francine: transition tensions. president obama calls out -- call trump after the president-elect takes to twitter to complain about the handover of power. will retreats and european equities trade lower as investors close-out a volatile year for markets. executive optimism. are more positive about the outlook for their companies that may have been in 18 months, and the ftse 100 hits a record. could brexit be good for business? this is "bloomberg surveillance." francine lacqua here in london.

we have your markets, your news. geopolitics. but first, here is sebastian salek. has founddent obama his successor, donald trump, after the republican accused him of hobbling the transition to his administration. trump told reporters gathered at his mar-a-lago resort in florida that "we had a very nice conversation." it started with a tweet that alleged inflammatory statements and roadblocks. that brought tensions between the men into the open less than a month before inauguration day. strain u.s.-israeli ties have reached another low as secretary of state john kerry and prime minister benjamin netanyahu traded blame over a stalled middle east peace process. in a speech yesterday, kerry a two state solution to the israeli-palestinian conflict is increasingly out of reach. president-elect trump promised a fresh start. netanyahu accused john kerry of

anti-israel bias. netanyahu: israelis do not need to be lectured about peace by foreign leaders. israel's hand has been extended in peace to its neighbors from day one, from its very first day. we pray for peace. we work for it every day since then. seb: britain's chief financial officers are turning optimistic as they head into the new year, but they intend to be cautious amid the cloudy economic outlook , according to a new report by deloitte. they found cfo's who are positive outweigh those who are pessimistic by the most in 18 months. yearsould potentially two of brexit negotiations set to begin in the new year, businesses are looking to stay flexible. the actress debbie reynolds has died at the age of 84, a day after her daughter, carrie fisher. her son said the stress of his sister's death proved too much for his mother, reported to have suffered a stroke. reynolds, star of

"singing in the rain," was nominated for an oscar in "the unsinkable molly brown." falling as plunged, much as 26%, the most since 1974. that is after the credit rating was cut following announcements it may write down billions of dollars of acquisitions made by u.s. westinghouse electric unit. the firm has lost more than 40% of value this week. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am sebastian salek and this is bloomberg. francine: let's check your market. once again, the same story yesterday. quite thin volumes out there. the dollar m oil retreating. the basket of currencies a little bit different. the dollar overall dropping the most in two weeks. oil retreating a touch. it is down a touch.

still the highest close in 17 months. investors trying to prepare to close out a pretty volatile year for markets. if we look at european stocks, they split from the 2016 peak. i also want to show you goal. it has been gaining a little bit in the last two or three trading sessions. this is the picture for gold. britain's stock market was the story of the day, something we will keep a close eye on. yesterday, we saw a record. it hit an all-time record high. let's talk more about the markets and get straight to our guest. this is who we have on set. kit juckes, socgen, and patrick armstrong. thank you for joining us. we need to talk about the ftse. the ftse is at a record. why? we are seeing brexit, concerns about trade. our investors once again taking advantage of cheap money? well,t is thrilling as isn't it? it is a record in sterling

turns. your-dollar terms, it would be down here today. the weak currency, multinational companies -- the minors, the health care companies -- that plays into a strong ftse in sterling terms. kit: i think there is this sense firstly, the hardest form of brexit, whatever that means -- if it means brexit and hard brexit means something frightening -- that is company -- coming off the table. we have a return to relative optimism, because we are getting used to the uncertainty and settling into the mindset that the uncertainty excludes the worst possible outcome. with a weak currency, with an economy that is trundling along, , the ftse has got a long way to catch up with the dollar and the u.s. equity markets come in dollar terms. so it is just beginning to find some buzz coming through. it is not about u.k. economy per se, most of the time. there are a lot of resources countries in their. -- in there.

francine: you are bearish on the ftse 250. focus on the ftse 100. what is priced in? i know there is pound weakness. but actually are we -- as kit is saying, are we assuming we will not get the worst for brexit, whereas we don't know? is ack: i do not know it fair assumption. the worst, probably not. we are moving, the pendulum, on the soft side of things. parliamentary vote is looking possible. it may not even happen in q1 the way theresa may was thinking it would definitely happen. byould not be surprised anything that softens or delays triggering. it is probably good news for risk assets. kit: which i think tells us something about the mindset. i would say anything that delays means even more uncertainty for even longer. we are a bit complacent. but we can be complacent for

another month. francine: are we complacent overall? if we look at what is happening in the u.s., it seems donald trump's election has priced in a trillion spending, or 50% of that -- it has priced in so much reflation of the u.s. economy, and we do not know what will happen. kit: the thing that worries me about 2017 is, we seem to be screaming toward not only economist consensus, the , thatsus around the world the u.s. economy is going toward 3% growth. amazed if the u.s. economy grows at 3% next year. at this point in the cycle -- we are swallowing the more growth from the shift from monastery to fiscal policy. we are swallowing that hook, line, sinker, and whatever else we can think of. francine: what if it disappoints? expectingf people are 3%, there is a high chance it

will disappoint. i think you'll get quarter over order gdp growth, q3. but for the year, that is very unlikely. shocking number, if 3% is what the consensus is moving too. i do not think we will get anywhere near that. since thebeen election -- it has pushed assets in so many directions. i think some of them have gone too far. some have further to go. francine: which ones? patrick: copper is oversupplied. we have a big short which has picked up every day since the election. i think treasuries are going to yield more at the end of the year than they do now. i think the u.s. dollar still has room to run higher. if you are looking at allocating capital, 10 years from now, if you buy a bond, you end up with the same amount of capital. if you buy a treasury, you have 25% more capital. that is a big carry strategy. with political uncertainty in europe, i think strong dollar, weak euro does trade out.

you could call that a trump trade. francine: the rest of the world looks ugly compared to the u.s. it may make sense for the markets. kit: i am tempted to say, can i sell the trump trade 99 days after inauguration? that is the timeline in my mind. i might say, can i buy the euro 99 days out? choose some inflation to -- to chew through. we might get about as excited as we can possibly get halfway through the first hundred days, and then we are going to sit there and say, what can you really achieved, and how fast can you achieve it? francine: kit and patrick, thanks for now. both stay with us. stay with "surveillance." coming up, the great british squeeze. will 2017 be the year that inflation hits home? also, the country prepares to leave the e.u. could we see euro-dollar parity

during the first month of the new year? can.f our guests things we we talk europe's geopolitical risk and what that could mean for markets. andtrunk-obama and -- donald, obama, and twitter. a spat between the incoming and outgoing u.s. administrations. ♪

francine: this is bloomberg "surveillance." let's get straight to your bloomberg business flash with sebastian salek. seb: president-elect donald trump is seeking to take credit for sprint's commitment to bring back 5000 jobs to the u.s.

he said the softbank chairman was among those behind the move to add workers. the japanese billionaire said earlier this month that he intends to invest $50 billion in the u.s. using a previously-announced technology fund, creating jobs. mr. trump: we have sprint for 5000 jobs. from all over the world, they are coming back into the u.s., which is a nice change. and also, one west, 3000 jobs. it is a new company. and throughgh massa tokai. we appreciate it. seb: the wall street journal reported a settlement with the u.s. department of justice to resolve problems with faulty airbags. it may involve criminal misconduct penalties of as much as $1 billion. takata said nothing has been decided and the doj declined to

comment. exxon mobil has made a natural gas discovery in papa new guinea, where it is trying to expand its reserves. the size of the deposit has not been determined. oil --ffered to buy into interoil's papua new guinea reserves. that is the bloomberg business flash. showsne: a new report written's chief financial officers are turning optimistic as we head into the new year. for more, let's bring in bloomberg's brexit editor, sam kennedy, fresh from christmas. still with us, kit juckes and patrick armstrong. simon, brexit -- what have we found out in the last 45 months? simon: very little. a lot of conjecture and posturing by london.

fundamentally, we do not know what theresa may will seek, nor do we know what europe will attempt. the risk is going to heat up into the new year with the self-imposed march deadline by theresa may for those negotiations. francine: simon posted a fun quiz on brexit that is online, on bloomberg.com. in the break, kit and patrick will have to take it, and we will give you the results. it was a little bit tongue-in-cheek. if you look at 2017, so we still think oracle 50 will be triggered -- in march, we have a supreme court announcement in january. after all, negotiation is, i come to you and say, this is what i want. simon: we think what will happen is, even if the supreme court says that parliament, not the prime minister, has the power to invoke article 50, theresa may still thinks she can do that by the end of march.

the theory is that she will put forward a proposal, however sketchy it might be -- we will wait to see -- and europe will at some point get back to london. french and german elections could delay that. it could be next year we see the negotiations kickoff, but obviously there is a range of things theresa may has to show her cards on at some stage. there is what she can do for finance, how she is going to do industry trade. we are slowly but surely seeing the suggestion from europe that they would like to do the separation, the divorce talks first, and then establish a new relationship second. london would like trade-offs to guarantee more certainty. you have sent any delays to brexit would mean risky assets. patrick: a delay indicates slight softness as well. the waitress and i was talking in q3 was she wanted something hard and clean. , the getting more muddled

longer things get delayed. i think the german election is the most important one. there cannot be real negotiations until you know who is leaving germany, calling the shots on the euro side of things. they are going to slow things down. to curb: if she wants immigration and say there is no freedom of movement, what are they negotiating on? patrick: that is your starting point, a bargaining position. she knows you need some freedom of movement. will not be a real victory on the freedom of movement. there will be some controls there. i don't think it will be a way to appease the population who voted for brexit. the consequential effect i do not think will be as meaningful as it may appear. francine: could it take another 12 months? kit: i was imagining -- the thing, if you have marine le pen , with movements to control mass immigration as the centerpiece,

in power in france on the morning of may 8, the whole negotiation is different. we talk about the german elections. there is an italian election at the end of the year. i am even less confident i know how that is going to play out. there is a lot of water to go under the bridge. at this point in time, the only thing you would say is that if we started the negotiations now, the freedom of movement of labor, which has been enough to see the swiss kind of abandon the results of their last referendum, is absolutely resolute. we have not gotten close to anything you can negotiate from yet. but it is a huge year for politics and this debate on immigration in europe. i would not necessarily call how it comes out. i am at times going to be optimistic, and at times i am going to be very gloomy about the economic impact of all of

this. of thee: that is one points we will be discussing next. kit juckes and sam armstrong stay with us. up next, could we see euro-dollar parity then -- during the first three months of the new year? talk about political risk and what it means for the markets. ♪

francine: this is "bloomberg surveillance." its biggest many of

economies. 2017 is set to be an interesting year for europe. how should investors play the politics? seesess patrick armstrong dollar parity. kit juckes is also with us today. all, isn't all through currency that you play geopolitics we are talking about, foreign policy? patrick: that is where we are comfortable at the moment. there are so many things working in favor of the dollar versus the euro, one of our high position -- high conviction positions right now. it will not be long-term, but the first three months, you have two fat hikes priced in. the tax cut uncertainty from trump. uncertainty -- that is where you get the real economic boost. you are looking at maybe even three fed rate hikes. that happens, it will force parity. you have enough momentum. a carry trade. stronger economy. less political risk, probably.

statement,ifficult given trump creates his own kind of political risk. i think that plays in favor of dollar versus euro the first months of next year. kit: i think between now and the french election, we will get parity. it will be bumpy between here and there. the yen is 1% stronger out of pretty much nothing. the euro is a bit like that. 600 billion buy euros a year of foreign bonds, pretty much, just to keep this thing here. there are a lot of reasons why money should be flowing out of europe. it is. they have a huge current-account surplus and they are recycling it. that has to happen day after day after day after day, to avoid the euro going up. but still, between now and the french elections, i do not know what comes into two people buying the euro, other than covering shorts. francine: one thing we have been trying to explore is how the

markets read some of the foreign policy. i do not know if you want to call it populist leaders. people whoof the have sat here on these chairs, before trump got elected, were telling me that if trump won, the dollar would have gone down. are we in a new, uncharted territory? patrick: with central banks, everything since qe1 happened, currencies are driven by central banks. it is much more clear for 2017. the fed was talking about hiking three or four times in 2016. the market was not pricing that in at any point, really. what i think it is plausible you get three hikes in 2017. last year, coming into the year, you did not see how the fed dot plot made sense, given the economic reality. francine: do you need to be a foreign policy strategist? forget the markets. this is the story of 2017. kit: i mean, part of the problem is too many binary events.

from brexit through trump through the french elections, being three easy ones to see -- but the various opec meetings, they are very binary events. we will go up or down. tell me what is going to happen. or find a slightly smarter trading strategy around that. i think we are going to have to try to understand what this all the event. from particularly in europe. the european economy is going to grow at something that is not too much below 1.5%. it is going to trundle along. that is not the story. the ecb will not raise rates. that is not the story. francine: up next, transition tension. obama and donald trump. ♪ with the xfinity tv app,

anything with a screen is a tv. stream 130 live channels. plus 40,000 on demand tv shows and movies, all on the go. you can even download from your x1 dvr and watch it offline.

only xfinity gives you more to stream to any screen. download the xfinity tv app today. francine: this is "bloomberg surveillance." let's get straight to sebastian salek. foundresident obama has his successor, donald trump,

after the republican accused him of hobbling the transition to his administration. afterward, trump told reporters at mar-a-lago "we had a very nice conversation." in a tweet, the president-elect alleged inflammatory statements. that brought tensions between the men into the open less than a month before inauguration day. strain u.s.-israeli ties have raised another low as secretary of state john kerry and prime minister benjamin netanyahu traded blame for a stalled middle eastern peace process. in a speech yesterday, kerry said netanyahu's policies were pushing a two state solution to the israeli-palestinian conflict out of reach. netanyahu accused kerry of anti-israel bias and said the u.s. support of settlements was unbalanced. netanyahu: israelis do not need to be lectured about the importance of peace by foreign leaders. israel's hand has been expended in peace to its neighbors from day one, from its very first day. we pray for peace.

we have worked for it every day since then. britain's chief financial officers are turning optimistic as they head into the new year. they intend to be cautious amid the economic outlook. that is going to a new report by deloitte. they found the number of cfo's positive about their prospects outweigh those who are pessimistic by the most in 18 months. with potentially two years of brexit negotiations set to begin a new year, businesses are looking for safety. actress debbie reynolds has died at age 84, a day after her daughter carrie fisher. her son todd said the stress of his sister's death proved too much for his mother, who suffered a stroke. debbie reynolds tied -- starred " andinging in the rain "the unsinkable molly brown." most in a dayhe since 1974, after credit ratings were cut following announcements

it may write down billions of dollars on an acquisition made westinghouse.iary global news 24 hours a day, powered by more than 2600 journalists and analysts. i am sebastian salek and this is bloomberg. on thee: let's get more u.s. foreign-policy story. with us now, jim hertling, who has covered european crises over the past decade. kit juckes and had armstrong also with us. what do we know or understand about donald, the way he tweets, what he has been alleging, and a phone call between him and president obama? they have buried in styles of communication. president obama uses sentences and reason. likedent-elect trump don't

-- president-elect trump communicates in short bursts driven by emotion. at base, you have a clash of communication styles. also a clashing experience. -- is thisou worrying? it is so emotional. you almost cannot figure out whether it is policy or emotionally based. is not thes worrying communication between president obama and president-elect trump, because obama is a lame duck. he is went to be gone in a few weeks. he is already yesterday's news, .ssentially and what is worrisome is the incoming administration and their strategy, their approach. the prime minister of israel and trump have very similar approaches and styles. francine: and it has been very tense between john kerry and netanyahu. obamae and president

really did not get on, and netanyahu took pleasure in embarrassing obama publicly. had some stuff to get off his chest, probably, as he has out the door. how much of a reset in middle east policy will we see january 20 question mark jim: -- january 20? jim: with israel, trump is much -- everybody in u.s. politics is pro-israel. that is standard. trump will be more prone than yahoo!, pro-likud -- more pro-netanyahu, pro-likud. you talk israel and the the sixians instead of sided civil war and terrorism. it is familiar ground and familiar issues. to dig into that will be fine. what is the impact on

the markets? jim is saying this is an easier way of talking about the middle east, instead of the harder context. but how do you look at it and say, this means this? there has been no real risk premium priced in for the volatility that trump is going to create with tweets, with with --ary comments, reaction seems to be how he handles things. that is not good for markets. generally, when there is uncertainty, markets put a risk premium on that. it would be interesting if the opposite happened. markups on the russell 2000. people are acknowledging possible good news because of trump. they have their hand up in the air, and it is battering the negatives. as he comes into power, i think the negatives will come into

assets. talking about policy and trying to figure out what i waseans for the economy talking to a former big guy at the cia who was in charge of briefing the president, for example when saddam hussein was captured. from now on, he will brief president trump. he said he does not really want to be involved in day-to-day , or what he knows. the communication will have to be shorter. for does it mean geopolitics risk and how that impacts the safe world, and therefore our economies? kit: it is about communications style. i expect from what we have seen so far, we will have to get used to a few random sentences coming across things that are not necessarily supposed to be taken as a policy statement. we do this when we talk amongst ourselves or with our children. we get over it.

whether we can get over it that easily when it is a conversation between the president of the united states and the leaders of china or russia, saudi arabia, iran -- i honestly do not know. but we are going to move away from this incredibly choreographed communication style to something that is going to be a little bit shorter, sharper, and have rougher edges. it might not matter. the world might be grown up enough to get used to it. but it will be -- it will have rough edges. francine: one question you wanted to answer about donald trump with precision now. is he really not ideological question mark is he a businessman? is that what people would ultimately want to find out about? kit: can he reinvent diplomacy, or is he just ditching diplomacy? francine: that is the question that people -- jim: ditching diplomacy? is he ditching diplomacy? kit: it is a question.

or reinventing it. he is certainly changing the style. jim: my question is -- and it speaks to that -- it is based on the fact that he is speaking -- when he talks about foreign policy, talks about diplomacy, he is not speaking as the incoming head of the most powerful nation in the history of the world. he is speaking as -- francine: as donald trump. jim: as an aggrieved tinpot autocrat in a small country being stepped on by powerful countries. it needs to -- at what point will he become aware of -- francine: you could argue that because of wikileaks -- you could argue this is things heads of state used to tell each other in private. now, he is using a more open forum. or is that naive? jim: you know, the world does not change that much. i do not know that wikileaks -- you are right. in the email world, everybody

emails with an awareness that it will become public at some point. francine: patrick, are you more worried about a trade war, something tense with russia, or with china? it is interesting that china being a currency manipulator and getting traded manages through manipulating the currency -- trade advantages through manipulating the currency -- they are keeping the currency stronger than any free-floating market. it is interesting that trump would say they are getting traded manages. if it floated completely, it would be a much weaker currency, versus the dollar. it is interesting, actually. francine: we will talk about china next. stay with us. plenty coming up, including putin. we bring more from bloomberg's interview. and is 2017 the year that inflation hits home? and fragile china -- is the monetary squeeze about to get worse? we talked cash.

for more, to into radio daybreak. this is bloomberg. ♪

francine: this is "bloomberg surveillance." earlier this year, we brought you a great interview with vladimir putin. he sat down with us ahead of the g-20 summit, and here is what he had to say about russia-china relations. putin: i think it is completely achievable. you yourself named the reason for it, the trade.

first, we almost got to that figure. it was just under $90 billion. that figure was almost reached. that included a decline in the prices of our traditional exports. that includes currency fluctuations. reporter: actions make a difference? putin: the sanctions and our relationship with china are not affected at all. we have built relationships with the people of china that we consider to be at an , quality.ted high we have a comprehensive hardship of strategic quality, and sanctions had nothing to do with it.

the decline was due to objective issues, the decline in energy prices and the exchange rate. the physical volumes have not fallen. they are actually growing, with regard to our trade and economic relations with china. they are becoming more and more diversified, which we have consistently sought with our chinese partners. note that in addition to trade in traditional goods -- let's say energy resources, hydrocarbons, oil, natural gas and oil products -- and from the moved textiles, we have

to a new level of cooperation. we are working on current space programs. we are developing production of heavy helicopters. we are working on an airplane. we are cooperating in machine building, high-speed rail, in timber processing and atomic energy. we have already built a nuclear reactorsnt, two already functioning and running very well. other will build reactors. the golden we set for ourselves to diversify our relationship is being met. -- the goal we set for ourselves to diversify our relationship is being met. francine: still with us, pat jukes and patrick armstrong. m bloomberg news's jim hertling. i do not know what the biggest risk is. we were talking about oil.

it is really about china, the debt load, the outflows, the reserves, and the renminbi. kit: china is -- the debt load is unsustainable in the long run, but the long run is a long run. the currency policy -- the only aage i have in my mind is of swan swimming serenely with everything looking controlled over the surface, while it pedals. sleep to control falling reserves, capital outflows, and keep the thing going. to boost up and slow down demand for economies and keep the economy going -- then there is the risk of a trade war. there is a lot going on. it could take five years to play out. time moves slowly on the debt issue. , forcing bondssue yields of to keep the bond yield up. it keeps this shortage in the

world. but the next big number in the next week will be how much capital outflow. francine: is it also the fact they seem to be tightening monetary policy at a time they need to listen it? patrick: do you want to be linked to the dollar even loosely if the fed is going to be hiking two or three times this year? china would want to be easing, given their economic objectives and where they are right now. you have potential asset bubbles, credit bubbles. i think in a portfolio context, shorting renminbi is a great trade for a lot of investors. you are probably going to make 5%, 7%, and it will cost you 4% to put it on. but there are no risk hedges if trump becomes protective with the terrorists. then, -- protective with the tariffs. francine: if he does become much more protectionist, what does it mean for u.s. companies, in terms of earnings and supply

chain? protectionism, you do not want to be structurally long anything. it will work in the short-term, but you will get the opposite effect in the long-term. you might get a short-term rally, perversely. but over even two to five-year periods, that will be an economic headline that -- headwind that is hard to overcome. to be competitive in a global landscape, those are not winning strategies. francine: we were trying to figure out our main stories for next year. we talked about politics in europe, foreign policy, china. oil is an interesting angle because it goes back to him nation and central banks. we have an opec agreement, but you have to figure out whether they are going to cheat a lot. jim: i guess you expect that they will cheat. i am not an oil expert, certainly. from what i have seen, the prices go up, and that will encourage u.s. producers to ramp up reduction.

-- ramp up production. fairly constant, you get more supply. prices will come down a bit, or there will be pressure on prices to come down a little bit. francine: do you worry about inflation? kit: in the short term, we will get a be a 3% wage growth, a 3% cpi, but do we still have excess supply of labor in the world? we still have the forces of technology driving prices down. we are not out of this disinflationary phase of the global economy, by any stretch. francine: breaking news. china cutting the waiting of the of the-- weighting dollar in its currency basket. this broke a couple of minutes ago. extending against the dollar. is that significant? something that has

happened without being explicitly announced -- the way the currency is moving, it is not just hate the to the dollar. it is a trade weighted basket, maintaining its value. this is in the knowledge meant of that. you are going to see fed hikes. kit: if the dollar goes up, against a bunch of other asian currencies, you will see the rater-human -- dollar-yuan rising faster. francine: stay with us. we will put together the key themes from investors as we meet the new year. we get final thoughts from our guest. -- guests. ♪

francine: this is "bloomberg surveillance." final thoughts from kit juckes, patrick armstrong, and jim hertling. he started the show talking about the u.s. unknown for the economy? the economy was already on track to be ok. patrick: if you look at pmi's, manufacturing numbers, they are consistent with an expansion. the u.s. was doing well relative

to the developed world, so donald trump is taking over an economy on relatively strong footing. our view is you will have higher yields. if you look at an economy with an unemployment rate at 4%, and inflation rate, wage growth at 3%, where with the cash rate normally be? it would be higher than where we are, so we are still in very accommodative policy. that is the leg up for the dollar. i think that all gets front end loaded, although the actual hikes are at the end of the year. francine: can he create quality jobs in the u.s.? kit: he can create jobs. u.s. economy is generating --mployment growth generating employment growth every year. the problem is productivity. i do not think he can generate productivity in one term. francine: how do you generate productivity? kit: education, improving capital, things like that. there is also a question that says productivity has

historically been in manufacturing, not services. we might have to get used to slowing productivity. gdp, services give me things we do not know how to measure. a long coffee break discussion. but i think it is a real struggle. this is an economy that does not have a lot of spare labor. he is going to go on using up the spare labor as fast as we were before. i do not see that he gets much more gdp growth out of that. what really know about donald trump's relationship with the gop question mark to get things done requires -- with the gop? to get things done requires their backing. jim: he is nothing if not a norm breaker. it will be interesting to see how institutional washington, , orher they eat him up whether there is a civil war, and intraparty civil war between people like john mccain and lindsey graham and the tea party people who love not governing,

who lovemaking slogans. there are those who like to govern and those who like to [indiscernible] francine: thank you for an interesting conversation. kit juckes and patrick armstrong. "bloomberg surveillance" continues. we kick off the conversation with ubs's john gray. -- talkd brexit, -- top brexit, trump, and your markets. ♪

♪ francine: tenses shouldn't tension. about theobama

hangover of power. the dollar drops and european equities trade lower as investors prepared to close out of markets. record high. a more positive about their outlook. we talk brexit with john wraith. this is "bloomberg surveillance." lacqua in london. michael mckee is in new york. trading down, the weight of the they havemething done in the past, the first time i remember them talking about it. michael: they're trying to move people into the basket to get away from the u.s.-china bilateral currency relationship that has so many politicians transfixed. will that register with the president-elect? francine: we will talk about that next.

let's get straight to bloomberg first word news. -- we: we will talk wit will start with the president-elect. on rathershould move than talk about russia interfering with the 2016 election. russia has denied allegations it orchestrated cyber attacks. donald trump said we ought to get on with our lives. wen will transit through the united states on her way to south america. on december 2 president-elect anger china by speaking with the taiwanese leader over the phone. he later questioned the chinese one policy. accusing prime minister may of being autocratic like king henry viii. he said it would be extraordinary if they used her

royal prerogative and refused to let parliament vote on the final brexit seal. she has committed herself to theng lawmakers a vote on deal. debbie reynolds has died after the death of her daughter carrie fisher. she rose to stardom and "singing in the rain." nominated for an oscar for her role as the heroine who survived the sinking of the titanic. she was 84 years old. i am taylor riggs. this is bloomberg. michael: thank you. let's get you caught up on the markets. we have two trading days left. if you want to get to doubt 2000 you will have to work harder. money is coming out in the united states today. we're looking at on the yields as money moves from equities into bonds.

we are looking at oil prices retreating for the first time in 10 days. and there issing concern about where the markets go from here. we are looking at the idea that we will see movement in gold. a full percentage point higher. the ruble, the white house may announce sanctions against russia for cyber spying, donald trump be darned. we will look at what happens to the ruble, now it is a touch stronger against the dollar. in crude oil,me equities, currencies, below average. this is the dollar. i chose, i know it is different compared to the other dollars we choose, but the bloomberg dollar spot index falling for the first time in four days with the u.s. currency declining against its peers. is expectingrong

parity in the first quarter of next year. the topic is significant because it was down 1.2%. $1100.48. patrick: look at what happened the last five years. this is the commodity index. money every year. the bloomberg commodity index suggests if you could hold on for one more day you could report a positive gain. the commodity index is up 1% for the year. the rise took place in the first half of the year. is not trumphat related, though a lot of 2017 commodity games will depend on if he delivers on his promises without damaging global trade. this is a simple chart, but the

foot he has a record high. the yellow circle is when the u.k. left the eu, referendum day in yellow. late yesterday, the close action, at record highs due to mining stocks and driven by weakness in pound. the head of u.k. macro rates and strategy and economics at ubs. great to have you the day after the ftse at a record high. where does a go from here? there is no great news, but the economy is strong despite brexit. john: so far the data is holding up fine. it looks like the third quarter -- the fourth quarter will not be that much different than the third. reason forund is one this. it correlated because 17% of earnings come from overseas. it is linked to mining and commodities does of the mining

companies in the index. you ofes not just tell u.k. economic success, though the data is holding up reasonably well. bringing.what is 2017 i've not sure if i'm talking about brexit or the markets, they do not always seem to be linked. when do you expect the most volatility? john: i the end of the first quarter we will have more clarity. that is because of the process articlehe triggering of 50 and the uncertainties that surround back because of the legal complications primarily. also because of the data. we need to see how the economy inns this year and begins in the next. pickup ine a sharp inflation. it will be interesting if that transpires and if that feeds through to inflation expectations. quarter, wehe first

will look at a clearer picture. unfortunately, it will be more troubling than at the moment. michael: one question is how far the markets are away from when that change comes. the yield curve, will we see a rapid steepening as inflation gets into the market, or is much of it priced in? in.: for us, most is priced the components of yields have gone up interior leak -- materialy over the months. we don't have any reason to think in the medium-term that there is any real danger of inflation becoming dislodged in the u.k. because we think the economy may slow into the second half of next year when inflation picks up and that the bank of england, though they may be unwilling to do so, will have to ease policy further next year, we think

yields will be relatively stable. a bit more, but significantly less than other markets. michael: i get tell you look at the inflation premium in the the termt what about of premium political risk since you don't know what will happen with brexit and how it will play out. when it gets to the longer maturities, how do you know what your risk is? john: good question. for us much depends on how the process is managed in terms of politics of the u.k.'s exit of the european union assuming it goes ahead by the first quarter of next year. reasonably,dled credibly, strongly, we don't think overseas investors will desert the u.k. u.k. is a cheapness about assets if you look at it from an

overseas investor point of view. if the exit is more problematic there is a risk of further flights of capital from the u.k. the long end of the yield curve, it is primarily domestic so there is no need to think yields would spike higher even if overseas buyers got more concerned. francine: when you think of problematic, is it the violence ifthe severance with the eu? theresa may says i want to control my borders, that is it, what do you negotiate on? john: this is of the air. which is why we think over the first order we will get more parity. we won't know much of the negotiations from either side, but if there is a constructive approach, and i don't think that can taken for granted on either side come within the process can be managed reasonably smoothly. u.k.anger is the day the leaves the european union, we

ngmentsnow what arra will be in place. withel: we will be back john wraith. we will go from john to job. josh joh -- john to john. 11:00 a.m. in london. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." london,ncine lacqua in michael mckee in new york. let's get to the bloomberg's next flash with taylor riggs. corporation rose after they are close to settling a complaint with the u.s. over

faulty airbags. it may include pleading guilty to criminal misconduct and paying fines up to $1 billion. they were at the center of the biggest auto recall ever. the strategy on hybrid cars is paying off. the japanese automakers on track for 40% increase of gasoline-hybrid cars. they will make up half of toyota sales in europe by the end of the decade. the housing market has underperformed the rest of the u.k. in london. 3.7%prices in london rose this year. across the country housing .rices were up for like 5% in london in the south of england more people have found themselves priced out of the market. that is your bloomberg business flash. francine: president obama called afterccessor donald trump

he accused him of hobbling the transition with roadblocks. traded low as john kerry blame over the middle east peace process. let's bring in jim who led our coverage of european crisis over the last decade. also with us is still john wraith. there is a lot being played out on twitter. how much do we know about face-to-face, or phone call to phone call, the donald trump obama relationship is like, and should we care best of my -- should we care? >> the obama administration will be around for a few more weeks, then we have the trump administration which has a different relationship with israel. betweeneen contentious netanyahu and obama.

that will change over the next few weeks. francine: what do we know about what will change on january 20. donald trump keeps saying everything will change based on israel. james: the atmospherics will change. the israeli-palestinian conflict has been playing out for decades .ithout too much movement i would not bet on too much change in the fundamental outlines of the issue. , we will see. we will see if trump's approach to be more supported -- a supportive of netanyahu can break the rope. michael: and you look at the column in "the new york times" no one knows more about this does.then tom he says friends don't let friends drive got. obama and kerry believe that israel is driving drunk towards accessing the west bank were

becoming a middle eastern version of 1960 south africa where resident palestinians will be treated as second-class citizens. that doesn't seem to be a lot of local room in the policy. john questions yesterday about how a one-state would actually function in the future. he noted that the u.k., rants, germany, have supported the idea of a two-state solution. if trump goes his own way, they may be more isolated than they are now. it has been a fundamental split a long time. show the late reo sharon -- wrote who was viewed as an extremist figure said there needed to be some pullback back. he pulled back from the gaza strip. to the consternation of his

one-time only good allies. you are seeing a similar conflict play out here. it is a very fundamental divide. .e shall see it is conceivable that israel would be more isolated. the more that it builds out its settlement. that is a concern of the obama and demonstration and many in the opposition in israel. obviously netanyahu will get support for his point of view from the incoming and illustration. place thate only politics are more vicious about israel banned in israel is in the united states. how about donald trump trying to make foreign policy before he is president somehow is that playing in europe? james: they have been puzzled and concerned about the direction of the u.s., the

direction of a trump administration policy. they have not held back on criticizing and questioning. we're talking about traditional strain between traditional allies, among traditional allies. now, they will have to start playing nice in a few weeks. now they can still lob rhetorical bombs. michael: tomorrow on "bloomberg surveillance" the man who really knows down the washington institute. the u.s. negotiator in the middle east for more than a decade. , 10:30m. in new york a.m. in london.

francine: this is "bloomberg surveillance." , gorgeous, but very cold negative territory, talking about temperatures in london. i am francine lacqua in london. new york.kee is in tom keene, who hasn't been seen inthe office, is shopping harris pure that is why we are showing him the pound, i know he is looking at his blackberry. john wraith is coming on, i said what is the one thing that he needs to talk about in the holiday season to be prepared for 2017? it is the role of central banks. this is a simple quote by mark

carney which encapsulates all of the doldrums of the market. he says "we are actors in a play written by others." there are so many angles with phrase. central bankers don't have power, they are responding. the, what the eu says, at mercy of donald trump, more uncertainty. >> the world is more uncertain. the point the governor has been trying to make, not just the bank of england, but they are , toented with a remit target 2% on cpi. they are operating in an environment that is highly deflationary in terms of the global situation. respond toto try to the remit presented to them, the play written by others, to for so the remit they have sent to set policy at extremely loose

primegs, described by the minister of the u.k., winners and losers in the result. you give us what to do then it is up to us to for sell that. if you don't like the side effects, it is up to you to change the rain that. francine: should we think about changing the mandate? the ecb only has the inflation mandate. should we focus on growth or unemployment? john: this has been floating around because policies thus far has not necessarily triggered a desirable responses. into next year, consensus expectations are that inflation will pick up and most of the major economies and that growth will be reasonably stable. therefore, we may be sitting here a year from now saying central banks have in fact

follow the appropriate policy response, here we are with inflation around target and growth hopefully somewhere around trend. there are signs we are getting to a better place. michael: mark carney has written himself out of the play in the third act. to termsmarkets come with that? how much has the bank of england thought of mark carney as we think of the federal reserve as alan greenspan or bernanke? because of the mandate it doesn't really matter who will be in charge? john: he is undoubtably the figurehead. the markets perceive he has done a very important and successful job since the outcome of the referendum in trying to keep conditions as calm as possible while politics have the turbulent. he was previously leaving in 2018.

he has extended that by a year provides some comfort. as we move towards that time, assuming the process of leaving the european union unfolds as we expect it to, there is a lot happening at the time the you cable leave the european union in the first quarter of 2019 and almost immediately after the governor will leave. huge amount of events in the u.k. for the next couple of years. michael: john wraith on bloomberg radio. we will speak with cumberland advisors. 1:30 p.m. in london. this is bloomberg. ♪

francine: the italian prime minister giving his year and speech. he has only been in charge for two weeks and a half.

he has a lot of things to fix. number one, the banks to give stability to a country that has been through so much in the last 15 years. i was listening in, saying that he is in an awkward position because he is giving a press conference when he has been in charge for so little, but he .ants to give the news giving the press a chance to ask questions so they get to know each other better. he was put in charge when matteo losingtepped down after the referendum on constitutional change. back to that, get back to european politics, and some of the other elections next year. let's go to bloomberg first word news with taylor riggs. taylor: the israeli prime minister has struck back to comments made by secretary kerry over the middle east peace

process, accusing kerry of anti-israel bias. in his speech kerry said that netanyahu's policy for a two 's policy wasyahu putting a two state solution out of reach. tropic used the president of inflammatory speech and roadblocks. trump told reporters they had a nice conversation. indication the crash of a military transport plane was not terrorism. shows that there was no explosion on board. the airplane crashed into the black sea shortly after takeoff. all 92 people on board were killed. tensions between china and japan are rising. the japanese defense minister visited a war shrine in tokyo. -- the chinese see the

the trying to war crimes. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you, taylor riggs. 's balancing act is not getting easier. yuano attack depreciation. and president-elect donald trump on trade. thank you so much for joining us. , and if of what we see we focus on china, i don't know if you are more worried about a trade war with the u.s. or problems in their economy. how do you stabilize?

craig: we will focus on growth, the same policy with the past few years, the risk in china comes in 2018. they are focused on building capital. his position, he can take more risks with policy. francine: how do you look at china? china is so big. john: we think that growth will slow a little bit. for each of the next two years. we are relatively sanguine. we see things unfolding in a reasonably calm manner next year. a lot of the potential risks, whether china, politics, globally in trade, frictions, so warren, will be negotiated. there are risks around all of that. francine: do you think it will play a out -- play out in

next year, or they are trying to cartel monetary policy when they need more stimulus? is there more of a chance that it will play out in five years than 12 months? craig: we have to be careful to avoid sudden adjustments. what we will see this year is a mini policy cycle where you get tightening and then a little bit of a hit. for now, there is nothing to panic about, but things will get slowly worse. michael: how much tightening can they do? then they threaten the real estate market, which many people say is it in a bubble. will they be able to threaten that needle -- thread that needle and be able to tighten policy to keep currency in the country without causing internal problems? craig: those are slightly different issues. you can tighten policy without hurting the domestic real estate market.

it may benefit domestic markets to keep more capital in the country. they are seeing this as a relatively safe haven for chinese and testers. in respect to chinese developers, early this year they were relaxed about the current tightening. the government needs growth, there is no way they will keep this up for an extended time. they will come off in the next quarter or 2. michael: is china adding another 11 currencies to its currency basket. that it would prefer the world focus on rather than the u.s. dollar-yuan relationship. will they get their wish? craig: i can tell the markets to look at the basket, but everyone is looking at the dollar rate, except for the local chinese that look at the dollar for the value of their currency. they will start taking money out of the country.

the basket, the overall weight of the dollar has not changed. the new additions are dollar pegged.we will see more volatility in the basket overall, though. michael: what happens to the ?ollar-yuan relation will they put a floor under it or do a one-off depreciation to get it settled for investors once and for all? craig: it is unlikely we will see a devaluation. it would be quite destabilizing for ae country geopolitical position. a one-off valuation is the only way to really stop the gradual downward slide of the currency. it is how past crisis is have out in currency markets. i don't see that until 28 team -- 2018. you need to take a bet on rather regulators in china or

the authorities are sophisticated enough for a temperate. to deal with it in a manageable way. misstepis the danger of s. various relationships around the world. big currency moves and volatility. our forecast assumes these around,s are stepped but there is always that danger. that is why the safe haven assets will not go very far. there are risks around and any one of them could be problematic. michael: the politics that you mentioned, congress coming up in the fall, at what point he is expected to consolidate his power. how much power does he have? how much of the internal debate over corruption is affecting what happens to the financial system? craig: at the moment there is very little of the chinese economy, the chinese state, that

he does not control. he is the head of different committees. hiss more showing successors are safely lined up so that he does not raise problems that his predecessors faced when they stepped down from power. he has satellites in the lower ranks. he can have a very safe next five years or he can do what he wants without repercussions. michael: thanks. with ofe conversation the peterson institute, the president there. 9:00 in new york, 2:00 p.m. in london. this is bloomberg. ♪

francine: live pictures of the italian prime minister giving talking and speech, little about the reforms, saying the italian government has to press ahead with reforms. there are difficulties in the banking sector. newfact that the administration, the bank finance minister, had to step down following the referendum. needing to focus on growth and unemployment. this is what you are expecting a new prime minister to say. there is not much that is controversial at the moment. remember, he has been in charge for 2.5 weeks. his biggest problem is the banks and how he deals with the monte dei paschi recapitalization

demands. our italy bureau chief joins us from the lawn. also -- from milan. also, john wraith. we see thections, same faces in charge. what is the likelihood of having snap early elections? >> there is a high chance. the main issue is with the italian president. as you know, it is a ceremonial position, but he decides whether to dissolve parliament. he doesn't want to have early elections until literally changes at electoral reform law. if they can get that done, we can go as early as the spring or summer. francine: what do we know about who could possibly win the

elections if they come early? popularity does the anti-reform, and i euro -- anti -euro wing have? dan: according to the last opinion polls before christmas, they probably could not get an absolute majority. led by thetic party, former prime minister, is a close second. it depends on what kind of coalition either one of those could put together if elections were held by the spring. the leader has said that he would never get into a coalition with any other party. do we detect any softening in that position with the possibility of power? dan: they would probably be forced to if they want to

govern. theretest polls show would not be a clear majority by any single party. partyk the democratic will likely put together a coalition to run on, a centerleft grouping, that could perhaps capture a majority in the new parliamentary elections. michael: we were told monte dei paschi would be solved by the end of the year. will they get that done? is that put a floor under the feeling of the crisis of the italian bank? andbanking system government, are they timed to do that? dan: there is not enough time. it is a complicated equation. the ecb coming out this week with a surprise request to raise needs to gete bank

back on its feet with a recapitalization. that caught a lot of people, including the italian government, by surprise. it is a complicated process to get approval from the eu commission, the ecb. i do not think that will be wrapped up until the first quarter of next year. francine: thank you. our milan bureau chief. john wraith, and we still see the end of the year news conference, how worried are you about the referendum? the politicians in italy say the referendum was a populist movement. what is the likelihood we will see a populist wave next year? a riskt seems everywhere. we have seen it come to fruition in the u.k. and u.s. to a degree in slightly different ways. it seems to be intensifying

throughout the eurozone and the e.u. our central forecast, it will be kept at bay by the mainstream parties of managing to keep things together. in italy, politics is an ongoing risk and source of instability. in our central forecast we think there is relative stability that we have seen in terms of underlying economic performance continues to consolidate through 2017. looking at safe haven assets and the way they have been underperforming, we think that therely go so far because is an ongoing threat of populism and what that could bring with it if it crystallizes. francine: this is the spread between the 10 year italian yield and the german bund. bringing it back to 211, the white circle is when mario

draghi said we will do what ever it takes. the second is when he left power. this is ecb. should we worry about a populist movement if mario draghi stands firm? they have stood firm, and they can be accused of doing less than they were expected to, we have seen over recent months, partly because of pressures intensifying and because they're more confident about economic outlook, they are edging away from full scale easing through qe. we are seeing a re-w idening. imbalances and sources of instability resurfacing, there is a danger of these spreads pushing wider. we hope this narrowing of

spreads, a necessity for longer-term stability in terms of physical dynamics in the eurozone, we think it will continue. there are risks of things getting worse rather than better. francine: we will be back with john wraith. we will also speak with a business professor. look out for that conversation at 6:00 a.m. and new york, 11:00 a.m. in london. this is bloomberg. ♪

francine: it is "bloomberg surveillance." i'll francine francine lacqua in london. michael mckee in new york. here is taylor riggs. taylor: and investor letter says china would outlast the less in a trade war. is a trade war is a possibility under a trump administration. university of hong kong professor says that china could marshal state resources to cushion the impact on exporters. macau has tried to reinvent it self as more than a mecca for gambling. likely the growth in the largest gaming have will come from

mass-market players rather than high stakes chinese gamblers. gambling revenue in macau is expected to rise after three years of decline. donald trump is seeking credit for sprint to bring back 5000 jobs. it is part of a broader u.s. hiring plan. the chairman said earlier this month that they intend to invest $50 billion in the u.s. creating 50,000 jobs. michael, francine? let's talk treasuries. let's bring into my bloomberg terminal. this is the spread, five and 30 year in the u.s.. 2008, the beginning of the financial crisis. the spread pete king 2010, the red circle. in 2010,read peaked

the red circle. get the job can done, i'm not sure what the job is. we are near full employment. john: that is one reason we see this curve, it is anticipating more tightening from the federal reserve. typically into a tightening cycle short and yields rise more than long and yields and the yield curve flattens. we think the market is reasonably well priced for next hikes from the federal reserve over 2017. inking generally at the move asset prices since the u.s. presidential election, you could argue there is a lot of optimism anticipated ipo market. francine: too much priced in? john: there is a huge amount of uncertainty about processes.

we have been hearing about the risk of trade wars between tween the u.s. and major trading partners depending on what policy changes are made. these are material risks to an optimistic outlook, which may crystallize. we think the yield curve will retain this shape. what would potentially drive it a selloff if you had in longer based bonds. we have seen some of that over recent weeks, but for that to continue you need reflation, higher inflation, fiscal asmulus, to transpire even downside risks are related. that is a lot to ask for. michael: i will ask you, not just in the united states, but trumpenomics and what we are seeing in the united states and japan. the middle of 2015, inflation is clawing back.

.he horizontal line is 0 we are in a global deflationary environment. do we break through in 2017, does inflation come back next year? globalost of the major economies, we think that inflation will accelerate somewhat. i guess, that is one question and it self. the other question is what extent does it take up? we have a benign scenario where inflation drifts towards the desirable level around 2% in most of the major economies. the u.k. is an exception because of how weak sterling has been. there is a lot of inflationary pressure in the pipeline, looking at what happens to the oil and commodity price. they have risen over the course of the year, and that should feed through into a degree of

inflation. michael: do central banks react? john: we think the fed is already reacting to preempting what will happen down the line .nd we see 2 more hikes the ecb will gradually take its foot off of the accelerator. the u.k., we think more easing will be needed because of domestic growth. michael: thank you for joining us today. coming up, more on trumpenomics and the outlook for the u.s. john silva, chief economist for wells fargo, joins us. this is bloomberg. ♪

francine: transition tension. president obama calls donald

trump after the president-elect complains over twitter about the transition. u.k. stocks hit a record high. british cfos are more positive about their outlooks than they have been in 18 months. i'm francine lacqua in london. michael mckee is in new york. we are looking at foreign policy. we are looking at politics in europe. it is going to be a very interesting year. it is going to be an interesting month ahead because in the united states, we seem to have two presidents, one who is elected and one who seems to be trying to insert himself into all the decisions. a lot going on in the u.s. michael: wouldn't it be great --francine: wouldn't it be great

if president obama started tweeting all the time on january 21? in italy, the prime minister talked about migrants and a wide range of other topics. he held an end of the year news conference. you are looking at live photos. he has been in office a little more than two weeks. he said italy dealt with the migrant crisis with little help from the eu. president-elect donald trump says the u.s. should move on, sanction russia for interfering in the u.s. presidential election. russia has denied allegations that orchestrated cyber attacks. trump said, "i think we are to get on with our lives." a routine stop by the president of taiwan is taking on added

significance. she will transition through the u.s. before visiting south america. president-elect trump angered china after speaking with her over the phone following his victory. labor party leader jeremy corbyn is accusing theresa may of being autocratic like henry viii. may has refused to commit herself to give lawmakers a vote on the brexit agreement. actress debbie reynolds has died a day after the death of her daughter carrie fisher. in the 1952stardom hit "singing in the rain." she was nominated for an oscar as her role playing the heroine who survived the sinking of the titanic. news 24 hours per day,

i'm taylor riggs, this is bloomberg. michael: thank you, taylor. there is evidence that the trump rally has peaked. we are seeing u.s. futures unchanged or lower. dow and nasdaq futures are down. some of that money going into curve.cross the yields are falling right now. we are also seeing oil prices take a step back in the united states. west texas is down. the vix is higher. we watched to see how much concerned people have. we are seeing money going into emerging markets for the first time in a couple of days as the trump rally fades. gold of significantly as we watch the idea of where does the money go as we get ready for the end of the year. francine: this is what i'm looking at.

i chose the bloomberg dollar spot index, falling for the first time in four days. gold you mentioned briefly. look at let's take a the bloombergs. i'm going to give you some good news for the year if you are a commodity investor. for five years, you've been doubling that envelope the first of the year and finding that you lost money. for the first time since 2010, it looks like commodities are going up. so far, with two days left in the trading year, we are up 11% for the year, as we watch gold come back, oil come back, with the saudi deal, and then what happens next with donald trump's infrastructure spending, etc. will play a big role in 2017. francine: i like that chart. this is my other chart. it is kind of linked to commodities.

we forget that the ftse 100 is very rich in miners. this is the picture yesterday. we saw a new record for the ftse 100. this is referendum day, when the u.k. decided to leave the eu. this is yesterday. miners are up and that is giving a nice boost to the ftse 100, and it is also currency play. because currency has fallen so much, it automatically gives a boost to the ftse 100. michael: john silvia is wells fargo's chief economist. >> banking committee on the senate. michael: my point is you are well familiar with what goes on on capitol hill. theidea being that president proposes, congress disposes. when you look at what donald youp has proposed, when

figure out what he is exactly going to send to the hill, how quickly do you think it makes its way through and we see impact on the economy? , thereerms of tax policy may be some movement in the second half of 2017, but probably more on the personal income tax side. the corporate income tax, there are a lot of trade-offs. for us, the infrastructure spending you're talking about with respect to commodities probably takes a little longer. it is going to take longer to get the appropriations in place, to get the permitting process, the environmental regulations done. it is more of a 2018 story instead of a 2017 story. yes, there is a rebound in commodities. perhaps some help in the equity market in the u.k., but this is a longer-term story. i don't think there is a lot of

stimulus coming in 2017. michael: as you look at 2017 then, we do have strengthening economic data in the third and fourth quarter of this year. do you raise your growth forecast irrespective of the new president? john: only slightly for us. the consumer continues to do slightly well. us, the recovery has to do with business investment and structures. we are not really picking up the forecast very much. we really want to see what is getting done and what our framework is for economic decision-making. francine: what is the one thing that is being priced on the markets? we don'taying that if get much stimulus and 2017, do you think the market stays where it is or are they pricing in the stimulus? john: i think there is a lot of judgment right now about we have moved, have we moved too much? what can we get out of this? the election said, we are going

to go for growth and the question is how much growth? i think the market is correcting, adjusting for the realities that analysts like me and others are saying, it is going to take time to get legislation through, as mike has hinted at. incoming president trump can propose, but congress has to dispose. infrastructure spending will take a lot of time. earlier, with respect to taylor riggs, you saw comments about respect towith china. that creates a lot of uncertainty. francine: when do you think we will be a little bit less uncertain about what president trump's next movement will be once he gets inaugurated on january 20? i don't know if you look at press conferences -- we don't know if he is going to have them -- do you give him three or four months so you have a better understanding of what actually the u.s. is going to do for policy? john: what we are looking for

something from congress, particularly from paul ryan, coming for a meeting or a press conference with president trump at the time, simply indicating, we have made an agreement, this is going to be our tax policy, this is going to be our spending policy going forward. those are the kind of meetings we are looking at to give as a framework for good decision-making. otherwise, we are simply guessing at this point. francine: john, thank you so much. john silvia stays with us. italy's prime minister has been giving his year-end speech. he says italy is at risk of terrorism. he needs to review its migration policy. live pictures of the managed charge of italy. job 2.5nly been in the months after matteo renzi resigned following the referendum. he also said that italy's bank decree implementation is long and complex. he is talking about monte dei

paschi. this is bloomberg. ♪

francine: this is "bloomberg surveillance." japan, takata rose by the daily limit when it was revealed they are close to settling the claim with the u.s. over faulty airbags. they may pay fines of up to $1 billion and plead to criminal negligence. toyota's strategy of hybrid cars is paying off.

for the first time in eight years, underperforming the rest of the u.k. -- that is according to the nationwide u.s. building society. housing prices were up 4.5% in london. more people have found themselves priced out of the market in london and the south of england. that is your bloomberg business flash. michael: thank you very much, taylor. an interesting article in "project syndicate" today. noting that one presidential candidate won nearly 3 million .otes

i picked up that quote because it gets to the point that donald trump is a minority elected president, he is still the president-elect. there has been a tradition in american politics that we have only had one president at a time and mr. trump seems determined to violate that. >> would've obama was tweeting like this? he loves to communicate with people. this is his fireside chat, essentially. he is using twitter and social media and his love of getting out there right now to try to put his mark on policy. he does not really want to wait until january 20. michael: could that backfire on them? is pull ratings are so low, that it won't take much for him to get into the american people -- trouble with the american

people. >> it might be worth all of us waiting, but certainly by comparison to previous transitions, he is not nearly as popular as previous presidents elect. +++ the wrong way. on the other hand, you have a washington capital now where things seem to be fundamentally be changing. he has congress on his side. republicans will control the senate and the house. he can push through big changes people can see. francine: the first major act by the unified congress will be to vote to repeal obama, even if they don't have anything to replace it, i've read. >> exactly. one thing to soften the political blow is to allow

people to keep what they have for two years, possibly keep what they have entirely, it sort of depends on the nature of that replacement. out what thegure next step will be. they will allow people to decide what exactly the next steps are from a physical perspective and coverage perspective. francine: will donald trump unify the gop? who are the key people to watch? he keeps paul ryan on his side, does that mean he has managed to keep the party together? >> brian has long been the key, he was the key -- ryan has long been the key, he was the key to bring together the conservatives, the establishment , the grassroots. another one is the designated hhs secretary. he has been a major figure in outlining some of the repeal and replace options. insofar as any agreement, it is his house agreement.

he will be a key person to watch. he will be able to be a liaison between the executive branch and the hill, in terms of deciding what they are going to do. michael: companies spend millions of dollars to comply with the affordable care act. if it is suddenly repealed and they get something new, this is not necessarily going to be a short-term good thing for the economy, is it? john: adjustments with respect to dodd-frank and the affordable care act. i think there are adjustments with any kind of policy. i would pick up on something that ben hinted at. i do see a lot of fiscal conservatives in congress that will agree a little bit with what paul ryan may suggest in terms of fiscal policy and tax cuts, but when it comes to the tax cuts, how much are we going to anticipate growth being for the tax cuts and how much do we really need in terms of changing the details?

i would like to hear ben's opinion. once you start changing those details, you are going to upset a lot of people. whose deductions are you going to take away. i think that is a huge challenge. ben: absolutely. i think chuck schumer, the incoming debt -- leader for the democrats in the senate, says bring it on. he believes they can't get together or that they will do this and while it could be damaging from his perspective to americans who need care, that would ultimately be a political boon for the democrats who say, look at what republicans took away from you. john: that is effective's point about a correction. if the market is anticipating huge tax cuts, a huge infrastructure program, and you get 40% of the pie or 50% of the pie, it does not mean the market has moved ahead of what is going to happen. you say: john, when that the infrastructure projects

are difficult to fund or difficult to also do in terms of timing, you mentioned the tax cut -- repatriating money from a lot of these companies like apple and google, if the president-elect can convince them to invest, how much does that add to growth and the u.s. economy? john: i think the repatriation story does add to growth, but once again, there is a reason that a lot of these companies have cash abroad. it is because that is where they see the economic opportunity for investment. i'mging a lot of cash back skeptical about that. bringing some back, yes, to reinvest in the united states. but if your market is indonesia, if your market is thailand, if your market is australia, that is where you continue to have to invest abroad. it is a global, open u.s. economy compared to the 19 50's and 1960's. john silvia stays with us. we think ben brody for joining us.

tomorrow, we will get into the issue of u.s. and israel with a man who knows more about it than anyone. that is at 5:30 a.m. in new york.

michael: good morning. i'm michael mckee with francine lacqua in london. it is time for our morning must-read. george will writing in "the washington post." sufficientlys to

disbelieve something, there is no everest of evidence to large to be ignored." we are back with john silvia of wells fargo. 1953, the rest of the world recovering from world war ii, the u.s. was the strongest, biggest economy, we made everything and shifted elsewhere. that is not the world we have today. we will go through a whole series of example about when you put in protectionist measures, a generally seems to backfire on the economy. john: it generally does because you are offsetting the supply lines that many companies have built over the years. with consumers who are used to go into a store and accessing a certain product at a certain shelf and all of a sudden, the price is higher or unavailable. again, it is kind of challenging us and our ability to make forecasts. think about where things are going, in terms of the overall economy. michael: suppose donald trump

does put on tariffs. going to haveare to buy in the u.s., which means prices are going to go up. what americans make that trade-off in exchange for more jobs? can more manufacturing jobs be created for higher prices? john: can significantly more manufacturing jobs be created? my argument is no. a lot of the lower skill are gonering jobs forever. we have replaced them with technology, rather than trade. we are globally competitive in the higher capital goods area. that we will add jobs to overtime. is the supplyme chains. are we going to be able to get the parts from certain locations that are necessary to produce the goods? arecine: but if people

right in saying that donald trump is the businessman that he is, he would not want a trade war. trade wars become unintended consequences of a late-night week? or is it something that has to be planned for? john: i think it is kind of fascinating. are we setting up a position to from?negotiations it appears to me as a business person, here is my first pets, now where do we go from here? michael: john silvia stays with us. much more on the u.s. economy and the global economy. he is the global economist at wells fargo. -- this is bloomberg. ♪

the italian prime minister still talking to press at his year-end conference. he has been on the job for two

months -- two weeks and a half, apologies -- that referendum was on december 4 and he took over december 10. he is talking about italian banks. he has said the government has done what is right, what was needed for the banks. he says he hopes that the dialogue with the institutions on the italian banks are fruitful. he is talking about monte dei paschi. this recapitalization demand has been long and painful. he said the government will pass more measures to improve the italian banks. he does not go on to say what those measures are. lack of detail, but we have a broad brush. optimistic prime minister, as you would expect, from a man who has been in charge to an half weeks. taylor: israel's prime minister benjamin netanyahu has struck back a comments made by secretary of state john kerry over the middle east peace process. he accused john kerry of

anti-israel bias. onsaid the u.s. focus israeli settlements in the west bank was unbalanced. john kerry said netanyahu was putting the two state solution out of reach. president obama called donald trump after the president-elect complained he was hobbling the transition. he accused the president of unspecified inflammatory comments and roadblocks. he later told reporters that the two had a nice conversation. the crash of a military transport plane was not an act of terrorism. an analysis of the flight recorder shows that there was no explosion on board. the plane crashed into the black sea shortly after takeoff. all 92 people on board were killed. tensions between china and japan are rising again. the latest issue, japan's defense minister visited a controversial shrine in tokyo. this shrine as a

japanese war shrine to atrocities. global news 24 hours per day powered by more than 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. francine: thanks so much. let's discuss the shakeup in argentina's government. the company's finance minister was forced out of his post this week and the former president was charged in a corruption case. we are also still with john silvia of wells fargo. we want to talk about the fed, the impact on emerging markets, but argentina was the emerging market that gave the most hope for 2016. the sales pitch came from the new president. it is very hard to attract new investment to argentina. why? theyu say it is very hard,

had a huge bond issue this year. if you wind back 12 months, argentina was one of the emerging markets that seemed to be doing everything right. they've had this election late 2015. they elected a market friendly government for the first time and how long. they seemed to be doing the right thing. much-needed fiscal austerity and monetary tightening. but of course, this adjustment comes after 10 years of living well beyond the countries means. the upshot of all of that is that it is going to take a lot longer to get the country going the financeth and minister has great price for that this week. francine: right because if you ,ook at some of the other data

it went well, but one third of thepopulation lives below poverty line. if you don't see growth in the economy, can he survive it? neil: later this year, they have parliamentary midterms. as we go through the first half of this year, the increasing focus is going to be on those elections. the reform process will slide to a halt. we are not going to see much in terms of market friendly moves over the coming months. michael: it raises a question, if you go to the bloomberg terminal, i have a chart that plots the gdp against the index. you mentioned the political risks.

how long do investors give him to produce something? one thing you see on the equity market is that inflation play. yields really came down the first half of this year. i think investors are willing, given everything else that is happening in latin america, they are willing to give it the benefit of the doubt. the real question comes, what happens in these parliamentary midterms? do we see more political of evil? do we see other parties -- political upheaval? do we see other parties getting a foothold? michael: we've a currency down to a tradable level. are the beginning to repair relationships, trading

relationships through latin america and with the rest of the world? are they going to be at the start making some money on the for exchange? -- foreign exchange? neil: it is a good question. the political dynamics in latin america are shifting all the time. brazil, the biggest trading partner, has gone through a political crisis of its own. it is not quite clear what the political environment there is going to look like at the end of the year. the government and the rest of the region are changing. roots in theas its fact for we have been through a decade were commodity prices have boomed, the trades for latin america have improved, incomes of risen. this has its roots in weaker chinese growth and everything else. i think there is a much tougher decade ahead. as the fruits of growth start to become much harder to come by, i

think it is going to become more and more likely that we see these political upheavals and fiscal shocks and events. michael: we noted earlier on the show that commodities for the first time in five years turn higher. is that going to be a major tailwind for argentina? neil: one thing we need to bear in mind when we talk about commodities is that not every country produces the basket that you showed earlier, which tends to be heavy toward oil. different things matter for different countries. a lot of that rebound this year has been in energy prices, which have been quite helpful for places like russia, actually, which he showed earlier, columbia, latin america, mexico to a lesser extent. argentina is about agricultural commodities, soy in particular. it was a bit more resilient on the way down. we need to differentiate between these commodity products when we talk about the commodities rebound. i think the big picture on commodities this year is going

to be some modest upside in most commodities, but we're not going anywhere near the levels we saw in 2014. francine: but there is no worry in your mind that even if the fed hikes three times in 2017 that there is going to be some kind of temper tantrum from the emerging markets like we saw last year? neil: the first thing is that a lot of this now is in the market. what makes the taper tantrum so painful for emerging markets is that it seemed to come out of nowhere. the markets are focused on the idea that this easy money lasted wouldr and then the qe's be tapered, asset purchase would be tapered. now am i think investors are far more attuned to the idea that borrowing costs globally are going up. the second thing is that external vulnerabilities in emerging markets have come down a long way since 2013. an awful lot since the 1990's

and the 2000s since the string of crises. i think a handful of emerging economies -- i would put turkey at the top of the list -- but india,ou look at brazil, they were two of the fragile five in 2013. they have come a long way. think most of their challenges are domestic, rather than that related. michael: thanks. neil and john stay with us. coming up later today on bloomberg, a conversation with adam pozen of the peterson. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london with michael mckee in new york. here is taylor riggs. investor letter says china would outlast the u.s. in a trade war. the commentator writing that the trade fight is a possibility next year under the trump administration. wang says the chinese government should marshall state resources to cushion the impact on exporters. ofef financial officers british companies are becoming more optimistic heading into the new year. tendsey finds that cfo's to because this in the midst of uncertainty caused by brexit. they say that uncertainty is the new normal in british business. president-elect donald trump is taking credit for the commitment to bring back 5000 jobs by sprint. they are part of the u.s. hiring

plan previously announced by sprint's parent company softbank. they intend to invest $50 billion in the u.s., creating 50,000 jobs. that is your bloomberg business flash. michael: thank you, taylor. the obama administration may hit rusher with more sanctions today. moscow has denied allegations that used cyber attacks to influence the u.s. elections. let's bring in the senior executive editor of government in washington dc. john silvia and neil are still with us. let's start with marty. what is it we are hearing the administration may do? we understand they are considering not just sanctions, but also retaliatory cyber action. >> that's right. everything is more or less on the table. there is some concern that any kind of cyber attack on russia needs to be proportional with

whatever russia did in the u.s. election and russia has pledged to retaliate against any action we take. it is uncharted territory. you've got to be really careful about your response. michael: it is fascinating that the president-elect has suggested we just ignore the whole thing and says it is time canove on, but from what i tell, every single member of the senate, republican and democrat, seems to support the president in this. >> that's right. everyone from mitch mcconnell on down, john mccain, they have all come out and said that we need to respond to the russian interference in the u.s. election. donald trump feels that these kind of reports somehow undermines the legitimacy of his presidency. but the leadership of the gop is right behind obama on this one. francine: marty, we are getting breaking news according to a government spokesman for vladimir putin, that syria has agreed on a truce with the rebels. they have agreed on a cease-fire , which should start from

december 30, the cease-fire starts on december 29 at midnight. this is according to the turkish ministry. they are also seeing preconditions to end the fighting in syria. we have been focusing on so much on the stat in the u.n. and israel, why are we not seeing more appetite for donald trump to try to at least give us thought so what is happening in syria and aleppo? >> that is a very good question, francine. i guess that is because he does not really know all of the factors involved in this syrian conflict and, of course, we have been down this road. cease-fires last 36 hours and then fall apart. he is clearly much more interested in other areas of international intrigue rather than what is going on in the middle east. he is going to have to get up to speed on that real quick. francine: do you think, and for the moment we don't know all the facts, will he be as close to

vladimir putin or will he be as close an ally to russia as he is suggesting with israel? >> well, all of the signs point to that, but donald trump has shown to be full of surprises. this may be coming for him, it is all in negotiation, it is all the deal, and he may be setting up to negotiate with putin on some larger issues around the world, like the middle east. we should just wait and see. michael: thank you very much, marty. our executive editor of foreign government. let's bring in john and neil. neil, i want to go into the bloomberg and pull up the ruble trade over the last couple of years since 2014, when sanctions were first imposed after the crimea situation. the ruble got very, very weak and it hurt the russian economy tremendously. now, we are starting to see it come back down again.

there has been no reaction to the idea of additional u.s. sanctions. have the russians weathered the storm? neil: i think they are weathering the storm. whether they have weathered it is a different question altogether. it is tempting to look at the chart and say, you can mark on the first batch of sanctions and then mark on donald trump's election victory and say the currency weekend when the sanctions were introduced. the deeper story is what is happening to oil prices. if you overlaid crude on that, you get a pretty much perfect 1-1 relationship. since the opec deal, oil is now but above $50. the ruble strengthened on the back of that. i don't think a stronger currency really helps russia's economy at this stage, given where oil is coming give the weak state of russian industry, given the fact that domestic demand is on its back in russia. it needs a weaker currency to

try to help the economy get going. michael: thank you very much, neil. we will come back and get some thoughts from john silvia on trade, russia, and everything else. tomorrow on "bloomberg surveillance," the conversation with dennis ross from the washington institute, the former negotiator for the u.s. in the middle east. you won't want to miss that. this is bloomberg. ♪

michael: it is time for our forex report. the story of the days the dollar getting weaker. that is happening against a lot of currencies around the world. even the taiwan dollar, which was the one currency that had gotten a little bit weaker against the dollar, has now gotten stronger. is the loser today against the 15 major currencies in the world. the big gainer today, the south african rand. itncine: coming up shortly, is "bloomberg daybreak americas" with david weston and alix steel. what are you excited about today? >> we have three big themes we

are delving into. the first is trump and what the economy will look like under trump. backave sprint bringing 5000 jobs. will things like that really move the needle? we also have the trump trade. will the rally continue? we will be speaking with adam posen. brexit, ascovering well. he is at the peterson institute. we are covering all things commodities. they have had a killer year. can it continue? i also have an interview with the ceo of pioneer. good perspective on what happens if oil hits $55 and stays there. and what the economy will look like next year. michael: let's talk more about what the economy will look like next year. thank you very much. the market view of trump economics. let's go to the terminal.

john silvia is with us from wells fargo. let's look at dots go. we talked about how equity investors have been very enthusiastic since election day about what trump may do for the economy. not so with bond investors. the green line is the fed's path of interest rates. this survey they did of where the dots should be back at their december 14 meeting. but the purple line just below that, that is the market view of where interest rates are going to be. you can see out to 2019, the fed is, at this point, going to be lower than 2%. the bond market does not seem to think that donald trump's economics are going to boost thath or inflation enough the fed really has to react all that much. there is not as much faith on the fixed income side. respect toitely with

inflation. we can believe growth in the short run may be picked up a little bit, but it is the inflation story that is the fed's number one target. it is important to recognize that since 1991, inflation has averaged a little bit less than 2%. i agree with the graph you put up there. the bond market is saying, inflation is picking up on a cyclical basis, but only longer-term basis, we are not getting a lot of reflation that is going to get the fed to raise the federal funds rate a significant amount. francine: what happens to treasuries? we charted the five-year. this is between the five-year and the 30-year. we brought it back to 2008. is the yield curve going to stay as is? john: the yield curve is an interesting play. the two year yield has moved a little bit more than the 10-year and the two-year represents some federal funds rate move by the fomc. the 10-year is that longer run

expectation with respect to inflation. i can understand trump economics generating some growth, but i think in a globally competitive trading environment, inflation is going to be much more difficult to come by. michael: let's leave donald trump aside and just talk about the federal reserve. a really interesting piece this month questioning whether the fed is wrong to stick to the 2% market, is wrong in the way they think about inflation being generated these days because, as you mentioned, we are just not seeing it, even though we have had zero interest rates for seven years. john: in the old model, you print a lot of money, you get a lot of inflation -- that is not going through the process. a tighter labor market, you would think you would get a lot more wage and productivity costs come as a labor would be rising much more significantly -- you are not getting that. yes, that is why a lot of people on the marketplace say what is the fed's target and objective

right now? is 2% a little bit too low? should we allow 2.5% for more economic growth? is veryl is there, it uncertain, it is a challenge to market players. francine: take you so much. "bloomberg surveillance" continues on radio with john silvia, me, and michael mckee. tomorrow, we speak with the chicago school of business professor. we speak about italian reforms. that is a 6:00 a.m. in new york, 11:00 a.m. in london. this is bloomberg ♪ ♪

alix: welcome to bloomberg

daybreak on this thursday, december 29 here's i am alix steel alongside david westin. here is where we traded in the market, flat in the u.s. flat across the board. the ftse 100 backing off the record high it made yesterday. the fx market, it is sort of a cause of the recent trend we have seen. we have a bloomberg dollar index down for tens of 1% for the teststime in destin four of 1% -- 4/10 of 1%. treasuries that will allow for raises for that strong five-year option yesterday, in crude a little bit softer. david: jobs, jobs, jobs. announcesent-elect sprint will hire 5000 more people in the united states