yes, indeed. amazing speed, coverage and control. all with an xfi gateway. find your awesome, and change the way you wifi. >> what a spread the u.s. yield curve gets one final push. warns of financial stability rescues to come. bitcoin tumbles close to $40,000. exchange closures are possible. expected to mark the end of his administration. e're live in rome. welcome to "surveillance." i'm manus cranny in london.

let's get you up to speed on these markets. european stocks. the dollar has dipped. it has transferred to a mild complexion of a dying day this thursday morning in europe. european equity markets are the lead protagonists. pessimist guide on bloomberg for 2018 is about technology, facebook and disinformation. you can still make money as bitcoin drops. the bloomberg dollar index down. the bloomberg dollar index is looking at a fairly tortured year. do you buy that story that it is all about adjustments? i'm not so sure. yields drop. we're down to a three-week low. you are looking at the bloomberg dollar index.

the worst year since we started collecting data in 2004. copper is rising to a fairly big level. four-year high. china has halted production. we know that. you're looking at the eighth straight quarter of gains. you could see copper trade up to $10,000. u.b.s. a little more sedate. the swriss known for their sedate approach. it has outperformed pretty much every other commodity this year. we have a lovely lineup for you. this is how our day looks ahead. could we break $14,000? our guest has a view of

bitcoin. we have chris edwards the director of tax policy at the kato institute. about tax, regulation. one of them will get you up the speed. next ayers can't deduct year's taxes if they pay them and only if they were assessed for 2018. homeowners have been peppering local officials with questions about how to prefay levies to take advantage of a tax break that will be limited next year. u.s. republican roy moore is going to court to try to start alabama from certifying democrat doug jones the winner of the state senate race.

moore said he believes there have been irregularities and there should be a fraud investigation. jones will be certified as the winner and so far there has been no evidence of fraud. regarded in brussels as evidence that the u.k.'s brexit secretary is being sidelined. oliver robbins is in effect running the negotiations. is with michelle barn yay and deputy -- production expanded by 3.7% for the year beating expectations. meanwhile november retail sales rose 1.9% topping forecasts. barack obama has beaten donald as the a gallup poll

american most admired. others on the list, the pope, john mccain, elon musk and jeff beesos. hillary clinton was the most admired woman for the 16th straight year but it was the lowest since 2002. manus: the e.c.b. bulletin in december. they are talking about growth and their outlook. the economic exexpansion solid and broad based. it is europe that surprised perhaps the most relative to those estimates we were given t the start of 2017. inflation is expected to rise gradually. it is so far away from the ambitious target of 2% perhaps

we got too far ahead of ourselves. more on that story in a while. .4%. a rise in yields but nothing too difficult for the market to absorb. but there is one bond market that is delivering. the u.s. treasury market. one final push. that's what the story is today. the spread, the differential is now at 50.6 basis points. that close is going to decide really what happens into next year. our next guest says that he is reasonably relaxed about it given that growth and technical -- of long dated bonds is joining me. good to see you. >> good morning, manus. manus: we just spent the last

20 minutes in radio having this iscussion. have a chart for you. 210, 530. we're the shortest in a decade. why shouldn't i get perplexed? >> the long part is manipulated by technical buying. the chinese on one hand or u.s. corporates buying ahead of tax reform contributing to tax refunds. most of what you're going to be buying is u.s. treasury. it doesn't tell you anything bout inflation growth anymore. manus: is it that three-year paper is knocking on the door? he would say actually you're knocking on the door of 2% in three-year papers.

u.s. treasuries. we'll put it up in a moment. that is a bigger risk to the u.s. recovery story. is it? >> in theory it should be. i think the fed is ahead of the curve in terms of raising interest rates. i think that is because of a perceived fear of inflation which i don't think is going to happen. manus: you don't think that is there, do you? >> no. it subvert phillips curve. manus: as i was leaving the radio studio, we had a little bit of a moment. i said you can't have your cake and eat it. what i'm talking about there. you said i think they will get away with three rate hikes but you think they are mistaken. >> i think they are mistaken

because inflation is just not there. the labor market is much softer and looser than people think. it doesn't matter. even if they do make that mistake b.a.a. because you still have high bond price which means that conditions are easy. you can see the credit is going nicely in the u.s. you still have this liquidity. we're going to have quantitative tightening. i think the fed can make major errors at the short end and hey will get away with it. manus: eric warned about the reach for yields and warning about financial stability and warns that one of the risks in 2018. i do worry we may start to see a reach, the kind of behavior on financial instruments that could have broader implications.

that they can't react if there is a big, negative shock. >> i hate to sound complacent. i don't see any big imbalances there that would require flexibility on the part of central banks. there is still flexibility. the fed has raised rates. they could reverse that if they have to. you could do more bond buying as well. if the need was there, more could be done. i just don't see the imbalances out there. you look at credit markets. they are not excessive. i don't see household balance sheets in need of recovery. 12-18 months to go before we have to start worrying. at the moment, the trajectory that was set in 2017 should continue into 2018. manus: i like the sound of that. let's see what bitcoin does in

2018 as well. plenty more coming up on the show. this is what we have for you in the next hour. the prime minister of itly is expected to mark the end of his administration very shortly. could the anti-establishment five-star party make the gains in the election. david davis has been sidelined in negotiations. this is bloomberg. ♪

manus: economics. finance. politics. it is all on bloomberg "surveillance". i'm manus cranny. welcome back to the show. >> bitcoin has resumed its

umble after there were options including a potential shutdown. still there is no immediate indication that they will move the exchanges. however the news poses a warning as regulators around the world expressed concerns about private digital currency. apple's c.e.o. has received an increase in his annual bonus as the iphone posted higher evenue in net income after last year. his top five lieutenants each got bonuses of around $3 million. bringing their total compensation to more than $24 million each. u.k. job seekers saw the first increase in advertised salaries

while the average salary climbed to more than 32,000 pounds. it is still well below the rate of inflation. the squeeze on household finances is expected to extend into next year. that is your bloomberg business flash. manus? manus: thank you. expected to hold a press conference marking the end of his administration in under an hour's time in rome. he will dissolve parliament today or tomorrow. a general election will likely take place on march 4 or march 11. the policy say the anti- establishment five-star movement, none of the three would get a majority to govern. let's get to rome. we have john. he is with us. julian is in the studio in london.

let's take it to you first of all, john. in terms of what the polls are saying. i know we're going to spend the next three months saying to one another, can you trust the polls? are the polls right? can the polls be wrong? right now the polls are indicating -- >> absolutely. that's the only sernts. five star is leading in the polls but it would not get a majority and it is the party that up to now has refused to form a coalition. it ruled that out. if it does win the election, it will put out, lay out what is key, a manifesto proposals are and expects parties to back them but that could be an uphill path that we may get weeks, months of negotiations to try and form a government. manus: weeks and months to form a government. do you see a scenario, john, you and i chatted earlier.

you said you could see a scenario where we are left with the hung part of it, in other words a new government and in charge of italy. how would that politically play out for it? john: well, that would be plan b for italy. basically it is the prerogative of the head of state to decide who to give the task of forming a government to. he doesn't have to give it to the lead party, which may well be the five star movement. he could first try and find out if there is a possibility of a coalition, maybe a combination which we are not seeing in the campaign because after elections, obviously parties could change alliances and this would be seen as a safe pair of hands by the establishment to entrust it to keep going for a few months, possibly some

reforms, but nothing huge expected because he would not have a very strong hand in parliament and he could lead us to possibly a new election in the autumn. manus: john, thank you very much. julian howard is still with us. it is interesting, isn't it? the brits have crisis. ok? the italians have what i would call chatters. which is a line from a very famous irish player. we're in a state of chatters. this permanent hubris. this permanent lack of clarity. from a market perspective does that create opportunities? julian: i'm quite relaxed about the italian situation for a couple of reasons. the b.t.o.'s are pretty low. we're not getting that risk premium coming back into the italian market and the second is the markets are not really

caring about political risks. this is just the latest in a long line of politicals. the market chugs on regardless. for fairly good reason actually. part of it is because investors in equities, are more institutional long-term and are able to look beyond it. i think also one final point is even if five star were to win, if you look at the rhetoric recently, they have become angry about the euro but less prepared that we are going to dump the euro. starting to see the euro become associated with growth rather than disaster. if that changes, the politician also not want to distance themselves from the institution that is becoming more positive. manus: i put together the -- for this year and next year. the one thing that strikes me is that the market, the e.c.b.,

is much more aggressive perhaps than your view. this is saying -- i mean, quite pointedly. rates are going to go higher in the first quarter of 2019. is that too aggressive? would you like it to be more aggressive than that? >> i think that is a little bit too aggressive relative to the reality. the market is looking at growth assuming that inflangse nation is going to come through. it will eventually. mario dragic is going to drag his feet on this and make very, very sure that he sees the whites of the eyes of inflation and growth before starting to make more meaningful noises about raising interest rates and monetary policy tightening. manus: you just have to be atient with the short bond trades. up next, the u.s. or europe. where do you want to put your money? this is bloomberg. ♪

manus: ok. it is bloomberg "surveillance." i'm manus cranny. let's talk about europe now. gave you to top headlines from the e.c.b.'s monthly bulletin in terms of growth and inflation. our guests, julian howard, head of multiasset solutions. he remains enthusiastic about the year. perhaps a little bit less so than previously. let me take you straight to a chart.

808 is the chart number. this is the s&p. the stoxx 600 relative to the s&p 500 in terms of p.e. it would suggest that there is value to be had still in the europe versus u.s. trade. what do you make of that chart and why, why the relative underperformance on the p/e basis? julian clonk i think you're right. there is some value in europe. part of the reason is the u.s. is rightly pushed ahead because of technology and there is a lot of technology representation within the s&p 500 and much less so when europe. technology has driven the market this year. the s&p 500 and europe has lagged somewhat. how many big technology companies can you name within europe? s&p is one. doesn't have the -- so the u.s. is much better represented in terms of both big, large cap

tech stocks that have driven performance so far this year. doesn't mean europe is dead. manus: i hope not, julian. julian: there are two good stories in europe. one is domestic reflation. the really sound the statement. global growth. a leveraged play on global growth. i think these two themes are -- they have been overshadowed by that massive drive upward in technology. manus: the techs have it in the united states of america. we're going to talk about the great big brexit risks of 2018. ♪ is this a phone?

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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. manus: economics, finance and politics. we give it all to you on bloomberg in "surveillance." i'm manus cranny. let's get your first word news.

taylor: in the u.s., the i.r.s. said tax payers can deduct next year's state and property taxes if they pay before the end of the year and only if the taxes were assessed before 2018. the statement comes as homeowners in states with the highest taxes have been peppering local officials with questions about how to prepay the levies to take advantage of a tax break that will be limited next year. u.s. republican roy moore is oing to court to try to stop alabama from confirming doug senator. he jones will be certified as the winner today. so far his office has found no evidence of fraud. japan's industrial production rose last month followed by strong growth in exports.

it expanded by 3.7% for the year beating expectations. sales rose 1.9%, also topping forecasts. angela merkel's public support for another full term has -- 47% of voters want her to step down before the end of her four-year mandate. her party won in september, up from 36% in october. it is a sign that the political stalemate since the election may be working against the active chancellor. and in new york, a former lawyer for martin supercelli's ompany may be head prison. was found guilty of helping him steal $11 million from the company to pay back investors after the hedge fund managers

turned drug executives in a risky trade. they will ask the judge to throw out the verdict. i'm taylor riggs. this is bloomberg. manus? manus: thanks for the roundup. he e.u.'s chief negotiator has reportedly held face to face talks with the former official. this is a breach of protocol. it is being sidelined. according to times, citing named sources oliver robbins is running negotiations and dealing directly with barnier. joining us on the phone, flavia. good to talk to you. julian is alongside me near the

bloomberg studio on queen victoria street. is this just a quiet christmas story that davis is -- some of the communication or is there more to it? what do you reckon? flavia: it has been a while that this perception is actually run, not quite running the show but is actually extremely powerful. he was moved away from the department, the brexit department that davis runs and under a theresa may. there is veracity in it. it is one of those stories knocking around for a long, long time. there are back communications. nother thing, in the crucial moments, oliver robbins -- and there was the idea that davis was kind of sidelinedened that

may snepped with her own people to nail the deal. manus: is there confidence in davis? >> you know, one day it is he is the future prime minister. and then the other day, he is sort of like a has been. in his own words, he is going to retire. theresa smay not strong enough to dispatch the man who is the face of brexit in many ways along with boris, etc. he will stay on. one should look at other players merging that will wield more power. manus: interesting. flavia, thank you very much. julian is listening to our conversation. he is alongside me here. they come. they go. ministers. david davis moving down the pecking order.

would it be good news or bad news? >> probably bad news because any change in the team at this crucial juncture is going to be representative in stability. it is the last thing the market wants. i think when you're dealing with -- manus: overcooking the brexit story? >> when you're dealing with something as complex, it is natural to lean on your deputies and experts. it has been a very long year. it would not surprise me if he is trying to dell indicate. manus: how you look, how you present, how you are, is often incredibly important in regards to strategy as well. we were chatting. you're underweight the u.k. from the highest growth in the g-7 if not that, why? >> i think it is really because there are better opportunities elsewhere.

we like merging markets. we talked about europe. we still like europe. it has to be funded from somewhere. in this case, the u.s. is a lower conviction. doesn't mean there is no case for the u.k.. the u.k. has been an underperformer this year in local currency terms. we know global growth is pretty good. since there is probably a case for the u.k. but not as compelling as the other regions. manus: can i tempt you to actually tell me what you really think about sterling? if i look at volatility in the f.x. exfment -- f.x. you need the value of sterling to be readdressed and go to the upside. you have a couple of interesting lines in terms of sterling. run me through your thinking. you're amazed at the fortitude and that is me being gracious. the fortitude of sterling. >> as you say, i'm astounded sterling where it is.

i think it should be much, much lower. manus: how astounded are you? >> very. i think it should be much, much lower given we this have negotiation going on. we have high inflation. we have a consumer boom funded out of savings effectively. we have negative real wages. the picture has really been so -- in my mind. yet the currency cons to chug along. it should be followed and it is. manus: it is chugging along on dollar weakness rather than strength in sterling? floor of support. a floor of support at 1:30. >> yeah, part of it could be dollar weakness. i think the u.s. economy is in good shape. the growth numbers are looking good. seeing manufacturing revivals. manus: hasn't done anything for the dollar. >> the dollar surely will have

to pond at some point whereas the outlook for sterling is much, much worse. if anything there is a good entry point there for shorting sterling. manus: we love the downside risk. you won't give me the line on why you think the sterling battered and bruised. >> particularly this table pair never does what you're expecting. manus: we have a little bit more to get to on markets with julian. a cracking year for tech stocks. could they hit some headwinds in 2018? that is the debate. do you want to be long tech? this is bloomberg. ♪

manus: you're watching bloomberg "surveillance." i'm manus cranny in the city of london. technology. if you have been overweight tech in 2017, you are probably raising a glass. you probably had a very good year, if you had the right stocks. one of the threats, regulation. in the u.s. you have tax changes. they could favor other sectors. what does it mean for you, your investments. what sectors should you be focused on? we bring in the big guns. we have julian, head of asset solutions. know you like tech. what is my risk? i look at the rulings that are

coming out of europe that are impacting american tech companies in the first instances. let's just deal with that. you where i wrote a little bit about that recently. is that one of my risks in 2018 in tech? >> that is one of the bigger risks in europe. at the same time there was at the beginning of last year some of the antitrust wruelings the european commission and in 2016, there was a tax ruling against apple and facebook and twitter and google have been dealing with different things over the past year. as you see, their businesses continued to do just fine. a lot of profit and their stocks are performing well. so i don't see regulation being huge hindrance in terms of an investor point of view but from the longer term it is going to raise more questions about their businesses than the consequences of the technology they are a creating. manus: julian, you like tech. you talk about stretch evaluations and stock relative

to historic times. why is it different this time? why are you so bullish on tech or quantify your bullishness of tech for me. >> this time, it is different. i think it is different this time because it is more about the consumer cycle rather than the business cycle. think back to tnt boom in 1991. the capex cycle was starting to roll over. this time it is more about consumer facing. i think there is the anti-trust. in the u.s., antitrust was miles behind. it was the great pace, talking about how antitrust cannot catch up at the moment with the big change in legislation. technology is in a very good position. it is cash generative which makes it unique. manus: where do you want to be in regards to the cash generation? s it the

is it the amazons of this world? where do you want to be? b to b or b to c? >> the cap facing still has a lot of mileage. you look at it and it is still interesting. it is equally valued. the large caps at the moment. the competitive environment,s this is not particularly intense for them. t some point there will be a risk alibaba can choose to stop competing with amazon. they have not. when they choose to compete head on with amazon, things will change. manus: pessimist guy. fake news. could kill facebook by 2028. it is a long way away. fake news could kill some of there. stock size to what event is 2018 going to be an important year for the

veracity of facebook to clean up its news flow. i'm talking about the united states of america. >> yeah, the political environment in 2018 is going to be important for facebook. particularly if you see the things that happened in the presidential election. but i think the what the pessimist guide is getting at is more about undercutting the trust that people have in facebook generally. if facebook comes to be seen as something that is not trust worthy or is somehow unbecoming to use and its user numbers begin to fall, that is something over the long-term that could pose a problem for the company. keep in mind, they have made some pretty smart acquisitions. instagram continues to grow. facebook is becoming a more social media almost conglomerate in that sort of way. we'll be all be watching to see how these midterms play out and in what sort of ways the tools

are used against it. manus: adam thank you so much. julian hart. up next, hedge funds take a hit from the new tax in china. we take a look at the shift. this is bloomberg. ♪

manus: economics, finance, politics. one destination. "surveillance." i'm manus cranny. by.or riggs stand being >> bitcoin with the potential shutdown of some crypto currencies. there is no immediate indication asia's fourth largest economy will move to the changes that have accounted for more than 1/5 of global trading. am's c.e.o. has received a 74% increase in his annual bonus

for 2017 as the iphone maker posted higher revenue in income after a rare decline a year earlier. it includes salary, incentive pay and it came in at $102 million. his top five lieutenants each got bonuses around $3 million bringing their total compensation more than $24 million each. e white house has reportedly interviewed pimm keys richard clarta and lindsay. according to the wall street journal, citing people familiar with the matter, mmed alarian s also being considered. lindsay did not respond to requests for comment. >> exceptional. exempt layer and expert. if chosen.

he would be well suited for the job. as much as i can say. i can only say great things about rich. >> that is your bloomberg business flash. manus. manus: taylor, thank you very much. industrial production in japan rose in november. strong growth in exports. retail sales. over the border in china, hedge funds had the biggest losses from a new 3% tax of some nvestment returns. value-added levy will takefect in january. part of a broader shift in how companies pay taxes. china tends to be seen by investors as a -- exercise until something goes wrong and then all the focus is back on it for the market. ticking the box in china is a new one on me. where i sit and from what i

read, a lovely piece this morning, humor is king. retail sales. the chinese spent $25 billion. black friday, $14 billion. >> one thing i would say, they look to be in a good state. you look at the credit impulse. credit as a part of g.d.p. the role of crept in g.d.p. generation, growth generation is set to roll over in china. it is something to keep an eye on. aybe the results of having this back in october, they are going to apply the brakes more aggressively. let's get this credit problem sorted out this year. now is the time to do it. manus: how much more -- if he is doing that, how much more adjustment is there going to be? the credit impulse in the form of a chart.

deleveraging has been the theme this year. can we sustain that in the marketplace in 2018? >> there is good news and bad news. the bad news is i think there is more to come. i think they are going to push the brakes harder but the good news, it is not going to affect the markets as much as it did august 15. global growth is to widespread now. china was the story effectively. now the story is there is no economy, the economy is in investigation. growth is very widespread. it is synchronized. that's what makes it a bit different. manus: you speak from your words. from your mouth. we create chat live on "surveillance." this is the credit -- what is my risk globally? no oecd country in recession or at risk for recession. to that end, china is a

supporter to the global story? to the goldilocks scenario? is it? >> it is not the only pillar. that is the good news. manus: the most important pillar is what? >> the u.s. economy. europe is growing. the rest of asia is growing. it is really widespread. if anything, there is an opportunity here. say the credit impulse fades more, we need not panic in the way that we did before. if the market falls, that could be an opportunity to buy. manus: the other data that we have this morning is industrial production in japan. i look at some of the returns. in terms of the japanese manufacturers, this is the data we have showing to our viewers. running 10.3%. five years. with that kind of return on equity, how much more japan do

you want? the risk that the yen -- or the ank of japan moves aggressively? >> a very slight increase on that yield target on the 10-year. i think that is going to make much difference. i think the japan story is a leverage play on global growth. a bit like europe, japan reflects what is going on in the global economy. japan has a way to go . manus: bitcoin, anybody? it is getting cheaper. down another 4.75%. per se, you don't hold bitcoin. there is a discussion about the south koreans. they are now talking about perhaps regulating closing down some crypto currencies. ? e we coming closer

>> it is not an asset class we look at particularly closely. one observation i would leave you with is about two weeks ago, i created a price earnings ratio for bitcoin. it can be done synthetically. you take the market and the daily volume. almost a proxy for earnings. on that basis, the price earnings were about 530 times higher than the s&p technology sector in 2000 and the u.s. residential housing back in 2006. i'll just leave it at that. manus: our guest, the head of multiasset solutions. carol massar and nejra cehic are up next. ♪ ♪

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and a want of a financial risk to come to. bitcoin tumbles close to $14,000 as south korea says exchange closures possible. the italian prime minister is expected to mark the end of his administration ahead of fresh elections. this is bloomberg surveillance. with --nejra cehic with carol massar. we are waiting a press conference from the entire press --ference in rome -- italian we had been expecting today or perhaps tomorrow for the president as well to signal he would pave the way for national elections this year. carol: investors around the globe have been watching this development.

elections are expected early next year and whether or not italy can form a coalition government and whether or not it will be a push back on the european union. there has been some momentum for that in italy and we will see if it continues into the new year. nejra: we will talk more about expectations. the greatest probability people are saying is for a hung parliament. let's get to the first word news with taylor riggs. u.s., the irs had said taxpayers can do that next year state and local property taxes on their 2017 returns, if they pay the bills before the end of the year and only if the taxes were assessed before 2018. homeowners in states with the highest property taxes have been tapering local officials with questions about how to prepay the levy to take advantage of a tax break that will be limited next year. going torepublicans

court to try to stop alabama from certifying doug jones as the winner of the state senate race, roy moore's attorney says he believe there has been a regularities and there should be a fraud investigation and a new election eventually. alabama secretary of state has said doug jones will be certified as the winner today and his office has found no evidence of fraud feared -- fraud. face-to-face talks with david davis'former chief official in a breach of protocol regarded in brussels as evidenced u.k. brexit secretary as being sidelined. oliver robins is in effect running the negotiations and the paper says that he is dealing directly with marcia barnier and a deputy. a former lawyer for martin shkreli company may be headed to prison after a jury convicted him of scheming with a former biotech executive to defraud a pharmaceutical firm.

he advised companies and was found guilty of helping martin shkreli get money from the companies to québec investors after he lost their money in risky trades. the attorney said they will ask the judge to throw out the verdict. has beaten donald trump the person most americans admire, the first time a sitting president has not won the accolade. others on the most admired man list is the pope, john mccain, elon musk, and jeff bezos. hillary clinton was the most admired woman of her support the lowest since 2002. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. nejra: thank you. we have some pictures, the italian prime minister just

taking a seat, about to hold a press conference in parliament in rome, expected to announce the end of his administration. this is what we have been waiting for today and also waiting for fresh elections to be called early next year. perhaps by the end of the first quarter. that is the italian prime minister speaking in rome. we will bring you any headlines as we get them an update you on what investors are waiting for in italy through 2018. a quick check of the data, thin 600,ng post holiday, stoxx trading pretty much fought at close yesterday and slightly higher. treading water for much of a session with the ftse 100 in a record high. broad-based dollar weakness, declining against most of it tears and pushing the euro to its highest in a month.

yield, up three basis points with yields moving higher across the board. the 210 to show you curve, it hit a fresh decade low yesterday. a touch of curve steepening today. carol: s&p 500 futures this , thisg, little changed has been a trait all week in the u.s. except for the one point. dollar,lk about the falling to the lowest in three weeks with a sliding treasury yields weighing on the currency heading for its worst year in more than a decade. bitcoin, a little bit lower today. south korea said it was watching options including a potential shutdown of cryptocurrency exchanges to end speculations.

-- tim cook getting a 74% bonus after rebound and earnings and stock up almost 50% in 2017. nejra: we have been talking about the yield curve, u.s. yield curve flattened yesterday, nearing the decade low. saidn fed president finance instability risks caused by low interest rates was something to monitor globally in the coming year. with three rate hikes expected, we asked what is in store for 2018. >> i consider it an important priority to make sure that inflation does not chronically undershoot our 2% objective and i want to see it move up to 2%. >> trajectory of interest rates next year of importance and i think there is some uncertainty about that. >> turn out to be three? time will tell but we should remove accommodations in a gradual way. >> looking for three rate hikes next year, not priced in the

market yet. >> we maintain a fairly cautious outlook for the year. not significant growth impact and it could trigger slows into the u.s. >> we expect three further hikes next year. if the tax bill leads to more capital spending, that is and if, with regards to corporate, we need that incentive. if we get more growth in the u.s., in that environment, the fed can be more and faster with regard to the rate hikes. >> changes and tax policy will likely provide a lift to economic activity in the coming years, the magnitude and timing of the macroeconomic fix with any tax package remains uncertain. >> before any prospect of tax cuts, the u.s. economy clearly has strong momentum and accelerating into the later part of the year. >> a long way to go and not next

year and maybe not the year after, at some point the fed needs ammunition for a slowdown. that is the rationale to move. >> 2% short rate, not the 10-year at 235 that threatens the economy going forward. the fed should stop soon or else the economy will slow down. not going to i am change that now. nejra: for more, the chief economist at d+ economics joins us. -- g+ economics coins is. investors got wrong the relationship between unemployment and inflation, is this a conundrum they will have to face next year? >> yes, although not a great conundrum because the core pce at 1.5% is only 20 basis points below the last

two decades average. it is not that low. the fed does not have a credibility problem with inflation. after the last rate hike is still about halfway to the long-term mutual rate. withinterest rates inflation rising a little bit but not that much to meet the fed target, and interest rates rising much further and real interest rates will tighten and financial conditions -- markets are not ready for that. nejra: talking about the yield curve, the long end completely miss pricing what will happen with inflation or is the yield curve telling us something else? >> deciphering the yield curve --ay where many economists and a strong global liquidity

environment requires more finesse. the u.s., three-month u.s. rate up 93 basis point in the last , down 30 basis points. that tells us nothing about where the rate will be next year and the fed has committed to some tightening, whether three or four rate hikes, the fed will be tightening policy and nowhere near neutral rate levels in the u.s. yet, the long end is being soft. look at the 10 year or 30 year yield, after four rate hikes last year, the fact it hardly change tells us little about where the economy will be but the markets expect extremely accommodative monetary conditions. , talk it is all relative about a tightening of financial conditions but still rather easy if you look at global monetary policy. does it matter if they get tighter, if we see the

synchronized global growth? economies are improving. >> that is right. jay powell, when he is confirmed, it will be a very fortunate position of inheriting the u.s. economy operating close to full employment. also inheriting a fed with a strong handle on financial conditions. why the fed has tight well of market expectations at few people 12 months ago expected the fed could deliver rate hikes they did this year because there has been an amazing -- the fed -- financial conditions have eased in the past year. mentioned this and talked about it being a dovish tightening and we will talk about the disconnect between the fed and the market. you stay with us and coming up next week on bloomberg surveillance, live from eurasia group headquarters for a look at their top risk of 2018 android

exclusively by ian bremmer and smith, this is bloomberg. ♪

♪ flash.s get be business apple ceo has received it 70% increase in his annual bonus for 2017 as the iphone maker posted higher record new -- higher revenue after the crime year earlier. -- after a decline a year earlier.

his top five lieutenants got bonuses of around $3 million and bringing their total compensation to more than $24 million each. u.k. jobseekers saw the first annual increase in advertiser reason more than two years in november, while the average advertised salary climbed 1.2% to more than 32,000 pounds, it is well below the pace of inflation according to the employment search company. it highlights a continued squeeze on household finances expected to extend into next year. you.: thank let's talk about bitcoin, tumbling after south korea said it was watching a potential shutdown of at least some cryptocurrency exchanges in an effort to stamp out speculation. the exchanges in korea have accounted for more than 1/5 of global trading in bitcoin, often called ground zero when it comes to the digital currency.

set the stage for us, south korea sometimes called ground zero for digital currency. how come? areouth korea and japan seen as two of the largest markets for bit going --bitcoin in asia and around the world and i talked to a currency strategist who said a lot of regulators have been going back and forth trying to come to grips with how to regulate bitcoin and cryptocurrencies. they are paying attention to what south korea and japan are doing and starting to take the lead from what they are thinking. in 2017 we did not see too much in actual regulation from regulators. this is setting the stage for 2018. we will see central banks and regulators make decisions on how they want to regulate and how they want to have investors in their countries deal with these assets. carol: let's get to the specifics, we are watching to see what regulation comes down

to the digital currency market. what is south korea looking to do? >> at the moment, south korea has not said they will shut down any cryptocurrency exchanges. they are reviewing it. they are looking at specifics like preventing banks from issuing virtual accounts for cryptocurrency exchanges and talking about -- they had measures about preventing minors from trading in cryptocurrencies. in terms of actual cracking down in exchanges, they are putting them on notice that they will pay attention and watching very closely from here on out. it is a warning. a shot across the bow. nejra: given cryptocurrencies are outside the traditional financial system, isn't there a risk that, if regulators step in, it may encourage even more innovation and trading, even new

cryptocurrencies? ifit is interesting because you think back to work cryptocurrencies came from, the original intent was to have something that was decentralized and not regulated, not under the purview of the british -- traditional power structures in finance. ironic they are coming onto the radar screens of those institutions that the original purveyors of cryptocurrency were trying to avoid and that is a fundamental conflict that we do not know the in game or solution will be, but because there is no centralized body, every country is on their own to figure out how they will relate to cryptocurrencies. south korea has been seen as cautious to this point in japan is less so, more embracing of cryptocurrency. it will be interesting to see if japan follows the lead of south korea or japan continues to go its own way. carol: or whether or not we will

need a global, coordinated effort. up -- keepingng us up-to-date on bitcoin. how does it work into your thinking when it comes to what is going on in the global economy? assetcoin is a unique class. if you think about investors decisions being an amalgamation between top-down view on financial networks versus bottom-up all the web-based approach of understanding economic interactions between financial assets and policy reaction and economic development. is a network effect and that makes it a fewer play on financial risks with no fundamentals underneath and that creates an and -- a unique quality for bitcoin. volatility asset in a low

volatility world. is a completely diversified financial networks because it is open paying in a decentralized system which allows investors to go beyond traditional, political fragmentation, capital controls in latin america or asia. it is a young market. we are still trying to get our heads around it. you stay with us and we are looking or should be looking at live pictures of the italian prime minister speaking in rome and he says the election campaign is eminent. we are expecting him to announce the end of his administration and launched the election campaign for fresh elections at the beginning of next year. ♪

♪ inra: i am nejra cehic london and carol massar is in new york. let's get back to lena komileva of g plus. let's talk about the dollar, this is a simple chart showing the bloomberg dollar index year to date. its worst year in a decade. a list continue into 2018 -- will this continue into 2018? -- it is aus reasons

tightening of market conditions is a prerequisite for the dollar to have a break ahead. 2018bly will continue in but a good chance the markets are underestimating the degree to which the fed real interest rates have upright potential. we are in a low volatility and low tax environment, which has been beneficial for risk assets. at the same time, growth differential the u.s. economy has enjoyed with growth running above trend, sufficient to bring down the an employment rate too low levels consistent with long-term economic -- carol: is it perplexing that come up when we expect the fed to raise rates, some talking about for rate increases, wooden we start to see strength in the dollar or is the dollar telling us another story? lena: markets -- for the dollar

to strengthen relative to other currencies, we need to see a higher real rate differential. although the u.s. economy has enjoyed a strong growth differential, not a strong inflation differential against the rest of the world which contributed to the art of the fed tightening, the fed assuring the market they will not move to tightening financial conditions. there has been data responsive, inflation lagging, real interest rates did not move very much be on the short end. nejra: lena komileva stays with us. and an eye on radio "surveillance" on tv. ♪

♪ nejra: i am nejra cehic in london with carol massar in new york. let's get the first word news with taylor riggs. u.s. irs says

taxpayers can do that next year's state and local property taxes on their 2017 returns, if they pay the tax bills before the end of the year and only if the taxes were assessed before 2018. this comes as homeowners in state for the highest property taxes have been peppering local officials with questions about how to prepay the levy to take advantage of a tax break limited next year. moore isblican roy going to court to try to stop alabama from certifying democrat doug jones as the winner of the state senate race. roy moore's attorney says he believes there is an irregularity and should be a fraud investigation and eventually a new election. the alabama secretary of state said doug jones will be certified as the winner today at his office has found no evidence of fraud. president has about a crackdown after supermarket bond injured at least -- bomb injured at least 10 people in st. petersburg, he ordered the head of the federal security service

to liquidate bandits on the spot if officers lives are threatened . the blast was a latest in the series of attacks linked to islamic extremists. angela merkel's public support for a full term -- another full term has slipped as 47% of voters want her to step down before the end of a four-year mandate her party won in september, up from 36 -- up from october, a sign the political stalemate since the election may be working against the acting limitedor before for coalition talks with the social democrats begin in the new year. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. nejra: thank you. let's turn to italy and prime minister paolo gentiloni is speaking at a news conference, marking the end of this administration. a couple of lines crossing the

bloomberg, he says the election campaign is imminent and italy is no longer europe's economic laggard. we will watch that. the president of italy is likely to sign a decree to dissolve parliament and we would expect the elections to take place ,ither on march 4 or march 11 opinion polls show the is staff -- antiestablishment movement ahead of the ruling democratic party and a possible center-right coalition. none of the three would get the necessary majority to govern. is a visiting professor at the london school of economics and stay with us is lena komileva of g plus economics. is the most likely outcome a hung parliament? >> by far it is the most likely outcome. saye major blocks, i would four, because you need to add the left. to one of them has a chance

win a majority. probably the center-right is the force that make it closest. mind, the election system is not tested. it is new. there may be some surprises. and 37 of the seats, i look at it -- there may be some surprises. the baseline scenario is no winner. nejra: if we get the hung parliament and it leads to a grand coalition, what does it mean for democracy, what does it mean for the mainstream versus the antiestablishment? >> it is not good for democracy because in my view, you need a shift from one coalition to the other, depending on the electoral outcome.

situation, ay two-year time, it is possible to have a grand coalition, including a large majority of mainstream parties. this is a baseline scenario. it would not be particularly bad. a number of reforms in italy and they need to be implemented and they are, from electoral point of view, difficult to implement. therefore, if you have a grand coalition, nobody one -- nobody is responsible for that and some issues can be introduced. my view is a grand coalition would not be bad for financial markets. carol: i want to talk about the italian economy, consecutive quarters of growth, improvement there and the prime minister said italy is no longer europe's economic laggard. unemployment among the youth is very high. more people are in poverty in italy.

in comparison to the rest of the european union. in termse need to see of improvement in the italian economic front? lena: we are very much in a ,rand -- economic development intergenerational equality gap will play strongly into the formulation of policy, the political outcomes of this election that will decide the future path for reforms. the main concern is not so much the rise of parties but the demise of the traditional centerleft, economic liberal consensus. we have yet to see anything come out of stronger demise that will provide a viable economic path going forward which creates a risk that, especially for real people, it is a recipe for political volatility going forward. the election is probably the

beginning of volatility. markets have get their heads around this next year. carol: can a coalition government in italy receive be necessary economic objective italy needs at this point? >> it is not ideal but it is fine. if you get a coalition programnt as a minimum for the next two years, it would be ok. the risk in my view is that, following a hung parliament, political forces will not agree on anything. in whicha situation you have continuous fighting and knows aleutians. -- and no solutions. and elections again in six months. that is the most risky scenario and it is possible. nejra: you talk about the risk of the new elections, and also

you said that if we get a grand coalition, a could potentially increase the risk of antiestablishment getting him in future elections? >> that is possible, we have seen a steady increase of the five-star movement. that is supported by a lot of young voters. i think this is concerning to some extent. if you enter into a situation in which there is a grand coalition on mainstream parties, if they do not deliver, the risk of a five-star movement government in the future. it depends on whether the new government will be able to deliver. tora: this takes me back last year when we looked at the french elections. there was celebration on some sides about the victory of emmanuel macron but others said it is a victory but if he does not deliver, we could see the

anti-. was that down the road. -- antiestablishment down the road. are we building of risk for the future, if the parties do not deliver? lena: that is the key risk, the underlying forces, aging populations and a lack of economic dynamism, which is being further stifled by concerns about deglobalization through brexit at pregnant for a separation in the u.s., through efforts to create a new economic infrastructure of corporations be on the traditional u.s. centric power block. all of that will have an impact on the eurozone's ability to grow and the rise of the nationstates which has resulted from the massive migration. the forces are here tuesday.

as long as the economic speed limits of high debt are here, the drive towards antiestablishment, political alternatives to what we have known will remain. results will be more political volatility and policy uncertainty. and more social economic risk. carol: we have seen a results we political softening in italy against the single currency issue, although there has been pushed back, is it a valid discussion to think about italy exiting the european union? >> you would need a very odd combination, the five-star movement getting support from left.r right and the far it is possible but very unlikely. there is a lot of talking ahead of elections but you need to strip out what is feasible and what is not.

now things that are told are not feasible. carol: lena komileva from g plus economics staying with us and we believe you would be a time for minister paolo gentiloni in rome -- italian prime minister paolo gentiloni and rum speaking and it's -- it rome and expected to announce the end of his administration. you are watching bloomberg surveillance. lena komileva of g plus economics ♪

♪ carol: carol massar in new york

and nejra cehic in london, the europeans a direct says economic expansion is strong and broad-based across the block, and also said it expects underlying inflation to rise gradually over the medium term. lena komileva is just economist at g plus economics in our london bureau and a visiting professor at the european institute in london still with us. estimating as investors and market watchers inflationary expectations, global inflationary expectations in 2018? >> i do not think so. if we look at leading indicators for inflation, the situation is not worrying. i would say wages are not growing which is the main factor. ,f we do not see wages growing hard to see a sustained increase in inflation.

having said that, in the future, inflation will move back to target but it will take a number of years. carol: lena komileva, what do you see for inflation expectations? lena: i will respectfully disagree. premises, first one is that the bank of france did great studies which delineated -- made it home -- france inflation versus global trade inflation and there was a big gap. the impact of countries such as china in global trade prices is a marginal one, significant, it has contributed a great deal to discounting. we are in a world where higher costs and lower wages inflation environment, that has distracted economic consensus away from the other end inflation problem --

other inflation problem and the irony is, although the markets are extremely positive on global economic outlook at the start of 2018, central banks are facing a dual challenge of lowering inflation -- of lowering and anyone who earns a salary will disagree on the prospect, particularly in the u.k., and high financial inflation in financial markets -- levels not very far away from the last financial crisis in 2007. even -- asset prices are higher because nominal interest rates are probably lower because of higher debt levels that will prevent central banks from raising rates to levels commensurate to nominal gdp growth. even in that scenario, markets expensive on bonds and equity side. euro? what about the

it has had a good year at 119 and consensus next year is around 121. could a go higher? >> euro currencies are a zero-sum game in the sense it is theflection of how other -- euro stability this year has disappointmentde of the strong dollar consensus. that is because the fed has held back on tightening financial conditions. and the ecb has moved towards the exit of qe even though they manage the transition gradually. nejra: let's get back to politics because last year -- or this year, in 2017, the year of political risk in europe. italy, on --e on beyond italy, risk for investors underpricing? >> we have the midterm elections

in the u.s., that is the other big event globally in terms of politics. my feeling is that there was a huge concern in 2017 about political risk. there is still a huge geopolitical risk around the world. starting from north korea and also in the middle east. for next year probably will be monetary policy. central banks gradually moving out of extremely accommodative conditions. my personal perception is that this will be the big theme for financial assets in 2018. nejra: we have some agreement. carol: and terms of what you expect for the u.s. central bank , could you see the fed being more aggressive rather than not? >> i think low-inflation is a

global phenomenon, not just a european phenomenon, also in the tightening --the increasingly tight labor market in the u.s., core inflation has moved up only marginally. the fed will be cautious. there is a big uncertainty with major changes in the composition of the fed open market committee but my feeling is that we will get on a true hike over the coming year. that would be enough probably to keep inflation at bay and allow economic growth at the same time. nejra: two hikes. is that what you forecast? lena: 3.5. lena komileva, chief economist at g plus economics stays with us. look at tv anytime of the

day or night, best when we are on air and watch the show's on air and see the headlines on the right-hand column. you can click through and look into the guest the bios to see the people are we talk to everyday and get into any chart you like and save them to your bloomberg. this is bloomberg. ♪

♪ taylor: let's get to the bloomberg business flash. this tumbleresumed after south korea said it would allow options including a potential set up at some cryptocurrency exchanges to stamp out a frenzy of speculation. there is no immediate indication

the fourth economy will move to shatter exchanges -- shatter exchanges. a warning ass regulators around the world expressed concern about private digital currency. apple ceo has received a 74% increase in his annual bonus for 2017 as they posted higher revenue and net income after a rare decline a year earlier. tim cook's total package for the year came at $102 million. his top lieutenants got bonuses of around $3 million and that brought their total competition to more than $24 million each. the white house has interviewed the pimco managing director and lawrence lindsey for the position of vice chairman at the fed. according to the wall street journal, citing unidentified people, mohamed el-erian is also being considered and they said a first-person for claritin

declined to comment. >> he is a great leader and exceptional lead -- listener, he is an expert. if joseph, he would be what -- if chosen, he will be well suited for the job. i can only say great things about rich. just got a line crossing the bloomberg from the russian news agency interfax who , thets that sergey lavrov russian foreign minister saying that russia will respond to new u.s. sanctions. we will bring in the implications as we get more information, this is after the u.s. state department said that sergey lavrov and rex tillerson spoke by phone. let's get back to lena komileva from g plus economics.

let's talk about your thesis on the biggest risk racing markets in 2018, you say it is inherent in the risk cycle and a gradual divergence between the markets pain threshold and the fed pain anesthetic dosage. explain. lena: markets are in the face of rational exuberance. strong employment and low tax environment. that is extremely supportive for risk assets. on top of that, markets expect the fed will continue to hedge against any financial volatility , moving gradually with tightening financial conditions and real interest rate. the fed will continue to ignore keeping financial and labor markets in favor of fine-tuning inflation to the tune of 20 basis points. extremely strong position to start from. when you look at the fact that real interest rates in the u.s. are extremely low, about 150,

200 basis points about -- from where they should be at all inflation is lower than the fed target, the potential for financial conditions to tighten or rise is greater than the market expects. the bottom line is that every -- the peak of the cycle, markets are more inclined to tackle inclined the fed more to take away the market affect -- carol: we have to run. we love your input over the past 60 minutes. lena komileva, chief economics at g plus economics and we will talk about ge, apple and more next. ♪

♪ carol: bitcoin topping the most read on the bloomberg as it

comes close to $14,000, following the announcement myself. that exchange closures are possible. ae white house preparing defensive in a departure from the president's wonderful opinion of his former national security adviser. the italian job, prime minister paolo gentiloni is expected to mark the end of his administration ahead of fresh elections. this is bloomberg surveillance live from new york, i am carol massar with nejra cehic in london. tom keene and francine lacqua have the day off. let's get to the bloomberg first word news with taylor riggs. u.s., the irs and taxpayers can do that next year's state and local property taxes on the 2017 return if they pay the tax bills before the end of the year and if the taxes were assessed before 2018.

this is as homeowners in state for the highest property taxes have been asking local efficiency questions about how to prepay the levees to take advantage of a tax rate limited next year. is. republican roy moore going to court to try to stop alabama from certifying democrat doug jones as the winner of the state senate race. the attorney said he believed there have been irregularities and there should be a fraud investigation and eventually a new election. hasama secretary of state said doug jones will be certified as the winner today and his office has found no evidence of fraud. has about aident crackdown after a supermarket ball injured at least 10 people in st. petersburg, vladimir putin said he is older the head of the federal security service to liquidate bandits on the spot if officers lives are threatened . the blast was the latest in a series of attacks linked to islamic extremism who targeted his home city. public support

for a full term has slipped as a survey showed 47% of voters want her to step down before the end of a four-year mandate or party -- her party won in september, up from 36% in october, a sign the political stalemate since the election may be working against the acting chancellor before preliminary coalition talks with the social democrats begin in the new year. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. carol: thank you so much. let's start with a check on the market, s&p 500 futures, quite market in the united states -- a quiet market in the united states with s&p 500 futures not changed. nymex crude, up 1/10 of 1%. below $60 a barrel. bitcoin, down 8%. talking about apple, the ceo tim

bonus, $102 a 74% million package as apple shares almost -- up almost 50% this year. little change in the premarket. nejra: even though we see the u.s. futures flat, pretty much the same thing in europe. the markets have been trading for three hours. stoxx 600 pretty much unchanged, treading water with the ftse 100 at a record yesterday. broad-based dollar weakness, dollar declining against pretty much all of its g10 peers with the euro at its highest in almost a month. the 10-year u.k. yield up two basis points. yields moving higher. the 10-year button yield moving higher. i have a chart to show the flattening of the 210 curve. carol: this chart got my

attention early this morning. the headline, chinese consumers ruled the world, get used to it. bloomberg gadfly article. chinese investment versus chinese consumption as a percentage of chinese gdp, the quite line is showing consumption -- white line is showing consumption which grows in china as part of a total economy. still big but not as much and chinese consumers are becoming older and richer, not just about buying necessities but buying higher end, premium brands and it shows how the economy come always important when we talk about any story, evolving and beginning -- becoming a domestic led economy. nejra: very interesting to look at the changing dynamics of china's economy. we have lookedic at for much of the back half of this year, the curve flattening.

today, front and center this chart, yesterday the 210 curve flattened, close to its decade low. a 53basis points and on handle or so at the moment. the flattening trend continues. year end is approaching and some dynamics, a bit of work folio repositioning. -- portfolio repositioning. carol: for more on the flattening curve and other things, michael holland joining us. i have so much to talk to you about. the flattening yield curve, is it a precursor to something more ominous in the u.s. economy? michael: i think rates one year from now may have been the big story because we are set up for a surprise. you use the word quiet, taylor

riggs, the markets have been relatively sanguine for investors the whole year, the yield curve, as we look back a year from now, it is likely we will have had a surprise in the bond market. carol: what does that mean for investors? michael: it could be the long anticipated correction in the stock market. that may occur. i am not predicting it. trying and do not know anyone who can. at the end of the day, when you look at what we have been through and what people are ready for, the investor psyche is not ready for a surprise. surprises did not occur in the past year. nejra: hello. how do you think the bond market surprise will manifest itself?

are you talking about a run-up in long rate or something else? michael: by definition of surprise, i could not tell you what it would cost. -- cause. we are in a dream sequence where we believe the central banks, led by the fed, can control the intermediate and long-term bond prices. that looks like it has happened for the last several years but that does not happen over the long-term, markets do what they want, they can control the short rates but not belong rates. the real yield -- but not the long rates. inflation taken away from the nominal rates is something the fed has no control over. sometime during the year, if something causes rates to go way up, 75, 100 basis points, that would be a major shock to the bond and stock market for government -- market. sometimes it is the internal dynamics, treasury bond scandals

in decades past. by definition, a surprise is none of us will talk about today. think the fednot will be really careful with its communication, as are other central banks? and they have been until now to avoid this? or can they not avoid it regardless how careful and gradual they are? michael: yes, the fed with the other central banks, ecb and so on, will do what you said, i expect, however, that is what the markets expect and jerome -- we expect no surprises from any of the central banks. not only in their actions but in their words. having said that come it sets up the idea of a surprise for the bond market, via markets. people are complacent. carol: i want to talk about

inflation. you were on one year ago with francine and mike mckee, you talked about growth. a great call. you talked about inflation and the importance of technology and keeping inflationary low. and you talked about companies and earnings and stocks doing well. 343. -- three for three. --hael: i would love to say to see more of the same this year, if you save more of the same tomorrow, better than half the time you are right, as a weather forecaster or market forecaster. i do not expect that to happen. i think the economy and earnings will probably continue to be ok. we are set up for that.

marketplace,in the 20% of the u.s. stock market, emerging markets, commodities, you go around -- carol: i am blown away by the numbers. , weael: leveraged loans have crazy numbers caused in large part by the central banks with all the money. microsoft selling at 30 times earnings. apple at 18 times earnings and it used to be 10 times earnings. wonderful things happen to us as owners of securities but we are set up for a surprise. not talking about a cataclysm. i think the economy will be ok here -- i think the economy will be ok. nejra: a question on correlations, are they telling us anything, anything can we read from them or are they

distorted? michael: a couple of years ago, everything was moving in the same direction. the same percentage amounts. you finally have a bond pickers and stock tickers environment and we are getting back to more normal. maybe what will happen in the interest rate environment in the coming year, we have had a distorted interest rate asironment since 2008 central banks are trying to move us back towards a more normal environment where the bond market does whatever it wants. in terms of correlations, you could have a continuing disparate move among the markets. nejra: michael holland you are staying with us, a lot more to talk about. next week on surveillance, live from eurasia group headquarters for a look at the top risks of 2018 android exclusively by ian bremmer, and jack lew, the

former u.s. treasury secretary and brad smith, microsoft president and chief legal officer. this is bloomberg. ♪ ♪

♪ let's get to the bloomberg business flash. bitcoin has resumed a tumble after south korea said it would have options include a potential shutdown of some good progress exchanges to stamp out a frenzy of speculation. there is no immediate indication the fourth largest economy in them but the news poses a warning as regulators around the world expressed concern about private digital currency. u.k. jobseekers for the first annual increase in advertiser

recent more than two years in november while the average advertised salary climbed 1.2% to just more than 32,000 pounds, still well below the pace of inflation according to employment search company. continues the squeeze on household finances expected to extend into next year. 74%e ceo has received a increase in his annual bonus for i-17 as they posed -- posted higher revenue and net income after a rare decline a year earlier. the total package for tim cook combining salary and other things came in at $102 million with this top five lieutenants getting bonuses of around $3 million and brought their total compensation to more than twice for million dollars each -- $24 million each. nejra: we just got some news, this is the italian prime minister paolo gentiloni.

we are waiting for confirmation from him for italy's parliament to be dissolved, paving the way for an election we expect on march 4 or march 11 in italy. italian politics we have been watching all morning. carol: in washington, president trump's legal team preparing defensive against former national security adviser michael flynn according to the washington post and three people familiar with the strategy. defensivemeantime, congress hae government opened before the holiday recess but faces fiscal and social issues to confront at the start of the new year. joining us is our chief content officer and still with us is michael holland of holland and company. michael flynn, is this business as usual? >> it is a slow news day.

[laughter] >> not discounting the washington post story but it would be legal malpractice if the donald trump defense team was not trying to discredit flynn. the story itself says it is a normal strategy you take when you have a witness who potentially could testify against you. carol: how much is this another white house distraction or just business as usual for the white house? >> it has become business as usual because of the daily drip of this investigation, that investigation, congress investigating the russian connection as well. they have become used to it. donald trump has stopped tweeting about it. that could be his legal defense people telling him to be quiet. or they do not think anything will come of it. just letting the process take

its course. nejra: we had a headlight earlier from the russian foreign minister -- headline earlier from the russian foreign minister saying that russia will respond to new u.s. sanctions. yesterday, we talked about the challenges for congress in 2018 but what about the challenges on the international stage for 2018? >> as people talk about the tax bill and other domestic issues, the international issues that confront the trump administration have been understated. north korea is still out there and there are russian sanctions and the issue of syria. interesting that at the beginning of the trump administration, russia did not take the opportunity to respond to obama's actions against the russian in anticipation of a friendlier trump. that now does not seem to be the case. michael: talking about

infrastructure and welfare reform, could either of those meet the same higher level of outcome the markets saw with tax overhaul? most of us several months ago were saying, lucky to get anything back. , it will be apen little change on the corporate rate and we got the package. could either of these be a pleasant surprise in the coming year? >> welfare reform is a bridge too far. paul ryan wants that at the top of his agenda but democrats want no part of it and they cannot get anything done without democratic support. dead on arrival. infrastructure, the democrats have said that they would be interested in an infrastructure plan while republicans also, maybe less so than the democrats. but what is the nature of the plan? is it a federal program, federal spending?

a public-private partnership? probably less attractive to democrats. michael: you may get some of that. that would be a pleasant surprise. carol: we will continue talking about news out of washington and news impacting me markets. -- impacting the markets. ,une in to bloomberg radio bloomberg daybreak can be heard in new york, washington, d.c., boston, and across the united states on sirius xm channel 119. this is bloomberg surveillance and this is bloomberg. ♪

♪ with: i am carol massar nejra cehic. michael holland and marty schenker are with us. we were talking about infrastructure and whether or not infrastructure spending out of washington. what would be the investment payoff? michael: the first thing people would do is look for the machinery companies and the commodity related companies who would benefit from this. look at any major companies, one name was ge. you cannot say that today but would have in the past.

marty: i think donald trump is key to this in terms of whether we get infrastructure bill. if he calls in the democrat and republican leadership into the white house and says, i want this, work together. some evidence that is an effective strategy. mitch mcconnell in the senate has said the -- there is only things democrats support that will only work in the senate with the thin majority they have. nejra: you mentioned commodity , talking, michael about whether we will see gains in commodities in 2018 and the possibility hinges on president trump. michael: yes, we were talking about a continuation of the trends year-end. in commodities. as you see in the ftse. , a high in the stock

market because of the commodities. one would expect that may be played out. if you got a u.s. infrastructure thing, a reason to stay on board these commodity stocks. carol: we will continue with marty schenker and michael holland, both stay with us in new york and chris edwards of the cato institute will join us to talk about the impact of the latest tax legislation with the conversation continuing. we will get into this on bloomberg. ♪

♪ carol: we're back on this thursday, i'm carol nassar in new york and that's nejra in our london bureau. they're eyeing a shutdown in crypto currency changes in an effort to stamp out a frenzy of

speculation. bitcoin is taking a tumble on that news. what do you think? >> what hasn't been said? as we talked off camera, there's no question this is part of the future. carol: underlying technology. >> michael bloomberg said that on the air. at the end of the day anyone who plays in bitcoin this morning is playing a crapshoot game. that's ok. you can do that but presume you'll lose a lot of money as well as make a lot of money but it's not an investment, a trade. nejra: this news from south korea generally have stayed on the sidelines with bitcoin at the moment. if we do get a bit more of a regulatory clampdown will this encourage even more activity given the crypto currencies are on the sidelines of the financial system. carol: make it valid in some

ways. michael: you would think so. nejra: more innovation. michael: i think what will happen as we have a wild, wild west environment in the bitcoin, the crypto currency arena right now. you have no laws, you have insider trading which is perfectly legal, probably unethical but they're doing whatever they want to do and there are no -- the cdfc are the only people paying any attention. no one in washington or around the world but the central banks as we were talking off camera, the central banks will start getting involved over the next year and i think that probably gives some reason to think it would kind of validate it, i don't think so, there's no value there. carol: certainly something we'll continue and talk about and get more with michael in a moment. first up let's get to bloomberg first news with taylor riggs. taylor: the i.r.s. said taxpayers can deduct next year's state and local property taxes on their 2017 returns if they pay the tax bills before the end of the year and only if

the taxes were assessed before 2018. the statement comes as homeowners in states with the highest property taxes have been peppering local officials with questions about how to prepay the levies to take advantage of a tax break that will be limited next year. u.s. republican roy moore is going to court to try to stop alabama from certifying democrat doug jones as the winner of the state senate race. moore's attorney wrote in a lawsuit he believe there were irregulars and should be a new election. jones will be certified as winner today. so far his office has found no evidence of fraud. russia's president vowed a crackdown after a supermarket bomb injured 10 people in st. petersburg. vladimir putin ordered the head of the federal security service to, quote, liquidate on the spot if officers lives are threatened. yesterday's blast was the latest in the series of attacks

related to islamic extremists who targeted his home city. and the israel prime minister said the country's election campaign is, quote, imminent as the president prepares to dissolve parliament today triggering a national vote to spark a long period of political turbulence. he is expected to sign a decree ending the legislative sessions in both houses of parliament which will pave the way for an election probably march 4. global news 24 hours a day powered by more than 2,700 journalists and analysts in more than 120 countries. i'm taylor rigs, this is bloomberg. nejra and carol? carol: there is a think tank in washington, d.c. publishing its tax plan and the group highlighted those in the top income will see an 8% improvement on taxes, although the middle income will see a 23% improvement. joining us to talk about it is the author of this piece, chris edwards, cato institute of tax

policy from the nation's capital. with us is michael holland of holland and company chairman and bloomberg chief content at bloomberg news, marty schenker. set your argument. many have said it's a tax cut for corporations and the wealthy win out. you say no. chris: as your figures show higher income people and upper middle class people will get larger dollar cuts but people in the middle are going to get much larger tax cuts. so for example if you take some at about $50,000 a year, they maybe pay about $2,000 in tax now. federal income tax. but as your figures showed, they will get a 25% tax cut so maybe $500. for them that's a big tax cut. people at higher income levels get a much smaller percentage tax cut. you know, the big question is next year will people notice that a level of tax cut and we will see what the inch r.s. does with the withholding

tables but my point is that the narrative that this is only -- these are only tax cuts for the rich is not really right. and we will see next year the broad middle class will get a substantial tax cut. michael: i happen to agree with you and the political narrative is politically based and i'd like your opinion on behavior. the corporate tax cut people think will go to stock buybacks and don't present productive use of assets. what's your thought about that? chris: see, that makes absolutely no sense. if a corporation is able to save money and it can't use those resources efficiently, him doing stock buybacks or paying higher dividends would be perfectly fine and markets reallocate that money to other corporations expanding and can use it. people are focusing too much on where the cash is going.

that's not the important issue. the important issue is -- carol: i've got to jump in. we've got to focus on where the cash is going and last time we saw repatriation overseas and american companies were doing buybacks and dividends and didn't trickle down to american workers or capital expenditures. chris: because we had a high corporate tax rate. the issue is the corporations are of course forward-looking. if they can earn a higher after tax return on their marginal investments, they'll invest more. but the corporate rate determines the forward looking behavior. the cash is not really the issue. corporations can always get cash if they have projects that pay high after tax return. so that's the key here. so if corporations can't use the extra cash here, it will be reallocated in market and u.s. industries that are expanding will use it because the after tax return is higher.

>> what about wage growth. >> you're against redistribution and cuts the growth potential of tax reform, why is that? chris: because flatter taxes are generally more efficient than highly progressive systems. there's a basic principle in tax economics that as the tax -- increase, the distoring you see the countries and as you know, most c.d. countries like in europe, they depend a lot on value-ed a added or

consumption taxes which are more efficient. the u.s. system is more dependent on highly progressive income taxes which are less efficient taxes. smarty: one of the issues -- persistent issues plaguing the economy and one of the things the tax bill advocates say will happen is wage growth, even with record unemployment rates, how do we see wage growth in america actually happening? chris: the basic story here as head of the council on economic advisors has described at length is u.s. corporations will get higher after tax returns by investing in the united states and build more factories and expand their factories and buy more equipment with the new expensing provision and make workers more productive in the long run in the next 5-10 years and worker productivity is the driver for wage growth. so i don't know how much the wage growth will be in 2018 or

2019 but i do know over 5-10 years there will be more u.s. -- higher u.s. productivity and more u.s. g.d.p. and will ultimately push up worker wages especially when you think about the demographics, you know, u.s. demographics, there's more old folks and fewer workers relatively. carol: we'll have to see especially with more automation in robots replacing workers. michael, i know you have a question. michael: some people view the original reaction from companies like comcast and at&t when the tax overhaul was announced, they announced $1,000 payments to hundreds of thousands of workers and that they would increase wages, all the things you just said. do you share the view, the so much skeptical and cynical view this is a concerted p.r. effort by the countries to support this or do you believe what you were saying that this will continue the next couple years as a likelihood there while be

more money going to workers. chris: i don't know whether those actions were p.r. or how much they planned, i really have no idea. but it is companies like utilities that now that they have this lower corporation rate that is permanent and in permanent law and democrats even if they take control of congress won't reverse it and because of that certainty about the lower rates is one of the reasons why corporations have made those moves because they can be sure that down the road they will have more cash and the investment opportunities will be there. so that's why they made those moves. carol: ultimately what companies will do is keep the top and bottom lines growing they'll be more optimistic about the outlooks. chris edwards, thank you, cato institute director of studies and michael holland staying with us and marty schenker, our chief content officer. coming up on bloomberg surveillance, live from the eurasia group headquarters for the look at the top risks of

2018 and joined exclusively by ian bremmer and jack lew, former u.s. treasury secretary and brad smith, microsoft president and chief legal officer. don't go anywhere. bloomberg surveillance coming back this thursday. ♪

ted: and napon airwaves has apologized to passengers after a tokyo bound flight returned to l.a. because someone was on the wrong plane. flight 475 was in the trip when the pilot decided to turn back. model christy tiegen was on board asking why everyone had to suffer for one person's mistakes. a u.s. government official said the incident involved two brothers, one ticketed on ana and the other on united. that's bloomberg business flash. carol, did this one just for you. all nippon airwave is privately held and the only thing that would have made to the perfect story was to check premarket trading, their parent company, a.n.a. holdings doesn't look like shares are reacting too much today. carol: not too much reaction. what i love and it's a bloomberg story because it's on the terminal and chrissy tiegen

has an entry on the terminal. but in this era of such increased security, it's mind-boggling and chrissy tiegen tweeted somebody with a different ticket for a different airline was able to board and they were four hours into the flight before they realized something was wrong. nejra: it's really extraordinary and airlines with increasing pressure with the issue of customer service. i don't know what i would have done in that position. it's a funny one. thanks for bringing us back, taylor. let's go back to politics and italy's prime minister is speaking at a news conference marking the end of his administration. he's to meet president to dissolve parliament and general elections likely would take place march 4. opinion polls show the anti-establishment moved ahead of the ruling democratic party as well as a possible right coalition but none of the three would get the necessary authority to govern.

for more we're joined from the phone from rome. john, you were listening in to that press conference. just update us. what is likely to happen today? are we seeing parliament dissolved as we were expecting? john: yes, talking to a senior president and the head of state should be involving parliament after meeting gentiloni and both speakers of parliament and firing the starting gun for the election campaign which then would start basically immediately and so we have two months to look forward to. nejra: and we're expecting the election to take place either march 4 or 11. just give us a flavor of what the campaign in the few weeks ahead might look like? john: right. basically be quite a virulent one. we have the populist anti-establishment five star movement against the establishment parties but they are also playing the populist

card and adopting some of five star's policies including a minimum income as universal citizens income and we'll see that and also see five star tapping into the anger of the italian voters, the anger against the political class whom they believe has failed them and on the economic side, the low growth, the recovery is there but it's still lagging the european union peers most of them and the unemployment is still high. carol: is it all about the economy at this point? it is the euro zone's third biggest economy and we've seen a recovery over the last 12, 13 quarters consec pitch growth but nonetheless trailing its peers. is it just about the economy in the upcoming elections? john: to be honest i expect it to be mostly about the economy with promises for growth and creating jobs, tax cuts, both parties on the left and right are proposing tax cuts. but it's also going to be about

who has been in power and who hasn't. that's the pain card for the five star movement which is currently leading in the polls. nejra: john, at the moment the expectation most likely is for a hung parliament which means we could see a lot of uncertainty ahead. how long could that go on for? john: yes, look, that could be several weeks or several months, gentiloni in his press a few minutes ago had a joke about it saying the italians are vaccinated against political instability and it's his job to play down that prospect and says i'm the 28th prime minister basically since the quarter. -- the war. but we could have a plan b with head of state appointing gentiloni again, a new government to tide these things over a few months and possibly lead to new elections the end of the year. carol: leash it on that note. john, thanks so much, joining us on the phone. michael holland and company,

the chairman still with us at this point. italy, is it something that comes into your sights? >> michael: john saying vaccinated against political instibblet, people in italy. so to answer your question, thank you to him for that phrase. that's wonderful. i don't think it will ripple the markets whatsoever. carol: but you keep an eye on it? michael: europe has been a pleasant surprise this year and anything that knocked that surprise away from being pleasant but i don't think this rises to that level. nejra: michael, you're right. europe surprise sod many people on the upside in 2017 and certainly a lot of the kind of political crisis we were expecting ended up being quite anti-climactic. when you look at europe through 2018 are you largely positive on it and are you positive on it cross asset or mainly, say on the euro and equities? michael: the view here

continues to be and including myself, that europe in a very highly valued world asset market, that the european stocks remain relatively attractive, so i think that what's going on in europe, including what's going on in italy overall, even the brexit story isn't as bad as the worse st as people expected. carol: i feel that's been the theme of 2017. michael holland will stay with us. check out everybody, tvgo and listen to some of our segments throughout the morning. send us questions. we love hearing from you. this is bloomberg. ♪

carol: 54 minutes after the hour. it's time for the single best chart today. i'm looking at general electric. we've been talking about the stock a lot this year. come inside the bloomberg terminal and with a i brought up here is taking the dow jones industrial average and looking the best performers, the names in the green. you see most aspects and embers of the dow have rinch -- risen this year and general electric down 45% to the worst performing name in the dow. g.e. dramatically lagging behind the stock market, losing $125 billion of investor value in the process. we want to bring back michael holland of holland and company. g.e., you've owned it as you said in the break, all your life. you're out of it now, though. michael: over the past year i said no mas s. it was just too

much. doesn't mean it's not a great trade. down 45%. the new c.e.o. gets very good reviews from people who worked with him and he may be able to turn this thing around. where i did own it, i owned things like microsoft, johnson & johnson, jp morgan, great franchises. g.e. had been a great franchise but lost that value. carol: i know, no mojo coming back here? michael: correct. doesn't mean the c.e.o. won't do it but my guess is a good speculation that he is. i'm not doing it but for viewers looking for things that might be under pressure in trade might an great trade and maybe a good investment. carol: michael, there's actually a great story on the bloomberg as well showing the decline of an american icon, g.e.'s nightmare year in charts. i want to ask you about another stock. you mentioned microsoft. what about i.b.m.? we were talking bitcoin earlier and microsoft going all in on

block chain, does that make it positive? michael: the i.b.m. involved? yes, absolutely. i think she is finally begun to turn that ship around. i think the quick answer, yes. happy new year. carol: you don't have to be that quick. i.b.m. down 8% this year. michael hollooned, always a pleasure to have you here. bloomberg surveillance continues with myself and pam fox. michael holland will be there, join us in a moment. you're listening to and watching bloomberg surveillance. and this is bloomberg. ♪

taylor: market rebalancing, the yield curve flattens and dollar

sinks and commodities climb as traders square their books before the year ends. a cold cell washing over the northeast and powers surge. prices resume their tumble as south korea looks at a shutdown with the crypto currency exchanges. welcome welcome to this daybreak, i'm david with alex steele. you're excited about the weather. alix: 12 in brooklyn. i haven't seen the wenter in new york in a long time. 2 1/2 hours for the cash open in the u.s. s&p futures modestly higher, almost up by three points and the euro-dollar up .4%. looking at the best year for the euro against the dollar since 2003 as the dollar index continues to grind lower. and taking a look at the 30-year yield up two basis points because the worst part, it was down by eight basis points yesterday and we're recovering some of that but