing at least 12 people. chancellor merkel tells us we must assume it is terrorism. say the man behind the attack may still be a large. the bank of japan cap a tremendous year, but keeps its yield an asset purchase program's unchanged. the year and hedge funds. who were the winners and losers in the world of 2016, and what

will it mean to have one of their own running the treasury department? we have the scorecard. we turned back to that lead story about the attack in berlin. world leaders speaking out. putinn president vladimir vowing to step up the fight against terrorism after the assassination of the russian ambassador to turkey. vowingchancellor merkel that the full force of german law will be used to bring the perpetrators to justice. we spoke to an ally of merkel, earlier. >> we have to fight terrorists, not migrants. we have much less migrants in germany in the last months than so please do not mix up terrorism and migrants. david: here now to take us more through the geopolitical -- i want to start

with you in berlin. it is all fine to say there is a difference between migrants and terrorism, it is perfectly true. merkelsame time, angela address the possibility that these could be migrants. what is the political effect for merkel if this is the case? it is not a great thing, and that is why her spokespeople are out there, trying to make that point. the problem is, if this kind of crime is being committed by people that the german government has taken and because angela merkel has allowed the germany government to take these people live and give them asylum, it is a real problem for the cdu, politically. you have seen the right-wing party, come out and say there is blood on angela merkel's hands and you have seen politicians from other countries, one of the leading party members from

thisd this morning said proves that they were right not to let immigrants in, and that policies were a problem. david: beyond that, when these sorts of tragedies policies wera occur, it is not long before people ask where were our security forces, why couldn't we intercept that? is it the beginning of that line of questioning over there? matt: also the point has to be made that we still don't really know who did this. the police did take one suspect into custody. we are starting to see reports they may have taken the wrong guy into custody and that the perpetrator may still be at large. that is one of the main problems. the problem that you pointed out, where was the protection to begin with? when you go to these christmas markets, there is a strong police presence. you do see police standing

around with sidearms as well as automatic rifles, but they have vowed to step up security and beef up the presidents -- beef up the presence of police, going forward. jonathan: i want to talk about the tragic death of the russian ambassador to turkey. do we have a firmer understanding of the individual, considering -- are we seeing signs that they will stay together? >> absolutely. both the russian and turkish leaders are sending a message loud and clear, saying that this will not ruin relations between the two countries and they will step up their fight against terrorism. the turkish foreign minister is in moscow, right now. he met with the russian foreign minister and they gave the same message, they will not let this incident ruin relations. what we've heard about the person who shot the russian

at an art to turkey exhibition is that he was a turkish police officer, part of the riot police and turkey says they are investigating if he is part of a particular organization. i want to mention that turkey and russia do not want to go back to the late 2015, when they rubbediplomatic rout he win turkey shut down a russian jet on the syrian border. much,an: thank you so reporting from istanbul. we want to thank matt miller reporting from berlin. jonathan: i want to turn to the fx market, the dollar getting back to a 14 year high. at the lowestng since those levels, with the political -- the financial uncertainty. joining us now from london, the

burn of a group chairman -- the burn of a -- great to have you with us. let's start with the politics, front and center. how important will that be to your call? attire andk the referendum gives us an indication of what we are in for, for the next year or so. italy is likely to be the first country to leave the euro. greece leaves, they will not announce it in advance. the euro is completely unsustainable, when you don't have a common fiscal policy and you have everyone trying to pursuing -- pursue their own vested interest.

it is not the federal reserve at work, this is a very difficult operation that the ecb has to conduct. jonathan: let's talk about where that comes from, anyway from the euro. we had this discussion thousands of times, four years ago and the euro is still intact. issue and financial the ecb address that financial issue, supported the debt market. this is a political issue, now. can you draw a distinction between those issues and explain why this is the end game? jim: the politics are driven by the economics and the financials. 50% youth unemployment in several countries in europe and people are getting tired of that and that is why you are seeing this populist uprising through the ballot box.

that is driven by finance. the question is what happens to the euro, when it does splinter. if italy leaves, that is the end of the euro project as we know it. we don't know what the future shape of the euro is and that is why people are selling it as opposed to buying it. i was a brave guy, i would be brought -- buying the euro against the dollar. david: there is a pop song in the united states, breaking up is hard to do. it is one thing to say it makes sense for the euro to break up, but when you actually get into the mechanics of how it happens, how can you literally unwind the euro? jim: it will be a unilateral decision by a country. it will not be in consultation with germany or the ecb. leave, theyided to would not be telling us or

anybody about it, they would just do it. the political pressure will come sometime next year, when they have the next cycle of elections. i think that is a major fracture point. we will not be told about it. there will not be any negotiations, like brexit. that will mean large-scale defaults, nationalization of the banking system and banks around the rest of europe having to be nationalized and bailed out. it will be chaotic, but it will be much better for italy. if you are italian, you have not had a industrial production increase since 1994 and no increase in economic growth since 1998. david: thank you very much for being with us. let's get an update on what is making headlines outside the business world. emma chandra is here with bloomberg's "first word news.

" emma: in a nationally televised statement, angela merkel without the full force of the law will be utilized to clarify every detail. >> there is so much about this deed that we do not know yet. based on current evidence, we need to assume this was a terrorist attack. emma: 12 people were killed and a further four dozen were injured. berlin's police chief says it is not clear at the man detained in the attack was really the driver and that the assailant may still be at large. ishigan's attorney general announcing more criminal charges in the flint water investigation. they have scheduled a news conference for later today. nine people have been charged, so far in an investigation of the city's lead tainted water system. eight current and former state

employees and a flint water plant employee. president obama is looking to block the sale -- according to two people familiar with the decision. they say president obama will invoke a provision in 1950 law that gives him wide latitude to withdraw the u.s. from future gas and oil business. day, thiss 24 hours a is bloomberg. jonathan: in the markets, futures are firmer and european equities trading at 2016 highs. let's go to abigail doolittle. abigail: first up, acadia pharmaceuticals actual test soaring on the news of the company's alzheimer's drug received positive topline results. alzheimer's does afflict 5.4 million americans and there has not been a successful treatment, yet. compounds have

been tested, unsuccessfully, so investors are pretty positive about the possibility that this one could work. relief of af the skin condition -- release of a skin condition drug. turning to chip stock, we have amc and nvidia trading higher with amd looking to buy mizuho. nvidia was added to goldman's conviction list. nvidia is up in a big way, up more than 200%. 282%, justyear is up a big winner on the year. david: coming up, we turned back to the tragic attacks in berlin and uncorrupt and here for -- and uncorrupt -- ankara. this is bloomberg. ♪

jonathan: from new york, this is bloomberg. the dollar index the highest 2002, up 4/10 23, of 1%. goldman sachs forecasting another 4.3%. the consensus is quite clear, more dollar strength set to come throughout the year, next year. is really turning into one of the major stories at the end of the year. now we want to turn back to that tragic attack in berlin. german police are hunting for the driver of a heavy truck that you liberally plowed into a

german christmas market. the suspect arrested for monday's terrorist attack may not have been the one responsible. isncellor angela merkel going to use the full force of german law to bring the perpetrator to justice. we are joined by nick burns, former secretary of state and now a professor at harvard's kennedy school. thank you ambassador burns for being with us. there is a lot we don't know about who did this and why they did it. angela mercker says we have to assume this is terrorism. put this in a broader perspective about what this means for germany. nick: this is a terrible attack, the latest in a series of terror attacks in germany, this year. there is a lot of unease and disquiet in germany that the islamic state could possibly be behind many of these attacks. we don't know who was responsible, for sure. as the islamic state is pressured in mosul, where it

will soon lose control, it will be pressured in northern syria, we will have to expect that they will undertake these terrorist attacks not just in germany, but elsewhere. they have had attacks in turkey, as well. to anticipate this and intensify our counterterrorism cooperation with the europeans and the turks. jonathan: a tragic event in turkey, but we had a series of tragic events within that country in just the last couple of weeks. of thee seen the reports firings of senior officials by --sident heard along officials by the president. turkey is a deeply divided country between the people who believe that turkey should remain secular as it has been for nearly 90 years and the

thatdent, who believes islam should be part of the government, who has turned turkey toward islam and that has divided the military and security forces. you saw the attempted coup. there has been a tremendous crackdown. the turks have also suffered terrorist attacks, so this all adds to the problem that turkey and some of the european countries are facing as the islamic state, but also, the serious situation -- syria situation adds fuel to the fire. david: this could affect the turkish presidents position with his own people and at some point they will become uneasy about his leadership. nick: he is increasingly an authoritarian leader, particularly in the crackdown after the coup in july.

he has taken a number of nondemocratic measures. he is aligning himself with president putin, right now. both dedicated now, they say, to fighting terrorism. he is an embattled leader. one of the big challenges for donald trump, can he create some relationship with trust with the are thepresident, they second strongest country, militarily in nato. david: thank you so much, neck burns -- nick burns. coming up, jeffries out with its earnings, saying third-quarter earnings tripled -- quadrupled as trading in stocks and bonds more than doubled. we dig into the results and what they mean for wall street. ♪

david: this is bloomberg. earlier this morning, jefferies group said its fourth-quarter profit quadrupled as revenue from trading stocks and bonds more than doubled. the trading results often foreshadow results in larger wall street trading firms. we are joined by gerard cassidy, head of the u.s. bank in capital markets with his 2017 bank outlook. put this in some perspective. year-over-year, they had a pretty bad year, last year. >> they did quadruple on one of their revenue lines, but you have to keep that in perspective, that it was compared to a really poor, for the previous year. when you look back for the previous year, they had a struggle, there was a loss of 166 million will -- sort of amazing that even after all of

this turmoil in the first quarter, when you have the leverage capital markets which was a really big business for these guys, that they were able to still pull off a good year. jonathan: why is fixed income still lacking at jefferies? laura: they have two things going on. you have a large distressed debt , which really but moved them in a bad way from last year, that they are recovering from. it is still a bit of rough going, the new also have a leveraged finance business which is very large for these guys. that has had some sort of fits in start and they have relied on trading equities to help them out and it has not necessarily help them, this year. david: we are on the cusp of earnings. jefferiese numbers at tell us about what we could look forward to from the u.s. banks in january? couple of the a

big banks that have only come out and said trading revenues year-over-year should be up around 15%. sequentially, it is always a weaker quarter, the fourth quarter versus the third quarter, but we expect good results following the election will stop -- the election. capital returns, better capital markets, accelerating loan growth, the risks. a trump administration flop, what does that look like? gerard: the early stages of his cabinet picks seem to be very strong. mnuchin at the head of treasury is very positive. it, it cannot deliver on will be a challenge. david: there are some analysts who say there is a difference between the big banks and the smaller, regional community

banks and that there might be relief on the way on the regulatory side for the smaller guys, the big guys might get left out. gerard: i would agree, i don't expect a lot of relief for our biggest banks. there won't be much relief. there will be some, but the big relief comes from banks with less than $250 billion in assets. jonathan: we still have by ratings on a lot of -- we still have buy ratings on a lot of the big banks. gerard: if you assume there is lower corporate tax rates and higher interest rates with greater trading revenues, these big banks will deliver some big numbers. if yoare trading just through the end of this year, i would agree, the stocks are risk -- are rich. david: many thanks to laura keller and gerard cassidy. up, high fees and low returns, hedge funds under pressure. who are the winners and losers over the past year, and who will

come out on top under a trump administration? the scorecard is next. jonathan: let's get you up to speed on the markets. futures firmer, up 59 on the dow. k. points away from dow 20 there is your headline, the fx market, the dollar index reclaiming its 14 year high. bond market treasuries off the yield, up three basis points. forman sachs targeted to 75 2017. this is bloomberg. ♪

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high.600 trading at 2016 here is the situation in the other asset classes. 20 --llar index kisses a 2002 high. to 1.03.ar rolls over david: there is what you need to know at this hour. christmas attack, a truck plows into a christmas market in the heart of berlin, killing at least 12 people. chancellor angela merkel tells the world we must assume this is terrorism and at the assailant may still be at large. the bank of japan capping a tremendous year with an upgrade to its outlook, but keeps its yield curve and asset purchase programs unchanged. the year and hedge funds, who were the winners and losers in 2016, and what will it mean to have one of their own running the treasury department? we have the scorecard, and that

is what you need to know. jonathan: we spoke earlier to columbia graduate school of business and professor. >> when we look somewhere like a rubicon where a smaller single manager making the decision, it is a much more successful and dispersion iate. that this version is going to be the big topic, going forward, the difference between the winners and the losers within the stock market is at a high. that is something that will, over time really make the difference. it is kind of put up or shut up for a lot of hedge funds. jonathan: we are joined by bloomberg's hedge fund reporter. it is the most read story on the bloomberg, this morning. spread,about the

winners, losers, it is superwide, this year. >> it is something that you cannot really prove because it is a very opaque market and a lot of this data we get on returns is very difficult. it does feel that way, that the spread between the winners and losers is the biggest it has been a long time. you had great performing strategies and then you had not so great performing strategies like macro and long short equities like some of the biggest players out there did not fare so well, nor did they in macro. the question is, is the trump going to turn it around for them? we had raked elio coming out and linkedin. they said times are changing, it would resent excellent opportunities for macro funds.

bacon can really comes out and says anything, and he said there will be a change in opportunities for macro funds. alan howard said something similar a year ago, that times are changing, it will be the year of the macro fund, that did not pan out. assuming things go according to plan -- jonathan: 2017 is going to be the year. this year, for some of the big names, it was rough. some of the names that jump out at you, -- katia: the things they expected to happen either did happen or did not happen, but they played if the wrong way. correctly, brexit but then the market just killed him, so he was up 20% over a couple of days, and then it just went the other way and he did not play it correctly, same with the election, though the

election did help a lot of those macro managers come back to black. jonathan: if i told someone run this table that president-elect donald trump would be the name we are all talking about, go long treasuries, go short stocks, guess what would have happened to them. illustrates a powerful point that you expect these hedge fund managers to know what will happen with interest rates and earnings, that you have things like a brexit vote already trump vote and it is -- or a trump vote. it.hey went down on when you have geopolitical risk and political risk as we are facing in 2017, it is rough for the hedge funds. katia: it provides opportunity and volatility that they need back in the market to start making money. the thing they keep complaining about is the last several years,

the market has been on a tear, there has been no opportunity to make money. we need volatility, we are designed to perform when there is a downturn. let's shake it up a little bit. lots of elections coming up that will provide opportunity. monetary fiscal policy decisions. let's see how they do and if they are actually able to stick to what they claim. jonathan: this is going to be the year. we have said that a lot. great to have you with us across one of the most read stories. david: now we will turn to the fed and what is going on with the fed. the federal reserve is poised to hike rates and the european central bank keeps buying bonds. the next u.s. president is emphatically pro-business and at best he is dubious about existing trade policies. that is a lot of mixed signals for the market to digest. we are joined from chicago.

att this out as we look 2017. you can start with the fed. what do you expect from the fed and their most recent decision? all, what you expect from the fed is what the market prices in. the fed has not to fight the market these last 20 years. the fed is usually in a situation where they suggest they would like to raise rates or not raise rates at the market agrees with them, they do it. fed will try and push the market into allowing it to have more than two hikes. the fed once three hikes. if we continue to have this reflation trade and it looks like inflation itself is percolating, you will get those two hikes if not more than that. it comes down to what the market wants, because the fed is too afraid to defy the market

because of what happened in 2008. jonathan: let's talk about what the economy is going to get. goldman sachs out with this quote. it goes almost exclusively to inflation and not to growth as you don't tackle the issues of productivity, what does that mean for asset classes right now? that is the big question for 2017. we are in a reflation trade, but are we re-fleeting real growth or inflation, and you are getting mixed signals from the market. i would argue that the bond market rise in yields has as much to do with re-fleeting inflation. which market is going to be right? historically, it has been the bond market. i kind of agree with what you said that goldman said, that inflation might be the thing we are replacing.

reflating.ing -- it will really growth, be taking off, and that is the big question for the beginning of the year. david: we add one other factor, i don't know another time where at thisiscal stimulus point in a biscuit -- business cycle. usually, it comes in at the low point. when you've already got this much employment and you are this far in, the real effect of distal stimulus could be inflationary. imes: that is right, and think that is what the bond market is seeing, which is why you have had this relentless rise in rates. commodities,al things like aluminum and copper have been shooting straight up since the election. that bet seems to -- there -- their bet -- if we are going

to stimulate, inc. of that as the money part of it and it just pops out on the other end as inflation. jonathan: treasuries on offer, ,o year yield up basis -- up the dollar could be stronger, trading at the strongest level since 2002. here is the difference compared to how this could work out early, this year. stocks will be up at the open. how can we continue to make sense of those two things as they play out? a ever stronger dollar, yields pushing ever higher. there is this eerily peaceful calm on the surface of equities. james: remember a year ago, the fed raised rates and everything was calm for the two weeks until the end of the year. january open to up, the market had its worst january ever. if the end of the year, technicians have a phrase for

this, the markets do strange things because of year-end beginning pressures. let's wait until we get to the first two weeks of january and i think you will see a lot of these things get resolved. up scratchingwind her head wondering why the market is doing this or that at the end of december. jonathan: you make that sound much more technical than maybe it should be. a look at this market, this morning, liquidity thin, momentum stronger. james: i think that you've got it right about people going on vacation and the liquid -- the momentum is strong is because that is the way the momentum has been for the last few months, and that is going to be everybody's bias. if you look at the first trading day of january, it is usually one of the most volatile days of the year. it could be up huge or down huge. it is all building to that day. jonathan: great to have you with

us, james bianco. one of the moves in the equity conference space, breaking news, -- pharmacy buying right aid stores. right aid moving higher by 6% in the premarket. the deal will make -- the largest -- fred the third-largest pharmacy change in -- pharmacy chain in the u.s. david: it will now be the third-largest in the country. jonathan: coming up on this program, a winter months for to passkey, that's for sure -- four aschi, that's for sure. ♪

emma: this is bloomberg daybreak. coming up, alliance cheap quebec allianceic advisor -- chief economic advisor. from new york, the italian government is seeking permission from parliament to increase the country's public debt in an effort to help the nation's pub -- struggling debt -- struggling banks.

great to have you with us on the program. let's start with the immediate news coming out of monte dei paschi. what is the situation? hearing,s what we are a couple of days from thursday in which the bank is still attempting to sell shares to take orders for stock and take orders from investors that are willing to swap their debt into equity. from what we are picking up, these efforts seem to be failing, and that will probably mean that the bank will have to turn to the government for some kind of backing because they have a deadline of december 31, by which time they have to come up with 5 billion euros. jonathan: the government not just planning for monte dei paschi, they are putting together a plan for pretty much the financial system in its entirety, for anyone that needs the help. can you walk me through that? devil is going to be in

the details as to exactly what kind of backing and funding the government is going to provide. we know the amount at 20 billion euros and that would primarily go to monte dei paschi. otherare a number of banks in similar situations that need equity injections, including the bank that was build out just one year ago -- that was bailed out just one year ago. they will have to bolster their equities and at the moment, there is not enough from the and individual investors to allow these to happen. david: on monte dei paschi, take us into what happens. if the a tight a government has to come in, what are the restrictions, their and the so-called balin -- bail in.

we will bewhat focusing on, the next few days, because it spells out how governments in the u.k. can bolster banks and require specific roles that largely sees existing bondholders and equity holders taking a hit if the government puts up money. as you point out in most of these bank cases, that would mean a lot of households that have traditionally bought bank debt. the magnitude of the hit will be important, but also what plan the government can put in place to help refund some of these bondholders, particularly if they were mis-sold, potentially provide some kind of cushion. this will be hammered out over the next few days. clearly the european commission will play a big role. jonathan: the latest on the a

tie-in banks, thank you very much. back in the financial crisis when these rules did not exist, there was a golden rule to fix the banks and the entire government would not take it. your we are, coming up with a solution. david: you feel that the writing was sort of on the role -- on the wall. a private-sector solution was going to get that much more difficult. the eighth -- the ecb basically making that decision for them. $21 billion is the number in the news, today. is that enough? david: it has not been, so far. now it is time for other stories making headlines. here is emma chandra with the boom -- bloomberg "buissiness flash." emma: speaking to reporters last

night in washington, -- sank the board and said she will not appeal the conviction. it, am not satisfied with but there is a point in time when one has to just stop, turn the page and move on and continue to work with those who have put their trust in me. emma: regardless convicted for failing to overturn $296 million payout to a businessman in an arbitration case while she was france's finance minister almost a decade ago. ericsson is contemplating capping about 1000 jobs in italy , approximately one quarter of its workforce. follow theal cuts company missing out on a contract to manage italy's largest wireless network. the contract was valued at about $1 billion. an ericsson representative declined comment.

a deal could soon be reached to settle a u.s. probe into more easily securities for the 2008 financial crisis according to a person familiar with the matter. the bank is confident it could reach a resolution. that is your bloomberg business flash. david: as stocks trade near record highs, are the currency markets pointing to a calm before the storm? we will find out next. ♪

jonathan: we are -- a couple of earnings coming up, including nike and fedex, both coming to announce their earnings at 4:15. nike the worst performer in the dow, so far, down by 18 percentage points. david: it is time now for battle of the charts. today we have abigail doolittle taking on tammy berger. of the big stories right now is the fact that we have stocks at record highs, near record highs well we have the vix trading near record lows. -- in orange, this is not just the vix trading in verse from the s&p 500. important,this is so

equity stocks get all the attention, but probably the foundational asset class, but needs everything and they are suggesting that we could be looking at a calm before the storm. -- this index trading near record lows, but right now at a record low could suggest that in 2017, stocks may just come off of these highs. david: that is pretty ominous. y: i don't know if mine is much more cheery. everyone likes to say they saw this trump rally coming. i want to put these people to the test. right here, this white line is the morgan stanley trump basket. 35 stocks they say will do well. you can see straight from the election, morgan stanley basket

does well, but check what happened recently. their prediction, this is a 10% gain, small caps have done much better. over here, see when this break happens, this is when donald trump gives his interview, saying health care is too expensive. morgan stanley had a fair amount of drug companies in their index. it looks like people might need to rejigger and perhaps they did not have as much foresight as they originally thought. david: you have to wonder about the small caps benefiting because they will not be a trade notification -- there will not be a trade notification. tammy: do you trust your asset manager? david: i will go with tammy. terrific job, both of you. jonathan: that did not take long. headlines of want to get to.

german authorities on that attack on a christmas market in berlin. the prosecutor saying there may be several attackers involved in the incident and the suspect they previously apprehended may not be the assailant. so far, no terror group has taken responsibility. we will continue to bring you the update on this story. coming up next, mom and el-erian, allianz chief financial advisor. counting you down to the cash open. futures are positive, stocks are rallying in europe. ♪

jonathan: from new york city, this is bloomberg daybreak.

i'm jonathan ferro alongside david westin. alix steel is away today. futures positive up 51 on the dow. positive six on the s&p 500. the stoxx 600 trading at 2016 highs. the dollar index the strongest 2002. david: here's what you need to know. christmas attack. a truck plows into a christmas market in the heart of berlin killing 12 people. angela merkel tells the nation we must assume it is terrorism. a german prosecutor says the suspect may not be the assailant and there may be several other attackers at large. kuroda stands pat. an upgrade to its outlook on the but keeping its yield curve and asset purchase program's unchanged.

who were the winners and losers in the hedge fund world? what will it mean to have one of their own running the treasury department? now we go to abigail. abigail: we have some energy movers in the premarket. chesapeake energy is trading higher. the company has sold its shale for $465- acreage million. whiting petroleum trading higher after its credit rating was updated by s&p to a be double the minus -- two ap plus. that is still a junk debt rating. general mills trading lower after it missed fiscal second-quarter estimates and lowered the full-year sales of you. americans are eating less serial.

general mills is up about 9% on the year. ninthgeneral mills's yearly gain in a row. the last time it fell on the year was 2007. in the fx market it was a quiet day. i'm joking. i have no idea what that day was like. that was the last time the dollar was the strong. let's bring up this chart. you have to go all the way back to 2002 to see at this strong. i want to bring in our guest from california. no idea what he was doing in 2002 on this day. for your portfolio how does that strong dollar shape your thinking? >> the strong dollar is really a reflection of the fact that the u.s. is said to pick up

cyclically. you have a prospect for a very pro-business administration under trump. tax cuts, infrastructure spending. stillst of the world growing at much lower growth profiles. differential as well fed starting to raise rates. the economic slack running on empty in the united states. perhaps in many people's view almost exclusively to inflation. what do you say back to that quote? >> we would agree with that. fiscal policy really is needed coming out of recessions. this is been a very long expansion in the united states and the unemployment has come down. the labor market is very tight.

you see wage tracker numbers at 3.5 percent inflation. you have the skills mismatch right now. this is coming in the context of very little excess slack in the economy. the risk is that if the tax cuts come online it could actually lead to a much more aggressive fed and tip the economy in recession in 28 teen. david: growth is tied to productivity. which is tied to investment. this newd you advise administration to do to really and we hadat issue alan greenspan saying as long as you are spending this much on entitlements you are soaking it out of the economy in give assets. >> we need to invest more in

education and infrastructure and avoid protectionist measures. tariffs and anti-immigration. we need more educated skilled workers. there is a shortage of skilled labor in the united states. anti-immigration policies would further exacerbate the problem. we need to allow workers into the country and allow productivity to rise. three rate hikes from the fomc. we think the fed will go to to three times next year. we think the risks are that they could go a little bit more than that. rate nowunemployment at 4.5% the labor market is so tight you are going to see an acceleration in races -- wages.

it is already running at 3%. that is going to coincide with tax cuts and animal spirits. this could really cause the potential for inflation to pick up. our tophy one of investment recommendations now is to earn tips. basisnk there's 30 or 40 points of upside in tips as inflation does pick up next year. it protects you against inflation going out. what does this do for the rest of the bond market? that would mean you are really going to get hurt in the rest of the bond market. pointhave seen 100 basis rise in yields. a lot of this move has many taken place.

the optimism around trump has really been priced in with the backup in rates. significant backup in yields we like high-quality credit. the sector of the fixed income which hast underperformed most is agency mortgages. if we get mildly higher rates you will get less issue and -- issuance. by owning very high quality agency mortgages. high-quality fixed income agency mortgages look very good right now. focus on i want to what we are talking about in the fixed income space. not a lot of attention being paid to what's happening in treasuries. almost exclusively on what's happening with the foreign flow. specifically china.

what are you gauging at pimco and have significant has that been a part of the selloff of the last month? we got cautious on treasuries in the summer and a lot of it had to do with the valuation on treasuries when you hedge the currency risk treasuries were not attractive. owns 1.1 trillion of treasuries. that's the lowest they have owned in five years. last year they sold 150 billion. japan is the largest holder of treasuries right now. china has been aggressive seller of treasuries and japan last year has sold 90 billion of treasuries. you have to really watch foreign ownership and these hedge deals. that was one of the main reasons we have been cautious on duration at pimco. as you look at 2017, in

2016 they sold a lot. are you on the same pace selling reserves in china? >> the pace of reserve sales will slow somewhat particularly as you go over your end. we have seen pretty significant back up in the yield. we have backed up 1% on treasuries. 100 basis points in three months. those current yields look a lot more attractive. we think treasuries will near-term be supported here. fixed income market we would highlight agencies as probably the highest quality spread sector that is most attractive today. jonathan: you are staying with us. the situation as it happens in , german chancellor

angela merkel and her interior minister walking around the scene of yesterday's tragic event. german authorities began looking for clues into what they called a probable terrorist attack on a german christmas market that killed 12 people and injured 48 others. more on that story throughout the day. updates will continue right here on bloomberg. emma: angela merkel addressed german people earlier today in the aftermath of yesterday's fatal truck in it in. -- incident. she pledged full force of the law will be deployed. there is so much about this deed that we don't know yet with the required certainty. we need to assume this was a terrorist attack. when 12 people were killed the truck rammed into a crowded market. it isn't clear whether the men

detained is actually the driver. the german prosecutor says there may be several assailants involved. in switzerland police suspect the attacker who opened fire on people praying at an islamic center yesterday is dead. a gunman has been identified. three people were injured in yesterday's violence. the families of some of the victims in the orlando nightclub massacre are suing facebook, google and twitter. the companies have provided material support to islamic state. 49 people were killed. this is bloomberg. david: coming up, mohamed el-erian joins us to take a look at the current global equity rally and how far it can go.

this is bloomberg. ♪

the u.k. prime minister is making her appearance before the house of commons liaison committee this afternoon. her first time since taking the job. expect some questions on her brexit plan. she expects to operate on a tie -- two-year timetable that will begin when they meet in the end of march article 50 timetable. that will get triggered at the end of march. david: a lot of people say there is no way they can get it resolved in two years. jonathan: how is this going to play out? david: no idea. now we will turn back to fixed

income and the credit markets. tim: is sing the trump risk has created opportunities in the fixed income market. isel is with us. where are those opportunities? basically tips, agency mortgages and high-quality credit. basically focused on banks financials and the consumers. those are the sectors which should do the best under trump. sector by sector, you have mentioned tips. which are most likely to benefit under trump? >> number one would be financials. banks andcause financials are a play on the economy. you have rising confidence under trump. rising animal spirits. this is going to steepen yield curves as we transition from less reliant on monetary policy

to the potential for fiscal policy to kick in. yield curves will steepen and rates will rise as they have. some ofities have that the strongest performing stocks posted the election. that will help improve earnings and support asset quality. rightreally look good now. they will also benefit from deregulation. high qualitybout a credit. you have not been talking as much about high-yield credit. some are predicting high-yield bonds will return up to 10% again next year. at the beginning of the year we said high-yield looks great. it was a nine on a scale from one to 10. high-yield to deliver double-digit returns. that asset class has really outperformed. we think under trump even though there is this positive surprise risk trump also has left tail

risks. the spreads have actually compressed since the election. high-yield spreads are 60 to 70 basis points tighter. cashve been selling richer high-yield bonds and upgrading quality. like holding in the credit markets a little more cash and owning higher quality credit right now. you said you like holding more cash. how much have you increased the cash allocation in some of your credit funds? probably 5% or 6% after the election. that we came into the year very overweight was energy. we bought a lot of energy and over the last several months we have been selling into that strength. back at 55. it was 26 in february. have been selling energy.

we have been selling a lot of riskier high-yield bonds. mainly over the last month we have been do you risking our credit positions. jonathan: are you surprised by how high energy is trading right now? >> i am surprised because it is highly cyclical, very volatile. a cartelproven it's and people can ultimately walk away from these deals. these higher oil prices you are going to bring back online the shale players. those areas are very profitable at current oil prices. higher prices will bring supply. we really think at these oil prices the risk reward is far less attractive than it was at the beginning of the year. you talk about how high-yield credit may not do as

well do you have sort of recession worst-case scenario baked into next year? our base case forecast is to to 2.5% real growth. we think the probability of recession has increased. it has probably gone up from 15% to 20%. we acknowledge all the positives under trump. at the same time there is this fat tail risk of a deterioration in foreign relationships. the china u.s. relationship, the potential for tariffs, protectionist policy. investors today need to knowledge there is to weigh risks in the market. it's no longer one way. the the has rallied 6% under trump.

actually theme to risk positions. beathan: that's going to news people. great to see you. thank you for joining us. coming up, jeffries out with earnings guidance saying fourth-quarter profit with drew poured. what they mean for the rest of wall street. about nine minutes and 45 seconds away. futures up 48 on the dow. positive on the s&p 500. this is bloomberg. ♪

david: this is bloomberg. i'm david weston. jefferies group said fourth-quarter profit projectile -- quadrupled. laura keller has been following this and richard partington also joins us from london. take a look at the different

bank story which is lloyd's. first start with jeffries. what does it tell us? >> we have a really big surge in bonds trading. that was last quarter. it's not even get to give you a percentage. in aso had a snap fourth-quarter losing streak in equities. investment banking is also doing better. david: how does it compare with the historical pattern? >> historically bond trading is not doing as well. this is the second worst time period for the year did since the 2008 financial crisis. are doing better than last year but we are still not doing all that great. tell us about this acquisition by lloyd's. about 1.9 billion pounds.

it had about an 11% market share in the u.k. credit card market. lloyd's is attempting to offset lower income from more vanilla mortgage lending. bank of england cut interest rates earlier this year and now they are seeking to get into some higher products. why does bank of america want to get rid of it? >> they purchased it in 2006. they have paid 35 billion dollars. that's a lot of money. they have sold some chunks of that business. to look over selling this unit a couple of times. they have been looking to get out of this area. they say they will make a minimal post-tax again on the

disposal of this unit. going to beoyd's is a monster with 26% in the market. the government still earns about 27% of the bank. what are you thinking about this deal if you are the government? >> it's relatively neutral. the government is almost out of lloyd's at this moment in time. from some perspective it's a good deal in that it adds revenue growth and helps the bank to grow. you may have concern as we are entering a potential slowdown as a consequence of the brexit vote. higher-margin credit cards not secured on anything. want to be concerned about pushing into high-risk consumer credit. clearly the bank thinks it's a good bet.

you cover bank of america. selling down. is it over? >> for what they have in the u.k.? that has beennk cobbled together through lots of acquisitions. there are lots of pieces of their business that don't make sense for them at this point in time. what are they going to focus on? that's going to be interesting. great to have you with us. up next, the opening bell here on bloomberg daybreak. futures positive. this is bloomberg. ♪

jonathan: this is bloomberg daybreak. i'm jonathan ferro. 44 points on the dow positive.

futures firm. treasuries throughout much of the morning session. the big headline the dollar dominating the g 10 space. the strongest of dollar since the back end of 2002. 15 seconds into the session. good morning abigail doolittle. we have the dow s&p 500 and nasdaq all trading higher. the last couple of days have been a bit choppy. the last time we saw all three averages finish a record highs was last tuesday. it looks like stocks are on a bit of applause after the fed rate hike.

it will be interesting to see what today brings. we have frayed trading sharply higher. this is part of a plan to divest assets and get the merger deal done. jonathan palmer told us minutes ago that this does bode well for the deal getting completed in the first quarter of 2017. and we have cardinal trail -- trading moderately higher. we have the bank of america trading higher on the day. this will be a minimal gains that will probably close in the middle of 2017. bank of america has snapped a two day losing streak. jonathan: about two minutes into the session.

board. across the the strongestex since 2002. you have to go all the way back 14 yields to see the dollar this strong. joining us now is mohamed el-erian chief global advisor at allianz. it's an expression of of you that we are going to get more growth tied to monetary policy. when does it become self-limiting? it goes too far when it does two things. financialghtens conditions too much and when it fuels protectionist rhetoric in the united states. that's why in order for this trump rallied to be sustained

it's not about implementing policies at home. there is also going to be rebalancing in germany japan and china. ifid: it might go too far this was actually an inflationary move rather than true growth. at what point do we see of those things diverge? if you get stagflation because we also get protectionist tendencies that's even worse. the market has three distinct influences. one high inflation. higher growth. money coming from abroad back into the stock market. that's why you are getting the textbook reaction on the the market and bond market and fx segment. explore: i want to

financial conditions and the protectionist rhetoric that could come about because of it. for trump to do what he would like to do the stronger dollar is not part of the story. who steps in? it's not the fed at the moment. what's desirable as opposed to what's going to happen is that government in germany japan and china step in with structural reforms and more fiscal stimulus. that's what's desirable. you can maintain the equity rally and you don't get too much pressure from the foreign exchange segment. for mr. trump to succeed it's not just that he has a pretty clear path domestically because the republicans control both houses of congress. he is also going to need to convince the allies and china to

move on their rebalancing. let's bring it back here. advising mr. trump right now as he prepares to take office. what are the reforms specifically going to be affected. let's start with the tax code. one is simplify it. we move a lot of the antigrowth distortion. we haven't had a fundamental tax reform since the mid-80's. of tweaks thats resulted in a system that is less coherent and not throw growth. simplify you can lower the rates and move on deregulation infrastructure spending. president obama proposed some of this that he couldn't get any cooperation from congress. a justn: we had

yesterday talking about a divergence between regulation or the united states would continue to deregulate. 10 years ago we would call this the race to the bottom. that speaks to the bigger issue which is dispersion. you are getting it in the economic performance and many elements of policy. there's a limit to how much dispersion you get including on deregulation. the u.s. can do quite a bit on to needbut it is going other countries to also rebalance their policy. be a: there will competition for business essentially based on regulation. the capital will float toward markets that are less regulated and that will make the more regulated market loosen up their regulation. >> correct.

that speaks to either the u.s. pulls up everybody else or because others don't and the currency gets too strong here in the u.s. the u.s. gets pulled down by everybody else. that's the tug-of-war that is going to play out in 2017. the markets are betting on the u.s. pulling everybody else up right now. one has to be careful not to over emphasize one's side. another person reminding us there is to weigh risk. here's my dashboard. i have treasuries 30 years pushing 315. i have the dow pushing 20,000 points at the moment. let's talk about animal spirits. what matters more to main street at the moment? the mortgage rates or seeing down 20 k splashed across the front page of newspapers? >> i think the 20 k is going to

have an influence because we are getting higher rates for the right reasons. people are pricing in higher nominal gdp. the 20 k is going to be the signal of higher nominal gdp and the higher mortgages are going to seem -- it's coming because we are going to get more income, more jobs, more growth. that is the narrative that is going to play out for a while. sayary people are going to are there measures following? we have to go to detailed design. david: let's go to the short end of the curve. i'm's like auto loans. the short end is coming up as the fed says it is not going to be raising rates. at what point does it start to affect the sale of automobiles? the cost race between

of borrowing affordability and income. at tipping points in terms of funding cost. we still have -- we are starting from artificially low levels. reactionet a reverse which is people accelerate their purchases up front so you may actually get a reverse reaction initially and then pay back later on. david: you have to hope that it happens. if they change their mind it will be very disappointing. still ahead we will have more with mohamed el-erian. he has some advice for the imf and we want to hear it. that's next. this is bloomberg. ♪

>> this is bloomberg daybreak. citigroup global head of commodities research on his $70 oil outlook. jonathan: from new york city, this is bloomberg. we are about 30 points away from dow 20 k. the s&p 500 up about a third. let's say good morning to abigail doolittle. abigail: we have some biotech movers. the company's alzheimer's drug

did well in a phase two trial. more than 100 compounds have been tested and failed. some investors may view this as considering it is a mid-stage study. nonetheless really helping those shares today. a self gene drug for lymphoma did receive a breakthrough drug designation. it was added to credit suisse's u.s. focus list and updated shares of regeneron. more than 25% upside potential for the shares. biotechrth noting remains stuck in a bear market. that's the peak in biotech in july of 2015.

much of this year biotech has been stuck in a range. most recently we have seen the 50 day moving average cross. that happened for the biotech index it was ahead of a big decline. this may drop down to the bottom of the range and perhaps take a turn on the sentiment of broader market indexes. something to keep in mind. the imf executive board is supporting christine lagarde despite her conviction for negligence yesterday. she won't face a prison term or fine. mohamed el-erian writes the lagarde case risks amplifying long-standing credibility chances facing an institution whose member countries have been too timid about reforming key elements of its governance.

mohamed el-erian is still with us. thisur piece you point out is not the first imf director who has had legal problems. have hadcessors also substantial legal problems. what is going on here? they coming up with these people to be in charge of the imf? was a change over 10 years ago in the selection process from selecting technocrats to selecting politicians. that has also been associated with legal aspects. correctthe imf board is fullaffirming its confidence in christine lagarde. she has done a very good job and she is well-liked. she is effective. she has enhanced the standing of the imf. board did the absolutely right thing in retaining her as the leader of the imf.

the boardot happened would have found itself once again stuck with a futile and antiquated selection process. transparent, it is not merit-based. it includes backdoor deals and elements of national prestige. that undermines the credibility of the institution. absolutely right in keeping christine lagarde. but let's move forward in modernizing the selection process. david: they have the right person, but it's almost by accident. when they started they said we have to have a european. reasons that have nothing to do with whether that will be the best person to run it. it was by accident. is there any reason to believe there would be reform in the way it is governed? u.s. comes down to the

because the u.s. controls the world bank president and the europeans coming together and saying for the sake of these institutions and their legitimacy and credibility with got to give up an entitlement that is no longer warranted. takes vision to do so. at the end of the day we may get an american as head of the world bank. we may get a european as head of the imf. it would be for the good reasons. it's a merit-based process as opposed to nationality-based. does that mean it's unlikely that this will happen because for the americans to , they don't want to give up that prestige. window because the world bank president has just been reappointed. mrs. lagarde has just been reappointed to her second term. you have a window if you get the

vision to do so. these multilateral institutions are critical to the functioning of the global system and they are viewed as trusted advisors at the national level. let's not undermine the effectiveness. they have great staff. they have great structural links. let's make sure they are also legitimate and credible. david: thank you, mohamed el-erian. jonathan: about 18 minutes into the session. upe people will have the dow in an intraday chart. the high print in today's session so far. we were just 16 points away. up half of 1% on the session. the continued countdown. it's bloomberg markets. joining us now is julie hyman. julie: i will be picking up the

ball along with mark barton on that 20 k watch. we will have continuing coverage of the events in germany as well as in turkey. more on the outlook for 2017. we will be talking to julian of the equity and derivative strategy as well as david kelly at j.p. morgan asset management about their outlook for next year. both of them are relatively optimistic. we'll get the details on why they are feeling that way. jonathan: that's coming up at the top of the hour. much more with mohamed el-erian. pimco saying increase your cash holdings.

we will debate that next. this is bloomberg. ♪

david: this is bloomberg. i'm david weston. both nike and fedex are set to announce their earnings today. the worst performer in the dow so far this year. the countdown toward dow 20 k. we're about 22 minutes into the session. the high prints in today's 1998 six.s it reminded me to go and an amazon search. still available on amazon. also down 40,000. june 26, 1990 nine. we are going to be waiting a while for david elliott's to talk about a better world again.

cecil -- markrk kiesel earlier today. take a listen. we have increased our cash 5% or 6% after the election. one sector that we came into the year very overweight was energy. we bought a lot of energy in january and february. we have been selling into that strength. at 55.e oil back it was 26 in february. jonathan: mohamed el-erian joins us now. what do you make of this cash story? i think what mark said and what pimco is doing makes total sense. we have come a very long way in the last few weeks. overshoot.d to

we have been talking about the complexities of validating all the moves we have seen including in high yield. i think it makes total sense to take some money off the table and be positioned more for two-sided risk. jonathan: we've got a freight train. it is just momentum. how much longer cannot go on before people start taking a look again? >> it can go on for a while. you see this in the stock market today. we have priced in no policy mistakes. no market accidents. we have ignored all sorts of political issues. part of the reason the markets are reacting so well is we are getting in and dodge and his political disruption in the u.s. that is seen to be positive because we are going to unleash

congressional action on key issues. you are also getting political disruptions elsewhere that are not so positive. i think what pimco is doing makes total sense. you have to bring in line supply and demand. we have excess capacity around the world. all over the place. nothing that has happened in the last two months has taken away the excess capacity. what is going to soak that up? >> the markets are reacting to more demand because you are going to get fiscal stimulus as well as monetary stimulus. monetary stimulus has been becoming less effective. are also going to be enhancing potential to infrastructure and deregulation. in better is pricing demand and supply as well as better liquidity.

they have moved really a long way in the. now it has to be validated by policy actions and design. it has been great to catch up with you. we really appreciate your time. minutes into the session. we look like this. the countdown continues. at 2016n europe trading highs. some enthusiasm. the bullishness continues. the countdown will continue right here on bloomberg. much.you very this is bloomberg. ♪

11:0000 a.m. in new york, in hong kong. i julie hyman. >> i am mark barton. welcome to "bloomberg markets."

julie: from new york to london to berlin. here's what we are watching. german police say the person responsible for the berlin large,may still be at putting pressure on angela merkel to do more to guarantee the public safety. mark: joining forces to create the $30 billion gas giant. it will create the world's biggest supplier of industrial gases. julie: the dow jones industrial average inching closer, 13.5 points, yet another record high. about 30 minutes into the trading day in the u.s., abigail doolittle is on 20 k watch with us. we are creeping ever closer.