mark: a deal before christmas. budget night at credit suisse -- deutsche bank and credit suisse settled the mortgage probe. fighting charges, suggesting a bank is willing to take his chances with the trump administration. we have the latest. plus, the italian rescue job. the state will bailout monte dei 5schi as it fails to raise billion euros from the market. could other lenders follow? lap, his annual

news conference. and six months from the e.u. referendum, what exactly do we know about brexit? the big question -- this is "bloomberg surveillance." i am mark barton in for francine lacqua. here is nejra cehic. deutsche bank and credit suisse have agreed to settle u.s. investigations into their dealings in mortgage-backed securities. deutsche bank will pay a $3.1 billion civil penalty and $4.1 billion in relief to customers. a $2.48uisse will pay billion civil penalty and $2.8 billion in relief for homeowners hit by collapse from housing prices. the justice department is suing barclays for fraud over the sale of mortgage bonds. it's as investors were deceived about the risk of securities. our glaze has rejected the allegation, saying it will vigorously defend the complaint. president-elect donald trump

says he has asked boeing to of its superade hornet jets that could replace the lockheed martin f-35. that is the main fighter of the airport, navy, and marine corps. it is the most expensive u.s. weapon system ever and its development is more than a decade in the works. so the officials have presented the most detailed budget in the nation's history. it included scenarios of how public finances could evolve through 2020 after being hurt through two years of low oil prices. generally speaking, these concert -- these scenarios are conservative when it comes to oil prices. review multiple sources. one is coming generally from alternative energy. we have used the international energy prices. we have used imf projections. top analyst the average. we have combined them. and we took a haircut to calculate most of these scenarios. it is increasing slightly over the years, but it is generally

conservative. six months after britain voted to leave the european union, signs are pointed to a so-called hard brexit, according to a report by 12 academics and policy researchers. by and you funded research program based at king college, london, said the shock decision united the 27 other member states while exposing how divided britain is. thanl news powered by more 2600 journalists and analysts in more than 120 countries. i am nejra cehic. mark: thanks a lot. let's look at what is moving in the markets today. shortened trading day here in the u k there is the stoxx 600, rising up to 360.03 after falling for three days. the stoxx 600 banks index is going to be our big focus today. we will talk about that in a second with michael.

starling, six months on from the brexit vote -- it has been lower. intraday down as low as 1.18 in october. 1.21 is the closing low, post-brexit. how much further do we have to fall? a big question for charles tivo, coming up. and the 10 year has been down and up since brexit. there it is today. 1.36.points down to let us look at how the banking shares are doing after the settlements on mortgage backed securities. the jamaica shares up. credit suisse lower. they were up by a couple of a percent. let's introduce our guest for the hour. the aviva investors head of rates, and michael is also here. does that tell us deutsche bank shareholders are a bit more relieved than credit suisse shareholders, everyone is really today. there is a sigh of relief that it could be over for deutsche bank. michael: i think the expectations for the fine have

been ramped up for the 14 billion asked coming out. if you said a year ago they would settle for $7 billion, i'm not sure investors would be thrilled. we didn't where we have been, i think this is a bit of a relief area. mark: will it be a drag on earnings? some said it could be a drag on earnings for years. michael: yes, but the way the settlement is structured -- they are paying the $3.1 billion up front and have for $.1 billion of consumer relief that will happen over a number of years. the exact financial impact of that is not clear, because sometimes they have already written down some of the bonds they get relief on. it will take place over a number of years, rather than all up front. mark: does it have to raise capital, or have capital-raising plans been put to bed? michael: the bank has not said specifically. this does look on the lower end of what some analysts have been calling for, which seems to be a good sign for no capital raising happening.

but we will wait to see. mark: otherwise, a busy day. chris reese shares -- credit suisse shares are lower. a similar deal to deutsche bank. this seems to be its last major uncertainty removed. that could be the big take away from credit suisse. michael: certainly, this was the biggest thing on the legal front for it. a lot of these banks have shown that the tale of the legal talks continued further than we had originally expected. most people were expecting this to be wrapping up around three years ago. so, you know, this could drag on. there is a few outstanding things. certainly, this was the biggest item. mark: this mbs case drags on for other banks -- ubs, hsbc, rbs. been sued for fraud over its sale of mortgage bonds.

this is unusual for big banks. what about the government negotiations? michael: you usually have settlement talks that can drag on for months and months, but normally, you end up at a settlement. you do not go to court. the banks are not often willing to go to court because of the volatility, and because of the long amount of negative headlines that are out there. a big gaplearly had between what they were willing to pay and what the doj was asking. mark: monte dei paschi, what now? clearly, they are going to be nationalized. what is the next step? michael: they have confirmed they are applying for state aid. now, the question is in the details. the government has laid out some of the details of how the bonds will be swapped and what discount will be given. but we have to see. -- have to see what that means

for the burden that bondholders will share. mark: charles, does this draw a line in the sand under italy banking woes, or is this still just the beginning of what some are calling a wagnerian saga? charles: i think you are going to see a number of other second-tier and third tier italian banks probably go in the same way as a result of this package being agreed for monte. it is the first step, and it is a positive step for sure. but there is still a lot of wood to chop, so to speak. we can be reading these stories about various italian banks. mark: from an equity and credit perspective, banks are in better shape than six months ago. charles: absolutely. particularly with the macro swapping given by the ecb and the policies they are pursuing, that is helping restructure and allow this process of reform. unfortunately, this was not deal of within the -- was not dealable within the private

sector. it is progress, and they were a cheap asset, very underpriced. the fact that some of the tail risks are being removed is progress. mark: is there a lid on the italian bond market because of the ecb? there was a talk about change of the debt load it self. -- itself. italy's debt burden is big. it is not greece. could they change the rules to focus more on the entirety of the debt load, which would benefit italy, if things get out of control? charles: they could do. i think as it stands, they don't need to. obviously, it depends how much , ifhis bailout cost ends up you like, on the national balance sheet, and might need additional funding. that can increase btp supply over a number of years, if that materializes. and that is obviously not a good thing. before the time being, the ecb structure -- there is plenty of

room to continue buying italian bonds. mark: michael, final word. deutsche bank shareholder is clearly relieved today. but as you say, litigation risk remains for deutsche. it remains for credit suisse. and it remains for a number of banks. it is not over yet, is it? michael: no, i think you have got deutsche -- they have the fx investigation. they have russia. i have a number of things. they have said this would be the peak restructuring your, and getting this out of the way is a big piece of that, but there is more to come in 2017. mark: thank you, michael. charles stays with us. live pictures from moscow andident blood are true giving his annual news conference. i will tell you what he has been saying. russian gdp will have a strong -- a small drop. -0.52 -0.6 percent this year.

russia should be able to release their inflation target. budget deficit will be 3.7% of gdp. an% budget deficit is acceptable level, putin says, for russia now. putin's big day today. >> do have problems? of course we have problems. we have to ensure -- ♪

mark: live pictures from moscow, where russian president vladimir putin is giving his annual news conference. let's get more with macro advisory senior advisory partner advisory partner chris. the reason that stands out to you? chris: it is following the

active formula, talking about the economy. he has good news on that front that he can highlight this year. the economy is drifting out of recession, is expected to show modest growth next year. but there will be less growth. there is room for a modest amount of real wage growth or real income growth. he is focused on that. but i think later on, he will also stress the fact that there are cap times to come. more serious reforms need to be taking place to get the economy back on track. it starts with the good news. we come in with a little bit of reality. michael: a lot of -- mark: the good news on the markets is based on crude, on crude rebound. crude remains the big risk, the price of oil. chris: i think it is certainly the perception. we can see the way the markets reacted. there was a little bit of an uptick on the trump victory, but the real kicker came with the opec deal, the rise of the oil

price. it is still very central to the russia story and very central to currency and the ability to attract investment. thattainly do not believe russia is going to be able to deliver on its side of the production bargain. technically, it will be very difficult. the headlines, the politics, the support for it have all been very positive. even over the short-term, every $10 extra over and above the $40 the russian budget is assuming closeth close to $12 -- to $13 billion. mark: is the opec deal unraveling before our eyes before it has even begun? chris: not before our eyes, but i think, spring, the situation will be different. it will be very difficult for develop strong political support. unlike opec, russia has multiple independent oil companies. they all watch everybody else. there will be a modest contribution, i think.

it will not close of the deal. it will be the return of libyan oil, u.s. shale. mark: look at this chart. the dollar expanded in asia, all 31 of them. 2016, top of the pile. russian ruble. per dollar. in 12 months time, will there still be talk of the tree? charles: it is not going to have another year like this. that is contingent on the oil price. given we expect, broadly speaking, a range trade for the oil price over the next 12 months, i think a lot of it will depend whether he is going to get reform process is coming through. reforms usually come at a cost to growth, rather than being advantageous. but as long as the oil price remains where it is, there is a little bit extra in the budget. you know, i think it will probably have a reasonable year,

but it will not be anything nearly as spectacular. mark: a lot has changed. david cameron -- let us say he wasn't adversary -- he was an adversary. matteo renzi was an adversary. obama is leaving. the geopolitical stage has changed. to his advantage? chris: yes, i think it means the kremlin needs to deal with fewer sort of geopolitical confrontations, presumably, with the changes. and also the distractions of brexit coming up in europe. it means the kremlin should now be able to focus much more on domestic issues, rather than firefighting continuously on the international stage. i think that is the big change. it does -- there is no magic wand. anybody who believes a trump presidency is going to deliver great things for the russian economy fairly quickly -- that is just unrealistic. it just means it is not going to get worse, geopolitically. you still have to deal with --

mark: what is the closer relationship, if it is a closer relationship, between trump, the u.s., and russia? what does that actually mean? if there is a quick quote pro -- ,uick quote pro -- quid pro quo does russia give anything? chris: under the obama administration, companies have been complaining they got no access to the white house, no support for business in russia. that should change. but i would stress that nobody -- even the russian government officials we talk to do not believe the trump presidency is going to dramatically change things. they understand trump will have to negotiate with a still very hostile congress. the republicans in congress, he is going to have to barter what policies he puts first. what it means is, if europe does move on sanctions, and i do think the emphasis has shifted more toward merkel, toured

europe, to take the lead -- but if they make a change in sanctions next year, the trump administration would likely follow through quickly, whereas obama would not. theink it improves backdrop. it improves the atmosphere. it lowers the perception of risk somewhat. all that does is, it removes potential dangers. it still exposes the fact you need to deal with domestic economic problems. mark: geopolitically, the dollar and post trump. does it continue to win geopolitically in 2016? the devil will lie in the detail. so far, we have been dealing supposedly fiscal expansion and potentially higher rates in the u.s., and that has been driving a lot of strengthen the dollar. if we start to see trade issues and/or tariffs creating inefficiencies and problems, that will support inflation, which is not necessarily good for growth. in the short-term, all of the signs are that there should be

some ongoing dollar strength. but we do not know the negatives yet. the unknown unknowns, if you like, of the trade relationship with china. putting navarro in charge of the trade council -- he is a china hawk. potential negative. but again, the devil lies in the details. we do not know what that is going to manifest as. mark: we will know more after january 20. charles stays with us. up next, the safest bets for next year. is the future in bonds or equities? we look at the best performers this year. for more, turn into radio "daybreak london." ♪

mark: welcome back to bloomberg. i'm mark barton, in for francine lacqua. bonds or equities in 2017? the markets suffered one of steepest selloffs in record in the last couple of months. for the longest term perspective, yields have not changed much. the average shift in the 10 year of the nine biggest government bond markets was a 10 basis points in the u.s. the world just after was the climb.e to see rates charles, this is a simple chart, global equities versus global bonds. white line, equities. blue line, bonds. we were saying trump with the $2

trillion -- charles: rotation. up or down,llion depending on what you are in. what outlook for the bond market are we going to see in 2017, given the shift in yields in recent months? charles: it is worth keeping in mind that if we just wind the clock back a few months, we were in the sort of depths of growth,nary, no world secular stagnation type forces that were compressing yields down and down and down. i think a lot of the reaction we have seen post trump is an unwind of that. to be honest, that was a process that actually started in the summer. that was when we had the low for yields. we have moved to a level where we are not that far from fair value. one of the prospects for next year, particularly in the u.s. -- you have the inflation outlook. it is to the upside, particularly with the u.s. running at full employment.

if there is a fiscal package or tax cuts from the new administration, that is pushing on something that is already moving along pretty fast. that is why the fed increase the expectations from two to three hikes next year. even the fact that you will be pushing on an already running relatively hot economy, the ratherre more than that than less. if they prove particularly proactive, that starts the change in prospect from the very large and of the yield curve. that means they are tackling inflation. that could actually stabilize bonds. mark: back in a second. "surveillance" continues. ♪

mark: welcome to our weekly brexit show live from london. i am mark barton, in for francine lacqua. for a round of brexit stories from this week, let's get to nejra cehic. nejra: a warning that her

country will hold a new -- scotland's prime minister wants her country will hold a new independence referendum unless it can continue single market access. stay evenressure to if the rest of britain quits. >> it would keep scotland in the single market. hopefully, it would at least he scotland in the single market and deliver the powers to the scottish government and parliament to support that. may tolderesa lawmakers that businesses and the u.k. government might need time to adjust to leaving the e.u., and a temporary arrangement to smooth the way could be the solution. it was the clearest sign so far that the prime minister supports calls for a transition plan. prime minister made: we want to get this arrangement in place, so people can move on to a new relationship that they will have with the united kingdom. and i think there is a willingness to undertake this on that basis.

of privateasure sector growth rose to the highest in a year. the confederation of british industry said its index was helped by a strong performance in manufacturing, the best in more than two years, while retail activity slowed somewhat. the overall output measure was up from five in july just after de you referendum. today showsm yougov british consumers are feeling bleak about their 2017 prospects. confidence has fallen to its lowest level since july, with households more downbeat about their finances than at any time in two years. oft is with the slow creep inflation starting to be felt. global news powered by more than 2600 journalists and analysts in more than 120 countries. let's tell you about some data coming out of the u.k. right now. the economy is showing resilience to the brexit vote so far. in theowing gdp grew

third quarter, more than the 0.5% previously expected. consumers driving the expansion. corrections to the trade data accounte current deficit was smaller than thought over recent quarters. revisions also had an impact on the composition of gdp in the third quarter. net trade knocking 1.2 percentage points off growth. it was previously estimated to have contributed 0.7 point. consumer spending grew in on unrevised.d -- and overall revision to growth rates in the first and second quarters. exports fell in the third quarter. imports rose. lots to digest, but the overall takeaway is the economy grew the third quarter.

let us bring in a professor of economics at cardiff university, cochair of economists from brexit. and charles diebel is still here. investors, third quarter? patrick: we had an interview before the referendum. we were always predicting this would happen. the economy is strong. since brexit, it has remained strong, which is what we thought. and it will get stronger, because the free-trade agenda is designed to strangle the british economy. aside from the propaganda about soft brexit, staying in the single market -- it will damage the economy. this is damaging because it means protecting it -- protectionism, as opposed to free trade, which is what the may government is now looking for in the future. mark: consumers are clearly driving this economy, patrick. next year, with inflation rising, catching up with wages, startages -- could

leveling off or even declining. how is that going to help the consumer? how is that going to help the economy? patrick: when the exchange rate comes down, that is a huge stimulus to the economy. it flows into business strength, as you are seeing from the business surveys, which are strong. the consumer has been strong. at the ascension that wages will fall in real terms is an assumption. i do not see it in a tight labor market. i think wages will also pick up. think al fall as i greater seriousness for monetary policy about inflation. this idea that real wages are going to collapse completely conflicts with the tight labor market. i think we will see consumers continuing to be strong. businesses, of course, will be strong on the prospects of free trade and the strengthening bits of the economy which are, you know, as free trade and competition gets a grip on the u.k. economy, the prospect is for good sectors to improve,

particularly services and the city. mark: do you share patrick's sanguine outlook on the u.k., charles, or not? charles: in the short-term, yes. as you see from the evidence, the numbers are coming in reasonably well. that i would argue that is largely because, as yet, nothing has really changed. , what kind ofs brexit do we have? there is a benign scenario where a lot of the -- if you like, the advantages are maintained. and thereby, economic prospects would remain relatively robust. in those circumstances, i definitely think the bank would have to respond with higher rates, given the pace of growth and inflation we are going to be facing tomorrow. but i do think there is an alternative scenario, which we do not have clarity on yet, which is, what are the negative implications? how long does it take to get new trade deals? where are the dislocations going to come from?

i, at this stage, cannot get that excited that everything is going to be sanguine about brexit, simply because we do not know the details. once we actually have some sort of roadmap to follow, we can plan out exactly what -- mark: we're just hearing out of the italy interior ministry it is due to hold a press conference at 10:45 in rome. newspaper, thee police have killed an attacker near a train station in sesto. police have killed an attacker in the milan area. that is what we have heard from corriera, the newspaper. the interior ministry are due to hold a news conference in rome. as soon as we get further details, we will bring you further details. uncertainty, following on from what charles says -- how can the economy thrive in a period which is going to produce huge

uncertainty once article 50 is triggered? aboutk: this talk uncertainty has been ridiculously exaggerated. one possibility is a soft brexit, the status quo. that is what these people are rooting for because they are vested interest. they like the status quo. what a harder clean breaks it does is to open the economy up. get rid of e.u. protectionism. get rid of these intrusive regulations from the e.u. control unskilled migration, which is damaging to the consumers and taxpayers of this country. and that is a positive upside on uncertainty. consists of a status quo or a better upside. what sort of uncertainty is that? that is complete nonsense coming from all sorts of people who are defending their privileges under the protectionist, you know, existing policies of the e.u. of course them with that. consumer and the u.k. economy will benefit from free trade and

competition. that is the thing to get hold of. the city is griping about losing its status quo, failing to understand this is a huge opportunity to get rid of an inclusive -- intrusive regulator in favor of the bank of england, they're regulator of old, that presided over the success of the city over the past 200 years. ,ark: do you not think, patrick that businesses, however you want to describe what uncertainty actually means -- there might not be some. as mrs. could take action, whether they choose to move abroad. -- businesses could take action, moving abroad ahead of a concrete brexit. we are seeing is, all of the businesses are recognizing the strength of british economy and staying here. mark: for now. for now, six months after brexit. patrick: this is when uncertainty has been at its maximum. and now it has all been clarified. it is clear that we will have all sorts of difficulties in

negotiating with e.u. but the thing to keep hold of it is that we control our destiny. we control our own decisions on what we do as far as free trade is concerned. if e.u. does not want to have free trade with us, we can still pursue free-trade policies with the whole world, and indeed with the e.u. we do not have to do tit for tat, which would be stupid to do. we say we want to trade with the world, including you guys. if you want to put up barriers and play rejectionist stupidity, which is going to damage you, be our guest. it does not matter to us. the city is strong enough to find customers elsewhere if the e.u. takes some business away. it is not a problem. mark: i want to come back to this italy story. according to ansa, a man has been killed by police in the milan area. we are hearing it is the berlin attacker. and man killed by the police in the milan area is the berlin attacker, the attacker

who perpetrated the death of six -- death of six people, injured tens of people this week. we know the italy interior ministry is due to hold a press conference at 10:45 in rome. let's stay with brexit. six months on from the referendum, how much do we know about theresa may's plans? ♪

mark: just want to recap new set of italy. the man killed by police in the milan area is the berlin attacker. "panorama" saying the man killed maybe the berlin suspect. what we know is taking place in

three minutes -- there will be an interior ministry press conference at 10:45 time. in rome time, excuse me, which from now inutes london. of attacker, the perpetrator deaths in the western berlin , has beence this week killed in the milan area. meanwhile, vladimir putin holds his annual news conference. he is talking about president-elect trump. he says there is nothing unusual in trump's comments on nuclear weapons, trump commenting as part of the election campaign. no one argues the u.s. has the strongest nuclear potential. russia stronger than any potential aggressor, the words of putin. we will continue to monitor putin's words and anything coming out of italy. six months since britain decided to leave the e.u., signs are pointing to a hard brexit, according to a report by policy researchers. e.u.-funded from an

research program based at kings college london. they say the decision has united the 27 other member states to a degree rarely seen and exposes how divided britain is. so says the report. still with us is patrick, a and cochair of economists for brexit. investors -- the u.k. heading for a hard brexit. u.k. in a changing europe. and the rest of europe is united post-brexit. i think that in some senses this is right, because we want to pursue free trade. we want to get out of the single market and regulate ourselves. and have a relationship with e.u. from the outside, with control of our borders and of our regulations. and i think that this will be very hard for the under 20 -- for the other 20 72 accept.

to accept.other 27 they want to keep the relationships of the moment and there is nothing else on offer. that is what they said to david cameron. it is hard to argue against that. theresa may would almost certainly like to negotiate a free trade agreement from outside. i think they are preparing to do that. but whether in fact there will reflect -- that does respect our request for free moving migration to be controlled by us, and for us to retain control of our regulations, is i think a very difficult question. i don't see much give in the european position. i am not bothered by that, because it seems to me our optimal policy is to get control of our borders, get control of our regulations and/or trade ,rrangements, go to free-trade pursue free-trade agreements all over the world, including with the e.u., and that will bring

enormous benefits to us. tariffs and trade barriers damage you. they do not damage the other guy. this is what the e.u. will have to learn. protectionism is last century's policy. it is not the policy for the modern world. it is simply holding your back. mark: sterling is essentially trading on politics, and has been since even before june 23. sterling, 2016, we know how far we fell, 8%. we have come down on a closing base -- we bounced back. given we do not yet know what type of outcome is heading our way, despite what patrick says, how is sterling going to fare in the coming six months, two years? charles: the reality is that sterling is telling you that we are moving more towards the

heart outcome, so to speak. youprevailing level -- if really believed that you were going to get a soft exit and -- ithere was going to be think sterling would be stronger than it is now. i think one of the biggest fears that people have is the time slippage. brexit occurs and really within a year or two. the, potentially, it takes many more years to negotiate trade deals, whether it is with the e.u. or anyone else. if those kind of time frames occur, you are going to need sterling to remain at very cheap levels for a long time. mark: patrick, you are shaking your head. it does not take lots of time to strike deals? patrick: you have to make a distinction between getting rid of protectionism and adopting your own regulatory system, which you can do very quickly by simply declaring that you are going to pursue these policies.

this is what we did when we abolished the corn laws. he said, we are not going to have these stupid tariffs against corn coming in from the rest of the world. and the price of food fell. we can do the same. that is the plane, vanilla, best policy to pursue. the trade agreements with the rest of the world can be done at concern because they much broader agendas of opening markets in all sorts of areas -- investment, services, property rights. there is a huge agenda which we can pursue, opening up toward countries that are sympathetic, like the u.s. and australia. rules,ccording to wto patrick, that is not going to come is it? rulesk: the beauty -- wto are policing there must be nondiscrimination. if we get rid of e.u. protectionism in our trade policies and go to a policy of openness toward the rest of the world, we can do that.

that basically means we pursue low tariffs or zero terrace against the rest -- tariffs against the rest of the world and have an open policy with respect to nontariff barriers. we do not, you know, put in all sorts of regulatory barriers to people selling to us. that is a policy that makes sense for us. that has not been the policy the e.u. has pursued. the e.u. is a protectionist organization which is based on the philosophy that exports are good and imports are bad. this is stupid stuff which is damaging the consumers and raises the prices that consumers face. we need to get away from those policies. theresa may can do it on day one, actually. i think a hard brex means day one will come much earlier, because there will just be no on the first day. and then day one will be, we go ahead. if you guys want to play stupid

policies and protectionism against us, then we won't play. mark: patrick, thanks for joining us. patrick mitford, cochair of economists for brexit. on the hunt latest for the berlin christmas attacker. there are reports in the italian media the suspect has been killed in milan. we await a press conference from the interior ministry. ♪

mark: just want to reiterate what is happening in italy. the man killed by police at the milan-area train station was the man suspected of carrying out the berlin terrorist attack, according to ansa news wire, citing unnamed police sources. the italian interior ministry will hold a news conference any second now. as soon as we get more details on that, we will continue to inform you. the figure prints of the man killed in milan match the berlin attacker's, says ansa. developing story. we will continue to bring you further details as soon as we can. let us look at what is happening

in the markets today. i am devastated that nejra cehic is not wearing her christmas jumper. but she has the markets instead. it on rightl put after i have gone through the markets. the last day of trading before christmas. we are seeing european equities a little higher. the ftse up 0.9%, heading for its best december since 1999. we are seeing a number of italian banks move higher after we heard that italy is prepared to inject as much as 20 billion euros into its banks. if we look at the fx space, sterling, 1.22. we saw it dropped yesterday. a stronger euro. seeing a lot of the 10 year yields moving lower in the fixed income space. if we look at the stoxx 600, it is a little higher today, still about 1.5% away from erasing its 2016 drop. most industry groups gaining. in terms of volatility, we have been seeing lower volatility in european stocks. that has not been mirrored quite

as dramatically in futures. betting on swing in the next three months. three months. three-month volatility futures at a record, versus these stocks. there might be more volatility ahead. finally, i wanted to show you what has been happening in the metals markets. a big turnaround in the last two months of 2016. the gadfly piece -- you are seeing gold and copper up today. look at the divergence in the past two months. for copper and gold to maintain that negative correlation requires some magical belief about the economy. mark: the man killed by police at a milan train station about 3:00 a.m. friday morning maybe the man's expected of carrying out this week's berlin terrorist attack, according to the italian weekly "panorama," reporting on its website, citing unnamed sources. police confirming a man fired on officers near the sesto san giovanni train station was stopped for an identification check. he was killed in return fire.

the italian interior ministry is going to hold a press conference in rome any second. ansa confirming the man killed at the train station is the man suspected of carrying out this week's berlin terrorist attack. that is according to ansa, citing unnamed police sources. we are expecting this interior ministry news conference to take place any second now. ansa confirming also the fingerprints of the man killed in milan match the attacker. we are talking about the berlin attacker, the attacker that drove the truck through the berlin, west berlin marketplace earlier this week. bloomberg will continue to monitor this story for you. "surveillance" continues. tom keene joins us. ♪

♪ tom: it is a relief to investors.

14 billion down to seven plus billion. deutsche bank enters 2017 less stressed. italy considers its biggest bank nationalization since mussolini. equity, retaile investors will be treated differently. how will germany react? it is beginning to look a lot like christmas. what is not 50% off in new york city? good morning. this is "bloomberg surveillance." in new york city with guy johnson in london. i find the vladimir putin eadlines to be sensational. the fact that democrats are talking about the hacking felt well at his society needed.

reagan would be happy that his party was winning. amazing. hat: we will get to t throughout the hour. much more as well. let's get to our bloomberg first word news. sebastian: breaking news out of italy. and men killed by police at the milan area train station may be the suspect in the berlin terror attack according to multiple reports. the man fired on officers near the train station when stopped for identification, and was killed and return fire. there is a press conference in rome. more details as they become available. deutsche bank and credit suisse agreed to pay billions of dollars to resolve u.s. investigations into mortgage-backed security. this was lender will pay a civil penalty of $2.5 billion. the other $2.8 billion help homeowners and communities hit

by homeowners in the collapse of properties. deutsche bank has reached a 2.7 billion dollar accord, including a civil penalty and $4.1 billion in consumer relief. it is below the justice department's initial request of $14 billion which spooked stock and bond holders. the u.s. is suing barclays over reports of sales of bonds. investors were deceived over the risk of securities. part these rejects accusations and says it will "vigorously defend the complaints." global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. equities, bonds, currencies, commodities, taken over by news flow. advances 104.57 after 103 earlier this week.

to the dollar index, 103 when i walked in. stirling is weaker. that has been the grind. the mexican peso has been weaker through the week as well. the current account data that we have seen coming through, the stoxx 600 is flat. the banking sector, despite good news, is softer. wherellar/ruble, that is it is trading as radware putin talks about politics. what isonitoring happening in the lawn and romans we continue the security story. tom: this is from yesterday after "bloomberg surveillance." this is personal disposable income in the united states, inflation-adjusted. we used to be here. we are now here on an average basis off of the crisis. we have this gap to fill to get back to normal.

this is a a lot of angst still out there among a lot of americans. the good news is that the path is in the right direction. guy: i want to talk about something you focused on over the last few years. that we have been talking about this year, currency. ?o you trust in currency how do we move toward a more digital currency? parabolic.going this may be a harbinger of a china story in the first quarter of next year to watch out for. bitcoin vs gold. the chinese trying to get money out and struggling to find ways to do it. the big story out of europe from a business point of view is what is happening with european banks. we have news to digest, to creditfines dished bank and deutsche swiss.

michael moore is the bloomberg u.k. financial team leader. let's start with deutsche. the deal by the end of the year, the find is smaller than the initial 14. is it a sign of celebration for deutsche or an indication of how tough the road is from here? perhaps both. the $7 billion is a big relief from 14 billion dollars, but a year ago it would not have been thrilled with $7 billion. it will be a drag for a number of years because consumer relief has read out. it is not a huge hit in one corner which is good news. guy: litigation? michael: it is significant with deutsche, they are the outlier in terms of things still to go. you have fx, russia, metals trading. there are a number of a known's. some analysts see another $5

billion in litigation charges. they are not done. this was the biggest single -- tom: michael, i cannot imagine what your team is doing. i cannot imagine what european authorities are thinking. bring up the chart. this is simply deutsche bank, unicredit, you can see from the beginning of the year deutsche bank is 18%-15% underwater. unicredit, the list on enthusiasm over italian banking. michael moore bought right here. that is where he bought. i know these are not related, but at the end of the day they are. a belief that these banks and the disaster will be through 12 months from now? is there a feeling they can move on, as did america, england, and

ireland? michael: we would finally have the first signs of wrapping some .f these things up the doj-thing has been hanging over the head of deutsche bank for a couple of years. monte dei paschi has been a question of if we have this pay date after a couple of years. it is step one in that direction. there are a number of things to go before back to business as usual. above $21ere whisper billion -- 21 billion euros for the italian bailout? everyone was talking the barclays at 40 billion to 50 billion. the other whispered number of what this would cost? michael: our colleague put out a story quoting analysts about the overall size of the problem of what needs to be present -- what needs to be provisioned at 50 billion.

some of that will come from regular provisioning by the banks coming from the earnings. is a state that problem is to be seen. the overall problem is there. tom: let's be clear. italy can afford this. the idea within the prosperity someone7 nation is that can write the check, to be clear. michael: it is not a matter of money. it is often a matter of the technicalities and going within the european rules. one thing that we still have yet to see on monte dei paschi aid is whether it fits in with the that europete aid has laid out since the financial crisis. owners needes bond to take a hit. guy: breaking news we are

getting. there is a press conference held by the interior ministry in italy. it has been burned the man killed at a train station in was the terror suspect being sought in connection with the christmas market massacre in berlin. these are live pictures. serious questions will be asked about how this man traveled so far, so fast, without detection. ultimately, the vector seems to have been south heading back to north africa. i think a lot of people will be asking serious questions about the ability to cross borders in europe without having to show documentation. we will monitor this story and bring it to everybody as we watch what is unfolding in italy. this is bloomberg. ♪

♪ guy: live pictures coming to us from rome. this following an incident in shot andre police killed the terror suspect being sought in connection with the truck attack on the berlin christmas market. confirming what happened, that this was a routine id check. he was near a train station in milan. questions will be asked about how this man traveled so far, so fast, without having to show documentation at a series of orders he had to cross to arrive in italy. let's catch up with what else we need to know. this is the bloomberg is nice flash. sebastian: saudi arabian officials presented the most

detailed budget in the kingdom's history to convince citizens and investors they can now it's the books and wayne the economy off of oil. it included a presentation of azens of pages as well as slideshow. the government reduced spending by 16% this year. $2.6 billion, that is after an earlier share was rejected here they want to boost shares in pension and insurance sectors. profits in the first half after cutting costs. that is the bloomberg business flash. thank you, sebastian. let's talk about the news. the news from an economic point of view is focused on europe's banks. we have two separate stories, in some ways related. the doj fines surrounding credit suisse and deutsche bank, and the rescue of monte dei paschi.

we will find out. the chief economist and manag ing director joins us on set. good morning. the banking sector and the european economy are heavily intertwined. how much is it a step or that we have resolution when it comes to deutsche bank, that it can focus on other things. we are getting an idea of what is going on and how to recap the italian banking sector? >> a decade of financial crisis almost, and the banking sector remains the key component about our discussion of the health of the global economy. the weakness of the banking system is predicated on the fact that many of the assets were generated when growth projections were in the 2% to 3% inge rather than 2.5% to 1%

the case of italy, nowhere. the problem with over regulating and government was asian is chronic. particularly strong case. it has been five years of bank restructuring, capitalization, ideas about how to bring this bank to health. we are getting to a point where containment is the best we can hope for. near a this anywhere solution for the italian banking sector? >> it is a step in the right direction. guy: is it a containment of the problem as lena suggests, or a step step -- another towards keeping the italian banking sector -- >> i think it is a small step, but no more. the issues have been there for decades. we have to look at the stock price, the share of european

stocks in banks compared to american banks, where we dealt with these issues early on, to see we still have these issues and the european system. faceuestion is, does it broader issues? if we go for 20 billion euro bailout, do we start talking about the veil in? how does that affect politics over the next three months? news, the news flow is extraordinary. forget about the friday or christmas. mr. puti speaking different speaking- putin different things. the headlines are extraordinary. mr. putin says the u.s. created conditions for a new arms race. he cites the u.s. unilateral exit from the nuclear pact. mr. putin says it was not russia's idea. we were forced to respond to the

u.s. these areggest extraordinary headlines. we will get perspective on this through the hour. we are thrilled lena is with us to get us a broader view of these linkages of economics in which we see out of mr. putin. lena, the overlay leads to events. i was speaking with david westin yesterday about the set of events in the year and. this is al that cacophony of this related events? -related events? our profession has changed from a forecaster to one that has to help people prepare. repair for the world we live in today where the lines between traditional macroeconomics and blurred.tics are

there is an economic shift in the geopolitical power of the global economy. it is creating the aftermath of the trump election with russia emerging as a major player in international relations. that will have strong implications for the eu and economic corporations that it is important for us to overcome the next crisis. tom: if i knew what i knew now two months ago, this might have been my chart of the year. animalte line is u.s. spirit nominal gdp. the blue line is europe. come in, simon, you can as well, the underperformance of thepe equalized during financial crisis to get to equal percent change growth. the underperformance with the latest rollover, do you see any indication that europe can close this gap strapped to the concept

of a euro? lena: i think this is an extremely important chart. under the broad theme of reflation and deglobalization that we have had over the past quarter, in reality what has happened is a regime change away from financial repression. and yields, equity yields, from global yields toward national specific yields. this is important. reflation theme is not the respect towith european the banking system is a systemic fault line. tapering.ces very severe constraints. politics will be an additional impediment. people up toing speed with what is happening. a busy morning in news flow.

settling with the doj. a memo has gone round to staff. we have details of what the memo says. the risk profile in capital has been solid at this institution. the bank anticipates coupons on all of its instruments, don't worry about the credit. it expects no impact on its credit rating. the german government did not help the negotiation the deal with the doj. we will monitor the events, roscoe, milan, and germany. this is bloomberg. ♪

♪ london, 11:23 in berlin. guy johnson in london, tom keene in new york where it is five: 23 in the morning. the german government will be briefing the press. the first questions will relate to what is happening in and realm where it appears the berlin attacker has been killed. questions will be asked about how and why this and managed to travel across so many borders is that shane end zone. -- in the schengen zone. there is a link between what has happened and our belief that we have passed peak europe.

have we passed peak europe? zone, freengen travel, the single currency. has that passed? the slidehas been on since we talked about the european snake in the 1960's. the only thing that i would say that has specifically come out of what just happened is that it will feed into the populist political movements in europe. that will make the electoral cycle over the next 12 months ever more interesting. as far as europe and the eurozone is concerned, the threat to the euro remains. this is not a fiscal union, and there will always be a risk that someone could potentially leave. that story going to continue? yes.

will he get attention with the cycle? yes. will anyone seriously be talking about leaving? i suspect not. news flow, extraordinary this morning on italy, germany, credit suisse, in mr. putin speaking russia. in the next hour, yield and price changing. the spirit of a 50% off american christmas, and annual holiday visit. stay with us from london, new york, this is bloomberg. ♪

good morning. guy johnson in london, tom keene in new york. there is massive news flow this

morning. finance, deutsche bank, credit suisse, and the italian banking story, mr. putin speaking, we have barely got to the killing in milan this morning off of the berlin attack. we have so much news flow you need an update. here is sebastian. sebastian: breaking news out of italy. anis amri, the man sought in connection with the truck attack at the berlin christmas market, has been killed according to the italian foreign minister in rome. exchanginger fire with police at a train station in the lawn. and asked for identification. more details as they become available. five suspects are in custody after planning a series of christmas day bomber tax in melbourne. the men will be charged with terror attacks and there are no

longer a threat to the nation's security. australiansure all that our police services across the country, our intelligence agencies across the country and the world, are on the highest stage of alert, learning from abroad,stance, here or putting in place measures to keep australians safe. beentian: brothers have detained in germany on the suspicion they were planning an attack on a shopping mall. aereo bombardments have ended in aleppo, but the destruction is emerging. tens of thousands of homes and apartments are uninhabitable. factories have been looted or destroyed. ancient landmarks have been reduced to rubble. reconstruction will take years and cost billions of dollars. global news 24 hours a day powered by more than 2600 journalists and analysts in more

than 120 countries. this is bloomberg. tom: i want to go inside and show you how we do this. michael moore on inking, how we old bloomberg news into bloomberg television and bloomberg radio. this is my feet, which i call my own color-coded feeds. the french press, ap, the associated press with the green line. what you have are the putin flow, the flow on deutsche bank, the flow on equity business in russia. mr. putin has turned to domestic issues, talking about pension. before that, here is the flow of putin headlines. the democratic party, the american democratic party, the departure means the leaks were true. he talks about hacking. does it really matter who hacked

the u.s. democratic party? being not been this since at europe. extraordinary headlines out of moscow. guy: if you are european, and you are listening to what vladimir putin has to say cover and you have an election coming up, in paris or berlin, in reallyor rome, this is a serious issue you will have to be thinking about. how viable is our electoral process given the potential for a hacked. maybe that comes from russia or somewhere else. it is something europeans are worried about. becoming more anglo-saxon? i don't mean this week or next year, but is the struggle of banks clearing and the knew when weat we

were kids. you were too young to remember being in font shelters, i remember getting under desks in school in the 1950's, what are we struggling to become more anglo-saxon? lena: i was born behind the iron curtain. i am a proud citizen of europe. given russia's involvement, that russia is not only heavily involved in sponsoring wars raging on the eastern side of the eu, but it is becoming involved in beyond eastern europe and the global politics with the u.s., can europe survive in its current form? i'm not worried about the constituents. if there's one thing we learned from brexit and the greek exit story, is that europe is a

political not economic concept. we have one of the strongest economies in the u.k., rather than the weakest. it shows that this is a political construct. the fact that we started, i think that europe cannot survive and wars on its outskirts the u.s. withdrawing its shield in the aftermath of the election. do you believe people in the republican party will adjust mr. trump's messaging off of what we saw yesterday on twitter, particularly involving the united states and nuclear arms? will there be an adjustment coming? lena: this is one of the most important questions of 2017. if you do not the me adding, how far can anythingse whereby

priced off the dollar, therefore a recipe in volatility and credit instability is being laid out. i think the geopolitical and chill financial aspects of u.s. foreign and economic policy are the key ingredients. it is anyone's guess. it is ultimately down to economic interests and the various paths will be part of the next administration. economic policy at home. guy: russian never has allies, they just have alliances. they don't have friends in the terms of the way that vladimir putin thinks about politics. a vehicle of been oil prices were a long time. it depends on where you think oil prices are going. -- saudiepends on arabia has held the peg. made athe russians

superb decision when they decided to flow the currency in 2014. the foreign exchange reserves were astonishing. that is a function of a strong dollar. bit is over the last six months world prices and the dollar have de-coupled. dollar, a strong relatively stable on prices. all of the major currencies out there, all of the emerging-market currencies, i think the ruble is more stable than some of the others. guy: a big out performer in the last period. if you want an interesting comparison, i would look at china. they had the geopolitical story. question is there,

$69 billion worth of the clients -- of declines in november alone. to stop the currency from collapsing. trillions of dollars from reserves. the currency manipulator, what is the reason they would protect their currency in that circumstance? tom: let's come back. we will continue this conversation on europe, particularly a discussion on the united kingdom. labourmer united kingdom party politician david miliband will join us at 7:00. this is bloomberg. ♪

guy: i am guy johnson in london, tom keene in new york. i am sitting in for francine theua, who is decorating christmas tree. let's talk about donald trump. let's start with you. actingtrump clearly is a in granularity over talks about fica chat for the u.s. will be buying. intoo i as i try to work 2017 shift the granularity away to keep the big picture in mind? it will be difficult when we get into this new communication wept fromot to be place to place. the market moving all of the

place. how do i maintain a steady view of what donald trump means? simon: i don't think you can yet . you have to take it one event at a time. .hat is what 2016 taught us don't make assumptions. the market might be making assumptions now, which may prove to be ill-founded. i find the strong dollar story to be one that is absolutely remarkable that we assume there will be no pushback domestically against the strong dollar. focusing on currency issues over the past 12 months. currencyhina the manipulator, japan as well. that you can argue he was talking about the dollar. his hard-line support is in the midwest. to beare going significantly challenged if you .ave a strong dollar

i suspect a strong dollar will become a political issue in the same way it did in 1985. stronge antidote to the dollar, concerns about prices coming in and protectionist stuff. key thing in the u.s. markets in the last several weeks. there have been profound inconsistencies in the way that we understand the meaning and outcomes of u.s. economic policy 2017.look to on the one hand, inflation optimism pricing, or the dead pessimism pricing, treasury -- that pessimism pricing, treasury yields have found their way into pricing. we are getting some of that the repriced leading to a stronger dollar. i do you pair a more protectionist trump trump administration, it doesn't. you an a-list

celebrities? this is what we are dealing with in the united states. we have been trying to be responsible about giving you tangible tweets from the president-elect. arealled a-list celebrities all wanting tickets to my inauguration. look what they did for hillary. nothing. i want the people. i look at the news flow, including serious news, then i look at this. how does this play within the city, frankfurt, the central banks? it is almost surreal going into year end. simon: i agree. you have to come back. you have to look at the specifics of what is being said. we know a few things. we talked about extending the debt.

that is something that trump mentioned in may. the maturities. that seems to be in the cards. we know the story in regard to the fed. this seems to be more political pressure. which i suspect will be taken negatively by the city. may know the story that he is focused on china, calling them a currency manipulator. those are the only stories you can focus on, because there's nothing else meaningful to go on rather than general comments about fiscal spending and tax cuts. at the moment, take it one step at a time. oughter in 1992, everyone dollars after the clinton election. come the inauguration, lloyd banks is talking the dollar down. i would wait to see what happens after the inauguration. tom: what is your call on u.s. dollar and the euro next year?

dollar is i think the overbought and getting close to territory going overboard. i do not see the euro reaching rarity because the ecb will be forced to taper. european political risk is a constant in the euro and what matters is a real yields. in a world where financial repression, the tide is moving back. is much stronger at pricing rather than the real economy. i don't like the default risk. the real yields in europe are lower than they should be. i cannot see the euro going much further down. i'm not buying the parity story. the markets have been fighting normalization in correlation with the u.s. equities and u.s. treasuries, and also, a return

to divergence. the growth differentials we are seeing between the u.s. and the rest of the world will lead to inflation that will lead to policy differentials. i think two things, the fed will resist a more stronger dollar because of the global financial stability. the second day, that inflation is led by global supply side. oil producers positioning rather than domestic demand side u.s. story. guy: does that go wider or tighter? lena is suggesting the euro does not make it to parity. i tend to look at the two-year rather than the 10 year. the reality is all the past two moved.it has not the dollar didn't move over the course of the last six weeks that has blown out to the widest

levels i ever remember it getting to. maybe my memory is faulty. i like the idea of the the inauguration. terrific news flow out of european banking. the department of justice, deutsche bank, $14 billion presumed down to $7.2 billion. you have the italian banking, michael moore will join us in 17-minutes for an update. thank you so much. g plus economics. and simon derrick. we will continue, but i want to show. this is my christmas gift. boat andhis at the craft center on the north side of the boat in campus. this is a fine piece of ceramics. ♪

tom: "bloomberg surveillance." guy johnson in london, tom keene in new york. may you have a constructive holiday as we dash to the end of

the year. now, bloomberg is this flash. british airlines cabin crew on christmas and boxing day have been suspended. it all a revised offer from the airline. the proposal will now go to members. on-demand services close to securing $1.2 billion of funding for expansion. it is getting backing from her as including silver lake management. horizon, brexit. that is according to a new report by academics and policy researchers. one said that britons are little closer to knowing what brexit really means. the decision has united the remaining leaders in a way rarely seen. it has been six months since the u.k. voted to leave the eu that is the bloomberg business

flash. ♪ guy: playing debussey. amazing, really. that is our christmas gift to as we watch an incredible market for an incredible product that produces an incredible outcome. let's bring in the violin maker and leading expert on violence. good morning. -- on violins. good morning. is this an asset? >> it is an asset. asset. really strong

property in ajor city like london, for example. guy: over the past few years we have seen rare and high-end products desired by the global elite. they have continuously been bid up. all of the things we spend our time talking about, has it found its way into assets such as this? has the price gone up? the good thing about this is that it is never overheating. the interest group of investors is always a group interested in classical music. the combination of the joy of theg talent, like yumi at college of music and barking on her career, and hopefully filling concert halls with

isutiful music, that circle a relatively small amount of people. maybe 5% or 6% enjoy classical music on a regular basis. within that society, there are people that want to invest and loan an instrument to those players. tom: congratulations on your work. it is all about tone. ages, the tone gets better. how old is a violin need to be before it gets the better tone? florian: there are two factors. one is that 300 years ago, the golden period of violin making, of wood was -- the choice in awas great, treated

great way, and the violin was built in an ideal shape. we can copy those things, but we struggle to find the right wood to make that happen. i would say the age is not the main factor. .t does help layers of being played over the years, and the wood. tom: we will have to leave it there. thank you so much. from london, we continue. this is "bloomberg surveillance." ♪

tom: it is a relief to investors , from $14 billion, down to

seven plus billion dollars. bank considers its biggest nationalization since mussolini. debt will become equity. retail investors will be treated differently. germany react to the italian bailout? and it is be -- and it is beginning to look a lot like christmas. quick, we speak with howard davidowitz. i'm tom keene and with me, guy johnson come in for francine. extraordinary news flow today. i guess we go to the italian leadership speaking right now on the killing and a lot of other issues as well. guy: we have live pictures coming from rome. the italian premier talking about the events that took place behind the train station this morning. he is just finishing. that he has spoken to angela merkel, who i'm sure was greatly relieved, but i

would think deeply concerned that he made it all the way down to italy. how did he get their? tom: looking at the bloomberg headlines, there are about six topics going on right now. here is sebastian salek. sebastian: more on that story now. italian police killed the man suspected of carrying out the truck attack in berlin. italyterior minister of at a press conference said that he was fatally shot near a milan area train station. he fired at officers when stopped at an identification check. he was killed when fire was returned. german authorities believe amri is behind a truck that plowed into a christmas market on monday, killing 12 people. deutsche bank and credit suisse

both agree to play -- to pay billions of dollars. credit suisse is on the hook for $5.3 billion. the other $2.8 billion will help owners -- will help homeowners and communities hit by the crisis. deutsche bank will pay a civil penalty, and $4.1 billion in consumer relief. that is below the initial request of $14 billion. over.s. is suing barclays its sale of mortgage bonds. the justice department says investors were deceived about the risk of securities. barclays rejects that notion, and says they will vigorously defend the complaint. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am120 countries, sebastian salek. this is bloomberg. tom: thanks so much.

quickly to data --equities, bonds, currencies, commodities. the curve flattening this morning. euro-dollar, 1.0444. the vix, 11.42 with dollar strength over the last 40 minutes. i'm watching sterling, at 1.2 253, weaker over the week. guy: let's talk about the european equity market. -- banks kindpe of not going anywhere today. we will talk about barclays in a moment. it is weakening. we were watching the press conference in moscow. surrounding the security situation that we are monitoring very carefully, tom. tom: normalized year to date,

here is the beginning of january of last year in the upper left corner. deutsche bank doing good, recovering nicely from the gloom of autumn. up,'s unicredit with a leg partly trump, partly the italians beginning to clear market. it really shows a relative difference between the deutsche bank uproar and the very troubled monte dei paschi on this day of bailouts. guy: i want to talk a little bit about what is going on in terms of the stories surrounding bitcoin. there are a number of elements to this. china is the main take away. down, and in some ways -- gold has gone down, bitcoin has gone up. the story we are getting is that chinese are using this is a way of getting currency out of the markets.

keep an eye on this at the beginning of next year. we remember how 2016 started, tom. tom: they were saying in a meeting yesterday, and extra ordinary set of coverages on the italian banks by bloomberg news. some of the leadership is michael moore working out of london, luisa martin, and others. michael, congratulations on your coverage. help me with how discrete these bank failures will be. i do a headline that says it is the worst since mussolini. how does this upset the quality banks of italy? michael: i think in many ways it is pretty discrete. the bad loan problem is across in varying degrees. you talk about unicredit, the biggest bank, having the at about 15% loans of its book, whereas monte dei

paschi, who is in real trouble, it is closer to 35%. there definitely are degrees of this issue. with monte dei paschi going for the state aid route, perhaps that helps the crowding effect with unicredit trying to do its own capital increase next quarter. tom: is the next step mergers, acquisitions, and combinations? i believe that is where the corporate finance textbook read at duke university. is that the next step? michael: you would have to think there is going to be some combination. we already have one in the works, a couple of the italian banks merging to become the third largest. that deal closes next month. so that preface has begun. there has been some reluctance because of this issue of knowing really how the scale of the bad are problem -- if banks able to secure some of those loans, get them off the books, that may help the process.

tom: michael, help me with a delicate question. i believe banks were run by elites the last time i checked history. i guess the elites of italy had to be in bed with government officials to drag this on forever and forever. will that relationship of financial elites and the italian government -- is it broken asunder with these news events? point, our that colleagues have a great story today about some of the rhetoric around this, and with monte dei paschi a lot of the rhetoric has been saving retail investors, saving the retirees and mom and pops, but really the retail investors who were holding these bonds on average are the wealthy. tom: thank you. anhael: and they are part of investment portfolio. these are not life savings that are poured into these bank bonds. so really, i think the picture is a little more complicated

than the politicians are describing. he just moore -- what said there is the single most important analysis of the italian banking crisis. it is nothing more than a bailout of the elites. that is what we will learn in six months or six years. guy: since we have learned how the banking story in europe has unfolded, if you look back at why greece got bailed out, was it really a greek bailout? it was actually a german banking bailout. from a domestic point of view, i suspect it looked like that. let me shift gears and talk about the northern european banks in focus. deutsche bank and credit suisse -- why is there a different view of barclays? michael: not being in the room, you have to imagine the gap was more substantial in terms of what barclays was willing to pay and what the boj was asking. boj toe bank got the

come bow -- the doj to come down. up -- so,ank ended you know, there does seem to be a willingness to take the risk of going to court. guy: what is the downside of going to court? a, information flow. b, there is no kind of ceiling on this one, is there? it makes it difficult in terms of the negotiation you can ultimately have. why cocoa it is harder to predict what the outcome is going to be versus the saddle -- the -- michael: it is harder to predict what the outcome is going to be versus the settlement. it can drag on for quite a while. it does not mean that a settlement is completely out of the question here after some time in court. but certainly they have not gotten anywhere so far. guy: thank you very much indeed.

news, asore breaking if we did not have enough already this morning. it is appearing that a plane that was exiting libyan airspace heading into europe with 118 people on board has been hijacked and has now landed at multi-airport -- at malta airport. we still do not have the full details of what is going on. we will continue again to monitor this ongoing story. we will do that through the morning. this is bloomberg. ♪

guy: i am guy johnson in london. tom keene in new york. an aircraft has landed in malta.

it may have been hijacked. we are continuing to monitor the situation in what is turning out to be a far quiet friday for friday -- far quiet far from quiet friday before christmas. arabia hassaudi presented a more detailed budget in history. colluded with the presentation of dozens of pages. the government said it has reduced spending by 60% this year. about $2.6 billion. this after an earlier offer for the dutch insurer was rejected. delta lloyd returned to profits in the first half after cutting costs. alibaba's on-demand services unit is close to securing $1.2 billion of funding.

+++ flash." tom: we have two very different guests in this south or howard davidowitz is simply legendary in new york city. he is a great student of retail. we will talk to him about retail american challenges, huge challenges within retail. and how real estate links into it. george goncalves is looking at a trump reflation. let me bring this up to show you how wonderful it is. i believe it is before christmas. celebrate in style. sales 60% off. farnese at howard, have you ever seen this before? are the sales normal or are they record levels? they are record levels project early at the big stores. barney's is a big store in

trouble. you have neiman marcus, who is the king of this. $5 billion in debt, crazy leveraged buyout, not a be to -- not able to function. it is all across the board. tom: steve roach the other day talked about the american to sumer -- the american consumer being soggy. you talk about trump reflation and a trump boom. can you have that in america? george: there are plans to try to inflate the economy, but it is a long time to get there. i think the bond market and investors more broadly have been focusing on the debt coming in. i do think that the markets are looking at these subtleties around corporate tax reform and opened up free cash flow for some companies that maybe are on life support and they have a second chance. tom: where is nomura on this chart?

the news flow is extraordinary. the 10-year yield, down we come with a george goncalves disinflation. up we go with the trump inflation. up we go, and are three paths -- higher yield, stability, and we roll over and go back to lower yield. george: we overshot. what we have been saying in the near term is that the markets go through these episodes of pricing in higher yields and then they get let down, and we are due for that at the start of the year. the trump reflation story is a honeymoon. we will start to see the reality -- the tariffs biting into the economy. the inflation situation is not good. you are going to see long-term 2.25 andewhere between 2.75 in the near term. can we get to 3%? sure, but that is more midyear. let's run that point a

little bit further forward to it howard, we have full employment in the united states. wages are starting to rise. money is basically on a historical standard. why isn't the u.s. consumer spending hand over fist right now? howard: first of all, we have a different u.s. consumer. millennials are now our major consumer, and that has changed here they shop differently, they spend differently. so there are major changes in what we are doing. they do not go to malls, they do not drive. you cannot say people are not spending. the total will not be that bad, but you will see bankruptcies and stores closing and real estate collapsing all over the place. private equities involved in a lot of these deals. they are totally underwater. j.crew, they can go down the whole list.

bonds are selling for $.50 on the dollar, and there is good reason for it. these companies all have to be restructured. so we are in a complete mess in retail because we have three times as much store space as we need. that is a huge problem given the growth of online. we are in a total readjustment. millennials now is more than the baby boomers. that is a huge change in what is going on. they are different, so everything is different in retail in america. we had never seen this kind of change, and there is going to be a huge mess. guy: george, does that matter? isn't that good? we reinvent and re-create. i think howard made a very good point. the fact that we have more virtual and priorities have between millennials and

the baby boomers, your question earlier about wages and what is happening, why aren't consumers spending like they used to, consumers are still relatively levered. the demographics to on the one hand millennials having more of a different focus on what they are purchasing and consumer -- and consuming, and baby boomers are retiring in the next five to 10 years plus. guy: we are going to wrap it up there and come back. we have so much we need to be talking about, but it has been a busy morning for news flow. the ongoing press conference taking place in russia -- vladimir putin fielding questions. he wants to work with europe, but europe needs to speak with one voice and we all need to get around the table so much. europe and russia, still to talk about -- we need to talk about european space and work independently. vladimir putin, the press conference on going the news flow ongoing. this is bloomberg. ♪

tom: good morning, everyone. "bloomberg surveillance." george goncalves with us. and now howard davidowitz -- in this season of what i would perceive as massive change in overcapacity in your world -- let's start with amazon. who makes the cardboard boxes for amazon? bank stock and. amazon is booming, right? howard: absolutely booming.

they are most comfortable with change. they take risks, they are out front. tom: let's bring up the chart. macy's -- howard, you have been very helpful to us. 4% in the lastor decade back to the peaks of 2006. where will they be in 10 years? howard: they are going to have to be a lot smaller. they will have to be a totally different company. a lotre going to monetize of that, 20 billion or more. they will have smaller stores. very different. tom: do you believe in this phrase on the -- do you believe in this phrase omnichannel? in macy's you are business, you have to monetize a lot of your capital online because that is what the customer wants to do. the problem is, you are eating your own lunch when you do that.

are brick-and-mortar stores. so they have these giant bills and all of this stuff, and they are doing less business in those buildings. then they are building another business online. this stuff does not come together. tom: you mentioned j.crew earlier. how does madison avenue change on january 15? howard: first of all, you will see more empties and you will see more empties on fifth avenue because people just cannot pay those rents anymore. you see more temp stores all over manhattan, so there are changes in the real estate picture. there is just less need for brick-and-mortar. me take it another step, a bit more altitude. george, are we approaching peak stuff? about aalk a lot sharing economy and what that will mean for the retail sector.

have we reached that, and what does it mean economically? george: the fundamental driver of growth is a function of productivity and population growth. population is really not going to expand. as long as the key numbers are out there -- 2.1 resonates with everyone. if you do not have that and you have a shrinking economy and you have plenty of stuff out there to share, why would you produce more? definitely that is an issue for the auto sector and for retail, as howard mentioned. tom: we will come back with george goncalves on the markets and update you throughout the hour on the incredible news flow today. coming up, formerly with the imf, john lipscomb, on new york -- on bloomberg television. ♪

tom: good morning, everyone. washington. it is something. the news flow out of europe and the comments by mr. putin -- it

is a washington looking domestically, including maybe the latest tweets today from the president-elect. i am tom keene in new york. guy johnson in london. days this year we have seen the kinds of news flow that we have right now. to get you briefed on it, here is sebastian salek. sebastian: italian police have killed a man suspected of carrying out monday's fatal truck attack in berlin. the interior minister at the press conference in rome says shot nearwas fatally a train station. he fired at officers when he was stopped at an identification check, and police killed him when they returned fire. authorities believe he was behind the wheel of the truck that plowed into a christmas market monday, killing 11 and injuring four dozen others. a polish man was discovered in

the truck with knife and gun shot wounds. are -- there there appeared to be two hijackers onboard an airplane that landed in malta. meanwhile, the airline chairman says at least one of the hijackers is libyan. the plane has 118 passengers on board. russian president vladimir putin the people who did the hacking in the u.s. presidential election did so from another country, not from russia. he says the true identity of the perpetrators is anyone's guess. said the leaked information is more important than who did the hacking. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am120 countries,

sebastian salek and this is bloomberg. tom: thanks so much. in the news flow this more, we have asked martin schenker to join us from washington. marty, absolutely extraordinary the last 24 hours. you and i could probably go to 12:00 noon on this. we see mr. putin speaking. help me with the linkage of the original nuclear talk we are hearing now with the tweets of mr. trump and with the response of the people around the president-elect. so much for a slope the holiday news flow, right? i do think that vladimir putin is playing to his strengths, which is to deflect and confuse. the fact that he is agreeing with donald trump on the whole hacking issue is kind of strange because i do not really know what donald trump thinks about the hacking issue. he says we should not jump to

conclusions, but all intelligence agencies say it is russia. it is very confusing. tom: where are the adults in the room? where are the generals in the room? do you believe that mr. trump is getting counsel from those in transition, and those may be awaiting transition? marty: the narrated out of the trump cap is that he does consult with his close aides before he tweets anything. i have my suspicions that he may now listen to them very often, but it is unclear just who he is talking to before he is sending out these messages. marty, guy in london. u.s. tanks are going to be found on u.s. soil for the first time in three years very shortly. we are reopening bases, nato bases that we have not seen for a while in europe. british forces, european forces

will be repositioned into eastern europe. this was a decision made by the obama administration because of concern about what is happening with russia policy. is that something you think donald trump will continue? marty: i think he's going to defer to general mattis on these issues. general mattis has definitely had a more aggressive stance on defense than previous defense secretaries, so you very well may see a doubling down on that kind of thing. in the context of trying to normalize relations with russia. so i think you just have to watch the space and see what happens. guy: this is a conversation that is beginning to get a fire lit under it in europe, that the european elections next year could also face a similar kind of hacking scandal that has been surrounding what has gone on in the united states. do people talk in washington about this not just being a u.s.

problem but a western democracy problem? marty: it is definitely considered not just a u.s. problem. you would think that the political parties in europe would have learned that you do not things in email that you do not want to get out into the public. be a veryoing to interesting thing to watch, but there is concern that this is an international issue, not just a local one in the u.s. tom: marty schenker, thank you so much. howard davidowitz is with us, and george goncalves per george, help me with the -- what is the bet of the market right now on january 20? george: it is a huge news flow, but i wonder how the markets will perceive this, considering are they really market moving events. on top of that, we are entering staff comes down

and there is a reduce in staff -- there is a reduction in staff. think it sets it up for next year more than anything else. nomura linking into the gross domestic product of the nation? is it a 3% economist? ellen zentner yesterday with morgan stanley was far more subdued. george: i think what we are trying to calibrate across the street is really understanding -- and i call it a trump team. the fact that the policies are sick -- the fact that the policies that they are putting in place cap's downside risk -- deflation is really now off the table. at least any temporary downside risk to growth is great, but it does not necessarily mean they will have a good upswing. that is when we shift the

narrative away from euphoria to a balanced view. guy: there is a phrase that i remember all the way through my career that the market is never wrong. i can understand why people say that, but the market has been horribly wrong. it mispriced brexit, it mispriced donald trump. why do i believe going into 2017 anything that the market seems to indicate? it is terrible at acting on political events. why should i believe that it has it right now he act go -- that it has it right now? george: i think markets do have a tough time discounting political outcomes. but i do think that given what we have gone through with this andt to the reflation trade the bond market pricing that in, it probably is wrong. tom: we had a wonderful guest this week that did not talk

about the wall of worry, he talked about the wall of hope. that is really what retail has going right now, given the buffeting of amazon and all that. george talks about a shift. what will be the shift in retail wrapped around everybody's wall of hope that they are trying to climb? i think we have some great stuff going on in the retail business. business the cosmetics , doing great. we have a lot of areas. it is 70% of the economy. we have a lot of things working, of course we do. so there is hope in the cosmetics businesses and other businesses, what is going on with off-price -- t.j. maxx, ross, burlington -- they are hitting it out of the park! zentner mentioned this yesterday -- a consumer who is price intolerant who says i

am not going to pay that, i am going to wait -- howard: the consumer has been trading down a long time. all this online stuff has made them a lot smarter. everybody,hreat to and we had make retailers a lot sharper. you do not want to be the high cost guys like the department stores, because they are screwed. they have too much overhead. they have to totally reorganize. point, ase, to that howard was mentioning earlier on, there is a lot of real estate surrounding a lot of this stuff. -- au think about the way lot of this stuff is going to get converted into residential. if you think about the economic consequences of that -- we talked about baby boomers earlier -- what do asset prices in the united states do in this scenario yeah cap can we just

see inflation going up -- going ever upwards? the postll throughout financial crisis and the housing boom, there has been a decline in home ownership in the u.s. perhaps we will also see down the road these concepts that if we are 70% -- maybe we will go down to a 65% consumer-based economy. and you will have to pick your spots with automated inventory and all of this technology, and some of these spaces used for retail may be converted to residential living. with a preference away from actual homeownership and toward renting. howard: another point. one of the things that trump wants to do is cut a lot of the bureaucracy, regulation. this is real. this can change this economy. we have gone nuts. in other words, you cannot give a bank 60,000 pages of

regulation where all you had to do in the financial crisis is tell the banks to hold more cash . 10% would be perfect. we would not have had a financial crisis. you do not need 60,000 pages of regulation. there are so many things you can do. you look at health care, you go into a pharmacy, they have a nurse there. that is 40% of the problem. everybody is burned by regulation. george mcgovern was a presidential candidate a long time ago. he was bernie sanders jr. lost.course he later opened the bed and breakfast, filed bankruptcy in six months, and announced he never understood what the hell he was doing. george mcgovern said he went out of business. you do not know how pervasive this looney tunes has gone on for eight years.

i can see bernie sanders or bill and hillary doing a bed and breakfast. we will continue this discussion and bring you up-to-date on the news flow as well. later, in a conversation with the governor of the state of therado -- look for that in 12:00 noon hour. from london and new york, this is bloomberg. ♪

guy: 11:44 in london. i am guy johnson. tom keene is in new york.

here is sebastian salek. sebastian: italy will inject as much as $21 billion into the country's banks after monte dei paschi failed to raise funds for investors. it will last the government for a capital increase that it calls precautionary. more lenders may seek lifelines soon if banks are struggling under the weight of $376 billion of bad loans. the u.s. justice department is suing barclays over its sale of mortgage bonds. the doj says investors were deceived. barclays rejects the accusation and says it will vigorously defend the complaint. british airways on christmas day and boxing day has been suspended. that is the "bloomberg business flash." tom: nice to see that british

airways will fly. they have been very good to me recently. i was a little worried about the strikes. guy: it is all going to end up being all right. the weather will be sunny, the flights will work. how is thesly, hurricane in the united kingdom? guy: at the moment it looks alright. it will not affect the area of the u.k. that you are going to be in. a big storm to the north of england and scotland -- it is not going to affect this area. italy earlier on confirming that the suspect sought in connection with the massacre at the berlin christmas market has been shot in milan. there has been a conversation and angelatiloni merkel this morning. good morning. how did this happen? when did we find out about it, and what details are we still missing?

clear,s all very confirmed by the interior minister's and by the prime minister, all happening during the night. 3:00 a.m. at the train station in the milan area. police were holding a routine check. they stopped and men asking for his id, and this guy shot at them, injuring one policeman. .e is a jr. policeman he killed the man, and then they discovered that this man is anis ofi, the man accused attacking berlin earlier this week. the interior minister said there is no doubt that he is the man they were looking for. franceved in italy via with the train. they found the train ticket on his body. so finally the man has been found and has been for sure found in milan and was killed.

so no doubt where the men could be now. tom: help me with how this will forever change the security of germany and italy. do you believe that the governments will act and make profound intelligence changes? what gentiloni said that they need to do during the press conference. prime minister gentiloni. now we hear from france, marine haven asking to somehow more checks at the border. this man arrived in italy from germany via france, and he got to the station at 1:00 a.m. and took a metro to two milan without being checked by anyone. that is why some politicians are asking to change some rules in europe nowadays. tom: thank you so much. ebhart with bloomberg news in milan.

i want to make clear, the news flow is extraordinary, but the data is actually pretty quiet, as you expect. sterling, 1.2264. mexico has been weak the last three days. this is bloomberg. ♪

tom: that's what we like to do, a data check out. let's do a data check in, guy johnson. a churn this week as you would expect, but at the bottom is the elephant in the room. what has not moved is the dollar. it has been remarkably stable. it comes down, it comes right back. it has been to me the quiet story of the week as the dollar is resilient. is one of thehat stories that will take a strongly into 2017. "bloomberghortly, daybreak: americas" with david westin and jon ferro. the friday before christmas has been quiet, david. david: it is not, though.

the big story is credit suisse and barclays as well. story withu have the monte dei paschi. , the foreign -- the formerly foreign secretary of the u.k., we'll talk about the suspect being shot in milan. also, martin straley. squarely. and just for time because we know this is your last day this year, we will have one of your favorites, john lipsky. tom: john lipsky will be most informative on the macro prudential risks perhaps that europe faces. our good news is to finish with howard davidowitz in this hour, with the vid of its and dowitzates -- with davi

and associates. markets moved around a little bit here have we cleared out debts out from the financial crisis? thege: we have shifted to government balance sheet. there is the shift thing that has been going on. so historically speaking, when you have huge debt moves, it dampens activity. i guess with the chart that you are looking at behind is showing it. tom: corporate debt is back paraded, right? george: corporate debt has also grown. advantage are taking of that. private debt is still out there bank or those who could have handed in the keys and have delivered in a more forceful way have done -- and have d leveraged in a more forceful way have done so. tom: you mention a lot of private equity transactions. how about the consumer? do they walk in the story act of they have a full closet, a boom

economy for a bunch of years. is the charge card out? is stillhe charge card in, but the consumer is more careful. that is part of the trade down effect. the consumer is looking for a deal, and wherever you go -- take england. walmart bought a company in germany some years ago, a big supermarket chain. walmart left germany. the economic engine in europe -- they quit. the other two companies polished them off. it is all about place. guy: tom keene has an empty suitcase headed for london. should he do his shopping over here? are americans going to travel? howard: americans are always going to travel. they are frying everybody's brains out. now legal is coming to u.s., out

is here with tons of stores. is here with tons of stores. tom: what is the equivalent you are seeing in europe? howard: they are the fast fashion guys and they have outflank all of the american retailers. st.y are the faste tom: howard davidowitz, thank you so much. johnson, thank you so much for a most in shocked if week. the news flow again, folks, has extraordinary. stay with bloomberg television and radio throughout the day. this is bloomberg. ♪

♪ donovan: --jonathan: good

morning and welcome to bloomberg daybreak commenting it down to the holidays with the market looking like this, you just go nowhere. looking at futures right now we are negative about three point on the dow heading for a seventh straight week of gains but into the longest weekly winning streak since 2014. in the bond market quickly, let's get you up to speed. we are switching up the board. the yields are down on basis point. david: here's what you need to know at this hour, a big sigh of relief, deutsche bank and credit to terms over the mortgage backed securities agreeing to pay a total of 12.5 billion dollars. barclays hangs tough in the doj takes it to court. italy is buying a bank moving forward to invest billions of euros. how much will it end up owning? what to the bondholders stand to lose?