♪ weak will be yuan get? china's official fx reserves held above $3 trillion. that: the suggestion monetary policy would be tighter if they are in charge. controlsa may's signals over immigration is her priority. the pound slips. ♪ >> a warm welcome to bloomberg

"daybreak europe" our flagship show from here in london. manus: i am manus cranny. biggest two-day rally on record, bang, turn it around, the biggest draw. added,ugh the bazookas the pboc. they manipulated the liquidity. here it is. overnight, we have dropped by reserves,got the fx which, in on the cusp above $3 trillion. the question for the market is down, are more capital controls to come. >> the pboc making life difficult.

that was the cause of that pain for shorts. this is a deviating it somewhat. we see how close we are to that seven number, six .9, on the radar before then. back, weakening, 6.88 or so, looking towards that 6.9 level. we did not, they did not have to drop fx reserves below that $3 trillion level to defend, but how long that remains the case. it did drop for six straight months. manus: this is the real momentum. theresa may making it clear that exiting the eu and regaining control of the borders is a critical point for her. ,re we moving to a hard brexit a break of 122 in the market perspective, and this takes us below those levels we have not seen since the end of october. >> i thought it was interesting,

not keeping bits of membership, and that seems to be the phrase that has caused weakness in the pound. it's not the thin volumes and 1:00 in the morning. we are seeing this get weaker as we go through the morning session. futures, a record last week, the dow prevaricate it, bass related, couldn't break 20,000. the dow spent three and a half hours flirting with it. market on the s&p side is trading higher this morning. morning, a school day, let's get to the news with shery ahn. >> thank you. to sell's has agreed 80% of its operations and china and hong kong. the deal which includes twenty-year mass franchise

rights will value the business as much as $2.08 billion. two venture groups will take it a stake. . potential candidates who head the fed from 28 teen have 2018 have suggested the monetary policy would have been tighter if they were in charge. they criticize the central bank for trying to do too much to help a company struggling with problems that monetary policy can solve. the three are among the candidates should donald trump decide not to nominate janet yellen for another four-year term. senior republicans have won donald trump that he faces a rift with members of his own party if he does not punish moscow for hacking the u.s. election campaign. in an interview with meet the press, senator lindsey graham said he and senator john mccain plan to introduce legislation

for tougher sanctions against russia. he says the measures would hit the country in the financial and energy sectors "where they are the week's." boris johnson has met with some of donald trump's top advisers. last nights of session involved steve bannon and the president-elect's son-in-law jared kushner. he then traveled to washington to visit congressional leaders. britain looks as to build ties with the administration ahead of the countries withdraw from the european union. that china made asian infrastructure investment bank remains open to the u.s. joining, even after being snubbed by barack obama last from that is the message the president, speaking exclusively to bloomberg. open, andr is flung the door will remain that way. i highlight on many occasions

regardless of membership of the united states, we can work well together. workers in london's financial center are facing a tougher than usual journey to work this morning as thousands of underground workers are on strike after their unions rejected a last-minute offer to avert a walkout. they have warned community or's to allow extra time to travel. s as many as 4.8 million passengers per day. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. manus: thank you very much. let's get to the markets, kicking off the trading week. dollar-yen on the move, fx reserves, not as bad as markets

were anticipating. good morning. >> yes, we are looking at the asia index ex japan. pretty flat, pretty mixed, a lot of weakness from basic material players, oil and gas looking good, although we have seen oil come off that three-day rally. seeing a bid from financial and health care stocks. down, number from china nothing to surprise the market, and some upside on the shanghai composite in late trade, up by .3%, and a good start in hong kong, a number of casino players and oil players well supported. by 2%, one of the front runners in the energy space. good start, up by .9% on the close, a market up every day so far in 2017, but you are seeing this dollar

strength lay into quite a lot of weakness in terms of the southeast asian markets. you and anna were talking about seeing the offshore yuan extend also somet, and weakness from a number of other currencies in the region, particularly the south korean won, now a three-week low against the dollar, down by 1.3% , so a fair bit of weakness from those emerging-market currencies today. anna: thank you very much. let's stick with what is happening in the asian session. china's foreign currency reserves, news they have fallen month, the straight steepest annual slide and more than two decades, reserves at a five year low of $3.01 trillion. manus: the pboc's efforts to stabilize the yuan was the main

reason for last year's drop. the chinese policymakers intensified efforts to stem the capital outflows. gangvisor to the pboc fan says those moves have been effective in new measures are unlikely. >> at the moment, things are stabilizing. they took some measure, and the measure became effective, and the market started to respond, so from that point of view, i don't think they will go further on that, but i don't believe they will totally dropped the measure, drop the intervention. gang there. , thank us now, michael you for joining us, let's talk about the situation in china described as stabilizing, do you

signs of stabilization in the chinese currency? >> i don't think anybody does, do they? look at the move now being reversed. i don't call that stabilization. it is a euphemistic use of the term. think theweak d chinese currency gets? do we go through seven before donald trump takes office or the lunar new year? >> that is an interesting question, probably after the lunar year, but we definitely go through seven. i'm expecting parity with the hong kong dollar by the end of this year, and after that, we can crash all the way to a 25. stop you there, michael, do you think the pboc are going to allow dollar-yuan

to go to eight unimpeded? what makes you think the pboc would not fight back the kind of move? >> i'm talking about a two-year timeframe. if we rewind two years, weaker than where we are now. if we project for two years, fx reserves will have evaporated entirely if we continue the current trend. powerful, but i don't remember them controlling gravity. manus: there are many things they can't control, donald trump, federal reserve two small items. ripping through the fx reserves, are there alternatives. , barring inhibor the swaps market, or do they let it go? borrowingf all, the

is going on. we are not seeing it at the moment. it is on the balance sheets of chinese state-owned banks come off book for the pboc. the trump argument, there is a good chance that if we get a trade spat, they will let it go. why not respond with a weaker currency to counterbalance that? it gives them a perfect scapegoat to explain why they had to let it go. iny wanted to happen slowly a controlled way, or someone to blame if they have to do it in an uncontrolled way. the currency will get weaker, so the question is how week and how long it takes to get there. anna: what about the growth target? 6.5%, six .7%,at where ever the range will be, do you sense that is the holy grail that it has been or is there

some sense of letting deco a little bit? it has taken a monumental amount of steam is. >> that is true. we hear noises that they are prepared to revise that growth target down, but it has not then reduced fast enough. you name one other major economy in the world that has a growth target like that. you can't run it economies like that. if you could, everybody would be doing it. manus: the comments this morning, there's a wonderful line that talks about china having to decide which poison to take. do you think 2017 will be the year of where we see some grey swans, active bubbles, overcapacity, taken out of the market to set china up for the longer term? >> there is a possibility it will be this year.

the bigger risk is on the currency while they try to maintain everything else as is. the longer we don't see that happen, everything will be infinitely worse in 2018. the sooner they act, the better. anna: thank you for joining us, michael. michael every at rob a bank. anna: great to see you. how big of a worry is china for you? relative to other words you have for 2017? >> that was an interesting view. it is a worry. it is expensive to short the chinese currency. needs tonth forward go beyond 720 before you make any money. the other thing is the trade

weighted concept they have introduced, so the chinese yuan has been strong versus emerging-market currencies. we spoke about the dollar rate. we do want a weaker currency. they are managing on a trade weighted basis. worry. not the big the big risk is trade more, china let's the yuan go. china normally has a trade surplus, putting upward pressure on the currency. go, itf they let it all would not sink that far? >> the trade surplus will balloon, then you get trump saying currency manipulation. manus: what good would it do the chinese? the reason i interrupted our currency go like that, look at the global ramifications in 2015, that the

market had when they devalued in the summer, the propensity to get to eight over a two-year. , is that outlandish, possible? >> it's certainly possible. it's good to see some views, to be fair to rabobank. manus: the chinese have adjusted the trade weighted value. they have adjusted the percentages in terms of how much the dollar holds in the basket. already trying to mitigate some of the fed impact, aren't they? >> that is right. we are talking about a bad year for financial assets, the scenario painted there where you , even obama had tariffs last year on canadian steel, chinese steel, early in the morning, but some con of

trade war with a weaker currency scenario is a very bearish scenario. anna: thank you very much. manus: coming up on "daybreak" higher, but not necessarily faster. why robert kaplan says it is time to move rates up, but warned against rushing the pace. that interview next. anna: theresa may indicates the u.k. will leave the single market, suggesting that immigration seems to be the priority or she promises more detail in the coming weeks. manus: the pound dropped 1% on the back of that news. the autossure on sector as carmaker's gather in detroit for the annual auto show. we speak to the ceo of rolls-royce live on "daybreak". this is bloomberg. ♪

anna: welcome back, 6:20 a.m. in london. >> thank you. newung electronics hit a record high after posting its best operating profit in three years. they are writing point demand from china. the business has proven of thent to the loss galaxy note 7 after the device bursting into flames forced it to withdraw the handset. donald trump facing pushback against his america first policy , putting pressure on the u.s. auto industry to stop making cars in mexico and bring jobs back home. motors ceo mary barra says she won't change production plan simply because the president-elect sends critical

tweets. gm is shifting production of its compact suv from canada to mexico. barra's firstry interview of the day from the north american international auto show at 1:40 p.m. u.k. time. invest inler is to the united states, pouring $1 billion into a plant in ohio and the jeep expanding lineup and adding 2000 jobs. fiat chrysler says it will include the dodge ram truck currently produced at a plant in mexico. that is your bloomberg business flash. thank you very much. let's reflect back to friday and what it means for markets, a strong end to 2016 for u.s. labor markets. a year that saw gains of 2 million jobs. anna: average hourly earnings jumped 2.9%, the most sense 2009.

workers in every category saw paychex rise from november. robert kaplan said he supported raising rates this year. funds rateigher fed in 2017 will be more appropriate, and the thing we will be debating as the year goes on is the rate at which we should be removing accommodation, but the sep that came out gives you a sense of where we are, give you a sense of my views, and we should be removing accommodation. i think we can do it in a gradual and patient way. us herer. kaplan giving views, a voting member on the fomc. london, member from vicariously on the fed. >> we do and fast. one of the standout

charts you mentioned and that we come up thes wages most since 2009. that is a strong average hourly earnings. 5.think the #503 does that correlate with what robert kaplan is saying, wages are getting a burn under them? >> payroll is in line. the key number was this one, the average hourly earnings, trending upwards, higher than expected, so this is clear and kaplan put it well. the dollar is doing part of this, but there is no doubt that rate increases will calm, whether you use the bloomberg wirp function to look at the probability of fed hikes, i think we will build in this quarter closer to 100%.

is on it minute by minute. are you expecting a structural change in the fed by donald trump? we got a story on the bloomberg talking about economists that fed watchers have suggested in the people whobe get the nod under donald trump and suggest that monetary policy has been to lose, too long, trying to tackle problems in the u.s., and monetary policy should not do that. >> he is unpredictable, as we in a low we have been inflation, low wage growth world, so there are reasons why rates are lower. imagine a world without central banks. rates would still below in excess of savings, so it is a mini up cycle right now.

you could argue the global economy needs higher rates. i wouldn't be surprised if he brings in someone completely different, because the fed is doing the work for him, increasing rates gradually. if you look back at the history in terms of when we get into trouble in terms of the economy, it is usually when the fed titans too much. manus: we know that tightening is already happening. you expect a huge move in the dollar? isry summers says momentum nowhere near as high as it was in the 1980's. >> not necessarily. if you look over history when the fed has tighten, 1990 four, it has not always been associated with a strong dollar, so not necessarily. it is not all about rates. thet was all about rates,

swiss franc would be the world's weakest currency. anna: thank you very much place to leave the half hour. is the trump trade unwinding? we will talk more about that. this is bloomberg. ♪ with the xfinity tv app,

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strong and secure. good for a door. and a network. comcast business. built for security. built for business. manus: it has just gone 3:30 p.m. in tokyo, risk on, momentum in the markets this morning. it has just gone 6:30 a.m. in london. onew edition of "daybreak" your terminal, bloomberg, and mobile. the top story, something that anna and i will deal with later today. it is this, closed for business, chaos, the strike across london, underground workers went on strike yesterday after unions rejected the last minute offer to a third a 24-hour walkout.

they began leaving their posts at 6:00 p.m. yesterday afternoon. those setting off, good luck. roads weren't too bad at 3:05 a.m. in the morning. nigerian militants said they plan to resume attacks on facilities because the state is not ready to negotiate. access to some fields are being blocked. the price of deadly ti, down .5%. manus: one of the biggest moving , allts, cable 12195 attributed to this, "daybreak" focusing on theresa may's interview, denying her plans were muddled, saying she would unveiled the details in coming weeks, but told sky news that no

plan was drawn up by david toeron, and she needed assess the situation to work out how to act when article 50 is invoked. i think it is this, she toimated that we are ready leave the eu, re-gain control of our borders, and that does not mean a piecemeal agreement. anna: let's check the markets and talk about the pound and a market. guy johnson has some charts this morning. guy: good morning. we will come to the pound it the moment. up,pe opening here, ftse why? it is the pound. manus was mentioning what is happening in the yen this morning, watch out.

if this is a double top here, dollar-yen, then watch out below, 55 day moving average, the technicals getting interesting and dollar-yen. the pound story, 1.22. these are the candlesticks to mid december, a 1.2 to hold their, their, keep an eye on that technical move. i think you could see some interesting action surrounding this. there is politics, but technical factors as well. bitcoin the other one to watch. the overnight deposit rate in the terms of offshore, this is what we are seeing in terms of bitcoin, coming off again, the chinese government intervening in the market and having a big effect, so markets, you are right to focus on the pound, 1.22 is an

interesting level. the next hour will be fascinating for sterling. manus: absolutely. anna: we are at 1.2195 right now. manus: commodities, gold, arising situation, warnings on equities, a correction. yousef is selling by with the stopping by with the latest. yousef: when it comes to the gold story, confirmation hearings, more voices telling us that valuations are getting too high, too fast, and one of them is larry summers, saying you're not pricing in enough trump risk. chart, itther this starts when donald trump gets elected early november, some other precious metals, and if you wanted a trump-proof

precious metal, you would not have bought gold or silver, platinum. you would have wrought palladium , 16.7%. the irony is that hedge funds cut their positions for the eighth straight week in gold as that rebound was extending. why is palladium on a tear? do withit has to stabilizing u.s. car sales and the improved outlook in china. manus, if you're going to pick up bars, is palladium bars. fors: if i'm in the market anything of value, but more than sterling. anna: keith manus away from the slot machines. thatsa may has signaled regaining control of immigration

and lawmaking are her brexit priorities, even if it means leaving the single market. the u.k. prime minister said we will have control of our borders , laws, but still want the best possible deal for u.k. companies to be able to trade and and with the eu. manus: meanwhile, the pound under pressure, breaking the 1.22 level. we are potentially moving into a new phase. ,he market has the hallmarks now the prime minister, not an ambassador, the prime minister. -- are weyou have per fad moving towards a harder shaped brexit? >> it looks like it. ofple want control immigration, so that is the priority, but there will be a transition. transition, europe once

wants money, so hopefully that will see us through. like many things, when we trigger article 50, maybe it will be discounted. we are feeling lonely as sterling bulls. anna: let's talk about that. we worry that we are wrong. you always have to be humble. sterling, ituying currencies. it's not just about the dollar. it's a bit like china. manus: what flips the sterling trade around?

is it that flips sterling, the proclivity to the upside? >> it is a good question. sometimes it is just time and becoming old news. if we look at currencies and what works, what works is mean reversion, especially sterling. whether that be the big mack narrowso based on that piece of data, it shows how undervalued sterling is, but there is a degree of mean reversion. the timing is difficult are the u.k. economy like the global economy is very strong. i don't know if you can show this, u.k. retail sales. anna: mean reversion, does that work with such political dislocation? it has historically work,

regardless of politics, but you have to worry. we always worry that we will be wrong. maybe this time the politics is so big that we can be wrong and sterling will be undervalued materially for many years. anna: maybe it will be the same. manus: maybe it's a natural overhang, a stock overhang in the market, just a political overhang that stays there until you do a trade deal. , my fees areout card got a smashing over christmas. this week will be a big week. are.we the consumer is strong. we are barring. will we continue? cards,owing on credit but not like in previous booms to buy houses. mortgage borrowing is still

under control. manus: that worries me more. anna: to a certain extent, you are right. >> the u.k. economy is strong. if you look at the graph and think the u.k. needs to raise ines like in the u.s., back 2000-2001-type retail sales, and it's not just consumption, right? strong in the u.k., but strong globally. the overall message, we talked about the u.s. and the u.k., we are in a global upswing for growth. anna: there are concerns about inflation and what it does to the u.k. consumer. >> a mini upswing everywhere, including the u.k., but from a lower base. we are somewhat behind the u.s. so we have more time before we

raise rates. manus: i think we introduced you to this. >> no. we will share it. manus: ok. >> i am happy to share the love. manus: we are talking about the love panic index. tell me what it means. this is about timing, isn't it? a brave step where fools rush out from markets. are you brave for, foolish? you don't need to answer that question. >> this is a composite. one people may know well is the american association of individual investors, are you bullish or bearish? that is in there. the point being, you kindly and i havevery month been positive on markets through 2015 and 2016, and one of the

reason is is that if sentiment has been bombed out, then therefore it is in the price. the point being now that there is more euphoria. we are not at zero. we are not at 2012 levels of euphoria, but it is time to fade a bit because you no longer have on doubt sentiment in the market. sentiment ind out the market. once you have expensive ,aluations, a bit of euphoria trump euphoria, then we want to fade that a bit. anna: have you put on trump trades and are you fading goes? >> know the only trump trade is an old trade. when we were talking about sterling, made me think about the ruble, we bought russian equities and russian dollar

bonds, which proved to be fantastic investments comes see could call that a trump trade. were looking at mexico. the mexico peso down 17%. .ou earned 7.5% on the bonds the world is starved of income. if you have 7.5% compounded over five years for example, because you have a lot of compensation for the further weakening in the mexican peso. will cover me% for a more pronounced move in the peso, which you think is incredibly stretched. >> earning 7.5% means the fall 5% or 6%an before you break even there. i think mexico looks very interesting. we would rather fade the trump euphoria. anna: it was like larry summers making the point, that because of the devaluation, that

increases the incentive for u.s. corporate's not in the spotlight the donald trump is shining. it increases the incentives for them to outsource to mexico. >> exactly. manus: where are we with southeast asia? indonesian and a nich shares soaring. it is a fascinating move given the hawkish fed, the kaplan comments, the momentum has taken on a new momentum. some people seeing these economies more resilient. >> they are out of the spotlight, but going back, there boom.ini global economic any pmi from russia come in u.s., australia, japan, we are seeing a mini boom, and southeast asia does well in that

environment. manus: that was there. >> we had a global manufacturing upswing. we looked at consumption earlier , very strong, nothing to do with trump. the global economy is strong right now. anna: thank you so much for your time this morning. coming up -- push to unify,e the conflict that has divided the island since 1974, live in istanbul. anna: china's foreign cash prior dwindles, reserves fall as the yuan saw it steepest annual slide in more than two decades. manus: driving rolls-royce. we talked to the ceo of the luxury carmaker in just under 30 minutes. this is bloomberg. ♪

anna: welcome back everybody. this is bloomberg "daybreak europe". it is 2:49 a.m. in hong kong, that's where we find juliette saly. juliette: thank you. samsung electronics hit a record high after posting its best operating profit in three years. the world's largest maker of phones and memory chips is writing demand from china for semiconductors used in mobile devices and computers. the business has proved resilient to the loss of the galaxy note 7 after reports of devices bursting into flames forced it to withdraw the handset. donald trump facing pushback against his america first policy . he has been putting pressure on

the u.s. auto industry to stop making cars in mexico and bring jobs back home. said sheary barra won't change production plans because the president-elect sends critical tweets. gm is shifting production of its compact suv from canada to mexico. you can see mary barra's first interview of the day from the international auto show. meanwhile, fiat chrysler is to invest in the united states, pouring $1 billion in two plants in ohio and michigan, expanding the jeep lineup and adding 2000 jobs. fiat chrysler says the plan will include the dodge ram truck currently produced in mexico. latest installment in disney star wars saga topped china's box office during its opening weekend there. made $30 million in china since friday, but that is a third less than last years

the force awakens on its first weekend. rogue one teacher's prominent roles for two chinese actors, but faces competition from the romantic comedy some like it hot. you very much. now, politics stops the agenda, talks on reunifying cyprus, which has been divided since 1974. negotiations broke down in november over territory. turkish president erdogan joined by the greek and british prime minister's, depending on how much progress is made towards the deal. been following this story, talk us through the political indications for turkey. on island deeply divided for decades, cyprus's resolution could be a rare foreign policy win for president erdogan. p turkey's eu

membership bid at a time when eu relations are strained, that after the failed coup in july. greece and the republic of cyprus are both eu members, and they have been opposing turkey's years, sohip bid for a resolution could change that. turkey once a deal, but not at all costs. the sticking point is land, how much and which land to give up, and how much security. tokey wants its troops remain on the island two guard turkish cypriots. tosident erdogan is unlikely make concessions at a time when he is trying to consolidate power at home. manus: what does it mean for the turkey.of th there is rapprochement with russia, so what does it mean economically for turkey?

the currency, another record low on dollar-lira. >> that's right. a cyprus deal would change the region. it could create an energy how of , which would be hugely beneficial for turkey and europe , for it to be able to use the gas deposits discovered in the eastern mediterranean. turkey is a huge energy importer, so this would help financially and economically. anna: thank you very much. our guest into the conversation. heater, thank you for joining us. lots to cover, broad investment themes. starting in the detail, the situation in cyprus, you have experience in the region. this has been decades in the making. >> it has. it is fascinating to watch. everyone., for

the north is massively underdeveloped. the island as a tourist island. it is what it exists for. it is more of comment on rapprochement. i think europe would be greatly relieved. it is an eyesore for them. anna: does this have implications for turkey wanting to join the eq? u? >> i think they have never been further away, alas. manus: it comes down to strangely enough oil and gas, not independence for europe, but less dependence on russia, possibly? >> yes, there needs to be a longer-term strategic perspective on how europe deals with its energy issues.

solar, and other things to deal with the problem. for turkey, it is a fibrin, young country. if you look at europe, it is an old demographic. there's lots of reasons to want to embrace turkey economically. thes: let's broaden conversation. europe, as you say, old, not dying, not that bad, but what are the implications for europe as we look at 2017? 13%average estimate is a profit growth this year. the worlduest saying is brighter. do you share that? mini boom is at all wrong. everyone is going at the right

pace, regions ticking along nicely. europe is having a recovery from a challenging time. dividend,the trunk let's see how long it lasts. the euro is weaker against the dollar, a good tailwind. it will help earnings. the pm eyes have turned around -- pmi's are higher than they were. is that a consensus? no. , policy could change all that in 2017. , marine le coalition pen cannot get in mathematically. noise, but howof much is tangible, i don't know. anna: thank you very much. pete stays with us. manus: carmakers gather in

detroit for the annual auto show. ceo,ll speak to one rolls-royce. this is bloomberg. ♪

manus: how weak will the yuan get? the offshore continues its held above $3 trillion. anna: monetary policy would be tighter. u.k. prime minister theresa may signals control over immigration is her top priority. ♪ manus: welcome to bloomberg "daybreak europe", our flagship

morning show in london. anna: some breaking news, german industrial output. 0.4%, the estimate was sluggish, but underlining the signs of economic recovery in the german economy. this follows data published last week, germany's economy finished 2016 and fine fashion. unemployment was moving in the right direction, inflation, still record increases to 1.7%. we had the elections looming on the calendar, so we will see how they cope with that. angela merkel still seen as the favorite there. manus: some words from our , resurgence, have a look at futures.

positive start, london up, cable and year old-sterling in -sterling in focus. a nice move on equity markets. we're looking for a brighter start to the trading day. have a look at that. anna: throw up the risk radar. we talked about libor, coming down dramatically, the shorts squeezed as the pboc made life difficult for them. today, at different story, back to last year, stronger dollar theness, weaker against dollar, 6.8, now testing that 6.9 level. we have the fx reserve numbers. mention the pound. there it is, 1.2185. manus: teresa saying she is

prepared to leave the eu to win control of martyr borders. a break of 1.22 was the critical level for the market. look, it is very oversold. in his view, it was oversold. were talking, had a conversation about whether the structural changes in politics in the u.k. mean we get to mean reversion on the pound. this is the s&p futures, up by .1%. touched all-time highs at the end of the session on friday, 10 year german bunds on the move. manus: let's get your first word news, across to, let's do it ourselves. anna: we will talk to you about

mcdonald's, agreed to sell 80% of its operations in china and hong kong to a consortium, including citic and carlyle group. it includes mass franchise rights tied at $2.08 billion. ke a 52%l jointly ta stake at citic. tightry policy would be if they were in charge. glenn hubbard, john taylor, kevin walsh criticized the central bank for trying to do too much to help an economy struggling with problems that monetary policy can solve. the three are seen among candidates should president-elect trump decide to not nominate janet for another term. senior republicans have warned donald trump that he faces a risk with members of his own party if he does not punish moscow for hacking the u.s.

election campaign. graham said he and senator john mccain plan to introduce legislation for tougher sanctions against russia. he said the measures would hit the country in the financial and energy sectors "where they are the weakest." meanwhile, boris johnson has met with donald trump's advisors. sessions involved steve bannon and jerod kushner. johnson then traveled to washington to visit congressional leaders. the trip comes as britain looks to build ties with the incoming administration ahead of the country's withdrawal from the european union. aiib remainsde a i i open to the u.s. joining, that bank'smessage from the president, speaking exclusively to bloomberg. open, andr is flung

the door will remain that way. occasionst on many that regardless of membership of the united states, we can work well together. anna: workers in london facing a tough journey into work as thousands of underground workers are on strike after their unions rejected a look last-minute offer to him for a 24 hour walkout. commuters have been warned to allow extra time to travel. the tube carries on peak days 4.8 million passengers. let's get up to date with the markets, global news powered by more than 2600 journalists and analysts and more than 120 countries. let's get up to date with the markets. juliette saly has the latest from hong kong. juliette: it has been a mixed take sure for asian equities to kick week. japan closed for a public

holiday. shanghai just finished, up by .5%, so a positive reaction. we did see that drop in fx reserves, but nothing the market was unprepared for. ,e saw the hong kong hang seng trading up .1%. solid, andks looking a big rally in energy producers. we have seen that oil price come off the three delly rally in the asian session, but still support for producers, particularly australia. the asx closed out higher by 1%. market a market in bull territory, higher every single day so far in 2017, weakness from southeast asian markets, that dollar strength story weighing there. some of the big movers watching today, sam sun hitting a record high today, then that positive

movement from the energy producers. hasother big story in asia been this movement in currency markets, still seeing this depreciation from the offshore yuan, down by .4%, taking the they drop further. the most since june last year, so we this and that currency. anna: volatility there. thank you very much. staying in asia, let's talk about china, the foreign currency holdings fell for a sixth month, a five year low, just over $3 trillion. the fall comes at the pboc at thames to stabilize the yuan. for more, let's go to our beijing and bloomberg chief asia economists. what did we learn, the fx reserves holding their head just

above the $3 trillion mark. >> that's right. china has succeeded in studying, but not stopping, the outflow of capital from its economy. the second half of 2016 was a story of escalating capital outflows. what we saw in the december date to that came out of or the weekend is that capital flows continue, but they have stopped getting bigger. for: is the worse over china's capital outflows question mark big question for 2017. -- capital outflows? bothere are forces in directions. one factor that should drive more outflows at the beginning sf the year, chinese household have a $50,000 quoted that resets in january. we will see a lot of households hungry for dollars at the beginning of the year. direction,the other

china has taken measures to stabilize the currency, put up barriers. our view is they have probably done enough. the long-term story remains negative, but in the short term, we will not see an escalation in capital outflows. anna: thank you very much. peter is still with us on "daybreak europe". manus is gone. he has disappeared. he is off doing important work. let's talk about china, peter. we are witnessing this volatility in january. we saw this last year with slightly different dynamics. how week do you think the chinese currency gets? >> domestic investors wish to diversify, but the corporate accounts also flooding money, so if you look at the headline level, there are corporate

accounts and lots of money flying out from the corporate side of china as well, so a dual pressure going on. the more it looks week, the more it gives trump the opportunity to use a word like "manipulator." anna: yes. as donald trump has alleged. manus: that anti-globalization and anti-automation comment as much as it is about china, that comment. major threats is that continued dollar rally. that is the real challenge. they would not be a positive outcome for emerging markets or emerging market debt, but at the moment, the main pitch is dollar. there is a huge desire to buy u.s. dollar-based assets. that is verynd visible and has been going on

for six months. anna: sticking with the china theme, international investors spent time and effort trying to open certain markets to international money, bond markets, stock markets. these capital controls, individuals and the amount of money they can take out of china, or companies and what currency they have keep their money in. what do you make of all that? >> two steps forward, one step back. if you want to see the epicenter of the challenges people face where they analyze chinese debt, the chinese corporate bond market has been week. -- weak. dollar a warning sign, rally, corporate chinese bond market, it is an example. is an example of a concern, one of those things you

need to be nervous. it's going to cause deflationary policies, and that's the other problem, consumer price inflation versus customer inflation. anna: how does the tension between u.s. and china play out? how does it crystallize? we've had a lot of rhetoric from trump. after he is and knowledge are rated come if he were to say that china is a currency manipulator, does that temp china to stop manipulating the currency, and the yuan gets weaker? >> i don't know if it stops them manipulating it. trump has made a lot of promises to blue-collar workers in the u.s., most of which can't be realized. buttweets may be one thing, running a country is another thing. then inoment, he has his sights because people voted for him and want to hear that story, manufacturing is coming

back, and the u.s. can be great in this area, but there is a globalization of fact that is been going on for over 40 years. anna: we ran out of time in our last conversation about your investment strategy around europe. despite politics and all that, you think there is reason to reinvest in europe. >> if you buy the idea of a by valueclical upturn, stocks, japan, europe, the market you buy in the belief this is a little bit of an upturn. i do not think it has got legs, so if you want to play, play in those spaces and go cyclical. the anomaly value versus current value stocks have further to run, mining, energy, and banks. thank you. a nice place to leave it.

i mentioned that manus has left the building to do important work. this is where he is. manus. are 4011 more owners of them, rolls-royce, up, what does the ceo torsten muller-otvos have to say about the markets. who is buying and more, straight after the break. ♪

anna: welcome back. this is bloomberg "daybreak europe". suggesting up by .3%, good company. let's get the bloomberg is this flash. here is juliette saly. you.tte: thank the fbi has arrested a former

volkswagen executive who faces charges of conspiracy to do from the u.s. in relations to the emissions cheating scandal. that is according to the new peoplemes, citing two with knowledge of the arrests. it says the man who read the regulatory compliance office in the u.s. is expected to be arraigned today. the paper said the vw, fbi, and doj declined to comment. donald trump is facing some pushback against his america first policy. he has been putting pressure on the u.s. auto industry to stop making cars in mexico and bring jobs back him. gm's maryborough says she wants and production plans and the because the president-elect sends critical tweets. she is shifting production of suv fromct u canada to mexico. you can see mary barra's first

interview from the u.s. auto show at 1:40 p.m. u.k. time. the chrysler to invest in united states, pouring $1 billion into plants in ohio and michigan, expanding the cheap line up and expanding 2000 jobs. fiat chrysler says the plans will include the dodge ram truck currently produced in mexico. anna: let's head out to manus cranny, standing by with the rolls-royce ceo. manus: i am indeed. andy,e a special driver, take it away. are 4011 more owners of these cars than there were last year. ceo in thiso the magnificent car, torsten muller-otvos. the second-highest numbers on record, what caused a pullback

from the record? >> the middle east. due to manyast was circumstances, oil price, the economic developments in that area, also political unrest to a certain extent. the rest of the world was fantastic for us. manus: do you think with oil in the $50 range, it will settle things out for you? >> it might help. let's see how that goes. manus: talk to me about the dollar. the notes i'm reading are expecting a huge year in the u.s. the americas are still your number one market. are you still expecting a bullish year of this year in the americas? tremendousseen a year last year, some pre-election slowdown, where people are hesitant, not knowing what would happen, but now after

everything is clear, let's wait and see. i am quietly confident for a strong market and strong year in the united states. manus: japan up 50%. my question is how sustainable is that? >> sustainable because it is pure demand. it is ultrahigh end growth ,ndividuals buying luxury goods the u.k. has been tremendous for us, plus 25% in britain. brits love rolls-royce. that is for sure. it is sustainable. manus: you are a u.k. brand, owned by a german company, what are the conversations, your concern about brexit risks? is is readysay she to take us out of the eu. what are the conversations you are having?

gete are interested that we clear regulations. uncertainty is not good for business. i am personally fully convinced that we need to have excellent trade relations with other countries. 90% of rolls-royce's are exported worldwide, so what i am we stay inin is that the u.k., a customs union, that allows the free flow of goods, capital, and talent. manus: have you made that voice known? >> we have made that voice very known. i have written a letter to my staff in the beginning of last year to outline what our thinking is. we did not want to influence anything, but we had a perspective. ar perspective is commercially driven one and a financially driven one. manus: the finish inside this , costs,ot like my car

sterling down, aggressively push down, what are the consequences for pricing, for me if i want to pick up one of these, consequences for you in the pricing structure? a zeroom line, it was sum game because we are importing many goods, paying in euro when we import goods out of the european union, and that equaled up. that was not a big beneficial thing that the pound got weaker. manus: donald is going at the auto industry. what if anything, and this is conjecture, what if anything would it take you to do more construction in the united states of america if he came after rolls-royce? committed to building rolls-royce is in britain because rolls-royce is british, or british, and the brand is highly relevant for our wetomers, so for that reason

don't have any plans currently. let's see what the real outcome at the end of the day is out of these talks currently happening. we do business as usual, and business is normal. are quitenow that we a small drop in an overall ocean of automotive is this. a precious little drop, but small, and for that reason can't be a big issue. manus: torsten muller-otvos thank you very much. this is the first for me in the back of one of these little cars. i wish you well in the 2017. i will pass it back up to you. i don't know whether i can come back to on that hard seat first thing in the morning. i'm hanging out. anna: enjoying himself a little too much. manus cranny speaking to torsten muller-otvos. i'm surprised you got as far as you did on london's roads today given there is strike action on the tubes. manus, thank you very much. as ceo torsten muller-otvos

well. speaking of cars, dave will be live from the north american international auto show in detroit today. he will sit down with mary barra, bill fields, let's talk about what is happening at lloyds banking group. we've heard in the last half hour that black rock has replaced the u.k. government as the largest lloyd's shareholder. the first time since the 20 point 5 billion pound taxpayer bailout that happened eight years ago, lloyd's ranking largest shareholder is black rock. the u.k. cut its stake to 5.95%. the bank said that in a statement this morning. black rock, replacing the u.k. government. that does it for bloomberg "daybreak europe".

theres suggest wrong or at start of trade. the s&p closed at an all-time high in friday's session, so looking to build on that in europe. i will see a bit later on bloomberg radio. this is bloomberg. ♪

♪ guy: good morning. welcome to bloomberg markets. this is the european open. i am guy johnson. look who has decided to show up. matt miller is back in berlin. what are we watching this morning? hard brexit. soft pound. the british prime minister signals that immigration is her priority. how low will the currency go? pay day. more