nejra: good morning from bloomberg headquarters in the city of london. these are today's top stories. linning darvish, jay powell raises rates at the central bank. markets revote. japan shares headed for a bear market, use futures, the worst drop in equities since 2011. -- the fed was right in getting out of qe.

welcome to daybreak europe. what a session it was yesterday, the s&p 500 gaining and that translated to a drop of 1.5%, futures point to continued , down in today's session almost -- almost .7 of 1%. equity markets did not take the fed decision and news conference well. was it the fact that further gradual was not taken out of the wasement or the dot plot revised down to two, is it the market did not see jay powell as dovish enough? a dovish hike was expected. was it a policy mistake? entering a bad -- a bear market. .e have had that decision we will talk about that. the 10 year yield has dropped.

below 280, we are on a 275 handle, it dropped six basis points. what is the bond market telling us about the decision as most of the move was in the 10 year yields rather than the two-year yields, we had flattening. it continues below. the, was saying that if the fed was hawkish in the market we would see curve flattening and that is what we have seen. thean stanley saying that 10 of the 30 year should outperform the two-year. that is something to watch into next year. the bloomberg dollar index, not a huge amount in yesterday's session but we have a weaker dollar and european equities when they open will follow the session. crude continues to slide, we are at 47 dollars a barrel but down

more than 2%. growth, andut ongoing supply concerns. juliette saly has more. it is all about what you see in japanese equities, down.pix closing over 3%, 3.2%,ff 2.8% but a big fall coming through from japanese equities. has had its worst december since 1959. and in bear market territory. we had the bank of japan standing pat on the back of the fed, rattling investors. the nikkei also falling sharply, down more than 3% during the

asian session. let's have a look at some of the stocks we have been watching. resolve jumping as much as 27% after the u.s. is lifting sanctions on rusal. aluminum falling to a 16 month low. we are watching a lot of these movers in terms of the japanese tech players, you can see on the screen off 5%. goldman sachs saying investors should brace for more spending cuts. pretty much the only stock that was higher today in the japanese by 7% on the close. rebounding from a six-year low after moody's downgrade. pretty much apart from that stock, very red and the topix in bear market. nejra: we are asking the question, how long until u.s. stocks enter a bear market question mark we heard that the

topix has entered a bear marker. you can join the debate and reach out to us on your bloomberg. let's get the bloomberg first word news. have: asian stocks followed u.s. markets lower after jay powell signaled. and raising trump u.s. interest rates for a fourth time in 2018 powell signposted caution about the destination. there policymakers expect two rate increases down from the three projected in september. >> inflation has still remained a touch below 2% so i do think that gives the committee the ability to be patient and moving forward. as i mentioned, there is significant uncertainty about

the path and the ultimate destination of any further rate increases. reserveormer federal chair and out -- al green -- alan greenspan is says the [indiscernible] affected by u.s. politics. >> i am concerned about the political system. i have never seen anything remotely close to what we are observing today. i think the economic outlook is being affected by the politics. debra: the bank of japan made the policy changes at its final meeting of the year. the yieldaintains target at about sarah percent. the policy balance rate at minus point 1%. with oil prices tumbling economists see inflation falling toward zero in the year ahead.

the u.s. senate has voted in bill of a stopgap spending to head off a partial government shutdown friday evening. the decision puts off a confrontation with president trump over the proposed border wall and keeps federal agencies open by extending funding through really february. the bill goes to the house where leaders are signaling support. court in has rejected a request to extend the former chair of the sons detention. prosecutors have the right to appeal in a higher court. indicted him on another charge. he understated his income, an allegation he denies. saudi arabia intends to issue 120 billion riyals and bonds to finance its deficit. in an interview, the finance minister said the kingdom is

considering issuing international bonds and dollars in other currencies and is likely to start topping markets in the last half of 2019. >> we want [indiscernible] we are targeting anything in the range of 120 billion. or minus. it depends on the market conditions. debra: global news 24 hours a day on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. thank you. the federal reserve has hiked for the fourth time this year, the fomc's message was more dovish but maybe not enough for markets judging by the reaction. u.s. stocks were sent tumbling. mike mckee reports. mike: the fed offered a dovish

hike as expected but not dovish enough to meet investors' concerns, officials raised the benchmark target rate to a range and 2.5%.25 officials added a word to their forecast saying the committee judges some further gradual increases in the target range will be appropriate. >> policy at this point does not accommodative, and can move to neutral. it seems appropriate that the neutral, we are at the bottom range of estimates so that is the basis of time to make the decision. >> that news sent stocks lower. investors worried about the withdrawal of liquidity from the balance sheet is adding tightening to the economy. >> we are alert to these issues, we are watching them carefully, but we do not see the balance sheet run off as creating significant problems. mike: even though the number of fed rate moves next year dropped the media calls for no more than

two hikes in 2019. the long run neutral rate also a 3%to 2.8% and made forecast in september. justifying that, policymakers lower the growth forecast to 2.9 percent from a september view a reach 2%.th a core powell cited slowing growth overseas, tightening financial conditions, and market volatility as risks ahead. in their statement officials pledge to monitor economic and financial develop its and assess their implications for the economic outlook. as powell pledged, monetary policy is not on a preset course. joining us now, great to have you on a day like today. the equity markets, the s&p 500 a lot ofown 1.5%, people interpreting the fed is not dovish enough although they

did deliver a dovish hike. a policyulate it is mistake. what is the bond market reaction telling us with the 10 year yield dropping to 275 question mark arts: on the face of it it is counterintuitive that if the fed is raising rates, you would have thought the structure of rates would go up. but the bond market is telling you is it is looking hard at the risk markets and if you look at the bond market and the stock market during the testimony, what you would have seen is funds moving in lockstep with stocks. stocks fell and by deal to fell. what we're saying in bonds is it is the financial markets that is driving the bond markets rather than the fed's rates. nejra: we saw the curve flattening but is that likely to continue given what we heard yesterday? past two quarters has been extraordinary.

and given that the fed has said course of reducing the balance sheet which should be pushing term premium backup and into the market. premium content -- continues to fall. course of reducing the balance sheet which should be pushing term premium backup and into thealthough we do not t superstitious about what the curve means for the economic outlook, it is still clearly the case that the bond market is showing it is worried that the fed will have to come back from the level of rates it wants to get to and pull rates down again which implies a recession or a deep slowing and growth ahead. shows you that when the fed starts raising back up does not stop again. you were forecasting that we were going to have two hikes in 2019, the fed would pause in june and toward a slower pace of hikes. is therefed pauses, going to be a cut? lawrence: if they are unlucky,

yes, if we are all unlucky. the ideal thing for the fed is they do what they managed at the beginning of the hiking cycle they hiked rates once, there was a bad reaction from financial in stocks andally they sat on hold for a year and waited for the tightening a financial conditions to work its way into the economy and for the economy to be resilient. you can see that with the first hike. if the idea of getting a soft landing is there going to take rates to neutral, they will hold the men neutral, hopefully the economy will continue to be strong enough that maybe the next move can be up rather than down. that horizon is a year away. what they need to do is if they go too far, you know the next move will be down, that is what they are hoping to avoid. nejra: is this a policy mistake and let's ask about the balance sheet. we heard from jerome powell that ridill be on autopilot

should they tell the markets different? lawrence: i do not think it is a policy mistake. we still think the hikes next year are justified and it is interesting how much the market has changed. three or fourt hikes that some people had in and the market is pricing less than one hike for the whole of next year. i am sure mr. powell would he delighted i am in agreement with him. we think that two hikes is about right for next year, the economy in the first half of the year will be strong enough to justify further hikes. and it is getting back to neutral and beyond that there will be a softening in the economy, that will go on hold, the outlook for 18 months depends on so many things from trade to the economic fundamentals, who knows after that? nejra: why do you think they are on the right course given that your growth forecast is below

consensus for the u.s. and what about inflation, that justify the path they are on? look at that drop lower. lawrence: what the markets are telling you is it is close to saying that the fed has overdone it already. let's remember where we are and where we come from, this is from four central banks, where we are coming from his we had above trend growth, we had the economy at full capacity, the labor market is tight as a drum, and yet, policy, the setting is somewhere near accommodative. if you do not do anything, what do you do, you see more jobs being created. this economy is creating 150, 200,000 jobs a year, it cannot keep doing that without embedding inflation pressures. i am sorry to sound like an old-school economic sky but the supply and demand think it's tight and the difficulty for the it hasrket, we has --

not seen that for quarter after quarter but where is this rise notages, the fact you have seen it historically does not mean you will not see it in the future and that is why they are acting now. nejra: let's talk about one of your trades. lawrence: there are two reasons that we like this trade. one of them has to do with the their ofindustry and way short duration, there have been some changes which will make them move into longer duration bonds, this is flattening over a secular time, in the cute -- u.k. it took 15 years. meantime, it is true the fed and it -- and the hiking cycle. this will work especially if the market is right and we are wrong.

and it starts to price rate cuts. nejra: hedging your bets with what the market is thinking. great to have you, stay with us for the hour. later today, bill dudley joined the mark marquess for an exclusive interview following the fomc's final meeting of 2018. do not miss that interview, his first since leaving. if you have to step away tune in to bloomberg radio. this is bloomberg. ♪

nejra: we could see the decline continue for u.s. equities after the sp hit its lowest level. equity markets did not like what drum powell had to say. 75 level.it to -- to the nikkei lower and the topix

has entered a bear market. we are at $47 a barrel. the euro on a 113 handle and fund futures show they could see bundp lower in the 10 year yield when the european bond markets get going. we are asking the question on mliv, how long until u.s. stocks enter a bear market? you can join the debate and reach out to us on tv on your bloomberg. your g10 rates, you have an interesting answer, how long until u.s. stocks enter a bear market? lawrence: i think it is the aboutquestion, it is not how long does it take for the stock market to come down 20% from a peak sometime last year. if you look at the beginning of last year we are down around 5%. if you are the fed, if you are raising rates, why do worry

about financial markets? you do not worry about the volatility. howell said this and he said it again yesterday. you do not worry about volatility, you worry about the effect on financial conditions. are you creating a financial risk of the system or are you tightening financial conditions and changing the economic outlook? the fact it went up and down is not a worry. mark cudmore might take offense. let's get the bloomberg business flash. deborah: brian moynihan is listening [indiscernible] he said the bank is sending out dealmakers. seeking to regain market share after cutting back on risk. >> we got to careful so the team is building act out.

-- people covering deeper in the franchise and when we look at ourselves we lost them share in midsize clients and i said we should not do that. of rusal have soared. in hisg a deal ownership. intendssury department to lift sanctions on them and other companies associated. soros's namesake fund is reducing most of its macro wagers moving away from a strategy that made him a fortune and inspired a generation of traders. his new york-based fund management has been cutting the program of the past year due to fewer perceived opportunities. sources say his director of macro and real estate has an allocation of $500 million down from $3 billion last year. that is your bloomberg is a/.

-- business flash. nejra: a tokyo court has rejected a request to extend carlos ghosn's detention. will be outmean he of jail immediately. joining us now for more is bloomberg's reporter in tokyo. great to have you with us. what is the latest we are carlos ghosnmight not be walking in of jail today? court rejected a request to extend carlos ghosn jail sentence. -- what we know is if it is possible for carlos ghosn to be released today or tomorrow but that is not for sure because he faces many obstacles. prosecutors could appeal and a

higher court or indict him on another charge. he will have to apply for bail. he may be released but it is not because he remains in jail pending his trial. nejra: what is the reaction in japan as we look at pictures of the detention center? are plenty of questions, there was a little commotion. the saga is far from over. it is externally unusual for a court to reject a detention extension from a special prosecutor's office. approvedtion was through today so prosecutors were seeking another ten-day extension through december 30. you for joining us. coming up, saudi arabia's finance minister tells bloomberg the kingdom is looking to issue

$32 billion worth of bonds next year. you can hear our clue -- our exclusive interview later this hour. when you are traveling to work, tune in to bloomberg radio live on your mobile device or on dav digital radio in london. let's get a quick check on the markets, the fed decision yesterday and the news conference, the equity market did not take it well. the sameropping by amount, u.s. futures pointing lower in today's session, the 10 year treasury yields have broken through key technicals through the support of 280. we are on a 275 handle. our the market saying the fed could make a policy mistake, is that what the worry is? is jerome powell not dovish enough although he did argue a dovish hike. the nikkei lower by 2.8%, that topix has entered of bear market. the indices slightly

weaker. the euro strengthening. we could see 10-year bund yields fall. we are keeping an eye on the jgb's. this is bloomberg. ♪

nejra: the boj standing pack on its decision today. the governor just sitting down to deliver his news conference. we will bring you any headlines as we get them. let's get the bloomberg first word news with debra lau. have followed u.s. markets lower after jay powell to thed little threat economy from the recent turmoil in financial markets. president donald trump raising u.s. interest rates for a fourth time in 2018. powell signed posted caution. expect to ratew increases next year, down from

the three projected in september. considerations play no role in our discussions or decisions about monetary policy. we will always be focused on the mission that congress has given us. we have the tools to carry it about. we have the independence essential to do our jobs. ♪ reports of two drones flying over the area. it was shut down overnight but briefly reopened before closing again. authorities are investigating. of shutdown forced diversion more than two dozen incoming planes. -- report will up dine update passengers when it's possible to resume operation. global news 24 hours a day, powered by 2700 journalists in

more than 120 countries. nejra? nejra: thank you so much. i guess is still with us. we were showing you some pictures of the news conference following the decision today. standing pat on policy. what's your first take before we get into the details? >> the bank of japan, we have very tight economy. very low unemployment. we know about the demographic situation. in spite of everything, the long-awaited rise in inflation eludes them. they are stuck there, i'm afraid. nejra: long-awaited. some people are seeing inflation dropping to zero. are you of that view? >> certainly we think the economy is going to slow. it did slow because of some natural disasters. we don't think it will be picking up again to where it was before. nejra: how much is the boj going

to be driven from what the fed her guest -- we heard from the fed yesterday? >> that expresses itself through the currency. the problem is that the yen looks like it may be strengthening during the course of next year. that will be another headwind on the bank of japan. does it really help them? i guess it doesn't. the u.s. policy is accommodative. for the world economy, on a more optimistic note, it's not as bad as it could be for the bank of japan. nejra: one of the key calls is short dollar-yen. >> its to do with this rolling over in the u.s. during the summer of this coming year. when we see the fed reaching the end of its hiking policy. it's much more from the u.s. and then the japanese end. nejra: you do see the boj's next move more easing.

we will get more from you in just a second. let's go to brian fowler to get a recap on the bank of japan. he's joining us from tokyo. take us through the details. bojs you said, the maintaining full stimulus in a move that was expected by 100% of the market. the key takeaway was in the statement where it talked about corporate profits and business sentiment. it was a little bit less upbeat this time. that something to pay attention to. the markets were already in risk off mode. being japanese shares sold off after the boj decision. now, weare looking for are waiting to hear how japan will deal with all of the external risk that threaten its economy. we know what those risks are. china's economy slowing partly due to trade tensions. trade tensions pose a direct threat japan -- to japan.

there are lots of other things to worry about around the world. including the brexit chaos. we are seeing central banks around the world turning more dovish. the fed dialing back its dot plot for next year's rate hike. the ecb, some would say. where we once expected a hike by september next year, maybe not until december now. we want to hear what they say about the threats in the external environment as they talk about japan's place. we know the economy here now is growing at an anemic 0.8% over this year, probably will slow little bit next year. epi is still under 1%. that's not likely to change anytime soon. economists who said we might see tapering in japan as early as december, now they are all dialing back their expectations to late spring at the earliest.

many of them are calling off those expectations entirely. nejra: brian fowler, thank you so much. let's get back to our guest. some boj officials are said to be fine with yields hitting 0% or below. subzero yields for an extended. could causeed time anxiety about profits. are you expecting it to drop below euro soon? >> i don't think it will stay there. ist that report emphasizes what central banks are dealing with, it's not directly macro economic. there's not directly much they could do about it. it's about world trade. u.s. versus china trade talks. it's about brexit here. financial uncertainty in the eurozone. these things are completely out of the hands of the bank of japan. as they are out of the hands of all central banks. they will do what they can. all kinds they have

of ways of easing. etf buying is the next logical step. they are pushing against the wind. nejra: i want to bring you a couple of headlines coming through. downward risks centered overseas. nodding to the external risks we heard about. the boj judges risks tilted to the downside. very quickly, we talked about u.s. breakevens earlier. say even in japan, 10-year breakevens are cheap. is that a reason to buy them? >> we have been wrong about the move in bond markets and breakevens. there's certainly a lot of value in breakevens globally. even in japan. nejra: one more comment from corrado -- kuroda. there is no change in the boj's main scenario. we will keep you updated. our guest stays with us.

the middle east. saudi arabia intends to issue $32 billion worth of bonds next year to finance its deficit. bloomberg spoke exclusively to the saudi finance minister, he told us that the kingdom has the ability to reach investors around the world. we have a fantastic relationship with our investors. locally and internationally. we have access to a wide network of investors. the primary market, but also in europe and asia. we are expanding. we are likely to go to the international market early next year. it all depends on the market. >> wouldn't be more likely the first half or the second half? can you give us a ballpark range of how much you are likely to issue? will it be similar to past

issuances? >> generally we wanted to make sure that the majority is local. we are targeting anything in the range of 120 billion saudi riyals. plus or minus. it all depends on the market conditions. it all depends on when we decide to go, how the market is doing. is the price fair for us? yousef: is the possibility for more transfers from iran into the government, is that something that is being looked at? >> we plan, considering various circumstances. aramco has ambitious investment plans. aramco totion need continue its investment in the gas network. , as's a huge investment energy minister said earlier today.

aramco is doing so. they need to make sure that they have the right funding for it if it closes. this, and thef debt market condition which we monitor very closely, to make sure that there's no oversupply. the decision is made. i will not go into the details of what kind of dividends will be made. it's likely to be in the same line as we have seen. nejra: that was the saudi finance minister speaking exclusively to bloomberg. here's a look at what you should be watching today. after the fed's decision, more central bank action today. the swedish bank is inspected to stick with negative rates. vladimir putin holds his annual televised news conference later. midday, we will get a policy announcement from the bank of england.

economists expect no change to rates. marks the first anniversary of financial institutions across the eu spending billions preparing. what impact has the landmark regulation had? what can we expect? joining us now from paris is the chair of the european securities and markets authority. great to have you with me. good morning to you. good to see you in paris. we are almost a year on for the start of mifid ii. are you satisfied with the way the implementation has gone this year? >> good morning. very good to be on the show. indicated, it was a big start for mifid ii. overall it has been a good start. some of the impacts will only appear later. impacts ineady seen

research and execution. we have seen changes in our intervention powers. in other areas, it will take more time to see what will be happening. nejra: yes. some have criticized the data that itg and said actually hasn't been that satisfactory. have you found it effective? the data reporting requirements that have been put on institutions. has that been useful for you? data is needed. that's a very big change can there to method one. it's a much broader set of incident -- instruments. data reporting obligations. we have made big steps forward. doublearch this year, volume cap in place. the bones thated

are subject to the transparency regime. there's more work to be done. really big steps have been made this year already. nejra: yes. you have mentioned the double volume caps yourself there. they have been heavily criticized by some in the markets. will they be changed in 2019? them have implemented since march this year. the double volume cap, we have clearly seen the impact on trading. it is true that we also have seen indications of possible circumvention to periodic auctions. started a call for evidence on these periodic auctions. depending on the results of that call for evidence, we might need to take action. that would be the approach this year. if we see certain consequences that were not intended, we will

make changes. we have done that in the area of the regime where we have seen some consequences when significant liquidity is outside of the eu. we have made proposals to change that particular case. the main liquidity is outside of the eu. unlevelalso seen on playing field between the si regime and trading venues. that has been the reason for us to make proposals. that has been adopted already by the european commission. nejra: let me talk to you about brexit. the london stock exchange group says it won't force you banks using its clearing house division to shut their derivative position after no deal brexit. this move by the division follows european regulators like yourself, giving more details of how you are going to give temporary equivalents data to

u.k. clearinghouses. can you give any sort of unequivocal reassurance that you are going to do everything to meet any of the clearinghouse's concerns? indicated, the board early on identified the central clearing as an area where there is a need for public action. that's an area weather may be stability consequences as a result of a no deal brexit. reason for arguing for continued access to u.k. ccp's. yesterday, the decision by the commission -- we are now ready to start the recognition process for u.k. ccp's. in the area of the derivatives there, we think that the private

sector can ensure that there is no stability impact. we have proposed some measures that will make it easier to read paper -- repapers. . it's for the private sector to prepare for a no deal brexit. what we can see from the credit dated agencies that we directly supervise, they are well on track to be prepared to have a fully fledged entity by the end of march next year. and to be prepared for no deal brexit. nejra: as you pointed to their, the eu decision runs for 12 months. that takes us to march 29th. what happens after that? will we be in the same position of uncertainty? all, that's a decision for the commission to be made. they are the ones that are deciding on equivalents.

we have argued that it is very important that we progress with a new piece of legislation that gives asthma better powers to supervise infrastructures outside of the eu. we would hope that that piece of legislation can be the next phase to ensure proper supervision of ccp's outside of the year. nejra: you are starting the recognition process. is that definitely going to happen? when will you reach that decision? briefly, stephen. yesterday,have said we are now ready to receive the applications for recognition. the process for recognition is quite straightforward. it's mainly about administrative processes. we would expect that we are sufficiently on time to be ready for the recognition of the u.k. ccp's. nejra: thank you so much for

joining us. the chair of the european securities and markets authority. great to catch up. left untilth 99 days the u.k. will leave the eu, they are preparing for the worst on brexit. we will bring you our exclusive interview. this is bloomberg. ♪

nejra: japanese stocks entering a bear market. a lot of red across asia. the asia-pacific lower following what happened in the u.s. session yesterday. equity markets not liking what we heard from jerome powell. was he not done this enough -- dovish enough? this company will make brexit work but nobody should expect new services or activities. he says the banks preparations have been hugely expensive and it's not clear what will happen. >> i know we spent more money.

i know that we have done a lot of work. business,sitioned the we are approved to operate with the u.k. business and a europe business. that's all terrific work by our teams. we are no closer to understand thing -- understanding exactly what the rules are. we are preparing for the worst. the whole world changes. there won't be a lot of guidance. we hope it's better. hope is not a strategy. how we are managing risk and liquidity is really working with clients and customers to say, how do we make sure that date is not a disruption in your life? it will be. the rules are not set. it's a tough political, social debate. business has been handed the outcome. we're trying to do our best with it. we're trying to make it work. nobody is going to get a new product or service for anything

going on in brexit. at best, they get what they will have had before. that's a problem when you start to do those things. we have seen some of the effects on the british economy. >> what about europe? compare it to the things going on with italy. france, for that matter. you mentioned the exports to china. when you assess the european growth, what are the real headwinds? >> i don't think brexit is as big as some of the other ones. grown in the low ones next year. it's still a positive number. it took them so long to get back positive. there's a lot of demographic issues and things. the oil prices coming down. energy prices being down helps the european economy. the world wasn't depending on that, that economy growing faster than the rest of the world or something.

as long as it stays within the range, it's fine. it's affected by all those factors. they are continuing to work on the issues in italy. you saw some progress there. things will fall into place, i think. it is hard work when you really have a low growth environment. is slower, the pie isn't getting big enough fast enough for everybody to do what they want to do. >> political processes tend to get very grinding around the question of low growth. everything is a little bit harder. the growth is, going to be ok. nejra: that was a bank of america chairman and ceo speaking exclusively to bloomberg. our guest is still with us. with everything we discussed today is not, necessarily going to be interesting. shows that thee

morgan stanley indicator sees the earliest rate hike in 15 months. is the market getting this rice? -- right? >> the reason is, as we will evenagain at lunchtime, though the u.k. economy looks like it could do with slightly higher rates, the possibility of a no deal brexit and the downside that would bring to the economy means it would be wrong for the bank of england to act into it knows the outcome. we are stuck in that place. i guess we will hear this afternoon, the bank doesn't know what is going to do with rates in the event of a no deal brexit. it doesn't know if the focus is going to have to have to be on growth or inflation. the market is reflecting that the bank doesn't know what it's going to do. nejra: u.k. wage growth, stronger since 2008. inflation numbers dropping to a 20 month low. brexit, howe soft

significantly could we see this repricing around rate expectations? >> we would expect in that scenario, they go twice this year. yields would go up. u.k., we were talking about breakeven inflation. everywhere except the u.k., breakevens have gone down. they are still high in the u.k.. that says any outcome is inflationary. that implies that the bank of england should be raising rates if it's not going to be catastrophic. nejra: thank you so much for joining us. we didn't even get on your bunds. we will next time, i promise. up next, not dovish enough? stocks drop following the fed hike guidance. when you are traveling to work, tune in to bloomberg radio.

this is bloomberg. ♪

nejra: good morning from bloomberg's european headquarters in the city of london. these are today's top stories. leaning dovish. jay powell raises rates as the central bank enters is an era of rate hike caution. japan shares had for a bear market. it was the worst drop in equities for any fed announcement since 2011. not all of wall street is giving the fed the thumbs down. the bank of america ceo tells bloomberg that the central bank was right. ♪

nejra: just under an hour away from the start of cash equity trading in europe. european futures taking a sharp turn lower. they are playing catch-up to what happened in the u.s. yesterday. we saw gains in the stoxx 600 yesterday. the market close before we got the fed decision. we are seeing what could happen today. futures are down by 1.5%. we are seeing a more powerful move lower in these european futures that what we are seeing in u.s. futures. s&p 500 down. we saw the s&p 500 tumble and close lower by 1.5% after gaining earlier in the session. equity markets didn't take the decision well. further gradual wasn't taken away. was it the fact that the dot plots were revised to two and not lower than that? are the market saying the fed is making a policy mistake?

much of big questions. the bond market reaction was notable two. 10 year treasury teal -- market tumbling. we have broken through key supports. you can see what is happening with the 10 year bond future in the u.s.. not a lot going on in today's session. the big move was yesterday. we are holding on a 276 handle now. we have seen flattening on the two tens. not a huge amount of action here on the btp's. we are quiet for once. the 10-year bund yield, looks like it could move a little bit lower. tracking what is happening in treasuries. we can't forget that we have also had a boj did -- decision today. juliette saly in central park will run us through everything that has been happening in asian markets today. good to see weekend. boj leaving its

monetary policy unchanged. it seems that investors didn't like that. we have seen the biggest exodus from the japanese equity market and about three decades. the worst could still be to come. winter is on its way. a cold winter for japanese equities. nikkei down by 2.8%. the topics in bear market territory. decemberfor its worst since 1959. the topics and that their market territory. let's have a look at some of the moves in terms of these currencies. we are seeing the japanese yen at its highest level against the dollar since october. the kiwi in focus today, falling quite substantially. economic growth numbers coming through out of new zealand. that is now scrambling investors to say that you could see cuts next year.

you could see the cash rate falling as low as 1% over 2020. unemployment ticking up slightly in australia. a number of jobs created but they are all in the part-time market. the aussie dollar coming under pressure. the major thing for investors in asia is that topics entering bear market territory. nejra: juliette saly in singapore. thank you so much. we've got a lot of markets in bear market territory. oil, u.s. banks. equitiesuntil u.s. enter a bear market? join the debate. bloomberg first word news with debra mao in hong kong. deborah? debra: asian stocks have fallen after jerome powell signals he saw little threat to the economy from the recent turmoil of financial markets.

after raising u.s. interest rates for a fourth time in 2018, powell signposted caution about the path and destination of any further hikes. expect to ratew increases next year, down from the three projected in september. alan greenspan says the economic outlook is being affected by the current state of u.s. politics. >> i'm very much concerned about the political system. i was in u.s. government for almost 20 years. i've never seen anything remotely close to what we are observing today. hasink the economic outlook been significantly affected by politics. debra: in an exclusive interview, the ceo of bank of america weight in on the fed's decision. get think it's right to them out of the qe thing. rate structure is a thing they

can deal with. i don't think it's that big of an impact. when they stepped up the last purchases, the 10-year was over three. now it's down to 280. that's going on, they are holding the part that they will put off as a smart part of the whole. that in thenk about context of the sides of those markets. debra: the bank of japan note -- made no policy changes at its final meeting of the year. they are maintaining the tenure target at about 10%. tumbling, economists see japan's inflation falling toward zero in the year ahead. in favorte has voted of a stopgap funding bill to head off a partial government shutdown on friday evening. it also puts off a confrontation with president trump over the

proposed border wall and keeps federal agencies open by extending current funding through to early february. the bill now goes to the house where leaders have signaled support. a court in tokyo has projected a request from prosecutors to extend a former nissan chairman's jailed attention. the court rejection doesn't necessarily mean he will be released immediately. prosecutors have the right to appeal to a higher court or indict him on another charge. he has been held since november 19 for understating his income, an allegation he denies. issuearabia intends to $120 billion to help finance its deficit. minister said the kingdom is considering issuing international bonds in dollars and other currencies. it is likely to start tapping markets in the first half of 2019. >> we want to make sure that the

majority is local. anything in the range of 130 billion saudi riyal. it all depends on the market conditions. debra: global news 24 hours a day on air and on twitter. powered by more than 2700 journalists in more than 120 countries. nejra? nejra: thank you so much. the federal reserve has hiked for the fourth time this year. the message was more dovish but maybe not dovish enough for markets. u.s. stocks were sent tumbling. >> we know that the economy may not be as kind to our forecast next year as it was this year. history attests that unforeseen events as the year unfolds may buffett the economy and call for more than a slight change. the additional tightening of financial conditions we have seen over the past couple of months along with signs of weaker growth abroad have led us to markdown growth in inflation

projections a bit. inflation has remained attached below 2%. -- a touch below 2%. that gives the committee the ability to be patient and moving forward. there is significant uncertainty about the path and ultimate destination of any further rate increases. political considerations play no role whatsoever in our discussions or decisions about monetary policy. we will always be focused on the mission that congress has given us. our policy decisions are not on a preset course and will change if the data changes the outlook. nejra: joining us now is the head of investment strategy at rbc investment management. good morning. the equity market reaction, s&p 500 tumbling 1.5%. that therket saying fed is making a policy mistake

in not being more dovish yesterday? >> the market is worried about that. that, there is still some support in the economy. the economy is still growing at a rate of about 3%. there is still some growth. earnings growth should also continue next year. clearly at a lesser pace than it was this year. we believe that there is still some potential in the economy. nejra: let's talk about the equity markets. i want to show you this chart showing the s&p 500 suffering its biggest draw down since the u.s. credit rating downgrade. the drop from the peak in september. i want to bring our mliv question to you. how long until u.s. stocks enter a bear market? >> we do not think we are there yet. clearly. seen because of

concerns, however going forward with economic growth, earnings coming through, federation levels should stabilize. levels seen that the have not quite reached that level yet. this will happen over the next few months. be demand for -- stocks. nejra: we have corroded from the boj talking in his news conference. bear with me just a second. breaking line coming through. kuroda is saying no problem in yields should fall into a negative range. is not distorting are having a big impact on the market. i just want to come to you on this, break you away from the west for a second. kuroda says no problem if yields fall into a negative range. what does that mean for your

view on fixed income? >> we are underweight fixed income at the moment. credit biased towards and quality credit. thatompensation for risk is available to investors is really minimal at a time where quality is deteriorating. you need to look at the de-risking portfolios from a fixed income point of view. nejra: would you be interested in japanese equities? you talked about how the topics has entered a bear market. is there value there? >> there is. the problem is the yen. it is seen as a safe haven. i in weigh on japanese equities. juliette: your outlook on the yen is what? strength or weakness? >> as a safe haven, the yen could be attractive. therefore, it could way. nejra: let me take you to the

bond markets globally. we showed a great picture of global negative debt. here on the ten-year year treasury yield, i talked about how we have broken through key support levels. this chart shows the fibonacci. you said that you are underweight fixed income. yields notr treasury yet reached a peak at this point? >> possibly they have. nejra: you think that we could actually see yields move lower from here? >> yes. nejra: right. let's get to equities again and go back to the fed then. you are saying that we could see a little bit of a pickup on a one-year view for u.s. equities? >> we do expect some modest gains. favorld tell people to large caps over small caps. to favor value over growth.

to look at companies that have strong operating leverage and reduce those permissions. guest stays with us. breaking headlines. we have the chinese comments manistee spoken -- talks trade, ipo protection with the u.s. in a december 19 call. that is what we are hearing from the chinese commerce ministry spokesman. china topped trade and ipo protection with the u.s.. also saying, we have plans to meet the u.s. side engine great. we heard from steven mnuchin and on that yesterday. we are now hearing with the chinese side. saying that china and u.s. working groups have had detailed communication. later today, former fed president joins bloomberg markets for an exclusive interview following the fmo sees final meeting of 2018. don't meet that interview. -- ms. that interview.

when you are traveling to work, tune in to bloomberg radio live on your device. this is bloomberg. ♪

nejra: 7:18 in london. 41 minutes away from the cash trading equity open in europe. s&p futures pointing to another day of declines. s&p 500 closing lower by 1.5% yesterday. the equity markets did not take the fed decision very well at all. the 10 year yield dropped 10 basis points. we have broken through some key technical to the downside. to tends continue to flatten. morgan stanley saying that the 10 year and 30 year are likely to outperform the two-year. fed was givinghe

tough love to the markets. topics entering a bear market. we had the boj decision. oil continues to slide. btp yields moved higher after dropping significantly yesterday. ftse 100 looks like it could open lower. here's debra mao in hong kong. moynihan the ceo of bank of america is loosening the reins on the firm's investment bankers. is sending outk dealmakers in search of more midsize transactions in the u.s.. seeking to regain market share after cutting back on risk. >> we got a little too careful. the team is building that back out with middle-market investment bankers, 25 or so. people covering deeper in the franchise. we lost some share in midsize clients. we shouldn't do that. debra: facebook shares tumbled

in the u.s. yesterday after the social media company was sued by washington, d.c. over a privacy breach. that followed a report from the new york times that facebook had allowed more than 150 companies to access more personal data from users than it had previously disclosed. it's the latest controversy that has seen shares slump from 40% from their july peak. pinterest is said to be actively preparing for an ipo as soon as april. the latest in a line of tech companies planning to go public area -- public. underwriters may be selected next month with the aim of achieving a valuation of $12 billion. interest is poised to generate revenue in excess of 700 million dollars. that your bloomberg business flash. nejra: thank you so much. european retail stocks on track for the biggest annual decline in 10 years. the worst may still be yet to

come. political uncertainty, the prospect of rising interest rates could have a negative event on the consumer market. we get thetime, latest data on retail sales in the u k. joining us now is bloomberg's equities reporter. i remember sitting here, we broke that as also numbers a few days ago. we saw a retail stocks in general take a tumble that day. does that tell the whole story for retail stocks? >> christmas is less than a week away. that's key for these retailers. they get a lot of their sales. friday,ngs like black there's a lot of discounting happening for retailers to compete with each other. people are spreading out when they are spending money. what we have been seeing is a lot of retailers talking about november as being challenging for them. chrisman hasn't gotten off for a really good start.

nejra: is there any light at the end of the tunnel? >> it depends how much people will be shopping over the next 10 days. we have to wait until january to get an update. nejra: let me ask what the main factors are to watch for retail in 2019, in terms of the directionality. seeing over the course of this year, changing impacts of the letter. -- weather. we saw an extreme weather pattern in recent months. we have had a hot summer, hotter than usual. there was a lot of snow early this year in the u.k. as well. retailersfecting how can adapt to the changing consumer behavior as a result of this. that's one thing to keep in mind. it's not all doom and gloom for everyone. there are a few companies out there who are expanding,

particularly into the u.s.. it will be interesting to see what happens with these companies and how they execute their expansion plans next year. thank you so much. have the head of investment strategy with us still. when you look at european equities, i'm just multitasking here. the today, carmakers are worst performers. retail stocks are in the middle. what industries interest you in europe in your equity allocation? >> is on a stock basis. , theve seen this year europe and u.k. have underperformed relative to the u.s.. a string of runoffs that

impacted the economy. at a time where u.s. stocks were being upgraded, having better earnings with fiscal stimulus and lower tax cuts. europe has taken a backseat. we have a market rate on europe. forward, the going economy is doing relatively well. there are some good developments in terms of banking, loan growth, unemployment. a cyclical low. capital investment is growing. this gives some support to the economy. levels gettingd attractive with this underperformance we have seen. nejra: your market weight, and you are looking at individual stocks rather than sectors. that is europe. on the u.k., what is your positioning there? >> we are very concerned about brexit and the impact. there's a valuation case for the

country stocks in particular. you have yields which are higher than 4%. that has been a good entry point for investors historically. we look at stocks which have had an international base in terms of revenue, more than domestic stocks. even though there is some attractive pieces at this point. domestic stocks are still vulnerable, given that we don't know the impact of brexit. nejra: earlier when we were talking u.s. fixed income, you said you prefer quality credit. what is your view on credit in europe? it has underperformed the u.s. this year. will the outlook look brighter next year? >> we are more positive in europe the we are in the u.s.. for valuation levels and this growth we are expecting to come through. nejra: any particular areas in credit that you like? domestick at it from a

point of view in equities. nejra: we broke some news earlier from kuroda saying that no problem in yields if they fall into a negative range. i want to ask you about the ecb. do you expect them to be able to raise rates in 2019? >> it depends on the economy. they have announced that they are terminating their quantitative easing program. an interest rate increase for next year, it will depend on the economy. so far we have seen the export sector being a drag on the economy. last week, we had some evidence that this might be filling -- spilling into the domestic economy. we will see how this spells out. nejra: thank you so much. bloomberg, we speak to the governor. don't miss that interview at 11:00 london time.

bloomberg markets: the european open is up next. this is bloomberg. ♪

anna: welcome to bloomberg markets, the european open. we are live from our london headquarters alongside matt miller in berlin. matt: stocks tank after investors see the hike is to hawkish. many rushes into treasuries on this thursday, the cash trade is less than 30 minutes away. anna: