francine: trade talks. e.u. leaders set to give the go ahead. we're live in brussels. approving the g.o.p tax plan. is overhaul really at risk? and disney's offer for fox should face anti-trust scrutiny. welcome to "surveillance."

i'm nejra cehic in london. we're checking a third day of declines for european equities. the the stoxx 600 down .7%. the bloomberg dollar index on track for its first weekly loss in a month. the dollar weaker against yen. the b.o.j. pushing for more stimulus. we'll talk about that more throughout the show and the new zealand dollar best performer in this session on the announcement of a new central bank governor. perhaps that might not hold up with some of the data we're going to get next week but that's how we're looking in today's session. coming up today on "surveillance," we talk "surveillance" and get a take on markets later on in the morning. first let's get the first word news. greenbrussels, giving the

light for brexit talks to move on to the next stage. they have complied with their conditions over a future trade deal. diplomats warned the discussions will be more difficult than the first six months of talks. in japan, calling for more stimulus, prompted the b.o.j. to adjust its communications to flag risks of easing. the change of messaging could say why some investors misinterprets the comments on he exit. japan's companies are more confident than they have been in years. the global economic expansion underpinned exports. the sentiment among large manufacturers rose to the

highest level since 2006. in the u.s., president trump said he is very sure senator marco rubio will vote for tax legislation next week. he has threatened to oppose it. rubio said he intends to vote against the unless the refundable portion of the child tax credit rises throwing a wrench into negotiation. mexico's central bank raised its benchmark rate for the first time since june. bank of mexico lifted costs 25 basis points. the vote was split 3-1 with one board member calling for a 50 u.s. barring.he

they voted to remove the obama prohib i guess. f.c.c. handed he enforcement to other agencies. this is bloomberg. nejra: thanks so much. central bankers are gingerly trying to take away the punch bowl without spoiling the party. the moves were so well telegraphed or tiny and the language to hedged that there was barely a ripple in financial markets. president mario draghi said stimulus is still needed to bump up prices. >> it has remained uted overall and has yet to show convincing signs of a sustained or upward trend. an ample degree of monetary

stimulus therefore remains necessary to continue to build up and support headline inflation developments over the medium term. nejra: joining us now is the head of g 10 fx research at credit agricole. welcome. so we're talking about basically moving the punch bowl away. but so, so gingerly. they want to keep the party going. is this building up risk for greater volatility down the line? >> a lot of the rally in the merblinging markets currency was predicated on global liquidity. i think we could see some of the unwinding of the euro funded trades that are still very much out there and the global divergeance trade that could be the hallmark of what is to come in 2018. the currencies could benefit quite a lot from the central

banks, respective central banks moving ever closer to an accommodation. that makes us bullish on the euro, on the scandinavian currencies going into next year. nejra: interesting. the euro could rally to 130 by the end of 2018. > our own target is 123. we expect a gradual grind higher. if anything, it is the case as you mentioned to try and take away the punch bowl, they will be doing so ever so slowly. in august, they will take into account the potential disruptive impact that any hawkishness may have on the market. by the looks of it soft this year, they have been pretty successful. however the trend appreciation in the euro is firmly in place.

euro looks pretty undervalued still. from that point of view, while there is still some head way to be made on the euro, we think there will be a more moderate, bullish caulk. >> from the central bank's perspective, they don't want disfluppings the markets. they don't want volatile fifment >> you have to have conviction. from that point, i guess what i'm trying to say, is trend of appreciation would be here. there could be some wild swings along the way. if anything, really being -- the currencies has proven to be a pretty resilient trade and calling an end to carry trade, the removal of accommodation or market liquidity may be a bold call to make at the moment. on the whole, you think there are some factors that will continue to drive the trading activity but in the case of

those currencies, funding currencies like the euro, conviction will likely grow. we'll see it appreciating further from here. nejra: you have conviction in euro and you talked about -- as well. what about e.m. currencies? >> more cautious. they look relatively cheap to us. we have a fairly well defined geographical performance pattern across the globe. we like europe the most. that is the top performer in our outlook. very positive outlook for the year. distance, the underperformers, a view of the world will give you -- currencies. nejra: you read my mind. >> we're not necessarily bearish on the global outlook. what we see as a distinct risk, is that outlook going to become less homogeneous.

it is the first time we have all four economies, the u.s., eurozone, japan and china growing in sync. it is mostly positive for the merging markets, however growing forward, there may be a slide for the chinese economy in particular and that may create some relative value trading opportunities. this is why we're not bearish on risk. we do think that asian currencies may prove to be the underperformers going forward into nejra: that is interesting. people keep talk about this synchronized growth. >> there is a question of sustainability for chinese growth. nejra: thank you. our guest stays with us on "surveillance." up next, he will be there. president trump said he is sure budgetubio will back the bill.

this is bloomberg.

nejra: you're watching "surveillance." >> preparing for a complete overhaul of its top management. the c.e.o. plans to step down. his term ends in 2019. the c.o.o. is set to leave next ear. it would put him in line to take over the top job. shares fell the most in nine years. the swedish company reported the bigs drop in sales in at least a ecade.

they are raising questions about the company's expansion plans. among companies that submitted preliminary bids for the consumer health business. according to people with nowledge of the matter, nestle -- in the first round. spokesmen for merck declined to comment. they didn't immediately respond to requests for comments. disney to buy chunk of fox will need approval. the acquisition would make disney the number one studio owner with more than 1/3 of the market and give it control over fox's fx cable channel. it puts the networks under the same roof as espn. >> we think this obviously will

get a lot lot of scrutiny from regulatory authorities worldwide. it will take some time. we think it is very pro consumer. >> and steinhoff's international chairman is stepping down from an advisory board. the board accepted the south african billionaire's resignation from conflict of interest. an independent committee will take the acting role of chair. nejra: thanks so much. in the u.s. president trump said he is very sure senator marco rubio will vote to pass tax legislation next week despite threats to oppose it unless there are further enhancements to the child tax credit. he said he plans to vote against the legislation as written unless the child tax credit rises by $1,100 throwing a wrench into negotiations. our guest is still with us.

we keep asking ourselves how these tax cuts are going to feed into growth in the u.s. or give a lift to the dollar next year. for you it is to do with an issue of dollar scarcity. >> we're less confident it is going to be a game changer for u.s. growth or job creation. from that point of view, we maintain a cautious activity. we expect the fed to hike only twice next year. it could trigger quite a lot of inflows into the u.s. dollar flows as corporations are repatriating earnings back home. he recent price action, the fx market, traveling on the back of the potential concerns about a ax reform and co-exists with pretty solid evidence there is demand for dollars in the markets. it may be highlighting one important feature of those

underpatriot earnings they are already in dollars. 80% of those earnings in dollars, the direction of f. r fx impact could be muted. instead the key impact could be the dollar availability and the money markets really. dollar liquidity currency one of the big issues surrounding the tax reform and the tax cut repat ration. -- repatriation. maybin deed the market preparing for a period of scarcer dollar liquidity. from an fx point of view, to what extent is it supportive for the dollar? nejra: how does that affect dollar dynamics? >> looking into correlations between currency swaps, euro or the pound. there is not really a long-term evidence of any -- really. it is the case that the euro was suffering last year and the year

before because the markets on the speculative side were bearish on the euro. the dollar funded trade like carry and risk correlated currencies may be unwound if indeed the pressure of currency becomes a bit of an issue for them. i don't think the pound or the euro will suffer a lot on the back of that, but just because you mentioned that during our previous discussions, the risk or the risk rally. dollar currency may prove to be one. nejra: what becomes the bigger driver of the dollar fu you? the issue of dollar scarcity or what the fed is doing in relation to currencies? >> our currencies in our g 10 world, the aussie end, the q.e. , those currencies could suffer

if the dollar scarcity becomes more pronounced. the correlation with the u.s. treasure i have interesting. there was a breakdown in the correlation between fx and rates across the board. it is safe to assume some of that correlation may reinstate itself going forward, we are confident to call for dollar upside on the back of a higher treasure yield. most correlated with the treasure yield. the yen, the aussie, the new zealand dollar. the currencies expected to underperform the dollar. nejra: with the yield curve, janet yellen said don't fear the yield curve flattening. we have seen the bloomberg dollar index tracking it. moving lower along with it. is the yield curve going to steepen? >> it is a function of a couple of things. the shord end and the long end. we expect two more rate hikes from the fed and expect treasury

yields to hit higher from here. not really significant dynamic. clients seem to think we'll be heading fla flatter from here. that has correlated with what has been happening with the dollar more broadly. it could be seen as one of the negatives for the dollar going forward. nejra: our guest stays with us on "surveillance." up next, dissent in japan. we talk monetary policy as a member of the b.o.j. board calls for more stimulus. this is bloomberg. ♪

nejra: bloomberg's "surveillance." that's what you're watching. i'm nejra cehic in london. in japan, calling for more stimulus has prompted the b.o.j. to flag risks for additional easing. according to people familiar, the change of messaging could explain why some investors misinterprets the comment on the reversal rate theory and a hint bout an earlier policy exit. meanwhile, japan's companies are more confident than they have been in years. as the global economic expansion underpinned boosting profit. sentiment among large manufacturers rose to the

ighest level since 2006. our guest from credit agricole is still with us. the focus today on the new development of possibly extra stimulus from the b.o.j.. generally it has gotten quiet on the yen front. >> the b.o.j. is very happy that the yen is no longer front and center? the market. when that happens, it is usually for all the wrong reasons, risk aversion or unwinding from the carrier trade. it is one of our preferred funding currencies. the b.o.j. has no intention of exiting its policy any time soon. yield curve control, a policy that replaced the q.e. policy earlier will continue and that should continue to make the yen a preferred short for many investors. that said, given that we are now in a global divergeance trade where next to the fed, we have the e.c.b. and the bank of canada and other central banks moving closer to the exit of

monetary accommodation if, you want to sell yen, -- buying the dollar. it is one of the currencies we expect a significant upside. revisiting its multi-year highs before long. it would be the best example of what they mean by policy divergeance. the fact being that the e.c.b. is inching ever closer to the exit and that makes the euro less andless attractive funding currency where the yen is keeping its reputation. nejra: very briefly, sterling-yen. >> also bullish. european currencies as a whole apart from the swiss frag look undervalued. the pound new york city exception. the pound is higher against the yen but also the dollar the abating brexit concerns will continue to attract inflow into the guild. the u.k.'s stock market.

the yen will likely maintain the funding currency with the excess really saving from japan really heading towards the u.k. as well. nejra: all right. the head of g 10 fx agricole. thank you so much. great to have you with us. up next, theresa may awaits the green light from brussels. will the next round of negotiations prove even more difficult? we'll go live to brussels and talk about that in the next half-hour in our special brussels show. this is bloomberg. ♪ is this a phone?

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

see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. nejra: now it is time for our weekly brexit show. i'm nejra cehic. let's get your roundup of this week's brexit news. here's sebastian salek. sebastian: we started the week

with the brexit secretary saying he wants a trade deal that includes the best parts of the agreements with japan, canada, and south korea. david davis' comments came as theresa may prepares to hold a cabinet meeting before addressing the house of commons to spell out the details of a brexit deal. >> what we want is a bespoke outcome. we may start with the best of canada, japan, and south korea, and add to that. sebastian: that was underlined by the e.u.'s trade secretary. he said britain once a trade relationship with the e.u. that is virtually identical to the one it has now. speaking in buenos aires, liam fox said keeping a similar arrangement will ensure a smooth transition. he dismissed michel barnier's morning that this agreement is the best britain can hope for.

by the middle of the week, the european union was warning the u.k. against going back on agreements made last friday. michel barnier said the block was on alert against britain trying to undo the deal. headed. prime minister to a summit yesterday for what was set to be a celebration of the victory in brexit. theresa may arrived hours after a serious defeat at the hands of her own party. lawmakers voted to change her government's planned legislation so they will get a meaningful vote on the final deal to leave the e.u. in 2019. e leaders are expected to give the green light for brexit talks to move on to the next stage. theresa may seems to have complied with their conditions to starting negotiations. diplomats have warned that these discussions will be even more difficult than the first six months of talks. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries.

i'm sebastian salek and this is bloomberg. nejra: thanks so much. ofles demeures is the arm daniel feel. the company has seen a sharp increase in buyers as french ex-pats returned to their home country. marie-helene lundgreen is the director of belles demeures and she joins me from paris. delighted to have you on the program. as some momentum been continuing for the luxury market in paris as a result of brexit? marie-helene: yes, nice to be with you today. ofsee from the brexit a lot french nonresidents that were in u.k. coming back to france.

it has actually doubled in one year since 2016, the start of 2016, and 2017, it is even more doubled. nejra: and what segments in particular have you seen more demand for? are we talking apartments in paris? are we talking more luxury mansions? which segments? marie-helene: there are all segments. we have of course lots of young couples that went into finance and established in the u.k. in london that are coming back, looking for family apartments. townhouses, small private mansions, townhouses, did a over recently 5 million euros deal.

just to give you a few numbers, is a bitr agencies like south kensington, where lots of french ex-pats live in london, and the increased the number of sales 80%. brexit,s not only the the people working in the finance sector. it is also what is happening in england with the restrictions in the non-done regime, and some tax reform, and we have a lot of european, middle east, israel -- nejra: actually, yes, i wanted to ask about that. you talked about french ex-pats moving back to france. as a result of brexit, have you been seeing more demand from other europeans, perhaps

anticipating that the city of london might not be so important, for even british people perhaps? marie-helene: we have seen that already several major companies have started to relocate. they have made their contingency plans to see what is going to happen. they can't wait for the last moment. then, as i told you, because of the new tax regulations in buyers, quite a lot of from europe and from other parts of the world, they want to buy in paris. paris is very close to london. it is easy distance. it is in central europe. the prices are much lower.

we have an israeli client. he bought every year an apartment in london. he just bought two in france. for the same price, he could get two. nejra: do you expect this trend to continue, or might there be challenges ahead? marie-helene: i think it will go through. we don't think it will slow down. we hope so. nejra: marie-helene lundgreen, director of belles demeures, which translates into fine residence, for those that don't speak french, thank you for joining me. what kind of trade deal should britain be aiming for? we will talk to a think tank described as being at the intellectual heart of hard brexit. this is bloomberg. ♪

nejra: welcome to our weekly brexit show live from bloomberg's european headquarters in london. i'm nejra cehic. e.u. leaders are expected to give the green light for brexit talks to move on to phase two later today as the u.k. prime minister is seen to have complied with their conditions for starting negotiations. bloomberg's anna edwards is in brussels. great to see you. it has been a little of a tough week for theresa may at home. what is the latest for her in brussels? anna: she got a round of applause, we understand, yesterday. the discussion and the decision in front of the e.u. leaders is

whether to move on to that subject of trade, whether to give the green light to move on. called for ambition and creativity once again in crafting that future trading relationship. she wants transition or implementation to happen soon, or the conversations to start soon. juncker arrived today, seeking confirmation as to how warmly theresa may was received. did she get that round of applause? [inaudible] anna: whether it was a full hearted round of applause or just a mild congratulations, reports vary, but she seems to

be fairly popular here. now we move onto the hard part. we are being told by diplomats that e.u. 27 countries on the same page on a host of issues. that is going to divide them, whether it is financial services, goods trade, or the aviation industry. arriving today, talking about how the hard work lies ahead. the austrian chancellor had a nice word for this. he said this is a marathon and we've just done the first mile. as you say exactly, the most difficult road seems to lie ahead. the e.u. has to agree on what it wants. are we getting a sense that the deal they are pushing for is going to be canada like? anna: there are varying opinions on that. we've heard from michel barnier. he said the financial services are not going to get passporting

rights from all the red lines set out in london. the canada deal is the best the u.k. can hope for. plus.k. has said, we want plus plus, bits of other trade deals they like. there does seem to be some room to divide the e.u. on this. we've heard from the italians for example. they were talking about how something more bespoke might be appropriate. the irish are talking about at least canada plus. is some room for the u.k. to get some more. and some room for disagreement. they are disagreeing on other subjects as well. migration is one of those subjects. we've heard from the many eastern european countries who want a tougher line on migration. they are also falling out of about law and justice policy. the polls have been trying to read them -- to revamp their justice system.

we could see the triggering of what is called article seven. we will see if that comes to pass. next week is the time to watch for that news on poland. the e.u. seems to be on the brink of taking, or could be on the brink of taking action against the poles. anna edwards in brussels, thank you so much. garten is tank la described as being the heart of intellectual hard brexit. shanker singham has reportedly met representatives of the brexit secretary at least six times this year. he's also advised key backers and boris johnson as they set out demands for what they want for britain after leaving the e.u. as negotiators prepare to move on to trade talks, what kind of tum be givinglega now? first of all, are we going to

get a softer brexit at the end of all this? that has been the big question this week, particularly with what happened in the commons. shanker: first of all, we don't things like hard brexit and soft brexit are very useful. we don't support hard brexit or soft brexit. even brexit means different things to different people. the u.k. is leaving the european union. in trade agreement terms, we have to do those things well. the leaving the european union parties to phases. that is where the interest of the e.u. and the u.k. are divergent. that is why you had quite a difficult conversation. now what is really important is that we are embarking on phase two, which is the trade agreement discussion, where the interests are quite aligned. this is the most important thing is that we are in a negotiation

for a trade deal, trade framework, between the u.k. and that he you -- and the e.u. sometimes we have a desire to in 24 hours determine what results are going to be. that is not how it is going to work. it is going to be a negotiation between the e.u. and the u.k. there are going to be a lot of things covered. whether it is canada or canada plus, whatever, this is irrelevant. it is going to be a trade negotiation. some things are difficult to do and take time. some things are very difficult dealbreaker issues. nejra: what would those be? you say the u.k. and that he you are sort of aligned, but not only are we hearing disagreement on the u.k. side, but all that . countries have different ideas. shanker: that is why we need to

let the negotiations play out. one of the things that is very important is negotiate against themselves before they negotiate with the e.u. the most difficult thing is the regulatory recognition, the regulatory issues with respect to ireland and other things. those issues are the issues on which ttip was founded. the u.k. no doubt will present its ideas about regulatory recognition. the e.u. will have its ideas. this isn't in a vacuum. there is an existing wto framework. i'm just back from the ministerial conference in buenos aires. there was a regulatory recognition mechanism. we are discussing domestic regulation in the wto. the oecd has a set of discussions on competition and regulatory issues. all of this forms part of the

context for a discussion between the u.k. and the e.u. i would hope that in terms of regulatory issues you can have a very strong, a very good agreement, because of the starting point the two parties have, which is to be essentially on day one of brexit we will be completely aligned. nejra: on regulatory alignment, david davis brought that up in regulation -- in relation to the irish border. is that something that could happen? shanker: this is something that has to be negotiated. it will take some time. there will be lots of back-and-forth. people will make offers. there will be a negotiation. youmost important thing is start with a wto framework as it currently exists, and you look at things like the oecd, and you build from that. ist the wto framework says

it is all about alignment of regulatory goals. as long as your goals are the same, technical differences shouldn't defeat recognition. nejra: that is great. we will talk more about this. we will have more with shanker singham on all things brexit. stay with us. this is bloomberg. ♪

our weeklyome to brexit show. i'm nejra cehic. this is what you should be watching. e.u. leaders summit in brussels. they will discuss brexit and whether sufficient progress has been made to move talks on. is due tof russia make a policy announcement at 10:30 a.m. u.k. time, and we get sovereign rating updates for germany, the u.k., and ireland. shanker singham at the think tank legatum is still with us to continue our conversation about britain's future outside the e.u.

we were talking about whether they will get the go-ahead to move talks on today. is there even enough time to come to any sort of deal, never mind by 2019, but even by 2021? shanker: the length of time varies tremendously. you've had certain very big agreements like nafta done in around 18 months. wasaustralia-u.s. agreement done in around 14, 16 months. what matters is where the parties are and where the political will is to do the deal. there's something unusual about the relationship. we will start on the day of brexit with regulations completely aligned. tariffsstart with no and free circulation. is that a positive? shanker: that is a very positive thing. it could be quicker than other

agreements. that is one thing that i would say about it. there are some things that are difficult to do. they require time and attention. there are other things where we need to put more of our emotional investment of time and effort in. those are the things that are the dealbreaker type issues. nejra: is financial services really quite a dealbreaker? i think services generally is a very important issue. the heart of the services trade negotiation is a negotiation on domestic regulation. this is where we get into issues of regulatory alignment and all these things you heard about. that is going to be one of the difficult issues the u.k. and the e.u. have to agree. there is a wto framework for that. wtoices have been in the

since they buy round. we've been making progress at a global level. one would hope that the e.u. and the u.k. can agree an absolute landmark best in class agreement on services liberalization which would include regulatory recognition. nejra: what can the u.k. learn from other wto negotiations? you were talking about argentina. shanker: i've come back from the ministerial conference. the general takeaway is it was a bit of a disaster. there was no declaration. there are a couple things that are interesting. commercen agreement on , 70 countries have agreed to have this conversation. also, further conversations on regulations, which is the conversation the e.u. and the u.k. are going to be seized on.

these conversations are not taking place in a vacuum. do all take some time to trade agreement, for which we will need an implementation period. but it is very important that the u.k. is able to negotiate andsign deals with others, proceed with its trade policy outside of the common commercial policy. nejra: do you think the u.k. will get canada plus plus plus as david davis has been pushing for? shanker: the u.k. wants an agreement that is maximal in trade liberalization, regulatory recognition, all of those things. you would expect the two parties with common interests like this would have the same sort of approach. these are things that are to be negotiated. it is important that we don't second-guess this process. it is going to be a lot of back-and-forth. a lot of trade-offs will have to

be done. this, agood about common desire for maximum liberalization. second-guess,n't but sometimes the markets have to do that. shanker singham at the legatum institute, thank you so much. "bloomberg surveillance" continues in the next hour. tom keene joins guy johnson and "surveillance" will be talking to rupert harrison. this is bloomberg. ♪

♪ tom: this morning, the exit -- brexit search for precision and

ambition. theresa may dines with e.u. leaders. thedering applause from dinner, except for silence from the tories. can republicans get a tax bill done? no word from the senators from alaska, maine, and tennessee. consider stability and instability for the markets in 2018. this is "bloomberg surveillance ." i am tom keene in new york. guy johnson in london in four francine lacqua. i want to get to your expertise on airbus. how big a deal is the airbus management switch for airbus and for all of europe? guy: it is a massive deal for airbus. a massive deal for europe. one of the biggest employers. it is a massive deal for boeing as well. the new guy coming in, the real

question he has to offer is what is the the future of the airbus a380. the newl be something management team half dozen aside -- has to decide if they will continue it. tom: we will talk about it on "bloomberg surveillance" today. right now, bloomberg first word news. taylor: prime minister theresa may is in brussels, where e.u. leaders are excited to formally say that she complied with her conditions. discussions are about to start relationship the u.k. and the you will have after brexit. republicans are trying to figure out how to get senator marco rubio to not derail the tax bill. tax writers plan to unveil the bill today.

supporters of net neutrality say over the go to court decision to overturn that decision by the federal communications commission. attorney general's from new york and washington are among those saying they will sue. and it may be the merriest christmas for retailers since the recession. growthh firm customer partners boosted its forecast, saying holiday sales should rise by a 5.6% from a year ago. online spending growth is expected to outpace again mortar shopping -- brick and mortar shopping. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. tom: thanks. a huge pop in retail across america seen yesterday. equities, bonds, currencies -- pretty quiet. a lift in equities.

cruves are moving around. i have run out of steam. got nothing to talk about. what do you have? guy: actually, picking up on that retail stories interesting. i one to start with us stocks, down by 3/10 of 1%. hennes & mauritz is a massive retailer around the world -- h&m. these are the worst numbers -- the biggest drop we have seen in 16 years from this company. -- just a position -- justa big story for south africa. a huge binary event coming through over this weekend. i will talk about cross currency basis swaps in a moment. the euro-dollar trading at 1.1795. hym thank you to edward s.

and. he leaves with this research chart, which is stunning. it goes back to eisenhower and reagan and nixon read about here. here is the boom and compensation of to near double-digit compensation growth. here are the golden years. gone, gone.ne, the four year moving average of compensation in america down to 2%. that explains too much of societal angst and politics in america we see an everyday. guy: and that comes back to the retail story. my bloomberg addresses dollar squeeze.nd a year-end -88 basis points on the euro-dollar cross currency basis swap. this time last year, we saw a retail squeeze.

it does not feel like that. it feels like something different. some suggest it could he down to the u.s. tax story. some suggest it could be down to the new york fed tightening the rules. a dollars this is greece on four eurozone banks, making buying u.s. treasuries a little less attractive. tom: let us bring in a gentleman we have the good fortune to speak to often. as to harrison works for the united kingdom. he was the chief of staff to someone named "osborne" a few years ago and now works atblackrock. he links -- -- at black rock. rupert, wonderful to have you. what does blackrock see in the market now versus six months from now? do we assume volatility to come? rupert: i do not that we should

assume that. compared to six months ago, this was still a very unloved rally. people were not participating to the extent that they are now in the rally. the fundamentals are still strong. you look at the global macro againe -- pmi's in europe on the upside after an incredible run. that is amazing that is still going on. got this strong global data picture. and we have unusual -- the level of uncertainty around d-3 monetary policy is very low. week can see where the ecb, doj, the fed is -- the market will be a little more dollarve to tightening

liquidity or any loss of momentum in the macro. tom: in the macro, this goes to your work for you worked for the chancellor. this would be at the institute for fiscal studies. is the quiet of next year about burgeoning deficits? that is almost assumed in the united states given tax legislation. rupert: this deficit talk in the u.s. is not ideal. we are getting too late cycle. macro point of view, the last thing the u.s. needs its fiscal stimulus, but it will get some. beingght janet yellen was very diplomatic earlier this week when she said this does not automatically mean a fast are passed to rate hikes. i think the fed will take it into account. it is not with the u.s. economy needs. and this just furthers support for a federal reserve pretty set on hiking three or four times next year.

another thing at into this quietly bullish mood. guy: this does not make sense -- yellen came out and said the same time on donald trump says it is a massive story. we saw the rubio story overnight. there is a little concerned. i am wondering about the order of magnitude, about how the market is perceiving? isert: i think the market fully pricing the tax plan. you can see the sensitivity to the rubio mood. this is the exact kind of thing you get in the late stages of negotiations. he wants his name attached to the child tax credit. he will probably get it. there are public and's have to get this tax plan, otherwise they have absolutely nothing. but it speaks to the fact that it is pretty well priced.

i think it will affect the federal reserve. , as you said, they were being quite diplomatic. they did not want the news from be weress conference to have a tax cut, now here are higher rates. where isuestion is flat? 2%? 2.5%? 3%? where does the curve flattening out. rupert: i expect the curve to continue to flatten. data onthat we need new productivity or inflation. unless we get consistently stronger data on trend growth or inflation, which seems unlikely, that long end is well anchored. we will see the fed gradually

drive up the short end. i do not think it is something to be worried about. if people get worried about the inverted yield curve, normally, that is still a year or before you see it and the s&p and even longer before a recession. guy: is this time different because of qe? can the curve go more negative this time without there being the historical effect that you would normally expect to come from that? pointis a 50 point basis negative flat? rupert: one big unknown is how will the federal reserve feel about pushing the curve? i think they will be nervous about reversing the curve aggressively. territory.ncharted tom: rupert harrison with us.

good to chat with him. and with the prime minister in brussels. much more coming up here on "bloomberg surveillance." much to speak about. this is "bloomberg surveillance ." ♪

♪ is "bloomberg surveillance." let's get the bloomberg business flash. for the first time ever, europe's biggest discount airline is willing to let pilots organized into unions. ryan air is trying to head off strikes that could this route --disrupt holiday travel.

downom enders will step when his term at airbus ends in 2019. airbus is installing guillaume faury as part of the commercial playing building unit, putting him in line to be ceo when anders retires. buy 21sty's deal to century fox will have to be approved by antitrust lawyers. onedeal would give disney third of the market. that is your bloomberg business flash. guy: thank you. let's turn our attention to what is happening in brussels. e.u. leaders are expected to for the red -- green light trade talks after theresa may is seen to have complied with conditions.

anna edwards is in brussels for us now. "complied" is an interesting word, isn't it? anna: indeed. will she have complied and enough to move talks to trade. theresa may was here last my for a dinner. she called her creativity and ambition in the trade talks that lay ahead. met by a round of applause. here is what jean-claude juncker had to say about that. efforts.d make big the process is that we have to formalize, regarding with this with a european parliament and before the house. and then we will start the conversation for future relations. stage could be wary see the hard work, both in terms of with agreeing with the u.k. and agreeing amongst the

27. german and italian leaders have all talked about the heart talks ahead. if austrian line has said brexit is a marathon, all we have done is the first mile. guy: let's think about where europe is and what it may fall out when it comes to the trade story. juncker and michel barnier have done a good job of keeping everyone in line. where can we see divergence? anna: diplomats talking to bloomberg have talked about a number of sectors where these countries have different views. it really depends on the existing relationships these countries have with the united kingdom. for example, aviation, analysis services, even trading goods. all of that could provoke a debate and disagreement amongst the 27. already, the irish are talking about canada plus.

that could be a model they will follow. whereas michel barnier said canada was the only model that they could follow. -- what does the prime minister, home to? what does she do on monday, besides feed the cats at 10 downing street? [laughter] anna: aside from feeding the cats and getting ready for the holiday, next week will be interesting in the cabinet. they will start to talk about what the future trading relationship will look like from the u.k. perspective. the e.u. does not want to go first. the u.k. has to settle for -- settle what they are aiming for. then, we all come back to brussels in march to find out what the e.u. thinks about the u.k.'s demands. a long road ahead on this brexit train. guy: exciting for everyone.

edwards, thank you. rupert harrison off blackrock is still with us. up the issue of what theresa may is coming back to you. she left under a cloud. she now has to codify the exit date. will she be able to achieve that? rupert: i do think she will. the parliamentary risks on any vote that is not a wrecking amendment, any vote that will not put the brexit part in doubt -- but we have learned is she is risk-averse on anything like that. there are about 10 labor mp's to votebe relied upon on the deal. i think we should not get too hung up on these individual losses. the big picture is theresa may will probably have a much better

christmas than anyone was expecting a few minutes ago. moving on todeal phase two. i was in the studio a few weeks ago, predicting that the irish border, she would not delay getting a deal. had a few nervous days after that. you have to remember that this is a major achievement for her. both domestically and within negotiations, there is a lot of momentum. the political will to keep this moving is strong. she has held her party together. i think she will have a relaxed christmas. guy: rupert harrison of black rock will stay with austria coming up in the next hour, we will speak with gideon rose. that conversation at 6 a.m. in new york. this is bloomberg. ♪

♪ tom: "bloomberg surveillance." guy johnson in london. i am tom keene in new york. then i will go deep into the left screen of the british press. let's look at the "guardian." i agree for this mmr. passing of this amendment is a big moment for the prime minister. it may be high time to revolt against may's brexit strategy. alternatively, it may be a

watershed moment. boris said wrecks it was unstoppable, but the events of this week have raise the brexitlity that may's can be changed and stopped. a rupert -- rupert harrison is with us. would you translate this for our global audience? and what is boris doing this weekend to help his prime minister? boris: i am not sure what is doing, but staying quiet would probably be the best thing. the translation of what you read out is wishful thinking. the prime minister lost in a moment this week. she had a very narrow majority. it was an amendment that would codify, in law, something the prime minister and the government had offered verbally, which was to have a meaningful parliament before this deal was able mentored and the exit takes place. it was not an amendment that

would be able to stop exit. happens, the choice will be the deal or no deal. the idea the parliament will vote on no deal is small. parliament has some control over the details of brexit. that is probably a positive. but unless public opinion changes dramatically, which changeconomics house to dramatically, then the deal we just saw gives it a lot of momentum. tom: let me give you a neil ferguson counterfactual. what would prime minister cameron do? past,ould be more -- the what would david cameron have done? with this faced situation, he would have taken a different path early on, which was he would not have set out

the red lines on leaving the single market. no jurisdiction for the european court of justice. i think he would have hoped for a softer version of exit -- brexit. i think that decision was made a year or so ago. that decision will not be reversed. it is a super hypothetical question. the reality is we are still heading for a hard brexit with a soft landing. guy: rupert will stick around. he is with us from blackrock. a bit of m&a news. considering a deal with asked off. 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. ♪ guy johnson in london, tom crean in new york. francine lacqua off today. let's get a bloomberg first word news update. taylor: republicans plan to

unveil the final version of their tax bill today. they have run into problems. senator marco rubio says he will not vote for the measure unless there is a bigger increase for the child tax credit. and there are still questions about how the tax cuts will be paid for. he is cuttingays through the red tape. the president said his efforts to cut through the roses the biggest regulatory reform in history. canceled 1500tion records reactions. ofitico reported that dozens saide who know paul ryan he will not go for reelection. his spokesperson says that is not true. a boost has been creased --

there is a boost in japanese global profits. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am bloomberg. -- i am taylor riggs, this is bloomberg. central bankian lowering its key rate to 7.75 versus an estimate of 8%. rates have been coming down reasonably quickly. the governor has brought inflation under control. now, she is trying to stabilize it. it is interesting to see the russian general population continues to believe that inflation will be more volatile. she needs to convince them that will be the story. this comes against a back drop, but she is raising the 2018 gdp forecast of a russian election coming up. really agree with the idea that now it falls into politics as well. now let's focus on a quick check on the ruble.

is it an emerging market, ag whatever target, or is it a front running market? you can member that tension here of 70 and 80. you can look at the ruble in your terms as well, but this is that ruble dollar. it at the minimum, they do not want to break out of that range to a weaker ruble. guy: they do not, but the ruble has weakened on the back of this. this is a bigger than expected drop. the ruble is weakening up on that, and the governor is hinting at further rate cuts to come through as well as she tries to stabilize of this inflation story. the other piece of news over the last few minutes relates to m&a. this is in the tech sector in europe.

gemalto is considering talking over.s to take it up until this point in time, gemalto says it is not interested. italy's there is more value in this business. but it seems that we are starting to see cracks appearing. it is looking to avoid hostilities. m-ea.bs head of e what is a strong euro zone economy? activeas been a very year in m&a. if you contrast the three regions, m&a is the most active. what has been remarkable in much doesthere is a

that there are much less elephant deals. and much less cross regional flows. been 100 billion less from europe into the u.s. and likewise for asia into europe. at the same time, domestic deals have been pretty active. pretty robust. volumeslains the total in europe that are up in europe. asia, butown 10% in they are up in europe. it will continue. guy: as an order of magnitude, does it get bigger? severin: it is always the same.

there is less big tech in europe. but the consumer has been active in europe. with rga infra. guy: i am curious about the retail sector. disappointing news from hennes. where is the opportunity within the region? inerin: there is disruption the way that technology players are coming in, especially with amazon. that will contribute to conservation. what we see another site there's applies to retail, to some extent. the sectors are in disarray, the big players. you will see some of that in europe. i would wash out, because this will be an activegoing forward. work at ubs,our

you did a lot of work with sche borst.ce -- deut would you suggest we will finally see what a better economic growth in europe, consolidation within european banking? severin: every year at the same time, every time i go to my expert attorney and ask them, they say it will happen next year. that has been the case the next three or four -- the last three or four years, and we are still waiting. there are many ingredients that would lead you to believe there will be a movement in the banking space, but we are waiting to see it. tom: the elephant in the room ame up last year at davos in panel, which ended up being a discussion of european culture. our european banks unable,

culturally, to merge? do not think so. we will see how that will play out, but i think it is very possible you see some of these banks combine in the next two to three years. it is also true that in terms of value creation, combinations in the past have not been great. but i do not see anything in the dna of the big banks in europe that would prevent them from doing cross-border deals, so to speak. guy: european equities have had decent numbers posted at a headline level. uni discussed this earlier on in one of the brakes. the high 50's and 60's. it is hard to get those numbers. but they are an indicator. it is hard to get those numbers to move any higher. as a result of which, can i assume this is about as good as

it gets for european equities? have been thinking that, but macro data continues to outperform. i still think that the likelihood is you get a little bit of a meaner version. there is a more likely downside than an upside. we would like european equities -- they have not worked relative to the u.s. in the last few months, but we still like them. play. is a nice the earning story should be good. we still like an overweight europe. things that would be interesting to have a discussion about is we talked down investors because they like macro strength, but some of the bottom of investors say you find it harder to find the world being companies they could find in the u.s.. for example, the tech story -- you do not have the potential of

anything in the u.s. tom: you are supposed to say world beating companies like ubs. that is how we get to the next block. we will continue with mr. harrison from blackrock. from worldzay beating ubs as well. for your briefing in the morning, coast-to-coast and across canada, bloomberg karenak, bob moon, moscow, coast-to-coast. this is bloomberg. ♪

♪ london, tomnson in keene in new york he is let's turn our attention to what is happening in south africa.

the ruling south african congress world -- will elect a new leader. inherit anwill economy that is performing well below its potential. -- ing us a second.t to her in tom, let me talk to you. why have you decided to be on the same ticket as sir ramaposa? process ofa primaries. we allow the branches to be delicate. they indicate, through their poll, what kind of position. they have given the largest theer of nominations and

to myselfmber of -- and the other delegates. it seems to me the thing that would come together. guy: do you think the pair of you can see off a downgrade from moody's the beginning of next year? we: yes. even before you finish the yes.ion, a we are quite certain that one of our first responsibilities is to make sure our economy is put back on track to assure investors that we stabilize the political environment. immediately after the conference, if we are elected, the first thing we will concentrate on is to deal with those things that have put us where we are. are fairly confident

with what it is that has put us in this situation. and we are set to set it right. guy: i want to get a sense from you -- this feels like an incredibly binary event for south africa. if you guys do not win, give us the scenario that you happens? that is an unfair question. going into lose. guy: we can talk about the positive stuff, but this is really important for the country. i just want to get your sense of the magnitude -- there is an international audience watching that may be interested in investing in your country. the order of magnitude of the decision to be made by your party is huge. lindiwe: it is, yes. we understand that. the question you initially asked is what would happen if we did not win?

we would need to sit down as a to see how we can assist the new order, the new candidate, to see things the way we see them. after all, it is our organization. we have the response ability of helping it out are the current situation. we hope the new leader, if it is not ourselves, what allow us to assist. we think we have the answer that will put us back on to the international community as a credible partner to do business with. guy: you are saying that you would back an alternative government not lead by ramaphosa? lindiwe: we cannot afford that. the anc is a 105-year-old organization. credibler us, the most

organization there is. we have been in government. we understand what the problems are. we will not allow a government and economy of south africa out to not go down simply because it was not ourselves who were not elected. we have taken a pledge to assist wherever it is that wins. guy: there is talk that we could see nationalization of the minds -- mines. lindiwe: no. guy: you do not anticipate that would happen? lindiwe: i do know that if we do not come together and take ourselves out of this situation or the perception of the situation you outline, we would be in serious trouble. anybody who emerges out of this conference as a leader would be aware that the first thing they would need to do is sort out the perception people have about our economy. any talk of nationalization

would need to take a back step until we sorted ourselves that. in any election, people will always speak to their constituencies and say what it is that they are wanting to get out of their constituency and support. the people who have been talking about nationalization are people that have been talking to a particular constituency. why the time they win, they are not only talking about their constituency, they are talking about the whole country. because we do represent the whole country. we are the ruling party. guy: what with the budget -- a budget -- he has talked of the new deal, how he will turn the situation around in south africa. what would you guys -- what would be the main priorities? you are trying to figure out exactly what you will do -- what would be the main priority to get this to happen?

there are some big state enterprises with debts that need to be handled. there are a lot of moving parts that need to be dealt with. ofdiwe: it is a large number moving parts, but i need to correct you -- the budget you inherit and february -- in february would possibly not be the determining factor. the determining factor would be the between now and february. what will be -- what will we be doing now? we will look at macroeconomic policy, make sure we look at what it is we have done wrong, and correct that. by the time we get to february, we are going to have had answers and put them into place so we can assure not only our people but people out there that we are a solid place to invest in. cyril has put out a new deal. isre is criticism that it not so new, but the elements in it, which are essential, and of

course we will have to make sure they fit into the situation we we areerge from, but confident we have learned a lot in the last two years we have out under campaign. we can assure the world that whoever wins, and we are sure it is cyril and myself, that we will work out a plan for the economy. economy where we are not growing jobs. on thethose elements are top of his mind. i suspect that immediately after the conference, we will be having a conference to understand from various stakeholders, the private sector and other people, what they expect out of the new government. we need to create the confidence that investors have in us and our people had in us in the past. sisulu, thank you

for taking the time to be with us here at bloomberg. it will be an interesting weekend for the country. take a look at the one week vo l on dollar-rand. it's surged as we have been talking. take a look at tv function. you can get into the radio, get into the tv, get into the most recommended videos. this is bloomberg. ♪

♪ tom: good morning. "bloomberg surveillance." guy johnson in london. i am tom keene in new york. and now an illusion a touch to the theatrics yesterday. with us, severin brizay. usually looks at year. m&a and rupert harrison with blackrock. severin, to me, it is a normal but elongated path from to diluted perfect

transactions. is that what next year brings? diluted transactions? or do we go back to a traditional severin brizay world? severin: there has been more discipline in terms of deals this year. that is why you see less of that this year. prices are high, as a people are a bit more nervous about it. all we have seen also is a high number of unsolicited deals. in europe, we have seen more unsolicited deals in volume then at any time in the past 10 years. tm: do you have a "why" on hat? why do we see hostile transactions, particularly in kind and calm europe? severin: it is a sign of a healthy market. people think they can get over with something that usually does not succeed. if you look at the success rate of these deals, it is very low. probably around 20%.

, and they think investors will support them. tom: within the reward from -aetnavs be in transaction, you have to have growth at the top line. is the back story here low nominal gdp and weaker revenue growth that drives all of this? severin: it has been a major drive of the m&a market. investors want growth. if you cannot happen organically, you have to buy it. is slightlyeal different. as is also a reaction to the disruption the big tech groups are bringing to the media space. people have to react and get direct access to customers. if you think of the tech groups of netflix and amazon, they have

content and unparalleled access to customers. the big media groups need to build them themselves. forward toizay, look being with you in january when i visit francine in london. rupert harrison, thank you. i know you will be at the airport to greet prime minister may when she wanders back from brussels. we will continue forward to frame your 2018 pay there is no one better to do that with across access -- assets then robert sinche of amherst on the ambiguity of the dollar next year. ♪

♪ tom: this morning, the brexit search for ambition and creativity.

the prime minister dies with e.u. just dines with du leaders. thundering silence from tories. the senator from florida is far from silent, rubio upsets gop tax calculus. no word from the senators of alaska, maine, and points west. we considers stability and instability in markets for 2018. good morning, this is bloomberg "surveillance." live from our london world headquarters, guy johnson in for francine lacqua. who will greet prime minister may at the airport when she lands? guy: apart from rupert harrison. she is coming back. in some ways she has achieved a lot over the last few days but it has been clouded with difficulty with her own politic -- party, the rebels saying they

want to defy that parliament will have the final say. i wonder if the applause will be louder in brussels and london. brexit in the camp that has american ramifications. here is taylor riggs. british prime minister theresa may is in brussels where e.u. leaders are expected to agree she has complied with conditions, but diplomats warned the next stage could be a lot less orderly. discussions will start on their relationship after brexit. republican leaders are trying to find ways to keep senator marco rubio from derailing the tax cut bill. he is threatening to vote against it unless it expands the child tax credit for millions of working families. they plan to unveil the bill today. supporters of net neutrality say they will go to court to overturn the decision by the

federal communications this mission -- commission. they decided to scrap net neutrality. attorney generals from new york and washington are among those saying they will sue. it may be the merriest christmas for u.s. retailers since the recession. retail sales were higher than expected, and customer growth partners boosted their forecast, saying holiday rails -- sales should rise 5.6% from last year. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. the datak through before we go to the debate in washington. equities, bonds, currencies, commodities. the euro back over 118. details on the

brexit and the moves to the second phase to come imminently. in the light of what you just said about the retail story, one of the biggest retailers trading down 15%, the biggest drop in many years. there is a dollar funding squeeze on right now. it is a traditional year-end element. some suggest the new fed may be pushing this along as well. tom: we rarely do this but we are going to do this now. there is so much reading on this tax legislation in washington. before we go to kevin cirilli, three morning must reads, one from michael bloomberg. he is the 106th mayor of new york. we do not need the money. it takes money away from schools and students, restricts our ability to invest in

infrastructure, does nothing to boost real wages and it makes it harder to control the costs of medicare and social security. justin fox writing for bloomberg view on the nation's politics -- a fiscal deficit currently at 3.5% will go to 4% even if legislation delivers a substantial boost to growth. republican true believers push for tax cuts that often have quite sensible aspects but leave large holes in the budget which subsequently have to be filled by republican realists or democrats. last evening, paul krugman -- from the tax policy center -- and we spoke to mr. blackman a few weeks ago -- a partner in a real estate development firm might get a far bigger tax cut than a surgeon employed by a hospital, even though their income is the same. suppose that i could get "the times" to stop paying me a

salary and instead to pay the anomics,unt to krugm llc. so really llc is coming down the pike. llc is coming down the pike. my number one advisor from produce said, can you find something positive -- purdue said, can you find something positive? i cannot. kevin: i have got my eyes on marco rubio, susan collins, and jeff flake, the holdouts. marco rubio saying they have to do something with the family tax credit because he does not think this tax bill is going to do enough. .here are four holdouts republicans can only afford to lose two. tom: jeff flake was on american airlines flight 640 last night.

twitter was following the senator from arizona because they wanted him held hostage at the airport by people against this legislation. why is jeff flake for this legislation? kevin: in this sense, and according to my reporting, he is still holding out where he is going to go. there are a ton of republicans for this who argue they have to get this done to have a policy victory. i have spoken with several republican and democratic strategists who are saying the same things. remember obamacare, remember the affordable care act where democrats had to force that through. this could potentially be the same thing for republicans in reverse, where they say they have to get this done to win the midterms but it comes back to bite them is the state and local tax deduction issue, the house is in play. if you talk to republicans in california and new york, they

are very concerned about the elimination of the state and local tax deduction. tom: to professor krugman, he is a nobel laureate who has done that -- economics better than us. to his comment that a surgeon toiling away at walter reed hospital taking care of john mccain will get hammered by this bill, versus a real estate tycoon doing real estate deals on k street. how can they let that happen? kevin: senator john mccain is unable to vote early next week and that could pose significant political risks for the administration's hope to get this done next week. the head of the financial services roundtable and washington, d.c. told me point outk that if folks fill their tax returns in january or february next year and they see

their taxes go up, especially the 70,000 americans who voted over hillaryump clinton in states like pennsylvania and michigan, bad news for republicans. .uy: it is interesting some people are starting to talk in london that we could see people moving from new york to london as a result of the tax story, but we will leave that for the time being. how long a shadow is doug jones casting over washington? kevin: i just got back from alabama the other day, and we have been dissecting those results every which way. a lot of republicans tell me they feel this is an anomaly of a race. on the flipside, democrats say this could give them momentum. breaking, "politico" that paul ryan is considering resigning after the 2018 election, but the word from him

is pa congressional 18. it is a special election. , becausehe bellwether it is western pennsylvania outside of pittsburgh. trump carried that by 10 percentage points. look to see how democrats played there. this anomaly of a race with an alleged pedophile in alabama, folks are not really into that. tax is it playing into the story? the longer this goes on and the fact that it is not on the is timet's desk, there duration as a factor and the decay of it. what do i need to think about how that feeds back in? kevin: we are in the fourth quarter, and if this goes into overtime it is absolutely going to matter. officials in alabama are trying to get doug jones in by january 3, so if this goes into january if they are not able to pass the

tax reform until january, it is one less vote that republicans can lose, because you have a democrat who sure as heck will not vote for it. tom: the 39th governor of the state of minnesota and 18th district of pennsylvania, minnesota is tilting purple. it used to be bedrock republican, election after election. it has become more and more democratic. is this the kind of election that can make those tilt states even more purple and towards the democrats? kevin: absolutely. the governor to who was weighing whether to get into the race whether -- one south -- senator al franken finally resigns. do you want steve bannon's endorsement? he said to me, no, essentially, not really. the politics of this and abandon versus mcconnell -- bannon

versus mcconnell elements do not end in alabama, they are just getting started. tom: pittsburgh or the patriots, who wins? kevin: i will never route for the patriots, ever. on: we are only booking bloomberg "surveillance." guess who's taxes are going up? robert sinche of amherst pierpont, i refuse to believe that the rate -- debate from mr. cirilli -- robert: this has a lot of similarities to the affordable care act. people did not know what was in it, what impact it would have, and importantly, people will not see the impact of this until january, february, march of 2019 when they are doing their 2018 taxes. i think it is going to be pretty unpleasant when they go through that.

it will be after the midterms. sense, you will not really feel a lot of this pain until after the midterm elections. people will be trying to figure out exactly what this means. there will be withholding adjustments which look like tax cuts. tom: the hallmark statement of the week was the president talking about 4% gdp. you are expert across markets. can you fold this into your brown university economics and say we can get a run rate of 3.5% or higher as the president alluded to? robert: it will be difficult with this demographic backdrop. with the unemployment rate already down close to 4%, with labor force growth flattening out even further as we have more and more baby boomers hitting retirement ages, we have a capacity problem in the labor markets, and that will not change anytime soon.

immigration will not solve that, so we will need a big increase in productivity. maybe you can get that with a delay, if we get a big increase in capital spending through the lower tax rates on the corporate sector, but that will take time. to see those kinds of numbers in the next couple of years i think is difficult. tom: robert sinche, thank you for being with us. what an interesting politics we have right now. we will continue that linkage of economics to politics. coming up on bloomberg "markets" today, the linkage of tax reduction to economic growth. stay with us. worldwide in london and new york, this is bloomberg. ♪

♪ everyone,morning, bloomberg "surveillance." tom keene in new york, guy johnson in london. we are lucky to get a peek into foreign affairs magazine. with us is gideon rose, who has given a new life. fill, givenhoes to a new life to foreign affairs. the undead past, help. gideon: when we watched charlottesville and saw the riots and the united states grappling for the first time in recent years really with its own history, with its troubled racial past and what it means for the present, we decided other countries have done the same thing. on a lot ofles

different company -- countries -- germany, rwanda, south africa have all dealt with their great national crimes and how they process it in the present. picking up on the famous comment that the past is not passed. 2018, sarahing into binder writes an essay on the mess in washington. what did you learn? gideon: how to waste a majority. this has been an absolutely fascinating year for many reasons, one of which is all of the terrible things that could have happened, that almost happened, and one is how little actually did happen. what everyone is puzzling around is not what will happen next, but how you can have a unified congress, presidency, and not get that much done. even tax cuts is still to a certain extent -- tom: kevin cirilli made it clear, this is up in the air. guy: can i take you back to

germany? wellfd has done remarkably , the first far right party to be moving into the bundestag since the second world war. you talk about germany coming to terms with its history. are we only beginning to see that is a reality now, and the what we talk about so long is no longer? gideon: i disagree. there is no question the resurgence of right-wing nationalism in europe and germany in particular has been problematic and troubling, and has certainly posed a political problem and is something the continent has to deal with. in the bigger picture, of all the countries that have committed terrible crimes historically, germany gets pride of place for how to deal with it. our we put on our cover memorial stones for victims of auschwitz that individual people

have bought and essentially maintained in germany to remind their country of what they actually did. no other country has grappled with their past the way germany has, and it is a model for the way others should. and south africa had truth reconciliation but yet it still has mass unemployment, yet we are facing a lot of turbulence in a country that this weekend will decide who will lead the anc forward. ex-wife.s i am just kind of wondering what the legacy of the truth and reconciliation phase was, and whether it delivered for south africa. gideon: we have a wonderful piece in the issue on exactly that point by a south african author. the basic gist is that there are many good sides to what south africa did with the truth and reconciliation process, and it

did a wonderful way of bridging the transition from apartheid to afterwards, but did not redress the structural inequities in south african society and economy that underlay the sort of white supremacy. in that sense, you are still dealing with the structural legacy of a divided society because of apartheid. tom: gideon rose, and robert sinche has been more than patient. we are going to speak to robert sinche about the u.s. dollar in a bit. coming up later today on bloomberg television, my conversation with gamma. truly one of the great media investors in the dust in america, on -- in america. this is bloomberg. ♪

♪ london, tomnson in keene in new york. anna edwards is in brussels. e.u. leaders are expected shortly to give the green light for brexit talks to move on to the second phase, the trade discussion. that as the u.k. prime minister seems to have complied with their conditions for starting these negotiations over the future trade deal. bloomberg's anna david -- anna edwards is in brussels right now . where are we in the political process? anna: what we are watching for this morning is waiting for the union7, the european

minus the u.k. to come to a decision. has the brexit conversation moved on sufficiently that it can go on to trade? that conclusion could come any minute, although they have been running behind, talking about eurozone reform and the currency this morning. we are still waiting to get the green light from the e.u. leaders that is expected to come today. guy: anna, we await the news out of brussels. robert sinche joining us from amherst pierpoint. sterling, what does it do next year? robert: sterling has been quiet this year, basically 1.30, 1.35 for the last six months or so. i am not sure there is a lot to break it out of that range. i think there is softness in the u.k. economy. a little bit of downside potential in sterling from here, but i do not think it is dramatic.

we are seeing the effects of the weaker pound working through the economy. it has got a little bit of downside, but i do not think it is anything that will generate a lot of profits for currency traders. guy: interesting to see how the flow data is suggesting the positioning story may be more long sterling then we first assumed. robert -- robert sinche joining us, gideon rose sticking around. pick up the latest issue of " bloomberg business" out on newsstands, certainly worth a read. that is the front cover. this is bloomberg. ♪

♪ london, tomnson in keene in new york, francine lacqua off for the day. sometimes television and timing work together and sometimes it does not quite work.

a moment ago we were talking to .nna, joining us from brussels seconds later we get confirmation that e.u. leaders have formally approved the start of the brexit transition talks, moving on to the second phase. we will spend a lot of time thinking about transition. tom: what will be the response of parliament and primarily from prime minister may's parties? guy: i think broadly, most people will have accepted this is the reality. we saw an awful lot a few days the to get a deal done and more difficult phase comes now. we still have not fully resolved what the u.k. wants, what the northern irish border issue will look like. there is so much still to be determined. we are in the foothills, tom. there is a long way to go to the summit. tom: this is an intraday chart

of sterling. we are advantaged to have robert .inche of amherst pierpont this is a snapshot of what sterling has been doing. everybody in the world is on a good economy mode except the united kingdom. the economy is struggling. how alone is the united kingdom as they go into the second phase of brexit? fewrt: it has got a countries around the world not growing well either, but that is not good company. i think they are going through an economic transition that is just getting, depending on the outcome of these trade talks and cross border flows of people. you are seeing asking prices in london real estate coming down on a year over year basis. there is quite a transition to go through and that is what we are hearing over the central -- from the central bank. , explain to our

global audience how unique and important a parliamentary struggle is within this politics. inhink of churchill in, out, . i had to watch five movies with john lythgoe just to figure out what churchill was doing. gideon: when you have a parliamentary system, the government could fall or change at a drop of a hat as opposed to the u.s., where if you had a quick snap poll you would have some kind of change as we saw in the recent special election, but it is locked in until the recent -- until the elections. it is a little bit like watching the tax bill go forward, through one house than the next then negotiations. long,going to be a torturous set of negotiations for something that probably was not a good idea. tom: guy johnson. guy: let's go back to brussels,

anna joins us now. clearly it did not take long to make that decision. anna: they spent a lot of the morning talking about euro reform and then they moved on to brexit. they did show a united front and got to the decision quickly, so that you 27 deciding that sufficient progress has been made to move on to the next stage, but here is where the heart -- hard work starts, agreeing between the u.k. and e.u. 27, and the e.u. 27 coming to the same page. we will have to see first what the u.k. really wants, that is the order of things. they come to the table first and then the e.u. shows their hand later next year. guy: can it be done in the time allotted? anna: that is a good question. at the moment what we are hearing is, do we move on to

implementation or transition, and go on to talking about a future trade deal. once that is done it has to be put before the u.k. parliament. if that is to be achieved before march 2019, the u.k. parliament needs to start voting next year, so between the march summit next year and autumn to thrash out any details. sounds like a tight timeframe. tom: when we look at this and the politics, i am going to assume that this is actually a huge victory for prime minister may. .orget about the two cats will her cabinet celebrate? anna: i am not sure about celebrate. you could say it is a victory for the e.u. 27 managing to keep on the same page. they managed to extract a lot of money out of the united kingdom. they got the agreements they wanted. ,.u. 27 set the timetable

although many european leaders are singing the praises of theresa may, saying what a great job she has done and they want her to stay in charge of this job. whether that goes well back at home, we will have to see. tom: two times, anna edwards from brussels in the hour. we enjoy that. thank you for being so accessible. with us with our first word news, taylor riggs. taylor: republicans plan to unveil the final version of their tax bill today but have run into a few problems. marco rubio will not vote for the measure unless there is a bigger increased in the child tax credit, and still some questions about how the tax cuts will be paid for. president trump boasted that he is cutting through the red tape and his effort to slash government regulations -- his administration delayed or

canceled 1500 regulatory actions. paul ryan dismissing a report he will be stepping down. dozens of people who know him well say they expect ryan will not stay in congress passed next year. his spokeswoman call that peers speculation. --pure speculation. the russian central bank has cut interest rates more than expected. the economy has been stumbling and inflation is at the lowest since communism ended more than a quarter-century ago. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. guy: thank you very much indeed. the world of aviation is changing fast. airbus confirmed it is preparing for a complete overhaul of its top management team. the ceo plans to step down when his term ends in april 2019.

the coo who effectively is the ceo of the operating company is set to leave in february next year. the ceo of the helicopters business will take over some roles, but the expectation is that he would step into tom's shoes when he ultimately retires. we are joined by bloomberg's executive editor to global business, jackie simmons. the entire management team is being swept away at airbus. this is a significant change at one of europe's biggest companies. there is a big to do list for anders before he officially steps down. they need to fix the neo-jets. he has the bright cases, so this

is a lot to do before he actually exits. guy: there was some expectation that fabrice may step up and take tom's role. in the he has been company for 25 years and was told he would not get the top job for a number of reasons. either way, he is not destined for that role and that seems to be a dealbreaker. guy: you talk about the fact that tom has to deal with the 380 issue. we are waiting to see whether emirates comes through with another large order for the superjumbo. but presumably when he comes in, he will want a root and branch examination of this business. wellarrow bodies are going despite problems with the pratt engine and the middle of the market looks pretty solid. this massive airplane that has been a massive headache for quite some time, if you were

coming in and had the opportunity to figure out what it looks like, i am assuming the 380 would not be on it. jackie: that would probably be the top of the list of what the future of this country -- company is going for. demand is not there, it is tepid at best. is goinge sure there to be a decision in the next 18 to 24 months. guy: if you are sitting at boeing and trying to figure out what this means for you, is this a distracted airbus? is this a company that will go through huge changes and deal with issues surrounding the bribery, thinking about all of those things, not thinking about how do we go out and take orders and make sure we are beating bowing? is boeing looking at a distracted competitor? jackie: i think they are probably doing one of these right now, in a sense that this is a reflection of europe. you have two different

governments, a very meaty bribery case against the company. they could see this opportunistically, but they are probably thinking it is a huge distraction for the biggest competitor. tom: jackie simmons, thank you so much. with us from foreign affairs, i want to talk about vice president biden, russia, and mr. mueller, and robert sinche talking about the u.s. dollar in 2018. we will do bitcoin as well. this is bloomberg. ♪

♪ taylor: this is bloomberg "surveillance." atos isurity company

proceeding with an unsolicited bid for gemalto even though they rejected the offer. the company said late wednesday the offer significantly undervalues the company, but atos is determined to do a deal. fund elliott management is reuniting a four-year fight. elliott is calling for john hess to fix the company has father founded or get out. they want to focus on share buybacks instead of dividends. shares of h&m are following the most in 16 years. they reported quarterly sales that missed estimates. attracted e-commerce few customers. they plan more store closings and fewer openings. that is your bloomberg business flash. tom: it is an analyst story --

and less story -- and lists story -- endless story. this is from lionel laurent from bloomberg gadfly. bitcoin simply does not care. this is in a liquid market where there buyers talk about fundamental value beyond parity. if the heard annexed and sells, repair for pain. you agree with joe stiglitz, basically it will be outlawed. regulators -- bitcoin bills -- bulls hope they will play whack-a-mole. what is more likely is either some massive headline involving a crisis involving bitcoin, that might motivate congress and politicians. tom: the motivation and i have seen this in a lot of the press,

is it is not about america, it is not about europe, it is about china, china, china, and then mr. guantanamo the. on this friday, it is about almost a frenzy in korea. is this in asia challenges for regulars -- regulators? lionel: asia and china have been taking a negative tone. i would compare it to the early days of facebook when it was only open to college kids. it is a retail investment, but for sophisticated people. through wall street it may become in everyone's portfolio. guy: to that story, you talk about the big buy-and-hold, and it is interesting that that seems to be the dynamic. would there be a portfolio effect if this were to turn around? is happening right now is that people who have bought bitcoin and wish to sofit are actually rotating,

the 1000 plus other cryptocurrencies there are in the world with goofy names and quirky tweaks and tips, and the reason is they still believe they are going to win as long as they do not go back into the dollar. tom: i just had a nightmare, "foreign affairs magazine," an entire issue on bitcoin. >> we could price it in bitcoin. you can buy it anyway you want. tom: is this legitimized by cbo cme andme -- cboe and the fact that goldman sachs wants it from people? >> in the commodity world, it is moving. not many other commodities are moving, so investment firms will get involved and try to accommodate customers, but i do

not think this creates any legitimacy to it. i do not think it is anything that is backed by anything. this is a. bubblee, a market where there is frenzied interest with limited supply. keeps getting new converts on the demand side and the price continues to go up until it does not. tom: your ancient grain grandfather several times renewed was in the netherlands in 1637. you have seen a few of these before and wake of america, and amherst pierpont -- bank of america and amherst pierpont. how do you get out of a bubble? stearns, when i was there the late a scream and was the chairman -- east greenman said,e chairman and he when you soar like an eagle you do not crack -- crap like a

canary. this is in that vein, that basically it will go up and go up and there could be an accident, theft, uncertainty, and all of a sudden everyone who does not understand what they bought will look to the exits at a time there is no demand and it will go down as quickly as it went up. guy: lionel, what is the marginal cost of production? the energy story, is it a red herring or is it real? lionel: it is real, but i do not think that will kill this. ultimately, if it goes up in a straight line that issue becomes a problem, but i do not think it will. demand is not clear for the rest of eternity and neither are the rules of bitcoin. the whole structure could be changed. laurent, keep writing for bloomberg gadfly. your morning

briefing with gideon rose and robert sinche. a lot of good things to talk about. you can also pull up a chart. how about this chart from ed hy man on lower compensation. this is bloomberg. ♪

♪ tom: bloomberg "surveillance," in london and new york. with us, robert sinche of amherst pierpont, but first, gideon rose. i do not know why you did not put the vice president on the cover, there was vice president biden talking to senator mccain's daughter about illness. he is looking at the illness of our relationship with mr. putin in russia. with our question, the most important in your new issue. >> it highlights something that you have to read in conjunction with a wonderful article in "the

washington post," about how the president is unwilling to hear any discussion about the russian threat in national security circles. what biden talks about is what russia is trying to do to undermine western and american democracy, and how it should be countered. the terrible, scary question now is we have a government in washington but does not seem exercised about one of the major threats facing the country. tom:'s special counsel mueller read that article now, what would you advise him to learn? >> i would advise everybody to keep their heads down and keep doing what you are doing. we have had stress tests of financial institutions in recent years, and you are currently of americaness test political systems. james madison is on trial. the system holds when each component part does what it is supposed to do.

mueller is doing his job and everyone else should keep doing there's. tom: we deal with robert sinche on dollar strength. everybody humbled by weak dollar, persistently weak dollar. the chart clearly shows major ambiguity right now. what is your call for next year? robert: i think we have a gradual rise in the dollar. we were here a few months ago when we said we would probably get 3% to 5% for the end of the year. one of the charts i put out this morning is looking at the two-year spread between the u.s. and germany, 55 basis points. the widest that has ever been since unification is 285 and i think we will get there. suggest we will see flows into america because the ascendancy of the american economic growth. interest rates are very important. robert: they are important and i

think they will become more important as we go into next year. one thing that will help the dollar is if we get re-steepening of the yield curve, and i think we will get the long end selling off next year. as the long end begins to adjust upward more quickly in the u.s. than the rest of the world, that will be a key driver for bringing long-term capital back into the u.s. we will not see a dramatic move, but a 5% move up in the dollar next year is likely. guy: can i jump in? move this morning and the euro-dollar currency basis swap. -94 now. this is an open question. is this classic year in end? is there any tax effect? whatthis have to do with the new york fed is up to?

i am genuinely interested if you have any insight. robert: i think this is year-end pressure. i think the central banks are probably discussing this right now. they thought they were done, but my guess is the you are -- new york fed is probably involved to make sure we have liquidity on both sides of the ocean to get the markets back into a more normal flow. tom: robert sinche and gideon rose, thank you so much. we will continue at jonathan ferro and pimm fox on bloomberg radio. this is bloomberg. good morning. ♪

>> the great trade debate. they allow brexit talks to move on to trade. market distortions are tightening the dollar market. one way rubio, senator rubio is holdout on tax reform. a very warm welcome to you. happy friday. we made it. how many bank meetings did we have? lisa: 13. alix: david westin is off today. this is your cross asset check. we have a little bit of momentum there. sterling is dropping to the lowest so far this session despite brexit trucks moving on to trade. we have a little bit of calm, up s.won basis point it's been a strong week for crude. lisa: we want to catch you up on some other