network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. decisions day. can a dovish hike save the market? bcb and banks surge as the country is said to reach a formal deal with the eu. telecom unitk's tumbles below its ipo price in its debut. we are live in tokyo with the largest ipo in japanese history.

welcome to surveillance, i'm matt miller in london in for francine lacqua. in berlin in i'm for francine lacqua, who is normally in london. let's check in on markets and see how things are going. we had a mixed trade at the start and have gains now across the board. the stoxx 600 is currently up .2%. the euro is up to 1.14 right now. speaking of concerns about a crude nymex is trading for $46 and $.30. oil is really one commodity to watch today. take a look at my gmm. we can see some interesting moves, first, on some smaller indexes. romania, for example, there's a big drop in equities.

there is a new tax law going into effect that is also going to hit a lot of the companies that operate their -- there. that is really dragging on markets. you can also see the sovereign bond gollum, their two-year bonds are soaring yields, which is to say that investors are selling them off like hotcakes. let's get to bloomberg first word news. >> high there, matt. china and the u.s. have health high-level talks to discuss the trade dispute, steve mnuchin haveng bloomberg that they held recent talks and both sides are focused on documenting an , when their march 1 current tariff truce runs out. agreed. government has to implement plans for a no deal brexit.

it includes putting 3.5 thousand troops on standby and achieving 2 billion pounds in funding. theresa may's cabinet also agreeing to issue further warnings to voters and businesses. may says that parliament will vote on her deal in mid-january. >> we are sending a clear message that this needs to be much more of a priority. we need to recognize with 14 weeks ago that the government is preparing for the eventuality that we leave about a deal. italian bonds surging as the country really -- reach an agreement with brussels for a spokeswoman for the roman treasury, speaking anonymously said that they have a tentative agreement. italy cut its deficit target for just over 2% of gdp in an effort

to persuade eu not to start its sanctions procedure. police in estonia have attained 10 former employees of a local they knowinglyon enabled one of europe's biggest money laundering cases. they say a large part of 200 billion euros may need to be treated as suspicious. arabia's spending will hit an all-time high in the coming year as the government extends to cushion rising costs and keep the vision 2030 program on track. --includes a housing allow allotment of $11 billion. there are surging prices and anger over the murder of jamal khashoggi. global news, 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. matt. matt: all right, thanks very much.

for the fed.n day on remain high the jay powell will announce a .25% rate increase. the question is whether officials will execute a dovish hike, signaling a slowdown in the pace of future increases. trump has yet again urged the fed us to raise rates, tweeting in the yet another mistake and that they should feel the market instead of going by what trump calls meaningless numbers. peers what some of our guests have been saying. >> i would put a low probability on the fed not hiking. the markets are expecting it. they can do it without creating too much financial damage. the question is how they can frame it. are they capable of providing that dovish twist? >> they are going to hike and then say it is data season if we are getting worried. they don't hike. -- a dovish hike.

>> they have been backed into a corner. >> the phrase for them is that they are getting closer to a cause. >> i feel terrible for them, i really do. notpredecessors have helped. trump should just shut up. matt: joining us now is the macro asset strategist at hsbc and multi-asset strategist at blackrock. take ontart with your what we are going to see from the fed and. looks like the market is still expecting a rate hike. >> good morning. what we have just heard, i completely agree. it would be low probability of not having a hike today. think, and the market has done right, that we will see a dovish hike today.

for thisso looking gradual rate increase and for the rate to be dropped. thatuld tell the markets we are giving ourselves more discretion. sort of returning to the state of dependence path of rate increases, which allows them to be a little more dovish or hawkish depending on what the data is saying. i got your take there. let me ask isabel as well. i'll put it in the form of the mliv question of the day. can they2019 stocks withstand? the question of how many rate hike schedule stock withstand depends very much on what is driving them. the fed feels confident to hike because the economy is strong and not slowing down, then stocks will be fine.

the question is really the balance between the number of hikes and what is driving them. the concert in the market is that the fed is over tightening. if the market can get over this concern, then things will be ok and the stock market can perform. going back to what one of your guests were saying, i suspect they will try very hard to not signal they are worried about the shape of the u.s. economy, because in a way, this would make things worse. a tricky balancing act. willne, i expect markets be paying attention to how the fed characterizes the way it looks at recent market performance, which has been very amounted to significant tightening of financial conditions independent of fed actions. how much emphasis they put on that will be very important to the market. matt: how worried should we be?

as a previous guest was saying, the market is worried about the economy. it is not flashing red, but at least amber. max, what do you think? from here, we probably will be slowing down towards a trend growth, that is our economist forecast. however, if you look at consensus expectations, what you see is actually that quotations are stable. if you look at what rates have done over the last six weeks, pricing out more than one rate hike, what we have seen in nominal rates and yields, this decline in yields has been almost solemnly due to decline in print evens. -- breakevens. they are still quite close to the yields today. so we would not necessarily agree.

the market is already discounting a recession like scenario. if anything, i think there is more downside ahead for yield. even so far, it is basically reflected a decline in oil prices and in inflation expectations. the growth embedded in real yield has not really adjusted downwards so much. i think there is still room for treasuries to rally. do you agree we should not expect tushar of a slowdown in the economy? we've already seen a slowdown in things like cars and washing machines. isabelle: it is a question of h one versus h2. in the first half, we were reasonably confident. you still have stimulus that is going to filter through. consumers still not hurting too much. that mortgages are little bit more expensive,

stimulus being withdrawn. that is when it gets tricky and will be important to see what corporate is doing. right now, there is a positive terms of investment, linked in large part to the uncertainty around trade tensions. if we see the corporate sector being a bullish again, resuming investing, that we should not have too much of a slowdown in the second half, but that is a big if. so i think that is where the? 's are. are.ere the question marks matt: great to get your thoughts on this. us.guests stay with don't miss a bloomberg's special coverage on television and bloomberg radio of the federal reserve meeting and jay powell's reverse, one of the most widely anticipated fed meetings in

recent years. we will share from guests, including the former fed chair alan greenspan. speaking to will be glaxo's mixed climbed -- at glaxosmithkline ceo. that interview is at 12:30 p.m. london time. don't miss it. this is bloomberg. ♪

matt: this is bloomberg surveillance, i am matt miller in berlin for francine lacqua. let's go to the bloomberg business flash. glaxosmithkline and pfizer

have agreed to combine their businesses in joint ventures. glaxo will hold 60% of the venture, uniting had hill and central. says they plany to link the businesses within three years. ipo of the biggest year has slumped. softbank and its underwriters slumped. that was despite a japan wide network outage and a global equities selloff. the economy has slacked its dividend and warned it will decline for another year. the biggest economic retailer facing a leadership void with the announcement that there interim chief executive is to leave at the end of the month. have been wrestling with competition from amazon and other online sellers.

that is your bloomberg business flash. matt. matt: thanks very much. oil is struggling to recover from its biggest slump in 2016. of slowinge specter global growth haunts investors who were already worried as american inventories rise and russia pumps more. are still with us. first, it seems we are all looking to iran to fall out of the picture more seriously than it did and not expecting as much oil to come out of shale then we have seen. isabelle: that is right. u.s.ecision by the administration to grant temporary waivers or exemptions from the iran sanctions took the market by surprise.

with moree ended up supply on the market man was expected. and you are right, on the supply of -- on the supply side, there were lots that everybody thought would be exhausted. combined with the market concerns about global growth, this is where we are. view, we should be getting close to the bottom there. view, the market concerns about global growth are probably overdone. this becomes clearer as more data comes in. we should see a bit of a rebound. it'd of a stabilization, at least in oil prices. matt: saudi really pulling back. high ak that $80 is too forecast for an average of 2019? max: i'm going to slightly

deviate from your question, as usual. we have looked at that the last couple of weeks. when you look at speculative investor position, they had actually peaked with oil prices. in september and october of this year, which was quite unrelated to growth. if you look at october, we are already passed a growth. we have already been talking about growth concerns, maybe not as intense as it is now, but we have not been as bullish. what that was much more related to was the shape of the oil futures. when you look, for example, at the spread, putting that together with speculative investor positioning, you virtually have the same position. what that means is that speculative investors are going into oil and building up positions and oil futures were going massively in.

when we have seen over the last 2-3 months, we had flattening curves. that is where all of the speculative investor positioning basically came down. what we have seen is that all of this has been sort of washout and the investor loans have been quite dramatically reduced. here, i would say we're probably going to go either 10-15%. these are not levels where i would give short, definitely not. max: -- max and isabel are going to stay with us. up next, a downbeat debut for softbank telecom. shares slumped. we tell you why. this is bloomberg. ♪

matt: welcome back. we have some breaking news on soccer, or what you may call football in the u.k.. they have says appointed a new caretaker manager. i know enough about this to say someone.s replacing i don't know more, so maybe my guests can help me out. either one of you man u fans? isabelle: i'm afraid not. max: my team is from germany.

.7 in germany i don't like to talk about football anymore. matt: you know what, we will continue to ignore what is going on in the world of football. will go back to finance. shares in softbank's telecom business have tumbled in its first day of trading. the shares fell more than 14% in tokyo. that is the biggest decline and the biggest ipo in japan of, raising $23.6 billion. it is also the second-biggest globally, so massive idea. david, why did this huge and anticipated ipo fumble so seriously? well, for one, winter has come early in japan. it's not supposed to be this

cold, so we could call it a cold reception. some here are calling it a soft opening. but market conditions in a year or we keep talking about tyson dollar liquidity, you take an ipo this large and put it to the market, that's what will happen. the other thing that bothers a lot of people is approaching this ipo. keep in mind, 90% went to retail investors. the reason -- the institutional money was largely kept away with it but it was overpriced and that it was not as rosy as the anddend yield it offered suggested. so a combination of factors, really. 14.5% down in its debut. fantastic. they raised millions and left no money on the table. what does that mean for softbank? >> yeah, there was no price range on this one.

1500 was the preliminary. 23, 24 billion, roundup. fees largely in the order of half $1 billion. the allure of this ipo is different deals at a 14% drop will essentially give you that. but yes, they can now invest into the vision fund. matt. matt: thanks very much. a good angle -- david ingle joining us. this is bloomberg. ♪

matt: economics, finance, politics. this is "bloomberg surveillance." i'm matt miller here in berlin, filling in for francine lacqua.

let's get to bloomberg first word news. viviana: china and the u.s. have held talks today discussing the ongoing trade dispute. the two sides; have held talks in recent weeks. both sides are focused on documenting an agreement by the march 1 deadline. spending will hit an all-time high in the coming year. to look to cushion the impact of rising costs. the budget includes a cost-of-living allowance that will total almost $11 billion. the kingdom is struggling with falling oil prices and anger over the murder of jamal khashoggi. align forfailed to yesterday's record number of launches.

united launch alliance became the last of four potential missions to postpone left off. global news, 24 hours a day, on air and at tictoc on twitter, pwoered by more than 2700 journalists in more than 120 countries. this is bloomberg. much for that.ry we are getting some u.k. economic data. of want to bring it to you on inflation. to u.k. inflation rate as measured by the consumer price 2.3%, in slowed to mind the forecasts when you look at it year-over-year. if you look at it month over month, it is 0.2%. inflation in the u.k. is slowing, but slowing to the forecast from a bloomberg survey of economists. italy is said to have reached an informal agreement with the eu on its budget plan.

although there is no word yet on the final deficit target going out. meanwhile, with 100 days to go until brexit, theresa may has put the u.k. on high alert over the dangers of a no deal brexit. per cabinet agreed to implement contingency plans which includes putting 3500 military troops on standby. joining us now from brussels is maria tadeo. let's start with italy. is this finally the end of the budget standoff? maria: it looks like it could be at least the first step towards this end of what has really been a back-and-forth between the italian government and the european commission. just the idea that we could be heading close to a deal -- and it is a technical deal. we have not heard from the european commission and it has not been made official.

we are hearing speculation that has been enough to trigger a rally in italian bonds and stocks. what investors like is the fact that the language around this budget has eased an come up. what we want to keep an eye out is what is the final deficit figure? the entire government offered 2.04%. i think another key factor here will be the gdp numbers. this is key to workout by how much the debt pile is going to drop. what it looks like is the italian government has realized, maybe we may have been a little bit too optimistic. matt: a want to ask also on brexit, theresa may has a reason for making a no deal scenario look awful. she is trying to sell her deal so she gets a little bit carney

-esque with her drama. what is the mood like in brussels? maria they are still preparing for a no deal:. this is one of the number of scenarios that was still on the table. it could happen, it is not what we think is going to happen, but it is on the table. today, we are going to year from the european side will kind of preparations are on the table. the eu has made it clear that if the u.k.no deal, becomes the third country to the eu and we are going to take all of these actions unilaterally. they really do think the u.k. cannot afford to go no deal. theresa may obviously trying to scare lawmakers to back her deal. what i do want to say is this idea of a second referendum, which people in brussels did not believe, has gained traction here. on the grounddeo

for us in brussels. let's get back to max and isabel . both of them in our london studio. how concerned are you that we could crash, we could see the eu crashing out -- the u.k., i should say. how that would that be? bad,l: that would be very but we don't think that is a likely scenario. if anything, the developments of recent days have confirmed us in our view that there is just not a majority in the house of commons for that scenario. you know it is just sensible policymaking for the u.k. and the eu to keep repairing for it, this is clearly not the best case, but it seems to be very unlikely. now, the focus is much more on how strong is the momentum behind theresa may's deal?

it remains insufficient, but certainly, it has been growing and the period between now and the second week of january, when the vote will take place is obviously going to be critical for people to make up their mind and see if they decide if it is the least bad option or if momentum gathers up for a second referendum. this is what we are looking at. we are not concerned that no deal is a likely scenario. matt: how do you see the divorce happening and what assets do you buy to prepare, if any? max: i'm not going to go into the politics. i'm not an economist. i think from a markets perspective, and you have just shown the graph on cable, what we are seeing is huge uncertainty. as long as there is uncertainty and we approach the 29th of march, i can't really

see much of an upside for sterling here. probably from a market perspective as well, how you can is that play that particularly the export sensitive companies and u.k. equities. when you look at the relative between the ftse 100, in authority outperform quite significantly over the past couple of weeks of the ftse 250 given this uncertainty. do you make any investment decisions ahead of brexit or is it too dangerous to do so? too uncertain? : one way is to send it out for the uncertainty to evaporate. if you want to be very technical and opportunistic, we do think that right now, when you look at

the pound price versus dollar and euro, when you look at gilts, it seems there is a significant probability priced in over crash scenario. we don't think that scenario is likely, so there is probably some opportunity there on the long side for the pound and shortsighted for gilts. that is not for everybody. let me get your take on the european side. is the euro assets, in danger of getting hurt? should we get a negative outcome from brexit? max: i would put it into a wider context. if we look at the euro and euro dollars, there seems to be this idea that there will be a growth theergence between euro and u.s. because the u.s. economy will slow towards potential growth and the eurozone will stay where it is. obviously, that will weigh on

the dollar. i struggled with that view in the view of saying, the largest economy in the world, and by far the largest weight in global equities as well, that is slowing towards trend. that was also the only economy so far that has really kept as above water this year. i struggled with the view that euroif that happens, economy will be completely immune from this. german pmi's will approach 50 or the level of 50 even more. from that perspective, i struggled with the view of going short on the dollar. i rather want to be in the longer dollar currency where growth is trending -- slowing towards trend.i don't want to be in the currency or have to ask myself, are we going into a recession or not?

how large will be the fallout from a slower u.s. economy? i struggle with the bullish euro cause here. isabelle are going to stay with us. we have a lot more to talk about with them on a day when we had mixed markets. we are now seeing gains here. you are seeing the euro as well rise above 114 as nymex crude hovers above $47. waiting for the fed decision. later, we will speak to the ceo lactose -- glacto. this is bloomberg. ♪

>> inflation is very low. hopefully the fed will be raising interest rates anymore because if you compare us to present obama, he had zero interest rates. anybody can make money with zero interest rates. i'm almost at a normalized interest rate and yet, our economy is soaring. my biggest threat is the fed because the fed is raising rates too fast. it is independent, so i don't speak to them, but i'm unhappy with what he is doing. i think the fed is far too stringent and they are making a mistake, and it's not right. despite that, we are doing very well, but it is not necessary, in my opinion. i think i know about it better

than they do. i think the fed is making a mistake. they are so tight. i think the fed has gone crazy. margins,you a lot of but i think the fed has gone crazy. we understand that monetary policy decisions matter for american families. i'm committed to making decisions for subjectivity based on the best available interest of monetary independence. matt: that was president trump speaking about the fed this year and jay powell stressing the central bank independence when he was nominated for the job of said chairman. don't miss bloomberg's special coverage on both television and bloomberg radio of the federal reserve meeting from 7:00 p.m. london time. let's switch gears and talk

europe. consumer and retail stocks are on track for their biggest annual decline in 10 years. the worst may not be over for either companies or investors. political uncertainty in parts followingion, confidence, means the odds are stacked against those who rely on consumers. that is before even considering other factors like regulatory tightening and the weather. recent warnings from asus and sports direct are likely to be the last. what is next for the sector as we head into 2019? are still withe us on set. let me get to you first. germans typically don't spend much money. they have been better in recent years, but they seem to be trailing behind again. what is your expectation for domestic economies getting

supported by their own consumers? eurozone, we have been waiting for years and years for this sort of uptick of domestic consumption. it really never happened. i think also what we have seen over the last couple of quarters, up until the last two quarters is that it was an abnormally high growth rate. saying 2%-two .5% growth rate. %-2.5% growth rate. a think what we see right now in the eurozone is rather a return to normality, rather than being something incredibly bearish and incredibly, abnormally negative. think that is basically a normalization right now. matt: what do you think?

we are concerned especially from the brick-and-mortar stores. some of theto department stores, they are packed, wall-to-wall customers. are people spending money? i think first of all, you need to distinguish between the continent and the u.k., where the dynamics at play are a little different. on the continent, the consumer is one of the relatively bright spots. employment is still growing, purchasing power is growing and that has been what has been supporting the economy, is the corporate sector that hasn't been doing so well. ok.consumer would say it is in terms of the u.k., it is very different. the extremely low saving rates, lack of wage growth until recently has really hurt the

sector. what you are seeing is very heavy discounts. people are shopping, but there are only buying at heavily discounted prices. i think there is something more structural at play here, which isn't specific to europe. the retail sector is getting badly hit all over the world. this is a structural disruption phenomenon, not a european cyclical story. matt: do you see the structural problems as well, max? you say maybe we are coming back to normal, but i was looking at bigger problems that europe is going to have to contend with, that maybe the ecb is projected take into? max: probably. this is something we should up in in five years ago. there might be some loosening now in some fiscal loosening and 2019, but it will be quite tiny.

the germans are not particularly fond of spending. i can't really see how this is going to change dramatically and 2019. there will be some fiscal loosening, but overall, i think the fiscal stance will remain quite tight, particularly compared to the u.s.. that adds to the sort of structural problems you just alluded to. that is probably something that is going to be here to stay. this is probably something that is a return to know now the -- normality. when i talk to people at the ecb, it seems like they really want to go back to a normalization. they are doing everything they although maybe draghi was a little more dovish than expected during his meeting last week. are they getting a little bit too far ahead of themselves? isabelle: i think they are being

us dovish as a politically can. one thing that is really iportant to emphasize is, think today is the last day of net asset purchases for the ecb, but they are going to keep a very large balance sheet for the foreseeable future. by that, i mean at least a couple of years. they are going to keep reinvesting all of these assets that they purchased of a recent years. that is good to keep monetary policy very accommodating. the one lever they could use if they want to put a bit more liquidity into the system, would be to extend or renew a liquidity operation for the banks. ltro will have to see. i think i would agree with max that certainly, we are not going to get a whole lot of support policy.cal maybe a little bit of listening

in france and italy, but nothing major at the eurozone level. it is important to keep monetary policy accommodative, but that is essentially what they are planning to do. the one thing that could help the european stock market in the near term would be a bit of an alleviation of the intense political risk concern that markets have had. by our own indicators, this is the biggest increase in market concern for any geopolitical risk we have seen in the last six months. brexit, part was the fight between italy and the european commission, which seems to be reaching at least a temporary truce. if all of that can cool down a little bit temporarily, that's also help european markets, even if growth doesn't rebound as a spectacularly from here.

matt: thanks very much. , great to havee you both on the program. hope to see both in person at some point soon. later today, don't miss our special coverage of the federal reserve meeting, and fed chair jay powell's remarks. we will bring that all to you on bloomberg television and bloomberg radio. we are also going to hear from important guests, like the former fed chair and the guggenheim partners cio. ♪

matt: let's get a check now on the markets. annmarie: let's kick it off with mith with the biggest gain for the company in a decade. we will be speaking to the ceo later today. the tip is to the downside. took abanking units

charge based off a head in asia. down more than 4.5%. maybe we need to start sending repackages to london. matt: i'm just going to bring you your gift on monday. thanks very much for that stock check. "bloomberg surveillance" continues in the next hour. this is bloomberg. ♪

tom: this morning, it is extraordinary. the fourth quarter, collapse of

oil, decline in interest rates. what is a central banker to do? it is fed day. term powell will raise rates as well. expect the unexpected. michael mckee will be at that press conference. .eal madrid won save the only man to european union. good morning, everyone. this is "bloomberg surveillance." i am tom keene in new york, nejra cehic in london. united,, manchester moments ago they announced a replacement guy in the field. nejra: i love the breadth of your knowledge that you can even

talk man u when it comes to the u.k. there is not a lot going on with brexit at the moment, but because you talked about inflation and central bank, we also have the boe this week as well. inflation in the u.k. dropping to a 20 month low. do with the has to demolition we have seen in oil prices. tom: really good point to bring up the boe meeting. -- is front and center. all of these teams want him. enough about football, let's get the first word news. viviana: it is a victory for president trump on capitol hill. the u.s. senate has overhauled a

measure. the president had lobbied for the bill at one point it appeared doomed. bloomberg is learning, they are considering a spending bill that could finance the government until february 8. the white house has signaled the president would back off a confrontation over the wall. has the you can high alert about the dangers of a no deal brexit. they have less then a month to convince lawmakers to back her proposal of the split. cabinet ministers have agreed to implement measures including 2500 troops on standby in case of chaos. facebook reportedly getting access to more user data been previously exposed. more than 150 companies were

allowed to obtain personal data. netflix and spotify could read users private messages. facebook says it has found no evidence of abuse by any of this partners. global news, 24 hours a day, on air and at tictoc on twitter, pwoered by more than 2700 journalists in more than 120 countries. this is bloomberg. tom: thank you so much. story.really interesting futures get about lift here. up big yesterday and then flattened. even a little red on the screen lay in the section -- session. the curve is going in tandem.this is really misleading . looks like nothing is going on. oil down at the bottom, carnage in american oil. breaks out to 25.05. there, you can see the movement

yields moving in tandem with the 30 year bond. the 10 year yield, 2.82%. lower yields. am also watching yen, which really hasn't broken through. european equities are seeing a bit of a positive session. we saw european equities underperformed the u.s. yesterday. i'm looking at bcp's as well. the bcb bund spreads right around 160. could we get to 250 on that handle? we had a four-week high. of also put brent up there because oil, even know it is up today, is not recovering that much from its worst slide since 2016. oil, $100 a barrel, actually above in 2014.

here is the glory of $30 a barrel. this is the regression, artificial from these two points. what we have done is come back to this regression. i think there is something to be said of coming back to that two-year, three-year, four-year trend we have seen. nejra: it off each back to the in then around breakeven environment the fed would be hiking in. most people are expecting that hike. if the fed were too high today, it would be the first time for a long time it has done so when equities were this bad. let me take you to my chart. the today average is that something like 26%. what is it going to take to lift equities from here? exactly what kind of messaging

from the fed would taking a gradual hikes? is the fed going to out hawk are out does the market? -- dove the market? tom: of course, the press conference, our michael mckee will be there. >> you look at inflation, it is very low. hopefully, the fed will be raising interest rates anymore because if you compare us to president obama, he had zero interest rates.anyone can make money on zero interest rates . i'm almost at a normalized interest rate and get our economy is soaring. the biggest threat is the fed because the fed is raising rates too fast. it is independent, so i don't speak to them, but i'm not happy with what he is doing. i think the fed is far too stringent, and they are making a mistake. it is not right and despite

that, we are doing very well, but it is not necessary. i think i know about it better than they do. i think the fed is making a mistake. they are so tight. i think the fed has gone crazy. that is a lot of safety and it gives a lot of margins, but i think the fed has gone crazy. federal reserve, we understand that monetary policy decisions matter. i strongly share that sense of mission and am committed to making decisions with objectivity based on the best in thele evidence long-standing tradition of monetary policy independence. that brilliantly captures the attention in washington and evanescence -- other nations as well.

--re through till had thrilled to have with us right now andrew from morgan stanley. he really looks at the correlation and dovetail out there. if you are having a beverage of your choice, a good cup of coffee with chairman powell this morning, what would you say to him about the cross asset betting on this fed beating? andrew: i would emphasize a couple of things. i think what the markets main concern around is, will the fed really be data dependent? dots andd in to its into a continued hiking path is it as we start to see some data weaken? this question of can the fed executed dovish hike, i think it market least make the happy over the next two weeks by balancing its data dependence. is that wechallenge

have been in a period over the last eight or nine years where the market has outperformed the economy, both in the u.s. and globally. that has occurred as policy tightens. you probably get a reversal. tom: major shout out to the bloomberg surveillance team for the quality of guests this morning. over the last 10 years, going arough the list, are we at point where we are asking too much of our central bank? chairman greenspan will join us this afternoon in an important conversation. he didn't talk about the dollar, the debt, and now they talk about everything. andrew: i think we are in some ways. central-bank policy is supposed to act as a buffer. when conditions are good, they are supposed to save speed. when conditions are poor, they're supposed to give things a boost.

i think we have forgotten that a little bit. think back to three months ago where the idea that policy would be restrictive was considered almost crazy, despite the fact that the s&p was at 2900, unemployment was near a 40 year low, fiscal policy is enormously accommodative. the u.s. is spending far more than it is taking in. investors, we need to get used to this idea that the policy we have had for the last eight or nine years is unusual because we are coming out of the worst crises of the last 80 years, economically. it is quite normal for policy to be neutral, restrictive. that is something we need to think about as we think past the next two weeks and into 2019. nejra: which have about the risks of a fed being too hawkish. given where eurodollar futures are priced in equity markets are, is the risk that we actually get a fed that is to dovish today?

andrew: i think the challenge for the fed is going to be that it could act a lot more devilishly at this meeting. it could dramatically lower the dots and change the statement. i think the market would see through that quite quickly. i think it would see at that point that they will just have to do more later. i think the market would start to worry that there is some of this pressure from the administration or from markets shifting the fed too much. has the fed lost some of its ability to operate? i'm sure the markets are rooting for a very dovish outcome. it doesn't solve all their problems -- of our problems. i think we are just entering a different policy regime. tom: there you go. andrew mentioning regime. is it a regime change?

that is the key question. we will come back to andrew. this afternoon, are fed decides the program. keeping score, a longer show, better show. press conference by chairman powell. joining us, we are thrilled to bring you the former chairman of the federal reserve system, alan greenspan. all of that, this afternoon. stay with us worldwide. . this is bloomberg ♪

viviana: this is "bloomberg surveillance."

a british drugmaker and pfizer have agreed to a joint venture. brands include sense of thine -- sensodine. later, we will speak to the ceo of glaxosmithkleine. tom: there is an an incredible amount of stuff out there right now. rita is with us. with all of the analysis i have about andill talk -- davidd citigroup shepard today in the financial times absolutely kills it with a data laden summary of where we are. i don't think most of the world understands what u.s. oil is doing.

u.s. shale juggernaut russia. the u.s. oil production increase in 2018 is roughly equivalent to oil output of iran's to the market in one year. and the united states, is larger than the individual output of 8 of opec's 14 members. how is the u.s. going to drive oil in 2019? are we going back to $30 a barrel? >> if we continue at these kind of levels, the one thing i would add is the 2 million barrels of growth wasn't a problem when demand growth was very strong. it is becoming a problem now because demand is slowing. i think we should always put that in context. if it continues at 2 million barrels, of course, we are going to be 30 barrels -- $30.

theould be fair to assume u.s. growth rates will slow down quite substantially in the first half of next year. nejra: great to talk to you. given what you set about the concerns around demand growth, i feel this is quickly become a story not just about supply but also demand. is there anything that opec plus can actually do from here to influence the market? amrita: i think that is the biggest challenge. and this is just about u.s. production and about the iranian waivers, i think there was a number which we can all work and which opec plus could target in order to keep prices in the 65-70 dollars range. the problem now is really the uncertainties around demand. all the demand data coming out as of now, they are still ok.

the issue is the uncertainties around the trade war is creating so much confusion in the market. we are seeing heavy restocking and end-users. -- of the consumer is me, petrochemical margins the most important indicator going forward because it seems to capture overall economic activity. that has come down sharply. people are very uncertain about the future. they just want to get rid of inventory which is depressing demand. nejra: is there any kind of a bullish case to be made from here or do we just go lower and lower. how low do we go before we get any kind of bounce back? amrita: the kind of moves we are seeing in this market, there are a lot of human players involved. a lot of machines and technical trading. hedge funds in general traders,

they are not trading this market simply because there are so many uncertainties. it is end of the year. why would they take the risk? i do believe if global economic outlook were to improve, if we get some clarity on trade, oil would rally quite substantially. that is really what is driving oil right now. tom: i want to give you a really important philosophical question. this goes to every viewer and listener. i remember clearly, no one seeing the technological revolution of american oil coming. in talking to jeff curry yesterday, there is this technology, this technology. what is the technology of the next 24 months that is going to surprise the oil industry? amrita: if i knew that, it wouldn't be a surprise, would it? tom: its live tv, go with me here. say a lot ofld

that shell stuff we have seen in the u.s., that is being implemented globally. you could argue that islamic -- is not a new technology, but we have not seen any of the fx of this being implemented. you can certainly see much a stronger growth rate. technology will take a long time to evolve. generally, efficiency gains is one thing to watch out for on the demand side. tom: take us out here, but i just want to say, this is the single biggest miss in the last 10 years. biotechnology. everybody missed it -- oil technology. everybody missed it. nejra: thank you so much. andrew stays with us. perhaps a we will get a chance to ask him what the sweet spot for oil price is. theng up in the next hour,

city special economic advisor. this is bloomberg. ♪

nejra: wti crude near its lowest level in nine months. andrew is still with us. is there a sweet spot for the oil price? andrew: i think it is hard to be too precise about it. i think the global economy can handle anything between $75 and $50.

i think where we are now is going to be a little bit more stimulative. i think the biggest impact this is going to have is it is probably a modest boost for the e.m. complex, given where oil is now. markets, it will drive more divergence between the oil consuming and oil-producing countries. nejra: is that why you are long? andrew: that is one reason. i think the view that the dollar will weaken last yea -- next em. i think would also help you have a lot of these markets that have repriced quite a bit. it will be completely smooth sailing, that we do think the outlook is pretty good. with upgraded em and our year ahead outlook after downgrading the u.s. equity market. nejra: earlier, i talked about yuki inflation. what is your outlook for inflation? andrew: i think it is going to be challenging for central banks. headline inflation will come down. core inflation probably won't.

i think it will remain pretty stubborn in the eurozone and u.k.. it to continue to rise. in the u.s., it to continue to be at the fed's target. i think that will make it hard for central banks to be as dovish as markets would like them to be. nejra: great chat. andrew stays with us. coming up, we will speak to the glaxcosmithklein ceo. this is bloomberg. ♪

tom: the holiday spirit of london. -- new york times of

poppinsly skewers mary returned. no julie andrews. no dick van dyke. they are very kind to emily lot, but they tear the movie apart. in new york, -- it is a beautiful beginning to the holiday season. are you in the season -- in the spirit yet? i am not there yet. i need to get the fed meeting out of the way. nejra: i feel like the markets have been so busy, i have almost forgotten about christmas. where is the santa claus rally? that feels like an anachronistic term. i would love to see you i skating around the natural history museum the next time you are in london. you think you can manage that? tom: i think that would be a scary thought. i would go to the trump rink. he reinvigorated a rank right at the bottom of julian robertson.

park inobertson built a central park south. mr. trump long ago and far away felt the ice rink. trying to get in the mood. right now in new york city, your first word news. >> the trump administration has told congress it plans to sell the patriot missile-defense system to turkey. that is a signal of a breakthrough with a nato ally that had been moving closer to russia. the u.s. is hoping turkey may hold its purchase of a russian missile system. bloomberg learns that turkey still plans to buy it. president trump's former national security advisor michael flynn will have to wait at least another three months to find out if he is going to prison for lying to the fbi. that is after a startling turn of events. a federal judge telling him he had sold his country out. the judge said he could not guarantee no prison time. isurged michael flynn he cooperating in the

investigation. china and the u.s. have discussed their trade dispute. beijing saying the two sides spoke by phone today. treasury secretary steven mnuchin telling bloomberg negotiators what to come up with an agreement by march 1. that is when the courage -- the current treaty runs out. italy is -- the ec has objected to the spending plan because the deficit. --me minister's government a positive review of the budget that cuts a positive target. manchester united has turned into a former player to manage the team after a horrific start. he will be the caretaker-manager. full-timeooks for a replacement after the worst premier league start in 28 years. global news, 24 hours a day, on air and on tic-toc on twitter, powered by more than 2700

journalists and analysts in more than 120 countries. this is bloomberg. thank you so much. the tenure ecp yields have dropped to a three month low. the country is said to have reached a technical agreement. this comes ahead of the commissioners meeting later. ,ith 100 days until brexit theresa has put the u.k. on high alert of the dangers of a no deal brexit. putting troopsde on standby. great to see you as always. let's start with italy. btp is rallying strongly. we have seen the ftse rally as well. is this the end of the standoff between italy and the european union? >> good morning. it looks like we are heading that way. this is news we are getting with people familiar from the italian government. we still need to hear from the

commission. the reaction of the market has been immediate. the bottom line is nobody wanted this fight to escalate. you're looking at the european commission, the most powerful institution in brussels and the italian government, a standing member of the european union. no one wanted a full on clash. especially not heading into the european election. today it seems we may get it. it is a standoff that has been called off. nejra: the budget deficit target is one thing. there's is also the growth forecast. update us on where we are for that and what concessions might be made. >> the italian government put on the table 2.04. that is their final offer. the european commission wanted to see a symbolic between 2%. you have a port reduction in the

deficit. you to work up by how much your debt pile can fold. that is a big issue for italy. the european commission wanted to see something a little bit more in line. i think we are going to get that. one thing that is fundamental is the fact that maybe this would not have been possible if emmanuel macron had not stepped in two weeks ago and said we should see the end of austerity. there is a social emergency going on in france. european the commission allow france to spend more? tom: i understand it is the last working day until february first in europe. here is the reality. we have a fed meeting today. we have the worst market. stunning new -- stunning low rates. brussels going to adjust to new lower economic growth?

being,ink for the time they just wanted to get this off the way. it is a much bigger issue politically. the italian situation for them than in the short term. they look at the fed. they also look at qe. mario draghi himself, being in italian, he was in a difficult spot. this was the biggest political headache. also has economic repercussions. it is a huge country with a huge debt pile for europe. tom: thank you so much. bring up that data screen again. this is incredible. those are lower yield. look at that move. nine basis points. seeds, -- andrew, these are join our miss -- these are enormous moves. it is like a global yield compression.

andrew: it is a pretty substantial move. i think there are two things going on. i think specifically what we are seeing in italy and may broader in europe is an expression of that old saying that happiness equals outcome minus expectation. the expectations toward the euro zone and italy towards investors where love. i think the fact that -- were low. i think it is colliding with the fact that investors were cautiously positioned in italy. they were bearish. that makes these moves easier. what we are seeing more broadly in yield is the bond market correctly adjusting. growth is going to be slower in bond markets. i think the u.s. will be the main bond bullish story. i do not think that will extend to europe given where are starting evaluation is. i think we will see u.s. yields lower than higher. nejra: that leads me to ask

about your thesis that we will see a convergence. what of europe? do those highs move as well? i think that is something that could surprise the market. the market is looking at week european data. the ecb has been on hold forever. they will remain on hold forever. they are underestimating a couple things. they are underestimating that growth in europe could be similar to this year. 16017, which is well above potential. you are seeing rising wage growth in europe. belowb is targeting at or 2% inflation. we are not that far away from that. there is a lot of room for the ecb to raise rates before it is anywhere close to restrictive. i think what people might be underestimating is that moving rates off of negative levels,

maybe it is not tightening policy. tom: what do you mean by that? that is an important statement. andrew: if we think what negative rates have done, they have made it difficult for the financial system to function. that has made banks less likely to lend and less likely to be out in the economy. you can see this idea that the first hikes off of negative, getting from -40 to zero, is not tightening. that would raise market expectations. tom: you just heard there a massive zeitgeist for 2019. thatw, i refuse to believe the move from negative interest rates to positive interest rates is an assured stability and is linear at the same time. i just mathematically do not buy that. what happens when the german

two-year comes up for air? andrew: i think that that would be a good thing. i agree with you. it is a major shift in policy. it is a major shift in where we have been. i think it would have two tangible positive elements. it would directly improve banking profitability. secondly, it would be a signaling mechanism. if you are running a european business and you see german ten-year rates where they are, it is not giving you an optimistic signal the long-term. tom: we have to go to break. this is such an important conversation. we will continue it. please stay with us. i want to talk to him about the future of european banking. i have to get my glasses on. michael mckee will be in the basement of the echoes building at the press conference. the fed decides.

alan greenspan will join us. this is bloomberg. ♪

andrewstill with us is of morgan stanley. we were talking about the fact that you see u.s. and european yields converging. does this mean that in 2019, you prefer to be in a european rather than a u.s. credit? andrew: i think european credit will have a few advantages. i think if yields are higher, that would help the spread case and not heard it. for the same spread, the insurers can buy the bonds at an all in yield.

in the u.s.s where it is the most worrying trends of corporate aggressiveness that would come home to roost. where we see the biggest deceleration in earnings and growth. all those factors, european and u.s. credit always move together at some extent so they will not completely diverge. i think the european credit outlook is better. nejra: is it the whole credit spectrum that concerns your in the u.s. or particularly high-yield? how do you play the credit spectrum? andrew: i think you can see a sharp divergence across quality. the problem that high-yield has is it seems like the wrong choice. whatever answer you give to the current exam. if you think that all of this worry is far too much -- that the u.s. is going to a productivity room, then you should -- productivity boom, then you should yobe fine stocks. if you are worried the growth is

going to decelerate, we are seeing these late cycle signs, then high-yield has a negative risk and reward skewe. you can lose a lot if the cycle turns. it under ass test recession scenario, it does poorly for the returns. tom: let me go to a chart here. thank you so much for bringing up this credit space in yield. on this.t photographs this is the hyg etf. it is a beyond elegant chart. it is hugely well behaved. are we at the disaster status yet? i look at that chart and that is price stealth on high yield. andrew: i think this could be a really interesting dynamic. we always think about risks from

the last thing to happen to us. the last big thing to happen to high-yield markets was the oil selloff and the 2008 selloff. those are both extremely sharp, extremely fast, weakening's in credit market health. is thata better analogy something closer to the 2002 experience where you have a much lower move. you do not get the cathartic panic. that is a challenging market. it is challenging if you are short because the short takes longer to pay off. it is challenging if you are long. tom: this is a good time right now. a massive shout out to morgan stanley. cautious on rates. cautious on growth. mike wilson, absolutely nailed out front. sheets, yourndrew

team has killed it. what do i do now? andrew: i think it is about a couple things. i think it is about positioning for dollar weakness. i think the market will, if the fed is dovish, i think that is bad for the dollar. if the fed is hawkish, and the market reads that as a mistake, that could be bad for the dollar. i think it makes sense to be rotating out of corporate credit and into a fixed income. that is a great way to replace yield. overweight,ng against underweight in the u.s., and underweight in growth and equities are good strategies for the year ahead. tom: thank you so much. brilliant this morning. worldwide, this is bloomberg. stay with us. ♪

nejra: in london with -- saudi arabia expect to privatize several companies in the first quarter of 2019. the country's economy minister

spoke to bloomberg. >> definitely, last time, we talked about readiness of the program. i think in terms of readiness, regulation, the low, the ftse, all ofthe these is out-of-the-way and behind this. opportunities, -- five sectors where we study the private sector appetite. the answer is yes. we are going ahead. 2019, we will witness those opportunities. >> how many companies? >> we are talking about selling in the first quarter. it is going to be around 19. >> the murder of jamaal because hashoggi, -- jamal kj what is your message to them? >> saudi arabia institutional

credibility is still valid. if you look at our credit history, that was one of the best in the world. if you look at our financial system regulation openness, if you look at our transparency recently and how we approach information and sharing, if you look at the opportunities themselves, they are still valid. very competitive and appealing. i think those will be what the private sector is looking at. tom: let's bring up the chart. i do not have a banner for it. it is a chart on oil. i will give you transparency on saudi oil. this is the reality. $51. we are down here. trying to find a range below $46 a barrel. michael mckee joins us. he will be in the press conference. i know you're not going to ask chairman powell about crude, but

part of the oil mix is lack of demand. how is demand in the united states? issueis a bit of an because the markets perceive it that way. when you look at the data, the data says the economy is up here -- tom: you and i saw federal express last night, which you and i know is religion on logistics and the pace of america. they see the fedex report. that is the present reality, right? >> you look at the forward-looking indicators. they suggest the economy is going strong. there is a deceleration. look where we have come from. we were at 4%. potential growth is 1.8%. we are still growing stronger than they anticipate. at this point, the fed has a good argument for basically going ahead with what it has done.

they probably are not going to come out with a hawkish statement. there is no reason for them to panic. tom: michael mckee on this statement. what words or paragraphs matter to you as an expert on the hieroglyphics of the statement? >> they are probably going to take out the phrase of further theyal increases because are going to try to emphasize data dependence on this point. not guaranteeing that rates will go up but leaving themselves the option if the economy performs as they expect. nejra: thank you so much for joining us. we look ahead to the special coverage. really looking forward to it later today on bloomberg tv. alan greenspan will be joining the team on the fed decision special. that is at 2:00 p.m. in new york. just have to bring you. breaking news on italy. . the european union is said to hold off on the italy sanction proceedings.

that is the executive deficit procedure. we were hearing that italy had come to some technical agreement. bcp yields have been moving sharply lower. tom: none of it matters until the fed meeting this afternoon. and the bank of england coming up as well. an interesting time in central banking. chairman greenspan is scheduled to join us. buiter ofwillem citigroup. this is bloomberg. ♪

♪ tom: this morning, it is fed day. expect the unexpected.

this hour, citigroup. history-making fourth quarter, perhaps the worst december, and how about oil? in general michael flynn. -- and general michael flynn. perhaps the general hopes for a government shutdown. good morning everyone. we are live from our world headquarters in new york. beginning hera is christmas shopping today. it is all quiet on the brexit front, but what is the backstory this morning? bethe u.k. is said to

ramping up its preparations for no deal. we know that vote in parliament is scheduled for january 14. parliament is heading towards its christmas break. the big story is italy. some headlines in terms of the eu holding off on italy sanctions procedure over the budget. rallyingssets strongly today. tom: the new low rate regime is something. right now your first word news. >> a victory for president trump. has to a measure to overhaul sentencing guidelines. it will curtail sentences for some nonviolent offenders. the president had lobbied for the bill.

senate republicans are trying to avert a shutdown and delay the fight over the border wall until february. they are considering a spending bill that would finance the government until february 8. theresa may has put the u.k. on high alert. more than 150 companies obtain personal data. , netflix and spotify could read users private messages. facebook saying it found no abuse by any of those partners. global news 24 hours a day on air and on tictoc on twitter powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you. equities, bonds, currencies, commodities, oil, oil, oil. one of the great indicators.

upures of 20, dow futures 189. the curve is moving in lockstep. oil a majorr, and story, american oil from $50. .5.13 on the vix 30 year bond, gary shilling watch. 2.99 out there. panic, 112.33.wn strong, but not that strong. nejra: european equities rebounding. up .4% on the stoxx 600. the eu has said to hold off on the deficit procedure for italy. we are seeing 10 year yields drop before that. yield, that 10 year

dropping across the curve. cable high, but not moving a lot. i've quit brent there as well. -- put brent there as well. tom: that is a big move. it is an odd monetary policy. maybe we ought to look at the independence. who should we start with? >> inflation is very low. hopefully the fed won't raise interest rates anymore. if you compare us to president obama, he had zero interest rates. anybody can make money at a zero interest rate. i'm at a normalized interest rate, and our economy is soaring. the fed is raising rates to fast. i'm not happy with what he is doing. it is going to fast.

i think the fed is far too stringent and they are making a mistake and it is not right and it, despite that we are doing , and it is not necessary think i know about it better than they do, believe me. i think the fed is making a mistake. i think the fed has gone crazy. you can say that is a lot of safety. it gives you a lot of margin, but i think the fed has gone crazy. >> we understand monetary policy decisions matter for families and communities. i share that sense of mission and am committed to making that objectivity in the long-standing tradition of monetary policy independence. tom: extraordinary. thank you for putting that tape together of this battle for central bank independence. special coverage today at 2:00

p.m. alan greenspan will join us. he has had extraordinary cautious comments on the american economy. discussion with citigroup. professor, wonderful to have you. chairman greenspan has a solid about a issue recession. can we see a recession coming? >> in the u.s., not yet, no. are slowingings down significantly more than the u.s.. tom: everyone knows data dependency has a lag to it. we know this battle of smart

guys like you trying to game what is going to come. what should chairman powell do today in that battle of looking for waiting to see the data? >> rates are still very low. given the fact that unemployment is 3.7%, given the fact the economy is growing at 3% and the potential is 2% or less, they have no reasonable option but to raise rates, and i expect them to do that. nejra: professor, great to speak to you. you expect a more aided dependent fed and two hikes in 2019, but your outlook is for subdued core inflation. with the inflation outlook as such, why should the fed not just hike this week, then not hike at all in 2019? outlook,flation

headline inflation, is quite 's subdued, but we have upward pressures because the subdued and potential growth is way below actual output growth. i see continued upward pressures on inflation in the u.s. they will respond to that. nejra: is there an argument for sheets take what nathan of a cause,ll pea pause, recess, then hike again next year? to filter outying andnoise from the signal,

they may well take a pause early next year to translate data dependence into something rateste, but clearly with still well below 3%, it is hard to argue the fed is acting in a restrictive manner. tom: clearly the president is a real estate guy and wants low fear, but the argument and experts,flation ease ok great, no one is talking about runaway inflation. the president has a point, doesn't he? >> not really. tom: what is the president getting wrong about just waiting to see if inflation actually shows up? >> inflation has already shown up.

target.lready close to don't we need and overshoot. >> we are not having a price level target. the otherershot in direction in the past is invalid. if you want to guide inflation expectations to lower term targets. if he had a piece of chalk in his hand, he would have thrown it at me. you can see the intensity of the dynamics of these numbers over the level we are at. we are shifting to a different level. we will ship to of better

conversation, a lot to speak on. this is what we do. , the former chairman alan greenspan, sharp questioning for greenspan on america's economic might and on our monetary theory. stay with us through the day on the fed. this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get the bloomberg business flash. split,planning for a having agreed to combine consumer health care businesses in a jv, listed in three years. makes advil and centrum.

we will talk about the joint venture with gsk. domestic telecom business had one of the worst first-day declines in japan, falling 14%. softbank stuck to a price rather than a range. and thethe selloff network outage. ge will spin off its second-most profitable business line. it has filed for an ipo of its health care unit. a public filing is likely next spring. the new entity could have an enterprise value of up to $70 billion. that is the bloomberg business flash. nejra: thank you. to recover from its biggest slump since 2016 as slowing global growth is

haunting investors. with us is our executive editor for energy and commodities. we outlined the bearish case for oil. what is the bullish case? >> there is one glimmer of hope. with thebia came out budget assuming $80 a barrel, which is courageous. when we run the math, we come up with $95 a barrel they would need to break even on their budget. that may give you pause for thought, but either that is policy, will drive the meaning they need to get them up quickly. i don't think anyone believes they can single-handedly managed the global market. nejra: has the market lost faith in opec plus? >> perhaps.

yesterday's meeting confirmed the cuts would not start until next month. it will not hit as quickly as we hope for. tom: good morning. , want to bring up this chart an approximation of inflation-adjusted oil back a million years, half a century, then adjusted for rising global wealth. stay with me on this. down we go. the 1970's, opec one, opec to, 1986, persian gulf war. stewart wallace, what is the level of panic in saudi arabia? i don't buy the quiet at all. at what price do they panic again?

>> they can't manage this market by themselves. everyone is pumping at capacity. if you are russia, you are not inighted, but certainly not panic mode. their overhead is in rubles, and rubles have been come down. remember, they have drilled a lot of wells that have not been completed. stock they cane get out. tom: one final question. i spoke to goldman sachs yesterday. is consistent word technology. what is the technology momentum in the next year that will depress the price of oil? >> two things. extraction costs continue to come down, labor costs have not

spike yet, but that could be a headwind next year. hugeof new fields opening, amount of labor needed it, so that could be a headwind. otherwise, steady as she goes. they have been bringing down costs. around wells coming in $45 to $55 before they can make money. nejra: thank you so much. still with us is our guest. great to have you with us. oil at current prices, good for global growth and that is where we are with that? >> the reason oil prices are is because of a general fear of slowing global growth, especially in china. the fact that part of

the reason for the price of oil is anticipation of global weakness, lower oil prices themselves tend to boost real ,ncomes of oil importers although it hurts exporters. roughly a neutral exercise. 2019 globales your view say about these aspects of oil? >> on the supply side -- tom: on the technology side. >> especially when it comes to it's going to lower breakevens. scarcity in the u.s.

rising, but i think technology will triumph. tom: i have not done a standard deviation study of this, but absolutely extraordinary. from theme headlines eu. were watching brexit and italy. we have comments on both. measures unfailing 14 to deal with the no-deal brexit. the u.k. is stepping up its preparedness for a no-deal brexit. has foundring the eu a solution for the 2019 italy budget, but the solution is not ideal, so that is interesting. we have seen b2b yields dropping in the session. they continue to do so. this is bloomberg. ♪

britain, the news, eu moving forward. italy and the idea that will be no excessive deficit procedure for italy. back and forth. i guess they will stop in a couple of days and pick up the brexit baton, the better union baton, into 2019. very quickly, two of the old

guard. paul volcker out with a wonderful book. alan greenspan will join us today. is enjoyingenspan his 92nd year. tell our younger audience what alan greenspan did as a central banker. what did he codify for economics? >> i suppose his middle name was gradualism. tom: he came up with the idea we still use, right? >> absolutely. paul volcker invited discontinuity towards a lower rate environment. thatspan managed low-inflation environment. tom: he got productivity so right. the productivity surged. remember when the chairman nail that? he did he did, but did

not quite nail them building up during this. 's -- during this. growth.of alan greenspan will join us this afternoon. looking forward to that one. coming up, an important on consumer brands at glaxo and pfizer. , look for that in the 7:00 hour. this is bloomberg. ♪

.ejra: i am nejra cehic the eu commission speaking in

brussels. we heard earlier that there will be no excessive deficit procedure for italy. he said italy's structural deficit is stable. he did say the italy budget still raises concerns. some celebration and markets if you look at 10 year yields, the stoxx 600, and the euro. let's get first word news. >> the u.s. is making a potential overture to restart talks with kim jong-un. a u.s. special representative said washington will review all sees preventing the provision of humanitarian aid to the regime. they will discuss ways of getting nuclear negotiations with the north back on track. the trump administration said it plans to sell the patriot

missile defense system to turkey. the u.s. is hoping turkey may halt its purchase of a russian missile system. bloomberg has learned that turkey still plans to buy it. michael flynn will have to wait another three months to find out if he's going to jail. that is after a startling turn of events. heederal judge telling flynn sold his country out. the judge said he could not guarantee no prison time and urged clinton continue cooperating. manchester united has turned to a former player. he will be the caretaker manager. the team looks for a full-time replacement. firing itsunited manager after its worst start in eight years. tom: terrible. >> global news 24 hours a day on air and on tictoc on twitter powered by more than 2700

journalists and analysts in more than 120 countries. tom: what is so important about this is we only speak to people who are arsenal fans. now we do it today as well. are like the best of the best? >> the jewel in the crown. tom: the jewel in the crown. >> yes. tom: what is your prescription to rebuild manchester united? >> get a decent manager and coach. they clearly bombed out completely with this last one, so they should make a radical change. tom: can you get instant results with radical change, or does it take years to rebuild? >> having a more offense-minded approach. tom: like manchester city where

they are flying down the field. >> so you score three. tom: that is the way the dutch plate and the world cup. >> it doesn't often happen. tom: we won't go there, will we? we will go to someone like me who knows less about soccer. we are having fun with this. i have to talk about general flynn first. it is a gentleman in uniform. he was ripped apart in court yesterday. how does that change the dialogue at 1600 pennsylvania avenue? >> here is the thing that intrigue me. good morning. the judge has postponed sentencing. maybe the judge knows that robert mueller has another two

or three months to go before this wraps up. tom: we will see. let me go to the zeitgeist of someone who has been a big fan harvardson furman of writing in the wall street journal, and he goes right out to the conservatives, over the past year, the data clearly shows that the tax cuts increased deficits. but might seem obvious, with so many people including the treasury secretary arguing otherwise come it is important to make the point again, the of gdp,revenue to 16.4% among the lowest as a share of the economy in half a century. >> i don't see any prospect of reversing it. those deficits for the next several years. is not picking up on

investment. it's having a modest impact. nejra: i'm going to make a sharp if it. -- pivot. the saudi oil minister saying the current oil price is not linked to market fundamentals, set output countries will drop by 3% in january of midst of backdrop of the worst three-day decline for wti since ,016, concerns about oversupply concerns about global growth feeding into this. absence of any tweets from president trump with wti on a 46 handle given how far we have fallen in recent days. for. careful what you wish everyone is looking at the and oklahomaxas starting to suffer because prices are too low. nejra: exactly.

we've been talking about what that means in terms of the shale in the u.s., but let's get back to u.s. politics and what it means for markets. get that jittery over the prospect of a shut down , but why would democrats agree to any compromise? >> the had better prospects getting their way next year with a new house. i think they will hold out, change the goal posts. the shutdown story is not big for markets. the bigger story is you now have a new dynamic with the democrats having a say. tom: i'm going to cut to the chase. there is this word progressive. i hate it. they are liberals. can them the brussels be jackson conservatives -- the liberals be jackson conservatives with some form of fiscal responsibility? >> probably not.

i think the democrats agenda is very ambitious. they are looking at 2020. the left-wing progressives are now ascendant in the party. tom: we have to leave it there. i'm going to bring up this chart. my chart of the year. the twin deficit charts. we are back at ronald reagan, fiscal deficit to gdp, and it goes back to 1985. how serious is this? >> i think it is extremely serious. will propel the u.s. economy to recession. i think markets finally are recognizing the unsustainability of the u.s. fiscal position. for are looking at 6% plus

2019, full employment, structural deficits. this is completely bonkers and hide the irresponsible. a price will have to be paid for it. markets are myopic and want to see the 6% crawling out of the water before they start flapping in panic. nejra: i'm glad you brought up the panic. we talked about where equities are right now and the fact that historically the fed has rarely hiked with equities looking this bad in the u.s. i'm going to ask you, should the fed the reacting more to what markets are telling it in terms of the bond and equity markets? >> no is the short answer. the fed should allow for the effect of market movement on its objectives, which are maximum employment and stable prices, but it should not listen

carefully to the message conveyed by markets because the noise to signal ratio is often infinite. tom: we will come back. your morning briefing coast-to-coast with karen and nathan on bloomberg daybreak on extraordinaryan rapid summation of the zeitgeist of the moment. bloomberg radio, the early morning. state with us. this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get the bloomberg business

flash. japan post will take a minority stake in aflac. take a 7% stake valued at $2.4 billion and will increase in 20% over the next four years. citigroup facing up to 180 million dollars in losses on loans made to an asian hedge board-leveling discussions and a business shakeup. ,t may end up being smaller depending on how the foreign exchange rates are unwound. investment bankers and asia are bailing on deutsche bank. cost-cutting and sinking morale have prompted dealmakers to leave. 35% of investment bankers have left in the past six months.

that is the bloomberg business flash. nejra: thank you. to update you on the key headlines from the eu commission in the past hour, no excessive deficit procedure for italy. italy's structural deficit is projected to be stable now, but the budget does still raise concerns. our guest is still with us. i want to take this to the prospects for the ecb, italian political risks, france as well, and brexit, is there any prospect for you that the ecb will manage to raise rates in 2019? >> everything is possible, but not everything is likely. given the slowdown we have seen throughout the eurozone, not just italy, the notion of a rate hike anytime soon during 2019 has become much less plausible.

it is still possible if we get a strong revival in the key countries, germany, italy, and france. i would not hold my breath. nejra: right, so how likely is that revival in those key countries you mentioned in 2019? >> i would say it is most likely in germany if we get an early resolution of the trade tensions between the u.s. and the eu, which would impact severely on german automobile exporters. there is a sigh of relief, but i don't think we can expect any recovery there. its yellowstill has vests. tom: all the fancy suits and

ties are jawboning this morning. bring this up. here is the reality from mark carney, mario draghi, jerome powell. the u.k. inflation rate falls. we all know that. how is price growth weakest since time began? we have a fancy chart of dampened inflation. you are telling the we will see inflation come to the pike. the market does not believe you, do they? theo, the market believes phillips curve is basically dead. tom: is it? >> like monty python's parent, ot, only stone. the unemployment rate continues to fall and there will be upward pressures on inflation. clearly isce story

distorting headlines. tom: agreed. but, verytorting it, important when a leading economist quotes monty python. it is important to note that that is an exclusive, when a world-famous economist quotes the philosopher python. nejra: it is a beautiful moment among many. i want to ask you about the prospect for boe rate hikes. you say that boe is ready to hike rates. do you think they will hike regardless of the outcome of brexit? >> of course not. if we get a reasonable brexit may'ss anything like mrs. deal or better, i think you are have rate hikes coming down the pike without doubt. brexit, the no-deal

chaos that in sue's -- that ensues would follow with a further weakening of sterling, so it crucially depends on how brexit works out. they won't do anything until there is clarity about that. nejra: what is your outlook for iltt could happen with the g curve. we had comments recently we could see in version. we talk about u.s. yield curve inversion a lot. a lot of people counter that comment, saying you would be seeing steepening in the curve. your view? >> in the u.k. or u.s.? nejra: the u.k.. have auld expect if we no-deal brexit, you will get a sharp inflationary impulse from

sterling and a flight into against eachhey go other in terms of their impacts on the yield curve. i am firmly of two minds. tom: thank you so much. minor will join us. he works his travel schedule around and we are thrilled he can join us at 2:00 p.m. the financial ramifications of chairman powell's press conference. stay with us. this is bloomberg. ♪ this is bloomberg. ♪

tom: good morning. nejra cehic in london. we have fed day. some very intelligent work on politics, economics.

commodities as well. single best chart. were 20g to go where we minutes ago, the inflation- adjusted fed funds target. here is where we were with a high, real interest rate. down we go. the agony of the crisis. stan fischer is altra accommodative. richard clarida sees a solid economy, and somewhere out here is knowing where the inflation-adjusted fed funds target rate is going. can we get back to normal, or a new normal? >> a new normal. we are in a low real interest rate world for the foreseeable future. it is a global phenomenon. tom: 1958, new zealand economists comes up with the phillips curve. it has been beaten to death over

the years. the heart of the matter is do we need to take our analysis back to where it was, which was a nominal gdp, worry less about the real economy, where we were 20 and 30 years ago, or do we stay slaves to inflation-adjusted analysis? >> i actually favor looking at the real economy and inflation. tom: thank you. >> we have a dual mandate that makes it easier. tom: fair. >> to look at nominal gdp is losing information, because the components are individually important. want to showle their information is the present economy, isn't it, the nominal economy? >> nobody cares about nominal gdp. people care about the real purchasing power, which is inflation and real wages, and about employment, for which real

gdp is a proxy, so i am happy with the focus on gdp and inflation. nejra: professor, in terms of what people care about, markets care about the neutral rate. we are not far off the bottom of that range. where is the neutral rate? nominal,ly at about 3% so 1% real neutral policy rate. the longer end, the 10-year we are rate at .5%, so still some distance away from it in my view. nejra: part of the market pricing in barely one hike in 2019. your view is we will get two in 2019. if the dots were revised, with the market see that is hawkish and we see further yield curve flattening? not fully convicted

on the timing of these two hikes. if they were in the second half of the year after strong economic performance, the markets would take it in stride. if we got new hikes in the next two meetings after the current one, i think markets would be upset, but that is unlikely. tom: this has been brilliant. this is what "bloomberg surveillance" is all about, two very different opinions. some real optimism about what chairman powell can do. someone with a decidedly different view, chairman greenspan, far more cautious, 2:00 p.m., the fed decides. ♪ ♪ there's no place like home ♪

argh! i'm trying... ♪ yippiekiyay. ♪

mom. ♪ ♪ david: not too hot and not too cold, the fed tries to get it

it announces its decision with expectations of a rate race. signals and noise. lows,es and oil traded temporary volatility or a troubling trend? a new consumer health care giant, glaxosmithkline and pfizer join to form the largest over-the-counter drug provider in the world. welcome to "bloomberg daybreak." i am david westin with lisa abramowicz. alix steel is off. italy has a deal. >> that is what they say. markets seem to be buying it. falling theds are followin most since october. this is not a big deal. david: it came down