anna: good morning from the city of london. manus: this is "bloomberg daybreak: europe." these are your top stories. anna: the country's first trading day of 2018. manus: intel confirms sums of the -- some of its products are vulnerable to hacking, but says it is not he only company that is vulnerable. and delayed production targets again after missing delivery estimates in the fourth quarter. ♪

good morning, everybody. it's 6:00 here in london. year, if you are just rejoining us. the nikkei 225 just rejoining us today and the japanese markets just rejoining the new year's freight. up by .75% on the nikkei 225. that's playing catch-up from previous days at the trading year so or but it follows on from you records on wall street, the gradual approach being referred by the fed if any conclusions can be taken away from the fed minutes yesterday and the biggest one-day increase in the japanese equity market may, partying like it's 1991 apparently in japanese stock. u.s. is the yield on the 10 year. andreaction from the fed the prospect of higher interest rates. that was the case really through

2017. we did not get any explicit clues around a hike in march and some point to a change in personnel, clearly one of the reasons in the mix there. oil,rice for a barrel of up and moving higher, up 5.9% this morning. now above $62 a barrel. the dallas fed has done a survey that suggest for many in the market, around 40%, the 62 of 60 that could bring a lot more shale producers back into the market. the bulls are still in charge on the equity market. take a look at this, this is the s&p 500. time, anotherfth hundred points has gone off the s&p 500. mental fromakes the adding to a value that had last year of 37%. momentum, 100

points all the way through last year. we are battling in 2018 with some august tailwinds behind us. populism, tribalism, and anarchy are going to drop the markets. we did a survey out there in the market. the whisper number is that the s&p will rise 1% in 2018. the bloomberg news talking to the analysts reckon 7%, so there is a divorce between the reality of the whisper number versus 7% in the market versus 22% achieved last year. so it is all about whether you believe the tax deal is locked in at what else can go right with the gradualist in charge at the fed. juliette saly has the first word news. u.s. president donald

trump his former top strategist in a dramatic break from the man considered an architect of his populist campaign. in a statement, donald trump said and he was fired you not only lost his job, he lost his mind here that came in response to the publication of excerpts of the new book in which bennett criticizes the president and his family. a person familiar with the matter said bannon lost access to the resident that he had enjoyed since leaving the white house in august. in the u.s., the worst form of winter season has knocked out power to thousands of homes and business us and cancel thousand of life. it now threatens to bring more snow, ice, and cold from florida to norbert -- nova scotia. a blizzard warning has been issued for boston which make it 13 inches of snow. china plans to limit power used by some bitcoin miners in a potential challenge to an computer heavy

network -- the people's bank of china out load -- outlined the plan yesterday in a closed for meeting. theresa mayinister , twoves it's a bluff think officials privately he's taking a hard-line stance and rolled out a deal that would allow banks to continue operating freely across the block. i comes as the u.k. prepares to negotiate his post brexit ties with the european union. german chancellor angela merkel's block and its prospective coalition partner is at the chances of a successful conclusion to their exploratory talks have improved. comments came after meeting yesterday in berlin. merkel has said she wants export toward talks to be concluded by the middle of this month and formal negotiations to take place soon after that. in venice, these have stolen

precious jewels belonging to the qatari royal family. the collection is renowned traveling exhibition inspired jewelry and precious stones. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. stories on there .loomberg at top of course japan, the market there really showing us hey you come back and start a new year. the nikkei closing higher by 3.3%, playing catch-up his first trading day of the year as .iggest jump in over a year hong kong also looking good, a friend eight consecutive session. upgrading its growth to 6.7%.or china

it's all about the tech players, a lot of asian semiconductor stocks and stock in those counties have been rising significantly. fbi holdings in japan rising double since japan last traded on cymer 29. have a look at this stock, a cannabis supplier in austria, jumping by 30.8% after the of strain government allowed exports of medicinal marijuana following the news out of california. saly thank you, juliette in singapore. let's return to the topic of the fed. officials debated the risk to allu.s. economic outlook some were concerned about low inflation. others pointed to robust growth that is about to get further boost from tax cuts. most policymakers backing continued gradual rate hikes.

bloomberg's mike mckee has more. >> the biggest risk to the rising at aces faster pace as the economy picks up speed, abetted by tax cuts many fed officials expect the tax cut to write a small lifted consumer spending and a modest boost to capital spending. but given the failure of wages and prices to rally last year despite a strengthening job market, most of his goods reiterated continuing a gradual approach to raising the target range for the benchmark policy record with a pushed it up .25% and penciled in three more hikes for 2018. still, they continued to wrestle over the outlook for inflation, the minutes show, and generally agree the pace of rate hikes could be slower if inflation fails to move up toward their 2% target. the yield curve received some discussion at the december meeting. investors raise concerns on

nehring spread between long and short-term rates could affect the session. the fed officials generally agreed the current degree of flatness in the yield curve is not unusual by historical standards, the minutes say. michael mckee, bloomberg, new york. manus: you know the curve flattening has reached a whole new level in the federal reserve isn't talking about a christmas. gradualist approach is in charge. fed is not data dependent, the fed is indeed on a predetermined path. do you agree? kallum: no, rising profits, rising stock markets, confidence at the 90th percentile end up across all measures in the u.s. and will see strong diminished your, growth close to 3%, around 2.9.

the fed will probably go four times, and i think that's operably to slow relative to the global inflation cycle. anna: where are we on inflation? i have a chart around 10 year break evens in the u.s.. there are many other measures you can look at that suggest that inflation will be one of the conversations. one analyst this morning saying it's he underestimated risk for 2018. the fed seems that between those who wonder where inflation is right now and those who say inflation is coming and they point to what the fiscal stimulus could do in the u.s.. kallum: there's a good argument to be little badly behaved and overshoot if you want to get sustainably above 2%. there are two forces at play, positive supply-side forces which come from technology and division of labor. then there's to mystic forces that come from how much slack is in the labor market. those two things are moving in opposite direction.

the global disinflationary forces are still there. we will probably see inflation creep north of 2% this year for the first time. debate, we were in terms oft this, what we've got. the market currently prices in 70% probability of a high. the markets has 70% in march. have quite a divided fed. banks the also question of how fed members are thinking about his policy. economic, they have to wait and see what happens. and then move, so in a way with the trump stimulus, the risk are that the fed false behind the curve.

anna: what does it mean for stocks then? clearly this is something many people are talking about. andted 2018 in very firm -- as the way we left off 2017, around the s&p over in the united states, it only gave 1% .n 2018 a survey that bloomberg conducted showed an increase of 7%. what is your expectation for how long this rally continues? kallum: the markets seem to be in a sweet spot. -- economic agents are still cautious. demand is improving but there are no signs of excessive. meanwhile central banks are looking to take it very slowly with rate hikes. when investors can take risks and not worry so

much about the downside it would think it should be good your or stocks. manus: i picked a chart that talks about the u.s. manufacturing. the average pmi last year was the best in 13 years. data fromme of the yesterday. germany's jobless rate at a record low, 5.5%. there's a big movement to upgrade global growth. everyone talks about synchronized global growth. what would be your work for growth in 2018? we are above consensus in almost all major areas of the western world. close to 2% in the u k. what we are seeing is the age of caution coming to an end. manufacturing indices are up theire people are linking 10 call verizon. they are willing to take

long-lived risk. this is the part of the cycle when things get back to normal. extensions do not die of old age, the dive excesses. now we will probably see the first sign of excesses in the global cycle reflecting that. is a good that rates are going up in that environment? kallum: just basically looking at the bank rate, that's not what counts. it's the equilibrium interest rate goes up this year by more than the central bank interest rates, monetary policy could be getting easier, which fuels the cycle. anna: thank you very much. he'll stay with us this morning. coming up, japanese equities rally in the first trading day of 2018 and the boj governor says the economy shows steady growth. we'll discuss japan, next. pushes back ofa production target for its model three after shipping fewer cars

than expected. elon musk discusses those challenges. ♪

sydney, live shot of beautiful shot across the harbor at the opera house. the aussie dollar is up for three days in a row. nice numbers coming out, commodities rallying. this is what you should be watching for your day ahead. speak inresident will philadelphia. anna: an hour later, we get u.s. job data and will watch the nonfarm payroll number. juliette saly is in

singapore. how are you doing? juliette: very well. the world's biggest chipmakers are coming to grips with the weakness that leaves vast numbers of devices separable to hacking. google researchers discovered a feature present in almost all the billions of processors that run computers and phones that could give hackers access to sensitive data and his remedy could drag on device performance. intel shares fell on the news. tesla has pushed back of production target for its model three after shifting -- shipping fewer accidents and expected. they expect to make 5000 model three so week by the end of june , delaying plans to reach the milestone by another three months. elon musk company did not come close to achieving a earlier for christ -- forecast for the industry 17. tradingplans to begin on the new york stock exchange this quarter, passing up the

traditional public offering or what is called a direct listing. it will test whether directors -- with investors are ready to buy into the music industry which was dead just a few years ago. blackberry has jumped to the highest in almost four years on news of the deal to work with baidu on driverless cars. the chinese interest china will bundle an operating system into its autonomous car program which is a set of tools to assist driverless design. the partnership includes integrating established entertainment software into apollo. >> with that they should be complete in going after the auto industry. i assume the auto industry will go beyond just the auto and that you and i know of today.

i think it is a pretty good partnership. juliette: that is your bloomberg business flash. manus: asian shares have risen for the third day, japanese stocks leading the gains in the country's first-ever trading this year. tokyo, bojhile in governor said his country's economy showing steady growth and he expected to continue. the finance minister also attended the event and weighed in on the labor market and wages. , labor andy view wage conditions in japan have truly changed. the jobs to applicant ratio has risen to a historical high and now in every prefecture, the figure is above one. wage front, companies have waged basic salaries for years in a row. manus: the latest news on japan, they are back from holiday. got them both extolling

the virtues of the economy. the longest run of expansion since 2001. they are beginning to really reap the rewards. is that carry through in 2018 for you? kallum: yes. the central bank has transit wrote that about 1%. we think they will get about 1.5%. doggedly aim for 2% inflation. a good reason for that, the government is taken on lots of debt, private sector balance sheets are strengthening. with a little bit of luck if you get 2% inflation it will allow that to rebalance a little bit. anna: so you see no into qualitative easing and all that goes along with that? in means more partying like it is 1991 on japanese markets. in japan, unlike in the

western world, inflation expectations are not well anchored at 2%. the boj really need to get inflation expectations up to 2% if they're even going to consider moving any stimulus. a love bp saying it's too early for the bank of japan to exit. about all this chat about moving on to 0% targets? if you have the other central banks all raising rates are ,oving toward tighter policy having to move on 0% target on the you'll curve, do you disagree with that? an accommodative policy for -- when the others are near 5% with the bank rate. if conditions are so severe, one central bank can be the outlier. anna: i thought it was

that many people still consider to be achieved target, bringing more women into the labor force. do talk about it as if it is working already helping to address or address the aging population in japan by bringing in another source of labor. this is something they are succeeding at? the market always focuses on the boj, but there are some real improvements taking place largely unrelated to the central bank. higher participation of women in the labor market, that helps improve the division of labor, which helps boost productivity. inthe headline is weak, productivity and per capita terms. individual japanese citizens are doing right well. china, comingg to

in quite strongly, is there anything that unseats -- we spent 24 minutes talking and it's all bullish, all growth, all synchronized. china is the bulwark of all of that. does it reaffirmed the growth story in china? and will they manipulate the yuan at all this year? kallum: they will probably stay away from the exchange rate. yuan: does the stronger not threaten story in any way? if conditions improving china, you'd expect a stronger yuan overtime. my impression is that we will worry a lot about china in the coming years. we can see an economy here which is highly demand control. government that is doggedly pursuing its growth target of 6.5%.

we know him balances are building up. we probably will not see anything come to a head this year. in the are buying stuff u.s., it means that china is producing stuff. we wrong to look for a cyclical slowdown in china? it is that command and control economy that were looking at. kallum: i concern is you don't have the little cough that put you in bed for a day but then you wake up for work the next day feeling refreshed. eventually the day will come when there has to be a corrective recession in china. the longer you delay, my guess is the worst it will be. manus: what do we have next? the rose biggest military

companies are coming to grips with an intel chip flaw. but does it mean for intel's and others in the sector? this is bloomberg. ♪

anna: good morning, this is "bloomberg daybreak: europe." it's 2:30 and hong kong, 1:30 in the morning in new york. let's check in on the markets. >> the gains continue when it comes to asian equities. you are seeing the msci asia-pacific index higher by more than 1%. a lot of the gains have been driven by japan. japan close higher by more than 3%. in you have the shanghai

composite up by .2%. seeing some gains elsewhere but those are being driven by the topics in the nikkei is japan reopens after the holiday. let's take a look at the next thetopix heading for its best performance in over three months. overall asian stocks heading for a record lows. another of the session in asia. also not about session for the dollar. fairly steady, we had those five days of declines that were snapped in yesterday's session. this is an interesting chart because it points to two different views toward the dollar outlook. something real you'll support the greenback bulls where jim paulsen on the other hand or into the fact that inflation outlook gives the bear some ammunition. that's the ust in yellow there. it has gone 2% above the fed

target. finally, taken look at oil. $62 a barrel.e the dallas fed did a servile -- survey saying rinne sweet spot where the count might start coming back. manus: british prime minister theresa may believe ceu's chief brexit negotiator is bluffing when he says there will be no special deal for financial services, according to senior officials familiar with the matter. it would allow the banks continue operating freely across the block. callum pickering is still with us. good thoughts on the u.k. in the morning. we start 2018 the first stages of negotiate -- negotiating

2017. many voices suggesting harder negotiation lies ahead, and already we are here in this kind of story that the u.k. simply doesn't believe the hardline stance being taken. both likely to be adopting conditions that are not the end position here. kallum: timing would be within the first three months of the year. you de facto extend the u.k. ,embership in the single market and you come up with some targets before september, which is when the e.u. needs to begin thinking about ratifying any deal from post-brexit trade, almost for two years. think about trade as follows. figure out the uk's position on migration, then the e.u. will decide how big the scope can be or trade. new 27 will think about

what they can agree on first, which will be goods and trade. services can become a little trickier. my impression is the risk to financial services from leaving the e.u. are grossly exaggerated. anna: why do you say so? kallum: the inside the e.u. is not the common denominator for financial services center -- service centers. you're willing to have a big financial behemoth somewhere in your economy. that's why new york, london, hong kong, are all financial centers in favor, paris, and dublin are not. manus: that article this morning that the french are going to try to lend gravity terms of asset managers. let's look at the pound, yesterday we had a feisty

conversation with someone who live acid me, suggesting that sterling had found its feet. it comes in at number four. are we living on a prayer? some say we will get a translation -- transition do and we are underpricing the proclivity of the bank of england do another rate hike in 2018. is that really attainable this year? kallum: my impression is the u.s. will be a little stronger than we expect. i think sterling is undervalued. in markets we are all academics. no one is really happy about brexit,.

brexit has a hard fallen. the u.k. in the long run will grow a slower outside of the e.u.. its 2%, outside, 1.6% or 1.7%. the bank of england over the next couple of years will have to hike interest rates and overtime markets will start to price in the economic views over the political risk. anna: i was going to ask you about what the bank of england does their. there is a divide at the bank of england. on what will happen as the brexit negotiations continue. there are those who say inflation is going higher. talking about inflation, some comments suggest maybe the

inflation pick up his work its way out of the u.k. economy now. maybe we have seen the worst. kallum: what we need to look at is medium-term inflation which is the balance of demand and supply. weaker growth from the exit boat means less supply before inflation starts to pick up. growthsee is slow supply and underlying inflation pressure creeping up. my impression is the policy committee is split between those that think actually growth will remain stable and will get inflation picking up and others who think that demand will weaken in a year, which will bring inflation back down again on its own. thank you very much on your thoughts so far. you will stay with us on the program. manus: tesla has hit the brakes on the model for reproduction again and shipped fewer of

electric cars and was expected in the last order. 50, trailing just 15 estimates by about half. the company hopes to reach its target of 5000 cars a week by the end of the second quarter, having already pushed back the numbers two or three times. tesla shares fell 2% in after-hours training. tom, good to have you on the program. sales fall less than predicted? >> basically it is a cultural thing in america, where pickups and utility vehicles were extremely popular. because of the demand for those, plus there was a bit of replacement because of the

andicanes in the south wildfires in the west which destroyed cars. people had to replace their vehicles. that eased the decline. there still will be a decline continue into next year, as the after has been satisfied the recession from about a decade ago. basically we are seeing a cyclical easing of demand. tom, what we want to try and do here is, none most has set the agenda for the electric car. they can be beautiful, they can be stylish, but the reality is scalability is the challenge. what is happening at tesla? me at a global perspective. what does it mean for the electric car industry? is unique in that they

are developing their own technology. are alreadyers carmakers so they are a significant piece into a known structure. tesla is going with their own battery technology and they have to fit that into styles and models that don't exist anywhere else. if you look at what is going on with general motors, they are starting from a slower pace with electric cars because they are also recognizing that demand is still actually kind of week. when you have nissan and renault together who are currently the world's biggest electric carmaker, they missed their target by one third a couple of years ago. like the demand is not yet therefore electric cars.

tesla is taking an aggressive stance because they are a go it alone company. anna: thank you very much, tom. pulling together a few reds for us. and the numbers from tesla around production of the model three. let's talk about technology sector. manus: company has can earn that it's cheap -- the company has confirmed that its chips contain that technology. tim, good to see you this morning. i suppose what we want to do is put this into perspective. how serious a security breach is it? a few notes are saying this is perhaps one of the worst issues in the industry. it is a severe one.

sounds big and nasty. is it? nastydoes sound big and or the chip industry. remember most of the vulnerabilities tend to be in software, not hardware. his son often we would come across an issue where there is a vulnerability within the chip itself. thee devices measure into nanometers. the weight is used in terms of preempting what instructions would be required, that's where it comes down to the idea of by preempting the next action or process. that is really what it comes down to. it's a little bit of stuart and there are a lot of people world who would understand it or know how to find that exploit. it's been around for a decade

and is only coming forward now. ,t's kind of difficult to say it doesn't seem that you would be able to hack into or install some kind of malicious software on a computer as a result of this vulnerability of this exploit, but you could use it to access data that would otherwise be secret. such things as a password. get aattacker could password, who knows what would happen from their? see if it'slt to already been used or exported in the wall by various people. certainly the fact that it has been brought forward now is bad news for them. but asad news for intel, you said, difficult to say how it affects them versus their rivals. companies that stand to lose, who stands to gain from this?

you are talking about fear, uncertainty, and doubt. matterss that is what around who you can trust. >> i think there will be a lot of that around. one of the big winners could be china. they are catching up slowly. intel is an incredible company. this is a vulnerability, something that does not make them look good. this allows china to basically say we are not so far behind. if they wanted to, they could exploit that from a national security or patriotic point of view. the fourthve them momentum to try to push harder and develop their own chips and push forward to be more technology independent. thanks very much for your

thoughts this morning, good to have you on the program with the latest on that fascinating intel story. commodity starting 2018 in positive territory. we will discuss that next. manus: later, more on the fed minutes. what is the debate between inflation and rate hikes? this is bloomberg. ♪

anna: this is "bloomberg daybreak: europe." ins 1:48 in the morning over new york. s&p futures saying we can be a little firmer, touching new records on the major indexes in the united states and asia following suit the strong rally,

thanks to japan coming back to the fray for the new year. that's get to the bloomberg business flash with juliette saly juliette:. pushed backla has to production target for its model three again after shipping few of this offense and expected. the electric carmaker expects to model threes a week by the individual, delaying plans to reach the milestone by another three months. the company did not come close to achieving an earlier forecast that it would manufacture that many sedans a week but in of 2017. spotify plans to begin trading on the new york stock exchange passing up the traditional public offering for what is called a direct listing. record industry sales of increase for three years in a row thanks to the legions of consumers paying to listen on spotify an apple music. blackberry has jumped to a high

of four years. they will bundle a new operating system into it's all paulo -- apollo autonomous car design. the partnership includes integrating blackberries established in car entertainment software into apollo. that is your bloomberg business flash. let's talk about oil, and has extended its gain from its highs close in almost three years, currently trading just above the bestie to dollar a barrel level. data shows crude stockpiles continue to fall and opec production health study last month. that's being in tracy alloway joining us from dubai. this market really is on a tear. data, the spec positions. we are really on a big move. what does the latest data tell us?

>> we had a couple of catalysts come out overnight. even before then we did see the risk on environment provide an overall boost for oil prices. freshseen equities at records over the past day or so. then we have a general constructive environment for the global economic coverage can in ewing give that has provided an optimistic that ground for the oil price but specifically, all the credit is being attributed to opec and the production cut agreements, the extension of those agreements. we had comments over the past month or so where they really seem to double down on the compliance and the notion that they were going to try to get inventories back to the five-year long-term average. the consensus in the market right now seems to be that opec would rather overshoot its target than risk undershooting them. there are people who remember the oil slumps.

back then opec really overshot its targets. people think it will do the same thing this time around. anna: so what are the risk factors that we need to watch out for here? >> the same things as always, it has to be compliant from opec members and the response of u.s. shale. the concern is that as we get that recovery in oil prices, our members tempted to cheat on their quota? so far the data we are seeing has been positive on that. we saw the production numbers for opec in december showing they were holding steady. that means everyone is pretty much in compliance. slepttion in saudi arabia by 20,000 barrels a day. that is all good news. then there is the response of u.s. shale, the old opec bugbear.

this is still an open-ended question and it could get interesting. we had a survey from the dallas fed where did you 1% of respondents said they expect the rate count to begin i think. significantly, given that i've always maintained it has been a capital market story in a commodity market story, with the risk on environment we are seeing in markets and the loosening of u.s. financial conditions, there's the prospect -- if you look at the dallas fed survey, 70% of respondents from the oil market that they expect their capital in nature to either increase slightly or significantly over the next year. you can bet that opec will be watching what u.s. producers do very carefully. anna: thank you very much, tracy alloway, with the latest on the oil markets. let's turn our attention to the euro.

euro is likely to weaken significantly in the first order of 2018, sliding more than 8% from current levels. forecast, soowest it is noteworthy that some of it is a bit of an outlier. tomorrow we will get the euro area inflation data for december, which probably move further away from the target. on one side of the story we've got the currency. we are just dealing with the data. headline cpi is expected to drop. core cpi is still up 1%. factually all of that is incorrect. >> when you think about the euro , it's about two

years behind. .here is more slack to absorb prices do not go up. we are likely only to see the ecb decide to simply in its qe. , what ishat in mind happening in bond markets? shows all the various years in it. the white line pitching above the blue line, showing that we bunde the tick upwards in s. of course they are from very low levels. what is the path here? >> three factors to keep in mind.

you have to think about demand and supply for the bonds in self. so the positive factors more gdp growth. maybe 100 basis points over the next 18 months makes sense. bank of america down by more than .8%. is that overreaching? europe is probably going to move sideways this year. get ready for a little upside surprise is the european economy starts to do well. very high confidence across major arts of the eurozone. it could be a good year. next, was fed officials

backed continued gradual rate increases. we will break down the minutes. this is bloomberg. ♪ retail.

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manus: good morning from bloomberg's european headquarters. a this is blame -- bloomberg daybreak europe. japanese equities lead the gains on the first day of trading in 2018. confirms some of its products are vulnerable to hacking but it is not the only company affected. manus: the electric carmaker delays its target again after missing estimates in the fourth quarter.

it is daybreak europe. it is 7:00 a.m. and stocks are ramping up for another rise this morning. globally, equity markets are hitting new records. all three markets in the u.s. managed to do that yesterday. another 100 points for the fifth time. all of by a similar amount and above 2700. months --ouple of keep an eye on the u.k. equities because we have a note out from ing talking about $1.50 to come through in the end of this year. are shaking off the blues and we are going to go bid. the corporate stories will be intel. it does not seem to have impact. we will check out how the tech area goes at the open. they have a range of chips which

are vulnerable to a hack but they do not have a bug. you have the risk radar. anna: you mentioned the strength we saw on u.s. equity markets on the session on wall street. it was callan -- picked up in the asian equity session and we have the equity markets back for -- first time in 20's 18 2018. the nikkei 225 up my three. -- by three. chinese stocks doing well. we saw strength coming in and .he services pmi data for u.s. goes to the morning. number ofg you the the day after we have the head minutes. any explicitt guidance. maybe there will be a it of a gap to bridge there. the nymex price is at 62 point

10. this is round the 52 barrels a -- dollars a barrel mark. 42 percent in the oil and gas industry in their region. $62 to $65 is where you will see a substantial increase in the recount so watch out for that. manus: that is when the players will come back then -- in. the market story is the dock that is wagging the tale of the bond market. the fed minutes were gradualist by anyone's estimation. spread, thee to 68%.ity went you are seeing a little bit of a repricing but there was a pretty big options trade that went through late in the evening. it emerged in terms of

protecting yourself on the upside in terms of price, dropping you below 2.3. a big options trade went through. flatteningeasury move. yearsropean market is two behind that of the u.s.. could be- europe overly aggressive about the stepping back from the european central bank. that is something to tinker around with. equities are up, bouncer down. o.a.t.'s down by 10 pips. those are your markets. juliette saly has your first word news. juliette: u.s. president donald denounced his former top strategist in a dramatic rake from the man considered an architect of his populist campaign. and a statement trump said "when he was fired he not only lost his job, he lost his mind."

whereponse to a book annan criticizes him and his family. -- bannon criticizes him and his family. in the u.s. the worst storm of the winter season has been knocked out -- knocking out power to homes and businesses and canceled thousands of flights. it threatens to bring more snow, ice, and cold. the national weather service has warned that new york could get eight inches of snow today. a blizzard warning has been issued for boston which may get 13 inches of snow. china plans to limit power used by some bitcoin miners in a potential challenge to an industry whose energy intensive computer network enabled transactions in the cryptocurrency. familiar,to people the people's bank of china outlined the plank at a closed-door meeting. they did not detail how authorities plan to match the curve. -- believesmeans

michel barnier eight is buffing when he said there is no deal for financial services. two senior officials have think the chief brexit negotiator is faking a hard-line stance and drawing out a deal that will allow banks to continue operating freely across the globe. tot comes as the u.k. plans negotiate its post-brexit ties with the european union. merkelchancellor angela and the coalition parker had said the chances of successful conclusions to their talks have improve. she wants export tory talks to be included by the middle of this month and formal negotiations to take place after that. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . share markets showing us how you start a new year. the nikkei coming back online with a gain of 3.3%. the best gain in over a year.

the best start to a trading year since 1996. also good gains in late trade led by the likes of tencent. of 1%. 300 closed by .4 jpmorgan upgrading its forecast for china growth from 6.5 to 6.7%. in terms of stocks we have been watching, it has been a lot about these tech players. nintendo rising by 5% on reports bet pokemon go could launched in mainland china. holdings dropping in japan. it has a stake in ripple. since we saw japan come online the cost is more than doubled. this is a cannabis supplier in sharply, a lotg of these cannabis supplier's did as we saw australia open up exports of additional marijuana. -- medicinal marijuana. anna: breaking news to mop up from the top of last hour concerning their retail sector.

numbers are stronger and that sent the sector higher. deb and hymns was below views. they said the first week of post-christmas sales was a low market use so warning coming through. interesting given what we heard and given the strong reaction to the market. and talkve u.k. retail about what is going on in the u.s. officials debated the risk to the economic outlook while some were concerned about low inflation. others pointed to robust growth that was about to get a further boost from tax cuts. the fed minutes show most policymakers backing continued gradual rate hikes. mike mckee has more. was top of mind at the december meeting. the biggest risk prices rising at a faster pace as the economy picks up speed. abetted by tax cuts. many officials say they expect

the tax cuts to provide a small lift to consumer spending and a modest boost to capital spending. given the failure of wages and prices to rally last year despite a strengthening job market, most participants reiterated support for continuing a gradual approach to raising the target range for their inch mark policy rates. court of up .25 of a percentage -- of a percentage point. they continued to wrestle over the outlook for inflation and agreed the pace of rate hikes could be slower if inflation fails to move up towards their 2% target. the yield curve received some discussion at the december meeting. investors raised concerns the narrowing spread between short and long-term rates could portend a recession. fed officials agreed the current degree of flatness of the yield curve is not unusual by historical standards, the minutes said.

joining us now is gregg stevens. year, welcome to the show. the gradualist's are in charge. we want to bring it straight to markets. the fifth time in less than 12 months. when you read and digest the the commentary, yesterday evening, are you convinced it is three hikes and a slow grind higher? the u.s. equity story has received a boost because of the [indiscernible] growth is robust on an underlying basis but tax reform and something to u.s. equity markets. less from a gdp perspective but from a market perspective the

boost could be as much as 10%. the tax package has been long --cussed but we do things think the u.s. would be the most in the region. it is interesting when you consider what the fed was debating. some talk about how their could be fewer rates -- rate hikes in 2018. how would it -- inflation be impacted by the tax package? -- it willation is -- shape policy. we think the market is underpricing inflation. we see three or four rate hikes in the u.s. in 2018. for thehe move up expectations in march but we do think the market needs to catch up with the fed. manus: we need to play a little

bit of catch-up. what is driving this rally? technology to a certain extent. consumer discretionary stocks, confidence is rising higher. is that where i want to take my exposure per taps -- perhaps in technology and remain confident that these elements will be the drivers of 2018? grace: we are supportive of technology as a factor. it is still a sector we would own in 2018. i would not expect the leadership of the differential to be as it was last year. we think you're going to see more of a rotation. manus: we spent time talking about the rotation and more into other areas. that does continue. be owningwouldsee

financials and other cigna coal -- cyclical sectors. we expect that to go into 2018. companiesdo oil perform? we have talked about their prices going up and there was a server that talked about 62 through 65. is your expectation for that sector dealing with opec on the one hand, shale drillers on and this was the story in 2017. grace: we see oil around 55 to six -- 56 barrels -- 56 dollars a barrel. that is dropping back from where we are. grace: it is a neutral rated

sector for us and having been one that we were more constructive on in the past. anna: thank you. one of the biggest computer companies confirms its chips are vulnerable to hacking but who stands to gain if intel works to fix the flaws? this is bloomberg. ♪

manus: it has gone 8:18 a.m., brandenburg eight. the question is how long will that story last? we have a number of stories out this morning on the euro. one of the outliers is the euro will drop to around 110. that is bank of america at merrill lynch but that has got to be said is one of the egg outlier calls and it has gone too far too fast.

that is the adage in the market. 120.32. -- one point 20. 50s is the u.s. stoxx futures. we will be adding a little higher up by .3 of 1% is what the futures tell us at the moment. bond yields in germany, 0.46. we talked about were this good head as we saw the two-year bond yields creep above the level at the end of 2017. how that will go fire -- higher. we will be a little firmer at the start of trade. let's get a bloomberg business flash. has pushed back a production target for its model three again after shipping fewer of the cars than expected.

they expect to make 5000 model threes by june. elon musk's company did not come close to achieving of forecast that it would manufacture that ofy sedans a week by the end 2017. spotify is trading on the new york stock exchange passing up the public offering for what is called a direct listing. the debut will test whether investors are ready to buy into the music industry which was less best left for dead a few years ago. industry sales have increased thanks to the legions of consumers paying to listen on spotify and apple music. jumped to the highest in almost four years on news of a deal to work with baidu on driverless cars. system buy the operating and put it into it driverless car system, a set of tools that will assist driverless design.

>> with that, they should be complete, going after the car industry and i assume that the auto industry will go beyond the auto then you and i know of today. we will provide maps and digital information. i think this is a pretty good partnership. juliette: that is your bloomberg business flash. manus: thank you. a flaw in its processing chips could make the operating systems vulnerable to hacking. it confirmed the chips contained such of beecher but said other semiconductors are susceptible and disputed its products contain a bug. is this a serious security risk, how seriously with anyone -- should anyone with chips and their hardware be taking this?

leave --one should be losing sleep. it is obscure and you have to have incredible knowledge of semiconductors, the way they work and the way they interface with the operating system to and toe vulnerability exploit it. it may have been around for as long as a decade. the fact that it is just now that it has come to live -- light indicates it is that obscure. that is not to say that there are not actors who have not -- who have known about it and exploited it. it is not the kind of exploit that would allow you to install malicious software on a computer which tends to be one of the largest vulnerabilities in computer systems. it could allow an actor, and outside hacker to access otherwise private information, private data such as a password that would have gone through the memory system in a computer to be processed by the processor.

no one wants their password leaked so that would be where the vulnerability lies. manus: for every winner there is a loser. they said there is near zero risk to processors because there in theirrences structure. who wins? tim: amd are playing that line. there does seem to be indications that some of the vulnerabilities are -- that are outlined in the intel flaw may persist or exist in amd chips and some of those this -- based on armed chips. they may be exposed to it. amd hases not seem that as many troubles because it is more than one flaw or ask -- or risk. i see that china have written a column saying that china could

be a winner out of this because they are trying hard to develop of fear andis kind uncertainty and doubts surrounding western chip technology helps elevate their position. within the country of not globally and they are trying desperately to get that business have spent a lot of money on it to try and catch up with the west. they have not done so so far. it may happen soon. any weakness even if it is a perceived weakness in intel would be good for china from a publicity point of view and nationalistic or patriotic anna: point of you as well. thank you very much. there. us let's switch our attention to things closer to home and the bigger picture around european equities. our guest is still with us. in terms of the equity space you think we are early in the economic cycle.

how early? grace: europe has not grown in four to seven years and you look at the tricky macroeconomic climate and earnings until this time last year had been flatlining. that is what we mean by early in its cycle. when you look at the catch of potential especially against the u.s., it is quite significant. the u.s. has technology which we discussed earlier which europe does not but we have a lot of financial which do well. if you see a modest reflationary environment as we expect to see in 2018. we think the european story can continue. it is not about the operating leverage that you see. it is financial leverage. when you look at european corporate's, they have not geared up in the cycle. it is one time in europe versus two times in the u.s. and a lot

have usedpacity they for share buybacks which does enhance earnings. that is an opportunity europe also has. manus: the base case is that [indiscernible] is under leveraged. are we there yet? are we at that confidence level to re-gear? grace: corporate confidence is higher. you look at the data coming out of europe, the pmi's and consumer confidence is high. we do see -- advocate re-gearing of corporate's and europe. still to modest and sensible levels but that can make a meaningful diffident -- difference. -- where do you go, small caps, m&a? than: 2017 was still lower 2016 and from it and amid a --

an m&a perspective. broade talked about synchronized strong growth. it is ultimately quite tricky to find reasonable topline growth and small caps is an area that we think benefits from m&a. manus: what is your wildcard call? everybody, you look at fund manager surveys, everyone is cautious. the story is well documented and well a -- articulate it. the u.k. would be my wildcard call. anna: thank you. manus: there is an opportunity. thank you for being with us. set for a higher opening. grace is off to global radio. anna: bloomberg markets, the

european open is next. will be stronger at the start of trade. this is bloomberg. ♪

guy: welcome to bloomberg markets. this is the european open. i am guy johnson at our new london headquarters. cash trade less than 30 minutes away. ♪ japan jumps, asian stocks push toward new record highs and global equities surge with the s&p clearing 2700. the chips are down. intel or microsoft get to grips with the gap that could affect billions of devices. which other companies could be