daybreak. we made it to the end of 2016, happy new year. here is where we trade on a last trading day of the year, a mild rally in the s&p and dow futures with the dax off 1/10 of 1% and the footsie closing in 30 minutes up 3/10 of 1%. the ftse for the year up over 13%. in the fx market, a fascinating story with euro-dollar, bureau of 6/10 of 1%. , bothght, asian trading currency spiking 1.6%, calling it a flash rally on bloomberg daybreak. oil goes nowhere. david: spy vs. spy. president obama expels 35 russian diplomats for spying on the election. russia kicks out u.s. diplomats

and president-elect trump says it is much ado about nothing. that he will listen to u.s. intelligence. insing out a momentous year the market, the euro surges overnight against the dollar taking the swiss franc and the japanese yen it but then the euro reverses, was it a fast thinker or loose algorithm? with the european central bank, they explain why it does not need to inject all inthe 8.8 billion euros monte dei paschi that the stress test indicated, it's a 6.6 billion should be enough but do the numbers add up? >> moscow responding to washington, our political international affairs reporter joins us from moscow, expelling these diplomats, does that have any bite? >> this is what was expected, the russians said yesterday that

they would respond in a proportional manner. this is what we expected, doesn't have bite -- the hope in moscow is that they can put this behind them. within three weeks a new administration and they are very much counting on starting new relationships with donald trump. but: donald trump boston vladimir putin is also boxed in, he had to be strong against president obama but does not want to anger president-elect .rump earlier about the closing of anglo-american school in moscow which depends on the u.s. embassy, it would have been a provocative step if it happens . if you look at what the russians it looks like, they have been careful to make

sure it does not make things worse. alix: thank you for the update. it is like a tight rope. david: it is pretty dramatic in the closing days of 2016. for more on the u.s.-russian relationship we bring in our senior editor for global economics in -- and government. been a wild since we had this much foreign policy activity this late in the second term of a president. what is the minuet between president obama and president-elect trump, and speaker of the house ryan? >> paul ryan yesterday did a backhanded endorsement of the sanctions that president obama placed on the russians. this places foreign policy at the forefront of the new administration and that is the last thing they wanted.

david: how does this play out from donald trump's point of view and vladimir putin's point of you, what are their next moves? >> donald trump has to make a decision when he comes into withe -- does he continue his stated desire to seek better relations with russia and how does he fit in basically what the obama administration has done which includes sanctions, but also of the fbi and department of homeland security said with good detail the evidence the u.s. pass for why it believes rusher was behind this hacking. that is something he will have to respond to. he said in the last couple of weeks, we have not seen a consensus in the intelligence ,ommunity but with this report we see the obama administration trying to show there is consensus. he will need to see if he is willing to risk conflict with

congress which is seeking more sanctions with russia which says that vladimir putin is not a friend of the united states and the balance that against his desire for better relations. david: i good point about the relationship with donald trump and his intelligence community, it appears that donald trump is backing away from what he said before. he said something a milder yesterday that what he said in the past. >> we were waiting with anticipation for the statement and it was only three sentences. the pivotal one for us was his willingness to listen to the intelligence community which does leave the door open for him to change his narrative on whether or not the russians sought to influence the u.s. election which he has been step lasting unwilling to do until yesterday. alix: do we expect any western european nations to follow suit and back the u.s.?

glencore buying a stake in rosner where the european bank help finance the lending says that the business community thinks that sanctions will not do anything and that they are muted. >> this is a big question about what will happen one month from now. the u.s. and europe have already sanctioned russia to the health over its actions in ukraine. not many more people to sanction that when you impose sanctions, the question of a broader impact of the sanctions you put in place is a big question. says he wants to improve relations with russia and takeaway sanctions which he can do because many of them were done by executive orders, there is a belief that this will raise a lot of questions in europe, officials in europe are saying that if the u.s. backs off of sanctions, then the consensus will be shot and there will be a

lot of holes in the sanction in circling russia and not a lot of point in maintaining sanctions. expectations that you will see a fairly robust regime against pressure crumble. david: the job of a president is spots he wants to work on, as we are curious about what a donald trump administration will look like, do we have a sense whether he is consciously picking something like the russia issue to expend capital on or is he getting drawn in to these, almost in a reflexive way, rather than taking initiative? >> on the russian front, he was drawn in by obama. even as though he should have expected it, obama said he would take those actions. on the israeli front, donald trump clearly injected himself into the narrative. both of these situations will

have to be addressed when he comes into office. tofact, he has been looking do infrastructure, tax reform, immigration reform, and suddenly these, israel and russia to the forefront at a time when he wants to concentrate on domestic issues. have president obama who is still in office for two weeks, three weeks, will this be a mic drop? will we continue to see situations like this? >> we now have almost 24 hours without a donald trump tweet. with that statement yesterday, maybe his inner circle are finally getting him to understand that heat will be president of the united states and he has to ratchet back the rhetoric. david: many thanks to both of you. on what is taking place in the business world with our first word news. >> a cease-fire taken effect in

syria between government troops and rebel forces. russia and turkey brokered the deal which could lead to a settlement in the ac -- civil war. the u.k. will demand to play leading role in europe's agencygence sharing after brexit, they will push for a central role as part of the brexit negotiations. newesa may agreed to the role in november which cap the u.k. in the agency to the japanese prime minister's prime minister has reached a three-year high following his trip to the pearl harbor. his public approval rating is up ago. 64% one month global news 24 hours ago powered by more than 2600 journalists and analysts and more than 120 countries. .his is bloomberg

started in asia, a hong kong rally, 1% on the last day of beer, salvaging a 4/10 of 1% gain for the year and thanks led the upside. up by over 1%. hong kong at its lows was off 16% earlier in the year. banks and casino stocks had two of the top three gains in hong kong. theme,ing the global look at where we finished the year, global world index the best year since 2013. the first gain in three years and europe slightly lower, off by 1% its first loss since 2011. blame the italy market for that. now 13% this year. in the currency market, the tight rope for the u.s. and

russia, this is what it is doing for currency, the ruble down versus the dollar. as the dollar climbs, the ruble falls, down almost 2% against the dollar, had been rallying late. russia inflation hitting the government target, down but at the pivotal target for the government. i love interesting movements with the geopolitical tension. david: thank you. coming up, we could not close out the euro with some news on monte dei paschi, what the italian government says what it needs to do to bailout their third largest and whether it is doing enough to satisfy the european central bank. this is bloomberg. ♪

stand,ere is where we

2.5 until the open in the u.s. on the last trading day in 2016, s&p futures up 1/10 of 1% and the dax and ftse softer. that index closes in 15 minutes. in the fx market, i love this story, euro-dollar up seven cents of 1% and overnight asian trading up 1.6% along with the swissie versus the dollar, the flash rally as we are calling it. ten-year yields go nowhere despite a strong seven year note auction yesterday and crude softer, down 2/10 of 1% but brent headed for its best year in four years. the showdown between italy and the ecb, the italian central bank estimates monte dei paschi the not need the 8.8 euros stress tests indicated they needed, they say over $2 billion -- 2 billion euros less. what is going on?

>> i am not sure if i can make sense of it. a lot of numbers, obviously floating around. the larger number that the ecb said the bank needs to recapitalize that came out earlier this week. what has happened in the last 24 hours is we have seen some criticism from a tie in government officials including the financial minister who said they were kind of caught by surprise and did not understand the math. the ecb cannot respond directly when an individual bank has a situation. their sister central bank in italy bit and crunch to be numbers, they came up with a 6.6 cost for the at sign government -- italian government and reimbursing the retail holders of the banks supported aiding

bonds -- supported aiding bonds -- subordinating bonds. do they think they will raise money, some bond money or stock money, where will be money come from? >> they are probably referring to, they did not really clarify professional investors, the institutional investors who are holders of securities in the back. k, that will probably take a hit with this comp look at a transaction. alix: how does this -- complicated transaction. alix: how does this set us up for next year? think the tension probably will drop down a level, the prime minister yesterday went

out of his way to say he wanted to work with both the european commission and the ecb and getting this package agreed upon together at off the ground. that it will take several weeks if not months to put this thing together. david: one of the issues whether they can compensate the retail upsettings without the state eight in brussels, they say there is a way around that, they were sold these things under false pretenses but they need to maintain the relationship with the ecb. will that fly? >> my guess is yes, they have been talking about this behind the scenes for a while. we have seen in previous cases of rescued banks in italy where they have been able to work out some compensation by demonstrating that the securities were not sold correctly. be aess is that there will

solution regarding that can -- that point. alix: when is the deadline? >> there is not a deadline. only in the sense that everybody from small investors to large investors to government and ecb officials want to get this put together. as the prime minister said yesterday, we are talking months rather than days and weeks. i would think they are reaching for the end of the first quarter because there are several legal steps and process involved to get this done overnight is impossible. david: thank you -- alix: thank you. david: coming up, as we close out the year, time to take stock of 2016 across all asset classes, starting with currencies next. this is bloomberg. ♪

david: this is bloomberg and i am david weston. --david westin. best in 2016the and which did the worst and what should we expect in the new year? our morning must-read is what we will spend the rest of the time exploring, the year end report taking us through each of the major asset classes and showing us in detail the top winners and losers from currencies to equities to commodities to fixed income. alix starts is with currencies. the: before we get into year to date, overnight with the euro, look at the bloomberg, this is the euro-dollar based on where it is trading. this is the new york trade and this is tokyo trade and this areas london trade. this is the portion you want to highlight, the euro at one point

on thin liquidity, spiking as much as 1.6% against the dollar, coming off those levels now. what happened? david: that is a really cool thing. alix: this is a former trader, he joins us. >> this is very thin liquidity, described to me as insane trading. stops at 105. that just started the ball rolling, one after the other, we do not have a depth and breadth in the market where traders or corporate real money interest would come in to fill this gap. it just spike to some trading platforms traded as high as 107. it is still being sorted out in the market. this is clearly a year end market showing how short position the market was and the thin liquidity, this search with machines trading and not humans, here we are her.

alix: it brings us to the finish of the year, what currencies performed well. who would have thought, 21 -- 21%riel, a against the dollar and the mexican peso and british pound off 16%, though seem more predictable. a brazil, remember it is pretty weak currency from where we were five years ago when we traded around 155, 165. was try to talked to jump into present with both feet at those levels to make investments. we are settling around this 3.25 range. the political situation has calmed in brazil which has driven gains now we have to see if they can take hold of their economy which is still on the weak side to support where we are. ,avid: take the brazilian riau the u.k. pound, and the mexican

peso, you could explain all with politics. >> pretty much and that will extend into the new year with a political issue that is put forth as we finish 2016, with major foreign-policy discussion, that will probably be one of the first thing on the donald trump agenda. card,ina card, the peso etc., will drive the initial surge into 2017. yen? do we see a stronger >> it depends on where we go, possible, talking about earlier, if the donald trump administration you racist some sanctions placed on russia and we start to move closer together , if yes not as hard line with china as he has campaigned, that was a risk on scenario and we see weaker yen and a stronger dollar. alix: the backdrop is the stronger dollar since the donald trump election.

this is the bloomberg dollar spot index, this is the u.s. election, this is the rally. is -- whatstion happens next year? david: can this keep going and you have analyst with different viewpoints, they say you will see increasing strength in the u.s. dollar, others saying we have got to close to the sunshine. some say the wings are melting. let's have him talk about it. this is what he talked about in terms of the dollar rally. >> i think of a chris, the greek guy who made a set of wings and ignored his father and flute too close to the sunshine. -- flew too close to the sunshine. in the middle of the year, the west will not so unless you can generate 3.5% real gdp growth i think the dollar will be done. rally?hat or

>> both. alix: fair enough, great to see you. coming up next, the year in equities, the big winners and big losers, what do stocks look like in 2017? this is bloomberg. ♪ planting a size-six,

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private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. hey, drop a beat.flix? ♪ show me orange is the new black ♪ ♪ wait, no, bloodline ♪ how about bojack, luke cage ♪ oh, dj tanner maybe show me lilyhammer ♪ ♪ stranger things, marseille, the fall ♪ ♪ in the same place as my basketball? ♪ ♪ narcos, fearless, cooked ♪ the crown, marco polo, lost and found ♪ ♪ grace and frankie, hemlock grove, season one of...! ♪ show me house of cards. finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. david: some breaking news, reporting about this fight between u.s. and russia. russia said they will expel 35 americans. vladimir putin saying we will

not expel the diplomats. takenreign minister had to russian television and said there had to be a response and he was recommending they expelled the 35 americans. the world believe that is what will happen but vladimir putin said they will not expel american diplomats. it may well be he is trying to give president-elect trump some breathing room. alix: he also said he congratulated donald trump and the americans on the new year. he does not want to endanger the next four years. david: a present to the incoming president. ,lix: the ruble is off the lows now down 1.5% against the dollar. a quick check on where markets are trading, a slight rally when it comes to s&p futures, up 2/10 of 1%. the dax and ftse flat. fx market, the fun currency move

overnight with the euro spiking 1.6% against the dollar now off .5% against the dollar and the swissie with a same reaction, not about 4/10 of 1% against the dollar. 10 year yield goes nowhere with brent crude slightly softer. the ftse now closed for the year, finishing the year with nothing. relatively flat on the day, the first loss in the last five trading days of the year. overall, the ftse 100 up 13% on , in aar, in pound terms dollar terms down by 5% this year. we talk about the record high for the ftse this year but make sure you are looking what currency it is president. david: -- is priced in. david: brexit, what it did to the pound and ftse, when you

look at the new year, you have to believe this will remain an important story into the new year. alix: and the biggest leaders were the u.k. miners after that amazing rebound we saw in base industrials and gold medals, for the year. winner with the s&p but would you believe that brazilian stocks are the big 69%.r of the year, up nigeria's stock market the loser. off by 40%. renick.us now is oliver brazil, i would not have thought that. >> you should have been reading my charts. an interesting story, despite the political turmoil, all the turnover, they had the best equity return out of any market. iftakes on a different tone

you take currencies into account, this is purely returns. they beat latin america and were up by 68 or 69%. the currency is a big part of the story. you can look at europe and said they had a good year but it only counts if you have been investing in european currency. given the strength in the dollar , it is hard to get those kind of returns when you normalize out. david: you have to pay attention to politics, you say despite the political turmoil in brazil, it may have been because of the turmoil, people were so despond it, they thought anything would be better and when the new regime came in and went up. nigeria has had plenty of problems with security issues. is a big part of it,

interruptions on pipelines and attacks. theyo some extent and also, economically speaking, they expected contraction which has not happened. something there fundamentally. a good point about the political is sortbecause turmoil of the pendant on your perspective, perhaps it is just churn and people still got about that. we have a nice bounce. david: risk is not only one way, risk for the upside and downside. >> that is the story of the year , especially if we focus in the u.s. because this has been a year that introduce some of volatility people have not seen in a long time. january, we saw the market falling off a cliff which nobody expected in the first two months of the year which got people panicking and lean equities. and infleeing equities april and may they came back in, a big tray from january to june, defensive trading, we talk about

that, the utilities, the staples. felt better people and moved into the cyclical sectors and we had brexit, which caused short-term volatility. our own election caused short-term volatility, the midnight watch it futures hit bottom. that has been the story but a pretty solid year for stocks. though the u.s. ranking on the world is in the middle if you take it outside the dollar, big gains elsewhere. if you were well diversified, tough to make it because equities were the show that brought it home. alix: if you look at the best-performing indexes overall, a lot of them were emerging markets. others, theazil, rotation into emerging markets, particularly in the back half of the year. this is why people have

stayed in the u.s. because of the dollar strength, it makes it difficult to go elsewhere but it is interesting because from the spot perspective, the markets have done well and in the past month, it has been surprising when you look at flows where investors are putting their money despite gains in the equity markets around the world. in the u.s., investors are focused here in the u.s. which will be a very interesting thing to find out in 2017, whether they find the u.s. equity market that have the best returns or if they want to take on more risk in other markets around the world. david: we are well into this bull market, people have been predicting it will turn around for sometime, another year it did not turn around and it might be extended with donald trump. the mosts one of fascinating points of the market, you cannot really take this historical definition of cycles and apply it to now. it applies to economic cycles

and if there is an equity cycle, because if you look over the past year, 18 months where there was so much churn in the market and two thirds of companies in the s&p 500 went through bear markets. they do we did not drop 20% but if you were to look at the pieces and say this looks like a bear market, maybe now we are coming out of that. the contrarian case would beat we are done with a bear market and starting a bull market. it is reasonable. alix: the big question is, can we expect 9%, tempers and earnings growth this late in the cycle, many say that is not realistic? >> true and a lot of expectations for it, the counterpoint would be that for a few of the sectors, you have easy comparables so your actual percentage growth will be there from where your baseline is. if there is all this fiscal stimulus, there will be more cyclical groups that could spend on because they have been

spending a lot of money on giving shares back or buying shares back, giving dividends, has been high but relative to those others it has been flat. if they feel confidence in the economy and spend money, that could boost earnings. alix: great to see you, good stuff. david: coming up, we turn to what 2016 meant for the world of fixed income, the europe negative rates took over much of the sovereign bond market and record low yields. it looked like things may be turning around as the euro came to a close. that is next, this is bloomberg. ♪

coming up in the

the biggest geopolitical risks of 2017. david: i am david westin. 2016 was quite a year for bonds, record low yields with some turning negative. to discuss the best and worst is michael regan. we saw things this year we have never seen before. >> it was a crazy year and so much -- when you flash the screen of the best performing bonds of the year, and the list will be soaked verily that's very speculative -- very speculative. in the high yield, a lot of energy commodities, i have called it the alix steel market. alix: i like that.

>> so much centered around metal pricesbase all up double digits on the year and oil up 50%. any country with a heavy commodity economy, like venezuela, exposed to oil and brazil you obviously did well. it shows through on everything you look at. one of the corporate's that stuck out to me was cliffs natural resources, it reminds me g, the old one buffet thin here was a company left for dead, stock trading over $100 five years ago and it closed last year at $1.50. this animal spirit that swept through the commodity market made stock of 450% and its corporate bonds is just as crazy . some started with the yield of 35%.

now down to 8%. a fascinating thing to look at. theng into the year, question was oil going to bottom? where would be commodity market bottom? not an easy thing to time. those who got it right had a great year. alix: that is a special commodity company in that it is: iron ore so exposed to china. the story in the energy market to me was chesapeake. it is one of the biggest natural gas players in the u.s. he started the company, the powerhouse, unsecured bond for 2018. look at what happened in february. and where we are now. an unbelievable recovery, we were talking insolvency early in the year. >> that was the focus at the start of the year, oil and

commodity prices have become this all across, -- albatross. as much as people credit donald trump for a lot of the rally, i feel like finding this bottom in oil prices, the opec agreement, non-opec exporting agreement, it really allowed us to get rid of this bogeyman of deflation and cause the commodity rally and rally in bonds. the spreads are what is interesting. the tightening spreads of junk bonds as treasury yields go up has been something to watch. david: what do we expect? has there been a turnaround in the bond market? we saw in the last 6, 7 weeks, a turnaround in the bond market? lower afteryields the big spike after the election.

there was a concern that every move was a little bit of an overreaction after the election. david: markets have been known to do that. thank you and happy new year. alix: it is all about oil so we will talk about it, 2016 brought commodities back from the break. this is bloomberg. -- back from the brink. this is bloomberg. ♪

alix: 2016 bought commodities back from the break, raw commodities their first annual rise since 2010. we are joined by tina davis. was it all oil or something else? >> a lot of other things going on, industrial metals have a fantastic year. yearous metals had a great , driven in part by what was

going on in china and fears around a brexit and the donald trump election. it is not just an oil story. not, we have a chart that shows every big metal and coal up triple digits, iron ore up 80%. was it a supply or demand driven issue? both.es, coal -- coal, we haven't seen prices like that in a long time. iron ore, mostly about supply, the u.s. the opening a facility in minnesota to bring out more pellets to third parties. a bit of a resurgence domestically and abroad. alix: if you see prices rally, will this year be a bust year again? andveryone over produces the price drops and you bring people back eventually. the outlook for most analysts is that this year will be a good

year for commodities, it depends on what chinese demand is and what the dollar is doing. china?is it up to are they the swing consumer? >> for a lot of commodities, yes, if you think about building materials they are using, the promise of a big donald trump infrastructure spending plan but we have not seen the details. that could be another source of demand. forever in commodities the story has been chinese demand. alix: you see that in the stocks , the ftse 100, the u.k. miners, glencore came back from the dead come energy stocks in the u.s. and globally the best performers, does that continue? example,re is a great a company that looked like to be in danger this year and pulled itself out of a debt crisis. a lot of companies leaner on the other side of that and hopefully

going forward there is less need to produce at a breakneck speed and cause prices to go down. alix: what is the biggest risk aside from the china demand? >> on the oil side, you have to watch what opec does or does not do it next year and what non-opec countries that agreed to cut, whether they go forward. the dollar is a big risk, what happens with that than on what is going on with movement of supply. if there is a trade war that breaks out in the u.s. or elsewhere, we know what happens. alix: we are watching it, thank you. a leading investor in growth markets across the world with $6.3 billion under management, i said down with their ceo and asked him how much he invests in alternative energy and what his top investments are. billionvest about $3.5 across the emerging markets in

india, africa, brazil, mexico, chile. alix: what are most appealing? >> when there has been a big , wind has been taking off the last 5-10 years when it became a completely commercial proposition in our markets. with is your thesis emerging markets, that is where they need it the most or you get the better valuations? >> a combination, you look at supply demand gap in the growth market, there is such a shortage of electricity. that means you have a commodity product in short supply, people need it which will drive a good return on investment. alix: how do you structure? how long will you be there and what types of partnerships do you have and what is the exit strategy? simple, we invest in assets, power plants with stable

contractors to cash flow, inflation protected, we bundle it to become distances ourselves. when you have a couple or three assets, when you have four or five, you have diversification, scale, and growth, that is a business so we invest in assets and businesses which takes five years approximately. alix: approximate rate of return? >> mid-20's. alix: in washington, d.c., big oil to washington and rex tillerson, going to be secretary of state potentially, does that change the viability of alternative energy and make oil more appealing? >> not really. if you look at renewables over a 10 year horizon, 10 years ago, we did not do that much investment into the renewable space because at that time it was cheaper to burn oil to produce electricity. unlike this part of the world, in europe, we do not have that

in the emerging markets. somewhere five or six years ago, the oil price and the price of building a power plant came to a position where it was a commercially driven, it was cheaper to produce electricity with wind than burning oil. fallif the oil price would dramatically from where it is today, it is still now very much of a commercial proposition. alix: the other concern is that if we see trade wars and terra force with a new trump administration, it will hurt emerging market wrote at emerging market demand -- >> if you look at what we are looking at, it is south trade across the growth market. well above 30%, up to 40%. if you look at the trade between topt and brazil, brazil columbia and columbia to south africa to china, that trade is increasing at looking at the

consumer there who wants more and more electricity, it is a different sector than if you are exporting something to europe and the u.s. if you are in natural resources, that you are almost a derivative of the growth in the europe and the u.s. but if consumption local of electricity, it is a different story because you have millions of people -- hundreds of millions of people that come into the consumers and needing electricity. alix: what about infrastructure, how are you invested in that, you have the utility but you have to get it to the customer. >> we put in power plants and we do a electric distribution businesses. we take over, normally high-growth monopoly distribution businesses that we connect more people. they used more and more electricity and you improve the businesses and sell them. recently sold the last piece in

a distribution business in uganda. we tripled sales with half the losses and made an ipo and it is a fantastic story, providing reliable and affordable electricity for people in you rhonda -- uganda. renminbis entire electricity system in cameroon. -- running the entire electricity system in cameroon. alix: what is the biggest risk when you take these investments? in ourrisk profile markets, the perception of risk versus the real risk are two things. when you have a commodity that people really want really need, it is a different think that if you are selling oversupplied commodity in europe and in the u.s. the risk is not different from a point of view of supply and demand of electricity, more looking at foreign exchange and the sovereign risk in the market but that is a risk you can mitigate. what is so interesting to

me is that 20% return, talk about a search for yields, mobile cell phones, you will not build a phone tower in africa, you will just sell mobile phones and skipping over that, a commodity that people need therefore longer-term the right investment. david: helpful for the future if it works out. alix: a fascinating conversation. david: a great interview. coming up, we talked to an expert in china and geopolitics. he joins us to talk about what he sees in store for 2017. that is next. this is bloomberg. ♪

>> welcome to "bloomberg

daybreak." 2016.end of i am alix steel with david westin. we looks to have a rally underway in u.s. futures. up .3%. the dax in positive territory before the close. 6% for the be up year. the footsie closed for the year of 13%. story fx market, the fun of the day. at one point the euro of 1.6% against the dollar. that was the flash rally. paying attention to the dollar swissie down for tencent 1%. they also had an overnight rally in asian trading. rent went nowhere as well. -- brent went to nowhere as well. david: president obama expels 35

russian formats because of a legend spying on the election. pidgeon will not respond in kind, overruling his own foreign minister. will notir putin respond in kind, overruling his own foreign minister. the euro surges over the dollar taking swiss franc and japanese yen with it. was it a loose algorithm? italy hackles with the european central bank italian government not need to it does eject all of the euros into monte dei paschi. to the numbers at up? that is what he to know. now we will return to the tensions developing between the united states and russia. now to our bloomberg foreign policy reporter and henry meyer. henry, let's start with you.

the latest news. the foreign minister took to the airways overnight to say he recommended that russia expelled 35 u.s. diplomats the way that we expelled 35 russian diplomats. president putin says we will not do that. we will keep the diplomats here. henry: it was clearly an orchestrated thing. he overruled him, but that was the plan. 's goal is to putin avoid a conflict. it is important that he keeps the opportunity of improving ties with the u.s. under donald trump. he felt there was a risk if he retaliated as was widely expected that this would create a problem at the beginning of the trump presidency. done ahas mr. putin favor for president-elect trump? >> what he is doing is

presenting donald trump with a stark choice. he is basically saying, you said over the last several months that you want to improve relations with russia and i am opening the door for you to do this. he can continue the obama administration policy for keeping sanctions in place, perhaps considering more covert in the against russia cyber realm in response to the allegations of russian hacking, or he can go the putin route and go through the door that putin has left open and try to deliver on his promises to improve ties. lead you are seeing is what looks like a savvy move by president latin america -- president vladimir putin to leave an opening for him to

deliver on promises for better relations. that is a tough ball to hit. you have speaker of the house , who said itlican is overdue. for the new president to say we 35l reverse it and let those diplomats back in, that is tough domestically. lett would be difficult to those 35 diplomats back in. i would be surprised if that happens. it presents donald trump with an option. does he go and side with vladimir putin or meet the demands laid out by congress, by members of his own party. republicans in congress have been critical of his desire with better relations with russia. in some ways, you are seeing, is putin playing to the personnel, which is something donald trump has done. he has refused to criticize vladimir putin, saying i like

him and he likes me. we will see where this goes. alix: how long do we get mr. nice putin for? gets anyl see if he dividends. the russians hope they will get sanctions relief. we will see if the relationship will be as good. certainly, there is hope in moscow. david: many thanks to our foreign-policy reporter and henry meyer from moscow. in london byjoined george magnus, the oxford university china center economist. we love talking about china and will get to that. aside from china, what do you see as the biggest geopolitical risk of 2017? the previous package, a lot of time looking at the

potential for american relations with russia. we can seek that going on here is a reverse pivot so that american foreign policy looks as though it will pave it will pay the more to russia and away from china. although there are big issues that we in europe face with important elections in france and possibly italy, which has substantial significance for the eu, the u.s.-china relationship is the big one to be honest. alix: talking about china and the markets overnight, your take on the euro spike. what is in store next year. haveillustrates what we been talking about, euro-dollar. asian trading spikes 1.6 percent against the dollar. this is like the pound flash crash in reverse. you have been liquidity

depositing volatility and disruption in the market. iorge: the honest answer is cannot predict what kind of rogue elements will creep into the pattern of foreign exchange trading. , a lot of people are expressing opinions about this and having their opinion solicited is whether the dollar-euro will hit parity or go through it. my view is that the potential for political risk in europe is really high. obviously, if we get through to the middle and end of the year does not win in france and the five-star movement does not win in italy, which has not been called yet, but a lot of people think they be coming-- they may it will back off a little bit.

it is a prayer at the moment. there is a danger at the moment that dollar-euro will go through parity, not only from political risk, but the combination in terms of american policymaking in the first year, at least, of a trump presidency which is dollar supportive. david: if we were talking a year ago, i'm not sure we would have spent as much time on geopolitical risk as we do today. in france, we have an election. an election in germany. the brexit is far from resolved. we have donald trump. around the world there is political uncertainty. is this a high water mark? how do markets price that in? george: is it a high water mark? i don't think so. i'm not sure where it is using ,hat naval nomenclature analogy

but i think that we do face years ahead of us of volatile and rising political risk. 2016, which we recognize as being a remarkable year is the order -- is just your door -- is appetizer.rdo how do markets price this? they can't. sophisticated pricing outcomes in terms of end games that people can assign probability to reduce can get outcomes that people do not expect. that hit to you at random. for example, you asked me about the biggest geopolitical risk. the trade war between the u.s. and china would be one of the biggest risks. i do not rank there is any way that markets can price that until they can see the whites of the eyes.

the appetizers did not cause indigestion. we had geopolitical events that markets went back to where they were at the end of the day. looking back, it is almost like we can say we got off very lightly. we, financial markets, have ended on a high regardless of regardless of fears they are about donald trump winning the presidential election. 2017, thelooking at global economy does not look that bad. will not great, but you have some kind of fiscal stimulus in america where the economy is at full employment. desperatelyare trying to keep stability in their economy until the end of 2017.

of the way.out providing there are political area, thethe euro economy is not great but will do ok by european standards. that is why it is difficult for financial markets to price for political tension, political rupture, when the economy, for the time being, the economic outlook, looks reasonably be combed -- looks reasonably becomed. buthey do come to pass, they will be of great consequence. we have to be mindful of how these will pan out. alix: we will talk about your favorite topic. you mentioned it twice. china. george magnus from the oxford institute. taylor riggs with first word news. there is criticism of

john kerry for his condemnation of israeli policy. minister saidime he focused too much on the issue of israeli settlements, and he should not have attacked the political makeup of an ally's political government. in syria, the cease-fire is holding despite minor violations. russia and turkey were out a truce. -- worked out a truce. they hope it will lead to talks to end the syrian civil war. is italian antitrust chief urgent to fight. the competition body said that regulation of false information on the internet is best done live the state rather than social media companies. -- by the state rather than social media companies. 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. alix: we have u.k. and german stocks closed for the year.

the ftse up 14 percent, the dax up 6%. the u.k. stocks, the price in dollar terms was off by 5%. it was soft trading all the way. stocks trading heavier. we saw a rally, the ftse ending up .3%. what movie did these indices in the u.k., it had to do with mining stocks. you have anglo american up 287%. when core, 200%. the ftse mining index, 200% as commodities recover. in germany, the leaders were retail, dds up. -- adidas up. this is the second year where on olympic gear. had the best year since

2012. those are the highlights from the move in europe throughout the year. david: what does 2017 have in store for china? we talk about what to expect from the yuan and capital outflows from china. this is bloomberg. ♪

alix: one of the biggest risks in 2017 is china. as it gets stronger it is getting weaker around 7. yellow line is fx reserves. bars are capital flows picking up steam to the downside. says china is the biggest risk. how bad does it get it, george? george: at the moment, as

everyone understands, resident the chinese leadership are trying to keep the economy and financial system as stable as they can until this important 19th congress is out of the way at the end of the year. aina is bleeding capital at rate of $50 billion a month on average. , it is never on average were rarely is. we had somef 2015, months that went over $100 billion leaving the country per month. in november, we had one of the worst months since the beginning of the year when the equity outflow capital was $69 billion, probably allowing for the change in the valuation of the dollar. many things the

that none of us know how to predict, when the capital flows will surge. it looks like december was worse than november. china will have its work cut out to try to keep things stable. they worry about tightening capital controls. they can probably hold the line a little longer by doing that, but not forever. david: what is the answer? this cannot go on forever. they have several years, given the reserves, but what is the ultimate strategy? into a china is locked vicious circle of depletion of foreign exchange reserves, capital outflows, and currency , particularly against the u.s. dollar. partly china reasons, partly u.s. reasons. capital controls are porous. the authorities are regularly

trying to make more difficult to eveevade. they can hold the line, but eventually, chinese authorities will have to get to the heart of the reason for this vicious excessive credit creation. there is speculation this might .appen before the 19th congress personally, i find that unlikely. the acid test for me is whether the 19thens after congress, which is 2018-2019. it may be that this is a problem that is even to big -- too big for the authorities to get a grip on. we may see a large rmb depreciation. alix: will we see a depedding of the yuan to the dollar? george: i do not think chinese

authorities have any desire to do that. -- the dollar is the benchmark currency. the people's bank of china has a basket of currencies which they have expanded against which they monitor the rmb. for chinese businesses, companies, and individuals, the dollar is the be-all and end-all. trying to create a measure depreciation, since they cannot stop it, they can only measure the depreciation, will be the number one priority. it is unlikely we will see a devaluation, but i am not saying that that kind of devaluation will not happen within the next two or three years. i just do not think it will happen in 2017. david: you refer to the 19th congress. earlier this week we had someone

who said he would not be surprised if the prime minister was replaced with someone stronger to get reforms through. how do you react to that idea? george: this is a subject of huge speculation. there are 7 people on the standing committee, the main cabinet committee that governs china. past thell not be retirement age. which is the premier and the president himself. the one person on the standing tomittee that ping wants keep is the guy in charge of the anticorruption campaign. , one of thele things that people think is possible, is that he may be promoted to the premier precision and lee will be moved

to another position. at the halfway stage of the 10-year cycle in china, which is where we are in 2017, the party would nominate 2 candidates. the principal candidates to take over the presidency and premiership. we don't even know if that will happen. that depends on if the president has designs on staying for longer. there is a lot to play for, but the current premier's position does look continuous. alix: quickly, if we see china dealing with debt, what does that do to growth? george: if there is a serious attempt to deal with the credit creation problem, there will unquestionably be a protracted slower growth.

for5% or 4.5%, but 2% or 3% five or six years. how that happens is the key issue. voluntarily or as a result of financial crisis. get yourat to perspective. thank you for joining us. oxford university china center economist and associate. growth in the u.s. next year. we will discuss it. this is bloomberg. ♪

alix: this is "bloomberg daybreak." the dax and the ftse the year up for the year. in pound terms. bloomberg trends, a look at the top stories on the bloomberg. you can find these on read .

japan wants citizens to start the weekend early. most work 49 hours a week or more is up 20%. the solution is to start the weekend early, leaving at 3:00 p.m. on friday. david: there's some talk of doing it in the united states to address our structural unemployment. coming up, the italian government spoiling knowledge that it needs to inject millions to rescue monte dei paschi. that is next. this is bloomberg. ♪

alix: this is bloomberg daybreak: asia we are one hour away from the last trading day in the u.s. of 2016. here is where we stand. you can see a rally underway.

the dax on the ftse are now closed on a year eking out our in the last hour of trading in europe. for the year, the ftse was up 13%. in the fx market, it was a euro-dollar this struck my eye, up 5/10 of 1%. there was thin trading and algorithms in asia. the 10 year yield goes nowhere and brent is looking at its best year in four years but down slightly today. david: here's what you need to obama expels 35 russian diplomats because of alleged spying on the u.s. election and president putin says he will not respond in kind. this overrules his own foreign minister. president-elect trump says as much ado about nothing and is willing to listen to what u.s. intelligence has to say. insing out a momentous year the markets, the euro surges overnight against the dollar.

the euro above -- abruptly reverses. hackles with european central bank, the italian government takes with website to explain why does my need to euros into allion stress test. 6.6 billion they say should be enough but do the numbers add up? that's what you need to know at this hour. we will stay on that subject in italy. the italian government posted on website what it thinks it needs to do. the six point 6 billion euros but the european central bank says it's $8.8 billion so which is it? we will turn to the answers now. welcome. thedo you account for difference of roughly 2 billion euros? it's a difference of almost 4 billion from what monte paschi

had set out to raise and we got details about how the ecb got to its numbers. it's based on the stress tests, the results of which came out in july of this year. paschi was the worst performer on that. you need about 5 billion euros which is what they were setting up to raise. the ecb is saying that monte paschi needs to get beyond the minimum of what you are legally required to have and to an 8% capital ratio. of the better than many bank still in that test but the ecb is looking for more security to the market in having that higher figure. that pushes the amount of capital it would need from the state up and on top of that, it's requiring a little bit more to replace some of the debt that

would be bailed in in a rescue. there is a negotiation going on between brussels and rome with the germans weighing in and saying not to give them too much money. the numbers we have seen schi ise that monte pa running through its money faster than we thought. what is the practical time period? what do they need to turn this around? >> separate from the capital issue is a liquidity issue. there liquidity has come down by the ties of gotten permission to provide a liquidity backstop not just to this bank but others. stateought is with the providing some sort of backstop, that would give them a little more time. be a fairly complicated process because italy has to satisfy with the

ecb is looking for that also do it in a way that the european commission would be satisfied with. the european commission said yesterday they will talk to italy about whether the capital injection would fit in with state aid rules and there are questions around that. david: thank you so much. banks are looking at the year i had in the u.s. growth up year to date is up 1.7%. what will be the growth drivers of next year? good to see you. what kind of growth will we see next year? we expect growth will accelerate a little in 2017 and we are looking for 2.7%. that's better than the 2% we will get this year. we have seen momentum on the housing front and consumer spending has been strong as well as the labor market.

wasooks like the economy trying to build steam after the election and of confidence continues to be solid and we get trump'sgress on donald economic proposals, we could see an upside risk from there. alix: the fed is looking at three rate hikes but if we have higher inflation faster than wages, the fed will have two tight and faster in that could kill off growth, what is the possibility of that? i'm not particularly worried about that. i think the fed has shown that they are extremely patient and cautious and they wait for a lot of economic data to see the lay of the land. in 2016, that was a reasonable year for many standards and they said in the beginning of the year they would raise four times and they only raised wants. with the shifting landscape with this uncertainty surrounding the

political theater, they will wait for more data to see how things go in the first half. i don't think they will raise rates before june. i don't think they will get too far ahead of themselves. they have been playing behind the curve and i think they will intentionally be there. alix: the other issue has to do with the dollar. this is my chart of the week which is a normalized dollar. the purple line in the left-hand corner is under donald trump and it seems to be tracking a ronald reagan rally. do we see that in the dollar? will continue to see dollar strength for the next year and probably the next several years. the diversions of monetary policy with the u.s. versus the ecb and the boj. things are getting better in that parts of the world they are still operating with monetary policy and that will continue to normalize rates.

they will still continue to raise rates. all that sets up for a dollar rally to continue. trade data this week where exports were down in imports were up at many economists took down their fourth-quarter gdp because of that. why isn't the dollar a drag on u.s. growth? >> we are not a big exporting economy. our economy is domestically centered on consumer spending. exports continue to fall, we will see a drag but it's not the core of our economy. we could see some dollar strength take a little out of growth but it will not cause a recession. alix: what is the biggest risk? >> political, we have seen ups well on the consumer and business size based in the limitless potential of infrastructure spending and simplification of the tax code. if that peters out in the first

100 days of the administration, we could see all of this crumble. i am not worried about that but that is a risk. alix: thank you so much. thank you, latinos played a large role in the plays essential election and not all as donaldted but trump was together his team and program, latinos may offer the incoming president an opportunity to generate the kind of growth he has been promising. was written about in "the wall street journal." mr.trujillo is a former ceo in joins us now from aspen, colorado. good to see you. >> good morning.

david: let's pick up on what you wrote about. the latino opportunity and it's an economic opportunity to drive growth. you are a former ceo and a leader, give us facts and figures. >> that's a perfect lead in because the data shows essentially that our economy obviously is doing ok today. we have had an uptick. it has been driven predominantly by this let tina population growth -- latino population growth and there is a feeling that we will flow through in terms of looking at over 50% of the population growth in the united states is being driven by latinos and they are predominantly nativeborn people. if you look at businesses and formation of businesses, they have grown by over 46% over the

last half decade and created about 86% of the new businesses created in the united states in the last half decade. if you look at real income ofwth, we are looking at 29% all the real income growth in the united states in the last decade has been driven by latinos. i can give you more data but one other thing that relates to you last segment is that over 51% of taken outme mortgages in the united states over the last decade have been taken out by latino consumers. , wehink about consumption think about entrepreneurship, and we think about the labor force, the workforce which is and genetically younger than the rest of the population. that i will make in answering your question is this is big, this is regardless of whether there is a democratic administration or republican administration.

how do we catalyze this more? is what you look at europe and japan and a lot of countries around the world that are mature economies, they are struggling. they don't have an upside where in the u.s., we do. your wall street journal peas was a letter to donald trump sort of. you are saying for him to pay attention. if you are sitting with the and you needed to tell him the three things that were most important, what would you say to him? as you think about economic policy and you think about the fact that there is probably a trillion and a half dollars of untapped opportunity just with this new mainstream portion of the economy, you have a lot of upside.

i start by putting people that understand this -- i would have started with the cabinet on the economic side. on whateverthem advisory or economic policy groups that they have advising the president today. the second thing is that yes, tax reduction will be good for all businesses including any latino owned business. regulation,uced government bureaucracy and other things are helpful as well. but the keyedgood now is how do we help create the funnel of matching capital to opportunity? it's not about government programs but it is about focus,ss, it is about and it's about leveraging some of the backstop kind of programs and opportunities that exist in the government today that can be refined and much more focused

than they are but you need people who understand it and people living it and people who are actually driving it today in spite of some of the barriers that exist in the marketplace today. given your background and expertise, i have to assume you're reaching out to the trump people, the transition team. do you have a sense there is an openness to listening to this approach? theseey thinking along lines or are willing to think along these lines? i guess i really have not had any conversation with anybody from the administration. it's not about me personally. as an american, as a business person, that has operated all over the world and seen how growth economies work and how stagnant economies work, this is really a unique crown jewel we have here. i am hopeful that whether it be through me or anyone else that

there is this focus, this understanding and there are resources applied to how we catalyze. this will help the overall objectives that have been stated of 3% or 4% gdp growth. i think 3% is achievable. segment's guest said, we are predominantly a domestic focused economy. this kind of growth domestically, let's catalyze it and understand it first so we know where to and how to and the kind of people we need to help make it happen. trujillo stay with us as we talk about the biggest deals in telecom. that's next on this is bloomberg. ♪

taylor: this is bloomberg daybreak and coming up, gabriela on 2016 equities. this is bloomberg daybreak. one of the big winning sectors of the s&p has been the telecom sector, up 18% and part of that has been a strong rally on at&t and time warner as they announced a potential merger. see more of these kind of deals in 2017? still with us is sol trujillo. ,ou as a head of telecom would you have bought time warner? >> everything depends on the

economics of any deal. more than a decade ago, we were starting to talk in our industry about the fact that telecom is 1990's old word from the or a phrase that in today's context does not make sense when you look at it from a consumer standpoint. we took more about mediacom companies and that's what they are looking to do is marry the content with the distribution and delivery, expand with the technology within their business and not just at&t but others are looking to merge in different ways. when you look at microsoft or we usedr google or what to call the internet players, they are all focused on their methods of distribution, their

methods of data analytics, their methods of supporting new revenue sources as they region deal with consumers every day. , not justappening about what we would call old telecom but it's about all the industries getting very blurred and how everything is very focused on wireless methods of delivery including now what we might call the satellite internet of things as we see small satellites being launched to provide more distribution capabilities essentially to the world. companies telephone have historically made forays and has not worked out well and a lot of mergers fail on the culture issue. company with a regulated mentality manage a business in hollywood?

you are talking about management of content and creative. can you do those two things? be i thinkr would so, yes. when i was in australia, we managed a cable operation where we managed the content and distributed it over our network and we were streaming video on mobile devices almost 10 years ago. some of this really is not new. you bring in the right talent in the right ways to get it to consumers. one of the new things that is in an over-the-top the top world, meaning you don't have to have the old, traditional media company to do the things you have done, people are looking for content of all sorts. it's even more diverse today when you think about the globe as your market as opposed to just a domestic market in terms of your focus.

it has become very interesting and much more diverse and there are new rules being written today. there is plenty of content providers that can do short form , what i would call snack couple content or the traditional content orsnack able the traditional content and films. we are seeing that plethora of new content in the market with people looking for ways to deliver it and for consumers to receive it, maybe differently than they have in the past. david: thank you so much for joining us today. coming up, it has been almost 24 hours since donald trump's last tweet. alix: uh oh. his tweets of had a direct impact on several company shares this year and we will highlight a couple of those companies next and battle of the charts next. this is bloomberg. ♪

david: this is bloomberg. it's time for battle of the charts. taylor riggs will take on alix steel. taylor: i am always first and i don't know if that's good or bad. about how donald trump has not treated in almost 24 hours and i wanted to look back at the big stories of 2016. for me, it was about donald trump tweeting about boeing and lockheed martin and they underperform the s&p defense index. tweets aboutrump boeing costs out of control. the market had sold off originally but boeing recovered and kept pace with the index. david: help me here. s&p indexes and

purple so it kind of recovers. as far as lockheed martin which had struggled a little bit and on december 22, the second red circle, trump tweets that their costs are out of control and asked boeing to price out a competitor. a washington research group put out a note that said twitter risk is big for the defense industry. that's what they are looking at for the next four years. david: it looks like lockheed martin got heard worse. alix: i'm looking at what the biggest risk for stocks could be in 2017. it could come from inflation. this is a long-term chart of core pce. you can see a relative inverse correlation. as inflation spikes, the s&p goes nowhere and inflation comes down and the s&p starts to

rally. inflation moves lower in 2017 and you get a rally. the idea is when inflation picks up, the fed has to tighten fencer -- faster and that winds up hurting stocks. i think this is an interesting chart about what happens but i'm not sure what it tells me. suggests if inflation picks up, maybe the s&p comes down. alix: it is a risk. david: alex wins. gabriella sanchez is coming up -- gabriella cento's will be here to talk about equities. this is bloomberg. ♪

♪ alix: welcome to bloomberg

daybreak. made it to the end. david: tomorrow is new year's eve. into theare 30 minutes opening bell in new york on this last trading day of 2016. a slight rally underway. up to tens of 1%. the dax and ftse up higher on the day. for the year the dax up 6% in local currency terms. ftse up 13%. the euro fire against the dollar. overnight trading in asia saw a spike in the euro-dollar. the same thing for the swiss. you had trading conserving to the huge spike upwards towards the end of the euro. the 10 year yield goes nowhere after a successful seven-your auction. brent with a little bit of steam but it's best year in four years. david: spy versus spy. president obama expels 35 russian diplomat because of the legend spying on the u.s. elections.

president putin says he will not respond in kind, overruling his own foreign minister. president-elect trump says it is much to do about nothing. market surprise. closing on a momentous year in markets. the euro surges overnight against the dollar, taking swiss franc and japanese yen with it. then it abruptly reverses. was that it was algorithm? thebull keeps charging. of 79% since the end of 2011. can it keep up the pace in 2017? returning now to the story of the tensions within the u.s. and russia. we will bring in our colleagues, nick from washington and henry meyer, joining us from moscow. henry, you made an interesting point early in the program. the drama played out with the foreign minister taking to television in russia saying we

told putin to kick out 35 americans. president putin coming out and saying no, we will not do that. what would've been the thinking behind that orchestration? he could have just made the announcement that russia was not going to respond. having his foreign minister make a televised statement that russia proposed this course of action and then having putin reject it, it allows him to take the high ground. he said in his statement issued by the kremlin that russia did not want to dissent to the level of obama's administration. thisnk he is hopeful with masterful stroke as he sees it he can preserve the possibility of an improvement in ties with the u.s. that is the top reality right now. he is very much waiting for donald trump to take office and hopeful this will enable him to

overcome the very massive ties -- problem with ties existing between russia and the u.s. over the last few years. david: given this drama, who is the audience for what putin is doing? is a donald trump and issues with sanctions, or could it be europe because there are sanctions issues with europe as well? nick: this is clearly directed towards donald trump. he said in his statement they will basically wait for trump to take office before they decide what to do next. this is really vladimir putin opening the door to donald trump and complicating his choices when he takes office. if putin had expelled u.s. diplomats, that could have heartened donald trump's stand and pushed him further into alignment with the obama administration and also with republicans in congress who want much firmer action against russia.

by doing this and saying we will take a wait and see approach he leaves the door open for donald trump to say look, vladimir putin is being a nice guy to me. maybe we can all look to try to reconcile with him. it will be interesting to see how this plays out in a few weeks. david: henry, you report the russian story in moscow. mr. trump has his problems with his constituency here. how does this play to the russian constituency? there is a perception over here in general the russians like a strong man running their country. does this make him look weak? henry: they believe putin has managed to come out on top in fact. by showing magnanimity and showing he would not respond to what russia set in provocation, i think russians will actually back him on this. david: many thanks to nick from washington and to henry meyer,

bloomberg politics reporter over in moscow. alix: u.s. stocks near a record as we close out 2016. s&p up 10% on the year. we want to look at the winning and what it means for 2017. this is your chart. gabriela sanchez at j.p. morgan asset management joins us now. that was a sector breakdown if we can bring that up again. s&p energy and that up 24%. financials up 20%. telecom up 18%. let's start with energy. talk about that reversal we have seen this year. gabriela: it was tremendous. we had friends prices down to $26 in february and now we are at a stable $50-50 five dollars range. this is all of -- $55 range. we have seen a significant reduction in u.s. supplies. we believe we have a chance to have the implementation of the opec deal on sunday.

this change in the supply dynamic is really put a lore in terms of the oil price going into 2017 as well. we think we have touched the lows in terms of oil. into 2017 is the more upside to be found in that sector? have aa: we believe we slightly out of consensus view with regards the oil prices are 2017. we think we can even see higher oil prices than the market is believing. with regards to the end of 2017 we can see $65 to $70 for brent. this is believing we will see about a 7% and limitation of the opec deal. we will not see a significant resurgence of u.s. production next year as well. still more upside with regards to oil prices. alix: in terms of energy stocks, really easy comps when it comes to earnings for 2017. that is a consensus view. can you pick winners and losers in this sector?

is there an area that makes better sense? gabriela: i think it is still difficult environment. we have this view that oil prices may be even higher than the market believes in 2017, but it is still a difficult environment for u.s. energy companies. when it comes to strong conviction for 2017 for us, it is much more other sectors of the economy. particularly things like financials. david: financials. well done, gabriela. take us to financials. that is number two on the hit parade. gabriela: it interesting it is a year for 2016, but if we were looking at the sector back in june we would only see in the green things like defensive sectors. things like telecom, utilities, with financials liking significantly behind the story. is ado we expect for 2017 continuation that we saw the second half. financials doing much better.

towardsthat are geared the improvement of the u.s. economy and the continuous rise in interest rates next year. david: how much of a steepening yield curve and make that come true? gabriela: not as much as one would think. had a continued increase in short-term interest rates, that would already be a big benefit to the u.s. financial sector. and not just interest rates but it's important to think about the volume of credit growth as well. if you continue seeing confident consumers willing to take on more credit, i think that helps as well. loser of the s&p index is health care, off by about 4%. that was really a dividend play. that ships in the back cap -- that shifts in the back half of the year. gabriela: with regards to this year we are concerned around regulation and the outcome of the presidential election. we even see more regulation in

the sector with donald trump. it is a sector that can still suffer a little bit under the volatility of policy. david: where is the biggest miss price in terms of sectors? you to the upside or the downside? gabriela: you still see some very defensive sectors of double digits for the year. that that's still does not quite make a lot of sense. alix: utilities up 12% for example. gabriela: i think some rotation needs to take place. speaking with our clients we are trying to make sure they are appropriately positioned within the u.s. equity market as well. a are not going into 2017, year where we think the economy will develop her interest rates will continue to rise being defensively positioned. david: do you see a continuing rotation fixed income and equities? gabriela: we do. thinking about our clients, a lot of them have been very heavily positioned in fixed income.

because of all the fears we had about the u.s. economy, the global economy. we think there is a significant amount of rotation that issa take place from six income into u.s. equities for our clients to be appropriately positioned. alix: health care, utilities, defensive names into next year as well. if we get the corporate tax rate cut from donald trump, will that change the loser scenario for next year? gabriela: one interesting thing to think about with her corporate taxes for the next two years is not just do we get a cut from 35% to 20% or 15%? it is how is the tax system changed? we are starting to talk about going from a worldwide taxes some to a territorial tax system. that can really change the winners and losers, especially companies that need import a lot of their input. things like retail. those could be under pressure if we do change to a territorial tax system. david: thank you for being here,

happy new year. jpmorgansantos, global market strategist. david: i knew it was accommodation of some of those words. we go to tailor with the first word news. taylor: in syria the cease-fire is holding despite minor violations. russia and turkey worked at a truce between rebels and syrian government troops. they hope to lisa talks aimed at ending the syrian civil war. taiwan has confirmed its president will make two stops in the u.s. next month while on a trip to central america. that is likely to irritate china. it will make stopovers in houston and san francisco. china has repeatedly heard -- urged that she not be allowed into the u.s. a wrong signalce to taiwanese independence supporters. turkey has voted to give sweeping executive powers to the president. he said he needs the powers at a time of increasing threats to turkey, including attacks by

kurdish militants. the parliament must still approve the measure. global news -- global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. alix: you have u.s. futures looking to eat out again on the last trading day of the year. will really help global stocks this year had to do with what happened with commodities. the energy stocks globally the best performing sector. you also had gold up 9%, copper of 17%, tin up 44% and zinc of 60%. from gold this is the first annual gain since 2012. this is still well below the heisey saw earlier in the year, but the base industrial metals are having a rebound when it comes to mining stocks. when you look at the u.k. metals and mining index, the u.s. mining index, the ftse mining index up 101%.

glencore with an unbelievable rebound. a year ago we were worried about their viability. now they are buying a stake in rosnap in russia. you have ak steel, u.s. deal leading u.s. metals. both of triple digits, of 333%. a huge turnaround for the last few years and the depressed metal prices we have seen, helping to lead the ftse record highs and s&p to record highs. we close out the year. david: bank stocks on a tear after donald trump's presidential victory. is there a catch to all of this? we will look at the closely next. this is bloomberg. ♪

♪ david: this is bloomberg. time david westin. bank stocks about a medicare following donald trump's victory. two of the top five performers in the dow in 2016. there are some analysts say that may not stop the layoffs at the banks, automation will keep replacing people with machines. continuing to strengthen size of banks in 2017. for more on the future of things we are joined by bloomberg new'' senior writer. take us through this thinking about the size of the banks. we had seen a lot of people let go because they are having trouble with earnings. but now we may still see a lot leave banks. >> that trend has been going on since the crisis. it started before the crisis really hit. in 2007 and 2008 they were laying off. since then it has gone every year, dwindling but still

continuing, including this year, the current year we are about to finish. to really is going peter out and end, but it will not reverse. we will not see a big surge. that's because profitability has not been depressed. they had to raise capital. capital centers have been higher. the returns on equity have been they consider the cost of capital. they are below that. hopefully the earnings next year will bring them to levels on the return that are more except him -- acceptable. that will make them happy. that is what people are going into stocks, financial stocks, but that will not make a person much they will say let's hire another person. david: there is the capital

requirements. there is also this phenomenon coming in. how was that changing the employment structure of the big banks? yalman: that is a big influence, not just in finance. in every field we look around. cars are not really made by people anymore. they are made by machines mostly. syntax is changing the name that game of finance a lot. watchingoday as i was you talk about the market and currencies moving around, is it an algorithm? everything is being done by that. david: i talked to brian moynihan from bank of america merrill lynch and he said they were replacing people with algorithms. they also for going to be adding people dealing directly with customers, which you can't have a computer do. take a look. >> if we do it right and the economy continues to grow, we will have more management people

in the branches, more than the wealth management business, and more in the cash management business worldwide. commercial banking and stuff a little bit more into the u.s. domestic hiring. it is all the relationship businesses. david: he actually plans to add people, although he said in the back office he plans to cut. maybe a shifting balance of the overall workforce rather than a reduction. yalman: exactly. in other areas they added people. regulation and compliance people have gone through the roof. thousands of people have been added in compliance to make sure they comply with regulations. certain things people have to do, but more and more people don't do. i was at a chase manhattan branch the other day and there was one teller. the other tellers were replaced by machines that basically can do everything you need them to do. we don't really need the tellers. less and less needs to be done

by humans. david: like an airport kiosk. we love those. alix: to me the biggest issue will be what happens with the 10-year yield. this is one of my favorite charts of the year. the purple line is the s&p 500 -- s&p financial index. if we see real yields and 10 year yields world over a little bit, what does it mean for banks? yalman: interest rate to report for banks. for most of the lending business, the bread and butter, and a big banks we talk about like goldman sachs and jpmorgan trading is even more important. securities,d income which are all related to oferest rates, is the meat their profits. when they are near zero, which they have been for so long, they can't make that much money. the spreads are so low. nothing is moving. if interest rates keep moving, yield curves change, a little

sharper, they move up and down, it is great for banks. that is why everyone is expecting more profits for them. alix: they do so much. david: coming up, the year in equities. the winners and losers and what do stocks look like in 2017. that is next. this is bloomberg. ♪

♪ alix: we are minutes away from the opening bell on the last day of trading in 2016. here are the biggest winners in the dow. caterpillar of 37%. biggest loser, nike down 18%. here is mike regan. you said before the break that caterpillar is the poster trial -- poster child for this year. mike: he had donald trump. how many times they talk

about caterpillar talking about losing business to japan because of the weaker yen. let's forget how strong the dollar is after the election. obviously if you go build a wall on the border, you will need a lot of caterpillar tractors. any sort of infrastructure spending we get, the believe is it will be a boon for caterpillar. this is obviously good for caterpillar. that said, it's a shame because it's all basically valuation extension at this point. the actual earnings projections for caterpillar are still going down. i will show you the forward pe for caterpillar is above 30 now. this was a stock that originally traded at a discount on the s&p. now there is so much optimism built in around it you can see how much the evaluation is taken off over the past year. think there is a lot of

optimism built into this stock and we want to see how much comes out of it in a year. david: nike down 18%. mike: nike is seeing its sales growth slow low bit. mid to single digits growth compared to double digits. nike with such a workforce of the bull market. about 430%is up compared to 230% for the s&p 500. is not the only consumer stock. these consumer discretionary stocks leading the charge for a long time, that they basically passed the baton this year to financials and commodity stocks. nike seeing a little bit of a dip here. david: one constant is what happened in the past. if you look at caterpillar over a five-year track, it is still down. nike is still well up. it is coming off of respectively a down time. mike: that consumer stocks, nike

has its own company-specific issues. there is concern about under armour competition. under armour stock is another story. alix: is also one of the losers in the s&p. mike: this whole consumer spaces got a little tired. it was leading the charge for a long time and then it just fizzled out a little bit this year. alix: much more to talk about when it comes to stocks. mike regan. the opening bell is next on daybreak. here is how we stack up before this last trading day of 2016. s&p futures up by 2/10 of 1%. dax and footsie with a late day rally, now closing of the year. a slightly weaker dollar across the board. this is bloomberg. ♪

david says this is bloomberg. we are moments away from the opening bell. let's look at where we are in

the pre-trading. we are up across the board. s&p futures, nasdaq, all up. the other a look at assets. the dollar is down after a since donaldmb trump has been elected, we have been up with the dollar. 10 year yield has been unchanged for some time. ithas been sometime since has changed. crude is coming up after a nice run up. alix: i want to look at what is happening in the indices year today. we are moving higher here in the open of trade. you have a dow jones industrial average of -- on the year. away from the 20,000 level. it doesn't look like we will get there this year. the s&p up by 10%. 15 points away from its record

closing high. so many record highs in the indices. the individual names, you can see the move we have seen across the stock market. , the best performer, up 235%. have --, which is up 136%. as we were talking about earlier, free point -- freeport has been reversing a lot of the trend. david: a couple of your favorites there. for more on this year in markets, we bring you joe

weisenthal. thank you for being here. what were the surprises for you this year? into the end of the year is how the world is firing on all cylinders. we talk about donald trump, the fed, but you can't discount the fact that data has been strong. we are seeing equity and interest rate sides of things. economic surprise indices around the world, eurozone, china, it looks like a noisy chart. in, all of the lines are above the red line for the entire month of december. around the world, economic data is coming in

better than economists think. that almost never happens. there is almost some region of the world that is disappointing. every region around the world, you have to figure, it is going to have to go back at some point. even there, the data is coming in better. having a big impact than people realize as they focus so much on the political turmoil and changes going on. that if you have look back in time? six you can find a couple of tiny spots, but never a whole month at a time. were getting better before donald trump was elected. the dollar rally, same kind of thing. see it in the themes

of the stock market. it is showing how cyclical verys began outperforming strongly about a month before the election and took off here. the blue line is your defensive stocks. your cyclicals are financials, industrials. optimism ishow that reflected in the market. david: presumably one is related to the other. >> it is also interesting that they in july -- they peaked in july. it was peaked demand for safety, it started long before the election. alix: if you go to the terminal,

you can see the best and worst performing indices in the world. brazil is number one. it is not just brazil that catches me, it is all emerging markets in the top 10. the risk on feel we have seen and can that continue if we get the stronger dollar. >> it is striking thinking about what we were talking about at the end of 2016. anything energy, commodity related seems to be dying. high-yield bonds or the story. the mood going into 2017 could not have been more different than going into 2016. it is all good news. david: alex made an important point. in the face of the strengthening dollar, conventional wisdom is the stronger dollar will hurt em

. can the dollar keep climbing and em do really well? >> commodities and the dollar are typically -- they typically have a negative correlation. it is surprising to see them rallying at the same time. at the same time, those dollar indexes are heavily weighted. the african currencies were all up this year, a very much a commodity story there. universalnecessarily dollar strength. >> the end of year rally was also -- this is my favorite chart that shows that. capwhite line is the small stocks and the blue line is s&p.

the question is about the overextension. are we there yet? >> the strong dollar probably helps the smaller companies that are not internationally focused. is this trend we have seen since july and really pronounced since the election, is it a blip or will it defined the next year? david: there is a little anxiety about trade. >> who knows how big of an issue that will be. aboutis a push back, building the wall, exporting the emigrants, that sort of thing. alix: thank you. really appreciate it. we -- happy new year to you both. the ai addiction. the exploding smart speaker

market. we will get a take on what tech related news to watch out for in 2017. this is bloomberg. it is relatively flat on a day positive for the year. ♪

alix: -- taylor says hewlett-packard enterprise brain them, coming up, ariel cohen, the senior fellow on u.s.-russia relations. alix: you made it to the end of the year. upe is where we are stacking

10 minutes into the final trading day. a little softness across the board. the nasdaq up 7% on the year. the s&p up by about 8% on the year. let's get to abigail doolittle. trade idease big investors love to watch are the tank and internet stocks. it has been another great year for the stocks. this does not tell the full story. this.k at this is a year to date chart of the fang stocks. amazon was down 30% earlier this year, as was netflix. netflix, a head of a string of disappointing quarters, but we see lots of recovery here. facebook has been the steadiest of the fang stocks.

while this has been a great trade on the year, it seems to be slowing down a bit. in whites, we have the staying stocks. and blue, the s&p 500. fange third quarter, the stocks outperform in a big way. the s&p 500 is outperforming the fangs a little bit. the merrill lynch index was up about 70% of the year. the s&p finished down slightly and now they are about even. steam forward with momentum or will the s&p 500 outperform? alix: eu have amazon surprise hit of 2016, the echo speaker. smart speaker proves there is a lucrative consumer market for voice

activated assistance in the home. caitlin reports. >> the top five most valuable tech companies are betting big on the success of a virtual assistance that response to voice commands. the race started with the echo. >> how many championships has dan marino won? >> zero. >> how many oscars has alec baldwin won? >> zero. they soldreported more than 3 million devices and it was cheap. the real payoff was in the core e-commerce business. >> one of the faster growing businesses, it adds into the ecosystem amazon has, where they have traffic coming to their website.

for amazon toce grab the traffic, which is not online. >> echo owners spend 10% more time on amazon.com after buying the speaker. the stock popped 70% since the echo came out in the u.s.. it is no surprise google wanted in on the action. >> we have been thinking about our unique approach and we are getting ready to launch something later this year. >> dallas google home. it was $50 less than the echo. it leaves us with the elephant in the room. be on the mac.to >> series has been out for five years. the use has been limited to iphone, which could be a problem for apple. u.s. smartphone users use siri on a weekly

basis. there is a customer demand and it is a sexy, new kind of interface for information that apple would be insane not to get out there with a product that is similar. it is all about implementation and it is going to be a disadvantage not to have been first. >> apple wasn't first to the smartphone or tablet market and they are pushing forward with a type of competitor. david: that was caitlin reporting. joining us now, david kirkpatrick. fitting you have gone up multimedia on us. we just saw you on tape in the piece. now we have you buy skype.

on this story about the echo and the artificial intelligence in the home. how transformational could this be? transformational. one thing i think the story did not fully explain as that the something called the dot, a $50 version of the echo, which is possibly what sold like hotcakes over the holidays, even though amazon does not give us the numbers. i was in florida at my father's nursing home and all of the nurses were talking about getting echoes for christmas. this is a huge product. >> this is an increasing returns kind of business in the sense that because it is ai-based, it is a learning system.

the more people that have it, the better the system can get. amazon has a huge lead. is ad of all, amazon marketing company. they can sell this alongside their other stuff. buy moreinduce us to in ways that google cannot. i don't think what apple is doing with siri is comparable. i would not be surprised if facebook comes out with something not dissimilar to this. is amazon at go specifically likely to become something equivalent to the next iphone. david says take us through this. we could have servants now. besides these things do play music for us, answer a question or two? what can they do? >> they will be able to do whatever we can talk to them about. if we ask questions, they will

be able to answer. google has one advantage. they will be able to tap into google search results, which we all use day in and day out. that could be a way for them to stay in the game. amazon will probably find a way to get more general search results into the >> device. to haveoing to have ways to control self driving cars and it is almost certainly voice. if you program your car to go for next to why and you want to pull off to get a hamburger, you are going to have to say >>, perhaps, pull off at the next exit and find a mcdonald's. that is not something you are going to want to type in. part of the deal is about what you're going to buy from amazon once you get it. in the same way

for apple and google? that showskey point how amazon can sell these for less and still make a lot of money in ways that others cannot. i don't think anything comparable is in it for apple. in the case of google, because a superstar at selling search related advertising, it may be they will find a way to monetize their voice interface with ads in conjunction with the use of their search and they will stay in the game that way. david: this sounds like an exciting future for us. let's talk about the other story, tensions with moscow over spying on the u.s. elections. are we making a deal with the devil? making a't say we are deal with the devil, but it is a scary time as we see this attack

and possible retaliation in the cyber around between russia and the united states. unfortunately, we are economically dependent on a global internet that is not designed for security. crude fixesa lot of we have imposed over the years. i don't think we know how to operate on the internet safely. there are some very good ideas from all kinds of original internet inventors and others about how we could we architect the internet to make it safer. do, we are going to have to trust each other. when you have countries like russia, you can say they are almost evil. it will be impossible to trust everything that happens in cyberspace area that is very scary. david says the reports were that rudimentarynot take

steps to protect themselves. >> i saw that reporting. not take it seriously for months. even if they had and they had reported it to the fbi from the first call they got, i still think it would have been hard to protect themselves. russia probably would have ton of valuable stuff and the political results we saw would have happened anyway. is, for small organizations like the dnc, the expense of doing high grade computer security and protection is extreme. unless you are a company like themberg, we don't have money to do good cyber security. you guys do. brains.ut you have your

i'm sure that makes up for the money. thank you very much. a happy new year. alix: coming up is bloomberg markets with vonnie quinn. it is a slow day. what are you going to be talking about? annie says it has not been slow year. we are going to wrap up the with a person who has a view on russia and china. we are going to be speaking with jonathan gruber. he was one of the architects of what is now the system in massachusetts, which was the affordablefor the care act. he is going to talk about how possible it is to repeal some or all of aca. we are also going to give a shout out to the traders at nymex. most of them have gone. it is the last day of trading.

we are still keeping and i on oil. alix: thank you. looking forward to it. thing we think is important heading into 2017 is next.

alix: the take away from the show, the future of the u.n.. is the currency in danger? magness commented earlier. george: i think it is unlikely we cad valuation. kind of saying that devaluation will not happen within the next two or three years. i don't think it will happen in 2017. a worseninguld see for sure. david: i will make predictions. a year from now we will be

talking about this as one of the big developments in 2016. it will be a major issue throughout the year. alix: you have reserves falling in china and a stronger dollar. it is hard to see where the give will be. david: with a new president coming in who is focused on this issue. to be a is going fascinating take away. happy new year. it has been a pleasure. we are 25 minutes into the trading session. here is where we stand. lat, flat, flat, flat. to dax and ftse managing rally into the green. a stronger dollar across -- excuse me, a weaker dollar across the board. happy new year. ♪

>> it is 10:00 a.m. in new york, 3:00 p.m. in london. from new york, i am vonnie quinn. welcome to "bloomberg markets." ♪

vonnie: we will take you from new york to london to moscow in the next hour, covering stories from china as well. it is the final trading day of 2016. european markets ending on a high note. can u.s. stocks follow suit? russian president vladimir putin says he will not kick out u.s. diplomats out of the country. but how will the incoming president handle that situation? top priorities in the trump administration is killing obamacare. we will talk to one of its key architects, jonathan gruber, to get his reaction. european markets have already closed for the year, so let's check stocks. at ftse 100 ended