francine: senate republicans pass their tax overhaul. the wave of cryptocurrency news turns into a tsunami. and the uber president, the ride hailing service loses an eu court case. good morning, everyone and welcome to "bloomberg surveillance," and i'm francine lacqua in london.

the european markets were down a couple minutes ago. they are pretty much back up. it seems the feel good factor in u.s. stocks have now petered out somewhat. i'm looking at u.s. 10 year treasury yields, pretty much a picture of stability. the dollar off the trade bound. the dollar, gaining a touch. coming up on "bloomberg surveillance," we sit down with luca paolini, the chief strategist at pictet asset management. thewe will also break down saudi budget with the director of economic research at the gulf research center. first, let's get straight to the bloomberg first word news. sebastian: uber has lost the battle as it differs from traditional taxes. the car hailing app should be

regulated. the eu court of justice ruling, think of the president sentting. british officials fear spain will threaten to veto, if negotiatey fails to with madrid. it has been in british hands since, 1713 but spain could make a claim over the land. to the u.n.assador nikki haley is pressing other countries not to support the resolution in the larger general assembly.

one diplomat said his country's mission was told that his country's vote would be taken personally by haley. the european union will slap unprecedented sanctions on poland. backed by germany and france, the eu executive arm will likely recommend activating a treaty article. the country's prime minister says poland has the right to act without interference. saudi arabia is rolling out a huge expansionary budget. spendingom will boost trauma $300 billion. it expects gdp to expand 2.7 2.7%.and 3%.expect the gdp to grow

sebastian: global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm sebastian salek, and this is bloomberg. francine: now, senate republicans have just passed the most extensive tax code bill in more than 30 years. >> the ayes are 51. the nays are 48. with further amendment, the tax cuts and jobs act is passed. francine: the vote split along party lines, brings donald trump to his first major legislative party victory. it must first return to the house of representatives for another vote today, after senate democrats evoked a technical budget rule. for more we are joined by

stephanie baker. also with us, richard jeffrey, chief economist at cazenove capital management and luca , from pictet asset management. what exactly does this mean? this is a procedural hiccup, right? stephanie: it's a technical glitch. it will go back to the house for a vote. trump will be able to sign it probably later today and certainly before christmas. so, no substantive changes to the bill. francine: it seems like an unpopular measure, these tax cuts, for the wider u.s. citizens, but the gop committed to it. are they committed to the president, or do they think it will help the economy? stephanie: in reality, this is mostly a tax cut for corporations and i think politically, they will have an

uphill battle to sell it to the deed public that it is in a middle class tax cut, especially when the democrats are saying it is a massive tax cut for the wealthy. it's massively unpopular, given that historically, tax cuts have been historically popular. 2/3 of the american public do not approve. it will depend on how much americans feel the tax cut in the next year and how much they feel it. for most people, the average is $1600 for the next year. will they feel that? francine: what about the afford will care act? it also impacts that, right? stephanie: they have repealed the affordable care act as part of this. their failure to repeal that this summer were really motivated them to get this done

this time around by linking it to tax cuts. it's projected to mean that 30 million americans will be without health insurance. it's one way they paid for this tax bill. we are expecting legislation to stabilize health care markets to compensate for that, which was promised to one of the republican senators for her vote. that remains to be seen, where that goes. francine: what is priced in for the markets right now? we saw a little bit of blip on european equity trading opening. richard: i think it is pretty much priced it. what is not priced in is the balance between fiscal and monetary policy. if the fiscal stimulus comes through in boosts activity quite strongly throughout the year, will that cause an alteration in the course of monetary policy as currently planned by the federal reserve? i still think there is a lot for

markets to think about here, particularly if the net result is that the u.s. economy gathers more momentum than expected. luca: at the end of the day, this tax plan is probably be wrong plan at the wrong time,, if i can say that. we have a situation where economic confidence is at a record high. and obviously, you have the fed behind the curve. it could force the fed to be more aggressive. francine: you think this would spur the fed into faster action, because it helps them with inflation? i kind of hear mixed feelings. it doesn't help with gdp, just on mixed dividends. : inflation, i think, will pick up anyway. we are in a situation because of

labor markets and growth, inflation is already on the way up. i think it will give the fed more confidence to hike. this should is why offset earnings. francine: thank you, stephanie baker and richard jeffrey. luca paolini stays with us. plenty coming up, including the winners and losers from the 2017.response of and bitcoin drops and cryptocurrency goes bust. we discuss that next. this is bloomberg. ♪

francine: economics, finance politics. this is "bloomberg surveillance ," and i'm francine lacqua in london. here's sebastian salek. reporter: steinhoff shares plunged again, just as they were pushed to the brink of collapse as lenders cut off support. the announcement comes in the wake of an accounting scandal. disappointing results for the three months from the end of october. sales in the u.s. declined a 7% compared with the year earlier, and the operating loss widened to $208 million. the toy retailer was forced to file bankruptcy. and german renewable energy ceo resigninge with immediate effect. the shares plunged last week

after shares dropped this week. that is the bloomberg business flash. 0 yearne: now, the 403o treasury yields have fallen 13 basis points. this comes after hawkish central bank comments. chief economist at cazenove capital management and luca paolini from pay cut nas pictet asset management are still with us. they keep on telling us they are data dependent. but overall, is it on a slow t rend of normalizing monetary policy? richard: let's use that phrase. the fed intends on raising interest rates three times

before the end of 2018, and that is what we should expect, but there is another crucial phase in the economic cycle. that is the recovery and productivity. if we see a strong recovery, then the fed might begin to feel more relaxed about a pick up in growth. if there is no productivity supporting that, the fed will be upset about the implications. francine: china is recruiting a prudent monetary policy. china is said to continue proactive fiscal policy for 2018. what does that tell us about the pitfalls, ore the correlation between the fed and china? china doese worried something that could hurt the global economy, or could it be the fed? richard: i am glad to hear it is not following an

imprudewnt monetary policy call. we heard a statement out of china. we are not looking for chinese growth to pick up significantly over the course of this year. the we see in the u.s. is federal reserve leading the way towards monetary policy normalization. that will become the course the rest of the west follows over future quarters and years. francine: of course, if china says they would enter monetary policy, that would be news. this is the chinese government and chinese central bank saying, we are aware of the dangers. there is an underlying current of caution. >> the fact is, with inflation remaining quite low, there is pressure for the central banks to deliver more hikes. embarking on some form of monetary tightening.

in a situation where markets are at record highs, this will change matters across the globe. francine: how does china deleverage? is this the ultimate el dorado that is difficult to pinpoint? richard: it is very difficult. what they would hope to see in future years is that more lending comes out of the official banking sector, and they have less shadow activity. at the same time, the key to deleveraging is growth. it's not actually reducing the amount of debt, but growing the size of the economy and faster than the debt is building up. and it is a very slow process. francine: can china import inflation to the u.s.? richard: china could. if china's growth were to spike, and that would increase demand for raw materials and fuels,

that could start an inflationary process that came from outside china's borders. i think that is unlikely to happen. i don't think what is going on in china is particularly meaningful to western growth and western policy. francine: do you agree with that, luca? luca: yes, i think the inflationary pressure will emerge first in the u.s. you will see first a pickup in wages. you will see the weakened dollar after the inflation is pushing higher. if it is going to come, it will 2018.2019, not in francine: what about the central bank surprises that will come in 2018? >> i think central banks are keen not to surprise markets and to program their policy changes way in advance, so people are anticipating and they do not come as a shock. i still think central banks are

more worried about growth stalling than they are about growth picking up unexpectedly quickly. as i say, it will come back to productivity in the end. productivity is the key to this equation at the moment. i think the interesting test is if productivity begins to pick up in the u.s. as interest rates are rising, that will give a clear signal to other central banks that they need not be in their aversek averse behavior. francine: thank you. ranges. cryptomania we will discuss that next. this is bloomberg. ♪

francine: good morning, everyone. this is "bloomberg surveillance ," and i'm francine lacqua in london. the waves of cryptocurrency turned into a tsunami yesterday. a cryptocurrency went bust after being hacked and u.s. regulators halted a stock on suspected manipulation. for more on crypto mania, let's bring in eric from hong kong. what's going on?

i read about it. it was like four things happening at once, which created panic. reporter: it was a very busy dayin the bitcoin world. we had a bunch of stocks that were starting to see the trade go beyond just bitcoin. we are looking at companies that are trading on just name changes, or the fact that their businesses are some way related to bitcoin are cryptocurrencies. we are getting into the more interesting, almost what people might call similar to what happened with the .com bubble time, when millionaires were coming out of nowhere and stocks were going up to thousand percent -- were going up 2,000% a day. francine: what is the service sector saying about the price action on cryptocurrency today? is it more difficult to predict? eric: with bitcoin itself, we

saw a pretty big drop. the price of actual bitcoin dropped 10% over night, the biggest drop since the futures trading a couple weeks ago. the people i spoke with said they think this is a short term the short-term correction everybody has been holding their breath for. the anticipation within the industry says that though bitcoin has dropped a little bit, it is kind of healthy. francine: there is also news on the rival cryptocurrency today, bitcoin cash. what is that? eric: interesting things are happening there. u.s.f the most popular exchanges that it will allow trading of bitcoin cash. they only opened up their order books for about two minutes before they halted it because of what they called significant

volatility. they said they are now opening up an investigation into some price increases they saw in bitcoin cash before the announcement today. 50%aw bitcoin cash dropping in the last 24 hours. so, pretty significant prices before the actual announcement. there is some concern about possibly insider trading or inappropriate trading. the ceo in a blog post says he has no hesitation about terminating any employees that might be caught doing this. they did point out that there is no evidence of any kind of wrongdoing so far. francine: eric lam, thank you. richard jeffrey is here with luca paolini. what do you make of bitcoin, or cryptocurrencies in general? >> i think the situation is extremely worrying. the quality of any so-called asset is the asset or as a price that underlines it. in this situation, nobody knows

what the asset is that unerl derlines it. it's not a full currency, ei ther. you cannot pay your tax in bitco in. the risky situation is that people are starting to use bitcoin profits to buy other assets, at which point the linkage between the bitcoin market and other markets becomes more concerning. this is an issue and i think the regulatory authorities need to look at this quite hard and put in strict controls. francine: up next, we talk brexit. ♪

economic finance and politics. this is "bloomberg surveillance ." let's get straight to the bloomberg first word news.

sebastian: uber has lost the battle over its stance with traditional taxis. pew york's court says the ap should be regulated as a driving service. the e.u. court of justice ruling can't be appealed and could be precedent setting for the wider economy. the u.k. prime minister's plans to help businesses navigate leaving the european union may be derailed by an argument over gibraltar. officials fear spain will threaten to veto if theresa may refuses to negotiate a deal in madrid that covers the territory. while the peninsula has been in 1713, spains since maintains a clean over the land. a warning over a key vote on jerusalem this week. donald trump is watching. nikki haley is pressing other

countries not to support a resolution critical of president trump's decision to recognize jerusalem as the capital of israel. one diplomat said his country's mission would be taken personally by haley. the european union is set to slap sanctions on poland for failing to uphold democratic norms. backed by germany and france, the e.u. executive arm is likely to recommend activating an article that would bring poland a step closer to losing its voting rights. the prime minister has said: has the right to revamp courts. is rolling out a huge expansionary budget. the kingdom will boost spending in a bid to revive an economy that has languished. expand 2.7% into 2018 after shrinking this year while inflation will accelerate to more than 5% from negative territory.

we expect gdp to grow north of 3%. sebastian: 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. francine: thank you so much. the bank of england will reportedly unveil plans to offer wholesale finance to operate under existing rules after brexit. that is according to the bbc, which says the plan would apply even if there's no deal. it would also mean that he you banks could continue doing business in britain without creating subsidiaries. bloomberg's banking reporter is here. we're also joined by richard jefferies and luca paolini. thank you both for sticking around. welcome to the program and welcome to the studio. talk to me about this report. what does this mean? were we expecting them to do a

subsidiary? >> it is a very interesting time for the bank of england to come out with this information. michel barnier has used an interview in england to say there will be no special deal for the u.k. finance industry. for the u.k. bank of england to come out and say we are going to let the banks continue to operate as normal is quite interesting. the reason they've done this is because it would be very expensive for foreign banks to create subsidiaries. they would have to take capital out of their headquarters and move it to the u.k., which could encourage some of them to move jobs abroad. francine: i'm also looking at boe headlines. i will come back to you in a second. they are saying growth edged up, expected to be higher. the boe also saying that

recruitment difficulties intensified. this i think is the summary of business conditions. they say that manufacturing has been supported in the past by the fall in sterling. let's park that and get back to the bank of england. survey interesting, but i'm not sure, not moving pound. when you look at negotiating tactics, is the u.k. saying, i give a nice hand to the e.u. in the hope that they will soften, that barnier and the e.u. soften in terms two banks? >> that is what it seems like. is starting from a very , which willn hopefully soften overtime. it is slightly self-serving for the u.k. to do this as well. they want to keep as many financial jobs in london as

possible. they want to continue bolstering export numbers by having financial services located inside the u.k. traded to the e.u., and all these people working in london and elsewhere are paying a lot of tax. especially if you are the chancellor of the exchequer. how do you view brexit? this so thesaying tone is softening, or do you look at only the hard facts? luca: we should look at the big picture. there will be a lot of noise. what is important is there is a perception now that the deal can be agreed on. it is very important to note that investors, since they've been very bearish -- for us, brexit is a great opportunity. cheap. u.k. assets are

u.k. equities are very cheap. nobody would expect any good news from the u.k. economy. i really look at the big picture. we see that we are going in the right direction. richard, do you look at this tit-for-tat, the banking services negotiations, or do you look at things like business conditions for smaller businesses? richard: we have to be careful not to respond just to the last comment made by either side. clearly what is said in public is part of the negotiating process. but i think this is an important statement from the u.k. because it is very consistent with the u.k. saying we want to pursue free trade, whether in financial service or goods. that is the statement to the e.u. and the wider world, that

london is going to be a where we areter not going to put unnecessary restrictions. i think he's right in saying the signs coming out generally from the u.k. economy and the financial sector are much more positive than people had expected. francine: stephen, a lot of the banks are taking the first steps to move staff to the continent. are they doing it regardless of what the brexit negotiations are? said theirks have last cut off for making decisions will be in the first quarter next year. that is when they have to start pulling the trigger as if there were a hard brexit, no equivalence, no passporting. i think we will start to see executives identify these people and let them know they have to

move themselves and their families. to the executives we speak say we are going to leave it to the last possible moment. they would like to not have to activate them if possible. i guess we will have a clearer picture next year. francine: stephen morris from bloomberg news. richard and luca paolini both stay with us. you stay with "surveillance." saudi budget bomb. after two years of austerity, and expansionary drive. we have more from the finance ministry next. this is bloomberg. ♪

francine: you are watching "bloomberg surveillance." saudi arabia is rolling out an expansionary budget for 2018. it is said to boost spending to around $290 billion to revive an economy that has languished. the country targets to keep its deficit below 8%. it expects growth to rebound to 2.7% next year. bloomberg spoke to the saudi finance minister and got his outlook. we expect gdp to grow north of 3%. expect -- [inaudible] in terms of, you are not going to give me an oil price -- let's break down your programs

for debt sales. how much of that is going to be international and how much is going to be domestic? i think the best strategy is very important for our country. [inaudible] coming up with our strategy -- [inaudible]

i would say about 60-40 is a reasonable number. >> 60 international and 40 domestic? >> or vice versa. >> do you have a date set? [inaudible] it depends a lot on how the market is doing at this time. >> you recently announced a package and it is our understanding that there is scope for more in 2018. how are you going to distribute and allocate that package and ir in terms of sectors? [inaudible]

francine: for more, let's go to riyadh, where yousef gamal el-din is standing by. great interview. we enjoyed that. do you see the 2018 budget as more supportive for growth? >> absolutely. that is the feedback i've been getting from investors in the region as well. more spending, and also a little bit perhaps in terms of the ambitions they have. they are drawing out a little bit the energy subsidy reform. in terms of managing a balanced budget, that is going to be pushed out to 2023. as we look to the new year, this is a budget possibly calculated on $63 a barrel in terms of oil prices. the market hasn't reacted positively today. much of the expectation of more stimulus has been priced in.

some of those have largely seen major gains. , thether key takeaway here saudi aramco ipo is according to their assessment still on track. and the money they recovered from the ongoing anticorruption probe is going to be put in a treasury. francine: thank you so much. yousef gamal el-din in riyadh. we are back with richard and luca paolini. i don't look at oil, know if this is a saudi story, oil story, supply and demand, or shale producers in the u.s., but what is the linkage between inflation and oil, but also the price of oil in 2018? richard: the key linkage is that the connection between oil demand and general inflation is much weaker than it used to be. rise, but itll

won't rise as fast as world growth. stock, astill a lot of lot of reserves of oil around. i think it is difficult to foresee another oil bubble such as we've seen in the past unless the world economy starts to grow much faster than it is at the present time. i'm talking about doubling the growth rate. i think the oil price is going to remain relatively subdued. that is not just short-term. that is long-term as well. many alternative energy sources are going to come through. luca: we have a target for next year of 65. from one side, strong growth and a week dollar should be supported. when you look at u.s. production, a record high, then you really feel that the marginal cost of production in the u.s. of shale oil is

probably around $50. i don't see prices go much higher. i really believe that you are in a range. i don't see the risk of overshoot. francine: thank you. richard jeffrey and luca paolini, stay with us. another bump in the road for uber. app suffers a setback in the european court of justice. this is bloomberg. ♪

francine: economics, finance, and politics. this is "bloomberg surveillance ." uber has lost a battle over its stance that it differs from traditional taxis. europe's top court said the should be regulated as a transport service. joining us now is bloomberg's e.u. legal editor. tony, tell me about this european court of justice. it can't be reversed and this means they have to comply with regulations. >> regulations in all 27 e.u. countries.

they are like any other taxi company and they have to abide the same rules. this was one of the least surprising rulings in my years covering the e.u. court of justice. the aggregate general had a clear ruling in may, which kind of set the court on its path. they said it should follow all the rules of taxi companies. the issue hasn't been what was this ruling going to be today, but what is it going to do down thatoad to other companies feel because they are operating on a digital platform that they might not have to follow the same rules? francine: this was something that was started before the uco came in charge, so they would have adjusted to the regulation in most countries already. >> in the u.k., another case over whether they have a license , they have already agreed that they should be regulated that way. they are moving beyond these issues. it is now, how do the courts

deal with other gig economy companies down the road? francine: this goes back to the valuations. this is like a precedent for these sharing economy type companies. did does go back to valuations. it is a really important subject , particularly for the u.k., in that it is trying to break free from the european union. these disruptive technologies are very important to growth. i don't talk about uber specifically, but generally we should be welcoming disruptive technologies. if you want to set up a technology business here, you will find there's a regulatory environment which encourages that. i'm not going to talk about uber specifically, except to say that uber is a far more efficient way of allocating transport services than black cab drivers driving around randomly looking for

pickups. i think we should be trying to use our resources, because the cap service clearly is wasting a lot of energy. i wanted to ask about valuations, but now i want to talk about the cap service, which we will have to do a special show on. how does this translate into your world? is the perception of the sector and it is very expensive. risk for a lotl of the companies, and uber maybe is a different case, but all these companies are vulnerable to more regulation. i think there are a lot of question marks about the tech sector which are not related to valuation, but to the level of taxation and regulation that can

change very quickly, a factor that has been so successful, and i think this is the major risk for the coming years. francine: in terms of the other battles that uber has to face, there's a couple of big ones in london. >> there are two cases in london. there is the case whether they can operate in london. they are trying to settle that. that is scheduled for a trial in june. uber can't operate until there's a final ruling. there's another case going through the employment tribunals that is whether they have to pay drivers overtime, vacation time, and other benefits. that is a case that is very difficult because other companies don't necessarily do that. one of the big london many cap companies faces the same. francine: we will keep a close eye on it. tony from bloomberg.

i also thank you for staying with us, richard jeffrey and luca paolini. "bloomberg surveillance" continues in the next hour. tom keene joins me out of new york. we will be talking about some of the pound levels, but also euro-dollar, and david wiley joins us. today is all about the tax, but there is a little bit of news on cryptocurrencies. we saw what happened overnight. ourill go back to cryptocurrency reporter over in hong kong. stocks in europe struggling as the tax factor seems to be fading away. this is bloomberg. ♪

francine: on the brink of a win . senate republicans pass their

tax overhaul. the bill heads back to the house after a procedural pickup. newsave of cryptocurrency tsunami.to a si hailinges a ride case. good morning. this is "bloomberg surveillance" and i'm francine lacqua in london. tom keene is in new york. it's petering out. we go on to brexit. talke, of course, cryptocurrencies. in ishat i am interested the rise of interest rates. i believe the president, to hold

some form of festivities after lunch today. francine: i believe he is speaking at 6:00 p.m. u.k. time, if it goes through without a hiccup. let's gets her to the bloomberg first word news. is oner: president trump the verge of his first major victory in congress. early today the senate approved the first overhaul of the tax overhaul. the senate democrats evoked a technical overhaul. this slashes the corporate tax rate. most will get a temporary tax cut. the u.s. ambassador to the united nations warns president trump will be watching a key vote on jerusalem is weak. warning thaose who criticize the president's decision to move the embassy to

jerusalem. theresa may is trying to repair the special relationship between the two nations. they had a falling out last month. he responded by telling may to mind her own business. the two spoke on the phone yesterday. and it's a setback in europe for europe. the ridehailing app should be regulated by a tight the service. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. tom: thank you. equities, bonds, currencies, commodities. there's the futures. thefutures, getting into interviewera futures.

the euro, shortening, but overall stronger.. nicely under 10. uro, 2.45%. the euro-yen, showing stronger euro versus yen. francine: i care about crude. tom: good. francine: so, i put it on my check. crude stockpiles, watch out for that. gold edinging higher. said, tom, we need to watch out for tax yields. tom: but us continue now with the vice president of the united states. the vice president rules

the senate, and can be a deciding vote. here's the vice president after midnight. >> on this night, the ayes are 5 1 and the nays are 48. the senate concurs that the tax cuts and jobs act is passed. tom: and of laws to the right there from republicans. i democrats in silence. we need to go to stephanie baker. stephanie, today is a done deal, right? stephanie: it's just a technical glitch. this will sail throught. tom: within this is a legislation. i cannot find a poll that finds any popularity for this bill.

let's go with the why. why is the public so against this legislation? stephanie: historically tax cuts have been very popular. but the polls are indicating that 2/3 of americans are against the plan. which indicates the democrats are getting through that this is a tax plan for the wealthy. the question is, will that change as the year goes on? when will people start feeling this tax cut, and will they feel it enough for them to change their opinion? tom: you know we like to talk to smart people like stephanie baker. here is one of our most experienced financial guys in washington. this is a stunning tweet. based on the final joint committee taxation tax bill estimate, plus highly likely defense and nondefense cap

adjustments and it he would billion dollars emergency spending bill, deficit for current fiscal year will exceed $800 billion and $1.1 trillion in 2019. that's an increase of 65%. does anyone care? stephanie: it's incredible, actually. we on the republicans are genetically created to cut taxes. but they have been hammering home this message for years about the deficit. the fact that the deficit has not been talked about as part of this tax bill is incredible. i think we will see the republicans turning to toitlement cuts, c ututs medicare and social security as a way to reduce the deficit. i think that will make this tax cut wveeven more popular. francine: what does this mean for the affordable care act?

stephanie: they have appealed the affordable care act. the projections are that 13 million americans will end up uninsured as a result. the are trying to consider -- they are considering now as part of the spending bill funds to stabilize the insurance markets to counteract that. it's unlikely to get through the house. it faces more of an uphill battle to the house band the senate. there's a lot of uncertainty as a result. ourcine: let's bring in guests. when you look at all of this, first of all, does it impact the dollar at the margins? i had one guests saying it will not actually touch gdp. >> no, i don't think that it

will. it's there difficult to forecast i nthin the nearterm. pact. virtually zero imap don't get me wrong. i'm not against decreases in the deficit. the u.s. is operating at full capacity. if anything, they should be reserving capacity for the next lowdown, which is likely to come in the next couple of years. i think the dollar has been overvalued. i think the correction is likely going to continue. francine: is this the wrong package at the wrong time, or does it help at the margins? >> i do think the tax cut and fiscal stimulus will impact the year's economic outlook. i thinkt he market is not fully pricing it in.

it's not fully estimating what the impact will be. it is skewed to higher income and corporates, especially over a 10 year envelope. if you look at it over the next 12 to 18 months, people will be paying less. i agree. potentially a could be setting up policy tensions for the fed. but this is a positive development, i think. tom: it is good to have both of you with us. i noticed that in all of the year ahead looks, there is absolute cluelessness about the dollar. it's got to be a stronger dollar, right? >> no, wrong. tom: why?

>> we have been in the dollar bearish camp for a while. on the facty based that we see be dollars significantly overvalued. we look at a trade weighted overweight revalue. we went through a frenzy. the dollar approximately, 20% overvalued. now we are in the process of correcting that. is the same time, the market is having a reality check this year on the back of that short lived frenzy we had in november and december of last year. at the same time, the other side of the equation, look at the eurozone. you are talking about a growth which is no longer strong, but is actually very sustainable because it is widespread. the diversions of growth rate among the member countries is the smallest it has been for many years and you have the shading of the political risk premium, which is not completely

played out yet. tom: we have got to come back and revisit this. stefanie, i believe we heard david riley say that the american economy is on fire. t inhey know that o washington? stephanie: i think they know that. i think they think this bill will boost american growth. trump said this bill will be rocket fuel to the economy. this will be rocket fuel to the stock market. it will be translated into stock buybacks and higher dividends. and that will filter on through to the end of the year. francine: thank you, stephanie baker and david riley. in the meantime, we are getting breaking news out of the imf and mr. hammond. four inooking article the u.k. u.k. isond, saying the

facing a significant productivity challenge. he did try to address it in his latest challenge. i have an advanced copy of the speech. we will talk about it. on that brexit will weigh demand.mestic this is bloomberg. ♪

reporter: this is "bloomberg surveillance." strong start to the

holiday shopping season for fedex. he package shipper is on track for a record-setting holiday deliveries. bitcoin has taken its biggest fall since futures trading began earlier this month. the cryptocurrencies fell as much as 10% yesterday to as much as $17,000. investors are showing interest in smaller coins. bitcoin has risen 17% this year. in the u.k., a warning for the board with skytv. advisors say if the government blocks 21st century fox's takeover, the british paid tv provider will not be able to count on a bid from disney. disney would acquire the sky stock. francine: let's get on to what is going on with the treasury. we heard from mr. hammond.

now we are hearing from the managing director of the imf, christine lagarde. she dissents on london to deliver article four, the imf's assessment on the u.k. economy. oncourse, brexit is weighing u.k. domestic demand and they are seeing firms weigh on domestic. still with us, vasileios gkionakis, and also, david riley. what she will not do is give us a call on pound. the imf is looking at the impact that the pound has on exports and again, investors coming in from abroad. >> it has definitely acted as a shock absorber. there's a significant sentiment

for both the consumer and the bond. as far as stillman is concerned, i think we have seen the worst of sterling, especially against the dollar. weak dollar, the factor, which i think will continue. isondly, i think the market looking for compromised on the road. it's going to take more than two years negotiations between canada, negotiations for the free trade agreement between china and australia have taken 10 years. this is not going to be resolved in a couple of years. i think what the market wants to feel right now is we will approach some sort of norwegian solution in the sense that the u.k. will avoid the cliff's edge. i think the market wants to see

cable a bit higher. largely, we are cautious because the brexit premium at 1.25 seems to have a lot priced in. as this is being reduced, cable should see some relief. tom: david, i want to go to a chart, which i just made up on a commercial break. thank you and vasileious for bringing this up. this is united kingdom productivity back to 1965, the secondof "the crown" season. it is absolutely spectacular, thedamage done in 2007, in financial crisis and ithis new lethargy. what is the prescription for the noted kingdom to get out of this lost decade of lethargy? is an i don't think there

easy answer, but leaving the european union is the solution to the productivity challenge. if you look historically, the reason the u.k. productivity picked up into the 1980's is a combination of the structural reforms by the conservative government that came to power in 1979, but also the u.k.'s entry into the european union that brought competitive pressures and force the economy to restructure. in there's no easy solution terms of the productivity challenges facing. facinganything, the eu's a hard brexit will make that challenge harder to address rather than easier. francine: think both for staying with us. david riley and vasileios gkionakis, both stay with us. former british

foreign secretary. that's at 8:30 a.m. in new york. then he joins tom and john on the radio. this is bloomberg. ♪

francine: good morning, everyone. this is "bloomberg surveillance ," and we are tom and francine from london. tom, looking pretty dapper today. the european union's top court for the car hailing app said it

should be regulated. for more, we are joined by bloomberg's global tech reporter. still with us, david riley and vasileios gkionakis. when you look at this really by uber -- they basically need to comply with the regulations. have they not done it already because of the scandals? >> that have been moving in this direction. uber says the impact of this will be muted because they have been reaching agreements to get licenses. but it takes away the prospect that some of those regulations could have been scaled back. had they won this case, they could have had big beneficial impacts for the company. some of those regulations could have been taken away. francine: this was pretty much expected, right? right, this has been signaled for months now.

an early pulmonary recommendation was made to go in this direction for a year. i think the broader perspective to take away from this and heading into next year, it shows again that europe is the centerpoint for a lot of regulation that is going on in big american tech companies, as seen with apple, amazon, google, facebook -- these companies are facing scrutiny in europe they are not facing in the u.s. tom: how will they respond to it in 2018, adam? adam: well, i think they will try to continue to do what they are doing, what same not sure is a particularly winning strategy. the businesses of these companies are not really being heard at all. monthspple was hit 18 ago with the big tax fee, the share price is up dramatically. google, facebook, all these companies continue to do with they were doing business-wise.

it is going to be hard to see how things dramatically change. francine: adam stariano, thank you so much. we will be back with david riley and vasileios gkionakis. coming up later today on "bloomberg markets," a conversation with banco de mexico ceo. the will talk about the wall. whether that is something that will impact the bank of mexico governor. i suspect that is not something he will want to talk about, but we will ask him about it. this is bloomberg. ♪

tom: "bloomberg surveillance" from london and new york. the president scheduled to speak at 12:00 noon washington time with the house voting a second

time. to give you details on that with our first word news, here is kaylee lines. president trump is getting legislativetch i victory. the democrats think they are getting a campaign issue next year. the tax reform/is the corporate tax rate and gives temporary relief to middle-class workers. democrats say it will favor the rich and help them in next year's elections. a brexitt roadblock to deal is a 300-year-old dispute between the u.k. and spain over gibraltar. it over theto disputed territory. gibraltar has been disputed hands, but spain maintains claim over. the number of iraqi civilians killed in muscle was 10 times higher than reported.

as many as 11,000 civilians died in the fighting. south korea may delay scheduled wargames with the u.s. after it host the winter olympics in february. the goal is to avoid provoking north korea. south korea is concerned that kim jong-un's regime may try to interfere with the olympics . global news 20 for hours a day powered by 2700 journalists and analysts in over 120 countries, i'm kaylee lines. this is bloomberg. francine: south korea is rolling out a huge expansionary budget. the kingdom will be spending billions of dollars to revive an economy that has languished in the wake of low oil prices. bloomberg spoke to the finance minister and got his outlook. and the crown prince

and the ceo of the company have myself, thathink the ipo is attractive. .hat is one option we are at many things at this stage. we are going through a lot of discussions. this is not a normal ipo. this is an ipo of the world. we want to make sure that we don't leave any stone unturned and show that we are doing what needs to be done to ensure the right move. francine: for more on this, let's go to bloomberg markets middle east anchor standing by. thank you so much for bringing us that. what was the mood? was he worried about the future was he confident that things are going to plant even though there

are quite a lot of hiccups? >> i would say it looks like he was exhausted from all the effort, but definitely confident about the outlook for he is looking now at growth off the back of less ambitious goals in terms of managing the fiscal budget so we are looking at a possible balancing by 2023 instead of 20 25th you're balancing,possible . this will give the government a lot more windfall and room for maneuvering. we have seen some key stocks shortly higher ahead of the announcement and now they have dipped a little low with. er. francine: when you look at the that the understand ritz carlton in riyadh will be open in january. they are, sitting on these guys

that have charges for corruption. does that help with fiscal matters? yousef: that's one of the talking points with the minister . he said any assets recovered from the probe will be used as part of the broader budget. she saying they do not have enough information for that, but it could be in the city of $100 billion, a sizable amount for the saudi budget in terms of a five-year or ten-year horizon. that would be something to bear in mind, but we do not have any more specifics as to who will pay how much and who gets out. tom: thanks so much for your reporting yesterday after the missile tech. there seems to be some confusion coul. makingre some that are it clear that they were aiming at the palace. attack changele

the financial discussions of the last 24 hours and critically did it rattled the house itself? wouldn't say it changed it, but it definitely underscored an ongoing concern. of the key decision-makers, 2018 was always going to be a year where the anxiety around the ongoing tensions will become more to the forefront. showlatest event goes to that the story is yet to completely be unwound. tom: with the delicacies of you being in rihanna, is it -- riyadh, is in the immediate story of wednesday into the next week or does it me and are on into the new year? yousef: it's definitely something that is part of the public discourse and part of the conversation. it's not something being swept under the carpet at all. they are making it clear that this was a direct attack on saudi arabia and they absolutely

made it clear that they will not tolerate that. whether that will mean a response t through diplomatic channels, but last time around, he brought this up. why are things going haywire in lebanon? maybe we can see more of that. that's what a lot of analysts are telling yo me. francine: thank you so much. that is bloomberg markets middle sef. anchor you you look at petrodollars and the impact on the currencies. what is the story for oil in 2018? do we assume it is range bound? or is it impacted by the currencies that you watch? >> we still have a number of imbalances as far supply is concerned so therefore we are looking for a relatively range 65 as far as 60 to brent is concerned for 2018.

i think recently the risks of a move higher has increased at the margin largely because there is some strong omentum building. i think in relation took currencies, there are number of currencies that have responding and there have been currencies that have not been responding at all. again has crept up higher , which i think is really very high based on long-term structural fundamentals. i would expect that after we clear the holiday season and especially now with some liquidity, we're going to have some fundamentals and i would expect some support for commodity oil related currencies. tomfrancine: david? david: i was certainly share that view. what has been under planning -- underpinning the story has actually been the demand story and that is projecting a very

strong global growth. comingong global growth out of emerging economies and emerging markets in particular. we are forecasting that to continue into next year. bedo think commodities will pretty well supported and it will be good for emerging markets and emerging market credit in particular. tom: what is the fiscal integrity of the greater middle east? there are some of the countries over there struggling with greater fiscal needs. i think egypt is one example. what is the general integrity of the region? thinkasileios: i certainly there are vulnerabilities going on right now. i think the initiative that saudi arabia is taking has been expected to a certain extent. of course, we are talking about a meaningful increase in the deficit, but we are talking about significant finances due to lower oil prices.

i think on the whole that we should bear in mind a couple of things. first of all, the commodity crisis to which the region is exposed seems to be recovering. not say that they're going to go through so that's g.e positive thin there's definitely global trade growth upswing going on, which should be in additional benefit past the margins. i do not think it is a concern. i don't think 2018 is going to be a year that these regions fiscal finances are going to be a major concern. tom: very good. thank you so much. we will continue with this good conversation as well. bloomberg radio in your car, you can listen coast-to-coast. you can do that with bob moon and karen moskow when we say good morning to radio london. stay with us. this is bloomberg. ♪

francine: this is quite huge. has decidedssion that the brexit trans ition will end on december 21st 2020. this is the first time that i hear this timeline. but it basically means is that the transition starts as soon as they agree on the transition period. we knew they had two years to process,e brexit frock which means that the extension of the transition will be extended by 18 months. basically the u.k. has more time sofigure out a way forward that the deadline is now december 31, 2020. does that make sense? tom: i guess it makes sense.

let's look at eurosterling right now. sterlingot tangled dollar. of a move yet,h which is what i would expect, but what you can see this .88 pence. i'm sure i'm going to be corrected if i'm wrong. you really wonder if it's market moving now worth more part of the ballet. francine? francine: we're just hearing again from them saying that position progress was important and a necessary step. this is something a little more forward in terms of reconciliation and the town in the last 10 days has stopped. i know you probably have a currency question. tom: you mentioned earlier a weaker dollar. fold in the distinction between cable sterling dollar and eurosterling.

obviously it's a eurosterling discussion, but how does unicredit parse those two united kingdom currency pairs? vasileios: very good question. i think it's fair to say that we have a more bullish view on the euro relative to sterling. overall we see sterling gravitating higher than 90. we do not think the levels are of parity or there about largely because of the brexit premium. i think there are two main mentions. first is the political and economic dimension. from a political and economic perspective, i've serious doubts that we will see the end of it by the end of 2020. from it asset price perspective and the sterling perspective, i think a lot is already embedded in the price. having said that, there is a serious risk that you may see a eurosterling overshoot.

largely portfolio flows are still subject to a reversal if things don't pan out as well as they seem to be right now. remember we had massive portfolio" from the eurozone to the u.k. during the years of the eurozone debt crisis. these have not left the u.k.. there's evidence that they are leaving, but there's still plenty of them. something goes wrong, eurosterling to go to a significant onside pressure. tom: this is eurosterling. we usually show cable or america on tvc, but don't forget that i will try to get this out on twitter for radio. this is the trading and this is the continued weaker sterling. and we notget here going to get to parity with dramatically weaker sterling. it's sort of an interesting pair to see the least.

move?will sterling david: i think i take a different view which is that eurosterling is going to weaken. basically the euro has positive fundamentals and the u.k. has negative fundamentals, which in our view are deteriorating. i do not think there's enough brexit premium and a lot of sterling assets. we could seehat sterling weakness against the euro in particular and moving up for that parity level, particularly if the u.k. is unable to reconcile its cake and with what hasy been a strong unified front from the eu 27. francine: what we have this big breaking news and trying to scramble whether this is a positive or negative, this is what we know so far. the commission has said that the brexit transition will and in december 2020. you can either say we have a date and things will stay the

status quo from now until then, but they are leaving the u.k. in march 2019. the transition ending in 2020, that's not even two years. is it negative or positive? vasileios: i think this is pretty much neutral could this . this is what the market was positioning itself. the important thing is to realize what we went through all these previous month is that we went through the easiest part of the negotiations. now is the time that we are going to go through the difficult part. i'll just mention something that we were talking about the break before. took ninenegotiations years. free trade agreements between china and australia have taken 10 years. this is very unlikely to be settled by the end of december 2020. i think the market is aware of this.

what is positioning itself right now is that the likelihood of the cliff edge being reduced, but again, if this starts creeping up and if that risk is playing up again, i would subscribe to the view that sterling weakness is going to resume. david: just a briefly. tom: david, please. barnier isink what doing here is creating a deadline and this deadline generates leverage for the eu 27 vis-a-vis the u.k. it takes several years to negotiate a trade deal. the u.k. under its current path will be leaving. it will have to potentially face than either a hard brexit or it will have to kind of been on some of the red lines that it's currently set out. what barnier is doing with this is basically saying we are going to have less than two years. this -- andto frame

francine i'm talking to you as much as our guest. theier was the guy who is one who brought the french olympics -- the winter olympics to france in 1992. this guy is steeped in the agricultural heritage of france. we are talking finance every day. francine, this has huge ramifications for agriculture going out two years. francine: i think when he was appointed as the brexit commissioner there was a gasp in the market as they thought he was a tough negotiator. there were rumors at the start that he wanted to do all the negotiations in french because that's the official language of the commission, which would've been problematic for the theresa may team. once again, we're trying to figure out the ramifications of what he just said, which is that the transition finishes in december 2020.

this could be as our editor said that the eu is probably appearing to put more pressure on the u.k. because it is less time than the u.k. wanted. it's supplemented we u.k. in saying that they made sufficient progress so they have given them this transition agreement until 2020, but it's less time that the u.k. was hoping for. we will get back to this and any other breaking news. both stay with us. this is bloomberg. ♪

tom: wednesday, got to do a bitcoin chart. it's required now. nicee spread have come in with the red line. look at this roll over here. do not want to make too much about it, but it's called a tumble. bitcoin tumbles in the last few days. we have david riley and vasileios of unicredit. technically support is way below 18 or 19,000 on bitcoin, isn't it? david: it's interesting that you

were showing that chart because it's a chart that is increasingly a lot of screens when i'm walking around the investment floor and talking to a number of colleagues. bitcoin isen driving really the fear of missing out. " that has gone parabolic in terms of its price action in some people are fearful of missing out on that. it's really being driven by technical factors. what are the fundamentals? some of the fundamentals are the technology like that cash. we don't fully understand it, or at least i don't. francine: i don't either. vasileios: i think the whole thing is madness. i say this largely because we're talking about a cryptocurrency or whatever you want to call it that is not being backed i credible authority like the rest of the other currencies. it is not being regulated, so therefore it's being used either

to launder money or to a certain extent prevent capital controls, which i'm sure some chinese have been doing. it's all about a process. investment manager and you want to be credible to your clients, you need to be of into explain to them why you're making money and also why you're losing money. 2%, if you invest 1% or which was the previous time i was here, it doesn't make sense for even 1%. my answer is no. there's no fundamental backing behind it. that there'sshows an appetite for something. this doesn't just come out of thin air. appetite for either a new asset class or something to replace what we have. vasileios: it's fine if you are describing it as an appetite, but we are not there yet. we will get there eventually if we managed to get this thing

being regulated, but right now, we are not there yet. again going back to my previous point, even if you locate 1% of the risk and this thing goes down by a percent or 9%, what you tell investors? tom: gentlemen, this has been fabulous. too much to talk about. our next hour will drive for the discussion with christopher. we're watching so much in washington on this historic day for republicans as they have the president celebrity after 12:00 noon. ineurope, and advancement the brexit story where the eu flexes its muscles. stay with us. this is bloomberg. ♪

♪ a vote in the house and then the senate. a stroke of midnight vote in

this wednesday it's back to the house. president trump will celebrate his tax cut and deficit increasing extravaganza after lunch. each and every poll says the public does not want to join the gop celebration. surges asmarket federal express outlines what reduced corporate taxes will mean. $1.3 billion large and increased earnings. once again, interest rates move higher. will chairman powell get a 3% 10 year yield and his yuletide stockings? this is "bloomberg surveillance." we are live from our world headquarters in new york. i'm tom keene and with me in london is francine lacqua. washington is maybe the center of attention today. there is real news out of mr. barnier and brussels this morning. francine: the tension is. oftering out washington, but it feels like it's a done deal which is why

markets are not taking advantage of it. withve news on brexit michel barnier saying that the brexit transition deal will end on december 31 of 2020. that is less than the two years that the u.k. was asking for. the eu flexes muscle once again. talking and wer will see how that drives forward as well. we will have more on brexit later this hour and kevin sumlin -- kevin cirilli will join us in moments. right now with our first word news is cable kaylee lines. kaylee: president trump is on the verge of his first major victory in congress. the senate approved the biggest overhaul the nation's tax code. the dilma still go back to the house for another vote. senate democrats invoked a technical budget rule to remove minor provisions. most middle-class workers will get temporary tax cuts.

the u.s. ambassador to the united nations warns that president trump will be watching a key vote on jerusalem this week. nikki haley is pushing other countries to oppose a general assembly resolution criticizing the president's decision to recognize jerusalem as the capital of israel according to for u.n. diplomats. president trump and british prime minister theresa may are trying to repair the so-called special relationship between the two nations. the two had a falling out last month after president trump retweeted posts by far right christian asked i activist. he responded by telling may to micro-business. they agreed on the need for a post-brexit trade deal. it's a setback in europe for uber. ruled thatrt the ride hailing app should be regulated like a taxi service. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, i'm kaylee

lines. this is bloomberg. tom: let's do a data check now and the story is the lift in the markets. mentioned the fedex earnings, the first major company to show an earnings adjustment off tax legislation. let's move on to the next screen. at 9.71. yields a 2.45, that's a five basis points move in recent days. that should be read on the screen with one basis point. the euro is stronger. francine: this is one of looking at and i want to show you oil because we have stockpiles of that and am looking at the stocks struggling and a lot of the tax factors. treasuries are staying steady after yesterday selloff and then european stocks struggling for traction down to 0.1%. tom: we are going to talk brexit

and mr. barnier later, but this was the drama last night more toward the 1:00 in our then at the stroke of midnight, but we will go with the disneyland theater. here's the vice president of the united states in front of his senate. vote, the eyes 48.51 80 days o and the days ae with further amendment, the tax cuts and jobs act is passed. tom: very good. vice president pence last night. joining us is kevin cirilli, our chief washington correspondent. outline what the president will say today after lunch. kevin: he's going to declare victory. represent is basically has to do a procedural vote on this, providing some last-minute hijinks.

that's going to force the house of representatives to have to do one more vote on this later today. a big win for republicans and the president. they got tax reform done. to tie this in with the budget battle coming in the next 10 days and into january. we were honored to have william hoagland with us yesterday. this is a stunning tweet. tax estimate plus defense and nondefense add-on and emergency spending bill, deficit for current fiscal year is $800 billion and there it is, kevin cirilli, 1.1 chilean dollars two years from now. is anyone on the hill aware of this? spoke with a bunch of republican lawmakers yesterday in between the votes and i can tell you about the looming budget battle over the cr is where all this political drama is headed. i think we have focused too much on daca in terms of what could

provide a wrench in this. ,emocrats are united on daca but it's deficits, deficits, deficits. for the issue of the cr, which susan collins has said with her push on health care and the disaster relief funding, these are two issues that republicans are divided on. i spoke with a republican lawmaker who said at the private meeting between house republicans, that cr is very complex and divisive as we head into january 20, which is likely what they will do, past that one-month extension. i hear there's one thing when i have a beverage of choice in my hand, people are stunned. whatever their belief in politics, they're stunned at a senator from tennessee retiring. what is the corker buzz? kevin: i caught him outside the senate banking committee where the nominee died political

death. senator corker pushed back heavily against accusations that he was bought at a real state that i going -- for mailing on the tax reform bill. he said it's not true and he said other week he was the darling of the left and now he's the enemy. he says this thing ebbs and flows. francine: if this tax overhaul is hated so much, will it have an impact on midterm elections? kevin: it's a bit too early to tell. i think a lot of the republicans i spoke with yesterday keep making the comparisons to reagan and during reagan's presidency that his tax reform legislation that he push for was also according to them deeply unpopular in the polls. i would just take a step back for a second and note that right after the house of representatives passed the tax reform bill, which they will have to do procedurally later today, but right after they did this they started debating to stomach lead important financial institutions and the

legislation that would increase the 50 designation threshold to 250. that is a big win for financial industry. dt to get to in the weeds -- regulatory dodd-frank reforms, republicans are bullish on this, but just infrastructure but the first quarter of next year cou.d tom: kevin cirilli, thank you for the humans duty. one thing is that we know that no one was out front on how the republicans would do this, how the sausage would get made, and what the outcome would be like jon lieber of pwc. he is our washington national tax services principal and he has the advantage of the working knowledge of senate majority leader mcconnell and he had the privilege of working with alan melzer at the aei a few years back. you predicted exactly how this would come out. now predict for us the budget battles to come when bill hoagland is talking about a 65%

increase in the deficit in 24 months. jon: i think one advantage that president trump brings for the republican party is that he can make deficits great again. there's really a bipartisan consensus in congress that the discretionary spending caps that were done under the obama administration were probably too tight. democrats want to see an increase on the domestic side and the public is want to see an increase on the defense side. there are a lot of priorities out there and there's a bipartisan consensus around increasing spending. with president trump in the white house, there has been this discipline around deficits. it's really receding from the forefront of the political battles. tom: the frenzy that you see of the good feeling among republicans -- how do they bottle that? or to use another phrase, how the republicans bronze this moment and make it valuable toward november of next year? jon: i think the first thing to keep in mind that like a winning baseball team, nothing cures

locker room problems like winning on the field. i think with the republicans, there's a lot of divide among the caucus right now. they are about to score a big win in this is a big historic win that could be the capstone of many of these members careers. i think that will buy them a lot of goodwill to move ahead with what could be contentious legislation otherwise. next year the drop of selling this tax bill is just beginning. the media has been extremely negative on this bill the whole the and lots of focus on distributional analysis and on a lot of focus on the direct benefits for the middle class and how this will affect corporate investment. that will be the story that republicans work hard to tell next year. the fact thatke you say the media has been negative, but does it have the support of the macon citizens? if it doesn't, does this come back to bite the trump and ministration and the gop? jon: the polling on this bill is terrible. this is less popular than the

clinton or the bush tax hikes, which is unbelievable when you think about the magnitude of the tax cut we are looking at. if you look of the partisan split in particular, democrats really hate this bill and republicans kind of like it. sounds familiar because that is how president trump polls as well. his polling is consistently in the mid 30's. next year is all about the sales job. continue you convince people that this benefits them? ne holdings go down in february, that's a direct benefit for taxpayers. francine: is this the right package at the wrong time or the wrong package at the right time? what does this add to the economy right now? jon: in terms of economic effects, you have to look at the competitiveness of the u.s. corporate sector. when you look at trends, the corporate tax rate has gone down over the last 30 years across the developed world. the u.s. is really a hold out

with this outlandish the high realate of 35%, which is a outlier compared to germany, france, bk, and everybody else. i think that is where you will see the biggest economic effect. lowering the corporate rate and encouraging investments inside the united states, allowing for repatriation of cash held overseas, which will encourage ,orporate to bring that home and going for making the u.s. and more competitive place for a business to be had. i think that is where you will see a lot of the economic effects. they will be some effects from increased consumer spending and small business confidence is very high right now. there's a lot of tailwinds that this bill will provide. tom: john lieber, thank you so much and congratulations on your wisdom getting to the president's announcement. mr. lieber is with p w c. let me talk about an important interview. mr. krugman of "the new york times" yesterday with scott

hodge and a very optimistic tax -- in the 87:00 hour. 7:00 hour. stay with us. ♪

tom: very good. francine lacqua in london with tom keene in new york. we going to get christopher rupp themkey.-- rup he is very much known in new york city with economics as well. here's a chart that's a little different. it's sort of like a chart and its research report. the two-year and the 10-year and there is the spread. forll put this out on radio

twitter. i didn't want to show percent change. there is real velocity here with a two-year yield moving higher. are we at the point where we toe that initial force finally drive all interest rates higher? christopher: i don't know. the curve is narrowing. it was interesting that the dallas fed guy said -- tom: mr. kaplan. christopher: if the curve inverts, that could limit what the fed could do next year. it's like oh no, i don't want to do another reason from the fed official. tom: you say it's finally time for the yields to breakout. christopher: i think so. yesterday 10 year yields when a pretty good. we can't quite identify why. i've been forecasting a 3% 10 year yield for five years. tom: francine, this is a running

joke. [laughter] he is really well done on this. thata major inside joke chris has said 3% and stuck with it forever. francine: i love that. what's more distorted -- treasuries are german bunds? i know that tom has a great german bunds chart to show you. christopher: all these markets look together -- are linked together more than they used to be and many days are 10 year treasury yield one up only on what happened with economic news out of germany. these markets are little strange, but for whatever reason , 10 year yields are kind of stuck here close to 2.4%. we really need the federal reserve to raise short-term interest rates more to push at the 10 year yields. rate --casting for a four rate hikes next year. the fed only has three. i'm trying to push.

it's kind of a political battle right now. it's not interest rate forecasting. each side is trying to push their view. francine: what does the tax bill actually do to the feds expectations? christopher: it's interesting. there's this idea of zero natural interest rates and that is one of the reasons why the bond yields and the fed fund interest rate has to stay low. thinks economic staff that fiscal policy is a big driver in pushing up this natural rate of interest. maybe yields go higher next year both on the natural rate of interest or and the greater budget deficits that you illustrated earlier. tom: stay with me here because i have to do this for francine or she is not going to talk to me, which is usually foot she does on wednesday. is the german ten-year yield and his the u.s. 10 year yield and here's the move up we have just seen. i'm sorry -- the screams

instability to me. this transatlantic divergence between what we see in germany and the united states, this is untenable. within that is a question of instability. christopher: it is one of the views out there that because yields in europe are so low that there is a pool of money over there, a pool of savings, that gravitates to the u.s. and there's huge money coming in from europe keeping ten-year yields of u.s. lower than it would be. the spread is interesting. wider couldow much go and a lot of traders on the street feel that tenure u.s. treasuries remain low until the ecb starts to normalize their policy a little bit more. francine: chris, thank you so much. he stays with us. in the meantime, looking at treasuries as a measure of calm

returns to bond markets after yesterday selloff. coming up on "bloomberg markets," a conversation with the bank of mexico government. or. they will talk about the mexican peso upcoming elections, and possibly the wall of the trump administration. that is 10:00 a.m. in new york and 3:00 p.m. in london. this is bloomberg. ♪

francine: "bloomberg surveillance." tom and francine in london and new york.

barnier same the transition will probably end december 31 of 2020. let's get straight to our brexit editor. is this a negative or positive? it seems like once again the eu is flexing its muscles. >> it certainly is. barnier keeps putting limits on what the u.k. can do. the transition has a finite time and he is a specific about the date. francine: how difficult is it going to be for theresa may to sell this back home? >> i'm sure she will try to give it a positive spin. by the way, we want to get on with our brexit, which will be glorious apparently. will try to sell it to businesses like i've given you the time that you need and make the best use of it. by the way, we want to get on with it. she will obviously try to put a positive spin on it. it will not go on forever and ever. francine: are we hearing about any rebellions at the moment either from boris johnson or members of theresa may's

cabinet? flavia: the brits take their christmas very seriously. i think no one is in the mood for rebellion at this time. i'm sure they are saving their arsenal for afterwards and there is roebling's that theresa may is going to poland tomorrow and taking troublemakers with her. the word at this cabinet meeting is whether to set aside their differences and get on the same page paper over any of those differences. there are still two very different wings of the parts of the cabinet. there are the johnsons that want to make brexit as difficult as possible and the others who want to stay in and everything but name. tom: very quickly here, who made this decision for mr. barnier? who did this decision come from? flavia: the transition? i think it's all parties. everyone gets their word in. he is an agent for all of them. there's always the appearance of them being very united.

let's be clear. she is always said it's going to be two years. the idea was the reality was going to be extremely difficult. that said it would be two years and is probably going to before for, but everyone has come around to the fact that this really needs to happen. another important thing is that there is this idea that you want to get the brits a lesson from the eu side. they don't want to make it easy for anyone to leave. francine: thank you so much. that is our super brexit editor. coming up, we will have more pkey and we speak with david miliband, former foreign secretary. ♪

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his first major legislative victory, democrats think they are getting a campaign issue for next year. the first rewrite of tax laws and three dac decades. say it favors the rich and could help the democrats retake the election next year. a 300-year-old dispute between u.k. and spain over gibraltar. it may lead to a transition phase of the u.k. refuses to negotiate a separate deal. in britishas been hands 1713, but spain maintains a claim over it. south korea is concerned that kim jong-un's regime may try to

interfere with olympics. number killed out of m greater thanimes reported an 11,000 citizens died in the fighting. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you. concerned about the middle east, this is the interview of the day. he has spent decades involved with the royal family and the culture and fabric of his saudi arabia. served two hours of duty with the ministry of finance and saudi arabia. i want you to describe the tension within this generational change of the royal family in saudi arabia.

changedhas that tension with the military-centered budget and a further missile attack? is expansionary in many ways only because the contracted.017 ratehad a negative growth and contracted by 0.5%, so they had to spend more money in the midst of what is happening in the region. we have the proxy wars in yemen ad saudi arabia along with coalition and the united arab emirates is fighting a war that has to come to an end at some are making ackets presence in the city of riyadh. markets are not disturbed at all in saudi and the region with the security-military aspect, but the international concern is

there whenever they see rockets flying around. tom: is there a changing of the guard in this generational change on the tone of the military response by the crown prince and by the younger members of the family? towardsdifferent tone saudi military affairs than what we saw even two years ago? >> absolutely. policy has changed dramatically since 2015, since the advent of the now crown prince, who is also the minister of defense. we have seen tremendous change in saudi foreign policy more dynamic, aggressive, proactive. they won't take no for an answer and will be involved in whatever it takes to see the national interest of saudi arabia being promoted. it is no longer a monarch

foreign policy, responding to events, but creating events. tom: the backdrop on bloomberg television shows fancy hotels of the western world, and often the distance of the people of riyadh . how are the people of riyadh connected to this new warrior leadership? royal leadership? >> they are happy that what is being done at the ritz is being done and dealt with. it is no surprise that a lot of my peers are saying they were surprised with what is happening in the ritz. i would say if they read well the 2030 document, the vision, corruption was a primary goal of the crown prince, prince surprise so it is no that corruption is the agenda of the government. for saudi, it is good news.

the bad guys who milked the system are being dealt with. francine: talk to me about the purge. what do we know? does that help with the fiscal budget? mean, i think there are two distinguishing factors there. what is happening in the ritz not a lot of people know, but whatever assets they are able to produce from the hotel, they will be able to it and invested in a responsible manner and someone will be responsible for managing the assets they collect. fiscally the budget is positive and expansionary, and they have a declining budget deficit, which is unique for an oil economy nowadays. what do investors want to know about saudi arabia right now?

the citizens of saudi arabia, the connection to the crown prince, there is a lot of talk about what 2018 will bring and the fact they need the saudi aramco ipo to go successfully in order to attract investors. >> definitely. they need international investors and markets. at the same time the crown prince needs the support of his people. i would go back to the initial point that the average person in the street is happy with what is happening. they talk about modern islam, about women driving, and that has been dealt with, and now they are talking about giving the opportunity to female workers to be more dynamic in the workplace, so there is a lot of that which is rejuvenating the average saudi who connects with the crown prince and the leadership.

society the support of and the people of saudi arabia. tom: thank you very much. chris is waiting patiently. one of my favorite charts is an approximation with squishy ,umbers of oil, saudi light oil up we go with a double edged opec sword in 2018 collapse number one, 1986, china boom collapse number two as well. saudi is linked to us in this strange thing, this price of oil , are those relationships the same, or is there a new linkage about oil because of technology, because of our efficiency, because of shale technology? >> you raise a lot of .nteresting points here

the most interesting thing is that oil is very, very important or the u.s. economy and important in determining inflation and inflation expectations. , the dirtydea here truth perhaps, is that the public does not see inflation and less gasoline prices go up. they are kind of tied. what you mean is the fracking idea. linked, 280still , the idea still matters, doesn't it? >> it is almost like the forecasting model i have learned since the 1970's is busted and broken. every single time energy prices go up, inflation goes up, the fed raises interest rates, and breaks the economy. that dynamic is missing. tom: francine, is it true you

can do all you want about inflation, but it is still about oft a leader of -- liter petrol is? francine: it is a much smaller have --,ome you don't so you don't have the attachment to gas in your car in the u.k. when the rest of europe like you do in the u.s. there are parallels, but not hand in hand. if you look longer-term, i think tom makes an interesting point. we don't know the future of cars, future of transportation, and that could change either way that you look at the economy, right? if for going to see driverless cars, but also fuel-efficient cars. >> i hear you. it is one of those ideas on the horizon like 10-20 years down the road. it is like robots, right? society,t will change

driverless cars, the demand for energy, but it will transition over 10-20 years, so it will be a long-term thing. forward it going looks like crude oil prices may $65.up 10% next year, tom: we will have to see what it is as a gallon of gas. speaking of radio, bloomberg moon, new york, boston, san francisco, washington, and coast-to-coast. this is bloomberg. ♪ here is a beautiful new york. ♪

♪

>> this is "bloomberg surveillance." let's get the bloomberg business flash. the largest memory chipmaker in boom.s. is suggesting the in demand for computer and smartphone components is not over. micron technology forecasting a big jump in quarterly sales and says memory chip output will soar 50% and rising demand will prevent a glut. a germany, a ceo of renewable energy company is leaving immediately. it plunged last week after warning earnings would drop this year. congress is bill about to tackle places a 40 year on arctic refuge for oil.

the central bank has ended a program of bond purchases after three years, but pledged his support for the debt market into ensure a smooth retreat from record stimulus. we spoke with one of the banks governors. policyeed to keep the steady for some time to calm in order to make sure the inflation ate stays at 2%. we are at 2% presently. that is good. we want to stay there for the coming years, and that means we need to move carefully and slowly. >> that is the bloomberg business flash. francine: thank you so much. newsave of cryptocurrency yesterday while a crypto exchange went bust after being hacked. regulators halted the stock on speculation, then tripled.

let's bring in our bloomberg gadfly columnist. what is going on? this was a lot of news at once. >> a lot of news, not all of it hack,as we saw from the but that coin is falling. the price of other coins such as bitcoin cash and other cryptocurrencies are rising. we are seeing a rotation out of bitcoin has people tried to capitalize on the gains. they don't want to come out of the whole crypto world, so they are trying their luck on smaller coins. create these you things when you want another piece of cryptocurrency? bitcoinechnology behind copyable.tly

there was so much congestion on the network, people thought they could do this. even if the payments are better, there are other ways you can improve bitcoin, so we are likely to see imitators come out and see a price rise eventually. francine: is there anything that coin can do to not be affected, and if there is imitation does that mean we will see more volatility? again there is something about it. it was the first one. it sort of benefits from the idea it is hard to take. if the rules changed and it would fall, i don't know if that is true, and about volatility, possibly. i think it will fall and people will go elsewhere for that. tom: i learned a new word today, bit cash. you have to be kidding me.

how does bit cash change the foundational 21,000 bitcoins that are the currency value of this event, this moment? >> 21 million. tom: 21 million. andhis is about supply demand. people by bitcoin to sit on it and artificially reduced -- tom: over time, come on, there has to be a seller in the market. twins are on the cover of the new york times. you have a photo of tyler and cameron who were with us a few days ago. they want to sell at the margin some of what they had in their billions. how will they do it? otherrotating into equally speculative cryptocurrencies, a long way to pop here this is speculative

rotation and you are trading against morons, tom. tom: i just learned of another , are you kidding me? chris, helped us here. textbookike a 400 page in chapter 16 and what this is all about. this is auction theory. there has to be a seller in a relatively deep market to discover price, right? >> it seems like someone would want to take the gains they have. i am always running into someone who says my friend has retired because they bought bitcoin at five cents. i don't understand the market. it seems like people are hoarding it, but it seems like it has a limited life this rally. tom: you have to come back on this. i may be making jokes, but this is really serious.

you will sell your bitcoin and go someplace else. we have to back on another day and figure out where that someplace else is. .hank you so much there is a lot going on. the fallout from brexit as well. , you punch it up. you care what chris says. you bring it up right now and click on interactive tv, and there we are, but the bonuses you can come over on the right side of the chart and get the 10 year and two-year. you can steal that chart. this is bloomberg. ♪

♪ tom: good morning everyone. "bloomberg surveillance" that reallychart synthesizes interest rates. here is the fed funds target rate. here is stan fischer talking about altra accommodative, the former vice chairman of the fed come up we go, rate increases galore, a fed fund basis below

0%. you mention four brady increases. that should get is nicely out onto a real yield. how will markets react and business react when they actually have an anchor in the fixed income market? >> it has been so long that -- tom: we don't know. >> it has destroyed the concept of saving in america, and the default rate of return being the savings rate, it is interesting say theng economists know ou fed funds rate went up from 1% to 5% 10 years ago, why don't we do that again? the fed has convince themselves interest rates can go much higher, and part of the reason is part of this idea about the natural rate of interest being zero. we came down from 2% to 0%, the constant term and the taylor rule, essentially they think

rates can't go and a 200 basis points higher due to this natural interest rate concept, which i really don't like it. tom: i will bring up the taylor bloombergut this on radio with a screen grab. here is the taylor formula with all these plug-ins. chris just mentioned john taylor. do you have a clue what those plug-ins are, 2-3 rate increases down the road? >> the problem is they don't see -- 2% of the yield is as natural rate concept, and if they think it is zero rather than a 2% constant, that limits how high they think the fed funds rate can go. they think may be rates might go up to 2.5%. that is the standard idea. i don't know how they all

convinced themselves of this. it's too bad we did not get the taylor rule first. he would have shaken things up down there. francine: what is your favorite 2018, your best play, the unloved market, the canary in the coal mine, the one thing we should be keeping and i on? >> that something will go wrong. people talk about emerging markets. i don't think the numbers are that great in emerging markets to do that. problems outny there. that is one of the great problems. the risks ahead. there is no interest rate risk in the u.s. as far as i can see. they think they will only go three times. if there is no interest rate risk of, there is no economic risk, so i don't see a lot of problems. tom: 10 seconds, vice chair of the fed? you mentioned john taylor. >> he would never take it.

it will be a relative unknown. everyone was surprised and fisher took the job. there is a lot of administrative things to do their and that position. i don't have a good idea. tom: a relative unknown. chris, thank you. >> i need a pay cut. thank you, tom. tom: thank you as well. this has been fabulous. we will continue. viable.o in london, and you are, san francisco, and washington. ♪ is this a phone?

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passes the overhaul, but has to clean up technical problems in the house. the president ready to sign the bill this afternoon. thebond market awakens, long end finally moves up, and not just u.s. treasuries, a blip or sign of what is to come. crypto mayhem, and exchange goes bust and trading halted. bitcoin gets hit. welcome to bloomberg daybreak. i am david westin. alix steel is off today. >> we may be seeing another record in u.s. stocks. s&p and dow futures up today as we do expect another vote in the house on the tax bill. it is pretty much a done deal. the ftse 100 little changed as the dax is down. the bond