guy: from bloomberg's new european headquarters, i'm anna edwards. manus: i'm manus cranny. these are your top stories. anna: new year, new highs. asia stocks heads for their best we since july. apples,pple says max, and ipads are affected by chip flaws. anna: what does this year old for the labor market? ♪ here in- anna: 6:00

london, this is daybreak europe. animal spirits seems to be present. that seems to be the story of 2018 so far. asity markets are doing well we said in our headlines, the dow hitting a new record, many indices hitting a new record. msci asia picking up where they left off. data fromd robust various locations, whether it's the u.s., china, or europe. all of that underpinning the strength we are seeing in these risk assets at the moment. we have the dow jones futures in their. -- in there. despite the snow perhaps. the jobs data it will be crucial, the two numbers we are watching, not a great start for the year for the dollar.

prices put in the nymex to show they were pretty stable after what we have seen via record run of gains in commodity markets. around that $62 a barrel. animal spirit in these markets, certainly a theme. manus: a couple of big things. rises.asking for 3% wage , the relationship is broken. we'll talk more about that between inflation and the job market, but the animal spirits you refer to is the dow market. the pace, the velocity of the market. this is the global risk on, risk off. it is the risk sentiment rising to the highest level since 2015 and the quid pro quo is that you have the dow above 25,000.

it's the pace of those moves. it has 18 components, six of them are equity, two of them are currency, two of them are commodity. the question is this, are you in a melt up situation? what possibly could go wrong? becausee phrase melt up the co-founder says there is inevitably a crash. you can't --anna: let's see if we can get animal spirits. jim akaka and come up printable global investors ceo, note dancing required, he will be asked about where we are in the cycle. we'll get into those conversations and get his thoughts on the job market. let's get bloomberg first word news with juliette saly. juliette: in the u.s.,

dysfunction, backstabbing, and chaos in donald trump's administration is to be published ahead of schedule. triggered aion rupture between the president and his former chief strategist, steve and. the white house -- steve bannon. the white house contest issues raised in the book. >> it's disgraceful and a laughable. if he was unfit, he probably wouldn't be sitting there and unseated the most qualified group of republicans the party has a scene. -- the strong and good party has ever seen. he is a strong and good leader. holding: north korea is talks ahead of reducing tension. south korea says the agenda will include north korea's offer to send a delegation to the game.

the breakthrough came after south korea and the u.s. agreed to suspend plans to joint military drills during the games next month. argentina has sold $9 million of debt and tapping the international debt market ahead of developing economies. of 5, 10, and 30 years. 6.95% respectively. it was led by citigroup, deutsche bank, and hsbc. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. you can find it more stories on the bloomberg at top . checking in on asian markets, on the final trading day of the shortened week in the first week of 2018, we are asking the interdict it -- the index for the best weekend. hong kong has been fluctuating, so it may not make it nine wins in the row.

in terms of stocks we have been watching in the region, the be rising sharply in hong kong. there are reports they could be increasing some of the prices of its products by as much as 5% very -- 5%. this is a blockchain in china that has been doing quite well. this is a cellular company in india doing very well on the fact that sale is a has raised the stock to above -- to a 10 month high and the expectations that a merger could happen earlier than expected. anna? anna: thank you very much. juliette saly for us in singapore. later, we look at the jobs report for december. according to a median report, the economy probably added 190 thousand workers last month. a separate survey showed the on employment rate likely state at 4.1%. let's get the thoughts on the

subject with the ceo of pretzel global investors. -- principal global investors. great to have you with us. guest: great to be here. anna: let's start on the subject of jobs. i want to ask you about the jobs injured in the united states and where we are in the story. i have a chart here. discretions whether we are midcycle or light cycle in the jobs story. putting aside markets, where do you see the economy in the u.s.? guest: we are fairly late cycle. i don't think we are facing up to the extra session and the downturn in the market, however. i would take some comfort in the fact that individual investors are not fully in. they have not filled in their boots in yet, but the rating of equities in the u.s. remains in

the range, maybe high in the range, but in the range, or tee times earnings or so, a little bit higher perhaps or so. to me, with a basically healthy outlook for the next year or two, the equities remain setbacks. buying setbacks continues to be where i would -- anna: we will pick up on that later. manus: in terms of great debate, we get wages data as well. we are looking at plus .3% 30 this is the debate we have had. whether it it is on snooze. bullard said that relationship is quite -- is questionable. do think phillips curve is on snooze what you think wage inflation will come through in 2018? guest: the thing that has delayed wage inflation and disoriented the phillips curve is the pace of technology and innovation in the economy.

there is a lot of deflation around and not all of it is captured by inflation numbers. you have massive outlet substitution from the move from department stores to e-commerce. stuff is cheaper that way. but the inflation numbers don't record it. that's an example of very widespread phenomenon, that we have deflation in the economy. i would argue that wages will go up, unemployment is low, that it won't go up enough to put pressure on consumer prices. you could be in a benign environment until the work gets to 2.5 percent wage increases and maybe there is almost nothing in terms of consumer price inflation. anna: where does that leave the fed your assessment? if we got low rage environments, how many hikes daisy next year? --do ucf gear -- this year

how many hikes do you see next year? guest: i think opinion is divided between three and four increases this year of it i think it will probably -- this year. i think it will only be to. -- be two. i think the deflationary impact of technology will continue to surprise people on the downside as regards to consumer price inflation, as regards to the demand for funds and interest rates. technology makes capital utilization more efficient. that means you have a structural excess of the savings over capital investment in the world. that is important and that means it's hard to find higher return opportunities with money. that means wage and money will keep rates down. those things will continue to surprise people who are plainly applying the phillips curve. manus: if you take what you have just said, we have had every

church under the sun -- anna: some people say who cares? manus: have a look at this. i have taken the dollar position , we are talking about risks for 2018. i find this article quite interesting. dollar is on a roll. here we are, the market is so short the dollar, but it could be the upset. if the dollar were to rally, given you only think the fed will do to hikes, this could be a market upset. guest: it would. manus: you think this position is a bit too small? guest: i think it probably is. the commentary around tax reform was this was not necessarily good for china, southeast asia, because dollar funding would

tend to go to the united states for a higher return area -- higher return. even tax reform will tend to , or an a demand of funds inclination of funds to go back puts pressurehich on american markets. i have misjudged commodities of it in the last few months. they have been stronger than i expected, but the fundamental supply it remains strong. it is technology driven. anna: it will be interesting the united states versus the rest of the world and indy the fed policy. we will talk about that more -- and indeed, the fed policy. we will talk about that more in a moment. we have seen president trump very active on twitter this year on the subject of iran, pakistan, defending his own reputation. in terms of geopolitical risk, other areas you think market is

underpricing risk? guest: i think it is definitely heightened. i don't think the equity market is underpricing it because i do think the market is not as high as it might be if it was purely looking at the fun of the background. i think the heightened jew political risk, obviously -- geopolitical risk, obviously the korean peninsula, runs the risk of destabilizing important parts of the world. you have european politics. the french collection make everyone think european politics are quite benign, but they might not be. the opposition parties are quite anti-eu in italy. this could come out in different ways. there are negative risks that could unhinge parts of the world market. none of the ones i said are merely u.s. based, but there are things that could slow down this

benign outlook. manus: a lot of the risk we identify as being heightened risk did not come to fruition. fulld not pull out of the trade agreement. i want to get your closing view in terms of market. we were so bullish on the dollar. have a look at this. this is from gml. he says, the market is going up faster and faster and there is no way commercially that i can play against it, so i have to keep dancing. he says, at least i don't dance off the cliff. he's channeling the 1990's. what could unseat the u.s. equity run? guest: the things that could unseat it are negative tell risks. even a policy mistake by the u.s. government. manus: what would be a policy mistake? on a: having a cold

confrontation internationally. so far, president trump and his administration has talked tough and acted very thoughtfully, but that isn't a given. you can see that military hostilities, trade hostilities, you mentioned the nafta situation, those could cause a lot of trouble in the world markets. the thing that i think all editions underestimate -- politicians underestimate is how linked these economies are. that stuffhis thing gets made and it is shipped somewhere else. it's not like that anymore. there is a global supply chain. whether car industry or appliances or anything else. if that supply chain gets disrupted by a bad brexit or bad nafta exit, that would be bad news for the rope economy. i think the interconnectedness

is something to look out for and is something that is underestimated by politicians. anna: that is fascinating. thank you very much. the ceo of principle global investors stays with us. this person who joins us for an exclusive interview. he has been setting tax reform signed into law by trump is one of the good things and risk of earning that yield curve. anna: we will also be speaking to kerry cohen at 2:30 p.m. u.k. time. up, asia stocks are on the brink of their best week in six months. we discuss this next. manus: and the german grand coalition loses support. the public becomes increasingly weary of angela merkel's plans to extend their alliance with the democrats. this is bloomberg. ♪

♪ on 6:19 a.m.,st still in the midst of winter. days. for two it seems to be slightly more en vogue trading. ing yesterday putting out one of the more bullish calls i have seen. the bank of england perhaps is being underpriced that is one of the outliers. maybe not. we will see how the day goes. there's a business flash to be had. let's get to juliette saly. ceoette: over performing plans to sell his stake in the right having -- right hailing company. kallick.bank and

he has never sold any shares in the company he cofounded. apple said all mac computers and i was devices like iphones and ipads are affected by chip security flaws. recent software updates mitigate one of the vulnerabilities known as meltdown. the apple watch, which is a derivative, is not affected. hna groups walked away from negotiations to buy a stake in valley partners. to funded out of talks it from its founders. the move is said to come after a final agreement was expected to be signed. that is your bloomberg business flash. anna: thank you very much. cusp ofcks are on the their best week in six months. investors have been piling into equities and made robust

economic data from europe to china. manus: jim is with us. let's talk about japan. .t's been a great run abenomics has been vindicated, this fungus growth since 2001, but the starting line you say is that japan is a balance. you have quantitative easing, but you would advocate that we need a fiscal arrow going into this year. make itf we were to more sustainable, they need to ease fiscal policy. rise in of the whole japan and recovery in japan has been the boj. they're quantitative easing has been the best in the world and all the issuance, even buying equities, this has been extreme quantitative easing and its had to be because it is tight fiscal

policy. there is a big overhang of government debt, which is why there is political reluctance to fiscal easing. the imbalance will make the recovery in japan a little more short-lived than it needs to be. anna: you talk about the equity markets done well after the qe. i have this chart. this is the upbeat start we have seen from the japanese equity markets. you said something interesting. they need fiscal stimulus if monetary stimulus is going to be dialed back. do think that's happening? do think japanese is going to follow out of quantitative easing? guest: one of the reasons they like to do quantitative easing is that they need the yen to be fairly weak. they don't want a strong yen because japan, although it's less sensitive, it's still an export oriented economy.

they have many fine companies. but if they get into a year of overvaluation, businesses will have problems. that will keep them on the qe track for a while. fiscal expansion would do the same thing and could be a sustainable way to run the economy. are a sales tax hikes very negative impact. we are talking about policy. this is the money supply in japan. 0% on the bond market. money supply has fallen in real terms versus a year ago. don't fight the bank of japan. they are able to keep 0% target in check. where are you on the debate in terms of all ships rise in ecb's in a new era? the fed is in a new era and the boe is in a new era and quid pro quo, the bank of japan will have no choice but to move to keep pace. guest: that depends on how

quickly the ecb moves. europe is looking quite good. we have seen all the numbers in the last six months or so. it has been surprising many people on the upside. confidence is good. how sustainable is that with the continued issues of politics and of the financial sector in europe? my guess is that taking all that into account, you are actually in a more for carious estate in japan and europe than in the u.s. because of policy unbalance unbalance, and i felt for a little while we are getting into cell and strength territory in european and japanese industries. maybe not in an aggressive sense, but don't push it too far. anna: some people say that's because investors are enticed by

global growth opportunities, risk appetites. other parts of the world pick up returns. you are telling something different, that you are saying it doesn't it in the rest of the world. guest: that's right. the policy mix after the global financial crisis, which is all must 10 years ago, the policy mix works very well. you have fiscal and monetary expansion at the same time, you had some quite aggressive moves on the regulatory in government front to recapitalize the banking system. policy mix has led to more sustainability in u.s. recovery than was the case in less balanced polisario territories, -- policy territories, most notably japan. anna: he stays with us. have next, mifid ii has landed the biggest regulation change in

decades. any teasing problems, what could like ahead for regulators? what we are learning in the first week of implantation. we will talk about method and general politics. this is bloomberg. ♪

♪ here's a shot of the emperors palace in tokyo, 3:30 in the afternoon. the nikkei is charging ahead. jim has said this is one of those rallies. you don't want to push too hard on it. you might want to consider pushing against this slender rally in japan, relative to the nuts states of america. 23,714.ei trades markets are moving, records are being made. guy johnson has the latest. jones,,000 on the dow matt miller is back at work today. i assume he's brought 25,000

jackets to work today. we will wait and see, looking forward to that. it's interesting to see what's going on in these markets. the question is, you look at the almanac. it's a question a lot of people are going to be looking at. the numbers are compelling. micex is trading up as oil to use to rise 2%. the oil market continuing to rise. yesterday, the dax had a strong session. the equity markets of their are very strong. the omx and the s&p 500 pushing above that 27 level and continuing beyond it. riskally is definitely on off, risk on. it's a very much risk on at the moment. .3%,ese yen fading, down the aussie dollar also down .2%. gold is trading up.

-- back into the start, copper trading down .2%. oil is reasonably flat. we have data yesterday, payroll is coming up later on. interesting to break them down. just a quick look at what is happening in terms of fair value, ftse is trading at a slight decline at the get-go of trade later on. back to you. anna: guy, thank you very much. angela merkel's plans to extend her alliance with the social democrats is facing public skepticism is the chancellor begins talks with the rival party. back theggests 45% grand coalition, 53% favor her serving another term. for more, matt miller joins us from berlin. good morning.

what does the latest tolling mean for merkel because there seems to be preference for her serving another term but not necessarily in the combination being discussed at the moment. consider that to the broader poll covered everyone who may have voted for the extreme right, the afd party or the extreme left. ,f you take out those people for example, say 20%, and also some people who would have only voted for the s&p and the green, it not so bad. you still have half of the remaining people saying the grand coalition is either good or very good. those are the two choices we are talking about. still the rest, less than half, would have preferred something else. the interesting thing is that the preference, at least out of these people polled, would be for new elections it rather than

a minority government from angela merkel. it doesn't seem many people change their opinions yet. at this point, it doesn't look like new elections would change much at all. manus: certainly when you read these stats, the one thing that jumps out is 67% say her best days are over. it's reminiscent of the thatcher era in this country where it took time to build up resentment who perhaps at stayed there welcome. she is still very much of the leader of europe. that's still help she's perceived. is she holding her strength in the country? matt: i think you hit the nail on the head to some extent. one of the main things that changes the election is that she is no longer seen as infallible. she had this air of somebody who couldn't lose and although she couldn't lose the election, the failure to put together the jamaica coalition has really

stuck with her. lostse of that, she has some of that gravitas that she had coming into the election. one of the other things that has changed drastically is the population of -- popularity of martin schulz. although he was on a downtrend into the election, it has gotten worse. the most popular politician that wasaw out of the arg poll sigmar gabriel, who was formerly stp who wasthe replaced by martin schulz. that is an interesting message. germans don't seem to like this leader. he didn't do the job they expected in the election and he has gotten less popular and spend. anna: matt miller over in berlin. more from matt later in the program.

jim, we touched on europe little bit in our conversation. let's dwell on this a little further here. the failure to put together the jamaica coalition, she is a ened chancellor. key, ofan rolling your course. guest: she has definitely weakened compared to where she was, but matt makes interesting points about other all editions. nobody is -- other politicians. nobody is emerging as a successor. that's the main reason angela merkel will stay chancellor with some sort of, whether it is minority government or another election. another election would be quite unpopular. they don't really want one but most likely, for the rest of this year, we will see chancellor merkel continue.

that isn't dad for the markets and the economy. you don't need a strong government in a consensus driven country like germany to see the markets move forward. , probably more positive on germany than other countries. manus: we get inflation data today. we had soft data in terms of pmi's. at this.ok this is the inflation story. we are still a long way off the bat. we are talking about .9% on the cpi. the energy component drops out versus 2016. quite a spike from energy. this will drop back a little bit and the sticky back to a conversation you told me about, europe and the european central bank. they are still doing qe. there has been a few comments about maybe the longevity of the qe, but what do you make of the inflation story here in europe?

is this when we see a reassertion of inflation? guest: probably not yet and i think -- it's not like the u.s. story, were on employment is 4%, although it a low labor participation rate, which is the real debate in the u.s. in europe, there is no question. on opponent remains quite high and that will mean upward pressure on wages gets delayed, quite apart from the impact of technological change. so i don't see this as the year went inflation emerges in europe. in any case, i think you will see inflation in the u.s. for you see it in europe. i don't believe that's where it's going. hase is a problem the ecb in that they have got all kinds of different fiscal policies, different countries they are running monetary policies for. there is not a consistent way you can see them escaped qe.

the fed tapered easily to the u.s. economy looked like it had some sort of escape velocity. i don't see that yet in europe and that's my concern. anna: when the ecb looks at timing around moving away from qe, they don't want to talk about politics, but politics for 2017 was the big concern for many people. maybe the risks were overestimated, but is that going to be the case this year? you mentioned italy, does that hold more significance the markets are giving it right now? guest: it could and when you are hearing the italian opposition leaders, you are going into an election with a sickly for parties with roughly equal shares of the polls. give or take. are prettyo of those wild in terms of their negativity about the status quo. there are possible out comes that are destabilizing.

it may turn out to be friends again. it may be business friendly, but it is highly uncertain and that is a big problem. the overall point about italy is it is the only undeveloped country where on average, people are less well off than they were 20 years ago. that has led to a sour attitude toward politicians. anna: asset allocation around europe? guest: i would argue you look at europe company by company and i wouldn't want a big beta view on italy, but having said that, there are a lot of good companies in european markets. manus: you want to look for specific names whether they are good exposure to markets in china. let's go back to the ecb and talk about the risks in the bond market because they are absolutely inextricably linked. if the ecb is going to have a , the oneime to adjust

thing they want to avoid is a central mark two. they want to avoid a ratcheting higher than bundle yields. how do they do that? how do they manage that because we done our whole and we look at the analysts estimates and they reckon bunds at a .85% by the end of the year. the first rate hike will be at the first half of 2019. is that a big risk in terms of smoothing the road to exiting qe? guest: i don't think so. i think the road to exiting qe is further out than many people think. manus: so we will get an extension? guest: thing that will keep at it. 85 basis points -- manus: that was at german ten-year. uest: that sounds a wee bit high to me. manus: correction, at the end of bond buying. the consensus is .85%. guest: but they getting give a

date? manus: no. guest: i think that could be well into 2019 before you get there. anna: can i pick your brain on something else topical this week? everybody working out whether mifid will affect markets on the value, how is it affecting your ability to trade efficiently? and supplementary to that, is it going to be a success in driving down costs? guest: on the first part, the last two days have been talking to our people in the markets. volumes are low, but the reporting systems are working. that's basically the message i'm getting. we are sending lots of data into the regulators just like we are meant to. ist we don't know is what going to come back and we don't know how they will use it. but they will get used to it. with volume flow, it is really next week it starts in earnest, when volumes i would expect pick

up to more normal levels. the interesting thing to me on mifid, and we operate globally, we have clients in 80 countries or something, the demand we are seeing, the interest we are fid-style mi trespassing around the world is high. mifid next two years, the approach to paying for research, will become quite normal around the world. i think it will turn out, if the research regulation continues the way it is, to be quite a benign set of regulations that will change capital markets. anna: even in the u.s.? guest: yes. we have had larger u.s. customers saying we are investing hundreds of millions with you, can you give us mifid-style transparency? that's an interesting question

to get by somebody not covered by it. manus: there is the wonderful word of alignment. many within regulation do. we can't let you off the set without talking to you about bitcoin. we have managed to move on and talk about blockchain and whether that works. deals withs do commodities. the technology behind what bitcoin can do from a market perspective. i'm going to be trashy. consists he -- consensus is around $50 billion. what are you saying in meetings about it? guest: blockchain is really important. manus: we've moved on. guest: you are right to move on. on bitcoin itself, there is no fundamental way of valuing bitcoin. it can go to zero, it can go to 100 times its current value.

what is the grounding to stop it? there is no fundamental economic grounding. one way is if it becomes a means of exchange. then he was a fun a mental economic value that could be due in a direction, but it hasn't happened. it looks to be retreating from that because the cost of doing andsactions has gone up more bitcoin is being tied up in funds as a speculative vehicle. it's become the new gold, rather than the new currency. for our clients, we are investing for people's retirement. we want to invest in things that have a fundamental value. clear whener people's retirements are involved. manus: always great to get your perspective. ceo of principle global investors and jim continues -- we created productivity in this company. he's off to global radio next.

anna: if you are a bloomberg customer, you can watch us on tv on the bloomberg as well as getting video. you can follow along with the charts and functions and enjoy the conversation by clicking on the asked the guests a question button. mifid ii is the biggest regulation change in a decade and came into effect this week. nejra cehic spoke to the chairman of authority and asked him how much time he will allow for teasing problems with the new rules. >> it is important to realize that by far the largest heart of mifid ii will be supervised at a national level that is a task of the national supervisors, obviously the supervisory practices at a national level are discussing the board of esm a, where all regulators around the table and if there is any

concern about on level playing fields or across sectors of the financial markets or between national markets over the eu, typically these issues come up in our table and we take it forward and see if any measures are needed. nejra: on brexit and the fund management industry and the issue of delegation, eu funds delegate management to london, esma has called that structure into function. our portfolio managers want to have to move the eu on the map? >> i think it's important to emphasize that what we have said on delegation regarding the fund industry calling into question in any way the delegation model, but what we have said is that ton you delegate, it needs meet the regulatory requirements

and these revelatory and supervisory requirements are there to make sure the entity that is located in the future of eu 27 is delegating activity outside the eu 27, for example, in regards to london, that this is down on an appropriate basis and there is sufficient substance and the eu 27 where the fund is registered, that there is a super puzzle entity and and the entity in eu 27 is where management decisions are taking place. manus: that was nejra cehic speaking with the chairman and you can catch more of that interview on the markets rules and returns at 8:00 p.m. london time. pbocple of lines from the just to bring to your attention. they want to improve the cross-border business. facilitateming to

trade, free remittance of overseas investors profits. this is about globalizing china and making the you want a destination for your money. those who put money into china has been getting out confidence that you can take it out when you want to. manus: it's all about bringing the foreign direct investment in. not about a trade. let's talk about global debt next because it's hitting the highest on record, $233 trillion. a lot of debt to gdp falls. what does it mean for the role economy? the final jobs number 42017 is out today. what does it mean for the american market? this is bloomberg. ♪

♪ to $233lobal debt rose

trillion in the third quarter last year according to the analysis at the institute of international finance. profit not financial sector debt also hit an all-time high in a number of countries, including canada, france, and hong kong. gdpthe ratio of debt to felt for the fourth consecutive quarter as economic growth accelerated. joining us is portfolio manager for j.p. morgan asset management. welcome to the show. backdrop, we just can't get enough, but what was interesting is both latched on to the cost of protecting yourself on it is dropping. when you see a number like that, $233 trillion of debt, the question is, are there bubbles? guest: markets are fine at the moment. still huge demand, fixed income assets. a lot of flow went in last year and we continued to see that this year. it looks like people like it and what i would take from looking at that is that debt to gdp

ratio has come down slightly because of the pickup in economic activity. it's rising. anna: it's come down a bit, hasn't it? the hard-earned pushes higher in gdp doesn't deliver quickly, does it? but how much do you worry about debt servicing capacity? ish this debt load building, this something that worries you and is that limit central banks ability to push interest rates higher? we do see fallout from high industry companies. the cost of, but financing the capital is lower because of what the central banks have been up to over the next -- last decade or so. it is in pretty robust health at the moment, so it is not something we are concerned about, but it is something central banks have on their mind is how quickly they can take away the stimulus. , the we have this chart

cost to protect joint bonds against diesel sliding, just underlining the lack of concern in markets. guest: that's right because it should do well in an environment where the economy is healthy like it is at the moment. it is trailing in the u.s., just north of 1%, around the same in europe. we expect something similar in the next 12 months. the spread of high-yield markets is low, but you are compensated with that. ,anus: the perennial question mr. bullard, we will hear more don't riskcally said that if yield curve by moving too far too fast to grasp it. isl we invert what deliverable from the fed in 2018? we may as well have j.p. morgan asset management review. we have had to hikes, we had

three, we've had for, what he stand on that? guest: on the hike side, we would agree with the fed. probably for if they see something on the trump administration. i think last year was interesting because it was the first year they managed to do what they said they were going to do and the market didn't believe them. they did the three hikes and the balance sheet reductions. manus: the markets are skeptical at the moment. guest: we have a bit price for this year and they will manage to do three. anna: in march? guest: they will have to start in march, but the data is justifying that he continues to be pretty strong. anna: he has been in there already. exactly, but i think the market may be reading into it more if they don't do something. manus: let's save what they deliver. that is the x portfolio manager at j.p. morgan. up next, it is the jobs report.

what will it say in terms of wages and inflation? what are the ramifications for markets? this is bloomberg. ♪ is this a phone?

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♪ good morning from the city of london, i manus cranny. anna: i am and edwards. these are today's top story. headed forn stocks their best week since july after the dow breaks 25,000. anna: apple says all macs, iphones are affected by chip security flaws. final jobs report of 2017. what does it mean for 2018 american labor market? manus: warm welcome to the show.

it is daybreak: europe, dr. -- jobs day. we will see how much the wage story has improved in the united states. asian stocks are extending their 2018 game. stirling is better bid this morning, 135.57. you are seeing london having a little reflection. it is a commodities story still front and center. dax, a poll out questioning the endurance of chancellor angela merkel. 60% say she has done a good job of time to reconsider. paris opens down .5%. what could be the risk for these markets in 2018? could it be the dollar pulls bid, pulling money and commodities out of emerging markets? bullard at the fed

said the link between job markets and inflation is broken. the number to watch for is the 190,000 for the jobs today and apple. how susceptible is your product? it has been a good, short week. anna: some of the data has been pretty good and that has helped lift the mood of investors and market sentiment, and raise animal spirits a little. not enough for manus to dance and sing, but we are working on that. month sales rising 3.2% on month. that is another dataset ahead of estimates. estimates were for an increase of 1%. -- manufacturing story, we have seen global manufacturing pmi's near a seven-year high. all of that helping equity markets. msci asia-pacific up .5%, on the cusp of its best week in six months. buoyed by what we saw in the united states, the dow jones

important levels, despite the snow and bad weather in the united states. dow futures suggested to be higher by .1%. it is jobs day in the u.s., which means will it be 190,000 bes in december and will it 4.1%? we put in the price of a barrel of oil, fallen .3% as of this morning. not far from the $60 a barrel mark and we have seen a strong runoff in commodities. the commodities story and think about what that could potentially due to the bond market and inflation. the imf have a report talking about the correlation between the rising commodity prices and the quid pro quo for markets in terms of inflation. probably adding about .4% to the

overall inflation gauges. what does that mean fear bond market? how many hikes can you get done? had j.p. morgan asset management with us, we continue into the equity story in a bit. anna, you mentioned the jobs report, 190,000, but where -- are we moving into the latter part of the cycle in the united states? for jobs was in 2015. .round 170,000 is the average the bund market fairly flat at the moment. that is the state of play. the jobs number will undoubtedly be the make or break for the bond market in terms of the trajectory, so those are the state of play. let's get across to juliette saly with the first word news. aliette: in the u.s., bombshell book outlining

backstabbing and chaos in the trump administration has been published ahead of schedule. triggered aion rupture between the president and his former chief strategist steve bannon. the white house has been defending mr. trump's mental fitness for office, an issue raised in the book. >> it is disgraceful and laughable. if he was unfit, he probably wouldn't be sitting there and have defeated the most qualified group of candidates the republican party has ever seen. strong andincredibly good leader, that is why we have had such a successful 2017. north korea has accepted a proposal to hold talks with south korea in that reducing tensions. south korea says the minutes will include north korea's offer to send a delegation to the games, as well as inter-korean relations. the breaker came after south korea and the u.s. agreed to

suspend plans for joint military drills for the games next month. has slashed the interest it pays and capping the international debt market ahead of other developing economies. according to a person familiar -- maturities of 5, 10, 30 years. say the sale was led by citigroup, deutsche bank and hsbc. u.k. car sales suffer their biggest annual slide since the global recession, stunted by buyer confidence and skepticism over the image and performance of diesel cars. figures indicate 2017 sales fell 5.2% from a year earlier to 2.50 4 million vehicles, the deepest drop since 2009. thes slumped 17%, prompting first annual -- of carbon

emissions since records in 1997. and the merkel's plan to extend her alliance with the social democrats faces increasing public skepticism as she rivales talks with the party. according to a poll, only 45% backed another grand coalition between her christian democrat led bloc and the spd. 53% said they favored merkel serving another term. 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 . trading day and we haven't a -- we have asian stocks rising. the hang seng has been fluctuating. it doesn't look like it will make it nine wins in a row. australia's market closed at a

decade high, up by .7%. looking at stocks we have been --using on, she and how -- on reports it could increase prices by 5% on products, the blockchain players in china doing very well on the back of .hina net-based this is an internet company closing up by 17% thanks to new upgrade from goldman. certainly big moves coming through in the region today. anna: juliette saly in singapore. later today, we get the u.s. jobs report for december. projection, the economy probably added 190,000 workers last month. a separate survey showed the unemployment rate likely stayed at 4.1 percent. let's have a conversation about what this means for 2018. of u.s.t is the head

equities and quantitative strategy at bank of america merrill lynch. portfolio manager at j.p. morgan is still with us as well. thank you for staying and thank you for joining us. let's come to you on the subject of the jobs report. what are you watching for today that will be significant to influencing your strategy for 2018? >> we think we will see a little acceleration in average hourly earnings. maybe a 10 basis point pickup month over month, from 20 to 30 from november to december. we have a strong holiday season. there were a lot of forces that could accelerate wage average hourly earnings. what is more important is what is happening going forward now we have tax reform and companies deciding what to do with that windfall of earnings from the drop in the statutory tax rate. whether that means hiring more sales people and exercising some

operating leverage, whether that ands dropping prices actually competing the benefit away, i think that is where it will get interesting. i do think the number one risk in 2018 is inflation. for two reasons. one, it could compress margins of companies. the u.s. is a service-oriented economy. number oneobably the cost, and it could hasten the pace of the fed. fore is this potential upside surprises to average hourly earnings over the year to actually be a negative rather than a positive. manus: you think the fed could be more aggressive than the three for the moment? two to three, but you think more aggressive than that? savita: we are not forecasting anything off the charts. we think two to three hikes, but the risk to that cycle is

inflation. manus: what is the impact of that? this is where anna and i started the daybreak day. this is about global risk on sentiment. it has got the dow jones busting out 25,000. this is bring your big game, isn't it? this is risk on. the question is how much more equity do you want to take relative to the five on the bond table? savita: equity versus bonds. manus: why not? i prefer equities over bonds. we can talk about the reasons why. i just see equities as a better risk reward story at this point in the cycle. it 2018 may not be the year where you experience losses in fixed income, but i think it is coming eventually, and credit spreads are supertight. you've got interest rates coming to all-time lows, so what do you do with that?

have thestill potential, especially in the u.s. with tax reform and some of the cyclical recovery, your bloomberg's economic surprise thex for the u.s. is at highest level we have seen since the late 1990's. that bodes better for equities them fixed income markets. anna: i hate what you are saying about the fixed-income market. we could probably play a tape of somebody saying that a year ago. fondness for bonds at the expense of equities, or just fondness for all of them? >> i would go with fondness for all of them. fixed income different sectors have different return profiles and when i look at the fixed-income market, i would be preferred into the high-yielding sectors, the bank capital within europe, partly the emerging market and if anything, we would durations of court government bonds. we prefer to be short those

sectors. i don't disagree. we are starting to see signs of inflation, likely the fed to go faster than the market is pricing, which means format -- government bonds don't do so well in the environment. manus: where are we with the dollar? year, the dollar is going to rally, going to rally, and it got trashed. it got smacked to death last year. how much of a tail risk is the dollar to this story, because from where i am sitting, the market is beginning to inch it self back into dollars and that could have a consequence. for you, is the dollar rally a risk to the market? savita: sure, it would be downside to our earnings estimate. the s&p 500 index was a week dollar. -- weak dollar. you had tech outperform, positively correlated with a declining dollar. you had large caps outperform

small caps. a lot of the where performance we saw could be explained simply by a weak dollar environment, and that does pose challenges going forward. i think there is this tension, rates, the dollar, commodities, s&p 500 and the s&p is more commoditiessitive rather than negative. you guys are saying with us -- staying with us. , head of u.s.nian equity quantitative strategy at bank of america merrill lynch. our: coming up, tune into exclusive interview with the st. louis fed president james bullard later on programming. 12:00 p.m. u.k. time. ♪

♪ live shot of berlin. the beautiful city. euro down to 120.64. will the jobs report deliver the alpha you need for the dollar? is that what will drive the dollar? stocks are set to open, bund futures.d s&p 35.50 nine,0 traded flat as a pancake on the bund yield, four point four. polls out in germany talking about angela merkel's popularity or perhaps it is time for her to reconsider the direction of her career. .&p are rallying mr. bullard at the fed says the -- don't risk in converting the curve and u.s.. uber's former ceo

plans to sell about 29 percent of his stake in the company, according to people with knowledge. travis kalanick stands to reap $1.4 billion. he has long boasted he has never sold any shares in the company he cofounded. has said all mac computers and ios devices like iphones and ipads are affected by security thought -- flaws under this week this week but that they have been mitigated. plans to stream premier league matches in the upcoming auction in the u.k.. the move is part of a broader strategy to bring more sports content to amazon's low -- global customers. they see events like american

football, tennis and football to get more people to subscribe to prime memberships, which include video streaming and confirm customers into faithful customers. -- in the world's most expensive real estate market. been selling property assets in recent years amid rising real estate prices. speaking before the annual dinner before his companies, the 89-year-old billionaire says he continues to build and five. demand remains very strong, and still building hotels and having bought shopping malls, getting rental income for the long-term. our company's rental income was at a record high last year. that is your bloomberg business flash. anna: thank you very much. let's get back to our guest. iain stealey --savita

subramanian. we spoke about the stocks we should be watching now and this is difficult for someone with eu -- your job description, but momentum is what seems to matter. dancing,markets are keep dancing when the music is playing. savita: exactly, it is an unsatisfying message, but momentum generally tends to work well as you move later into a bull market. what is interesting to me is that this is still one of the most hated bull markets of all time. don't see euphoria on stocks. in fact, if you look at wall street strategists recommended allocation to stocks, they are still at about 56%, which is well below the benchmark of a 60% allocation. this is not a well loved bull fromt and just moving

building optimism to euphoria could drive the market higher, and what you want to do is buy the stocks that are working. right now, that would mean tech, financials, materials, overweighted sectors within the u.s. market. manus: we started the debate on jobs day, and it used this chart , which is where are we in the cycle? investorsrincipal said it is more like the beginning of 1998 rather than 1999. when you look at this kind of momentum, jobs data, we peaked in 2015. where are we in the cycle, and if you are not at that peak optimism, where are you in bullishness? savita: i think this has been a cycle.- weird we have had an industrials recession and amidst a bull

market. how many times have we seen that? it is almost like industrials did one thing, consumer and stock did another thing. here we are, a double-dip in jobs growth, i think the story to watch the next 12 months -- the missing link has been corporations actually spending their money on investment rather than share buybacks or dividends. anna: what will we see as a result of the tax change? a lot of people suggest money is cheap already, they would have done investing already. so what will they do with the money that comes back? tax reforms,ous like 1986, tax reform explained very little of corporate behavior. corporate behavior is more demandned by supply and and tight capacity. interestingly, you have tax reform happening where you get full expensing of on top of the fact that in the u.s., certain

industries are getting tighter, and we are seeing demand recover. we have seen sales growth accelerate for the past four quarters. you are getting these different signals in alignment to suggest that capital spending could actually be reinvigorated. manus: that is ultimately what the u.s. wants. depending on where that spend issueor goes, that will in regard to the productivity conundrum. i love a fact. there are 374 trading days without a pullback in u.s. equities. savita: more than that. manus: that is the second since 1920 eight. my question is, what in vaux a a drawdown?invokes dips iniment is by the the u.s., so take us through the

driver. causes forhink the derailment of this runaway train market,hboa -- bull geopolitics could do it. we haven't yet, but that is something to watch. ow, i do think the other outside risk for the bull market is -- and you alluded to this earlier -- the dollar. the dollar strengthens to quickly or is an upside surprise from where we are today. that could derail u.s. equities and especially large-cap u.s. stocks that tend to benefit pretty significantly from a weak dollar environment. anna: what about credit shocks? defense -- defaults against junk coming down. is that an area of concern?

savita: i think a credit disruption would also be reason to worry about equities. i wonder where we are in that cycle because if you look at tax reform, it actually made it less advantageous to hold leverage, so companies are actually in the process of -- if they are going to raise capital, they are more likely to raise equity and debt and that is actually bullish for debt. supply actually shrinks for the debt market. manus: one thing briefly is the flow of friends from -- funds from the united states into europe. is this an area you see to continue? savita: it depends on the dollar. i think the dollar is this hidden force behind a lot of what we have seen for 24 months. i also think the differential between the u.s. and europe gdp less of aarguably spread, because of tax reform

and the benefit to the economy. anna: we will keep an eye on the dollar then. bank ofubramanian at america merrill lynch. that will do it for daybreak europe. the european market open is next. this is bloomberg. ♪ bloomberg. ♪ retail.

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near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ guy: welcome to bloomberg markets, the european open. i'm guy johnson in london. matt miller is in berlin and claims to have a suntan. i'll let you judge. we are 30 minutes from the start of cash trading. ♪ guy: new year, asian stocks head to their best since july. the dow breaks 25,000. could anything puncture the rally? what will the final payrolls number for