anna: china inflation jumps. producer prices climb at their faster pace in more than five years. what ripple effects will this have on global price pressure. manus: boris johnson faces parliament today after philip hammond insists no decision has been made on the single market. angela merkel reminds britain that access requires the four freedoms. anna: risen grants says the economy is already running hot and calls for regular rate hikes. says the economy is already running hot and calls

for regular rate hikes. toa: a very warm welcome bloomberg daybreak: europe. i am manus cranny. china has gone from being the global deflator to potentially the exporter of inflation. 5.5% busting through expectations. and that is what is driving markets. negative real rates. what we have done is track profits of chinese companies with those inflation-deflation numbers. down goes inflation and the prophets. profits in china have risen by or 2.5% in november. is there more to come? have we reset the gears? anna: there is a domestic implication. to what extent does it reset the

inflation rate are globally. big debate in china as to what these numbers mean for the pboc. indid not see a big uptick cpi. let us check the risk radar. a 14ollar index hitting year high on january the third. things have looked differently, more sluggish in the last few years. manus: there does not seem to be an appetite in the market to build the dollar long. yellen will be speaking later this week. build the dollar long. rosencrantz is hawkish in his talk. he is talking about the unwinding of the balance sheet to. -- lowerifting loader yesterday. it all comes back to risk on or risk off. the dollar is not giving us a

boost in equity trade. anna: japan playing checkup. hong kong in the positive. a mixed picture in asia. u.s. equities suggesting we could be lower later. the oil price is flat, $52 work. big boosts yesterday. the biggest drop in more than a week. the big question is around the and whether it will stick to its production cost. manus: sterling. when may 2 was the big break in the market. 122 was the big break in the market. today it is 121. a huge trade went through. according to the data overnight. the market is setting itself up in protecting itself. anna: a lot to talk about

regarding breaks it. we have the bloomberg first word news. shery: president-elect donald trump's son-in-law is to be a senior but unpaid white house advisor. he played a leading role in the campaign and will work the chief of staff and chief strategist. businessivest from his assets. the statement from the team says he will be a tremendous asset. the yield a has become the latest major carmaker to offer assurances to its commitment to the u.s. in the wake of attacks by donald trump. the japanese company says it plans to invest $10 billion over the next five years. understand what the president wants to do. we agree with the president that we want to make america strong. we want to have good paying jobs. we want a good economy.

iat will help my business if am selling cars in a strong economy. volkswagen senior bycutors have been warned their lawyers not to leave the country. as u.s. prosecutors are set to be preparing to charge more high-level employees over emissions cheating. over the weekend, oliver schmidt was arrested in miami and faces charges of misleading regulators. the company says it continues to cooperate with the u.s. department of justice. yahoo! has announced sweeping management changes at it -- as it transitions to an investment company. marissa mayer and five others will leave the board. the board will be reduced to five erectors. the new company, a shareholder in alibaba and? japan will be called altaba. global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries.

you can find more stories on the bloomberg at top . this is bloomberg. manus: thank you. a lot to talk about in the markets. we saw a little gain in the msci. no appetite to sell e.m. this morning. what does that mean? juliette: it means japan has closed lower. the nikkei finished the session down 0.8%. japan was closed yesterday for public holiday. we so weakness coming through in the australian share market. of the year.s energy players are tracking on the back about 4.5% drop in crude in the u.s. session. otherwise, asia is looking good. we have hong kong leading the gains. the hang seng at a one-month high. this is a lot of mainland buying coming into hong kong equities. retail stocks leading the game

and casino stocks looking quite strong as well. the shanghai composite in late trade up by about 0.1%. some strong buying coming throughsome strong buying coming through from much of southeast asia. it did not fare well on monday.

>> outflows are happening from china. respect who knows where dollar-china will be in two years time -- this is a decision they will make. whether they let the currency go. >> i think they make peace with .hemselves they are in a structural showdown -- slowdown in china. that implies the appreciation of the renminbi. i don't inc. the pboc thinks the the pboc i don't think thinks the way it used to. manus: we have put some of the components together. here are some of the elements. oil and iron ore. oil up 52 per -- $52.

at what point does the bias from the pboc shift? when do we begin to talk about iris? -- bia? global pmiook at the manufacturing, they are hitting nearly three-year highs. and that implies that this increase in the commodity prices is likely to be maintained. thisit tells me is that reflation story we are talking about over the past four or five months does have a significant backing from aggregate demand. now, it may-- right seem quite premature to talk about tightening in china but if things pan out the way they seem -- i think it is

conceivable that we will start talking about potential tightening later this year. anna: we will have to watch the cpi number. we will keep an eye on that. thank you very much. program -- the manus: taking brexit to berlin. philip hammond embarks on a diplomatic push ahead of formal talks. latest addition to team trump. his son-in-law will be a senior white house adviser. manus: reframing the debate. the boston fed pushes regular rate hikes but can he convince colleagues to start a discussion on reducing the rate hikes.

this is bloomberg. ♪

anna: welcome back to the program. this is bloomberg daybreak: your. a lot of hong kong for you. a mixed picture coming in from the asian equities session. britain plays catch-up. hong kong department store operator in retail has soared on news that alibaba and others want to take it private. the offer of 10 hong kong dollars a share. it is alibaba's strategy to integrate with traditional bricks and mortar stores. blackstone group is no longer in talks to buy a $5 billion stake in essence owned by energy transfer powers. the discussions fell through after the wall street journal reported them last month saying if i percent jump in energy transfer partners shares in the

wake of that report hurt the economics as a potential deal. carlyle group is preparing to fund inu.s. real estate the first half of this year. they say the washington-based private equity firm is planning to target $5 billion. it would be part of its plan to in the00 billion dollars next four years. a representative of carlisle declined to comment. that is your bloomberg business flash. manus: thank you. ok, it is all about brexit. reiterated heras position on the future of the u.k. within the european union. in her first tell speech of the year she said aiming to maintain good relations with britain does not mean caving in once brexit talks get underway. we need to be clear that the entry to a common market can if the four freedoms

of market access are adhered to. otherwise, you need to settle for less. negotiations cannot take the form of cherry picking or this would have fatal consequences for the other member states and such consequences we cannot let happen. anna: speaking after a meeting with the irish prime minister, philip hammond insisted no decision has been taken on britain's trading relationship with the eu. manus: that was not enough of a reassurance for the fx traders. the pound is weakening for a third day after may's first tv interview on sunday. anna: on the pound, what is built into the pound at the moment in terms of the u.k. relationship with the eu? yesterday, we saw what was adely interpreted as signs of

harder brexit from the u.k. government. a negativeets taking view of the u.k. leaving the single market. is that what is built in here? are we treating around signals regarding the single market? >> currently, sterling is trading in pricing that is focused on brexit uncertainty. what i think is more likely to happen is that we will see an increase in volatility because right now, sterling has dropped close to the previous lows we saw in october. but volatility has yet to increase. i would expect this to catch up a little bit. --a: hard or soft right fit hard or soft brexit? because infficult

everyone's mind, it could be that soft or hard brexit mean different things. a complete means breakdown in relationships. maybe. or it could be an exit from a single arc it through a transitional process that is smooth. market right now the senses the following. the eu has had a consistent attitude like markel. they are back and forth, backpedaling in the u.k. that agility and creates uncertainty in the market about how it perceives the uk's stance and this will penalize them. theresa may's speech in the autumn, sterling was down again. this is volatility.

we are still nowhere near the volatility of the morning after brexit. what does this chart tell us? do you load up? do you buy volatility? people are talking about the propensity for a cliff edge. >> i don't know if we will go higher than the morning after brexit but i am confident we will see a sharp increase in volatility in the next few weeks and i expect that largely because the signals i'm getting from the government are confusing. and to a certain extent they contradict themselves. when a market sees that, there is no consistent view, the market tends to be volatile. anna: is that muddled thinking or are you keeping your cards close to your best? vest?ose to your bes >> so far, experience tells me

it is not. i think the likelihood that it is muddled is quite good but i am always willing to keep an open mind. strategistike a fx with an open mind. 1991, that was the low. aes the cliff edge takes --take us back? it could happen in the next few months or even the next few weeks in the sense that i think there is a decent chance that we may retest the previous highs and there is a risk that we could gravitate higher than that. the reason i say that is because i think the market is losing the appetite of being short in europe. that is the dollar discussion we can have later. but at the same time, you have

upside surprises coming out of the eurozone that does have its problems but not the uncertainty of brexit that the u.k. has. there is also likely to be a a lot of reversal of flows. will the u.k.-u.s. relationship distract from some of the negatives surrounding brexit? >> i have no doubt that at some point it will but i do not think we will reach that point in the next few months. manus: philip hammond went to ireland yesterday. this is probably one of the most important viral -- bilateral relationships. if they do some kind of deal with the republic of ireland. from aifts the tenet trade element. anna: it suggests that you have

left the customs union. if that is possible. >> things are relatively simple if i look at the fundamentals goinglf of the trade is to the european union. will bethe u.k. successful at forging relations with other countries but these things will not change overnight. the reality is that the eu is by far the uk's largest trading partner. the important thing is not exporting manufacturing but services. and this is what the u.k. has been utilizing for the past decades. and this is not going to change overnight. anna: q i so much for your thoughts around the pound. manus: oils overnight drop. crude slides. all ahead of the u.s. data. will the stockpile outweigh opec

cuts. we are live to do by -- we are live to dubai. this is bloomberg. ♪

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♪ 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. anna: welcome back. this is bloomberg daybreak: euro. dollar against the yen. we are seeing quite broad-based dollar weakness coming into trade this morning. the dollar yen on the screen. moving around 0.5%. the dollar it self down 0.3%. a new edition of bloomberg daybreak is available. here are the top stories. manus: it is all about china. we have been covering it for the first 30 minutes of the show. china factory pbi jumping the most -- 5.5%. beating the estimates for the

fifth straight month. a shifting of the gears as far global reflation potential and propensity out there. that is a big issue. history shows that it is only a matter of time until we see consistent price increases in china and they show up on the doorsteps here in europe. we are already seeing the likes of that here in the uk. global reflation rate. anna: philip hammond's european tour. he has been dispatched to smooth the brexit process. berlin to attend with angela merkel and the european parliament president. manus: daybreak focuses on bw. the automaker top executives have been warned by lawyers not to leave germany. that as prosecutors prepare to

charge more high level german-based executives in the emissions cheating case. the arrest of oliver schmidt in miami caught many executives by surprise. play on daybreak. anna: breaking news on the german retailer, metro. the sales numbers looking a little light. first-quarter sales, slightly below estimates. q1 up by 0.1%. the german retailer says this was a solid christmas season amid a challenging market. christmas fell on a sunday providing a healthy increase in trade. -- thepany come forming company confirming its december

outlook. this is a business trying to take the high road i am informed by my bloomberg intelligence high roads. outlook. trying to reposition its rent. brand. pies didw many mince they sell. let us talk about where the equity market is going to go. called broadlyes higher this minute. the ftse 100 was a standout. you can see the story really very clearly in a number of that classes. this is the dollar in gold. this is the picture we solve. we solve this crossing after the election. we are closing the spread. that interesting to see trade playing out in gold versus the dollar. this charge is interesting, the commodities boost in the ftse 100. the fx strategy -- story is

playing large there. this is the ftse 100. the blue line is everything. stripping out the commodities and this is the rest of it. the stub of the ftse 100. you can see the big difference in terms of performance. the commodity story is a big part of the ftse story and then you add in the sterling trade. it is not just cable rate. it is a cross the cross-ice. look at the british pound versus the aussie dollar. this 122 level will be interesting. we had holds there. it will be interesting to see if this one becomes topside resisted on the cable trade at 122. watch it that carefully. oil: you mentioned the price.

the implications of a higher oil 100. whether it is on ftse 3.8% ahead of u.s. stockpile data out later today. what are investors watching for? good morning to you. that drop in oil price is the biggest drop in five weeks. it through may straight out of bed. the inventory data. we are looking to the eia figures. let me show you this chart and why this is so important. u.s. current inventories. the story tells you there is still a lot of oil in the system. what i have also done here is the line in white for additional context. this is your opec daily output. you can see the drop at the end

as opec agreed to take oil out of the system. freezes and the cuts. on the other side, providing prices is the ongoing implementation, the execution of the opec agreement. standard charts putting out information on nigeria and libya. even if they return with momentum, it would not affect the oil market balance as it stands. the kuwaiti oil minister is saying opec is abiding by its agreement and he is optimistic that it will be finalized in the next six months. manus: thank you. for more on the commodities and the emerging-market currencies, let us bring back our unicredit colic. andalked about iron ore oil. 50% rise in oil. 98% rise in iron ore. you are convinced that the

commodity moves may well out trump, trump. into 2017.ly a month are you still convinced by the commodity move? >> yes. first of all, i do not subscribe to the story that this in -- started withme donald trump. i think it was in train way before that. and the commodities seem to have bottomed out in early 2016. and at that point it started the uptrend which tells me there is something more sustainable about this. when i look at the early indicators of activity and i alluded earlier to the pmi numbers, there is a widespread improvement. it is not confined to the u.s. it involves japan, consumer

confidence has improved their and we will see a consumer uptrend there. euro area numbers are beating expectations. even the u.k. is beating expectations. reachingnumbers expectations and you mentioned china. activity is likely to be more resilient probably then what we expected in 2017. i don't know if commodity prices will continue to rise at the same pace but i think they will be sustained at higher levels. anna: what drove that? if this predates donald trump then was it recovery in oil prices, a little bit more firmness in commodity prices that were stored a little bit of that normalness? bige are coming out of a

timeframe of massive stimulus. i think last year we also started seeing the first evidence that there may be a , changenot significant in fiscal policy. this will improve confidence and when that happens, people itsume and invest more and contributes to a nice feedback loop. manus: this is year to date. worst performer on the emerging-market basket this morning. we have a nice start of the day. another record low. down for the fourth low -- fourth day. turkish lira, robert -- battered

and bruised. short-term, i think it will get worse before better. it is extremely difficult to say. we could even get to four. it is not our central scenario but it is a risk. the reason for that is the past few months we have had a perfect storm. you have idiosyncratic political uncertainty. sensing have people that the central bank has been compromised. and you have an increase in global yields and an increase in oil prices. you are getting pretty much everything that can hurt turkey -- it is all falling into place. anna: as well as the other problems that turkey faces. this is a country that does not

like when oil prices go higher. canadian andut the the russian ruble in the mix. krone is oneian that is likely to benefit, not just because of oil prices. we are reverting to a period where people will reassess monetary ellis he implicate -- implications. at the same time, the commodity affects a complex. i think i prefer the aussie because we are seeing meaningful normalization in the data in china and it has a material exposure to china. bloce whole, the commodity will benefit this year. manus: there is a debate. trumpre to get into tower. the debate in canada -- we do

not know what the terrorists situation will be but what we do know is that oil is up 50%. things on thetwo scale. the price of oil and commodities -- will they trump trump? >> you do not only have the oil prices which is a boon for the canadian dollar. thatave the fiscal boost started at the beginning of last year in canada. at the same time, it is fair to say that recent evidence we are getting from the labor market is very much encouraging. the mix has started shifting in favor of full-time gains which is very good. the unknown right now is what happens to the trade agreements with the u.s. the unknown is donald trump. that is the reason why the canadian dollar has not rallied as much as one would have expected with the oil price.

really turnhings out to be very bad, i would expect material appreciation in the canadian dollar this year. anna: thank you so much. coming up -- manus: another player for the team. president-elect trump's son-in-law is to be a senior aide in the white house. fed presidenton calling for more regular rate hikes and urges his colleagues to talk about reducing the fed's balance sheet. manus: good china's biggest export the inflation? prices rising at the fastest rate since -- in five years. his bloomberg. ♪ -- this is bloomberg. ♪

anna: welcome back. over in new york, it is 1:46 a.m.

the early look at the features suggest we could be a little bit weaker at the start of trading. coming off the all-time highs on the s&p earlier on this month. let us get the bloomberg business flash with juliette saly. listede: hong kong department store operator has sold on news that alibaba and others want to take it private. the offer of 10 hong kong dollars per share now use the company at $2.5 billion. it is alibaba's effort to integrate with bricks and border store. in discussionsot anymore. the discussions fell through after the wall street journal reported them last month. 5% jump in energy transfer partners shares in the wake of the report hurt the economics of the potential deal. carlyle group is preparing to raise and eight u.s. real estate

fund according to people with knowledge of the matter. they say the washington-based private equity firm is planning to target $5 billion. it would be part of its plan to raise $100 billion and the next four years. a representative of carlisle declined to comment. that is your bloomberg business flash. manus: it has been confirmed that kushner, the son-in-law of donald trump will be named as a senior advisor to the president. for a preview of what you can expect, we have kevin. >> president-elect donald trump announced his son-in-law would be a senior adviser within his white house. it comes just more than a day before donald trump will give a press conference where he will discuss how he will divide up his business assets in the trump organization and his new administration. meanwhile, on capitol hill, boris johnson met with key

republican members of congress including paul ryan and kevin mccarthy. comes as donald trump's political appointees to his cabinet are set to begin their confirmation hearings this week. theuding reqs tillerson, former exxon mobil ceo who donald trump has chosen to be his secretary of state. speaking of the u.s. and the central bank, can increased interest rates. they have differing views on the pace. the atlanta fed chief dennis lockhart is taking a more cautious approach while rosencrantz says three is reasonable. if we are close to where we want to be for inflation and unemployment, we should have an interest rate that is more normalized for those kinds of conditions. that is why i supported one in september of raising rates more quickly. why i was to four -- supportive

of the decision in december. and why i think the summary of economic projections which indicates we will continue to raise rates would also be appropriate. manus: our guest is still with us. i think he has ignited a lot of debate. he talks about getting out and getting ahead. will it work? the market looks at the probability. how soon do you think the fed could go for the next hike? could we see a changing pace? the promised three, get out early, get out fast. >> it is certainly possible. our scenario shows to rate hikes this year but it is possible that we could go faster than that. my main reservation about this some dots seems like

have a bigger weight than others. we know a few members in the community -- in the committee including yellen are airing on the dovish side. erring on the dovish side and that is why i inc. to rate hikes rather than three. if one was to gauge the implications for the fx market, we have to ask what would prompt the fed to be more aggressive. if there is a global phenomenon, we are likely to have a repricing and reassessment of monetary expectations of across central banks. that does not suggest it would be good for the dollar. anna: it is all relative. certainly, it is relative. and the expectations that the market has.

the reality of the matter is that the dollar has priced in a lot. 30%re talking about 25%, appreciation. rally. a phenomenal meaning the price is already incorporating a lot. anna: one of the comments he made at the top of the show -- talking about the appetite but going on to say slightly scary to build dollar long positions now. is that how it seems to you? >> fundamentally, i have been bearish on the dollar for the last year because i see there is a major decoupling between the dollar and real rate differentials. i think sometimes we run the risk of forgetting our economics 101. inflation is getting higher in the u.s. so this is good for the dollar.

no, this is bad for the dollar. inflation is eroding the value of the currency. itis good to the extent that starts pricing in interest-rate hikes above what is already priced in but we have already seeing a significant, sizable rally in the dollar. that is why fundamentally i agree with that deal. -- with that view. manus: the other issue is the size of the balance sheet. i have not heard anyone talk about it in any depth. over thenflation laid top of the balance sheet which is explosive. he talks about the desire to see the longer end of the curve. what does the beginning of selling down the balance sheet begin to possibly impact the dollar? have you talked about that? >> i have to say that in

conversations with clients, this has not been in their mind. this is not the number one, number two or number three point of discussion. manus: is that because it is so far out in the grass? >> what is the perception of the market? it is like what happened with brexit. we went through a time frame where no one was talking about it at we knew it was coming. it is bound to happen and when it does, we are going to get the unwinding of the balance sheet, increase in long yields. time, aat that point in lot will have to do with the growth expectations. if potential growth in the u.s. starts rising, if the u.s. manages to get itself up out of low productivity, then this will be good for the dollar. but if we are going to be in a situation where we see yields

going higher on the back of higher inflation but no increase in potential growth, i am not sure one can make such a clear-cut conclusion in currency. policiesdonald trump's build infrastructure that topples -- that tackles low productivity -- whyhis is why i was puzzled the market in november and december. the problem is that december does not need fiscal stimulus, a specially the size that donald trump has been contemplating mostly because we have been operating at near full employment. the question is what the u.s. needs is structural reforms to address low productivity. the fiscal stimulus that provides a short-term boost to growth is likely to be good for the dollar in the short-term but not in the long-term because it lowers rates. his opinion is that you

ofl not see a greenspan era ratcheting 17 times. charte best dollar index of the -- in the world. but going back to 2004, 2005, the dollar and rising rates. marketems to be what the has got to cap. >> this is what we found in our research. if you go back into previous hiking cycle, the dollar builds strength on the back of the anticipation for interest rate hikes. but what -- when the fed tightening schedule actually gets underway, the dollar goes up. anna: great to get your thoughts. we have tackled a wide range of topics. manus: we're going to talk china

and factory prices which have risen at the fastest pace in five years. how long before the world's second-largest economy starts exporting inflation. we are live in hong kong and a discussion of the markets. ♪

♪ manus: what ripple effects will it have on global price pressures. anna: sounding off on brexit. philip hammond insists no decision has been made on the single markets. angela merkel reminds that britain's access requires the four freedoms. says: boston fed president the economy is already running and calls for a somewhat more regular rate hike.

you are welcome to bloomberg daybreak: europe. right here from the city of london, i am manus cranny. the: breaking news from u.k. retail sector. the discount german retailer today. manus: this is for the nine week period leading up to christmas. atluding fuel, comes in 2.9%. the market was looking for 1.1%. this is lighting a torch under our spending pattern in the united kingdom into the run-up of the christmas period. morrison profits will be ahead ,f the consensus and the cfo 321.7 million pounds. for 314.nsus was 330-340.ofits

the consensus number was at 314 million pounds. about ae talking relatively robust period and we had a somewhat mild repetitive environment. numbers here are almost three times the market estimates and the guidance remains in check. they are going through a three year organization, selling properties and readjusting. anna: interesting to see if we have structure around that reorganization. this,l come back to further through the week as we get more on these retailers. for now, we will look at the futures. we are looking to see they are suggesting a little weaker the start of the tray. the ftse 100 seems to be a performer. it is positive, not by much. up by 0.07%. let's look at the risk

radar. to an extent, you talk about ftse upward. the focus on the bottom of the screen. break 121 for the pound. hammond said yesterday there is ireland,on, he was in he said there is no decision yet on the single market. but when it comes to theresa may, mrs. a woman who is a one-way car crash for this currency. she spoke at the conference, down it went. shespoke on sunday and smacked the pound. the market is setting up a big decision at 120. betrayed went through there. 121.51 is where we are. anna: we've got the oil price in there as well. 59.97. -- 51.97. a question around iraq and how they will comply.

mixed picture, because the japanese markets are playing catch-up. manus: asia had a little bit of a better day. didn't seem to be the desire to sell dollar-yang -- dollar-yen. down 1/8 of 1%. no doubt there is a jitter before the trump inauguration. sentiment inary the market about fairly long dollar positions. anna: i look at the bond markets. a yield on the 10 year, 2.37. bund in there for you as well. more broadly on the news agenda, erin is.

donald trump's son-in-law to be a senior white house adviser. jared kushner played a leading role in the campaign and will work with chief of staff reince priebus and chief strategist stephen bannon. he will divest from his various business assets to comply with conflict of interest rules. he is touted as a trusted advisor. manus: meanwhile, toyota is the latest carmaker to voice its commitments to the united states. in the wake of the attacks against donald trump, the japanese car maker has agreed to invest in the united states over the next five years. >> we understand what chrysler wants to do and we want to make america strong. we want to have a good economy and that helps my business if i am selling cars and a strong economy, allows us to sustain our volume in the future.

volkswagen has been warned by the country not to leave. this as u.s. prosecutors are prepared to charge more high-level employees over in missions cheating. vw executive was arrested in miami and faces charges of misleading regulators. manus: yahoo! as announced management changes. the ceo and five others will leave the board on completion of this sale to verizon. the board will be reduced to five directors. a shareholder in all about the -- alibaba. anna: global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, you can find more stories on the bloomberg. let's get the life market action . a pretty mixed picture in asia.

juliette: it is. importantly, the regional index is tracking above -- in the black. tracking higher, mainly due to the game we have seen coming through on the hong kong index. it is at a one-month high. of mainland inflows coming through into the hong kong retail stocks, looking incredibly strong today. up 6/10 of 1%. the ppi number coming through today, not too much of an impact in equity markets, but you have seen a little failing in the latter part of trade. a stronger yen weighing on the the 115 to the dollar, that has sent weakness coming through in the japanese equity markets, which were closed yesterday for a public holiday. atying catch-up in closing 110 -- 18 of a percent.

-- 1/8 of a percent. noting, that is the first loss for the australian share market this year. this positive movement you are seeing across southeast asia markets keeps the regional index at a two month high. you are seeing at the bottom of the screen am a the australian shares fall. let's talk about china. anna: their producer price index has risen. jumped 5.5% in september from a year earlier, beating estimates. manus: these numbers, 5.5%. we have gone from the great global deflator trade to the bringer of great joy and reflation. how strong is this recovery? definitely remarkable

on the chinese side. there is expectation that transactions will spill out side of china's border. it is the world's biggest exporter. manufacturers in china are complaining about rising costs. there is a significant base effect going on here that is reflecting what is happening in the commodity and oil markets with the neck -- upturn into demand. ok,world economy is doing but global trade continues to be quite sluggish. china's exports aren't any different. unless there is a significant turnaround and big uptick in demand for chinese growth, chinese might not play as big of big role in the reflation story for the moment. anna: that might depend on the politics of donald trump.

what about the domestics story around consumer prices in china? we didn't see such a big uptick there. perhaps that is -- that is what the pboc is focused on. >> the pboc are keeping an eye on ppi right now. we are heading into a time of year when there is usually a spike in food rices around the chinese new year. the difficult thing now is they want to manage monetary policy to the point or it -- a certainly don't want ppi to flow downstream, feeding the cpi and sending prices off on a run there. there is no case for cutting interest rates at a time when the currency is under pressure. it is a balancing act.

down and theow currency remained under pressure, the debate over china policy would tighten. manus: thank you. let's bring in our guest for the next 30 minutes. simon, happy new year. good to have you with us. china brings us tidings of great reflationary joy. did news for the cio team in prospects for 2017, it is really a reflation year. much better than the news at the start of last year. positive news out of china is clearly what we want to see. talking to clients, my series of are doing a projects across the area. there is concern with respect to

debt in china, with respect to stability. it isn't enough to stop asian clients buying u.s. equities. buying blue-chip hong kong equity. that next sense because it is not just the ppi data they are discussing, we have manufactured salescelerated, retail for november numbers accelerating 10.8% growth. even the decline in effects reserves.- fx good morning, with those positives be enough to end the chinese weakness in the currency we have seen? are anticipating a modern weakness in the currency for the next 6-12 months. by stretch modest. there are ample measures the

government can use to moderate that decline. a decline in the currency is good for the economy more broadly, but the moderate pace of that decline is important with respect to security. manus: i have taken the liberty of doing a chart. inflation10 year swaps in the eurozone. in the united states and in the u k. i love the banner headline that you used. global equities have coped with higher expectations but there are risks. what are they and how relevant are they? could havey markets the scars of those risks? simon: there are always risks. we could be concerned about the french election outcomes, the dutch elections, a hard exit. unfortunately all of those concerns manifest at the start

of last year in what turned out to be a pretty fantastic year for investing. portfoliodiversified across the year led to a spectacular outcome. and we look to the global risk environment, we are also looking at opportunity. you look across manufacturing pmi's, every manufacturer in the world now signaling expansion. major economies signaling economic expansion. bank of america merrill lynch outperformed spending ratios. through, thecoming economic outlook looks robust and with the election of donald trump in the u.s., we now have the potential for fiscal stimulus. for large-scale fiscal stimulus in the united states. up until the middle of last yields only 1.5%.

would holding investments be good advice in getting to the hurdles in europe in 2017? diversifiednk a portfolio is the best advice we can give our clients, to globally invest is the important thing. we like u.s. equities, we just andaded our expectations headwinds from both oil prices and the u.s. dollar start to abate, we see a quadrupling in earnings from the energy sector from depressed levels. also the potential for fiscal stimulus. u.s.-dollar, we see a

stimulation in six months time. manus: simon, hold some of those big thoughts. youulationwe are going to comeo in a bit. have a glass of water. we will be back in a couple of minutes with simon. here are some highlights for your day. at 7:45, we get industrial data out of france. evidence about the country's future economic relationship with the eu. the london stock exchange ceo are among witnesses. manus: boris johnson faces questions in parliament after his weakened treat -- trip to see senior trump advisors. , trump's in over a week. rated heating up, we take a look at risks in the new year. simon is still with us. this is bloomberg. ♪

♪ you anna: welcome back, 19 minutes past seven in britain. -- past 7:00. hong kong's department store data has soared. at 2.5pany is valued billion u.s. dollars. it is part of alibaba's strategy to merge with brick-and-mortar stores. blackstone group is no longer in talks to five a five -- buy a $5 billion stake in transfer partners. according to people with knowledge, the discussions fell through after the wall street journal reported them last month. they say a 5% jump in energy transfer partners shares in the wake of reports per the economics of the deal.

carlyle group is preparing to raise a u.s. real estate fund at the first of the year. according to people with knowledge of the matter. they say the private equity firm is planning to target $5 billion . it would be part of a plan to raise $100 million over the next four years. a representative of carlisle declined to comment. add is your business flash. manus: let's get back to simon. he is the cio of you bf. -- ubf. i was talking about government bond yields, we are moving towards 3%. i have looked at bond yields going back to 1985. be that thet would my theing will be capped inflows into the united states of america. talk me through your thinking on these rates. really?

see ratesl, we will against the backdrop of accommodating policy. we are going to get more or less accommodating monetary policy based on whether there is more or less fiscal stimulus. therefore, leading to more or less rate hikes. we will get to the middle of the year and see inflations come up. but we are so far below those historic levels of interest rate. the backdrop of incredible central-bank support. that environment been pushed out, the risk curve continuing to be invested in equities, we think will remain. you are concerned about inflation in that you are maintaining bonds.

what is the thinking there? simon: we continue to see , the most recent jobs numbers, while disappointing, 2.9% average earnings increases is clearly inflationary at the margin. what is interesting is we have reached a position or the 140 character tweets trump is making -- the 54,000 character minutes in terms of the direction rates take. we will see tomorrow when he holds the first press conference in seven months. talk about stimulus, infrastructure, corporate tax cuts that could lead to hikes in the u.s.. manus: could lead to higher rates in the u.s.. that draws me nicely to the other side. forcedk of japan being

to defend the yield cap. i just want to dig deeper in terms of what that might mean for japanese equity exposure. we know you are upping your u.s. view. and what aret mean the consequences for markets? simon: it is fundamentally different in japan. two decades of deflation. if you talk about unprecedented monetary support across the other developed countries in the world. two extremesng a based on the quantum of the support they are giving. activenot taking divisions with respect to japanese aspects. story to u.s. equities is cleaner. thingsopportunities in like u.s. senior lines with attractive rates -- decent

spreads, low default rates. riskink that is a better to return. anna: and this pro-risk stance at 2017, what does that mean for emerging markets, whether that is overweight in emerging markets stocks relative to currencies -- other currencies? modestwe have gotten with emerging-market equities. acrossased improvement all major economies. in china and the u.s., and across europe. it is powerful that in the last seven months, not just u.s. earnings, but global and six-year highs. and aed global earnings

general environment which is positive for risk sentiment, we see converging market equities as wellness and the environment. manus: it is a little unfair to do this to you. but there is only 30 seconds left, sterling is under pressure. -- areir clients more your clients more under pressure again? to in everyone we talked our industry leaders network that have businesses in the u k, the economic data suggests the sentiment is positive. currency weakness aside, the economic outlook is apostate one and in terms of my clients, they have half a mind to use weaker sterling to buy property. anna: thank you so much for your time. to see you.

-- great to see you. that is it for daybreak: europe. the ftse to be an outlier once again. the european open is next. ♪

♪ guy: welcome. you are watching bloomberg markets. the european open, your first trade of the day coming up in 30 minutes time. i am guy johnson's. -- guy johnson. miller is in berlin. inflation is surging. rate in fivestest years. how will the move affect the fed and the ecb's thinking. the dollar down ahead of donald trump's briefing.