mark: ready for a rescue. set to fall short in raising capital. shares are tumbling. will the italian government step in with a bail out? frisky business. bank of america broin moynihan doesn't expect troump jolt the u.s. economy next year but says business is ready to expand. >> the difference after the election especially has been in the business side, the nthusiasm that you know, the enthusiasm, mid-sized

companies feel there is more they are going to get done. mark: the president-elect taps a special advisor on regulation. china critic peter navarro will lead the white house national trade council. this is bloomberg "surveillance". i'm mark barton in for francine lacqua fran today. we have a fantastic show lined up for you today. from italy, to the states, the state of the global banking industry. it is back on after scrapping talks last week, the two drug makers return to the negotiating table. shinzo abe rewarding companies that march to the beat of the economic -- >> japan has approved a record $825 billion budget for the next fiscal year.

businesses that help meet objectives such as raising wages will be rewarded. at the same time shinzo abe's cabinet approved the biggest annual defense budget in the fivers north korea's nuclear threats. boeing and lockheed martin have pledged to control their costs after president elect trump met with officials to discuss military spending. he was concerned about price tags for the new air force 1. >> we're going to get the costs down and we're going to get it done beautifully. these are great people. you're amazing people. i'm really impressed with them. >> meanwhile he has named carl cahn as a special advisor. icahn endorsed trump back in

december, 2015. sited ming president him as an example of a person he would take advice from. private sector growth raising the highest in a year. the index was held by a strong performance in manufacturing. retail activity slowed somewhat. up from five in july just after the e.u. referendum. global news 24 hours a day powered by 2600 journalists and analysts. this is bloomberg. mark? mark: let's take a look at what is moving the markets. stocks are moving in europe for a third day after rising to a 2016 high on tuesday. the stoxx 600. the euro is gaining against the dollar. after falling to a january 2003 low on tuesday.

the u.k. 10 jori unchanged. data today included consumer confidence. little change for the month. the measure of the outlook for the economy is slipping to minus 23 from minus 22 excluding that sharp drop in july post bricts referendum. the lowest reading in million four years. crude is rising today. yesterday's stockpile data showed an expansion. worsened the inventory over hang, crude falling. will probably fail too raise the 5 billion euros needed by the end of the year. that means a state rescue is now more likely.

is it just a matter of hours before the state rescue is on the cards? >> this is already a long drawn-out saga over a number of years now. who knows what could happen at the last moment? it seems that we're moving toward a state blackout. -- bailout. it is all about what will happen about the bondholders who have to be build a in before that -- bailed in before that occurs. mark: how are they going to deal with it? there are a number of options, isn't there? >> once you get outside of senior debt, there is no pecking order per se. here is also the ability for the italian investors who find themselves being bailed in. the whole european bailing

system has been introduced. mark: mike, does this make the entire i talyand and european banking system systematically more secure if you know, the state comes in and backs up the italian banking industry? i suppose a figure has to be put on it, how much is needed to recapitalize the banking industry. you have a figure, haven't you? >> we think it could be in the region of 35 billion is needed. 20 billion for the other banks. you're getting pretty much toward the sort of numbers that we think is necessary. also it depends on what kind of coverage is needed. our broad view is this is going to be helpful in getting italy closer to where it needs to be and the banks closer to being recapitalized. mark: is the 20 billion that the government got approval for through parliament yesterday enough, increasing

its already lofty debt to g.d.p. ratio. is that enough? >> it goes a long way. it is probably enough to keep things quiet for the moment. you may need more further down the line if we get a recession sometime in the future. for now it probably puts to bed a lot of concerns around those smaller italian banks. mark: are we approaching the point where we can draw a line in the sand? >> i think that is highly unlikely. i think the problem always is has enough gone in? the government is saying is this enough? they don't want to keep coming back again. mark: is it enough? >> i'm just not sure it is. let's be fair to the italian banks. this problem we all talk about is that the bankruptcy laws are such that you can't pursue people who default in the same way you can in the u.k.

despite the fact that reality is, if they could act as a normal banking industry, they could miss a lot of the issues here. i feel we just aren't sure it will be enough. mark: banks have had a big rally. this is the stoxx 600 banks index. july, which was the five jori low for the industry, the numbers would be slightly different. look at the worst porpers, predominantly italian lenders. we had a big scale yesterday for spanish banks. given yield environment and the rate environment, is that enough in the rebound and banking industry? >> i think it is. yields are going to go higher globally in the u.s. and also the u.k. and europe. higher yields tends to mean good performance for the banks. actually within the financial sector, we think the insurers

are a safer way of playing this. our largest overweight is in financials. mark: the record by the way, shares are down 9%. now they are up by 3%. this share is up and down 10% in the blink of an eye. european banks, chris, how much more upsize? who do you like? who should we be looking at this 2017? >> well, i think as you know i tend to focus on the u.s. banks. nevertheless i think as we were suggesting here, i think so there is still more for these banks to move. hey came down sharply. comeback banks like standard chartered has bounced back. they are doing a good job. b.n.p. paribas, a bank which is showing that you can be an investment bank and actually do well. you look down at the

underperformers like the swiss deutsche bank. i think there is also probably going to be some stories out there possibly particularly in the u.k. where despite all the -- from the brexit, we are seeing with lloyds coming in, i think we have confidence in the market about what is going to happen. mark: there is the deutsche bank d.o.j. settlement. is that the biggie in the near term? >> i have been here saying the best thing is to delay as long as possible. every day delayed, you get more capital to pay it. it will be better to delay and have hang. it is quite interesting. mark: thanks a lot. we'll see you in a minute. chris wheeler, analyst at atlantic equities. stay with us here on sr. sur. -- "surveillance." we spoke to the bank of

america chief executive, the president-elect summons the two largest defense contractors and gets officials to discuss military spending. jpmorgan chase give us their outlook for next year. this is bloomberg. ♪

mark: welcome to bloomberg "surveillance". i'm mark barton in for francine lacqua. enthusiastic mid sized companies are friskier since donald trump became president elect according to brian moynihan.

he spoke exclusively to bloomberg's david weston. >> i think, we have the number one research team in the world for six years in ree. >> congratulations. > thank you. the u.s. growth around 2% last year. this year was 1.5% to 1.7%. somewhere that n that range. that is an increase. it would be a step up. their fundamental belief hasn't changed since the election. we believe the economy in the u.s. will grow and the economy in the world will grow and it is a little bit more on the upswing. it picked up and fell off this year. it is part of a that uncertainty that went through this year has been handled by the markets and people predicting outcome. it was interesting. the brexit, the italian referendum. the french narrative, the u.s. election. all the stuff that people thought if this stuff happens, there are going to be huge

disruptions. you know what? life goes on. i think there is a tremendous momentum and capability that is behind us. with trump's election as i said, businesses are friskier. they are talking harder. you're seeing that go on. you're seeing the other thing, prices coming up, that's good for capital expenditures. that ought to help next year. talking about regulatory burden, that will come down and help them. to things more quickly. so all of that is good. now there is other serious concerns. labor is trickier than people think. unemployment is very low. getting the right people in the right place and the right training is kind of tricky for people. it is the right jobs than it is in the macro sense a lot of wage pressure. i think we'll be fine there but with we have to do a lot of work to make sure people are trained.

the sole difference that happened is enthusiasm. if that fall fols through, it will be interesting. mark: still with us, jpmorgan strategists. you upgrade bank of america yesterday to overweight. what was behind that upgrade? >> clearly the u.s. banks have been strong since the election. i think that is down to the expectation, the inflationary activity by the incoming administration. more importantly i suppose more rate rises coming through next year which will be beneficial to margins. i think we will see an uptick n the economy. i think we'll see capital markets activity pick up in the second half of this year. i think that will continue. we're going to have a lot more volatility for next year which will be good for the businesses. finally tax rates. that is going to be important. there has been a line given that corporate tax rate is

going to come down from 35%. there is an expectation if that curse, that is up to 10 percentage points, that is a big push. mark: you said the -- of the u.s. financial? >> we're very bullish on the u.s. banks. our largest overweight within the u.s. based on this idea that interest rates are going to go up. there are all the beneficial interest margins. the yield curve. better regulatory environment as well. all of these things are positive. mark: on the regulatory environment, chris, elaborate in as brief a manner as you can. relaxation, do they have to hold more capital? what is it going to look like? >> i actually have a big red flag i put on on regulation. the talk is unloading the load on dodd frank. there is also talk of saying what we put in place is a 10%

leverage. what i show in any notes if that occurs you're taking two or three percentage points off the equity of those banks. so is there something where they are saying yes, you can have less regulation but you need more capital. the good news at the moment is that will take a very long time to enact. that could be a concern. it is something they have been talking about. mark: overweight, underweight wells fargo. downgrading goldman sachs to neutral. who is at the top of the tree? >> i think it is big banks. citi bank and bank of america, evaluation. they have good value despite the fact that they have had a decent run. jpmorgan has the benefit -- a broad-based business that can take full advantage over the economy.

wells, unfortunately, great business. the scandal around the false account also continue to dog it until it has the day in may where it can talk about it. >> they have run ahead. people think they are going to escape this regulation. there is always a kid with pro kuo on regulation. that's my view. ark: mike will stay with us. right up, j & j are back in play again. we'll discuss those exclusive talks. tune into radio day break europe in london. this is bloomberg. ♪

mark: welcome back to bloomberg "surveillance." i'm mark barton in for francine lacqua. the excitement just a week after ending talks. j & j are back in negotiation. they had been in talks to buy ctelion. we're going to talk m&a as well. two lovers falling out getting back together. this is a strange merry go round, isn't it? >> yeah. it is very dramatic every time we think there is clarity

there is another surprise. of nowhere to f talk about buying actelion. that was after they walked away just a week ago. we dome usually see a turnaround that quick. what did they do to get back into play and what does this mean for sanofi? mark: make my life easier. >> the french would have overpaid and maybe there is some hope, expectations that they will use that for buy backs or dividends. that's what analysts are speculating. j & j wanted this for weeks if not months. it was getting down to the final line when the c.e.o. of actelion asked for a higher price and that's when j & j walked away. mark: the man behind actelion for years has wanted to stay

independent. is he nibbling? is she showing an interest? is he behind j & j? >> you never know exactly what he is thinking. at the end of the day, this is his baby. he founded the company with his wife. he is a sign its, not a businessman. it has never been about money to him. shareholders have been putting a lot of pressure on actelion. these prices we are talking about are huge premiums. mark: wonderful m&a function. third best year in a decade. last year of course was the record. the outlook for 2017, many say the financial conditions remain favorable. you have this economy globally set to grow. outlook for m&a, what is the broad statement from mike today? >> i think you'll still see strong m&a next year but i'm not sure if it will be as strong as this year. you could still see money from offshore. i expect a lot of that to go

into special dividends and returning cash to sheryls as well. i think a strong outlook but maybe not quite as strong as this year. >> i think the big question for us is the geopolitical elements. you have the trump election. what does that mean? they may be able to lower taxes and you could ask yourself could that be a boom for u.s. deals? ? europe, you have questions, the french elections, the german elections, the dutch elections. i think overall we'll see pretty consistent deals. mark: mike will stay with us. "surveillance" continues. stay with us. this is bloomberg. ♪

i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. mark: welcome to bloomberg "surveillance". i'm mark barton in for francine lacqua. let's get to the first word news. >> boeing and lockheed martin

have pledged to control their costs after president elect trump summoned them to florida to discuss military spending period of time testifies concerned about the price tag over the new air force one. >> we're going to get the osts down. and get it done beautifully. these are great people. you're amazing people. i'm really impressed with them. >> meanwhile he has named carl icahn as a special advisor. the president-elect says he will promote business growth. icahn endorsed trump back in december, 2015. the incoming president sited him as an example of a person he would take advice from. bank of america's c.e.o. has been discussing how the election of donald trump is already impacting the u.s. economy. brian moynihan says he sees

business and consumer confidence jump. >> the enthusiasm the world is their oyster. they feel there is more they are going to get done. they feel better about the prospects of the regulatory environment in their businesses and better about the possibility of demand. that is going to take time to come through but the consumer confidence shot up and the business confidence shot up. >> and the u.k. economy continues battling away brexit with a measure of private sector growth raising to the highest in a year. the confederation of british industry said the index was helped by stronger performance in manufacturing, the best in more than two years the while retail activity slowed omewhat.

global news 24 hours a day powered by 2600 journalists and analysts. this is bloomberg. mark? we have more from tokyo. >> it looks like the japanese government is prepared to do something about the missing link between rising corporate profits and more spending. the budget totaling $825 billion includes funds for several subsidies for companies that advance policy objectsives. it encourages firms to increase raises based on performance rather than seniority which is demon japan. the measures are the latest efforts by prime minister shinzo abe to change private sector behavior. the defense budget is worth

over $42.5 billion. it is the fifth rate rise in annual military spending, a trend that started after abe took office in 2012. market morgan's strategy cyst still with us. you have to say there is still deep disappointment at the lack of structural reform in japan under abe. >> i think so. wages should be going up faster than they are in japan. there are about 14 jobs available for every 10 applicants . you'd imagine in most economies wage growth would be picking up strongly. this this incentive package is interesting. if you don't get wage hikes coming through next spring, then maybe that change their mind next year and actually look at measures that are not just the carrot.

mark: in july you need a reload of abonomics. shinzo abe has the political backing. uses this time cleverly, wisely to push through reform japan needs. >> you talk about the demographics problem they have, it is about to get much worse from here on in. they need to put through these reforms, otherwise the japanese economy is going to be in a bad place in the long run. mark: meanwhile in b.o.j. has gone negative and had a review of its monetary policy in the middle of the year. now it is pinpointing the yield curve. now investors are asking is it going to run out of bonds to buy? is true tapering the next step? is it going to reach its inflation goal around 2%. where does the b.o.j. head? >> i don't think they are going to reach their inflation goal to start with. i think they are going to keep

their policy of targeting the 10 jori yield. whether they keep it at zero is another question. a lot of central banks around the world are realizing having long-term interest rates slightly positive is actually beneficial for the banks, really what you want is negative deposit rate and a positive 10 jori yield so that the banks can make a decent spread and that feeds through and gives them profits that they can lend down and give to the economy. banks are actually lending to the economy throughout their entire deflationary period, lending was contracting in japan. that is the big shift that has taken place. mark: let's talk about the u.s. the fed's hikes are taking place. they are on for three in 2017 if their projections are to be believed. do you think three will terrelize or will it be a case of deja vu in 2016, four were projected and one was the

outcome? >> it depends on the dollar. we think they probably will put through three. if the dollar cons at a rapid pace, that could cause them to do less than that. three rate hikes won't cause the dollar to go too much further up. therefore they will be able to deliver the three that they say they are. if anything, wage growth is picking up. it is picking up close to 4% year-on-year. he risk is skewed perhaps. mark: that would be a surprise after the fed projected three for 2016. e.c.b., the year of extending the program but tapering it or reducing the amount of bonds they will buy. it will rise next year from 2016. are they closer to filling their inflation mandate?

>> i think they will be by this time next year. we know what the e.c.b. are going to do next year. it is now a question of do they in 2018 have a proper tapering? this is just a reduction. are they going to start gradually reducing, say we get 2018.o on q.e. in probably about a 50-50 chance. mark: mike, stay there. back in a second. up next, the president- beckett summons boeing and lockheed martin to mara lago. trump taps carl icahn has a special advisor. this is bloomberg. ♪

mark: welcome back to bloomberg "surveillance". i'm mark barton in for francine lacqua. here is nejra cehic. nejra: we're seeing a prechristmas lull when it comes to the markets. you see the stoxx 600 pretty ch unchange it hit its highest level of 2016 earlier this week. take a look at assets, you can see most indices here in the red. the ftse up .5%. we have seen a rebound after earlier losses and after a record low yesterday. of course the big question whether we're going to see a state rescue for the italian lender. a little stronger against the dollar. bloomberg dollar index pretty much unchanged though. quite quiet in the fixed income space. a little bit of pressure on industrial metals. if we take acka look at the map for the stoxx 600, see how

benchmarks are performing. the benchmark overall pretty much flat. i.p. stocks underperforming. health care firmly in the green ack tellian shares hitting a record high today. this is over two days they are up 11%. basically these shares rallying after j & j came back to the table after a week or so after they actually abandoned talks. j & j back together in exclusive talks. they had been in advanced talks with sanofi. sanofi being left out in the cold here. if we take a look, i just wanted to highlight chinese stocks. i talked a bit about these this week. there are concerns over the tightening of money markets and the debt route. the shanghai composite looks like it is ending the year as it began with losses in december. it has been underperforming global equities. fund managers see it rising

21% from wednesday's close climbing to 3800 by the end of next year. i want to look at copper industrial metals rallied in november. the rally in copper losing some momentum as you can see at the end there, particularly with stocks increasing and the copper market seeing its largest delivery since 1994. you can see the jump in the white line at the end of the chart. copper down 1% today. mark? mark: the two largest airplane manufacturers vowing to control their costs after president-elect donald trump summoned them. meanwhile donald trump has made two more high profile appointments including carl ike ann and peter navarro. -- carl icahn and peter

navarro. they were summoned, the two big contractors, defense contractors, to mara lago. what was the takeaway? did trump manage to win concessions from the two? >> you see this unprecedented intervention by a president-elect on a company by company level. it has had a mixed response. with boeing, he seems to extracted a promise that they will build air force 1 for less than $4 billion. lockheed martin was a contract that was inside and is largely on time and on budget. it is hard to see what is going to come out of that beside vague promises that the costs will be controlled. mark: this is an industry that is meant to benefit from a trump presidency, to increase the military spending. >> exactly. his promises to increase defense spending is great leverage for him to try to

extract actual cost reduction or promises of it. rk: akahn has been named a trump advisor to roll back regulation. let's starts with conflict of interest. yes, here you have one of the most legendary corpt raiders b being appointed to overhahl federal regulation. it is an astounding conflict of interest. we don't know what he is going to do in this new role. what power that actually has. whether or not perhaps he will stick around for a year and then fade away. it is not -- it is a new position and we'll just have to wait and see what comes of it. mark: favorable -- ending favorable tax treatment. >> interestingly, icahn is not known as an antefree trade. he supports free trade. it is unclear how he is going

to get along with some of the other appointees that trump has named. mark: peter navarro who has been a critic of china for 10-15 years. how is that going to go down in china? >> well, it seems to me this is part o of an ongoing effort by trump to be the president who brought back manufacturing jobs to the u.s. he seems to be using the possibility of ending the one china policy as leverage to try to extract some sort of concessions from china. whether or not that is going to work is a question that could backfire quite easily. how much leverage do they really have? how is navarro going to get along with rex tillerson or some of the other members of trump's administration who are very supportive of free trade and view a trade war with china as damaging. mark: the economic team is looking like it is pretty much done, isn't it? >> it is, but it is very divided on these key issues.

perhaps agreement on lower taxes and less regulations. how far they go is a matter of dispute. the whole trade issue is really, really up for grabs. it raises the possibility of discord within the trump camp. navarro is the only qualified fully credentialed economist within the inner circle. whether he'll listen to him more on that might make sense but it is unclear because he has a lot of different voices. mark: it is not something the investors are focusing on. it is the downside of trump's trade view. it is all upside, isn't it? look at the -- what took police november 8. how much more is there to run? we think there is further upside for u.s. equities. inflation should help higher sales and lead to better earnings. we expect the multiples to contract slightly. to leave you with a single

digit return for u.s. equities. that said, you make a very valid point that there are large risks around the outlook. the uncertainty is much higher around that forecast. mark: why is the glass half full rather than half empty when it comes to equity investors? >> i think because it makes so little sense to put in place any protectionist measures that people are hoping that trump will be sensible enough not to do that. clearly there is a risk that is not the case. mark: thanks very much. stephanie baker and jpmorgan assets manager. mike stays with us. global growth he sees rising 2.5% to 2.8% next year. we'll break down his expectations for 2017. what a beautiful day here in london. this is bloomberg. ♪

mark: welcome back to bloomberg "surveillance". i'm mark barton in for francine lacqua. >> expectations are growing that it may be bailed out by the italian government.

so far the bank says it raised just over 2 billion euros from its debt swap. half coming from retailers. yesterday they got the green light for the rescue fund. just last week johnson & johnson had ended negotiations with the $22 billion swiss drug maker. and nokia is suing apple ying the i-phone maker infringed several mobile -- but apple says they are refusing to license them on a per basis. that's bloomberg business flash. mark? mark: thanks very much indeed. weis st playing with my function.

we're here with jpmorgan's global markets strategist. 2017, michael. sum it up before it happens. >> we start with what we are most confident about. the bond yields in the u.s. can rise to 3%. that is not where you want to hold a lot of government bonds. mark: double diplomats or single? >> i think single digit returns on equities. which region dos we like? we think the oil price will go to $70 a barrel which will support energy exanps. they have performed well on the back of high yields and higher interest rates. in the u.s. that's the u.s. in japan, assuming if interest rates go up in the u.s. and the rates continue to rise, that should lead to further dollar strength against yen and that tends to benefit

japanese equities. elsewhere, we're more cautious on the u.k. you want to focus on the domestic sectors -- sorry on the international sectors over the international. the domestic outlook we think is going to weaken. growth will probably slow the 1%. u.k. growth has been held up by while real wage growth that is been strong. mark: emerging markets? >> emerging markets were neutral at the headline level. differences within the country allocation. we like the brits minus china. north of 7% growth next year and earnings could be strong double digit. in brazil, we think you're going to come from being in quite a severe recession this year to actually exiting the recession next year. we like the equities there.

we also think south africa is a good -- mark: what about china? what are your doubts when it comes to china? >> to be clear, we don't think there is going to be a crisis in china. we think growth will be a bit slower next year than it has been this year. we have seen quite a lot of fiscal stimulus this year, infrastructure structure spending. we think that will be pulled back slightly and house prices have been on run have been on run particularly in the taiwan city. that should slightly slow chinese growth and you obviously have issues around some of the bad dets on some of their balance sheets. mark: could 2017 kick off like 2016 did with unease in chinese financial markets spreading worldwide? >> last year it was all driven by the currency.

what is interesting when you look in terms of the exchange rate for the chinese currency trait -- trade rate, it has been flat. the reason the chinese currency has been devaluing against the dollar is because the dollar has been so strong. you have seen about a 15% fall in the chinese against the dollar but more like 30% for the euro and sterling. as long as that real exchange rate remains flat, i don't think it is going to cause major problems for the global economy. . that is not to say the markets may not be volatile if you see a big move. mark: biggest risk for 2017? what are the elephants in the room? what are the dark shadows? >> a large chinese currency devaluation would be one of them. what is quite interesting, though, is everyone is so focused on the european political risk. i think 2017 is going to be the year of political risks

that don't happen. you go through them. unlike toy to elect a an anteeuro government. france looks most likely that la pen will the defeated 60-40. italy. italy could change the law system. mark: "surveillance" is next. guy is here. tom is here. they are talking trump and brexit. this is bloomberg. ♪

2017, i made a new foreign policy.

in this hour, john wickliffe way to death john mickelthwait. silent -- john mickelthwait. the president-elect names a china hock. how will he -- how will peter navarro play in beijing? i am tom keene in new york, guy johnson in for francine lacqua in london. john mickelthwait with us for the hour to give us an overview on the foreign house the. give us an update on the united kingdom foreign policy. guy: it is run by a gentleman called boris johnson and we're trying to figure out he thinks of various nations. british policy is directed at one thing, entering out what brexit means. touch on brexit with mr. mickelthwait later in the hour. right now to bring you up-to-date, let's get to our

bloomberg first word news. sebastian: authorities across europe scrambling at this hour to track down a tunisian man suspected of driving a truck into a berlin christmas market on monday, killing 12 and injuring 48. authorities issued a wanted notice while warning that he could be "violent and armed." market in the capital city where the violence occurred is set to reopen. monte paschi will probably fail to attract sufficient demand for its capital increase, which would be the biggest bank nationalization and italy in decades. no one has showed interest in the stock sale. qatar is said to have considered investment that has not committed. relatives of those

and the fireworks accident are searching for members of their family. the blast occurred on the northern outskirts of mexico city. in the u.s., a supposedly -- thesan deal development shows the likelihood that global corporations and national sports events will continue to stay away from the state. it requires transgender people to use the bathroom corresponding to the gender on their birth certificate. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. tom: let's get to the data check. equities, bonds, currencies, commodities, down 20,000. let's -- dow 20,000. let's forget about it. move on.

next screen, please. the vix with a 10 handle yesterday. that is a big deal. 11.28 showing the complacency. the dollar drifts under 1.03 and i put in monte dei paschi to keep guy happy. guy: that keeps me happy. european stocks going nowhere in a hurry. look at the second element here. today we have a meeting at the check central-bank. you definitely remember what happened with the swiss franc when they de-pegged. we could see a similar thing talked about today and that could go wild, so keep an eye on that. the other thing i was going to point out, the most traded contract on the icy brent platform tuesday was up 100 bucks a barrel contract. the market is beginning to pay

attention to the upside. actelion is dancing with j&j right now, the m&a story dominating corporate news. tom: let's go to the bloomberg and look at price change. this is something that i get a ton of mail on. janet yellen is down here with core pce 1.7%. we will see what that does. you and i are living up here with the cleveland cpi, which is the best indicator of the inflation in your mailbox which is 2.5%. it is not back to where we were before the financial crisis. chair yellen has some room to the pceinflation, but deflator the fed uses is way down here. we need to see that, above the 2% mine. bund spread.the

credit agricole putting out a note, imploring investors to wake up and realize what happened in 2016 could happen in 2017. what the bank is saying is that this spread is widening, it is tightening up again. it widened in november and since then the polls have pointed to a second-round loss for marine le pen. he is saying do not assume that this is actually going to end up being the outcome, because polling is not to be trusted. keep and i on the spread. let's talk a little bit about some of the stories and get the more detailed analysis of what we have learned in 2016. donald trump has named carl icahn a special advisor to help with the overhaul of federal regulations. he also named economist peter

navarro to lead a newly formed white house national trade council. he is not a man that sees eye to eye when it comes to the relationship between the united states and china. let's bring in our editor in chief to discuss all of this, john mickelthwait. what should we make of the latest trump appointments? john: they feel slightly is a step backwards. is a good example of putting the fox in charge of the chicken coop. he certainly knows where the bad regulations are and the ones he has taken advantage of. peter navarro by contrast is very much on the protectionist and of the economists and he is said to be taking a belligerent attitude toward china. the biggest worry about what trumka do to the world economy -- trump could do to the world economy revolves around china.

there is a presumption on the trump side that chinese will take it and that is not necessarily true. teaching paying is an autocratic figure and they do not like nping challenged -- xi ji is an autocratic figure and they do not like being challenged. guy: can he deliver growth rather than inflation? the regulatory story surrounding carl icahn is interesting. larry summers has talked about regular stagnation. john: i think there is more regulation stuff you can get rid of in america. look at the kind of regulation you need just to be a hairdresser. that tends to be state regulation, but all the same there is a lot of it. in order to cut tom keene's hair in florida you would need to spend six months training. guy: you think that is too much? john: i think for tom, that is a

struggle, but for many of us it is a problem. there are overarching things that are overregulated, and we could bring those down. there is some expectation among the finance committee in particular that there could be a slightly better version of dodd-frank most got used to it but there is no doubt it is something as long as comprehensive as dodd-frank. one bureaucrat in beijing, nobody has read the entire dodd-frank. it is an immense law. it is livable but could be made better. tom: we want to touch upon a look back on your year with mr. putin, madame lagarde, and your interview with saudi arabia. tell me, within the ark of bloomberg news how mr. trump is playing abroad. i think it is a mystery to a lot of our viewers. i think we knew how president

obama played, the majesty of the obama visit to berlin, none of that is happening. give us an update on how mr. trump is playing in europe and abroad. john: there is always a mismatch between republican leaders. when reagan came in there was a lot of fear of what he would do in europe. you can remember all of the things that happened with george w. bush. america simply is on the whole a slightly more conservative country then europe, and it takes europeans and asians time to get used to it. i think there is an element whereby certainly in the business community, a lot of the business community is gradually coming to terms with donald trump whether they voted for him or not. that has not percolated as far as t side of the atlantic as in some ways it should. to some extent i think you should judge donald trump by what he does rather than what he said.

i think one thing we have all discovered about him is that he is not necessarily as died to what he said as -- tied to what he says as other conventional politicians are. i am not that enthusiastic about some of the things he has said about china, but we will wait and see. in europe, perhaps they are a bit too hard on him so far. if it's a caricature on how people do not want -- he fits a caricature on how people do not want americans to look. 2017 seems to be in the ether of our international economics. stay with us worldwide for a continuing conversation with john mickelthwait. in the next hour, the market economist that nailed 2016 and the fed. this is bloomberg. ♪

guy: i am guy johnson in london, tom keene in new york. let's get you a bloomberg business flash. sebastian: an embarrassing blow to alibaba's credibility in the u.s., it has been labeled a haven for knockoffs by the federal government. back on the list of so-called notorious markets, meaning they have an unacceptably high level of counterfeiting and piracy. alibaba is disappointed in the decision. the measure of private sector growth in the u.k. has climbed to its highest level in a year. flying in the face of concerns about brexit, the index was helped by a strong performance in manufacturing, the best in more than two years, but retail

activity slowed slightly. actelion has announced new exclusive talks with johnson & johnson about a possible new exclusive talks with johnson & johnson about a possible takeover. johnson & johnson said they had ended negotiations but the latest development is a blow to the french pharmacy. that is the bloomberg business flash. guy: thank you very much. lenderuggling italian monte dei paschi will probably fail to raise the 5 billion euros capital needed before the end of the year. a state rescue is now more likely. let's get more on this. michael moore joins us now on set and still with us, john mickelthwait. the privatet is it investors saw that they did not like? many pieces have so of this plan that were so dependent upon each other and what you needed was an anchor investor. that did not materialize, so

some of the other orders were dependent on that materializing, and you had the debt swat -- debt swap. it was a complicated plan that needed many thanks to fall into place at once. sort of apparent breakdown going to just affect monte dei paschi or the other italian banks? michael: you have the fund which is italy wide, but it is more of a sentiment play. money butis raising that is not until the first quarter of next year, so they have a little time to generate some interest. i think it is more of a sentiment effect dragging down the sector. tom: i want to talk about the germans. the figure is 20 billion euros and i do not buy it for a minute. this is a train wreck and we have predicted it on the show. how will the germans respond to

clearly a bailout by the italian government? michael: the tricky thing about this is, it is not like monte dei paschi is failing on its capital ratios. it failed in the stress test and that is causing it to raise the capital. so this is likely going to be what is called a precautionary recapitalization, and there are some measures in place to allow that to happen. it just comes down to a question of how much of the burden will the bondholders have to shoulder as opposed to just the state. tom: here is monte dei paschi, this is a basic chart off the bloomberg. we go from 8000 euros down to 17 euros. if i look at a chart like that, it is a death spiral. what is the plan for the italians after the first of the year with the five or more monte dei paschi's? michael: i think a lot of it

will depend on how the securitization of the bad loans goes. if you look at monte dei paschi, 36% of their loans are bad and if you look at a jpmorgan, it is less than 1%. this is a huge problem for them and they are trying to securitize that off, and kind of have a fresh start. if they are able to do that, they may get some our confidence in the system. they need the capital to allow the write-downs to let that happen. john: how bad do you think those loans really are? we look to these other debt crises, including lehman. suddenly all of that stuff is worth something. is there a buying opportunity or does nobody know? michael: it is hard to tell but they have taken major provisions against them. the securitization will be at a pretty low mark, so there could be some upside if you could have

some of these workout. is 60% toge ratio some of these bad loans, so there certainly is some room for some recovery. guy: isn't this an economic problem as much as these loans have gone bad because the economy has gone bad, and until you fix the economy it will be hard to say we think some of these businesses will be able to be right sized and put back on the right course, because the italian economy is simply drifting away from germany and the rest of europe. john: the deep underlying problem is the failure to get reforms through. look at what renzi tried to do, and you could argue he tried to do some of the wrong things and maybe he was wrong to focus on constitutional change, but buying any measure -- by any measure italy has moved slower than spain. the only thing going for the italians as they have done more

than the french. guy: we will talk about that a little bit later. michael moore, thank you very much. withg up, a conversation bank of america ceo brian moynihan coming up at 7:00 a.m. new york time, trouble clock p.m. in london -- 12:00 p.m. in london. ♪

tom: bloomberg "surveillance," on a thursday. guy johnson in for francine

lacqua, tom keene in new york. the market is fairly quiet now. let's look at the american foreign-policy. this is a scathing op ed on where america is heading. the united states is a country that can be ignored. to exclude or ignore the united states is a direct result of the president's incoherent foreign-policy. each of the world does not share u.s. values, suspects the u.s. hypocrisy, or of accuses it of arrogance. john mickelthwait is with us. i suppose president trump is going to fix this. how do we move on from that assessment to trump foreign-policy? john: i think they are quite connected. i do not entirely agree with him but that is the joy of having columnist. the interesting thing, that is

quite close to the trump starting point. i think a huge factor in how america, the ignoring of america , was the decision not to follow up after syria crossed the red line. thing, aboutone thing being a superpower, when you threaten people you have to carry through the threats. the fact that obama did not do that i think did make it very much more likely that people looked at america and thought america does not carry the big stick. tom: you discussed those red lines with putin in eastern siberia. maybe it was japan. it, you talked to him about he had a real understanding of the red lines. where will they be next year? john: i have voice thought putin has a slightly strange relationship with trump because putin likes being mr. unpredictable and now he has somebody in the white house who

--ld -- we do not know yet but at least on paper he looks like someone who could be even less predictable than put in. that may cause -- then putin. that may cause him some problems . you could argue that obama with putin made the ron kind of call. on the one hand he treated him with no respect at all really. vladimir putin is speaking of the defense ministry in moscow. to a certain extent he is probably talking to his audience . he is saying that russia is stronger than any attentional aggressor and russia must do more to strengthen its nuclear forces. to ane is talking audience that i believe is more receptive. john: obama is a very logical man and he looked at all of the statistics to do with russia, and he is right, putin is wrong. they have built up the army of

it, but russia is a second division power. it still has the possibilities of projecting itself into individual areas, and i think obama's mistake was perhaps never to treat putin with enough respect, saying he ran a second-rate outfit. you need to show respect in terms of your actions, and you need to be crystal clear about the red lines and where russia can and cannot go. donald trump has people around him who have said that estonia is -- .om: i need to cut you off we continue in the next hour, the trend is your friend. christopher varona. worldwide, this is bloomberg. ♪

tom: bloomberg "surveillance," it is thursday. guy johnson in london, tom keene in new york. a cyber security firm

says it has uncovered strong proof between the group that hacked the democratic national committee and the russian agency. according to the washington post, the firm crowd strike which was hired by the dnc linked malware use of the dnc phones used byd the ukraine army. japan has approved a record budget for the next fiscal year. businesses that helped meet objectives like raising wages and making child and elderly care more available will be rewarded. shinzo abe's cabinet also approved the largest defense budget. defenselargest companies will try and control their costs after donald trump so amend -- summoned the leaders

of boeing and lockheed martin to his estate. he earlier criticized boeing's planned update of air force one. chinesent critic of trade practices will lead a newly formed white house trade national cap -- caps off. peter navarro will serve as an assistant to donald trump and has spent much of his career criticizing china. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i'm sebastian salek and this is bloomberg guy:. thank you. bank of america merrill lynch chief economist has joined us on set. bloomberg us is editor in chief. 2017 looks like it is going to be an interesting year for mario draghi. he has to deal with the situation on the other side of the pond where the rates are

rising and then he has the political volatility. is the most likely outcome that he does nothing? >> in a way this is what he told us -- bye i telling and less things deteriorate massively. it seems that he has decided to look beyond any kind of the risk. we have the election in march, france in may, italy whenever, germany september. it seems they would rather have a quiet year. they do not want to stir too many issues. they staying away from all the controversial decisions. they could've done exactly the same thing in terms of quantum. they could've done it by allowing more activity in the capital key. they could have done it by going beyond the 32%.

all of this was controversial so none of this was decided. what do you think the odds of that big deterioration are? aviously mario draghi is clever person and is some way saying, i'm not going to deal with that. in your mind what is the chance of that deterioration tom was talking about? gilles: there are indications that things are going to be all right. my only problem is we are focusing on the political situation that we might have some good old economic issues coming back to want us. -- coming back to haunt us. in europe, a lot of it is to do with sectors that are fading. we had very low inflation. we had the sort of fiscal listening and -- loosening and this is fading. absolutely the historically low level of

interest rates, and this is reversing as well. 2017ould end up in mid with improving inflation, things looking much better and by the end of the spring a return to this lackluster, mediocre outlook. my impression from what we had two weeks ago from the ecb is that the bar for more action has gone high. help me with the trump help me with the trump reflation, the trump movement to a more animal spirit, and mr. draghi. can you adjust nominal gdp in europe higher because of what we witnessed on november 8? gilles: if you trust the old elasticity, if you get a fiscal stimulus of 1% gdp in the u.s., .ormally it is lower nothing to be very enthusiastic about. do not forget that if the

repricing and yield in the u.s. is too brutal, we may have some second-round effects on some e.m. markets to which we are quite exposed. at this stage for us it is quite ambiguous, and what we see right now is that we are already dealing with a high level of yield. we have the usual global push from what is going on in the u.s. without most of the benefits. john: which european country are you most worried about? gilles: italy. my starting point is always the same, where is potential growth? in the eurozone it is that 1% and in italy it is closer to zero. we had some nice improvement in the data flow because there was a fiscal loosening because inflation was very low. if you take out those factors then you may come back to something that is very weak in a situation that is volatile.

i think italy is still there. gilles: and u.s. -- guy: and un's -- u.s. investors are beginning to talk about this, are we going to be talking about re-denomination risk? so it just carries on? target two keeps getting broader , we continue on with italian growth, unemployment remains where it is, a lack of political will to generate economic reforms. the story is not changing. where something is unsustainable at some point it cracks. is it unsustainable? gilles: i do not think it is. i think what it is is enough to deal with emergencies. the central bank seems to be a bit exhausted but could always find a little bit of extra enthusiasm if things were to turn sour.

i do not think it is something that would be generated by any kind of market or macro situation. you need to get to a situation where you have government that is explicitly saying, yes, i want out, and usually it is too late and you get there. that is to me the central point. italy, for me one of the reasons the market has the referendum outcome is because we'll thought the senate is not going to lose its power. it means there is going to be harder for any populist government to take very decisive measures such as questioning e.u. membership. you end up with something that is probably negative for the reform momentum but positive for keeping the country in the eurozone. tom: help me with the vector of negative rates.

it is something we sort of ignored with the trumpet enthusiasm. bring up the chart, the 10 year and two-year german yields, and the vector on the two-year bigan is still a bit -- -7.79. do you presume that negative rates heal thyself within a trump enthusiasm? europe,not really in and that is actually one of the consequences of the ecb's latest decision. they could have done exactly the same thing with the quantum by yieldly flattening the curve, moving on the capital key and the 33% limit. they chose to go for buying rate, whichposit actually is probably the least controversial solution from a political point of view, but technically it creates this further drop along the short end of the curve.

what you end up with is a lot of financial institutions in europe continuing to accumulate very negatively yielding assets, which is probably not great for their financial health point of view. john: do you have any sense of where the health of banks outside of italy? we have had so much of what is been happening in the italian banks. are you more sanguine about the rest of europe? gilles: the market is generally stable. there seems to be some moderate improvement. we are still away from the complete freezing we were until the end of 2017. relativere has been a lack of european banks dealing with nonperforming loans. ofles: from a macro point view what matters is can we count on supply credit in the

eurozone in the two years ahead of us? we are in a better situation now than a year or two go -- two ago. her seems to be this higher willingness from banks to lend which is not taken by borrowers, which says expected investment remains quite weak. on the supply side, things seem to be easing. tom: gilles moec, thank you. he will stay with us as well as john mickelthwait. in our next hour, you will all want to attend on global wall of morganntner stanley on the new calculus for janet yellen. ♪

"surveillance." guy johnson in london, i am tom keene in new york. i want to bring up a chart before we get back to john mickelthwait and gilles moec. i have never seen this chart, and i learned a lot looking at it. this is saudi arabia's budget deficit. here is where the united states is, -3%. 1986,s the disaster of which is front and center in the collective memory of the house of saud. here is the 1986 equivalent, and yesterday they announced an effort to get back to hear. john mickelthwait made worldwide had mines earlier this year -- headlines earlier this year. how has it gone the last couple of months? is the younger crew in riyadh really getting authority and

scope and scale for domestic saudi arabia? john: i think he is making a lot of process -- progress, and your chart sums up the reason why he thought he needed to change saudi arabia, that and the oil prices. saudi arabia was running out of money, and secondly, it needed some future i did not depend wholly on oil given the oil price and given other environmental concerns. i think the answer is, the fact that he has managed to hang on to as much power as he has, has surprised people. being the son of the king is not an unhelpfulbeing the son of tht an unhelpful thing, but very strongly, a lot of the tough stuff is now going to bite. if you start cutting budgets, that is where you start interfering with that basic compact between the regime and the saudi people. us carry on a life with a princes have a good time and in exchange have subsidies to

bail you out. if those start being withdrawn you might see a more different regime. tom: what you have done for years is cut through the nostalgia. john: i love nostalgia. tom: we think of peter: to all on a camel and all of the stuff that robert lacey taught us. forget the nostalgic. give me the new reality for this major player in the middle east. what is the reality? john: it is very close to something guy just said, the old economic joke that if something cannot go on forever it will stop. what they have come to terms with in the past year is that the old way of doing things could last a bit longer, but fundamentally it is not going to last forever so they have to think of new ways of regenerating that economy and putting it on a different kilter you'd that may mean aching some dramatic moves in -- making some

dramatic moves in foreign policy. sooner rather than later? me on theare putting spot. i think probably later. i think nothing is going to happen next year. guy: in terms of how the relationship with the united states is going to develop from going to be inat a trump administration and particularly where we are seeing court cases being brought against saudi arabia? does that significantly change the relationship? john: i think it is worsening anyway. there were difficulties before. he had many things coming out of congress. you have trump coming in saying they should pay for a lot more. you have the general unpredictability of what trump could mean for the region. more leisureibly a and attitude toward iran and

there is nothing that would please the saudi's more. the idea of more instability and the sense that trump wants america to boss around the world without necessarily providing the resources, that would worry them. tom: john mickelthwait and gilles moec, and we will look at the united kingdom. brexit, next. let's look at the data. market --me no let somnolent market. 20,000.cannot get to guy johnson and i are not on a doubt 20,000 watch. ♪

merry old england, it is gorgeous. everybody in that shot is going to be on strike between now and the next five days. i'm going to have to take a rowboat to get over to london. come i amn in london tom keene. help me with hurricane barbara. guy: it is not really a hurricane anymore. it is just going to bring lots of rain and high wind, so if you

happen to be in scotland, it is going to be cold and probably going to snow but in southeast england it will probably rain a bit and be quite warm. anybody hoping for a white christmas in the u.k., or the southeast of england, not going to happen. tom: let me guess, it is boris johnson' fault? guy: we could blame him. let's move on to what is probably exciting boris johnson, next month we get the results from the supreme court hearing over whether theresa may can trigger article 50 without parliament's permission. we are still with gilles moec with bank of america merrill lynch and editor in chief john mickelthwait. will that court case change anything? has it embedded the idea that parliament will have to have a role? yes, my guess is

parliament probably has to have some role going into it. the other interesting thing as we have sort of established the principle that whatever comes out of it, parliament should be involved. in some ways that second one could be a bigger problem are the people who want to push ahead is a hard brexit, but at the moment host of the signs are porting toward a hard brexit. there is not much sign of europeans giving way or the british giving way either. guy: how is it going to be from a foreign exchange point of view , is there more downside to come for the pound? gilles: it could be a difficult moment when article trick -- article 50 is triggered when the realization of brexit comes in. what strikes me as there is still a bit of denial in the market, especially on the u.k. side, the sense that the government will be going more flexible and some of the hardest

options will be taken off the table which for me does not completely ring true. i do not think the u.k. is getting any closer to what the europeans would want. as long as the market wants to hope that some sort of miracle is going to happen, a very soft brexit will be on the menu, the dana negotiation start realize it is hard, you could get another blow. john: the negotiations could be very short. the british could say we want access to our single market and the french say, take your choice , which one do you want. suppress -- theresa may has said she wants to 19 control of immigration. tom: help me with a chart of the year. the purple line is what is not happening, that is goods and services flows within the trade dynamics of the united kingdom. the white line is the money flow

, and this is the total current account balance. what does this beast do next year? for that into your sterling guess. gilles: if we are right and we actually get a proper slow down in british growth in 2017 because the inflation finally, investment goes down, normally the current account deficit in this configuration improves a bit. i do not think it is going to be necessarily a big driver of whatever happens. what is going to be the big driver probably continues to be politics, and you could have two steps. another leg down when article 50 triggered, and after that

some sort of crawling back and slight improvement. but again, with the u.k. slowing down, and we think slowing down more than the eurozone. gdp growth in the u.k. being slower than the eurozone, normally you get a slightly better current account. tom: we like hands flying on surveillance. if you do this more, you can come back. john: he has numbers as well. tom: here is the chart of what he was just doing this on. in the bank of america merrill lynch flow is the flow in the current account deficit. the glam crew is looking for this, -- gloom crew is looking for this, worse. the united kingdom just meanders almost into a lethargy, is that a possibility, almost a lethargic united kingdom? gilles: it is a possibility if for instance u.k. growth continues to be more resilient than what we have in mind, in

which case you would continue to dig in the deficit. also if the government is a bit more supportive of the economy and really engage in some sort of reflation, but that does not seem to be what they want to do at the moment. the clear statements we had from mr. hammond is that they are not john, for 2017, we need a six-hour bloomberg surveillance. john mickelthwait, thank you so much. gilles moec, thank you for participating. entne. next hour, ellen z r ♪

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tom: janet yellen will tap in

inflation. ellen zentner will be with us. least as night or at of the market drifts to christmas and beyond. the president-elect names a howa hot, how will -- hawk, will peter navarro play? welcome to "bloomberg surveillance." i am tom keene. tell me about the united kingdom. you have multiple strikes. a hurricane comic. anything exciting in the next week? guy: christmas is coming and you are coming. on the agenda, i think there is a certain feeling in the u.k. that 2017 hopefully will bring a more refocused government on the day-to-day management but that is probably not the case with a new cycle we are about to go through. right now to our bloomberg

first word news, here sebastian salak. jamie dimon said voters around the world have been on a mission for change and to embrace the change, they hit at the reset button on leadership. murphy, jamie dimon weighed in unchanging governments. you see overseas, i want a change. they want a wrecking ball to these governments. they want change. they want something very different advantage they have seen. a lot of us are sympathetic to it. we want things to be better. the fact analysis and the real detail to make it happen. sebastian: you can watch at the full interview on a bloomberg businessweek debrief with the jamie dimon tonight at 9:00 only on bloomberg. authorities across europe are scrambling to track down a man

suspected of driving a truck the tour berlin christmas market, -- driving a truck into a berlin christmas market, killing 12. authorities issued a warning that he could be "violent and armed." the markets and the central of the capital city are due to reopen. fail paschi will probably to attract sufficient attention for its capital. it would be the biggest bank nationalization in a death case of according to people familiar with the matter. nationalization in a decade, according to people familiar with the matter. critic of chinese practice it will lead a newly formed white house national trade council. peter navarro, and economics professor, will serve as an assistant to donald trump he has spent much of his career

criticizing china. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am sebastian salak and this is bloomberg. , commodities, quiet. down 20,000 euros. oil churning. next screen, the vix showing the outcome in the market and the dollar a bit weaker. monte dei paschi with his own story. die? -- guy? guy: we will close what to the story later. we remember what happened to the swiss franc and it is pegged or capped at the moment. , you were to be withdrawn can see very violent moves. .n tuesday, 100 bucks a barrel

exclusive talks with a j and j, the big corporate story out of europe along with tom's monte paschi this morning. tom: joining us now is ellen zentner of morgan stanley. long ago and far way, 18 months ago, she said no consistency and suggested it would be a fed that delayed and delayed and delayed. she absolutely mailed the delay call for the federal reserve and they finally acted on december. reform will get your wonderful call, peter navarro, he has been on the show and you joined mr. withro before the election us. he created a firestorm of controversy. to me, most of his zero-sum thinking, a theory of going back to pre-world war ii trade. when i say zero-sum society for zero-sum trade, what does it mean to you? ellen zentner: part of the

zero-sum part of the zero-sum argument is also a very important piece of the republican blueprint that we saw come out of the summer that includes border adjustability for tax reform. that creates a natural tit-for-tat, if you will. if you are an exporter, you get to the equal of let of the subsidy. if you import into the u.s., the equivalent of a tariff or access taiex -- excise tax. it is tariffs in a different form. camp and novas leading that in terms of making it -- china playfair and fair orte -- platy his argument or the republican plan, a shade of the same border adjustability. tom: my favorite chart. this is the rate of world trade

that years and years, the 10 year moving average into the reagan era and all you need to know is this rollover in world trade and ellen zentner am a rate growth we have not seen since late 1980's. it is addressed the right time to talk about being more defensive in america about our trade relations? ellen zentner: if you talk to most economists, we are worried about this trend. globalization seems to be reversing course or at least over the next four years are so, it does not seem like global leaders will be advancing. , youu model impacts of say know, putting tariffs on china, china retaliating, but that takes time. simply closing golf u.s. borders actually has a bizarre in immediate impact of lifting the growth because you're limiting

imports so much. over the long haul, if the damages long-term output, long-term growth. the fear its policy makers inward and reverse globalization and the next few years for short-term gain at long-term pain, which is well after they are out of office. guy: good morning. which parses society would benefit or lose the most if we see a rise in protection alyssa? ellen zentner: and just missed take time. let's say that we were to place tariffs on chinese. -- just missed take time. price will not in middle rise because durables are 40% imported from china. -- adjustments take time. incomes would not go up the prices would be. wheres a temporal effect we could say, sure, we would step in and be forced to produce

a roll goods and ramp up production, but that takes time and we have no labor to meet that immediately. the labor market has been flubbing along for so long and many manufacturing and construction workers, you cannot turn on the spigot laborow and have the needed to meet the demand ramping up factories. guy: the u.s. is one of the most closed economies, generating more than what it needs than other blocs. in terms of relative trade, wouldn't the u.s. come out on top? ellen zentner: when we talk about what a trump presidency might mean at his trade policies, it sounded like you could tell story where it was positive and that near term for the u.s. and negative for everyone else. up 12% of the u.s. economy. it does not seem like a large amount when you compare to other

economies that are more reliant on exports, we have been dealing with a very painful and adjustment and of the dollar, very rapid over a sure pedal of time. while it may cripple of economies, it is harmful for the west. on trade protectionism, you are talking about a much stronger dollar. in our scenario, we have a 10% rise in trade from the time that trump took office. we have 4% of the increase. probably in a pause and we are due for more. tom: that as an important outlier call. the fed call. bring out the chart. i am squeezing the chart to get out in front of trump inflation. the lollipop chart. the said meetings and a rate hike here and a hike here. this is the genius of ellen no, they areno,

not going to raise it. you nailed it. do we revert back to the world or the enthusiasm of trump? ellen zentner:" for us, there is a balance. you are hitting the economy with stimulus late in the business cycle where the unemployment as 4.6% and that puts a lot of domestic pressure. how much does the dollar depreciate? there is a china effect and the dollar effect on the other side of the question and they are playing a tug-of-war. tom: what is the function that gets in the way of certitude of analysis? i get the dollar is stronger idea and maybe the outcome. what is the other out, that goes up the certitude of a trump bull? ilen zentner: the questions get are around animal fear, will animal spirits come back? spiritthink about animal

and households, i think about price tolerant. tom: jargon alert. ellen zentner: it is 6:00 in the morning and when he jargon. price tolerance would be, are you receptive to prices just going up tomorrow? if retailers have to raise prices. we are very price intolerant. very price intolerant. it is not so easy for domestic .etailers to just raise prices think of restaurants and retail establishments suffering for wage pressures for if you years now and complaining. -- for a few years now and complaining. we have seen people are buying more but more discounted. if you tell me there's going to be a sudden shift and we are going to be more price tolerant and accept higher prices, that's a animal spirit story.

can donald trump do anything to fix productivity? if he can fix productivity, the fed's job will be easier. ellen zentner: absolutely. that's the thorn in their side, productivity. thatve heard jenna yellen says anything that raises the capacity is great. if i were janet yellen, i would it be focused on providing corporate tax reform or something that has a repatriation that encourages dollars to come back to the u.s. does not mean it will flow into additional investments. you will have to incentivize to do the right thing, perhaps a bonus depreciation if they do amp up more capital deepening into place. otherwise, you get more dollars back and share backs and dividends and that reform does not boost the productivity

capacity. you have hit on the key of everything and tom know we focus on productivity. it is abysmal and the u.s. we hope some reform -- -- carry on cover the conversation as something the fed will focus on. and donald trump is certainly thinking about. this, a thinking about conversation with brian moynihan at 7:00 a.m. in new york. this is bloomberg. ♪

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guy: we welcome you worldwide, guy johnson in a london and tom keene in new york. jamie dimon, she was trying to

put together a transaction to out out of the bank -- bail of to the bank. people are critical after a smart interview with our megan murphy and business week. jamie dimon talked about many things. one of the lead in the air is corporate tax reform. corporate tax reform. we are driving capital overseas every single day and the government made a problem. the problem is our tax rate is so much higher than the rest of the world and the rest of the world is coming down and hours are staying stable. they are buying companies overseas. it is not coming back. how much damage is done before you change it? every study shows reducing corporate tax helps lower paid people and wages. to me, we should solve that problem and i hope the new administration can do that.

.om: jamie dimon and ellen zentner is with us. mr. dimon swallowed the trump kool-aid. ellen zentner: we pressed him the kool-aid.ank bankers are surprisingly optimistic. ,n this stage of the game whether they see putting forward on issues like trading corporate tax reform and the agenda we see him pushing forward, what i have been surprised is the resistance prior to november and the willingness to look at appointment after appointment of senior bank figures and give them the benefit of the doubt to see what they are going to put forward. tom: what was the surprise of the interview? what did he say with an your th?s? -- lenght megan murphy: the door he left

open. he has been adamant about staying put and a big believer in the bank and what he has been doing. he do not close the door to doing a different role in the rm future. when you listen to him, he has friend's narrative about being a page -- he has framed his narrative about being a patriot. he has now ruled himself out of a bigger role. -- guy: if we were to see regulation surrounding you as a banks, what would be the economic -- u.s. banks, what would be the economic output? dodd-frank may not be out of the window. what kind of images would it provide? ellen zentner: anything that helps credit growth in the u.s., access to credit is a big issue for households that want to get

credit and cannot. and as a housing market, the regulation from dodd-frank that tightened debt to income ratio, knocked a chunk off first time theehold buyers out of markets. it would be great for them to come back and seek home ownership. we can say it is positive in terms of economic growth and the magnitude is a question. trade deals at the inside, we know delta is to the upside. it is the magnitude. we can seegulation where the pendulum has swung too far and the other direction after the financial crisis and bringing that back to center would be welcome development. guy: megan, how far does dimon think it will go? in terms of regulation? about he has been candid

dodd frank a very clear about saying we can recalibrate and ellen is right. people look at access to credit above for small businesses as and and they see an upside upside of reform in terms of how we get community banks back participating in the system. i think we will see a real movement. how much you will see congress and the appetite to look at these massive legislative program agendas and is there a willingness to move them back is a whole different matter. that is going to be a difficult fish for them to swallow. murphy, bloomberg businessweek editor-in-chief. you go watch of interview with the jpmorgan ceo jamie dimon on the business week debrief. a conversation at 9:00 p.m. eastern tonight. this is bloomberg. ♪

tom: "bloomberg surveillance" guy johnson and tom keene. steve rhodes with us at the other day. one of his followers, ellen zentner is here with us. let's bring all the chart here. you know this, and consumption lapse within america. here was at the good time from kennedy and jfk here. a couple of slow points of recession and down we go.

as dr. rocha mentioned, we have come back. the consumer is doing better but nowhere where we are. reflationate trump back with spending? if you reduce the labor market, yes, we think wages, it depends on the types of jobs. to create a lot of service sector, low-wage jobs, you continue to get the bleed up. if you move it into middle paying america, higher-paying, manufacturing and constructing and you build that, you get a much more rapid pace. is the distrust everybody have that the trump reflation, plutocrats and does not diffuse down to steve roach is -- steve roach. ellen zentner: we do not have the added layer of debt fueled spending anymore. that had increased over time,

that where it had gotten wider over time as we created more consumer debt outstanding. from the late 1960's outward and is suddenly fell off a cliff after the financial crisis. we were moved that layer. we have this dynamic of an aging population. if you look at demand curves by age, we are buying a lot of stuff as we get a tour mid 50's and it drops all. there is a growing share of the economy aging. tom: oh, really? be quiet. a growing part of america is aging. ellen zentner is so gone. ♪

guy: i am guy johnson and tom keene in new york. one of the big corporate stories over here and over there. back atand johnson are

the negotiating table a week after ending earlier talks. j and j made an offer to two hundredaround $60 a share. it is around 28 billion dollars according to people familiar with the situation. -- $260 a share. we saw somebody else stepping up. phil joins us. why are jet in j and actelion talking? phil: you rarely see this in an m&a deal. as best as we can tell, things got complicated. convention to give a value -- contingent value on how and theirrugs perform experimental pipeline and it got complicated and the talks fell apart in jj came back.

guy: are we talking about a story to deal? that would be clean. is that what we are going to end up with? is hard tonow, it tell because of the companies are close the mouth. would said, investors prefer a straight takeover by j&j and no strange structures or anything like that. the market is kind of betting on that. we will have to see. guy: and arbitrage and i see a price of 224 and we thought the price was $260 by j&j and we thought it could go as high as $275, why do i have that spread? phil: it is hard to say what is going to happen. j&j was significant below where santa feet seemed it to be. do they close at the gap? it's hard to see the actelion would've walked away from to

intercepted five dollars to take $260 -- 200 certified dollars to $260,06 -- $275 to take they will close the gap. pen isan: marine le having a hard time finding cash. she needs $21 million for a presidential campaign next year. her problem is the national front russian lender has failed. she has sought the finances and russia because french bankers refused to provide funding. in seoul, south korea, the court held the first hearing in a pitched president park. -- for impeached president park. the court has up to six months to determine the president's fate and in the meantime, her authority is suspended. an approved and billion-dollar record budget is approved with

incentives for companies and light of abenomics. companies that rise wages will be rewarded. prime minister shinzo abe's biggestapproved japan's annual defensive budget. the two largest u.s. defense contractors said they will try to control costs after president-elect trump summoned at the ceos of boeing and lockheed martin. mostngled out the expensive weapons system. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am sebastian salek and this is bloomberg. with-- tom: ellen zentner us. christopher verrone is really good at trend. -- the trendsted

adjusted and adapted. this while stock market. how extended are we? christopher: we are not extended. historically, in the range of 12 to 14, we're not in the ballpark. ,om: the classic chart of s&p we right on trend after a 2009 market, are we extended? christopher: most stocks had bear markets last year. 70% of stocks were down last year. nikkei down. there were bear markets everywhere. we think it's a new acceleration. , we are not report going to send you out to verrone charts. you have a great outlier and i collect straw hats in europe. , 29% chrysler,

10% and vw. the chart. bring it up. the euro stoxx auto index that you just talked about. why are you enthusiastic now? christopher: they were caught and a half -- in half. this was about cyclicality. it is starting to emerge. the european autos are another example. bmw looks good. volkswagen after two years has broken out here. ner isnt inner working on uber folio and taking notes. she is writing. -- and working on her portfolio and taking notes. guy: that downtime is a european auto sales was largely china related. how much ofector,

the correlation with the china will be evident in the upswing? it has not been as pronounced the globally as you would expect. theave seen, for example, shipping stocks have turned. tom: what is the jargon of turn? what does it mean for a guy like you? christopher: that have stopped going down despite negative goinghurt when it stops down or bad news, the narrative is starting to change. we have seen the bellwethers, shipping, iron, the same story. guy: i made a lot of money in the market has gone up in aggregates. nevertheless, how do i generate? you pull out some of the individual sector stories? is a bottom-up or topic down? christopher: it is bottom up.

it is the lowest it has been in 10 years. dispersions certainly counts. we see that across the s&p especially in sectors like consumer where the correlation among those are the lowest they have been in 15 years. and you want to pick your spots. tom: i was kidding, ellen. she is doing her christmas list. get scarlet ranger tickets. help chris verrone here with economics. alan greenspan suggested verrone stop markets is really important to economic money. do you agree? ellen zentner: it is, absolutely, it drives the sector, especially wealthy spending when they see net financial worth horizon. i was taking note not because i was going to call my broker but because something chris said. where do tags dollars gets spent

-- where do tax dollars get spent in the u.s.? where do they find their way in the economy? the autos is one of the strongest categories that get the benefit. >> where are you on ford and gm? christopher: gm was in a bear market for five years. he is better now. y a itwere b -- fewer bu is getting better. >> what does trump deliver, right? >> chris, the vix. if i can do by volatility? is it the easiest to make? where should it be? creditpher: we have conditions and correlations low and those are conditions consistent with the low volatility not volatility turning up. have i got this

difference between other asset classes and equities? have a regimeyou change that is out in the bond market. what was the seminal league of the year, it was not november 8 but the third week of december when you get deutsche bank under stress and sco of wells fargo in front of -- ceo of wells fargo in front of congress. a week later, they were back to 175 and we think is set the stage for the regime change. tom: i love to do this with chris verrone. one of my heroes is wheeler. techme now with all of the blabber about wilder with a constraint. of rsi. a fan help me with enthusiasm there are side shows us. christopher: i struggle to grasp

some of the emphasis in this business. there often misinterpreted. a security overbought is not a bad thing, that's a sign of momentum is to rent. when you back test and a lot of this stuff, the more extended a security is returned are. its returns are. guy: this is according to an italian official that's asked not to be identified, the italian official we have been speaking to is indicating that we are going to be seeing italy's government as expected covering that the funds missing from the recap. they probably need 5 billion and they may need more. bondholders will be protected, a critical element in all of this. that will not go down well.

we will see how it goes down. the eu has approved the bank's the creek. more on that in a moment. this is bloomberg. ♪

guy: i am guy johnson in london. tom keene in new york. sebastian: president jeter pink said china should -- xi jinping should deflate bubbles. a meeting top economic leaders. authorities rolled out were nude homebuying curves. nokia is suing apple saying the iphone maker infringed. they have filed complaints in three regional german courts.

apple said nokia is failing to use the tactics of opaque control to attempt to extort money. to the to attempt to extort money. owner set to approve a collective-bargaining agreement that would tentatively agreed to last week. the ap citing to people with the direct knowledge saying the vote will castous and they their ballots and the next, the dates that is the business flash. guy: coming up shortly -- daybreak america's. jonathan ferro is a bit torn. wanted to talk about paschi and also bank of america. i want to talk about bank of america and i want to one dollar for every time i hear animal spirit on "bloomberg surveillance."

we will talk about animal spirit in the board room. brian moynihan, we have a highlight which we will bring to you later with a focus on the board room. and more active midsized company chief executive and we will talk about that and bring you the highlights. say, gung ho for christmas since to be the thing the bam, price action -- theme s, it is quiet even though the third largest bank in italy may be nationalized. guy: it is interesting. i suspect they will see a spike in spending. thank you. i look forward to the interview later on. let's talk about what we have with paschi. it was like that time government will fill in the space, the private sector is leaving for paschi. once holders are going to be protected. how does that work? our guest joins us now.

chris verrone, a research head and ellen zentner of morgan stanley. this is unsurprising in many ways. the government is going to step up before a meeting of the cabinet later. how do i protect a bondholder? >> it is a very political situation. we have not had to be healthy yet. it will be a couple of days to work the terms the government support is going to bring. and protection, what does a mean for the bondholders? make compensated, it coming certain bondholders are protected but others are not, it is a jerk -- in east germany and brussels and bigger voices. of: europe is fantastic fudging these types of situations. is this where we are headed? lionel laurent: we could still see that. you do not want to let the

situation get more out of control bill where we already are. you find a way whether through compensation or finding a correct negotiating term. these are rules and exemptions. it will be possible to find an agreement even if it will not be a permanent, proper solution to the italian banking system. will bet time cabinet meeting tonight at we will find exactly the time. from a political point of view matteoy, that's what rizzi does not want to get involved and he will sit back and let other people deal with it. how do they stop this from becoming a political problem? lionel laurent: it is how you sell it. certain politicians it will sell it as a bailout of banks and bankers. .ome will say it is protecting it is not about billing. the

bankers. it will be important given the referendum and the rise of populism in italy and europe. tom: lionel laurent, to why so much. he will be writing on the challenges of the italian banks. ellen zentner with us and she does not want to talk about italian banks. she will get in trouble. chris for verrone -- christopher verrone lusted talk italian banks. bring up a chart. jpmorgan, megan murphy, will have that conversation with -- will havelater that conversation would jamie dimon later. they'll bonds doing ok and then doug dogs of the european bit -- so then you have the dogs, far lower. i cannot get it on the chart. how do you define and is deutsche bank a trap? christopher: it can be.

we make it too difficult some time. one is a leader and the other three are not. that game changer breakout we saw in jpmorgan over the last several months, it is a stock they peaked and went nowhere for 16 years. the regime has totally changed. there are times when you want to be there. tom: how do express ownership of banks? do you buy an etf or a bundle? how do you play that game? christopher: you just participate whether bank of america, jp morgan. we just want to be involved. there is a group you have to own. tom: [whispering] you mentioned jpmorgan. a shameless plug. getting this up quickly. commodities, bonds, we do not have a banner. down at 20,000 in the next minute? no!

monitoring across assets. the dollar is a bit weaker. this is bloomberg. ♪

on long island, a

beautiful view in the distance. it is in the shape of a boat. solstice, everyone. i'm told by chris verrone that yesterday was the winter day of the year. let's go to the bloomberg forex report. no winter for the dollar. holding onto gains. i'm going to call it a jumbo. i want to point out, guy johnson, sterling, sterling gazetted soggy week -- has had a soggy week. any reason why? guy: they know you want to go shopping a you will be visiting. it is a real soft spot, is to jfk. chris verrone and ellen zentner with us today, has been wonderful on gdp. 3%, 2.6%, where are you? ellen zentner: we revise upward

to 2%. we have been well below consensus for quite some time. economy slowing drifting to its potential next year to 1.5%. tom: you are cautious. what will happen with chris verrone's world when we get the hangover in march of next year? ellen zentner: if there is disappointment and we do not run a high-pressure economy and inflation does not emerge, a less risky fed. maybe some of those bets on financials comes off. either way, we're set for higher interest rates but what pace. tom: chris? chris: how do you build at your model animal spirits? and the confidence in the past five or six weeks? ellen zentner: some of that is expressed in credit, credit

building which adds the layer to consumer spending. and so, higher consumer confidence seems to lead revolving growth and revolving credit by six months. we have seen the server is jump whether business sentiment surveys, small businesses, large businesses, consumer, there are all expecting trump to deliver some ankle. a something. the worry is would turn the corner to the new year, how patient our markets and consumers and businesses that have front to run something trump will deliver? wey will front something and pull into the model. tom: this has been wonderful. breaking news as peter navarro selected for a trade position. somebody out early in vocal for mr. trump. kellyanne conway prison for any pulled in for -- any number of jobs.

she will be counselor. counselor tome a the president. the kind of activity we expect to see through the slowness of year and. people are watching very carefully these kind of advisors, around theresa may and donald having a big role on setting policy in the world. tom: a busy day. do not forget tonight megan murphy and the conversation with jamie dimon. tomorrow, one of our most popular guests on retail america. this is bloomberg. ♪

jon: good morning. welcome to "bloomberg daybreak."

i'm jonathan ferro. has gone home today. futures like him european equities as well. in the bond market, here is how the session is shaping up this morning. treasury yields up those go basis points. a marginally weaker dollar against a stronger euro. david: here's what you need to know at this hour. the banks weigh in. jamie dimon speaks out on the wave of populism and the need for fundamental tax reform. brian moynihan sees new animal spirits in the board room of his clients. and the need for recalibration in bank regulation. we hear from the leadership of the nation's two biggest banks. italy's oldest bank admits it is not likely to meet the deadline for raising 5 billion euros in new capital. it the next step looks