>> depends 2017 budget, rewarding companies that march to the beat of the drum. summons the ceos of boeing and lockheed martin as military spending comes under fire. meanwhile, we're told exclusively that the change in sentiment since the election. >> the difference after the election especially has been on the business side, the enthusiasm that the world is their oyster, whatever phrase you want to use, the enthusiasm they feel that more will get done.

>> saudi arabia is set to unveil its plan to balance a country's budget and maybe even run a surplus by 2020. ♪ welcome to "bloomberg daybreak:europe colleaguede me as my yusuf in dubai. let's talk about oil, it's never far from your heart. i know you dream about it. there is somebody out there that believes in $100 oil next year. i'm talking about the coal options that traded yesterday. what we saw yesterday was by the end of 2018, someone had taken a in terms ofle pump

oil. about a million bucks yesterday. really after seeing this momentum in the oil market, the hedge funds of the most bullish. their call options are the longest since 2011. in the big skiing among things, is a million bucks option play out there that big? no, but it is a lovely round number for the market to hang its hat on. there is somebody out there that wants to add that amount by 2018. on the horizon. however at the same time you're seeing the rise in grant and the , what- the rise in brent you're seeing is volatility drop to levels that we've not seen since november 2014. yesterday stockpile in the united states of america

and the expanded for the first time in five weeks. there is great debate about the rally in the u.s. price, capping the bandwidth of oil at maybe $60 with a big push is the perennial issue with this market to deal with. let's have a look at the risk radar. fanf: volume getting a big -- a bit thin and trade around the world. .10,ollar-yen up interesting bloomberg analysis pointing out that according to one framework, suggesting that the dollar rally may have reached a crescendo. a quick look at the dow jones futures, down .10%. 1%, we'vecopper down seen copper inflows into the lme between december 12-19. some of that early copter

optimism -- copper optimism was speculative. inventory that really put downside pressure on crude after what came in as a built in supply. the expectation was about 2.5 million barrels last week. let's get to bloomberg first word news with heidi. >> the two largest u.s. defense contractors, boeing and lockheed martin, have placed to control their cost after president-elect donald trump summoned them and top pentagon officials to his mar-a-lago resort in florida to discuss military spending. he was concerned about the price tag for the new air force one. mr. drum: were going to get the cost down. these are great people and amazing people. i'm very impressed with them. and good negotiators, too.

>> meanwhile, donald trump has named carl icahn as a special advisor. want him to help overhaul federal elections in ways the president-elect says will promote business growth. the incoming president offense spoke admiringly of carl icahn during his election campaign and said he's an example of the type of business person he would want to take advice from if he wanted -- if he won. bloomberg was told he's seen both business and cost benefits for jobs. >> the difference after the election especially has been in the business side, the the world isat their oyster or whatever phrase you want to use. enthusiasm that the company feel that more will get done, they feel better about the prospects

of the regulatory environment in their businesses, they feel better about the possibility of final demand. that will take time to come through, but instantaneously the consumer and business confidence shot up. >> new zealand's economy expanded faster than forecast last quarter as construction boomed and consumer spending increased. gdp grew 1.1% from the previous period. however the economy expanded less than forecast from year earlier. the kiwi dollar traded near six-month low following that forecast. continuesconomy come theway confederation of british industry said the index was held by strong performance in manufacturing, the best and more than two years. retail activity slowed somewhat. the overall output measure was

at 17 this month, up from five in july, just after the eu referendum. global news, 24 hours a day in more than 120 countries. you can find more stories on the bloomberg. this is bloomberg. let's check in on the markets, how are traders positioning themselves during the close of the year? we got a lovely piece on the bloomberg talking about positioning. yen iss like the reaffirming short positions on the currency but little more enthusiastic on the equity side. juliet: maybe not to make, we've seen -- maybe not today, we see most markets weaker. a santa claus rally were seeing in some markets heading into the close of the year. the shanghai market in very late

trade, the nikkei closing off today, lows down by .10%. you did see a little bit of buying coming three-on-two that rally but remember the nikkei will be closed for the next few days. it has a long weekend ahead of the holiday break and the nikkei and topics trading at 26 day highs earlier this week. australia's market had a good session, hitting a fresh 26 day high. bottoms low across all these markets and new zealand have a strong and is, up by .7%. those markets will close early tomorrow ahead of the christmas break. quite a bit of weakness coming through in the equity markets in hong kong, down .7% but there's been more of a pickup in some of the development stocks that have been under significant pressure. 18,000 newowing that flats were sold in hong kong in 2016, so some upside therefore development stocks.

most of southeast asia being sold off on the weakness in currency, philippines up by 1.7%. a mixed day in equities and also in bonds. thanks a lot for that update. let's stay in asia with the story coming out of japan. a record budget for the next fiscal year. rewarding companies that march to the economic strong. also a record defense and procreation and rising tension with neighbors. shery ahn has the details, break down the numbers for us. >> were talking about a budget worth $825 billion. this is a number we have heard before, what we had not heard was where the government was .oing to spend that money now we are hearing that, as you said, they are going to spend it on firms that boost the government's policy objectives. we are talking about firms that

raise wages based on performance rather than seniority, as is common in japan. it turns their nonregular employees into permanent ones. the measures are the prime minister slater's -- latest efforts in trying to change the private sectors behavior, talking about trying to link better corporate performance with higher wages, higher spending. the government plans to curb new bond issues. some people are saying that this depends very heavily on a weaker yen. take a listen. >> over couple of years the government -- japanese withnment was quite lucky, greater than expected corporate sector earnings. they could always get higher revenue which could be

implemented to the budget. but this year is getting more difficult to do that. quick she also says the government's past income estimate is waste on growth of 2.5%. real growth of 1.5%, she doesn't see that happening. also a much weaker yen could spur criticism from the new u.s. trump administration, and she says that is a risk. at thei was looking allocations and what stood out was how much money was being put to work for next year in terms of defense spending. what is behind that and what is driving that? >> this is a record budget again for the defense budget. that would be more than $42.5 billion. this is the best year we have seen spending in the military just increase, a trend that has continued since 2012. f-35 fighterne,

due to the rising geopolitical tensions with china and territorial disputes in the east china sea, not to mention a more aggressive north korea. you very much for the latest on the japan budget. the question for the market is this isether you think reloaded, what will that do for your positioning in equities and dollar-yen? take a look at this, what we have done is taken u.s. 10 year yields, which is the white line, going all the way back to the clinton era. you sort of see one of two dynamics there. that's when the real new differential was driving the view that you would see dollar-yen move, you go back to 1993 and 1994.

but in that time you had a trade gap and you had trade tension. differential just did not carry through. of the pieces we have this morning, the consensus to go to 115.-yen if you have trade wars for this protectionism, potentially that comes into the market, you may see this exponential move, you're seeing that ratchet higher on that. can that continue? can that be sustained if you have this protectionism that may just come into the market. understand if the dollar-yen can continue.

yusuf: that's one of the points in the investment notes from this morning, that the markets are not really pricing in enough on the protectionism risk that could come with donald trump. as crossover over and get you some of the highlights for your day ahead. have00 a.m. u.k. time we the trade balance out of spain. gdp andre is danish italian retail sales, an important one to watch. at 1:00 p.m. u.k. time, data from the u.s. including gdp, personal consumption. that will give us a hint. still to come on the program, risky business. we hear exclusively from the bank of america ceo brian moynihan and find out what he's expecting from the economy in 2017. and saudi arabia will look to rein in its budget deficit as it unveils its state budget for 2017. we look ahead to that

announcement and break it down for you and see what it all means. we get the latest ahead of the looming deadline. stay tuned for that and much more. this is bloomberg.

manus: it's just gone to: 18 in the afternoon on a beautiful day. the hang seng not having such a beautiful session, down .7%, struggling for any kind of a link to the equity markets. >> expectation is growing that the bank may be bailed out by the italian government. people would knowledge of the matter say probably failed to move sufficient demand for up

capital call by today's deadline. yesterday the italian government got the green light for the rescue fund. new exclusive talks with johnson & johnson about possible takeover. last week johnson & johnson said it had ended negotiations with the $22 billion swiss drugmaker and a swiss farmer giant was said to be advanced takeover talks. saudi oil giant ramco will continue to for an ipo in japan according to a broadcaster citing the saudi oil minister. looking at markets from hong kong to new york for what could be one of the -- one of the -- sharehares that sales in history. texas,nts in germany in but apple says nokia is refusing to act on a fair basis and is attempt toactics to

extort money from apple. nintendo shares have fallen in tokyo yet again despite a record ron for super mario. the company said the new mobile game's down wrote -- download rate is the fastest in app store history with 40 million downloads in four days. it's currently available only on apple devices and is initially free in 140 countries. critics say the $10 fee to unlock new levels is too steep and some reviews have been less than glowing. alibaba has again been labeled a haven for knockoffs. it's made an embarrassing return just four years after getting its name removed. the u.s. office of the trade representative said the online retailer had unacceptably high level of reported counterfeiting and piracy. alibaba suggested the decision could of been influenced by politics after president-elect donald trump criticized u.s.-china trade agreements.

buckley, a managing director at merrill lynch, has died. he was 62. he joined merrill just six months before bank of america acquired it during a financial crisis. institutional investor named him to its all-american research , including eight times as number one. that is your bloomberg is this flash. over toet's cross another story in the usp. u.s. president-elect donald trump has made another appointment to his economic team as he feels up the different candidates for the cabinet. he's named carl icahn as a special advisor to help them overall with federal regulations in an attempt to promote business growth. meanwhile bank of america ceo brian moynihan has told this will help business, at least in theory. he spoke exclusively to bloomberg.

we have the number one research team in the row -- in the world for six years in a row. has the u.s. growing around 2% next year which will be an increase to 1.7, somewhere in that range. this will be a step up. their fundamental belief is not changed a lot since the election. in theeve the economy u.s. will grow and in the world will grow and it's a little more on the up swing. it picked up and fell off this year and we think it is back up. part of the uncertainty we went through this year has been handled by the markets and by people predicting outcomes, which is pretty interesting. tie in referendum, the french elections, the u.s. election, all that stuff, it just happens. there is going to be huge

disruptions in the market for a few hours and then we came back and said life goes on. there is tremendous momentum incapability behind it. question is, with trump's election, businesses are frisk year. friskier.ear -- it's good for capital expenditures and it ought to help next year. we talked to our clients about the regulatory burden and that belief is it will come down in that will help them do things more quickly. they believe all that is good. there are other serious concerns. labor is trickier than people think. getting the right labor at the right place at the right time is tricky for people right now. jobs init's the right the macro sense of wage pressure. we have to do a lot of work to make people -- make sure people are trained into it.

the big difference to happen in the last six weeks is the enthusiasm. if that falls through, it will be interesting. guy johnson bring into the conversation. welcome. >> good morning, early morning. list: carl icahn is on the of the wealthiest billionaires that we track here at bloomberg. he is number 20. he is worth $20 billion. excuse me, he is ranked at number 32. he has now been named as a special advisor to donald trump. what do you think, what message should we take from this? >> here's the reason why i think this is interesting. donald trump clearly is going to drive some sort of fiscal expansion that is likely to be inflationary.

it goes back to the larry summers story. they need to up the growth rate of the united states. in, he'sl icahn comes been targeting regulations. if they can reduce the friction in the economy and make the potential growth rate rise, maybe some of the fiscal stimulus does not become inflationary and maybe the fed doesn't have to raise rates. here's a guy that knows his way around the regulatory structure story. -- johnson cabinet went for the word. >> there's a lot of wall street and business on this. one could say that is actually a good thing. graseck you believe the u.s. where its in a period is entering a phase where he can

grow more strongly, then yes, they need to figure out a way to get potential growth rates up, and maybe some of these people have the ability and skills and knowledge and understanding to be able to deliver that. this is the challenge of the next four years. larry summers needs to be proved wrong. carl icahnys like coming in and a lot of wall street people coming in as well. our markets abroad going to take this appointment? you're saying there's a lot of wall street on this, but what does it mean in terms of possible section's policies across the board? >> the guy you need to look at is his other appointment, peter navarro, who is coming in to advise. , he is ancademic author, he is very anti-china, and that is the more clear message directed at the international story, rather than

what carl icahn is going to be coming in and doing. , the italianust in government may approve a decree pasci today.te more to come. this is bloomberg. ♪

manus: breaking news coming , weugh on monte paschi understand from press reports that the rescue of monte paschi could be as early -- could be announced as early as today. the other breaking news coming in, press reports that the italian treasury sees tea -- ifing 50% of monte paschi that is the case that arrest is put forward tonight. overnight, the latest up date monte paschi from monte paschi is that they have raised 2 billion euros.

this is one of those lenders one failed to getjust a cornerstone investor for the 5 billion euro capitalization. there were a number of different strands to this recapitalization from a debt to equity swap to reducing are selling off bad loans. where we are at the moment is monte paschi says they've got about 2 billion overnight. retail investors, how are they going to be compensated? that is the debate in the monte paschi debate. are the markets underpricing the ramifications of bailing in or sorting out monte paschi, jeter -- depending on what term you choose to use? a lot of variables yet to

be defined in that equation. the next story is a telly and -- ion.l lastly johnson & johnson said it had ended negotiations with the $22 billion swiss drugmaker and the french form a giant said to be in advanced takeover talks. manus: and finally we focus on totale which is expanding in latin america. woods, your neck of the yusuf. it's also said to be considering buying other assets from state owned petrobras. oil assets on the move. this negative the woods as you said is mine. let's get more on the action where expecting in the moment. >> good morning, asian stocks

following the drop in u.s. stocks, the dow failing to reach 20,000. chinese and japanese shares recouping some of the loss from earlier but the asia-pacific index is in the red and most industry groups in the red. some of the worst performers are energy stocks, no surprise given the weakness we're seeing after the u.s. stockpile data. the shanghai composite has been one of the worst performers this month globally and chinese doctor in in the year as they began, with losses -- lots of concern about surging money market rates. as you can see on this chart, the shanghai composite underperforming global equities. before this decline it was back in an almost 11 monthsbefore thk in an almost 11 months high. fund managers do see the index climbing to 3800 by the end of next year. a 21% gain from wednesday's close, so perhaps a

better outlook in 2017 for chinese stocks. moving on to dollar-yen, pretty much unchanged today. impliedo show you volatility. as dropping for a fifth day, its lowest level since october 25 at the moment. onally, some bigger moves the alameda. copper and other industrial metals rallying post trump election in november but it's been coming off a little bit in december. jump inafter a 62% stocks on the london metal exchange, and were also looking at deliveries. this chart shows a six-day streak of deliveries ended on monday with the largest one-day inflow since 1994. begging the question, what tightness in the market? touf: let's get you closer

the saudi story. the country is set to announce a state budget for 2017. there is so much at stake here. according to a senior government official, the kingdom will outline plans to reduce one of the highest budget deficits in the middle east. on strategy here is to focus the boosting of nonoil revenue subsidies. long-held joining us to discuss it further is our middle east and north africa managing editor. what are you expecting to hear on this budget story? the think we'll hear about cut in subsidies their planning over the next five years. that means until 2020. they've already started to cut significantly on gasoline and other utilities earlier this year, and this will continue next year. news that have some

they will raise it significantly in 2017. also we will hear about a program to limit the impact of those cuts in subsidies on low and middle income earners. one thing they said earlier is at the subsidies kind of benefit the richest elements in saudi society the most great if you have a big house and several largeyou are taking up a chunk of those subsidies. now they want to take away those subsidies and for the low and middle income earners, give them -- payouts that will start in the middle of the year before the subsidies are cut further. manus: we've had a number of conversations and you've pointed out that a lot of this is a grand bargain with society. they are dealing with the momentum of oil. oil has shifted gears. what i want to know is what difference in this budget over

the past couple of years. >> above all, the detail and the vision that they want to move away from the reliance on revenue from taxing oil. that has really been the model in saudi arabia. they get their revenue by taxing their oil income and they want to move that model to a model where they are getting more revenue from the non-oil private sector. way saudi change the society works to one that gets revenue from return on investment, essentially. so their whole investment strategy is changing and the revenue will come according to their plan more from the non-oil sector rather than the oil sector. yusuf: you can see here some of the gains that have been made year to date from the different industries. you can see some of the construction intensive ones like

cement on the weaker part of the equation. what is the risk that there will be a backlash in growth as a result of this? >> we've seen it this year, and these numbers bear it out. if you cut back on subsidies, that will affect consumer spending. the retail sector has not done so well. a cut back on their projects. they cannot pay contractors so the construction industry isn't doing so well. the energy industry is doing a bit better, but with -- the plan is that with the cash payout that some of that will start coming back, there will be more money flowing into the private sector and you will see a recovery next year. manus: thank you very much for the latest on saudi arabia's budget proposals from our north africa managing editor. , all part of the grand transformation program.

in japan, according to hk, the marketshas been taking -- considering new york markets as possible venues. played to sell less than 5% of , part of the2018 transformation program. our middle east finance reporter joins us. york and japan, how serious are they about japan? good morning. as we say, japan is in many ways an unconventional choice. it's not a big destination for foreign listings. you have to remember that japan is saudi arabia's third-largest trading partner. of theanese horse some biggest lenders to saudi arabia

in terms of funding the government and funding domestic projects. japanese countries are hard at work in saudi arabia building infrastructure, developing power plant. the ties between saudi arabia and japan are very strong. japan has clearly earmarked saudi is one of the countries in wants to boost ties with. there is undoubtedly some incentives that would be on the table to try to attract saudi arabia onto the japanese exchange. also with an ipo of this size, saudi arabia needs to attract investors and will probably do -- be doing the biggest ipo the world has seen. our understanding is that they are bidding for quite a few exchanges out there. one of the destination -- what are the destinations the saudi's are looking at? >> we heard earlier this year that the chinese have been meeting with saudi officials try to pitch hong kong as a

potential destination. the foreign minister of saudi arabia said a few days ago that the u.s. is on the curve, obviously with a big international listing. london will be a potential destination as well. like the 9/11s bill in the u.s. which opens up the door for victims of terrorism to try to sue governments like saudi arabia that are allegedly linked to the 9/11 attacks. this could impact the listing of assets of saudi arabia in the u.s. as they would be under u.s. jurisdiction. that would be a big collocation exit you have brexit happening in the u.k. as well. what does that mean for the global stock exchange? it's already a massive undertaking and it will make it

even more complicated and muddy the waters even further. the pass that on the set waiting for facebook to open, i cannot wait for this saudi aramco ipo. telion is said it is in new, exclusive talks with johnson & johnson about a possible takeover. endedaid last week they negotiations and are dealing with these with drugmaker. this is like a teenage romance, isn't it? very exclusively to one another. all breaks off, and now they are back together. >> not quite yet, but it is pretty rare to see two companies come back together for exclusive talks after ending discussions just about a week ago. in the meantime, actelion had

been in advance talks with sunapee. outhe income they pulled saying it would not create adequate value for shareholders. about a week later their back at the negotiating table and were hearing that they do want to reach a deal before the end of the year, but of course that may not happen. the ceo has always been very keen on keeping independence for actelion. yusuf: it's starting to look like a brazilian soap opera. >> this is after it lost out to pfizer back in august. what is interesting is that they were in advanced talks with actelion. the issue of the continued value right bills value to

shareholders with experimental drugs further down the line. this seems to be one of the complications in the discussions. what's interesting is that sunapee's offer was around -- was higher than the $260 that johnson & johnson came to before the talks broke down. it's questionable as to what exactly has happened here. we don't know precisely why these talks have picked up with johnson & johnson. we heard that they said that if the talks were exclusive, in terms of how all the share prices have reacted. actelion's adr's job and sunapee shares in the u.s. also rose, maybe signaling that investors thought they were offering too much in those advanced talks. we will see where it

finishes. market value, $310 billion. will comef sanofi back. thank you for the latest on johnson & johnson. at theup we will look 2017 budget, this is bloomberg. ♪

yusuf: it's 6:40 eight in london. you're looking at a live shot in new york, a colorful tower there. remember in terms of the dow we are within whispers of that 20,000 mark. we are seeing donald trump

philip some of the remaining positions in the cabinet. saw carl icahn and then mr. navarro. very interesting. servicest to the exports story which are helping support the global economy. that's according to new reports from hsbc and oxford economics 23% inays it rose to 2015. the forecast is that the trend is set to continue. let's get more from the global profit at hsbc. out fromt news coming the united states in terms of the cabinet positions that are filling up. probably doesn't keep you very optimistic in terms of that global trade growth or help it be resilient and continue. >> the first thing i would say, when people think about trade coming think about physical goods being shipped.

what we've seen in the last 15 years and expect to see in the next 15 years is actually trading services getting more important and growing. a lot of it is technology and demographics. the growing consumer class and businesses buying and selling, which is not just about cost. in the short-term, there is reason to be cautious at the outlook, but if you take a medium-term view, we are bullish about the outlook for trade and about the role services will play in driving that. pick up on that. i read the report and went back and read it again. if i'm an engineer in france, i don't have a very rosy picture according to this. i need to be thinking more dynamically in terms of services, adding value to what it is i'm trying to do.

is that a fair estimate, and give me some of the numbers that validate that? >> at think that is fair. trade is quite complicated. when you think about buying a car, almost half of the value of the car is the services that have gone into the production. today fiscally is 17 truly dollars and services is lower than five. we anticipate in the next 15 years our services will more than doubled to over $12 billion. growthf that will spur in physical goods. you have to think about the value add and services that can be added on top. there is an upside for goods

manufacturers as well as services. yusuf: i was looking through the report again, and how is the balance going to work out again in terms of the share of trade when you compare your big elephant in the room, the united states and the eu, and in you have emerging economies which have been gaining ground. largest exporters and importers of services, the u.k. stands out. the u.k. export and services, but you're absolutely right. you have a lot of emerging , they areke india numbers of it today. we expect them to continue. arenesia and china countries that will benefit from the increase in trade and services. we expectk. and u.s. to remain the largest exporters of services in the foreseeable future. -- manus: takech

so much for being with us this morning. focus on one of the big global producers in the world, japan. they are going to sell a little bit less for the fourth year in a row and specifically on the 10 year bonds. demand shrinks after on moreented easing than half the nation's securities. withng us is owing murphy global bond strategies. thanks so much for coming in. so many central banks are turning on the taps and switching off the taps. issuance, howin plays into plays into the

qe debate? >> japan is still a place that will be fiscally expanding. i think the bank of japan will be quite pleased with how things are going. they've announced a major policy change in volatility has not picked up. they will be very happy to see the yen depreciate because that helps with their objectives. curve hasnd of the been very well anchored as well and that's been perhaps someone surprising. i think the bank of japan has and they seem to be controlling the market very well at the moment. what is the risk -- yusuf: how does that play into how the boj can navigate? they don't have much to show for it.

>> that's true, and i think it will become increasingly hard to anchor yields at the very low levels. at the moment, they still have that credibility. we're seeing a huge amount of divergence in global bond markets. even though the ecb has pulled away from buying more bonds, the yields are still very well contained. there is pressure on depreciating other currencies against the dollar. at the moment it remains a story of divergence. it's important to meet their inflation target. manus: this is one of the great debates, if i look at the actual bank of japan and the size of their balance sheets, they are so far ahead of everything else. there is this constant concern that the banks are going to hold their bonds, that the bank of

japan will run into that roadblock in terms of what they can get their hands on. is that something you have discussed? this is the bank of japan and the scale of their balance sheet relative to the others. it coming, andis what does it do to the market? quick you could argue that the other banks have huge scope to increase their balance sheet. to how manyimit bonds you really want to hold. this is the debate about the credibility of further monetary policy accommodation. flat yield curves are not helping the financial sector. what we have is a huge transition toward fiscal expansion outside of europe. we will see huge amount that and hopefully that will mean the balance sheets will not be a

stretch going forward. this is why it is generally negative for bonds. manus: we will pursue that particular conversation very shortly. this is bloomberg. ♪

>> shinzo abe reveals the 2017 budget. of boeingons the ceo and lockheed martin. as military spending comes under fire. america ceo tells bloomberg exclusively about the change in business sentiment since the election. >> they difference -- the difference has been in the business side, the enthusiasm that the world is an oyster, whatever phrase you want to use, it is just enthusiasm.

midsized companies feel the more they are going to get done. >> they may run a surplus in 2020. ♪ welcome to bloomberg daybreak europe, our flagship morning show. alongside manus cranny who is in london. manus: a very good day to you. ust could not get there. the consequences are some faded glory in the equity markets. this is how it european equity markets are opening. we have fresh reports coming from italy at the moment that there may be a deal to be done, that you may see the government step in and take 50% of

capacity. from --e press reports the italian government could approve to deal -- a deal to rescue them. you have never had it so good. , the euro stocks 50 up 7% more than double the u.s. counterparts. are the world investors wary of the u.s.? and perhaps a little more proclivity for european equity markets. we are down across the market. in the city early of london at christmas. nothing better than a long lunch. trade, the dollar-yen point that out for you.

117, barely above the flat line. you will see that the dollar rally may have reached a crescendo. 118 points. lower fortures are the dow jones. within a few whiskers of the 20,000 mark and on copper, downside pressure. this is an interesting story because you have the likes of goldman sachs, societe generale and they were predicting the marketcopier -- copper was about to surge. metal exchange which serves as a oversupply inthe this industry is very much there and then brent crude at $54.51, a bit of downside pressure after we had the u.s. inventory data out. we saw it at 2.3 million barrels. let's cross over to the bloomberg first word news.

following and lucky -- boeing and lockheed martin have lunch to contain their costs after they were summoned by president-elect donald trump. they discussed military spending. 30is concerned about the f -- f-35 program and the new air force one. done and theseit are great people. with themimpressed and good negotiators, too. carl icahn appointing -- appointed as a special advisor. he endorsed trump back in september 2015. president often spoke admiringly of carl icahn

during his election campaign and cited him as an example of the kind of business person he would seek advice from if he won. discussed how has the election is impacting the economy. he sees business and consumer confidence jumping. difference after the election especially has been in the business side. world'susiasm that the hour or stir, whatever phrase you want to use, enthusiasm, midsized companies feel that gete is more that they will done, that they feel better about the prospects of the regulatory environment in their businesses and they feel better about the possibility of final demand. that will take time to come through. instantaneously the consumer confidence shot at. and the business confidence shot up. yousef: new zealand's economy

rose more than expected. gdp rose 1.1%. thatred to the .8% economists have been looking for. however the economy expanded less than forecasted coming in at 3.5%. the kiwi dollar traded at near six months lows following the data. manus: the u.k. economy continued batting away brexit and the close of 2016 with a measure of ivan sector grows -- growth. the index was helped by a strong performance in manufacturing, the best in more than two years. activity slowed somewhat. the overall measure was at 17 this month up from 5 in july. after the eu referendum. 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 and everything you need to on -- and go to top go on bloomberg. .omberg top a bit of a mixed picture. we are winding down to the end of the year. the nikkei has closed slightly lower down by .1 of 1%, off lows but it will be closed for a public holiday and a three-day long weekend from tomorrow. we have seen quite significant selling coming through in hong kong. poised to enter correction territory very close to 10% lower from those highs that we saw on september 9. today there is a little bit of buying coming through from some of the development stocks but that is the area that has been under significant selling pressure. shanghai closing pretty flat and a flat finish on the kospi. the santa claus rally on the

closing higher0 by 1%. a fresh 2016 high and some movement coming through in new zealand. the bond market a little bit mixed in asia. japan saying that it is going to 2017, evenonds in fewer than it did in 2016. it is still seeing a lot of investor demand shrinking as we see the yields below 0%. not much moving coming through on that 10 year yield today. you have seen in australia the year -- yield up by not much. 3% but that is one yields moving higher, bonds moving lower in a strong at. and in the other bond markets. manus: thank you. the latest on the markets from hong kong. japan has approved a record budget for the next fiscal year. it will reward the companies that march to the sound of the drum. there is record defensive

preparation. ahn has the numbers. shery: the beat makes drums. we are talking about companies that raise wages, especially based on performance instead of seniority as is common in japan. not to mention a turning -- turning nonregular workers into permanent ones. the measures of the latest efforts trying to change private sector behavior. the government also plans to curb new bond issuance to a ane-year low in an effort, result to show some results in -- a show of resolve to actually curb some of the debt,

the largest debt and the industrialized world but still, some critics saying there could be some risks because this is based on a weaker yen, generating hired returns from foreign reserves as well as higher corporate tax income. a lot of challenges given the ballooning social costs. i was looking through some of the highlights of this report, what struck me is the allocations to defense. a new high? what is going on here? shery: another record defense $42.5 billion.an it is the fifth consecutive year of annual military spending just being increased. a trend since the prime minister took office in 2012. they are buying more fire jets and seven reads. we will see this defense budget being boosted again and intentions in the east china sea

and not to mention a more aggressive north korea. manus: thank you. our guest is here. the beat of the drum. these are all reflationary language and numbers. global bond 2017, markets, what is going to be the impact in terms of the reflation trade, do you think that bond markets are getting started repricing the reflation trade? best way to think about it is break evens. it is interesting europe priced in inflation probably less than in the u.s. so half the

adjustment has already happened. we have had a decent bear market for bonds which were extremely good in the summertime. i think some of that adjustment is already occurred. what you are seeing now is sick or nice global fiscal expansion at a time when the u.s. economy was already growing quite well and it was not much real slack in the economy. perhaps it is surprising to get this much fiscal stimulus at a time when you really would not need it. this come -- could come to the type of wage inflation which could cause inflation to overshoot to a certain extent. until now we thought the fed would allow that to happen. the most recent fed statement said they were not so comfortable with an economy that would run hot and as a result we have seen some adjustment on a rising yield and break evens widening. that lead us in terms of rate hikes in 2017?

as we look at the reflation trade and the recovering oil prices, a lot is being factored in here. what is your outlook? is going from a time where they were raising rates once a year, to be raising rates once a quarter. the transition will be 2017. the markets are pricing and over half area not that demanding for next year but that seems reasonable. one of the surprises could be the fed next year. that is unlikely. tillel that they will wait 1819 until moving to a more aggressive pace of tightening. what that means is the european and japan markets which as we , could beearlier potentially vulnerable. particularly if you look at bund

yields, they have a lot of duration. they are low yields so it would not take much rise to have negative total returns in european bonds and that is an area where we are concerned. manus: let's circle back. when you dig a little deeper into the bond market and we talk about real yield, what we have got here is the u.s. 10 year real yield and you see this and version, this flicking point which is what you are referring to. what do you think that will do to institutions? we have seen one or two jumpy institutions saying we are ready to go out and buy foreign bonds again because we cannot get the yield we need here in japan and that will have a knock on effect on the currency. this does not explain the recent strength of the dollar against the yen. when you look at japanese domestic investors, they are challenged in terms of writing

yield in total return. one of the columns they have is the hedging costs associated with going abroad and again -- hefty.n, it is very it is not like you magically find yield abroad. tensed up. have it what that means is you need to look at what yields are aailable internationally on after-hedged cost basis. there is still reason why japanese investors would want to buy u.s. mortgages. they might want to buy french government bonds because they pick up to the domestic market. we have seen the slowdown in foreign buying by the japanese since the u.s. election but that reflects the volatility in the market. whereas the trend is still toward higher foreign holdings for japanese investors and that will be extremely important technical. it has benefited u.s. investment grade where japanese investors have been heavy buyers. with us.wen stays

we will be widening out the conversation to the 2017 challengers and look at the outlook for european bonds and discuss what the upcoming french election will mean for eurozone volatility. stay tuned for that conversation. this is bloomberg. ♪

manus: it has gone 8:19 a.m. in berlin. you're looking at a shot of the brandenburg gate. breather, is taking a a pause for a moment of reflection. let's get to bloomberg business flash. one woman who never reflects for long is juliette saly. growing: expectation is , they may be held up by the italian government.

it will probably fail to lower sufficient demand for a 5 billion euro capital call. the bank said it has raised over 2 billion euros from its debt swap with about half coming from retailers investors. the italian government got the rain light for 20 billion euro bank rescue fund. lion has announced new exclusive cost -- talks with johnson & johnson. negotiation and it with the swiss drugmaker. nokia is suing apple saying the severalaker infringed patents. they filed complaints in germany and texas. apple says nokia [inaudible] is now using the tactics of a pagan a trap -- pig in a trough to extort money from apple.

despite a record run. the company says the new download rate is the fastest in app store history with 40 million downloads in four days. it is only available on apple devices and is free and 140 countries. some reviews have been less than glowing. been labeled a haven for knockoffs. it has made an embarrassing return to the notorious list. the u.s. office of the trade representative said the online retailer had an unexpectedly high level of reported counterfeiting and piracy. alibaba suggested this could have been influenced by politics after president-elect donald trump criticized u.s.-china trade agreements. that is your bloomberg business flash.

to owen --h get back let's get back to owen. let's focus on europe and the story around the italian banks. will get into the french elections. let's start and italy. the bank is struggling to and get an anchor investor. how will this play out western market is starting to look money. on: i would take the view that there is light at the end of the tunnel. clearly now the focus is -- it does look like a private solution will be difficult to engineer and that probably

increases the likelihood of the state solution. i think this will be a good thing because it would draw a line under these. what we do not want is a muddling through with a raise just enough capital. if we can write the loans down to a spectacle levels this allow that could allow us to move on. it is large and important for the eurozone. the banking sector is important enterprisesn these in italy so we need a solution. at thean get a solution state level that would be reasonably good for europe. yesterday i reflected on a story, a part of research. 20 billion is what they20 billie gone four. the bad debt situation or the bad loan situation, you probably need according to their calculations about 50 billion.

we need this that says a big lump of money to get it done and out of the way. one thing that the market is concerned about for france and italian german debt and i am is the movement and spreads but it is being repressed by the ecb. political crises next year or volatility will be the bull market. what does that do to spreads, what do you think will happen with the italy and germany spread in terms of political volatility? real focus will be on france because the spread is tight to germany, around 40 or 45 basis points. we have elections. in theory, the elections should not be as close as some of the other big votes we have seen like the u.k. referendum and the u.s. elections but the market will be skeptical and worried and a lot can happen between now and april. you can see how policies can shift fairly quickly.

we would say that the french premiums to germany look to narrow. to us. potentially it could be lifting up to 75 or 80. it will continue to be a volatile spread. there is room for some widening there. say skepticism, what about an upside? what are the pockets of positive plays we could be looking at? owen: in terms of the bond market i look at the chance of low -- global recession does seem to be very low in 2017 particularly with the fiscal stimulus that we are seeing lovely. think things like default trades will be low. that should help the u.s. high-yield to eke out reasonably did returns. the financial sector is a recovery story. subordinatedeld in european financials. even though things like relativelyonds offer

little yield, the credit market is where you would look to get your returns in 2017. particularly even the underlying strength to the global economy. manus: great to have you with us this morning. thank you for your contributions in 2016. we wish you well in the best of the season. join us for daybreak in 2017. that is it from yusuf in thei and me and the team in city of london. we have the european open up next with guy johnson and matt miller. you can join me on bloomberg radio, daybreak europe live at 8:00 a.m. on dab. this is the state of play on the european equity markets, we are looking for slightly lower opening. london, paris, and frank kurt are down by .8 of 1%.

thehave pressure ports that italian government may be ready bank.a bailout on the this is bloomberg. ♪

guy: you are watching bloomberg markets the european open. johnson. i am alongside matt miller in berlin. this is what the pair of us are watching this morning. deadline day for the world's oldest think my reports from italy suggest the italian government will confirm that it is to bailout monte dei paschi how will the news shape politics? is this