♪ francine: a dovish tilt drives the dollar down. split on inflation. openny's spd is said to be on talks to forming a new brothel government. -- a new merkel government. we get gdp data in 30 minutes. good morning, everyone. it is "bloomberg surveillance." for our american viewers, happy thanksgiving. tom is off today.

stocks declining for a second day. a slump in chinese equities in a , which is why we might see exacerbated moves. more dovish than expected federal reserve. we had the minutes yesterday. we are getting pmi edit europe, better than expected. -- better than expected if you look at services. manufacturing also that are than expected. -- manufacturing also better than expected. we are looking at a pretty strong economy. au will get to europe in second. euro-dollar currently 118.45. coming up, we speak to alexander stubb. brexit talk to him about

and the eurozone. in the meantime, let's get to the bloomberg first word news. democratsmany social are ready to start talks with angela merkel. totin schulz is prepared offer her limited support for a full term. it is said he could back her in a minority government but not -- but would not offer another grand coalition. philip hammond's budget has been welcomed by members of the conservative party, while stilla may's future is questionable. some ball boy -- them ball boy -- incoming president --

took control of the armed forces. he is due to be sworn in tomorrow. jamie dimon has said he doesn't think president trump will win another term in office. democrats long as the have a reasonable candidate, they will win in 2020. >> i think we should get rid of carried interest, deferrals for and if you want to raise my right, so be it, but whatever you do, do not have an uncompetitive tax system in a very competitive world that is a mistake for america. to confuse the two is a huge error. nejra: mark cuban has a question for donald trump, is the president aware of just how big an impact alibaba has had on the u.s. stock market?

he tweeted, did you realize 5% of the increase in stock market has gone to one chinese company? there has been no response from the white house. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. francine: the u.s. dollar weakened after the minutes from the fed meeting highlighted a dovish tilt. confidentcials remain in the labor market and above trend economic growth, several of them are looking for stronger signs of gains. .he market sees a december hike joining us is holger schmieding

and guy stear. the fed, janet yellen told us one thing and the market told is another thing. don't think we learned a lot from the fed minutes. inis likely there will raise december. next year, nobody knows. the fed is in the dark as much as everybody else. as to how strong the economy intos -- will translate wage inflation and core inflation, best guess is they , but note occasionally four times. francine: do you think they are in the dark? the fed message is they are on a upward hiking path. holger: i think they are. the transition from low levels of unemployment to higher levels of wages. if you look at data like the atlanta fed has lots of

, but we aregnals not seeing it in terms of countrywide numbers. there is the second step, which is that even if we begin to see wage increases, is that going to translate into cpi increases in a world where you have amazon and alibaba? you have a lot of computers and on the retail side, which is holding prices down. i think that is one part of the equation, which is going to be difficult for anybody, including the fed to figure out. is it the fact that technology, the sharing economy is automatically bring prices down? do we need to measure inflation differently? holger: it is in just the retail side. it is a most everything. what is the consumer willing to pay? the impact here is that if you have higher costs in terms of

higher wages but you don't have higher output costs in terms of prices, and what gets compressed is corporate margins. it is something we are beginning to see. francine: the fed seems to suggest inflation will be there, it is just liking. do you not believe janet yellen? holger: we are in an unprecedented situation. we had an upswing for many years were some -- were nothing seemed to overheat. were holding back on wages, credit growth, business investment. now we are heading this course, getting back to the normal boom bust of the cycle, however, how long this transition will take when the normal things, including wage inflation, rising inflation will kick in, is something we don't know. we have to watch the data.

timeguess is it will take for the technological reasons. the fed will probably continue to do hikes cautiously. francine: do you think that would be be right decision? what do you do with the phillips curve? do you forget it because it is broken or doesn't function like it used to? holger: we can't forget it. we have to watch it. is it reappearing, no longer flat, steepening? we have to watch the data. the good thing for the fed end of their central banks is, in the absence of very serious inflationary pressures, the central banks can take their time in looking at the data. they are not forced by the data to be aggressive, and why not. todoesn't hurt very much wait a little, watch the data, and then react. francine: do you agree the longer you wait the more

distortions you can create? guy: the only thing i would disagree with is that as a house we are more competent at the lag will end fairly soon, and by that i mean 2018. that leads us to a fairly negative view of what u.s. treasuries will do of a 1% rise in terms of 10-year yields over the course of next year. lag we are seeing now and past, ite saw in the seems to be getting bigger in terms of the data, but i think that is going to be -- we're going to start seeing inflation and wage inflation picking up next year. francine: thank you so much. holger schmieding and guy stear stay with us. is said germany's spd to be considering supporting a merkel government. we are live in berlin with the latest.

britain'se of economic outlook. we will discuss that next. this is bloomberg. ♪ ♪

francine: this is "bloomberg surveillance."

let's get straight to the bloomberg business flash. nejra: centrica shares have slumped this morning by the most in 20 years. adjusted earnings per share will fall -- will probably fall below market confesses after a -- market consensus. uber is facing at least three probes in europe: red light -- following revelations it kept quite on a hack of personal data. the right hailing from is in the crosshairs. facebookinvestor in company stake in the

for $29 million. facebook stock has surged this year. that is the bloomberg business flash. francine: germany's social democrats are said to be ready to start talks with angela merkel. martin schulz will discuss his plan with president frank-walter steinmeier later today. one official said he won't offer to help form another grand coalition. for more, our governor -- our reporter joins us. when will we get more clarity? from berlin, germans believe don't like chaos. we have like -- from berlin, germans don't like chaos. we have chaos right now.

we will have word on which solution will be preferred, which is either a minority or a grand coalition again or new elections. it is all open. francine: would angela merkel be willing to lead a minority government, even though she has ruled it out? arne: i have talked to people yesterday from the cdu and there are people saying she want lead a minority government. she is very critical of it. have single law that would had to be passed, she would have to look for a majority, and this is not what she wants to do. is this government crisis the beginning of the end for the merkel era? arne: there are many commentators here who say that.

i would argue since there is really nobody inside right now also within her own party to islace her, i would say she weakened, it's a difficult phase, but i don't think it is over yet, because there is nobody to replace her. francine: thank you so much. arne delfs there. how much the political situation and germany matters to the markets and when we get clarity. our guests are still with us. do you think this is the end of the merkel star? it is damaging for her reputation on the global scene and at home, but it is not probably the end of her chancellorship. likely that she will get the fourth term either after new elections as the head of a minority government or possibly as the head of a new grand coalition. there simply is no a very --

there simply is nobody to replace her. she likely would stay on. press arethe italian saying that schaeuble is to go for it. is there any truth in that? it is not that i can claim any insight knowledge -- inside knowledge on any of this. i would be totally surprised if there was any kernel of truth in this italian allegation. once again, there seems to be no obvious rival or successor to merkel from within her own ranks, and hence she will likely stay on. francine: when you look at the two options, french elections or minority government, -- fresh elections or minority government, which is the best for the economy? holger: it is not going to make much of a difference.

the economy will stay stable even without clinical uncertainty. is long run. -- nority government it is due arguable that a coalition would possibly be the least bad for the economy. francine: what does it mean for the markets? to the margins impact ecb policy? guy: not too much. for markets there is an interesting comment by one of your commentators on the previous program saying the markets have been taking this in stride.

they haven't reacted much. the one thing we haven't learned -- the one thing we have learned over the past year is that, in terms of markets, we care more about what the central bank is doing and what governments are doing. that applies to governments everywhere. it is more, yes, we would like a solution and that would make everybody feel more comfortable with the way things will evolve, but they are not terribly focused on it at the moment. francine: what is it mean for spreads? guy: -- what does it mean for spreads. guy: the bigger story is what is going on with european growth. it has been good this year. that has been something that has helped spreads, because strong growth lifts all boats. it supports the southern european economies, raffael economies. -- peripheral economies.

you were getting marginal growth, which has been dominated by northern europe, beginning to get better in southern europe. that is even better for spreads. that is one of the issues for the peripheral sovereign markets in europe, particularly in 2018. francine: i have the german 10-year. is that a good one? guy: you were looking at two different things. you are looking at what is going on -- francine: this is fed policy. guy: it is probably more driven by the u.s. fed market. francine: we will get back to the use and talk about gilts. holger schmieding and guy stear stay with us. up next, we will take a look at the latest production. this is bloomberg. ♪ ♪

francine: this is "bloomberg surveillance." let's get straight to the markets. mark: profit warning from centrica. biggest decline in record. wife -- wipedunds off the value.

adjusted earnings per share will probably fall below market consensus after a disappointing performance. in china, we saw a big selloff today. unease rippling through the stock market. large cap shares plummeting the most since june last year. csi 300, as you can see, sinking 3% today. losses deepening in the last hour of trading. chart, justeat comparing the spanish 10-year with the u.s. six month. the yields have converged. what does it mean? does it portend some sort of armageddon scenario? probably not. this happened before the century starting in 2005. another reminder of how divergent central bank policies

distort perception of risk and asset prices. apparently, it is thanksgiving day today. happy thanksgiving, everybody. the cost to feed 10 people is seen at nine dollars and $.12 this year. , no, costs for turkey rolls, green peas, and see potatoes. -- and sweet potatoes. tot is costs going back 2012. francine: that is an amazing chart. up next, the latest gdp data. ♪ is this a phone?

or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data.

see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. francine: this is "bloomberg surveillance." let's get straight to the bloomberg first word news. nejra: germany's social democrat leader is ready to start talks with angela merkel.

martin schulz is prepared to officer -- offer omitted support. a minorityck her in government that won't offer another grand coalition. they say he intends to tell president frank-walter steinmeier of this when they meet today. federal reserve officials have signaled a december rate hike remains on the cards, despite ongoing debate in week price growth. fok price growth. incoming president has told supporters that the nation is witnessing a new unfolding democracy. , he thinkst speech sin armed forces for taking control of the government after he was fired. he is due to be sworn in tomorrow. global news 24 hours a day, powered by more than 2700 journalists and analysts in more

than 120 countries. i am nejra cehic. this is bloomberg. francine: we're just getting some u.k. gdp figures. the economy grew .4% in the third quarter, matching the initial estimates. baby it is a little bit more on the back of what we heard yesterday. i think it has more to do with we have seend what with philip hammond. we will get back to that in second -- to that in a second. philip hammond appeared to have won over critics as he promised money for brexit and scrapped the majority of first-time buyers. the productivity performance continues to disappoint.

now is our u.k. politics reporter. holgerith us, guy stear schmieding and --still with us, guy stear and holger schmieding. how did the chancellor to yesterday? reporter: i think fairly well. he has a reputation for being quite boring and not really taking risks, and there were a few risks in this budget. that growth forecast. we can get away from those, but he did something about universal credit, more money for the nhs. not as much as the in adjacent once, but there were some giveaways in there. as the nhst as much wants, but there were some giveaways in there.

this was a totally political budget. everything the tories want to claw back. it would've been a great budget last march, and now it is five months to a. one wonders if that will be enough to win them back. there is no significant change in overall significant fiscal policy. said, it is a clever budget with small giveaways. he made some good headlines for himself, but that doesn't change the economic outlook. ,rancine: the economic outlook we don't know what the brexit negotiations will be, what the future of the country exactly is, but i imagine your economic forecast will be different if it is a labor government been a conservative government. how much do you look at politically who was next and

that be the basis of your economic forecast? difficultat is a very one. if we knew jeremy corbyn would be in office with the state majority soon, we would have to rethink quite a few of our numbers. assume time being, we that policies for now remain roughly as they are. we take as basis for our economic forecast, somewhat soft brexit scenario. on such a scenario, no major shift in policy, and in the end, the u.k. gives in enough to the e.u. to secure a soft brexit. francine: what do you make of the budget? saidi echoed what holger

in that it is not terribly important and i would echoed the comment that the budget, if it had come five months earlier, it would have changed certain things in terms of brexit positioning, the giving a signal that they are suggesting backup plans, it might've change things, but it is difficult to tell. how bad is growth going to be? that will have an impact in terms of the flip of the curve. the second issue -- the slope of the curve. the second issue, you can use the second issue, u.k. yields and rates. growth is quite poor if you have rising yields in the u.s., in europe, probably guilty yields will be dragged down as well. that is one of the challenges the u.k. faces. i'm going to push back a little bit. there was so much speculation the chancellor could be fired. does this budget cement his place? reporter: there was a lot of

speculation he would be recalled in the shuffle along with boris johnson. i think his job is a safe. is theresa may's government faith? no one knows. not depend on the budget. it depends on brexit. francine: if the chancellor gets sacked and somebody else put in place, then do change or economic forecast? doesn'tour forecast really rely on the person who was chancellor. another chance of pursuing similar policies would really not have a significant impact on our forecasts. the budget is not bad, but it doesn't change the outlook in any significant am not -- economically. what a different chancellor be radically different? it depends not so much on the chancellor but the makeup of the government. i sometimes feel when i am looking at the u.k. that their

future is not really in their hands, much more in the hands of the brexit negotiations. francine: that is fair. in december, we get a settlement on the divorce bill -- will we get a settlement on the divorce bill? reporter: we can save the u.k. is prepared to pay more than their initial offer. we don't know how much. we heard 40 billion pounds, which has been pushed back on. it is now a sense of emergency -- it is now a sense of urgency. they want to get this settled as soon as possible, but again, it depends how it goes down in brussels. this is a key development over recent weeks. u.k. to getdate real about what it can achieve,

and that seems to be happening over recent weeks with the u.k. realizing that clock is ticking against the u.k. and the u.k. getting more real in its brexit negotiations. that supports for a somewhat soft brexit in the end. spoken like a real german. we will have to leave it here. i have a great chart. we will get to it in a second. thank you so much for a spirited conversation. dealxt, how will the bank with the fast increasing debt pile? this is bloomberg. ♪ ♪

francine: this is "bloomberg surveillance." the governor of the people's bank of china signaled last month he would go into retirement soon. when he does, he will leave his successor with a series of headaches, the number one being a debt pile raising towards 300% of output.

the next will have to find a way to rein in the leverage while watching accelerating inflation. our asia correspondent joins us from hong kong. happy thanks giving. will be the focus of the incoming government just the incoming governor? -- what will be the focus of the incoming governor? we're working on the assumption that he is soon to be gone soon. he has signaled he may go soon. working on the basis that he does move on, the inbox is full. it will be all about how china once and for all gets a grip on its ever-growing debt problem. officials seem to be aware of the problem and speak about it publicly. we have had warnings in recent weeks.

a sense that whoever comes in will have to get the message out there that the days so-called up and zombie companies are no more. thedays of channeling economy into insufficient sectors will have to come to an end. that is where the conundrum comes in. francine: are we already seeing -- signs of the deleveraging campaign? reporter: we have had ratcheting up of rhetoric. what we are seeing now is a spike in corporate bond yields. we have five-year bond yields going up to a three-year high. one trillion worth of corporate bonds maturing over the next couple years. back topany's come

refinance, they are either going to have to pay more money than the originally anticipated or we might start to see more defaults and we have in the past. it comes down to whether the government will allow those governments -- those companies to default. necessarily in the same standing as it's developed market peers. what is flashing a potential drag on the corporate sector, just one area at the people's bank of china will watch closely. francine: thank you very much. ages -- bloomberg's asia correspondent. our guests are still with us. when you look at china, why does the world care about this moment? guy: there are two reasons. is a big exporter and a big importer in terms of raw materials. chinais a very client --

is a very important client for countries. is chinesereason companies have become increasingly important for the developed market acid sectors. -- asset sectors. there was a comment earlier on how alibaba has been driving gains. i am more of a fixed income person, so i would look at the fact that chinese corporate's are now fully one third of the emerging-market dollar-denominated corporate world. that has been an enormous increase in terms of the amount of chinese issuance in be dollar-denominated credit markets. wider, chineseg dollar bill the wider, too. that will have an impact on than people currently realize. holger: it is one of the big

global risks out there. china remains in a comfortable situation in a sense that it does not have too much inflation , which means the central bank can take time to sort out the debt issues, and if need be, withpin some of the debt its own balance sheet. what we are looking for is a modest slowdown in the pace of chinese growth as they get more serious about working out the debt, but we are not looking for any hard lending. sunday cries out hard lending, the market gets excited a little. you,an economist point of china is, for the next year or two, fairly a safe place. a modest deceleration in china, not a huge knock on effect.

francine: i like this chart a lot. it is the number of treasuries held by china. i was surprised to see this going up. the dollar has gone down, so maybe that is a little bit, but what does this chart tell us? guy: it tells us about china's reserve management policy more than anything else. when we were seeing the decline, seeing it had more to do with pressure in terms of managing the currency. this chart is important. one of the things i agree with is in terms of china being an investment. the currency is likely to stay stable. yields are relatively high, so it is an interesting investment. when we talk about china, it is

more about chinese companies than the macro situation. is about the chinese property market. there is a deceleration already in terms of monthly increases. if we start to see contracting property prices next year, then people will have another reason to be concerned in terms of chinese corporate debt. that is the big issue. it is the most important thing we have talked about so far on the program. francine: do you agree? holger: i agree. china will be a focus of market attention next year. francine: real estate? holger: real estate, general tendency to over invest, overcapacity in some sectors, the real estate boom and the consequences of that. the central bank of china would likely people to deal with it without disrupting economic growth. francine: gentlemen, thank you

so much. guy stear and holger schmieding stay with us. uber faces calls for punishment. this is bloomberg. ♪ ♪

francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash. nejra: centrica have slumped this morning at the most in 20 years. adjusted earnings per share will probably fall before -- fall below market consensus. supplier is grappling with government intervention on bills that would cap the amounts customers would pay on default tariffs. facebook has said it will show people which russian propaganda accounts they followed or liked on the social network. it will appear by the end of the year. , an early investor in facebook, sold 72% of his

stake in the company. offloaded $20 million worth of shares. that is the bloomberg business flash. uber is facing three probes in europe following revelations that kept quiet for more than a year after hackers sold vast amounts of personal data of customers and drivers. the data production chief says the probe into the obvious lack of adequate security measures. firm is in two other crosshairs. we are jumping out of the story to figure out what the economy is doing to the models you use to fixed income or the economy.

about skills and we don't know how the economy, how the skills needed by workers will change in 10 years. have you get ready for that from an economic perspective? holger: the biggest unknown is what is the size of the economy. have no -- we have new transport services being offered. we are making better use of existing assets through the sharing economy, but are we accounting for that in our gdp statistics? are we measuring that correctly in inflation estimates? the big impact in the technological change our numbers are becoming more fuzzy, which means all of us are more in the dark about the economic situation then we were previously 10, 15 years ago.

we need to be more cautious when assessing the future. francine: it means we could be looking at a recession and you -- we't see it unless spent so much time overanalyzing, but we don't look at anything else. guy: one of the issues as we have a lot more data than we used to, and some of it is high-quality and some of it is not. trying to differentiate and how problemt is a general for economists. it has always been a problem, but it feels like a bigger problem now. there are two issues. how a lot of the models are driving down pricing greases and inflation. -- driving down price increases and inflation. we are not sure that is one off or permanent. it may feel like permanent, like

crisis mean it -- like crisis may not be able to, but it may be one off. the second is how cyclical are these coming? -- the second is, how cyclical are these companies? these are much less cyclical and they appear to be. that is also an issue we face. francine: holger schmieding and guy stear, thank you for joining us for the hour on thinks giving. "bloomberg surveillance" continues over the next hour. we will be talking to alexander steps. this is bloomberg. ♪

♪ nejra: dragging the dollar down. the s&p has put on inflation,

but markets believe in a december hike. germany's spd open to talks to forming a new merkel government. .etting back to black america's biggest shopping day has been losing its shine. but this year tells us about the u.s. consumer. i am francine lacqua in london. tom keene has the morning off for thanksgiving. i have not figured out if he is shopping or cooking, maybe both. we will talk about the parade, maybe later. let's get to the bloomberg first word news with nejra cehic. leadersocial democrat schulz will offer angela merkel limited support for a fourth term. he could back merkel in a minority government that has ruled out repeating the grand coalition that has ruled germany for eight of the last 12 years.

laid out by the budget by philip hammond. he promised the biggest home building program in five decades. those voters would have fought the conservative loss over brexit. the former chief returned from south africa where he had fled after being fired by robert mugabe. minutes of the most recent meeting show fed members are looking for stronger signs inflation will rise. they want inflation on an upward path before the next hike. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. i am nejra cehic, this is bloomberg. francine: the big day in the u.s. because when you look at volumes they are definitely thin.

european stocks seem to be taking their cue from a slide in chinese equities. european stocks a little down. settingar seems to be after tumbling on wednesday. because there is a lower trading so anylumes are thin, big move, take with a cringe of salt. schulz is said to be open and talks with chancellor marcil and offer limited support for a fourth term. this is according to people familiar with his plan. he is expected to tell the german president in his -- of his shift in support when they meet. sources say he does not intend to offer another grand coalition. for more on what this means for the future of angela merkel let's go to berlin where we are joined by matt miller. good morning. see?do markets

they seem to be getting nervous about the political chaos in germany. when do we get more clarity? matt: absolutely. yesterday was a bad day for the dax index. today, at one point, we were down .5%, though it has come back to little change right now. the situation is so fluid almost anything you hear is speculation or it could change at a moments notice. , is from inside the spd that martin schulz is planning andhrowing a lifeline, giving himself one at the same time. he is saying maybe you will support her in a minority government. the reason is he has sworn off the possibility ever of a coalition with merkel. he cannot stay as the head of the spd and still work with her in coalition. she said she would prefer new elections to a minority

government. others that may partner with her, like the greens, said they don't want to be in a minority government either. they are at a standstill. every few hours we get a change in the idea of how this could work out. it is very uncertain. bencine: would angela merkel willing to lead? she rolled it out two or three days ago. matt: it is more nuanced. martin schultz said no way will i go into a coalition with angela merkel. he clearly ruled it out. her statement on a minority government was more nuanced. she left herself a little room. she said she would prefer new elections. the problem is, what would new election sbrs bring? that is not clear either.

the as bd's position is less questionable. it doesn't seem to be any reason ar the spd to go into being minority enabler other than to save martin schultz some face and his career. they wouldn't get credit for anything a minority government would achieve, and they would get the blame every time they blocked something. they wouldn't get very much say in policy or point any ministers . it doesn't make sense why they would want to be in that position. governingwith the crisis, could he be the beginning of the end of the merkel era? is there a successor that seems logical? matt: that is the speculation we have been hearing a lot of ever since these coalition talks. after the election results, everyone thought schultz may

need to take the blame for the spd's worst performance in postwar germany. no one blamed merkel, because the whole party backed her strategy of not campaigning very hard. now people are talking about what if this is the end of angela merkel? they are starting to talk about who could replace her. people are saying the current defense minister might be able to take the reins. are saying sphan may take deposition, though he is a little young. merkel has left incredibly large shoes to fill. the stalwart of europe, but even at g-20 meetings she seems to be the global leader now

that the u.s. has stepped out of that role in any possible way. she has cut herself a large figure. if it is the end it will take someone incredibly power pragmatic, and maybe even charismatic for a change, to replace her. francine: matt miller from berlin. we are joined by our guest host .or the hour james bevan thank you so much. do you speak german? how do you follow up? it is fascinating. she has been dominant for so long there is no obvious heir apparent either in terms of leadership or philosophy. there's no telling which way the

-- will move. what mr. draghi has been describing is a creature of the bond is bank and not the ecb. francine: if this is the end of era, who has the most to lose? i was told she was the one that brought people together. when nikolai sarkozy would not want to sign something she would convince them and they would sign together. choose a political figure that is dominant. for the rest of the world more so than germany, almost. to be i would say macron the most obvious winner. he is charismatic, a thoughtful individual, statesman-like in a way. he has been able to do extraordinary things in terms of getting stuff done in france. francine: does he not need

angela merkel? the franco-german access, he can't go it alone. james: the question is who fills the vacuum? he is one individual who has statesman-like characteristics has arough a plebiscite real confirmation of authority and strategies and authorities people believe to be philosophically interesting and credible for the decade ahead. francine: what does it mean for the markets? james: the most important issue is we should not expect global growth to evaporate next year or ramp it acceleration. acceleration. i see no fall from grace for the equity markets for the time being. will be more of the same. i worry much more where price rise levels are detached from fundamentals.

that, to me, is the big risk. between theis is german bund in the 10-year treasury in the u.s. you can see the gap widening. what does this tell us? is it all about the fed, the flattening of the yield curve, or in part germany? james: it is both parts. i fully expect that we will see standing10-year yields around 2.5 percentage points. i don't see any real reason why german bond yields will rise in the near term. francine: they're not going to get out of it too soon, the stimulus? it will be very gradual, very mindful of the pitfalls? gradual.ceptionally even though the headlines on the eurozone has been unequivocably

good news, it is also fragile. it is brittle because most of the good news has come from the ecb rather than underlying dynamic. draghi will be aware that he is the driver of growth at the moment. he cannot remove the punch bowl early. francine: coming up we speak b, aboutxander stub brexit, the eurozone, and chancellor merkel. this is bloomberg. ♪

francine: breaking news out of hsbc. they appointed a new boss a couple of weeks ago.

, the highstermann profile who was brought in two years ago, is now leaving. he was recruited from goldman sachs according to people familiar with the plan. one of the reasons we don't understand, we don't know the reasons, but one reason that may have led to his to parch or is the fact that he was in the list of names to possibly become co, then he hadn't. we had a list of names of people who could have become from internal positions. that didn't happen. what does it mean for talent loss? james: potentially significant. global not a choice in banking terms compared to u.s. clients. if you had a roster of clients and you asked if they wanted to

work for jp morgan or hsbc, it is clear for jpmorgan. is dominant in north america. hsbc would have liked to be a greater player. wheres weakening in asia it is a more substantial player. the local competition has huge amounts of wealth. selected john flint, the head of the retail bank and wealth management on february 21. will he take time to study the bank? he is an insider, so will he take time to figure out what he wants to do, or do you expect changes right away? james: directionally, the shift rather be ald much wealth manager and retail banking entity rather than an entity playing hard to be catch-up in the investment

banking space. apply more money to rebuild investment bank. francine: thanks, so much. let's get to the bloomberg business watch. : these k's biggest household energy supplier plunged. the company's market share is shrinking. rising and recovery in the steel industry. a 15% increase in earnings and higher profits this fiscal year. the maker of angry bird seems to have angry investors. theirost 1/5 of investment value since going public two months ago. 29% from a year ago. that is your business flash. u.s. dollare

tumbled after minutes from the latest fed meeting highlighted a dovish tilt. several are looking for stronger science that price gains will pick up. -- stronger signs that price gains will pick up. aspite this, the prospect of december rate hike seems unchanged. james bevan is still with us. when you look at the fed, i don't know what you make of what we learned last night. it was always going to be how you view inflation. there would always be dissenters saying i want to see the whites of inflation's eyes before we rise. inflation data was stronger than expectations. one could make two observations. i share the market's opinion we will get a december rate hike.

that is all about what happens to 2018. i think the market is expecting half of what the fed is expecting. the u.s. economy continues if donald trump can get through the tax changes. the fed will tighten. francine: do you believe it is more dangerous to keep monetary policy loose for longer than to tighten too quickly? james: it depends on which economy you are talking about. francine: the u.s. james: i just wanted to make that statement. i think the federal reserve needs to tighten and we will see more and 2018. germany, the u.s. and i will show you the flattening yield curve in the u.s. what needs to happen for that to stop flattening? james: i'm not sure why you're worrying about the flattening of the yield curve. there is a subtext in what you

are describing. when you are in a world typified by high levels embedded in indebtedness with a conjecture of relatively slow sustainable, modest, real growth and modest levels of long-term inflation, the expectation the curves will be flat is the norm. i don't have a problem with the flat yield curve. francine: other people do. james: they do. they say there is a strong message getting through that we are not going to get any growth. i think we will get growth, but it will be longer around 2% growth. i think the fed rate will keep %. around 2 francine: why do you think bond markets are getting it wrong? i'm not sure bond markets are getting anything wrong.

i think the challenge is determining conjecture rates long-term. if i'm correct in articulating perspective the federal reserve peak rate will be around two percentage points, the 10 year yield will be 2.5 percentage points. i think that that is consistent with an economic outlook that-constrained in global terms where growth is modest, inflation remains modest, and we should not expect a much steeper yield curve. francine: coming up in the next hour, keeping our eye on the fed's impacts on the market. at 6:00 that interview a.m. in new york and 11:00 a.m. in london. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. presenting his budget philip hammond announced the official budget/forecast for gdp growth in the next five years. we are joined from the u.k. government team. it is great to have you back on. james, thanks for sticking around. the chancellor did quite good. it is a difficult budget to sell

political. he seems to have pleased all parties. >> maybe not all parties. i think he did well from the political perspective. that which was meant to appeal to the youth vote. he addressed universal credit, the nhs -- the problem is this is five months too late. he lost that mode already. there is no hiding from the economic figures. they are not great. that is what in the long run will matter. and brexit. was it to getmuch possible voters at the next election? how much was it to safeguard this country from a brexit fallout? >> this will save philip

hammond's job, which at this innt is first and foremost the westminster bubble calculation of things. he did well. than usual,boring which is a big criticism. went down very well in the press. how it will translate with voters in an environment where inflation is going up and the average rate isn't going up, we don't have an election in three months time. it is the economic numbers that will bite. francine: we will be talking more brexit. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. morning off, shopping. meantime, we have a

little bit of thanksgiving, volumes are thin because of the u.s. holiday. what i am also looking at is european stocks, taking their cue attached. they are down 0.2%. thelet's get straight to first word news. nejra: australia warns that power in asia could shift to china if the u.s. withdraws its ties. australia said it is concerned that china's military expansion would lead to clashes. it the prime minister said they will seek a bigger role in regional affairs. turkish president argues high interest rates are tool to control it. he is pushing for lower rates. he spoke at a bloomberg event.

>> banks are not happy with high interest rates, who is holding your hand? who is keeping you from reducing it? our citizens do not like high interest rates. you could reduce it. nejra: the turkish central bank has been trying to stop the fall against the dollar. a republican congressman from texas has apologized after a lewd photo of them appeared on the internet. he said when he was separated from his second wife, he had sexual relations with other women. j.p. morgan chase ceo jamie dimon said he doesn't think donald trump will not win a second term. theyid they need if nominate a leftist candidate, donald trump will be reelected. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is

bloomberg. francine: thank you so much. the turnaround is striking for region that has plunged into its own sovereign debt turmoil. that threatens the very survival of the current union. there is still political risk as germany has shown this week. politicaln unknown territory when so much is unresolved. have urgedorters theresa may to gain ground in the negotiations. he is vice president at the european investment bank and former prime minister of finland. thank you so much for joining us. what is your feeling about europe right now? brexit aren't going great. merkel sees a big impasse. do we need to be more cautious in our views in europe?

>> i think we should all remember the european union is in crisis management. you go from one crisis to another and at the end of the day, you have a solution. when you look at the tectonic late shifting in 2010 through 2015, i see a much better now than i did in those years. political mayhem, clinical instability is part of democracy. we will see more of these election results coming. francine: if we have a weaker angela merkel, i don't know if you see this as the beginning, what does it mean for further integration of europe and what does it mean for brexit? >> the eu usually survives. we will see more messy election results. i will go back to 2011 and the -- elections and we had asked parties in the government did

you can go through the dutch elections, the belgian elections. we have seen election results which is fully democratic, but a government that has not been established. we will see more of these types of coalitions and democracy is becoming more complicated and less straightforward. it is more messy than what it used to be. it's not going to make things easier for europe. we have a beacon of stability and that is the european institutions. francine: europe needs to move faster than it does. if you have more coalitions, is that going to be harder? haveobably harder, but you 28 member states may realize they have to forge compromise. the financial crisis, we took enormous steps forward, whether it's about banking or european stability mechanisms, deposit

guarantees, now when there is not a crisis, we are trying to consolidate the current system. integration moves forward regardless of the conversations of government. francine: will we get a banking union? >> i think we will get a banking union. the solution will be found. when you are not in a crisis, it's always a little bit difficult. when you look at the euro crisis, it was quite spectacular we were able to find solutions. we created these rescue packages, we tightened controls, the eib came up with a plan and pushed it forward. the european central bank stabilize things. the system works. , people failed to see that when the prime minister's come together in the european council, it's like a

big collective psychotherapy session. you tap your friend on the shoulder and say i understand your domestic problem's, let's find a solution for you. there is usually a solution, but it doesn't hurt to have a leader there. we want toi think see a solution in the german government coalition negotiations. francine: let me bring in james here in london. are we going to see a banking union? expect theink they banking risk to be contained. -- we are talking about the corporate sector. for me, it's about governments creating a framework which companies can know and understand and mitigate the risk. francine: you worry about the italian election? could it turn uglier than the political impact we see your

money? >> i don't worry about elections. at the end of the day, we will see with the election result reduces. sometimes you get results to like another time she don't. that is part of democracy. going back to the comment, i agree the private sector creates wealth. the european investment bank can fill market failures and provide financial instruments that boost the economy, that's what we saw up from 2012 when the european investment bank helped out and leveraged and got growth and jobs. francine: do you worry about extreme parties to the right or left and you worry about populism? >> you always have to do that. there is no question about it. in 2015, the finish election provided a result whereby the

true finns were taken into a party. at the end of the day, that party has been hit and split. it's about the types of parties you take into government. what usually happens, it's difficult to be a populist when you have power and responsibility. i am worried about extremist. at the center of all this, we have to have european values. if they are not -- respected, we need to react. james: i agree. i do think the populist agenda is very clear reaction to decades now where they have had a larger slice of revenue. the pendulum swings between workers. drive wherepopulist we could say we want bigger deal, that will get pace. francine: if you were to reform

europe, do you believe europe wants to be reformed? what would you concentrate on? >> europe needs reform all the time. it's in the dna of the european union to develop like that. two things drive populism. one is the income discrepancy. that is one thing i would look at inside the european union as well. there is an element where people feel shareholders or the rich are getting richer and the poor are getting poorer. the income gap needs to be narrowed. the second is technological development. it's not about jobs going abroad. it's about technological development replacing the types of traditional jobs we used to have. these issues have to be tackled. i would go for more technologically driven liberal

european policies. francine: i know we want to talk about for structure and investment. we have been talking about brexit. i will last the same question. how is brexit going? we hear these negative headlines. we don't have negotiations. we don't know what is going on. do we find out in december? >> i think britain has been arrogant in assuming it can get its own way in triggering article 50. there is a very clear commitment to a two-year timeframe. the underlying problem of the british economy is an absence of productivity to drive economic growth, none of that is addressed in the budget yesterday. i am quite leumi. -- gloomy. francine: are we in an impasse?

there are always going to be ebbs and flows in these negotiations. usually at the end of the day, you come up with a result, the second observation is and i say pro-british, i find it sad state the united kingdom is. i think it's not very easy to have only one agenda and that being brexit. jobs,rget about growth, structural reform, infrastructure, and all the focus is on that. it is in the nature of public discourse today to exaggerate a little bit the differences between the negotiation parties. they will sort it out. francine: thank you so much.

he will stay with us and so does james. we want to talk a little bit about investment as a way of doing growth. coming up, a conversation with christian celts. area wetian schultz also have some fun facts about turkey. it is thanksgiving. this is bloomberg. ♪

francine: this is bloomberg surveillance. happy thanksgiving. i did promise james i would give

him some fun fact about turkey's. -- turkeys. americans will eat 46 million turkeys. mostnnesota, they make the turkeys. you also follow minnesota sports. >> i do. i have two or three very good ice hockey players in minnesota. francine: there you go. i know tom keene is watching. i know he would want to talk hockey. lend money to support projects from major infrastructure development in order to support new policy goals. we are back with alex in brussels. he is the vice president of the eib.

alex, when we look at infrastructure, this is what a lot of growth is dependent on. why have been -- we been solely to implement it? alex: the plan is alive and kicking and doing well. i think the european investment bank is one of the best kept secrets in the world. we are the biggest multilateral tank in the world. we are 10 times bigger than the world bank. we do indeed focus on infrastructure. we also have three other pillars that are innovation, small business, and climate and environment. we've been working on that a lot. the bank used to just before big projects until the plan came in and now we have wanted to much riskier than smaller loans. we lend out financial instruments, about 80 billion

euros the year. we have in the bank of good news. thank you for bringing that up. francine: when you talk about innovation, we don't know the skills of the future. i don't know if i will be replaced in 10 years or if james will be replaced. how can you innovate when you don't know what the future looks like? alex: you have to have staff the look at different projects that come into the bank. on the innovation side, you are right. the fourth industrial revolution will change the way we work, our labor markets. it will revolutionize politics. this is a transition we have to look at. havee innovation, you hundreds of thousands of companies that can innovate. everything from robotics to 3-d printing, we don't know what the world rings with.

we have to have a financial mechanism support this. we have 28 separate digital markets, unlike one in the united states area that is something europe needs to work on. francine: for the chancellor and the u.k. have done more or infrastructure? james: the housing market is a financial asset rather than a place to lay your head. challenges of the industrial revolution, i concerned about the dark factories. how do we actually support people who are in the service industry and they will have to create wealth by machine to people? like bill gates talking about the taxation of machines as if he were people.

the distribution of wealth is going to be a huge issue for the next generation of politicians. francine: thank you so much for joining us. we will talk about some of these infrastructure plans. we will talk a little bit about china next. if you are a bloomberg user, log on to tv and you can ask us russians about china. this is bloomberg. ♪

nejra: let's get the bloomberg business flash. just breaking, hype profile dealmaker overhauling the investment banking arm is leaving after less than two years. he has agreed to leave by the end of the month are in no reason was given. he was recruited from goldman sachs. a new twist to the biggest tech qualcomm is now willing to boost the price if they drop the bid for the next he semiconductors.

opec's biggest producer is trying to regain lost ground in the largest oil importer. they are in talks. has been status overtaken i russia. that is the bloomberg business flash. francine: we are talking a little bit about the eib and infrastructure in the growth we want to see in the eurozone with upcoming elections. the politics of it goes away and focuses on real growth. let's go back to alex in brussels. of theith his james investment management. let me start off with you. when you look at the european growth, is there anything that allocations are doing badly because they are too afraid of hitting penalized at the vote?

they should focus on longer term. it takes 10 years to see the results. alex: there is always an element of fear and or gently when you are in politics and in element of calculation. my take is usually the politicians can do two things with the economy. the first is set the rules and standards, whether it's by legislation or whether it's basically by banking controls. the other thing they can do is try to liberate markets. i think the european union is a prime example of that. is when always there you talk about freedom, are the politicians willing to go the full mile on this? i would like to see politicians work more on liberalizing the markets.

james: i think the critical challenge of liberalization is to maintain common standards. problemsone of the big with brexit negotiations as they want free trade, they want free trade of capital, they did not want regulations or to make contributions or the fleet -- free flow of people. premise.ot get a we must accept that the only way it works is for our common standards. francine: you believe globalization is at risk? is the trump administration backing down on that? think 2016 was a game changer with brexit and with trump, which means america first in the world second area there is a lot of protectionist

rhetoric. with the free trade agreement, they took a stand that plays into the hands of china. free-trade agreement, the jury is out. if the message continues to be the u.s. jobs are lost because of manufacturing and abroad, we will see more protectionism. if the message is reversed, we will see what we can do with technological development and the u.s. as a great chance here. francine: thank you so much. coming up, more surveillance. ♪

francine: a dovish tilt drags the dollar down. the markets believe in a

december hike. tumbled amid the government crackdown on leverage. germany said to be open to talks about forming a new merkel government. good morning. this is bloomberg surveillance. tom keene is off work thanksgiving. it's been a running joke if he has shopping or not. in the meantime, let's get to the first word news. may get aela merkel partial lifeline from the social democrats. they are prepared to offer her limited support for fourth term. according to people familiar with the planet, he could back merkel, but he has ruled out the grand coalition. in the u.k., conservative party lawmakers are delighted with the budget. the targeted younger voters is a tax break and promised the

biggest home-building program in almost five decades. tomorrow,'s and bob way gets a new president for the first time in almost four decades. countrys to leave the to a new democracy. federal reserve policymakers are signaling they will likely have an increased next month. minutes of their most recent reading show some are looking for stronger signs that prices will rise. if you want to see inflation on an upward path before the next hike. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. thank you so much. let's look at the markets. it is thanksgiving. for our american viewers, happy thanks giving. you are going to see thin volume and that can exacerbate some of the moves we are seeing.

stocks, positive seems to be outweighing the negative sentiment. touch.lar is up a currencies tumbled yesterday. currentlyking at oil at 57.9. that is because of opec and if they will extend their production cuts. aree the social democrats going to start a coalition of talks with merkel, martin schulz will discuss his plan later today. that is according to people familiar with the matter. he offered to help form an underground coalition. our german government reporter. thank you so much for joining us. markets don't like uncertainty. they don't know what's going on.

coalition,ions, a when we find out? >> that's a very good question. we don't know when we will get the result. i think the move forward now are the talks today where schultz is offering to allow a minority government which could be tolerated. plan, he is going to go into talks next week. that is what one person was telling me, with merkel. merkel will have to decide if this is an option. she has been very critical. she is skeptical. that would be a better solution than a new election. underlying theme, this pressure to form a grand coalition.

this haunts the social democrats. they have to face the question, whether they want a new election or if they want to enter into a grand coalition. a lot of people in the party's a new elections will not be good. it should be avoided. grand coalition will leave them further down in four years. be thought of one point. be willingould she to lead a minority government? saying this.en in a few interviews, she is said she hasn't ruled out the minority government. she thinks this would not be a stable solution. she is skeptical.

caseould prefer in this elections. clear.ference is on, thereare moving is, you could have an agreement with the social democrats. the agreement comes close to a coalition agreement. i am skeptical she would fall for this. francine: thank you very much. joining us is our asset management chief strategist. thank you for joining us. i have to start with you. was this expected in any shape or form? could this be the end of an era? there are lots of surprises. the jamaican coalition talks broke down on sunday and it was

the ftp party that let it break. we expected the csu or the greens the lockout. than everybody is really not coalition's. now everybody is backtracking on it. it's a situation that we hadn't seen before. it's very difficult for anyone to know what happening next. itthe beginning of the week, looks like early elections were on the table. i think that risk has receded. it's in a really difficult situation. early elections are a big risk for them as a party. government is not what merkel wants. what ruleslition is out. i don't think there is a strong position here.

they are depending on merkel making a face-saving offer in the end. she is the one coming out of this strongly. francine: does it change depending on what kind of government we have, does it change any of the policies? does it impact the economy western mark christian: it does matter in the end. we're not talking about a country in crisis that needs urgent policy decisions. this is not detrimental to growth. we just saw the pmi, this country is coming. degreeal policy, to some deregulation and the economy, these are big decisions that are upcoming. whoever runs the country will have influence on much going on in germany and beyond. i thought that was a good outcome given the strong commitment to tax cuts and pro-european policies.

i was always skeptical. they have taken them act now. you would have to be skeptical on the europe side. if it comes up as a grand coalition or a minority government, that might not be a bad thing. francine: what does it mean? let's say merkel were to become weakened, does germany lose the most? isthe most important issue if merkel would stay on or not. the rest is irrelevant. i think it's important for the european investors to have angela merkel in charge. i think it's true it would be weakened anyway. one is the immigration issue. in the short-term, i don't think it's important. we don't think the german

election will the situation where investors will be worried about europe or european markets. francine: what about the german finance minister? changeuld dramatically the trajectory of the eurozone. luca: there is not a significant disagreement. i think the main story is not going to change. i don't think they would accept any anti-european. risk, we are talking about a different scenario. one of things we have not talked about that matches the european central bank. they start haggling. first of all, does it weaken the german government, doesn't hurt these negotiations? ofistian: there are lots

positions out there, not just positions but seats of agencies. we have seen to london-based agencies moved to countries not germany. that may be a new arguing chip. we have a new eu commission president before draghi steps down. there is a whole list of positions to be filled. it may be more interesting to germany politically than the ecb presidency. french, anda italian run the ecb. spain and germany. there is an opening for germany. that is my key point here, is it

in the strategic interest of germany to be wes independent. you have for little control of the ecb afterward. it's not much better for germany for the head of the emf controlling rules. that is the strategic question for germany. everyone knows these strategic federations. i think we can turn circles. francine: i think that is the next point, if there are any leaks out there. go.eems steady as they they are not going to be to brusque. doesn't matter who becomes president? luca: what the ecb is planning, unless we see core inflation moving up above 1%, i do think the ecb will do anything different. succession to draghi

is important. makes it more dovish in the ecb. it could be less forceful. i think it's an open secret he wants to be head of the ecb. he doesn't want to be to hawkish. the risk is positive, they will be more dovish in the short-term. i don't think the ecb will be the key driver next year. francine: thank you so much, edelman. stay with us. we will find the latest bloomberg businessweek. it has a thanksgiving theme had a delightful holiday dinner. don't miss it. this is bloomberg. ♪

nejra: let's get the bloomberg business flash. the energy supplier plunge the most in 20 years to they. profit was less than expected. the market share is shrinking. they're having to deal with government limits on the amount customers pay. germany's biggest dealmaker reported a 15% increase in earnings. it is forecasting higher profits. the maker of angry birds has some angry investors. 20% of marketost value. fell 29% from one year go. that is the bloomberg business flash. -- dollaryou stumble

tumbled after the latest fed meeting. while fed officials are confident in the labor market and economic growth, several looking for stronger signs that prices pick up. if you want to see inflation on an upward path before lifting rates. the possibility of a christian -- december rate hike seems unchanged. when you look at the fed, what did we learn yesterday? it's more complicated and some people think. luca: they will look at this gdp growth. if you have nominal gdp growth, i think they rely three times. maybetrue that inflation for some is a mystery. when we look at the data, it is moving in line with models. we have seen a weaker dollar.

we have seen the stronger growth. we expect inflation to be higher. i don't see a significant change. francine: when you look at treasuries, i saw something showing real growth. this is interesting as well. this is the spread between the u.s. 10 year and the german ten-year. about- are you worried it? christian: of course, i'm worried about what is happening, which is markets see this is it and the fed is past hiking too fast. it precipitates the next recession, that is something i don't want to see. the markets aren't determining whether there is going to be a recession.

it worries me that they see a big risk of there being one. francine: do you trust the fed and what they say? do you face the mark -- trust the markets? what janet yellen is saying that they are itching to hike. luca: this is the normal behavior of the business cycle. are we in the late part of the cycle? in that case, it will pick up. are we somewhere in the middle? i think we are toward the end of the cycle. i don't see that there is anything strange. at this point in time, the fed may overreact. i think this is the major risk. it's possible. christian: i think there is one elephant in the room, that is fiscal policy in the u.s.. verypect that to be

reactionary next year. that could give us a boost to growth. the economy is late cycle, it could be inflationary as well. the fed reaction function would suggest three hikes. delivered,ls to be given how weak inflation has been this year, i think it comes out in the minutes, the skip schism toward their role in inflation forecast. you would get a lower forecast. i think fiscal policy is a binary thing here and that is something you need to get right when you forecast this. francine: we do have to come back to this. this is the two tenure spread in the u.s.. both of them are staying with us. tomorrow, conversation with iain

duncan smith. look for that interview on the brexit show. it's early, but it's worth it. this is bloomberg. ♪

francine: tom keene is off for thanksgiving today. u.s. thanksgiving to over viewers.

as seven ors much sent before covering ground in today's session. it's an arm of the largest developer in the uae. if the developer of the world's tallest building. tracy, it's great to have you on the program. quite a day decide to ipo now? >> there was always a discussion around the timing of this ipo. if the development arm of the parent company here. they are a company that is synonymous with dubai and its skyline. you will see its name on buildings, the tallest skyscraper to the dubai mall. this was going to be a closely watched ipo. why is the share price taking? yesterday during its debut day of training.

it is a property company, it is your toward the dubai economy. if you look at the timeline, you have to conclude there are political factors at play here. 26, whenhat on october this listing first opened, it was a week and a half away from the saudi corruption crackdown. we know within a day or so of fullisting timeline or subscription, it was almost completely subscribed. on november 5, we got the surprise news about the saudi corruption track down. that appears to have not a lot of investors appetites. this is going to be a very closely watched thing both for dubai and for the wider uae market because we have another listing come in hot on its heels, the listing of the big

abu dhabi national oil companies gas distribution is this. francine: thank you so much there from dubai. upthe meantime, coming ubsrrow, we speak with the head of wealth investment. look for that interview at 7:00 in new york. we will be talking about everything from brexit to china to the u.s. and a bigin volumes fall in china. ♪

♪ >> this is "bloomberg: surveillance." thanksgiving to our american viewers. i'm francine lacqua in london. tom keene shopping and cooking in the u.s.. fun fact, americans expected to

eat about 46 million turkeys during their traditional family feast. minnesota produces the most turkeys in the u.s.. we had a chart looking at the price of turkey over the last 30 years. it has been up and down, not as much as bitcoin, but up there. as you look at thanksgiving, there will be a lot less trading volume on the ground. it impacts the serious business we do here on bloomberg: surveillance. european stocks raising earlier losses. --had quite big negative over on chinese equities. u.s.ng volumes because the is closed today for things giving. let's get to the bloomberg first word news with nejra cehic. nejra: australia is warning the power in asia could shift to china if the u.s. withdraws its political, economic, and security ties. --tralia said it's concerned

of china's military expansion in south china sea leading to clashes. there will be a bigger role in luke -- regional affairs. turkey is president argues higher fed rates are cause of inflation, not a tool to control it. the country's prime minister is pushing for a lower rate. he spoke in a bloomberg event. >> banks are not happy with high interest rates. who is holding your hand?who is preventing you from producing it ? are citizens do not like high interest rates. if you wanted to, you could reduce it. nejra: turkey central-bank has been trying to stop the fall hasnst the dollar, but refused to a grace -- raise interest rates. a republican congressman from texas has apologized for a lewd photo that appeared on the internet. joe barton says he had sexual relationships with other women when sipe -- separated with -- from his second wife. bets donald he trump will not win a second

term. he says democrats will have to come up with a reasonable alternative. if they nominate what he calls, a leftist candidate, trump will be reelected. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic, this is bloomberg. francine? francine: thank you so much, nejra cehic. australian dollar lower yesterday, after the u.k. had the deteriorating economic outlook. chancellor philip hammond announced a forecast for gdp growth in each of the next five years. let's get back christian schulz, city director of european economics, chief strategist at big day asset management. thatt a political budget means that the chancellor keeps his job and that makes an impact on economic impact -- forecast, or, was it there to boost the economy? >> the budget was the best the chancellor could do at the moment. it's not going to make a big difference.

i think what was the real is a big cut in potential growth in the u.k. from 2% to 1.5%. it's a huge number that will have a big implications for future budgets. as the march for 25 billion stimulus we have had. they are going to make a big change. i think there's not much that the chancellor can do currently. >> bloomberg.co think what is inter -- is,hink what is interesting people expected, and i expected, a rise in public sector pay that would have boosted private sector pay, and would have resulted in -- the bank of england is facing unemployment rate wage growth is picking up. the one thing i agree with his to play it safe -- the play it safe budget, to get it through

parliament. that's the one thing that could eventually lead to political pressure. overall, i agree given the circumstances. that's probably the best he could deliver. francine: what's the future in the u.k.? when you look at economic forecasts, how likely is it they will have to be downgraded? the elephant in the room is brexit negotiations, which they don't have a hand in. >> know, but the forecast weren't low because of brexit, big -- but because of low productivity growth we have seen over the past 7-8 years. they would not recover as they previously expected. that would have had them irrespective of brexit. whatever outcome brexit has, that doesn't change that story. many people are pointing out that if that's the case, the chancellor should be investing as much as he can to boost bride-to-be growth. however, i think personally that productivity growth can pick up, and some of what we are seeing

is a temporary effect of brexit, actually, and once we are through this uncertainty and we've got a deal, and the economy can adjust, we'll see andal rates of growth, lower -- in the future. think the chancellor is right in not trying to address that issue five years down the line right now, but waiting to see that happen. francine: what's you're thinking of brexit? will we settle in december? will we know if there is a deal or no deal? >> it's difficult to say. i think there will be some announcement for the negotiations. for investors, i want to say that brexit is an opportunity. we see, for example, record positions in the pound, u.k. equities being the cheapest since the 90's. from an economic point of view, it's a big risk. from the investment point of view, brexit has opportunities.

in a way, the u.k. is used -- is a market, a friend, doing badly. market has been exceptionally cheaper. for us, brexit is an opportunity more than a risk. francine: if it goes lower, we need to wait to come in, right? >> yes. look: it's difficult to see the .ound going back if you have a deal probably, the pound can move to 115, probably 120, no more. the euro is strong, the european economy. i think there is upside, may be a valuation. there is less surprise factor. i think it's different for the next year. >> your previous guest was saying that these -- negotiations in europe, wasn't always around.

in the end, if you have to negotiating, you will get results. that's my underlying assumption, that pragmatism will prevail on both sides. whether that's already at the december summit is better. a few weeks ago, it looked worse. we are seeing a breakthrough -- but we have to keep in mind that brexit only happen in march 2019, and the last minute. even if the december summit is a success or failure, that's not the end of it. it will continue. if anything, negotiations of the position and future trade deal are going to be more complicated than the position of negotiations by the irish -- and citizenship rights. francine: the irish border. how do you settle that? do you not need to take a bet that they will settle at, to make sure of the price of pound? how do you deal with the irish border? >> this is the most difficult issue.

bill,ms of the exit 40-45. i think the average border -- especially if the government in the u.k. insists on the fact that u.k. will leave the customs union. it's something which is technical, political as well. wait to see what the u.k. government is. and is the most important difficult issue. >> christian, productivity. thechancellor says productivity puzzle in the u.k., they tried to analyze it for a while. overlaying that is possibly the fact that models don't work, because you are measuring it differently. this would be the main problem. -- people are baffled by productivities. will it pick up? >> i think so. just like the kobe are, which has raised a white flag and said it won't, because it happened --

i predict it will pick up less than i have. for brexit and such uncertainty, i believe the economy can grow back at a 2% rate. other countries, we are seeing productivity growth picking up. ofhave had a long period weakening across advanced economies. in less got to show up innovation and productivity growth. now, we are seeing investment coming back. be my hope is that would lead to stronger growth. that's in my -- my hope is that this would lead to stronger growth. that's in my forecast. business investors in the u.k. are lagging behind. it's natural. there is big uncertainty, but with this result, hopefully relatively soon, i think the u.k. can catch up. francine: thank you so much. with us.s stay

coming up tomorrow on her brexit show, a conversation with in duncan -- the u.k. conservative party leader. look for that interview fulcrum 30 a.m. new york, 9:30 a.m. in london. this is bloomberg. ♪

♪ francine: this is "bloomberg: surveillance." i'm francine lacqua in london. tom keene is enjoying thanksgiving. president trump has just tweeted about thanksgiving. this is what has latest tweet "happy thanksgiving. your country is starting to do well. jobs coming back, highest stop -- stock market ever" capital letters "we will build the wall", capital letters " a

supreme -- record cut in regs." it's amazing what the president can get done just two tweets. it went through the american economy in 280 characters. we're back with our guests. up.s bring that tweet christian, when you look at the american economy, talked about the fed and inflation. what would it take -- i know you mentioned tax reform -- what would it take for ceos to start spending again? investments picking up and going back. >> you said, it's amazing what he puts into two tweets. if what he but is actually true, it's amazing what he can do just while being the president, breaking all these records. clearly, a lot of these things are the outcome of developments that were there. i think people do see progress in deregulation.

growtht in terms of the that that generates. one may ask questions about whether deregulation is benefit of society or not. that's a way to talk about environmental protection. let that stand as it is. going forward, clearly, taxes is the one big elephant in the move -- room, not just for me as a macro forecaster, but also for businesses that want to be competitive, compete in global -- advanced fans economies, or emerging markets, such as china. progress on that front, beyond the short-term boost to economic growth is very important. there's others out there, reform in the u.s. pension system, social security more generally. that something that isn't on the list yet. francine: do you believe the animal spirits will be back? >> they are back.

we have looked at american -- record highs. haveu are a consumer, you loads like -- low employment weights, -- low unemployment rates, low inflation. the only issue i have is tax reform, tax cuts right now, probably the wrong program at the wrong time. cutting is that by taxes, you generate more inflation. i think that's the risk now for the u.s. economy, why everything is good. francine: let's talk china. the shanghai composite falling over 2% for the government's ongoing crackdown on leverage. the tumble is especially jarring, given the relative calm of chinese equities. to discuss all of this is bloomberg's chief asia economic correspondent. you do have -- make it smarter. last time, we were talking about the pboc, what he was doing

during what will the focus be for the incoming governor? is it about debt and deleveraging? >> today's markets are giving him or her a fair warning signal the key focus for the government. the keygot to be -- focus now has got to be deleveraging. we have our own projections of bloomberg x -- economics, that china's talking debts, gdp ratio is hitting over a 300% mark by 2022, putting it up against heavier nations. there's something coming from policymakers and officials in beijing. we are hearing that from someone who is expected to be the outgoing governor over the coming months. we are seeing that in markets today. the priority will be continuing deleveraging, the risking of this. critically, not hurting the economy at the same time. francine: where does the deleveraging campaign stand? how stressful will it be for the

economy and rest of the world? >> it certainly seems like they're taking it quite seriously. one of the criticisms of china has been a lot of rhetoric, but no action. now, we see these recent string of warnings. there is debt in the economy -- a warning of debt in the economy. they seem to be taking steps. what they did last week for asset managers in terms of the crackdown there -- the days of lending to companies and other parts of the economies will be reined in. china has contributed more than one third of global growth this year. it's a vital called. economicsits own instability. that's obvious for the rest of the world, given it's one of the biggest trading nations. that's something that's a fine line. >> thank you so much. let's get back to christian guest fromor other

asset management -- and our other guest from asset management. >> the chinese economy -- chinese economy is lee -- weakening. think there is not much surprise to this. people expected china to grow, but it has accounted for 40% of gdp growth. it's actually very relevant. as long as inflation doesn't pick up much, and we don't see any reason why there should be a significant change in monetary policy. it would be good enough to stress -- sustain global growth. we don't see a policy surprise for next year. luca, thank you so much. you can send questions to tv or follow us. we have radio, twitter, tv. up next, we talk retail and thinks giving. this is bloomberg. ♪ -- thanksgiving. ♪

♪ francine: this is "bloomberg: surveillance."

i'm francine lacqua in london. we were talking about thanksgiving, and the composition of the eurozone economy. let's talk a little bit about the, what retail spending does for the u.s. and european economy. it's amazing how 3-4 years -- christian schulz is still with us. i'm really optimistic beers on economy, eric nielsen. another is coming in three years ago. retail spending is not bad. this economy is one that will increase as it turns upwards. how does this translate into economic growth? >> the consumer was the come --

pillar of growth in the eurozone. that was partly because the economy was recovering, unemployment was coming down. there was a good cocktail of things that were supporting at east moderate consumption growth. wasn'tar, consumption expected to be driving this. oil rices recovering, the nation coming back. as more, the investment was supposed to drive this, and it is driving growth. i think what's quite remarkable -- consumersndle also took care at all. these are reaching new highs. the one we had yesterday reached its highest in 17 years since 2000, which is remarkable, given wagewe still talk about

growth in europe, still talk about high unemployment rates, and recovering inflation rates. francine: talk to me about this chart, that we put together during the break. he like this chart a lot. it shows consumer confidence in the eurozone. we brought it back to 1985. this is more volatile. >> yes. >> this one is -- the trend is not as high. >> you don't need a block for this, to make something invisible. [laughter] >> it something that the consumer is back, back in the relatively early stage of the cycle. usually, this starts with external demand, exports, driving growth, then investment setting in. finally, once unemployment is low and wage growth is kicking in, the consumer also joining here. this was in the last two years because of cheap oil, and anomaly. i think the consumer is in this season for black friday tomorrow.

>> do you worry that -- this is like a brick and mortar know this is a retail space kind of conversation, but do you worry that a lot of big retailers have to offer lower prices? if that is the case, this goes back to the lack of inflation we see up there, and translates into no wage growth. >> for me as a macroeconomics to, this is a big question -- economist, this is a big question. we're talking about goods, it's are tradable. it's not just local trends like confidence in the eurozone, but global trends: supply chains, low wage growth, and bigger suppliers such as china and the rest of asia. inflation, we have had a pick up low andbut it is still likely to remain low. what's interesting from a local perspective is, consumers are so

confident, they want just by new toys and stuff. they're also going to get it other purchases. those can't be done in china. they have to be done locally. these come into play. we are not seeing it very much. francine: thank you so much. with the state of the markets. european stocks seem to be a racing earlier losses. happy thanksgiving. this is bloomberg. ♪

♪ ferro on i'm jonathan and and and in london. this is bloomberg markets. ♪

jonathan: under the rate hike in december from the federal reserve. this continues to dominate the fomc. breaking political deadlock in germany. the euro zone economy charges -- despite uncertainty. chinese stock struck the most and -- in that 17 months, a deleveraging campaign continues. the top stories, let's begin with market action. .olumes set to be thin in europe, equities treading water. price action muted. story for equities debt flat for euro-dollar, further up the back. pmi, 11845 ison how we trade. treasuries closed, bunds are trading but remain unchanged.