♪ aancine: citigroup ceo sees charge if the senate bill is signed. moves could move up to 15% of their european stock trading revenue under new rules. bitcoin trending: the bit -- the raises more than 20% over the last 24 hours. ♪ francine: good morning everyone, and welcome to "bloomberg: surveillance." i'm francine -- i'm francine lacqua here in london. this is what i'm thinking on the markets: a little bit of an upswing when it comes to european stocks. significant moves earlier on.

data points in a straily a disappointed investors. i'm looking at this litmus test to see if it is a risk on risk. 166.7 -- 112.67. we sit downhour, with the rbs chairman. howard davis will talk exit and the ranking landscape. later on, we will speak to the deutsche bank chief economist, david for kurtz-landau -- folkertz-landua. nejra: theresa may is expected to propose -- two simin another proposal for brexit. reporters were told yesterday that quote, having consulted with the people of london, she wants to come back with some tests. european officials are said to be flexible over a deadline, as

they appear to seem talks move on to trade. trump'st donald decision to recognize jerusalem as israel's capital has prompted condemnation from global leaders, and protest in the middle east, raising concerns -- raise move could new violence. it is time to officially recognize jerusalem is the capital of israel, and the u.s. can start its process of moving its embassy to the city. israel is aump: subornation with the right, like every other subornation, to determine its own capital. acknowledging this as a fact is a necessary condition for achieving peace. nejra: china's banks should increase their capital buffers to against against -- to protect against economic downturns. in a current assessment of their financial assessment -- system since 2011, there was a

recommendation for a gradual and targeted increase in bank capital. and it worked case scenario, they suggested that the country would face capital shortfalls according -- equivalent of 2.5% of china's gdp, together with loans. they are very much in agreement with us on the assessment of risk, as well as recommendation. not only that -- they have taken many steps, consistent recommendations in recent months. i think they are moving in the right direction. in south california, wildfires have shut the major commuter artery of los angeles. it wiped out more than $3 billion of market value, and its threatening some of the state's lucrative crops. stretches of interstate 45, leaving major l.a. job centers shut down the flames on the

mountain gulf side. partsve shut down, it and of bel air were evacuated. australia's parliament has voted to allow same-sex marriage across the nation. house of representatives passed a bill to change the definition of marriage from solely between a man and man, to "a union of people." this was passed last week by the senate. the law will likely take effect in about a month, with first weddings expected about one month later. 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, never a. citigroup -- nejra,. -- thank you so much nejra. --igroup will act as wouldo says the hit mostly stem from the bank rating down its deferred tech assets in the period the bill was signed.

let's bring in a reporter who gallo,banks, and stephen head of european fx strategy, and neil mitchell. thank you for joining us. let's kick it off with you. how unexpected was the citigroup calculations? >> i think this might be thicker than expected. people were expecting some of this to happen. supposing we start -- don't start imagining tax reform -- there's a tax cut in the long run. this is accounting 101. laurent: long-term, people are expecting payouts. francine: $20 billion -- 20 billion is 20 billion. what does it mean in the long-term? lionel: it took a hit in the short term. is theumbers -- this

fact, there would be some kind of charge. it's like $60 billion pounds are expected. quite a bit people still expect to make: this is a tax cut for private enterprise. francine: to put it in context, the lower tax rate means banks will have to write down to deferred tax assets. are we going to hear from other banks coming out with figures, or are they in a corner where they have to say something? lionel: exactly. european banks may have to take some hits. the history of the crisis, it hit banks all of the world. we will see things like this coming out. >> they are all treated as equal, right? there's not a bank that will be hit harder, or will it? lionel: no, they're different statuses based on how much money they lost in the past. citigroup had a bailout. that's partly why they've seen this. it's about your history. if you had a bad history, you are likely to have a problem. francine: how much are you focusing on bells or three, and

could we get a framework today? lionel: clarity in general is getting better. regulation is becoming clearer. europe is turning a corner. people are getting more positive in european banks generally. francine: let's bring in stephen gallo and neil mitchell, of credit suisse. how much do we know about the winners and losers in the tax bill in the u.s.? always, hard to tell, because the legislation is not completed. it's going to conference. it's interesting to think for a moment about whether it's a tax cut bill or reform bill. area outside of my immediate expertise. francine: does it actually affect the dollar? inflation expectations. weather, likef other professors, it doesn't do

anything. >> a lot has to do with the windfall. from a medium-term perspective, we think it will cause a fiscal deficit balloon. the fiscal deficit was set to widen over the medium and long-term because of demographic factors. with this tax bill, we are talking about a fiscal deficit in the u.s.. early part of the next decade, it could approach 5% gdp. fx is forward-looking. we think a lot of this gets priced in. some gets priced and in 2018. >> does it help with the animal spirits in the u.s.? is there going to be more activity, and does that impact the dollar? >> like i said, i don't know how corporate's are going to behave like the windfall. alsovestment boom could raise u.s. capacity, as well as markup growth. that might have a downward

impact on inflation. i don't know what the corporate , or what will happen in the foreseeable future. francine: neil, i know you are focusing more on european equities, but is there something coming out, saying they would rather give back to shareholders? what does that mean for u.s. equities compared to european ones? your i think it does, to earlier question, help the animal spirit. think this will be a further turbocharged economic activity.i think the fiscal stimulus will be helpful, while monetary policy may be contracted/ i think -- contracting. i think corporate's will do a number of things with potential from the tax legislation, and they are going , policies. dividends i think they will increase share buybacks. i think they will increase investments. fourthly, i think they will be more active on the mna

front.2000 to -- 2018 will be a robust year the u.s., and cross-border activity as well, and activity in europe. francine: part of the longer-term tax imposed -- and locations, -- implications, this could be a lot for big banks. niei inl terms of: competitive -- neil: in terms of competitive advantage, u.s. has the upper hand typically. we have a more regulatory lee strict -- regulatory lee strict environment -- we have a more regulatory strict environment. that's in europe. francine: thank you. staying with us. if at first you don't succeed, theresa may has another go at solving the irish border puzzle. time is running out. brexit talks moving. protests in the streets, as donald trump opens decades of foreign policy in the middle east.

a on that. this is bloomberg. ♪

♪ francine: this is "bloomberg: surveillance." on finance andus politics. i'm francine lacqua. here's nejra cehic. nejra: bbc holdings advanced talks to acquire laboratory for pounds,as 29.9 billion in a deal that would consolidate the betting industry. the companies are in discussions about combining a scheme. -- combining an arrangement. there's a contingent value right worth as much as 40 to 80 pence per share. comcast is interested in taking , part of theof sky

reason it's trying to acquire assets from 20 -- 21st century fox. according to a person familiar, technology --kies as superior. the world's biggest banks may lose as much as 15% of revenue from trading stocks in europe. research firm coalition development says total revenue from corporate investment banking across europe may slide of mifid ii.ult coalition has fixed income trading and banking, which accounts for the vast majority of revenue, which account for ..7% bitcoin has smashed through $15,000. ayptocurrency is probably bubble, but will still rise over the long-term. doubts about it has been strengthened by news that a

marketplace crowd-based cryptocurrency mining nights hash has been hacked, losing an unknown amount of bitcoin. that's the bloomberg business flash. francine? francine: theresa may is proposing anotherfrancine: -- is cementing another proposal for the irish border and brexit, and rushes to get a deal done before the european summit. to. prime minister is trying solve the border question after the issue of brussels on monday. european commission officials are said to be flexible over a deadline, and our game to see talk move on to trade. broad patent joins us on set, neil gallo of and credit suisse. i have a lot of questions. [laughter] francine: theresa may is not having a great week. >> she's not come about. i think it's thursday, today? francine: yep. learnedyesterday, we that the government has not started the impact, they haven't

done any economic impact assessment on any of the sectorial impacts leaving the european union. they have led people to believe they had done this. -- that went down really badly in parliament. they have fairly strongly left with the impression that there was work, but we couldn't see it. the reason why is because it wasn't there. we learned the cabinet has not impacts discussed where it wants to land at the end of brexit. we don't even know, they don't even know what they want out of the talks. , the that was revealed government said no, we definitely will laugh the cabinet meeting to discuss where things are going. we know there are astonishing views. meanwhile, the background, talks are not going terribly well. >> theresa may has to deal with these issues, she has to placate

her own cabinet. who is the most difficult one? >> the didi zero is the most difficult. as they would say, that's their brand. francine: what they stop supporting theresa may? then, you are out. >robert: [sighs] who knows. the dup like there -- what they have with the government. they probably wouldn't want an put jeremyat would corbyn in office, but the dup -- don't try and play a game of chicken with the dup. francine: ok. robert: they are very, very, very, very, tough shooters. the dup says, does is -- tough negotiators. they say, this is blink first, and we cut off eyelashes. francine: the pound, it's the only one is taking brexit.

>> if these talks move into january, and a solution before christmas, there is downside risk to sterling, we could see 131 tested again in tape -- in cable. thispower pundits, all of puts together -- all of the noise put together is another european style kick the can down the road scenario. we will have the softest of all possible brexit's for the u.k.. this is one way the conservative government will be able to resist the snap election in the short term. over the medium term, this will create massive problems for the conservative party. once the transition period starts, risk is high. for 2018, soft brexit, sterling, there's a big bu on dips across the board. yfrancine: does david davis, forced johnson, michael, do they allow that? robert: there really is the 100 -- >> there really is the $100 million question.

there is a strong case for that. tories who want a soft brexit see this as a moment of pressure. they see, basically, the government is facing reality, and the reality is you can't have all the things he promised. that said, the other people in this who are extremely tough negotiators are the people in who havervative party shown time and again that they are willing to pull things down on their own heads to get what they want. what michael wacha out of the cabinet? he might. forced johnson? maybe not -- boris johnson? maybe not. others and someone, if they thought they would get a proper brexit? i certainly wouldn't bet against it. that's come up with -- as labor keeps pointing out in parliament , there is parliamentary majority for brexit. francine: yeah.

yeah. >> to be clear, it's soft brexit with a transitional deal. a lot of question of what the uk's relationship with the eu would look like long-term is going to be sussed out during the transitional period. that's where the snap election is, because eventually, we will have to come to a u.k. election of what the uk's future relationship with the eu will look like. francine: let me get a deal in there. a seven -- second record -- referendum, or do you just look at monetary policy, or do you follow rob's -- day in out? and equity markets i operate on are not paying as close attention to the day-by-day news here. when you take a look at what overned with the election the european continents in 2017, there were initial concerns about the dutch election. then, there were concerns about the french elections. then, the german elections.

francine: this was voted on. there was a referendum. that is where we are going. >> we know we are we are going, but u.k. stocks have done reasonably well. francine: yeah. the level of equity issuance has been excellent in 2017. there has been equity markets in europe in 2017. the verdict of the market is providing, the equity market is, we hear you, we are monitoring all this stuff, we don't know how to judge it specifically, and we are looking at earnings growth and gdp growth instead, and are designed to buy equities. francine: stephen, if what you say is true, and we have a shudder, a soft brexit -- a fudge >>. i won't call it that. we have another election for jeremy corbyn, and what does that mean for? i think the u.k., the footing population needs facts on which to make a decision on. i don't think those will become clear once -- until we know what the transitional deal looks

like, until we start to analyze and debate what type of relationship the country wants with the eu when that transitional period ends. francine: we could go on for an hour, but we have to get to other use -- news. thank you very much. u.s. security council will meet on friday to discuss president's decision to recognize jerusalem on the council of israel. his statement starts the process , andving embassies there decades of foreign policy in the middle east. president trump: israel is subornation with the right, like every other subornation, to determine -- sauber and nation nation, with the right, like every other sovereign nation, to determine its capital. francine: benjamin netanyahu called it-- called it "a historic day."

benjamin netanyahu -- president netanyahu: this decision reflects the president's commitment to an ancient, but enduring idea to fulfilling his promises, and to advancing peace. francine: the news starts protests in the region, and condemnation from more readers. french president emmanuel macron said there's -- this contracts -- contradicts all the rules of international law. a warning echoed by many peace negotiators. an act, statements that is totally uncalled for.

>> she does she is in total violation of international law, and he is standing in the conflict. francine: joining us now is michael arnold, achieved from bloomberg news. the leader of hamas just called for an uprising against israel. >> the situation is very tense. the palestinian authority is still trying to get its reaction in order. the palestinian authority will discussh hamas, to coming up with a joint response. there's not some great jubilation here in the streets. this is just a recognition of reality. people are just taking it in their stride. i expect the next couple of days

could see violence. >> what does this mean for the peace process? >> president trump tried to position this as an element of the peace process. this could get the process back on track. i don't understand exactly how we see that happening. one of the things we have been kicking around in the offices that perhaps the peace plan the u.s. is working on, perhaps it's going to call for some tough asks from israel. this is the president's way of softening them up saying, you have to do what i say. that's the speculation. one of the things the president said is that 20 years of not , also had the peace on track, so why not try something else? francine: michael, thank you for joining us. , with just weeks left of 2017, fx and equity markets, we

will be back with our guest, and will offer them what they see as for 2018.oncerns tomorrow, an exclusive interview with the rvs ceo coming up. these are your markets. there's not a whole lot going on today. edgingn stocks right now higher. the dollar rising, treasuries rising. tax bill with republican lawmakers. this is bloomberg. ♪

♪ francine: this isfrancine: "bloomberg: surveillance." , where we focus on economic finance and politics. u.k. prime minister

theresa may is today expected to profession have another proposal of her brexit irish board issue. her irish counterpart told "havingrs yesterday that consulted with the people in london, she wants to come back to us. european officials are flat -- set to be flexible over the line, as they are key -- wanting to see talks. president trump's decision to recognize jerusalem as israel's capital has prompted condemnation from leaders and -- people in the middle east. leaders are concerned this could have new violence. is time to"i officially recognize jerusalem as the capital of -- it is time to officially recognize jerusalem as the capital of israel." president trump: israel's subornation, with the right to determine its own capital. --hnology miss as a fact

this is a fact. hera: the senate -- cfo says expects a major bank to take a non-cash charge to earnings of about $20 billion, mostly from writing down a deferred tax aboutstreet he said 3-4,000,000,000 dollars of the charge would come from a tax and -- taxation of foreign earnings. wildfires have shut a major community -- commuter archway, wiped out more than $3 billion of market value, and threatening the states lucrative crops. which features major was shut.enters, neighborhoods new the freeway, and near mulholland drive, including belair, were evacuated. --traily is parliament

australia's parliament has passed same-sex legislation last week, and will likely take effect in about a month with the first earnings expected about one month later. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. nejra cehic, this is bloomberg. francine? francine: thank you so much coming to her. of twoalmost at the end dozen 17. can't believe it. for some, it's company fast. for others, some of the assets that to do so well, probably equity capital at credit suisse, our guests are still with us. some ofooking at 2018, the pitfalls, concerns out there. what do you worry about the most for 2018? thewo words:

unknown-unknown. [laughter] >> north korea, a geopolitical event.the fundamental backdrop , francine on the other hand,, is terrific for investors. fundamental backdrop. in is fundamental for investors. many people have noted monetary policies in proving -- monetary policies, improving fiscal policies, and better geopolitical policies, despite the debate in the u.k. with brexit. the backdrop as a backdrop where investors want to invest. going -- inre, 2018, we will see more flood -- more funds in the european equity market. i don't see why it will stop going into 2018 after 2017, given the fundamental backdrop we are looking at. >> one of the things investors will find surprising in the 2018 dollar is the downsizing of materializing in dollar-yen.

there's risk of a clear out of short again decisions. in the broader picture -- francine: what's the catalyst for thatfrancine: >> good japanese -- >> good japanese fundamentals. about thing they will hike rates aggressively, but -- francine: but the investment is on the trend? >> -- it's not so much of an inflation story. after the global financial races, the playing field was leveled. we can't just look at japan and the yen anymore as an asset funding currency, while all other economies see higher inflation, wages, stronger growth in japan. the flank -- plainfield was level, so we have to look at japanese fundamentals. they look good. is current surplus increasing. unemployment is falling, used unemployment is low. debt dynamics of the public sector are improving. going to 105 is something the overall fx market is something -- that it therefore.

francine: right. >> most people think it is a diversion place of the yen will go down, to normalize policy. francine: let me bring it to the gallo chart. the funding yield curve, is it something ugly that's coming and people are preparing for, or is it just technical? >> i think there's a plot -- flattening trend due to the fed. there are some big structural factors holding town long-term yields -- down long-term yields. this is the reason why rate differentials are not driving the fx base. the rates market is preoccupied with this trait in the u.s. curve, and therefore rate differentials have dropped out of the driver of fx. but does that mean?fx investors mean?fxdoes that investors in euro-dollar-dollar-yen , what are those things they're looking at? the example, the continuation of the ecb taper.

drives a when a bank big signal in its balance sheet, that drives currency. when it goes from nothing to driving that, it's a negative factor. in the ecb's case, when it's a signal that qe will end, the sovereign portion, it will be a supportive factor for the euro. this will pick up in 2018 think. francine: bunny bring it to the mitchell charts. this is way back in 1987. this is what it looks like chamomile and. go?much higher can this >> we think it can go higher. the reason is, based on a number of factors, the most important of which is that analysts and portfolio managers are looking at the healthier financial services industry here in europe.

a day does not go by where we are not seeing, francine, good news on the business front with respect to capital ratios thisrforming loans, morning, there's news out of italy of additional improvement of the banking system within italy. equity markets do not act well unless financial services is in better shape. that's what's going on. francine: the financial services, what will they become? physically rapidly changing landscape, so we could have banks that end up like utilities. beenere have certainly changes, francine, in terms of capital and regulatory standards. there's still the necessity for banks. -- the activity level, the

difference between the utility industry and the services sector, you are seeing a robust pickup of m&a activity going on, equity capital markets activity, leverage financial and the like, business and individuals want to get stuff done and can't, unless they are working with intermediaries in many cases. euro, do you say that will hurt equities here in europe? equity markets your we know -- yes. is the risk associated with that? certainly. it's not something that i'm losing sleep about. francine: what's your euro levels? >> 125 and 12 months. >>francine: euro pound? lower, 1286 in, 12 months. this is largely driven by the fx markets driving in the eventual

end of the ecb qe. reserve recycling. when competitions are there, there's less of a reason for dollars. you get this flow. there will be some of it. negative rates, the eurozone will slow some of that. francine:francine: thank you so much. it was fun. tomorrow, we bring you an exclusive interview with royal bank of scotland chief executive officer. it will be on brexit, the changing banking landscape. that's a 9:30 a.m.. , we speak to a top chef in the world about fine dining -- next, we speak to a top chef in the world about fine dining about

his restaurant. this is bloomberg. ♪

♪ good morning. francine: this is "bloomberg: surveillance," where we focus on economic finance, and politics. and, sometimes food. [laughter] i'm francine lacqua here in london. let's talk fine dining. patron,t is a chef consistently ranked amongst -- the world's fault -- top five restaurants that he runs in france. there's an emmy award winning series featured -- featuring his restaurant master of none"."

he's also an author of books, including "never trust a skinny italian chef." he joins us now with the release of his new book " sprint's gold net -- "bread is gold, and much more." you are putting your star power to do some good is about. feeding the hungry, not letting food go to waste. >> exactly. this is, our project is a cultural project, not a charity. charity project is about the everyday life, the people, the charity, theythe like taking care of the everyday life. the heroes of this project. the european acquisition -- exposition, i analyze just the numbers, 806 million people that don't have anything to eat. 1.3 billion tons of food wasted every year.

the answer is, first of all, to feed the needy, you have to fight waste. francine: why are we so wasteful? : we want toura much. who want to produce more. is that offer acting as my grandmother was doing? before you made the table, you had to finish what you had on your plate. what we had in the country, a place, a small town, mod enough. my grandmother was always saying, why do we have to the pig once a year? this animal is giving its life for us, and to feed the family. we have to be careful of using every bone of the animal. it's a sense of respect. it's a sense of respect of not throwing away bread. 165see how many things,

very easy recipe in the book, is the way to communicate that everything the family, what they can do with an overripe nana, tomato -- overripe banana, sue keeney -- zucchini. francine: this is a cultural project. therefore donations. hugh, and other chefs, trent -- eu will come and other chefs -- you and other chefs transform them into meals for people in need. massimo: the goal is to fight nation -- waste, with what? francine: donations. massimo: creativity, time of the chef, etc. second, time of the volunteer. third, communicate, like you are doing now. we are communicating this now to the world. the pope, pope francis, they're talking about that. these things, the obama's.

think about how barack isn't to climate change, and now, michelle is about changing the mentality of some of the united states, and cooking healthy food. to arrive inabout every single house, the family in the world. has to be there, because it has to help. you feel it's so light. there are notes on site -- all the sides of the recipe. if you are in lima, or tokyo, new york, you can switch and give the right notes. my mom, and grandmother was doing this with their own cook and book. francine: were you surprised at the uptake of this?have more people said, i want to do more? massimo: authority happening. it's already happening. it all of the world. people know what's going on. francine: it's all back to basics.

massimo: almost. almost. we couldn't be back to basics if we didn't ask through the iphone's guard, the way we approach it. that's why we need the artist and designers. -- because the spaces are beautiful -- you can rebuild the dignity of the people. francine: the people that you serve, basically. the people that are in need! massimo: yeah. you can see the new york times, the article interview, one of these, your font here for two days. they said, it's the first time we have been treated like human beings. the city of hospitality and serving people is what really changed deal perspective. london was unbelievable. built,utiful space we

olde day one, there was an lady, 92 years old. she asked for microphone after the service. she said, can i speak?i said, of course can! she said, i want to speak for everyone. it is the most beautiful place i ever seen. i am 92, and i can die very happy now. you have success in everything. you are not collected. i know you are also very into fashion. you are at the british fashion awards on monday. what comes next? jeffrey now? is there a resurgence of italy -- is it good to be an italian chef bring out? is error resurgence of italy -- right now? is there a resurgence of italy? massimo: it feels good. i know my passions.

francine: does italy need help? massimo: italy needs help. there's as an example: a big crisis in italy, it's not economic. its identity. the end generation, they don't know how to dream anymore. -- the young generation, they don't know how to dream anymore. i was worried, with an award winner, we share the same desk for five years in high school. he is the ceo of gucci. we were together there and say, this has to be the example for the end generation. [laughter] francine: why don't they dream? massimo: i think it's a problem of the leaders, you know? the leaders, they don't give us the, the -- francine: the fervor, fire in the belly people need. massimo: absolutely. francine: are people afraid of being entrepreneurs?

in italy, people are afraid. massimo: we are. we are. we are. the whole economy is based on the scroll, incredible -- francine: yeah. massimo: -- companies. to think about the fast cars, the slow food. maserati, lamborghini, ducati -- and there is land as parmigiano, having vinegar, a terrific brother. the people are saying, how can we do, with all these taxes, bureaucracy? people, they don't trust what we are doing, you know. vision, vision, we need people with vision that are guiding us. francine: you need economic growth for vision, right it goes back to ---- right?it goes back to -- massimo: yes, it's difficult to explain. i live in modeno.

modeno's growing more than germany. it's easy for me to talk and say something like this. the big problem is italy is the south of italy. francine: yeah. what you like about your job most/ you must travel a lot. [laughter] massimo: i love to travel, get exposed to other cultures. francine: because you ideas. we are looking at the beautiful church. massimo: these are old. project, the militaries, my friend who is pushing me to do all these kind of projects, she said we have to rebuild all of the recipes, and check everyone. chef, mexican was working here -- she spends five months to check every single recipe and put together all the details.

francine: so i can make this and what, 20 minutes? massimo: without -- 20 minutes, 20 minutes, with no tools, no special needs. we already put the vision and recipe in their. francine: yeah. so every single one can make every recipe. great!thathat was was fun. please come back. the share structure has been positive for all party's. i spoke to a person about the growth of the business in china. and of course, 23.2% stake in the company. you can take a bigger share, right? they have an option? know, theyct, as you passed away a few weeks ago. metta bit told coup was -- met she she to include -- was the grandmother of so many

years, and gave us this kind of long-term vision for the company. between themment and italy, if they want to increase their share, part of of company, with the passing madam. francine: as they said, if you don't have any indication either way? >> i think the situation today is a good one. there have been these disagreements for many years. it has been a very positive parts.on for all it's been positive for the company first, very positive for forfamily, very positive everyone. i don't think we have any reason to change. francine: what will the next four years change? do think there's a single market that could grow more? >> digital i think would be the

most important elements of transformation in the markets. definitely, we are going to see this growing -- e-commerce growing. e-commerce in china as a more than 30%. it's huge. we are going to see digital growing. we've got new channels. stores, we are big, a these. segment is more and more people are troubling. the new channels, in terms of regions, they are growing. columbia come everywhere around the world. other things are growing, too. the figure will keep going.

.eople need them more four more years, byproducts. very interested to talk about the long-term effects of this industry. francine: you can see that full interview later this month on leaders with loquat. this is what you should be watching out for today. social democratic party starts its convention, where it will decide whether to start negotiation talks. that's one of the things we're watching out for. , if is your day to check you look at some of the things on the move, stocks gaining. rising.ar is the dollar in fencing as treasuries are abstaining, as progress continues negotiating. if you look at the sectors and sector differences, telecoms travel shares leading this share higher. .esources are underperforming

bloomberg surveillance and the next hour. tom keene joins me. we will have an interview of tomorrow with the rbs chairman. the ceos tomorrow. we speak with a chief economist at deutsche bank. he's david markowitz landau. on tooyed having a guest talk about fine dining and his book. this is bloomberg. more to come. ♪ .

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♪ francine: citigroup cfo david $20 billion non-cash charge if

the senate bill is signed. thanks to lose up to 50% of their european stock trading revenue under mifid 2. more than 20% over the past 24 hours. this is bloomberg surveillance. i am francine lacqua in london with tom keene in new york. a little bit of movement with dollar an amazing guests, howard davies and more about the economy with the deutsche bank economist david folkerts-landau. tom: the theme has got to be for interest rates are and what interest rates tell us in the 2018. it will be a lot of fun. francine: we have a flattening yield curve chart we want to get to but first, the first word news with taylor riggs. taylor: almost no world leaders

agree with president trump in his decision to declare jerusalem the capital of israel. the president says the move is in the best interest of peace between israel and palestine. theresa may called the decision unhelpful and hamas has called for a new palestinian uprising and declared that the middle east peace process is dead. has not given up on meeting the eu deadline this week for brexit proposal. she is preparing another plan on what the border between ireland and northern ireland would look like after brexit. running into opposition from her own cabinet and political backers in northern ireland. australia is the 25th country to legalize same-sex marriage as lawmakers and the lower chamber parliament approved the legislation three weeks after the public back changing the law in a nationwide survey. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg.

tom: equities, bonds, currencies, commodities. bitcoin is ang -- commodity. next green. -- next screen. watching,, the german two-year a -0.75, the number of the moment, entertainment i guess. willulated, howard davies know about who will tackle be hyperbolic move of bitcoin/ . i amine: this is what looking at, european stocks rising after two days of declines, the profit-taking we

saw yesterday and the day before is going out and the dollar is a dancing with treasuries steadying. progress towards a final tax bill with republican lawmakers. the australian dollar, some news that was -- when it comes to the australian economy. let's get back to the taxpayer with citigroup appd -- expects a non-cash charge to earnings of about $20 billion if the u.s. senate version of the tax bill is an active according to their cfo. mostly stemould from the bank writing down its deferred tax assets, $3 billion to $4 billion would come from the taxation of unlimited foreign earnings. joining us is the rbs chairman, howard davies. thank you for joining us. we started talking about the tax

bill and news about citigroup. this is more of an accounting concern than the actual tax bill being a burden on banks longer-term. what the make of the tax bill overall? >> you are right, a mysterious thing for people to understand that the reduction of future taxes reduces the value of your protection against the taxes. since banks have made a love of losses, they have a lot of that protection and it has a peculiar impact. people should look through that. if you look through that, it looks like corporations will have increased tax profits because it looks as if the bill will get through in some form. from a general point of view, it should be good for earnings and people will just have to filter through this noise of the peculiar treatment of deferred tax assets. francine: a healthy u.s. economy, the fed, everything

seems ok. do you worry about something going wrong or that the taxpayer will not impact inflation expectations? >> there is a time when everything looks ok and you start to worry, particularly if you are a former regulator, that is when you get nervous. when i look around the world, i see some frothy things going on, u.s. equity prices almost back to.com boom territory. massive expansion of credit in some parts of the world. i am starting to worry that we are seeing frothy but i would call late cycle moves where the pumping of liquidity into the economy is producing peculiar fx feared that makes me nervous. in new yorkriggs is and wants us to talk about deferred tax assets which buries

student on their exam. are, are wer we developing bubbles or -- forget about bitcoin with its artificial rate structure in the interest rate market. is 2018 when the cost of negative rates in an ultra-connotative central banks come to bear? >> people have been forecasting it for some time and i have been on the side of the argument that says the sooner the central banks can safely begin to normalize rates, the better. two things concern me, one, the impact on asset prices at the moment and we are seeing racy moves. secondly, if we do run into a difficult economic situation, you can never build that out. what does the ammunition the central banks have if they going

to the recession with qe still operating and interest rates close to zero? i am hoping that led by the fed, the normalization of interest rates during the course of the next six months, i think that is necessary and the tax-cut gives us a better background for that to happen. tom: should we fear rate increases? the oneber 13, or afterward, michael mckee and i will go mental on this with scarlet fu and the fed, we start the next day and move right on, don't we? >> i think so. the worry people have is we have never been here before. never been in a situation with such -- tom: fair. >> the fed and bank of england has been signaling -- waving flags around, saying it will happen. two, thereove or cannot be anybody who has not been expecting that. the question is whether at some point in the tightening cycle,

you will get an unexpected reaction where suddenly households go oops and the mortgage market gums up because people are worried about the cost of mortgages. move, but i do think we have to keep moving. tom: we are fortunate to have with thisoward davies free dishes math skills -- s.etty just math skill here is log bitcoin. what has my attention is this is tilting and we are hyperbolic. it is starting to look like ugly evidence from the past. which regulation authority is

going to tell this scheme, whatever it is, who will be the adult in the room? >> that is a difficult one because it does not really fall under anyone in particular. tom: exactly. >> all the authorities can do is put on the sign from dante's inferno, abedin hope all who enter -- abandon hope all who enter. it has to be done by the fed and the sec and the bank of england, it is hard to see any solid rationale for that move. francine: bitcoin climbing above 15,000 dollars, at what point will regulators talk about it? is the ecb talking to the fed about what to do with bitcoin? >> i hope so, the central banks are anxious about it and mark carney made a speech about it and christina lagarde talk about it.

they are nervous about not wanting to seem to be saying that all of these new innovations are bad things. the market is telling us something about the demand for new and faster payments systems. that is the message the banks and central banks have to take, the market is set telling us -- the market is telling us this, i do not think it will be bitcoin in the long run but something is going on. i was more interested in the fact that the australian stock exchange is using something else for payments. probably more interesting move in the long run. wouldne: someone said it -- it should be outlawed. outlaw a lotike to of eggs and i am not sure how easy that would be because to define an alternate payment system, i cannot see how that works. by the time he

steps off the stage in london, we will be a $60,000 on bitcoin. let's try to get the dante guy> ? francine: i have him on speed dial. just for you. thank you so much, howard davies states with us. coming up, a conversation with david folkerts-landau, the george frank chief economist -- the deutsche bank jim economist -- chief economist. ♪

♪ tom: bloomberg surveillance. francine lacqua in london and tom keene in new york. with us is howard davies. it has been a challenge for united kingdom banks and european banks with the distinction of how selected american banks are going to do. what is your strategic mandate to turn into tactical execution for 2018. what is your to do list for rbs? >> we still have some legacy issues which have got to be on my to do list as we have not settled our subprime mortgage issue with the department of justice. 2018 willt, i think be a big year for the growth of --ital backing across europe digital backing across europe and happening in the u.s. banks like mike will have to

accelerate their moves into digital banking and get our apps with much more functionality. that will be the big move. people have been focused for too long on regulatory capital and cleaning up the problems of the past. in the meantime, new competitors are emerging in the banking system in europe at a great rate , and in europe we have a discontinuity from a new directive which is producing but we tend to call open making whereby aggregators can come between the banks and their customers, screen scrape their data and offer them new services . that will create a big change in european banking. that is the thing that is preoccupied european bank chairman. tom: what is the job exposure of traditional banking, 72,000 or , howver at rbs, employees

many of them on a percentage basis are at risk because they are in old-style nondigital banking? announced aecently major restructuring of our branch network. in fact, the numbers of people in that branch network are not so great these days because not much customer service goes on in the branches now. -- in bank branches now. the large numbers of people are in versions of i.t. support which may look as if it will change a lot and it will in the way it affects customers, but not necessarily in terms of employment in the back office of the people managing these apps and systems. you cannot just look at the change in technology and say it will result in a massive reduction of jobs. we would expect to employ you are people in five years of them

now but i cannot give you a number and i do not think it will be like one third of people left. francine: do you expect or ,oresee a challenger bank someone like facebook, an opening in the payment system in europe, i do not whether he goes further, allowing someone like a google or facebook to come into your space? >> we cannot stop them from coming in the payments area, but so far these organizations have rather balked at the idea of being a bank. when you are one, you have the regulators all over you. that is what they want to avoid. the question is -- how far can they get into payments without becoming a bank with that -- all that that implies. at the moment, people are testing the boundaries of how far they can get into traditional banking without being regulated.

francine: some analysts say that because of regulation, whether overregulation or just regulation, european banks retrenching from dust that banks will look more like utilities in five years, tenures -- 10 years. >> may be but some utility functions taking over -- paypal, apple pay it looks more like a utility function to me. the big question for banks is how we turn our customer relationships of which we have many into something more useful to customers. to make ourur data services more efficient and make ourselves more useful to our customers? data to, they use big provide not only a cheaper service but a service that responds more to the needs of their customers. that is the challenge for banks. francine: you stay with us.

this is some of the protests we are seeing against the decision by donald trump to recognize jerusalem as the capital of israel and the decision to move the u.s. embassy there. we have had a lot of talk on this. world leaders are weighing in and we will discuss it throughout the show. this is bloomberg. ♪

♪ francine: good morning. this is bloomberg surveillance. let's talk about brexit.

time for your morning must-read, as theresa may has another proposal for the irish border a columnist writes the irish , if we leaveemain it open, how would it keep foreign goods and migrants from coming across it? if they harmonize their rules with the eu, it would not be a problem, if they do that, what would be the point of brexit? my first question is -- the ,rish border, you have the dup which theresa may needs to keep onside but a possible rebellion from home cabinet ministers. which is more tricky for theresa may? how much time that she focus on ireland? i think her problem remains within the conservative party, trying to keep a majority in the cabinet or at least more or less

in the cabinet to move this forward. that that alone is not enough and a solution in ireland is necessary. the dilemma is very serious. i was in belfast recently and people talked about compromise solutions whereby there is some kind of threshold below which ,ompanies can move goods freely large companies would have to preregister to go across the border so there can be checks but no physical border. you cannot help but thinking that some solution along those lines, as long as there is a decent degree of continued regulatory alignment, the rules don't diverge too much. i cannot help but believing there is some kind of solution involving a bit of technology combined with the odd blind eye. that may just do it.

unfortunately, that has not been work through with the dup in belfast. francine: are you surprised that the pace of negotiations, we heard from the eu that they are more lenient if there is sufficient progress. is it sufficient progress so far? >> i hope they say there is sufficient progress because they ,et on to the next phase soon we will be in a serious situation that goes back to the city which is my prime concern. the rest of the europeans are prepared to go with the undertakings on the budget are sufficient to keep us going and they hope they get by this irish bend in the road. s safeguarding financial services a priority for the government? >> they did not appear in the foreign speech, but we hear -- florence speech, but we hear it will be a big priority.

now is the key thing going to be whether or not they can agree that a transition deal , but by that i mean a standstill deal so they can agree soon that the rules will not change on the cliff edge of march of 2019. francine: thank you. for more bloomberg stories, pick up the latest edition of bloomberg businessweek on newsstands tomorrow, we look inside the world of fake news. pick it up tomorrow. 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. ♪ tom: good morning, everyone. one part of the bloomberg terminal, something we have never seen, we are there right chart, ioin, this is a

would never show this on television, i show the derivative desks this. this is a fancy chart pattern. all you need to know is that there is no selling of bitcoin. dampening of the cell calculus is extraordinary and the slope of this white line, i have never seen before. bring it up here. i am getting the current closed with the official premier league telestrator. here is the chart of the intraday move. this is beyond elegant. an exceptionally well-behaved buy buy chart. the drift function of this is second to none. explain to our audience why this chart is so elegant. what is the underpinning market structure that makes bid, bid, bid, bid, bid on bitcoin?

>> i am afraid this is irrational exuberance. as greenspan famous phrase. he then found a market cap going up after he said it should stop. , notis an unusual market in a normal two-way trading market that you normally have, even in the biggest crisis, you have some people trading in and out. andre in unusual territory it is a great chart but i am not sure that normal rational market analysis can't eliminate this. tom: you are the most qualified person in the world to talk about derivatives in wall street . you made regulation work in the united kingdom. should cme and the cboe, the american derivatives market make a formal market and this thing

we are seeing on this chart? >> i think i would counsel them not to at this point. because i am not sure that they know enough about what the underlying is about the nature of the supply and demand of the underlying asset. i think it would be a risky move in reputational terms to go in that direction now. francine: if there are features, we understand that -- futures, we understand the cftc are looking at stress test limits at a lot of the clearing before these contracts are given the green light. good futures put an end to bitcoin if it does not go well? >> i suppose but i do not know how you would price a future at this point, maybe there is someone smart enough to do it but the normal way would be very difficult to adapt to this instrument. francine: how do you see block chain developing? if nothing happens with bitcoin,

the underlying technology could be used in other way. >> block chain is much more interesting. ours is one, cautious about the security of it. the idea ofhat distributed ledger which makes transactions, payment systems much cheaper and faster in real time is a good one. block chain has life. tom: thank you so much, particularly for the comments on the plan forward on rbs and the timely comments and perspective on bitcoin. howard davies is the chairman of the royal bank of scotland. there is taylor riggs. >> starting with the wildfires raging in southern california, a severe impact on businesses and tv and movie filming are shutting down and crops wiped out with $3 billion of market from the regional utility edison

international and one fire has burned homes and upscale bel air and led to the partial closure of one of the busiest freeways in los angeles. , speculation that democratic senator al franken may resign over sexual harassment claims. more than half of the senate democrats have called on him to step down. he plans to make a statement today in washington. house republicans will go ahead with a plan to cover a government shutdown on saturday. they are preparing a two-week stopgap spending measures and house leaders are overwriting more conservative republicans who want a longer extension to get more leverage on these and and democrats. a painting that went for a record $450 million at auction is headed to the middle east, christie says that the painting will be displayed at the louvre and upper darby -- upper darby. the painting was purchased by a saudi prince. global news 24 hours a day, powered by more than 2700 journalist and analysts in more

than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you. the past year has offered landmark m&a deal, amazon, big money move for whole foods. cvs shook up the health care space with its acquisition of aetna. up with guest is coming what to expect next year. hernan cristerna, rate to speak with you. -- great to speak with you. m&a do disruptors need for is this justified? >> 2017 has been great for m&a. we are looking forward to the market in 2018 for two reasons. we talk about the alignment between certainty and elective of the.

i cannot remember when about every major economy in the world is growing. i saw a survey out of a business roundtable which jamie dimon shares, the 150 ceo participants have indicated that the level of confidence is the highest it has ever been in six years. there is a sense of certainty confidence going into next year. the key issue is the issue of disruption, we are in the age of invention of m&a. traditionally we talk to ceos and clients who worry about how do my sales look like three years from now, five years from now? right now, they are asking themselves how -- what will my business look like, how are other companies going to disrupt my business? different discussions. francine: we do not know what the skills of the future will look like, automation, disruption, the pace of

disruption in the last five years, if we go to the save in five years, what kind of landscape do we look at? if you are a company buying someone else, what points do you hit? >> there is undoubtedly a domino effect. if you are in the retail industry and have observed what amazon has done with whole foods, if you are walmart, you are trying to figure out what to do. if you look at at&t time warner come on the back of comcast nbc, what will sprint do, what will come -- t-mobile and netflix do? there are these first early mover -- it creates a domino effect where any number of companies, they feel and are actively discussing how to react. francine: does it mean you made -- make large acquisitions for the wrong reasons? you have to make a bed that can cost you tens of billions of

dollars for the right acquisition. >> it is a fair comment because the early disruptor deals was probably aol time warner, and we know how that went. amazon was selling books and facebook did not exist, twitter did not exist. .t was a different era everybody is asking themselves how will technology affect my business. it is not about cost integration, it is about vision. it is a great time to be an m&a banker. we have got you in a lot of different ways. it is difficult to add value if you go to a company and whatever sector and chemicals and tell them that we think you should buy this, they say thank you, we know that. those of us who operate and deal with companies across different sectors, we can add value because we can help some clients connect the dots across different sectors. it is a risky game.

i agree with that. tom: wonderful to have you with us this morning, thank you for opening up with madrid with the merger of british air and iberia and they serve budweiser at your house after the end of transaction. transaction. you are bringing traditional jpmorgan transactions and combinations over to the unique arrogance character behavior of technology. do you speak to the tech troops the same what you spoke to iberia in the middle of that transaction? >> i take my tie off when i do that. yes, we do have the discussions. and also the enjoyment we find as bankers today is our ability to connect the dots and make some clients aware of what is happening in

other industries and make them alert of opportunities. i spent a lot of time in asia. there are companies in china that our experiment in with things like fractional insurance. try to figure out when do you drive your car so that you'll have to pay for insurance while you drive your car. there are companies that are advanced in artificial intelligence we can figure out how to sell a package of goods to you taste on your past behavior in a matter of seconds. there is so much technology. for us, again i feel we can bring value by connecting the dots in terms of what we see as bankers and travels in terms of what different sectors in different parts of the world. bankerat is great as a but you have to sell the product to the institutional and retail public good are they naïve when they go into these transactions? do they have to be better

informed about the risks of technological progress in the digital world? is, 2017 hasrrific been a great year for m&a activity. that has been fueled by the fact that investors are supporting companies to be strategic, to be daring, that will spill over in terms of investors being open-minded and for the minute i think they will give the right companies with the right track record and write capabilities, the benefit of the doubt. investors right now are supporting the logic of m&a to spur an enhanced organic growth. francine: europe year to date, 30% more deal than the year before, why? >> it is this notion that investors are supporting m&a activity, supporting m&a as a way of enhancing organic growth. cheaper funding is still very low.

when you put that together with this new disruptive age of invention trend we have been discussing, the m&a market are well in 2018. francine: coming up tomorrow on bloomberg tv, we speak with the 9:30 a.m. and landed and 4:30 a.m. in new york. -- this is bloomberg. ♪

tom: a contentious six miles south of jerusalem.

bethlehem. perhaps the beginning of unrest in the middle east. the news that hamas is intifada -- third announcing a third intifada after the president wants to move the u.s. embassy to jerusalem. usually controversial -- controversial. this morning, bethlehem. the history made yesterday afternoon was extraordinary. francine: the history was extraordinary. onthe same time, a lot going in washington away from this with the president meeting top democrats in congress today to track everything going on to avoid a shutdown which could be scheduled for saturday. we will monitor everything in washington and the middle east. back to m&a and most of the $160

billion worth of and many in china energy industry has destroyed shareholder value. a record $35 billion in cash has been put aside for fresh round of deals. let's get back to hernan cristerna of j.p. morgan chase. there talking more about zeitgeist of m&a. china,cally japan and what will 2018 bring? >> we believe a lot of activity. we can take them in turn. japan is interesting, i spent 10 days recently meeting a number of clients. you find in japan a distention between the hearts and minds of ceos. most ceos understand that, given the lack of growth in japan, the exposure of japanese companies to the local economy, the

demographics, they need to expand abroad. however, there has been so many stories of frustrated attempts of foreign acquisitions that it is hard to tell them, do i really have to do this? there is a constant debate between the heart and mind. when i am with my clients in japan, those who have had a good what makes japanese integration effective? it means sending a very senior executive to the businesses that has been acquired abroad to act genuinely as an ambassador. the problem in japan to send a senior manager abroad is viewed as a demotion. and many incidences, you do not see that. at a time when -- we finally have gdp growth out of japan. 1.5%. nevertheless, japan understands

they need to go abroad and our expectation is we will see more deals from japanese companies. francine: what about china, there has been a regular for a push back from a love of country's, the u.s. and in europe, getting chinese ownership of some of the local companies. >> i was in china at the time of the party congress. i met with a number of our clients. they cannot be happier in terms of the direction set by the government that global expansion is on. -- entitiesentity will become more international and bring more goods and services to china. as you point out, the debate is increasingly any number of western countries are saying, what is in it for us? a big word is reciprocity. i believe that china is ultimately pragmatic and if the cost of the continued expansion

will be to continue gradually opening up the chinese economy, they will do that. therefore, i believe, with the interest behind globalization in the very recent and significant party congress, we will see a renewed space of activity coming predominantly from state-owned entities rather than privately and companies. francine: thank you, hernan cristerna, you stay with us and we will talk about the tax bill and m&a activity under president trump. if you are a bloomberg customer, log onto tv to watch tom and i. chart.'s cool bitcoin ask us to ask questions on your behalf. this is bloomberg. ♪

tom: rumor surveillance. -- bloomberg surveillance. morgan,risterna of j.p. thrilled he is with us. i do not know if you are part of the donor class but you just want a big victory with the tax legislation in the united states of america.

we see this with the presumed horizontal mergers and acquisitions and with vertical combinations. you mentioned at&t-time warner earlier. will we consolidate into a plutocracy? with the incentives that guys like you have, are we headed towards a tax-cut induced plutocracy? >> i think what is important for the business is that, as we look at tax reform in north america, it is a real opportunity for north america m&a activity. to positivel globally but positive in north america m&a. if you bring down corporate tax rates, that will create a further incentive for corporations to consider separating some of the non-core assets. if tax reform brings about a form of repatriation of a foreign cash, that will be a

further incentive for u.s. companies to deploy the cash. tom: will they deploy it back to the haves? the next transaction, the deal of the moment, fox-disney and all of that, forget about that, what does it mean for america? or is it just more vertical and horizontal transactions in combinations that hearken back to the time of andrew mellon? >> it will mean more capital to be deployed strategically for u.s. companies to be bigger and better. the challenge will be how are the companies in the rest of the world going to react to that? the only question around tax reform is in terms of what will happen in terms of interest tax deductibility. if that is part of the legislation, that would be hampering the logic of all-cash deals. it will prevent private equity from being on the offense.

and it will be good for north america because a further inducement to see all stock deals, easier to do in region that all caps feels, which are more consistent -- all caps feels -- cash deals. tom: will it be good for labor? >> everything which is constructive, everything which is growth induced, has to be good for labor. francine: the trends good or bad for deals? >> i think we are trying to figure what his administration is going to point, whether in terms of antitrust approval transactions, the reality is that one of the commercial obstacles to deal doing is the fact that there is a lot of questions on antitrust approval of transactions. that is not a donald trump issue

, it is an issue in china and europe. we see so many deals that are now taking 12 months and more to be approved, it is a real challenge, to be a ceo and say, i want to acquire this company. this deal is good for my shareholders and good for my employees, however, i do not know if i can get my hand on it for 12 months and how it will look like 12 months from now. that rings uncertainty. -- that rings uncertainty. tom: thank you so much. in the next hour, david folkerts-landau. ♪

♪ tom: this morning, what is the story for interest rates in 2018. david folkerts-landau of

deutsche bank on your economics. shut down thursday, congress buys time as democratic leader nancy pelosi will darken the door of the white house maybe for lunch. says there will be an american embassy in jerusalem, hamas calls for a third intifada. broad condemnation of the president's campaign promise. this is bloomberg surveillance live from our world headquarters in new york, i am tom keene and francine lacqua is in london. protests in bethlehem, south of jerusalem. francine: we brought the viewers and for our radio listeners, we have live pictures from ramallah. we will look at some of the market movers. the dollar advancing and treasuries steadying, a lot

about the u.s. tax bill and the possible shutdown saturday. tom: very good. we will have much more on jerusalem and kevin cirilli will join us from the white house after the historic announcement yesterday. here is taylor riggs. the story in the middle east, almost no world leaders agreeing with the decision by the president to declare jerusalem the capital of israel, the president says the move is in the best interest of peace between israel and palestine while the british prime minister theresa may called the decision unhelpful while hamas has called for a new palestinian uprising and declared that the middle east peace process is dead. theresa may has not given up on meeting the eu deadline this week for coming up with the exit proposals, preparing another plan on what the border between ireland and northern ireland would look like after brexit. she ran into opposition from her own cabinet and political backers in northern ireland. has become the 25th

country to legalize same-sex marriage. lawmakers approved the legislation three weeks after the public overwhelmingly backed changing the law in the nationwide survey. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you. a good equities, currencies, commodities, green on the screen, up three with the euro weaker. please.een vix, 10.84. two-year, not sure why it dropped. maybe government shutdown. a stunning number, we get to the chart on bitcoin in a moment. , somene: on germany industrial output unexpectedly shrinking for the second month. let's watch that.

seeing as howut negotiations are ongoing with the government, something to keep an eye on. some of the basic market, some interesting calls on yen early because the economy seems to be picking up nicer. the australian dollar, they missed estimates on the economy. tom: very good. this is a different chart. axis, theng on a long kind david folkerts-landau look set on bitcoin doing moonshot. changed. here is a linear function of $8,000, $10,000, and about $15,000 this morning. the chart is starting to look a little more hyperbolic. people say to me -- why are we doing bitcoin? this will have ramifications we

cannot see right now. francine: yes, it goes back to the conversation we had with howard davies half an hour ago and whether futures, a make or break moment for bitcoin and whether we need futures. next week, 19 hours will set the tone for central-bank policy in 2018, ticking off wednesday as the fmc meets for the final time this year. a rate hike is virtually certain . on thursday, the ecb governing council will meet once again and the boe meets 21st time in more than tenures after they raised rates. we welcome david folkerts-landau , the deutsche bank chief economist. monetary policy that could change 2018. what do you worry about the most? a policy mistake in the making, or steady as they go if the market do not interpret it right? >> this is a challenging time

for the rates market. let me ask you -- we have german bonds trading at 33 basis points and german growth north of 2%. german inflation close to 2%. the numbers do not make sense. normally with that consolation of growth and inflation numbers, you expect the 10 year to trade at three or 2.75. why is that? because people expect a recession? a difficult thing because not enough tools for a central-bank to deal with that. is it because of political uncertainty? i doubt it. if it is because of the ecb buying, why the 10 year is trading that low, you want to worry about, if it gets reversed, how quickly will it rise? the major challenge to understand is -- if the ecb start pulling back, fourth quarter next year, will that be

anticipated and will we see a sudden 100, 150 basis points increase in the bond rate. that would expose weaknesses in the financial system, nonperforming loans running about $1 trillion, hidden because interest rates are low. 150 basis points to a 10 year rate, you will see more significant numbers. this is a challenging time. to some extent, if you are -- 2007, 2017, this 1 this one you should anticipate because numbers are internally inconsistent. francine: the flattening yield curve also in the u.s. with a similar story. when do markets realize that there is a huge distortion? >> less concerned about the u.s.

, the same general concern but at 2.3, the 10 year in u.s. growth running at 3% inflation that rate will, have to go up but not as much as the european rate. i have somewhat more faith in the fed managing this been with the ecb as they tend to be quite not logical about this. they may not even move until the third quarter of next year because they're concerned about the underlying health of the banking system and the economy. tom: david folkerts-landau, wonderful to have you with us. always controversial work over the years an important and based on flows. that me bring up eight or which shows the interest rate, the fed target real rate, the inflation-adjusted rate next to bob -- thanks to bob for forcing me to make this chart. idea we are still

below a 0% inflation-adjusted target rate. you --hat over to what flow studies. martin told us yesterday that the flows will come to the united states. are they? >> to some extent, yes. the u.s. performance particularly now with the big u.s. will see significant inflows further into equity markets and also credit markets. that is most deadly going to happen. the u.s. looks good from a broad economic point of view. there are no real vulnerabilities on the growth side and i would expect u.s. growth to pick up quickly. our estimate of the tax-cut impact on growth runs between 75 and 125 basis points. .hat will materialize this is good news for the u.s. economy. tom: there is the breaking news on general electric with a

$12,000 job cut. -- $12,000 -- 12,000 job cuts. it goes to the competitive landscape. everybody is looking for economic growth, including chairman powell and mario draghi. i get that. will we finally see the economic growth that normalizes the financial system? >> i would not put it that way but the competitive element is usually important, from 35% to 20% and reduce the rates on pass-through corporations, this is a significant competitive threat to the europeans. you will remember that the immediate commentary from the europeans was about that, whether this constitutes unfair competition, whatever that means . it is a serious concern. it is justified. would expect significant reaction to the u.s. corporate rate cut in terms of investment flows into the u.s. at employment affect.

francine: we have a lot of questions for you. david folkerts-landau of deutsche bank stays with us. a chart looking at the two-year spread treasury bought and we will get the u.s. jobs report and reaction tomorrow from alan krueger, the princeton professor of economics. , one of tom's friends, he only speaks to tom. this is bloomberg. ♪

♪ tom: good morning, everyone. bloomberg surveillance. francine lacqua in london. david folkerts-landau.

we go to kevin cirilli in washington. i want to go to come friedman as one example as one example of the uproar, in 30 years of covering foreign policy i have never seen a president give up so much to so many for so little , there is a santa claus and his name is donald trump, he does not see himself as the president but as the president of his base. but global in that condemnation, including a third intifada announcement by hamas. how will the white house respond? kevin: israel is our most important ally in the middle east and a lot of people, not just within the republican party are praising this decision. on the flipside, this is a very carefully weighted decision which did divide some of the thee house in a circle and

president's advisers as people on both sides of the boat -- both sides of the debate. tom: within this, is the support of republicans as well, as you know, the jewish community in the united states has had an interesting fractures relationship with the republican party. was this announcement a donald trump announcement, or did it have support from leadership on the hill you speak to everyday? fracture ushave a relationship with the democratic party also and polls suggest the dangerous game be democrats are playing and having wavering support of israel. this is greeted with loud applause by republican leadership, including house freedom caucus chairman mark meadows and republican leadership, the chairwoman of the republican party and leader mitch mcconnell and speak a ryan. -- speaker ryan. francine: the russian foreign

ministry commenting on the u.s., on their website saying russia is seriously concerned about the u.s. move on jerusalem. i am not in the business of conspiracy theories but is this link to the rush investigation -- russia investigation? -- hasrussia has gotten had a bit of fun and poking the united states with the investigation. facts and the influence an election, not just political institutions on the right, but also the left and in silicon valley, presents challenges in the united states. the conversation will eventually go to how to present -- prevent what happened in 2016 from happening again. francine: for our radio listeners, you can see teargas, this is ramallah on the west bank.

i do not know if it is a car on fire but expecting protests to exploit. -- to escalate. do you hear worries from the trump administration that maybe the time of this was not adequate? in particularts have suggested the timing was not something they would necessarily agree with an internationally we are for the decision reverberated throughout the world as the saudi's called it a "dangerous move." the fallout and timing comes at a time in which it could prevent kushner looks for middle east peace. tom: thank you so much, kevin cirilli come our chief washington correspondent. with us in london is david folkerts-landau, who is of a certain vintage where he remembers the back-and-forth of middle east tensions and

israeli-palestinian tensions. what about the political landscape for next year? will it be as fractures and electoral as we saw in 2017? concentrate on the and monetary policy part of things. i believe the politics to you and frank -- i will leave the politics to you and francine. speechless.m is you say it is tv, i need more than in the comment. you have to link this to the greater economics. >> of course you do. tom: if it is about subpar gdp, does deutsche bank say we are all clear on economic growth? >> from our point of view and the market point of view, the german election is usually important and quite consequential for many things. largely underreported outside of europe and germany.

what the government -- what it will look like will have a significant bearing on u.s. politics. the leftward drift, if we will coalition, thed democrats will extract a significant price for joining the government and supporting angela merkel. that price will come in support for european institutions. the narrative is that you need such support to stabilize europe. and to make it crisis-proof. i think that is complete rubbish because to make euros -- europe crisis-proof, you need to have reform at the national level to make it more competitive. you do not need more institutions are ready to lend more money. it seems backwards. -- iate that part of the

am afraid that part of the arrangement in the grand coalition will be more of a tilt to giving more power to the european institutions and socializing the losses and the system like italian debt. macrone comment from mr. on the presence announcements were terse. -- president's announcement workers. -- were terse. ♪

♪ francine: morning. this is bloomberg surveillance. let's talk about brexit and the u.k. prime minister, theresa may prevent another proposal on a sensitive issue of the irish border in an effort to break the deadlock among signs europe is prepared to give her more time. breaking news, a downing street spokesperson says theresa may is working together towards the next phase and the tone of the briefing he is giving to reporters is more optimistic and he says the u.k. is to a brexit -- is close to a brexit agreement but more work needs to be done. let's get back to david folkerts-landau. brexit, from the construction pmi, better than expected from november but -- or is it a political story? >> i find it disheartening to

have the ukip prime minister halfing to shuttle back-and-forth to brussels to get concessions. when i look back to the last 50 years, the optics do not look good. my view is that -- when you go back to dollar pound, where it 150,rading before brexit, ask take a step back and yourself, given the hit the u.k. will take from brexit, industrial exports, 15% devaluation strikes me as reasonable. from my point of view, at a fundamental label -- level, sterling dollar is too expensive. the bank of england is caught between a rock and a hard place, if you raise rates, you worry about inflation with a stronger currency. if you do not, you have another problem. it is difficult.

from my point of view, shorting the pound and guilt is about the best way in the medium-term. francine: where we surprised that david davis says they have not done a full analysis of the impact of brexit will have two specific sectors. that the that tell you government's template for the economy is? >> these things are easy to say and easy to criticize but it is a hard thing to do. massive personnel changes involved and you have to build staff to make it work. they have not had the time or made the effort to analyze it sector by sector. that does not phase me. it will come in due course. it is about the transition, and extra two years and which sectors you identify, the financial sector may not be a sector that is crucial. francine: breaking news out of the eu, i do think that around this time, it is late morning in

brussels and a love of the main speakers are briefing reporters, the eu is still in discussion with london on brexit and no deadline. if there is no talk on trade before the end of the year, does it hurt some of his levels on the pound. david folkerts-landau of deutsche bank stays with us. take up bloomberg businessweek on newsstands tomorrow, we look into the world of fake news. this is bloomberg. ♪

tom: bloomberg from new york on investment and instabilities to come. let me show you a chart, ancine to get to david

folk-ert-landaue on global wall street. this is a fiction and has to be solved. the u.s. 10-year yield up here and across the pond the german 10-year yield way up here. d.l. has looked at it for decades with historic research with michael dooley. you've never seen this chart? david: no. tom: what kind of outcome do we get from the price dynamics? david: i'll tell you this, the basic fact to recall is it you look at rates over a 500-year period you'll see what we have in europe we've never seen it before in nominal terms or real terms. that's the makings of probably the most serious bubble in

financial markets, the bond bubble that we have ever seen and we just don't have no historical analogy for this. the question is, if as some economists believe these rates will inch up gradually and to approach normal levels of 2 1/2 or thereabouts, everything is fine. i know looking at financial markets that rates don't behave that way. asset prices don't move smoothly. once people get it into their heads they have to move, whoever moves first wins and you'll get sudden moves and that's where we see the major policy challenge, namely if you get 150 basis points increase n the 10-year, when that finally happens it will expose financial fragilities and that's the big worry. tom: on a broader, philosophical view, if we did not want to take the pain of in 2009, define and 2010 and if we delayed through manipulation of

the bond markets by central bankers, are we just delaying that right down until 2020 or 2022? david: absolutely. we've been saying this for the last eight years that central banks have -- including the e.c.b., have played a very, very constructive role in providing liquidity at a time it was necessary to keep the system stable but since then the monetary easing we've seen has gone way too far. look at the numbers now. we have europe growing strongly. we have inflation steady, no longer worried about deflation, and still we have enormous amount of money being pumped in by the e.c.b. with interest rates, deposit rates being minus 40 basis points. it seems for somebody looking at it the last 30 years seems totally wrong and almost incomprehensible and why wouldn't they tighten earlier in order to get thousand a more comfortable place? francine: is it because they're

worried about temper tantrums and goes to your first point? david: i believe e.c.b. has become a political institution and the political bank is being used to prop up economies that failed to reform. there have been very little reforms and where the emphasis should be and should be made now because now is a good time to make new reforms but aren't being done. when you look at macron, much of his proposals are strengthling european institutions and we'll be much better off if more time is focused on trying to straighten out the french labor market and french legal system and pension system rather than worry about how to fund the e.s.m. in case of a crisis. that's my big complaint about the european policy right now. it's too much about capitalizing institutions to help with the next crisis and what you really want to do is have more structural reforms and labor markets that make them competitive and get debt down.

francine: which president macron is trying, is he doing it wrong or not quickly enough? david: not doing it wrong but very hard to do in france and you have to work at it every day. and grandstanding about europe isn't going to do it. you need to just domestically fight it every day, the way schroeder used to do and if necessary put your own job on the line. schroeder lost his job because of agenda 2010 but was a tremendous boost for german efficiency and work. that determination can get things done domestically, it's just not there right now. if you look at the forms that have been implemented, it's very, very little. tom: david, what does the united states have to do to play in the financial political game of europe for next year? there seems to be some challenges with that dialogue right now. i'm not sure the president can walk through heathrow now and be safe. but what do you see the u.s. doing to assist europe in the financial challenges forward?

david: i don't think we think in terms of assisting. what the u.s. is doing is to make problems more transparent, more real. if you look at defense, for nstance, you have a german acting minister talking about how europe needs to be able to stand on its own and confront the problems of this world without relying on the u.s. but then you have the minister next to him saying it's all very good but please no expense expenditure. there's all these inconsistencies to the european approach on policy and tends to be a lot of useful thinking without doing the hard work that has to get done in order to make it a prosperous region and defense being an example. you cannot be stable across the region if you can't defend on yourself and have to rely on the americans and nato to make that work. you need to be strong. tom: let's go over the euro. what do you see and what is the deutsche bank view on europeo

strength in the coming months? david: euro-dollar moving sideways. i don't expect big moves but would think, however, in the medium term as we expect the fed now to go in december, of course, and maybe three or four times next year, as that pace of rate increases accelerates next year on the fed and also as we see the tightening labor markets, very loose conditions now stimulus coming from there, we see inflation picking up and could well see a significantly stronger dollar from here on out. so it might be somewhat reversed but won't go back to 110 but certainly 110 or 115 range and would be reluctant to jump on medium term on the bandwagon and very much would worry the u.s. willpower ahead with interest rate increases and that the e.c.b. is not quite there to keep up with that. francine: how worried are you about nonconforming loans? you talked about this, the italian political class is at pains every time they come on bloomberg saying we're fine, we're fine, are they?

david: i think it's been a major policy failure within europe. not to explicitly recognize the detrimental impact of nonperforming loans. nonperforming loans skew credit to its existing firms away from the vibrant industries and it has shown up in growth. so the inability to deal with that has been one of the major problems with europe and remains that way. and it's a major risk now because if you do have a sudden increase in the 10-year rate tantrum rates tantrum the next 18 months or so, those nonperforming loans are going to be a major problem. and for instance, if it spills over into the italian debt market and you see the debt going up 100 basis points, italian banks holding that debt will see a significant hit to their capital 3678 francine: that's why the e.c.b. is still there then? david: i believe it's been part of the problem of the incentive structure within europe and that people will say that's because the e.c.b. is still --

o.m.b. will be there and q.e. will thereby and central bank will support us and we don't have to worry too much about the financial instability and nonperforming loans and i think that's been a major problem with monetary policy, e.c.b. policy over the last eight years. francine: you're talking about a rollover, kind of a catch-22, a vicious circle. is 2018 the crunch year? david: no. we probably have a little bit more time. timing is a hard thing for economists to talk about. it could happen suddenly but wouldn't be surprised if 2018 turned out to be not necessarily a crucial year because you see the bond issue in europe is fairly low and the german budget situation is fairly stable so i don't see immediate pressure for the 10-year to take a big jump though it could come but would push it back another year or so. but the question is in the

meantime, will the europeans use this time that's given to them to make the reforms, to address the n.p.r. problem, and other kind of structural reforms and i'm very skeptical there. they do rely on the e.c.b. to backstop them. tom: i don't care, what you want to know is you were cited in the lounge with john cryon, what did you tell him about bit coin? i'm sure he's come to you and said, will you explain this to me? what has d.f.l. said to mr. cryon about bit coin? david: it's the other way around, tom. i asked john to explain it to me. he knows it as well or better than i do. tom: we'll use that as the headline, cryan knows more than folk did not erts-landau about bit coin. thanks for being with us. we greatly appreciate your wisdom. much more is coming up here.

♪

tom: right now to taylor rigs n our first word news. taylor: the president says his move is in the best interest of peace between israel and palestine. the british prime minister teresa may called the decision unhelpful. hamas called for a uprising and declared the middle east peace process is dead. wildfires are raging in southern california and are having a severe impact on business and forced tv and movie filming to shut down and threatened crops and wiped out

$3 billion of market value from the recent utility edson international. one of the fires has burned homes in upscale bel air and led to partial closure of one of the busiest freeways in los angeles. speculation the democratic senator al franken may resign over sexual harassment claims today. more than half of the democrats have called on franken to step down. he plans to make a statement today in washington. global news 24 hours a day, powered by more than 2,700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. francine and tom? tom: thanks so much. the news this morning that general electric will jettison more than 18% of power unit professionals and maybe some staff as well but it's not about schenectady, new york, but more about constituent garth and -- stittgart and manheim. our executive editor for global business, jackie, this is exceptionally important

announcement and really goes back a year or maybe it's two years to alston. did jeff immel blow it by buying alston? jackie: he took a huge bet, no doubt. part of the problem is circumstance. it took a long time to close that deal, a year and a half. during that time orders were not coming in. once the deal finally closed, they didn't have the orders there. they're catching up and also coming at a bad time where renewables are in favor, powering from gas that's less favorable, so it's pomp and circumstance and not works out in their favor right now. tom: we've seen other movement the like this before. is it harder to lay off people in stuttgart than schenectady? jackie: look, there is something like 1,400 jobs are getting cut in germany and about the same amount in switzerland.

we don't know exactly where the repartition is coming from. what we do know is they're unlikely to touch france and again, as we pointed out,ize a problem for them. tom: within this, again, is the overall general electric picture, you piece it together with our global business desk in the united states. are we going to see more of this? is it a one-off to power or will they go division by division through a flannery right-sizing? jackie: good point. flannery said they need to cut at least $3.5 billion across the board. this is power unit is planning to cut a billion in costs and they're going to sell assets. we are going to see sort of a further preening, if you would, of the business to try and narrow and focus it and respond to some of the skepticism the market has laid on them. tom: thank so you much. the executive editor for global

business at bloomberg in london. right now joining us, ira jersey for years on wall street and bloomberg chief u.s. interest rate strategist. let's look to second derivative of all these markets. the 10-year yield here and the two-year yield here and the two years, coming up, coming up. do you care about, ready, a greek word, folks, do you care about the gama, the spread? ira: i've seen an acceleration of this curve flattening and i think that's just a sign from what david was talking about earlier in your show is that global economic data is coming in ok and i think people think the federal reserve is going to continue to hike and might actually get those three hikes. one of the things you've seen during this period of curve flattening is expectations going up, that the fed is going to hike four times in the next 14 months. and that's something that, you know, the market has not been expecting and it would basically say this is the first time the fed will hit the dots

since they started doing their dot plot years ago. tom: the vanilla spread, a log chart to show the rate of change. we need new calculus in new york city. this is the massive acceleration down, the slope matters, down we go. how do pros play this, is every hedge fund getting wiped out or is this to their advantage? ira: this is the consensus trade and the consensus is not always right but in this case it worked out for a lot of people where you think that the curve is flattening because of the accelerating economy and you don't have a lot of inflation but continue for see central banks be a little bit more hawkish. even if the e.c.b. ends up -- the e.c.b. next month will have its purchases of securities in europe and people think it will have an effect on financial markets and certainly curve

flattening is one of the big nes. it's not unusual. people think the fed didn't want this to happen. if they didn't want it to appen they wouldn't be hiking. it's a natural cause to see the move in curves. francine: we've never seen it like this. what is the likelihood of having a shock when these kind of distortions, i guess, adapt and adjust? ira: you have seen things like this actually. it happened in the mid 2000's nd 1990's. the pace wind up going quickly. it's not unusual for this to occur, again, late in a hiking cycle. we might be there. francine: the mid 2000's was the preempting of something ugly in the economy [ira: sure, but it took several years. by the time we got to zero and an inverted curve where

two-year-year-olds were higher than 10-year yields it took more than two years before we went into a recession. it took 20 something months before the stock market started to fall significantly. so the thing is, is all the curve flattening a cause or a symptom of something else going on? and i think it's a symptom of what's going on. you can't say that's the cause of the slower economy. the cause of a slower economy will be the federal reserve reducing monetary policy and that's exactly what's happening. tom: we'll come back and talk auction series and that's a fancy name in the financial world. ira jersey is extremely competent. let's give you a head's up, ira jersey with the briefing on the fixed income market. bonus round, over to the right side you get smarter for your 10:00 a.m. meeting right here. howard davies right now making global headlines with a bit coin, a log you can take that chart to your briefing.

log bit coin. dd no

tom: good morning, everyone. we have a lot of tweets and emails as well. why are you doing bitcoin? maybe because it will lead to instabilities? ira jersey with us and has seen this before, chief strategist for bloomberg and thrilled he's with us. let's bring up the chart. i think i've shown it four times today. thanks for the tweet. i agree, why are we doing this except it always has ramifications? explain the artificiality of the market making process of ask?bid in the non ira: that's what's going on. there's more buyers and sellers. tom: are there any sellers? ira: someone must be selling but selling at a much higher price. if there's a finite amount of any good or currency or any bond, you know, the only way you can wind up buying it from

someone else is by offering a higher price and that's what's offered here. tom: let me ask the question we asked howard making headlines, now with r.b.s., said c.m.a. and c.w.o., you -- c.b.o., you better watch it. what did you think at princeton when you saw those announcements? ira: it's interesting, it almost legitimatizes at least one crypto currency, right? and there is a -- i don't want to say a risk but one of the interesting things is that there's a lot of people who think that because there will be futures on this, now it will be much easier to short. one of the problems is that when you have a -- when you don't have derivative instruments on something it's difficult to hedge any risk that you have. and by having futures contracts on something like bitcoin, you now have an artificial way, a derivative way to get a lot of leverage and to short it. francine: i have a simple and

maybe stupid question but simple. the supply adds infinitim, so how do you add it and why aren't people realizing, if you just add the number of bitcoins because it's not regulated, what does it tell you about the market? ira: i'm not an expert on bitcoin by any stretch of the imagination but the way i understand it there's a finite amount out there and because of that, you have to buy evermore fractional shares. the tom: the underline on wheat, we know the wheat in kansas and people at c. t.a. follow it and if there's a drought you follow it up and it goes up. do you have any working knowledge of the underlieing that is bitcoin? ira: no. that's one of the dangers and something i think the regulators are skeptical about how do we deal with this international, i don't want to call it a folk currency but this currency-like thing that can be used as a means of transactions but we don't know how the underline is going to

work and we can't control it. if you're a nation state you don't like the fact that there is something that can be transacted and it's not a means of a nation state. tom: thanks so much. i liked it, francine, we end he show in french. fow, it's a f-o-w-. francine: it's actually f-a-u- x, actually. tom: bloomberg surveillance coming up, john farrow, pimm fox, bloomberg surveillance. ♪

♪ not so fast >>: the corporate

tax rate might not be cut after a. other changes in the bill. maybe it's not a deadline of all deadlines after all: european negotiators are willing to give theresa may more time to iron out a compromise on the irish border. bring what is burning: california white -- brentwood is burning: california wildfires, thousands evacuated. welcome to "bloomberg: daybreak." thursday, december 7. i'm david westin, with lisa abramowicz. lisa: let's get a check on the market minutes. where creamsense of dovish premarket trading is with abigail doolittle. abigail: let's look at shares of .e here we have a full screen of ge, up half a percent. this is set to cut 12,000