manus: intensified search for the burning christmas market attacker. islamic state claims responsibility for the assaults. exitsa may moods a transitional phase and suggests be made withinld six months. and lawmakers set to vote state aid for italian banks. said to be failing to laura investors. ♪

manus: you are welcome to bloomberg daybreak. right here from the city of london. welcome to daybreak. my colleague in dubai. good morning to you. the market.rms of 19,974. 19,974. volatility for equity markets very different. equity markets breeding a warrior group who are fearless according to the volatility increases. the bond market, however, those bond boys and and girls, those bond traders are more skittish. fx market. market, strategists say 2017 will see 2356,uity market hit at 400 higher than where we are at

the moment. saying to sustain the trump rally would depend on germany and china. there is one subplot at the bottom of your screen. the fear index. that is rising. the rest ofinues, the volatility falls, the fear index widens, that will be the first month we've seen it since 2006. the subplot is the ball might be fear. floor but there is >> good morning manus. what an interesting move. let us pull up the red screen and show you how they are shrugging off political uncertainty from overnight in the last couple days. 117.6. where would go in the meantime? u.s. 10-year paper at 2.55%. we saying rising dollar

clearly having an impact on rising sentiment. a quick note on what is happening with brent. up 3/10 of one percent. carefully watching the coming back online of the libyan oil filled. adding to the supply picture. we had some bold calls coming out. $70 a barrel around the corner. bloomberg first word news now. angie lau has the details. injury: a powerful chain reaction has ripped through mexico's best known fireworks market, killing at least 21 people. scores more killed when charcoal smoke sent billowing into the skies. scuttling with shoppers stocking up on fireworks to celebrate christmas and new year's. the parliament expected to vote today on $20 billion euro package that comes as the

country needs at least 50 billion euros to clean up their balance sheets. yesterday, prime minister rebuffed suggestions the financial market was teetering on the brick of disaster. >> the italian banking system is not on the head of a chasm. i strongly refuse this definition. nevertheless, the government has been saying for a while, there are some critical elements which have market solutions but which may for require precautionary measures by the state. >> businesses and the u.k. government might need to adjust to living the eu to smooth the way the solution. that is what prime minister theresa may told lawmakers. in what she calls her transition land. we need to get these results of the people can move onto the relationship they have with the united kingdom and i think there is a willingness there on that basis.

anna: the chief economic advisor says the trump rally is not just about implementing domestic policies. he has the united states -- he says they have a better stance of a determining -- enduring if they can urge other countries. he also encourages resisting the threat to the government market. >> it would ignore all sorts of political issues. part of the reason the markets are reacting so well is we are getting disruption in the united states that seems to be positive because we are going to unleash action.ional you're also getting construction elsewhere that is not so positive. anna: a lifeline for junk bonds in china.

companies already grappling with mounting defaults. welcoming wealth management products. think balance sheets in the framework. starting in the first quarter according to the newspaper controlled by the central inks. global news 24 hours a day powered more than 2600 journalists and analysts in more than 121 countries. you can find more stories on the bloomberg. i am angie lau. this is bloomberg. manus: coca-cola said to buy a bottling business. it's see cba. they're going to buy a 4.5% equity stake in see cba. 1.5 billion dollars. of course, this business is predominately based in south africa, libya, kenya, the africa's. they are paying $2.115 billion

and that will consolidate their position in that particular business. the deal can take off on daybreak news flow. 3.1 billion dollars may be in there. equity at stake in the operations. our top story, the berlin police have stepped up the hunt for the truck driver who attacked christmas shoppers and berlin. that is after the initial suspect was released without charge. germanller is in the office. the manhunt continues. matt: that is right. the manhunt continues at the federal level. federal officials have taken over the investigation, manus. they say they have been searching for the perpetrator the entire time. they did have a suspect in custody. they were not sure if he was responsible. a pakistani refugees still

seeking asylum in germany. last night they let him go sing there was not enough evidence connecting him to the crime said they continue to look for the perpetrator or multiple for traders of that deadly truck attack that killed 12 people monday night in a christmas market on the most popular shopping street and all of germany and injured 45 people. 30 of them gravely. resident obama called the chancellor and offered her help in the investigation and this really just put further political pressure on angela merkel because of course she had the open door refugee policy that led in almost one million refugees. they were under the government -- the government under strong criticism at the time and continue to be for not really checking the identities. they claim it was not really terribly easy to check the identity of all of the refugees flowing into germany and now the leading cdu party has tried to stem the flow of refugees into

turned and indeed around, really, its policy on the refugees but the manhunt well continue. this will be really the focus for now what the german police investigation. finding out who did this and why. manus: thank you that was matt miller joining us from berlin. the markets in asia. well, use of, a much better day across the region. we put a lot of those geopolitical tensions aside and buying into equities as we round up the end of the calendar year. . raise chinese equity rebounding. upside coming through in hong kong, about 6/10 of 1% with casinos leading the game you have seen a close lower by one third of 1%. we've seen the yen strength in

about one quarter of 1% against the dollar in late afternoon trade. high today.onth that was as numeral was named as one of its top picks. and other carmakers as well. a stray had a standout session, up 4/10 of 1%. about that 5600 point level which made australian stock at off high. highs we have not seen since august last year. elsewhere around the region, pretty mixed in terms of southeast asian equity market. manus and yusuf? manus: thank you julia. juliette saly right there with a roundup. our guest is bob parker. senior adviser at credit suisse. what caught my eye was this manhunt is ongoing and berlin. equity markets deflected. policy thised this

is a representation of what is happening. a tweet yesterday splattered in merkel.ngela another one showing him laughing. is almost like a christmas gift to the right, isn't it? tragedy? greg schiano and i think the important point for investors is elections.ifficult in germany, it is highly likely that what is currently a five-party parliament will become a seven-party parliament. the democrats will get back the government. what could worry investors is for the first time afd will have rep -- representation in parliament. moment they are only represented regionally. that could make it mark

difficult for a new german coalition. there is already discussion a coalition,ally not the usual but a red-red-green coalition. so the social democrats and the green party. so i think the conclusion on germany is it makes a conclusion conform andlt to that will make a negative for investment spending and eight negative for the euro stock. howow will this going -- will this be reflected across the european markets? a populistp was victory in the united states which makes uncertainty. it could arguably be a positive. >> i would disagree. i think the situation in the states is different from the

situation in europe. you know, the market reaction to the trump victory in the state has been logical because what is happening in the states is this complete probable change in the relationship between the fiscal holocene. i've said repeatedly on bloomberg that i think the fed will raise the rates three times in 2017. right now, at 1.5% in alignment with an expansionary fiscal policy. in europe, the contrast this with the meas these elections, they will be different, they will unsettle investors. but the economic conclusion is the european fiscal policy being very low and that will put a restraint on european growth and more pressure on the european central bank to maintain its fiscal policy. i would argue we have had a logical reaction in the states and the main pressure point in

the state has obviously been the jump in treasury yields too percent and and europe i do not think we will get that change between monetary fiscal policy. >> you would say the ability to be fiscally generous may be limited. let's go to political risk. the difficulty in creating a coalition. is there a consequence? france, germany, italy. bob, you would maintain there is more momentum to go for these spreads. riseu think britons will and terms of it you's? bags all right -- >> already we come from low years of around -- yields around minus one basis points. by this time next her, i think it is enough between 50-70 basis

points. that is not a major move but it means for investors that duration of risk is significant and has to be handled very carefully. that largely reflects the tapering of the ecb to 60 a month. it also reflects the probability that inflation in europe is reduced significantly. now, i do not think will go back to much lower levels of inflation, but in deflation we are now looking at between 1% inflation. that gentle rise. in terms of politics, obviously if there is investor concerned -- concern about, you know as the french election between the second round between marine le pen and fillon going to be very close? will they do go all in the dutch -- will it do well in the dutch election?

that will affect european spreads. where it has been this year the we have to donk the opposite and 2017. manus: you have italy over germany at 200 basis point. robert parker: the ecb is still doing 60 billion a month. is it going to narrow any further? . manus: ok, bob. theresa may,nister up next, she says she is looking at all of the options of brexit were to they'll. a big speech in the new year. more ahead. and, 20 billion. ring the bell. 20 billion euros, please. something for the weekend. cash,minister asking for just a precautionary measure. we hear what the finance minister's take is.

plus, the dial is just a stones throw from 25. economic adviser says it is primed to hold casts -- cash, scale back risk. that is just the start. stay tuned. this is bloomberg. ♪

♪ >> at it is 6:20 in london. cloudy skies for hong kong as they hung saying goes trading higher. almost two thirds of one percent. on the nikkei. can it go on? that is a key question. bloomberg business flash with juliette saly. juliette: thank you. it has reached a billion dollar agreement with regulators to buy -- 8000 bodies. replacing engines.

covers some luxury models released since 2009 8 and uncovers more of vw's emissions scandal. and, losing 26% in 2016. 11ocating money among managers, lost 6% last month alone. a short-lived experiment said blackstone. 2014 its first in-house multi-manager punt. blackberry boosting fiscal 2017 often outlook. company's bearish on moving more into software and completely away from handsets is paying off. the firm can improve on its profit margins. -- >> a normal growing software company could definitely do better, yes.

it will take us a while to get there but we could do it. juliette: and nike has posted second-quarter results, soothing concerns the world's largest sports brand is losing ground to competitors such as under armour. $.50 a share since the end of november compared to the 43% of analyst projection. sales rose to $8 billion. that is sure bloomberg business flash. manus? manus: juliet, thank you. wait until the new year, that is the message if you want more clarity on brexit. theresa may told lawmakers as she appeared before the parliament liaison committee. minister theresa may: we will meet that. don't intend to extend the process. we will publish more information. i will be making a speech before the new year about our approach.

about the opportunity i think we have as a country to use this process which embraces trade with countries across the world. parker is still with us. bob, if i look at the list of hopes and dreams that cbi has in terms of how the process it should work the comments from syriza is they aren't going to switch them or you. robert parker: people are demanding clarity on the brexit passes. if you look at theresa may's statement, she is saying she hoped to provide clarity early in 2017 but she said yesterday, i am not going to provide clarity. so my plan is i will try and tell you what we want to do next year but i'm not going to tell you today. so we do not have clarity today is conclusion number one. i think conclusion number two is

that in is all very well for the british government and a british lobbying groups such as the cpi to say yes, we want free trade. that is supposed to be a very desirable objective that one of the problems we were talking about earlier in the program is europeal uncertainty in in, you know, the shifting politics of europe next her may actually make the other side of the negotiating table even more difficult to negotiate with so we are in a very difficult situation whereby the british may have some very commendable desires for free trade rejection and- protection of workers passport into the eurozone, the development of free trade tax with other countries outside of the european union and all of those are very positive and desirable objectives, but if we have this sort of difficult political framework in europe in 2017 with the four major

elections we talked about, it is actually questionable whether the british objectives can be achieved. the other side of the table maybe changing. >> i was watching her. sitting waiting to go to the dentist. robert parker: that's not a pleasant experience. >> neither of them are. i think she took a heavy hand with the committee. a definite position with the committee. a transition committee that they needed to smooth the brexit process. i thought that was quite telling in terms of this argument between hard and soft and great brexit. signs she met to show a little but if our armor there. robert parker: yes. i think the central cases that we probably will have a transitional days. cbi, mark is the carney at the bank of england, even david davis the brexit minister, is now moving in favor of that arrangement.

i think what everybody fears is a situation whereby we trigger article 50 by march. that is that two-year time of negotiation. at the end of two years, let's just assume, and this is the worst case scenario, that the negotiations fail. unionhe 27 european nations have the right to kick out the u.k. from the european union. so it's not a hard brexit it's an ejection exit and that could have a very negative effect on the u.k. economy. everybody is starting to focus on starting to try to achieve a positive outcome which mena transitional union. staying in the economic area. a maintenance-free trade agreement but i think everybody is becoming very worried about this injection scenario. if you like, that is hard.

manus: ballpark at of credits lease stays with us. plenty coming up. harker of credit squeeze stays with us. plenty more coming up. state with us will stop ♪

♪ manus: just after 3:30 in the afternoon. believe thedo you yen is really strengthening or do you believe the dollar runs rampage and a rally is taking over? don't forget, resistance on the upside. youru want to set up trading day, if you want to understand what is going to go on and markets, go to daybreak here or on your mobile of ice. there you go. getting across that finish line.

when my talking about? i am talking about the race to save the italian bank. 500 million euros through the close of business according to the the matter.with they say there has been a weak response for the troubled lender and it may fail in its attempt to raise as much as 10 times that. 5 billion euros from many managers and individuals. yousef? yousef: the other big story we are watching is the news that two oil fields were re-opened. pump more barrels of oil. strong cartel members will need to cut more production to comply with the terms of the accord. the analysts are not overly worried about a rebound going into 2017, especially the first quarter. story, never far from

our minds is of course what central banks are going to do. sweden's bank will reveal a policy bank later today. probably going to extend its record assets purchases through june by holding a key rate of -.5 percent. that will keep the krone under pressure and may stoke a bit of inflation. pressure andunder may stoke a bit of inflation. >> joining us with all of the details. anna: yousef, manus, we saw european stocks at their highest level yesterday. the dow still short. asian equities picking up risk. asia-pacificon index. take a look at the industry groups. energy stocks outperforming. crude price later, health care on the downside down some

intensive a percent. when it comes to equity markets come it seems as if investors are focusing much more on the prospects of growth, particularly in the u.s. showing some resilience out there. that bull rally seems to be wiping out fear. i am loving this chart showing geisha. dropping to its lowest level since 2014 where its global effect and treasure volatility has been increasing. you are seeing a real split in volatility. looking at the fx markets, the soughtyen that 117, we breakthrough 118 yesterday. the yen gaining or the dollar weakening, whichever way you look at it after the yen reached its weakest level since february after yesterday's boj. brenty, just looking at

above $55 a barrel. oil extending its advance. it is about the u.s. crude stockpiles. the american petroleum data late today. though stockpiles projected to decrease for the eighth straight week. manus? manus: the very latest on the markets. in september. that is according to people with knowledge of the matter. they added that the problem is there has not been yet a commitment. the italian prime minister has agreed to ask parliament for 20 billion euros to increase in case it has to step in and save the bank. one official says the debt boost will be a one-off temporary measure. >> the italian banking system is not on the edge of a chasm.

i strongly refuse this definition, nevertheless as the government has been saying for a while, there are some critical elements which have market solutions but which require precautionary measures by the state. manus: bob parker is still with us. they have gone to parliament. they are asking for 20 billion euros. we've done a calculation. how do you look at this? if the italian banks were to be honest about their bad debt, this is what they would need. 52 the unit. let's have a look at it, 54 billion. the one we prepared earlier is not there. tragic. not would need $54 billion, 20. the reality, the distance between the two is quite a quantum leap. the difference between the european banking authority, it is not the

eurozone. it is in the excess of one trillion euros. one trillion euros, you have the date on nonperforming loans in the italian banking system. near probably somewhere 600 billion euros. now obviously, in terms of the money required to cover those nonperforming loans you have to say well, what is going to be the recovery rate on those nonperforming loans and in addition, how much capital do you need overtime? now, i think on your question, first unfortunately it looks as though private sector investors will not be putting up close to 5 billion euros for nps in the near term. i think it is fairly obvious that the resolution of the capital requirements for nps has to be achieved near sooner rather than later. we cannot be having this

conversation in three months time so i think it has to be done in that coming weeks i public sectoruire report so i think probably there will be some public-sector intervention providing money for nps. manus: let me just step in her bob because that raises the question about the debt financing for the italian government. especially as the ecb begins to look at ways props to roll back the qe program. robert parker: the answer is yes. the ecb has been very clear. they're going to continue qe but starting in april, the qe will be reduced to 60 billion from 80 billion but they are committed to doing 60 billion for the rest of 2017. in 2018i would not be at all surprised of the qa has tapered further to perhaps, 30 billion to 40 billion per month. i wouldn't be surprised if it is

, plusthere or is less concerns about the extensive nonperforming loans in the italian banking system inevitably is going to put andsure on italian spreads you have to add onto that the political risk of what happens of this government ales and the general -- fails in the general election. >> breaking headlines coming in. backing,an government making the banks stronger. this is comments being made it republic of. the italian government backing could make the banks stronger. ahead of the recapitalization. this is what the market once to know. the market wants to know there is some kind of ultimate plan b and backstop. with much more to get through with bob through this half hour.

over to you, use of. use of: i will run you through some information from the chief economic advisor. this trump rally is not just about implementing domestic policy. better chance of enduring if the president-elect can coax nations such as japan, germany, and china to reforms. you caution against this. >> we have placed and no policy mistakes. no market accidents. we have ignored all sorts of political issues. you know, part of the reason why markets are reacting so well is because we are getting political disruption in the u.s. that seems to be positive because we're going to unleash congressional action on key issues. you are also getting political disruptions elsewhere that are not so positive. >> bob corker is still with us. bob, i pulled up this chart and

our viewers can do that as well. it shows the 10-year breakeven rate for u.s. treasuries. take a look at that line. the question i have here, is the market getting ahead of itself. this rate showing the expectations for inflation on an annual basis of the next 10 years. as is going to far too fast? robert parker: i think if you quantify the outlook for inflation growth and in 10-year u.s. treasury yields, i think it is highly likely we will see a convergence between headline inflation and core inflation at around 2.5% by the middle of 2017 and they u.s. i believe very strongly that we are going to see an uplift in the first halfr of 2016, growth was close to 1%. improvement in growth in the first quarter two 2.3%. annual lysing growth in the

twoed states coming out to point 5%. if you rely on that altogether come i think it is. the 10-year u.s. treasury is in the short-term oversold. athave a long way to close two point 6% but where we are next year on the 10-year treasury yield? it think the answers yields will be high. the first number will still be a two but i think we will be close to 3%. >> one of the things that strikes me is how mohamed el-erian goes on to talk about his rally. his nonprofit, a little bit of money on the table. a time to consider taking some money and putting it into stock and part of the rationale there is the dividend yield in the united states is below that of the counterpart in treasury. so to that end, would you agree? would you take a bit of money up the table here? would you banking but a prophet? is that eight logical argument,

stock trend versus treasury yields? robert parker: the comments on the ascent the end dallas probably correct. dividend not the case by the way for msci wealth. the upside on the s&p is .robably limited two things. first theme, i think in a market in 2017 which is going to be broadly size ways trading, you have got to focus not on geographic location, you have to focus on sector location. focus on those sectors which do well in an environment of rising bond deals and in an environment where the fed is raising rates and inflation is creeping back. you have to continue to folks on the correlation between currency movements and market movements. if you look at the last two months, why has that nick i been the best performing market?

-- the decay been the best performing market? ikkei been the n best performing market? because of the devaluation of the euro. if we believe the dollar remained strong and 2017, think you have to stick with that oneng dollar view than solution is to invest in germany, in japan, but only on a currency hedge races. it also means american hedge sectors will underperform soative to domestic sectors in the united states or whole folks has to be domestic investment not exports in countries that are expert-oriented. >> thank you, bob. get in on japanese equities and the deck. let's take a look east. the asian development inc. turned 13 this week and the president spoke with shery ahn.

she started by asking whether he thought china could see a hard landing. toin transformation includinga new kind more investment. so, they are facing some challenges. also, some investment and growth share based on the investment financial crisis. but i do not think they will landing.rd shery ahn: when you are talking about adjustments, let's talk about next your because adb forecasts growth at 5.7 percent for developing asia. and given how we got a more hawkish federal reserve and the united days, will that necessarily mean an adjustment for you as well in your forecast? >> it is too early to tell you.

call exclude what we singapore and hong kong, it is already 6.2%. very solid growth. momentumgrowth depending on the regional demand, that titular demand from other countries. i think we will have very solid growth. shery ahn: how much good that growth momentum be hampered? by soaring u.s. dollar. >> i think the cousin the high-yield bond and dollar dominated by debt and also we can have some issues of flowing out the money which came from asia. alsohe interest rate,

stronger american economy. and depreciation for those countries are more predictable so although i do not think the dollar would cause a struggle. >> that was the asian development bank president talking to shery ahn. a preview, touting down. on track to expand record stimulus for a final time. we are in stockholm with all of the latest and all of the details. distance.ng the dow is just a stone's throw from 20,000. at mohamed el-erian says it is time to hold cash and peel back risk. says asking for cash is just a precautionary

measure for the banking sector. we get the finance the stars take on that. this is bloomberg. ♪

♪ >> this is daybreak europe. let's get the bloomberg business flash. here's juliette saly. juliette: volkswagen has reached a billion dollar agreement with automakers in u.s.. they will buy back body, porsche, and vw vehicles. the accord covers some luxury models going back to 2009 and is another significant piece revealed of vw process cheating on the emissions control. coca-cola beverages africa, $3.1 billion. the companies have agreed for the world's largest soft drink maker to buy interest in bottling operations and five andcan nations and to

central america. shows fell in extended trading after extended quarter profit fell short of analyst estimates. thus says the operator of the biggest air carrier boosting investments in its ground carrier this is. nike has presence of the quarter results. saving concerns that the world's largest sports brand is losing ground to competitors such as under armour. profits were $.50 a share in the end of november compared with the 43 sent average of analyst projection. sales grew 6% to $8.2 million. deutsche bank gearing up asia equity derivatives business. trader -- the sixth hiring the region under james boyle joins from citigroup and july. deutsche bank looking to

capitalize on an expected of rise from local investments. that assure bloomberg business flash. manus, it use of, back to you. atus: and a one day, julie the next. talking about banks. expand.anks expected to this in a bid to keep the krona at the rock bottom. it will come at a later time. but for now, joining us from stockholm our guest. for your central bank, there are indeed global in terms of not hitting 2% target. how big are the issues they are contending with. like a lot of other banks, like you just said, they are fighting to boost inflation and

indicate they are really, really determined to do just that. that is why they are expected to extend purchases, to make sure krona stays weak. >> what is next for the bank? to put the story and context, you can see the swedish krona here. down. will they keep expanding stimulus next year? that is the key question. >> that is the question. iseating the mantra that it going to do what ever it takes little reality may be a different. there is now a slight concern about liquidity on the market after the riksbank has bought -- half of that

market. the riksbank says it can do more and by other types of assets but the markets like the municipal bond market, are much more smaller and less liquid and you have the mortgage bond market, a bigger market that sweden has a big red-hot housing market and there is some concern about bubbles so the riksbank governor himself has said that entering that market is not even on the radar given those concerns of the housing market. so, the reality may be slightly different than the one that the riksbank is trying to portray. our nordic economy team reporter joining us live from stockholm. let's pick up on this conversation. ballpark is still with us. already says, the central bank faces the problem that pretty much all of the central banks are facing around

the world. how do you expect the riksbank to navigate the volatility happening right now? robert iger: your man in stockholm highlights two issues here. the first -- robert parker robert parker: that has resulted tt race in aant neat and government bond market trading and that has become an issue in a number of eurozone government bond markets. issue number one is qe has an unintended consequence on capital market liquidity. i think in the case of sweden, the other point is that you know, not just are, but of course other swedish cities, the real estate market has arguably become too strong and actually swedish inflation has started to pick up over the last six months or so. so yes, i think in the thet-term we will see riksbank maintaining a very easy monetary stance but as the ecb

progressively and slowly tapers throughout 2017, i think you are probably going to see the same from the riksbank so short term the monetary stance will remain very easy but i think we will be having a very different conversation in the middle of next year. seconds, what happens next with the swedish krona? theuros swedish krone and -- theg innings widening, what is next? robert parker: it is undervalued, oversold. i think the downside risk on the swedish krona are very low now. the weakness is now find us. use of: thank you very much for your thoughts this morning. have a great christmas. by poker from credits these. other, live from berlin. the very latest on the police

manhunt for the attacker in the christmas market. mr. putin will attend the funeral of the russian ambassador to turkey. this is bloomberg. music don't -- ♪

german police intensify for the berlin christmas market attacker as islamic state claims response ability for the deadly assault. suggest deals can be reached within 18 months. and playing the gap. italy's lawmakers are slated to vote but it will not be enough to clean up their balance sheets. welcome to bloomberg daybreak.

equity futures are a snip lower a couple different messages coming through from the market layers. the sages of the market and mohamed el-erian saying the risks are being downplayed in the equity market and ahead of a trump presidency. it is time to consider reverting to cash a little bit. do you think europe being marked lower at a moments notice of 20,000 in the u.s. on the [inaudible] are european markets a little bit lower? be long the dax and japan but you want to be long the european markets on the prospect of the lower euro. markets will open a shade lighter. and pimco el-erian

seeing time to take a little bit of cash into the swag bag before christmas. yousef: definitely some interesting calls. the bloomberg dollar index still very much trading near those highest levels we have seen since 2002 but taking a little bit of a breather. $55 and $.59. a quarter of 1%. we have talked about the libyan oil fields coming back online and inventories in the u.s. will be an focus on wednesday but socgen and city putting out notes, $70 a barrel is in focus and gold up .3 of 1% up from the 10 month lows. how are we looking in terms of bonds? manus: it carries on the back of what you are saying. ex olitics is -- and the

expectations will drive for this. you will see bond yields get back to 5% over the near-term. politics will cause the yields to rise. you will see perhaps the peripheral use and the 10 year government bond yields, even the most since november. japanese government bond yields are virtually unchanged. those are your markets and your bond market. inflation, anybody? reactionl chain exposure has ripped through mexico's best-known fireworks market killing 29 people. scores were injured as a huge plume of charcoal gray smoke was sent billowing into the sky. wasmarket in tulsa pick full of shoppers stocking up on fireworks to celebrate christmas and new year. italy's parliament is

expected to vote on a rescue package coming as the banks need at least 52 billion euros to clean up their balance sheets. speaking yesterday, the finance minister rebuffed suggestions the country's financial industry is teetering on the brink of disaster. the italian banking system is not on the edge of a chasm. i strongly refuse this definition. nevertheless, as the government has been saying for a while, there are some critical elements which have market solutions but that may require precautionary measures by the state. the u.k. government might need time to adjust to living -- leaving the eu. that is what the prime minister theresa may told lawmakers in her clearest sign so far that she supports cause for a transition plan -- calls for a transition plan.

people can move on to the new relationship that they will have with the united kingdom, and i think there is a willingness there to take us on that basis. mohamed el-erian said sustaining the trump rally is not about implement a drastic policies. he said the u.s. has a better chance if enduring if the president elect can coax nations to embrace reforms. he cautioned against overlooking the threats to global markets. >> we have priced in no policy mistakes, we have priced in no market accidents and we have ignored a source of political issues. part of the reason why the markets are reacting so well as we are getting an endogenous political disruption in the u.s. that seems to be positive. because we are going to unleash congressional action but you're

getting political disruptions elsewhere that are not so positive. for --a lifetime lifeline for junk bonds in japan is about to get cut. will include products held off bank balance sheets. starting in the first quarter. according to a newspaper controlled by the central bank. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. you can find more on those stories on bloomberg at top . yousef: let's cross over to one of our stories. berlin officials have stepped up the hunt for the truck bomber. after an initial release -- a suspect was released. give us a sense of where things stand right now. matt: the investigation is being

run by federal police, so national police looking for the theetrator of this crime, tractor-trailer barreling through one of the more popular christmas markets on monday night killing 12 and injuring 45 people. the prosecutors say that the perpetrator hijacked the truck, shot and killed the polish driver and took it through the christmas market. you can see the debris and distraction there. a christmas tree knocked over in the middle-of-the-road. they did have a suspect in custody yesterday, a pakistani germany seeking asylum. later, prosecutors said they did not have enough evidence to tie him to the crime so they released him. this means that the assailant is still at large in germany and

armed because they have not found the gun he used to kill the truck driver get. they are stepping up their manhunt in order to try and find a group of woman or people. they say they do not know if it is just one person or a number of people together. has claimede responsibility for this crime. you can bet the german police are going to be doing everything they can to try and find the perpetrator. manus: thank you. matt miller with the latest on christmas for the market perpetrator. let's check in on the markets. juliette saly is standing by in hong kong. very good day to you. it was a better day for asian equities today. we have seen shanghai close-out over 1%. some strong buying coming through on that market which yesterday hit that six-week low. also some strong movement on the hang seng in late trade in hong

kong. you are seeing a lot more bids coming through for some of these casino socks and also life insurers that had been old -- under pressure in the previous session. elsewhere they nikkei hurt by that stronger yen. things are looking flat on the nikkei around lunchtime took your time but we do start to see the yen strengthened quite 1%.ificantly, around .25 of no surprise that japanese equities closed lower. getting above that 5600 point level. the highest level since august last year. us trillion stocks at 26 day highs as they head into that close of the year. up by .41% and also good moves coming through in new zealand. in terms of currencies apart from the end, there was not too much movement. we did have a slightly weaker result from the pboc in terms of the yuan. the exceptionith of the yen, no major moves

coming through in the fx market today. saly turning us live from hong kong. let's go back to the u.k. where businesses and the government might need time to adjust to living to the european union in a temporary arrangement to could be they that solution. that is with the prime minister, theresa may, told lawmakers in her clearest sign so far she supports calls for a transition plan. ms. may: we want to get this arrangement in place of people can move on and to the new relationship they will have with the united kingdom. there is a willingness there to over -- undertake this on that basis. manus: that's bring in david jane -- let's bring in david jane. you listened to theresa may using language which suggested transition phase is something that might be on her mind. parliament might not necessarily get to vote on the final day.

it was interesting, the conversation i listened into. does it change your perspective on brexit risk? guest: marketsguest: markets ans like certainty. they like to see some kind of clarity as to what the arrangements are going to be for the next 1, 2, 3, 5, and beyond. and so it is possible to organize some kind of transition phase, that will be good for businesses and it will be good for markets. whether that is possible, negotiating with a diverse group of european nations is another matter. to ask is it realistic for the details at this stage of the conversation between the u.k. and the european union? are we perhaps asking for too much here given that a lot of the stuff still needs to be figured out? think you're absolutely right. in a sense it is not a conversation between the u k and

the eu, it is a conversation between the u.k. and the dozens of eu nations. everybody has a voice in this, everyone needs to be heard. i think this is going to get more complicated and more difficult as the months and weeks and years go on. goal markets have had a lot to contend with. terror over the past 24, 48 hours, which equity markets have essentially deflected. volatility is something we have been looking at and this is isbal economic uncertainty ratcheting higher. has you have got is vol, it dropped precipitously, is there a divorce, is there something gone wrong here? david: it does come down to the economy, doesn't it? economic data has been quite good. the volatility is high, markets are being broadly positive and generally comfortable about the economic outlook.

all theor attacks, political uncertainty, as long as the background economy is doing ok, market show comfortable. -- markets feel comfortable. talk to me about financial conditions. i have brought up this chart that goes to menaces point -- manus's point. this is the one that bloomberg compiles and it shows you that credit conditions have been coupleng over the last of months. is this a story that is sustainable going into 2017 as we see the vol continue and the fed going about its rate hikes? this is probably the background reason why things have been quite healthy. we see strong economy, we have seen loose money, we see good and healthy financial conditions, we see banks willing to lend for the first time on niaid decade -- nine on a decade.

markets like it. your question is this about to change particularly when we have such huge levels of leverage throughout the world, particularly in china in the high-yield market, not just in china but in the u.s. and europe and so on. -- leverages at our it extreme highs. further down the pike, the risk will come from those levels of leverage that are building very rapidly at the moment. this is theeverage, length of time that has taken us to get from a to b. going back to 1959 in the far left. demarcation in 1999. where were you in 1999? you do not need to answer that. this protracted period of time for the market to double again.

mohamed el-erian would make this point and pimco and ollie on's -- allianz has made this point. are you tempted in any way to bank a little bit from the trump rally? a good anis interesting point. this bull market that we have seen since the financial crisis has been a long and slow one. we have not been rapidly making new highs through this time. what we have been doing is slowly granting forward against a wall of worry and that wall seems steeper and taller than any other bull market i have seen. while we have seen the correction the economic slowdown caused by commodities into a 14 2016, now iting of feels like we are in the latter stages of that economic cycle and bull market cycle. the latter stages are often the best bit. they are the more exciting bit. they are the fun bit.

as winter that personally i think it is time to remain fully invested for now until we see that irrational exuberance that you see in the late stage bull markets. while in the short-term you might say we have come alo way quickly and maybe you could argue but we do not look over periods, i am more interested in years. left toe have a lot run. channel ronnie, everybody. david: u.s. bond yields would be double digits. and started a year -- a 30 year fall. we started from a very different place. manus: paul volcker did [inaudible] janet could spoil it too. next, 20 billion euros, please. ring the bell just in case. the italian prime minister asking for cash just as a precautionary measure but the banking sector.

will get the finance ministers take. this is bloomberg. ♪

-- 7:20 a.m. 719 brandenburger tor. the weaker dollar as it takes a breather is feeding into that trade. let's get to the bloomberg business flash with juliette saly. juliette: volkswagen has reached a billion-dollar agreement with u.s. coroners and regulators to fix or buyback 83,000 audis, b w, and porsche vehicles with commissions cheating engines. the accord covers some luxury models, releasing 2009 and pace of the

cheating scandal. coca-cola has entered a deal to stake worthercent 3.1 $5 billion. in addition, the companies have agreed to the world's largest soft drink maker to buy their and fivein bottling african nations and two in central america. fedex shares fell in extended trading after second-quarter profit fell short of analysts estimates. that is as the operator as the biggest airfreight carrier boosted investment in its ground delivery business. blackberry has boosted its --kle profit out foot output. it signals the company is bearish and moving into software and away from handsets. the ceo told bloomberg the firm can improve on -- improve on it profit margin. company normal growing

could do better than 70%, yes, it will take us a while to get there. but it could do it. juliette: deutsche bank is eating up its derby -- derivatives unit. he becomes the sixth hire in from sager.o join does you looking to capitalize on a rise in demand for quantitative strategies from local is this is. that is your bloomberg business flash. manus: thank you. italian prime minister is likely to fail in his attempts to raise 5 billion euros of capital according to people with knowledge of the matter. the added that the sovereign wealth fund has not committed to buying shares in the tuscan member. the italian prime minister has agreed to ask parliament for 20 billion euros to increase his

public debt and -- in case it has to step in and save the bank. the finance ministers said the debt boost would be a one off temporary measure. system islian banking not on the edge of the chasm. i strongly refuse this definition. nevertheless, as the government has been saying for a while, there are some critical elements which have market solutions but that may require for cautionary measures by the state. yousef: david jane is still with us. how credible are these latest measures from the italian government in light of the fragility some of these italian banks? david: fragility is the word, isn't it? italian banks for as long as i can remember which is a disturbingly long time have had far too little capital and bad debts. when you introduce the eurozone and they have to play by the rules, perhaps germany and the

others have to play by, it clearly does not work and we are seeing the results of that here. i think what is required in banking systems worldwide is confidence. as markets can be confident that month he is going to get the money, the rest of the banking system will be fine and we can move on and start to look at the economic recovery in the region. the simple fact of the matter is at the moment, nobody is confident that monti will find the money. that undermines everything. europe, scary, it can be the columnist on record. this is really want to watch. the stock is at the lowest level since 2014. when you see the stock volatility, the biggest december drop on record, does that embolden you or does that worry you? david: it has to were you a little bit but post trump as we

hear from robert parker earlier, the weak euro, the policies that trump is pursuing, all of this is probably positive for european equities, banking system aside. at the end of the day, the european stock market is a market that has a huge proportion of exporters within it. and so that has been externally positive. have we run too far too fast in the short-term, that is question we should be asking ourselves. let's ask that in the new year. questions wey of will be asking ourselves but what are some of your other interesting causes we going to 2017? david: notwithstanding the brother disturbing chart we just put up, have to say that in many ways europe looks like one of the markets you should be more positive about. everybody has a down on it and her body is worried about the european banking system. but if you look at the basic data, broadly, the european economy should be set there .gainst the strong u.s. economy

it is a next work driven economy. the euro has been extremely weak . it should be the beneficiary and we have seen it time and time again and with all that negativity, valuations are extremely cheap at the moment. have bp0 seconds, you and royal dutch shell. david: dividends remain a powerful draw for investors, don't they? what we have the rising oil price, what we have a broadly strong economy, those strong oil companies with their distributions are always going to be attractive to investors. we have enough money for the capex on the dividend. thank you for your contributions this year. we look forward to a commute -- welcoming you on board in 2017. our thanks to david jane. i am off to a bleak

midwinter. next.ropean open is up this is bloomberg. ♪

guy: welcome to bloomberg markets, the european open. we have your first trade of the day coming up. it will be pre-much in the dark today. london. johnson in matt miller is in berlin. we have a lot to talk about. this is what we are watching. the german and hunt intensifies as the christmas market attacker remains at large. how much damage will it do to angle merkel? stocks charge on. the dow hits full-time highs for stopping just short of the 20,000 mark but it is